Good day, and welcome to the Charles & Colvard Q4 and Full Fiscal Year 2021 Earnings Conference Call and Webcast.

[Operator Instructions] 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 strategy.

Expressions which identify forward-looking statements speak only as of the date the statement is made. These 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 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 @ir.charlesandcolvard.com/event. The company will be hosting a Q&A session at the conclusion of the prepared remarks. Should you have questions you'd like to submit? Please email ir@charlesandcolvard.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..

Thank you, Sarah. Welcome, everyone. Good afternoon. Today we're going to report Charles & Colvard's fourth quarter and full fiscal 2021 results. I'm pleased to share with you that the Company continues to execute on all its initiatives.

And I'm extremely proud of the progress our team has made and their dedication and hard work that enabled us to complete what we deemed to be an incredible year for Charles & Colvard that resulted in some of the highest performance in company history. I'd like to highlight some key accomplishments for the quarter in the fiscal year.

Our revenue for the quarter was $9.7 million, which is 120% increase year-over-year, and 28% increase over Q4 fiscal year 2019. Additionally, income from operations was $1.1 million for the quarter. Our gross margins remained strong at 45% for the quarter, and 47% for the fiscal year 2021.

It's also important to note that we recorded a tax benefit in the amount of approximately $6.3 million in the quarter driven by the reduction of our Tax Valuation allowance due to delivering three years worth of cumulative positive taxable income as well as projecting future taxable earnings. Further details can be found in our 10-K.

These factors together with our PPP loan forgiveness of approximately $1 million resulted in $0.27 earnings per diluted share for the quarter and $0.42 earnings per diluted share for the fiscal year. For fiscal year 2021, our revenue was $39.2 million or an increase of 34% over last year, and an increase of 22% over fiscal year 2019.

Our income from operations for the full fiscal year ending June 30th was $5.5 million. Our cash position increased by 47% to $21.4 million from $14.6 million for the same period last year. Our working capital increased by 73% to $30.1 million from $17.4 million, which is a 30% increase from the fiscal year 2019.

I believe it's fair to say we've reached a new level of accomplishment this year and this past year as a company and as a team. I'll share additional highlights and speak about the road ahead after Clint Pete, our CFO unwraps these numbers in greater detail..

Thanks, Don. Today, I'll provide a summary of key financials for fourth quarter and fiscal year ended June 30, 2021. Additional detail can be found in our earnings press release that we issued this afternoon and our Form 10-K which we expect to file tomorrow.

Please note that all percentages comparisons are to the year ago quarter and prior fiscal year end unless otherwise specified. We will start with Q4 2021 revenue, and total net sales for Q4 2021 totaled $9.7 million versus $4.4 million or an increase of 120%.

Net sales for Online Channels segment which includes charlesandcolvard.com, moissaniteoutlet.com, market places, drop-ship retail and other pure-play outlets total $5.6 million for the quarter or an increase of 86% representing 57% of total net sales. Net sales from our transactional website, charlesandcolvard.com increased by 111%.

Net sales for our Traditional segment which consists of wholesale and brick-and-mortar customers total $4.1 million for the quarter, or an increase of 189% representing 43% of total net sales.

Finished jewelry net sales increased 86% for the quarter, as we continue to see strong demand for our premium jewelry on our online direct-to-consumer channels and with our brick-and-mortar retail customers. This jewel net sale increased to 190% for the quarter. This is due to increased demand from our domestic and international distributors.

Overall, international net sales increased 102% while cross border trade sales on our transactional website, charlesandcolvard.com increased 100%. Moving on, we delivered a gross margin of 45% versus 41% in the year ago quarter.

For Q4 2021, total operating expenses increased 16%, representing 34% of total net sales compared to 64% in the year ago quarter. Sales and marketing expenses increased 39% to $2.1 million, and G&A expenses decreased 11% to $1.2 million for the quarter.

We reported net income for Q4 2021 of $8.4 million or $0.27 per diluted share, compared with a net loss of approximately $1 million or loss of $0.04 per diluted share in the year ago period. Included in our net income for the quarter are two significant transactions.

