Playboy, Inc. Q3 FY2021 Earnings Call

Thank you for standing by, and welcome to PLBY Group's Third Quarter 2021 Earnings Conference Call. At this time all participants are on listen-only mode. After the speakers' presentation there will be a question-and-answer session. I would now like to hand the conference over to Managing Director at ICR, Ashley DeSimone.

Good afternoon everyone, and welcome to PLBY Group third quarter 2021 earnings conference call. I am Ashley DeSimone, Managing Director at ICR. Hosting today's call are Ben Kohn, Chief Executive Officer; and Lance Barton, Chief Financial Officer. The information discussed today is qualified in its entirety by the form of 8-K that has been filed today by PLBY Group Inc., which may be accessed on the SEC website and PLBY Group's website. Today's call is also being webcast and a replay will be posted to PLBY Group's 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'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. Forward-looking statements are subject to risks which could cause PLBY's actual results to differ from its historical results and forecast, including those risks set forth in PLBY's filings with the SEC and you should refer to and carefully consider those for more information. These cautionary statements apply to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. And I will now open the call to Ben Kohn. Please go ahead. Ben?

Thank you, operator, and good afternoon, everyone. I'm delighted to report today on another strong quarter. I want to start today's call by commending our team on continuing to deliver even in the face of COVID-related operational challenges and for achieving meaningful progress on our strategic growth roadmap. 2021 has been an amazing year so far for our company. My remarks this afternoon are going to focus on how all of the great work we've executed on building our direct-to-consumer commerce business, integrating our strategic acquisitions, and releasing our first NFT drops serve as the operational foundation in the marketing flywheel for our even bigger opportunity to create a cohesive and scalable ecosystem of recurring revenue-based Playboy membership offerings. Lance will then provide greater detail on our financial results and outlook. I joined Playboy as CEO because I saw the opportunity to rejuvenate one of the world's greatest brands into a massive growth engine with the right business model transformation. It was clear that the model of selling magazines and complementing that media business with licensee revenue was a broken model. But with billions of dollars of consumer spend against one of the most globally recognizable and emotionally resonant brands, it was clear that with the right products and services for today's consumer matched with the right in-house operations, we can supercharge our growth. As we talked about previously, we've been following a three-part growth action plan, focusing first and foremost on the low-hanging fruit. Part one of our action plan is our work to build and expand our direct-to-consumer commerce business in key categories in territories. Our goal is to capture $1.00 of consumer spend against the brand versus the $0.05 to $0.06 we make on licensing deals. I'm immensely proud of the scale we've achieved here in such a short period of time. As Lance will elaborate on, in Q3 alone, we grew DTC revenue 139% year-over-year to $36 million. Part two has been focusing our licensing partnerships on bigger, better, longer-term deals. In the past several years since I became CEO, we've made great strides here, particularly in China, in India, and in the gaming category. We've also strategically used our licensing business as a marketing tool and brand builder for us; in particular, our high-end design collaborations have generated huge brand buzz, and our large-scale partnerships with PacSun have created vast retail reach for the brands. By executing these two initiatives, we have gone from two years ago being a $78 million annual revenue business with China-based licensing revenue contributing 50% of that revenue, to today, being on track to deliver $280 million annual revenue on a pro forma basis, with less than 15% of our revenue coming from China. And as we've been attacking the low-hanging fruit, we've also been building the foundation for long-term growth. To that end, the third part of our execution roadmap has been focusing on investing in new emerging growth opportunities that deliver recurring or long-tail revenue and allow us to generate significant returns over a three to five-year time horizon. The most exciting of these new growth initiatives is building the future of Playboy membership. Playboy is a brand that has nearly a million keyholders to its clubs, and nearly 7 million magazine subscribers, and it of course created a coveted lifestyle at the Playboy Mansion that celebrities and fans alike clamor to participate in. Our reimagined 21st Century Playboy Club will give our fans access into the contemporary Playboy lifestyle, allowing them to truly live a Playboy lifestyle that stands for freedom, fun, and sophistication. Imagine virtual and physical experiences and parties like a global midsummer night's dream party in the Metaverse and also in Las Vegas. We will offer things only Playboy can, including greets with talent, Playboy music and comedy stages, Playboy advisor, sex and relationship series, and of course, building upon a strong commerce foundation, early exclusive access to our fashion and product drops and artist collaborations. With the infrastructure we have put in place to build direct consumer relationships around our commerce products, we are working to expand on these offerings with membership services. We can build much more significant lifetime value through recurring revenues. And crucially, the continued expansion of our commerce business simultaneously serves the powerful top of the funnel marketing engine. Just about two weeks ago, we launched our initial foray into the new Playboy membership with the release of our latest NFT collection, Playboy Rabbitar. Rabbitar is a 3D Rabbit character minted on the Ethereum