Q4 2021 Charles & Colvard Ltd Earnings Call
[music].
Good day and welcome to the Charleston Colburn.
Q4, and full fiscal year 2021 earnings conference call and webcast all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
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This earnings call may contain forward looking statements as defined in section 27, a 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.
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.
Your developments and actual results could differ materially from those set forth 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.
To be accurate.
Company today's call is a supporting Powerpoint slide deck, which is available in the Investor Relations section of the company's website at.
The company will be hosting a Q&A session at the conclusion of the prepared remarks.
You have questions you'd like to submit please E mail I R at Charles and Colvard Dot Com. Please note. This event is being recorded I would now.
I'd like to turn the conference over to Don O'connell, President and Chief Executive Officer. Please go ahead.
Thank you Sarah.
Welcome everyone. Good afternoon today, we are going to report Charles in cohorts <unk> fourth quarter and full fiscal 2021 results.
I'm pleased to share with you that the company continued to execute on all its initiatives and I'm extremely proud of the progress our team has made and their dedication and hard work that enabled us to complete what we deem to be an incredible year for Charles and cohort that resulted in some of the highest performance in company history.
I'd like to highlight some key accomplishments for the quarter and the fiscal year our.
Our revenue for the quarter was $16.0 million, which is a 120%.
Increase year over year, and 28% increase over Q4 fiscal year 2019.
Additionally income from operations was $2.0 million for the quarter. Our gross margins remained strong at 45% for the quarter and 47% for the fiscal year 2021.
It's also important to note that we reported a tax benefit in the amount of approximately $9.0 million in the quarter driven by the reduction of our tax valuation allowance due to delivering three years' worth of cumulative positive taxable income as well as projected future taxable earnings.
Further details can be found in our 10-K.
These factors together with our PPP loan forgiveness of approximately $1 million resulted in 27 <unk>.
Earnings per diluted share for the quarter and 42 cents.
Earnings per diluted share for the fiscal year.
For fiscal year 2021, our revenue was $41.0 million for an increase of 34% over last year and.
And an increase of 22% over fiscal year 2019.
Our income from operations for the full fiscal year, ending June 30 was $10.0 million.
Our cash position increased by 47% to 21.4 million from $20.0 million for the same period last year.
Our working capital increased by 73% to $31.0 million.
From $21.0 million, which is a 30% increase from the fiscal year 2019.
I believe it's fair to say, we've reached a new level of accomplishment this year.
And this past year as a company and as a team I'll share additional highlights and speak about the road ahead after Clint Pete our CFO Unwraps these numbers in greater detail.
Thanks Todd.
I'll provide a summary of key financials for fourth quarter and fiscal year ended June 32021.
Additional detail can be found in our earnings press release that we issued this afternoon and our Form 10-K, which we expect to file tomorrow.
Please note that all percentages comparisons are to the yoga quarter.
In prior fiscal year and unless otherwise specified.
We will start with Q4 2021 revenue.
Total net sales for Q4, 2021 totaled $16.0 million versus $8.0 million or an increase of 120%.
Net sales for online channels segment, which include Charlotte cohort Dot com.
Outlet Dot com.
Places drop ship retail and other pure play outlets totaled $11.0 million for the quarter or an increase of 86%.
Representing 57% of total net sales.
Net sales from our transactional website <unk>.
Charles and Colvard Dot com increased by 111%.
Net sales for our traditional segment, which consists of wholesale and brick and motor customers totaled $5.0 million for the quarter or an increase of 189% representing 43% of total net sales.
Finished jewelry net sales increased 86% for the quarter as we continued to see strong demand for our premium jewelry on our online direct to consumer channels and with our brick and mortar retail customers.
Loose jewel net sales increased to 190% for the quarter.
This is due to increased demand from our domestic and international distributors.
Overall international net sales increased to 102%.
While cross border trade sales on our transactional website, Charles and Colvard Dot com increased 100%.
Moving on we delivered a gross margin of 45% versus 41% in the year ago quarter.
For Q4, 2021 total operating expenses increased 16%.
Representing 34% of total net sales compared to 64% in the year ago quarter.
Sales and marketing expenses increased 39% to $3.0 million.
And G&A expenses decreased 11% to $3.0 million for the quarter.
We reported net income for Q4, 2021 of $12.0 million or 27%.