First, we realized an income tax benefit of $6.3 million driven by the release of our deferred tax valuation allowance on our net operating loss carry forwards.

As we determined that our expectation of future taxable income in upcoming tax years would be sufficient to result in full utilization of these carry forwards and other deferred tax assets that can realize the $974,000 gain on extinguishment of debt related to our PPP loan, which was forgiven by the SBA in full in June 2021.

Our weighted average shares outstanding using the calculation of diluted earnings per share for the quarter was approximately 31.1 million shares at June 30 2021 compared to 28.7 million shares at June 30, 2020. For the full fiscal year of 2021, we reported $39.2 million in net sales, a 34% increase from fiscal year 2020.

There are two noteworthy highlights for the full year that I'd like to draw your attention to. First in our Online Channels segment. Net sales for the fiscal year 2021 increased 40% to $23.2 million, or 59% of total net sales, highlighting our growth as an e-commerce driven business.

Second, Finished jewelry net sales for the fiscal year 2021 increased 45% to $24.4 million, or 62% of net sales, up from 57% of total net sales in fiscal 2020 further defining ourselves as a global fine jewelry company. Now let's move on to a snapshot of our balance sheet.

Our liquidity and capital remain solid as we ended the quarter with $21.4 million of total cash compared to $14.6 million at our last fiscal year ended June 30, 2020. Our cash flow from operations was $1.8 million for the quarter compared to the same in the year ago quarter.

Our working capital at June 30, increased from June 30, 2020 by $12.7 million to $30.1 million. In terms of other sources of liquidity, we have access to our new $5 million cash secured credit facility with JP Morgan Chase Bank, which we executed on July 12, 2021 following the termination of our prior credit facility with White Commercial Finance.

As of June 30, 2021 and through today, we have not access funds to either of these credit facility agreements. Inventory as of June 30, 2021 total $29.2 million compared to $30.6 million as of June 30, 2020. This jeweled inventory was $16.8 million, compared to $20.8 million as of June 30, 2020.

Finished jewelry inventory was $12.3 million, compared to $9.7 million as of June 30, 2020 to maintain stock levels for our growing demand requirements. In conclusion, we are proud of the results we delivered. With that, I'll turn the call back over to Don..

Thanks Clint. We appreciate that. Let's review how we executed on the strategic initiatives we set forth for our fiscal 2021. Operationally in Q4, we continue to scale the business to support the ongoing growth of their consumer demand for our product and our product brands.

This led to the completion of what we believe to be a successful Mother's Day season for the company, increasing sales by 123% over the same Mother's Day campaign period in 2020. Beyond Mother's Day, we continue to see significant top line growth throughout the quarter, resulting in a 53% increase in overall direct-to-consumer shipments.

Also in Q4, we receive forgiveness of that PPP, Paycheck Protection Program. In the beginning of July, we entered into a strategic banking relationship with JP Morgan Chase, a global leader in financial services.

Within sales and marketing last quarter, we were able to define and implement innovative technology in support of our digital streaming shoppable commerce initiatives.

And going forward this allows us to connect with our customers in a one to one and one to many formats, thereby enhancing the customer experience to meet and engage with our customers more intimately and in real time. Now we can truly be everywhere they choose to transact.

Our sales and marketing team continue to create and launch new content across multiple channels and engage with new strategic partners for digital content collaboration. We also revamped our Amazon online store presence to optimize our customer's Amazon shopping experience and expanded our Macy's in-store assortment to nearly 50 styles.

From our product development standpoint, during the quarter, we introduced new Caydia Lab grown diamond cuts such as Emerald and Princess rounding out our lab grown diamond offering. Additionally, we launched our new patented signature collection styles with Forever One moissanite cuts such as emerald elongated cushion and radiant.

Collectively, this helped fuel our significant increase in our finished jewelry net sales, which were $5.6 million for the quarter, up 86% over the prior year quarter. More specifically, we saw a 242% increase in our patented signature collection sales over the prior quarter year quarter. And an 81% increase for the full fiscal year.

