QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
☒ | Smaller reporting company | ||||||||||
Emerging growth company |
Page | |||||
September 30, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Inventories, net | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets | |||||||||||
Property and equipment, net | |||||||||||
Deferred tax assets | |||||||||||
Operating lease right of use assets | |||||||||||
Other assets | |||||||||||
Total assets | $ | $ | |||||||||
Liabilities and equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and other current liabilities | |||||||||||
Current portion of deferred revenue | |||||||||||
Current portion of operating lease liabilities | |||||||||||
Current portion of long-term debt | |||||||||||
Total current liabilities | |||||||||||
Long-term debt, net of debt issuance costs | |||||||||||
Operating lease liabilities | |||||||||||
Deferred rent | |||||||||||
Payable pursuant to the Tax Receivable Agreement | |||||||||||
Other long-term liabilities | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies (Note 11) | |||||||||||
Equity | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
Class C common stock, $ | |||||||||||
Class D common stock, $ | |||||||||||
Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
Equity attributable to Brilliant Earth Group, Inc. | |||||||||||
NCI attributable to Brilliant Earth, LLC | |||||||||||
Total equity | |||||||||||
Total liabilities and equity | $ | $ |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net sales | $ | $ | $ | $ | |||||||||||||||||||
Cost of sales | |||||||||||||||||||||||
Gross profit | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Selling, general and administrative | |||||||||||||||||||||||
Income from operations | |||||||||||||||||||||||
Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense), net | ( | ( | |||||||||||||||||||||
Loss on extinguishment of debt | ( | ||||||||||||||||||||||
Income before tax | |||||||||||||||||||||||
Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
Net income | |||||||||||||||||||||||
Net income allocable to non-controlling interest | |||||||||||||||||||||||
Net income allocable to Brilliant Earth Group, Inc. | $ | $ | $ | $ | |||||||||||||||||||
Three months ended September 30, 2022 | Period from September 23, 2021 to September 30, 2021 | Nine months ended September 30, 2022 | Period from September 23, 2021 to September 30, 2021 | ||||||||||||||||||||
Earnings per share: | |||||||||||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||||||||||
Diluted | $ | $ | $ | $ | |||||||||||||||||||
Weighted average shares of common stock outstanding: | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
Diluted |
Brilliant Earth Group, Inc. Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Class C Common Stock | Non-Controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings | Stockholders' Equity | Units | Amounts | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 1, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax distributions to members | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Class B and Class C to Class A common stock | — | ( | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RSU vesting during period | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LLC Units vesting during period | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rebalancing of controlling and non-controlling interest | — | — | — | — | — | — | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ |
Brilliant Earth, LLC | Brilliant Earth Group, Inc. Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class P Units | Class F Units and Class M Units | Class A Common Stock | Class B Common Stock | Class C Common Stock | Non-Controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Units | Total Amounts | Total Units | Total Amounts | Total Shares | Total Amounts | Total Shares | Total Amounts | Total Shares | Total Amounts | Additional Paid-In Capital | Retained Earnings | Stockholders' Equity | Amounts | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 1, 2021 | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax distributions to members | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vested Class M Units | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income prior to Reorganization Transactions and IPO | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable convertible preferred units to redemption value | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization Transactions | ( | ( | ( | — | $ | — | $ | $ | $ | — | $ | — | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
IPO Transactions | — | — | — | — | ( | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LLC Units vesting during period | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income subsequent to Reorganization Transactions and IPO | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brilliant Earth Group, Inc. Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Class C Common Stock | Non-Controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings | Stockholders' Equity | Units | Amounts | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax distributions to members | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Class B and Class C to Class A common stock | — | ( | — | ( | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RSU vesting during period | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LLC Units vesting during period | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rebalancing of controlling and non-controlling interest | — | — | — | — | — | — | ( | $ | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ |
Brilliant Earth, LLC | Brilliant Earth Group, Inc. Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class P Units | Class F Units and Class M Units | Class A Common Stock | Class B Common Stock | Class C Common Stock | Non-Controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Units | Total Amounts | Total Units | Total Amounts | Total Shares | Total Amounts | Total Shares | Total Amounts | Total Shares | Total Amounts | Additional Paid-In Capital | Retained Earnings | Stockholders' Equity | Amounts | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | $ | $ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax distributions to members | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vested Class M Units | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income prior to Reorganization Transactions and IPO | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable convertible preferred units to redemption value | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization Transactions | ( | ( | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
IPO Transactions | — | — | — | — | ( | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LLC Units vesting during period | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income subsequent to Reorganization Transactions and IPO | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Operating activities | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation | |||||||||||
Equity-based compensation | |||||||||||
Non-cash operating lease cost | |||||||||||
Change in fair value of warrants | |||||||||||
Amortization of debt issuance costs | |||||||||||
Loss on extinguishment of debt | |||||||||||
Other | |||||||||||
Changes in assets and liabilities: | |||||||||||
Inventories | ( | ( | |||||||||
Prepaid expenses and other current assets | ( | ||||||||||
Other assets | ( | ( | |||||||||
Accounts payable, accrued expenses and other current liabilities | |||||||||||
Deferred revenue | |||||||||||
Operating lease liabilities | ( | ||||||||||
Deferred rent | |||||||||||
Net cash provided by operating activities | |||||||||||
Investing activities | |||||||||||
Purchases of property and equipment | ( | ( | |||||||||
Net cash used in investing activities | ( | ( | |||||||||
Financing activities | |||||||||||
Proceeds received from Silicon Valley Bank (“SVB”) term loan facility | |||||||||||
Repayment of Runway term loan | ( | ||||||||||
Tax distributions to members | ( | ( | |||||||||
Principal payments on Runway term loan | ( | ||||||||||
Final payment and prepayment penalty on Runway term loan | ( | ||||||||||
Payments of debt issuance costs | ( | ||||||||||
Payments on SVB term loan | ( | ||||||||||
Redemption of LLC Units | ( | ||||||||||
Payments of deferred offering costs | ( | ||||||||||
Issuance of Class A common stock in IPO, net of underwriting discounts and offering costs | |||||||||||
Issuance of Class B and C shares of common stock | |||||||||||
Net cash (used in) provided by financing activities | ( | ||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
Non-cash investing and financing activities | |||||||||||
Right-of-use assets and operating lease liabilities | $ | $ | |||||||||
Deferred tax assets associated with redemption of LLC Units | |||||||||||
TRA Obligation associated with redemption of LLC Units | |||||||||||
Purchases of property and equipment included in accounts payable and accrued liabilities | |||||||||||
Credit to APIC related to redemption of LLC Units | |||||||||||
Debt issuance costs included in accounts payable and accrued liabilities | |||||||||||
Debt issuance costs capitalized to principal of long-term debt | |||||||||||
Conversion of Class F and Class M Units to Common LLC Units | |||||||||||
Conversion of Class P Units to Common LLC Units | |||||||||||
Adjustment of redeemable convertible preferred units to redemption value | |||||||||||
Net exercise of warrants on common LLC Units | |||||||||||
Deferred offering costs included in accounts payable and accrued liabilities | |||||||||||
Supplemental information | |||||||||||
Cash paid for interest | $ | $ | |||||||||
Cash paid for taxes | $ | $ |
September 30, | December 31, | September 30, | |||||||||||||||
2022 | 2021 | 2021 | |||||||||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||||||||
Restricted cash | |||||||||||||||||
Total | $ | $ | $ |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
United States | $ | $ | $ | $ | |||||||||||||||||||
International | |||||||||||||||||||||||
Total net sales | $ | $ | $ | $ |
Numerator: | Three months ended September 30, 2022 | For the period September 23, 2021 to September 30, 2021 | Nine months ended September 30, 2022 | For the period September 23, 2021 to September 30, 2021 | |||||||||||||||||||
Net income attributable to Brilliant Earth Group, Inc., BASIC | $ | $ | $ | $ | |||||||||||||||||||
Add: Net income impact from assumed redemption of all LLC Units to common stock | |||||||||||||||||||||||
Less: Income tax expense on net income attributable to NCI | ( | ( | ( | ( | |||||||||||||||||||
Net income attributable to Brilliant Earth Group, Inc., after adjustment for assumed conversion, DILUTED | $ | $ | $ | $ | |||||||||||||||||||
Denominator: | |||||||||||||||||||||||
Weighted average shares of common stock outstanding, BASIC | |||||||||||||||||||||||
Dilutive effects of: | |||||||||||||||||||||||
Vested LLC Units that are exchangeable for common stock | |||||||||||||||||||||||
LLC Units and RSUs | |||||||||||||||||||||||
Weighted average shares of common stock outstanding, DILUTED | |||||||||||||||||||||||
BASIC earnings per share | $ | $ | $ | $ | |||||||||||||||||||
DILUTED earnings per share | $ | $ | $ | $ |
September 30, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
Loose diamonds | $ | $ | |||||||||
Fine jewelry and other | |||||||||||
Allowance for inventory obsolescence | ( | ( | |||||||||
Total inventories, net | $ | $ |
September 30, | September 30, | ||||||||||
2022 | 2021 | ||||||||||
Balance at beginning of period | $ | ( | $ | ( | |||||||
Change in allowance for inventory obsolescence | ( | ( | |||||||||
Balance at end of period | $ | ( | $ | ( |
September 30, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
Accrued vendor expenditures | $ | $ | |||||||||
Inventory received not billed | |||||||||||
Accrued payroll expenses | |||||||||||
Sales and other tax payable accrual | |||||||||||
Provision for sales returns and allowances | |||||||||||
Other | |||||||||||
Total accrued expenses and other current liabilities | $ | $ |
For the three months ended | |||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | ||||||||||
Balance at beginning of period | $ | $ | |||||||||
Provision | |||||||||||
Returns and allowances | ( | ( | |||||||||
Balance at end of period | $ | $ |
For the nine months ended | |||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | ||||||||||
Balance at beginning of period | $ | $ | |||||||||
Provision | |||||||||||
Returns and allowances | ( | ( | |||||||||
Balance at end of period | $ | $ |
Assets | Classification | As of September 30, 2022 | |||||||||
Operating ROU assets at cost | Operating lease right of use assets | $ | |||||||||
Accumulated amortization | Operating lease right of use assets | ( | |||||||||
Net book value | $ | ||||||||||
Liabilities | Classification | As of September 30, 2022 | |||||||||
Current: | |||||||||||
Operating leases | Current portion of operating lease liabilities | $ | |||||||||
Noncurrent: | |||||||||||
Operating leases | Operating lease liabilities | ||||||||||
Total lease liabilities | $ |
Classification | For the three months ended September 30, 2022 | For the nine months ended September 30, 2022 | |||||||||||||||
Operating lease costs | Selling, general and administrative expense | $ | $ |
Amount | |||||
For the three months ending December 31, 2022 | $ | ||||
Years ending December 31, | |||||
2023 | |||||
2024 | |||||
2025 | |||||
2026 | |||||
2027 | |||||
Thereafter | |||||
Total minimum lease payments | |||||
Less: imputed interest | ( | ||||
Net present value of operating lease liabilities | |||||
Less: current portion | ( | ||||
Long-term portion | $ |
Weighted-average remaining lease term - operating leases | ||||||||
Weighted-average discount rate - operating leases | % | |||||||
ROU assets and lease obligations recognized upon adoption of ASC 842 on January 1, 2022: | ||||||||
ROU assets | $ | |||||||
Operating lease obligations | $ | ( | ||||||
Supplemental cash flow information related to operating leases as of September 30, 2022 is as follows: | ||||||||
Cash paid for amounts included in lease liabilities for the nine months ended September 30, 2022: | ||||||||
Operating cash flows from operating leases | $ | |||||||
ROU assets obtained in exchange for new operating lease liabilities | $ | |||||||
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