Blockchain. There are 11,953 uniquely designed Rabbitars, and each was priced at 0.1953 each, or roughly $900 at the time, in honor of our founding year of 1953. We sold out rapidly, collecting both U.S. dollars and Ethereum as payments and generated over $8 million in upfront revenue. In addition to our initial sales, we participate downstream in every subsequent sale. And since launch, we have already seen more than $8 million in secondary sales trading volume, with the rarest Rabbitar selling for as much as $50,000 a piece. Rabbitar ownership will unlock VIP status in what we anticipate will be our new Playboy Club, and access to a lifestyle and benefits that only Playboy can deliver. In the first few days of this new exclusive membership experience, early benefits to Rabbitar owners have included special access to a Playboy party in New York City, hosted by Pam Anderson, a Virtual Art Gallery party in the Metaverse, a digital wearables drop, dedicated community forums on Discord, and special discounts on Playboy.com. Our upcoming roadmap of benefits was released in our dedicated 70,000 plus number of strong Discord server just last week, including limited edition Rabbitar-themed apparel collaborations, upcoming IRL parties and experiences, and special NFT airdrops. Of course, for a brand as iconic and globally relevant as Playboy, we need to ensure that we have ways for our millions of fans around the world to become members. We believe we can do that successfully through tiers of membership and membership-based experiences that cater to specific fan bases. This is where CENTERFOLD comes in. The creative and celebrity community has always been central to what makes Playboy, Playboy. For nearly 70 years, reading a Playboy magazine was like stepping into a world of culture and celebrity, and for the biggest artists, voices, and bold-faced names of each decade, making it into Playboy was a rite of passage, just as we proved yet again in October with our groundbreaking Bretman Rock cover. From a business perspective, however, while we played a large role in building the careers of huge talent through our magazine business, the company wasn't able to provide talent with ways to continue building their careers, which meant the company couldn't participate in the upside of the talent's ongoing revenue generation. But today, the world of creators and talent is a very different place. Consumers today expect two-way interaction with their favorite celebrities; creators need tools to reach and build their fan bases. As one of the original platforms for the creative community to freely and openly express themselves, we are uniquely positioned to deliver in this space. CENTERFOLD is our new digital creative platform dedicated to creative freedom, artistic expression, and sex positivity. It will serve as a home for the world's top creators to interact directly with their fans and expand their communities and e-commerce businesses. CENTERFOLD will revolutionize the creator economy, just as Playboy magazine shook up the publishing industry nearly 70 years ago. Playboy is the one brand that sits at the intersection of sex and culture, and we do so at a massive scale and with mainstream visibility. Creators will be able to set up their own subscription or membership services, directly message with their fans, and much more. As we expand, we plan to offer creator services that only Playboy can provide, including the ability to tap into our merchandise design, production and distribution capabilities, artist collaborations, merchandise collaborations with Playboy and Honey Birdette, NFT and Blockchain tools, and more. And of course, being a CENTERFOLD creator will give talent access to our most coveted assets: appearing on the Playboy cover, in the Playboy pictorial, or being a subject of a Playboy interview. In the '60s, '70s, '80s, '90s, and 2000s, Playboy was a place where artists and celebrities were fully able to express themselves and ultimately get famous. CENTERFOLD will give them that chance again, and so much more. The investments we've been making to build our commerce infrastructure are crucial here as we've heard directly from creators that they want more access to more ways to generate value for themselves outside of content. By giving our network of talent these tools, we're able to create a full ecosystem of membership and a flywheel of audience aggregation and cross-promotion. We have tremendous inbound interest from the creator community in CENTERFOLD for both the creative freedoms it allows them and the unmatched commercial opportunity it provides them to have access to all of PLBY Group's operations. We are planning to launch in early December, and we cannot wait to share more about the immense talent and creative visionaries we anticipate serving as our founding creators. We're not naming names just yet for a variety of commercial reasons, but we can tell you that they come from various creative industries across music, art, fashion, and more. And they all share a commitment to artistic expression, celebrating culture, sex and body positivity, and truly serving their fans. Our anticipated founding team alone represents nearly 300 million social media followers. Our strategy is to work with the world's top creators and voices to ensure a safe platform for them and a great consumer experience for fans, and our recent acquisition of a 3D accelerator is aimed at bringing CENTERFOLD to market so that we could quickly capitalize on this immense opportunity. I’m more excited than ever about the future of PLBY Group. We've made enormous progress executing against a roadmap, leading to the big opportunity to capture more consumer spend against the brand by building a direct-to-consumer commerce business, while simultaneously strengthening our licensing partnerships. With the foundation we built in direct-to-consumer operations and the revenue scale we've achieved, we can now meaningfully invest in the future of recurring revenue membership products that we believe will, over time, become our fastest-growing and largest revenue contributor. With that, I will hand the call over to Lance.

