Q1 2021 Plby Group Inc Earnings Call
[music].
Thank you for standing by and welcome to the first quarter 2021 conference call and webcast for P. L. B Y Group, Inc.
Information discussed today is qualified in its entirety by the form 8-K that has been filed today by P. L. B Y Group, Inc, and may be accessed on the SEC's website.
Note that the press release issued this afternoon and the related form 8-K can be found on P. L. B Y groups website at H T. T. P. Colon forward slash forward Slash Www Dot P. L. B Y G. R O U P dot com forward slash.
<unk> investors.
Today's call is also being webcast and a transcript will be posted to our website.
Please also note that statements we make during this call that are not statements of historical facts, including financial estimates or statements about our plans expectations beliefs or business prospects and other statements that are not historical in nature may constitute.
Forward looking statements under the Securities laws, we make these statements on the basis of our views and assumptions regarding future events and business performance at the time, we make them and we do not undertake any obligation to update these statements forward looking statements are.
Subject to risks uncertainties and other factors that could cause our actual results to differ from historical results and or from mouth for test.
Including those set forth in P. L. B Y groups annual report on form 10-K quarterly reports on form 10-Q and in our other filings with the Securities and Exchange Commission.
For more information please refer to the risks and uncertainties and other factors discussed in P. L. B Y groups FCC filings all cautionary statements that we make during this call are applicable to any forward looking statements, we make wherever they appear.
You should carefully consider the risks uncertainties and other factors discussed in P. L. B Y groups FCC filings do.
Do not place undue reliance on forward looking statements, which we assume no responsibility for updating.
Hosting today's call are being Cohen, Chief Executive Officer, Rachel Webber, Chief brand Officer, and President of corporate strategy, and Lance Barton Chief Financial Officer, I will now open the call to be in Cowen Ben. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to our conference call to discuss P. L. B Y groups first quarter of 2021.
We are pleased to report a fantastic quarter and excited to share with you today. The progress we've made executing against our growth plan. We remain focused on building our business for the long term superior growth, making decisions that will not sacrifice long term growth for short term quick wins are you at U S E Commerce business.
Off to a tremendous start in 2021, our licensing partnerships are thriving while we've made good progress optimizing the business for greater long term participation and our team has moved quickly to advance new business development opportunities, including our extremely successful first Nf T art drop that took place just last week generating <unk>.
Almost $1 million in sales in 24 hours.
While we are still in the early innings of a roadmap and business transformation I'm very proud of the hard work and progress made by the team globally as we build on the power of our flagship brand and massive reach to deliver the pleasure lifestyle to consumers around the world.
On our last earnings call, we discussed our three part growth strategy first expanding our U S direct to consumer business. Our goal is to capture 100 cents on the dollar spent by consumers on their apparel sexual wellness and other lifestyle products versus five to six cents capture through previous licensing partnerships.
Optimizing our international business through global licensing partnerships in key regions and categories and third pursuing new and emerging business opportunities that we believe will accelerate our long term growth trajectory and generate significant returns over a three to five year time horizon.
All three areas, we marked strong progress in Q1, driven by the significant momentum of the Playboy brand with a new generation of consumers.
In direct to consumer we achieved triple digit year over year growth of 114% in Q1 on the Playboy website updates to navigation and homepage design to focus on shopping combined with increasing depth inflection and the product offerings late in Q1 saw an increase in conversion rate by 60%.
Month over month from February to March we are continuing to see an increase in conversion rate as we enter into Q2, and we continue to improve the customer experience. In addition, it's worth noting this growth was achieved despite supply chain and other stock constraints. We continue to face as a result of COVID-19 and we believe <unk> would have.
Produced even more growth in the first quarter were it not for the continued global pandemic impacts.
One of our major priorities is launching our owned and operated product collections and we've been very encouraged by the success of our recent in house designed apparel lines, including our monthly cover collection drops our Valentines day line, our spring unnatural collection as well as our cross divisional collections, such as our Playboy and year in the spring.
And swim lines. We are also now capturing consumer spend from our collaborations on our owned and operated sites, which in Q1 featured high profile partnerships, such as Haddon labs jewelry, Olympia with Tan accessories and of course high performing collections from our partners at Pac Sun and misguided.
