Playboy, Inc.: Form 10-Q for the period ended Jun 30, 2025

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 six months ended June 30, 2025 and 2024 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, 2024 and 2023 and the related notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 13, 2025. 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 13, 2025. As used herein, “we”, “us”, “our”, and the “Company” refer to Playboy, 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, tariffs, 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.

Business Overview

We are a global consumer lifestyle company marketing our brands through a wide range of licensing initiatives, direct-to-consumer products, Playboy magazine, digital subscriptions and content, and online and location-based entertainment. As of January 1, 2025, we licensed certain intellectual property and our Playboy Plus, Playboy TV (online and linear) and Playboy Club digital operations to Byborg Enterprises SA (“Byborg”) pursuant to a License & Management Agreement (the “LMA”). As a result, we now have two reportable segments: Direct-to-Consumer and Licensing. The Direct-to-Consumer segment derives revenue from sales of consumer products sold directly to consumers by Honey Birdette online or at its brick-and-mortar stores, with 51 stores in three countries as of June 30, 2025. The Licensing segment derives revenue from trademark licenses for third-party consumer products, primarily for various apparel and accessories categories, hospitality, digital gaming and location-based entertainment businesses, and starting January 1, 2025, revenue from licensing our digital subscriptions and content operations to Byborg.

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 this Quarterly Report on Form 10-Q under “Part II—Item 1A. Risk Factors”, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 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.

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 attract best-in-class operators. In the fourth quarter of 2024, we entered into the LMA with Byborg to license intellectual property and select Playboy digital assets for $300.0 million in minimum guaranteed payments over the initial 15-year term of the license, which began as of January 1, 2025. We are focused on strategically expanding our licensing business into new categories and territories with high quality strategic partners and supporting them with brand marketing in the form of content, experiences and editorial works. We will also continue to use our licensing business as a marketing tool and brand builder, including through high profile collaborations and our large-scale strategic partnerships. For our Honey Birdette business, we intend to focus on the U.S. market, where the brand’s stores, on average, generate more revenue and better margins, and generally have customers who tend to spend more and are less price sensitive.

Recent Developments

We continue to monitor ongoing changes in U.S. trade policies, including increasing tariffs on imports, in some cases significantly, and changes to existing international trade agreements. These actions have prompted retaliatory tariffs and other measures by a number of countries. In the second quarter of 2025, actions were taken by the U.S. and certain other countries to modify the timing, rates and/or other aspects of certain of these tariffs. However, some of the new tariffs remain in effect, including tariffs between the U.S. and China, where we source the manufacturing of our Honey Birdette products and where we have a locally-based joint venture for the sale of Playboy-branded products in China. While the impact of such trade policies on our business remains uncertain, we continue to closely monitor such matters and potential impacts, including increased production costs and higher pricing to our customers, either of which could negatively affect our business, results of operations and financial condition. Refer to “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 for additional information on such risks.

China Licensing Revenues

Our licensing revenues from China (including Hong Kong) as a percentage of our total revenues were 11% and 12% for the three months ended June 30, 2025 and 2024, respectively, and 11% and 8% for the six months ended June 30, 2025 and 2024, respectively. At the end of the first quarter of 2023, we entered into a joint venture for the Playboy business in China (the “China JV”) with CT Licensing Limited, a 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 2024, our China JV stabilized our business in China, and we expect our licensing activity in China to increase slightly in 2025 and continue to represent a modest but meaningful part of our overall business in future periods.

Seasonality of Our Consumer Product Sales

While we receive revenue throughout the year, our Honey Birdette direct-to-consumer 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 consumer products sold through our Honey Birdette retail stores or online directly to customers, trademark licenses for third-party consumer products and online and location-based entertainment businesses, and starting January 1, 2025, licensing the operation of our digital subscriptions and content businesses, which were owned and operated by us in the prior year comparative period.

Consumer Products

Revenue from sales of online apparel and accessories is recognized upon delivery of the goods to the customer. Revenue from sales of apparel at our retail stores is recognized at the time of transaction. Revenue is recognized net of incentives and estimated returns. We periodically offer promotional incentives to customers, which include basket promotional code discounts and other credits, which are recorded as a reduction of revenue.

