The following discussion is intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation, Inc. than can be obtained from reading the Unaudited Condensed Consolidated Financial Statements alone. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in "Part I. Item 1. Financial Statements."
This quarterly report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws. In some cases, you can identify these statements by forward-looking words such as "believe," "expect," "project," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will," "would," "could," "may," "might," the negative of these words and other similar words.
All forward-looking statements included in this Quarterly Report are made only as of the date thereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading "Outlook for Growth"), and other characterizations of future events or circumstances are forward-looking statements.
We caution and advise readers that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those included in the "Risk Factors" section of this Quarterly Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and investors are cautioned not to place undue reliance on any such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Our mission is to improve the lives of our consumers by delivering innovative better sleep solutions.
We are a digitally-native vertical brand founded on comfort product innovation with premium offerings. We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, and other products. Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology, Hyper-Elastic Polymer, underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors' products. We market and sell our products directly to consumers through our e-commerce and Purple retail showroom channels and through our retail brick-and-mortar wholesale partner channel.
Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. Purple Inc. was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of GPAC. On February 2, 2018, Purple Inc. consummated a transaction structured similar to a reverse recapitalization pursuant to which Purple Inc. acquired an equity interest in Purple LLC and became its sole managing member. As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. At June 30, 2022, Purple Inc. had a 99.5% economic interest in Purple LLC while other Class B Unit holders had the remaining 0.5%
Executive Summary - Results of Operations
Net revenues decreased 21.1% to $144.1 million and 22.1% to $287.3 million for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods in the prior year. These decreases were primarily due to softening demand for home related products, inflationary pressures on consumer discretionary spending, management's decision to reduce advertising spending, and the prior year pull forward of demand driven by the effects of COVID and economic stimulus experienced in the first half of 2021.
Gross profit decreased 40.2% to $48.8 million and 40.6% to $100.4 million for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods in the prior year. These decreases reflected the impact of lower sales and channel mix combined with unfavorable cost absorption and elevated levels of materials, labor and overhead costs, partially offset by benefits realized from our workforce restructuring.
Operating expenses decreased 27.7% to $60.9 million and 15.5% to $130.9 million for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods in the prior year. These decreases primarily reflected the impact of management's decisions to reduce advertising spend, execute two workforce reductions and implement other cost saving measures.
Net loss was $8.3 million and $21.8 million for the three and six months ended June 30, 2022, respectively, compared to net income of $2.6 million and $23.4 million for the three and six months ended June 30, 2021, respectively.
Recent Developments in Our Business
In March 2022, the Company completed an underwritten public offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares of the over-allotment option that the underwriters exercised in full. The aggregate net proceeds received by the Company from the offering, after deducting offering expenses of $0.3 million, totaled $92.9 million.
On September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit. In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the full amount available under the line. On March 31, 2022, the Company used a portion of the net proceeds from its underwritten public offering, described above, to repay in full the $55.0 million of principal outstanding on the revolving line of credit.
The Company's operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under the 2020 Credit Agreement. On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default. This amendment contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be tested for the fiscal quarters ended December 31, 2021, March 31, 2022 and June 30, 2022. Other modifications in the amendment included revised leverage ratio and fixed charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease incurrence test for opening additional showrooms, additional negative covenants during a covenant amendment period that extends into 2023 until certain conditions are met, and the interest rate was changed from LIBOR plus 3.00% to SOFR plus 4.75%. Pursuant to this amendment, the Company made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022 and incurred fees and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance sheet.
On March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement. This amendment modified the 2020 Credit Agreement to allow CCM and its investment affiliates to acquire 35% or more of the combined voting power of all equity interests of the Company entitled to vote for the election of members of the Company's board of directors without constituting an event of default. CCM is considered a related party of the Company in that Adam Gray, a member of our board of directors, serves as a managing partner of CCM. Pursuant to this amendment, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the condensed consolidated balance sheet.
