Good afternoon, ladies and gentlemen. Welcome to Purple Innovation Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please also note today’s event is being recorded. It is now my pleasure to introduce your host, Brendon Frey of ICR. Please go ahead.

Thank you for joining Purple Innovation’s second quarter 2021 earnings call. A copy of our earnings press release is available on the Investor Relations section of Purple’s website at www.purple.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 Innovation’s judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting the company’s 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 second quarter 2021 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 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 within the earnings release, which can be found on our website. With that, I will turn the call over to Joe Megibow.

Thank you and good afternoon 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 will be happy to take your questions. Demand for the Purple brand was strong during the second quarter, particularly in our wholesale channel as the economy more broadly reopened and consumers increasingly returned to shopping brick-and-mortar retail. As we previously disclosed on June 29, during the latter part of Q2, we experienced isolated production challenges caused by unanticipated mechanical and maintenance issues as we brought our Mattress Max machines back online following an unfortunate accident and the implementation of additional safety measures. Based on our backlog at the end of Q2, if we had been able to fulfill against this demand at our pre-incident production levels, we would have been within the guidance ranges we established on our Q1 call in May. Throughout July, our team made significant progress toward restoring production to full capacity. I am pleased to report that, as previously projected, our entire fleet of machines was back up and running at planned production levels during the last week of July. Over the past several weeks, we’ve been able to begin working down our order backlog, particularly in our digital channels. We are reiterating our expectation to be out of backlog and back to leaning into our continued strong consumer demand by the end of August. I am very pleased with the performance of the team across both Georgia and Utah to get us back on track. Since we announced preliminary Q2 revenue results in June and previously discussed the internal manufacturing challenges, I am going to spend just a few minutes reviewing some of the additional details of the quarter. Then I will walk through…

Thanks, Joe. For the second quarter of 2020, providing extraordinary context due to the impact COVID had on consumer behavior and advertising rates, I am going to provide certain comparisons to the second quarter 2 years ago. For the 3 months ended June 30, 2021, net revenue was $182.6 million, up 10.6% compared to $165.1 million in the prior year period and up 77.3% versus the same period 2 years ago. For the quarter, wholesale channel net revenue grew 233.2%, reflecting the consumer shift back to brick-and-mortar retail and an easier comparison to 2020 as many of our wholesale partner locations were closed in the year ago period. Meanwhile, DTC revenue declined 19.9% due to the consumer shift back to wholesale and very atypical prior year DTC growth when most brick-and-mortar was closed. On a 2-year basis, wholesale revenue increased 68.9% and DTC revenue increased 82.4%. For 2021, both channels were negatively impacted by the recent production issues we discussed and limited our available inventory in the second quarter. Had we been able to maintain average mattress production rates experienced in March and April for the entire second quarter and assuming a consistent channel and product mix, we believe we could potentially recognize additional revenue in excess of $20 million. Gross profit dollars were $81.7 million during the second quarter of 2021 compared to $81.6 million during the same period in 2020 with gross margin at 44.7% versus 49.4% in the second quarter of 2020 and 41.5% in the second quarter of 2019. The 470 basis point decrease in gross margin over the prior year can be attributed primarily to channel mix shift toward wholesale, combined with the impact from the recent production issues. Again, assuming we were able to maintain average production rates and channel and product mix from…

Thanks, Craig. This has been a tough few months for us on top of a challenging prior year. We are nearly through the recent production issues and thrilled to be getting back to normal. We are a values-driven organization with deep focus on both our employees and our customers and improving the lives of both. It has, therefore, been legitimately hard to have unmet customer demand because of lack of inventory of our amazing mattresses. To those customers, both retailers and end consumer, thank you for your patience and our apologies for any delays. That said, over my nearly 3 years here, I’ve seen the Purple team tested over and over, and my confidence in what we can accomplish and my own respect for the capabilities of our more than 2,000 employees now has never been stronger. In June, we put forth what we believe to be a grounded and achievable strategic plan to produce $2 billion to $2.5 billion in annual net revenues with 14% to 15% adjusted EBITDA margins within the next 3 to 5 years. We remain incredibly optimistic toward those goals and are laser-focused on the product, channel and margin advancements in front of us. We are continuing to invest this year in both midterm and long-term initiatives and look forward to sharing the results with you over the coming quarters. At this time, we will open the call to questions.

