Playboy, Inc. Q2 FY2022 Earnings Call

Good afternoon, everyone, and welcome to PLBY Group’s Second Quarter 2022 Earnings Conference Call. I’m Ashley DeSimone from ICR. Hosting today’s call are Ben Kohn, Chief Executive Officer; Lance Barton, Chief Financial Officer; and Ashley Kechter, President of Global Consumer Business. The information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PLBY Group Inc, which may be accessed on the SEC’s website and PLBY Group’s website. Today’s call is also being webcast and a replay will be posted to PLBY Group’s Investor Relations website. Please note that statements made during this call, including financial projections or other statements that are not historical in nature, may constitute Forward-Looking Statements. Such statements are made on the basis of PLBY Group’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 Group’s filings with the SEC. 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. During this call, PLBY will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release PLBY filed today in its Form 8-K with the SEC. I will now open the call to Ben Kohn. Please go ahead, Ben.

Thank you, Ashley, and good afternoon everyone. Today’s climate is very different from when we first began to transform what had been the legacy media and licensing company into a fast-growing consumer and digital business. However, the robust demand for Playboy and Honey Birdette continues to hold strong, and I’m optimistic about the recent trends we are seeing on CENTERFOLD. That said, given the uncertainty in the macro environment, we have taken a close look at the factors within our control and have taken actions to best position the business to weather the headwinds and drive long-term growth. To that end, we restructured our debt and secured liquidity. We have amended our senior secured credit agreement to give us extra headroom to invest in the growth areas of the business and have drawn down on the remaining $25 million in Series A preferred stock with Fortress. We now have approximately $70 million in cash equivalents, including crypto and restricted cash on our balance sheet. We are also conducting a strategic review of the business, streamlining costs from non-core areas while continuing to invest in growth areas, with the goal of being cash flow breakeven by the end of this year. The prioritization along with our amended credit agreement gives us the flexibility we need to execute on our strategy. I remain committed to our plan, which focuses on two key areas: growing and consolidating our consumer business with a focus on high-margin owned and operated products, and second, building out our creator-focused platform CENTERFOLD. My confidence in the business and commitment to our long-term plan are evidenced by the approximately $850,000 of shares I bought in Q1, in addition to the $500,000 of shares I purchased when we went public. No named executive officer has sold any shares except to cover the tax obligation related to those shares. However, the selling of shares for tax purposes has subjected those executive officers to short swing profit rules. Hence, no named executive officer has bought any additional shares in Q2. At the corporate level, we have not repurchased shares given the rapidly deteriorating macroeconomic environment we witnessed just after we announced the buyback. Those headwinds have had a more significant impact on consumer spending than we expected or accounted for in our original forecast. However, we are also seeing some very encouraging bright spots in the business. Inflation is not only driving higher fulfillment and product costs, but it is also putting pressure on consumer spending. In keeping with recessionary buying trends, we are seeing a greater impact on our value-oriented consumers versus our luxury or higher-end consumers. Both Playboy and Honey Birdette cater to consumers drawn to luxury and aspirational brands. And we continue to see strong consumer demand for both brands, which are up considerably through the first six months of the year on a year-over-year basis. Playboy D2C revenue is up over 150%, and Honey Birdette is up approximately 28% on a pro-forma basis. Playboy continues to see strong global consumer demand from the Gen Z customer and the strength of our strategic partnerships, which include recent premium collaborations with Yves Saint Laurent featuring Romeo Beckham, Halo, and others. We are expanding our portfolio to include Playboy lingerie designed by the Honey Birdette team, which we will launch later this year. Honey Birdette continues to deliver strong revenue growth and margins despite the macroeconomic headwinds. We conducted a soft launch with YouPay to provide Honey Birdette customers with a third-party gifting option. From the early data, we are seeing strong conversion rates and direct acquisition of new customers. Given the success of the pilot, we are incorporating the option for all customers and will be adding wishlist functionality. We are exploring use cases for other brands as well as for CENTERFOLD. On the retail front, our Miami store continues to be one of our top performers. We opened a new location in East London in late Q2, and more store openings are planned over the next few quarters. We will continue to expand Honey Birdette’s retail footprint, diversify our product offerings, and grow brand awareness in the United States. Yandy and Lovers are seeing the opposite sales trends, as their cost-conscious customer is getting hit extremely hard at the gas pumps and in the grocery store, leading to less discretionary spending. Compared to 