Good day, and thank you for standing by. Welcome to the Brilliant Earth Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll 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 first speaker today, Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Brilliant Earth's Third Quarter 2024 Earnings Conference Call. My name is Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Joining me today are: Beth Gerstein, our Chief Executive Officer; and Jeffrey Kuo, our Chief Financial Officer. During the call today, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results could differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results could differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion 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 unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth's non-GAAP measures to the comparable GAAP measures is available in today's earnings release, which can be found on the Brilliant Earth's Investor Relations website. I'll now turn the call over to Beth.

Good afternoon, and thank you for joining us today. I'm happy to report that we continue to drive the progress of our strategic initiatives and delivered another quarter of profitability. This is our 13 consecutive quarter of profitability as a public company and something I continue to be very proud of. In Q3, we delivered net sales of $99.9 million, which was within our guidance range and a 13% year-over-year decline. We continue to operate nimbly and efficiently, expanding gross margin 230 basis points year-over-year to 60.8% driving marketing efficiency and effectiveness and exceeded our profitability expectations for the quarter, delivering $3.6 million in adjusted EBITDA or a 3.6% adjusted EBITDA margin. As you all know, the engagement market continues to normalize and our competitors are increasingly relying on promotions and discounts to encourage sales. Yet, we've remained steadfast in driving sustainable, profitable results and protecting and strengthening our premium brand in this environment. We believe this balanced approach positions us to seize what we believe is enormous untapped potential for our business. While we have experienced expected softness in engagement ring sales, we have seen strong sales growth outside of engagement rings, including in both wedding and anniversary bands and fine jewellery. We believe the strength in demand is a strong reflection of consumers' desire for our high-quality beautiful products and their affinity for our brand. It was a banner quarter for our brand. Even as we exceeded our profitability guidance, we continue to make long-term strategic investments in our brand. We launched a much-anticipated fine jewellery collection with Dr. Jane Goodall, which has been our most successful launch ever for our fine jewellery collection. Our partnership with Dr. Goodall is a reflection of the best of our company; beautiful, unique and exclusive product; an authentic mission-aligned partnership; and…

Thanks, Beth, and good afternoon, everyone. As Beth mentioned, we're pleased to report a quarter where we continue to successfully drive our strategic initiatives, innovate, meet our top line expectations and far exceed our profitability expectations even in the face of industry headwinds. Let me take you through the details for Q3. Q3 net sales were $99.9 million, within our guidance range or a decline of 13% year-over-year. Total orders were about flat year-over-year, while we had another strong quarter in repeat orders, which increased by 11% year-over-year, demonstrating the effectiveness of our customer acquisition and retention efforts and the resonance of our brand and products with consumers. Q3 average order value, or AOV, declined 12% year-over-year as we continue to broaden and diversify our overall assortment, including in our fine jewelry collection, which, as you know, has lower price points than engagement rings. Q3 average selling price or ASP growth was about flat year-over-year in engagement rings, while wedding and anniversary bands and fine jewelry ASPs both saw growth year-over-year, demonstrating our effective strategy of leaning into our compelling brand and not participating in the discounting that is widespread in the industry. Q3 gross margin was 60.8%, which is a 230 basis point expansion over Q3 last year, principally driven by our premium brand and proprietary products, our price optimization engine, procurement efficiencies and our enhanced extended warranty program. This gross margin strength is particularly rewarding as we maintain our focus on our premium brand positioning in an environment where others continue to lean into discounting and gold prices are at all-time highs. We delivered a Q3 adjusted EBITDA of $3.6 million or a 3.6% adjusted EBITDA margin, exceeding our guidance range. Our strong gross margin performance, together with prudent management of our marketing spend and other operating expenses…

[Operator Instructions] And your first question comes from the line of Oliver Chen from TD Cowen.

Beth and Jeff, as you think about the engagement market and normalization, what's ahead? When might it normalize and turn positive in terms of the trends that you're seeing? And also, Beth, as we think about your comments on second quarter in terms of bridal trends now versus prior, what were the biggest changes? And Jeff, on your side, the margins continue to impress. You've had the optimization engine in place for a while, which has been very helpful. Like what inning are you in with the optimization engine? And the promotional environment may continue to be pretty intense for a while. What are some plans if promotions get worse from competitors?

Thanks, Oliver. So I can start with just the overall trends that we're seeing in the engagement market. As we mentioned earlier, we're encouraged that we are seeing improvement, sequential improvement, in engagement ring bookings trends. So we are seeing an improvement in the overall market. And in addition to that, we have a lot of confidence that our strategic priorities are working. And as we're continuing to invest in our brand, we are seeing improvement within bridal as well as outside bridal overall. So while we don't have a crystal ball, we know that we're seeing some nice improvement. We expect Q4 to come in stronger. And we also feel like we're very well positioned as we see increasing demand to be able to react very quickly, very nimbly. As you know, our model is very asset-light. We're make to order. So we're very adaptive as a company to be able to drive additional sales as we see that demand materialize. We continue the strategy also of not chasing unprofitable growth and continuing to protect our brands. I think we've done a great job as a lot of the team has done a great job. I think that goes to your question on the promotional environment. Yes, it has been intense. We expect it to continue to be intense. But because we are really attracting customers for the differentiated beautiful product that we offer, our signature collections and the premium brand and that premium omnichannel experience, we're not leaning into discounts as we really haven't in our history, and that's going to protect and grow the brand for the future. And we continue to believe that, that is the winning strategy in this market and in markets to come. Jeff, maybe you can talk a little bit about margins?

