PLBY Group Inc.
03/13/2025 | Press release | Distributed by Public on 03/13/2025 14:49
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. In addition to historical information, the following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors.
Unless otherwise indicated or the context otherwise requires, references to the "Company", "PLBY", "we", "us", "our" and other similar terms refer to PLBY Group, Inc. and its consolidated subsidiaries.
Business Overview
We are a global consumer lifestyle company marketing our brands through a wide range of direct-to-consumer products, licensing initiatives, digital subscriptions and content, and online and location-based entertainment businesses. We have three reportable segments: Direct-to-Consumer, Licensing, and Digital Subscriptions and Content. The Direct-to-Consumer segment derives revenue from sales of consumer products sold directly to consumers by Honey Birdette online or at its brick-and-mortar stores, with 54 stores in three countries as of December 31, 2024, and in the prior year comparative period included the playboy.come-commerce business, which in the third quarter of 2023 fully transitioned from an owned-and-operated model to a licensing model. The Licensing segment derives revenue from trademark licenses for third-party consumer products, primarily for various apparel and accessories categories, hospitality, digital gaming and location-based entertainment businesses. The Digital Subscriptions and Content segment derives revenue from the subscription of Playboy programming that is distributed through various channels, including Playboy websites and domestic and international television, and sales of creator content offerings and memberships to consumers through the Playboy Club on playboy.com.
Disposition of Businesses
Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for information regarding our business dispositions.
Key Factors and Trends Affecting Our Business
We believe that our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K titled "Risk Factors."
Pursuing a More Capital-Light Business Model
We continue to pursue a commercial strategy that relies on a more capital-light business model focused on revenue streams with higher margin, lower working capital requirements and higher growth potential. We are doing this by leveraging our flagship Playboy brand to attract best-in-class operators. In the fourth quarter of 2024, we entered into a licensing agreement with Byborg to license intellectual property and select Playboy digital assets for $300.0 million in minimum guaranteed payments over the initial 15-year term of the license, which began as of January 1, 2025. We are focused on strategically expanding our licensing business into new categories and territories with high quality strategic partners and supporting them with brand marketing in the form of content, experiences and editorial works. We will also continue to use our licensing business as a marketing tool and brand builder, including through high profile collaborations and our large-scale strategic partnerships. For our Honey Birdette business, we intend to focus on the U.S. market, where the brand's stores, on average, generate more revenue and better margins, and generally have customers that tend to spend more and are less price sensitive.
China Licensing Revenues
Our revenues from China (including Hong Kong) as a percentage of our total revenues from continuing operations were 10% and 20% for the years ended December 31, 2024 and 2023, respectively. At the end of the first quarter of 2023, we entered into the China JV with CT Licensing Limited, a brand management unit of Fung Group. The China JV owns and operates the Playboy consumer products business in mainland China, Hong Kong and Macau. In 2023, due to challenging economic conditions in China, collections from certain of our Chinese licensees slowed significantly, and we had to renegotiate terms of, or terminate, certain licenses, resulting in $152.2 million of unrecognized Licensing revenue under our long-term contracts as of the applicable termination dates. Revenue recognized in connection with such terminated contracts was $27.1 million during the year ended December 31, 2023, out of which $5.1 million was attributable to prepaid royalty guarantees recorded as revenue in the fourth quarter of 2023. Future contract modifications and collectability issues could further impact the revenue recognized against our ongoing contract assets. Nonetheless, in 2024, our China JV stabilized our business in China, and we expect our licensing activity in China to increase slightly in 2025 and continue to represent a modest but meaningful part of our overall business in future periods.
Impairments
Our indefinite-lived intangible assets, including trademarks and goodwill, that are not amortized, and the carrying amounts of our long-lived assets, including property and equipment, stores, acquired intangible assets and right-of-use operating lease assets, may continue to be subject to impairment testing and impairments which reduce their value on our balance sheet. We periodically review for impairments whenever events or changes in our circumstances indicate that such assessment would be appropriate. We experienced further declines in revenue and profitability during the year ended December 31, 2024, which caused us to test the recoverability of our indefinite-lived and long-lived assets and resulted in the impairments set forth in our consolidated financial statements for the year ended December 31, 2024. However, if we continue to experience declines in revenue or profitability, which could occur upon further declines in consumer demand or additional discontinued operations, we may record further non-cash asset impairment charges as of the applicable impairment testing date.
Seasonality of Revenues
While we receive revenue throughout the year, our Honey Birdette direct-to-consumer business has experienced, and may continue to experience, seasonality. Historical seasonality of revenues may be subject to change as increasing pressure from competition and economic conditions impact our licensees and consumers. The further transition of our business to a capital-light business model may further impact the seasonality of our business in the future.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of the business are revenues, salaries and benefits, and selling and administrative expenses. To help assess performance with these key indicators, we use EBITDA and Adjusted EBITDA as non-GAAP financial measures. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure revenue and cost performance as a supplement to the GAAP consolidated financial statements. Refer to the "EBITDA and Adjusted EBITDA" section below for reconciliations of EBITDA and Adjusted EBITDA to net loss, the closest GAAP measure.
Components of Results of Operations
Revenues
We generate revenue from sales of consumer products sold through our Honey Birdette retail stores or online directly to customers, trademark licenses for third-party consumer products and online and location-based entertainment businesses, and sales of creator content offerings and memberships to consumers on our content creator platform on playboy.com, in addition to subscriptions to our programming, which is distributed through various channels, including websites and domestic and international television.
Consumer Products
Revenue from sales of online apparel and accessories, including sales through third-party sellers, is recognized upon delivery of the goods to the customer. Revenue from sales of apparel at our retail stores is recognized at the time of transaction. Revenue is recognized net of incentives and estimated returns. We periodically offer promotional incentives to customers, which include basket promotional code discounts and other credits, which are recorded as a reduction of revenue.
Trademark Licensing
We license trademarks under multi-year arrangements to third-party consumer products and online and location-based entertainment businesses. Typically, the initial contract term ranges between one to ten years. Renewals are separately negotiated through amendments. Under these arrangements, we generally receive an annual non-refundable minimum guarantee that is recoupable against a sales-based royalty generated during the license year. Earned royalties received in excess of the minimum guarantee ("Excess Royalties") are typically payable quarterly. We recognize revenue for the total minimum guarantee specified in the agreement on a straight-line basis over the term of the agreement and recognize Excess Royalties only when the annual minimum guarantee is exceeded. Generally, Excess Royalties are recognized when they are earned. In the event that the collection of any royalty becomes materially uncertain or unlikely, we recognize revenue from our licensees up to the cash we have received.
Digital Subscriptions
Digital subscription revenue is derived from subscription sales of playboyplus.comand playboy.tv, which are online content platforms. We receive fixed consideration shortly before the start of the subscription periods from these contracts, which are primarily sold in monthly, annual, or lifetime subscriptions. Revenues from lifetime subscriptions are recognized ratably over a five-year period, representing the estimated period during which the customer accesses the platforms. Revenues from digital subscriptions are recognized ratably over the subscription period.