Thank you. [Operator Instructions] Today’s first question comes from Seth Basham with Wedbush Securities. Please go ahead.

Thanks a lot and good afternoon. My first question is just around the margin trends in the quarter. You mentioned that you prioritized wholesale over direct-to-consumer when you had these manufacturing challenges. Just trying to understand why you would do that given the margin differential in the two segments?

Yes. Hi, Seth, thanks for the question. Yes, these aren’t easy decisions, of course, and it really comes down to optimizing for the long-term opportunity and health of our business versus short-term optimization. Certainly, through DTC, and we proved this last year quite literally, and again, as we’ve seen the pivot back in the wholesale, have seen the math very clearly flow through the other way, our margins are much better on DTC as true with many omni-channel businesses. That said, our – right now, we are a consumer-led business. I mean, we try to make sure we’re meeting the consumer on their terms. The strongest demand channels right now are brick-and-mortar and wholesale in a predominantly brick-and-mortar category, and we’ve been underservicing our terrific partners there. So in the spirit of making sure we’re putting the units where the highest demand is and preserving the long-term opportunities with our partners, we have put more of our mattresses there. And I’d say even there, there has been significant delays. I mean, so to even suggest this does not imply that our wholesale partners have gotten the units they’ve wanted, everyone in every channel has been constrained. It’s just been making sure that we are prioritizing as many of the units as we can in our important channels.

Got it. That’s helpful. And just a follow-up on that year-on-year margin decline, the gross margin declining some 430 basis points, could you help quantify how much of that was from this mix shift versus the manufacturing challenges or otherwise? Was more than half of the decline from the mix shift, for example?

Craig, do you want to take that or...

Yes. I was just thinking. I would say the bulk of it came from the channel mix because if you remember last year, in the second quarter, we were at 88% DTC and 12% wholesale. And then this quarter, it’s much closer to the 70-30 normalized, where we normally are. But also, the production issues that we had came later in the quarter. So it didn’t impact the full quarter. So I’d say it’s primarily related to the channel mix.

Got it. Thank you…

We are seeing – we have been carrying an enormous amount of labor that has not been producing units over the last few months, which you’ll see bleed into Q3 presumably as well. So it’s – Craig’s, of course, correct on the channel shift. But there’s still been meaningful increase in COGS as a result of the labor we’re carrying against significantly diminished units.

Understood. Glad to hear the business has bounced back so strongly. Thank you.

Thank you.

And our next question today comes from Curtis Nagle, Bank of America. Please go ahead.

Great. Thanks very much for taking my question. Maybe just if you could, a little bit more context into second half sales cadence, right? So I think, Craig, you said significantly higher growth in 4Q. I guess just trying to sort of triangulate that should we still expect quarter-over-quarter growth from 2Q to 3Q on a dollar basis?

Yes. So we did not give specific guidance to Q3. What I would point to is we were still quite inventory constrained through July. We’re not out of backlog until end of August, as we’ve been communicating for a bit now, which means any growth, we’re opening doors or pushing into expansion when we don’t even have the beds to support prior sales. It’s just – it’s not a great plan. So we’re limited in the quarter for leaning in, in Q3. And that’s why we’ve indicated that a substantial portion of the growth then pushes into Q4, which is really just deferred against our initial plan. What that means for Q3, I don’t know, Craig, if you have anything you want to comment on there.

Yes. I would say similar to – or following up on my comments in the prepared remarks, there will be a slight amount we expect of incremental growth quarter-over-quarter – or sequentially. But the bulk of it’s going to come in the fourth quarter as we start opening more wholesale doors, and that’s a bigger holiday period. So that’s the way I’d think about it.

Okay, thanks very much.

And our next question today comes from Brad Thomas at KeyBanc Capital Markets. Please go ahead.

