Greetings, and welcome to the Digital Brands Group, Inc. Q4 and Full Year 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host, John McNamara of Investor Relations. Thank you, Mr. McNamara. You may begin.

Thank you, Kimora. Good afternoon, everybody. On behalf of Digital Brands Group, I'd like to welcome you to the company's 2022 fourth quarter and full year earnings conference call and webcast. With us on the line from Digital Brands is Hil Davis, Chief Executive Officer. Hil we'll begin the call with an overview of the fourth quarter and the full year, and then we'll open up the lines to questions. We will remind you before we begin 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, among other things 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 our company's expectations, and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth, in contemplated or underlying the 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. As Kimora noted, this call is being recorded. And with that, I'd like to turn the call over to Hil Davis, Chief Executive Officer. Go ahead, Hil.

Yes, thank you, John, and good afternoon, everyone. I wanted to start by providing some historical context for where we are and where we have been. The goal of providing this context is the following three reasons: One, explain why the Sundry acquisition is so transformative; two, how we have flipped from a negative working cap cycle model to a positive working capital cycle model; and three, how we should generate over $500,000 monthly free cash flow starting this fall. So let's start with some background. We went public in May of 2021, which was earlier and smaller than we would have liked. This was driven by the fact that we had two acquisitions that would join our company once we were public, but not prior to being public. We also knew there were several other acquisitions that were interested once we’re public. We knew these two acquisitions would allow us to achieve the cash flow and EBITDA positive that we needed to really scale and grow this business. In short, we had the path to profitability, and we had the acquisitions to make this happen. The first acquisition was Stateside, which we closed in August of 2021. The second acquisition was Sundry, which we had hoped to close in January of 2022. However, the day the SEC approved our S-1 to finance the deal, the Fed announced that they were planning to raise rates 5 times for the next 12 months, and the markets crashed. Not only did the markets crash that day, the markets crashed even further after Russia invaded Ukraine and then the markets kept sliding after that. This meant our Sundry acquisition was pushed out to December 30 of 2022, less than four months ago. So why does this matter? As I stated earlier, we needed to acquire Sundry and Stateside to reach cash flow and EBITDA positive. Now that we have acquired Sundry, we own our weighted EBITDA positive as we stated in July or August, which we expect to happen and which we plan to have within, I guess, three months based on where we are in the calendar, which is very exciting. And the reason I’d say July, August so everyone understands is we ship at the end of the month, so some shipments might go out the first week of August, some the last week of July. So that's what changes that but this is all based on our wholesale orders. Another major change in our working capital cycle model was our ability to start factoring our wholesale orders in October of last year. Factoring allows us to receive cash for 65% of our wholesale orders upfront from the factor when we ship the orders versus previously we had to wait 60 to 90 days to be paid by the retailer and we were making the product 60 to 90 days in advance. So it was a negative four to six-month of working cap cycle that is now positive upon shipment. Since we ship these new products 10 months out of the year, this means we are receiving cash at shipping versus having to wait. And two, we are recycling that same cash being the cost of goods sold we spent to make the product for future months. So as an example, we ship in April, we use that cash for all the product from our factor to make basically June. We ship in May, we'll use all that cash to make for July, and so we're able to constantly recycle this cash over and over again without requiring new cash. The end result of this is that we have transitioned to this incredibly powerful positive working cap cycle. This working cap cycle transition is even more meaningfully when you include Sundry's revenues into this process as they are our largest brand and 75% wholesale-driven. To be more specific, if we did not have an MCA that we are paying off weekly, which we needed to do to acquire Sundry, our business would generate over $490,000 in cash flow a month just from not having to pay off the MCA. The MCA is paid off in October, at which point this cash flow will shift to our balance sheet. This is a significant swing in cash flow and will be on top of our positive EBITDA that we will start generating, which is also enhanced by our ability to factor and recycle that cash every single month. We have three things: the MCA being paid