Playboy - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $33.5M, down 15% YoY due primarily to a one-time Q4’23 licensing acceleration; adjusted EBITDA was approximately breakeven ($0.1M loss), and would have been $2.6M excluding FX losses; net loss was $12.5M.
• Management introduced 2025 guidance of approximately $120M revenue, positive adjusted EBITDA and full-year cash generation, underpinned by 86% of licensing revenue secured via guaranteed minimums; transition costs are expected in H1 2025 as digital assets migrate to Byborg.
• Strategic reset advanced with Byborg licensing agreement ($300M minimum guarantees over 15 years; $20M per year) and balance-sheet actions (debt forgiveness and preferred conversion); Honey Birdette retained and returned to cash flow generation ($6.1M in 2024).
• Stock reaction catalyst: execution on asset-light pivot (closing transition by June), incremental licensing deals (gaming, events, content), and visibility to free-cash-flow positive operations in 2025; special meeting outcomes on Byborg follow-on equity may accelerate deleveraging.

What Went Well and What Went Wrong

What Went Well

• Asset-light transition milestone: closed Byborg licensing deal ($20M annually; $300M MG) and initial $22.4M equity investment; negotiated ~$37M debt forgiveness; preferred conversion at $1.85/share in Jan-2025 supports deleveraging.
• Honey Birdette improvements: 2024 cash flow $6.1M; Q4 same-store sales +4% YoY; gross margin expanded to 60% from 51% amid reduced promotions and higher full-price sell-through.
• Leadership tone on growth: CEO emphasized focus on larger, higher-quality licensing deals (e.g., gaming), magazine relaunch as brand “bible,” and new monetization (sponsorships, events, paid fan voting) to expand audience without heavy marketing spend.

What Went Wrong

• Licensing headwinds from China: Q4 licensing revenue fell to $7.8M from $13.4M YoY, largely due to $5.1M accelerated recognition in Q4’23 tied to termination of the largest China licensee; total revenue down 15% YoY to $33.5M.
• FX and digital costs weighed on profitability: adjusted EBITDA of $(0.1)M impacted by ~$2.8M FX swing YoY and $1.8M higher digital operating expenses from building the Playboy Club team.
• Prior-quarter impairments and volatility: Q3 2024 posted adjusted EBITDA of $(1.8)M and significant impairment charges; licensing contraction from terminated China agreements constrained near-term profitability.

Transcript

Operator (participant)

Good afternoon, everybody, and welcome to the PLBY Group fourth quarter 2024 earnings conference call. Hosting today's call are Ben Kohn, Chief Executive Officer, and Marc Crossman, Chief Financial Officer and Chief Operating Officer. The company will be hosting a question-and-answer session today. If you would like to ask a question, please press star one on your telephone keypad. Confirmation will indicate your line is in the question queue. You may press star two to remove yourself from the queue.

If anyone should require operator assistance, please press star zero on your keypad. As a reminder, this conference is being recorded. While we wait to fill the queue, I would like to hand the call over to Matt Chesler from Investor Relations. Thank you. Please go ahead.

Matt Chesler (Head of Investor Relations)

Good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 10-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. Do not place undue reliance on any forward-looking statements. During the call, the company may refer to non-GAAP financial measures.

Such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is available in the earnings release PLBY Group filed with its Form 8-K today. I'd like to turn the call over to Ben before we begin the Q&A session. Ben?

Ben Kohn (CEO)

Thanks, Matt. 2024 was a tough year for the company, but a necessary year as we repositioned the business to an asset-light model. We started to see the results of that in Q4, where EBITDA started to turn positive, excluding foreign currency. Most importantly, we completed the Byborg deal in the fourth quarter, which, from a profitability and cash flow perspective moving forward, completely changes the game.

As we enter 2025, we have a new baseline of cash flow that allows us, on a full-year basis, to be free cash flow positive, especially after the first six months where we'll be completing the transition of our legacy adult properties in the Playboy Club to Byborg.

What's really exciting is the growth prospects we have moving forward, both in existing licensing deals like the upside we have in the Byborg deal as they start to execute on the turnaround of those properties, but also new opportunities that we know work in proven categories that we have monetized historically, like in the gaming space. That, coupled with the really positive relaunch of the Playboy magazine last month at Super Bowl, will be part of our strategy moving forward.

We plan on releasing four issues once we get fully ramped up of the magazine and developing new revenue streams around that. That magazine is really our brand Bible moving forward. It's that asset that we leave behind, and it's the marketing vehicle for the company. We're not running it to make money just on print. There's opportunities around paid fan voting.

