Q2 2023 Purple Innovation Inc Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Purple innovation second quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
A question 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's now my pleasure to introduce your host Brendon Frey of ICR. Please go ahead.
Thank you and thank you for joining purple innovation second quarter.
2023 earnings call a copy of our earnings press release is available on the Investor Relations section of Purples 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 purple innovations judgment and analysis only as of today and actual results may differ materially from current expectations based on a 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 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 second quarter 2023 earnings release, which was furnished to the S. E. T. Today on form 8-K, as well as our filings.
T 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 reference to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available with the or within the earnings release, which can be found on our website with that I'll turn the call over to Rob Demartini Purple innovation, Chief Executive Officer, Rob.
Thank you Brendan and thank you and good afternoon, everyone with me on the call today has been Nussbaum Purples Chief Financial Officer.
Since taking the helm of purple 18 months ago, our focus has been building the right team and implementing the systems and process that will allow purple to successfully compete and grow the premium segment of the nearly $20 billion U S mattress industry.
The entire organization has been driving towards the largest most innovative product launch in the history of the company and launching a compelling and effective new marketing campaign.
The introduction of 11, new products, including multiple firmness op options three.
Three new luxury tier offerings and advanced smart bases began on may 15th.
Since the launch there have been several positive signals that are past the point premium sleep strategy is the right course for the future of the company, which I'll speak to throughout this call.
We introduced the restore and rejuvenate product lines and the sleep better live purple marketing campaign in our showrooms and on our website on may 15th and began the rollout with wholesale partners during the second quarter.
To date less than 50.
At the end of the quarter less than 50% of our wholesale doors were transitioned and in the second quarter and the remaining wholesale partners are set to change over the back half of the year.
The sleep Purple live better marketing is achieving two important goals.
First our advertising organic content website and support materials clearly communicates the way our proprietary <unk> purple gel flex grid deliver three key benefits.
Unmatched cooling and temperature regulation pressure relief and instant adaptability all in the name of deep uninterrupted sleep.
Second the sleep better lives purple campaign linked sleeping on our purple mattress to an active healthy lifestyle, highlighting the brand's commitment to wellness.
Sales improved month over month as the quarter progressed June was the first full month with our new product in market and it was the strongest month of the quarter up 18% compared with the run rate in the first five months of the year.
Importantly, consumer response to the new premium and luxury mattresses has been strong out of the gate in our showroom channel with average selling prices up 10% or better since launch.
We also saw traction in the ecommerce channel after several quarters of sequential declines.
E Commerce sales stabilized in the second quarter we.
We've already seen several of our wholesale customers increase the number of slots for our luxury collection based on initial sell through performance.
While still early these initial signals demonstrate that we're on the right path to sustainable and profitable growth.
We've also seen very compelling consumer feedback for the new product lines.
Year to date, we've connected with 7500 consumers, including more than 200 in home use test.
Survey respondents overwhelmingly agreed that purple provided better pressure relief temperature regulation and body contouring support compared to their previous non purple mattresses.
Overall testers of our new mattress portfolio indicated that purchase consideration was high and that was not just from testers, who already own purple mattresses, we talked to owners of two major mattress brands and nine out of 10 of those consumers said, they definitely would or probably would consider a purple mattress.
Their next purchase.
This overwhelmingly positive consumer feedback if some of the strongest ive seen in 35 years in my 35 year career, it's really an indicator of the clear purple gel flex grid benefits and the differentiated experience that position us to capture share and grow our position amongst the field of large.
Julie undifferentiated foam and hybrid competitors.
While this industry has a notoriously long purchase cycle, we're intently focused on capitalizing on the growing interest for purple enabled by our new marketing position and fresh new product lineup.
While the mattress industry continues to face softness due to forward buying in recent years and inflationary pressures on consumer discretionary spending we are encouraged by the leading indicators in our business.
The path to premium sleep strategy is the road to growth.
