PLBY Group, Inc.

Thank you for standing by, and welcome to PLBY Group's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to Managing Director at ICR, Ashley DeSimone.

Good afternoon, everyone, and welcome to PLBY Group's third quarter 2021 earnings conference call. I am Ashley DeSimone, Managing Director at ICR. Hosting today's call are Ben Cohn, Chief Executive Officer, and Lance Barton, Chief Financial Officer. The information discussed today is qualified in its entirety by Form 8K 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 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's views and assumptions regarding future events and business performance at the time they're made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risk, which could cause PLDY's actual results to differ from its historical results and forecasts, including those risks set forth in PLDY groups' 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 today during this call. Do not place undue reliance on any forward-looking statements. And I will now open the call to Ben Cohn. Please go ahead. Ben?

Thank you, operator, and good afternoon, everyone. I'm delighted to report today on another strong quarter. I want to start today's call by commending our team on continuing to deliver even in the face of COVID related operational challenges and for achieving meaningful progress on our strategic growth roadmap. 2021 has been an amazing year so far for our company. My remarks this afternoon are going to focus on how all of the great work we've executed on building our direct to consumer commerce business, integrating our strategic acquisitions and releasing our first NFT drops serves as the operational foundation and marketing flywheel for even bigger opportunity to create a cohesive and scalable ecosystem of recurring revenue based Playboy membership offerings. Lance will then provide greater detail on our financial results and outlook. I joined Playboy as CEO because I saw the opportunity to rejuvenate one of the world's greatest brands into a massive growth engine with the right business model transformation. It was clear that the model of selling magazines and complementing that media business with licensing revenue was a broken model. But with billions of dollars of consumer spend against one of the most globally recognizable and emotionally resonant brands, it was clear that with the right products and services for today's consumer, matched with the right in-house operations, we could supercharge our growth. As we talked about previously, we've been following a three-part growth action plan. focusing first and foremost on the low-hanging fruit. Part one of our action plan is our work to build and expand our direct-to-consumer commerce business in key categories and territories. Our goal is to capture 100 cents of consumer spend against the brand versus the 5 to 6 cents we make on licensing deals. I'm immensely proud of the scale we've achieved here in such a short period of time. As Lance will elaborate on, In Q3 alone, we grew D2C revenue 139% year-over-year to $36 million. Part two has been focusing our licensing partnerships on bigger, better, longer-term deals. In the past several years since I became CEO, we've made great strides here, particularly in China and India and in the gaming category. We've also strategically used our licensing business as a marketing tool and brand builder for us. In particular, our high-end designer collaborations have generated huge brand buzz and our large-scale partnerships with PacSun have created huge retail reach for the brand. By executing these two initiatives, we have gone from two years ago being a $78 million annual revenue business with China-based licensing revenue contributing 50% of that revenue to today being being on track to deliver 280 million annual revenue on a pro forma basis with less than 15% of our revenue coming from China. And as we've been attacking the low hanging fruit, we've also built building the foundation for longer term growth. To that end, the third part of our execution roadmap has been focusing on investing in new emerging growth opportunities that deliver recurring or long tail revenue and allow us to generate significant returns over a three to five year time horizon. The most exciting of these new growth initiatives is building the future of Playboy membership. Playboy is a brand that once had almost a million key holders to its clubs, nearly 7 million magazine subscribers, and of course created a coveted lifestyle at the Playboy mansion that celebrities and fans alike clamored to participate in. Our reimagined 21st century Playboy club will give our fans access into the contemporary Playboy lifestyle. We'll give them opportunities to truly live a Playboy lifestyle that stands for freedom, fun, and sophistication. Imagine virtual and physical experiences and parties, like a global Midsummer Night's Dream party in the metaverse and also in Las Vegas. We will offer things only Playboy can, exclusive meets and greets with her talent, Playboy music and comedy stages, Playboy advisor sex and relationship series, And of course, building upon a strong commerce foundation, early and exclusive access to our fashion and product ops and artist collaborations. With the infrastructure we put in place to build direct consumer relationships around our commerce products, we are working to expand on these offerings with membership services. We can build much more significant lifetime value through recurring revenues. And crucially, the continued expansion of our commerce business simultaneously serves as a powerful top-of-the-funnel marketing engine. Just about two weeks ago, we launched our initial foray into the new Playboy membership with the release of our latest NFT collection, Playboy Rabitars. Rabitars are 3D rabbit characters minted on the Ethereum blockchain. There are 11,953 uniquely designed Rabitars, and each was priced at $0.1953 each. or roughly $900 at the time, in honor of our founding year of 