Outstanding principal | Debt issuance costs | Net carrying amount | Outstanding principal | Debt issuance costs | Net carrying amount | ||||||||||||||||||||||||||||||
SVB Term loan | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Total debt | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Current portion | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
Long-term | ( | ( | |||||||||||||||||||||||||||||||||
Total debt | $ | $ | ( | $ | $ | $ | ( | $ |
Principal | |||||
For the three months ending December 31, 2022 | |||||
Years ending December 31, | |||||
2023 | |||||
2024 | |||||
2025 | |||||
2026 | |||||
2027 | |||||
Total aggregate future principal payments | $ |
September 30, | December 31, | ||||||||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||||||||
Authorized | Issued & Outstanding | Votes per share | Economic Rights | ||||||||||||||||||||||||||
Preferred stock | |||||||||||||||||||||||||||||
Common stock: | |||||||||||||||||||||||||||||
Class A | Yes | ||||||||||||||||||||||||||||
Class B | No | ||||||||||||||||||||||||||||
Class C | No | ||||||||||||||||||||||||||||
Class D | Yes | ||||||||||||||||||||||||||||
Common stock reserved for issuances: | |||||||||||||||||||||||||||||
Conversion of LLC Units | |||||||||||||||||||||||||||||
Unvested LLC Units | |||||||||||||||||||||||||||||
Unvested RSUs | |||||||||||||||||||||||||||||
Stock options | |||||||||||||||||||||||||||||
Common LLC Units | No | Yes |
Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
Balance as of December 31, 2021, unvested | $ | ||||||||||
Granted | $ | ||||||||||
Vested | ( | $ | |||||||||
Forfeited | ( | $ | |||||||||
Balance as of September 30, 2022, unvested | $ |
Number of options | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding as of December 31, 2021 | $ | ||||||||||
Forfeited | ( | $ | |||||||||
Outstanding as of September 30, 2022 | $ | ||||||||||
Vested and exercisable as of September 30, 2022 | $ | ||||||||||
Unvested as of September 30, 2022 | $ | ||||||||||
Vested and expected to vest as of September 30, 2022 | $ |
Number of LLC Units | Weighted average grant date fair value | ||||||||||
Balance, December 31, 2021, unvested | $ | ||||||||||
Forfeited | ( | $ | |||||||||
Vested | ( | $ | |||||||||
Balance, September 30, 2022, unvested | $ |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||
Net Sales | $ | 111,405 | $ | 95,239 | $ | 16,166 | 17.0 | % | $ | 320,252 | $ | 258,283 | 61,969 | 24.0 | % | ||||||||||||||||||||||||||||||||
Total Orders | 36,977 | 28,855 | 8,122 | 28.1 | % | 104,715 | 78,733 | 25,982 | 33.0 | % | |||||||||||||||||||||||||||||||||||||
AOV | $ | 3,013 | $ | 3,301 | $ | (288) | (8.7) | % | $ | 3,058 | $ | 3,280 | $ | (222) | (6.8) | % |
Three months ended September 30, | |||||||||||||||||||||||||||||||||||
2022 | 2021 | Period change | |||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
Condensed consolidated statements of operations data: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 111,405 | 100.0 | % | $ | 95,239 | 100.0 | % | $ | 16,166 | 17.0 | % | |||||||||||||||||||||||
Cost of sales | 50,487 | 45.3 | % | 47,224 | 49.6 | % | 3,263 | 6.9 | % | ||||||||||||||||||||||||||
Gross profit | 60,918 | 54.7 | % | 48,015 | 50.4 | % | 12,903 | 26.9 | % | ||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||
Selling, general and administrative | 54,615 | 49.0 | % | 38,147 | 40.1 | % | 16,468 | 43.2 | % | ||||||||||||||||||||||||||
Income from operations | 6,303 | 5.7 | % | 9,868 | 10.4 | % | (3,565) | (36.1) | % | ||||||||||||||||||||||||||
Interest expense | (778) | (0.7) | % | (1,912) | (2.0) | % | 1,134 | (59.3) | % | ||||||||||||||||||||||||||
Other income (expense), net | 374 | 0.3 | % | (3,971) | (4.2) | % | 4,345 | (109.4) | % | ||||||||||||||||||||||||||
Net income before tax | 5,899 | 5.3 | % | 3,985 | 4.2 | % | 1,914 | 48.0 | % | ||||||||||||||||||||||||||
Income tax expense | (180) | (0.2) | % | (23) | — | % | (157) | 682.6 | % | ||||||||||||||||||||||||||
Net income | 5,719 | 5.1 | % | 3,962 | 4.2 | % | 1,757 | 44.3 | % | ||||||||||||||||||||||||||
Net income allocable to non-controlling interest | 5,073 | 4.6 | % | 3,896 | 4.1 | % | 1,177 | 30.2 | % | ||||||||||||||||||||||||||
Net income allocable to Brilliant Earth Group, Inc. | $ | 646 | 0.6 | % | $ | 66 | 0.1 | % | $ | 580 | *nm | ||||||||||||||||||||||||
Amounts may not sum due to rounding | |||||||||||||||||||||||||||||||||||
*nm - Not meaningful |
Nine months ended September 30, | |||||||||||||||||||||||||||||||||||
2022 | 2021 | Period change | |||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
Condensed consolidated statements of operations data: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 320,252 | 100.0 | % | $ | 258,283 | 100.0 | % | $ | 61,969 | 24.0 | % | |||||||||||||||||||||||
Cost of sales | 151,397 | 47.3 | % | 133,148 | 51.6 | % | 18,249 | 13.7 | % | ||||||||||||||||||||||||||
Gross profit | 168,855 | 52.7 | % | 125,135 | 48.4 | % | 43,720 | 34.9 | % | ||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||
Selling, general and administrative | 151,576 | 47.3 | % | 97,961 | 37.9 | % | 53,615 | 54.7 | % | ||||||||||||||||||||||||||
Income from operations | 17,279 | 5.4 | % | 27,174 | 10.5 | % | (9,895) | (36.4) | % | ||||||||||||||||||||||||||
Interest expense | (3,700) | (1.2) | % | (5,786) | (2.2) | % | 2,086 | (36.1) | % | ||||||||||||||||||||||||||
Other income (expense), net | 266 | 0.1 | % | (6,518) | (2.5) | % | 6,784 | (104.1) | % | ||||||||||||||||||||||||||
Loss on extinguishment of debt | (617) | (0.2) | % | — | — | % | (617) | *nm | |||||||||||||||||||||||||||
Net income before tax | 13,228 | 4.1 | % | 14,870 | 5.8 | % | (1,642) | (11.0) | % | ||||||||||||||||||||||||||
Income tax expense | (389) | (0.1) | % | (23) | — | % | (366) | *nm | |||||||||||||||||||||||||||
Net income | 12,839 | 4.0 | % | 14,847 | 5.7 | % | $ | (2,008) | (13.5) | % | |||||||||||||||||||||||||
Net income allocable to non-controlling interest | 11,413 | 3.6 | % | 14,781 | 5.7 | % | (3,368) | (22.8) | % | ||||||||||||||||||||||||||
Net income allocable to Brilliant Earth Group, Inc. | $ | 1,426 | 0.4 | % | $ | 66 | — | % | $ | 1,360 | *nm | ||||||||||||||||||||||||
Amounts may not sum due to rounding | |||||||||||||||||||||||||||||||||||
*nm - Not meaningful |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income | $ | 5,719 | $ | 3,962 | $ | 12,839 | $ | 14,847 | |||||||||||||||
Interest expense | 778 | 1,912 | 3,700 | 5,786 | |||||||||||||||||||
Income tax expense | 180 | 23 | 389 | 23 | |||||||||||||||||||
Depreciation expense | 501 | 215 | 1,248 | 536 | |||||||||||||||||||
Amortization of cloud-based software implementation costs | 50 | — | 86 | — | |||||||||||||||||||
Showroom pre-opening expense | 796 | 1,517 | 2,602 | 2,198 | |||||||||||||||||||
Equity-based compensation expense | 2,311 | 684 | 6,563 | 872 | |||||||||||||||||||
Loss on extinguishment of debt | — | — | 617 | — | |||||||||||||||||||
Other (income) expense, net (1) | (374) | 3,971 | (266) | 6,518 | |||||||||||||||||||
Transaction costs and other expense (2) | — | 1,281 | 180 | 3,776 | |||||||||||||||||||
Adjusted EBITDA | $ | 9,961 | $ | 13,565 | $ | 27,958 | $ | 34,556 | |||||||||||||||
Net income margin | 5.1 | % | 4.2 | % | 4.0 | % | 5.7 | % | |||||||||||||||
Adjusted EBITDA margin | 8.9 | % | 14.2 | % | 8.7 | % | 13.4 | % |
Principal | |||||
For the three months ending December 31, 2022 | $ | 813 | |||
Years ending December 31, | |||||
2023 | 3,250 | ||||
2024 | 4,062 | ||||
2025 | 5,688 | ||||
2026 | 6,500 | ||||
2027 | 43,875 | ||||
Total aggregate future principal payments | $ | 64,188 |
Nine months ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Net cash provided by operating activities | $ | 9,019 | $ | 33,821 | |||||||
Net cash used in investing activities | (6,566) | (4,385) | |||||||||
Net cash (used in) provided by financing activities | (22,387) | 65,382 | |||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (19,934) | 94,818 | |||||||||
Cash, cash equivalents and restricted cash at beginning of period | 173,070 | 66,474 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 153,136 | $ | 161,292 |
Incorporated by Reference | Filed / Furnished Herewith | |||||||||||||||||||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | |||||||||||||||
3.1 | 8-K | 001-40836 | 3.1 | 9/27/2021 | ||||||||||||||||
3.2 | 8-K | 001-40836 | 3.2 | 9/27/2021 | ||||||||||||||||
4.1 | S-1/A | 001-40836 | 4.1 | 9/14/2021 | ||||||||||||||||
31.1 | * | |||||||||||||||||||
31.2 | * | |||||||||||||||||||
32.1 | ** | |||||||||||||||||||
32.2 | ** | |||||||||||||||||||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | * | ||||||||||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||||||||||
* | Filed herewith. | |||||||||||||||||||
** | Furnished herewith. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Income Statement [Abstract] | ||||
Net sales | $ 111,405 | $ 95,239 | $ 320,252 | $ 258,283 |
Cost of sales | 50,487 | 47,224 | 151,397 | 133,148 |
Gross profit | 60,918 | 48,015 | 168,855 | 125,135 |
Operating expenses: | ||||
Selling, general and administrative | 54,615 | 38,147 | 151,576 | 97,961 |
Income from operations | 6,303 | 9,868 | 17,279 | 27,174 |
Interest expense | (778) | (1,912) | (3,700) | (5,786) |
Other income (expense), net | 374 | (3,971) | 266 | (6,518) |
Loss on extinguishment of debt | 0 | 0 | (617) | 0 |
Income before tax | 5,899 | 3,985 | 13,228 | 14,870 |
Income tax expense | (180) | (23) | (389) | (23) |
Net income | 5,719 | 3,962 | 12,839 | 14,847 |
Net income allocable to non-controlling interest | 5,073 | 3,896 | 11,413 | 14,781 |
Net income allocable to Brilliant Earth Group, Inc. | $ 646 | $ 66 | $ 1,426 | $ 66 |
Earnings per share: | ||||
Basic (in dollars per share) | $ 0.06 | $ 0.13 | ||
Diluted (in dollars per share) | $ 0.05 | $ 0.10 | ||
Weighted average shares of common stock outstanding: | ||||
Basic (in shares) | 10,884,306 | 10,571,777 | ||
Diluted (in shares) | 96,574,462 | 96,488,889 |
Business and Organization |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Business and Organization | BUSINESS AND ORGANIZATION Brilliant Earth Group, Inc. was formed as a Delaware corporation on June 2, 2021 for the purpose of facilitating an initial public offering (“IPO”) and executing other related organizational transactions to acquire and carry on the business of Brilliant Earth, LLC. Brilliant Earth, LLC was originally incorporated in Delaware on August 25, 2005, and subsequently converted to a limited liability company on November 29, 2012. Brilliant Earth Group, Inc., the sole managing member of Brilliant Earth, LLC, consolidates Brilliant Earth, LLC and both are collectively referred to herein as “the Company.” The Company designs, procures and sells ethically-sourced diamonds, gemstones and jewelry online and through showrooms operated in 22 locations within the United States (“U.S.”) as of September 30, 2022. Co-headquarters are located in San Francisco, California and Denver, Colorado. The Company operates in one operating and reporting segment which is the retail sale of diamonds, gemstones and jewelry. Over 90% of sales are to customers in the U.S.; sales to non-U.S. customers immediately settle in U.S. dollars and no cash balances are carried in foreign currencies. The Company’s chief operating decision maker (“CODM”), the Chief Executive Officer (“CEO”), reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) since the members of Brilliant Earth, LLC (the “Continuing Equity Owners”) prior to the IPO and merger continue to hold a controlling interest in Brilliant Earth, LLC after the merger (i.e., there was no change in control of Brilliant Earth, LLC) and since Brilliant Earth Group, Inc. was considered a “shell company” which does not meet the definition of a business, the financial statements of the combined entity represent a continuation of the financial position and results of operations of Brilliant Earth, LLC. Accordingly, the historical cost basis of assets, liabilities, and equity of Brilliant Earth, LLC are carried over to the condensed consolidated financial statements of the merged company as a common control transaction. Also, after consummation of the IPO, Brilliant Earth Group, Inc. became subject to U.S. federal, state, and local income taxes with respect to its allocable share of any taxable income of Brilliant Earth, LLC assessed at the prevailing corporate tax rates. Initial Public Offering and purchase of LLC Interests On September 27, 2021, the Company completed its IPO of 9,583,332 shares of Class A common stock at an offering price of $12.00 per share, (excluding the underwriting discount), including 1,249,999 shares of Class A common stock issued pursuant to the underwriters' over-allotment option. The Company received $101.6 million in proceeds after a deduction for underwriting discounts and offering costs totaling $13.4 million. The net proceeds were used to purchase 8,333,333 newly-issued membership units (the “LLC Units” or “LLC Interests”) from Brilliant Earth, LLC and 1,249,999 LLC Units in the form of a redemption from the Continuing Equity Owners at a price per unit equal to the IPO price of $11.22 per share after deducting the underwriting discount, and represented a 10.1% economic interest as of the IPO date. Conversion of Class F, P and M Units at time of IPO At the time of the IPO, the existing limited liability company agreement of Brilliant Earth, LLC was amended and restated to, among other things, recapitalize all existing Class F, P and M Units in Brilliant Earth, LLC into 86,297,284 common LLC Units after applying a conversion ratio of 1.8588 with a further adjustment for a distribution threshold related to the M Units (which impacted their allocation of value so the economic effect of the exchange was a like-for-like value); the net conversion ratio was 1.8942, 1.9080 and 1.7735 for the Class F Units, P Units and M Units, respectively. The number of Class F, P and M Units presented in these financial statements for periods prior to the IPO have been retroactively adjusted to reflect the conversion ratios (as discussed in the preceding sentence) similar to the presentation of a stock-split. Summary of the restructuring, offering and other transactions completed in connection with the IPO In connection with the IPO, Brilliant Earth Group, Inc. and Brilliant Earth, LLC completed a series of transactions that comprise of reorganization, offering and other financing transactions. The following summarizes the Reorganization Transactions which occurred as of the date of IPO: •Amended and restated the existing limited liability company agreement of Brilliant Earth, LLC (the “LLC Agreement”), effective prior to the IPO, to, among other things, (1) recapitalize all existing ownership interests in Brilliant Earth, LLC into 86,297,284 LLC Units after applying a conversion ratio of 1.8588, (2) appoint Brilliant Earth Group, Inc. as the sole managing member of Brilliant Earth, LLC upon its acquisition of LLC Units in connection with the IPO, and (3) provide certain redemption rights to the Continuing Equity Owners. •Amended and restated Brilliant Earth Group, Inc.’s certificate of incorporation to, among other things, provide for four classes of common stock defined as Class A common stock, Class B common stock, Class C common stock and Class D common stock. •Issued 36,064,421 shares of Class B common stock (prior to the redemption of 522,386 shares pursuant to the exercise of underwriters’ overallotment options discussed below) to the Continuing Equity Owners, excluding the founders, Beth Gerstein, Co-Founder and Chief Executive Officer, Eric Grossberg, Co-Founder and Executive Chairman, and Just Rocks, a Delaware corporation which is jointly owned and controlled by the founders (collectively, the “Founders”), which is equal to the number of LLC Units held by such Continuing Equity Owners excluding the Founders, for nominal consideration. •Issued 50,232,863 shares of Class C common stock (prior to the redemption of 727,613 shares pursuant to the exercise of underwriters’ overallotment options discussed below) to the Founders, which is equal to the number of LLC Units held by such Founders, for nominal consideration. •Entered into a Tax Receivable Agreement (the “TRA”) with Brilliant Earth, LLC and the Continuing Equity Owners that will provide for the payment by Brilliant Earth Group, Inc. to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, that Brilliant Earth Group, Inc. actually realizes (or in some circumstances is deemed to realize) related to certain tax basis adjustments and payments made under the TRA. The organization agreements include a provision for the Continuing Equity Owners, subject to certain exceptions from time to time at each of their option, to require Brilliant Earth, LLC to redeem all or a portion of their LLC Units in exchange for, at the Company’s election, newly-issued shares of Class A common stock or Class D common stock, as applicable, on a one-for-one basis, or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest so redeemed, in each case, in accordance with the terms of the Brilliant Earth LLC Agreement. The following summarizes the IPO and other transactions: •Issued 9,583,332 shares of Class A common stock, including 1,249,999 shares of Class A common stock from the exercise of the underwriters' overallotment, in exchange for net proceeds of approximately $101.6 million at $12.00 per share, less underwriting discount and offering expenses. •Used net proceeds from the IPO to purchase 8,333,333 newly issued LLC Units for approximately $93.5 million directly from Brilliant Earth, LLC at a price per unit equal to the initial public offering price per share of Class A common stock less underwriting discount. •Used net proceeds from the exercise of the underwriters’ overallotment to purchase an additional 1,249,999 LLC Units from each of the Continuing Equity Owners in the form of a redemption on a pro rata basis for $14.0 million in aggregate at a price per unit equal to the initial public offering price per share of Class A common stock less the underwriting discount; this purchase of LLC Interests resulted in an obligation under the TRA, including the related set-up of deferred tax assets on the TRA and on the temporary basis difference associated with this purchase. •Corresponding cancellation of a total of 1,249,999 shares of Class B common stock and Class C common stock resulting from the purchase of 1,249,999 LLC Units from the Continuing Equity Owners. •Exercise of warrants on convertible preferred units (“Class P Units”) with a carrying value of $6.4 million as of September 22, 2021 (after the mark-to-market adjustment as of the date of exercise) into 534,589 newly issued LLC Units on a net settlement basis, elected at the option of the holder. Risks and Uncertainties – COVID-19 The COVID-19 pandemic remains on-going and continues to impact the global economy. The Company’s financial performance could be adversely impacted by the on-going evolution of the pandemic, including any government-imposed pandemic restrictions. The Company cannot predict the full extent of the impacts of the COVID-19 pandemic on its business, operations, or the global economy as a whole. However, the effects could have a material impact on the Company's results of operations.
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Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements for the periods prior to the Reorganization Transactions and IPO have been presented to combine the previously separate entities. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements of the Company, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021 contained in the 2021 Form 10-K. Principles of Consolidation and Non-Controlling Interest The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, Brilliant Earth, LLC, which it controls due to ownership of the voting interest or pursuant to variable interest entity (“VIE”) accounting guidance. All intercompany balances and transactions have been eliminated in consolidation. The non-controlling interest on the unaudited condensed consolidated statements of operations represents the portion of earnings or loss attributable to the economic interest in Brilliant Earth, LLC held by the Continuing Equity Owners. The non-controlling interest on the unaudited condensed consolidated balance sheets represent the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of September 30, 2022, the non-controlling interest was 88.5%. At the end of each reporting period, equity related to Brilliant Earth, LLC that is attributable to Brilliant Earth Group, Inc. and Continuing Equity Owners is rebalanced to reflect Brilliant Earth Group, Inc.'s and Continuing Equity Owners' ownership in Brilliant Earth, LLC. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Some of the more significant estimates include the inventory valuation, allowance for sales returns, estimates of current and deferred income taxes, payable pursuant to the tax receivable agreement, useful lives and depreciation of long-lived assets, fair value of equity-based compensation, and prior to the Reorganization Transactions, the warrants and the redemption of value of the redeemable Class P Units. Actual results could differ materially from those estimates. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in its business or new information available. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value: Level 1 Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Level 2 Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from, or corroborated by, observable market data by correlation or other means. Level 3 Valuation techniques with significant unobservable market inputs. The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its financial statements, in accordance with U.S. GAAP. At September 30, 2022, there were no financial instruments (assets or liabilities) measured at fair value on a recurring basis. Through the date of the IPO, the Class P Units and warrants on Class P Units were the only financial instruments (assets or liabilities) measured at fair value on a recurring basis. As discussed in Note 1, Business and Organization, the securities converted into LLC Interests in connection with the IPO and are now classified as equity. The carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities and were classified as Level 1. The carrying value of long-term debt, net of debt issuance costs, also approximates its fair value, which has been estimated by management based on the consideration of applicable interest rates (including certain instruments at variable or floating rates) for similar types of borrowing arrangements. Comprehensive Income Comprehensive income is the change in equity of a business enterprise during a period from transactions and all other events and circumstances from non-owner sources. Other comprehensive income may include unrealized gain (loss) on available for sale securities, foreign currency items, and minimum pension liability adjustments. The Company did not have components of other comprehensive income. As a result, comprehensive income is the same as net income. Cash and Cash Equivalents, and Restricted Cash All highly liquid investments with an original maturity of three months or less and deposits in transit from banks for payments related to third-party credit and debit card transactions are considered to be cash equivalents. Credit and debit card transactions are short-term and highly liquid in nature. The following table provides a reconciliation of cash and cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the statements of cash flows for the periods ended September 30, 2022, December 31, 2021, and September 30, 2021 (in thousands):
Inventories, Net The Company’s diamond, gemstone and jewelry inventories are primarily held for resale and valued at the lower of cost or net realizable value. Cost is primarily determined using the weighted average cost on a first-in, first-out (“FIFO”) basis for all inventories, except for unique inventory SKUs (principally independently graded diamonds), where cost is determined using specific identification. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Revenue Recognition Overview Net sales primarily consist of revenue from diamond, gemstone and jewelry retail sales and payment is required in full prior to order fulfillment. Delivery is determined to be the time of pickup for orders picked up in showrooms, and for shipped orders, typically within one to two business days after shipment. Credit is not extended to customers except through third-party credit cards or financing offerings. A return policy of 30 days from when the item is picked up or ready for shipment is typically provided; one complimentary resizing for standard ring styles is offered within 60 days of when an order is available for shipment or pickup; a lifetime manufacturing warranty is provided on all jewelry, with the exception of estate and vintage jewelry and center diamonds/gemstones; and a lifetime diamond upgrade program is included on all independently graded natural diamonds. The complimentary resizing, lifetime manufacturing warranty claims and lifetime diamond upgrades have not historically been material. An in-house -year extended service plan, which provides full inspection, cleaning and certain repairs due to normal wear, is offered for an additional charge. An extended protection plan is also offered through a third party that has different terms ranging from two years to lifetime that vary based on the item purchased. The following table discloses total net sales by geography for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Revenue Recognition Revenue is recognized under Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires that revenue from customers be recognized as control of the 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. 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. The Company offers an in-house -year extended service plan, which gives rise to an additional performance obligation, when purchased by the customer, which is recognized over the course of the plan. The Company also offers an extended protection plan in the capacity of an agent on behalf of a third-party that has different terms ranging from two years to lifetime that vary based on the item purchased. The commission that the Company receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience. There are no additional performance obligations in relation to the third-party plan. Additionally, sales taxes are collected and remitted to taxing authorities, and the Company has elected to exclude sales taxes from revenues recognized under ASC 606. Contract Balances Transactions where payment has been received from customers, but control has not transferred, are recorded as customer deposits in deferred revenue and revenue recognition is deferred until delivery has occurred. Deferred revenue also includes payments on the Company’s -year extended service plan that customers have elected to purchase. As of September 30, 2022 and December 31, 2021, total deferred revenue was $22.8 million and $19.0 million, respectively, of which $0.1 million and $0.2 million, respectively, were included within other long-term liabilities in the unaudited condensed consolidated balance sheets. During the three months ended September 30, 2022 and 2021, the Company recognized $21.4 million and $18.8 million of revenue, respectively, that was deferred as of June 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized $18.2 million and $10.3 million of revenue, respectively, that was deferred as of December 31, 2021 and 2020, respectively. Sales Returns and Allowances A returns asset account and a refund liabilities account are maintained to record the effects of estimated product returns and sales returns allowance. Returns asset and refund liabilities are updated at the end of each financial reporting period and the effect of such changes are accounted for in the period in which such changes occur. The Company estimates anticipated product returns in the form of a refund liability based on historical return percentages and current period sales levels, and accrues a related returns asset for goods expected to be returned in salable condition less any expected costs to recover such goods, including return shipping costs that the Company may incur. As of September 30, 2022 and December 31, 2021, refund liabilities balances were $1.6 million and $2.3 million, respectively, and are included as a provision for sales returns and allowances within accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021, returns asset balances were $0.7 million and $1.1 million, respectively, and are included within prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. See Note 5, Accrued Expenses and Other Current Liabilities, for further discussion. Fulfillment Costs The Company generally does not bill customers separately for shipping and handling charges. Any fulfillment costs incurred by the Company when shipping to customers is reflected in cost of sales in the unaudited condensed consolidated statements of operations. Consignment Inventory Sales Sales of consignment inventory are presented on a gross sales basis as control of the merchandise is maintained through the point of sale. The Company also provides independent advice, guidance and after-sales service to customers. Consigned products are selected at the discretion of the Company, and the determination of the selling price as well as responsibility of the physical security of the products is maintained by the Company. The products sold from consignment inventory are similar in nature to other products that the Company sells to customers and are sold on the same terms. Cost of Sales The Company purchases diamonds and gemstones from suppliers and utilizes third-party manufacturing suppliers for the production and assembly of substantially all jewelry sold by the Company. Cost of sales includes merchandise costs, inbound freight charges, costs of shipping orders to customers, costs and reserves for disposal of obsolete, slow-moving or defective items and shrinkage. Marketing, Advertising and Promotional Costs Marketing, advertising and promotional costs are expensed as incurred and totaled approximately $25.3 and $18.5 million, for the three months ended September 30, 2022 and 2021, respectively and $68.8 and $49.2 million, for the nine months ended September 30, 2022 and 2021, respectively. Equity-Based Compensation Equity-based compensation is accounted for as an expense in accordance with ASC Topic 718, Compensation - Stock Compensation, 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. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award. The Company accounts for forfeitures when they occur, and any compensation expense previously recognized on unvested equity-based awards will be reversed when forfeited. The fair value of awards of restricted LLC Units is based on the fair value of the member unit underlying the awards as of the date of grant. The fair value of the underlying member units (referred to as Class M Units prior to conversion to common LLC Units in the IPO on a value-for-value basis) for grants prior to the Company’s IPO in September 2021 was determined by considering a number of objective, subjective and highly complex factors including independent third-party valuations of the Company’s member units, operating and financial performance, the lack of liquidity of member units and general and industry specific economic outlook among other factors. The fair value of restricted stock units (“RSUs”) is based on the fair value of the Class A common stock at the time of grant. The fair value of option-based awards is estimated using the Black-Scholes valuation model. The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock. For inputs into the Black-Scholes model, the expected stock price volatility for the common stock is estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the Company’s industry which are of similar size, complexity and stage of development. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The Company has elected to use the “simplified method” to determine the expected term, which is the midpoint between the vesting date and the end of the contractual term, because it has insufficient history upon which to base an assumption about the term; the Company believes the simplified method approximates a term if it were to be based on expected life. The expected dividend yield is nil as the Company has not paid and does not anticipate paying dividends on its common stock. Income Taxes Interim Periods In calculating the provision for interim income taxes, in accordance with ASC 740, Income Taxes an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period. Annual Reporting For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Uncertainty in income taxes is accounted for using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the unaudited condensed consolidated statements of operations. As of September 30, 2022, no uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period. Recent Accounting Pronouncements Recently adopted accounting pronouncements In February 2016, the FASB issued ASU 2016-02 – Leases, and also issued subsequent amendments to the initial guidance, ASC 2018-10, ASC 2018-11, ASU 2019-10, ASU 2020-02 and ASU 2020-05 (collectively, “ASC 842”). ASC 842 introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs; use of the standard’s effective date as the date of initial application; and no separation of non-lease components from the related lease components and, instead, to account for those components as a single lease component if certain criteria are met. The Company adopted this guidance by applying the modified retrospective approach effective January 1, 2022, and no cumulative effect adjustment was required to be recorded. See Note 6, Leases, for further discussion. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 on a prospective basis and did not have a material impact on the Company's unaudited condensed consolidated financial statements. Accounting pronouncements recently issued but not yet adopted Other recent accounting pronouncements not yet adopted are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | EARNINGS PER SHAREBasic earnings per share is computed by dividing net income applicable to Brilliant Earth Group, Inc. by the weighted average shares of Class A common stock outstanding (and Class D common stock if outstanding) during the period. Diluted earnings per share is computed by adjusting the net income available to Brilliant Earth Group, Inc. and the weighted average shares outstanding to give effect to potentially dilutive securities. Shares of Class B and Class C common stock are not entitled to receive any distributions or dividends and are therefore excluded from this presentation since they are not participating securities. All earnings prior to September 23, 2021, the date of the IPO, were entirely allocable to the non-controlling interest and, as a result, earnings per share information is not applicable for reporting periods prior to this date. Consequently, earnings per share for net income for periods prior to September 22, 2021 are not presented. Basic and diluted earnings per share of common stock for the three and nine months ended September 30, 2022 and the period from September 23, 2021 to September 30, 2021 have been computed as follows (in thousands, except share and per share amounts):
Net income attributable to the non-controlling interest added back to net income in the fully dilutive computation has been adjusted for income taxes which would have been expensed had the income been recognized by Brilliant Earth Group, Inc., a taxable entity. The weighted average common shares outstanding in the diluted computation per share assumes all outstanding LLC Units are converted and the Company will elect to issue shares of common stock upon redemption rather than cash-settle. For the three and nine months ended September 30, 2022 and the period from September 23, 2021 to September 30, 2021, the dilutive impact of LLC Units convertible into common stock were included in the computation of diluted earnings per share under the if-converted method; the dilutive impact of unvested LLC Units and RSUs were included using the treasury stock method. For the three and nine months ended September 30, 2022, the impact of 955,961 and 1,182,592, respectively, of shares underlying stock options, and 2,250,505 and 2,039,301, respectively, of RSUs have been excluded from the computation of earnings per share because such impact is anti-dilutive. For the period from September 23, 2021 to September 30, 2021, the impact of 1,618,064 shares underlying stock options has been excluded from the computation of earnings per share because such impact is anti-dilutive.
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Inventories, Net |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories, Net | INVENTORIES, NET Inventories, net consist of the following (in thousands):
The allowance for inventory obsolescence consists of the following (in thousands):
As of September 30, 2022 and December 31, 2021, the Company had $25.8 million and $16.9 million, respectively, in consigned inventory held on behalf of suppliers which is not recorded in the unaudited condensed consolidated balance sheets.
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Accrued Expenses and Other Current Liabilities |
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Accrued Expenses and Other Current Liabilities | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands):
Included in accrued expenses and other current liabilities is a provision for sales returns and allowances. Returns are estimated based on past experience and current expectations and are recorded as an adjustment to revenue. Activity for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
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Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | LEASES The Company leases its executive offices, retail showrooms, office and operational locations under operating leases. The fixed, non-cancelable terms of our real estate leases are generally 5-10 years and typically include renewal options. Most of the real estate leases require payment of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842 which, among other items, allowed the Company to carry forward historical lease classifications. As such, the Company applied the modified retrospective approach as of the adoption date to those lease contracts for which it had taken possession of the property as of December 31, 2021. In addition to the aforementioned practical expedient, the Company has elected to: •Adopt the short-term lease exception for leases with terms of twelve months or less and account for them as if they were operating leases under ASC 840; and •Apply the practical expedient of combining lease and non-lease components. The Company determines if an arrangement is a lease at inception. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent the Company’s obligation to make lease payments for the lease term. All leases greater than 12 months’ result in the recognition of a ROU asset and liability at the lease commencement date based on the present value of the lease payments over the lease term. The present value of the lease payments is calculated using the applicable weighted-average discount rate. The weighted-average discount rate is based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company estimates an applicable incremental borrowing rate. The incremental borrowing rate is estimated using the currency denomination of the lease, the contractual lease term and the Company’s applicable borrowing rate. The incremental borrowing rate represents the rate that would approximate the rate to borrow funds on a collateralized (or secured) basis over a similar term and in a similar economic environment. The Company does not separate lease and non-lease components and instead elects to account for them as a single lease component. Variable lease payments, such as common area maintenance charges, are excluded from lease liabilities and expensed as incurred. Generally, the real estate leases have initial terms ranging from 5 to 10 years and typically include a 5-year renewal option. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement date that the Company would exercise the options to extend the lease. The exercise of the lease renewal options is at the Company’s discretion and are included in the determination of the ROU asset and lease liability when the option is reasonably certain of being exercised. As of September 30, 2022, no renewal option periods were included in the estimated minimum lease terms as the options were not deemed to be reasonably certain to be exercised. The Company expends cash for leasehold improvements to build out and equip for its leased premises. Generally, a portion of the leasehold improvements costs are reimbursed by the landlords as tenant improvement allowances pursuant to agreed-upon terms in the lease agreements. Tenant improvement allowances are recorded as part of the lease liability on the unaudited condensed consolidated balance sheet and are amortized on a straight-line basis over the lease term. Operating leases with fixed minimum rent payments are recognized on a straight-line basis over the lease term starting on the date the Company takes possession of the leased property. Total operating lease ROU assets and lease liabilities were as follows (in thousands):
Total operating lease costs were as follows (in thousands):
The maturity analysis of the operating lease liabilities under long-term non-cancelable operating leases, where the Company has taken physical possession of or has control of the physical use of these leased properties, as of September 30, 2022 was as follows (in thousands):
The following table summarizes the weighted-average remaining lease term and weighted-average discount rate on long-term leases as of September 30, 2022 (in thousands):
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Long-Term Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt | LONG-TERM DEBT The following table summarizes the net carrying amount of long-term debt as of September 30, 2022 and December 31, 2021, net of debt issuance costs (in thousands):