Looking at our second quarter performance net revenue of $121 million was up 11% sequentially from the first quarter and at the low end of our expectations as the speed at which the new strategies grain gained traction has varied by distribution channel.
Showrooms, where we control the presentation the selling process is showing the most encouraging results and although it's still early in the launch our new marketing campaign is delivering the brand benefits and driving increased traffic to our site to our showroom and to our partner stores.
The path to premium sleep strategy is working and it needs to work harder to continue to accelerate our demand.
Shifting to results by channel starting with showrooms Echo echoing my earlier comments, we're pleased with the early results from the channel and we have the evidence that our showrooms are delivering the premium experience necessary to support our product launch.
In a recent consumer survey 89% of respondents.
Are more likely to buy after visiting our showrooms and 85% said they would recommend us to family and friends.
Over half of consumers noted that they were very or extremely likely to purchase a purple mattress in the future after visiting one of our showrooms.
From a product perspective, our showroom sales team has done a great job trading consumers up into the luxury line of rejuvenate mattresses, which are priced between 50 570 $500 with approximately 15% of showroom mattress revenue in June coming from the luxury collection.
This drove a significant increase in average mattress selling price over the baseline during the important memorial day sale period.
Additionally, our premium and premium plus adjustable bases are exceeding expectations due to the great value and benefits, especially when paired with a purple mattress.
Moving to e-commerce searches for our brand in total site visits are up dramatically. Following the launch of the new product and AD campaign, an indication that our new marketing strategy is driving the top of self driving the top of the sales funnel.
With interest growing we're testing how to best optimize the site in order to capitalize on the increased traffic and drive higher conversion rates.
This includes personalizing the website and testing both product messaging and assortment offering while evolving the overall website designed to align with the brands more premium positioning and maximizing each visit contribution to the business.
While we turned our marketing engine back on in mid May the planned pullback in spend prior to that weighed on the e-commerce demand during the quarter. We are encouraged that ecommerce sales were flat compared to the previous quarter, marking the first time since Q4 2021, the channel did not experienced quarter over quarter.
To clients.
All E comm major metrics are moving in the right direction and we expect that the business has flattened out and we will return to sustained growth.
From a product perspective, we're seeing customers trade up within our new premium collection more than they had previously driving up the average selling price for the restore collection incur.
Encouragingly, we're selling more luxury units online and we estimated for the channel early in the transition.
With respect to wholesale we continue to make timely progress rolling out the new product portfolio to our channel partners by the end of the second quarter, a little less than half are approximately 3300 doors, we're live with our new line of mattresses.
As the industry's reported many retailers reported mixed category results. Following the memorial day holiday, our new products saw improved velocity for most customers.
From a product perspective, we're seeing growing support for our new line and we're hearing from customers that our new products are outperforming the old.
This feedback is giving us continued confidence in the rollout and we expect to convert the remaining doors throughout quarter three with the final third of our doors launching in very early Q4.
Overall, we're confident that the results from our new path to premium sleep strategy indicate that we've set the right course for purple, we look forward to seeing our topline recovery accelerate is the positive data points from the second quarter have the business pointed for further improvement in the second half of the year.
Adding to our confidence is the new debt facility. We signed earlier this week consisting of a $25 million term loan with Caledonian commercial finance and our revolving facility led by the bank of Montreal that provides up to $50 million and a revolving loans subject to a borrowing base.
This facility, which replaces our prior credit agreement led by Keybank is less restrictive, including no minimum EBITDA requirement, allowing us more flexibility to invest in accelerating our growth initiatives and increasing market share.
Looking ahead, our initial guidance for 2023 assume that the U S mattress market, which showed signs of stabilizing as the year progressed based on the industry trends, we're seeing we're moderating our outlook.
Bennett will walk you through the specifics shortly but in short we are using June and July volumes to project growth going forward and building and continued modest improvements in the month over month balance of the year.
