Company Provides Second Quarter 2024 Results of Operations

Rhea-AI Summary

The Singing Machine Company (NASDAQ: MICS) reported its Q2 2024 results, highlighting a strategic shift in its legacy business model. Net sales decreased by 7% to $2.44 million, while gross profit fell by 38.8% to $324,000. The company focused on cost control, reducing operating expenses from $2.9 million to $2.6 million year-over-year. However, a $3.9 million non-cash impairment charge led to increased total operating expenses.

Key highlights include:

• Stable existing customer revenues
• Significant reduction in short-term liabilities by 43.8% to $9.1 million
• Strategic shift towards non-retail channels and music subscription model
• Completion of SemiCab acquisition on July 3, 2024

The company aims to drive growth through its legacy karaoke business and the newly integrated SemiCab's AI-technology in the global logistics space.

Positive

• Reduced operating expenses from $2.9 million to $2.6 million year-over-year
• Decreased short-term liabilities by 43.8% to $9.1 million
• Completed strategic acquisition of SemiCab on July 3, 2024
• Maintained position as #1 brand in consumer karaoke

Negative

• Net sales decreased by 7% to $2.44 million
• Gross profit fell by 38.8% to $324,000
• Gross margins declined from 20.2% to 13.3%
• $3.9 million non-cash impairment charge related to hospitality lease
• Operating loss of $2.3 million in Q2 2024

Financial Analyst

The Q2 2024 results for Singing Machine (NASDAQ: MICS) reveal a company in transition. While sales remained relatively stable at $2.4 million, down just 7.6% year-over-year, the company's focus on cost control and balance sheet management is evident. Operating expenses decreased from $2.9 million to $2.6 million, reflecting aggressive cost-cutting measures. Notably, short-term liabilities were reduced by $7.1 million, a significant 43.8% decrease.

However, the non-cash impairment charge of $3.9 million is concerning, leading to an increased operating loss. The strategic shift towards non-retail channels and the music subscription model tied to WiFi-enabled devices could potentially offset declining traditional retail sales. The recent acquisition of SemiCab, while promising, introduces integration risks and potential dilution for existing shareholders.

Market Research Analyst

Singing Machine's Q2 results highlight the challenges facing the consumer electronics industry, particularly in the karaoke segment. The company's flat sales of $2.4 million suggest market saturation and growth opportunities in traditional retail channels. However, the strategic pivot towards non-retail channels and subscription-based models aligns with broader industry trends towards digital and recurring revenue streams.

The company's focus on inventory management and cost control is prudent, given the seasonal nature of the business. The reduction in short-term liabilities by 43.8% improves financial flexibility. The acquisition of SemiCab, an AI-powered logistics platform, represents a significant diversification move. This could potentially open new revenue streams but also introduces execution risks as the company ventures into a new, highly competitive sector.

Tech Expert

Singing Machine's strategic shift towards WiFi-enabled karaoke devices and a music subscription model represents a important pivot in the face of changing consumer preferences. This move aligns with the broader trend of hardware-as-a-service models in consumer electronics, potentially creating a more stable, recurring revenue stream.

The acquisition of SemiCab, an AI-powered logistics platform, is particularly intriguing. It suggests a bold move into the high-growth logistics tech sector, leveraging AI for optimization. However, integrating this technology with Singing Machine's core business presents both opportunities and challenges. Success will depend on effective integration and the ability to leverage SemiCab's AI capabilities to enhance operational efficiency across both business segments.

Business Reflects Strategic Shift in Legacy Business Model

Fort Lauderdale, FL, Aug. 19, 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 three-months ended June 30,2024.

“We are pleased to report our second quarter results of operations,” commented Gary Atkinson, CEO of the Singing Machine. “We spent much of the second quarter focused on the necessary due diligence, legal and audit work to close the SemiCab acquisition. Despite these added expenses, we were successful in controlling overall costs, maintain a strong balance sheet, and preparing for a business holiday retail season for our legacy consumer electronics business.”

Second quarter operational highlights were as follows:

1) Stable Existing Customer Revenues: Sales were largely flat at $2.4 million for the three months ended June 30, 2024 as compared to $2.6 million for the same period in 2023. The $0.2 million (7.6%) decreased was reflective of very limited changes in maintenance inventory restocking requirements among existing clients.

2) Strict Cost Control Across Legacy Operations: Operating expenses for the second quarter were $2.6 million, as compared to $2.9 million during the second quarter of 2023. The Company has aggressively reduced recurring operating expenses, particularly in the areas of logistics, headcount, and occupancy within the legacy retail-centric consumer electronics business. Excluding a $3.9 million non-cash impairment, the Company generated an operating loss of $2.3 million, as compared to a loss of $2.4 million in the prior year.

3) Deleveraged Balance Sheet: The Company focused heavily on contracting its balance sheet, converting short term assets to cash, and significantly reducing its short-term liabilities. In total, short-term liabilities decreased $7.1 million (43.8%) to $9.1 million as of June 30, 2024. Other than a disputed operating lease that the Company asserts has been terminated, the Company had no debt other than trade payables at the end of the second quarter.

