Charles & Colvard Reports Second Quarter 2016 Financial Results
– Revenue and Margins Expanding –
– Continued Investment in Sales & Marketing to Drive Future Growth –
– Conference Call to Be Held Today at 4:30 PM EDT –
MORRISVILLE, N.C.–(BUSINESS WIRE)–$CTHR #moissanite–Charles & Colvard, Ltd. (NASDAQ: CTHR), the original and leading
worldwide source of created moissanite jewels, reports financial results
for the second quarter ended June 30, 2016. Continuing operations for
the quarter and prior year do not include the results of Charles &
Colvard Direct, LLC (dba Lulu Avenue®), which are now being
reported as a discontinued operation following the sale of certain
assets on March 4, 2016 to Yanbal USA, Inc.
Suzanne Miglucci, President and CEO of Charles & Colvard, said, “We
continue to make excellent progress in advancing our purpose to be a
leader in providing unique, environmentally responsible jewelry products
to consumers. We are executing on the core elements of our strategy,
which include expanding availability of our first colorless moissanite
gem, Forever One™, moving up market to capture high-end jewelry sales,
expanding our jewelry line through our own e-commerce site and
third-party marketplaces, and growing traditional channel partnerships
with wholesalers and retailers.”
“These strategic imperatives are beginning to translate into our
financial performance,” Ms. Miglucci continued. “In the second quarter
of 2016, our revenue was driven by strong sales of Forever One™, which
doubled from the first quarter of 2016, and expanded wholesale and
international sales. We improved our gross margin percentage, as we
moved beyond prior quarters of discounted sales of older jewelry styles
and loose jewels. This translated into an improvement in our bottom
line, even while we made significant investments in sales and marketing
related to our exciting new go-to-market initiatives.”
“As we prepare for the holiday season and the rollout of our progressive
e-commerce site later this year, we have begun shifting the focus of our
direct-to-consumer website, Moissanite.com, which led to slightly lower
sales in the second quarter of 2016, compared to the year-ago quarter,
in which we ran deep discount promotions to move inventory. Our balance
sheet is in good shape, with a solid cash position and stable inventory
levels, as we continue shifting to higher value, finished products for
our direct-to-consumer marketing push. Overall, at the halfway mark in
the year, we are pleased with the traction and positive response to our
go-to-market strategy, curated product line and multi-channel
distribution. We look forward to providing updates as we continue to
execute and provide value for our customers and shareholders,” Ms.
Miglucci concluded.
Financial Highlights for the Second Quarter 2016:
-
Second quarter 2016 net sales from continuing operations were $6.5
million compared with $6.2 million in the year-ago second quarter, an
increase of 6%. -
Loose jewel net sales from continuing operations were $5.0 million for
the quarter, compared with $3.8 million for the year-ago second
quarter, an increase of 32%. -
Finished jewelry net sales from continuing operations were $1.6
million for the quarter, compared with $2.4 million in the year-ago
second quarter, a 35% decrease. -
The Company’s wholesale business net sales increased 9% to $5.4
million, or 82% of net sales for the quarter compared with $4.9
million, or 80% of net sales in the year-ago second quarter. -
The Company’s direct-to-consumer e-commerce business, Moissanite.com,
net sales decreased 8% to $1.2 million, or 18% of net sales from the
year-ago second quarter when it had net sales of $1.3 million, or 20%
of net sales. -
Operating expenses from continuing operations were $3.5 million for
the second quarter of 2016, compared with $3.0 million in the year-ago
second quarter. -
Net loss for the second quarter of 2016 was $988,000, or $0.05 per
share, compared with a net loss of $4.0 million, or $0.20 per share,
in the year-ago second quarter.
