Q2 2021 Plby Group Inc Earnings Call

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Thank you for standing by and welcome to the second quarter 2021 conference calls for T O B Y group incorporated.

The information discussed today is qualified in its entirety by the form 8-K that has been filed today's I P. O D. Like group incorporated which may be accessed on the S. E. C website N P O B Y group's website.

This call is also being webcast and a replay will be posted to be of the wife's upset.

Please note that statements made during this call, including final financial projections or other statements that are not historical in nature may constitute forward looking statements such statements are made on the basis of P. L D y views and assumptions regarding future events and business performance.

At the time day roommate.

And we do not undertake any obligation to update these statements.

Forward looking statements are subject to risks, which could cause <unk> actual results to differ from its historical results and forecast.

Including those risks set forth in P. L D wise filings with the S. E C and you should refer to and carefully considered as those for more information.

These cautionary statement applies to all forward looking statements made during this call do not place undue reliance on any forward looking statements.

Hosting todays call are Ben Cohen, Chief Executive Officer.

Rachel Webber Chief brand Officer, and Lance Parker, Chief Financial Officer, I will now open the call to Ben Khan. Please go ahead.

Thank you operator, and good afternoon, everyone. Welcome to our 2021 second quarter earnings call I'm excited to walk you through our recent results as well as to share an update from the significant operational progress we've made executing against our growth strategy before I begin I want to share the news that <unk> has stepped down from her.

Board.

Want to thank them for services revenue contributions.

Also want to note that with Cvs departure.

Even greater opportunity to increase the diversity of our board if Congress, we kicked off a number of months back our ambition is to live up to Playboys remarkable legacy baidu towards gender equality with a work force today, but it's really 75 per cent female even before including honey production incredible female led team.

Customer base with significant female representation from.

We believe our board should have significant female representation as well.

Onto the results.

Second quarter of 2021 was our first full quarter as a public company and I'm pleased to report very strong results across all areas of our business.

We have been hard at work building and expanding our unified digital commerce popcorn optimizing our licensing partnerships exporting natural synergies between and across our Playboy and lovers operations and reinvesting in our brands and the infrastructure to bring it to market physical and digital products and experiences that today's.

Consumers are most excited about our group.

Growth strategy is threefold first and foremost we are focused on expanding our U S direct to consumer commerce business to capture 100 times, our consumer spend versus the 5 to 6 times than it has historically captured the previous licensing arrangements second we are working to optimize our licensing business in your key international territories.

Categories and third we are investing in emerging growth opportunities that we believe will accelerate our long term growth trajectory and generate significant returns over a 3 to 5 year time horizon.

I'm very proud of our team's results across our 3 priorities on the direct to consumer side. We grew revenue 88 per cent year over year.

This is a result of the team's early efforts to ramp up influencer marketing and cross selling initiatives across our channels.

Playboy Dot com in particular, we are seeing a dramatic shift in consumer behavior consumers more and more understand the Playboy offers high quality lifestyle products and the Playboy dot com as a place to shop during Q2, our shopping customers grew by nearly 70%.

This shift in consumer behavior is driven in part through our strategic Influencer marketing initiatives. Each week, we average 100, including share pose with Influencers selected based on the strength of their product recommendations and their ability to convert our target audiences.

Any of these influencers are part of our playbook network of talent, including our platelets and prominent adult stars. In addition to posting on their own channels and thereby massively extending our reach these influencers provided library of content for us to use across our channels, helping us to create consistent and persistent touch points.

Per sales and conversion.

We've also seen great results from our work with top social media Influencers eager to be associated with the Playboy brand.

For instance, our price collection with threatened Iraq sold out in a matter of hours based on their key learnings.

Developed a robust calendar of Influencer driven street wear fashion collaborations to rollout in the coming months, creating our own influencer driven collections, if a future model of Playboy labs, we are now operating with a designer and operational owner of these drops and selling them directly to consumers on our own platform.

Arms versus licensing our brand to talent per sales on theirs.

Consumer demand for Playboy Street wear has exploded as evidenced by our own e-commerce sales and the rapid growth of toxins Playboy branded offerings by working with Influencers on a regular cadence of street wear oriented fashion drops we create regular events increased brand affinity and cultural relevance and helps smooth out the seasonality.

<unk> of our business.

As we shared on our last call. The Playboy brand is incredibly strong with the culture driving Gen Z audience, which requires her team to act fast on organic viral moments just a few weeks ago. The Playboy Hoodie challenge starting trending organically on picked up and the team acted within the number of hours to launch a fan contests.

The first patient directly to our channels and allows us to participate directly in the moment.

The entirely organic quick turnaround contests generated millions of impressions from engagements and reach over 300000 unique users and most importantly, our product or operations has the ability to act fast too with.