1953. We sold out rapidly, collecting both U.S. dollars and Ethereum as payment, and generated over $8 million in upfront revenue. In addition to our initial sales, we participate downstream in every subsequent sale. And since launch, we have already seen more than $8 million in secondary sales trading volume. with the rarest Rabitars selling for as much as $50,000 a piece. Rabitar ownership will unlock VIP status in what we anticipate will be our new Playboy Club and access to a lifestyle and host of benefits that only Playboy can deliver. In the first few days of this new exclusive membership experience, early benefits to Rabitar owners have included special access to a Playboy party in New York City hosted by Pam Anderson, a virtual art gallery party in the metaverse, a digital wearables drop, dedicated community forums on Discord, and special discounts on Playboy.com. Our upcoming roadmap of benefits was released in our dedicated 70,000-plus member-strong Discord server just last week, including limited-run Ravatar-themed apparel collaborations, upcoming IRL parties, and experiences in special NFT airdrops. Of course, for a brand as iconic and globally relevant as Playboy, we need to ensure that we have ways for our millions of fans around the world to become members. We believe we can do that successfully through tiers of membership and membership-based experiences that cater to specific fan bases. This is where Centerfold comes in. The creative and celebrity community has always been central to what makes Playboy, Playboys. For nearly 70 years, reading a Playboy magazine was like stepping into a world of culture and celebrity. And for the biggest artists, voices, and bold-faced names of each decade, making it into Playboy was a rite of passage, just as we proved yet again in October with our groundbreaking Bretman Rock cover. From a business perspective, however, while we played a large role in building the careers of huge talent as a magazine business, The company wasn't able to provide talent with ways to continue building their careers with the brand. And thus, the company wasn't able to participate in the upside of the talent's ongoing revenue generation. But today, the world of creators and talent is a very different place. Consumers today expect two-way interaction with their favorite celebrities. Creators and influencers need tools to reach and build their fan bases. As one of the original platforms for the creative community, to freely and openly express themselves, we are uniquely positioned to deliver in this space. Centerfold is our new creator-led digital platform dedicated to creative freedom, artistic expression, and sex positivity. It will serve as a home for the world's top creators to interact directly with their fans and expand their communities and commerce businesses. Centerfold will revolutionize the creator economy just as the Playboy magazine shook up the publishing industry nearly 70 years ago. Playboy is the one brand that sits at the intersection of sex and culture, and we do so at a massive scale and with mainstream visibility. Creators will be able to set up their own subscription or membership services, directly message with their fans, and much more. As we expand, we plan to offer creators services that only Playboy can, including the ability to tap into our merchandise design, production and distribution capabilities, artist collaborations, merchandise collaborations with Playboy and honey for that NFT and blockchain tools and more. And of course, being a centerfold creator will give talent access to our most coveted assets appearing on the Playboy cover in a Playboy pictorial, or as the subject of a Playboy interview. In the 60s, 70s, 80s, 90s, and 2000s, Playboy was a place where artists and celebrities went to fully express themselves and ultimately to get famous. Centerfold will give them that chance again and so much more. The investments we've been making to build our commerce infrastructure are crucial here as we've heard directly from creators that they want more access to more ways to generate value for themselves outside of content. By giving our network of talent these tools, we're able to create a full ecosystem of membership and a flywheel of audience aggregation and cross-promotion. We've had tremendous inbound interest from the creator community in several fold for both the creative freedoms it allows them and the unmatched commercial opportunity it provides them to have access to all of PLBY Group's operations. We are planning to launch in early December and we cannot wait to share more about the immense talent and creative visionaries we anticipate serving as our founding creators. We're not naming names just yet for a variety of commercial reasons, but we can tell you that they come from various creative industries across music, art, fashion, and more. And they all share a commitment to artistic expression, celebrating culture, sex and body positivity, and truly serving their fans. Our anticipated founding team alone represents nearly 300 million social media followers. Our strategy is to work with the world's top creators and voices to ensure a safe platform for them and a great consumer experience for fans. And our recent acquisition of Dream accelerated our timeline of bringing Centerfold to market so that we could quickly capitalize on this immense opportunity. I'm more excited than ever about the future of PLBY Group. We've made enormous progress executing against our roadmap. leaning into the big opportunity to capture more consumer spend against the brand by building a direct-to-consumer commerce business while simultaneously strengthening our licensing partnerships. With the foundation we've built in direct-to-consumer operations and the revenue scale we've achieved, we can now meaningfully invest in the future of our recurring revenue membership products that we believe will, over time, become our fastest-growing and biggest revenue contributor. With that, I will hand the call over to Lance.