Licensing

We license trademarks under multi-year arrangements to consumer products and online and location-based entertainment businesses. Typically, the initial contract term ranges between one to 15 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 up to the cash we have received.

Starting January 1, 2025, we licensed the operation of our Playboy Plus, Playboy TV (online and linear) and Playboy Club digital businesses, which was previously owned and operated by us and included in our Digital Subscriptions and Content reportable segment in the prior year comparative period, to Byborg pursuant to the LMA.

Prior to January 1, 2025, digital subscription revenue was derived from subscription sales of playboyplus.com and playboy.tv, which are online content platforms. We received fixed consideration shortly before the start of the subscription periods from these contracts, which were primarily sold in monthly, annual, or lifetime subscriptions. Revenues from lifetime subscriptions were recognized ratably over a five-year period, representing the estimated period during which the customer accesses the platforms. Revenues from digital subscriptions were 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.com were 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.

Prior to January 1, 2025, we also licensed programming content to certain cable television operators and direct-to-home satellite television operators who paid 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 were generally collected monthly and recognized as revenue as earned.

Cost of Sales

Cost of sales primarily consist of merchandise costs, warehousing and fulfillment costs, agency and commission fees, website expenses, marketplace traffic acquisition costs, digital platform expenses (prior to January 1, 2025), transition expenses per the TSA (commencing January 1, 2025), credit card processing fees, personnel costs, including stock-based compensation, costs associated with branding events, customer shipping and handling expenses, fulfillment activity costs and freight-in expenses.

Selling and Administrative Expenses

Selling and administrative expenses primarily consist of corporate office and retail store occupancy costs, personnel costs, including stock-based compensation, transition expenses per the TSA (commencing January 1, 2025), brand marketing costs, 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 and right-of-use assets related to our corporate leases.

Other Operating (Expense) Income, Net

Other operating (expense) income, net consists primarily of losses on disposal of assets and other miscellaneous items.

Nonoperating (Expense) Income

Interest Expense, Net

Interest expense, net consists of interest on our long-term debt and the amortization of deferred financing costs and debt premium/discount.

Other Income (Expense), Net

Other income (expense), net consists primarily of other miscellaneous nonoperating items, such as nonrecurring transaction fees, foreign exchange realized and unrealized transaction gains or losses, bank charges and interest income.

Expense from Income Taxes

Expense 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 definite-lived U.S. federal and state deferred tax assets, as well as Australia, U.K. and China deferred tax assets.

Results of Operations

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table summarizes key components of our results of operations for the periods indicated (in thousands, except percentages):

The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:

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Net Revenues

The following table sets forth net revenues by reportable segment (in thousands):

Direct-to-Consumer

The increase in direct-to-consumer net revenues, compared to the prior year comparative period, was due to an increase in Honey Birdette revenue as a result of the continued improvement in consumer perception of the Honey Birdette brand, which resulted in increased sales of both full-price and discounted products.

Licensing

The increase in licensing net revenues, compared to the prior year comparative period, was primarily due to $5.0 million of minimum guaranteed royalties recognized pursuant to the LMA, $0.6 million higher revenues from new licensing partners and renegotiated minimum guarantees pursuant to renewal agreements with existing licensees.

Corporate

Corporate revenues for the three months ended June 30, 2025 related to corporate branding, including Playboy magazine and sponsorship events.

All Other

The decrease in all other net revenues, compared to the prior year comparative period, was primarily due to the licensing of our digital subscriptions and content operations to Byborg pursuant to the LMA, effective as of January 1, 2025. As a result, our previously reported Digital Subscriptions and Content operating and reportable segment was eliminated and its operations in the prior year comparative period were recast to be included in “All Other” for comparative purposes. “All Other” net revenues for the three months ended June 30, 2025 related to the amortization of deferred revenue balances that existed as of December 31, 2024 (prior to the LMA effective date of January 1, 2025) that pertain to previously reported digital subscriptions and content operations.

Cost of Sales

The following table sets forth cost of sales and gross margin by reportable segment (in thousands):

Direct-to-Consumer

The increase in direct-to-consumer cost of sales, compared to the prior year comparative period, was primarily due to a $0.5 million increase in Honey Birdette’s product, shipping and fulfillment costs due to higher revenues. The increase in gross margin was due to continued improvement in consumer demand at Honey Birdette, increasing sales of both full-price and discounted products at a higher margin.

