Earnings Labs

Playboy, Inc. (PLBY)

Q3 2021 Earnings Call· Tue, Nov 16, 2021

$1.73

-1.99%

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Transcript

Operator

Operator

Thank you for standing by, and welcome to PLBY Group's Third Quarter 2021 Earnings Conference Call. At this time all participants are on listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Managing Director at ICR, Ashley DeSimone.

Ashley DeSimone

Analyst

Good afternoon everyone, and welcome to PLBY Group third quarter 2021 earnings conference call. I am Ashley DeSimone, Managing Director at ICR. Hosting today's call are Ben Kohn, Chief Executive Officer; and Lance Barton, Chief Financial Officer. The information discussed today is qualified and 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 Group's 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. And I will now open the call to Ben Kohn. Please go ahead. Ben?

Ben Kohn

Analyst

Thank you, operator, and good afternoon, everyone. I'm delighted to report today on another strong quarter. I want to start today's call by commending our team on continue to deliver even in the face of COVID-related operational challenges and for achieving meaningful progress on our strategic growth roadmap. 2021 has been an amazing year so far for our company. My remarks this afternoon are going to focus on how all of the great work we've executed on building our direct to consumer commerce business, integrating our strategic acquisitions, and releasing our first NFT drops, serves as the operational foundation in marketing flywheel for our even bigger opportunity to create a cohesive and scalable ecosystem of recurring revenue based Playboy membership offerings. Lance will then provide greater detail on our financial results and outlook. I joined Playboy as CEO, because I saw the opportunity to rejuvenate one of the world's greatest brands into a massive growth engine with the right business model transformation. It was clear that the model is selling magazines, and complementing that media business with licensee revenue was a broken model. But with billions of dollars of consumer spend against one of the most globally recognizable and emotionally resonant brands, it was clear that with the right products and services for today's consumer match with the right in-house operations, we can supercharge our growth. As we talked about previously, we've been following a three-part growth action plan, focusing first and foremost on the low hanging fruit. Part one of our action plan is our work to build and expand our direct-to-consumer commerce business in key categories in territories. Our goal is to capture $1.00 of consumer spend against the brand versus the $0.05 to $0.06 we make on licensing deals. I'm immensely proud of the scale we've achieved…

Lance Barton

Analyst

Thanks, Ben. Third quarter revenue grew 67% year-over-year to $58.4 million. We achieved exceptional growth and what continues to be a difficult operating environment as we believe we lost more than $5 million worth of revenue due to COVID-related closures and supply chain impacts in the third quarter alone. Despite these headwinds, we've continued to execute well on our strategy. The expansion of our direct-to-consumer business has proven successful to date and in the third quarter, we grew direct-to-consumer revenue 139% year-over-year to $36 million. Our greatest challenge in growing this revenue stream isn't related to a lack of consumer appetite or brand awareness, but rather scaling our infrastructure to meet the tremendous demand we see for our own branded products. Last year, we began the transformation of Playboy into an e-commerce destination to capitalize on the opportunity that we saw given the billions of dollars being spent against the brand through our partners globally. In the last 12 months, we've been executing against our plan, generating more e-commerce revenue on playboy.com in the month of September, than in all of 2020 and more revenue in the third quarter than all of 2020 in Q1 combined. Our early success has led to some key learnings. First and foremost is that the Playboy brand clearly resonates with a young audience. Two-thirds of revenue on playboy.com comes from customers under the age of 34. And we consistently see more than half of our revenue now coming from women. We also see a fair amount of price elasticity with our customers. Average order value on the site is now consistently above $90 which is roughly 30% higher than where it stood at the beginning of this year, and 70% higher compared to the third quarter of 2020. We also see that customers who…

Operator

Operator

[Operator Instructions] Our first question comes from the line of Jim Duffy of Stifel. Your line is open.

Jim Duffy

Analyst

Thank you. Good afternoon, guys. Thank you for taking my questions. So just to start, it's been a busy year for the management team. The company has added a number of foundational pieces to the puzzle. I'm curious, Ben, are the platform components now in place or are there other pieces of the platform that you are still looking to add to capitalize on the opportunities ahead of you?

