PLBY Group, Inc. 2021 Form 10-K Summary
Business context and reporting period
PLBY Group, Inc. operates the Playboy lifestyle brand through three reportable segments: Licensing, Direct-to-Consumer, and Digital Subscriptions and Content. Its offerings include sexual wellness, apparel, gaming and lifestyle, beauty and grooming, digital content, NFTs and creator services. This filing covers the fiscal year ended December 31, 2021; the filing is an annual report rather than a quarterly report. Results include the February 2021 business combination with Mountain Crest Acquisition Corp. and partial-year contributions from the acquisitions of Lovers/TLA, Honey Birdette and GlowUp, which limit comparability with 2020.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $246.6 million | $147.7 million | Up 67% |
| Operating income (loss) | $(68.9) million | $13.6 million | Declined $82.5 million |
| Net income (loss) | $(77.7) million | $(5.3) million | Loss increased $72.4 million |
| Net loss per share | $(2.04) | $(0.24) | Worsened |
| Adjusted EBITDA | $32.4 million | $28.4 million | Up $4.1 million |
| Cash flow from operations | $(36.7) million | $0.8 million | Declined $37.6 million |
| Cash flow from investing | $(273.2) million | $(5.5) million | Higher acquisition and capital spending |
| Cash flow from financing | $370.5 million | $(8.5) million | Benefited from equity and debt financing |
Revenue growth was primarily driven by Direct-to-Consumer revenue, which increased $83.7 million, or 131%, to $147.8 million. Licensing revenue increased 5% to $64.0 million, while Digital Subscriptions and Content revenue increased 61% to $33.8 million, primarily due to tokenized digital art and collectibles.
Gross margin, calculated from the reported revenue and cost of sales, was approximately 53.7% in 2021 versus 49.6% in 2020. However, selling and administrative expenses increased to $200.1 million from $58.7 million, reflecting stock-based compensation, acquisition costs, direct-to-consumer expenses and costs associated with becoming a public company. Stock-based compensation was $58.4 million in 2021 versus $3.0 million in 2020.
At December 31, 2021, cash and cash equivalents were $69.2 million and total restricted cash was $6.2 million. Total assets were $935.4 million, including $270.6 million of goodwill and $425.3 million of intangible assets, including $6.8 million of digital assets. Inventory increased to $39.9 million from $11.8 million.
Total debt was $237.4 million before unamortized debt issuance costs and discounts, compared with $165.3 million at December 31, 2020. Net debt presented on the balance sheet was $228.9 million. The company had $230.0 million of senior secured term loans due in 2027 and an $8.6 million aircraft term loan due in 2026. The senior secured facility bears interest at LIBOR plus applicable margins, with the reported rate at 6.25% at year-end. The company was in compliance with its debt covenants at December 31, 2021.
Material changes versus the prior comparable period
- The company completed its business combination with Mountain Crest Acquisition Corp. on February 10, 2021 and began trading as PLBY Group.
- It acquired Lovers/TLA for approximately $24.9 million in cash on March 1, 2021.
- It acquired Honey Birdette on August 9, 2021 for approximately $288.8 million, including cash and common stock. Honey Birdette contributed $32.3 million of 2021 revenue from the acquisition date.
- It acquired GlowUp Digital in October 2021 for approximately $34.4 million of consideration, enabling the Centerfold creator-led platform. Centerfold launched in December 2021 and had no material impact on 2021 consolidated results.
- The company refinanced its prior term loan in May 2021 and added $70.0 million of incremental term debt in August 2021 to help fund the Honey Birdette acquisition.
- A June 2021 public offering of 4.72 million shares generated approximately $202.9 million of net proceeds.
- Direct-to-Consumer operating loss increased to $2.8 million from $0.8 million, while Digital Subscriptions and Content operating income decreased to $7.9 million from $9.5 million. Licensing operating income increased to $47.5 million from $44.5 million.
- The company recorded a $1.0 million impairment of digital assets and a $1.2 million loss on extinguishment of debt.
- Foreign currency translation produced a $3.7 million comprehensive loss adjustment.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a specific quantitative revenue or earnings forecast in the filing. Management expects growth from expanding direct-to-consumer commerce, licensing in markets such as China, India and gaming, and scalable digital products including Centerfold. Management stated that existing liquidity was expected to fund operations, lease obligations, debt service, capital expenditures and working capital requirements for at least the next 12 months from the filing date, while noting that additional financing may be required for growth or unforeseen events.
COVID-19 continued to affect supply chains, product launches, retail stores, licensing activity and location-based entertainment. Management stated that increased online sales and higher U.S. licensing royalties had offset the adverse effects through the filing date, but the future impact remained uncertain. Other material risks include intense competition, discretionary consumer spending, international operations and foreign exchange, supply-chain disruption, payment processing and cybersecurity, regulation of adult content and digital assets, brand reputation, dependence on licensees and third-party service providers, and acquisition integration.
The company reported material weaknesses in internal control over financial reporting. The weaknesses involved entity-level controls, information technology controls, accounting policies and documentation, management review controls for complex accounting areas, and inventory controls. The weaknesses also applied to the 2021 acquisitions, which management excluded from its year-end control assessment. BDO issued an adverse opinion on the effectiveness of internal control over financial reporting, although it issued an unqualified opinion on the consolidated financial statements. Management has begun remediation efforts, including adding accounting resources, formalizing controls and implementing enterprise and warehouse management systems.
Material contingencies include litigation by Thai Nippon Rubber Industry seeking more than $100 million in damages, litigation involving a former GlowUp consultant, and the AVS license dispute. Management believes these claims are without merit. The filing text does not provide a clear accrued loss amount for these matters.
Most important facts for an investor to verify
- Whether the substantial revenue growth from acquisitions and direct-to-consumer channels converts into positive operating cash flow and sustainable profitability.
- The magnitude and recurring nature of stock-based compensation, acquisition costs, inventory step-up amortization and other adjustments underlying Adjusted EBITDA.
- Integration progress and standalone performance of Lovers, Honey Birdette and Centerfold, including whether acquisition synergies and targets are achieved.
- Debt service capacity, compliance with the maximum leverage covenant, exposure to variable interest rates and the effect of LIBOR replacement.
- Liquidity after the $36.7 million operating cash outflow, $237.4 million of gross debt and continuing acquisition and expansion needs.
- Remediation of the material weaknesses in internal control, particularly controls over acquisitions, information technology, accounting judgments and inventory.
- Potential financial and reputational effects of the TNR, Dream, AVS and Indian Harbor proceedings.
- Valuation sensitivity of goodwill, trademarks and other intangible assets, which represented a substantial portion of total assets, and the impairment treatment of digital assets.
- Concentration in licensing relationships, international markets and discretionary consumer spending, including exposure to China, Australia and the United Kingdom.