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 11.

Good afternoon, everyone, and welcome to PLBY Group's second quarter 2022 earnings conference call. I'm Ashley DeSimone from ICR. Today we have with us Ben Cohn, Chief Executive Officer, Lance Barton, Chief Financial Officer, and Ashley Koechter, President of Global Consumer Goods. The information discussed today is qualified in its entirety by the Form 8K that has been filed today by PLBY Group, Inc.

which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast and a replay will be posted to PLBY Group's 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 PLBY 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 PLBY Group's actual results to differ from historical results and forecasts, including those risks set forth in PLBY Group's 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, PLBY will 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 PLBY filed today in its Form 8K with SEC. I will now open the call to Ben to please go ahead. Ben?

Thank you actually, and good afternoon everyone.

Today's climate is very different from when we first began to transform what had been a legacy media and licensing company into a fast-growing consumer and digital business.

However, the robust demand for Playboy and Honey Bedette continues to hold strong, and I am optimistic about the recent trends we are seeing on Centerfold. That said, given the uncertainty 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 restructure our debt and secure liquidity.

We have amended our senior secured credit agreement to give us extra headroom to invest in the growth areas of the business and 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 and 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 cashflow breakeven by the end of this year. The 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-led platform, Centerfold.

My confidence in the business and commitment to our long-term plan are evidenced by the approximately $850,000 of shares I bought in Q1, in addition to the $500,000 of shares I purchased when we went public.

No named executive officer has 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 the

to short swing profit roll. 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 costs.

but it is also putting pressure on consumer spending.

In 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 Honey Burdette caters to 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 D2C revenue is up over 150% and Honey Verdet 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 East St. Laurent featuring Romeo Beckham, Tila and Studs.

And we are expanding our portfolio to include Playboy Lingerie, designed by the Honey Bird team, which will launch later this year.

HoneyBurdette continues to deliver strong revenue growth and margins, despite the macroeconomic headlines.

We conducted a soft launch with Yupay to provide Honeybirdette customers with a third-party gifting option.

From the early data, we are seeing strong conversion rates and direct acquisition of new customers.

Given the success of the pilot, we are incorporating the option for all customers and will be adding wishlist functionality. We are exploring using cases for our other brands as well as for Centerfold.

On the retail front, our Miami store continues to be one of our top performers. We opened a new location in East London in late Q2, and more store openings are planned over the next few quarters.

We will continue to expand Honey Bird Act's retail footprint, diversify our product offerings, and grow brand awareness in the United States.

The end-year lovers are seeing the opposite sales trends. That's their cost-conscious customer is getting hit extremely hard at the gas pump and in the grocery store leading to less spend on discretionary items.

Compared to 2021, year-to-date revenue through the end of July declined 22 million between Yandi and Levers combined, with over 18 million of the decline coming from Yandi.

Supply chain disruptions continue to pressure margins throughout the business because seasonal inventory arrived off cycle and had to be managed through discipline promotion.

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

rising customer acquisition costs, and last year's iOS privacy changes have significantly impacted performance marketing, particularly for Yandi. According to our external marketing partner, iOS IDFA 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 and prices for keyword spending in 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 to elevate positioning and broaden our reach. For Yandy, this involves a full rebrand under the Playboy halo. For lovers, we are planning on a new sexual wellness line called Playboy pleasure and will be featuring Yandy and Playboy merchandise in our lover stores.

We view these marketing headwinds as concrete evidence as to why Centerfold is so strategically important for our long-term customer acquisition strategy on D2C. The Centerfold 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 Centerfold 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.com over time, ultimately driving all customers into one ecosystem.

The centerfold product, the platform itself, and the pace of progress to advance it have not met my expectations.

When we decided to launch Centrifold, we had two options.

build the platform from the ground up, a 12 month process in the best case scenario, assuming 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 coding that goes into the backend to support messaging, payments, and other services is a great tool to use.

and creator records is extremely complicated. And unfortunately, our initial team, which was largely comprised of third-party, off-shore 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 prioritize and accelerate our current product roadmap and create a strategy.

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

We've seen dramatic improvements in the stability of the platform and in new bulk features and back end enhancements 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 with creators and fans to inform our priorities and refine the platform. The new team has been laser focused on building a seamless creator with intuitive UI, leveraging data from our existing business and the platform. The new team has been laser focused on building a seamless creator with intuitive UI, leveraging data from our existing business and the platform. The new team has been laser focused on building a seamless creator with intuitive UI, leveraging data from our existing business and the platform.

The relationship and expertise from our new team have also enabled us to work with premier technology and payment providers to ensure best in class functionality, accelerate development and lower overall cost basis.

With Centerfold's improved technology, successful test cases, and a tailored greater strategy, we are executing on a Centerfold strategy in earnest.

As the new technology improved, we worked closely with our existing creators to monetize our audience. A few weeks ago, we began onboarding new creators, and some of them are already approaching $10,000 in gross bookings in their first month, while also continuing to attract both new users and new creators onto the platform.

We are encouraged by the momentum we are seeing across the crater base.