Licensing

The increase in licensing cost of sales and the corresponding decrease in gross margin, compared to the prior year comparative period, were primarily due to a $2.0 million increase in licensing commissions expense, reflecting a one-time settlement amount of $2.4 million to pay current and future commissions to a licensing agent, as well as a $0.9 million reduction in licensing product costs in the prior year comparative period due to the termination of Playboy’s e-commerce licensing agreement in the second quarter of 2024.

Corporate

The corporate gross profit during the three months ended June 30, 2025, which was from our relaunch of Playboy magazine and sponsorship events, was immaterial. There were no activities related to Playboy magazine and sponsorship events in the prior year comparative period.

All Other

The decrease in all other cost of sales and gross margin, compared to the prior year comparative period, was primarily related to the licensing of our digital subscriptions and content operations to Byborg pursuant to the LMA, effective as of January 1, 2025, and the inclusion of transition expenses incurred pursuant to the TSA during the three months ended June 30, 2025.

Selling and Administrative Expenses

The decrease in selling and administrative expenses for the three months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to a $1.2 million reduction in technology costs, a $0.9 million decrease in depreciation, a decrease in various professional services of $0.7 million, lower payroll expense of $0.9 million and a $0.3 million decrease in stock-based compensation expense, partly offset by $1.4 million in additional legal expenses related to ongoing material litigation, and severance and employee benefits expense of $0.4 million related to headcount reductions as a result of the transition of our digital operations into a licensing model.

Impairments

The increase in impairments for the three months ended June 30, 2025, as compared to the prior year comparative period, was due to impairment charges on our right-of-use assets related to our corporate leases that were $0.9 million higher than in the prior year comparative period.

Other Operating (Expense) Income , Net

The change in other operating (expense) income, net for the three months ended June 30, 2025, as compared to the prior year comparative period, was immaterial.

Nonoperating (Expense) Income

Interest Expense, Net

The decrease in interest expense, net for the three months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to a reduction of our debt balance and amortization of debt premium in connection with the A&R Third Amendment.

Other Income (Expense), Net

The change in other income (expense), net for the three months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to unrealized gains and losses related to foreign currency transactions.

Expense from Income Taxes

The increase in income taxes for the three months ended June 30, 2025, 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 June 30, 2025.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table summarizes key components of our results of operations for the periods indicated (in thousands, except percentages):

The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:

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Net Revenues

The following table sets forth net revenues by reportable segment (in thousands):

Direct-to-Consumer

The decrease in direct-to-consumer net revenues, compared to the prior year comparative period, was primarily due to a decrease in Honey Birdette revenue as a result of a large sale in March of 2024 that did not recur in March of 2025, as part of the broader initiative to improve margins and consumer perception of the Honey Birdette brand, partially offset by an increase in Honey Birdette revenue in the second quarter of 2025 as a result of improved consumer demand for Honey Birdette products.

Licensing

The increase in licensing net revenues, compared to the prior year comparative period, was primarily due to $10.0 million of minimum guaranteed royalties recognized pursuant to the LMA, and a $2.8 million increase in minimum guarantees recognized from other licensing partners, out of which $1.8 million pertained to a licensing agreement with one of our Chinese licensees signed in the second quarter of 2024.

Corporate

Corporate revenues for the six months ended June 30, 2025 related to corporate branding, including Playboy magazine and sponsorship events.

All Other

The decrease in all other net revenues, compared to the prior year comparative period, was primarily due to the licensing of our digital subscriptions and content operations to Byborg pursuant to the LMA, effective as of January 1, 2025. As a result, our previously reported Digital Subscriptions and Content operating and reportable segment was eliminated and its operations in the prior year comparative period were recast to be included in “All Other” for comparative purposes. “All Other” net revenues for the six months ended June 30, 2025 related to the amortization of deferred revenue balances that existed as of December 31, 2024 (prior to the LMA effective date of January 1, 2025) that pertain to previously reported digital subscriptions and content operations.

