Digital Brands Group Inc (DBGI) 2023 Q3 法說會逐字稿

Thank you for standing by. And welcome to the Digital Brands Group, Inc. Q3 2023 earnings call. I would now like to welcome John McNamara, Investor Relations to begin the call. John, over to you.

謝謝你的支持。歡迎參加 Digital Brands Group, Inc. 2023 年第三季財報電話會議。我現在歡迎投資者關係部的約翰·麥克納馬拉開始電話會議。約翰，交給你了。

Good afternoon, everyone. And thank you again for joining us on the Digital Brands Group, Inc 2023 third quarter financial results conference call. With us on the line from Digital Brands is Hil Davis, Chief Executive Officer. He will begin the call with a brief overview of the quarter. And then we'll open up the lines for questions.

大家下午好。再次感謝您參加 Digital Brands Group, Inc 2023 年第三季財務績效電話會議。 Digital Brands 執行長 Hil Davis 接聽了我們的電話。他將在電話會議開始時簡要概述本季的情況。然後我們將開放提問熱線。

As usual, we would remind you that this earnings call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended including statements regarding things such as the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties. Some of which cannot be predicted or quantified and are beyond the company's control.

與往常一樣，我們提醒您，本次財報電話會議可能包含 1933 年《證券法》修訂案第 27A 條中定義的前瞻性陳述，包括有關公司業務戰略和增長戰略等的陳述。識別前瞻性陳述的表述僅代表該陳述發表之日的情況。這些前瞻性陳述主要基於公司的預期，並受到許多風險和不確定性的影響。其中一些無法預測或量化，並且超出了公司的控制範圍。

Future developments and actual results could differ materially from those set forth by the underlying forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate.

未來的發展和實際結果可能與基本前瞻性陳述中所述的結果有重大差異。鑑於這些風險和不確定性，無法保證前瞻性資訊將被證明是準確的。

With that, I'd like to turn the call over to Hil Davis, Go ahead Hil.

說到這裡，我想把電話轉給希爾戴維斯，請繼續，希爾。

Thanks, John. And good afternoon, everyone. We are now halfway through our fourth quarter. And we've also closed our first quarter 2024 for wholesale bookings. Given the current trends for the fourth quarter and our first quarter wholesale bookings, we are pleased to announce that we have turned Sundry around.

謝謝，約翰。大家下午好。我們的第四季已經過半了。我們也結束了 2024 年第一季的批發預訂。鑑於第四季度和第一季批發預訂的當前趨勢，我們很高興地宣布，我們已經扭轉了 Sundry 的局面。

Sundry's at their bottom in August. And it has been on a steady increase every month since then. For example, we have tripled Sundry's first quarter 2024 wholesale bookings versus the brand's third quarter 2023 wholesale revenue, which again saw the bottom for both July and August. And ever since then, we've seen a significant increase.

Sundry 在八月正處於谷底。從那時起，這個數字每個月都在穩定成長。例如，我們將 Sundry 2024 年第一季的批發預訂量增加了兩倍，而該品牌 2023 年第三季的批發收入在 7 月和 8 月再次觸底。從那時起，我們看到了顯著的成長。

Additionally, Sundry's fall sweaters sold out so quickly at wholesale that Anthropologie has asked for an exclusive sweater program for next fall and holiday, which will increase our wholesale revenues significantly versus not only our first quarter bookings but our third and fourth quarter results of this year.

此外，Sundry 的秋季毛衣批發銷售一空，Anthropologie 已要求在明年秋季和假期推出獨家毛衣計劃，這將顯著增加我們的批發收入，不僅與我們第一季的預訂相比，而且與今年第三和第四季的業績相比。

In fact, other wholesale accounts has stated they under ordered for fall and holiday for Sundry given the products are selling out on the floor within weeks. Today, we just learned that another major retail chain and our largest wholesale account sold through 57% of Sundry's holiday sweaters in one week. That is correct one week.

事實上，其他批發客戶表示，由於 Sundry 的產品在幾週內就在場內銷售一空，因此他們在秋季和假期期間的訂單不足。今天，我們剛剛獲悉另一家大型零售連鎖店和我們最大的批發帳戶在一周內售出了 Sundry 57% 的假日毛衣。這是正確的一周。

They now also want to go deeper in there by next year. The turnaround in Sundry along with the increase in our revenue from our other brands coupled with the cost synergies has resulted in meaningful operating leverage. In fact, based on the increasing revenue trends and the decline in our operating expenses, we expect the EBITDA neutral in the first quarter. This assumes that current e-commerce trends as is. And these trends have been softer than we expected due to soft macro environment that other retailers and DTC companies have reported.

