Company Provides 2024 Results of Operations
- The Singing Machine Company, Inc. generated $29.2 million in sales for the nine-month transition period ended December 31, 2023.
- The company saw increased demand for higher-end products and a 35% year-over-year increase in music subscription sales.
- Net sales decreased by 18.7% compared to the same period in 2022, with the largest declines in sales from Amazon and Sam's Club.
- Gross profit margins improved to 27.4% for the period, excluding a non-cash inventory impairment.
- Operating expenses increased primarily due to one-time expenses related to marketing, hospitality concept launch, logistics operations closure, and accounting expenses.
- The company reported a net loss of $6.4 million for the nine months ended December 31, 2023, compared to a net loss of $1.7 million for the same period in the prior year.
- Net sales decreased by 18.7% compared to the previous year.
- Gross profit margins decreased to 21.2% of net sales for the period.
- Operating expenses increased by approximately $2.3 million, primarily due to one-time expenses.
- The company reported a net loss of $6.4 million for the nine months ended December 31, 2023.
Insights
The report of a net sales decrease of 18.7% year-over-year for Singing Machine reflects a significant downturn in their business. This could signify market saturation, increased competition, or a shift in consumer preference, among other factors. The consumer tech industry is highly sensitive to these trends and Singing Machine's performance indicates a possible need to re-strategize, especially considering the sales declines at major retailers like Amazon and Sam's Club.
Despite the decrease in net sales, they report an improvement in gross margins when excluding a non-cash impairment to inventory. This suggests that their pivot towards higher-end products could be yielding a better margin mix, which is a positive sign for the company's adaptation strategy to current market conditions.
The increased operating expenses, particularly in advertising, may be a double-edged sword. While it shows a proactive approach in a 'challenging retail environment', it also increases burn rate during a time when net sales are down, potentially stressing the company's financial position in the near term. Retail investors should scrutinize how these expenses translate into revenue in subsequent periods to gauge the efficacy of the management's strategy.
Investors should note the company's observation of a 'broadly weakened retail environment' and the marginally improved Christmas season. This information is invaluable as it gives context to the performance of not just Singing Machine, but the retail sector as a whole. A keen eye should be kept on macroeconomic factors like potential recession, inflation and interest rates, as mentioned by the CEO, since these factors heavily influence consumer spending.
The 35% year-over-year growth in music subscription sales is a highlight, indicating that there is robust demand in this niche segment. Considering the ongoing shift towards streaming and digital content consumption, this could represent a strategic growth area that offsets some of the declines seen in hardware sales.
Lastly, the two distinct sub-markets identified within the karaoke market imply that Singing Machine is attempting to reposition itself as a premium brand. This strategy could potentially insulate the company from price wars in the lower end of the market while appealing to a segment less sensitive to price fluctuations.
From the tech perspective, Singing Machine's strategic partnership with Stingray and the development of an app that integrates with various platforms is a forward-thinking move. The evolution of karaoke from standalone machines to integration with smart TVs and automotive infotainment systems represents a technological leap in the industry. This also aligns with broader tech trends such as IoT and unified user experiences across devices.
However, the long-term success of this approach hinges on the adoption rate of the new app and the continued relevance of karaoke as a form of entertainment in the digital age. Investors should monitor user engagement and the adoption of the new platform as it could very well be the bellwether for future revenue streams from this technology investment.
Company Generates
Fort Lauderdale, FL, April 16, 2024 (GLOBE NEWSWIRE) -- The Singing Machine Company, Inc. (“Singing Machine”) (NASDAQ: MICS) – the worldwide leader in consumer karaoke products, today announced its results of operations for the nine-month period ended December 31, 2023. The Company has historically reported on a March 31 fiscal year end and transitioned to a December 31 fiscal year end with the Transition Period Annual Report released today.
“We are pleased to provide a comprehensive update on the Company’s financial results of operations,” commented Gary Atkinson, CEO of the Singing Machine. “Overall, we saw a broadly weakened retail environment for much of 2023, with the Christmas retail season being marginally improved relative to the 2022 season. The backdrop of a potential recession, inflation and high interest rates played a large role in overall retail sentiment.”
“Despite these headwinds, we saw a number of positive developments. We saw increased demand for our higher-end products, particularly our WiFi enabled products that sold very well. We also saw music subscription sales increase
“We see the karaoke market further separating into two very distinct sub-markets. First, there are the competitors that deliver technology-enabled, sophisticated products that command a higher average sales price. Then there are the more promotional, less-proprietary offerings that are price-driven. We are systematically driving our product mix towards the higher-end, higher-margin end of this spectrum.”
