Algorhythm Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 20, 2025

Key Takeaways

  • Positive Sentiment: Sale of Singing Machine generated $4.5 M in proceeds, cut liabilities by ~$4 M, and materially strengthened the balance sheet, lowering cash burn to refocus on the high-growth Semicap business.
  • Positive Sentiment: Acquisition of Semicap India led to five new contracts and four existing clients expanding lanes and volumes by 100–200%, while the fleet grew from 140 to 450 trucks, driving a ~300% increase in ARR to $7 M.
  • Positive Sentiment: Management projects Semicap to generate $2–2.5 M in Q3 revenue and expects its annualized revenue run rate to reach $15–20 M in the next twelve months, signaling strong growth momentum.
  • Neutral Sentiment: Q2 sales rose to $2.7 M from $2.4 M, with gross profit up to $954 K (35% margin) mainly due to one-time inventory and co-op adjustments, though margins are expected to normalize as Semicap’s costs are fully integrated.
  • Negative Sentiment: Ongoing investments in Semicap’s expansion and working capital needs imply additional financing—likely via equity or debt—which could dilute existing shareholders in coming quarters.
AI Generated. May Contain Errors.
Earnings Conference Call
Algorhythm Q2 2025
00:00 / 00:00

There are 2 speakers on the call.

Operator

Good morning, everyone, and welcome to Algorithm Holdings Second Quarter twenty twenty five 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.

Operator

S. Federal securities 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 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's CEO.

Speaker 1

Hi. Thank you. Good morning, ladies and gentlemen. Thank you all for joining us for our second quarter twenty twenty five earnings call. As mentioned, my name is Gary Atkinson, company's CEO.

Speaker 1

I am also joined this morning by Alex Andre, company's CFO, who will be providing a detailed update on the results 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 accelerate accelerated growth and outlook for Semicap, our high growing AI logistics platform. I'll start this morning with Singing Machine. This business has been the leader in its category for over forty years as the number one brand for home karaoke.

Speaker 1

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 Algorithm for long term growth, we made the strategic decision to divest the Singulation business. The recent sale we announced earlier this month generated 4,500,000.0 in total consideration, which reduced our liabilities by approximately 4,000,000 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.

Speaker 1

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, Telenova, Apollo Tire, Asian Paints, Procter and 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 Semicap deserves the resources to scale aggressively rather than coexisting alongside the single machine business.

Speaker 1

This past quarter was a breakthrough quarter in our strategy to pivot into AI technology, which has the power to disrupt the legacy freight brokerage business. In May, we closed the acquisition of SemiCap India, bringing their team, their technology, operations all under our SemiCap 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 Semicap has secured five new contracts with some of India's largest fast moving consumer goods companies.

Speaker 1

We also announced during the quarter four existing clients have expanded their geographic lane and volume by over a 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 and Gamble, Asian Paints, Kellogg's, Kelanova. During the quarter, we also announced a fleet expansion where we grew our fleet from a 140 to 450 trucks, clearing a runway of supply of trucks to increase our annualized revenue run rate to approximately 23,000,000. Over the past twelve months, our average our annualized revenue run rate has increased by almost 300% to now approximately $7,000,000 in ARR. We anticipate in the coming quarters for that growth trend to continue.

Speaker 1

In summary, semi fab'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 opportunities 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 Alessandro, who will walk you through our second quarter results in detail.

Speaker 1

Thank you, Gary. Hello, everyone. The quarterly report that we filed yesterday presents information for the three and six months ended June 2524. We've had an exciting quarter with the acquisition of SEMICAB India. SEMICAB was included in our financial results effective 05/02/2025, which was the acquisition date and contributed to our financial results for the month of May and June.

Speaker 1

As Gary mentioned, we sold Sing Machine on August 1. Accordingly, our third quarter results will include Sing Machine for just the month of July. Thereafter, our future financial results will only reflect our semi cab business. We expect to reflect the sales of the same machine as discontinued operations for our third quarter. Moving on to our third quarter results.

