Charles & Colvard (CTHR) 5 Feb 212021 Q2 Earnings call transcript

Good day, and welcome to the Charles & Colvard Second Quarter Fiscal Year 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 this statement is made. or based a our uncertainties, number which be are are expectations some statements beyond cannot to are subject of predicted forward-looking largely company's on and of our These control. and quantified risks and materially actual contemplated forth underlying forward-looking differ or those statements. set Future developments could from and the results in, by In assurance accurate. information forward-looking to be that these will and there uncertainties, risks of the light can no be prove Investor which today's section call supporting a company's available at of Relations Accompanying the website PowerPoint slide the is in deck, is ir.charlesandcolvard.com/events. The company a Q&A the at remarks. session prepared will be hosting conclusion of Should like ir@charlesandcolvard.com. have submit, please you e-mail questions you'd to note Please event recorded. being that this is like O'Connell, turn Executive Chief would conference over to President now and to Don Officer. I the go Please ahead.

report quarter that a an delivering income million, XXXX history. Charles per & a million achieve a Welcome, a million ago share, able with and margins XX% of of flow from increase revenue cash XXX% Good with $X.XX breaking last which a positive the and $X.X everyone. Colvard's revenue income to results. net and in versus generate with in you increase pleased over operations to quarter. quarter second This for of XX% EPS strong was to we of gross a represents share year diluted $X year. had highest revenue quarter record company afternoon. Today, the going in were I'm fiscal We $XX.X we're

ago XXX% increase share in diluted the period. net For earnings December ended a year XXXX, to a six months increase the compared in recognized XX, income and we XXX% per

ago increase $XX.X total from million, Additionally, the which is cash our a to we XX% quarter. year bolstered

possible quarter, to precision critical holiday for such results. purpose during with positive and making executed team us Our achieve the it

the Now I'll to to over call Pete, in unwrap Clint turn detail. CFO, more numbers Clint? our the

Today, our financials Don. QX key of – summary key provide a XXXX. I’ll a Thanks of

XX-Q, our this which file this we the ago our all specified. Additional evening. press release year we in that and to Please details can to earnings afternoon unless are that note Form quarter issued be found comparisons expect percentage

sales We versus cross-border trade or segment, sales net the to on outlets, XX% of of lower sales flat an was of This drop-ship or $XX.X charlesandcolvard.com from sales. decreased our online quarter, jewelry total, In quarter includes year consists to and our million XX% will In net Channels other combined retail increased demand primarily totaled Online charlesandcolvard.com, from for Finished the XX% with for increase with company's for the an our also XX% sales strong our $XX.X limited international quarter, or total million transactional totaled distributors and related website. increase marketplaces, net representing sales start a ago X% the premium on COVID-XX. orders due total Asian international from with Loose QX lower of decreased our quarter the sales channels for customers, Overall, XX% which direct-to-consumer brick-and-mortar continue quarter to entire a during XXXX quarter. demand website, retail Net XX%. brick-and-mortar jewelry sales sales. customers. revenue. for due the to distributors million our net to representing sales net of the for $X.X million transactional jewel be and $X.X net and our segment, XX%, net Traditional was the increased which wholesale pure-play

ago XX% maintain continue margin Moving a the compared XX% year on, quarter. in we of strong gross to to

and XX% the the $XXX,XXX decreased $X.X for marketing XX%, expenses to total of XXXX, at operating quarter. million For G&A compared sales net expenses representing the total year ago QX XX% to XX% in quarter. decreased expenses decreased XX% is Though,

with to million net or QX per period. share reported net income or diluted for share $XXX,XXX we $X.X ago the a XXXX, in per approximately year income of Next, compared $X.XX $X.XX diluted

Now on of our snapshot balance sheet. to a let's move

position liquidity ended our June with to ended remains we XX, fiscal XXXX. Our year last capital compared strong million the of as and $XX.X quarter at total $XX.X cash million

Our million the for quarter. $XXX,XXX from the $X in flow was quarter, cash to operations ago compared year

