MicroCapClub Invitational: Charles & Colvard (CTHR)


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Charles & Colvard (CTHR) is the global source of Moissanite, a unique near colorless created gemstone sold through numerous channels both here in the US as well as internationally. Moissanite is recognized by the jewelry industry as the best alternative to a diamond. Charles & Colvard a successful turnaround story thanks to jewelry industry veteran and CEO Randy McCullough. Randy initiated a multi prong growth strategy a few years ago. He has grown the top line from $8m in 2009, $12m in 2010, $16m in 2011, and 2012 should approach $24m, an average growth rate close to 50% year over year. The company is profitable, has $11 million in cash, no debt, and 70 consecutive insider purchases without a sale. Listen to CEO Randy McCullough as he tells the story.

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MicroCapClub Invitational: Charles & Colvard (CTHR)

  1. 1. Management Presentation February 2013
  2. 2. Forward-Looking StatementsThis presentation may contain forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Statements expressing expectations regarding ourfuture and projections relating to products, sales, revenues, and earnings are typical of suchstatements and are made under the Private Securities Litigation Reform Act of 1995. Theseforward-looking statements include, but are not limited to, statements about our plans,objectives, representations, and contentions and are not historical facts and typically areidentified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,”“anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar words, although someforward-looking statements are expressed differently.All forward-looking statements are subject to the risks and uncertainties inherent inpredicting the future. You should be aware that although the forward-looking statementsincluded herein represent management’s current judgment and expectations, our actualresults 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 dependenceon consumer acceptance and growth of sales of our products resulting from our strategicinitiatives; dependence on a limited number of customers; our current wholesale customers’potential perception of us as a competitor in the finished jewelry business; general economicand market conditions, including the current economic environment; dependence on Cree,Inc. as the current supplier of the raw material; intense competition in the worldwide jewelryindustry; the financial condition of our major customers; risks of conducting business inforeign countries; the pricing of precious metals, which is beyond our control; the potentialimpact of seasonality on our business; our ability to protect our intellectual property; the riskof a failure of our information technology infrastructure to protect confidential informationand prevent security breaches; and possible adverse effects of governmental regulation andoversight, in addition to the other risks and uncertainties described in our filings with theSecurities and Exchange Commission, or the SEC, including our Annual Report on Form 10-Kfor 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 noobligation to update or revise such statements to reflect new circumstances or unanticipatedevents as they occur except as required by the federal securities laws, and you are urged toreview and consider disclosures that we make in the reports that we file with the SEC thatdiscuss other factors relevant to our business.
  3. 3. What is Moissanite?‘The World’s Most Brilliant Gem™’First uncovered in a meteorite and impossiblyrare on earthOne of the hardest gemstones known to man10% more brilliant with 2½ times more firethan diamondsProvides the luxury experience of a diamondat about 1/10 the costWill never lose its brilliance, which is covered byCharles & Colvard’s Limited Lifetime WarrantyRecognized by the jewelry industry as the bestalternative to diamond
  4. 4. Who Is Charles & Colvard?The Exclusive Producer of Moissanite since 1998… High-margin product with exclusivity Sales growth accelerating Wholesale revenue at a three-fold run rate Direct-to-consumer initiatives targeting increasing revenue and margin dollars Positive operating cash flow $1.5 million in 2010 $3.5 million in 2011 $2.1 million in 2012 through third quarter Substantial owned inventory levels Opportunity to monetize $34 million cost at over $65 million wholesale No long-term debt Funding business from operation’s cash flows