Thanks, Ben. Third quarter revenue grew 67% year-over-year to $58.4 million. We achieved exceptional growth in what continues to be a difficult operating environment as we believe we lost more than $5 million worth of revenue due to COVID-related closures and supply chain impacts in the third quarter alone. Despite these headwinds, we've continued to execute well on our strategy. The expansion of our direct-to-consumer business has proven successful to date and in the third quarter, we grew direct-to-consumer revenue 139% year-over-year to $36 million. Our greatest challenge in growing this revenue stream isn't related to a lack of consumer appetite or brand awareness, but rather scaling our infrastructure to meet the tremendous demand we see for our branded products. Last year, we began the transformation of Playboy into an e-commerce destination to capitalize on the opportunity that we saw given the billions of dollars being spent against the brand through our partners globally. In the last 12 months, we've been executing against our plan, generating more e-commerce revenue on playboy.com in the month of September than all of 2020 and more revenue in the third quarter than all of 2020 in Q1 combined. Our early success has led to some key learnings. First and foremost is that the Playboy brand clearly resonates with a young audience. Two-thirds of revenue on playboy.com comes from customers under the age of 34, and we consistently see more than half of our revenue now coming from women. We also see a fair amount of price elasticity with our customers. Average order value on the site is now consistently above $90, which is roughly 30% higher than where it stood at the beginning of this year, and 70% higher compared to the third quarter of 2020. We also see that customers who spend over $200 with us on a single order are coming back to the site more frequently than others. In terms of product offerings, we've been able to leverage our strategic licensing partnerships to provide merchandise to sell directly to our consumers on playboy.com, and our high-end fashion collaborations have allowed us to reach a premium consumer while organically generating earned media when celebrities like Jay-Z and Bella Hadid wear the Playboy logo. There's more work to be done. But we continue to believe that growing direct-to-consumer revenue for the Playboy brand is a meaningful long-term revenue opportunity, especially when combined with the potential network effects that we hope to achieve as we scale the CENTERFOLD platform. Honey Birdette, Yandy, and Lovers have all provided us with the needed scale, infrastructure, and cash flow to execute on this transition of our direct-to-consumer expansion. Although Honey Birdette had a challenging first few months under our ownership as half of our retail stores in Australia were closed throughout all of August and September, the business still managed to contribute $7.4 million of revenue for the stub period starting August 9. Fortunately, the stores began to reopen in mid-October, and as of today, all of our locations are currently open for business, which has resulted in a corresponding rebound in business performance. We continue to believe that there is a significant amount of long-term growth potential for the brand. We also continue to invest in building a unified back end across all of these businesses, which we anticipate will produce synergies for us over the long term. On the licensing front, we continue to optimize our strategic partnerships in targeted categories and regions. In the third quarter, licensing revenue grew 14% year-over-year to $16.9 million. Revenue was bolstered by the ongoing success of our partnership with PacSun, along with stronger than expected sell-through from high-end fashion brands such as Emory as spotted on Jay-Z, and a fast fashion retailer in Italy who launched a successful summer swim collection. We also signed eight new strategic partnership