Q4 2023 Plby Group Inc Earnings Call
Participants
Ashley DeSimone; IR; ICR
Ben Kohn; President, Chief Executive Officer, Director; Plby Group Inc
Marc Crossman; Chief Financial Officer, Chief Operating Officer; Plby Group Inc
Jason Tilchen; Analyst; Cannacord Genuity LLC
Greg Pendy; Analyst; Chardan Capital Markets, LLC
Presentation
Operator
Good Afternoon, everyone, and welcome to Plby Group's Full Year and Fourth Quarter 2023 earnings conference call. Hosting today's call are Ben Kohn, Chief Executive Officer, and Marc Crossman, Chief Financial Officer and Chief Operating Officer. The Company will be hosting a question-and-answer session today to join the queue to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue while we wait for the Q2. So I'd like to hand the call over to Ashley DeSimone of ICR.
Ashley DeSimone
Thank you, operator. Good afternoon, everyone. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K filed today by PDL Plby. Group, which may be accessed on the SEC's website and PLBY. Group's 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're 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 forecast, 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 statement.
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 as 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
Thank you again. At this time, we will be conducting a question and answer session. And again, if you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line in the question queue. You may also press star two, if you would like to remove your question from the queue and For participants using any speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for question.
Our first question comes from the line of Jason Tilchen with Canaccord Genuity. Please proceed with your question.
Jason Tilchen
Good afternoon. Thanks for taking the question, and thanks for all the helpful color in the press release. A few questions. Maybe one to start off that licensing revenue came in pretty well ahead of our expectations. And just curious how much of this was driven by sort of occurring recovering more of the minimum guarantees that you have in place already versus contributions from some of the newer partners that you've been adding over recent months.
Ben Kohn
Thanks, Jason, and good afternoon, It's Ben. We're happy with where we are on the licensee business through the strategic changes we've made to essentially rebuild our China business. And we are in active negotiations to replace the terminated licensees as well as going after one of our former licensees on a legal basis over there. So we're starting to see traction, and we're starting to see what I would say is some stability, especially from a macro perspective in that business.
Jason Tilchen
Great. That's helpful. And then when I have a hybrid debt last quarter, you talked about how right now maybe with the market backdrop, it wasn't the right time to sort of looked at that asset. But longer term, you didn't see it as part of your core strategy. I'm wondering, given the momentum that business had in Q4, some of the things you laid out in terms of your goals for this year, if that view has changed at all? And sort of a follow-up to that would be, do you see an opportunity to leverage play by top creators to drive some of the organic advertising and marketing that you talked about within your goals for that business this year?
Ben Kohn
Sure. So I'll reiterate what I've said historically is our goal is to move to an asset-light model, but we believe hybrid that is a very valuable brand and we were going to make the operational changes in the near term, and we've made those and we're starting to see that performance to that, both on the top line and the bottom line. We are in the process of phasing into the 10% price increase this year to the products we had not really done that given the massive inflation we've all seen as consumers over the past few years, and we haven't seen any any resistance to that from the consumer so far. And so our goal long term is still to find the right owner for that. But in the interim, we are not going to just give away that asset at the wrong valuation for our shareholders as a fiduciary. And so as market conditions improve and the business continues to improve, we are always open to being opportunistic, especially given our debt. Our goal is to delever the Company.
As far as integration, yes, I can tell you we have creators to come into the office every day. Wondering how do you bridge that. And I think there are a lot of things that we can do on moving forward to better integrate our creators into working with and promoting 100 that we're working on something right now for Formula One event we'll be having in Miami with that, no promises. But I think there's other there's other rewards now that we've introduced our key end points system within the Playboy Club app to reward creators down the road with merchandise as well.
Jason Tilchen
Okay, great. That's really helpful. And just a higher level following up on that in terms of you talked about how because of licensing challenges and headwinds. Last year, you didn't really invest as much into promoting and marketing the creator platform. Curious and if you could maybe dive into some of the strategies you plan to deploy this year. You talked a little bit at the end of the press release and about how you are going to focus on growing the market in that digital business. I'm wondering if there's anything else you can share on that plan.
Ben Kohn
Sure. I think last year we spent basically nothing on marketing or promoting that. And we still saw phenomenal top line growth in that business last year. But I think we have to return the Company to what its return. And I think we talked about that in the earnings release, I think especially in a lot of people hear you'll hear these things are sort of go well can go broke. I think this is a business. He's always been about a year working with working with beautiful women. And a lot of the way we've expressed that historically was through content, and we plan on getting back into the content game this year. And so that content will come to life in many forms, including the return of the play made, hopefully bringing back the magazine. But then also producing content that lives on other platforms with the goal of acquiring audience and acquiring creators. And so we think creators want three things in my mind and want to make money make as much money as they possibly can. They want to build their brand and their audience and they care about the reputation we take in our playbook, we can fill all three. I think the we also launched membership and membership is very strategic for us. Not only on does it increase our revenue, but it gives us a product that we can actually our spend money against marketing. We have not done that today. Very happy with sort of the organic revenue that we're generating off of membership. But now with the $100 price point. We have money to actually go spend to generate new users and creators to the platform through performance marketing. But the majority of our spend moving forward will all be through content. We think that's the most effective way to market the platform that content featuring our creators. And it also helps us from a brand perspective on the licensing side.
Jason Tilchen
Great. That's very helpful. Thanks a lot.
Operator
Thank you. Our next question comes from the line of Greg Pendy with Chardan. Please proceed with your question.
