Brilliant Earth Group, Inc.

Previous wording

We were founded in 2005 as an e-commerce company with an ambitious mission and a single showroom in San Francisco. We have rapidly scaled our business while remaining focused on our mission and elevating the omnichannel customer experience. Through our intuitive digital commerce platform and personalized individual appointments in our showrooms, we cater to the shopping preferences of tech-savvy next-generation consumers. We create an educational, joyful, and approachable experience that is unique in the jewelry industry.

Current wording

We were founded in 2005 as an e-commerce company with an ambitious mission and a single showroom in San Francisco. We have rapidly scaled our business while remaining focused on our mission and elevating the omnichannel customer experience. Through our intuitive digital commerce platform and personalized individual appointments in our showrooms, we cater to the shopping preferences of tech-savvy next-generation consumers. We create an educational, joyful, and approachable experience that is unique in the jewelry industry. Today, Brilliant Earth has sold to consumers in over 50 countries.

Previous wording

Throughout our history, we have invested in technology to create a seamless customer experience, inform our data-driven decision-making, improve efficiencies, and advance our mission. Our technology enables dynamic product visualization, augmented reality try-on, blockchain-verified transparency, and rapid fulfillment of our flagship Design Your Own product, a custom design process. We leverage powerful data capabilities to improve our marketing and operational efficiencies, personalize the customer experience, curate showroom inventory and merchandising, inform real estate decisions, and develop new product designs that reflect consumer preferences. We believe the Brilliant Earth digital experience drives higher satisfaction, engagement, and conversion both online and in-showroom.

Current wording

Throughout our history, we have invested in technology to create a seamless customer experience, inform our data-driven decision-making, improve efficiencies, and advance our mission. Our technology enables dynamic product visualization, augmented reality try-on, blockchain-verified transparency, and rapid fulfillment of our flagship Design Your Own product, a custom design process. We leverage data capabilities to improve our marketing and operational efficiencies, personalize the customer experience, curate showroom inventory and merchandising, inform real estate decisions, and develop new product designs that reflect consumer preferences. We believe the Brilliant Earth digital experience drives higher satisfaction, engagement, and conversion both online and in-showroom.

Previous wording

•Net loss margin of 1.1%, compared to net income margin 1.8% for the three months ended September 30, 2023;

Current wording

•Net loss margin of(3.5)%, compared to net income margin of 1.1% for the three months ended March 31, 2024;

Previous wording

•Net loss of$1.1 million, down 153.8% compared to net income of $2.0 million for the three months ended September 30, 2023;

Current wording

•Adjusted EBITDA of$1.1 million, down 78.8%, compared to $5.1 million for the three months ended March 31, 2024; and

Previous wording

We have historically had attractive customer acquisition economics, including substantial first order profitability. To continue to grow our business, we must continue to acquire new customers and retain existing customers in a cost-effective manner. The success of our customer acquisition strategy depends on a number of factors, including the level and pattern of consumer spending in the product categories in which we operate, and our ability to cost-effectively drive traffic to our website and showrooms and to convert these visitors to customers. With our strong brand resonance and passionate customer base, we generate significant earned and organic traffic, impressions, and media placements. We continually evolve our dynamic marketing strategies, optimizing our messaging, creative assets, and spending across channels. We also believe our expanded fine jewelry assortment and strategic customer acquisition will continue to drive fine jewelry orders from new customers and repeat orders from existing customers.

Current wording

We have historically had attractive customer acquisition economics, including substantial first order profitability. To continue to grow our business, we must continue to acquire new customers and retain existing customers in a cost-effective manner. The success of our customer acquisition strategy depends on a number of factors, including the level and pattern of consumer spending in the products that we offer, and our ability to cost-effectively drive traffic to our website and showrooms and to convert these visitors to customers. With our strong brand resonance and passionate customer base, we generate significant earned and organic traffic, impressions, and media placements. We continually evolve our dynamic marketing strategies, optimizing our messaging, creative assets, and spending across channels.

Previous wording

We believe growing and managing our showrooms will drive accelerated growth by increasing our average order value ("AOV") compared to e-commerce orders, improving conversion in the showrooms’ metro regions compared to pre-opening conversion, and raising our brand awareness. We intend to strategically open showrooms in the future, and we believe we can achieve broad national showroom coverage with far fewer locations than many traditional retailers. We rely on this highly efficient showroom model to complement our digital strategy and to continue to drive growth and profitability.