off, which generates $490,000; our projected EBITDA positive; and our ability to recycle our cost of goods sold every single month with the ability to factor our wholesale orders. Our business is completely different today than it was in 2022, and I cannot stress this enough. We lost a year due the market meltdown, which delayed our acquisition of Sundry. We knew this acquisition was a critical step in our path to create a company with scale and positive EBITDA and positive cash flow. Now that the Sundry acquisition has happened, we are well on our way to achieving our initial goals. So given all this, I'm going to go ahead and go through our fourth quarter and fiscal year 2022 financial results. But please note that these numbers are backwards looking and do not include any of the impact from Sundry that we discussed previously. We are an extremely different company today with extremely different financial projections and actual current business since our acquisition of Sundry on December 30th. The results for the fourth quarter, which again excluded any contribution from Sundry, we actually had a net revenue decrease of 15.8% compared to $3.4 million versus the previous year due to the fact that -- due to two things. One, it was driven by a decline in our advertising spend as we focused on the launch and cross-merchandising of our multi-brand site, the Bailey Shop, and the lack of wholesale revenue from Bailey 44 as we moved that to online only starting in June of last year, because we wanted to overhaul and focus on product design and process. Regarding the Bailey Shop, this is very important. We launched it in October of last year, which allowed us to significantly scale back our advertising spend to focus on our cross-merchandising our brands to our current customers. As a result, our sales and marketing expenses decreased $420,000 to $1 million from $1.4 million. And put this in perspective, sales and marketing expense ratio declined to 7% of sales compared to 18.5% a year ago, which shows the margin expansion we can create going forward in its line item. Based on our historical ROAS, which stands for return on advertising spend, which is 2x to 3x, we believe that we could have driven another $800,000 to $1.2 million in Q4 revenue if we kept our marketing spend flat year-over-year. What we really wanted to do is understand the power of the Bailey Shop and not dilute it with a lot of marketing spend to really see if our customer would cross-shop and cross-merchandise. This was a very successful strategy. And it's so successful that even over the weekend, we send out an email from one brand to another, from Stateside products to Sundry customers only, not even the Bailey Shop just cross-merchandise between two brands and so 50% increase over four days on the daily revenue at Sundry as they’d bought Stateside product. So this was really critical, because we wanted to make sure this strategy worked. We also hired a data analytics firm, once we know it works. And they started in February and since February, they've been turning up our advertising spend and have done a 60-day audit on our business. And now we have an incredible roadmap of where to go, how to go, the revenue we should generate, and we're more profitable on a ROAS and a flow-through basis than we've ever been, because we are very data-driven at this point. We all noted this -- we noted this on our State of the Union call. And we are seeing that significant increase in our e-commerce metrics, as we discussed on that call. And in fact, we're seeing it only get better every single week, as we have more and more data and we follow more and more of the path that they've laid out for us. What does this do? This drives higher revenue at a much lower customer acquisition costs for new customers and also drives repeat at a much higher rate. So it's driving both top and bottom line results, since we hired this data analytics firm in mid-February. And we were also able to fully understand that this cross-merchandising strategy across brands was successful and that we can lean into it. And now that we have real clean data without a lot of marketing dollars in there, we really understand the path, the type of customers, the type of products, the type a repeat rate, what they buy first by category, what they buy second by category. And all this matters, because then we can go and figure out what customers aren't on that path, but follow the first step of that path. So what's their step two, step three and start emailing to them very personally, and very directly based on these paths. Regarding the Bailey's wholesale, we relaunched Bailey's wholesale for fall this year. It will contribute to Q3 and Q4 revenues this year, so it has been relaunched. The reason we pulled it back was we needed to overhaul the cost perspective and the design perspective. So we reduced the wholesale offering from 45 styles per season to 25 styles per season. This has meaningfully increased the profitability as just making samples at 45 styles across all the different reps in the country was costing us 15% of our wholesale revenue. That's down now in the low single digits. We also signed a