PLBY Group, Inc.

Good afternoon, everyone, and welcome to PLBY Group's second quarter 2022 earnings conference call. I'm Ashley DeSimone from ICR. Today we have with us Ben Cohn, Chief Executive Officer, Lance Barton, Chief Financial Officer, and Ashley Kector, President of Global Consumer Goods. The information discussed today is qualified in its entirety by the 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 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're made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could cause PLBY Group's actual results to differ from historical results and forecasts, including those risks set forth in PLBY Group's filings with the SEC. 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, PLBY will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release PLBY filed today in its form 8K with SEC. I will now open the call to Ben to please go ahead. Ben?

Thank you, Ashley, and good afternoon, everyone. Today's climate is very different from when we first began to transform what had been a legacy media and licensing company into a fast-growing consumer and digital business. However, the robust demand for Playboy and HoneyBudet continues to hold strong, and I am optimistic about the recent trends we are seeing on Centerfold. That said, given the uncertainty in the macro environment, We have taken a close look at the factors within our control and have taken actions to best position the business to weather the headwinds and drive long-term growth. To that end, we restructured our debt and secured liquidity. We have amended our senior secured credit agreement to give us extra headroom to invest in the growth areas of the business and have drawn down on the remaining $25 million in Series A preferred stock with Fortress. We now have approximately 70 million in cash equivalents, including crypto and restricted cash on our balance sheet. We are also conducting a strategic review of the business, streamline costs from non-core areas, while continuing to invest in growth areas, with the goal of being cash flow breakeven by the end of this year. The prioritization, along with our amended credit agreement, gives us the flexibility we need to execute on our strategy. I remain committed to our plan, which focuses on two key areas, growing and consolidating our consumer business with a focus on high margin owned and operated products, and second, building out our creator-led platform, Centerfold. My confidence in the business and commitment to our long-term plan are evidenced by the approximately $850,000 of shares I bought in Q1, in addition to the $500,000 of shares I purchased when we went public. No named executive officer has sold any shares except to cover the tax obligation related to those shares. However, the selling of shares for tax purposes has subject those executive officers to short swing profit rules. Hence, no named executive officer has bought any additional shares in Q2. At the corporate level, We have not repurchased shares given the rapidly deteriorating macroeconomic environment we witnessed just after we announced the buyback. Those headwinds have had a more significant impact on consumer spending than we expected or accounted for in our original forecast. However, we are also seeing some very encouraging bright spots in the business. Inflation is not only driving higher fulfillment and product costs, but it is also putting pressure on consumer spending. In keeping with recessionary buying trends, we are seeing a greater impact on our value-oriented consumers versus our luxury or higher-end consumers. Both Playboy and Honey Burnett cater to consumers drawn to luxury and aspirational brands, and we continue to see strong consumer demand for both brands, which are up considerably through the first six months of the year on a year-over-year basis. Playboy D2C revenue is up over 150%, And Honey Burdette is up approximately 28% on a pro forma basis. Playboy continues to see strong global consumer demand with the Gen Z customer and the strength of our strategic partnerships, which include recent premium collaborations with Yves Saint Laurent featuring Romeo Beckham, Fila, and Studs. And we are expanding our portfolio to include Playboy Lingerie, designed by the Honey Burdette team, which will launch later this year. Honey Burdette continues to deliver strong revenue growth and margins despite the macroeconomic headwinds. We conducted a soft launch with UPAY to provide Honey Burdette customers with a third-party gifting option. From the early data, we are seeing strong conversion rates and direct acquisition of new customers. Given the success of the pilot, we are incorporating the option for all customers and will be adding wishlist functionality. We are exploring using cases for our other brands as well as for Centerfold. On the retail front, our Miami store continues to be one of our top performers. We opened a new location in East London in late Q2, and more store openings are planned over the next few quarters. We will continue to expand Honey Burdett's retail footprint, diversify our product offerings, and grow brand awareness in the United States. The end-year lovers are seeing the opposite sales trends. as their cost-conscious customer is getting hit extremely hard at the gas pump and in the grocery store, leading to less spend on discretionary items. Compared to 2021, year-to-date revenue through the end of July declined $22 million between Yandy and Lubbers combined, with over $18 million of the decline coming from Yandy. Supply chain disruptions continue