Charles & Colvard Reports Fourth Quarter Sales Increase 13% as Full Year Sales Increase 40% over Prior-Year Business Wire MORRISVILLE, N.C. -- February 26, 2013 Charles & Colvard, Ltd. (NASDAQ Global Select Market: CTHR), the sole manufacturer of created moissanite gemstones, The Most Brilliant Jewel in the World^®, today announced that net sales for the fourth quarter and year ended December 31, 2012, increased 13% and 40%, respectively, over the prior-year periods. Financial Highlights: *Q4 net sales increase 13% to $8.1 million vs. $7.2 million in Q4 2011, and full year net sales increase 40% to $22.4 million vs. $16.0 million in 2011 *Profitable Q4 and full year – Q4 net income of $4.2 million after approximate $471,000 incremental quarter-over-quarter investment in consumer-direct business models, vs. prior-year period net income of $1.8 million; full year net income of $4.4 million after approximate $2.7 million incremental year-over-year investment in consumer-direct business models, vs. prior-year net income of $1.6 million *Income tax benefit in Q4 of $3.8 million and full year of $4.1 million *$12.4 million cash and investments and no long-term debt at 12/31/12 *Positive cash flow from operations in Q4 of $679,000 and full year of $2.8 million Net sales for the three months ended December 31, 2012, increased 13% to approximately $8.1 million, compared with approximately $7.2 million in net sales during the corresponding period of the previous year. Loose moissanite gemstone sales decreased 3% to approximately $4.7 million, compared with approximately $4.8 million in the corresponding period of the previous year. Finished jewelry sales increased 45% to approximately $3.4 million, compared with approximately $2.4 million in the corresponding period of the previous year. Net sales for the year ended December 31, 2012, increased 40% to approximately $22.4 million, compared with approximately $16.0 million in net sales during the year ending December 31, 2011. Loose moissanite gemstone sales increased 24% to approximately $15.0 million, compared with approximately $12.1 million in the previous year. Finished jewelry sales increased 87% to approximately $7.4 million, compared with approximately $4.0 million in the previous year. The Company recorded net income of $4.2 million, or $0.21 per diluted share, in the fourth quarter of 2012, representing an approximate $2.4 million improvement relative to net income of $1.8 million, or $0.09 per diluted share, in the fourth quarter of 2011. For the year ended December 31, 2012, the Company recorded net income of $4.4 million, or $0.22 per diluted share, representing an approximate $2.8 million improvement relative to net income of $1.6 million, or $0.08 per diluted share, in the previous year. Fourth quarter 2012 net income included a $3.8 million tax benefit resulting from the Company’s reduction of a valuation allowance on certain deferred tax assets based on management’s expectation of their future utilization. In addition to this, full year 2012 net income also included an income tax benefit of approximately $320,000 generated by the reversal of a liability for an uncertain tax position resulting from a voluntary disclosure agreement the Company entered into with a taxing authority. Operating expenses increased $1.3 million, or 56%, and $4.0 million, or 49%, during the fourth quarter and year ended December 31, 2012, respectively, when compared with the same periods of 2011. Of these increases, sales and marketing expenses increased $1.6 million, or 150%, and $4.1 million, or 125%, during the fourth quarter and year ended December 31, 2012, respectively, when compared with the same periods in 2011. These increases were primarily due to the Company’s ongoing investments in marketing and branding initiatives to better position Charles & Colvard’s product lines in the marketplace, as well as marketing investments and key strategic personnel additions in support of its direct-to-consumer Moissanite.com e-commerce and Lulu Avenue^TM home party businesses. “Our continued success growing our business at Charles & Colvard is a tribute to the many initiatives put in place over the past three years. We are very pleased with our results in the fourth quarter and for the year,” stated Randy N. McCullough, Chief Executive Officer of Charles & Colvard, Ltd. “Our wholesale business executed exceptionally throughout the year, providing significant increases in sales of loose jewels and finished jewelry; both providing the necessary cash flow to grow our consumer-direct businesses as we invest in our future. In addition to this, finishing the year with a $2.8 million positive cash flow after approximate $2.7 million incremental year-over-year investment in our consumer-direct business models highlights our strong financial performance, making our results even more gratifying to us. “In addition, investments in improving our information technology infrastructure paid off as the volume of transactions increased with sales, thereby validating our ability to operationally execute during the ramp up. Continuous process improvement is top of mind throughout our company as we focus on 2013. “Moissanite.com launched a new software platform in the fourth quarter, providing many site functionality improvements that resulted in considerable revenue growth that we expect, with annual traffic of over one million visitors, will continue to increase. Also during the fourth quarter, our Lulu Avenue^TM direct sales initiative underwent a significant remake with the addition of the JudeFrances team developing an exclusive product line and creating catalogs and marketing collateral targeting second quarter of 2013. Several improvements in both the front-end and back-office system are designed to better support our Lulu Avenue^TM field personnel in their businesses while providing operational support to drive the business forward. We believe