Yes. Thanks, Beth. Oliver, regarding the margins and price optimization engine, as you know, that's something that we have been continuing to use for some time, and it's dynamic. It's dynamic in that we refine it as we get new data in from the market, from consumers, and we're continually testing and optimizing that to find the right balance of driving top line growth as well as capturing gross margin percentage. And so it's something that we continue to deploy on an ongoing basis. And in times like this, it couples very well with our asset-light model and our overall data-driven approach to allow us to compete effectively to capture demand as it emerges, and we're excited to continue to refine that with each quarter.

Okay. And just a couple of follow-ups. The environment is pretty dynamic with the prospect of different tariff scenarios. Just as you think about those, what are some of your ideas or frameworks in terms of those uncertainties? And then the holiday period, there's five fewer days, but any thoughts that you have to help us frame holiday strategies this year, which may be different versus last year?

Sure thing. So as it relates to tariff scenarios, because we have a very diversified supply chain, I feel very comfortable that we're able to adapt quickly depending on what we see as it relates to tariffs and this is something that we saw during COVID as different geographies experienced different shutdowns. We were exceptionally well positioned relative to our competitors. So that, I think, is going to give us an advantage as well as just the -- very data-driven nature of our company overall. We also, given the price optimization engine, I think, can react very dynamically in terms of optimizing margin and adapting our pricing relative to our costs. And we've been in very dynamic cost environments even with gold prices at all-time highs. So something that our company is very adept at managing. As it relates to the holiday season, we've been doing this now for almost 20 years. And I think we've seen every version of the holiday season. We have a great assortment. I think the fact that we have three new showrooms opening and ending the year with 40 showrooms makes us very well positioned for that last-minute shopper, even better than we've been positioned in the past. And we're just incredibly, as I said, agile. We're continuing to monitor the overall environment, drive marketing efficiency. And so as we see demand, wherever it ends up being, we're going to be able to capture it and be very dynamic in how we think about promoting our products, both online and in our stores.

[Operator Instructions] And your next question comes from the line of Ashley Owens from KeyBanc Capital Markets.

So first, I just wanted to touch on some of the buyer metrics here. Total orders were about flat in the quarter, but repeat orders were up 11%. I wanted to unpack the differences in trends you're seeing between potential customers coming into showrooms versus those who have already made a purchase with you. Are you seeing a slowdown in new customer acquisition at all? And then I have a follow-up.

So I would say that it's the difference in terms of new versus repeat orders is really driven by that softer bridal demand. And we see great performance as it relates outside of bridal within our wedding and anniversary bands, within our fine jewelry assortment as well. But it's really about that bridal customer overall, which, as we know, has experienced some headwinds as it relates to higher inflationary costs. It's a more considered purchase. This is a younger consumer. And so that's really the main difference. In terms of the showrooms, we feel really great about the performance overall. I think showrooms have held up nicely. The digital environment remains very competitive and promotional, and that's why we've taken the strategy that we have. But overall, we really think about the omnichannel purchase in totality, given this is a multistep process for many of our customers. So that's probably the difference there.

And I would just add that, as Beth mentioned, we're -- we've been seeing sequential improvement in the bookings growth rate, including in engagement rings, and we're glad to see that progression as we're starting off Q4, and we think we're well positioned for the holidays.

Got it. So switching to marketing really quick, leverage in the quarter while making some of those brand-building investments. Could you just parse through where you saw opportunity to pull back this quarter? And then any pockets of focus you're leaning into or examining for investments in 2025 to help fuel a return to growth? I know, media and social media showrooms have been strong callouts for you.

Yes. I would say that we continue to be very dynamic in how we operate in marketing. We're driving marketing efficiency and effectiveness. And social media remains very important to the company, and we're really leaders here. We've driven very strong engagement. The numbers that I said in my earlier remarks was that overall impressions have grown over 375% relative to two years ago. So I think the investments that we're making there continue to pay off. The strategic priorities that we've said all along, we continue to have conviction in. So if you think about brand awareness, we're continuing to lean into brand investments. We continue to drive fine jewellery growth, and a lot of that is driven through a very successful marketing initiatives. We're coming off our most successful launch ever in fine jewellery with our Jane Goodall collection. So that's something we're really pleased to see and see a lot of opportunity with going forward. And then continue to see growth through showrooms, the fact that we're opening three new ground floor showrooms, including today opening in Nolita, New York, we're very excited about. And I think all of these are going to position us very well for the long term.

Thank you. I will now hand the call back to Beth Gerstein for closing remarks.

Thank you, everybody, for joining us today. I hope you all have a very happy holiday season and look forward to sharing our holiday results next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.