to pressure margins throughout the business because seasonal inventory arrived off-cycle and had to be managed through disciplined promotions. Supply chain issues also impacted our ability to have the materials needed to launch new products and to keep product stock during key seasonal windows. To manage through this, we have advanced stock key inventory, including our top sellers and seasonal items like Halloween costumes, and are introducing more owned and operated products throughout our business. Rising customer acquisition costs and last year's iOS privacy changes have significantly impacted performance marketing, particularly for Yandy. According to our external marketing partner, iOS IDFA updates led to a 50% year-over-year drop in Facebook conversion rates for fashion and apparel brands in Q2. As a result, brands have shifted budget away from Facebook and toward Google, which has driven up competition and prices for keyword spending in what has historically been one of our key customer acquisition channels. We are combating these trends by shifting spend to other social channels and have plans to leverage the Playboy name across our portfolio to elevate positioning and broaden our reach. For Yandy, this involves a full rebrand under the Playboy halo. For Lovers, we are planning on a new sexual wellness line called Playboy Pleasure and will be featuring Yandy and Playboy merchandise in our Lover stores. We view these marketing headwinds as concrete evidence as to why Centerfold is so strategically important for our long-term customer acquisition strategy on D2C. The Centerfold platform has the potential to drive organic customer acquisition and further target our product marketing. As I mentioned last quarter, there are three key elements required to make Centerfold successful, the brand, the product, and the creators. As for the brand, Playboy is one of the most recognized brands in the world, and we will be leveraging its massive reach as we integrate Centerfold within Playboy.com over time. ultimately driving all customers into one ecosystem. The Centerfold product, the platform itself, and the pace of progress to advance it have not met my expectations. When we decided to launch Centerfold, we had two options. Build the platform from the ground up, a 12-month process in the best-case scenario, assuming we had a full team in place, which we did not, or buy an existing platform to accelerate our market entry. We chose the latter. which provided speed to market and the ability to test and iterate on the product. The coding that goes into the back end to support messaging, payments, and creator records is extremely complicated. And unfortunately, our initial team, which was largely comprised of third-party offshore developers, was unable to make the needed progress on the platform. However, having a live product in market has provided us with much-needed test data to inform, prioritize, and accelerate our current product roadmap and creator strategy. Given the product issues we encountered, I quickly identified the need to upgrade our technology talent and recruited a new in-house tech team earlier this year, including product and engineering leaders from Uber, Google, Square, and Y Combinator. Since they have come on board, we've seen dramatic improvements in the stability of the platform and in new bulk features and back-end enhancements that will be rolled out later this year. From day one, the new team has been laser focused on building a seamless creator platform with intuitive UI, leveraging data from our existing business and the ongoing feedback loop with creators and fans to inform our priorities and refine the platform. The relationship and expertise from our new team have also enabled us to work with premier technology and payment providers to ensure best in class functionality, accelerate development and lower overall cost base. With Centerfold's improved technology, successful test cases, and a tailored creator strategy, we are executing on our Centerfold strategy in earnest. As the new technology improves, we work closely with our existing creators to monetize our audiences. A few weeks ago, we began onboarding new creators, and some of them are already approaching $10,000 in gross bookings in their first month, while also continuing to attract both new users and new creators onto the platform. We are encouraged by the momentum we are seeing across the creator base. For example, one of our creators who we recruited from within our Playboy ecosystem is now generating nearly $100,000 in gross bookings per month. She and her peers are also collectively bringing in millions of unique visitors, many of whom convert to registered users who then engage with and become paying fans of multiple creators on Centerfold. Our top referrer, for example, has driven over 100,000 registered users onto the platform through her personalized referral link across multiple third-party platforms, including Instagram and Reddit. What we need to do now is scale these wins. So we are leveraging what we've learned about these top performers to create repeatable processes, inform which types of creators to onboard, and arm them with the best practices to grow their subscriber base and optimize their performance on Centerfold. Before I became the CEO of PLBY Group, I was in private equity for a long time and had been through many economic cycles before. While the road ahead won't always be smooth, I'm encouraged by our momentum and confident in our people, our brand, and our long-term plan. I'll now turn the call over to Lance.