Current wording

We believe growing and managing our showrooms will drive accelerated growth by increasing our average order value (“AOV”) compared to e-commerce orders, improving conversion in the showrooms’ metro regions compared to pre-opening conversion, and raising our brand awareness. We intend to strategically open showrooms in the future, and we believe we can achieve broad national showroom coverage with far fewer locations than many traditional retailers. We rely on this highly efficient showroom model to complement our digital strategy and to drive future growth and profitability.

Previous wording

We are in the early stages of expanding globally, and a larger geographic footprint will help drive future growth. Our 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

We are in the early stages of selling globally, and a larger geographic footprint will help drive future growth. Our 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.

Previous wording

We have a unique, asset-light operating model with attractive working capital dynamics, capital-efficient showrooms, and a vast virtual inventory of premium natural and lab-grown diamonds that allows us to offer a broad selection of diamonds while keeping our balance sheet inventory low. This has driven attractive inventory turns and allows us to operate with negative working capital, which we define as our current assets less cash minus our current liabilities. Our showroom strategy minimizes the inefficiencies of traditional, retail-first jewelers. Our showrooms are primarily appointment-driven with large catchment regions, so we are less reliant on expensive high foot traffic retail locations. Our showroom locations and formats vary from interior, upper floor locations to more recently higher traffic pedestrian and retail mall locations. In all locations, we also curate showroom inventory for scheduled visits and require limited inventory in each location. Our tech-enabled jewelry specialist team can support online customers when not in appointment, increasing workforce utilization. As we continue to scale our business, our future success is dependent on maintaining this capital efficient operating model and driving continued operational improvement as we expand to new locations both in the U.S. and internationally.

Current wording

We have a unique, asset-light operating model with attractive working capital dynamics, capital-efficient showrooms, and a vast virtual inventory of premium natural and lab-grown diamonds that allows us to offer a broad selection of diamonds while keeping our balance sheet inventory low. This has driven attractive inventory turns and allows us to operate with negative working capital, which we define as our current assets less cash minus our current liabilities. Our showroom strategy minimizes the inefficiencies of traditional, retail-first jewelers. Our showrooms are primarily appointment-driven with large catchment regions, so we are less reliant on expensive high foot traffic retail locations. Our showroom locations and formats vary from interior, upper floor locations to more recently higher traffic pedestrian and retail mall locations. In all locations, we also curate showroom inventory for scheduled visits and require limited inventory in each location. Our tech-enabled jewelry consultants can support online customers when not in appointment, increasing workforce utilization. As we continue to scale our business, our future success is dependent on maintaining this capital efficient operating model and driving continued operational improvement as we expand to new locations both in the U.S. and internationally.

Previous wording

We believe we are well-positioned at the intersection of key macro-level trends impacting our industry. Consumers are increasingly becoming more conscious of the products they purchase, seeking brands that stand for sustainability, supply chain transparency, and social and environmental responsibility. This has contributed to our strong brand affinity and loyalty, and further differentiates us from our competitors. Consumers are increasingly favoring seamless omnichannel shopping experiences, and we believe our model is well-suited to satisfy these consumer preferences. The current inflationary environment and changes in macro-level consumer spending trends, due to volatile macro-economic conditions could negatively impact our operating results.

Current wording

We believe we are well-positioned at the intersection of key macro-level trends impacting our industry. Consumers are increasingly seeking brands that reflect their values and provide supply chain transparency. This has contributed to our strong brand affinity and loyalty, and further differentiates us from our competitors. Consumers are increasingly favoring seamless omnichannel shopping experiences, and we believe our model is well-suited to satisfy these consumer preferences.

Previous wording

Net sales for thenine months ended September 30, 2024 decreased by $19.4 million, or 6.0%, compared to the nine months ended September 30, 2023. The decrease in net sales was due to a decrease of 10.5% in AOV, partially offset by an increase in order volumes of 5.0%.

Current wording

Net sales for thethree months ended March 31, 2025 decreased by $3.5 million, or 3.5%, compared to the three months ended March 31, 2024. The decrease in net sales was due to a decrease of 14.2% in AOV, partially offset by an increase in order volumes of 12.4%.

Previous wording

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

Current wording

The decrease in AOV was driven by comparatively stronger performance of engagement rings priced below $5,000 and a higher mix of lower price point products, including fine jewelry.

