Plby Group Inc

NASDAQ:PLBY

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and welcome to the PLBY Group's First Quarter 2024 Earnings Conference Call. [Operator Instructions] This event is being recorded.

I would now like to hand the call over to Matt Chesler from Investor Relations. Please go ahead.

[Matt Chesler, executive]

Thank you, operator, and good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K 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 the company'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 are made, and we do not undertake any obligation to update these statements.

Forward-looking statements are subject to risks, which could cause the company's actual results to differ from its historical results and forecasts, including those risks set forth in the company's filings with the SEC, and you should refer to and carefully consider those for more information.

This cautionary statement applies to all forward-looking statements made during this call, do not place undue reliance on any forward-looking statements.

During this call, the company may refer to non-GAAP financial measures. Such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release, PLBY Group filed with its Form 8-K today.

With that, I will hand the call back over to the operator in the Q&A session. Operator?

[Operator]

[Operator Instructions] And the first question will come from Jason Tilchen of Canaccord Genuity.

[Jason Tilchen, analyst]

I guess one thing I'm curious about, you gave a lot of great detail in the press release and also in the recent announcement regarding these new agreements in China for the licensing joint venture.

I'm just wondering, if you could share any additional color on sort of how these came about so quickly? What sort of benefits and sort of agreements are in place in these deals that sort of you're excited about improvements on the previous sort of structure of the deals that you had in China? And when sort of the timing of -- we could expect some additional revenue to flow through from these deals.

[Ben Kohn, executive]

Thanks, Jason, for the question. Look, we've been working on new deals in China for months now, really since we terminated our previous licensing partners. In addition to the deals we sign, we have a robust pipeline and excited by what that looks like moving forward.

In fact, when you look at the new deals, we've already -- we built the business to over 50% of what it was last year. The majority of that revenue will start to come in starting in this quarter in the second quarter, and then moving forward. The new deals are very different than the old deals. There's much better accountability in those deals. There's the prohibition on sublicensing the brand without our express winning consent.

And then from a guarantee perspective, we actually have much better teeth in these deals versus an entity in China, personal guarantees are enforceable in China, and we have personal guarantees back in these deals as well.

The strategy moving forward is different than the old deals. Given what's happened to China and the economy in China really post-COVID, and it's well documented out there from a macro perspective on consumer spend.

We needed to rebuild the business with the right partners, but we wanted to do that with shorter-term deals that gives us the flexibility to increase MGs over time. But in the short-term, incentivizes our partners to invest in the business.

And so I think we've commented on this both in the press release and today, but we do expect to start receiving overages from these partners, but we wanted to make sure that they invest in the brand.

And so Duane, our largest partner, they are an operator. They have online studios, which is really how things are sold in China. And it's a true operator versus what I would say is more of a middleman historically selling our tags.

And so in addition to the contractual limitations we have or protections we have, we plan on making sure that we hold these partners moving forward accountable. We also have a JV partner as a subsidiary, Li & Fung that is on the ground that is constantly meeting with these partners, and we'll be holding them to the contract as well.

[Jason Tilchen, analyst]

Great. That's really great color there. I appreciate that. And then as the business as a whole has sort of been transformed over the past sort of 4 or 5 quarters, and obviously, you've shut a lot of costs out of the business, highlighted by the significant year-over-year narrowing of the EBITDA loss. I'm just wondering, if you could share any additional color on sort of as we move through this year, the -- sort of cadence as we approach breakeven and then when you expect to sort of be positive on both a quarterly basis and then sort of on a full year basis?

[Marc Crossman, executive]

Jason, I'll answer that. It's Marc here. When we look at the cadence of what the profitability is going to look like, I think going into the second quarter, you're going to start to see the licensing revenues come back up. I think we'll probably be not that we're giving guidance, but somewhere looking like the second quarter of a year ago, which was about breakeven.

And I think it's the back half of the year when you'll continue to see the corporate expense reduction play through the numbers. Honey Birdette will continue to perform like it is. Licensing should be back up to at least 70% of what it was. And then we'll start to see the benefits of all the positive things that we're doing right now at centerfold or the traditional playboy.com.

[Jason Tilchen, analyst]

Okay. Great.

[Operator]

The next question comes from Greg Pendy of Chardan.

[Gregory Pendy, analyst]

Just a few on Honey Birdette. It looks like it was a little bit above where I was looking, but I know you put through a 10% price increases, was that generally across the board? And when did those take place? I guess what I'm trying to get at is a little bit of a sense of traffic versus ticket, what that might have looked like?