In we other million Commercial continue sources terms White credit a asset-based to to Finance. of facility have of liquidity, access $X Oak wide with

of as support environment. In selling XX, we Day channels. XXXX summary, direct credit this funds As XXXX. of totaled $XX to million, of with XX, $XX.X record perspective, compared $XX.X have pandemic a to XX, December as was XX, Loose million million, inventory $X.X QX jewelry to had $XX.X million, XXXX. XXXX. jewels Finished To December in Valentine's the stock and net our and $XX.X maintain levels consumer Inventory we as to season of setting impacted inventory June as XX, both sales million XXXX, June for income even accessed operating compared the upcoming of for facility. June compared was not million

this XXXX, in on remainder of as build will I'll of stakeholders. over value growth we progress our that, for With the Don. for to turn fiscal Colvard & Charles back all We positioned generating the long-term call

factor make into energy on and and our understand to invested We current on inventory positioned attract of We meaningful analytics in our positive holiday believe time reflective levels, current These season. decisions. allowed the elaborate progress along our customer and balance informed a out of intelligence us these renewed business become new of success, product significant our This capitalize customers data a with key the transformational concentration Clint. to to business was take These addressed the to results Clint lines changes were data pull amount I'd business since better tools. the opportunity building enhance on in supportive approach time the business more our to able make numbers. across of driven, like and us diversified the tools financial experience. inventory we and operational to are Thanks, needs. to our real made efficiencies, improve

distribution of you our quarter, graded, the in at from remaining goods the decrease merchandising portion our for of classification cycle of some And can well ago bring visualize appears that while a buckets, million These than increase to development demand. totaled segment company, are progress. which inventory stores. pleased end we two in a this help to growing challenges our the Naturally, down. X% the and decreasing to a this of to longer pandemic. positioned success a to in were long-term percentage percentage elegant to times. XX, represents inventory XX%, the We the being were faceted, cut, with inventory large process sales better clarity, audience. break or XX% June constraints I'd during The into quarter. We holiday engraved and our an in expected, key We because that performed of like say pleasing we the that brick manufactured. challenges or our were mortar external XXXX. our the add the and of And resulting additional Our high continued pick, our expenses Operationally, located Moissanite falls components with to One in able year $XX.X Charles consists goods to one, overcome ready or in channel or and packages product to our of work portion due traditional gems demand in by Our or factors brands which in call well effectively that resonated raw are of internal our jewelry this partners. by offsetting X% market inventory what our in operating whip I'm major faced versus bucket in material, finished and retail are product quarter. consists mix record process, supply our bucket & small distributors our and loose is inventory COVID-XX Forever international Colvard second number mortar which our a bucket, chain All aesthetically retail by of of shipped XX% and global meet are in-stock ship. brick in consignment inventory partners is a able remain and with product the logistical pack due number

fueled growth XX% year-over-year, sales revenue online online by experienced our overall which charlesandcolvard.com with segment, XX% was of this Our representing nearly increase a quarter.

growing sellers Our demand. third-party also online recognized

& first experiencing growth online brand, to our One products double which was with only products Contributing direct-to-consumer is moissanite Forever Charles currently quarter our offering customers website. our Colvard marketing our in product lab diamond Caydia or our For with growth several year-over-year. in sold our grown and

appealed from lab grown to so and into grown collection and growing to also for learned classic our we this adopted learned Charles brand lab meet featuring and our signature greater launch, we fashion styles considerations assortment selection with product can multi-billion what a us trust Product share patented market diamonds, to jewelry. confidence, continue bridal was diamond needed that We and meaningful Here's launch created for destination as expand & demand dollar Caydia consumers pieces critical, made recognizing diamond tap equity careful name matters, audience. fine Caydia is capture Colvard the capture that premium lab greater to our to product product our opportunity. and the we that brand

us elevated forever broader in brand Our consumers base, movement meaningful on customer lab sales to a way. also Caydia a awareness diamond educate measurable new one and night grown movement, lab the allowing broader grown attracted this and voice

