Charles & Colvard, Ltd. (NASDAQ:CTHR) Q4 2019 Results Earnings Conference Call September 5, 2019 4:30 PM ET
Suzanne Miglucci - President and CEO
Clint Pete - CFO
- Suzanne Miglucci - 总裁兼首席执行官
- Clint Pete - 首席财务官
Dave King - ROTH Capital
Rodney Baber - Private Investor
- 戴夫金 - 罗仕证券
- Rodney Baber - 私人投资者
Good day, and welcome to the Charles & Colvard Q4 and Full FY 2019 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 a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders.
Accompanying today's call is a 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 prepared remarks. Should you have any questions, you like to summit please email email@example.com. 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.
美好的一天，欢迎来到Charles＆Colvard Q4和2019财年全年收入电话会议。 [操作说明]
Good afternoon and thank you for joining us as we summarize Charles & Colvard's results for the fourth quarter ended June 30 and our full fiscal year 2019.
Before I begin, as you may know the Research Triangle area in North Carolina is experiencing some increment weather today due to Hurricane Dorian. In the event we're dropped from the call, we do have contingency services in place and we should be able to rejoin in short order. We thank you in advance for your patience.
Let’s begin. In the fourth quarter 2019, we generated strong revenue growth, excellent gross margins, continued robust performance from our international sector and our fourth consecutive quarter of profitability. It was a pivotal year for Charles & Colvard as we solidified our direct to consumer model and secured the capital that will help us catapult our business forward.
Clint Pete our CFO will begin today's call with an overview of our financials. Then I’ll return to discuss key highlights from the quarter and year to share with you our vision for fiscal year 2020. Clint?
Thank you, Suzanne. Good afternoon everyone and thank you for joining us.
My comments today will focus on highlighting the key financial results in Q4, 2019 and the fiscal year ended June 30, 2019. Additional detail can be found in our Form 10-K for the fiscal year ended June 30, 2019 which we expect to file tomorrow.
The fiscal year 2019 was our first full fiscal year since we shifted to June 30 fiscal year end from a December 31 fiscal year end. Therefore for our call today, when we compare the financial results from the fiscal year ended June 30, 2019 to the prior year period, we are comparing to June 30, 2018 which is the unaudited recasted results for the 12 months period.
Beginning on Slide 5, we reported net income for Q4 2019 of approximately $160,000 or $0.01 per diluted share compared with a net loss of approximately $700,000 or $0.03 loss per diluted share in a year ago quarter. This is our fourth consecutive quarter of profitability.
For the full fiscal year 2019, we reported net income of approximately $2.3 million or $0.10 per diluted share compared with a net loss of approximately $800,000 or $0.04 loss per diluted share in the prior year.
Drilling down to the drivers of our positive net income, Slide 6 summarizes net sales for Q4, 2019 which increased 19% to $7.6 million compared to the year ago quarter. In our Online Channels segment which consist of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, dropship and other peer play exclusively e-commerce outlets, net sales for the quarter increased 9% versus the year ago quarter representing 48% of total net sales.
Our transactional website charlesandcolvard.com increased 30% in net sales versus a year ago quarter. In the company's traditional segment which consists of wholesale and retail customers' net sales for the quarter increased 30%, $4 million versus the year ago quarter representing 52% of total net sales primarily due to increased demand from our international distributor network in our brick-and-mortar channel.
Finished jewelry net sales increased 28% for the quarter resulting from our strategy to drive finished jewelry sales across multiple geographies and channels such as our direct to consumer initiatives which include our charlesandcolvard.com website in our brick-and-mortar channel.
Finished jewelry net sales increased 11% for the quarter which contributed to the 118% increase in international sales versus a year ago quarter mainly for our Forever One product. Sales to our cross-border trade platform were strong with a 128% increase from the year ago quarter contributing to our growing overall international sales.
Looking at the full fiscal year ended June 30, 2019, Slide 7 summarizes net sales which increased 16% to $32.2 million compared to the prior year period. In the company's Online Channels segment, net sales for the fiscal year 2019 increased 25% to $16.3 million or 51% of net sales for the fiscal year compared with $13.1 million or 47% of total net sales in the year ago period.
我们的交易网站charlesandcolvard.com与一年前的季度相比净销售额增长了30％。在该公司的传统板块中，批发和零售客户的本季度净销售额增长了30％，与去年同期相比增加了400万美元，占净销售总额的52％，这主要是由于我们的国际分销商网络在我们的砖块中的需求增加 - 和砂浆通道。
In the company's traditional segment, net sales for the fiscal year 2019 increased 7% to $15.9 million or 49% of total net sales compared with $14.9 million or 53% of total net sales in the year ago period. On a product line basis, finished jewelry net sales increased 19% to $15.5 million for the fiscal year 2019. The company's net sales of loose jewels increased 13% to $16.8 million for the fiscal year 2019.
