Charles & Colvard Ltd.

Hello and welcome to the Charles and Colvard fourth quarter and full fiscal year 2022 earnings conference 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 telephone keypad. 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 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. Further 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. Should you have questions 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.

Good afternoon, everyone. Welcome to our fourth quarter and full fiscal 2022 earnings conference call. Our fourth quarter fiscal 2022 revenue of $9.3 million represents the second highest for the comparable period in company history. In addition, we achieved a record-setting year for our company, driving $43.1 million in revenue, the highest for any 12-month period ending June 30th. This represents a 10% increase over last fiscal year and a 48% increase over fiscal 2020. We attribute these positive results to our continued increase in brand recognition campaigns, demonstrating that our flagship Forever One Moissanite and expanded Cadia lab-grown diamond product assortments are resonating with consumers. On our transactional website, CharlesandColvard.com, Moissanite revenue grew 13% year-over-year, while lab-grown diamond sales were up 173% year-over-year and 50% quarter-over-quarter. Revenue from our online channel segment continued to grow. Most notably, Charles and Colbert.com experienced an increase of 24% over the prior fiscal year from $14.7 million to $18.1 million. And MoistNightOutlet.com experienced exciting growth in its first full year of existence. Further validating our business strategy and underscoring the importance of our focus on direct-to-consumer initiatives. Our Q4 margin was 41%, primarily related to prudent end-of-year inventory considerations and disposition strategies, with our blended margin for the full fiscal year remaining strong, comped to last year at 47%. Our gross profit was $20.2 million compared to $18.4 million last year. Cash flow from operations for fiscal 2022 was $600,000. income from operations for fiscal year was $2.9 million as we concluded our eighth consecutive quarter of profitability. So what does this mean? It means that we've demonstrated over the past two years that we continue to fortify the company by building our cash position to $21.2 million, bolstering our inventory position to $33.5 million, maintaining a healthy working capital position of $29.1 million, all while growing our infrastructure and capacity, adding key talent, and optimizing our technology and facility, including our innovative digital and broadcast studio capabilities and our very first signature retail store, all with zero debt. I'll turn it over to Clint Peete, our CFO, to unwrap these numbers in more detail, and later on in the call, I'll share additional insight on our results and updates on key initiatives. Clint?

Thanks, Don. Today, I'll provide a summary of key financials for fourth quarter and fiscal year ended June 30, 2022. Additional detail can be found in our earnings press release that we issued this afternoon in our form 10-K, which we expect to file tomorrow. Please note all percentage comparisons are to the year-ago quarter and prior fiscal year end, unless otherwise noted. We'll start with Q4 2022 revenues. In total, net sales for Q4 2022 totaled $9.3 million versus $9.7 million, or a decrease of 4%. Net sales for our online channel segment, which includes charlesandcovar.com, moissanoutlet.com, marketplaces, dropship retail, and other peer-play outlets, totaled $5.7 million for the quarter, or an increase of 3%. now representing 62% of total net sales. Net sales from our transactional website, charlesandcohart.com, decreased by 3%, we believe due to the timing of Prime Day this year versus last year. Net sales for our traditional segment, which consists of wholesale and brick-and-mortar customers, totaled $3.6 million for the quarter, or a decrease of 14%, representing 38% of total net sales. Finished jewelry net sales increased 9% 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 decreased 22% for the quarter. This is due to the decreased demand from our domestic and international distributors. Overall, international net sales increased 12%. while cross-border trade sales on our transactional website, charlesandcovar.com, remain steady to the year-ago quarter. For the full fiscal year of 2022, we reported $43.1 million in net sales, a 10% increase from fiscal year 2021. There are two noteworthy highlights for the full year that I'd like to draw your attention to. First, in our online channel segment, net sales for fiscal year 2022 increased 15% to $26.8 million, or 62% of total net sales, evidencing our continued growth as an e-commerce-driven business. Second, finished jewelry net sales for the fiscal year 2022 increased 22% to $29.7 million, or 69% of net sales, up from 62% of net sales in fiscal year 2021, further distinguishing ourselves as a global fine jewelry company. Moving on, we delivered a gross margin of 41% versus 45% in the year-ago quarter, delivering $3.8 million in gross profit versus $4.4 million in year-ago quarter. For Q4 2022, in continued support of our growth initiatives, total operating expenses increased 14%, representing 40% of total net sales compared to 34% in the year-ago quarter. Sales and marketing expenses increased 25% to $2.7 million, and G&A expenses decreased 8% to $1.1 million for the quarter. We reported net income for Q4 2022 of $41,000, or zero cents per diluted share, compared with a net income of $8.4 million, or 27 cents per dollar to share in the year-ago period, which included an income tax benefit of $6.3 million, driven by the release of our deferred tax valuation allowance on our net operating loss carry forward, and a $974,000 extinguishment of debt related to our PPP loan, which was forgiven by the SBA in June 2021. Included in net income for Q4 2022 is income tax expense of $34,000. For fiscal 2022, income tax expense was $519,000. Our weighted average shares outstanding used in the calculation of diluted earnings per share for the quarter were approximately 31.2 million shares at June 30, 2022, compared to 31.1 million shares at June 30, 2021. As an update to our $5 million stock repurchase program we announced in May 2022 during our Q3 2022 earnings call, as of August 26, 2022, 273,257 shares of the company's common stock have been repurchased that are held in treasury stock for an aggregate purchase price of $356,122 at an average purchase price per share of $1.30. As of June 30, 2022, we had repurchased 30,287 shares of the company's common stock for an aggregate purchase price of $38,164 at an average purchase price of $1.26. Now, let's move on to a snapshot of our balance sheet. Our liquidity and capital position remained solid as we entered quarter 2021. with $21.2 million of total cash compared to $21.4 million at our last fiscal year ended June 30th, 2021. Our cash flow using operations was $530,000 for the quarter compared to cash flows provided by operations of $1.8 million in the year per quarter. Our working capital at June 30th, 2022 decreased from June 30th, 2021 by $1 million. to $29.1 million. In terms of other liquidity, we have access to our $5 million cash-secured credit facility with JPMorgan Chase Bank, which we renewed on July 29, 2022 for one year. As of June 30, 2022 and through today, we have not accessed funds through our credit facility agreement. Inventory as of June 30, 2022, totaled $33.5 million, compared to $29.2 million as of June 30, 2021. Loose Jewels inventory was $16.2 million, compared to $16.8 million as of June 30, 2021. Finished Jewelry inventory was $17.2 million, compared to $12.3 million as of June 30, 2021. to maintain stock levels for our growing demand requirements. In conclusion, we are proud of the results we delivered, particularly for the full year 2022. We look forward to building our success in fiscal year 2023 and beyond. With that, I'll turn the call back over to Don.