Acquisition

Jun 28, 2021

Hello, and welcome to PLBY Group to acquire Honey Burdett Conference Call. On today's call are Ben Cone, Chief Executive Officer of PLBY Group and Lance Barton, Chief Financial Officer of PLBY Group. During the course of this call, statements are made that are not statements of historical fact, constitute forward looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those contemplated in these forward looking statements. Existing and prospective investors are cautioned not plays undue reliance on these forward looking statements, which speak only as of today's date. For more information, please refer to the risks, uncertainties and other Factors Discussed in PLBY's Group SEC filings. All cautionary statements that we make during this call are applicable to forward looking statements that we make whenever they appear. You should carefully consider the risks, uncertainties and other factors discussed in PLBY Group SEC's filings. In today's conference call, we will refer to certain non GAAP financial measures such as adjusted EBITDA. You will find a historical Reconciliation of these non GAAP measures to our actual GAAP results included in the appendix section of the investors presentation. And now I'd like to turn the call over to Ben Kone, Chief Executive Officer of PLBY Group. Ben? Thank you, operator. Good morning, everyone. I'm thrilled to announce that we have signed a definitive agreement to acquire Honey Burdett. We have posted an investor deck on our website, which we'll reference on this call. First, I'm going to talk about the Honey Perrette brand and why we think this is such a pivotal, accretive and synergistic acquisition for the company. And then Lance will take you through some specifics of the transaction. Based in Sydney, Australia, Honey Burdette is a luxury lifestyle and lingerie brand created for women, by women with an unbelievable following and customer base, which we will touch on. The brand and its product price points also allow us to expand our addressable market. We believe this acquisition not only expands our direct to consumer portfolio with a global brand targeting the sexual wellness category, but also accelerates our go to market strategy of private label product development by bringing us superior design and merchandising capabilities that we can leverage across our portfolio. More specifically, that allows us to launch Playboy lingerie, swimwear and accessories in a much quicker fashion than if it were to build it ourselves. This is a critical first step as we continue our transformation from that of the licensing business to that of a high growth B2C company. Honey Burdett was founded in 2006 by Elle Monahan, who has been the creative force behind the business for over 15 years, designing products that inspire both confidence and female empowerment. And I'm very happy to say that in addition to continuing her role at Honey Burdett, She will be joining PLBY Group and will be relocating to Los Angeles in her new role as we look to further build out the team, launched Playboy Lingerie and Swim and to rapidly accelerate HB's growth here in the United States. With Honey Burdette, we are adding an extremely talented team with the design, sourcing and merchandising capabilities that we need in order to accelerate the growth of our existing direct to consumer business. All of Honeybird X products are designed in house and the company works with European fabric houses and embroidery technicians to offer the highest quality lingerie and apparel. The company started with lingerie and expanded into bedroom accessories and intends to soon launch swimwear in 2 weeks at Miami Swim along with loungewear and everyday essentials later this year. Turning to Page 6 in the presentation we provided. As a standalone, the business has achieved substantial growth in both revenue and EBITDA over the last few years. And in their fiscal year 2021 in June was $73,000,000 of revenue, up over 40% year over year and $28,000,000 of EBITDA. Most impressively, after firmly establishing the brand in their home market of Australia, Honey Burdett has managed to grow rapidly in both the United States and the UK markets and we think they are just getting started globally. Today, only 24% 10% of revenue comes from the U. S. And UK, respectively. And in the U. S. Has achieved over 150% compounded annual growth rates over the last 3 years. If they are able to replicate the success We think the brand could generate over $500,000,000 annually just in the United States on their existing product base of lingerie and bedroom accessories, not including the new categories they are launching. Honeybird operates a direct to consumer omni channel model, which with more than 50% of the revenue coming online and growing over 67 10 year over year. They've created an experiential brand. Their 60 retail stores are an experience that drives and accelerates both e commerce traffic and enhances customer loyalty. In