Edited Transcript of CTHR earnings conference call or presentation 21-May-20 8:30pm GMT

MOORESVILLE May 22, 2020 (Thomson StreetEvents) — Edited Transcript of Charles & Colvard Ltd earnings conference call or presentation Thursday, May 21, 2020 at 8:30:00pm GMT

* Clint J. Pete

Charles & Colvard, Ltd. – CFO & Treasurer

* Suzanne T. Miglucci

Charles & Colvard, Ltd. – CEO, President & Director

LD Micro, Inc. – Founder & President

* Walter M. Schenker

Good day, and welcome to the Charles & Colvard Q3 Fiscal Year 2020 Earnings Call. (Operator Instructions)

This earnings call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company’s business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company’s expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate.

This earnings call does not constitute an offer to purchase any securities nor solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company’s shareholders.

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

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

Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [2]

Thanks, everyone, for being with us today. I’ll begin on Slide 3, where we’ve outlined the agenda for our call. I’ll begin our remarks by providing an overview of Charles & Colvard’s response to the COVID-19 pandemic and the operational and financial steps we’ve taken to navigate through the current business environment. Then Clint Pete, our Chief Financial Officer, will give you an overview of our fiscal 2020 third quarter financial results. I’ll then close with a discussion of our short-term steps to maintain operational and financial viability and how the company’s key attributes are positioning us to reach our long-term plans.

Let’s move on to Slide 4. In the face of this pandemic, our #1 priority is the health and safety of our employees and customers. At the onset of the virus in the U.S., our management team took swift and appropriate actions designed to hedge against the overall impact of the pandemic, prepare for a potential recessionary environment and efficiently manage the business while maintaining adequate liquidity and maximum flexibility. Our team has demonstrated strength, compassion and leadership and has guided the company to a point of financial stability that we believe will position us to emerge with strength well beyond the COVID-19 crisis.

Here are our actions to date. In March, we deployed a work-from-home policy for all but critical employees due to a mandated stay-at-home order by the state of North Carolina and local government authorities. We implemented flexible work arrangements for those staff whose positions could be performed remotely and powered our staff with technological resources that align with our highly secure corporate standards.

Because we were not deemed an essential organization, the North Carolina state mandate work-from-home order precluded us from manufacturing any new goods. Therefore, on April 13, we made the difficult decision to furlough roughly half of our employees with a heavy concentration from our operations and manufacturing departments. To support these impacted employees, we’re covering the cost of their care benefits. And we’ve extended additional flexibility through our 401(k) plan to help staff with new financial disbursements, if needed, during this critical time.

We view preservation of cash as paramount in any crisis and consider all expenses as variable. We’ve responsibly implemented several cost-cutting measures. First, with retained staff. We implemented temporary salary reductions for all employees, including 25% for myself, 15% for our Chief Financial Officer and Chief Operating Officer; and graduated pay cuts throughout the remaining ranks. And we instituted a 50% reduction in fees paid to our Board of Directors.

We also implemented significant reductions in nonpayroll expenses, including a reduction in marketing spend by more than 50%. Strategically, our digitally oriented advertising program does not require a long-term or significant upfront commitments, which allowed a seamless pivot in advertising spend. We’ve also significantly reduced product development costs, overall spending across all functional areas of the business and eliminated all travel investments for the foreseeable future.

And lastly, we worked with advisers to maximize participation in eligible government programs for businesses or employees impacted by the COVID-19 pandemic.

In the third quarter of Charles & Colvard’s 2020 fiscal year, the COVID-19 pandemic and related government and business responses began to have an adverse effect on the overall economy, consumer buying behaviors and Charles & Colvard’s business. Despite a healthy January and February, by early March, these adverse effects had impacted our supply chain as well as our traditional and online channels’ revenue segments, which I’ll outline for you.

In our supply chain, we experienced instances of suppliers temporarily closing their operations, delaying order fulfillment or limiting their production. Where applicable, we utilized alternative supply arrangements with partners whose businesses were not under stay-at-home orders or whose production came back online. However, we and our suppliers remain subject to ongoing changes to governmental requirements, which may have long-term impacts on our supply chain capabilities and efficiencies.

In our traditional segment, the pandemic first impacted sales from our international distributors in the Asia Pacific region in January, which was already affected by political unrest in the prior quarter. Other regions followed suit, culminating in major shutdowns across the U.S. by mid-March. Domestic brick-and-mortar retailers, including those served by Charles & Colvard as well as those serviced by our distributor partners began closing their stores to foot traffic in March, with tentative plans to reopen on a rolling schedule that may lead into the fall time frame or later. As a result of these store closures and stay-at-home orders, many of our distributors reduced or closed their operations, impacting our ability to maintain significant levels of sales to our wholesale customers.

In our online channels segment, our transactional website, charlesandcolvard.com, remained open. We continued to process orders based on product availability and limited fulfillment capacity. Because of our in-stock position, we were also able to serve marketplaces and drop-ship partner websites, such as macys.com, helzberg.com, overstock.com, Amazon and more. We’ve heard how valuable we’ve been to these online partners, who are seeking products from trusted sources that they could promote and sell while their own capacities were severely limited. This ongoing e-commerce presence has been our beacon of light and a testament to our pivot to online commerce over 3 years ago.

At this time, I’d like to turn the call over to Clint Pete, our CFO, for an overview of our Q3 financials. Then I’ll return to reflect on the company’s plans to manage through our anticipated recovery. Clint?

