SEC Filing | Brilliant Earth Group, Inc.

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brlt-20220630

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 June 30, 2022


☐			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)


Delaware						87-1015499
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

BRLT

The 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 filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller 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 August 8, 2022, there were 10,835,394 shares of the registrant's Class A common stock, $0.0001 par value per share, outstanding, 35,399,590 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding, 49,119,976 shares of the registrant’s Class C common stock, $0.0001 par value per share, outstanding and no shares of the registrant’s Class D common stock, $0.0001 per share, outstanding.

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			Page
Part I - Financial Information
Item 1. Financial Statements.			5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			37
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			58
Item 4. Controls and Procedures.			59
Part II - Other Information
Item 1. Legal Proceedings.			60
Item 1A. Risk Factors.			60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			60
Item 3. Defaults Upon Senior Securities.			60
Item 4. Mine Safety Disclosures.			60
Item 5. Other Information.			60
Item 6. Exhibits.			61
Signatures			62

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy, 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 “anticipate,” “believe,” “contemplates,” “continues,” “could,” “estimate,” “evolve,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “strategy,” “target,” “will,” or “would,” 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, but not limited to: risks related to our rapid growth in recent years and limited operating experience; our ability to manage growth effectively; risks related to increases in costs of diamonds, other gemstones and precious metals; our ability to maintain 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, increases in labor costs for manufacturing such as wage rate increases, as well as inflation, and energy prices; our ability to cost-effectively turn existing customers into repeat customers or to acquire new customers; risks related to our expansion plans in the U.S.; risks related to an overall decline in the health of the economy and other factors impacting consumer spending, such as recessionary conditions, governmental instability, war or the threat of war, and natural disasters; our history of losses, and we may be unable to sustain profitability; our ability to compete in the fine jewelry retail industry; our ability to manage our inventory balances and inventory shrinkage; risks related to a decline in sales of Create Your Own rings; our ability to maintain and enhance our brand; risks related to the effectiveness of our marketing efforts; risks related to environmental, social, and governance matters impact on our business and reputation; risks related to our e-commerce and omnichannel business; our ability to effectively anticipate and respond to changes in consumer preferences and shopping patterns; risks related to our ability to predict future performance due to quarterly and annual fluctuations of our results of operations and operating cash flow; risks related to our dependence on distributions from Brilliant Earth, LLC to pay our taxes and expenses; risks related to our obligations under the Tax Receivable Agreement (as discussed below) and our organizational structure; and the other risks, uncertainties and the factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2022. Other sections of this Quarterly Report on Form 10-Q include additional factors that could adversely impact our business and financial performance.

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.

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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.

BASIS OF PRESENTATION

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to:

• “we,” “us,” “our,” the “Company,” “Brilliant Earth,” and similar references refer: (1) following the consummation of the Reorganization Transactions (as defined below), including our initial public offering (“IPO”) which occurred on September 23, 2021, to Brilliant Earth Group, Inc., and, unless otherwise stated, all of its subsidiaries, including Brilliant Earth, LLC, and (2) prior to the completion of the Reorganization Transactions, including the IPO, to Brilliant Earth, LLC.

• “Brilliant Earth LLC Agreement” refers to Brilliant Earth, LLC’s amended and restated limited liability company agreement, which became effective prior to the consummation of the IPO.

• “Continuing Equity Owners” refers collectively to holders of LLC Interests and our Class B common stock and Class C common stock immediately following consummation of the Reorganization Transactions, including our Founders (as defined below) and Mainsail (as defined below), who may, exchange at each of their respective options, in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock or Class C common stock (and such shares shall be immediately cancelled)), as applicable, for, at our election (determined solely by our independent directors (within the meaning of the Nasdaq rules) who are disinterested), cash or newly-issued shares of our Class A common stock or Class D common stock, as applicable.

• “Founders” refers to Beth Gerstein, our Co-Founder and Chief Executive Officer, Eric Grossberg, our Co-Founder and Executive Chairman, and Just Rocks (as defined below).

• “Just Rocks” refers to Just Rocks, Inc., a Delaware corporation, which is jointly owned and controlled by our Founders.

• “LLC Interests” or “LLC Units” refers to the common units of Brilliant Earth, LLC, including those that we purchased with the net proceeds from the IPO.

