Q4 2020 Purple Innovation Inc Earnings Call
Good morning, ladies and gentlemen, welcome to the Purple innovation fourth quarter 2020 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star.
Zero on your telephone keypad. It is on my pleasure to introduce your host Mr. Brendon Frey from ICR. Please go ahead, Sir you may begin.
Thank you for joining purple innovations fourth quarter 2020 earnings call.
A copy of our earnings press release is available on the Investor Relations section of the pulse website at Www Dot purple Dot com.
I would like to remind you that certain statements. We will make in this presentation are forward looking statements.
These forward looking statements reflect tripled innovation the judgment and analysis only as of today and actual results may differ materially from current expectations based on the number of factors affecting the companys business.
Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast. We refer you to the disclaimer regarding forward looking statements included in our fourth quarter 2020 earnings release, which was furnished to the SEC today on form 8-K, as well as our filings with the SEC referenced in that disclaimer.
We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future events or otherwise.
Today's presentation will include references to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share of.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.
With that I'll turn the call over to Joe Mega Bell Joe.
Thank you and good morning, everyone with me on the call today is John Legg, Our Chief operating Officer, and Craig Phillips, Our Chief Financial Officer. Following our prepared remarks, we'll be happy to take your questions. We enter 2020 with a lot of momentum, resulting from the many operational initiatives on manufacturing distribution marketing and.
Omni channel retailing that our amazing teams successfully executed in 2019, we had of sound plan in place to build on our success and accelerate growth, which we outlined on our fourth quarter earnings call. At this time of year ago. Soon thereafter, our plan was interrupted by the outbreak of COVID-19 in the U S and the measures to help slow the spread of the virus.
S, which significantly altered of everyday life for most Americans and disrupted commerce across the country for many companies.
Twenty-twenty proved to be a year of like no. Other at the global health pandemic created challenges for most businesses I'm incredibly proud of how the purple organization skillfully navigated volatile market conditions throughout the year and quickly adopted two of changing consumer behavior.
Early in the outbreak, we lean heavily into our digital expertise to capitalize on the accelerated shift to online buying while non of central brick and mortar retail, including a large portion of our wholesale channel was shut down our business also received a boost from the increased spending on categories tied to the home during the pandemic.
This was true for not only our mattresses, but create significant opportunity for our differentiated pillows and seat cushions as well.
We also took advantage of our vertically integrated manufacturing capabilities quickly ramping production back up after a brief pause at the start of the outbreak to capture the heightened demand we experienced for our brand and product portfolio. In 2020. This included finishing the work to bring two additional Max machines online in the first half of the year that increased our production capacity.
The city by approximately 40% the accelerated shift to online channels created by COVID-19 positively impact of 'twenty 'twenty revenue on margins, which along with the savings from certain cost actions and lower advertising rates earlier in the pandemic fueled the significant improvement in profitability and cash generation of <unk>.
Few of the notable 2020 financial highlights include net revenue, increasing 51% with direct to consumer up 83% gross margins, improving 290 basis points net income of $10 9 million compared to a net loss of $12 4 million adjusted EBITDA increasing 160.
4% to $88 1 million with adjusted EBITDA margin, improving 580 basis points to $13 six per cent and cash at end of the year of 123 million up 267% from the end of 2019.
In addition to our strong financial performance there were a number of important strategic and operational accomplishments. This past year as I mentioned, we added two more of Max machines number of six and seven which completed on capacity and a groundswell of Utah facility. We opened the purple south of new 525000 square foot facade.
Heidi South of Atlanta in the fall, which will ultimately how six more Max machines I'll speak more on purple Sock later on the call.
We grew our innovative pillows and seed questions by over 140% year over year crossing over 1 million lifetime units sold in total for each as we put more resources into broadening awareness and driving demand for these product lines. Finally, we meaningfully increased our share of the U S. Mattress market, we estimate our overall market share to.
Over 3%, while our share of the premium category above $1000 price point to be nearly 6%.
With respect to the fourth quarter. It was no different from the rest of 2020 and that consumer behavior did not follow historical trends. Following a strong start for the holiday season, both online and in stores, we experienced a slowdown on wholesale orders during the last few weeks of the year, which was related to some reported brick and mortar softness as well as aggressive buys by our.
<unk> earlier in the quarter. This was followed by a significant rebound in January indicating of possible delay in consumer purchasing as well as our wholesale partner sell down of inventory at the end of the year. Our wholesale business was also impacted by unanticipated store closures, particularly in Canada, where close to 65 per cent of sleep country's low.
Occasions were forced the shot due to new restrictions implemented in the early December to help slow the second wave of of the virus. Despite these challenges in Q4, we delivered 40% net revenue growth, including a 57% gain in our direct to consumer channel and 83% improvement in net loss and a 112% of increase in <unk>.
Adjusted EBITDA.
Coming off an incredibly strong year, we have never been better positioned for expansion in gross our focus on 'twenty 'twenty. One is on further investing in the business to drive market share gains over the near and long term. There are three big themes. We are focusing on this year. The first name I called customers not transactions as we.
Move from our historical profitable single transaction success, two of true lifetime value view of servicing our loyal and satisfied customers in support of this comes the second theme, which is multi category as we move from everything centering around the mattress to also driving our bedding and seat cushion businesses as prime.
Barry opportunities the majority of our pillow and coaching customers are new to purple and as suggested in the first name or potential mattress buyers down the road. It also turns out the pillow and seat cushion customers are much more likely to buy another pillar of our seed cushion from us.
The final theme is product differentiation as we get much more aggressive on educating the market on what makes purple so unique as well as continuing to bring innovative and better products to our customers.
I'm going to walk through six specific initiatives, we intend to execute in support of these themes that will shape. Our results this year and beyond the six are expanding manufacturing capacity growing our wholesale presence launching of new ecommerce platform accelerating the rollout of purple showrooms introducing.
Innovative new products and finally, debuting a new brand campaign.
