Algorhythm Q2 2025 Earnings Call Transcript

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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 6 speakers on the call.

Speaker 2

Good morning, everyone, and welcome to Algorhythm 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 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 CEO.

Speaker 5

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 SemiCab, 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 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.

Speaker 5

The business has experienced declining sales year over year, rising costs, uncertain global tariffs, inflation, and supply chain disruptions. To position Algorhythm Holdings 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 SemiCab business. This was not just a financial decision; this was a complete strategic pivot. SemiCab 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.

Speaker 5

We do business with companies like Trelogs, Telenova, Apollo Tyres, 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 SemiCab deserved the resources to scale 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 freight brokerage business. In May, we closed the acquisition of SemiCab India, bringing their team, their technology, and operations all under our SemiCab 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.

Speaker 5

During this last quarter, we announced SemiCab has secured five new contracts with some of India's largest, fast-moving consumer goods companies. We also announced during the quarter four existing clients have expanded their geographic lane 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 Tyres, Procter & Gamble, Asian Paints, Trelogs, Telenova. During the quarter, we also announced a fleet expansion where we grew our fleet from 140 to 450 trucks, clearing a runway of supply of trucks to increase our annualized revenue run rate to approximately $23 million. Over the past 12 months, our average 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, SemiCab's growth trajectory is accelerating.

Speaker 5

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. At this point, I will turn the call over to Alex Andre, 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 ending June 30, 2025 and 2024. We ran a seventh quarter with the acquisition of SemiCab India. SemiCab was included in our financial results effective May 2, 2025, which was the acquisition date, and contributed to our financial results for the months of May and June. As Gary mentioned, we sold Singing Machine on August 3. Accordingly, our third quarter results will include Singing Machine for just the month of July. Thereafter, our future financial results will only reflect our SemiCab business. We expect to reflect the sale of Singing Machine as discontinued operations for our third quarter.

Speaker 1

Moving on to our third quarter results, sales for the three months ending June 30, 2025 increased to $2.7 million from $2.4 million for the corresponding period last year, primarily due to the addition of SemiCab India on May 2. Our Singing Machine business accounts for $1.5 million of our sales, while our SemiCab business accounts for the remaining $1.3 million. Sales of our Singing Machine business are negatively impacted by increased inflation and the tariffs that were implemented on April 2, as all of our Singing Machine products are manufactured in China. Our Singing Machine business is often seasonal, with most sales being generated in the second half of the calendar year. On the SemiCab side of our business, our revenue run rate has tripled to more than $7 million since January 2025.

Speaker 1

We expect SemiCab to generate between $2 million and $2.5 million of revenue during our third quarter. We also expect revenues generated from SemiCab to increase substantially over the next 12 months, with SemiCab's revenue run rate projected to increase to between $15 million and $20 million over the next 12 months. Gross profit for the three months ending June 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 one-time adjustments made to inventory reserves and co-ops associated with our Singing Machine business. We expect gross profit to decrease to close to the break-even in the near term to reflect SemiCab's current margins. At SemiCab, incurred freight handling and servicing costs in this business that are included in the cost of the utility.

Speaker 1

Selling expenses for the three months ending June 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 Singing Machine's karaoke products. We expect some expenses to decrease substantially over the next 12 months due to the sale of our Singing Machine business, as virtually all of our selling expenses were incurred by Singing Machine. SemiCab is not currently incurring selling expenses. General and administrative expenses for the month ending June 30, 2025, decreased to $1.5 million from $2.1 million 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 decreases in the same expenses incurred in the growth and development of our SemiCab business.

Speaker 1

We expect G&A expenses to decrease over the next 12 months due to the sale of Singing Machine. 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 SemiCab business. Finally, net loss for the three months ending June 30 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 no longer needed for our business and lower general and administrative expenses. Net loss is expected to decrease during the next 12 months, primarily due to the sale of our Singing Machine business, which accounts for a significant portion of our losses.

Speaker 1

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 SemiCab. That concludes my overview of the second quarter financial results, Gary.