• “Original Equity Owners” refers to the owners of LLC Interests in Brilliant Earth, LLC prior to the consummation of the Reorganization Transactions, collectively, which include Mainsail, Just Rocks, and certain executive officers and employees.

• “Mainsail” refers to Mainsail Partners III, L.P., our sponsor and a Delaware limited partnership, and certain funds affiliated with Mainsail Partners III, L.P., including Mainsail Incentive Program, LLC, and Mainsail Co-Investors III, L.P.

• “Reorganization Transactions” refers to the organizational transactions and the IPO, and the application of the net proceeds therefrom.

• “TRA” refers to the Tax Receivable Agreement with Brilliant Earth, LLC and the Continuing Equity Owners that provides 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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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)


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	155,533	$	172,865
Restricted cash	205		205
Inventories, net	35,344		24,743
Prepaid expenses and other current assets	9,759		8,178
Total current assets	200,841		205,991
Property and equipment, net	11,272		6,732
Deferred tax assets	8,298		4,407
Operating lease right of use assets	21,427		—
Other assets	1,729		601
Total assets	$	243,567	$	217,731

Liabilities and equity
Current liabilities:
Accounts payable	$	10,555	$	14,480
Accrued expenses and other current liabilities	35,455		28,756
Current portion of deferred revenue	22,476		18,818
Current portion of operating lease liabilities	3,025		—
Current portion of long-term debt	3,250		30,789
Total current liabilities	74,761		92,843

Long-term debt, net of debt issuance costs	61,000		32,789
Operating lease liabilities	21,399		—
Deferred rent	—		2,507
Payable pursuant to the Tax Receivable Agreement	6,541		3,775
Other long-term liabilities	112		2,979
Total liabilities	163,813		134,893

Commitments and contingencies (Note 11)





Equity
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized, none issued and outstanding at June 30, 2022 and December 31, 2021, respectively	—		—
Class A common stock, $0.0001 par value - 1,200,000,000 shares authorized; 10,835,394 and 9,614,523 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	1		1
Class B common stock, $0.0001 par value - 150,000,000 shares authorized; 35,357,593 and 35,658,013 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	4		4
Class C common stock, $0.0001 par value - 150,000,000 shares authorized; 49,119,976 and 49,505,250 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	5		5
Class D common stock, $0.0001 par value - 150,000,000 shares authorized; none issued and outstanding at June 30, 2022 and December 31, 2021, respectively	—		—
Additional paid-in capital	6,749		6,865
Retained earnings	2,308		1,528
Equity attributable to Brilliant Earth Group, Inc.	9,067		8,403
NCI attributable to Brilliant Earth, LLC	70,687		74,435
Total equity	79,754		82,838
Total liabilities and equity	$	243,567	$	217,731

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 June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net sales	$	108,809	$	92,348	$	208,847	$	163,044
Cost of sales	50,988		47,587		100,910		85,924
Gross profit	57,821		44,761		107,937		77,120
Operating expenses:
Selling, general and administrative	52,145		32,409		96,961		59,814
Income from operations	5,676		12,352		10,976		17,306
Interest expense	(1,146)		(1,948)		(2,922)		(3,874)
Other expense, net	(49)		(1,927)		(108)		(2,547)
Loss on extinguishment of debt	(617)		—		(617)		—
Income before tax	3,864		8,477		7,329		10,885
Income tax expense	(113)		—		(209)		—
Net income	3,751		$	8,477	7,120		$	10,885
Net income allocable to non-controlling interest	3,327				6,340
Net income allocable to Brilliant Earth Group, Inc.	$	424			$	780

Earnings per share:
Basic	$	0.04			$	0.07
Diluted	$	0.03			$	0.06
Weighted average shares of common stock outstanding:
Basic	10,810,627				10,412,922
Diluted	96,208,702				96,386,862

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 EQUITY AND

CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND EQUITY/ MEMBERS’ (DEFICIT)

(Unaudited and in thousands except share amounts)