In 48 hours, we launched an additional 13 cover hurting designs for sale on our site to capitalize on the product Buzz.

It's been very exciting to see the continued success of our Playboy, India envy integrations, leveraging share design infrastructure and multiple own distribution channels. We brought our biggest Playboy, Indiana partnership to market. This April with the spring collection, featuring 20 different designs, the crux and generated roughly a half a million dollars from growth.

Are you from sales across both the dot Com era.

Playboy dotcom and prove the power of the Playboy mouse head in the intimates category.

The only this success, we extended our offerings with our first Playboy, Indiana Swimwear capsule collection, and we recently rolled out our second Midsummer Night's Dream Playboy Indian recollection, just last month.

During Q2, our operational integrations also extended to lovers, where we now have a combined buying team across Zambia mothers and integrated E Commerce and technology team and cross channel marketing across all of our brands. While there's also saw its best in store conversion rate to date in Q2, demonstrating the continued desire for.

Sexual wellness consumers connect with brands and people they are buying from.

We are investing behind these early wins and direct to consumer with the expectation that our near term investments will accelerate and expand our long term growth.

Most crucially we are hard at work integrating our E Commerce technology platform and investing in the digital consumer experience.

Humor facing improvements to come include enhanced obligation.

Dreamliner checkout wishlist that can be shared with partners and friends reviews rewards and more.

Already unified email and communication platforms across brands and we expect to step into a unified CRM across all brands by early next year.

On the backend we are implementing a new ERP, along with warehouse and order management improvements. So that next year every stage of our customer interaction will be unified.

Perhaps most exciting of all under a direct to consumer transformation is our acquisition of honey per day, a luxury lifestyle and lingerie brand created for women by women with Honey per day, we are adding over $80 million of high margin and fast growing revenue.

Streaming talented team that brings us design sourcing and merchandizing capabilities, we need to accelerate the growth of our existing direct to consumer platform.

Honey, perhaps superior product design sourcing direct to consumer capabilities will also accelerate our Playboy branded lingerie loungewear swimwear and sexual wellness go to market plans targeting the Masstige consumer. In addition, honey production uniquely weekly drop merchandising approach will provide a calendar consistent C.

<unk> and helps smoothed out P. L. B Y group seasonality, we expect to launch a new Playboy brands of Andre and women's lifestyle label designed and operated by <unk> in the first half of next year, expanding and accelerating our previous roadmap for these offerings.

On the licensing side in the second quarter, we grew our revenue 12% year over year.

China, our partners capitalize on the June 18th online shopping holiday selling more than 2 million Playboy branded apparel pieces on that 1 day alone. We also continue working with our partners to expand product offerings for female consumers do a successful Q2 apparel collaborations with designers at true studio.

In India, we signed deals and hospitality for Playboy beer gardens, and venues as well as in digital gaming with partner day, New technologies, bringing Playboy from me to the market in 2022 and in the U S and Western Europe. The second quarter marked a successful collections from both tax I mean, this guy did a new high end collaborations with them.

Theory color burst emotionally unavailable desktop due for Dexter.

In gaming a key licensing how to go very for US we've made significant progress re licensing our U S. I gave me rights for digital Casino games, we're very excited about the potential here is the north American expansion of regulators and real money gaming accelerates.

Across our direct to consumer and licensing businesses, our second quarter and year to date performance is even more impressive when taking into consideration the continued headwinds from COVID-19.

Supply chain challenges impacting many industries continued to impact our business as well for example throughout the quarter and we made other stock many of our top selling items and we have seen consistent delays on product launches on Playboy dot com and with our licensing partners and the day.

For the holiday season, we're working proactively to source product in new ways that minimize chances for disruption.

It is also worth noting that ongoing shutdowns have impacted our gaming business in particular, including our 1 day casino and live dealer studios and travel restrictions have delayed our ability to implement some of our growth plans develop new partnerships and restructure existing licensing agreements.

The opportunities have not been lost but rather shifted in timing the ability to renegotiate deals, especially internationally requires our adobe to meet face to face with our partners and we look forward to doing so when COVID-19 restrictions ease.

Transformation that we have discussed moving from a licensing business to an owned and operated business in key categories and territories is well on its way, but it takes time, especially in the face of Covid.

Extremely pleased with the performance we've delivered across these first 2 pillars of our growth strategy and we would expect to see acceleration of the business. Once these headwinds abate.

Now onto the third pillar of our strategy emerging growth, while achieving strong progress across our direct to consumer and licensing businesses. We're also prioritizing emerging growth opportunities that we believe will accelerate and expand our growth significantly in the coming years to deep dive into those initiatives I'm going to hand the call.

Over to our Chief brand Officer, Rachel Webber.

