Charles & Colvard, Ltd. Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 6 speakers on the call.

Operator

Good day, and welcome to the Charles and Colvard Q1 Fiscal Year 2022 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. 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 may speak only as of the date the statement is made.

Operator

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 in 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 a supporting PowerPoint slide deck, which is available on the Investor Relations section of the company's website at ir.

Operator

Charlesandcovar.com/events. The company will be hosting a Q and A session at the conclusion of the prepared remarks. Should you have questions you'd like to submit, Please e mail ircharlesandcolvard.com. Please note this event is being recorded. I would now like to turn the conference over to Don O'Connell, President and Chief Executive Officer, please go ahead.

Speaker 1

Welcome, everyone. Good afternoon. Today, we're going to report Charles and Colvard's 1st fiscal 2022 results. I'm excited to share with you that the company delivered another quarter of double digit growth in net sales in both our traditional and online channel segments, as well as in both finished jewelry and loose gemstone product lines. Our net sales for the quarter were $10,300,000 which is a 30% increase over the year ago quarter.

Speaker 1

We delivered a strong gross margin of 51% for the quarter compared to 47% for the prior year's quarter. Income from operations for Q1 was $949,000 And we had $827,000 in net income or $0.03 earnings per share. Our cash remained strong at the end of Q1 at $19,200,000 and our working capital remained a robust $29,500,000 In addition to the year over year improvements we're continuing to see in our numbers, Q1 was a key period for us from an operational standpoint. I'm proud to say that we have proactively managed our inventory in order to be well positioned for our critical holiday season. Despite the significant Supply chain constraints that many industries are experiencing, we anticipate a potential disruption and planned accordingly with our vendors, positioning ourselves to have the necessary products to satisfy our holiday demand.

Speaker 1

I'll dive into the execution of our strategic initiatives Later in the call, for now, I'd like to turn the call over to Clint Pete, our CFO, to discuss the numbers.

Speaker 2

Thanks, Don. Today, I will provide a summary of key financials for the Q1 ended September 30, 2021. Additional detail can be found in our earnings release that we issued this afternoon and from our Form 10 Q, which we expect to file tomorrow. Please note that all percentage comparisons are to the year ago quarter unless specified otherwise. We will start with Q1 2022 revenue.

Speaker 2

In total, net sales for Q1 2022 totaled 10 $3,000,000 versus $7,900,000 or an increase of 30%. Net sales for our Online Channel segment, which includes charlesandcolvard.com, moissaniteoutlet.com, marketplaces, drop ship retail and other pure play outlets, totaled $5,400,000 for the quarter or an increase of 20%, representing 52% of total net sales. Net sales from our transactional website, charlesandcolvard.com, increased by 25%. Net sales for our Traditional segment, which consists of wholesale and retail customers, totaled $4,900,000 for the quarter, an increase of 42%, representing 48% of total net sales. The increase was due to our domestic distributors gearing up for the holidays as well as strong demand from our brick and mortar retail customers.

Speaker 2

Finished jewelry net sales increased 31% for the quarter as we continue to see strong demand for our premium jewelry in our online direct to consumer channels and with our brick and mortar retail customers. Loose Jewel net sales increased 28% for the quarter. This is due to the increased demand from our domestic distributors. International net sales increased 7%. Moving on, we delivered a strong gross margin of 51% versus 47% in the year ago quarter, which increased due to strong signature collection orders in the quarter, which are not discounted and carry a higher margin and continued growth in our Online Channels segment.

Speaker 2

For Q1 2022, Total operating expenses increased 51%, representing 42% of total net sales compared to 36% in the year ago quarter. Sales and marketing expenses increased 66 percent to $2,700,000 and G and A expenses increased 31 percent to $1,600,000 for the quarter. These increases are primarily due to our increased investment in our marketing strategies in preparation for the upcoming holiday season, Attendance at the JCK Las Vegas Jewelry Trade Show, an increase in stock based compensation and bonus expense We reported net income for Q1 2022 of $827,000 or $0.03 per diluted share compared with $874,000 or $0.03 per diluted share in the year ago period. Included in net income is income tax expense of $122,000 We are recording income tax expense going forward now as we reduced our deferred tax valuation allowance as reported previously in Q4 2021. Although an expense in our income statement, we will not be required to outlay any cash or income taxes due to our net operating loss carry forward position.

