I'm George Kelly with Roth. Excited to be up here with Marc Crossman from Playboy. Marc, thanks for being here. He's CFO and COO of Playboy.
Right.
We don't have that much time, 25 minutes. I'll get it kicked off with questions. I will stop every once in a while, if you have questions, feel free to shout them out. Let's start off with UTG. You just, I guess, announced and then shortly thereafter closed the deal, it's a big one for the company.
Yep.
Thanks everyone for being here. I'm George Kelly with Roth. Excited to be up here with Marc Crossman from Playboy. Marc, thanks for being here. He's CFO and COO of Playboy.
Right.
We don't have that much time, 25 minutes. I'll get it kicked off with questions. I will stop every once in a while, if you have questions, feel free to shout them out. Let's start off with UTG. You just, I guess, announced and then shortly thereafter closed the deal, it's a big one for the company.
Yep.
Maybe if you could start with, I guess for context, it's a $122 million deal in China. They just found a new partner. Eight-year deal. It's a really substantial deal in your licensed business. Maybe if you could give us a little background on UTG and why you were attracted to them as a partner.
Sure. Thank you everybody for being here. Thank you, George, for having me. UTG was an old licensee of ours from many, many years ago. We had replaced UTG. We had a number of licensees that we used in China, built the business up to a $40 million business, did an audit on those licensees that we had, ended up having to cancel them, took a $40 million business down to zero. UTG, we were in the market trying to find a new licensee, UTG approached us. They run the business for Jeep, which is kind of a lifestyle brand, believe it or not, in China. They just took on Dickies, we feel like they're the right partner to use going forward.
Do you have kind of a size for Jeep and Dickies? I think those are really sizable businesses for them.
Huge. Yeah.
Maybe walk through the progression. I think they've been with Jeep now for, what, a decade?
Yeah.
How big is that business for UTG? How did they grow it? I know they created the brand effectively in China.
Yeah. I'm not really allowed to talk about their business. It, at retail, does well over $1 billion. From what I understand, it's a very sizable business. As you said, they grew it. They grew it from the very beginning and really created the brand in China, and it's very Americana, which is what they love about it, which is the same reason why they want to be involved with the rabbit head again.
Okay, understood. That deal was just signed. I'm not sure if you have kind of a timeline for what their plans are with the brand. Is that something that maybe it's still kind of in development, but do you have a sense for what they plan to do with it?
Yeah. The thought process, we have a number of licensees already that have deals ranging from two to five years, and they have a pretty big operating business from the Jeep business, from the Dickies business, and what they really want to do is scale down the existing licensees, get them out of the business, and then become their own operator for our business. They're truly an opco. All of the operations go into them. They'll be the licensee. We signed a license with their opco, their goal is to ultimately be the only one making the goods in China.
Okay. I guess just to repeat that, they're going to kind of phase down the existing business. Some of your licensees still have timing, over time, they'll take over more and more of the business, is that right?
Yeah, hopefully, they're not listening to this webcast because they won't be too excited about it. Yeah, that is the intention. They're talking to some of these licensees that we have, everybody's aware of the deal, they're aware that they want to sunset those licenses.
Okay, understood. Maybe the financial terms, if you could just walk through the different elements between the purchase price. There's a few different streams.
The way I would think about it is there are two pieces. There's the purchase price that we're getting, which is $45 million. We're going to get that. We just got $15 million, we're going to get another $15 million in a year, and then a year after that, we're going to get $15 million more. We're also going to contribute $7 million, and we're going to pay down our debt by $52 million. We have about $160 million gross debt. We're going to bring that down to $108 million gross debt. We also have about $37 million of cash on the books right now. That's the purchase price and us de-levering the business. What's interesting is from an operational standpoint, they're guaranteeing us a distribution. Let me put this into size for you. The business does about $12.5 million today.
It nets about $8.5 million worth of cash flow. That's what we have today. If you look at what this new deal has, we're getting a $10 million distribution year one, plus $4 million brand services. Basically, what we've done is we've traded $8.5 million for $14 million. I think everybody would take that trade, right? That's a good trade. Then that comes down by $1 million in year two, it's $13 million, then it comes down by $3 million in year three in terms of the operating cash we get, that we're guaranteed, and then it's $8 million thereafter. We think that by that time, remember I had said that our China business used to be a $40 million business, we think that by that time, that runway's three to four years, they'll build that business back up to $40 million.
We feel very confident about that.
That's built into the contract where you have those sort of overage potential, right?
100%.
That's what you're alluding to, right? Is give them a chance to ramp the business. Excuse me.
I know. It's a long day.
Yeah. Give them a few years, and then they can hit overages.