addition to a new store in Las Vegas, which opened a few weeks ago to great success, We will be opening new stores in the USA later this year in Dallas, Miami and Scottsdale. Turning to Page 7. The brand's iconic styling, unique marketing campaigns and differentiated retail experience have earned it a cult following of brand savvy consumers attracting a young, affluent and highly engaged predominantly female audience. The loyalty this brand engenders is astounding. On average, 40% of customers repeat and repeat purchases represent more than 60% of revenue. Lifetime revenue for repeat customers exceeds $7.60 And the average order value for Honey Burdett is over $170 globally. We also see that the U. S. Customer delivers significantly higher lifetime revenue than the Australian customer, which we believe portends well for the brand as it continues to scale here in the United States. I'm a big believer in the power and value of brands. And the Honey Perdette brand has resonated globally with their targeted consumer and drive significant organic reach. Over 80% of their web traffic comes from organic sources And this represents another great growth potential given our customer database at PLBY. Similar to Playboy, Honey Burdett has a large celebrity and influencer following who wear the brand because they love it, resulting in free marketing and exposure for Honey Burdett. On Page 8, Honey Burdett adds a critical piece to our direct to consumer portfolio targeting the sexual wellness category and will bring us capabilities that we can leverage as we develop our own products in Houch. Each business in our portfolio brings something unique and we are integrating operations across the group to drive efficiencies and cross selling. Our flagship brand, PLAYBOY, is an iconic global brand that has withstood the test of time and is the original lifestyle brand. One that is perceived as an authority on sex, Intimacy, Pleasure and Leisure. Yandy brought us an e commerce infrastructure and significant base of customers seeking sexual wellness products. Lovers brought the superior merchandising capabilities in omni channel retail experiences and they believe to optimize customer acquisition across various channels. We believe the acquisition will build upon the successful acquisitions of both Yandi and Lovers. On Page 9 to summarize, We are buying a high growth and highly profitable global luxury brand with an extremely loyal, affluent and young female customer base. Honey, Burdette brings us 1st class design and merchandising capabilities, which we expect to leverage to accelerate our go to market strategy for Playboy branded products, especially in the immediate term as we seek to launch Playboy branded lingerie. It also further expands our direct to consumer footprint globally, giving us a start in the APAC region as we seek to further expand there over the long term. I'm really excited for what Elle and the entire HoneyBridgette team can bring to our organization. We've built a phenomenal brand and I think the addition of it to our portfolio is quite compelling as we continue to execute on our growth strategy. Now, I'll turn it over to Lance to walk through the specifics of the transaction. Thanks, Ben. Slide 10 lays out some of these details that Ben was referring to. We expect the transaction is going to close during the Q3 We have received approval from the Australian Foreign Investment Review Board. The purchase price is going to be payable in Australian dollars and will be equal to 12 times the actual adjusted EBITDA that was achieved by the company for the 12 months ending this June. Based on current FX rates and where we think adjusted EBITDA will come in, we expect the purchase price to be approximately $333,000,000 71% of the purchase price or approximately $238,000,000 will be payable in cash, which we can currently fund from our existing cash on our balance sheet. The remaining 20 $95,000,000 will be payable in PLBY shares. The share price that's used to calculate the number of shares issued at closing is the 20 day VWAP prior to signing, which is $43.01 That's a 13% premium to yesterday's closing price, and we expect to issue just over 2,200,000 shares to complete the transaction. Subsequent to the closing of this transaction and also accounting for the 4,700,000 Shares issued in our June 14 public offering, we estimate that pro form a shares outstanding will be approximately $40,700,000 sorry, 40,700,000 shares. As Ben mentioned at the outset, we believe that this is a pivotal acquisition for our company. Honeybirdett provides us with an incredibly strong global brand with a loyal customer base, which we can continue to build upon, Strategic capabilities to accelerate our go to market strategy as we launch our own branded products and increase scale and growth as we continue to build out our direct to consumer Forum. This scale and growth can be seen on Slide 11. If you look at PLBY on a pro form a basis, Assuming 12 months