Good day and thank you for standing by. Welcome to the Brilliant Earth Fourth Quarter and Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Allison Malkin of ICR. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2022 earnings conference call. Joining me today are Beth Gerstein, Chief Executive Officer; and Jeff Kuo, Chief Financial Officer. For the call today, Beth will begin with highlights of our fourth quarter and fiscal year financial and operational performance and the drivers of future growth. Jeff will follow with more details on the quarter and year and share our outlook. Following this, the operator will begin the Q&A session with our presenters, Beth and Jeff available to answer the questions you have for us today. Before we start, I would like to remind you that management will make certain remarks today that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These future forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and the results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we will discuss both GAAP and non-GAAP financial measures. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's earnings release, which is available at the Investor Relations section of our website at investors.brilliantearth.com. A live broadcast of this call is also available at the Investor Relations section of our website. With that, I'll turn the call over to Beth.

Good afternoon everyone, and thank you for joining us today. We're pleased to share our fourth quarter and full year results with you. When we began the 2022 fiscal year, I shared with you that our approach would be to prudently and strategically invest to grow the Brilliant Earth brand in business, to expand our showroom and omnichannel footprint and to optimize our significant financial and operating advantage with our asset-light, agile and highly efficient business model, all with an eye on delivering profitable and sustainable near and long-term growth, and on extending our lead as a transformative modern fine jeweler for today's consumer. While there were certainly unexpected turns in what we all know is a challenging 2022, I'm incredibly proud of our ability to adapt in a changing environment and to gain market share while also staying focused on our dual goals of building and protecting our brand and driving healthy, profitable growth. I'm pleased to report that today's results reflect the success of that approach. Full year revenue grew 16% to $440 million, which represents a 31% four-year CAGR and 197% four-year stack. As a note, we're providing a four-year comparative due to the anomalies of the COVID years, and as we believe the 2019 base provides a more normalized benchmark. As we expected, we delivered Q4 revenue of $120 million as the industry came off its biggest year ever in bridal, and we strategically expanded our focus to prioritize growth in fine jewelry. On a four-year CAGR basis, Q4 grew 28% and 170% on a four-year stack. For both the full year and the fourth quarter, we realized record order levels. Our orders grew to approximately 150,000 for the year and approximately 45,000 for the quarter, representing 27% and 14% year-over-year growth respectively. Full year gross…

Thanks, Beth, and good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and 2022 full year results. As Beth mentioned, we are very pleased with the results we recorded today. We delivered strong revenue growth and adjusted EBITDA for the year in the face of a rapidly changing macro environment. These results are a testament to the strength and resonance of Brilliant Earth brand, the agility of our team and the adaptability of our unique asset light business model. We are particularly gratified to again demonstrate our ability to navigate in any environment and to prudently and strategically execute our growth priorities. To expand the reach and resonance of our brand, while also delivering healthy, sustainable, profitable growth. Today’s results reflect those efforts. In the fourth quarter, we delivered revenue of $119.6 million, a 2% decline year-over-year and growth of 28% on a four-year CAGR basis. This result was near the midpoint of the expected range we communicated on our Q3 earnings call. Full year revenue grew 16% over the prior year to $440 million, which represents 31% growth on a four-year CAGR basis. Beth mentioned the record level of orders we realized in 2022, which contributed to this growth. Equally important, it is a strong barometer of the growing demand for and resonance of the Brilliant Earth brand. As we’ve mentioned before, with continued growth in fine jewelry and expansion of our assortment, we do expect AOVs will decline on a year-over-year basis and in Q4 that decline was 14%. This was driven by increased aggregate demand for our offerings below the $10,000 price point, as well as strong performance in fine jewelry and the fact that Q4 is the largest fine jewelry quarter for us. I’m pleased to report that we also continued…

[Operator Instructions] Our first question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.

Thank you. Good afternoon, Beth and Jeff and nice to see the progress. As you think over the long term about the opportunity on product on channel, how big do you think fine jewelry can get? What does it mean to the AOV? And it sounds like the showroom ability to uplift revenues continues to be substantial. Any other thoughts – I think you had long-term targeted 80 to 100 any other thoughts on how you’re thinking about that rollout? And lastly, I remember you’d always talked about the resilience of the category. In today’s times, is there anything the same or different in the 17 years of history that you’ve seen that would make this particular timeframe different in anyways in how you’re operating the business? Thank you.