On Slide 8, our gross margin performance remains strong and stable. The fourth quarter gross margin was 44% compared to 35% in the year ago quarter. For the fiscal year ended June 30, 2019 our gross margin was 46% compared to 40% in the year ago. This improved margin was driven by continued healthy Online Channels sales including strong sales of our Forever One product on our transactional website charlesandcolvard.com. Forever One net sales of finished jewelry and loose gemstones represented 85% of total net sales for both Q4 and the fiscal year 2019.
On Slide 9, we show operating expenses as a percentage of net sales of the top of each bar. The dollar level of our operating expenses for each quarter is presented inside each bar. Here is a breakdown of our quarter-over-quarter operating expenses.
For Q4, 2019 operating expense as a percentage of net sales was 42% compared to 51% in the year ago quarter. Operating expenses were essentially flat compared to the year ago quarter as we controlled our expenses while increasing our marketing investment to drive topline growth.
G&A expenses decreased approximately $100,000 primarily due to lower legal and accounting fees. Sales and marketing expenses increased to approximately $100,000 due to increased digital marketing ad spending to fuel our growth.
Here is a breakdown of our year-over-year operating expenses. For the fiscal year ended June 30, 2019 operating expense as a percentage of net sales was 39% compared to 45% in the year ago period. Operating expenses were essentially flat compared to the year ago period. G&A expenses decreased approximately $200,000 primarily due to lower legal and other professional service fees.
Sales and marketing expenses increased approximately $350,000 primarily due to increased digital marketing ad spending to fuel the increased in our topline. We believe the trend of our expense as a percentage of net sales continues to reflect the discipline that we built into our business by controlling costs while continuing to grow our topline.
Slide 10, presents a snapshot of our balance sheet. At June 30, 2019 we had $13 million of cash, cash equivalents and restricted cash compared to $3.4 million of cash and cash equivalents at June 30, 2018. We recently executed an underwritten follow-on public offering of our common stock. We issued approximately 6.9 million shares of our common stock and raised $11 million in total gross proceeds.
After offering costs and underwriting commissions, we received net cash of $10 million for general corporate and working capital purposes with the specific focus on marketing and brand awareness initiatives. We continue to have no long-term debt and have not accessed funds through our credit facility.
On Slide 11, inventory at June 30, 2019 totaled $33.7 million compared to $31.8 million at June 30, 2018. Loose jewels inventory was $24.3 million compared to $24 million at June 30, 2018. Finished inventory increased to $9.3 million compared to $7.8 million at June 30, 2018. The overall increase in finished jewelry inventory reflects three positive strategic factors.
One, we invested in our consignment inventory related to the continued success and expanding sales through our brick-and-mortar channels. Two, we have planned higher in stock inventory to drive increased net sales for our transactional website charlesandcolvard.com. And three, we are building inventories of our Moissanite by Charles & Colvard product line to support our dropship in marketplace outlets.
At June 30, 2019, 79% of our inventory is classified as new inventory leaving only 21% of our inventory classified as legacy inventory. Legacy inventory is down 37% from December 31, 2017.
In summary, we generated strong positive results in our business during the recent quarter and fiscal year. We continue to be proactive in our outreach to the investment community, conducting numerous investor briefings including Road show meetings related to our recent follow on public offering. A key benefit of the financing was the addition of more than 25 new institutional investors, and a number of new family office and high net worth individual investors who participated in the financing. This improves trading volumes and liquidity of a stock for all stakeholders.
In addition, Roth Capital Partners initiated research on Charles & Colvard. We plan to attend additional investor conferences in the coming months and will continue to actually meet with members of investment committee to increase awareness and interest in the company.
I would now like to turn the call back over to Suzanne.
此外，Roth Capital Partners还开展了Charles＆Colvard的研究。我们计划在未来几个月参加额外的投资者会议，并将继续实际与投资委员会成员会面，以提高对公司的认识和兴趣。
Thank you, Clint.
I'll start with a summary of notable highlights for the quarter and year on Slide 13. Revenue growth of 19% for the fourth quarter was the results of several blended factors among them are high performing Mother's Day campaign and our bridal sale which took place over Memorial Day. Bolstered by our digital marketing efforts, these campaigns contributed to online channel sales, especially our charlesandcolvard.com website, where we saw a 30% increase in sales over the prior year quarter. This site leads our online channel segment representing over half of the segments revenue.
We continue to be pleased with the performance of the growth of this site, and will continue to focus resources and digital investments to further its growth, as this is the most direct connection with meaningful engagement that we have with our customers.