2021, year-to-date revenue through the end of July declined by $22 million between Yandy and Lovers, with over $18 million decline coming from Yandy. Supply chain disruptions continue to pressure margins throughout the business because seasonal inventory arrives off cycle and must be managed through disciplined promotions. Supply chain issues also impacted our ability to have the materials needed to launch new products and to keep products stocked during key seasonal windows. To manage through this, we have advanced stock key inventory, including our top sellers and seasonal items like Halloween costumes, and are introducing more owned and operated products throughout our business. Rising customer acquisition costs and last year’s iOS privacy changes have significantly impacted performance marketing, particularly for Yandy. According to our external marketing partner, iOS IDFA updates led to a 50% year-over-year drop in Facebook conversion rates for fashion and apparel brands in Q2. As a result, brands have shifted budgets away from Facebook and toward Google, which has driven up competition and prices for keyword spending, affecting one of our key customer acquisition channels. We are combating these trends by shifting spending to other social channels and have plans to leverage the Playboy name across our portfolio to elevate positioning and broaden our reach. For Yandy, this involves a full rebrand under the Playboy Halo, while for Lovers, we are planning on a new sexual wellness line called Playboy Pleasure. We will be featuring Yandy and Playboy merchandise in a number of stores. We view these marketing headwinds as concrete evidence as to why CENTERFOLD is so strategically important for our long-term customer acquisition strategy on a B2C basis. The CENTERFOLD platform has the potential to drive organic customer acquisition and further target our product marketing. As I mentioned last quarter, three key elements are required to make CENTERFOLD successful: the brand, the product, and the creators. As for the brand, Playboy is one of the most recognized brands in the world. And we will leverage its massive reach as we integrate CENTERFOLD within playboy.com, ultimately driving all customers into one ecosystem. The CENTERFOLD product, the platform itself, and the pace of progress to advance it have not met my expectations. When we decided to launch CENTERFOLD, we had two options: build the platform from the ground up, which was a 12-month process at best, assuming we had a full team in place, which we did not, or buy an existing platform to accelerate our market entry. We chose the latter, which provided speed to market and the ability to test and iterate on the product. The coding that goes into the back end to support messaging, payments, and creator records is extremely complicated. Unfortunately, our initial team, which was largely comprised of offshore developers, was unable to make the needed progress on the platform. However, having a live product in the market has provided us with much-needed test data to inform, prioritize, and accelerate our current product roadmap and creator strategy. Given the product issues we encountered, I quickly identified the need to upgrade our technology talent and recruited a new in-house tech team earlier this year, including product and engineer leaders from Uber, Google, Square, and Y Combinator. Since they have come on board, we have seen dramatic improvements in the stability of the platform, along with new bulk features and back-end enhancements that will be rolled out later this year. From day one, the new team has been laser-focused on building a seamless creator platform with an intuitive UI, leveraging data from our existing business and the ongoing feedback loop with creators and fans. The relationship and expertise from our new team have also enabled us to work with premier technology and payment providers to ensure best-in-class functionality, accelerate development, and lower overall cost basis. With CENTERFOLD’s improved technology and successful test cases, we are executing on a CENTERFOLD strategy in earnest. As new technology improves, we will work closely with our existing creators to monetize our other audiences. A few weeks ago, we began onboarding new creators, and some are already approaching $10,000 in gross bookings in their first month, while also continuing to attract both new users and new creators onto the platform. We are encouraged by the momentum we are seeing across the creator base. For example, one creator we recruited from within our Playboy ecosystem is now generating nearly $100,000 in gross bookings per month. She and her peers are also collectively bringing in millions of unique visitors, many of whom convert to registered users and then engage with and become paying fans of multiple creators on CENTERFOLD. Our top referrer, for example, has driven over 100,000 registered users to the platform through her personalized following across multiple third-party platforms, including Instagram and Reddit. What we need to do now is scale these wins. We are leveraging what we have learned about these top performers to create repeatable processes and inform which types of creators to onboard and arm them with the best practices to grow their subscriber base and optimize their performance on CENTERFOLD. Before I became the CEO of PLBY Group, I spent a long time in private equity and have been through many economic cycles. While the road ahead won’t always be smooth, I’m encouraged by our momentum and confident in our people, our brand, and our long-term plan. I will now turn the call over to Lance.