Yeah. The way it's structured is we get a minimum distribution. Regardless of how the business is doing, we get that 10, then nine, then eight, part of the minimum distribution. Once they hit that earn-out So first year, let's say things just go swimmingly good. Once we get the first $10 million, then they get to recoup the next $10 after that, and then we split every dollar thereafter 50/50. That's what it's going to look like going forward. As I said, let's pretend we're year five. The business has to make $16 million. We'd get eight, they'd get their eight, and then every dollar thereafter, we split 50/50.
Okay. That's a new big element of your licensed revenue stream.
It's huge.
Byborg was secured a year and a half ago. That's another big element.
Yeah.
Maybe just kind of walk people through what's happening with Byborg. It's been out there long enough, so I think people understand $20 million a year, 15 years. Are they paying on time? What kind of developments are happening? Is there any more kind of context around how that business has performed since that deal was signed?
Yeah. They're not paying on time. They're paying early which is very unusual. Everything is going well from that standpoint. You're asking about the operational business itself. They've done a good job. They had licensed three things, a gallery site, the streaming soft-core stuff that we do, and then our Playboy Club, which was our foray into competing with an OnlyFans. They've licensed the gallery and the video sites have moved over to Gamma. They've done a great job of making that transition. That was done in May. They're in the process of finishing their transition of the Playboy Club. That should be by the end of March, it'll be completely off of our system and onto our own system. Again, they're putting that on. They have another brand called LoyalFans that also is a creator platform.
They're putting it on that platform. Now all of a sudden, they've been able to take our businesses, cut out all of the cost, and put them on their own individual properties.
Your ongoing obligation to them is what?
To cash a check.
Yeah.
To take it to the bank.
Okay.
Yeah.
Okay. Those two, between Byborg and UTG, that's now the majority of your licensed revenue stream. What's left? Can you talk about sort of the growth opportunity with the remaining kind of pieces of your licensed business?
Yeah. What's left is our consumer products business, and that's about 80% of our licensing revenue. Excuse me. I got yours.
I thought-
Outside of Yeah, exactly. It's about 80% is consumer apparel and accessories. That's what's left of the business. That all-in is around $12 million. The idea is to grow that, it's growing it using media and experiences and really bringing the brand back. I don't know how many people have heard of Supreme, hopefully most of you. We just did a drop with Supreme. They came to us, we did a jacket, a hat, and a jersey. Sold out in an hour. We need to do more stuff like that. We've done stuff with YSL. We've done stuff with Amiri, with True Religion, a lot of that kind of puts you back into, what's the right way to put it? Into the public discourse. Makes you relevant again, that's really important for us, is to make the business more relevant again.
I always say this, I have two kinds of friends. Well, I only have two friends. My two friends, when I told them I was going to start working at Playboy, one said, "Hey, can you get me into the parties?" Obviously. The other friend said, "Is Playboy still around?" It's really bringing that group back over and understanding that Playboy is still around, that we're no longer just the magazine, that we're more of a lifestyle brand.
Understood. I think when Byborg was first announced, it really surprised the market. UTG, it was similar. People were not expecting those kinds of deals. Are there remaining geographies or parts of your business that could surprise people where there's other, maybe not to the same size, but are there other opportunities to kind of create a big, new license partner?
I think the three areas that I would look at that are kind of lumped into one piece. APAC, we only did China. You've got the rest of APAC. Taiwan is a business that we sell about $1 million of, or receive about $1 million worth of licensing revenue out. That includes Korea, Taiwan, that whole area that we could, and Japan, that we could potentially do something with. I'm not saying we're going to, but that's one area that I would kind of carve out. The second is Latin America. We have literally no penetration in Latin America, or nothing to speak of. It's a hard market, but that's another area where you need a local partner to work with. The third, I would say, is EMEA.
We don't have a lot of penetration there, and that's an area that's kind of wide open where if I'd say we could do a deal, again, you find a local partner, and work with that partner to grow the business. When we try and do it ourselves, it's a little bit more difficult than when you find that partner that knows what they're doing and is on the ground. That's really what we're looking for.
Okay. Happy to take questions if anyone has any. Yeah, go ahead.
When I'm in places like Southeast Asia, I see Rabbit everywhere. I assume you're dealing with a lot of piracy of your branding in certain parts of the world. I don't know if you have a way of thinking of how to address that or approach it.
Yeah. Excuse me. We spend a lot of money on legal and brand enforcement. That's really important. Where we get is like Amazon, for instance, and we have a group dedicated to taking stuff down off of Amazon. It is when you're as globally recognized as we are, and that's kind of a humble brag- that you run into that issue a lot. We do spend a lot of money trying to protect the Rabbit head because that's our IP, that is our business.
Totally.
Yeah.
Thank you.
Yeah, go ahead.