Revenues generated from the sales of creator content offerings to consumers via our creator platform on playboy.comare recognized at the point in time when the sale is processed. Revenues generated from subscriptions to our creator platform and memberships to consumers are recognized ratably over the subscription/membership period. Revenues generated from events and sponsorships are recognized when the event occurs.
TV and Cable Programming
We license programming content to certain cable television operators and direct-to-home satellite television operators who pay royalties based on monthly subscriber counts and pay-per-view and video-on-demand buys for the right to distribute our programming under the terms of affiliation agreements. Royalties are generally collected monthly and recognized as revenue as earned.
Cost of Sales
Cost of sales primarily consist of merchandise costs, warehousing and fulfillment costs, agency fees, website expenses, digital platform expenses, marketplace traffic acquisition costs, credit card processing fees, personnel and affiliate costs, including stock-based compensation and costs associated with branding events, customer shipping and handling expenses, fulfillment activity costs and freight-in expenses.
Selling and Administrative Expenses
Selling and administrative expenses primarily consist of corporate and retail store occupancy costs, personnel costs, including stock-based compensation and contractor fees for accounting/finance, legal, human resources, information technology and other administrative functions, general marketing and promotional activities, and insurance, offset by a reversal of related selling and administrative expenses due to settlement at a discount of certain account payable balances in 2024.
Impairments
Impairments consist of the impairments of our artwork held for sale, internally developed software, certain licensing contracts, right-of-use assets, Playboy-branded trademarks, Honey Birdette's trade names and goodwill.
Other Operating Expense, Net
Other operating expense, net consists primarily of losses on disposal of assets and other miscellaneous items, offset by gains recognized from the sale of crypto assets (2023 only).
Nonoperating (Expense) Income
Interest expense
Interest expense consists of interest on our long-term debt and the amortization of deferred financing costs and debt premium/discount.
Gain on Extinguishment of Debt, Net
In the first quarter of 2023, we recorded a loss on partial extinguishment of debt in the amount of $1.8 million related to the write-off of unamortized debt discount and deferred financing costs as a result of $45 million in prepayments of our debt pursuant to amendments of our senior secured credit agreement in December 2022 and February 2023.
In the second quarter of 2023, we recorded a gain on partial extinguishment of debt in the amount of $8.0 million upon the amendment and restatement of the Credit Agreement (as such term is defined in Note 10, Debt, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, refer to such Note 10, Debt and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" for additional details).
Fair Value Remeasurement Gain
Fair value remeasurement gain consists of changes to the fair value of mandatorily redeemable preferred stock liability related to its remeasurement.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of other miscellaneous nonoperating items, such as foreign exchange realized and unrealized transaction gains or losses, bank charges as well as nonrecurring transaction fees.
(Expense) Benefit from Income Taxes
(Expense) benefit from income taxes consists of an estimate for U.S. federal, state, and foreign income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. Due to cumulative losses, we maintain a valuation allowance against our U.S. federal and state deferred tax assets, as well as Australia, U.K. and China deferred tax assets.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2024 and 2023
The following table summarizes key components of our results of operations for the periods indicated (in thousands):
|
Year Ended December 31,
|
|||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Net revenues | $ | 116,135 | $ | 142,950 | $ | (26,815) | (19) | % | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of sales | (41,780) | (54,777) | 12,997 | (24) | |||||||||||||||||||
| Selling and administrative expenses | (98,716) | (123,118) | 24,402 | (20) | |||||||||||||||||||
| Impairments | (26,078) | (154,884) | 128,806 | (83) | |||||||||||||||||||
| Other operating expense, net | (399) | (540) | 141 | (26) | |||||||||||||||||||
| Total operating expense | (166,973) | (333,319) | 166,346 | (50) | |||||||||||||||||||
| Operating loss | (50,838) | (190,369) | 139,531 | (73) | |||||||||||||||||||
| Nonoperating (expense) income: | |||||||||||||||||||||||
| Interest expense | (23,689) | (23,293) | (396) | 2 | |||||||||||||||||||
| Gain on extinguishment of debt, net | - | 6,133 | (6,133) | (100) | |||||||||||||||||||
| Fair value remeasurement gain | - | 6,505 | (6,505) | (100) | |||||||||||||||||||
| Other (expense) income, net | (1,722) | 806 | (2,528) | (314) | |||||||||||||||||||
| Total nonoperating expense | (25,411) | (9,849) | (15,562) | 158 | |||||||||||||||||||
| Loss from continuing operations before income taxes | (76,249) | (200,218) | 123,969 | (62) | |||||||||||||||||||
| (Expense) benefit from income taxes | (3,148) | 13,770 | (16,918) | (123) | |||||||||||||||||||
| Net loss from continuing operations | (79,397) | (186,448) | 107,051 | (57) | |||||||||||||||||||
| Income from discontinued operations, net of tax | - | 6,030 | (6,030) | (100) | |||||||||||||||||||
| Net loss | (79,397) | (180,418) | 101,021 | (56) | |||||||||||||||||||
| Net loss attributable to PLBY Group, Inc. | $ | (79,397) | $ | (180,418) | $ | 101,021 | (56) | % | |||||||||||||||
The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
|
Year Ended December 31,
|
|||||||||||
| 2024 | 2023 | ||||||||||
| Net revenues | 100 | % | 100 | % | |||||||
| Costs and expenses: | |||||||||||
| Cost of sales | (36.0) | (38.3) | |||||||||
| Selling and administrative expenses | (85.0) | (86.1) | |||||||||
| Impairments | (22.5) | (108.3) | |||||||||
| Other operating expense, net | (0.3) | (0.4) | |||||||||
| Total operating expense | (143.8) | (233.1) | |||||||||
| Operating loss | (43.8) | (133.1) | |||||||||
| Nonoperating (expense) income: | |||||||||||
| Interest expense | (20.4) | (16.3) | |||||||||
| Gain on extinguishment of debt, net | - | 4.3 | |||||||||
| Fair value remeasurement gain | - | 4.6 | |||||||||
| Other (expense) income, net | (1.5) | 0.6 | |||||||||
| Total nonoperating expense | (21.9) | (6.8) | |||||||||
| Loss from continuing operations before income taxes | (65.7) | (139.9) | |||||||||
| (Expense) benefit from income taxes | (2.7) | 9.6 | |||||||||
| Net loss from continuing operations | (68.4) | (130.3) | |||||||||
| Income from discontinued operations, net of tax | - | 4.2 | |||||||||
| Net loss | (68.4) | (126.1) | |||||||||
| Net loss attributable to PLBY Group, Inc. | (68.4) | % | (126.1) | % | |||||||
Net Revenues
The following table sets forth net revenues by reportable segment (in thousands):
|
Year Ended December 31,
|
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| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Direct-to-consumer | $ | 69,729 | $ | 77,984 | $ | (8,255) | (11) | % | |||||||||||||||
| Licensing | 24,552 | 44,292 | (19,740) | (45) | |||||||||||||||||||
| Digital subscriptions and content | 21,854 | 20,670 | 1,184 | 6 | |||||||||||||||||||
| All other | - | 4 | (4) | (100) | |||||||||||||||||||
| Total | $ | 116,135 | $ | 142,950 | $ | (26,815) | (19) | % | |||||||||||||||
Direct-to-Consumer
The decrease in direct-to-consumer net revenues, compared to the prior year comparative period, was primarily due to a $5.0 million decrease in revenue from playboy.come-commerce related to our completion of the transition from an owned-and-operated model to a licensing model in the third quarter of 2023 and a $3.2 million decrease in Honey Birdette revenue as a result of a 30% reduction in days on sale and weaker consumer demand.