Thanks, Ben. The second quarter revenue grew 31% over the prior year quarter to $65.4 million. Our growth was driven entirely by our direct-to-consumer segment, which was up 59% year-over-year to $44.6 million. As Ben alluded, within direct-to-consumer, we have seen a real bifurcation of performance with Honey Birdette and Playboy achieving continued growth while Yandy and Lovers have experienced worsening trends as the year has progressed. Honey Birdette revenue was up 32% year-over-year to $22.4 million in the second quarter and up 37% on a constant currency basis. Growth in Honey Birdette was driven by a 15% increase in brick-and-mortar revenue and a 49% increase in e-commerce. Solid growth on both fronts despite Australia being more heavily impacted by the current macroeconomic situation and relatively low brand awareness for Honey Birdette in the U.S. Playboy e-commerce revenue in the second quarter grew 90% year-over-year, and revenue in the month of July eclipsed Yandy for the first time ever. While the Playboy brand continues to grow, our supply chain was hit especially hard in our licensed inventory where we are heavily reliant on our partners around the world. We have made strides to increase our owned and operated portfolio. This includes bringing design and marketing in-house and hiring key people in these two areas from Victoria’s Secret, Abercrombie, American Eagle, Calvin Klein, and GapBody. The buying behavior of customers at Yandy and Lovers has been severely impacted by inflation, leading to a year-over-year decline in revenue of $8 million in the second quarter, the bulk of which was driven by Yandy. Yandy is also part of an unsustainable marketplace wholesale model with low margins and a highly saturated competitive set, which creates higher risk and exposure to supply chain challenges due to supplier impacts. For example, Yandy was running a 50% out-of-stock rate during the first part of the second quarter. To mitigate this in the short term, we have made an effort to secure safety stocks of our top 20 selling items as well as our Halloween merchandise. Similar to what we are trying to do at Playboy, our long-term focus at Yandy is to grow our owned and operated business, which should ultimately yield higher margins, more control, and enable a shift to profitable growth with less reliance on paid media. Lovers saw significant raw material cost increases impacting product margins, and when combined with high fixed costs due to our store footprint, there is less flexibility for us to address the revenue shortfalls we have experienced due to declines in store traffic. Similar to what we experienced in Playboy and Yandy, we are highly dependent on a vendor model and their supply, which resulted in supply chain disruptions and out-of-stock items. That said, we have integrated our Lovers and Yandy buying teams, driving efficiencies and enabling us to reduce headcount. In our licensing segment, Q2 revenue was flat year-over-year to $15.9 million. Given the macro climate, some of our apparel and gaming partners have experienced weaker trends as the year has progressed, resulting in a reduction of reported revenue on our end. We believe these are more category-wide headwinds and not specific to our brands, as other partners have produced better-than-expected results, which helps offset the declines. Reported revenue from our partners in China was stable. However, the severity of COVID lockdowns in the country resulted in cash payments coming in after the quarter ended. We have signed amendments with our major partners that put them on payment plans to help them during this time. Instead of being paid by our partners semi-annually, we are shifting to more frequent payment plans for the next several quarters that will result in the majority of the expected cash payments arriving this year, with some amounts deferred to future periods. There is no revenue impact related to the new payment terms as the overall contractual values remain intact. All partners have made their first payment; we have already received nearly half of the amount that were past due, and we will continue to monitor the situation closely. In light of all the macro challenges that have impacted our business and the uncertainty that lies ahead, we are withdrawing our prior financial outlook and suspending guidance for the remainder of this year. It is clear