Algorhythm Q2 2024 Earnings Call Transcript

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November 21, 2023

There are 4 speakers on the call.

Operator

Good morning, everyone, and welcome to the Cleaning Machine Second Quarter Fiscal 20 24 Financial Results Earnings Call. My name is Natalie, and I will be your operator today. 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.

Operator

S. Federal Securities Law. These statements are subject to risks and uncertainties that could as actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be on 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 the call over to Gary Atkinson, the company's CEO.

Speaker 1

Good morning, ladies and gentlemen. I would like to start off this morning by thanking everyone for taking the time to listen in and participate in our Q2 2024 Earnings Call. Joining me on today's call, I have Lionel Marquis, company CFO and Bernardo Mello, Chief Revenue Officer. Operator. As is customary with our business, the Q2 is typically one of the busiest times of our fiscal year.

Speaker 1

This is when we start to deliver our programs for the holidays to our retail partners and we are very, very active in fulfilling these orders daily from July through October with final replenishment into November and drop shipments starting in December. Due to the timing of our long standing warehouse lease and its expiration in Ontario, California operator. Back in August, we were challenged to execute a complete transition from a 100% in house logistics model to a fully outsourced 3PL model right at the peak of our shipping season. For those that may not be aware, this process involved a complete overhaul in our entire customer fulfillment operations process, operator, which impacted staffing, IT integration, accounting data flow, internal reporting and customer relationship management. While this was a massive undertaking for the entire team, I'm very pleased with how this team has executed and made it happen day in and day out operator.

Speaker 1

The impact moving forward should be significant to our business. We avoided absorbing significant rent cost increases related to our previous warehouse. We've eliminated a large percentage of our workforce And we've moved our entire logistics returns and repairs model to a variable just in time solution operator. That should mitigate 100 of 1,000 of dollars in cost increases annually for the foreseeable future. Beyond this major milestone, it was largely business as usual.

Speaker 1

Supply chain challenges and inbound container prices have fully normalized for this year. Operator. We saw customer demand revert much closer to our normal just in time delivery model. Operator. We also participated in several forward looking industry events such as last month's Toy Fair in New York operator.

Speaker 1

That indicates that 2024 should see further stabilization and improvement in the overall U. S. Retail environment. We were very active presenting and promoting our upcoming 2024 product offering, which include our new Sesame Street licensed line of products, along with new karaoke innovations and technology that we plan to unveil in the early part of 2024. With this context in mind, I would like to turn the call over to Lionel Marquis, company CFO, to present greater details on the results of operations for our Q2.

Speaker 2

Thank you, Gary. Good morning, everyone. And without further delay, I'd like to walk through some of the brief highlights and results of operations for our Q2 ended September 30, 2023. Revenues for the 3 months ended September 30, 2023 were $15,900,000 as compared to $17,100,000 for the same period in the prior operator. The decrease was due to delays in few delays in product shipped in late September that will ultimately shift in the 1st 2 weeks of October and an increase of approximately $900,000 operator.

Speaker 2

And co op incentive accruals planned for the holiday promotions. And this was an increase over for 2022. Gross profit margin. Gross profit for the Q2 of fiscal 2024 was approximately $3,700,000 yielding a 23.2 percent gross profit margin as compared to approximately $3,900,000 or 22.8 in margins in the Q2 of fiscal 2023. Overall, the difference in dollar terms was due to the decrease in revenues as we've already detailed.

Speaker 2

However, the improvement in margins in the Q1 of this year is primarily due to slight changes in product mix and a decrease in ocean container prices that lowered the company's cost of inbound freight. Operating expenses. Operator. During the Q2 of 2024, operating expenses increased to $3,600,000 compared to $3,300,000 during the Q2 of the prior The increase was in part due to approximately $200,000 increase Just a brief note on liquidity. As of September 30, 2023, we had cash in hand of approximately $3,200,000 During the next 12 month period, we plan on financing our working capital needs primarily from a combination of vendor financing, operator.

Speaker 2

I'd like to now turn the call back over to Bernardo operator.

Speaker 1

Thank you, Lionel. At this point, we're going to turn the call over to Bernardo Mello, Chief Revenue Officer for an update on sales for this holiday season. Go ahead, Donato.

Speaker 3

Yes. Thank you, Gary. Welcome everybody to our Q2 earnings call. I'll try to be brief. Operator.

Speaker 3

As we move into the holiday season, a couple of changes are happening. Obviously, retail is a very tough environment right now. Consumers are Shifting their buying patterns and concentrating on essentials moving forward. But What we've seen is there's still demand for karaoke. It has come a little bit later than usual due to some transitions, Transition to Walmart, moving from Toys to the consumer electronics department.