Licensing
The decrease in licensing net revenues, compared to the prior year comparative period, was primarily due to the termination of licensing agreements with certain Chinese licensees in the fourth quarter of 2023 due to material, uncured breaches resulting in collectability issues, $5.1 million of prepaid royalty guarantees recognized as revenue in the fourth quarter of 2023 in connection with the termination of one such licensing contract, the decline in contractual revenue and overages from our licensing partners due to weaker consumer demand, as well as lower licensee audit revenues.
Digital Subscriptions and Content
The increase in digital subscriptions and content net revenues, compared to the prior year comparative period, was primarily due to a $1.7 million increase in net revenues from our creator platform, partly offset by a $0.6 million decrease in other digital subscriptions and content revenue.
Cost of Sales and Gross Profit
The following table sets forth cost of sales and gross margin by reportable segment (in thousands):
|
Year Ended December 31,
|
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| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Direct-to-consumer | $ | (30,345) | $ | (46,264) | $ | 15,919 | (34) | % | |||||||||||||||
| Licensing | (2,310) | 2,798 | (5,108) | (183) | |||||||||||||||||||
| Digital subscriptions and content | (9,125) | (11,294) | 2,169 | (19) | |||||||||||||||||||
| All other | - | (17) | 17 | (100) | |||||||||||||||||||
| Total | $ | (41,780) | $ | (54,777) | $ | 12,997 | (24) | % | |||||||||||||||
|
Direct-to-consumer gross profit
|
$ | 39,384 | $ | 31,720 | $ | 7,664 | 24 | % | |||||||||||||||
|
Direct-to-consumer gross margin
|
56 | % | 41 | % | |||||||||||||||||||
|
Licensing gross profit
|
$ | 22,242 | $ | 47,090 | $ | (24,848) | (53) | % | |||||||||||||||
|
Licensing gross margin
|
91 | % | 106 | % | |||||||||||||||||||
|
Digital subscriptions and content gross profit
|
$ | 12,729 | $ | 9,376 | $ | 3,353 | 36 | % | |||||||||||||||
|
Digital subscriptions and content gross margin
|
58 | % | 45 | % | |||||||||||||||||||
|
Other gross profit
|
$ | - | $ | (13) | $ | 13 | (100) | % | |||||||||||||||
|
Other gross margin
|
- | % | * | ||||||||||||||||||||
|
Total gross profit
|
$ | 74,355 | $ | 88,173 | $ | (13,818) | (16) | % | |||||||||||||||
|
Total gross margin
|
64 | % | 62 | % | |||||||||||||||||||
|
_________________
*Not meaningful
|
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Direct-to-Consumer
The decrease in direct-to-consumer cost of sales and increase in gross margin, compared to the prior year comparative period, was primarily due to a $8.6 million reduction in cost of sales related to the transition of Playboy's e-commerce site from an owned-and-operated model to a licensing model in the prior year comparative period, lower inventory reserve charges of $4.3 million for Honey Birdette, and a $2.6 million reduction in Honey Birdette's product, shipping and fulfillment costs due to lower revenue.
Licensing
The increase in licensing cost of sales and decrease in gross margin, compared to the comparable prior year period, was primarily due to a $6.2 million increase in licensing commissions primarily due to a nonrecurring reversal of commission accrual in the prior year comparative period related to the termination of certain Chinese licensing agreements, partly offset by a $1.1 million reduction in licensing product costs due to the termination of Playboy's e-commerce licensing agreement in the second quarter of 2024 and subsequent licensing agreement with a new licensing partner in the third quarter of 2024.
Digital Subscriptions and Content
The decrease in digital subscriptions and content cost of sales and increase in gross margin, compared to the comparable prior year period, was primarily due to $2.0 million in lower cost of sales related to our creator platform largely as a result of nonrecurring creator platform expenses in 2023 and lower payment processing fees.
Selling and Administrative Expenses
The decrease in selling and administrative expenses, compared to the prior year comparative period, was primarily due to $7.1 million of lower technology costs, primarily due to restructuring charges taken on direct-to-consumer cloud-based software attributable to continuing operations in 2023, lower audit, legal and consulting fees of $4.6 million as a result of business downsizing and cost rationalization, a $2.7 million reduction in severance expense, a $3.1 million decrease in China JV expense due to cost cuts and nonrecurring transaction expenses in 2023, lower stock-based compensation expense of $2.3 million and payroll expense of $0.8 million due to headcount reductions, and a $2.3 million decrease in insurance expense due to the renegotiation of our insurance policies.
Impairments
The decrease in impairments, compared to the prior year comparative period, was primarily due to impairment charges in the prior year comparative period of $143.9 million on Playboy-branded trademarks, Honey Birdette's trade names and goodwill, $8.7 million in impairments of certain licensing contracts, and $2.3 million in impairments of certain Honey Birdette right-of-use assets and related leasehold improvements, partly offset by impairment charges of $2.4 million and $1.4 million on our artwork held for sale in the first and fourth quarters of 2024, respectively, $0.6 million on our corporate leases in the second quarter of 2024, $17.0 million on our goodwill for Digital Subscriptions and Content and $4.7 million of impairment charges related to our internally developed software in the third quarter of 2024.
Other Operating Expense, Net
The decrease in other operating expense, net, compared to the prior year comparative period, was primarily due to a $0.4 million loss on sale of assets, including our artwork held for sale, in 2024, and a $0.3 million gain on the sale of crypto assets during the year ended December 31, 2023, partly offset by a $0.7 million loss from settlement of a promissory note recognized in 2023 and other miscellaneous items.
Nonoperating (Expense) Income
Interest Expense
The increase in interest expense, compared to the prior year comparative period, was primarily due to higher interest rates on our senior secured debt in 2024 compared to the prior year comparative period.
Gain on Extinguishment of Debt
Gain on extinguishment of debt for the year ended December 31, 2023 represents a $6.1 million gain due to the partial extinguishment of debt upon the amendment and restatement of our senior secured debt credit agreement in 2023, net of a $1.8 million loss recorded in 2023 due to the partial extinguishment of debt related to $45 million of prepayments of such senior debt.
Fair Value Remeasurement Gain
Fair value remeasurement gain for the year ended December 31, 2023 represented the remeasurement of our mandatorily redeemable preferred stock liability to its fair value in 2023, which was exchanged (and thereby eliminated) in connection with our A&R Credit Agreement for our senior secured debt in the second quarter of 2023.
Other (Expense) Income, Net
The change in other income (expense), net from net income in 2023 to net expense in 2024 was primarily due to unrealized foreign exchange losses in relation to Honey Birdette's foreign operations as well as certain of our Chinese licenses denominated in foreign currency.
