PLBY Group, Inc.

We've significantly improved our onboarding flows to support creators in earning their first dollars more quickly. We've continued to iterate on our profile design to drive more creator fan conversations and engagement, which leads to greater monetization. And we've rolled out the ability to offer bundled subscription offers, promotional discounts, and more. We've also been focused on ensuring a differentiated product experience from our competitors in the space. Playboy has a history of unprecedented ability to meet new stars, and our creator platform is no different. Creator discovery and promotion is an area we believe we can win it. Since we last spoke, we've introduced a centerfold of the day section, a new UI that enables searching by categories of creators, as well as interest tags that creators can label themselves with for further exposure. We hear from creators every day how proud they are to be on Playboy, and we're dedicated to helping them be discovered and make more money than they can make on other competitive platforms. Today, creators earn income on our platform in four key ways. Roughly 60% of creator revenue is generated via messaging, whereby fans engage with creators in ways they cannot on other platforms, and purchase content the creators send them in direct messages. Roughly 15% is generated via monthly subscriptions, and another 15% is generated via content unlocked directly on the wall of a creator's profile. And lastly, roughly 10% is generated via tips. At this stage, we split GMV 80% to the creator and 20% to Playboy. In addition to the continuous work we're doing to improve creator monetization, we also intend to soon roll out value-added features and offerings that allow us to increase our percentage of those economics. You can imagine advanced features or special access, such as the ability for a fan to show up at the top of a creator's inbox, or exclusive access to extended Playboy photo shoots, archival Playmate galleries, or one of our iconic Playboy parties all over the world as perks that would become part of a Playboy membership proposition that sits on top of individual creator monetization. We are still in the early stages of developing this membership value proposition, and its potential peers, but our goal is to ensure that as we scale our platform, we can meaningfully expand its profitability with services that have more favorable economics to Playboy. I am very encouraged by the momentum to date with our creator platform and look forward to keeping you up to speed on our progress. Next, I am pleased to report that since we last spoke in March, we successfully negotiated amendments over a number of our licensing agreements as part of our recently formed China joint venture. The goal of these renegotiations was to both support our existing licensees, whose businesses were significantly impacted by the COVID shutdowns from last year, while also establishing new, more favorable foundation agreement terms to drive a more diversified and sustainable business within our China joint venture going forward. While the revised agreements call for lower minimum guarantees, In exchange, we have removed exclusivity clauses, added stronger audit controls and visibility to sales data, taken back product categories, significantly increased our royalty or percentage of sales, and are working on transferring the ownership of the partner's e-commerce stores to the Playboy China joint venture. One thing to note is that during the first quarter, we did not book any revenue related to one of these licensees as we are in the process of negotiating a revised agreement. We have now signed an agreement with our partner and are now working on collecting those royalties. We have also made significant progress with Douyin, the TikTok of China, to establish a flagship e-commerce store that our Playboy China joint venture is expected to own. Douyin is now one of the largest e-commerce engines in China, and Playboy had previously been blocked on Douyin based on our legacy licensing model. Our JV with the fund group and a revised contract with our licensees solves this issue. Moving forward, to solve the Douyin issue, we anticipate that our licensing partners will sell through the Playboy China joint venture Douyin Store, which will help us more effectively control the Playboy brand positioning, pricing, product design, and marketing, and collect cash while our licensing partners operate manufacturing, fulfillment, and product inventory. All of this is part of our larger strategy to diversify our revenue across partners and businesses in China, while having increased visibility into direct sales and more directly controlling the consumer-facing components of the brand. Last quarter, we set forth our intention to transform our U.S. Playboy D2C business to a licensing model. We have now signed a binding term