I often get the question, who is the Playboy consumer today, and I think thats answered perfectly by who is spending money with us directly on their site nearly 80% of our consumers are under the age of 44, roughly 65% are under 34 50.
55% of our e-commerce revenue in the first quarter came from female consumers My daughter show me Tictoc videos, all the time of Influencers wearing their products and their videos and we're thrilled by how frequently we see celebrities organically wearing the rabbit.
Incredibly proud of the brand work, we have done over the past few years to achieve our goal of strong strongly resonating with a culture driven contemporary audience.
We also have great work happening behind the scenes under the <unk> operations and infrastructure are P. L. B Y group data science team rolled out a new recommendation engine that we are first testing other yearly platform and based on very positive results, particularly in growth, we will be implementing these capabilities across our network of sites.
In Q2, we also unified the back offices of E&E lovers, and Playboy digital operations and centralized buying under one umbrella for sexual wellness critical first steps for integrating operations and realizing the synergies of our portfolio brands and marketplaces and lastly, other direct to consumer business I wanted to call out the strong perm.
<unk> at our levers brick and mortar locations as restrictions are easing and perhaps with an increase in dating average transaction sizes were up big in March.
Which was the first official month of <unk> Y group ownership.
Onto our licensing operations in the first quarter, we closed several new nonexclusive licensing deals to augment our lifestyle offerings, including here in grooming tools for men and women.
Costumes as well as additional home and fashion accessories partners, which will launch later this year in China, Our digital Commerce business continues to grow as we sold more than $36 million apparel pieces online in Q1, 2021, a strong year over year comp against COVID-19 impacted 2020 sales.
At our March Playboy Activewear buyers meeting in China, our new Playboys physical apparel and footwear collection was well received a testament to the great work of our on the ground product design team that created designs inspired by the global Playboy style guides as we continue to progress towards a cross border style unification of the brand.
Our new Playboy Kids apparel line in China is off to a good start as well the collection is being merchandised in store and online with the likes of Pink Panther apparel, and DC Comics apparel and our partners have plans to open the first Playboy kids apparel brick and mortar store in Shanghai later this year and lastly in Q1. This year, we ramped up a new play voice.
Social media strategy in China in partnership with a leading marketing and social media agency in the region.
The effort includes content marketing under brands official social media channels, and we do wechat and <unk> as well as product marketing content partnerships with more than 20 meet social media influencers or kols as they are known in the region.
This is an important step in our long range, China strategy to build direct consumer relationships and rollout owned and operated products.
This brings us to the development and launch of new and emerging businesses that we can invest in today to accelerate and expand our revenue growth over the long term.
We recently completed a renegotiation with our fragrance licensing partner to take back all of her beauty grooming skin care and Bath rights. This now allows us to exploit these product categories as an owned and operated business versus a licensing business as was contemplated in our five year business plan, we believe the revenue growth.
Unity for us will be multiples of what we had previously targeted in our five year plan, we have already begun the incubation and creative development of our cosmetics line and now we are well positioned to expand those collections with more skincare Bath and grooming Skus. We are looking at 2022 launches of those product offerings.
But we're investing now to bring high quality well designed products to market in a big way deserving of the brand.
We are deep in development of our higher end big Bunny lifestyle apparel and accessory collection, leveraging the iconic big Bunny Playboy plane and simultaneously developing a unique go to market content experiential and Influencer strategy that we believe only the Playboy brand can drive and of course as I mentioned at the start.
We're thrilled by our successful entry into the MST our community our first drop in collaboration with the artist line Sunday to create six original works created huge buds sold out in less than three minutes and generated almost $1 billion in sales, including a single piece auction in 24 hours for 200.
$50000 with so encouraging is that these six original new pieces.
To the infinite possibilities of what can be created from our price list archive and all of this requires taking no inventory and no capital risk. It is also very exciting to see strong secondary market sales of the collection speaking to the power of the brand and the wealth of IP and also demonstrating the long term potential to participate.
In the downstream economics, as we rollout more and more blockchain powered products.
Of course, the biggest question. We are hearing is what's next and entities. So I want to share how we're thinking about what <unk> means for Playboy and the P. L B Y group and.
<unk> themselves are not a strategy. The strategy. We are developing is how do we leverage new technology, including blockchain technology immersive virtual worlds digital goods and <unk> processing capabilities to create the most innovative desirable consumer experience that people around the world.
