The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information presented in our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis reflects the historical results of operations and financial position ofBrilliant Earth, LLC prior to the Reorganization Transactions onSeptember 22, 2021 and that ofBrilliant Earth Group, Inc. and its consolidated subsidiary,Brilliant Earth, LLC , following the completion of the Reorganization Transactions. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in "Cautionary Note Regarding Forward-Looking Statements," and "Risk Factors" in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements.
Présentation de l’entreprise
Brilliant Earth is an innovative, digital-first jewelry company, and a global leader in ethically sourced fine jewelry. We offer exclusive designs with superior craftsmanship and supply chain transparency, delivered to customers through a highly personalized omnichannel experience. We operate in one operating and reporting segment, the retail sale of diamonds, gemstones, and jewelry. Our mission is to create a more transparent, sustainable, compassionate, and inclusive jewelry industry, and we are proud to offer customers distinctive and thoughtfully designed products that they can truly feel good about wearing. Our core values resonate strongly across many demographics and particularly with values-driven Millennial and Gen Z consumers. Our extensive collection of premium-quality diamond engagement and wedding rings, gemstone rings, and fine jewelry is conceptualized by our leading in-house design studio and then brought to life by expert jewelers. From our award-winning jewelry designs to our responsibly sourced materials, atBrilliant Earth we aspire to exceptional standards in everything we do. We were founded in 2005 as an e-commerce company with an ambitious mission and a single showroom inSan Francisco . We have rapidly scaled our business while remaining focused on our mission and elevating the omnichannel customer experience. Through our intuitive digital commerce platform and personalized individual appointments in our showrooms, we cater to the shopping preferences of tech-savvy next-generation consumers. We create an educational, joyful, and approachable experience that is unique in the jewelry industry. As ofDecember 31, 2021 ,Brilliant Earth has sold to consumers in over 50 countries. Throughout our history, we have invested in technology to create a seamless customer experience, inform our data-driven decision-making, improve efficiencies, and advance our mission. Our technology enables dynamic product visualization, augmented reality try-on, blockchain-enabled transparency, and rapid fulfillment of our flagship Create Your Own product, a custom design process. We leverage powerful data capabilities to improve our marketing and operational efficiencies, personalize the customer experience, curate showroom inventory and merchandising, inform real estate decisions, and develop new product designs that reflect consumer preferences. We believe theBrilliant Earth digital experience drives higher satisfaction, engagement, and conversion both online and in-showroom.
Nous avons réalisé de solides performances financières et une croissance rapide depuis notre création avec un financement extérieur minimal, et nous pensons que nous en sommes aux premiers stades de la réalisation de notre potentiel dans une opportunité de marché importante.
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Vous trouverez ci-dessous un résumé de nos performances pour l’année terminée
•Net sales of$380.2 million , up 51.0% from$251.8 million for the year endedDecember 31, 2020 ; •Net income of$26.3 million , up 21.7% from$21.6 million for the year endedDecember 31, 2020 ; •Net income margin of 6.9%, compared to 8.6% for the year endedDecember 31, 2020 ; •Adjusted EBITDA of$50.5 million , up 83.4% from$27.5 million for the year endedDecember 31, 2020 ; and •Adjusted EBITDA margin of 13.3%, compared to 10.9% for the year endedDecember 31, 2020 .
Vous trouverez ci-dessous un résumé de nos performances pour l’année terminée
•Net sales of$251.8 million , up 25.1% from$201.3 million for the year endedDecember 31, 2019 ; •Net income of$21.6 million , up 377.4% from net loss of$(7.8) for the year endedDecember 31, 2019 ; •Net income margin of 8.6%, compared to (3.9)% for the year endedDecember 31, 2019 ; •Adjusted EBITDA of$27.5 million , up 711.3% from$(4.5) million for the year endedDecember 31, 2019 ; and •Adjusted EBITDA margin of 10.9%, compared to (2.2)% for the year endedDecember 31, 2019 .
Nous opérons dans un seul secteur d’exploitation et de reporting, la vente au détail de diamants, de pierres précieuses et de bijoux.
Introduction en bourse et achat d’intérêts LLC
OnSeptember 27, 2021 , we completed our 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. We 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") fromBrilliant 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, which represented a 10.1% economic interest as of the IPO date.
Conversion des parts des catégories F, P et M au moment du PAPE
At the time of the IPO, the existing limited liability company agreement ofBrilliant Earth, LLC was amended and restated to, among other things, recapitalize all existing Class F, P and M Units inBrilliant 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 ClassF 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.
Résumé de la restructuration, de l’offre et des autres opérations réalisées dans le cadre de l’introduction en bourse
In connection with the IPO,Brilliant Earth Group, Inc. andBrilliant Earth, LLC completed a series of transactions that comprise of reorganization, offering and other financing transactions.
Les éléments suivants résument les opérations de réorganisation intervenues à la date de l’introduction en bourse :
• Modifié et mis à jour l’accord de société à responsabilité limitée existant de
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appointBrilliant Earth Group, Inc. as the sole managing member ofBrilliant 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 restatedBrilliant 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, aDelaware 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") withBrilliant Earth, LLC and the Continuing Equity Owners that provides for the payment byBrilliant Earth Group, Inc. to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, thatBrilliant 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 requireBrilliant 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.
Voici un résumé de l’introduction en bourse et des autres 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 fromBrilliant 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.
•Annulation correspondante d’un total de 1 249 999 actions ordinaires de classe B et actions ordinaires de classe C résultant de l’achat de 1 249 999 unités LLC auprès des actionnaires permanents.
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•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.
