Digital Brand Group, Inc. (NASDAQ: DBGI) First Quarter 2022 Earnings Conference Call May 16, 2022 5:30 p.m. ET
Hil Davis – President and CEO
Conference call participants
Hello, welcome to the Digital Brands Group First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the official presentation. [Operator Instructions] Please note that this conference is recorded.
I will now hand over to Hil Davis, CEO. Thanks, you can start.
Yes. Thank you very much, have a good day, and welcome to Digital Brands’ First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode.
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 that 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 presented and contemplated by 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. The company will hold a Q&A session at the end of the prepared remarks. Please note that this event is recorded. And that supports the legal part of the appeal.
So let me start by saying that we continue to take advantage of our revenue growth starting in the fourth quarter and leveraging our fixed operating leverage momentum starting in the fourth quarter, and this is both during the first quarter and until today. We believe this momentum is exemplified by our 740% revenue growth in the first quarter, which is an increase from the 425% revenue growth we experienced in the fourth quarter of last year.
We expect to continue to experience significant year-over-year revenue growth throughout 2022, in addition to benefiting from our fixed operating costs throughout 2022, as illustrated by our results. of the fourth quarter and the first quarter. We believe 2021 has shown that we can acquire, integrate and grow revenues from acquired companies, which we have done successfully with Stateside and Harper and Jones.
For 2022, we plan to show that we can leverage our fixed costs to fully leverage our costs through continued revenue growth, which is supported by our fall wholesale bookings. Again, we already have hotel reservations for the fall based on the shows we have this year. Additionally, we announced our definitive agreement to acquire Sundry in January of this year, and we expect to add further acquisitions this year. Importantly, all acquisitions thanks to the review of our positive EBITDA.
First quarter results, net revenue increased 740% to $3.4 million in Q1 2022 from $0.4 million in Q1 2021. This revenue growth was seen across all brands of our portfolio. The increase in net sales is due to increased revenues from all of our brands and the inclusion of Stateside and Harper and Jones on a pro forma basis.
Gross profit margin increased 671% year-on-year to 42.9% from a decline of 50.8%. Gross margin increased by $1.7 million, due to improved gross margins across all of our brands. Additionally, our gross margin increased 5.5% sequentially from the fourth quarter. So we’re seeing both gross margin improvement year over year and sequentially. We expect gross margin to continue to increase throughout the year, both in percentage terms and in absolute gross margin dollars.
G&A margin decreased 333% from 467% to 134% as we continue to leverage our fixed costs with higher revenues. We expect to continue to see significant improvement in this margin, driven by our revenue growth throughout the year. General and administrative expenses were $4.6 million in the first quarter of 2022, which included a non-cash charge of $1.1 million for loan amortization, discount and fees, compared to $223,000 at the same time a year ago.
Additionally, there was a non-cash charge of 682,000 for the change in the fair value of the derivative liability from zero in the same period a year ago, which is entirely in the statements of cash flows. This resulted in total non-cash G&A charges of $1.8 million in the first quarter of 2022 compared to $223,000 in the first quarter of last year. Excluding non-cash expenses, general and administrative expenses were $2.8 million versus $1.7 million a year ago, a 65% year-over-year increase, while revenues increased by 740%.
We believe this illustrates the significant fixed cost leverage we enjoy as we drive revenue growth. And again, we have a pretty good idea of our Q4 revenue considering wholesale bookings.
Sales and marketing expenses increased from 171,000 in the first quarter of 21 to $1 million in the first quarter of 2022. We saw a significant increase in revenue associated with this increase in marketing expenses, which allowed us to acquire a significant increase in new customers, who already show a propensity to renew the purchase. All of this was achieved without cross-merchandising between our brands. Historically, we have seen a significant increase in products sold when we cross our brands, which we plan to do this year, especially using certain technologies and third parties who are very good at it.
Distribution expenses as a percentage of revenue fell 9.7% to 5.9% in the first quarter of 2022, from 15.6% in the same period a year ago. Distribution expenses were 203,000 in the first quarter of 2022 compared to 64,000 in the same period a year ago. And again, significant leverage here, as well as on the G&A line. There was a non-cash charge of $1.2 million for the change in fair value of the contingent liability from zero in the same period a year ago, which is also shown in the statement of cash flows .
Net loss attributable to common shareholders in the first quarter of 2022 was $7.8 million or $0.59 per diluted share. Please note that the net loss included $3 million in non-recurring cash – non-cash expenses and there is also no additional amortization of approximately $600,000 which would have cost $3.6 million non-cash dollars. That compares to a net loss attributable to common shareholders of $3 million or a loss of $4.55 per diluted share in the fourth quarter of 2021, and again, that’s a loss of $0.59 per action against a loss of $4.55, and that includes more than $3.5 million in non-cash charges between one-time expenses and depreciation and amortization.
In conclusion, I can’t stress enough that we’re driving both significant organic growth and acquisition revenue, which we plan to continue, especially given the bulk bookings we have for the fall. Additionally, as demonstrated by our results for the fourth quarter of last year and the first quarter of this year, we benefit from significant operating expense leverage, which we plan to continue. We have several revenue generators planned for the remainder of this year and are excited to continue to leverage our fixed operating costs as our revenue grows. And we expect to be able to reach neutral cash flow in the fourth quarter.
So with that, thank you all for your time, we’re delighted with the continued momentum and we’ll open it up for questions and answers, please.
Thank you. [Operator Instructions] There are no questions in the queue. This will conclude today’s conference. You can disconnect your lines at this time, and thank you for your participation.
Thank you everybody.