CTHR - Earnings call transcript Q3 2020

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Operator

Good day and welcome to the Charles & Colvard Q3 Fiscal Year 2020 Earnings Call. All participants will be in listen-only mode. [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. results by materially statements. or actual forth those and contemplated in, underlying developments could from differ set Future the forward-looking

shareholders. light of any information or respect and assurance risks does consent not accurate. of authorization can offer call the solicitation In no to to of an be proxy purchase This uncertainties, earnings with that nor prove a agent will there forward-looking Company's designation constitute meeting to securities be the these a

call supporting Relations like is of is ir@charlesandcolvard.com. email ir.charlesandcolvard.com/events. a today's the available the remarks. in hosting this the being note, at conclusion recorded. Please which Accompanying slide deck, at prepared be Should is PowerPoint website Q&A submit, will the section The event would you to please session of you a have Investor Company Company's questions

to over Chief would the Executive I Please Suzanne and go Officer. turn like ahead. Miglucci, President now conference to

Suzanne Miglucci

on with financial discussion our a will our long-term Thanks plans. where and of XXXX taken remarks to begin overview COVID-XX how of our we've Charles reach third positioning our environment. steps Chief our liability, being an the for Financial by us I'll Then with attributes give through operational are short-term Clint maintain fiscal then the we’ve I'll navigate & quarter current everyone I'll Pete, the providing us Officer the you and operational close to an to financial company's overview and financial Slide for call. key to pandemic, the response outlined to steps of X, agenda our Colvard’s business begin and today. results.

the health number is the virus business environment actions hedge In our Slide manage of while the the to flexibility. management customers. this and liquidity in and of At the pandemic, on potential for of one a recessionary our safety face U.S., the onset and swift employees overall team move adequate pandemic, our and prepare maximum against impact to took of the X. designed priority efficiently appropriate the and maintaining Let's

and well the point demonstrated Our strength position we emerge compassion to the with that crisis. of team us COVID-XX believe strength, and to has beyond company will has financial a leadership, stability guided

actions are by work for North due all home to of date. home local deployed we Here the at to from State order a government critical In mandated March, but stay Carolina policy a authorities. and employees

staff our work departments. standards. our Therefore performed an from We mandated implemented technological on us our staff Because precluded flexible corporate align and the to for and that be North were highly remotely those concentration we secure not furlough employees we State made with roughly with Carolina whose home our work difficult a powered goods. could new arrangements organization, deemed with positions resources heavy manufacturing from the any decision XX, of April order half manufacturing from operations essential

critical time. And staff impacted support these needed covering financial during to with the benefits. we're our through new disbursements To this plan XXX(k) of health extended we've care additional their help cost flexibility if employees,

all variable. of in paramount as implemented view consider We've preservation We crisis, cash cutting and cost as any several responsibly measures. expenses

instituted Officer the board including remaining staff, Chief of paid in throughout reductions and fees cuts employees, a Operating to our salary all with reduction pay myself, and graduated temporary XX% XX% First for our XX% and for implemented retained for Officer, Financial ranks, we directors. we Chief

to also advertising Strategically, by seamless program pivot not future. And maximize significant a significantly overall business non-payroll oriented participation eliminated for COVID-XX also with advisors which and reductions the all all government by impacted businesses the of require than we product the travel a spending investments marketing in does eligible advertising a across pandemic. or upfront reduced in XX%. digitally including We've spend. areas programs foreseeable our commitments, long-term or for more in reduction costs, We worked in implemented development expenses, significant employees spend allowed functional lastly,

& a and began XXXX & to and Colvard’s outline related Colvard’s economy, fiscal the of the our business. online well March, which I'll and business In revenue the adverse responses pandemic consumer these early behaviors, chain Despite our had and for COVID-XX healthy February, and January effects year, channels government traditional quarter as supply have segments, on effect impacted buying Charles third Charles by overall adverse you. as an

chain, instances suppliers of closing delaying supply experienced our we In temporarily their operations,

with whose where production arrangements partners applicable, alternative whose online. came we order at utilized not production home fulfillment were stay back limiting businesses supply under or their or orders,

which However, supply our requirements, we and governmental our capabilities impacts to long-term may to ongoing on subject changes chain and have suppliers efficiencies. remain

in mid-March. Traditional by affected foot on impacted region Charles followed our our those including political pandemic sales by that segment, Asia-Pacific January, In was lead into may or their by March already by distributors those schedule began later. a retailers, international our major the the across in & rolling which stores as well in shutdowns closing Domestic culminating the with Colvard traffic timeframe from to partners plans tentative as first U.S. distributor serviced in served the the prior-quarter. regions in to suit brick-and-mortar fall Other unrest reopen

operations significant of store our orders, many these closed reduced and sales ability customers. closures our of of wholesale levels our result their at through or to a home impacting As distributors stay maintain

charlesandcolvard.com open. our transactional segment, our channel In remained website online

partner as and We capacity Amazon and our availability, overstock.com, websites, continue more. drop able based position, also helzberg.com, orders in-stock of product on because serve we were macys.com, to unlimited process such ship fulfillment to marketplaces,

partners an then This to our on of valuable our pivot over beacon I'd been own return they Clint that online for their overview the trusted how the to QX promote of sell ago. were and to limited. three-years our online this has and while CFO time, e-commerce we've seeking financials, turn sources like could testament commerce who over were light to these reflect products capacities severely At a heard to to presence We've been our call from Pete, I'll ongoing

our company's recovery. plans to manage through Clint? anticipated

Clint Pete

thank and hope everyone for financial joining and you staying afternoon, challenging QX I Good all us. Suzanne. times. results these key during the you, for well summarize doing Thank XXXX. safe I'll Today, you're

Form for can in be XX ended expect the quarter tomorrow. detail XXXX found XX-Q our file March Additional which we to

