Q4 2022 Plby Group Inc Earnings Call
Speaker 1: The.
Speaker 1: Morrissey SAN, Shaw. Freermediate plan of Lucy and
Speaker 1: Where.
Speaker 1: C to.
Speaker 1: The So that F.
Speaker 1: And.
Speaker 1: ation St C.
Speaker 2: Greetings and welcome to PLBY Group's fourth quarter and full year 2022 earnings conference call and webcast. Welcome to PLBY Group's fourth quarter and full year 2022 earnings conference call and
Speaker 2: At this time, all parts of the vents are in an listening mode.
Speaker 2: A question and answer session will follow the formal presentation.
Speaker 2: If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ashley DeSimone with ICR. Thank you. I'm Ashley DeSimone, and I'll see you again.
Speaker 3: Good afternoon, everyone, and welcome to PLB Y Group's fourth quarter and full year 2022 earnings conference call. I'm Ashley DeSimone from ICR.
Speaker 3: Hosting today's call are Ben Kong, Chief Executive Officer, and Lance Barton, Chief Financial Officer. After our prepared remarks, we will open the call up for questions when we will also 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, 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's investor relations site.
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. 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 PLBWI's actual results to differ from its historical results and forecasts, including those risks set forth in PLBWI's filings with the SEC. And you should refer to and carefully consider those for more information.
Speaker 3: The cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statement.
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.
Speaker 3: A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release PLBY filed with its Form 8K today.
Speaker 3: I will now open the call to Ben Cohen. Ben, please go ahead.
Speaker 4: Thank you, Ashley, and good afternoon, everyone.
Speaker 4: So much has changed with the company since we last spoke in November that we want to level set where we were where we are and where we are going.
Speaker 4: We are one of the most valuable brands in the world, Playboy.
Speaker 4: This is a brand that drives billions of dollars in consumer spend and has almost 100% global awareness.
Speaker 4: Our business is now on solid financial footing post our $70 million debt pay down.
Speaker 4: We also have additional levers we can still pull internally to build additional cash reserves or pay down more debt should we choose to without raising more equity at today's prices.
Speaker 4: To maintain our current financial flexibility, we are changing our business model and moving to a capital-wide model with a singular focus on Playboy and Honeybredet. Our new model gives us a combination of strong cash flow from our licensing segment, high growth potential through our Creator Platform and Honeybredet.
Speaker 4: and less operational complexity by eliminating non-profitable business units and non-core assets.
Speaker 4: Within Playboy, we are focusing on two things. First, our licensing and strategic partnerships visit.
Speaker 4: The business has a lower risk profile, $346 million of future royalty guarantee payments through 2031, high quality recurring cash flows, and the opportunity to be much larger than it is today. We intend to scale this business to a JB approach.
Speaker 4: to supplement licensing's current high cash flow generation and to optimize it globally.
Speaker 4: In 2022, the licensing business produced approximately $61 million of revenue, and we believe through the right partnerships, we can more than double this business over the next few years.
Speaker 4: Second, our creator platform. This is our hero Playboy product moving forward, and it returns the company to its roots as the place for creators to be seen and discovered.
Speaker 4: The business is growing at over a 9% weekly CAGR since relaunch in mid-September 2022, with pro forma annualized weekly GMB already in excess of $15 million.
Speaker 4: We are approaching monthly cash flow breakeven with our fixed costs under $500,000 a month.
Speaker 4: At HoneyBurdette, we are excited about the future and believe there is a huge opportunity for growth in the US and Europe .
Speaker 4: In 2022, our US stores generated 38% for-wall EBITDA margins, not including the incremental e-commerce they drive in their local geographies.
Speaker 4: and we see a total market opportunity of at least 100 stores domestically.
Speaker 4: Given our capital-light model, we are engaging an advisor to raise growth capital at the Honey Bird at level to accelerate the execution of our growth strategy.
Speaker 4: This new focus on these three units is the right direction moving forward and one I am confident we will be able to execute.
Speaker 4: When we went public in 2021, our investor base and expectations were different, and the capital markets were happy to accommodate different growth-focused business models.
The world today is different, and we believe our new business plan aligns well with what we have heard from our current investor base, which is capital light, higher margin, simplicity of execution, and making sure we have sufficient runway to execute on business priorities with less financial leverage.
The first step to transform the business model was to deal with the debt burden and ensure we have more than a sufficient runway to execute on this transition.
Management and our board are aligned with our shareholders and believe in our business model moving forward. It's why I invested over 1.2 million and why RISD invested almost 30 million dollars in the rights offering.
We paid down $70 million of debt over the past three months, which in turn significantly reduces our interest expense moving forward.
Now that our balance sheet and liquidity are more secure, I want to discuss what we won't be doing.
1st, on the cost side, we eliminated 18M of annualized costs last year and have identified a minimum of 15M of additional annualized cost cuts. 10M of which we implemented this week.
The rest will be accomplished as we continue to simplify the business.
In addition to the $15 million, we expect additional direct cost reductions related to the sale of business units.
Second, we are very close to selling Yandy and expect the deal to close in the coming weeks.
telling Yandy and expect the deal to close in the coming weeks.