We believe the increasing popularity of our proprietary signature styles bolsters our brand equity and further differentiates our moissanite and lab grown diamond products from competitors in the fine jewelry space. Our moissanite business grew by 86% over the year ago quarter, and Caydia Lab grown diamond business grew nearly 20% over Q3 fiscal '21.

We believe that our Forever One moissanite remains the pinnacle product brand and our demand continues to increase. This supports our belief that we're not experiencing cannibalization, but are increasing our overall market share by adding new products to the mix.

Now that we reflected upon the quarter, let's take a look back at some of the notable accomplishments throughout the year. To recap, we renegotiate our exclusive supply agreement with Cree. We deepened our strategic partnership with Macy's, launching an in-store program in the top 50 doors, and expanding the assortment in time for holiday.

We launched our Caydia Lab grown diamond product brand, giving our customers that choice in premium lab grown gems. We transformed our Charles & Colvard website, thereby enhancing the customer experience by giving consumers the choice between premium moissanite and lab grown diamonds at the click of a button.

We completely redesigned our packaging to be recycled, biodegradable, and better aligned with our brand values. We executed on a strong holiday season, we launched an additional property in moissaniteoutlet.com to position ourselves as our primary moissanite provider across all demographics. We were relisted on the Russell Microcap Index.

All of which helped us deliver what we believe to be a strong $39.2 million in revenue, which is a $10 million increase in revenue over fiscal 2020. And a more than 300% increase in the share price year-over-year. So let's take a look back at what's next. Let's talk about what's next and how we're planning to remain on the strong growth trajectory.

Going forward, we plan to continue and expand our brand presence, enhance customer engagement, grow our product offerings and bolster our top line growth. Expansion is crucial to our overall success in 2022. What does that mean? To further expand our brand presence, we will continue our quest to reach all customers where they're shopping.

In order to do this, we will explore our very own signature stores in order to showcase our executive plan and signature collection styles and showcase them exclusively which allow the consumers who want to see, touch and feel our products in person. This we believe is a natural progression for omni channel strategy.

We plan to expand our content production capabilities by building out the state of the art studio within our existing RTP headquarters that will provide the ideal setting for live streaming on our website as well as other media channels. A key element of accomplishing this is our implementation of Bambuser live streaming platform.

This innovative technology allows us to host live shows and events for special initiatives and introduce new product collections. We're excited to join Bambuser's list of esteemed brands such as LVMH, a leading luxury products group. This will add a new styles, new sales, and also additional channels for our direct-to-consumer business.

And encourage more personal interaction with our online customers to help develop loyal relationships while also giving us a platform to explore celebrity and influencer types' engagement. We believe this will increase our brand awareness in a meaningful way.

As you can see, we seek to meet customers on all fronts and deepen our relationships and our consumer engagement. As far as product development, we intend to explore opportunities to bring forward new product offerings that align with our brand and core values.

Just as we did this year with Caydia Lab grown diamonds, we plan to come forward with new proprietary designs and product categories to further meet the needs of the new existing customers and existing customers. We will also continue to focus on using recycled metals and sustainable practices in order to serve today's conscientious customer.

In order to grow, we will continue to expand our technology to make informed data driven decisions across all areas of the business. And lastly, we will continue to be as transparent as possible and engage with our shareholders to help create continued shareholder value.

The team and I are fully dedicated to our continued efforts to execute on our strategic initiatives in order to realize the full potential of this business. With that, I'd like to turn it back over the operator and open the lines for your questions..

[Operator Instructions] Our first question comes from Mac Rondo with Roth Capital..

Hey guys, this is Mike Zabran on for Mac. Congrats on the quarter. Just wanted to start and could you guys expand upon the performance of Caydia thus far and more specifically give some color on how it's contributed to online sales..

Yes. So Caydia right now is only offered through our online charlesandcolvard.com. So specifically related to that, we've experienced up to 20% increase over Q3, we don't really go into kind of further detail, but it is a growing business.

So if you look at the kind of elevation of our overall revenue, and increase in revenue from $8.4 million to $9.7 million in this quarter comparative results, the moissanite is also growing as well. And then Caydia represented 20% increase from there.

