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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to
Commission File Number 001-40836
Brilliant Earth Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware87-1015499
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
300 Grant Avenue, Third Floor
San Francisco, CA
94108
(Address of principal executive offices)(Zip Code)
(800) 691-0952
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par value per shareBRLTThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 9, 2021, there were approximately 9,583,332 shares of the registrant's Class A common stock outstanding.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy, and plans and objectives of management for future operations, including, among others, statements regarding expected growth, future capital expenditures, and debt service obligations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms, such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these terms or other similar expressions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict.
 
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including the important factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment.New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. This Quarterly Report on Form 10-Q and the documents that we have filed as exhibits should be read with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained in this Quarterly Report on Form 10- Q, whether as a result of any new information, future events or otherwise.
 


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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. Investors should carefully consider these risks and uncertainties when investing in our Class A common stock. The principal risks and uncertainties affecting our business include the following:
We have grown rapidly in recent years and have limited operating experience at our current scale of operations. If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer;
Increases in the costs of diamonds, other gemstones and precious metals, lead times, supply shortages, and supply changes could disrupt our business and have an adverse effect on our operations, financial condition, and results;
Our business model relies on maintaining a low cost of production and distribution. Fluctuations in the pricing and supply of diamonds, other gemstones, and precious metals, particularly responsibly sourced natural and lab-grown diamonds and recycled precious metals such as gold, which account for the majority of our merchandise costs, increases in labor costs for manufacturing such as wage rate increases, as well as inflation, and energy prices could adversely impact our earnings and cash availability; .
If we fail to cost-effectively turn existing customers into repeat customers or to acquire new customers, our business, financial condition, and results of operations would be harmed;
We plan to expand showrooms in the U.S., which may expose us to significant risks;
The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business;
We have a history of losses, and we may be unable to sustain profitability;
The fine jewelry retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted;
Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage;
We derive a significant portion of our revenue from sales of our Create Your Own rings. A decline in sales of our Create Your Own rings would negatively affect our business, financial condition, and results of operations;
If we fail to maintain and enhance our brand, our ability to engage or expand our base of customers may be impaired and our business, financial condition, and results of operations may suffer;
Our marketing efforts to help grow our business may not be effective, and failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our e-commerce and omnichannel approach to shopping for fine jewelry;
Environmental, social, and governance matters may impact our business and reputation;
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Our e-commerce and omnichannel business faces distinct risks, and our failure to successfully manage those risks could have a negative impact on our profitability;
If we are unable to effectively anticipate and respond to changes in consumer preferences and shopping patterns, or are unable to introduce new products or programs that appeal to new or existing customers, our sales and profitability could be adversely affected;
 
We expect a number of factors to cause our results of operations and operating cash flows to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance;
Our principal asset is our interest in Brilliant Earth, LLC, and, as a result, we depend on distributions from Brilliant Earth, LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement (as defined herein). Brilliant Earth, LLC’s ability to make such distributions may be subject to various limitations and restrictions;
The Tax Receivable Agreement with the Continuing Equity Owners requires us to make cash payments to them in respect of certain tax benefits to which we may become entitled, and we expect that such payments will be substantial; and

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners;

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Part I - Financial Information
Item 1. Financial Statements

Brilliant Earth Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands except share and per share amounts)
September 30,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents$161,087 $66,269 
Restricted cash205 205 
Inventories, net20,057 13,559 
Prepaid expenses and other current assets7,682 2,939 
Total current assets189,031 82,972 
Property and equipment, net5,983 1,986 
Deferred tax asset4,375  
Other assets552 258 
Total assets $199,941 $85,216 
Liabilities, redeemable convertible preferred units, and stockholders' equity/members' equity/(deficit)
Current liabilities:
Accounts payable$11,472 $10,972 
Accrued expenses and other current liabilities24,758 16,961 
Current portion of deferred revenue21,848 10,775 
Current portion of long-term debt20,526  
Total current liabilities 78,604 38,708 
Long-term debt, net of debt issuance costs42,708 62,211 
Long-term deferred revenue204 179 
Deferred rent1,818 662 
Warrant liability 84 
Payable pursuant to the Tax Receivable Agreement3,919  
Other long-term liabilities2,701 2,440 
Total liabilities129,954 104,284 
Commitments and contingencies (Note 11)
Redeemable convertible preferred units (Class P Units) -
33,162,444 units authorized, 32,435,595 units issued and outstanding at December 31, 2020
 66,327 
Members' deficit -
    Class F Units - 50,954,445 units authorized, 50,232,863 units issued and outstanding at December 31, 2020; and Class M Units - 4,638,881 units authorized, 2,537,791 units issued and outstanding at December 31, 2020
 (85,395)
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Stockholders' equity
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized at September 30, 2021, none issued and outstanding at September 30, 2021
  