4) Strategic Shift in the Legacy Business Model: For the legacy consumer electronics business, the strategic shift has accelerated. The Company made significant headway into expanding its karaoke product assortment into non-retail channels. The Company also continues to see growth in its music subscription model tied to its WiFi enabled karaoke devices.

5) Prioritization of SemiCab: Much of the second quarter corporate activities focused on the legal, audit, and due diligence process for the completion of the SemiCab acquisition, which was completed on July 3, 2024. With that transaction now complete, the executive team of the Company is now focused on integration, client expansion, revenue growth and critical vendor relationships.

“As we will expand on in our earnings call, we are now focused on getting back to growth. First, as we begin to enter the Fall season, our production, sales and operations teams are ramping up to execute a successful holiday season. Our manufacturing suppliers are producing inventory and shipping products in coordination with the coming holiday season and retail and consumer demand. The Singing Machine brand remains the #1 brand in consumer karaoke and continues to occupy the bulk of retail shelf space for this coming season. Separately, we are integrating with our new team at SemiCab and aligning them for growth as we collectively push to rapidly expand our customer base, drive revenues and unlock the potential of this exciting, highly-scalable, AI-technology across multiple geographies in the global logistics space.”

Results of operations for the first quarter are summarized as follows:

• Net Sales- Net sales for the three months ended June 30, 2024, decreased to approximately $2,440,000 from approximately $2,625,000 representing a decrease of approximately $185,000 (7.0 %) as compared to the three months ended June 30, 2023. The decrease was primarily due to lower overall sell-through results during the past holiday season, mostly with our largest customer, Walmart, which in turn diminished inventory restocking requirements during the first six months of the calendar year which is historically off-peak shipping season.
  
• Gross Profit- Gross profit for the three months ended June 30, 2024 decreased to approximately $324,000 from approximately $529,000 representing a decrease of approximately $205,000 (38.8%) as compared to the three months ended June 30, 2023. Gross margins for the three months ended June 30, 2024 were 13.3% as compared to 20.2% for the three months ended June 30, 2023. Approximately $260,000 of the decrease in gross profit was primarily due the increased sales in excess inventory which yielded significantly lower margin than current models sold and was offset by a decrease in expenses of approximately $57,000 associated with the miscellaneous logistics costs relate to the timing of receipt of new goods.
  
• Operating Expenses- During the three months ended June 30, 2024, total operating expenses increased to approximately $6,478,000, compared to approximately $2,960,000 during the three months ended June 30, 2023. This represents an increase in total operating expenses of approximately $3,518,000 from the three months ended June 30, 2023. The increase in operating expenses was primarily due to the write-off of impaired operating lease assets of approximately $3,878,000 related to the hospitality lease. This increase in operating expenses was offset by a decrease in seasonal debt reserves of approximately $156,000, a decrease in logistics costs of approximately $124,000 associated with the closing of the warehouse operation and outsourcing of logistics to a third-party logistics company, acceleration of depreciation expense of approximately $130,000 recognized in the prior year on impaired fixed assets associated with the closing of the warehouse.
  

About The Singing Machine

The Singing Machine Company, Inc. (NASDAQ: MICS) 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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "may", "could", "expects", "projects," "intends", "plans", "believes", "predicts", "anticipates", "hopes", "estimates" and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon several assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the Company's control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described in the Company's filings with the Securities and Exchange Commission. The forward-looking statements are applicable only as of the date on which they are made, and the Company does not assume any obligation to update any forward-looking statements.

The Singing Machine Company, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2024				December 31, 2023
		(Unaudited)
Assets
Current Assets
Cash		$	1,245,000			$	6,703,000
Accounts receivable, net of allowances of $86,919 and $174,000, respectively			2,349,000				7,308,000
Due from Oxford Bank			187,000				-
Accounts receivable related parties			414,000				269,000
Inventory			6,910,000				6,871,000
Returns asset			619,000				1,919,000
Prepaid expenses and other current assets			67,000				136,000
Total Current Assets			11,791,000				23,206,000
Property and equipment, net			305,000				404,000
Operating leases - right of use assets			178,000				3,926,000
Other non-current assets			93,000				179,000
Total Assets		$	12,367,000			$	27,715,000
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		$	3,676,000			$	7,616,000
Accrued expenses			1,842,000				2,614,000
Refund due to customer			1,171,000				1,743,000
Customer prepayments			38,000				687,000
Reserve for sales returns			2,174,000				3,390,000
Other current liabilities			37,000				75,000
Current portion of operating lease liabilities			165,000				84,000
Total Current Liabilities			9,103,000				16,209,000
Other liabilities, net of current portion			-				3,000
Operating lease liabilities, net of current portion			4,136,000				3,925,000
Total Liabilities			13,239,000				20,137,000
Commitments and Contingencies
Shareholders’ (Deficit) Equity
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock $0.01 par value; 100,000,000 shares authorized; 7,418,061 issued and 6,418,061 shares outstanding at June 30, 2024 and 6,418,061 issued and outstanding at December 31, 2023.			64,000				64,000
Additional paid-in capital			33,465,000				33,429,000
Accumulated deficit			(34,401,000	)			(25,915,000	)
Total Shareholders’ (Deficit) Equity			(872,000	)			7,578,000
Total Liabilities and Shareholders’ (Deficit) Equity		$	12,367,000			$	27,715,000

