Playboy, Inc. Q1 FY2024 Earnings Call

Thank you, operator, and good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K filed today by PLBY Group, 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 the company'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 the company's actual results to differ from its historical results and forecasts, including those risks set forth in the company's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call, do not place undue reliance on any forward-looking statements. During this call, the company may refer to non-GAAP financial measures. Such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release, PLBY Group filed with its Form 8-K today.

I guess one thing I'm curious about, you gave a lot of great detail in the press release and also in the recent announcement regarding these new agreements in China for the licensing joint venture. I'm just wondering, if you could share any additional color on sort of how these came about so quickly? What sort of benefits and sort of agreements are in place in these deals that sort of you're excited about improvements on the previous sort of structure of the deals that you had in China? And when sort of the timing of we could expect some additional revenue to flow through from these deals.

Thanks, Jason, for the question. Look, we've been working on new deals in China for months now, really since we terminated our previous licensing partners. In addition to the deals we signed, we have a robust pipeline and I’m excited about what that looks like moving forward. In fact, when you look at the new deals, we've already built the business to over 50% of what it was last year. The majority of that revenue will start to come in starting in this quarter in the second quarter, and then moving forward. The new deals are very different than the old deals. There's much better accountability in those deals. There's the prohibition on sublicensing the brand without our express written consent. From a guarantee perspective, we actually have much better teeth in these deals versus an entity in China; personal guarantees are enforceable in China, and we have personal guarantees back in these deals as well. The strategy moving forward is different from the old deals. Given what's happened to China and the economy in China really post-COVID, and it's well documented out there from a macro perspective on consumer spending. We needed to rebuild the business with the right partners, but we wanted to do that with shorter-term deals that give us the flexibility to increase MGs over time. But in the short term, incentivizes our partners to invest in the business. So I think we've commented on this both in the press release and today, but we do expect to start receiving overages from these partners; we wanted to make sure that they invest in the brand. Duane, our largest partner, they are an operator. They have online studios, which is really how things are sold in China. It's a true operator versus what I would say is more of a middleman historically selling our tags. In addition to the contractual limitations or protections we have, we plan on making sure that we hold these partners accountable moving forward. We also have a JV partner as a subsidiary, Li & Fung, that is on the ground that is constantly meeting with these partners, and we'll be holding them to the contract as well.

Great. That's really great color there. I appreciate that. And then as the business as a whole has sort of been transformed over the past sort of 4 or 5 quarters, and obviously, you've shut a lot of costs out of the business, highlighted by the significant year-over-year narrowing of the EBITDA loss. I'm just wondering, if you could share any additional color on sort of as we move through this year, the cadence as we approach breakeven and then when you expect to sort of be positive on both a quarterly basis and then sort of on a full year basis?

Jason, I'll answer that. It's Marc here. When we look at the cadence of what profitability is going to look like, I think going into the second quarter, you're going to start to see the licensing revenues come back up. I think we'll probably be not that we're giving guidance, but somewhere looking like the second quarter of a year ago, which was about breakeven. I think it's the back half of the year when you'll continue to see the corporate expense reduction play through the numbers. Honey Birdette will continue to perform like it is. Licensing should be back up to at least 70% of what it was. Then we'll start to see the benefits of all the positive things that we're doing right now at centerfold or the traditional playboy.com.

Just a few on Honey Birdette. It looks like it was a little bit above where I was looking, but I know you put through a 10% price increase, was that generally across the board? And when did those take place? I guess what I'm trying to get at is a little bit of a sense of traffic versus ticket, what that might have looked like?

No problem. Greg, it's Marc. In terms of the 10% price increases, they've been rolling in pretty slowly with the vast majority of them set to be completed here in the second quarter. So it wasn't all the ticket size. We saw a little bit of growth in our average selling price, but a lot of it was traffic and just driving higher conversion.

I think, Greg, we also commented on where we are with the business. I think we've had 2 solid quarters now in a row. And I think as we said, I think we previously commented on last year, I think it's now time for us to begin that process that we've talked about knowing that long term, we are not the right owner for that business.

Yes, I understand. That's helpful. Can you provide an update on the store closings? Will that occur later this year? You mentioned that a few underperforming stores in Australia might be closed.

Yes, we have already closed one store in Australia and another in the U.S. that was unprofitable. Our U.S. 4-wall EBITDA margin exceeded 25%, but we had one store that was underperforming, and it made sense to exit that business. In Australia, there are a few more stores that we are considering closing, particularly those that are too close to our other locations. We expect to close about 3 to 4 stores. On a positive note, we are observing a positive trend towards e-commerce, with an increasing percentage of our sales coming from online compared to our physical stores each quarter.

Okay. Great. That's helpful. And then just moving on to the licensing deal. Just that I'm thinking about this hopefully correctly. The new deal, it's a $37 million guarantee over a 5-year period. So that would be flowing into, I guess, next quarter, roughly $2 million a quarter. Is that a little bit under that on a minimum royalty?

Yes. On a minimum, I mean, I think the best way to look at it is we did $9.7 million of licensing revenue a year ago. We did $4.1 million this year. I think that at $9.7 million, we can be somewhere around 70% of that on a go-forward basis in the quarter. Now that's assuming all things being equal; to the extent that we're able to layer on new deals, grow the business, and have overages in China, we can do better than that. But in terms of baseline in your model, I would say that is about 70% of where we were versus a year ago quarter.

Okay. That's very helpful. And then just finally, just moving on to the rebranded Playboy Club. Are there any notable events this year that we can look for? It looks like now you're in a much better position to go on offense, and just kind of thinking about how you're going to build brand awareness during this year to get more eyeballs on the site.

Sure. Thanks, Greg, for the question. I think we've talked about this previously. The first thing that I needed to do was to bring in the team, and I'm pleased to announce that we've recruited the team, and we'll look forward to them talking and presenting on the next earnings call. This is a senior team, for lack of a better term; it was an aqua hire. We brought in multiple people at the same time who have deep experience in content and on the creator side of things. The biggest thing that we can do, and we've never really spent traditional money against this brand from an advertising perspective, but is through content. This team is an expert in that and driving content with the goal of commerce on the backside of that. That not only benefits Playboy directly, but there will be a downstream effect to that on the licensing business, and it directly benefits our creators. What you'll start to see from us here over the next month or two is a website that has a lot more content on it. You'll start to see a completely different social media strategy on YouTube, TikTok, Instagram, etc. At some point this year, you’ll hopefully see something coming with a nod to the past of the company, and it’s one of its hero products. Without getting into the timing of that, I think bringing back the Playmate franchise and leaning into what made this company famous over the years, what better reward for creators working with us than being able to feature them through Playboy content.

Great. No, that's helpful.

I appreciate you all dialing in for our Q1 call, and look forward to talking to you with our new digital team and the media team on the next earnings call. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.