Another key contributor to our Q4 performance with our Traditional segment, and in particular the performance of our domestic retailers and international distributors. Traditional channels had a strong show in this quarter and represented 52% of total sales and expanding footprint with key retail partners in the U.S. contributed significantly.
In fact, we've reached a point of maturity with certain retail partners that we've migrated some of our retail programs from a consignment model to a blended asset and consignment model.
In a consignment model, we receive payments after the customer buys a product. But in an asset model, the retailer takes ownership of select products upfront at the time we ship them, making for more favorable cash flow for the company. We’re pleased to have reached this level of relationship with these important retail customers.
Also contributing to international growth with cross border trade, where Foreign nationals transact on our domestic website and we ship our goods to their global locations. We had a 128% increase in cross border trade revenue over the prior year quarter. We finished Q4 with international revenue representing 17% of our total sales, a 118% increase over the prior year and we finished the quarter with strong growth in finished jewelry, a continued indicator of our direct-to-consumer foothold.
We closed fiscal year 2019 with several key milestones. We delivered attractive gross margins across the year, finishing at 46% versus 40% in the prior 12 month period, margins have improved due to the significant growth of our online channel segment which grew by 25% over the prior year period.
Our direct-to-consumer channels generally deliver higher margins compared to selling through third party distribution channels, especially when goods are purchased directly from charlesandcolvard.com. Direct-to-consumer engagement is also responsible for the trend in our finished jewelry growth, which is up 19% over the prior year.
International sales were 13% of our total revenue for fiscal year 2019, a 106% increase in sales over the prior 12-month period. Our trajectory has shown four consecutive quarters of double-digit international growth over the course of the year, and we anticipate continued strong performance from this sector.
Forever One, our flagship gemstone continues to gain a popularity and recognition, most recently winning JCK’s Jewelers’ Choice Award, in the lab grown gemstone jewelry category for a signature collection Halo hearts and rings or hearts and arrows ring.
Product innovation has been at the center of our direct-to-consumer transition and will continue to be a focus as we head into fiscal year 2020. We delivered four consecutive quarters of profitability ending the year with the net income of $2.3 million or $0.10 per diluted share versus a net loss of $0.8 million in the prior 12-month period.
We've managed our inventory levels very tightly to meet our increasing sales demand by also
reducing legacy inventory to 21% of total inventory at June 30, 2019. And finally, with the improved valuation that's come from our financial performance and operating momentum, we leverage the opportunity to raise funds and a public offering to invest in key marketing initiatives that we believe will help catapult the company forward.
I’ll turn to Slide 14 to discuss the strategy behind this capital raise and how we plan to invest these proceeds to grow the business and create shareholder value. Since Charles & Colvard’s relaunch in October 2016, we focused heavily on our direct-to-consumer engagement. We firmly believe that a one to one dialog with our customer is the best way to tell our brand story and learn directly from our customer what their buying preferences are.
To facilitate this conversation, we deployed significant digital marketing tactics from paid digital advertising to social media engagements and influencer marketing programs. In the course of these activities, we pay particularly close attention to our analytics. We measured everything from clicks to likes, product reviews, advertising channel performance, campaign advocacy, organic traffic, and so much more.
Here's what we've learned. Today, the average cost to convert a new customer is approximately $220 in advertising spend with an average order value of $1,000. Not only is this a sound digital marketing investment, it also drives traffic and revenue through the channels that command the highest gross margins.
We've also learned that roughly 28% of our customers are repeat buyers, a number that we feel is low due to our focus on that net new customer acquisition.
Turning to Slide 15, this volume of digital data also helped us map our marketing funnel guiding our thinking on the types of activities that incense someone to first engage with our brand, what we call top of funnel activities, to the level and types of engagement someone desires, while they're learning about the brand, and all the way down to the very last click that converts a consumer into a Charles & Colvard customer.
We learned that for every dollar of advertising spend, we can see two to eight times return on ad spend depending on the maturity of the prospect, and how far into the marketing pipeline they are. This customer journey and the efficiency of our ad spend are key to effective digital marketing investments and the key investment vehicle for our offering proceeds.
Over the past two years, Charles & Colvard has been applying its ad spend in the mid to lower funnel of the marketing funnel, where you see campaigns such as personalized email. At a time when we were capital constrained, this made sense. We were seeing a blended four to five times return on ad spend while readily converting customers that were predisposed to the Charles & Colvard brand or we're searching for the term voice tonight.
But this is a short sighted strategy as we're only reaching customers familiar with our brand and value proposition. And we subsequently grew the company in the 13% to 16% annual growth range through these tactics.
In order to garner the attention of consumers not familiar with our brand but interested in the ethical appeal of lab created gemstones or a value price trial option that competes handily with diamond, we need to invest more resources in it and attention to the top of the funnel, seeking out the new but soon to be converted Charles & Colvard customer.