	Brilliant Earth, LLC
	Class P Units			Class F			Class M			Class F Units and Class M Units
	Total Units	Total Amounts		Total Units	Total Amounts		Total Units	Total Amounts		Total Units	Total Amounts
Balance, March 31, 2021	32,435,595	$	147,055	50,232,863	$	(164,090)	2,863,012	$	393	53,095,875	$	(163,697)
Tax distributions to members	—	(8,626)		—	(9,900)		—	—		—	(9,900)
Vested Class M Units	—	—		—	—		139,312	—		139,312	—
Equity-based compensation	—	—		—	—		—	95		—	95
Net income	—	3,311		—	5,166		—	—		—	5,166
Adjustment of redeemable convertible preferred units to redemption value	—	109,006		—	(109,006)		—	—		—	(109,006)
Balance, June 30, 2021	32,435,595	$	250,746	50,232,863	$	(277,830)	3,002,324	$	488	53,235,187	$	(277,342)


	Brilliant Earth Group, Inc. Stockholders' Equity
	Class A Common Stock			Class B Common Stock			Class C Common Stock									Non-Controlling Interest
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Stockholders' Equity		Units	Amounts		Total Equity






Balance, March 31, 2022	10,708,456	$	1	35,326,696	$	4	49,119,976	$	5	$	7,339	$	1,884	$	9,233	84,446,672	$	72,809	$	82,042
Tax distributions to members	—	—		—	—		—	—		—		—		—		—	(8,100)		(8,100)
Conversion of Class B and Class C to Class A common stock	110,000	—		(110,000)	—		—	—		—		—		—		(110,000)	—		—
RSU vesting during period	16,938	—		—	—		—	—		—		—		—		—	—		—
LLC Units vesting during period	—	—		140,897	—		—	—		—		—		—		140,897	—		—
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability	—	—		—	—		—	—		(87)		—		(87)		—	—		(87)
Equity-based compensation	—	—		—	—		—	—		2,079		—		2,079		—	69		2,148
Net income	—	—		—	—		—	—		—		424		424		—	3,327		3,751
Rebalancing of controlling and non-controlling interest	—	—		—	—		—	—		(2,582)		$	—	(2,582)		—	2,582		—
Balance, June 30, 2022	10,835,394	$	1	35,357,593	$	4	49,119,976	$	5	$	6,749	$	2,308	$	9,067	84,477,569	$	70,687	$	79,754

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 EQUITY AND

CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND EQUITY/ MEMBERS’ (DEFICIT)

(Unaudited and in thousands except share amounts)


	Brilliant Earth, LLC
	Class P Units			Class F			Class M			Class F Units and Class M Units
	Total Units	Total Amounts		Total Units	Total Amounts		Total Units	Total Amounts		Total Units	Total Amounts
Balance, January 1, 2021	32,435,595	$	66,327	50,232,863	$	(85,695)	2,537,791	$	300	52,770,654	$	(85,395)
Tax distributions to members	—	(8,655)		—	(9,946)		—	—		—	(9,946)
Vested Class M Units	—	—		—	—		464,533	—		464,533	—
Equity-based compensation	—	—		—	—		—	188		—	188
Net income	—	4,252		—	6,633		—	—		—	6,633
Adjustment of redeemable convertible preferred units to redemption value	—	188,822		—	(188,822)		—	—		—	(188,822)
Balance, June 30, 2021	32,435,595	$	250,746	50,232,863	$	(277,830)	3,002,324	$	488	53,235,187	$	(277,342)


	Brilliant Earth Group, Inc. Stockholders' Equity
	Class A Common Stock			Class B Common Stock			Class C Common Stock									Non-Controlling Interest
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Stockholders' Equity		Units	Amounts		Total Equity






Balance, January 1, 2022	9,614,523	$	1	35,658,013	$	4	49,505,250	$	5	$	6,865	$	1,528	$	8,403	85,163,263	$	74,435	$	82,838
Tax distributions to members	—	—		—	—		—	—		—		—		—		—	(14,974)		(14,974)
Conversion of Class B and Class C to Class A common stock	1,163,914	—		(778,640)	—		(385,274)	—		—		—		—		(1,163,914)	—		—
RSU vesting during period	56,957	—		—	—		—	—		—		—		—		—	—		—
LLC Units vesting during period	—	—		478,220	—		—	—		—		—		—		478,220	—		—
Increase in deferred tax asset from step-up tax basis related to redemption of LLC Units and set-up of TRA liability	—	—		—	—		—	—		518		—		518		—	—		518
Equity-based compensation	—	—		—	—		—	—		4,107		—		4,107		—	145		4,252
Net income	—	—		—	—		—	—		—		780		780		—	6,340		7,120
Rebalancing of controlling and non-controlling interest	—	—		—	—		—	—		(4,741)		$	—	(4,741)		—	4,741		—
Balance, June 30, 2022	10,835,394	$	1	35,357,593	$	4	49,119,976	$	5	$	6,749	$	2,308	$	9,067	84,477,569	$	70,687	$	79,754