Hi, Dana. It’s nice to hear your voice. I think there are a number of questions there. So maybe I can just start off with just talking about our conviction in the overall category. And the way that we’ve been looking at the category overall is we’re really coming off of some very strong growth over the past few years, and this year is more in terms of normalizing. But over this multi-year period, it’s still quite strong and we see a lot of ability for Brilliant Earth specifically to be able to gain share as we have really from the beginning. I think a lot of the initiatives that we’ve been investing in have really nice momentum right now in terms of the products and the assortment that we’re offering. In terms of the showroom strategy, we still have a lot of conviction about an efficient showroom strategy, which is really, I think, synergistic with the digital experience that we continue to invest in. So I wouldn’t say that our long-term goals as it relates to showrooms has changed at all. We still have a lot of conviction there. In terms of fine jewelry, I think we’ve seen a lot of the success in Q4 based on the investments that we made in our assortment as well as in the marketing efforts that we have. So seeing strong repeat, seeing strong self-purchase, all of those I think are really great results from the initiatives that we have. And overall, if you look at this $300 billion category, I think that we’ve only really scratched the surface and really being the premium brand for the Millennial and Gen Z audience.

Thank you. And just to follow up on the AOV decline that you had mentioned, Jeff, is that due to fine jewelry? What are you seeing in terms of the customer? I think you had mentioned a while ago they were elongating their purchases. What are you seeing today? Thank you.

So I think in terms of the AOV, we’re seeing there’s a number of factors there. I think I mentioned that we have seen increased aggregate demand for offerings below the $10,000 price point, some moderation above the $10,000 price point with the strong performance that we’ve seen in fine jewelry as it continued to grow faster than the rest of the business. And also the fact that we have Q4 as the largest fine jewelry quarter for us. And so I think we’re very excited about the growth and success that we’re having in fine jewelry. It will – we do expect it’ll lead to declines on a year-over-year basis in AOV, but we see that as reflective of the success of the strategic priority that we’re putting in growing and expanding in FJ, fine jewelry.

Thank you.

Thank you.

One moment for our next question. Our next question comes from the line of Edward Yruma from Piper Sandler. Your line is open.

Hey guys. Thanks for taking the question. So two quick ones for me. I guess first we’ve been hearing more chatter about weddings being softer in 2023. I guess just kind of what is your estimate from a top-down perspective on weddings that kind of informs maybe this softer sales guide? And then I guess just stepping back, it sounds like some early successes in fine jewelry. We know historically this carries a stronger gross margin than engagement. But I guess as you look at kind of the offsetting increase in marketing is the push into fine jewelry been kind of margin accretive how should we think about the implications of the model going forward? Thank you.

Great. So as it relates to weddings, as I said earlier, we do think that 2023 is going to be more normalized. Keep in mind, 2022, there were $2.6 million weddings. So it was a peak year in decades. And while I think 2023 is going to be more normalized, I do think that this is a pretty consistent and resilient category overall. So as we look to the future, I think we still have a lot of confidence in the overall category. A few things as it relates to fine jewelry and I’ll certainly let Jeff touch on a few of these points as well. But I think that there’s a lot of benefit for us to continue to drive increased penetration. We’re able to take that bridal customer and continue to market to them, continue to offer a really nice compelling offering and really help to drive LTV as well as overall repeat. I think we've seen a lot of success as it relates to repeat. And so, I think that there's a lot of synergies in terms of investing in the customer overall and really being able to broaden and make this accretive for us as a company.

And then with respect to gross margin, we do see gross margin opportunity in high margin fine jewelry as well as Beth talked about the opportunity to drive additional repeat purchases and drive additional customer lifetime value. With respect to marketing for fine jewelry, I think more broadly how we think about our marketing spend is if we're continually managing that dynamically with a strong ROI focus that includes our overall marketing efforts. And I think you see that in our ability to manage and for example, grow or have a strong Q4 EBITDA. And that's something that we continue to expect to have that discipline in terms of dynamically managing marketing with a strong ROI focus.

Thanks so much.

Thanks Ed.

One moment for our next question. Our next question come from the line of Oliver Chen from Cowen. Your line is open.

