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What changed in Brilliant Earth Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Brilliant Earth Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+503 added−500 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-21)

Top changes in Brilliant Earth Group, Inc.'s 2023 10-K

503 paragraphs added · 500 removed · 404 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur unique product designs, strong mission and values and new market launches drive frequent press mentions in leading publications, including Forbes, Vogue, and WWD. 15 Table of Contents Performance Marketing We take a data-driven and digital-centric approach to performance marketing including search engine optimization, paid search and product listing advertisements, paid and earned social, retargeting, email, display, direct mail, and more.
Biggest changePerformance Marketing We take a data-driven and digital-centric approach to performance marketing including search engine optimization, paid search and product listing advertisements, paid and earned social, retargeting, email, display, direct mail, and more. We continuously track performance and make adjustments across channels, campaigns, and creative assets to optimize performance. Our performance marketing drives attractive customer acquisition and retention metrics.
We believe that we compete favorably in the 18 Table of Contents market for bridal and other fine jewelry products by focusing on these factors as well as our core values of transparency, sustainability, inclusivity, and giving back. We believe our premium omnichannel customer experience, unique and exclusive designs, and purpose-driven brand create limited overlap with other industry participants.
We believe that we compete favorably in the market for bridal and other fine jewelry products by focusing on these factors as well as our core values of transparency, sustainability, inclusivity, and giving back. 18 Table of Contents We believe our premium omnichannel customer experience, unique and exclusive designs, and purpose-driven brand create limited overlap with other industry participants.
For more information regarding the risks related to our intellectual property, see “Risk Factors—Risks related to Our Legal and Regulatory Environment—Failure to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of such rights could harm our brand, devalue our proprietary content and technology, and adversely affect our ability to compete effectively.” Government Regulation We are required to comply with numerous laws and regulations covering areas such as consumer protection, consumer privacy, data protection, consumer credit, payment processing, marketing and advertising, insurance, health and safety, waste disposal, supply chain integrity, truth in advertising and employment.
For more information regarding the risks related to our intellectual property, see “Risk Factors—Risks related to Our Legal and Regulatory Environment—Failure to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of such rights could harm our brand, devalue our proprietary content and technology, and adversely affect our ability to compete effectively.” Government Regulation We are required to comply with numerous laws and regulations covering areas such as consumer protection, consumer privacy, data protection, privacy, consumer credit, payment processing, marketing and advertising, insurance, health and safety, waste disposal, supply chain integrity, truth in advertising and employment.
The restrictions and costs imposed by these laws, or 19 Table of Contents our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.” Seasonality A larger share of annual revenues traditionally occurs in the fourth quarter because it includes the November and December holiday sales period.
The restrictions and costs imposed by these laws, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.” 19 Table of Contents Seasonality A larger share of our annual revenues traditionally occurs in the fourth quarter because it includes the November and December holiday sales period.
Mall jewelers have also been slow to modernize an outdated retail experience, and face declining foot traffic. We believe the rapidly changing industry provides ample opportunity for Brilliant Earth to take share. 8 Table of Contents The bridal category—where we currently derive a large portion of our business—is among the most resilient in the jewelry industry.
Many mall jewelers have also been slow to modernize an outdated retail experience, and 8 Table of Contents face declining foot traffic. We believe the rapidly changing industry provides ample opportunity for Brilliant Earth to take share. The bridal category—where we currently derive a large portion of our business—is among the most resilient in the jewelry industry.
Our proprietary technology includes dynamic visualization, augmented reality try-on, and automated rapid fulfillment of our flagship Create Your Own product. We utilize leading technology for key business functions, including product design and personalization, customer relationship management (“CRM”) and data analytics, inventory and supply chain management, order fulfillment, and more. We apply cutting-edge technology to innovate and transform our supply chain.
Our proprietary technology includes dynamic visualization, augmented reality try-on, and automated rapid fulfillment of our flagship Design Your Own product. We utilize leading technology for key business functions, including product design and personalization, customer relationship management (“CRM”) and data analytics, inventory and supply chain management, order fulfillment, and more. We apply cutting-edge technology to innovate and transform our supply chain.
Our Beyond Conflict Free natural diamonds have been selected based on their ethical and environmentally responsible origins, and we believe we are pioneers in offering diamonds with listed and transparent origins. Our lab-grown diamonds have the same physical, chemical, and optical characteristics as natural diamonds, exhibit the same sparkle and provide a mining-free alternative to naturally sourced diamonds.
Our Beyond Conflict Free TM natural diamonds have been selected based on their ethical and environmentally responsible origins, and we believe we are pioneers in offering diamonds with listed and transparent origins. Our lab-grown diamonds have the same physical, chemical, and optical characteristics as natural diamonds, exhibit the same sparkle and provide a mining-free alternative to naturally sourced diamonds.
Customers choose their ideal ring setting, precious metal type, and ring size, and select their favorite Beyond Conflict Free natural diamond or lab-grown diamond to create their one-of-a-kind ring. Our collection of wedding and anniversary rings includes classic precious metal bands and bands accented with diamonds or gemstones.
Customers choose their ideal ring setting, precious metal type, and ring size, and select their favorite Beyond Conflict Free TM natural diamond or lab-grown diamond to create their one-of-a-kind ring. Our collection of wedding and anniversary rings includes classic precious metal bands and bands accented with diamonds or gemstones.
Our emphasis on personalization is reflected in our collection of engravable jewelry and Create Your Own earrings and necklaces set with natural or lab-grown diamonds. Diamond Assortment Customers can purchase loose diamonds or select from our vast inventory to create their own diamond ring, earrings, or necklace.
Our emphasis on personalization is reflected in our collection of engravable jewelry and Design Your Own earrings and necklaces set with natural or lab-grown diamonds. Diamond Assortment Customers can purchase loose diamonds or select from our vast inventory to create their own diamond ring, earrings, or necklace.
Our inventory of independently graded diamonds spans a wide variety of shapes, sizes, premium qualities, and price points to cater to unique customer preferences. We offer both our Beyond Conflict Free natural diamonds with a listed origin and lab-grown diamonds to appeal to different customer preferences.
Our inventory of independently graded diamonds spans a wide variety of shapes, sizes, premium qualities, and price points to cater to unique customer preferences. We offer both our Beyond Conflict Free TM natural diamonds with a listed origin and lab-grown diamonds to appeal to different customer preferences.
Our engagement rings are highly personalized to reflect our customers’ individuality and unique preferences. Through our Create Your Own model, customers choose their ideal ring design, precious metal type, and ring size, and select their diamond or gemstone from our marketplace.
Our engagement rings are highly personalized to reflect our customers’ individuality and unique preferences. Through our Design Your Own model, customers choose their ideal ring design, precious metal type, and ring size, and select their diamond or gemstone from our marketplace.
Our customers enjoy a fun, relaxing, and educational environment while learning about our mission and browsing gemstones and jewelry selected just for them. 9 Table of Contents Dedicated, non-commissioned jewelry specialists are available at every step of their journey via chat, phone, email, virtual appointment, or in our showrooms, which we believe drives strong engagement and high customer satisfaction.
Our customers enjoy a fun, relaxing, and educational environment while learning about our mission and browsing gemstones and jewelry selected just for them. 9 Table of Contents Dedicated jewelry specialists are available at every step of their journey via chat, phone, email, virtual appointment, or in our showrooms, which we believe drives strong engagement and high customer satisfaction.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website at www.brilliantearth.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the "SEC").
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website at www.brilliantearth.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
We were among the first retail jewelers to offer blockchain diamonds at scale, defining next-generation traceability standards in the jewelry industry, and offer thousands of blockchain-enabled diamonds. This technology tracks a diamond from its origins at the mining operator, through cutting and polishing, to the customer. This provides even greater transparency into the responsible origins of these blockchain-enabled diamonds.
We were among the first retail jewelers to offer blockchain diamonds at scale, defining next-generation traceability standards in the jewelry industry, and offer thousands of blockchain-verified diamonds. This technology tracks a diamond from its origins at the mining operator, through cutting and polishing, to the customer. This provides even greater transparency into the responsible origins of these blockchain-verified diamonds.
Engagement and wedding rings are an enduring tradition. Each year, there are over two million marriages in the U.S. alone, according to U.S. government statistics. Engagement rings also have a high average order value ( “ AOV ” ) and are a highly considered purchase, often one of the largest purchases that a consumer will make.
Engagement and wedding rings are an enduring tradition. Each year, there are approximately two million marriages in the U.S. alone, according to U.S. government statistics. Engagement rings also have a high average order value ( “ AOV ” ) and are a highly considered purchase, often one of the largest purchases that a consumer will make.
We believe we will continue to drive brand awareness through marketing, earned media, showroom expansion, and word-of-mouth referrals. Expand Omnichannel Reach We are in the early stages of expanding our showrooms nationwide, and expect to focus in the near term on major urban markets in the U.S. where we can maximize our growth potential.
We believe we will continue to drive brand awareness through marketing, earned media, showroom expansion, and word-of-mouth referrals. Expand Omnichannel Reach We are expanding our showrooms nationwide, and expect to focus in the near term on major urban markets in the U.S. where we can maximize our growth potential.
We also offer pre-set gemstone rings with our most popular gemstones for customers seeking a more curated choice. Our collection of fine jewelry includes earrings, necklaces, and bracelets. We offer a broad and growing assortment for gifting and self-purchase, from classic diamond stud earrings and tennis bracelets to unique pendants and distinctive gemstone styles.
We also offer pre-set gemstone rings with our most popular gemstones for customers seeking a more curated choice. Our collection of fine jewelry includes earrings, necklaces, and bracelets. We offer a broad and evolving assortment for gifting and self-purchase, from classic diamond stud earrings and tennis bracelets to unique pendants and distinctive gemstone styles.
Our strong connection with our audience allows us to stay ahead of trends and adapt to reflect their interests. We also collaborate with key influencers who are deeply passionate about our mission and products. We partner with them to create authentic and unique content, which helps to expand our reach to new and highly relevant audiences.
Our strong connection with our audience allows us to stay ahead of trends and adapt to reflect their interests. We also collaborate with key influencers who are deeply passionate about our mission and products. We partner with them to create authentic and unique product collections and content, which helps to expand our reach to new and highly relevant audiences.
To capture these opportunities, we are investing in an expanded fine jewelry assortment, and we will continue to enhance our customer lifetime marketing and data-segmentation capabilities, which we believe will more effectively extend customer relationships beyond engagement and wedding purchases, whether customers are buying a gift or a piece for themselves.
To capture these opportunities, we are investing in our fine jewelry assortment, and we will continue to enhance our customer lifetime marketing and data-segmentation capabilities, which we believe will more effectively extend customer relationships beyond engagement and wedding purchases, whether customers are buying a gift or a piece for themselves.
We founded the company to provide an ethical alternative to historical jewelry industry practices, which have raised environmental and social concerns and lacked transparency. • Transparent: We go above and beyond current industry standards to offer Beyond Conflict Free Diamonds that have been selected for their ethical and environmentally responsible origins.
We founded the company to provide an ethical alternative to historical jewelry industry practices, which have raised environmental and social concerns and lacked transparency. • Transparency: We go above and beyond current industry standards to offer Beyond Conflict Free TM Diamonds that have been selected for their ethical and environmentally responsible origins.
Our objective is to help diminish the negative impacts of dirty gold and other metals by reducing our demand for newly mined metals, focusing on recycled precious metals, and contributing to programs dedicated to improving mining practices. Colored Gemstones Our colored gemstone offerings include sapphires, emeralds, moissanites, and aquamarines.
Our objective is to help reduce the negative impacts of dirty gold and other metals by reducing demand for newly mined metals, focusing on recycled precious metals, and contributing to programs dedicated to improving mining practices. Colored Gemstones Our colored gemstone offerings include sapphires, emeralds, moissanites, and aquamarines.
Our gemstone rings feature vibrant and distinctive center gemstones, including sapphires, emeralds, moissanites, aquamarines, and other unique colored gemstones. Through our Create Your Own ring digital tool, customers can choose their ideal ring setting, precious metal type, and ring size, and select their favorite gemstone type, shape, color, and size.
Our gemstone rings feature vibrant and distinctive center gemstones, including sapphires, emeralds, moissanites, aquamarines, and other unique colored gemstones. Through our Design Your Own ring digital tool, customers can choose their ideal ring setting, precious metal type, and ring size, and select their favorite gemstone type, shape, color, and size.
We have a vast collection of Beyond Conflict Free natural diamonds and lab-grown diamonds that meet what we believe are rigorous standards for sourcing and quality. Our collection offers extensive coverage across quality characteristics and price points. Through our Create Your Own model, customers can customize their jewelry to reflect their individuality and personal preferences, creating one-of-a-kind jewelry pieces.
We have a vast collection of Beyond Conflict Free TM natural diamonds and lab-grown diamonds that meet what we believe are rigorous standards for sourcing and quality. Our collection offers extensive coverage across quality characteristics and price points. Through our Design Your Own model, customers can customize their jewelry to reflect their individuality and personal preferences, creating one-of-a-kind jewelry pieces.
We leverage data—including our own first-person customer data, revenue, e-commerce behavior, population and demographic data, and market growth—to inform our showroom real estate decisions. Jewelry Specialists We have a dedicated team of jewelry specialists available to our customers through every step of their journey via chat, phone, email, virtual appointment, and in our showrooms.
We 14 Table of Contents leverage data—including our own first-person customer data, revenue, e-commerce behavior, population and demographic data, and market growth—to inform our showroom real estate decisions. Jewelry Specialists We have a dedicated team of jewelry specialists available to our customers through every step of their journey via chat, phone, email, virtual appointment, and in our showrooms.
Our limited owned-inventory and rapid cash cycle—where we are typically paid by our customers before we pay our suppliers—allow us to scale with limited capital outlays. Our showroom strategy generates highly favorable unit economics and avoids the inefficiencies of traditional jewelers that have too many physical stores, employees, and 11 Table of Contents inventory.
Our limited owned-inventory and rapid cash cycle—where we are typically paid by our customers before we pay our suppliers—allow us to scale with limited capital outlays. Our showroom strategy generates highly favorable unit economics and avoids the inefficiencies of traditional jewelers that have too many physical stores, employees, and inventory.
We are proud to offer our customers exclusive and thoughtfully curated collections of diamond engagement rings, wedding and anniversary rings, gemstone rings, and fine jewelry. Our diamond engagement rings are made-to-order through our Create Your Own ring digital tool.
We are proud to offer our customers exclusive and thoughtfully curated collections of diamond engagement rings, wedding and anniversary rings, gemstone rings, and fine jewelry. Our diamond engagement rings are made-to-order through our Design Your Own ring digital tool.
We expect this highly efficient showroom model to complement our digital strategy and will continue to drive growth and profitability. Expand Purchase Occasions with Existing and New Customers Fine jewelry, which includes earrings, necklaces, bracelets, and rings (other than engagement or wedding), represented 63% of the global jewelry market in 2020, according to The Bain Report.
