Brilliant Future AB

Ladies and gentlemen, thank you for standing by and welcome to Brilliant Third's fourth quarter and fiscal year 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker 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 Allison Malkin of ICR. Thank you, and please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2021 conference call. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff Quo, 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 fourth quarter and fiscal year financial and operational performance, and the drivers of our future growth. Jeff will follow with more details on our fourth quarter and fiscal year 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 the 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.brillionaire.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.

Hello, everyone, and thank you for joining us today. The fourth quarter represented an excellent finish to a strong year of growth at Brilliant Earth, highlighted by better-than-expected performance across our key financial metrics, surpassing the outlook we introduced on our third quarter earnings call last November. We believe this reflects the continued resonance and growing embrace of our brand with millennial and Gen Z consumers. It also further reinforces key tenets of our story – that Brilliant Earth is a global leader in jewelry, we're successfully executing our strategy to transform and modernize the jewelry industry, and our data-driven, asset-like business model is a huge competitive and financial advantage. As we look ahead, we see tremendous runway to build upon our competitive advantages in design, supply chain, and technology. and grow our digitally native omnichannel presence as the next generation fine jeweler for millennial and Gen Z consumers. Our confidence is grounded in the increasing strength of our brand, the power of our model to drive growth, and our 16-year track record through various macro environments. For today's call, our CFO, Jeff Kuo, and I would like to provide you with highlights of our fourth quarter and fiscal year performance, and then review the priorities we have set for the business as we begin 2022. For the fourth quarter, net sales were 121.9 million, representing our highest ever quarterly sales performance, increasing 38% from Q4 last year and up 93% from Q4 2019. Gross margin expanded 407 basis points to 51.1%, and Adjusted EBITDA was 15.9 million, or 13.1% of net sales. For the 2021 year, net sales were 380.2 million, a 51% increase from 2020 and up 89% from 2019. Gross margin expanded 470 basis points to 49.3%, And adjusted EBITDA rose 83.4% to over $50 million, with a margin of 13.3%. Before Jeff dives into the results further, I want to share my perspective on the year and to give you a glimpse into our plans to continue driving strong brand, revenue, and profit growth in the coming year. 2021 was an incredible year for Brilliant Earth, and today's results reflect the talent and commitment of our extraordinary team. I'm very proud of what we accomplished this year. Together, we marked several noteworthy accomplishments. First, the brand. Our fast-growing revenue through the year reflects market share gains in the $280 billion global jewelry industry. We experienced significant growth across our product assortment, in our showrooms, and on our website as more consumers both discovered and fell in love with Brilliant Earth. We are continuing to gain share and establish category leadership for a younger audience who increasingly recognizes that the Brilliant Earth brand meets and exceeds their expectations for beauty, quality, and responsibility without compromise. And they share our commitments to sustainability, transparency, giving back, and inclusion. Second, the experience. We are reinventing retail by creating a joyful, omni-channel, experiential approach that fuels increased demand. We're very pleased that our showroom strategy continues to enhance our already strong results and during the year surpass our high expectations across markets and formats. We substantially expanded our retail presence with the opening of six showrooms during the year in Seattle, Portland, Austin, Dallas, New York, and Scottsdale. To end the year with 15 locations, initial indications of performance in our newly launched showrooms are even stronger than our past. In fact, new showrooms are driving a higher average uplift in bookings growth within the metro market than prior showrooms. As we have executed our strategy, we've experimented with and refined our formats to continuously elevate the customer experience and to drive ROI. This iterative approach is working and is demonstrated through the strong ROI we are generating across various formats. This continued success as we have rolled out new locations reinforces our belief in the power of our showroom model. And as we anticipate consumers looking for more in-person shopping experiences ahead, we are well positioned to capitalize on this demand. Our digital experience was equally strong as we added hundreds of new industry-leading features, including further optimizing our creature and ring and jewelry experiences, executing our model of continual testing and optimization in a constantly changing e-commerce marketplace. In the fourth quarter, we continue to focus on driving lifetime value and repeat purchasing across all channels with our efforts in CRM delivering significant growth. Our focus is to constantly improve the customer experience, and as we do, we create further competitive advantage for our brand, and we support our customers in making the best-informed buying decisions. Much like when we introduced skin tone visualization to enhance customers' digital try-on experience, this quarter, using proprietary technology, we introduced industry-leading tools that provide higher resolution and photorealistic visualization for our on-site imagery. bringing the products to life for our customers. This is another great example of how we have continued to extend our digital leadership and drive substantial growth in our engagement and digital conversion rates in 2021. Finally, our agile make-to-order manufacturing model allowed us to adapt and capture additional demand during the quarter. Third, product. Our consumers look to Brilliant Earth for beautifully designed, trend-leading, distinctive, personalized products, and I'm incredibly proud of the products our team delivered this year. We saw across-the-board sales train with significant growth across our product lines from bridal to fine jewelry. By building on our trend-forward, premium, and inclusive design ethos, we are introducing new categories and releasing new collections that further strengthen our performance and showcase our design leadership. We're optimizing our proven model and using data and consumer insights to drive our assortment. And customers are responding. The Solstice Collection, an aspirational design collection of bridal and fine jewelry that includes price points up to $100,000. Expanded assortment of men's rings, including more unique styles and create-your-own styles. We have particular strength in sales of higher price point items that cater to a higher income customer. Specifically, orders for items over $10,000 outpace the growth of the overall business. This showcases the breadth and appeal of our brand. In fine jewelry, fashion rings and