The COVID-19 pandemic has impacted many aspects of our operations, directly and indirectly, including disruption of our employees, consumer behavior, distribution and logistics, our suppliers, and the market overall. The scope and nature of these impacts continue to evolve. Because of the COVID-19 pandemic, we took precautionary measures recommended by the appropriate national and state health agencies to manage our resources and mitigate the adverse impact of the pandemic, which was intended to help minimize the risk to our Company, employees, customers, and the communities in which we operate. Soon after the pandemic began, we also experienced an increase in demand in our e-commerce channel, and in 2020 and 2021 the Company increased its production capacity to match actual and anticipated demand growth. In 2022, after two years of the pandemic, we are experiencing a pull-back in growth that left us with excess operational capacity in facilities, equipment, and personnel. Beginning in the first quarter of 2022 and continuing into the second quarter, we have rebalanced production and fulfillment operations in our different facilities, reduced employee headcount and taken other actions to lower costs.
We are closely monitoring the impacts of COVID-19 and general economic conditions on global supply chain, manufacturing, and logistics operations. As inflationary pressures increase, we anticipate that our production and operating costs will similarly increase. In addition, COVID-19 and other events, including port closures or labor shortages, have resulted in the continuation or worsening of manufacturing and shipping costs, delays and constraints. While most of our domestic suppliers have been able to continue operations and provide necessary materials when needed, we have experienced some constraints from certain suppliers, with respect to both the availability and cost of materials. In addition, as experienced in other industries, in order to remain competitive in hiring and retaining the labor necessary to maintain our production levels, we have increased wages and other compensation. These increases in materials, labor and freight costs have resulted in higher cost of goods sold and lower margins. We believe that materials, labor and freight costs will continue to remain at elevated levels or increase further in the foreseeable future.
In the fourth quarter of 2021 and continuing into 2022, our gross margins and results of operations have been, and we expect will continue to be adversely affected by elevated levels of materials, labor and freight costs and lower-than-expected demand levels. In early 2022, to offset the impact of higher costs on our gross margins, we increased prices and initiated several other projects to improve efficiencies and reduce costs. Also, we have continued to invest in showroom expansion and growing wholesale partner door count and productivity in response to a return to more normalized consumption patterns where consumer demand has shifted away from e-commerce and back to brick and mortar buying. We ended the second quarter with 40 showrooms after opening 6 net new locations during the quarter and we plan to add 14 more showrooms over the remainder of the year. In addition, at the end of the second quarter, our products are being sold through approximately 3,200 wholesale doors, having added approximately 700 net new doors during the first six months of 2022. Improving the sales productivity of our wholesale doors remains a primary focus and a critical component of our strategy to combat shifting demand patterns. After several years of hyper growth and increased investments to support current and future expansion, we are now building the framework for strong operational maturity and accountability after focusing on right-sizing our operations, improving our execution, and refining our strategies to drive profitable growth in the current market environment. We have also intentionally reduced our advertising spending in 2022 to improve marketing efficiency and stabilize profitability in a challenging macroeconomic environment.
To support our plans for future growth, we are focusing on the following opportunities:
There is no guarantee that we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions that are difficult to predict, including the risks described under "Risk Factors" and elsewhere herein. Therefore, actual results may differ materially and adversely from those described above. In addition, we may, in the future, adapt these focuses in response to changes in the market or our business.
Operating Results for the Three Months Ended June 30, 2022 and 2021
The following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our condensed consolidated statements of operations:
Net revenues decreased $38.5 million, or 21.1%, to $144.1 million for the three months ended June 30, 2022 compared to $182.6 million for the three months ended June 30, 2021. The decline in net revenues reflected a $32.3 million decrease in mattress sales, a $2.7 million decrease in other sleep product sales and a $3.5 million decrease in other product sales. The decrease in net revenues for all three product types was primarily due to softening demand for home related products, inflationary pressures on consumer discretionary spending, management's decision to reduce advertising spend, and the prior year pull forward of demand driven by the effects of COVID and economic stimulus in the first half of 2021. The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $34.6 million, or 29.8% and wholesale net revenues decreasing $3.9 million, or 5.9%. In addition to the factors discussed above, the decrease in DTC net revenues was impacted by a return to more normalized consumption patterns after two years of COVID-driven demand coupled with customers shifting back to brick and mortar buying. The decrease in wholesale net revenues reflected reduced purchases by our existing wholesale partners, offset in part by the impact of adding approximately 700 net new wholesale partner doors during the first six months of 2022.
