Charles & Colvard Ltd.

And welcome to the Charles and Cozart First Quarter FY2024 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. 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. Expressions that identify 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 further assurance that the forward-looking information will prove to be accurate. Accompanying today's call is a supporting PowerPoint slide deck, which is available on the Investor Relations section of the company's website at The company will be hosting a Q&A session at the conclusion of the prepared remarks. Should you have any questions you'd like to submit, please email cthr at rhythmpartners.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 and welcome to our first quarter fiscal 2024 financial results conference call. My comments will be briefer than usual as we spoke with investors just one month ago and you'll recognize a lot of the same themes. During the first quarter, we continue to experience headwinds from a challenging economy that has created weakened consumer spending as well as softening engagement activity. While there is definite outside pressure on the industry as a whole, we continue to forge ahead with several new initiatives leading into the important holiday season through Valentine's Day. While we work through these dynamics, it's important to note that we believe our strategies will soon begin to offset the downward pricing pressure as the company's Charles and Colvard direct initiatives take hold and as consumers continue to seek alternatives to mine diamonds. such as lab-grown diamonds, moissanite, and lab-created colored gemstones. As we discussed in prior quarters, the consumer is gravitating towards products that are sustainable and ethically sourced. We believe we are well-positioned to navigate this meaningful shift in the industry as our lab-grown diamond revenue, as a percentage of sales quarter over quarter, continue to grow. While early indicators within our industry suggest that consumer spending will likely be down this holiday season compared to recent years, with our enhanced sales initiatives, Charles and ColvardDirect.com, and our direct-to-consumer digital streaming made shopping experience, our product assortment, and our inventory levels, we believe that we'll be able to provide an enticing value proposition for those retailers and consumers seeking quality made-not-mine gemstones and fine jewelry products. With that being said, closing out the quarter with over $12.7 million in cash and cash equivalents, $27 million in inventory, and investments made to maintain our retail partner service level commitments for the quarter, reaching 94% in stock, we believe this position is well into the holiday quarter. As we stated last quarter, and as we move into Q2, look to us to continue to stabilize our business. While we make strategic investments in global brand awareness campaigns, innovative technology, including key personnel and our product assortment to meet consumer expectations and to stay ahead of the competition, to deliver additional products and services designed to unlock new revenue streams. More specifically, we continue to invest in our technology and our web properties, including Charles and Colvard direct.com. which we believe enables us to engage thousands of independent jewelers directly, capturing an untapped wholesale market for our multiple grades of loose gemstones. While we continue to make capital investments to transform CharlesandColvard.com into what we believe will be the best-in-class web experience, we continue to expand our product offerings to include more fashion-forward styles and larger Acadia lab-grown diamond total weights in response to consumer demand. Additionally, we received positive responses to Arcadia lab-grown diamond and precious created color assortments, which can help us to broaden our consumer appeal. Lastly, we continue to shift our moissanite assortments to leverage their value proposition against increased pricing pressure from lab-grown diamonds. On the traditional side of our business, we continue to work with our existing brick-and-mortar partners, modifying our Forever One Moissanite assortments with fresh new designs and increased carat weights to highlight the value proposition and differentiate against competitive diamond alternatives. In addition, we have introduced Arcadia lab-grown diamond-finished jewelry assortments in key markets through these brick-and-mortar partners. We believe that significant growth opportunities remain within this channel in future quarters and thus will remain top of mind to the organization. As I mentioned on our last call, we have been expanding our business to directly interface with the consumer while controlling the customer experience. To achieve this, we have built an environment to meet today's consumers with shoppable interactive live streaming on connected TV, linear broadcasting, satellite, and social media platforms like Facebook, YouTube, X, formerly Twitter, and LinkedIn with TikTok to come, allowing our consumers the ability to click and buy anywhere they see us. This initiative not only enables us to reach a broader audience, it also allows us to generate vast amounts of content supporting our social media channels and marketing efforts. We see potential for future revenue growth as we leverage these platforms to showcase our product and brands in new and exciting ways. While intended to provide an exceptional user experience, We are excited about the possibilities that lie ahead and the positive impact of this initiative on our marketing and growth trajectory. As we look ahead, while we most certainly recognize the impact of the pricing pressures and the macro elements of the economy on our business, we remain focused on cash preservation, diligence sourcing, and increased brand focus initiatives to help ensure we are all well positioned to capture greater market share. I will now turn the presentation over to Clint Peet, our CFO, to provide detailed insight into Q1's financial performance. Clint, please proceed. Thanks, Don.

