Singing Machine Co Inc

Q2 2022 Earnings Conference Call

11/15/2021

spk_0: it really everyone and welcome to today's singing machine announces second quarter earnings at this time of participants are in the listen only mode later you'll have an opportunity to ask questions during the question and answer session you may register to ask a question that any time by pressing the still one on your touchstone phone please note this call may be recorded it is now my pleasure to turn today's program over to brendan hopkins please go ahead
spk_1: are very few and your one for joining us this morning i will be safe harbor and will get started except restores information contained herein smith conference call for are forward looking statements are made pursuant to the safe harbor provisions of the private securities litigation format mighty mighty bar forward looking statements about known and unknown risks uncertainties that because other actual results you to period is for materially from forecasts of results with that that i would like to call to go over to gary atkinson ceo thing machine
spk_2: take your brandon hi good morning everybody this is gary i can ceo singing machine company i'm also joined this morning with lionel marquee company cfl and bernardo mellow vp of global sales and marketing i'd like to start the call today by recognizing and thanking the entire global operations team juicing machine it was the second quarter was a very challenging quarter from a supply chain perspective if you over call earlier this year there were a lot of news reports in the media about supply chain struggles in terms of accessing critical components like silicon chips integrated circuits raw materials and a lot of that was true a lot of what what was reported was true and and i know that the entire global seen and our manufacturing partners worked tirelessly to make sure that products is built and shipped out on times i do want to thank the entire team for putting us in this position to have a successful second quarter i also just wanted to highlight that some of the other events that happened during our second quarter in terms of which we closed a successful ten million dollar private placement back in august where we were able to break a group of widely respected institutional fun and received a strategic investment from our long time content partner in seeing re if you recall we use the proceeds of that private placement to buy back the former fifty one percent majority owner shares so that we could begin the process of transforming our business and also during the second quarter we've had started the plus process to begin to list our shares on to a national exchange we believe this also be part of the transformational story behind the company where we do believe that up listening to a national exchange will have a positive
spk_3: as a sex in terms of the opening up exposure to a wider audience and investors that country in our stock
spk_2: and just finally before turn to call over the line or i also want to just touch based on a little bit of what we're seeing now in terms of the tail end of the supply chain crisis which is the situation that happening right now at the port of los angeles and long beach
spk_4: there's
spk_2: this has been widely reported in the news that there is approximately one hundred ocean container vessels that are dr on anchor off the court it is affecting the entire industry
spk_3: it's a very large widespread problem with billions of dollars of inventory being held up off the court
spk_2: and it is it is affecting us as well we do currently have a significant amount of containers that are stuck off the court waiting for those votes to come in and talk and unload inventory so we're anticipating the tail end of the supply chain crisis to to follow us and to hear our third quarter potentially fourth quarter and beyond it depends how quickly the report is able to clean up and resolve itself so i will i'm sure what we'll have more to talk about on that topic and for that i want to turn the call over to lana a marquee see a photo to give us a little bit more detail on some the numbers
spk_5: good morning everyone just wants to touch on the highlights of the second floor pop or net sales were seventeen point four million versus twenty two point three million and prices for the corner i'm refreshment four point nine dollars down have a couple of things going on here are came microphone are tough to karaoke microphone which are did very well in in the prior year this first generation of microsoft replied down the inventory so some get about two point three million dollars less ah this corner than we did in the fire think quarter of the other thing that happened the two point six million dollar difference between that was two point three million dollars with us the difference in the four point nine decreases the second differences primarily about two point six million dollars and that was primarily due to the delays from the port of l a are looking at the same instance i used to date twenty three points to a million versus twenty five point three million the talk to karaoke microphone was down one point five man i'm from the same quarter last year hop and about four hundred thousand dollars was due to in the port of l a and the ability to ship
spk_1: some of the walmart my private groups earlier
spk_5: this year or to offset so that the carpool karaoke microphone with blood down version one but we recently introduced for this holiday season
spk_3: the second generation of the product which i'm sure ah sales will discuss it later on in this presentation
spk_6: gross profit
spk_5: or three point three million versus five points last year but two and a half an hour difference about one point two million dollars was due to the sales volume shortfall in the other one point three million dollars was primarily due to the margin of profit margin field talk about that and second year to date four point nine million dollars odds are gross profit margin versus six point of which are half a million dollars was due to volume
spk_3: one point zero was to march so let's talk about gross profit margin