Starting with manufacturing expansion, we are pleased to report that our eighth Max machine. The first in our new facility outside of Atlanta produced its first units on time in late January and as of last Monday is now officially in production along with an assembly line behind it. We are also in the final stages of preparing Max nine to be online by early Q2.
Two with Max 10, and Max 11 to follow later this year. These for machines are expected to increase of our mattress output by over 65 per cent by the end of 'twenty 'twenty, one which will further expand as we bring on Max 12, and 13 next year with our success in launching the Georgia facility. We were finally able to retire Max one this quarter Max one was.
Built in our original headquarters as of prototype with the design different from any of our other machines the cost of maintaining Max one versus investing in new machines was no longer viable she served us well and we owe her of debt of gratitude.
The overall capacity, we are quickly getting to the point that we are growing capacity faster than our business is growing which is exactly what we have been working hard to accomplish this additional capacity will allow us to run our entire manufacturing base more efficiently over the long range by providing us the ability to more easily take machines offline for planned maintenance.
Lean into unplanned surges in growth and have manufacturing resiliency should we ever have unplanned downtime.
On top of the additional Max machines in Georgia, we have already installed on the first injection molding machine used for seed Cochin and pillow production and anticipate bringing another five machines online in the first half of the year and an additional two machines. Later this year all in we expect that will increase our current capacity by more than 85%. This will allow.
To better meet the heightened demand for these two fast growing categories.
Moving to growing our wholesale presence we ended 2020 with more than 2200 wholesale doors up from nearly <unk> hundred at the end of 2019, the modest growth of the door count last year was driven by the impact of COVID-19 had on brick and mortar retail combined with the inventory constraints, we experienced due to the surge in our direct business.
With our additional manufacturing capacity coming on line, we intend to lean into accelerated wholesale door growth on our current plan is to add approximately 1500, new doors in 'twenty 'twenty, one with a focus on both expanding our footprint with existing partners as well as launching with additional leading regional furniture players.
Based on our current schedule, we project our channel mix to be roughly 70% direct to consumer 30 per cent wholesale for the full year, which does create some margin pressure as compared to the nearly 75 per cent DTC mix, we realized in 2020.
Now the launching of new ecommerce platform, we have been developing the new design and platform for much of 2020 in order to capitalize on immediate opportunities during the stay at home fuel demand, we deferred some of the work into this quarter with that said we are thrilled that we're currently beta testing the first phase of the new platform and plan to start rolling it out by the end of this call.
This release includes an in house developed for promotions Amgen that we believe will give us unique competitive advantage. This release will also unify our site showroom point of sale and contact center systems with a single customer record throughout the year, we will continue with our phased launch, including an all new design with heavy focus on project.
The education as well as even more sophistication for a contact center, which continues to outperform and is now consistently representing double digit share of DTC sales the.
The new platform also enables accounts and a customer centric content capability finally opening the door to CRM best practices, which we believe has significant opportunity as our assortment gross.
Shifting to accelerating the rollout of purple showrooms, we began 2020 2021 with nine locations after opening for purple showrooms in Q4 of 2020 and are now preparing to pick up the pace in the coming quarters. The plan is to add between 20 and 25 showrooms. This year, primarily in major metro areas. We recently introduced.
<unk> of new store design that looks amazing with elevated presentation and an opportunity to tell the full brand story with our complete assortment all of our showrooms are performing well with our earlier showrooms now exceeding pre pandemic sales volumes and our newest locations scaling faster than any of our original locations.
With respect of new product introductions with many new products in development for this year, including line expansions and upgrades to our pillows and cushions as well as higher margin and higher price points on our mattresses with some very exciting new products, we intend locked intends to launch toward the end of the year, which we believe will fuel significant opportunity into 2020.
Two we anticipate the first of the new products to launch next quarter in early Q2.
Finally, we are about to launch of new campaign that we are very excited about we have been maturing the brand story as we lean harder into our unique and proprietary benefits. This year will be all of our product first and we are not going to be shy about what makes our products better.
Our medical cushioning routes 25 years of experience and over 1 million mattresses sold the benefits of become increasingly clear and our happy customers are still our best promoters expect to see more research claims and testimonials from the years to come.
Based on the expected outcome and timing of these initiatives, partially offset by the challenging prior year comparisons we are up against in the second and third quarters. We are planning for another year of strong growth. We currently expect full year revenue to increase between 30 and 36% over 2020 with adjusted EBITDA of between $90 million to $100 million.
I'll now turn it over to Craig who will review the financials and our outlook in more detail.
Thanks, Joe.
Joe outlined it was another strong quarter from both the revenue and adjusted profitability standpoint, even with the late December of wholesale sales of peering to shift into January for the three months ended December 31, 2020, net revenue was $173 9 million up 39 nine per cent compared to $124 3 million in the.
Prior year period.
The revenue increase was driven primarily by strong growth in mattresses in our DTC channel along with higher demand for pillows sheets and seat cushions, our wholesale business was up but less than we expected as demand slowed in the last few weeks of December before picking back up early in January of 2021 for.
For the quarter DTC channel net revenue increased 57% year over year, while the wholesale channel net revenue grew 9%.
Gross profit dollars were $82 million during the fourth quarter of 2020 compared to $59 2 million. During the same period in 2019 with gross margin at 47, 2% versus 47 seven per cent in the fourth quarter of 2019.
The gross margin decrease of 50 basis points year over year can be attributed primarily to startup costs related to the new Georgia facility and one time favorable inventory reserve adjustments recorded in the fourth quarter of 2019 the.
This was partially offset by a channel mix shift towards DTC and the product mix shift towards non mattress revenue as well as the price increase on several models in June and July of 2020.
DTC revenues comprised approximately 72 per cent of net revenue for the quarter compared with approximately 64 per cent of the same quarter last year.
Operating expenses were 42, 9% of net revenue for the fourth quarter of 2020 versus 45, 4% in the prior year period.
