Brilliant Earth Group Inc

Previous wording

•Adjusted EBITDA margin of 5.2%, compared to 5.7% for the three months ended March 31, 2023.

Current wording

•Adjusted EBITDA margin of 5.2%, compared to 7.0% for the three months ended June 30, 2023.

Previous wording

We are in the early stages of expanding globally, and a larger geographic footprint will help drive future growth. Our early proof-points from localizing our website for Canada, Australia, and the United Kingdom, and our sales to customers from over 50 countries, provide encouraging signs for future global expansion. We see strong potential in launching e-commerce in new overseas markets and new showrooms in countries where we have already established a localized digital presence. We plan to drive brand awareness through localized marketing channels and expect our data-driven technology platform to continue providing insights for product recommendations and inventory management.

Current wording

Kingdom, and our sales to customers from over 50 countries, provide encouraging signs for future global expansion. We see strong potential in launching e-commerce in new overseas markets and new showrooms in countries where we have already established a localized digital presence. We plan to drive brand awareness through localized marketing channels and expect our data-driven technology platform to continue providing insights for product recommendations and inventory management.

Previous wording

Net sales for the three months ended March 31, 2024 decreased by $0.4 million, or 0.4%, compared to the three months ended March 31, 2023. The decrease in net sales was due to a decrease of 12.4% in AOV, largely offset by an increase in order volumes of 13.7%.

Current wording

Net sales for the three months ended June 30, 2024 decreased by $4.8 million, or 4.3%, compared to the three months ended June 30, 2023. The decrease in net sales was due to a decrease of 7.7% in AOV, partially offset by an increase in order volumes of 3.6%.

Previous wording

The decrease in AOV was driven by an increase in sales of lower price point products, including fine jewelry.

Current wording

The decrease in AOV was driven by a higher mix of lower price point products, including fine jewelry.

Previous wording

The 13.7% increase in order volumes was due to:

Current wording

The 3.6% increase in order volumes was due to:

Previous wording

Gross profit for the three months ended March 31, 2024 increased by $4.6 million, or 8.6%, compared to the three months ended March 31, 2023. Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, increased by 500 basis points for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by our premium brand and differentiated product offerings, performance of our pricing engine, procurement efficiencies and benefits from our extended warranty program. Gross margin was further positively impacted by an 8.3% reduction in average platinum spot prices and negatively impacted by an increase of 9.7% in average gold spot prices forthe three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

Gross profit for the three months ended June 30, 2024 increased by $0.6 million, or 0.9%, compared to the three months ended June 30, 2023. Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, increased by 320 basis points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily driven by our premium brand and differentiated product offerings, performance of our pricing engine, procurement efficiencies and benefits from our extended warranty program. Gross margin was further slightly positively impacted by a 4.3% reduction in average platinum spot prices, and negatively impacted by an increase of 18.2% in average gold spot prices for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Previous wording

Selling, general and administrative expenses for the three months ended March 31, 2024 increased by$3.7 million, or 6.8%, compared to the three months ended March 31, 2023. Selling, general and administrative expenses as a percentage of net sales increased by 400 basis points for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023. The increase in selling, general and administrative expenses was driven by an increase in employment expenses, other general and administrative expenses, and marketing expenses, which increasedby $2.6 million, $0.6 million, and $0.5 million, respectively, from the quarter ended March 31, 2023 to the quarter ended March 31, 2024.

Current wording

Selling, general and administrative expenses for the three months ended June 30, 2024 increased by$0.8 million, or 1.3%, compared to the three months ended June 30, 2023. Selling, general and administrative expenses as a percentage of net sales increased by 330 basis points for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023. The increase in selling, general and administrative expenses was primarily driven by an increase in employment expenses of$2.4 million. This increase was partially offset by decreases in marketing expenses and other general and administrative expenses, which decreased$1.4 million and $0.2 million, respectively, from the quarter ended June 30, 2023 to the quarter ended June 30, 2024.

Previous wording

Other income, net for the three months ended March 31, 2024 increased by$0.6 million, compared to the three months ended March 31, 2023, primarily due to increased interest income earned on our cash balances. Additionally, this amount includes immaterial losses on exchange rates on consumer payments and other miscellaneous income.