Hi, thanks. Hi, Beth and Jeff, you called out promotions in the prepared remarks. Would love your thoughts on what you're seeing with the customer in terms of the customer previously being very considered in their purchase and in your guidance. How are you thinking about that relative to the deceleration and weddings? And a follow up, you've been very agile in your customer acquisition strategies. What are you seeing with customer acquisition costs and how you're thinking about targeting, as you have a pretty dynamic bricks and clicks model to, where you acquire plenty of customers physically as well? Thank you very much.

Hi Oliver. Thanks for your questions. So as it relates to promotions, I think we did see a promotional environment in Q4. I would say that our customer is not that discount driven, price is the only thing that they're looking for, and they're really looking to connect with the brand that really has value and meaning to them. And I think that's where we really shine overall. The fact that this is a very big purchase in their life, it has a lot of symbolism and value, I think just makes us much more differentiated here and we're not really trying to differentiate on offering the biggest discounts. So I think that actually plays to our advantage and we're going to continue to invest in quality revenue and protect our prices and protect the brand. I think that's the right strategy for the company, as it relates to the guidance and what we're seeing on weddings. I think that we continue to see a big opportunity to take share. We see a lot of momentum in the initiatives that we have underway with our brand, the highest searches that we've seen such strong media impressions as well as the strong results that we've seen across showrooms and fine jewelry. So I think we're really looking at this across a broader time period. How do we take share and continuing to grow the brand for the long-term? And then as it relates to how we're thinking about marketing, I think Jeff put it really well that we really are driving marketing efficiencies and operating in a very nimble way. And we're continuing to also invest in the brand. And I think we punch above our weight as it relates to social and a lot of the campaigns that we're doing. And I think as we see success there, we're going to continue to invest.

Thank you. Best regards.

Thank you. One moment for our next question and our next question will come from the line of Matthew Boss from J.P. Morgan. Your line is open.

Great, thanks. It's Amanda Douglas on for Matt. To start, Beth, could you speak to how you've seen the consumer purchase decision cycle trend to start the year in 1Q to-date, may be relative to 4Q and then are there any notable shifts by category or price point you've observed? And then just multi-year, what do you see as the bridge from this year's 8% revenue growth guidance at the midpoint to your high 20s to low 30s, longer term target?

Great. So I would say, we're continuing to see a volatile environment overall, and I wouldn't say that we're seeing anything that's markedly different in Q1 relative to Q4. We're just really coming off of a very strong comp overall. I think Jeff mentioned in terms of price points, seeing increased demand in aggregate under that $10,000 price point. So that's one observation that we have overall with the consumer today. And Jeff, maybe you can comment on the multi-year and the bridge.

Yes. In terms of the multi-year, one thing that we had mentioned and we're using in our planning is really thinking about four year CAGR as the appropriate way to look at the longer term trend line, given some of the volatility in recent years and our guidance for the quarter and the year incorporates a strong multi-year CAGR there. And so that's how we're thinking about modeling. It's reflective of how we believe that we are poised to gain share in a variety of different environments. And that's how we've thought about planning out the long-term and how that ties to our long-term growth algorithm that we've talked about previously.

That's helpful. Thanks. And then just to follow up on gross margin, with 2022’s gross margin finishing at 53.3%, could you just rank what you see as the remaining gross margin drivers from here to achieving your longer term mid-50s target?

Sure, I'm glad to talk through that. So I think the opportunities that we see to expand gross margin are similar to those that we – that have allowed us to get here. I think underlying it is the strong premium brand that we have and the resonance that we have with our customer base that allows us to have a strong gross margin, our differentiated proprietary products. And then operationally what we do is, we'll work through our price optimization engine and that allows us to dynamically manage to optimize both for revenue and gross margins procurement efficiencies. And then also we talked about potential opportunity in high margin fine jewelry. And so I think the combination of these things really is similar to how we've gotten here to where we are now and we see room to continue to press towards our long-term target at the mid-50s% gross margin.

That's helpful. Thank you.

Thanks, Amanda.

One moment for our next question. Our next question comes from the line of Rick Patel from Raymond James. Your line is open.

Thank you. Good afternoon everyone. Can you talk about what's embedded for OpEx as we think about your EBITDA margin guidance for 2023? I'm curious how we should think about the potential to leverage either marketing or other SG&A. Jeff, you talked about the progress made with OpEx. I’m just curious if the demand environment does often further, where do you see room to have better control of OpEx?

