Q2 2022 Plby Group Inc Earnings Call

August 9, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Good afternoon, everyone and welcome to your P. L. D Y groups second quarter 2022 earnings Conference call.

Im actually decent on from ICR.

Today, we have with US Ben Cohen, Chief Executive Officer, Lance Barton, Chief Financial Officer, and Ashley kept our president of global consumer goods the.

The information discussed today is qualified in its entirety by the form.

8-K that has been filed today by T. L. D Y Group, Inc, which may be accessed on the SEC's website N. P. L. B Y group's website. Today's call is also being webcast and a replay will be posted to P. L. B Y groups Investor Relations Web site.

Please note that statements made during this call, including financial projections or other statements that are not historical in nature may constitute forward looking statements such statements are made on the basis of PLD wide groups views and assumptions regarding future events and business performance at the time. They are made and we do not undertake any obligation to update these statements.

Forward looking statements are subject to risks, which could cause <unk> actual results to differ from historical results and forecast, including those risks set forth N. P. L. B Y groups filings with the SEC you should refer to and carefully consider those for more information. This cautionary statement applies to all forward looking statements made during this call.

Do not place undue reliance on any forward looking statements. During this call PLD, why we'll be referring to non-GAAP financial measures.

These non-GAAP measures are not prepared in accordance with generally accepted accounting principles a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release <unk> filed today and its form 8-K with the SEC I will now open the call to them to please.

Go ahead Ben.

Thank you Ashleigh and good afternoon, everyone.

Today's climate is very different from when we first began to transform what had been the legacy media and licensing company into a fast growing consumer and digital business. However, the robust demand for Playboy and Honey EBITDAX continues to hold strong and I am optimistic about the recent trends we are seeing considerable that said given the.

Certainly in the macro environment, we have taken a close look at the factors within our control and have taken actions to best position the business to weather the headwinds and drive long term growth.

To that end, we restructured our debt and secured liquidity, we have amended our senior secured credit agreement to give us extra headroom to invest in the growth areas of the business. We have drawn down on the remaining $25 million in series a preferred stock with fortress.

We now have approximately $70 million in cash equivalents, including crypto in restricted cash on our balance sheet.

We are also conducting a strategic review of the business streamline costs from non core areas, while continuing to invest in growth areas with the goal of being cash flow breakeven by the end of this year.

Prioritization, along with our amended credit agreement gives us the flexibility we need to execute on our strategy.

I remain committed to our plan, which focuses on two key areas growing and consolidating our consumer business with a focus on high margin owned and operated products.

And second building out our creator by platform Thunderbolt.

My confidence in the business and commitment to our long term plan are evidenced by the approximately $850000 of shares bought in Q1. In addition to the $500000 of shares I purchase when we went public.

No named Executive Officer have sold any shares except to cover the tax obligation related to those shares. However, the selling of shares for tax purposes is subject those executive officers to short swing profits.

Hence no named Executive Officer has bought any additional shares in Q2.

At the corporate level, we have not repurchased shares given the rapidly deteriorating macroeconomic environment. We witnessed just after we announced the buyback.

Those headwinds have had a more significant impact on consumer spending than we expected or accounted for in our original forecast. However, we are also seeing some very encouraging bright spots in the business.

Inflation is not only driving higher fulfillment and product cost, but is also putting pressure on consumer spending.

Keeping with recessionary buying trends, we are seeing a greater impact on our value oriented consumers versus our luxury or higher end consumers, both Playboy and honeybear that caters to these consumers drawn to luxury and aspirational brands and we continue to see strong consumer demand for both brands, which are up.

Considerably through the first six months of the year on a year over year basis.

Playboy do you see revenue is up over 150% and Honeywell is up approximately 28% on a pro forma basis.

Playboy continues to see strong global consumer demand with the Gen Z customer and the strength of our strategic partnerships, which include recent premium collaborations with each state launch featuring Romeo Beckham Viva and Scott.

And we are expanding our portfolio to include Playboy laundry designed by the 100 productive which will launch later this year.

<unk> continues to deliver strong revenue growth and margins. Despite the macroeconomic headwinds we conducted a soft launch with UK to provide honeybear got customers with a third party gifting options.

From the early data, we have seen strong conversion rates and direct acquisition of new customers given the success of the pilot we are incorporating the option for all customers, we will be adding wishlist functionality. We are exploring using cases for other brands as well as for center fault on the retail front.

Miami store continues to be one of our top performers we opened a new location in London in late Q2, and more store openings are planned over the next few quarters. We will continue to expand <unk> detailed footprint diversify our product offerings and grow brand awareness in the United States.

<unk> seen the opposite sales trends as they are cost conscious customer is getting hit extremely hard at the gas pump and in the grocery store leading to less than discretionary items compared to 2021 year to date revenue through the end of July declined $22 million between <unk> and <unk> combined with over $18 million.

Clients coming from DMV.

Supply chain disruptions continue to pressure margins throughout the business because seasonal inventory write off cycle and how to build industry disciplined promotions.

Supply chain issues also impacted our ability to have the materials needed to launch new products and to keep product stocked during key seasonal windows to manage through this we have advanced stock key inventory, including our top sellers and seasonal items like Halloween costumes, and they're introducing more owned and operated products throughout our <unk>.

<unk>.

Rising customer acquisition costs and last year's iOS privacy changes have significantly impacted performance marketing, particularly for year to date, according to our external marketing partner.

POS IBSA updates led to a 50% year over year drop in Facebook conversion rates for fashion and apparel brands in Q2.

As a result brands have shifted budget away from Facebook and toward Google, which has driven up competition in prices for keyword spending and what has historically been one of our key customer acquisition channels. We are combating these trends by shifting spend to other social channels and have plans to leverage the playboy name across our portfolio.

Elevate positioning and broaden our reach for you. Andy This involves a full rebrand under the Playboy Halo for levers we are planning on a new sexual wellness line called Playboy pleasure and will be featuring <unk> and Playboy merchandise and our love our stores.

We view these marketing headwinds as concrete evidence as to why center fold is so strategically important for our long term customer acquisition strategy on D C.

<unk> platform has the potential to drive organic customer acquisition and further target our product marketing as I mentioned last quarter. There are three key elements required to make certain default successful the brand the product and the creators.

As for the brand Playboy is one of the most recognized brands in the world and we will be leveraging its massive reach as we integrate centerfold within Playboy dot com overtime.

Ultimately driving all customers into one ecosystem.

Chemical product the platform itself and the pace of progress to advance it have not met my expectations. When we decided to launch <unk>. We had two options. They will the platform from the ground up a 12 month process in the best case scenario, assuming that we had a full team in place, which we did not.

Or buy an existing platform to accelerate our market entry.

We chose the latter which provided speed to market and the ability to test and iterate on the product the coating that goes into the backend to support messaging payments.

Greater records is extremely complicated Fortunately, our initial team, which was largely comprised of third party offshore developers.

Was unable to make the needed progress on the platform. However, having a live product in market has provided us with much needed test data to inform prioritize and accelerate our current product roadmap and greater strategy.

Given the product issues, we encountered I quickly identified the need to upgrade our technology talent recruited a new in house Tech team earlier, this year, including product and engineering leaders from Uber, Google Square and Y Combinator.

Since they have to come onboard.

We have seen dramatic improvements in the stability of the platform and the new bulk features and back end enhancements that will be rolled out later this year.

From day, one the new team has been laser focused on building a seamless creator platform with intuitive UI leveraging data from our existing business and the ongoing feedback loop with creators and fans to inform our priorities and refine the platform.