(Expense) Benefit from Income Taxes
The change from benefit from income taxes to income tax expense as compared to the prior year comparative period was primarily driven by lower pretax book loss, a change in valuation allowance due to a reduction in net indefinite-lived deferred tax liabilities, and increased foreign Subpart F income in the year ended December 31, 2024.
Non-GAAP Financial Measures
In addition to our results being determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our operational performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
EBITDA and Adjusted EBITDA
"EBITDA" is defined as net income or loss before interest, income tax expense or benefit, and depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA adjusted for stock-based compensation and other special items determined by management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, investors should be aware that when evaluating EBITDA and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because not all companies may calculate Adjusted EBITDA in the same fashion.
In addition to adjusting for non-cash stock-based compensation, non-cash charges for the fair value remeasurements of certain liabilities and non-recurring non-cash impairments, asset write-downs and inventory reserve charges, we typically adjust for nonoperating expenses and income, such as nonrecurring special projects, including for related consultant expenses, nonrecurring gain on the sale of assets, expenses associated with financing activities, and reorganization and severance expenses that result from the elimination or rightsizing of specific business activities or operations.
Because of the limitations described above, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. Investors should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss to EBITDA and Adjusted EBITDA (in thousands):
|
Year Ended December 31,
|
|||||||||||
| 2024 | 2023 | ||||||||||
| Net loss | $ | (79,397) | $ | (180,418) | |||||||
| Adjusted for: | |||||||||||
| Income from discontinued operations, net of tax | - | (6,030) | |||||||||
| Net loss from continuing operations | (79,397) | (186,448) | |||||||||
| Adjusted for: | |||||||||||
| Interest expense | 23,689 | 23,293 | |||||||||
| Gain on extinguishment of debt | - | (6,133) | |||||||||
| Expense (benefit) from income taxes | 3,148 | (13,770) | |||||||||
| Depreciation and amortization | 7,007 | 7,199 | |||||||||
| EBITDA | (45,553) | (175,859) | |||||||||
| Adjusted for: | |||||||||||
| Stock-based compensation | 7,311 | 9,597 | |||||||||
| Impairments | 26,078 | 154,884 | |||||||||
| Mandatorily redeemable preferred stock fair value remeasurement | - | (6,505) | |||||||||
| Recognition of prepaid royalty guarantees | - | (5,084) | |||||||||
| Write-down of capitalized software | - | 5,051 | |||||||||
| Inventory reserve charges | - | 3,637 | |||||||||
| Adjustments | 5,911 | 6,979 | |||||||||
| Adjusted EBITDA | $ | (6,253) | $ | (7,300) | |||||||
•Impairments for the year ended December 31, 2024 relate to impairment charges on our artwork held for sale, corporate leases and assets related to our Digital Subscriptions and Content business.
•Impairments for the year ended December 31, 2023 relate primarily to the impairments of intangible assets, including goodwill, and impairments on certain of our licensing contracts, and impairments of certain Honey Birdette right-of-use assets and related leasehold improvements.
•Mandatorily redeemable preferred stock fair value remeasurement for the year ended December 31, 2023 relates to the fair value remeasurement, non-cash fair value gain of the liability for such preferred stock.
•Recognition of prepaid royalty guarantees for the year ended December 31, 2023 relates to $5.1 million of prepaid royalty guarantees recognized as revenue in connection with termination of a licensing contract in the fourth quarter of 2023.
•Write-down of capitalized software for the year ended December 31, 2023 relates to restructuring charges taken on direct-to-consumer cloud-based software in the first and fourth quarters of 2023, excluding costs related to discontinued operations.
•Inventory reserve charges for the year ended December 31, 2023 relate to non-cash inventory reserve charges, excluding certain ordinary inventory reserve items, recorded in the first quarter of 2023 to reflect the restructuring of the Playboy Direct-to-Consumer business.
•Adjustments for the year ended December 31, 2024 are primarily related to non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable with respect to a past acquisition that remained unsettled as of December 31, 2024, loss on the sale of artwork, consulting, advisory and other costs relating to corporate transactions and other strategic opportunities as well as reorganization and severance costs resulting in the elimination or rightsizing of specific business activities or operations.
•Adjustments for the year ended December 31, 2023 are related to non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable with respect to a past acquisition that remained unsettled as of December 31, 2023, consulting, advisory and other costs relating to corporate transactions and other strategic opportunities, as well as reorganization and severance costs resulting in the elimination or rightsizing of specific business activities or operations.
Segments
During the year ended December 31, 2024 and as of December 31, 2024, we had three reportable segments: Direct-to-Consumer, Licensing, and Digital Subscriptions and Content. The Direct-to-Consumer segment derives revenue from sales of consumer products sold online direct-to-customer or at brick-and-mortar retail stores through our lingerie business, Honey Birdette, with 54 stores in three countries as of December 31, 2024. The TLA and Yandy direct-to-consumer businesses met the criteria for discontinued operations classification as of December 31, 2023 (refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details). Therefore, they were excluded from the table below and classified as discontinued operations in our consolidated statements of operations for the year ended December 31, 2023. Our Licensing segment includes the licensing of one or more of our trademarks, our Playboy retail platform operations effective July 2023, and/or images for consumer products and online and location-based entertainment businesses. Our Digital Subscriptions and Content segment includes the production, marketing and sales of programming under the Playboy brand name, which is distributed through various channels, including domestic and international television, sales of creator content offerings and memberships to consumers through the Playboy Club on playboy.com, as well as events and sponsorships.
In the fourth quarter of 2024, the Company entered into a License & Management Agreement (the "LMA") with Byborg to license intellectual property and certain Playboy digital assets for $300.0 million in minimum guaranteed payments over the initial 15-year term of the license, which began January 1, 2025. As a result, Licensing operations will include revenue from the LMA with Byborg as of January 1, 2025.
Our Chief Executive Officer is our Chief Operating Decision Maker ("CODM"). Segment information is presented in the same manner that our CODM reviews the operating results in assessing performance and allocating resources. Total asset information is not included in the tables below as it is not provided to and reviewed by our CODM. The "All Other" line items in the tables below are miscellaneous in nature and do not relate to the previously identified reportable segments disclosed herein. These segments do not meet the quantitative threshold for determining reportable segments. The "Corporate" line item in the tables below includes certain operating expenses that are not allocated to the reporting segments presented to our CODM. These expenses include legal, human resources, accounting/finance, information technology and facilities. The accounting policies of the reportable segments are the same as those described in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
"Adjusted Operating Income (Loss)" is defined as operating income or loss adjusted for stock-based compensation and other special items determined by management. Adjusted operating loss is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of adjusted operating loss provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, investors should be aware that when evaluating adjusted operating loss, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Our computation of adjusted operating loss may not be comparable to other similarly titled measures computed by other companies, because not all companies may calculate adjusted operating loss in the same fashion.
In addition to adjusting for non-cash stock-based compensation, non-cash charges for the fair value remeasurements of certain liabilities and nonrecurring non-cash impairments, asset write-downs and inventory reserve charges, we typically adjust for nonrecurring special projects, including for related consultant expenses, nonrecurring gain on the sale of assets, expenses associated with financing activities, and reorganization and severance expenses that result from the elimination or rightsizing of specific business activities or operations.
