Charles & Colvard’s CEO , Suzanne Miglucci, joins The Stock Podcast to discuss moissanite gemstones, e-commerce, digital marketing, direct-to-consumer (DTC) selling and her vision for the company. Charles & Colvard (Nasdaq: CTHR) is the original and leading source of moissanite, the world’s most brilliant gemstone. CTHR manufactures, markets, and distributes moissanite gemstones as well as jewelry that incorporates the gemstones.
Naturally occurring moissanite is extremely rare – even more rare than diamonds. That’s because moissanite most likely came from space! It was first discovered in the 1890s by a French chemist who was looking at rock samples from a meteor crater in Arizona. Today, it’s possible to create moissanite gemstones in a lab, and CTHR first introduced moissanite to the jewelry market in the 1990s. The company markets its gemstones under well-known brands like Forever One and Moissanite by Charles & Colvard.
So, if you’re in the market for a truly beautiful gemstone, be sure to ask your local jeweler about these because they’re certainly more visually impressive than diamonds, and at a much lower price point. Even more important, at least for many consumers, moissanite is an extremely environmental and socially responsible alternative to diamonds. However, if you’re not interested in buying jewelry, but you are interested in a new, interesting investment idea, you need to listen to this interview.
CTHR has been profitable for the past four consecutive quarters, generates free cash, and is growing rapidly. It’s also worth emphasizing how impressed I was by Suzanne. She’s a high-caliber CEO, has significant marketing and tech experience (which makes her ideal for the role), and she has a vision for the company that’s worth hearing.
At the time this interview was released, CTHR’s market cap was $46M, cash and equivalents were nearly $13M, and the company had zero debt, which puts the enterprise value at approximately $33M.
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Learn more about Charles & Colvard by visiting their investor relations page.
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Interview Transcript
Charles & Colvard Interview Transcript
Participants
Suzanne Miglucci, CEO of Charles & Colvard (CTHR)
Nate Abercrombie, The Stock Podcast
Interview Transcript
Nate: Suzanne, thank you so very much for coming onto the podcast. I’m really looking forward to talk about your background and your company.
Suzanne: Thanks, Nate. I appreciate you having me today.
Nate: That’s my pleasure. Could we first start out just hearing about your background?
Suzanne: Sure. I’m actually an executive from the technology space. I primarily came from business software such as SAP, I worked at Computer Associates and just prior to Charles & Colvard, I worked at a company called ChannelAdvisor. I acted as Chief Marketing Officer and I ran marketing and product management and support and services for that company. So a broad technology background, which is an odd fit for somebody that runs a jewelry company, but I’m sure we’ll get into that.
Nate: Yeah. So, Oh, yeah? What brought you to a jewelry company?
Suzanne: Well, it was interesting. ChannelAdvisor is a software company that helps brands and retailers expand their global sales footprint. And they help them do it through marketplaces and digital marketing. I was very deeply involved with several thousand global brands and retailers using the platform, and in 2015 I took a board seat at Charles & Colvard, to help provide a little bit of oversight on the pathway toward being a brand or how to establish a direct to consumer relationship through online channels, figuring it would be a really great fit for me to bring that background here. It just so happened that that was right at the same time that the then CEO was retiring from the business, and the board asked me to interview for the seat and here I am. I took the CEO helm in December of 2015.
Nate: Okay. And could you talk a little bit about Charles & Colvard and just the background there, the Genesis story, if you will?
Suzanne: So, Charles & Colvard is the original creator of the lab grown gemstone called moissanite. The company has been manufacturing this gem since its inception, which was way back in 1995. For all of those first 20 some odd years Nate, the company was very much a manufacturer. The company relied on distribution partners to do the job of taking the product to market. In fact, they had a patent on moissanite production globally for the first 20 years of the company. When I came on board at the end of 2015, they were coming off patent and it was an interesting time. The board and the company were trying to figure out how do we make this company viable going forward as we go off patent? What do we do? And that’s where my background in E-commerce and online channels really played. In 2016, in the month of October, we hit the hard reboot button and we pivoted the company and the model toward being more of a direct to consumer model. We really felt like a direct connection with the consumer was the way for us to tell the brand story, to talk about moissanite, the product, and its value, and to bring that consumer in, whether she’s buying directly from us or through other channels. We felt like it was important for us to start to really bang the drum and talk the story of moissanite because our original business model didn’t do that for us. And so when we did this reboot, we really launched an omnichannel and a very much an online channel sales strategy where we were out there with our own website, we were out there with digital marketing strategies to tell the story on marketplaces around the globe eventually, and different ways for the consumer to find us and to engage with us.
