Charles & Colvard Ltd.

which are further expanding on our digital presence, launching new products and designs, increasing the customer engagement through virtual interactions, all the while focusing on our discipline growth. We're encouraged by our trajectory given the current environment, and we will continue to strive to increase our brand equity all the while creating additional shareholder value. With that said, I'd like to turn it back over to the operator to open the lines for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Caranda with Roth Capital.

Hey, guys. Good afternoon. Thanks for taking the questions. Just wanted to start off with holiday and how we're thinking about the period as we head into sort of November, December and a key timeframe here. One to see how you're planning for sort of product mix, how you feel about inventory levels to meet demand. Uh, and also maybe if you could discuss fulfillment and shipping capacity, and if we feel like we have enough booked, uh, to get product out to customers on time.

Yeah. So great question, man. How you doing? So, um, and we appreciate that. Um, let me just go as far as the fulfillment side of the equation. We have a really robust distribution and fulfillment center. We're totally prepped and poised to deliver on the holiday season. We believe we're positioned well. We believe we're staffed right. And we believe that that is a real strength that we have within the organization built up over the last few years. And it hasn't changed. Also, as far as the inventory levels, so we prepared in Q1 within this quarter for our holidays and inventory levels. So we primarily are in a great position to be able to kind of deliver on those expectations for holiday. As most folks within e-commerce space are aware, that inventory must be in stock and it must be in all the feeds related to that, to those customers and those channels. So the more we have in the feeds, the greater exposure we get. And we believe that we've done a great job of kind of positioning our forecasting. I've got a tremendous sales and and operations team and forecasting team that did a great job in kind of letting the analytics do the job, making data-driven decisions on what's working and what effectively worked in the prior time frame. So we believe we're poised and we're positioned well from an inventory perspective too as well. As it relates to the product mix, let's talk a little bit about that. As it relates to our Moat or Forever One Moissanite products, We believe that we were certainly in a great position for that. We've done a great job in building that up, building the inventory up. We also have the positions with our retail partners and our brick and mortar partners in consignment with those goods in advance. So those consignment levels are out there within that community and those channels will be fully supported for the holiday season so we can benefit on that. So we feel we're good there. As it relates to our lab-grown diamond positioning, that is a little bit different than our normal moissanite positioning, where the moissanite, we're a little bit more closer to vertically integrated, where we actually cut and facet the gemstones. It's a little bit more time to market. We have to put a little bit more gems into whip and jewelry into whip. As it relates to the diamonds, all we do is use those components, and then when a lab-grown diamond order comes in, we basically... just order when that demand is there. It doesn't require additional inventory for us because we have strategic alliances and partnerships with some great people that I've built over the last three decades to where it's not capital-intensive to be in that space. And just to kind of go a little bit further on that, that's one of the delineations between us and other lab-grown diamond companies that are coming to market. They have all that capitalization, capital expenses to be able to drive traffic, we've already created that destination for that consumer to buy the lab grown. And over the time, we've built a destination in our Charles and Colvard brand. So we believe that we're really in a good place there. And our really path to market is relatively easy for us to go into that space. So I hope I answered those questions.

Yeah, very detailed. Thank you for that, Don. And then my follow-up would be on Katie and just wondering if you might be able to share a few preliminary metrics to help us understand the traction you're seeing there. But perhaps maybe you could call out either revenue contribution on the quarter or expectations for the next several quarters. And then also just how are you kind of, can you quantify or characterize consumer interest in what you're seeing on that front as it's been rolled out? Maybe speak to AOVs or other metrics that might be helpful to give us a sense for how that's tracking.

Yeah, so in the quarter, we launched about 15 days prior to the end of the quarter. So we didn't have a lot of information that we can share with you right now. But I can kind of tell you that The progression has been very, very nice within those particular couple of weeks where we've had immediate response. We were able to roll out the new web experience and gain some really nice traction. As it relates to the CATIA side, let me just talk a little bit about the AOV. What we saw and what we've seen early on in the indicators are that there is a tremendous desire for fashion and the fashion element. within the lab-grown diamond space. So with that being said, perhaps the smaller mele stones, what we call mele, which is the lower, you know, let's say three and a half millimeter gemstones and below, you know, maybe moissanite and lab-grown diamonds are very close in proximity as far as, you know, price comparisons. So we haven't been bringing forward a tremendous amount of fashion. We primarily stay with the moissanite in the larger two carats and up, and more so in the bridal and the fashion and engagement sector. What this does for us now is it opens up a tremendous avenue for us to go into more into the fashion space, even the lighter weight anniversary bands, where that consumer is predisposed to buy the diamonds or the lab-grown diamonds, and she's gravitating to that. As far as the engagement sector and the bridal sector, we're gaining traction in that too as well. And again, that's a much higher AOV and the average ticket value on those items or AOV is right around 3,300 plus on that side. So it doesn't take very many of those to go ahead and kind of drive the numbers. So I have to be reluctant about kind of giving any forward guidance. We don't do that, but we believe that we're positioned and poised well to capitalize on this new expansion. One of the other things that it's done for us that we're seeing immediately and the effect that it has is it's driving more traffic, it's driving more awareness to our brand, it's driving more awareness to us being a destination, putting us in the conversation, okay, where that consumer now comes to us, they learn a little bit more, and they've never really kind of experienced Forever One Moissanite in the past, and now they're getting more educated, and they're able to see the price comparison between the lab-grown diamond, Arcadia lab-grown diamonds, as opposed to our Forever One Moissanite, and they're gravitating also and it's lifting our moissanite too as well. And what we're seeing early on indication in Q1 was that it actually is lifting our AOV on the moissanite side too as well. We anticipate that we'll maintain strong AOVs and we'll get a slight lift to that a little bit as well.