of revenue contribution from Honeybirdett, we are now a business with over $280,000,000 of annual revenue growing at 40% year over year. 70% of our revenue will come directly from the consumer versus 43% just last year. And our geographic footprint We are incredibly excited for this new chapter and we'll continue to execute on our growth plans as we build on the power of our brands and massive reach to deliver the pleasure lifestyle to our consumers around the world. With that, I'd like to ask the operator to please open the line for questions. Thank you. And your first question is from the line of Jim Duffy with Stifel. Thank you. Good morning, guys. Hope you're doing well. Congratulations on this deal. Thanks, Jim. Ben, I wanted to start by asking about the synergistic infrastructure. Can you talk about Honey Burdett's design and sourcing Operations, how many designers you'll be picking up, opportunity to scale that, where the products are sourced. And then I'd also like to ask about the Asia econference Infrastructure and Reach, is this just Australia or is the reach into New Zealand, Southeast Asia, other Asian countries? Great. Thanks. Good morning, Jenn. So we are picking up their full design team, which is based in Australia L is actually in the process of moving to the United States later this year. And we will be also hiring people here As we look to rapidly expand the launch of what will be a much higher end Playboy or Playmate lingerie swimwear business moving forward. Their e commerce infrastructure is in the United States, it's in Australia and it's in Europe. They'll be launching more local language sites later this year. And we believe there's a big opportunity for Playboy in the APAC region that we Potentially can leverage the Honey Per Det infrastructure out of Australia to grow. And so overall go ahead, Lance. I was just going to say, and Jim, actually international e commerce represents more than half of their total e com sales. They've actually been scaling ecom outside of Australia quite rapidly and that makes up more than half of the e commerce sales. And I think the Staff itself has 9 designers in addition to the founder, Elle. We've got Their own warehouse in Australia and using 3rd party logistics here in the U. S. And in the U. K. Sorry, sorry, Paddy. I can cut you off. Yes. Jim, those 3rd party logistics over time, we will be consolidating into ours for synergies. What's so impressive about this brand Is almost all of their revenue is organic. And so there's a huge opportunity when you look at that AOB and the lifetime value of that customer to rapidly expand that throughout the United States and then as we look at Europe and other places in the world. That's pretty impressive. That's pretty impressive. That's pretty impressive. Go ahead, Lance. I don't want to cut you off. I was just going to say, I think you'd asked a little bit about sourcing too. We mentioned that the company is working exclusively with European fabric houses and embroidery technicians company has multiple major and minor suppliers, and for non lingerie product lines, they've got a minimum of at least to suppliers. So we've got some redundancy there. A majority of the suppliers are based in China, but some of the stuff like the lace in particular is sourced in Switzerland. So very, very high quality product and all of the designs are done and developed in house by the Yes. I mean, Jim, as we think about the Playboy lingerie, this also expands our addressable market. So, Honey Burdette will be priced at a higher price Then Playboy Lingerie, obviously luxury versus what we deem to be massaged for Playboy. And so we can change some of those fabrics On the embroidery side, it's actually very complementary to our customer base, as it expands out the addressable market. Yes, seems like some great synergies that will help you scale that Playboy business. The notion that more than half The e commerce is from international markets is pretty impressive. There must be a strong social element supporting that, driving that organic uptake of the brand. Can you guys Speak to the factors behind the brand penetration really leading the Retail expansion of the brand and markets outside of Australia? I can touch on the social media piece. They've got 1,100,000 Instagram followers. I think when we started talking to the company, it was probably less than 1,000,000. They've been scaling that rapidly, both in Australia and even here in the U. S. Where the brand It's less well known than it is in Australia. You've got a lot of celebrities and influencers, wearing the brand. Again, it's very similar To Playboy and that they're not paying for these influencers and celebrities to wear it. They're wearing it because they love the brand. So they've really got pretty massive Influencer Reach. All they'll really do is obviously provide product to the influencers if they so choose to wear it. So that's really helped them scale the business. I think we