Today I'll provide a summary of key financials for the first quarter ended September 30, 2023. Additional details can be found in our earnings press release that we issued this afternoon and our foreign TimQ, which we expect to follow along. Please note that all percentage comparisons to the first quarter ended September 30, 2022, unless specified otherwise. First, we will start on slide eight with the comparative analysis of the first quarter of fiscal 2024 compared to the same period one year ago. In total, net sales for Q1 2024 total $5 million versus $7.4 million, a decrease of 33%, due primarily to a changing economic environment and our declining wholesale business. Net sales for our online channel segment, which is primarily direct-to-consumer and includes CharlesMCovard.com, MoistureNetOutlet.com, CharlesMCovardDirect.com, Marketplaces, Drop Ship Retail, and other pure play outlets, total $3.9 million for the quarter, or a decrease of 19%. but now representing 79% of total net sales, up from 66% one year ago. Net sales for our traditional segment, which consists of wholesale and brick and mortar customers, totaled $1 million for the quarter, or a decrease of 59%, representing now 21% of total net sales, down from 34% of sales in the year-ago quarter. While finished jewelry net sales decreased 22% for the quarter, it represented 87% of total sales in the quarter, up from 75% of sales in the first quarter one year ago, as we further positioned ourselves in the fine jewelry market. As we mentioned in prior calls, due in part to our shift towards finished jewelry and direct-to-consumer strategies, loose jewel net sales decreased 64% for the quarter, while continuing to experience weak demand with our domestic and international distributors. Looking at sales by geography, nearly all sales in the first quarter were derived in the US, while international net sales reported in the quarter were $180,000. Moving to slide nine to discuss gross margin, we reported a gross margin of 39% versus 45% gross margin a year ago quarter, or a gross profit of $1.9 million versus $3.3 million and gross profit in the year-ago quarter. For Q1 2024, total operating expenses increased 1% from the year-ago quarter, though the marketing expenses decreased 12% to $2.7 million. Journal and administrative expenses were $1.9 million for the quarter compared to $1.4 million in the year-ago quarter, or a 31% increase. The increase in G&A for Q1 was due in large part to expenses occurred as a result of the cybersecurity matter in late Q4, totaling approximately $300,000 in the quarter. We reported a net loss for Q1 2024 of $2.5 million, or $0.08 loss per diluted share, compared with a net loss of $890,000, or $0.03 loss per diluted share in the year-ago period. The main drivers for our increased net loss were the decline in revenue and added expenses due to the cybersecurity event. Our weighted average shares outstanding on a diluted basis used in the calculation of the loss per share for the quarter were approximately 30.4 million shares for the period ended September 30, 2023, same as in the year-ago quarter. 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 $12.7 million of total cash, compared to $15.6 million at the end of the fourth quarter ended June 30, 2023. Working capital remained strong at $15.1 million. In addition, the company remained debt-free. Our cash flow used in operations was $2.7 million during the quarter. compared to $3.7 million of cash flow used in operations during the same quarter a year ago. In terms of other sources of liquidity, we have access to our $5 million cash-secured credit facility with JPMorgan Chase Bank, which was renewed for another year in June 2023. As of September 30, 2023, we have not accessed funds through our credit facility agreement. Inventory as of September 30, 2023, totaled $27 million. compared to June 30, 2023, when it totaled $26.8 million, and compared to $36.6 million at September 30, 2022, a year-over-year decrease of nearly $9.3 million due to the inventory write-down in Q4 FY2023. Bruce Jewell's inventory was $8.6 million as of September 30, 2023. compared to $9.1 million as of June 30, 2023, and compared to $16.6 million as of September 30, 2022, a year-over-year decrease, again, due to the inventory write-down referred to above. Venice Jewelry inventory was $18.4 million as of September 30, 2023, compared to $17.3 million as of June 30, 2023, and compared to $19.9 million as of September 30, 2022, The increase to June 30th is due to our preparation for the upcoming holiday season. That said, we remain focused on prudent inventory management strategies going forward. Book value per share at the end of the first quarter was $1.22 per share, sequentially lowered to Q4 2023. In summary, we remain diligent in our cash management in support of our ongoing business and technological advances towards growth initiatives and further brand awareness.