Algorhythm Holdings, Inc.

Good morning everyone and welcome to Algorithm Holdings, second quarter, 2025, Financial Results Earnings Call. My name is Jen and I will be your operator. As a reminder, today's call is being recorded. We have a brief safe harbor and then we'll get started. This call contains forward-looking statements under U.S. Federal Security laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in our reports that we file with the Securities and Exchange Commissions, 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. Hi, thank you. Good morning ladies and gentlemen.

Thank

you all for joining us for our second quarter

2025 earnings call. As mentioned, my name is Gary Atkinson, Company CEO. I am also joined this morning by Alex Andre, Company CFO, who will be providing a detailed update on the results of operations. Before we start, I'd like to focus on two key topics for today. The first is the strategic sale of the singing machine, our legacy consumer electronics business. And the second is the accelerated growth and outlook for semi-cap,

our high-growing AI logistics platform. I'll start this morning with singing machines. This business has been the leader in

its category for over 40 years as the number one brand for home karaoke. However, the consumer electronics market, particularly consumer karaoke, has faced persistent headwinds over the last few years. The business has experienced declining sales year over year, rising costs, uncertain global tariffs, inflation and supply chain disruptions. To position algorithms for long

-term growth, we made the strategic decision to divest the singing machine business.

The recent sale we announced earlier this month generated $4.5 million in total consideration, which reduced our liabilities by approximately $4 million and has materially strengthened our balance sheet. More importantly, this move lowers our ongoing cash burn and allows us to dedicate capital and resources to areas with

the greatest growth potential, that being our semi-cap business. This is not just a financial decision, this is a complete strategic pivot. Semi

-cap operates in a massive, addressable market and has tremendous scaling opportunities for growth and is already transacting with some of the largest, biggest household names in the consumer product space. We do business with companies like Kellogg's, Kellenova, Apollo's Hire, Asian Paints,

Procter & Gamble, and Unilever, which are our customers in India. And they're hungry for

us to do more. Over the past several quarters, it has become clear that semi-cap deserves the resources to sell aggressively rather than

coexisting alongside the singing machine business. This past quarter was a breakthrough quarter in our strategy to pivot into

AI technology, which has the power to disrupt the legacy great brokerage business. In May, we closed the acquisition of Semi-cap India, bringing their team, their technology, operations, all under our semi-cap holding subsidiary. During the integration period, we prioritized funding their working capital, strengthening their vendor relationships, and starting to build out their operations, marketing, and accounting teams in

India to support the anticipated growth. I believe the results now speak for themselves. During this

last quarter, we announced Semi-cap has secured five new contracts with some of India's largest fast-moving consumer groups companies. We also announced during the quarter, four existing clients have expanded their geographic lanes and volume by over 100%, and in some cases upwards of 200%. These expansions were with some of the companies that I mentioned earlier, brands like Apollo Tire,

Procter & Gamble, Asian Paint, and CalArts Calanova. During the quarter, we also announced a fleet expansion, where

we grew our fleet from 140 to 450 trucks, clearing the runway of supply of trucks

to increase our annualized revenue run rate to approximately 22 million. Over the past 12 months, our average, our annualized revenue run rate has

increased by almost 300%, to now approximately 7 million in

ARR. We anticipate in the coming quarters for that growth trend to continue. In summary, Semi-cap's growth trajectory is accelerating. The combination of new wins, expanded contracts, and fleet growth has created a strong flywheel effect. That is, more volume on our platform drives network effects.

This results in increased optimization opportunity to reduce empty miles, therefore unlocking significant value for our customers and driving our margin expansion. So at this point, I will turn the call over to Alexandre, who will walk you through our second quarter results in detail.