Thanks, Dan and hi, everyone.

I'm excited to share an update today on the progress we've made on our highest priority in new growth initiatives first on N F piece and digital experiences and.

Playboys new label in category class B.

Couldn't be more excited by the opportunities. We see ahead for the Playboy brand and business in the world of blockchain technology and the digital creator economy.

Our physical and digital worlds increasingly converge, we believe the meaningful differentiator in our business today, the badge value of the play boyfriend or access to the coveted talent network and our ever expanding library of content will.

It will be increasingly valuable.

Q2 marked our foray into the NFC space with our first stop unless he gateway a collaboration with the artist finds some day that's sold out in minutes and generated almost $1 million in primary sales in 24 hours.

In June we partnered with Nifty again to release, a collaboration with artist Sean Tom Martin a series of augmented reality interpretations as David Bowie, 1976, Playboy interview and surprised us and support our pride month.

Our first 2 drops demonstrated the immense power and infinite possibilities of our price. This archive and we also learned a tremendous amount on what works and what still needs big improvement and blockchain based consumer experiences overall.

Overall, we've been thrilled by the enthusiastic community and collect a response.

This past month, we participated alongside major auction houses art galleries and marketplaces in the central and second annual virtual art fair with our Miami Beach Art collection.

Collection was meant interest out on the art marketplace Super App, and most notably contained our first Paris, which print N. S. T. A digitized version of a photograph of a Playboy Bunny pictured water skiing outside of the Miami Club and 1970.

We're very encouraged by the reaction to the archival work and then 19 E sell price roughly $60000 in value today for the single digital print.

What's becoming increasingly clear in the world of F. T S and the broader digital creator economy is that great fix up and true differentiation lies at the intersection of content and community Playboy pioneer at the intersection of content and community. We therefore have a right to play and then you need to.

<unk> advantage to win in this new world.

Our path forward is built upon our ever expanding library of highly engaging and coveted content are 10 million piece of archive are built in talent and Influencer network and the proven desire of our fans to be members of Playboy World.

Well, we're working on now is a consumer proposition integrated into our own ecosystem that Leverages N F T's and blockchain technology to allow our fans to truly become members of Playboy today, we are applying the insights we have gleaned from participating with the most early adopter crypto audiences to build offerings that can extend.

And so our mainstream fan base as well.

A unique assets, we have to offer that integrate physical and virtual goods access to creators and tools for creators access to special events and experiences are what we believe can form our specialized value proposition.

Over the weeks and months ahead, we will continue to strategically release digital art and collectibles as we work towards the rollout of this integrated content and community membership offering.

We are so excited by everything we have in the works today and we're also inspired knowing that we're still so early in this next era of Internet and technology explosion.

We are acting fast to gain early mover advantage, while simultaneously building from what we believe will have transformational long term growth potential.

The second new growth area I'm excited to talk about today is how we are leveraging Playboy IP to develop new sub brands or what we're calling labels and new high growth categories on the new labels from our first new launch will be big Bunny.

Bunny is a label designed for the new Cat pet it combines the ideals of style travel and pleasure and represents the pinnacle of aspiration for the brands, we expect to introduce our first collection of products the tie back because it's intersection of style travel and pleasure in Q4. This year and then an entire range.

<unk> offerings are expected to be released each season going for it.

The reason we are creating labels is that so we can appeal to different consumer segments and ways that resonate most with them Playboy is an incredibly unique brand and its ability to go high low to offer a range of masstige prestige and luxury and to appeal across age and gender demographics.

Creating specialized labels like the Jordan label for Nike, We can go deep with each consumer segment and build massive new franchises that stem from the hero Playboy brand.

From a price point perspective, Big Bunny is for our upper tier demographic, but while it will feel exclusive it will not feel out of touch and we'll still have many accessible offerings and ways in for consumers, who aspire to participate in the lifestyle of the contemporary jackpot.

In addition to developing new labels. We are also leveraging the Playboy brand to expand into new owned and operated product categories. After recently completing our deal to bring back rights in house, we now have a robust beauty product roadmap in development. We are currently in the product formulation and design stages for our first collection that.

We plan to debut in 2022.

We've begun from early testing the category as well with our press on NAV collection and our licensed fragrance.

<unk> products, both of which just rolled out on Playboy Dot com this past week.

Our licensed fragrance products have been performing well across European retail over the past few months and we're excited to now offer them directly to our consumers as well.

The investments we are making today to develop new labels and owned product line are intended to both propel our U S consumer commerce business over the coming years and to serve as high value new offerings to bring to market and international territories by strategic business model.

Lastly, before I hand, the call over I wanted to add a warm welcome to our hunting, but that colleagues we've been huge admirers of honeybear that since we first met on a collaboration opportunity and we couldn't be more thrilled to now be working side by side with their immensely talented design team to help us accelerate bringing to market a women's focus Playboy.