March, lot primarily a QX have financial channels U.S. quarter. to regarding the the including Asia-Pacific and entire our impact our month overall our We cover COVID-XX had region sales the throughout on crisis the during of performance,

$X.X summarizes quarter. the to sales Slide for XXXX million net six which compared XX% year-ago to decreased X QX

representing including channel drop pure $X.X marketplaces, for which exclusively online our decreased of net charlesandcolvard.com, e-commerce the ship year-ago to X% and e-commerce other online retail, segment, In consists versus third-party sales. Net total play sales outlets. outlets, quarter XX% quarter, million of the

transaction XX% Our decreased sales charlesandcolvard.com net versus in the website, quarter. year-ago

year-ago in work Sales by COVID-XX versus at of revenue business this from including stay primarily These Carolina setback surging unemployment, this through shutdowns, consumers world, due our our crisis, the declines headquarters the of around the decreased cross North mandated resulted significant included to border a the quarter. XX% experienced the home the trade platform effect order. corporate economic the closure

for which sales. and both the of this international a XX% net total representing sales. consists domestic wholesale distributor customers, In net of the and segment, our and year-ago versus company's segment sales million to quarter quarter, $X.X COVID-XX traditional decreased XX% retail impacted

saw in and decline then moment net sales direct-to-consumer in distributors to entire our noted as due a the the quarter. distributors and net spread ago, demand decreased mainly March across our as for from the the world quarter, jewelry domestic the whose XX% during with our to brick-and-mortar international as related Finished declines our March. decreased in U.S. sales COVID-XX as from XX% the impact partners We closed quarter sales jewel locations for in well a retail Loose

One sales website effect. sales year-ago jewels orders jewelry net transactional and our sales Forever reflecting sales net due global cross significantly agents, decreased a into lower versus total to XXXX. of the and closures for quarter, border XX% finished XX% put International from distributors and QX of represented loose

$X.X Moving per diluted or net X, approximately income of onto diluted we a net compared $X.XX in negative share approximately million per of $X.XX or $XXX,XXX QX loss with for share reported Slide XXXX shares fully loss by million legacy QX average on net inventory quarter. for impacted in the write-off. year-ago This million The to the weighted XX.X year-ago significantly was XX.X was quarter. based diluted compared

material The In legacy QX we of primarily cost inventory. expense write-off XXXX, The Hong unrest coupled take overall part from recorded non-cash was was as standard action decision the XXXX, Kong. to from inventory was of of $X.X COVID-XX quarter. included in valuations. This global to the QX in the the political this outbreak million impact approximately wrote-off with sold impact of for due the quarterly made in goods our

distributor legacy network, our channel with inventory. primary These is factors business sales impeded which for the

inventory these the this loss result sales no determined QX Asia-Pacific channels, that sheet in a we As this balance value in recorded had related write-off. of and demand of XXXX

As includes our segment, the was our our gross our to online We gross charlesandcolvard.com, XX% summarized QX inventory Slide transactional reasonable XX% our write-off. in levels margin website X, in primarily due and One a sales to gross channel our segment, margin on XX%. negative for margin compared traditional XXXX was of gross which was Forever year-ago on product margin the our quarter, maintained segment XX%

for net sales The of expenses of dollar percentage top On show operating of expenses presented we level bar. bar. each each quarter inside is Slide operating our X, as a at each the

Sales For XX% $XXX,XXX operating year-ago spending, approximately QX remarks. in fees XX% quarter. year-ago of expense operating XXXX, XX% awareness I sales decreased will marketing to versus G&A quarter. primary certain $XX,XXX. compared my brand was expense related in management to marketing the expenses we’re increased percentage initiatives the a agency on expenses undertaking expenses actions net Overall, a to increased approximately quarter. digital as closing speak and in and

million remained XXXX. Slide and balance $XX.X of ended XX, quarter cash compared $XX year a we XX cash, fiscal equivalents last strong cash with our of million end our as liquidity at presents restricted our June to sheet, the snapshot

sources Protection April through loans Should granted the this to be forgiven of guidelines. we our an SBA salaries, will applied fund Act. In under loan be Program the under current specified proceeds rent, be that likely Payroll XXXX in and we liquidity, loan, can CARES for used expenses terms of other other the

interest very is are a funds There rate that for not low forgiven. the X% borrowed

loan which disaster currently We general word applied for and should provides for a credit based injury We the Oak economic Commercial on further an asset with have White applications. both $X corporate facility arise. purposes await million liquidity need also Finance,

line However, is receivable inventory credit the secured asset and levels. accounts by

to So and these times. during limits constraints choose there are

of As not facility. to XXXX, funds credit access March have this XX we

to compared XX XX, million XXXX million Loose XX million XX Moving at June December inventory to Finished inventory at inventory $X.X million was $XX.X to $XX.X June $XX.X XXXX Slide million XXXX. $XX jewelry and XX to increased at March June to compared million $XX.X totaled XXXX. on $XX.X million at at XXXX. XX jewel compared

our March classified XX of new as was of As inventory. XXX% inventory XXXX,

from operations million flow was Our negative cash continuing quarter. for $X.X the

uncertainty while aiming of trends trajectory managing the COVID-XX conditions cash outlays duration as to as ensure resume costs we’re and around operations current soon Given aggressively the to permit. related to and disruptions, readiness

noted remarks. these in opening demand her As times. renegotiating supply the addition financial on certain during in with to actions proactive ones, current XX, our we’re the commitments and to contracts Slide These suppliers taking size to include vendors Suzanne with mentioned

flex We expect to adjust needs willing to be will partners key changing business. us with the that of our along

services. certain to vendors and or and with cost reduce of suppliers working We’re our goods

partners. the spending. Suzanne. to match in extension trends, negotiating we’re like to temporary reductions With call of now back advertising including aligning over I'd with digital select to that, the We’re turn sales terms variable payment current And expenses