For example, one of our creators who we recruited from within our Playboy ecosystem is now generating nearly $100,000 in gross bookings per month.

She and her 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 Centerfold.

Our top referrer, for example, has driven over 100,000 registered users onto the platform through her personalized referral link across multiple third-party platforms, including Instagram and Reddit.

What we need to do now is scale these ones.

Before I became the CEO of PLBY Group, I was in private equity for a long time and had been through many economic cycles before. While the road ahead won't always be smooth, I am encouraged by our momentum and confident in our people, our brands, and our long term plans.

I'll now turn the call over to Lance.

Thanks, Ben. The 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 then alluded, with indirect to consumer we have seen a real bifurcation of performance with Honey Bredette and Playboy achieving continued growth while Yandy and lovers have experienced worsening trends as the year has progressed.

Honey Burnett revenue was up 32% year over year to $22.4 million in the second quarter and up 37% on a constant currency basis.

Growth at HPE 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 HoneyBredette in the US.

Playboy ecom revenue in the second quarter grew 90% year over year, and revenue in the month of July eclipsed the EMI for the first time ever.

While the Playboy brand continues to grow, our supply chain was 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 own and operated portfolio. This includes 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 at Yandy and Lovers 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 Yandy.

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

For example, EME 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 Yandi is to grow our own and operated business, which should ultimately yield higher margins, more control, and enable a shift to 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 shortfalls we have experienced due to declines in store traffic.

Similar to what we experienced at Playboy and Yandy, 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 lovers in the anti-bind teams, driving efficiencies and enabling us to reduce headcount.

In our licensing segment, Q2 revenue would slap 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, resulting in a reduction of reported revenue on our end.

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

Reported revenue from our partners in 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 amendments with our major partners 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 amounts deferred to future periods.

There is no revenue impact related to the new payment terms as the overall contractual values remain intact. This is a test for the new payment terms as the overall contractual values remain intact.

All partners have made their first payment. We've already received nearly half of the amounts 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.

It's clear that our rate of revenue growth is not materialized 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 investments that we believe are most critical to executing on our long term strategy and growing our direct to consumer and digital businesses, we are also focused on rationalizing our business to improve operating efficiency.

We 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 Honeybread F 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 22 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, for more than $17 million, was expected to be driven by our investments in building out both our direct-to-consumer business and centerfold.

Around 7 million of the expected cost increase is due to technology and infrastructure costs, as we work to consolidate operations, build a unified backend across all of our direct-to-consumer businesses, and remedy our IT 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 nonproduct 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 tradeoffs and reducing costs where we can, such as eliminating planned hiring, reducing marketing spend, delaying planned product or store launches, and reducing headcount.

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

One example of this is our near-term store expansion plans for Honey Bredette.

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

Our existing US stores have performed quite well, averaging $1 million in annualized revenue for the first store, with 30% four-wall even-dawn 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 current environment until we better understand how long these conditions may persist and any potential impact on the HoneyBredette consumer.

We also must consider the near-term cash impact as each new store costs around $700,000 to build out, so we'll have a roughly two-year payback period on any initial cash outlay.

While we believe we have ample liquidity to open more Honeybret F 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.

We'll make near-term cost adjustments that are needed to be responsive to what we are seeing on the revenue side, but we plan to stay the course and invest prudently in 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, 1-1 on your telephone. Please stand by while we compile the Q&A roster.

And our first question will come from Alex Furman of Craig Hala. Your line is open.

interpreting your comment here that the bulk of the slow down here and the need to send guidance is related to Yandy and Lover. It sounds like Honey Burdette and the Playboy brand, at least in terms of your direct to consumer sales on the Playboy brand, remain strong. I don't know if that's, 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 Yandy and Lover.

Thanks Alex. Yeah, I think that's right. I think when you look out.

For the rest of the year, but I was the guy coming into this year.

That was the guy coming into this year. Sorry.

Uh, sorry, I thought you said something I'm looking out to the rest of the year. You know, Halloween is a big period of revenue for for Yandy. And. If you were to assume Yandy were flat to last year. And if you realize that we had left around 3M dollars of revenue on the table last year at Yandy, when we had to shut down the warehouse over Halloween.

We think we've remedy those problems if you take that and kind of the high watermark. For revenue in the 4th quarter, and then you actually look at the current trends that we've seen in the business year to date. You're looking at kind of a 15 to 18M dollars potential swing between. Current trends and kind of what. We, we would achieve if we were flat the last year. What kind of that 3M dollars so.

That's obviously a lot of uncertainty for 1 business and 1 quarter alone. I think the other thing that we have to factor in is. What do we decide to do around honey bread at store opening? It doesn't have a huge impact on. On revenue for the remainder of the year, because the store openings will be would be planned to be opening later on. But it could certainly have have an impact for same thing on the marketing side.

If we choose to pull back marketing in light of kind of the decreased efficiency, the higher cost. Of customer acquisition that in turn would have an impact on revenue. Same thing on the licensing side, it's it's kind of. It's predictable, but if.

