Q3 2022 Plby Group Inc Earnings Call

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Speaker 1: The conference will begin shortly. To raise your hand during Q&A you can dial star 11.

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Speaker 1: You you.

Speaker 1: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.

Speaker 2: Good day and thank you for standing by.

Speaker 2: Welcome to the PLBY Group's third quarter 2022 Earnings Conference call.

Speaker 2: At this time, all participants are in a listen-only mode.

Speaker 2: After the speaker's presentation, there will be a question and answer session.

Speaker 2: To ask a question during the session, you'll need to press star 1 1 on your telephone.

Speaker 2: Please be advised that today's conference is being recorded.

Speaker 2: I would now like to hand the conference over to your host today, Ashley DeSimone at ICR. Please go ahead....

Speaker 3: Good afternoon, everyone, and welcome to PLBY Group's third quarter 2022 earnings conference call. I'm Ashley DeSimone from ICR.

Speaker 3: Hosting today's call are Ben Cohn, Chief Executive Officer, and Lance Barton, Chief Financial Officer. After our prepared remarks, we will open up the call for questions when we will be joined by Ashley Koechter, President of Global Consumer Products.

Speaker 3: 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.

Speaker 3: Today's call is also being webcast and a replay will be posted to PLBY Group's Investor Relations website.

Speaker 3: 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.

Speaker 3: Such statements are made on the basis of PLBY's 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.

Speaker 3: Forward-looking statements are subject to risks which could cause PLBY groups' actual results to differ from its historical results and forecasts, including those risks set forth in PLBY groups' filings with the FCC, and you should refer to and carefully consider those for more information.

Speaker 3: This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements.

Speaker 3: 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 press release PLBY filed with its Form 8K today.

Speaker 3: And now I will open the call to Ben Cohen. Ben, please go ahead.

Speaker 4: Thank you, Ashley. Good afternoon, everyone. As we have stated throughout 2022, we had two goals this year.

Speaker 4: the consolidation of our D2C businesses, and the continued build-out of our creator-led digital platform.

Speaker 4: I am pleased with the progress we have made against both goals in the past quarter.

Speaker 4: While our short-term results continue to be impacted by global macro and FX headwinds, the quarter was defined by a number of positive results executing against our plan.

Speaker 4: This inflationary period continues to impact consumer retail businesses.

Speaker 4: with higher costs, rising interest rates, oversupply, and decline to discretionary consumer spending. As a result, our revenue continues to come under pressure and consumers are projected to pull back on holiday spend.

Speaker 4: Inventory is reaching peak levels while consumer demand flows and customer acquisition costs are increasing.

Speaker 4: Despite this, we have remained hyper-focused on our goals and have taken a number of steps to navigate the challenging macro environment. We have renewed nearly $18 million of annualized operating expenses from the company.

Speaker 4: Part of this reduction includes the sale of the Big Bunny aircraft, which we sold for $17.5 million, generating a more than 2x return on our initial cash investment and more than 10 billion press impressions in under two years of ownership.

Speaker 4: We believe there are further cost reductions to be realized, and we are working towards simplifying our business and reducing operational complexity to achieve those savings. As a result, our business will align around Honey Burdette and our hero brand Playboy. It's one of the reasons we believe the continued investment in our greater platform is so crucial.

Speaker 4: Demand for these luxury and iconic brands we made strong. Honey Burdette continues to perform well, especially given the macroeconomic environment and the strong US dollar that continues to impact results. We opened a new store in Short Hills, New Jersey, and plan to open our Tampa, Florida and Paramus New Jersey stores before the end of the year.

Speaker 4: We also began to expand Honey Brita into new categories and launched the Essentials Collection in October . Essentials was the best release of the year for the brand, but more importantly, it attracted a new audience.

Speaker 4: In its first week, 22% of the essential sales were to customers who were new to the brand.

Speaker 4: We will continue to invest in diversifying the product so as to expand our adjustable market.

Speaker 4: We also launched Honey Bird sexual wellness products at lover stores to great success and will continue to replace third party products with higher margin owned and operated inventory.

Speaker 4: Following on the success of our Honey Burdette store in the luxury high traffic Westfield Century City Mall in Los Angeles, we opened our first owned Playboy pop-up store in mid-October.