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [3]

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Thank you, Suzanne. Good afternoon, everyone, and thank you for joining us. I hope you’re all doing well and staying safe during this challenging time.

Today, I’ll summarize the key financial results for Q3 2020. Additional detail can be found in our Form 10-Q for the quarter ended March 31, 2020, which we expect to file tomorrow. We have a lot to cover regarding our Q3 financial performance, including the overall impact the COVID-19 crisis had on our U.S. sales channels primarily during the month of March and our Asia Pacific region throughout the entire quarter.

Slide 6 summarizes net sales for Q3 2020, which decreased 18% to $6.5 million compared to the year ago quarter. In our 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 for the quarter decreased 8% to $3.8 million versus the year ago quarter, representing 59% of total net sales. Our transactional website, charlesandcolvard.com, decreased 12% in net sales versus the year ago quarter. Sales through our cross-border trade platform decreased 15% versus the year ago quarter.

These declines in revenue primarily resulted from the significant effect of the COVID-19 crisis. This included the economic setback experienced by consumers around the world, the surge in unemployment, the business shutdowns, including the closure of our corporate headquarter due to the mandated North Carolina stay-at-home work order.

In the company’s traditional segment, which consists of wholesale and retail customers, net sales for the quarter decreased 29% to $2.7 million versus the year ago quarter, representing 41% of total net sales. COVID-19 impacted this segment in both our domestic and international distributor sales. Finished jewelry net sales decreased 12% for the quarter. We saw declines in our direct-to-consumer sales, as noted a moment ago, as well as with our brick-and-mortar partners whose retail locations closed in March. Loose jewel net sales decreased 24% for the quarter mainly due to a decline in demand from our international distributors during the entire quarter related to COVID-19 and then from our domestic distributors in March as the impacted areas spread across the world and the U.S.

Forever One net sales of finished jewelry and loose jewels represented 82% of total net sales for Q3 2020. International sales decreased 63% versus the year ago quarter, reflecting significantly lower orders from Asian distributors and cross-border sales on our transactional website due to the global closures put into effect.

Moving on to Slide 7. We reported a net loss for Q3 2020 of approximately $6.2 million or negative $0.21 per diluted share compared with net income of approximately $814,000 or $0.04 per diluted share in the year ago quarter. This was based on 28.7 million fully diluted weighted average shares compared to 21.7 million in the year ago quarter. The net loss for Q3 was significantly impacted by legacy inventory write-off.

In Q3 2020, we wrote off approximately $5.3 million of legacy material inventory. This noncash expense was included in our cost of goods sold for the quarter. The decision was made to take this action as part of our overall standard quarterly inventory valuations. The write-off was recorded in Q3 2020 primarily due to the impact from the global outbreak of COVID-19 coupled with the impact from the political unrest in Hong Kong. These factors impeded business with our distributor network, which is the primary sales channel for legacy inventory. As a result of the loss of demand in these Asia Pacific sales channels, we determined in Q3 2020 that this inventory had no value and, thus, recorded the related balance sheet write-off.

As summarized on Slide 8, our gross margin for Q3 2020 was a negative 41% compared to 47% in the year ago quarter primarily due to the inventory write-off. We maintained reasonable segment gross margin levels. In our online channels segment, which includes sales of our Forever One product on our transactional website, charlesandcolvard.com, our gross margin was 56%. In our traditional segment, our gross margin was 47%.

On Slide 9, we show operating expenses as a percentage of net sales at the top of each bar. The dollar level of our operating expenses for each quarter is presented inside each bar. For Q3 2020, we operating expense as a percentage of net sales was 54% compared to 37% in the year ago quarter. Overall, operating expenses increased 19% versus the year ago quarter. Sales and marketing expenses increased approximately $606,000, primarily related to digital marketing spending, brand awareness initiatives and agency fees in the quarter. G&A expenses decreased approximately $48,000. I will speak to certain actions we are undertaking on expense management in my closing remarks.

Slide 10 presents a snapshot of our balance sheet. Our liquidity remains strong as we ended the quarter with $11.9 million of cash, cash equivalents and restricted cash compared to $13 million at our last fiscal year-end, June 30, 2019.

In terms of other sources of liquidity, in April 2020, we applied for an SBA loan through the Payroll Protection Program (sic) [Paycheck Protection Program] under the CARES Act. Should we be granted this loan, our proceeds will be used to fund salaries, rent and other specified expenses that can be likely forgiven under the loan’s current guidelines. There is a very low 1% interest rate for the borrowed funds that are not forgiven. We also applied for an Economic Injury Disaster Loan and await word on both applications.

We currently have a $5 million asset-based credit facility with White Oak Commercial Finance, which provides further liquidity for general corporate purposes should the need arise. However, the credit line is secured by accounts receivable and inventory asset levels, so there are limits and constraints that’s used during these times. As of March 31, 2020, we have not accessed funds to this credit facility.

Moving on to Slide 11. Inventory at March 31, 2020, totaled $31.7 million compared to $35.8 million at December 31, 2019, and $33.7 million at June 30, 2019. Loose jewel inventory was $21.5 million compared to $24.3 million at June 30, 2019. Finished jewelry inventory increased to $10 million compared to $9.3 million at June 30, 2019. As of March 31, 2020, 100% of our inventory was classified as new inventory.

Our cash flow from continuing operations was negative $1.3 million for the quarter. Given the uncertainty around the duration and trajectory of COVID-19 related disruptions, we are aggressively managing costs and cash outlays to current trends while aiming to ensure readiness to resume operations as soon as conditions permit.

