Charles & Colvard Ltd.

Good day and welcome to the Charles and Colvard Q1 fiscal year 2022 earnings call. 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 touch-tone phone. To withdraw your question, please 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, or among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements may 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. This earnings call does not constitute an offer to purchase any securities nor solicitation of a proxy consent authorization, or agent designation with respect to a meeting of the company's shareholders. 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.charlesandcovard.com slash events. The company will be hosting a Q&A session at the conclusion of the prepared remarks. Should you have questions you'd like to submit, please email ir at charlesandcovard.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.

Welcome, everyone. Good afternoon. Today we're going to report Charles and Colvard's first fiscal 2022 results. I'm excited to share with you that the company delivered another quarter of double-digit growth in net sales in both our traditional and online channel segments. as well as in both finished jewelry and loose gemstone product lines. Our net sales for the quarter were $10.3 million, which is a 30% increase over the year-ago quarter. We delivered a strong gross margin of 51% for the quarter, compared to 47% for the prior year's quarter. Income from operations for Q1 was $949,000, and we had $827,000 in net income, or 3 cents earnings per share. Our cash remained strong at the end of Q1 at $19.2 million, and our working capital remained a robust $29.5 million. In addition to the year-over-year improvements we're continuing to see in our numbers, Q1 was a key period for us from an operational standpoint. I'm proud to say that we have proactively managed our inventory in order to be well-positioned for our critical holiday season. Despite the significant supply chain constraints that many industries are experiencing, we anticipated potential disruption and planned accordingly with our vendors, positioning ourselves to have the necessary product to satisfy our holiday demand. I'll dive into the execution of our strategic initiatives later in the call. For now, I'd like to turn the call over to Clint Peet, our CFO, to discuss the numbers.

Thanks, Don. Today, I will provide a summary of key financials for the first quarter ended September 30, 2021. Additional detail can be found in our earnings release that we issued this afternoon and from our Form 10-Q, which we expect to file tomorrow. Please note that all percentage comparisons are to the year-ago quarter unless specified otherwise. We will start with Q1 2022 revenues. In total, net sales for Q1 2022 totaled $10.3 million versus $7.9 million, or an increase of 30%. Net sales for our online channel segment, which includes charlesandcovar.com, moissaniteoutlet.com, marketplaces, dropship retail, and other peer-play outlets, totaled $5.4 million for the quarter, or an increase of 20%, representing 52% of total net sales. Net sales from our transactional website, charlesandcovert.com, increased by 25%. Net sales for our traditional segment, which consists of wholesale and retail customers, totaled $4.9 million for the quarter, or an increase of 42%, representing 48% of total net sales. The increase was due to our domestic distributors gearing up for the holidays, as well as strong demand from our brick and mortar retail customers. Finnish jewelry net sales increased 31% for the quarter as we continue to see strong demand for our premium jewelry in our online direct-to-consumer channels and with our brick and mortar retail customers. Loose jewel net sales increased 28% for the quarter. This is due to the increased demand from our domestic distributors. International net sales increased 7%. Moving on, we delivered a strong gross margin of 51% versus 47% in the year-ago quarter, which increased due to strong signature collection orders in the quarter, which are not discounted and carry a higher margin, and continued growth in our online channel segment. For Q1 2022, total operating expenses increased 51%, representing 42% of total net sales compared to 36% in the year-ago quarter. Sales and marketing expenses increased 66% to $2.7 million, and G&A expenses increased 31% to $1.6 million for the quarter. These increases are primarily due to our increased investment in our marketing strategies in preparation for the upcoming holiday season, attendance at the JCK Las Vegas Jewelry Trade Show, an increase in stock-based compensation and bonus expense associated with our operating results performance, all within the quarter. We reported net income for Q1 2022 of $827,000, or 3 cents per diluted share, compared with $874,000, or 3 cents per diluted share in the year-ago period. Included in net income is income tax expense of $122,000, We are recording income tax expense going forward now, as we reduced our deferred tax valuation allowance as reported previously in Q4 2021. Although an expense in our income statement, we will not be required to outlay any cash for income taxes due to our net operating loss carry forward position. Our weighted average shares outstanding used in the calculation of diluted earnings per share for the quarter were approximately .1 million shares at September 30, 2021, compared to 28.8 million shares at September 30, 2020. The increase in our weighted average shares outstanding was driven by an increase in option exercises by insiders and restricted stock that vested during the 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 $19.2 million of total cash compared to $21.4 million at our last fiscal year ended June 30, 2021. Our cash flow used in operations was $2.1 million for the quarter compared to $642,000 in the year-ago quarter. The cash used during the quarter was primarily due to the investment in building finished jewelry inventory and preparation of the upcoming holiday season. Our working capital of $29.5 million at September 30th was consistent with our working capital at June 30th, 2021. In terms of other sources of liquidity, we have access to our $5 million cash secured credit facility with JPMorgan Chase Bank. as of September 30th, 2021 and through today, we have not accessed funds through the credit facility. Inventory as of September 30th, 2021 totaled $31.6 million compared to $29.2 million as of June 30th, 2021. Finished jewelry was $15.8 million compared to $12.3 million as of June 30th, 2021 to maintain stock levels for our growing demand requirements and in preparation for the upcoming holiday season. Luce Jewell's inventory was $15.7 million compared to $16.8 million as of June 30, 2021. In summary, we remain confident in our financial strength and our continued efforts to increase shareholder value. With that, I'll turn the call back over to Don.