Want to engage with want to spend money on and want to keep spending money on we expect this will manifest in more NFC art drops absolutely.
Perhaps more importantly, this could manifest in collectible offerings with gaming mechanics, virtual worlds imagine the potential for a virtual Playboy mansion or a virtual mid summer need Scream party the intersection of our physical goods with digital goods loyalty programs built on blockchain technology and so much more from a.
<unk> perspective, we are not even in the first inning of this space. The way we think about it internally is that we are still in the Dialup era of this internet and technology exclusion and our opportunity right now is to capture early mover advantage. We know we have the right brand a brand that people want to wear on their sleeve in the physical world that they want to wear on their sleeve.
In the digital World, we have an embarrassment of riches and archived from which we can create never ending new creations and experiences and we have internal culture that allows us to move quickly I've never been more excited about the future for our company and our ability to expand the lifestyle of pleasure in leisure across physical and digital worlds.
And lastly in the area of new business development M&A as we have demonstrated our team is uniquely positioned to source and execute accretive deals and move swiftly to integrate operations.
Over the past few months, our M&A pipeline has only increased and to the extent, we can use M&A to accelerate our growth strategy through attractive economics, we expect to close additional deals this year with that I'm going to hand, it over to our Chief brand officer, and President of corporate strategy, Rachel lever to speak.
Further on our brand and our new business development initiatives.
Thanks, Dan it's been such an exciting start to the year and we're thrilled by the opportunities ahead.
To follow on from Ben discussing of NSP I wanted to share a bit more on our first job launch strategy and what we have coming up.
Mentioned in our previous call Playboy's incredible legacy serving as a platform for our day positions us perfectly to continue that work today.
To that end, we believe the best way to introduce ourselves and the Playboy Brad to the NSP community.
By tapping into that Cherokee and creating a collaboration with a digital artists who had already been doing firing and successful work in the MMP RFP, but it was also worked with US before know magazine, who shares our sensibility for pushing the boundaries of artistic expression, which is how we chose the collage artist line Sunday.
Nifty Gateway is of course, a premier platform for NFC artists today and provided a great way for us to get to know the amazing community of NFC artists and collectors.
We were also very excited to partner with essential to create Cleveland's first met a very experienced a virtual gallery launch party our liquid summer collection featured a D J.
Low another huge innovator in this day.
We're thrilled by the results from our first drop of six new original work and sales incredibly welcomed by the NSP community.
As already announced net that will be partnering and IP gateway theory of price teamed dropped in Canada and also in June we are excited to share today that will be showing up at the Bitcoin conference in Miami.
All collection of NFC arent for sale there is low.
From there as Ben mentioned mentioned, we are focused on building first mover advantage and to that end. We are working on building our collectible strategy base. We believe we are uniquely positioned with our vast archive and network of talent relationship.
The virtual and merchandise.
Playboy experiences and more.
We plan on leveraging our men's archive cross partner platform.
Also just as we are building direct connections with our fans. There are owned and operated apparel line our own ecommerce site we.
Expect to see the integration of NFC sales capabilities into Playboy branded environment.
This is a fast moving space and we expect to have activation, both big and small throughout 2021, as we work to integrate blockchain powered and new digital experiences into everything we do.
I also wanted to touch on our big money.
The Playboy brand is bigger today than it ever has been before but one of the areas that we don't have today that we had in previous decades was the ability for celebrities and influencers to experience the brand in person on an ongoing and regular basis.
So the big money clean line.
Become a small financing.
Aging and influential crowd on a site and also taking them to those live experiences such as our Q4, alright, Bob from Miami Marion for planning.
We also believe that heading into the second half of 2021 and for the next few years consumers will be craving experiences more than we.
We expect that the big money will be an aspirational simple, we're living like display and living our lifestyle. So on expenses.
As Dan mentioned, we're also deepen the development on an actual big Bunny product line, which we intend to start to roll out in Q4. This year. We are working with Lewis your line the fashion and retail veteran who founded the fashion line and domestic and international retail chain Oak, which he and his partner sold to American apparel Arthur.
Election will contain a mix from fashion travel accessories, and other lifestyle project targeting mckool older sister or brother of our mainstream Playboy consumer.