“Together with our strategic partners at Stingray, we are focused on driving consumers to a best-in-class product, coupled with an industry-leading content app. Our newest version app has been rebuilt from the ground-up to support direct integration into our karaoke devices, automotive infotainment systems, and smart TVs. Our goal is to leverage Stingray’s world-wide, industry-leading digital music library to extend our karaoke hardware into more devices and more applications. Our consumer strategy remains to leverage strong product placement through our retail partners with a recurring revenue model that leverages our brand, our market share, and our technology going forward,” concluded Mr. Atkinson.
Results of operations are summarized as follows:
- Revenues: Net sales for the nine-month transition period ended December 31, 2023 were approximately
$29.2 million , representing a decrease of approximately$6.7 million (18.7% ) from approximately$35.9 million for the same period in 2022 (unaudited).- We experienced a decrease in net sales to four of our five major customers in the Transition Period in 2023 as compared to the same period in 2022 (unaudited). The two largest single declines in sales by customer were Amazon and Sam’s Club. Sam’s Club elected to reduce the number of products it carried during the Christmas retail season, whereas Amazon experienced across the board decreases in all product lines.
- Among the Company’s top 5 accounts, only Costco experienced significant growth, which was primarily attributable to approximately
$3.0 million in new business from new business with Costco Canada.
- Gross Profits: Gross profit for the Transition Period in 2023 was approximately
$6.2 million , or21.2% of net sales, compared to approximately$8.4 million , or23.5% of sales for the same period in 2022 (unaudited). This represented a decrease of approximately$2.2 million or26.6% .
- The overall decrease in net sales accounted for approximately
$1.6 million of the decrease. - The remaining decrease in gross profit margins was the result of a
2.3% percentage point decrease in gross margins. - The decrease was entirely due to an approximate
$1.8 million non-cash impairment to inventory recorded during the Transition Period in 2023. - Excluding the negative impact of this impairment, gross margins improved to
27.4% for the nine-month period ended December 31, 2023, as compared to23.5% for the same period in the prior year (unaudited). - This improvement was largely attributable to the increase in higher margin sales of newer streaming technology karaoke machines as percentage of total sales.
- The overall decrease in net sales accounted for approximately
- Operating Expenses: Total operating expenses were approximately
$12.3 million for the nine-months ended December 31, 2023, as compared to approximately$10.0 million for the same period in the prior year.- The approximately
$2.3 million increase was primarily due to$0.9 million in increased advertising expenses paid during the period. The Company took a more aggressive approach to direct-to-consumer marketing in anticipation of a challenging retail environment. - The remaining
$1.4 million increase in operating expenses was almost entirely attributable to one-time, non-recurring expenses. First, the Company spent$0.9 million on the launch of its hospitality concept, which has been discontinued. The Company also incurred$0.4 million in expenses related to the closure and outsourcing of its logistics operations formerly in Ontario, CA. Lastly, the Company also incurred$0.2 million in one-time accounting expenses and$0.2 million in one-time advertising expenses with its former parent, Ault Alliance. - Excluding the expenses detailed above, all other operating costs decreased
$0.2 for the nine-months ended December 31, 2023 due to strict cost control measures.
- The approximately
- Net Income: The Company reported a net loss of
$6. 4 million for the nine months ended December 31, 2024, as compared to a net loss of$1.7 million for the same period in the prior year.
About The Singing Machine
The Singing Machine Company, Inc. is the worldwide leader in consumer karaoke products. Based in Fort Lauderdale, Florida, and founded over forty years ago, the Company designs and distributes the industry's widest assortment of at-home and in-car karaoke entertainment products. Their portfolio is marketed under both proprietary brands and popular licenses, including Carpool Karaoke and Sesame Street. Singing Machine products incorporate the latest technology and provide access to over 100,000 songs for streaming through its mobile app and select WiFi-capable products and is also developing the world’s first globally available, fully integrated in-car karaoke system. The Company also has a new philanthropic initiative, CARE-eoke by Singing Machine, to focus on the social impact of karaoke for children and adults of all ages who would benefit from singing. Their products are sold in over 25,000 locations worldwide, including Amazon, Costco, Sam’s Club, Target, and Walmart. To learn more, go to www.singingmachine.com.