他們現在還想在明年之前進一步深入研究。 Sundry 的轉虧為盈，加上我們其他品牌收入的增加，加上成本綜效，帶來了有意義的營運槓桿。事實上，基於營收的成長趨勢和營運費用的下降，我們預期第一季 EBITDA 為中性。這是假設當前的電子商務趨勢不變。由於其他零售商和 DTC 公司報告的宏觀環境疲軟，這些趨勢比我們預期的要疲軟。

In fact, this is one of the most promotional periods we have ever experienced with promotions started much earlier and at much higher discounts than we have seen in the past. And based on the other retailers that have reported earnings as well as my discussion with private companies, everyone is seeing and experiencing this even including: Home Depot today, Target, Levi's, Nike, et cetera.

事實上，這是我們經歷過的促銷最大的時期之一，促銷活動比我們過去看到的要早得多，折扣也高得多。根據其他已報告收益的零售商以及我與私人公司的討論，每個人都在看到並經歷這一點，甚至包括：今天的家得寶、塔吉特、李維斯、耐吉等。

Despite the softer e-commerce trend, we still generated internal free cash flow in October, which we'll use -- Sorry. My Airpod died. Despite the softer e-commerce trend, we still generated internal free cash flow in October, which we used to pay down old accounts payable and debt.

儘管電子商務趨勢疲軟，我們仍然在 10 月產生了內部自由現金流，我們將使用它 - 抱歉。我的 Airpod 死了。儘管電子商務趨勢疲軟，我們仍然在 10 月產生了內部自由現金流，我們用這些現金流來償還舊的應付帳款和債務。

We expect to generate internal free cash flow going forward. And we will continue to clean up the balance sheet as this is what private investors have told us that they value the most. In fact, the monthly internal free cash flow should increase in April and again in October. The increase in October alone is over 60,000 a month just due the fact our office and distribution center rent will no longer include the catch-up payments due to the landlord from the COVID years where we paid no rent.

我們預計未來將產生內部自由現金流。我們將繼續清理資產負債表，因為這是私人投資者告訴我們他們最重視的。事實上，每月內部自由現金流應該會在四月和十月再次增加。僅 10 月的增幅就超過了 60,000 美元，因為我們的辦公室和配送中心的租金將不再包括新冠疫情期間我們沒有支付租金的房東的補繳費用。

And I'll repeat that. Just starting in October alone, we will pick up an additional $60,000 in free cash flow just from paying a normalized rent versus a rent plus old rent due from COVID. We are also finalizing a lease for an outlet store that would take over an existing outlet location that would open approximately March 1.

我會重複一遍。僅從 10 月開始，我們僅透過支付正常化租金（與因新冠疫情而支付的租金加上舊租金相比）就能額外獲得 60,000 美元的自由現金流。我們也正在敲定一家直銷店的租約，該店將接管現有的直銷店位置，該店將於 3 月 1 日左右開業。

The brand in this store currently does $1.8 million a year, which is a 150,000 month. It cost approximately $45,000 a month to operate. And since we have a lot of old Sundry product from the acquisition, we will have no cash costs for our cost of goods sold. This should add a minimum of $50,000 to monthly cash flow assuming the revenues dropped to $100,000 a month, which we do not expect. But it is a conservative scenario.

該店目前該品牌的年收入為 180 萬美元，即每月 15 萬美元。每月的營運成本約為 45,000 美元。由於我們收購了許多舊的雜貨產品，因此我們的銷售成本不會有現金成本。假設每月收入下降至 100,000 美元（我們預計不會出現這種情況），這應至少為每月現金流增加 50,000 美元。但這是一個保守的情況。

If we maintain the same monthly revenue, then the cash flow should approximate an additional $100,000 a month on top of our current amount. Based on the $4.5 million in wholesale bookings plus our e-commerce revenue plus store revenue plus wholesale reorders plus licensing income from our licensing deal, we expect to achieve EBITDA neutral to positive in the first quarter. And based on the Anthropologie exclusive sweater program alone not to mention the feedback from other wholesalers, we should be meaningfully over that $6 million revenue threshold for the third and fourth quarters.