Current wording

Other income, net for the three months ended June 30, 2024 increased by$0.3 million, compared to the three months ended June 30, 2023, primarily due to increased interest income earned on our cash balances. Additionally, this amount includes immaterial losses on exchange rates on consumer payments and other miscellaneous income.

Previous wording

The increase in employment expenses was driven by an increase in salaries and wages, equity-based compensation, payroll taxes and other benefits expense primarily due to the addition of staff to support our growth. The increase in other general and administrative expenses was a result of overall Company growth and principally driven by a $0.6 million increase in rent and lease related expenses, a $0.4 million increase in other general administrative expenses, a $0.3 million increase in contract labor, a $0.3 million increase in professional fees, a $0.3 million increase in information technology and other software-related costs, and a $0.2 million increase in depreciation expense. These increases in other general and administrative expenses were partially offset by a$1.5 million decrease in pre-opening expenses from the opening of new showrooms compared to the quarter ended March 31, 2023. The increase in marketing expenses was driven by increased investments in marketing and advertising to increase brand awareness and support strategic growth initiatives.

Current wording

The increase in employment expenses was driven by an increase in salaries and wages, equity-based compensation, payroll taxes and other benefits expense primarily due to the addition of showroom staff to support our growth. The increase in other general and administrative expenses was primarily driven by an increase in rent and lease related expenses, an increase in information technology and other software-related costs, and an increase in contract labor compared to the quarter ended June 30, 2023. These increases in other general and administrative expenses were partially offset by a decrease in pre-opening expenses from the opening of new showrooms and a decrease in charitable contributions compared to the quarter ended June 30, 2023. The decrease in marketing expenses resulted from our continued focus on improving the effectiveness and efficiency of our marketing program.

Previous wording

Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, are included in this Quarterly Report on Form 10-Q because they are used by management and our board of directors to assess our financial performance. We define Adjusted EBITDA as net income (loss) excluding interest expense, income taxes, depreciation expense, amortization of cloud-based software implementation costs, showroom pre-opening expense, equity-based compensation expense, certain non-operating expenses and income, and other unusual and/or infrequent costs, which we do not consider in our evaluation of ongoing operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA calculated as a percentage of net sales. These non-GAAP financial measures provide users of our financial information with useful information in evaluating our operating performance and exclude certain items from net income (loss) that may vary substantially in frequency and magnitude from period to period. These non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net income (loss) prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of each of Adjusted EBITDA and Adjusted EBITDA margin to its most directly comparable GAAP financial measure, net income (loss) and net income (loss) margin, are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items, and may include other expenses, costs and non-recurring items.

Current wording

Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, are included in this Quarterly Report on Form 10-Q because they are used by management and our board of directors to assess our financial performance. We define Adjusted EBITDA as net income excluding interest expense, income taxes, depreciation expense, amortization of cloud-based software implementation costs, showroom pre-opening expense, equity-based compensation expense, certain non-operating expenses and income, and other unusual and/or infrequent costs, which we do not consider in our evaluation of ongoing operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA calculated as a percentage of net sales. These non-GAAP financial measures provide users of our financial information with useful information in evaluating our operating performance and exclude certain items from net income that may vary substantially in frequency and magnitude from period to period. These non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net income prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of each of Adjusted EBITDA and Adjusted EBITDA margin to its most directly comparable GAAP financial measure, net income and net income margin, are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items, and may include other expenses, costs and non-recurring items.

Previous wording

The following table presents a reconciliation of net income (loss) and net income (loss) margin, the most comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods presented (amounts in thousands):

Current wording

The following table presents a reconciliation of net income and net income margin, the most comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods presented (amounts in thousands):

Previous wording

(2) These expenses are those that we did not incur in the normal course of business.

Current wording

(2) These expenses are those that we did not incur in the normal course of business. Expenses for the three and six month period ended June 30, 2023 include a $1 million charitable contribution.