sheet with a non-affiliated partner who brings a wealth of experience and proven track record of success in developing and executing effective e-commerce strategies and brand development. This partner was instrumental in launching several of Playboy's hugely popular collaborations with streetwear brands, including Fragment, Antisocial Social Club, and Revenge. Their passion for a brand and understanding of today's customers are unparalleled. This transition is underway with the deal expected to close by June 1st, and we are excited for the next chapter of the Playboy shop and its enormous potential for innovation, including the integration with our creator platform and community experiences that only Playboy can provide. Moving forward, our partner will take over all costs and operations of our shop, and we will receive 15% of net revenue. We remain optimistic about the continued demand for the Playboy brand and unlocking its power across new categories and territories around the world. Our new sexual wellness licensees surpass $1 million in total sales since launching at our lover stores and are now rolling out to third-party retailers. We signed an amendment in Q1 to accelerate growth in LATAM, UK, and Europe. In Q1, our team closed a total of 15 new licensing agreements, of which 13 were international, across fashion collaborations as well as new men's grooming and home decor categories. Lastly, I'm happy to report on the progress we've made transitioning the business to a capital light model, reducing our operating expenses and reducing our gross debt. With the momentum we're experiencing with our creator platform and the high margin revenue we see from licensing, we have decided to fully exit serving as the operator of our consumer product businesses. This means that in addition to selling Yandy, which we previously reported, we will now be taking three additional steps. First, as we just mentioned, We recently signed a binding term sheet to license our Playboy D2C business. Second, we've engaged Sage Group to explore all strategic alternatives for lovers. And third, we've engaged Molson Company to explore all strategic alternatives for Honey Burdette. Because of this decision to fully exit the operations of D2C and retail consumer products, we've recently eliminated $3 million of personnel costs. As we continue to execute the remaining steps, We anticipate meaningful additional cost savings. We expect this decision to be net neutral to profitable to Playboy, given that the additional cost savings are expected to more than offset any loss in contribution margin from these businesses. We also expect that our free cash flow should be higher as we won't have inventory or the capex related to store maintenance and openings. Lastly, I want to share some positive news on the debt restructure and refinancing we just completed. Specifically, we were able to negotiate the assignment of approximately $91 million of our senior debt from certain of our lenders to a primary lender at 87.25 cents on the dollar, resulting in a discount of approximately $12 million. We also negotiated the exchange of our preferred stock, which is held by one of our lenders, for additional principal of our senior debt at a $7 million discount to the current liquidation value. In order to accommodate the restructuring of our senior debt and preferred stock, we amended and restated our senior debt agreement with Fortress and our other lenders. The restated facility actually lowers our total cost of capital by lowering the interest rate so that in total, our cash interest costs remain substantially the same while eliminating the accrual and payment in kind features of the preferred stock. Fortress has also made available to us the $12 million discount obtained from the other lenders as new cash on our balance sheet. In total, we will have $210 million of gross debt outstanding down from our 216 before, inclusive of the preferred stock. But we now have an additional $12 million of cash on our balance sheet, bringing total cash to an excess of $35 million. The bulk of the restated facility has no amortization payments, thus saving the company over $2 million of cash during such period and has no leverage covenants until Q1 2025. The restated facility had no fees associated with it and has no prepayment penalty. We can elect at our option to prepay it at any time. Our intention is to prepay for that facility as soon as we can. To the extent possible, we would like to use the proceeds from the asset divestitures we discussed as well as the proceeds we hope to generate from selling our art collection, a process we have recently kicked off to pay down debt. Before handing the call over to Mark, I want to conclude by saying how excited I am by the momentum of our creator platform and our singular focus on the Playboy brand. With that, I'll hand the call over to Mark.