Investor Relations Contact:
investors@singingmachine.com
www.singingmachine.com
www.singingmachine.com/investors
The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | March 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 6,703,000 | $ | 2,895,000 | ||||
| Accounts receivable, net of allowances of | 7,308,000 | 2,075,000 | ||||||
| Accounts receivable related parties | 269,000 | 239,000 | ||||||
| Inventory | 6,871,000 | 9,085,000 | ||||||
| Returns asset | 1,919,000 | 555,000 | ||||||
| Prepaid expenses and other current assets | 136,000 | 351,000 | ||||||
| Total Current Assets | 23,206,000 | 15,200,000 | ||||||
| Property and equipment, net | 404,000 | 633,000 | ||||||
| Operating leases - right of use assets | 3,926,000 | 561,000 | ||||||
| Other non-current assets | 179,000 | 255,000 | ||||||
| Total Assets | $ | 27,715,000 | $ | 16,649,000 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 7,616,000 | $ | 1,769,000 | ||||
| Accrued expenses | 2,614,000 | 2,266,000 | ||||||
| Refund due to customer | 1,743,000 | - | ||||||
| Customer prepayments | 687,000 | 583,000 | ||||||
| Reserve for sales returns | 3,390,000 | 900,000 | ||||||
| Other current liabilities | 75,000 | 99,000 | ||||||
| Current portion of operating lease liabilities | 84,000 | 509,000 | ||||||
| Total Current Liabilities | 16,209,000 | 6,126,000 | ||||||
| Other liabilities, net of current portion | 3,000 | 104,000 | ||||||
| Operating lease liabilities, net of current portion | 3,925,000 | 88,000 | ||||||
| Total Liabilities | 20,137,000 | 6,318,000 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred stock, | - | - | ||||||
| Common stock | 64,000 | 32,000 | ||||||
| Additional paid-in capital | 33,429,000 | 29,822,000 | ||||||
| Subscriptions receivable | - | (6,000 | ) | |||||
| Accumulated deficit | (25,915,000 | ) | (19,517,000 | ) | ||||
| Total Shareholders’ Equity | 7,578,000 | 10,331,000 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 27,715,000 | $ | 16,649,000 | ||||
The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Nine Months Ended | Years Ended | |||||||||||
| December 31, 2023 | March 31, 2023 | March 31, 2022 | ||||||||||
| Net Sales | $ | 29,198,000 | $ | 39,299,000 | $ | 47,512,000 | ||||||
| Cost of Goods Sold | 23,008,000 | 30,090,000 | 36,697,000 | |||||||||
| Gross Profit | 6,190,000 | 9,209,000 | 10,815,000 | |||||||||
| Operating Expenses | ||||||||||||
| Selling expenses | 3,717,000 | 3,442,000 | 3,589,000 | |||||||||
| General and administrative expenses | 8,616,000 | 9,465,000 | 7,157,000 | |||||||||
| Total Operating Expenses | 12,333,000 | 12,907,000 | 10,746,000 | |||||||||
| (Loss) Income from Operations | (6,143,000 | ) | (3,698,000 | ) | 69,000 | |||||||
| Other (Expenses) Income | ||||||||||||
| Gain on disposal of fixed assets | 44,000 | - | - | |||||||||
| Gain - related party | - | - | 11,000 | |||||||||
| Gain from extinguishment of PPP loan forgiveness | - | - | 448,000 | |||||||||
| Gain from Employee Retension Credit Program refund | - | 704,000 | - | |||||||||
| Gain from settlement of accounts payable | - | 48,000 | 339,000 | |||||||||
| Loss from extinguishment of debt | - | (183,000 | ) | - | ||||||||
| Interest expense | (299,000 | ) | (479,000 | ) | (580,000 | ) | ||||||
| Total Other (Expenses) Income, net | (255,000 | ) | 90,000 | 218,000 | ||||||||
| (Loss) Income Before Income Tax Benefit | (6,398,000 | ) | (3,608,000 | ) | 287,000 | |||||||
| Income Tax Benefit (Provision) | - | (1,030,000 | ) | (57,000 | ) | |||||||
| Net (Loss) Income | $ | (6,398,000 | ) | $ | (4,638,000 | ) | $ | 230,000 | ||||
| Loss per Common Share | ||||||||||||
| Basic | $ | (1.32 | ) | $ | (1.65 | ) | $ | 0.14 | ||||
| Diluted | $ | (1.32 | ) | $ | (1.65 | ) | $ | 0.14 | ||||
| Weighted Average Common and Common | ||||||||||||
| Equivalent Shares: | ||||||||||||
| Basic and Diluted | 4,864,540 | 2,811,872 | 1,614,506 | |||||||||
| Diluted | 4,864,540 | 2,811,872 | 1,623,397 | |||||||||
The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended | For the Fiscal Years Ended | |||||||||||
| December 31, 2023 | March 31, 2023 | March 31, 2022 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net (loss) income | $ | (6,398,000 | ) | $ | (4,638,000 | ) | $ | 230,000 | ||||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation | 287,000 | 228,000 | 246,000 | |||||||||
| Amortization of deferred financing costs | - | 47,000 | 45,000 | |||||||||
