Good day, and thank you for standing by. Welcome to the PLBY Group's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Ashley DeSimone at ICR. Please go ahead. Good afternoon, everyone, and welcome to PLBY Group's third quarter 2022 earnings conference call. I'm Ashley DeSimone from ICR. Hosting today's call are Ben Kohn, Chief Executive Officer, and Lance Barton, Chief Financial Officer. After our prepared remarks, we will open up the call for questions when we will be joined by Ashley Kechter, President of Global Consumer Products. The information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PLBY Group, Inc, which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast, and a replay will be posted to PLBY Group'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'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 PLBY Group's actual results to differ from its historical results and forecasts, including those risks set forth in PLBY Group's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. During this call, PLBY will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release PLBY filed with its Form 8-K today. Now I will open the call to Ben Kohn. Ben, please go ahead. Thank you, Ashley, and good afternoon, everyone. As we have stated throughout 2022, we had two goals this year. The consolidation of our D2C businesses and the continued build-out of our creator-led digital platform. I am pleased with the progress we have made against both goals in the past quarter. While our short-term results continued to be impacted by global macro and FX headwinds, the quarter was defined by a number of positive results executing against our plan. This inflationary period continues to impact consumer retail businesses with higher costs, rising interest rates, oversupply, and declines in discretionary consumer spending. As a result, our revenue continues to come under pressure and consumers are projected to pull back on holiday spend. Inventory is reaching peak levels while consumer demand slows and customer acquisition costs are increasing. Despite this, we have remained hyper-focused on our goals and have taken a number of steps to navigate the challenging macro environment. We have removed nearly $18 million of annualized operating expenses from the company. Part of this reduction includes the sale of the Big Bunny aircraft, which we sold for $17.5 million, generating a more than 2x return on our initial cash investment and more than 10 billion press impressions in under two years of ownership. We believe there are further cost reductions to be realized, and we are working towards simplifying our business and reducing operational complexity to achieve those savings. As a result, our business will align around Honey Birdette and our hero brand, Playboy. It's one of the reasons we believe the continued investment in our creator platform is so crucial. Demand for these luxury and iconic brands remains strong. Honey Birdette continues to perform well, especially given the macroeconomic environment and the strong US dollar that continues to impact results. We opened a new store in Short Hills, New Jersey, and plan to open our Tampa, Florida, and Paramus, New Jersey, stores before the end of the year. We also began to expand Honey Birdette into new categories and launched the Essentials collection in October. Essentials was the best release of the year for the brand, but more importantly, it attracted a new audience. In its first week, 22% of the Essentials sales were to customers who were new to the brand. We will continue to invest in diversifying the product so as to expand our addressable market. We also launched Honey Birdette sexual wellness products at Lovers stores to great success, and will continue to replace third-party product with higher margin owned and operated inventory. Following on the success of our Honey Birdette store in the luxury high traffic Westfield Century City Mall in Los Angeles, we opened our first owned Playboy pop-up store in mid-October. We are excited to test this elevated mall-based pop-up as a prototype for permanent brick-and-mortar locations targeting the Playboy consumer. The space features rotating iconic Playboy favorites, brand collaborations, and seasonal lines, and we are encouraged by its early success. The store is off to a great start. In the first few weeks, revenue is comparable to the average Honey Birdette store in the U.S. The current margin for Playboy's pop-up location is also seven percentage points higher than Playboy's e-commerce margin, and we expect that to increase as we incorporate more of our owned and operated merchandise into the store. We also continue to make great progress developing those higher margin owned and operated products. Last week, our first true private label consumer product for Playboy launched with Playboy Lingerie to great early success. This is the beginning of a larger Playboy Lingerie and intimates collection, as well as a full line of new private label products you will see over the next year. Playboy.com continues to perform well, with revenue growth of over 100% through the first three quarters this year. Within our licensing business, we're excited about recently launched brand partnerships in Asia, including My Sugar Babe, a trendy Japanese streetwear brand, and an experiential lounge collaboration with retail pop-up and world-renowned nightclub, 1 OAK in Tokyo. In the U.S., we set the tone for the ear stacking trend with Playboy and Studs' Y2K collection for those who love bold self-expression. We have also launched new collaborations with Oceana Swimwear and global sports giant Lids, which officially dropped in mid-October. Lovers