that our rate of revenue growth has not materialized as previously expected, and we must adapt our investment strategy accordingly. As Ben mentioned, we are currently undergoing a strategic review so that we can position the company to be cash flow breakeven by the end of this year. While we remain focused on sustaining investments that we believe are most critical to executing on our long-term strategy of growing our direct-to-consumer and digital businesses, we are also focused on rationalizing our business to improve operating efficiency. We may incur transition costs that impact our financial results this year as we implement these changes, but we believe the work that we are doing now will allow us to enter 2023 as a more streamlined and efficient company well-positioned to capture the global demand we continue to see for the Playboy and Honey Birdette brands. Although revenue is difficult for us to forecast in the current environment, we are very focused on cost levers that we can control. Embedded in our prior fiscal year 2022 adjusted EBITDA outlook was an expectation that on a pro-forma basis, non-product costs would increase by a little more than $30 million this year, an increase of roughly 17% year-over-year to over $210 million annually. Over half of that expected cost increase for this year, or more than $17 million, was expected to be driven by our investments in building out both our direct-to-consumer business and CENTERFOLD, around $7 million of the expected cost increase due to technology and infrastructure costs. As we work to consolidate operations, build a unified back end across all our direct-to-consumer businesses, and remedy our IP controls. The remaining $6 million or so is largely driven by corporate and public company costs, such as higher insurance and audit fees, along with additional resources in areas that the company has historically under-invested in, such as finance, accounting, tax, and compliance. Based on the cost reductions that we started making to the business last quarter, when we took out approximately $5 million of annualized overhead, our current run rate on non-product costs is just under $200 million annually. As part of our ongoing strategic review, we are closely scrutinizing our investment plans for the remainder of the year, determining potential tradeoffs, and reducing costs where we can, such as eliminating planned hiring, reducing marketing spend, delaying planned product or store launches, and reducing headcount. We intend to be responsive to what we are seeing in the marketplace and to control our costs tightly so that we can manage our liquidity and balance sheets accordingly. One example of this is our near-term store expansion plans for Honey Birdette. Although the business continues to grow nicely, we are taking a more disciplined and cautious approach to store openings this year. We have already opened stores in Miami and Stratford, UK, and have signed leases for Short Hills, New Jersey, and International Plaza in Tampa. But we have decisions to make on the remaining store openings that were planned for this year. Our existing U.S. stores perform quite well, averaging a million dollars of annualized revenue per store with 30% for wall EBITDA margins, which makes for a compelling argument to push forward with our previously communicated plans. However, we want to be mindful about taking on fixed long-term liabilities in the current environment as we better understand how long these conditions may persist, and any potential impact on the Honey Birdette consumer. We also must consider the near-term cash impact, as each new store costs around $700,000 to build out. So we will have a roughly two-year payback period on any initial cash outlay. While we believe we have ample liquidity to open more Honey Birdette stores this year, we want to ensure we have enough cushion to withstand any potential disruptions to our expected cash receipts. Although the business has faced many obstacles this year, Ben, Ashley, myself, and the rest of the management team firmly believe in the long-term potential for value creation that exists. We will make near-term cost adjustments that are needed to be responsive to the revenue side, but we plan to stay the course and invest prudently in executing our strategy. With that, I would like to ask the operator to please open the line for questions.