I'll now turn it over to Bennett, who will review the financials and guidance in more detail. Thank you Rob.
For the three months ended June 30th 2023, net revenue was $129 million down 16, 1% compared to the $144 1 million in the prior year period and up 10, 5% from Q1 of this year.
This decrease year over year was primarily due to an ongoing shift in demand for home related products inflationary pressure on discretionary consumer spending.
Forward buying of consumers.
In recent years.
Industry standard price reductions on the sell in of new mattress floor models to wholesale partners.
And the increased discounting of discontinued models sold through our direct to consumer channels.
The increase in net revenue on a sequential basis was driven by an uptick in consumer demand driven by the positive response to our new premium mattresses at higher average selling prices by.
By channel versus prior year wholesale net revenue declined 15, 5% and direct to consumer net revenues declined 16, 6%.
Within direct to consumer E. Commerce declines of 23, 1% were partially offset by a 13, 5% increase in showroom net revenue driven largely by the net addition of 16 showrooms over the past 12 months.
Gross profit dollars were $38 5 million.
During the second quarter of 2023 compared to $48 8 million during the same period last year with gross margin at 31, 8% versus 33, 9% in the second quarter of 2022.
Excluding discounts and the impact of transitional costs associated with the new product launch adjusted gross margin in the current year quarter was 38, 6%.
These discounts I can costs include industry standard price reductions on the sell in of new mattress for models to wholesale partners, coupled with increased discounting have discontinued models.
Sold through our direct to consumer channels, as we transition to our new premium and luxury product lineup.
470 basis point improvement year over year was driven by the ongoing realization of efficiencies and cost savings put in place during the first half of 2022.
Operating expenses were $75 $7 million or 62, 7% of net revenue in the second quarter of 2023 compared to $69 million or 42, 3% of net revenue in the prior year periods the increase in operating it.
Expenses compared with the prior year period was driven primarily by an increase in legal and professional fees of $8 2 million incurred by the special Committee.
Including a 4 million dollar accrual made in the second quarter of 2023 for the settlement amount owed to Coliseum.
Marketing and sales expenses were also higher in the second quarter as management increased advertising spend to align with the launch of our new premium and luxury product lineup.
Advertising spend was $21 million in the second quarter of this year compared to $18 $9 million in the second quarter of last year, and 11 $7 million in the first quarter of 2023.
Net loss attributable both to pet peripheral innovation was $37 $5 million for the second quarter of 2023 compared to $8 $3 million in the year ago period.
On an adjusted basis, which excludes adjustments for certain noncash items and other items, we do not consider in the evaluation of our ongoing operational performance, including gains from change in our tax receivable agreement income and the change in valuation of our net deferred tax assets.
Net loss in the second quarter of 2023 was $21 1 million or <unk> 20 per diluted share based on an adjusted weighted average diluted share count of $105 1 million compared to an adjusted net loss of $8 $8 million or 11 cents per diluted.
Share based on an adjusted weighted average diluted share count of $83 2 million in the prior year period.
Adjusted net income has been adjusted to reflect an estimated effective income tax rate of 25, 9% for the current year period compared to 31, 7% for 2022.
EBITDA for the quarter was negative $31 3 million compared.
Compared to negative $8 million in the second quarter of 2022, adjusted EBITDA, which excludes certain noncash and other items, we do not consider in the evaluation of our ongoing performance and as detailed in today's earnings release was negative $18 5 million.
Moving to our balance sheet as of June 32023, the company had cash and cash equivalents of $26 9 million.
Compared with $41 8 million at December 31, 2022.
The decrease was driven primarily by cash used in operations of $38 1 million.
Capital expenditures of $5 8 million.
Primarily related to additional investments made in our manufacturing facilities and the repayment of the full $24 $7 million outstanding on the credit facility.
This was partially offset by cash provided from net proceeds of $57 $2 million received from the public offering completed in February 2023.