to to resonated holiday develop with target sales the integrated successful work and newly help customer journey. Our our that ensure an optimal teams together audience, and throughout experience buying marketing and campaign execute

premium Our campaign and origin One its choice our lab in the we our By defines grown now gems, what this challenges customers authenticity. gem lab Caydia idea is redefined ongoing diamonds. awareness moissanite campaign that a brought grown offer the real that of Forever to a emphasizing,

keenly drove marketing targeting focused on digital greater conversions. carefully specific audiences we were spend, that our Additionally,

upon and strategy gained new believe the build digital to commerce an momentum continue capabilities. our future with QX, we opportunities will we of in omni-channel we forward, Going emphasis this in on

brands. to in focused edge ways, & on will product expand Charles educate remain will and We the we Colvard engaging continue new customers cutting

to brand to let's With will over channels, strive to We turn seek prioritizing back equity like our questions. all increase growth. value we by product discipline new your operator, and and the shareholder to it I'd lines open and will distribution the expand for that, across

question-and-answer We first begin the will session. Capital. Please with now ROTH ahead. go Matt Koranda Instructions] The comes question [Operator from

thanks. evening Good and guys. Hey

Just wanted the to performance since with off the start and launch. Caydia

quarter? of revenue Can the disclosed & you can you a how what to moissanite kind Charles in help at guys on during the terms have that So metrics Caydia AOVs you before? compare Colvard, they core might provide and contribution us of guys

Sure.

right. also that accretive tell were And Matt, by customers So disclose to that, or can product conversation. it the the into us individual but it brands, product exposed I business, is in additive put was awareness it One, what you also kind was to moissanite absolutely brands being to our to and don't those we helped and business, of Forever bring conversation, performance

So too said, with to time at this quarter, just that we're started say meaningful that being and results. the those can was with as well. we now very that it within we in a lift pleased see right But

it lab learned our large Caydia where As as $X,XXX our the $X,XXX. is, AOV AOV, introduce it that things consistent relates anywhere out stones kind grown our a which is the AOV and smaller and what let's AOV we started we the our diamonds to very gravitating us Moissanite some our just fashion, to was actually campaigns for of throughout to social more a more consumer to with base did it we and did – say everything, to leveled and from had accented our maintained quarter,

not So with business more it's – the larger well-rounded in on say that didn't that to Caydia. – pleased It's diamond centers, made for bridal movement the us. some but we bridal nice the our categories experience in our we're

And your from additional or would thought are But I website. process Okay, to the about do website? hear. to keep it's proprietary traditional if some then guys how channels we you for website, of for requests it to for Thanks, you on the guys to get What channels terms the of XX your how – mentioned, the the I think that proprietary out may should great next product. in what's roll your you know your you terms of sort Charles & channels of the Don. plans you own some assume – just Colvard in obviously months, Caydia, over that DTC will,

Yes, great question.

requests are. and So is open they and much consumer pretty dictating what what the listening to want the their we're always what retail what to

So we want responses ahead from have channel gotten that lab a grown lot explore our go and they to diamonds. of Caydia partners

better want how a grow the our want partners is of more, For right what came between channel, to understand but a right proprietary or with the little kind it and bit better we really consumer for And the we do grown probably exploring, now, basically now, we'll that what open kind want depends, charlesandcolvard.com now, learn understand across most premium that partners, keep to constantly part that market now, it's premium to we and opportunity into to is wants. that right diamonds. we're of Caydia next we can dollar to and or what's and our lab to multi-billion drop board tap right retail but a generally we the ship consumer

that where something we So channel in may maybe more, diamonds. go as the won't would we But that say other the brands as not not would far we Caydia nature. learn explore product of lab space but that Caydia, with have certain else within limitations to that be it's the as grown

I sneak in growth encouraging there. if one more really that just the the then and on And can re-acceleration channel is Right. online

sales if So it item wanted overall that would of funnel in I for imply there guess kind to like what moment of getting that I the sales are terms seeing looks marketing of a marketing spend. lot and could you on decreased year-over-year, spend. return see of bottom moving and ad you're pieces just a are probably guys on but efficiency, performance I line some marketing so on mean, performance line see guys marketing you within

helpful. could that's your and would puts if that you very acquisition and just talk to be So costs, the takes what there done customer about