This improvement of 250 basis points was driven by efficiencies in marketing and selling costs offset by additional administrative costs to support continued accelerated growth.
Marketing and sales expenses of percentage of net revenue decreased to $34 90 per cent compared with 38, 6% last year due to leverage on higher net revenue and more efficient marketing spend partially offset by additional marketing spend to increase brand awareness and the addition of company owned showrooms.
For the fourth quarter, we reported operating income of $7 5 million compared to $2 8 million in the fourth quarter of 2019, an increase of 171 one per cent.
Net loss for the quarter was $2 1 million compared to where the loss of $12 7 million in the year ago period.
The fourth quarter 2020 included a $16 $1 million noncash expense associated with the change in fair value of war of liabilities of $7.9 million of income tax benefit.
And the point $6 million noncash expense associated with the tax receivable agreement.
The fourth quarter 2019 included a $13 $4 million non cash expense associated with the change in fair value of warrant liabilities at the point 5 million dollar non cash expense associated with the tax receivable agreement.
Excluding these items adjusted net income was $5 million or seven cents per diluted share based sort of of the adjusted weighted average diluted share count of $68 6 million compared to adjusted net income of $1 2 million or two cents per diluted share based on the adjusted weighted average diluted share count of 50.
The $5 5 million.
Adjusted net income has been adjusted to reflect an estimated effective income tax rate of $25 four per cent for the current year period and $25 six per cent for the comparable prior year period.
EBITDA for the quarter was negative $7 7 million compared to negative EBITDA of $9 3 million in the fourth quarter of 2019.
Adjusted EBITDA, which excludes certain noncash and other items that we do not consider on the evaluation of our ongoing performance as detailed in today's earnings release was $12 2 million compared to $5 8 million in the same quarter last year, an increase of 114 per cent.
Now to our full year results, which were very strong across the board highlighted by our second consecutive year of approximately 50 per cent topline growth.
And 164 per cent increase in adjusted EBITDA, which was on top of the 412% increase of the year before.
For the 12 months ended December 31, 2020, net revenue was $648 5 million up $51 four per cent compared to $428 4 million in the prior year period.
The revenue increase was driven by strong growth in mattresses in our DTC channel along with higher demand for pillows sheets and seat cushions for.
For the year DTC channel net revenue increased 83 per cent of wholesale channel net revenue was relatively consistent with the prior year.
Gross profit dollars from 2020 increased 61, five per cent to $305 1 million compared to $189 million in 2019.
For the year gross margin improved 290 basis points to 47 per cent from $44 one per cent driven primarily by a higher proportion of DTC channel revenue, which carries higher gross margins in our wholesale channel.
For the year DTC revenues comprised approximately 75 per cent compared with approximately 62% in 2019.
Operating expenses were $36 one per cent of net revenue in 2020 versus 43% in the prior year period. This.
This improvement of 440 basis points was driven by leverage on higher net revenue and more efficient marketing spend partially offset by incremental investments and increasing brand awareness and the addition of company owned showrooms for.
For 2020 marketing and sales expense as a percentage of net revenue decreased <unk> 29 per cent compared with $33. One per cent last year due to focused efforts to improve efficiency and marketing spend as well as lower advertising costs for.
For the year, we reported operating income of $71 2 million, an improvement of $55 million or 339, 3% compared to operating income of $16 2 million in 2018.
Net income for the year was $10 $9 million or eight cents per diluted share compared to a net loss of $12 4 million or <unk> 40 per diluted share of the year before.
Net income for 2020 included a $59 4 million dollar non cash expense associated with the change in fair value of warrant liabilities, a $43 $7 million income tax benefit of.
$5 8 million dollar losses on extinguishment of debt related to the retirement of the company's previous debt agreement and the $34 $2 million noncash expense associated with the tax receivable agreement.
Fiscal 2019 included a $16 $8 million of noncash expense associated with the change in fair value of warrant liabilities and the $6 3 million of all the loss on extinguishment of debt.
The point $4 million tax expense and the point 5 million of all of the noncash expense associated with the tax receivable agreement.
Excluding these items adjusted net income was $49 6 million or 78 cents per diluted share based on one of the judges adjusted weighted average diluted share count of $63 6 million compared to adjusted net income of $8 6 million or 16 cents per diluted share based on the adjusted weighted average diluted.
Share count of $55 million.
Adjusted net income has been adjusted to reflect an estimated effective income tax rate of $25 four per cent for the current year period and $25 six per cent for the last year.
EBITDA for 2020 was negative $20 2 million compared to negative EBITDA of $3 million in 2019.
Adjusted EBITDA was $88 1 million versus adjusted EBITDA of $33 4 million last year.
Moving to on the balance sheet as of December 31, 2020, the company had cash and cash equivalents of $123 million up from $33 5 billion of December 31 2019.
The increase was driven by 81 $3 million generated by cash flow from operations at $48 4 million from the exercise of warrants and options the.
It was partially offset by capital expenditures of $27 9 million.
Primarily related to manufacturing capacity expansion, including the company's new 525000 square foot facility in Georgia as well as two additional Max machines added to our Utah facility earlier in 2020, and our showroom expansion.
Net inventories totaled $65 7 million of December 31, 2020, compared to 47 6 million at December 31 2019.
The increase in inventories in support of planned growth of wholesale partners supplier delivery schedules expected delays in ocean freight delays for production interruptions from the lunar new year ended the advance of the President's day promotion period.
Turning to guidance.
While there continues to be uncertainty in the overall economy due to COVID-19, we are encouraged by our momentum at the start of 2021 and our prospects for continued market share gains.
On a strong balance sheet, we are well positioned to continue investing in our business.
Including additional manufacturing capacity company showrooms brand building and innovation initiatives.
Based on our current plans, we expect full year revenue to be in the range of $840 million to $880 million, an increase of 30% to 36% over 2020 results with adjusted EBITDA of between 90 and $100 million as we strategically invest in growth capacity and infrastructure and realize the shift to a more normalized.