Speaker 1

Sales for the three months ended 06/30/2025 increased to $2,700,000 from 2,400,000 for the corresponding period last year, primarily due to the addition of Semi Cab India on May 2. Our steaming machine business accounted for $1,500,000 of our sales, while our semi cab business accounted for the remaining $1,200,000 Sales of our steel machine business negatively impacted by increased inflation and the tariffs that were implemented on April 2 as all of our steel machine products are manufactured in China. Our sewing machine 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 $7,000,000 since January 2025. We expect Semicap to generate between 2,000,000 and $2,500,000 of revenue during our third quarter.

Speaker 1

We also expect revenue generated from Semicap to increase substantially over the next twelve months, with Semicap's revenue run rate projected to increase to between $15,000,000 and $20,000,000 during the next twelve months. Gross profit for the three months ended 06/30/2025, increased to $954,000 from $324,000 for the same period last year, with gross margin increasing to 35% from 13%. The increase was due primarily to onetime adjustments made to inventory reserves and co ops associated with our seating machine business. We expect gross profit to decrease to closer to breakeven in the near term to reflect Semicap's current margins as Semicap incurs freight handling and servicing costs in its business that are included in cost of goods sold. Selling expenses for the three months ended 06/30/2025 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 same machine karaoke products.

Speaker 1

We expect selling expenses to decrease substantially over the next twelve months due to the sale of our sitting machine business as virtually all of our selling expenses were incurred by sitting machine. Semicap does not currently incur selling expenses. General and administrative expenses for the month ended 06/30/2025 decreased to $1,500,000 from 2,100,000.0 for the same period last year. The decrease is due primarily to decreases in general and administrative expenses incurred by our singing machine business, partially offset by increases in the same expenses incurred in the growth and development of our semi cap business. We expect G and A expenses to decrease over the next twelve months due to the sale of singing machines.

Speaker 1

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 30 decreased to $809,000 from $6,200,000 for the comparable period last year. The decrease was due primarily to $3,900,000 for operating lease impairment expenses that we incurred in 2024 in connection with the termination of a lease that we don't really needed for our business and lower general and administrative expenses. Net loss is expected to decrease during the next twelve months, primarily due to the sale of our same machine business, which accounted 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 SemiTech.

Speaker 1

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 shared how the strategic sale of Singing Machine and the acceleration of semi cap are two sides of the same coin. The Singing Machine sale strengthens our balance sheet, reduces our cash burn on a go forward basis and frees up capital for high growth opportunities.

Speaker 1

Our focus is now on semi cap to be fully resourced to capture market share in a fast growing untapped sector. We are extremely confident in our path forward with semi cap positions for continued contract wins and geographic expansion, fleet 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 and A. So we'd like to, at this point, open it up to any questions.

Operator

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 telephone 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. And our first question comes from Theodore O'Neill with Litchfield Hills Research.

Speaker 1

Congratulations on the margins and expense reductions. I was wondering if you could give us sort of how to think about profit margins and the operating expense going forward into the fourth quarter when you have your first clean quarter. Sure. Peter. That's great question.

Speaker 1

Yes, we can certainly give a little guidance. Maybe, Alex, you can talk about some of the anticipation with total operating expenses that can address the margin. So as we move ahead, obviously, now with the sale of the machine coming off of the books, we do anticipate total operating expenses to come down. We are expecting, you know, the margins to be in line with with what the semi cap business is generating. Their margins to start will not be sort of indicative of what the stinging machine margins used to be.

Speaker 1

You know, we we used to see with stinging machine margins, they were, you know, well north of 25 to 30% gross margin. The machine sorry. The semi cap business, obviously, from a margin perspective is is a is a smaller margin. So we would anticipate anywhere, I would say, from five to 10% margins, but we expect the growth, to be far outweighing the growth opportunities that the new machine had. So what we would lose in, let's say, margin percentages, we anticipate to make up for in in dollars and and growth, if that makes sense.