Thanks, Ben. Third quarter revenue grew 67% year-over-year to $58.4 million. We achieved exceptional growth in what continues to be a difficult operating environment as we believe we lost more than $5 million worth of revenue due to COVID-related closures and supply chain impacts in the third quarter alone. Despite these headwinds, we've continued to execute well on our strategies. The expansion of our direct-to-consumer business has proven successful to date, and in the third quarter, we grew direct-to-consumer revenue 139% year-over-year to $36 million. Our greatest challenge in growing this revenue stream isn't related to a lack of consumer appetite or brand awareness, but rather scaling our infrastructure to meet the tremendous demand we see for our own branded products. Last year, we began the transformation of Playboy into an e-commerce destination to capitalize on the opportunity that we saw, given the billions of dollars being spent against the brand through our partners globally. In the last 12 months, we've been executing against our plan, generating more e-commerce revenue on Playboy.com in the month of September than in all of 2020 and more revenue in the third quarter than all of 2020 and Q1 combined. Our early success has led to some key learnings. First and foremost is that the Playboy brand clearly resonates with a young audience. Two-thirds of revenue on Playboy.com comes from customers under the age of 34, and we consistently see more than half of our revenue now coming from women. We also see a fair amount of price elasticity with our customers. Average order value on the site is now consistently above $90, which is roughly 30% higher than where it stood at the beginning of this year and 70% higher compared to the third quarter of 2020. We also see that customers who spend over $200 with us on a single order are coming back to the site more frequently than others. In terms of product offerings, we've been able to leverage our strategic licensing partnerships to provide merchandise to sell directly to our consumers on Playboy.com, and our high-end fashion collaborations have allowed us to reach a premium consumer while organically generating earned media when celebrities like Jay-Z and Bella Hadid wear the Playboy logo. There's more work to be done, but we continue to believe that growing direct-to-consumer revenue for the Playboy brand is a meaningful long-term revenue opportunity, especially when combined with the potential network effects that we hope to achieve as we scale the centerfold platform. Honey Burdette, Yandy, and Lovers have all provided us with the needed scale, infrastructure, and cash flow to execute on this transition of our direct-to-consumer expansion. Although Honey Burdette had a challenging first few months under our ownership, as half of our retail stores in Australia were closed throughout all of August and September, the business still managed to contribute $7.4 million of revenue for the stub period starting August 9th. Fortunately, the stores began to reopen in mid-October, and as of today, all of our locations are currently open for business, which has resulted in a corresponding rebound in business performance, and we continue to believe that there is a significant amount of long-term growth potential for the brand. We also continue to invest in building a unified back-end across all of these businesses, which we anticipate will produce synergies for us over the long term. On the licensing front, we continue to optimize our strategic partnerships in targeted categories and regions. In the third quarter, licensing revenue grew 14% year-over-year to $16.9 million. Revenue was bolstered by the ongoing success of our partnership with PacSun, along with stronger-than-expected sell-through from high-end fashion brands such as Amiri, as spotted on Jay-Z and social media, and a fast fashion retailer in Italy who launched a successful summer swim collection. We also signed eight new strategic