Thank you, Ben, and hello, everyone. Since joining as CFO and COO, I've been working closely with Ben to rebuild our cost structure and fully moved the company towards a capital light model. As a part of this process, we are aggressively reducing costs not needed to support our two business lines moving forward, the creator platform and licensing. These two businesses have greater potential for growth, higher margins, and lower working capital requirements. Before I get into the financials, I want to share with you a few of the initiatives we're taking at both Lovers and Honeybird Debt. At Lovers, our store traffic is down commensurate with the industry, And in the absence of deploying significant sums of money to marketing, we are focusing on lifting our margins and diversifying our product assortment to give us the flexibility to run promotions in line with our competitors. Regarding margins, we are leaning into our Playboy Pleasures line of sex toys, a licensed product. Playboy Pleasures just crossed $1 million in sales and carries roughly 25 points higher gross margins versus our average gross margin and has only been in stores for a couple of months. We have a new Playboy Pleasures assortment landing in Q2 and are developing another special line for later this year. In the last month of the quarter, we saw an improvement in conversion and average transaction value. And starting in June, we plan to bring our promotional efforts in line with our competitors to accelerate our revenue growth. Turning to Honey Burdette, our sales were down year over year for three primary reasons. First, as we previously discussed, we did not run our March promotional event this year. Second, the particularly difficult macro environment in Australia. And third, switching our digital advertising agency, which impacted our online sales, or about half of our sales. While we can't impact the macro environment in Australia, we are planning on running our June sale one week earlier to capture Memorial Day weekend sales. In addition, we plan to ramp up our digital advertising spend in the back half of the quarter with our new agency, as they were able to get Meta to unblock our advertising. and have seen our blended ROAS return to normal. By way of background, Meta had blocked our advertising in the first quarter because they deemed it to be sexually explicit material. As a result, our blended return on advertising spending dropped from 18 times to 13 times over the year. We're also making a couple of additional changes to the business. We're going to reduce our SKU count starting in the fourth quarter of this year. It will allow us to make smaller inventory buys per collection, without sacrificing the depth of our size scale. The result should increase our inventory turnover and free up working capital without reducing the number of new collections we launch per year. We are also aggressively cutting our supply chain costs. We've found inefficiencies in all areas of our shipping and logistics. Given the strategic alternatives we're exploring, we're going to pause on opening new stores. We remain very excited about the brand's position in the market and its long-term growth potential. Turning to Q1 results, we finished the quarter with net revenues of $51.4 million. Our direct-to-consumer business was down $12.7 million, or 25%. I want to point out that revenues from our Yandy and Playboy.com businesses were down $4.9 million. However, Yandy was just sold after the end of the quarter, and we recently signed a binding LOI to LicensePlayboy.com. Accordingly, after the second quarter, we won't recognize revenue from Yandy, and will only recognize licensing income from Playboy.com, which will be reflected in our licensing segment. Revenues from the remainder of our direct-to-consumer segment were down $7.8 million. The majority of the decline was attributable to reduced traffic, both in-store and online. During the quarter, we were not as promotional and allocated fewer dollars to paid marketing in both our Lovers and Honey Burdette businesses. Furthermore, as we previously communicated, We chose to forego a sale in March at Honey Burdette as compared to a year ago. Not running the March sale at Honey Burdette alone resulted in a reduction of $2 million of sales in the quarter. From our vantage point, it is clear that economic conditions are weighing on our consumer both domestically and abroad, and sales and promotions are increasingly driving the purchase-making decision. Licensing revenue decreased by $5 million versus the prior year period. While there is no doubt weaker consumer demand experienced by our licensing partners in China and the U.S. was a challenge, the vast majority of the decline was attributable to the timing of $3 million of cash receipts from one of our largest licensees in China. We booked revenue from that licensee on a cash-collected basis. However, as Ben mentioned, we recently agreed to a revised deal with that partner and expect to collect the past due cash this quarter. Revenue in our digital subscriptions and content segment was essentially flat. The growth we are seeing from our creator platform, 2.5 times in Q1 GMV versus Q4, is offsetting the secular declines in linear television. With the gains being made by our creator platform, we should anticipate seeing this segment growing on a consolidated basis in the near future. Adjusted EBITDA was a loss of $10.8 million. However, $1.7 million of the losses were attributable to E&D, $2.6 million of the losses were attributable to Playboy.com, and $2.4 million of the losses were related to reserve against slow-moving Honey Burdette inventory. Excluding those items, adjusted EBITDA would have been a loss of $4.1 million, and if the China revenue had come in on time, adjusted EBITDA would have been close to break-even. It is also worth noting that the cost cuts we made in March are largely not reflected in our first quarter adjusted EBITDA result, which for the quarter would have been approximately $2 million. This number is only for the actual cuts made in March and not those previously identified to be made in the future. Since March, we have cut approximately $3 million of additional annualized headcount, and after a continued review of the various business lines and operating processes, we have identified additional cost savings through reprioritizing our spend on critical technology and reconfiguring our supply chain economics. Our goal is to simplify our technology stack and cut our supply chain costs while doing so with a leaner organization. We believe we can reduce our expenses by another $7 million on a run rate basis after the transition costs will occur over the next couple of quarters. I want to reiterate that the cost savings related to technology, supply chain, and inventory will take a couple of quarters to show up in our P&L. While we are not providing revenue and EBITDA guidance at this time, We plan to resume issuing guidance after we have finished implementing our operational changes and made further progress on our transition to a capital light business model. To be clear, the capital light business model to which we are transitioning has the same capacity for EBITDA generation and better revenue growth prospects, albeit with relatively small capex and working capital needs. Before I open the line for questions, I want to reiterate that given the cash on the balance sheet post-debt restructuring and the changes we are making to the business, we have more than ample liquidity moving forward. With that, I'll ask the operator to please open the line for questions.