Term Loan Agreement - Runway Growth Credit Finance Corp. On September 30, 2019, we entered into a Loan and Security Agreement with Runway Growth Finance Corp. (f/k/a Runway Growth Credit Fund Inc.) (“Runway”) which, as subsequently amended, provided for up to $65.0 million of borrowings (as subsequently amended, the “Runway Term Loan”). The Runway Term Loan bore interest at a variable rate equal to LIBOR (at a floor of 0.50%) plus 7.75%. The Runway Term Loan was secured by substantially all of the assets of the Company and required us to comply with various affirmative and negative debt covenants. In connection with the origination of the Runway Term Loan Agreement, a warrant for 333,333 Class P Units was issued. The warrants were converted upon exercise into 534,589 newly issued LLC Units on a net settlement basis, elected at the option of the holder. The Company was required to make interest-only payments on the Runway Term Loan through April 15, 2022, at which time the Runway Term Loan began amortizing, with equal monthly payments of principal, which would fully amortize the principal amount of the Term Loan by October 15, 2023, plus interest being paid by the Company to Runway in consecutive monthly installments until October 15, 2023. The Term Loan carried a prepayment fee of 3.00% declining to 0.00% based on the anniversary date of payment, and a final payment fee equal to 4.50% of the principal amount repaid upon prepayment, plus $0.2 million. On May 24, 2022, substantially concurrently with entry into the SVB Credit Agreement (as defined below), the Company repaid all outstanding amounts under the Runway Term Loan, totaling $58.2 million with proceeds from the SVB Credit Agreement. In connection with the repayment and termination of the Runway Term Loan, the Company was required to pay a 1% prepayment fee, plus a final payment fee. The Runway Term Loan was scheduled to mature on October 15, 2023. Credit Agreement - Silicon Valley Bank 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 Term Loan Facility, the “SVB Credit Facilities”). The SVB Credit Facilities were used to refinance existing indebtedness, pay related fees and expenses, and will be used from and after the Closing Date for working capital and general corporate purposes. The Credit Facilities mature on May 24, 2027 (the “SVB Maturity Date”). As of September 30, 2022, there are no amounts outstanding under the SVB Revolving Credit Facility and there were $64.2 million of total debt outstanding under the SVB Term Loan Agreement, of which $60.9 million is classified at long-term debt. 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. 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. 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. The Consolidated Total Leverage Ratio is defined as the ratio, as of the last day of any four fiscal quarter period, of (a) Consolidated Total Indebtedness of the Company and its subsidiaries to (b) the Consolidated EBITDA for such period (each term as further defined in the Credit Agreement). 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 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 financial covenants are tested at the end of each fiscal quarter, beginning with the quarter ending June 30, 2022, and requires that (a) the Company and its subsidiaries not have a Consolidated Fixed Charge Coverage Ratio (defined as the ratio of (i) Consolidated EBITDA, less cash taxes (including tax distributions), less certain capital expenditures, less cash dividends and other cash restricted payments, to (ii) the sum of cash interest expense and scheduled principal payments on outstanding debt (in each case, as further defined in the SVB Credit Agreement)) of less than 1.25:1.00, (b) the Company and its subsidiaries not have a Consolidated Total Leverage Ratio of more than 4.00 to 1.00, and (c) Brilliant Earth, LLC and its subsidiaries not have a Consolidated Borrower Leverage Ratio (defined substantially similar as Consolidated Total Leverage Ratio, but limited to Brilliant Earth, LLC and its subsidiaries) in excess of 3.00 to 1.00 (which level is subject to temporary increases to 4.00 to 1.00 in connection with certain acquisitions). As of September 30, 2022, the Company was in compliance with such covenants. The effective interest rate on the long-term debt was 4.74% and 11.67% for the three months ended September 30, 2022 and 2021, respectively. Interest expense was $0.7 million, and $1.5 million for the three months ended September 30, 2022 and 2021, respectively; and the amortization of deferred issuance costs were $0.1 million for the three months ended September 30, 2022 and $0.4 million for the three months ended September 30, 2021. The effective interest rate on the long-term debt was 7.58% and 11.90% for the nine months ended September 30, 2022 and 2021, respectively. Interest expense was $3.2 million, and $4.5 million for the nine months ended September 30, 2022 and 2021, respectively; and the amortization of deferred issuance costs was $0.5 million, and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the aggregate future principal payments under the SVB Term Loan Facility were as follows (in thousands):
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Stockholders' and Members' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' and Members' Equity | STOCKHOLDERS' AND MEMBERS' EQUITY Summary Capitalization The following summarizes the capitalization and voting rights of the Company’s classes of equity as of September 30, 2022 and December 31, 2021:
The Board of Directors is authorized to direct the Company to issue shares of preferred stock in one or more series and the discretion to determine the number and designation of such series and the powers, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Through September 30, 2022, no series of preferred stock have been issued. Shares of Class B and Class C common stock are not entitled to receive any distributions or dividends other than in connection with a liquidation and have no rights to convert into Class A common stock or Class D common stock, separate from an exchange or redemption of the LLC Interests corresponding to such shares of Class B common stock or Class C common stock, as applicable, as discussed below under Brilliant Earth, LLC. When a common unit is redeemed for cash or Class A or D common stock by a Continuing Equity Owner who holds shares of Class B common stock or Class C common stock, such Continuing Equity Owner will be required to surrender a share of Class B common stock or Class C common stock, as applicable, which will be cancelled for no consideration. The Company must, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock issued to Brilliant Earth Group, Inc. and the number of LLC Interests owned by Brilliant Earth Group, Inc., and (ii) maintain a one-to-one ratio between the number of shares of Class B and Class C common stock owned by the Continuing Equity Owners and the number of LLC Interests owned by them. The different classes of common stock as of September 30, 2022, were held as follows: •10,940,372 shares of Class A common stock were issued in the IPO, through subsequent conversion of LLC Units and vesting of RSUs; •35,395,738 shares of Class B common stock are held by the Continuing Equity Owners excluding the Founders; and •49,119,976 shares of Class C common stock are held by the Founders. Class C and D common stock may only be held by the Founders and their respective permitted transferees. No shares of Class D common stock are outstanding, but may be issued in connection with an exchange by the Founders of their LLC Interests (along with an equal number of shares of Class C common stock and such shares shall be immediately cancelled). Brilliant Earth, LLC As of September 30, 2022, Brilliant Earth Group, Inc. holds a 11.5% economic interest in Brilliant Earth, LLC through its ownership of 10,940,372 LLC Units, but consolidates Brilliant Earth, LLC as sole managing member. The remaining 84,515,714 LLC Units representing an 88.5% interest are held by the Continuing Equity Owners and presented in the condensed consolidated financial statements as a non-controlling interest. The organization agreements include a provision for the Continuing Equity Owners, subject to certain exceptions from time to time at each of their option, to require Brilliant Earth, LLC to redeem all or a portion of their LLC Units in exchange for, at the Company’s election, newly-issued shares of Class A common stock or Class D common stock, as applicable, on a one-for-one basis or, at the Company's election, a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest so redeemed, in each case, in accordance with the terms of the Brilliant Earth LLC Agreement. The redemption feature is not bifurcated from the underlying LLC Unit. Issuance of Additional LLC Units Under the LLC Agreement, the Company is required to cause Brilliant Earth, LLC to issue additional LLC Interests to the Company when the Company issues additional shares of Class A common stock. Other than as it relates to the issuance of Class A common stock in connection with an equity incentive program, the Company must contribute to Brilliant Earth, LLC net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A common stock. The Company must cause Brilliant Earth, LLC to issue a number of LLC Interests equal to the number of shares of Class A common stock issued such that, at all times, the number of LLC Interests held by the Company equals the number of outstanding shares of Class A common stock. For the three and nine months ended September 30, 2022, the Company caused Brilliant Earth, LLC to issue to the Company a vested total of 19,270 and 76,227 LLC Units for RSUs, respectively. The Company also caused Brilliant Earth Group, Inc. to issue 123,853 and 602,073 shares of Class B common stock to the Continuing Equity Owners associated with LLC units which vested during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, there were 85,708 and 864,348 shares of Class B common stock, respectively, and nil and 385,274 shares of Class C common stock, respectively, converted to Class A common stock related to the Continuing Equity Owners. There were no stock options exercised during the three and nine months ended September 30, 2022. Distributions to Members Related to Their Income Tax Liabilities As a limited liability company treated as a partnership for income tax purposes, Brilliant Earth, LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. Under the LLC Agreement, Brilliant Earth, LLC is required to distribute cash, to the extent that Brilliant Earth, LLC has cash available, on a pro rata basis to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Brilliant Earth, LLC taxable earnings. Brilliant Earth, LLC makes such tax distributions to its members quarterly, based on an estimated tax rate and projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined. Such distributions totaled approximately $3.3 million and $2.8 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $18.3 million and $21.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
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Stockholders' and Members' Equity | STOCKHOLDERS' AND MEMBERS' EQUITY Summary Capitalization The following summarizes the capitalization and voting rights of the Company’s classes of equity as of September 30, 2022 and December 31, 2021:
The Board of Directors is authorized to direct the Company to issue shares of preferred stock in one or more series and the discretion to determine the number and designation of such series and the powers, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Through September 30, 2022, no series of preferred stock have been issued. Shares of Class B and Class C common stock are not entitled to receive any distributions or dividends other than in connection with a liquidation and have no rights to convert into Class A common stock or Class D common stock, separate from an exchange or redemption of the LLC Interests corresponding to such shares of Class B common stock or Class C common stock, as applicable, as discussed below under Brilliant Earth, LLC. When a common unit is redeemed for cash or Class A or D common stock by a Continuing Equity Owner who holds shares of Class B common stock or Class C common stock, such Continuing Equity Owner will be required to surrender a share of Class B common stock or Class C common stock, as applicable, which will be cancelled for no consideration. The Company must, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock issued to Brilliant Earth Group, Inc. and the number of LLC Interests owned by Brilliant Earth Group, Inc., and (ii) maintain a one-to-one ratio between the number of shares of Class B and Class C common stock owned by the Continuing Equity Owners and the number of LLC Interests owned by them. The different classes of common stock as of September 30, 2022, were held as follows: •10,940,372 shares of Class A common stock were issued in the IPO, through subsequent conversion of LLC Units and vesting of RSUs; •35,395,738 shares of Class B common stock are held by the Continuing Equity Owners excluding the Founders; and •49,119,976 shares of Class C common stock are held by the Founders. Class C and D common stock may only be held by the Founders and their respective permitted transferees. No shares of Class D common stock are outstanding, but may be issued in connection with an exchange by the Founders of their LLC Interests (along with an equal number of shares of Class C common stock and such shares shall be immediately cancelled). Brilliant Earth, LLC As of September 30, 2022, Brilliant Earth Group, Inc. holds a 11.5% economic interest in Brilliant Earth, LLC through its ownership of 10,940,372 LLC Units, but consolidates Brilliant Earth, LLC as sole managing member. The remaining 84,515,714 LLC Units representing an 88.5% interest are held by the Continuing Equity Owners and presented in the condensed consolidated financial statements as a non-controlling interest. The organization agreements include a provision for the Continuing Equity Owners, subject to certain exceptions from time to time at each of their option, to require Brilliant Earth, LLC to redeem all or a portion of their LLC Units in exchange for, at the Company’s election, newly-issued shares of Class A common stock or Class D common stock, as applicable, on a one-for-one basis or, at the Company's election, a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest so redeemed, in each case, in accordance with the terms of the Brilliant Earth LLC Agreement. The redemption feature is not bifurcated from the underlying LLC Unit. Issuance of Additional LLC Units Under the LLC Agreement, the Company is required to cause Brilliant Earth, LLC to issue additional LLC Interests to the Company when the Company issues additional shares of Class A common stock. Other than as it relates to the issuance of Class A common stock in connection with an equity incentive program, the Company must contribute to Brilliant Earth, LLC net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A common stock. The Company must cause Brilliant Earth, LLC to issue a number of LLC Interests equal to the number of shares of Class A common stock issued such that, at all times, the number of LLC Interests held by the Company equals the number of outstanding shares of Class A common stock. For the three and nine months ended September 30, 2022, the Company caused Brilliant Earth, LLC to issue to the Company a vested total of 19,270 and 76,227 LLC Units for RSUs, respectively. The Company also caused Brilliant Earth Group, Inc. to issue 123,853 and 602,073 shares of Class B common stock to the Continuing Equity Owners associated with LLC units which vested during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, there were 85,708 and 864,348 shares of Class B common stock, respectively, and nil and 385,274 shares of Class C common stock, respectively, converted to Class A common stock related to the Continuing Equity Owners. There were no stock options exercised during the three and nine months ended September 30, 2022. Distributions to Members Related to Their Income Tax Liabilities As a limited liability company treated as a partnership for income tax purposes, Brilliant Earth, LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. Under the LLC Agreement, Brilliant Earth, LLC is required to distribute cash, to the extent that Brilliant Earth, LLC has cash available, on a pro rata basis to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Brilliant Earth, LLC taxable earnings. Brilliant Earth, LLC makes such tax distributions to its members quarterly, based on an estimated tax rate and projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined. Such distributions totaled approximately $3.3 million and $2.8 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $18.3 million and $21.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
