Brilliant Earth Group, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide a clear standalone fourth-quarter income statement. Brilliant Earth is a digital-first fine-jewelry retailer selling online and through 25 U.S. showrooms, with more than 90% of sales in the U.S.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $439.9 million | $380.2 million | +15.7% |
| Gross profit / margin | $234.3 million / 53.3% | $187.4 million / 49.3% | Margin +4.0 percentage points |
| SG&A | $211.0 million / 48.0% of sales | $147.3 million / 38.7% of sales | +43.2%; mix +9.2 points |
| Operating income / margin | $23.3 million / 5.3% | $40.1 million / 10.6% | Operating income -41.9% |
| Net income / margin | $19.0 million / 4.3% | $26.3 million / 6.9% | Net income -27.5% |
| Adjusted EBITDA / margin (non-GAAP) | $39.0 million / 8.9% | $50.5 million / 13.3% | Adjusted EBITDA -22.8% |
| Operating cash flow | $14.5 million | $46.1 million | Down $31.6 million |
Orders increased 26.6% to 149,613, while average order value fell 8.6% to $2,940. Management attributed the lower AOV to increased sales of lower-priced fine jewelry and moderation in sales above $10,000. Gross-margin expansion reflected pricing and procurement benefits, product mix and lower platinum spot prices; rising SG&A, notably staffing and marketing, more than offset much of that improvement.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $154.6 million at year-end; restricted cash was $0.2 million. Working capital excluding unrestricted cash was negative $23.2 million.
- Operating cash flow was $14.5 million, investing cash outflow $9.1 million and financing cash outflow $23.6 million. The operating cash-flow decline included a $14.8 million inventory increase.
- Term-loan principal outstanding was $63.4 million, with $3.3 million current and $60.1 million long-term on the balance sheet. No borrowings were outstanding on the $40 million revolving facility. Debt is variable-rate, secured by substantially all company assets, and subject to financial covenants; the company reported compliance at December 31, 2022.
- Scheduled term-loan principal payments total $63.4 million through maturity in May 2027, including $43.9 million due in 2027. Total future lease payments were $38.3 million, excluding $18.1 million for signed leases not yet commenced.
- Management stated that cash and expected operating cash flow should meet projected operating, debt-service and tax-distribution needs for at least 12 months after filing. The company paid $18.3 million in member tax distributions during 2022 and expects these quarterly distributions to continue.
Changes, outlook and significant risks
- Sales growth was driven by order growth, omnichannel activity, new product collections and showroom openings. The company plans further U.S. showroom expansion, broader fine-jewelry offerings and international growth; the filing gives no quantified revenue or earnings guidance.
- Management cautioned that inflation and changing consumer spending could pressure results. Key exposures include discretionary demand, diamond and precious-metal prices and availability, concentrated suppliers and manufacturers, inventory management, competition, customer-acquisition costs, and execution of showroom and international expansion.
- The May 2022 refinancing replaced the Runway loan with SVB facilities; repayment of the former loan resulted in a $0.6 million extinguishment loss. In March 2023, SVB was placed into receivership and its obligations transferred to Silicon Valley Bridge Bank. The company reported approximately $0.2 million deposited there, anticipated no deposit losses, and said it continued to monitor potential effects on its credit facilities.
- A February 2023 putative class action alleges the Virtual Try On feature violates Illinois’ biometric privacy law. The company intends to defend the case; liability was not considered probable or reasonably estimable. A separate California call-recording class action was dismissed in December 2022.
- The tax receivable agreement requires payment to continuing equity owners of 85% of specified realized or deemed tax benefits; the filing says future payments are expected to be significant. The reported TRA liability was $7.4 million at year-end.
- Continuing equity owners held 88.3% of Brilliant Earth, LLC’s economic interest and approximately 98.2% of the company’s voting power. The company reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation because the company is an emerging growth company.
The independent auditor issued an unmodified opinion on the consolidated financial statements. The company adopted lease accounting standard ASC 842 in 2022, recognizing operating lease assets and liabilities.
Important facts for investors to verify
- Whether order growth can continue while AOV remains lower, and whether revenue growth translates into improved operating and net margins.
- Whether marketing, payroll, showroom and other SG&A spending produces returns sufficient to offset its faster growth than sales.
- Cash conversion, inventory growth and the ability to maintain liquidity while meeting debt amortization, lease commitments and member tax distributions.
- Current borrowing costs, covenant headroom, and the status and terms of the SVB/Bridge Bank credit facilities after the March 2023 bank events.
- Actual timing and size of TRA payments, and possible liquidity effects if tax benefits are delayed, challenged or accelerated under the agreement.
- Developments, potential exposure and compliance implications of the Illinois biometric-privacy lawsuit and other privacy or sourcing-related risks.