Our first question will come from Alex Fuhrman of Craig-Hallum. Your line is open.

Interpreting your comment here that you know the bulk of the slowdown here and the need to suspend guidance is related to Yandy and Lovers. It sounds like Honey Birdette and the Playboy brand, at least in terms of your direct-to-consumer sales on the Playboy brand, remains strong. I don’t know if that is maybe they have slowed down as well, but just still continue to grow nicely or have those brands not seen the same sequential material deterioration that you have seen at Yandy and Lovers.

Thanks, Alex. Yes, I think that is right. I think when you look out for the rest of the year, Halloween is a big period of revenue for Yandy. And if you were to assume Yandy were flat to last year and realize we left around $3 million in revenue on the table last year, when we had to shut down the warehouse over Halloween, we think we have remedied those problems. If you take that as kind of the high watermark for revenue in the fourth quarter, and then look at the current trends that we have seen in the business year-to-date, you are looking at a $15 million to $18 million potential swing between current trends and what we would achieve if we were flat to last year, plus that $3 million. So, obviously, that is a lot of uncertainty for one business and one quarter alone. I think the other thing that we have to factor in is, what do we decide to do around Honey Birdette store openings? It doesn’t have a huge impact on revenue for the remainder of the year because the store openings will be planned to be opening later on. But it could certainly have an impact for a same thing on the marketing side. If we choose to pull back marketing, in light of decreased efficiency and the higher cost of customer acquisition, that in turn would have an impact on revenue. Same thing on the licensing side; it is predictable. But if, as we saw in Yandy's second quarter, if our partners start to experience worsening trends, then they come to us and say, hey, our forecast for the rest of the year is lower than we thought it was in Q2, we are going to have to take down revenue even further. So, there is a lot of uncertainty out there that we don’t feel comfortable trying to put out a number that, in a way, could vary quite widely.

That makes a lot of sense, Lance. Thank you. And then, that decision to pull back on the Honey Birdette store openings, is that just part of that uncertainty you mentioned and fear that maybe that brand could start to see the consumer under pressure or is that just, you know, if you look at your expenses, is that just the most obvious easiest place to pull back on spending this year?

Look, it would be a tough decision to make, because these stores are performing so well here in the U.S. I mentioned that the average store here in the U.S. pulls in a million dollars annually, and they have 30% for wall EBITDA margins. So when you look at that, it is obviously in our best interest to go ahead and open more stores. But having said that, in the current environment where we have not seen any impact on the higher-end luxury consumers that frequent Honey Birdette, it is hard to know what is going to happen. We think it is prudent, when you are entering into these long-term fixed liabilities, to take a pause, see how things unfold. Quite frankly, we may be able to get better deals on some of these leases down the road. So, we are going to evaluate each one kind of individually and decide what we want to do. We have got the flexibility, I think, to open more, but we want to take a more prudent approach. So, there is nothing that we have seen that indicates a slowdown in Honey Birdette. But at the same time, a lot of things are changing quite rapidly in the environment. We just want to be mindful of that. We want to watch for the impact of inflation on the luxury market. We have seen it hit kind of the everyday consumer at Yandy and Lovers, and it could end up hitting the luxury market next.

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

So just to start with the licensing business, it seemed to hold in there fairly well in the quarter. I mean, I think it grew kind of low single-digit percentage. Just curious, has that changed subsequent to the quarter or is that business continuing to perform and grow year-over-year?