mentioned that over 80% of their web traffic is organic, just coming from word-of-mouth, coming from their email list. I think they've got over 500,000 People in their email database. So, quite impressive resale and that's allowed them to scale as profitably as they have. And I'll turn it over to Ben on the retail side. Yes. I mean, look, there is very strategic in the stores that they're expanding to in the United States. Las Vegas opening was an unbelievable success and we're very confident in their future growth in Scottsdale, Miami, etcetera. What we've seen though in the data is that when you actually look at the e commerce growth in specific markets, so take Miami, you opened in Miami. It actually has a direct correlation to your e commerce growth as well. And so we think, again, we're very focused on the B2C Seaside and specifically e com, but we have seen the data that there's a direct correlation between the store opening and the growth in that market from an e commerce And so selectively we will continue to open further stores as we know it lifts The overall vote or the overall pie. Your next question Your next question is from the line of Austin Moldow of Canaccord. Hey, thanks for taking my question. Is that 38% margin structure for Honey Per Dead sustainable when brought into the fold? And What's the read through to the margin structure for PLAYBOY branded products you'll be launching by leveraging Honey Per Day? So, yes, I can take that. Look, I mean, as we've talked about before, obviously, we're investing to grow the brand. I think that 38% is indicative of things that we've said before in terms of long term ability to get North of 30% margins. When you look at the organic reach, the influencer and celebrity reach that The Honeybirdet brand has, which is very comparable to what we see at Playboy. That's a big Part of that margin structure because you look at other direct to consumer businesses and they're spending massive amounts on marketing their brand, trying to generate And generate that awareness, whereas our existing flagship brand, Playboy, doesn't need to do that. And Honeybirdet has done a Phenomenal job of building up that awareness and that following. So, I think that portends well for margins in the future. It certainly doesn't include synergies that we can generate both on the revenue and the cost side. Yes, look, I'd say margins could go down in the near term, but I think over the long term, I would expect that it aligns with what we've been telling you, which is we think at scale, Given the strength of these brands and the ability to launch private label products, which is what we've been saying we want to do Those are higher margin products. We think that this can be a business that generates north of 30% margins and Honey Burdett is proof that that is achievable. Yes. And Austin, without getting into specific margins on the per product basis, The gross margins when you look at Hyatt Mandre are absolutely phenomenal and as well as with toys. And remember, their revenue growth today Doesn't include any real marketing. This is an organic business. This is a very loyal customer base when you think about The 40% and 60% numbers that I talked about earlier. And so your ability potentially To even play with margins slightly, but actually really accelerate revenue growth exists with this business and that's one of the things that made it Very attractive to us outside of the financial profile that we think we got a great deal given the EBITDA margins and the revenue growth rates. Thanks, Steph. Next question, operator? Your next question is from the line of Alex Fuhrman with Craig Hallum Capital. Great. Thanks very much for taking my question. It sounds like a tremendous opportunity here to Grow the brand in the U. S. And I think you threw out a pretty ambitious revenue number for what you think that brand could be generating here. Can you give us a little bit of color on kind of what are some of the things you're looking at that really give you Confidence in that projection. And then as you think about Honeybird data scale, presumably generating 100 of millions of revenue in the U. S. What would you think the brand would look like at that type of a scale, in terms of the store footprint and the merchandise assortment? Do you envision Honey Burdette getting into other apparel categories on the way up to that size and scale. So I think Alex, good morning. I think we talked about selectively opening stores in the right markets. And When you think about that long term, you can think about 15, maybe 20 stores. But what we do know is that there's a direct correlation to e commerce growth off of that. As far as product categories, I mentioned this in the comments. They'll be launching swimwear. The line looks unbelievable. That will launch in approximately 2 weeks at Miami Swim, in the Western Hemisphere. And then, obviously, given the strong presence In APAC that will launch in the winter, our winter