PLBY Group Inc.

11/12/2024 | Press release | Distributed by Public on 11/12/2024 15:54

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

ply-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-39312
PLBY Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-1958714
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10960 Wilshire Blvd., Suite 2200
Los Angeles, California 90024
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (310) 424-1800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.0001 par value per share PLBY Nasdaq Global Market
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer ☒
Non-accelerated filer £ Smaller reporting company ☒
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Registrant's Common Stock outstanding as of November 6, 2024 was 89,586,709.
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations
1
Condensed Consolidated Statements of Comprehensive Loss
2
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
4
Condensed Consolidated Statements of Cash Flows
6
Notes to the Unaudited Condensed Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk
48
Item 4. Controls and Procedures
49
Part II - Other Information
Item 1. Legal Proceedings
51
Item 1A. Risk Factors
51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
52
Item 3. Defaults Upon Senior Securities
52
Item 4. Mine Safety Disclosures
52
Item 5. Other Information
52
Item 6. Exhibits
53
Signatures
54
i
Part I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
PLBY Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net revenues $ 12,864 $ 16,276 $ 32,824 $ 51,013
Costs and expenses:
Cost of sales (3,820) (1,282) (9,171) (14,174)
Selling and administrative expenses (15,479) (15,471) (43,243) (64,071)
Impairments (21,707) (392) (24,722) (74,018)
Other operating (expense) income, net - (718) 18 (469)
Total operating expense (41,006) (17,863) (77,118) (152,732)
Operating loss (28,142) (1,587) (44,294) (101,719)
Nonoperating (expense) income:
Interest expense (6,686) (6,620) (19,681) (17,586)
Gain on extinguishment of debt - - - 6,133
Fair value remeasurement gain - - - 6,505
Other income, net 1,616 228 1,225 477
Total nonoperating expense (5,070) (6,392) (18,456) (4,471)
Loss from continuing operations before income taxes (33,212) (7,979) (62,750) (106,190)
(Expense) benefit from income taxes (586) 929 (2,250) 7,792
Net loss from continuing operations (33,798) (7,050) (65,000) (98,398)
Income (loss) from discontinued operations, net of tax 43 (115) (1,854) (78,262)
Net loss (33,755) (7,165) (66,854) (176,660)
Net loss attributable to PLBY Group, Inc. $ (33,755) $ (7,165) $ (66,854) $ (176,660)
Net loss per share from continuing operations, basic and diluted $ (0.45) $ (0.10) $ (0.89) $ (1.39)
Net income (loss) per share from discontinued operations, basic and diluted - - (0.02) (1.11)
Net loss per share, basic and diluted $ (0.45) $ (0.10) $ (0.91) $ (2.50)
Weighted-average shares outstanding, basic and diluted 74,589,372 73,891,105 73,438,762 70,611,492
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
PLBY Group, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net loss $ (33,755) $ (7,165) $ (66,854) $ (176,660)
Other comprehensive loss:
Foreign currency translation adjustment 1,086 (1,182) 201 (3,150)
Other comprehensive income (loss) 1,086 (1,182) 201 (3,150)
Comprehensive loss $ (32,669) $ (8,347) $ (66,653) $ (179,810)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
PLBY Group, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
September 30,
2024 		December 31,
2023
Assets
Current assets:
Cash and cash equivalents $ 9,540 $ 28,120
Restricted cash 100 1,587
Receivables, net of allowance for credit losses 4,298 7,092
Inventories, net 69 159
Prepaid expenses and other current assets 4,372 6,015
Assets held for sale 71,874 81,823
Total current assets 90,253 124,796
Restricted cash 1,558 1,445
Property and equipment, net 1,438 7,960
Operating right-of-use assets 7,916 10,544
Goodwill 16,084 33,100
Other intangible assets, net 145,816 145,629
Contract assets, net of current portion 7,818 8,716
Other noncurrent assets 661 2,064
Total assets $ 271,544 $ 334,254
Liabilities, Redeemable Noncontrolling Interest and Stockholders' (Deficit) Equity
Current liabilities:
Accounts payable $ 11,438 $ 11,839
Deferred revenues, current portion 5,551 6,183
Long-term debt, current portion 304 304
Operating lease liabilities, current portion 3,177 3,326
Other current liabilities and accrued expenses 10,796 16,801
Liabilities held for sale 31,423 35,228
Total current liabilities 62,689 73,681
Deferred revenues, net of current portion 4,788 4,641
Long-term debt, net of current portion 199,705 190,115
Deferred tax liabilities, net 11,843 9,304
Operating lease liabilities, net of current portion 7,649 10,033
Other noncurrent liabilities 825 795
Total liabilities 287,499 288,569
Commitments and contingencies (Note 13)
Redeemable noncontrolling interest (208) (208)
Stockholders' (deficit) equity:
Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized, 50,000 shares designated Series A preferred stock, of which 0 shares were issued and outstanding as of September 30, 2024 and December 31, 2023
- -
Common stock, $0.0001 par value per share, 150,000,000 shares authorized, 76,889,185 shares issued and 74,639,256 shares outstanding as of September 30, 2024; 74,783,683 shares issued and 72,533,754 shares outstanding as of December 31, 2023
8 7
Treasury stock, at cost, 2,249,929 shares as of September 30, 2024 and December 31, 2023
(5,445) (5,445)
Additional paid-in capital 695,396 690,055
Accumulated other comprehensive loss (24,709) (24,910)
Accumulated deficit (680,997) (613,814)
Total stockholders' (deficit) equity (15,747) 45,893
Total liabilities, redeemable noncontrolling interest and stockholders' (deficit) equity $ 271,544 $ 334,254
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PLBY Group, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
(in thousands, except share amounts)
Three Months Ended September 30, 2024
Series A Preferred Stock Common Stock
Shares Amount Shares Amount Treasury Stock Additional
Paid-in Capital 		Accumulated Other Comprehensive Income Accumulated Deficit Total
Balance at June 30, 2024 - $ - 73,253,845 $ 7 $ (5,445) $ 693,894 $ (25,795) $ (646,976) $ 15,685
Shares issued in connection with equity incentive plans - - 1,385,411 1 - - - - 1
Stock-based compensation expense and vesting of restricted stock units - - - - - 1,502 - - 1,502
Other - - - - - - (266) (266)
Other comprehensive income - - - - - - 1,086 - 1,086
Net loss - - - - - - - (33,755) (33,755)
Balance at September 30, 2024 - $ - 74,639,256 $ 8 $ (5,445) $ 695,396 $ (24,709) $ (680,997) $ (15,747)
Three Months Ended September 30, 2023
Series A Preferred Stock Common Stock
Shares Amount Shares Amount Treasury Stock Additional
Paid-in Capital 		Accumulated Other Comprehensive Loss Accumulated Deficit Total
Balance at June 30, 2023 - $ - 73,797,250 $ 7 $ (4,445) $ 688,280 $ (26,113) $ (602,891) $ 54,838
Shares issued in connection with equity incentive plans - - 106,154 - - - - - -
Stock-based compensation expense and vesting of restricted stock units - - - - - 1,300 - - 1,300
Other comprehensive loss - - - - - - (1,182) - (1,182)
Net loss - - - - - - - (7,165) (7,165)
Balance at September 30, 2023 - $ - 73,903,404 $ 7 $ (4,445) $ 689,580 $ (27,295) $ (610,056) $ 47,791
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PLBY Group, Inc.
Condensed Consolidated Statements of Stockholders' (Deficit) Equity
(Unaudited)
(in thousands, except share amounts)
Nine Months Ended September 30, 2024
Series A Preferred Stock Common Stock
Shares Amount Shares Amount Treasury Stock Additional
Paid-in Capital 		Accumulated Other Comprehensive Loss Accumulated Deficit Total
Balance at December 31, 2023 - $ - 72,533,754 $ 7 $ (5,445) $ 690,055 $ (24,910) $ (613,814) $ 45,893
Shares issued in connection with equity incentive plans - - 2,105,502 1 - - - - 1
Stock-based compensation expense and vesting of restricted stock units - - - - - 5,341 - - 5,341
Other - - - - - - - (329) (329)
Other comprehensive income - - - - - - 201 - 201
Net loss - - - - - - - (66,854) (66,854)
Balance at September 30, 2024 - $ - 74,639,256 $ 8 $ (5,445) $ 695,396 $ (24,709) $ (680,997) $ (15,747)
Nine Months Ended September 30, 2023
Series A Preferred Stock Common Stock
Shares Amount Shares Amount Treasury Stock Additional
Paid-in Capital 		Accumulated Other Comprehensive Loss Accumulated Deficit Total
Balance at December 31, 2022 50,000 $ - 47,037,699 $ 5 $ (4,445) $ 617,233 $ (24,145) $ (433,396) $ 155,252
Issuance of common stock in rights offering - - 19,561,050 2 - 47,600 - - 47,602
Issuance of common stock in registered direct offering - - 6,357,341 - - 13,890 - - 13,890
Exchange of mandatorily redeemable preferred shares (50,000) - - - - - - - -
Shares issued in connection with equity incentive plans - - 944,002 - - - - - -
Shares issued pursuant to a license, services and collaboration agreement - - 3,312 - - - - - -
Stock-based compensation expense and vesting of restricted stock units - - - - - 10,857 - - 10,857
Other comprehensive loss - - - - - - (3,150) - (3,150)
Net loss - - - - - - - (176,660) (176,660)
Balance at September 30, 2023 - $ - 73,903,404 $ 7 $ (4,445) $ 689,580 $ (27,295) $ (610,056) $ 47,791
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PLBY Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2024 2023
Cash Flows From Operating Activities
Net loss $ (66,854) $ (176,660)
Net loss from continuing operations $ (65,000) $ (98,398)
Loss from discontinued operations, net of tax $ (1,854) $ (78,262)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,182 2,585
Stock-based compensation 5,341 8,910
Fair value measurement of liabilities (61) (6,991)
Gain on extinguishment of debt - (6,133)
Impairments 24,722 74,018
Inventory reserve charges - 3,386
Amortization of right-of-use assets 2,030 1,887
Capitalized paid-in-kind interest 6,284 -
Amortization of debt issuance costs 3,534 2,633
Deferred income taxes 2,539 (8,510)
Other 458 880
Changes in operating assets and liabilities:
Receivables, net 2,794 7,731
Inventories 1,028 1,008
Contract assets 476 (83)
Prepaid expenses and other assets 1,775 (36)
Accounts payable (439) 1,244
Accrued agency fees and commissions (116) (6,601)
Other liabilities and accrued expenses (5,798) 2,988
Deferred revenues (485) (12,973)
Operating lease liabilities (2,533) (2,144)
Other liabilities, net 381 977
Net cash used in operating activities from continuing operations (19,888) (33,622)
Net cash provided by (used in) operating activities from discontinued operations 430 (7,747)
Net cash used in operating activities (19,458) (41,369)
Cash Flows From Investing Activities
Purchases of property and equipment (1,200) (1,437)
Proceeds from sale of artwork 1,572 -
Proceeds from promissory note repayment - 1,300
Proceeds from sale of Yandy - 1,000
Net cash provided by investing activities from continuing operations 372 863
Net cash used in investing activities from discontinued operations (500) (97)
Net cash used in investing activities (128) 766
Cash Flows From Financing Activities
Proceeds from issuance of common stock in rights offering, net - 47,600
Proceeds from issuance of common stock in registered direct offering, net - 13,890
Proceeds from issuance of long-term debt - 11,828
Repayment of long-term debt (228) (45,552)
Payment of financing costs - (508)
Other (329) -
Net cash (used in) provided by financing activities from continuing operations (557) 27,258
Effect of exchange rate changes on cash and cash equivalents - continuing operations 189 (136)
Net decrease in cash and cash equivalents and restricted cash (19,954) (13,481)
Balance, beginning of year $ 31,152 $ 35,449
Balance, end of period $ 11,198 $ 21,968
Cash and cash equivalents and restricted cash consist of:
Cash and cash equivalents $ 9,540 $ 20,028
Restricted cash 1,658 1,940
Total $ 11,198 $ 21,968
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PLBY Group, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2024 2023
Supplemental Disclosures
Cash paid for income taxes $ 1,568 $ 519
Cash paid for interest $ 11,794 $ 13,981
Supplemental Disclosure of Non-Cash Activities
Right-of-use assets in exchange for lease liabilities - continuing operations $ - $ -
Right-of-use assets in exchange for lease liabilities - discontinued operations $ 2,118 $ 5,352
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
PLBY Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
PLBY Group, Inc. (the "Company", "PLBY", "we", "our" or "us"), together with its subsidiaries through which it conducts business, is a global consumer lifestyle company marketing the Playboybrand through a wide range of direct-to-consumer products, licensing initiatives, digital subscriptions and content, and online and location-based entertainment businesses, in addition to the sale of direct-to-consumer products through its Honey Birdettebrand.
We have three reportable segments: Licensing, Digital Subscriptions and Content, and Direct-to-Consumer. Refer to Note 17, Segments.
Basis of Presentation
The interim condensed consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States ("GAAP").
The Yandy Enterprises LLC ("Yandy") and TLA Acquisition Corp. ("TLA", owner of the Loversbusiness) disposal groups, which were previously included in the Direct-to-Consumer segment in the prior year comparative period prior to their becoming assets held for sale, were classified as discontinued operations in the condensed consolidated statements of operations for the prior year comparative period presented. The sale of Yandy was completed on April 4, 2023 (the "Yandy Sale"). The sale of TLA was completed on November 3, 2023 (the "TLA Sale"). As of September 30, 2024, we determined that our Honey Birdette business, which was also previously included in the Direct-to-Consumer segment, constituted a disposal group and met the criteria discussed below to be classified as discontinued operations in the condensed consolidated statements of operations for all periods presented. Assets and liabilities of Honey Birdette were classified as assets and liabilities held for sale in the condensed consolidated balance sheets for all periods presented.
Principles of Consolidation
The interim condensed consolidated financial statements include our accounts and all majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The Company follows a monthly reporting calendar, with its fiscal year ending on December 31.
Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated balance sheet as of September 30, 2024, and the interim condensed consolidated statements of operations, comprehensive loss, cash flows, and stockholders' equity (deficit) for the three and nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of our financial position as of September 30, 2024 and our results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023. The financial data and other financial information disclosed in these notes to the interim condensed consolidated financial statements related to the three and nine-month periods are also unaudited. The interim condensed consolidated results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future annual or interim period. The interim condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited consolidated financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in the Annual Report on Form 10-K as filed by us with the U.S. Securities and Exchange Commission (the "SEC") on March 29, 2024.
Reclassifications
Certain prior period amounts in the condensed consolidated statements of operations and condensed consolidated balance sheets have been reclassified to conform with the current period presentation.
8
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We regularly assess these estimates, including, but not limited to, valuation of our trademarks and trade names; valuation of our contingent consideration liabilities; valuation of our only authorized and issued preferred stock (our "Series A Preferred Stock"), with the previously outstanding Series A Preferred Stock having been exchanged for debt and thereby eliminated in May 2023 upon amendment and restatement of our senior secured debt; pay-per-view and video-on-demand buys, and monthly subscriptions to our television and digital content; the adequacy of reserves associated with accounts receivable and inventory; unredeemed gift cards and store credits; licensing commission accruals; and stock-based compensation expense. We base these estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates and such differences could be material to the financial position and results of operations.
Concentrations of Business and Credit Risk
We maintain certain cash balances in excess of Federal Deposit Insurance Corporation insured limits. We periodically evaluate the credit worthiness of the financial institutions with which we maintain cash deposits. We have not experienced any losses in such accounts and do not believe that there is any credit risk to our cash. Concentration of credit risk with respect to accounts receivable is limited due to the wide variety of customers to whom our products are sold and/or licensed. Due to Honey Birdette's assets and liabilities being classified as held for sale and its operations being classified as discontinued operations in our condensed consolidated financial statements for all periods presented, certain individual customers exceeded 10% of our receivables and revenue as of September 30, 2024 while they did not in prior comparative periods.
The following table represents receivables from our customers exceeding 10% of our total receivables:
Customer September 30,
2024 		December 31,
2023
Customer A 19 % *
Customer B * 10 %
_________________
*Indicates the receivables for the customer did not exceed 10% of the Company's total as of September 30, 2024 or December 31, 2023, as applicable.
The following table represents revenue from our customers exceeding 10% of our total revenue, excluding revenues from discontinued operations:
Three Months Ended September 30, Nine Months Ended September 30,
Customer 2024 2023 2024 2023
Customer C 14 % * 10 % *
Customer D 11 % * * *
Customer E(1)
* 33 % * 32 %
_________________
(1)The agreement with this licensee was terminated in the fourth quarter of 2023.
*Indicates revenues for the customer did not exceed 10% of our total revenue for the three and nine months ended September 30, 2024 or 2023, as applicable.
Restricted Cash
At September 30, 2024 and December 31, 2023, restricted cash was primarily related to a cash collateralized letter of credit we maintained in connection with the lease of our Los Angeles headquarters, excluding Honey Birdette's term deposit in relation to its Sydney office lease, which was classified as assets held for sale as of September 30, 2024 and December 31, 2023 (refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations). The December 31, 2023 restricted cash balance also included cash held in escrow related to the TLA Sale, which had been released to us in full in the second quarter of 2024.
9
Liquidity Assessment and Management's Plans
Our revenues, results of operations and cash flows have been materially adversely impacted by negative macroeconomic factors beginning in the second quarter of 2022 and continuing through the third quarter of 2024. The persistently challenging macroeconomic and retail environments, including reduced consumer spending and increased price sensitivity in discretionary categories, has significantly impacted our licensees' performance. Our net revenues from continuing operations for the three and nine months ended September 30, 2024 decreased by $3.4 million and $18.2 million, compared to the three and nine months ended September 30, 2023, respectively, and this decline, coupled with investments into our creator platform, drove our operating loss and net loss. For the three and nine months ended September 30, 2024, we reported a net operating loss from continuing operations of $28.1 million and $44.3 million, respectively, and negative operating cash flows from continuing operations of $19.9 million for the nine months ended September 30, 2024. As of September 30, 2024, we had approximately $9.5 million in unrestricted cash and cash equivalents.
Our capital expenditures and working capital requirements in 2024 have been, and are expected to continue to be, largely consistent with 2023, as we have continued to invest in our Digital Subscriptions and Content segment. We may, however, need additional cash resources to fund our operations until the Digital Subscriptions and Content segment achieves a level of revenue that provides for operating profitability. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing, or dispose of additional assets, and there can be no assurance that we will be successful in these efforts. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our planned level of investment in our Digital Subscriptions and Content segment or scale back its operations, which could have an adverse impact on our business and financial prospects.
We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern over the next twelve months from the date of filing this Quarterly Report on Form 10-Q. 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, along with proceeds from asset dispositions and savings from cost reductions initiatives, will be sufficient to meet our obligations as they become due under the A&R Credit Agreement (as such term is defined in Note 10, Debt) and our other obligations for at least one year following the date of the filing of this Quarterly Report on Form 10-Q. We may seek additional equity or debt financing in the future to satisfy capital requirements, respond to adverse developments such as changes in our circumstances or unforeseen events or conditions, or fund organic or inorganic 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.
As of September 30, 2024, we were in compliance with the covenants under the A&R Credit Agreement. However, due to ongoing negative macroeconomic factors and their uncertain impacts on our business, results of operations and cash flows, we could experience further material decreases to net sales and operating cash flows and materially higher operating losses, and may experience difficulty remaining in compliance with such covenants. Refer to Note 10, Debt, for further details regarding the terms of our A&R Credit Agreement and the A&R Term Loans (as such terms are defined in Note 10, Debt).
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Advertising Costs
We expense advertising costs as incurred. Advertising expenses were $0.1 million for the three months ended September 30, 2024 and 2023, excluding $1.0 million and $1.4 million of advertising costs related to discontinued operations for the three months ended September 30, 2024 and 2023, respectively. Advertising expenses for the nine months ended September 30, 2024 and 2023 were $0.3 million and $2.0 million, respectively, excluding $2.9 million and $5.5 million of advertising costs related to discontinued operations for the nine months ended September 30, 2024 and 2023, respectively. We also have various arrangements with collaborators pursuant to which we reimburse them for a portion of their advertising costs in the form of co-op marketing which provide advertising benefits to us. The costs that we incur for such advertising costs are recorded as a reduction of revenue.
Long-Lived Assets, Indefinite-lived Intangible Assets and Goodwill
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 indicators of 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.
10
In the third quarter of 2024, we had impairment indicators to our creator digital platform on playboy.com associated with a decrease in its revenue projections and determined that its carrying value is not recoverable as of September 30, 2024. As a result, we recognized $4.7 million of impairment charges related to the write-off of its internally developed software during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we recognized $0.6 million of impairment charges on right-of-use assets pertaining to our corporate leases and $4.7 million related to the write-off of its internally developed software. We recognized $5.1 million of impairment charges on our trade names at the impairment date during the nine months ended September 30, 2023, which were classified in the discontinued operations in our condensed consolidated statements of operations for the nine months ended September 30, 2023. There was no impairment charge on our long-lived assets during the three months ended September 30, 2023.
Indefinite-lived intangible assets that are not amortized but subject to annual impairment testing consist of Playboy-branded trademarks. Our indefinite-lived Playboy-branded trademarks are periodically reviewed for indicators of impairment whenever events or changes in circumstances indicate that the value of these assets may not be recoverable or that the useful life is shorter than originally estimated.
We evaluate the indefinite-lived Playboy-branded trademarks for impairment using the discounted cash flow and relief from royalty method. This valuation approach requires that we make a number of assumptions to estimate fair value, including projections of future revenues, market royalty rates, tax rates, discount rates and other relevant variables. The projections we use in the model are updated annually or more frequently if an impairment triggering event has been identified and will change over time based on the historical performance and changing business conditions. If the carrying value of the trademark exceeds its estimated fair value, an impairment charge is recognized for the excess amount.
In the third quarter of 2024, we had impairment indicators with respect to our indefinite-lived Playboy-branded trademarks, causing us to perform a quantitative impairment test on our indefinite-lived Playboy-branded trademarks as of September 30, 2024. The quantitative test indicated that their carrying value was less than their fair value, thus, no impairment charges to our Playboy-branded trademarks were recognized during the three and nine months ended September 30, 2024. In the second quarter of 2023, we experienced declines in revenue and profitability, causing us to test the recoverability of our indefinite-lived assets as of June 30, 2023. The impairment charges on the indefinite-lived Playboy-branded trademarks were $65.5 million as of the impairment date during the nine months ended September 30, 2023. There was no impairment charge to the indefinite-lived Playboy-branded trademarks during the three months ended September 30, 2023.
We perform annual impairment testing 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. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired, and we will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value. If we determine it is more likely than not that goodwill is not impaired, a quantitative test is not necessary.
In the third quarter of 2024, we had declines in our future projected cash flows for Digital Subscriptions and Content, causing us to test our goodwill for impairment as of September 30, 2024. Utilizing the income approach, we performed a quantitative impairment test on goodwill using a discounted cash flow analysis, which determined that the fair value of certain of our reporting units was less than their carrying value. As a result, we recorded $17.0 million of impairment charges to our goodwill during the three month ended September 30, 2024. There was no impairment charge to our goodwill during the three months ended September 30, 2023.
In the second quarter of 2023, we experienced declines in revenue and profitability, causing us to test our goodwill for impairment as of June 30, 2023. Utilizing the income approach, we performed a quantitative impairment test on goodwill using a discounted cash flow analysis, which determined that the carrying value of certain of our reporting units exceeded their fair value. As a result, we recognized $66.7 million of impairment charges on our goodwill at the impairment date in the second quarter of 2023.
The impairment charges related to the write down of our goodwill were $17.0 million and $66.7 million during the nine months ended September 30, 2024 and 2023, respectively, with the 2023 amount being classified as discontinued operations in the condensed consolidated statements of operations for the nine months ended September 30, 2023.
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Assets and Liabilities Held for Sale and Discontinued Operations
We classify assets and liabilities as held for sale, collectively referred to as a "disposal group", when management commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, it is unlikely that significant changes will be made to the plan, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, and the sale of the assets is expected to be completed within one year. A disposal group that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The fair value of a disposal group less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.
We account for discontinued operations when assets and liabilities of a disposal group are classified as held for sale, or have been sold, and only if the disposal represents a strategic shift that has or will have a meaningful effect on our operations and financial results. We aggregate the results of operations for discontinued operations into a single line item in the consolidated statements of operations for all periods presented. General corporate overhead is not allocated to discontinued operations. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
Comprehensive Loss
Comprehensive loss consists of net loss and other gains and losses affecting stockholders' equity that, under GAAP, are excluded from net loss. Our other comprehensive income (loss) represents foreign currency translation adjustments attributable to Honey Birdette's operations. Refer to the Condensed Consolidated Statements of Comprehensive Loss. Total foreign currency transaction gains and losses were immaterial for the three and nine months ended September 30, 2024 and 2023.
Recently Adopted Accounting Pronouncements
There were no recently adopted accounting pronouncements applicable to the Company for the quarter ended September 30, 2024.
Accounting Pronouncements Issued but Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The ASU's amendments are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our disclosures.
In December 2023, the FASB issued ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which addresses the accounting and disclosure requirements for certain crypto assets. This ASU requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. The ASU's amendments are effective for all entities holding assets that meet certain scope criteria for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted for both interim and annual periods. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. We do not expect this pronouncement to have a material impact on our financial statements, and are currently evaluating its impact on our disclosures and consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU's amendments are effective for all entities that are subject to Topic 740, Income Taxes, for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our disclosures.
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2. Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 inputs: Based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 inputs: Based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs: Based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.
For cash equivalents, receivables and certain other current assets and liabilities at September 30, 2024 and December 31, 2023, the amounts reported approximate fair value (Level 1) due to their short-term nature. For debt, based upon the refinancing of our senior secured debt in May 2021, its amendments in 2021 and 2022, as well as its further amendment and restatement in 2023, we believe that its carrying value at September 30, 2024 and December 31, 2023 approximates fair value, as our debt is variable-rate debt that reprices to current market rates frequently. Refer to Note 10, Debt, for additional disclosures about our debt. Our debt is classified within Level 2 of the valuation hierarchy.
Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following table summarizes the fair value of our financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
September 30, 2024
Level 1 Level 2 Level 3 Total
Liabilities
Contingent consideration liability $ - $ - $ (338) $ (338)
December 31, 2023
Level 1 Level 2 Level 3 Total
Liabilities
Contingent consideration liability $ - $ - $ (399) $ (399)
There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.
Contingent consideration liability relates to the contingent consideration recorded in connection with the 2021 acquisition of GlowUp Digital Inc. ("GlowUp"), which represents the fair value for shares which may be issued and cash which may be paid to the GlowUp sellers, subject to certain indemnification obligations that remained unsettled as of September 30, 2024 and December 31, 2023. The fair value of such shares is remeasured each reporting date using the PLBY stock price as of each reporting date. Fair value change as a result of contingent liabilities fair value remeasurement during the three and nine months ended September 30, 2024 and 2023 was immaterial. We classified financial liabilities associated with the contingent consideration as Level 3 due to the lack of relevant observable inputs. Changes in assumptions described above could have an impact on the payout of contingent consideration.
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Our Series A Preferred Stock liability, initially valued as of May 16, 2022 (the initial issuance date), and our subsequent Series A Preferred Stock liability, valued as of the August 8, 2022 (the final issuance date), were each calculated using a stochastic interest rate model implemented in a binomial lattice, in order to incorporate the various early redemption features. The fair value option was elected for Series A Preferred Stock liability, as we believe fair value best reflects the expected future economic value. Such liabilities are subsequently remeasured to fair value for each reporting date using the same valuation methodology as originally applied with updated input assumptions. Financial liabilities associated with our Series A Preferred Stock were classified as Level 3 due to the lack of relevant observable inputs. We recorded $6.5 million of fair value gain in nonoperating income as a result of remeasurement of the fair value of our Series A Preferred Stock during the nine months ended September 30, 2023. In May 2023, in connection with the amendment and restatement of our senior secured credit agreement, the outstanding Series A Preferred Stock was exchanged for debt (and thereby eliminated). Refer to Note 10, Debt, for further details.