license deal with a major off price retailer for the Bailey's brand, which we expect to contribute $500,000 to a $1 million in free cash flow year starting this fall. That's not included in any of the free cash flow numbers I've mentioned previously. So again, we had to step back, fix that brand, get it tight, and it's now back in wholesale, so we will benefit from it this year, while we didn't benefit from that last year. Regarding our Q4 margin and G&A expenses, our gross margin and G&A dollars and margin are not normalized due to suggestion of our audit firm to reclassify certain G&A expenses into cost of goods sold. These expenses include certain salaries related to producing product samples and managing production, as well as a percent of our office and distribution center both rent and employee salaries being allocated from G&A to cost of goods sold. Many retailers have changed where these expenses fall in the P&L post COVID, as e-commerce has become a larger part of that business. So our accounts wanted us to follow more of the standard process there, which is what we did. Therefore, the cost of goods sold for Q4 this year and last year include both the reclassification of these expenses for Q4 as well as a true-up for the first three quarter expenses into the fourth quarter to catch it up. So you basically have the new allocation in Q4, plus catching all that back up for the first three quarters. Therefore, the Q4 gross margins in dollars include all of the adjustments for all four quarters of 2022 into just the fourth quarter alone. The result of this is an increase in the cost of goods sold by $1.2 million in Q4 this year compared to $1 million in Q4 of last year. The adjustment also impacts G&A expenses for Q4 this year, as well as last year. This results in a reduction of our G&A expenses for Q4 both years by the exact same amounts that the cost of goods sold increased by for each year. To be clear, there's no impact to operating and net income as this adjustment simply moves expenses from G&A into cost of goods sold. So again, no effect to operating or net income. Given this our gross profit margin for both 2022 and 2029 is actually not a result of the actual results on a standalone basis going forward. This is same for G&A expenses. So gross margin profit, as reported with the reclassification for Q4 '22 was $642,000, which was negatively impacted by $1.2 million versus $472,000 in the year ago, which was impacted by $1 million. G&A expenses for Q4 '22 was $3.1 million versus $2.5 million the year ago period, an increase of $646,000. As you can see, we're experiencing significant operating leverage as our G&A expenses only increased $646,000. But it resulted in a $6.4 million increase in revenue. This is a significant return on our fixed cost. We are continuing to experience this leverage in 2023, which is even more impactful with the acquisition of Sundry. As we noted on our State of the Union call in March, we expect a much higher dollar flow through on this operating cost leverage now that Sundry is in our portfolio and we've moved them into our current distribution center, our current offices, consolidated marketing teams and consolidating different teams across the board. So we will continue to experience significant operating leverage on our revenue that we generate going forward and this year to date. Sales and marketing expenses decreased $420,000 to $1 million from $1.4 million the year ago period, which as a percentage of sales, sales and marketing expense ratio declined to 7% compared to 18.5% a year ago. Again, as we talked about, we did this intentional because we wanted to see if our strategy of cross-merchandising was successful without diluting it with a lot of new customer growth. We really wanted to focus on if that would work, and it did. We saw a meaningful increase of revenue associated with this marketing, which allowed us to acquire also new customers despite the decline, and they are already showing a propensity to not only repeat purchase within the brand, they came into the portfolio on, they are repurchasing across many of our brands, which is what is driving the success that we're seeing going forward. This was achieved before we engaged performance and data marketing firm in mid-February to drive our digital revenue. As we stated on our State of the Union call, and as I said previously, we are already experiencing significant increases in our e-commerce results since they began their process and at a lower customer acquisition cost than we have experienced historically. Net loss attributable to common stockholders in the fourth quarter of '22 was $15.8 million, or $20.46 per share compared to $9.7 million or $127.13 per diluted share. Net loss in Q4 '22 included a non-cash impairment charge of $9.7 million or $12.56 per share. Additionally, there was $3 million interest expense associated with MCA loan and some other debt financing we did, which was impacted by the earning per share of $3.84 per share. Excluding these items, net loss for Q4 of '22 would've been a loss of $3.1 million, or a loss of $4.06 per share versus a net loss of $5.9 million a year ago, or a loss of $77.32 per share. With this rate, the share count was significantly lower due to the reverse share we had to do last fall, so that's what impacted the Q1 -- I mean the 2021 share count. I think what's interesting here is you can see the leverage we're getting in our business just with the Stateside acquisition. And now that we have Sundry, you can start to really understand the leverage we're going to get as that brand was basically 4x, 5x larger than Stateside in revenue. We are generating significant leverage on our fixed cost and we expect to achieve EBITDA positive in July or August of this year, which is only three months away. Results for the fiscal '22. Net results for fiscal 2022 increased -- the net revenues increased 82.4% to $14 million compared to $7.6 million in 2021. Gross margin profit increased 218.5% to $6 million compared to $1.9 million in 2021. This is driven by an increase in our gross margin from 24.6% to 42.6%, which is an increase of 18 percentage points. We also benefited from significant operating leverage on our G&A expenses, sales and marketing, as well as our distribution expenses. G&A expenses of $16.4 million declined by $400,000 compared to $16.8 million a year ago, which illustrates the leverage we're getting on our business as we do not need to increase our fixed costs to drive revenue growth. Sales and marketing expenses were $5 million for fiscal 2022, compared to $3.8 million a year ago. As a percentage of sales, sales and marketing expenses were 35.4% compared to 50.2% a year ago, an improvement of 15 percentage points, which also illustrates the leverage we are generating in our business. Distribution expenses were $612,000 in 2022 compared to $489,000 a year ago. As a percentage of sales, distribution expenses were 4.4% compared to 6.5% a year ago, an improvement of 1.1 percentage point, which again illustrates the leverage we're generating in our business. We're generating leverage in every single line item. We're increasing gross margin. We're getting leverage on G&A. We're getting leverage on sales and marketing, while driving significant revenue growth. And we're getting leverage on our distribution expense. Net loss attributable to common stockholders in fiscal '22 was $38 million or $49.32 per share, which compared to $32.4 million or $424.15 loss per share in '21. Again, the 2021 share base is abnormally low due to we just gone public and we had to do a reverse split. The net loss included $16.1 million in impairment charges or $20.88 per share. Additionally, there was $9 million in interest expense or $11.69 a share. Excluding these items, net loss would have been $12.9 million, or a loss of $16.76 per share versus a loss of $16.5 million a year ago, or a loss of $216.67 per share. Our full year '22 financial details are included in the company's Form 10-K for the 12 months ended December 31, 2022. In closing, I want to emphasize that our fourth quarter and fiscal year 2022 financial results are backwards looking and not reflective of the current -- company's current condition, given our acquisition of Sundry on December 30, 2022. Our business is completely different now than it was in 2022. We lost a year due to the market meltdown, which delayed our acquisition of Sundry. We knew this acquisition, the Sundry acquisition, was a critical step in our path to create a company with scale and positive EBITDA and positive cash flow. Now that the Sundry acquisition has happened, we are well on our way to achieving our initial goals. We have transformed from a negative working cap cycle model to a positive working capital cycle model now that we can factor our wholesale orders. This working capital transition is more significant now with the Sundry acquisition and their revenue contribution, especially as it has significant wholesale volume. Not only are we benefiting from this working capital cycle transition, we are also transitioned away from our weekly MCA payments in the second week of October. This MCA payment was used to pay off the debt due on February 15th, as well as some of the Sundry deal. Once our MCA is paid off in mid-October, the monthly cash used to pay this weekly MCA will now flow to our own balance sheet. This alone and this only will contribute $490,000 a month in free cash flow to the company. That does not include the benefit of our factoring, which allows us to recycle our cost of goods expenses every month, or our expectation of being EBITDA positive. We cannot stress enough how significant of a change this will be in our cash cycle, and our cash flow to grow the business without need for funding. Thanks, everyone, for their time, and we look forward to the continued momentum. And we're very excited about where we're going. I know it was a long year for our investors last year. But this is what we needed to happen. We knew the math would work. We just needed to get there. Unfortunately, due to the market, we lost that year. Now, we're back where we thought we would be and it's very exciting to see where we're going and what we're seeing in our business today. This concludes our fourth quarter and fiscal 2022 earnings call. Let's open it up to Q&A please.

