Charles & Colvard Reports Third Quarter Fiscal 2020 Financial Results
- Provides Business Update Related to COVID-19 -
- Optimized Balance Sheet Provides Stability and Liquidity -
- Conference Call with Accompanying Slide Presentation
Scheduled Today at
“As the economic consequences of the pandemic unfold, we expect that consumers will continue to be cautious about buying non-essential items and that our near-term financial performance will be impacted. However, couples still get engaged, have birthdays and babies and many other reasons for buying ethically-sourced jewelry that offers exceptional quality and incredible value. As restrictions are adjusted in the coming weeks and months, we have plans in place to ramp up our operations, finished jewelry inventory, shipping and marketing capabilities,” continued
“Looking ahead, we remain optimistic about the key drivers of growth from directly targeting socially- conscious Millennials and capturing a portion of the growing global market for lab-created gemstones and jewelry. Our management team continually seeks to be proactive in planning for the future and identifying new opportunities, especially during times of significant economic and market change. As a direct-to-consumer facing brand, we actively listen to the market to understand what products we need to develop to meet customer demand. And as an e-commerce-driven business, with 59% of our sales in Third Quarter Fiscal 2020 coming from online channels, remaining ahead of technology and distribution trends is a cornerstone of our strategy, and we expect to continue to push the boundaries of the industry to remain relevant and forward-looking,” concluded
COVID-19 Business Update
Charles & Colvard has taken multiple actions designed to address the impact of the COVID-19 pandemic on the Company’s financial results, handle the global slowdown of economic activity that is expected to continue for the foreseeable future, and efficiently manage the business while accessing sufficient capital resources to maintain adequate liquidity and maximum flexibility.
- For the safety and well-being of the Company’s employees, deployed a work from home policy on
March 13, 2020for employees whose job function would allow them to work remotely;
March 27, 2020, in alignment with the mandated stay-at-home order by the State of North Carolinaand local governmental authorities, limited its distribution and fulfillment operations from its corporate headquarters and expanded the work from home policy;
- Suspended all hiring and initiated a temporary furlough of approximately 50% of the Company’s employees, starting
April 13, 2020;
- Implemented temporary salary and wage reductions for all employees, including 25% for the CEO, 15% for the CFO and COO, and a 50% reduction in fees paid to Board Directors; and
- Implemented safety, cleansing and social distancing measures at the Company’s
North Carolinaheadquarters and fulfillment center for essential employees.
The Company continues to assess the evolving environment, regulations, and restrictions. The Company is currently deploying the following actions:
- Processing online orders from the Company’s e-commerce website, drop-ship partners and marketplaces with in-stock inventory and under limited fulfillment capabilities;
- Reducing non-payroll expenses, including temporary reductions in digital advertising and marketing spending;
- Managing inventory levels by reducing supply, rebalancing existing inventory, and reducing planned future purchases to match demand;
- Participating in eligible federal government financial and tax relief programs available to businesses and employees impacted by the COVID-19 pandemic; and
- Providing an opportunity for customers and the Company to give back to the healthcare community through the Sparkle that Saves Lives program, which supports COVID-19 research.
Charles & Colvard remains committed to ensuring the well-being of employees, maintaining the high level of service customers have come to expect of Charles & Colvard, and communicating regularly with stakeholders.
Recent Corporate Highlights
- Adjusted inventory levels with the write-off of
$5.3 millionof inventory associated with the Company’s legacy silicon carbide (SiC) material;
- Expanded selection of Charles & Colvard jewelry on the transactional websites of multiple drop-ship partners;
- Received consumer validation through the biennial engagement trends survey by popular wedding site, The Knot, which listed moissanite as the most common center stone after diamond (19%), doubling in popularity since 2017; and
- Presented at multiple investor conferences, including
Planet MicroCap Showcase Virtual Investor Conference, Diamond Equity Research Virtual Emerging Growth Invitational, Spring Investor Summit Virtual Conferenceand LD Micro Virtual Conference.
Financial Summary for Third Quarter Fiscal 2020
- Net sales were
$6.5 millionfor the quarter, a decrease of 18% compared with $7.9 millionin the year-ago quarter.
- In the Online Channels segment, which consists of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, drop-ship retail and other pure-play, exclusively e-commerce outlets, net sales decreased 8% to
$3.8 million, or 59% of total net sales for the quarter, compared with $4.2 million, or 53% of total net sales in the year-ago quarter.