We basically have started to expand our assortments and our collections in the Caydia space because basically, proof-of-concept is already there. We know that it's a growing sector in the marketplace and we know we need to be there. So look to us in the future to start kind of bringing forward more and more designs.

We also know that our consumer is gravitating to the signature designs and a signature collection. So look to us to also increase that in the Caydia Lab grown diamonds. And I will also add a note that the smaller diamond carat weights and the smaller accent stones in the fashion space are growing. So look to us also to increase that.

So overall an increase in their product mix and product assortment on Caydia, thus we anticipate increased revenue in the lab grown diamond through as well..

Got it, yes, that makes sense. And could you talk about where you're seeing AOV is in the online channel and trending in the current demand environment, specifically as it pertains to mix and basket size and if you can expand upon web traffic and conversion as well..

Yes, so the second part, we don't discuss the web traffic and conversion. Certainly conversion rates are very nice and strong. I know it's very subjective there to kind of look at that, just look at the kind of net income that we're making with the percentage of margin and basically the revenue. So what we're doing is working.

Yes, so on the AOV, we generally publish the AOV and talk about it right around 1,000 kind of range a little bit up, I could just tell you that we're getting a slight increase in AOV with the Caydia Lab grown diamonds is starting to mix as a relates to our charlesandcolvard.com website.

So and that's specific to that, because we have two sectors on our traditional side, it's a different AOV versus our online direct-to-consumer..

Okay. Got it.

And if I could squeeze one more in, in terms of the traditional channel, could you guys talk about sell-through at Macy's and in just general health of the inventory within that channel?.

Yes, so I can tell you that the traditional channel is really showing some really nice progress. It helped us tremendously kind of moving through and getting out of the COVID time.

And watching those channels come back online, specifically, on the Helzberg diamonds and the Macy's on the traditional side, I will tell you that on the wholesale side, it's starting to come through very nicely, I will tell you that international, we did grow on international side, but the comp to International, we're pretty limited versus kind of that COVID impact from prior.

We do have 100% increase there but the reality of that is international still remains to be kind of a factor that we kind of watch, and then look to us in the future to kind of speak to how we are addressing that and how we're going to expand that to as well and elevate that..

Our next question comes from Jason Ursaner with Bumbershoot and Holdings..

Congrats on the full year results. You guys gave a lot of details in the prepared remarks. I know you touched on various parts of this. Just trying to dig in a little more. You pre announced right prior to the JCK Conference and I think the third conference is may be right before that.

Just any major takeaways you guys could share from those in terms of how people in the industry are thinking about lab grown gems placed in the market.

Are there any specific differences you can talk about in the view for moissanite versus diamond? And then, most importantly, Charles & Colvard's place within those two markets in terms of kind of a brand of choice versus competition.

And do you feel like you're being recognized within the industry? Or if not, maybe what are people missing about the story?.

Yes, Hi, Jason, how are you doing? Yes, certainly we wanted to pre announce for JCK, we wanted to get the industry to kind of understand that Charles & Colvard is the brand of choice. Charles & Colvard is pretty much on the move. We've seen significant growth in the past year, on both sides of the house from the moissanite and the lab grown diamonds.

I can tell you that at JCK kind of the mood was very positive as far as the overall jewelry market, right. So I'm talking about even natural diamonds and lab grown diamonds and moissanite. Overall, as an industry, the jewelry industry is performing quite well.

As it relates to JCK, for us, it was more of a trade kind of awareness play to kind of make sure that our trade representatives and our distribution partners are represented. Make sure that the brand, the brand presence is there and strong. I can tell you, we came out very strong.

This JCK we had an incredible kind of position and incredible booth, my marketing and sales team did a phenomenal job in getting us ready for that. We were definitely a voice and kind of our positioning in the show has shifted and changed really towards a main aisle, which was important.

We also focused a lot of energy on the moissanite product and our Forever One brand product there. We listened to the ground and the lab grown diamonds, lab grown diamonds is certainly on the move is certainly gaining traction. There's a lot of growers, a lot of supply chain changes and transformations that are happening.