Speaker 2

Our weighted average shares outstanding used in the calculation of diluted earnings per share for the quarter were approximately 31 1,000,000 shares at September 30, 2021 compared to 28,800,000 shares at September 30, 20 20. The increase in our weighted average shares outstanding was driven by an increase in option exercises by insiders and restricted stock divested during the period. Now let's move on to a snapshot of our balance sheet. Our liquidity and capital position remains strong as we ended the quarter with $19,200,000 of total cash compared to $21,400,000 at our last fiscal year ended June 30, 2021. Our cash flow used in operations was $2,100,000 for the quarter compared to $642,000 in the year ago quarter.

Speaker 2

The cash used during the quarter was primarily due to the investment in building finished jewelry inventory in preparation of the upcoming holiday season. Our working capital of $29,500,000 at September 30 was consistent with our working capital at June 30, 2021. In terms of other sources of liquidity, we have access to our $5,000,000 cash secured credit facility with JPMorgan Chase Bank. As of September 30, 2021, and through today, we have not accessed funds through the credit facility. Inventory as of September 30, 2021, totaled $31,600,000 compared to $29,200,000 as of June 30, 2021.

Speaker 2

Finished jewelry was $15,800,000 compared to $12,300,000 as of June 30, 2021, to maintain stock levels for our growing demand requirements and in preparation for the upcoming holiday season. Loose Jewel's inventory was $15,700,000 compared to $16,800,000 as of June 30, 2021. In summary, we remain confident in our financial strength and our continued efforts to increase shareholder value. With that, I'll turn the call back over to Don.

Speaker 1

Thanks, Clint. These positive results underscore our commitment to responsibly managing our business while on our strategic initiatives for fiscal 2022. During Q1 FY 2022, we expanded our brand presence by Further elevating our Charles and Colvard House brand and Forever One moissanite product brand through our participation in the industry leading JCK Las Vegas Jewelry Show. Distinguishing ourselves as an authority in and a premier provider of moissanigens. Additionally, our recent grand opening of Charles and Colvard Wholesale distribution center in Panyu, China underscores the importance of nurturing our brand presence internationally.

Speaker 1

We worked with our strategic partners and industry leaders at JCK to broaden our product offering, launching new Cadia Labro and Diamond Fashion Jewelry And expanding our Forever 1 moisturized fine and fashion jewelry, all in support of the upcoming holiday season. We focused on bringing forward innovative product choices We recently hosted an intimate press review in New York City introducing these products, including our new Zodiac Medallion collection. This exclusive event gave editors and influencers a preview of the collection and some of other new lab grown diamond fashion pieces, which includes flexible tennis bracelets and flexible necklaces available in both moissanite and lab grown diamonds, And some petite fashion rings available in lab grown diamonds as well. While we continue to broaden our assortment, we remain rooted in our bridal business as we seek to position ourselves as a premium source for made, not mined gemstones featured in fine jewelry. We believe these product diversifications position Charles and Colvard as a strong competitor in the lab grown diamond space.

Speaker 1

With a broader assortment of premium lab grown diamond set in jewelry comprised of nearly 100% recycled precious metals. As we continue to expand our omni channel strategy, we remain focused on delivering an optimal experience for our customers. Evidence shows that online shopping continues to gain traction at 57% of consumers plan to do the majority of their holiday shopping online and that customers seek live streaming shopping and video consultations with personal shoppers. With that in mind, we're scaling our virtual consultation services and planning exclusive streaming events to be ready for holiday, but also to enhance and personalize the buying experience. In addition to digital experience, We believe that fine jewelry customers want to touch and feel the products before they buy.