That work is done at the top of the marketing funnel through awareness strategies such as mobile social ads, influencer marketing programs and strategic paid media placements. As we head into fiscal year 2020 and imminently into the holiday season, the time is critical to now drive awareness and proliferate our brand.
We believe through continued measurement of our customer journey and the same care we've been applying to our digital marketing spend to date, we can accelerate our growth. This process does got a natural lead time. So we anticipate that the increased marketing the investments we began making in July will begin showing impact in the Holiday quarter.
We’ll be prudent as we invest these funds over the next several years, not just in the next few quarters.
Let's talk about a few other focus areas for the year ahead on Slide 16. We plan to continue our push into international markets. In fiscal year 2019, we expanded Charles & Colvard into new international markets through marketplaces and distributors.
This image denotes our current footprint across the globe. We think of marketplaces as an agile way to test new geographies, let the marketplace bring the consumer to the table, we’ll introduce our product measure whether we have a target customer base in the region, and if so further develop our presence.
Last year we went live in Western Europe, on Amazon in Italy, France, Spain and Germany and in Australia on Amazon, eBay and Cache, we also went live on Amazon Japan in March 2019. We have the support of our new funding. We believe that we’ll now have the ability to build a digital presence in these new regions. Driving awareness of our brand and driving consumers to these regional marketplaces. We also anticipate that these investments will have the positive effect of driving international consumers to charlesandcolvard.com by way of cross border trade which is indicated here by the dotted lines.
In addition to Online international sales we’ve also been relying on the work of select international distributors to help us with our local presence. This has been a profitable endeavor for us as indicated by an 81% increase in international distributors in Q4 over the same period last year. We plan to continue this work with local resources and understand how to bring brand presence into their local markets.
Slide 17, outlines our focus on continued product innovation. As mentioned earlier, our signature collection is gaining significant traction. Introduced in Q1 of fiscal year 2019, this product line started as a handful of specialty item, today at the JCK award-winning line of jewelry that represented 7% of net sales in Q4 and 11% of our total sales this year.
We’re thrilled with this performance as it suggest to us that what the customer’s wants is our brand. Every piece of Charles & Colvard signature jewelry features our floret the company logo. This validates that our brand is resonating with our consumer. We’re also seeing meaningful adoption of our Moissanite Charles & Colvard value line of gemstones. We introduced this product in May 2018 as a response to competitive Moissanite coming to market.
This product which carries the Charles & Colvard name and is subject to our standard grading guidelines and laser in grading is being met with enthusiasm across our dropship marketplace and distributor channels delivering 7% of total sales this past quarter. We’ll continue to expand this gemstone across our sales channels as we face out our legacy products.
We plan to continually evolve our product mix as the demand or the market demand in fact in just a few weeks we plan to run a test pilot with new colored gemstones. Lab created blue and pink sapphires and lab created ruby in our dropship program. Our dropship partners have been requesting color gemstones in response to market trends and searches on their websites.
These synthetic lab created stones are made from Corundum, an ethically sourced product that has been in the market for some time. We’re turning to leading suppliers of these gems for our supply and marrying them with Moissanite gems to create beautiful blended gemstone options. For those of you viewing the slide deck you can see an example in the lower right hand corner.
Evolving our gemstone and jewelry mix to meet the demand of consumer has been at the center of our transformation. As we learn more from our top of funnel marketing activities you can expect further changes in our product mix as our millennial and gemsy audiences taste and preferences mature.
On Slide 18, I have highlighted our focus on corporate social responsibility. While our Moissanite product has always been made [dot lined] the company wasn’t historically focused on the positive environmental impact we can have. While we feel it’s time to make that a core tenant of our business practices going forward.
Thankfully our wonderful Moissanite gemstone is born from lab created practices so we’re not moving tons of earth to mine a single carat gemstone. But there is much to focus on then just our gem. We believe that more than enough metals have been mined from the earth so we are moving to a recycle metal approach. Over the past year more than 95% of the metals resource were recycled and going forward we’re working towards utilizing only recycled precious metals in our production lines.
We also plan to measure and improve the overall environmental footprint of our business operations. We want to positively impact the communities where we work and live so we’ll be supporting these communities through philanthropic programs that advocate positive, social change. And lastly, we plan to create a higher level of transparency regarding these practices so our stakeholders will be able to track these efforts and hold us accountable.
In summary, and outlined on Slide 19, our focus for fiscal year 2020 will be on the following five strategic initiatives, expansion of brand awareness. We're laser focused on expanding the reach of our brand and digital marketing will be – leading this charge on a global scale. International sales reach its very early days for Charles & Colvard internationally. We’ll be working on our omni-channel presence so there is plenty of place for the consumer to learn about and transact with our brand.
