The Singing Machine Company, Inc.

Good afternoon, everyone, and welcome to the Singing Machine's fiscal 2023 financial reserves earnings call. My name is Travis, and I will be your operator. As a reminder, today's call is being recorded. We will have a brief safe harbor, and then we'll get started. This call contains four looking statements under the U.S. federal security laws. These statements are subject to risk and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risk and uncertainties can be found in the reports that we filed with the Securities and Exchange Commission. including the cautionary statement included in our current and periodic filings. I would now like to turn the call over to Gary Atkinson, company CEO. Please go ahead, sir.

Thank you, Travis. Hi, good afternoon, everybody. This is Gary Atkinson, singing machine CEO. Joining me on today's call is also Lionel Marquis, the company CFO, and Bernardo Mello, the company chief revenue officer. I'd like to start off today's call by thanking everybody for taking the time to listen in and participate in our fiscal year 2023 earnings call. The 12 months ended March 31st, 2023 was a challenging year for SingMission, not unlike what many other consumer electronics companies experienced last year. Coming out of the multi-year pandemic and subsequent global supply chain breakdown in calendar 2021, our retail partners, suppliers, and logistics partners all faced uncertainty as to the supply of semiconductors, manufacturing, and transportation. As we moved into calendar 2022, these supply chain issues created a backlog of inventory that finally entered the retail pipeline in the early part of 2022. As the year went on, consumers coped with the negative economic impact of the strong inflationary pressures, rising interest rates, and the conflict in Ukraine. Retailers were faced with higher inventory levels and lowering consumer demand, which consequently caused them to cut new orders. All of these factors, unfortunately, combined together to negatively impact our 2022 holiday retail season, which, again, unfortunately dominated what was otherwise a very successful and encouraging year for our company and our team. Before our CFO Lionel Marquis provides a deeper insight into our fiscal year financial performance, I would like to take a few minutes to highlight some of our key milestones that we achieved during the year. First, we successfully uplisted to the NASDAQ in May of 2022. This was a major accomplishment for our team as this represented many months of hard work, persistence, and diligence. As I'm sure all of you listening today are aware, this is a very rigorous process And we view our uplisting as a very positive indication of the level of transparency and accountability our company embraces on a daily basis. As part of the uplisting process, we elected to expand our board of directors significantly. We did this in part as a requirement for the uplisting, but more importantly, to solicit the advice, knowledge, and experience of several very successful business leaders with expertise within the consumer electronics, legal, finance, and accounting fields. Their ongoing input and counsel will be greatly appreciated as we look to execute on the next phase of our growth plan. To uplift to a national exchange has immediately benefited the company during this fiscal year as we successfully executed capital raises on better terms than what we have executed in the past. We successfully raised $4 million in a concurrent capital raise during our uplifting back last May. We also announced a 1.7 million at the market ATM transaction in October and closed it out in May of this year. Neither transaction involved any warrants or any other long-term derivative preferential rights for investors, keeping our capital structure as simple and clean as possible for all shareholders. Moving on, operationally for fiscal 23, we capitalized on the largest opportunity to expand our distribution, which came from Walmart. already our largest single retail partner today walmart had done internal research and determined that karaoke belonged in electronics it was not just a toy item it was also an entertainment product for adults and families they revamped their locations to make the consumer electronics department a central feature with a more prominent centralized location within their stores as part of this development walmart asked our team to expand our shelf space commitment showcasing our higher-end karaoke products in the newly expanded electronics department. At the same time, we were able to maintain our shelf space in the toy department, showcasing some of our newer toyetic offerings. The net impact for the singing machine was that we sold several million in incremental orders to Walmart throughout the fiscal year, offsetting some of what otherwise was a challenging holiday retail environment. For this coming year between toys and electronics departments at Walmart, Walmart stores will carry a total of 14 thingy machine products on its shelves. While Walmart presented one of our best domestic growth opportunities last year, the Canadian market represents our clearest path to growth in fiscal 2024 and beyond. As a result, we've doubled down our commitment and focus on this market, retaining one of the best in class sales reps in Canada. Her team has deep relationships with a number of key big box retailers, and we have seen in the period after closing the fiscal year, the steps that we took late in fiscal 2023 are now starting to have a positive impact on our international sales moving forward. Finally, we've examined our global karaoke growth opportunities. We've ultimately concluded that the karaoke market can be divided into four different subsets. Number one is the in-home karaoke consumer product market. Number two is the high-end karaoke commercial market. Number three, the emerging automotive market. And finally, number four, the hospitality market. For our company, we have been highly successful within the in-home market and we enjoy the leading market share in North America for in-home karaoke product sales. However, as this year has proven, this segment presents certain challenges and volatility, namely low single-digit industry sales growth, challenging supply chain, and a strong reliance on holiday retail consumer demand. As part of our strategic plan, our team is seeking to accelerate our revenue growth, improve overall profitability, and diversify our revenue sources. In order to accomplish this, we have identified the automotive and hospitality space as areas where we intend to devote resources to accomplish these goals. Leading up to our coming annual shareholder meeting in September, our team has been hard at work on new initiatives that we believe will be encouraging relative to the overall outlook for the company. Our growth opportunities are compelling, and we believe we have the brand, the experience, and the track record of innovation that should serve us well as we look to execute on these opportunities. With this in mind, I would like to now turn the call over to Lionel Marquis, company CFO, to give greater details on the results of the operations for fiscal 2023. Go ahead, Lionel.