Ben Kohn

Analyst

Jim, thanks for the question. In general, the platform is in place and we think what we have assembled today is truly a competitive differentiator moving forward as we think about membership and CENTERFOLD. What we can offer the creative community is something that no one else can offer. And I think that's referenced by the founding creators that we have signed up to launch with that represent in excess of 300 million social media followers. We believe we are good capital allocators into the extent there are talking things that make sense. Of course, will be opportunistic, for the shareholders. But I would say right now we have every piece in place that we need to execute on our strategy moving forward.

Jim Duffy

Analyst

Excellent. That's great to hear. And Lance, I just want to ask a little more detail on components of the business and performance during the third quarter. Can you speak, I know you gave what seemed to be pretty impressive figures for the first three weeks of October. But can you talk to playboy.com during the September quarter performance of Lovers and Yandy -- trends you saw for Lovers and Yandy leading up to the important holiday Halloween selling season? Thanks.

Lance Barton

Analyst

Sure. I think I highlighted some of that in the remarks, so I'll give a little bit of details around that. As I mentioned in October Yandy itself was really having an record setting October Halloween season. And we ended up having to cut the orders short in late October just because of fulfillment, labor challenges, supply chain challenges, all of those things. So we would have done a lot better in October than we actually did. But it was still a very impressive month for us. So, that business continues to do extremely well. A lot of the work that we're doing there as well as with Lovers is kind of integrated this back end across playboy.com, Yandy and Lovers and obviously soon starting work on Honey Birdette around all of that. Playboy.com, I gave some stats on that. I mean, really the growth there has just been really exciting for us. We brought in someone to run that business for us earlier this year, who has experienced scaling businesses from effectively zero to hundreds of millions of dollars. And we see a big opportunity here as well generating more revenue. I forget what I said in the month of October that I think we did in the first four months of this year. And then the third quarter, I think was more than all of last year and earlier this year combined. So, really great growth trajectory. I think what it speaks to on all of this, and I've said this to folks before, which is the demand is there for our products and for our brand. We see that time and again it's demonstrated by the amount of money we see being spent with our strategic partners globally. And that was part of the whole reason for this business transformation that we're undergoing. That continues to translate when we're selling product direct on playboy.com. So it's not an awareness or a demand issue. It's really scaling our infrastructure, our team, getting the supply chain right, obviously in the time of COVID. There is a lot of products that we're intending to stock at certain times that don't end up arriving on time. So, we're still managing all of this growth in what is a really challenging time, I think for most direct-to-consumer retail companies. But we're very pleased with the results and we think there's a long runway here to continue.

Ben Kohn

Analyst

Yes. Jim, the only thing I'll add to is when we launch CENTERFOLD, what's going to be so great is, in essence, we have our own social media network at the end of the day as well. And so when you start to think about the flywheel that we've created, and then the recurring revenue nature of what we're launching with the Rabbitars and then the CENTERFOLD, this in the future can really supercharge all facets of the business.

Jim Duffy

Analyst

No doubt. One more quick one Ben if I may, with the Rabbitars's launch, do you have a view as to the geographic appetite for that? Was it a uptake of the Rabbitars a global phenomenon? Or was it more concentrated in North America?

Ben Kohn

Analyst

So, I don't have the specifics on that. What I can tell you is because I'm active in our Discord community talking to our Rabbitar holders, is that I'm talking to people in Australia and China and a whole host of other places. So I think it's really interesting. I think what the team did here that I believe we were the first to do it on a launch like this is we actually created or set aside almost 3000 Rabbitars for credit card or Fiat transactions. And I think what this brand has that unique ability to do is actually to bring in mainstream investors or people that have not participated in the NFT space before into that community. And when I look at the number of first time buyers based on people's responses in Discord, I think that's truly exciting for us moving forward. And then as we continue into 2022, to expand our NFT and Blockchain efforts with the creators that we are going to be working with on CENTERFOLD coupled with that 10 million piece archive that we have that becomes truly exciting moving forward.

Jim Duffy

Analyst

Excellent. Congratulations on the success of that Rabbitar's launch.

Ben Kohn

Analyst

Thanks, Jim.

Operator

Operator

Thank you. Our next question comes from George Kelly of ROTH Capital Partners. Your line is open.