Facteurs clés affectant notre performance
Notre capacité à accroître la notoriété de la marque
Increasing brand awareness and growing favorable brand equity have been and remain key to our growth. We have a significant opportunity to continue to grow our brand awareness, broaden our customer reach, and maximize lifetime value through brand and performance marketing. We have made significant investments to strengthen the Brilliant Earth brand through our dynamic marketing strategy, which includes brand marketing campaigns across email, digital, social media, earned media, and media placements and with key influencers. Based on ourCustomer Insight Survey conducted inMay 2021 , our aided brand awareness was 54% with significant room to increase in theU.S. and internationally through marketing and earned media, showroom expansion, and word-of-mouth referrals. In order to compete effectively and increase our share of the jewelry market, we must maintain our strong customer experience, produce compelling products, and continue our mission of creating a more transparent, sustainable, compassionate and inclusive jewelry industry. Our performance will also depend on our ability to increase the number of consumers aware ofBrilliant Earth and our product assortment. We believe our brand strength will enable us to continue to expand across categories and channels, to deepen relationships with consumers, and to expand our presence inU.S. and international markets.
Acquisition rentable de nouveaux clients et fidélisation des clients existants.
We have historically had attractive customer acquisition economics, including substantial first order profitability. To continue to grow our business, we must continue to acquire new customers and retain existing customers in a cost-effective manner. The success of our customer acquisition strategy depends on a number of factors, including the level and pattern of consumer spending in the product categories in which we operate, and our ability to cost-effectively drive traffic to our website and showrooms and to convert these visitors to customers. With our strong brand resonance and passionate customer base, we generate significant earned and organic traffic, impressions, and media placements. We continually evolve our dynamic marketing strategies, optimizing our messaging, creative assets, and spending across channels. We also believe our expanded fine jewelry assortment and strategic customer acquisition will continue to drive fine jewelry orders from new customers and repeat orders from existing customers.
Notre capacité à poursuivre l’expansion de notre stratégie omnicanal
Our ability to expand our omnichannel presence to new markets and locations is
key to our success. Historically, we have been successful in every new
geographic market we have entered, and we are in the early stages of expanding
our premium showroom footprint nationwide. We intend to continue leveraging our
marketing strategy and growing brand awareness to drive increased qualified
consumer traffic to and sales from our website and premium showrooms.
We believe expanding our number of showrooms will drive accelerated growth by
increasing our average order value ("AOV") compared to e-commerce orders,
improving conversion in the showrooms' metro regions compared to pre-opening
conversion, and raising our brand awareness. As of December 31, 2021 , we have 15
showroom locations. We intend to strategically open showrooms in the future, and
we believe we can achieve broad national showroom coverage with far fewer
locations than many traditional retailers. We rely on this highly efficient
showroom model to complement our digital strategy and to continue to drive
growth and profitability.
Notre capacité à introduire avec succès de nouveaux produits
L’expansion des produits nous offre une opportunité significative de générer des achats nouveaux et répétés en élargissant les occasions d’achat au-delà des fiançailles et des mariages. Nous avons l’intention de tirer parti de nos capacités de conception internes et de notre développement de produits agile basé sur les données pour élargir l’assortiment de produits pour les occasions spéciales et l’auto-achat. De plus, nous
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will have more opportunity to enhance and leverage our customer relationship
management ("CRM") and data-segmentation capabilities to increase repeat
purchases and lifetime value. We have consistently invested in technology to
create a seamless customer experience, including dynamic visualization,
augmented reality try-on, and automated, rapid fulfillment, and we intend to
continue investing in technology to enhance the digital and showroom experience
and help drive conversion. Expanding affiliations and brand collaborations will
also broaden our existing assortment, reinforce our brand ethos, and feature
like-minded designers, which will help to drive both new and repeat purchases.
Expansion internationale
We are in the early stages of expanding globally, and a larger geographic footprint will help drive future growth. Our early proof-points from localizing our website forCanada ,Australia , and theUnited Kingdom , and our sales to customers from over 50 countries, provide encouraging signs for future global expansion. We see strong potential in launching e-commerce in new overseas markets and new showrooms in countries where we have already established a localized digital presence. We plan to drive brand awareness through localized marketing channels and expect our data-driven technology platform to continue providing insights for product recommendations and inventory management.
Efficacité opérationnelle et marketing
We have a unique, asset-light operating model with attractive working capital dynamics, capital-efficient showrooms, and a vast virtual inventory of premium natural and lab-grown diamonds that allows us to offer over 150,000 diamonds with significant value, while keeping our balance sheet inventory low. This has driven attractive inventory turns and allows us to operate with negative working capital, which we define as our current assets less cash minus our current liabilities. Our showroom strategy avoids the inefficiencies of traditional, retail-first jewelers. Our showrooms are appointment-driven with large catchment regions, so we are less reliant on expensive high foot traffic retail locations. We also curate showroom inventory for scheduled visits and require limited inventory in each location. Our tech-enabled jewelry specialist team supports online customers when not in appointment, maximizing workforce utilization. As we continue to scale our business, our future success is dependent on maintaining this capital efficient operating model and driving continued operational improvement as we expand to new locations both in theU.S. and internationally.
Coûts d’exploitation en tant que
We anticipate that the costs of operating as a public company will be significant as we are now subject to the reporting, listing, and compliance requirements of various governing bodies and applicable securities laws and regulations that we were previously not subjected to as a privately-held company. These costs have been rapidly increasing over time, and we expect these rules and regulations to increase our legal, financial, and technology compliance costs, and to make some activities more difficult, time-consuming, and costly. Remaining compliant and satisfying our obligations as a public company, while maintaining forecasted gross margins and operating results, and attracting and retaining qualified persons to serve on our board of directors, our board committees, or as our executive officers will be critical to our future success.