We envision the constant pattern from the big bundle as an always on marketing campaign for that product line as well as serving as a halo for everything we do across the Playboy universe.
And before I hand, the call over I want to share an update on our social impact for.
We're proud that we continue to provide a platform for voices that are furthering conversation about freedom of speech, social Justice and Rachel gender and sexuality equality.
This February we published the Playboy symposium on rate featuring an array of social justice and cultural.
As well as a special edition of the Playboy interview with Jim now Hal.
This June.
Watson will feature designed by artist representing the LGBTQ Clos in Allied.
With proceeds from that collection is reporting on the ground organization.
Total impact work is core to play with DNA and we will continue to invest in connecting with audiences on these crucial closet.
With that I'll hand, the call over to my colleague Lance Barton, our Chief Financial Officer.
Thanks, so much Rachel as you've heard the business is off to a great start this year as we continued to drive strong topline growth through our increased direct to consumer revenue.
Revenue in the first quarter increased 34% year over year to $42 $7 million or direct to consumer segment continue to standout as a high growth business, reflecting both the strength of our offerings and sexual wellness and style in apparel.
Direct to consumer revenue grew 114% year over year growing from $10 3 million in Q1 of last year to $22 million in the first quarter of 2021.
The growth was driven by improvements at both our yen and Playboy ecommerce website, along with one month of revenue contribution from the acquisition of <unk> starting in March in fact, the improvements that have been made since our new Chief Digital officer joined US in February ended up leading into March being our highest monthly revenue on Playboy.
Dot com yet March revenue was better than any month during the Q4 holiday shopping season, and was 80% higher than our average revenue in January and February.
All of this strength, we believe that direct to consumer revenue would have been even higher in the first quarter were it not for the continued supply chain disruptions that we've talked about on average roughly 15% of the Andes top selling products were out of stock during Q1 due to congestion at the port that has limited our suppliers' ability to.
Adhere to our restocking schedules.
Disruptions have persisted into the second quarter, but as the courts continue to clear at we see this issue being remedied and we expect our out of stock to return to more normal levels, most likely by the third quarter.
On the licensing side, we continue to see tremendous demand for Playboy branded Street wear.
<unk> licensing revenue grew 426% year over year.
In China licensing revenue also grew due to the recent expansion we've had in the kids wear.
It's also worth noting that a year ago, we terminated a licensing agreement, which resulted in the accelerated recognition of $1 8 million of revenue in Q1 of 2020.
This caused the licensing revenue to show a $667000 year over year decline in revenue on an as reported basis in Q1 of this year.
If you exclude that impact licensing revenue would have grown 8% year over year and total company revenue would have grown by 42% instead of the 34% that we reported.
We're also pleased to say that gross margin improved in the first quarter by 344 basis points. The main drivers of that were the following.
The success of our recent in House designed apparel line, then had alluded to an overall increase sales of lingerie, which provides better gross margin for US and then also an improvement in shipping costs as a percentage of revenue.
And while we experienced the net loss in the first quarter of $5 million largely due to $3 5 million of stock based compensation and $6 3 million of nonrecurring items related to the spec merger and costs related to setting up <unk> group as a public company when we reported adjusted EBITDA of $6 7 million.
<unk> it.
It's important to call out that our adjusted EBITDA was burdened by $1 5 million of M&A related costs severance costs and the cost of COVID-19 testing at our fulfillment center.
While these costs are related to onetime events and what have historically been added back to EBITDA. We believe theyre, an ongoing cost of executing on our business strategy and we have not adjusted for these items in Q1 and don't intend to adjust for items like this going forward.
Additionally, our expense base grew on a year over year basis, just due to the costs of being a newly public company items, such as D&O insurance.
Turning now to the balance sheet. We ended the first quarter with a cash balance of $70 million and $158 million of long term debt.
I'd also like to report that we've made very good progress on refinancing our existing debt and expect to complete the process soon which we believe will result in approximately $10 million of annual savings in interest expense and debt Paydown.
Before I wrap up I want to briefly touch on our outlook.
As I mentioned on the last call. We are focused on our long term growth strategy and accordingly, we only plan to provide a full year financial outlook at the beginning of each year.
We're not going to update our outlook quarterly unless there is a material change in the trajectory of the business.