<unk>.
Per diluted share.
Compared with a net loss of approximately $1 million or a loss of <unk> <unk> per diluted share in the year ago period.
Included in our net income for the quarter are two significant transactions.
First we realized an income tax benefit of $9.0 million drip.
Driven by the release of our deferred tax valuation allowance on our net operating loss carryforwards.
As we determined that our expectation of future taxable income and upcoming tax years would be sufficient.
To result in full utilization of these carryforwards and other deferred tax assets.
Second we realized at $974000 gain on extinguishment of debt related to our PPP loan, which was forgiven by the SBA in full in June 2021.
Yes.
Our weighted average shares outstanding used in the calculation of diluted earnings per share for the quarter were approximately $32.0 million shares at June 32021.
Compared to 28.7 million shares at June 32020.
For the full fiscal year of 2021, we reported $41.0 million in net sales a 34% increase from fiscal year 2020.
There are two noteworthy there were two noteworthy highlights for the full year that I'd like to draw your attention to.
First in our online channels segment.
Sales for the fiscal year, 2021 increased 40% to $25.0 million or.
Or 59% of total net sales.
Highlighting our growth as an e-commerce driven business.
Second.
Jewelry net sales for the fiscal year, 2021 increased 45% to $28.0 million.
Or 62% of net sales.
Up from 57% of total net sales in fiscal 2020.
Further defining ourselves as a global fine jewelry Greek company.
Now, let's move onto a snapshot of our balance sheet.
Our liquidity and capital remained solid.
As we ended the quarter with $25.0 million of total cash compared to $20.0 million.
At our last fiscal year ended June 32020.
Our cash flow from operations was $9.0 million for the quarter compared to the same in the year ago quarter.
Our working capital at June 30 increased from.
From June 32020 by $19.0 million to $31.0 million.
In terms of other sources of liquidity.
We have access to a new $5 million cash secured credit facility with JP Morgan Chase Bank.
Which we executed on July 12.2021.
Following the termination of our prior credit facility with White Oak commercial finance.
As of June 32021.
And through <unk>.
And through today, we have not accessed funds to either of these credit facility agreement.
Inventory as of June 30.
2020, 'twenty, one totaled $31.0 million.
Compared to $36 million as of June 32020.
<unk> inventory was $24.0 million compared to $28.0 million as of June 32020.
Finished jewelry inventory was $15.0 million compared to $16.0 million.
As of June 32.
2020.
To maintain stock levels for our growing demand requirements.
In conclusion, we are proud of the results we delivered.
With that I'll turn the call back over to dawn.
We appreciate them.
Let's review, how we executed on the strategic initiatives, we set forth for fiscal 2021.
Operationally in Q4, we continue to scale the business to support the ongoing growth of our consumer demand for our product and our product brands. This led to the completion of what we believe to be a successful mother's day season for the company increasing sales by 123% over the same mother's day campaign period in 2020.
Mothers day, we continue to see significant topline growth throughout the quarter, resulting in a 53% increase in overall direct to consumer shipments.
Also in Q4, we receive forgiveness of the PPP.
Check protection program.
And the beginning of July we entered into a strategic banking relationship with Jpmorgan Chase a global leader in financial services.
Within sales and marketing last quarter, we were able to define and implement innovative technology in support of our digital streaming shopper commerce initiatives and going forward. This allows us to connect with our customers in a one to one and one to many formats, thereby.
Enhancing the customer experience to meet and engage with our customers more intimately and in real time now we can truly be everywhere they choose to transact.
Our sales and marketing team continue to create and launch new content across multiple channels and engage with new strategic partners for digital content collaboration.
We also revamped our Amazon online store presence to optimize our customers Amazon shopping experience and expanded our macys in store assortment to nearly 50 styles.
From a product development standpoint during the quarter, we introduced new Katy lab grown diamonds cuts such as Emerald Princess rounding out our lab grown diamond offering.
Additionally.
Additionally, we off we launched our new patented signature collection styles.
With forever, one more tonight cuts, such as Emerald elongated cushion and radio.
Collectively this helped fuel.
Significant increase in our finished jewelry net sales, which were $11.0 million for the quarter up 86% over the prior year quarter more specifically, we saw a 242% increase in our patented signature collection sales over the prior quarter year quarter.