Approximately 30% wholesale mix of that revenue and see marketing rates returned to pre COVID-19 levels.
For the year Capex is projected to be in the range of $45 million to $50 million. The majority of the spend going toward continued buildout of our new Georgia manufacturing facility acceleration of showroom expansion improvement and expansion of wholesale displays.
And the additional equipment for production and innovation in our Utah facilities.
Well historically, we haven't provided quarterly guidance.
That we are more than two thirds of the way through the first quarter, we are sharing some specific details.
For the first quarter of 2021, we are forecasting revenue to be in the range of $160 million to $170 million, an increase of 31% to 39% over the first quarter of 2020 and adjusted EBITDA of.
Between 11, and $14 million, reflecting seasonality and the company's investments in expanding capacity necessary for our 2021 targets.
Looking to the second quarter. It's helpful to reflect on the Q2 of last year. When COVID-19 necessitated significant wholesale door closures, resulting in a substantial reduction of our wholesale business.
We then correspondingly saw 128 per cent increase at our DTC business is offline consumers shifted to online channels in record numbers.
In addition, reduced marketing costs drove efficiency improvements.
Distorted both in the net revenue and gross margin as compared to pre COVID-19 trends.
Comparing that to the second quarter. This year, we anticipate of significant mix shift back the wholesale supported by planned wholesale door expansion and more normalized consumer behaviors, along with more typical marketing rates.
We will also continue investing in the build out of the new Georgia facility and new ecommerce platform.
Because of the atypical of 2020 comparison of the new investment in future growth second quarter, adjusted EBITDA margins will be correspondingly lower than the last year.
Finally for modeling purposes, what's the point out that we ended 2020 with approximately $63 9 million of outstanding class a shares following the completion of the public and the incremental loan more of redemption in the fourth quarter of last year.
There are still approximately 8 million sponsor warrants outstanding that are not redeemable in may be exercised by the holder on the cash or cash flow spaces, which if exercised would result in a total of 4 million of additional shares issued I'll now I'll turn it back to Joe for his closing comments.
Thanks, So much Craig we are very excited for 2021 coming out of the incredible share gains we achieved last year significant momentum and with the strongest balance sheet. We've ever had we are now able to appropriately invest in capacity R&D and maturing our operations the.
The 2020 distorted profitability from pandemic fueled mix shift to online sales along with catch up and new investment in 2020. One does create gross margin and EBITDA pressure year over year, though that misses. The point, we have continued to drive intrinsic improvements across the board as compared to our multiyear trends and more.
This comes from the incredible hard work and diligence of our team in 2018 in 2019, as we stabilized and built the foundation for scale. This proven execution ability allowed us to lean in and disproportionately capture opportunity last year and is now, allowing us to invest in significant long term growth having.
The worked alongside the amazing purple team for the last two and a half years I'm confident in what they can accomplish and look forward to continuing to share our progress and success with customers and investors alike. We are just getting started.
At this time, we will open the call up the questions.
At this time, we'll be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is and the question on queue. You May Press Star two true move your question from the queue for participants using speaker equipment and may be necessary for you to.
The pickup your handset before pressing the star keys, one moment all of the poll for questions.
The first question comes from the line of the shop.
With Wedbush Securities You May proceed with your question.
Thanks, a lot of Ann good morning, Congrats on a great year.
My question is the first thinking about the near term here gel. It seems like things slowed in the wholesale channel and December but has since picked up and it seems like your revenue growth guidance for the first quarter, it's still a little bit light of the expectations are you seeing an overall deceleration in demand that's causing that.
Hi, Good morning, Seth the great to connect again, yeah, we were.
Actually very pleased with our performance right now I would say as you indicated that wholesale hasn't rebounded quite as quickly as we had anticipated many months ago late.
Late Q4, and he has a lot of the industry reporting on this.
Yes, the wholesale definitely is kind of I'll call it brick and mortar is definitely coming back.
With the later waves of the pandemic is not quite as quickly as some of US had hoped.
That said, our our wholesale demand has never been stronger.
Again as traffic patterns are partnerships remain very strong on our DTC business continues to grow quite the healthy rates. So no. We are not seeing any indication of deceleration of demand.
We're just maturing the overall scale of the business.
That's helpful and just a follow up on the wholesale channel on the outlook. There do you still have many accounts that are on allocation and when do you expect to have that supply to meet all of the wholesale demand for your current partners.
Yeah right now we are meeting all orders coming in so we have no partners on allocation at this point than we've been.
We've been diligently building out of capacity as you heard on the prepared remarks, we're at our strongest capacity position right now on the pace that the John Legg and his team are all of our building out new Max machines, new injection molding machines for our pillows and cash ends and with the addition of Atlanta, we have significantly better labor.
Our pool of better, but larger labor pool to pull from where you were.
This is the year, we grow capacity faster than our demand is growing and that's again given the prepared remarks that we just said that's exactly what we've been trying to do.
Yeah, if I may just to make sure I understand the wholesale outlook. When you think about your existing partners versus new partners you plan on signing up and the number of doors you plan on expanding into I presume that the majority of the new doors that you're expanding into are with existing partners in 2021.
Well our preference is to support the partners we have for sure and we're in an early our early days with some of our larger partners on on building out our penetration that said there is a large market out there and there are many ways for us to get the share we need so we have the luxury.
Of of of.
A few pads for it right now, but we continue to have very healthy relationship with our existing partners and anticipate meaningful expansion there.
Excellent. Thank you best of luck.
Our next question comes from the line of.
Thomas with Keybanc capital markets. You May proceed with your question.
Hi, Thanks, so much and let me add my congratulations on a on a great two.
One of 20.
Yeah Joe.
Seems like you have a lot of really exciting initiatives in the pipeline here to drive.
One of growth and market share gains.
If I piece of part of the guidance.
