PLBY Group, Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Quarterly and six-month periods ended June 30, 2022. The filing identifies the registrant as PLBY Group, Inc., which markets the Playboy brand through licensing, direct-to-consumer products, digital subscriptions and content, and location-based entertainment. Reportable segments are Licensing, Direct-to-Consumer, and Digital Subscriptions and Content.
Financial performance and liquidity
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net revenue | $65.4 million | $49.9 million | $134.8 million | $92.5 million |
| Operating income (loss) | $(6.2) million | $(3.4) million | $0.7 million | $(8.0) million |
| Net loss | $(8.3) million | $(8.9) million | $(2.8) million | $(13.9) million |
| Net loss per share | $(0.18) | $(0.24) | $(0.06) | $(0.42) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(43.1) million | $(21.6) million |
| Adjusted EBITDA | $(2.6) million | $5.9 million | $(1.4) million | $12.6 million |
- Q2 revenue increased 31%, while six-month revenue increased 46%. Direct-to-Consumer revenue was the primary driver, rising 59% in Q2 and 88% for the six-month period, largely from the Honey Birdette and TLA acquisitions.
- Licensing revenue was broadly flat in Q2 and declined 4% for the six-month period. Digital Subscriptions and Content revenue declined 18% in Q2 and 11% for the six-month period, primarily reflecting the prior-year benefit from non-fungible-token sales.
- Gross margin, calculated from reported revenue and cost of sales, was approximately 57.1% in Q2 2022 versus 52.5% in Q2 2021, and approximately 57.7% for the first six months versus 53.9% in the prior-year period. Despite improved gross margin, operating expenses produced operating losses in Q2.
- Q2 selling and administrative expense increased 38%, including higher direct-to-consumer costs, e-commerce marketing, employee compensation, and creator-platform expenses. These increases were partly offset by an $8.6 million non-cash reduction from contingent-consideration fair-value remeasurement.
- Other operating expenses included digital-asset impairments of $2.6 million in Q2 and $4.9 million for the six-month period. The company also impaired purchased intellectual-property assets in Q2.
- Cash and cash equivalents were $44.6 million at June 30, 2022, down from $69.2 million at December 31, 2021. Including restricted cash, total cash was $50.4 million versus $75.5 million at year-end.
- Receivables increased to $29.9 million from $14.1 million at December 31, 2021, while inventories declined to $37.1 million from $39.9 million.
- Total debt principal was $235.8 million, consisting primarily of a term loan due 2027 and an aircraft term loan due 2026. Debt, net of issuance costs and discount, was $227.9 million. Reported interest rates were 6.25% as of June 30, 2022.
- Six-month investing cash outflows were $5.2 million, primarily for property and equipment. Financing activities provided $23.5 million, principally from net proceeds of the Series A preferred-stock issuance.
Material changes versus the prior comparable period
- Revenue growth was acquisition-led, particularly from Honey Birdette, which contributed $22.4 million of Q2 revenue and $44.6 million of six-month revenue, according to management.
- Operating results improved for the six-month period from an $8.0 million loss to $0.7 million of income, but Q2 operating loss widened from $3.4 million to $6.2 million.
- Net loss improved because of higher revenue, a $3.3 million six-month tax benefit, and non-cash fair-value changes, despite higher interest expense, creator-platform spending, and impairments.
- Interest expense increased 81% in Q2 and 47% for the six-month period, primarily because of incremental borrowing used to finance the Honey Birdette acquisition and the aircraft term loan.
- Comprehensive loss was $30.5 million in Q2 and $17.5 million for the six-month period, including foreign-currency translation losses of $22.2 million and $14.7 million, respectively, principally related to the Australian dollar.
- The company issued 25,000 shares of Series A preferred stock in May 2022 for $25.0 million of gross proceeds. The preferred stock carries an initial 8% cumulative dividend rate, increasing after the fifth anniversary, and is mandatorily redeemable in 2027 subject to the governing terms.
Outlook, risks, contingencies, and unusual items
- No formal revenue, earnings, or cash-flow guidance is provided in the filing. Management expects stronger fourth-quarter seasonality from Halloween and holiday sales and continues to focus on expanding owned consumer-product channels.
- Management stated that existing liquidity was expected to fund operations, lease obligations, debt service, capital expenditures, and working capital for at least the next 12 months, but acknowledged that additional financing may be required and may not be available on acceptable terms.
- COVID-19, supply-chain disruption, inflation, foreign-exchange movements, global hostilities, and weaker-than-expected retail sales remain material risks. Licensing partners experienced supply-chain, inventory, and COVID-related pressures during the first half of 2022.
- Digital assets are carried subject to impairment testing. Ethereum prices were highly volatile in Q2; impairment losses reduce earnings and carrying value, while subsequent price increases generally are not recognized until sale.
- The company disclosed material weaknesses in internal control over financial reporting, including weaknesses in entity-level controls, information technology controls, accounting policies and documentation, management review controls, and inventory controls, including controls related to 2021 acquisitions. Remediation is in progress, but disclosure controls were not effective as of June 30, 2022.
- Material legal matters include the TNR case, in which the plaintiff seeks more than $100 million, the AVS litigation, and an insurance-coverage appeal involving Indian Harbor. Management stated that none had a probable and reasonably estimable loss requiring accrual at quarter-end.
- On August 8, 2022, after quarter-end, the company amended its credit agreement. The amendment requires minimum cash balances, tighter leverage tests, higher potential interest rates, additional lender reporting, and restrictions on certain transactions until leverage is reduced. It also provides for lender board observers.
- On August 8, 2022, the company issued the remaining 25,000 Series A preferred shares for $25.0 million gross proceeds and $24.5 million net proceeds. The filing states that proceeds are intended for the common-stock repurchase program and general corporate purposes.
- The credit amendment requires a $10 million debt reduction by December 31, 2022; otherwise, an additional fee equal to 0.50% of outstanding principal may be payable to lenders.
- The board authorized a common-stock repurchase program of up to $50 million through May 31, 2024, but no repurchases had occurred as of the filing date. The subsequent credit amendment restricts certain repurchases until specified leverage conditions are met.
Investor verification checklist
- Verify the sustainability of revenue growth after separating acquisition contributions from organic direct-to-consumer performance.
- Reconcile cash burn, working-capital usage, and the company’s ability to maintain the amended minimum-cash and leverage requirements.
- Review debt maturities, interest-rate step-ups, required amortization, and the potential December 2022 debt-reduction fee.
- Assess the economic cost, dividend accrual, redemption premium, and potential dilution associated with the Series A preferred stock.
- Track remediation and auditor conclusions regarding the disclosed material weaknesses in internal controls.
- Evaluate the performance of the creator platform and digital-subscription business, including whether related expenses can be reduced or monetized.
- Monitor digital-asset exposure, foreign-currency translation effects, supply-chain conditions, and the outstanding legal proceedings.
- Confirm the full terms of the August 8, 2022 credit amendment and preferred-stock drawdown in the filed exhibits.