Class A common stock, $0.0001 par value - 1,200,000,000 shares authorized; 9,583,332 shares issued and outstanding as of September 30, 2021
1  
Class B common stock, $0.0001 par value - 150,000,000 shares authorized; 35,576,400 shares issued and outstanding as of September 30, 2021
4  
Class C common stock, $0.0001 par value - 150,000,000 shares authorized; 49,505,250 shares issued and outstanding as of September 30, 2021
5  
Class D common stock, $0.0001 par value - 150,000,000 shares authorized; none issued and outstanding as of September 30, 2021
  
Additional paid-in capital7,012  
Retained earnings66  
Equity attributable to Brilliant Earth Group, Inc.7,088  
NCI attributable to Brilliant Earth, LLC62,899  
Total redeemable convertible preferred units and stockholders' equity/members' (deficit)69,987 (19,068)
Total liabilities, redeemable convertible preferred units, and stockholders' equity/members' (deficit)$199,941 $85,216 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brilliant Earth Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except share and per share amounts)
Three months ended
September 30,
Nine months ended
September 30,
2021202020212020
Net sales$95,239 $71,445 $258,283 $163,209 
Cost of sales47,224 40,599 133,148 92,569 
Gross profit48,015 30,846 125,135 70,640 
Operating expenses:
Selling, general and administrative38,147 21,532 97,961 58,735 
Income from operations9,868 9,314 27,174 11,905 
Interest expense(1,912)(1,214)(5,786)(3,607)
Other expense, net(3,971)(59)(6,518)(75)
Income before tax3,985 8,041 14,870 8,223 
Income tax expense(23) (23) 
Net income3,962 $8,041 14,847 $8,223 
Net income allocable to non-controlling interest3,896 14,781 
Net income allocable to Brilliant Earth Group, Inc.$66 $66 
Period from
September 23,
2021 to
September 30,
2021
Earnings per share:
Basic$0.01 
Diluted$0.01 
Weighted average shares of common stock outstanding:
Basic9,583,332 
Diluted96,621,427 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brilliant Earth Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Unaudited and in thousands except share amounts)
Brilliant Earth, LLC (prior to Reorganization Transactions) Note 8Brilliant Earth Group, Inc. Stockholders' Equity
Class P UnitsClass F Units and Class M UnitsClass A Common StockClass B Common StockClass C Common StockNon-Controlling Interest
UnitsAmountsTotal UnitsTotal AmountsSharesAmountSharesAmountSharesAmountAdditional
Paid-In
Capital
Retained
Earnings
Stockholders' EquityAmountsTotal
Equity
Balance, June 30, 2020
32,435,595 $58,940 52,649,011 $(69,434)$(69,434)
Vested Class M Units— — 25,493 —  
Equity-based compensation— — — 7 7 
Net income— — — 8,041 8,041 
Adjustment of redeemable convertible preferred units to redemption value— 10,279 — (10,279)(10,279)
Balance, September 30, 2020
32,435,595 $69,219 52,674,504 $(71,665)$(71,665)
Balance, June 30, 2021
32,435,595 $250,746 53,235,187 $(277,342)$(277,342)
