Brilliant Earth (US:BRLT)2023-11-08 16:00Financial Performance - Net sales for the three months ended September 30, 2023, were $322.0 million, a 0.6% increase from $320.3 million for the same period in 2022[179]. - Net income for the three months ended September 30, 2023, was $2.8 million, down 78.2% from $12.8 million for the same period in 2022[179]. - Adjusted EBITDA for the three months ended September 30, 2023, was $20.9 million, a decrease of 25.2% compared to $28.0 million for the same period in 2022[179]. - The adjusted EBITDA margin for the three months ended September 30, 2023, was 6.5%, down from 8.7% for the same period in 2022[179]. - Gross profit for the three months ended September 30, 2023 was $66.827 million, representing a 9.7% increase compared to $60.918 million in the same period of 2022[245]. - For the nine months ended September 30, 2023, net income was $2.793 million, a decrease of 78.2% compared to $12.839 million for the same period in 2022[271]. - Adjusted EBITDA for the three months ended September 30, 2023, was $7.624 million, down from $9.961 million in the same period of 2022, reflecting a margin of 6.7%[259]. - Gross profit for the nine months ended September 30, 2023 increased by $15.1 million, or 9.0%, with gross margin improving by 440 basis points compared to the same period in 2022[252]. Order and Sales Trends - The company experienced a 16.7% increase in order volumes, partially offset by a 12.2% decrease in average order value (AOV) for the three months ended September 30, 2023[225]. - The company experienced a 16.2% increase in order volumes for the nine months ended September 30, 2023, despite a 13.4% decrease in average order value (AOV)[251]. - Total orders for the nine months ended September 30, 2023, increased by 16.2% to 121,641 compared to 104,715 in the same period of 2022[278]. Expenses and Costs - Selling, general and administrative expenses for the three months ended September 30, 2023 increased by $10.2 million, or 18.7% compared to the same period in 2022, with expenses as a percentage of net sales rising by 780 basis points[226]. - Selling, general and administrative expenses for the nine months ended September 30, 2023 rose by $29.1 million, or 19.2%, with expenses as a percentage of net sales increasing by 880 basis points[253]. - Interest expense for the three months ended September 30, 2023, increased by 69.9% to $3.808 million, primarily due to rising variable interest rates[270]. - Marketing expenses increased significantly due to higher investments aimed at enhancing brand awareness and supporting growth initiatives[269]. Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2023, was $15.514 million, compared to $9.019 million for the same period in 2022[263]. - For the nine months ended September 30, 2023, net cash provided by operating activities was $15.5 million, an increase of $6.5 million compared to $9.0 million for the same period in 2022[289]. - The increase in net cash from operating activities was primarily driven by $13.5 million from changes in assets and liabilities, offset by a $7.0 million decrease in net income adjusted for non-cash expense addbacks[289]. - As of September 30, 2023, the company had a cash balance of $147.1 million, with working capital of ($22.0) million[300]. - Net cash used in financing activities for the nine months ended September 30, 2023, was $12.3 million, a decrease of $10.1 million from $22.4 million in the same period in 2022[304]. - The decrease in financing activities was primarily due to lower tax distributions paid to members of $8.4 million and reduced debt activity compared to 2022[304]. - The company has sufficient liquidity to meet projected operating, debt service, and tax distribution requirements for at least the next 12 months[262]. Strategic Initiatives - The company plans to strategically open new showrooms to drive growth and increase average order value compared to e-commerce orders[208]. - The company aims to leverage technology for dynamic product visualization and improve customer experience, which is expected to drive higher satisfaction and conversion rates[202]. - The company plans to leverage its marketing strategy to drive brand awareness and increase qualified consumer traffic to its website and showrooms[233]. - Future growth is anticipated from launching e-commerce in new overseas markets and expanding showroom locations in established digital markets[236]. - The company is in the early stages of expanding its global footprint, with localized websites for Canada, Australia, and the UK showing promising sales from over 50 countries[235]. Tax and Deferred Assets - The effective tax rate for the nine months ended September 30, 2023, was 4.09%, differing from the U.S. federal statutory tax rate of 21% due to various factors[192]. - The company has recorded a deferred tax asset of $8.9 million related to the tax receivable agreement as of September 30, 2023[195]. - The company expects to continue making quarterly distributions related to member estimated income tax obligations, totaling $9.9 million for the nine months ended September 30, 2023[261]. - The company is required to make cash payments under the TRA equal to 85% of the tax benefits realized, which are expected to be significant[308]. Operational Model - The operating model is asset-light, allowing for negative working capital and efficient inventory management, which supports attractive inventory turns[237]. - The company has historically had negative working capital driven by high inventory turns and early collection of payments from customers[300]. - There were no amounts outstanding under the SVB Revolving Credit Facility as of September 30, 2023[305]. Risks and Dependencies - Deterioration in the financial condition of Brilliant Earth, LLC could limit its ability to pay distributions to the company[295]. - The company has no independent means of generating revenue and relies on distributions from Brilliant Earth, LLC to cover income taxes and administrative expenses[292].