agreements which we expect to launch next year, including several exciting fashion collaborations that we'll be able to sell directly on playboy.com and a partnership in the spirits category launching later this year. With that said, Q3 also saw continued licensing revenue headwinds due to ongoing COVID impacts, including closures of our partner-operated live dealer gaming studios and closure of the London Playboy Club, along with late product launches in India and South America, and limitations on our ability to generate new partnerships in underexplored international markets due to travel restrictions. Going forward, we'll continue to develop these strategic partnerships in categories that are capital-intensive and lower margin, or in regions that require local expertise. Perhaps more importantly, we think we can leverage these partnerships as a capital-efficient way for us to further expand the Playboy brand and lifestyle in categories such as fashion, hospitality, gaming, and spirits. In terms of financial outlook, we are entering the fourth quarter and we will exit this year with significantly more scale and growth opportunities than we had just 12 months ago. Our revenue target for this year was to exceed $200 million, which we believe we will clearly exceed, even before factoring in the $25 million to $30 million of revenue contribution we expect from Honey Birdette from August 10 onward. October was a big month for us as playboy.com became a destination for Halloween shopping, generating more revenue in three weeks than we generated in the first four months of this year alone. And Yandy was on track for a record-breaking month until we ran into fulfillment challenges because the inner Halloween sales occurred a week earlier than expected. On our last earnings call, I said that by 2025, we expect to reach $600 million of annual revenue, which was doubling the outlook we gave in February when we first went public. This long-term outlook represented revenue from our licensing and direct-to-consumer business, and didn't include any revenue for the upcoming initiatives that we've discussed today such as CENTERFOLD and membership. I'm not going to change that long-term outlook today given COVID and supply chain uncertainties. But I can say that we’re thrilled with the continued growth that we've seen in our direct-to-consumer business and the demand for our brand from both consumers and our partners alike. I'm also not giving guidance today for CENTERFOLD or membership as we've not fully launched these initiatives. What I can say is that if we are successful in working with our creators to build a sizable ecosystem, the long-term recurring revenue opportunity on CENTERFOLD alone could be larger than our consumer products business, not to mention the potential of membership. There are a few proof points we're sharing that lead us to believe there is tremendous upside potential here. One of them is that this year alone, we've already generated around $10 million in NFT-related revenue, which includes the Rabbitar launch that Ben discussed, and then the secondary revenue, along with the $1 million that we generated back in the second quarter in under 24 hours from our initial NFT drop. And on CENTERFOLD, we're hoping to launch with a group of creators that already generate hundreds of millions of dollars in GMV in the creator economy. If we're able to execute and these new initiatives materialize like we believe they can, we expect our long-term EBITDA margin profile will also increase, given the potential size of these opportunities relative to the total and the high margin nature of digital revenue. I'll close by echoing Ben's sentiment that this is an incredibly exciting time for our company with a myriad of opportunities in front of us, and we will continue to prioritize and allocate resources appropriately to build upon each successive win. With that, I'll have the operator open the line for questions.