- In the Traditional segment, which consists of wholesale and retail customers, net sales decreased 29% to
$2.7 million, or 41% of total net sales for the quarter, compared with $3.7 million, or 47% of total net sales, in the year-ago quarter.
- Finished jewelry net sales were
$3.5 millionfor the quarter, a decrease of 12% compared with $4.0 millionin the year-ago quarter.
- Loose jewel net sales were
$3.0 millionfor the quarter, a decrease of 24% compared with $3.9 millionin the year-ago quarter.
- Cost of goods sold was
$9.2 millionfor the quarter, which included $5.3 millionrelated to the write-off of legacy material inventory, compared to $4.2 millionin the year-ago quarter.
- Operating expenses were
$3.5 millionfor the quarter, compared to $3.0 millionin the year-ago quarter.
- Net loss was
$6.2 million, or $0.21loss per diluted share for the quarter, including the impact of the write-off of legacy material inventory. This compared with net income of $814,000, or $0.04earnings per diluted share, in the year-ago quarter.
- Weighted average shares outstanding on a diluted basis were 28.7 million for the quarter, compared to 21.8 million in the year-ago quarter.
Financial Summary for the First Nine Months of Fiscal 2020
(Nine Months Ended
- Net sales were
$24.8 millionfor the nine months ended March 31, 2020, an increase of 1% compared with $24.6 millionin the year-ago period.
- In the Online Channels segment, net sales increased 7% to
$13.6 million, or 55% of total net sales, for the nine months ended March 31, 2020, compared with $12.7 million, or 52% of total net sales, in the year-ago period.
- In the Traditional segment, net sales decreased 7% to
$11.1 million, or 45% of total net sales, for the nine months ended March 31, 2020, compared with $11.9 million, or 48% of total net sales, in the year-ago period.
- Finished jewelry net sales were
$13.8 millionfor the nine months ended March 31, 2020, an increase of 18% compared with $11.7 millionin the year-ago period.
- Loose jewel net sales were
$11.0 millionfor the nine months ended March 31, 2020, a decrease of 15% compared with $12.9 millionin the year-ago period.
- Cost of goods sold was
$18.6 millionfor the nine months ended March 31, 2020, which included $5.3 millionrelated to the write-off of legacy material inventory, compared to $13.1 millionin the year-ago period.
- Operating expenses were
$11.5 millionfor the nine months ended March 31, 2020, compared to $9.4 millionin the year-ago period.
- Net loss was
$5.1 million, or $0.18loss per diluted share, for the nine months ended March 31, 2020, including the impact of the write-off of legacy material inventory. This compared with net income of $2.1 million, or $0.10per diluted share, in the year-ago period.
- Weighted average shares outstanding on a diluted basis were 28.6 million for the nine months ended
March 31, 2020, compared to 21.7 million in the year-ago period.
Cash, cash equivalents and restricted cash totaled
Investor Conference Call
Shareholders and other interested parties may participate in the upcoming investor conference call by dialing 844-875-6912 (
A replay of this conference call will be available until
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements expressing expectations regarding our future and projections relating to our products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar words, although some forward-looking statements are expressed differently.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management’s current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, the impact of the COVID-19 pandemic and related global economic condition on our business; financial condition and results from operations; our dependence on increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; the impact of the execution of our business plans on our liquidity; general economic and market conditions, including the current economic environment; intense competition in the worldwide gemstone and jewelry industry; the financial difficulties or insolvency of one or more of our major customers and their willingness and ability to market our products; certain risks due to our international operations, distribution channels and vendors; our ability to fulfill orders on a timely basis; dependence on a limited number of distributor and retail partners in our Traditional segment; dependence on our exclusive supply agreement with Cree, Inc. for the supply of our silicon carbide crystals for the foreseeable future; inaccuracies in assumptions, estimates and data we use to calculate certain of our key operating metrics; our ability to maintain compliance with The Nasdaq Stock Market’s continued listing requirements; quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; the potential impact of seasonality on our business; the impact of natural disasters and other events beyond our control on our operations; our anticipated