Speaker 4: We are excited to test this elevated mall-based pop-up as a prototype for permanent brick-and-mortar locations targeting the Playboy consumer.

Speaker 4: The space features rotating iconic Playboy favorites, brand collaborations, and seasonal lines and we are encouraged by its early success.

Speaker 4: The store is off to a great start. In the first few weeks, revenue is comparable to the average honey for death store in the US. The current margin for Playboy's pop-up location is also 7 percentage points higher than Playboy's e-commerce margin. And we expect that to increase as we incorporate more of our owned and operated merchandise into the store.

Speaker 4: We also continue to make great progress developing those higher margin owned and operated products.

Speaker 4: Last week, our first crew private label consumer product for Playboy launched with Playboy Lingerie to great early success. This is the beginning of a larger Playboy Lingerie and incidents collection, as well as a full line of new private label products you will see over the next year.

Speaker 4: Playboy.com continues to perform well with revenue growth of over 100% through the first three quarters this year.

Speaker 4: Within our licensing business, we're excited about recently launched brand partnerships in Asia, including My Sugar Bay, a trendy Japanese streetwear brand, and an experiential lounge collaboration with retail pop-up and world-renowned nightclub One Oak in Tokyo. In the U.S., we set the tone for the ear stacking trend with Quavoix and Stud's Y2K collection for those who love bold self-expression.

Speaker 4: We have also launched new collaborations with Oceana Swimwear and global sports giant Lids, which officially dropped in mid-October. Lubbers remains down year over year. Long term, we believe Playboy needs to be integrated into or replace Lubbers as the brand. We are currently working through our branding strategy and have launched Playboy Pleasure products in Lubbers stores. Based on performance, we will begin to solidify our plans to integrate Lubbers into Playboy. Thanks for watching.

Speaker 4: The ND continues to struggle for a number of reasons, as we have previously discussed.

Speaker 4: The traditional EMD customer has been massively impacted by inflation and the brand itself is not clearly differentiated within the market. Its trendy products sell at a low margin and have historically relied almost a hundred percent on performance marketing.

Speaker 4: With the iOS changes last year, the Yandy business has become even more challenging to operate efficiently.

Speaker 4: We are currently reviewing strategic alternatives for the long-term fit of DNV within our company.

Speaker 4: That brings me to the Playboy Creator platform.

Speaker 4: Our Playboy creator platform is the most strategic opportunity we can continue to invest in. First and foremost, it represents the enormous revenue opportunity as a product unto itself. Second, we believe it can be a highly effective, top of the funnel customer acquisition engine that we expect will lower our customer acquisition costs across all of our PLB-wide business lines over time. And third, we can believe it can become the Playboy magazine.

Speaker 4: of the 21st century and its ability to drive enormous cultural relevance and priceless emotional connection with a massive consumer base around the world.

Speaker 4: On the first point, we strongly believe that the paywall crater space is ripe for a grant that is aspirational.

Speaker 4: One that creators are proud to show off their affiliation with, and one that is deemed safe by creators and consumers alike. For nearly 70 years, the pages of Playboy were the place for creators of their time to freely express themselves and monetize their sex appeal in a sophisticated and aspirational way.

Speaker 4: This brand authenticity makes Playboy today enormously appealing, is a high-end space for creators and talent to launch their careers and make money from those fans who are eager to connect with them.

Speaker 4: We are confident that there is an enormous market share to be taken given the power of our brand. And the trust we have with the creator community makes us uniquely positioned to win. But of course, brand is not all it will take. We also need to have a product experience and value proposition for creators and users superior to our competition.

Speaker 4: I'm excited to report today on the immense progress our team has made on all of these fronts.

Speaker 4: In September , our new product and technology team migrated or created a product to a newly built platform.

Speaker 4: The goal of our week platform was twofold.

Speaker 4: to enable rapid product development to deliver a product to creators and their fans that is as good, if not better, than the competition, and to ensure a sustainable cost base with infrastructure that will scale with the business.

Speaker 4: Since the Re-platform, we have reduced our ongoing tech infrastructure costs by roughly 90%. We vastly improved key functionality for creators, focusing first and foremost on optimizing their ability to monetize their engagement with their fans. For example, we now offer superior messaging capabilities, custom, personalized data analytics, and advanced content organizational tools for creators to most effectively engage with and monetize their fan relationships.