As we saw in the 2nd 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 just a lot of uncertainty out there. That we don't feel comfortable trying to put out a number. Um, that that in a way could vary quite widely. But that is our hope, is that every One of us more likely to reach in the next year than ever before from this –... This is part of the knowledge that we have lost. We need more than that, because we all have differentrowing views and different swabs and different++++++++ or different differences. It BUTaps. It BEFORE-..

Yeah, no, that makes a lot of sense, Lance. Thank you. And then that, you know, the decision to pull back on the Honey Burdette store openings, is that just, you know, part of that uncertainty you mentioned and, you know, fear that, you know, maybe that brand could start to, you know, see the consumer under pressure? Or is that just, you know, if you look at your expenses, is that just, you know, the most obvious, easiest 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 US, right? I mentioned that the average store here in the US pulls in a 1Million dollars. Annually, and they're 30% for wall, even the 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.

Down the road, so we're going to evaluate each 1 kind of individually on the side 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 indicates. A slow down and honey for that, 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 for the impact of inflation on the luxury market. We've seen it hit.

Kind of the everyday consumer at the end and lovers and it could end up hitting the luxury market next.

Sure, if that makes sense. Thank you, Ed.

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

So just to start with the licensing business.

Seemed 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?

same amounts over the duration of the term. So we're able to book the same amount of revenue. What we saw was some of our apparel partners and some of our gaming partners outside of China, so more domestically and also in Europe , 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 end up booking. So you had that kind of dragging down.

The revenue that you recognize for licensing in the 2nd 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 overages. So. It's a little bit of a mix. Obviously, I think it's from our perspective, it's really the macro environment. I hit some of our partners harder than others, but in general. I would say over the longer term, our view is then that this should be kind of a.

A single digit grower, if you didn't have that reduction. That our partners had in the 2nd quarter again, they brought down 4 year numbers. So. That had kind of an outside impact on the 2nd quarter, but if you didn't have that reduction in forecast, you still would have grown. This business probably 5, 6%, something like that. So. That's kind of what we're seeing there. Ben, actually anything to add is kind of on the collaboration that we're doing. You will sure much have an open and important out of context. But as just on your website I work quite closely with companies in radio and the KentUCK, And those offshoreumbnail and technologies that you can go. It's very similar globally, too, if everything is just onays kind of also it kind of sits right there. So it's it's like, OK, let's go fox up.

Yeah, George, it's been, 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 it, that's affecting almost every other retailer today. And 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,

what the people in Washington do. They must have taken different economic classes than I took by putting more fuel to the fire, regardless of what their models tell them. And what the impact is on inflation and consumer spend long term is real. 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 to you, what I'm hearing is there's impacts to your DIMP, but there has been some kind of recent dramatic fall off in your licensing business.

No, that's absolutely correct. We've been very stable in the licensing business. It was, like I said, some puts intakes. You had some people pulling back their forecast. So. You had to pull back some of the revenue that you had already recognized. That's just the way these licensing contracts work in terms of. How we have to account for them, if you're accounting for it based on a full year forecast that they give you at the beginning of the year. If they update that throughout the year, come in lower than they expected, then you've got.

the interest level and kind of the volume of new deals remains quite strong. Okay, great. And then just one other question from me. Lance, 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 is...

I look at S, G, and A. I think you were also talking about some of what's in COGS.

But I guess the direct question is just should SG&A, I mean is there room for SG&A to decline from where it was in 2Q or what are your expectations around SG&A for the remainder of the year?

Yeah, the way I was trying to frame it was was non product costs, right? So product cost. I mean, if you, if you look at kind of our model, our prior guide, the 350Million of revenue and 55Million of EBITDA, you'd 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 has variable costs in there such as marketing.

And the, like, and shipping costs, but it has a lot of fixed costs in there. It has a store cost. It has employee headcount costs. Uh, at the infrastructure costs and so what I was saying is going into the year. The assumption on that call it non product costs. Was going to be north of 210Million dollars, 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.

Honey Burnett and lovers 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 point, we believe there are more costs that we can reduce out of that $200 million. Again, we want to be able to see that.

sustain longer term growth investments here. We want to be really mindful of kind of the long term potential for value creation. Uh, but at the same time, we've got to make sure that we're operating as efficiently as possible. And a lot of the work that we've been doing this year. Um, has been related to putting in place the controls, putting in place the infrastructure and processes to allow us to be more efficient and to emerge this year. As a more efficient company, so.

What I am most interested in when I think about rolling ahead into 2023 and beyond, you're kind of putting in place that cost infrastructure this year. It really shouldn't significantly grow beyond whatever headcount you really need to support the continued growth of direct-to-consumer or centerfold in future years. Your tech and infrastructure costs that you're putting in this year, call it $7 million, whether the business does $300 million or $600 million in revenue.

Or growth in the areas that we think makes sense.

we think makes sense.

Understood. Thanks. I'll have back in the queue.

Yeah, George, I'll just add, I spent 20 plus years in private equity. We've done this before, I've done this before. And 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 maximum capacity.

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.

And our next question.