Thank you, Gary. Hello, everyone. The quarterly report that we filed yesterday presents information for the three and sixth months, and the June 30, 2025 and 2024. We had an exciting quarter with the acquisition of Semi-cap India. Semi-cap was included in our financial results effective May 2nd, 2025, which was the acquisition date, and contributed to our financial results for the months of May and June. As Gary mentioned, we sold King machine on August 1st, according to our third quarter results, and we will continue to sell King machine for just the month of July. Thereafter, our future financial results will only reflect our Semi-cap business. We expect to reflect the sales that we see as discontinued operations for our third quarter. Moving on to our third quarter results, sales for the three months and the June 30, 2025, increased to 2.7 million from 2.4 for the corresponding period last year, primarily due to the addition of Semi-cap India on May 2nd. Our Semi-cap India business accounted for 1.5 million of our sales, while our Semi-cap business accounted for the remaining 1.2 million. Sales of our Semi-cap India business negatively impacted by increased inflation, and the tariffs that were implemented on April 2nd, as all of our Semi-cap India products are manufactured in China. Our Semi-cap India business is also seasonal, with most sales being generated in the second half of the calendar year. On the Semi-cap side of our business, our revenue run rate has tripled to more than 7 million since January 2025. We expect Semi-cap to generate between 2 and 2.5 million of revenue during our third quarter. We also expect revenue generated from Semi-cap to increase substantially over the next 12 months, but Semi-cap's revenue run rate projected increase to between 15 million and 20 million over the next 12 months. Gross profit for the three months ended June 30th, 2025, increased to 954,000 from 324,000 for the same period last year, with gross margin increase in the 35% from 13%. The increase was due primarily to one-time adjustments made to inventory reserves and co-ops associated with our Semi-cap India business. We expect gross profit to decrease to close to the break even in the near term to reflect Semi-cap's current margins, as Semi-cap encouraged freight handling and servicing costs in a business that were included in costs of goods sold. Selling expenses for the three months ended June 30th, 2025, decreased to 234,000 from 547,000 in the prior year, period due to decreases in online marketing and social media advertising campaigns associated with decreases in sales of Semi-machines' karaoke products. We expect selling expenses to decrease substantially over the next 12 months due to the sale of our sitting machine business, as virtually all of our selling expenses were incurred by our sitting machine. Semi-cap has not currently incurred selling expenses. General administrative expenses for the months ended June 30th, 2025, decreased to 1.5 million from 2.1 for the same period last year. The decrease was due primarily to decreases in general and administrative expenses incurred by our sitting machine business, partially offset by increases in the same expenses incurred in the growth and development of our Semi-cap business. We expect E&A expenses to decrease over the next 12 months due to the sale of sitting machines. However, we expect the reductions achieved to be partially offset by an increase in expenses that we expect to incur, as we continue to invest in the growth and development of our Semi-cap business. Finally, net loss for the three months ended June 30th decreased to 809,000 from 6.2 million for the comparable period last year. The decrease was due primarily to 3.9 million for operating lease impairment expenses that we incurred in 2024 in connection with the termination of a lease that we don't really need for our business, and lower general administrative expenses. Net loss is expected to decrease over the next 12 months primarily due to the sale of our sitting machine business, which accounts for a significant portion of our losses. That decrease in net loss is expected to be partially offset by increases in net loss resulting from our continued investment in the growth and development of Semi-cap. That concludes my

overview of the second quarter financial results, Gary. Thank you, Alex. I just want to say that I am extremely proud of the work that we have completed

during the second quarter. Today we showed how the strategic sale of the sitting machine and the acceleration of Semi-cap are two sides of the same coin. The sitting machine sale strengthens our balance sheet, reduces our cash burn on a go-forward basis, and sweeps up capital for high growth opportunities. Our focus is now on Semi-cap to be fully resourced to cash for market share in a fast-growing on-top sector. We are extremely confident in our path forward with Semi-cap positions for continued contract wins and geographic expansion, lead expansion, and revenue growth.

We look forward to updating

everyone on our progress over the coming few months and appreciate your continued interest and support. And with that, we have reserved some time for some Q&A, so we'd like to at this point open it up to any questions.

Thank you. At this time we will open the question and answer session. If you would like to ask a question, please press star and one on your cell phone keypad, and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, press star one on your phone now. And our first question comes from Theodore O'Neill with Lakefield Hills Research.

Hey, thanks very much. And congratulations on the margins and expense reductions. I was wondering if you could give us how to think about the product margins and the operating expense going forward

into the fourth quarter, when you have your first clean quarter. Sure. Hi, Theodore. That's a good question. Yeah, we can certainly give a little guidance.

Maybe Alex, you can talk about some of the anticipation with total operating expenses. I can address the margins. So as we move ahead, obviously now with the sale of singing machine coming off of the book, we do anticipate total operating expenses to come down. We are expecting, you know, the margins to be in line with what the semi-cat business is generating. Their margins to start will not be sort of indicative of what the singing machine margins used to be. You know, we used to see with singing machine margins, they were well north of 25 to 30 percent gross margins. The singing machine, sorry, the semi-cat business, obviously from a margin perspective, is a smaller margin. So we would anticipate anywhere, I would say from five to 10 percent margins, but we expect the growth to be far outweighing the growth opportunities that singing machine has. So what we would lose in, let's say, margin percentages, we anticipate to make up for in dollars and growth. I think that makes sense. And Alex, if you want to maybe touch on the operating expense side. Yeah, the operating

expense side will be, as you already indicated, much lower because of the sale of singing machine. We do expect operating expenses to increase gradually over time, but that's associated with the growth in the semi-cat business. So I mean, it's an intentional decision by us to invest heavily into it. And that's also the reason why we expect revenue to increase so quickly. So, but overall, we will experience a major reduction at the outset because singing machine accounted for a significant portion of their operating expenses.