As noted on Slide 12, we are taking proactive financial actions in addition to the ones Suzanne mentioned in her opening remarks. These include renegotiating contracts with certain vendors and suppliers to commitments to supply — to size our supply with the current demand during these times. We expect that our key partners will be willing to flex along with us to adjust changing needs of the business. We are working with certain vendors and suppliers to reduce our cost of goods and/or services. We are negotiating the extension of payment terms with select partners. And we are aligning variable expense to match the current sales trends, including temporary reductions in digital advertising spending.

With that, I’d like now to turn the call back over to Suzanne.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [4]

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Thank you, Clint. Charles & Colvard’s planned response to a crisis event, such as COVID-19, is to remain focused on our long-term growth strategies and to tailor our response so we can remain nimble and preserve liquidity. We also believe it’s important to take stock of our assets and competencies so we can proactively identify and plan for new opportunities that play to our core strengths.

On Slide 14, we highlight several key attributes worth noting about our business and how we intend to leverage them to position us for the post-COVID-19 market. Number one, as a direct-to-consumer facing brand, we’re focused intently on market trends, consumer demand and buying trends. We actively listen to the market to understand what products we need to develop to meet customer demand. Despite a tough close to Q3, we believe our Valentine’s Day performance across charlesandcolvard.com, marketplaces and drop-ship channels confirms for us that new offerings, such as our platinum products, colored gemstone options and our expanded signature collection, are hitting the mark. In addition, our ongoing efforts to create awareness for moissanite are being impactful. According to The Knot’s recent engagement trends survey, moissanite is now the second most common center stone after diamond. It’s chosen by 19% of brides and is doubling in popularity since 2017.

While we update our offering as customer tastes evolve, it’s important to note that our jewelry is not seasonally trendy. Unlike other retailers who are grappling with unsold spring merchandise, our jewelry designs are classic and timeless. While trends may lead us to bring forward more yellow gold and platinum metals, we plan to always carry goods that transcend seasons and time. Our merchandising team is attuned to market demands. Our marketing team is deeply engaged with our millennial audience, and we believe Charles & Colvard’s agile product development strategy is poised to deliver.

Number two, as an e-commerce-driven business, with 59% of our sales coming from online channels in Q3, 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. While many of our retail peers are making a hard pivot toward an online channel strategy, we have over 3 years of significant online presence and progressively advanced technology deployments that place us ahead of this retail shift. During these challenging economic times, offerings such as our many pay over time and credit payment options will place the Charles & Colvard jewelry purchase within reach. With a keen focus on consumer demand and a healthy road map of enhanced features, functions and upgrades, we’re positioned for new levels of online engagement.

And number three, we’ve built an efficient omnichannel distribution network, including a direct-to-consumer e-commerce website and a strong presence on leading global marketplaces and partner websites. This model and its underlying infrastructure empowers us to be nimble and opportunistic since we’re not burdened with physical stores or multiple long-term lease commitments. Market disruptions such as COVID-19 generally bring with them new channel opportunities, and we imagine new online retailers will come to market. We’ll be evaluating these potential channels as they arise and plan to remain poised to expand our network as compelling prospects unfold.

In fact, last week, we announced the launch of our Moissanite by Charles & Colvard Jewelry online on the Hudson’s Bay online retail store in Canada. Visit us on their website at thebay.com.

Number four, we have an agile supply chain and partnering model that’s built on redundancy and diversification. By way of example, Charles & Colvard began to experience market disruption in the Asia Pacific region in the December quarter, which impacted both our distribution channels and supply chain partners. Strategically, our supply chain is built in such a way that production once earmarked for Asia Pacific could be readily shifted to other parts of the globe. This diverse partner network has served us well during COVID-19, empowering us to support our online customers through shipping and distribution capabilities from partners worldwide. We’re pleased with the flexibility of our supply chain and believe we’re well positioned for future contingencies.

And finally, number five. We’re built to serve a digitally native consumer. We speak often of the millennial consumer and their propensity to buy online. As an outcome of COVID-19, we believe our customer demographics may expand as more consumers turn to online sources with a newfound level of trust. We administer a very flexible digital marketing program with no long-term advertising commitments to burden us. This allows us to adapt our marketing focus to engage the consumer wherever they may be. For example, we recently ramped up our online experiences with postings, such as Instagram Stories.

Our customers are requesting a higher level of online interaction, and they’re seeking creative ways to experience our product. Social media channels offer a multitude of ways to create an engaging environment. In addition, we recently announced the availability of our virtual consultation service, which enables customers to request an individualized online shopping session with one of our bridal jewelry experts. As we emerge from this current crisis, consumer behaviors will likely go through more transitions, and we intend to engage them throughout this evolution.

As we wrap up on Slide 15, we recognize that the full extent to which the COVID-19 pandemic will impact Charles & Colvard will depend on numerous evolving factors and future developments that are uncertain to us at this time. Economic factors affecting consumer confidence, spending or buying habits could materially and adversely affect demand for our products. We believe that we are well positioned and prepared to navigate these unchartered waters by staying focused on our mission to lead a revolution in the jewelry industry by delivering a brilliant product at an extraordinary value balanced with environmental and social responsibilities. While our response strategies are in their early stages, and we believe the recovery will be dynamic, we’re prepared for a phased approach to ramping up our business.

Here’s what we plan going forward. First and foremost, we’ll be following North Carolina state and local regulations as they’re disseminated. For the foreseeable future, we expect to maintain a remote workforce wherever applicable and significantly modify operations at our corporate headquarters to ensure employee and visitor health and safety, including the use of protective gear, social distancing and stringent cleansing measures.