Financial Highlights for the First Six Months of 2016:
-
Net sales from continuing operations were $17.9 million for the first
six months of 2016 compared with $13.2 million in the year-ago
six-month period, an increase of 36%. -
Loose jewel net sales from continuing operations were $14.6 million
for the six months ended June 30, 2016, compared with $7.6 million for
the year-ago period, an increase of 92%. -
Finished jewelry net sales from continuing operations were $3.3
million for the six months ended June 30, 2016, compared with $5.6
million in the year-ago period, a 41% decrease. -
The Company’s wholesale business net sales increased 42% to $15.4
million, or 86% of net sales for the six months ended June 30, 2016,
compared with $10.8 million, or 82% of net sales in the year-ago
period. -
The Company’s direct-to-consumer e-commerce business, Moissanite.com,
net sales increased by 5% to $2.5 million, or 14% of net sales, from
the year-ago period when it had $2.4 million, or 18% of net sales. -
Operating expenses from continuing operations were $6.5 million for
the first six months of 2016, compared with $6.2 million for the
year-ago period. -
Net loss for the six months ended June 30, 2016 was $2.3 million, or
$0.11 per share, compared with a net loss of $5.7 million, or $0.28
per share, in the year-ago period.
Financial Position
Cash and liquid investments totaled $11.1 million at June 30, 2016, an
increase of $5.8 million from approximately $5.3 million at December 31,
2015. The Company had no debt outstanding as of June 30, 2016. Total
inventory was $26.1 million compared with $32.3 million at December 31,
2015.
Investor Conference Call
Shareholders and other interested parties may participate in the
upcoming investor conference call by dialing 844-875-6912 (domestic) or
412-317-6708 (international/local) and asking to be connected to the
“Charles & Colvard, Ltd. Conference Call” a few minutes before 4:30 p.m.
EDT on Wednesday, August 3, 2016. A replay of this conference call will
be available until August 10, 2016 at 877-344-7529 (domestic) or
412-317-0088 (international). The replay conference ID is 10090267. The
call will also be available live and for replay in the Investor
Relations section of the Company’s website at http://www.charlesandcolvard.com/investor-relations/events.
About Charles & Colvard, Ltd.
Charles & Colvard, Ltd., based in the Research Triangle Park area of
North Carolina, is the world’s only source of Forever Classic™, Forever
Brilliant®, and Forever One™ moissanite gemstones, which
surpass the fire and brilliance of diamonds. Moissanite is unique,
available in three color grades (colorless, near-colorless, and faint
color), and created from silicon carbide (SiC) crystals for fine
jewelry. Charles & Colvard Created Moissanite® is sold
with a Certificate of Authenticity and Limited Lifetime Warranty to
wholesale distributors, manufacturers, retailers, TV shopping networks,
and designers as loose stones or set in a wide variety of quality metal
setting options. Charles & Colvard, Ltd. also sells direct to consumers
through its wholly owned operating subsidiary, Moissanite.com,
LLC. Charles & Colvard, Ltd.’s common stock is listed on the NASDAQ
Global Select Market under the symbol “CTHR.” For more information,
please visit www.charlesandcolvard.com.
Forward-Looking Statement
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 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, our dependence on consumer awareness, acceptance, and
growth of sales of our products resulting from our strategic
initiatives; dependence on a limited number of customers; the impact of
the execution of our business plans on our liquidity; our ability to
fulfill orders on a timely basis; the financial condition of our major
customers and their willingness and ability to market our products;
dependence on our exclusive supply agreement with Cree, Inc. for the
sole supply of the raw material; intense competition in the worldwide
jewelry industry; our ability to maintain compliance with the continued
listing requirements of The Nasdaq Stock Market LLC; our current
wholesale customers’ potential perception of us as a competitor in the
finished jewelry business; quality control challenges from time to time
that can result in lost revenue and harm to our brands and reputation;
general economic and market conditions; risks of conducting business in
foreign countries; the risk of disruption of our operations by natural
disasters; the pricing of precious metals, which is beyond our control;
the potential impact of seasonality on our business; our ability to
protect our intellectual property; the risk of a failure of our
information technology infrastructure to protect confidential
information and prevent security breaches; the impact of significant
changes in e-commerce opportunities, technology, or models; the failure
to evaluate 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
Securities and Exchange Commission, or the SEC, including our Annual
Report on Form 10-K for the fiscal year ended December 31, 2015 and
subsequent reports filed with the SEC. Forward-looking statements speak
only as of the date they are made. We undertake no obligation to update
or revise such statements to reflect new circumstances or unanticipated
events as they occur except as required by the federal securities laws,
and you are urged to review and consider disclosures that we make in the
reports that we file with the SEC that discuss other factors relevant to
our business.