Inventories at June 30 of 2023 were $78 $4 million compared with $73 2 million on December 31, 2022, and supportive of the new product watch.
Turning now to our current outlook.
While we have continued confidence in our new product launch, we're tempering expectations for our full year guidance based on second quarter results and persisting industry softness.
For 2023, we now expect net revenue to be in the range of $560 to $590 million.
And adjusted EBITDA between minus $10 million and breakeven with gross margins on a reported basis in the mid 30% range.
Excluding the discounts and transitional costs related to the new product launch we incurred in the second quarter and expect to incur in the third and fourth quarters gross margins on an adjusted basis for the year are projected to be in the high 30% range.
Now back to Rob for his closing comments.
You bet.
The early signs of progress following the launch of our new product and premium marketing position indicates that our path to premiums sleep strategy is working.
We have built a talented team whose work has translated into incredible consumer satisfaction built on the foundation of demonstrably superior and differentiated product coupled with brand love that we're only beginning to leverage.
Looking at the future for this business I'm as optimistic as I've been about the opportunity to drive profitable growth.
This quarter was a significant step forward, but it is just the beginning the product launched the foundation of purples emergence as a true premium challenger brand and I'm confident that our current and future innovation pipeline will accelerate our position in the industry.
I want to thank our employees and our wholesale partners for the significant role they played in getting us to this point.
I look forward to growing the purple brand together in the quarters and the years ahead.
Thank you.
That concludes our prepared remarks, operator, we're now ready to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
The first question comes from Brad Thomas with Keybanc capital markets. Please go ahead.
Hi, Good afternoon, Rob Bennett, Thanks for taking my question.
Thank you Brad.
Hum.
I wanted to just kick off.
Asking rents in your new product and the revenue outlook here it sounds like Theres, certainly a number of very encouraging signs about the initial reaction to it.
Can you give us a little bit more color around maybe how July and early August had been trending and as we think about the guidance for the second half of the year, if I've done the math right. It implies sales in the second half of the year will be up about 15% to 25%.
Any more.
Color on maybe how youre thinking about the trajectory in the back half. Thanks.
Yes.
Thank you, Brad and I agree the guidance is a bit wide for the amount of year left but it speaks to how early we are in this.
Brand rebuilding of both momentum and then doing it inside a difficult category you you've done the math right. We've got average about $55 million a month to hit the low range of the guide we've got average about 60 million a month at the high range. So on a month to month basis.
It's a relatively modest amount of differentiation, but it is still mostly ahead of us the signs I talked about they continue to grow as we expand the wholesale conversion.
And E Commerce, and showrooms are making progress so that that's how we came to that guidance and it definitely requires a pickup in sales, we're relying a little bit less on the on the general market pick up because it seems like that has just been slower coming than I think all of us hoped for.
Gotcha that's helpful.
Bennett you made some comments around around gross margin for the year being in the mid Thirty's.
Just if we try to look through some of the transitions here.
What do you think sort of a run rate pro forma gross margin looks like for you.
Just with the transition being complete.
Not even know how to lay or any other operational opportunities that you may have may.
Maybe the run rate pro forma.
If you look in the press release today the last page.
The reported gross margin of the financials.
What I consider to be the operating gross margin all things being equal in the operating gross margin for the quarter was about 36.
And I think that's a fair number.
On an operating basis for what we should run for the balance of the year the absence of a big volume pickup.
It would have some operating leverage.
Got you and then it presumably though with.
The luxe and the rollout occurring I would assume that theres, probably opportunity for that to move even higher as the rollout goes forward is there a good way to think about what the what the base may look like for you in 2020 for to build off of from a gross margin standpoint.
Well I think if you start with that number.
We have opportunities along the lines of purchasing better finding a little more efficiency in our plants and.
And finding if we get the volume on our cost absorptions spread over war mattresses should provide a nice opportunity.