George Kelly

Analyst

Hi, everybody, thanks for taking my questions. So, maybe to start just with kind of a 10,000 foot view question. If I'm thinking through next year's 2022 financials. And I'm not looking for any kind of specific guidance here or just thinking more broadly than that. But a lot of these new initiatives that you're working on like CENTERFOLD and this NFT Blockchain related these membership programs, all that kind of stuff if we lumped it all together. Would you anticipate that being a really significant portion of revenue as soon as 2022? I'm just trying to think broadly, like, how should I think about these things ramping?

Lance Barton

Analyst

Hey, George, thanks for the question. So, look, it's hard to say because none of this has really launched, right? So far we've done effectively three NFT launches. We did our first one in the second quarter, which we sold out in under 24 hours and generated a million of revenue, which we thought was extremely successful for our first attempt. We sold an NFT of an original piece of content, a piece of archive content in digital format for $60,000 in the third quarter, which we thought was a great outcome for something that was just a regular photograph that we put in digital format. And then obviously, we launched this Rabbitar collection with much more success than we would have initially imagined generating over $8 million of revenue and reaching all sorts of consumers that have historically not purchased in NFTs. So those were all things that if you had asked me back in March, what we are expecting here? I couldn't have given you a number. And 10 million isn't a huge number, but it's a great start. When you fast forward to next year, and look at the potential of these platforms you can get to some pretty big, pretty heavy numbers, but it's really going to depend on how quickly we can scale, not only our creator base, but also the user base that they're bringing over. So we'll have more proof points of that a few months after we launched it. So I'm hopeful on the next call, we've at least got a little bit more data points to go off of, but it would be pure speculation for me to come on here and tell you what I think that's going to drive next year. So it's kind of hard. But we'll continue to work with you to be as transparent as we can once we see data points.

Ben Kohn

Analyst

Yes. I mean, George, I'll just add, I think that the potential is there. So if you look at our founding creators that we'll be announcing right around launch, as Lance said, they represent hundreds of millions of dollars of GMV already in the creator economy. And then the potential to expand that even more it's going to come down to conversion rates and a whole host of other things. But what's so interesting about the Rabbitars as our first entry back into membership, and then as we talked about in the prepared remarks, expanding that with tiers of membership moving forward, there are comps out there. So you can look at Bored Ape Yacht Club and others as to what they've done, not saying that we will do any of that or not do it. But the potential to use Blockchain and NFT's for a much larger membership to reach the millions of fans and consumers we have around the world is interesting. And then, when you look at that type of that revenue, we're talking about recurring revenue versus transactional revenue. And throughout my private equity career, I love businesses that were focused on recurring revenues. And I think this brand has a history as we've talked about with memberships historically, and we can do this in a way for the 21st Century in the Metaverse coupled with physical experiences, and truly deliver something that no one else can deliver.

George Kelly

Analyst

Okay. Thank you. And then last question for me. Wondering if you could talk about Honey Birdette and what you've seen since Australia has started reopening? And then additionally, what is the plan for new stores, particularly in the U.S. next year? Thank you.

Lance Barton

Analyst

Sure. I'll talk about the reopening. Yes, I mean, as you would imagine, if you've got half of your stores closed in Australia that produces quite a headwind on revenue. But as those stores have reopened, they've been performing really in terms of what we would have expected have they been open this entire time. So, it's not some huge snapback in demand, but the business has certainly rebounded and it's performing along the lines of what we would have expected when we bought this business, which we thought had a lot of growth potential. What we've seen here in the U.S. is also consistent with what we had expected when we bought it, which was a lot of room for upside on growth on the e-com business. And our biggest most successful stores actually happened to be in the U.S. as well. So we are actively scouting for ways to expand our footprint not only here in the U.S., but also abroad in Western Europe. And we also recently launched e-com efforts more broadly, we used to only be in the UK, where we're now throughout Western Europe, and expanding our footprint there as well. So it's quite a symbiotic relationship. When we open these stores we see a corresponding increase in e-com revenue, they really act as kind of very profitable billboards for the business. So we think it is an important part of the plan to open stores and continue to derive e-com growth. So we're in the process right now evaluating and figuring out kind of what the right strategy is going forward there. How many stores we intend to open, but we are actively looking both here and in Europe.

George Kelly

Analyst

Okay. Thanks everybody.