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, if you could please limit yourself to one question and one follow-up, and then re-queue up for more questions if you have some. Our first question comes from the line of Jason Telchen with Canaccord. Please proceed with your question.

Great. Thanks for taking the question. I guess on the creator platform, Could you just maybe talk a little bit about how your revenue share compares to other platforms in the space? And if you see an opportunity to potentially give back a little more of the economics, at least as you're ramping the platform to attract more creators. Thanks.

Thanks, Jason. It's Ben Cohen. Our revenue percentage as a percentage of the GMV or the total revenue creator revenue is exactly the same as the other major platforms out there. I actually look at it differently. I don't see any need to cut that percentage at all. As we said on the last earnings call, our goal was to get to 10,000 creators by year end. We've grown from 1,500 to 2,200. And if you actually ran the math on a daily basis, just assuming averages to the end of the year, you're only talking about 35 creators a day. What we actually see is the creator sitting at the nucleus or the center of that universe. These core services that we provide today are that 20% bucket. So tipping, messaging, and subscription. We actually see a second layer of services that would be value-added services that could leverage AI or other things that would actually allow us to charge more or increase our percentage of revenue. And then on top of all of that, long-term, we see a membership opportunity, which would even be a higher percentage of revenue. I want to be clear, though, in the short term, we are focused on one thing only, which is adding more creators and adding more users.

Great, thanks. That's really helpful. And just a quick follow-up to that. Previously, when you had the Playboy.com e-commerce platform as part of the strategy, there was sort of an idea of having a flywheel effect where you would have the creators promoting some of the products How can you, in this new licensing model, still sort of leverage the creators to create exclusive collections or to promote the existing merchandise?

Yeah, so long-term, nothing has changed from that. It's a licensing model, but with a partner we've done a lot of work with in the past, as we mentioned, antisocial, social, et cetera. And so that is part of our deal moving forward with them, which is leveraging our creators to become affiliates. as well as developing select or special merchandise based on various events. So whether that be a Playboy Super Bowl party or something tied specifically to a creator or apparel that would only be available to our members, that is all part of the deal we have negotiated with that partner.

Great, thank you. Our next question comes from the line of Alex Berman with Craig Hallam.

Please proceed with your question.

Great, thanks very much for taking my question. You know, it sounds like the creator platform is scaling very nicely. You know, what are some, you mentioned other geographies that you could potentially take that to, you know, when might that start to happen and any, you know, update you can give us on that? your plans for the platform as you think about next year? I know it sounds like you're focused primarily on getting creators. When will we start to see some more significant leverage on the bottom line there?

Thanks, Alex. I'm a little bit confused on the additional geographies. The platform is open to almost every geography, obviously China not being part of that, given their restrictions on social media and technology. But we have creators from all over the world, for the most part, on the platform today. When you actually look at sort of the geographic distribution of creators, about 67% of those, 68% of those come from North America. So that is our single largest. But we have creators from almost everywhere in the world. When we think about guidance that we've given or what we said in the last earnings call, You know, we've continued to exceed our internal budgets since we last spoke. And what we talked about was the creator platform being break even to cash flow positive for the year. We did mention in the call that we've reduced our payment processing. We've added a new payment processor, which reduces our fees by about 50%. Our fixed costs aren't changing that much. And so, you know, when you look at the end of the year, And without getting into specifics, you know, what you end the year with as you get to that break-even, the cash flow positive number is obviously on a run rate basis much larger moving into next year. If you did annualize right now our weekly GMV and you assumed zero growth going forward and we're growing at north of a 10% weekly CAGR right now, that number would be in excess of $25 million, and that's up from the $15 million on our last earnings call.

Okay, that's really helpful, Ben. I must have misheard you about the international component there. Thank you very much.

Yep. Our next question comes from the line of Jim Duffy with Stifel.

Please proceed with your question.

Well, good afternoon. Hi, Ben. Hi, Mark. Mark, nice to make your acquaintance. Ben, I'm going to send this one your way. It sounds like a lot of hard work realigning the business model. You gave some great detail on what changes, what's no longer part of the go-forward strategy. Let's just take a high-level view. Can I ask you to detail what's left? Simplistically, what's the team of businesses you'll have on the field at the end of it all? What's the game you think you can win? And if you execute to the game plan, what do equity investors win? Paint us a picture of a shiny trophy.

