Earnings Transcript for DBGI - Q3 Fiscal Year 2024

Operator: Greetings. Welcome to the Digital Brands Group Third Quarter 2024 Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, John McNamara. You may begin.

John McNamara: Thank you. Good afternoon, everyone, and welcome again to the Digital Brands 2024 third quarter earnings conference call and webcast. With us on the line from management is Hil Davis, Chief Executive Officer, who will provide an overview of the quarter. At the end of the prepared remarks, Hill will respond to a few questions that were submitted prior to the conference call. As usual, we would remind you all that this call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended. This may include statements regarding 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. Future developments and actual results could differ materially from those set forth in these 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. With that, I will now turn the call over to Hil Davis. Go ahead, Hil.

Hil Davis: Good afternoon, and thank you, John. As we stated in our press release, our third quarter was the last quarter we significantly focused on paying down debt and liabilities given the soft macro economy and the overhang of the election. Starting in October this year, we transitioned from cleaning up the balance sheet to focusing on increasing top line growth. As we stated in our press release yesterday, we partnered with VAYNERCOMMERCE to drive digital revenue. This partnership has already led to a 34% increase in daily digital revenues and a 7% increase in average order volume during the 17-day period, which was October 22 through November 7. And then this was prior to the 30 days they took over, which was September 22 to October 21. We believe these results reinforce the positive value of our partnership with VAYNERCOMMERCE. We intend to add the agency's e-mail and SMS campaigns, which is text messaging campaign services starting this week. This partnership was the first step in a multi-step growth strategy, coupled with the launch of AVO. Other initiatives to this partnership, which we are in the process of launching or will launch are as follows

A - Hil Davis: As we stated, we paid back $1.3 million in that convertible debt. So the company has no convertible debt left on its balance sheet. And the only debt that we have is longer-term debt and that is [indiscernible] debt as well. So that we've really cleared that overhang, which is really important because that pressure is not there and that's going to allow us to really focus on growing this moving forward. Also, there was a question about just the Vayner relationship and how it came about and what it looks like. So we knew VaynerMedia because they had reached out to us but felt like we were too small and didn't have enough going on to make it happen. We followed back up with them recently, especially with the launch of AVO and as they dug in to what we're doing, they really got excited about. In fact, at first, they had mentioned that they probably weren't right for us. But then as we circled back, they dug in a little bit and said, you know what, this makes a lot of sense, even in the tune of the fact that it's a heavily incentivized percentage of a revenue deal. So they're putting their money where their mouth is. And for that perspective, on every call when we do a couple of calls a week, we have 15 people from their team on the call. So they are highly invested in us. And I think that's really important. And I'm just really excited about what we can do because we have a pure performance marketing group that's worked with a lot of brands, that has scaled a lot of brands, now fully focused on this. There's no way we could replicate this niche, if you will, in terms of depth, and width and knowledge in any way on our own without spending millions of dollars. And so we're excited about what that is and what that's going to bring. And we're really excited about creating some really amazing content starting in December and going forward. And just them really taking this over. I mean, right now, we've just started spending a little bit more than what we've been spending. I mean, we're only spending about $1,500 a day, that's it, and we're already seeing a meaningful lift. So they're A/B testing the results and they're seeing what works best. And based on that, we plan to shoot content in the first two weeks of December based on the type of results that are working the best. And we plan to shoot that with influencers and really lean into the influencer-heavy world. We're excited about what that can bring. And then, finally, I just want to really iterate that this Q2 was the revenue decline, was really driven by a wholesale brand that was actually net negative for us on the operation margin. It was about 7% gross margin and net negative on the operating margin. So while the revenue took a massive hit, the gross margin will increase significantly as will -- and when I say gross margins, I mean, absolutely dollars flowing plus the price increase at Sundry. And so we're excited about that. And we've actually had several majors reach out to us that we're in discussions with to add Sundry and Stateside, too. And that's another reason we decided to drop them is that these other majors have just as big of a reach with much better margins and much higher quality brand name associated with them. So we're excited about where that is as well.

Hil Davis: So that concludes the quarterly conference call. I appreciate everyone's time and everyone have a nice day.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.