Tendances macroéconomiques
We believe we are well-positioned at the intersection of key macro-level trends
impacting our industry. Consumers are increasingly becoming more conscious of
the products they purchase, seeking brands that stand for sustainability, supply
chain transparency, and social and environmental responsibility. This has
contributed to our strong brand affinity and loyalty, and further differentiates
us from our competitors. Consumers are increasingly favoring seamless
omnichannel shopping experiences, and we believe our model is well-suited to
satisfy these consumer preferences. Changes in inflation and macro-level
consumer spending trends, including as a result of the COVID-19 pandemic, could
result in fluctuations in our operating results.
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Effets de la COVID-19 sur notre entreprise
The COVID-19 pandemic remains on-going and continues to impact the global economy. Our financial performance could be adversely impacted by the on-going evolution of the pandemic, including any government-imposed pandemic restrictions. We cannot predict the full extent of the impacts of the COVID-19 pandemic on our business, our operations, or the global economy as a whole. However, the effects could have a material impact on our results of operations. See "Risk Factors-Risks Related to Our Business and Industry-The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business" in Part I, Item 1A.
Indicateurs clés
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.
Le tableau suivant présente nos indicateurs clés de performance pour les périodes présentées (montants en milliers, hors total commandes et AOV) :
For the years ended December 31, For the years ended December 31,
2021 2020 Change % Change 2020 2019 Change % Change
Net Sales $ 380,189 $ 251,820 $ 128,369 51.0 % $ 251,820 $ 201,343 $ 50,477 25.1 %
Total Orders 118,208 79,890 38,318 48.0 % 79,890 61,604 18,286 29.7 %
AOV $ 3,216 $ 3,152 $ 64 2.0 % $ 3,152 $ 3,268 $ (116) (3.6) %
Net Sales
Le chiffre d’affaires net est défini ci-dessous dans les « Composantes des résultats d’exploitation ».
Commandes totales
We define total orders as the total number of customer orders delivered less total orders returned in a given period (excluding those repair, resize, and other orders which have no revenue). We view total orders as a key indicator of the velocity of our business and an indication of the desirability of our products to our customers. Total orders, together with AOV, is an indicator of the net sales we expect to recognize in a given period. Total orders may fluctuate based on the number of visitors to our website and showrooms, and our ability to convert these visitors to customers. We believe that total orders is a measure that is useful to investors and management in understanding our ongoing operations and in an analysis of ongoing operating trends.
Valeur moyenne des commandes
We define average order value, or AOV, as net sales in a given period divided by
total orders in that period. We believe that AOV is a measure that is useful to
investors and management in understanding our ongoing operations and in an
analysis of ongoing operating trends. AOV varies depending on the product type
and number of items per order. AOV may also fluctuate as we expand into and
increase our presence in additional product lines and price points, and open
additional showrooms.
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Composantes des résultats d’exploitation
Our sales are recorded net of estimated sales returns and allowances and sales taxes collected from customers. Our net sales primarily consist of revenue from diamond, jewelry, and gemstone retail sales through our website and dedicated jewelry specialists via chat, phone, email, virtual appointment, or in our showrooms. Our net sales are derived primarily in theU.S. , but we also sell products to customers outside theU.S. Our website platform allows us to sell to a worldwide customer base, even in markets where we do not have a physical presence. Payment for all our sales occurs prior to fulfillment. Customers pick up the items in our showrooms, or we deliver purchases to customers, with delivery typically within one to two business days after shipment. We recognize revenue upon pick-up or delivery if an order is shipped. We also offer third-party financing options. We allow for certain returns within 30 days of when an order is available for shipment or pickup. We also provide one complimentary resizing for standard ring styles within 60 days of when an order is available for shipment or pickup, a lifetime manufacturing warranty (except on estate and vintage jewelry and center diamonds/gemstones), and a lifetime diamond upgrade program on all independently-graded natural diamonds. For an additional charge, we offer an in-house 3-year extended service plan, which provides full inspection, cleaning, and certain repairs due to normal wear. We also offer an extended protection plan through a third-party that has terms ranging from 2 years to lifetime that vary based on the item purchased.
Les revenus sont différés sur les transactions où le paiement a été reçu du client, mais le contrôle n’a pas encore été transféré. Les revenus liés aux achats des clients dans le cadre de notre plan de service prolongé interne sont différés et constatés au prorata sur la durée du plan de service.
Coût des ventes
Cost of sales consists primarily of merchandise costs for the purchase of diamonds and gemstones from our global base of diamond and gemstone suppliers, and the cost of jewelry production from our third-party jewelry manufacturing suppliers. Cost of sales includes merchandise costs, inbound freight charges, and costs of shipping orders to customers. Our cost of sales includes reserves for disposal of obsolete, slow-moving or defective items, and shrinkage, which we estimate and record on a periodic basis.
Frais de vente, frais généraux et administratifs
Selling, general and administrative ("SG&A") expenses consist primarily of
marketing, advertising, and promotional expenses; payroll and related benefit
costs for our employees, including equity-based compensation expense; merchant
processing fees; certain facility-related costs; customer service; technology;
and depreciation and amortization expenses, as well as professional fees, other
general corporate expenses, and charitable donations in connection with
establishing and funding the Brilliant Earth Foundation , a donor advised fund,
to support our charitable giving efforts.
Frais d’intérêts
Les intérêts débiteurs se composent principalement des intérêts encourus en vertu de notre prêt à terme en cours.
Other Expense, Net
Les autres charges, nettes, comprenaient principalement la variation de la juste valeur du passif lié aux bons de souscription nécessaire pour évaluer nos bons de souscription à leur juste valeur marchande. Le passif lié aux bons de souscription a été réglé au moment de l’introduction en bourse. De plus, ces dépenses comprennent les pertes sur les taux de change sur les paiements des consommateurs, partiellement compensées par les intérêts et autres revenus divers.