You are implying that you all would be doing about 30% revenue growth give or take after after <unk> through the balance of the year.
As we think about piecing that apart how are you thinking about the D to C gross versus the wholesale growth in the scanners.
Yeah, So our DTC business is sort.
At the scale of our operating maturing, but we still anticipate very healthy growth. There you're part of this is supported by some very strong growth engines, we have in DTC.
One of which is the showrooms that we largely paused for 2020, given the the the.
General slowdown or outright shutdown in brick and mortar are we finally turned it back on in Q4 with for additional showrooms and yes. As we said on the prepared remarks or are anticipating five or more per quarter on on average.
Which is the the pace we've been signaling for quite some time.
The other is our contact center, which we've spoken several times on our contact center continues to execute extremely well, it's driving double digit percentages of our online business with a higher conversion rate higher average order value higher units per transaction and nearly every measure.
Putting associates on the phone with customers, who are very focused on helping our customers out of.
Magical combination.
This is helping to fuel significant growth as well so and then we finally, we have the new E. Commerce platform that we did not launch last year is as we deferred into early this year of given the all the short term opportunity we found ourselves facing last year.
But we've got an entirely new platform of complete rebuild top to bottom all new design.
And a.
Entirely homegrown promotions Amgen, how we looked at the market and didn't find any third party options that could meet the the approach and complexity that are that are needed to service, our customer and those become significant assets driving our growth as well.
Gotcha that's helpful. Thank you Joe.
If I can ask the question about thinking.
Thinking about bridging the EBITDA guidance and when we think about 'twenty to 'twenty, one how should we think about the level of.
Maybe one time investments or step up in the investment and how much that impact.
Impacting EBITDA.
Yeah, it's yeah.
Certainly this is an investment year, although I would say a good portion of that is it could really be characterized as catch up.
We were able to capture organic growth and lean into arbitrage on on marketing efficiencies and so forth last year that we were able to do a lot of weight a little but.
But our business has continued to grow dramatically and there's a lot of investment into the core Uh huh.
Call in advance of revenue, but really just catching up if you look at some of our key metrics. The number of field sales people. We have per door that we support for example, we are we are substantially on underinvested as compared to nearly any of our competitors. So some of it is just that just outright right sizing of the bed.
That said, we clearly as I as I talk about things like the e-commerce initiatives continuing to build out of Atlanta, our showroom expansion and so forth we are investing.
Craig if you on a jump in I don't know if you can provide a little more.
The specific guidance there.
I would say, it's going to be across basically all of the lines. So in cost of goods sold its going to be a combination of channel shift. It's going to include you know as we still build out Atlanta and continue to add machines are in marketing and selling them. There are the vessels that we're making in content and build.
On the brand and then in G&A as Joe talked about building the infrastructure and right sizing. So there there's going to be pressure on all of the lines and it's gonna be a mixture of but you know there's tailwind as well so.
There's not one specific thing the point too.
It's an investment of your force.
Gotcha. Thanks, so much.
Thanks, Brad our net.
Our next question comes from the line of of Bobby Griffin with Raymond James Financial You May proceed with your question.
Good morning, Buddy. Thank you for taking my questions I hope everybody is staying safe and healthy.
I guess good morning, Phil.
Good morning, Yeah, I, just wanted to dive into the fourth quarter of little bit and then ask a couple of questions about <unk> 'twenty 'twenty, one and beyond but for the fourth quarter. When we spoke in November what was the biggest delta versus the kind of revenue I don't want of called guidance with soft guidance that was given in <unk> of having that growth rate compared to the growth of them for cube.
Payable to <unk> or was it on the wholesale side was on a D T. The DTC like what's slowed versus your expectations in November.
Yeah, we.
So certainly it was a little softer than we had hoped.
It was largely led by wholesale.
As we said in the prepared remarks are later in the quarter.
In terms of our sell in.
We saw lighter buys than we had anticipated which later as we looked at sell through data and market data indicated a little more malaise in brick and mortar.
In the back half of December can we have seen catch up on that and in early Q1, which is what you would certainly hope to see.
But are you of wholesale was the biggest delta there of DTC performed performed well as you see on our overall Q4 results I think we were hoping again it really was driven in the back half of December we were hoping for a little more came on a little lighter than we had anticipated.
But the other challenge and we're clearly correcting that for this year I mean, we did not give formal guidance for Q4, we gave sort of some of directional hints.
And I think some of the GAAP how it was just a lack of specificity in Q4, we are we're a lot closer to what we thought we would do internally. So this year, we definitely as you're saying or are going to try to be much more transparent and communicative with what we see going on and anticipate keeping on much more open dialogue moving forward.
Yes.
Okay. That's helpful and then for the wholesale aspect I mean is it is it more of just customers had a little too much inventory or or there was just you know moving parts around that your retailers other products because I'm just asking the context of while of course Covid. You know obviously had an impact on the retail market. You know some of your peers that are majority of wholesale did.
Pretty strong quarters.
And their wholesale business. So was there just some timing shifts there or are you getting enough visibility to see that theres not changes happening on the floor for the peripheral products.
Yeah, so certainly as compared to balance of year of Q4 was.
With the opening back up so for those who leaned heavily into brick and mortar of Q4 was a very optimistic quarter.
We just saw some very healthy buys are early in the quarter.
That Oh, and then consider we were coming out of allocation. So I think we also had some of our wholesale partners.
Trying to to build their stores on our product when they could.
So some very healthy inventory positions early in the quarter and.
As a result of I think just burning that down in the sell through data shows pretty consistent sales volume.
They bought heavy early in the quarter sold that down and then held back the revised until early this year.
Okay. Two final questions. One is the removal of mattress Max machine you know does that put you for at least temporary until you get the other machines built up into more of a capacity constrained situation again, and then secondly.
With you guys growing the the company owned stores the purple showrooms can you share any target economics or anything around those from an average box revenue standpoint, or four wall profitability of that you're aiming for all of them since those are going to become a bigger part of the the puzzle now.