We have also done a strategic review of our Lubbers business.
which we bought for approximately $25 million or roughly five times EBITDA at the time.
Lovers is still producing roughly the same cash flow as when we bought it and we will be reviewing strategic alternatives for Lovers Future as part of the PLBY group in the coming months.
Lastly, we have grown Playboy e-commerce from basically zero in 2020 to $22 million of revenue in 2022. But given the cost to build a team, develop private label products, and acquire customers, the business still lost in excess of $7 million in 2022. Given the losses in operational complexity, we have grown Playboy e-commerce from basically zero in 2020 to $7 million in 2022.
We are exploring alternatives to significantly reduce or eliminate those losses altogether One alternative would be to convert the business to a JV or licensing deal.
The second would be to shrink the revenue and skew count and significantly reduce paid marketing.
In both scenarios, the products will still be available at our website and our customers will not experience any change.
We will use our creator platform as the primary way to market the products.
After such restructuring is complete, we would expect to have a much simpler business model and 1 that allows us to have laser focus on our core licensing business.
our creator platform, and Honeyverde. Assuming the intended restructuring is completed, all of our business units are projected to become profitable.
We have posted a new investor deck to our investor website that outlines our focus moving forward, as well as pro forma revenue and costs for what the business would have looked like last year had the restructuring occurred. Lance will give you more details in a few minutes.
As I said earlier, our focus moving forward is in three core areas.
First, our Creator Platform. The Creator Platform is the most strategic and high-growth potential business we could have invested in over the past year, and it is truly differentiated from the competition given our brand and what that means to creators. So why is this so strategic? First, it returns the companies to its roots as the place to be and be seen for creators.
and it brings heat to everything we do in the future.
Second, it creates a flywheel for the rest of the business because those creators bring their audiences to Playboy, allowing us to sell those audiences other products, whether they are our own or from our licensing partners.
And third, the business scales very quickly and the long-term cash flow dynamics are superb. We have limited fixed costs and our revenue is 20% of GMB generated by the creator. We believe over time there are other value-added services we can offer to increase that percentage.
I'm excited to share some early numbers since the September relaunch that signal the platform's progress.
We have registered about 1.4 million users to the platform with no marketing spend. If you annualize your weekly GMB today, assuming no growth, we would do over 15 million in GMB this year. And that's with only about 1,500 active creators. However, our weekly growth in GMB since relaunch has been over 9%.
with that growth rate accelerating over the past four weeks to over 18% weekly.
as the network effect starts to take hold and we have increased the number of new creators joining.
There have been 40 million messages sent through the platform. Users are coming to interact and message with graders.
Our average earning creator is on track to generate over $12,000 in GMB per year, and our top creator is on track to generate GMB well into the millions.
The vast majority of our creators earn money via connecting with their fans with safe-for-work content and conversations.
Based on reported data, our understanding is that Playboy creators are earning multiples of what average creators earn on competitive paywall platforms.
We have achieved this progress for three key reasons.
First and foremost, as I talked about in our last earnings call, we now have a world-class product and technology team.
Our product today is on par with our competitors from a feature and functionality perspective.
and has been built with the capacity to scale and innovate much faster. Just last Friday, we rolled out new profile designs to further enhance the crater and user experience.
We also improved our search functionality to support our creators in expanding their Playboy fan bases.
The second driver of our recent progress has been quickening the pace of accepting craters onto the platform from our waitlist.
Tens of thousands of prospective creators have now applied. With the recent migration of the platform to playboy.com and expanded grassroots promotion, we are hearing incredible excitement within the creator community that playboy is their top choice platform. Really important to note here is that we hear from our creative community.
how excited they are to be part of an elevated and exclusive platform. One that does not allow the explicit content that our biggest competitor does.
And most importantly, they want to be part of a platform that they are proud to show up. Being accepted to become a Playboy Bunny is now something the creators are so excited to promote across their social media platform.
This point of pride is something that no one else can replicate. And third, our in-house creator team has been hard at work building out creator success tools to support those creators we accept onto the platform.
We've seen enormous desire from our creator community to participate in the full Playboy lifestyle. And we've been gone testing perks for top performers such as the opportunity to model in Playboy fashion campaigns, attend Playboy events, and more.
As you may have seen, we just announced the return of the ultimate perk for creators, the chance to be featured in the Playboy magazine.
Unlike so many creator-led platforms trying to scale, we have a formidable and unreplicable tool, the magazine. We will be bringing back the magazine in a digital first form to serve as a huge promotional platform for our top creators, as well as to continue working with celebrities across Playboy covers and editorial features.
to drive big traffic numbers into the platform.
We are thrilled to tease the new magazine experience with the release of the Playboy cover shoot featuring one of our top creators, October 2011 playmate Amanda Cerny. Amanda's fans can also pay for special access to behind-the-scenes content on her own Playboy channel. Here's what to expect from here. First,
We will continuously improve the product experience for our craters and their fans.
For creators, we are focused on making it as easy as possible to make money and to grow your fan base to make even more money. For fans, we are focused on making it as seamless as possible to find your favorite creators to follow and support. We have begun exploring how AI tools can optimize the creator and fan experience.