remains down year-over-year. Long-term, we believe Playboy needs to be integrated into or replace Lovers as the brand. We are currently working through our branding strategy and have launched Playboy Pleasure products in Lovers stores. Based on performance, we will begin to solidify our plans to integrate Lovers into Playboy. Yandy continues to struggle for a number of reasons, as we have previously discussed. The traditional Yandy customer has been massively impacted by inflation, and the brand itself is not clearly differentiated within the market. Its trendy products sell at a low margin and have historically relied almost 100% on performance marketing. With the iOS changes last year, the Yandy business has become even more challenging to operate efficiently. We are currently reviewing strategic alternatives for the long-term fit of Yandy within our company. That brings me to the Playboy creator platform. Our Playboy creator platform is the most strategic opportunity we can continue to invest in. First and foremost, it represents an enormous revenue opportunity as a product unto itself. Second, we believe it can be a highly effective top of the funnel customer acquisition engine that we expect will lower our customer acquisition costs across all of our PLBY-wide business lines over time. Third, we can believe it can become the Playboy magazine of the 21st century in its ability to drive enormous cultural relevance and priceless emotional connection with a massive consumer base around the world. On the first point, we strongly believe that the paywall creator space is right for a brand that is aspirational, one that creators are proud to show off their affiliation with, and one that is deemed safe by creators and consumers alike. For nearly 70 years, the pages of Playboy were the place for creators of their time to freely express themselves and monetize their sex appeal in a sophisticated and aspirational way. This brand authenticity makes Playboy today enormously appealing as a high-end space for creators and talent to launch their careers and make money from those fans who are eager to connect with them. We are confident that there is enormous market share to be taken given the power of our brand, and the trust we have with the creator community makes us uniquely positioned to win. Of course, brand is not all it will take. We also need to have a product experience and value proposition for creators and users superior to our competition. I'm excited to report today on the immense progress our team has made on all of these fronts. In September, our new product and technology team migrated our creator product to a newly built platform. The goal of our re-platform was twofold, to enable rapid product development to deliver a product to creators and their fans that is as good, if not better, than the competition, and to ensure a sustainable cost base with infrastructure that will scale with the business. Since the re-platform, we have reduced our ongoing tech infrastructure costs by roughly 90%. We vastly improved key functionality for creators, focusing first and foremost on optimizing their ability to monetize their engagement with their fans. For example, we now offer superior messaging capabilities, custom personalized data analytics, and advanced content organizational tools for creators to most effectively engage with and monetize their fan relationships. We are now continuously rolling out data-informed product enhancements and have heard tremendously positive feedback from the creator community. Since the new platform has gone live, the number of creators who are making money in any given week has doubled. The number of actively paying users has doubled and continues to grow week over week. Most importantly, on average, each week, 70% of our creators are making more money than they made the previous week. We're very encouraged by the strong desire we see from top and emerging creators to become part of Playboy, and we're confident that we can provide them with a superior product experience to the competition. We're also thrilled to start integrating our creators more deeply into the Playboy ecosystem in mutually beneficial ways, and more broadly, to integrate the creator platform as a massive customer acquisition engine across our business line. Every creator we speak with wants to become a Playboy fashion ambassador. They want to model in a Playboy fashion campaign. Most of all, they want to aspire to join the ranks of the celebrities and influencers who showed up in the pages of Playboy before them as stars of Playboy covers, editorial features, and pictorials. The fact that our Playboy Lingerie model search has already generated more than 10,000 applicants less than halfway through the open submission proves that the potential to be on the face of Playboy is an enormously effective creator recruitment tool. These are the creator opportunities that only Playboy can offer. This is our unmatched value proposition. We have started testing our way into building more integrated relationships with creators to expand the benefits we can derive across our business lines. You've likely noticed more of our social posts now feature Playboy creators showing off their favorite Playboy merchandise and our fashion campaigns featuring Playboy creators. As paid digital marketing continues to become less effective and efficient with privacy changes and other industry challenges, expanding our own network of fashion influencers and affiliates is of enormous strategic advantage. Of course, as we scale our actively engaged creators, we believe this should exponentially scale the traffic we're generating, thus growing