Previous wording

The 5.0% increase in order volumes was due to strong performance in lower price point products, including fine jewelry, continued effectiveness of our customer acquisition and retention activities and the opening of new showrooms.

Current wording

The 12.4% increase in order volumes was due to strong performance in lower price point products, including fine jewelry, continued effectiveness of our customer acquisition and retention activities and the opening of new showrooms.

Previous wording

Gross profit for the three months ended September 30, 2024 decreased by $6.1 million, or 9.1%, compared to the three months ended September 30, 2023. Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, increased by 230 basis points for the three months ended September 30, 2024 compared to the three months ended September 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. These improvements in gross margin were slightly offset by a 3.4% increase in average platinum spot prices and a 28.6% increase in average gold spot prices for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Current wording

Gross profit for the three months ended March 31, 2025 decreased by $3.3 million, or 5.6%, compared to the three months ended March 31, 2024. Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, decreased by 130 basis points for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by higher gold costs and labor/occupancy costs related to our fulfillment and distribution center. This decrease was partially offset by continued optimization of our pricing engine, procurement efficiencies, and other efforts to manage our gross margins to target levels.

Previous wording

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

Current wording

The increase in other general and administrative expenses was primarily driven by increases in information technology and other software-related costs, pre-opening expenses from new showrooms, and increases in rent, and lease-related expenses compared to the three months ended March 31, 2024. The decrease in marketing expenses compared to the three months ended March 31, 2024 resulted from our continued focus on improving the effectiveness and efficiency of our marketing program.

Previous wording

Other income, net for the three months ended September 30, 2024 increased by$0.1 million, compared to the three months ended September 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.

Current wording

Other income, net for the three months ended March 31, 2025 decreased by$0.2 million, or 16.0%, compared to the three months ended March 31, 2024, primarily due to decreased 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

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 September 30, 2024, we had a cash balance, excluding restricted cash, of$152.7 million, and negative working capital, which we define as our current assets less cash minus our current liabilities, of($22.3) 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 March 31, 2025, we had a cash balance, excluding restricted cash, of$147.3 million, and negative working capital, excluding non-restricted cash, of($36.5) million.

Previous wording

In addition, as of September 30, 2024, the SVB Term Loan (as defined below) had an outstanding principal balance of$58.5 million, excluding unamortized debt issuance costs of$0.4 million, of which$52.0 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

As of March 31, 2025, the SVB Term Loan (as defined below) had an outstanding principal balance of$54.8 million, excluding unamortized debt issuance costs of$0.3 million, of which$34.8 million is classified as long-term. As of March 31, 2025, there were no amounts outstanding under the SVB Revolving Facility. Refer to Note 7. “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the SVB Credit Facilities, including aggregate future principal payments under the SVB Term Loan.

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 required 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 applied 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 applied. 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 September 30, 2024, there were no amounts outstanding under the SVB Revolving Facility and$58.5 million outstanding under the SVB Term Loan,$52.0 million of which is classified as long-term.

Current wording

Subsequent to March 31, 2025, we entered into the Second Amendment dated May 13, 2025 to the SVB Credit Agreement (the “Second Amendment”), pursuant to which the lenders agreed to suspend the requirement to comply with the (i) Consolidated Fixed Charge Coverage Ratio covenant for the period ended March 31, 2025 through and including the fiscal quarter ending March 31, 2026 and (ii) the Consolidated Borrower Leverage Ratio covenant for the period ended March 31, 2025. In addition, the Second Amendment increased the interest rate margin applicable to the SVB Revolving Facility and Term Loan by 10 basis points for the period commencing on the effective date of the Second Amendment through (but not including) April 1, 2026. The Second 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 one and one half (1.5) times 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 the effective date of the Second Amendment until the last day of the fiscal quarter ending March 31, 2026. After such time, the minimum Balance Sheet Cash covenant will no longer apply.

Previous wording

For the nine months ended September 30, 2024, the Company declared and paid$1.8 million of tax distributions and TRA payments 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 three months ended March 31, 2025, the Company declared and paid$5.3 million of tax distributions to, or on behalf of, members associated with their estimated income tax obligations pursuant to the LLC Agreement. 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

Additional future liquidity needs may include payments under the TRA, and state and federal taxes to the extent not offset by our deferred income tax assets, including those arising as a result of purchases or exchanges of common units for Class A and Class D common stock. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners will be significant. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Brilliant Earth, LLC, and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA.