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La charge d’impôt sur le revenu (avantage) représente les impôts fédéraux et étatiques sur le revenu ou les franchises évalués sur
Données sur les résultats d’exploitation
The results of operations data in the following tables for the periods presented have been derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Comparaison des exercices terminés
The following table sets forth our statements of operations for the years endedDecember 31, 2021 and 2020, including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent (amounts in thousands): For the years ended December 31, 2021 2020 Year over year change Amount Percent Amount Percent Amount Percent Consolidated statements of operations data*: Net sales$ 380,189 100.0 %$ 251,820 100.0 %$ 128,369 51.0 % Cost of sales 192,768 50.7 % 139,518 55.4 % 53,250 38.2 % Gross profit 187,421 49.3 % 112,302 44.6 % 75,119 66.9 % Operating expenses: Selling, general and administrative 147,291 38.7 % 85,710 34.0 % 61,581 71.8 % Income from operations 40,130 10.6 % 26,592 10.6 % 13,538 50.9 % Interest expense (7,589) (2.0) % (4,942) (2.0) % (2,647) 53.6 % Other expense, net (6,601) (1.7) % (74) 0.0 % (6,527) nm Net income before tax 25,940 6.8 % 21,576 8.6 % 4,364 20.2 % Income tax benefit 316 0.1 % - - % 316 nm Net income$ 26,256 6.9 %$ 21,576 8.6 %$ 4,680 21.7 % Net income allocable to non-controlling interest 24,728 6.5 % Net income allocable to Brilliant Earth Group, Inc.$ 1,528 0.4 % * Amounts may not sum due to rounding nm - Not meaningful Net Sales Net sales for the year endedDecember 31, 2021 increased by$128.4 million , or 51.0%, compared to the year endedDecember 31, 2020 . We experienced increases in net sales across our products, in both domestic and international markets, primarily driven by a 48.0% increase in order volumes due to: •continued efficiency of our customer acquisition and conversion activities; •an increase in orders driven by our showrooms and website; •an increase in consumer spending during the first half of 2021 in comparison to the first half of 2020, which was significantly impacted by COVID-19; •additional orders from opening of new showrooms inAtlanta (fourth quarter of 2020),Seattle (second quarter of 2021),Portland ,Austin ,Dallas ,New York (third quarter of 2021) and Scottsdale (fourth quarter of 2021); and 72 --------------------------------------------------------------------------------
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•net sales also increased due to an increase in AOV on a year-over-year basis. AOV for the year endedDecember 31, 2021 was 2.0% higher compared to the year endedDecember 31, 2020 . Gross Profit Gross profit for the year endedDecember 31, 2021 increased by$75.1 million , or 66.9%, compared to the year endedDecember 31, 2020 . Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, increased by 470 basis points for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , primarily driven by our premium brand and differentiated product offerings, enhancements to our pricing engine, procurement efficiencies and higher costs in the prior period due to temporary COVID-related changes to supplier mix and shipping methods during the prior year. These improvements were partially offset by higher precious metal prices, as evidenced by average gold and platinum spot prices increasing by 1% and 22% respectively, for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 .
Frais de vente, frais généraux et administratifs
SG&A expenses for the year endedDecember 31, 2021 increased by$61.6 million , or 71.8%. SG&A expenses as a percentage of net sales increased by 471 basis points for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . The increase in SG&A expenses was driven by an increase in marketing expenses, other general and administrative expenses and employment expenses, which increased by$27.3 million ,$18.9 million and$15.4 million , respectively, from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . The increase in marketing expenses was driven by increased investments in marketing and advertising to increase brand awareness and support strategic growth initiatives. The increase in other general and administrative expenses was principally driven by new corporate expenses in preparation for and support of our operations as a public company, new showroom pre-opening costs and a contribution to fund theBrilliant Earth Foundation . The increase in employment expenses was principally driven by the addition of corporate and showroom staff, lower comparative employment expenses in 2020 due to temporary COVID-related staffing changes and an increase in equity-based compensation. The Company granted new restricted stock units ("RSUs") and stock options in conjunction with the IPO, as well as additional RSUs grants subsequent to the IPO. Future financial results will reflect equity-based compensation that is likely to be higher than what is reflected in the current year's financial results.
Frais d’intérêts
Intérêts débiteurs pour l’exercice terminé
Other Expense, Net
Autres charges, nettes pour l’exercice clos
Prestation fiscale
Brilliant Earth Group, Inc.'s income tax benefit was$0.3 million for the period fromSeptember 23, 2021 toDecember 31, 2021 .Brilliant Earth Group, Inc. had no business transactions or activities prior to the IPO, and accordingly, no amounts related to income taxes were incurred by the Company. The effective tax rate is a benefit of 26.1% which differs from the expected rate of 21.0% due to the equity interest in earnings of subsidiary not being taxable (permanent difference), the loss from the investee per K-1 (inside basis difference), and the loss from the step up in outside basis. 73 --------------------------------------------------------------------------------
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Bénéfice net attribuable aux participations ne donnant pas le contrôle
The net income allocable to the non-controlling interests ("NCI") of Brilliant
Earth, LLC for the year ended December 31, 2021 was $24.7 million , which is all
of the earnings of the Company through September 22, 2021 (the date of the
Reorganization Transactions) and 89.9% of pre-tax earnings of the Company for
the period September 22, 2021 through December 31, 2021 .
