All right. Good afternoon, everyone. I'm Jason Tilchen, a senior research analyst at Canaccord Genuity, covering digital gaming and entertainment. It is my pleasure to welcome Ben Kohn, PLBY Group's CEO. Ben served on the company's board since 2011 and was named as interim CEO in 2016, taking over in a full-time capacity in 2018. He previously served as managing partner at Rizvi Traverse Management from 2004 to 2018. Ben, thanks so much for joining us today.
Thanks for having me.
Absolutely. There's a ton to get into. We're gonna dive right in. Playboy is one of the most recognizable brands in the world. When people hear the name, they may think of the magazine or the mansion, not necessarily PLBY Group, a publicly listed company. So before we get into the recent performance of the business and some of the key developments, I was hoping you could maybe spend a minute just explaining how this current iteration of the business is connected to the legacy brand and how it's gotten from position A to position B.
Sure. So outside of Honey Birdette, which is an Australian lingerie business we own, everything else we have today is Playboy. You're right, it is one of the largest brands in the world, and that's what we're doubling down on. Long term, Honey Birdette doesn't belong as part of this company, and at the right time, we will sell it. But right now, the business is performing very well. We talked about that in our Q3 results, the month of October. We've seen those trends continue, and we've also made other operational improvements. We're focused on Playboy and really returning that to that experiential lifestyle brand that it was, and that's where the Playboy Club comes in. So the Playboy Club is the next iteration of our creator platform that we launched roughly 18 months ago.
Our goal last year was. Our creator platform is basically we have a SaaS business or a technology stack that allows creators to produce content and message with their fans. Most of those fans today come through their social media or from those creators. Last year, we had about 3.5 million people come through the door. We didn't spend a dollar in CAC, and then we take 20% of that revenue. So what we wanted to prove last year was, could a creator come to Playboy and make as much money on Playboy as they could on another platform? We've proven that. We've basically built the functionality that the biggest platforms have in 18 months, where some of them have been around for eight years.
The next phase of that is the Playboy Club, and the Playboy Club clearly resonates with the consumer, which is this is the place to interact with the world's most beautiful and interesting women. That's what made Playboy famous, right? It was the magazine, it was the Playboy clubs in real life. And what we're doing is we're bringing that together today in this experiential, virtual, and in real-life world. And so about two weeks ago, we launched membership as part of the Playboy Club. So people in 23 that came to the Playboy Club or to Centerfold, which was a previous version of our creator app, they can still come today as visitors. Very little has changed for their experience.
But as part of a member of the Playboy Club, not only do you get badge value in front of the creator and priority in their inbox, but you get a whole host of other benefits along the way, including things in the technology stack that are going to be available and are available only to members. And so what this allows us to do is really three things. One is, when you're only taking 20% of the revenue, it's very hard to acquire audience outside of what the creators bring to you. And so now that we have a $100 price point, I can actually go do affiliate deals to bring additional revenue in. Second, one of the things that the creators are asking us for is content. They want the Playboy photo shoots.
They want the return of the Playmate franchise and the return of the magazine. I can tell you right now, there's not an economic model that we could come up with to make a magazine a viable business. But going to a single set of KPIs around membership, I can make actually the numbers work for a magazine. And so that's what we're focused on, is returning it to this combination of virtual and in-real-life experience, leveraging the creators that we've brought to the platform, reintroducing content like the Playmate franchise, but all for the benefit of either bringing new creators on or a member reward. And then that will get coupled with in-real-life experiences. And so our first one's coming up in Las Vegas.
I guess we can't say Super Bowl, but we'll say Super Bowl, where there'll be a member-only experience at the Super Bowl, for members of the Playboy Club. And then, you know, down the road, there's a ton of other opportunities in gaming and other things that we can do, all with a nod to the history of the company. The company used to have in the gaming sector. We have partnerships with DraftKings and others through our licensing business, but we can do all of that as a member benefit moving forward. And with the economics we have, also bringing in the audience, that allows me to revisit the splits with creators because if a creator is bringing a consumer to the pot, 20% seems fair. That's what the competition charges.
But if we could actually start to bring in consumers through other ways, the question is, can we change the economics of that? And I believe long term we can, especially with the power of the brand.