Yeah. So.
Certainly so as to Max one I mean again, Max one which was built as a prototype.
For I thought it was.
<unk> designed and built.
As of as we were sort of figuring it out so I mean, it looks and and and perform differently than any of our other Max machines.
It's been it's been at reduced capacity for a while anyway as we've continued to try to maintain it.
Given that we now have Max eight online in our Atlanta facility is operational.
And what's what's hard to tease out with so many moving pieces as we continue to find leverage and operational efficiencies across all of our Max machines. This has come up and commentary over the prior quarters. We have many many initiatives in play that fundamentally improve the economics and the <unk>.
Yield of our Max machines, we're still in the early innings in our maturing of our operational capabilities.
Yeah, John Legg and his team has a has an amazing team of engineers that are as we as we learn month on month on how we could do these things better of continuing to retrofit all of the machines with significant improvements. So we continue to to get more yield and better economics out of the whole fleet of Max.
Machines, so combining that with improved labor as we we were labor challenge through much of last year as well and the Atlanta facility being operational now we are not seeing any pressure on our capacity and again as I said before we are going to be growing capacity Max nine is nearly.
They are well habit of early next quarter in 10, and 11 of them are are right on track.
We will be growing capacity faster than our organic demand is growing.
Okay and then the last one was just on the economics of the store units anything you can share as he's going to become a bigger part of the the model now for the business.
Yeah. It's.
Sorry, I missed the second question there. Thank you.
No.
Yeah.
We haven't disclosed specific targets yet other than I think there are of good benchmarks out there and our early read of where we're at nine showrooms only on May five of which have been out there for about a year or so.
The last year wasn't exactly a a strong reference here on the on breadth of mortar.
But all of our early signals and our last for doors, which for an entirely new design and just really the team has done an incredible job, bringing our brand of life.
The progress we've made on testing and maturing basis is impressive.
We anticipate that we will get similar economics to other benchmarks out there which are are very healthy.
And the cost I mean, these don't carry a lot of inventory and the cost to build these out our are fairly reasonable and frankly.
Leases right now are very attractive so we continue to see very strong economics.
And.
Call it.
Give or take around 12 months of ROIC on these things.
Some a little more of some of that of last but.
Really really strong economics.
Thank you best of luck during the first quarter on 2021.
Thanks, so much.
Our next question comes from the line of Brian Nagel with Oppenheimer. You May proceed with your question.
Hi, good morning.
Thanks for taking my questions.
Good morning.
So one of a couple of quick ones of storage and I think piece of follow ups for some of the questions. My my colleagues aspect.
So first off with regard to Q4.
No we didn't take any consideration of kind of it wasn't guidance for some of the parameters you had given us when you reported your third quarter results. If you look at it so.
Moving what you reported today.
Revenue growth slowed the rate of revenue growth slowed in Q4 from Q3.
Can you help so how much of that was just the mix shift.
Two wholesale from DTC recognizing.
The basically the lower the the lower <unk>.
The dollars you get from a wholesale sales in other words, I mean, maybe isolate it back down to like of unit sales type number.
Yeah.
So certainly mix shift and we will continue to see that as as wholesale comes back that distortion. We saw of revenue through much of Q2 and a good chunk of Q3.
As we were capturing more net revenue per unit with a much.
Much more DTC weighted mix that did start to come back more toward call. It normal all of our or more forward looking levels.
So that does pull of down.
On a unit level were.
Still on track with expectations I mean, we are we.
We're at a point that we are.
Probably could have sold a little more meaning we werent inventory constrained we didn't have our partners on allocation and <unk>.
Again, we were prepared to sell a little more on the wholesale than actually were realized.
But overall on a unit level it still remains give or take in line with where we thought we would be it really is driven much more by the mix shift which is more of what youre going to see as compared to Q2 Q3 throughout 2021.
Okay, that's helpful, but with regard to Q1.
So you mentioned in the prepared comments that on the wholesale side of the trends had improved in January but.
But the guidance you the the the revenue growth guidance you outlined for Q1 still represents a somewhat of a downshift from from what we saw on Q4. So I guess the question I'm asking is if you.
Two thirds of the range for the quarter and how are you tracking in line better than the guidance right now given that the given the the improving demand trends in January.
Better than the guidance, we just gave yes.
Yes.
No I know I think our guidance is our guidance.
We are.
We're more than two thirds of the way through the quarter. So I think our guidance is as likely fairly true.
There's a lot that are.
That can happen over the next month and continues to be uncertainty. It appears the world maybe the.
The opening up a little more optimism and.
Whatever stimulus comes out and the.
The retail spending that may come from that could all be.
Put all the upside for us.
That said I can we're pretty far through the quarter. So I think our guidance is is fair.
Okay and then just the final question I guess, you know stepping back a bit so.
Clearly we saw in 2020 against the very unique of you won't be unique back from backdrop, you know the DTC business of purple prose flex significantly stronger so.
As you look forward.
The question I'm asking for thinking about it.
Recognizing the debt, there's still capacity constraints within the purple model.
It often itself.
So and everything you make but.
Bridger refocusing on on the wholesale side.
Is that refocusing to a certain extent now limiting growth of the beat on the DTC side.
No not at all and in fact, we continue to to push our DTC and as we open up our showrooms I mean.
Those are the most favorable economics and the who.
We have no intention of starving, our most favorable economic channels.
For our wholesale growth really it just comes down to it it's a big market out there. We still are in early days on taking share and we're finally able to grow capacity at the levels we wanted to.
As you quoted I I've said before we celebrate mattress, we make that's yeah. That's a double edged sword in this as the year you won't hear of saying that any more again. We are we are this year of building excess capacity, which is exactly where we want to be we want to have the ability to flex and the inventory we want to be able to have that.
Our maintenance schedules, we want to be able to sustain any unplanned downtime. We've been fortunate that we haven't seen much of that.