The following table provides a roll-forward of the fair value of the liabilities categorized as Level 3 for the nine months ended September 30, 2024 (in thousands):
Contingent Consideration
Balance at December 31, 2023 $ 399
Change in fair value (61)
Balance at September 30, 2024 $ 338
The decrease in the fair value of the contingent consideration for the nine months ended September 30, 2024 was primarily due to a decrease in a price per share of our common stock.
Assets and Liabilities Held for Sale and Discontinued Operations
We initially measure an asset that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell. We assess the fair value of an asset less costs to sell each reporting period that it remains classified as held for sale, and report any subsequent changes as an adjustment to the carrying amount of the asset. Assets are not depreciated or amortized while they are classified as held for sale.
In the fourth quarter of 2023, we began the sale of artwork assets, but they were not fully disposed of as of December 31, 2023 and September 30, 2024, and as such continued to be classified as current assets held for sale in our condensed consolidated balance sheet as of September 30, 2024.
The assumptions used in measuring fair value of our artwork held for sale are considered Level 2 inputs, which include market prices obtained from recent auctions of similar works of art, or management's judgment as to their salable value. There were no impairment charges on artwork held for sale recorded during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we recorded $2.4 million of impairment charges related to our artwork held for sale.
In the third quarter of 2024, we determined that our Honey Birdette business constituted a disposal group that met the criteria discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to be classified as discontinued operations for all periods presented. Honey Birdette's assets and liabilities are classified as current assets and liabilities held for sale in the condensed consolidated balance sheets for all periods presented. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations for further details.
The assumptions used in measuring fair value of assets and liabilities held for sale are considered Level 3 inputs, which include recent purchase offers and market comparables. There were no impairment charges recorded in relation to assets and liabilities held for sale during the three months ended September 30, 2024. The impairment charges on our assets and liabilities held for sale during the nine months ended September 30, 2024 were $2.4 million, which were attributable to our art held for sale.
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Assets Measured and Recorded at Fair Value on a Non-recurring Basis
In addition to liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis. Generally, our non-financial instruments, which primarily consist of goodwill, intangible assets, including digital assets, right-of-use assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering market participant assumptions. Recognized losses related to the impairment of our digital assets during the three and nine months ended September 30, 2024 and 2023 were immaterial, and the fair value of our digital assets was immaterial as of September 30, 2024 and December 31, 2023. Fair value of digital assets held are predominantly based on Level 1 inputs.
3. Assets and Liabilities Held for Sale and Discontinued Operations
On April 4, 2023, we completed the sale of all of the membership interests of our wholly-owned subsidiary, Yandy, to an unaffiliated, private, third-party buyer ("Yandy Buyer"). The consideration paid by the Yandy Buyer for the Yandy Sale consisted of $1 million in cash and a $2 million secured promissory note (which note was then settled in the third quarter of 2023 for a cash payment to us of $1.3 million). The Yandy Sale resulted in a loss of $0.3 million before income taxes. Transaction expenses incurred in connection with the sale were immaterial. In connection with the Yandy Sale, on April 4, 2023, we entered into a sublease agreement with Yandy (under its new ownership by Yandy Buyer) for Yandy's warehouse on substantively the same terms as the original lease. As a result, Yandy's warehouse right-of-use assets and related lease liabilities, including leasehold improvements associated with the lease, remained on our consolidated balance sheet as of September 30, 2024 and December 31, 2023. Yandy's operating activities met the criteria discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to be classified as discontinued operations for the nine months ended September 30, 2023.
On October 3, 2023, we entered into a Stock Purchase Agreement (the "SPA") with LV Holding, LLC ("TLA Buyer") for the sale of TLA. We closed the TLA Sale on November 3, 2023. Pursuant to the terms and subject to the conditions set forth in the SPA, TLA Buyer acquired from Playboy Enterprises, Inc., a wholly-owned subsidiary of PLBY Group, Inc. and the holder of all equity of TLA, all of the issued and outstanding equity interests of TLA, which held and operated the Lovers business, for approximately $13.5 million in cash (the "Purchase Price"). We also received approximately $0.8 million as part of a working capital adjustment following the closing of the TLA Sale. 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 TLA and for certain post-closing items to be completed by TLA. As of the date of this Quarterly Report on Form 10-Q, such escrow funds had been released to us in full. The TLA Sale resulted in a gain of $7.7 million before income taxes. TLA's operating activities met the criteria discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to be classified as discontinued operations for the nine months ended September 30, 2023.
In the fourth quarter of 2023, we began the sale of artwork assets, but they were not fully disposed of as of September 30, 2024, and as such continued to meet the criteria discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to be classified as current assets held for sale in our condensed consolidated balance sheet as of September 30, 2024. There were no impairment charges on artwork held for sale recorded during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we recorded $2.4 million of impairment charges related to our artwork held for sale.
As of September 30, 2024, we determined that our Honey Birdette business constituted a disposal group. Honey Birdette, which was previously included in the Direct-to-Consumer segment, met the criteria discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to be classified as discontinued operations for all periods presented, as the divestiture of Honey Birdette is part of our strategic shift to a capital-light business model, and its sale will have a major effect on our operations and financial results. Its assets and liabilities are classified as current assets and liabilities held for sale in the condensed consolidated balance sheets for all periods presented.
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The following table summarizes the components of income (loss) from discontinued operations, net of tax in the accompanying condensed consolidated statements of operations (in thousands):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net revenues $ 16,575 $ 26,886 $ 49,818 $ 88,694
Costs and expenses:
Cost of sales (7,656) (12,864) (22,829) (43,587)
Selling and administrative expenses (9,041) (14,159) (29,079) (54,487)
Impairments - - - (72,614)
Total operating expense (16,697) (27,023) (51,908) (170,688)
Operating income (loss) (122) (137) (2,090) (81,994)
Nonoperating income (expense):
Other income (expense), net 173 (98) 249 (46)
Total nonoperating income (expense) 173 (98) 249 (46)
Income (loss) from discontinued operations before income taxes 51 (235) (1,841) (82,040)
(Expense) benefit from income taxes (8) 120 (13) 3,778
Income (loss) from discontinued operations, net of tax $ 43 $ (115) $ (1,854) $ (78,262)
The major classes of assets and liabilities classified as held for sale in the accompanying condensed consolidated balance sheets were as follows (in thousands):
September 30, 2024 December 31, 2023
Assets
Restricted cash $ 682 $ 524
Receivables, net of allowance for credit losses 1,188 404
Inventories, net 9,151 12,841
Prepaid expenses and other current assets 2,489 1,787
Property and equipment, net 3,858 5,554
Operating right-of-use assets 13,321 14,740
Goodwill 22,142 21,799
Other intangible assets, net 11,496 12,272
Artwork held for sale 7,325 11,692
Other noncurrent assets 222 210
Total assets held for sale $ 71,874 $ 81,823
Liabilities
Accounts payable $ 4,291 $ 2,661
Deferred revenues 754 3,022
Operating lease liabilities 16,449 18,217
Other current liabilities and accrued expenses 9,803 11,166
Other noncurrent liabilities 126 162
Total liabilities held for sale $ 31,423 $ 35,228
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4. Revenue Recognition
Contract Balances
Our contract assets relate to our trademark licensing revenue stream, which arrangements are typically long-term and non-cancelable. Contract assets are reclassified to accounts receivable when the right to bill becomes unconditional. Our contract liabilities consist of billings or payments received in advance of revenue recognition and are recognized as revenue when transfer of control to customers has occurred. Contract assets and contract liabilities are netted on a contract-by-contract basis. Contract liabilities are classified as deferred revenue in the consolidated balance sheets as of September 30, 2024 and December 31, 2023.
The following table summarizes our contract assets and certain contract liabilities (in thousands). Such table excludes $4.8 million of accounts receivable included in assets held for sale in our consolidated balance sheets as of December 31, 2022, and $2.7 million of contract liabilities included in liabilities held for sale in our consolidated balance sheet as of December 31, 2022. The table below also excludes $1.2 million and $0.4 million of accounts receivable included in assets held for sale in our consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively, and $0.8 million and $3.0 million of contract liabilities included in liabilities held for sale in our consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
September 30,
2024 		December 31,
2023 		December 31,
2022
Accounts receivable $ 4,298 $ 7,092 $ 13,650
Contract Balances:
Contract assets, current portion $ 1,968 $ 1,547 $ 2,559
Contract assets, net of current portion 7,818 8,716 13,680
Contract liabilities, current portion (5,551) (6,183) (8,061)
Contract liabilities, net of current portion (4,788) (4,641) (21,406)
Contract liabilities, net $ (553) $ (561) $ (13,228)
The following tables provide a roll-forward of our netted contract assets and contract liabilities from continuing operations (in thousands):
Contract Liabilities, Net
Balance at December 31, 2023 $ (561)
Revenues recognized that were included in gross contract liabilities at December 31, 2023 16,561
Contract assets reclassified to accounts receivable in the nine months ended September 30, 2024
(15,076)
Cash received in advance since prior year and remains in net contract liabilities at period-end (1,702)
Contract modifications and terminations in 2024 225
Balance at September 30, 2024 $ (553)
Contract Liabilities, Net
Balance at December 31, 2022 $ (13,228)
Revenues recognized that were included in gross contract liabilities at December 31, 2022 29,033
Contract assets reclassified to accounts receivable in the nine months ended September 30, 2023
(25,078)
Cash received in advance since prior year and remained in net contract liabilities at period-end (1,762)
Write-down of contract liabilities due to impairment of a trademark licensing agreement 11,447
Contract impairments, modifications and terminations in 2023 (6,580)
Balance at September 30, 2023 $ (6,168)
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Future Performance Obligations
As of September 30, 2024, unrecognized revenue attributable to unsatisfied and partially unsatisfied performance obligations under our long-term contracts was $75.6 million, of which $70.2 million related to trademark licensing and $5.4 million related to digital subscriptions and products. Unrecognized revenue of the trademark licensing revenue stream is expected to be recognized over the next seven years, of which 95% is expected to be recognized in the first five years. Unrecognized revenue of the digital subscriptions and products revenue stream is expected to be recognized over the next five years, of which 52% is expected to be recognized in the first year. Unrecognized revenues under contracts disclosed above do not include contracts for which variable consideration is determined based on the customer's subsequent sale or usage.
Disaggregation of Revenue
The following table disaggregates revenue from continuing operations by type (in thousands):
Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024
Licensing Direct-to-Consumer
Digital Subscriptions and Content
Other Total Licensing Direct-to-Consumer
Digital Subscriptions and Content
Other Total
Trademark licensing $ 7,377 $ - $ - $ - $ 7,377 $ 16,734 $ - $ - $ - $ 16,734
Digital subscriptions and products - - 3,830 - 3,830 - - 11,113 - 11,113
TV and cable programming - - 1,655 - 1,655 - - 4,975 - 4,975
Consumer products - - - 2 2 - - - 2 2
Total revenues $ 7,377 $ - $ 5,485 $ 2 $ 12,864 $ 16,734 $ - $ 16,088 $ 2 $ 32,824
Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
Licensing Direct-to-Consumer
Digital Subscriptions and Content
Other Total Licensing Direct-to-Consumer
Digital Subscriptions and Content
Other Total
Trademark licensing $ 10,931 $ - $ - $ - $ 10,931 $ 30,913 $ - $ - $ - $ 30,913
Digital subscriptions and products
- - 3,359 - 3,359 - - 9,145 4 9,149
TV and cable programming - - 1,847 - 1,847 - - 5,911 - 5,911
Consumer products - 139 - - 139 - 5,040 - - 5,040
Total revenues $ 10,931 $ 139 $ 5,206 $ - $ 16,276 $ 30,913 $ 5,040 $ 15,056 $ 4 $ 51,013
The following table disaggregates revenue from continuing operations by point in time versus over time (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Point in time $ 1,474 $ 1,300 $ 4,355 $ 7,877
Over time 11,390 14,976 28,469 43,136
Total revenues $ 12,864 $ 16,276 $ 32,824 $ 51,013
5. Inventories, Net
The following table sets forth inventories, net, which are stated at the lower of cost (specific cost and first-in, first-out) and net realizable value (in thousands). The table excludes $9.2 million and $12.8 million of inventories, net, which is included in assets held for sale in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
September 30,
2024 		December 31,
2023
Editorial and other pre-publication costs $ 69 $ 159
Total $ 69 $ 159
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At September 30, 2024 and December 31, 2023, reserves for slow-moving and obsolete inventory amounted to $0.1 million. Reserves for slow-moving and obsolete inventory as of September 30, 2024 and December 31, 2023 excluded $4.7 million and $5.4 million of inventory reserves included in assets held for sale in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
6. Prepaid Expenses and Other Current Assets
The following table sets forth our prepaid expenses and other current assets (in thousands). The table excludes $2.5 million and $1.8 million of assets included in assets held for sale in the condensed consolidated balance sheets as of as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
September 30,
2024 		December 31,
2023
Contract assets, current portion $ 1,968 $ 1,547
Prepaid software 790 1,416
Prepaid insurance 692 858
Promissory note receivable 71 1,632
Other 851 562
Total $ 4,372 $ 6,015
7. Property and Equipment, Net
The following table sets forth our property and equipment, net (in thousands). The table excludes $3.9 million and $5.6 million of property and equipment, net included in assets held for sale in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
September 30,
2024 		December 31,
2023
Internally developed software $ 7,060 $ 10,792
Leasehold improvements 1,961 2,092
Equipment 2,765 2,763
Furniture and fixtures 1,799 1,922
Construction in progress 198 33
Total property and equipment, gross 13,783 17,602
Less: accumulated depreciation (12,345) (9,642)
Total $ 1,438 $ 7,960
The aggregate depreciation expense related to property and equipment included in loss from continuing operations was $1.0 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $3.0 million and $2.3 million for the nine months ended September 30, 2024 and 2023, respectively. Depreciation expense related to property and equipment attributable to discontinued operations was $0.5 million for the three months ended September 30, 2024 and 2023, and $2.1 million and $1.8 million for the nine months ended September 30, 2024 and 2023, respectively.