Second, we are always working to enhance our value proposition's graders. And this is where the digital magazine comes in. We will be rolling out more editorial-like features for top creators for the chance to truly feel like they made the cover of Playboy.
In addition, creators will soon have expanded opportunities to become Playboy fashion affiliates across Playboy and Honey Bridept, our goal is to continue to scale our crater base, ensuring maintaining Playboy's high standards of representing our brand. By year end, I would like to get to 10,000 craters earning money on the platform.
And lastly, across all areas of our organization, including licensing and honeybird ed, we are working to leverage our creator community as built-in, organic marketing machines.
We expect creators will make more money on Playboy than any other platform becoming affiliates and being paid for selling products. Our Playboy creators deliver big brand buzz and drive meaningful monetization from the audiences they attract.
Further, they are the embodiment of the aspirational lifestyle that both Playboy and Honey Bird brands represent in the world.
Our second core area of focus is our licensing and strategic partnership business. We made significant progress on a number of fronts during 2022 on our strategic partnerships and licensing business.
I recently returned from Hong Kong after not traveling there since COVID-19 started and met with our largest licensing partners. Three years ago, we began setting the stage to transform our business in China from an outsourced licensing business with limited sales and distribution visibility.
to a joint venture operating model that gives us more control of the brand and brings us closer to the end consumer. As part of this evolution, we met with the Fung Group three years ago. And while it took longer than anticipated given the impact of the global pandemic and China's zero COVID policy, we are still working on a new strategy.
We are now pleased to report that we have partnered with the Fung's Group retail brand management unit for China. The goal of the Playboy China is threefold.
First, partner with trusted operating teams in China with experience across apparel, supply chain, product design, retail execution, brand marketing, trademark enforcement, and above all, strong relationships with the online sales platforms in China.
It is not our intent to directly operate a retail or e-commerce business or take on the financial burden associated with inventory and operational complexity. Our goal is to create a best-in-class, in-country team who truly understands the China market and has the right experience and relationships to hold our licensees accountable.
replace them should the need arise.
Two weeks ago we began the process of establishing new ground rules with our licensees for how and where Playboy branded products are sold to ensure greater consistency.
weeks ago we began the process of establishing new ground rules with our licensees for how and where Playboy branded products are sold to ensure greater consistency and control across the market.
This includes potentially restructuring our agreements so that from a financial perspective, the JV will manage the flagship e-commerce stores to track online sales and ensure quality control and design across all Playboy branded products. In essence, our licensees still supply approved products and keep inventory, but the JV will control the gateway to the consumer and the overall brand experience.
The JV will enable us to work together with the e-commerce platforms to control how Playboy is sold and ensure the JV is capturing online sales data and enforcing shutdowns on counterfeiters and unauthorized stores.
Second, have stronger relationships and broader reach to take advantage of emerging product categories that Playboy has not entered to expand our lifestyle offerings and accelerate growth. In just a few weeks, our new JV partner has developed the strongest and most diverse new business pipeline we have seen in years for China.
Third, reduce the operational burden by transferring our management product approval and legal complexity of operating in China to a highly experienced partner in the local market. Finally, the China JV structure has allowed us to significantly reduce the amount we pay our licensing agents on a cash basis.
of the China business at a $250 million valuation.
when our contract expires in 2028 with our global licensing agent, which we were paying approximately $9 million annually to.
less at corporate while gaining region or product specific expertise for business growth and management.
We are currently looking to take this JV model to other parts of the world or product categories where we see huge growth potential. Another JV we established was with our spirits partner. In addition to the 13 million they previously raised, they have commitments for up to another $20 million of additional investment.
of ready-to-drink cocktails later this year. Again, we are partnering with a management team that have domain and operating expertise and leveraging their organizations to build businesses which not only pay us the licensing fee, but also provide us with the equity upside.
Lastly, our Playboy Pleasure line of products is off to a great start at Lover stores, generating on average 100,000 in weekly sales only at Lover's. We set this up as a licensing deal and plan to aggressively expand that product line and distribution with our partner.
We have already secured over a thousand third-party retail locations to carry the product starting this week. Let's talk in more detail about Honey Burdette, our third core area of focus, because I continue to believe that business is a billion dollar opportunity based on the current revenue and EBITDA growth profile.
When we bought Honey Birdette in 2021, the business was doing approximately $73 million in revenue on a trailing 12-month basis.
and grew to $84 million in 2022. Although 2022 was a very tough year with significant inflation that we believe affected demand, inventory overbuys, supply chain issues, as well as competitors discounting, the brand remains extremely strong.
In the first three quarters of 2022, we had to discount our inventory more than the business had historically, given the macroeconomic environment and excessive inventory purchase prior to our acquisition of Honey Birdette.
Starting in Q4, we made the decision to limit promotional activity moving forward and to focus on brand health. It was a tough decision from a financial perspective because even at discounted prices, it is still a high margin business.
But it's the right long-term brand decision
The stores we have opened in the US over the past year are off to a great start. Our average store in the US is producing over a million dollars annually, which is double the average store in Australia, with our best store doing $1.8 million.