Sure. Let me just paint you a realistic picture of what will be left. What's left is Playboy, and we're leaning into that billion-dollar brand of Playboy. And specifically, our creator platform will be our hero product. The growth we're seeing with that warrants that, and licensing providing high-margin cash flow to support that. that's what's left. And what we look at, you know, from a organization is a much simpler organization. And in fact, you know, when you look at sort of a working capital situation as well, you're almost in a negative working capital situation based on how the cash flows in that business work.

Okay.

Mark, I wanted to ask on Honey Burdette. This was, at the time of acquisition, high 30s EBITDA margin business, with an eye towards what you might be able to realize in strategic alternatives. Where are those margins now? And what do you think is realistic for margin structure for that business?

Yeah, pleasure to meet you, Jim. The margins right now, what we're seeing is they're a little bit below where they've been historically. And a lot of that has been due to the macro environment in Australia and what I've outlined. But I think going forward, we can get back to those numbers. And I don't think, you know, well, we can't control the macro environment. We can control our internal costs. And I think that's where you're going to see a lot of the upside. Because everything I talked about in terms of fast changes and supply chain and then ultimately getting into sourcing, you know, all of that's coming at the, you know, to the benefit of HoneyBurnette.

Okay. Yeah. Do I re-queue or do you have time for another?

We have time for another one from you.

Okay, great. You mentioned the new payment processor lowers fees by 50%. What are the payment processing rates? Have you been able to get that to the single digits with this new payment processor?

We have. Historically, I won't speak to ours specifically, but I would say that You know, in general, when you sometimes are dealing with not safe for work content, you're 10% to 12%, and we've been able to reduce those fees, as we said, by approximately 50%. And so when you look, you know, long-term, you know, that is a significant margin improvement long-term. And there are things that we're doing to improve that even further. you know, down the road through content moderation and bifurcating content potentially between safe for work and not safe for work.

I'll leave it at that. Thank you.

Thanks, Jim.

Our next question comes from the line of George Kelly with Roth Capital Partners. Please proceed with your question.

Hey, everybody. Thanks for taking my questions. So first one, curious if you could... Talk about your expectations, and I may have missed this in your remarks, but your expectation for Honey Bird Debt revenue this year, I think it was just over $80 million last year. Just curious what kind of growth you're planning on this year.

Yeah, I think right now, given the transition we're making, we're not giving guidance. But as I said earlier in my comments, We are seeing a pretty tough macro environment, and particularly in Australia, where it's underperforming the U.S. by about two times. So I'd leave it at that until we start giving guidance again.

Okay, okay.

And then the second question from me is, in your prepared remarks, you talked about the new Chinese deals and how they carry lower guarantees. So I was just wondering if you could quantify that at all. You've given those kind of 10-year outlooks before where you just add up all the guarantees. Is there any way you can sort of help, not over 10 years, of course, but just over the next couple of years, how much lower your guarantees are now?

Sure. So we have three major licensees historically that pretty much accounted for 100% of our China revenue. And what I would say is I don't want to get into the specifics right now, George, because we're still with one of them discussing things. But what we are focused on is diversifying that revenue stream. And so the question is, how do you do that? So we've taken back product categories. We've taken back exclusivity on product categories. We've taken over the e-commerce stores. We're in the process of transitioning those e-commerce stores We've actually increased our percentage of sales in those contracts considerably. And so all of that is to build a more diversified China business. It was all part of our plan. And that also plays into Douyin, which has taken a massive share of the China e-commerce market, where historically we have been banned or blocked on Douyin. We now are in the process of opening a flagship e-commerce store where it's our intention that our licensees will sell through us on that. And so in the future, when we're done with negotiations, we can talk about what it looks like, but we've also signed multiple new licensing deals with new partners in China. And so I just don't have the total MGs in front of us moving forward. But our intention long-term is to offset any declines with a much more diversified revenue base.

Okay, thanks. As a reminder, it is star one to ask a question. No additional questions. I'd like to hand it back to Ben Cohn for closing remarks.

Appreciate everyone taking the time and we look forward to speaking to you on our next earnings call. Thank you.

Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.