And an 81% increase for the full fiscal year, we believe increase the increasing popularity of our proprietary signature styles bolsters, our brand equity and further differentiates our moist nine lab grown diamonds products from competitors in the fine jewelry space.
Our <unk> business grew by 86% over the year ago quarter, and our Katy lab grown diamonds business grew nearly 20% over Q3 fiscal 'twenty one.
We believe that our forever one moist knight remains the pinnacle product brand and our demand continues to increase this supports our belief that we're not experiencing cannibalization, but are increasing our overall market share by adding new products to the mix.
Now that we reflected upon the quarter, let's take a look back at some of the notable accomplishments throughout the year.
To recap, we renegotiate our exclusive supply agreement with Cree, we deepened our strategic partnership with Macys launching an in store program in the top 50 doors and expanding the assortment in time for holiday.
We launched Arcadia lab grown diamond product brand, giving our customers that choice and premium lab grown gem.
We transfer we transformed our Charles <unk> Colvard website <unk>.
Thereby enhancing the customer experience by giving consumers the choice between premium more design lab grown diamonds at the click of a button.
We completely redesigned our packaging to be recycled biodegradable and better aligned with our brand values, we executed on a strong holiday season.
We launched an additional property moist side I'll, let dot com to position ourselves as a primary more tonight provider across all demographics.
And we were re listed on the Russell Microcap Index.
All of which helped us deliver what we believe to be a strong $41.0 million in revenue, which is a $10 million increase in revenue over fiscal 2020.
And our more than 300% increase in the share price year over year.
So let's take a look back at what's next.
Let's talk about what's next and how we are planning to remain on this strong growth trajectory.
Going forward, we plan to continue and expand our brand presence and enhanced customer engagement grow our product offerings and bolster our topline growth.
Spansion is crucial to our overall success in 2022.
What does that mean.
To further expand our brand presence, we will continue our quest to reach all customers, where they're shopping in order to do this.
We will explore.
Our very own signature stores in order to showcase our our executive.
Land and signature collection style and showcase them exclusively.
Which allows the consumers who want to see touch and feel our products in person.
This we believe is a natural progression for our Omnichannel strategy.
We plan to expand our content production capabilities by building out a state of the art studio within our existing RTP headquarters that will provide the ideal setting for live streaming on our website as well as other media channels.
A key element of accomplishing this is our implementation of Bam Boozers live streaming platform. This innovative technology allows us to host live shows and events for special initiatives and introduced new product collections.
We're excited to joined band Boozers list of Athene brands, such as <unk>, a leading luxury products group.
This will add new styles, new sales and also additional channels for our direct to consumer business and and encourage more personal interaction with our online customers to help develop loyal relationships, while also giving us a platform to explore celebrity and influencer types of engagements.
We believe this will increase our brand awareness in a meaningful way as you can see we seek to meet customers on all fronts and deepen our relationships and our consumer engagement.
As far as product development, we intend to explore opportunities to bring forward new product offerings that align with our brand and core values. Just as we did this year with Katy lab grown diamonds, we plan to come forward with new proprietary designs and product categories to further meet the needs of the new existing customers and existing customers.
We will also continue to focus on using recycled metal and sustainable practices in order to serve todays conscientious customer.
In order to grow we will continue to expand our technology to make informed data driven decisions across all areas of the business.
And lastly, we will continue to be as transparent as possible and engage with our shareholders to help create continued shareholder value.
The team and I are fully dedicated to our continued efforts to execute on our strategic initiatives in order to realize the full potential of this business.
With that I'd like to turn it back over the operator and open the lines for your questions.
Thank you we will now begin the question and answer session.
I'll ask a question you May press Star then one on your telephone keypad.
Thank you you are using a speakerphone please pick up your handset before pressing the keys.
These limit yourself to one question one follow up.
You have further questions you may reenter the question queue.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Matt Koranda with Roth Capital. Please go ahead.
Hey, guys. This is Mike <unk> on for Matt Congrats on the quarter.
I just wanted to start in.
Could you guys expand upon the performance of <unk>, thus far and more specifically and give some color on how it's contributing its online.
Online sales.
Okay.
Yes, how are you doing so.
<unk> right now is only offered through our online Charles and Colvard Dot com.
Specifically related to that.