  5. 5. Seasoned Management on boardOver a century of experience join the Company…Management November 2009 – Randy McCullough, 40-year jewelry veteran, CEO October 2009 – Tom Pautz, 29-year jewelry veteran, VP of Sales & Marketing June 2009 – Tim Krist, 23-year accounting/finance veteran, CFODirectors July 2009 – Chuck Lein, 29-year jewelry veteran and retired President & COO of Stuller, Inc. November 2009 – Marvin Beasley, 45-year jewelry veteran and retired CEO of Helzberg Diamonds, a Berkshire Hathaway Co. February 2011 – Steven Larkin, e-commerce expert and Zale jewelry veteran, currently Senior Vice President of Golfsmith International Holdings May 2011 – David Barr, retail and franchising expert, jewelry veteran, currently owner and consultant for small- and mid-cap companies June 2012 – Anne Butler, direct sales veteran previously with Avon Products, Mary Kay Cosmetics, PartyLite Gifts, and Blythe
  6. 6. 2010 Revitalized Business ModelPositioned for profitable growth… Revived existing and developed new wholesale relationships in the industry Increased sales and profitability while reducing operating expenses Built on cash balances Set up infrastructure for manufacturing finished jewelry Formulated long-term growth strategies
  7. 7. 2011 Expanded Business ModelLaunched new growth strategies… Established a direct-to-consumer e- commerce site, Moissanite.com Formulated a direct-to-consumer home party business, Lulu AvenueTM Installed multiple systems to support the above initiatives Recruited senior management to drive new initiatives Craig Laing – 17-year e-commerce veteran Ann Raulston – 21-year home-party veteran
  8. 8. New Business Creation Wholesale Distributors Direct Distribution Moissanite.com Lulu AvenueRetailers E-tailers Home Shopping TV Retail Channels E-Shopping Style Advisors Consumers
  9. 9. Strong Cash and Revenue Trends $21.4* Cash and Investments Revenue *Previous 12 months $16.0Millions $12.7 $12.0 $10.5 $8.3 $8.7 $7.4 FY 2009 FY 2010 FY 2011 Q3 2012
  10. 10. #1 Seller onThe largest retailer of loose gemstones andone of the top 4 ‘Shop at Home Networks’ Moissanite Sales for 8-hour period surpassed Charles Winston hosts all $1,000,000 ! Moissanite Fire shows Charles Winston shows exceeded sales goals 100% of the time. Moissanite show hours have increased monthly! Jewelry Television JTV runs three Moissanite campaigns Moissanite Elite® in karat gold Moissanite Fire® in silver Moissanite Loose Jewels
  11. 11. E-commerce Provides Sales GrowthE-tailers posting significantincreases in 2012Leverages business modelIncreases brand awareness Exclusive designer brands and styles from best-in-class jewelry manufacturers Full-scale brand and functional redesign went live Fall 2012
  12. 12. E-commerce Promotes Market Awareness 1 Million Visits in 2012 Monthly Visits: 60,000+ #1 Google ranking for moissanite Over 2,000 unique items available Visitors: 61% new / 39% returning 65,000+ email & social media contacts
  13. 13. brings the designer in your homeProvides women an exclusivedirect social selling opportunityfeaturing Moissanite in designsby JudeFrances… Positions Charles & Colvard with incremental growth opportunity 2011 estimated U.S. direct sales = $30 billion* Exponential growth opportunities driven by number of Style Advisors Experienced experts driving the business: Ann Raulston had over 20,000 sellers at Gold Canyon Anne Butler had over 60,000 sellers at Party Lite *Source: Direct Selling Association (dsa.org)
  14. 14. brings the designer in your homeJudeFrances, known for classic, sexy, elegantworks of artistry, now designs for Lulu Avenue Provides Lulu Avenue with exclusive lifestyle brand New opportunities to attract stylists Extraordinary designs that help raise awareness Capitalizes on designer jewelry growth trends JudeFrances designer fashion jewelry appeals to every woman Improve Lulu’s marketing capabilities Stellar PR… Editors love JudeFrances!!
  15. 15. Disruptive Market Innovation Charles & Colvard Created Moissanite® as you’ve never seen it before… up to four color grades brighter and whiter! Certified, laser-inscribed, and guaranteed from the source.
  16. 16. Disruptive Market Innovation Comparison on 1 carat solitaire$6,000 DIAMOND 100% Brighter$5,000 $5,999 80% Whiter$4,000 60% Brilliant$3,000$2,000 40% Fiery$1,000 20% Durable MOISSANITE $0 $599 0% Affordable Recognized by the American Gem Society as the best alternative to Diamond
  17. 17. Financial State of the Business Strong Balance Sheet As of September 30, 2012: $11.9 million in cash and investments $33.7 million in inventory at cost Significant opportunity to build our cash position as we sell down current inventory Current ratio of 15:1 No long-term debt The business continues to be funded from cash flows from operations Shareholders’ equity of $52.3 million
  18. 18. 2012 Positive Revenue Trends Year over Year Revenue Increases80% 76% 69%70% 62%60%50% 40%40%30%20%10%0% Q1 2012 Q2 2012 Q3 2012 YTD 2012
  19. 19. (CTHR) Stock Information Activity Recent price of $3.69 (as of December 3, 2012) is a 7X multiple below all-time high of $25.99 (as adjusted) in December 2005 Significant insider buying Over 70 insider buys since November 2009, no insider sales Approximately 19,650,000 shares outstanding Insider ownership ≈ 11% Institutional ownership ≈ 31%
  20. 20. Management Presentation February 2013