There's opportunities around sponsorship as we launch events around that. There's opportunities to do subscription or membership around the magazine. Those are the things we're focused on moving forward. For the first time in the last two or three years, we actually have a chance to really focus on the growth of the business, something that we have not been able to focus on because of the balance sheet that we've had historically.

As we move into 2025 and the balance of the year, very excited by the prospects we have and actually this new issue that we hope will be out sometime in August, tied to a Midsummer Night's Dream party and the celebrities and influencers that will be working with us in that magazine and that magazine really taking its editorial form, allow us to work with in a promotional vehicle.

With that, we'd love to open it up to questions.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. Once again, if you'd like to ask a question, press star one on the telephone keypad. To end the queue, you can press star two to remove yourself from the queue. One moment while we poll for questions. Our first question comes from JP Wollam with ROTH Capital Partners. Please proceed.

JP Wollam (Equity Research Associate)

Great. Hi, Ben. Hi, Marc. Thanks for taking my questions here. A few for you guys. Maybe if we could kind of start on the revenue side and sort of just want to think about the $120 million and also kind of more specifically the minimum guarantee and the licensing side. I'm trying to just get a sense of, in that non-MG portion of the licensing revenue, how are you assessing what the risk is to that, especially given that licensing is such a great profit driver for you guys? One, how are you assessing risk there? Two, you touched on the gaming space, but how are you thinking about upside in licensing specifically in 2025? The third one is just any give and takes around Honey Birdette and how you're thinking about how that plays into the $120 million. Thanks.

Marc Crossman (CFO and COO)

Hey, JP. It's Marc. Let me just start around the risk you were talking about on licensing revenue. The other 14% that is not guaranteed minimums is made up of overages and new deals. What happens in 2024 is when we set the pipeline for 2025. We feel really good about that number. We historically know what our overages look like. We're not making assumptions that we're going to see anything out of the norm. I will not say anything is guaranteed, but all the work was done in 2024 to set ourselves up for 2025. As it relates to gaming, Ben, do you want to?

Ben Kohn (CEO)

Yeah. Look, I think when I look at where we generate the bulk of our licensing revenues today, that's in the clothing sector. I think the pipeline is strong of new deals. When I think about categories like gaming, where we used to get paid millions of dollars, we're not talking about six figures here. We're talking about seven figures here. Dollars from land-based casinos, from online gaming. We have a strong pipeline of gaming opportunities moving forward. What I'm focused on is looking at where the company used to generate revenue, i.e., gaming, and how do we start to rebuild that category with the right partners moving forward.

There are opportunities like that. There are new opportunities like paid fan voting tied to the magazine. I look at it and think there's a lot of upside in the numbers.

One thing to note is licensing is not a linear growth business. It grows in a step fashion. What we're really focused on is doing fewer but much larger deals moving forward versus, as we said, historically just answering the phone when it rings and taking deals. I want to focus on bigger deals with better partners. If you look at the Byborg deal, we have significant upside in that deal, right? We have a minimum guarantee of $20 million. For everyone's recollection, that was a business that historically was losing money for us on the digital side for the most part.

We turned that into basically a 100% margin licensing business, and we retained a significant piece of the upside as they get those properties online.

Even in our meetings with them, I think there is a lot of low-hanging fruit on their expertise on where they can improve those properties. It does not mean that everything will be a smooth road moving forward. If you look at it, going back to the risk question, I think there is more upside than there is downside in the business. Obviously, we are moving into an economy where consumer spend might be slowing a little bit. Obviously, there is uncertainty with tariff wars, but that does not really affect us because the way we license the business is mostly by territory, where product that is produced in that territory is then sold in that territory as well.

JP Wollam (Equity Research Associate)

Great. Thank you. I guess maybe just moving kind of down the financial statement a little bit, understanding that you did not give any kind of EBITDA guidance, I just want to maybe talk for a second about the opportunity for reorganizing corporate infrastructure given the transition to Byborg and just sort of how you are thinking about G&A. We do not need to use numbers specifically, but are you at a place where you have kind of identified what corporate can look like in your post-Byborg deal world? Are you still assessing what that looks like? Kind of where are you in that process?

Ben Kohn (CEO)

I think we have assessed it, and we have begun making all of those changes, and we'll continue to make those changes through the first half of this year when we're supposed to have transitioned the properties fully to Buy Board. They own the properties as of January 1, and they've already made their first licensing payment to us, but we have transition costs that we will be incurring as we move those businesses to them. I think what we've said historically is on a full-year basis, we expect to be free cash flow positive.

You can back into that number because you know how much debt we have with $152 million of senior debt today, the interest rate tied to that, and then the amortization. Although we're not getting specific, our goal is to be free cash flow positive.

