PLBY Group, Inc. (NASDAQ:PLBY) Q1 2024 Earnings Conference Call May 9, 2024 5:00 PM ET

Company Participants

Matt Chesler - Investor Relations
Ben Kohn - Chief Executive Officer
Marc Crossman - Chief Operating Officer and Chief Financial Officer

Conference Call Participants

Jason Tilchen - Cannacord Genuity
Greg Pendy - Chardan

Operator

Good day and welcome to the PLBY Group's [First] (ph) Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note 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

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 file 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 to begin the Q&A session. Operator?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Jason Tilchen of Canaccord Genuity. Please go ahead.

Jason Tilchen

Hey, good afternoon. Thanks for taking my questions. 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 are excited about improvements on the previous sort of structure of the deals that you've had in China? And when sort of the timing of we could expect some additional revenue to flow through these deals? Thanks.

Ben Kohn

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 signed, 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 sub-licensing the brand without our express written 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. You know, 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, you know, Duhan, our largest partner, you know, 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 will be holding them to the contract as well.

Jason Tilchen

Great. That's a really great color there. Appreciate that. And then as the business as a whole has sort of been transformed over the past sort of four or five quarters and obviously you've shed a lot of cost 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 that as we approach break even 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

Hey Jason, I'll answer that. It's Mark here. You know, 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 we're doing right now at Centerfold or the traditional playboy.com.

Jason Tilchen

Okay, great. Thank you very much.

Operator

The next question comes from Greg Pendy of Chardon. Please go ahead.

Greg Pendy

Hey, guys. Thanks for taking my questions. 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 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? Thanks.

Marc Crossman

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

Greg Pendy

Okay, that's very helpful.

Ben Kohn

I think, Greg, we also commented on where we are with the business. I think we've had two 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.

Greg Pendy

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

Marc Crossman

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. full EBITDA margin was one 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 you know, in the rest of Australia, there are just a few more stores that, you know, as we look at putting this in a position to ultimately be sold, there are a few stores that were clustered too close to the sister store and so we'll close those, but that's just a small amount of stores, a handful let's call three to four stores.

But you know one of the things that we're seeing that's really encouraging too is the shift towards Ecom and so we're driving every quarter we see more money or more percentage of our sales coming from Ecom. Ecom is supposed to our brick and mortar stores.

Greg Pendy

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 five-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

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, that $9.7 million, we can be somewhere around 70% of that and on a go-forward basis in the quarters. 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 baselining your model, I would say that about 70% of where we were versus a year ago quarter.

Greg Pendy

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

Sure, thanks Greg for the question. I think we've talked about this previously, you know, the first thing that I needed to do was to bring in a team and I'm pleased to announce that we've recruited a 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 this team is an expert in that and driving content with the goal of commerce on the backside of that. 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 two 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.

Greg Pendy

Great. Now that's helpful. Thanks a lot.

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

I appreciate you all dialing in for a Q1 call. We 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 is now concluded. Thank you for attending today's presentation and you may now disconnect.