What I will say is that given the strength of our Q1 results and the success of our first NSP art drop we have even greater confidence that we are well on our way to exceeding $200 million of revenue this year.
With that I'd like to ask the operator to please open the line for questions.
Thank you, ladies and gentlemen to ask a question on the phone line you will need to press. The Star then the one key on your Touchtone telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
No first question coming from the line of Aston motto with Canaccord. Your line is open.
Hi, Thanks for taking my questions.
Can you walk through the gross margin profiles.
Licensing and your DTC segment separately, just give us a better idea of what that blended rate might look like in the future as the mix changes.
Sure I can I can take that and Lance thanks Austin.
So we don't break it out that Granularly as you might expect the gross margin on licensing is going to naturally be higher.
And direct to consumer.
But again as we as we grow direct to consumer which you saw this quarter. We ended up growing our gross margin profile as well because where we're selling more lingerie, we're getting better in terms of the effectiveness of our shipping and we're also selling more of our owned and operated products our own.
Lection, so those things all improve the margin profile of.
Direct to consumer so while direct to consumer it's going to contribute lower gross margin than than licensing, we still think that there's room to improve that over the longer term.
Ben do you want to add anything.
Often spend so let me just add one other thing too and I think we've talked about this in the past that.
As we grow the company the incremental cost of investing in the brand do not do not grow alongside the growth in revenue and so one of the things as we continue to transition this business model from that of only licensing to that of owned and operated.
Is your fixed costs.
We will grow but they don't grow nearly like your revenue is growing and so therefore youll start to see margin improvement.
Going forward as well.
Got it okay. Thanks for that.
Within DTC revenue can you talk about specifically, how you A&D grew on a year over year basis.
So again something that we don't disclose that level of granularity, but the way to think about it is that.
Q1 of last year, we didn't have those COVID-19 impacts in E&E really accelerated.
As did a lot of e-commerce business is right starting in the second quarter, so year over year growth again, Andy was.
Very strong Q1 this year because.
You hadn't had that acceleration from COVID-19 yet.
But you also had huge growth at Playboy Dot com pleasure for all which we've talked about a little bit on the call and even levers if you look at that on.
On a year on year basis that business grew quite nicely as well. So we're really growing direct to consumer across all front the second quarter. The comp for you Andy in particular gets tougher because thats when it it really started to ramp revenue last year as shifting.
Sorry is spending shifted from <unk>.
In person retail to online.
But we still think that Theres a lot of room for improvement in growth there.
Okay.
And then lastly, you mentioned Influencer marketing in the press release.
Was that is that a paid initiative or is that more like earns marketing and can you just talk about how you think about your.
Advertising investment.
More generally.
Yes, so Austin, it's Ben it really depends on the platform.
And so we've done drops with on the roads, we've done the Playboys collection at M D.
What I would tell you is we're really excited moving forward by the Influencer and celebrity outreach to us and either there are certain things that we'll talk about it in the future.
With partnerships going forward.
As we look to expand our collaborations with celebrities we've talked previously about taking back Playboy labs in house.
In doing collaborations, where we really becomes a license or versus the licensee.
And so I'm not I know I'm not answering that question directly because it's not something we disclose but what I would tell you is that we're very encouraged by what we're seeing from the artists and celebrity community.
But then correct me if I'm wrong. When you you alluded to the Tech Talkers that you see I don't I don't believe we're paying for that that's all organic right.
That's correct, we don't we don't pay today for the celebrities.
The Bella Hadid.
Uh huh.
And everyone else wearing our clothing that is all organic today.
Got you okay. Thanks for taking my questions and congrats on the quarter.
Thank you. Thank you.
Yeah.
And our next question coming from the line of George Kelly with Roth Capital Partners. Your line is open.
Hey, everyone. Thanks for taking my questions.
So just to start you gave a lot of the metrics about Playboy Dot com I think.
All written down but.
About the acceleration you saw through the quarter and this big March.
So curious if there was a certain collection or product or something that was leading net.
And what have you seen.
Most of the quarter is that kind of momentum continued.
Thanks, George So so the momentum has continued into April and there's really no specific drops I mean been correct me if I'm wrong. If there were any specific drops on Playboy dot com, but I don't believe there was anything driving that we think it is really attributed to what I'd say.
Renewed focus.