spk_5: had nineteen point two percent gross profit margin vs twenty six point one percent gross profit margin last year approximately a six point nine percent sixty nine point margin drop the couple karaoke microsoft which carries a very very strong
spk_6: gross profit margin
spk_5: the decrease in that volume contributed to about four point of marches decrease the other two point nine was primarily due to increase is raw materials and extremely more expensive free costs container costs and another one point one points march was due to the pixels
spk_7: fuck that the ship
spk_5: are you today twenty two point two percent profit margin versus twenty six point two percent or four point six point margin dropped two point three for half of those point drop were due to the carpool karaoke sorry
spk_8: the decrease
spk_3: decreased profit margin as a couple karaoke care so much march march most of our of products
spk_5: and arrest again was due to increases in prices from free raw materials as well as the mix of good set the solar period
spk_3: from operating expenses standpoint we had two point six million dollars and operating expenses for the second quarter first three points for last year as a drop of approximately eight hundred thousand dollars mostly or variable expenses commission's royalty and phrase which were pretty much commensurate with a decrease in sales
spk_5: the general and administrative expenses are relatively flat of course he had a day or four point six million and selling is operating expenses first of five point one again a half a million dollars down and dna remain flat soda today period so we're dealing mostly with less than selling expensive like commission's royalty and free
spk_3: and that was commensurate with drop in sales as around we saw we hadn't come from operations of approximately seven hundred fifty thousand compared to two point four million last year
spk_9: one point seven and drop a mistake myself six hundred thousand versus one point seven man or a one point one man
spk_5: dollar drop we can talk about other income a little bit expensive
spk_10: around one hundred and sixteen thousand
spk_3: other income
spk_5: versus and seven hundred ninety thousand dollars of other income last year ah for those you might recall last year we had a recovery of us a previous year car insurance settlement on damaged goods or happens next and previous fiscal year approximately nine hundred thirty seven thousand dollars this quarter we had two hundred and thirty six thousand dollars him him accounts payable forgiveness against your part of settling out
spk_7: everything that had to do with the with the damaged goods incident
spk_5: the
spk_3: the prior year
spk_5: yet a date two hundred seven thousand dollars in some versus some forty two last year and pretty much the same story have we did have four hundred and forty thousand dollars off
spk_7: loan forgiveness for the a paywall protection program
spk_5: and we also had the two hundred and thirty six thousand dollars under to cast ample forgiveness related to the damaged goods of that did help offset some things that we were still off in that area by about a half of involved because the biggest settlement of the insurance of the damaged goods settling into damaged goods product happen project happened last year net income was nine hundred thousand dollars versus two point four for the quarter that a million house down eight hundred thousand dollars he added a person's two point two million dollars same here
spk_3: a period last year pregnancy one point four hours down as a result
spk_5: all the only other thing i'll mention here before i sign off is that inventory you'll notice the inventory was approximately nine point two million dollars versus a point two million dollars in the prior year
spk_2: and again this as mostly to do with all of the inventory that the latest supporters of of the nineteen point two million dollars and i'm talking about nine million dollars of it was in transit as of the and nine thirty
spk_11: and we can discuss that later time of that's my report thank you
spk_1: they do i know at this point let's turn the call over to bernardo mellow vp of global sales and marketing
spk_12: the guys
spk_3: thank you for joining us and beginning to see no in earnings call
spk_12: i wanted to go through some of the i wanted to summarize some of the challenges we face
spk_3: especially summer summer sales and majestic the situation new they didn't hear hear the you seen a global was a global but i'm you know this year has been an incredibly tough year
spk_12: i'm with nothing to do with how we had executed programs prior to try to the year
spk_1: i'm one of the things that that we did this year a new had heard me in previous calls were that i'm in a week we had secured a lot of the programs for the back in much earlier than than we did in previous years
spk_3: and in we were lucky to i'm right writer purchase orders in advance nino gary recognize our own global adjusted teams but i wanted to the same with the hulk on team working extremely hard securing containers i'm at a time where
spk_12: where everybody was bidding higher prices just to give an example you know we were usually pain about thirty three hundred dollars a container in some instances we had to this year about upwards of twenty thousand dollars to contain just to get to item ship
spk_3: in meet our commitments is so
spk_1: q to you know were impacted by by by those challenges and some some of the programs was set a little bit late linda than we had hoped
spk_3: i'm obliged it could have been a lot worse and and that's an attribute to to the hong kong team and in the word that they have been doing arm and also a the team in california that really started to the plate and were able to turn things as soon as he got it back out but it did affect or are not on your domestic this is what it affected are directed put this is awesome as you guys me no walmart has the flexibility that wants to get products in their international distribution centers on the stores couple in additional products and set up the rules and cat