Suzanne Miglucci

crisis response to is Charles event preserve Thank liquidity. such Colvard’s growth our as on and so you, to we remain long-term remain COVID-XX nimble Clint. tailor our strategies can a planned & to focused and response

competencies, of and We also for we and identify proactively plan can so take to core new important opportunities stock our it's believe to play our strengths. that assets

signature a direct-to-consumer consumer and to how intend post we for trends, Number XX, demand about Slide focused market. position we to Despite channels drop the marketplaces demand. offerings the buying leverage listen Platinum for our what our to such understand highlight to trends. products, hitting customer we facing several QX, across ship as them options, market on new Day collection tough performance market and believe one, brand, key actively need products meet charlesandcolvard.com On intently close color expanded we we’re to to to us business, confirm the gemstone and COVID-XX and are us develop that noting our Valentine's attributes mark. We as worth our a

Nat's the XX% XXXX. awareness doubling create from efforts in is According engagement is recent now common impactful. to by center being after popularity second ongoing It's moissanite stone chosen our of brides addition, are diamond. the trends In to and moissanite survey, most since

our While we not seasonally as designs Spring with is update grappling jewelry timeless. other it's to tastes evolve, unsold our our that who important customer Unlike jewelry note offering are and retailers are trendy. classic merchandise,

us may plan lead and gold platinum While to bring more trends transcend forward carry goods to metals, yellow time. always and seasons that we

is QX, peers our and push channels we pivot engaged online is channel advanced Number many believe place distribution trends with over retail XX% is of sales in driven three this to that to relevant attuned our with forward-looking the of technology have marketing shift. significant years e-commerce strategy, cornerstone making strategy and online we progressively we a audience. an product ahead development of industry and of team remain our deeply strategy while merchandising from team to to continue us technology our poised Our a retail to Colvard’s boundaries And demands, presence of are of hard of market online deployments ahead business toward Charles the an and deliver. expect millennial & agile is two, as remaining our coming

pay During within & With upgrades of Charles keen over offerings healthy new these economic jewelry many features, functions enhanced the engagement. such positioned Colvard challenging on times, roadmap a purchase will options levels and and payment we’re reach. our consumer credit online as place and demand for of focus time, a

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as remain expand unfold. potential channels prospects We'll they arise, as to our be and plan compelling evaluating these network poised to

jewelry chain In fact, Hudson's built agile our at moissanite store and online Canada. redundancy on last by week four, Visit an of we their on supply Colvard thebay.com. have & that's us partnering we on launch website announced Number the the online retail and Charles diversification. in Bay model

empowering both the Network production way our globe. partners. Strategically, of chain By example, that worldwide. of region to for disruption partners to capabilities channels shipping was served be earmarked quarter, in which distribution Charles us from our supply experience Colvard distribution readily built to through way shifted & Asia-Pacific during December online began Asia-Pacific other parts and supply in the to is support This market in a COVID-XX chain has customers diverse well impacted us the such and Partner our

future believe We’re our the and we're pleased with of well for supply positioned flexibility contingencies. chain

We their And finally, to serve and number speak five, we're a consumer. consumer digitally millennial of built propensity buy native online. the to often

turn a consumers to no expand marketing customer digital to This to us level more We trust. be. as a the administer wherever of online As very our may an our with program may flexible marketing we commitments believe of to long-term engage us. with advertising consumer COVID-XX, newfound they outcome allows demographics burden focus adapt sources

For example, as our up ramped posting experiences we Stories. recently online such with Instagram

creative requesting product. higher our customers online a ways interaction Our level and seeking they're to experience are of

an create engaging environment. of offer to media ways multitude Social channels a

customers In our online availability request bridal session addition, one of we individualized shopping experts. which recently jewelry of Virtual to Service, announced enables Consultation the our with an

we more them from engage go emerge this crisis, throughout through behaviors consumer to current this will transitions, and we intend As likely evolution.

and a mission extraordinary a prepared to to on depend Slide We unchartered numerous products. confidence pandemic on which positioned our & demand at Economic waters and we’re buying materially us lead the could our adversely uncertain responsibilities. full industry on environmental delivering navigate future with we believe and or brilliant at evolving this balanced well affect focused to and will are jewelry for value COVID-XX the social that developments to in the consumer will spending Charles product extent wrap-up recognize by that Colvard factors we impact time. factors As staying by XX, an revolution that habits affecting these

in will we phased recovery believe response are our approach the prepared our be to While their ramping-up for strategies dynamic, business. stages, a and we're early

plan Here's going what we forward.

foremost, regulations North and State First local and as following Carolina we'll be disseminated. they're

of visitor For to corporate gear, applicable the measures. use foreseeable health including future, the operations expect we remote wherever maintain significantly employee ensure distancing, workforce safety, modify and stringent and a our and to social headquarters protective at and cleansing

our staff the confidence partners We critical in approach will and factors. to plan to spending to brick-and-mortar reopening and phased demand. business. gateway channel drive Consumer the need into of these a partners and turn re-entering furloughed distributor be and We adopt reopen

increases, the demand work. support staff As funding to returning to and need have we'll the

from closely growth strong we'll our brand direct-to-consumer alignment reinvigorate in last to burn. strategies manage We're Lastly, continue the with to we emerging a and this market cash demand. year, as focused began oriented but on awareness plan company crisis

dynamic our during board level challenging and We'll address pandemic, to their for of of crisis. to to the Colvard I'd become environment, position as available & business continue thank the take engagement, monitor directors in our to the economic Charles high to more a information this the evolving moment remain and guidance like rapidly oversight and adjust and response situation. guidance

Colvard make time your company the for been our Colvard in to advisors you invaluable that for amazing, desirable the and during the thank Charles our believing make and many dedication You've authentic, that & to It's & the partners tenacity it and of Charles you future this staff, challenging commitments is. and brand. brand

the and the I'll over phones for open turn the operator remarks to prepared questions. to our This concludes your back call