Maybe I can just start that and just framing it in terms of our overall longer-term growth outlook. I think it’s really important that we’re investing behind initiatives with proven ROI. And I think we’ve seen a lot of momentum here. So part of I think what’s driving the guidance for the year is really leaning into some of these growth initiatives, which I think positions us really well to grow market share as well as experience that multi-year strong CAGR. Jeff, maybe you can go into the specifics in terms of what’s embedded and how – what kind of leverage we have.

Sure. So embedded in how we’re thinking about OpEx for the year is a continuation of investments that we’ve been making in 2022 to set the stage for our ongoing long-term growth with appropriate discipline and prudence in terms of being cognizant of the environment and working towards driving – exiting 2023 driving leverage year – on a year-over-year basis in adjusted SG&A. So as we exit 2023 working towards that. And in terms of how we would manage I think there’s a couple different examples I can give. For example, one, marketing is something that on an ongoing basis, we manage dynamically to adapt to conditions and demand that we’re seeing. Employee costs are another area where we can dynamically manage the customer facing workforce to meet the demand that we’re seeing across showrooms, across e-commerce and different areas. So I think what you can – you probably tell, like there’s a theme of nimbleness and agility in terms of how we manage those costs. And I think it shows in some of the Q4 results how we were able to deliver adjusted EBITDA that was ahead of our expectations. And I think that’s a reflection of the capabilities and the success of our team in managing even in a very dynamic and uncertain Q4 that we faced

And can you also talk about what revenue guidance assumes in terms of AOV versus orders? I know you don’t give guidance by a line item, but I’m just curious if AOV – the decline in AOV accelerated on a year-over-year basis in the back half and just given you are leading into fine jewelry, should we expect a continuation of double-digit declines in AOV as we think about 2023? Just some context on the puts and takes for the KPIs would be helpful.

Sure. So as you mentioned, we don’t provide specific guidance on those line items. However, how I might think about some of those areas would be one for AOV as with respect to fine jewelry with our continued growth there do expect that since fine jewelry has a lower average price point that there will be declines year-over-year in on an aggregate basis. One thing for a Q4 specifically, Q4 is seasonally our biggest fine jewelry quarter. And so that – you do see that effects as you think about Q4 relative to non-Q4 quarters. So you do see more of that seasonal fine jewelry effect. And as we talked about for the call, like, we could – we saw for Q4, we do continue to see strong order growth and I think we’re very excited by that, the growth in orders, the growth in number of customers served, I think just really reflects the resonance and the success of the Brilliant Earth brand.

Thanks very much.

Thanks, Rick.

[Operator Instructions] And our next question will come from the line of Michael Binetti from Credit Suisse. Your line is open.

Hey guys, thanks for all the details today. I’m not sure if I heard it, but you said this year gross margin is still in the mid-50s. Does the gross margin expand this year? That that line’s been very solid at 55% of the last two quarters. I’m curious if that expands this year as we look at the whole year and then even in the first quarter if it expands given there’s less mix headwind from the fine jewelry that you’ve pointed to a few times.

Sure. So our gross margin for the year as a whole was 53%, a little north of 53%. And we are working towards the gross margins of that mid-50s and 50s range in our long-term algorithm. There are if you’re looking on an individual quarter basis, you expect there are some puts and takes and fluctuations, as we’re continually managing dynamically to optimize revenue and gross margins. So there’ll be some fluctuations on a quarter-over-quarter basis, but working towards for the year driving to towards that mid-50s goal for the overall gross margin for the year.

Okay. And then I guess just a couple more. Are you doing – I mean, when you comment that the demand under $10,000 price point has been high. Are you doing anything deliberate strategy wise into that dynamic the engage – to satisfy customers may be shifting to maybe a bit more of a value mindset. And then I guess separately as you scale here and your mind share in fine jewelries or could there ever be an opportunity to extend fine jewelry into a wholesale strategy?

So what I would say is that I think we have a compelling product offering across a variety of price points and we really always have. And it’s important to us to work with the customer wherever their budget is. And so I think we’re naturally very well-positioned kind of as budgets are going to fluctuate to be able to offer something compelling to that customer. As it relates to wholesale, I think obviously we have a very strong brand. At this point, I think we have a lot – see a lot of opportunity in direct-to-consumer. But so it’s not something that we have any immediate plans to really amp up.

Okay. Thanks a lot, Beth.