Cost of Sales

The following table sets forth cost of sales and gross margin by reportable segment (in thousands):

Direct-to-Consumer

The decrease in direct-to-consumer cost of sales and the increase in gross profit, compared to the prior year comparative period, was primarily due to a $1.7 million reduction in Honey Birdette’s product, shipping and fulfillment costs due to lower revenue, and improved gross margin was due to reduced promotional activity in the first and second quarters of 2025 as part of the broader initiative to improve margins and consumer perception of the Honey Birdette brand, as well as stronger sales of full-price Honey Birdette products.

Licensing

The increase in licensing cost of sales and corresponding decrease in gross margin, compared to the comparable prior year period, was primarily due to a $2.3 million increase in licensing commissions expense, reflecting a one-time settlement amount of $2.4 million to pay current and future commissions to a licensing agent, as well as a $0.9 million reduction in licensing product costs in the prior year comparative period due to the termination of Playboy’s e-commerce licensing agreement in the second quarter of 2024.

Corporate

Corporate gross profit during the six months ended June 30, 2025, which was from our relaunch of Playboy magazine and sponsorship events, was immaterial. There were no activities related to Playboy magazine and sponsorship events in the prior year comparative period.

All Other

The decrease in all other cost of sales and gross margin, compared to the comparable prior year period, was primarily related to the licensing of our digital subscriptions and content operations to Byborg pursuant to the LMA, effective as of January 1, 2025, and the inclusion of transition expenses incurred pursuant to the TSA during the six months ended June 30, 2025.

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended June 30, 2025 were consistent with the prior year comparative period, primarily due to a $1.7 million decrease in technology costs, a $1.1 million decrease in depreciation, and a decrease in various professional services of $1.2 million, partly offset by $1.7 million of additional legal expenses related to ongoing material litigation and a $2.0 million increase in personnel costs largely due to severance and related compensation due to the transition of our digital operations into a licensing model.

Impairments

The decrease in impairments for the six months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to a decrease of $2.1 million of impairment charges on our artwork held for sale, partly offset by a $0.9 million increase in impairment charges on our right-of-use assets related to our corporate leases.

Other Operating (Expense) Income, Net

The change in other operating (expense) income, net, as compared to the prior year comparative period, was primarily due to the write off of certain property, plant and equipment items as a result of our decision to sublease certain of our office space.

Nonoperating (Expense) Income

Interest Expense, Net

The decrease in interest expense, net for the six months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to a reduction of our debt balance and amortization of debt premium in connection with the A&R Third Amendment.

Other Income (Expense), Net

The change in other income (expense), net for the six months ended June 30, 2025, as compared to the prior year comparative period, was primarily due to unrealized gains and losses related to foreign currency transactions.

Expense from Income Taxes

Increase in expense from income taxes for the six months ended June 30, 2025, 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 six months ended June 30, 2025.

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 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, non-recurring non-cash impairments and asset write-downs, we typically adjust for non-operating expenses and income, such as nonrecurring special projects, including related consulting expenses, transition expenses, settlements, nonrecurring 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):

• Licensing commissions settlement for the three and six months ended June 30, 2025 represents a one-time settlement amount of $2.4 million to pay current and future commissions to a licensing agent, which will be paid in the third quarter of 2025.
• Transition expenses for the three and six months ended June 30, 2025 represent costs associated with the digital operations licensed to Byborg, solely during the transition period pursuant to the TSA.
• Severance expenses for the three and six months ended June 30, 2025 were due to the reduction of headcount related to the transition of our digital subscriptions and content operations into a licensing model.
• Impairments for the three months ended June 30, 2025 related to impairment charges on our right-of-use assets related to our corporate leases.
• Impairments for the six months ended June 30, 2025 related to impairment charges on our artwork held for sale and our right-of-use assets related to our corporate leases.
• Impairments for the three months ended June 30, 2024 related to impairment charges on our right-of-use assets related to our corporate leases.
• Impairments for the six months ended June 30, 2024 related to impairment charges on our artwork held for sale and our right-of-use assets related to our corporate leases.
• Adjustments for the three and six months ended June 30, 2025 are primarily related to the non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable for our 2021 acquisition of GlowUp Digital, Inc. that remained unsettled as of June 30, 2025, loss on the sale of artwork, loss on disposal of assets, consulting, advisory and other costs relating to corporate transactions, as well as reorganization costs resulting from the elimination or rightsizing of specific business activities or operations.
• Adjustments for the three and six months ended June 30, 2024 are related to the non-cash fair value change related to contingent liabilities fair value remeasurement with respect to potential shares issuable for the acquisition of GlowUp Digital, Inc. that remained unsettled as of June 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.