Speaker 1

This led us to break ground on our first signature showroom retail location, so that customers can experience the brilliance of our products firsthand. This quarter, We deployed more capital resources in digital ad spend and influencer marketing campaigns to build brand awareness and reach broader audiences. We believe this is critical to achieving the global recognition we seek in the fine jewelry and lab grown movement. We believe Successful execution of these strategic initiatives will drive top line growth and continued shareholder value. Experts are predicting that e commerce sales We'll reach over $200,000,000,000 and we believe that we are well positioned to deliver in response to that consumer demand.

Speaker 1

With that, I'd like to turn it back over to the operator to open the lines for your questions.

Operator

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question Our first question comes from Matt Koranda with ROTH Capital. You may go ahead.

Speaker 3

Hey, guys. Thanks for taking the questions. First off, I guess, I wanted to see if you could cover Performance of the lab grown product category versus moissanitefinishjewelry, I know you don't typically call it out quantify, but maybe qualitatively you could speak to growth between those two product lines and sort of how they trended and if they were similar or Deferred from sort of the corporate average growth for the quarter?

Speaker 1

Yes. Hi, Matt. Thanks. Appreciate that. So again, we don't break out the product percentages at all.

Speaker 1

So we are experiencing accretive And additive growth in the lab grown diamond business, we are very pleased with that business. That's why you'll see us expanding those product categories out quite significantly here heading into holiday. That's why we've been featuring a lot more kind of events and Advertising around that too as well to kind of lift that. What we are seeing, Matt, is it's also increasing our moissanite business and our overall percentage of the moissanite business As we start to be part of that conversation, I've been talking about it for quarter over quarter now for us to be in that conversation. Certainly with the Acadia Lab growing Diamond and now with the kind of the coverage that we're getting in that category, it's actually lifting the overall business.

Speaker 1

Hence the additional $2,000,000 of revenue for the quarter. So I know it's evasive there, but basically that's as much as I can give you right now, but I appreciate the question.

Speaker 3

Yes, fair enough. I have to try. So on the positioning for holiday, Just wanted to get your latest thoughts on how you guys are feeling. I mean, it looks like built inventory pretty Steadily during this quarter. So it looks like plenty of inventory to sell into both your online and traditional channels.

Speaker 3

But Wondered if you could just comment on expectations for the holiday season, what sort of the level of promotionality looks like And the general environment, and how you're positioned with inventory heading into the holiday season here?

Speaker 1

Yes, sure. So we believe we're in a really, really good position from an inventory perspective. We actually started, we call it Christmas in July, where we started Prep for holiday anticipation that there'll be constraints in the supply chain and we wanted to make sure that we can push as much domestic as we could, so that we don't have International dependencies or kind of hindrances for us to deliver on holiday season. And then as far as the spend side of the equation, you'll look that kind of on OpEx and our sales and marketing spend, we did have an increase in spend, even though we got the additional revenue from it, We started to spend a little bit earlier anticipating that it was going to be an earlier holiday season this year. So we believe holiday essentially begins now.

Speaker 1

Fortunately for us, we're able to achieve in this quarter 51% margin, which is significantly the The highest margin that we've experienced since 2018, Clint can correct me, maybe it was even longer than that. But certainly, we're pleased with that. We're certainly pleased with fact that our Signature collection remains to be very, very strong and growing as an overall portion of our business and that helps us elevate our overall margin. So with that being said, I mean, there is going to be some sales Cadence that we're going to get into for the holiday season, which we're going to basically start now and head into holiday. But we believe that with our margin blend, we're still going to remain strong and We're going to be incredibly competitive in the market and do well for holiday.

Speaker 3

Okay. That makes sense. Since you mentioned margins, I will ask a couple of questions around that. Yes, and I did note gross margins look super strong. And I guess typically when mix skews more toward the traditional channel that would typically be dilutive to your margins And yet you improved quarter over quarter and year over year.

Speaker 3

So was there just a big benefit from product mix? Was pricing exceptionally strong, like Full price sales exceptionally strong. Maybe you can just call out a couple of the trends that kind of drove the gross margin performance in the quarter.