Tax distributions to members— (1,100)— (1,697)(1,697)
Vested Class M Units— — 91,913 —  
Equity-based compensation— — — 58 58 
Net income prior to Reorganization Transactions and IPO— 1,214 — 1,893 1,893 
Adjustment of redeemable convertible preferred units to redemption value— 138,367 — (138,367)(138,367)
Reorganization Transactions(32,435,595)(389,227)(53,327,100)415,455 — $— 36,064,421 $4 50,232,863 $5 $— $— $9 $(19,813)395,651 
IPO Transactions— — — — 9,583,332 1 (522,386)— (727,613)— 5,936 — 5,937 81,917 87,854 
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability— — — — — — — — — — 456 — 456 — 456 
LLC Units vesting during period— — — — — — 34,365 — — — — — — —  
Equity-based compensation — — — — — — — — — — 620 — 620 6 626 
Net income subsequent to Reorganization Transactions and IPO— — — — — — — — — — — 66 66 789 855 
Balance, September 30, 2021
 $  $ 9,583,332 $1 35,576,400 $4 49,505,250 $5 $7,012 $66 $7,088 $62,899 $69,987 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Brilliant Earth, LLC (prior to Reorganization Transactions) Note 8Brilliant Earth Group, Inc. Stockholders' Equity
Class P UnitsClass F Units and Class M UnitsClass A Common StockClass B Common StockClass C Common StockNon-Controlling Interest
Total UnitsTotal AmountsTotal UnitsTotal AmountsSharesAmountSharesAmountSharesAmountAdditional
Paid-In
Capital
Retained
Earnings
Stockholders' EquityAmountsTotal
Equity
Balance, January 1, 2020
32,435,595 $80,829 52,595,807 $(91,519)$(91,519)
Vested Class M Units— — 78,697 —  
Equity-based compensation— — — 21 21 
Net income— — — 8,223 8,223 
Adjustment of redeemable convertible preferred units to redemption value— (11,610)— 11,610 11,610 
Balance, September 30, 2020
32,435,595 $69,219 52,674,504 $(71,665)$(71,665)
Balance, January 1, 2021
32,435,595 $66,327 52,770,654 $(85,395)$(85,395)
Tax distributions to members— (9,755)— (11,643)(11,643)
Vested Class M Units— — 556,446 —  
Equity-based compensation— — — 246 246 
Net income prior to the Reorganization Transactions and IPO— 5,466 — 8,526 8,526 
Adjustment of redeemable convertible preferred units to redemption value— 327,189 — (327,189)(327,189)
Reorganization Transactions(32,435,595)(389,227)(53,327,100)415,455 — $— 36,064,421 $4 50,232,863 $5 $— $— $9 $(19,813)395,651 
IPO Transactions— — — — 9,583,332 1 (522,386)— (727,613)— 5,936 — 5,937 81,917 87,854 
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability— — — — — — — — — — 456 — 456 — 456 
LLC Units vesting during period— — — — — — 34,365 — — — — — — —  
Equity-based compensation — — — — — — — — — — 620 — 620 6 626 
Net income subsequent to Reorganization Transactions and IPO— — — — — — — — — — — 66 66 789 855 
Balance, September 30, 2021
 $  $ 9,583,332 $1 35,576,400 $4 49,505,250 $5 $7,012 $66 $7,088 $62,899 $69,987 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Brilliant Earth Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