As a result of a decrease in revenue projections for our creator digital platform on playboy.com, we recorded non-cash impairment charges related to the write-off of its internally developed software in the amount of $4.7 million as of September 30, 2024.
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8. Intangible Assets and Goodwill
Intangible Assets
Our indefinite-lived intangible assets that are not amortized consisted of $145.5 million and $145.1 million of Playboy-branded trademarks and acquired trade names as of September 30, 2024 and December 31, 2023, respectively. Capitalized trademark costs include costs associated with the acquisition, registration and/or renewal of our trademarks. We expense certain costs associated with the defense of our trademarks. Registration and renewal costs that were capitalized during each of the three and nine months ended September 30, 2024 and 2023 were immaterial.
As a result of ongoing impacts to our revenue, including declines in consumer demand and discontinued operations, we recorded non-cash asset impairment charges, at the impairment date in the third quarter of 2024, related to the write-down of goodwill of $17.0 million. At the impairment date in the second quarter of 2023, we recorded non-cash asset impairment charges related to the write-down of indefinite-lived trademarks of $65.5 million, and impairment charges related to discontinued operations for the write-down of goodwill of $66.7 million and to trade names and other assets of $5.1 million.
The table below summarizes our intangible assets, net (in thousands). The table excludes $11.5 million and $12.3 million of other intangible assets, net included in assets held for sale in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
September 30,
2024 		December 31,
2023
Digital assets $ 5 $ 5
Total amortizable intangible assets, net 351 537
Total indefinite-lived intangible assets 145,460 145,087
Total $ 145,816 $ 145,629
Impairment charges related to our digital assets, which were comprised of the cryptocurrency "Ethereum" as of September 30, 2024 and December 31, 2023, were immaterial for the three and nine months ended September 30, 2024 and 2023.
Our amortizable intangible assets are set forth in the table below (in thousands). The tables below exclude Honey Birdette's trade names, valued at $11.5 million and $12.3 million as of September 30, 2024 and December 31, 2023, respectively, as they were included in assets held for sale in the condensed consolidated balance sheets as of such dates. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
Weighted- Average Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount
September 30, 2024
Distribution agreements 15 $ 3,720 $ (3,369) $ 351
Total $ 3,720 $ (3,369) $ 351
Weighted- Average Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount
December 31, 2023
Distribution agreements 15 3,720 (3,183) $ 537
Total $ 3,720 $ (3,183) $ 537
The aggregate amortization expense for definite-lived intangible assets included in loss from continuing operations was $0.1 million for the three months ended September 30, 2024 and 2023. Amortization expense for definite-lived intangible assets attributable to discontinued operations was $0.3 million for the three months ended September 30, 2024 and 2023. The aggregate amortization expense for definite-lived intangible assets included in the continuing operations was $0.2 million for the nine months ended September 30, 2024 and 2023. Amortization expense for definite-lived intangible assets attributable to discontinued operations was $0.9 million and $1.2 million for the nine months ended September 30, 2024 and 2023, respectively.
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As of September 30, 2024, expected amortization expense relating to definite-lived intangible assets for each of the next five years and thereafter is as follows (in thousands):
Remainder of 2024 $ 62
2025 248
2026 41
Total $ 351
Goodwill
Changes in the carrying value of goodwill for the nine months ended September 30, 2024 are set forth in the tables below (in thousands). The table below excludes $22.1 million and $21.8 million of goodwill included in assets held for sale in our consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
Gross Goodwill Impairments Net Goodwill
Balance at December 31, 2023 $ 33,100 $ - $ 33,100
Impairments - (17,016) (17,016)
Balance at September 30, 2024 $ 33,100 $ (17,016) $ 16,084
Changes in the recorded carrying value of goodwill for the nine months ended September 30, 2024 by reportable segment were as follows:
Licensing Digital Subscriptions and Content
Balance at December 31, 2023 $ - $ 33,100
Impairments - (17,016)
Balance at September 30, 2024 $ - $ 16,084
9. Other Current Liabilities and Accrued Expenses
The following table sets forth our other current liabilities and accrued expenses (in thousands). The table excludes $9.8 million and $11.2 million of other current liabilities and accrued expenses included in assets held for sale in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. Refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations.
September 30,
2024 		December 31,
2023
Taxes $ 3,417 $ 4,925
Accrued creator fees 1,967 2,113
Accrued interest 1,110 3,040
Accrued professional fees 1,084 650
Accrued salaries, wages and employee benefits 84 2,659
Other 3,134 3,414
Total $ 10,796 $ 16,801
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10. Debt
The following table sets forth our debt (in thousands):
September 30,
2024 		December 31,
2023
Term loan, due 2027 $ 209,544 $ 209,772
Plus: capitalized payment-in-kind interest 8,132 1,848
Total debt 217,676 211,620
Less: unamortized debt issuance costs (498) (582)
Less: unamortized debt discount (17,169) (20,619)
Total debt, net of unamortized debt issuance costs and debt discount 200,009 190,419
Less: current portion of long-term debt (304) (304)
Total debt, net of current portion $ 199,705 $ 190,115
On May 10, 2023 (the "Restatement Date"), we entered into an amendment and restatement (the "A&R Credit Agreement") of our prior credit agreement (the "2021 Credit Agreement") to reduce the interest rate applicable to our senior secured debt and the implied interest rate on our Series A Preferred Stock, exchange (and thereby eliminate) our outstanding Series A Preferred Stock, and obtain additional covenant relief and funding. For the terms of the 2021 Credit Agreement, as amended, refer to Note 10, Debt, within the notes to our consolidated financial statements set forth in our Annual Report on Form 10-K filed with the SEC on March 29, 2024.
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 on the Restatement Date.
In connection with the A&R Credit Agreement, the term loan under the 2021 Credit Agreement was 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 term loan under the 2021 Credit Agreement were eliminated. The A&R Credit Agreement only requires that 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 the Secured Overnight Financing Rate ("SOFR"), as published by the U.S. Federal Reserve Bank of New York (rather than the London Inter-Bank Offered Rate ("LIBOR"), as under the 2021 Credit Agreement). As of the Restatement Date, Tranche A accrued interest at SOFR plus 6.25% and 0.10% SOFR adjustment, with a SOFR floor of 0.50%. As of the Restatement Date, Tranche B accrued interest at SOFR plus 4.25% and 0.10% SOFR adjustment, with 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.
In July 2023, DBD Credit Funding LLC, an affiliate of Fortress, became the administrative agent and collateral agent under the A&R Credit Agreement.
In connection with the TLA Sale, 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 TLA Sale 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 remained 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");
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(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.
The stated interest rate of Tranche A and Tranche B term loans as of September 30, 2024 was 11.46% and 9.46%, respectively. 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 September 30, 2024 was 12.08% and 13.32%, 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. The difference between the stated interest rate and effective interest rate for Tranche B as of September 30, 2024 and December 31, 2023 is driven primarily by the amortization of $21.3 million of debt discount which is included in the calculation of the effective interest rate.
We were in compliance with applicable financial covenants under the terms of the A&R Credit Agreement and its amendments as of September 30, 2024 and December 31, 2023.
The following table sets forth maturities of the principal amount of our A&R Term Loans as of September 30, 2024 (in thousands):
Remainder of 2024 $ 76
2025 304
2026 304
2027 216,992
Total $ 217,676
11. Stockholders' Equity
Common Stock
Common stock reserved for future issuance consisted of the following:
September 30,
2024 		December 31,
2023
Shares available for grant under equity incentive plans 1,088,279 739,178
Options issued and outstanding under equity incentive plans 1,997,466 2,291,328
Unvested restricted stock units 4,014,625 3,214,910
Vested equity awards not yet settled - 14,994
Unvested performance-based restricted stock units 389,827 707,655
Maximum number of shares issuable to GlowUp sellers pursuant to acquisition indemnity holdback 249,116 249,116
Total common stock reserved for future issuance 7,739,313 7,217,181
12. Stock-Based Compensation
As of September 30, 2024, 10,737,065 shares of our common stock had been authorized for issuance under our 2021 Equity and Incentive Compensation Plan (the "2021 Plan") and 6,287,687 shares of our common stock were originally reserved for issuance under our 2018 Equity Incentive Plan.
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Stock Options
A summary of the stock option activity under our equity incentive plans is as follows:
Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands)
Balance - December 31, 2023 2,291,328 $ 2.49 6.4 $ 311
Granted - - - -
Exercised - - - -
Forfeited, expired and cancelled (293,862) 5.05 - -
Balance - September 30, 2024 1,997,466 $ 2.12 6.6 $ 90
Exercisable - September 30, 2024 1,540,180 $ 2.55 5.8 $ 45
Vested and expected to vest as of September 30, 2024 1,997,466 $ 2.12 6.6 $ 90
There were no options granted during the three or nine months ended September 30, 2024 or 2023. There were no options forfeited, expired or cancelled during the three months ended September 30, 2024.
Restricted Stock Units
A summary of restricted stock unit activity under our equity incentive plans is as follows:
Number of Awards Weighted- Average Grant Date Fair Value per Share
Unvested and outstanding balance at December 31, 2023 3,214,910 $ 2.91
Granted 2,654,490 0.83
Vested (1,772,680) 3.02
Forfeited (82,095) 2.38
Unvested and outstanding balance at September 30, 2024 4,014,625 $ 1.50
The total fair value of restricted stock units that vested during the three months ended September 30, 2024 and 2023 was approximately $0.1 million and $0.2 million, respectively. The total fair value of restricted stock units that vested during the nine months ended September 30, 2024 and 2023 was approximately $1.5 million and $1.8 million, respectively.
Performance Stock Units
A summary of performance-based restricted stock unit ("PSU") activity under our 2021 Plan is as follows:
Number of
awards 		Weighted-
average grant
date fair value
per share
Unvested and outstanding balance at December 31, 2023 707,655 $ 10.8
Granted - -
Vested (1)
(317,828) 16.93
Forfeited - -
Unvested and outstanding balance at September 30, 2024 389,827 $ 5.80
(1)Relates to PSUs that were modified in the fourth quarter of 2023 to change the unvested shares underlying the original awards to time-based vesting.
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There were no PSUs that vested during the three months ended September 30, 2024. The total fair value of PSUs that vested during the nine months ended September 30, 2024 was approximately $0.2 million. There were no PSUs that vested during the three and nine months ended September 30, 2023.
Stock-Based Compensation Expense
Stock-based compensation expense under our equity incentive plans was as follows (in thousands):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Cost of sales (1)
$ 9 $ 643 $ 642 $ 190
Selling and administrative expenses (2)
1,493 (103) 4,699 8,720
Total $ 1,502 $ 540 $ 5,341 $ 8,910
(1) Cost of sales for the three and nine months ended September 30, 2023 includes a net reversal of $1.0 million of stock-based compensation expense associated with equity awards granted to an independent contractor for services pursuant to the terms of a license, services and collaboration agreement. The contract with such independent contractor expired in the fourth quarter of 2023, and there was no related stock-based compensation expense recorded for the three and nine months ended September 30, 2024.
(2) Selling and administrative expenses for the three months ended September 30, 2023 includes a reversal of $2.4 million of stock-based compensation expense due to forfeitures of certain equity grants. Selling and administrative expenses for the nine months ended September 30, 2023 includes $2.3 million of accelerated amortization of stock-based compensation expense for certain equity awards, offset by a $2.4 million reduction in stock-based compensation expense due to forfeitures of certain equity grants during the nine months ended September 30, 2023.
The expense presented in the table above is net of capitalized stock-based compensation relating to software development costs of $0.8 million and $2.0 million during the three and nine months ended September 30, 2023, respectively. There was no capitalized stock-based compensation relating to software development costs during the three and nine months ended September 30, 2024, as stock-based compensation relating to software development costs eligible to be capitalized during the three and nine months ended September 30, 2024 was immaterial.
At September 30, 2024, unrecognized compensation cost related to unvested stock options was $0.4 million and is expected to be recognized over the remaining weighted-average service period of 0.75 years. At September 30, 2024, total unrecognized compensation cost related to unvested PSUs and restricted stock units was $4.9 million and is expected to be recognized over the remaining weighted-average service period of 0.96 years.
13. Commitments and Contingencies
Leases
As of September 30, 2024 and December 31, 2023, the weighted-average remaining term of our operating leases from continuing operations was 3.6 years and 4.3 years, respectively, and the weighted-average discount rate used to estimate the net present value of the operating lease liabilities was 4.3% and 4.2%, respectively. Cash payments for amounts included in the measurement of operating lease liabilities attributable to continuing operations were $1.0 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $2.9 million and $3.2 million for the nine months ended September 30, 2024 and 2023, respectively. There were no right-of-use assets obtained in exchange for new operating lease liabilities attributable to continuing operations during the three or nine months ended September 30, 2024 or 2023. Right-of-use assets obtained in exchange for new operating lease liabilities attributable to discontinued operations were $1.5 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively, and $2.1 million and $5.3 million for the nine months ended September 30, 2024 and 2023, respectively.
In conjunction with the Yandy Sale in the second quarter of 2023, we entered into a sublease agreement with the Yandy Buyer in relation to its warehouse and office space for the remaining term of the lease, which expires in 2031.
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Net lease cost recognized in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 is summarized in the table below (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Operating lease cost $ 736 $ 829 $ 2,353 $ 2,484
Variable lease cost 123 97 235 214
Short-term lease cost 41 85 111 421
Sublease income (199) (202) (653) (467)
Total $ 701 $ 809 $ 2,046 $ 2,652
Maturities of our operating lease liabilities as of September 30, 2024 were as follows (in thousands):
Remainder of 2024 $ 893
2025 3,588
2026 3,666
2027 2,359
2028 432
Thereafter 1,096
Total undiscounted lease payments 12,034
Less: imputed interest (1,208)
Total operating lease liabilities $ 10,826
Operating lease liabilities, current portion $ 3,177
Operating lease liabilities, noncurrent portion $ 7,649
Legal Contingencies
From time to time, we may have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.