Our first question comes from Jim Duffy of Stifel. Your line is open.

Thank you. Good afternoon, guys. Thank you for taking my questions. So just to start, it's been a busy year for the management team. The company has added a number of foundational pieces to the puzzle. I'm curious, Ben, are the platform components now in place or are there other pieces of the platform that you are still looking to add to capitalize on the opportunities ahead of you?

Jim, thanks for the question. In general, the platform is in place, and we think what we have assembled today is truly a competitive differentiator moving forward as we think about membership and CENTERFOLD. What we can offer the creative community is something that no one else can offer. And I think that's referenced by the founding creators that we have signed up to launch with that represent in excess of 300 million social media followers. We believe we are good capital allocators to the extent there are opportunities that make sense. Of course, we'll be opportunistic for the shareholders. But I would say right now we have every piece in place that we need to execute on our strategy moving forward.

That's great to hear. Lance, could you provide more details about the various components of the business and its performance in the third quarter? I know you mentioned some impressive figures for the first three weeks of October, but can you discuss the performance of playboy.com during the September quarter, specifically regarding Lovers and Yandy? What trends did you observe for Lovers and Yandy as we approach the crucial Halloween selling season? Thank you.

Sure. I think I highlighted some of that in the remarks, so I'll give a little bit of detail around that. As I mentioned in October, Yandy itself was having a record-setting October Halloween season. And we ended up having to cut the orders short in late October just because of fulfillment, labor challenges, supply chain challenges, all of those things. So we would have done a lot better in October than we actually did. But it was still a very impressive month for us. So that business continues to do extremely well. A lot of the work that we're doing there, as well as with Lovers is kind of integrated this back end across playboy.com, Yandy, and Lovers, and obviously soon starting work on Honey Birdette around all of that. Playboy.com, I gave some stats on that. I mean, really the growth there has just been really exciting for us. We brought in someone to run that business for us earlier this year, who has experience scaling businesses from effectively zero to hundreds of millions of dollars. And we see a big opportunity here as well generating more revenue. I forget what I said in the month of October that I think we did in the first four months of this year. And then the third quarter, I think was more than all of last year and earlier this year combined. So, really great growth trajectory. I think what it speaks to on all of this, and I've said this to folks before, which is the demand is there for our products and for our brand. We see that time and again demonstrated by the amount of money we see being spent with our strategic partners globally. And that was part of the whole reason for this business transformation that we're undergoing. That continues to translate when we're selling product direct on playboy.com. So, it's not an awareness or a demand issue. It's really scaling our infrastructure, our team, getting the supply chain right, obviously in the time of COVID. There are a lot of products that we're intending to stock at certain times that don't end up arriving on time. So, we're still managing all of this growth in what is a really challenging time, I think, for most direct-to-consumer retail companies. But we're very pleased with the results, and we think there's a long runway here to continue.

Yes. Jim, the only thing I'll add is when we launch CENTERFOLD, what's going to be so great is, in essence, we have our own social media network at the end of the day as well. And so when you start to think about the flywheel that we've created, and then the recurring revenue nature of what we're launching with the Rabbitars and then the CENTERFOLD, this in the future can really supercharge all facets of the business.

No doubt. One more quick one, Ben, if I may, with the Rabbitar launch, do you have a view as to the geographic appetite for that? Was the uptake of the Rabbitars a global phenomenon? Or was it more concentrated in North America?

So, I don't have the specifics on that. What I can tell you is because I'm active in our Discord community talking to our Rabbitar holders, is that I'm communicating with people in Australia and China and a whole host of other places. So I think it's really interesting. I think what the team did here, and I believe we were the first to do it on a launch like this, is we actually created or set aside almost 3,000 Rabbitars for credit card or fiat transactions. And I think what this brand has, that unique ability to do, is actually to bring in mainstream investors or people that have not participated in the NFT space before into that community. And when I look at the number of first-time buyers based on people's responses in Discord, I think that's truly exciting for us moving forward. And then as we continue into 2022, to expand our NFT and Blockchain efforts with the creators that we are going to be working with on CENTERFOLD coupled with that 10 million piece archive that we have, that becomes truly exciting moving forward.

