Playboy, Inc.

Thank you for standing by and welcome to the first quarter 2021 conference call and webcast for PLBY Group, Inc. The information discussed today is qualified in its entirety by the form 8K that has been filed today by PLBY Group, Inc. and may be accessed on the SEC's website. Please note that the press release issued this afternoon and the related form 8K can be found on PLBY Group's website at http://www.plbygroup.com forward slash investors. Today's call is also being webcast and a transcript will be posted to our website. Please also note that statements we make during this call that are not statements of historical facts including financial estimates or statements about our plans, expectations, beliefs or business prospects and other statements that are not historical in nature may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ from historical results and or from our forecast. Including those set forth in PLBY Group's annual report on Form 10-K quarterly reports on Form 10-Q and in our other filings with the Securities and Exchange Commission. For more information, please refer to the risks and uncertainties and other factors discussed in PLBY Group's SEC filings. All cautionary statements that we make during this call are applicable to any forward-looking statements we make, wherever they appear. You should carefully consider the risk, uncertainties, and other factors discussed in PLBY Group's SEC filings. Do not place undue reliance on forward-looking statements, which we assume no responsibility for updating. Hosting today's call are Ben Cohen, Chief Executive Officer, Rachel Weber, Chief Brand Officer, and President of Corporate Strategy, and Lance Barton, Chief Financial Officer. I will now open the call to Ben Cohen. Ben, please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to our conference call to discuss PLBY Group's first quarter of 2021. We are pleased to report a fantastic quarter and excited to share with you today the progress we've made executing against our growth plan. We remain focused on building our business for the long-term superior growth making decisions that will not sacrifice long-term growth for short-term quick wins. Our U.S. e-commerce business is off to a tremendous start in 2021. Our licensing partnerships are thriving while we've made good progress optimizing the business for greater long-term participation, and our team has moved quickly to advance new business development opportunities, including our extremely successful first NFT art drop that took place just last week generating almost a million dollars in sales in 24 hours. While we are still in the early innings of our roadmap and business transformation, I am very proud of the hard work and progress made by the team globally as we build on the power of our flagship brand and massive reach to deliver the pleasure lifestyle to consumers around the world. On our last earnings call, we discussed our three-part growth strategy. First, expanding our U.S. direct-to-consumer business, Our goal is to capture $0.01 on the dollars spent by consumers on our apparel, sexual wellness, and other lifestyle products versus $0.05 to $0.06 captured through previous licensing partnerships. Second, optimizing our international business through global licensing partnerships in key regions and categories. And third, pursuing new and emerging business opportunities that we believe will accelerate our long-term growth trajectory and generate significant returns over a three- to five-year time horizon. Across all three areas, we mark strong progress in Q1, driven by the significant momentum of the Playboy brand with a new generation of consumers. In direct-to-consumer, we achieved triple-digit year-over-year growth of 114% in Q1. On the Playboy website, updates to navigation and homepage design to focus on shopping, combined with increasing depth and selection in the product offerings late in Q1, saw an increase in conversion rate by 60% month over month from February to March. We are continuing to see an increase in conversion rate as we enter into Q2, and we continue to improve the customer experience. In addition, it's worth noting this growth was achieved despite supply chain and out-of-stock constraints we continue to face as a result of COVID, and we believe D2C would have produced even more growth in the first quarter were it not for the continued global pandemic impacts. One of our major priorities is launching our owned and operated product collections, and we've been very encouraged by the success of our recent in-house designed apparel lines, including our monthly cover collection drops, our Valentine's Day line, our spring au naturel collection, as well as our cross-divisional collections, such as our Playboy and Yandy spring and swim lines. We are also now capturing consumer spend from our collaborations on our owned and operated sites, which in Q1 featured high-profile partnerships such as Haddon Labs Jewelry, Olympia Litan Accessories, and, of course, high-performing collections from our partners at PacSun and Missguided. I often get the question, who is the Playboy consumer today? And I think that's answered perfectly by who is spending money with us directly on our site. Nearly 80% of our consumers are under the age of 44. Roughly 65% are under 34. And 55% of our e-commerce revenue in the first quarter came from female consumers. My daughter showed me TikTok videos all the time of influencers wearing our products in their videos, and we're thrilled by how frequently we see celebrities organically wearing the rabbit head. I'm incredibly proud of the brand work we have done over the past few years to achieve our goal of strongly resonating with a culture-driven contemporary audience. We also have great work happening behind the scenes on our D2C operations and infrastructure. Our PLB Y group data science team rolled out a new recommendation engine that we are first testing on our Yandy platform, and based on very positive results, particularly in AOV growth, we will be implementing these capabilities across our network of sites in Q2. We also unified the back offices of Yandy, Lovers, and Playboy Digital Operations, and centralized buying under one umbrella for sexual wellness. critical first steps for integrating operations and realizing the synergies of our portfolio brands and marketplaces. And lastly, under