Playboy, Inc.

Thank you for standing by and welcome to second quarter 2021 conference call for PLBY Group, Incorporated. The information discussed today is qualified in its entirety by the form of 8K that has been filed today by PLBY Group, Incorporated, which may be accessed on the SEC website and PLBY Group's website. Today's call is also being webcast and the replay will be posted to PLBY's website. Please note that statements made during this call, including final 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 risk which could cause PLBY's actual results to differ from its historical results and forecasts, including those risks set forth in PLBY's filings with the SEC, and you should refer to and carefully consider those for more information. The discussionary statement applies to all forward-looking statements made during this call. Do not place any reliance on any forward-looking statements. Hosting today's call are Ben Cohn, Chief Executive Officer, Rachel Weber, Chief Brand Officer, and Lance Barton, Chief Financial Officer. I will now open the call to Vencon. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to our 2021 Second Quarter Earnings Call. I'm excited to walk you through our recent results as well as to share an update on the significant operational progress we've made executing against our growth strategy. Before I dive in, I want to share the news that Suying Liu, has stepped down from our board. I want to thank him for his service and his many contributions. I also want to note that with CDN's departure, we have an even greater opportunity to increase the diversity of our board, a process we kicked off a number of months back. Our ambition is to live up to Playboy's remarkable legacy fighting for gender equality. With a workforce today that is nearly 75% female, even before including Honey Birdette's incredible female-led team, and a customer base with significant female representation. We firmly believe our board should have significant female representation as well. Okay, on to the results. The second quarter of 2021 was our first full quarter as a public company, and I'm pleased to report very strong results across all areas of our business. We have been hard at work building and expanding a unified digital commerce platform, optimizing our licensing partnerships, exploiting the natural synergies between and across companies, our Playboy, Yandy, and Lovers operations, and reinvesting in our brand and infrastructure to bring to market fiscal and digital products and experiences that today's consumers are most excited about. Our growth strategy is threefold. First and foremost, we are focused on expanding our U.S. direct-to-consumer commerce business to capture 100 cents of consumer spend versus the 5 to 6 cents that has historically been captured through previous licensing arrangements. Second, we are working to optimize our licensing business in key international territories and categories. And third, we are investing in emerging growth opportunities that we believe will accelerate our long-term growth trajectory and generate significant returns over a three- to five-year time horizon. I'm very proud of our team's results across our three priorities. On the direct-to-consumer side, we grew revenue 88% year over year, This is a result of the team's early efforts to ramp up influencer marketing and cross-selling initiatives across our channels. On Playboy.com in particular, we are seeing a dramatic shift in consumer behavior. Consumers more and more understand that Playboy offers high-quality lifestyle products and that Playboy.com is a place to shop. During Q2, our shopping customers grew by nearly 70%. This shift in consumer behavior is driven in part through our strategic influencer marketing initiatives. Each week, we average 100 influencer posts with influencers selected based on the strength of their product recommendations and their ability to convert or target audiences. Many of these influencers are part of our Playboy network of talent, including our Playmates and prominent adult stars. In addition to posting on their own channels and thereby massively extending our reach, these influencers provide a library of content for us to use across our channels, helping us to create consistent, and persistent touch points for sales and conversion. We've also seen great results from our work with top social media influencers eager to be associated with the Playboy brand. For instance, our Pride collection with Bretman Rock sold out in a matter of hours. Based on our key learnings, we have developed a robust calendar of influencer-driven streetwear and fashion collaborations to roll out in the coming months. Creating our own influencer-driven collections is the future model of Playboy Labs, We are now operating as a designer and operational owner of these drops and selling them directly to consumers on our own platforms versus licensing our brand to talent for sales on theirs. Consumer demand for Playboy streetwear has exploded, as evidenced by our own e-commerce sales and the rapid growth of PacSun's Playboy branded offerings. By working with influencers on a regular cadence of streetwear-oriented fashion drops, We create regular events that increase brand affinity, maintain cultural relevance, and help seed out the seasonality of our business. As we shared on our last call, the Playboy brand is incredibly strong with the culture-driving Gen Z audience, which requires our team to act fast on organic viral moments. Just a few weeks ago, the Playboy Hoodie Challenge started trending organically on TikTok, and the team acted within a number of hours to launch a fan contest that brought the conversation directly to our channels and allowed us to participate directly in the moment. The entirely organic, quick turnaround contest generated millions of impressions and engagements and reached over 300,000 unique users. And most importantly, our product or operation has the ability to act fast, too. Within 48 hours, we launched an additional 13 cover Herdy designs for sale on