Hi. Are your collaboration and partnership deals, like with Supreme that you mentioned, more from a marketing branding standpoint to get back into the trend or profitability?
No, it's the former. It's literally for the exposure.
Okay.
With True Religion, we made a lot of money doing that deal because it was much more successful than what we thought. We backed it up with a couple different collaborations. The Supreme one is not about the money. Everybody's heard of Supreme. True Religion just happened to be big, and Amiri, OVO, to your point, they were marketing plays. I wouldn't say we weren't in it for the money, but we were in it for the money, but we weren't looking for a big check.
All right.
Okay. Excuse me. Let's shift to Honey Birdette. You've made a lot of improvements on that business over the last year and a half. It's now $70-plus million of revenue. The margin profile has stabilized. I guess the 2-part question is, what's the growth outlook for Honey Birdette, and how between the stores and the online business, how do you think about the growth going forward? Secondly, on this most recent conference call, whenever that was, a few weeks ago, it seems like a monetization of that brand is at least something that you're more publicly communicating now. At what stage is that, and how are you thinking about that?
Let me first set the stage because they're two disparate business models. Honey Birdette is a capital-intensive model. It's not easy. I come from the garment business, and it's a lot different. Running brick-and-mortar stores is very hands-on. There are a lot of people. You have licensing. You're just cashing checks, and it's not quite that easy. You're doing a lot of marketing, but it's very low touch relative to Honey Birdette. The question is, does the company want to be involved in the high-touch business or the low-touch business? Obviously, we want to focus on the licensing. That's why we've hinted, or I guess not hinted anymore, that at some point we do want to divest of that business. I don't think today's the day to do it.
Our number one goal is to de-lever the company and an asset that has gone from not as productive as it could've been to very productive now, is an asset that we would look to monetize at some point. In terms of the growth trajectory of it, we're really proud of what we did there because when I came in in March of 2023, they were on sale all the time, and we really focused on brand health. The board was fine with us taking a step back. We went from just under $80 million in revenue to $70 million in revenue. We went from a business that was losing money to a business that was, I wouldn't say wildly profitable, but profitable. 10% operating margin's pretty good in the retail space.
What we've seen backing off and creating that health is in our brick-and-mortar stores, we're comping up against an up comp. You're getting a double stack, and it's in the high teens. We've turned that business around. That's continuing to grow, believe it or not, in that double-digit range. I'm not giving you guidance. It is continuing to grow at that level, which is, I'm not saying surprising, but given the strong comps we're against, is doing quite well. The second piece is the e-commerce business, and that's the area where you saw all of the discounting. Now that we've stopped the discounting, we've retrained that customer, and we're starting to see that business comping up. To circle that back around in terms of what size we think the business could be, can't give you guidance on that.
I think that it's a brand that can do $150 million in revenue. Past that, I'm not the guy to take us to that level. I think there are a number of things we can do there, and one is the e-com penetration. It's really moving out of Australia, where the brand had kind of stagnated, into the U.S., and the market is wide open in the U.S. I see someone from Australia, so don't take this the wrong way, but there are 10 times as many people in the U.S. as there is in Australia. There are 10 times the market size in the U.S. relative to Australia, and our business is only 50/50 between Australia and the U.S. You can just kind of see that there's a lot more room to grow in the U.S., and that's what we're focused on.
There's a big store opportunity, too, in the U.S., right?
Huge.
How many stores currently? Maybe walk through the four-wall unit level economics of the stores.
Yeah. There are 10 stores in the U.S., we have a total of 51 stores right now. There are 10 stores in the U.S. It's a 2X, is the way to think about it. They're twice as productive. Average store is doing about half a million AUD in Australia, the average store in the U.S. is doing about $1 million. From an EBITDA margin standpoint, it's low single digits, maybe mid single digits in Australia. Australia is very price-conscious. Then in the U.S., we're running 33% four-wall margins across the entire base. You have some that are just really crushing it. That's a business that I'd want to open all day long. I think that in the U.S. there are probably at best 30 stores I'd want to open.
I'd go for the high-end malls. I think there are probably about 38 malls that are outside of freezing temperatures. Then I think there are probably 10 outlet malls, all the Simon Premium Outlets that we would want to open. That's as far as I would feel comfortable taking it. I think you'd need another operator that would start running these street locations, stores that are not attached to malls. I look at what can I do versus what can someone else do. I would say that would be their next step.
Okay. You have been public, as I mentioned on the last conference call and before, about potentially monetizing the brand. Has there been interest?
There I'm just trying to think about what I can and can't say.
Maybe you can't. Maybe we should skip that.
There's been interest.
Okay. There's been interest. Okay, great. You had a question?
