Thank you for standing by and welcome to second quarter 2021 conference call for PLBY Group, Inc. The information discussed today is qualified in its entirety by the form of 8-K that has been filed today by PLBY Group Inc., which may be accessed on the SEC website and PLBY Group's website. Today's call is also being webcast and a replay will be posted to PLBY's website. Please note that statements made during this call, including final financial projections or other statements that are not historical in nature, may constitute forward-looking statements. Such statements are made on the basis of PLBY's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks which could cause PLBY's actual results to differ from its historical results and forecast, including those risks set forth in PLBY's filings with the SEC, and you should refer to and carefully consider those for more information. These cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. Hosting today's call are Ben Kohn, Chief Executive Officer; Rachel Webber, Chief Brand Officer; and Lance Barton, Chief Financial Officer. I will now open the call to Ben Kohn. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to our 2021 second quarter earnings call. I'm excited to walk you through our recent results as well as to share an update on the significant operational progress we've made, executing against our growth strategy. Before I dive in, I want to share the news that Suying Liu has stepped down from our Board. I want to thank him for his service and his many contributions. I also want to note that with Suying's departure, we have an even greater opportunity to increase the diversity of our Board, a process we kicked off a number of months back. Our ambition is to live up to Playboy's remarkable legacy fighting for gender equality. With the workforce today that is nearly 75% female even before including Honey Birdette's incredible female-led team and a customer base with significant female representation, we firmly believe our Board should have significant female representation as well. Okay. On to the results. The second quarter of 2021 was our first full quarter as a public company and I'm pleased to report very strong results across all areas of our business. We have been hard at work building and expanding a unified digital commerce platform, optimizing our licensing partnerships, exploiting the natural synergies between and across our Playboy, Yandy and Lovers operations, and reinvesting in our brand and infrastructure to bring to market fiscal and digital products and experiences that today's consumers are most excited about. Our growth strategy is threefold. First and foremost, we are focused on expanding our U.S. direct-to-consumer commerce business to capture $1.00 of consumer spend versus the $0.05 to $0.06 that has historically been captured through previous licensing arrangements. Second, we are working to optimize our licensing business in key international territories and categories. And third,…

Thanks, Ben, and hi, everyone. I'm excited to share an update today on the progress we've made on our highest priority new growth initiatives, first, on NFTs and digital experiences; and second, on Playboy's new label and category plans. We couldn't be more excited by the opportunities we see ahead for the Playboy brand and business in the world of blockchain technology and the digital creator economy. As our physical and digital worlds increasingly converge, we believe the meaningful differentiators in our business today, the badge value of the Playboy brand, our access to a coveted talent network and our ever-expanding library of content will be increasingly valuable. Q2 marked our foray into the NFT space with our first drop on Nifty Gateway, a collaboration with the artist Slimesunday that sold out in minutes and generated almost $1 million in primary sales in 24 hours. In June, we partnered with Nifty again to release a collaboration with artist Shantell Martin, a series of augmented reality interpretations of David Bowie's 1976 Playboy interview in support of Pride month. Our first 2 drops demonstrated the immense power and infinite possibilities of our prices archive and we also learned a tremendous amount on what works and what still needs big improvement in blockchain-based consumer experiences. Overall, we've been thrilled by the enthusiastic community and collector response. This past month, we participated alongside major auction houses, art galleries and marketplaces, in the central and second annual virtual art fair with our Miami Beach art collection. Our collection was minted for sale on the art marketplace SuperRare and most notably contains our first heritage print NFT, a digitized version of a photograph of a playboy bunny, pictured water skiing outside of the Miami club in 1970. We're very encouraged by the reaction to the archival…