TNR Case
On June 21, 2024, we settled the previously disclosed litigation against our subsidiary Playboy Enterprises International, Inc. (together with its subsidiaries, "PEII"), which was brought by Thai Nippon Rubber Industry Public Limited Company, a manufacturer of condoms and lubricants and a publicly traded Thailand company ("TNR"). No party to the lawsuit admitted any liability or wrongdoing in connection with the settlement agreement. The TNR lawsuit was fully dismissed with prejudice by the court on August 1, 2024.
AVS Case
In March 2020, PEII terminated its license agreement with a licensee, AVS Products, LLC ("AVS"), for AVS's failure to make required payments to PEII under the agreement, following notice of breach and an opportunity to cure. On February 6, 2021, PEII received a letter from counsel to AVS alleging that the termination of the contract was improper, and that PEII failed to meet its contractual obligations, preventing AVS from fulfilling its obligations under the license agreement.
On February 25, 2021, PEII brought suit against AVS in Los Angeles Superior Court to prevent further unauthorized sales of Playboy-branded products and for disgorgement of unlawfully obtained funds. On March 1, 2021, PEII also brought a claim in arbitration against AVS for outstanding and unpaid license fees. PEII and AVS subsequently agreed that the claims PEII brought in arbitration would be alleged in the Los Angeles Superior Court case instead, and on April 23, 2021, the parties entered into and filed a stipulation to that effect with the court. On May 18, 2021, AVS filed a demurrer, asking for the court to remove an individual defendant and dismiss PEII's request for a permanent injunction. On June 10, 2021, the court denied AVS's demurrer. AVS filed an opposition to PEII's motion for a preliminary injunction to enjoin AVS from continuing to sell or market Playboy-branded products on July 2, 2021, which the court denied on July 28, 2021.
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On August 10, 2021, AVS filed a cross-complaint for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit and declaratory relief. As in its February 2021 letter, AVS alleges its license was wrongfully terminated and that PEII failed to approve AVS' marketing efforts in a manner that was either timely or that was commensurate with industry practice. AVS is seeking to be excused from having to perform its obligations as a licensee, payment of the value for services rendered by AVS to PEII outside of the license, and damages to be proven at trial. The court heard PEII's motion for summary judgment on June 6, 2023, and dismissed six out of 10 of AVS' causes of action. AVS' contract-related claims remain to be determined at trial, which is set for September 2025. In addition, PEII filed a new, related complaint against Sunrise Brands based on their participation in AVS's misconduct, as well as their own direct misconduct. Sunrise Brands has submitted an answer to that complaint. The parties in the AVS and Sunrise Brand cases are currently engaged in discovery, and both cases been related together by the court and will be tried together, for both pretrial and trial purposes. We believe AVS' remaining claims and allegations are without merit, and we will defend this matter vigorously.
New Handong Arbitration
On February 8, 2024, PEII and certain of its subsidiaries initiated arbitration in the Hong Kong International Arbitration Centre (the "Arbitration") against PEII's terminated China licensee, New Handong Investment (Guangdong) Co., Ltd. ("New Handong"). In October 2023, PEII's subsidiary terminated its license agreement with New Handong due to ongoing, uncured material breaches by New Handong. PEII and certain of its subsidiaries are seeking damages, including the payment of outstanding guaranteed minimum royalties, the payment of all guaranteed minimum royalties for the remainder of the term of the agreement, and other contractual damages for a variety of breaches. Such breaches include unauthorized sales of products, underpayment of earned royalties, failure to use approved trademarks and affix official holograms to all products, and the use of unapproved sublicensees. PEII and certain of its subsidiaries are also seeking a declaration that the termination of the agreement was lawful and valid and the issuance of a legal order to require New Handong to refrain from any further manufacture, sale, distribution or other use of any Playboy intellectual property or products. While PEII believes it has strong claims against New Handong, and that the facts of the matter support those claims, even in the event PEII were to obtain all the relief it seeks from the Arbitration, PEII can provide no assurance or guarantee that it will be able to enforce the results of the Arbitration against New Handong or recover any or all monetary awards from New Handong.
Former Model Case
On July 5, 2024, a former Playboy model filed a complaint against the Company, certain of the Company's affiliates and A&E Television Networks LLC ("A&E", and collectively, with the Company and its affiliates, the "Defendants") in California Superior Court for claims arising from A&E's "Secrets of Playboy" show (the "A&E Show") which showed certain Playboy videos that depicted the former model. Neither the Company nor its affiliates participated in any way in the creation, production, distribution or airing of the A&E Show, nor did the Company or its affiliates license or otherwise authorize use of the videos in the A&E Show. The complaint alleges, among other things, invasion of privacy, appropriation, distribution of private explicit video, negligence and unfair competition by the Defendants to the detriment of the former model. The lawsuit seeks at least $2 million in damages from the Defendants. The Company believes the plaintiff's claims and allegations with respect to the Company and its affiliates are without merit, and it will defend itself vigorously in this matter.
14. Severance Costs
We incurred severance costs during 2023 due to the reduction of headcount, as we shift our business to a more capital-light business model. Severance costs are recorded in selling and administrative expenses in the condensed consolidated statements of operations, with an immaterial amount recorded in cost of sales, and in accrued salaries, wages, and employee benefits in our condensed consolidated balance sheets. Severance costs were immaterial during the three and nine months ended September 30, 2024. Severance costs from discontinued operations were immaterial during the three and nine months ended September 30, 2024 and 2023.
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Severance costs in our condensed consolidated statements of operations were as follows (in thousands):
Three Months Ended
September 30, 2023 		Nine Months Ended
September 30, 2023
Direct-to-Consumer $ 6 $ 1,123
Licensing - 53
Digital Subscriptions and Content 308 347
Corporate - 1,221
Total $ 314 $ 2,744
The following is a reconciliation of the beginning and ending severance costs balances recorded in accrued salaries, wages, and employee benefits in our condensed consolidated balance sheets (in thousands):
Employee Separation Costs
Balance at December 31, 2023 $ 1,184
Costs incurred and charged to expense 283
Costs paid or otherwise settled (1,386)
Balance at September 30, 2024 $ 81
15. Income Taxes
The effective tax rate for the three months ended September 30, 2024 and 2023 was (1.8)% and 11.6%, respectively. The effective tax rate for the nine months ended September 30, 2024 and 2023 was (3.6)% and 7.3%, respectively. The effective tax rate for the three and nine months ended September 30, 2024 differed from the U.S. statutory federal income tax rate of 21% primarily due to impairment charges on artwork held for sale, foreign withholding taxes and the release of valuation allowance due to a reduction in net deferred tax liabilities of indefinite lived intangibles. The effective tax rate for the three and nine months ended September 30, 2023 differed from the U.S. statutory federal income tax rate of 21% primarily due to foreign withholding taxes, the limitations of Section 162(m) of the Internal Revenue Code, stock compensation shortfall deductions, the release of valuation allowance due to a reduction in net deferred tax liabilities of indefinite lived intangibles and the impairment of intangible assets.
During the second quarter of 2024, the Company decided to revoke its permanent reinvestment assertion on certain foreign jurisdictions and repatriated total earnings from foreign subsidiaries of $1.1 million and $3.8 million to the United States for the three and nine months ended September 30, 2024, respectively. Due to the Company's overall losses incurred and the dividends received deduction in the United States, such repatriation did not have any material impact on the Company's tax provision for the quarter ended September 30, 2024.
16. Net Loss Per Share
The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Options issued and outstanding under equity incentive plans 1,997,466 2,389,361 1,997,466 2,389,361
Unvested restricted stock units 4,014,625 922,808 4,014,625 922,808
Unvested performance-based restricted stock units 389,827 808,191 389,827 808,191
Total 6,401,918 4,120,360 6,401,918 4,120,360
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17. Segments
As of September 30, 2024, we had three reportable segments: Licensing, Digital Subscriptions and Content and Direct-to-Consumer. The Licensing segment derives revenue from trademark licenses for third-party consumer products and online 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 websites and domestic and international television, and sales of creator content offerings and memberships to consumers through the Playboy Club on playboy.com. The Direct-to-Consumer segment in prior year comparative periods is comprised of playboy.come-commerce business, which in the third quarter of 2023 fully transitioned from an owned-and-operated model to a licensing model. The Honey Birdette direct-to consumer business, which derives revenue from sales of consumer products sold online and at Honey Birdette brick-and-mortar stores, met the criteria for discontinued operations classification as of September 30, 2024 (refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations). Therefore, there are no Direct-to-Consumer segment results presented for the three and nine months ended September 30, 2024.
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.
The following table sets forth financial information by reportable segment (in thousands):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net revenues:
Licensing $ 7,377 $ 10,931 $ 16,734 $ 30,913
Digital Subscriptions and Content 5,485 5,206 16,088 15,056
Direct-to-Consumer - 139 - 5,040
All Other 2 - 2 4
Total $ 12,864 $ 16,276 $ 32,824 $ 51,013
Operating (loss) income:
Licensing $ 2,715 $ 9,346 $ 9,055 $ (52,218)
Digital Subscriptions and Content (23,031) (1,174) (25,348) (781)
Direct-to-Consumer - (162) - (9,317)
Corporate (7,820) (9,597) (28,004) (39,391)
All Other (6) - 3 (12)
Total $ (28,142) $ (1,587) $ (44,294) $ (101,719)
Geographic Information
Revenue by geography is based on where the customer is located. The following table sets forth revenue from continuing operations by geographic area (in thousands):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net revenues:
United States $ 7,660 $ 7,770 $ 22,174 $ 23,048
China 3,303 6,544 7,773 20,967
Other 1,901 1,962 2,877 6,998
Total $ 12,864 $ 16,276 $ 32,824 $ 51,013
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18. Subsequent Events
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 of $22.35 million. We intend to use such proceeds for general corporate purposes.
On November 11, 2024, we entered into Amendment No. 3 to the A&R Credit Agreement (the "A&R Third Amendment"),
The A&R Third Amendment provides for, among other things:
•Reducing the outstanding aggregate term loan amounts under the facility from approximately $217.7 million to approximately $152.4 million in exchange for $28 million of Series B Convertible Preferred Stock (the "Series B"), to be issued pursuant to an Exchange Agreement, dated November 11, 2024 (the "Exchange Agreement"), between the Company and the lenders party to the A&R Third Amendment (the "Lenders");
•Resetting the interest rate margin for both Tranche A term loans 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, 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 will remain substantially unchanged, and the new terms will go into effect upon the closing of the Exchange Agreement and the issuance of the Series B, which is expected to occur on November 13, 2024. The Series B will be established pursuant to the filing of a Certificate of Designation with the state of Delaware, which certificate will set forth the terms of the Series B. Upon the filing of such certificate, we will issue to the Lenders an aggregate of 28,000.00001 shares of Series B, valued at $28 million. The Series B includes a 12% annual dividend rate, which will commence accruing in six months, which will be payable in cash or in-kind, solely at PLBY Group's discretion. PLBY Group has the right to redeem for cash (at any time) or convert the convertible preferred stock at any time, provided that the five-day volume-weighted average price of PLBY Group's common stock is $1.50 or above, with a conversion price floor of $1.50 and a cap of $4.50.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and 2023 and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and the related notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 29, 2024. This discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and particularly under the headings "Risk Factors", "Business" and "Cautionary Note Regarding Forward-Looking Statements" contained in our Annual Report on Form 10-K filed with the SEC on March 29, 2024. As used herein, "we", "us", "our", the "Company", and "PLBY" refer to PLBY Group, Inc. and its subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are forward-looking and as such are not historical facts. These statements are based on the expectations and beliefs of the management of the Company in light of historical results and trends, current conditions and potential future developments, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements. These forward-looking statements include all statements other than historical fact, including, without limitation, statements regarding the financial position, capital structure, dividends, indebtedness, business strategy and plans and objectives of management for future operations of the Company. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "plan", "possible", "potential", "predict", "project", "should", "strive", "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When we discuss our strategies or plans, we are making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, our management.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting us will be those that we anticipated. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from those discussed in the forward-looking statements. Factors that may cause such differences include, but are not limited to: (1) the inability to maintain the listing of the Company's shares of common stock on Nasdaq; (2) the risk that the Company's completed or proposed transactions disrupt the Company's current plans and/or operations, including the risk that the Company does not complete any such proposed transactions or achieve the expected benefits from any transactions; (3) the ability to recognize the anticipated benefits of corporate transactions, commercial collaborations, commercialization of digital assets, cost reduction initiatives and proposed transactions, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably, and the Company's ability to retain its key employees; (4) costs related to being a public company, corporate transactions, commercial collaborations and proposed transactions; (5) changes in applicable laws or regulations; (6) the possibility that the Company may be adversely affected by global hostilities, supply chain delays, inflation, interest rates, foreign currency exchange rates or other economic, business, and/or competitive factors; (7) risks relating to the uncertainty of the projected financial information of the Company, including changes in the Company's estimates of cash flows and the fair value of certain of its intangible assets, including goodwill; (8) risks related to the organic and inorganic growth of the Company's businesses, and the timing of expected business milestones; (9) changing demand or shopping patterns for the Company's products and services; (10) failure of licensees, suppliers or other third-parties to fulfill their obligations to the Company; (11) the Company's ability to comply with the terms of its indebtedness and other obligations; (12) changes in financing markets or the inability of the Company to obtain financing on attractive terms; and (13) other risks in this Quarterly Report on Form 10-Q, including those under "Part II-Item 1A. Risk Factors", and in "Part I-Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We caution that the foregoing list of factors is not exclusive, and readers should not place undue reliance upon any forward-looking statements.
Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q or any earlier date specified for such statements. We do not undertake any obligation to update or revise any forward-looking statements to reflect any change in its expectations or any change in events, conditions, or circumstances on which any such statement is based, except as may be required under applicable securities laws. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.