Thanks, Ben. The second quarter revenue grew 31% over the prior year quarter to $65.4 million. Our growth was driven entirely by our direct-to-consumer segment, which was up 59% year-over-year to $44.6 million. As Ben alluded, within direct-to-consumer, we have seen a real bifurcation of performance, with HoneyBredette and Playboy achieving continued growth, while Yandy and Lovers have experienced worsening trends as the year has progressed. HoneyBredette revenue was up 32% year-over-year to $22.4 million in the second quarter, and up 37% on a constant currency basis. Growth at HB was driven by a 15% increase in brick-and-mortar revenue and a 49% increase in e-commerce. Solid growth on both fronts, despite Australia being more heavily impacted by the current macroeconomic situation and relatively low brand awareness for HoneyBurnett in the U.S. Playboy e-comm revenue in the second quarter grew 90% year over year, and revenue in the month of July eclipsed Yandy for the first time ever. While the Playboy brand continues to grow, our supply chain was hit especially hard in our licensed inventory, where we are heavily reliant on our partners around the world. We've made strides to increase our owned and operated portfolio. This includes bringing design and marketing in-house and hiring key people in these two areas from Victoria's Secret, Abercrombie, American Eagle, Calvin Klein, and GapBody. The buying behavior of customers at Yandy and Lovers has been severely impacted by inflation, leading to a year-over-year decline in revenue of $8 million in the second quarter, the bulk of which was driven by Yandy. Yandy is also part of an unsustainable marketplace wholesale model with low margins and a highly saturated competitive set, which creates higher risk and exposure to supply chain challenges due to our supplier impacts. For example, Yandy was running a 50% out of stock rate during the first part of the second quarter. To mitigate this in the short term, we've made an effort to secure safety stock for our top 20 selling items, as well as our Halloween merchandise. Similar to what we're trying to do at Playboy, our long-term focus at Yandy is to grow our own and operated business, which should ultimately yield higher margins, more control, and enable a shift to profitable growth with less spend and paid media. Lovers saw significant raw material cost increases impacting product margins, and when combined with high fixed costs due to our store footprint, There is less flexibility for us to address the revenue shortfalls we have experienced due to declines in store traffic. Similar to what we experienced at Playboy and Yandy, we are highly dependent on a vendor model and their supply, which resulted in supply chain disruptions and out-of-stock items. That said, we've integrated our lovers and Yandy buying teams, driving efficiencies and enabling us to reduce headcount. In our licensing segment, Q2 revenue was flat year-over-year to $15.9 million. Given the macro climate, some of our apparel and gaming partners have experienced weaker trends as the year has progressed, resulting in a reduction of reported revenue on our end. We believe these are more category-wide headwinds and not specific to our brand, as other partners have produced better-than-expected results, which help to offset the declines. Reported revenue from our partners in China was stable. However, the severity of COVID lockdowns in the country resulted in cash payments coming in after the quarter ended. We have signed amendments with our major partners that put them on payment plans to help them during this time. Instead of being paid by our partners semi-annually, we are shifting to more frequent payment plans for the next several quarters that will result in the majority of the expected cash payments arriving this year with some amounts deferred to future periods. There is no revenue impact related to the new payment terms as the overall contractual values remain intact. All partners have made their first payments. We've already received nearly half of the amounts that were past due, and we will continue to monitor the situation closely. In light of all of the macro challenges that have impacted our business and the uncertainty that lies ahead, we are withdrawing our prior financial outlook and suspending guidance for the remainder of this year. It's clear that our rate of revenue growth does not materialize as previously expected, and we must adapt our investment strategy accordingly. As Ben mentioned, we are currently undergoing a strategic review so that we can position the company to be cash flow breakeven by the end of this year. While we remain focused on sustaining investments that we believe are most critical to executing on our long-term strategy, of growing our direct-to-consumer and digital businesses, we are also focused on rationalizing our business to improve operating efficiency. We may incur a transition cost that impacts our financial results this year as we implement these changes, but we believe the work that we are doing now will allow us to enter 2023 as a more streamlined and efficient company, well-positioned to capture the global demand we continue to see for the Playboy and HoneyBurnett brands. Although revenue is difficult for us to forecast in the current environment, we're very focused on cost levers that we can control. Embedded in our prior fiscal year 22 adjusted EBITDA outlook was an expectation that on a pro forma basis, non-product costs would increase by a little more than $30 million this year, an increase of roughly 17% year over year to over $210 million annually. Over half of that expected cost increase for this year, for more than $17 million, was expected to be driven by our investments in building out both our direct-to-consumer business and centerfold. Around $7 million of the expected cost increase is due to technology and infrastructure costs, as we work to consolidate operations, build a unified back-end across all of our direct-to-consumer businesses, and remedy our IT controls. The remaining $6 million or so is largely driven by corporate and public company costs, such as higher insurance and audit fees, along with additional resources in areas that the company has historically underinvested in, such as finance, accounting, tax, and compliance. Based on the cost reductions that we started making to the business last quarter when we took out approximately $5 million of annualized overhead, Our current run rate on non-product costs is just under $200 million annually. As part of our ongoing strategic review, we are closely scrutinizing our investment plans for the remainder of the year, determining potential tradeoffs and reducing costs where we can, such as eliminating planned hiring, reducing marketing spend, delaying planned product or store launches, and reducing headcount. We intend to be responsive to what we are seeing in the marketplace and to control our costs tightly so that we can manage our liquidity and balance sheet accordingly. One example of this is our near-term store expansion plans for Honey Burdette. Although the business continues to grow nicely, we are taking a more disciplined and cautious approach to store openings this year. We have already opened stores in Miami and Stratford, UK and assigned leases for Short Hills, New Jersey and International Plaza in Tampa. but we have decisions to make on the remaining store openings that were planned for this year. Our existing U.S. stores have performed quite well, averaging a million dollars in annualized revenue per store with 30% four-wall EBITDA margins, which makes for a compelling argument to push forward with our previously communicated plans.

