Playboy, Inc. (PLBY) Q3 2024 Earnings Report, Transcript and Summary

Greetings, and welcome to the Playboy Group's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [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.

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 materially from 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. Do not 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 8K today. I'd now like to turn the call over to Ben before we begin the Q&A session. Ben?

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 5D 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 nonbinding 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.

Great. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]

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

Yes, absolutely.

So we have questions from James Yaffe from the research team at Jefferies. Ben, James asked, as we look to 2025, what kind of driver should we expect the Polo magazine to be? What are the key reasons you've decided to relaunch the magazine?

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 as two purposes. The first is a promotional vehicle for the creators and models we work with. The second is 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.

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?

Sure. So as we publicly announced, we have signed a nonbinding LOI for a $300 million total MG over the initial terms 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 some operating and 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 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 profit. The simplest way to think about it would be if you looked at our digital segment today, right now, we generate about $5.5 million, $5.4 million on a quarterly basis in our digital and prescription 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.

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 we said publicly? And in what areas of the business do you believe that you can lean into creating stronger returns absent that key assets?

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 on their way. 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 or 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.

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.

We appreciate everyone dialing in, and we look forward to talking to you in March -- or about March under year end results. Thank you.

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