our customer database and helping us drive reduced CAC across the organization. The most coveted creator experiences, like editorial collaboration, fashion campaign shoots, and creative director partnerships, will be reserved for our highest performing and most influential creators. Our Yandy Lana Rhoades collection, released in Q3, was a great early test of how we can execute these special opportunities for creators in a way that drives accelerated growth across our business lines. This past summer, we gave Lana the opportunity to serve as a creative director on her own Yandy lingerie line. She partnered hand in hand with our in-house design team to develop her own branded Yandy collection, which was released on her birthday in September. The built-in promotion Lana drove to the collection across her social media channels drove an 84% uptick in traffic to Yandy.com and a 37% increase in daily revenue at a margin 10% higher than similar lingerie. We also saw Playboy creators like Amanda Cerny organically support Lana, pointing to the value of nurturing a Playboy community of creators. We strongly believe that by putting creators at the center of everything we do, we will activate a flywheel of growth across the organization. I'm very encouraged by the accelerated progress our team has accomplished across product, technology, and our creator value proposition. We are well poised to enter this great brand's seventieth year, which just so happens to be the Year of the Rabbit, with great brand and business momentum driven by our creators. With this team in place, we look forward to what we will continue to accomplish together. As I said in our last call, the path forward will not always be a straight line, but our long-term plan is intact, and I am proud of how this team is executing, especially in the past few months as the new members are beginning to hit their stride. We have one of the biggest brands in the world, and I am confident that the business plan we have is unique, differentiated, and will deliver. I'll now turn the call over to Lance. Thanks, Ben. Third quarter revenue grew 9% year-over-year to $63.6 million. Our top-line results were impacted by $1.2 million of FX headwinds and a 27% reduction in marketing spend versus the prior year quarter as we prioritized higher margin spend over revenue growth. On a constant currency basis, revenue growth was up 11%. Revenue in our direct-to-consumer segment was up 22% year-over-year to $44 million, and on a constant currency basis was up 25%. Similar to the trends we saw in the first half of this year, we continue to see strong revenue growth at both Honey Birdette and Playboy, offset by significant declines at Yandy and to a much lesser extent, Lovers. Honey Birdette posted solid growth. Revenue was up 34% year-over-year to just over $21 million in the third quarter. On a constant currency basis, revenue grew 41%. As Ben mentioned, we expect to open three new stores in the fourth quarter, which will bring our U.S. store footprint to 11 by the end of the year. We've also signed a lease in Boca Raton, Florida, with plans to open next summer and are working to land additional suitable locations in the U.S. and Europe, planning to open in the back half of next year. Playboy e-commerce revenue was up 58% year-over-year in the third quarter, driven by a 338% increase in email and SMS. We also saw strong results over key holiday weekend sale periods, such as July Fourth and Labor Day, due to a significant improvement of in-stock levels across our bestsellers and a strong finish to the quarter from intentionally stocking our Halloween costumes early. The success we saw on email and SMS is a direct result of building out a CRM team and program to focus on customer segmentation, new SMS capabilities, and a digital marketing strategy to reward our loyal customers through early access events and new product launches. It's also particularly interesting given we've not yet started to tap into the email database that the Playboy creator platform brings, which we believe can be a powerful unlock to drive growth and reduce customer acquisition costs for our direct-to-consumer business over the long run. Yandy revenue declined 50% year-over-year in Q3, while Lovers revenue declined 10%. While the current macro environment continues to negatively impact discretionary spending habits of the target Yandy and Lovers consumer, we're focusing on the levers within our control. This has meant spending less on digital marketing in light of the reduced efficiency we've seen in those channels, ultimately leading to lower revenue but increased profitability. The third quarter revenue in the licensing segment declined 13% year-over-year to $14.9 million. The decline mostly driven by a $1.7 million reduction in overages that we received compared to last year. As our retail partners are facing similar challenges in the current macroeconomic environment. From a GAAP earnings perspective, we had a number of extraordinary non-cash charges in Q3 that drove our net loss, such as the impairment of intangible assets and inventory reserves. In the third quarter, we recognized around $306 million of impairment charges related to the write-down of goodwill, trademarks, and other intangible assets. The need for impairment was due to the reduction of our financial outlook associated with ongoing macroeconomic uncertainty, along with a higher discount rate being applied to our forecast. In the third quarter, we also recognized $5.9 million of inventory reserves. This non-cash provision was driven by a number of historical factors, along with our strategic plan to further consolidate our businesses and improve