I believe that at this point, we have solved our balance sheet issues. There's opportunities because, for instance, we still own Honey Birdette, but overall, the business is going to be free cash flow positive. That is what we're striving to, and that's how we backed into our corporate overhead in addition to rebuilding the corporate overhead line by line and saying, "What do we need and what don't we need?" What we do know we want moving forward is to be an asset-light business with as few employees as possible to service that.

Obviously, there are certain things that are important, but we want to make sure that we partner with the best operators that are out there that have better skill sets than we do. We focus on what we're good at, which is the brand of Playboy. It's why we're bringing back the magazine.

We're going to be bringing back 12 Playmates. There are a lot of opportunities as we've brought back that magazine that have come to light that we're not forecasting right now, but they give us significant upside around new revenue opportunities around that print.

JP Wollam (Equity Research Associate)

Understood. I think I'll kind of finish with one and then hop back in the queue, but you kind of led me there. I think the press release had some information about kind of some of these additional revenue sources, and I think there was maybe some podcasts and some videos and some different sponsorship stuff. How do you assess what's the rationale around kind of going further down that road? How do you think about balancing sort of keeping that asset-light model, a lot of licensing, and then using the magazine as kind of more marketing and publicity? This feels a little more going further there. I guess kind of how are you just what's the rationale behind some of those additional revenue levers?

Ben Kohn (CEO)

Yeah. We have to go where consumers consume content today. People, as much as the magazine's a beautiful product, and I think the first issue we put out is a good starter issue, I think there's a lot of areas to continue to improve on that. This can take us a little while to get back up to full speed on that. We're doing that in an outsourced model as well. We're one of the largest brands in the world, and we don't spend any money as a company on marketing ourselves, right? Our content becomes our marketing vehicle and our brand voice. We're very focused on sort of returning Playboy to what its roots was. It's a men's brand at the end of the day, first and foremost.

It doesn't mean that we don't have a big women audience for the company that buys our products, but our core audience are men. When you think about the keywords, when I think about Playboy, I think about fun. I think about sexy. I think about provocative. I think about aspirational. The magazine allows us to work with talent through an editorial lens in a way that allows us to punch way above our weight. We're not paying people to work with us in the magazine. We're using the editorial lens of the magazine to really magnify and amplify that editorial voice and the positioning and branding of the company.

The podcast and other things, the simplest way to think about it is taking franchises like the Playmates, which are one of the best brand ambassadors out there, or the Playboy Advisor, which is a column that's been in the magazine that gave sex and relationship advice. How could you take those to distribution mediums today where consumers are consuming content? It's great to have the Playboy Advisor in the magazine, but that's really the byproduct of being able to interact with your audiences on a daily and weekly basis.

The way to do that is through podcasts, through video series, through social media, where we are staying relevant in our consumers' lives on a daily basis. The magazine will come out once a quarter. It's a beautiful glossy. It's something that you can leave on your coffee table, and the price point will reflect that.

It is the byproduct of content that we can partner with other people and leverage those channels to build an audience much larger without spending the money by working with the right influencers and celebrities today that already have those audiences that are communicating, but taking these franchises that have existed at Playboy for the last 70-plus years and bringing them to the right distribution vehicles for the way consumers consume content today. Playmates is another great example of that. It allows us to work. We're going to have 12 a year is what we're going to ramp up to, plus a Playmate of the Year. Plus, we'll have a whole host of runner-ups.

One of the things we've been looking at, and we actually did this a couple of years ago with Playboy Lingerie when we ran a search to find the face of Playboy Lingerie, we had tens of thousands of women apply to that. You can do the same thing today, but do it through a combination of a panel of celebrity judges or editors, coupled with fan voting. Examples of that are The Voice, Dancing with the Stars and other shows that have really leveraged their contestants and the audiences of those contestants.

There is a lot of money there. That helps us from a brand perspective because the women are going out to the social media channels to get their fans to vote for them. That allows the opportunity for sponsorships. It allows the opportunity for live events.

I think there's an opportunity to bring back, through partnerships, Playboy hospitality.

JP Wollam (Equity Research Associate)

Got it. That makes sense. I appreciate the answers, and I'll hop back in the queue.

Ben Kohn (CEO)

Thank you.

Operator (participant)

Thank you. It does look like there are no further questions at this time. I'd like to pass the call back to Ben for closing remarks.

Ben Kohn (CEO)

I appreciate everyone joining our Q4 and annual call and look forward to talking to everyone on our next earnings call. Thank you for joining.

Operator (participant)

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