The relationship and expertise from our new team have also enable us to work with Premier technology and payment providers to ensure best in class functionality accelerate development and lower our overall cost basis with center folds improved technology successful test cases, a retailer crazy strategy, we are executing on our southern fold strategy.

And Ernest.

As the new technology improve we work closely with our existing creators to monetize our audiences. A few weeks ago, we began onboarding new creators and some of them are already approaching $10000 in gross bookings and their first months, while also continuing to attract both new users and new creators onto the platform.

We are encouraged by the momentum we're seeing across the creator base. For example, one of our creators who we recruited from within our Playboy ecosystem is now generating nearly $100000 gross bookings per month.

And our peers are also collectively bringing in millions of unique visitors many of whom convert to registered users to then engage with and become paying parents of multiple creators on thunderbolt.

Our top refer for example has driven over 100000 registered users onto the platform through her personalized we fully across multiple third party platforms, including Instagram and Brad.

What we need to do now is scale. These wins. So we're leveraging what we've learned about these top performers to create repeatable processes inform which types of creators to onboard and arm them with the best practices to grow their subscriber base and optimize their performance on Thunderbolt.

Before I became the CEO of <unk> group I was in private equity for a long time and had been through many economic cycles before while the road ahead wont always be smooth I am encouraged by our momentum and I'm confident in our people our brands and our long term plan.

I'll now turn the call over to Lance.

Thanks, Ben second quarter revenue grew 31% over the prior year quarter to $65 4 million.

Our growth was driven entirely by our direct to consumer segment, which was up 59% year over year to $44 $6 million.

As Denny alluded within direct to consumer we have seen a real bifurcation of performance with Honeywell and Playboy achieving continued growth, while you Andy and leverage that experience worsening trends as the year has progressed.

<unk> revenue was up 32% year over year to $22 4 million in the second quarter and up 37% on a constant currency basis.

Growth in <unk> was driven by a 15% increase in brick and mortar revenue and a 49% increase in e-commerce.

All of that growth on both fronts, Despite Australia being more heavily impacted by the current macroeconomic situation and relatively low brand awareness for <unk> in the U S.

Playboy E com revenue in the second quarter grew 90% year over year and revenue in the month of July for the first time ever while the Playboy brand continues to grow our supply chain with hit, especially hard in our licensed inventory, where we are heavily reliant on our partners around the world.

We've made strides to increase our owned and operated portfolio.

Bringing design and marketing in house and hiring key people in these two areas from Victoria's Secret Abercrombie American Eagle, Calvin Klein and gap body.

The buying behavior of customers, Andy and leverage has been severely impacted by inflation, leading to a year over year decline in revenue of $8 million in the second quarter, the bulk of which was driven by Andy Andy.

Andy is also part of an unsustainable marketplace wholesale model with low margin and a highly saturated competitive debt, which creates higher risk and exposure to supply chain challenges due to our supplier impact.

For example, yesterday was running a 50% out of stock rate during the first part of the second quarter.

To mitigate this in the short term we've made an effort to secure safety stock for our top 20, selling items as well as our Halloween merchandise.

To what we're trying to do at Playboy, our long term focus at <unk> is to grow our owned and operated business, which should ultimately yield higher margins more control and enable a shift of profitable growth with less spend than paid media.

Lovers saw significant raw material cost increases impacting product margins and when combined with high fixed costs due to our store footprint. There is less flexibility for us to address the revenue shortfall shortfalls, we've experienced due to declines in store traffic.

Similar to what we experienced at Playboy and you Andy.

Highly dependent on a vendor model and their supply, which resulted in supply chain disruptions and out of stock items.

That said, we have integrated our levers and the antibody teams driving efficiencies and enabling us to reduce head count.

In our licensing segment Q2 revenue was flat year over year to $15 9 million.

Given the macro climate.

Apparel and gaming partners have experienced weaker trends as the year has progressed.

<unk> had a reduction of reported revenue on our end.

We believe these are more category wide headwinds and not specific to our brands as other partners have produced better than expected results, which helped to offset the declines.

<unk> revenue from our partner then China was stable. However, the severity of Covid lockdowns in the country resulted in cash payments coming in after the quarter ended.

We have signed an amendment with our major partner that put them on payment plans to help them. During this time instead of being paid by our partners semi annually. We are shifting to more frequent payment plans for the next several quarters that will result in the majority of the expected cash payments.

This year with some amount of deferred to future periods.

No revenue impact related to the new payment terms, the overall contractual values remain intact.

Our partners have made their first payment we have already received nearly half of the amount that were past due and we will continue to monitor the situation closely.

In light of all of the macro challenges that have impacted our business and the uncertainty that lies ahead.

We are withdrawing our prior financial outlook and suspending guidance for the remainder of this year.

Clear that our rate of revenue growth does not materialize as previously expected and we must adapt our investment strategy accordingly.

As Ben mentioned, we are currently undergoing a strategic review so that we can position the company to be cash flow breakeven by the end of this year.

While we remain focused on sustaining the investments that we believe are most critical to executing on our long term strategy and growing our direct to consumer and digital businesses.

We're also focused on rationalizing our business to improve operating efficiency.

May incur transition costs that impact our financial results. This year as we implement these changes, but we believe the work that we are doing now will allow us to enter 2023 is a more streamlined and efficient company well positioned to capture the global demand, we continue to see kind of Playboy and hummingbird brands.

Although revenue is difficult for us to forecast in the current environment, we're very focused on cost levers that we can control.

Embedded in our prior fiscal year 'twenty, two adjusted EBITDA outlook with an expectation that on a pro forma basis non product costs would increase by a little more than $30 million. This year.

An increase of roughly 17% year over year to over $210 million annually.

Over half of that expected cost increase for this year or more than $17 million was expected to be driven by our investments in building out both our direct to consumer business and center call.

Around $7 million of the expected cost increase is due to technology and infrastructure costs as we work to consolidate operations build a unified back end across all of our direct to consumer businesses and remedy our IC controls.

The remaining $6 million or so is largely driven by corporate and public company costs, such as higher insurance and audit fees along with additional resources in areas that the company has historically underinvested in such as finance accounting tax and compliance.

Based on the cost reductions that we started making to the business last quarter. When we took out approximately $5 million of annualized overhead our current run rate on non product cost is just under $200 million annually.

As part of our ongoing strategic review, we are closely scrutinizing, our investment plans for the remainder of the year determining potential trade offs and reducing costs, where we can such as eliminating planned hiring reducing marketing spend delaying planned product their store launches and reducing head count.

We intend to be responsive to what we're seeing in the marketplace and to control our cost tightly so that we can manage our liquidity and balance sheet accordingly.

One example of that there are near term store expansion plans for <unk>.

Although the business continues to grow nicely, we are taking a more disciplined and cautious approach to store openings. This year.

We have already opened stores in Miami, and Stratford UK and have signed leases for short Hills, New Jersey, and International Plaza in Tampa, but.

But we have decisions to make on the remaining store openings that were planned for this year.

Alright existing U S stores have performed quite well, averaging a $1 million in annualized revenue per store, 30% four wall EBITDA margins, which makes for a compelling argument to push forward with our previously communicated plans. However, we want to be mindful about taking on fixed long term liabilities in the curve.

Current environment until we better understand how the how long these conditions may persist.

Any potential impact on the hummingbird at consumer.

We also must consider the near term cash impact as each new store costs around $700000 to build out. So it will have a roughly two year payback period on any initial cash outlay.