Previous wording

Our primary requirements for liquidity and capital are for purchases of inventory, payment of operating expenses, tax distributions to Continuing Equity Owners, debt service, and capital expenditures. Historically, these cash requirements have been met through cash provided by operating activities, cash and cash equivalents, proceeds from capital-raising activities and borrowings under our loan facilities. We have historically had negative working capital driven by our high inventory turns and typical collection of payment from customers prior to payment of suppliers. As of March 31, 2024, we had a cash balance, excluding restricted cash, of$147.5 million, and negative working capital, which we define as our current assets less cash minus our current liabilities, of($18.4) million.

Current wording

Our primary requirements for liquidity and capital are for purchases of inventory, payment of operating expenses, tax distributions to Continuing Equity Owners, debt service, and capital expenditures. Historically, these cash requirements have been met through cash provided by operating activities, cash and cash equivalents, proceeds from capital-raising activities and borrowings under our loan facilities. We have historically had negative working capital driven by our high inventory turns and typical collection of payment from customers prior to payment of suppliers. As of June 30, 2024, we had a cash balance, excluding restricted cash, of$152.2 million, and negative working capital, which we define as our current assets less cash minus our current liabilities, of($20.6) million.

Previous wording

In addition, as of March 31, 2024, the SVB Term Loan (as defined below) had an outstanding principal balance of$59.3 million, excluding unamortized debt issuance costs of$0.5 million, of which$54.8 million is classified as long-term. Refer to Note 7. "Debt" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for aggregate future principal payments under the SVB Term Loan.

Current wording

In addition, as of June 30, 2024, the SVB Term Loan (as defined below) had an outstanding principal balance of$58.5 million, excluding unamortized debt issuance costs of$0.5 million, of which$53.6 million is classified as long-term. Refer to Note 7. "Debt" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for aggregate future principal payments under the SVB Term Loan.

Previous wording

For the three months ended March 31, 2024, the Company declared and paid$1.0 million of distributions to, or on behalf of, members associated with their estimated income tax obligations. We are committed to continue to make quarterly distributions in connection with member estimated income tax obligations which we expect to fund with cash flow from operations.

Current wording

For the six months ended June 30, 2024, the Company declared and paid$1.7 million of distributions to, or on behalf of, members associated with their estimated income tax obligations. We are committed to continue to make quarterly distributions in connection with member estimated income tax obligations which we expect to fund with cash flow from operations.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

For the three months ended March 31, 2024, net cash used in operating activities was$5.8 million compared to net cash used in operating activities of$2.0 million for the three months ended March 31, 2023, an increase of$3.8 million. This increase was primarily driven by$6.0 million from changes in assets and liabilities related to working capital management activ ities, partially offset by an increase in net income adjusted for non-cash expense addbacks of $2.2 million. The increase from changes in assets and liabilities related to operating activities was primarily due to an increase of$2.1 millionin accounts payable, accrued expenses and other current liabilities, an increase of$2.5 million in inventories, and increases in prepaid expenses and other current assets, operating lease liabilities, and other assets of$1.4 million.

Current wording

For the six months ended June 30, 2024, net cash provided by operating activities was$1.5 million compared to net cash provided by operating activities of$10.9 million for the six months ended June 30, 2023, a decrease of$9.4 million. This decrease was primarily driven by$11.8 million from changes in assets and liabilities related to working capital management activ ities, partially offset by an increase in net income adjusted for non-cash expense addbacks of $2.5 million. The decrease from changes in assets and liabilities related to operating activities was primarily due to an increase of$7.1 millionin accounts payable, accrued expenses and other current liabilities, an increase of$0.8 million in operating lease liabilities, and an increase of$0.7 million in other assets and inventories. Also impacting the decrease from changes in assets and liabilities was a decrease of $2.0 million in deferred revenue and a decrease of$1.3 million inprepaid expenses and other current assets.

Previous wording

For the three months ended March 31, 2024, net cash used in investing activities was$0.6 million compared to $4.4 million for the three months ended March 31, 2023. The decrease of$3.9 million was principally due to a decrease in purchases of property and equipment related to new facilities leased during the period.

