Plby Group Inc

NASDAQ:PLBY

Earnings Call Analysis

Playboy's Strategic Moves Strengthen Financial Position and Future Profitability

In the third quarter, Playboy Group secured over $22 million from Byborg and achieved a $66 million reduction in senior debt, significantly improving its financial stability. With $30 million in cash, the company aims to pivot towards an asset-light model, moving Honey Birdette to discontinued operations while pursuing new partnerships. The Byborg deal promises $20 million annually over 15 years, providing a stable revenue source with minimal costs. This positions Playboy for potential profitability as it restructures operations and strategically focuses on digital assets and licensing business.

Strengthening Balance Sheet and Financial Position

In the most recent earnings call, the leadership team shared significant progress in strengthening their balance sheet. The company successfully closed a strategic investment from Byborg, which injected over $22 million into their accounts. Currently, the company enjoys a cash position of approximately $30 million. Notably, they have restructured their debt, achieving a $66 million discount on senior debt, culminating in a net reduction of $38 million in leverage. This restructuring is pivotal, with interest savings projected to decrease future cash burn and enhance overall financial stability.

Strategic Shift to an Asset-Light Model

The company is pivoting towards an asset-light model, which entails moving away from owning inventory-heavy businesses. The recent decision to discontinue operations of 'Honey Birdette' illustrates this strategic change. By focusing on partnerships, such as the ongoing initiatives with Byborg, the company aims to become more sustainable and efficient. The closure of Honey Birdette and the exploration of potential partners reflect a clear strategy to optimize resources and drive meaningful profitability.

Expected Revenue from Byborg Partnership

The Byborg partnership is expected to lead to $20 million in annual minimum guaranteed payments over a 15-year term, as outlined in a non-binding Letter of Intent (LOI). This agreement involves licensing certain digital properties and developing new business lines. The anticipated shift in revenue dynamics should boost profitability, particularly with new revenue streams expected to replace previous losses from the digital segment. Specifically, the company expects to generate around $5 million quarterly from this partnership.

Operational Outlook and Future Opportunities

Looking forward, the company is not relying heavily on its magazine as a revenue driver, but rather as a promotional tool for its creators and a marketing vehicle. This reflects a broader trend of leveraging content and brand equity as opposed to traditional marketing approaches. The management believes that the strategic focus on licensing and digital content will yield positive results, strengthening the overall operational framework and creating a viable path towards profitability.

Management Confidence in Reaching Profitability

Management expressed confidence in the company's ability to achieve meaningful profitability, asserting that the combination of the reduced debt load, available cash, and strategic partnerships positions the company well for future success. This optimism is crucial for investors as it indicates a deliberate approach towards sustainable growth and efficient resource allocation. The transformation efforts, such as rebuilding their China business and optimizing corporate overhead costs, further substantiate this outlook.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Playboy Group's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Chesler, Investor Relations. Matt, you may go ahead.

[Matt Chesler, executive]

Thank you, operator, and good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K filed today by PLBY Group, which may be accessed on the SEC's website and PLBY Group's website.

Today's call is also being webcast, and a replay will be posted to the company's Investor Relations website.

Please note that statements made during this call, including financial projections or other statements that are not historical in nature, may constitute forward-looking statements. Such statements are made on the basis of PLBY Group's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements.

Forward-looking statements are subject to risks, which could cause the company's actual results to differ from its historical results and forecasts, including those risks set forth in the company's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. You should place undue reliance on any forward-looking statements.

During this call, the company may refer to non-GAAP financial measures. Such non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release, PLBY Group filed with its Form 8-K today.

I'd now like to turn the call over to Ben before we begin the Q&A session. Ben?

[Ben Kohn, executive]

Thanks, Matt, and thanks, everyone, for joining us today. Before we get into Q&A, I'd like to quickly review a few of the key developments that we have achieved during the third quarter and in the last couple of weeks, most specifically related to our balance sheet and our liquidity.

About a week ago, we closed a strategic investment from Byborg for over $22 million. Today, we have approximately $30 million of cash on the balance sheet. And just this week, we have restructured our debt, something that we have talked about previously through an exclusivity period with our lenders, where we have realized on a senior debt basis, a $66 million discount on the senior debt. With that, we have issued a new $28 million convertible preferred to our lenders. So the net reduction is $38 million in leverage.