While we believe we have ample liquidity to open more honey brunet stores. This year, we want to ensure we have enough cushion to withstand any potential disruptions to our expected cash receipt.

Although the business has been presented with many obstacles this year, Ben Ashley myself and the rest of the management team firmly believe in the long term potential for value creation that exists.

Near term cost adjustments that are needed to be responsive to what we're seeing on the revenue side, but we plan to stay the course and invest prudently and executing on our strategy.

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

Certainly as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And our first question will come from Alex Fuhrman of Craig Hallum. Your line is open.

Interpreting your comment here that the bulk of the slowdown here and the need to with.

The spend guidance is related to you Andy and lever it.

Sounds like Honeybear debt and the Playboy brand at least in terms of your direct to consumer sales on the Playboy brand remains strong I don't know if that maybe they slowed down as well, but just still continue to grow nicely or have those brands.

Not seen the same sequential.

Deterioration that you've seen at <unk> levered.

Thanks, Alex.

Yes look I think Thats right I think when you look out further.

For the rest of the year.

You guys have coming into this year.

Sorry.

Alright, I thought you said something looking out.

Rest of the year Halloween is a big peer.

Period of revenue for <unk>, and if you were to assume you Andy were flat to last year.

And if you realize that we had left around $3 million of revenue on the table last year, Andy when we had the shutdown the warehouse over Halloween.

We've remedied those problems if you take that in kind of the high watermark for revenue in the fourth quarter and then you actually look at.

Current trends that we've seen in the business year to date Youre looking at.

Kind of a $15 million to $18 million potential swing between.

The current trends and kind of what we would achieve if we were flat to last year.

Of that $3 million so.

Thats, obviously, a lot of uncertainty for one business in one quarter.

I think the other thing that we have to factor in is what do we decide to do around how do you bring at store opening it doesn't have a huge impact on our revenue for the remainder of the year. Because these store openings will be would be plan to be opening later on.

But it could certainly have.

Have an impact for a same thing on the marketing side, if we choose to pull back marketing in light of kind of the decreased efficiency at a higher cost.

Customer acquisition that in turn would have an impact on revenue.

On the licensing side, it's kind of it's.

Predictable, but as.

As we saw in the second quarter, if our if our partners start to experience worsening trends and then they come to us and say hey, our forecast for the rest of the year is lower than we thought it was in Q2, we're going to have to take that revenue. Even further so I think theres just a lot of uncertainty out there.

That we don't feel comfortable trying to put out a number.

That in a way it could vary quite widely.

Yes.

Makes a lot of sense last thank you.

And then that the decision to pull back on the hummingbird at door openings is that just part of that uncertainty you mentioned in and.

Fear that maybe that brand could start to see.

You see the consumer under pressure or is that just as you look at your expenses is that just the most obvious easier place to pull back on spending this year.

Look the it would be a tough decision to make right because these stores.

Are performing so well here in the U S right I mentioned that the average store here in the U S.

Paul that $1 billion annually, and they're 30% four wall EBITDA margins. So when you look at that.

It's obviously.

In our best interest to go ahead and open more stores, but having said that in the current environment, where we have not seen any impact.

On the higher end luxury consumer that frequent hybrid at.

It's hard to know what's going to happen and we think it's prudent when youre entering into these long term shift liability to take a pause and see how things unfold.

And quite frankly, we may be able to get better deals on some of these leases down the road so.

We're going to evaluate each one individually and decide what we want to do.

We've got the flexibility I think to open more but we do want to take a more prudent approach. So there's nothing that we've seen that indicate a slowdown at how neighborhood at.

But at the same time.

A lot of things are changing quite rapidly in the environment and we just want to be mindful of that and we want to watch the impact of inflation on the luxury market we've seen it hit.

Kind of the everyday consumer Andy and levers and.

It could end up hitting the luxury market.

Sure that makes sense. Thank you Ed.

And our next question will come from George Kelly of Roth.

So just to start with the licensing business.

Seem to hold in there fairly well in the quarter I mean, I think it grew kind of low single digit percentage. Just curious has that changed subsequent to the quarter or is that business continuing to perform.

And grow year over year.

So I'll talk a little bit about the financials and maybe actually it back and just talk about some of the trends that we're seeing more broadly with kind of business development and our partnerships there but.

Yes, it was flat year over year.

There were a few drivers behind it and China in particular, there was no impact on revenue as I mentioned.

All of those contracts remain kind of the same.

Same amounts over the duration of the term so we're able to book the same amount of revenue what we saw with some of our some of our apparel partners in some of our gaming partners outside of China, So more domestically and also in Europe .

It came out in in the second quarter, and basically had brought down their guidance for the full year. So in turn we have to reduce the amount of overhead.

We ended up booking.

So you had that kind of dragging down the revenue that you recognize for licensing in the second quarter on the flip side, we had.

<unk> partners that actually surprised us to the upside that actually.

It performed better than we expected and delivered over just so it's a little bit of a mix, obviously I think.

From our perspective, it's really the macro environment.

Some of our partners harder than others, but in general.

Over the longer term our view has been that this should be kind of.

A single digit grower, if you didn't have that reduction.

That our partners had in the second quarter again, they brought down full year numbers. So that have kind of an outsized impact on the second quarter, but if you didn't have that reduction in forecast you still would have grown this business.

Five 6% something like that so.

Thats kind of what we're seeing there Ben Ashley anything to add kind of on the collaboration that we're doing.

Yes, George It's Ben look I think the Playboy brand, both with partners and with consumers remains extremely strong.

This is really more of a macroeconomic environment outside of its affecting almost every other retailer today.

So I'm not worried about the Playboy brand the engagement amongst our fans is huge it continues to grow the interest from partners continues to grow but again, what we can't predict internally is what the people in Washington, do they must have taken different economic classes and I talk by putting more fuel to the fire regardless of what their models.

All of them and what the impact is on inflation and consumer spend long term.

Israel and so.

That's the challenge in front of us like any other consumer product company for the balance of the year.

It's not the demand from both consumers and partners.

Okay. That's helpful. So just to put this is what I am hearing is.

There is impact, but there is no there hasn't been some kind of recent dramatic falloff in your licensing business.

No Thats absolutely correct, we have been very stable in the licensing business. It was like I said, some puts and takes you had some people pulling back their forecast so.

You had to pull back some of the revenue that you had already recognized thats just the way these licensing contracts work in terms of.

How we have to account for them as Youre accounting for it based on our full year forecast that they give you at the beginning of the year, if they update that throughout the year to come in lower than they expected then you've got to adjust that accordingly, and you've got to adjust that ratably. So that hit us in the second quarter, but like I said there were other licensees that came in and offset some of those losses.

So.

Net net we were flat year on year.

But our view is longer term this should be kind of a single digit grower.

The other thing is.

We've already signed probably twice as many new deals this year compared to what we signed last year. So certainly the interest level and kind of the volume of new deals remains quite strong.

Great and then just one other question for me.

I was hoping you could go back through.

The cost discussion that you had in your prepared remarks.

I guess, what im trying to understand is.

I look at SG&A I think you were also talking about some of whats in Cogs.

I guess the direct question. If this should SG&A I mean is there a room for SG&A to decline.

From where it was in <unk> or what are your expectations around SG&A for the remainder of the year.

Yes, the way I was trying to frame it was non product costs right product costs. I mean, if you. If you look at kind of our model our prior guidance of $3 $50 million of revenue and $55 million of EBITDA, you would get to about a 25%.