We expect this highly efficient showroom model to complement our digital strategy and will continue to drive growth and profitability. Expand Purchase Occasions with Existing and New Customers Fine jewelry, which includes earrings, necklaces, bracelets, and rings (other than engagement or wedding), represented 65% of the global jewelry market in 2022, according to The Bain Report.
With our strong brand resonance with Millennials and Gen Z consumers, we also believe our expanded fine jewelry assortment and strategic customer acquisition will continue to drive fine jewelry orders from new customers. 12 Table of Contents Expand Internationally We are in the early stages of expanding globally and believe there is significant opportunity for expansion.
With our strong brand resonance with Millennials and Gen Z consumers, we also believe our fine jewelry assortment and strategic customer acquisition will continue to drive fine jewelry orders from new customers. Expand Internationally We are in the early stages of expanding globally and believe there is significant opportunity for expansion.
We are proud that women comprise the majority of our employees, senior executive team, and board of directors. 10 Table of Contents Our Strengths The Brilliant Earth Brand We are a mission-driven, premium brand founded on core values of transparency, sustainability, inclusivity and giving back. These values resonate strongly with Millennial and Gen Z customers.
We are proud that women comprise the majority of our employees, senior executive team, and our board of directors (the “Board”). Our Strengths The Brilliant Earth Brand We are a mission-driven, premium brand founded on core values of transparency, sustainability, inclusivity and giving back. These values resonate strongly with Millennial and Gen Z customers.
Today, Brilliant Earth has sold to consumers in over 50 countries. 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-enabled transparency, and rapid fulfillment of our flagship Create Your Own product.
Today, Brilliant Earth has sold to consumers in over 50 countries. 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 track over 50 attributes associated with our products to inform our development and merchandising decisions. We create unique, exclusive styles that are expertly crafted to be beautiful from every angle and have been featured in leading publications, including Vogue, Forbes, and WWD. Over two-thirds of our ring collection is proprietary and available exclusively at Brilliant Earth.
We track over 50 attributes associated with our products to inform our development and merchandising decisions. We create unique, exclusive styles that are expertly crafted to be beautiful from every angle and have been featured in leading publications, including Vogue, Forbes, and Women's Wear Daily . Approximately two-thirds of our ring collection is proprietary and available exclusively at Brilliant Earth.
We thoughtfully develop our brand messaging and customer experience to appeal to all genders, which is important because couples are increasingly shopping together for engagement and wedding rings. Alongside our mission, we believe our joyful, premium customer experience and unique, exclusive jewelry designs drive our strong brand affinity and loyalty.
We thoughtfully develop our 10 Table of Contents brand messaging and customer experience to appeal to all genders, which is important because couples are increasingly shopping together for engagement and wedding rings. Alongside our mission, we believe our joyful, premium customer experience and unique, exclusive jewelry designs drive our strong brand affinity and loyalty.
Item 1. Business Overview Brilliant Earth is an innovative, digital-first jewelry company, and a global leader in ethically sourced fine jewelry. We offer exclusive designs with superior craftsmanship and supply chain transparency, delivered to customers through a highly personalized omnichannel experience.
Item 1. Business Overview Brilliant Earth is an innovative, digitally native omnichannel jewelry company, and a global leader in ethically sourced fine jewelry. We offer exclusive designs with superior craftsmanship and supply chain transparency, delivered to customers through a highly personalized omnichannel experience.
Manufacturing We have deep relationships with long-term manufacturing partners, who demonstrate their ability to meet our commitments for ethical sourcing, high quality, fast turnarounds and scalability. Pricing with our manufacturing partners is established and renegotiated based on product specifications, market conditions, and other variables.
Manufacturing We have relationships with long-term manufacturing partners, who have demonstrated and who we expect to continue to demonstrate their ability to meet our commitments for ethical sourcing, high quality, fast turnarounds and scalability. Pricing with our manufacturing partners is established and renegotiated based on product specifications, market conditions, and other variables.
We believe we have significant opportunity to expand our relationship with our deeply loyal customer base beyond our current core engagement and wedding ring category into special occasions and self-purchases.
We beli eve we have significant opportunity to expand our relationship with our deeply loyal customer base beyond our current core engagement and wedding ring category into special occasions and self-purchases.
Our omnichannel approach enhances the customer journey, provides a deeper connection with our jewelry specialists, and drives higher conversion rates. 14 Table of Contents Our mobile-first design approach enables an exceptional user experience across devices.
Our omnichannel approach enhances the customer journey, provides a deeper connection with our jewelry specialists, and drives higher conversion rates. Our mobile-first design approach enables an exceptional user experience across devices.
The information on our website is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any of our other filings with the SEC, except where we expressly incorporate such information.
The information on our website is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any of our other filings with the Securities and Exchange Commission (the “SEC”), except where we expressly incorporate such information.
We also use data from our customers’ digital interactions to personalize their appointments and curate the inventory they see in the showroom. As of December 31, 2022, we have 25 showrooms across the United States. Our showrooms are in prime destinations in major metro areas, including ground or upper floor locations in areas with premium retail adjacencies.
We also use data from our customers’ digital interactions to personalize their appointments and curate the inventory they see in the showroom. As of December 31, 2023, we had 37 showrooms across the United States. Our showrooms are in prime destinations in major metro areas, including ground, mall or upper floor locations in areas with premium retail adjacencies.
Our partners, who we consider part of the Brilliant Earth family, go through a rigorous onboarding process to ensure they meet our strict compliance and quality standards, including recycled metal content. Because we own the designs created by our in-house studio, we have flexibility to determine where the jewelry is manufactured to optimize cost, manufacturing capabilities and turnaround times.
Our partners go through a rigorous onboarding process to ensure they meet our strict compliance and quality standards, including recycled metal content. Because we own the designs created by our in-house studio, we have flexibility to determine where the jewelry is manufactured to optimize cost, manufacturing capabilities and turnaround times.
We believe that these are early positive signals and that there is substantial potential to launch e-commerce in new overseas markets, and new showrooms in countries where we have already established a localized digital presence. Product Assortment and Merchandising We are passionate about beautiful and innovative product design.
We believe that there is substantial potential to launch e-commerce in new overseas markets, and new showrooms in countries where we have already established a localized digital presence. 12 Table of Contents Product Assortment and Merchandising We are passionate about beautiful and innovative product design.
Expanding our number of showrooms has uplifted our e-commerce business, accelerated growth, increased average order value, and improved conversion in the showrooms’ metro regions. Because our showrooms serve as destinations with some customers traveling long distances, we believe we can achieve broad national showroom coverage with far fewer locations than many traditional retailers.
Expanding our number of showrooms has driven bookings uplift, accelerated growth, increased total order volume, and improved conversion in the showrooms’ metro regions. Because our showrooms serve as destinations with some customers traveling long distances, we believe we can achieve broad national showroom coverage with far fewer locations than many traditional retailers.
According to The Bain Report, approximately 65% of the industry is composed of thousands of small and independent jewelers, many of which are struggling to address evolving consumer preferences for personalization and e-commerce, and are further limited by reduced purchasing power and an inventory-heavy model.
According to The Bain Report, approximately 65% of th e diamond jewelry retail industry is composed of small retailers. Many small jewelry retailers are struggling to address evolving consumer preferences for personalization and e-commerce, and are further limited by reduced purchasing power and an inventory-heavy model.
We are less than one percent penetrated in the jewelry category today. With our purpose-driven brand, digitally-driven omnichannel experience, award-winning products, and loyal customers, we believe we have significant opportunities to grow in both our existing and new markets. Increase Brand Awareness Increasing brand awareness and growing favorable brand equity have been and remain central to our growth.
With our purpose-driven brand, digitally-driven omnichannel experience, award-winning products, and loyal customers, we believe we have significant opportunities to grow in both our existing and new markets. Increase Brand Awareness Increasing brand awareness and growing favorable brand equity have been and remain central to our growth.
Blockchain-Enabled To further our commitment to transparency and responsible sourcing, we have partnered with Everledger, a leading emerging technology enterprise that uses blockchain to securely track and trace the provenance of high-value assets, including our collection of blockchain-enabled diamonds. This technology tracks a diamond from its origins at the mining operator, through cutting and polishing, to the customer.
Blockchain-Verified To further our commitment to transparency and responsible sourcing, we have partnered with a leading technology enterprise that uses blockchain to securely track and trace the provenance of diamonds. This technology tracks a diamond from its origins at the mining operator, through cutting and polishing, to the customer. We offer thousands of blockchain-verified diamonds.
Lab-grown diamonds provide a mining-free alternative to natural diamonds. Recycled Precious Metals We strive to use 100% recycled gold and silver and generate year over year increases in the use of recycled platinum for our products.
These diamonds have the same physical, chemical, and optical characteristics as natural diamonds, and exhibit the same fire, scintillation, and sparkle. Lab-grown diamonds provide a mining-free alternative to natural diamonds. Recycled Precious Metals We strive to use 100% recycled gold and silver and generate year-over-year increases in the use of recycled platinum for our products.
Our made-to-order capabilities and virtual inventory model generate attractive inventory turns and negative working capital. We have achieved strong financial performance and rapid growth since our founding and believe we are in the early stages of realizing our potential in a significant market opportunity.
Our made-to-order capabilities and virtual inventory model generat e attractive inventory turns and negative working capital, which we define as our current assets less cash minus our current liabilities. We have achieved strong financial performan ce and rapid growth since our founding and believe we are in the early stages of realizing our potential in a significant market opportunity.
Our showrooms are appointment-driven with large catchment regions, so we are less reliant on high foot traffic locations—with their high rents—than traditional retailers. We curate showroom inventory for scheduled visits and need limited inventory for each location. When not in appointment, our tech-enabled team of jewelry specialists supports online customers, maximizing workforce utilization.
Our showrooms are appointment-driven with large catchment regions, so we are less reliant on high foot traffic locations—with their high rents—than traditional retailers. We curate showroom inventory for scheduled visits and need limited inventory for each location.
Below is a summary of our performance for the year ended December 31, 2022: • Net sales of $439.9 million, up 15.7% from $380.2 million for the year ended December 31, 2021; • Net income of $19.0 million compared to $26.3 million for the year ended December 31, 2021; and • Net income margin of 4.3% compared to 6.9% for the year ended December 31, 2021.
Below is a summary of our performance for the year ended December 31, 2023: • Net sales of $446.4 million, compared to $439.9 million for the year ended December 31, 2022; • Net income o f $4.7 million compared to $19.0 million for the year ended December 31, 2022; and • Net income margin o f 1.1% compared to 4.3% for the year ended December 31, 2022.
Our head of product development has been driving innovation at Brilliant Earth for over ten years. Our team uses state-of-the-art technology and the artistry of hand-drawn sketches to create hundreds of new designs per year.
Our head of product development has been driving innovation at Brilliant Earth for over ten years. Our team uses state-of-the-art technology and the artistry of hand-drawn sketches to create hundreds of new designs per year. Each design is perfected using computer-aided design (“CAD”) technology to ensure beauty from all angles, high quality and manufacturability.
This agility enables us to rapidly launch, test, and learn based on performance feedback with minimal capital outlay. We regularly refresh our product assortment and maintain a curated online collection of fresh, trend-forward styles that resonate strongly with our customers. We merchandise our showrooms with styles that have sold well online, keeping our inventory costs low.
We regularly refresh our product assortment and maintain a curated online collection of fresh, trend-forward styles that resonate strongly with our customers. We merchandise our showrooms with styles that have sold well online, keeping our inventory costs low.
Direct to Consumer, Omnichannel Sales Model We sell directly to consumers through our omnichannel sales platform, including e-commerce and showrooms. With a customer-centric and data-driven approach, we offer an elevated, personalized, and educational experience.
We also use a leading data visualization platform for real-time business intelligence across our teams to drive decision making and continuous improvement. Direct to Consumer, Omnichannel Sales Model We sell directly to consumers through our omnichannel sales platform, including e-commerce and showrooms. With a customer-centric and data-driven approach, we offer an elevated, personalized, and educational experience.
Our Opportunity Global Jewelry Market The global fine jewelry market is estimated to be worth over $300 billion, according to Euromonitor. Despite its size, the jewelry industry is highly fragmented and includes players like mall jewelers, local independent stores, and department stores, among others.
Our Opportunity Global Jewelry Market The global jewelry industry was estimated to be approximately $300 billion in 2023, according to Statista. De spite its size, the jewelry industry is highly fragmented and includes players like mall jewelers, local independent stores, and department stores, among other s.
The scope and interpretation of these laws could change and the associated burdens and our compliance costs could increase in the future.
U.S. federal and state and foreign laws and regulations are constantly evolving. The scope and interpretation of these laws could change and the associated burdens and our compliance costs could increase in the future.
For products that sell in higher, more consistent volumes, such as certain rings and finished jewelry, we batch produce 17 Table of Contents and stock items to enable even faster customer delivery, typically in just two to five business days. Orders are shipped to customers directly from our fulfillment centers or from our manufacturing partners.
Fulfillment and Logistics Many of our products are made-to-order, and delivered in as little as six to twelve business days. For products that sell in higher, more consistent volumes, such as certain rings and finished jewelry, we batch produce and stock items to enable even faster customer delivery, typically in just two to five business days.
We believe our customers love our beautiful and unique styles—using our Virtual Try On feature, they frequently visualize rings with different diamond shapes and sizes on their own hand, then share their unique creations on social media. Data-Driven Merchandising We thoughtfully curate our collections to offer beautiful and differentiated designs with broad appeal.
We also release exclusive jewelry collections throughout the year to highlight our passion for design. We believe our customers love our beautiful and unique styles—using our Virtual Try On feature, they frequently visualize rings with different diamond shapes and sizes on their own hand, then share their unique creations on social media.
We strive to offer products sourced in alignment with responsible labor and environmental practices, and continually work with our suppliers to seek to improve standards and traceability. Beyond Conflict Free ™ Diamonds We go above and beyond current industry standards to offer Beyond Conflict Free ™ Diamonds that have been selected for their ethical and environmentally responsible origins.
Beyond Conflict Free ™ Diamonds We go above and beyond current industry standards to offer Beyond Conflict Free ™ Diamonds that have been selected for their ethical and environmentally responsible origins.
As part of our commitment to transparent sourcing, we expect our suppliers to adhere to our strict Supplier Code of Conduct. We also integrate blockchain technology to showcase the journey of a select collection of blockchain-enabled diamonds.
As part of our commitment to transparent sourcing, we expect our suppliers to adhere to our strict Supplier Code of Conduct.
Packaging Our responsibly sourced wood ring boxes are designed to be as iconic as the jewelry they hold. They are crafted with wood sourced from FSC certified forests, which are responsibly managed to protect the forests for future generations. Our paper-based shipping boxes are FSC Recycled and made from 100% post-consumer or pre-consumer recycled content.
Orders are shipped to customers directly from our fulfillment centers or from our manufacturing partners. 17 Table of Contents Packaging Our responsibly sourced wood ring boxes are designed to be as iconic as the jewelry they hold. They are crafted with wood sourced from FSC certified forests, which are responsibly managed to protect the forests for future generations.