Gotcha. Thank you so much I'll turn it over to others.
Thank you Brett.
Our next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Hey, guys good afternoon.
Hi, Brian .
So my first question.
Sort of a follow up to Brad's question, but just with respect to I'll make sure I understand this dynamic so.
We gave a lot of.
Very solid indicators.
Actual performance of these products.
But then you also trimmed the guidance for the balance of the year so that.
Not to get too nuanced here, but if you look at that guidance for the balance of the year.
Is that sort of say that new product component of that tracking in line with your expectations the weakness as the market or how should we think about that balance basically.
Brian if I understand the question I think the trimming of the guidance is.
It is mixed with both of them right I said as I said the strategy looks clearly like it's working it's got to work harder there are general signs of improvement in each channel, but there are also areas that we know have to get better so.
So some of that we own I think some of it is also we did expect the market to be generally a bit healthier than it's been.
I think most retailers I've talked to would say memorial day and fourth of July were decent holidays, but the periods in between had been flatter than all of us like and so it is a combination of both of those things.
Our strategy is as I said I think it's right it's got to work harder.
But we also are discounting out any market recovery in the rest of the year.
Got it Okay. That's helpful led by the second question.
It's all that but where are you on a from a marketing standpoint. It is the marketing of these new products now in full force or do you have more to come.
We definitely have fine tuning to come and we have some spending to come that is in that plan right. Now there are parts of the marketing.
The marketing campaign that we know are working very well, particularly delivering the benefits of grid. There are portions of it that we know have to work harder and most of that revolves around how premium the brand is versus the brand some people remember.
And so we've got to continue to sharpen that cures team is working daily to ensure that the e-commerce presentation or more importantly, the website presentation. Because it serves all channels is making very clear what the benefits of purple and why and why you should buy a verbal on that.
It's a constant struggle, but it's definitely not fully dialed in yet.
I appreciate it thank you.
Thank you Brian .
Our next question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Hi, Thanks for taking the questions and I wanted to come back to the revenue guidance.
So.
Just to be more direct in terms of your July .
Performance right, you've guided effectively two just with the low end of your guidance $55 million per month.
Did you see that level of sales in July .
Or something higher than that.
Well, we obviously havent havent closed out July fully yet, but it's trending that direction, where not all the way there.
Dave you the averages on a per month basis.
But.
It's going to build through the year, particularly driven by holidays in black Friday and that type of thing.
We were not all the way there in July .
Okay.
It seems.
Seems like okay. So I just a follow up question to that.
I think you indicated roughly 50% of wholesale partners.
Have converted with.
The new product as of the end of the quarter.
I think that seems like it's a little bit behind where your expectations were in may.
And if that's the case, but it sounds like a.
A lot of your partners are pleased with the performance can you provide us a little more detail and color on why.
The rollout has been a little bit slower in terms of getting.
Kind of that.
Expansion.
You talked about the 15% incur.
Increased.
You spoke of in May.
So just to add some color Jeremy.
We were slightly ahead of 50% on slots at the half year point and slightly behind that on doors.
And obviously we've got.
Communicate before we've got some customers who have just chosen to go much later in the year for their own reasons.
Has it been slower than I'd hoped yes.
Is there any message in there the only message I'm learning as this is hard to do there has been no loss of support that just came out of two and a half three days in Vegas, where we're at.
<unk> talked to about 35 of our customers our team talked about 80, they continue to be fully in the camp of the brand and the initiative and its taken longer I was in.
In.
Atlanta is the day before yesterday speaking with a customer and they coordinated the launch meetings and the launch timing with two of our competitors. Some do that some choose to do it.
Digitally so we are a little bit subject to their plans and what I'd like to see it happen faster, yes, absolutely.
Okay, if parity with another quick hitter here on the revenue guidance.
Is it fair to assume that's built in your guidance number as Q4 higher than Q3.
Yes.
Okay and then.
There's a lot of noise around the G&A side here you've got.