However,

We want to be mindful about taking on fixed long-term liabilities in the current environment until we better understand how long these conditions may persist and any potential impact on the Honey Burnett consumer. We also must consider the near-term cash impact as each new store costs around $700,000 to build out, so we'll have a roughly two-year payback period on any initial cash outlay. While we believe we have ample liquidity to open more HoneyBirdette stores this year, we want to ensure we have enough cushion to withstand any potential disruptions to our expected cash receipts. Although the business has been presented with many obstacles this year, Ben, Ashley, myself, and the rest of the management team firmly believe in the long-term potential for value creation that exists. We'll make near-term cost adjustments that are needed to be responsive to what we are seeing on the revenue side, but we plan to stay the course and invest prudently in executing on our strategy. With that, I'd like to ask the operator to please open the line for questions.

Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. And our first question will come from Alex Furman of Craig Halem. Your line is open.

in interpreting your comments here that, you know, the bulk of the slowdown here and the need to send guidance is related to Yandy and Lover. It sounds like Honey Burdette and the Playboy brand, at least in terms of your direct-to-consumer sales on the Playboy brand, remain strong. I don't know if that's, you know, maybe they've slowed down as well but just still continue to grow nicely or, you know, have those brands you know, not seeing the same sequential deterioration that you've seen at Yandy and Lubbers.

Thanks, Alex. Yeah, look, I think that's right. I think when you look out for the rest of the year, coming into this year, sorry?

Sorry, I thought you said something.