here, given our seasons are reversed. They've also developed a line, what I would say is everyday essentials. So think of that as something similar to a Calvin Klein underwear. Great product recall that will launch later this year as well swimwear. And so those are the immediate Products that are in the pipeline that are developed and ready to go. And then in addition, obviously our PLAYBOY Lingerie and swim. But we think and we know because of the design capabilities in the team that product assortment over time can continue to expand. Lance, you want to talk about the market size? Yes. I was just going to say, look, we see a few things, right? Looking at the U. S. Market size relative to Australia, I mean, there's a lot of different comps you can look at. But by and large, you look at this market and say It's well north of 10x the size of Australia. So that squarely puts you north of $500,000,000 in terms Revenue potential there. We've done internal analysis as well in terms of trying to think through What do we think the opportunity could be in the U. S. And it triangulates around that as well. The other thing that I'd say that We're very optimistic about when you look at the lifetime revenue that the customer in the U. S. Is generating, It's significantly higher than what they've got in Australia. Again, I think that's just a function of GDP per capita here in the U. S. And buying power here in the U. S. But again, if you think about Honeybird App's ability to continue to scale here in the U. S, and like I said, if they are as Successful in the U. S. As they are in Australia. We think that is a much, much larger opportunity than And they currently have in Australia. So we think it's great. And look, you can look at other Brands out there in the lingerie space and how they've been over time. And to get to $500,000,000 of revenue would be a huge accomplishment, but it Wouldn't be the largest revenue lingerie brand out there. So, it could obviously even be higher than that if we're really So we've got very ambitious plans for the brand and we think this is really going to accelerate our growth in the direct to consumer segment. Next question please. Your next question is from the line of George Kelly with ROTH Capital Partners. Hey, everyone. Thanks for taking my questions. So I'll be quick, just a couple questions for you. First, I understand the benefits that you've laid out just as far as internal capabilities, design, etcetera. If you just think purely about the brands here and managing these brands, can you talk about how Honeybirdet and Playboy will be complementary, will help each other go to market, etcetera, especially thinking about in the U. S. As you're managing these Two different brands. Sure. I'll take that. So, Hany Burdett, Good morning, George. Has an extremely loyal female following with it. And so when you think about The repeat customer rates, you think about the percentage of revenue that comes from that and that lifetime value of that. This is a brand that's a luxury brand. It's Price to the price point that is considerably higher than where Playboy product will be priced. And so we think it's actually complementary to the Playboy brand. I think we share the same ethos on pleasure in people's lives. But it allows us to move customers around, it allows us for further segmentation. Playboy is a massaged brand. And so we believe on a combined basis, it's complementary. But more importantly, The product quality that they've been able to achieve at the margins they've been able to achieve that. When we think long term about launching Playboy Lingerie, Playboy Swim, Playboy Loungewear. And this is really about transformation in the business that we've been talking about now Since we went public from that of a licensing business to that of the owned and operated, we now have that infrastructure in a acquihire or wholesale way that allows us to accelerate that growth and we know our brand works in that space. And so again, our research tells us that consumers By lingerie at different price points, and this will be deemed to be a luxury, while Playboy will be continued to be the Masstige brand. The other thing that I'll add on to that just real quickly before I have to jump is that when you think about the influencer and celebrity Strategy that can also be very complementary as well. You think about folks that are interested in the Playboy brand, presumably there, They can also be interested in the Honey Burdett brand. So whether we've got those relationships already or whether Honey Burdett has those relationships, we think We can further build out that network with one another. So we think that's quite powerful as well. I think that's all the time we've got today. Really appreciate everyone joining us. We're thrilled with this acquisition and look forward to continuing to update everyone as we move forward. Thanks. Thanks, everyone. Thank you. This does conclude today's conference call. You may now disconnect.