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)


	Six months ended June 30,
	2022		2021
Operating activities
Net income	$	7,120	$	10,885
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	747		321
Equity-based compensation	4,252		188
Non-cash operating lease cost	1,462		—
Change in fair value of warrants	—		2,446
Amortization of debt issuance costs	452		851
Loss on extinguishment of debt	617		—
Other	(56)		(24)
Changes in assets and liabilities:
Inventories	(10,544)		(3,579)
Prepaid expenses and other current assets	(1,945)		(980)
Other assets	(665)		(253)
Accounts payable, accrued expenses and other current liabilities	461		369
Deferred revenue	3,580		9,253
Operating lease liabilities	(608)		—
Deferred rent	—		733

Net cash provided by operating activities	4,873		20,210
Investing activities
Purchases of property and equipment	(4,068)		(2,646)
Net cash used in investing activities	(4,068)		(2,646)
Financing activities

Proceeds received from Silicon Valley Bank term loan facility	65,000		—
Repayment of Runway term loan	(58,158)		—
Principal payments on Runway term loan	(6,842)		—
Final payment and prepayment penalty on Runway term loan	(2,408)		—
Payments of debt issuance costs	(755)		—
Tax distributions to members	(14,974)		(18,601)
Payments of deferred offering costs	—		(231)
Net cash used in financing activities	(18,137)		(18,832)
Net decrease in cash, cash equivalents and restricted cash	(17,332)		(1,268)
Cash, cash equivalents and restricted cash at beginning of period	173,070		66,474
Cash, cash equivalents and restricted cash at end of period	$	155,738	$	65,206

Non-cash investing and financing activities
Right-of-use assets and operating lease liabilities	$	3,716	$	—
Deferred tax assets associated with redemption of LLC Units	3,891		—
TRA Obligation associated with redemption of LLC Units	3,373		—



Purchases of property and equipment included in accounts payable and accrued liabilities	1,219		117
Credit to APIC related to redemption of LLC Units	518		—
Debt issuance costs included in accounts payable and accrued liabilities	487		—

Deferred offering costs included in accounts payable and accrued liabilities	—		1,379
Adjustment of redeemable convertible preferred units to redemption value	—		188,822
Supplemental information
Cash paid for interest	$	2,414	$	3,033
Cash paid for taxes	$	191	$	—

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 herein as “the Company.”

The Company designs, procures and sells ethically-sourced diamonds, gemstones and jewelry online and through showrooms operated in twenty locations within the United States (“U.S.”) as of June 30, 2022. Co-headquarters are located in San Francisco, California and Denver, Colorado.

The Company operates in one operating and reporting segment which is the retail sale of diamonds, gemstones and jewelry. Over 90% of sales are to customers in the U.S.; sales to non-U.S. customers immediately settle in U.S. dollars and no cash balances are carried in foreign currencies. The Company’s chief operating decision maker (“CODM”), the Chief Executive Officer (“CEO”), reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) since the members of Brilliant Earth, LLC (the “Continuing Equity Owners”) prior to the IPO and merger continue to hold a controlling interest in Brilliant Earth, LLC after the merger (i.e., there was no change in control of Brilliant Earth, LLC) and since Brilliant Earth Group, Inc. was considered a “shell company” which does not meet the definition of a business, the financial statements of the combined entity represent a continuation of the financial position and results of operations of Brilliant Earth, LLC. Accordingly, the historical cost basis of assets, liabilities, and equity of Brilliant Earth, LLC are carried over to the condensed consolidated financial statements of the merged company as a common control transaction. Also, after consummation of the IPO, Brilliant Earth Group, Inc. became subject to U.S. federal, state, and local income taxes with respect to its allocable share of any taxable income of Brilliant Earth, LLC assessed at the prevailing corporate tax rates.