Speaker 4: We are now continuously rolling out data-informed product enhancements and have heard tremendously positive feedback from the creator community.

Speaker 4: Since the new platform has gone live, the number of creators who are making money in any given week has doubled. The number of actively paying users has doubled and continues to grow week over week. And most importantly, on average, each week, 70% of our creators are making more money than they made the previous week.

Speaker 4: We're very encouraged by the strong desire we see from top and emerging craters to become part of Playboy, and we're confident that we can provide them with a superior product experience to the competition. We're also thrilled to start integrating our craters more deeply into the Playboy ecosystem in mutually beneficial ways, and more broadly, to integrate the crater platform as a massive customer acquisition engine across our business line.

Speaker 4: Every creator we speak with wants to become a Playboy fashion ambassador. They want to model in the Playboy fashion campaign, and most of all, they want to aspire to join the ranks of the celebrities and influencers who showed up in the pages of Playboy before them as stars of Playboy covers, editorial features, and pictorials.

Speaker 4: The fact that our Playboy lingerie model search has already generated more than 10,000 applicants less than halfway through the open submission Proves that the potential to be on the face of Playboy is an enormously effective creator of the tool.

Speaker 4: These are the creator opportunities that only Playboy can offer. This is our unmatched value proposition.

Speaker 4: We have started testing our way into building more integrated relationships with creators to expand the benefits we can derive across our business lines.

Speaker 4: You've likely noticed more of our social posts now feature Playboy creators showing off their favorite Playboy merchandise and our fashion campaigns featuring Playboy creators.

Speaker 4: As paid digital marketing continues to become less effective and efficient, with privacy changes and other industry challenges.

Speaker 4: Expanding our own network of fashion influencers and affiliates is of enormous strategic advantage.

Speaker 4: And of course, as we scale our actively engaged creators, we believe this should exponentially scale the traffic we're generating, thus growing our customer database and helping us drive reduced CAC across the organization.

Speaker 4: The most coveted creator experiences like editorial collaboration, fashion campaign shoots, and creative director partnerships will be reserved for highest performing and most influential creators.

Speaker 4: Our Yandy Wanda Roads collection, released in Q3, was a great early test of how we can execute these special opportunities for creators in a way that drives accelerated growth across our business line.

Speaker 4: This past summer, we gave Lana the opportunity to serve as a creative director on her own yearnd lingerie line.

Speaker 4: She partnered hand in hand with our in-house design team to develop her own branded Yandy collection which was released on her birthday in September .

Speaker 4: The built-in promotion Lana drove to the collection across her social media channels drove an 84% uptick in traffic to yandy.com and a 37% increase in daily revenue at a margin 10% higher than similar lingerie. We also saw Playboy creators like Amanda Cerny organically support Lana, pointing to the value of nurturing a Playboy community of creators.

Speaker 4: We strongly believe that by putting creators at the center of everything we do, we will activate a flywheel of growth across the organization.

Speaker 4: I'm very encouraged by the accelerated progress our team has accomplished across product, technology, and our creator value proposition.

Speaker 4: We are well poised to enter this great brand's 70th year, which just so happens to be the Year of the Rabbit, with great brand and business momentum driven by our creators.

Speaker 4: With this team in place, we look forward to what we will continue to accomplish together. As I said in our last call, the path forward will not always be a straight line, but our long-term plan is intact and I am proud of how this team is executing, especially in the past few months as the new members are beginning to hit the stride. We have one of the biggest brands in the world and I am confident that the business plan we have is unique, differentiated, and will deliver. I'll now turn the call over to Lance.

Speaker 5: Thanks, Ben. Third quarter revenue grew 9% year over year to $63.6 million. Our top line results were impacted by $1.2 million of FX headwinds and a 27% reduction in marketing spend versus the prior year quarter as we prioritized higher margin spend over revenue growth. Our top line results were sheets to theta omega p page of most Poo robbery just last week... being a dispersed and distributed

Speaker 5: On a constant currency basis, revenue growth was up 11%.

Speaker 5: Revenue in our direct to consumer segment was up 22% year over year to $44 million and on a constant currency basis was up 25%.

Speaker 5: Similar to the trends we saw in the first half of this year, we continue to see strong revenue growth at both Honeybredette and PlayPoint, offset by significant declines at Yandy and to a much lesser extent, Lovers.