Hi, good afternoon. My question was a follow-up just on raw materials and supply constraints. Obviously, there were some manufacturing dynamics at play that were things that you were focused on. But could you talk a little bit about product availability, input availability and how you all are working through that and maybe incremental risk you may have going forward here as you meet the strong demand?

Yes. It’s – I mean – so with some of the constrained output, we’ve been able to shore up some of our raw materials positions, I’d say in order, our challenges have been just raw machine capacity as we’ve gotten the machines back up to full production levels. Labor is what I would put behind that and then raw materials and assemblies coming in. Labor continues to be a challenge for everybody. We are making significant progress, and having the facility in Georgia has helped dramatically as our labor pool there is substantially more attractive. But I’d say that labor has been the biggest challenge over raw materials. For raw materials right now, other than increasing costs, which the whole industry is feeling, we feel like right now, against our plan, we’re in pretty good shape.

That’s great. And then to follow-up on that, I mean, you referenced it yourself, the cost dynamic. I mean, it does seem like we’re seeing record levels of price increases in the industry. Can you talk a little bit about what you’re hearing from retailers on the ability to keep passing through higher prices?

Yes. We – well, we’ve always been working with our retailers to make a more attractive margin profile for them as well. So anywhere there’s opportunity for us to raise prices, allow for a better markup for them and allow them to lean into our product more has been a win-win over and over again. So yes, we – I mean, we know for a fact that with our inventory constraints, more often, they’re able to sell up into higher price mattresses anyway. So I mean, there’s definitely appetite for higher price points, which we’ve been saying for quite some time. So what we’ve heard, and we feel pretty emboldened by this, is there is opportunity for us to take some price actions both to offset some of the increased costs we have as well as to capture demand that’s out there. And as we said in the prepared remarks, we anticipate taking some price actions in the back half of the year.

Great. Thanks so much, Joe.

Thanks, Brad.

And our next question today comes from Jeremy Hamblin at Craig-Hallum Capital Group. Please go ahead.

Thank you. Wanted to just follow-up on just understanding a little bit on the sales trends. So it sounds like you’re expecting impact here – pretty significant impact to your July results and that still be impacted in August. If we were just to assume, let’s say, $210 million in revenues in Q3, then you’d still be looking at, based on your guidance, like $240 million to $270 million in Q4 revenues. I just – I want to understand where that pickup comes from. Obviously, you’re going to add some doors. But that would imply that, that DTC portion of your business really kind of snap back to kind of maybe even above peak levels that you’ve ever done. And I know you’re adding eight stores, and you’re going to add some more stores in Q4. But I just want to understand that those are just pretty big numbers. One, do you have the capacity to achieve that? And two, just understanding where you expect that mix of business to come from given that right now, you’ve stated and the industry seems to be shifting a little bit more into the wholesale channel? Thanks.

Yes. Sure. No, it’s a reasonable question. We – there’s a number of things going on right now. So let me start with the last point. We absolutely are going to have the capacity to meet these goals in the back half of the year. We had this isolated incident that has been an extremely expensive gap in our sales, which we just, in the prepared remarks, gave some specific sizing around. That said, it has cast a halo – or excuse me, a shadow over our sales across all channels. We’ve pulled back significantly on marketing on DTC, which has some cost savings, of course. But it means significant reduction in traffic and awareness because we haven’t had the units for sale. We have significant delays on our website right now on time to deliver. Our wholesale partners have had equivalent delays, and many of these retailers have commissioned – or similar workforce. And when the commission is tied to either getting the mattress in a timely manner or tied to delivery, there is a disincentive on the floor to push our product at a time that we had constrained inventory. So there is a shadow that’s been cast across all of our sales over the last couple of months, which is very easy to understand as we come out of this backlog and are back into full production with significant expansion and availability. With the new machines coming online and the improvements we’re making across the board, we’ve got a lot of opportunity to lean in into our existing doors, where, again, there’s – they’ve been underinvesting in our product. And we’ve likely given up a little bit of share as a result of that over the last couple of months. The consumer demand is still there. It’s…

Thanks. And then – that’s helpful context. Just as a follow-up question on the marketing comment. So your marketing was up about $5.5 million sequentially in Q2 from Q1. And I think Craig said that roughly maybe $20 million impact of sales on the production issue. Can you, Craig, just kind of give me a sense for where marketing, which was roughly $60 million, might have been had you had that incremental $20 million of revenues? Would it be an incremental $5 million in marketing? Just trying to get a sense of where that also would have normalized.