margins. One major factor is the supply chain challenges that we've encountered over the last two years, leading to late-arriving seasonal inventory that does not turn as quickly as the inventory that arrived on time. Additionally, the significant decline in the Yandy revenue has left us with low quality and low margin wholesale inventory that we need to liquidate as we realign our business around higher quality and higher margin owned and operated Playboy products. As I mentioned on the last earnings call, revenue is incredibly difficult to forecast in the current environment, and as such, we remain very focused on the cost levers that we control. We have made significant progress on our expense reduction initiatives, taking roughly $18 million of annualized OpEx out of the business. This puts our baseline level of OpEx, excluding stock-based comp and other non-cash charges, at roughly $165 million annually, and we will continue to control costs tightly so that we can manage through the current economic environment. These cost reduction initiatives have led to improvements in both EBITDA profitability and cash flow. Adjusted EBITDA for the third quarter was over $700,000, a sequential improvement of $3.3 million, despite $1.8 million less revenue compared to the second quarter. Our total cash position has been stable since the end of September, and we currently have over $65 million in cash equivalents, including crypto and restricted cash. Even with continued investment into our growth initiatives, we expect cash flow from operations to remain roughly neutral through the end of this year. We have multiple levers to further reduce costs if circumstances dictate, giving us the financial flexibility to manage within the covenants of our amended credit agreement as we head into 2023. With that, I'll ask the operator to please open the line for questions. If you'd like to ask a question at this time, please press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alex Fuhrman with Craig-Hallum. Your line is now open. Great. Thanks very much for taking my question. I wanted to ask about the potential integration of the Playboy and Lovers brands or, you know, using the Playboy brand more to reinvent the Lovers stores. Can you talk a little bit about the timing of when we might start to see this? Or, are you envisioning Playboy-branded storefronts in the former Lovers locations or the current Lovers locations? Would love to just hear more about this strategy and what we could expect to see next year. Thanks, Alex. Actually, before Ashley and Ben get into that, I misspoke. I wanted to make sure I updated the impairment charges were actually $301.9 million of impairment charges, but I'll let Ashley and Ben answer your question. Yeah, Alex, I'll just start with a high level and then turn it over to Ashley to get into more of the specifics. You know, as we look to simplify and streamline our business, we have a brand that is probably one of the most recognized brands in the world. That, you know, in December, will be in its 70th year. The organic awareness and traffic that drives, leads us to believe that long term, continuing to transition and rebrand other businesses that don't fall within either Playboy or Honey Birdette makes the most sense to really drive a cohesive ecosystem. With that, I'll let Ashley get into a few more of the specifics on Lovers. Hi. Jumping in there on Lovers. Our first introduction into this is to launch Playboy Pleasure. We started receiving the inventory on this, and we'll light up in our Lovers stores in time for our peak selling for Valentine's Day. We're also evaluating some new store opportunities we have within the Lovers business, where we are going to brand those as Playboy Pleasure stores. That will enable us to continue to sell the strong merchandise we have through the Lovers brand, but to exponentially add the Honey Birdette product that we're seeing success in, as well as rolling out a much bigger expression of our Playboy Pleasure product. We're gonna start with the Playboy Pleasure line and then lead into additional store opportunities that we will either rebrand or integrate into the Lovers business that exists today. Yeah. Alex, I think, you know, long term, you know, as we stated, our Century City store is off to a great start as a hero Playboy store. I think that you can imagine that Lovers will be, you know, branded something with the Playboy name in it, but might be Playboy Pleasure or something else as we work through that branding, as we enter 2023. Okay, that's really helpful. Thank you. If I could ask also about the licensing business, can we get an update on how the licensing business in China is going? There's been a lot of headlines in the news about continued lockdowns and things like that. I'm just curious how that impacts your business and what the outlook is next year for that business. Sure. We haven't had any revenue impact because, as we mentioned before, our partners pay us in advance. We've received more payments than the revenue that we've recognized. We did talk about last quarter how we've worked out some payment plans with our partners because they have been impacted by the COVID lockdowns. Their business has been impacted. It's important for everyone to just be aware that, you know, they continue to pay us. Some of those payments do get delayed because a lot of people don't know this, but the payments that they make us are subject to a withholding tax at the time that they send out the wire. Current China banking regulations require our partners to pay those payments in person. When a section of China goes into lockdown, they end up closing banks. Our