Non-GAAP Segment Information

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” columns relate to the previously identified operating and reportable segment, Digital Subscriptions and Content, which was eliminated upon its transition into a licensing model under the LMA. The “Corporate” column in the tables below includes certain operating revenues associated with Playboy magazine, events and sponsorships and expenses that are not allocated to the reportable segments presented to our CODM. Such expenses include legal, human resources, information technology and facilities, accounting/finance and brand marketing costs. Expenses associated with Playboy magazine, events and sponsorships are included in brand marketing costs. 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, of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

“Adjusted Operating Income (Loss)” is defined as operating income or loss adjusted for stock-based compensation and other special items determined by management. Adjusted operating income (loss) 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 adjusted operating income (loss) 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 adjusted operating income (loss), 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 operating income (loss) may not be comparable to other similarly titled measures computed by other companies, because not all companies may calculate adjusted operating income (loss) 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, nonrecurring non-cash impairments and asset write-downs, we typically adjust for nonrecurring special projects, including for related consultant expenses, nonrecurring gain 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 the limitations described above, adjusted operating income (loss) 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 adjusted operating income (loss) on a supplemental basis. Investors should review the reconciliation of operating loss to adjusted operating income (loss) below and not rely on any single financial measure to evaluate our business.

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table reconciles Operating (Loss) Income to Adjusted Operating (Loss) Income by reportable segment (in thousands):

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for descriptions of the adjustments to reconcile net loss to Adjusted EBITDA, certain of which adjustments are listed in the table above and the descriptions used for the reconciliation of net loss to Adjusted EBITDA are also applicable for the table above.

Direct-to-Consumer

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes in net revenues and gross profit in our Direct-to-Consumer segment from 2024 to 2025.

Operating Loss: The decrease in operating loss, compared to the prior year comparative period, was primarily due to a $2.0 million increase in Honey Birdette’s net revenue as a result of the continued improvement in consumer perception of the Honey Birdette brand, which resulted in increased sales of both full-price and discounted products.

Adjusted Operating Loss: The decrease in adjusted operating loss, compared to the prior year comparative period, was primarily due to the decrease in operating loss discussed above.

Licensing

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes in net revenues and gross profit in our Licensing segment from 2024 to 2025.

Operating Income: The increase in operating income, compared to the prior year comparative period, was primarily due to a $2.7 million increase in licensing gross profit, primarily as a result of higher revenues resulting from the LMA as well as certain other licensing agreements signed in the second quarter of 2024, partly offset by a $1.3 million increase in legal expenses.

Adjusted Operating Income: Adjustments to licensing operating income for the three months ended June 30, 2025 related to a one-time settlement amount of $2.4 million to pay current and future commissions to a licensing agent. There were no adjustments to licensing operating income for the three months ended June 30, 2024, and the change in adjusted operating income was the same as the change in operating income above.

Corporate

The increase in corporate expenses, compared to the prior year comparative period, was primarily due to a $0.9 million increase in impairment charges on our right-of-use assets related to our corporate leases, a $1.0 million increase in stock-based compensation expense, and $0.4 million increase in payroll expenses.

The decrease in adjusted corporate expenses, compared to the prior year comparative period, was primarily due to lower insurance cost of $0.3 million and a reduction in rent expense of $0.1 million as a result of cost restructuring.

All Other

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes from 2024 to 2025 in net revenues and gross profit classified as All Other.

Operating Loss: The decrease in operating loss, compared to the prior year comparative period, was due to the transition of our digital operations into a licensing model pursuant to the LMA and inclusion of $1.2 million of transition expenses pursuant to the TSA.

Adjusted Operating Income: The change from adjusted operating loss to adjusted operating income, compared to the prior year comparative period, was due to the transition of our digital operations into a licensing model pursuant to the LMA.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table reconciles Operating (Loss) Income to Adjusted Operating (Loss) Income by reportable segment (in thousands):

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for descriptions of the adjustments to reconcile net loss to Adjusted EBITDA, certain of which adjustments are listed in the table above and the descriptions used for the reconciliation of net loss to Adjusted EBITDA are also applicable for the table above.