|
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) |
|||||||
|
June 30,
2016 |
December 31, 2015 |
||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ |
11,111,309 |
$ |
5,274,305 |
|||
| Accounts receivable, net | 2,228,545 | 3,852,651 | |||||
| Inventory, net | 10,121,500 | 10,739,798 | |||||
| Prepaid expenses and other assets | 922,035 | 701,105 | |||||
| Assets related to discontinued operations | 750 | 83,000 | |||||
| Total current assets | 24,384,139 | 20,650,859 | |||||
| Long-term assets: | |||||||
| Inventory, net | 15,961,283 | 21,588,622 | |||||
| Property and equipment, net | 1,317,659 | 1,615,683 | |||||
| Intangible assets, net | 5,564 | 71,086 | |||||
| Other assets | 165,016 | 214,588 | |||||
| Total long-term assets | 17,449,522 | 23,489,979 | |||||
| TOTAL ASSETS | $ | 41,833,661 | $ | 44,140,838 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 3,062,700 | $ | 3,323,148 | |||
| Accrued cooperative advertising | – | 58,000 | |||||
| Accrued expenses and other liabilities | 770,258 | 891,187 | |||||
| Liabilities related to discontinued operations | 183,000 | 349,000 | |||||
| Total current liabilities | 4,015,958 | 4,621,335 | |||||
| Long-term liabilities: | |||||||
| Accrued expenses and other liabilities | 655,867 | 710,223 | |||||
| Accrued income taxes | 427,246 | 420,503 | |||||
| Total long-term liabilities | 1,083,113 | 1,130,726 |
|
||||
| Total liabilities | 5,099,071 | 5,752,061 | |||||
| Commitments and contingencies | |||||||
| Shareholders’ equity: | |||||||
| Common stock, no par value; 50,000,000 shares | |||||||
| authorized; 21,507,235 and 21,111,585 shares issued and | |||||||
| outstanding at June 30, 2016 and December 31, 2015, | |||||||
| respectively | 54,243,816 | 54,240,247 | |||||
| Additional paid-in capital | 13,918,550 | 13,280,920 | |||||
| Accumulated deficit | (31,427,776 | ) | (29,132,390 | ) | |||
| Total shareholders’ equity | 36,734,590 | 38,388,777 | |||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 41,833,661 | $ | 44,140,838 | |||
|
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) |
|||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net sales | $ | 6,527,004 | $ | 6,183,535 | $ | 17,920,275 | $ | 13,199,621 | |||||||
| Costs and expenses: | |||||||||||||||
| Cost of goods sold | 3,894,094 | 6,092,858 | 13,057,982 | 10,521,481 | |||||||||||
| Sales and marketing | 1,803,010 | 1,787,930 | 3,331,595 | 3,145,874 | |||||||||||
| General and administrative | 1,693,123 | 1,191,879 | 3,135,818 | 3,057,242 | |||||||||||
| Research and development | 980 | 7,043 | 2,848 | 9,104 | |||||||||||
| Total costs and expenses | 7,391,207 | 9,079,710 | 19,528,243 | 16,733,701 | |||||||||||
| Loss from operations | (864,203 | ) | (2,896,175 | ) | (1,607,968 | ) | (3,534,080 | ) | |||||||
| Other income (expense): | |||||||||||||||
| Interest income | – | – | – | 11 | |||||||||||
| Interest expense | (5 | ) | (767 | ) | (1,512 | ) | (784 | ) | |||||||
| Loss on abandonment of property and equipment | (115,548 | ) | – | (115,548 | ) | – | |||||||||
| Gain on sale of long-term assets | – | – | – | 125 | |||||||||||
| Total other expense, net | (115,553 | ) | (767 | ) | (117,060 | ) | (648 | ) | |||||||
| Loss before income taxes from continuing operations | (979,756 | ) | (2,896,942 | ) | (1,725,028 | ) | (3,534,728 | ) | |||||||
| Income tax net expense from continuing operations | (3,500 | ) | (3,243 | ) | (6,743 | ) | (6,336) | ||||||||
| Net loss from continuing operations | (983,256 | ) | (2,900,185 | ) | (1,731,771 | ) | (3,541,064 | ) | |||||||
| Discontinued operations: | |||||||||||||||
| Loss from discontinued operations | (4,708 | ) | (1,147,351 | ) | (579,078 | ) | (2,185,923 | ) | |||||||
| Gain on sale of assets from discontinued operations | – | – | 15,463 | – | |||||||||||
| Net loss from discontinued operations | (4,708 | ) | (1,147,351 | ) | (563,615 | ) | (2,185,923 | ) | |||||||
