Brilliant Future AB

Ladies and gentlemen, thank you for standing by. And welcome to Brilliant Earth's third quarter fiscal 2021 earnings call. At this time, all participants are in a listening mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Alison Malkin of ICR. Thank you. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us for our third quarter fiscal year 2021 conference call. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff Kuo, our Chief Financial Officer. For this morning's call, Beth will begin with an overview of the company, our differentiation and mission, highlights of our third quarter financial and operational performance, and the drivers of our future growth. Jeff will follow with more details on our third quarter financial results and introduce our guidance. Following this, the operator will begin the Q&A session with our presenters, Beth and Jeff, available to answer the questions you have for us today. Before we start, I would like to remind you that management will make certain remarks today that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinions only as of the date of this call. and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we will discuss both GAAP and non-GAAP financial measures. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's earnings release which is available at the investor relations section of our website at investors.brilliantearth.com. A live broadcast of this call is also available at the investor relations section of our website. With that, I'll turn the call over to Beth.

Thank you, Allison. Good morning, everyone, and thank you for joining us this morning. I am delighted to speak with you today and share our record third quarter performance highlighted by strength across our financial metrics and continued progress on our long-term growth initiatives. The quarter also marked an exciting milestone in our history as we completed our IPO. I want to thank our team for their hard work and dedication. I am proud of all that we have accomplished together, and I am excited about the many opportunities that lie ahead of us in the near and long term. Before I discuss our results, for those new to Brilliant Earth, Let me first share our vision and approach to modernizing and transforming the jewelry industry. Brilliant Earth is the next generation fine jeweler for millennial and Gen Z consumers. We offer a personalized, joyful, omni-channel shopping experience with a leading e-commerce platform and 14 showrooms across the United States. And always underlying this are the mission-driven values we were founded on, our commitment to sustainability, transparency, giving back, and diversity, equity, and inclusion. We are transforming the industry with our approach and are proud to have become a global leader in ethically sourced fine jewelry. Our unique business is highly profitable and well-positioned to deliver sustained growth over the long term. Let me share why Brilliant Earth is both compelling and incredibly hard to replicate. First, the Brilliant Earth brand. We have spent over a decade building a globally recognized premium jewelry brand with an authentic ESG focus and mission-driven values. We're proud that these are the principles that we founded the company on 16 years ago. We're always reminding ourselves that this is a journey that we need to continually work towards and that our values are and always will be our North Star. Technology. We are a digital-first innovator, with a strong mindset for data analysis and technology. From the beginning, we have used data to inform our decisions, from product design and merchandising to real estate strategy to our pricing engine that enables us to maintain and grow margins. As a digital first leader for over 16 years, we've been testing, iterating, and customizing a true omnichannel customer experience. from our e-commerce platform and digital channels to our showrooms. This experience is well aligned with how today's younger consumer prefers to shop. Our high net promoter scores show that our customers love their Brilliant Earth experience and we're continually striving to make it even better. Omnichannel. Our innovative appointment-driven model allows us to curate and personalize our customers' experience in a way that truly modernizes jewelry shopping. Our showrooms have also driven transformative customer acquisition economics in the metros where we have opened them, resulting in an average 50% improvement in conversion across the entire metropolitan area within the first year after opening, increasing to an average 90% conversion uplift by year three. Design. In jewelry, product design is incredibly important. 99% of our customers tell us that design is a top priority for them. We are leaders here, with new proprietary products being constantly and rapidly introduced by our award-winning design teams, informed by deep data-driven insights about our consumers and their purchasing preferences. Supply chain. We have developed a network of strategic long-term relationships and proprietary APIs to deliver on-demand, carefully sourced, and highly customized products. Navigating the incredibly complex and opaque global jewelry industry is very challenging. It has taken us many years of investing in people, technology, processes, and relationships to be able to deliver trusted, ethically sourced products at our quality standards and in our timeframes. Our business model. Our business is asset light and capital efficient. Our customers can choose from over 150,000 natural and lab diamonds on our website and can personalize their jewelry using our create-your-own digital tools. And in contrast to traditional jewelers, we do not need to carry most of these products on our balance sheet, allowing us to remain capital efficient. And finally, we are disruptors in a large and growing industry. The jewelry industry is $300 billion globally, with more than $60 billion in the U.S., and growing at 7% per year. The industry is highly fragmented, with 65% of it made up of independents that lack the technology and resources to compete at our level, and mall operators that are faced with antiquated, inventory-heavy store formats in outdated malls with declining foot traffic. We believe that all of these competitive advantages will allow us to continue delivering strong revenue growth with robust profit margins while furthering our mission. Now, turning to third quarter results. We delivered an