Our early proof points from localizing our website for Canada, Australia, and the United Kingdom show promising growth in those markets. In addition, we have sold to customers from over 50 countries despite minimal existing language, logistics and currency support for those geographies.
We have sold to customers from over 50 countries despite minimal existing language, logistics and currency support for those geographies.
We are proud that women comprise majorities of our employees, senior executive team, and board of directors. We believe that diversity makes us a stronger company, and we are proud to be a DEI leader in our industry.
We are deeply committed to fostering an inclusive work environment, and we strive to embody our values through our internal practices. We are proud that women comprise majorities of our employees, senior executive team, and the Board. We believe that our diversity makes us a stronger company.
We are a certified and audited member of the Responsible Jewellery Council (“RJC”), a not-for-profit standard setting organization for the jewelry industry. • Sustainable: Our jewelry is crafted from primarily recycled precious metals and arrives in our iconic ring boxes crafted with wood sourced from Forest Stewardship Council (FSC) certified forests.
We also integrate blockchain technology to showcase the journey of a select collection of blockchain-verified diamonds. • Sustainable : Our jewelry is crafted from primarily recycled precious metals and arrives in our iconic ring boxes crafted with wood sourced from Forest Stewardship Council (“FSC”) certified forests.
Metal mining, and gold mining in particular, is one of the most environmentally destructive types of mining, and gold miners often earn low wages in dangerous working conditions.
Currently our gold and silver fine jewelry is made primarily of recycled materials, and we continue to work with our suppliers to increase the usage of recycled metal in our products. 16 Table of Contents Metal mining, and gold mining in particular, is one of the most environmentally destructive types of mining, and gold miners often earn low wages in dangerous working conditions.
We work with a complex, global network of trusted suppliers and manufacturers who agree to our strict Supplier Code of Conduct and with whom we have developed deep relationships, generally over many years. As part of our commitment to social and environmental responsibility, we offer Beyond Conflict Free ™ Diamonds, recycled precious metals and FSC-certified wood ring boxes.
Sourcing and Supply Chain Responsible sourcing is an important aspect of our mission and values. We work with a complex, global network of trusted suppliers and manufacturers who agree to our strict Supplier Code of Conduct and with whom we have developed deep relationships, generally over many years.
Our People We are extremely proud of our team who embody our culture of diversity, equity and inclusion. As of December 31, 2022, we employed 591 full-time employees and 15 part-time employees in the U.S. We are deeply committed to diversity, equity, and inclusion, and we strive to embody our values through our internal practices.
Our paper-based shipping boxes are FSC Recycled and made from 100% post-consumer or pre-consumer recycled content. Our People We are extremely proud of our team who we believe embody our culture of diversity, equity and inclusion. As of December 31, 2023, we employed 668 full-time employees and 11 part-time employees in the U.S.
This amplifies the effectiveness of our strategy and contributes to our outsized number of followers and engagement with our community.
This amplifies the effectiveness of our strategy and contributes to our outsized number of followers and engagement with our community. Our marketing efforts deliver growing brand awareness and frequent press mentions in leading publications, including Forbes, Vogue, and Women's Wear Daily.
Founder-Led and Diverse Leadership Team Committed to Inclusion We care deeply about diversity, equity, and inclusion. We are led by our CEO and co-founder Beth Gerstein. Our diverse team and commitment to inclusion are integral to our company and inform our product offerings and customer experience. Our Growth Strategies There is a significant growth opportunity ahead.
We consider our commitment to inclusion integral to our company, helping to inform our product offerings and customer experience. Our Growth Strategies There is a significant growth opportunity ahead. We are less than one percent penetrated in the jewelry category today.
Our data-driven merchandising strategy leverages our robust dataset, strong relationships with our customers, and highly engaged social media community to continuously uncover new insights and trends. We also analyze over 50 attributes associated with our products to optimize our merchandising and inventory decisions. Our in-house expertise drives an agile product development cycle, with new products typically developed within three months.
Data-Driven Merchandising We thoughtfully curate our collections to offer beautiful and differentiated designs with broad appeal. Our data-driven merchandising strategy leverages our robust dataset, strong relationships with our customers, and highly engaged social media community to continuously uncover new insights and trends.
Our precious metals are sourced from certified responsible refiners who also hold 16 Table of Contents recycling certifications from the Responsible Jewellery Council or third-party validation SCS. Currently our gold and silver fine jewelry is made primarily of recycled materials, and we continue to work with our suppliers to increase the usage of recycled metal in our products.
Our precious metals are sourced from certified responsible refiners who also hold recycling certifications from the Responsible Jewellery Council or other third-party validation.
We offer thousands of blockchain-enabled diamonds. Lab-Grown Diamonds Lab-grown diamonds are created in highly controlled laboratory environments using advanced technological processes that duplicate the conditions under which diamonds develop in nature. These diamonds have the same physical, chemical, and optical characteristics as natural diamonds, and exhibit the same fire, scintillation, and sparkle.
Diamonds from these collections can be set in a variety of styles, including bridal and fine jewelry though Brilliant Earth's Design Your Own experience. Lab-Grown Diamonds Lab-grown diamonds are created in highly controlled laboratory environments using advanced technological processes that duplicate the conditions under which diamonds develop in nature.
Our paper-based shipping boxes are FSC Recycled and made from 100% post-consumer or pre-consumer recycled content.
Our paper-based shipping boxes are FSC Recycled and made from 100% post-consumer or pre-consumer recycled content. • Compassion: Compassion has been core to our Mission since day one. In 2021, we started the Brilliant Earth Foundation (a corporate advised fund with Silicon Valley Community Foundation) to further our impact.
We leverage this technology to provide a unified data source and single view of our customer, as well as ensure quality standards and a more efficient turnaround for our flagship Create Your Own product. We also use a leading data visualization platform for real-time business intelligence across our teams to drive decision making and continuous improvement.
Our technology systems, including our customized enterprise resource planning ("ERP"), CRM, supply chain, inventory management, order fulfillment and other systems, provide a unified data source and single view of our customer, and ensure quality standards and a more efficient turnaround for our flagship Design Your Own product.
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We are committed to offsetting greenhouse gas emissions generated by our business activities through our Carbon free ® Partnership by contributing to two projects, the Envira Amazonia Project and the Texas Capricorn Ridge Wind Project. • Compassionate: From our beginnings, we have donated to issues we are passionate about, and volunteering and giving back are especially important to our employees.
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Since then, we have donated $2 million to the areas where diamonds, gemstones and precious metals are mined and the communities where our teams and customers live. • Inclusion: We are deeply committed to diversity, equity, and inclusion, and we strive to embody our values through our product collections, customer experience, non-profit initiatives, and internal practices.
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We recently established the Brilliant Earth Foundation, a donor advised fund, to further our philanthropic mission. In 2015, we partnered with the Diamond Development Initiative to fund a primary school in a rural diamond mining community in the Democratic Republic of Congo.
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When not in appointment, our tech-enabled team of jewelry specialists supports online customers, maximizing workforce utilization. 11 Table of Contents Founder-Led and Diverse Leadership Team Committed to Inclusion We care deeply about diversity, equity, and inclusion. We are led by our chief executive officer (“CEO”) and co-founder Beth Gerstein.
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With our non-profit partner Pure Earth, we helped empower miners in an artisanal gold mining community in Peru in 2017 by providing training in mercury-free mining practices to help prevent destructive environmental contamination. • Inclusive: We are deeply committed to diversity, equity, and inclusion, and we strive to embody our values through our product collections, customer experience, non-profit initiatives, and internal practices.
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We also analyze over 50 attributes associated with our products to optimize our merchandising and inventory decisions. 13 Table of Contents Our in-house expertise drives an agile product development cycle, with new products developed in as little as four months. This agility enables us to rapidly launch, test, and learn based on performance feedback with minimal capital outla y.
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Each design is perfected using computer-aided design (“CAD”) technology to ensure beauty from all angles, high quality and manufacturability. 13 Table of Contents We also release exclusive jewelry collections throughout the year to highlight our passion for design.
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As part of our commitment to social and environmental responsibility, we offer Beyond Conflict Free ™ Diamonds, recycled precious metals and FSC-certified wood ring 15 Table of Contents boxes. We strive to offer products sourced in alignment with responsible labor and environmental practices, and continually work with our suppliers to seek to improve standards and traceability.
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Our technology infrastructure, including our supply chain, inventory management, order fulfillment, sales system of record, and CRM systems, is built within a highly customized, powerful ERP platform.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe price of shares of our Class A common stock may fluctuate based on • technology changes, changes in consumer behavior in our industry; • security breaches related to our systems or those of our affiliates or strategic partners; • changes in economic conditions for companies in our industry; • changes in market valuations of, or earnings and other announcements by, companies in our industry; • declines in the market prices of stocks generally, particularly those of jewelry and consumer retail; • strategic actions by us or our competitors; • announcements by us, our competitors or our strategic partners of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships, or capital commitments; • changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the jewelry and consumer retail environment; • changes in business or regulatory conditions; • future sales of our Class A common stock or other securities; • investor perceptions of the investment opportunity associated with our Class A common stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; • announcements relating to litigation or governmental investigations; • guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance; • the development and sustainability of an active trading market for our stock; 53 Table of Contents • changes in accounting principles; and • other events or factors, including those resulting from system failures and disruptions, natural disasters, war or threats of war, acts of terrorism, an outbreak of highly infectious or contagious diseases, or responses to these events.
Biggest changeThe price of shares of our Class A common stock has fluctuated in the past and may continue to fluctuate in response to a variety of factors, including the following: • technological developments and changes in consumer behavior in our industry; • security breaches related to our systems or those of our affiliates or strategic partners; • changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the jewelry and consumer retail environment; • changes in market valuations of, or earnings and other announcements by, companies in our industry; • declines in the market prices of stocks generally, particularly those of jewelry and consumer retail; • strategic actions by us or our competitors; • announcements by us, our competitors or our strategic partners of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships, or capital commitments; • changes in business or regulatory conditions; • future sales of our Class A common stock or other securities; • investor perceptions of the investment opportunity associated with our Class A common stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; • announcements relating to litigation or increases in compliance or enforcement inquiries and investigations by regulatory authorities; • guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance; • changes in accounting principles; • short sales, hedging and other derivative transactions involving our common stock; and effects of recession or economic growth in the United States and abroad, rising high inflation and interest rates, bank failures, fuel prices, international currency fluctuations, corruption, political instability, acts of war, including the conflicts in Europe and the Middle East, acts of terrorism, an outbreak of highly infectious or contagious diseases, or responses to these events; and • the other factors described in this “Risk Factors” section of this Annual Report on Form 10-K.
Historically, consumers have been slower to adopt online shopping for fine jewelry than e-commerce offerings in other industries like consumer electronics and apparel. Transitioning the consumer in-store experience to an online platform for fine jewelry is difficult because jewelry tends to be a considered and high-value purchase that consumers like to physically see and touch before making a purchase.
Historically, consumers have been slower to adopt online shopping for fine jewelry than e-commerce offerings in other industries like consumer electronics and apparel. Transitioning the consumer in-store experience to an online platform for fine jewelry is difficult because jewelry tends to be considered a high-value purchase that consumers like to physically see and touch before making a purchase.
Furthermore, social media platforms, search engines, and video streaming services may change their advertising policies from time to time. If any change to these policies delays or prevents us from advertising through these channels, it could result in reduced traffic to our website and sales.
Furthermore, advertising, social media platforms, search engines, and video streaming services may change their advertising policies from time to time. If any change to these policies delays or prevents us from advertising through these channels, it could result in reduced traffic to our website and sales.
Accordingly, we incur income taxes on our allocable share of any net taxable income of Brilliant Earth, LLC. Under the terms of the Brilliant Earth LLC Agreement, Brilliant Earth, LLC is obligated, subject to various limitations and restrictions, including with respect to our debt agreements, to make tax distributions to holders of LLC Interests, including us.
Accordingly, we incur income taxes on our allocable share of any net taxable income of Brilliant Earth, LLC. Under the terms of the LLC Agreement, Brilliant Earth, LLC is obligated, subject to various limitations and restrictions, including with respect to our debt agreements, to make tax distributions to holders of LLC Interests, including us.
Under the Brilliant Earth LLC Agreement, we intend to cause Brilliant Earth, LLC, from time to time, to make distributions in cash to its equityholders (including us) in amounts sufficient to cover the taxes imposed on their allocable share of taxable income of Brilliant Earth, LLC.
Under the LLC Agreement, we intend to cause Brilliant Earth, LLC, from time to time, to make distributions in cash to its equityholders (including us) in amounts sufficient to cover the taxes imposed on their allocable share of taxable income of Brilliant Earth, LLC.
Under the Tax Receivable Agreement, 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 Brilliant Earth Group, Inc.’s allocable share of the tax basis of Brilliant Earth, LLC’s assets resulting from (a) Brilliant Earth Group, Inc.’s purchase of LLC Interests from each Continuing Equity Owner, (b) any future redemptions or exchanges of LLC Interests for Class A common stock or Class D common stock (or cash), and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments under the Tax Receivable Agreement.
Under the Tax Receivable Agreement, 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 Brilliant Earth Group, Inc.’s allocable share of the tax basis of Brilliant Earth, LLC’s assets resulting from (a) Brilliant Earth Group, Inc.’s purchase (or deemed purchase) of LLC Interests from each Continuing Equity Owner, (b) any future redemptions or exchanges of LLC Interests for Class A common stock or Class D common stock (or cash), and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments under the Tax Receivable Agreement.
As such, we qualify for exemptions from certain corporate governance requirements, including the requirements to have a majority of independent directors on our board of directors, an entirely independent nominating and corporate governance committee, an entirely independent compensation committee or to perform annual performance evaluations of the nominating and corporate governance and compensation committees.
As such, we qualify for exemptions from certain corporate governance requirements, including the requirements to have a majority of independent directors on our Board, an entirely independent nominating and corporate governance committee, an entirely independent compensation committee or to perform annual performance evaluations of the nominating and corporate governance and compensation committees.
The JOBS Act is intended to reduce the regulatory burden on “emerging growth companies.” As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurs after December 8, 2011, and whose annual net sales are less than $1.235 billion will, in general, qualify as an “emerging growth company” until the earliest of: • the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities; • the last day of its fiscal year in which it has annual gross revenue of $1.235 billion or more; • the date on which it has, during the previous three-year period, issued more than $1.235 billion in nonconvertible debt; and • the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as the company (1) has an aggregate worldwide market value of common equity securities held by non‑affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (2) has been required to file annual and quarterly reports under the Exchange, for a period of at least 12 months, and (3) has filed at least one annual report pursuant to the Exchange Act.