direct-to-consumer business, I want to call out the strong performance at our leveraged brick-and-mortar locations. As restrictions were easing and perhaps with an increase in dating, average transaction sizes were up big in March, which was the first official month of PLBY Group ownership. On to our licensing operations. In the first quarter, we closed several new non-exclusive licensing deals to augment our lifestyle offerings, including hair and grooming tools for men and women, costumes, as well as an additional home and fashion accessories partners, which will launch later this year. In China, our digital commerce business continues to grow as we sold more than 36 million apparel pieces online in Q1 2021, a strong year-over-year comp against COVID-impacted 2020 sales. At our March Playboy activewear buyers meeting in China, our new Playboy physical apparel and footwear collection was well received, a testament to the great work of our on-the-ground product design team that created designs inspired by the global Playboy style guides as we continue to progress towards a cross-border style unification of the brand. Our new Playboy kids apparel line in China is off to a good start as well. The collection is being merchandised in-store and online with the likes of Pink Panther Apparel, and DC Comics apparel, and our partners have plans to open the first Playboy Kids apparel brick-and-mortar store in Shanghai later this year. And lastly in Q1, this year we ramped up a new Playboy social media strategy in China in partnership with a leading marketing and social media agency in the region. The effort includes content marketing on the brand's official social media channels on Weibo, WeChat, and Douyin, as well as product marketing content partnerships with more than 20 social media influencers, or KOLs, as they are known in the region. This is an important step in our long-range China strategy to build direct consumer relationships and roll out owned and operated products. This brings us to the development and launch of new and emerging businesses that we can invest in today to accelerate and expand our revenue growth over the long term. We recently completed a renegotiation with our fragrance licensing partner to take back all of our beauty, grooming, skincare, and bath rights. This now allows us to exploit these product categories as an owned and operated business versus a licensing business as was contemplated in our five-year business plan. We believe the revenue growth opportunity for us will be multiples of what we had previously targeted in our five-year plan. We have already begun the incubation and creative development of our cosmetics line, And now we are well positioned to expand those collections with more skincare, bath, and grooming SKUs. We are looking at 2022 launches of those product offerings, but we're investing now to bring high quality, well-designed products to market in a big way, deserving of the brand. We are deep in development of our higher end Big Bunny lifestyle apparel and accessory collection, leveraging the iconic Big Bunny Playboy plane. and simultaneously developing a unique go-to-market content, experiential, and influencer strategy that we believe only the Playboy brand can drive. And of course, as I mentioned at the start, we're thrilled by our successful entry into the NFT art community. Our first drop, a collaboration with the artist Slime Sunday to create six original works, created huge buds, sold out in less than three minutes, and generated almost a million dollars in sales, including a single-piece auction in 24 hours for $250,000. What's so encouraging is that these six original new pieces speak to the infinite possibilities of what can be created from a priceless archive, and all of this required taking no inventory and no capital risk. It's also very exciting to see strong secondary market sales of the collection, speaking to the power of the brand and the wealth of IP, and also demonstrating the long-term potential to participate in the downstream economics as we roll out more and more blockchain-powered products. Of course, the biggest question we're hearing is what's next in NFTs. So I want to share how we're thinking about what NFT means for Playboy and the PLBY group. NFTs themselves are not a strategy. The strategy we're developing is how do we leverage new technology including blockchain technology, immersive virtual worlds, digital GERDs, and AR, VR processing capabilities to create the most innovative, desirable consumer experience that people around the world want to engage with, want to spend money on, and want to keep spending money on. We expect this will manifest in more NFT art drops, absolutely. Perhaps more importantly, this could manifest in collectible offerings with gaming mechanics virtual worlds, imagine the potential for a virtual Playboy mansion or a virtual Midsummer Night's Dream party, the intersection of our physical goods with digital goods, loyalty programs built on blockchain technology, and so much more. From a timing perspective, we are not even in the first inning of this space. The way we think about it internally is that we are still in the dial-up era of this internet and technology explosion, and our opportunity right now is to capture early mover advantages. We know we have the right brand, a brand that people want to wear on their sleeve in the physical world that they want to wear on their sleeve in the digital world. We have an embarrassment of riches in our archive from which we can create never-ending new creations and experiences. And we have an internal culture that allows us to move quickly. I've never been more excited about the future for our company and our ability to expand the lifestyle of pleasure and leisure across physical and digital worlds. And lastly, in the area of new business development, As we have demonstrated, our team is uniquely positioned to source and execute accretive deals and move swiftly to integrate operations. Over the past few months, our M&A pipeline has only increased, and to the extent we can use M&A to accelerate our growth strategy through attractive economics, we expect to close additional deals this year. With that, I'm going to hand it over to our Chief Brand Officer and President of Corporate Strategy, Rachel Weber. to speak further on our brand and our new business development initiatives.

