Greetings, and welcome to PLBY Group's First Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ashley DeSimone with ICR. Thank you. You may begin.

Good afternoon, everyone, and welcome to PLBY Group's First Quarter 2023 Earnings Conference Call. I'm Ashley DeSimone from ICR. Hosting today’s call are Ben Kohn, Chief Executive Officer; and Marc Crossman, Chief Financial Officer and Chief Operating Officer. The information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PLBY Group, Inc., 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 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 PLBY Group’s actual results to differ from its historical results and forecast, including those risks set forth in PLBY Group’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 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 its Form 8-K today. I will now open the call to Ben Kohn. Ben, please go ahead.

Thank you, Ashley, and good afternoon, everyone. Before we get started, I would like to introduce Marc Crossman, our new Chief Operating Officer and Chief Financial Officer, who joined us just about a month ago. Marc brings a wealth of operating experience both in consumer products, and the technology sectors to the team. As you will hear in a few minutes, Marc is in the beginning stages of helping me rebuild our cost infrastructure, and has already identified millions of dollars of cost reductions, not previously identified that we will be going after in the coming months. With Marc now on the team, I have reorganized our management team. Marc, will be taking over consumer products in addition to his CFO responsibilities, and I will be focusing on our creator platform and licensing. I'm pleased to report that in Q1 GMV on our creator platform increased 2.4 times over Q4. And since our last earnings call on March 16, our weekly GMV as of last week has increased a further 70%. We have also made significant progress transitioning the business to a capital light model. This afternoon, I'm going to share updates in three key areas. First, I'm going to dive into more detail on the growth of our creator platform, and why we're so excited about the momentum we're seeing. Second, I'll share an update on the work we've done to improve the long-term economic of our JV in China, as well as other updates on our licensing business. And third, I'll expand on the progress we've made streamlining our operating model and reducing both our operating expenses and our gross debt. Marc, will then walk you through some updates on Lovers and Honey Birdette, and provide you with more detailed financial information. First, on our creator platform. As…

Thank you, Ben, and hello everyone. Since joining as CFO and COO, I've been working closely with Ben, to rebuild our cost structure and fully move the Company towards a capital light model. As a part of this process, we are aggressively reducing cost not needed to support our two business lines moving forward, the creator platform and licensing. These two businesses have greater potential for growth, higher margins and lower working capital requirement. Before I get into the financials, I want to share with you a few of the initiatives we're taking at both Lovers and Honey Birdette. At Lovers, our store traffic is down commensurate with the industry and in the absence of deploying significant sums of money to marketing we're focusing on lifting our margins and diversifying our product assortment to give us the flexibility to run promotions in-line with our competitors. Regarding margins, we are leaning into our Playboy Pleasure’s line of sex toys, a licensed product. Playboy Pleasure just crossed $1 million in sales and carries roughly 25 points higher gross margins versus our average gross margin and it's only been in stores for a couple of months. We have a new Playboy Pleasure’s assortment landing in Q2 and are developing another special line for later this year. In the last month of the quarter, we saw an improvement in conversion and average transaction value. And starting in June, we plan to bring our promotional efforts in-line with our competitors to accelerate our revenue growth. Turning to Honey Birdette. Our sales were down year-over-year for three primary reasons. First, as we previously discussed, we did not run our March promotional event this year. Second, the particularly difficult macro environment in Australia. And third, switching our digital advertising agency, which impacted our online sales or about…

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jason Tilchen with Cannacord. Please proceed with your question.

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

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

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

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

Great. Thank you.

Our next question comes from the line of Alex Fuhrman with Craig-Hallum. Please proceed with your question.

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

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

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

Yes.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

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

Sure. Let me just paint you a realistic picture of what will be left. What's left is Playboy and we're leaning into that $1 billion brand at Playboy. And specifically, our creator platform will be our hero product. The growth we're seeing with that warrants that and licensing providing high margin cash flow to support that. That's what's left. And what we look at from an organization is a much simpler organization. In fact, when you look at sort of a working capital, situation as well, you're almost in a negative working capital situation based on how the cash flows in that business work.

Okay. Marc, I wanted to ask on Honey Birdette, this was at the time of acquisition, mid high periods EBITDA margin business with an eye towards what you might be able to realize strategic alternatives, where are those margins now? And what do you think is realistic for margin structure for that business?

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

Okay. Is that a re-queue or you have time for another?

We have time for another one Jim.

Okay. Great. You mentioned the new payment processor lower speeds by 50%. Whatever the payment processing rates are you -- you have been able to get that to the single digits with this new payment processor?

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

Helpful. I'll leave it at that. Thank you.

Thanks, Jim.

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

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

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

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

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

Okay. Thanks.

[Operator Instructions]. There are no additional questions. I'd like to hand it back to Ben Kohn for closing remarks.

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

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