So I will talk a little bit about the financials and maybe Ashley and Ben can just talk about some of the trends that we are seeing more broadly with kind of business development in our partnerships there. But yes, it was flat year-over-year. There were a few drivers behind it. In China, in particular, there was no impact on revenue. As I mentioned, all of those contracts remained kind of the same amounts over the duration of the term. So we are able to book the same amount of revenue. What we saw was some of our apparel partners and some of our gaming partners outside of China, so more domestically and also in Europe, came out in the second quarter and basically brought down their guidance for the full-year. So in turn, we had to reduce the amount of overages that we ended up booking, which dragged down the revenue that you recognized for licensing in the second quarter. On the flip side, we had a number of partners that actually surprised us to the upside and performed better than we expected and delivered overages. So it is a little bit of a mix. Obviously, I think from our perspective, it is really the macro environment that has hit some of our partners harder than others. But in general, I would say over the longer term, our view has been that this shouldn’t be kind of a single-digit grower if you didn’t have that reduction that our partners had in the second quarter. Again, they brought down forecasts for the year, which had an outsized impact on the second quarter. But if you didn’t have that forecast reduction, you still would have grown this business by probably 5% or 6%, something like that. So that is kind of what we are seeing. Ben, Ashley, anything to add just kind of on the collaboration that we are doing?

Yes, George, it’s Ben. Look, I think the Playboy brand, both with partners and with consumers, remains extremely strong. This is really more of a macroeconomic environment outside of it that is affecting almost every other retailer today, and so I’m not worried about the Playboy brand. The engagement amongst our fans is huge, it continues to grow, and the interest from partners continues to grow. But again, what we can’t predict internally is what the people in Washington will do, they must have taken different economic classes than I did by putting more fuel to the fire, regardless of what their model is telling them and what the impact is on inflation and consumer spending long-term is real. And so that is the challenge in front of us, like any other consumer product company for the balance of the year. It is not the demand from both consumers and partners.

Okay, that is helpful. So just to put this, what I’m hearing is there are impacts, but there has not been some kind of recent dramatic falloffs in your licensing business?

No, that is absolutely correct. We have been very stable in the licensing business. It was, like I said, some puts and takes; you had some people pulling back their forecast. So, you had to pull back some of the revenue that you had already recognized. That is just the way these licensing contracts work in terms of how we have to account for them. Because you are accounting for it based on a full-year forecast that they give you at the beginning of the year. If they update that throughout the year and come in lower than they expected, then you have got to adjust that accordingly, and you have got to adjust that ratably. So that hit us in the second quarter. But like I said, there were other licensees that came in and offset some of those losses. So, net-net, we were flat year-on-year. Like I said, our view is longer-term, this should be kind of a single-digit grower. The other thing is, we have already signed probably twice as many new deals this year, compared to what we signed last year. So certainly, the interest level and the volume of new deals remains quite strong.

Okay, great. And then just one other question for me, Lance, I was hoping you could go back through the cost discussion that you had in your prepared remarks. And I guess what I’m trying to understand is, I look at SG&A. I think you were also talking about some of what is in COGS. But I guess the direct question is should SG&A, I mean, is there room for SG&A to decline from where it was in Q2 or what are your expectations around SG&A for the remainder of the year?

Yes, the way I was trying to frame it was non-product costs, right? So product costs, I mean, if you look at kind of our model, our prior guide to $350 million of revenue and $55 million of EBITDA, you would get to about a 25% cost of product. That is obviously going to, that 25% is going to be whatever your revenue is, so that number kind of varies. But the non-product costs, I mean, obviously, there are variable costs in there, such as marketing and shipping costs, but it has a lot of fixed costs, and then it has store costs and employee headcount costs, tech infrastructure costs. And so what I was saying is going into the year, the assumption on that call, non-product costs would be north of $210 million. So it was going to be about 17% year-on-year growth, if you would include kind of the full-year impact of Honey Birdette and Lovers last year. And what I said is we have already made some cuts to the business; our run rate is below that. It is actually around $200 million. The work that we are doing right now is figuring out how much further we want to take that down. So yes, to your point, we believe there are more costs that we can reduce out of that $200 million. Again, we want to sustain longer-term growth investments here. We want to be really mindful of the long-term potential for value creation. But at the same time, we have got to make sure that we are operating as efficiently as possible. A lot of the work that we have been doing this year has been related to putting in place the controls, putting in place the infrastructure and processes to allow us to be more efficient and to emerge this year as a more efficient company. So what I’m most interested in when I think about rolling ahead into 2023 and beyond is putting in place that cost infrastructure this year. It really shouldn’t significantly grow beyond whatever headcount we need to support the continued growth of direct-to-consumer or CENTERFOLD in future years. Your tech and infrastructure costs that you are putting in this year, call it $7 million; whether the business is $300 million or $600 million of revenue, that tech cost is going to be largely $7 million. Maybe it goes up by a million dollars if you were to double your revenue, but it is largely a set cost. So, yes, I think there is a lot of room for operating leverage in this model. What we have got to do is figure out how to pull back where we can and be more efficient and continue to support growth in the areas that we think makes sense.