In the US, we are averaging a 38% four wall EBITDA margin compared to 34% in Australia. Average order volume or AOV in the US is $230 compared to $135 in Australia. The US now represents 38% of the total revenue and Australia 49%.
Before I turn it over to Lance, I want to set the record straight on some misperceptions and reiterate why I am excited for the future.
to set the record straight on some misperceptions and reiterate why I am excited for the future.
I and the named executive officers have never sold a share of stock for personal gain.
The company does not net settle equity grants as other companies do as the payment of employee taxes would be a drain on balance sheet cash And hence forces the employee to sell shares of settled grants to pay the APGOL tax.
The only stock we have sold is to pay the taxes required with the exercise of options or settlement of other grants as is legally required. In fact, I have bought stock personally three different times since we went public. The last time is part of the rights offering where I invested over 1.2 million dollars.
RISD invested almost 30 million dollars. Second, I want to clarify how stock-based compensation is accounted for in the financial statements.
All equity grants are initially valued based on the value of the underlying stock on the date of grant, applying different valuation models to different kinds of grants.
Expense for equity grants is accounted for both as of the date of grant and each quarter thereafter for the remaining life of the grant. In each case based on the grant date valuation regardless of subsequent changes in market value of the underlying stock. Thus even in quarters without equity grant.
The company is required to show expense for existing prior grants based on their initial valuation. The quarterly stock-based compensation expense is not compensation of an award holder divided by the then current share price.
Further, such quarterly expense does not mean there is any new or additional compensation to existing grant holders.
nor any additional dilution related to the quarterly expense. The last time our Executive Officers received any grants was in April 2022. And quarterly expense for the life of those grants will be based on the valuation as of April 2022.
Moving forward, we will have a much simpler, less capital intensive business with the right combination of cash flow from our licensing business, coupled with potentially significant growth in cash flow from our Crater platform and Honeybird Debt. We have a manageable amount of debt, a substantial amount of cash on our balance sheet, and a
and the ability to generate extra liquidity via the sale of non-core assets, including our extensive art collection.
In my opinion, our current valuation is very dislocated from the immense value the sum of the parts represent, including our lucrative brand Playboy, our approximately $300 million of federal net operating losses.
In my opinion, our current valuation is very dislocated from the immense value the sum of the parts represent, including our lucrative brand, Playboy, our approximately $300 million of federal net operating losses, our extensive art and archive collection, and our
the present value of our forward book licensing revenue, and the value of Honey Burdette. We believe in our business plan, but should it not materialize in the way we believe it will, then we will explore appropriate strategic options to maximize shareholder value. Lastly, before I turn the call over to Lance, I would like to say that we are very proud
I want to thank him for his partnership and hard work over the past two years. Lance will be departing the company in Q2 and will work with us to ensure a seamless transition. Lance helped us lead us through a period of growth and transformation as a newly public company and we wish him the best in his future endeavors. Lance? Thanks, beyond actual fact, I'm not sure where we'll end with. So now we're up to start at full current.
Thank you for the kind words, Ben. It has been a privilege to be part of such an iconic brand, and I'm grateful to the entire organization for all that we've accomplished. I continue to believe in the potential value of this company, and I'm excited for the team to execute on this new strategy.
Given our restructuring plan, I will briefly touch on certain Q4 results and then discuss what the business looks like pro forma taking into consideration all of the plan changes. In the financial slides of the presentation that we posted to our investor site, we've provided more granularity on full year revenue by brand within each of our reporting segments.
We've also provided total company annual costs on an as-reported basis, a non-GAAP-adjusted basis, and a pro forma basis after stripping out the costs related to the businesses that we no longer intend to operate.
Fourth quarter results were impacted by a number of factors.
One, we didn't execute as well as planned on our IT system implementations last year, which disrupted fulfillment operations and resulted in increased cost to remedy. Two, we pulled back aggressively on performance marketing due to both continued softness and efficiency and the aforementioned fulfillment challenges. Three, macro headwinds persisted, impacting consumers and partners alike.
along with $1.6 million of lost revenue due to foreign currency exchange rates. And four, reduced promotional activity at Honey Bredette led to lower sales, while increased promotional activity to liquidate inventory at Playboy and Yandy led to lower product margins. Total Q4 revenue was $68.5 million, a decrease of $27 million.
order of 2022. Now turning to the restructuring. Our investor presentation shows both revenue and cost on a pro forma basis for what the business would have looked like in 2022 had the restructuring been done at the beginning of last year.
Overall revenue would have been $212 million.
less the $73 million cost of sales and $113 million of selling and administrative expenses would have resulted in just over $25 million of pro forma EBITDA.
This pro forma assumes no revenue or cost related to Yandy or Playboy Direct to Consumer. It also assumes that the additional $15 million of cost savings we have identified are removed, along with $3.5 million of creator platform upfront launch costs that were one time in nature. The pro forma selling and administrative costs do not remove any other incremental costs related to the creator.
assets is a moving target.
The primary differences between 2022 on a pro forma basis and 2023 relate to four areas.
First, we plan on opening four to six new Honey Bredette stores, mostly in Q4.