Labels.

With that I'll hand, the call over to my colleague Lance Barton, our Chief Financial Officer.

Thanks, Rachel Q2 was another great quarter that demonstrates the growth potential of this company.

I'm not going to waste time reporting all the numbers that are disclosed in our 8-K, but I do want to hit on some of the highlights and provide additional context on the <unk>.

Investments that were making.

Total revenue growth accelerated in the second quarter to 44% year over year, a nice step up from the 34% growth. We achieved in Q1, we saw strength in both direct to consumer where revenue grew 88% year over year to $28 million and licensing where revenue grew 12% year over year to $15.4 million.

On the direct to consumer side, we've made tremendous progress transforming Playboy dot com into an e-commerce destination.

Our hero website achieved 130% sequential revenue growth compared to the first quarter driven by traffic growth along with improvements in both conversion and average order value.

Expect to continue driving conversion and higher as we begin to integrate honeyberry net product exclusives to Playboy dot com, coupled with the upcoming launch of big money and our own private label Playboy launch right.

On the licensing side the demand for Playboy branded Street wear remains evident as tax on once again delivered significant revenue growth of nearly 300% on a year over year basis.

Licensing revenue managed to grow 12% year over year ongoing COVID-19 related closures that impact has led to a 75 per cent year to date decrease in revenue from our 3 largest gaming partners compared to what we would expect to see under normal circumstances.

We expect that our licensing revenue on the gaming side will ultimately recover once conditions improve leading to improved growth prospects for our licensing segment.

As Ben mentioned, we are investing behind the traction we continue to see as we build out our direct to consumer business with the expectation that these near term investments will accelerate our long term growth trajectory.

These investments fall into a few key areas. The first technology investments that provide a superior and unified customer experience across all of our brands, including Honeybear debt.

The team is hard at work putting in place best in class infrastructure today in order to optimize and scale our business going forward with a focus on empowering the customers' engagement with us onsite in store and across the globe.

These investments fall under our customer 360 strategy to take their omni channel shopping behavior to provide a better experience wherever they choose to shop with us and increase our ability to match them with the right product at the right time, we're investing in a day. So we can realize operational synergies down the road across the company.

Second our product and brand investments, we are making to develop and launch new labels and owned product lines that Rachel discussed such as the creation of big money in upcoming beauty and grooming products along with the creation of new digital revenue streams that we are currently incubating and.

And third increased costs related to being a newly public company such as material increases in insurance costs and professional service fees as we implement the required systems and processes.

Gail this business as a newly public company as part of this transition. We also recently announced that we engaged BDO as our auditor.

In total we expect that these investments along with the resulting increases in head count to support our transformation.

Increased our fixed operating expenses by roughly $15 million. This year, that's resulting in short term impacts to margin, but as our revenue scale of these incremental costs remain fixed and in some cases go away entirely providing us with the opportunity for margin expansion.

Additionally, we expect that the implementation costs will result in approximately $4 million of higher capex over the next 3 to 4 quarters until it returns to a more normal level.

Which brings me to M&A, we closed on the acquisition of Honey on August 9th for total consideration of approximately $235 million in cash and $2, 1.6 million shares of PLD livestock.

We expect $70 million of incremental debt to fund tomorrow in connection with the acquisition, which would increase the size of our term loan from $160 million to $230 million, which will leave us with approximately $85 million of cash on our balance sheet after completing the transactions and pain.

Transaction fees, which gives us plenty of flexibility to pursue future M&A and growth opportunities going forward.

On a pro forma basis for 2020..1 we are now a company with $280 million in revenue and 40% annual growth with 70% of our revenue now coming directly from the consumer.

On an as reported basis, we believe that Honeybear that will add an incremental $25 million to $30 million of revenue for the remainder of this year on top of the more than $200 million of revenue that we already expect to generate from our existing businesses for the full year.

Biggest uncertainty to our outlook, especially the outlook for Honeybear debt remains the ongoing impact from Covid.

As it stands today shut downs in Australia have resulted in most honeybear net stores to close temporarily which has a material impact on revenue for each week they have to remain closed.

Fortunately Honeywell has been performing extremely well in the U S, helping to offset some of the softness caused by the acute impacts being felt in their largest market today.

When we think about the near term investments that we're making combined with the growth potential we see from both Playboy and unlevered at not to mention our excitement for building incremental digital revenue streams, leveraging our IP.

We believe that our prior target of $300 million in revenue by 2025 should be closer to $600 million of revenue.

And if we find more opportunities to deploy our capital for accretive M&A or internal investments, we would look to further accelerate that timeline.