Speaker 1

And, Alex, if you wanna maybe touch on the operating expense side? Yeah. The operating expense side will be, as Gary indicated, much lower because of the sales singing machine. We do expect operating expenses to increase gradually over time, but that's associated with the growth in the semi cap business. So I mean, it's an intentional decision by us to invest heavily into it.

Speaker 1

And it's also the reason why we expect revenue to increase so quickly. So but overall, we will experience a a major reduction at the outset because same machine accounted for a significant portion of our operating expenses. Okay. And it 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.

Speaker 1

Can you give any viewpoint on the tariffs and the impact in India and if that will have some impact on your business, the semi cap business? Yeah. So, I mean, the nice thing with tariffs is with, for instance, with with singing machines business, we were directly exposed to to tariffs. So if, like, for instance, the the increase on tariffs to products made in China, that was a direct hit to the singing machine business. Fortunately, with with semi cap, we don't have that same exposure.

Speaker 1

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, you know, moved around the country. But the nice thing is with the customers that we're doing business with, these are, you know, some of the largest Fortune 500, Fortune 100 multinational companies in the world. So there will be significant demand still within the country of India for for their products. So we're not anticipating that to impact our business.

Speaker 1

Again, our our percentage of transportation that we're doing with these large companies is is very, very small in the grand scheme of how much volume flows through those those customers. So if anything, we're expecting to receive more and more and more of their demand, as our as our platform just continues to perform. We continue to save our customers money, and we're 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.

Speaker 1

And they're going to be giving us more and more I mean, we early the indications are that they are planning to give us more and more and more of their of their business. So I'm not I don't see tariffs impacting us here.

Operator

Okay. Thank you very much.

Speaker 1

Thank you.

Operator

And our next question will come from Eric Nickerson with Third Century Partners.

Speaker 1

Hi. Good morning, Gary. Hey. Good morning. Say, is is have you guys rehired Brendan Hopkins?

Speaker 1

Is he your IR guy again? We yes. That's a good point. We are we are working with Brendan again just as of very recently to help engage and just see a a now that we are now that we pulled off Singing Machine and we're looking to kind of rebuild up the the story with Semicap, we felt like it was important to have a dedicated person that could Okay. Answer questions from shareholders on a go forward basis and just be an additional resource in communication.

Speaker 1

Okay. Fine. In all your recent filings, you make it pretty clear that you're planning on you're gonna have to raise raise more money to finance this this semi cap growth. Is it fair to assume that you'll be doing that again with equity sales, or is there some other plan afoot? Yeah.

Speaker 1

I mean, obviously, with this two there's two options with raising capital. Right? There's there's there's debt and there's equity. We have taken on a little bit of debt in the recent quarter, not a lot. Think as we we did bring in some cash from the sales team machine, but, I mean, you're certainly right.

Speaker 1

Over the next coming few quarters, we're definitely going to need to continue to bring in working capital to fund the growth of of semi cap. And I would imagine equity is going to be, you know, a piece of that. Now the nice thing that I wanna point out is that it's not without now the singing machine business, the needs of semi cap 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 and light than what we've had to do in the past to support the new machine. Okay.

Speaker 1

And when we've talked before, you said that most of the capital needs for semi cab is to finance receivables since you're having to pay out money quicker and the 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 have you considered along those lines? Yeah. We have.

Speaker 1

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

Speaker 1

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

Speaker 1

I guess that's all I have. I'll go back in the queue. Okay. Thank you, Eric. Thanks for the question.

Operator

And our next question will come from Brian Cantalo. Please go ahead.

Speaker 1

Hey. Good morning, Gary. Congratulations on a great update. Thank you, Brian. Good morning.

Speaker 1

So, you know, obviously, with the spin off or sale of Sing Machine, there's a lot of benefits. I guess specifically from the negative cash burn, which is great. You you you kind of addressed some of my initial questions on how that's gonna directly impact the company from a financial perspective, which is obviously significant. Could you also talk a little bit about the focus on semi cab 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?