Looking out to the rest of the year, you know, Halloween is a big period of revenue for Yandy. And if you were to assume Yandy were flat to last year, and if you realize that we had left around $3 million of revenue on the table last year at Yandy when we had to shut down the warehouse over Halloween, we think we've remedied those problems. If you take that as kind of the high watermark for revenue in the fourth quarter, and then you actually look at the current trends that we've seen in the business year-to-date, you're looking at kind of a $15 million to $18 million potential swing between current trends and kind of what we would achieve if we were flat to last year, plus kind of that $3 million. That's obviously a lot of uncertainty for one business and one quarter alone. I think the other thing that we have to factor in is what do we decide to do around Honey Bird at store openings? It doesn't have a huge impact on revenue for the remainder of the year because these store openings would be planned to be opening later on, but it could certainly have an impact for us. Same thing on the marketing side. If we choose to pull back marketing in light of kind of the decreased efficiency, the higher cost of customer acquisition, that in turn would have an impact on revenue. Same thing on the licensing side, it's kind of, it's predictable, but if, as we saw in the second quarter, if our partners start to experience worsening trends and then they come to us and say, hey, our forecast for the rest of the year is lower than we said it was in Q2, we're going to have to take down revenue even further. So I think there's just a lot of uncertainty out there that we don't feel comfortable trying to put out a number that in a way could vary quite widely.

Yeah, no, that makes a lot of sense, Lance. Thank you. And then that, you know, the decision to pull back on the Honey Burdette store openings, is that just, you know, part of that uncertainty you mentioned and, and, you know, fear that, you know, maybe that brand could start to, you know, see, see the consumer under pressure, or is that just, you know, if you look at your expenses, is that just, you know, the most obvious, easiest place to pull back on, on spending this year?

Look, it would be a tough decision to make, right, because these stores are performing so well here in the U.S., right? I mentioned that the average store here in the U.S., you know, pulls in a million dollars annually, and they're 30% four-wall EBITDA margins. So, when you look at that, it's obviously – you know, in our best interest to go ahead and open more stores. But having said that, in the current environment where we've not seen any impact on the higher-end luxury consumer that frequents Honey Burdette, you know, it's hard to know what's going to happen. And we think it's prudent when you're entering into these long-term fixed liabilities to take a pause, see how things unfold, um and and you know quite frankly we may be able to get better deals on some of these leases down the road so um you know we're going to evaluate each one kind of individually and decide what we want to do um we've got the flexibility i think to open more but we do want to take a more prudent approach so there's nothing that we've seen that indicates a slowdown at honey for debt um but at the same time a lot of things are changing quite rapidly in the environment, and we just want to be mindful of that. And we want to, you know, watch for the impact of inflation on the luxury market. We've seen it hit kind of the everyday consumer at Yandian Lovers, and, you know, it could end up hitting the luxury market next. Sure, if that makes sense. Thank you, Ed.

And our next question will come from George Kelly of Roth.

So just to start with the licensing business, seems to hold in there fairly well in the quarter. I mean, I think it grew kind of low single-digit percentage. Just curious, has that changed subsequent to the quarter, or is that business continuing to perform and grow year over year?

So I'll talk a little bit about the financials, and maybe Ashley and Ben can just talk about some of the trends that we're seeing more broadly with kind of business development and our partnerships there. But, yeah, it was flat year over year. There were a few drivers behind it. In China in particular, there was no impact on revenue, as I mentioned. All of those contracts remain kind of the same amounts over the duration of the term, so we're able to book the same amount of revenue. what we saw was some of our apparel partners and some of our gaming partners outside of China, so more domestically and also in Europe, came out in the second quarter and basically had brought down their guidance for the full year. So in turn, we have to reduce the amount of overages that we end up booking. So you had that kind of dragging down the revenue that you recognize for licensing in the second quarter. On the flip side, we had a number of partners that actually surprised us to the upside that actually had performed better than we expected and delivered overages. So it's a little bit of a mix. Obviously, I think it's, you know, from our perspective, it's really the macro environment. It's hit some of our partners harder than others. But in general, I would say over the longer term, our view has been that this should be kind of a, a single-digit grower if you didn't have that reduction that our partners had in the second quarter. Again, they brought down full-year numbers, so that had kind of an outsized impact on the second quarter. But if you didn't have that reduction in forecast, you still would have grown this business probably 5%, 6%, something like that. So that's kind of what we're seeing there. Ben, Ashley, anything to add just kind of on the collaborations that we're doing?