Product evolution, we’ll continue to listen and tell our customer audience and deliver products that meet consumer demand, enhanced customer experience. The consumer’s experience with our brand can make or break their viability as a lifelong customer. So we need to ensure that every interaction is engaging rewarding and beyond their expectations. We’ll be focused on several aspects of the customer journey including digital customer service experiences.
And lastly corporate social responsibility, as mentioned earlier we plan to work towards 100% recycled metals, improve our environment footprint, support our local and business communities through philanthropic programs and create transparency of these activities for our stakeholders.
Over this past year, we’ve seen the compelling results from our omni-channel distribution strategy the promise of measured digital marketing efforts and the impact of market-driven products. We look forward to taking these learnings and our investment capital and applying both to a year of explaining brand awareness and topline growth.
This concludes our prepared remarks we now like to open the call to take your questions. Operator, would you please poll for questions for our listening audience.
So while we're waiting for you to fill the queue, we do have an emailed question that we thought we'd begin with. We were asked why we decided to issue equity rather than take on debt given our clean balance sheet. Clint I’ll ask to address this question please?
因此，当我们等待您填补队列时，我们确实有一个我们认为我们会开始的电子邮件问题。 我们被问到为什么我们决定发行股票而不是承担我们干净的资产负债表上的债务。 克林特我会要求解决这个问题吗？
Sure, thanks Suzanne and good question because we’ve been asked this question several times since our capital raise. In fact we actually went down the path of taking on debt as was our first choice towards capital growth. But what we learned is that the cost of capital related to the debt wasn’t favorable to us due to the aggressive timeline on the payback of the debt.
And also in addition to that, is various potential terms such as warrants and capital restrictions that small companies such as our space. So in bottom line out there, very thorough valuation the Board and the executive management team actually elected to go with a capital - with a equity raise and that also helped us with - to continue to be debt free.
And one more other thought in addition executing an equity raise also allows us to expand a number of shareholder and particularly institutional investors which we did get quite a few participate in our offering and which we believe will benefit all shareholders as I mentioned earlier in the call through increase trading volume and liquidity over the medium and long-term.
此外，还有各种潜在的条款，如权证和资本限制等小公司，如我们的空间。因此，在那里，非常彻底的估值，董事会和执行管理团队实际上选择了资本 - 股权融资，这也帮助我们 - 继续无债务。
Thank you, Clint. Operator, do we have anyone in the queue.
Yes, it looks like we have Dave King from ROTH Capital. Please go ahead.
是的，看起来我们有来自ROTH Capital的Dave King。 请继续。
Thanks for taking my questions. I guess first off on the traditional growth you had this quarter. Looks like you guys had a fairly nice lift there just curious, just curious how much of the benefit was due to the transition from consignment to asset light. Or maybe a better way of looking at, it, what was the sell-through or rate of sell-through to your brick-and-mortar channels versus that I think 30% growth you saw?
谢谢你回答我的问题。 我想首先关注本季度的传统增长。 看起来你们有一个相当不错的电梯只是好奇，只是好奇有多少好处是由于从寄售过渡到资产光。 或者也许是一种更好的方式来看待它，你的实体渠道的销售率或销售率与我认为你看到的30％增长率相比是什么？
Thanks Dave. What we saw from a standpoint on the traditional side the upside we are seeing excellent results related to our brick-and-mortar channel. We don't disclose - although we don't disclose sub channel type of metrics, except for charlesandcolvard.com, we did see some very strong sales continue through Helzberg as we do the expansion.
As far as we did not see - we saw very little related to that asset but some from the conversion from the consignment model this quarter and its going to be quarter by quarter basis when they do that flip. But we were actually successful in getting to our partners to actually - retail partners to do this.
谢谢戴夫。 从传统方面看，我们看到的好处是，我们看到了与我们的实体渠道相关的优异成果。 我们没有透露 - 虽然我们没有披露子渠道类型的指标，除了charlesandcolvard.com，我们确实看到一些非常强劲的销售继续通过Helzberg进行扩展。
就我们没有看到的情况而言 - 我们看到与该资产相关的信息很少，但有些来自本季度的寄售模式的转换，而当它们进行转换时，它将逐个季度地转换。 但我们实际上成功地让我们的合作伙伴实际上 - 零售合作伙伴这样做。
And let me jump in, as Clint mentioned the work that we are doing with Helzberg and we actually have another question in the queue. And it probably all plays into the same question here. So I'll address that. So any update on Charles & Colvard's partnership with Helzberg. We're seeing a continued and very nice relationship with Helzberg Diamonds. As I think most of you that have been on these calls before know, we started in their online channels.