Operator

the begin [Operator now question-and-answer session. will Instructions]. We

Suzanne Miglucci

with in to Relations come market question. we're you that's is there while the queue trends has our broad quarter were question, the one what waiting pretty since in been right, through question sales up see started to up to for a during And e-mail. The have All your then? COVID? you It's leading Investor your shifts

with broadly let's -- the market. start start general Let's with

think as many I had pandemic, impact COVID of the know the So environment. on probably you significant retail has very a

week, that for just the Imports showed published decline filed have sure April. to numbers seen going all a doors. prior-year I'm and for close to XX.X% you've retail the last yesterday their They X sales Pier J.Crew news and JCPenney, they're Just bankruptcy compared were noted permanently

& with unrest Asia-Pacific the happening of that and was some distributor Charles quarter headwinds Kong. came Colvard, Hong opened to For happened from in in our segments. we the that mainly That

And Valentine's all relatively we collection, leading Day, our and was up decline is But this States followed our where a we then strong. incredibly we We was to ultimately downturn or our COVID in traffic everything on that website doing impact by well. product, Platinum of in sales United went were it mid-March and Signature thereafter. in started lockdown. and it the March of into was to since really have traffic seen happened see what the But so saw again, really as

improvement traffic early downturn consumer spending. we're patterns quarter quarter, see it improving seeing so and where of we our nascent a little in improvement, bit current from would been signs our in call to pretty from on signs that I seeing we're our the was had quarter, And as that. abrupt and traditional more what some we're began trending segments. We're channels performing and to fourth increased we Online, prior a of online of

our we April, few By Asia-Pacific distributors began the another hear fairly we doors. They they a started stream work. return to beginning compared earlier doors Diamonds partners the that them, that's hear month sort open a to return XX such Helzberg our that that month, again with was And this to few of of of of as May, to the the the end to they're anticipate and but partners, accustomed which from know a their to of slow by But this weeks expect then the in on in beginning brick-and-mortar a late This necessarily from doors and beginning stores to and doesn't are return. in will we turn seen month, that precipitous mean did downturn do to market. that be open to we revenue downturn. mid-months open they were to are primarily March, first we've they we Texas, the

returns, Retail I will the seeing recovery carefully what going have Charles I they lockdown. trends consumer say be encouraging, while that gone very return and maybe everyone's essentials of And unchecked response it are remain sales watching we think for purchases to retail behind the goods, confidence these cautious. consumer and requires confidence that lag during is. the & as such incredibly Colvard once luxury

that So, from in quarter. expectations June the still we here, quarter year-ago down the to expect set sales substantially fourth for maybe ending

We’re of our very working through much pandemic middle this it. and in way the

So uncertain. it's very

and we're can keep the I much as to think market how responds. see time. that our as share eye at on all insight going the ball about that's the we But

So queue? over questions to in we any the Operator, have do the

Operator

Matt Koranda question ahead. go Please our from come Yes, will with ROTH first Capital.

Matt Koranda

to Suzanne that glad start-off And are guys meant Clint, online by the clarifying talking and sounds year-over-year but well. in is intense. like online you declines just you just the about, a meant channel. you I to it recent you're point exactly are Suzanne. on that essentially call in channel with months, Hey, would getting What year-over-year the improvement And wanted year-over-year down still, doing less hear the guess down

type sort basis. sequential growth week-over-week seeing we're So on a of

understand help you us can So that?

Suzanne Miglucci

fair Yes, and for it's asking. dialing a Matt thanks and question, in

the traffic I I So same the of is say it whereas kind improved we significant are into near year in at were have we time. pandemic. where first we comparing last April May, when were month performance downturn we the the and not late had from we anywhere where that of over would were those where if of

Matt Koranda

been mean channels of own and It And the call for up, weeks during is in sounds terms anything shift? terms I noteworthy to okay. website, it, between shift. website Got mix your Any in guys, and holding mix out a shift online in in still online, your okay. recent on like then, online of channel other update anything or you mix direct Amazon the the quarter

Suzanne Miglucci

It than side has, is bridal married. generally much house, bridal what XX% on a the the very mix good which news. the pretty getting to we of where of is the Still, Even are play. we downturn, lands, is holding still steady shift it's it remain more during people sell

So there's our demand a still on certainly partners. for actually drop finding and We're ship product. our marketplaces

I Our that a Charles margins have product and those channels. to a say command through moissanite testament that would A that's by Colvard selling fair improved amount goods Colvard. margins. the of rollout still higher of we the by had & & we’re moissanite The year-ago Charles legacy

average looking the fine bridal strong So those we is the generally charlesandcolvard.com, are jewelry very that margins play same. a a on see much I'll overall product It's mix more still sell bit of drop add but we values. that last I and and to piece, ship in would so our Amazon the to through say partners on. we are one and order But

quoted last more time I about right like now. were probably think we we $X,XXX $X,XXX did earnings

transact have to come folks in been sale us. prices order to offering We encourage and some with

is bringing it's slightly, ever really site. the demand average on order think drive sales the I for our helping So value but so that down

Matt Koranda

mean to guess overall cover, I lot toward seems may And marketing latter a part guess helpful sort like traffic least digital to could are AOB, spend the and maybe regard, guess a mentioned at quarter. puts there bring I need CPMs site. it the have when customer Okay, have but acquisition we gone you well convert the touch costs that's of to and still very But takes you color. to down quarter to as about I I that of of you trend the ask this in

So maybe to it and how us trended? talk about CAC

Suzanne Miglucci

Matt. hearkens to our the to reduced happy that, ad It back kind question. do discussion Sure, It's spend. good about a dramatically of

So to we higher shift being during see the a don't we demand where when these played. tend times dollars are rate,

play, we much we we're last awareness of top reported call going very the when holiday an how marketing quarter about talking earnings, what and which is activity. funnel to So would we’re

money when new and trying people to eyeballs. of And up the we’re we cost new do, that to know acquisition because to that's it cost it's And the less, that. conversion we're brand, the where don't net come trying want to really acquire the do people We goes convert is people brand. to general

time cost of in that ad we spend a spoke, about take or So door. is the acquisition. we the the that $XXX does way get new calculate how in order we were And last customer so much in to it

to brand to this we are In a quarter, the are the Colvard & that Charles marketing to spend on would talk funnel term be pretty And because we the to are already wanted dramatic us. people for made that for shift with those lower predisposed the say, searching and asking engagement people Google.