Yeah. I was wondering the mix between your e-commerce business versus your brick and mortar. Are you seeing better numbers there? Is that in the play to continue growing the e-commerce business? Just because I would assume it would probably be more profitable.
Yeah. The mix was originally around 60/40 in favor of e-commerce, but the brick and mortar stores have done so well over the last two years, that that mix is closer to 50/50 now. I think there's a lot of opportunity in e-commerce. I think it's something we're ramping up. We had an old site, we redesigned the site, we looked at heat maps for it. We're beefing up our paid advertising and email flows, et cetera. There's a lot of work to be done, and there's definitely a lot of opportunity. We're getting into new markets, the GCC, I know that's an issue from a shipping standpoint right now. We're able, because we have both the U.S. and Australia, we're able to do a lot of international shipping, which is what we're doing, opening up new markets.
Any other questions from the group?
I guess the follow-on would be from a profitability perspective, it's probably where it has your 2X or 3X, regardless of the sales numbers.
Yeah, I wouldn't say Well, U.S., 33 is a pretty good four-wall margin. I would say that e-com is probably closer to 50. It's not 3X, but it's a more profitable business.
David Miller. Do you want to walk through recent hire? What is he tasked with? I think mostly sort of online.
Yeah.
spectrum, what is his sort of initial focus and why was he brought on the team? Just any kind of background there would be helpful.
Yeah. David came out of Disney, he's very structured, which is something the company needs, is that kind of structure. He was running licensing and online for National Geographic, and built that business up. He's in place to really work on that brand component. Typically, you invest about 15% of your revenues back into brand spend, and that's what he's going to focus on. If we're doing a golf tournament, we're doing online, we're doing paid posting, I can just go on and on. That would fall under his purview in terms of finding new licensees that, and we had talked a little bit about looking at other areas where we could have big deals. That all falls under his purview. Pretty much everything that's on the Playboy side of the ledger, from an operational standpoint, he'll be dealing with.
Okay. Maybe this is a follow-up to that question, we just walked through, we started with these big license deals you've done, with Byborg and with UTG in China. The license business though in the U.S., it's not huge. It's not that big of a business right now. What's the opportunity and why is that the case? I know there's a lot of things you're working on to build sort of your U.S. and your content. There's a lot of different revenue streams that are sort of in early stages with media deals, and you had the contest late last year, et cetera. What's the big opportunity in the U.S. and why is it still sort of a small component of your business?
Yeah, I'd say it's a small component because we had typically been at this phase where we would just take every dollar that came in. What that does is it crowds out other licensees. We never had exclusives in a territory. If you were a T-shirt vendor and you wanted to make T-shirts, we'd be like, "Here's a license." Another guy would come and want to make one, "Well, you get a license too." We didn't do a really good job of being strategic about this. I think that's something with David you're going to see, is we're peeling back the number of licensees we have, and we're starting to create markets that have a little bit more exclusivity to it so that the partner can invest. Because we don't need people making just T-shirts and hoodies, we need them developing a business.
I truly think that that's why been one of our biggest stumbling blocks is getting someone to invest in the business if they know they're competing with the guy next to them making T-shirts and hoodies.
Understood. We have maybe time for if there's any other questions from the group. Maybe not. I want to cover the balance sheet quick, because that's an important element. You announced paying down $52 million of debt as part of the UTG deal. Well, if you have any kind of sense of timing, I guess. What else? Honey Birdette is a potential unlock that would help you reduce leverage. How quickly do you think you can pay down that? I think you ended the last quarter with about $120 of net debt.
Yeah. Pretty quickly. Let's say that if we're paying down $52 with the UTG proceeds, you'll be sub $60 at that point. I think Honey Birdette is an easy lever for us to pull. I think right now, we're focused on closing these deals out, then we'll turn to the balance sheet. I'm saying that I know you've been pushing, "What are we going to do with all this cash as we're generating it?" I think we've been from a position of we haven't had cash in the past, and it's been very tight. We always want to keep a lot of cash on the balance sheet, which is probably not as efficient as it should be. The goal is to get there, and I think you can be there within a year and a half. You can clean the balance sheet up.
Okay. That's soon. Maybe one more on the balance sheet. You had that $80 million arbitration award last year.
Yeah.
Gosh, my voice is totally gone.
Same here.
Has there been any progress on that, or what's the status of that award?
Not since the last time we had discussed in terms of the courts recognizing that judgment. We're talking to a number of firms that are looking at that paper. They have to do their due diligence in terms of collectibility. I wouldn't say that there's anything on the horizon in terms of collecting it. It's definitely not in our business model. That to us would be gravy if we do get something from it.
Okay. Understood. Well, we're out of time. Thank you so much for doing this. Really appreciate it, Marcus. Thanks for everyone for being here.