2nd, we are going to continue to protect the Honey Bredette brand and will not be discounting merchandise outside of our normal pre-COVID sale periods, which will make the 1st, 3 quarters of 2023 a tough year over year comparison from a revenue perspective.
Third, we are seeing signs that our creator platform is beginning to scale and believe it will be cash flow neutral to positive for the year. And lastly, is related to the timing of when certain cost reductions or exits of businesses occur as we won't get a full year benefit of some of these actions. With the successful completion of the right offering.
we have reduced total leverage, eliminated our minimum cash covenants entirely, and eliminated leverage covenants to the second quarter of next year.
In the last three months, we've paid down $70 million of debt in addition to the quarterly amortization payments and currently have $157 million of total debt outstanding with approximately $35 million of cash and equivalents on the balance sheet today.
We have no exposure to Silicon Valley Bank or Signature Bank, and our cash is held between top-tier financial institutions in the US, UK, and Australia. Our debt service for the year is expected to be approximately $19 million.
We believe that our current balance sheet, covenant waiver through the second quarter of 2024, and our focus on managing the business for cash flow gives us ample runway and liquidity to continue executing on our plans for Playboy and Honey Birdette.
With that, I'll ask the operator to please open the line for questions.
operator to please open the line for questions. Thank you.
Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Alex Ferman with Craig Hallam. If everyone could please limit themselves to one question and one follow-up so we may get to everyone's questions....
Alex, please proceed with your question. Hey guys, thanks very much for taking my question. I'm trying to understand a little bit better the pieces of the business and how much they might be worth, especially now that it sounds like you're going to be focusing just on Playboy and Honey Bird Dad. I think Honey Bird Dad is, I guess, an easy enough business.
understand but the Playboy brand shows up across different categories and regions and business models. Can you give us a little bit more color to help us size up the value of those different pieces? I think you'd recently said there was a third-party valuation of 250 million dollars put on the China licensing JV of which you know you own a majority of that but how can
There's multiple different ways to value Playboy. Playboy is one of the largest brands in the world and basically has 100% unaided global awareness. You know, when I think about the components myself and what led me to, you know, write another check into the company, you know, I think about the present value of our licensing business.
That is a business that is underexploited today in a lot of parts of the world. So I think, you know, as we mentioned in the beginning, we have roughly $346 million of forward book cash flow.
Those are only minimum guarantees. That doesn't include overages and other things. And then what would be the terminal value on that? We've talked about our art collection historically. There are, you know, our Playboy TV, our Playboy Plus business, which are legacy businesses still generate cashflow.
When you think about the value of the greater platform that we are building, and it is off to a good start, if you annualized our weekly GMB today, you would get in excess of $15 million. If you looked at that growth rate, it is going to a 9% weekly CAGR.
And so when you look at the cash flow that generates, we talked about the $500,000 of monthly fixed costs.
and that we take 20% of what our creator makes. And so that business starts to scale very, when that business starts to scale quickly, the amount of cash that can spin off is absolutely huge. The last piece that I don't think you...
of what our creator makes. And so that business starts to scale very, when that business starts to scale quickly, the amount of cash that can spin off is absolutely huge. The last piece that I don't think you mentioned then was Honey Burdette.
you remember we paid around $300 million for that. Obviously it was a different time, but when you think about, you know, we've grown revenue since we acquired it, and you think about EBITDA margins on that business being quite healthy, you know, put a price on it, but I think again, you could probably get a pretty decent value for Honey for Dead as well.
Okay, that's really helpful. Thank you both. And then, you know, Lance, if I could drill down more on the pro forma calculations that you put out in your deck and kind of sketching to that $25 million of pro forma EBIT doc. Can you help us unpack that a little bit more? I mean, you mentioned
a few things this year that are going to be different between that kind of hypothetical pro forma number and the reality of 23, you know, some comparisons on Honey Bird Dead and, you know, changes in centerfold and sounds like, if I'm hearing those correctly, I mean, it sounds like some of those some of those differences, you know, are going to net to an improvement versus the pro forma results. I imagine the majority of those changes, you know, specifically the fact that it's going to take some time to get to the end of the year.
out what you're actually going to go through this year versus that $25 million number.
Sure, yeah, there's a few different ways to think about it, but you're absolutely right. Part of this is a little bit timing, right? We're now sitting here mid-March. We've implemented some of these cost-saving measures. We haven't fully exited Yandy yet. We haven't completed kind of what we need to do on Playboy direct to consumer. So far, which we might come up with is sort of two of the three quick steps that need to be looked at.
The way I think about it is really when you look at it on a go-forward basis or a Call it future 12 months or next 12 month basis Your baseline is kind of that 25 million once you've implemented all of these changes And then the the other things that aren't really contemplated in that would be
you're still being burdened with that 25 million, you're still being burdened by 8 million dollars of losses in the 2022 pro forma from the Creator platform. So if you're able to get that to break even, that puts you closer to 33 million on a go forward basis to the extent you're able to get incremental revenue and EBITDA from opening.
you know, like we said, four to five new Honey Burdette stores. Those are, you know, north of 30% for Wally EBITDA margins. You'd have to factor that in. The one thing you would net out a little bit on Honey Burdette would be the drag for the first three quarters this year as we take out promotion. But yeah, I would say net-net when you think about this, a very clean, clean, clean, clean, clean, clean.