Comparaison des exercices terminés
The following table sets forth our statements of operations for the years endedDecember 31, 2020 and 2019, including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent (amounts in thousands):
Pour les années terminées
2020 2019 Year over year change
Amount Percent Amount Percent Amount Percent
Consolidated statements of operations data*: Net sales$ 251,820 100.0 %$ 201,343 100.0 %$ 50,477 25.1 % Cost of sales 139,518 55.4 % 116,421 57.8 % 23,097 19.8 % Gross profit 112,302 44.6 % 84,922 42.2 % 27,380 32.2 % Operating expenses: Selling, general and administrative 85,710 34.0 % 90,317 44.9 % (4,607) (5.1) % Income (loss) from operations 26,592 10.6 % (5,395) (2.7) % 31,987 nm Interest expense (4,942) (2.0) % (2,257) (1.1) % (2,685) 119.0 % Other expense, net (74) 0.0 % (126) (0.1) % 52 (41.3) % Net income (loss)$ 21,576 8.6 %$ (7,778) (3.9) %$ 29,354 nm * Amounts may not sum due to rounding nm - Not meaningful Net Sales Net sales for the year endedDecember 31, 2020 increased by$50.5 million , or 25.1%, compared to the year endedDecember 31, 2019 . While in-store customer traffic decreased due to the COVID-19 pandemic, we experienced increases in net sales across our products, in both domestic and international markets, primarily driven by a 29.7% increase in order volumes due to:
•amélioration de l’efficacité de nos activités d’acquisition et de conversion de clients ;
•une augmentation des commandes portée par la poursuite de la migration des consommateurs vers les canaux de distribution en ligne ; et
•additional orders from the opening of new showrooms inPhiladelphia (November 2019 ) andAtlanta (October 2020 ), as well as a new virtual sales appointment offering (second quarter of 2020). •The increase in order volumes was partially offset by a decrease in AOV on a year-over-year basis. AOV for the year endedDecember 31, 2020 was 3.6% lower compared to the year endedDecember 31, 2019 . 74 --------------------------------------------------------------------------------
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Bénéfice brut
Gross profit for the year endedDecember 31, 2020 increased by$27.4 million , or 32.2%, compared to the year endedDecember 31, 2019 . Gross margin, expressed as a percentage and calculated as gross profit divided by net sales, increased by 242 basis points for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 driven by enhancements to our pricing algorithms and procurement efficiencies. These improvements were partially offset by higher precious metals prices, as evidenced by average gold and platinum spot prices increasing by approximately 27% and 3%, respectively, for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . The margin improvements were also partially offset by higher costs from temporary COVID-related changes to our supplier mix and shipping methods.
Frais de vente, frais généraux et administratifs
SG&A expenses for the year endedDecember 31, 2020 decreased by$4.6 million , or 5.1%. SG&A expenses as a percentage of net sales decreased by 1,092 basis points in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . The decrease in operating expenses, as a percentage of net sales, was primarily driven by a decrease in marketing expenses which, as a percentage of net sales, represented a decline of 970 basis points from 2019 to 2020. This decline was largely attributable to improved efficiency of our customer acquisition and conversion activities. In addition, we improved operating leverage from employee-related costs, which declined, as a percentage of net sales, by 100 basis points from the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2020 , which was partially driven by temporary COVID-related staffing changes.
Frais d’intérêts
Interest expense for the year endedDecember 31, 2020 increased by$2.7 million , or 119.0%, primarily due to an increase in the gross principal balance in our debt financing from$11.0 million to$35.0 million in the second half of 2019.
Mesures financières non conformes aux PCGR
We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance and liquidity, as applicable, and to more readily compare these financial measures between past and future periods. There are limitations to the use of the non-GAAP financial measures presented in this Annual Report on Form 10-K. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
BAIIA ajusté et marge du BAIIA ajusté
Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial
measures, are included in this Annual Report on Form 10-K because they are used
by management and our board of directors to assess our financial performance. We
define Adjusted EBITDA as net income (loss) excluding interest expense, income
taxes, depreciation and amortization expense, equity-based compensation expense,
showroom pre-opening expense, certain non-operating expenses and income, and
other unusual and/or infrequent costs, which we do not consider in our
evaluation of ongoing operating performance. We define Adjusted EBITDA margin as
Adjusted EBITDA calculated as a percentage of net sales. These non-GAAP
financial measures provide users of our financial information with useful
information in evaluating our operating performance and exclude certain items
from net income (loss) that may vary substantially in frequency and magnitude
from period to period. These non-GAAP financial measures are not meant to be
considered as indicators of performance in isolation from or as a substitute for
net income (loss) prepared in accordance with GAAP and should be read only in
conjunction with financial information presented on a GAAP basis.
Reconciliations of each of Adjusted EBITDA and Adjusted EBITDA margin to its
most directly comparable GAAP financial measure, net income (loss) and net
income (loss) margin, are presented below. We
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encourage you to review the reconciliations in conjunction with the presentation
of the non-GAAP financial measures for each of the years presented. In future
years, we may exclude similar items, may incur income and expenses similar to
these excluded items, and may include other expenses, costs and non-recurring
items.
The following table presents a reconciliation of net income (loss) and net
income (loss) margin, the most comparable GAAP financial measures, to Adjusted
EBITDA and Adjusted EBITDA margin, respectively, for the years presented
(amounts in thousands):
For the years ended December 31,
2021 2020 2019
Net income (loss) $ 26,256 $ 21,576 $ (7,778)
Interest expense 7,589 4,942 2,257
Income tax benefit (316) - -
Depreciation expense 860 646 622
Showroom pre-opening expense 2,773 242 227
Equity-based compensation expense 2,795 46 43
Other expense, net (1) 6,601 74 126
Transaction costs and other expense (2) 3,926 - -
Adjusted EBITDA $ 50,484 $ 27,526 $ (4,503)
Net income (loss) margin 6.9 % 8.6 % (3.9) %
Adjusted EBITDA margin 13.3 % 10.9 % (2.2) %
(1) Other expense, net for the year ended December 31, 2021 consists primarily
of the change in fair value of the warrant liability necessary to mark our
warrants to fair market value. Please see Note 1, Business and Organization in
our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for more information. Additionally, these expenses for all
periods presented include losses on exchange rates on consumer payments,
partially offset by interest and other miscellaneous income.
(2) These expenses are those that we did not incur in the normal course of
business. They include expenses related to professional fees in connection with
the evaluation and preparation for operations as a public company, a charitable
donation and one-time costs associated with the opening of a new operations
facility.