partnership agreements, which we expect to launch next year, including several exciting fashion collaborations that we'll be able to sell directly on Playboy.com and a partnership in the spirits category launching later this year. With that said, Q3 also saw continued licensing revenue headwinds due to ongoing COVID impacts. This includes closures of our partner-operated live dealer gaming studios and closure of the London Playboy Club, along with delayed product launches in India and South America and limitations on our ability to generate new partnerships in underexploited international markets due to travel restrictions. Going forward, we'll continue to develop these strategic partnerships in categories that are capital-intensive and lower margin or in regions that require local expertise. Perhaps more importantly, we think we can leverage these partnerships as a capital efficient way for us to further expand the Playboy brand and lifestyle in categories such as fashion, hospitality, gaming, and spirits. In terms of financial outlook, we are entering the fourth quarter and will exit this year with significantly more scale and growth opportunities than we had just 12 months ago. Our revenue target for this year was to exceed $200 million. which we believe we will clearly exceed even before factoring in the $25 to $30 million of revenue contribution we expect from Honey Burnett from August 10th onward. October was a big month for us as Playboy.com became a destination for Halloween shopping, generating more revenue in three weeks than we generated in the first four months of this year alone. And Yandy was on track for a record-breaking month until we ran into fulfillment challenges that caused us to end our Halloween sales a week earlier than expected. On our last earnings call, I said that by 2025, we expect to reach $600 million of annual revenue, which was doubling the outlook we gave in February when we first went public. This long-term outlook represented revenue from our licensing and direct-to-consumer business, and didn't include any revenue for these upcoming initiatives that we've discussed today, such as Centerfold and membership. I'm not going to change that long-term outlook today, given COVID and supply chain uncertainties, but what I can say is that we're thrilled with the continued growth that we've seen in our direct-to-consumer business and the demand for our brand from both consumers and our partners alike. I'm also not giving guidance today for Centerfold or membership, as we've not fully launched these initiatives. What I can say is that if we are successful in working with our creators to build a sizable ecosystem, the long-term recurring revenue opportunity on Centerfold alone could be larger than our consumer products business, not to mention the potential of membership. There are a few proof points worth sharing that lead us to believe there is tremendous upside potential here. One of them is that this year alone we've already generated around $10 million in NFT-related revenue. which includes the Ravatar launch that Ben discussed, and then the secondary revenue, along with the million dollars that we generated back in the second quarter and under 24 hours from our initial NFT drop. And on Centerfold, we're hoping to launch with a group of creators that already generate hundreds of millions of dollars in GMB in the creator economy. If we're able to execute and these new initiatives materialize like we believe they can, we would expect our long-term EBITDA margin profile would also increase given the potential size of these opportunities relative to the total and the high margin nature of digital revenue. I'll close by echoing Ben's sentiment that this is an incredibly exciting time for our company with a myriad of opportunities in front of us, and we will continue to prioritize and allocate resources appropriately to build upon each successive win. With that, I'll have the operator open the line for questions.