We've experienced up to 20% increase over Q3.
We don't really go into kind of further detail, but it is a growing business. So if you look at the kind of elevation of our overall revenue and increase in revenue.
From.
$12.0 million to $16.0 million in this quarter comparative results. The moist Tonight is also growing as well and then Katy represented 20% increase from there.
We basically have started to expand our assortments and our collections indicators space because basically proof of concept is already there we know that it's a growing sector in the marketplace that we know we need to be there. So look to us in the future to start kind of bringing forward more and more designs. We also know that our consumers gravitating to.
Signature designs and our signature collection, so look to us to also increase that indicator lab grown diamonds.
I will also add and note that the smaller diamond carat weights into smaller accent stones in the fashion space are growing so look to US also to increase that so overall, an increase in the product mix and product assortment on Acadia. Thus, we anticipate increased revenue in the lab grown diamonds too as well.
<unk>.
Got it that makes sense.
Could you talk about what Youre seeing.
Are you using the online channel and trending in the current demand environment, specifically as it pertains to mix in basket size and maybe you can expand upon web traffic and conversion as well.
Yes, so the second part we don't.
<unk> discussed the web traffic and conversion.
Certainly conversion rates are very nice and strong I know, it's very subjective there to kind of look at that just look at the the kind of net income that we're making with the percentage of margin and basically the revenue. So what we're doing is working.
And then on the so.
So on the <unk>, we generally published <unk> and talk about it right around 1000 kind of range a little bit up I can just tell you that we are getting a slight increase in the <unk>.
With the Katy lab grown diamonds is starting to mix as it relates to our Charles <unk> Colvard Dot com website, so and thats specific to that because we have two sectors on a traditional side, it's a different HOV versus our online direct to consumer.
Okay got it.
If I could just squeeze one more in.
In terms of the traditional channel could you guys talk about sell through at Macys and <unk>.
Just general health of the inventory within that channel.
Yes, so I can tell you that the traditional channel is really showing some really nice progress it helped us tremendously.
Kind of moving through and getting out of the Covid time and watching those channels come back online specifically on the health of our diamonds and the macys on the traditional side I will tell you that on the wholesale side.
Starting to come through very nicely I will tell you that international we did grow on international side, but the comps to international we're pretty limited versus kind of that COVID-19 impact from prior we do have a 100% increase there, but the reality of that is international still remains to be kind of a factor that we kind of watch.
And then look to us in the future to kind of speak to how we're addressing it and how we're going to expand that too as well and elevate that.
Got it thanks guys.
Okay, great, Thanks, Matt and Mike.
Okay.
Our next question comes from Jason <unk> with.
Yeah.
Please go ahead.
Congrats on a full year results.
You guys gave a lot of detailed in the prepared remarks.
Just on various parts of this.
From those in terms of how people in the industry are thinking about lab grown gems. Please in the market are there any specific differences you can talk about in the view for moist cyanide versus diamond.
And then.
Most importantly, Charles and called marketplace within those two markets in terms of kind of a brand of choice versus competition.
Feel like Youre being recognized within the industry or if not maybe what are people missing about the story.
Yes, Hi, Jason how are you doing certainly.
We wanted to pre announce for <unk>, we wanted to to get the industry to kind of understand that Charles and cohort is the brand of choice Charles <unk> Colvard is pretty much on the move.
<unk> seen significant growth in the past year.
Both on both sides of the house from the moist Tonight and the lab grown diamonds I can tell you that <unk> kind of the mood was was very positive as far as the overall jewelry market right. So I'm talking about even natural diamonds and lab grown diamonds and moist tonight overall as an industry the jewelry industry has.
Performing quite well as it relates to J C. K for US it was more of a trade kind of awareness play to kind of make sure that our trade representatives and our distribution partners are represented make sure that the brand. The brand presence is very strong I can tell you. We came out very strong. This JC K, we had incredible kind of.
Physician incredible booths.
Marketing and sales team did a phenomenal job in getting us ready for that we were definitely a voice and kind of our positioning in the show has shifted and changed.
Towards the main aisle, which was important.
We also are focused.
A lot of energy on the moist ni product in our forever one brand product there we listened to the ground in a lab grown diamonds lab grown diamonds. It's certainly on the move is certainly gaining traction there.
A lot of.