Current wording

Additional future liquidity needs may also include payments under the TRA, and state and federal taxes to the extent not offset by our deferred income tax assets, including those arising as a result of purchases or exchanges of common units for Class A and Class D common stock. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners will be significant. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Brilliant Earth, LLC, and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA.

Previous wording

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

Current wording

The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024 (in thousands):

Previous wording

For the nine months ended September 30, 2024, net cash provided by operating activities was$3.5 million compared to net cash provided by operating activities of$15.5 million for the nine months ended September 30, 2023, a decrease of$12.0 million. This decrease was primarily driven by$11.8 million from changes in assets and liabilities related to working capital management activ ities and a decrease in net income adjusted for non-cash expense addbacks of $0.2 million. The decrease from changes in assets and liabilities related to operating activities was primarily due to an increase of$3.9 million in other assets and inventories, a decrease of $3.0 millionin accounts payable, accrued expenses and other current liabilities, and a decrease of$0.9 million in operating lease liabilities. Also impacting the decrease from changes in assets and liabilities was a decrease of $2.5 million in deferred revenue and a decrease of$1.5 million inprepaid expenses and other current assets.

Current wording

For the three months ended March 31, 2025, net cash used in operating activities was$7.1 million compared to net cash used of$5.8 million for the three months ended March 31, 2024, an increase of $1.3 million. This increase was primarily driven by adecrease in net (loss) income adjusted for non-cash expense addbacks of $4.0 million. This decrease was partially offset by a $2.7 million decrease in cash used from changes in assets and liabilities related to working capital management activ ities. The decrease from changes in working capital was primarily due to an decrease in cash used of $2.0 million in accounts payable, accrued expenses and other current liabilities and other assets. Also impacting the decrease in cash used was an increase in cash generated of $1.6 million in deferred revenue and prepaid expenses and other current assets. These decreases in cash used in operating activities was partially offset by increases in cash used of $0.9 million in inventories and operating lease liabilities.

Previous wording

For the nine months ended September 30, 2024, net cash used in investing activities was$2.7 million compared to$10.7 million for the nine months ended September 30, 2023. The decrease of$8.0 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 three months ended March 31, 2025, net cash used in investing activities was $0.7 million compared to $0.6 million for the three months ended March 31, 2024. The increase of $0.1 million was principally due to a increase in purchases of property and equipment related to new facilities leased during the period.

Previous wording

For the nine months ended September 30, 2024, net cash used in financing activities was$3.9 million compared to$12.3 million for the nine months ended September 30, 2023. The decrease of$8.4 million was primarily due to lower tax distributions paid to members pursuant to the LLC Agreement of $8.1 million and lower payments made on the SVB Term Loan (as defined below) of $0.8 million. The decrease in tax distributions paid to members and payments made on the SVB Term Loan (as defined below) were 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 $0.4 million of our Class A common stock under the share repurchase program.

Current wording

For the three months ended March 31, 2025, net cash used in financing activities was$6.7 million compared to$2.0 million for the three months ended March 31, 2024. The increase of $4.7 million was primarily due to higher tax distributions paid to members pursuant to the LLC Agreement of $4.4 million and higher payments made on the SVB Term Loan (as defined below) of $0.4 million.

Previous wording

In addition, under the TRA, we are required to make cash payments to the Continuing Equity Owners equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in our allocable share of the tax basis of Brilliant Earth, LLC's assets resulting from (a) our purchase of LLC Interests from each Continuing Equity Owner; (b) future redemptions or exchanges of LLC Interests for Class A common stock or cash; and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments made under the TRA. We expect the amount of cash payments that we will be required to make under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing Equity Owners, the amount of gain recognized by the Continuing Equity Owners, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us.

Current wording

Under the TRA, we are required to make cash payments to the Continuing Equity Owners equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in our allocable share of the tax basis of Brilliant Earth, LLC's assets resulting from (a) our purchase of LLC Interests from each Continuing Equity Owner; (b) future redemptions or exchanges of LLC Interests for Class A common stock or cash; and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments made under the TRA. We expect the amount of cash payments that we will be required to make under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing Equity Owners, the amount of gain recognized by the Continuing Equity Owners, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us.

Previous wording

As of September 30, 2024, there were no material changes to our contractual obligations and commitments as disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Form 10-K except for the update noted below.

Current wording

As of March 31, 2025, there were no material changes to our contractual obligations and commitments as disclosed in Part II, Item 7,“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2024 Form 10-K.