spk_12: arm which in the past we've seen a lot of those initiatives done by the store this year with product been a little discussing the into the into international distribution centers we didn't see a lot of those go out to the stores and on a date affect the some of the sales so you know we were camping sales from last year or two probably september september and october we saw a little bit of a slow down
spk_3: dad was obviously like line or mention i'm a due to carpool karaoke leveling down on of from from the buzzer we got from to tock also you know just stores now been completely started with with inventory
spk_12: on a gross margins also took a hit because opponent cause we're we're just we're just raised across the board you know we do a ship a lot of items wage or seven panels on which saw somewhere around four to six dollars in price increase just on the panels we sell some
spk_13: the i see also increase in pricing
spk_14: and then the container prices really impacted
spk_3: the gross profit as well luckily we had some really we were fortunate with our retailers in some is this is where they were the step up to the plate and and accepted some of the price increases as you know we finish our or year for rounding out the back cause most mostly in december and january and some of those price increases didn't come up to the
spk_1: come up to us and into after chinese new year and every time we pray replace you new orders we receive components continue to increase so that done had a heavy impact in are gross margin
spk_12: and like i said thankfully some of the similarly telescoped stepped up and partner with us but it was it across the board focusing on or individual retailers walmart their cell to has a pretty steady or to out
spk_3: and like i said it was slow down some some in september and october arm as soon as december kicked off we see the numbers continue to grow in and get back to leveling now where they should be in this time of year we had a a black friday annual event at walmart the launched early in november fourth we've already seen storm sell to do that and we should be at one hundred percent sell to arm here by the end of november so we're pretty satisfied with how
spk_1: that program turned out on we were able to increase one of our items from two thousand stores to all stores and in be no thirty seven hundred stores or
spk_3: you know that does shows the country you support from walmart a in believe in in the category
spk_12: i'm a target also you'll you'll see that they moved out there on to the ad and were featured on it we have a twenty dollar off and one of our items we were able to get enough to enjoy to the pipeline
spk_3: i'm a target to long to be able to the support that to the i saw so they kept the first one big change for them was obviously removing carpool karaoke but you still selling on dot com not have the same on i'm not have the same rate that they were doing dot com and stores on but still steady flow of of sealed day in and target on a so the lookout you know that there should be right after but but today's giving you should see eye to the odds on across all stores and target in and and we're expecting some some extremely good sales on cars go so supported us ways when i would are initiatives this year on a why five pedestal saw this is your to have that of that item on day one a little bit heavier on that we're in the midst of a two week period where the with promoting that to older members we see the ready for different email blast
spk_12: on on on that item in sales have been stronger than expect your on dot com clubs are still are still some well but but on we seem to increase come from dot com so so we're excited about that the the at is running all the way to november twenty ninth
spk_14: on the so you know it was no getting a lot of those products in because cause cause one hundred percent relying on domestic deliveries and some of those containers were caught in and movie seen in the port i mean we we see some containers even delay up to sixty days in the pudding
spk_12: and and you know those been are higher revenue items they were caught in a in the point that we were able to get enough out be support the yeah that's running through right now
spk_1: chess club is another one of our of are really good stories we have four items in there we have kids item we have a family item that's reach a little forty nine ninety nine we have or night on that we launched this year with chance club on does been trickling in little by little also a domestic item
spk_12: and then the they're also supporting our wife a pedestal so we've got it's incredible success with with sense to be you know even though some of the challenge that we have on with them being one hundred percent domestic but we've we've had good success if you visited to one of the stores one of the clubs
spk_3: that could be will see a nice with were presentation of bomb the same machine products there and you know they get your they're very happy with the results so far and hopefully we can continue to to have sent to be a for item assortment instead of one or two armed that has been in the past so on amazon we we were featured implanting wage with cotton karaoke on there still buying some directed for products that are coming in and also some domestic product even the big retailers like amazon walmart they've also had some container challenges themselves so instead of hitting in in late october
spk_12: some of the containers are hidden now into their deceased on but where where seem to ramp up with seen the in the domestic orders come in and steadily just too
spk_3: you know have that back backup have some little direct deposit that he later on but amazon cities to be really strong with us we're still continue to see weekly replenishment orders on the consul karaoke on on our traditional karaoke and we should launch some of the new items are we have
spk_12: i'm in in here shortly as well i'm and then i'll summarize international international been a really tough challenge for us i'm just because they've also had container cause go up to twenty two thousand dollars