Speaker 1

Yes. So on the online side, we know that we experienced very nice high margins in that category. So we'll leave that For now. On the traditional side of the equation, certainly we're getting more and more efficient. We're bringing goods to market at a Better price, we're negotiating because the volume is increasing and we're becoming more of a factor with our factories and we're strategically putting ourselves in a better So that helps.

Speaker 1

We're becoming more and more efficient in what we do and how we do and how we operate. That's really critical to the business and the margins. Also in this particular quarter, we had the benefit of our wholesale distribution partners starting a little bit early this year to be totally positioned for Holiday 2 as well. And they saw a very nice Demand on the moissanite side of their business too as well. So they're really starting earlier and they want to be in a position to be able to capitalize on the holiday as well.

Speaker 1

So our Forever One voice mail is doing quite well for all of our distribution partners and that business is growing on all fronts, including their side.

Speaker 3

Okay, great to hear. And then just last one on margins from me and then I'll jump back in queue here. But Sales and marketing, I guess, delevered about 600 basis points year over year. And I know we're in a Sort of environment this year versus last in terms of marketing costs and whatnot. But could you just give us a little bit more color on ad spend In the quarter, maybe just breakout, if you could, at the very least qualitatively performance marketing versus kind of brand spend?

Speaker 3

And then just anything that you could share on sort of your ROAS on performance marketing And just efficiencies in the quarter or any impact to call out from the Apple IDFA changes?

Speaker 1

Sure. So I'm not going to break out and we don't break out as far as what the ROAS is, but we do have a very strict ROAS target that we try to achieve when it's mid to lower funnel. I've been speaking about it quarter over quarter that we primarily focus on conversion based mid to lower funnel. As we've been profitable over quarter over quarter, we've had the opportunity to be able to redeploy some of the capital to be able to

Speaker 4

test that top of funnel.

Speaker 1

Certainly, we want to make sure that we're heading into holiday season and we pushed more capital into the top of funnel. We've also done some other deployment of capital towards Our Morrissey and Outlet brand too as well to be able to kind of run campaigns in that category and see where that consumer is shopping. So we're starting to see the benefit of that. We're starting to see what that consumer wants. And certainly, we'll continue to test that envelope as we get Closer and closer into the holiday, into Christmas.

Speaker 1

But we believe that now is the time to kind of deploy additional capital towards that top of funnel advertising. And it's effectively working. And as we start to build top line growth and look for top line revenue, we'll look to do that in proportion to the business. But Again, we've been constantly vigilant on making sure that that ROAS is nice and tight and it's beneficial to the business. We did have an anomaly in the spend this quarter between some of the kind of expenses that Clint alluded to plus Profitability factor and things like that, but overall, we're very comfortable with our spend and we'll do more campaigns.

Speaker 1

We're doing more like a Starlight event that we did in New York City This quarter, so those are the type of sales and marketing initiatives that we're doing that actually cost money on the brand awareness and we want to be able to build that brand into that Overall global brand that we see, Craig.

Speaker 3

Okay, great. I appreciate all the answers, Don. And I'll jump back in queue here.

Operator

Our next question comes from Paul Johnson, Private Investor. You may go ahead.

Speaker 5

Yes, good afternoon. Congrats on the great results. Just a couple of questions.

Speaker 4

First of all, what is the size of the net operating loss carry forward at this point roughly?

Speaker 1

Yes, sure. Clint, you want to go ahead and take that?

Speaker 2

Yes, roughly it's about $20,000,000 at this stage. If you look in our When we follow our Q, you can see that both the state the federal and the state are no wells, but that's about what they're valued at right now.

Speaker 5

Okay. Secondly, with regard to the distribution center in China, can you tell us more about Why China as the best sort of hub for us to choose at this point

Speaker 1

in In terms of location? Yes. So a lot of people have been asking that question since we kind of made the announcement. So the reality is We've always had a very strong Asia Pac business with our distribution partners there. Since China got impacted by A little bit earlier than the United States, we started to get to a point where that particular business Was really suffering.