Cost of revenues decreased $5.6 million, or 5.6%, to $95.3 million for the three months ended June 30, 2022 compared to $100.9 million for the three months ended June 30, 2021. This decrease was primarily due to the corresponding decrease in sales volume, offset in part by increases in materials, freight and overhead costs. Our gross profit percentage, which decreased to 33.9% of net revenues in the second quarter of 2022 from 44.7% in the second quarter of 2021, was adversely impacted by lower sales with an increased proportion of wholesale channel revenue which carries a lower average selling price than sales from our DTC channel and unfavorable cost absorption from lower than planned production volumes in prior months. Additionally, our gross profit percentage reflects the impact of elevated levels of materials, labor and overhead costs, partially offset by benefits realized from our workforce restructuring.
Marketing and sales expense decreased $19.5 million, or 32.5%, to $40.4 million for the three months ended June 30, 2022 compared to $59.8 million for the three months ended June 30, 2021. This decrease reflected a $24.1 million decline in advertising spending and a $2.7 million decrease in other marketing costs due in part to workforce reductions. The intentional reduction in advertising spending was due to management's efforts to improve marketing efficiency and stabilize profitability in a challenging macroeconomic environment. These decreases were offset in part by a $2.0 million increase in wholesale-related marketing and sales costs as we continue to focus on improving the sales productivity of our wholesale doors and a $5.3 million increase in marketing and sales costs associated with our continued showroom expansion. Marketing and sales expense as a percentage of net revenues was 28.0% in the second quarter of 2022 compared to 32.8% in the second quarter of 2021. This decrease was primarily due to the reduction we made in advertising spending.
General and administrative expense decreased $3.7 million, or 16.4%, to $18.8 million for the three months ended June 30, 2022 compared to $22.5 million for the three months ended June 30, 2021. This decrease was primarily due to a $5.3 million decrease in legal and professional fees, offset in part by a $1.4 million increase in payroll costs related to planned increases in general and administrative personnel over the past twelve months and a $0.2 million increase in other expenses. The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions and other related costs we paid in the prior year second quarter for shares sold by Coliseum Capital Partners. This decrease was partially offset by a one-time $3.1 million separation fee incurred by the Company during the second quarter of 2022 for not continuing with the services of a professional services provider.
Research and development costs decreased $0.2 million, or 9.1%, to $1.7 million for the three months ended June 30, 2022 from $1.9 million for the three months ended June 30, 2021. This decrease was primarily due to lower professional services costs as product development priorities were being refocused. This decrease was offset in part by an increase in payroll costs related to planned increases in our research and development workforce including the addition of a chief innovation officer.
Operating loss increased $9.5 million to $12.1 million for the three months ended June 30, 2022 compared to $2.5 million for the three months ended June 30, 2021. This increase was primarily due to the decrease in gross profit, offset in part by lower operating expenses.
Interest expense totaled $0.7 million for the three months ended June 30, 2022 compared to $0.6 million for the three months ended June 30, 2021. The $0.1 million increase was primarily due to the term loan interest rate increasing from 3.50% during the second quarter of 2021 to 6.07% during the second quarter of 2022. In February 2022, the Company entered into the first amendment to the 2020 Credit Agreement which, among other things, changed the reference interest rate from LIBOR to SOFR and increased the applicable margins. The impact of this increase was offset in part by $0.2 million of interest capitalized during the second quarter of 2022. There was no interest capitalized during the three months ended June 30, 2021.