spk_3: i'm in the uk and we deal with we deal with some distributors there so that has put some challenges to do distributors but were stolen cosco in australia was still and go uk was to represented in in in amazon
spk_12: read and we still have distribution into france italy spain
spk_2: and eastern europe so we need seen as much as we can bear an arm we've already started to visit some of the international shows we just had one enough in an arm with some good responses as to what we're going to accomplish in twenty twenty two ah that would w set up a to rest into question i don't want to see so much of a chance i'll have to back off to gary thank you can order for shit the update on i just want to leave i want to make sure we we have plenty of time to address questions that just one or that sort of summarize listen pardon thoughts on the quarter and particularly as we move into our holiday quarter in terms of supplies and i mean obviously it's it's it's post a challenge to us what we see supply chain as a short term disruption to our business that we think will continue to be a challenge over the coming one to quarters but that's not to say that our business model has changed in any way and the core strength to the businesses is still the same were still the captain the category it every single major retailer we are still the market leading brand that consumers look for and recognize and on karaoke space and with the recent placement and reconstitution of our sure i believe the company isn't that than it's ever been to execute our our business strategy moving for it which is to transfer from a purely hardware the distribution model to more of a hardware recurring revenue subscription based revenue model
spk_0: where we look to grow out grow out our recurring revenue and subscriptions for content that i don't that i believe we are investigations execute on that and that is still the long term vision for the company over the coming few years and with the support of the sting ray group as a strategic investor in the company and i believe we're going to be well positioned to take advantage of that so at this point no we have a couple minutes i'll turn it over at to question
spk_15: at this time if you would like to ask a question please press start one on your touchdown phone you may remove yourself from the queue by pressing the pound key when second star one to ask a question
spk_0: we will pass a moment to that questions to que we will take our first question from will mail
spk_16: dale this yell from as yes capital your line is open ah the mornings i stick my question i'm jerry a three year ago in after the holidays i think it's cometary talked about how to preserve i'm in schools promotion environments love to didn't need a lot of advertising to the holiday season as if you're the first names i'm seeing overall now on supply chain which officer you guys are not alone with
spk_2: facing of are you the summer environments as we enter black friday now with the flow from oceans bonus or advertising and saw prices in canada summer so consumed man make of that we're going to your single going into politics thanks
spk_17: sure i can i can definitely such on that and if i miss anything but are concerned the comment but it turns what we're seeing him in a lot of these promotional ah
spk_2: ads and circulars have been certainly pre negotiated at the beginning of the at the beginning of the season so rewind back to sort of march april when we were building out these programs with all of our major customers a lot of the supply chain challenges had not really sort of surfaced out there and so we had we had worked programs created forecast based on a certain amount of promotional activities
spk_3: to be happening for the holiday quarter or and a lot of that is still a lot of that is still going on was still has a major promotions running with cosco plans promotions running with amazon certainly walmart justice in the midst of them big black friday promotion a lot of those things of still happen
spk_12: but i will say that the bernardo in the team have been very successful in terms of passing on price increases due to supply chain back onto the retailers are and to the extent there's not enough inventory in the pipeline to warrant running a promotion i know we've been pretty aggressive about just cutting back on as much about as possible so ah
spk_3: burn out of you have any other thoughts you want to add to that show for that again
spk_18: yeah you know i would like to say that you know we've we've been pretty consistent from years past him in the promotions that that that we've decided to participate in ah
spk_12: you know i think one of those things that we stayed away was you know how did those clothes out items that is that we were promoting in the past on the last couple of years we we we sort of stayed away from that because are plotted mix has been good a plus you know inventory
spk_19: that that is go forward item so on but for the most part walmart target
spk_12: and and amazon follow a similar promotion schedules we did have a promotional
spk_3: in own schedule with them and with sam's club and caso this year that was pre determined vs in the past we've sort of granted based on where they were sitting on inventory
spk_20: and we have to those but this year we had pre determined ah programs
spk_21: with with promos but the but the the the club in the retailers bought into those programs in tomo so on there were like gary had said don't they're already destroyed right around january february march
spk_0: it's a very much
spk_2: once again if you'd like to ask a question that star went on your touchdowns phone
spk_22: we will pass another moment for questions to que
spk_23: maybe pierce we have no further questions at this time
spk_2: okay well i appreciate everybody's time this morning to to hop on and learn more about our second quarter earnings update look for to touching base with everybody at for our third quarter of big holiday quarter update so thank you all and obviously if any questions in the meantime feel free to reach up to brendan hopkins
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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