Speaker 5: Honey Burnett posted dollar growth, revenue was up 34% year over year to just over $21 million in the third quarter and on a constant currency basis revenue grew 41%.

Speaker 5: As Ben mentioned, we expect to open three new stores in the fourth quarter, which will bring our US store footprint to 11 by the end of the year.

Speaker 5: We've also signed the lease in Boca Raton, Florida with plans to open next summer and are working to land additional suitable locations in the US and Europe . Planning to open in the back half of next year.

Speaker 5: Playboy ecommerce revenue was up 58% year-over-year in the third quarter, driven by a 338% increase in email and SMS.

Speaker 5: We also saw strong results over key holiday weekend sale periods, such as July 4th and Labor Day, due to a significant improvement of in-stock levels across our best sellers and a strong finish to the quarter from intentionally stocking our Halloween costumes early.

Speaker 5: The success we saw on email and SMS is a direct result of building out a CRM team and program to focus on customer segmentation, new SMS capabilities, and a digital marketing strategy to reward our loyal customers through early access events and new product launches.

Speaker 5: It's also particularly interesting given we've not yet started to tap into the email database that the Playboy Creator platform brings.

Speaker 5: which we believe to be a powerful unlock to drive growth and reduce customer acquisition costs for our direct-to-consumer business over the long run.

Speaker 5: Yandy revenue declines 50% year over year in Q3, while Lovers revenue declines 10%.

Speaker 5: While the current macro environment continues to negatively impact discretionary spending habits of the target E&E and lovers consumer, we're focusing on the levers within our control.

Speaker 5: This has meant spending less on digital marketing in light of the reduced efficiency we've seen in those channels, ultimately leading to lower revenue but increased profitability.

Speaker 5: The third quarter revenue in the licensing segment declined 13% year over year to $14.9 billion.

Speaker 5: The decline mostly driven by a 1.7 million dollar reduction in overages that we received compared to last year, as our retail partners are facing similar challenges in the current macroeconomic environment.

Speaker 5: From a GAAP earnings perspective, we had a number of extraordinary non-cash charges in Q3 that drove our net loss, such as the impairment of intangible assets and inventory reserves.

Speaker 5: In the 3rd quarter, we recognize around 306M dollars of impairment charges related to the write down goodwill, trademarks, and other intangible assets.

Speaker 5: The need for impairment was due to the reduction of our financial outlook associated with ongoing macroeconomic uncertainty, along with a higher discount rate being applied to our forecast.

Speaker 5: In the third quarter, we also recognize $5.9 million of inventory reserves.

Speaker 5: This non-cash provision was driven by a number of historical factors along with our strategic plan to further consolidate our businesses and improve margins.

Speaker 5: One major factor is the supply chain challenges that we've encountered over the last two years, leading to late-arriving seasonal inventory that did not turn as quickly as the inventory that arrived on time.

Speaker 5: Additionally, the significant decline in the NANDI revenue has left us with low quality and low margin wholesale inventory that we need to liquidate as we realign our business around higher quality and higher margin owned and operated Playboy products.

Speaker 5: As I mentioned on the last earnings call, revenue is incredibly difficult to forecast in the current environment, and as such, we remain very focused on the cost levers that we control.

Speaker 5: We have made significant progress on our expense reduction initiatives, taking roughly $18 million of annualized optics out of the business.

Speaker 5: This puts our baseline level of OPEX, excluding stock-based costs and other non-cash charges, at roughly $165 million annually.

Speaker 5: And we will continue to control costs tightly so that we can manage through the current economic environment.

Speaker 5: These cost reduction initiatives have led to improvements in both EBITDA profitability and cash flow.

Speaker 5: Adjusted EVA-DOCK for the third quarter was over $700,000.

Speaker 5: A sequential improvement of $3.3 million despite $1.8 million less revenue compared to the second quarter.

Speaker 5: Our total cash position has been stable since the end of September , and we currently have over 65M dollars in cash equivalent. Including crypto and restricted cash.

Speaker 5: Even with continued investment into our growth initiatives, we expect cash flow from operations to remain roughly neutral through the end of this year.

Speaker 5: We have multiple levers to further reduce costs if circumstances dictate, giving us the financial flexibility to manage within the covenants of our amended credit agreement as we head into 2023.

Speaker 5: With that, I'll ask the operator to please open the line for questions.