PPP Loan, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, may not be forgiven or may be subject to challenges and investigations regarding qualification for the loan; the pricing of precious metals, which is beyond our control; our current customers’ potential perception of us as a competitor in the finished jewelry business; the impact of significant changes in e-commerce opportunities, technology, or models; the risk of a failure of our information technology infrastructure or a failure to protect confidential information against security breaches; our ability to protect our intellectual property; the potential adverse impact of negative or inaccurate information on social media; the failure to evaluate, implement, and integrate strategic opportunities; possible adverse effects of governmental regulation and oversight; and the impact of anti-takeover provisions included in our charter documents, in addition to the other risks and uncertainties described in our filings with the
Chief Financial Officer
-Financial Tables Follow-
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|Three Months Ended
||Nine Months Ended
|Costs and expenses:|
|Cost of goods sold||9,171,932||4,150,229||18,579,069||13,110,185|
|Sales and marketing||2,518,732||1,912,484||7,909,289||5,900,501|
|General and administrative||994,254||1,042,048||3,547,441||3,517,004|
|Research and development||-||-||-||1,422|
|Total costs and expenses||12,684,918||7,104,761||30,035,799||22,529,112|
|(Loss) Income from operations||(6,193,870||)||797,481||(5,277,240||)||2,107,297|
|Other income (expense):|
|Loss on foreign currency exchange||(206||)||(209||)||(1,058||)||(311||)|
|Total other income (expense)||39,103||(496||)||144,589||(1,309||)|
|(Loss) Income before income taxes||(6,154,767||)||796,985||(5,132,651||)||2,105,988|
|Income tax (expense) benefit||(493||)||17,099||(1,240||)||7,565|
|Net (loss) income||$||(6,155,260||)||$||814,084||$||(5,133,891||)||$||2,113,553|
|Net (loss) income per common share:|
|Weighted average number of shares
used in computing net (loss)
income per common share:
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|Cash and cash equivalents||$||11,869,028||$||12,465,483|
|Accounts receivable, net||1,646,429||1,962,471|
|Prepaid expenses and other assets||1,240,905||989,559|
|Total current assets||20,103,876||27,868,367|
|Property and equipment, net||1,057,375||1,026,098|
|Intangible assets, net||165,946||97,373|
|Operating lease right-of-use assets||684,039||-|
|Total long-term assets||28,314,327||23,278,014|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Operating lease liabilities||618,299||-|
|Accrued expenses and other liabilities||1,098,283||1,325,608|
|Total current liabilities||5,842,617||4,697,780|
|Noncurrent operating lease liabilities||349,424||-|
|Accrued income taxes||7,454||6,214|
|Total long-term liabilities||356,878||242,959|
|Common stock, no par value; 50,000,000 shares
authorized; 28,981,910 and 28,027,569 shares issued
and outstanding at
|Additional paid-in capital||25,635,104||24,488,147|
|Total shareholders’ equity||42,218,708||46,205,642|
|TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY||$||48,418,203||$||51,146,381|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Nine Months Ended
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Net (loss) income||$||(5,133,891||)||$||2,113,553|
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:|
|Depreciation and amortization||366,322||355,812|
|Provision for (Recovery) of uncollectible accounts||151,000||(944||)|
|Provision for sales returns||108,000||89,000|
|Provision for accounts receivable discounts||6,416||9,149|
|Changes in operating assets and liabilities:|
|Prepaid expenses and other assets, net||326,146||(1,226||)|
|Accrued income taxes||1,240||15,584|
|Accrued expenses and other liabilities||(480,075||)||716,288|
|Net cash (used in) provided by operating activities||(1,571,538||)||1,638,436|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Purchases of property and equipment||(394,825||)||(337,271||)|
|Payments for intangible assets||(71,347||)||(56,666||)|
|Net cash used in investing activities||(466,172||)||(393,937||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Issuance of common stock, net of offering costs||932,480||-|
|Stock option exercises||-||2,251|
|Net cash provided by financing activities||932,480||2,251|
|NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH||(1,105,230||)||1,246,750|
|CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD||13,006,545||3,393,186|
|CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD||$||11,901,315||$||4,639,936|
|Supplemental disclosure of cash flow information:|
|Cash paid during the period for interest
|Cash paid during the period for taxes
|Reconciliation to Condensed Consolidated Balance Sheets:
|Cash and cash equivalents
|CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Source: Charles & Colvard Ltd.