Direct-to-Consumer

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes in net revenues and gross profit in our Direct-to-Consumer segment from 2024 to 2025.

Operating Loss: The decrease in operating loss, compared to the prior year comparative period, was primarily due to a $1.0 million increase in direct-to-consumer gross profit, as a result of improvement in consumer perception of and demand for Honey Birdette products, as well as a reduction in depreciation and amortization expenses of $1.0 million.

Adjusted Operating Loss: The change in adjusted operating loss, compared to the prior year comparative period, was immaterial.

Licensing

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes in net revenues and gross profit in our Licensing segment from 2024 to 2025.

Operating Income: The increase in operating income, compared to the prior year comparative period, was primarily due to a $9.6 million increase in licensing gross profit, primarily as a result of higher revenues resulting from the LMA, as well as certain other licensing agreements signed in the second quarter of 2024.

Adjusted Operating Income: Adjustments to licensing operating income for the six months ended June 30, 2025 related to a one-time settlement amount of $2.4 million to pay current and future commissions to a licensing agent, which will be paid in the third quarter of 2025. There were no adjustments to licensing operating income for the six months ended June 30, 2024, and the change in adjusted operating income was the same as the change in operating income above.

Corporate

The increase in corporate expenses, compared to the prior year comparative period, was primarily due to an increase in severance and employee benefits expense of $1.3 million related to headcount reductions as a result of the licensing of the operations of our digital businesses, a $0.9 million increase in impairment charges on our right-of-use assets related to our corporate leases, a $1.4 million increase in payroll expenses, and a $0.5 million increase in stock-based compensation expense, partly offset by a $2.1 million decrease in impairment charges on our artwork held for sale.

The increase in adjusted corporate expenses, compared to the prior year comparative period, was primarily due to expenses associated with Playboy magazine, events and sponsorships in 2025 that did not occur in the prior year comparative period.

All Other

Net Revenues and Gross Margin: Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of changes from 2024 to 2025 in net revenues and gross profit classified as All Other.

Operating Loss: The increase in operating loss, compared to the prior year comparative period, was due to the transition of our digital operations into a licensing model pursuant to the LMA and inclusion of $5.0 million of transition expenses pursuant to the TSA.

Adjusted Operating Income: The decrease in adjusted operating income, compared to the prior year comparative period, was due to the transition of our digital operations into a licensing model pursuant to the LMA.

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 June 30, 2025, our principal source of liquidity was cash in the amount of $19.6 million, which is primarily held in operating and deposit accounts.

On November 5, 2024, we issued 14,900,000 unregistered shares of our common stock in a private placement to the Purchaser (defined below), at a price of $1.50 per share, for total proceeds to us of $22.4 million.

Pursuant to the LMA entered into in December 2024, Byborg agreed to operate our Playboy Plus, Playboy TV (digital and linear) and Playboy Club businesses and to license the right to use certain Playboy trademarks and other intellectual property for related businesses and certain other categories. Pursuant to the LMA, Byborg was also granted exclusive rights to use Playboy trademarks for certain new adult content services and digital products to be developed. The LMA has an initial term of 15 years, with the operations and license rights pursuant to the LMA commencing as of January 1, 2025, and the possibility for up to nine renewal terms of 10 years each, subject to the terms and conditions set forth in the LMA. Pursuant to the LMA, starting in 2025, Playboy began receiving minimum guaranteed royalties of $20.0 million per year of the term, which royalties are paid in installments during each year of the LMA’s term. In addition, Byborg will prepay the minimum guaranteed amount for the second half of year 15 of the initial term of the LMA. Playboy is also entitled to receive excess royalties from the businesses licensed and operated by Byborg, on the terms and conditions set forth in the LMA.

In the fourth quarter of 2023, we began the sale of our art assets, and we have continued the sale of our art assets in 2024 and 2025.

Since going public in 2021, we have yet to generate operating income from our core business operations and have incurred significant operating losses, including $12.1 million of operating losses for the six months ended June 30, 2025. We expect our capital expenditures and working capital requirements in 2025 to be largely consistent with 2024.