Thanks, Rachel. Q2 was another great quarter that demonstrates the growth potential of this company. I'm not going to waste time reporting all the numbers that are disclosed in our 8-K, but I do want to hit on some of the highlights and provide additional context on the investments that we're making. Total revenue growth accelerated in the second quarter to 44% year-over-year, a nice step-up from the 34% growth we achieved in Q1. We saw strength in both direct-to-consumer, where revenue grew 88% year-over-year to $28 million, and licensing, where revenue grew 12% year-over-year to $15.4 million. On the direct-to-consumer side, we've made tremendous progress transforming playboy.com into an e-commerce destination. Our Hero website achieved 130% sequential revenue growth compared to the first quarter, driven by traffic growth along with improvements in both conversion and average order value. We expect to continue driving conversion and AOV higher as we begin to integrate Honey Birdette products exclusive to playboy.com, coupled with the upcoming launch of Big Bunny in our own private label Playboy lingerie. On the licensing side, the demand for Playboy branded streetwear remains evident as PacSun once again delivered significant revenue growth of nearly 300% on a year-over-year basis. Although licensing revenue managed to grow 12% year-over-year, ongoing COVID-related closures and impact has led to a 75% year-to-date decrease in revenue from our 3 largest gaming partners compared to what we would expect to see under normal circumstances. We expect that our licensing revenue on the gaming side will ultimately recover once conditions improve, leading to improved growth prospects for our licensing segment. As Ben mentioned, we are investing behind the traction we continue to see as we build our direct-to-consumer business with the expectation that these near-term investments will accelerate our long-term growth trajectory. These investments fall…

[Operator Instructions] Your first question is from the line of Austin Moldow of Canaccord.

I have 2 on cross-selling. First, can you talk a little about specific cross-selling successes you've had thus far? And second, can you talk about how the 3 different entities will fit together, Yandy, Playboy and Honey Birdette, and how they'll each be positioned in the market given there will likely be some product overlap like in lingerie?

Let me address the second question first on how the brands fit together. Honey Birdette is a fast-growing 40% plus luxury lingerie brand that has unbelievable design and sourcing capabilities. As Rachel mentioned in her prepared remarks, Playboy really goes high-low. And so we have products, whether it's for the mass niche, the prestige or the luxury segment. The lingerie that we're designing with Honey Birdette that we expect to launch next year is really geared towards the mass niche market where given the highly fragmented nature of the lingerie business today, really the position that Victoria's Secret has abandoned, we think there's a huge opportunity for Playboy Honey Birdette moving forward. On the Yandy and Lovers side, we are now integrating those 2 companies as one and we're thinking strategically long-term about how to position, really leveraging for growth, the Playboy rabbit head and mast head and how that works in there from a private label perspective moving forward. On the cross-selling, we talked a little bit about the Yandy and Playboy lingerie and swimwear collections where we generated about $500,000 of revenue on the first drop. We see a similar success on others. And really moving forward, you'll see as we come towards the end of this year we'll be cross-selling as -- in anticipation of launching Playboy lingerie next year as a full-time business, you'll start seeing us sell Honey Birdette products at playboy.com in the fourth quarter of this year. Rachel, Lance, anything else you want to add?

The only other thing I would add is that there's obviously the cross-selling that the consumer sees and then there's the shared infrastructure behind the scenes too. So for example, for the Playboy Yandy Midsummer Night Dream's collection, we now have shared marketing efforts. So we have -- we create a campaign together. We create an influencer strategy together. We produce one set of content that goes out across all of our channels. And so we gain efficiencies that way and we have one unified message as well to the consumer.

Yes. I think also it’s a really good point Rachel makes, which is part of the investments we’re making right now are that we can run this as one big company. And so on the digital side, with the hiring of Kevin, we are now building an e-commerce business all under Kevin, whether independent of the brand. And so these investments to re-platform, everything is on the same technology stack, will benefit us long term. And so it’s working in our mind to make those investments today to realize the synergies down the road.

Your next question is from Alex Fuhrman of Craig-Hallum Capital.

Congratulations on closing on the Honey Birdette acquisition. I wanted to ask about your strategy for that brand and how you're going to be managing it. That brand, obviously, has grown very quickly over the last 2 years and it's also been tremendously profitable with very strong double-digit EBITDA margins. How should we be thinking about how that brand is going to be contributing to your results over the next couple of years? Is it likely to remain as profitable as it's been or are you considering perhaps sacrificing some profitability in order to really accelerate the growth strategy there in Europe and the United States?