Because of the limitations described above, adjusted operating loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted operating loss on a supplemental basis. Investors should review the reconciliation of operating loss to adjusted operating loss below and not rely on any single financial measure to evaluate our business.
The following table reconciles Operating (Loss) Income to Adjusted Operating (Loss) Income by reportable segment (in thousands):
| Year Ended December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Direct-to-Consumer | Licensing | Digital Subscriptions and Content | Corporate | All Other | Total | ||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (2,286) | $ | 14,396 | $ | (27,150) | $ | (35,810) | $ | 12 | $ | (50,838) | |||||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 3,583 | - | 2,705 | 719 | - | 7,007 | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | 3,623 | 3,688 | - | 7,311 | |||||||||||||||||||||||||||||
| Impairments | - | - | 21,706 | 4,372 | - | 26,078 | |||||||||||||||||||||||||||||
| Adjustments | 1,398 | 152 | 720 | 3,641 | - | 5,911 | |||||||||||||||||||||||||||||
| Adjusted operating income (loss) | $ | 2,695 | $ | 14,548 | $ | 1,604 | $ | (23,390) | $ | 12 | $ | (4,531) | |||||||||||||||||||||||
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Direct-to-Consumer | Licensing | Digital Subscriptions and Content | Corporate | All Other | Total | ||||||||||||||||||||||||||||||
| Operating loss | $ | (98,886) | $ | (46,898) | $ | (1,730) | $ | (42,842) | $ | (13) | $ | (190,369) | |||||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 3,669 | - | 2,740 | 790 | - | 7,199 | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | 629 | 8,968 | - | 9,597 | |||||||||||||||||||||||||||||
| Impairments | 74,913 | 79,971 | - | - | - | 154,884 | |||||||||||||||||||||||||||||
| Recognition of prepaid royalty guarantees | - | (5,084) | - | - | - | (5,084) | |||||||||||||||||||||||||||||
| Write-down of capitalized software | 5,051 | - | - | - | - | 5,051 | |||||||||||||||||||||||||||||
| Inventory reserve charges | 3,637 | - | - | - | - | 3,637 | |||||||||||||||||||||||||||||
| Adjustments | 1,156 | 1,531 | 828 | 3,464 | - | 6,979 | |||||||||||||||||||||||||||||
| Adjusted operating (loss) income | $ | (10,460) | $ | 29,520 | $ | 2,467 | $ | (29,620) | $ | (13) | $ | (8,106) | |||||||||||||||||||||||
Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures" for descriptions of the adjustments to reconcile net income to Adjusted EBITDA, certain of which adjustments are listed in the table above and the descriptions used for the reconciliation of net income to Adjusted EBITDA are also applicable for the table above.
Direct-to-Consumer
Net Revenues and Gross Margin: Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" for a discussion of changes in net revenues and gross profit in our Direct-to-Consumer segment from 2023 to 2024.
Operating Loss: The decrease in operating loss, compared to the prior year comparative period, was primarily due to non-cash impairment charges in the prior year comparative period of $72.6 million on certain of our intangible assets (including goodwill), a $2.3 million impairment on certain Honey Birdette right-of-use assets and related leasehold improvements, an increase of $7.7 million of gross profit, $7.1 million of lower technology costs, primarily due to restructuring charges taken on direct-to-consumer cloud-based software attributable to continuing operations in 2023, lower payroll expense of $4.0 million, of which $2.2 million was due to the transition of Playboy's e-commerce site from our ownership and operation to a licensed business model in the third quarter of 2023, and $1.6 million in reduced marketing spend related to our discontinued e-commerce site.
Adjusted Operating Income (Loss):The change from adjusted operating loss in the prior year comparative period to adjusted operating income in 2024 was primarily due to an improvement in Honey Birdette's gross margin, largely due to a reduction in inventory reserve charges, as well as reductions in selling and administrative expenses, reflecting cost optimization as we continue to pursue a capital-light business model.
Licensing
Net Revenues and Gross Margin: Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" for a discussion of changes in net revenues and gross profit in our Licensing segment from 2023 to 2024.
Operating Income: The change from operating loss in the prior year comparative period to operating income in 2024 was primarily due to $71.3 million of non-cash impairment charges on our trademarks and the $8.7 million impairment of certain licensing contracts in the prior year comparative period, a $3.1 million decrease in China JV expenses, out of which $1.5 million was due to organizational expenses incurred in the prior year comparative period, and a $3.0 million reduction in legal expenses, partly offset by a $24.8 million decrease in licensing gross profit, resulting from lower revenues and commission accrual reversals in the prior period.
Adjusted Operating Income:The decrease in adjusted operating income, compared to the prior year comparative period, was primarily due to a decrease in licensing gross profit, largely due to the termination of two China licensing agreements in the fourth quarter of 2023.
Digital Subscriptions and Content
Net Revenues and Gross Margin: Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" for a discussion of changes in net revenues and gross profit in our Digital Subscriptions and Content segment from 2023 to 2024.
Operating Loss: The increase in operating loss, compared to the prior year comparative period, was primarily attributable to impairment charges of $17.0 million on our goodwill in the third quarter of 2024, impairment charges of $4.7 million related to our internally developed software in the third quarter of 2024, a $3.0 million increase in stock-based compensation and a $2.3 million increase in payroll expenses as we recruited a new digital leadership team to revamp our digital business in the first half of 2024, and a $1.7 million increase in selling and administrative expenses related to our creator platform, partly offset by a $3.4 million increase in gross profit.
Adjusted Operating Income:The decrease in adjusted operating income, compared to the prior year comparative period, was primarily attributable to higher expenses related to our creator platform, as we recruited a new digital leadership team to revamp our digital business in the first half of 2024.
Corporate
The decrease in corporate expenses, compared to the prior year comparative period, was primarily due to a $5.3 million decrease in stock-based compensation expense, a decrease of $2.2 million in insurance expense, a decrease of $2.2 million in audit and consulting services as a result of business downsizing and cost rationalization, a $0.7 million decrease in payroll expenses due to headcount reductions, and a $1.0 million decrease in severance costs, partly offset by impairment charges of $2.4 million and $1.4 million on our artwork held for sale in the first and fourth quarters of 2024, respectively, and $0.6 million on our corporate leases in the second quarter of 2024.
The decrease in adjusted corporate expenses, compared to the prior year comparative period, was primarily due to lower insurance costs and a decrease in audit and consulting expenses, reflecting ongoing cost rationalization.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of liquidity are cash generated from operating activities, which primarily includes cash derived from revenue generating activities, from financing activities, including proceeds from our issuance of debt and stock offerings (as described further below), and from investing activities, which included the sale of assets (as described further below). As of December 31, 2024, our principal source of liquidity was unrestricted cash in the amount of $30.9 million, which is primarily held in operating and deposit accounts.
On January 24, 2023, we issued 6,357,341 shares of our common stock in a registered direct offering to a limited number of investors. We received $15 million in gross proceeds from the registered direct offering, and net proceeds of $13.9 million, after the payment of offering fees and expenses.