Sure.

[Operator Instructions] And our next question will come to line of Dylan Carden from William Blair. Your line is open.

Thanks. Just trying to understand the commentary on the SG&A, this year you’re still going to see deleverage, it sounds like exiting the year as in 2024, you might start to leverage operating costs. But I guess, the sort of “growth investments”, can you – I mean, it sounds labor, obviously store costs are in there. But – and then sort of the commentary on sort of being nimble yet and spending marketing dollars, I’m kind of curious where you’re actually seeing marketing efficiencies show up, just kind of looking at some of the numbers. What’s the biggest overhanging? Why is that run over the next year? And how quickly do you think you can start leveraging some of that investment kind of looking at where your margins were two, three years ago.

Jeff, do you want to take that one?

Sure. So I think, I’d like to walk through just how we’re thinking about the opportunity and our long-term perspective, I think we’re – we believe that there’s a lot of trajectory for us to continue to really grow and gain share over the long-term and making investments in things like growing awareness of the brand, expanding the showroom footprint, investments in fine jewelry. And we think that there’s the opportunity to do so in this environment. We have the financial strength and balance sheet to be able to make those investments while still keeping an eye towards being disciplined and focused, in terms of how we’re making those. We’ve always operated the company in an efficient fashion with ROI in mind. And as you point out, we are working towards driving to leverage on a year-over-year basis, exiting the year. And we continue to be agile in terms of how we think. So as we see variations in demand, we’re able to meet that opportunity. I think with respect to showrooms, for example, many of our showrooms are still a bit earlier in terms of their maturation. So I think there’s more younger showrooms in our cohort and I think there’s – we do see a lot of opportunities for leverage in SG&A going forward and setting the stage for multiple years of sustainable profitable growth.

And does that mean that by 2024, you think the maturity curve on retail will be better that it’ll allow you to pull back more on marketing that you’ll have sort of the HQ workforce in place that you need? Anything sort of why 2024 would be the inflection point?

Yes. I would say that we think that there are opportunities for growing leverage in these areas. I would perhaps point also to over the last quarters from Q2 to Q3 to Q4, we have been reducing the deleverage in each of those areas. And I think that’s come from our disciplined focus on an ongoing basis, recognizing that we’re in a somewhat uncertain macro environment and being focused on ROI, focused on efficiency. And I do think that we see opportunities in each of those areas and that’s how we’ve embedded in terms of planning for the year, driving towards exiting, driving year-over-year leverage.

Which the body language there would be that you would expect more or less sort of continued linear progression in leverage or deleverage.

Yes. I think there’ll be – there may be quarterly fluctuations, but that’s the overall direction that we’re managing the SG&A trend line.

Okay. I’ll save the rest. Thank you very much.

Thank you, Dylan.

[Operator Instructions] Our next question comes line of Noah Zatzkin from KeyBanc Capital. Your line is open.

Hi, thanks for taking my question. Just a quick one from me. I believe you mentioned a mall based showroom. So just in general, has anything evolved or shifted in terms of how you think about your approach to showrooms, whether it be location inventory on hand? I think in your commentary around that showroom, you mentioned a commitment to maintaining an asset light model, but just would you consider more inventory in the showrooms? Any color would be helpful. Thanks.

Sure. So as it relates to us launching a mall based showroom, I think this is really building on the success that we’ve seen with ground floor locations and we have a number of ground floor locations right now that also builds on the success that we’ve seen with appointment driven, but also enables a browser, a customer that’s browsing as well. So given the uplift that we’ve seen there, we thought that certainly in some locations, some geographical locations, the mall based showroom makes a lot of sense. That’s really how customers are shopping. And so I think we’re able to take that appointment driven model where the journey starts online. They come to us in this very personalized curated experience. And behind the scenes, we’re also able to operate in a very inventory light way. We have a lot of dynamic inventory management that is able to curate based on what the customer preferences are. So I don’t anticipate that’s going to materially change. We’re still going to be able to be very capital efficient, but want to make sure that we have the right product assortment for that browsing customer.

Very helpful. Thank you.

Thank you. I’m not showing any further questions in the queue. I want to turn the conference back to Beth Gerstein for any closure remarks.

Thank you everyone for joining us today. We look forward to speaking to you when we report our first quarter results in May and look forward to seeing some of you at Shoptalk later this month.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.