There's a lot to dive in there. Some of it, just sort of. My next question, you sort of touched on a little bit, but this has clearly proven out to be a huge market, both here in the U.S. and around the world. There's a few large platforms that are out there. How would you say. What would you say are the, the few things that differentiate Playboy Club from some of the other competitors out there, and how do you leverage the Playboy brand to sort of further differentiate and give you an advantage there?
Sure. So creators want two things: They want to make as much money as they possibly can, and they want to become famous. And so the first thing we had to do was build the functionality that the other platforms have, right? Otherwise, a creator can't make as much money on Playboy as they can make on another platform. And in fact, actually today, we've launched an affiliate program. So we just finished building it. Now, creators are going to be incentivized for not only what they produce from a content and a messaging and a live stream perspective, but they're also going to get incentivized to sell memberships, sell tickets to our events, potentially bring in gamblers to a Playboy poker tournament, et cetera. So we're building other ways for them to make money....
The second thing is really the brand, and that's where content comes back in. That's where it comes back to, you know, relaunching the Playmate franchise, relaunching the magazine. Again, not to try to build a business model around the magazine, 'cause you can't do it, but to do it as a reward for creators being on the platform to help them become more famous, leveraging the power of this global brand where we sell product in 180 countries.
And what do you sort of view as the table stakes on the tech side? What's the progress you've made, and what sort of is on the roadmap over the next few quarters?
So I mean, there's been a thousand different improvements to the product over the past year. What we're really focused on is the brand side of it. And so just about a week ago, actually, or two weeks ago, December 26, we launched a new Playmate or a new creator profile. It's really a wink and a nod to the old Playmate profile on the magazine. With that, we actually have data cards. So, you know, very much if you opened an old magazine where you would have a Playmate fact sheet, you know, turn-ons, turn-offs, ambitions, et cetera.
What's so interesting for that is that's all UGC content that has a wink and a nod to the history, but it also gives us a ton of content now because creators can record that both in audio and video, where we can use on other social media channels to drive audience in. And then moving forward, I think you'll start to see the home screen really become a curated content feed for you, and discover will evolve into really from the Playboy editors.
In terms of, I think, as part of these different product enhancements you, you've been rolling out, you sort of changed the way that payments are done within the platform. Can you talk a little bit about some of that and what the sort of margin profile of this business looks like at scale once you sort of are finished developing some of the product features?
Well, so from a payment perspective, you know, we have changed credit card providers. We're working on some other ones to continue to lower our rates. As part of membership, we actually are offering members in their first year $25 in Bunny Money. Bunny Money is our internal token system. What that allows us to do long term, and we'll be turning on the ability to buy Bunny Money here very shortly. It's complicated because every state has slightly different regulations. But what we'll be able to do is start to basically batch credit card transactions, which allows us to lower our rates. And that to us is key because, again, from an overhead perspective, there isn't really any additional overhead we need to scale the platform now.
The real question will be: what is the margin profile and what is the next? Do we raise rates based on traffic that we bring? What does membership contribute to that? You know, membership by itself is an extremely profitable product. Outside of the $25 in Bunny Money and any affiliate fee we will pay, again, today we just announced that we will be paying creators $20 for every member that signs up that they bring. They each have their own unique code. But beyond that, there's very other few costs associated with membership.
You touched on it, I believe there's one sort of tier of membership today. How do you view the membership platform evolving over time, and how do you view it as sort of just one part of your sort of broader digital Playboy platform?
Well, so membership is going to be a multiple tiers over time. So right now, we're starting with a $100 tier. Long term, I see three or four different tiers that evolve, all at increased prices with limited availability. And so down the road, I could see a tier that we might charge $10,000 for, but it's only open to 5,000 people, and that gets you guaranteed access to Playboy events, guaranteed access to Playboy parties, et cetera.
Okay. How do you view the opportunity, sort of today versus long term in terms of domestic here in the U.S., international? What are some markets that are important to sort of grow into over time?