We also completed a rights offering in February 2023, pursuant to which we issued 19,561,050 shares of common stock. We received net proceeds of approximately $47.6 million from the rights offering, after the payment of offering fees and expenses. We used $45 million of the net proceeds from the rights offering for repayment of debt under our senior secured credit agreement, with the remainder to be used for other general corporate purposes.
On April 4, 2023, we completed the sale of our wholly-owned subsidiary, Yandy Enterprises, LLC (the "Yandy Sale") to an unaffiliated, third-party buyer. The consideration we received for the Yandy Sale consisted of $1.0 million in cash and a $2.0 million secured promissory note payable over three years (which note was then settled in the third quarter of 2023 for a cash payment to us of $1.3 million).
On November 3, 2023, we completed the sale of TLA Acquisition Corp. ("TLA") to an unaffiliated, third-party buyer for approximately $13.5 million in cash (the "Purchase Price"). Approximately $2.1 million of the Purchase Price was placed into a short-term escrow account at the closing of the TLA sale in connection with a post-closing working capital adjustment, certain possible indemnification claims payable by us and for certain post-closing items to be completed by us. As of the date of this Annual Report on Form 10-K, such escrow funds had been released to us in full.
In November 2023, we also sold a small amount of our art assets, and we continued the sale of our art assets in 2024.
On November 5, 2024, we issued 14,900,000 unregistered shares of our common stock in a private placement to a third-party investor, at a price of $1.50 per share, for total proceeds to us of $22.4 million.
On November 11, 2024, we entered into Amendment No. 3 ("A&R Third Amendment") to the A&R Credit Agreement (defined below), pursuant to which the terms of the A&R Credit Agreement were amended to, among other things, (a) amend the interest rate margin applicable to the Tranche A and Tranche B loans (each defined below), including that the interest rate margin for both Tranche A and Tranche B loans will be 6.25%, plus a 0.10% credit spread adjustment, above the Secured Overnight Financing Rate), (b) amend the definition of "Financial Covenant Sunset Date" to reduce the dollar threshold therein from $100,000,000 to $75,000,000 and to make certain other changes, (c) provide for quarterly amortization payments for the Tranche A and Tranche B loans, amounting on an annualized basis to 1% of the total outstanding principal balance of such loans as of closing of the A&R Third Amendment, commencing with the quarter ending December 31, 2025, and (d) provide for a reduction in the outstanding principal amount of Tranche A and Tranche B loans to approximately $153.1 million in the aggregate in exchange for 28,000.00001 shares of Series B Convertible Preferred Stock, as described below.
On December 14, 2024, we entered into a Securities Purchase Agreement (the "December SPA") with The Million S.a.r.l. (the "Purchaser"), a wholly-owned subsidiary of Byborg, pursuant to which we agreed to sell to the Purchaser 16,956,842 shares of our common stock at a price of $1.50 per share, subject to the approval of such sale and issuance of such shares by our stockholders. The closing of the sale and issuance of shares pursuant to the December SPA is expected to occur by the end of the first quarter of 2025 and result in aggregate proceeds to us of approximately $25.4 million.
Pursuant to the LMA entered into in December 2024, Byborg agreed to operate our Playboy Plus, Playboy TV (digital and linear) and Playboy Club businesses and to license the right to use certain Playboy trademarks and other intellectual property for related businesses and certain other categories. Pursuant to the LMA, Byborg was also granted exclusive rights to use Playboy trademarks for certain new adult content services and digital products to be developed. The LMA has an initial term of 15 years, with the operations and license rights pursuant to the LMA commencing as of January 1, 2025, and the possibility for up to nine renewal terms of 10 years each, subject to the terms and conditions set forth in the LMA. Pursuant to the LMA, starting in 2025, Playboy will receive minimum guaranteed royalties of $20 million per year of the term, to be paid in installments during each year. In addition, Byborg will prepay the minimum guaranteed amount for the second half of year 15 of the initial term of the LMA. Playboy is also entitled to receive Excess Royalties from the businesses licensed and operated by Byborg, on the terms and conditions set forth in the LMA.
Due to challenging economic conditions in China, collections from certain of our Chinese licensees slowed significantly in 2022 and 2023, leading us to renegotiate terms of, or terminate, certain licenses in October 2023. We have replaced certain terminated licensees with new licensees in China. Future contract modifications and collectability issues could further impact the revenue recognized against our ongoing contract assets.
Since going public in 2021, we have yet to generate operating income from our core business operations and have incurred significant operating losses, including $50.8 million of operating losses for the year ended December 31, 2024. We expect our capital expenditures and working capital requirements in 2025 to be largely consistent with 2024.
Although consequences of ongoing macroeconomic uncertainty could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors, such as those discussed above, we believe our existing sources of liquidity will be sufficient to meet our obligations as they become due under the A&R Credit Agreement and our other obligations for at least one year following the date of the filing of this Annual Report on Form 10-K. We may seek additional equity or debt financing in the future to satisfy capital requirements, respond to adverse changes in our circumstances or unforeseen events, or fund growth opportunities. However, in the event that additional financing is required from third-party sources, we may not be able to raise it on acceptable terms or at all.
Debt
On February 17, 2023, we entered into Amendment No. 4 (the "Fourth Amendment") to our senior secured Credit and Guaranty Agreement, dated as of May 25, 2021 (as previously amended on August 11, 2021, August 8, 2022, December 6, 2022, and as further amended by the Fourth Amendment, the "Credit Agreement"), which among other things: (i) required that the mandatory prepayment of 80% of our equity offering proceeds apply only to our $50 million rights offering completed in February 2023 (thereby reducing the applicable prepayment cap to $40 million), (ii) required an additional $5 million prepayment by us as a condition to completing the Fourth Amendment, and (iii) reduced the prepayment threshold for waiving our Total Net Leverage Ratio financial covenant through June 30, 2024 to $70 million (from the prior $75 million prepayment threshold). Such $70 million of prepayments were achieved by us through the combination of a $25 million prepayment in December 2022, a $40 million prepayment made in connection with our rights offering in February 2023, and an additional $5 million prepayment made at the completion of the Fourth Amendment.
As a result of the prepayments described above, we obtained a waiver of the Total Net Leverage Ratio covenant through the second quarter of 2024, eliminated the cash maintenance covenants, eliminated the lenders' board observer rights and eliminated applicable additional margin which had previously been provided for under the Credit Agreement, as amended.
On April 4, 2023, we entered into Amendment No. 5 to the Credit Agreement (the "Fifth Amendment") to permit, among other things, the Yandy Sale, and that the proceeds of such sale would not be required to prepay the loans under the Credit Agreement (as amended through the Fifth Amendment); provided that at least 30% of the consideration for the Yandy Sale was paid in cash.
On May 10, 2023 (the "Restatement Date"), we entered into an amendment and restatement of the Credit Agreement for our senior secured debt (the "A&R Credit Agreement") to reduce the interest rate applicable to our senior secured debt and the implied interest rate on our then outstanding Series A Preferred Stock, exchange (and thereby eliminate) our then outstanding Series A Preferred Stock, and obtain additional covenant relief and funding.