As a reminder, to ask a question, please press star 1 on your touchtone telephone. To withdraw your question, press the pound key. Again, that's star 1 on your touchtone telephone to ask a question. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jim Duffy of Stiefel. Your line is open.

Thank you. Good afternoon, guys. Thank you for taking my questions. So just to start, it's been a busy year for the management team. The company's added a number of foundational pieces to the puzzle. I'm curious, Ben, are the platform components now in place, or are there other pieces of the platform that you are still looking to add to capitalize on the opportunities ahead of you?

Jim, thanks for the question. In general, the platform is in place, and we think what we have assembled to date is truly a competitive differentiator moving forward as we think about membership and centerfold. What we can offer the creative community is something that no one else can offer, and I think that's referenced by the founding creators that we have signed up to launch with. that represent in excess of 300 million social media followers. We believe we are good capital allocators, and to the extent there are talking things that make sense, of course we'll be opportunistic for the shareholders. But I would say right now we have every piece in place that we need to execute on our strategy moving forward.

Excellent. That's great to hear. And Lance, I just wanted to ask a little more detail on components of the business and performance during the third quarter. Um, can you speak, I know you gave what seemed to be pretty impressive figures for the first three weeks of October, but can you talk to playboy.com, uh, during the September quarter performance of lovers in Yandy, um, and you know, trends that you saw for lovers in the ND, uh, leading up to the important holiday, uh, Halloween selling season. Thanks.

Sure. I think I highlighted some of that in the, in the remarks. So, so I'll give a little bit of details around that. Um, As I mentioned, in October, Yandy itself was really having a record-setting October Halloween season, and we ended up having to cut the order short in late October just because of fulfillment, labor challenges, supply chain challenges, all of those things. So we would have done a lot better in October than we actually did, but it was still a very impressive month for us. So that business continues to do extremely well. A lot of the work that we're doing there, as well as with Lovers, is kind of integrating this back end across Playboy.com, Yandy, and Lovers, and obviously soon starting work on Honeybird Debt around all of that. Playboy.com, I gave some stats on that. Really, the growth there has just been really exciting for us. We brought in someone to run that business for us earlier this year who has experience scaling businesses you know from effectively zero to hundreds of millions of dollars and and we see a big opportunity here as well um you know generating more revenue i forget what i said in the in the month of of october that i think we did in the first four months of this year and then the third quarter i think was was more than all of last year and earlier this year combined so Really great growth trajectory. I think what it speaks to on all of this, and I've said this to folks before, which is the demand is there for our products and for our brand. We see that time and again. It's demonstrated by the amount of money we see being spent with our strategic partners globally. um and that was part of the whole reason for this business transformation that we're we're undergoing um that continues to translate when we're selling product direct on on playboy.com so it's not an awareness or a demand issue it's really scaling our infrastructure our team getting the supply chain right obviously in the time of covid um you know there's a lot of products that we're intending to stock at certain times that that don't end up arriving on time um So we're still managing all of this growth in what is a really challenging time, I think, for most direct-to-consumer retail companies. But we're very pleased with the results, and, you know, we think there's a long runway here to continue.

Yeah, Jim, the only thing I'll add, too, is when we launch Centerfold, what's going to be so great is, in essence, we have our own social media network at the end of the day as well. And so when you start to think about the flywheel that we've created – and then the recurring revenue nature of what we're launching with the rabbit cars. Um, and then centerfold this in the future can really supercharge all facets of the business.

No doubt. One more quick one, Ben, if I may, would the rabbit cars launch, do you have a view as to the geographic appetite for that? Was it a, um, uh, uptake of the rabbit cars, a global phenomenon, or was it more concentrated to North America?

So I don't have the specifics on that. What I can tell you, because I'm active in our Discord community talking to our Ravatar holders, is that I'm talking to people in Australia and China and a whole host of other places. So I think it's really interesting. I think what the team did here that I believe we were the first to do it on a launch like this is we actually created or set aside almost 3,000 Ravatars for credit card or fiat transactions. And I think what this brand has that unique ability to do is actually to bring in mainstream investors or people that have not participated in the NFT space before into that community. And when I look at the number of first-time buyers based on people's responses in Discord, I think that's truly exciting for us moving forward. And then as we continue into 2022 to expand our NFT and blockchain efforts, you know, with the creators that we are going to be working with on Centerfold, you know, coupled with that 10 million piece archive that we have, that becomes truly exciting moving forward.

Excellent. Congratulations on the success of that Revitars launch. Thanks, Jim.

Thank you. Our next question comes from George Kelly of Roth Capital Partners. Your line is open.