[Operator Instructions]

I do have a couple of questions that were emailed in. Sorry, if there are no questions that come from the Q&A, I do have a couple of questions that were emailed ahead of time. Okay, perfect. John, can I move forward with us?

Yes. I am sorry, we were cross-talking. Go ahead with your questions that came in over the email.

Yes. So the first question we had was asking about our basically data-driven e-commerce and what's happening there. As we discussed in the call, the transition is going very well. We just had our 60-day audit last week. And the data we have now on repeat customers, products, brands is a goldmine. And we're moving forward with that. We're also seeing meaningful increase in our e-commerce on a daily basis, the cross-merchandise is an incredibly strong. And we're excited about what we're seeing both on a brand to brand basis, cross-merchandising between individual brands and the Bailey Shop. And this is very high margin revenue for us as you get the benefit of the wholesale markup as well as our retail markup. There's also a very clear path to drive this revenue at a much lower customer acquisition cost than we experienced last year and it is significant. We're already seeing this since they took over in mid-February. So we're excited about what we have and what we can do there. The other question I had was an update on going private. We're still evaluating that. But as we discussed regarding the free cash flow, the valuations that we're getting are very low relative to where we are with that free cash flow coming into the business starting in October. We have a lot of options with that from acquisitions to opening stores and catalogs, which we've been looking at, to share buybacks, which we will definitely do if that is a benefit to our shareholders. This leads to our any going private and to reflect a fair free cash flow multiple. And right now a $20 million to $30 million market cap is not -- or acquisition offer is not fair relative to where we think and what we know the free cash flow should -- what we think the free cash flow should look like just on the MCA alone, not to mention the other drivers as well. We also have seen how brands have performed like Solo and Rent the Runway as they've turned the corner. And we believe that that's also opportunistic for our investors. And finally have this pre-acquiring Bonobos and the reaction to that stock when they announced that even though Bonobos is our understanding losing capital. So post all that, in the best interest of the shareholders, we can see where the value of our company should be, especially when we move into October and that free cash flow cycle. So those are the two questions that I've been emailed multiple times in the last couple of weeks. Any other questions?

There are no questions in the queue at this time. We have one question from [Mike Ripley] [ph], who is a private investor. Please proceed with your question.

Yes. Congratulations on an outstanding update on the ER report. Appreciate that. And congratulations on the cross-branding, the product lines. Any projections on percentage of increase of sales with the cross-branding or a percentage of possible revenue?

It's hard to say right now, because on a brand-by-brand basis, we're testing into it. On the Bailey Shop, we saw -- we've seen very significant 100%, 200% increases. On the brand-by-brand as an example, what we talked about is over the weekend for four days at least, we have the results from -- we just did a curated Stateside capsule and put it on the Sundry website, just emailed to Sundry customers only. And we saw our e-commerce revenue, which is significant for Sundry, which we had already doubled since we acquired it, increased by another 50% on a daily basis so far. And we're starting talk some really meaningful numbers here. And we're planning to do that with a couple of our other brands. And we're looking at the audit to determine what collections and what brands we cross merchandise. So we know it works. We also have interest from third parties that we could bring in and do a revenue share deal with as well, which is really interesting, because we get their email list, and we're able to cross-merchandise and put together and look to get a revenue share with no incremental cost. So there's a lot of interesting opportunities here with not only our brand, but also looking a lot more like a revolve or a Nordstrom's where we don't own the inventory, but we can put together looks and styles across different categories. Like for instance, do we really want to be in shoes? We're going to have a -- we're launching a third-party with a shoe brand in the next month or two, and then there's Vince shorts or different things like that. What categories do we want to be in? And what categories do we think we can cross-merchandise? And that basically is just a rev share deal, which is pretty meaningful with no real incremental cost to that and we don't own the inventory of the third-party brand. Does that make sense?

Yes, thank you.

There are no further questions at this time. I would like to turn the floor back over to CEO, Hil Davis, for closing comments.

Well, thanks, everyone for the call. Hopefully everyone is starting to see a picture of what we always thought this would look like, and we're excited to continue to actually execute against it. We're already seeing it show up in our numbers today, and we expect it to only increase going forward. So thanks, everyone, for your time, and we look forward to our Q1 earnings call here just in four to five weeks, I believe. And we'll have more updates there too on our growth drivers by channel as well. So thanks, everyone, for their time, and we look forward to discussing again here in a few weeks.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.