Yeah, George, it's Ben. Look, I think the Playboy brand, both with partners and with consumers, remains extremely strong. This is really more of a macroeconomic environment outside of it that's affecting almost every other retailer today. And so I'm not worried about the Playboy brand. The engagement amongst our fans is huge. It continues to grow. The interest from partners continues to grow. But again, what we can't predict internally is is what the people in Washington do. They must have taken different economic classes than I took by putting more fuel to the fire, regardless of what their models tell them. And what the impact is on inflation and consumer spend long term is real. And so that's the challenge in front of us, like any other consumer product company for the balance of the year. It's not the demand from both consumers and partners.

Okay, that's helpful. So just to put that, what I'm hearing is, You know, there's impacts, but there hasn't been some kind of recent dramatic fall-off in your licensing business.

No, that's absolutely correct. We've been very stable in the licensing business. It was, like I said, some puts and takes. You had some people pulling back their forecast, so you had to pull back some of the revenue that you had already recognized. That's just the way these licensing contracts work in terms of how we have to account for them. because you're accounting for it based on a full year forecast that they give you at the beginning of the year. If they update that throughout the year and come in lower than they expected, then you've got to adjust that accordingly and you've got to adjust that radically. So that hit us in the second quarter. But like I said, there were other licensees that came in and offset some of those losses. So net-net, we were flat year on year. Like I said, our view is longer term. This should be kind of a single-digit grower. You know, the other thing is, we've already signed probably twice as many new deals this year compared to what we signed last year. So certainly the interest level and kind of the volume of new deals remains quite strong.

Okay, great. And then just one other question for me. Lance, I was hoping you could go back through the cost discussion that you had in your prepared remarks. And I guess what I'm trying to understand is You know, I look at SG&A. I think you were also talking about some of what's in COGS. But I guess the direct question is just should SG&A, I mean, is there room for SG&A to decline from where it was in 2Q? Or what are your expectations around SG&A for the remainder of the year?

Yeah, the way I was trying to frame it was non-product cost, right? So product cost, I mean, if you look at kind of our model, our prior guide, the $350 million of revenue and $55 million of EBITDA, you'd get to about a 25% cost of product. That's obviously going to – that's 25%. It's going to be whatever your revenue is. So that number kind of varies. But the non-product costs, I mean, it obviously has variable costs in there, such as marketing and the like and shipping costs. But it has a lot of fixed costs in there. It has a store cost. It has employee headcount costs, tech infrastructure costs. And so what I was saying is going into the year, the assumption on that, call it non-product costs, was going to be north of $210 million. So it was going to be about 17% year-on-year growth if you had included kind of the full-year impact of Honey for Debt and Lovers last year. And what I said is we've already made some cuts to the business. Our run rate is below that. It's actually around $200 million. And the work that we're doing right now is figuring out how much further we want to take that down. So, yes, to your point, we believe there are more costs that we can reduce out of that $200 million. Again, we want to be able to sustain longer-term growth investments here. We want to be really mindful of kind of the long-term potential for value creation. But at the same time, we've got to make sure that we're operating as efficiently as possible and A lot of the work that we've been doing this year has been related to putting in place the controls, putting in place the infrastructure and processes to allow us to be more efficient and to emerge this year as a more efficient company. So what I am most interested in when I think about rolling ahead into 2023 and beyond, you're kind of putting in place that cost infrastructure this year. It really shouldn't significantly grow beyond whatever headcount you really need to support the continued growth of direct-to-consumer or centerfold in future years. Your tech and infrastructure costs that you're putting in this year, call it $7 million, whether the business does $300 million or $600 million of revenue, that tech cost is going to be largely $7 million. Maybe it goes up by a million dollars if you were to double your revenue, but it's largely a set cost. So, yeah, I think there is a lot of room for operating leverage in this model. What we've got to do is figure out how to pull back where we can and be more efficient where we can and continue to support growth in the areas that we think make sense.