Hi, everybody. Thanks for taking my questions. So, Maybe to start just with kind of a 10,000-foot view question, if I'm thinking through next year's 2022 financials, and I'm not looking for any kind of specific guidance here, you know, just thinking more broadly than that, but a lot of these new initiatives that you're working on, like Centerfold and this NFT blockchain-related, these membership programs, all that kind of stuff, if we lumped it all together, Would you anticipate that being a really significant portion of revenue as soon as 2022? I'm just trying to think broadly, like how should I think about these things ramping?

Hey, George, thanks for the question. So it's hard to say because none of this has really launched, right? So far we've done... effectively three NFT launches, right? We did our first one in the second quarter, which we sold out in under 24 hours and generated a million of revenue, which, you know, we thought was extremely successful for our first attempt. We sold an NFT of an original piece of content, a piece of archive content in digital format for $60,000 and in the third quarter, which we thought was a, you know, a great outcome for something that was just a regular photograph that we put in digital format. And then obviously we launched this Ravatar collection with much more success than we would have initially imagined, right, generating over $8 million of revenue and reaching, you know, all sorts of consumers that have historically not purchased NFTs. So those were all things that, you know, if you had asked me back in, March, what we're expecting here, I couldn't have given you a number. And 10 million isn't a huge number, but it's a great start. When you fast forward to next year and look at the potential of these platforms, you can get to some pretty big, pretty heady numbers, but it's really going to depend on how quickly we can scale not only our creator base, but also the user base that they're bringing over. So we'll have more proof points of that a few months after we launch that. So I'm hopeful on the next call we've at least got a little bit more data points to go off of, but it would be pure speculation for me to come on here and tell you what I think that's going to drive next year. So it's kind of hard, but we'll continue to work with you to be as transparent as we can once we see data points.

Yeah, I mean, George, I'll just add, I think that the potential is there, right? So if you look at our founding creators that we'll be announcing right around launch, as Lance said, they represent hundreds of millions of dollars at GMB already in the creator economy. And then the potential to expand that even more, it's going to come down to conversion rates and a whole host of other things. But what's so interesting about the Rabitars as our first entry back into membership is And then as we talked about in the prepared remarks, expanding that with tiers and membership moving forward, you know, there are comps out there. So you can look at Board Ape Yacht Club and others as to what they've done, not saying that we will do any of that or not do it, but the potential to use blockchain and NFTs for a much larger membership to reach the millions of fans and consumers we have around the world is interesting. And then when you look at that type of that revenue, you know, we're talking about recurring revenue versus transactional revenue. And, you know, throughout my private equity career, I love businesses that were focused on recurring revenues. And I think that this brand has a history, as we've talked about, with membership historically. And we can do this in a way for the 21st century, you know, in the metaverse coupled with physical experiences and truly deliver something that no one else can deliver.

Okay. Okay. Thank you. And then, Last question for me, wondering if you could talk about Honey Burdette and what you've seen since Australia has started reopening. And then additionally, what is the plan for new stores, particularly in the U.S. next year? Thank you.

Sure. I'll talk about the reopening. Yeah, I mean, as you would imagine, if you've got half of your stores closed in Australia, that produces quite a headwind on revenue. But as those stores have reopened, they've been performing really in terms of what we would have expected had they been open this entire time. So it's not some huge snapback in demand, but the business has certainly rebounded and is performing along the lines of what we would have expected when we bought this business, which we thought had a lot of growth potential. What we've seen here in the U.S. is also consistent with what we had expected when we bought it, which was a lot of room for upside on growth on the e-com business. And our biggest, most successful stores actually happen to be in the U.S. as well. So we are actively scouting for ways to expand our footprint, not only here in the U.S., but also abroad in Western Europe. And we also recently launched e-com efforts more broadly. We used to only be in the UK. We're now throughout Western Europe and expanding our footprint there as well. So it's quite a symbiotic relationship when we open these stores. We see a corresponding increase in e-com revenue. They really act as kind of very profitable billboards for the business. So we think it is an important part of the plan to open stores and continue to drive e-com growth. So we're in the process right now of evaluating and figuring out kind of what the right strategy is going forward there, how many stores we, we intend to open. Uh, but we are actively looking both here and in Europe.

Okay. Thanks everybody.