Nine months ended September 30,
20212020
Operating activities
Net income$14,847 $8,223 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense536 489 
Equity-based compensation expense872 21 
Change in fair value of warrants6,331  
Amortization of debt issuance costs1,284 822 
Other24 39 
Changes in assets and liabilities:
Inventories(6,501)(4,167)
Prepaid expenses and other current assets903 343 
Other assets(294)21 
Accounts payable, accrued expenses and other current liabilities3,565 17 
Deferred revenue11,098 9,449 
Deferred rent1,156 (67)
Net cash provided by operating activities33,821 15,190 
Investing activities
Purchases of property and equipment(4,385)(529)
Net cash used in investing activities(4,385)(529)
Financing activities
Issuance of Class A common stock in IPO, net of underwriting discounts and offering costs101,879  
Redemption of LLC Units(14,025) 
Issuance of Class B and C shares of common stock9  
Tax distributions to members(21,398) 
Payment of offering costs(1,083) 
Borrowings from PPP loan 2,657 
Net cash provided by financing activities65,382 2,657 
Net increase in cash, cash equivalents and restricted cash94,818 17,318 
Cash, cash equivalents and restricted cash at beginning of period66,474 40,598 
Cash, cash equivalents and restricted cash at end of period$161,292 $57,916 
Non-cash investing and financing activities
Adjustment of redeemable convertible preferred units to redemption value$327,189 $11,610 
Conversion of Class F and Class M Units to Common LLC Units415,455  
Conversion of Class P Units to Common LLC Units389,227  
Net exercise of warrants on common LLC Units6,415  
Deferred offering costs included in accounts payable and accrued liabilities4,563  
Deferred tax assets associated with redemption of LLC Units4,375  
TRA Obligation associated with redemption of LLC Units3,919  
Credit to APIC related to redemption of LLC Units456  
Debt issuance costs capitalized to principal of long-term debt261 129 
Purchases of property and equipment included in accounts payable and accrued liabilities169 41 
Supplemental information
Cash paid for interest$4,539 $2,769 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brilliant Earth Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. 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 here-in as “the Company.”

The Company designs, procures and sells ethically-sourced diamonds, gemstones and jewelry online and through showrooms operated in San Francisco, Los Angeles, Boston, Chicago, San Diego, Washington DC, Denver, Philadelphia, Atlanta, Seattle, Portland, Austin, Dallas, and New York. 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 United States (“US”); sales to non-US customers immediately settle in US dollars and no cash balances are carried in foreign currencies.

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 $101.9 million in proceeds after a deduction for underwriting discounts and offering costs totaling $13.1 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 represents a 10.1% economic interest as of September 30, 2021.



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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 (the "Reorganization Transactions"):

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.

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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 $101.9 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

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global pandemic based on the spread of the virus worldwide, including to the US, where the Company’s principal operations occur.

On March 16, 2020, the Company temporarily closed its showrooms to the public, but continued to fulfill orders during this period of time. COVID-19 also temporarily disrupted the Company’s supply chain operations resulting in some delays to jewelry production and delivery timelines in 2020. While the Company re-opened all of its showrooms to the public in 2020, the Company’s operations are still subject to local or regional public health orders that could include temporary government-mandated closures which may impact the Company’s showrooms or other operations.

The Company’s financial performance was adversely impacted by COVID-19 in 2020. The COVID-19 pandemic remains ongoing and the potential duration and magnitude of the pandemic’s future impact on the jewelry industry and on the Company’s operations and supply chain remains unknown and depends
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on factors outside of the Company’s control including the duration and intensity of the pandemic, the availability and efficacy of treatments and vaccines, and the impact of COVID-19 on financial markets, industry supply chains and consumer behavior. The potential impact of these factors on the Company’s future liquidity, financial condition and results of operations cannot be estimated.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act includes many measures to provide relief to companies. The Company has not participated in any such measures, other than obtaining a U.S. Small Business Administration Paycheck Protection Program Loan (“PPP Loan”) under the CARES Act, which was fully repaid in December 2020. See Note 7, Long-Term Debt, for further discussion.     

NOTE 2. 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 unaudited condensed consolidated financial statements have been prepared on the same basis as its annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021, or for any other interim period or for any other future year.

The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements and should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the final prospectus, dated September 22, 2021, filed with the SEC in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on September 24, 2021 (the "Prospectus") in connection with our IPO.
Principles of Consolidation and non-controlling interest

The 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 condensed consolidated statement 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 condensed consolidated balance sheet represents 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, 2021, the non-controlling interest was 89.9%.

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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 allowance for sales returns, inventory valuation, 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.

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 fair value of the Class P Units and the warrants on Class P Units as of September 22, 2021 just before conversion into common LLC Units were $389.2 million and $6.4 million, respectively; these securities are no longer subject to this fair value disclosure.

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) and were classified as Level 2. Redeemable Convertible Class P Units and Class P Units underlying warrants were classified as Level 3 until the IPO at which time the securities were converted into LLC Interests.

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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, highly liquid in nature.