Cost of product, that's obviously going to that 25%, it's going to be whatever your revenue is so that number kind of varies but the non product costs I mean, obviously as variable cost in there such as marketing and the like.

Shipping costs.

A lot of fixed costs in there it has a store costs that have employee head count costs.

<unk> tech infrastructure costs.

So what I was saying that going into the year the assumption on that call it non product costs.

What's going to be north of $210 million. So it was going to be about 17% year on year growth.

If you would if you had included kind of the full year impact of the neighborhood at <unk> last year.

And what I said is we've already made some cuts to the business.

Our run rate is below that it's actually around $200 million and the work that we're doing right now is figuring out how much further we want to take that down so yes to your to your point. We believe there are more costs that we can reduce out of that 200.

Again, we want to be.

We want to be able to sustain longer term growth investments here, we wanted to be really mindful of kind of the long term potential for value creation.

But at the same time, we've got to make sure that we're operating as efficiently as possible.

A lot of the work that we've been doing this year.

It has been related to putting in place the controls put into place the infrastructure and processes to allow us to be more efficient and to emerge this year.

A more efficient company, so what I.

Just interested in what I think about rolling ahead into 2023 and beyond Youre kind of putting in place that cost infrastructure. This year, it really shouldn't significantly grow beyond whatever head count you really need to support the continued growth of direct to consumer center fold in future years, Your your tech and infrastructure.

<unk> costs that youre, putting in this year call it $7 million.

What are the business that $300 million or $600 million of revenue that that cost is going to be largely $7 million, maybe it goes up by $1 billion. If you were to double.

Your revenue, but it's largely a set cost.

So yes, I think there is a lot of room for operating leverage in this model what we've got to do is figure out.

How to pull back where we can and be more efficient, where we can and continue to support growth in the areas.

That we think makes sense.

Understood. Thanks, I'll hop back in the queue, Yes, George I'll, just add I spent 20 plus years in private equity.

We've done this before I've done this before.

The biggest thing for us is making sure that we preserve the high growth areas that we see in the future but.

But we will not leave any stone unturned, we will take every cost out of the company that we can take out.

In order to preserve Max.

In the future, but we will not leave any stone unturned, we will take every cost out of the company that we can take out.

In order to preserve maximum liquidity for the company and that's the process that we're doing we know there's more to be done and we will do that because that's in the best interest of everyone.

Okay.

And our next question.

Okay.

And our next question will come from Jason Tilton of Canaccord Genuity. Your line is open.

Yes, thanks for taking the question just coming back to the rebrand of the A&D I'm curious.

Is that plan for ahead of the holiday Halloween season, or is that going to be sort of later in the year and then just sort of at a higher level. The decision to do a full rebrand there versus sort of just launching a playboy brand at lovers curious what went into that decision and then just a follow up to that is on the hummingbird that design line is that going to be planned purchase handy.

Just to play by Dot Com brand for both and how do you view <unk>.

<unk> that brand, but the different price points of your DTC offerings. Thanks.

Hi, This is Ashley I'll jump in on the Andy rebrand and the other areas. So just speaking to the rebrand first Andy rebrand will start to hit the consumer in fall, so right leading up to the Halloween season, you'll start to see the new imagery come through with the new product that we have coming through one thing that is.

To understand as we're doing this more as a rolling change because we still have old product and inventory we need to.

Work, our way through and so it's not going to be a life, but more of a rollout through the Halloween season button in advance of peak Halloween all the way through the back half of the year and then we will continue to right size the inventory, where we have kind of older product or older imagery, and then with that we will be leveraging the Playboy brand.

And Halloween that into the A&D business. So we will have a more curated and cross.

Cross pollinated selling experience, where youll be able to buy Halloween is again, an example on both Andy and Playboy leveraging the Bunny suite and some of the unique areas that Andy Andy brings to the table for the Halloween costumes.

From our other brands standpoint, so levers, we're starting with the Playboy pleasure as our intro into a playboy sexual wellness line that will launch.

And this year and we will be leveraging the lever stores not only for Playboy apparel, but also for our product in that sexual wellness space and we will continue to elevate the brand across the board. So meaning we will have Playboy pleasure look and feel like the Playboy brand and we will start to elevate our lever store.

Her experience and our levers online experience in line with that so we can.

Ensure that we're gaining the most out of that.

That line and then for Honeyberry that.

On the Honeywell <unk> side, we're going to continue to diversify the product offer and were and continue to go after that elevated luxury customer keeping that.

More uniquely HB focused we leveraged to the design team and the resources from the Honeywell team to help bring playboy longer rate of market that line is in the mid price point. So we're not going after the luxury customer we're going after that mid tier price point that will really speak to a little bit.

More of like.

From a competitive standpoint, maybe that Victoria's secret pink or area that or the.

Lingerie that fit to that Gen Z consumer where were seeing such high synergy with the Gen Z customer coming to Playboy today.

Great. Thanks, and then just on the cost savings that were identified in Q2.

The 5 million I think that Lance mentioned is that more from the synergies for as the integration work on these different DTC businesses. It takes place or was there some other areas that we've identified.

Sort of low hanging fruit to cut those costs.

Yes.

It's the former we had talked about it a little bit I think that happened right before our last call, but it was largely head count related at that point in time.

A lot of what we're doing right now is as we put in place these processes and systems, we're able to be more efficient about how we staff. These things. So that was largely what we had done I think it was back in May.

Great. Thank you.

And our next question will come from Jim Duffy with Stifel. Your line is open.

Again your line is open.

I'm, assuming you said Jim Duffy.

Yes, that's correct.

I'm, sorry, I didn't hear that good afternoon, everyone. Thanks for taking my questions.

First I wanted to ask some clarification around your comments on center. Full then you were clear centerfold not meeting your expectations for progress.

But you also gave some metrics, which suggested some decent traction you had previously been speaking to an expectation for notable revenue contribution from center pool than the second half of the year is that still the expectation.

Hey, Jim Thanks for the question.

<unk> did not meet my expectations, we definitely had an issue on the personnel side and as CEO I pivoted quickly and recruited a new team.

What I would say is we were very lucky.

A team that came out of Hoover Youtube and Y Combinator square et cetera, Youre trying to attack.

Top tech talent to a non product company historically, it's not the easiest thing obviously it took us longer to do that then that we were expecting what I'm encouraged about on senator fold and we have a lot of improvements coming this fall.

Is the revenue that we're seeing with our top creators and then also the new creators that we started to onboard recently, so we had stopped onboarding creators.

Because of the tough challenges that we had and until those okay.

Didn't want to burn through that but what we are seeing is a creators can monetize themselves on the platform and so now it's a question of as we've gathered this data it's signing more of those creators. We have we have a robust waitlist and its onboarding those creators for scale.

The good news is that the product is now working we have fixed the backend issues on that there'll be a lot more enhancements coming over the next few months that will make it even better and then it's a question about just scaling the creator side of it but our top creators are making almost $100000 a month now the new creators that we've been onboarding or about 10000, and what we're seeing.

A cohort analysis as those creators are growing on a weekly basis.

So now it's just a question of scale.

Understood. Thank you for that.

I had a few questions for you on the balance sheet.

K dropped can you comment on.

The receivables, which were elevated and also give us some color on the composition of your inventory balances.

Yeah on the receivables as I mentioned, we had.

Some payables and.

Receivables that had been due.

By the end of June ended up coming in since June 30.

A big driver of that.

The inventory balances.

Sorry, what was the question specifically.

