C3 ( CTHR ) Diamond in the rough? Message Board

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Biotech / Medical : C3 ( CTHR ) Diamond in the rough?

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Oct 28 10:00 AM EDT

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To: Leslie S. Feinberg who wrote ()	7/21/1999 8:20:00 PM
From: Mr Bones	Read Replies (1) of 226

Here are my notes from CTHR's Q2 conference call. Jeff Hunter (JH) read the introductory remarks; Bob Thomas (BT) answered most of the questions from analysts. I put my comments in brackets [like these]. This call sounded more professional than previous ones. JH's comments thankfully did not fall into the infomercial/rant category as has been the case in the past. Most Recent Quarter - Shipped 16k carats this Q, a 13% increase over the previous Q - Increased GMs are a result of better yield and cost containment in the manufacturing process (BT) - Burned $2.5m in Q2. Will probably burn more in Q3 as they begin to pay for the crystal growers that they received this Q. - Inventory rise is due to an unexpected rise in the quality of the raw materials received from Cree. The analyst who asked about this was concerned about the heavy rise in inventory; BT pointed out that unacceptable raw materials get written off against COGS, so every dollar that wound up (somewhat unexpectedly) in inventory instead of COGS this Q will be recovered when the product is sold. He contends that this is therefore not a problem, instead it is a good thing because yields are up. [I'm not sure the analyst was convinced.] - The best moissanite retailers averaged 6 inventory turns and 58% margins - The 31 retailers who CTHR terminated were all violating their agreements Future Quarters - New growers for 3" crystals will be online in late August, in the short term the 3" yields are unpredictable. Eventually they expect them to surpass the yields of the 2" crystals. BT was unwilling to speculate as to when "eventually" is. - There is room for more yield improvements (JH) - CTHR could be profitable in Q3 IF second-half sales are on track to double first-half sales and IF GMs remain over 50%. To quote BT, "Those are two big IFs". [IMO, Q4 profitability is therefore a sure thing barring any nasty surprises.] - They are working on an ecommerce strategy but don't want to elaborate right now. - Based on comments from retailers, BT is "very encouraged" and "very optimistic" about late Q3 and Q4 sales. - CTHR does not anticipate ordering more growers this year although they may retool some 2" growers to 3". International - European sales will start in earnest in September - An analyst said that 2/3 of sales are from overseas and BT did not correct him, so I assume this is correct. - 100 retail outlets in the Caribbean (some on cruise ships) - 150 in Australia - Over 100 in Italy - "Thousands" of total retailers around the world (BT) Goals - Marketing is the highest priority for the upcoming quarter - CTHR wants the carat sales of the second half of the year to double those of the first half - 500 USA retail locations by end of 1999

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