Suzanne: We just posted our Q4 fiscal year 2019 earnings and thrilled to say we posted four profitable quarters for the year, but I think I’m even more proud of the fact that our online channels where we do most of our direct to consumer business, are now more than half of our revenue. So we’ve really successfully pivoted the business, Nate, and we’re very much this direct to consumer business. Now, it doesn’t mean that the legacy business went away. Half the business is still through retail outlets and through some of those distributors that have been with us for some time, but the good news here is that we’ve established a relationship with the consumer and we feel it’s a rising tides lift all boats scenario where that relationship causes them to search for moissanite. Search for that alternative to diamond, and then find us wherever we might be in the market.
Nate: Yeah, that’s impressive. Half of your business is direct to consumer. So that’s… I would imagine the margins are just a little bit nicer when you’re selling directly to a consumer and you don’t have to pay an intermediary or paying some retailer that then takes a cut of some of your profits. So that’s pretty impressive.
Suzanne: Yeah, you’ve connected the dots directly. So, the reason, one of ultimately the reasons that we’re profitable today and have four profitable, consecutive profitable quarters under the belt, is because of this migration to these online channels. We call it direct. The most direct is charlesandcolvard.com, our own transactional website, and then we have others where there’s a short hop through a third party, like a marketplace, but they command far less a cut of our revenue than some of our traditional channels, like when we were going through a distributor or through a retailer. And so we have very nice blended gross margins, but the best margins come from our online channels and the very best margin comes from our own direct site.
Nate: Yeah, I would be really interested to hear how you made that transition from a manufacturer of moissanite to making the actual jewelry, so everything involved with creating the final product, but before we get to that, I think it’s really important to talk about what moissanite is.
Suzanne: So moissanite is something called silicon carbide, if you talk about the chemistry of it. It’s made of two elements of the periodic table, silicon and carbon. It’s a really rare mineral. You can find it on the surface of the earth, but in such tiny little shards that there are very little value and you certainly can’t make any jewelry from them. It was discovered well over a hundred years ago by a French gentleman by the name of Henri Moissan, he actually found these shards in the Diablo Canyon in Arizona, and he took it back to his laboratory and spent his entire life trying to recreate this very rare mineral. He was not successful but knew that there was something in hand here. It wasn’t really until the scientists here in greater Raleigh at Charles & Colvard and some other industrial players figured out how to do it.
Suzanne: The challenge that Henri Moissan had is that when silicon and carbon come together in the earth atmosphere, they don’t generally have an opportunity to come and match up. And that’s because were exposed to oxygen in the atmosphere. And when silicon and oxygen come together, while it creates silicon dioxide and you get sand. So what Henri was missing is that you really needed to create a vacuum in order to create silicon carbide. And that’s why we believe Nate, that moissanite came from the stars. We actually believe it came from a meteorite because it was out in the atmosphere where there is no oxygen, and silicon and carbon have the ability to come together. So fast forward all those years, 1995, Charles & Colvard was actually spun out of a local company in Raleigh here called Cree. Cree is one of the major industry manufacturers of silicon carbide, but primarily for industrial purposes.
Suzanne: Today, if they’re publicly traded, you can look them up. They do quite a booming business supporting electric cars and solid-state electronics, even light bulb work where you use silicon carbide because it’s a conductive material. But it just so happened that I had there was a happy day in the laboratory one day when they were playing with the formula and realized that they could take the color out of the substrate material. And that’s when certain family members of Cree realized that they had a secondary business. And so those family members spun out and formed Charles & Colvard, and that’s how the business began. And so we were exclusively focused on creating gemstones from this substrate material that on the other side of the business, goes off and makes industrial materials. It just so happens that it’s gorgeous. And so moissanite has more fire and brilliance than any other gemstone in the world, including diamond. What that means is it’s more sparkly, so when beams of light go into the moissanite gemstone, it actually has the ability to take one beam of light and split it into two. It’s called a double refractive property. And so imagine that the gemstone emits more light than is in the room because it’s taking the light and it’s doubling it, which is pretty cool. So it’s very, very sparkly and then it has more fire, which means it takes a white light and it can break it into its component pieces. So you get little pops of color that come off the gemstone as well. And the other thing that’s gorgeous about it is that it’s second in hardness only to diamond. And so as you’re putting this beautiful gemstone into jewelry, you can pretty much be assured that it’s not going to chip or scratch or break because it has a hardness unrivaled other than diamond.
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