Quality and composition of your inventory do you have any issues were.

You are concerned about having to discount to merchandize to clear it.

Is there an in transit component of that that's elevating the balances continuing to help us.

Just get our arms around that.

<unk>.

Inventory, which we're seeing on the book because it looks elevated relative to where it's been.

Hi, This is Ashley I'm jumping in again I'll speak to the inventory.

Overall, I feel confident with where our inventory is positioned a couple of strategies that we intentionally went after which didn't flatter inventory earlier than usual were related to Halloween and top 20 performing.

Styles with the early receipts heading into the Halloween season for Playboy and Andy in particular poses risk with the supply chain as.

As disruptive as it's been and so we made a decision to early receipt inventory in order to have it there for peak selling season. So that's a component of wire inventory coming out of the quarter was more inflated than usual, but it will serve us well in the Q like late Q3 period and heading into October the <unk>.

Area is we have seen significant growth and are continuing to see significant growth out of hunting for that and so that business is an area, where fueling with inventory to drive that and have also prepared for new store openings and so as you start to come out of the year Youll see the inventory align but its intention also we can set these new stores that properly.

Of course, there is areas, where we are managing our inventory and leveraging disciplined promotional management and pricing actions to right size, but we feel confident that we've got the right strategies in place to address where we're slightly heavy and then bringing in inventory early was the right decision to set us up for Q3 success in Q4.

Thanks for that Ashley.

My last question it sounds like Youre exploring a number of different avenues.

To shore up liquidity have you considered monetizing some of the assets that arent necessarily delivering a return for shareholders such as your portfolio or where even the big Bunny jet too.

Improve the liquidity situation.

So as we said in the remarks, we've amended our credit facility to create headroom, we have about $70 million of cash and cash equivalents on the balance sheet as of today.

What I would tell you as there are no sacred cows, we will do whatever we need to do to create the maximum liquidity for the business and invest in areas of growth.

To continue to maintain our long term plan.

And so if that selling we are selling the plane or anything in between we will do anything in the best interest of our shareholders.

Thank you.

Yeah.

And our call. Thank you for participating you May now. This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Okay.

Yes.

Okay.

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Okay.

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Yes.

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Good afternoon, everyone and welcome to P. L. B Y groups second quarter 2022 earnings conference call I'm, absolutely decent on from ICR.

Today, we have with US Ben Cohen, Chief Executive Officer, Lance Barton, Chief Financial Officer, and athlete kept our president of global consumer goods. The information discussed today is qualified in its entirety by the forum.

8-K that has been filed today by T. L. D Y Group, Inc, which may be accessed on the SEC's website and P. L. B Y group's website. Today's call is also being webcast and a replay will be posted to P. L. B Y groups Investor Relations website.

Please note that statements made during this call, including financial projections or other statements that are not historical in nature may constitute forward looking statements such statements are made on the basis of PLD Y groups views and assumptions regarding future events and business performance at the time. They are made and we do not undertake any obligation to update these statements.

Do not place undue reliance on any forward looking statements. During this call P. L. D Y will be referring to non-GAAP financial measure.

Go ahead Ben.

Thank you Ashleigh and good afternoon, everyone.

Today's climate is very different from when we first began to transform what had been the legacy media and licensing company into a fast growing consumer and digital business. However, the robust demand for Playboy and Honey EBITDA continues to hold strong and I'm optimistic about the recent trends we are seeing considerable that said given the.

To that end, we restructured our debt and secured liquidity, we have amended our senior secured credit agreement to give us extra headroom to invest in the growth areas of the business.

Going down on the remaining $25 million in series, a preferred stock with fortress.

We now have approximately $70 million in cash equivalents, including crypto and restricted cash on our balance sheet.

Prioritization, along with our amended credit agreement gives us the flexibility we need to execute on our strategy.

Are we committed to our plan, which focuses on two key areas growing and consolidating our consumer business with a focus on high margin owned and operated products.

And second building out our greater by platform tenable.

No named Executive Officer have sold any shares except to cover the tax obligation related to those shares. However, the selling of shares for tax purposes has subject those executive officers to short swing profits.

Hence no named Executive Officer has bought any additional shares in Q2.

At the corporate level, we have not repurchased shares given the rapidly deteriorating macroeconomic environment. We witnessed just after we announced the buyback.

The inflation is not only driving higher fulfillment and product costs, but it is also putting pressure on consumer spending.

Keeping with recessionary buying trends, we are seeing a greater impact on our value oriented consumers versus our luxury or higher end consumers, both Playboy and honeybear that caters to these consumers gone to luxury and aspirational brands and we continue to see strong consumer demand for both brands, which are up.

Considerably through the first six months of the year on a year over year basis.

Playboy do you see revenue is up over 150% and hummingbird that is up approximately 28% on a pro forma basis.

Playboy continues to see strong global consumer demand with the Gen Z customer and the strength of our strategic partnerships, which includes recent premium collaborations with each state Milan between Romeo Beckham Viva and Scott.

And we are expanding our portfolio to include Playboy laundry designed by the 100 project team, which will launch later this year.

<unk> continues to deliver strong revenue growth and margins. Despite the macroeconomic headwinds we conducted a soft launch with U K to provide huntingburg customers with a third party gifting option.

From the early data, we have seen strong conversion rates and direct acquisition of new customers given the success of the pilot we are incorporating the option for all customers and we'll be adding wishlist functionality. We are exploring using cases for our other brands as well as for center fault on the retail front.

Miami store continues to be one of our top performers we opened a new location in new London in late Q2, and more store openings are planned over the next few quarters. We will continue to expand <unk> retail footprint diversify our product offerings and grow brand awareness in the United States.

Yeah, new levers of seeing the opposite sales trends as they are cost conscious customer is getting hit extremely hard at the gas pump and in the grocery store leading to less than on discretionary items compared to 2021 year to date revenue through the end of July declined $22 million between <unk> levers combined with over $18 million.

Clients coming from Dnb.

Supply chain disruptions continue to pressure margins throughout the business because seasonal inventory arrived off cycle and has it been the industry disciplined promotions.

Supply chain issues also impacted our ability to have the materials needed to launch new products and to keep product stock during key seasonal windows to manage through this we have advanced stock key inventory, including our top sellers and seasonal items like Halloween costumes and are introducing more owned and operated products throughout our <unk>.

<unk>.

Rising customer acquisition cost and last year's iOS privacy changes have significantly impacted performance marketing, particularly <unk>. According to our external marketing partner.

POS IBSA updates led to a 50% year over year drop in Facebook conversion rates for fashion and apparel brands in Q2.

As a result, <unk> shifted budget away from Facebook and towards Google, which has driven up competition in prices for keyword spending and what has historically been one of our key customer acquisition channels. We are combating these trends by shifting spend to other social channels and have plans to leverage the playboy name across our portfolio.

Elevate position and broaden our reach for you. Andy This involves a full rebrand under the Playboy Halo for levers we are planning on a new sexual wellness line called Playboy pleasure and will be featuring <unk> and Playboy merchandise and a lot of our stores.

We view these marketing headwinds as concrete evidence as to why center fold is so strategically important for our long term customer acquisition strategy on D C.

The central platform has the potential to drive organic customer acquisition and further target our product marketing as I mentioned last quarter. There are three key elements required to make certain default successful the brand the product and the creators.

As for the brands Playboy is one of the most recognized brands in the world and we will be leveraging its massive reach as we integrate centerfold within Playboy dot com overtime.

Ultimately driving all customers into one ecosystem.

