Charles & Colvard Ltd.

Good day and welcome to the Charles and Colvard first quarter fiscal 2023 results 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 draw 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 day 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 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 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. Today we're going to report Charles and Colvard's first quarter fiscal 2023 results. We delivered $7.4 million in revenue in Q1, while down 28% to the year-ago quarter, in part due to logistics and supply chain issues caused by our gain-in which had an adverse effect on our quarterly results, this quarter still represented the fourth highest comparable trailing 12 months revenue of over $40 million. Additionally, as COVID concerns and travel restrictions eased early in the quarter, we believe many consumers spent their discretionary income on experiences and vacations rather than luxury consumer goods like fine jewelry purchases. Softness in demand was experienced across the fine jewelry industry. resulting in our distribution partners reducing their forecast and overall inventory positions, thus causing a drop in loose gemstone sales and revenue in our traditional segment. However, this did not seem to affect our brick-and-mortar business, which remained relatively steady for Q1 as we expanded our assortment and co-op marketing initiatives in support of the upcoming holiday season. With that being said, and with online channels comprising 66% of our revenue in Q1, up from 52% in the year-ago quarter, our strategic focus is to continue to drive and elevate our direct-to-consumer presence and brand strategy, which we believe will better position us for long-term growth and help bolster against the current macroeconomic uncertainty and geopolitical unrest as we strive to reduce our dependencies on others. we continue to make strategic investments in our direct-to-consumer initiatives, which we believe will further strengthen our moat and overall position in the market. Despite the increasing economic uncertainty in the market throughout the quarter, revenue on our owned property, charlesandcolvar.com, only saw a slight 2% decrease year-over-year, due in large part to the effects of Hurricane Ian. This represents the second-highest revenue for the comparable quarter in company history. Revenue on our MoissaniteOutlet.com website was up 179% year-over-year as consumers sought opportunistic buys. We feel confident that our brand positioning and expanded product categories will continue to resonate with more consumers and drive greater market share in the quarters to come. Although lab-grown diamond prices have experienced some downward pressure, and increased competition, Arcadia lab-grown diamond revenues on charlesandcolbert.com continued to climb at an increase of 85% to the year-ago quarter as we expanded our collections and assortments to better meet consumers' demands and increased our efforts to become more vertical. Our Forever One Moissanite revenues on charlesandcolbert.com were down 12% to last year. We anticipate our Moissanite sales to equalize due to the value proposition it represents in the growing broader lab-grown movement as we continue to expand our larger carat weight bridle assortments. Our gross margin for Q1 remains strong at 45% as we continue to take necessary steps to reduce product costs, even with rising shipping costs and inflationary pressures. At this time, I'd like to turn the call over to Clint Peet, our CFO, for an overview of our Q1 financials. I'll return to provide updates on our key initiatives. Clint?

Thanks, Don. Today I'll provide a summary of key financials for the first quarter ended September 30, 2022. Additional detail can be found in our earnings press release that we issued this afternoon and our foreign 10-Q, which we expect to bottom off. Please note that all percentage comparisons are to the year-ago quarter unless specified otherwise. We'll start with Q1 2023 revenue. In total, net sales for Q1 2023 totaled $7.4 million versus $10.3 million, or a decrease of 28%. Net sales for our online channel segment, which includes charlesandcobar.com, merchantnetoutlet.com, marketplaces, dropship retail, and other pure pay outlets, totaled $4.9 million for the quarter, or a decrease of 10%. now representing 66% of total net sales. Net sales from our transactional website, charlesandcovar.com, decreased by 2%, relatively flat to the year-ago period, despite the current overall global economic conditions. Net sales for our traditional segment, which consists of wholesale and brick-and-mortar customers, totaled $2.5 million for the quarter, or a decrease of 49%, representing 34% of total net sales. finished jewelry net sales decreased 3% for the quarter, whose jewel net sales decreased 60% for the quarter due in part to our shift in the finished jewelry efforts and direct-to-consumer strategies, along with both domestic and international distributors reducing their forecast and overall inventory. Overall, international net sales decreased 39% as our distribution partners faced additional COVID-19 restrictions and closures, while cross-border trade sales on our transactional website remain relatively flat to the year-ago quarter. Moving on, we delivered a strong gross margin of 45% versus 51% in the year-ago quarter, delivering $3.3 million in gross profit versus $5.3 million in the year-ago quarter. Our gross margin in the current quarter was negatively impacted mainly by increased shipping costs and rising inflation. For Q1 2023, total operating expenses increased 5%, representing 61% of total net sales, compared to 42% in the year-ago quarter. Sales and marketing expenses increased 14% to $3.1 million, and support of our growth initiatives and G&A expenses decreased 11% to $1.4 million for the quarter. We reported a net loss for Q1 2023 of $890,000 or $0.03 loss per diluted share, compared with a net income of $827,000, or $0.03 earnings per diluted share in the year-ago period. Included in our net loss for Q1 2023 is an income tax benefit of $303,000, compared to an income tax expense of $123,000 in the year-ago period. Our weighted average diluted shares outstanding using the calculation of diluted loss per share for the quarter were approximately 30.4 million shares at September 30, 2022, compared to 31.1 million shares at September 30, 2021. As an update to our $5 million stock repurchase program we announced in the prior fiscal year, as of September 30, 2022, an aggregate of approximately 388,000 shares of the company's common stock had been repurchased under the program. that are held in treasury stock for an aggregate purchase price of approximately $489,000 at an average purchase price per share of $1.26. Now, let's move on to a snapshot of our balance sheet. Our liquidity and capital position remain strong as we ended the quarter with $16.6 million of total cash compared to $21.2 million at our last fiscal year ended June 30, 2022. In addition, we continue to carry no debt. Our cash flow used in operations was $3.7 million for the quarter compared to $2.1 million a year ago quarter. This increase in the quarter reflects our build in inventory to support the upcoming holiday season, investments in our lab-grown diamond initiatives, repurchases of our stock, and other significant growth initiatives. Our working capital at September 30, 2022 decreased from June 30, 2022 by $4.2 million to $24.9 million. In terms of other sources of 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 September 30, 2022 and through today, we have not accessed funds through our credit facility agreement. Inventory as of September 30, 2022 totaled $36.6 million compared to $33.5 million as of June 30, 2022. Loose Jewel's inventory was $16.6 million compared to $16.2 million as of June 30, 2022. Finished jewelry inventory was $19.9 million compared to $17.2 million as of June 30, 2022, to maintain stock levels to support the upcoming holiday season and our lab-grown diamond initiatives. 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.