Liquidités et ressources en capital
Aperçu
Our primary requirements for liquidity and capital are for purchases of inventory, payment of operating expenses, tax distributions to LLC members, debt service, and capital expenditures. Historically, these cash requirements have been met through cash provided by operating activities, cash and cash equivalents, and borrowings under our Term Loan. We have historically had negative working capital driven by our high inventory turns and typical collection of payment from customers prior to payment of suppliers. As ofDecember 31, 2021 , we had a cash balance, excluding restricted cash, of$172.9 million , and working capital, excluding cash, of$(59.7) million .
De plus, nous avons un prêt à terme avec un solde de principal de
Nous louons nos salles d’exposition et nos bureaux dans le cadre de contrats de location non résiliables en vertu desquels
In the year endedDecember 31, 2021 , the Company declared and paid$21.4 million of distributions to, or on behalf of, members associated with their estimated income tax obligations. We are committed to continue to make quarterly distributions in connection with member estimated income tax obligations which we expect to fund with cash flow from operations. 76 --------------------------------------------------------------------------------
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Notwithstanding our obligations under the TRA discussed below, we believe that our current sources of liquidity, which include cash, and net cash provided by operating activities, will be sufficient to meet our projected operating, debt service, and tax distribution requirements for at least the next 12 months. We have capital commitments of$1.6 million related to the opening of new locations as ofDecember 31, 2021 , and we had no principal repayments due in 2021,$30.8 million of principal repayments due in 2022, and$34.2 million of principal due in 2023 on our Term Loan. As further described below, we have an additional final payment of$3.2 million due in 2023 on our Term Loan. Additional future liquidity needs may include public company costs, payments under the TRA, and state and federal taxes to the extent not offset by our deferred income tax assets, including those arising as a result of purchases or exchanges of common units for Class A and Class D common stock. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners will be significant. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or toBrilliant Earth, LLC , and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA. To the extent that our current liquidity is insufficient to fund future activities, we may need to raise additional funds, such as attempts to raise additional capital through the sale of equity securities or through debt financing arrangements. If we raise additional funds by issuing equity securities, the ownership of our existing stockholders will be diluted. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. We cannot ensure that we could obtain refinancing or additional financing on favorable terms or at all.
Flux de trésorerie provenant des activités d’exploitation, d’investissement et de financement – Comparaison des exercices clos
Le tableau suivant résume nos flux de trésorerie pour les exercices terminés
Years
terminé
2021 2020
Net cash provided by operating activities $ 46,078 $ 26,723
Net cash used in investing activities (5,606) (584)
Net cash provided by (used in) financing activities 66,124 (263)
Augmentation nette de la trésorerie, des équivalents de trésorerie et de la trésorerie affectée 106 596
25,876
Trésorerie, équivalents de trésorerie et trésorerie affectée au début de l’exercice
66,474 40,598
Trésorerie, équivalents de trésorerie et trésorerie affectée à la fin de l’exercice
$ 66,474 Operating Activities Net cash provided by operating activities was$46.1 million for the year endedDecember 31, 2021 , consisting of$26.3 million in net income adjusted for$11.4 million in non-cash expense addbacks, primarily composed of the change in fair value of warrants, equity based compensation, amortization of debt issuance costs and depreciation expense, plus a$8.4 million increase from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities, which is the result of the growth of our business, primarily reflects a$25.2 million increase in accounts payable, accrued expenses and other current liabilities, deferred revenue, and deferred rent, offset by$16.8 million increase in inventories, prepaid expenses and other current assets, and other assets. 77 --------------------------------------------------------------------------------
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Net cash provided by operating activities was$26.7 million for the year endedDecember 31, 2020 , consisting of$21.6 million in net income adjusted for$1.9 million in non-cash expense addbacks, primarily composed of depreciation and amortization of debt issuance costs, plus a$3.2 million increase from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities, which is the result of our revenue growth, primarily reflects a$6.7 million increase in accounts payable, accrued expenses, and other current liabilities, and deferred revenue, offset by a$3.5 million increase in inventory, prepaid expenses and other current assets.
Activités d’investissement
La trésorerie nette affectée aux activités d’investissement a été
We had limited investing activities for the year endedDecember 31, 2020 due to a curtailing of capital spending during the COVID-19 pandemic and the nature of the business not being capital intensive.
Activités de financement
Net cash provided by financing activities was$66.1 million for the year endedDecember 31, 2021 . We received net proceeds of$101.6 million , after deducting underwriting discounts and offering costs from the IPO. This was partially offset by$14.0 million paid to Continuing Equity Owners for the redemption of LLC Units, and$21.4 million paid to members for tax distributions.
Dans
Flux de trésorerie provenant des activités d’exploitation, d’investissement et de financement – Comparaison des exercices clos
Le tableau suivant résume nos flux de trésorerie pour les exercices terminés
Years
terminé
2020 2019
Net cash provided by operating activities $ 26,723 $ 567
Net cash used in investing activities (584) (678)
Net cash (used in) provided by financing activities (263) 22,603
Augmentation nette de la trésorerie, des équivalents de trésorerie et de la trésorerie affectée 25 876
22,492
Trésorerie, équivalents de trésorerie et trésorerie affectée au début de l’exercice
40,598 18,106
Trésorerie, équivalents de trésorerie et trésorerie affectée à la fin de l’exercice
$ 40,598 Operating Activities Net cash provided by operating activities was$26.7 million for the year endedDecember 31, 2020 , consisting of$21.6 million in net income adjusted for$1.9 million in non-cash expense addbacks, primarily composed of depreciation and amortization of debt issuance costs, plus a$3.2 million increase from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities, which is the result of our revenue growth, primarily reflects a$6.7 million increase in accounts payable, accrued expenses and other current liabilities, and deferred revenue, offset by a$3.5 million increase in inventory, prepaid expenses and other current assets. 78 --------------------------------------------------------------------------------
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Net cash provided by operating activities was$0.6 million for the year endedDecember 31, 2019 , consisting of a net loss of$7.8 million adjusted for$1.0 million in non-cash addbacks, plus a$7.4 million increase from changes in assets and liabilities related to operating activities. The change in assets and liabilities related to operating activities, which is the result of our revenue growth, primarily reflects a$10.9 million increase in accounts payable, accrued expenses and other current liabilities, and deferred revenue, offset by a$3.5 million increase in inventory, and prepaid expenses and other current assets. Investing Activities
Nous avons eu des activités d’investissement limitées pour les exercices terminés
Activités de financement
Dans
During the year endedDecember 31, 2019 , we entered into the Term Loan for$35.0 million , excluding debt issuance costs, to pay off a loan from related parties of$11.0 million , and used the excess to improve our financial liquidity.