Net as we brought on a new Chief Digital officer really started to work on optimizing the platform and the customer experience. So this things is like Hey, we think if you like this maybe you you should try buy in this as well and that drove real meaningful growth like I said March with our our highest revenue.
Yet on Playboy dotcom higher than any month during the holiday shopping season April was even better than that so really it's around optimization and just continuing to get better at what we do.
George I'll add to that it's been.
It's continuing to expand our product offerings, so again, Kevin joined us.
We certainly.
Already great navigation improvements, there's a lot more room to grow there and then we will continue to expand.
Product offerings as Rachel alluded to in her comments also integrating blockchain and his key opportunities throughout our own website moving forward, but what's great to see is the conversion as we've migrated our audience from that of the media audience to that of ecommerce audience.
We are beginning to hit our stride in fact, one of the frustrating things for me as CEO actually and I think we have talked about this at <unk>, but we have the same issue even that Playboy dot com, where we sold out of a lot of items and so demand.
Far exceeded the amount of supply that we had.
And those are things that as we continue to transition to add more skus and develop the internal data that we'll get better at better out in the future. So it's great to see that our audience and the customer spend and demand is there.
It's now just making sure that we match the right product.
Quantity with them.
Okay, Okay and then.
But you also mentioned in your prepared remarks that you are getting.
Getting ready to take back certain businesses, I think cosmetics and grooming there were a few others. So curious what's the current size of those businesses.
The license deals how much revenue are they producing from the licensees.
And what are you doing to get to get those businesses ready.
I'm guessing, it's hiring and just kind of where are you in that process.
Sure so actually.
It's really defined as class III products and so this is an old licensing deal.
Predates me, where all of these rights around outside of outside of color cosmetics everything else around skincare beauty et cetera, we're all tied up.
And that was really with our fragrance partner and so the fragrance line of products will continue with our partner, but we've taken back all of these other categories and we are now looking to exploit those if you look at our five year business model that we published when we raised the pipe and did this destocking transaction the growth in that.
As I believe was about $11 million or so over five years was deemed to be all licensing revenue.
I think we said in the remarks, we see that as multiples of that moving forward on a global basis around these categories and what we know is the demand of our consumer for these products from us so to start with color cosmetics and they can have Rachel.
Chime in here, but we have already started the development of our color cosmetics line and we expect that to launch in the first quarter of 'twenty in 2000, and 2022 and.
And so we're excited about.
About that and really what long term taken out $11 million of forecasted revenue growth and turning that into multiples moving forward.
Okay great.
Rachel just to add on there.
It's really the creative development.
Of the the product line.
Figuring out exactly which skus, we're launching with developing our distribution strategy. So we're underway on that and excited to branch market in 2022, and George just to hear too. These are products that have superior gross margins moving forward and so.
We know we have a customer base digitally today through our licensing partners et cetera that want to buy these products from us.
Okay, Great and then last <unk> last question from me a modeling one.
Sure.
The core opex in the quarter SG&A.
Is that a good run rate going forward or are there any kind of onetime.
Stock based comp things as you're hiring people or can you help at all there.
Yes, I mean, obviously there was a lot of one time events in the first quarter just given the stack.
Merger at that point in time.
The SBC really I think three little over $3 million of SPC in the quarter was directly related to the acceleration of all the the old grant so that happened.
Completion of the of the merger so that is obviously a onetime in nature.
You had around $6 3 million.
Spak related cost.
Everything from from deal fees to retention bonuses and the like.
So that was also unique and one time, we also.
<unk> done the levers acquisition in the first quarter. So when you think about.
Cost there related to rep, and warranty insurance legal costs.
Diligence costs all of that that was that was running you.
$115 million there.
So there was a lot of stuff in the first quarter, because we had just completed.
The business combination so I don't expect that run rate to be that high going forward now having said that there are obviously other things that we need to do going forward.
That we intend to do as we kind of set ourselves up for future success like we've said, we're investing now for future growth.
So going back to what Ben was talking about in terms of developing our our color cosmetics, we're going to have to to ramp spend there were.
Obviously as we continue to make these improvements across.
A&D levers in Playboy Dot com on the E comm side, we're going to be upgrading and building out those systems that are marketing capabilities. So that we can become more efficient and more optimized same thing on the on the financial reporting side I just got here a couple of months ago, and we want to we want to work on upgrading our systems there.