| Net loss | $ | (987,964 | ) | $ | (4,047,536 | ) | $ | (2,295,386 | ) | $ | (5,726,987 | ) | |||
| Net loss per common share: | |||||||||||||||
| Basic – continuing operations | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.08 | ) | $ | (0.17 | ) | |||
| Basic – discontinued operations | (0.00 | ) | (0.06 | ) | (0.03 | ) | (0.11 | ) | |||||||
| Basic – total | $ | (0.05 | ) | $ | (0.20 | ) | $ | (0.11 | ) | $ | (0.28 | ) | |||
| Diluted – continuing operations | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.08 | ) | $ | (0.17 | ) | |||
| Diluted – discontinued operations | (0.00 | ) | (0.06 | ) | (0.03 | ) | (0.11 | ) | |||||||
| Diluted – total | $ | (0.05 | ) | $ | (0.20 | ) | $ | (0.11 | ) | $ | (0.28 | ) | |||
| Weighted average number of shares | |||||||||||||||
| used in computing net loss per | |||||||||||||||
| common share: | |||||||||||||||
| Basic | 20,966,256 | 20,326,577 | 20,848,337 | 20,217,646 | |||||||||||
| Diluted | 20,966,256 | 20,326,577 | 20,848,337 | 20,217,646 | |||||||||||
|
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) |
|||||||
| Six Months Ended June 30, | |||||||
| 2016 | 2015 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
| Net loss | $ | (1,731,771 | ) | $ | (3,541,064 | ) | |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||
| Depreciation and amortization | 330,147 | 387,543 | |||||
| Stock-based compensation | 594,728 | 676,664 | |||||
| Provision for uncollectible accounts | (59,558 | ) | 19,000 | ||||
| Provision for sales returns | (295,000 | ) | (581,000 | ) | |||
| Provision for inventory reserves | 55,000 | 615,000 | |||||
| Loss on abandonment of property and equipment | 115,548 | – | |||||
| Gain on sale of long-term assets | – | (125 | ) | ||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 1,978,664 | 1,609,967 | |||||
| Inventory | 6,190,637 | 3,794,495 | |||||
| Prepaid expenses and other assets, net | (171,358 | ) | (266,933 | ) | |||
| Accounts payable | (260,448 | ) | (77,039 | ) | |||
| Accrued cooperative advertising | (58,000 | ) | (184,000 | ) | |||
| Accrued income taxes | 6,743 | 6,336 | |||||
| Other accrued liabilities | (175,285 | ) | 713,860 | ||||
| Net cash provided by operating activities of continuing operations | 6,520,047 | 3,172,704 | |||||
| Net cash used in operating activities of discontinued operations | (935,326 | ) | (1,897,817 | ) | |||
| Net cash provided by operating activities | 5,584,721 | 1,274,887 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
| Purchases of property and equipment | (118,433 | ) | (145,733 | ) | |||
| Patent, license rights, and trademark costs | (255 | ) | (45,742 | ) | |||
| Proceeds from sale of long-term assets | – | 175 | |||||
| Net cash used in investing activities of continuing operations | (118,688 | ) | (191,300 | ) | |||
|
Net cash provided by (used in) investing activities of discontinued operations |
368,671 | (9,452 | ) | ||||
| Net cash provided by (used in) investing activities | 249,983 | (200,752 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
| Stock option exercises | 2,300 | 172,766 | |||||
| Net cash provided by financing activities of continuing operations | 2,300 | 172,766 | |||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 5,837,004 | 1,246,901 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 5,274,305 | 4,007,341 | |||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 11,111,309 | $ | 5,254,242 | |||
| Supplemental disclosure of cash flow information: | |||||||
| Cash paid during the period for interest | $ | 1,512 | $ | 784 | |||
| Cash paid during the period for income taxes | $ | – | $ | – | |||
Contacts
Charles & Colvard, Ltd.
Kyle Macemore, Chief Financial Officer
919-468-0399
kmacemore@charlesandcolvard.com
or
Investor
Relations:
Taglich Brothers, Inc.
Christopher Schreiber,
212-661-6886