Contrat de prêt à terme
OnSeptember 30, 2019 , we entered into a Loan and Security Agreement with Runway Growth Finance Corp. (f/k/aRunway Growth Credit Fund Inc. ) ("Runway") which provided for a first tranche of loans in an aggregate principal amount up to$35.0 million available immediately and a second tranche of loans in an aggregate principal amount up to$5.0 million ("Original Term Loan"). OnDecember 17, 2020 , the Original Term Loan was amended to add a commitment for supplemental second tranche loans in the aggregate amount of up to$30.0 million (the "First Amendment"). OnAugust 6, 2021 , the Original Term Loan was amended to permit (1) a transfer of$1.0 million to theBrilliant Earth Foundation , and (2) additional amounts up to 5.00% of our annual net profits thereafter provided that there is not an event of default that has not been cured (the "Second Amendment"). OnAugust 29, 2021 , the Original Term Loan was amended to, among other matters, permit the Reorganization Transactions to be consummated by us in connection with the Up-C structure, and reduce the interest rate of the Term Loan (the "Third Amendment", and the Original Term Loan, as amended by the First Amendment, the Second Amendment, and the Third Amendment, the "Term Loan"). The maturity date of the Term Loan isOctober 15, 2023 , and as ofDecember 31, 2021 , we complied with all covenants under the Term Loan. The Term Loan carries an interest rate equal to LIBOR, with a floor of 0.50%, plus 7.75%, unless LIBOR becomes no longer available or ceases to accurately or fairly cover or reflect the costs of the lender, in which case the applicable interest rate shall be Prime Rate, with a floor of 3.35%, plus 4.90%. We are required to make interest-only payments on the Term Loan throughApril 15, 2022 (the "Amortization Date"). The Term Loan will begin amortizing on the Amortization Date, with equal monthly payments of principal, which would fully amortize the principal amount of the Term Loan byOctober 15, 2023 , plus interest being made by us to Runway in consecutive monthly installments untilOctober 15, 2023 . The Term Loan carries 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 maturity or prepayment, plus$0.2 million . In the event that we choose to partially prepay the Term Loan, we are obligated to make a partial final payment on the date of such prepayment. The Term Loan is secured by substantially all of the assets of the Company and requires us to comply with various affirmative and negative debt covenants. The affirmative covenants include meeting reporting requirements, such as monthly financial statements and compliance certificates, board observer rights, annual operating budget and 79 --------------------------------------------------------------------------------
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financial projections, annual audited financial statements, federal tax returns, and other requirements. The negative covenants contain requirements that restrict our ability to create, incur, assume, or be liable for any indebtedness, incur liens, make distributions, make investments, dispose of assets, engage in mergers or acquisitions, or effect a change in business, management, ownership, or business locations, and other restrictive requirements. In addition, the financial covenants require us to reach the minimum liquidity requirements of cash and cash equivalents in deposit accounts secured in favor of Runway in an amount not less than the sum of (a) projected negative cash flow from operations (including interest payments due in respect of any indebtedness) for the immediately following six (6) months, plus (b) projected capital expenditures on property and/or equipment, including any leasing expenditures and principal repayments in respect of any indebtedness, for the immediately following six (6) months, as determined monthly on the last day of each month. For additional information regarding our long-term debt activity, see Note 8, Long-Term Debt to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Exigences de liquidité supplémentaires après la réalisation de l’offre
We are a holding company and have no material assets other than our ownership of LLC Interests. We have no independent means of generating revenue. The Brilliant Earth LLC Agreement in effect since the time of the IPO provides for the payment of certain distributions to the Continuing Equity Owners and to us in amounts sufficient to cover the income taxes imposed on such members with respect to the allocation of taxable income fromBrilliant Earth, LLC as well as to cover our obligations under the TRA and other administrative expenses. Regarding the ability ofBrilliant Earth, LLC to make distributions to us, the terms of their financing arrangements, including the Term Loan Agreement, contain covenants that may restrictBrilliant Earth, LLC from paying such distributions, subject to certain exceptions. Further,Brilliant Earth, LLC is generally prohibited underDelaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities ofBrilliant Earth, LLC (with certain exceptions), as applicable, exceed the fair value of its assets. In addition, under the TRA, we are required to make cash payments to the Continuing Equity Owners equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in our allocable share of the tax basis ofBrilliant Earth, LLC's assets resulting from (a) our purchase of LLC Interests from each Continuing Equity Owner; (b) future redemptions or exchanges of LLC Interests for Class A common stock or cash; and (c) certain distributions (or deemed distributions) byBrilliant Earth, LLC ; and (2) certain tax benefits arising from payments made under the TRA. We expect the amount of the cash payments that we will be required to make under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing Equity Owners, the amount of gain recognized by the Continuing Equity Owners, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing Equity Owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us. Additionally, in the event we declare any cash dividends, we intend to causeBrilliant Earth, LLC to make distributions to us in amounts sufficient to fund such cash dividends declared by us to our shareholders. Deterioration in the financial condition, earnings, or cash flow ofBrilliant Earth, LLC for any reason could limit or impair their ability to pay such distributions. If we do not have sufficient funds to pay taxes or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA. In addition, ifBrilliant Earth, LLC does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired. 80 --------------------------------------------------------------------------------
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Voir « Facteurs de risque – Risques liés à notre structure organisationnelle ».
