Charles & Colvard Ltd.

Good day and welcome to the Charles and Colbert third 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 then one on your touchtone phone. To withdraw your question, you may press star 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.charlesandcolvard.com slash events. The company will be hosting a Q&A session at the conclusion of prepared remarks. If you have questions and you'd like to submit, please email ir at charlesandcolvard.com. Please note 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, sir.

Welcome, everyone. Good afternoon. Today, we're going to report Charles & Colvard's fiscal 2021 third quarter results. I'm excited to share with you that the company's momentum continues. In Q3 fiscal 2021, we were able to deliver $9.4 million in revenue with a meaningful gross margin of 46%, achieving a net income of $1 million or 3 cents per diluted share. We increased our cash position by 65% from a year ago quarter to $19.7 million, which is a 17% increase over our cash position from the prior quarter. Our strong performance is the result of our continued execution of our strategic initiatives. I look forward to discussing this in more detail later during the call, but now I'll turn the call over to our CFO Clint Peete to unwrap the numbers for you.

Thanks, Don. Today, I'll provide a summary of key financials for Q3 fiscal 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 and less specified otherwise. We'll start with revenue. In total, net sales for Q3 2021 totaled $9.4 million versus $6.5 million, or an increase of 45%. Net sales for our online channel segment, which includes charlesandcovar.com, moissaniteoutlet.com, marketplaces, dropship retail, and other pre-play outlets, totaled $5.6 million for the quarter, or an increase of 45%. representing 59% of total net sales. More specifically, net sales from our transactional website, charlesandcovar.com, increased by 65%. Net sales for our traditional segment, which consists of wholesale and brick and mortar customers, totaled $3.8 million for the quarter, or an increase of 45%, representing 41% of total net sales. Venice jewelry net sales increased 79% for the quarter as we continue 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 7% for the quarter. This is due to increased demand from our domestic and international distributors. Overall, international net sales increased 38%. while cross-border trade sales on our transactional website, charlesinfocovar.com, increased 15%. Additionally, we saw an increase in demand from our Asian distributors as they began to rebound from the impacts of COVID-19. Moving on, we delivered a gross margin of 46%. The year-ago quarter included a write-off totaling approximately $5.3 million of legacy material inventory, which led to a negative 41% gross margin for the year-ago quarter. For Q3 2021, total operating expenses decreased 6%, representing 35% of total net sales compared to 54% in the year-ago quarter. Sales and marketing expenses decreased 12% to $2.2 million, and G&A expenses increased 10% to $1.1 million for the quarter. We reported net income for Q3 2021 of $1 million, or 4 cents per basic share and 3 cents per diluted share, compared with a net loss of approximately $6.2 million, or a loss of 21 cents per diluted share in the year-ago period. Our weighted average shares outstanding used in the calculation of diluted earnings per share were approximately 30.5 million shares at March 31st, 2021, compared to 29 million shares at June 30th, 2020. This increase was driven by the issuance of approximately 800,000 shares related to stock option exercises during the quarter, along with the dilutive effect of outstanding stock options based on our stock price as of March 31, 2021. Now, let's move on to a snapshot of our balance sheet. Our liquidity and capital position remained solid as we ended the quarter at $19.7 million of total cash compared to $14.6 million at our last fiscal year-end, June 30, 2020. Our cash flow from operations was $2.3 million for the quarter, compared to a negative $1.3 million in the year-ago quarter. Our working capital at March 31st increased from June 30, 2020, by $12.2 million to $29.7 million. 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 March 31st, 2021, we have not accessed funds through this credit facility. In January of this year, we extended the lease on our corporate headquarters for an additional five years. This amendment, which required a re-measurement for accounting purposes, did not have a material impact on our income statement or cash flows. Balance sheet impact resulted in an increase in our right of use asset of $3.9 million and lease liability of approximately $4.4 million. Inventory as of March 31st, 2021 totaled $28.9 million compared to $30.6 million as of June 30th, 2020. Luce Jewel's inventory was $16.9 million compared to $20.8 million as of June 30, 2020. Venice Jewelry's inventory was $12 million compared to $9.7 million as of June 30, 2020 to maintain stock levels for our growing demand requirements. In conclusion, we believe we had a strong quarter from both a net sales and profitability perspective. With that, I'll turn the call back over to Don.