Get us better get us ready.
The quicker we grow we're going to become an accelerated filer quite quickly and we need to be responsive to that we've also got a.
Come in compliance costs around Sox and 404 compliance. So there's a lot of different things that will be coming up that didn't hit in the first quarter.
So I'd say, what you saw in the first quarter. There was a lot of one time items, but I do see more expense kind of coming down the pipe. This year as we set ourselves up for future success.
George the only thing I would add to that too and this is a decision we've made as a senior team.
Lance alluded the student is remarks.
We are doing everything for the long term here.
Trying to make the right long term decisions. It's the same reason, we could've easily added back like we did as a private company a million and half dollars of those one time cost to EBITDA, but we're not we are literally tied.
Try to run this as clean as possible and the only thing being added back to EBITDA is really extraordinary events or SBC.
Okay.
The other thing I'd, just add on top of that if you strip out kind of all of those kind of onetime costs I alluded to this fact, the acceleration of the SBC. The M&A related cost. Your your actual SG&A costs grew less than your revenue I think it grew something around 24% year over year. So the actual costs I mean, while there.
They're not growing as fast as revenue.
Alright, thank you.
Thanks George.
Sure.
Okay.
And our next question coming from the line of Alex from <unk> with Craig Hallum Capital. Your line is open.
Great. Thanks for taking my question I wanted to ask about the supply chain issues that you mentioned.
In your prepared remarks, I mean, it sounds like you can see a light at the end of the tunnel there when do you envision being fully back in stock and then looking ahead, a little bit are there any concerns about your ability to have the right inventory in stock ahead of the key Halloween season for you.
So we've been looking at it.
We see good signs that the supply chain issues will improve as we entered Q3.
Hope right now is that kind of in July we should be we should be in much better shape and that obviously puts us in good shape ahead of Halloween arguably we'd be in much better shape than we were last year for Halloween 2020, which ended up being.
A tremendously successful season for us so.
We feel good about it as these issues resolved, but we're still facing some challenges here in the second quarter, we have.
It's not a huge category on A&D, but one of our drop ship choose suppliers on A&D is effectively shut down for right now.
Due to COVID-19 and so we're really out of stock on about 75% of our shoes. If you. If you actually go and I was looking earlier today, we have.
Around 1300 shoes available on Andy you start sorting by size and that number dwindles quite quickly. So we're really constrained in certain areas right now shoes kind of being the most acute one on A&D, but again the hope is that these kind of resolve themselves in the coming.
<unk>.
Great. That's helpful. Thanks, and then just I guess, taking kind of added to the direct to consumer theme. It seems like all of your brands.
Yeah, Andy levers pleasure for all Playboy Dot com and all of these.
To be showing some really nice growth.
We haven't really seen a whole year of quarters historically for the whole business certainly not for lovers.
Just kind of frame up for us a little bit I would imagine all of these businesses do.
Do a lot of business around Halloween Valentine's day and holiday season.
Should we be thinking about kind of their contribution to the business in the <unk>.
Middle quarters of the year, where you don't have these holiday boosting the results.
Sure.
Take that as well.
And you are right.
Break it down kind of by.
By channel here, so levers you usually see that its biggest month in January and February leading up to Valentine's Day, and then also.
December you Andy as we talked about certainly really big around the Halloween season also big cleanup.
Into into Valentine's day, similar to levers and then the holiday shopping season, not surprisingly across everything Playboy.
And lovers.
Always is always strong.
Yeah look it's our goal to create more occasions for the Andean leveraged businesses going forward.
To try to pick up.
More revenue in the second and third quarters.
One of the things I would also point to is that when we when we do more frequent product drops or when we do these playboy branded collections like we did with Lana roads, we actually can can have holiday like buying patterns. Because these are unique one time events that can.
Drive growth so to the extent that we can do more of these collaborations more of these drops.
Those who have been nice for us to launch in what I'll call. The the off season also on Playboy Dot com as we continue to ramp that and we haven't really talked about it as much on this call, but I know we mentioned it last quarter.
You look at our street wear business Pac Sun and misguided our partners there have been.
Continuing to experience tremendous growth on Playboy branded products and we're now selling those through Playboy dotcom. So again.