Colvard, So to find them engine. they go us. we & to Charles a search They term plug the want in

those moissanite. kinds term bidding for of for And we're the bidding keywords, so

down much we investment pretty people make. probably easier acquire and bringing something, purchasing acquire product top in specifically of were less of to For those selection funnel in to would those eyeballs, they're that are phase much far that expensive a than the we

on probably $XXX quarter much and factors. we're more dollars were in to putting we it in average function putting new customer how where in if a today, a in other opposed that's were where just of the recent again holiday the at the bring But we're looking So to under cost weeks, I $XXX. we’re as

So hopefully that the answers question.

Matt Koranda

very Yes, there. shift definitely dramatic And a very, downward pretty helpful.

And open I channel, customers amount June in decent expect sort be they're, moment essentially? But of but base. the how of And retailers inventory to understand in what of months? are next in are couple first currently open guess some a help I assume terms it channel of kind know And what I to there. the would store domestically, of that of there's their those sort ability of by the reorder because up a us in of the referenced on traditional your end question, Okay. total communicating ago the back the you how responses ramps retail to maybe do then you percentage of

Suzanne Miglucci

what very strategy government ours. traditional is a we're from phased. not government unlike state-by-state, decision. that Matt is our driven Right, their partners And by local It's it's brick-and-mortar hearing local

under a order different for now, one some know right the next, even vastly states we one to jurisdiction different XX is opening the state all from everyone to degree, and rules another. So opened but are have to

I XX channel they Texas Texas handful in a And of one because is then mid-May opened bag. and then from in think followed opened each was when stores, Helzberg So open it's that Again, a that partners at another our by about so three we've have they mixed of heard much looking it could with they early. was end regular contact been they when month. orders beyond in placing with that. order this from identified ramp-up. them intend the had we've them will help of in to more we them be heard that to by this not We've open But that

we're ship and prepared we now. So on orders can these

we afternoon, our more we'll allows it is North from to Carolina running. greater open distribution what X, our us of headquarters. which a Phase moving is a as capability And can little and we're of do tomorrow degree, flexibility our into fully-up

about. that those the come ready we And customers. orders So have there's then think as distributors in, to respond to the Matt, to we're

jewelers only will only Just distributors the the us. confidence ability independent and have us orders then and then open will the orders middleman Those independent and jeweler. of distributors once to open place consumer with place they their think have as the to between distributors with they doors, there's

would distribution believe will be ramp-up through the partners. longer even it network probably the that through brick-and-mortar our traditional we So than

Matt Koranda

meet bit based inventory you a with renegotiate guys a of until kind it later And is sort way that in you some sort to sort any give some demand allows guarantees contract that Okay, carbide? in you of of to volume favorable on the on prepared that those Is year to partner, or color to little supply of the able to defer but the kind of of for given us larger down your and a that are supplier update very purchasing in levels an here? of And guys there are can adjust way front, I the in the short-term minimums period? partner you remarks, on helpful. a think demand alluded very kind of to of you your had silicon

Suzanne Miglucci

to step-in going you, Clint Matt. and I'm Yes, that for address have question

Clint Pete

be it’s vendors, our the currently that suppliers on for this cost, I I with services to these the it's and stage and based mentioned all supply flexible unprecedented the seeing mean, are base the adjust our us one Hey, to working and very and Matt. commitments unpredictable demand. Suzanne. times. we’re to our critical goal in Thanks, remarks, At level thing, set, current expense matching with as we stated on

Matt Koranda

Okay, I'll of got or All one it. right, take offline here. rest then that two more the and

I down, the sounds It to want down wrote and If guess us don't kind look $X inventory did of around takes move guys the some there? that. out it. did inventory inventory write I'm us have come you you the I And short-term like of inventory expected happened from down but mind, Help I would legacy to into essentially long-term it all what long-term. does on cover you understand legacy of clear inventory, as help just write puts like million. the of But understand

Clint Pete

our we between Yes, balance basically the long-term that sheet positioning in based is short-term have on so and

next goods on to months. the we're that amount consume going of based the XX

So that's more accounting of an

a we've that policy for while. had state

forecast. saw to we internal actually the compared impact this so quarter year-ago quarter, on of the that past calculation trend the of based forecast, the estimates that the with pandemic, adjusted So you

slide standpoint to on product, now. a have, Forever well do balance as the that, on we presentation, that's all from represent we One the it's call is, sheet That's in want that's value the now why the been we earnings

Forever based the One premium out all demand that's product once our it's reaching turn around there seeing we're this. that been on high So we on

Suzanne Miglucci

And add color that. process Matt, I'll to It's goods our a market. some complicated fairly to to bring

creates that gem that that moissanite we're gets gets We we so by from it pre-forms, itself. material, It raw gets faceted we go and that that knows gets inscribed have, perfected, then everyone the it we graded, specialty material take gem. form gets sure raw into it fastener call what we it it's polished, that a

together, that then assurance quality married a was go joined it's very and setting through packaged beautiful ready exercises, it that meant gemstone. gets they particular with They're It gets and together up a over takes generally a process of where some that period diamond sale, a then one-time into year. store, And for we time. see turn of the Helzberg goes the perhaps product for course

good way It's into what long is item moves that this we to sell that's the sales call very well the take very would finish just ability what all longer-term. a a So may from raw to cycle. than that and more XX-months,

how that that's those would on we we what up wind numbers with bucket. long-term so call sitting And