Excellent. Congratulations on the success of that Rabbitar launch.

Thanks, Jim.

Thank you. Our next question comes from George Kelly of ROTH Capital Partners. Your line is open.

Hi, everybody, thanks for taking my questions. So, maybe to start just with kind of a 10,000-foot view question. If I'm thinking through next year's 2022 financials. And I'm not looking for any kind of specific guidance here or just thinking more broadly than that. But a lot of these new initiatives that you're working on like CENTERFOLD and this NFT Blockchain-related membership programs, all that kind of stuff, if we lumped it all together. Would you anticipate that being a really significant portion of revenue as soon as 2022? I'm just trying to think broadly, like, how should I think about these things ramping?

Hey, George, thanks for the question. So, look, it's hard to say because none of this has really launched, right? So far we've done effectively three NFT launches. We did our first one in the second quarter, which we sold out in under 24 hours and generated a million in revenue, which we thought was extremely successful for our first attempt. We sold an NFT of an original piece of content, a piece of archive content in digital format for $60,000 in the third quarter, which we thought was a great outcome for something that was just a regular photograph that we put in digital format. And then obviously, we launched this Rabbitar collection with much more success than we would have initially imagined, generating over $8 million of revenue and reaching all sorts of consumers that have historically not purchased in NFTs. So those were all things that if you had asked me back in March what we were expecting here, I couldn't have given you a number. And 10 million isn't a huge number, but it's a great start. When you fast forward to next year, and look at the potential of these platforms, you can get to some pretty big, pretty heavy numbers, but it's really going to depend on how quickly we can scale, not only our creator base, but also the user base that they're bringing over. So we'll have more proof points of that a few months after we launch it. So I'm hopeful on the next call, we've at least got a little bit more data points to go off of, but it would be pure speculation for me to come on here and tell you what I think that's going to drive next year. So it's kind of hard. But we'll continue to work with you to be as transparent as we can once we see data points.

Yes. I mean, George, I'll just add, I think that the potential is there. So if you look at our founding creators that we'll be announcing right around launch, as Lance said, they represent hundreds of millions of dollars of GMV already in the creator economy. And then the potential to expand that even more it's going to come down to conversion rates and a whole host of other things. But what's so interesting about the Rabbitars as our first entry back into membership, and then as we talked about in the prepared remarks, expanding that with tiers of membership moving forward, there are comps out there. So you can look at Bored Ape Yacht Club and others as to what they've done, not saying that we will do any of that or not do it. But the potential to use Blockchain and NFTs for a much larger membership to reach the millions of fans and consumers we have around the world is interesting. And then, when you look at that type of revenue, we're talking about recurring revenue versus transactional revenue. And throughout my private equity career, I love businesses that are focused on recurring revenues. And I think this brand has a history, as we've talked about with memberships historically, and we can do this in a way for the 21st Century in the Metaverse coupled with physical experiences, and truly deliver something that no one else can deliver.

Okay. Thank you. And then last question for me. Wondering if you could talk about Honey Birdette and what you've seen since Australia has started reopening? And then additionally, what is the plan for new stores, particularly in the U.S. next year? Thank you.

Sure. I'll talk about the reopening. Yes, I mean, as you would imagine, if you've got half of your stores closed in Australia that produces quite a headwind on revenue. But as those stores have reopened, they've been performing really in terms of what we would have expected have they been open this entire time. So, it's not some huge snapback in demand, but the business has certainly rebounded as performing along the lines of what we would have expected when we bought this business, which we thought had a lot of growth potential. What we've seen here in the U.S. is also consistent with what we had expected when we bought it, which was a lot of room for upside on growth in the e-com business. And our biggest, most successful stores actually happen to be in the U.S. as well. So we are actively scouting for ways to expand our footprint not only here in the U.S. but also abroad in Western Europe. And we also recently launched e-com efforts more broadly; we used to only be in the UK, where we're now throughout Western Europe, and expanding our footprint there as well. So it's quite a symbiotic relationship. When we open these stores, we see a corresponding increase in e-com revenue, they really act as very profitable billboards for the business. So we think it is an important part of the plan to open stores and continue to derive e-com growth. So we're in the process right now evaluating and figuring out kind of what the right strategy is going forward there, how many stores we intend to open, but we are actively looking both here and in Europe.