But we we want to have access capacity.
But with the capacity growth the.
The fastest path forward to take share and service of predominantly offline customer I mean, the majority of the category is still driven through our brick and mortar sales, we need to get out there and our partners have been terrific on the wholesale side, we continue to to hear demand.
And both from existing partners and partners, we arent doing business with so we are going to use the capacity we have to lean into the the lowest friction on channel we have for growth, while continuing to support our DTC channel.
We're not going to get the the 100% of class growth. We saw on Q2 last year on DTC.
That was more driven macro I mean, even in Q4 of DTC was still up 57%. So we're continuing to get very healthy growth on DTC. We just expect that to get back to more normal growth levels as we continue to see lots of upside there.
And then with the excess capacity, we question to our other channels.
Got it.
Well fixture of best of luck here.
Thanks, so much.
Our next question comes from the line of of Curtis Nagle with Bank of America. You May proceed with your question.
Good morning, Thank you very much for taking my questions.
So I guess not to get ahead of ourselves.
Kevin.
2020 of two guidance, but just kind of thinking about taking the step back and thinking about the margin profile of longer term.
Do you guys still envision something potentially sort of in the 15 per cent range in terms of EBITDA.
I guess, it's kind of all else equal 2022, I think should be higher than the 21, just given the lower proportion of of investments.
You know.
The more capacity out of disappointed and all of those sort of things how should we sort of all kind of figure that out.
In terms of the margin profile for the next.
Two or three years.
Well we.
We're doing a lot of work internally right now on building out our multiyear road map and we anticipate being able to share some of that in the near future.
But we see.
We are going to continue invest in scale and gross there is a lot of opportunity in front of us.
And.
We believe we are heading down a path of being of a major player in this category as well as in other categories.
Yes.
That said there are absolutely opportunities for leverage.
As we continue to build out our Atlanta facility and get that complete even as we opened new facilities as a percentage of total expenditures the new investment becomes smaller and we're absorbing that overhead.
<unk>, which this year were continuing around our traditional path of about 30% of net revenue in advertising and selling.
We don't anticipate as our total net revenue continues to grow that.
Of that it will continue to be of bat right. So there's absolutely going to be opportunity for elaborate as we move forward.
And G&A as well as <unk> and other areas of the business. So yeah I think in 2022 of its reasonable that we could start to see some leverage and beyond.
And.
Mentioned earlier, the the manufacturing improvements and I and the other intrinsic margin improvements with new products built with better margin profiles as well as our ability to continue to raise prices. So yes, there's a lot to be optimistic about and our ability to bring up both gross margin and EBITDA margins and there are very specific and describable inertia.
<unk> to get there.
It's just again right now our focus is obviously a little more near term.
On taking the foundation with bolt on and demonstrating how much scale on share we can get from it.
Okay fair enough.
And then maybe just kind of like waiting too.
Thinking about non.
The <unk> sales.
<unk> grew nicely I think you said the hunter.
The 40%.
That implies about 6%.
Set of sales correct me if I'm wrong.
So fairly small category.
It sounds like you know you guys have lots of in the works going forward.
Where do you think he envisioned match.
You know again, maybe over the next two to three years in terms of.
The percentage of sales.
Yeah, well again.
As we report our our non bedding is a relatively small piece pillows is part of our bedding category. So we mixed some segments. There just to talk about a couple of specific products.
The pillows and and C. Cushions are of great growth engines.
And pillows higher price point very good attach rate with all of our mattress, but even more interesting we're selling far more.
Two customers, who haven't yet bought of mattress.
So again, we're we're known for.
Following the industry our industry standards here on how we report, but these are very healthy growth engines and as you think about CRM and as you think about lifetime value of these open up some really really interesting opportunities for the company historically, we've been won and done a we've been transactional.
The profitable on a durable good on infrequent purchase are centered around the mattress and we have.
We have relatively amazing growth right now in categories other than the mattress that both have proven attach rates within the category.
Those who buy pillows by more pillows, those who buy seat cushions by more seat cushions, but we're also seeing indication that it's driving future opportunity to have a mattress attached down the road. So this is new for us, but it's very exciting and an enormous opportunity that we're tapping into.
Got it okay. Thanks very much.
Our next question comes from the line of Susan Anderson with B. Riley you May proceed with your question.
Hi, good morning, nice job on the Great 2020.
I guess, just a follow up on the the.
The rent the new.
For fourth quarter, and then in the first quarter. It sounds like you've seen improvement in wholesale so I guess just based on the guidance I'm, assuming that DTC growth has come down a bit from fourth quarter. And then also just on the cadence of revenue for 2021, given the tough comparison in second and third quarter and the guide for first of all of you.
Pecking fourth quarter to kind of be the highest gross quarter.
Yeah, well I mean back half of the year is just starting with your at the end of your question back half of the year and if you kind of unpack.
On top of our guidance, you'll see that we are expecting.
The bigger growth rates.
Than the front half of the year and that's driven by the initiatives that we're executing over the first half of the year. This is wholesale expansion. This is the showrooms were building out its new products launching mid and later in the year. It's the new ecommerce platform that will be rolling out throughout the first half of the year and so forth. So there is there are there are many many initiatives.
Is that we are investing in in the first half of the year that will bear fruit in the back half of the year on into 2022.
So I think you are reading that correctly, yes.
Yes, the DTC the.
The and DTC, we saw some some pretty impressive growth rates last year.
Driven in large part by just consumer preference shift on mix that is now getting back to a more normal if you can call on that are more on the more normal or healthier mix.
Which does create some pressure.
So yes, we expect for the D T C will probably.
Kind of not be in the in the the 80 or 100% of trades that we saw through.
For much of last year.
And frankly as the base of DTC gets bigger of the growth rates tend to decelerate a little bit it's as true in any business at certain scale. This is a predominantly offline industry.
But we still see very very healthy growth rates in front of us.
Again with the changes, we're making in product on the website, we see opportunity for significant growth.