Yes. That’s probably in the ballpark...

Yes. We – that’s right. No, go ahead. You got it.

I was just saying that’s probably in the ballpark. I mean, we pulled back later in the month as we went through – burned through the inventory that we had on hand and knew that there were going to be issues with being able to deliver. We pulled back late in the month. So $5 million is in the range.

Great. Thanks guys. Best wishes.

Thank you.

And our next question today comes from Brian Nagel at Oppenheimer. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. So the first question I have, I appreciate you laying out the estimates here of just what the production disruptions, the impact in the business here in Q2. But the question I have is as you look at those sales in Q2, and I guess it was maybe spilling here into Q3, are they – do you believe they’re lost or are they delayed? Are there ways for, if you know the demand is there, to kind of talk to the consumer and say the product will be there so you can ultimately fulfill that sale or do you think these truly are lost sales?

Well, I think it’s – there’s two lenses to look through. I think a lot of them likely are lost sales. I think customers who are in need of product came into any of our retail partners and walked out with product, which wasn’t us. So to that customer, that’s a lost sale. It doesn’t change the fact that every single year, there’s $18 billion or so of mattress sales. So in our revenue potential, call it, deferred growth, our ability to lean into our wholesale partner doors, to expand the number of doors that we have and lean in more to our brand and growth in DTC has all been shifted out. And our growth rate then stalled for a bit – not actually stalled, continued to grow, of course, but not at the rates that we should have been growing. So in our trajectory, it’s absolutely deferred. We will continue to grow and take share as we move forward. But we absolutely gave up some business to customers who went ahead and bought something else. And the wholesale doors were not in and would have been in at this point, hundreds and hundreds of doors we should have been selling in months ago. They’re all selling mattresses every day that aren’t us. So those are unquestionably lost sales in the short-term.

Got it. That’s helpful. And then the second question I have, maybe a little bit bigger picture, but we talk a lot about, it’s come up here on the call again, the margin differential between your DTC and your wholesale business. And I know we have talked a lot strategically of the importance of wholesale to you as a company and the brand long-term. The question is, as the business continues to evolve, are there additional levers you could pull on that wholesale side to help to sort of, say, bolster those margins, recognizing they would never be where the DTC margins are but at least to maybe somewhat narrow that differential?

Yes. Certainly. And I think some of that we laid out in the strategic deck for the Investor Day we did in June. Again, our product assortment was never really designed with wholesale in mind and perhaps a little shortsighted as we launched. But at the time, it seemed like a really attractive DTC business that as we realized the market and realized the premium nature of our products, wholesale became an increasingly critical and strategically beneficial to us. So, as we retire and sunset existing product and launch new products and new capabilities, it’s all being designed ground up with wholesale in mind. And that means the more relevant price points, it means more relevant features. It means more appropriate margin profiles for our retail partners. So, that is – that absolutely helps. Fulfillment continues to be a big expense. As we go more premium, it continues to mean we are doing more in-home delivery, which is something that our wholesale partners are very good at, which is a way to offset some of those costs. So – and we also – we anticipate continuing to go more premium. And the more premium mattresses we are selling, especially through wholesale, there is just more margin to go around, which closes that gap as well. So, I think there is a number of mechanisms we can take. And again, the 3-year to 5-year plan we have put out incorporates some of that. But the reality is there is no future for us without brick-and-mortar, yes, we have done. This is a considered purchase. We are winning on merit. We are winning on our product differentiation, and that has to be felt and experienced. And it’s predominantly brick-and-mortar category. And there is just no escaping that. That’s how we win with the customer, and that’s critically part of our strategy.

Great. I appreciate all the color. Thank you.

Sure. Thank you.

And our next question today comes from Susan Anderson of B. Riley. Please go ahead.