如果我們保持相同的每月收入，那麼每月的現金流量應該在當前金額的基礎上增加約 100,000 美元。根據 450 萬美元的批發預訂加上我們的電子商務收入加上商店收入加上批發再訂購加上我們的許可協議的許可收入，我們預計第一季 EBITDA 為中性至正值。僅根據 Anthropologie 獨家毛衣計劃，更不用說其他批發商的反饋，我們第三季和第四季的收入門檻應該有意義地超過 600 萬美元。

So again, $6 million in quarterly revenue is EBITDA neutral. And again based on our current wholesale bookings for Q1 which are booked and our purchase orders that are in our system and binding plus our e-commerce trends plus the store revenue from the outlets plus the wholesale reorders we get plus our licensing income, for the first and second quarter we expect to be at a minimum EBITDA neutral. And in third and fourth quarters nicely EBITDA positive. In short, we have one accelerating revenues, which should result in revenue growth of 50% plus in the first and second quarters and close to 100% in the third and fourth quarters.

同樣，600 萬美元的季度收入是 EBITDA 中性的。再次基於我們目前第一季的批發預訂量以及我們系統中並綁定的採購訂單，加上我們的電子商務趨勢，加上來自經銷店的商店收入，加上我們獲得的批發再訂單加上我們的許可收入，對於我們預計第一季和第二季的 EBITDA 至少為中性。第三季和第四季的 EBITDA 為正值。簡而言之，我們的收入正在加速成長，這將導致第一季和第二季的營收成長超過 50%，第三季和第四季接近 100%。

Secondly, internal free cash flow that is also increasing when we come to March and September and three neutral EBITDA in the first half and EBITDA positive in the second half, which is also why our internal free cash flow increases. We believe these fundamentals and metrics do matter. And we will find the investors, private or public, who value these trends. As we are clearly not getting any credit for them today in the public markets.

其次，當我們進入 3 月和 9 月時，內部自由現金流也在增加，上半年 EBITDA 為中性，下半年 EBITDA 為正，這也是我們內部自由現金流增加的原因。我們相信這些基本面和指標確實很重要。我們會找到重視這些趨勢的私人或公共投資者。因為我們今天顯然沒有在公開市場上獲得任何榮譽。

So with that, let's discuss third quarter results. Net revenues increased 22.5% to $3.3 million compared to $2.7 million a year ago. Please note, these results exclude the revenue from our disposition of Harper Jones for both the third quarter of 2022 and 2023.

那麼，讓我們討論第三季的業績。淨收入較去年同期的 270 萬美元成長 22.5%，達到 330 萬美元。請注意，這些結果不包括我們 2022 年第三季和 2023 年出售 Harper Jones 的收入。

Most importantly, this represents the lowest point of Sundry's wholesale revenue based on our current fourth quarter trends and first quarter wholesale bookings. As Q1 2024 wholesale bookings are triple the third quarter wholesale revenue. And that is also a reflection of the changes that we made when we acquired Sundry when we changed the design team and also changed our pricing and our fabric quality. We were not able to impact change until September. And we are actually seeing those results now play out very nicely.

最重要的是，根據我們目前第四季的趨勢和第一季的批發預訂量，這代表了 Sundry 批發收入的最低點。 2024 年第一季批發預訂量是第三季批發收入的三倍。這也反映了我們收購 Sundry 時所做的改變，當時我們更換了設計團隊，也改變了我們的定價和布料品質。直到九月我們才能夠影響改變。事實上，我們現在看到這些結果非常好。

Gross margin increase 77% to $1.7 million compared to $1 million a year ago. Our gross profit margins increased significantly to 52.3% from 36% a year ago and also 52% from the second quarter. So we are holding and growing gross margin.

毛利率較一年前的 100 萬美元成長 77%，達到 170 萬美元。我們的毛利率從去年同期的 36% 大幅上升至 52.3%，也從第二季的 52% 大幅上升。因此，我們保持並成長了毛利率。

G&A expenses including non-cash items increased 25.3% to $3.7 million compared to $3 million a year ago. G&A expenses including non-cash item -- excluding non-cash item expenses decreased 30.8% to $1.6 million compared to $2.3 million a year ago. G&A expenses included $2.1 million in noncash expenses associated with depreciation and amortization, amortization of loan discount and stock option expense.

包括非現金項目在內的一般管理費用增加了 25.3%，達到 370 萬美元，而一年前為 300 萬美元。包括非現金項目在內的一般管理費用（不包括非現金項目支出）下降了 30.8%，降至 160 萬美元，去年同期為 230 萬美元。 G&A 費用包括與折舊和攤提、貸款折扣攤銷以及股票選擇權費用相關的 210 萬美元非現金費用。

Sales and marketing expenses increased 12.6%. It's at $1.2 million compared to a million a year ago. Sales and marketing expense ratio was 35.3% compared to 38.5% a year ago. Net operating loss excluding the non-cash charge was $1.2 million compared to a loss of $2.5 million a year ago.