Current wording

For the six months ended June 30, 2024, net cash used in investing activities was$1.4 million compared to$9.2 million for the six months ended June 30, 2023. The decrease of$7.7 million was principally due to a decrease in purchases of property and equipment related to new facilities leased during the period.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities was$2.0 million compared to$2.3 million for the three months ended March 31, 2023. The decrease of$0.3 million was primarily due to lower tax distributions paid to members pursuant to the LLC Agreement of $0.5 million. The decrease in tax distributions paid to members was partially offset by the payment of debt issuance costs of $0.1 million in connection with the First Amendment (as defined below) and repurchases of $0.1 million of our Class A common stock under the share repurchase program.

Current wording

For the six months ended June 30, 2024, net cash used in financing activities was$3.7 million compared to$6.8 million for the six months ended June 30, 2023. The decrease of$3.1 million was primarily due to lower tax distributions paid to members pursuant to the LLC Agreement of $3.4 million. The decrease in tax distributions paid to members was partially offset by the payment of debt issuance costs of $0.1 million in connection with the First Amendment (as defined below) and repurchases of $0.3 million of our Class A common stock under the share repurchase program.

Previous wording

On May 24, 2022, Brilliant Earth, LLC, as borrower, and Silicon Valley Bank ("SVB"), as administrative agent and collateral agent for the lenders, entered into a credit agreement ( the "SVB Credit Agreement"), which provides for a secured term loan credit facility of $65.0 million (the "SVB Term

Current wording

On May 24, 2022, Brilliant Earth, LLC, as borrower, and Silicon Valley Bank ("SVB"), as administrative agent and collateral agent for the lenders, entered into a credit agreement ( the "SVB Credit Agreement"), which provides for a secured term loan credit facility of $65.0 million (the "SVB Term Loan") and a secured revolving credit facility in the amount of up to $40.0 million (the "SVB Revolving Facility" and together with the SVB Term Loan, the "SVB Credit Facilities").

Previous wording

On February 21, 2024, we entered into the First Amendment to the SVB Credit Agreement (the "First Amendment"), pursuant to which the lenders agreed to suspend the requirement to comply with the Consolidated Fixed Charge Coverage Ratio covenant on the last day of the fiscal quarters ending December 31, 2023, March 31, 2024, and June 30, 2024. The First Amendment also requires us to maintain Balance Sheet Cash (defined as unrestricted cash and cash equivalents held in accounts with the lenders and their affiliates ) in an amount greater than the sum of the aggregate principal amount outstanding under the SVB Revolving Facility (including issued letters of credit) and the aggregate principal amount of the SVB Term Loan outstanding at such time, which requirement applies at all times commencing on February 21, 2024 until the last day of the fiscal quarter ending June 30, 2024. After such time, the minimum Balance Sheet Cash covenant no longer applies. See Note 7. "Debt" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the SVB Credit Facilities. As of March 31, 2024, there were no amounts outstanding under the SVB Revolving Facility and$59.3 million outstanding under the SVB Term Loan,$54.8 million of which is classified as long-term.

Current wording

On February 21, 2024, we entered into the First Amendment to the SVB Credit Agreement (the "First Amendment"), pursuant to which the lenders agreed to suspend the requirement to comply with the Consolidated Fixed Charge Coverage Ratio covenant on the last day of the fiscal quarters ending December 31, 2023, March 31, 2024, and June 30, 2024. The First Amendment also requires us to maintain Balance Sheet Cash (defined as unrestricted cash and cash equivalents held in accounts with the lenders and their affiliates) in an amount greater than the sum of the aggregate principal amount outstanding under the SVB Revolving Facility (including issued letters of credit) and the aggregate principal amount of the SVB Term Loan outstanding at such time, which requirement applies at all times commencing on February 21, 2024 until the last day of the fiscal quarter ending June 30, 2024. After such time, the minimum Balance Sheet Cash covenant no longer applies. See Note 7. "Debt" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the SVB Credit Facilities. As of June 30, 2024, there were no amounts outstanding under the SVB Revolving Facility and$58.5 million outstanding under the SVB Term Loan,$53.6 million of which is classified as long-term.