There's some consolidation that's also occurring within that space, it is going to be a very strong category for us and for the industry.

So as far as brand of choice, we'd like to believe that Charles & Colvard is making incredible strides and building that awareness and building ourselves as an industry leader in that global jewelry kind of destination. Our goal is to really just build that destination.

I did allude to the fact also, as you said within how we are going to go ahead and do that. So a lot of these streaming capabilities and capacity that we're building out is going to build further awareness further bolstering our brand of choice.

We did also just announce that we're building out within our existing facility, brick-and-mortar or a signature showroom store. So look to us to kind of talk a little bit further about that. And what does that mean, for the future of the brand of choice.

So signature Charles & Colvard stores and retail operations is something that will be kind of bringing forward and building out kind of a test case with the first one that we're talking about right here within our existing facility.

So another room for growth, another way to build that brand of choice, another way to talk to kind of the overall consumer..

Great and just the loose jewels components that was up 190% to a little over $4 million. I'm assuming it's predominantly moissanite.

But where are those gems typically landing? Is this kind of the same as in years past where those are lower quality stones that are going to finishers overseas? Or is this now more being sold to like crafts people in the US that are listing on SE and various other small competing brands, in terms of kind of your -- sale place versus direct place in the moissanite market?.

Yes, so let's just talk about it. So we do offer loose jewels at charlesandcolvard.com. So that's one place that a consumer can get it and shops.

However, our distribution partners, our large distribution partners who sell all the nation's leading independent retailers actually utilize those stones and put them into jewelry and product that makes their way throughout kind of the jewelry market.

We only sell our Forever One gemstones throughout our distribution partners who then go into the independence. As far as the lower category, in those lower grades we call legacy grades. We basically built a destination which is moissaniteoutlet.com and that's where those goods can be purchased.

And they are purchased direct from Charles & Colvard through moissaniteoutlet.com..

Our next question comes from Jeremy Blum with Private Investor. Please go ahead..

Hi, Don, and Clint, looking at your balance sheet look quite strong. I was just wondering do you have any capital plan going forward. Dividends, buybacks, mergers, growth initiatives, anything like that. .

Hey, Jeremy, so great question. I mean our certainly cash position is growing strong; we're going to continue to fund our strategic initiatives wherever they land.

So first of all, right now, there's tremendous organic growth for us between kind of the two product brands that we're bringing to market both moissanite and in diamonds, we're looking at us deploying capital where it's needed.

So, as it relates to acquisition, it's always on our mind, or things like that, or potential strategic alliances, we'll look to do that, as it relates to buybacks and stock buybacks there's different sides of the fence to believe that's a strong decision or not, we were kind of prohibited from that and precluded from that with the PPP loan now that that's been kind of taken care of, so to speak certainly that would be a consideration.

But we've got a lot of growth to do; we've got a lot of room to grow. And basically, we want to just continue to kind of look at that, right? So we're just going to look for more ways to kind of deploy that capital to grow there, can't really comment on this time.

But certainly my past lives and everything, we're always looking to grow the brand, and we're looking for that catalyst that's going to take this brand to another level. So we did kind of push forth a shelf, we did responsibly put the shelf there at $25 million shelf.

So we do have a $5 million credit facility that's in place, we've got $21.4 million in cash. And we certainly have a lot of instruments to be able to use, I would say that with the cash and the credit line were totally solid. I wouldn't unless somebody comes up with an opportunity for an acquisition, which we'll talk through that remains to be seen.

So I don't know how transparent I could be there. But that's as much as I can kind of talk through, Jeremy..

This concludes our question-and-answer session. I would like to turn the conference back for any closing remarks..

Okay, great. We appreciate all the calls today. We appreciate everybody coming online. On behalf of Charles & Colvard, I want to thank you for your continued interest and support in CTHR. Look for any news and any events coming forward through our IR at charlesandcolvard.com. Certainly all the reports and publications are there.

Again, we look forward to our next call and our next earnings and what's to come for Charles & Colvard..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..