outstanding third quarter, highlighted by significant growth across our key financial metrics. Net sales increased 33% above last year's third quarter, driven by our showrooms and website, and across our products, including creature and diamond rings, wedding, gemstone, and anniversary rings, and fine jewelry. Our strong performance highlights Brilliant Earth's brand resonance with millennial and Gen Z consumers as we continue to gain share in the jewelry industry. Our margins were up significantly versus last year's third quarter. Gross margin increased to 50.4%, from 43.2%, and our adjusted EBITDA margins continue to be strong, growing year over year to 14.2%. Jeff, our CFO, will talk more about the drivers of this strong margin performance in a few minutes. In addition to strong top and bottom line results, we made great progress in the quarter on many of our long-term growth initiatives. We continued our omni-channel leadership, opening our new San Francisco flagship and four new showroom locations in Portland, Austin, Dallas, and Manhattan. Our openings include innovative new store formats, such as ground floor retail locations in top-tier shopping districts with other like-minded premium brands that attract a similar audience. These new store formats offer expanded browsing and retail areas for walk-ins, while continuing to serve our successful appointment-driven model and deliver highly attractive economics. The early data from these new showrooms is compelling, with a rapid acceleration in customer appointments and traffic, demonstrating strong latent demand in these markets. For our 2021 new showrooms, we have seen an average year-over-year Metro bookings growth of over 100% in the first month post-opening, This is better than the historical 80% first year uplift that we had previously seen with new showroom openings. In addition, the conversion uplift for digital traffic across these entire metro areas is similar or better than our strong historically demonstrated results. This consistent, powerful synergy between our stores and e-commerce reinforces our conviction in our omni-channel strategy. We also expanded our product offerings. We introduced a record number of collections in Create Your Own Diamond Rings, Fine Jewelry, and other products. As just a few examples, our Ensemble Design Collection reimagines classic bridal trends for engagement rings. Our Fashion Rings Collection builds on our strong foundation in ring design. And our fine jewelry collections highlight key trends like yellow golden pearls and include new products that can be personalized, like our Zodiac pendants, engraveables, and create-your-own birthstone jewelry. We're so excited about all of these beautiful collections. You can see a few of them highlighted in the presentation materials for today's call. Consumers are increasingly turning to Brilliant Earth for design-driven, Premium fine jewelry with meaning. And in Q3, our fine jewelry products continue to experience rapid growth. While still a relatively small part of our business today, we see long-term opportunities to significantly grow our fine jewelry business, which we expect will increase repeat purchase frequency and drive higher customer lifetime value. Data-driven agile product development is a core strength for us. and we believe this strength in developing, merchandising, and selling compelling new design collections, as well as our strong customer relationships and brand affinity, will drive our continued success in the fine jewelry space. We are supporting the launch of these new products with enhanced digital experiences to make shopping with us even more seamless, engaging, and personalized. In time for the holidays, we have launched a new digital gifting experience featuring new ways to shop our assortment of fine jewelry. We also launched our ring stacking visualization tool, which allows customers to mix and match styles and products in myriad different ways and to see how those styles look together. Our customers love it. And we continually invest in improving what we believe are already best-in-class digital capabilities and a truly seamless omnichannel customer experience. For example... We recently launched a new virtual showroom, which allows consumers to see the same curated selection of products online that they saw in their visit to our showroom, along with personalized recommendations based on their specific preferences and shopping history. It's an incredible example of how our omnichannel model really does deliver an elevated, customized shopping experience for our customers wherever and however they prefer to shop. Continued ESG leadership. ESG has been at our core before the acronym ESG went mainstream, and we strive for continuous improvement in this area. In the third quarter, we achieved several milestones that demonstrate our continued commitment to ESG leadership. We created and funded the Brillianter Foundation with $1 million to provide long-term support for nonprofit organizations aligned with social and environmental causes that we championed. One organization we have been proud to support is Pure Earth, which provides artisanal gold miners with training in mercury-free mining methods. We also introduced our new FairMind jewelry collection as part of our mission to support development efforts in artisanal gold mining cooperatives. We have significantly expanded the number of blockchain-enabled diamonds on our site to more than 10,000. We continue to be a leading retailer of blockchain-enabled diamonds at scale. offering consumers a high level of transparency into the journey of their diamonds. Finally, we recently completed an audit of the recycled gold and silver content in our jewelry, which confirmed that over 90% of the metal content in our gold and silver jewelry is recycled. We're proud of this industry-leading accomplishment. On the corporate side, we successfully completed our IPO in September, which will be instrumental in providing future access to capital and attracting and retaining talent, and elevating the company's visibility and brand awareness. Overall, I am extremely proud of our passionate and dedicated team. We accomplished and exceeded many of our ambitious goals for the third quarter, and we are well-positioned to drive many more successes in the fourth quarter and beyond. And now, I would like to turn the call over to Jeff to review our financials in more detail and introduce our outlook for 2021.