Sure.

a of convert that different wanted, – shopping, kind have in we – a we QX. QX the consumer we We to our QX different learning consumer were click-through sorry, on as that to were where in I were and consumer driving learning that alluded learning approach, in learning, we was we about website. we QX what during – spoke So that were was basically was what mean,

was paid reflect So also also just consumers. to basically or customers what our we changed those there we did conversion-based campaigns social

of we is to phrases, one focused did had So it's funnel, by kind to BI there be resonating open out together analytics really thing that analysis our that's more it's more us we our also allowed and But to flex that bit tremendous at our with drive consumer there capture through more of the when on of and a some doing little that to mid-to-lower were and we key then a to product it's us incredible clicking bottoms that a We'll really, lot time products we'll approach some that, really with real all we a conversion-based, up critical able were which spend, the market share. built to we learn continue that, to look words, really decisions we make helped market and that growth. our team also some what was able continue to that. efficiencies, from dictate did tools up we really, put

it's job data continue that something to a we're at that's we'll and look in that driven better with certainly now, future. do do before, we But doing great and job something needed we decisions better very questions besides a So is the that brands that & drive really to where offer. to growing, the are the Charles chapter where – key and that going in next traffic specific we're we're really product Colvard critical the and the to

and Very Don. see I'll you you. fair. by Helpful drive guys. Thank

comes with from Holdings. Ursaner go question next The Bumbershoot ahead. Please Jason

and found helpful – really the you of I headed. understanding where you all be it to it's very and Congratulations, in walked through, specifics appreciate details want terms actually

season growth movement. in to quarter, from benefit holiday COVID and growth rate What the of that's a Adams, Day with Tayshia whether as high a holiday seasonality? growth of you of how maybe focus In negative, about the go this level kind TikTok season drove could kind just kind the you coming funnel that talk think Valentine's from terms the the of obviously some quarter the impact rate you qualitatively, at on in the do for terms in of bottom of spend

it elaborate awareness, any awareness, that what influencer more influencer web. doing brand. moissanite, to the our One, socially we're more traffic. consumer probably purchasing I making overall is Yes, won’t conversation on in the individual that literally loving to being so, moissanite that outside And organically the that certainly basically choice and that awareness go then Forever driving its to of But quality, or is own where posting our and campaign that's I more drives doing brand with throughout our mean, more understanding

we're comment outside new TikTok what mediums movement to the Instagram publish, and new probably are relates And related it in or of reflective Reels any to or not quarter. those Facebook or weren't that. we going to on As fairly

the first coming even and the organic well we're But more entire to we've our pleased constant internally the in it the time, the now is business online we benefits fill a straight-forward had all seen our anticipated the traditional that on some right most which of done traffic flat, the more to mortar probably was of due But side, were people here QX for But So business the brick of all retraction overall, of some international gaps. business. brand pain retail, pleased at business of seeing and from side online. we the too would very mortar we've aspect being over off our online, and the growth those quarter, be for biggest people the the with drove between understanding home, what that what purchasing. which what credence we have movement to traditional is to is the we'd that probably the offer at and piece of on There say able brick I we're of COVID. online was as us driving pleased traditional also growth the business Mostly and

I product they guess, up – I mean, the – trying do to ask – hit any Okay. I'm one-off, can't guess specific that are about arrangements they I'm on an that when just but to I'm and Bachelorette give if or placement really was and or you brand. they collaborations be And of surprised campaigns watched that, Are one-off look I type it thought following I things public more not not tend the ongoing are trying came on call, a that, formalized like but these to up, to they be formal emerge details, I not of amazing I something are a do like earnings it resonated with just kind was then thing? kind of tend

So specifically totally that we marketing an an And push campaign to out align the Charles goods. was with. alignment internal that Bachelorette, between Colvard to teams related and was & within who ourselves would our

you answer together specifically blank teams that with marketing in our coordination. was working to a with point So that together project specific

forego cash still of terms in of capture in your willing generative. you've hearing and XX% about all within mover that. of and the profit short-term? becoming done or in Okay. spending of bit of equity say the kind have that And you area, there the then I in of loved way kind to your cash cap Moissanite advantage Is and kind to growth the brand think you brand things first market the in matters, some mean, the you a I to accelerate brand when little then of sector a maybe

capture in So, the into transcend the try going to spending in little more of to really space? to, brand that and bit of forward is there any a growth risk some terms

Yes.