See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Net Sales		$	2,440,000			$	2,625,000			$	4,866,000			$	6,008,000
Cost of Goods Sold			2,116,000				2,096,000				4,040,000				4,659,000
Gross Profit			324,000				529,000				826,000				1,349,000
Operating Expenses
Selling expenses			547,000				445,000				1,177,000				1,257,000
General and administrative expenses			2,053,000				2,515,000				4,212,000				4,670,000
Operating lease impairment expense			3,878,000				-				3,878,000				-
Total Operating Expenses			6,478,000				2,960,000				9,267,000				5,927,000
Loss from Operations			(6,154,000	)			(2,431,000	)			(8,441,000	)			(4,578,000	)
Other (Expenses) Income
Gain from Employee Retention Credit Program refund			-				-				-				704,000
Interest expense			(17,000	)			(29,000	)			(45,000	)			(69,000	)
Total Other (Expenses) Income, net			(17,000	)			(29,000	)			(45,000	)			635,000
Loss Before Income Tax Benefit (Provision)			(6,171,000	)			(2,460,000	)			(8,486,000	)			(3,943,000	)
Income Tax Benefit (Provision)			52,000				-				-				(1,502,000	)
Net Loss		$	(6,119,000	)		$	(2,460,000	)		$	(8,486,000	)		$	(5,445,000	)
Loss per common share
Basic and diluted		$	(0.95	)		$	(0.64	)		$	(1.32	)		$	(1.56	)
Weighted Average Common and Common Equivalent Shares:
Basic and diluted			6,418,061				3,872,447				6,418,061				3,487,299

See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Six Months Ended
		June 30, 2024				June 30, 2023
Cash flows from operating activities
Net loss		$	(8,486,000	)			(5,445,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			105,000				238,000
Provision for estimated cost of returns			1,301,000				1,820,000
Provision for inventory obsolescence			-				271,000
Credit losses			14,000				7,000
Operating lease impairment expense			3,878,000				-
Loss from disposal of property and equipment			-				3,000
Stock based compensation			36,000				138,000
Amortization of right of use assets			20,000				316,000
Change in net deferred tax assets			-				1,399,000
Changes in operating assets and liabilities:
Accounts receivable			4,945,000				6,303,000
Due from banks			(187,000	)			-
Accounts receivable - related parties			(145,000	)			87,000
Inventories			(38,000	)			(1,714,000	)
Prepaid expenses and other current assets			69,000				(167,000	)
Other non-current assets			(64,000	)			(135,000	)
Accounts payable			(3,940,000	)			560,000
Accrued expenses			(771,000	)			(1,939,000	)
Customer deposits			(572,000	)			-
Refunds due to customers			(649,000	)			577,000
Reserve for sales returns			(1,217,000	)			(2,604,000	)
Operating lease liabilities			291,000				(329,000	)
Net cash used in operating activities			(5,410,000	)			(614,000	)
Cash flows from investing activities
Purchase of property and equipment			(6,000	)			(137,000	)
Net cash used in investing activities			(6,000	)			(137,000	)
Cash flows from financing activities
Proceeds from sale of stock, net of offering costs			-				1,640,000
Net payments on revolving lines of credit			-				(1,761,000	)
Other			(42,000	)			(33,000	)
Net cash used in financing activities			(42,000	)			(154,000	)
Net change in cash			(5,458,000	)			(905,000	)
Cash at beginning of year			6,703,000				2,795,000
Cash at end of period			1,245,000				1,890,000
Supplemental disclosures of cash flow information:
Cash paid for interest			40,000				24,000
Equipment purchased under capital lease			-				55,000

See notes to the condensed consolidated financial statements

FAQ

What were Singing Machine's (MICS) Q2 2024 net sales?

Singing Machine's (MICS) net sales for Q2 2024 were $2.44 million, representing a 7% decrease from $2.625 million in Q2 2023.

How did Singing Machine's (MICS) gross profit change in Q2 2024?

Singing Machine's (MICS) gross profit decreased by 38.8% to $324,000 in Q2 2024, compared to $529,000 in Q2 2023.

What was the impact of the SemiCab acquisition on Singing Machine (MICS)?

The SemiCab acquisition was completed on July 3, 2024. Singing Machine (MICS) is now focusing on integrating SemiCab to expand its customer base and drive revenue growth in the global logistics space.

How did Singing Machine (MICS) manage its short-term liabilities in Q2 2024?

Singing Machine (MICS) significantly reduced its short-term liabilities by 43.8% to $9.1 million as of June 30, 2024, focusing on converting short-term assets to cash.