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

Yeah, thanks for taking the question. Just going back to the rebrand of the NBM curious. Is that planned for ahead of the holiday 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 to follow up to that is on the Honey Bird design line. Is that going to be planned for just handy for just the Playboy dot com brand for both? And how do you view?

positioning that brand with a different price point of your DTC offering. Thanks. Hi, this is Ashley. I'll jump in on the Yandy rebrand and the other areas. Just speaking to the rebrand first, the Yandy 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 important to understand is we're doing this more as a rolling change because we still have old products and images.

cross-pollinated selling experience where you'll be able to buy Halloween as an example on both Yandy and Playboy, leveraging the bunny suit and some of the unique areas that Yandy brings to the table for the Halloween costumes.

From an other brand standpoint, so Lovers, we are starting with the Playboy Pleasure as our intro into a Playboy sexual wellness line. That will launch at the end of this year and we'll be leveraging the Lovers stores, not only for Playboy apparel but also for products 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 lover's store experience and our lover's online experience in line with that so we can ensure that we're gaining the most out of that line. And then for Honey Bird at...

On the Honey Burdette side, we're going to continue to diversify the product offer and continue to go after that elevated luxury customer, keeping that more uniquely HB focused. We leveraged the design team and the resources from the Honey Burdette team to help bring Playboy lingerie to 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 or the laundry that sits to that Gen Z consumer, where we're seeing such high synergy with the Gen Z customer coming to Playboy today.

Great thanks, Ashley. And then just on the cost savings that were identified in Q2, the 5M, I think that Lance mentioned is that more from. The synergies for as the integration work on these different DTC businesses takes place, or was there some other area that was identified as sort of low hanging fruit to cut those costs?

Yeah, it's it's the former we had talked about a little bit. I think that happened right before our last call, but it was largely headcount related at that point in time. Um, you know, a lot of what we're doing right now is, as we put in place. These processes and systems, um, we're able to be more efficient about how we, we staff these things. So. That was largely what we had done. I think it was back in May. So, you know, thanks to all our partners at the Boko monsters on the East Side. And, um, so I'm very excited about our decision to leave the answers because it would be a safe to keep track of our needs and. That was something that we had a trust with in.

Great, thank you.

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

Again, your line is open. I'm assuming you said Jim Duffy.

Yes, that's correct.

Okay, I'm sorry to hear that. Good afternoon, everyone. Thanks for taking my questions. First, I wanted to ask some clarification around your comments on centerfold, then you were clear centerfold, not meeting your expectations for progress, but you also gave some metrics, which suggested some decent traction. You'd previously been speaking to an expectation for notable revenue contribution from centerfold in the second half of the year. Is that still the expectation?

Hey Jim, thanks for the question. Senator Fulg 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 to get a team that came out of Uber and YouTube and Y-combinator Square, et cetera. You're trying to attack a top tech talent to a non-product company historically. It's not the easiest thing and obviously it took us longer to do that.

than that we were expecting. What I'm encouraged about Uncentered Fold and we have a lot of improvements coming this fall is the revenue that we are 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 and until those, I said, okay, I didn't want to burn through that. But what we are seeing is that 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 a robust wait list and it's 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 $100,000 a month now. The new creators that we've been onboarding are about 10,000. And what we've seen from a cohort analysis is those creators are growing on a weekly basis. And now it's just a question of scale.

Understood. Thank you for that. Then let's add a few questions for you on the balance sheet. I just saw the K dropped. Can you comment on the receivables which were elevated and also give us some color on the composition of the Rimentary Balances?

Yeah, on the on the receivables, as I mentioned, we had some payables or some receivables that had been due to us by the end of June , those that are just coming in since June 30th. So that's that's a big driver of that on the inventory balances.

Sorry, what was the question specifically on that? Well, just like the quality and composition of your inventory, do you have any issues where you're concerned about having the discount to merchandise to clear it? Is there an intrinsic component of that that's elevating the balances, anything to help us?

You get arms around the quality 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. So overall, I feel confident with where inventory is positioned. A couple of strategies that we intentionally went after, which didn't play our 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 Yandy 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 why our inventory coming out of the quarter was more inflated than usual, but it will serve us well in the like, you know, late Q3 period and heading into October . The second area is we have seen significant growth in our continuing to see significant growth out of Honeybirdette. And so that business is an area we're fueling with inventory to drive that and have also prepared for news store opening.

Thank you for.

Thanks for that Ashley. And then my last question, it sounds like you're exploring a number of different avenues to shore up liquidity. Have you considered monetizing some of the assets that aren't necessarily delivering a return for shareholders such as the art portfolio or even the big bunny jet to improve the liquidity situation? Or even the big bunny jet to 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 she does of today.dest Sugary have we heard of before and around the ballot. She does of today. Uh, uh. Uh, uh. Uhh, Uhh, Huh. First, Press. Press. Press. Press. If the bill is going up... Er, Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press! Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. Press. you

What I would say is 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's selling the art or selling the plane or anything in between, we will do anything in the best interest of our shareholders.

Thank you.

Endock all, thank you for participating. You may now disconclude today's conference call. Thank you for participating. You may now disconnect.

The conference will begin shortly. During Q&A, you can dial star 11.

The.

Oh.

