Ladies and gentlemen, thank you for standing by, and welcome to the Brilliant Earth first quarter 2022 earnings conference call. [Operator instructions] Please be advised that today’s conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker for today, Allison Malkin, you may begin..

Thank you. Good afternoon, everyone. Thank you for joining us for our first-quarter fiscal year 2022 conference call. Joining me today are Beth Gerstein, our chief executive officer; and Jeff Kuo, our chief financial officer.

For today’s call, Beth will begin with highlights of our first-quarter financial and operational performance and the drivers of our future growth. Jeff will follow with more details on our first quarter financial results and 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 future 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.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..

the Wildflower Collection, a unique design collection that is inspired by a walk through a field of wildflowers; the Greenland Ruby collection, the stunning and ethically mined rubies from Greenland adhere to sustainable practices and are traceable from mine to market; Virtu Gems, a new line that supports local economies and fair trade markets and extends our blockchain technology into gemstones; and the Tacori Exclusive Collection, which we launched in January, has been very strongly received and is outperforming our expectations.

Each of these collections reflect a curated and unique assortment in bridal, gemstones and fine jewelry. As pleased as we are with consumers’ responses to our new beautiful products, we’re equally gratified that Brilliant Earth’s uncompromising industry-leading ESG values are consistently recognized and treasured by our customers.

As a data-driven company, that our ongoing investments in data and technology are critical contributors to our current and future growth. This quarter was no different as we launched enhancements to our digital shopping experience for fine jewelry, improving customer engagement and driving significant improvement in conversion.

We also executed initiatives to enhance our client selling experiences, which enhanced our ability to personalize our service and support our customers through their shopping experience. Our ability to optimize data to refine and deepen insights to better serve our customers is a key driver to building our brand and growing lifetime value.

As pleased as we are with our start to the year, our focus is forward. And as I said upfront, we understand the importance of staying focused on what we can control in an uncertain global environment.

While we have experienced more geopolitical and macroeconomic headwinds in recent weeks than we could have predicted causing us to moderate our near-term growth outlook.

you can expect that we will continue to prudently and strategically invest to grow the Brilliant Earth brand and business to expand our showroom and omnichannel footprint and to optimize our huge financial and operating advantage with our asset-light, agile and highly efficient business model, all with an eye on delivering profitable and sustainable near- and long-term growth and on extending our lead as a transformative, modern fine jeweler for today’s consumer.

We look forward to sharing our journey with you. Thank you. Here’s Jeff..

gross margin expansion, improved effectiveness of our marketing spend and leverage in our G&A expenses. As we look ahead to the balance of the year, we know that the environment in which we’re operating today has changed significantly from when we reported our full year just two months ago.

Numerous factors such as the conflict in Ukraine and inflationary pressure have introduced greater uncertainty in the macroeconomic outlook. We have incorporated these geopolitical and macroeconomic factors into our outlook for Q2 and for the full year 2022.

And while we continue to see strong overall demand, we have seen a more moderated rate of growth, which is most notable in e-commerce. The power of our omnichannel model is demonstrated in the strong performance of our showrooms. And as we continue to open new showrooms, they will be increasingly additive to our growth in the near and long-term.

As a result, for the full year 2022, we are adjusting our outlook for net sales to a projected range of $450 million to $470 million. This represents 18% to 24% growth versus fiscal year 2021 in an incredibly challenging macro environment and a three-year CAGR of 31% to 33%.

Based on the continuing strength of our gross margin, where we expect modest year-over-year improvements for the balance of the year and our prudent management of investments in spending, but reflecting some of the global macroeconomic uncertainty, we are revising our outlook for full year adjusted EBITDA to $30 million to $40 million or an approximately 7% to 9% adjusted EBITDA margin.

For the second quarter, we anticipate revenue in the range of $103 million to $109 million or a range of 12% to 18% growth versus fiscal year 2021 and a three-year CAGR of 29% to 31%, reflecting the moderating conditions I just mentioned as well as a higher comparison in Q2 last year.

Given the sustained strength of our gross margin, the timing and execution of our new showroom openings and the continued growth in our brand reach, we anticipate delivering Q2 adjusted EBITDA of $5 million to $8 million or an approximately 5% to 7% adjusted EBITDA margin.

As I said last quarter, we anticipated fluctuations along our path to our long-term targets as we know there are always puts and takes to manage. While there are geopolitical and macroeconomic conditions affecting our current business, our confidence in and commitment to the initiatives we’ve laid out remains unchanged.

We remain focused on executing our initiatives to build and scale our business and brand.

We believe that our agile, asset-light business model, combined with our ability to dynamically manage within a changing environment is a tremendous financial and competitive advantage, and we are confident in both our long-term growth opportunity as well as our collective ability to realize it. With that, we’ll be happy to take your questions..

Regarding your new guidance, it does assume lower flow-through versus prior guidance. Could you help us understand some of the deltas between your current and prior guidance? Also, would love your thoughts as a follow-up on categories and categories relative to where you’re seeing more muted demand versus others? That would be helpful..

Great. I can start with the latter part of your question. What we’ve seen is, generally speaking, as the macroeconomic challenges have become a little bit more certain, we do see more moderated growth more generally, I would say, and still expecting very strong growth, but that uncertainty has, I think, created a little bit more moderation.

