Good afternoon and welcome to the PLBY Group Incorporated Q1 2022 Earnings Webcast and Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Ashley DeSimone from ICR. Please go ahead.

Good afternoon, everyone, and welcome to PLBY Group's first quarter 2022 earnings conference call. I’m Ashley DeSimone from ICR. Hosting today's call are Ben Kohn, CEO, and Lance Barton, CFO. The information discussed today is qualified and its entirety by the form of 8-K that has been filed today by PLBY Group, 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'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. During this call PLBY Group 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 Group filed with the SEC on Form 8-K today. I will now open the call to CEO, Ben Kohn. Ben, please go ahead.

Thank you and good afternoon everyone. 2022 is off to a strong start with over $69 million of revenue in Q1, driven by robust demand for our iconic Playboy brand. As we said in our last call, this year we are focused on two main priorities: one, is the continued expansion of our direct-to-consumer business, by integrating in the assembling the pieces we have acquired; and the other is to build out of our creator platform Centerfold, which we expect to ultimately drive incremental high margin revenue and create a flywheel effect for our consumer products. I am pleased to report that we have made significant progress on both fronts in the first quarter. Our consumer products in digital channels are coming together into one cohesive ecosystem to fuel our long-term growth strategy, we already have some great examples of ways that we are integrating our brands across various channels and I couldn't be more excited about the opportunity that lies ahead of us. With Centerfold it’s the core of our consumer ecosystem, we believe there will be three critical factors for success. Brand, creators and product, Playboy is in arguably one of the most unique and valuable brands in the world. It is iconic on a global basis with over 97% unaided brand awareness and billions of dollars to consumer spend against it. It would cost multiples of our current market cap and many years to attempt to replicate. But more importantly, this is a brand that generates endless organic growth opportunities. It is perfectly situated for today's and tomorrow's global consumer. This is demonstrated by the partnerships we have forged with consumer brands and celebrities alike. It's hard to think of another brand, they can play in both the physical and digital worlds across consumer products, experiences, NFT…

Thanks, Ben. First quarter revenue grew 63% year-over-year to $69.4 million. Our growth once again driven by the continued expansion of our direct-to-consumer businesses. Furthermore, our gross profit margin expanded driven by the acquisition of Honey Birdette and the superior product margins that business is able to achieve. Direct-to-consumer revenue was up 125% year-over-year to $49.6 million in the first quarter and we made great strides executing on our growth strategy, which consists of expanding our product line, building out our merchandising and marketing function, strategically expanding our retail footprint and consolidating and optimizing our tech infrastructure. Playboy e-commerce grew revenue more than 300% over the prior year quarter. Growth was driven by increases across the board and site traffic orders, average order value, conversion and repeat customers. Our product line continues to expand to meet consumer demand, as we saw more than 120% increase in unique SKUs sold versus Q1 last year. Consumers gravitated toward our Tokyo Club apparel collection along with PacSun and near the end of the quarter, we launched a collaboration with Drake OVO, capsule collection which saw massive demand and led to our highest level of sales in a single hour, when we launched on March 29, with most of those products selling out quickly. We have a number of other high-profile designer collaboration coming out later this year that we believe will continue to fuel consumer demand. We see opportunity for Playboy e-commerce to improve margins over time via economies of scale achieved through overall revenue growth, expansion of private label and improved marketing efficiency, as we continue to build out our merchandising and marketing functions and streamline our tech infrastructure. Honey Birdette achieved over $22 million of revenue in the quarter, driven by 23% growth in e-commerce and 11% growth in brick and…

Thank you. [Operator Instructions] One moment, please for the first question, which comes from the line of Jason Tilchen with Canaccord Genuity. Please go ahead.

Yes. Thanks a lot for taking the question and congrats on the strong results. Two questions from me, the first is given the China exposure within the licensing business and of the lockdowns of economic development there. I’m just curious you could maybe provide a framework for how to think about the impact there both in Q1 and throughout the rest of the year? And then the second one is just on the broader supply chain environment. You've heard a bunch of different things from e-commerce companies that have reported so far some noted that product availability was getting better throughout the -- then it was sort of back half of last year. Others have talked about obviously rising transportation and labor costs. I'm just curious if you could maybe give us an update on where in the supply chain recovery you guys are? And how product availability was throughout the quarter?