The convert is convertible at our option at any time in cash or in stock at the 5-Day VWAP, subject to a floor of $1.50 and a cap of $4.50. So should the stock be anywhere within that range, it is our option to convert it. If the stock were over $4.50, we would always have the option to pay in cash or redeem in stock. And we think the combination of the cash on our balance sheet and the significant reduction in debt that we have achieved puts us on a much more stable financial footing moving forward.

We're excited and continuing to work on the strategic deal, we talked about the non-binding LOI we have signed with Byborg, and we expect to close that before year-end.

And with that, Matt, I will open it up to questions.

[Operator]

[Operator Instructions]

[Matt Chesler, executive]

Operator, we do have questions that are submitted via e-mail in advance, and I'd like to go ahead and read those now.

[Operator]

Yes, absolutely.

[Matt Chesler, executive]

So we have questions from James Heaney, from the research team at Jefferies.

Ben, James asked, as we look to 2025, what kind of driver should we expect the Playboy magazine to be? What are the key reasons you've decided to relaunch the magazine?

[Ben Kohn, executive]

Sure. So we're not looking at the magazine as a key revenue driver moving forward. This is a promotional tool for the creators and the models that we work with. And also, unlike other global brands, we are not a brand that spends millions of dollars in marketing. We have historically done that through content.

And so by bringing back the magazine, it serves us two purposes. The first is a promotional vehicle for the creators and models we work with. The second is as a brand marketing vehicle to allow us to bring back some of the iconic franchises like the Playboy Interview, like The Cover, like 20 Questions, things that used to be in the Playboy magazine as a way for continuing to build the brand on a global basis.

[Matt Chesler, executive]

Okay. Thanks, Ben. The next question is related to the Byborg relationship.

Can you discuss your partnership with Byborg and the performance requirements, if any, for you to successfully receive the $20 million in annual payments?

[Ben Kohn, executive]

Sure. So as we publicly announced, we have signed a non-binding LOI for a $300 million total MG over the initial term, so minimum guarantee over the initial term of the deal, which is 15 years. That would be paid in $20 million annual payments to us. That includes them operating in-licensing our -- certain of our digital properties as well as developing new business lines for areas that they either operate in today or might decide to operate in, in the digital side moving forward.

Should that deal conclude, those $20 million are minimum guarantees, against a percentage of the profits of those business lines. And so technically, outside of letting them operate our businesses on the digital side, there aren't other -- today, there are not other requirements for those $20 million. That is in advance or a minimum guarantee against the percentage of the profits.

The simplest way to think about it would be if you look at our digital segment today, right now, we generate about $5.5 million, $5.4 million on a quarterly basis in our Digital Subscription segment. In this past quarter, it lost about $2 million. Moving forward, you would basically be replacing on a minimum guarantee basis that revenue with approximately $5 million a quarter, and you would have very little cost, if any, cost against that. And there might be further opportunities to reduce corporate overhead for unallocated services that support those businesses today.

[Matt Chesler, executive]

The next question would be related to the unsolicited bid that was received recently from Cooper Hefner. Are there any thoughts you're able to share with regards to that beyond what was said publicly? And in what areas of the business do you believe that you can lean into creating stronger returns in the absence...

[Ben Kohn, executive]

All I can point you to is the press release we put out, the Board exercising its fiduciary duty and unanimously rejected the Cooper Hefner offer.

I think we're on the right track. As we said, we are moving to an asset-light model. You will notice in the quarter that Honey Birdette has been moved to discontinued ops. As we previously stated, we are in process of looking for partners for that business.

The Byborg deal and the other licensing deals that we continue to sign, including the rebuilding of our China business, is the right path for the company moving forward. And should the Byborg deal close, coupled with the others, we would expect that our goal of getting to meaningful profitability, we're well underway.

And that, coupled with a restructured balance sheet, we got a lot of cash, about $30 million of cash today. We've reduced our senior debt by $66 million or interest-bearing debt by $66 million. So we've reduced our cash interest expense moving forward, our cash burn from non-operating and financing segments. I feel like we are moving well on our way to where we need to be as a sustainable business moving forward.

And then through the Byborg participation, other licensing deals that we have restructured where we have upside, I think that is the right path for us to get to this asset-light model.

[Matt Chesler, executive]

There were additional questions, but I think you did cover off on them, particularly related to the Honey Birdette change.

And so with that, there are no additional questions that have come in over e-mail.

[Ben Kohn, executive]

Appreciate everyone dialing in, and we look forward to talking to you in March or about March on the year-end results. So thank you.

[Operator]

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.