Good afternoon everyone and welcome to PLBY Group's second quarter, 2022 earnings conference call. I'm Ashley DeSimone from ICR.

Today we have with us Ben Cohn, Chief Executive Officer, Lance Barton, Chief Financial Officer, and Ashley Kector, President of Global Consumer Goods. And Ashley Kector, President of Global Consumer Goods.

The information discussed today is qualified in this entirety by the form 8K that has been filed today by PLBY Group Inc., which may be accessed on the SEC's website and PLBY Group website. Today's call is also being webcast and a replay will be posted to PLBY Group's 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 PLDY groups, views and assumptions regarding future events and business performance at the time they're made, and we do not undertake any obligation to update these statements.

Forward-looking statements are subject to risks, which could cause PLB-Y groups to actually result to differ from historical results in forecasts, including those risks set forth and PLB-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 under reliance on any forward-looking statements. During this call, PLB-Y will 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, PLBY filed today in its form 8K with SEC. I will now open the call to Ben to please go ahead. Thank you.

Thank you, Ashley, and good afternoon, everyone. Today's climate is very different from what we first began to transform what had been a legacy media and licensing company into a fast growing consumer and digital business.

However, the robust demand for playboy in the honeybedet continues to hold strong. And I am optimistic about the recent trends we are seeing on Thunderbolt. That said, given the uncertainty 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 whether the headlines drive long-term growth.

To that end, we restructure our debt and secure the quidding. We have amended our senior security credit agreement to give us extra headroom to invest in the growth areas of the business. It had drawn down on the remaining 25 million series day per per per per stock with Fortress.

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

We are also conducting a strategic review of the business, Dreamline costs from non-core areas while continuing to invest in growth areas.

With the goal of being cash low breakeven by the end of this year, the prioritization along with our amended credit agreement.

gives us the flexibility we need to execute on our strategy.

I mean, committed to our plan, which focuses on two key areas, growing and consolidating our consumer business, to focus on high margin owned and operating products.

and second, building out our creator of bed platform, Center Fold. My confidence in the business and commitment to our long term plan are evident by the approximately $850,000 of shares I bought in Q1. In addition to the $500,000 of shares, I purchased when we went public.

No named executive officer has sold any shares, except to cover the tax obligation related to those shares. We waited for those shares. We waited for those shares.

However, the selling of shares for tax purposes has subject nose infection of officers. The sale of shares for tax purposes has subject nose infection of officers.

to short swing profit rule. 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 macro economic environment. We witnessed just after we announced the buyback.

Inflation is not only driving higher fulfillment in product costs.

But it's also pretty impressive and consumer spending.

A keeping with accessory buying trends, we are seeing a greater impact on our value-oriented consumers versus our luxury or higher end consumers.

Both playboy and honey birdette, catered to the tumors, drawn to luxury and aspirational brands. And we continue to be strong consumer demand for both brands, which are up considerably through the first six months of the year and year over year basis.

Playboy DGC revenue is up over 150%. And Honey Verdette is up approximately 28% on a pro form of basis.

Playboy continues to be strong, global consumer demand with the Gen Z customer and the strength of our strategic partnerships, which include recent premium collaborations with East state Laurent between Romeo Beckham, Fila and Studs. And we are expanding our portfolio to include Playboy lingerie designed by the Honeybird F team, which will launch later this year.

Honeybirdette continues to deliver strong revenue growth in margins despite the macroeconomic headlands. We conducted a soft launch with UTA to provide Honeybirdette customers with a third-party gifting option. The UTA has a very strong revenue growth in the range of revenue growth in margins. We conducted a very strong revenue growth in the range of revenue growth in margins. e

From the early data, we are seeing strong conversion rates and direct acquisition of new customers.

Given the success of the pilot, we are incorporating the option for all customers and will be adding wishless functionality. We are exploring using cases for other brands as well as for Cenderfolder. coats and

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

Yandian lovers are seeing the opposite tail's trends. As their cost-conscious customer is getting hit extremely hard at gas pumps and in the grocery store, leading to less spend on discretionary items. Compared to 2021, year-to-date revenue through the end of July declined 22 million between Yandian lovers combined with over 18 million of the clients coming from Yandian.

Supply change disruption continue to pressure margins throughout the business because seasonal inventory arrived off-utes and had to be down in district disciplineer promotion Also......

Supplyaching issues also impacted our ability to have the materials needed to launch new products and to keep products stocked during key seasonal windows. To manage to 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 business.

Rising customer acquisition costs and last year's IOS privacy changes have significantly impacted performance marketing, particularly for YANDY. According to our external marketing partner, IOS IDFA updates led to a 50% year over year drop in Facebook conversion rates for fashion and the peril brands that you do. The IOS IDFA updates led to a 50% year over year drop in the peril brands that you do. The IOS IDFA updates led to a 50% year over year drop in the peril brands that you do. The IOS IDFA updates led to a 50% year over year drop

As a result, brands have shifted budget away from Facebook and toward Google, which has driven up competition and prices for keyword spending. And what has historically been one of our key customer acquisition channels?