So today, about 70% of the revenue comes from the domestic market. Look, this is a brand that, again, products are sold in 180 countries. We, you know, we have a great German publisher. We have a great Mexican publisher. Part of what we've built into the product now with the affiliate program is incentivizing these publishers that have historically paid us a license fee for the right to produce a magazine in their territories. We've now turning them into sales agents, and so we're building that where they can actually market the Playboy Club, to their, their email lists. And then from a, you know, from a functionality perspective, also, historically, this business was a business that was built with, you know, 100 different products. We're aggregating everything into the club.
So what the team is working on right now is actually re-platforming our archives, which is called iPlayboy. It doesn't make any sense. It was an old name from 25 years ago, which are the archives of the 70 years of the magazine. That will also become a membership benefit, right? The incremental cost to that is zero, but people are paying for that product on an à la carte basis right now. The other thing it allows us to do by re-platforming it is it allows us to all of a sudden SEO it. So historically, we are actually paying about $140,000 a year for someone else to host that site. It was a license deal. We're actually taking that back in-house.
We will not be paying anyone anything to host it, and we'll actually get the SEO benefit of it as well.
There's super exciting stuff on the digital side, but there's also a lot going on in some of the other parts of the business. You sort of touched on briefly licensing. It's a big part of the historical PLBY Group story. About a year ago, you made a big change in China, entered into a joint venture with the Fung Group, sort of breaking everything down, sort of rebuilding it back up. Can you just maybe spend a few minutes going into a little bit more detail about what that move was about, the strategic rationale behind it, and then sort of what you're excited about in terms of building that back up going forward?
Sure. So on a historical basis, our licensing business was about a $60 million a year business. About $40 million of that came from China... What I would say is we had very suboptimal partners in China. You know, you have to take a step back and remember that China, unlike here, was on lockdown until December of 2022 for COVID. The economy, and especially for the customer that we're going after, which is someone in their 20s to 30s, you got 20%+ unemployment, although they don't publish those numbers anymore. You know, China has definitely taken a hit, and our partners took a hit. Now, what I will tell you is, in good times, our partners weren't paying us what was owed, in the bad times, they stopped paying us. And so we took a sort of a long-term view.
partnered with Li & Fung, or a Li & Fung, who has real people on the ground there that knows the local market, but most importantly, has relationships with the top platforms, Tmall and Douyin, which is where the majority of our products are sold today. We ended up doing an extensive audit, both from a legal and a accounting perspective of our partners. In addition to their non-payment last year of license fees owed, we found other gross violations that were non-curable. And so we decided to terminate those partners a few months ago, and we are in the process of rebuilding the business the right way, with the goal of taking ownership in the storefronts.
Again, not operating the storefronts, that's up to our partners or our licensing partners to do, but taking ownership in the storefronts, so at the end of the day, if a partner misbehaves, that storefront stays active, and we can move a new partner in. And, you know, we have signed new deals with partners. There's a ton of interest because the brand is still very strong there, and I'm confident over time, we will rebuild that business. And then the rest of the world, you know, we have great partnerships with, with Drake and OVO, with PacSun, with YSL, and that's also how we've built the brand, is through all of these unique collaborations we've done.
Yeah, it's been resonating really well with the youth audience, which is obviously extremely important these days. You were at one time operating sort of a Playboy.com, e-commerce, a DTC platform. You've also transitioned that to a licensing model. Maybe just talk a little bit about that move and how that's performed relative to expectations so far.
Yeah. So it's still very early. A few years ago, we decided because of the consumer spend against the brand, to build our own e-commerce efforts. And we, at that time, had a different balance sheet than we have today. We built that business to a mid-$20 million business, but it was losing millions of dollars a year, and so we decided to outsource that to actually the founders of Anti Social Social Club, who had been a very successful Playboy licensee. We take a percentage, a very high percentage of net revenue from that partner. We no longer have any working capital requirements in that business. It's a pure licensing and profit center, and we're no longer losing money.
More importantly, you know, as we start to think through membership in the Playboy Club, that partner has unique capabilities that we didn't, so we can start to offer member-only clothing and other accessories to them, you know, like the Playmate calendars and others, that they have the ability to fulfill that would have taken us a ton of work. We've also been able to reduce our overhead significantly, not only by outsourcing the Playboy e-commerce business, but by also selling off to, what I would say is sub-par marketplace assets that we had bought in a previous life. One was called Yandy, which was a very low-end lingerie e-commerce business that had seen a big spike during COVID, but given the changes on marketing for e-commerce, was falling on hard times.