Costs are significant costs.
Related to the.
<unk> Special committee fees legal fees associated with that.
I think in total that amounted to about $11 million.
Quarter.
Yeah.
Had to pay.
You know, maybe $1 3 million in executive costs.
I just wanted to get an understanding so you know as that kind of.
The math.
Bennett.
What you see and.
In terms of.
Presumably the special.
The committee fees and the legal fees are in the rearview mirror, but in terms of the executive costs of $1 $3 million is that something that you're still.
We should still expect here in Q3 Q4.
Yes, I think we will see that in Q3 and Q4 and then it will go away.
But he will remain with us this year.
Okay. I know these costs that are being incurred for specific positions.
A lot of it has to do with our financial planning group and in certain executives like myself.
Or in term.
Got it.
Thanks for the color and best wishes.
Thank you Jeremy.
Our next question comes from Seth Basham with Wedbush Securities. Please go ahead.
Thanks, a lot and good afternoon.
My first question is just on the wholesale rollout that you were talking about earlier have you seen any customers that have cut orders or cut the number of slots. They plan on adding relative to three months ago when he spoke to us.
No. We havent set first of all thank you for the question Seth we have and as I.
I believe I went through in last quarter, there was definitely slippage coming out of Las Vegas.
To execution and that was about five percentage points.
Of slots since then we've seen no deterioration and.
I want to reinforce the longer time to deploy than I planned does not speak to the customers' energy behind it it speaks to the execution challenges.
Challenges some on our side some on their side, but there <unk>.
Energy for the initiative has not changed at all and it hasn't slipped beyond what I detailed last quarter that was.
I would chalk it up to the difference between showroom enthusiasm in the execution of having to get the work done.
Yeah.
Got it fair enough and then secondly on gross margins in terms of the performance this quarter relative to your expectations. Obviously your volume came up short so theres more.
Darcy leverage within the gross margin result, but was there anything else that drove the weaker gross margins and plan.
We did have a few operational issues, we had some airfreight in there that we would hope not to recur we had to slow the lines down a bit as Eric was learning how to make these mattresses at the highest quality. So most of it will outgrow and I'll, let Bennett comment as well, but we do feel like.
While volume has certainly been a significant challenge we've got control of our expenses, whether it's people hiring or our operational costs. We do feel like we've got control of it and it's being spent where it's intended to be spent.
With a few million dollars not more than that of surprises in this quarter.
As I mentioned earlier 38, 6% our current volumes is a very solid performance.
It was cutback because of basically the half priced mattresses and disc Kerry.
The same metric cost with less revenue and then as Rob said, we had one or two one time operational issues.
The 38 six was a very solid number given our current volume.
And our current outlook is that we can improve on that as I said earlier through purchasing through volume leverage primarily when we get those things. So we feel very good that were up.
For the sake of argument six points from last year.
Okay five points and then we can hold that on an operating basis, if not a reported basis due to the discounting of the transition.
Got it and just to make sure my numbers right coming out of the first quarter. If your results. I think you were commenting that you expected gross margins to be in the low 40% for the full year.
First of all is that right and is that on a.
Adjusted basis or is that on a.
Reported basis.
Yeah, We had said we'd hope to exit the year at.
At 40, and that was on a reported basis and I think the volume softness will put some pressure on that but we're somewhere in between that and the 38, 6%.
And I just talked about.
Fair enough. Thank you so much.
Right. Thank you Scott.
Our next question comes from Matt Koranda with Roth.
Okay. Please go ahead.
Hey, guys. Good afternoon. Thanks.
So just maybe coming back to the guidance on the top line just curious so if we're not at the sort of level of growth.
As implied in the back half guidance in July why is that the guide there what are you seeing any sort of future order flow or launches with incremental sale customers that gives you confidence.
The sort of the.
19% I guess growth that's implied in the back half.