Initial Public Offering and purchase of LLC Interests

On September 27, 2021, the Company completed its IPO of 9,583,332 shares of Class A common stock at an offering price of $12.00 per share, (excluding the underwriting discount), including 1,249,999 shares of Class A common stock issued pursuant to the underwriters' over-allotment option. The Company received $101.6 million in proceeds after a deduction for underwriting discounts and offering costs totaling $13.4 million.

The net proceeds were used to purchase 8,333,333 newly-issued membership units (the “LLC Units” or “LLC Interests”) from Brilliant Earth, LLC and 1,249,999 LLC Units in the form of a redemption from the Continuing Equity Owners at a price per unit equal to the IPO price of $11.22 per share after deducting the underwriting discount, and represented a 10.1% economic interest as of the IPO date.

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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:

•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 $101.6 million at $12.00 per share, less underwriting discount and offering expenses.

•Used net proceeds from the IPO to purchase 8,333,333 newly issued LLC Units for approximately $93.5 million directly from Brilliant Earth, LLC at a price per unit equal to the initial public offering price per share of Class A common stock less underwriting discount.

•Used net proceeds from the exercise of the underwriters’ overallotment to purchase an additional 1,249,999 LLC Units from each of the Continuing Equity Owners in the form of a redemption on a pro rata basis for $14.0 million in aggregate at a price per unit equal to the initial public offering price per share of Class A common stock less the underwriting discount; this purchase of LLC Interests resulted in an obligation under the TRA, including the related set-up of deferred tax assets on the TRA and on the temporary basis difference associated with this purchase.

•Corresponding cancellation of a total of 1,249,999 shares of Class B common stock and Class C common stock resulting from the purchase of 1,249,999 LLC Units from the Continuing Equity Owners.

•Exercise of warrants on convertible preferred units (“Class P Units”) with a carrying value of $6.4 million as of September 22, 2021 (after the mark-to-market adjustment as of the date of exercise) into 534,589 newly issued LLC Units on a net settlement basis, elected at the option of the holder.

Risks and Uncertainties – COVID-19

The COVID-19 pandemic remains on-going and continues to impact the global economy. The Company’s financial performance could be adversely impacted by the on-going evolution of the pandemic, including any government-imposed pandemic restrictions. The Company cannot predict the full extent of the impacts of the COVID-19 pandemic on its business, operations, or the global economy as a whole. However, the effects could have a material impact on the Company's results of operations.

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

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requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.

In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021 contained in the 2021 Form 10-K.

Principles of Consolidation and Non-Controlling Interest

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, Brilliant Earth, LLC, which it controls due to ownership of the voting interest or pursuant to variable interest entity (“VIE”) accounting guidance. All intercompany balances and transactions have been eliminated in consolidation.

The non-controlling interest on the unaudited condensed consolidated 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 unaudited condensed consolidated balance sheets represent the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of June 30, 2022, the non-controlling interest was 88.6%. At the end of each reporting period, equity related to Brilliant Earth, LLC that is attributable to Brilliant Earth Group, Inc. and Continuing Equity Owners is rebalanced to reflect Brilliant Earth Group, Inc.'s and Continuing Equity Owners' ownership in Brilliant Earth, LLC.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Some of the more significant estimates include the inventory valuation, allowance for sales returns, estimates of current and deferred income taxes, payable pursuant to the tax receivable agreement, useful lives and depreciation of long-lived assets, fair value of equity-based compensation, and prior to the Reorganization Transactions, the warrants and the redemption of value of the redeemable Class P Units. Actual results could differ materially from those estimates. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in its business or new information available.

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Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value:

Level 1 Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities.

Level 2 Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from, or corroborated by, observable market data by correlation or other means.

Level 3 Valuation techniques with significant unobservable market inputs.

The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its financial statements, in accordance with U.S. GAAP.

At June 30, 2022, there were no financial instruments (assets or liabilities) measured at fair value on a recurring basis.