We plan to adopt a phased approach to reentering furloughed staff into the business. Consumer confidence and spending and the reopening of our brick-and-mortar and distributor partners will be critical gateway factors. We need these channel partners to reopen and, in turn, drive demand. As demand increases, we’ll have the need and the funding to support staff returning to work.

Lastly, we’ll continue to closely manage our cash burn. We’re focused on emerging from this crisis as a strong, growth-oriented company and plan to reinvigorate the direct-to-consumer brand awareness strategies we began last year but in alignment with market demand. We’ll continue to monitor the pandemic, remain dynamic in our response to the rapidly challenging business and economic environment and adjust our position as more information and guidance become available to address the evolving situation.

I’d like to take a moment to thank the Charles & Colvard Board of Directors for their high level of engagement, guidance and oversight during this crisis. You’ve been invaluable advisers and partners during this challenging time. And to our Charles & Colvard staff, thank you for the many commitments you make to the company and for believing in the future of our brand. It’s your tenacity and dedication that make Charles & Colvard the amazing, authentic, desirable brand that it is.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [2]

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

Let’s — it’s a pretty broad question. Let’s start broadly with the general market. So the pandemic, as I think many of you probably know, has had a very significant impact on the retail environment. Just last week, retail sales numbers were published for April. They showed a 16.4% decline compared to the prior year. And I’m sure you’ve seen the news. JCPenney and J.Crew have filed for bankruptcy, and Pier 1 Imports noted just yesterday that they’re going to permanently close all their doors.

For Charles & Colvard, we opened the quarter with headwinds in Asia Pacific, and that came from some of the unrest that was happening in Hong Kong. That happened mainly to our distributor segment. And then that was followed by the impact of COVID in the United States. And ultimately, what happened is in — it was really mid-March or so where we really started to see a decline in traffic on our website and — thereafter. But leading up to Valentine’s Day, we were relatively strong. We saw sales of, again, our signature collection, our platinum product. It was all doing incredibly well. But we have seen this downturn in traffic since March as everything went into lockdown. And it was a pretty abrupt downturn from where we had been performing and trending prior to that.

We’re seeing what I would call nascent signs of improvement. So as we’re in the quarter — current quarter that we’re in, our fourth quarter, we’re seeing a little bit of improvement more from our online channels than on our traditional segments. Online, we began to see improving traffic patterns and some early signs of increased consumer spending, but that’s compared to the first few weeks of the downturn in March, which was, again, a fairly precipitous downturn.

By late April, we began to hear from our Asia Pacific partners, primarily distributors, that they were beginning to return to work. This doesn’t necessarily mean that we’ve seen a return to the revenue stream that we are accustomed to with them. But we do know they’re beginning to open their doors and return.

And then earlier this month, in the month of May, we started to hear from our brick-and-mortar partners, such as Helzberg Diamonds, that they’re beginning to open doors. They did a few stores in Texas mid-month. And by the end of the month, they expect to open another 22 doors. And we anticipate this will be sort of a slow turn on of the market. And I think everyone’s going to be watching it very carefully and seeing what the response is.

I will say that while these trends are encouraging, we remain incredibly cautious. Retail recovery requires the return of consumer confidence. And once consumer confidence returns, luxury retail sales, such as Charles & Colvard’s goods, may lag behind purchases for essentials that maybe have gone unchecked during the lockdown. So to set expectations here, we still expect that sales for the fourth quarter ending in June may be down substantially from the year ago quarter. We are very much in the middle of this pandemic and working our way through it. So it’s very uncertain. I think that we’re all going to keep our eye on the ball and see how the market responds, but that’s about as much insight as we can share at this time.

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

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Operator [3]

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Yes. Our first question will come from Matt Koranda with Roth Capital.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [4]

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Glad to hear you guys are doing well. And just wanted to start off with a clarifying point on the online channel that you’re talking about, Suzanne. What is meant exactly by improvement in the online channel? And, I guess, in the recent months, would you call that essentially down year-over-year? It sounds like you meant down year-over-year still, but just the declines are getting year-over-year less intense, so we’re seeing sort of sequential growth on a week-over-week type basis. I mean help us understand that.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [5]

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Yes. It’s a fair question, Matt, and thanks for dialing in and asking. So we’re — if I were comparing kind of where we are in the months of late April and into May, we have improved traffic over where we were when we first had the significant downturn from the pandemic. I would not say that it is anywhere near the performance of where we were last year at the same time.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [6]

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

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [7]

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It has. The mix shift is — it’s holding pretty steady to where it generally lands. We remain very much a bridal play. Still more than 50% of what we sell is on the bridal side of the house, which is good news. Even during the downturn, people are still getting married, so there’s still certainly a demand for our product. We will — we’re finding on marketplaces, actually, and our drop-ship partners, our margins have improved. And I would say that, that a testament to the rollout of Moissanite by Charles & Colvard. A year ago, we still had a fair amount of legacy goods that we were selling through those channels. The Moissanite by Charles & Colvard product coming at a higher margin, so those overall margins are looking strong, but the mix of product is generally the same. Still very much a bridal play on charlesandcolvard.com. We see a bit more fine jewelry that we sell through an Amazon and drop-ship partners and so on.