Matt Koranda

just Okay, burn that priority you very I coming a yes, in still have then All the sense. you balance. I cash noticed guys and makes have did that to you cash not a mean, quarters. mention, guys And healthy maybe lastly right,

very I there's have there of may same there's this well competitors or I'm doing guys guys that strategic probably opportunities of potentially could of an So sort quite not of having of you mean, acquisition there you could and been strong advantage a other Are advantage the opportunities out kind in lot a that as have. of make cash balance you that make I there smaller curious. you take decisions that dislocation, for have quite allocation take are either to sheet or mean capital environment, balance? do environment not the to lot or moves be may

Suzanne Miglucci

provider, in of that a could it model, be business the it the business gemstone times technology e-commerce the question jewelry with where could regular the way business a to a and be then be management that take there's an to very opportunities could ability and added speak the These our places could may an our leapfrog and asset and basis. many be provider, about in but forward. distress, sort absolutely business on & it's well the Charles it could be create market, challenging something our a and augment do Yes, great board Colvard team we

are those about. absolutely that thinking we're So things

make burning is viable to balancing as we're what in it we're cash While going sure that business we're source. a the keeping

very and general practice So are we're looking a presenting themselves basis. we're opportunities on have that we but it's crisis. But things, this through open the at a weighing

Matt Koranda

Appreciate And answers, it I'll it. guys. for got it. Okay, thanks detailed leave the all there.

Suzanne Miglucci

Matt, anyone there Grant. You you over back Is it. queue? to thank operator the got else our in

Operator

will come Please Equity question Diamond Diamond Research. go Hunter next ahead. from from Our

Hunter Diamond

Hi, thanks taking my for question.

one top lot advertising. So the your And other I on to have cash it question low you of hand, relates too you're growth. ads. to the balance. of a Facebook on really I know I hand, just go then don't know one them paying mentioned were want you're for the sort to the Stories, conserve you But trying you line answered Instagram on doing previously, you're continued

So cash, what you the home, utilizing sort of millennials using you build of are at everyone at more same the the one they're reach at conserving maybe payroll of but the balance can time, their looking prevention, screens, thinking brand. and

So what that about how sort are thinking sort of of you

decision?

Suzanne Miglucci

productive. spend question It's return when a We and to a thanks dialing-in, stopped Hunter. use great as being for understand us the for of on ad benchmark sort investments

and and absolutely dollars, others. in both about where on super we're Stories, so the making putting we some media And are Instagram careful advertising social and investments Facebook leaning Instagram we're we mentioned

to search very fair we I mentioned, as marketing, important that's engine do us a well. amount of As

work. that right to right in spend comfortable numbers us. on X to place to still that's But is a is now for $X be. the $X And have to we're funnel dollar still range, putting for we very But spend great money. we're ad which we're getting there low now out, in, Xx good seeing now, return And back we're that right which every

very to Xx this spend. those to Before eyeballs sitting and hit them X much a return funnel ad we new crisis, trying we convert and in were top bring were at we of on

where honestly X really to that the Hunter out. how X somewhere the X balance the X we and answer, goes much we cash are to is to but between have So with

take customers to a These while convert.

the for takes over. people in, to So we’re convert it putting dollars sometimes months

a balance yes and the out So conservative surfing, be people and here. when at may at make confidence over in to front a we to dollars still a low that can or our them. a time people We within ability the consumer be time be have these be bit on we of quarter when so convert to continue books want may to

So every it's each is up and dial a on dance thing can daily a digital good down performance. on we delicate about day. marketing it it based dial you The and that do basis

measure we twice as and say. cut once we So

Hunter Diamond

does Or handles sort someone that internally? like you use that Sure, that makes perfect that? there sense. have of Is Is ad that guys marketing company something internal like budget? that an person do do you the a

Suzanne Miglucci

who an a with folks aggregate sort key important SEO the and retail to that digital ad budget, that with internal us of Right, words across are manage off are a many there are internal that tie people there our difference ad and of that make platform close very are different then from work and customers. thinking agency that work we helps

advantage in we industry our other of performance the the have so as well. performing they're how and And peers of

impressions and robust platform very like visibility that are us expensive into things gives do hard marketing It for a without us ourselves to internally.

a there it. work in and with educated we then partner. house do our is we ad to really the performances. that ad But very And fairly us carefully team robust the help with so third-party balance measure manage to And and have those do placements, that

Hunter Diamond

it mom bidding spending that much. the and plays this better pop, ad though makes that competitors, you how Right, not you're because be budgets go that's it'll the balance adword may out may sense. or quarter more because than perfect of the and if as with be would be you find consumer turns that up budgets your And a see right maybe getting down competing maybe money the interesting value peers to have and you sheet sort

will So who yes. be you more, maybe name, get you brand knows, it'd good terms of for in

Suzanne Miglucci

near buy our presence. we've right awareness market to actually seeing like going will brands this And work moissanite we're buzz to what our Hunter the to that get this that done testament say, created I moissanite that terms sort a maybe, create of It cost it's for because we've and to is now up. is the in going

they that And do for the offer term. don't actually eyeballs on that moissanite here. that because us bid so searching coming they their competitors and have We realized

their like and moissanite stores, the but And which we've don't had there's interesting. coming ones funny know term customer Tiffany in they Cartier carry were some on bidding over it's that product so holiday, They is here. the unusual a

an a it bringing Great cost but of it brings For thing then the that those the owning in and it's thing. good bids unfortunate near that up terms. us what eyeballs attention and does, we're the

the day way but have. good of our through, that problem any take a work And we'll I'll very week. that’s So to

Hunter Diamond

who lot to getting definitely, sense. No, a that of married, to mean, But XX budget, maybe inclination and now knows on I the they'll open there's right with makes for diamonds. And are see hesitant interesting to unemployment spend go budgets to people may know be a be tighter. of wedding ring, more there's Grand lot more I people record also be moissanite, because

the we'll it's call, few someday it some see, like said could during the in So next and going be quarters. to be some positives you negatives

