Charles & Colvard Ltd.

Good day and welcome to the Charles and Colvard second quarter fiscal year 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists 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, 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, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date of 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 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 charlesincolvard.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.

Good afternoon, everyone. Welcome to our second quarter fiscal 2022 earnings conference call. I'm extremely proud to share with you that in Q2, we delivered the highest revenue for a single quarter in the company's almost 27-year history. At $13.8 million, this new record is a 13% increase to the year-ago quarter and maintains our strong 49% gross margin. Additionally, we recorded $24 million in revenue for the fiscal year to date, achieving a 20% increase over 2020 for a blended margin of 50%. and a 32% increase over 2019. Our continued momentum represents six sequential quarters of profitability and double-digit growth for the company. This progress was largely fueled by the deployment of additional capital towards our increased brand awareness campaigns and our direct-to-consumer marketing initiatives. So what does this mean? We believe continued investments in paid and social advertising in support of our owned web properties and assets are paying off and are necessary to continue our growth trajectory. As we redefine real, our ability to offer consumers the choice between Forever One Moissanite and CATIA lab-grown diamonds enables us the opportunity to capture more of the total achievable market. With the lab-grown diamond market potential alone estimated to be $49.9 billion by 2030, Our product assortment is now becoming all-encompassing and more diverse from traditional bridal and anniversary styles to fine fashion to unisex bands. And we now appeal to a broader audience and have something for every fine jewelry consumer. The intersection of our price, quality, and value is making a positive impact on sales and a lasting impression on customers. Our made-not-mind messaging is resonating within the industry, and that conscious consumerism is the future. Here's what we know. Our online channels revenue grew by 23% over the year ago quarter to $9.3 million versus $7.6 million. This represents 68% of total revenue for the quarter. Fiscal year to date, online channels revenues was up 22% at $14.7 million versus $12.1 million and represents 61% of total revenue. In particular, Charles and Colvard.com revenue increased 49% over the year-ago quarter and 40% over the fiscal year to date comprise 68% of our online channels revenue for the quarter. Our website traffic is up 12% and our conversion rate is up 30% versus the year-ago quarter. Our signature collection sales are up 89% compared to the year-ago quarter. and our Moissanite business continues to grow 35% over the year-ago quarter and 72% quarter-over-quarter, while our lab-grown diamond sales are up 266% versus the year-ago quarter and 152% quarter-over-quarter. Now I'm going to turn the call over to Clint Peete, our CFO, to unwrap the numbers in more detail. Clint?

Thanks, Don. Today I'll provide a summary of key financials for a second. fiscal quarter, and six-month period ended December 31st, 2021. Additional detail can be found in our earnings press release that we issued this afternoon and our Form 10-Q. We expect to file them all. Please note that all percentages comparisons are to the year-ago quarter unless otherwise specified. We'll begin with revenue. In total, net sales for Q2 2022 totaled $13.8 million versus $12.1 million. or an increase of 13%. And for the six-month period into December 31st, 2021, net sales totaled $24 million versus $20.1 million, or an increase of 20% from the year-ago period. Net sales from our online channel segment, which includes charlesandcobar.com, moissanotoutlet.com, marketplaces, dropship retail, and other pure play outlets totaled $9.3 million for the quarter. or an increase of 23%, representing 68% of total net sales. Net sales from our transactional website, charlesandcovar.com, increased by 49%. Online channel net sales for the six-month period ended December 31, 2021, increased 22% to $14.7 million, or 61% of total net sales. All net sales from our transactional website, charlesandcovar.com, increased by 40%. Net sales for our traditional segment, which consists of wholesale and retail customers, totaled $4.4 million for the quarter, a decrease of 3%, representing 32% of total net sales. As we mentioned last quarter, in Q1 2022, we saw strong demand from our domestic distributors gearing up for the holidays. Unlike last year ago quarter, where more of this demand flowed into Q2 2021. This decrease was offset by continued strong demand from our brick and mortar retail customers. Net sales for our traditional segment for the six-month period into December 31st increased 16% to $9.3 million, or 39% of total net sales. Venice Jewelry net sales increased 28% for the quarter as we continue to see strong demand from our premium jewelry and our online direct-to-consumer channels, along with our brick and mortar retail customers. Then as jewelry net sales for the six-month period ended December 31, 2021, increased 29% to $16.2 million, or 68% of net sales, up from 63% of total net sales in the year-ago period. Loose jewel net sales decreased 17% for the quarter due to our domestic and international distributors ordering in advance of the holiday as previously noted. Loose jewel net sales for the six-month period ended December 31, 2021, increased 4% to $7.8 million, or 32% of net sales. International net sales decreased 4% for the quarter and were flat to last year for the six-month period ended December 31st, 2021, as we continue to see impacts from the pandemic. Moving on, we delivered a strong gross margin of 49% for Q2 2022, steady to the year-ago quarter. For Q2 2022, total operating expenses increased 52%, representing 38% of total net sales compared to 28% in the year-ago quarter. In support of our brand awareness initiatives, sales and marketing expenses increased 64% to $4.1 million, and G&A expenses increased 22% to $1.2 million for the quarter. The main driver in the increase of G&A was increases in performance-based, stock-based compensation. Net income for Q2 2022 was $1.2 million, or $0.04 per diluted share, compared with $2.5 million, or $0.09 per diluted share, in the year-ago period. For the six-month period ended December 31, 2021, net income was $2 million, or $0.06 per diluted share, compared to $3.4 million or 12 cents per share in the year-ago period. Included in net income for Q2 2022 is income tax expense of $283,000 compared to $500 in the year-ago quarter. For the six-month period ended December 31, 2021, income tax expense was $406,000 compared to $1,000 for the year-ago period. Our weighted average shares outstanding using the calculation of diluted earnings per share for the quarter were approximately 31.3 million shares at December 31, 2021, compared to 29.3 million shares at December 31, 2020. The increase in our weighted average shares outstanding of approximately 2 million shares was driven by an increase in option exercises by insiders and issuance of restricted stock to executives. These factors higher income tax expense, as well as auctions, exercises, and restricted stock directly impacted our earnings per diluted share for the quarter and the fiscal year to date. Now, let's move on to a snapshot of our balance sheet. Our liquidity and capital position remained solid as we ended the quarter with $21.3 million of total cash compared to $21.4 million at our last fiscal year in the June 30th, 2021. and compared to $19.2 million in the previous quarter, increasing our cash position by $2.1 million. Our cash flow from operations remains strong at $2.3 million for the quarter compared to $3.1 million for the year-ago quarter. Our working capital increased to $31.3 million at December 31, 2021, compared to $30.1 million at June 30, 2021. In terms of other sources of liquidity, we have access to our $5 million cash secured credit facility with JPMorgan Chase Bank. At December 31st, 2021 and through today, we have not accessed funds through the credit facility. Inventory as of December 31st, 2021 totaled $31.8 million compared to $29.2 million as of June 30th, 2021. Finished jewelry inventory was $16 million compared to $12.3 million as of June 30, 2021. To maintain healthy stock levels in support of our growing demand requirements in our direct-to-consumer and brick-and-mortar business over the holiday and in preparation for the upcoming Valentine's Day season. Loose jewels inventory was $15.8 million compared to $16.8 million as of June 30, 2021. In summary, we remain confident in our financial strength and our continued efforts for the long-term growth. With that, I'll turn the call back over to Don.