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Equity-Based Compensation |
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Equity-Based Compensation | EQUITY-BASED COMPENSATION Overview At the time of the IPO on September 23, 2021, the 2021 Incentive Award Plan and the 2021 Employee Stock Purchase Plan (the “2021 Plans”) were adopted to attract, retain, and motivate selected employees, consultants, and directors through the granting of equity-based compensation awards and cash-based performance bonus awards. The compensation committee or its approved designees, as defined, administer the 2021 Plans. Subject to the terms and conditions of the 2021 Plans, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2021 Plans. Under the 2021 Incentive Award Plan, 10,923,912 shares of common stock were reserved for issuance pursuant to a variety of equity-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, and other equity-based awards. In addition, 1,638,586 shares of Class A common stock were reserved for issuance under our Employee Stock Purchase Plan. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2021 Incentive Award Plan will be increased by an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (A) 5% of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the board of directors; provided, however, that no more than 81,929,342 shares of stock may be issued upon the exercise of incentive stock options. As of September 30, 2022, 6,969,403 shares of common stock are available for future grant under the 2021 Incentive Award Plan. All of the shares of Class A common stock reserved for issuance remain available. Vesting is subject to certain change in control provisions as provided in the award agreements. Under the 2021 Employee Stock Purchase Plan, 1,638,586 shares of common stock were reserved for sale pursuant to said plan. The number of shares initially reserved for issuance under the 2021 Employee Stock Purchase Plan will be increased by an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (A) 1% of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the board of directors; provided, however, that no more than 15,839,672 shares of stock may be issued under the 2021 Employee Stock Purchase Plan. Prior to the IPO, Class M Units were granted to certain employees at the Company’s discretion in consideration of services provided by employees. The agreements generally provide for 25% vesting on the first anniversary from the date of grant (or a shorter period at the Company's board of directors' discretion), with the remainder vesting monthly over the subsequent three years. Compensation cost related to these Class M Units was measured as of the grant date based on the fair value of the award and is being expensed ratably over the service period. Class M Units were issued and outstanding as of the date of grant. As discussed in Note 1, Business and organization, under Conversion of Class F, P and M units at time of IPO, at the time of the IPO, the LLC Agreement was amended and restated to recapitalize all 2,006,212 unvested Class M Units into 2,046,008 unvested LLC Units after applying a conversion ratio of 1.8588 with a further adjustment for a distribution threshold (which impacted their allocation of value) so the economic effect of the exchange was a like-for-like value. The unamortized compensation and remaining vesting period for these awards prior to the IPO has been carried forward after the IPO without adjustment. The number of unvested Class M Units presented in these financial statements for periods prior to the IPO have been retroactively adjusted to reflect the conversion ratio similar to the presentation of a stock-split. Grants of Restricted Stock Units RSUs have a time-based vesting requirement (based on continuous employment). Upon vesting, the RSUs convert into Class A common stock; unvested RSUs are not considered outstanding shares of Class A common stock. The agreements generally provide for 25% vesting at the first anniversary of the date of the grant (or a shorter period at the Company's board of director's discretion), with the remainder vesting quarterly over the following three years. The following table summarizes the activity related to the Company’s RSUs for the nine months ended September 30, 2022:
The fair value of the RSUs was based on the fair value of a Class A share of common stock at the time of grant. Total compensation expense for RSUs was approximately $2.0 million and $5.2 million, respectively, for the three and nine months ended September 30, 2022, and is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. No tax benefit was associated with the equity-based compensation expense for RSUs. The unamortized compensation cost related to RSUs of $27.5 million as of September 30, 2022, is expected to be recognized over a weighted-average period of approximately 3.3 years. Grants of Stock Options On September 22, 2021, options to purchase 1,618,064 shares of Class A common stock with a strike price of $12.00 (per share underlying the option) were granted to certain executives, employees and members of the Board with the number of shares underlying the options determined based on the number of Class M Units reduced in the conversion of LLC Units. No additional options were granted subsequent to September 22, 2021. The awards have a time-based vesting requirement (based on continuous employment). Upon vesting, the stock options are exercisable into Class A common stock. Vesting is generally over four years from the date of grant of the related Class M Units and options may be exercised up to 10 years from the date of issuance. The following table summarizes the activity related to the outstanding and exercisable stock options for the nine months ended September 30, 2022:
As of September 30, 2022, the vested stock options did not have an aggregated intrinsic value as the exercise price exceeded the estimated fair market value of the stock options. The stock option awards have weighted average remaining contractual terms of 9.0 years. As discussed above, no additional stock options were granted subsequent to September 22, 2021, the discussion on such valuation model was fully described in Note 10 - "Equity-Based Compensation", to the consolidated financial statements included in "Item 8 - Financial Statements and Supplementary Data" in the 2021 Form 10-K. Total compensation expense for stock options was approximately $0.2 million and $1.2 million, respectively, for the three and nine months ended September 30, 2022, and is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. As of September 30, 2022, total compensation cost related to unvested option awards not yet recognized was $2.2 million and the weighted-average period over which the compensation is expected to be recognized is 2.4 years. Outstanding Restricted LLC Units (formerly M Units) As discussed above, restricted LLC Units were granted to certain executives, employees and members of the Board prior to the IPO and have been retroactively adjusted as described in Note 1, Business and Organization, Conversion of Class F, P and M Units at Time of IPO. The awards have a time-based vesting requirement (based on continuous employment). Upon grant, the awards are issued and outstanding common LLC Units but subject to forfeiture in the event of a termination of service; unvested awards are outstanding LLC units. Vesting is generally over four years from the date of grant. The following table summarizes the activity related to the unvested LLC Units for the nine months ended September 30, 2022:
The fair value of restricted LLC Units was based on the fair value of an unrestricted LLC Unit at the date of grant. Total compensation expense for unvested LLC Units recorded in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations were approximately $0.1 million and $0.2 million for the three and nine months ended September 30, 2022, respectively and approximately $0.1 million and $0.3 million, for the three and nine months ended September 30, 2021, respectively. The unamortized LLC Unit compensation cost of $0.6 million as of September 30, 2022 is expected to be recognized over a weighted-average period of approximately 2.3 years.
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Income Taxes and Tax Receivable Agreement |
9 Months Ended |
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Sep. 30, 2022 | |
Income Tax Disclosure [Abstract] | |
Income Taxes and Tax Receivable Agreement | INCOME TAXES AND TAX RECEIVABLE AGREEMENT Overview of Income Taxes Brilliant Earth Group, Inc. is taxed as a subchapter C corporation and is subject to federal and state income taxes. Brilliant Earth Group, Inc.'s sole material asset is its ownership interest in Brilliant Earth, LLC, which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Brilliant Earth, LLC’s net taxable income or loss and related tax credits are passed through to its members on a pro-rata basis and included in the member’s tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its unaudited condensed consolidated financial statements under U.S. GAAP. The Company files U.S. federal and certain state income tax returns. The income tax returns of the Company are subject to examination by U.S. federal and state taxing authorities for various time periods, depending on those jurisdictions’ rules, generally after the income tax returns are filed. Tax Provision and Deferred Tax Asset In calculating the provision for interim income taxes in accordance with ASC Topic 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, Brilliant Earth Group, Inc. estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period. The Company's effective tax rate of 2.9% for the nine months ended September 30, 2022, differs from the U.S. federal statutory tax rate of 21% primarily due to income associated with the non-controlling interest and state tax expense. The Company recorded net increases in deferred tax assets of $0.3 million and $4.2 million during the three and nine months ended September 30, 2022, respectively, with a corresponding increase to additional paid in capital, resulting from changes in the outside basis difference on Brilliant Earth's investment in LLC. The Company has determined it is more-likely-than-not that it will be able to realize this deferred tax asset in the future. The Company’s income tax provision was $0.2 million and $0.4 million for the three and nine months ended September 30, 2022, respectively. The Company's income tax provision was not material for the period from September 23, 2021 to September 30, 2021. As the IPO occurred during the quarter ended September 30, 2021, and the Company had no business transactions or activities prior to the IPO, no amounts related to the provision for income taxes were incurred for the period from January 1, 2021 to September 22, 2021. On September 23, 2021, the Company recorded a deferred tax asset related to the outside basis difference between U.S. GAAP and reporting for income tax purposes of the Company’s investment in Brilliant Earth, LLC of $4.4 million. The basis difference resulted from the step-up in basis allowed under Section 743(b) and 197 of the Internal Revenue Code related to the purchase of 1,249,999 LLC Units from the Continuing Equity Owners discussed in Note 1, Business and organization, which is expected to be amortized over the useful lives of the underlying assets. In assessing the realizability of deferred tax assets, management determined that it was more likely than not that the deferred tax assets will be realized. No deferred taxes were provided on the inside basis difference resulting from the direct purchase of 8,333,333 newly-issued membership units from Brilliant Earth, LLC since such difference is subject to the indefinite reversal criteria of ASC 740, Income taxes. Tax receivable agreement As each of the Continuing Equity Owners elect to convert their LLC Interests into Class A common stock or Class D common stock, as applicable, Brilliant Earth Group, Inc. will succeed to their aggregate historical tax basis which will create a net tax benefit to the Company. These tax benefits are expected to be amortized over 15 years pursuant to Sections 743(b) and 197 of the Code. The Company will only recognize a deferred tax asset for financial reporting purposes when it is “more-likely-than-not” that the tax benefit will be realized. In addition, as part of IPO, the Company entered into a TRA with the Continuing Equity Owners to pay 85% of the tax savings from the tax basis adjustment to them as such savings are realized. Amounts payable under the TRA are contingent upon, among other things, generation of sufficient future taxable income during the term of the TRA. The Company has recorded a liability under the tax receivable agreement of $7.4 million ($6.7 million recorded in the Payable pursuant to the Tax Receivable Agreement and $0.6 million recorded in Accrued expenses and other current liabilities) as of September 30, 2022. The tax receivable agreement provides for the payment of 85% of the amount of the tax benefits, if any, that Brilliant Earth is deemed to realize as a result of increases in the tax basis of its ownership in Brilliant Earth, LLC related to exchanges of non-controlling interest for Class A common stock. Of which, $0.6 million is expected to be paid within the next 12 months and was included within accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheets.