We are combating these trends by shifting them to other social journals. It have plans to leverage the Playboy name across our portfolio to elevate positioning and broaden our reach. For Yandy, this involves a full rebrand under the Playboy halo. For lovers, we are planning on a new sexual wellness line called Playboy Pleasure. It will be featuring Yandy and Playboy merchandise in our lover stores. We view these marketing headwinds as concrete evidence that a DIY centerfold is so strategically important.

for a long-term customer acquisition strategy on D to C. The Center for 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 Centerfold 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.com over time, ultimately driving all customers into one ecosystem.

The technical product, the platform itself, and the piece of progress to advance it have not met my expectations. The

When we decided to launch Centerfold, we had two options.

They'll be platforming from the ground up, a 12 month process in the best case scenario, assuming we had a full team in place, which we did not. We're buying 50 platform to accelerate our market entry. We're buying 50 platform to accelerate our market entry.

and greater records is extremely complicated. And fortunately, our initial team, which was largely comprised of third party, all-shore 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 increase or strategy. Using our current product roadmap increase or strategy.

Since they have to come on board, we've seen dramatic improvements in the stability of the platform and in new both 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 with creators and fans to inform our priorities and refine the platform. The new team has been laser focused on building a seamless creator platform with intuitive UI leveraging data from our existing business and the new team has been laser focused on building a seamless creator platform with intuitive UI leveraging data from our existing business and the new team has been laser focused on building a quick for all the accessible UI engineers.

With Centerfold's improved technology and successful test cases and a tailored greater strategy, we are executing on a Centerfold strategy in earnest.

As a new technology improved, 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 $10,000 in gross bookings in their first month, while also continuing to attract both new users and new creators onto the platform.

We are encouraged by the momentum we are seeing across the crater base. For example, one of our craters who we recruited from within our Playboy ecosystem is now generating nearly $100,000 in gross bookings per month.

She, in her 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' consent of both.

Our top refer, for example, has driven over 100,000 registered users on through the platform through her personalized refueling across multiple third-party platforms, including Instagram and Reddit.

What we need to do now is scale these ones.

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 Center Fold. Before I became the CEO of PLBY Group, I was in private equity for a long time, and had been through many economic cycles before. While the road ahead won't always be smooth, I'm encouraged by our momentum, and incompetent, and our people are brand and our long-term plans.

leveraging what we've learned about these top performers to create repeatable processes in form which types of creators to onboard and arm them with the best practices to grow their subscriber base and optimize the performance on centerfold. Before I became the CEO of PLBY Group, I was in private equity for a long time and had been through many economic cycles before. While the road ahead won't always be smooth, I'm encouraged by our momentum and competent and our people are brand and our long-term plan. I'll now turn the call over to lands.

Thanks, Ben. The 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 a 59% year-over-year to $44.6 million. $40 million

Honey Burnett revenue was up 32% year over year to $22.4 million in the second quarter and up 37% on a constant currency basis.

Growth at HPE 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 Honey Bredette in the US.

Playboy E-com revenue in the second quarter grew 90% year over year, and revenue in the month of July eclipsed Yandy for the first time ever. While the Playboy brand continues to grow, our supply chain was 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 own and operated portfolio. This includes 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.

For example, EME 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 Yandy is to grow our own and operated business, which should ultimately yield higher margins, more control, and enable a shift to profitable growth with less spend than paid media.

Similar to what we experienced at Playboy and Yandy, 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 lovers in the EndiBind teams, driving efficiencies and enabling us to reduce headcount.

In our licensing segment, Q2 revenue would slap you every 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, resulting in a reduction of reported revenue on our end.

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

Reported revenue from our partners in 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 amendments with our major partners that put them on payment plans to help them during this time.

There is no revenue impact related to the new payment terms as the overall contractual values remain intact.

All partners have made their first payment. We've already received nearly half of the amounts 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.

It's clear that our rate of revenue growth is not materialized 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.

We may incur a transition cost that impacts 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 Honeybread S 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 22 adjusted EBITDA outlook with an expectation that on a pro forma basis non-product costs would increase by a little more than 30 million dollars this year. An increase of roughly 17% year over year to over 210 million dollars annually.

Over half of that expected cost increase for this year, for more than $17 million, was expected to be driven by our investments in building out both our direct-to-consumer business and centerfold. 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 IT controls.

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

One example of this is our near-term store expansion plans for Honey Bredette.

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 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 $1 million in annualized revenue per store with 30% four-wall even-dawn margins, which makes for a compelling argument to push forward with our previously communicated plans.

at Storrs this year, we want to ensure we have enough cushion to withstand any potential disruptions to our expected cash receipts.

We'll make near-term cost adjustments that are needed to be responsive to what we are seeing on the revenue side, but we plan to stay the course and invest prudently in 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, 1-1 on your telephone. Please stand by while we compile the Q&A roster.

And our first question will come from Alex Ferman of Craig Hala. Your line is open.

interpreting your comments here that the bulk of the slow down here and the need to send guidance is related to Yandy and lovers. It sounds like Honey Burdette and the Playboy brand, at least in terms of your direct to consumer sales on the Playboy brand, remain strong. I don't know if that's, maybe they've slowed down as well, but just still continue to grow nicely. Or have those brands.