Hi, good afternoon. Thanks for taking my question. I am curious just on – it sounds like those new doors are performing very well. Maybe if you could talk about the white space you think you still have left after you expand this year, I guess, both in North America and Canada but then also, if there is other international opportunity.

Sure. And in new doors, you are talking about our own showrooms or the wholesale?

At wholesale.

Yes. No, we are – absolutely. And the performance of new wholesale doors just speaks volumes to the pent-up demand that’s out there, which again has really only been constrained frustratingly to us and our partners on our inventory constraints over the last few months. So, in the strategic plan, we did say that we are still aiming for sort of this one-third, two-third split on a net revenue basis and getting into the range of around 3,500 doors all in. But – which means it’s really finding the right partners that are really presenting our product and working with us the right way. We do anticipate significantly more products to sell, a broader assortment, and we anticipate more attractive price points. Yes. As to international expansion, the plan we put forth was fairly modest in international over the next 3 years to 5 years, really just fully realizing the opportunity in Canada. We do still believe that there is significant opportunity beyond North America, and that is absolutely part of our long-term strategy. We are not – I mean, right now, we don’t have the inventory to support ourselves domestically. So, I mean, thing one is let’s take meaningful share in our backyard and in Canada, but we do fully continue to anticipate expanding internationally likely starting next year.

Great. And then just on the increases in labor and product cost that you talked about, but then I think also, you talked about raising prices, do you expect the price increases to fully offset the higher labor and product costs and other inputs?

We – and these are moving targets. So yes, the intent would be that the price increases, and Craig, correct me if I am misstating here, but would offset where we believe COGS is going to ultimately land.

Yes. Because they changed so much, it’s hard to say specifically and exactly. But our plan is that the price increases that we introduce will cover the increase in not only labor but also the materials COGS.

Okay. Great. Thank you so much.

And our next question today comes from Bobby Griffin at Raymond James. Please go ahead.

Yes. Good morning everybody. I appreciate you taking my question. Joe or Craig, I just want to follow-up on some of the comments about the backlog building and the sequential difference between 3Q and 4Q. That’s my first question. But is the right way to think about it, the $50 million that you referenced, Joe, the $20 million here in 2Q and then maybe I guess the $30 million that was cost in 3Q, all that $50 million gets delivered in 4Q? Is that what helps drive that big sequential difference in revenue growth?

Sure. And this sort of gets to Brian’s question on is it lost sales or deferred sales. So yes, we get back to the kind of growth rates we should have been having in Q4. And yes, that pent-up demand, so to speak, shifts into Q4. That said, if – I don’t know that what we are suggesting is Q4 is bigger than it would have been had things have all gone normally. It’s just because Q2 and Q3 have these significant challenges in there. It just makes Q4 look that much more distorted as we get back to normal.

Okay. Because I guess I am trying to then understand kind of what – how you want us to think about the sequential difference in EBITDA. And if these are already booked orders, you have already spent the marketing on these orders. And when they flow in, in 4Q, they will have a better associated flow-through margin. But are these not booked orders that you are referencing that are delayed, it’s just business that will have to be picked back up in 4Q or is it actual orders from customers that have been shifted out and not made and that will actually get produced and made in the fourth quarter?

Yes. No, there is no – yes, our wholesale doors typically aren’t ordering out more than four weeks to five weeks. And even in DTC, which the expectation of the consumer is it’s an immediate order, our backlog has gone up to four weeks to six weeks on some models. That’s as far out as sort of we can have line of sight to, just call it, future recognized revenue. What we are talking about is really like, for example, wholesale doors that we have had in contracts that we have pushed out opening those doors, which once they open, they is a somewhat predictable expectation at this point on what the productivity of any wholesale door is at least on average. And when you are talking hundreds of doors, that tends to get realized. So, this is really executing against our plans for continuing to drive growth, continue to release product, continue to raise prices, continue to expand our wholesale penetration, continue to lean back into brand and DTC demand and all of that, which is what we do every quarter. It’s just we have been very constrained, and Q4 is really then really the back of this quarter and then – which is good momentum into Q4 is getting back to growth.