partners actually can't go in person to make that payment. That's led to some delays. What we have seen is as soon as those banks reopen, our partners come out and pay us. You know, we're gonna continue working with them and pleased with where they are. Alex, let me just also add, you know, long term, as we sort of think about 2023 and beyond, you know, I think I stated this historically, but for the past couple years, we believe transitioning our China business into a joint venture would be the most beneficial to provide long-term stability and growth in the market. Over the past few months, we've made substantial progress towards a potential joint venture with a sophisticated operator. As we move forward, you know, I think that is the best structure for our business and also provides the most stability and long-term growth, and that's what we're focused on. Terrific. That's really helpful. Thank you very much. Thanks, Alex. Our next question comes from the line of Jason Tilchen with Canaccord Genuity. Your line is now open. Yep. Thanks for taking the question. In the prepared remarks, you mentioned that the inventory in stocks were much better over the summer as you sort of tried to get stuff in stock ahead of the Halloween season. I'm curious, if you could talk about how demand has trended, you know, into October leading into Halloween relative to both your expectations over recent months and relative to last year where you saw strong demand but couldn't meet it because of the out -of -stocks. Hi, Jason. This is Ashley. I'll speak to Halloween. There are two flavors of the Halloween business this season. We saw really strong demand and continued excitement around our Playboy brand, and so we delivered a strong Halloween season with continued interest in the bunny suit, and also integrated some additional Yandy Halloween costumes into the Playboy business. We saw that through much of Q3 and then into October. On the Yandy side, which Lance spoke to or alluded to in the script earlier, we have significantly reduced our paid media spend. Last year, we were operating with Yandy in a very different way, where we were driving revenue at the expense of profitability and going after top line aggressively. As we've seen the ineffective marketing results as, you know, the iOS privacy changes have hit us, we've significantly reduced the paid media side with an eye to earnings. As a result, that made top line more challenging for Yandy. While we negative comped, we improved our earnings relative to last year. What we saw, which we feel pretty good about, is we reduced our paid media spend by 2.5 x versus the decline we saw in revenue. Our decline in revenue was significantly lower than the decline we saw in our paid media spend. Again, that just speaks to the earnings focus. Thanks. That's really helpful. Just one follow-up on Centerfold. It was really great detail you shared about the progress being made there on the tech side. I'm just wondering, you know, how do you view the go-to-market strategy there? Do you feel like the product is at the point where you're gonna start, you know, expanding, you know, the outreach to consumers? Also, how do you view the competitive landscape? Obviously, there's some existing players there. Twitter, over recent weeks, has mentioned the possibility of launching sort of similar tools and services to their users. I'm just curious how you view the competitive landscape going forward there. Sure. Look, I am pleased with where the product is today and the improvements we've made. You know, we've reduced our tech infrastructure costs by over 90%. More importantly, we are able to roll out changes very, very quickly in a matter of hours or days versus where we were before on the old platform in a matter of weeks or months. There is still room to improve the product. The way we're thinking about what was the Centerfold product, which is really now Playboy as we integrate everything together, that is really our magazine moving forward of the 21st century. You'll continue to see improvements to the home screen, to the search functionality. You know, we know what the consumer is wanting. We know it comes down to messaging. We have started to onboard creators at a faster pace over the past few weeks now that we feel very comfortable with the product. When we think about the top of the funnel and the integration that it provides for the rest of the ecosystem, you know, you're seeing it through our social media posts. Instead of just posting a T-shirt and then a creator, we're now posting that creator in a T-shirt. We've had engagements on our social media that have topped 1.3 million views doing that. I remain bullish that this is the best investment we can continue to make long term. As Lance said, we saw a massive increase in our email and SMS at Playboy.com. That's without tapping into the tens of thousands plus of customers that we have, you know, received their email on at Centerfold. As we move forward, you know, this is a brand that has worked with creators for the past 70 years. That's really what drove this brand at the end of the day, and that's what we're returning to. I believe that if we are successful and continue to be successful with the creators that we bring onto the platform, it will not only lead to a very profitable business into Centerfold by itself, but it will drive the rest of the business as well. This is Ashley. I'll just jump in quickly on that. One of the other things that we've done to integrate across both our Centerfold business and our consumer products business, we currently have a model search going on through this partner, Orbiiit. We have a goal of acquiring 20,000 