<unk> product the platform itself and the pace of progress to advance it have not met my expectations. When we decided to launch central we had two options build the platform and completing the ground up a 12 month process in the best case scenario, assuming that we had a full team in place, which we did not.

Or buy an existing platform to accelerate our market entry we.

We chose the latter which provided speed to market and the ability to test and iterate on the product the coding that goes into the backend to support messaging payments.

In Greater records is extremely complicated and Fortunately our initial team, which was largely comprised of third party offshore developers was unable to make the needed progress on the platform. However, having a live product and market has provided us with much needed test data to inform prioritize and access.

<unk>, our current product roadmap and greater strategy.

Given the product issues, we encountered I quickly identified the need to upgrade our technology talent.

Crude is a new in house Tech team earlier, this year, including product and engineering leaders from Uber, Google Square and Y Combinator since they have to come onboard.

We have seen dramatic improvements in the stability of the platform and the new bulk features and back end enhancements that will be rolled out later this year.

From day, one the new team has been laser focused on building a seamless creative platform with intuitive UI leveraging data from our existing business and the ongoing feedback with creators and fans to inform our priorities and refine the platform the relationship and expertise from our new team have also enable us to work with Premier.

<unk> and payment providers to ensure best in class functionality accelerate development and lower our overall cost basis with cellular folds improved technology and the successful test cases and retailer Crazy strategy, we are executing on the southern fold strategy and fairness.

As the new technology improve we work closely with our existing creators to monetize our audiences. A few weeks ago, we began onboarding new creators and some of them are already approaching $10000 in gross bookings in the first months, while also continuing to attract both new users and new creators onto the platform.

We are encouraged by the momentum we're seeing across through greater base. For example, one of our creators who we recruited from within our Playboy ecosystem is now generating nearly $100000 in gross bookings per month.

<unk> and our peers are also collectively bringing in millions of unique visitors many of whom convert to registered users, who then engage with and become paying fans of multiple creators on Thunderbolt. Our top refer for example has driven over 100000 registered users onto the platform through her personalized we fully.

<unk> across multiple third party platforms.

Adding Instagram and Brad.

What we need to do now is scale. These wins. So we are leveraging what we've learned about these top performers to create repeatable processes inform which types of creators to onboard and arm them with the best practices to grow their subscriber base and optimize the performance on Thunderbolt.

Before I became the CEO of <unk> group I was in private equity for a long time and have been through many economic cycles before while the road ahead wont always be smooth I am encouraged by our momentum and I'm confident in our people our brand and our long term plan.

I'll now turn the call over to Lance.

Thanks, Ben second quarter revenue grew 31% over the prior year quarter to $65 $4 million, our growth was driven entirely by our direct to consumer segment, which was up 59% year over year to $44 $6 million.

As Ben alluded within direct to consumer we have seen a real bifurcation of performance with Honeybear debt and Playboy achieving continued growth, while Andy and leverage that experience worsening trends at the year has progressed.

<unk> net revenue was up 32% year over year to $22 4 million in the second quarter and up 37% on a constant currency basis.

Growth in <unk> was driven by a 15% increase in brick and mortar revenue and a 49% increase in e-commerce.

Solid growth on both fronts, despite Australia being more heavily impacted by the current macroeconomic situation and relatively low brand awareness for our honeymoon at in the U S.

Playboy E com revenue in the second quarter grew 90% year over year and revenue in the month of July and me for the first time ever.

While the Playboy brand continues to grow our supply chain with hit, especially hard in our license inventory, where we're heavily reliant on our partners around the world.

We've made strides to increase our owned and operated portfolio. This included bringing design and marketing in house and hiring key people in these two areas from Victoria's Secret Abercrombie American Eagle, Calvin Klein and gap body.

The buying behavior of customers A&D and levers has been severely impacted by inflation, leading to a year over year decline in revenue of $8 million in the second quarter, the bulk of which was driven by Andy.

Andy is also part of an unsustainable marketplace wholesale model with low margin and a highly saturated competitive set which creates higher risk and exposure to supply chain challenges due to our supplier impact.

For example, Andy was running a 50% out of stock rate during the first part of the second quarter.

To mitigate this in the short term we've made an effort to secure safety stock for our top 20, selling items as well as our Halloween merchandise.

Similar to what we're trying to do at Playboy, our long term focus at <unk> is to grow our owned and operated business, which should ultimately yield higher margins more control and enable a shift of profitable growth with less than paid media.

Lovers significant raw material cost increases impacting product margins and when combined with high fixed costs due to our store footprint. There is less flexibility for us to address the revenue shortfall shortfalls, we've experienced due to declines in store traffic.

Similar to what we experienced in Playboy and Andy we are highly dependent on a vendor model and their supply, which resulted in supply chain disruptions and out of stock items.

That said, we've integrated our levers and the antibody and games driving efficiencies and enabling us to reduce head count.

In our licensing segment Q2 revenue was flat year over year to $15 9 million.

Given the macro climate some of our apparel and gaming partners have experienced weaker trends as the year has progressed.

Looking at a reduction of reported revenue on our end.

We believe these are more category wide headwind and not specific to our brands as other partners that produce better than expected results, which helped to offset the declines reported.

Reported revenue from our partner then China was stable. However, the severity of Covid lockdowns in the country resulted in cash payments coming in after the quarter ended.

We have signed an amendment with our major partner that put them on payment plans to help them. During this time.

Instead of being paid by our partners semi annually, we are shifting to more frequent payment plans for the next several quarters that will result in the majority of the expected cash payments, arriving this year with some amount of deferred to future periods. There is no revenue impact related to the new payment terms the overall contractual values remain.

In fact.

Our partners have made their first payment we have already received nearly half of the amount that were past due and we will continue to monitor the situation closely.

In light of all of the macro challenges that have impacted our business and the uncertainty that lies ahead.

We are withdrawing our prior financial outlook and suspending guidance for the remainder of this year.

Clear that our rate of revenue growth does not materialize as previously expected and we must adapt our investment strategy accordingly.

As Ben mentioned, we are currently undergoing a strategic review so that we can position the company to be cash flow breakeven by the end of this year.

While we remain focused on sustaining the investments that we believe are most critical to executing on our long term strategy of growing our direct to consumer and digital businesses. We are also focused on rationalizing our business to improve operating efficiency.

May incur transition costs that impact our financial results. This year as we implement these changes, but we believe the work that we are doing now will allow us to enter 2023 as a more streamlined and efficient company well positioned to capture the global demand, we continue to see for the Playboy and hummingbird brands.

Although revenue is difficult for us to forecast in the current environment, we're very focused on cost levers that we can control.

Embedded in our prior fiscal year 'twenty, two adjusted EBITDA outlook with an expectation that on a pro forma basis non product costs would increase by a little more than $30 million. This year, an increase of roughly 17% year over year to over $210 million annually.

Over half of that expected cost increase for this year or more than $17 million was expected to be driven by our investments in building out both our direct to consumer business and center court.

Based on the cost reductions that we started back into the business last quarter. When we took out approximately $5 million of annualized overhead our current run rate on non product cost is just under $200 million annually.

We intend to be responsive to what we're seeing in the marketplace and to control our cost tightly so that we can manage our liquidity and balance sheet accordingly.

One example of that there are near term store expansion plans for <unk>.

Although the business continues to grow nicely, we are taking a more disciplined and cautious approach to store openings. This year.

We have already opened stores in Miami, and Stratford UK and assigned leases for short Hills, New Jersey, and International Plaza in Tampa, but.