The JOBS Act is intended to reduce the regulatory burden on “emerging growth companies.” As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurs after December 8, 2011, and whose annual net sales are less than $1.235 billion will, in general, qualify as an “emerging growth company” until the earliest of: • the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities; • the last day of its fiscal year in which it has annual gross revenue of $1.235 billion or more; • the date on which it has, during the previous three-year period, issued more than $1.0 billion in nonconvertible debt; and • the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as the company (1) has an aggregate worldwide market value of common equity securities held by non‑affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (2) has been required to file annual and quarterly reports under the Exchange, for a period of at least 12 months, and (3) has filed at least one annual report pursuant to the Exchange Act.
The risks we face in connection with acquisitions include: • an acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, may not generate sufficient financial return to offset additional costs and expenses related to the acquisition, or may not perform as well financially as expected; • we may encounter difficulties or unforeseen expenditures in integrating the business, offerings, technologies, personnel, or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; • our use of cash to pay for an acquisition would limit other potential uses for our cash; • if we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business, as well as financial maintenance covenants; and • if we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The risks we face in connection with acquisitions include: • an acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, may not generate sufficient financial return to offset additional costs and expenses related to the acquisition, or may not perform as well financially as expected; • we may encounter difficulties or unforeseen expenditures in integrating the business, offerings, technologies, personnel, or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; • our use of cash to pay for an acquisition would limit other potential uses for our cash; 36 Table of Contents • if we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business, as well as financial maintenance covenants; and • if we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
Overall growth of our net sales will depend on a number of factors, including our ability to: • price our products and services effectively so that we are able to attract new customers, expand our relationships with existing customers, and maintain or grow our gross profit margins; • accurately forecast our net sales and plan our operating expenses; • successfully compete with other companies that are currently in, or may in the future enter, the markets in which we compete, and respond to developments from these competitors such as pricing changes and the introduction of new products and services; • comply with existing and new laws and regulations applicable to our business; • successfully expand in existing markets and enter new markets, including new geographies and categories; • successfully launch new offerings and enhance our products and services and their features, including in response to new trends or competitive dynamics or the needs or preferences of customers; • successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our business; • avoid interruptions or disruptions in distributing our products and services; • manage potential fluctuations in the supply or market conditions for natural or lab-grown diamonds and other inputs that could result in fluctuations in diamond prices and other input costs; • provide customers with high-quality support that meets their needs; • hire, integrate, and retain talented sales, customer service, and other personnel; • effectively manage growth of our business, personnel, and operations, including new showroom openings; • effectively manage our costs related to our business and operations; and • maintain and enhance our reputation and the value of our brand.
Overall growth of our net sales will depend on a number of factors, including our ability to: • price our products and services effectively so that we are able to attract new customers, expand our relationships with existing customers, and maintain or grow our gross profit margins; • accurately forecast our net sales and plan our operating expenses; • successfully compete with other companies that are currently in, or may in the future enter, the markets in which we compete, and respond to developments from these competitors such as pricing changes and the introduction of new products and services; • comply with laws and regulations applicable to our business; • successfully expand in existing markets and enter new markets, including new geographies and categories; 23 Table of Contents • successfully launch new offerings and enhance our products and services and their features, including in response to new trends or competitive dynamics or the needs or preferences of customers or potential customers; • successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our business; • avoid interruptions or disruptions in distributing our products and services; • manage potential fluctuations in the supply or market conditions for natural or lab-grown diamonds and other inputs that could result in fluctuations in diamond prices and other input costs; • provide customers with high-quality support that meets their needs; • hire, integrate, and retain talented sales, customer service, and other personnel; • effectively manage growth of our business, personnel, and operations, including new showroom openings; • effectively manage our costs related to our business and operations; and • maintain and enhance our reputation and the value of our brand.
We may discover that these initiatives are more expensive than we currently anticipate, and we may not succeed in increasing our net sales sufficiently to offset these expenses or realize the benefits we anticipate. We will also face greater compliance costs associated with the increased scope of our business and being a public company.
We may discover that these initiatives are more expensive than we currently anticipate, and we may not succeed in increasing our net sales sufficiently to offset these expenses or realize the benefits we anticipate. We also face greater compliance costs associated with the increased scope of our business and being a public company.
Further, reductions in consumer lending and the availability of consumer credit could limit the number of customers with the financial means to purchase our products. Higher interest rates could increase our costs or the monthly payments for consumer products financed through other sources of consumer financing. We also offer layaway payments for both U.S. and international customers.
Further, reductions in consumer lending and the availability of consumer credit could limit the number of customers with the financial means to purchase our products. Higher interest rates or other factors could increase our costs or the monthly payments for consumer products financed through other sources of consumer financing. We also offer layaway payments for both U.S. and international customers.
We are subject to rapidly changing and increasingly stringent laws and industry standards relating to privacy, data security, and data protection. The restrictions and costs imposed by these laws, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.
We are subject to rapidly changing and increasingly stringent laws, regulations, and industry standards relating to privacy, data security, and data protection. The restrictions and costs imposed by these laws, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts, including impacts associated with our suppliers or other partners, on climate change and human rights, ethics and compliance with law, diversity, and the role of the company’s board of directors in supervising various ESG issues.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts, including impacts associated with our suppliers or other partners, on climate change and human rights, ethics and compliance with law, diversity, and the role of the Board in supervising various ESG issues.
A reduction in the supply of diamonds may result in increased prices for diamonds, which, in turn, could have a material adverse effect on our operations in the form of increased costs for us and potentially lower margins. It remains unclear what impact the conflict and sanctions may have on consumer demand for diamond jewelry.
A reduction in the supply of diamonds could result in increased prices for diamonds, which, in turn, could have a material adverse effect on our operations in the form of increased costs for us and potentially lower margins. It remains unclear what impact the conflict and sanctions have on consumer demand for diamond jewelry.
These provisions provide for, among other things: • a classified board of directors with staggered three-year terms; • the ability of our board of directors to issue one or more series of preferred stock; • at any time when Mainsail and our Founders beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, our stockholders may take action by consent without a meeting, and at any time when Mainsail and our Founders beneficially own, in the aggregate, less than the majority of the voting power of our outstanding capital stock, our stockholders may not take action by consent, but may only take action at a meeting of stockholders; • vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders, subject to the rights granted pursuant to the stockholders agreement; • advance notice procedures apply for stockholders (other than the parties to our stockholders agreement for nominations made pursuant to the terms of the stockholders agreement) to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; • the inability of our stockholders to call a special meeting of stockholders; • prohibit cumulative voting in the election of directors; • at any time when Mainsail and our Founders beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, directors may be removed at any time with or without cause upon the affirmative vote of the holders of capital stock representing a majority of the voting power of our outstanding shares of capital stock entitled to vote thereon, and at any time when Mainsail and our Founders beneficially own, in the aggregate, less than the majority of the voting power of our outstanding shares of capital stock entitled to vote generally in the election of directors, in the aggregate, directors may only be removed for cause and only upon the affirmative vote of at least 66 2/3% of the holders of capital stock representing the voting power of our outstanding shares of capital stock entitled to vote thereon; and • that certain provisions of amended and restated certificate of incorporation may be amended only by the affirmative vote of at least 66 2/3% of the voting power represented by our then-outstanding common stock.
These provisions provide for, among other things: • a classified board of directors with staggered three-year terms; • the ability of our Board to issue one or more series of preferred stock; • at any time when Mainsail and our Founders beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, our stockholders may take action by consent without a meeting, and at any time when Mainsail and our Founders beneficially own, in the aggregate, less than the majority of the voting power of our outstanding capital stock, our stockholders may not take action by consent, but may only take action at a meeting of stockholders; • vacancies on our Board will be able to be filled only by our Board and not by stockholders, subject to the rights granted pursuant to the stockholders agreement; 56 Table of Contents • advance notice procedures apply for stockholders (other than the parties to our stockholders agreement for nominations made pursuant to the terms of the stockholders agreement) to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; • the inability of our stockholders to call a special meeting of stockholders; • prohibit cumulative voting in the election of directors; • at any time when Mainsail and our Founders beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, directors may be removed at any time with or without cause upon the affirmative vote of the holders of capital stock representing a majority of the voting power of our outstanding shares of capital stock entitled to vote thereon, and at any time when Mainsail and our Founders beneficially own, in the aggregate, less than the majority of the voting power of our outstanding shares of capital stock entitled to vote generally in the election of directors, in the aggregate, directors may only be removed for cause and only upon the affirmative vote of at least 66 2/3% of the holders of capital stock representing the voting power of our outstanding shares of capital stock entitled to vote thereon; and • that certain provisions of amended and restated certificate of incorporation may be amended only by the affirmative vote of at least 66 2/3% of the voting power represented by our then-outstanding common stock.
Our business relies on third party providers of cloud services, and any disruption of, or interference with, our use of cloud services could adversely affect our business, financial condition, or results of operations. We outsource substantially all of our core cloud infrastructure services to third-party providers, including Amazon Web Services, Salesforce and Oracle.
Our business relies on third party providers of cloud services, and any disruption of, or interference with, our use of cloud services could adversely affect our business, financial condition, or results of operations. We outsource substantially all of our core cloud infrastructure services to third-party providers, including Amazon Web Services, Microsoft, Salesforce and Oracle.
Although we believe that many of our customers originate from word-of-mouth and other non-paid referrals, we have expended and expect to continue to expend resources and run marketing campaigns to acquire additional customers, all of which could impact our overall profitability.
Although we believe that many of our customers originate from word-of-mouth and other non-paid referrals, we have expended and expect to continue to expend resources and run marketing campaigns to acquire and retain additional customers, all of which could impact our overall profitability.
While we employ security measures to prevent, detect, and mitigate potential for harm to our users from the misuse of user credentials on our network, these measures may not be effective in every instance.
While we employ security measures to prevent, detect, and mitigate potential for harm from the misuse of user credentials on our network, these measures may not be effective in every instance.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit the holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners but will not benefit the holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners.
Additionally, if the costs of search engine marketing services, such as Google AdWords, increase, we may incur additional marketing expenses, we may be required to allocate a larger portion of our marketing spend to this channel or we may be forced to attempt to replace it with another channel (which may not be available at reasonable prices, if at all), and our business, financial condition, and results of operations could be adversely affected.
Additionally, if the costs of search engine marketing services, such as Google AdWords, or the costs of other advertisements increase, we may incur additional marketing expenses, we may be required to allocate a larger portion of our marketing spend to this channel or we may be forced to attempt to replace it with another channel (which may not be available at reasonable prices, if at all), and our business, financial condition, and results of operations could be adversely affected.
As a result, we are not subject to certain corporate governance requirements, including that a majority of our board of directors consists of “independent directors,” as defined under the Nasdaq rules.
As a result, we are not subject to certain corporate governance requirements, including that a majority of the Board consists of “independent directors,” as defined under the Nasdaq Rules.
For so long as we are an “emerging growth company,” we will, among other things: • not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; • not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act; • not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act; • be exempt from the requirement of the Public Company Accounting Oversight Board, regarding the communication of critical audit matters in the auditor’s report on the financial statements; and • be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
For so long as we are an “emerging growth company,” we will, among other things: 57 Table of Contents • not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; • not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act; • not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act; • be exempt from the requirement of the Public Company Accounting Oversight Board, regarding the communication of critical audit matters in the auditor’s report on the financial statements; and • be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions, and other regulatory action, and potentially civil litigation. These factors may, therefore, strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions, and other regulatory action, and potentially civil litigation. These factors may, therefore, strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members. Item 1B.
The Tax Receivable Agreement provides for the payment by us to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (1) increases in Brilliant Earth Group, Inc.’s allocable share of the tax basis of Brilliant Earth, LLC’s assets resulting from (a) Brilliant Earth Group, Inc.’s purchase of LLC Interests from each Continuing Equity 50 Table of Contents Owner, (b) any future redemptions or exchanges of LLC Interests for Class A common stock or Class D common stock (or cash), and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments under the Tax Receivable Agreement.
The Tax Receivable Agreement provides for the payment by us to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (1) increases in Brilliant Earth Group, Inc.’s allocable share of the tax basis of Brilliant Earth, LLC’s assets resulting from (a) Brilliant Earth Group, Inc.’s purchase (or deemed purchase) of LLC Interests from each Continuing Equity Owner, (b) any future redemptions or exchanges of LLC Interests for Class A common stock or Class D common stock (or cash), and (c) certain distributions (or deemed distributions) by Brilliant Earth, LLC; and (2) certain tax benefits arising from payments under the Tax Receivable Agreement.
We rely on a limited number of suppliers to supply the majority of the resources to our products and are thus exposed to concentration of supplier risk.
We rely on a limited number of suppliers to supply the majority of the resources for our products and are thus exposed to concentration of supplier risk.
As we expand our operations, it may be more difficult to effectively manage our inventory. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition, and results of operations. We derive a significant portion of our revenue from sales of our Create Your Own rings.
As we expand our operations, it may be more difficult to effectively manage our inventory. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition, and results of operations. We derive a significant portion of our revenue from sales of our Design Your Own rings.
The GDPR, other EU and other U.K. data protection laws restrict the ability of companies to market electronically, including through the use of cookies, tracking technologies, e-marketing, and similar technologies on which we rely for our marketing. In addition, recent European court and regulator decisions are driving increased attention to cookies and tracking technologies.
In addition, the GDPR and other EU and U.K. data protection and electronic privacy laws restrict the ability of companies to market electronically, including through the use of cookies, tracking technologies, e-marketing, and similar technologies on which we rely for our marketing. In addition, recent European court and regulator decisions are driving increased attention to cookies and tracking technologies.
Risks associated with our e-commerce and omnichannel business include: • uncertainties associated with our websites, including changes in required technology interfaces, website downtime, and other technical failures, costs, and technical issues as we upgrade our website software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our website operations, and e-commerce fulfillment; • disruptions in internet service or power outages; • reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers; 29 Table of Contents • rapid technology changes; • credit or debit card fraud and other payment processing related issues; • changes in applicable federal, state, and international regulations; • liability for online content; • cybersecurity and data privacy concerns and regulations; and • natural disasters or adverse weather conditions.
Risks associated with our e-commerce and omnichannel business include: • uncertainties associated with our technology platforms and websites, including changes in required technology interfaces, website downtime, and other technical failures, costs, and technical issues as we upgrade our website software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our website operations, and e-commerce fulfillment; • disruptions in internet service or power outages; • reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers; • rapid technology changes; • credit or debit card fraud and other payment processing related issues; • changes in applicable federal, state, and international regulations; • liability for online content; • cybersecurity and data privacy concerns and regulations; and • natural disasters or adverse weather conditions.
These and other issues affecting our international suppliers or internationally sourced resources could have a material adverse effect on our business, financial condition, and results of operations. Material changes in the pricing practices of our suppliers could negatively impact our profitability. Our suppliers may also increase their pricing if their raw materials became more expensive.
These and other issues affecting our international suppliers or internationally sourced resources could have a material adverse effect on our business, financial condition, and results of operations. Material changes in the pricing practices of our suppliers could negatively impact our profitability. Our suppliers may also increase their pricing if their raw materials become more expensive.