Thanks, Gary. Good afternoon, everyone. Without any further delay, I'd like to walk through the results of operations of our fiscal year ending March 31, 2023. We start with revenues. The revenues for the fiscal year 2023 were approximately $39.3 million. This represents a decrease of approximately $8.2 million or 17.3% as compared to approximately $47.5 million for fiscal year 2022. We experienced a broad-based decrease in sales, including four out of our five box retail partners. The decrease in sales was largely due to two main factors. First, our customers began the holiday season with excess inventory due to late deliveries in calendar 2021 and due to the logjam supply chains during the later stages of the global pandemic. This generated an overstock situation or position in the first few months of 2023, which made the retail buying representative slightly more conservative during the summer of 2022. Secondly, the news of economic recession Inflation, interest rate hikes dampened our retail partners' expectations for the holiday season, which all resulted in these customers taking more risk-averse approach to buying leading up to the 2022 holiday season. Several of our major customers required significant co-op promotion incentives on goods sold to assist in holiday inventory sell-through. Co-op promotion incentives for the fiscal year ended March 31, 2023. increased to 2.3 million or 6% of net sales as compared to approximately 1.7 million or 3.6% of net sales for the fiscal year ended March 31, 2022. Talk about gross profit. Gross profit for the fiscal 2023 was approximately 9.2 million, yielding a 23.4 percentage of total revenues compared to approximately 10.8 million or 22.8% of sales for fiscal 2022. The net effect resulted in a decrease of approximately $1.6 million as compared to the same period in 2022. If margin had held constant at 2022 levels, the decline in gross profits would have been slightly higher at $1.9 million. Gross profit margin for fiscal 2023 was 23.4% compared to 22.8% for fiscal 2022. It's an increase of 0.6 margin points. Contributing to this change was the fact that the company was able to successfully lower its overall logistics expense during the fiscal year, saving approximately $1.7 million in costs compared to the prior year. However, higher co-op costs to incentivize retailers to fulfill existing orders increased by approximately $0.6 million. In addition, the company incurred $0.8 million in non-cash expenses relating to inventory reserves and inventory write-offs. Excluding these non-cash expenses, cash gross margins actually improved 280 basis points and not 60 basis points for fiscal 2023. Operating expenses. During the fiscal year ended March 31, 2023, operating expenses increased to $12.9 million compared to $10.7 million during the prior year. This represented an increase of $2.2 million or 20.6%. Excluding latterly formulaic selling expenses driven heavily off of direct sales performance, general and operating expenses increased to approximately $9.2 million during the fiscal year and March 31, 2023 compared to approximately $6.9 million during fiscal year March 31, 2022, an increase of $2.3 million. There was an increase in legal professional investor relations and stock transfer costs of approximately Approximately $0.9 million in part related to the public offering, NASDAQ uplifting, change and control issues, regulatory filings, Delaware franchise fees, preparation costs related to the credit agreement with Fifth Third Bank, and arbitration settlement of the alleged employment practice violation lawsuit against a former temporary employee. Excluding the Delaware fees of just over $1. almost $200,000, almost all of the remaining $900,000 increase was largely one-time in nature. There was an increase in compensation expense of $500,000, primarily due to a one-time compensation expense of $400,000 related to a change in control and employment continuation agreement with the chief financial officer. The remaining $100,000 million An increased cost is primarily related to the expansion of the Board of Directors, which also included a substantial part of it was non-cash equity compensation. Okay, liquidity. As of March 31, 2023, we had cash on hand of $2.9 million as compared to cash on hand of $2.3 million on March 31, 2022. The company reduced its overall working capital investments by approximately $5.2 million during the year, as the management team focused heavily on inventory management and building more liquid short-term capital position. The company also heavily reduced its short-term liabilities. Current liabilities, as of March 31, decreased 49%, from $12.0 million to $6.1 million during fiscal 2023. As a result, the company had no short-term debt, meaning no revolving debt, and 67% less trade payables at fiscal year-end. As a result of all these developments on March 31, 2023, our working capital was approximately $9.1 million. During the next 12-month period, we plan on financing our working capital needs primarily from a combination of vendor financing, revolving line of credit, proceeds collected after the fiscal year ended from the completion of our ATM at-the-market offering. The company believes that its cash on hand working capital net of cash, cash expected to be generated from its operating forecast along with availability of cash from its credit facilities, will be adequate to meet the company's liquidity requirements for at least the next 12 months as of the filing of this report. I would like to now turn the call over to Bernardo Melo, our Chief Revenue Officer, who will share some insight into our key accounts and current outlook as we build towards the 2023 holiday retail season.