Through the date of the IPO, the Class P Units and warrants on Class P Units were the only financial instruments (assets or liabilities) measured at fair value on a recurring basis. As discussed in Note 1, Business and organization, the securities converted into LLC Interests in connection with the IPO and are now classified as equity.

The carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities and were classified as Level 1. The carrying value of long-term debt, net of debt issuance costs, also approximates its fair value, which has been estimated by management based on the consideration of applicable interest rates (including certain instruments at variable or floating rates) for similar types of borrowing arrangements.

Comprehensive Income

Comprehensive income is the change in equity of a business enterprise during a period from transactions and all other events and circumstances from non-owner sources. Other comprehensive income may include unrealized gain (loss) on available for sale securities, foreign currency items, and minimum pension liability adjustments. The Company did not have components of other comprehensive income. As a result, comprehensive income is the same as net income.

Cash and Cash Equivalents, and Restricted Cash

All highly liquid investments with an original maturity of three months or less and deposits in transit from banks for payments related to third-party credit and debit card transactions are considered to be cash equivalents. Credit and debit card transactions are short-term and highly liquid in nature.

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The following table provides a reconciliation of cash and cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the statements of cash flows for the periods ended June 30, 2022, December 31, 2021, and June 30, 2021 (in thousands):


	June 30,		December 31,		June 30,
	2022		2021		2021
Cash and cash equivalents	$	155,533	$	172,865	$	65,001
Restricted cash	205		205		205
Total	$	155,738	$	173,070	$	65,206

Inventories, Net

The Company’s diamond, gemstone and jewelry inventories are primarily held for resale and valued at the lower of cost or net realizable value. Cost is primarily determined using the weighted average cost on a first-in, first-out (“FIFO”) basis for all inventories, except for unique inventory SKUs (principally independently graded diamonds), where cost is determined using specific identification. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Revenue Recognition

Overview

Net sales primarily consist of revenue from diamond, gemstone and jewelry retail sales and payment is required in full prior to order fulfillment. Delivery is determined to be the time of pickup for orders picked up in showrooms, and for shipped orders, typically within one to two business days after shipment. Credit is not extended to customers except through third-party credit cards or financing offerings. A return policy of 30 days from when the item is picked up or ready for shipment is typically provided; one complimentary resizing for standard ring styles is offered within 60 days of when an order is available for shipment or pickup; a lifetime manufacturing warranty is provided on all jewelry, with the exception of estate and vintage jewelry and center diamonds/gemstones; and a lifetime diamond upgrade program is included on all independently graded natural diamonds. The complimentary resizing, lifetime manufacturing warranty claims and lifetime diamond upgrades have not historically been material. An in-house three-year extended service plan, which provides full inspection, cleaning and certain repairs due to normal wear, is offered for an additional charge. An extended protection plan is also offered through a third party that has different terms ranging from 2 years to lifetime that vary based on the item purchased.

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The following table discloses total net sales by geography for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	102,232	$	85,995	$	195,998	$	151,995
International	6,577		6,353		12,849		11,049
Total net sales	$	108,809	$	92,348	$	208,847	$	163,044

Revenue Recognition

Revenue is recognized under Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires that revenue from customers be recognized as control of the promised goods is transferred to customers, which generally occurs upon delivery if the order is shipped, or at the time the customer picks up the completed product at a showroom. Revenue arrangements generally have one performance obligation and are reported net of estimated sales returns and allowances, which are determined based on historical product return rates and current economic conditions. The Company offers an in-house 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 plan. The Company also offers an extended protection plan in the capacity of an agent on behalf of a third-party that has different terms ranging from two years to lifetime that vary based on the item purchased. The commission that the Company receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience. There are no additional performance obligations in relation to the third-party plan. Additionally, sales taxes are collected and remitted to taxing authorities, and the Company has elected to exclude sales taxes from revenues recognized under ASC 606.

Contract Balances

Transactions where payment has been received from customers, but control has not transferred, are recorded as customer deposits in deferred revenue and revenue recognition is deferred until delivery has occurred. Deferred revenue also includes payments on the Company’s three-year extended service plan that customers have elected to purchase. As of June 30, 2022 and December 31, 2021, total deferred revenue was $22.6 million and $19.0 million, respectively, of which $0.1 million and $0.2 million, respectively, were included within other long-term liabilities in the unaudited condensed consolidated balance sheets. During the six months ended June 30, 2022 and 2021, the Company recognized $18.1 million and $10.2 million of revenue, respectively, that was deferred as of December 31, 2021 and December 31, 2020, respectively.