Understood. Thanks. I'll have back in the queue.

Yeah, George, I'll just add, you know, I spent 20 plus years in private equity. We've done this before. I've done this before. And, you know, the biggest thing for us is making sure that we preserve the high growth areas that we see in the future, but we will not leave any stone unturned. We will take every cost out of the company that we can take out in order to preserve max in the future, but we will not leave any stone unturned. We will take every cost out of the company that we can take out in order to preserve maximum liquidity for the company. And that's the process that we're doing. We know there's more to be done, and we will do that because that's in the best interest of everyone.

And our next question will come from Jason Tilchen of Canaccord Genuity. Your line's open.

Yeah, thanks for taking the question. Just going back to the rebrand of the AND, I'm curious. Is that planned for ahead of the holiday season or is that going to be sort of later in the year? And then just sort of at a higher level, the decision to do a full rebrand there versus sort of just launching a Playboy brand at Lovers. Curious what went into that decision. And then just to follow up to that is on the Honey Burdette design line, is that going to be planned for just Yandy, for just the Playboy.com brand, for both? And how do you view positioning that brand with the different price points of your DTC offering? Thanks.

Hi, this is Ashley. I'll jump in on the Yandy rebrand and the other areas. So just speaking to the rebrand first, the Yandy rebrand will start to hit the consumer in fall, so right leading up to the Halloween season. You'll start to see the new imagery come through with the new product that we have coming through. One thing that is important to understand is we're doing this more as a rolling change because we still have old product and imagery we need to work our way through and so it's not going to be a lights up but more of a rollout through the Halloween season but in advance of peak Halloween all the way through the back half of the year and then we will continue to right size the inventory where we have kind of older product or older imagery and then with that we'll be leveraging the Playboy brand and haloing that into the Yandy business so we'll have a more curated and cross kind of cross-pollinated selling experience where you'll be able to buy Halloween as an example on both Yandy and Playboy, leveraging the bunny suit and some of the unique areas that Yandy brings to the table for the Halloween costumes. From an other brand standpoint, so Lovers, we are starting with the Playboy Pleasure as our intro into a Playboy sexual wellness line. That will launch at the end of this year, and we'll be leveraging the Lover's Store, not only for Playboy apparel, but also for product in that sexual wellness space. And we will continue to elevate the brand across the board, so meaning we will have Playboy Pleasure look and feel like the Playboy brand, and we will start to elevate our Lover's Store experience and our Lover's Online experience in line with that, so we can... ensure that we're gaining the most out of that line. And then for Honey Burdette, you know, on the Honey Burdette side, we're going to continue to diversify the product offer and continue to go after that elevated luxury customer, keeping that, you know, more uniquely HB focused. We leveraged the design team and the resources from the Honey Burdette team to help bring Playboy lingerie to market and That line is in the mid-price point, so we're not going after the luxury customer. We're going after that mid-tier price point that will really speak to a little bit more of like, you know, from a competitive standpoint, maybe that Victoria's Secret pink or Aerie or the lingerie that sits to that Gen Z consumer where we're seeing such high synergy with the Gen Z customer coming to Playboy today.

Great. Thanks, Ashley. And then just on the cost savings that were identified in Q2, the $5 million I think that Lance mentioned, is that more from the synergies as the integration work on these different DTC businesses takes place, or was there some other area that was identified as sort of low-hanging fruit to cut those costs?

Yeah, it's the former. We had talked about it a little bit, I think, because it happened right before our last call. But it was largely headcount related at that point in time. You know, a lot of what we're doing right now is, as we put in place these processes and systems, we're able to be more efficient about how we staff these things. So that was largely what we had done. I think it was back in May.

Great. Thank you.

And our next question will come from Jim Duffy of Stiefel. Your line is open. Again, your line is open.

I'm assuming you said Jim Duffy?

Yes, that's correct.