Change in Fair Value - Warrant Liabilities
The 1.9 million sponsor warrants outstanding at both June 30, 2022 and 2021 had fair values of $0.1 million and $14.5 million, respectively. The decrease in fair value was primarily due to the Company's Class A stock price, one of the primary assumptions used to re-measure the warrant liability, declining from $26.41 at June 30, 2021 to $3.06 at June 30, 2022. During the three months ended June 30, 2022 and 2021, we recognized gains of $0.3 million and $4.9 million, respectively, in our condensed consolidated statements of operations related to decreases in the fair value of the warrants outstanding at the end of the respective periods.
We had an income tax benefit of $4.2 million for the three months ended June 30, 2022 compared to an income tax benefit of $1.2 million for the three months ended June 30, 2021. The income tax benefit in the second quarter of 2022 was primarily the result of the Company having a net loss before income taxes of $12.6 million.
The Company calculates net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.1 million in the second quarter of 2022 while net loss attributed to noncontrolling interests was negligible for the three months ended June 30, 2021.
Operating Results for the Six Months Ended June 30, 2022 and 2021
Net revenues decreased $81.7 million, or 22.1%, to $287.3 million for the six months ended June 30, 2022 compared to $369.0 million for the six months ended June 30, 2021. The decline in net revenues reflected a $69.8 million decrease in mattress sales, an $8.0 million decrease in other sleep product sales and a $3.9 million decrease in other product sales. The decrease in net revenues for all three product types was primarily due to softening demand for home related products, inflationary pressures on consumer discretionary spending, management's decision to reduce advertising spend, and the prior year pull forward of demand driven by the effects of COVID and economic stimulus in the first half of 2021. The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $74.0 million, or 30.7% and wholesale net revenues decreasing $7.8 million, or 6.1%. In addition to the factors discussed above, the decrease in DTC net revenues was impacted by a return to more normalized consumption patterns after two years of COVID-driven demand coupled with customers shifting back to brick and mortar buying. The decrease in wholesale net revenues reflected reduced purchases by our existing wholesale partners during the first six months of 2022, offset in part by the impact of adding approximately 700 net new wholesale partner doors during the same time frame.
Cost of revenues decreased $13.0 million, or 6.5%, to $186.9 million for the six months ended June 30, 2022 compared to $199.9 million for the six months ended June 30, 2021. This decrease was primarily due to the corresponding decrease in sales volume, offset in part by an increase in materials, freight overhead costs. Our gross profit percentage, which decreased to 35.0% of net revenues during the first six months of 2022 from 45.9% for the first six months of 2021, was adversely impacted by lower sales with an increased proportion of wholesale channel revenue which carries a lower average selling price than sales from our DTC channel and unfavorable cost absorption from lower than planned production volumes in prior months. Additionally, our gross profit percentage reflects the impact of elevated levels of materials, labor and overhead costs, partially offset by benefits realized from our workforce restructuring.
Marketing and sales expense decreased $23.9 million, or 20.9%, to $90.3 million for the six months ended June 30, 2022 compared to $114.2 million for the six months ended June 30, 2021. This decrease reflected a $39.7 million decline in advertising spending and a $1.3 million decrease in other marketing costs due in part to workforce reductions. The intentional reduction in advertising spending was due to management's efforts to improve marketing efficiency and stabilize profitability in a challenging macroeconomic environment. These decreases were offset in part by a $7.0 million increase in wholesale-related marketing and sales costs as we continue to focus on improving the sales productivity of our wholesale doors and a $10.1 million increase in marketing and sales costs associated with our continued showroom expansion. Marketing and sales expense as a percentage of net revenues was 31.4% during the first six months of 2022 compared to 31.0% for the first six months of 2021.
General and administrative expense decreased to $36.7 million for the six months ended June 30, 2022 compared to $37.0 million for the six months ended June 30, 2021. This decrease was primarily due to a $4.6 million decrease in legal and professional fees, offset in part by a $3.6 million increase in payroll costs related to planned increases in general and administrative personnel over the past twelve months and a $0.7 million increase in other expenses. The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions and other costs we paid in the prior year second quarter for shares sold by Coliseum Capital Partners. This decrease was partially offset by a one-time $3.1 million separation fee incurred by the Company during the second quarter of 2022 for not continuing with the services of a professional services provider.