And then in October of 2016, we began in stores, it was 25 stores, and it was 50, and 100. And then nearly all of their doors, which is about a fleet of 200. But I'm proud to say that we have gone from one foot of case line to two and now we're pretty much three feet of case line in most all stores and there are some that are taking on a fourth foot case line. And what this means is that we continue to grow the footprint and the number of styles that we have in this store, which then continues to address a broader audience preference with this sort of variety of goods. So as Clint mentioned, while we don't necessarily share numbers from individual accounts.
This one is a very nice account for us it's performing well. It's a good synergistic mutual relationship where we're bringing accretive business to Helzberg. And in turn, they're giving us more and more exposure. We kind of think of it as our showroom, Charles & Colvard doesn't have a physical showroom of our own, but most any Americans get in their car and within two hours time see Charles & Colvard product in a Helzberg Diamond store. So we're thrilled with that one.
Okay, it's great to hear. Switching gears a bit, on the marketing front, to what extent did you start to lay into marketing subsequent quarter in and into July and August? And then I guess more importantly what sort of ROIs are you seeing there? Have you started to accelerate it at the top of funnel yet? How the ROI has been there versus what you've seen previously? Thanks.
好的，很高兴听到。 在市场营销方面稍微改变一下，你在7月和8月的后续季度开始营销的程度如何？ 然后我想更重要的是你在那里看到了什么样的投资回报率？ 你是否开始在漏斗的顶部加速它？ ROI如何与您之前看到的相比？ 谢谢。
Yes, it’s a great question, Dave. So we're only now beginning of course, we did the deal, or do the capital raising in June, sort of second part of it, and then a little bit into July. So we really didn't start additional spending until the July timeframe. And so and we're slowly sort of burning it in and we're careful investors here.
So we want to make sure that the dollars that we're putting in are giving us that return, we're continuing to see a two to eight times return on ad spend. So that's not changing much day, what changes now as we get into holiday and we start to lean in and work more top of funnel is that where we're spending more in the two range then we are in the eight range because the eight range is the people that already know us or are predisposed to the brand.
And the conversion rates more in the two times return on ad spend, or the people that don't know that. And we ramp for holiday, that's really where we want to put our efforts, where excellent marketeers when it comes to converting people that know the brand, but we simply need more of those eyeballs in the pipeline and that's what we're going to be focusing on.
The thing for folks to understand is that that takes a little bit of time. So it can take eight to 16 weeks for somebody that sees us for the first time to convert. So the effort is going into sort of the quarter that we're in, and then we're looking for the holiday quarter to start to really reap those rewards. Hopefully that answers your question.
Okay, that that helps. And then I got one, I've got one more if I would sneak it in.
For Clint, in terms of the -- I think like $3.1 million or so of OpEx during the quarter. How much of that was outsized either related to the capital raise or other items, if anything?
I'd say probably that items that were not capitalized to the balance sheet. Dave, I'd say that estimated between 100,000 and 150,000 that we spent related to that, maybe a little lot isn't that, probably under $100,000.
Okay. So just in terms of trying to think about what a good run rate of expenses going forward, then is it a little bit under the $3 million a quarter or something is the right way to think about it?
Say that again, Dave.
Sorry, so in terms of run rate of quarterly expenses on a go-forward basis then it’s the right way to think about it. So it’s little under $3 million in quarterly in terms of core expense
While we ended up like I said we are reflective of last year or quarter but as we continue you should see the increase in marketing that’s stand as we put some more fuel on the fire related to driving that top line and top of funnel. So from the standpoint you got to factor that in, related to, start looking at quarter-over-quarter trends related to our OpEx.
Okay, Dave, appreciate you calling in. Operator, do we have someone else in the queue?
The next question comes from [Mark Scanlin], Private Investor. Please go ahead.
下一个问题来自私人投资者[Mark Scanlin]。 请继续。
Good afternoon, Suzanne and congratulations on a very good year and a great quarter. Very interested hearing more about traditional expansion, I definitely have a lot of respect for what you’re doing digitally, but it seems like Helzberg is doing extremely well, are there any conversations going forward with larger entities like perhaps the Sterling Signet Corporation.
下午好，Suzanne和祝贺他们度过了非常好的一年和一个伟大的季度。 非常感兴趣的是关于传统扩展的更多信息，我绝对非常尊重你正在做的数字化工作，但似乎Helzberg做得非常好，是否有任何与大型实体（如Sterling Signet Corporation）进行的对话。
So we talk with everyone that will take our phone calls, and then when they don't, we try calling them back again. So by all means, we are actively pursuing the traditional sector. In the U.S., going directly to these retailers makes sense and we're building and working on those relationships. Internationally, we’ve spent a little more time and effort going to our distributors and asking them to do the job of bringing the brand forward because they speak
those local languages and they know those outlets pretty well.