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Business Overview
We are a global consumer lifestyle company marketing our brands through a wide range of licensing initiatives, digital subscriptions and content, online and location-based entertainment businesses and direct-to-consumer products. We reach consumers worldwide with products across four key market categories: Style and Apparel, including a variety of apparel and accessories products; Digital Entertainment and Lifestyle, including our creator platform, web and television-based entertainment, and our spirits and hospitality products; Sexual Wellness, including lingerie and intimacy products; and Beauty and Grooming, including fragrance, skincare, grooming and cosmetics.
We have three reportable segments: Licensing, Digital Subscriptions and Content, and Direct-to-Consumer. The Licensing segment derives revenue from trademark licenses for third-party consumer products, and online and location-based entertainment businesses. The Digital Subscriptions and Content segment derives revenue from the subscription of Playboy programming, which is distributed through various channels, including websites and domestic and international television, and sales of creator content offerings and memberships to consumers at the Playboy Club on playboy.com. The Direct-to-Consumer segment in prior year comparative periods is comprised of playboy.com e-commerce business, which in the third quarter of 2023 fully transitioned from an owned-and-operated model to a licensing model in the third quarter of 2023. As a result of such transition, the Yandy Sale, the TLA Sale, and the operating activities of Honey Birdette being classified as discontinued operations, there is no Direct-to-Consumer segment results presented for the three and nine months ended September 30, 2024.
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 referenced in the section of this Quarterly Report on Form 10-Q 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 scale our digital content businesses and attract best-in-class strategic partners. We are focused on our two key growth pillars: first, investing in the Playboy digital platform as we return to our roots as a place to see and be seen for creators and up and coming cultural influencers; and second, strategically expanding our licensing business in key categories and territories. We will continue to use our licensing business as a marketing tool and brand builder, in particular through our high-end designer collaborations and our large-scale strategic partnerships.
China Licensing Revenues
Our licensing revenues from China (including Hong Kong) as a percentage of our total revenues from continuing operations were 26% and 40% for the three months ended September 30, 2024 and 2023, respectively, and 24% and 41% for the nine months ended September 30, 2024 and 2023, respectively. At the end of the first quarter of 2023, we entered into a joint venture (the "China JV") with Charactopia Licensing Limited, the 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. Future contract modifications and collectability issues could further impact the revenue recognized against our ongoing contract assets. Nonetheless, we continue to work with our China JV partner to re-invigorate our China-market Playboy direct-to-consumer and licensing businesses, by building on Playboy's current roster of licensees and online storefronts and developing additional revenue through expanding into new product categories with new licensees.
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 three months ended September 30, 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 condensed consolidated financial statements. 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.
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Seasonality of Our Revenues
While we receive revenue throughout the year, our licensing 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 Adjusted EBITDA as a non-GAAP financial measure. We believe this non-GAAP measure provides useful information to investors and expanded insight to measure revenue and cost performance as a supplement to the GAAP consolidated financial statements. See the "EBITDA and Adjusted EBITDA" section below for reconciliations of Adjusted EBITDA to net loss, the closest GAAP measure.
Components of Results of Operations
Revenues
We generate revenue from sales of 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 creator-led platform on playboy.com, in addition to subscriptions to our programming, which is distributed through various channels, including websites and domestic and international television.
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 on a cash basis.
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 and memberships 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 are recognized ratably over the subscription period.
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 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.
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Selling and Administrative Expenses
Selling and administrative expenses primarily consist of corporate 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.
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, trade names and goodwill.
Other Operating (Expense) Income, Net
Other operating (expense) income, net consists primarily of gains recognized from the sale of crypto assets and other miscellaneous items.
Nonoperating (Expense) Income
Interest Expense
Interest expense consists of interest on our long-term debt and the amortization of deferred financing costs and debt discount.
Gain on Extinguishment of Debt
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 senior debt pursuant to the third and fourth amendments of our 2021 Credit Agreement in February 2023. In the second quarter of 2023, we recorded a gain on partial extinguishment of debt in amount of $8.0 million upon the amendment and restatement of the 2021 Credit Agreement (as such term is defined in Note 10, Debt within the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q; refer to Note 10, Debt and "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 Income, Net
Other income, net consists primarily of other miscellaneous nonoperating items, such as foreign exchange gains or losses, bank charges as well as non-recurring 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 our Australia, U.K. and China deferred tax assets.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table summarizes key components of our results of operations for the periods indicated (in thousands, except percentages):
Three Months Ended
September 30,
2024 2023 $ Change % Change
Net revenues $ 12,864 $ 16,276 $ (3,412) (21) %
Costs and expenses:
Cost of sales (3,820) (1,282) (2,538) 198 %
Selling and administrative expenses (15,479) (15,471) (8) - %
Impairments (21,707) (392) (21,315) over 200%
Other operating expense, net
- (718) 718 (100) %
Total operating expense (41,006) (17,863) (23,143) 130 %
Operating loss (28,142) (1,587) (26,555) over 200%
Nonoperating (expense) income:
Interest expense (6,686) (6,620) (66) 1 %
Other income, net 1,616 228 1,388 over 200%
Total nonoperating expense (5,070) (6,392) 1,322 (21) %
Loss from continuing operations before income taxes (33,212) (7,979) (25,233) over 200%
(Expense) benefit from income taxes (586) 929 (1,515) (163) %
Net loss from continuing operations (33,798) (7,050) (26,748) over 200%
Income (loss) from discontinued operations, net of tax
43 (115) 158 (137) %
Net loss (33,755) (7,165) (26,590) over 200%
Net loss attributable to PLBY Group, Inc. $ (33,755) $ (7,165) $ (26,590) over 200%
The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
Three Months Ended
September 30,
2024 2023
Net revenues 100% 100%
Costs and expenses:
Cost of sales (30) (8)
Selling and administrative expenses (120) (95)
Impairments (169) (2)
Other operating expense, net
- (4)
Total operating expense (319) (109)
Operating loss (219) (9)
Nonoperating (expense) income:
Interest expense (52) (41)
Other income, net 13 1
Total nonoperating expense (39) (40)
Loss from continuing operations before income taxes (258) (49)
(Expense) benefit from income taxes (5) 6
Net loss from continuing operations (263) (43)
Income (loss) from discontinued operations, net of tax
- (1)
Net loss (263) (44)
Net loss attributable to PLBY Group, Inc. (263)% (44)%
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Net Revenues
The decrease in net revenues for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to lower licensing revenue of $3.6 million, largely driven by the termination of certain Chinese licensing agreements in 2023, partly offset by $0.3 million of higher revenue from our creator platform.
Cost of Sales
The increase in cost of sales for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to a $4.0 million increase in licensing commissions, primarily due to a nonrecurring reversal of commission accrual in the prior year related to the termination of certain Chinese licensing agreements, which was partly offset by $0.1 million less of licensing product costs, primarily due to the termination of Playboy's e-commerce licensing agreement in the second quarter of 2024 and a $0.5 million decrease in payment processing and agency fees related to our creator platform.
Selling and Administrative Expenses
The increase in selling and administrative expenses for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to a $1.6 million increase in stock-based compensation expense and a $0.2 million increase in marketing spend, partly offset by lower audit, legal and consulting fees of $0.7 million, a $0.5 million decrease in China JV expenses due to cost cuts, a $0.3 million decline in payroll expenses due to headcount reductions, a $0.3 million reduction in severance expense, and a $0.1 million decrease in insurance expense due to the renegotiation of our insurance policies.
Impairments
The increase in impairments for the three months ended September 30, 2024, as compared to the prior year comparative period, was related to the write-off of our internally developed software of $4.7 million and the write-down of goodwill of $17.0 million, offset by $0.4 million of impairment charges on a certain licensing contract recorded in the prior year comparative period.
Other Operating Expense, Net
The decrease in other operating expense, net was due to the loss from settlement of a promissory note in the prior year comparative period.
Nonoperating (Expense) Income
Interest Expense
The increase in interest expense for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to the higher interest rate on our senior secured debt during the three months ended September 30, 2024, compared to the prior year comparative period, as a result of the amendment and restatement of our senior secured debt in May 2023 and the A&R First Amendment in November 2023.
Other Income, Net
The increase in other income, net for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to foreign exchange adjustment in relation to certain of our Chinese licenses denominated in foreign currency.
(Expense) Benefit from Income Taxes
The change from benefit from income taxes to expense for the three months ended September 30, 2024, as compared to the prior year comparative period, was primarily driven by the change in valuation allowance due to the reduction in net indefinite-lived deferred tax liabilities, offset by increased foreign income taxes in the three months ended September 30, 2024.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table summarizes key components of our results of operations for the periods indicated (in thousands, except percentages):
Nine Months Ended
September 30,
2024 2023 $ Change % Change
Net revenues $ 32,824 $ 51,013 $ (18,189) (36) %
Costs and expenses:
Cost of sales (9,171) (14,174) 5,003 (35) %
Selling and administrative expenses (43,243) (64,071) 20,828 (33) %
Impairments (24,722) (74,018) 49,296 (67) %
Other operating income (expense), net
18 (469) 487 (104) %
Total operating expense (77,118) (152,732) 75,614 (50) %
Operating loss (44,294) (101,719) 57,425 (56) %
Nonoperating (expense) income:
Interest expense (19,681) (17,586) (2,095) 12 %
Gain on extinguishment of debt
- 6,133 (6,133) (100) %
Fair value remeasurement gain - 6,505 (6,505) (100) %
Other income, net 1,225 477 748 157 %
Total nonoperating expense
(18,456) (4,471) (13,985) over 200%
Loss from continuing operations before income taxes (62,750) (106,190) 43,440 (41) %
(Expense) benefit from income taxes (2,250) 7,792 (10,042) (129) %
Net loss from continuing operations (65,000) (98,398) 33,398 (34) %
Loss from discontinued operations, net of tax
(1,854) (78,262) 76,408 (98) %
Net loss (66,854) (176,660) 109,806 (62) %
Net loss attributable to PLBY Group, Inc. $ (66,854) $ (176,660) $ 109,806 (62) %
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
Nine Months Ended
September 30,
2024 2023
Net revenues 100 % 100 %
Costs and expenses:
Cost of sales (28) (28)
Selling and administrative expenses (132) (126)
Impairments (75) (145)
Other operating income (expense), net
- (1)
Total operating expense (235) (300)
Operating loss (135) (200)
Nonoperating (expense) income:
Interest expense (60) (34)
Gain on extinguishment of debt
- 12
Fair value remeasurement gain - 13
Other income, net 4 1
Total nonoperating expense
(56) (8)
Loss from continuing operations before income taxes (191) (208)
(Expense) benefit from income taxes (7) 15
Net loss from continuing operations (198) (193)
Loss from discontinued operations, net of tax (6) (153)
Net loss (204) (346)
Net loss attributable to PLBY Group, Inc. (204) % (346) %
Net Revenues
The decrease in net revenues for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to lower licensing revenue of $14.2 million, largely driven by the termination of certain Chinese licensing agreements in 2023, lower direct-to-consumer revenue as a result of $5.0 million less revenue from Playboy's e-commerce site, as it changed from our ownership and operation to a licensed business model in the third quarter of 2023, partly offset by $1.7 million of higher revenue from our creator platform.
Cost of Sales
The decrease in cost of sales for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to inventory reserve charges of $3.7 million related to Playboy's e-commerce site recognized in the prior year comparative period, a $3.4 million decrease in direct-to-consumer product costs from Playboy's e-commerce site, as it changed from our ownership and operation to a licensed business model in the third quarter of 2023, $1.1 million less of licensing product costs due to the termination of Playboy's e-commerce licensing agreement in the second quarter of 2024, a $0.5 million decrease in payment processing and agency fees related to our creator platform, and $1.3 million less of digital subscriptions product costs, which were partly offset by $5.5 million of higher licensing commissions, primarily due to a partial reversal of commission accrual in the prior year comparative period related to the termination of certain Chinese licensing agreements.
Selling and Administrative Expenses
The decrease in selling and administrative expenses for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to a $4.0 million decrease in stock-based compensation expense, lower technology costs of $1.0 million, primarily due to a restructuring charge taken on direct-to-consumer cloud-based software attributable to continuing operations in 2023, a $3.2 million decline in payroll expense due to headcount reductions, a $1.9 million reduction in severance expense, a $2.7 million decrease in China JV expense due to cost cuts and non-recurring transaction expenses in 2023, lower audit, legal and consulting fees of $3.8 million, a $1.4 million decrease in marketing spend, and a $2.0 million decrease in insurance expense due to the renegotiation of our insurance policies.
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Impairments
The decrease in impairments for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to $65.5 million of impairment charges on Playboy-branded trademarks as well as $8.5 million of impairment charges on a certain licensing contract recorded in the prior year comparative period, partly offset by 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, $2.4 million of impairment charges on our artwork held for sale in the first quarter of 2024 and $0.6 million of impairment charges on our corporate leases in the second quarter of 2024.
Other Operating Income (Expense) Income, Net
The decrease in other operating income (expense), net was due to the $0.7 million loss from settlement of a promissory note, partly offset by a $0.2 million gain on sale of our crypto assets in the prior year comparative period.
Nonoperating (Expense) Income
Interest Expense
The increase in interest expense for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to the higher interest rate on our senior secured debt during the nine months ended September 30, 2024, compared to the prior year comparative period, as a result of the amendment and restatement of our senior secured debt in May 2023 and the A&R First Amendment in November 2023.
Gain on Extinguishment of Debt
Gain on extinguishment of debt for the nine months ended September 30, 2023 represented a $6.1 million gain due to the partial extinguishment of debt upon the amendment and restatement of our senior secured credit agreement in the second quarter of 2023, net of a $1.8 million loss recorded in the first quarter of 2023 due to the partial extinguishment of debt related to $45 million of prepayments of our senior debt.
Fair Value Remeasurement Gain
Fair value remeasurement gain for the nine months ended September 30, 2023 represented the remeasurement of our mandatorily redeemable preferred stock liability to its fair value during the period, which was exchanged (and thereby eliminated) in connection with the A&R Credit Agreement in the second quarter of 2023.
Other Income, Net
The increase in other income, net for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily due to foreign exchange adjustment in relation to certain of our Chinese licenses denominated in foreign currency.