Thanks, Ben. It's been such an exciting start to the year, and we're thrilled by the opportunities ahead. To follow on from Ben's discussion of NFTs, I wanted to share a bit more on our first drop launch strategy and what we have coming up. As we mentioned in our previous call, Playboy's incredible legacy serving as a platform for artists positions us perfectly to continue that work today. To that end, we believed the best way to introduce ourselves and the Playboy brand to the NFT community was by tapping into that heritage and creating a collaboration with a digital artist who has already been doing inspiring and successful work in the NFT art space, but who has also worked with us before in the magazine and shares our sensibility for pushing the boundaries of artistic expression, which is how we chose the collage artist Slime Sunday. And Nifty Gateway is, of course, a premier platform for NFT artists today and provided a great way for us to get to know the amazing community of NFT artists and collectors. We were also very excited to partner with Decentraland to create Playboy's first Metaverse experience, a virtual gallery launch party for our Liquid Summer collection that featured a DJ set by Justin Blau, another huge innovator in the space. We're thrilled by the results of our first drop of six new original works. and feel incredibly welcomed by the NFT art community. We've already announced that next up we'll be partnering in Nifty Gateway's series of Pride-themed drops in June. And also in June, we're excited to share today that we'll be showing up at the Bitcoin Conference in Miami with a small collection of NFT art for sale there as well. From there, as Ben mentioned, we are focused on building first mover advantage, And to that end, we are working on building our collectible strategy, a space we believe we are uniquely positioned for with our vast archive and network of talent relationships, drops of virtual merchandise, immersive Playboy experiences, and more. We plan on more art drops, leveraging our immense archive across partner platforms. But also, just as we're building direct connections with our fans through our owned and operated apparel lines on our own e-commerce sites, we expect to see the integration of NFT sales capabilities into Playboy branded environments. This is a fast moving space and we expect to have activations both big and small throughout 2021 as we work to integrate blockchain powered and new digital experiences into everything we do. I also wanted to touch on our Big Bunny plan. The Playboy brand is bigger today than it ever has been before. But one of the areas that we don't have today that we had in previous decades was the ability for celebrities and influencers to experience the brand in person on an ongoing and regular basis. So the Big Bunny plane will, in essence, become a small flying mansion, engaging an influential crowd on a flight and also taking them to those live experiences we host, such as our Q4 Art Basel Miami experience we're planning. We also believe that heading into the second half of 2021 and for the next few years, consumers will be craving experiences more than ever. We expect that the Big Bunny will be an aspirational symbol for living life to its fullest and living a lifestyle full of experiences. As Ben mentioned, we're also deep in the development on an actual Big Bunny product line, which we intend to start to roll out in Q4 of this year. We are working with Louis Terline, the fashion and retail veteran who founded the fashion line and domestic and international retail chain, Oak, which he and his partner sold to American Apparel. Our collection will contain a mix of fashion, travel accessories, and other lifestyle products targeting the cool older sister or brother of our mainstream Playboy consumer. In a sense, we envision the constant presence of the Big Bunny as an always-on marketing campaign for that upscale product line, as well as serving as the halo for everything we do across the Playboy universe. And before I hand the call over, I want to share an update on our social impact work. We're proud that we continue to provide a platform for voices that are furthering conversations about freedom of speech, social justice, and racial, gender, and sexuality equality. This February, we published the Playboy Symposium on Race, featuring an array of social justice and cultural thought leaders, as well as a special edition of the Playboy interview with Jemele Hill. This June, our Pride collection will feature designs by artists representing the LGBTQ plus and allied community, with proceeds from that collection supporting on-the-ground organizations. Our social impact work is core to Playboy's DNA, and we will continue to invest in connecting with audiences on these crucial causes. With that, I'll hand the call over to my colleague Lance Barton, our Chief Financial Officer.