PLBY Group, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
PLBY Group, Inc., formerly associated with the Playboy brand, is a global consumer and lifestyle company operating through Licensing, Direct-to-Consumer, and Digital Subscriptions and Content segments. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Results for 2022 include contributions from the TLA/Lovers and Honey Birdette acquisitions. Centerfold Digital, acquired in October 2021, was also being developed during the period.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $69.4 million | $42.7 million | Up 63% |
| Gross profit | $40.5 million | $23.6 million | Up 72% |
| Gross margin | 58.3% | 55.4% | Up 2.9 points |
| Operating income (loss) | $6.9 million | $(4.5) million | Improved $11.4 million |
| Operating margin | 9.9% | (10.6)% | Improved |
| Net income (loss) | $5.5 million | $(5.0) million | Improved $10.5 million |
| Diluted EPS | $0.12 | $(0.17) | Improved |
| Adjusted EBITDA | $1.2 million | $6.7 million | Down $5.5 million |
| Net cash used in operating activities | $(35.5) million | $(14.3) million | Higher use of cash |
Revenue growth was driven primarily by Direct-to-Consumer revenue, which increased 125% to $49.6 million, principally from TLA, Honey Birdette, and Playboy.com. Licensing revenue declined 7% to $14.6 million, while Digital Subscriptions and Content revenue declined 4% to $4.7 million.
Cost of sales was $28.9 million, or 41.7% of revenue. Selling and administrative expense was $31.2 million, or 45.0% of revenue. Selling and administrative expense included a favorable $19.3 million non-cash fair-value remeasurement of contingent consideration liabilities. Other operating expense included a $2.4 million impairment of digital assets.
Cash and cash equivalents were $32.9 million at March 31, 2022, compared with $69.2 million at December 31, 2021. Including restricted cash, total cash and restricted cash was $39.0 million. The quarterly cash decline primarily reflected working-capital outflows, including prepaid expenses, lower deferred revenue, lower accounts payable, holiday-related marketing and inventory payments.
Total debt was $236.6 million before unamortized discounts and issuance costs, or $228.4 million net, with a stated interest rate of 6.25%. The principal term loan matures in May 2027 and the aircraft term loan matures in May 2026. The company reported compliance with its debt covenants at March 31, 2022. Operating lease liabilities totaled $43.3 million, including $9.5 million due within 12 months.
Material changes versus the prior comparable period
- Revenue increased $26.7 million, primarily from acquired and organic Direct-to-Consumer operations.
- The company moved from a $4.5 million operating loss to $6.9 million of operating income.
- Net income improved from a $5.0 million loss to $5.5 million of income, aided by a $2.8 million tax benefit.
- Adjusted EBITDA declined to $1.2 million despite GAAP profitability, reflecting the exclusion of the $19.3 million contingent-consideration remeasurement benefit, higher stock-based compensation, and other adjustments.
- Operating cash flow deteriorated to a $35.5 million use, largely because of working-capital movements.
- Foreign currency translation produced $7.5 million of other comprehensive income, primarily related to the Australian dollar and Honey Birdette.
- Digital Subscriptions and Content operating income declined to a $2.4 million loss, primarily because of Centerfold-related costs and digital-asset impairment.
Outlook, commentary, risks and unusual items
Management stated that available liquidity was expected to fund operations, lease obligations, debt service, capital expenditures and working-capital needs for at least the next 12 months from the filing date. The filing does not provide a clear numerical revenue or earnings guidance range.
- Management expects continued emphasis on owned consumer products, direct-to-consumer channels, international expansion, and potential acquisitions.
- Consumer-product revenue is seasonal, with stronger results historically occurring in the fourth quarter because of Halloween and holiday demand.
- COVID-19 continued to affect supply chains, product launches, retail traffic, licensing activity and certain international retail and gaming operations.
- The company faces risks from inflation, foreign exchange, global hostilities, supply-chain disruptions, competition, acquisition integration, digital-asset prices and the ability to scale new businesses.
- Digital assets are carried as indefinite-lived intangible assets and are subject to impairment when fair value declines; increases in value generally are not recognized until sale.
- Material weaknesses existed in internal control over financial reporting, including entity-level controls, information technology controls, accounting policies, management review controls, and inventory controls. Management reported remediation efforts but concluded disclosure controls were not effective at quarter-end.
- Significant legal matters include the TNR litigation, with damages alleged to exceed $100 million, the Dream/GlowUp-related litigation, the AVS dispute, and the Indian Harbor insurance appeal. The company stated that no liability was probable and reasonably estimable for the TNR and Dream matters at quarter-end.
- The company had $356.6 million of unrecognized revenue from unsatisfied or partially unsatisfied performance obligations, primarily trademark licensing contracts.
Important facts for investors to verify
- Whether the significant revenue growth from TLA and Honey Birdette translates into sustainable organic growth and improved cash generation.
- Whether operating cash flow improves from the $35.5 million quarterly outflow and whether cash balances remain adequate relative to debt and lease obligations.
- The sustainability of profitability excluding the $19.3 million non-cash contingent-consideration remeasurement benefit and the effect of stock-based compensation.
- Progress in remediating the disclosed material weaknesses in internal control over financial reporting.
- Potential earnings and balance-sheet effects from digital-asset price declines, foreign exchange movements and acquisition-related contingent consideration.
- Compliance with the senior secured debt leverage covenant and the company’s ability to manage approximately $236.6 million of principal debt.
- Developments and potential exposure in the TNR, Dream, AVS and Indian Harbor legal proceedings.