[Marc Crossman, executive]

No problem. Greg, it's Marc. In terms of the 10% price increases, they've been rolling in pretty slowly with the vast majority of them will be done here in the second quarter. So it wasn't all the ticket size. So it's -- we saw a little bit of growth in our ASP, but a lot of it was traffic and just driving higher conversion.

[Gregory Pendy, analyst]

Okay. That's very helpful.

[Ben Kohn, executive]

I think, Greg, we also commented on where we are with the business. I think we've had 2 solid quarters now in a row. And I think as we said, I think we previously commented on last year, I think it's now time for us to begin that process that we've talked about knowing that long-term, we are not the right owner for that business.

[Gregory Pendy, analyst]

Yes. No. I fully understand. Yes, it's just been -- that's helpful. And then where were you at with the store closings, is that going to happen later in the year? You said a few underperforming stores in Australia might get trend?

[Marc Crossman, executive]

Yes. So we have -- we closed one in Australia already. We just closed one in the U.S. that was losing money. So our U.S. 4-wall EBITDA margin was on excess of 25%. And we had one store that was just not there. And it was kind of sitting off on its own. So it just made sense to get out of that business based on where we were.

And the rest of Australia, there are just a few more stores that as we look at putting this in a position to ultimately be sold, there are a few stores that were cluster too close to sister store. And so we'll close those. But that's just a small amount of stores, a handful, let's call it, 3 to 4 stores.

But one of the things that we're seeing that's really encouraging too is the shift towards e-comm. And so we're driving every quarter, we see more money or more percentage of our sales coming from [ Econ ] -- e-comm as opposed to our brick-and-mortar stores.

[Gregory Pendy, analyst]

Okay. Great. That's helpful. And then just moving on to the licensing deal. Just that I'm thinking about this hopefully correctly. The new deal, it's a $37 million guarantee over a 5-year period. So that would be flowing into, I guess, next quarter, roughly $2 million a quarter. Is that a little bit under that on a minimum royalty?

[Marc Crossman, executive]

Yes. On a minimum, I mean, I think the best way to look at it is we did $9.7 million of licensing revenue a year ago. We did $4.1 million this year. And I think that at $9.7million, we can be somewhere around 70% of that in -- on a go-forward basis in the quarter.

Now that's assuming all things being equal, to the extent that we're able to layer on new deals, grow the business, have overages in China, we can do better than that. But in terms of baseline in your model, I would say that is about 70% of where we were versus a year ago quarter.

[Gregory Pendy, analyst]

Okay. That's very helpful. And then just finally, just moving on to the rebranded Playboy Club. Are there any notable events this year that we can look for? It looks like now you're in a much better position to go on offense, and just kind of thinking about how you're going to build brand awareness during this year to get more eyeballs to the site.

[Ben Kohn, executive]

Sure. Thanks, Greg, for the question. I think we've talked about this previously. The first thing that I needed to do was to bring in the team, and I'm pleased to announce that we've recruited the team, and we'll look forward to them talking and presenting on the next earnings call. But this is a senior team for lack of a better, it was an aqua hire. We brought in multiple people at the same time that have deep experience in content and on the creator side of things.

And so the biggest thing that we can do, and we've never really spent traditional money against this brand from an advertising perspective, but is through content. And that -- this team is an expert in that and driving content with the goal of commerce on the backside of that. That only -- that not only directly benefits Playboy and there will be a downstream effect to that to the licensing business, but it directly benefits our creators.

And so what you'll start to see from us here over the next month or 2 is a website that has a lot more content on it. You'll start to see a completely different social media strategy on YouTube, TikTok, Instagram, et cetera. And then I think you'll -- at some point this year, you'll hopefully see something coming with a nod to the past of the company, and it's one of its hero products.

And so without getting exactly into the timing of that, I think bringing back the Playmate franchise, leaning into what made this company famous over the years, what better reward for creators working with us than being able to feature them through Playboy content.

[Gregory Pendy, analyst]

Great. No, that's helpful.

[Operator]

This concludes our question-and-answer session. I would like to turn the call back over to Ben Kohn for any closing remarks.

[Ben Kohn, executive]

I appreciate you all dialing in for our Q1 call, and look forward to talking to you with our new digital team and the media team on the next earnings call. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.