Suzanne Miglucci

properties a In oriented, downturn who not what value to able do may We generally ultimate rest up wind described. them a than exactly And they here in guarantee optical better want that customer I recessionary lives. pretty of studying pretty for just ready of they but exactly the time. diamond. Colvard a realized their to spot you think afford that even is then we fared be time, past time, at give it, find we are well, because we has moissanite you're on, product that & product will that has And in the well with their of it Charles

out. here starting to we're the entire and world, us figure to So they're

Italy, there beginning you out we're Australia, year France, past think the Amazon other countries. to And over our began presence in we with Germany, effort word Spain, as went I As marketing we well. the know, global where get probably

is by wallet. So we pandemic, this impacted as the entire the globe products with think fit that here can we're

Hunter Diamond

sense. makes sense, makes It

stay very you answers. thank And safe. for that's Okay, me for and the much it

Suzanne Miglucci

It's any our pleasure. questions there queue? dialing Hunter. for Thanks Are other in in the

Operator

Yes, from Please ahead. (inaudible). question come our will go next William

Unidentified Analyst

ads you're us social my very Could performance on based your more question. ad you. of media? what you much some for portion on budget taking you now on give Thank color spending Thank

Suzanne Miglucci

for in XXX% really William, dialing nearly thanks in based it's performance Hey, advertising.

And the doing it's that low work, buying. low have that keyword probably XX:XX and doing in we're a work we everything close So that we're on social between funnel. to brought down to within work split funnel

the doing that grassroots we're the this that moment. that top that at reason moment, spend is on is for again, and impression return we've very get very abandoned anything we're at funnel to and a of requiring at very horse ad So work time, the based the high

Unidentified Analyst

you. Thank

Suzanne Miglucci

It's my pleasure. Can we take the next question?

Operator

next Pete Please Our from Enderlin question will ahead. go come Partners. MAZ with

Pete Enderlin

remaining But questions. maybe the XXX%? Thanks Because you another still the value you that? writing-off consider cutting Clint. XXX%. I but and obviously, have about think triggered my taking pandemic, with like for half for or no, whole legacy so in you wrote-off one And now good. the that, inventory, did was which the good. is, Suzanne It's Hi, question by on just write-down less still years, something it's went than did the of you good, along COVID it carrying

Clint Pete

Hey, Pete it’s Good. Clint. question. Good

we're COVID-XX, with we're this this and went seeing in inventory Kong the stage, that on the market dollars product, that related now in components right seem both putting legacy all no that this it. from to what and stuff I think that marketing to of political standpoint trying sell not to unrest we're international now from the we've right the stage, in at valuation for the with at the right is of impact at really had it we Hong that, dry of even looking of there's particularly it that legacy that the inventory that market, were just through been up type in for now, and some demand sold being legacy the

and now, One Forever where everything's true kind we’re of with that So at. likes story that's us for now a sitting

Pete Enderlin

that said you than overall declined online charlesandcolvard.com more think sales I And sales. enough. fair your Okay,

things hard cut digital of rationalize the getting you? all do bottom that it had for of you on the or of that? more your you noise is searching does that down what the you they've to say how part tell with the advertising, but What's you're people on the time that a did So significance some is website back that online funnel,

Suzanne Miglucci

average I'll It's period we lockdown a one. great put to And closed take foremost, that for happy orders at had website were significant during some But those Overstock the the to and and messaging and the and in Carolina. unable time, phase, lesser and $XXX partners tend we first was a first more like Overstock like they course, well, were sell we order we time, keep or able to $X,XXX live a up and for that North to to and that charlesandcolvard.com, $XXX value, take that then purchase but our question. ship We partners were that value. a premium State such to tend product expensive products the of up other be tends total had product, they're were order of average on of and their as online

And during when selling. we early the really downturn, expensive products time time, a this we’re saw lesser the

shipping distribution do here & network, Colvard’s that period behalf our headquarters. partners on they had Amazon partners could were to of selling online able within deliver. some our ship were of very was ship that short from channel one a thankfully were that distribution time. we And on We’re And the that certain because we these few to while of Charles could for selling places on unable

stay channels home site. than a few we better we our So own the at were the at to of downturn orders and in serve those bit able were first the weeks

customer improving doing up that's we're doing the and And as immediate We’re fully typical turnaround returns, why seeing repairs, we're well. our we're demand charlesandcolvard.com back demand. We're taking functional. traffic now for on the

Pete Enderlin

have better. out fact and may can that seasonal graduations value get you that, bowls is benefit you play next the big more in kinds that the or proposition and you the specific and half seasonal things. about, But your that that of a different over those cost clearly how from and coming month so? parts of have engagement in the for made Suzanne, already you And weddings June people point a mentioned push basically could

Suzanne Miglucci

and necessarily not From to it charlesandcolvard.com, and Investor every going mailing how market. but our how you we day, times to and trend for mailing every mailing list, our week day. just differs are Yes, up our messaging But it's are not it a we’re you’re day happening list, shifts sure actually Pete, on few our really the what's all Relations watching e-mails if which our to list, on you'll customer sort sign see in of attuning can unfold.

tend that to very So do of These right size that you the stud on the messages graduation couple well of maybe And graduation really we've had now, times, don't finger. things over during past the someone's to are days pendants. well into graduation. we're heavy selling products, have know are earrings

So do we bit and earrings right more little rings. do have a we than pendants of necessarily now

we then that trend. day And promote into to where and nimble as our we So, we're get react we be trends. day lean happening are social us. it telling on the what's what we to and media smart to the depends it market That's see able we really and about customers how to

So color what we more stay the and about asking on that give learn for. more you tuned will consumer is we as

Operator

LD will go come from ahead. Chris Please Micro. question Lahiji Our next with

Chris Lahiji

Thank about taking the quick even it -- promotional today. there you will for just Thank be any you call place? you guys I again. had change a pricing. COVID think with will Do question

