Charles & Colvard Ltd.

Good day and welcome to the Charles and Colvard third quarter fiscal year 2024 earnings call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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 in the investor relations section of the company's website at ir.charlesandcolvard.com front slash events. The company will be hosting a question and answer session at the conclusion of the prepared remarks. Should you have any questions you would 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 Mr. Don O'Connell. President and Chief Executive Officer, please go ahead.

Good afternoon, everyone, and welcome to our third quarter fiscal 2024 Financial Results Conference call. Fashion industry leaders predicted uncertainty for 2024 amid subdued economic growth, weak consumer confidence, and a persistent inflation, according to our recent McKenzie report. And Charles and Colvard continue to experience these challenges during Q3. Hearing... The global luxury group behind fashion houses such as Gucci, Alexander McQueen, and others recently reported downward pressures on their top line, citing lingering luxury buying slowdowns and sluggish market conditions. Though these trends have impacted us for the last several quarters, we remain optimistic about the company's long-term value as we've seen revenue declines shrink across sequential quarters. Overall revenue for Q3 was $5.3 million, And while down 21% compared to Q3 FY2023, that figure is a 12 basis points improvement over the Q1 FY2024 decline, and a three basis points improvement over the Q2 FY2024 decline. We believe that we continue to close the gap and make progress towards profitability. Margin erosion, however, continued during the quarter due, we believe, to the significant rise in gold pricing, greater promotional pricing pressure amid a deeply discounted retail environment driving an increased sale cadence, an increased demand for Arcadia lab-grown diamonds as a percentage of sales on charlesandcobar.com, elevated shipping costs, a disposition strategy to liquidate some obsolescence inventory, and other inflationary impacts. We are working to mitigate additional margin creep and stabilize product margins by reviewing our vendor agreements and relationships and negotiating when possible to reduce cost of goods sold, evaluating our overall product assortment, and mindfully managing our overall advertising and marketing spend. Despite the current environment, we're encouraged by the opportunities that conscious consumerism and ethical manufacturing awareness create for Charles & Colvard and our forward momentum on our strategic initiatives. Forever One, the company's cornerstone and pinnacle lab-grown Moissanite gemstone product brand, saw revenues increase 5% compared to Q3 FY2023, while Cadia lab-grown diamond sales on Charles and Colvard were up 16% compared to the year-ago quarter. We believe we're well-positioned to capitalize on increased consumer awareness of lab-grown gems, particularly Moissanite and lab-grown diamonds. as more brands and retailers continue to embrace the lab-grown movement. Prada joined LVMH brands Fred and Tag Heuer as one of the first high jewelry houses to adopt lab-grown gems, launching a collection featuring lab-grown diamonds and recycled gold last year. We feel that the wider acceptance of lab-grown diamonds and recycled metals further validates the Charles and Colvard made-not-mine story. Additionally, we've rebranded Moissanite by Charles and Colvard to our newest gem brand, Forever Bright, to further distinguish our premium Moissanite gemstones in the market. Forever Bright Moissanite will replace Moissanite by Charles and Colvard's listings on our drop, ship, and marketplace partner sites, including Macy's.com, Belk.com, Kohl's.com, Fred Meyer Jewelers.com, ShopMyExchange.com, the Army and Air Force Exchange Services online store, and others. The new Gemstone brand will also be available for purchase by approved independent jewelers and retailers on charlesandculvarddirect.com, a downstream solution for value-oriented consumers seeking quality synonymous with Charles and Culvard Moissanite at lower price points to broaden our overall reach. Inventory decreased 24% for the quarter as the company continued to refine its jewelry offerings in response to consumer preferences. On charlesandcovar.com, the company expanded engagement in fashion jewelry categories in both Forever One Moissanite and Cadia LabGround Diamond product brands during the quarter. To better penetrate the low-cost consumer market and capture additional market share, the company updated its moissaniteoutlet.com website with improved item filters for a better user experience a fresh look and feel, refreshed assortment, and increased frequency of its marketing campaigns and emails. The company continued to make significant investments in its people resources, its next-generation web platform, and its marketing and advertising assets and capabilities with what we deem to be essential for a lifestyle brand to better align with consumers in a crowded and competitive environment, keeping us top of mind with more concentrated social media campaigns refreshed evergreen assets across paid media platforms, and new brand ambassadorships, such as the recently announced strategic partnership with American actress Skylar Samuels. Erin Lim, host of E! The Rundown, donned Katie Labgrown diamonds on the red carpet for the People's Choice Awards in February. And the company's successful Valentine's Day sale comprised 52% of charlesandculvar.com's revenue for the quarter. We strategically incorporated more user-generated content this quarter as we have seen positive results from the company's paid search and paid social campaigns by implementing these new assets. In Q3, the company launched an ethical consumerism campaign across its digital marketing efforts, focusing on Charles and Colvard's Made Not Mine story. We believe our increased digital marketing efforts and e-commerce presence enable us to reach a broader audience and drive more customers online, the more places consumers can reach Charles & Colvard, the stronger the company's brand equity can become, showcasing our quality, craftsmanship, and innovation, thereby seeking to capture a greater market share. Bottom line, we believe that our marketing efforts are gaining traction. We continue to beta test our made shopping broadcast and streaming initiatives, gleaning valuable insights into a new customer base while recognizing a lift in top of funnel brand awareness. We have recently begun to scale back spending while effectively fine tuning the programming to appeal to optimal markets for our products. We look forward to updating you with further made shopping plans in more detail on future calls as we believe this network will enable us to cross more verticals beyond the jewelry and gemstone industry. As we look to hedge against the pricing pressures that continue to impact the jewelry and gemstone industry, as well as our traditional segment, we believe that the new launch of our charlesandcolvarddirect.com wholesale portal enables the company to be more competitive while incentivizing independent jewelers and retailers to buy direct in support of this initiative. We launched a trade campaign announcing Charles and Colvard Direct website with bi-weekly newsletter ads on jck.com a leading industry website publication. We partnered with JCK to send a dedicated email to more than 30,000 independent jewelers and retailers announcing Charles and Colvard Direct. We revamped the charlesandcolvarddirect.com website with updated marketing assets and simple-to-use account registration, and most recently, we issued a press release announcing the strategic shift with our traditional segment. I firmly believe while we face challenges within our industry, we are confident that our team's agility in the face of adversity will guide us towards success and growth. I will now turn the presentation over to Clint Peat, our CFO, to provide detailed insight into our financial performance during Q3. Clint, please proceed.