The following table provides a reconciliation of cash and cash equivalents, and restricted cash from the condensed consolidated balance sheets to the statements of cash flows for the periods ended September 30, 2021, December 31, 2020, and September 30, 2020 (in thousands):

September 30,December 31,September 30,
202120202020
Cash and cash equivalents$161,087 $66,269 $57,712 
Restricted cash205 205 204
Total$161,292 $66,474 $57,916 

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. A three-year extended service plan, which provides full inspection, cleaning and certain repairs due to normal wear, is offered for an additional charge.

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The following table discloses total net sales by geography for the three and nine months ended September 30, 2021 and 2020 (in thousands):
For the three months ended September 30,For the nine months ended September 30,
2021202020212020
United States$87,540 $65,444 $239,534 $150,648 
International7,699 6,001 18,749 12,561 
Total net sales$95,239 $71,445 $258,283 $163,209 
    

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 also offers a three-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 service 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 three-year extended service plan that customers have elected to purchase. As of September 30, 2021 and December 31, 2020, total deferred revenue was $22.1 million and $11.0 million, respectively. During the three months ended September 30, 2021 and 2020, the Company recognized $18.8 million and $14.6 million, respectively, of revenue that was deferred as of the last day of the respective prior quarter. During the nine months ended September 30, 2021 and 2020, the Company recognized $10.3 million and $7.2 million, respectively, of revenue that was deferred as of the last day of the respective prior period.

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.

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As of September 30, 2021 and December 31, 2020, refund liabilities balances were $1.3 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 condensed consolidated balance sheets. As of September 30, 2021 and December 31, 2020, returns asset balances were $0.7 million and $1.2 million, respectively, and are included within prepaid expenses and other current assets in the condensed consolidated balance sheets.

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 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.

Marketing, Advertising and Promotional Costs

Marketing, advertising and promotional costs are expensed as incurred and totaled approximately $18.5 million and $11.3 million, for the three months ended September 30, 2021 and 2020, respectively, and $49.2 million and $31.6 million, for the nine months ended September 30, 2021 and 2020, respectively.

Deferred Offering Costs

The Company capitalizes certain legal, accounting and other third-party fees that are directly related to an anticipated equity financing until such transaction is consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds received. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses in the condensed consolidated statements of operations in the period of determination.

Equity-Based Compensation
 
Equity-based compensation is accounted for as an expense in accordance 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 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
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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
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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 condensed consolidated statements of operations. As of September 30, 2021, no uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 – Leases, which was amended in January 2018 and requires an entity that leases assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Leases will be classified as either financing or operating, similar to current accounting requirements, with the applicable classification determining the pattern of expense recognition in the statement of earnings. The Company will adopt the ASU in the first quarter of 2022 by applying its provisions prospectively and recognizing any cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2022. The Company also expects to elect the package of practical expedients permitted under the transition guidance, which provides that an entity need not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. Management continues to evaluate the impact of this ASU on the condensed consolidated financial statements, but expects that adoption will result in a significant increase in the Company's assets and liabilities. The implementation project team has developed additional processes and policies to support the requirements of this ASU and has collected key data for each leased asset.

Other recent accounting pronouncements not yet adopted that could have a material effect on future results of operations or financial position are presented in the audited financial statements and the notes thereto.

NOTE 3. EARNINGS PER SHARE

Basic 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, only earnings per share for net income for periods subsequent to September 22, 2021 are presented. 

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Basic and diluted earnings per share of common stock for the period from September 23, 2021 to September 30, 2021 have been computed as follows (in thousands, except share and per share amounts):

For the period September 23, 2021 to September 30, 2021
Numerator:
Net income attributable to Brilliant Earth Group, Inc., BASIC$66 
Add: Net income impact from assumed redemption of all LLC Units to common stock789 
Less: Income tax expense on net income attributable to NCI at 25.7%
(203)
Net income attributable to Brilliant Earth Group, Inc., after adjustment for assumed conversion, DILUTED$652 
Denominator:
Weighted average shares of common stock outstanding, BASIC9,583,332 
Dilutive effects of:
LLC Units that are exchangeable for common stock85,051,581 
Unvested LLC Units, RSUs and stock options1,986,514 
Weighted average shares of common stock outstanding, DILUTED96,621,427 
BASIC earnings per share$0.01 
DILUTED earnings per share$0.01 

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 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, RSUs and stock options were included using the treasury stock method. 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.