vermeil are just a few great examples of us leading with key trends and demonstrating our early success in these relatively new areas. As we have broadened our assortment, it has allowed us to expand upon our existing fine jewelry pricing architecture and and to cater to a more self-purchase, trend-driven customer. As expected, expanding the assortment into trend-forward giftable items and personalized, meaningful jewelry drove strong Q4 holiday sales. We continue to see strong performance in our fine jewelry collection, and our compelling assortment serves as a foundation for continued growth this year. Finally, living our mission. During the year, we continued to live our mission and values by expanding our leadership in ESG. We are excited to have just released our inaugural ESG report, A Brilliant Future, which highlights our continued commitments to sustainability, transparency, compassion, and inclusion. Among a few of the initiatives we completed were Our FairMind gold collection, which reinforces our commitment to mission-driven products and our commitment to supporting the development efforts in our traditional gold mining. The collection showcases our leadership in transparency and sustainability, and consumers loved it, making this one of our most successful new releases. We continue to demonstrate our commitment to sustainability and extend our industry leadership in transparency and providing visibility into our supply chains, by offering beyond-conflict-free diamonds and recycled precious metals. ESG is more than a series of initiatives. It is embedded in everything we do. It is a founding principle of our company and is important to our culture, our community, and our customers, and is certainly one of the reasons we attract and retain enormously talented and committed people to our company. With all of these accomplishments, we again delivered profitable, sustainable growth, We expanded our 2021 gross margin by 470 basis points year over year to 49.3%, and the fourth quarter saw a gross margin of 51.1%. We saw expansion in margin across our product lines, reflecting the strength of our brand and product assortment, the effectiveness of our pricing optimization tools, vendor negotiation and distribution, and favorable mix shifts, including toward Bind Jewelry. Jeff will talk more about this, so I'll simply say that we're pleased that our thoughtful investments to drive both top and bottom line growth delivered record EBITDA. Fiscal year 2022 priorities. As pleased as we are with our performance in 2021, we're intently focused on continuing our positive momentum into fiscal 2022. We're off to a strong start, and we are confident that as we continue to execute our we are poised to deliver another year of significant growth. Looking ahead, 2022 will bring U.S. showroom expansion. We will continue our showroom rollout into additional metro areas to broaden our omni-channel reach, with our next showroom scheduled soon in Bethesda, our second showroom in the D.C. metro area. We have a line of sight to approximately double our number of showroom leases this year. As we do, we will continue to balance our openings in existing and new markets with a mix of ground floor and upper floor locations, with a sharp focus on delivering ROI across every format. As we expand, our aim is to make it even easier and more enjoyable for customers, both couples and individuals, to shop with us in a seamless, frictionless, omnichannel experience. enhancing and driving awareness and connection to the Brilliant Earth brand. We believe there is significant opportunity to continue to elevate the brand by reaching broader audiences through multi-channel marketing approaches. In 2022, we will continue to build enhanced digital experiences, to invest in product visualization and imagery, and to drive meaningful partnerships and influencer relationships. Coupling all of this with our continued leadership across organic social platforms, we will continue to drive engagement and loyalty to the Brilliant Earth brand. We will continue to introduce new collections, including with partners, to showcase our design leadership. Our recent introductions of the Avant Premier Decoray Collection, an exclusive design collaboration, and the Solstice Collection are each performing well and reinforce that by leading with design, we are increasingly becoming an aspirational brand offering distinctively designed styles for younger consumers. We will continue to utilize our test and learn process to adapt and refine our assortment, introduce new designs quickly, and to provide a curated offering of highly sought-after products. And we will capitalize on the opportunity in fine jewelry with a trend-forward and relevant product assortment as we leverage existing customer relationships and create new ones, all while continuing to build our brand as the premier jewelry destination. Finally, we will continue to both leverage and optimize our innovative business model to fuel our expanding scale, competitive advantage, and capital efficiency. You will see us continue to invest in data and technology, as we always have, to enhance the efficiency of our operations, deepen integrations with our suppliers, and enable additional analytical insights. These investments will be made using our test and learn approach and with a disciplined ROI focus. Before I conclude my remarks, I would also like to comment on the recent events in Ukraine. Like so many, we are distressed and concerned for the people of Ukraine and are supporting relief efforts through the Brilliant Earth Foundation. Earlier this quarter, ahead of our peers, we removed all Russian origin stones from our website. Given our extensive, diverse supply chain, as of today, we have not had any material impact on our financial performance as a result of this change. and we do not expect it to have a material impact on our performance for the full year. Our hearts go out to all of those who have been so deeply affected in Ukraine, and we are hoping for a swift resolution to the conflict. I conclude my remarks by reiterating how extremely pleased we are with our fourth quarter and fifth year performance, and how confident we are that the best is yet to come for Brilliant Earth. Going forward, our success will continue to be built and our ability to maximize the many advantages we believe we possess. We're competing in a highly fragmented and growing global category, and the Brilliant Earth brand is growing in awareness and resonance as the leading jeweler for today's consumer. We are an agile business and are able to swiftly adapt to changing trends, having spent more than a decade developing and perfecting our data-driven test and learn approach to premium jewelry. We operate an asset-like model that is not burdened by holding excess inventory and instead allows data to inform our sourcing, buying, and pricing decisions to optimize margins. An omnichannel model that provides a seamless shopping experience for consumers. We believe one of these attributes alone is highly differentiated, but their combination gives us a powerful operating platform from which to continue to execute our vision. I want to thank my team at Brilliant Earth for their contributions to our outstanding year. I am very proud of your commitment and dedication to our mission. And now, I would like to turn over the call to Jeff Kuo, our Chief Financial Officer.