| Provision for estimated cost of returns | (1,364,000 | ) | 128,000 | (156,000 | ) | |||||||
| Provision for inventory obsolesence | 1,798,000 | 536,000 | (272,000 | ) | ||||||||
| Credit losses | 8,000 | 43,000 | (16,000 | ) | ||||||||
| (Gain) loss from disposal of property and equipment | (44,000 | ) | 3,000 | 4,000 | ||||||||
| Stock based compensation | 110,000 | 382,000 | 44,000 | |||||||||
| Amortization of right of use assets | 510,000 | 718,000 | 795,000 | |||||||||
| Change in net deferred tax assets | - | 893,000 | (5,000 | ) | ||||||||
| Loss on debt extinguishment | - | 183,000 | - | |||||||||
| Paycheck Protection Plan loan forgiveness | - | - | (448,000 | ) | ||||||||
| Gain - related party | - | - | (11,000 | ) | ||||||||
| Gain from extinguishment of accounts payable | - | (48,000 | ) | (339,000 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (5,241,000 | ) | 667,000 | (558,000 | ) | |||||||
| Accounts receivable – related parties | (30,000 | ) | (87,000 | ) | (64,000 | ) | ||||||
| Due from banks | - | 101,000 | 4,456,000 | |||||||||
| Inventories | 415,000 | 3,858,000 | (8,244,000 | ) | ||||||||
| Prepaid expenses and other current assets | 215,000 | 78,000 | (123,000 | ) | ||||||||
| Other non-current assets | 76,000 | (38,000 | ) | 61,000 | ||||||||
| Accounts payable | 5,847,000 | (3,511,000 | ) | 3,217,000 | ||||||||
| Accrued expenses | 348,000 | 533,000 | 77,000 | |||||||||
| Due to related parties | - | (63,000 | ) | - | ||||||||
| Refunds due to customer | 1,743,000 | - | (139,000 | ) | ||||||||
| Prepaids from customers | 103,000 | 485,000 | (47,000 | ) | ||||||||
| Reserve for sales returns | 2,490,000 | (90,000 | ) | 30,000 | ||||||||
| Operating lease liabilities | (462,000 | ) | (738,000 | ) | (795,000 | ) | ||||||
| Net cash provided by (used in) operating activities | 411,000 | (330,000 | ) | (2,012,000 | ) | |||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of property and equipment | (68,000 | ) | (244,000 | ) | (118,000 | ) | ||||||
| Disposal of property and equipment | 54,000 | - | - | |||||||||
| Net cash used in investing activities | (14,000 | ) | (244,000 | ) | (118,000 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from issuance of stock, net of offering costs | 3,529,000 | 3,393,000 | 9,001,000 | |||||||||
| Payment of redemption and retirement of treasury stock | - | - | (7,162,000 | ) | ||||||||
| Collection of subscriptions receivable | 6,000 | - | - | |||||||||
| Net (payment) proceeds from revolving lines of credit | - | (2,500,000 | ) | 2,435,000 | ||||||||
| Payment of subordinated note payable - Starlight Marketing Development, Ltd. | - | (353,000 | ) | (150,000 | ) | |||||||
| Payment of deferred financing charges | - | (254,000 | ) | (38,000 | ) | |||||||
| Payment of early termination fees on revolving lines of credit | - | (183,000 | ) | - | ||||||||
| Payments on installment notes | (124,000 | ) | (74,000 | ) | (68,000 | ) | ||||||
| Proceeds from exercise of stock options | - | - | 14,000 | |||||||||
| Proceeds from exercise of common stock warrants | - | 990,000 | - | |||||||||
| Proceeds from exercise of pre-funded warrants | - | 168,000 | - | |||||||||
| Payments on finance leases | - | (9,000 | ) | (8,000 | ) | |||||||
| Net cash provided by financing activities | 3,411,000 | 1,178,000 | 4,024,000 | |||||||||
| Net change in cash | 3,808,000 | 604,000 | 1,894,000 | |||||||||
| Cash at beginning of year | 2,895,000 | 2,291,000 | 397,000 | |||||||||
| Cash at end of period | $ | 6,703,000 | $ | 2,895,000 | $ | 2,291,000 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid for interest | $ | 44,000 | $ | 481,000 | $ | 547,000 | ||||||
| Cash paid for income taxes | $ | - | $ | 34,000 | $ | - | ||||||
| Non-Cash investing and financing cash flow information: | ||||||||||||
| Equipment purchased under capital lease | $ | - | $ | 55,000 | $ | 24,000 | ||||||
| Issuance of common stock and warrants for offering costs | $ | - | $ | 244,000 | $ | 548,000 | ||||||
| Right of use assets exchanged for lease liabilities | $ | 3,874,000 | $ | 192,000 | $ | 16,000 | ||||||
FAQ
What were the net sales for the nine-month transition period ended December 31, 2023?
What caused the decrease in net sales compared to the previous year?
What were the gross profit margins for the Transition Period in 2023?
What led to the increase in operating expenses for the nine-months ended December 31, 2023?
What was the net income reported for the nine months ended December 31, 2023?