Before I wrap up I'd like to clear up some confusion that persist each time, we file our registration statements with the SEC.

In short our retail registrations that are filed with form S..1, including any supplements and also an upcoming filing that we intend to make via a form S..8 do not represent new issuances or new sales of shares by P. L. B y to the public.

These registration simply allow recipient totally and restricted shares and equity grants to ultimately sell their shares in the market.

We currently have 2 resale registration on form S..1 filed with the SEC for the 20.725 million shares that were issued in connection with the dis back merger pipe and certain other pre merger arrangement.

These shares plus the 6 and a half million share that we're already registered in connection with the mountain crashed IPO get you to the $33.8 million shares that were outstanding as of May 12, 2021.

Then on June 14th we completed a public offering of $4.7 million shares, bringing the total number of outstanding and registered shares to $38.5 million.

In connection with the consideration paid to honey.

To acquire Honey Burnet, we will soon file another resale registration on form S..1 to register the restricted shares privately issued to the Honeybear net sellers that resale registration will be similar to the resale registration that we've already filed.

Similarly, as I mentioned, we will soon file a form S..8 to register the 9.9 million shares that are already reserved for issuance under our approved equity plans.

So it is a typical filing by newly public companies and for recently adopted equity plans to register those plans. It simply allows recipients of company equity grants to receive registered shares.

<unk> will not result in the immediate sale of a material number of shares by employees.

Approximately $18.9 million or 38, and a half million shares currently registered and outstanding are subject to a lockup through September 7th at which 0.8.6 million shares will come off the lockup and 10.3 million shares will remain on lock up through February 10th of 2022.

It's important to note that as of recently these back to public company. We are not yet eligible to use form S..3 registration or form S..1 registration that incorporate by reference.

So we generally have to file perspective supplements to our retail registrations, when we filed new disclosures with the SEC.

And that was for 24 B 3 prospective supplement simply incorporate the 10-Q 8-K or other disclosure into the resale registration is already on file.

Prospectus supplement do not register new shares are involved the issuance of new share. The reason you see us filing so many of the supplements.

Hopefully this eliminates much of the confusion, we here anytime we filed a new registration statement I'd refer everyone to the pro forma shares outstanding table. We included that's on page 10 of the honey per that presentation. We filed on June 29.

For a good detailed breakdown of our shares outstanding that ties back to all the numbers that I've just read here today.

With that I'd like to ask the operator to please open the line for questions.

As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question, Chris the turnkey and please standby, while we compile the Q&A roster.

Your first question is from the line of Austin Wilder of Canaccord. Your line is now open.

Hi, Thanks for taking my questions I have 2 on cross selling.

First can you talk a little about specific cross selling successes you've had thus far.

Second can you talk about how the 3 different entities will sit together Yankee Playboy and honey per debt and how they'll each be positioned in the market given there will likely be true product overlap and launch all right. Thank you.

Austin, Thanks for the question.

Let me address the second question first on how the brands, but together Henry.

How many per day is a fast growing 40% plus.

Sri Lingerie brand that has unbelievable design and sourcing capabilities.

Rachel I'd mentioned in her Premier prepared remarks, you know Playboy really goes high low and so we have products.

It's for the Masstige, the prestige or the or the luxury segment. The laundry that we're designing with honey per that we expect to launch next.

Next year.

It was really geared towards the masstige market, where given the highly fragmented nature of the laundry business today really the positioning that Victoria's secret is the payer then we think there's a huge opportunity for Playboy and honey per that moving forward.

<unk> and rubber side, we are now integrating those 2 companies as 1 and we're thinking strategically long term about how it positions really leveraging for growth for Playboy Robotized and math Ted.

And how that works in there from a private label perspective moving forward on that.

So we talked a little bit about the yanji and Playboy lingerie and swimwear collections, where we generated about $500000 from revenue on the post drop we see similar success on others and really moving forward Youll see as we come towards the end of this year, we'll be cross selling.

Yes.

Dissipation of launching.

Playboy lingerie next year as a full time business, you'll start seeing us so 100 per day products and Playboy Dot com.

In the fourth quarter of this year.

Rachel Anthony.

Hi, Matt.

The only other thing I would add is that there's obviously the cross selling that the consumer sees and then there's the shared infrastructure behind the scenes to so for example for the Playboy Gandy Midsummer Night's Dream collection.

We now have shared marketing effort. So we have we create a campaign together we.

We create an influencer strategy together, we produced 1 set of content that goes out across all of our channels and so we gain efficiencies that way and we have 1 unified messaging from all play consumer.

Yes.

So really good point, Rachel makes which is part of the investments, we're making right now.

We can run this as 1 big company and so on on the digital side with the hiring of Kevin. We're now building E ecommerce business, all under Kevin whether independent of the brand.