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Legal Proceedings In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes or claims. In addition, the Company is regularly audited by various tax authorities. Although the Company cannot predict with assurance the outcome of any litigation or audit, it does not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on the Company’s financial condition, results of operations or cash flows. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, to the extent possible, the Company discloses the range of such reasonably possible losses. On August 26, 2021, Plaintiff Anna Lerman filed a complaint against the Company in California Superior Court for Ventura County. The complaint alleges, 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 seeks statutory damages, injunctive relief, attorneys’ fees and costs, and other unspecified damages. The Company has obtained an extension of time to file a response, the time to file such response has not yet passed, and as of the date of this Quarterly Report on Form 10-Q, the Company has not responded to the complaint. The Company believes these claims have no merit, and intends to vigorously defend against this lawsuit, though there can be no assurance regarding its ultimate outcome. At this time, any liability related to the alleged claims is not currently probable or reasonably estimable. Non-Income Related Taxes The Company collects and remits sales and use taxes in a variety of jurisdictions across the U.S. The amounts payable to relevant sales and use tax authorities are accrued in the period incurred and presented on the balance sheet as a component of accrued expenses and other current liabilities. Purchase Obligations From time to time in the normal course of business, the Company will enter into agreements with suppliers or service providers. As of September 30, 2022, unconditional future minimum payments under agreements to purchase services primarily related to software maintenance and marketing and advertising spending. As of September 30, 2022, these commitments with a remaining term in excess of 12 months totaled $5.6 million. Capital Commitments The Company may enter into commitments to expand various locations, which generally include design, store construction and improvements. As of September 30, 2022, these commitments totaled $3.8 million related to the opening of new locations. Letter of Credit As of September 30, 2022, the Company has an unused letter of credit in the amount of $0.2 million, which was issued in lieu of a security deposit at one of its showroom locations. The certificate of deposit used to secure this letter of credit is recorded as restricted cash on the Company’s unaudited condensed consolidated balance sheets. 401(k) Plan The Company maintains a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code, which provides for voluntary contributions from the Company and its employees. Contributions from the Company were $0.3 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively; and $0.7 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2022 | |
Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTSThe Company entered into 9 new lease agreements in additional locations in the U.S. for showrooms, where the Company had not yet taken physical possession of nor had control of the physical use of these leased properties, with future minimum aggregate rent payments totaling approximately $17.5 million. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The unaudited condensed consolidated financial statements for the periods prior to the Reorganization Transactions and IPO have been presented to combine the previously separate entities. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements of the Company, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021 contained in the 2021 Form 10-K. |
Principles of Consolidation and non-controlling interest | The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, Brilliant Earth, LLC, which it controls due to ownership of the voting interest or pursuant to variable interest entity (“VIE”) accounting guidance. All intercompany balances and transactions have been eliminated in consolidation.The non-controlling interest on the unaudited condensed consolidated statements of operations represents the portion of earnings or loss attributable to the economic interest in Brilliant Earth, LLC held by the Continuing Equity Owners. The non-controlling interest on the unaudited condensed consolidated balance sheets represent the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. |
Use of Estimates | The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Some of the more significant estimates include the inventory valuation, allowance for sales returns, estimates of current and deferred income taxes, payable pursuant to the tax receivable agreement, useful lives and depreciation of long-lived assets, fair value of equity-based compensation, and prior to the Reorganization Transactions, the warrants and the redemption of value of the redeemable Class P Units. Actual results could differ materially from those estimates. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in its business or new information available. |
Fair Value Measurements | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value: Level 1 Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Level 2 Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from, or corroborated by, observable market data by correlation or other means. Level 3 Valuation techniques with significant unobservable market inputs. The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its financial statements, in accordance with U.S. GAAP. At September 30, 2022, there were no financial instruments (assets or liabilities) measured at fair value on a recurring basis. Through the date of the IPO, the Class P Units and warrants on Class P Units were the only financial instruments (assets or liabilities) measured at fair value on a recurring basis. As discussed in Note 1, Business and Organization, the securities converted into LLC Interests in connection with the IPO and are now classified as equity. The carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities and were classified as Level 1. The carrying value of long-term debt, net of debt issuance costs, also approximates its fair value, which has been estimated by management based on the consideration of applicable interest rates (including certain instruments at variable or floating rates) for similar types of borrowing arrangements.
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Comprehensive Income | Comprehensive income is the change in equity of a business enterprise during a period from transactions and all other events and circumstances from non-owner sources. Other comprehensive income may include unrealized gain (loss) on available for sale securities, foreign currency items, and minimum pension liability adjustments. The Company did not have components of other comprehensive income. As a result, comprehensive income is the same as net income. |
Cash and Cash Equivalents, and Restricted Cash | All highly liquid investments with an original maturity of three months or less and deposits in transit from banks for payments related to third-party credit and debit card transactions are considered to be cash equivalents. Credit and debit card transactions are short-term and highly liquid in nature. |
Inventories, Net | The Company’s diamond, gemstone and jewelry inventories are primarily held for resale and valued at the lower of cost or net realizable value. Cost is primarily determined using the weighted average cost on a first-in, first-out (“FIFO”) basis for all inventories, except for unique inventory SKUs (principally independently graded diamonds), where cost is determined using specific identification. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. |
Revenue Recognition | Net sales primarily consist of revenue from diamond, gemstone and jewelry retail sales and payment is required in full prior to order fulfillment. Delivery is determined to be the time of pickup for orders picked up in showrooms, and for shipped orders, typically within one to two business days after shipment. Credit is not extended to customers except through third-party credit cards or financing offerings. A return policy of 30 days from when the item is picked up or ready for shipment is typically provided; one complimentary resizing for standard ring styles is offered within 60 days of when an order is available for shipment or pickup; a lifetime manufacturing warranty is provided on all jewelry, with the exception of estate and vintage jewelry and center diamonds/gemstones; and a lifetime diamond upgrade program is included on all independently graded natural diamonds. The complimentary resizing, lifetime manufacturing warranty claims and lifetime diamond upgrades have not historically been material. An in-house Revenue is recognized under Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires that revenue from customers be recognized as control of the 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. 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. The Company offers an in-house -year extended service plan, which gives rise to an additional performance obligation, when purchased by the customer, which is recognized over the course of the plan. The Company also offers an extended protection plan in the capacity of an agent on behalf of a third-party that has different terms ranging from two years to lifetime that vary based on the item purchased. The commission that the Company receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience. There are no additional performance obligations in relation to the third-party plan. Additionally, sales taxes are collected and remitted to taxing authorities, and the Company has elected to exclude sales taxes from revenues recognized under ASC 606. Contract Balances Transactions where payment has been received from customers, but control has not transferred, are recorded as customer deposits in deferred revenue and revenue recognition is deferred until delivery has occurred. Deferred revenue also includes payments on the Company’s -year extended service plan that customers have elected to purchase. As of September 30, 2022 and December 31, 2021, total deferred revenue was $22.8 million and $19.0 million, respectively, of which $0.1 million and $0.2 million, respectively, were included within other long-term liabilities in the unaudited condensed consolidated balance sheets. During the three months ended September 30, 2022 and 2021, the Company recognized $21.4 million and $18.8 million of revenue, respectively, that was deferred as of June 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized $18.2 million and $10.3 million of revenue, respectively, that was deferred as of December 31, 2021 and 2020, respectively. Sales Returns and Allowances A returns asset account and a refund liabilities account are maintained to record the effects of estimated product returns and sales returns allowance. Returns asset and refund liabilities are updated at the end of each financial reporting period and the effect of such changes are accounted for in the period in which such changes occur. The Company estimates anticipated product returns in the form of a refund liability based on historical return percentages and current period sales levels, and accrues a related returns asset for goods expected to be returned in salable condition less any expected costs to recover such goods, including return shipping costs that the Company may incur. As of September 30, 2022 and December 31, 2021, refund liabilities balances were $1.6 million and $2.3 million, respectively, and are included as a provision for sales returns and allowances within accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021, returns asset balances were $0.7 million and $1.1 million, respectively, and are included within prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. See Note 5, Accrued Expenses and Other Current Liabilities, for further discussion. Fulfillment Costs The Company generally does not bill customers separately for shipping and handling charges. Any fulfillment costs incurred by the Company when shipping to customers is reflected in cost of sales in the unaudited condensed consolidated statements of operations. Consignment Inventory Sales Sales of consignment inventory are presented on a gross sales basis as control of the merchandise is maintained through the point of sale. The Company also provides independent advice, guidance and after-sales service to customers. Consigned products are selected at the discretion of the Company, and the determination of the selling price as well as responsibility of the physical security of the products is maintained by the Company. The products sold from consignment inventory are similar in nature to other products that the Company sells to customers and are sold on the same terms. Cost of Sales The Company purchases diamonds and gemstones from suppliers and utilizes third-party manufacturing suppliers for the production and assembly of substantially all jewelry sold by the Company. Cost of sales includes merchandise costs, inbound freight charges, costs of shipping orders to customers, costs and reserves for disposal of obsolete, slow-moving or defective items and shrinkage.
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-year extended service plan, which provides full inspection, cleaning and certain repairs due to normal wear, is offered for an additional charge. An extended protection plan is also offered through a third party that has different terms ranging from two years to lifetime that vary based on the item purchased.
Equity-Based Compensation | Equity-based compensation is accounted for as an expense in accordance with ASC Topic 718, Compensation - Stock Compensation, 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. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award. The Company accounts for forfeitures when they occur, and any compensation expense previously recognized on unvested equity-based awards will be reversed when forfeited. The fair value of awards of restricted LLC Units is based on the fair value of the member unit underlying the awards as of the date of grant. The fair value of the underlying member units (referred to as Class M Units prior to conversion to common LLC Units in the IPO on a value-for-value basis) for grants prior to the Company’s IPO in September 2021 was determined by considering a number of objective, subjective and highly complex factors including independent third-party valuations of the Company’s member units, operating and financial performance, the lack of liquidity of member units and general and industry specific economic outlook among other factors. The fair value of restricted stock units (“RSUs”) is based on the fair value of the Class A common stock at the time of grant. The fair value of option-based awards is estimated using the Black-Scholes valuation model. The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock. For inputs into the Black-Scholes model, the expected stock price volatility for the common stock is estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the Company’s industry which are of similar size, complexity and stage of development. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The Company has elected to use the “simplified method” to determine the expected term, which is the midpoint between the vesting date and the end of the contractual term, because it has insufficient history upon which to base an assumption about the term; the Company believes the simplified method approximates a term if it were to be based on expected life. The expected dividend yield is nil as the Company has not paid and does not anticipate paying dividends on its common stock.
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Income Taxes | Interim Periods In calculating the provision for interim income taxes, in accordance with ASC 740, Income Taxes an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period. Annual Reporting For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Uncertainty in income taxes is accounted for using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the unaudited condensed consolidated statements of operations. As of September 30, 2022, no uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.
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Recent Accounting Pronouncements | In February 2016, the FASB issued ASU 2016-02 – Leases, and also issued subsequent amendments to the initial guidance, ASC 2018-10, ASC 2018-11, ASU 2019-10, ASU 2020-02 and ASU 2020-05 (collectively, “ASC 842”). ASC 842 introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs; use of the standard’s effective date as the date of initial application; and no separation of non-lease components from the related lease components and, instead, to account for those components as a single lease component if certain criteria are met. The Company adopted this guidance by applying the modified retrospective approach effective January 1, 2022, and no cumulative effect adjustment was required to be recorded. See Note 6, Leases, for further discussion. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 on a prospective basis and did not have a material impact on the Company's unaudited condensed consolidated financial statements. Accounting pronouncements recently issued but not yet adopted Other recent accounting pronouncements not yet adopted are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.