our site to capitalize on the product buzz. It's been very exciting to see the continued success of our Playboy and Yandy integrations. By leveraging shared design infrastructure and multiple owned distribution channels, we brought our biggest Playboy and Yandy partnership to market this April with a spring collection featuring 20 different designs. The collection generated roughly a half a million dollars in revenue from sales across both Yandy.com and Playboy.com and proved the power of the Playboy masthead in the Intimates category. Following this success, we extended our offerings with our first Playboy and Yandy swimwear capsule collection, and we recently rolled out our second Midsummer Night's Dream Playboy and Yandy collection just last month. During Q2, our operational integrations also extended to Lovers, where we now have a combined buying team across Yandy and Lovers, an integrated e-commerce and technology team, and cross-channel marketing across all of our brands. Lovers also saw its best in-store conversion rate to date in Q2, demonstrating the continued desire for sexual wellness consumers to connect with brands and people they are buying from. We are investing behind these early wins in direct-to-consumer with the expectation that our near-term investments will accelerate and expand our long-term growth. Most crucially, we are hard at work integrating our e-commerce technology platform and investing in the digital consumer experience. Consumer-facing improvements to come include enhanced navigation, streamlined checkout, wishlists that can be shared with partners and friends, reviews, rewards, and more. We have already unified email and communication platforms across brands, and we expect to step into a unified CRM across all brands by early next year. On the back end, we are implementing a new ERP, along with warehouse and order management improvements, so that next year every stage of our customer interaction will be unified. Perhaps most exciting of all on our direct-to-consumer transformation is our acquisition of Honey Burdette, a luxury lifestyle and lingerie brand created for women by women. With Honey Burdette, we are adding over $80 million of high-margin and fast-growing revenue and an extremely talented team that brings us the design, sourcing, and merchandising capabilities we need to accelerate the growth of our existing direct-to-consumer platform. HoneyBirdette's superior product design, sourcing, and direct-to-consumer capabilities will also accelerate our Playboy-branded lingerie, loungewear, swimwear, and sexual wellness go-to-market plans, targeting the prestige consumer. In addition, HoneyBirdette's uniquely weekly drop merchandising approach will provide a calendar consistency and help smooth out PLBY Group's seasonality, We expect to launch a new Playboy brand of lingerie and women's lifestyle label designed and operated by Honey Burnett's team in the first half of next year, expanding and accelerating our previous roadmap for these offerings. On the licensing side in the second quarter, we grew our revenue 12% year over year. In China, our partners capitalized on the June 18th online shopping holiday, selling more than 2 million Playboy branded apparel pieces on that one day alone. We also continue working with our partners to expand product offerings for female consumers through a successful Q2 apparel collaboration with the designers at Chin Studio. In India, we signed deals and hospitality for Playboy beer gardens and venues, as well as in digital gaming with partner gaming technologies, bringing Playboy Lummi to the market in 2022. And in the U.S. and Western Europe, the second quarter marked successful collections from both PAX Summoners Guided and new high-end collaborations with Amiri, Color Bars, Emotionally Unavailable, DefShop, and Duke & Dexter. In gaming, a key licensing category for us, we've made significant progress relicensing our US iGaming rights for digital casino games. We're very excited by the potential here as the North American expansion of regulated real-money gaming accelerates. Across our direct-to-consumer and licensing businesses, our second quarter and year-to-date performance is even more impressive when taking into consideration the continued headwinds from COVID. The supply chain challenges impacting many industries continue to impact our business as well. For example, throughout the quarter, Yandy remained out of stock on many of our top-selling items, and we have seen consistent delays on product launches on Playboy.com and with our licensing partners. In advance of the holiday season, we're working proactively to source product in new ways that minimize chances for disruption. It is also worth noting that ongoing shutdowns have impacted our gaming business in particular, including our London Casino and live dealer studios, and travel restrictions have delayed our ability to implement some of our growth plans, develop new partnerships, and restructure existing licensing agreements. The opportunities have not been lost, but rather shifted in timing, The ability to renegotiate deals, especially internationally, requires our ability to meet face-to-face with our partners, and we look forward to doing so when COVID restrictions ease. The transformation that we have discussed, moving from a licensing business to an owned and operated business in key categories and territories, is well on its way, but it takes time, especially in the face of COVID. I'm extremely pleased with the performance we've delivered across these first two pillars of our growth strategy. and we expect to see acceleration of the business once these headwinds abate. Now onto the third pillar of our strategy, emerging growth. While achieving strong progress across our direct-to-consumer and licensing businesses, we're also prioritizing emerging growth opportunities that we believe will accelerate and expand our growth significantly in the coming years. To deep dive into those initiatives, I'm going to hand the call over to our Chief Brand Officer, Rachel Weber.