Operator

Operator

Thank you. Our next question comes from Daniel Adam of Loop Capital Markets. Please go ahead.

Daniel Adam

Analyst

Hi. Thanks for taking the questions. Just two for me. First, on the membership initiative, can you provide some color around how many members you think you can ultimately scale to? And then on pricing, will you do plan to accept both dollars and crypto? And how price sensitive? Do you have any indication as to how price sensitive your target membership base really is? And then, the follow up question is on the NFT Rabbitars. My back of the envelope math got me to a little over $9 million of revenue from the launch. Ben, I think you mentioned Rabbitar revenue contribution at $8 million. Is there anything that would explain that delta? And I guess related to that are you holding any Ethereum on your balance sheet or to immediately convert crypto sales to dollars? Thanks, guys.

Lance Barton

Analyst

Thanks, Dan, I'm going to start with your last question first. And then I'll let Ben answer the first part. So, your math is not wrong. But in terms of the way we will recognize the revenue we will recognize it net of any fees to our partners that we're paying out. So that's why we said it was over eight and not the nine that you had indicated there. In terms of holding Ether crypto on the balance sheet. So obviously, we generated both Eth and USD to the Fiat transaction. We continue to hold the Eth on our balance sheet. We are in this for the long run. This wasn't just a one and done type thing. We're going to continue executing and operating in this space. And therefore we think it makes sense to hold Eth. What we're in the process of determining is what is our investment philosophy, how do we incorporate Eth in into that, obviously, right now, when you think about it as a percent of our total cash or liquid assets as very small percentage, obviously sub 10%, which feels like the right amount right now. But as the opportunity grows and as we scale we'll figure out more what the right thing to do is here. Go ahead.

Ben Kohn

Analyst

Yes. I appreciate. So our membership work, I think the sky [ph] or the feeling is really unlimited here. I think that this is a company that today drives over $3 billion of consumer spend. This is a company that has the potential to have millions of people as Playboy members. And we can deliver really unique benefits for those members as far as scalability, because this is not going to be physical location constrained even though we do plan on doing in person events from a membership perspective in the Metaverse, a Playboy Mansion in the Metaverse, that gives us unlimited potential on a global basis. And then when you couple that with CENTERFOLD, and how this flywheel all works together. CENTERFOLD is not only an unbelievably lucrative financial opportunity for the company. It also provides an ongoing relationship with the talent that we have worked with for 70 plus years. We also have access now to all of those subscribers on the CENTERFOLD platform that will benefit not only the Playboy membership, but also our commerce efforts as well. And so, all of this sort of comes together in this cohesive ecosystem or flywheel. I'm really excited by the potential for what we can deliver moving forward on a recurring revenue basis.

Daniel Adam

Analyst

Okay, great. That all makes sense. Very helpful, guys. Thanks.

Operator

Operator

Thank you. Our next question comes from Austin Moldow of Canaccord. Your question, please.

Austin Moldow

Analyst

Hi, thanks. I have a question on gross margin. I see that's going up and I know mix can move that around. But when you look at gross margin on a sort of like for like basis, is there anything that help that out in Q3 for licensing or DTC?

Lance Barton

Analyst

Sure. On the direct-to-consumer side, it's certainly going to be helped by the addition of Honey Birdette. One of the reasons that we were so drawn to Honey Birdette was the fact that they're producing and selling their own private product and dissolve 100% Honey Birdette which produces much higher gross margins than we see on the Yandy or on Playboy, because Playboy is selling a mix of our own and other margin. So that's probably what you were seeing in the third quarter. And look, as we continue to scale on the direct-to-consumer side, we want to leverage those learnings from Honey Birdette and apply that to the rest of our business as a means to drive incremental gross margin there. So, we do think that there's room to drive that incrementally higher over time.

Austin Moldow

Analyst

Okay. And on CENTERFOLD, I'm wondering how you view the creator platform usage changing over time. I mean, do you expect creators to use one platform exclusively? And is not built into your early agreements, whereas this sort of more like ride sharing where a driver will have Uber Lyft, and a bunch of other apps on their phones, alternating between them where the demand is?