So all great questions.

general. this and the talk about about let's sector So sector, in let's talk growth in the

– in out our product lot that of not own service, we're basically Colvard a XX,XXX and have there As don't are & say the also or also One. on opinion lot it all but label know we creators there's much to and distribution that white of share, shouldn't may say the independent pretty a moissanite, will that market I Moissanite, be from the you Forever through that know retailers, the that could that well, innovators I product. all also the moissanite. that our is the of market greatest through those partners relates they even buy all we we’re retailers independent moissanite of what it's moissanite distributors But Charles people

or foundation as there, as So – to on foundation lift and building gems the being was our built awareness really that all the that the out helps segment our Traditional far the loose more moissanite. business building

it us well. awareness when and that going it's as where driving continues So up lift to through keeps is,

in moissanite So grown pleased offer. no has happening of growth just conversation & is even moissanite elevation to and which But in the here, now it of it's Charles limited and a the as being lab really the what space moissanite in now, general, that's with it right relates make mistake, we're not moissanite overall. Colvard to our to

awareness, profit foregoing – we're as into for now certainly quarters far As this this. two right about into more we're early

idea we're have we're leadership the and business to If of also and the, of line of look we we run want business. limited that won't we how but not the That's and of here. for We that now, business we're growth, and that further. mindful we and responsible operate want at how in that exponentially profitable looking, kind right money. here between just be grow we catapult the something to a at get can are fact constantly you indicative to the with us is drive where so making top look top to look QX, QX It's bottom over could indicative and the we to transition line, the very this next revised this future the say level decisions the

we get pushing of whether through campaign be marketing it that, your right we're be looking wanted celebrity kind that something now, house we endorsement giving it's doubt, awareness even at and the I we'll that whether guess, believe I in tell like opportunities but I that and could we listening well is other you and exposure. we've looking open now. are the mean, order certainly, and opportunities, those or to or I at right and are will options absolutely money house So more quite proven and is more a the Without order, in inference us into a performing

you've terms apologize, Okay. – Fantastic more. had want you just way it people & I I was is helping or like and of it more in that towards gem Caydia interpretation Charles Colvard of I think of, said, the I of one education kind kind process and this I think other even movement, just clarify then to to called guess, leading with a people around, the Caydia, gem is a that bringing is my moissanite. maybe

house but And Forever You Colvard so One. correct, currently lab Charles brand our product diamonds. consist of which & it's brand me the is – let of are Caydia is brands, that under grown just

two product & our by and are also those brands So Charles moissanite Colvard well. as

even we build just hear were frank, some lot diamonds, to when and moissanite to cases diamond basically we predisposed to tried as predisposed in of to & just to we to want to your Colvard there, we're or push didn't represent to we as the pinnacle. be market can, to much the from gemstones. about grown that and Charles price they but And of want people then a of that choice quite brand want basically, all pushing tastes Charles So Charles quality, and value. And of for & the lab want & Colvard be consumer. educate We awareness Colvard kind as

magazine in conversation, & product moving diamonds, forward to to we more lab we're more, Charles great entirely, resonating the now grown press, about Caydia we're we're product within from speak educate Brides.com Colvard, our now to that to with actually that which on brand, brands, getting able it's us going RefineryXX, some believe brand We is Forbes the publications. which and those lift quarters. So then

our and that the it's play. metals overall are players I the that is hey, with recyclable who Charles the both, a into combination lab to, of have now jewelry space which they craftsmanship the the are and it's of listening Colvard, quality like and diamonds difference that all in stuff associated So guess, is And & choice. comes conversation grown just and of now people

questions the Understood. Thanks and congratulations Appreciate again, taking on for that. my results.