You know, not not seeing the same sequential deterioration that you've seen at at Andy and lover. Thanks Alex. Yeah, I think that's right. I think when you look out.

For the rest of the year, um, that was the guy coming into this year.

the rest of the year. That was the guy coming into the chair. Sorry.

Sorry, I thought you said something. Looking out to the rest of the year, Halloween is a big period of revenue for EANDI. If you were to assume EANDI were flat to last year, and if you realize that we had left around $3 million of revenue on the table last year at EANDI when we had to shut down the warehouse over Halloween.

Alone, I think the other thing that we have to factor in is. What do we decide to do around store opening? It doesn't have a huge impact on. On revenue for the remainder of the year, because the store openings will be would be planned to be opening later on. Um, 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, the higher cost.

Of customer acquisition that in turn would have an impact on revenue. Same thing on the licensing side, it's it's kind of. It's predictable, but if.

As we saw in the 2nd 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 just a lot of uncertainty out there. That we don't feel comfortable trying to put out a number. Um, that that in a way could vary quite widely. So, I think that, I think that that's something the other folks in our over the Findshaddens are bouncing off are going to need more funding for moreeteoping upgrades. So hopefully we don't get roars and Dan added some things. We'll get a new preview and you'll be the ones out there who might as well go like, hey it's the neutron. You know, this is a good place to join us. I guess, it will definitely merge a little, though. Yeah, no, if we are to.

Yeah, no, that makes a lot of sense, Lance. Thank you. And then that, the decision to pull back on the Honey Burdette store openings, is that just part of that uncertainty you mentioned and fear that maybe that brand could start to see the consumer under pressure? Or is that just, as you look at your expenses, is that just the most obvious, easiest place to pull back on spending this year?

On the higher end luxury consumer. That frequent Honey Bird at, you know, it's hard to know what's going to happen and we think it's prudent. When you're entering into these long term fixed liability to. Take a pause, 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 1 kind of individual on the other side. 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 indicates. A slow down and honey for that, 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 for the impact of inflation on the luxury market. We've seen it hit. Kind of the everyday consumer at the end and lovers and it could end up hitting the luxury market next.

Sure, if that makes sense. Thank you, Anne. And our next question will come from George Kelly of ROP.

So just to start with the licensing business.

So, I'll talk a little bit about the financial that maybe actually and then can just talk about some of the trends that we're seeing more broadly with kind of business development and our partnerships there. But. Uh, yeah, it was flat year over year. There were a few drivers behind it in China in particular, there was no impact on revenue. As I mentioned. Uh, 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 was some of our some of our apparel partners and some of our gaming partners.

It performed better than we expected and delivered over just so it's a little bit of a mix. Obviously, I think it's, you know, from our perspective, it's really the macro environment. I hit some of our partners harder than others, but in general. I would say over the longer term, our view has been that this should be kind of a. A single digit grower if you didn't have that reduction. That our partners had in the 2nd quarter.

Again, they brought down 4 year numbers, so that had kind of an outside impact on the 2nd quarter. But if you didn't have that reduction in forecast, you still would have grown. This business probably 5, 6%, something like that. So. Um, that's kind of what we're seeing there. Ben, actually anything to add is kind of on the collaborations that we're doing.

Yeah, George, it's been, 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 it. It's affecting almost every other retailer today. And 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 people in Washington do. They must have taken different economic classes than I took.

putting more fuel to the fire regardless of what their models tell them. And what the impact is on inflation and consumer spend long term is real. 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 I'm hearing is there's impacts to your DIMP, but there hasn't been kind of recent dramatic fall off in your licensing business.

No, that's absolutely correct. We've 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. That's just the way these licensing contracts work in terms of. How we have to account for them, if you're accounting for it based on a full year forecast that they give you at the beginning of the year. If they update that throughout the year, come in lower than they expected, then you've got to adjust that accordingly. And you've got to adjust that.

yield remains quite strong. Okay, great. And then just one other question from me. Lance, 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 is...

I look at SG&A, I think you were also talking about some of what's in COGS.

But I guess the direct question is just should SG&A, I mean is there room for SG&A to decline from where it was in 2Q or what are your expectations around SG&A for the remainder of the year?

And the like and shipping costs, but it has a lot of fixed costs in there. It has a store cost. It has employee headcount costs. At the infrastructure costs. And so what I was saying is going into the year, the assumption on that call it non product costs. Was going to be north of 210Million dollars. So it was going to be about 17% year on year growth. If you would, if you would include kind of the full year impact of Honey Burnett and lovers 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 200Million. 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 point, we believe there are more costs that we can reduce out of that 200Million dollars. Again, we want to be able to sustain longer term growth investments here. We want to be really mindful 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 has been related to putting in place the controls, putting in place the infrastructure and processes to allow us to be more efficient and to emerge this year as a more efficient company. So what I am most interested in when I think about rolling ahead into 2023 and beyond, we're kind of putting in place that cost infrastructure this year.