Speaker 1

So from an international perspective, our international business had significant headwinds from China and our distribution partners. As well as that, there is a proliferation of moissanite into the market, into the Chinese market too as well. And we wanted to make sure that we can hedge that and we can actually bring our brand back to China and actually build that brand strength back to where it was originally. And tremendous amount of counterfeiting is going on between some other big brand names too as well. And we want to make sure that consumer has the Understanding that Charles and Colvard does promote China, does support China market And they can have the ability to go and get the authentic product right there in China.

Speaker 1

So we already have a very strong managing partner, strategic partner there. Just the question is we wanted it more branded and more Charles and Colvard focused with a look and feel of Charles and Colvard.

Speaker 2

Does that make sense?

Speaker 5

Yes, I mean, I understand that in one sense, although there are a ton of knockoffs and there's a ton of Chief Moises are coming out of that area. I'm just wondering why you wouldn't have chosen Europe, for example, for a distribution center instead of China. Yes.

Speaker 1

So I don't want to give forward looking comments, but look to Charles and Colvard to look for these type of centers throughout the universe. Asia Pac was just a given for us right there and it's specific to Asia and the Chinese market right now And it's with a partner that has been a long standing partner with us for a long time. The only difference is we're allowing that partnership to be able to utilize the brand and actually use the signage, trademark and really just convey our awareness throughout in the Pan U Jewelry district, which is really, really strong and we want to be a major presence there. So very low cost entry for us and basically it's just Business as usual. The only difference is, it'll allow that retailer and wholesaler and jewelry manufacturer there the ability to go and pick Single stones, multiple stones right there know and validate that these particular gemstones are true to what they are.

Speaker 1

They are authentic. They are Charles and Colvard. And we can manage our brand and control the communication there.

Speaker 5

Makes sense. I'm sure you guys all saw the recent IPO of Brilliant Earth. Can you just take a minute to tell us how you see the essential differences between your strategies and theirs? Yes.

Speaker 1

So first of all, we're very pleased by the brilliant earnings coming out. It further validates what we're doing as a company. Also, it allows us to have a comp into the market. Yes. Part of the issue in the past was it's very difficult to kind of determine the valuation or comp to Charles and Colvard and where we're at.

Speaker 1

We're certainly pleased that we've got someone to comp to. I think from a business perspective, we are all things lab grown right now. They do mine diamonds and Other naturally mined gemstones, which we do not, but certainly we have a lot of alignment and synergies between like what we do and kind of our focus. We also are focusing on an omni channel strategy with our signature showrooms now, so look to up to kind of do some of that. Fundamental differences, we're building out shoppable commerce, the ability to stream, the consumers' ability to transact Anywhere that consumer wants to transact, it's a little bit different and it gives our reach a little bit broader reach.

Speaker 1

But Overall, we're very pleased by what they're doing and actually we believe that we're aligned a lot with them.

Speaker 5

Excellent. And then just one more question, I'll jump back in the queue. Can you just address an ongoing issue Probably since you first came on board, there's been a concern, I think, among shareholders that nice fat balance sheet with $20,000,000 in cash It's going to be spent on some crazy acquisition. Can you give people an assurance that if one exists That you're going to instead spend the money perhaps incrementally on distribution centers worldwide or whatever it might be and not go hog wild on some Acquisition that perhaps may not add value because what you guys are doing is great, but it would be really a shame to see headed in a different direction. We've Been a shareholder for a long time and we've seen a lot of poor directions in the past.

Speaker 5

We'd love to have you just stay on the current path without spending a lot of money to do so.

Speaker 1

Yes. So the way I'll try to comment on that is a few parts. So number 1 is when I transition into the CEO role, Q1 all the way through 4 quarters throughout the year, the goal was to build cash, build the capital, stabilize the business. We did that. We did it in a really, really nice fashion.