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 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 changes in our circumstances or unforeseen events, or fund 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 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;

(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.

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:

(a) reducing the outstanding aggregate term loan amounts under the facility from approximately $218.4 million to approximately $153.1 million in exchange for $28.0 million of Series B Convertible Preferred Stock, 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;

(b) resetting the interest rate margin for both tranche A term loans under the A&R Credit Agreement (“Tranche A”) and tranche B term loans under the A&R Credit Agreement (“Tranche B”, and together with Tranche A, the “A&R Term Loans”) to the same applicable U.S Federal Reserve Secured Overnight Financing Rate (“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

(c) 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 remained substantially unchanged, and the new terms went into effect upon the closing of the Exchange Agreement and the issuance of the Series B Convertible Preferred Stock, which occurred on November 13, 2024. The Series B Convertible Preferred Stock was established pursuant to the filing of a Certificate of Designation with the state of Delaware, which certificate set forth the terms of the Series B Convertible Preferred Stock. Upon the filing of such certificate, we issued to the Lenders an aggregate of 28,000.00001 shares of Series B Convertible Preferred Stock with a stated value of $28.0 million. The Series B Convertible Preferred Stock includes a 12% annual dividend rate, which will commence accruing six months after the issuance date, which will be payable in cash or in-kind, solely at our discretion. We have the right to redeem for cash (at any time) or convert the Series B Convertible Preferred Stock at any time, provided that the five-day volume-weighted average price of our common stock is $1.50 or above, with a conversion price floor of $1.50 and a cap of $4.50. Refer to Note 13, Preferred Stock, 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 13, 2025, for further details in regards to the Series B Convertible Preferred Stock.

On March 12, 2025, we entered into Amendment No. 4 to the A&R Credit Agreement (the “A&R Fourth Amendment”). The A&R Fourth Amendment sets the total net leverage ratio levels applicable under the A&R Credit Agreement, once net leverage testing is resumed as of the quarter ending June 30, 2026. For the quarter ending June 30, 2026, the total net leverage ratio will be initially set at 9.00:1.00, reducing over time until the ratio reaches 7.75:1.00 for the quarter ending June 30, 2027 and any subsequent quarter. In the event we prepay at least $15 million of the principal debt under the A&R Credit Agreement, the total net leverage ratio levels are reduced such that they would be initially set at 7.75:1.00 for the quarter ending June 30, 2026, and would reduce over time until the ratio reaches 6.50:1.00 for the quarter ending June 30, 2027 and any subsequent quarter. The other terms of the A&R Credit Agreement prior to the A&R Fourth Amendment remain substantially unchanged.

The stated interest rate of each of Tranche A and Tranche B of the A&R Term Loans as of June 30, 2025 was 10.69%. The stated interest rate of each of Tranche A and Tranche B of the A&R Term Loans as of December 31, 2024 was 11.01%. The effective interest rate of Tranche A and Tranche B of the A&R Term Loans as of June 30, 2025 was 0.77% and 4.64%, respectively. The effective interest rate of Tranche A and Tranche B of the A&R Term Loans as of December 31, 2024 was 1.05% and 4.93%, respectively.

We were in compliance with applicable financial covenants under the terms of the A&R Credit Agreement and its amendments as of June 30, 2025 and December 31, 2024.

On August 11, 2025, we entered into a fifth amendment of the A&R Credit Agreement. Refer to Note 18, Subsequent Events, of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further details.

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 June 30, 2025 and December 31, 2024, our fixed leases were $23.3 million and $25.5 million, respectively, with $7.0 million and $6.6 million due in the next 12 months, respectively. We also have certain finance lease obligations; however, those are not material to our liquidity or capital resources. For further information on our lease obligations, refer to Note 12, Commitments and Contingencies, of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

