PLBY Group, Inc. 2021 Q2 Form 10-Q Summary
Business context and reporting period
PLBY Group, Inc. is a global consumer and lifestyle company operating through Licensing, Direct-to-Consumer, and Digital Subscriptions and Content segments. The company markets Playboy-branded consumer products, licensing initiatives, digital subscriptions and content, and location-based entertainment.
This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the same periods in 2020. The February 2021 Business Combination with Mountain Crest Acquisition Corp. was accounted for as a reverse recapitalization, with Legacy Playboy treated as the accounting acquirer. The March 2021 acquisition of TLA Acquisition Corp., parent of the Lovers retail and e-commerce business, limits comparability with prior periods.
Financial performance and key metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $49.9 million | $34.6 million | $92.5 million | $66.3 million |
| Revenue growth | 44% | — | 39% | — |
| Gross profit | $26.2 million | $15.5 million | $49.8 million | $30.7 million |
| Gross margin | 52.5% | 44.8% | 53.9% | 46.2% |
| Operating income (loss) | $(3.4) million | $1.9 million | $(8.0) million | $4.5 million |
| Operating margin | (6.9)% | 5.6% | (8.6)% | 6.7% |
| Net income (loss) | $(8.9) million | $(3.6) million | $(13.9) million | $(6.0) million |
| Net margin | (17.9)% | (10.5)% | (15.0)% | (9.1)% |
| Net loss per share | $(0.24) | $(0.16) | $(0.42) | $(0.27) |
Direct-to-Consumer revenue increased 88% to $28.0 million in the second quarter and 99% to $50.1 million for the six-month period, primarily because of the TLA acquisition and higher e-commerce sales. Licensing revenue increased 12% in the quarter and 3% year to date. Digital Subscriptions and Content revenue increased 3% in the quarter and 6% year to date.
Cost of sales increased 24% in the quarter and 20% year to date, while selling and administrative expenses increased 123% and 124%, respectively. Higher costs included TLA expenses, acquisition-related costs, public-company costs, and other corporate expenses. Corporate operating costs increased to $16.4 million in the quarter and $36.2 million year to date.
Cash flow, liquidity, debt, and balance sheet
- Cash and cash equivalents were $255.5 million at June 30, 2021, compared with $13.4 million at December 31, 2020. Cash, including restricted cash, was $257.7 million.
- Operating cash flow was negative $21.6 million for the six months ended June 30, 2021, compared with negative $4.3 million in the prior-year period.
- Investing cash flow was negative $37.8 million, including $23.1 million for acquisitions and $14.7 million for property and equipment purchases.
- Financing cash flow was positive $301.5 million, including $202.9 million of net proceeds from the June public offering, $169.0 million of new long-term debt proceeds, and $99.9 million of net merger and PIPE financing contributions, partially offset by debt repayments and financing costs.
- Total debt principal was $169.0 million at June 30, 2021, consisting of a $160.0 million senior secured term loan due May 2027 and a $9.0 million aircraft term loan due May 2026. Reported debt, net of discounts and issuance costs, was $161.5 million.
- The new senior secured term loan bears interest at LIBOR plus 5.75%, subject to a 0.50% LIBOR floor, and requires quarterly amortization beginning September 30, 2021. The aircraft loan had a stated interest rate of 6.25% at quarter end.
- Total assets were $704.8 million and stockholders’ equity was $373.8 million at June 30, 2021. Inventory increased to $18.3 million from $11.8 million at year-end, with reserves for slow-moving and obsolete inventory increasing to $1.1 million.
Management stated that existing liquidity was expected to fund operations, lease obligations, debt service, capital expenditures, and working-capital needs for at least the next 12 months, although additional financing may be required for growth, acquisitions, or adverse developments.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by the TLA acquisition and continued migration of Playboy.com toward a commerce-focused model.
- The company shifted from prior-year operating income to operating losses because selling and administrative expenses grew substantially faster than revenue.
- Interest expense declined because of the May 2021 refinancing, but the company recorded a $1.2 million loss on extinguishment of debt.
- The six-month tax result improved from $3.9 million of tax expense to a $0.1 million tax benefit, primarily because net operating losses and disallowed interest deductions offset deferred tax liabilities and resulted in a valuation allowance release.
- The company completed a $202.9 million net public equity offering and refinanced its prior term loan.
- The company purchased an aircraft for approximately $12.7 million and acquired TLA for $24.9 million in cash. TLA contributed $18.5 million of revenue and $0.3 million of net income for the six months after acquisition.
Guidance, outlook, risks, contingencies, and unusual items
- No formal revenue or earnings guidance is provided in the filing.
- Management expects strong fourth-quarter seasonality from Halloween and holiday sales, particularly in the Yandy business, but notes increasing competition in Halloween costumes.
- On August 9, 2021, after quarter end, the company acquired Honey Birdette for $327.7 million, consisting of $235.0 million in cash and 2,155,849 shares valued at $92.7 million. On August 11, 2021, the company added $70.0 million of term debt, increasing aggregate term-loan borrowings under the amended credit agreement to $230.0 million.
- COVID-19 continued to affect supply chains, product launches, licensees, retail stores, and certain location-based entertainment operations. The company stated that increased online direct-to-consumer sales and U.S. licensing royalties had offset the effects through the reporting date.
- Future performance depends on integrating acquisitions, managing rapid growth, maintaining product availability, retaining key employees, and realizing expected synergies. The filing also identifies risks relating to competition, litigation, regulation, Nasdaq listing, foreign operations, LIBOR transition, and digital assets and NFTs.
- The company has $35.1 million of future minimum operating lease commitments, partially offset by $1.0 million of sublease income. It also has a pending dispute with AVS Products involving alleged improper license termination; the company considers the claims without merit and expects to defend them.
- Unrecognized revenue from unsatisfied or partially unsatisfied performance obligations was $393.1 million at June 30, 2021, primarily related to trademark licensing contracts.
Most important facts for investors to verify
- Whether revenue growth from TLA, Honey Birdette, and other direct-to-consumer initiatives converts into sustainable operating and free cash flow.
- The effect of substantially higher corporate, acquisition, public-company, and integration costs on future margins.
- The company’s ability to service and refinance the increased secured debt balance, including the post-quarter-end increase to $230.0 million of term loans.
- Honey Birdette’s post-acquisition revenue, profitability, integration costs, and exposure to Australian COVID-19 restrictions.
- Inventory levels, obsolescence reserves, supply-chain disruptions, and seasonal execution in the fourth quarter.
- Potential dilution from options, unsettled restricted stock units, shares issued for Honey Birdette, and other equity-linked arrangements.
- The outcome and potential cost of the AVS litigation and other ordinary-course legal claims.
- Whether management’s liquidity assessment remains valid after the Honey Birdette acquisition and related debt financing.