Purple Innovation, Inc. (NASDAQ:PRPL), a household furniture manufacturer, announced on Thursday the adoption of a stockholder rights agreement, commonly known as a "poison pill," aimed at preserving its valuable net operating losses (NOLs). The rights plan comes into effect immediately, with one preferred share purchase right issued for each outstanding share of common stock to stockholders of record on July 26, 2024.
The rights, which are not exercisable until a triggering event, are designed to deter any person or group from acquiring a beneficial ownership of 4.9% or more without board approval. If such an acquisition occurs, rights holders, except for the acquiring party, can purchase preferred stock at a discounted rate, potentially diluting the acquirer's stake.
This strategic move is intended to protect approximately $238 million in NOLs, which can offset future taxable income. The rights plan is set to expire on the earlier of June 30, 2025, or the company's realization that the NOLs can no longer be used.
In conjunction with the rights plan, the board approved a Certificate of Designation for Series C Junior Participating Preferred Stock and proposed an amendment to the company's charter to further safeguard the NOLs. The amendment, which requires stockholder approval, voids any transfer of shares that violates the designated ownership threshold, mandating the sale of excess shares.
The information is based on a recent SEC filing by the company.
In other recent news, Purple Innovation, a household furniture sector key player, experienced a 12.5% increase in sales year-over-year for the first quarter of 2024, driven by new products, brand messaging, and an increase in showroom revenues. However, the company's adjusted net loss widened to $20.4 million from $14 million in the previous year.
For 2024, Purple Innovation projects its net revenue to be between $540 million and $560 million, with adjusted EBITDA expected to range from negative $20 million to negative $10 million.
In the annual meeting of its stockholders, all proposals were approved, including the re-election of eight directors and the ratification of BDO USA, LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2024. The shareholders also approved the executive compensation on an advisory basis.
Roth/MKM reiterated its Buy rating on Purple Innovation's stock, reflecting confidence in the company's ongoing turnaround efforts and future milestones. The firm's analysis indicated that Purple Innovation has made significant strides in improving demand and margin dynamics.
The company's management has highlighted achieving adjusted EBITDA positivity in the second half of the year, potential debt refinancing in the fourth quarter, and advancing towards greater vertical integration as key next steps in their strategic plan.
InvestingPro Insights
Amidst Purple Innovation's strategic defense with a "poison pill" plan to protect its valuable net operating losses, current data from InvestingPro provides a deeper look into the company's financial health. With a market capitalization of $112 million, Purple Innovation is operating under a significant cloud of debt, as evidenced by a negative P/E ratio of -0.76, adjusted to -0.82 for the last twelve months as of Q1 2024. This suggests that investors are wary of the company's earnings potential and its ability to manage debt, aligning with the InvestingPro Tip that the company operates with a significant debt burden and may have trouble making interest payments on its debt.
Despite a challenging period with a revenue decline of -2.4% in the last twelve months as of Q1 2024, there is a silver lining with quarterly revenue growth of 12.47% in Q1 2024. The stock has seen a significant return over the last week with a 19.88% price total return, yet it's important to note that the stock price movements have been quite volatile, a point highlighted by another InvestingPro Tip. Moreover, the company's liquid assets exceed its short-term obligations, which may provide some cushion against immediate financial stress.
For those considering investing in Purple Innovation, these insights, along with additional tips available on InvestingPro, could be critical in making informed decisions. To gain a more comprehensive understanding and access to more such analysis, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 12 additional InvestingPro Tips available, investors can delve deeper into the company's prospects and industry position.
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