47

Cash Flows from Operating Activities

The decrease in net cash used in operating activities for the six months ended June 30, 2025, compared to the prior year comparable period, was primarily due to a reduction in net loss of $16.4 million, partly offset by changes in assets and liabilities that had a current period cash flow impact, such as $4.2 million of net changes in working capital and $10.9 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 $7.9 million decrease in deferred revenues primarily due to the timing of revenue recognition, a $3.1 million decrease in accounts payable due to the timing of payments, a $1.7 million lower decrease in inventories, net due to higher inventory turnover in the prior year comparative period as a result of a large sale in March 2024 that did not recur in 2025, a $1.3 million increase in contract assets primarily due to the nonrecurring impairment, modification or termination of certain trademark licensing contracts in the prior year comparative period, and a $1.6 million decrease in other assets and liabilities, partly offset by a $4.9 million decrease in other liabilities and accrued expenses, a $2.5 million increase in accrued agency fees and commissions primarily due to the accrual of a one-time settlement to pay current and future commissions to a licensing agent, a $2.3 million decrease in accounts receivable due to the timing of royalty collections, and a $1.7 million increase 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 $6.8 million decrease in the amortization of debt premium/discount and issuance costs due to the A&R Third Amendment, a $2.7 million decrease in depreciation and amortization, primarily due to the write-off of our internally developed software in 2024, a $1.5 million decrease in amortization of right-of-use assets, a $1.5 million decrease in stock-based compensation expense, and a $1.2 million decrease in impairment charges on our artwork held for sale and right of use assets related to our corporate leases, partly offset by a $1.8 million increase in capitalized paid-in-kind interest.

Cash Flows from Investing Activities

The decrease in net cash provided by investing activities for the six months ended June 30, 2025, compared to the prior year comparable period, was primarily due to a $1.3 million decrease in proceeds from the sale of our artwork, partly offset by a $0.8 million decrease in purchases of property and equipment.

Cash Flows from Financing Activities

The decrease in net cash used in financing activities for the six months ended June 30, 2025, compared to the prior year comparable period, was immaterial.

Contractual Obligations

For the six months ended June 30, 2025, there were no material changes to our contractual obligations from December 31, 2024, as disclosed in our audited consolidated financial statements included in our Annual Report on Form 10-K filed on March 13, 2025.

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 six months ended June 30, 2025, 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-K filed with the SEC on March 13, 2025.

Recent Accounting Pronouncements

Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to our Condensed Consolidated Financial Statements, included in Part I, Item 1 of 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.

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 June 30, 2025 and December 31, 2024, we had cash of $19.6 million and $30.9 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 June 30, 2025 and December 31, 2024, we had restricted cash of $2.1 million and $2.4 million, respectively, of which $0.6 million was held in interest-bearing deposit accounts. 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. 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 June 30, 2025, we have not entered into any such contracts.

As of June 30, 2025 and December 31, 2024, we had outstanding debt obligations of $158.5 million and $153.1 million, respectively, which accrued interest at a rate of 10.69% for Tranche A and Tranche B A&R Term Loans as of June 30, 2025. Based on the balance outstanding under our A&R Term Loans at June 30, 2025, we estimate that a 0.5% or 1% increase or decrease in underlying interest rates would increase or decrease annual interest expense by $0.8 million or $1.6 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 13, 2025.

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, primarily the Australian dollar and Chinese renminbi. 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 months ended June 30, 2025 and 2024, we derived approximately 69% and 54%, respectively, of our revenue from international customers, out of which 45% and 46%, respectively, was denominated in foreign currency. For the six months ended June 30, 2025 and 2024, we derived approximately 67% and 52%, respectively, of our revenue from outside the United States, out of which 44% was denominated in foreign currency during both periods. 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 six months ended June 30, 2025, we recorded an unrealized gain of $1.0 million and $0.3 million, respectively, which is included in accumulated other comprehensive loss as of June 30, 2025. This was primarily related to the change in the U.S. dollar against the Australian dollar during the three and six months ended June 30, 2025.

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 13, 2025.

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.

Management has determined that the Company had the following material weaknesses in its internal control over financial reporting:

Control Environment, Risk Assessment, and Monitoring

We did 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 condensed 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.

Control Activities and Information and Communication

These material 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, lease, debt amendment and preferred stock accounting.
• We did not appropriately design and implement controls over the existence, accuracy, completeness, valuation and cutoff of inventory.

Although these material weaknesses did not result in any material misstatement of our condensed 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 accounting 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 security and change management controls.
• 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 these actions 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 June 30, 2025 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.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, 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, 2024. 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. Other than as disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, there have been no material changes to the risk factors since their disclosure in our most recent Annual Report on Form 10-K.