Speaker 3

That started about operator. A year and a half ago and the full transition will emerge by spring of 2024. With that being said, we still have a couple of SKUs in the toy department that are performing decently. And in the CE department, We currently have a feature right now, which you will see that at about 1800 stores, performing well, got off to a small start. We're now Somewhere around 50% sell through and expected to sell through by mid December near future.

Speaker 3

Our Regular SKUs are doing well. We still have a good mix of new tech in Walmart with some casting items operator that are bound to generate some back end dollars. So we're looking forward to that. We're also going to be on the floor now for Black Friday with an item at a very aggressive price point, with some really good features that Walmart partnered up with us. Operator.

Speaker 3

They did ship this year instead of shipping in July August from direct import. We were operator. In October November, that due to storage issues and just a change of strategy there. Operator. But you will see a full assortment at the Walmart stores.

Speaker 3

For Sam's Club, we also have 2 SKUs going. They're all fully set now in the stores. They set a little bit later as well just similar to Walmart operator entering in late October early November, but one of the items is off to a good start. The other one will be on promo here during Black Friday And we expect some good results. It's a brand new item that they're carrying for 2023.

Speaker 3

Target And also Newtek with the casting model at $99 You also see some promotion now during November and then 2nd week of operator. So Target is stabilizing with 4 SKUs, which we're happy about. We're also doing a lot of promotions on Amazon. We've engaged with a brand new agency by the name of Vendo. Operator.

Speaker 3

They're top of class in data driven and marketing driven. So we are going to see a shift in Amazon, more of a operator. Mostly 1P and now we're switching and balancing out from 1P to 3P. That allows us to control the pricing, control promotional activities and also drive sales through marketing, not only within Amazon environment, but also through social media influencers, TTV ads, operator on Hulu and Netflix and some of the other major streaming services. So we're starting to test that out, See how that goes and then go into a full campaign come 2024.

Speaker 3

We have a good mix of products there And we're constantly battling the marketplace environment with the Chinese off brands. We have a good strategy And we feel that we are with the right partners in Venmo. So you should see a lot of activity there. Also be on the lookout on your social media. We're like I mentioned before, we're partnering up with some mommy bloggers, some influencers operator.

Speaker 3

We've done a really good campaign for and it's started now in November and you'll see it all the way through January, February. So be on the lookout there. We've got really good feedback on some of the initial adds that we put forward. Internationally, Canada has really taken off for us. We did a big program with Costco Canada, operator.

Speaker 3

Where we participated for the first time in the October book, which is a little bit early for karaoke, but It performed well. We had forecast of about 8,700 pieces. We came in at 13,000 pieces. So that was a huge operator. And Costco is extremely happy with those numbers.

Speaker 3

We're running a secondary ad for Black Friday and Cyber Monday. And we should see close to 90%, 95% sell through there. Costco U. S, operator. We launched our very brand new Wi Fi model.

Speaker 3

We usually do the pedestal there, but we've done a tabletop this year and the Consumers seem to embrace the new form factor. We've also with this model have launched our new streaming app. It was in partnership with Stinger. It was only viewed in Tesla models, but now it is in our Of how to deal with the app, it also includes a partnership app that's done with Excited about this. We think it could be the additional generator of back end dollars to the music subscription.

Speaker 3

Operator. In the UK, we've also continued to increase our business there with our distributor CMS. We've got placement in Argos and Fenwick and Costco with the Wi Fi streaming model. They picked it up and they thought of what the U. S.

Speaker 3

Is doing. Australia is a little bit down this year. The Australian economy has struggled, operator. But we're still distributing products there with our Australian distributor and partnership. So operator.

Speaker 3

You'll see us on the retail shelf. Besides that, we're moving forward with our secondary operator. And 3rd, retail accounts, we're in Best Buy Canada now. Walmart Canada has a pool program and we're still maintaining all You also see a lot of ads on the Meta platform, which are generating Good sales so far. So our drop ship direct to consumer business is growing and we're looking to really focus on that for 2024

Speaker 1

Perfect. Thank you, Bernardo. We always appreciate your updates on these calls. To close out My final prepared statements, I would like to reiterate how proud I am of the efforts of our entire team, particularly as Bernardo mentioned, In light of the current challenging retail environment, we have continuously sought to improve our business to strengthen key relationships and to establish new promising partnerships. We do see a number of exciting opportunities that We believe will enhance and reinforce our market position both in the U.

Speaker 1

S. And abroad. We will continue to leave no stone unturned as we strive to execute on our business plan and growth initiatives as we head into 20 operator. I'd like to thank everybody for your continued support and I look forward to providing you all with updates here very soon. Thank you everybody.

Speaker 1

Take care.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

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