additional kind of customers into our file. What we're seeing is, as we have applicants into this program, we are able to shift them into the creator program and have a significant amount of interest from those same applicants to join Centerfold. For us, this is a big win where there's a significant amount of synergy between creators that wanna be part of Playboy, and that includes participating in whether it's a campaign for lingerie or signing up to become a creator for Centerfold. Yeah. I think, look, it's everything we do is going to be centered on one ecosystem moving forward. The nice thing about the replatforming as well is we now have a technology stack that is very, very flexible. It's current and modern. As we look to further consolidate the business and integrate products, you know, such as our legacy products, we now have a platform that we can do that on, which allows us to have better operating efficiency moving forward. Great. That's very helpful. Thanks a lot. Our next question comes from the line of Jim Duffy with Stifel. Your line is now open. Thank you. Good afternoon. Hey, I'm traveling. I joined the call late, so forgive me if I'm retreading content covered earlier in the prepared remarks. Lance, could you give us a rundown on cash balances, liquidity, cash flow projections, and interest expense projections, please? Yeah, sure. From a cash perspective, as I mentioned, we're pretty much flat today to where we ended the quarter, right around $65 million of cash equivalents and restricted cash. You know, in terms of where we see things moving forward, you know, our businesses are creating cash flow, right? But we are reinvesting that cash flow back into these growth initiatives around building out that creator-led platform, you know, building out our owned and operated business on the direct-to-consumer side because we see the long-term potential for margin uplift there. You know, we could make a choice that we could not be investing back into those businesses and produce more cash flow. We're trying to strike a fine balance here between reinvesting that cash flow into the business, but not investing too much in the current environment. That's really how we're thinking about it right now. I mean, I also said on the call, we've got a lot of levers right now within our control in terms of managing our costs, managing investment back into the business. You know, Ben also talked about the replatforming we did on the creator-led platform and some of the efficiencies that we were able to wring out of that. I mean, when you think about it, on an annualized basis, you can save, you know, around $1 million just on the infrastructure costs alone based on the work that we've done there. We're gonna continue, again, to make those near-term investments, and kind of balance everything in terms of our liquidity needs and make sure that we're living within the covenants of our credit agreement. Like I said, we've got a lot of different levers that we can pull if need be, but I think right now we're managing as best as we can through the current environment, and we feel good about the flexibility that we maintain. Understood. Through the lens of the leverage profile, you see opportunity to improve the EBITDA, and that's where you see your best focus, something like that? Yeah. I think look over the long term, right? We're really just starting to put out our private label products, and you know, we're seeing it right now with the initial launch of Playboy Lingerie. We'll see it with the upcoming launch of Playboy Pleasure in Lovers stores. We see real ability to drive increased, improved product margin there. Yeah, I think these investments that we're making. We've talked about this kind of time and again. We're making near-term investment that we expect to pay off over the long term, in terms of margin pickup. I think you'd also asked about the interest expense. I mean, look, hard to know exactly where rates are going to end up. They continue to increase. Our interest payment this year is still at the LIBOR + 625, and LIBOR being a 50 basis points floor that we're still locked into through this next payment period. Look, next year, I anticipate the debt service cost to go up by at least $10 million or more. We're factoring that into our investment plans for next year, you know, to make sure that we're, like I said, cash flow breakeven for the year, and that's really what we're targeting, is to reinvest back in the business in a thoughtful way, and preserve cash to weather the current environment. Makes sense. Lance, did I hear you say the expense rate, $165 million annually? Do I have that correct? Yep. Okay. Ben, one coming your way. I'm very interested in your comments on the potential conversion to a JV structure in China. Is there a contractual window in the current license agreement that allows you to do that without compensating the licensing partner? I guess I'm curious what you'd see as the realized margin opportunity versus the license royalty rate that you think gives that strategic justification. Jim, not to not answer your question, but unfortunately, at this time, I can't answer that question, as you can imagine, for legal reasons and also just for business reasons. I'll just sort of reiterate. Understood. Fair Fair enough. Look, just to follow up on what you had asked Lance too, you know, what we're focused on right now is continuing to streamline the business, and I believe that we now have the team and the pieces in place. You know, you look at what Ashley's team has done, which really didn't get into place until July timeframe, you know, with what they've developed in a short period of time with