Obligations et engagements contractuels
From time to time in the normal course of business, the Company will enter into agreements with suppliers or service providers. As ofDecember 31, 2021 , unconditional future minimum payments under agreements to purchase services primarily related to software maintenance and marketing and advertising spending. The Company does not have a material amount of purchase obligations from contracts with remaining term in excess of 12 months. For additional information on our contractual obligations and commitments, see Note 7, Leases, Note 9, Stockholders' and Members' Equity and Note 12, Commitments and Contingencies, to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Principales conventions comptables et estimations
In preparing our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K in conformity withU.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and business valuations. Actual amounts could differ from those estimated at the time the audited consolidated financial statements are prepared. Our significant accounting policies are described in Note 2, Summary of significant accounting policies, to our accompanying financial statements and related notes thereto included elsewhere in this Form 10-K. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations. Our critical accounting estimates include the following:
Comptabilisation des revenus
Net sales primarily consists of revenue from the sale of inventory, and we recognize revenue as control of promised goods is transferred to customers, which generally occurs upon delivery if the order is shipped, or at the time the customer picks up the completed product at a showroom. Revenue arrangements generally have one performance obligation and are reported net of estimated sales returns and allowances, which are determined based on historical product return rates and current economic conditions. We offer a three-year extended in-house service plan, which gives rise to an additional performance obligation that is recognized over the course of the service plan. We maintain a returns asset account, less any expected costs to recover, and a refund liabilities account to record the effects of estimated product returns and sales returns and allowances, which are updated at the end of each financial reporting period with the effect of such changes accounted for in the period in which such changes occur. Our sales returns and allowance accounts are based on historical return experience and current period sales levels.
Rémunération fondée sur des actions
Equity-based compensation is accounted for as an expense in accordance with the fair value recognition and measurement provisions ofU.S. GAAP which requires compensation cost for the grant-date fair value of equity-based awards to be recognized over the requisite service period. We account for a forfeiture when it occurs, 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 ClassM Units prior to 81 --------------------------------------------------------------------------------
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conversion to common LLC Units in the IPO on a value-for-value basis) for grants prior to our IPO inSeptember 2021 was determined by considering a number of objective, subjective and highly complex factors including independent third-party valuations of our member units, operating and financial performance, the lack of liquidity of member units and general and industry specific economic outlook among other factors. We do not anticipate issuing any new restricted LLC Units.
La juste valeur des UAI, qui ont toutes été attribuées au moment du PAPE ou par la suite, est fondée sur la juste valeur des actions ordinaires de catégorie A au moment de l’attribution.
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 our 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 theU.S. Treasury implied yield at the date of grant. We have 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; we believe the simplified method approximates a term if it were to be based on expected life. The expected dividend yield is nil as we have not paid and do not anticipate paying dividends on our common stock.
Accord d’Actif d’Impôt Différé et de Créance d’Impôt
We may receive a deferred tax benefit resulting from the step-up in basis which occurs in the event that we redeem LLC interests from the Continuing Equity Owners. Pursuant to a TRA entered into byBrilliant Earth, LLC and the Continuing Equity Owners, we will make payments to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, thatBrilliant Earth Group, Inc. actually realizes (or in some circumstances is deemed to realize) as a result of (1) increases inBrilliant Earth Group, Inc.'s allocable share of the tax basis ofBrilliant Earth, LLC's assets resulting from (a)Brilliant Earth Group, Inc.'s purchase of LLC Interests from each Continuing Equity Owner, (b) future redemptions or exchanges of LLC Interests for Class A common stock or cash, and (c) certain distributions (or deemed distributions) byBrilliant Earth, LLC ; and (2) certain tax benefits arising from payments made under the TRA. We expect that payments under the TRA will be significant. We will account for the income tax effects and corresponding TRA's effects resulting from future taxable purchases or redemptions of LLC Interests of the Continuing LLC Owners by us orBrilliant Earth, LLC by recognizing an increase in our deferred tax assets, based on enacted tax rates at the date of the purchase or redemption, and assessment of the book basis of the redeemed LLC interests at the time of redemption. Further, we will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance. The amounts to be recorded for both the deferred tax asset and the liability for our obligations under the TRA will be estimated at the time of any purchase or redemption as a reduction to shareholders' equity, and the effects of changes in any of our estimates after this date will be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income. We currently believe that all deferred tax assets will be recovered based upon the projected profitability of our operations. Judgement is required in assessing the future tax consequences of events that have been recognized inBrilliant Earth Group, Inc.'s financial statements. A change in the assessment of such consequences, such as realization of deferred tax assets, changes in tax laws or interpretations thereof could materially impact our results. 82 --------------------------------------------------------------------------------
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Prises de position comptables récentes
See Note 2 - Summary of Significant Accounting Policies to our accompanying financial statements and related notes thereto included elsewhere in this Form 10-K for additional information regarding recent accounting developments and their impact on our results. JOBS Act We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act, enacted onApril 5, 2012 . Section 102 of the JOBS Act provides that, among other reporting exemptions, an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2) (B) of the Securities Act for complying with new or revised accounting standards. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our audited consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. The exemptions afforded to emerging growth companies will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO (December 31, 2026 ), (ii) in which we have total annual gross revenue of at least$1.07 billion or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the last business day of our prior second fiscal quarter, and (b) the date on which we have issued more than$1.07 billion in non-convertible debt during the prior three-year period.
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