A lot of growers a lot of supply chain changes and transformations that are happening.
There is some consolidation that's also occurring within that space.
It is going to be a very strong category for us and for the industry.
So as far as.
Brand of choice, we'd like to believe that Charles <unk> Colvard is making incredible strides in building that awareness and building ourselves as an industry leader in that global jewelry kind of destination. Our goal is to really just build that destination.
Did allude to the fact also as you said within how are we going to go ahead and do that so a lot of these streaming capabilities and capacity that we're building out is going to build further awareness further bolstering our brand of choice. We did also just announced that we're building out within our existing facility.
Brick and mortar or a signature showroom store, so look to us to kind of talk a little bit further about that and what does that mean for the future of the brand of choice.
So signature Charles <unk> Colvard stores and retail operations is something that will.
We will be bringing forward in building out kind of a test case with the first one that we're talking about right here within our existing facility. So another room for growth another way to build that brand of choice in other way to talk to kind of the overall consumer.
Great and just.
Loose jewels component that was up 190% a little over $4 million I'm, assuming it's predominantly moist tonight.
Where are those gyms typically lending is this kind of the same as in years past, where those are lower quality stones that are go into finishers overseas or is this now more being sold.
To like Crafts people in the U S that are listening on etsy and various other small competing brands.
We are ensuring the sale fleets versus directly.
And that market yes.
So, let's just talk about it so we do offer loose jewels of Charles <unk> Colvard Dot com. So.
That's one place where the consumer can get it and shop. However, our distribution partners, our large distribution partners, who sell all the nations leading independent retailers.
Actually utilize those stones and put them into jewelry product that makes their way throughout kind of the jewelry market, we only sell our forever one gem stones throughout our distribution partners, who then go into the independents as far as the lower category in those lower grades that we called legacy grades we basically built.
Destination, which is voice nine outlet dot com and Thats, where those goods can be purchased and their purchase direct from Charles and colvard through more Tonight outlet Dot com.
Okay, Okay, great I think thats it for me thanks.
Okay great.
Thank you and if you'd like to ask a question. Please press Star then one now.
This question comes from Jeremy Blum with.
Private Investor. Please go ahead.
Hi, Dan and Colin.
Looking at your balance sheet looks quite strong I was just wondering do you have any capital plan going forward dividends buybacks mergers growth initiatives or anything like that.
Hey, Jeremy So great question, I mean, certainly cash positioning is growing strong.
We're going to continue to fund our strategic initiatives wherever they land.
So.
First of all right now there's tremendous organic growth for us between kind.
The two product brands that we're bringing to market, both <unk> and diamonds.
Look at us deploying capital.
Where it's where it is needed so as it relates to acquisition, it's always on our mind or things like that are potential strategic alliances. We will look to do that as it relates to buybacks and stock buybacks theres different sides of.
Defense to believe that's a strong decision or not we were kind of prohibited from that and precluded from that with the PPP loan.
Now that that's been.
Okay.
Kind of taking care of so to speak certainly that would be a consideration.
But we've got a lot of growth to do we've got a lot of room to grow in.
Basically we want to just continue to kind of look at that right. So we're just going to look for more ways to kind of deploy that capital to grow that can't really comment on at this time, but certainly my past lives and everything we're always looking to grow the brand and we're looking for that catalyst that's going to take this brand to another level.
So we did kind of push forward.
<unk>.
As shelf, where we did.
Our response, we put the shelf there at $25 million shelf. So we do have a $5 million credit facility. That's in place. We've got the $25.0 million in cash I mean, we certainly have a lot of instruments to be able to use I would say that with the cash and the credit line, we're totally solid I wouldn't unless some.
It comes up with an opportunity for an acquisition, which will talk through.
That remains to be seen so I don't know how transparent I could be there, but thats as much as like getting kind of talk through Germany.
Thank you.
This concludes our question and answer session I would like to turn the conference back for any.
Closing remarks.
Okay great.
We appreciate all the calls today, we appreciate everybody coming online on behalf of Charles <unk> Colvard.
I want to thank you for your continued interest and support in Cta chart.
Look for any news in any events coming forward through our IR at Charles <unk> Colvard Dot Com certainly all the reports and publications are there.
Again, we look forward to our next call in our next earnings and what's to come for Charles <unk> cohort.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.