Good afternoon, everyone, and welcome to PLBY Group's Second Quarter 2024 Earnings Conference Call. Joining us today are Ben Kohn, Chief Executive Officer, and Marc Crossman, Chief Financial Officer and Chief Operating Officer. We will be having a question-and-answer session. While we wait for questions to come in, I would like to turn the call over to Matt Chesler from the Investor Relations Team. Please proceed.

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 that could cause the company's actual results to differ materially from 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. And with that, I'd like to hand the call back over to the operator to begin the Q&A session.

Thank you. Our first question is from Jason Tilchen with Canaccord Genuity. Please proceed.

Great. Good afternoon. Thanks for taking the questions. First one for me is one of the interesting things that stood out in the comments in the press release was regarding the pipeline of sponsorship deals that you're seeing. I'm wondering if you could share a little bit more about how that's coming out, sort of what we can expect in terms of a timeline for when that could be a potential revenue contributor to the overall business? Thanks.

Sure. Jason, good afternoon. Thanks for the question. You know, I think as we talked about on the last call and also announced today, we have brought in a new digital team that we are continuing to build out. As we've evolved our greater model with the creators really at the center of it, we think there are a lot of other opportunities around membership and lifestyle events, etc. And part of that is driving what I would say is advertising or sponsorship sales as we activate the community that Playboy has. I would say it's a robust pipeline. We're very excited. We've already closed some deals and we'll be announcing those as we move through the fall. We'll be participating in New York in September at an investor conference and also talking to investors about unveiling our media strategy moving forward and what that means. There is a robust pipeline from big-name advertisers and sponsorships that are very interested in what we can deliver. We'll be sharing more of that in September, really the evolution of our membership and creator strategy. You can see that starting to come to life with the new website that we launched two days ago. You'll see that website is a state-of-the-art website featuring content, some of it with a wink and a nod to the past, 20 Questions, etc., but also featuring the creators that we work with on our platform. All of that is a way to promote those creators, to get them integrated and working with brands, something that differentiates us from other platforms out there.

Great. Very, very helpful. Another thing that sort of stood out from the press release, obviously the return of the magazine. I'm just wondering a few sort of small questions off this one. If you could share a little bit more about the strategy behind bringing the actual physical magazine back and then sort of what level of investment is needed and is this going to be more of a financial contribution or is it more as a marketing tool to drive sort of more awareness around some of the other initiatives that you're doing on the digital side? Thanks.

Sure. Yeah, we're very excited. I think we've talked about this in the past, but really returning the company to its roots. You know, especially with the creator platform, as we look at that and we say, how do we feature creators? How do we offer something that others don't have? The magazine is the ultimate tool, right? It's something that people ask us for all the time, both from a user and creator perspective. We're happy to bring that back at the beginning of '25. We're an eight-city Playmate casting call, very excited for that, for the marketing. But the magazine is mostly for promotional purposes and we'll see how that evolves. You should expect, you know, just like the historical magazine, Playmates in it, and you should expect great content in it as well. You know, 20 Questions, the Playboy Advisor and other franchises, as well as potentially a celebrity cover. We're excited to bring that back. It's been a long time coming, and we think it's a great promotional tool for everything else we're doing on the digital side and something that we look to present to investors as we move into the fall, showing what the comprehensive and cohesive digital strategy looks like.

Awesome. Very, very helpful. And then one last one for me. Yesterday, you made an announcement regarding a new licensing agreement on the e-commerce side. It seems more like a domestic deal. I was curious if you could share a little bit more about what was exciting about that partnership and then also maybe if there's an update on sort of how we can expect the trajectory of the recovery for the China licensing business to evolve? Thanks.

Sure. Yeah. So I think we've really focused on building back our licensing business. We have a robust pipeline of deals. The e-commerce partner that we announced yesterday not only provides $7.5 million of guarantees over the life of the deal, plus a percentage of the revenue above that, but it is structured to work with the creators on our platform. Really, when you sort of look at the growth of what I would say is online shopping, TikTok, etc., we obviously see that in China with Douyin. What's happening is an integrated strategy working with great designers of apparel and integrating that with their creators, again looking at ways to differentiate ourselves from other platforms while staying true to who the brand is. As for China, our partner is making great progress in their product line and developing that, which is coming up here in about a month. We see other opportunities both in Asia and the rest of the world from a licensing perspective and hope that while we wanted to get some of these deals done in the second quarter, some of them have slipped to the third quarter, but we're hopeful to make further announcements on new licensing opportunities. This is a brand that has never gone out and spent money in the traditional marketing way that brands spend. It's always done it through content. So part of the content strategy and the team we've brought in, we also believe will lead to more licensing opportunities moving forward as the brand continues to reestablish its voice.