Okay, I'm sorry I didn't hear that. Good afternoon, everyone. Thanks for taking my questions. First, I wanted to ask some clarification around your comment on centerfold. Ben, you were clear centerfold not meeting your expectations for progress. But you also gave some metrics which suggested some decent traction. You'd previously been speaking to an expectation for notable revenue contribution from Centerfold in the second half of the year. Is that still the expectation?

Hey, Jim. Thanks for the question. You know, Centerfold did not meet my expectations. We definitely had an issue on the personnel side. And as CEO, I pivoted quickly and recruited a new team. You know, what I would say is we were very lucky. to get a team that came out of Uber and YouTube and Y Combinator, Square, et cetera. Trying to attract top tech talent to a non-product company historically is not the easiest thing, and obviously it took us longer to do that than we were expecting. What I'm encouraged about on Centerfold, and we have a lot of improvements coming this fall, is the revenue that we are seeing with our top creators and then also the new creators that we started to onboard recently. So we had stopped onboarding creators because of the tech challenges that we had. I see, okay. I didn't want to burn through that. But what we are seeing is that creators can monetize themselves on the platform. And so now it's a question of, as we've gathered this data, it's signing more of those creators. We have a robust wait list. And it's onboarding those creators for scale. The good news is that the product is now working. We have fixed the backend issues on it. There'll be a lot more enhancements coming over the next few months that will make it even better. And then it's a question about just scaling the creator side of it, but our top creators are making almost a hundred thousand dollars a month. Now, the new creators that we've been onboarding are about 10,000. And what we're seeing from a cohort analysis is those creators are growing on a weekly basis. And so now it's just a question of scale.

Understood. Thank you for that. Then let's add a few questions for you on the balance sheet. I just saw the K dropped. Can you comment on the receivables, which look elevated, and also give us some color on the composition of your inventory balances?

Yeah, on the receivables, as I mentioned, we had some payables or some receivables that had been due It was by the end of June. Those ended up coming in since June 30th, so that's a big driver of that. On the inventory balances, sorry, what was the question specifically on that?

The quality and composition of your inventory, do you have any issues where you're concerned about having to discount the merchandise to clear it? Is there an in-transit component of that that's elevating the balances, anything to help us just get our arms around the quality of that inventory, which we're seeing on the books? Because it looks elevated relative to where it's been.

Hi, this is Ashley. I'm jumping in again. I'll speak to the inventory. So overall, I feel confident with where our inventory is positioned. A couple of strategies that we intentionally went after, which did inflate our inventory earlier than usual were related to Halloween and top 20 performing styles was to early receipts. Heading into the Halloween season for Playboy and Yandy in particular poses risk with the supply chain as disruptive as it's been. And so we made a decision to early receipt inventory in order to have it there for peak selling season. So that's a component of why our inventory coming out of the quarter was more inflated than usual. but it will serve us well in the late Q3 period and heading into October. The second area is we have seen significant growth and are continuing to see significant growth out of Honey Burdette. And so that business is an area we're fueling with inventory to drive that and have also prepared for new store openings. And so as you start to come out of the year, you'll see the inventory align, but it's intentional so we can set these new stores up properly. Of course, there's areas where we are managing our inventory and leveraging discipline promotional management and pricing actions to right size, but we feel confident that we've got the right strategies in place to address where we're slightly heavy and that bringing in inventory early was the right decision to set us up for Q3 success and Q4.

Thanks for that, Ashley. And then my last question, it sounds like you're exploring a number of different avenues to shore up liquidity. Have you considered monetizing some of the assets that aren't necessarily delivering a return for shareholders, such as the art portfolio or even the big bunny jet to improve the liquidity situation?

So, as we said in the remarks, we've amended our credit facility to create headroom. We have about $70 million of cash and cash equivalents on the balance sheet as of today. What I would say is there are no sacred cows. We will do whatever we need to do to create the maximum liquidity for the business and invest in areas of growth to continue to maintain our long-term plan. And so if that's selling the art or selling the plane or anything in between, we will do anything in the best interest of our shareholders.

Thank you.

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