We remain optimistic.
Okay, Great and then just on Canada, I'm curious there how that rollout has gone and what are the plans for the fear.
And so it is primarily with our partner up there sleep country, Canada, they've just reported some some healthy results themselves just indicating there they're the right partner for us in a terrific business up the up and are on northern neighbors.
In terms of our launch we launched very late in 2020.
And.
In the in part some of that that late late launch was some of the supply challenges that everyone. On the industry has had on some of the components into those mattresses, which we ultimately resolved and we're able to get the launched on our timing wasn't terrific as just.
It felt like days after we launched with the later weighted in Canada, there were mandatory shutdown of of.
Approximately 65% of the doors up there. So the performance obviously wasn't what any of US had hoped given the store closures that said in the stores that are open and on the online side.
I think both sides have been extremely pleased with what we're seeing so far.
So we remain very optimistic on some of these macro or external factors get get lifted.
Okay, great that sounds good and then not sure if I missed this but did you say what the average matter of selling price was in the quarter and did you see people moving into more premium categories at all.
Sure.
I don't believe we reported the specifics there, but I will say that we continue to see a S. P average order value both continue decline quarter on quarter. That's been a trend we've had for for quite some time.
And more exciting is we see that in DTC.
In brick and mortar that's always been an easier path forward.
To get that more premium buyer, but we continue to see DTC climb on the strength of our brand and on the strength of our product.
Okay, great. Thanks, so much good luck this year.
Thank you so much.
Our next question comes from the line of.
Jeremy Hamblin with Craig Hallum, You May proceed with your question.
Thanks for taking the question I wanted to start with the Q1.
Mix assumptions that you're baking in here in terms of thinking about your wholesale versus DTC.
Embedded within that guidance for two thirds of the way through the quarter.
We are again.
For the quarter of largely for much of the year.
We anticipate getting back to more of the 70 30 split that we've we've for many years have been got into what is our preferred mix.
We were of weighted much more DTC last year at times.
And of the eighties on DTC.
But but our our anticipated mix Q1, and really ultimately through the year is along the lines of 70 per cent DTC, 30%.
Sept, 30%, our wholesale and DTC will be weighted a little heavier in Q1 as wholesale continues to come back and as we began our wholesale expansion.
But ultimately I think it will be about 70 30 split for the year.
Okay, and then the follow up on that.
There was <unk> 28 per cent of your business in Q4.
Roughly and in terms of thinking about the margin profile moving forward. We know you've made some investments of purple South there's a I don't know if you quantified the potential drag Craig associated with that but you did deliver above of 47% gross margin just slight.
Lee.
Would your mix of business wholesale 28 per cent and so in terms of thinking about.
Gross margin.
We look at 'twenty, one again understanding there's some investments being made.
Potentially some higher input costs from.
From suppliers you know can you give the sense for you know it seems as though the 47% gross margin that you delivered.
Maybe you can get pretty close to that again in 'twenty one.
Yeah.
I think we will be able to stay close to the 47%. There is headwind early in the year from having the Atlanta facility not be at full operating capacity and then some of the investments we're making but there's also some tail winds that are that are positive that we're going to look forward to it that we will start seeing more of later of the year inefficient.
<unk> not just in getting the Atlanta facility.
And of higher capacity, but also in the facility we already have in Grand smell.
John and his team finding efficiencies and where they can.
The automation.
To improve the margin. So we do expect the throughout the year to improve.
But like you said it is going to have some headwinds early just because of Atlanta is not at full capacity.
Got it thanks, and then in terms of you have.
A high percentage of your competitors that have either recently raised price.
And on that Theyre going to raise price.
We know of suppliers are also raising price.
We know you just did that over the summer but.
Any comment on whether or not that's something that's been discussed and if so.
I mean on when that might happen.
Yes, so we do intend to two.
The call it raise our asps this year.
So the mix of some products that we believe there is opportunity to add the exists today raise price, but we anticipate some assortment.
<unk> this year as well, where we can tie some of the price increases and improved margin structure too.
The new product launches as well, whether those are our modest improvements, but still have a good a customer story on the price changes or outright new product.
So we do anticipate that.
It likely wouldn't realize until probably call it late Q2 or mid year.
Though we continue to look at the market and the competitive set and we have successfully raised prices now twice.
With the with.
With the remarkably stable of elasticity.
So that continues to be an option on the table.
Great. Thanks last one for me real quick here.
<unk> took a pretty decent step forward here in the back half of 'twenty.
And you know in terms of you kind of had a longer term target of around 6% of sales.
But it was a little over 7% in Q4 any color that you could share on whether or not you're still kind of planning around that 6%. I know you mentioned this is an investment year of that part of the investment on your G&A side of things that maybe that's going to be a little higher than where your longer term targets on.
No. We I mean, we we have always viewed this as an asset of our comp a day on just how operationally sound and our focus on running a right sized clean business. So yes Q4 was.
Really more timing than anything some deferred costs from Q3 of that got pushed into Q4 and some costs that were in advance of of Q1. So for full year I believe we were at about 6.0.
The six 2% for 2020.
And we anticipate continuing to hold G&A relatively flat.
Got it thanks for taking all the questions guys. Good luck this year.
I think as well.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Joe <unk> for closing remarks.
Thank you so much of the foundation, we built on 2019 was tested last year and I could not be more pleased with how well our mission driven team performed most importantly, we added record numbers of customers to the purple family and customer satisfaction continues to be extremely high and our ever growing base of customers remain on.
Most effective marketing channel looking forward, we find ourselves on our strongest position ever to invest in product development and scaling our business. We remain very optimistic on the opportunity for growth both near term on long term supported by our proven execution ability and our very healthy balance sheet I want to personally thank our more than six.
500 employees for their relentless fortitude over the last year, an unwavering belief in our mission and our goals to all of our customers employees and partners stay healthy be safe and sleep well.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
Yeah.
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