Okay. And sort of a follow-up, it may be too soon to tell, but given what's going on with tariffs here in this country, and I've only seen stories about potential mass layoffs of people in India, Eric, do you have any viewpoint on the tariffs and the impacts in India and if that will have some impact on your business, the semi-cat business?

Yeah, so I mean, the nice thing with tariffs is

with, for instance, with singing machine business, we were directly exposed to tariffs. So, like for instance, the increase on tariffs to products made in China, that was a direct hit to the singing machine business. Fortunately, with semi-cat, we don't have that same exposure. So there's no physical products that we're importing from any other country. Now, that being said, if there is a reduction in overall goods flowing into and out of India, that will have some consequences in terms of just overall rate that needs to be sort of moved around the country. But the nice thing is with the customers that we're doing business with, these are some of the largest Fortune 500, Fortune 100 multinational companies in the world. So there will be significant demand still within the country for their products. So we're not anticipating that to impact our business. Again, our percentage of transportation that we're doing with these large companies is very, very small in the grand scheme of how much volume flows through those customers. So if anything, we're expecting to receive more and more and more of their demand as our platform just continues to perform. We continue to save our customers money and our early indications in India show that we're now able to optimize upwards of 85% of truck utilization, which is a significant increase from the industry average of around 66%. So basically, long story short, the platform is working, the optimizations are real, and we're able to save our customers money. So I don't see tariffs

impacting us, Gary. Okay, thank you very much. Thank you. And our next question will

come from Eric Nickerson with Third Century Partners.

All right, good morning, Gary.

Hey, good

morning. I wanted to say, have you guys rehired Brendan Hopkins? Is he your IR guy again?

Yes, that's a good point. We are working with Brendan again, just as of very recently, to help engage and just be a... We are...now that we've pulled off singing machine and we're looking to kind of rebuild up the story with FemiCab, we felt like it was important to have a dedicated person that could answer questions from shareholders on a go-forward basis and just be an additional resource in communication.

Okay, fine. For your recent filings, you make it pretty clear that you're planning on... you're going to have to raise more money to finance this FemiCab growth. Is it fair to assume that you'll be doing that again with equity sales, or is there some other plan for it?

Yeah, I mean, obviously there's two options with raising capital,

right? There's debt and there's equity. We have taken on a little bit of debt in the recent quarter, not a lot. I think as we did bring in some cash from the sales singing machine, but I mean, you're certainly right. Over the next coming few quarters, we're definitely going to need to continue to bring in working capital to fund the growth of FemiCab, and I would imagine equity is going to be a piece of that. Now, the nice thing that I want to point out is that it's not... without now the singing machine business, the needs of FemiCab are much smaller, the overall working capital. So any kind of equity capital raising that we might need to do will be much, much more minimal in life than what we've had to do in the past to support the music.

Okay. And when we talked before, you said that most of the capital needs for FemiCab is to finance receivables, since you're having to pay out money quicker and the truckers tend to pay later. That sounds like something that you could either get bank financing for, or maybe even a factoring relationship. Have you considered along those lines?

Yeah, we have. In fact, we are in the process of putting essentially sort of a factory facility in place in India to help just balance out that -to-cash timing that's been challenging us in the past. So that will be one way of solving the working capital needs of the Indian business.

Okay. Well, okay, that sounds good. I can tell you, this is one little guy out here in the peanut gallery in stock market land. If you want to raise your credibility, probably the fastest way to do it is to sell some new shares at a price at or above current market. That's something the company hasn't been able to do. So I wish you luck in that and hope you can do it.

Yeah, I

guess that's all right. I will go

back into queue. Okay. Thank you, Eric. Thanks for the questions.

As a reminder, if you'd like to ask a question, you may signal by pressing star one on your platform phone. And our next question will come from Brian Cintello. Please go ahead.

Hey, good morning, Eric. Congratulations on a great update. Thank you, Brian. Good morning. So, you know, obviously with the spin-off

or sale of the machine, there's a lot of benefits. And that's specifically from the negative cash burn, which is great. You've kind of addressed some of my initial questions on how that's going to directly impact the company from a financial perspective, which is obviously significant. If you also talk a little bit about the focus on SemiCab and its current customers and the growth, meaning will we likely see kind of deeper penetration into the current customer base or an expansion of new customers? How should we look at it as far as the opportunity going forward?