And as it relates to us, specifically, keep in mind, we do have higher price points. And so, as a more considered purchase, it does end up taking a little bit longer in time of uncertainty for customers to actually make their decisions.

And that ends up extending the overall sales cycle, which has created a little bit of a slower ramp in terms of the overall revenue growth. So category specifically, I would say, it’s more general across the different categories, but still seeing very strong growth between 18% to 24% over the year.

And then, Jeff, do you want to take the beginning part about the flow through?.

Sure, be glad to. So while there is some recent consumer uncertainty, given the macroeconomic and geopolitical conditions, there aren’t any changes to the fundamentals of our business.

And given the success that we’ve had with our strategic initiatives such as driving brand awareness, the success of our showrooms and how they’re outperforming our expectations and the strength of fine jewelry, we see a unique opportunity to invest and gain share even in this environment.

And the strength of our business gives us the confidence to continue to invest to grow and gain share. And then, we do continue, as I described earlier, to work toward our long-term EBITDA target of 15% to 20% plus as our long-term EBITDA target. But we do have opportunities to invest in a really strong position to invest from..

I would just add to that, like we’re looking at the longer term here. We are positioning ourselves to be the category leader. And as we’ve seen success with our brand-building efforts through our showrooms or jewelry, I think really capitalizing on our momentum is important..

Next question comes from the line of Dana Telsey with Telsey Advisory Group..

Okay.

And Jeff, I want to hear a little bit about -- more about what you saw in terms of a change in consumer patterns, whether it’s on fine jewelry that you saw and how you see the planning of events differing in consumer spending patterns going forward? And then also, as you think about expenses, any adjustments to expenses that you’re making as we go through this time period?.

Yes. In terms of overall changes, I think what I mentioned before is really, I think, the biggest component is just that sales cycle has just been a little bit more extended. Overall, in more uncertain times, we continue to see engagements and weddings.

People do tend to invest more in personal relationships, and we are continuing to see that strong growth. I think, the omnichannel strategy we have, I think, sets us up very well in terms of different patterns because we’re really catering to how and when consumers want to shop.

So it’s that synergy between digital and showroom that I think is really powerful and why we think omnichannel is such an effective strategy when you have changing patterns with consumer over time.

Jeff, do you want to take the second part?.

Sure. Would be glad to. So regarding expenses and how we’re thinking about that, I think I would go back to how we are really continuing to invest to be that for long-term leadership in the industry and building on the strength that we’ve seen and the strength of our strategic initiatives like showrooms, brand awareness, fine jewelry.

And we think that this really is a unique opportunity to invest and to continue to drive our growth. As always, we will be prudent and strategic in terms of how we are making those investments and always keep a lens of working toward our long-term profitability targets of that 15% to 20% plus EBITDA..

[Operator instructions] Our next question comes from the line of Matthew Boss with J.P. Morgan..

Great.

So, Beth, maybe as we think about the more muted top line demand that you’ve seen more recently, how are you thinking about the potential duration or just any shocks to compare what you’re seeing today if we look back historically or how resilient do you think the fine jewelry category is in more dynamic backdrops?.

Yes. Well, I would say -- answer that with a few different comments. One is, I think, the guidance that we have just assumes that the current outlook continues for the rest of the year. And part of that is, we’re trying to be prudent and conservative in how we’re thinking about the business.

Two, what I’d say is that as we see increasing demand because of our asset-light model, we’re able to respond very quickly, which I think just gives us a competitive advantage. As it relates to the overall category, we do find that in more uncertain times that the fine jewelry category does remain quite strong.

In times of inflation, consumers see it as a physical goods, it’s more tangible, it has inherent value, also love persist. So engagements and weddings continue to happen in times of recession. So we do find it to be much more resilient in times of uncertainty, and that’s what we’ve seen in previous times.

I think also, it gives us the ability just to continue to gain market share, which we’ve done every year since we were founded..

Great. And then, maybe, Jeff, on the bottom line, could you help us break down the first quarter gross margin beat.

I think it was over 400 basis points as we think about procurement pricing, shipping and then just any puts and takes to consider on a gross margin for the remainder of the year?.

Sure. So for gross margin, the drivers of the performance in Q1 were similar to those that we’ve seen in prior quarters. So it starts with the premium nature of our brand. The strong resonance that, that has with consumers, the premium nature of our products, which allows us to have healthy and strong gross margins.

We continue, as we have in past quarters, to rely on our price optimization engine and to refine that and build that to drive both top line as well as the gross margin targets that we’re working toward as well as procurement efficiencies as we look at our supply chain and how do we purchase and look for optimization opportunities there.

Something that is a growing part as we look more toward the longer term is that fine jewelry will be an increasing contributor as it becomes a bigger and bigger part of our business, and that is a higher-margin part of the business. So we’re excited to see that, that continues to be a strong outperformer to drive healthy gross margin.

As I mentioned, for the balance of the year, we are projecting modest gross margin improvements as we continue to pull some of these same levers..

Great. Best of luck..

Thank you. At this time, I would now like to turn the call back over to Beth for closing remarks..

Thank you, everyone. We appreciate all of your time and are really pleased with our Q1 results, and we look forward to talking to you in the next quarter..

Ladies and gentlemen this concludes today’s conference call. Thank you for your participation. You may disconnect..