But we are — and I would say the one last piece I’ll add to that. Our average order values, I think we quoted about $1,200 last time we did earnings. We’re probably more like $1,100 right now. We have been offering some sale prices in order to encourage folks to come and transact with us. So that is bringing down our average order value ever so slightly, but I think it’s really helping drive the demand for sales on the site.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [8]

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Okay. That’s very helpful color. And I guess in that regard, when you mentioned AOV, I guess we have to ask about customer acquisition cost as well and sort of the trend this quarter. I mean — I guess there are a lot of puts and takes, but could you maybe cover — it seems like digital marketing, at least overall CPMs, may have gone down a touch towards the latter part of the quarter. But you still need to spend to convert — or to bring traffic to the site. So maybe talk to us about CAC and how it trended.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [9]

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Sure. Happy to do that, Matt. And it’s a good question. It kind of hearkens back to the discussion about our dramatically reduced ad spend. So during these times when we don’t see as high a demand rate, we tend to shift where the dollars are being played. So when we last reported earnings, we were talking about the holiday quarter and how we’re going very much to an awareness play, which is what we would call top-of-marketing-funnel activity. And that’s where we’re really trying to acquire net new eyeballs. We want new people to come to the brand, and it costs money to do that. And when we do, the general cost of acquisition goes up because the conversion is less. It’s people — we’re trying to convert people that don’t know the brand.

So last time we spoke, we were at about $400 or so in the cost of acquisition, and the way that we calculate that is how much ad spend does it take in order to get a new customer in the door. In this quarter, we made a pretty dramatic shift to lower marketing funnel spend because we wanted to talk to the people that are already predisposed to the brand and are asking for engagement with us. And those would be the people that are searching for the term Charles & Colvard on, say, Google. So they go to a search engine, they plug in the term Charles & Colvard. We want them to find us. And so we’re bidding for those kinds of keywords, bidding for the term moissanite for specifically those people that are probably pretty far down in the product selection phase of purchasing something. We’re bringing in those eyeballs. They’re much easier to acquire and much less expensive to acquire than a top-of-funnel investment that we would make.

So where we were $400 average cost to bring in a new customer in the holiday quarter; today, if I were looking at it in the recent weeks, we’re probably just under $200. And — but that’s, again, more a function of where we’re putting the dollars and how much we’re putting in as opposed to other factors. So hopefully, that answers the question.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [10]

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

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [11]

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Right. What we’re hearing, Matt, from our traditional brick-and-mortar partners is that their strategy is not unlike ours. It’s very phased. And it’s a state-by-state, local government by local government driven decision. So everyone is under a different order right now. We know all 50 states have opened to some degree, but the rules for opening are vastly different from one state to the next and even one jurisdiction to another. So each one of our channel partners then is looking at when they could open. And so it’s a mixed bag.

Again, we’ve heard from Helzberg that they opened a handful of stores. I think it was 3 in mid-May in Texas because Texas opened early. And then that was followed by another 22 that they had identified that they intend to have open by the end of this month. We’ve not heard much more from them beyond that, but we’ve been in regular contact about when we will be placing orders with them in order to help them with this ramp-up. So we’re prepared, and we can ship these orders now. North Carolina as of tomorrow afternoon will open to a greater degree. We’re moving into our Phase 2, which allows us a little more flexibility of what it is we can do from our headquarters. And our distribution capability is fully up and running. So if the orders come in, we’re ready to respond to those customers.

And then there’s the distributors, Matt, that we have to think about. Just think of distributors as the middlemen between us and the independent jeweler. Those independent jewelers have to open once there’s consumer confidence, and they have the ability to open their doors. Only then will they place orders with the distributors, and only then will distributors place orders with us. So we believe that the ramp-up through the distribution network will probably be even longer than it would be through our traditional brick-and-mortar partners.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [12]

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

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [13]

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

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [14]

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

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [15]

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Okay. Got it. All right. I’ll take the rest of that off-line. And then just 1 or 2 more here, if you don’t mind. I did want to cover the legacy inventory write-down just so I’m clear on it. It sounds like you wrote down essentially all of the legacy inventory of $5 million, but it does look like you guys did move some inventory from short term into long term. Help us understand kind of the puts and takes around that. And I guess I would have expected the inventory write-down to come out of long-term inventory, but help us understand what happened there.

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [16]

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Yes. So the positioning that we have in our balance sheet between short term and long term is basically based on the amount of goods that we’re going to consume based over the next 12 months. So that’s more of an accounting state policy that we’ve had for a while. So naturally, with the — you saw the trend this past quarter compared to the year ago quarter. So with the estimates of the impact of the pandemic, we adjusted that calculation based on that forecast, internal forecast. That’s why from the standpoint is on slide — in the earnings call presentation, we do have — we want to represent as well that now it’s all the Forever One product. That’s the value that’s been on our balance sheet now. So it’s all the high-premium Forever One product that’s been reaching our demand out there that we’re seeing based on once we turn around on this.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [17]

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And, Matt, I’ll add some color to that. It’s a fairly complicated process to bring our goods to market. We go from raw material. We take that raw material, and we form it into what we call preforms. That gets then faceted by a specialty faceter that creates the gem itself. It gets polished. It gets perfected. It gets graded. It gets inscribed so that we’re sure everyone knows that it’s a moissanite gem. It gets married together with a very beautiful setting that was meant for that particular gemstone. They’re joined together. They go through quality assurance exercises, and then it gets packaged up and it’s ready for sale. That process takes some period of time. And then the product goes perhaps into a Helzberg Diamonds store, where we generally see a 1x turn over the course of a year.

So the ability to sell a good all the way from raw to finished may very well take more than 12 months, and that’s what moves that item into what we would call longer term. It’s just that this is a very long sales cycle, and so that’s how we wind up with those numbers sitting on what we would call that long-term bucket.