Yes. Let me start with the strategy, Alex, and then I'll turn it over to Lance. Look, we're thrilled by Honey Birdette. This is a brand that really resonates with all audiences. This is a company that's growing 40% year-over-year and I believe we can accelerate that growth going forward. When I look at the prospects and what's happening in the U.S. e-com market and opportunities in international markets in Europe, even going into Russia and other places around the world, I think this is a brand, as I previously stated, that -- long-term could be $1 billion revenue business. More importantly, from a strategic perspective, lingerie is a very technical product. And actually, when you look at the product roadmap that is coming out for Honey Birdette, it's staggering with everyday essentials, with swimwear that they just launched in Miami. We've actually started now that we've closed to integrate that centralized design function and that's what's really leading to the -- expediting the launch of the Playboy lingerie as a full-time business moving forward with a much better product than we have at Yandy today, is really that speaks to the design and sourcing capabilities that HB has. And so moving forward, I'm very confident in the growth of HB, but I'm really excited by the look books and what we're seeing coming forward for Playboy lingerie. And you have to remember, HB is a company that's been around for a little while in Australia. They've only been in the U.S. and in other places more recently. And so there's a ton of designs to leverage, et cetera. They have never made it to the United States that we can draw inspiration from, that can come to market much quicker. And so I believe, as I said, with the hole that's been sort of left in the marketplace by Victoria's Secret and sort of they've lost their -- they're lost in the market, I'm really excited by what Playboy lingerie can do on a global basis. And then you couple that with loungewear and somewhere and a whole host of things, I think it's going to be a huge growth driver for us going forward.

And on the margin side, a few ways to think through this. I mean, first of all, as a stand-alone business, right, Honey Birdette was putting up incredibly impressive margins well north of 35% EBITDA margins. And a big part of that, remember, is the fact that over 80% of their traffic is organic. This is such a brand that engenders so much loyalty from their consumers, but they really don’t have to spend that much on marketing like a lot of other brands do. So I think that will continue to be the case for them on a stand-alone basis. The other thing is you continue to scale this business and what they’ve managed to do incredibly well over the years is launch new retail brick-and-mortar stores effectively a – I’ll call it a profitable billboard for driving growth on the e-com side. You’ve seen tremendous e-com growth from the business over the last few years. And what they see is every time they open a new store in a region, that really drives – the halo effect really drives e-com growth. And the cost of opening these stores isn’t that significant. It’s in the hundreds of thousands of dollars, and they are able to pay that back in a matter of 18 to 24 months, and even within the first year, target 30-plus percent 4-wall EBITDA margin. So from a stand-alone perspective, we think this business can continue to be quite profitable. We’ve mentioned the investments we’re making across the company in technology and warehousing and marketing and all of these things to really integrate our platforms. And so when we think through really the synergies that we can drive in all of these areas, we think that will actually drive some cost synergies and actually help make their business even more efficient. We also see combined buying power by integrating across all of our brands and platforms, which could boost margin value as well. So on a stand-alone basis, we think they can continue to drive that margin. We think that there’s actual real upside in terms of cost synergies that we can achieve really by kind of making these tech investments now across all of our platforms. And so we’re really optimistic about the ability to continue driving cash flow and profitable growth for the business.

Your next question is from Jim Duffy of Stifel.

Guys, can you give us some perspective on how Yandy and Lovers performed during the quarter versus the prior year? Specifically, I'm interested in performance in aggregate, but also store performance versus e-commerce performance, just how the channel mix shifted.