No, we really it. appreciate

next comes Paul Instructions] Zimnisky [Operator Please Our PZDA. with ahead. go question from

comes taking the strong are lab Hi consumer of option when choosing it why guys. the performance. more guess, diamond, particular? diamond they're that are of in have moissanite for moissanite to How the end For on vice you Congrats engagement you a as general feedback consumers I choosing the finding ring the a Thanks to versus diamond or the question. the are a responding question. I versa? any to getting over

channels my Actually, that's a kind a website. It's you on of little can kind out I on bit did team answer on a great question. direct-to-consumer you kind early a of both fantastic give our for to tell that. us definitive job in of laying

that when actually choice consumer, making they're that clicking. just is really So that consumer we're having

that call. and could for can a aside So on answer in bit that just maybe future, I now get if you and we'll little I right a put

tell it's need is can think choice on that. either whether going enough type consumer And some that. to like look saying out predisposed the you it's vocally, to consumer, they're I choosing consumer tremendous that lab choosing probably better information that the that heat moissanite. it's educating of what through whether they're or you the proposition moissanite anything. I diamond doing One because amount them I'd to we not group. on is, through are The I service they're getting That's grown to related of Forever is of actually get and is value because at a don't calls back have walking choosing or a and I Caydia, diamond. within diamond and think customer the map to the I consumer telling But question. our do in understand that, that. then great what a

Fair you wish best the guys for the the enough. – Wish guess of rest going year. I forward you best

it. Sure. appreciate Thanks. We

ahead. Eric question This The me. Actually, pardon BML concludes with session. comes our next go from Please Landry question-and-answer Capital.

Have question. you what's PPP going had the taking for Thanks with feedback loan? on your Hi. about any

Yes.

So answer that. I'll and Clint through you go that. walk He'll let ahead

how Eric, doing? you Hey Sure.

Great.

application Listen, not forgiveness our we have filed today.

Our no of year sooner file we to lenders April basically this should told us than X XXXX. our that forgiveness expect application

So we hope to XXXX. file quarter our at sometime in QX fiscal

answer Okay. and but probably give in a you more shot one Can it anyways. I I'll sneak can't this, here

right, All ahead. go

quarter, either of two the Could faster the your was you grew product which lab grown moissanite? it categories of one mentioned or the in whether

can pleased I moissanite We're very That's we very growth answer really fronts. with One steady it, of but our growth. great I Forever Caydia nice very our And also a grown moissanite. in growth of pleased mean, both Can't on get. lab question. that's had we're as diamond the trajectory specific as

basically we don't that disclose at so. and this can’t So time, I

you how this, there the And in quarter? sense about any of cannibalization that was Okay. type did

it a sales actually Also between reverse. elevated and products. we sure actually One job our Forever the the moissanite really, delineation there's two really and great It – was product merchandising did the moissanite development making clear a our No, across team board. that of

in moissanites, diamond we shapes many catered lab are business sizes and above. we two two karat the prohibitive karat would world below is only diamond the cost the the that example, space. or – to the diamond be I mean, diamond points, whereas price offer grown the many, Also really in grown and offer For benefits lab in moissanite

really really did coming to it's from a job good delineation clear of We So market. the a two.

means. experiencing by not any are cannibalization We

the nicely, reflected our very is earnings. growing as very it are business both nicely in growing So has

Yes.

Fantastic are work. guys for taking a question. job. you Thank great doing You the

Eric. it, Appreciate

Eric. Thanks,

and for session. would question-and-answer our like over concludes conference O'Connell, back to to I President any Officer Chief Don remarks. the turn now Executive closing This

accomplished and forward say team & quarter. your in safe appreciate what all we've can continued well. and very delivering time Colvard. the come. We and to proud this more results I the interest through And Charles our we be like all quarters be of future All I'm So is to look in

Thank conference The is today's attending presentation. for concluded. now you

now may disconnect. You