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Matthew Butler Koranda, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [18]

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Okay. That makes sense. All right. And then maybe just lastly, I mean you guys still have a very healthy cash balance. And I noticed that you guys did mention you have a priority not to burn cash in the coming quarters. So I’m curious, I mean, are there opportunities for you guys in this environment? I mean there’s a lot of dislocation. There’s probably a lot of smaller competitors that have been out there that may not be doing quite as well or may not have quite the same sort of balance sheet that you guys have. Are there opportunities or strategic moves that you could make to take advantage of the environment and potentially either do an acquisition or other capital allocation decisions you could make to kind of take advantage of having a very strong cash balance?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [19]

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Yes. It’s a great question and absolutely something that the management team and the Board speak about on a regular basis. These challenging times do create opportunities. And with the Charles & Colvard business model, there’s many places where we could augment the business and then sort of leapfrog our way in the market. It could be a jewelry provider. It could be a gemstone provider. It could be an e-commerce technology that may be in distress but could very well be an added asset to our business and our ability to take the business forward. So those are absolutely things that we’re thinking about while we’re balancing what it is we’re burning in cash to make sure that we’re keeping the business viable as a going source. So we’re weighing things, but we’re very open and looking at the opportunities that are present themselves through this crisis, but it’s a practice we have on a general basis.

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Operator [20]

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Our next question will come from Hunter Diamond with Diamond Equity Research.

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Hunter Louis Diamond, Diamond Equity Research LLC – CEO & Founder [21]

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So I just have one question. A lot of them were answered previously. It relates really to the advertising. I know you — on the one hand, you’re trying to conserve your cash balance. But then on the other hand, you don’t want to go too low on sort of the top line growth. And I know you mentioned you’re doing Instagram Stories, so you’re paying Facebook for continued ads. So what are you thinking of sort of the balance of, one, using the payroll prevention conserving cash but at the same time utilizing everyone’s at home. They’re looking at their screens. You can maybe reach millennials more and build the brand. So what sort of — how are you thinking about that sort of decision?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [22]

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It’s a great question, and thanks for dialing in, Hunter. We use return on ad spend as sort of a benchmark for us to understand when the investments stop being productive. And so we’re super careful about leaning in where we’re putting the dollars. We mentioned Instagram Stories. We absolutely are making investments on advertising in social media, both Facebook and Instagram and some others. As I mentioned, we do a fair amount of search engine marketing. That’s very important to us as well, but that’s right now very low-funnel work.

And right now, we’re seeing return on ad spend in the 6 to 8x range, which is great numbers for us. And we’re comfortable there right now. We still have to spend that money, but for every dollar that we’re putting in, we’re still getting $6 to $8 back out, which is a good place to be. Before we hit this crisis, we were very much top of funnel, trying to bring in those new eyeballs and convert them, and we were sitting at a 2 to 3x return on ad spend. So somewhere, Hunter, honestly, between the 2 to 3x and the 6 to 8x where we are is the answer, but we really have to balance that with how much cash goes out.

These customers take a while to convert. So we’re putting the dollars in. It takes sometimes months for people to convert over. So at a time when consumer confidence may be low or at a time when people, yes, may be surfing, and we want to be in front of them, we still have to be a bit conservative on our ability to continue to convert these people over and make the dollars within a quarter so that we can balance out the books here. So it’s a delicate dance that we do each and every day. The good thing about digital marketing is you can dial it up and dial it down on a daily basis based on performance. So we measure twice and we cut once, as we say.

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Hunter Louis Diamond, Diamond Equity Research LLC – CEO & Founder [23]

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Sure. No, that makes perfect sense. Is that something you guys do internally? Or do you have someone that you use, like a marketing company that sort of handles that? Is there like an internal person that does the ad budget?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [24]

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Right. There are internal people that manage an ad budget. There are internal folks that are very close to SEO and the keywords that sort of make a difference and are important. And then we tie that with work with our digital ad agency who work off of a platform that helps us aggregate thinking from across many different retail customers. And so we have the advantage of the performance of other peers in our industry and how they’re performing as well. It gives us visibility into things like impressions that are hard for us to do ourselves without a very robust and expensive marketing platform internally. And so we do balance that work with our ad partner. But we do have a fairly educated and robust team in-house that manage it. And then the third party is there really to help us with the ad placements and to measure very carefully those performances.

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Hunter Louis Diamond, Diamond Equity Research LLC – CEO & Founder [25]

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Right. No, it makes perfect sense. And it will be interesting to see this quarter how it turns out because maybe, if you have maybe a balance sheet that’s better than your mom-and-pop peers or competitors, you may find that the adword budgets go down, right, and that the money, you’re getting more value because the consumer sort of plays that you would be competing with and bidding up the ad budgets may not be spending as much. So who knows? Maybe it would be good for you in terms of brand name and getting more — yes.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [26]

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It may be. What we’re seeing right now is that our cost to buy our near-brand terms like moissanite is actually going up. And I will say, Hunter, that it’s a testament to the work that we’ve done to create awareness for moissanite and to sort of get this buzz going in the market.

Because we’ve created this presence, we have competitors that don’t offer moissanite that actually bid on the term. And they do so because they realize that there are eyeballs searching for us and coming here. And so it’s funny, over holiday, we had some unusual ones, like Cartier and Tiffany were bidding on the moissanite term, which is interesting. They don’t carry the product in their stores, but they know that there’s a customer coming here.