Sure. So starting off with Yandi. Yandy, obviously, a year ago in the second quarter had seen a tremendous unlock in terms of growth as things shut down and buying shifted online. So it had a huge quarter a year ago. That growth has really continued for the business. It's come off the highs that they saw a year ago, but we've actually seen the business when you look at it compared back to 2019, we've really been able to sustain a lot of that COVID pop. So Yandy continues to perform quite well. As we mentioned a lot of the collaborations that we're doing through Playboy and Yandy collaborations, we're also seeing improvements there which has been nice. From a Lovers' perspective, again the stores had been shut down a year ago. So Lovers has actually seen a nice bump year-over-year because of the stores being able to be reopened and we've seen a huge lift there. And their e-com business right now is quite small at Lovers. And I think we mentioned too Lovers having one of the best conversion quarters that they've seen to date. So those businesses continue to perform quite well for us. We think that kind of through this integration that we're working through that can drive further efficiencies for those businesses going forward.

Jim, it's Ben Kohn. The only thing I'll add to what Lance said is the COVID impacts are still impacting especially Yandy where we've been -- continue to be out of stock on a number of our top-selling items. That even extended to Playboy, as we mentioned in our prepared remarks as well. On playboy.com for our summer collection, we only got about 50% of the sales that we had ordered in and it's just because of what's happening with the COVID issues around the world and especially on the shipping and the port system. But very encouraged long term that they've been able to maintain that COVID growth. And when supply chains normalize and the work that we're doing strategically on brand and how to leverage this mass awareness that we have with Playboy, very encouraged by that as really as we -- the previous question, I think Austin asked about how you segment. Yandy and Lovers is really our mass product at the end of the day where Playboy can play a little bit more into the prestige market masses niche, if you want to call it that, and then obviously HB as a luxury.

The supply chain impact is evident to sitting like the web page. Out of stocks are prevalent I think certainly more so than you probably planned. I want to talk about the $600 million revenue objective. Thanks for that. I want to think about it in the context of capital structure. Can you give us a sense for how this splits between organic growth and acquisitions? And then I'm curious, threshold for pro forma net leverage, do you have a high bond that you won't cross?

Sure. So on the $600 million, as I mentioned, we view that really as organic growth. So a lot of different ways you could get there, but rough math, if you think through the strategy that we've really laid out for all of you, which is driving the growth through our direct-to-consumer revenue and then continuing to optimize and grow the licensing business, if you're able to grow licensing in the high single-digits and then grow the direct-to-consumer business north of 20% over the next 4 to 5 years, you get there. And we think that that's quite achievable given that we've been growing well north of that and for all of the reasons we've talked about in terms of our ability to bring more of this in-house and drive our direct-to-consumer revenue, not to mention all of the growth that we see potential on the Honey Birdette side. Now obviously the mix of that could change if we decide to bring more licensing to own and operate. You may grow direct-to-consumer faster and licensing slower. Those decisions will evolve over time, but certainly something that we think makes sense. I'd also say, another way to put it into perspective, talking about $3 billion of consumer spend against our brand and Playboy branded products globally, if you believe that you can get to 5% to 10% of penetration of that through direct-to-consumer sales that we do, I don't think that would have much of a dent on our ability to generate licensing revenue and could generate anywhere from $150 million to $300 million of that increase over the next few years. So yes, that's all through organic growth. Like I said, we would look to accelerate that by deploying our capital, whether that's through more accretive M&A like we've been doing or whether we invest more heavily in some of these emerging projects as we see fit to the extent that our digital offerings start to get traction and this NFT strategy really starts to evolve. That could be an area of investment and that could be a nice area of upside for us as well, but we'll have to see what we learn and how this evolves over time. In terms of leverage, look I'd say we're at a comfortable level of leverage right now, pro forma for the Honey Birdette deal once we had on this incremental $70 million that we'll be doing this week. I wouldn't want to take leverage really higher than that necessarily. I think we can delever as we generate cash and grow our EBITDA over time. Our preference, I think over time would be to continue delevering and get that down even further. So I think we're in a very comfortable level. It gives us a lot of flexibility on the balance sheet to do what we need to do going forward, especially as it relates to M&A.