Structure on a go forward basis, you're looking at kind of a baseline level of, you know, well into the 30s and hopefully we can optimize it even further from there. Yeah, Alex, on the cost side, you know, we've identified 15M today. We believe there's more cost to actually take out.
It's something I've done for 25 years in private equity when we go into businesses. And we are rebuilding this business line item by line item. But of that 15, $10 million was done this week.
So we won't get the full annual benefit of it this this year because we're already it's already March 15th But we've eliminated 10 million as of this week And then the other 5 million will be coming, you know shortly Hereafter as we continue to simplify the business and then I hope there are more costs that we can continue to take out
as we simplify the company, really looking less at the personnel side of things, which was done this week, but more at our vendor contracts moving forward. I think there's precedence out there in the marketplace from other companies during these economic times, and I believe there are significant savings that we can have. We're getting down to literally the logistics at Honey Burdette.
And so when you think about our warehouse operations, you think about how we ship product out, you know, eliminating a box and going to a poly bag, these are hundreds of thousands of dollars of savings, and we are literally rebuilding everything from the ground up.
Okay, that's really helpful. Thank you very much. Our next question comes from the line of Mike Hickey with the Benchmark company. Please proceed with your question.
Hey Ben, Lance, Ashley. And Ashley, thanks for taking my question guys. I guess first Ben, on your Creator platform, obviously you seem very excited here.
with some early success. Obviously still early days but it feels like this is likely exceeding your expectations here if that's true or not. And then on the GMB can you sort of maybe a little bit more granular on drilling down on what that actually means in terms of
revenue generation.
revenue generation. I've got a follow up.
Sure, so I think we have something that is truly differentiated from any of the competition we have seen. So when you think about the Playboy brand, the one thing we have heard from creators from day one is they want to be on the pages to play.
And so if you look at the recent changes we're making, and there's a lot of technology work being done in the background that has not rolled out or might not be visible to the consumer.
But I think we have something truly differentiated with our brand. When I look at the business and how it is scaling, since we relaunched in mid-September, are growing at a 9% weekly CAGR, that CAGR has increased over the last four weeks to 18%. If you annualized our weekly GMV today with no growth, so just to-
And so, as we said, our direct fixed costs associated with the business are roughly $500,000 a month. And so, as we said, our direct fixed costs associated with the business are roughly $500,000
depending on what that GMV turns out to be for the year.
You know, we believe the business will be cash flow neutral to positive And then continue to scale from there And so there's you know, a lot of stuff that we have planned from a product perspective But when we started this and we decided to replatform the business last year
The benchmark or the baseline that we thought we had to be at was to have a product from a technology perspective That was as good as the competitors and I believe that over time we will have a technology platform That will be better than the competitors Based on the team we have the way it is built and what we can do with it moving forward And then when you add that secret sauce of bringing back that digital magazine
You know, that can be a huge traffic driver to the platform, just like it was historically for the company, because you are working with mainstream celebrities, you know, to be on the page of the Playboy. And when you start to think about the traffic that generates, you know, we've already brought in and signed up, 1.4 million people have registered.
on the creator platform. And we've spent no money marketing versus when you look at the consumer products business, what you're spending to acquire customers. Over time this year, our creators will become affiliates for the consumer product business on both Playboy and Honey Burdette.
Nice. Thanks, Ben. Good luck, man. It's really exciting. Congratulations so far on the growth there. Thanks, Ben.
The second question, Lance, I realize you're exiting. Sorry to hear that. Just met you and now you're heading out, but good luck to you. But curious on 23, I realize there's, you're not guiding, there's a bunch of moving pieces. You can sort of compute the 25 million and 12% margin there, but I guess as you.
sort of see the momentum.
in your business and you sort of baseline that across the segments you're going to keep and you sort of think more medium to longer term. Do you have a sense of, you know, target, even the margin that you're sort of, you sort of want to track to? And then last question, I guess, on Lance leaving, what sort of process are you guys going to go?
way down through the anti-business and as we've tried to start up the Playboy business. So if you're eliminating that and you're really just left with lovers and Honey Burdette, that's a segment that could be doing around 20% margin if you got rid of lovers.
and just focused on Honey Burdette, that EBITDA margin would actually be higher. If you look at the licensing segment, those EBITDA margins are incredibly high, I think well north of 70%, 75%. And then the digital segment, as Ben mentioned right now, you think of the EBITDA margin,
The creator platform is getting to break even this year. We actually have. 2 other businesses within the digital segment that's TV and plus. They did 18,000,017.9M of revenue last year. Now they're, they're in decline. But those businesses from an EBITDA margin perspective are.
you know, north of 40%, 40, 50%. They're really high margin businesses as well. So I think the question on digital longer term is what would the creator platform margins look like? We've seen historically, you know, when we launched the NFT project, that was incredibly high EBITDA margin when we generated 11 million of revenue in the fourth quarter.