Yes. It is it is based on the progress we've invested a lot in this initiative and we need to make sure that it works.
We are seeing improvement month on month, and we're projecting that through the year and adding in the holiday seasonality that it is in the normal shape of the business. So.
It's still.
Ahead of us, but the signals are.
Pretty clear, where they're going to come from wholesale expansion showroom productivity and a stronger e-commerce business.
Okay, and then any sense or sort of commentary that we can get on the percentage of doors that youre going to be transitioning over in the third quarter versus the fourth maybe just so we can get a better understanding for the ramp up there.
Yes, the beginning of the fourth is a big number.
So the balance of everything else will happen in Q3 Im doing this in my head right now, but it's probably about 400 doors in Q3, and then the remainder the remaining thousand at the very beginning of Q4.
Those are rough math, okay pretty close.
Alright, perfect. That's helpful. And then just wanted to make sure we put a finer point on this and make sure everybody understands that the adjusted EBITDA Guide.
Debt that does not.
Take account or add back the adjusted gross margins.
That you're that you're highlighting for folks just in terms of build out costs.
That's correct.
Okay got it any is there any way to help us understand sort of.
Yes, it did.
The adjustments and sort of a dollar basis that youll be taking in the third and fourth quarter are associated with the launch I know you gave us kind of a rough spread between adjusted gross margin and <unk>.
And the reported gross margin of a better maybe any any help on the dollar cost there I would assume those are real costs for you.
Just to put it in perspective again, referring to the <unk>.
Page.
The last page of the press release, we said that its about $12 million.
For the first half.
Actually for this quarter.
No.
I think from a stock standpoint, as Rob said, we're more than halfway through.
So I think it will be somewhere less than half of that half or less of that number in the next two quarters.
Order of magnitude Okay alright.
Yes that helps.
And then just on the balance sheet I'm curious if you could maybe highlight any of that cost with the new term loan you will be incurring is that twice I would assume the 25 was fully drawn at close and then ABL can be drawn up and down based on sort of working capital needs, but maybe just put a finer point on that for us.
Exactly right yes.
Yes, I think you said it exactly right.
We've taken down the whole 25, we've taken down and nothing on the ABL.
And.
That will be determined by <unk>.
Basically our profitability in the second half.
As you can see.
We managed our inventories are.
Eric did a lot closer and we're able to avoid to build in the blind draw that we expected in the second quarter ending the quarter with no debt.
Was quite healthy.
And I think by the end of the year.
We will have a little bit more on inventory.
And our Capex again conserving cash in the first half was only about $6 million, but that will be higher in the second half as we open about six shows.
So I would say that.
We'll probably.
Might get into the line.
Towards the.
We ended the third quarter, maybe even fourth quarter.
I'd like to avoid that but it's very probable or possible that we will get into the revolver.
Yes.
Okay and then just.
The cost of the term loan any color on sort of.
Wherever LIBOR or whatever.
Taking all of that interest expense.
It's in our Q.
It's so far plus I believe eight.
Alright, Okay got it.
I'll leave it there guys. Thank you.
Alright, Thank you Matt.
Our next question comes from Bobby Griffin with Raymond James. Please go ahead.
Good afternoon everybody.
I guess first hi, Bobby.
On the on the June data.
Just talk a little bit more about that is that excluding the floor model shipments that are taking place as you guys are launching so it's clean kind of organic growth of the new products or does that June step up also include some of the floor models that would be shipping into these new retail accounts that we need to keep that in mind. When we think about what June was showing us.
Yes. It definitely includes the four models and there's been a debate in here or is that really consumption or not because they are selling off the one that's there and replacing it and replacing it at half the revenue or <unk>.
Discounted revenue to us.
But yes, it's in there and it will be enough, we'll have more of that the rest of the year, but as Ben said, we're a little bit ahead on slots and behind on doors.
So there is less of that to come and we've experienced in the second quarter.
Okay next into the sales line and the gross margin line.
