Brilliant Earth Group (BRLT) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01Our business is highly susceptible to fluctuations in the price and supply of responsibly sourced natural diamonds, lab-grown diamonds, gold, and other precious and semi-precious metals and gemstones
2. 02If 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
3. 03We 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
4. 04Increased lead times, supply shortages, and changes in our supply chain, including increased costs, could disrupt our business and have an adverse effect on our operations, financial condition, and results
5. 05or materials, or the inability to obtain these materials from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship products to our customers
6. 06We plan to continue to expand showrooms in the U.S., which may expose us to significant risks
7. 07The fine jewelry retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted
8. 08If 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
9. 09Our marketing efforts 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
10. 10Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage
11. 11We derive a significant portion of our revenue from sales of our Design Your Own rings. A decline in sales of our Design Your Own rings would negatively affect our business, financial condition, and results of operations
12. 12Because we have a short history of operating at our current scale, we may be unable to accurately predict operating results, and may be unable to generate sales growth and profitability
13. 13Investors, employees, customers, governmental and regulatory bodies and other stakeholders are increasingly judging companies’ performance on a variety of environmental, social, and governance (“ESG”) matters, which are considered to contribute to the long-term sustainability of companies’ performance
14. 14Our e-commerce and omnichannel business face distinct risks, and our failure to successfully manage those risks could have a negative impact on our sales and profitability
15. 15If 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
16. 16We 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
17. 17Refunds, cancellations, and warranty claims could harm our business
18. 18We face the risk of theft, loss, or damage to our products from inventory or during shipment
19. 19Russia’s invasion of Ukraine, and the military, political, and economic impacts of the conflict there, could have a material adverse effect on our operations and financial condition
20. 20We plan to expand into international markets, which will expose us to significant risks
21. 21Our revenue could decline due to changes in credit markets and decisions made by credit providers
22. 22Our business is affected by seasonality and any negative impact on consumer spending during peak shopping quarters could materially adversely affect our business, financial condition and results of operations
23. 23We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain, and motivate our personnel, we may not be able to grow effectively
24. 24Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition, and results of operations
25. 25We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all
26. 26Our level of indebtedness could have a material adverse effect on our ability to generate sufficient cash to fulfil our obligations under such indebtedness, to react to changes in our business, and to incur additional indebtedness to fund future needs
27. 27Our SVB Credit Agreement contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our business, financial condition, and results of operations
28. 28The effects of climate change and related regulatory, customer, and investor responses may adversely impact our business

Risks Related to Our Legal and Regulatory Environment

1. 29Failure to comply with laws, regulations, and enforcement activities, or changes in statutory, regulatory, accounting, and other legal requirements could potentially impact our operating and financial results
2. 30Failure to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of such rights could harm our brand, devalue our proprietary content and technology, and adversely affect our ability to compete effectively
3. 31Regulatory and legislative developments on the use of artificial intelligence and machine learning could adversely affect our use of such technologies in our business
4. 32Our business could be adversely impacted by changes in the internet and mobile device accessibility of users. Companies and governmental agencies may restrict access to our products and services, our mobile apps, website, app stores, or the internet generally, which could negatively impact our operations
5. 33We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations
6. 34We cannot be certain that all of our employees and agents will not take actions in violation of any of the above laws, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase
7. 35From time to time, we may be subject to legal proceedings, regulatory disputes, and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and materially harm our business, financial condition, and operating results

Risks Related to Our Dependence on Third Parties

1. 36We face risks associated with suppliers from whom our products are sourced and are dependent on a limited number of suppliers
2. 37such vertical integration efforts are successful, some of the fragmentation in the existing diamond supply chain could be eliminated, our ability to obtain an adequate supply of diamonds and fine jewelry from multiple sources could be limited, and our competitors may be able to obtain diamonds at lower prices
3. 38Our business relies on third-party providers of cloud services, and any disruption of, or interference with, our use of cloud services could adversely affect our business, financial condition, or results of operations
4. 39We rely on our suppliers, third-party carriers, and third-party jewelers as part of our fulfillment process, and these third parties may fail to adequately serve our customers
5. 40We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business
6. 41We rely on third parties for elements of the payment processing infrastructure underlying our business and are subject to risks related to online payment methods

Risks Related to Our Organizational Structure

1. 42The 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
2. 43Our 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 they will benefit the Continuing Equity Owners
3. 44In certain cases, payments under the Tax Receivable Agreement to the Continuing Equity Owners may be accelerated or significantly exceed any actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement
4. 45We will not be reimbursed for any payments made to the Continuing Equity Owners under the Tax Receivable Agreement in the event that any tax benefits are disallowed
5. 46Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition

Risks related to the Ownership of Our Class A Common Stock

1. 47The Continuing Equity Owners have significant influence over us, including control over decisions that require the approval of stockholders
2. 48Our stock price may change significantly, and you could lose all or part of your investment as a result
3. 49Our multi-class structure may have a negative impact on the market price of our Class A common stock
4. 50Certain provisions of Delaware law and antitakeover provisions in our organizational documents could delay or prevent a change of control
5. 51These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares
6. 52The JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC. This reduced disclosure may make our Class A common stock less attractive to investors
7. 53Pursuant to the Dodd-Frank Act and SEC rules, we must file public disclosures regarding the country of origin of certain supplies, which could damage our reputation or impact our ability to obtain merchandise if customers or other stakeholders react negatively to our disclosures
8. 54If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, or if there is any fluctuation in our credit rating, our stock price and trading volume could decline
9. 55If our estimates or judgments relating to our critical accounting policies and estimates prove to be incorrect, our results of operations could be adversely affected
10. 56Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline
11. 57As of December 31, 2024, we have outstanding a total of 13,843,944 shares of Class A common stock. Any shares of Class A common stock held by our affiliates are eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144
12. 58Purchases of shares of our Class A common stock pursuant to our stock repurchase plan may affect the value of our Class A common stock, and there can be no assurance that our stock repurchase plan will enhance stockholder value
13. 59We will continue to incur significant costs as a result of operating as a public company