Yeah, I think when there's, you know,
The largest competitor in the space, the numbers are out there publicly and I think you can look to those margins for what the platform could generate. And so what we talked about on the Crater platform is the $500,000 of fixed costs. There are some variable costs with credit card fees, etc. But if the business were to continue its growth at 9%,
and do 135 million in GMB or roughly $27 million to us, I can tell you flat out it's extremely it's very profitable.
And the margins are extremely high because your fixed costs don't really scale. And then as far as Lance, it's something the board is working on. And
And we're obviously looking, moving forward, for the best CFO we can hire at the business.
Thanks, Gus. Our next question comes from the line of Jason Telchin with Canaccord. Please proceed with your question.
Thanks everyone for taking the call. I guess the first thing I was curious about is if you could shed a little more light on the financial impact of moving the China licensing business to the JV over the next few quarters. Is there any change there? I mean, sort of longer term.
What are some of the other, I know you mentioned there's some additional markets that you think that sort of been under-penetrated by you guys in the licensing area over time. I'm just curious if there's any more color you can share there on which countries you're referring to and how near term those opportunities are. Thanks for helping me out with this presentation.
I think for China, as I think about China for the year, I do not see any financial impact from moving from what we were to where we are going. When you think about how the deal is structured, we talked about this a little bit on the call, moving from what was a cash licensing fee to a lot of other things that we were doing
will grow. There's a ton of categories within China, where we're largely a men's fashion brand and happen. And some of the business pipeline we've seen, you know, especially around women's and then accessories, there's a lot of opportunities for growth within that market. When we think about other places in the world, you know, the JV approach that we've done, we believe that
You know, running the business the way that we did because of some legacy issues with a global agent is not the most ideal or optimized way to run it. And so we think about other parts of Southeast Asia. When you get into Vietnam and Thailand, you get into Japan and Korea where the brand is extremely strong. India would be another area that, you know, now that we're post-pandemic, we're very focused on.
And then Europe , we are still relatively small in Europe and we think there's opportunities there as well. It's very helpful and just a follow up or actually two quick follow ups on the creator platform. I believe you mentioned called the digital first but not digital only in terms of relaunching the magazine. I'm just curious if there's anything to read into there about potentially doing that sort of.
limited opportunities in a paper format. And then secondly, the user growth is really impressive with your marketing spend. Are there any plans to get more aggressive on the marketing side now that you're rebranding it under the Playboy umbrella?
So, the, you know, as far as the market, I don't really want to speak at this point to our marketing. I think that we're seeing great success. With creators bringing their audiences to play boy, obviously they're there, you know, there was some press this week. On the magazine.
and the inbound phone calls from creators wanting to be part of that magazine has significantly accelerated. And I'll say this on the Digital First magazine, I choose my words carefully, and we choose our words carefully. And so I'm not interested in selling magazine copies.
That's not a business that we want to go into. But if getting a magazine was part of a larger play...
and being a Playboy member, then that at some point can make sense for us.
Great, very helpful. Thanks a lot. Our next question comes from the line of Jim Duffy with CIFIL. Please proceed with your question. Thank you. Good afternoon. Much appreciated details in the presentation. Thank you for that. Great additional questions. Great additional questions.
disclosure. I wanted to start by digging in on the economics of the Creator platform. You're at a $15 million GMB run rate, fixed costs around $6 million, you get about 20% revenue attribution. What are the other variable costs and how much above that $30 million GMB run rate would you need to get to break even on that business?
So, thanks, Jim. It's Ben. So, when you look at the business, we take 20% of what the creator makes. We talked about our fixed costs. So, the run rate right now assuming no growth is 15 million.
right with the 9% weekly CAGR we are growing at. The fixed costs you know call it roughly six million dollars for the year and then the variable cost for for that business are based on on your credit card processing fees for the most part and the hosting but that that doesn't really increase substantially
based on the deals we have. So it really comes down to credit card fees that we believe we're in the process of reducing. And so if you get to call it a high single digits, very low double digits business.
you are breaking even to make you money. I'm sorry, I don't understand the high single digits to low double digits. That's the margin. In millions. In millions. So if your fixed costs are $6 million, and I don't want to get into all the specifics of the credit card fees, but when you start to get
to high single digit millions, right? You have $6 million to fixed costs, you put a variable cost on that, so you get into the upper end of that. You're- Oh, I see you're saying, not GMV in the high single digits, you're seeing revenue contribution. So you'd be doing 5x the revenue contribution.
You have $6 million dollars of fixed costs, you put a variable cost on that, so you get into the upper end of that. You're saying not GMV in the high single digits, you're seeing revenue contribution. So you'd be doing 5X the revenue contribution in GMV. So you'd be doing 5X the revenue contribution in GMV.
Correct. So if you're doing $15 million of GMV today with no growth moving forward, that generates $3 million of revenue. And so the business is growing at 9% weekly K-years in September , 18% over the last four weeks. And so when you start to extrapolate that out from a growth perspective moving forward, if you grew up at 9%, you would do $135 million of GMV or $27 million of revenue for us, right? And the business is very, very profitable.