Thanks, Ben, and hi, everyone. I'm excited to share an update today on the progress we've made on our highest priority new growth initiatives, first on NFTs and digital experiences, and second on Playboy's new label and category plans. We couldn't be more excited by the opportunities we see ahead for the Playboy brand and business in the world of blockchain technology and the digital creator economy. As our physical and digital worlds increasingly converge, We believe the meaningful differentiators in our business today, the badge value of the Playboy brand, our access to a coveted talent network, and our ever-expanding library of content will be increasingly valuable. Q2 marked our foray into the NFT space with our first drop on Nifty Gateway, a collaboration with the artist Slime Sunday that sold out in minutes and generated almost a million dollars in primary sales in 24 hours. In June, we partnered with Nifty again to release a collaboration with artist Chantal Martin, a series of augmented reality interpretations of David Bowie's 1976 Playboy interview in support of Pride Month. Our first two drops demonstrated the immense power and infinite possibilities of our prices archive, and we also learned a tremendous amount on what works and what still needs big improvement in blockchain-based consumer experiences. Overall, we've been thrilled by the enthusiastic community and collector response. This past month, we participated alongside major auction houses, art galleries, and marketplaces in Decentraland's second annual virtual art fair with our Miami Beach art collection. Our collection was minted for sale on the art marketplace SuperRare and most notably contained our first heritage print NFT, a digitized version of a photograph of a Playboy bunny pictured water skiing outside of the Miami Club in 1970. We're very encouraged by the reaction to the archival work and the 19th sale price, roughly $60,000 in value today for the single digital print. What's becoming increasingly clear in the world of NFTs and the broader digital creator economy is that great success and true differentiation lies at the intersection of content and community. Playboy pioneered the intersection of content and community. We therefore have both the right to play and the unique competitive advantage to win in this new world. Our path forward is built upon our ever-expanding library of highly engaging and coveted content, our 10 million piece archive, our built-in talent and influencer network, and the proven desire of our fans to be members of Playboy Worlds. What we're working on now is a consumer proposition integrated into our own ecosystem that leverages NFTs and blockchain technology to allow our fans to truly become members of Playboy today. We are applying the insights we've gleaned from participating with the most early adopter crypto audiences to build offerings that can extend to our mainstream fan base as well. The unique assets we have to offer that integrate physical and virtual goods access to creators and tools for creators, access to special events and experiences are what we believe can form our specialized value proposition. Over the weeks and months ahead, we will continue to strategically release digital art and collectibles as we work towards the rollout of this integrated content and community membership offering. We are so excited by everything we have in the works today. and we're also inspired knowing that we're still so early in this next era of Internet and technology explosion. We are acting fast to gain early mover advantage while simultaneously building for what we believe will have transformational long-term growth potential. The second new growth area I'm excited to talk about today is how we are leveraging Playboy IP to develop new sub-brands, or what we're calling labels, and new high-growth categories. On the new labels front, our first new launch will be Big Bunny. Big Bunny is a label designed for the new jet set. It combines the ideals of style, travel, and pleasure and represents the pinnacle of aspiration for the brand. We expect to introduce our first collection of products that tie back to this intersection of style, travel, and pleasure in Q4 this year. And then an entire range of offerings are expected to be released each season going forward. The reason we are creating labels is so we can appeal to different consumer segments in ways that resonate most with them. Playboy is an incredibly unique brand in its ability to go high-low, to offer a range of prestige and luxury, and to appeal across age and gender demographics. By creating specialized labels, like the Jordan label for Nike, we can go deep with each consumer segment and build massive new franchises that stem from the Hero Playboy brand. From a price point perspective, Big Bunny is for our upper-tier demographic. But while it will feel exclusive, it will not feel out of touch and will still have many accessible offerings and ways in for consumers who aspire to participate in the lifestyle of the contemporary jet set. In addition to developing new labels, we are also leveraging the Playboy brand to expand into new owned and operated product categories. After recently completing our deal to bring back rights in-house, we now have a robust beauty product roadmap in development. We are currently in the product formulation and design stages for our first collection that we plan to debut in 2022. We've begun some early tests in the category as well with our press-on nails collection and our licensed fragrance products, both of which just rolled out on Playboy.com this past week. Our licensed fragrance products have been performing well across European retail over the past few months, and we're excited to now offer them directly to our consumers as well. The investments we are making today to develop new labels and owned product lines are intended to both propel our U.S. consumer commerce business over the coming years and to serve as high-value new offerings to bring to market in international territories via strategic business models. Lastly, before I hand the call over, I wanted to add a warm welcome to our Honey Burdette colleagues. We've been huge admirers of Honey Burdette since we first met on a collaboration opportunity, and we couldn't be more thrilled to now be working side-by-side with their immensely talented design team to help us accelerate bringing to market our women's-focused Playboy labels. With that, I'll hand the call over to my colleague Lance Barton, our Chief Financial Officer.