Sales Returns and Allowances

A returns asset account and a refund liabilities account are maintained to record the effects of estimated product returns and sales returns allowance. Returns asset and refund liabilities are updated at the end of each financial reporting period and the effect of such changes are accounted for in the period in which such changes occur.

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The Company estimates anticipated product returns in the form of a refund liability based on historical return percentages and current period sales levels, and accrues a related returns asset for goods expected to be returned in salable condition less any expected costs to recover such goods, including return shipping costs that the Company may incur.

As of June 30, 2022 and December 31, 2021, refund liabilities balances were $1.5 million and $2.3 million, respectively, and are included as a provision for sales returns and allowances within accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021, returns asset balances were $0.7 million and $1.1 million, respectively, and are included within prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. See Note 5, Accrued Expenses and Other Current Liabilities, for further discussion.

Fulfillment Costs

The Company generally does not bill customers separately for shipping and handling charges. Any fulfillment costs incurred by the Company when shipping to customers is reflected in cost of sales in the unaudited condensed consolidated statements of operations.

Consignment Inventory Sales

Sales of consignment inventory are presented on a gross sales basis as control of the merchandise is maintained through the point of sale. The Company also provides independent advice, guidance and after-sales service to customers. Consigned products are selected at the discretion of the Company, and the determination of the selling price as well as responsibility of the physical security of the products is maintained by the Company. The products sold from consignment inventory are similar in nature to other products that the Company sells to customers and are sold on the same terms.

Cost of Sales

The Company purchases diamonds and gemstones from suppliers and utilizes third-party manufacturing suppliers for the production and assembly of substantially all jewelry sold by the Company. Cost of sales includes merchandise costs, inbound freight charges, costs of shipping orders to customers, costs and reserves for disposal of obsolete, slow-moving or defective items and shrinkage.

Marketing, Advertising and Promotional Costs

Marketing, advertising and promotional costs are expensed as incurred and totaled approximately $23.5 and $16.3 million, for the three months ended June 30, 2022 and 2021, respectively and $43.5 and $30.7 million, for the six months ended June 30, 2022 and 2021, respectively.

Equity-Based Compensation

Equity-based compensation is accounted for as an expense in accordance with ASC Topic 718, Compensation - Stock Compensation, with the fair value recognition and measurement provisions of U.S. GAAP which requires compensation cost for the grant-date fair value of equity-based awards to be recognized over the requisite service period. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award. The Company accounts for forfeitures

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when they occur, and any compensation expense previously recognized on unvested equity-based awards will be reversed when forfeited.

The fair value of awards of restricted LLC Units is based on the fair value of the member unit underlying the awards as of the date of grant. The fair value of the underlying member units (referred to as Class M Units prior to conversion to common LLC Units in the IPO on a value-for-value basis) for grants prior to the Company’s IPO in September 2021 was determined by considering a number of objective, subjective and highly complex factors including independent third-party valuations of the Company’s member units, operating and financial performance, the lack of liquidity of member units and general and industry specific economic outlook among other factors.

The fair value of restricted stock units (“RSUs”) is based on the fair value of the Class A common stock at the time of grant.

The fair value of option-based awards is estimated using the Black-Scholes valuation model. The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock. For inputs into the Black-Scholes model, the expected stock price volatility for the common stock is estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the Company’s industry which are of similar size, complexity and stage of development. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The Company has elected to use the “simplified method” to determine the expected term, which is the midpoint between the vesting date and the end of the contractual term, because it has insufficient history upon which to base an assumption about the term; the Company believes the simplified method approximates a term if it were to be based on expected life. The expected dividend yield is nil as the Company has not paid and does not anticipate paying dividends on its common stock.

Income Taxes

Interim Periods

In calculating the provision for interim income taxes, in accordance with ASC 740, Income Taxes an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.

Annual Reporting

For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.