lingerie, what they have coming over the next year with private label product. All of these things allow us to enhance our margins, and then you start to think about the consolidation of our, what I would say, is these very small legacy businesses into what I would say is hero products moving forward, and that gives us a lot of flexibility moving forward from a cost perspective. That's what we're focused on, you know, as we approach 2023. We need to continue to invest in the things that are strategically important. We've seen great growth on Centerfold, in other areas, and Playboy Lingerie is off to a great start. You know, coupled with making sure that we've maintained plenty of headroom with our covenants and our cash balances, given no one knows how long the economy will be where it is and if it will get worse or not. We're planning for the worst and making sure that we maintain maximum flexibility as a company. Very good. Thank you. Our next question comes from the line of George Kelly with Roth. Your line is now open. Hey, everybody. Thanks for taking my questions. First for Lance, regarding your guidance you provided about the, I think last quarter you called them the non-annualized non-product costs. Isn't there a second part of the formula, which is what the product costs are on top of that? I think it was 25%. Just curious if any of that has changed. Yeah. No real change on the product side. I mean, the one thing that we are seeing, and you're obviously seeing this across the board and you'll see it, you saw it in the third quarter, you're gonna see it in the fourth quarter, is you know, stepped up promotional activity, right? There's a lot of inventory that we've got to move that other competitors in the retail space have to move. So that will have an impact on near-term product margins. But in terms of you know, input costs, they're not really changing in terms of how we're thinking about it over the long term. Okay. Yeah. I'll just jump in on that. We know there's significant improvement with the owned and operated coming. We are also evaluating other costs related to our fulfillment model, and that's an area where, just from my past, we have an opportunity to reduce spend and cost. We're looking pretty heavily into how we can go after savings there across our brands and then identify obviously the improved product margin and have tightened buys on inventory in the current quarter all the way through the front half of next year. Tightening those buys does enable us to really reduce the amount of promo we have to do heading into Q1. We will be up against aggressive promo next year just because we've been promoting through Q3. We are feeling good about how we've tightened buys knowing that the economy is slowing. That 25% number has been consistent over the last two quarters. You know, it's not moving a ton. Okay. Next question. You talked a lot about sort of consolidating and really investing in the core power brands. Curious if that could involve any outright sort of asset sales or could there be other potential asset sales that you're considering? Without talking about, you know, where we're moving from a strategic perspective at this point, I would say that, you know, our goal is to have as many arrows in our quiver as possible. You know, we will always look at things opportunistically as fiduciaries. Right now, what we're focused on is consolidating the businesses we have around the brands that we know that work, which are Honey Birdette and Playboy. You know, one of the challenges with a seventy-year-old company is you have a lot of small business lines that take back office infrastructure, finance, accounting, legal, HR, et cetera, to maintain. Now that we've seen the traction, what we've started to see on Centerfold, that allows us, moving forward, to be strategic in how we consolidate business lines, you know, with the goal of improving our efficiency. Right now, you know, as we said, we're looking through everything from a strategic standpoint. We think there's a real opportunity to lower our fulfillment costs, and we'll have to think through Yandy long-term and how that fits into the Playboy ecosystem. Yeah. As I say, I mean, consolidation can take many different forms, right? We've talked about the consolidation really on the brand side, and how do we leverage the Playboy brand within Lovers, within Yandy, because those aren't really brands, you know, standalone. We also haven't really talked about it on this call, but, you know, historically, we've talked about the product, I guess, breadth at Yandy, which was kind of historically how they operated with, you know, well over 10,000, 15,000 SKUs. That creates real fulfillment headaches and challenges when you're a small-ish company like Yandy is. Part of that consolidation is how do we move through kind of that wholesale, third party, low margin, low quality inventory? How do we reduce the number of SKUs and drive more higher margin SKUs through that business? That's another way that we think about consolidation. As Ben mentioned, you know, if we're able to consolidate warehouses to consolidate operations on that side of the house, you know, when we look at standard fulfillment cost as a percent of revenue, we run, you know, incredibly high relative to where we think we should be over the long term. We think there's real room to drive efficiency through that. Going back to that consolidation point, we've gotta really figure out how to kind of tie all this together, both from an inventory perspective and from a systems perspective. Okay, thank you. I'm showing no further questions in queue at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.