(Expense) Benefit from Income Taxes
The change from benefit to expense from income taxes for the nine months ended September 30, 2024, as compared to the prior year comparative period, was primarily driven by the change in valuation allowance due to a reduction in net indefinite-lived deferred tax liabilities, offset by increased foreign income taxes in the nine months ended September 30, 2024.
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Non-GAAP Financial Measures
In addition to our results 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 results from discontinued operations, 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 non-operating expenses and income, such as non-recurring special projects, including the implementation of internal controls, non-recurring gain or loss 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 these limitations, 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):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net loss $ (33,755) $ (7,165) $ (66,854) $ (176,660)
Adjusted for:
(Income) loss from discontinued operations, net of tax (43) 115 1,854 78,262
Net loss from continuing operations (33,798) (7,050) (65,000) (98,398)
Adjusted for:
Interest expense 6,686 6,620 19,681 17,586
Gain on extinguishment of debt
- - - (6,133)
Expense (benefit) from income taxes 586 (929) 2,250 (7,792)
Depreciation and amortization 1,042 946 3,182 2,585
EBITDA (25,484) (413) (39,887) (92,152)
Adjusted for:
Stock-based compensation 1,502 540 5,341 8,910
Impairments 21,707 392 24,722 74,018
Inventory reserve charges - - - 3,637
Mandatorily redeemable preferred stock fair value remeasurement - - - (6,505)
Write-down of capitalized software - - - 268
Adjustments 511 1,312 1,160 5,030
Adjusted EBITDA $ (1,764) $ 1,831 $ (8,664) $ (6,794)
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•Impairments for the three months ended September 30, 2024 related primarily to impairments of our internally developed software and goodwill related to our Digital Subscriptions and Content business.
•Impairments for the nine months ended September 30, 2024 related to impairment charges on our artwork held for sale, corporate leases and assets related to our Digital Subscriptions and Content business.
•Impairments for the three and nine months ended September 30, 2023 related primarily to the impairments of intangible assets, including goodwill and impairments on certain of our licensing contracts.
•Inventory reserve charges for the nine months ended September 30, 2023 related 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.
•Mandatorily redeemable preferred stock fair value remeasurement for the three and nine months ended September 30, 2023 related to the fair value remeasurement, non-cash fair value gain of the liability for such preferred stock.
•Write-down of capitalized software for the nine months ended September 30, 2023 related to a restructuring charge taken on direct-to-consumer cloud-based software in the first quarter of 2023, excluding costs related to discontinued operations.
•Adjustments for the three and nine months ended September 30, 2024 are primarily related to non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable for the acquisition of GlowUp that remained unsettled as of September 30, 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 three and nine months ended September 30, 2023 are related to non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable for the acquisition of GlowUp that remained unsettled as of September 30, 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
Our Chief Executive Officer is our Chief Operating Decision Maker. Our segment disclosure is based on our intention to provide the users of our condensed consolidated financial statements with a view of the business from our perspective. We operate our business in three primary operating and reportable segments: Licensing, Digital Subscriptions and Content and Direct-to-Consumer. 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, and sales of creator content offerings and memberships to consumers through the Playboy Club on playboy.com. Effective as of the third quarter of 2024, our Direct-to-Consumer segment constituted discontinued operations. The Direct-to-Consumer segment in prior year comparative periods is comprised of playboy.come-commerce business, which in the third quarter of 2023 fully transitioned from an owned-and-operated model to a licensing model in the third quarter of 2023. The Honey Birdette direct-to consumer business, which derives revenue from sales of consumer products sold online and at Honey Birdette brick-and-mortar stores, met the criteria for discontinued operations classification as of September 30, 2024 (refer to Note 3, Assets and Liabilities Held for Sale and Discontinued Operations). Therefore, while the Direct-to-Consumer segment is listed in the table below, its results are excluded from the table below and classified as discontinued operations in our condensed consolidated statements of operations for all periods presented.
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Comparison of the Three Months Ended September 30, 2024 and 2023
The following are our results of financial performance from continuing operations by segment for each of the periods presented (in thousands):
Three Months Ended
September 30,
2024 2023 $ Change % Change
Net revenues:
Licensing $ 7,377 $ 10,931 $ (3,554) (33) %
Digital Subscriptions and Content 5,485 5,206 279 5 %
Direct-to-Consumer - 139 (139) (100) %
All Other 2 - 2 100 %
Total $ 12,864 $ 16,276 $ (3,412) (21) %
Operating income (loss):
Licensing $ 2,715 $ 9,346 $ (6,631) (71) %
Digital Subscriptions and Content (23,031) (1,174) (21,857) over 150%
Direct-to-Consumer - (162) 162 (100) %
Corporate (7,820) (9,597) 1,777 (19) %
All Other (6) - (6) 100 %
Total $ (28,142) $ (1,587) $ (26,555) over 150%
Licensing
The decrease in net revenues for the three months ended September 30, 2024, compared to the comparable prior year period, was primarily due to the termination of certain Chinese licensing agreements in the fourth quarter of 2023.
The decrease in operating income for the three months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $4.0 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 and a $3.6 million decrease in licensing gross profit as a result of lower revenue, partly offset by the $0.4 million impairment of a certain licensing contract in the prior year comparative period, $0.1 million less of lower licensing product costs due to the termination of Playboy's e-commerce licensing agreement in the second quarter of 2024 and a $0.3 million decrease in legal fees and China JV expenses.
Digital Subscriptions and Content
The increase in net revenues for the three months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $0.3 million increase in net revenue from our creator platform.
The decrease in operating loss for the three months ended September 30, 2024, compared to the comparable prior year period, was primarily due to non-cash impairment charges of $4.7 million related to our internally developed software and $17.0 million related to our goodwill, $0.9 million increase in expenses related to our creator platform and a $0.6 million increase in stock-based compensation expense.
Direct-to-Consumer
The change in net revenues and operating loss for the three months ended September 30, 2024, compared to the comparable prior year period, was immaterial as the majority of our direct-to-consumer operating activities are classified as discontinued operations in the condensed consolidated statements of operations for the three months ended September 30, 2024 and 2023.
Corporate
The decrease in corporate expenses for the three months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $1.1 million decrease in payroll expenses due to headcount reductions and a $0.8 million decrease in audit and consulting services, partly offset by a $1.0 million increase in stock-based compensation expense.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
The following are our results of financial performance from continuing operations by segment for each of the periods presented (in thousands):
Nine Months Ended
September 30,
2024 2023 $ Change % Change
Net revenues:
Licensing $ 16,734 $ 30,913 $ (14,179) (46) %
Digital Subscriptions and Content 16,088 15,056 1,032 7 %
Direct-to-Consumer - 5,040 (5,040) (100) %
All Other 2 4 (2) (50) %
Total $ 32,824 $ 51,013 $ (18,189) (36) %
Operating income (loss):
Licensing $ 9,055 $ (52,218) $ 61,273 (117) %
Digital Subscriptions and Content (25,348) (781) (24,567) over 150%
Direct-to-Consumer - (9,317) 9,317 (100) %
Corporate (28,004) (39,391) 11,387 (29) %
All Other 3 (12) 15 (125) %
Total $ (44,294) $ (101,719) $ 57,425 (56) %
Licensing
The decrease in net revenues for the nine months ended September 30, 2024, compared to the comparable prior year period, was primarily due to the termination of certain Chinese licensing agreements in the fourth quarter of 2023.
The change from an operating loss to operating income for the nine months ended September 30, 2024, compared to the comparable prior year period, was primarily due to $65.5 million of non-cash impairment charges and $8.5 million of impairment of a certain licensing contract in the prior year comparative period, $1.1 million less of licensing product costs due to the termination of Playboy's e-commerce licensing agreement in the second quarter of 2024 and a $5.2 million decrease in legal fees and China JV expenses, partly offset by a $14.2 million decrease in licensing gross profit as a result of lower revenue and a $5.5 million increase in licensing commissions, primarily due to a partial reversal of commission accrual in the prior year comparative period related to the termination of certain Chinese licensing agreements.
Digital Subscriptions and Content
The increase in net revenues for the nine months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $1.7 million increase in net revenues from our creator platform, partly offset by a $0.7 million decrease in other digital subscriptions and content revenue.
The increase in operating loss for the nine months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $7.2 million increase in expenses related to our creator platform, non-cash impairment charges of $4.7 million related to our internally developed software and $17.0 million related to goodwill, partly offset by a $1.0 million reversal of stock based-compensation in the prior year comparative period, a $1.0 million increase in net revenues and a $1.2 million decrease in payroll.
Direct-to-Consumer
Net revenues for the nine months ended September 30, 2023 were due to $5.0 million of revenue from Playboy's e-commerce site, which changed from our ownership and operation to a licensed business model in the third quarter of 2023.
Operating loss for the nine months ended September 30, 2023 was primarily due to inventory reserve charges of $3.7 million related to Playboy's e-commerce site, a $1.0 million restructuring charge taken in 2023 on direct-to-consumer cloud-based software attributable to continuing operations, payroll expense of $2.2 million from Playboy's e-commerce site, which changed from our ownership and operation to a licensed business model in the third quarter of 2023, and $1.6 million in marketing spend related to our discontinued e-commerce site.
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Corporate
The decrease in corporate expenses for the nine months ended September 30, 2024, compared to the comparable prior year period, was primarily due to a $6.0 million decrease in stock-based compensation expense, a $1.1 million decrease in severance costs, a decrease of $2.0 million in insurance expense, a decrease of $1.6 million in audit and consulting services and a $3.0 million decrease in payroll expenses due to headcount reductions, partly offset by $2.4 million of impairments on our artwork held for sale and a loss of $0.5 million on the sale of assets in the first quarter of 2024.
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 proceeds from stock offerings (as described further below), and from investing activities, which includes the sale of assets (as described further below). As of September 30, 2024, our principal source of liquidity was cash in the amount of $9.5 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 our 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 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 TLA Sale 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 Quarterly Report on Form 10-Q, 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 have 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 $22.35 million.
Due to challenging economic conditions in China, collections from certain of our Chinese licensees slowed significantly in 2022 and 2023, and we have renegotiated terms of certain agreements. In October 2023, we also terminated licensing agreements with certain Chinese licensees. 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. Our operating losses for the nine months ended September 30, 2024 were $44.3 million. We expect to continue to incur operating losses for the foreseeable future.
Our capital expenditures and working capital requirements in 2024 have been, and are expected to continue to be, largely consistent with 2023, as we have continued to invest in our Digital Subscriptions and Content segment. We may, however, need additional cash resources to fund our operations until the Digital Subscriptions and Content segment achieves a level of revenue that provides for operating profitability. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing, or dispose of additional assets, and there can be no assurance that we will be successful in these efforts. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our planned level of investment in our creator platform or scale back its operations, which could have an adverse impact on our business and financial prospects.
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We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern over the next twelve months from the date of filing this Quarterly Report on Form 10-Q. 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, along with proceeds from asset dispositions and savings from cost reductions initiatives, 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 Quarterly Report on Form 10-Q. We may seek additional equity or debt financing in the future to satisfy capital requirements, respond to adverse developments such as changes in our circumstances or unforeseen events or conditions, or fund organic or inorganic 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 May 10, 2023, we entered into an amendment and restatement of our prior credit agreement to reduce the interest rate applicable to our senior secured debt and the implied interest rate on our Series A Preferred Stock, exchange (and thereby eliminate) our outstanding Series A Preferred Stock, and obtain additional covenant relief and funding. For the terms of the 2021 Credit Agreement, as amended, refer to Note 10, Debt, within the notes to our audited consolidated financial statements set forth in our Annual Report on Form 10-K filed with the SEC on March 29, 2024.
In connection with the A&R Credit Agreement, Fortress Credit Corp. and its affiliates became our lender with respect to approximately 90% of the term loans under the A&R Credit Agreement. 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 on the Restatement Date.
In connection with the A&R Credit Agreement, the term loan under the 2021 Credit Agreement was apportioned into approximately $20.6 million of Tranche A term loans and approximately $189.4 million of Tranche B term loans. The prior amortization payments applicable to the term loan under the 2021 Credit Agreement were eliminated. The A&R Credit Agreement only requires that 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 LIBOR, as under the 2021 Credit Agreement). As of the Restatement Date, Tranche A accrued interest at SOFR plus 6.25% and 0.10% SOFR adjustment, with a SOFR floor of 0.50%. As of the Restatement Date, Tranche B accrued interest at SOFR plus 4.25% and 0.10% SOFR adjustment, with 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.
In July 2023, DBD Credit Funding LLC, an affiliate of Fortress, became the administrative agent and collateral agent under the A&R Credit Agreement.
In connection with the TLA Sale, on November 2, 2023, we entered into Amendment No. 1 to the A&R Credit Agreement, to permit, among other things: (a) the TLA Sale 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 remained 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, 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;
(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
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(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.
The stated interest rate of Tranche A and Tranche B term loans as of September 30, 2024 was 11.46% and 9.46%, respectively. 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 September 30, 2024 was 12.08% and 13.32%, 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. The difference between the stated interest rate and effective interest rate for Tranche B as of September 30, 2024 and December 31, 2023 is driven primarily by the amortization of $21.3 million of debt discount which is included in the calculation of the effective interest rate.