Research and development costs increased $0.2 million, or 6.7%, to $3.9 million for the six months ended June 30, 2022 from $3.6 million for the six months ended June 30, 2021. This increase was primarily due to an increase in payroll costs related to planned increases in our research and development workforce including the addition of a chief innovation officer, offset in part by a decrease in professional services costs as product development priorities were being refocused.
Operating income decreased $44.8 million to an operating loss of $30.5 million for the six months ended June 30, 2022 compared to operating income of $14.4 million for the six months ended June 30, 2021. This decrease was primarily due to the decrease in gross profit, offset in part by lower operating expenses.
Interest expense totaled $1.7 million for the six months ended June 30, 2022 compared to $1.1 million for the six months ended June 30, 2021. The $0.6 million increase was primarily due to interest expense of $0.6 million incurred on the $55.0 million revolving line of credit that was drawn down by the Company in November 2021 and repaid in full on March 31, 2022. The increase was also impacted by the term loan average interest rate increasing from 3.50% during the first six months of 2021 to 5.10% during the first six months of 2022. In February 2022, the Company entered into the first amendment to the 2020 Credit Agreement which, among other things, changed the reference interest rate from LIBOR to SOFR and increased the applicable margins. The impact of these increases was offset in part by $0.4 million of interest capitalized during the first six months of 2022. There was no interest capitalized during the six months ended June 30, 2021.
Change in Fair Value - Warrant Liabilities
The 1.9 million sponsor warrants outstanding at both June 30, 2022 and 2021 had fair values of $0.1 million and $14.5 million, respectively. The decrease in fair value was primarily due to the Company's Class A stock price, one of the primary assumptions used to re-measure the warrant liability, declining from $26.41 at June 30, 2021 to $3.06 at June 30, 2022. During the six months ended June 30, 2022 and 2021, we recognized gains of $4.3 million and $14.0 million, respectively, in our condensed consolidated statements of operations related to decreases in the fair value of the warrants outstanding at the end of the respective periods.
We had an income tax benefit of $6.0 million for the six months ended June 30, 2022 compared to income tax expense of $3.5 million for the six months ended June 30, 2021. The income tax benefit in the first six months of 2022 was primarily the result of the Company having a net loss before income taxes of $28.0 million.
The Company calculates net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.2 million for the six months ended June 30, 2022 compared to net income of $0.1 million for the six months ended June 30, 2021.
Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our credit facilities and proceeds received from offerings of our equity capital. Principal uses of funds consist of payments of principal and interest on our debt facilities, capital expenditures and working capital needs as well as other contractual obligations described below. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations. Our cash and working capital positions were $41.2 million and $80.1 million, respectively, as of June 30, 2022 compared to $91.6 million and $87.5 million, respectively, as of December 31, 2021. Cash used for capital expenditures decreased from $26.4 million in the first six months of 2021 to $26.1 million during the first six months of 2022. Our capital expenditures in the first six months of 2022 primarily consisted of leasehold improvements and furniture and fixtures associated with the opening of new Purple retail showrooms.
In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses and comply with debt covenants based on our ability to scale back operations, reduce marketing spend, use the liquidity we have available under our revolving line of credit and postpone or discontinue our growth strategies. Our 2020 Credit Agreement, as amended, includes various covenants and obligations that may make it difficult to obtain additional capital on terms that are favorable to us and to execute on our growth strategies. In addition, in order to continue satisfying the conditions of the debt agreement we may be required to scale back operations, reduce marketing spend, prepay debt and postpone or discontinue our growth strategies. We may also be forced to restructure our obligations to current creditors, pursue work-out options or seek additional funding sources including new debt or equity capital.
Based on our current projections, we believe our cash on hand, amounts available under our revolving line of credit, and expected cash to be generated from e-commerce, wholesale, and Purple retail store channels will be sufficient to meet our working capital requirements, comply with debt covenants and cover anticipated capital expenditures for the next 12 months and beyond.