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Uncertainty in income taxes is accounted for using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the unaudited condensed consolidated statements of operations. As of June 30, 2022, no uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 – Leases, and also issued subsequent amendments to the initial guidance, ASC 2018-10, ASC 2018-11, ASU 2019-10, ASU 2020-02 and ASU 2020-05 (collectively, “ASC 842”). ASC 842 introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs; use of the standard’s effective date as the date of initial application; and no separation of non-lease components from the related lease components and, instead, to account for those components as a single lease component if certain criteria are met. The Company adopted this guidance by applying the modified retrospective approach effective January 1, 2022, and no cumulative effect adjustment was required to be recorded. See Note 6, Leases, for further discussion.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 and did not have a material impact on the Company's unaudited condensed consolidated financial statements.

Accounting pronouncements recently issued but not yet adopted

Other recent accounting pronouncements not yet adopted are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.

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

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distributions or dividends and are therefore excluded from this presentation since they are not participating securities.

All earnings prior to September 23, 2021, the date of the IPO, were entirely allocable to the non-controlling interest and, as a result, earnings per share information is not applicable for reporting periods prior to this date. Consequently, earnings per share for net income for periods prior to September 22, 2021 are not presented.

Basic and diluted earnings per share of common stock for the three and six months ended June 30, 2022 have been computed as follows (in thousands, except share and per share amounts):


Numerator:	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Net income attributable to Brilliant Earth Group, Inc., BASIC	$	424	$	780
Add: Net income impact from assumed redemption of all LLC Units to common stock	3,327		6,340
Less: Income tax expense on net income attributable to NCI	(850)		(1,603)
Net income attributable to Brilliant Earth Group, Inc., after adjustment for assumed conversion, DILUTED	$	2,901	$	5,517

Denominator:
Weighted average shares of common stock outstanding, BASIC	10,810,627		10,412,922
Dilutive effects of:
Vested LLC Units that are exchangeable for common stock	84,404,337		84,630,379
LLC Units and RSUs	993,738		1,343,561
Weighted average shares of common stock outstanding, DILUTED	96,208,702		96,386,862

BASIC earnings per share	$	0.04	$	0.07
DILUTED earnings per share	$	0.03	$	0.06

Net income attributable to the non-controlling interest added back to net income in the fully dilutive computation has been adjusted for income taxes which would have been expensed had the income been recognized by Brilliant Earth Group, Inc., a taxable entity. The weighted average common shares outstanding in the diluted computation per share assumes all outstanding LLC Units are converted and the Company will elect to issue shares of common stock upon redemption rather than cash-settle.

For the three and six months ended June 30, 2022, the dilutive impact of LLC Units convertible into common stock were included in the computation of diluted earnings per share under the if-converted method; the dilutive impact of unvested LLC Units and RSUs were included using the treasury stock method. For the three and six months ended June 30, 2022, the impact of 1,132,666 and 1,316,755, respectively, of shares underlying stock options, and 2,369,323 and 1,990,846, respectively, of RSUs have been excluded from the computation of earnings per share because such impact is anti-dilutive.

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NOTE 4. INVENTORIES, NET

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


	June 30,		December 31,
	2022		2021
Loose diamonds	$	11,100	$	9,013
Fine jewelry and other	24,447		15,990
Allowance for inventory obsolescence	(203)		(260)
Total inventories, net	$	35,344	$	24,743

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


	June 30,		June 30,
	2022		2021
Balance at beginning of period	$	(260)	$	(242)
Change in allowance for inventory obsolescence	57		24
Balance at end of period	$	(203)	$	(218)

As of June 30, 2022 and December 31, 2021, the Company had $21.3 million and $16.9 million, respectively, in consigned inventory held on behalf of suppliers which is not recorded in the unaudited condensed consolidated balance sheets.

NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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


	June 30,		December 31,
	2022		2021
Accrued vendor expenses	$	10,625	$	9,563
Inventory received not billed	10,180		4,648
Accrued payroll expenses	3,876		4,498
Sales and other tax payable accrual	3,055		4,229
Provision for sales returns and allowances	1,546		2,338
Other	6,173		3,480
Total accrued expenses and other current liabilities	$	35,455	$	28,756

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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 six months ended June 30, 2022 and 2021 was as follows (in thousands):


	June 30,	June 30,
	2022	2021
Balance at beginning of period	$