For us, what it does — it’s a good thing and an unfortunate thing. Great in that we’re bringing in the eyeballs, but then it brings the attention and that bids up the cost of owning those near terms. So we’ll work our way through, but this is — that’s a very good problem to have, and I’ll take that any day of the week.

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Hunter Louis Diamond, Diamond Equity Research LLC – CEO & Founder [27]

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No, definitely. That makes a lot of sense. And also, it’d be interesting to see with the budget. I mean I know, a lot of people getting married, there’s an inclination to go for diamonds. But now people may be more hesitant to spend $10,000 on a wedding ring, they may — who knows? Maybe they’ll be more open to moissanite, right, because there’s record unemployment and budgets are tighter. So we’ll see. It could be — some it’s going to be — like you said during the call, some negatives and some positives in the next few quarters, so…

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [28]

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

So — and we’re here to the entire world. They’re starting to figure us out. As I think you probably know, we went global with our marketing effort over the past year, where we’d begun Amazon presence in Italy, Spain, France, Germany, Australia, other countries. And we’re beginning to get the word out there as well. So as the entire globe is impacted by this pandemic, we’re here with products that we think can fit the wallet.

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Operator [29]

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Our next question will come from William Wolfram with Galton Voysey.

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William Wolfram, [30]

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Could you give us some more color on what portion of your ad budget you’re now spending on performance-based ads on social media?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [31]

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Thanks for dialing in, William. It’s really nearly 100% in performance-based advertising. So we have brought everything down to the low funnel. And within that low-funnel work, it’s probably close to a 50-50 split between work that we’re doing on social and work that we’re doing in keyword buying. So again, very grassroots work that we’re doing at this time. We have abandoned at the moment anything that is very top of funnel and impression-based. And the reason for that is, of course, to get the very high-return on ad spend that we’re requiring at the moment.

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Operator [32]

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

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Peter Enderlin, MAZ Capital Advisors, LLC – Portfolio Manager [33]

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I have another one on the write-down of the legacy inventory, which was 100%. But the question is, did you consider writing off less than 100%? Because for years you went along, no, it’s so good, it’s still good, still good. And now obviously, triggered by the COVID pandemic, you wrote off the whole remaining carrying value of that. But did you think about maybe just cutting it in half or something like that?

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [34]

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Good. Pete, this is Clint. Good question. I think from the standpoint of the valuation that we went through from looking at all the components of that legacy inventory, at this stage with the — what we’re seeing in that — particularly in the international market and the impact that it had related to both the — with the COVID-19, the political unrest in Hong Kong, and those where that — where some of that legacy inventory is being sold, it did seem to dry up. And at this stage, there’s really no demand in the market for it right now, for that type of legacy product. We’ve been — right now, we’re not even putting marketing dollars on that stuff right now. We’re just trying to sell it. So everything is a Forever One story for us now, and that now kind of lies true with where we’re sitting at.

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Peter Enderlin, MAZ Capital Advisors, LLC – Portfolio Manager [35]

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Okay. Fair enough. And I think you said that the — your charlesandcolvard.com sales declined more than overall online sales. So what does that tell you what the significance of that is? Is it that — you cut back some on the digital advertising, but you did say you’re more down in the bottom part of the funnel. Is it, with all the noise of people searching for things online, that they’ve had a hard time getting to your website? Or how do you rationalize that?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [36]

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It’s a great question, and I’ll take that one. We were — well, first and foremost, we were closed for a significant period of time and had put up some messaging on our website that we were happy to take their orders but unable to ship, and that was during the phase — the first total lockdown in the state of North Carolina. But at that time, we had online partners, such as Overstock and other partners, that we’re able to keep those products up and live. And of course, they tend to purchase and then sell the lesser expensive a product. We tend to be a premium product on charlesandcolvard.com. Overstock tends to — like for a $1,100 average order value, they’re more like a $600 or $700 average order value. And during a time, this early time, when we really saw the downturn, the lesser expensive products we’re selling. We’re selling on Amazon because that was one of the few places that could deliver, and they were selling on some of these online channel partners that were able to ship within a very short period of time.

And thankfully, for our distribution network, we had distribution partners that could ship on our behalf while we were unable to do certain shipping here from Charles & Colvard’s headquarters. So we were able to serve those channels a bit better in the first few weeks of the downturn and the stay-at-home orders than we were our own site. We are now back up, fully functional. We’re taking returns. We’re doing repairs. We’re doing our typical immediate turnaround for customer demand, and that’s why we’re seeing the traffic and the demand improving on charlesandcolvard.com as well.

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Peter Enderlin, MAZ Capital Advisors, LLC – Portfolio Manager [37]

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And, Suzanne, you mentioned that you have a big seasonal push coming in June basically for engagement and weddings and graduations and those kinds of things. And people have already made the point that you could benefit from the fact that your cost value proposition is clearly better. But can you get more specific about how that may play out in the different parts of that seasonal bulge over the next 1.5 months or so?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [38]

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Yes. Pete, we are just not sure how it’s all going to unfold. From day-to-day, it shifts and it differs, and we are watching every trend every day. But if you are on our mailing list, not necessarily our Investor Relations mailing list but our customer mailing list, which you can sign up for on charlesandcolvard.com, you’ll actually see how our messaging and our sort of a-few-times-a-week e-mails are really attuning to what’s happening in the market. So right now, the messages that we’ve had over the past couple of days are very heavy on graduation. And we’re selling well into graduation products. Stud earings tend to do really well during graduation times, pendants. These are things that you don’t have to know the size maybe of someone’s finger. So we do a little bit more right now of earrings and pendants than we do necessarily of rings.