Understood. Thanks and I will hop back in the queue.

George, I will just add. I spent 20 plus years in private equity. We have done this before; I have done this before. The biggest thing for us is making sure that we preserve the high growth areas that we see in the future. But we will not leave any stone unturned. We will take every cost out of the company that we can take out in order to preserve maximum liquidity for the company. That is the process that we are doing. We know there is more to be done, and we will do that because that is in the best interest of everyone.

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

Yes, thanks for taking the question. Just going back to the rebrand of Yandy. I’m curious, is that plan for ahead of the holiday season or is that going to be sort of later in the year and then just sort of at a higher level, that decision to do a full rebrand there versus sort of just launching a Playboy brand and Lovers curious what went into that decision? And then just a follow-up to that is on the Honey Birdette, is online, is that going to be planned for just the end for just a little bit icon brand for both and how do you view positioning that brand with different price points of your D2C offering?

Hi, this is Ashley. I will jump in on the Yandy rebrand and the other areas. So just speaking to the rebrand first, the Yandy rebrand will start to hit the consumer in fall, right leading up to the Halloween season. You will start to see the new imagery come through with the new product that we have coming through. One thing that is important to understand is we are doing this more as a rolling change because we still have old products and imagery we need to work our way through, and so it is not going to be a complete shift but more of a rollout through the Halloween season, but in advance of peak Halloween, all the way through the back half of the year. And then we will continue to right-size the inventory where we have kind of older product or older imagery. With that, we will be leveraging the Playboy brand and allowing that into the Yandy business. So we will have a more curated and kind of cross-pollinated selling experience where you will be able to buy Halloween, for example, on both Yandy and Playboy, leveraging the bunny suit and some of the unique areas that Yandy brings to the table for the Halloween costumes. From another brand standpoint, for Lovers, we are starting with the Playboy Pleasure as our intro into a Playboy sexual wellness line that we will launch at the end of this year, and will leverage the Lovers stores not only for Playboy apparel but also for product in that sexual wellness space. We will continue to elevate the brand across the board, meaning we will have Playboy Pleasure look and feel like the Playboy brand. We will start to elevate our Lovers store experience and our Lovers online experience inline with that so we can ensure that we are gaining the most out of that line. On Honey Birdette's side, we are going to continue to diversify the product offer and continue to go after that elevated luxury customer, keeping that more uniquely HB focused. We leveraged the design team and resources from the Honey Birdette team to help bring Playboy lingerie to market. That line is in the mid-price point, so we are not going up to the luxury customer; we are going after that mid-tier price point that will really speak to a little bit more of like from a competitive standpoint, maybe that of Victoria’s Secrets Pink or areas that the lingerie that sits to that Gen Z consumer, where we are seeing such high synergy with the Gen Z customer coming to Playboy today.

Great, thanks Ashley. And then just on the cost savings that were identified in Q2, the $5 million I think that Lance mentioned. Is that more from the synergies for as the integration work on these different D2C businesses takes place, or was there some other area that was identified as sort of low-hanging fruit to cut those costs?