Greg Pendy
Hey, guys, thanks for taking my questions and congrats on the strength of the Hummingbird that are carrying in from 3Q into 4Q. But I just wanted to pick at that a little bit. I was wondering if you could provide any color on the decision to close those stores with a an unattractive lease locations because I know they're typically in very high end locations or any color on what made those three stores kind of standout versus an overall strength in the brand?
Marc Crossman
Hey, Greg, I'll take that. It was say they're primarily stores in Australia and a lot of the stores in Australia have been around for quite some time. And so we're looking at end of life for these leases versus the amount of CapEx we'd have to put in to refurbish them and also whether or not they're running at a four-wall loss or profitability. And so we have a lease that is come to life. We would still have to put new CapEx dollars into refresh it and it's losing money. That's a store that we earmark to to close. As we had said in the release, our private form of that you'll see us close over the course of the year.
Greg Pendy
Okay. That's helpful. So there's going to be eliminated a termination fee probably on the lease because they're near end of life and the ones that are near end of life?
Marc Crossman
Yes, there won't be one, but the one there's one that we're looking at, which there would be a small termination fee.
Greg Pendy
Okay. That's helpful. And then just shifting gears, I'm just one on digital strategy. It just looks like a I want to make sure I understand how you guys are thinking about it in 2024. I know you've made a lot of change changes and improvements to the platform, but it seems like the strategy maybe versus your competitors is to really support the creators and hope that it's the creators that will then drive the subscribers. Is that fair to say?
Ben Kohn
Thanks, Greg. I'll take that. So a couple of things. Obviously, we rebranded the platform, the Playboy Club, and I think we're doing some research with consumers. What we found was the historical means we use for didn't really support what the main is the main purpose of the main action people are doing and which was interacting with creators. And so the Playboy Club now from what we're seeing and from what we're hearing from users clearly supports the place to come, interact with our creators from a trade-off from a user funnel perspective. There's a number of things that we're doing. And so first creators bringing their own users to the platform. And that's mostly done through their social media platforms, whether it be TikTok or Instagram, where they're putting a linker, their bio to their Playboy pains on we also have users who just come to play because of the strength of the brand. And actually, we recently replatformed our 70 years of archives, which was a stand-alone product that historically have been license called I. Playboy, but it was one of the third party site. And we actually re-platform that into our current code. It sits as part of membership now but more importantly, what it does is it allows us to archive to SEO 70 years of archives. And so we're seeing things like back start to drive more organic traffic and then the third strategy moving forward is obviously just start to produce content alongside our creators with the goal of that content sitting on 33rd party platforms, whether that's a podcast Spotify video content on YouTube?
Yes, really highlighting our creators through what we think our historical franchises, like 20 questions like the play made, et cetera, with the goal of driving people back to our platform. The other thing is we think we can put advertising revenue, programmatic advertising revenue against that content, and we'll share in that advertising revenue with our Creator as well.
Greg Pendy
Great. That's very helpful. Congratulations on the quarter and good luck in 2024.
Ben Kohn
Thanks, Greg. The only other thing I'll mention is we are the the launch of membership is very strategic in the ability to acquire users and moving forward as well.
And so what's actually interesting is we're testing our funnels as we've seen almost 40% of our members today come off our Playboy plus platform, Playboy process crosses a platform that we've actually never bought traffic for. It's just done affiliate deals. And so we think there's another opportunity over there to actually start to expand our traffic acquisition strategy there. It's a separate subscription product, but then we're seeing that conversion of people that are signing up for Playboy costs also signing up for the Playboy Club membership. And so things like putting money on enable us to make that transition and that user flow more seamless on the long term as we said in the press release that we will look to re-platform both those products Playboy plus and Playboy dot TV and so that we can have a single sign-on user flow.
Greg Pendy
Okay. That's helpful. And then just so that I understand the membership right now, it's 100 and is there is a $25 in the bunny money right now on to help incentivize and move the membership?
Ben Kohn
So the membership for $199 right now, you're at $25 of putting money, Scott, as part of that to spend on your favorite creators of, we think there's use cases to continue to expand body money to 10 Playboy events, Playboy golf tournament, poker tournaments, et cetera. Right now, it's the other primary uses to spend on the creators. And then long term, we see multiple different tiers of membership, each one being more limited in nature at a higher price point, but unlocking more of the Playboy lifestyle.
Greg Pendy
Okay. And then one final one on the bonding money. I know it's bundling the transactions so that only lower the fee on your end or does it does the user kind of also see the benefit of using funny money?
Ben Kohn
Where there's multiple different benefits. And so we've just started with funny money, but yes, from our perspective, the way our credit card fees work is we pay a per transaction fee as well as a percentage of that transaction. And so if someone is putting a dollar, you're paying a per transaction fee every single time someone comes to dollar. And so by bundling by bundling transactions and saying that any transaction under $10 has to be used by bundling money where it's a onetime charge of the credit card. The other thing we heard from users actually was there too many transactions showing up on people's credit cards and was there a way to aggregate all those transactions. Body money allows us to do that long term. We can do funny money very much like DraftKings and other other gaming companies do to incentivize first-time spenders to incentivize people to come back to the platform that might have churned. And so I think we will continue to let the data speak for itself, but continuing to expand the use of Omni money on the long term on the platform of it, just the economics make sense for us, the economics don't change for of the consumer arm or for the greater. And so it makes sense overall.
Greg Pendy
Great. That's very helpful. Thanks a lot.
Ben Kohn
Thank you.
Operator
Thank you. And we have reached the end of the question and answer session, and I'll now turn the call back over to CEO, Ben Kohn for closing remarks.
Ben Kohn
I appreciate everyone dialing for our Q4 and full year '23 results and look forward to talking to you in a few months on our Q1 results. I appreciate everyone.
Operator
And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.
