Charles & Colvard Ltd.

Good day and welcome to the Charles and Colvard second quarter 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touchtone phone. To withdraw your question, please press star and then two. 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 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 set forth in, 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. Accompanying today's call is a supporting PowerPoint slide deck, which is available in the Investor Relations section of the company's website at ir.charlesandculvard.com forward slash events. The company will be hosting a Q&A session at the conclusion of prepared remarks. Should you have questions you'd like to submit, please email ir at charlesandculvard.com. Please note that this event is being recorded. I would now like to turn the conference over to Don O'Connell, President and Chief Executive Officer. Please go ahead.

Welcome, everyone. Good afternoon. Today, we're going to report Charles and Colvard's fiscal 2021 second quarter results. I'm pleased to share with you that we had a record-breaking quarter, delivering the highest revenue and income from operations in company history. We were able to generate $12.1 million in revenue and achieve a net income of $2.5 million with strong gross margins of 49% and a positive cash flow of $3 million for the quarter. This was a 14% increase in revenue versus the year-ago quarter, with an EPS of $0.09 per diluted share, which represents a 200% increase over last year. For the six months ended December 31, 2020, we recognized a 232% increase in net income and a 300% increase in earnings per diluted share compared to the year-ago period. Additionally, we bolstered our total cash to $16.9 million. which is a 26% increase from the year-ago quarter. Our team executed with purpose and precision during the critical holiday quarter, making it possible for us to achieve such positive results. Now I'll turn the call over to Clint Peete, our CFO, to unwrap the numbers in more detail.

Thanks, Don. Today I'll provide a summary of our key financials for Q2 2021. Additional detail can be found in our earnings press release that we issued this afternoon, and our Form 10-Q, which we expect to file this evening. Please note that all percentage comparisons are to the year-ago quarter, unless specified. We'll start with the revenue. In total, net sales for Q2 2021 totaled $12.1 million, versus $10.7 million, or an increase of 14%. In our online channel segment, which includes CharlesandCobar.com, marketplaces, dropship retail, and other pure play outlets. Net sales for the quarter totaled $7.6 million, or an increase of 25%, representing 62% of total net sales. Net sales for my transactional website, CharlesandCobar.com, increased 16%. In the company's traditional segment, which consists of wholesale and brick-and-mortar customers, Net sales for the quarter was $4.6 million, or flat to the year-ago quarter, representing 38% of total sales. Finished jewelry net sales increased 28% for the quarter. This was primarily due to the 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 decreased 8% for the quarter, as there continued to be a lower demand from our international distributors during the entire quarter related to COVID-19. Overall, international net sales decreased 25% due to limited orders from Asian distributors combined with lower cross-border trade sales on our transactional website. Moving on, we continued to maintain a strong bullish margin of 49% compared to 48% in the year-ago quarter. For Q2 2021, total operating expenses decreased 21%, representing 28% of total net sales, compared to 41% in the year-ago quarter. Sales and marketing expenses decreased 22%, to $2.5 million, and G&A expenses decreased 19%, to $978,000 for the quarter. We reported net income for Q2 2021 of $2.5 million, or $0.09 per diluted share, compared to with net income of approximately $814,000, or $0.03 per diluted share in the year-ago period. Now, let's move on to a snapshot of our balance sheet. Our liquidity and capital position remained strong as we ended the quarter with $16.9 million of total cash. compared to $14.6 million at our last fiscal year ended June 30, 2020. Our cash flow from operations was $3 million for the quarter, compared to $985,000 in the year-ago quarter. In terms of other sources of liquidity, we continue to have access to a $5 million asset-based credit facility with White Oak Commercial Finance. As of December 31st, 2020, we have not accessed funds through this credit facility. Inventory as of December 31st, 2020 totaled $28.7 million, paired with $30.6 million as of June 30th, 2020. Loose drills inventory was $17.6 million, compared to $20.8 million as of June 30th, 2020. Finished jewelry inventory was $11 million, compared to $9.7 million as of June 30, 2020, to support the upcoming Valentine's Day selling season and maintain stock levels for our direct-to-consumer channels. In summary, we had a record-setting Q2 for both a net sales and operating income perspective, even in the pandemic-impacted environment. We will build on this progress in the remainder of fiscal 2021 as we position Charles and Covard for long-term growth, generating value for all of our stakeholders.