Ben Kohn

Analyst

Yes. So, Austin, I think that will depend on the creator. What I can tell you is that people -- the creators reception to CENTERFOLD has been overwhelmingly positive. We've been working with them for a while what features they want, and we think we have a true competitive advantage, given our commerce and NFT, or Blockchain capabilities. A lot of our founding creators will be coming to us exclusively. And I think Playboy also represents as a brand, something that is very different than without there in the rest of the universe. And so, we've developed our content guidelines one that worked for our brand, but two, in conjunction with our creators. And I think we have a 70 years of working with the best creators and breaking some of the best creators. And we finally have a tool now, when you think of the ecosystem, to have them continue to make money, long term working with us. And so, a great example is someone can be on CENTERFOLD, they can also be performing a music night, or they can be coming to one of our IRL events in person. And the whole entire ecosystem works together. They might be a former playmate that we will then be dropping their former content that we shot with them as NFTs on our platform. And so, the whole ecosystem over time, if we execute on it, has a chance to truly transform the company moving forward. And if you look at the assets, and why do we buy Honey Birdette and why we acquired some of the skill sets, it was all to put this -- the pieces together to be able to deliver something that's truly unique moving forward.

Austin Moldow

Analyst

Got it. It's really helpful. And one super quick follow up for these early CENTERFOLD launch partners, what kinds of creators are in there?

Ben Kohn

Analyst

So they are huge music stars, to former playmates, to adult stars, to artists, to other influencers, actors, celebrities. It's really -- we've really been overwhelmed by the response from the creator community, and also by the diversity of the creators that we brought in. And I think it's going to truly be something that's unique and also something that fosters the development of the Playboy Club back to the day when Playboy had Playboy After Dark, the television show and you had huge celebrities and musicians all of a sudden showing up and playing the Playboy Club or playing on Playboy After Dark, which was the television show. And so, it's this cohesive ecosystem that we're looking to build. And so, you'll see the Playboy Club sort of sit on top or CENTERFOLD, CENTERFOLD by itself can act as a huge top of the funnel for everything else that we're doing as a company.

Austin Moldow

Analyst

Great. Thanks very much.

Operator

Operator

Thank you. Our next question comes from Alex Fuhrman of Craig-Hallum Capital. Your line is open.

Alex Fuhrman

Analyst

Great. Thanks very much for taking my question. As you think about the holiday season upcoming, do you feel like you're in a pretty good in-stock position for holiday season inventory and then right around the corner its Valentine's Day, which is obviously a big, big holiday for a lot of your brands as well. Do you have visibility at this point into how much inventory you think you'll have coming to sell for the key Valentine's Day holiday as well?

Ben Kohn

Analyst

Yes. Thanks, Alex. Look, the teams working really hard. We are -- the problem with inventory is the timing of it. So we've inventory. We've started stockpiling early for Valentine's Day. But look, it's one, supply chain issues and two, labor issues. And so we feel good right now, we have baked that in. I'll tell you personally, it's frustrating because we as a team want to achieve excellence. And we've had a really good year so far, but we've also left money on the table, we can directly pinpoint that, and that as a CEO is extremely frustrating. But I feel like we're in a good position for Valentine's Day across our businesses. We are in a good position for the holidays and we'll wait and see. Our issue historically throughout this year has not been a demand issue. And that would be something that would scare me if the demand was in there. The challenge sometimes we've had is the demand is in excess of our supply. And so a long winded way of saying right now we feel good about it. But again, never know what could happen in the future from the supply chain.

Lance Barton

Analyst

Yes, just to add to that. We've got plenty of inventory. Sometimes the challenge that we see is that we have plenty of inventory, but it may not always be plenty of the right inventory. And that's part of the supply chain challenges. The stuff that's selling well, it's tougher to get that back in stock. So that has been kind of the challenge. I think that remains somewhat of a challenge. So, we feel good about our inventory levels that are on hand, but it's more a question of making sure that we've got the right inventory at the right time for our customers. So it's really around a question of assortment mix.

Ben Kohn

Analyst

Yes. And I think what we've done is we've tried to get ahead of it and we've tried to bring stuff in earlier than we normally would bring stuff in. But look, I hope that at some point in the future, the supply chains with COVID will start to normalize.

Alex Fuhrman

Analyst

Great. That's really helpful. Thank you.

Operator

Operator

And as there are no further questions in queue, that does conclude today's conference call. Thank you for participating. You may now disconnect.