Okay, that’s helpful. I appreciate it.

And our next question today comes from Atul Maheswari with UBS. Please go ahead.

Good evening and thanks for taking my question. Just two questions here. So first, Craig, on the margin expectations for the back half, I think the guidance implies about 100 basis points of EBITDA margin contraction, give or take. So, is this all going to be gross margin-driven or do you expect gross margin to be down more than 100 basis points and see some leverage in other areas of the P&L?

Yes. We haven’t really – we are not giving guidance on – at the gross margin level. But I will tell you, as we continue to open more wholesale doors, we have talked about this before that the expansion into wholesale is going to put pressure at the gross margin level. And also, we pulled back on ad spend in the second quarter. We talked about that. So, as we get into the fourth quarter, it’s traditionally a higher ad spend cost quarter. So, it will be a mix of both gross margin and below the gross margin line.

Got it. That’s helpful. And then the second question is on – also on your guidance. So, obviously, very fourth quarter heavy. You did mention that consumer demand is very hard right now, which is something your peers have mentioned as well. And then – and you have not fully participated in that demand, at least to the extent that you would like due to your manufacturing challenges. But then for the fourth quarter, it could be possible the demand slows as consumers shift focus away from home and home-related purchases. So a, then what’s the zoom for overall industry demand in your guidance? Are you expecting continuation of current strong demand? And then b, if demand does slow, how much confidence do you have that you will still be able to achieve your numbers?

Yes. I mean, obviously, a fair question, but I am taking calls daily from our wholesale partners, reassuring that we really are going to have these units because of the demand that they are turning away and making sure that we are going to have this inventory for the traffic we are driving into the stores and the square footage we have earned and the sales associates who, again, are mostly commissioned, making sure they are actually going to be able to sell the product. The demand is real. The frustration around that demand and our inability to meet that demand is real. I also – I just – I will reiterate something I have said in many prior quarters. Our entire strategy has not been built around category growth. I mean, we fully believe we are winning on merit in a category that is – it’s still growing, single-digit percentages, maybe 4% to 5% this year. But even if the category was flat, we are still growing because we are taking share. That is the entirety of our strategy, and we are doing that on the beneficial differences of our amazing mattresses and the amazing consumer satisfaction that we continue to demonstrate against them. Again, we have said this many times, but 30% of the – when we ask consumers, how did you learn about Purple, 30% of the time, it’s word of mouth. It’s from existing customers who continue, even at our scale today, to rave about how remarkable our products are. So, we are not that concerned at the category level because it’s not how we have won to-date. We have been winning year-over-year on gaining share, on merit, and we are going to continue to do that. The demand continues to be there. The challenges we have are arguably self-inflicted. We have had some – these isolated production challenges, which have been painful to say the least. But now that we are finally back to full production and working through backlog this month and getting back to normal, that’s why Q4 looks so distorted. And we have very, very high confidence in our ability to get back to doing what we have been doing for years now.

Thank you. And our next question today comes from Keith Hughes of Truist. Please go ahead.

Thank you. On the store adds that you discussed earlier, could you talk about how many you are going to get in the third quarter?

On – sorry, on wholesale doors or on showrooms? I am sorry…

Yes. I am sorry, wholesale doors, wholesale doors.

Wholesale doors, yes again, it’s – we said 400 to 500, we anticipate at this point. It’s not perfectly linear. There – we do anticipate, as we come out of backlog here in the last month of the quarter, that we are going to begin the heavy push, call it, backlog of doors, doors that are contractually signed that we have just continued to push out, that we will likely have a flurry of openings. But I would assume it’s at best, 50-50, probably leaning a little more into Q4.

Okay. And the – do you think for the Labor Day sales weekend, will you be able to service the stores at a level that – where you would like to be?

We – I mean, our guidance for the year accounts for the realities of our inventory. I would say we are going to be in a much better position than we have been in coming into Labor Day, but Labor Day orders are already coming in. Our commitments for Labor Day are already being made. So, for us to truly fully support all of our current 2,300 doors at the level they would all want right now when we are just coming out of backlog by the end of August, no, then that’s part of the impact of the $50 million that we indicated and have already loaded into our guidance. So, it would be better, but not where we would like it to be. And again, this is where as that trajectory goes into Q4 and we have the full inventory availability is where we can start to really unlock our intrinsic demand and intrinsic growth rate.