In connection with the A&R Credit Agreement, Fortress Credit Corp. and its affiliates (together, "Fortress") became our lender with respect to approximately 90% of the term loans under the A&R Credit Agreement (the "A&R Term Loans"). Fortress exchanged 50,000 shares of our Series A Preferred Stock (representing all of our issued and outstanding preferred stock) for approximately $53.6 million of the A&R Term Loans, and we obtained approximately $11.8 million of additional funding as part of the A&R Term Loans. As a result, our Series A Preferred Stock was eliminated, and the principal balance of the A&R Term Loans under the A&R Credit Agreement became approximately $210.0 million (whereas the original Credit Agreement had an outstanding balance of approximately $156.0 million as of March 31, 2023).
In connection with the A&R Credit Agreement, the original Credit Agreement's term loans were apportioned into approximately $20.6 million of Tranche A term loans ("Tranche A") and approximately $189.4 million of Tranche B term loans ("Tranche B", and together with Tranche A comprising the A&R Term Loans). The prior amortization payments applicable to the total term loan under the original Credit Agreement were eliminated. The A&R Credit Agreement only requires the smaller Tranche A be subject to quarterly amortization payments of approximately $76,000 per quarter. The benchmark rate for the A&R Term Loans is the applicable term of SOFR as published by the U.S. Federal Reserve Bank of New York (rather than London Interbank Offer Rate, as under the original Credit Agreement). As of the Restatement Date, Tranche A accrues interest at SOFR plus 6.25% with a 0.10% SOFR adjustment, and has a SOFR floor of 0.50%. As of the Restatement Date, Tranche B accrues interest at SOFR plus 4.25% with a 0.10% SOFR adjustment, and has a SOFR floor of 0.50%.
We obtained additional leverage covenant relief through the first quarter of 2025, with testing of a total net leverage ratio covenant commencing following the quarter ending March 31, 2025, which covenant will be initially set at 7.25:1.00, reducing in 0.25 increments per quarter until the ratio reaches 5.25:1.00 for the quarter ending March 31, 2027.
As a result of the amendment and restatement of the Credit Agreement (the "Restatement"), in the second quarter of 2023, we recorded $8.0 million of gain for partial debt extinguishment and capitalized an additional $21.3 million of debt discount while deferring and continuing to amortize an existing discount of $2.6 million, which will be amortized over the remaining term of our senior secured debt and recorded in interest expense in our consolidated statements of operations. As a result of the Restatement, fees of $0.3 million were expensed as incurred and $0.4 million of debt issuance costs were capitalized in the second quarter of 2023.
In connection with the sale of TLA, on November 2, 2023, we entered into Amendment No. 1 to the A&R Credit Agreement (the "A&R First Amendment"), to permit, among other things: (a) the sale of TLA and the sale of certain other assets (and the proceeds of such sales will not be required to prepay the A&R Term Loans); and (b) the Company to elect, through August 31, 2025, to pay in cash accrued interest equal to the applicable SOFR plus 1.00%, with the remainder of any applicable accrued interest not paid in cash capitalized into the A&R Term Loans. The other terms of the A&R Credit Agreement will remain substantially unchanged from those prior to the A&R First Amendment.
On March 27, 2024, we entered into Amendment No. 2 to the A&R Credit Agreement (the "A&R Second Amendment"), which provided for, among other things:
(a) the amendment of the Total Net Leverage Ratio covenant to (i) suspend testing of such covenant until the quarter ending June 30, 2026, (ii) adjust the Total Net Leverage Ratio financial covenant levels once the covenant testing is resumed, and (iii) add a mechanism for the Total Net Leverage Ratio to be eliminated permanently upon the satisfaction of certain prepayment-related conditions (the date upon which such prepayment-related conditions are satisfied, the "Financial Covenant Sunset Date");
(b) the addition of a covenant to maintain a $7.5 million minimum balance of unrestricted cash and cash equivalents (on a consolidated basis), subject to periodic testing and certification, as well as the ability to cure a below-minimum balance, and which covenant will be in effect (i) from March 27, 2024 until March 31, 2026 and (ii) from and after the Financial Covenant Sunset Date; and
(c) that assignments of commitments or loans under the A&R Credit Agreement from existing lenders to certain eligible assignees under the A&R Credit Agreement (i.e. a commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933) and which extends credit or buys loans in the ordinary course of business) shall not require consent from us while the minimum cash balance financial covenant is in effect.
The other terms of the A&R Credit Agreement prior to the A&R Second Amendment remained substantially unchanged.
On November 11, 2024, we entered into the A&R Third Amendment, which provides for, among other things:
•reducing the outstanding aggregate A&R Term Loan amounts under the A&R Credit Agreement from approximately $218.4 million to approximately $153.1 million in exchange for $28 million of Series B Convertible Preferred Stock, which was issued pursuant to the Exchange Agreement between the Company and the lenders party to the A&R Third Amendment;
•resetting the interest rate margin for both Tranche A and Tranche B term loans to the same rate of SOFR, plus a 0.10% credit spread adjustment, plus 6.25% (with corresponding changes necessary so that all but 1.00% of the interest rate margin can be paid in-kind); and
•applying amortization of 1% per year to all loans under the A&R Credit Agreement, which is to be paid quarterly starting in the fourth quarter of 2025.
The other terms of the A&R Credit Agreement prior to the A&R Third Amendment remain substantially unchanged, and the new terms were effective as of November 13, 2024 (the date 28,000.00001 shares were issued to the lenders in exchange for the debt reduction pursuant to the closing of the Exchange Agreement). The Series B Convertible Preferred Stock includes a 12% annual dividend rate, which will commence accruing as of May 13, 2025, and which dividends are payable in cash or in-kind, solely at our discretion. We have the right to redeem for cash (at any time) or convert the Series B Convertible Preferred Stock at any time, provided that the five-day volume-weighted average price of PLBY common stock is $1.50 or above, with a conversion price floor of $1.50 and a cap of $4.50.
We performed an assessment of the A&R Third Amendment, on a lender-by-lender basis, and determined that the transaction met the criteria for a troubled debt restructuring ("TDR") under ASC 470-60, Troubled Debt Restructurings by Debtors ("ASC 470-60"), as we were experiencing financial constraints and the lenders granted a concession. However, the total future cash payments under the new terms exceeded the carrying amount of our senior secured debt at the date of transaction, therefore, no adjustment to the carrying amount of the debt was made. Instead, we calculated a new effective interest rate ("EIR") based on the revised terms of the debt. The senior secured debt is then amortized over the remaining term of the debt using the new EIR, with interest expense recognized based on such rate in future periods. Third party fees of $0.5 million incurred in connection with the A&R Third Amendment were recorded in Other (expense) income, net in the consolidated statements of operations for the year ended December 31, 2024.
The stated interest rate of Tranche A and Tranche B term loans as of December 31, 2024 was 11.01%. The stated interest rate of Tranche A and Tranche B term loans as of December 31, 2023 was 11.41% and 9.41%, respectively. The effective interest rate of Tranche A and Tranche B A&R Term Loans as of December 31, 2024 was 1.05% and 4.93%, respectively. The effective interest rate of Tranche A and Tranche B A&R Term Loans as of December 31, 2023 was 12.03% and 13.27%, respectively.
We were in compliance with applicable financial covenants under the terms of the A&R Credit Agreement and its amendments as of December 31, 2024 and 2023.