It really shouldn't significantly grow beyond whatever headcount you really need to support the continued growth of direct-to-consumer or centerfold in future years. Your tech and infrastructure costs that you're putting in this year, call it $7 million, whether the business does $300 million or $600 million of revenue, that tech cost is going to be largely $7 million. Maybe it goes up by a million dollars if you were to double your revenue, but it's largely a set cost.

So, yeah, 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 have to talk to Nick here.

Yeah, George, I'll just add, you know, I spent 20 plus years in private equity. We've done this before. I've done this before. And, you know, 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 maximum growth.

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.

And our next question.

And our next question will come from Jason Tilghin of Canaccord Genuity. Your line is open. Religious PaytonORD- exception.

Yeah, thanks for taking the question. Just going back to the rebrand of the, and I'm curious, is that planned for ahead of the holiday 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 to follow up to that is on the Honey Bird design line. Is that going to be planned for just handy for just the play by that con brand for both? And how do you view?

positioning that brand with a different price point of your DTC offering. Thanks. Hi, this is Ashley. I'll jump in on the Yandy rebrand and the other areas. So just speaking to the rebrand first, the Yandy 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 important to understand is we're doing this more as a rolling change because we still have old product and imagery we need to

work our way through. And so it's not gonna be a lights up, but more of a roll out 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'll be leveraging the Playboy brand and haloing that into the Yandy business. So we'll have a more curated and cross, kind of cross pollinated selling experience where you'll be able to buy.

stores, not only for Playboy apparel, but also for products 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 lover store experience and our lovers online experience in line with that so we can ensure that we're gaining the most out of that line. And then for Honey Burdette, you know, on the Honey Burdette side, we're going to continue to diversify the product offer.

And continue to go after that elevated luxury customer, keeping that more uniquely HB focused. We leverage the design team and the resources from the Honey Birdette team to help bring Playboy lingerie to 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 from a competitive standpoint, maybe that Victoria's Secret pink or area or the

Laundry that sits to that Gen Z consumer where we're seeing such high synergy with the Gen Z customer coming to Playboy today. Great. Thanks, Ashley. 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 as the integration work on these different DTC businesses takes place, or was there some other area that was identified as sort of hanging fruit to cut those costs?

Great. Thank you. Our next question will come from Jim Duffy of STIFL. Your line is open.

Again, your line is open. I'm assuming you said Jim Duffy.

Again, your line is open. I'm assuming you said Jim Duffy. Yes, that's 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 comment on centerfold. Ben, you were clear centerfold, not meeting your expectations for progress, but you also gave some metrics, which suggested some decent traction. You'd previously been speaking to an expectation for notable revenue contribution from centerfold in the 2nd, half of the year. Is that still the expectation? Hey, Jim, thanks for the question. You know, centerfold did not meet my expectations.

encouraged about on Centerfold, and we have a lot of improvements coming this fall, is the revenue that we are 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. And until those were situated, I didn't want to burn through that. But what we are seeing is that 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 a robust wait list, and it's onboarding those creators for scale. The good news is that the product is now working. We have fixed the backend issues on it. 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 $100,000 a month now. The new creators that we've been onboarding are about 10,000. And what we're seeing from a cohort analysis is those creators are growing on a weekly basis. And so now it's just a question of scale. Understood. Thank you for that. Then let's add a few questions for you on the balance sheet. I just saw the K dropped.

Can you comment on the receivables, which look 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 tables or some receivables that had been due to us by the end of June . Those ended up coming in since June 30th. So that's that's a big driver of that on the inventory balances.

Sorry, what was the question specifically on that? Well, I just think the quality and composition of your inventory, do you have any issues where you're concerned about having to Discount the merchandise to clear it. Is there an in transit component of that that's Elevating the balances, anything to help us Just get 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. So overall, I feel confident with where inventory is positioned. A couple of strategies that we intentionally went after, which didn't play our inventory earlier than usual, were related to Halloween and top 20 performing styles, was to early receipts. Heading into the Halloween season for Playboy and Yandy in particular poses risk with the supply chain 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 why our inventory coming out of the quarter was more inflated than usual. But it will serve us well in the late Q3 period and heading into October . The second area is we have seen significant growth and are continuing to see significant growth out of Honey Burdette. And so that business is an area we're fueling with inventory to drive that and is also prepared for new store openings. And so as you start to come out of the year, you'll see the inventory align.

but it's intentional so we can set these new stores up properly. Of course, there's areas where we are managing our inventory and leveraging discipline 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 that bringing in inventory early was the right decision to set us up for Q3 success in Q4. At this point I would like to introduce to all of these contributions missed, whether we yo those who are... who met wh ASdm excite any

It sounds like you're exploring a number of different avenues to shore up liquidity. Have you considered monetizing some of the assets that aren't necessarily delivering a return for shareholders such as the ARP portfolio or even the Big Bunny Jet to improve the liquidity situation? Subscribe to 55 deds if you want to

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 say is 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's selling the art or selling the plane or anything in between, we will do anything in the best interest of our shareholders.

Thank you. And that concludes today's call. Thank you for participating. You may now disconnect.

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