Very helpful. Thanks a lot.

Our next question is from Salil Sanjiv with Jefferies. Please proceed.

Hi, this is Salil Sanjiv with Jefferies. I'm for James Heaney. Thanks for taking the question. My first is a bit of a follow-up on the China business. Could you go over just overall the contrast structures with the new partners versus previous partners? Any color on how you are picking those partners and basically getting the confidence that these deals will come through? Thanks.

Sure. The first thing I think is just refreshing what we had to do because of changes in the market in China post-COVID. It was partially driven by the platforms where we had a legacy licensing model, licensing issues, our partners violating contracts, starting sub-licensing, or what we found out through our audits, selling what we call bags of tags. That did not work with Douyin, who are driving a huge percentage of the e-commerce in China today. We ended up terminating our old partners due to contract violations and non-payment. What we set out to find were operator owners or operator managers rather than a middleman selling bags of tags. The main partner we've picked is an operator. They do design and have their own physical studios, bringing in influencers to sell products on Douyin. The deals that we've done are shorter term in nature than our historical deals, being five-year deals. They have lower guarantees in the beginning because of market cleanup needed since moving away from our old partners. We worked with our new partner to have a higher percentage of revenue in those deals. Think of it as a starting point for us to rebuild the business correctly. If the partners are successful, which we believe they will be, there’s an opportunity to revisit those guarantees as sales build. We have much greater controls in these contracts than our previous ones. The best way to know they perform is partners that pay us today, which is always the best way to know they're performing. Through our joint venture with a subsidiary of Liam Baum, we have the right people on the ground and the right controls in place to ensure we enforce our contracts moving forward, something we didn’t have previously.

Appreciate the color there. A follow-up, yes, a new question on Honey Birdette. It seems like last quarter there was a bit of momentum that was being built up, but it seems that this quarter is a bit weaker. Can you talk about some of the dynamics you're seeing in that business?

Yeah, I'll take the high level and then I'll turn it over to Marc because I don't think the numbers tell the full story. The first thing is we were down if you look at quarter-over-quarter. If you go back to '23, Marc joined us in April of '23. The second quarter of '23 was the last heavily discounted quarter. We are now past that. If you look at Q2 '24, we were down 50% in the number of days we were on sale versus Q4 '23. The good news is we saw close margin expansion during that period. I'll let Marc comment on some of the new hires we've made on U.S. retail and what we're seeing. So far in Q3, we're up double digits over last year and we're seeing that from both an e-commerce and store perspective as well.

Yeah, excuse me. In terms of what we're seeing in the U.S., we just hired a head of stores in the U.S. and typically our stores have been comping down for a while but we're actually seeing stores in the U.S. comp up. A lot of the things we're doing there are creating the momentum that we need, dovetailing off of what's going on with our online business. We're also expanding our online business because that's one area where we need to participate in social channels. There are a lot of learnings from CENTERFOLD that we think can benefit Honey Birdette. So we're beefing up that team.

I think we feel good with where we are with Honey Birdette, and I think Honey Birdette gives us another lever. We announced today that we've reached an exclusivity period with our lenders to repurchase our debt at a significant discount. For us, from a balance sheet and leverage perspective, if we are successful in executing and paying off our debt at a significant discount, it significantly reduces the leverage outstanding on the company, giving us more operational flexibility in running the company.

Great. Thank you. And just my final is a bit of a follow-up on the capital allocation strategy. Can you talk about the strategy going forward given the ability to now pay down the debt at a discount? Is it likely coming from further asset sales or how are you thinking about going towards paying down that debt? Thank you.

Sure. Right now, there's about $215 million of gross debt outstanding. We've reached exclusivity with the lenders where we can pay that off at a substantial discount. To raise the money for this, we have a lot of options. We’ve talked historically about interest in hunting for debt. We’ve also engaged a leading investment bank to pursue a new debt facility, albeit at a much smaller amount than the existing debt, but that would satisfy our existing lenders. We've had interest since the rebuild of our China and Asia business. We believe we can handle this in the senior market. If we're successful, the gross debt outstanding on the company will be significantly reduced. We have multiple options and will see which gets done first.

Great. Thank you. I'll get back in the queue.

With no further questions at this time, I would like to turn the conference back over to management for closing remarks.

I appreciate everyone dialing in today. We look forward to sharing more about our digital strategy as we move into the fall and then talking to you guys after our Q3. Thank you very much for dialing in today.

Thank you. This will conclude today's conference. You may disconnect your lines at this time.