Very interesting and helpful commentary. Just one other thing maybe if I can follow up on the AOV side of things. Could you quantify for us AOVs on the Moissanite side of the business and just maybe how that's tracked relative to last quarter or the last couple of quarters would be very helpful.

Yeah, I'm going to go ahead and let Clint go ahead and talk to that a little bit.

Yeah, thank you, Don. Hey, Matt, how's it going? Related to the AOV of Moissanite, probably this quarter we averaged about $1,100, and that's been pretty consistent. I think it's hovered between you know, got up to $1,200 in one quarter. So we've kind of seen that, you know, kind of level that area.

Okay, excellent, guys. Thanks, Don. Thanks, Glenn. I'll jump back and cue here.

All right, thanks, Matt.

If you have a question, please press star then one.

Yeah, so I have an email question that I'm going to try to elaborate on. It's a good question, and I appreciate it. So one of our shareholders wants to know if we believe that the lab-grown diamond launch of Cadia will cannibalize the moistenized business. You know, it's a great question. You know, we pontificated before launching Cadia lab-grown diamonds. You know, we have a 25-year history in the moistenized business. And, you know, there was a lot of back and forth related to the subject matter. But the reality of it is, in today's world, in our quest to kind of deliver a solution for all consumers that are looking for responsible, ethically sourced jewelry, you know, obviously the recycled metals are recycled metals. You know, we've kind of mentioned that over the course of time, that the metals are the metals. It's 14 karat, it's 18 karat, it's platinum. So they all carry the same intrinsic value, whether it's, you know, set with or encrusted with a moissanite or encrusted with a diamond. It has that same, you know, intrinsic value, as I said. So that's one aspect of it. And, you know, I alluded to that in the prior question. You know, we're seeing a lift as it relates to our moissanite business. We're also seeing an incredible amount of visibility and awareness and traction to Charles and Colvard, the brand. You know, if you've kind of been following Charles and Colvard for a little bit here, you've kind of seen that our PR and communication efforts, you know, are also starting to perform well. We're getting a lot of coverage between Forbes Magazine, between Jewelers Circular Keystone, National Jewelers Magazine, Brides.com, et cetera, et cetera. You know, maybe in the past, perhaps, Moissanite didn't carry the weight or You know, perhaps maybe, you know, being around 25 years, some investors or shareholders, they had fatigue with the brand or so forth. You know, I can't come up with those answers, but we're certainly excited about what we're seeing here just by announcing the CATIA lab-grown diamonds. And proof of that is obviously, you know, we're driving traffic, you know, to the website. We're driving traffic to all channels. You know, what people don't understand too as well is that we have a traditional segment of the business that's also real important and real critical, and that's comprised of brick and mortar and our distribution partners. So I know we had some, you know, a downward trend only on the international piece, you know, but that's given the circumstances, and we focused more on the domestic push and the domestic market. And we've been able to fill that gap through the quarter and drive the revenue and beat last year's revenue over the same period of time, and we're very pleased with that. Now mind you, all that was done and we only have 15 days within the quarter introducing this new product line. So now we're going into our second quarter, which is our holiday season, totally prepared and ready with this new product line, and we believe it's only accretive and additive to the business. And furthermore, it increases our ROAS, It allows us additional visibility. It brings awareness to the brand and exposure to the brand. It opens up a market opportunity that's over $5.2 billion, whereas the moissanite opportunity may be a little bit slightly different than that. There's an argument over whether it's $30 million to $100 million, but we deem it to be far more than where we are today and will continue to grow further. We believe that having both options for that consumer allows us to kind of, you know, allows us to bring that choice to that consumer. You know, there's a lot of people out there that are predisposed to the diamond market, and they want to be in the, you know, kind of, you know, a diamond engagement ring, and, you know, that's what they've been, you know, taught over the years. And now we have that offering for them, whereas before we didn't. So, again, it's all about... You know, us redefining real. You'll see our tagline coming forward, you know, Charles and Colvard redefining real, the idea of choice, fine jewelry redefined. What does that mean? That we're changing the perception that a naturally mined diamond is real or it's something that you have to have. In today's society, we're seeing the consumer gravitate to lab-grown. We're also seeing tremendous amount of investments in the lab-grown diamond space. And the reality of it is we're allowing these folks to do all the heavy lifting. They're spending millions and millions of dollars in capital to be able to get into this space. We're already here. We already have the destination. And again, with Arcadia lab-grown diamond product, we're going premium. So it will not cannibalize the business because we did a really good job merchandising and delineating between the two products. With that being said, let me kind of point that out to you and kind of explain that a little bit further. So as it relates to Cadia lab-grown diamond product brand, we have two-carat diamonds and up. We've made it very, very specific to a certain grade and quality, removing the complexity to the consumer, and that quality is in E, F, and G color. And we also bring very slightly imperfect or VS1 diamonds in that category. Our moissanite brands are DEF, and GHI, our DEF and GHI and our Forever One premium brand, is a higher grade equivalent and has more fire and brilliance than a diamond, and it has a greater value of two carats and up. So we're concentrating and we're seeing that consumer understand that value in moissanite, but again, we're also seeing this consumer and understanding the value and the fashion on the lab-grown diamonds in such a short period of time. How much that's going to be to the business, we know that it's going to be accretive. We know it's going to be additive. We just can't speculate at this point in time or convey how that's going to be. But we certainly believe that this is the growth trajectory that we're looking for, and it's going to be additive while building awareness at the same time. Any more questions?

There are no further questions. I would like to turn the conference back over to Mr. O'Connell for any closing remarks.

Okay, great. Thank you. So we appreciate the time today and your continued interest in Charles and Colvard, and we look forward to what the future brings. On behalf of the company, we hope you and your family have a healthy and happy holiday season, and we look forward to speaking again.

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