On March 12, 2025, we entered into a fourth amendment of the A&R Credit Agreement. Refer to Note 22, Subsequent Events, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for further details.
Leases
Our principal lease commitments are for office space and operations under several noncancellable operating leases with contractual terms expiring from 2025 to 2033. Some of these leases contain renewal options and rent escalations. As of December 31, 2024 and 2023, our fixed lease obligations were $25.5 million and $31.6 million, respectively, with $6.6 million and $7.0 million due in the next 12 months, respectively. For further information on our lease obligations, refer to Note 15, Commitments and Contingencies, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Cash Flows
The following table summarizes our cash flows from continuing operations for the periods indicated (in thousands):
|
Year Ended December 31,
|
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| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||||||||
| Operating activities | $ | (19,139) | $ | (42,788) | $ | 23,649 | (55) | % | |||||||||||||||
| Investing activities | (318) | 13,060 | (13,378) | (102) | |||||||||||||||||||
| Financing activities | 21,595 | 26,184 | (4,589) | (18) | |||||||||||||||||||
Cash Flows from Operating Activities
The decrease in net cash used in operating activities from continuing operations for year ended December 31, 2024 over the prior year comparable period was due to a $107.1 million decrease in net loss from continuing operations, as well as changes in assets and liabilities that had a current period cash flow impact, such as $17.1 million of changes in working capital, partly offset by $100.5 million of changes in non-cash charges. The change in assets and liabilities as compared to the prior year comparable period was primarily driven by a $19.8 million change in deferred revenues due to the termination of certain Chinese licensing agreements in the prior year comparative period, a $6.7 million change in accrued agency fees and commissions primarily due to a nonrecurring reversal of commission accrual in the prior year comparative period related to the termination of certain Chinese licensing agreements, a $5.1 million decrease in inventories, net due to reduced purchasing, and a $2.1 million decrease in contract assets due to the timing of licensing payments, partly offset by a $5.6 million increase in accounts receivable due to the timing of royalty collections and modifications of certain trademark licensing contracts, an increase of $5.4 million in prepaid expenses and other assets, a $3.8 million decrease in accounts payable due to the timing of payments, and a $1.8 million decrease in operating lease liabilities. The change in non-cash charges compared to the change in the prior year comparable period was primarily driven by a $128.8 million decrease in non-cash impairment charges, a $8.0 million decrease in inventory reserve charges, and a $2.3 million decrease in stock-based compensation expense, partly offset by a $19.0 million increase in deferred income taxes, a $7.1 million change in fair value remeasurement charges, a $6.1 million change due to extinguishment of debt, $5.1 million of capitalized payment-in-kind interest in 2024, and a $1.4 million increase in the amortization of right of use assets.
Cash Flows from Investing Activities
The decrease in net cash provided by investing activities from continuing operations for the year ended December 31, 2024 over the prior year comparable period was due to $14.3 million of proceeds from the sale of TLA, $1.0 million of proceeds from the Yandy Sale and the $1.3 million repayment of a related promissory note in the prior year comparative period, partly offset by $1.9 million in proceeds from the sale of artwork, and a $1.3 million decrease in purchases of property and equipment.
Cash Flows from Financing Activities
The decrease in net cash provided by financing activities from continuing operations for the year ended December 31, 2024 over the prior year comparable period was due to reduced capital raising transactions in 2024, resulting in $22.2 million of net proceeds from the issuance of common stock in a private placement, while in 2023 we received net proceeds of $13.9 million from our registered direct offering in January of 2023, net proceeds of $47.6 million from our rights offering in February 2023, and gross proceeds of $11.8 million from the amendment and restatement of our senior secured credit agreement in the second quarter of 2023, which were partly offset by a $45.4 million repayment of long-term debt in early 2023 and the repurchase of $1.0 million of our outstanding common stock in the fourth quarter of 2023.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. Estimates and judgments used in the preparation of our consolidated financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such as demand for our products, economic conditions and other current and future events, such as the impact of international armed conflicts and geopolitical tensions. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following accounting estimates to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements.
Licensing Revenue Recognition
We license trademarks under multi-year arrangements with consumer products, online and location-based entertainment businesses. The performance obligation is a license of symbolic IP that provides the customer with a right to access the IP, which represents a stand-ready obligation that is satisfied over time. Under these arrangements, we generally receive an annual nonrefundable minimum guarantee that is recoupable against a sales-based royalty generated during the license year. We recognize Excess Royalties only when the annual minimum guarantee is exceeded. Generally, Excess Royalties are recognized when they are earned. Excess Royalties are payable quarterly. As the sales reports from licensees are typically not received until after the close of the reporting period, we follow the variable consideration framework and constraint guidance to estimate the underlying sales volume to recognize Excess Royalties based on historical experience and general economic trends. Historical adjustments to recorded estimates have not been material. We adjust how we account for revenue pursuant to licenses, if collectability on their related billings becomes improbable.
Goodwill and Other Intangible Assets, Net
Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable.
We perform annual impairment test on goodwill in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value. We may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary, we will estimate the fair value of a related reporting unit.
Impairment of Long-Lived Assets
The carrying amounts of long-lived assets, including property and equipment, stores, acquired intangible assets and right-of-use operating lease assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate over its remaining life. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to the fair value.
Inventory
Inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value. Inventory reserves are recorded for excess and slow-moving inventory. Our analysis includes a review of inventory quantities on hand at period-end in relation to year-to-date sales, existing orders from customers and projections for sales in the foreseeable future. The net realizable value is determined based on historical sales experience on a style-by-style basis. The valuation of inventory could be impacted by changes in public and consumer preferences, demand for product, changes in the buying patterns of both retailers and consumers and inventory management of customers.
Stock-Based Compensation
Our equity awards granted generally consist of stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs"). We measure compensation expense for all stock-based payment awards, including stock options, RSUs and PSUs granted to employees, directors, and non-employees, based on the estimated fair value of the awards on the date of grant. The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of our stock, (b) the expected term of the award, (c) the risk-free interest rate, and (d) expected dividends. The fair value of RSU grants is at a price equal to the fair market value of our common stock at the date of grant. Compensation expense associated with our stock options and RSUs is recognized ratably over the employee's requisite service period.
Our PSUs vest upon achieving each of certain PLBY's stock price milestones during the contractual vesting period. For milestones that have not been achieved, such PSUs vest over the derived requisite service period and the fair value of such awards is estimated on the grant date using Monte Carlo simulations. The determination of the grant date fair value of PSUs issued is affected by a number of variables and subjective assumptions, including (i) the fair value of PLBY's common stock, (ii) the expected common stock price volatility over the expected life of the award, (iii) the expected term of the award, (iv) risk-free interest rates, (v) the exercise price, and (vi) the expected dividend yield. For purposes of calculating stock-based compensation expense, forfeitures are accounted for as they occur.
Income Taxes
We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. The carrying amounts of deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, the duration of statutory carryforward periods, and tax planning alternatives. We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals and litigation processes, if any. The second step is to measure the largest amount of tax benefit as the largest amount that is more likely than not to be realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Recent Accounting Pronouncements
Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.