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Commitments and Contingencies
 9 Months Ended
Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Leases
As of September 30, 2023 and December 31, 2022, the weighted-average remaining term of our operating leases from continuing operations was 5.4 years and 5.8 years, respectively, and the weighted-average discount rate used to estimate the net present value of the operating lease liabilities was 6.9% and 5.8%, respectively. Cash payments for amounts included in the measurement of operating lease liabilities attributable to continuing operations were $2.4 million and $1.7 million for the three months ended September 30, 2023 and 2022, respectively, and $6.7 million and $6.5 million for the nine months ended September 30, 2023 and 2022, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities were $1.9 million and $1.2 million for the three months ended September 30, 2023 and 2022, respectively, excluding $0.1 million and $2.2 million, respectively, of right-of-use assets related to assets held for sale. Right-of-use assets obtained in exchange for new operating lease liabilities from continuing operations were $4.3 million and $5.0 million for the nine months ended September 30, 2023 and 2022, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities attributable to discontinued operations for the nine months ended September 30, 2023 and 2022 were $1.0 million and $4.4 million, respectively.
In conjunction with the sale of Yandy in the second quarter of 2023, we entered into a sublease agreement with the buyer of Yandy in relation to its warehouse and office space for the remaining term of the lease, which expires in 2031.
Net lease cost recognized in our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 is summarized in the table below (in thousands). The table excludes TLA’s total net lease cost of $0.4 million and $3.5 million for the three and nine months ended September 30, 2023, respectively, and $1.5 million and $4.6 million for the three and nine months ended September 30, 2022, respectively, which is included in discontinued operations in the unaudited condensed consolidated statements of operations.
Three Months Ended September 30,
20232022
Operating lease cost$2,054 $1,381 
Variable lease cost371 228 
Short-term lease cost387 492 
Sublease income(202)(65)
Total$2,610 $2,036 
Nine Months Ended September 30,
20232022
Operating lease cost$5,873 $5,146 
Variable lease cost1,116 594 
Short-term lease cost1,678 1,417 
Sublease income(467)(194)
Total$8,200 $6,963 
Maturities of our operating lease liabilities as of September 30, 2023 were as follows (in thousands):
Remainder of 2023$2,340 
20248,783 
20257,701 
20267,211 
20274,939 
Thereafter9,353 
Total undiscounted lease payments40,327 
Less: imputed interest(7,631)
Total operating lease liabilities$32,696 
Operating lease liabilities, current portion$6,906 
Operating lease liabilities, noncurrent portion$25,790 
Legal Contingencies
From time to time, we may have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.
AVS Case
In March 2020, our subsidiary Playboy Enterprises International, Inc. (together with its subsidiaries, “PEII”) terminated its license agreement with a licensee, AVS Products, LLC (“AVS”), for AVS’s failure to make required payments to PEII under the agreement, following notice of breach and an opportunity to cure. On February 6, 2021, PEII received a letter from counsel to AVS alleging that the termination of the contract was improper, and that PEII failed to meet its contractual obligations, preventing AVS from fulfilling its obligations under the license agreement.
On February 25, 2021, PEII brought suit against AVS in Los Angeles Superior Court to prevent further unauthorized sales of Playboy-branded products and for disgorgement of unlawfully obtained funds. On March 1, 2021, PEII also brought a claim in arbitration against AVS for outstanding and unpaid license fees. PEII and AVS subsequently agreed that the claims PEII brought in arbitration would be alleged in the Los Angeles Superior Court case instead, and on April 23, 2021, the parties entered into and filed a stipulation to that effect with the court. On May 18, 2021, AVS filed a demurrer, asking for the court to remove an individual defendant and dismiss PEII’s request for a permanent injunction. On June 10, 2021, the court denied AVS’s demurrer. AVS filed an opposition to PEII’s motion for a preliminary injunction to enjoin AVS from continuing to sell or market Playboy-branded products on July 2, 2021, which the court denied on July 28, 2021.
On August 10, 2021, AVS filed a cross-complaint for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit and declaratory relief. As in its February 2021 letter, AVS alleges its license was wrongfully terminated and that PEII failed to approve AVS’ marketing efforts in a manner that was either timely or that was commensurate with industry practice. AVS is seeking to be excused from having to perform its obligations as a licensee, payment of the value for services rendered by AVS to PEII outside of the license, and damages to be proven at trial. The court heard PEII’s motion for summary judgment on June 6, 2023, and dismissed six out of 10 of AVS’ causes of action. AVS’ contract-related claims remain to be determined at trial, which is set for September 30, 2024. The parties are currently engaged in discovery. We believe AVS’ remaining claims and allegations are without merit, and we will defend this matter vigorously.
TNR Case
On December 17, 2021, Thai Nippon Rubber Industry Public Limited Company, a manufacturer of condoms and lubricants and a publicly traded Thailand company (“TNR”), filed a complaint in the U.S. District Court for the Central District of California against PEII and its subsidiary Products Licensing, LLC. TNR alleges a variety of claims relating to the termination of a license agreement with TNR and the business relationship between PEII and TNR prior to such termination. TNR alleges, among other things, breach of contract, unfair competition, breach of the implied covenant of good faith and fair dealing, and interference with contractual and business relations due to PEII’s conduct. TNR is seeking over $100 million in damages arising from the loss of expected profits, declines in the value of TNR’s business, unsalable inventory and investment losses. After PEII indicated it would move to dismiss the complaint, TNR received two extensions of time from the court to file an amended complaint. TNR filed its amended complaint on March 16, 2022. On April 25, 2022, PEII filed a motion to dismiss the complaint. That motion was partially granted, and the court dismissed TNR’s claims under California franchise laws without leave to amend. A trial date has been set for May 14, 2024. We believe TNR’s claims and allegations are without merit, and we will defend this matter vigorously.