And so these investments to re platform and so that everything is on the same technology stack with.

Dennis did off long term and so it's worth it's worth it in our mind to make those investments today to realize the synergies down the road.

Got it thank you.

Your next question is from Alex affirming of Craig Hallum Capital. Your line is now open.

Great. Thanks for taking my question and congratulations on closing on the honey per debt acquisition I wanted to ask about your strategy.

For that brand and how youre going to be managing at that brand. Obviously has grown very quickly over the last few years and it's also been tremendously profitable with very strong double digit EBITDA margin.

Should we be thinking about how that brand is going to be contributing to your results over the next couple of years or is it likely to remain as profitable as it had been or are you considering perhaps sacrificing some profitability in order to really accelerate the growth strategy there in Europe and the United States.

Yeah.

Yes, let me start with the strategy, Alex and thanks for the question and then I'll turn it over to Lance look we're thrilled by hundred per day. This is a brand that really resonates.

With all audiences in interest as a company that's growing 40% year over year.

And I believe we can accelerate that growth going forward when I look at the prospects of what's happening in the U S E comm market in opportunities in international markets.

Europe, even going into Russia, and other places around the world.

I think this is a brand as I previously stated.

As long term could be a billion dollar revenue business.

More importantly from a strategic perspective.

Laundry is a very technical product and actually when you look at the product roadmap because it was coming out for honey per does it start agreeing with everyday essentials with swimwear that they just launched in Miami.

We've actually started.

Now that we've closed to integrate that centralized design function and that's what's really leading to the.

Expediting the launch of the Playboy lingerie as a full time business moving forward with a much better product than we have today is really that speaks to this design and sourcing capabilities that H B house and so moving forward.

I'm very confident in the growth of HB, but I'm really excited by.

The look books from what we're seeing coming forward for Playboy lingerie and you have to remember each be as a company that's been around for a little while in Australia, they've only been in the U S and there's other places more recently and so there's a ton of designs to leverage et cetera. They have never made it to the United States that we can draw.

Inspiration from that can come to market much quicker. So I you know.

I believe as I said with the whole it's been sort of left in the marketplace.

Secret and sort of they've lost their they are lost in the market I'm really excited by what Playboy launch rate can do on a global basis, and then you coupled out with loungewear and swimwear and a whole host of things.

Can be a huge growth driver for us going forward.

And on the.

On the margin side, you know a.

A few ways to think through this I mean first of all.

As a standalone business right Honey Burnett was putting up incredibly impressive margins well north of 35% EBITDA margins.

And a big part of that remember is the fact that over 80% of their traffic is organic. This is this is such a a brand that engender so much loyalty from their consumers.

But they really don't have to spend that much on marketing like it a lot of other brands do so I think that will continue to be the case for them on a standalone basis.

The other thing as you continue to scale this business and what they've managed to do incredibly well over the years is launch new retail brick and mortar stores.

<unk> I'll call it a profitable Billboard for driving growth on the E. Comm side, you've seen tremendous E comm growth from the business over the last few years and what they see it every time they opened a new store in a region that really drives a halo effect really drives E com growth and the cost of opening these stores.

Isn't that significant you know its in the hundreds of thousands of dollars.

They're able to pay that back in a matter of 18 to 24 months and even within the first year target 30, plus percent 4 wall EBITDA margin. So from a standalone perspective, we think that this business can continue to be quite profitable.

We've mentioned the the investments, we're making across the company and technology and warehousing and marketing and all of these things to really integrate our platforms and so when we think through really the synergies that we can drive in all of these areas. We think that will actually drive some cost synergies.

And actually help them make their business, even more efficient we also see combined buying power.

By integrating across all of our brands and platforms, which could.

Could this margin value as well so.

On a standalone basis, we think they can continue to drive that margin, we think that there's actual real upside in terms of.

The cost synergies that we can achieve really by kind of making these tech investments now across all of our platforms.

So we're really optimistic about the ability to continue driving cash flow and profitable growth for the business.

Great. That's really helpful. Thank you both.

Your next question is from Jim Duffy of Stifel. Your line is now open.

Hi, Thanks, good afternoon.

Can you give us some perspective on how your Indian lovers performed during the quarter versus the prior year, specifically I'm interested in performance in that group, but also store performance versus ecommerce performance just how the channel mix shifted.

Sure so starting off with with you Andy Andy obviously, a year ago in the second quarter has seen a tremendous unlock in terms of growth.

As as things shut down and buying shifted online.

<unk> had a huge quarter a year ago that growth has really continued for the business.

It's come off the highs that they saw a year ago, but we've actually seen the business. When you look at it compared back to 2019, we've really been able to sustain a lot of that Covid pop.