Speaker 1

We built shareholder value. Certainly from my perspective, I look to build the wealth effect not only for my internal and external stakeholders. I'm not looking to dilute myself or anybody else for that matter Unless there is an opportunity that presents itself for the value investor community, we'll continue to build this value and build A business that's really strong that can stand alone, but I will tell you that we'll also look for opportunities. And if you look at my pedigree in the past, I do come from Berkshire Hathaway World. It is A world that grows through acquisition as well as organic growth, but we don't take that lightly.

Speaker 1

So what we do is, if there's someone Or something that's aligned with our long term strategic value, we'll look to kind of Take that on. But for right now, we believe we're in a really, really good place. We've got incredible organic initiatives between The shoppable commerce, the studio build out, the signature showroom initiatives that we have to build out those stores. Now we've got distribution centers, where the first one now is in China. And I just don't want to discuss anything further than that.

Speaker 1

But Certainly, there's plenty of room for organic growth where we're going and how we're going.

Speaker 5

I appreciate that. Thank you for all that color.

Operator

Our next question comes from Patrick Metcalfe with IBankers Direct. You may go ahead.

Speaker 4

Good afternoon, Don. Great quarter. I wanted to ask you a quick question. I see you guys are growing 30% year over year, you look like going into the holiday season, you can continue that. Are you doing anything to corner the supply On the lab grown diamonds,

Operator

I see you

Speaker 4

did very well with the inventory going into this quarter. Is there anything that you guys are planning

Speaker 1

Hey, Pat. How are you doing? So Certainly a loaded question. What I can tell you is we're constantly looking to secure supply. We're constantly looking to be prime in the supply.

Speaker 1

We're constantly looking to be as vertical as possible in that supply chain. Certainly on the moissanite and On Forever One, Moissanite and everything like that, we're very primed and we have an incredible position and we have an incredible market share related to that. On the lab grown diamonds front, on the Acadia lab grown diamonds, the goal there was to build out the business case to drive that business forward To make sure there was a consumer there, that consumer was shopping with us, that consumer valued what we had to bring to market, we believe that that consumer is absolutely there. We believe now that there are certain sweet spots that we can control and corner certain things in the future state. So as we continue to build our kind of overall market share, look to us to really create ways to become more vertical.

Speaker 1

I really don't want to elaborate more than that, but the goal would be to kind of utilize the resources, utilize the Subject matter expertise that I bring over 3 decades in the diamond business and the jewelry world and become as vertical and prime as possible so that we can have a significant advantage in the future state of what Charles and Colvard represents.

Speaker 4

Okay, great. Keep up the good work and I

Operator

Our next question comes from Matt Koranda with ROTH Capital. You may go ahead.

Speaker 3

Hey, guys. Thanks for the follow ups. Just since you mentioned the showroom and breaking ground On the share that will be attached to HQ, just wanted to see if you could lay out a few more metrics for folks around potentially sort of When we expect that to be completed? And then just any broader brush strokes you could provide around sort of how to think about Sales at existing showroom locations or potential showroom locations over time, I think it would be helpful. We did some kind of industry benchmarking Just curious to get your take on sort of how you guys are level setting expectations there.

Speaker 3

And then just one more thing, maybe you could address head on for folks as well, which is why wouldn't showrooms sort of Cannibalize existing sort of online sales for you guys, so just all of that, that would be helpful.

Speaker 1

Yes. So all very, very good and pointed questions. So let's just talk a little bit about, if I can, And a lot of investors' calls that I've had lately is why in your Morrisville location, in your existing location are you setting up the 1st store? Why are you not Putting that location somewhere in LA, New York, etcetera. So let's talk a little bit about that real quick if I can address that.

Speaker 1

So number 1, it's easier to do within Our existing infrastructure, it allows us to kind of build that out. It allows us to build the case for what are the types of products that consumer is shopping. Also in Morrisville, North Carolina where we're at, it's in the Raleigh Center in the Mecca for all these big And we get actual walk up customers every single day to our facilities and we have to turn them away. So there's very, very large entities all around us. We have strategic Holiday programs with them where they can get discounts to buy, they can do different things like that.