Thanks, Jason. So yes, on China in particular, so there was no impact in the first quarter, we had a little over $10 million of revenue coming from China in the first quarter. I mean obviously, they've got very strict COVID restrictions that are in place. I think those started more recently, kind of, towards the end of Q1 early Q2. And obviously presents business challenges to our licensing partners in the market, we’re still evaluating what that impact could be, but our partners are committed to limiting any disruptions and returning to normal as quickly as possible. With that in mind, we're not forecasting any impact going forward, it’s around $40 million of full-year revenue based on minimum guarantees that we already have in place that we continue to hold too. So look, we'll continue to evaluate the situation, but we haven't seen any impact yet. On the supply chain issues, I think all the things that you’ve highlighted, I mean, we're seeing the same thing as well. In the first quarter in particular Honey Birdette will do a global marketing launch around there -- around each product that they put out there. So they will market a product globally and it should be in stores globally and online globally part of the challenge we had was actually making sure that the product within all of the stores globally. So that certainly had an impact on their ability to sell through some of the product that they brought in, we certainly see rising costs from a shipping perspective and also from a fulfillment perspective, but what we're trying to do is leverage our consolidated efficiencies across the multiple businesses to really build economy in scale from this. Another thing that we're trying to do going forward this year is mitigate some of the risk in the back half of the year by receiving available inventory early and this is particularly important as we gear up for the Halloween season, which is that so important to our business. So we're working through with our suppliers now trying to receive that inventory much sooner than we would to make sure that we're in a good place for Halloween. And then the other thing that I'd still highlight Yandy in particular, we saw this last year, but unfortunately it hasn't really gotten any better, but our top selling products consistently to be or sold out or out of stock, which really has an impact on their ability to continue selling. I think last year we saw, kind of, in the 15% to 25% range, we've seen that percent go up in some cases as high as 40% to 45% out of stock on our top-selling items. So it has improved from that, but certainly has been a headwind and impact for the business.

Okay, great. And is there anything that you guys are -- can do to sort of bring that down over time? Is it diversifying suppliers? Is there anything that is in your control there? Or is it mostly out of your control?

One of the things that we're doing actually is working on our private label piece of the business. I mean we see that is actually some of our better selling product there. So the more that we can, to your point, kind of, control this and work more closely. I think that can not only improve the amount of stock that we have on better selling items, but it can also eliminate some of the stock on the -- I'll call it lower-performing, lower margin items.

Yes, Jason, I'll just add to that Yandy as we alluded to in the last call, and we said in this call, we are in the process of repositioning Yandy and integrate it more into Playboy and as we do that and Lance talked about the private label products that allows us to diversify suppliers, it also allows us to realize higher gross margins on a private label product versus we selling a third-party product. And so that will continue and as we said, we're gearing that up for the Halloween season.

One other thing I did -- I failed to mention, but obviously another lever we could pull and are contemplating is around increasing the prices on the product. Obviously, you have to do that thoughtfully, but in the current environment, I think everything is increasing price, so it wouldn't be shocking I don’t believe to our consumers if we do that to offset some of these higher costs that we're facing.

Yes, that makes lot of sense. Thanks a lot for the thoughtful answers.

[Operator Instructions] The next question comes the line of Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Great, thanks very much for taking my question. Direct-to-consumer revenue was very strong in the quarter a little bit stronger than we were looking for. And I think you mentioned in the prepared remarks, Yandy is running into some very difficult comparisons, lapping some of the strength that, that the business saw last year after the acquisition, as well as just challenges with the iOS changes. Are there any other brands in particular that really drove the strong quarter for you? And just as you look out into Q2, we're hearing from a lot of other e-commerce companies that consumer spending has pulled back a little bit the last three, four, five weeks as inflation has ramped up. I'm curious if you're seeing any pressure in any of your brands?

Yes. So the real drivers of the growth, not surprisingly are the brands both Playboy and Honey Birdette. We talked about it a lot in the prepared remarks around how strong we see the brand to be and how strong we see demand out there, that's not only true for Playboy, but it's also true for Honey Birdette and was a big reason why we acquired that company, because they have such a loyal following and are really able to generate such brand equity. Yandy and Lovers obviously don't really have a brand they are more like channels for us and so as we explore, what can we do to leverage the Playboy brand within Yandy and Lovers that's kind of our longer-term strategy around that. Anytime we've done a collaboration on the Yandy or if we’ve sold Playboy product in Lovers stores, we actually see really strong demand for that, a lot of the growth we saw at Playboy in particular was driven through expanded assortment, better awareness of Playboy.com as an e-commerce destination, not a content destination that's something I talked about. I think a lot last year we were really a lot of people with historically go to Playboy.com expecting a content or a media business and we've had to really pivot what customers are expecting when they go there and people are now knowing that they can go there for great apparel. Also Honey Birdette the growth there driven by continued e-com strength and then also the new store opening in Miami. So look there are certainly headwinds on the business from a macro perspective, but what we really like to see is the fact that the brands remains strong and we see opportunity for actually leveraging that more broadly across direct-to-consumer to drive our longer-term growth.

