These are the notes I took during the CTHR conference call following 4Q earnings. It lasted about 50 minutes; both Jeff Hunter and Bob Thomas fielded questions. Please note that this is what caught my ear during the CC, it is not intended as a comprehensive review of what was said. My comments are in brackets like these [xxx].
The call started with JH reading about CTHR's accomplishments with a few testimonials from satisfied customers thrown in for good measure. As I've said before, I thought he sounded more like an infomercial huckster than a CEO. I found this to be true at the last CC too. I don't mean to beat this topic to death but I found it really annoying.
The future:
- JH said that CTHR's #1 goal is improving yield
- Yield improvement is still more important than color improvement
- Their three main goals (for the year?) are yield, balancing sales growth with supply, and building customer awareness.
- Aiming for 500 retail partners by the end of year with more international agreements.
- CTHR will test new cuts and colors this year
- They are making progress on 3" wafer but the only specific BT would give is that CTHR has previously announced a schedule for the 3" wafer development [I don't have the schedule offhand, can anyone point me to it?] and they are "cautiously optimistic" that they will meet the second deadline of this schedule.
- Gross margins on average should increase but may bounce around a bit during the year. The low end should be about the same as Q3, the high end should "a few percentage points higher than it is today".
- Trying to move to as near-colorless a stone as possible & see constant incremental improvement (see above note about yield vs. color improvement)
- CTHR plans to sell gems over the Internet at some point
- CTHR estimates that moissanite margins for retailers are very, very good compared to all other items in a typical jewelry store which means there may be some room for CTHR to increase prices on moissanite.
- Retailers sign 3-18 month deals during which they're locked in at a certain price for moissanite (i.e. any price increases would only affect new contracts)
- They still expect it will take quarterly sales of about 18-20k carats to turn a profit.
- 25k carats is the low side of the goal for Q4
- In the past Q they sold @100 green stones in the USA and @200 elsewhere; BT emphasized that this was just test marketing.
- CTHR expects late Q2/early Q3 demand to exceed production which will require "some investment" to meet that demand (more growers? he did not elaborate)
Current/Past quarter:
- CTHR shipped some pieces -- pendants, a 3 stone ring, earrings and a bracelet. BT said "we are not getting into the jewelry business". [I'm not sure how to reconcile these statments.]
- Demand is stronger for larger stones, demand for stones smaller than .25 carat and larger than 1.25 carats is outstripping supply. BT said that this is partly a problem of being unable to anticipate demand accurately. [It seems reasonable to assume that they'll get better at predicting with experience.]
- Burned $2.4m in Q4, they expect to burn less in future Qs.
- 2/3 of inventory is gemstones or gemstones in process, the remainder is testers.
- Of that 2/3, 1/3 is finished goods (i.e. 2/9 of total inventory, about 22%).
- Median stone size sold (by CTHR, not retailer) is a little bigger than .5 carat
- BT said there is a 75 day window between "cutting those preforms" and getting them back as gemstones. [Would like to hear from someone who can tell me what cutting a preform means. TNX.]
The Shadowy Foreign Threat:
- The Russians have been growing SiC for military purposes for years.
- CTHR's US patent lasts until 2015 and covers SiC "in a number of atomic arrangements" [paraphrase] and the process for turning them into gemstones.
- CTHR is filing for patent protection in Europe, Russia, China & more.
Miscellaneous:
- Larger stones have better margins
I also wrote in my notes that JH and mostly BT seemed evasive. Looking back on it, I think they were not being evasive but neither are they very good at expressing themselves clearly.
Good luck to all,
Mr Bones |