Thank you. Our next question comes from Daniel Adam of loop capital markets. Please go ahead.

Hi, thanks for taking the questions. Uh, just two for me. First on the membership initiative, can you provide some color around how many members you think you can ultimately scale to? And then on pricing, do you plan to accept both dollars and crypto? And how price sensitive, do you have any indication as to how price sensitive your target membership base really is? And then the follow-up question is on the NFT Rabitars. My back of the envelope math got me to a little over $9 million of revenue from the launch. Ben, I think you mentioned Rabitar revenue contribution at $8 million. Is there anything that would explain that delta? And I guess related to that, are you holding any Ethereum on your balance sheet or do you immediately convert crypto sales to dollars? Thanks, guys.

Thanks, Ben. I'm going to start with your last question first, and then I'll let Ben answer the first part. Your math is not wrong, but in terms of the way we will recognize the revenue, we'll recognize it net of any fees to our partners that we're paying out. So that's why we said it was over eight and not the nine that you had indicated there. In terms of holding ETH or crypto on the balance sheet, so obviously we generated both ETH and USD through the fiat transaction. We continue to hold the ETH on our balance sheet, and We are in this for the long run. This wasn't just a one-and-done type thing. We're going to continue executing and operating in this space, and therefore, we think it makes sense to hold ETH. What we're in the process of determining is what is our investment philosophy, how do we incorporate ETH into that. Obviously, right now, when you think about it as a percent of our total cash or liquid assets, it's a a very small percentage, obviously, you know, sub 10%, which feels like the right amount right now. But, you know, as the opportunity grows and as we scale, we'll figure out more what the right thing to do is here. Go ahead.

Yeah, I appreciate it. So on membership, look, I think the sky or the ceiling is really unlimited here. I think that this is a company that today drives over $3 billion of consumer spend. This is a company that has the potential to have millions of people as Playboy members, and we can deliver really unique benefits for those members. As far as scalability, because this is not going to be physical location constrained, even though we do plan on doing in-person events, from a membership perspective in the metaverse, a Playboy mansion in the metaverse, that gives us unlimited potential on a global basis. And then when you couple that with Centerfold and how this flywheel all works together, you know, Centerfold is not only an unbelievably lucrative financial opportunity for the company, it also provides an ongoing relationship with the talent that we have worked with for 70 plus years. We also have access now to all of those subscribers on the Centerfold platform that will benefit not only the Playboy membership, but also our commerce efforts as well. And so all of this sort of comes together in this cohesive ecosystem or flywheel, and I'm really excited by the potential for what we can deliver moving forward on a recurring revenue basis.

Okay, great. That all makes sense. Very helpful, guys. Thanks.

Thank you. Our next question comes from Austin Motto of Canaccord. Your question, please.

Hi, thanks. I have a question on gross margin. I see that's going up, and I know MIPS can move that around, but when you look at gross margin on a sort of like-for-like basis, is there anything that helped that out in Q3 for licensing or DTC?

Sure. On the direct-to-consumer side, it's certainly going to be helped by the addition of HoneyBurnett, one of the reasons we were so drawn to Honey Burnett was the fact that they're producing and selling their own private product. It is all 100% Honey Burnett owned, which produces much higher gross margins than we see on Yandy or on Playboy, because Playboy is selling a mix of our own and other margins. So that's probably what you were seeing in the third quarter. And look, as we continue to scale on the direct-to-consumer side, we want to leverage those learnings from HoneyBurnett and apply that to the rest of our business as a means to drive incremental gross margin there. So we do think that there's room to drive that incrementally higher over time.

Okay. And on Centerfold, I'm wondering how you view the creator platform usage changing over time? I mean, do you expect creators to use one platform exclusively and is that built into your early agreements? Or is this sort of more like ride sharing where a driver will have Uber, Lyft, and a bunch of other apps on their phones alternating between them wherever the demand is?