If you were doing if you were doing 50 million dollars of GMB That's 10 million dollars of revenue to us. You know we are we are making money Okay, I follow you what are the incremental areas for investment in that business this year? What's you know for instance? What's the cost to leave relaunch the magazine are there any other? platform expenses we should think about is
Components of the cost base, you know, our costs are pretty much fixed at this point. It's really the internal team that we have built and and the, the engineers that we have hired.
Outside of that, I don't see any other costs. I don't want to talk about the product roadmap because one technology product roadmap always moves and if I put something out there I will disappoint someone and then competitors. What I will say is we have a very detailed product roadmap.
moving forward to continue to enhance the experience for the creators and for the users. And we launched a new profile that has been very well received with creators last week. We launched an enhanced discovery as what I would say is really step one in discovery with a lot more coming.
And then there's a number of other product features as we look to consolidate what I would say is You know one offer stand alone other legacy products that we have into one ecosystem system moving forward and but our fixed costs will not increase with that
Okay, and then my next question I wanted to ask about the business model change for Playboy D to C. What's the timeframe in which you'd expect to execute on that? Understanding the number of different options.
Yeah, we're executing on the cost side of it right now. And so we talked about the $10 million of cost that we've taken out this week. And so we have to focus on what we can control. And as far as making a final decision on whether or not we operate it with a reduced revenue and SKU count or JV, that is something that is ongoing in real time right now. Alright, we get a happyExplipel BGrand of content from walkedie talkie magazine.
and we'll make that decision here in the short term moving forward. But what we are committed to doing is I'm committed to generating as much EBITDA out of the company as we can generate. We think we have a good baseline now as Lance talked about it.
And we want to make sure that all of our business units are profitable. So we know we have a high cash flow and high margin licensing business. We have a fast growing digital business in the greater platform that should be high cash flow and high cash flow margin. And then Honey Burdette, we talked about the growth in the United States, especially generating 38%
after debt service, after cash taxes, even though we have $300 million of NOLs in some foreign jurisdictions and after CapEx, that we are running this business to be cash flow positive after everything. And that is our goal, is to continue to build cash and continue to de-lever the company.
I will jump in quickly on what Ben noted. As he mentioned, today we made some really hard decisions internally which right-sized our personnel structure for Playboy.com. We started earlier, started really in Q4 aggressively but most aggressively in the last month or two significantly reducing our paid media spend in Playboy.
So we've already started that massive reduction, which will obviously have big top line impacts, but that will help us get to a position of much significant less losses than what we incurred last year and that work's been ongoing and will continue as we identify the future operating model.
We have time for one last question. The last question comes from George Kelly with Roth Capital Partners. Please proceed with your question. Hi everybody. Thanks for taking my question. First one is just another question on the Creator platform. I just want to make sure I understand.
all the math and everything around it. So I thought I heard you say in your prepared remarks that you expect it to be sort of a neutral impact to cash flow this year, break even. And so am I doing the math right if I take that to mean that you expect an average run rate GMV during the year of around $50 million.
That would be, it's slightly less than that, but that would be a fair assessment that when you look at sort of where we are today at 15 with no growth and where we expect to be, that would be, that's what we think. Okay, that's helpful. And then second question from me on Honey Burdett. You mentioned
about the changing pricing strategy there in 4Q. I was just hoping you could give a little more disclosure about what the revenue was in 4Q and what kind of growth, year over year growth rate that was.
Yeah, and George, the 1 thing I'll say just so when you go back to the pro forma and all that Lance answer the HB. But when you when you go back to the pro forma, remember that 25M dollars of pro forma is still being burden with 8M dollars of cost.
So if the business is cashflow break, even, you know, it's the 25 plus the 8 million that gets you to 33 million that Lance was talking about. So it was around 18 million revenue in the 4th quarter.
And, yeah, I mean, for the full year, the US was up, Australia was slightly down, but US was up by, you know, on a full year basis, 22% for the year.
I will jump in quickly. I will jump in on the promotion shifts that were made and the actions that started taking place in Q4. The first three quarters of the year we added two incremental promotions. Those promotions happened in March and September . With the September promo, we added two incremental promotions.
That was leading into Q4, whereas as we hit in the Q4 period, we had 60% less breadth of product on promotion, and we reduced the depth of discount. So there was a timing shift in September that ended up pulling forward some sales. The way I'm looking at this and how I've normalized it is I've combined Q3 and Q4 because we essentially reduced promo starting in Q4, which is going to continue into this year.
through the Q3 period. But when you combine those periods, if you look at it on a constant currency basis, we're up roughly 2% when you add in that kind of Q3, Q4, which accounts for the timing shift. We are going to pull out for this year the March promotion. So we are obviously in March right now. We are in the process. It's happening now we've pulled it out.
And we will also reduce the September promotion, we will not do it. And so we will only offer the June and the November sale, which is consistent with our kind of pre-COVID period and then the Boxing Day. And so we're anticipating the revenue impact of that, but that's gonna bring us to a much healthier business and position us for longer-brand term health. George, we cut back our inventory by substantially and so
have that and what we what we want to put forward more than anything is the brand health of HP which is extremely strong as a luxury brand and making sure that that customer does not get conditioned to buying things on sale especially given you know the high margins we have at full price. That does conclude our question and answer session.
This does conclude our call. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.