LEHI, Utah - Purple Innovation, Inc. (NASDAQ:PRPL), a key player in the household furniture industry, has taken significant steps to protect its net operating loss carryforwards (NOLs), which amount to approximately $238 million. On Monday, the company's stockholders approved two crucial measures at a Special Meeting: the ratification of a Stockholder Rights Agreement, known as the NOL Rights Plan, and an amendment to the company's Certificate of Incorporation.
The NOL Rights Plan, which was initially filed with the SEC on June 28, 2024, and recommended by the board of directors for stockholder ratification, aims to prevent certain share acquisitions that could trigger an "ownership change" under Section 382 of the Internal Revenue Code. Such a change could severely limit Purple Innovation's ability to utilize its NOLs to offset future tax liabilities.
The plan effectively deters acquisitions that would result in ownership of more than 4.9% of the company's common stock, or for existing shareholders above that threshold, an increase of more than half a percentage point. If triggered, the rights plan would cause substantial dilution to any shareholder exceeding these limits.
In conjunction with the NOL Rights Plan, stockholders also approved the NOL Charter Amendment, which imposes additional restrictions on the transfer of the company's common stock to safeguard the NOLs until June 30, 2025. This amendment voids any transfer that would result in a shareholder owning more than the 4.9% threshold and requires any excess shares to be sold by the company's transfer agent in an arm's-length transaction that complies with the amendment's terms. Shareholders who intentionally violate this amendment could be held fully liable.
In other recent news, Purple Innovation, a comfort technology company, has reported a slight increase in total sales during its second-quarter 2024 earnings call. Despite this, the company has adjusted its full-year revenue outlook downwards, attributing the revision to industry trends and a decrease in e-commerce sales. Purple Innovation has also announced the closure of two of its manufacturing facilities in Utah, centralizing operations at its newer Georgia facility, a move expected to enhance the company's EBITDA by $15 million to $20 million in 2025.
KeyBanc Capital Markets has maintained its positive stance on Purple Innovation, reiterating an Overweight rating and a steady price target. According to KeyBanc, the operational efficiencies resulting from the consolidation could lead to better financial outcomes than initially projected.
InvestingPro Insights
Purple Innovation's recent moves to protect its net operating loss carryforwards (NOLs) come at a critical time for the company, as revealed by recent InvestingPro data. The company's market capitalization stands at a modest $101.25 million, reflecting the challenges it faces. InvestingPro Tips highlight that Purple Innovation is "quickly burning through cash" and "may have trouble making interest payments on debt," which underscores the importance of preserving its NOLs for future tax benefits.
The company's financial health appears precarious, with InvestingPro data showing a negative operating income of -$79.61 million in the last twelve months as of Q2 2024. This aligns with another InvestingPro Tip indicating that analysts do not anticipate the company will be profitable this year. The stock's performance has also been concerning, with a 37.93% price decline over the past three months.
These insights from InvestingPro provide context for Purple Innovation's aggressive stance on protecting its NOLs. Investors considering Purple Innovation's stock may find value in exploring the additional 10 tips available on InvestingPro, which could offer a more comprehensive view of the company's financial situation and future prospects.
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