Thank you, sir. Today’s final question comes from Matt Koranda at ROTH Capital. Please go ahead.

Hi guys. Thanks for squeezing me in. A lot have been asked and answered here. But just wanted to see if you could put a finer point on capacity to deliver in Q4 with sort of the ramp-up coming. And I know people have kind of alluded to maybe north of $250 million in revenue. And if I do the straight math on Mattress Max machines for the rest of the year, it sounded like you said two more coming on probably in 3Q, but wanted to see if you could kind of clarify when exactly those come online. And then what does that give you in terms of total sort of theoretical capacity? I think in prior comments, Joe, you have talked about sort of $90 million to $100 million per machine, which probably means that we skew toward – a little bit more toward wholesale or getting up toward that constrained number in terms of what we can produce and deliver around that $250 million level. And then just the second part of the question, if I could sneak it in, is in the medium-term, I am curious if you could share any metrics on the 8th Max machines that you talked about. Are they similar in CapEx per machine? Do they materially change the production capacity that you will be able to produce with an individual machine? And then when will those represent sort of incremental machines installed? Is that sort of 2023 at the earliest?

Yes. So, I will start with just the existing Max Machines. So again, we are at eight right now. We basically said one a quarter. So, we would anticipate Max 9 – or excuse me, Max 10 – no, sorry. Now I am getting – yes, Max 10 is the next one. So – and Max 1, we retired earlier this year. So Max 2 through 7, we have got in Georgia. 8 and 9 are online – sorry, I apologize, a lot of questions. So Max 2 through 7 are in Utah right now. Max 8 and 9 are in Georgia and 10 and 11 coming on this year. 10 likely would be early next quarter and 11 likely early the quarter after. We are, at this very moment, a little ahead of schedule on both, and we have been pretty good at getting those online. But we are continuing forward with those. Yes, sort of that overall $80 million to $100 million is where most of the analysts have come together on the revenue expectation for Max Machine, and that’s held pretty true over time. As to the 8th Maxes, we are not giving a lot of detail on them right now until we have them full time fully into production. But clearly, we are not going through this effort of a new Max Machine design without obvious benefits. What I would say we know right now is a little more capital expense upfront. But we anticipate much higher availability, much higher yield, so call it more units per hour, much lower labor cost, so much more maintainability. And I mean a number of things that you would get in a generational improvement on any manufacturing machine. Our early work on it is clearly demonstrating that our goals will absolutely be met. But to get into any more specifics on that prior to us being in full production would be a little premature. But I will reiterate what I said in the prepared remarks. They are already operating in limited capacity, so not full shifts. But we run them for a while and test and learn such that we are getting absolutely usable components out of them that are going into production mattresses as we speak. So, we already have some benefit from them, and our originally stated capacity model didn’t incorporate the 8th Maxes at all. So, if we get the 8th Maxes is going sooner than later, that would mean potentially 1, 2 or 3 8th Maxes on top of the planned Max Machines. And that could mean a significant increase in capacity.

And thank you. This concludes today’s question-and-answer session. I would like to turn the conference back over to Joseph Megibow for any closing remarks.

Thank you so much. Reiterating my prior remarks, the last few months have been some of the most challenging in our history. We are emerging stronger and better equipped for success with clear line of sight to getting out of backlog and getting back to planned expansion. We have a lot to look forward to over the rest of the year. And looking over the next few years, there is even more to get excited about. Our investments in new products and capabilities continue forward and will fuel the strategy we presented. I would like to apologize once more to our customers and great partners for any delays they may have experienced receiving our amazing mattresses as we work through our temporary constrained capacity. And most importantly, I want to personally thank our over 2,000 employees now for their incredibly hard work and unwavering passion for our products. To all of our customers, partners and employees, stay healthy, be safe and sleep well.

Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.