Okay. That's helpful and then when it when we think about I appreciate the detail on <unk> versus <unk> revenue, but when we think about the EBITDA side of that same equation is it the opposite since we're going to be doing more.
Doors in the fourth quarter, so will incur more of the profitability hit from the launch costs in the fourth quarter or am I trying to cut it to then there.
I think it's probably more related to slots and it has to doors, if I had to put weight on one or the other.
And where over half of our slot.
So.
I don't think it would be worse.
So I wouldn't cut it too finely.
Okay.
Okay.
Alright, and then.
Sure.
Since we're currently kind of still in the middle of it are the plants still making the old product line too. So that is some inefficiencies running through the manufacturing facility are you fulfilling the old line right now for the customers that haven't transition just out of inventory on hand.
Now, we're still making both lines right now.
Eric's worked ahead a bit on the old stuff.
Because we can see the end there, but theres still.
A reasonable amount of doors that are buying the old product.
So that's some level of inefficiency running through the business right. Robyn is that fair to say it is in.
This was a discussion I've had with him changeovers are not a huge deal for us we enjoy a pretty flexible plant, but it does impact the supply lines because it's twice the types of covers to carry toys those types of things so there should be.
Continued efficiency to get when you know when we started growing volume and it's.
Less changeover related than we've been in the last two quarters.
Alright, and then lastly for me is the media plans for the second half so roughly about the same when we talk about <unk> I think.
Yep Yep per center.
We are doing everything we can to protect that even even with the challenging volume because I believe we've got to grow our way out of the position we're in.
Absolutely I appreciate the details best of luck here getting launched complete in the back half.
Thank you Bobby.
Our last question comes from Atul Maheshwari from UBS. Please go ahead.
Good evening, Thanks, a lot for taking my questions.
Rob.
No there was a good amount of seasonality in the mattress business. So I just want to better understand the context behind the tune commentary off.
Oh, no business up 18%.
The first four months of the year could you provide some perspective on whether June is up year over year and if so.
By how much because.
Yes, I just want a better tool.
Step up.
Completely understand your question and it's not up year on year.
Forgetting where last June was but it was $10, 15% higher something like that.
To try to get at that because I've been looking for the signals I went back and looked at the first five months versus June and July for the last five years and that 18% lift.
Last year it was plus four the year before that it was minus 15 and you have to go all the way back to 2019, where we saw a 20% lift and just.
Just footnote 2019 was probably the last normal year. This category has had in the last five so I guess, if theres seasonality in June .
But the lift looks like the business is performing pretty clearly and that's why I chose to talk about it but.
But I do understand the seasonality of the first five months versus June and July we used June and July to amend the guidance to the range that <unk> laid out.
Got it that makes sense.
And then as well.
My follow up Rob in the prepared remarks.
You provided a very bullish take on on how the showrooms. We're doing could you provide some take on how the wholesale doors that are already that already have some new products caused the central there what are you hearing from them.
No.
If theyre not performing at the same level of at the showrooms, what do you need to.
Get them there.
It's a good question and it's the same one I have been asking our team we're not good at Pos predictions in the short run.
I did sit with all of our big customers in Vegas, beginning of last week and they are uniformly optimistic and telling me that slot by slot sell through is better than it was before.
We're dealing with a total category, that's still not as healthy as they like Theres a lot of mix noise in the system, but it is anecdotal, which I don't like but it's all I've got to share, but it was unanimous that they felt like the new line was performing better than the line. We had in there before and in many cases, you can see it in shipment numbers.
Got it thanks for that color and good luck with the rest of the year. Thank you. Okay. Thank you tore.
This concludes our question and answer session.
Like to turn the conference back over to Rob The day, Mark Heaney for any closing remarks.
Thank you Meg and no closing remarks from me. Thank you for the interest in the business and.
Appreciate your questions and hearing our story.
As we close the Q2, thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.