Okay. That's really helpful, Lance. Thank you.

Great, thanks. Next question please.

The next question comes from line of George Kelly with ROTH Capital Partners. Please go ahead.

Hi, everybody. Thanks for taking my questions. So first, Lance, you were just talking Honey Birdette and I was just hoping you could or Ben fill in some detail about what's happening in the U.S.? And what I'm most curious about I guess is how quickly is the brand growing in the U.S. and what's the typical store as you're opening these things? I mean, what's the kind of financial profile of those stores, and how quickly do you see a lift in sort of regional e-commerce spending after that store openings. So any kind of commentary just about the U.S. ramp?

Yes, sure. So in the U.S. in particular, right. We -- I talked about this a little bit on the last call, which is here in the U.S. those stores are producing revenue. I think it's somewhere around 40% more on a per store basis than we've seen in Australia. And that has continued to be the case and we just opened to have into our store in Miami in February and it's already the third highest performing store for us globally. So that’s been two months' time, it’s already shot up the ranks there. The other thing when we open these new stores, we're really targeting 30% four-wall EBITDA margin. They're able to get there pretty quickly a new store opening cost around $600,000, $800,000 to open up in terms of upfront expense, but you're able to recover that pretty quickly as these businesses scale. And what we also see usually when you open a new store, it can contribute to a halo effect on the e-com side, because you get customers coming into the store, figuring out what size works for them, what products they like. And then if you've got them as the loyal customer win new product lines drop. There are more likely to buy that online. So that's why we're really optimistic about the growth prospects at Honey Birdette, particularly in the U.S. and in Europe and the U.K., because that we open these stores we just see tremendous demand. We do have plans to open some additional stores across the Atlantic in the U.K. as well this year as part of our 10 store plan. Most of the stores that we're opening this year that will be focused on the U.S.

Okay. And then second question, so on Honey Birdette, but what are your plans to build awareness in the U.S., do you have any kind of big marketing campaigns or anything else that you're planning for this year?

Yes, George. So obviously the opening of new stores, is some of the best awareness we can build and so when we look at the roadmap for the balance of the year as we move Honey Birdette into the Northeast and around the New York metropolitan region, that's the best marketing, because it's profitable marketing, right, where as Lance said those stores do about 30% EBITDA margin and off the back of that what we see is a very high return customer rate on e-com as well. There are other integrations, I don't want to go into that right now, but there are other things planned around live events that we can do in a profitable way and other organic marketing initiatives that we are exploring for HB.

To tying back to some of the things we also talked about in the prepared remarks, so we're launching this Showfields pop-up concept here in down in Miami in the second quarter that's going to carry Honey Birdette products as well. So that's one way to get the word of mouth out there. The other thing that we've talked about is leveraging the Centerfold platform as an engine for organic customer acquisition, a lot of these creators that we're working with already have a propensity to wear and to use Honey Birdette branded product. So people are really excited about, hey, how can I get involved, how can I work as an affiliate to promote Honey Birdette granted product. So when we talk about Centerfold and serving as top of funnel over the long run that is an area that we see is a really interesting opportunity, because it can bring in new customers for the Honey Birdette brand through the top of the funnel on Centerfold and do that in a very organic way. So that's another thing that we're pretty excited about it. And again the creators that we work with are quite excited about the product. You also see it organically on social media on TikTok and other live streaming platforms. There has been some pretty big celebrities and influencers out there that have been seeing -- wearing Honey Birdette lingerie and again they're doing that organically, it’s not something that to take placement.

Okay, understood. Thank you.

Your next question comes from line of Daniel Adam of Loop Capital Markets. Please go ahead.

Hi, good afternoon. It looks like you guys burned through a decent amount of cash in the quarter. Just looking at the queue, I guess what's the outlook for cash generation? And what's the minimum cash balance you need to run the business working capital and so on? Thanks.