Suzanne Miglucci

from nice Chris, hear Boy, a Hey, you. great it's question. to

merchandise said as discounting remarks, I'd to stuck to for think retailers I And as We’re think lot lockdown, seeing of lot with revenue. of looking deep, a in out they're trying deep of. with the way make I that that retailers rid prepared they're any a of come spring are, get

think deeply a and in discounted reduced to I couple next And the trend so of we're even retail. going quarters over prices of see

product Mother's & Charles kind of on are sale modicum currently on on do activity sale a down website, on bring Signature with a I discount of our so of entire want with product. to frequent right really Sale, will we're had Day on say, about encourage deep our we're It's and go we Colvard, how cautious have that product, we the and very going discount now, the go a we discounting same sales our we we how value line collection. we never don't our premium our to and we're but

trying build so premium And branding. to we're really this

question do discounted, deeply And the we're queue? ourselves that so though in market going the for about way. trending is careful Grant, have reason, a we another bit even that

Operator

question will Partners. go Our with MAZ Please next ahead. Schenker come from Walter

Walter Schenker

value with The this I Sorry redundant still working Does inventory to over off from mean it be slightly it three time? home. you able months cash economic has or what economic had by we’re as Pete expect more that purposes. ago, value inventory legacy since aggressive to since be is be be non-cash your in will for plan to book to writing converting

Clint Pete

from the channels and we Thank new piece the little and to because make be you, line Walter. product value that using statement goods Like the said, making we're that it from the said to now, we One standpoint, up, much of pretty promote it will sure drying Forever the focusing of we're on our standpoint. that has that inventory going those we

now. in this demand see see So, stage, that for but truly at much market the really don't right

Suzanne Miglucci

years you to be these be in continue they'll to outlets out partners, trickle marketplaces there. Classic will some and sold see on We've of our still out products XX and in I'll Forever some Walter, Brilliant out there'll and a almost now for that, and them color there of so channel add market. through and the it

really in very in has product, well our legacy Charles received and been material had breakthrough and or Colvard, Forever when we amazing engineering XXXX For the went One in market. believe from that we & into new the product we an our XXXX,

competes of moissanite the it and and forward, when better Colvard then are going as And would Charles market there. now, a by our is & years to two that sister it the better the on price really for brand. with it and ago Forever far a it a almost Classic Brilliant we're a delivering or classics Brilliant more brought for we product than to we it's superior discount a what thick we're almost product One, it is, is get And out on overall

better color, clarity, has better performing better just It it it's has product. a

best it to brand bet we as is placed is Charles Colvard, And have the important the that dollars, we brand. we premium on & the is minimal marketing brand. premium And so where very which attach house them that want to

not forward. everyone. our great that So we're be will there. But have sitting happen focus going really been focused That's goods some with Should there. sale that a for out online

Walter Schenker

you. thank Okay,

Suzanne Miglucci

Thanks for pleasure. our think we in. I It's Grant, dialing have…

Operator

Micowski, will private question Next is go please who come from a investor, Chris ahead.

Unidentified Analyst

Hello, good taking afternoon. my Thanks for question.

Suzanne Miglucci

Sure.

Unidentified Analyst

this I for have of of to been is of acceptance probably events I you us an what more but February and detailed the a kind give, growth than States. fashion, gauge want can that January aside bit happening, just the tell all in United So, was from only usually to kind Moissanite the these organic guess you in year-over-year

happening can So aside this tensions, we see what's COVID-XX? from the trade and

Suzanne Miglucci

answer him back feed going question. I'm me let over Clint, your so Okay, that to ask to to because

of March versus January impact February kind us. January started and of will that's So calculation, interested because at and last. of and say February what in I this to year you're of looking when taking out COVID the And

will in were comparison, downward in pressure won't apples-to-apples say, in the fair passed. that December be the holiday it a I the Asia-Pacific just still quarter, to of sort We see November, timeframe we Greater beginning market.

traditional February happening unrest the was and timeframe and Hong China our that decline in January, into of in began Kong. because already in channels December so And to that

over reflect versus the clean on Clint me we it January, a turn year this February get to a last. let super won't So bit still but comparison to

Clint Pete

compared did January and January that I starts we strong year-ago, in typically Valentine's From which have mean Valentine's when Well, period to Valentine's strong, all is standpoint season. we to performing the it way well through, a say year-ago goes have into I that did Day. a a up

to So we also, at were and did our our activating people the see advertising that with to order capital some we're on drive in impressions charlesandcolvard.com we website. time, from people because and raise point funds more

as some a we really that retailers of all at saw strong moissanite in the well. good performance performance drop Suzanne really, ship there So our well. is that buy we see way did mentioned, as

Suzanne Miglucci

well that would continue like have a Canada, us has drop We're us. to helzberg.com, from the partners, Canada. COVID, Bay say region Canada would have response in doing a than buying for presence very Canadian I very growing what's coming pretty with across been we Yes, see from include excited with other consumers to ship border and folks excited nice the to retailer nice a we're happened here. in with very Greater And belk.com, actual we're

And traditional was and performed January were this one very back we're to whatever the for But point, call to we'll for if in be. think all online new normal just So of timeframe. could Clint’s for good. by comparisons pass February online and quite channels well excited Again, I down. is question, time do to the we we going get day. then it and a more have us to to

Operator

to I'd no it any for Miglucci turn closing showing like this time. remarks. Suzanne questions I'm back at to

Suzanne Miglucci

Sure.

thanks to very and appreciate support We continued Please as in and and well, months. of your good who safe us joined tuned Colvard & stay navigate Charles we you Thank you evening. the all interest much. stay coming today. of Okay,

Operator

you Thank concluded. attending for now is today’s conference presentation. The

disconnect. now may You

Charles & Colvard (CTHR) 21 May 202020 Q3 Earnings call transcript