So Andy continues to perform quite well you know as we mentioned a lot of the collaboration that we're doing through Playboy and Andy can collaborations. We're also seeing improvements there which has been nice.

From a leverage perspective again, the stores had been shut down.

A year ago, so levers is actually.

<unk> seen a nice bump.

Year over year, because of the stores being able to be reopened and we've seen a huge lift there and their E. Com business right now is quite small and lovers and and I think we mentioned 2 levers having 1 of the best.

Conversion quarters that they've seen.

Date, so those businesses continue to perform quite well for us we think that that kind of through this integration that we're working through.

You know that can drive further efficiencies for those businesses going forward.

Yeah, Jim it's been Joe the only thing I'll add to what we have said is the COVID-19 impact are still impacting.

Especially you Andy where we've been continues to be out of stock.

A number of our top selling items that even extended to Playboy as we mentioned in her prepared remarks as well.

Playboy Dot com from our summer collection, we only got about 50% of the.

The sales that we had ordered in.

Just because of what's happening with the COVID-19 issues.

Around the world and especially on the shipping and the port system, but very encouraged long term that they've been able to maintain that COVID-19 growth and when supply chains normalize and the work that we're doing strategically.

Brand and how to leverage this mass awareness that we have with Playboy.

Very encouraged by that as really as the previous question I think often asked about how your segment.

Indian numbers is really our mass product at the end of the day.

We're playboy's can play a little bit more into the prestige market Masstige. If you wanted to call that and then obviously H b as a luxury.

Thanks Ben.

The supply chain impacts evident just looking at the webpage hottest stocks.

<unk>.

Certainly more so than you probably planned.

I wanted to talk about the $600 million revenue objective. Thanks for that I wanted to think about it in the context of.

Capital structure can you give us a sense for how that splits between organic growth and acquisitions and then I'm curious threshold for pro forma net leverage do you have a high bound that you won't cross.

Sure. So on the $600 million as I mentioned, we view that really is organic growth. So a lot of different ways you could get there.

Math, if you think through the strategy that we've really laid out for all of you which is the driving growth through our direct to consumer revenue and then continuing to optimize and grow the licensing business. If you were able to grow licensing in the high single digits, and then grow the direct to consumer business north of 20%.

Over the next 4 to 5 years, you get there and we think the tax quite achievable given that we've been growing well north of that and for all of the reasons. We've talked about in terms of our ability to bring more of more of this in house and drive our direct to consumer revenue not to mention all of the growth.

That we see a potential.

Potential on the Honeybear net side now obviously the mix of that could change if we decide to bring more licensing to owned and operated you may grow direct to consumer faster and licensing flow are those decisions will evolve over time.

But certainly something that we think makes sense I'd also say another way to put it into perspective.

You know talking about 3 billion of consumer spend against our brand in Playboy branded products globally. If if you believe that you can get 5% to 10% of.

Penetration of that through direct to consumer sales that we do I don't think that would have much of a dent on our ability to generate licensing revenue and could generate anywhere from $150 million to $300 million of that increase over the next few years. So so yeah, that's all through through organic growth.

Rose you know.

Like I said, we would look to accelerate that by deploying our capital whether that's through more accretive M&A like we've been doing or whether we invest more heavily in and some of these emerging projects as we see fit to the extent that our digital offerings are starting to get traction.

And that's N S. T strategy really starts to evolve that could be an area of investment and that could be a nice areas of upside for us as well, but we'll have to see what we learn and how this evolves over time.

In terms of leverage.

Look I'd say, we're in a comfortable level of leverage right now pro forma for the Honeywell that deal. Once we had on this incremental $70 million that we will be doing this week.

I wouldn't want to take leverage really higher than that necessarily I think we can delever as we generate cash and grow our EBITDA over time.

You know our preference I think over time would be to continue delevering and.

Get that down even further so I think we're in a very comfortable level. It gives us a lot of flexibility on the balance sheet to do what we need to do going forward, especially as it relates to M&A.

Yes, Jim the only thing I'll also add just for Lance is coming from the organic side.

Again, there's a huge opportunity down the road that we've talked about previously piggyback other licensing businesses are other licensees out there again, what Lance was talking about the 600 is the organic growth.

Still growing licensing.

Obviously, given the 3 plus billion dollars of consumer spend $600 million could be a very different number to the upside to the extent, we decided to take back other counterparties herself.

Super helpful guys. Thank you from our perspective.

Yeah.

Your next question is from George Kelly from Capital Partners. Your line is now open.

Hi, everybody. Thanks for taking taking my questions just a couple for you so first.

The $15 million of incremental investment I think that you're going to layer in over the next few quarters.

So couple of questions around that has it have you already started to take like do do <unk> results show. Some of that are you already sort of on that path.