But by all means we're not throwing the traditional baby out with the bathwater because it has been a very healthy and growing business for us. But certainly not growing as rapidly as we are in online channels, we started from zero and so it's kind of, it's a net new and shiny object for us and a great way for us to get some growth. But there is absolutely work for us to do on the retail side of the business. And retail is a vast place. And so I think that you can expect over the coming year to hear more about these efforts.
It's a blended effort. And as you'll see right now, 50% of the business roughly is traditional, 50% of the business is online, it’s a great balance. And what we're thrilled about is the fact that we built this omni channel strategy where we're not relying on a few elephants, if you will, that that bring us our revenue. We're now very nicely balanced across these multiple channels.
A nice big additional retailer would be a nice boon to us. So certainly something that we're focused on.
You’re very welcome. Operator, anyone else in the queue?
That’s it for the queue.
All right, I think we had one more writing question here. Give us a second here. What is the most exciting growth opportunity in an online channel? That's a good question. Thank you for writing in on that one. And we love the writing questions. So please don't ever hesitate to send in your questions to ir.charlesandcolvard.com. I think the most exciting opportunity in online channels and you're going to maybe be surprised at my answer.
It's not landing a new marketplace or a new outlet to sell through. It's the relationship, we're building with our consumer. The most exciting thing is talking to her directly. And having that dialog and then through the dialog, having your embrace of land and then creating her own content and user generated content where she's bringing the brand forward and becomes an ambassador. And the more brand ambassadors we have driving this brand to market.
The less we have to talk about it ourselves and the more the consumer can lead the charge for us.
So I would say that's one of the most exciting things and why top of funnel marketing activities are important to us because that it gives us a chance to be in front of more consumers and to then to initiate that dialog. So thanks for the writing question. Operator, I think we have one more in the queue.
Rodney Baber, who is a Private Investor is just out. Please go ahead.
私人投资者Rodney Baber刚出局。 请继续。
Suzanne, how are you?
I’m good, Rodney. How are you, it has been a long time.
No, congratulations for you and the team on the progress that you've been making because there's a lot of good in this report and the margin improvements, expenses being under control all those kind of things. For those that have been around for a while, we've been watching that and you've delivered on this.
So our congratulation for that. The thing that's on my mind is you've got the company through a transition and in a pretty good position to grow. And so how are you going to get the revenue growth up? It's going to bring attention to this and one of the things that's been on my mind is when with the Millennials kick in and really wake up to the value of this product.
And so I wanted to ask you for kind of a state of the union update on the Millennials because I have heard that lab created damage coming down a lot, that they're almost getting competitive with Moissanite and there may be more interest in lab created damage that I was thinking with what evolves. So what is the status of that because it's the Moissanite market ever really takes hold. This will have that J curve thing, we’re going to look in for. So I'd love to hear what your, you raise some thoughts on that.
Yes, sure Rodney, that's a great question and probably something a lot of the other folks on a call would be interested in. So the growth is going to come in the expansion of brands. And that's where that the proceeds are really going to play a role. So how are we going to do more top of funnel marketing to bring awareness to it, and that's where the Millennial sits, right? She's at that social media intersection where we're going to meet up with her and we're going to present the brand.
More than 50% of our online channels revenue comes from this Millennial and emerging Gen Z consumer. So she's here and absolutely the dollars and the margins that we're making in online channels is coming from that Millennial. So while other retailers may be having challenges, I'm not sure where the data is coming from. For us, it is where we live. The Millennial is absolutely the consumer that is making things happen here. So I think said on a lab created diamond side what was happening here Rodney is we're seeing a lift from the buzz and the interest that's happening in the market and lab created diamond.
But let me share some recent numbers with you. So we know that our two carat Moissanite gemstone at our highest possible quality is going to cost that consumer about $1,500. A comparable lab-created diamond is going to be about 21,000. So there's still a lot of space between our product and lab-created diamond.
So what we love is that there's a lot of others and money where people like to be or just talking about lab created products. And then when she does her homework and figures out the difference in price, yet she's still gifted, ethically sourced stone. I think that's when the interest comes back here. We do know that that is putting some downward pressure on the overall market, but they're doing it in kind of a segmented way. They are bringing forward some price points that do maybe compete with us but I would say they really don't because they're working in below one carat space.
Most of the jobs that we have, most of the products that we sell into our consumer are one carat and very much two carat and above. So the value proposition of Moissanite is that you can buy a really big look and get a terrific stone that sparkles more than anything else. You can get it at a greatly reviewed price from what the lab-created producers are bringing to market at one carat and above. So there's still a lot of room there, Rodney and I'm not too worried about.