銷售和行銷費用成長 12.6%。與一年前的 100 萬美元相比，現在價格為 120 萬美元。銷售和行銷費用率為 35.3%，而去年同期為 38.5%。扣除非現金費用後的淨營業虧損為 120 萬美元，而一年前為虧損 250 萬美元。

We cut our net operating loss in half on very low revenue. In fact, revenue that significantly below just our Q1 wholesale bookings alone. Net loss per diluted share attributable to common stockholders was $5.4 million or $14.55 per diluted share compared to a loss of $4.9 million for a loss of $223.83 per diluted share a year ago. Net loss per diluted share excluding non-cash expenses was $2.6 million or $8.92 per share.

由於收入非常低，我們將淨營運虧損減少了一半。事實上，營收遠低於我們第一季的批發預訂量。普通股股東攤薄後每股淨虧損為540 萬美元，即每股攤薄後每股虧損14.55 美元，而一年前，每股攤薄後每股虧損為490 萬美元，攤薄後每股虧損為223.83 美元。扣除非現金費用後，攤薄後每股淨虧損為 260 萬美元，即每股 8.92 美元。

In closing as we stated, the Board is reviewing strategic alternatives given the continued dislocation between Digital Brands Group public market value and the intrinsic value of the company's underlying assets and operating performance. We believe the first quarter 2024 wholesale bookings and the monthly internal free cash flow illustrate how significant this dislocation has become. We are on an $18 million wholesale revenue run rate for 2024. And that does not include any revenue impact from our e-commerce revenue, our store revenue or our licensing income.

最後，正如我們所說，鑑於 Digital Brands Group 公開市場價值與公司基礎資產和經營績效的內在價值之間持續脫節，董事會正在審查策略選擇。我們認為，2024 年第一季的批發預訂量和每月內部自由現金流說明了這種混亂的嚴重程度。 2024 年我們的批發收入預計為 1800 萬美元。這不包括我們的電子商務收入、商店收入或授權收入對收入的任何影響。

Finally, we should generate more than $6 million internal free cash flow for 2024. We have several options that we can pursue. All of which should increase shareholder value meaningfully. We know that there is significant demand for our NASDAQ scale as well. We're extremely serious about these options as it is crystal clear that we are not getting credit for our acquisitions or our revenue growth. And the fact that we are generating internal free cash flow. And we will be EBITDA positive in 2024 on top of the significant internal free cash flow.

最後，我們應該在 2024 年產生超過 600 萬美元的內部自由現金流。我們有多種選擇可供選擇。所有這些都應該有意義地增加股東價值。我們知道，我們的納斯達克規模也有很大的需求。我們對這些選擇非常認真，因為很明顯，我們的收購或收入成長並沒有得到認可。事實上，我們正​​在產生內部自由現金流。除了大量的內部自由現金流之外，我們還將在 2024 年實現正 EBITDA。

And our internal free cash flow, as I mentioned, should increase as we move through 2024 based on the outlet store, and the rent payments as noted earlier. All these do not seem to matter to the public markets at this time, which is why we are moving forward with the strategic alternative paths. Thanks for your time. And we look forward to a continued momentum.

正如我所提到的，根據直銷店和前面提到的租金支付，我們的內部自由現金流應該會隨著 2024 年的發展而增加。目前，所有這些似乎對公開市場來說都不重要，這就是我們正在推進策略替代路徑的原因。謝謝你的時間。我們期待著持續的勢頭。

This concludes our 2023 third quarter's earning call. And let's open it up to Q&A, please.

我們的 2023 年第三季財報電話會議到此結束。請讓我們進行問答。

(Operator Instructions)

（操作員說明）

Now if no questions, I had a couple of questions that have come across in e-mail or social media as well.

如果沒有問題的話，我也有一些在電子郵件或社群媒體中遇到的問題。

There are no questions at this time, sir.

先生，目前沒有問題。

Yes. So let me -- a couple of questions we've gotten. One is do we expect our gross margins to continue at this level? And the answer is yes. We do. And there's a few reasons for that. And the biggest reason is there's a lot of fixed cost in our gross margin. So for instance when we make the samples for the wholesale, our distribution rent, our labor back there. Sewers, pattern makers. So there's a high fixed dollar amount.

