Playboy Enterprises Inc. (PLA)

Q1 2010 Earnings Call

May 6, 2010 11:00 am ET

Executives

Martha Lindeman - SVP of Corporate Communications and IR

Scott Flanders - CEO

Alex Vaickus - President

Bob Campbell - Interim CFO

Analyst

David Miller - Caris & Company

David Bank - RBC Capital Markets

Martin Pyykkonen - JonCo Capital

Steve Marascia - Capital Securities

Jonathan Boyer - Boyer Asset Management

Presentation

Operator

Good day everyone and welcome to today's program. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the Q&A Session. Please note, this call maybe recorded. I will be standing by if you should need any assistance.

And it is now my pleasure to turn the call over to Martha. Please go ahead ma'am.

Martha Lindeman

Good morning everyone and welcome to the first quarter 2010 conference call. If you need a copy of our press release and earnings supplement, you can look on our website at www.peiinvestor.com or you can call Brian at 312-373-2432.

During the call today, we will be making forward-looking statements pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act. These statements reflect our current beliefs and plans. They are not guaranteed and they involve risks and uncertainties that could cause our actual results to differ materially from those discussed today. We are under no obligation to update these statements. I refer you to the Safe Harbor language in today's release as well as the risk factors in our Securities filings, which describe some of the factors that could cause our results to differ from today's discussion.

We also may make reference to non-GAAP measures. Additional information including reconciliation to the related GAAP measure is included in today's earnings release.

On the call today, we have our CEO, Scott Flanders, our President, Alex Vaickus and our interim Chief Financial Officer, Bob Campbell. And Alex will lead our floor for us this morning.

Alex Vaickus

Thanks Martha. Good morning. The $4.5 million swing in first quarter segment results that took us from a $1.3 million loss last year to a $3.2 million profit this year clearly demonstrates the success of our cost cutting measures. Each one of our business groups reported improved results and corporate expense declined. These initiatives have been comprehensive in scope. Today, we operate our businesses with 573 employees, down from 651 a year ago and more than 800 two years ago.

As we go forward, we will likely continue to reduce headcount, although probably at a slower pace as in the past given the restructurings already undertaken. We also reduced a number of offices and lowered marketing, consulting and other expense items large and small. These efforts played a critical role in the significant improvement in the first quarter results compared to last year.

While continuing to look at opportunities to reduce our cost structure, we'll not shy away from needed investments. We're adding staff in social networking and new media ventures to up grow our online and mobile businesses and we'll bring on Board other resources as needed. As we've stated in the past, we believe in the potential of Playboy TV and will make additional investments in the creations of original TV content.

Although, cash programming was down in the first quarter compared to the prior year, we expect programming investments to increase by about 10% in 2010 compared to last year. Repositioning Playboy TV remains a priority and we're working at programming and marketing initiatives that we expect will drive revenues in 2011 and beyond. We're encouraged by the early results we've seen in our efforts.

Improved domestic TV results driven by Playboy TV were a major factor in the 21% increase in the entertainment group's first quarter segment income to $3.6 million.

Although, domestic TV revenues in total were flat at $13.4 million in the first quarter compared to last year, growth in Playboy TV offset weaknesses in the movie networks. Playboy monthly subscribers are still on the rise and we saw a 10% increase in monthly revenues versus last year's first quarter and a 5% gain compared to the fourth quarter.

Adult movie transactions remain challenged, as competition from other suppliers and from other media platforms eat into our buy rates, while we're working with our distributors to keep this pace competitive and to market our VOD product as effectively as possible, we recognize that adult movies will remain a smaller piece of our overall TV business.

Entertainment results in this year's first quarter also benefited from a decline in programming amortization expense, which we do not expect to continue through the reminder of the year. Overall, we anticipate 2010 amortization expense for TV content to run roughly $29 million, which is inline with last year.

Turning to Print/Digital, we are very pleased with the magazines performance in the first quarter. A result of both cost cuts and our decision to reduce the rate base. Although, Playboy magazine recorded a first quarter loss, it was a significant improvement compared to last year and was responsible for a narrowing of the Print/Digital group's first quarter 2010 segment loss from a $3.6 million loss last year to $1.1 million this year.

During the quarter, we substantially completed the transition of our non-editorial publishing functions to AMI. We've not yet seen many of the benefits of that transaction, but clearly progress is under way. AMI rolled out its young men's network with trade advertising support and you will see new advertisers, particularly in the gaming, entertainment and toiletries category in the coming quarters.

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