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Summary of Significant Accounting Policies (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash and Cash Equivalents | The following table provides a reconciliation of cash and cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the statements of cash flows for the periods ended September 30, 2022, December 31, 2021, and September 30, 2021 (in thousands):
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Restrictions on Cash and Cash Equivalents | The following table provides a reconciliation of cash and cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the statements of cash flows for the periods ended September 30, 2022, December 31, 2021, and September 30, 2021 (in thousands):
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Disaggregation of Revenue | The following table discloses total net sales by geography for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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Earnings Per Share (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | Basic and diluted earnings per share of common stock for the three and nine months ended September 30, 2022 and the period from September 23, 2021 to September 30, 2021 have been computed as follows (in thousands, except share and per share amounts):
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Inventories, Net (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories, Net | Inventories, net consist of the following (in thousands):
The allowance for inventory obsolescence consists of the following (in thousands):
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Accrued Expenses and Other Current Liabilities (Tables) |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Expenses | Accrued expenses and other current liabilities consist of the following (in thousands):
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Schedule of Accrued Expenses And Other Current Liabilities Provision For Sales Returns | Included in accrued expenses and other current liabilities is a provision for sales returns and allowances. Returns are estimated based on past experience and current expectations and are recorded as an adjustment to revenue. Activity for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
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Leases (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Lease ROU Assets and Lease Liabilities | Total operating lease ROU assets and lease liabilities were as follows (in thousands):
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Additional Lease Information | Total operating lease costs were as follows (in thousands):
The following table summarizes the weighted-average remaining lease term and weighted-average discount rate on long-term leases as of September 30, 2022 (in thousands):
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Schedule of Future Minimum Lease Payments Under Long-term Non-cancelable Operating Leases | The maturity analysis of the operating lease liabilities under long-term non-cancelable operating leases, where the Company has taken physical possession of or has control of the physical use of these leased properties, as of September 30, 2022 was as follows (in thousands):
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Long-Term Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | The following table summarizes the net carrying amount of long-term debt as of September 30, 2022 and December 31, 2021, net of debt issuance costs (in thousands):
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Schedule of Maturities of Long-term Debt | As of September 30, 2022, the aggregate future principal payments under the SVB Term Loan Facility were as follows (in thousands):
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Stockholders' and Members' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock by Class | The following summarizes the capitalization and voting rights of the Company’s classes of equity as of September 30, 2022 and December 31, 2021:
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Equity-Based Compensation (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Nonvested Share Activity | The following table summarizes the activity related to the Company’s RSUs for the nine months ended September 30, 2022:
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Schedule of Stock Options Roll Forward | The following table summarizes the activity related to the outstanding and exercisable stock options for the nine months ended September 30, 2022:
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Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Activity Related to the Unvested LLC Units | The following table summarizes the activity related to the unvested LLC Units for the nine months ended September 30, 2022:
|
Summary of Significant Accounting Policies - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Jun. 30, 2021 |
Dec. 31, 2020 |
|
Noncontrolling Interest [Line Items] | ||||||||
Return period | 30 days | |||||||
Resizing period | 60 days | |||||||
Extended service plan period | 3 years | |||||||
Third-party extended service plan period | 2 years | |||||||
Deferred revenue | $ 22,800 | $ 22,800 | $ 19,000 | |||||
Deferred revenue, noncurrent | 100 | 100 | 200 | |||||
Revenue recognized | 21,400 | $ 18,800 | 18,200 | $ 10,300 | ||||
Refund liability | 1,609 | 1,348 | 1,609 | 1,348 | $ 1,546 | 2,338 | $ 1,329 | $ 2,341 |
Refund assets | 700 | 700 | $ 1,100 | |||||
Marketing, advertising and promotional costs | $ 25,300 | $ 18,500 | $ 68,800 | $ 49,200 | ||||
Brilliant Earth, LLC | ||||||||
Noncontrolling Interest [Line Items] | ||||||||
Noncontrolling interest, ownership percentage | 88.50% | 88.50% |
Summary of Significant Accounting Policies - Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|---|---|
Accounting Policies [Abstract] | ||||
Cash and cash equivalents | $ 152,931 | $ 172,865 | $ 161,087 | |
Restricted cash | 205 | 205 | ||
Total | $ 153,136 | $ 173,070 | $ 161,292 | $ 66,474 |
Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Disaggregation of Revenue [Line Items] | ||||
Total net sales | $ 111,405 | $ 95,239 | $ 320,252 | $ 258,283 |
United States | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | 104,176 | 87,540 | 300,174 | 239,534 |
International | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | $ 7,229 | $ 7,699 | $ 20,078 | $ 18,749 |
Inventories, Net - Schedule of Inventories, Net (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|---|---|
Inventory [Line Items] | ||||
Allowance for inventory obsolescence | $ (279) | $ (260) | $ (245) | $ (242) |
Total inventories, net | 40,334 | 24,743 | ||
Loose diamonds | ||||
Inventory [Line Items] | ||||
Inventory, gross | 12,281 | 9,013 | ||
Fine jewelry and other | ||||
Inventory [Line Items] | ||||
Inventory, gross | $ 28,332 | $ 15,990 |
Inventories, Net - Allowance for Inventory Obsolescence (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2021 |
Sep. 30, 2022 |
|
Inventory Valuation Reserves [Roll Forward] | ||
Balance at beginning of period | $ (260) | |
Change in allowance for inventory obsolescence | $ (3) | (19) |
Balance at end of period | $ (245) | $ (279) |
Inventories, Net - Narratives (Details) - USD ($) $ in Millions |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Consigned inventory | $ 25.8 | $ 16.9 |
Accrued Expenses and Other Current Liabilities - Accrued Expenses And Other Current Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Dec. 31, 2020 |
---|---|---|---|---|---|---|
Payables and Accruals [Abstract] | ||||||
Accrued vendor expenditures | $ 14,888 | $ 9,881 | ||||
Inventory received not billed | 8,653 | 4,648 | ||||
Accrued payroll expenses | 4,041 | 4,498 | ||||
Sales and other tax payable accrual | 3,481 | 4,229 | ||||
Provision for sales returns and allowances | 1,609 | $ 1,546 | 2,338 | $ 1,348 | $ 1,329 | $ 2,341 |
Other | 5,225 | 3,162 | ||||
Total accrued expenses and other current liabilities | $ 37,897 | $ 28,756 |
Accrued Expenses and Other Current Liabilities - Accrued Expenses and Other Current Liabilities is a Provision For Sales Returns (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Contract with Customer, Refund Liability [Roll Forward] | ||||
Balance at beginning of period | $ 1,546 | $ 1,329 | $ 2,338 | $ 2,341 |
Provision | 7,984 | 5,903 | 18,801 | 16,450 |
Returns and allowances | (7,921) | (5,884) | (19,530) | (17,443) |
Balance at end of period | $ 1,609 | $ 1,348 | $ 1,609 | $ 1,348 |
Leases - Narrative (Details) |
Sep. 30, 2022 |
---|---|
Lessee, Lease, Description [Line Items] | |
Renewal term | 5 years |
Minimum | |
Lessee, Lease, Description [Line Items] | |
Term of contracts | 5 years |
Maximum | |
Lessee, Lease, Description [Line Items] | |
Term of contracts | 10 years |
Leases - Total Operating Lease Right-of-Use Assets and Operating Lease Liabilities (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
Assets | |||
Operating ROU assets at cost | $ 25,136 | $ 25,136 | |
Accumulated amortization | (2,272) | (2,272) | |
Net book value | 22,864 | 22,864 | $ 0 |
Liabilities | |||
Less: current portion | 3,321 | 3,321 | 0 |
Operating Lease, Liability, Noncurrent | 23,166 | 23,166 | $ 0 |
Net present value of operating lease liabilities | 26,487 | 26,487 | |
Income and Expenses | |||
Operating lease costs | $ 1,089 | $ 3,067 |
Leases - Future Minimum Lease Payments Under Long-term Non-cancelable Operating Leases (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Leases [Abstract] | ||
For the three months ending December 31, 2022 | $ 795 | |
2023 | 4,875 | |
2024 | 4,745 | |
2025 | 4,704 | |
2026 | 4,364 | |
2027 | 2,876 | |
Thereafter | 8,878 | |
Total minimum lease payments | 31,237 | |
Less: imputed interest | (4,750) | |
Net present value of operating lease liabilities | 26,487 | |
Less: current portion | (3,321) | $ 0 |
Operating Lease, Liability, Noncurrent | $ 23,166 | $ 0 |
Leases - Weighted Average Remaining Lease Term and Weighted Average Discount Rate (Details) - USD ($) $ in Thousands |
9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Jan. 01, 2022 |
Dec. 31, 2021 |
|
Leases [Abstract] | ||||
Weighted-average remaining lease term - operating leases | 5 years 10 months 24 days | |||
Weighted-average discount rate - operating leases | 4.30% | |||
Lessee, Lease, Description [Line Items] | ||||
Operating lease right of use assets | $ 22,864 | $ 0 | ||
Net present value of operating lease liabilities | (26,487) | |||
Supplemental cash flow information related to operating leases as of September 30, 2022 is as follows: | ||||
Operating cash flows from operating leases | 3,393 | |||
Right-of-use assets and operating lease liabilities | $ 5,963 | $ 0 | ||
Accounting Standards Update 2016-02 | Cumulative Effect, Period of Adoption, Adjustment | ||||
Lessee, Lease, Description [Line Items] | ||||
Operating lease right of use assets | $ 19,173 | |||
Net present value of operating lease liabilities | $ (21,316) |
Long-Term Debt - Term Loan (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Debt Instrument [Line Items] | ||
Outstanding principal | $ 64,188 | $ 65,000 |
Debt issuance costs | (710) | (1,422) |
Net carrying amount | 63,478 | 63,578 |
Current portion | 3,250 | 30,789 |
Long term outstanding principal | 60,938 | 34,211 |
Long term net carrying amount | 60,228 | 32,789 |
Secured Debt | Term Loan Agreement | ||
Debt Instrument [Line Items] | ||
Outstanding principal | 64,188 | 65,000 |
Debt issuance costs | (710) | (1,422) |
Net carrying amount | $ 63,478 | $ 63,578 |
Long-Term Debt - Debt Maturity (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Debt Instrument [Line Items] | ||
Outstanding principal | $ 64,188 | $ 65,000 |
Secured Debt | Term Loan Agreement | ||
Debt Instrument [Line Items] | ||
For the three months ending December 31, 2022 | 813 | |
2023 | 3,250 | |
2024 | 4,062 | |
2025 | 5,688 | |
2026 | 6,500 | |
2027 | 43,875 | |
Outstanding principal | $ 64,188 | $ 65,000 |
Equity-Based Compensation - RSU Activity (Details) - Unvested RSUs |
9 Months Ended |
---|---|
Sep. 30, 2022
$ / shares
shares
| |
Number of Restricted Stock Units | |
Unvested, beginning balance (in shares) | shares | 1,377,728 |
Grants in period (in shares) | shares | 2,623,482 |
Vested (in shares) | shares | (76,227) |
Forfeited (in shares) | shares | (513,189) |
Unvested, ending balance (in shares) | shares | 3,411,794 |
Weighted average grant date fair value | |
Unvested beginning balance (in dollars per share) | $ / shares | $ 13.15 |
Granted (in dollars per share) | $ / shares | 7.89 |
Vested (in dollars per share) | $ / shares | 12.28 |
Forfeited (in dollars per share) | $ / shares | 10.02 |
Unvested ending balance (in dollars per share) | $ / shares | $ 9.60 |
Equity-Based Compensation - LLC Unit Activity (Details) - LLC Units |
9 Months Ended |
---|---|
Sep. 30, 2022
$ / shares
shares
| |
Number of LLC Units | |
Unvested, beginning balance (in shares) | shares | 1,901,977 |
Vested (in shares) | shares | (394,260) |
Forfeited (in shares) | shares | (500,443) |
Unvested, ending balance (in shares) | shares | 1,007,274 |
Weighted average grant date fair value | |
Unvested beginning balance (in dollars per share) | $ / shares | $ 0.52 |
Vested (in dollars per share) | $ / shares | 0.50 |
Forfeited (in dollars per share) | $ / shares | 0.21 |
Unvested ending balance (in dollars per share) | $ / shares | $ 0.67 |
Commitments and Contingencies - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Long-term Purchase Commitment [Line Items] | ||||
Purchase obligation, total | $ 5.6 | $ 5.6 | ||
Letter of credit | 0.2 | 0.2 | ||
Defined contribution plan, cost | 0.3 | $ 0.1 | $ 0.7 | $ 0.4 |
Capital Addition Purchase Commitments | ||||
Long-term Purchase Commitment [Line Items] | ||||
Capital commitment | $ 3.8 |
Subsequent Events (Details) $ in Millions |
Aug. 11, 2022
USD ($)
lease
|
---|---|
Subsequent Events [Abstract] | |
Number of leases | lease | 9 |
Amount of operating leases not yet commenced | $ | $ 17.5 |
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