Yeah, so Austin, I think that will depend on the creator. What I can tell you is that The creator's reception to Centerfold has been overwhelmingly positive. We've been working with them for a while on what features they want, and we think we have a true competitive advantage given our commerce and NFT or blockchain capabilities. A lot of our founding creators will be coming to us exclusively. And I think Playboy also represents as a brand something that is very different than what's out there in the rest of the universe. And so we've developed our content guidelines, one, that work for our brand, but two, in conjunction with our creators. And I think we have 70 years of working with the best creators and breaking some of the best creators, and we finally have a tool now, when you think of this ecosystem, to have them continue to make money long-term working with us. And so a great example is someone can be on Centerfold, They can also be performing a music night or they could be coming to one of our IRL events in person, right? And the whole entire ecosystem works together. They might be a former playmate that we will then be dropping, you know, their former content that we shot with them as NFTs on our platform. And so the whole ecosystem over time, if we execute on it, has a chance to truly transform the company moving forward. And if you look at the assets and why did we buy Honey Brudette and why have we acquired some of the skill sets, it was all to put the pieces together to be able to deliver something that's truly unique moving forward.

Got it. That's really helpful. And one super quick follow-up. For these early centerfold launch partners, what kinds of creators are they?

Okay. So they are huge music stars to former playmates to adult stars to artists to other influencers, actors, celebrities. It's really, we've really been overwhelmed by the response from the creative community and also by the diversity of the creators that we've brought in. And I think it's going to truly be something that's unique and also something that that fosters the development of the Playboy Club back to the day when Playboy had Playboy After Dark, the television show, and you had huge celebrities and musicians all of a sudden showing up and playing the Playboy Club or playing on Playboy After Dark, which was the television show. And so it's this cohesive ecosystem that we're looking to build. And so you'll see the Playboy Club sort of sit on top or centerfold, but centerfolds by itself can act as a huge top of the funnel for for everything else that we're doing as a company.

Great. Thanks very much.

Thank you. Our next question comes from Alex Furman of Craig Harlem Capital. Your line is open.

Great. Thanks very much for taking my question. You know, as you think about the holiday season upcoming, do you feel like you're in a pretty good in-stock position for holiday season inventory and then, Right around the corner is Valentine's Day, which is obviously a big, big holiday for a lot of your brands as well. Do you have visibility at this point into how much inventory you think you'll have coming to sell for the key Valentine's Day holiday as well?

Yeah, thanks, Alex. Look, the team's working really hard. You know, we are – the problem with inventory is the timing of it, so – We have inventory. We've started stockpiling early for Valentine's Day. But, you know, look, it's one supply chain issues and two labor issues. And so we feel good right now. You know, we've baked that in. You know, I'll tell you personally, it's frustrating because we as a team want to achieve excellence. And, you know, we've had a really good year so far. But we've also left money on the table, and we can directly pinpoint that. And that, as a CEO, is extremely frustrating. But I feel like we're in a good position for Valentine's Day across our businesses. We're in a good position for the holidays. And we'll wait and see. Our issue historically throughout this year has not been the demand issue. And that would be something that would scare me if the demand wasn't there. The challenge sometimes we've had is the demand is in excess of our supply. And so, you know, a long-winded way of saying right now we feel good about it, but, again, you know, never know what's going to happen in the future from a supply chain.

Yeah, just to add to that, you know, just to add to that, we've got plenty of inventory. Sometimes the challenge that we see is that we have plenty of inventory, but it may not always be plenty of the right inventory, and that's part of the supply chain challenge is right. The stuff that's selling well, it's tougher to get that back in stock. So that has been kind of the challenge. I think that remains somewhat of a challenge. So we feel good about our inventory levels that are on hand, but it's more a question of making sure that we've got the right inventory at the right time for our customers. So it's really around a question of assortment mix.

Yeah, and I think what we've done is we've tried to get ahead of it, and we've tried to, you know, bring stuff in earlier than we normally would bring stuff in. But, look, I hope at some point in the future the supply chains with COVID will start to normalize.

Great. That's really helpful. Thank you.

And as there are no further questions in queue, that does conclude today's conference call. Thank you for participating. You may now disconnect.