是的。那麼讓我——我們收到的幾個問題。一是我們預期毛利率會繼續維持在這個水準嗎？答案是肯定的。我們的確是。這有幾個原因。最大的原因是我們的毛利率中有很多固定成本。例如，當我們為批發製作樣品時，我們的分銷租金，我們的勞動力。下水道，製版師。因此，固定美元金額很高。

So as our revenues increase, we get leverage on that fixed costs. Additionally, we also expect to cut another $0.5 million in costs as we move through. Now this is in the OpEx line items. We will cut another $0.5 million in costs in Q1 and going forward as well. And that's on an annualized basis. But we do expect gross margins to hold at this level or potentially increase as well especially as we get into Q4 because we're able to leverage those fixed costs that are associated in our gross margin.

因此，隨著我們收入的增加，我們可以利用固定成本。此外，我們也預計在實施過程中將再削減 50 萬美元的成本。現在，這是在營運支出行項目中。我們將在第一季和未來進一步削減 50 萬美元的成本。這是按年計算的。但我們確實預計毛利率將保持在這個水平，或者可能會增加，尤其是進入第四季度，因為我們能夠利用與毛利率相關的固定成本。

The other question is are we frustrated with where we are? And are we serious about going -- pursuing these strategic alternatives. And the answer is yes and yes. I mean it's clear, like I said, and the Board feels the same way. We're just not getting the appreciation for the turn we've built in the business. The acquisitions we've made. The leverage we've created. The revenue growth in the internal free cash flow.

另一個問題是我們對目前的處境感到沮喪嗎？我們是否認真地追求這些策略替代方案？答案是肯定的。我的意思是，正如我所說，這很清楚，董事會也有同樣的感覺。我們只是沒有因為我們在業務中所取得的轉變而得到讚賞。我們所做的收購。我們創造的槓桿。內部自由現金流的收入成長。

And at this point, we are actively pursuing it. As everyone knows on the call, we don't issue a lot of PR. We did issue a PR on this. And it was very intentional. And we will continue to pursue this very aggressively. And we feel like at this point in time that we're just not getting credit for what we've built and the results we're achieving. And I think Q1 is a perfect example of that.

而此時，我們正積極追求。眾所周知，我們在電話會議上不會發布太多公關內容。我們確實就此發布了 PR。這是非常有意的。我們將繼續積極地追求這一目標。我們覺得此時此刻，我們所建立的東西和我們所取得的成果並沒有得到認可。我認為第一季就是一個完美的例子。

And I think October free cash flow, as well as the Q1 wholesale bookings and just the feedback we're getting from the wholesale accounts on how well our products are selling through now has really shown us that we need to find the best path for shareholders. And it does not seem like the public markets at this point might be that path. Those were the major questions that I got either e-mail or social media.

我認為十月份的自由現金流，以及第一季的批發預訂，以及我們從批發帳戶獲得的關於我們產品現在銷售情況的反饋，確實表明我們需要為股東找到最佳途徑。目前看來，公開市場可能不是這條道路。這些是我透過電子郵件或社群媒體收到的主要問題。

I guess with that, we can conclude the call.

我想這樣我們就可以結束通話了。

I would like to thank the speakers --

我要感謝演講者——

Sorry. One more question I just got. Someone asked about the volume today? And what's going on? And what's happening with our mistakes after prefunded warrants. And they have been exercising those prefunded warrants. They are almost free and clear of all of them, which I think has been creating a lot of volatility.

對不起。我剛剛還有一個問題。今天有人問音量？到底發生了什麼事？以及我們在預付認股權證後所犯的錯誤發生了什麼事。他們一直在行使這些預先融資的認股權證。他們幾乎擺脫了所有這些，我認為這造成了很大的波動。

But as part of the pipe deal we did in early September, they -- as part of it, it was prefunded warrants that they could convert into common, which they've been doing over the last weekend. At this point, they should be mostly out of those. And I think that it's also just creating an overhang as I've gotten a lot of questions about that from investors. And that should be done or very, very close to being done at this point.

但作為我們在九月初進行的管道交易的一部分，他們——作為其中的一部分，他們可以將其轉換為普通認股權證，這是他們上週末一直在做的事情。此時，他們應該大部分都已經不在了。我認為這也只是造成了一個懸而未決的問題，因為我從投資者那裡收到了很多關於這個問題的問題。現在應該完成或非常非常接近完成。

I'd like to thank our speakers for today's presentation. And thank you all for joining us. This now concludes today's call. And you may now disconnect.

我要感謝今天的演講者的演講。感謝大家加入我們。今天的電話會議到此結束。您現在可以斷開連線。