Yes, I talked about a little bit in the prepared remarks, it was really a timing issue in the first quarter you had a lot of payables coming out of the fourth quarter, both from a inventory purchase perspective and also a marketing perspective. Obviously, the fourth quarter is a huge push from a marketing perspective. Those payables come due in the first quarter. So we were effectively paying down a lot of that in the first quarter of the other things that impacted as we work on building this foundational infrastructure across the company. We're implementing a lot of technology and what you end up having to do there is your implementation costs and your licensing costs don't come over time they come as an upfront payment. So our prepaid increased significantly because there is a lot of what we do. So those were a lot of the outflows that we saw in the first quarter. The other thing is around our licensing partners, the timing of those payments that we get from them are largely centered around 2 times a year, which is the fourth quarter and the second quarter. So I mentioned we've got another $20 million plus of gross cash receipts that we're expecting to come in this quarter. Our cash balances already up over $40 million from where we ended March 31st. So it's already increased and kind of going back to what I said on a full-year basis, we're expecting this to be a cash flow positive business even when you factor in our debt service, working capital and everything like that. So it’s something that, again as you scale this business you're investing upfront. We opened the Miami store as well where we're planning to open more stores for Honey Birdette, those are also upfront costs that you incur that you recoup over time. So from our perspective, it's really just a timing issue. We can certainly manage the working capital if we need to, but from our perspective, it was really just timing around a lot of these payments.

So, is it safe to assume that the $33 million or so quarter-end is the low point for the year?

Yes.

Okay, all right, thanks.

Next question.

The next question comes the line of Brian Dobson with Chardan Capital Markets. Please go ahead.

Yes, thanks for taking my question. So just returning to Centerfold for a second, do you think you could give us a little bit more color on the e-commerce and cross-selling potential there? And really how you envision that evolving as the platform continues to mature?

Sure. So when I talked about in the prepared remarks was the integration of Centerfold into Playboy.com and consolidating all of our digital products into that. When we look at, for example, Playboy.com the e-commerce revenue coming off of that 25% of that revenue today is already coming from affiliates, we recently added 40 of our Centerfold creators to be affiliates. And so as we think about one cohesive ecosystem where Centerfold eventually gets merged into Playboy.com, you will have the ability to cross-sell merchandise along with other media or subscription products tipping, premium unlock, subscription revenue et cetera. And so it's all one cohesive ecosystem and that's what we've been testing and what we've been working on the integration up right now. And so when we think about other consumer brands out there, what makes me so excited is I think this is one of the most unique differentiators we have is the ability to work with talent, to also then cross-sell consumer products. When you think about the privacy changes with iOS and what's happened in other e-commerce companies, as well as other media companies have commented on this, we are effectively building our own social media network in-house. With this, that we believe is a very efficient customer acquisition tool that will create a flywheel effect for the rest of the business.

Great, thanks very much. And then in terms of cost synergies, I guess moving forward how much potential do you see there or at least where might you be focused in terms of gaining efficiencies over the next year or so?

So from a macro perspective, when we talked about this in the prepared remarks, we've taken out approximately $5 million of annualized cost over the last few weeks. Moving forward, what the companies we bought in 2021, what we are focused on is consolidating infrastructure, consolidating functions and I think we've been successful at doing that so far this year. Again this is a step function it’s not linear and we will continue to evaluate opportunities to realize synergies as we move through the balance of the year. There is a lot of stuff that was hosted upon us not only through the acquisitions, but through the accelerated filing status that we achieved in June of last year. And so all of that infrastructure had to be implemented on an accelerated basis from what we were originally planning.

Yes and I see look, there is a few areas from my perspective. Ben mentioned a lot of these fixed costs that we've taken on over the last 12 months that we've kind of ramped up into, I think we're kind of at that point right now where most of that has been layered on to the business. I mean, we will have kind of some ongoing annualization of head count and other tech cost that has come in. But I think we've largely kind of hit that absence so, and now it's really about as you scale revenue those costs kind of remain fixed. So as a percent of revenue those do go down over time. So as e-com and continues to scale, one Centerfold actually starts contributing from a revenue perspective, you can get real operating leverage out of that. The other thing that I'm really interested in is what type of efficiency we can get on the marketing side, that's not only from bringing our marketing in-house. We've been working with -- we’ve historically have been too small from a marketing perspective to warrant our own in-house marketing team. But we're building out a small team that we can then leverage across the entire portfolio. I think you can be a lot more efficient with your marketing spend that way. And then when we talk about Centerfold being a very large organic top of funnel from a customer acquisition perspective, I believe that, that can give us a lot more efficiency on the customer acquisition side again hopefully leading to some real economies of scale, as we build out this business. So I think there are a lot of areas that we're putting in place the foundation today and as we scale revenue you should start to see that really materialize in the margin, really kind of, at the end of this year and into next year and beyond.

Great. Thanks very much.

As there are no further questions at this time. And that does concludes the conference for today. We thank you for participation and ask that you please disconnect your line.