NOTE 4. INVENTORIES, NET

Inventories, net consist of the following (in thousands):

September 30,December 31,
20212020
Loose diamonds$7,915 $4,938 
Fine jewelry and other12,387 8,863 
Allowance for inventory obsolescence(245)(242)
Total inventories, net$20,057 $13,559 

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The allowance for inventory obsolescence consists of the following (in thousands):

September 30,September 30,
20212020
Balance at beginning of period$(242)$(169)
Change in allowance for inventory obsolescence(3)(39)
Balance at end of period$(245)$(208)

Provisions for inventory obsolescence included in cost of sales in the condensed consolidated statements of operations were $27,000 and $25,000, for the three months ended September 30, 2021 and 2020, respectively, and $3,000, and $39,000 for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, the Company had $15.3 million and $11.7 million, respectively, in consigned inventory held on behalf of suppliers which is not recorded in the condensed consolidated balance sheets.

NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

September 30,December 31,
20212020
Accrued vendor expenses$6,697 $5,409 
Inventory received not billed5,110 3,893 
Accrued offering cost (a)
4,563  
Accrued payroll expenses2,601 1,515 
Sales and other tax payable accrual1,949 2,455 
Provision for sales returns and allowances1,348 2,341 
Other2,490 1,348 
Total accrued expenses and other current liabilities$24,758 $16,961 

(a) Primarily includes attorney and consulting fees in support of the Company’s IPO, which, at the time of the IPO, were offset against the gross proceeds of the IPO within “Additional paid-in capital” on the condensed consolidated balance sheets.

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 nine months ended September 30, 2021 and 2020 was as follows (in thousands):

September 30,September 30,
20212020
Balance at beginning of period$2,341 $1,339 
Provision16,450 10,373 
Returns and allowances(17,443)(10,993)
Balance at end of period $1,348 $719 


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NOTE 6. LEASES

During the nine months ended September 30, 2021, the Company entered into new lease agreements in nine locations in the US and amended certain existing leases to extend their terms.

Total operating lease expense recorded in selling, general and administrative expenses in the condensed consolidated statements of operations were $1.1 million and $0.6 million, for the three months ended September 30, 2021 and 2020, respectively; and $2.3 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively.

The aggregate future minimum lease payments under long-term non-cancelable operating leases as of September 30, 2021 are as follows (in thousands):

Amount
For the three months ending December 31, 2021$660 
Years ending December 31,
20223,502 
20233,670 
20243,518 
20253,437 
20263,090 
Thereafter7,112 
Total minimum lease payments$24,989 

NOTE 7. LONG-TERM DEBT

The following table summarizes the net carrying amount of the Term Loan (as defined below) as of September 30, 2021 and December 31, 2020, net of debt issuance costs (in thousands):

September 30, 2021December 31, 2020
Outstanding principalDebt issuance costsNet carrying amountOutstanding principalDebt issuance costsNet carrying amount
Term loan$65,000 $(1,766)$63,234 $65,000 $(2,789)$62,211 
Total debt$65,000 $(1,766)$63,234 $65,000 $(2,789)$62,211 
Current portion$20,526 $— $20,526 $ $— $ 
Long term44,474 (1,766)42,708 65,000 (2,789)62,211 
Total debt$65,000 $(1,766)$63,234 $65,000 $(2,789)$62,211 

The Company entered into a Loan and Security Agreement (the “Term Loan Agreement”) on September 30, 2019 with Runway Growth Credit Fund Inc. (the “Lender”) for a $40.0 million term loan, of which $35.0 million was defined as the First Tranche Term Loan and $5.0 million was the Second Tranche Term Loan. The $35.0 million First Tranche Term Loan was drawn on September 30, 2019. Payments were interest only through October 15, 2021 (first scheduled amortization payment) after which equal monthly payments of principal were due through April 15, 2023 (maturity date). Interest was at a variable rate equal to LIBOR (floor of 2.15%) plus 8.25%.

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