In addition, some of our suppliers may not have the capacity to supply us with sufficient resources to keep pace with our growth plans, especially if we plan to manufacturer significantly greater amounts of inventory. In such cases, our ability to pursue our growth strategy will depend in part upon our ability to develop new supplier relationships.
In addition, some of our suppliers may not have the capacity to supply us with sufficient resources to keep pace with our growth plans, especially if we plan to manufacture significantly greater amounts of inventory. In such cases, our ability to pursue our growth strategy will depend in part upon our ability to develop new supplier relationships.
In addition, we have opted out of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), but our amended and restated certificate of incorporation provides that engaging in any of a broad range 55 Table of Contents of business combinations with any “interested” stockholder (generally defined as any stockholder with 15% or more of our voting stock) for a period of three years following the date on which the stockholder became an “interested” stockholder is prohibited, subject to certain exceptions.
In addition, we have opted out of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), but our amended and restated certificate of incorporation provides that engaging in any of a broad range of business combinations with any “interested” stockholder (generally defined as any stockholder with 15% or more of our voting stock) for a period of three years following the date on which the stockholder became an “interested” stockholder is prohibited, subject to certain exceptions.
A decline in sales of our Create Your Own rings would negatively affect our business, financial condition, and results of operations. We derive a significant portion of our revenue from the sale of our Create Your Own rings. Our fine jewelry is sold in highly competitive markets with limited barriers to entry.
A decline in sales of our Design Your Own rings would negatively affect our business, financial condition, and results of operations. We derive a significant portion of our revenue from the sale of our Design Your Own rings. Our fine jewelry is sold in highly competitive markets with limited barriers to entry.
Additionally, changes in regulations could limit the ability of search engines and social media platforms, including, but not limited to, Google and Facebook, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
Additionally, changes in regulations could limit the ability of search engines, social media platforms and other advertising partners, including, but not limited to, Google and Facebook, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
However, the protective steps we have taken and plan to take may be inadequate to deter infringement, misappropriation or other violations of our intellectual property, proprietary designs, technology, know-how, and our brand. We may not learn of, or may be unable to detect, the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.
However, the protective steps we have taken and plan to take may be inadequate to deter infringement, misappropriation or other violations of our intellectual property, proprietary designs, technology, know-how, and our brand. We may not learn of, or may be unable to detect, the unauthorized use of our intellectual property rights.
In the event of a default under any of our current or future debt instruments, the lenders could elect to declare all amounts outstanding under such debt instruments to be due and payable. In addition, our indebtedness under our Term Loan Agreement bears interest at variable rates.
In the event of a default under any of our current or future debt instruments, the lenders could elect to declare all amounts outstanding under such debt instruments to be due and payable. In addition, our indebtedness under our SVB Term Loan bears interest at variable rates.
We rely on a variety of mechanisms to protect our intellectual property rights, including trademark and copyright laws, trade secret protection, domain name registration, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others.
We rely on a variety of mechanisms to protect our intellectual property rights, including trademark and copyright laws, design patent laws, trade secret protection, domain name registration, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others.
Moreover, the vertically integrated nature of our business, where we create our designs, source natural and lab-grown diamonds as well as other gemstones, customize our IT systems, and sell our products exclusively through our own showrooms and custom e-commerce site, exposes us to risk and disruption at many points that are critical to successfully operating our business and may make it more difficult for us to scale our business.
Moreover, the vertically integrated nature of our business, where we create our designs, source natural and lab-grown diamonds and other gemstones, customize our IT systems, and sell our products through our own showrooms and custom e-commerce site, exposes us to risk and disruption at many points that are critical to successfully operating our business and may make it more difficult for us to scale our business.
As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could incur additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; and/or it could otherwise affect the manner in which we provide our services, and could adversely affect our business, operations and financial condition.
As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could i ncur additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; and/or it could otherwise affect the manner in which we provide our services, and could adversely affect our business, operations and financial condition.
In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and 59 Table of Contents completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.
In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile applications (“apps”), among others, which may increase our costs and may not increase sales or attract customers.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile applications (“apps”), and social media platforms, among others, which may increase our costs and may not increase sales or attract customers.
We expect to incur increased operating costs in the near term in order to: • increase the engagement of customers; • drive adoption of our products and services, and increase awareness of our brand, through marketing and other campaigns; • attract and retain qualified personnel to support the expansion of our business; • enhance our products and services with new designs and offerings; and • invest in our operations to support the growth in our business, including by opening additional showrooms.
We expect to incur increased operating costs in the near term in order to: • increase the engagement of customers; • drive adoption of our products and services, and increase awareness of our brand, through marketing and other campaigns; • attract and retain qualified personnel to support the expansion of our business; • enhance our products and services with new designs and offerings; and 28 Table of Contents • invest in our operations to support the growth in our business, including by opening additional showrooms.
A failure by us to comply with the covenants specified in the SVB Term Loan Facility could result in an event of default under the agreement, which would give the lenders the right to stop advancing money or extending credit and to declare all obligations to pay the loans when due, together with principal interest, fees, and expenses, to be immediately due and payable.
A failure by us to comply with the covenants specified in the SVB Credit Agreement could result in an event of default under the agreement, which would give the lenders the right to stop advancing money or extending credit and to declare all obligations to pay the loans when due, together with principal interest, fees, and expenses, to be immediately due and payable.
Because we derive a significant amount of our revenue from the sale of our Create Your Own rings, any material decline in sales of our Create Your Own rings would have a material adverse impact on our business, financial condition, and operating results.
Because we derive a significant amount of our revenue from the sale of our Design Your Own rings, any material decline in sales of our Design Your Own rings would have a material adverse impact on our business, financial condition, and operating results.
The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more difficult, time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty.
The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We 61 Table of Contents expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more difficult, time consuming and costly, although we are currently unable to estimate these costs with any degree of certainty.
To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts 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 Tax Receivable Agreement resulting in the acceleration of payments due under the Tax Receivable Agreement.
To the extent that we are unable to make timely payments under the Tax Receivable Agreement 51 Table of Contents for any reason, the unpaid amounts 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 Tax Receivable Agreement resulting in the acceleration of payments due under the Tax Receivable Agreement.
Furthermore, Our Beyond Conflict Free TM Diamonds are sourced from a select group of diamond suppliers with a robust chain of custody protocol for their diamonds and are required to source diamonds that originate from specific mine operations or specific countries that have demonstrated their commitment to follow internationally recognized labor, trade, and environmental standards.
Furthermore, Our Beyond Conflict Free TM Diamonds are sourced from a select group of diamond suppliers with a robust chain of 46 Table of Contents custody protocol for their diamonds and are required to source diamonds that originate from specific mine operations or specific countries that have demonstrated their commitment to follow internationally recognized labor, trade, and environmental standards.
If the information technology systems of our third-party service providers become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.
If the IT Systems of our third-party service providers become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.
In addition, the current Kimberley Process decision-making procedure is dependent on reaching a consensus among member governments, which can result in the protracted resolution of issues, and there is little expectation of significant reform over the long-term. The impact of this review process on the supply of diamonds, and consumers’ perception of the diamond supply chain, is unknown.
In addition, the current Kimberley Process decision-making procedure is dependent on reaching a consensus among member governments, which can result in the protracted resolution of issues, and there is little expectation of significant reform. The impact of this review process on the supply of diamonds, and consumers’ perception of the diamond supply chain, is unknown.
In addition to hiring new employees, we must continue to focus on developing, motivating, and retaining our best employees, all of whom are at-will employees. If we fail to identify, 35 Table of Contents recruit, and integrate strategic personnel hires, our business, financial condition, and results of operations could be adversely affected.
In addition to hiring new employees, we must continue to focus on developing, motivating, and retaining our best employees, all of whom are at-will employees. If we fail to identify, recruit, and integrate strategic personnel hires, our business, financial condition, and results of operations could be adversely affected.
The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis or failure to comply with certain restrictions in our debt instruments would result in a default under our debt instruments.
The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. Any failure to make payments of interest and principal on our outstanding 37 Table of Contents indebtedness on a timely basis or failure to comply with certain restrictions in our debt instruments would result in a default under our debt instruments.
Our systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, physical or electronic break-ins, acts of war or terrorist 31 Table of Contents attacks, fire, flood and natural disasters, and our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.
Our IT Systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, physical or electronic break-ins, acts of war or terrorist attacks, fire, flood and natural disasters, and our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.
In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time for such systems to support the increasing needs of our expanding business.
In addition, we may have to upgrade our existing IT Systems or choose to incorporate new technology systems from time to time for such systems to support the increasing needs of our expanding business.
The terms of such a settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations.
The terms of such a settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other 41 Table of Contents party. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations.
To the extent such vertical integration efforts are successful, some of the fragmentation in the existing diamond supply chain 45 Table of Contents could be eliminated, our ability to obtain an adequate supply of diamonds and fine jewelry from multiple sources could be limited, and our competitors may be able to obtain diamonds at lower prices.
To the extent such vertical integration efforts are successful, some of the fragmentation in the existing diamond supply chain could be eliminated, our ability to obtain an adequate supply of diamonds and fine jewelry from multiple sources could be limited, and our competitors may be able to obtain diamonds at lower prices.
Such interruptions may be due to, among other things, temporary closures of our facilities or those of our contract manufacturers, and other vendors in our supply chain; restrictions on travel or the import/export of goods and services from certain ports that we use; and local quarantines.
Such interruptions may be due to, among other things, 48 Table of Contents temporary closures of our facilities or those of our contract manufacturers, and other vendors in our supply chain; restrictions on travel or the import/export of goods and services from certain ports that we use; and local quarantines.
These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers.
These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as our executive officers.
Any changes in U.S. or foreign taxation may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations. In particular, new income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance.
Any changes in U.S. or foreign taxation may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations. In particular, new income or other tax laws or regulations could be 53 Table of Contents enacted at any time, which could adversely affect our business operations and financial performance.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of 59 Table of Contents operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Our board of directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of a cash dividend on our Class A common stock and Class D common stock, the payment of obligations under the Tax Receivable Agreement, the declaration of a stock dividend on our Class A common stock and Class D common stock, along with the purchase of a corresponding number of common units in Brilliant Earth, LLC, or the purchase of additional common units in 49 Table of Contents Brilliant Earth, LLC, along with a recapitalization of all of the outstanding common units in Brilliant Earth, LLC and the payment of other expenses.
The Board will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of a cash dividend on our Class A common stock and Class D common stock, the payment of obligations under the Tax Receivable Agreement, the declaration of a stock dividend on our Class A common stock and Class D common stock, along with the purchase of a corresponding number of common units in Brilliant Earth, LLC, or the purchase of additional common units in Brilliant Earth, LLC, along with a recapitalization of all of the outstanding common units in Brilliant Earth, LLC and the payment of other expenses.
We may not achieve anticipated net sales growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, or if our new and existing sales personnel are unable to achieve desired productivity levels in a 28 Table of Contents reasonable period of time.
We may not achieve anticipated net sales growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, or if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time.
In addition, we are not required to have a nominating and corporate governance committee or compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or to 54 Table of Contents conduct annual performance evaluations of the nominating and corporate governance and compensation committees.
In addition, we are not required to have a nominating and corporate governance committee or compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or to conduct annual performance evaluations of the nominating and corporate governance and compensation committees.
We purchase some of our products from suppliers who are affiliates of our competitors. In addition, if any of our competitors were to consolidate operations, such consolidation could exacerbate these risks. We may not be able to continue to successfully compete against existing or future competitors.
We purchase some of our products from suppliers who are affiliates of our competitors. In addition, if any of our competitors were to consolidate operations, such consolidation could exacerbate these risks. We may not be able to successfully compete with existing or future competitors.
Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those 42 Table of Contents necessary to achieve compliance with PCI-DSS or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with PCI-DSS or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
We entered into the Tax Receivable Agreement with Brilliant Earth, LLC and the Continuing Equity Owners in connection with the completion of our initial public offering and the Reorganization Transactions.
We entered into the Tax Receivable Agreement with Brilliant Earth, LLC and the Continuing Equity Owners in connection with the completion of our initial public offering.
If we do not adapt to 20 Table of Contents meet these evolving challenges, or if our management team does not effectively scale with our growth, we may experience erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed.
If we do not adapt to meet these evolving challenges, or if our management team does not effectively scale with our growth, we may experience erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed.
Any interruption or delay in the supply of any of these parts or materials, or the inability to obtain these materials from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship products to our customers.
Any interruption or delay in the supply of any of these parts 24 Table of Contents or materials, or the inability to obtain these materials from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship products to our customers.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war such as the conflict between Russia and Ukraine and fears of war, political and geopolitical instability, inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, fears of war, political and geopolitical instability, inclement weather, natural disasters, terrorism, outbreak of diseases or widespread illness, and consumer perceptions of personal well-being and security.
Our marketing efforts to help grow our business may not be effective, and failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our e-commerce and omnichannel approach to shopping for fine jewelry.
Our marketing efforts may not be effective, and failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our e-commerce and omnichannel approach to shopping for fine jewelry.
For example, if we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which could adversely affect our retail operations.
For example, if we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restriction s, and expulsion from card acceptance programs, which could adversely affect our retail operations.
We cannot assure you that all of our employees and agents will not take actions in violation of any of the above laws, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.
We cannot be certain that all of our employees and agents will not take actions in violation of any of the above laws, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.
Additionally, as of December 31, 2022, we had 25 showrooms across the U.S. While these showrooms differ from traditional retailers in that they do not stock significant amounts of inventory to sell to consumers, they do have some products on display, and we allow customers to pick-up and return products purchased online to the store.
Additionally, as of December 31, 2023, we had 37 showrooms across the U.S. While these showrooms differ from traditional retailers in that they do not stock significant amounts of inventory to sell to consumers, they do have some products on display, and we allow customers to pick-up and return products purchased online to the store.
A substantial amount of our inventory is in the custody of third parties such as our manufacturing partners, at any given time, and we are reliant on the adequacy of their insurance policies to cover potential loss or damage of our inventory in the custody of third parties.
A portion of our inventory is in the custody of third parties such as our manufacturing partners, at any given time, and we are reliant on the adequacy of their insurance policies to cover potential loss or damage of our inventory in the custody of third parties.
Such efforts will require significant time, expense, and attention as there is intense competition for such individuals, particularly in the Denver and San Francisco areas, and new hires require significant training and time before they achieve full productivity, particularly in new sales segments and territories.
Such efforts will require significant time, expense, and attention as there is intense competition for such individuals, particularly in the Denver and San Francisco areas, and new hires require significant training and time before they achieve full productivity, particularly for new products and territories.
If one or more of these analysts stops covering us 57 Table of Contents or fails to publish reports on us regularly, we could lose visibility in the market, which, in turn, could cause our stock price or trading volume to decline.