Speaker 1

So we feel that that's a great place to kind of get the learnings there. To answer your question about when that particular showroom is going to be open and operating, right now we're not giving that information, but we anticipate it within our end of our fiscal year. And the way I want people to look at these showrooms and the signature showrooms once we build out the case, As these showrooms support the omni channel strategy, they'll be part virtual, they'll be part Regular retail boutique showrooms giving that consumer the ability to kind of touch and feel the jewelry. We're also taking the data that we have in the demographics of where that consumer shopping our products and we're planning forward to try to Think about where these particular showrooms could be. Also inclusive in these showrooms could be potential distribution points For Charles and Colvard for that consumer to be able to pick their products up live from that center.

Speaker 1

Also the inventory in these Particular showrooms could also be able to support the business where we could pick, pack and ship. So I come from an operational world, supply chain world and we'll look to kind of Maximize any efficiencies wherever it is for us. And that consumer can also go to each one of these locations potentially and get service or Design their own pieces or kind of work them. If they have a ring size or need something, it will actually ease a lot of the overall business. And we believe there's tremendous growth for us there in this type of environment.

Speaker 1

And one last thing, these will be Signature Designer showrooms. So if you look at Charles and Colvard as a whole, we have our traditional, we have our online business segment, multiple different product categories can be purchased across all In our Signature showrooms, it will be it will literally be our pinnacle products in these showrooms. There will be a lot of exclusive items in these stores. There'll be a lot of different things that will captivate that audience and kind of drive growth. That's my opinion and that's where we're striving to.

Speaker 3

Okay. Very detailed and helpful, Don. Thank you. And then just one more on the showroom front was noticed CapEx Ticked up a little bit sequentially this quarter. Was there any capital spend in Q1 for the showroom strategy?

Speaker 3

And sort of how should we Just be thinking about the cost to open a typical showroom on a go forward basis.

Speaker 1

Yes. So fortunately, we did we I spoke to in the last quarter in our year end that we did make some provisions and allocations when we negotiate our leasehold and our future state of our leasehold improvements. So we were getting subsidy there as well. But on the CapEx side, from equipment and machinery and some things like that, there was small CapEx spend there. Also as we continue to grow the business in our ERP system and our internal computer systems and warehouse management systems, We're constantly improving that and we're constantly wanting the best of breed for what we're trying to build out.

Speaker 1

And that will be inclusive of POS software to support the Signature showrooms And that will be warehouse management to be able to handle pick, pack and ship wherever we are in the world and certain other investments that we will continue to do as we need to grow this business.

Speaker 3

Okay, great. And then just one housekeeping one for me as well, which I may have missed earlier, you may have already referenced it. But What was the driver of the large restricted cash balance in the quarter?

Speaker 1

Clint, you want to go ahead and take that?

Speaker 2

Yes, sure. Yes. Hey, Matt, how are you doing? That was all related to the you'll see it fully disclosed And our K and our Q that we're going to release to all, but that's all related to the JPMorgan Chase Cash securitized credit facility. So we instead of uncovering all our assets basically, we just set aside a $5,000,000 Plus deposit with them to secure that $5,000,000 credit facility.

Speaker 3

Okay. Got it. Very clear. I'll leave it there. Thanks, guys.

Speaker 1

Thanks, Matt.

Operator

This concludes our question and answer session. I'd like to turn the conference back over to Don O'Connell for any closing remarks.

Speaker 1

Thanks. Appreciate that. So we appreciate your time today. On behalf of the entire team here at Charles and Colvard, we wish you and your families a healthy and happy holiday season. Looking forward to our next call in the coming quarter.

Speaker 1

Be well.

Operator

The conference call will be archived for review on the company's website at www.charlesncovart.com /investorrelationsevents. To access the digital replay of this conference, you may dial 1-eight 7,344,750 9 or 1412 3,170,088, beginning approximately 1 hour from now. You will be prompted to enter a conference number, which will be

Speaker 3

10,000,000,651,521.

Operator

Please record your name and company when joining. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Charles & Colvard, Ltd. Q1 2022
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