Purple Innovation, Inc. current report, 02 February 2018

Vollständiges Dokument

Business Context and Reporting Period

Company: Purple Innovation, Inc. (formerly Global Partner Acquisition Corp.)
Filing Date: February 2, 2018
Event: Completion of Business Combination (SPAC Merger)
Summary: On February 2, 2018, the registrant consummated a business combination with Purple Innovation, LLC, a leading comfort technology company. The registrant changed its name to Purple Innovation, Inc. and ceased to be a shell company. The transaction involved the merger of a subsidiary with Purple LLC, resulting in Purple LLC becoming a wholly-owned subsidiary of the public company.

Key Financial Metrics

Transaction Value: Approximately $483.0 million aggregate purchase price.
Consideration Structure:

  • Cash Consideration: Approximately $38.8 million paid to InnoHold (seller).
  • Equity Consideration: 44,071,318 shares of Class B Stock and 44,071,318 Class B Units issued to InnoHold.

Debt and Liquidity:

  • New Debt: Entered into a $25 million Credit Agreement with Coliseum Capital Partners, Blackwell Partners, and Coliseum Co-Invest Debt Fund. Interest rate is 12.0% per annum, maturing February 2, 2023.
  • Previous Debt: A $10 million Wells Fargo facility was repaid in full at closing.
  • Capital Raised: Approximately $26 million in net cash added to the balance sheet via equity sales (Coliseum Private Placement, Baleen Investment, and remaining IPO trust funds).

Historical Performance (Purple LLC - Nine Months Ended Sept 30, 2017):

  • Net Revenue: $133.8 million (227% period-over-period growth).
  • Net Loss: $(3.4) million.
  • Working Capital: $(18.3) million.
  • Cash and Equivalents: $3.2 million (as of Sept 30, 2017).

Material Changes vs. Prior Period

  • Corporate Structure: Transitioned from a Special Purpose Acquisition Company (SPAC) to an operating company with a new name and charter.
  • Capitalization: Significant increase in debt ($25M new term loan) and equity issuance to fund the transaction and working capital.
  • Management: Former GPAC CEO and CFO resigned; new executive team appointed, including Samuel D. Bernards as CEO and Mark Watkins as CFO.
  • Accounting Firm: Dismissed WithumSmith+Brown, PC and appointed BDO USA, LLP as the new independent auditor.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Strategy:

  • Growth Drivers: Expansion of Direct-to-Consumer (DTC) sales, retail partnerships (e.g., Mattress Firm pilot), and international expansion (Canada).
  • Capital Expenditures: Expected to be between $15.0 million and $20.0 million in 2018, plus an additional $10.0 million to $15.0 million in Q1 2018 for working capital.

Material Risks and Contingencies:

  • Tax Receivable Agreement (TRA): The Company must pay InnoHold 80% of cash tax savings realized from basis step-ups. Payments are estimated to be substantial and could materially adversely affect liquidity. The exact amount is currently indeterminable.
  • Debt Covenants: The new $25M credit agreement restricts capital expenditures (max $20M), additional indebtedness, and dividend payments. Breach could lead to default and acceleration of debt.
  • Legal Proceedings:
    • Knudsen Lawsuit: Former consultant Chris Knudsen alleges breach of oral agreement for CEO role and 4% equity, seeking $44 million. Company denies merit.
    • GhostBed Litigation: Ongoing dispute regarding false advertising; preliminary injunction obtained requiring disclosure of competitor relationships.
  • Related Party Transactions: Significant ownership and control by InnoHold (Terry and Tony Pearce), who hold 100% of Class B Stock and have entered into non-compete and lock-up agreements.

Investor Verification Checklist

  • Tax Receivable Agreement Impact: Verify the potential cash outflow obligations to InnoHold under the TRA, as these are not fixed and depend on future taxable income and stock price.
  • Debt Service Capacity: Assess the ability to service the $25M loan at 12% interest given the historical negative operating cash flow and working capital deficit.
  • Lock-Up Expiration: Note the one-year lock-up period for InnoHold and the price-based trigger ($12.00/share) for early release of restricted securities.
  • Legal Exposure: Monitor the status of the Knudsen lawsuit ($44M claim) and the GhostBed litigation for potential financial impact.
  • Revenue Quality: Verify the sustainability of the 227% revenue growth rate and the shift from DTC to retail channels.