I will make sure I'm clear on this. You said a one carat Moissanite is 1500 and then you said a lab created was 21,000 and I had thought, thought the lab created valuation which would be more like $2,000 or $3,000 so much ahead of Moissanite but even by diamond for one carat for 21,000. So I'm going to clear that up for me.
我会确保我对此很清楚。 你说一克拉的Moissanite是1500，然后你说实验室创造的是21,000，我曾经想过，认为实验室创造的价值将比Moissanite高出2000美元或3,000美元，但即使钻石价格为21,000美元一克拉。 所以我打算为我解决这个问题。
Yes, okay. It has to do with the quality of the stone. So Forever One, our premium product really has no flaws in it. So we're comparing ourselves to a lab-created diamond that equally doesn't have flaws. So when we have that perfection of stone, DES which means basically colorless and what's called VVS quality, which is basically really has no flaws in it. So we're comparing ourselves to a lab created diamond that equally doesn't have flaws.
So when we have that perfection of stone DF, which means basically colorless, and what's called a VVS quality, which is basically flawless gemstone $1,500 dollars for our care at Moissanite from Charles & Colvard and Forever One and 21,000 or so from our lab-created diamond purveyor.
So that's again, that's a quality play. And you can find more insight that is a lower quality. And you can certainly find lab-created diamond, that's a lower quality. But that's very much how the consumer knows how to grade a gemstone. It's the same way that we've graded mined diamond for years. And so when we use that scale, and we're up here with a premium product, and we're at the top of the scale, we're competing handily, with the right price point and the right product.
One final thing real quick, the average ad spend was $220 per customer. Okay. I'm not an expert on digital online, all the marketing and the cost of it. But that that sounded high to me that that is that where you expected that to be? Will that go down over time as you scale? That kind of thing? Or is that? What it takes to get a new customer and using the digital social media approach?
最后一件事很快，平均广告支出为每位客户220美元。 好的。 我不是数字在线专家，所有的营销和成本。 但那对我来说听起来很高，那就是你期望的那样？ 当你扩展时，这会随着时间的推移而下降吗？ 那种事？ 还是那个？ 如何获得新客户并使用数字社交媒体方法？
Yes, so look. Yes look you did good. 220 was the number that we had quoted, we feel pretty good about that number from a comparison standpoint with some of our peers. I think that we're very competitive, if not at a better number than others. I would have you turned to some market research that would maybe validate this for yourself. But I would expect so you ask the question, I would expect that that number might go up in the short term. And when Dave King asked his question about where we're spending money, the answer was we're going to spend more money at the top of the funnel where the $2 return on ad spend happens.
The more we do that, the more the price is going to go up because she's going to be clicking on ads or she's going to be engaging with ads. So we’re spending more money to get her because we’re spending by the click or by the drink if you will.
So I do anticipate it may go up a little bit over time and then it will probably then blend out. What happens though and for those of you that understand digital ad spend what happens is, it’s a little bit expensive then to bring in those new folks but they may raise the traffic and they may raise our organic traffic into the site. And so we blend it out and I do anticipate we’re still going to blend out at two to eight times return on ad spend and it’s all going to come out and wash.
So we feel pretty good about that investment and again keep in mind our average order value is $1,000. So we think it’s good math we are spending 220 to get a $1,000 deal, and I will do that all day along Rodney.
是的，所以看。是的，看起来你做得很好。 220是我们引用的数字，从与我们的一些同行的比较立场来看，我们对这个数字感觉相当不错。我认为我们的竞争非常激烈，如果不是比其他人更好的话。我会让你转向一些市场研究，可能会为自己验证这一点。但我希望你问这个问题，我希望这个数字可能会在短期内上升。当Dave King问他关于我们花钱的地方的问题时，答案是我们将在渠道的顶部花更多的钱，其中广告支出的回报率为2美元。
Okay, good. Well thank you very much good luck for Christmas and everything.
Thank you very much.
Operator, do we have anyone else in the queue?
We do not. That was the last question.
Okay well, let me just say some final remarks here. I want to thank you all for joining us on the call today. I'd like to take a moment to extend my sincere thanks to the amazing team here at Charles & Colvard. I appreciate everything that these folks have done to deliver this profitable year to our shareholders, and I am looking forward to an exciting New Year focused on growth.
To everyone on today’s call, we appreciate your interest and investment in Charles & Colvard and look forward to being in touch to update you on our continued progress. Thank you and have a good evening.
好吧，我先在这里说一些最后的评论。 我要感谢大家今天加入我们的电话会议。 我想花一点时间向Charles＆Colvard这个令人惊叹的团队致以诚挚的谢意。 我很欣赏这些人为我们的股东带来这个有利可图的一年所做的一切，我期待着一个关注增长的令人兴奋的新年。
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
会议现已结束。 感谢您参加今天的演讲。 您现在可以断开连接。
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