In March 2022, the Company completed an underwritten public offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares of the over-allotment option that the underwriters exercised in full. The aggregate net proceeds received by the Company from the offering, after deducting offering expenses of $0.3 million, totaled $92.9 million.
On September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit. The term loan is being repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility has a term of five years and carries the same interest provisions as the term debt. A commitment fee is due quarterly based on the applicable margin applied to the unused total revolving commitment. In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the full amount available under the line. On March 31, 2022, the Company used a portion of the net proceeds from the offering to repay in full the $55.0 million of principal outstanding on the revolving line of credit.
The Company's operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under the 2020 Credit Agreement. On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default. This amendment contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be tested for the fiscal quarters ended December 31, 2021, March 31, 2022 and June 30, 2022. Other modifications in the amendment included revised leverage ratio and fixed charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into 2023 until certain conditions are met. In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5% plus 4.75%, for a total rate of 5.25% if the applicable liquidity threshold is met. If the Company does not meet this threshold, the interest rate would increase to SOFR with a floor of 0.5% plus 9.00%. Once the Company achieves a consolidated leverage ratio that is below 3.00 to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio. The interest rate on the term loan was 6.07% as of June 30, 2022.
Pursuant to the first amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet and made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 - Debt.
On March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement. This amendment modified the 2020 Credit Agreement to allow CCM and its investment affiliates to acquire 35% or more of the combined voting power of all equity interests of the Company entitled to vote for the election of members of the Company's board of directors without constituting an event of default. CCM is considered a related party of the Company in that Adam Gray, a member of our board of directors, serves as a managing partner of CCM.
Pursuant to the second amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 - Debt.
We are required to make certain payments to InnoHold under a tax receivable agreement, which may have a material adverse effect on our liquidity and capital resources. We are currently unable to determine the total future amount of these payments due to the unpredictable nature of several factors, including the timing of future exchanges, the market price of shares of Class A common stock at the time of the exchanges, the extent to which such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes that give rise to the payments under the agreement. As of June 30, 2022 and December 31, 2021, the tax receivable agreement liability reflected in the Company's consolidated balance sheet was $162.2 million and $168.1 million, respectively. This decrease was due to a $5.8 million payment that was made during the first quarter of 2022.
In addition to the material contractual obligations discussed above, other material contractual obligations primarily include operating lease payments obligations. See Note 8 of the condensed consolidated financial statements for additional information.
Cash Flows for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Net cash provided by (used in) operating activities $ (52,804 ) $ 11,469 Net cash used in investing activities
Cash used in operating activities of $52.8 million for the six months ended June 30, 2022 primarily resulted from a $22.0 million net loss combined with a $30.1 million decrease in operating cash flow related to net changes of operating assets and liabilities. These decreases related mostly to a $6.1 million increase in accounts receivable and a $37.0 million decrease in accounts payable, offset in part by a $13.8 million decrease in inventories. The increase in accounts receivable was primarily due to the timing of wholesale partner payments. The decline in accounts payable was mainly due to the balance at prior year-end being higher than normal because of payment timing coupled with the impact of larger advertising spend in the fourth quarter of 2021. The decrease in inventory was primarily due to management's efforts to rebalance production and fulfillment operations during the first half of 2022.
Cash used in investing activities reflected capital expenditures of $26.1 million during the six months ended June 30, 2022 compared to $26.4 million for the six months ended June 30, 2021. Capital expenditures during the first six months of 2022 primarily consisted of investments in leasehold improvements and furniture and fixtures related to the opening of new Purple retail showrooms.
Cash provided by financing activities was $28.4 million during the six months ended June 30, 2022 compared to $2.1 million during the six months ended June 30, 2021. Financing activities during the first six months of 2022 included $92.9 million of net proceeds received from the underwritten stock offering, offset in part by a $55.0 million revolving line of credit payment, a $5.8 million payment on the tax receivable agreement, and $3.8 million in other debt related payments.
We discuss our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed March 1, 2022. There were no significant changes in our critical accounting policies since the end of fiscal 2021.
Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We also use the Investor Relations portion of our website, investors.purple.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
© Edgar Online, source Glimpses