If one or more of these analysts stops covering us or fails to publish reports on us regularly, we could lose visibility in the market, which, in turn, could cause our stock price or trading volume to decline.
Due to concerns about data security and integrity, a growing number of legislative and regulatory bodies have adopted breach notification and other requirements in the event that information subject to such laws is accessed by unauthorized persons and additional regulations regarding the use, access, accuracy and security of such data are possible.
Due to concerns about data security and integrity, a growing number of national and international legislative and regulatory bodies have adopted breach notification and other requirements in the event that information subject to such laws is misused or accessed by unauthorized persons and additional regulations regarding the use, access, accuracy and security of such data are possible.
Any shares of Class A common stock held by our affiliates will be eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144.
Any shares of Class A common stock held by our affiliates are eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144.
From time to time, we may be subject to claims, lawsuits, government investigations, and other proceedings involving products liability, competition and antitrust, intellectual property, data privacy and protection, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition.
From time to time, we may be subject to claims, lawsuits, government investigations, and other proceedings involving products liability, competition and antitrust, intellectual property, data privacy and protection, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect 45 Table of Contents our business operations and financial condition.
If we were 52 Table of Contents required to register as an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
If we were required to register as an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Our continued growth has in the past, and could in the future, strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, and managing a diffuse and growing employee base.
Our continued growth has in the past, and could in the future, strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, and managing a geographically distributed and growing employee base.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeGeographic Location Number of Locations Square Footage Retail Showrooms Arizona 1 3,307 California 5 21,256 Colorado 1 11,153 Georgia 1 2,950 Illinois 1 2,200 Maryland 2 6,706 Massachusetts 1 3,761 Michigan 1 3,111 Minnesota 1 3,112 Missouri 1 2,365 New York 1 2,475 Ohio 2 4,883 Oregon 1 2,660 Pennsylvania 1 3,050 Texas 3 9,088 Washington 1 2,597 Washington, D.C. 1 4,795 Total Retail Showrooms 25 89,469 Operations center Secaucus, New Jersey 1 23,817 All of our executive offices and retail showrooms are leased from third parties, and our leases generally have a term of 5 years and typically include five-year renewal options.
Biggest changeGeographic Location Number of Locations Square Footage Retail Showrooms Arizona 1 3,307 California 8 28,128 Colorado 1 11,153 Florida 2 3,680 Georgia 1 2,950 Illinois 2 4,339 Maryland 2 6,706 Massachusetts 1 3,761 Michigan 1 3,111 Minnesota 1 3,112 Missouri 1 2,365 New York 3 11,511 North Carolina 1 1,663 Ohio 2 4,883 Oregon 1 2,660 Pennsylvania 2 5,150 Tennessee 1 1,800 Texas 3 9,088 Virginia 1 2,500 Washington 1 2,597 Washington, D.C. 1 4,795 Total Retail Showrooms 37 119,259 Operations center Secaucus, New Jersey 1 23,817 All of our executive offices and retail showrooms are leased from third parties, and our leases generally have a term of 5 to 10 years and typically include five-year renewal options.
We believe that our facilities are adequate for our needs and believe that we should be able to renew any of our leases or secure similar property without an adverse impact on our operations.
We believe that our facilities are adequate for our needs and believe that we should be able to renew any of our leases or secure similar property without an adverse impact on our operations. 64 Table of Contents
Item 2. Properties Our principal executive offices are located in San Francisco, CA and Denver, CO. We lease retail showroom, office and operational locations. As of December 31, 2022, we have 25 showrooms and one operations center in the United States. The table below sets forth certain information regarding these properties, all of which are leased.
Item 2. Properties Our principal executive offices are located in San Francisco, CA and Denver, CO. We lease retail showroom, office and operational locations. As of December 31, 2023, we had 37 showrooms and one operations center in the United States. The table below sets forth certain information regarding these properties, all of which are leased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAt this time, any liability related to the alleged claims is not currently probable or reasonably estimable. On August 26, 2021, Plaintiff Anna Lerman filed a complaint against the Company in California Superior Court for Ventura County.
Biggest changeAt this time, any liability related to the alleged claims is not currently probable or reasonably estimable .
Removed
On February 17, 2023, Plaintiff Tanisha Roberson filed a complaint against the Company in the United States District Court for Northern District of Illinois. The complaint alleges, on behalf of a putative class, that the 61 Table of Contents Company’s “Virtual Try On” feature violates the Illinois Biometric Information Privacy Act.
Added
On December 5, 2022, plaintiff Veronica Cusimano, a former employee of the Company, filed a representative action against the Company pursuant to the Private Attorneys General Act of 2004 in California Superior Court, Los Angeles County.
Removed
The plaintiff seeks statutory damages, injunctive relief, attorneys’ fees and costs, and other unspecified damages. As of the date of this Annual Report on Form 10-K, the Company’s initial response to the complaint is not yet due. The Company intends to vigorously defend the alleged claims of the plaintiff and the putative class.
Added
The complaint alleges, on behalf of the plaintiff and similarly situated employees and former employees in California, various claims under the California Labor Code related to wages, overtime, meal and rest breaks, reimbursement of business expenses, wage statements and records, and other similar allegations. The plaintiff seeks civil penalties, attorneys' fees and costs in unspecified amounts, and other unspecified damages.
Removed
The complaint alleged, on behalf of a putative class, that the Company recorded telephone calls between the Company’s customers and its customer service representatives without the customers’ consent, in violation of the California Invasion of Privacy Act Sections 631 and 632.7. The plaintiff sought statutory damages, injunctive relief, attorneys’ fees and costs, and other unspecified damages.
Added
On February 10, 2023, the Company filed a petition to compel arbitration on the basis of an agreement between the plaintiff and the Company to arbitrate any claims between them. On April 28, 2023, the petition was denied.
Removed
On December 20, 2022, the case was dismissed pursuant to a joint stipulation and order of dismissal.
Added
The Company intends to vigorously defend the alleged individual and representative claims, and, on May 9, 2023, the Company appealed the Superior Court's denial of its petition to compel arbitration to the California Court of Appeal, Second Appellate District and the appeal is currently pending.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our Class A common stock began trading on the Nasdaq Global Select Market under the trading symbol “BRLT” on September 23, 2021 .
Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our Class A common stock trades on the Nasdaq Global Market under the trading symbol “BRLT.” There is no established public trading market for our Class B common stock, Class C common stock or Class D common stock.
Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to the requirements of applicable law, compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our Board, subject to the requirements of applicable law, compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
Dividend Policy Since the IPO, we have not declared or paid any cash dividends on our common stock and we do not anticipate declaring or paying any cash dividends on our Class A common stock and Class D common stock in the foreseeable future.
Dividend Policy We have not declared or paid any cash dividends on our common stock and we do not anticipate declaring or paying any cash dividends on our Class A common stock and Class D common stock in the foreseeable future.
Our ability to pay dividends is restricted by the terms of the SVB Term Loan Facility and may be restricted by the terms of any future credit agreement, debt or preferred equity securities issued by us.
Our ability to pay dividends is restricted by the terms of the SVB Credit Agreement and may be restricted by the terms of any future credit agreement, debt or preferred equity securities issued by us.
Stockholders As of March 14, 2023, there were approximately 70 holders of record of our Class A common stock, 29 holders of record of our Class B common stock and 1 holder of record of our Class C common stock. No shares of our Class D common stock are outstanding.
Stockholders As of March 25, 2024 , there were approximately 21 holders of record of our Class A common stock, 25 holders of record of our Class B common stock and 1 holder of record of our Class C common stock. No shares of our Class D common stock are outstanding.
Furthermore, because we are a holding company, our ability to pay cash dividends on our Class A common stock and Class D common stock depends on our receipt of cash distributions from Brilliant Earth, LLC.
Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our Board. Furthermore, because we are a holding company, our ability to pay cash dividends on our Class A common stock and Class D common stock depends on our receipt of cash distributions from Brilliant Earth, LLC.
Any such determination will also depend upon our business prospects, results of operations, financial condition, cash requirements and availability, industry trends, and other factors that our board of directors may deem relevant. Purchase of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any of our equity securities during the year ended December 31, 2022.
Any such determination will also depend upon our business prospects, results of operations, financial condition, cash requirements and availability, industry trends, and other factors that our Board may deem relevant. Recent Sales of Unregistered Securities There were no unregistered sales of our equity securities during the period covered by this Annual Report on Form 10-K.
Removed
There is no established public trading market for our Class B common stock, Class C common stock or Class D common stock.
Added
Purchase of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any of our equity securities during the quarter ended December 31, 2023. Item 6. [Reserved] 66 Table of Contents
Removed
Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our board of directors.
Removed
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities There were no unregistered sales of our equity securities during the period covered by this Annual Report on Form 10-K and no material change in the expected use of the net proceeds from our IPO, other than as previously disclosed in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparison of Years Ended December 31, 2022 and 2021 The following table sets forth our statements of operations for the years ended December 31, 2022 and 2021, including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent (amounts in thousands): Year ended December 31, 2022 2021 Year over year change Amount Percent Amount Percent Amount Percent Consolidated statements of operations data*: Net sales $ 439,882 100.0 % $ 380,189 100.0 % $ 59,693 15.7 % Cost of sales 205,591 46.7 % 192,768 50.7 % 12,823 6.7 % Gross profit 234,291 53.3 % 187,421 49.3 % 46,870 25.0 % Operating expenses: Selling, general and administrative 210,964 48.0 % 147,291 38.7 % 63,673 43.2 % Income from operations 23,327 5.3 % 40,130 10.6 % (16,803) (41.9) % Interest expense (4,658) (1.1) % (7,589) (2.0) % 2,931 (38.6) % Other income (expense), net 805 0.2 % (6,601) (1.7) % 7,406 nm Loss on extinguishment of debt (617) (0.1) % — — % (617) nm Net income before tax 18,857 4.3 % 25,940 6.8 % (7,083) (27.3) % Income tax benefit 168 — % 316 0.1 % (148) (46.8) % Net income $ 19,025 4.3 % $ 26,256 6.9 % $ (7,231) (27.5) % Net income allocable to non-controlling interest 16,890 3.8 % 24,728 6.5 % (7,838) (31.7) % Net income allocable to Brilliant Earth Group, Inc. $ 2,135 0.5 % $ 1,528 0.4 % $ 607 39.7 % * Amounts may not sum due to rounding nm - Not meaningful Net Sales Net sales for the year ended December 31, 2022 increased by $59.7 million, or 15.7%, compared to the year ended December 31, 2021.
Biggest changeComparison of Years Ended December 31, 2023 and 2022 The following table sets forth our statements of operations for the years ended December 31, 2023 and 2022, including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent (amounts in thousands): Year ended December 31, 2023 2022 Year over year change Amount Percent Amount Percent Amount Percent Consolidated statements of operations data*: Net sales $ 446,382 100.0 % $ 439,882 100.0 % $ 6,500 1.5 % Cost of sales 189,382 42.4 % 205,591 46.7 % (16,209) (7.9) % Gross profit 257,000 57.6 % 234,291 53.3 % 22,709 9.7 % Operating expenses: Selling, general and administrative 252,518 56.6 % 210,964 48.0 % 41,554 19.7 % Income from operations 4,482 1.0 % 23,327 5.3 % (18,845) (80.8) % Interest expense (5,128) (1.1) % (4,658) (1.1) % (470) 10.1 % Other income, net 4,949 1.1 % 805 0.2 % 4,144 514.8 % Loss on extinguishment of debt — — % (617) (0.1) % 617 nm Income before tax 4,303 1.0 % 18,857 4.3 % (14,554) (77.2) % Income tax benefit 431 0.1 % 168 — % 263 156.5 % Net income $ 4,734 1.1 % $ 19,025 4.3 % $ (14,291) (75.1) % Net income allocable to non-controlling interest 4,150 0.9 % 16,890 3.8 % (12,740) (75.4) % Net income allocable to Brilliant Earth Group, Inc. $ 584 0.1 % $ 2,135 0.5 % $ (1,551) (72.6) % * Amounts may not sum due to rounding nm - Not meaningful Net Sales Net sales for the year ended December 31, 2023 increased by $6.5 million , or 1.5%, compared to the year ended December 31, 2022.
We expect the amount of the cash payments that we will be required to make under the TRA will be significant.
We expect the amount of cash payments that we will be required to make under the TRA will be significant.
Silicon Valley Bank Credit Facilities On May 24, 2022 (the “Closing Date”), Brilliant Earth, LLC, as borrower, and Silicon Valley Bank, 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 Facility”) and a secured revolving credit facility in an amount of up to $40.0 million (the “SVB Revolving Credit Facility”, and together with the SVB Term Loan Facility, the “SVB Credit Facilities”).
Silicon Valley Bank Credit Facilities On May 24, 2022 (the “Closing Date”), Brilliant Earth, LLC, as borrower, and 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 an amount of up to $40.0 million (the “SVB Revolving Facility”, and together with the SVB Term Loan, the “SVB Credit Facilities”).
Our critical accounting estimates include the following: Revenue Recognition Net sales primarily consists of revenue from the sale of inventory, and we recognize revenue as control of promised goods is transferred to customers, which generally occurs upon delivery if the order is shipped, or at the time the customer picks up the completed product at a showroom.
Our critical accounting policies and estimates include the following: Revenue Recognition Net sales primarily consists of revenue from the sale of inventory, and we recognize revenue as control of promised goods is transferred to customers, which generally occurs upon delivery if the order is shipped, or at the time the customer picks up the completed product at a showroom.
Our net sales are derived primarily in the U.S., but we also sell products to customers outside the U.S. Our website platform allows us to sell to a worldwide customer base, even in markets where we do not have a physical presence. Payment for all our sales occurs prior to fulfillment.
Our net sales are derived primarily in the U.S., but we also sell products to customers outside the U.S. Our website platform allows us to sell to a worldwide customer base, even in markets where we do not have a physical presence. Payment for all of our sales occurs prior to fulfillment.
We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO (December 31, 2026), (ii) in which we have total annual gross revenue of at least $1.07 billion or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our prior second fiscal quarter, and (b) the date on which we have issued more than $1.07 billion in non-convertible debt during the prior three-year period.
We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO (December 31, 2026), (ii) in which we have total annual gross revenue of at least $1.235 billion or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our prior second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Brilliant Earth, LLC has agreed to pay a commitment fee on the first day of each quarter on the unused amount of the SVB Revolving Credit Facility, equal to 0.25% to 0.35% per annum depending on the Consolidated Total Leverage Ratio.
In addition, Brilliant Earth, LLC has agreed to pay a commitment fee on the first day of each quarter on the unused amount of the SVB Revolving Facility, equal to 0.25% to 0.35% per annum depending on the Consolidated Total Leverage Ratio.
The SVB Term Loan Facility is also subject to certain mandatory prepayment requirements in connection with asset sales, casualty events and debt incurrence, subject to customary exceptions. The SVB Credit Facilities are subject to customary affirmative covenants and negative covenants as well as financial maintenance covenants.