Yes, it is the former. We had talked about a little bit, I think that happened right before our last call. But it was largely headcount related at that point in time. A lot of what we are doing right now is we put in place these processes and systems we are able to be more efficient about how we staff these things. So that was largely what we had done I think it was back in May.

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

Good afternoon, everyone. Thanks for taking my questions. First, I wanted to ask some clarification around your comment on CENTERFOLD. Ben, you were clear CENTERFOLD not meeting your expectations for progress. But you also gave some metrics which suggested some decent traction. You had previously been speaking to an expectation for notable revenue contribution from CENTERFOLD in the second half of the year. Is that still the expectation?

Hey, Jim, thanks for the question. You know, CENTERFOLD did not meet my expectations. We definitely had an issue on the personnel side and, as CEO, I pivoted quickly and recruited a new team. What I would say is we were very lucky to get a team that came out of Uber and YouTube and Y Combinator, Square, etc. Attracting top tech talent to a non-product company historically is not the easiest thing. Obviously, it took us longer to do that than we were expecting. What I’m encouraged about on CENTERFOLD, and we have a lot of improvements coming this fall, is the revenue that we are seeing with our top creators and then also the new creators that we started to onboard recently. So, we had stopped onboarding creators because of the tech challenges that we had. Until those were resolved, I didn’t want to burn through that. But what we are seeing is that creators can monetize themselves on the platform. Now it is a question of gathering this data. We have a robust waitlist and it’s onboarding those creators for scale. The good news is that the product is now working; we have fixed the backend issues, enhancements that will make it even better. It is a question about just scaling the creator side of it. Our top creators are making almost $100,000 a month now; the new creators we have been onboarding are at about $10,000. What we are seeing from a cohort analysis is that those creators are growing on a weekly basis, so now it is just a question of scale.

Yes. On the receivables, as I mentioned, we had some receivables that had been due to us by the end of June that ended up coming in since June 30th, so that is a big driver of that. On the inventory balances, sorry, what was the question specifically on that, is it breakdown?

Well, like the quality and composition of your inventory. Do you have any issues where you are concerned about having to discount the merchandise or declare it is there an in-transit component of that that is elevating the balances? Anything that helps us just get our arms around the quality that inventory, which we are seeing on the books, because it looks elevated relative to where it has been?

Hi, this is Ashley. I’m jumping in again; I will speak to the inventory. Overall, I feel confident with where our inventory is positioned. A couple of strategies that we intentionally went after, which included managing our inventory earlier than usual, were related to Halloween and top 20 performing styles with early receipts. Heading into the Halloween season for Playboy and Yandy in particular poses risk with the supply chain as disruptive as it has been. We made a decision to early receipt inventory to ensure availability for peak selling season. So that is a component of why our inventory coming out of the quarter was more inflated than usual. But it will serve us well in the late Q3 period and heading into October. The second area is we have seen significant growth and are continuing to see significant growth out of Honey Birdette. We are fueling that business with inventory to drive that and prepared for new store openings. As you start to come out of the year, you will see the inventory align, but it is intentional to set these new stores up properly. Of course, there are areas where we are managing our inventory and leveraging disciplined promotional management and pricing actions to right-size. But we feel confident that we have got the right strategies in place to address where we are slightly heavy and bringing in inventory early was the right decision to set us up for Q3 success in Q4.

Then my last question. It sounds like you are exploring a number of different avenues to shore up liquidity. Have you considered monetizing some of the assets that aren’t necessarily delivering a return for shareholders such as the art portfolio or even the Big Bunny Jet to improve the liquidity situation?

So, as we said in the remarks, we have amended our credit facility to create headroom; we have about $70 million of cash and cash equivalents on the balance sheet as of today. What I would say is there are no sacred cows; we will do whatever we need to do to create maximum liquidity for the business and invest in areas of growth to continue to maintain our long-term plan. If that means selling the art or selling the plane or anything in between, we will do anything in the best interests of our shareholders.

This concludes today’s conference call. Thank you for participating. You may now disconnect.