Leases
Our principal lease commitments are for office space and operations under several noncancelable operating leases with contractual terms expiring through 2033. Some of these leases contain renewal options and rent escalations. As of September 30, 2024 and December 31, 2023, our fixed leases were $10.8 million and $13.4 million, respectively, with $3.2 million and $3.3 million due in the next 12 months. For further information on our lease obligations, refer to Note 13, Commitments and Contingencies within the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Cash Flows
The following table summarizes our cash flows from continuing operations for the periods indicated (in thousands):
Nine Months Ended September 30,
2024 2023 $ Change % Change
Net cash (used in) provided by:
Operating activities $ (19,888) $ (33,622) $ 13,734 (41) %
Investing activities 372 863 (491) (57) %
Financing activities (557) 27,258 (27,815) (102) %
Cash Flows from Operating Activities
The decrease in net cash used in operating activities from continuing operations for nine months ended September 30, 2024, compared to the prior year comparable period, was primarily due to a reduction in net loss from continuing operations of $33.4 million, partly offset by changes in assets and liabilities that had a current period cash flow impact, such as $5.0 million of net changes in working capital and $24.6 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 $12.5 million increase in deferred revenues due to the termination of certain Chinese licensing agreements in the prior year comparative period, a $6.5 million increase 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 $1.8 million decrease in prepaid expenses and other current assets, and a $0.6 million decrease in contract assets due to the impairment, modification or termination of certain trademark licensing contracts, partly offset by a $8.8 million decrease in other liabilities and accrued expenses, $4.9 million change in accounts receivable due to the timing of royalties collections and modifications of certain trademark licensing contracts, a $1.7 million decrease in accounts payable due to the timing of payments, a $0.6 million decrease in other liabilities, net, and a $0.4 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 $49.3 million decrease in non-cash impairment charges, a $3.6 million decrease in stock-based compensation expense, and a decrease in inventory reserve charges of $3.4 million, partly offset by a $6.1 million net gain on the extinguishment of debt in 2023, a $6.9 million change in fair value remeasurement charges, a $11.0 million increase in deferred income taxes, and $6.3 million of capitalized paid-in-kind interest.
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Cash Flows from Investing Activities
The decrease in net cash provided by investing activities for the nine months ended September 30, 2024 over the prior year comparable period was primarily due to $1.0 million of proceeds from the Yandy Sale and $1.3 million of proceeds from the repayment of a promissory note related to the Yandy Sale in the prior year comparable period, partly offset by proceeds from the sale of certain of our artwork of $1.6 million and a $0.2 million decrease in purchases of property and equipment.
Cash Flows from Financing Activities
The change in net cash (used in) provided by financing activities for the nine months ended September 30, 2024, compared to the prior year comparable period, was primarily due to net proceeds of $13.9 million from our registered direct offering in January of 2023, net proceeds of $47.6 million from the issuance of common stock in our rights offering in February of 2023, and gross proceeds of $11.8 million from the amendment and restatement of our senior secured debt in the second quarter of 2023, partly offset by a $45.3 million decrease in the repayment of long-term debt from the proceeds of our equity offerings.
Contractual Obligations
For the nine months ended September 30, 2024, there were no material changes to our contractual obligations from December 31, 2023, as disclosed in our audited consolidated financial statements included in our Annual Report on Form 10-K filed on March 29, 2024.
Critical Accounting Estimates
Our interim condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Estimates and judgments used in the preparation of our interim condensed 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, inflation, foreign currency exchange rates, economic conditions and other current and future events, such as the impact of public health crises and epidemics and global hostilities. 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.
During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-Kfiled with the SEC on March 29, 2024.
Recent Accounting Pronouncements
Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, within the notes to the to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates, inflation, and foreign currency exchange rates, as well as risks to the availability of funding sources, hazard events, and specific asset risks.
Interest Rate Risk
The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of September 30, 2024 and December 31, 2023, we had unrestricted cash and cash equivalents of $9.5 million and $28.1 million, respectively, primarily held in interest-bearing deposit accounts for which the fair market value would be affected by changes in the general level of U.S. interest rates. As of September 30, 2024 and December 31, 2023, we had restricted cash of $1.7 million and $3.0 million, respectively. However, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and restricted cash and cash equivalents.
In order to maintain liquidity and fund business operations, our long-term A&R Term Loans are subject to a variable interest rate based on prime, federal funds, or SOFR plus an applicable margin based on our total net leverage ratio. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions, and other factors. We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations, but as of September 30, 2024, we have not entered into any such contracts.
As of September 30, 2024 and December 31, 2023, we had outstanding debt obligations of $217.7 million and $211.6 million, respectively, which accrued interest at a rate of 11.46% and 9.46% for Tranche A and Tranche B term loans, respectively, during the third quarter of 2024. Based on the balance outstanding under our A&R Term Loans at September 30, 2024, we estimate that a 0.5% or 1% increase or decrease in underlying interest rates would increase or decrease annual interest expense by $1.1 million or $2.3 million, respectively, in any given fiscal year. See also our "Risk Factors-Risks Related to Our Business and Industry-Our variable rate debt subjects us to interest rate risk that could cause our debt service obligations to increase significantly." included in Item 1A of our Annual Report on Form 10-K filed on March 29, 2024.
Foreign Currency Risk
We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, have in the past, and may in the future, negatively affect our revenue and other operating results as expressed in U.S. dollars. For the three and nine months ended September 30, 2024 and 2023, there were no material revenues from continuing operations denominated in foreign currency. For the three months ended September 30, 2024 and 2023, we derived approximately 60% and 58%, respectively, of our revenue from discontinued operations outside the United States, all of which was denominated in foreign currency. For the nine months ended September 30, 2024 and 2023, we derived approximately 58% and 57%, respectively, of our revenue from discontinued operations outside the United States, all of which was denominated in foreign currency. We expect the percentage of revenue derived from outside the United States to increase in future periods as we continue to expand globally. Revenue and related expenses generated from our international operations (other than most international licenses) are denominated in the functional currencies of the corresponding country. The functional currency of our subsidiaries that either operate in or support these markets is generally the same as the corresponding local currency. The majority of our international licenses are denominated in U.S. dollars. The results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. We do not have an active foreign exchange hedging program.
There are numerous factors impacting the amount by which our financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the volume of foreign currency-denominated transactions in a given period. Foreign currency transaction exposure from a 10% movement of currency exchange rates would have a material impact on our results, assuming no foreign currency hedging. For the three and nine months ended September 30, 2024, we recorded an unrealized gain of $1.1 million and $0.2 million, respectively, which is included in accumulated other comprehensive income as of September 30, 2024. This primarily relates to our discontinued operations of Honey Birdette and the decrease in the U.S. dollar against the Australian dollar during the three and nine months ended September 30, 2024, respectively.
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Inflation Risk
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations in recent periods, a high rate of inflation in the future may have an adverse effect on our ability to maintain or improve current levels of revenue, gross margin and selling and administrative expenses, or the ability of our customers to make discretionary purchases of our goods and services. See our "Risk Factors-Risks Related to Our Business and Industry-Our business depends on consumer purchases of discretionary goods and content, which can be negatively impacted during an economic downturn or periods of inflation. This could materially impact our sales, profitability and financial condition," included in Item 1A of our Annual Report on Form 10-K filed on March 29, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below. However, after giving full consideration to such material weaknesses, and the additional analyses and other procedures that we performed to ensure that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with GAAP, our management has concluded that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.
Managementhas determined that the Company had the following material weaknesses in its internal control over financial reporting:
ControlEnvironment, Risk Assessment, and Monitoring
Wedid not maintain appropriately designed entity-level controls impacting the control environment, risk assessment procedures, and effective monitoring controls to prevent or detect material misstatements to the consolidated financial statements. These deficiencies were attributed to: (i) lack of structure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, (ii) ineffective identification and assessment of risks impacting internal control over financial reporting, and (iii) ineffective evaluation and determination as to whether the components of internal control were present and functioning.
ControlActivities and Information and Communication
Thesematerial weaknesses contributed to the following additional material weaknesses within certain business processes and the information technology environment:
•We did not fully design, implement and monitor general information technology controls in the areas of program change management, user access, and segregation of duties for systems supporting substantially all of the Company's internal control processes. Accordingly, the Company did not have effective automated process-level controls, and manual controls that are dependent upon the information derived from the IT systems are also determined to be ineffective.
•We did not design and implement, and retain appropriate documentation of formal accounting policies, procedures and controls across substantially all of the Company's business processes to achieve timely, complete, accurate financial accounting, reporting, and disclosures. Additionally, we did not design and implement controls at the corporate level at a sufficient level of precision to provide for the appropriate level of oversight of business process activities and related controls.
•We did not appropriately design and implement management review controls at a sufficient level of precision around complex accounting areas and disclosure including asset impairments, revenue contracts, income tax, stock-based compensation and lease accounting.
•We did not appropriately design and implement controls over the existence, accuracy, completeness, valuation and cutoff of inventory.
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Althoughthese material weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control deficiencies constitute material weaknesses.
Remediation Efforts
We continue to work on designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weaknesses. Our internal control remediation efforts include the following:
•We hired additional qualified resources to oversee risk assessment procedures and remedial actions over internal controls.
•We are in the process of reassessing and formalizing the design of certain accounting and information technology policies relating to controls with respect to systems security and change management.
•We engaged an outside firm to assist management with (i) reviewing our current processes, procedures, and systems and assessing the design of controls to identify opportunities to enhance the design of controls that would address relevant risks identified by management, and (ii) enhancing and implementing protocols to retain sufficient documentary evidence of operating effectiveness of such controls.
In addition to implementing and refining the above activities, we expect to engage in additional remediation activities in coming fiscal years, including:
•Continuing to enhance and formalize our accounting, business operations, and information technology policies, procedures, and controls to achieve complete, accurate, and timely financial accounting, reporting and disclosures.
•Establishing effective general controls over our accounting and operating systems to ensure that our automated process level controls and information produced and maintained in our IT systems is relevant and reliable.
•Designing and implementing controls that address the completeness and accuracy of underlying data used in the performance of controls over accounting transactions and disclosures.
•Enhancing policies and procedures to retain adequate documentary evidence for certain management review controls over certain business processes including precision of review and evidence of review procedures performed to demonstrate effective operation of such controls.
•Developing monitoring controls and protocols that will allow us to timely assess the design and the operating effectiveness of controls over financial reporting and make necessary changes to the design of controls, if any.
While theseactions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
As described above, we are in the process of implementing changes to our internal control over financial reporting to remediate the material weaknesses described herein. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but there can be no assurance that such improvements will be sufficient to provide us with effective internal control over financial reporting.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to pending litigation and claims in connection with the ordinary course of our business. We make provisions for estimated losses to be incurred in such litigation and claims, including legal costs, and we believe such provisions are adequate. Refer to Note 13, Commitments and Contingencies-Legal Contingencies, within the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a summary of material legal proceedings, in addition to Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K filed with the SEC on March 29, 2024.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the risk factors set forth below, please carefully consider the risk factors described under the heading "Part I - Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Such risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition and/or operating results.
There can be no assurance that our common stock will continue to be listed on The Nasdaq Global Market ("Nasdaq") and the de-listing of our common stock could, among other things, limit investors' ability to trade our common stock and negatively impact the price of our common stock and our ability to access the capital markets.
Our common stock is traded on Nasdaq under the symbol "PLBY". To maintain our listing we are required to satisfy continued listing requirements, including the requirement commonly referred to as the minimum bid price rule (Nasdaq Listing Rule 5450(a)(1)). The minimum bid price rule requires that the closing bid price of our common stock be at least $1.00 per share. On June 27, 2024, we received a letter from the Staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that based upon our common stock's closing bid price during the previous 32 consecutive business days, we no longer satisfied the Nasdaq minimum bid price rule. The notice had no immediate effect on the listing of our common stock on Nasdaq, and we have until December 24, 2024 to regain compliance. If at any time during such 180-calendar day period the closing bid price of our common stock is at least $1.00 for a minimum of 10 consecutive business days, Nasdaq will provide us written confirmation of compliance and the matter will be closed. If we do not regain compliance by December 24, 2024, and we apply to transfer the listing of our common stock from The Nasdaq Global Market to The Nasdaq Capital Market, we may be eligible for an additional 180-calendar day compliance period, subject to satisfying the conditions in the applicable Nasdaq Listing Rules. However, there can be no assurance that we will be able to regain compliance with the minimum bid price rule or continue to satisfy other continued listing standards and maintain the listing of our common stock on Nasdaq. The suspension or delisting of our common stock, or the commencement of delisting proceedings, could, among other things, materially impair our stockholders' ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. Although we may effect a reverse stock split of our issued and outstanding common stock in the future, there can be no assurance that such reverse stock split will enable us to regain, or maintain, compliance with the Nasdaq minimum bid price requirement.
Any delisting determination by Nasdaq could seriously decrease or eliminate the value of an investment in our common stock and other securities linked to our common stock. While an alternative listing on an over-the-counter exchange could maintain some degree of a market in our common stock, we could face substantial material adverse consequences, including, but not limited to, the following: limited availability for market quotations for our common stock; reduced liquidity with respect to and decreased trading prices of our common stock; a determination that shares of our common stock are "penny stock" under the SEC rules, subjecting brokers trading our common stock to more stringent rules on disclosure and the class of investors to which the broker may sell the common stock; limited news and analyst coverage for our company, in part due to the "penny stock" rules; decreased ability to issue additional securities or obtain additional financing in the future; and potential breaches under or terminations of our agreements with current or prospective large stockholders, strategic investors and banks.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 5, 2024, pursuant to a securities purchase agreement entered into on October 30, 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 of $22.35 million. We intend to use such proceeds for general corporate purposes. The shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, as they were issued pursuant to a private placement to an accredited investor.
During the nine months ended September 30, 2024, we did not repurchase any shares of our common stock as authorized pursuant to the 2022 Stock Repurchase Program, which was authorized by the Company's board of directors on May 14, 2022.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
No Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements were adopted, modified or terminated by officers or directors of the Company, nor were there any material changes to the procedures by which security holders may recommend nominees to the Company's board of directors, during the quarter ended September 30, 2024.
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Item 6. Exhibits.
Exhibit No. Description
3.1
3.2
3.3
31.1*
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended
31.2*
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended
32.1**
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following financial information from PLBY Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Stockholders' Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) related notes (submitted electronically with this Quarterly Report on Form 10-Q)
101.INS Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document (submitted electronically with this Quarterly Report on Form 10-Q)
101.SCH Inline XBRL Taxonomy Extension Schema Document (submitted electronically with this Quarterly Report on Form 10-Q)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q)
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q)
104 Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101
_____________________
* Filed herewith.
** This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of PLBY Group, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PLBY GROUP, INC.
Date: November 12, 2024
By: /s/ Ben Kohn
Name: Ben Kohn
Title: Chief Executive Officer and President
(principal executive officer)
Date: November 12, 2024
By: /s/ Marc Crossman
Name: Marc Crossman
Title:
Chief Financial Officer and
Chief Operating Officer
(principal financial officer and principal accounting officer)
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