Okay. Thanks everybody.

Thank you. Our next question comes from Daniel Adam of Loop Capital Markets. Please go ahead.

Hi. Thanks for taking the questions. Just two for me. First, on the membership initiative, can you provide some color around how many members you think you can ultimately scale to? And then on pricing, will you plan to accept both dollars and crypto? And how price sensitive do you have any indication as to how price sensitive your target membership base really is? And then, the follow-up question is on the NFT Rabbitars. My back of the envelope math got me to a little over $9 million of revenue from the launch. Ben, I think you mentioned Rabbitar revenue contribution at $8 million. Is there anything that would explain that delta? And I guess related to that, are you holding any Ethereum on your balance sheet, or to immediately convert crypto sales to dollars? Thanks, guys.

Thanks, Dan, I'm going to start with your last question first. And then I'll let Ben answer the first part. So, your math is not wrong. But in terms of the way we will recognize the revenue, we will recognize it net of any fees to our partners that we're paying out. So that's why we said it was over eight and not the nine that you had indicated. In terms of holding Ether cryptocurrency on the balance sheet, we generated both Eth and USD in the fiat transaction. We continue to hold the Eth on our balance sheet. We are in this for the long run. This wasn't just a one-and-done type thing. We're going to continue executing and operating in this space. And therefore, we think it makes sense to hold Eth. What we're in the process of determining is what is our investment philosophy, and how do we incorporate Eth into that, obviously right now, when you think about it as a percent of our total cash or liquid assets, it's a very small percentage, obviously sub 10%, which feels like the right amount right now. But as the opportunity grows and as we scale, we'll figure out more what the right thing to do is here. Go ahead.

Yes, I appreciate that. So our membership work, I think the sky is really the limit here. I think that this is a company that today drives over $3 billion of consumer spend. This is a company that has the potential to have millions of people as Playboy members. And we can deliver really unique benefits for those members in terms of scalability, because this is not going to be physically constrained even though we do plan on doing in-person events from a membership perspective in the Metaverse, a Playboy Mansion in the Metaverse, that gives us unlimited potential on a global basis. And then when you couple that with CENTERFOLD and how this flywheel all works together, CENTERFOLD is not only an unbelievably lucrative financial opportunity for the company, but it also provides an ongoing relationship with the talent that we have worked with for over 70 years. We also have access now to all of those subscribers on the CENTERFOLD platform that will benefit not only the Playboy membership but also our commerce efforts as well. And so, all of this sort of comes together in this cohesive ecosystem or flywheel. I'm really excited by the potential for what we can deliver moving forward on a recurring revenue basis.

Okay, great. That all makes sense. Very helpful, guys. Thanks.

Thank you. Our next question comes from Austin Moldow of Canaccord. Your question, please.

Hi, thanks. I have a question on gross margin. I see that's going up and I know mix can move that around. But when you look at gross margin on a sort of like-for-like basis, is there anything that helped that out in Q3 for licensing or DTC?

Sure. On the direct-to-consumer side, it's certainly going to be helped by the addition of Honey Birdette. One of the reasons that we were so drawn to Honey Birdette was the fact that they're producing and selling their own private product, which produces much higher gross margins than we see on the Yandy or on Playboy, because Playboy is selling a mix of our own and other brands. So that's probably what you were seeing in the third quarter. And look, as we continue to scale on the direct-to-consumer side, we want to leverage those learnings from Honey Birdette and apply that to the rest of our business to drive incremental gross margin there. So, we think there's room to drive that incrementally higher over time.