Speaker 1

How should we look at it as far as the opportunity going forward? Yeah. No. That's a that's a great question. Thank you for that.

Speaker 1

So just touching on the first part now with the sales of machine, obviously, like you said, there's a lot of additional advantages. But the main thing that I think of is is the focus. Right? So in prior to August 1, there was a capital allocation problem. You know, we have to sort of take the limited dollars that we had and and decide whether to put it into senior machine or put it into semi cap.

Speaker 1

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 trucking logistics platform. Now in terms of just customers and penetration, look, I mean, we've seen now in the these first contracts with with our customers, they're all very, very, very excited. There's a buzz in India.

Speaker 1

There's word-of-mouth that's going on. We've been taking up additional customers that are outside of the NDFE, which is the National Digital Freight Exchange. So the the our customers are talking, and we're we're we're we're we're kind of getting free marketing and biz dev from word-of-mouth. So we are seeing some new customer wins that are coming in outside of the n d NDFE. And then with our existing customer base, which I would consider sort of like our big four, which is Asian Paints, Apollo Tire, Procter and Gamble, and Kellogg's, they're all looking to expand pretty aggressively.

Speaker 1

We haven't really given all of the details of those expansions. We 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 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 solid growth coming.

Speaker 1

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 outside of India? Yeah. So here so the challenge we're running into is there's plenty of demand.

Speaker 1

Like, we get there's a plenty of demand to grow this business just 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 fleet size of the truck 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.

Speaker 1

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 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 for The US as well, which, again, we haven't we haven't discussed yet. But, yeah, the the the nice thing about this business model is it's certainly not limited to just India. This is a global business model.

Speaker 1

Alright. Great. Thanks for the color, and congrats again. Thank you. Thank you.

Speaker 1

Thanks for your questions.

Operator

And we'll hear next from Brendan Hopkins with Ram.

Speaker 1

Hi, Gary. Thanks for bringing me back on board. Just wanna introduce myself to everybody. I've worked with Gary in the past. We've had a great relationship.

Speaker 1

And one of the things I I I saw with the company recently is an inability for investors to actually get a hold of people at the company and get more color on developments, somewhat limited access to management. I just wanna let everyone know I'm always available to add additional callers, any press releases, which we're gonna try and be very transparent as as the states of growth go. And I'm always available to give more color or to set up a call with management of of of, you know, offline call management. Now one of the things I'm getting in my initial feedback is, oh, what distinguishes Semicab from a digital freight broker? Great.

Speaker 1

Thank you. Thank you, Brendan. Definitely excited to have you come back aboard. 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 the Semicap story.

Speaker 1

So, yeah, let me spend just a quick minute. I know we're kinda getting close to time, but it's it's a very important point. So I I think it'd be great to end there. So I wanna be very clear. Semicap is not just a digital freight broker.

Speaker 1

So when I think of a digital freight broker, I think of basically a huge load board that all they do is they just try to pair supply to 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 of deadhead miles and empty miles. So, again, just to restate what the mission of semi cap is, approximately 33% of all miles that trucks drive are being driven empty. That's not just US. That's not just India.

Speaker 1

That's global. So you're talking about a 66% utilization of a truck on average, and semi cab is a software platform built specifically to address that problem. And so what they do what we do is our 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.

Speaker 1

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 truck itself, and it's working. It's working. We're seeing it working.

Speaker 1

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 kinda clarify that. Great.

Speaker 1

That's it for me. Okay. Thanks, Brendan. And I think that's it for time. I just thought we bumped up to the 10:30.

Speaker 1

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 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 and we look forward to to continuing the dialogue.

Speaker 1

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

Operator

Thank you. This does conclude today's second quarter twenty twenty five earnings call. Thank you all for your participation. You may now disconnect. The host has ended this call.

Operator

Goodbye.

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