You would expect us to also increase in the fourth quarter and the holiday buying season, but it's still one of those things that could be strong year round and again could be supplemented if you do.
Collaborations or drops or the Playboy labs.
And Alex it's done I will just add I'll add two things. We also just launched Playboy swim.
So.
As as we move forward.
We have made some relate stream that were planning something for this summer in July.
As a driver it's a historical very famous Playboy party that we're exploring.
Thinking about it both from a digital or virtual perspective, as well as for in person now that COVID-19 restrictions are easing in this country.
Just to add one other thing on the stock issues that we talked about the other area of the business that was impacted in the first quarter by that was still our gaming business.
Both for online.
Gaming as well as our physical casino and so hopefully as COVID-19 continues to improve in most of the world that business will continue to normalize from returned to a growth business moving forward as well.
Great. That's really helpful. Thank you both.
Thanks Al.
And our next question coming from the line of Greg <unk> with Sidoti Your line is open.
Hey, guys. Thanks for taking my questions just real quick on the balance sheet just looking at inventory.
I guess sequentially from year end I'm, just trying to get a grasp on that I'm sure levers accounts for some of that but you're mentioning lean stock outs as well. So just trying to as you are growing your DTC business, how should we be thinking about inventory I guess on a go forward basis throughout the rest of it yet.
Yeah. Thanks for that Gregg, So youre, absolutely right I mean, we brought on a new business with inventory in the first quarter. So that's why you see the increase there when you think about kind of the the inventory patterns right, we do start to build inventory.
Around this time of the year and kind of through the summer as we prepare for the holiday shopping season and for Halloween. So inventory does build and then you end up selling a lot of that.
Through the end of the year.
Great and then just one more I guess just on the beauty grooming products.
Did you guys say earlier the fragrance side of things is going to continue as a licensing partner chip and the rest is going on at the operated did I hear that correct.
That's correct, so our fragrance partner ex ADP relaunched.
Last year in Europe.
But the rest is the category, which is really historically defined.
Defined as class III products had all been encumbered, but they were not exploiting them.
And so we took those those all back in house now and then we will look to exploit them and that's obviously a pivot in our business model from what was previously put out there with the five year forecast as part of the spark transaction, which I think at the time called for about $11 million of revenue growth over five years.
In that category that assumption at the time was all that all that it would all state licensed.
And today, we believe theres an opportunity to grow the revenue of that multiples of what we had previously been forecasting moving forward as we rollout these products.
And on the fragrance, we expect that the new make the cover fragrance line. The relaunched collection will enter the U S.
Coming months as well.
Okay, and then just on that topic, just real quick so it was relaunched I think if I'm not mistaken in Germany and is it at a higher price point and can you just kind of talk a little bit about if that is correct.
How it went in Europe when it comes to the U S.
Right. So it was relaunched in both Germany, and the U K and it was at a higher price point and.
Given COVID-19 it did very very well and we're encouraged by what we're seeing from a data perspective on it.
But again I think.
As they come to the United States It can be great.
For not only our business for everyone to get past past. This COVID-19 issue and have things returned to normal so.
So we're encouraged by the early success of it so far.
Okay, Great. That's helpful. Thanks, a lot.
Thanks, Greg.
And our next question coming from the line of George Kelly with Roth Capital. Your line is open.
Maybe maybe George dropped out there George.
Sorry about that can you guys hear me now yeah.
Yes.
Okay, great. So thanks for taking a quick follow up just wanted to make sure I heard you right when talking about the refinancing. So is it $10 million of interest savings and does that mean, you are looking to pay down a substantial portion of your debt through this refinancing.
The bulk of it I mean interest as part of it but it's also just the amortization requirements. So the total debt service is going to be around $10 million savings interest and the required pay down every year.
Okay, George it's been the only other thing I'll add to that with the facility as it is a much simpler facility than what we had as a private company.
Also have a day.
Accordion feature built into the facility given the M&A as part of our strategy moving forward, where we can obviously.
Prudently borrow more money to fund certain M&A deals should we want to.
Depending on.
Depending on the deal the size of the deal et cetera. So it's a facility that will result in not only interest savings, but also amortization savings moving forward.
Okay. Thank you.
That's all the time, we have for questions and answers for today, ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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