So it depends day-to-day. We lean into it as we see the trends. That’s where we get really smart about what’s happening on social media and what our customers are telling us. And then we react to that market, and we’re able to be nimble in how we promote to the trend. So stay tuned on that, and we will give you more color as we learn more about what the consumer is asking for.

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Operator [39]

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

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Chris Lahiji, LD Micro, Inc. – Founder & President [40]

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I just had a quick question about promotional pricing. Do you think it’ll — there’ll be any change even with COVID taking place?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [41]

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Boy, it’s a great question. We are seeing deep, deep discounting with a lot of the retailers that are, as I think I had said in prepared remarks, stuck with a lot of spring merchandise that they’re trying to get rid of. And I think as retailers come out of lockdown, they’re looking for any way to make revenue. And so I think we’re going to see a trend over the next couple of even quarters of deeply reduced and discounted prices in retail.

I will say, Charles & Colvard, we do have sales that go on. We’re on sale right now. We had a Mother’s Day sale. We’re currently on sale on our website. We’re going to encourage the same kind of activity with a modicum of discount on our product, but we don’t want to bring down the entire value of our product line. And so we’re very cautious about how frequent and how deep we go with our discounting. And we never discount our Signature Collection. It’s really a premium product, and so we’re trying to really build this premium branding. And so for that reason, we’re a bit careful about ourselves going deeply discounted even though the market is trending that way.

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Operator [42]

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Our next question will come from Walter Schnecken (sic) [Walter Schenker] with MAZ Partners.

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Walter M. Schenker, MAZ Capital Advisors, LLC – Principal [43]

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Sorry to be slightly redundant with Pete since we’re working from home. The legacy inventory still has economic value, I suspect, since it had economic value 3 months ago. By writing it off as noncash for book purposes, does this mean you will be able to be — or what is your plan to be more aggressive in converting that inventory to cash over time?

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [44]

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Thank you, Walter. Like we said, the statement that we said that it pretty much has little value now because of those channels drying up. We will — from this standpoint, we’re going to be focusing on the Forever One product line and making sure that we’re using that — the new inventory to make the goods and promote that piece of it from our standpoint. So — but at this stage, I really don’t see — truly see much demand for that in the market right now.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [45]

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Walter, I’ll add some color to that. You will see Forever Classic and Brilliant products still out in the market. We’ve sold them for almost 25 years now and in through our channel partners, and they’ll continue to be out there on marketplaces and some of these outlets. And so there will be a trickle of it out there.

For Charles & Colvard, we really believe in the engineering breakthrough that we had in 2016 — or ’15 when we went from our legacy material into our new product. And Forever One has been an amazing product and very well received in the market.

And then when we brought Moissanite by Charles & Colvard forward almost — we’re going on 2 years ago now. It really is — it is the — think of it as the discount sister to Forever One. It is a far more superior product than the Classics and the Brilliants that are out there. And it almost competes on price with what we would get for a Classic or a Brilliant, and we’re delivering a better product to market, and it’s better for our overall brand. It has better clarity. It has better color. It’s just a better-performing product. And so it is important that as we have very minimal marketing dollars, we place them where the best bet is, which is on the premium brand, and we want to attach that premium brand to Charles & Colvard, the house brand. So we’re really focused there. Should the sale happen online with some goods that have been sitting out there, that’s great for everyone, but that will not be our focus going forward.

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Operator [46]

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We have one will come from [Chris Micowski], who’s a private investor.

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Unidentified Participant, [47]

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So I guess I want to — this is probably a bit more detail than you usually give. But just to kind of gauge the acceptance of moissanite in kind of an organic fashion aside from all these events which have been happening, can you tell us what the year-over-year growth was for January and February only in the United States so that we can see what’s happening aside from the trade tensions and COVID-19?

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [48]

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Okay. So let me feed that back over to Clint because I’m going to ask him to answer your question. So you’re interested in looking at January and February of this year versus January and February of last. And what I will say — and taking March out of the calculation because that’s when COVID kind of started to impact us. I will say it still won’t be a fair sort of apples-to-apples comparison. In the holiday quarter, in the November, December time frame that we just passed, we were beginning to see downward pressure in the greater Asia Pacific market. And so our traditional channels already began to decline in that December and into January, February time frame because of the unrest that was happening in China and Hong Kong. So we still won’t get a super clean comparison.

But let me turn it over to Clint to reflect a bit on the January, February this year versus last.

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Clint J. Pete, Charles & Colvard, Ltd. – CFO & Treasurer [49]

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Well, we did have a strong — I wouldn’t say strong. I mean we did have a well-performing Valentine season from that standpoint compared to the year ago — that year ago period, which Valentine’s is typically January to — it starts in January and goes into — all the way up to the to Valentine’s Day. So we did see charlesandcolvard.com because we are pouring — at that point in time, we were also — we’re activating our funds from the capital raise in order to drive some more the — drive some more advertising and people impressions and people to our website. So we did see a good performance. In that way as well, as Suzanne mentioned, the moissanite buy and all our drop-ship retailers was really — we saw some strong performance there as well.

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [50]

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

So to Clint’s point, online comparisons were quite good. Again, traditional was down. But online channels performed very well in the January and February time frame. And we’re just excited for all of this to pass by and for us to get back to whatever the new normal is going to be.

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Operator [51]

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

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Suzanne T. Miglucci, Charles & Colvard, Ltd. – CEO, President & Director [52]

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

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Operator [53]

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

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