our investment in Lulu Avenue^TM will begin to yield higher revenues in 2013 while significantly increasing our market exposure and our revenue streams for years to come. “We recently announced the production of new raw material providing the opportunity for continued enhancements in our manufacturing processes as our team works closely in a collaborative effort with a designated team at Cree. Initial results are very promising, providing the opportunity to further explore the gemstone enhancement process for our products, Charles & Colvard Created Moissanite^® and Forever Brilliant^®, beginning with the initial growth of the SiC crystal. Everyone at Charles & Colvard is excited to work together with Cree, the world’s leading producer of SiC crystals, on this ongoing strategic initiative.” “Our expectations for the first quarter of 2013, based on the to-date execution of our direct and wholesale businesses, are for continued stronger sales. Our objectives are focused on steadily building a solid foundation, now and for the long term health of our business…to win with consumers by providing a superior gem backed with world class service; and to deliver total shareholder return that ranks Charles & Colvard among the best performing companies in our industry. We are confident that we are doing what is right and necessary to achieve these objectives,” concluded McCullough. Financial Position Cash and liquid long-term investments totaled $12.4 million at December 31, 2012, up from approximately $10.5 million at December 31, 2011, and the Company had no long-term debt outstanding as of December 31, 2012. Cash generated from operations totaled $679,000 and $2.8 million during the three months and year ended December 31, 2012, respectively. During the fourth quarter of 2012, the primary drivers of positive cash flow were the Company’s net income of $4.2 million that included $3.4 million of net non-cash benefit, an increase in interest receivable of $8,000, a net decrease in inventory of $782,000, an increase in trade accounts payable of $1.2 million, and a net increase in accrued liabilities of $87,000. These factors more than offset an increase in trade accounts receivable of $2.1 million and an increase in prepaid expenses and other assets of $34,000. During the year ended December 31, 2012, the primary drivers of positive cash flow were the Company’s net income of $4.4 million that included $1.6 million of net non-cash benefit, an increase in interest receivable of $11,000, a net decrease in inventory of $2.1 million, and an increase in trade accounts payable of $1.1 million. These factors more than offset an increase in trade accounts receivable of $2.6 million, an increase in prepaid expenses and other assets of $316,000, and a net decrease in accrued liabilities of $353,000. Total inventory, including long-term and consignment inventory, approximated $32.8 million as of December 31, 2012, which was down from approximately $35.0 million at the end of 2011 primarily as a result of sales, offset in part by purchases during the year of jewelry castings, findings, and other jewelry components; fashion finished jewelry in support of the Company’s home party direct sales business; and production of moissanite gemstones. Net trade accounts receivable approximated $8.1 million at December 31, 2012, up $2.0 million from December 31, 2011. Investor Conference Call The Company will host an investor conference call at 11:15 a.m. EST today, February 26, 2013, to discuss its fourth quarter and full year 2012 operating results, along with other topics of interest. Shareholders and other interested parties may participate in the conference call by dialing 877-317-6789 (international/local participants dial 412-317-6789) and asking to be connected to the “Charles & Colvard, Ltd. Conference Call” a few minutes before 11:15 a.m. EST on Tuesday, February 26, 2013. The call will also be broadcast live on the Internet at www.visualwebcaster.com/event.asp?id=91612. A replay of the conference call will be available one hour after the call until 9:00 a.m. EST on Friday, March 8, 2013, by dialing 877-344-7529 (U.S.) or 412-317-0088 (international) and entering the conference ID number 10023598. The conference call will also be archived for review on the Internet at www.visualwebcaster.com/event.asp?id=91612 and on the Company’s website at www.charlesandcolvard.com until Friday, March 8, 2013. About Charles & Colvard, Ltd. Charles & Colvard, Ltd., based in the Research Triangle Park area of North Carolina, is the global sole source of moissanite, a unique, near-colorless created gemstone that is distinct from other gemstones and jewels based on its exceptional fire, brilliance, luster, durability, and rarity. Charles & Colvard Created Moissanite^® and Forever Brilliant^® are currently incorporated into fine jewelry sold through domestic and international retailers and other sales channels. Charles & Colvard, Ltd. is headquartered in Morrisville, North Carolina, and its common stock is listed on the NASDAQ Global Select Market under the symbol “CTHR.” For more information, please visit www.charlesandcolvard.com. This press release contains forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended. Statements expressing expectations regarding our future and projections relating to products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar words, although some forward-looking statements are expressed differently. All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management’s current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, our dependence on consumer acceptance and growth of sales of our products resulting from our strategic initiatives; our ability to fulfill orders on a timely basis; dependence on a limited number of customers; our current wholesale customers’ potential perception of us as a competitor in the finished jewelry business; dependence on Cree, Inc. as the sole current supplier of the raw material; intense competition in the worldwide jewelry industry; general economic and market conditions, including the current economic environment; the financial condition of our major customers; risks of conducting business in foreign countries; the pricing of precious metals, which is beyond our control; the potential impact of seasonality on our business; our ability to protect our intellectual property; the risk of a failure of our information technology infrastructure to protect confidential information and prevent security breaches; and possible adverse effects of governmental regulation and oversight, in addition to the other risks and uncertainties described in our filings with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and subsequent reports filed with the SEC. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by the federal securities laws, and you are urged to review and consider disclosures that we make in the reports that we file with the SEC that discuss other factors relevant to our business. Charles & Colvard, Ltd. Consolidated Statements of Operations (unaudited) Year Ended December 31, 2012 2011 Net sales $ 22,412,810 $ 16,033,408 Costs and expenses: Cost of goods sold 9,959,500 6,510,452 Sales and marketing 7,443,784 3,312,383 General and administrative 4,756,432 4,671,111 Research and development 17,013 145,720 Loss on abandonment of assets 2,016 94,408 Total costs and expenses 22,178,745 14,734,074 Income from operations 234,065 1,299,334 Other income (expense): Interest income 69,520 85,271 Interest expense (1,260 ) (1,141 ) Gain on call of long-term investments - 721 Total other income 68,260 84,851 Income before income taxes 302,325 1,384,185 Income tax net benefit 4,146,651 183,947 Net income $ 4,448,976 $ 1,568,132 Net income per common share: Basic $ 0.23 $ 0.08 Fully diluted $ 0.22 $ 0.08 Weighted average number of shares used in computing net income per common share: Basic 19,581,670 19,443,288 Fully diluted 19,967,271 19,703,204 Charles & Colvard, Ltd. Consolidated Balance Sheets (unaudited) December 31, 2012 2011 ASSETS Current assets: Cash and cash equivalents $ 11,860,842 $ 6,701,701 Accounts receivable, net 8,100,670 6,064,764 Interest receivable 694 12,109 Inventory, net 8,442,430 6,849,592 Held-to-maturity investments 505,068 - Prepaid expenses and other assets 737,406 419,729 Deferred income taxes 1,104,505 - Total current assets 30,751,615 20,047,895 Long-term assets: Held-to-maturity investments - 3,760,399 Inventory, net 24,365,743 28,157,497 Property and equipment, net 1,746,792 1,420,971 Intangible assets, net 346,732 248,812 Deferred income taxes 2,749,333 - Other assets 12,199 13,746 Total long-term assets 29,220,799 33,601,425 TOTAL ASSETS $ 59,972,414 $ 53,649,320 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,112,585 $ 1,060,937 Accrued cooperative advertising 200,000 213,000 Accrued expenses and other liabilities 574,522 581,009 Total current liabilities 2,887,107 1,854,946 Long-term liabilities: Accrued income taxes 408,131 741,645 Total liabilities 3,295,238 2,596,591 Commitments and contingencies Shareholders’ equity: Common stock, no par value; 50,000,000 shares authorized; 19,654,050 and 19,454,689 53,318,044 52,833,716 shares issued and outstanding at December 31, 2012 and 2011, respectively Additional paid-in capital – stock-based 8,459,020 7,767,877 compensation Accumulated deficit (5,099,888 ) (9,548,864 ) Total shareholders’ equity 56,677,176 51,052,729 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 59,972,414 $ 53,649,320 Charles & Colvard, Ltd. Consolidated Statements of Cash Flows (unaudited) Year Ended December 31, 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,448,976 $ 1,568,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 608,165 299,550 Amortization of bond premium 5,331 4,498 Stock-based compensation 1,017,078 983,504 Provision for uncollectible accounts 245,582 430,261 Provision for sales returns 307,000 39,000 Provision for inventory reserves 102,000 (274,000 ) Benefit for deferred income taxes (3,853,838 ) - Loss on abandonment of assets 2,016 94,408 Gain on call of long-term investments - (721 ) Changes in assets and liabilities: Accounts receivable (2,588,488 ) (2,854,884 ) Interest receivable 11,415 (5,946 ) Income tax receivable - 113,030 Inventory 2,096,916 2,649,412 Prepaid expenses and other assets, net (316,130 ) (88,348 ) Accounts payable 1,051,648 518,853 Accrued cooperative advertising (13,000 ) (101,000 ) Accrued income taxes (333,514 ) (195,769 ) Other accrued liabilities (6,487 ) 272,356 Net cash provided by operating activities 2,784,670 3,452,336 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (868,986 ) (1,385,132 ) Purchases of long-term investments - (6,995,625 ) Proceeds from call of long-term investments 3,250,000 4,250,000 Patent, license rights, and trademark costs (164,936 ) (48,715 ) Net cash provided by (used in) investing 2,216,078 (4,179,472 ) activities CASH FLOWS FROM FINANCING ACTIVITIES: Stock option exercises 158,393 47,234 Share repurchases - (354,441 ) Net cash provided by (used in) financing 158,393 (307,207 ) activities NET INCREASE (DECREASE) IN CASH AND CASH 5,159,141 (1,034,343 ) EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF 6,701,701 7,736,044 PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,860,842 $ 6,701,701 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 1,260 $ 1,141 Cash paid during the year for income taxes $ 52,523 $ - Contact: Charles & Colvard, Ltd. Timothy Krist, 919-468-0399, ext. 295 Chief Financial Officer email@example.com or Investor Relations: Taglich Brothers, Inc. Christopher Schreiber, 800-383-8464 Investor Relations Counsel firstname.lastname@example.org
Charles & Colvard Reports Fourth Quarter Sales Increase 13% as Full Year Sales Increase 40% over Prior-Year
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