Jim, the one thing I’ll also add, just for Lance’s comments on the organic side, is again there’s a huge opportunity down the road that we’ve talked about previously, taking back other licensing businesses or other licensees out there. And again, what Lance was talking about in the $600 million is the organic growth and still growing licensing. Obviously, given the $3-plus billion of consumer spend, the $600 million could be a very different number to the upside and to the extent we decide to take back other categories ourselves.

Your next question is from George Kelly of ROTH Capital Partner.

Just a couple for you. So first, the $15 million of incremental investment I think that you're going to layer in over the next few quarters, so a couple of questions around that. Has it -- have you already started to take -- like do 2Q results show some of that? Are you already sort of on that path? What is the progression? And then I guess the bigger question is, when that's all complete, and I know there's a bunch of different sort of channels that make up your DTC business, but when this $15 million is through, how do you -- how should we think about incremental margin on the other end of that?

Sure. So it was starting to hit in the second quarter, but certainly not all of it and I'll give a little bit more context on that. So the first quarter, right, we weren't public the entire quarter. So from an insurance perspective, those costs weren't fully baked in the first quarter. They're now fully baked in the second quarter and those costs will be the same, and they'll be ongoing. And look there, when you think about it compared to when we were a private company, about $4 million more than we were back when we were private. The other costs that you didn't have in the first quarter, that you started to have in the second quarter were some of the product development costs and some of the initial Big Bunny costs that we were starting to layer in. So those costs started to hit in the second quarter, will ramp up a bit more in the third and fourth quarter. Some of this other brand development stuff that we've done as well, that has started to hit in the second quarter, but increases a bit as you get into the third and fourth quarter. Also around a lot of the tech and infrastructure investments that we're talking about, we haven't rolled in as much of that yet. I mean, we started our ERP implementation. We've started to implement some of these costs. But when you think about the licensing and ongoing subscription costs that we'll have, those will come more clearly in the view as you hit kind of the fourth quarter and then perhaps end of the first quarter as well next year. So it's going to continue to build over time, but wanted to kind of bucket this as a way to think through the…

Okay. And then last question from me, different topic, playboy.com. I know there's a lot of other things in the DTC business as well. But do you ever plan on disclosing more about the size of that specific website just as it becomes more meaningful? And are we at the point -- I don't know if you want to give a number now, but I know it's been growing very rapidly here recently. Can you help at all just in understanding how big of a component of the DTC business that is? And that's all I had.

Yes. So look, as we continue to scale the businesses, especially direct-to-consumer, giving more transparency around the components and the growth drivers of that is important. If you think about playboy.com, it really wasn't much of a commerce destination historically, right? It was -- people were going there for content and we've really transitioned that over the last year to becoming a commerce destination. So it's driving quite impressive growth off of a small base, but that base is getting bigger and bigger. I don't think we're ready right now to start breaking that out in any level of granularity. But as we continue to scale it, we can certainly give some more guidance or thoughts around how we think of the contribution there. But when you do look at the growth of direct-to-consumer, playboy.com is playing a key part of that, as is the growth we're seeing at Lovers and the like as well. So yes, I don't know, Ben, anything else or any conclusion remarks before we wrap up because I think we are out of time?

Yes, George, just really quickly. I mean what we're really impressed by is the AOV growth there. And also if you look at the number of customer growth -- so if you look at --historically, Playboy was a content site. It's now a shopping site. And so as you transition that customer to see the growth we've had, we're really happy by that and especially given the lack of merchandise we have. And so as we continue to build that and really integrate what Rachel talked about with blockchain and NFT into that membership, into our ecosystem, really encouraged by what that has. Look, overall, is thrilled by the quarter, especially given the challenges we face with COVID. We're really excited by the prospects we have moving forward. What Rachel alluded to, we'll be talking more about it in the coming months with the membership around blockchain and other fees, and then what we're seeing with the premium lingerie collection, beauty products, et cetera, as we move into the fourth quarter and next year.

I think that's all the time we've got today. So thanks everyone for joining the call and look forward to reconnecting next quarter.

And this concludes today's conference call. Thank you for participating. You may now disconnect.