But we have decisions to make on the remaining store openings that were planned for this year.

Our existing U S stores have performed quite well, averaging a $1 million in annualized revenue per store with 30% four wall EBITDA margins, which makes for a compelling argument to push forward with our previously communicated plans. However, we want to be mindful about taking on fixed long term liabilities in the curve.

Current environment until we better understand how the how long these conditions may persist.

Any potential impact on the hummingbird at consumer.

We also must consider the near term cash impact as each new store costs around $700000 to build out. So it will have a roughly two year payback period on any initial cash outlay.

While we believe we have ample liquidity to open more honeybear thats for this year, we want to ensure we have enough cushion to withstand any potential disruptions to our expected cash receipt.

Although the business has been presented with many obstacles this year, Ben Ashley myself and the rest of the management team firmly believe in the long term potential for value creation that exists we.

We will make near term cost adjustments that are needed to be responsive to what we're seeing on the revenue side, but we plan to stay the course and invest prudently and executing on our strategy.

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

Certainly as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And our first question will come from Alex Fuhrman.

Caller your line is open.

In interpreting your comment here that the bulk of the slowdown here and the need to.

The same guidance.

Is related to you, Andy and lever it sounds like Honeybear debt and the Playboy brand at least in terms of your direct to consumer sales on the Playboy brand remains strong I don't know if that maybe they've slowed down as well, but just still continue to grow nicely or have those brands.

Not seeing the same sequential.

Deterioration that you've seen at <unk> levered.

Thanks, Alex.

Yes look I think Thats right I think when you look out.

For the rest of the year.

You guys have coming into this year.

Alright.

Sorry, I thought you said something looking out to the rest of the year Halloween is a big peer.

Period of revenue four four Andy and if you were to assume you Andy were flat to last year.

And if you realize that we had left around $3 million of revenue on the table last year, Andy when we had to shut down the warehouse over Halloween.

We've remedied those problems if you take that in kind of the high watermark for revenue in the fourth quarter and then you actually look at.

The current trends that we've seen in the business year to date Youre looking at.

Kind of a $15 million to $18 million potential swing between.

Current trends and kind of what we would achieve if we were flat to last year, but kind of that $3 million. So.

Thats, obviously, a lot of uncertainty for one business in one quarter.

I think the other thing that we have to factor in is what do we decide to do around hummingbird at store opening it doesn't have a huge impact on our revenue for the remainder of the year. Because these store openings will be would be plan to be opening later on.

But it could certainly have.

Have an impact for a same thing on the marketing side, if we choose to pull back marketing in light of kind of the decreased efficiency at a higher cost.

Customer acquisition that in turn would have an impact on revenue.

Same thing on the licensing side.

It's predictable, but yes.

As we saw in the second quarter, if our if our partners start to experience worsening trends and then they come to us and say hey, our forecast for the rest of the year is lower than we said it was in Q2, we're going to have to take down revenue. Even further so I think there's a lot of uncertainty out there.

We don't feel comfortable trying to put out a number.

That in a way it could vary quite widely.

Yes, no that makes a lot of sense Lance. Thank you and then that the <unk>.

Decision to pull back on the hummingbird at door openings is that just part of that uncertainty you mentioned in and fear that maybe that brand could start to see.

We see the consumer under pressure or is that just as you look at your expenses is that just the most obvious easier place to pull back on spending this year.

Look the it would be a tough decision to make right because these stores.

Are performing so well here in the U S right I mentioned that the average store here in the U S.

Paul that $1 million annually, and they're 30% four wall EBITDA margins. So when you look at that.

It's obviously.

In our best interest to go ahead and open more stores, but having said that in the current environment, where we have not seen any impact.

On the higher end luxury consumer that frequent high neighborhood at.

It's hard to know what's going to happen and we think it's prudent when youre entering into these long term fixed liability to take a pause and see how things unfold.

And quite frankly, we may be able to get better deals on some of these leases down the road so.

We're going to evaluate each one individually and decide what we want to do.

We've got the flexibility I think to open more but we do want to take a more prudent approach. So there's nothing that we've seen that indicate a slowdown at how neighborhood at but at the same time.

A lot of things are changing quite rapidly in the environment and we just wanted to be mindful of that and we want to watch the impact of inflation on the luxury market have you seen it hit.

Kind of the everyday consumer at EMEA levers and.

It could end up hitting the luxury market next.

Sure that makes sense.

Okay.

And our next question will come from George Kelly of Roth.

So just to start with the licensing business.

Grow year over year.

Yes, it was flat year over year.

There were a few drivers behind it and China in particular, there was no impact on revenue as I mentioned.

All of those contracts remain kind of the same.

The same amounts over the duration of the term. So we're able to book the same amount of revenue what we saw with some of our some of our apparel partners in some of our gaming partners outside of China, So more domestically and also in Europe .

It came out in the second quarter, and basically had brought down their guidance for the full year. So in turn we have to reduce the amount of overages that we we ended up booking.

So you had that kind of dragging down the revenue that you recognized for licensing in the second quarter on the flip side, we had a number of partners that actually surprised us to the upside that actually.

It performed better than we expected and delivered over just so it's a little bit of a mix, obviously I think.

From our perspective, it's really the macro environment.

Some of our partners harder than others, but in general.

Over the longer term our view has been that this should be kind of.

A single digit grower, if you didn't have that reduction.

That our partners had in the second quarter again, they brought down full year number so that had kind of an outsized impact on the second quarter, but if you didn't have that reduction in forecast you still would have grown this business.

Five 6% something like that so.

Thats kind of what we're seeing there fed Ashley anything to add kind of on the collaborations that we're doing.

Yes, George It's Ben look I think the Playboy brand, both with partners and with consumers remains extremely strong.

This is really more of a macroeconomic environment outside of its affecting almost every other retailer today and.

And what the impact is on inflation and consumer spend long term.

Israel and so.

That's the challenge in front of us like any other consumer product company for the balance of the year.

It's not the demand from both consumers and partners.

Okay. That's helpful. So just to put that what im hearing is.

If there is impact but there is no there hasn't been some kind of recent dramatic falloff in your licensing business.

No Thats absolutely correct, we have been very stable in the licensing business. It was like I said, some puts and takes you had some people pulling back their forecast so.

You had to pull back some of the revenue that you had already recognized thats just the way these licensing contracts work in terms of.

How we have to account for them as Youre accounting for it based on our full year forecast that they give you at the beginning of the year, if they update that throughout the year to come in lower than they expected and you've got to adjust that accordingly, and you've got to adjust that ratably. So that hit us in the second quarter, but like I said there were other licensees that came in and offset some of those losses.

So.

Net net we were flat year on year.

But our view is longer term this should be kind of a single digit grower.

The other thing is we've already signed probably twice as many new deals this year compared to what we signed last year. So certainly the interest level and kind of the volume of new deals remains quite strong.

Great and then just one other question for me.

I was hoping you could go back through.

The cost discussion that you had in your prepared remarks, and I guess, what I'm trying to understand.

I look at SG&A I think you were also talking about some of whats in Cogs.

But I guess the direct question is should SG&A I mean is there a room for SG&A to decline from from where it was in <unk> or what are your expectations around SG&A for the remainder of the year.

Yes, the way I was trying to frame it was non product costs right product costs.

If you look at kind of our model our prior guidance of $3 $50 million of revenue and $55 million of EBITDA, you would get to about a 25%.

Shipping costs.

But it has a lot of fixed costs in there. It has a store cost that have employee head count costs.