The SVB Term Loan is also subject to certain mandatory prepayment requirements in connection with asset sales, casualty events and debt incurrence, subject to customary exceptions. The SVB Credit Facilities are subject to customary affirmative covenants and negative covenants as well as financial maintenance covenants.
A change in the assessment of such consequences, such as realization of deferred tax assets, changes in tax laws or interpretations thereof could materially impact our results. 81 Table of Contents Recent Accounting Pronouncements See Note 2 – Summary of Significant Accounting Policies to our accompanying financial statements and related notes thereto included elsewhere in this Form 10-K for additional information regarding recent accounting developments and their impact on our results.
A change in the assessment of such consequences, such as realization of deferred tax assets, changes in tax laws or interpretations thereof could materially impact our results. 81 Table of Contents Recent Accounting Pronouncements See Note 2 – Summary of Significant Accounting Policies to our accompanying financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K for additional information regarding recent accounting developments and their impact on our results.
Critical Accounting Policies and Estimates In preparing our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and related disclosures.
Critical Accounting Policies and Estimates In preparing our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K in conformity with GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and related disclosures.
As of December 31, 2022 the Company was in compliance with such covenants. For additional information regarding our long-term debt activity, see Note 8, Debt to the audited consolidated financial statements included elsewhere in the Annual Report on Form 10-K.
As of December 31, 2023 the Company was in compliance with such covenants. For additional information regarding our long-term debt activity, see Note 8, Debt to the audited consolidated financial statements included elsewhere in the Annual Report on Form 10-K.
An 79 Table of Contents accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations.
An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations.
Components of Results of Operations Net Sales Our sales are recorded net of estimated sales returns and allowances and sales taxes collected from customers. Our net sales primarily consist of revenue from diamond, jewelry, and gemstone retail sales through our website and dedicated jewelry specialists via chat, phone, email, virtual appointment, or in our showrooms.
Components of Results of Operations Net Sales Our sales are recorded net of estimated sales returns and allowances and sales tax collected from customers. Our net sales primarily consist of revenue from diamond, jewelry, and gemstone retail sales through our website and dedicated jewelry specialists via chat, phone, email, virtual appointment, or in our showrooms.
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 avoids the inefficiencies of traditional, retail-first jewelers. Our showrooms are appointment-driven with large catchment regions, so we are less reliant on expensive high foot traffic retail locations.
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.
We believe our brand strength will enable us to continue to expand across 66 Table of Contents categories and channels, to deepen relationships with consumers, and to expand our presence in U.S. and international markets. Cost-Effective Acquisition of New Customers and Retention of Existing Customers. We have historically had attractive customer acquisition economics, including substantial first order profitability.
We believe our brand strength will enable us to continue to expand across categories and channels, to deepen relationships with consumers, and to expand our presence in U.S. and international markets. Cost-Effective Acquisition of New Customers and Retention of Existing Customers. We have historically had attractive customer acquisition economics, including substantial first order profitability.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, are included in this Annual Report on Form 10-K because they are used by management and our board of directors to assess our financial performance.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, are included in this Annual Report on Form 10-K because they are used by management and our Board to assess our financial performance.
The SVB Term Loan Facility is required to be repaid on the last day of each calendar quarter (commencing on September 30, 2022), in an amount equal to 1.25% per quarter through June 30, 2024, 1.875% per quarter from September 30, 2024 through June 30, 2025, and 2.50% per quarter thereafter, with the balance payable on the SVB Maturity Date.
The SVB Term Loan is required to be repaid on the last day of each calendar quarter in an amount equal to 1.25% per quarter through June 30, 2024, 1.875% per quarter from September 30, 2024 through June 30, 2025, and 2.50% per quarter thereafter, with the balance payable on the Maturity Date.
Actual amounts could differ from those estimated at the time the audited consolidated financial statements are prepared. Our significant accounting policies are described in Note 2, Summary of significant accounting policies , to our accompanying financial statements and related notes thereto included elsewhere in this Form 10-K.
Actual amounts could differ from those estimated at the time the audited consolidated financial statements are prepared. Our significant accounting policies are described in Note 2, Summary of significant accounting policies , to our accompanying financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
We believe that total orders is a measure that is useful to investors and management in understanding our ongoing operations and in an analysis of ongoing operating trends. 72 Table of Contents Average Order Value We define average order value, or AOV, as net sales in a given period divided by total orders in that period.
Average Order Value We define average order value, or AOV, as net sales in a given period divided by total orders in that period. We believe that AOV is a measure that is useful to investors and management in understanding our ongoing operations and in an analysis of ongoing operating trends.
Cash Flows from Operating, Investing, and Financing Activities — Comparison of Years Ended December 31, 2021 and 2020 For a comparison of our cash flow activities for the fiscal years ended December 31, 2021 and 2020, see Item 7.
Cash Flows from Operating, Investing, and Financing Activities — Comparison of Years Ended December 31, 2022 and 2021 For a comparison of our cash flow activities for the fiscal years ended December 31, 2022 and 2021, see Item 7.
Further, Brilliant Earth, LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the 78 Table of Contents distribution, liabilities of Brilliant Earth, LLC (with certain exceptions), as applicable, exceed the fair value of its assets.
Further, Brilliant Earth, LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Brilliant Earth, LLC (with certain exceptions), as applicable, exceed the fair value of its assets.
Financing Activities Net cash used in financing activities was $23.6 million for the year ended December 31, 2022 which related to the payoff of the Runway Term Loan (defined below), tax distributions to members pursuant to the LLC Agreement of $18.3 million and the quarterly repayment on SVB Term Loan Facility (defined below), partially offset by proceeds received from the SVB Credit Facilities.
Net cash used in financing activities was $23.6 million for the year ended December 31, 2022, which related to the payoff of the Runway Term Loan, tax distributions to members pursuant to the LLC Agreement of $18.3 million and the quarterly repayments on SVB Term Loan (defined below), partially offset by proceeds received from the SVB Credit Agreement.
The expected dividend yield is nil as we have not paid and do not anticipate paying dividends on our common stock. 80 Table of Contents Deferred Tax Asset and Tax Receivable Agreement We may receive a deferred tax benefit resulting from the step-up in basis which occurs in the event that we redeem LLC interests from the Continuing Equity Owners.
The expected dividend yield is nil as we have not paid and do not anticipate paying dividends on our common stock. Deferred Tax Asset and Tax Receivable Agreement We may receive a deferred tax benefit resulting from the step-up in basis which occurs in the event that we redeem LLC interests from the Continuing Equity Owners.
We define Adjusted EBITDA as net income excluding interest expense, income taxes, depreciation expense, amortization of cloud-based software implementation costs, equity-based compensation expense, showroom pre-opening 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 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, loss on extinguishment of debt, 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.
The Brilliant Earth LLC Agreement in effect since the time of the IPO provides for the payment of certain distributions to the Continuing Equity Owners and to us in amounts sufficient to cover the income taxes imposed on such members with respect to the allocation of taxable income from Brilliant Earth, LLC as well as to cover our obligations under the TRA and other administrative expenses.
The LLC Agreement provides for the payment of certain distributions to the Continuing Equity Owners and to us in amounts sufficient to cover the income taxes imposed on such members with respect to the allocation of taxable income from Brilliant Earth, LLC as well as to cover our obligations under the TRA and other administrative expenses.
We have made significant investments to strengthen the Brilliant Earth brand through our dynamic marketing strategy, which includes brand marketing campaigns across email, digital, social media, earned media, and media placements and with key influencers.
We have made and expect to continue to make significant investments to strengthen the Brilliant Earth brand through our dynamic marketing strategy, which includes brand marketing campaigns across email, digital, social media, earned media, and media placements with key influencers.
We offer an extended protection plan through a third-party that has terms ranging from two years to lifetime that vary based on the item purchased. 68 Table of Contents Revenue is deferred on transactions where payment has been received from the customer, but control has not yet transferred.
We offer an extended protection plan through a third-party that has terms ranging from two years to lifetime that vary based on the item purchased. Revenue is deferred on transactions where payment has been received from the customer, but control has not yet transferred.
Our sales returns and allowance accounts are based on historical return experience and current period sales levels. Equity-Based Compensation Equity-based compensation is accounted for as an expense in accordance with the fair value recognition and measurement provisions of U.S. GAAP which requires compensation cost for the grant-date fair value of equity-based awards to be recognized over the requisite service period.
Our sales returns and allowance accounts are based on historical return experience and current period sales levels. 80 Table of Contents Equity-Based Compensation Equity-based compensation is accounted for as an expense in accordance with the fair value recognition and measurement provisions of GAAP which requires compensation cost for the grant-date fair value of equity-based awards to be recognized over the requisite service period.
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.
Our early proof-points from localizing our website for Canada, Australia, and the United Kingdom, and our sales to customers fr om over 50 countries, pro vide 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.
Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and business valuations.
Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and current trends.
Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 22, 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 21, 2023.
For additional information on our contractual obligations and commitments, see Note 7, Leases , Note 9, Stockholders’ Equity and Members Units Including Redeemable Convertible Class P Units and Note 12, Commitments and Contingencies , to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
For additional information on our contractual obligations and commitments, see Note 7, Leases , Note 9, Stockholders’ Equity and Members Units and Note 12, Commitments and Contingencies , to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Cost of sales includes merchandise costs, inbound freight charges, and costs of shipping orders to customers. Our cost of sales includes reserves for disposal of obsolete, slow-moving or defective items, and shrinkage, which we estimate and record on a periodic basis.
Cost of sales includes merchandise costs, inbound freight charges, costs of shipping orders to customers and certain fulfillment and inventory-related compensation costs. Our cost of sales includes reserves for disposal of obsolete, slow-moving or defective items, and shrinkage, which we estimate and record on a periodic basis.
Investing Activities Net cash used in investing activities was $9.1 million for the year ended December 31, 2022, and $5.6 million for the year ended December 31, 2021, which primarily consisted of purchases of property and equipment related to new facilities leased during the years ended December 31, 2022 and December 31, 2021.
Investing Activities Net cash used in investing activities was $11.9 million for the year ended December 31, 2023, and $9.1 million for the year ended December 31, 2022, which primarily consisted of purchases of property and equipment related to new facilities leased during the years ended December 31, 2023 and 2022.
We also provide one complimentary resizing for standard ring styles within 60 days of when an order is available for shipment or pickup, a lifetime manufacturing warranty (except on estate and vintage jewelry and center diamonds/gemstones), and a lifetime diamond upgrade program on all independently-graded natural diamonds.
We also provide one complimentary resizing for standard ring styles within 60 days of when an order is available for shipment or pickup, a lifetime manufacturing warranty (except on estate and vintage jewelry and center diamonds/gemstones), and a lifetime diamond upgrade program on all diamonds that meet certain criteria.
The SVB Credit Facilities are secured by substantially all assets of Brilliant Earth, LLC and any of its future material subsidiaries, subject to customary exceptions.
The SVB Credit Facilities are secured by substantially all assets of Brilliant Earth, LLC and any of its future material subsidiaries, subject to customary exceptions. Brilliant Earth, LLC’s future material subsidiaries (subject to certain customary exceptions) will guarantee repayment of the SVB Credit Facilities.
Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income. We currently believe that all deferred tax assets will be recovered based upon the projected profitability of our operations. Judgment is required in assessing the future tax consequences of events that have been recognized in Brilliant Earth Group, Inc.’s financial statements.
We currently believe that all deferred tax assets will be recovered based upon the projected profitability of our operations. Judgment is required in assessing the future tax consequences of events that have been recognized in Brilliant Earth Group, Inc.’s financial statements.
The amounts to be recorded for both the deferred tax asset and the liability for our obligations under the TRA will be estimated at the time of any purchase or redemption as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income.
The amounts to be recorded for both the deferred tax asset and the liability for our obligations under the TRA will be estimated at the time of any purchase or redemption as a reduction to shareholders’ equity. The effect of subsequent changes in the enacted tax rates will be included in net income.
Costs of Operating as a Public Company The costs of operating as a public company are significant as we are now subject to the reporting, listing, and compliance requirements of various governing bodies and applicable securities laws and regulations that we were previously not subjected to as a privately-held company.
Costs of Operating as a Public Company The costs of operating as a public company are significant as we are subject to the reporting, listing, and compliance requirements of various governing bodies and applicable securities laws and regulations.
As of December 31, 2022, contractual obligations with a remaining term in excess of 12 months primarily related to marketing and advertising spending as well as software maintenance totaling $5.3 million.
As of December 31, 2023, contractual obligations with a remaining term in excess of 12 months primarily related to marketing and advertising spending as well as software maintenance totaled $8.1 million.
Brilliant Earth, LLC’s future material subsidiaries (subject to certain customary exceptions) will guarantee repayment of the SVB Credit Facilities. 77 Table of Contents Borrowings under the SVB Credit Facilities bear interest at either (a) a secured overnight financing rate plus an annual adjustment of 0.125%, plus an applicable margin of 2.25% to 2.75%, depending on the Consolidated Total Leverage Ratio (defined below), or an alternate base rate plus an applicable margin of 1.25% to 1.75%, depending on the Consolidated Total Leverage Ratio, each subject to a 0.00% floor.
Borrowings under the SVB Credit Facilities bear interest at either (a) a secured overnight financing rate plus an annual adjustment of 0.125%, plus an applicable margin of 2.25% to 2.75%, depending on the Consolidated Total Leverage Ratio (defined below), or an alternate base rate plus an applicable margin of 1.25% to 1.75%, depending on the Consolidated Total Leverage Ratio, each subject to a 0.00% floor.
Macroeconomic Trends 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 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.
Selling, General and Administrative Expenses SG&A expenses for the year ended December 31, 2022 increased by $63.7 million, or 43.2%, compared to the year ended December 31, 2021. SG&A expenses as a percentage of net sales increased by 922 basis points for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Selling, General and Administrative Expenses SG&A expenses for the year ended December 31, 2023 increased by $41.6 million , or 19.7%, compared to the year ended December 31, 2022. SG&A expenses as a percentage of net sales increased by 861 basis points for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Factors that could cause such differences include those identified below and those described in “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements. Company Overview Brilliant Earth is an innovative, digital-first jewelry company, and a global leader in ethically sourced fine jewelry.
Factors that could cause such differences include those identified below and those described in “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements.
In addition, we will have more opportunity to enhance and leverage our customer relationship management (“CRM”) and data-segmentation capabilities to increase repeat purchases and lifetime value.
In addition, we 68 Table of Contents will have more opportunity to enhance and leverage our CRM and data-segmentation capabilities to increase repeat purchases and lifetime value.
Gross margin improvements were also due to an 11.8% reduction in average platinum spot prices, partially offset by an increase of 0.2% in average gold spot prices for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Gross margin improvements were slightly offset by an increase in average gold spot prices of 8% and an increase in the average platinum spot prices of 1% for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
AOV may also fluctuate as we expand into and increase our presence in additional product lines and price points, and open additional showrooms. Non-GAAP Financial Measures We report our financial results in accordance with GAAP.