Lovers, which was a chain of 40 sexual wellness stores. The only way to really build that business would have been pouring CapEx into brick-and-mortar stores, and that was just not a good use of capital, nor did we have the flexibility to do that as part of our balance sheet. I would much rather put that into Honey Birdette, where we see 30% four-wall EBITDA margins, you know, on a $700,000 cost to build out a store.
I want to touch on the restructuring, some of those moves you've made and the cost savings in a moment. But just one last question on the licensing business. There's billions of dollars spent every year on merchandise that has the Playboy brand on it. In terms, we've mentioned China, that's probably the largest market. What are some of the other markets? What are the key products that are driving those sales, and what are some of the other verticals that you're looking at getting into to leverage that brand, going forward?
So globally, about 70%, 70%-75% of that spend is on fashion and apparel. China, from the spend perspective, is probably close to the United States. United States being smaller, but, you know, China was the number one market. We're strong in Korea, we're strong in Japan, we're strong in other parts of Southeast Asia. Again, you know, we sell product in 180 countries. You know, we have this new partnership with DraftKings that launched in the H2 of last year. So we have a gaming business. This company has always been in the gaming business in some form. Pre-COVID, we did have brick-and-mortar. Today, it's all digital. And then we have a really exciting spirits partnership.
So we tested both bourbon and tequila last year, and our partner, this guy named Marc Bushala, started Angel's Envy. You can go to the bar in either of these hotels, and see it. He sold that to Bacardi for a lot of money. He's Bob Dylan's partner in Heaven's Door. But we just launched ready-to-drinks, and so far, you know, knock on wood, those are off to a very good start.
That's great. And just going back to some of the restructuring moves you made, selling off those two businesses and sort of refocusing things around licensing and digital, can you quantify the cost savings that you've generated through those moves and sort of where you are in terms of realizing those, as of sort of the end of Q3 or 2023, and then as we look at 2024, how that sort of cost structure looks like?
Yeah. So, you know, in April last year, I replaced my CFO with someone I had known. We've rebuilt the business from the ground up. We've taken millions and millions of dollars out of the business. Our goal is to have our corporate overhead under $25 million in total expenses. We would like to be sub a hundred. You know, we're a long way to getting there. You know, we have $208 million of debt, and so we know what we need to do to service that debt, and our goal is to do everything we can to make sure that we service that debt and hopefully more.
... Yep, that's, that's very helpful. And some of these restructuring moves have resulted in a, a decline in reported revenue from continuing operations, or not from, from total operations, but when we, when we get to the continuing operations, the businesses we've been talking a lot about today, what do you see as sort of a, a steady state, normalized annual revenue base that you're gonna sort of have here in the near future? And then what is sort of the growth trajectory that you are targeting over the next few years?
Right. So right now, we're, we're not giving guidance, and we haven't been giving guidance, but what's left of the business is Honey Birdette, you know, which as we talked about, in October or November when we reported Q3, and then this year, and the rest of the quarter, was strong. We have our legacy, digital businesses, we have our creator platform or the Playboy Club now moving forward, and then we have our licensing business. And so, you know, we think there's a big opportunity in licensing still, and we think there's a huge opportunity on the digital side of the business. Honey Birdette, you know, given its performance, we are reevaluating now, opening new stores as we move into 2024.
Yeah, I wanted to spend a few minutes talking about Honey Birdette. You mentioned, you know, obviously there's potential to divest that at some point, depending on timing, but right now, it's part of your portfolio of brands. It's a sort of an international business. What are some of the key markets that that brand sells into? How is the product positioned relative to its competitors, and sort of, how has the brand performed sort of over the past few months?
Yeah, so it's premium lingerie. You're talking about $125-150 price points, maybe more, for bras. About 42% of the business comes from Australia. It was an Australian business. The bulk of the retail stores are also in Australia. About 45% of the business is in the United States, and then the rest of the world makes up the difference. What's really interesting when you look at the retail footprint, and every time we open a retail store, we actually see an uplift in e-commerce in that geography. But e-commerce is now 60% of the business. The business has performed well. There's a lot of operational changes we have made to the business last year.