Thanks, Don. Today I'll provide a summary of key financials for the third quarter ended March 31, 2024. Additional details can be found in our earnings press release that we issued this afternoon and our foreign 10-Q, which we expect to follow early next week. Please note that all percentage comparisons are to the third quarter end of March 31, 2023 and less specified otherwise. First, we'll start on slide 8 with a comparative analysis of the third quarter of fiscal 2024 compared to the same period one year ago. In total, net sales for Q3 2024 totaled $5.3 million versus $6.6 million, a decrease of 21%, due primarily to the continued weak consumer competence, continued pricing pressures on the lab-grown diamond market, and the expected decline in the company's wholesale revenue as we continue to build a more robust direct-to-consumer business, and as our independent juror and retailer initiative on charlesandcoharddirect.com continues to mature. Net sales for our online channel segment, which is primarily direct to consumer and includes CharlesandCobar.com, MoistureNightOutlet.com, CharlesandCobarDirect.com, MadeShopping.com, Marketplaces, Drop Ship Retail, and other pure play outlets, totaled $4.1 million for the quarter, now representing 77% of total net sales, up 7% from a year ago. Net sales for our traditional segment, which consists of wholesale and brick and mortar customers, totaled $1.2 million for the quarter, representing now 23% of total net sales, compared to 30% of sales in the year-ago quarter. Finished jewelry net sales represent 93% of total sales in the quarter, up from 80% of sales in the third quarter one year ago. As previously mentioned, due to the company's strategic shift in its traditional segment strategies, Lucidial net sales decreased 71% for the quarter. Domestic sales in CharlesandCobar.com represented 98% of all sales in the third quarter, with international sales totaling 2%. Moving to slide 9, to discuss gross margin, we reported a gross margin at 23% versus 32% gross margin in the year-ago quarter. or a gross profit of $1.2 million versus $2.1 million in gross profit in the year-ago quarter due in large part to rising commodity prices, the company's sale cadence, and a disposition strategy to liquidate some obsolescence inventory. For Q3 2024, operating expenses increased 13% from the year-ago quarter, though the marketing expenses increased 13% to $3.7 million. This increase reflects our continuing investments in people resources, top of funnel and influencer marketing campaigns, and brand awareness initiatives that, we believe, allow us to elevate our brand's positioning. General and administrative expenses were $1.2 million for the quarter, compared to $1.1 million a year ago quarter, for a 14% increase. The increase in G&A for Q3 2024 was due in large part to increased legal fees compared to the prior year quarter. We reported a net loss for Q3 2024 of $3.6 million, or $0.12 loss per diluted share, compared with a net loss of $8.4 million, or $0.28 loss per diluted share, in the year-ago period. The main driver for our decreased net loss was the $6.3 million tax expense in the year-ago quarter driven by the establishment of a deferred tax asset valuation allowance on our net deferred tax assets. Our weighted average shares outstanding on a diluted basis used in the calculation of loss per share for the quarter were approximately 30.3 million shares for the period ended March 31st, 2024, same as in the year-ago 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 $9.2 million of total cash, compared to $11.1 million at the end of Q2. Working capital remained strong at $12.7 million. As of March 31, 2024, the company had $500,000 in short-term outstanding debt. Our cash flow used in operations was $2.1 million during the quarter. compared to $800,000 of cash flow used in operations in the same quarter a year ago. In terms of other liquidity, we have access to our $5 million cash secured credit facility with JPMorgan Chase Bank. As of March 31st, 2024, the company had $500,000 outstanding on the credit facility. Inventory as of March 31st, 2024, totaled $25.3 million, compared to June 30th, 2023, when it totaled $26.8 million, compared to $33.3 million at March 31st, 2023, a year-over-year decrease of $8 million due to the inventory write-down in Q4 FY2023. Lucid Drill's inventory was $8.2 million as of March 31st, 2024, compared to $9.1 million as of June 30th, 2023, and compared to $15.6 million as of March 31, 2023. A year-over-year decrease, again due to the inventory write-down referred to above. Finished jewelry inventory was $16.9 million as of March 31, 2024, compared to $17.3 million as of June 30, 2023, and compared to $17.4 million as of March 31, 2023. Company remains focused on prudent inventory management strategies in support of our in-stock requirements with select dropship marketplace partners. Book value per share at the end of the third quarter was $1.01 per share, trading well below market. In summary, we remain confident in our continued efforts to increase shareholder value and brand equity. With that, I'll turn it back over to Don.