Tech infrastructure costs until what I was saying that going into the year. The assumption on that call. It non product cost was going to be north of $210 million. So it was going to be about 17% year on year growth.

If you would if you had included kind of the full year impact of <unk>.

But at <unk> last year.

And what I said is we've already made some cuts to the business.

Our run rate is below that and it's actually around $200 million and the work that we're doing right now is figuring out how much further we want to take that down so yes to your to your point. We believe there are more costs that we can reduce out of that $200 million again, we want to be.

We want to be able to sustain longer term growth investments here, we wanted to be really mindful of kind of the long term potential for value creation.

But at the same time, we've got to make sure that we're operating as efficiently as possible.

A lot of the work that we've been doing this year.

It has been related to putting in place the controls put in place the infrastructure and processes to allow us to be more efficient them to emerge this year.

A more efficient company, so what I.

<unk> cost that you are putting in this year call it $7 million.

What are the business that $300 million or $600 million of revenue that that cost is going to be largely $7 million, maybe it goes up by $1 billion. If you were to double.

Your revenue, but it's largely a set cost.

So yes, I think there is a lot of room for operating leverage in this model what we've got to do is figure out.

How to pull back where we can and be more efficient, where we can and continue to support growth in the areas.

That we think makes sense.

Okay understood. Thanks, I'll hop back in the queue.

I'll just add I spent 20 plus years in private equity.

We've done this before I've done this before.

The biggest thing for us is making sure that we preserve the high growth areas that we see in the future.

But we will not leave any stone unturned, we will take every cost out of the company that we can take out.

In order to preserve Max.

In the future, but we will not leave any stone unturned, we will take every cost out of the company that we can take out.

In order to preserve maximum liquidity for the company and that's the process that we're doing we know there's more to be done and we will do that because that's in the best interest of everyone.

Okay.

And our next question.

Okay.

And our next question will come from Jason children of Canaccord Genuity. Your line is open.

Yeah. Thanks for taking the question just going back to the rebrand of the A&D I'm curious.

So that decision and then just a follow up to that is on the hummingbird that design line is that going to be planned purchase handy for just the Playboy Dot com brand for both and how do you view.

<unk> that brand, but the different price points that are your DTC offerings. Thanks.

Yes.

And as we're doing this more as a rolling change because we still have old product and inventory we need to.

Work, our way through and so it's not going to be a light, but more of a rollout through the Halloween season, but in advance of peak Halloween all the way through the back half of the year and then we will continue to right size the inventory where we have.

Kind of older product or older imagery, and then with that we will be leveraging the Playboy brand and Halloween that into the A&D business. So we will have a more curated and cross.

Cross pollinated selling experience, where youll be able to buy Halloween is again, an example on both T&D and Playboy leveraging the Bunny suite and some of the unique areas that Andy Andy brings to the table for the Halloween costumes.

From other brand standpoint, so levers, we're starting with the Playboy pleasure as our intro into a playboy sexual wellness line that will launch.

And this year and we will be.

Leveraging the lever stores not only for Playboy apparel, but also for our product in that sexual wellness space and we will continue to elevate the brand across the board. So meaning we will have Playboy pleasure look and feel like the Playboy brand and we will start to elevate our lever store experience and our levers online.

<unk> in line with that so we can.

Ensure that we're gaining the most out of that.

Line, and then for Honeyberry that.

On the Honeywell side, we're going to continue to diversify the product offer and were and continue to go after that elevated luxury customer keeping that.

More uniquely HB focused.

Leverage to the design team and the resources from the Honeywell team to help bring Playboy wanted to rate and market that line is in the mid price point. So we're not going after the luxury customer we're going after that mid tier price point that will really speak to a little bit more of like.

From a competitive standpoint, maybe that Victoria's secret pink or area that or the.

Lingerie that fit to that Gen Z consumer where were seeing such high synergy with the Gen Z customer coming to Playboy today.

Great. Thanks, and then just on the cost savings that we identified in Q2.

<unk> 5 million I think that Lance mentioned is that more from the synergies as the integration work on these different DTC businesses. It takes place or was there some other areas that we've identified.

Low hanging fruit to cut those costs.

Yes.

It's the former we had talked about it a little bit I think that happened right before our last call, but it was largely head count related at that point in time.

Great. Thank you.

And our next question will come from Jim Duffy of Stifel. Your line is open.

Again your line is open.

I'm, assuming you said Jim Duffy.

Yes, Thats correct.

Okay, I'm, sorry, I didn't hear that good afternoon, everyone. Thanks for taking my questions.

First I wanted to ask some clarification around your comments on center. Full then you were clear centerfold not meeting your expectations for progress.

Hey, Jim Thanks for the question.

<unk> did not meet my expectations, we definitely had an issue on the personnel side and as CEO I pivoted quickly and recruited a new team.

What I would say is we were very lucky.

A team that came out of the Uber and Youtube and Y Combinator square et cetera, Youre trying to attack.

Is the revenue that we're seeing with our top creators and then also the new creators that we started to onboard recently, so we had stopped onboarding creators.

Because of the tech challenges that we had until those I see okay.

I didn't want to burn through that but what we are seeing is a creators can monetize themselves on the platform and so now it's a question of as we gathered this data it's signing more of those creators. We have we have a robust waitlist and its onboarding those creators for scale.

The good news is that the product is now working we have fixed the backend issues on that there'll be a lot more enhancements coming over the next few months that will make it even better and then it's a question about just scaling the creative side of it but our top creators are making almost $100000 a month now the new creators that we've been onboarding of about 10000, and what we're seeing.

A cohort analysis as those creators are growing on a weekly basis.

So now it's just a question of scale.

Understood. Thank you for that.

I had a few questions for you on the balance sheet.

<unk> dropped can you comment on.

The receivables, which were elevated and also give us some color on the composition of your inventory balances.

Yeah on the on the receivables as I mentioned, we had some.

Some payables.

Some receivables that had been due.

By the end of June ended up coming in since June 30.

The big driver of that.

The inventory balances.

Sorry, what was the question specifically.

The quality and composition of your inventory do you have any issues were.

Youre concerned about having to discount to merchandize to clear it.

Is there an in transit component of that that's elevating the balances to help us.

Just getting our arms around the quality of that.

Inventory, which we're seeing on the book because it looks elevated relative to where it's been.

Hi, This is Ashley I'm jumping in again I'll speak to the inventory.

Styles with the early receipts heading into the Halloween season for Playboy and Andy in particular poses risk with the supply chain as.

Of course, Theres areas, where we are managing our inventory and leveraging disciplined promotional management and pricing actions to right size, but we feel confident that we've got the right strategies in place to address where we're slightly heavy and then bringing in inventory early was the right decision to set us up for Q3 success in Q4.

Thanks for that Ashley.

My last question it sounds like Youre exploring a number of different avenues.

Sure up liquidity have you considered monetizing some of the assets that arent necessarily delivering a return for shareholders such as your portfolio or where even the big Bunny jet too.

Improve the liquidity situation.

So as we said in the remarks, we've amended our credit facility to create headroom, we have about $70 million of cash and cash equivalents on the balance sheet as of today.

What I would tell you there are no sacred cows, we will do whatever we need to do to create the maximum liquidity for the business and invest in areas of growth.

To continue to maintain our long term plan.

And so if that selling we are selling the plane or anything in between we will do anything in the best interest of our shareholders.

Thank you.

And our call. Thank you for participating you May now. This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 Plby Group Inc Earnings Call

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