AOV varies depending on the product type and number of items per order. AOV may also fluctuate as we expand into and increase our presence in additional product lines and price points, and open additional showrooms. 73 Table of Contents Non-GAAP Financial Measures We report our financial results in accordance with GAAP.
(2) These expenses are those that we did not incur in the normal course of business. These expenses for all years presented include professional fees in connection with the evaluation and preparation for operations as a public company.
(2) These expenses are those that we did not incur in the normal course of business. For the year ended December 31, 2023, these costs include a $1 million charitable contribution. For the year ended December 31, 2022, these costs include professional fees in connection with the evaluation and preparation for operations as a public company.
We have achieved strong financial performance and rapid growth since our founding, and believe we are in the early stages of realizing our potential in a significant market opportunity.
We believe the Brilliant Earth digital experience drives higher satisfaction, engagement, and conversion both online and in-showroom. We have achieved strong financial performance and rapid growth since our founding, and believe we are in the early stages of realizing our potential in a significant market opportunity.
The following discussion and analysis reflects the historical results of operations and financial position of Brilliant Earth, LLC prior to the Reorganization Transactions on September 22, 2021 and that of Brilliant Earth Group, Inc. and its consolidated subsidiary, Brilliant Earth, LLC, following the completion of the Reorganization Transactions.
The following discussion and analysis reflects the historical results of operations and financial position of Brilliant Earth Group, Inc. and its consolidated subsidiary, Brilliant Earth, LLC.
We experienced increases in net sales across our products, primarily driven by a 26.6% increase in order volumes due to: • continued efficiency of our customer acquisition and conversion activities; • an increase in orders driven by strong omnichannel performance across the Company's products and new product collection releases; and • the opening of new showrooms.
The increase in net sales was primarily driven by a 16.7% increase in order volumes due to: 71 Table of Contents • continued effectiveness of our customer acquisition activities; • strong omnichannel performance across the Company's products and new product collection releases; and • the opening of new showrooms.
The increase in SG&A expenses was driven by an increase in employment expenses, marketing expenses, and other general and administrative expenses, which increased by $25.4 million, $22.9 million, and $15.3 million, respectively, from the year ended December 31, 2021 to the year ended December 31, 2022.
The increase in SG&A expenses was driven by an increase in marketing expenses, other general and administrative expenses, and employment expenses, which increased by $22.0 million , $11.8 million , and $7.8 million, res pectively, from the year ended December 31, 2022 to the year ended December 31, 2023.
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. 67 Table of Contents Operational and Marketing Efficiency 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.
Operational and Marketing Efficiency 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.
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. Our Ability to Continue Expansion of our Omnichannel Strategy Our ability to expand our omnichannel presence to new markets and locations is key to our success.
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.
Key Factors Affecting Our Performance Our Ability to Increase Brand Awareness Increasing brand awareness and growing favorable brand equity have been and remain key to our growth. We have a significant opportunity to continue to grow our brand awareness, broaden our customer reach, and maximize lifetime value through brand and performance marketing.
We have a significant opportunity to continue to grow our brand awareness, broaden our customer reach, and maximize lifetime value through brand and performance marketing.
Remaining compliant and satisfying our obligations as a public company, while maintaining forecasted gross margins and operating results, and attracting and retaining qualified persons to serve on our board of directors, our board committees, or as our executive officers will be critical to our future success.
Remaining compliant and satisfying our obligations as a public company, while maintaining forecasted gross margins and operating results, and attracting and retaining qualified persons to serve on our Board, our Board committees, or as our executive officers is critical to our future success. Macroeconomic Trends We believe we are well-positioned at the intersection of key macro-level trends impacting our industry.
The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations.
Any additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. We cannot ensure that we could obtain refinancing or additional financing on favorable terms or at all.
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. 73 Table of Contents 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 years presented (in thousands): For the years ended December 31, 2022 2021 Net income $ 19,025 $ 26,256 Interest expense 4,658 7,589 Income tax benefit (168) (316) Depreciation expense 1,922 860 Amortization of cloud-based software implementation costs 263 — Showroom pre-opening expense 4,450 2,773 Equity-based compensation expense 8,840 2,795 Loss on extinguishment of debt 617 — Other (income) expense, net (1) (805) 6,601 Transaction costs and other expenses (2) 180 3,926 Adjusted EBITDA $ 38,982 $ 50,484 Net income margin 4.3 % 6.9 % Adjusted EBITDA margin 8.9 % 13.3 % (1) Other expense, net for the year ended December 31, 2021 consists primarily of the change in fair value of the warrant liability necessary to mark our warrants to fair market value.
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. 74 Table of Contents 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 years presented (in thousands): For the years ended December 31, 2023 2022 Net income $ 4,734 $ 19,025 Interest expense 5,128 4,658 Income tax benefit (431) (168) Depreciation expense 4,200 1,922 Amortization of cloud-based software implementation costs 583 263 Showroom pre-opening expense 4,953 4,450 Equity-based compensation expense 9,952 8,840 Loss on extinguishment of debt — 617 Other income, net (1) (4,949) (805) Transaction costs and other expenses (2) 2,012 180 Adjusted EBITDA $ 26,182 $ 38,982 Net income margin 1.1 % 4.3 % Adjusted EBITDA margin 5.9 % 8.9 % (1) Other income, net con sists primarily of interest and other miscellaneous income, partially offset by expenses such as losses on exchange rates on consumer payments.
We cannot ensure that we could obtain refinancing or additional financing on favorable terms or at all. 75 Table of Contents Cash Flows from Operating, Investing, and Financing Activities — Comparison of Years Ended December 31, 2022 and 2021 The following table summarizes our cash flows for the years ended December 31, 2022 and 2021 (in thousands): Years ended December 31, 2022 2021 Net cash provided by operating activities $ 14,506 $ 46,078 Net cash used in investing activities (9,124) (5,606) Net cash (used in) provided by financing activities (23,598) 66,124 Net (decrease) increase in cash, cash equivalents, and restricted cash (18,216) 106,596 Cash, cash equivalents and restricted cash at beginning of year 173,070 66,474 Cash, cash equivalents and restricted cash at end of year $ 154,854 $ 173,070 Operating Activities Net cash provided by operating activities was $14.5 million for the year ended December 31, 2022, consisting of $19.0 million in net income adjusted for $15.2 million in non-cash expense addbacks, primarily composed of equity based compensation, operating lease costs, depreciation expense, loss on extinguishment of debt and amortization of debt issuance costs, partially offset by a $19.7 million decrease from changes in assets and liabilities related to operating activities.
Cash Flows from Operating, Investing, and Financing Activities — Comparison of Years Ended December 31, 2023 and 2022 The following table summarizes our cash flows for the years ended December 31, 2023 and 2022 (in thousands): Years ended December 31, 2023 2022 Net cash provided by operating activities $ 26,214 $ 14,506 Net cash used in investing activities (11,944) (9,124) Net cash used in financing activities (13,104) (23,598) Net increase (decrease) in cash, cash equivalents, and restricted cash 1,166 (18,216) Cash, cash equivalents and restricted cash at beginning of year 154,854 173,070 Cash, cash equivalents and restricted cash at end of year $ 156,020 $ 154,854 76 Table of Contents Operating Activities Net cash provided by operating activities was $26.2 million for the year ended December 31, 2023, consisting of $4.7 million in net income adjusted for $18.7 million in non-cash expense addbacks, primarily composed of equity based compensation, operating lease costs, depreciation e xpense and amortization of debt issuance costs and $2.8 million from changes in assets and liabilities related to operating activities.
Revenue related to customer purchases of our in-house extended service plan are deferred and recognized ratably over the service plan term. Cost of Sales Cost of sales consists primarily of merchandise costs for the purchase of diamonds and gemstones from our global base of diamond and gemstone suppliers, and the cost of jewelry production from our third-party jewelry manufacturing suppliers.
Cost of Sales Cost of sales consists primarily of merchandise costs for the purchase of diamonds and gemstones from our global base of diamond and gemstone suppliers, and the cost of jewelry production from our third-party jewelry manufacturing suppliers.
We believe expanding our number of 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. As of December 31, 2022, we have 25 showroom locations.
We believe growing and managing our showrooms will drive accelerated growth by increasing our AOV compared to e-commerce orders, improving conversion in the showrooms’ metro regions compared to pre-opening conversion, and raising our brand awareness.
The change in assets and liabilities related to operating activities, which is the result of the growth of our business, primarily reflects a $25.2 million increase in accounts payable, accrued expenses, and other current liabilities, deferred revenue, and deferred rent, offset by $16.8 million increase in inventories, prepaid expenses and other current assets, and other assets.
The change in assets and liabilities related to operating activities, which are a result of working capital management, primarily reflects a $4.3 million increase in operating lease liabilities, offset by a $4.1 million decrease in prepaid expenses and other current assets, inventories, and other current assets along with a $2.0 million increase in accounts payable, accrued expenses and other current liabilities and a $1.0 million increase in deferred revenue.
Income Tax Benefit Brilliant Earth Group, Inc.’s income tax benefit was $0.2 million for the year ended December 31, 2022 decreasing by $0.1 million compared to the period from September 23, 2021 to December 31, 2021.
Income Tax Benefit Brilliant Earth Group, Inc.’s income tax benefit was $0.4 million fo r the year ended December 31, 2023 compared to an income tax benefit of $0.2 million for the year ended December 31, 2022.
Principal Years ending December 31, 2023 $ 3,250 2024 4,062 2025 5,688 2026 6,500 2027 43,875 Total aggregate future principal payments $ 63,375 Additional future liquidity needs may include public company costs, 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.
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.
On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. In addition to the SVB Credit Facilities described above, the Company also has deposit accounts at SVB. On March 14, 2023, the FDIC announced the establishment of Silicon Valley Bridge Bank, N.A.
After such time, the minimum Balance Sheet Cash covenant no longer applies. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. On March 14, 2023, the FDIC announced the establishment of Silicon Valley Bridge Bank, N.A.
Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 22, 2022. Runway Term Loan Agreement On September 30, 2019, we entered into a Loan and Security Agreement with Runway Growth Finance Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 21, 2023.
The increase in employment expenses was driven by a $19.4 million increase in salaries and wages, payroll taxes and other benefits expense due to the addition of corporate and showroom staff and a $6.0 million increase in equity-based compensation.
The increase in employment expenses was primarily driven by an increase in salaries and wages, equity-based compensation, and other benefits expense due to the addition of staff to support our growth.
Net cash provided by operating activities was $46.1 million for the year ended December 31, 2021, consisting of $26.3 million in net income adjusted for $11.4 million in non-cash expense addbacks, primarily composed of the change in fair value of warrants, equity based compensation, amortization of debt issuance costs and depreciation expense, plus a $8.4 million increase from changes in assets and liabilities related to operating activities.
Net cash provided by operating activities was $14.5 million for the year ended December 31, 2022, consisting of $19.0 million in net income adjusted for $15.2 million in non-cash expense addbacks, primarily composed of equity based compensation, operating lease costs, depreciation expense, loss on extinguishment of debt and amortization of debt issuance costs, offset by a $19.7 million decrease from changes in assets and liabilities related to operating activities.
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. As of December 31, 2022, Brilliant Earth has sold to consumers in over 50 countries.
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 industr y.
We also curate showroom inventory for scheduled visits and require limited inventory in each location. Our tech-enabled jewelry specialist team supports online customers when not in appointment, maximizing workforce utilization.
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.
Revenue arrangements generally have one performance obligation and are reported net of estimated sales returns and allowances, which are determined based on historical product return rates and current economic conditions. We offer a three-year extended in-house service plan, which gives rise to an additional performance obligation that is recognized over the course of the service plan.
Revenue arrangements generally have one performance obligation and are reported net of estimated sales returns and allowances, which are determined based on historical product return rates and current economic conditions.
For the twelve months ended December 31, 2022, the Company declared and paid $18.3 million of distributions to, or on behalf of, members associated with their estimated income tax obligations.
For the twelve months ended December 31, 2023, the Company declared and paid $9.9 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.
Income Tax Benefit Income tax benefit represents the federal and state income or franchise taxes assessed on Brilliant Earth Group, Inc.’s share of taxable income (loss) for the period. 69 Table of Contents Results of Operations The results of operations data in the following tables for the periods presented have been derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Results of Operations The results of operations data in the following tables for the periods presented have been derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Total orders, together with AOV, is an indicator of the net sales we expect to recognize in a given period. Total orders may fluctuate based on the number of visitors to our website and showrooms, and our ability to convert these visitors to customers.
We view total orders as a key indicator of the velocity of our business and an indication of the desirability of our products to our customers. Total orders, together with AOV, is an indicator of the net sales we expect to recognize in a given period.
Comparison of Years Ended December 31, 2021 and 2020 For a comparison of our results of operations for the fiscal years ended December 31, 2021 and 2020, see Item 7.
The decrease in net income allocable to the NCI was primarily due to a decrease in net income from the prior year. Comparison of Years Ended December 31, 2022 and 2021 For a comparison of our results of operations for the fiscal years ended December 31, 2022 and 2021, see Item 7.
We believe that AOV is a measure that is useful to investors and management in understanding our ongoing operations and in an analysis of ongoing operating trends. AOV varies depending on the product type and number of items per order.
Total orders may fluctuate based on the number of visitors to our website and showrooms, and our ability to convert these visitors to customers. We believe that total orders is a measure that is useful to investors and management in understanding our ongoing operations and in an analysis of ongoing operating trends.
The increase in order volumes was partially offset by a decline of 8.6% in AOV driven by an increase in sales of lower price point fine jewelry and other products, and moderation in sales growth of products above the $10,000 price point. 70 Table of Contents Gross Profit Gross profit for the year ended December 31, 2022 increased by $46.9 million, or 25.0%, compared to the year ended December 31, 2021.
The increase in order volumes was partially offset by a decline of 13.0% in AOV driven by an increase in sales of lower price point products, including fine jewelry and moderation in sales growth of products above the $10,000 price point.
Historically, we have been successful in every new geographic market we have entered, and we are in the early stages of expanding our premium showroom footprint nationwide. We intend to continue leveraging our marketing strategy and growing brand awareness to drive increased qualified consumer traffic to and sales from our website and premium showrooms.
We intend to continue leveraging our marketing strategy and growing brand awareness to drive increased qualified consumer traffic to and sales from our website and premium showrooms.
Interest Expense Interest expense for the year ended December 31, 2022 decreased by $2.9 million, or 38.6%, compared to the year ended December 31, 2021, primarily due to a reduction in the interest rate pursuant to the SVB Credit Agreement (defined below) executed on May 24, 2022.
Interest Expense Interest expense for the year ended December 31, 2023 increased by $0.5 million , or 10.1%, compared to the year ended December 31, 2022, primarily due to an increase in the variable interest rate pursuant to the SVB Credit Agreement entered into on May 24, 2022.
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.
Consumers are increasingly favoring seamless omnichannel shopping experiences, and we believe our model is well-suited to satisfy these consumer preferences.

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