Yeah, no, that's a great question. Thank you for that. So just touching on the first part now with the sales of the machine, obviously, like you said, there's a lot of additional advantages. But the main thing that I think of is the focus, right? So prior to August 1st, there was a capital allocation problem. You know, we had to sort of take the limited dollars we had and decide whether to put it into singing machine or put it into SemiCab. Now we don't have that problem anymore. Now we know exactly where our focus is. We know where to allocate capital and it's been through the fast growing AI tracking logistics platform. Now in terms of just customers and penetration, look, I mean, we've seen now in the first contracts with our customers, they're all very, very, very excited. There's a buzz in India. There's word of mouth that's going on. We've been picking up additional customers that are outside of the NDFE, which is the National Digital Trade Exchange. So our customers are talking and we're kind of getting free marketing and good dev from word of mouth. So we are seeing some new customer wings that are coming in outside of the NDFE. And then with our existing customer base, which I would consider sort of like our big four, which is Asian Paint, the Polar Tire, Procter & Gamble, and CarLabs, they're all looking to expand pretty aggressively. We haven't really given all of the details of those expansions. I would expect that we will be able to announce them, I think, fairly soon. But there are material, material increases to overall volume, lanes, traffic that they're expecting to be giving us here. So again, I have to be a little vague, unfortunately, just because we haven't publicly announced those yet. But

yeah, we're seeing, we're seeing the solid growth coming.

Okay. So it sounds like there's a ton of runway with the current customers and other customers in India, which will keep you busy at the same time. Are you looking to expand our chart at India?

Yeah. So here, so the challenge we're running into is that there's plenty of demand. Like we get, there's plenty of demand to grow this business strip in India. Where we're a little bit constrained is just access to the trucks. So certainly having additional working capital will help us expand the number of the, the fate size of the trucks and just make sure we always have a pool of carriers that are available to deploy trucks, like in real time when we need them. And then in terms of expansion outside of India, that is on the table. The nice thing about doing business with these large multinational companies is when they see something working, it's very easy for them to walk us into new territories. So if we have a, basically a case study where we're showing them even single digit margin improvements from their transportation spend, that's good enough for them to try to open up doors in other countries like Australia, the Middle East, Europe. And then there's plans here for the US as well, which again we haven't discussed yet. But yeah, the nice thing about this business model is it's certainly not limited to just India. This is a global business model.

All right, great. Thanks for the cover and congrats again. Thank you. Thank you. Thanks for your questions. And we're here next from Brendan Hopkins

with Worms.

Hi, Gary. Thanks for bringing me back on board. I just want to introduce myself to everybody. I've worked with Gary in the past. We've had a great relationship. And one of the things I saw with the company recently is an inability for investors to actually get a hold of people's company and get more color on development. Some limited access to management. I just want to let everyone know I'm always available to add additional colors to any press releases, which we're going to try and be very transparent as the gates of the growth go. And I'm always available to give more color or to set up a call with management, offline calls management. Now, one of the things I'm getting in my initial feedback is, what distinguishes Stalkab from a digital trade broker?

Great. Thank you. Thank you, Brendan. Definitely excited to have you come back on board. And that's a great question. And I'll be honest, that's probably the number one question that I know I get from potential investors and shareholders that are new to this MSF story. So, yeah, let me spend just a quick minute. I know we're kind of getting close to time, but it's a very important point. I think it'd be great to end there. So I want to be very clear. Stalkab is not just a digital trade broker. So when I think of a digital trade broker, I think of basically a huge load board that all they do is they just try to pair supply the trucks with demand with loads. And that's all they do. They're not built from the ground up to solve this pervasive problem in the transportation industry, which is this concept of deadhead miles and empty miles. So again, just to restate what the mission of Stalkab is, approximately 33% of all miles that trucks drive are being driven empty. That's not just U.S. That's not just India. That's global. So you're talking about a 66% utilization of a truck on average. And Stalkab is a software platform built specifically to address that problem. And so what they do, what we do, is our technology enables better utilization of trucks, better routing of where trucks are going to be able to increase that truck utilization from industry average of 66%. And we've seen it with our platform upwards of 90%. I think in India, we're probably averaging around 85% utilization on trucks. So the consequence of that is we're saving money, right? There's less wasted miles, less fuel being burned, less labor, less depreciation and usage of the actual trucks itself. And it's working. It's working. We're seeing it working. So it's an important distinction. We are not just a digital freight broker. We're solving a real world problem that is costing companies hundreds of millions of dollars annually.

So I appreciate the opportunity to kind of clarify that. Great. That's good for me. Okay. Thanks, Brendan. And I think that's it for time.

I just probably bumped up to the 1030. So I do appreciate everybody taking the time. I love all the great questions. We look forward to updating everybody with progress over the coming few months and quarters. And obviously, as Brendan's just introduced himself, his email and his phone number are now on the bottom of press releases. So I encourage everybody that has questions, feel free to reach out to Brendan. And we look forward to continuing the dialogue. So

thank you, everybody. With that, we will conclude today's call. Thank you.

This does conclude today's second quarter 2025 earnings call. Thank you all for your participation. You may now disconnect.

The host has ended this call. Goodbye.