Okay. And on CENTERFOLD, I'm wondering how you view the creator platform usage changing over time. I mean, do you expect creators to use one platform exclusively? And is it not built into your early agreements, whereas this sort of more like ride-sharing where a driver will have Uber, Lyft, and a bunch of other apps on their phones, alternating between them where the demand is?

Yes, Austin, that will depend on the creator. The feedback from creators regarding CENTERFOLD has been extremely positive. We have collaborated with them on their desired features, and we believe we possess a significant competitive advantage through our commerce and NFT capabilities. Many of our founding creators will choose to work with us exclusively. Playboy, as a brand, stands apart from others in the market. We have established content guidelines that cater to both our brand and our creators. With 70 years of experience working alongside top creators and helping to launch their careers, we now have a system that allows them to earn income with us over the long term. For example, a creator can be active on CENTERFOLD while also participating in a music night or attending one of our in-person events. This interconnected ecosystem can work harmoniously. A former playmate, for instance, could have their past content released as NFTs on our platform. Over time, if we execute this strategy effectively, it has the potential to significantly change the company's trajectory. Additionally, our acquisitions, such as Honey Birdette, were strategically made to integrate the necessary elements for delivering something truly distinctive in the future.

Got it. It's really helpful. And one super quick follow-up for these early CENTERFOLD launch partners, what kinds of creators are in there?

So they are huge music stars, to former playmates, to adult stars, to artists, to other influencers, actors, celebrities. We've really been overwhelmed by the response from the creator community, and also by the diversity of the creators that we've brought in. I think it's going to truly be something that's unique and also something that fosters the development of the Playboy Club back to the day when Playboy had Playboy After Dark, the television show, and had huge celebrities and musicians showing up and playing the Playboy Club or playing on Playboy After Dark, which was the television show. This cohesive ecosystem that we're looking to build will sit on top, or CENTERFOLD center, and CENTERFOLD by itself can act as a huge top of the funnel for everything else that we're doing as a company.

Great. Thanks very much.

Thank you. As you think about the holiday season upcoming, do you feel like you're in a pretty good in-stock position for holiday season inventory and then right around the corner its Valentine's Day, which is obviously a big, big holiday for a lot of your brands as well? Do you have visibility at this point into how much inventory you think you'll have coming to sell for the key Valentine's Day holiday as well?

Yes. Thanks, Alex. Look, the team is working really hard. We are stockpiling inventory early for Valentine's Day. But look, it's one, supply chain issues and two, labor issues. And so we feel good right now; we have baked that in. I'll tell you personally, it's frustrating because we as a team want to achieve excellence. And we've had a really good year so far, but we've also left money on the table; we can directly pinpoint that, and that as a CEO is extremely frustrating. But I feel like we're in a good position for Valentine's Day across our businesses. We are in a good position for the holidays and we'll wait and see. Our issue historically throughout this year has not been a demand issue. And that would be something that would scare me if the demand was not there. The challenge sometimes we’ve had is the demand is in excess of our supply. So a long-winded way of saying right now we feel good about it. But again, you never know what could happen in the future from the supply chain.

Yes, just to add to that. We've got plenty of inventory. Sometimes the challenge that we see is that we have plenty of inventory, but it may not always be plenty of the right inventory. And that's part of the supply chain challenges. The stuff that's selling well is tougher to get that back in stock. So that has been kind of the challenge. I think that remains somewhat of a challenge. So, we feel good about our inventory levels that are on hand, but it's more a question of making sure that we've got the right inventory at the right time for our customers. So, it's really around a question of assortment mix.

Yes. And I think what we've done is we've tried to get ahead of it and we've tried to bring stuff in earlier than we normally would bring stuff in. But look, I hope that at some point in the future, the supply chains with COVID will start to normalize.

Great. That's really helpful. Thank you.

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