We had bought the business in August 2021, and right after we bought it, unfortunately, Australia went back on lockdown. And so the previous owner had ordered a ton of inventory. We have a long lead time on inventory, and so in 2022, we had to discount because we had to move that inventory out. When I sort of look at 2023 and then moving into 2024, we've considerably cut down the number of days that we're on sale, really focused on improving margin. In Q3, we announced that we had increased gross margin by 300 basis points, which is a lot when you look at the overall revenue for the business. But since then, we've done other changes. We've completely changed our shipping policies.
Basically, everyone was qualifying based on the average order size, which in the U.S. is like $280 for expedited free shipping. We've now discontinued that and charged for expedited shipping. We've changed our return policy, and then we've also put a 10% price increase. So as labor has gone up over the past two years, we have not raised prices, and so we just instituted a 10% price increase. Because our tagging is done at the factory, that takes a while to roll in, and so you'll start to see that rolling in now through June of this year.
Okay. Very, very helpful. I want to give the audience an opportunity to ask any questions, as we're running out of time here. So if anyone has any questions, raise your hand. Otherwise, we can get back into the questions. Over here.
What percentage of your total revenue comes from overseas?
Well, so, if you look at Honey Birdette and our international licensing business, well over 50% of our total revenue comes from overseas.
I just have another one, unless the audience does. You talked earlier about how well the brand has resonated with sort of the youth audience. What's impressive to me is that it doesn't seem like you guys are out there spending a lot of money marketing it, it's just the legacy of continuing what the brand has been sort of known for, even though it's a totally different audience, that was sort of when it was in a different form. So I'm just curious, like, what's been the biggest drivers of that? How do you sort of leverage social media to drive sort of organic reach? And will that plan change in terms of marketing as you continue to try to grow the digital platform?
Look, this is a brand that has transcended generations, and it's a brand that just resonates. You know, it's quasi-counterculture to some extent. The way we've rebuilt the brand is, one, through content, so this is going back when I took over in 2017, 2018, and 2019. And then two, was through the collaborations we did. So went into, you know, PacSun, Missguided, YSL, Drake, Supreme. We're one of Supreme's longest-standing collabs partners. And then what we're actually doing moving forward is getting back into the content game. We just can't get back into the content game the way we did it, right? I had a magazine staff that, no matter what you said to them, would only focus on producing words on paper. It's just not how my kids consume content anymore. And so we are video and audio focused moving forward.
We're leveraging our creators to do that, and we're leveraging our photo shoots. We can do, you know, a photo shoot for a Playmate historically would cost us $200,000. You know, we're gonna be doing it for thousands of dollars now, right? And we're gonna get more bang for the buck because I'm gonna have more assets that I can use on YouTube and social media than I ever had before. So I think it's a combination of all of that. But at the end of the day, you know, I don't care where you go, what high school you go to in the country, kids are wearing Playboy, and I think kids find Playboy to be cool.
Yeah, it's certainly a brand that has stood the test of time. Speaking of time, we're running low, but I'm just curious, one sort of wrap-up question: What sort of is the most important thing about the company that you hope investors take away from our conversation today?
I think just the pure asset value we have. And so I know we have debt, we're working on solving that debt, but the underlying brand value of Playboy is, is just unbelievable. You can't replace something like this. You could spend tens of billions of dollars trying to build something like this that we have on a global basis, and you couldn't do it. And so I feel very, very good about where we sit digitally. I think that the economic model that we are moving down with the Playboy Club completely changes it from just a pure creator platform and leans more into what the creators have. And at the end of the day, we have this, this great cash flowing asset in the licensing business. And so that's the asset value.
I think Honey Birdette, you know, had a tough H1 of the year, but the improvements we've made are there. We're seeing the results from it, and at the right time, we will sell a part or all of that asset.
Awesome. Well, we're out of time, but thanks so much for joining us today.
Thank you. Appreciate it.
Pleasure. Yeah, absolutely. Awesome.