What is the progression and then I guess the bigger question is when that's all complete and I know, there's a bunch of them.

Different true.

Sort of channels that make up your DTC business, but when this $15 million is true how do you how should we think about incremental margin.

On the other end of that thanks.

Sure and thanks George.

So it was starting to hit in the second quarter.

But certainly not all of it and I'll give a little bit more context on that so the first quarter right.

We werent public the entire quarter, so from an insurance perspective, those costs weren't fully baked in the first quarter, they're now fully baked in the second quarter and those costs will be the same and there'll be ongoing and look there. When you think about it compared to when we were a private company about $4 million.

More.

Then we went back when we were private.

The other costs that you didn't have in the first quarter that you started to have in the second quarter, where some.

Some of the product development costs and some of the initial big Bunny costs that we were starting to layer in.

So those costs started to hit in the second quarter will ramp up a bit more in the third and fourth quarter.

You know some of this other brand development stuff that we've done as well that.

That has started to hit in the second quarter, but increases a bit as you get into the third and fourth quarter also around a lot of the tech and infrastructure investments that we're talking about we haven't rolled in as much of that yet I mean, we started our ERP implementation. We've started to implement some of these costs, but when you think about.

You know the licensing and ongoing subscription cost that we'll have those will come more clearly into view as you had kind of the fourth quarter.

And then perhaps into the first quarter as well next year. So it's going to continue to build over time.

But wanted to kind of bucket. This is a way to think through the incremental cost at <unk>.

We're layering onto the business in terms of.

How this transitions over time right you're going to have.

I'll say that you know.

A temporary impact to margin right, because you're you're layering on new technology on top of whatever existing systems and processes that you have.

And you're going to have to roll that off over time, so you're kind of in a way.

<unk> had twice in the near term and then you can roll off those older legacy systems and roll off those costs, Similarly, when launching new brands and and.

And then actually building out new products right now those are or call. It 1 time or startup costs in nature going forward I don't know it will just be around really the inventory buying and the revenue that we expect to generate from that.

So I do think that these costs.

You know you're putting on more cost in the near term, we expect that the revenue would follow from that and that you do really get.

Operating leverage out of this over the longer term, but in the near term. It does have some impact on margin because you're layering on extra cost, but from the synergies that we would expect to generate from combining all of these platforms from our acquisition getting more efficient.

We think all of those things will be a very positive ROI for us.

The other thing in terms of costs that were also.

Ramping up we've got regulatory and compliance cautious around Sox compliance and the like so.

Those costs really didn't start so much in the second quarter. It will start ramping in the third and fourth quarter. So you should see all of this kind of ramp as the year progresses.

Okay. Okay, and then last question from me a different topic Playboy Dot com.

Hum.

I know theres a lot of other things from the DTC business as well, but do you ever plan on disclosing more about the size of that.

Specific.

Website, just as it becomes more meaningful and are we at the point I don't know if you want to give a number now but I know it's been growing very rapidly here recently can you help at all just.

And understanding how how big of a component of the D. T C business to this and that's all I had thank you.

Yep. Thanks, Thanks, George so.

Look as we as we continue to scale the businesses, especially direct to consumer giving more transparency around the components and the growth drivers of that is important.

If you think about Playboy dot com it really wasn't much of a commerce destination historically right. It was you know people were going there for content.

And we've really transition that over the last year to becoming a commerce destination. So it's a it's driving quite impressive growth off of a small base, but that base is getting bigger and bigger I don't think we're ready right now to start breaking that out in any level of granularity.

But as we've continued to scale it and we can certainly.

Give some more guidance or thoughts around how we think of the contribution there, but when you do look at the growth of direct to consumer.

Playboy Dot com is playing a key part of that as is the growth, we're seeing in fibers and and the like as well so.

I don't have been anything else or any concluding remarks before we wrap up because I think we are out of time.

Yes, George just really quickly I mean, what we were.

We're really impressed by is the growth there and also if you look at the number of customer growth. So if you look at historically Playboy was the contents like it's now a shopping site and so as you transition that customer to see the growth we've had a book.

Really really happy by that especially given the lack of merchandise we have and so as we continue to build out and really integrate with batesville talked about with blockchain and endless tea into that membership into our ecosystem.

Really encouraged by what that overall, you're always thrilled by the quarter, especially given the challenges we face with Covid.

Really excited by the prospects we have moving forward.

Rachel alluded to we'll be talking more about it in the coming months with the membership around blockchain and other fees and then what we're seeing with the pre buy lingerie collection duty products et cetera, as we move into the fourth quarter and next year.

Yeah.

I think that's all the time, we've got today. So thanks, everyone for joining the call and look forward to reconnecting next quarter.

Yeah.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

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Yeah.

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