Speaker 5

Thank you, Alex. I just want to say that I am extremely proud of the work that we've completed during the second quarter. Today, we showed how the strategic sale of Singing Machine and the acceleration of SemiCab 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. Our focus is now on SemiCab to be fully resourced to capture market share in a fast-growing untapped sector. We are extremely confident in our path forward with SemiCab positioned for continued contract wins and geographic expansions, 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.

Speaker 5

We have reserved some time for some Q&A, so we'd like to, at this point, open it up to any questions.

Speaker 2

Thank you. At this time, we will open the question and answer cycle. 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. Once again, to ask a question, press star one on your phone now. Our first question comes from Theodore Rudd O'Neill with Litchfield Hills Research.

Speaker 3

Hey, thanks very much, and congratulations on the margins and expense reductions. I was wondering if you could give us sort of how to think about the profit margins and the operating expense going forward into the fourth quarter when you have your first clean quarter.

Speaker 5

Sure. Hi, Theodore. That's a great 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. 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 SemiCab business is generating. Their margins to start will not be sort of indicative of what the Singing Machine margins used to be. You know, you used to see with Singing Machine margins they were, you know, well north of 25% to 30% gross margin. The Singing Machine, sorry, the SemiCab business, obviously from a margin perspective, is a smaller margin.

Speaker 5

We would anticipate anywhere, I would say, from 5% to 10% margins, but we expect the growth to be far outweighing the growth opportunities that Singing Machine had. What we would lose in, let's say, margin percentages, we anticipate to make up for in dollars and growth, if that makes sense. Alex, if you want to maybe touch on the operating expense side.

Speaker 1

Yeah, the operating expense side will be, as Gary 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 SemiCab business. I mean, it's an intentional decision by us to invest heavily into it. It's also the reason why we expect revenue to increase so quickly. Overall, we will experience a major reduction at the offset because Singing Machine accounted for a significant portion of our operating expenses.

Speaker 3

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

Speaker 5

Yeah. The nice thing with tariffs is, for instance, with Singing Machine's business, we were directly exposed to the tariffs. For instance, the increase on tariffs to products made in China, that was a direct hit to the Singing Machine business. Unfortunately, with SemiCab, we don't have that same exposure. 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 freight that needs to be moved around the country. 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. There will be significant demand still within the country of India for their products. We're not anticipating that to impact our business.

Speaker 5

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. If anything, we're expecting to receive more and more of their demand, as our platform just continues to perform. We continue to save our customers money. 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 56%. Basically, long story short, the platform is working. The optimizations are real, and we're able to save our customers money, and they're going to be giving us more and more. The early indications are that they are planning to give us more and more of their business. I don't see tariffs impacting us here.

Speaker 3

Okay, thank you very much.

Speaker 5

Thank you.

Speaker 2

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

Speaker 4

Hi. Good morning, Gary.

Speaker 5

Hey, good morning.

Speaker 4

Hey, have you guys rehired Brendan Hopkins? Is he your IR guy again?

Speaker 5

Yes, that's a good point. We are working with Brendan Hopkins again, just as of very recently to help engage and to see, now that we've pulled off Singing Machine Company and we're looking to kind of rebuild up the story with SemiCab, 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.

Speaker 4

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

Speaker 5

Yeah, I mean, obviously, when 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 sale of Singing Machine, but I mean, you're certain to rise over the next coming few quarters. We're definitely going to need to continue to bring in working capital to fund the growth of SemiCab, and I would imagine equity is going to be, you know, a piece of that. Now, the nice thing that I want to point out is that now without the Singing Machine business, the needs of SemiCab are much smaller, the overall working capital needs.

Speaker 5

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 Singing Machine.

Speaker 4

Okay. When we've talked before, you said that most of the capital need for SemiCab 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?

Speaker 5

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 cash-to-cash timing that's been challenging us in the past. That will be one way of solving the working capital needs of the India business.

Speaker 4

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 the current market. The company hasn't been able to do that, so I wish you luck in that and hope you can do it. I guess that's all I have. I'll go back in the queue.

Speaker 5

Okay. Thank you, Eric. Thanks for the questions.

Speaker 2

As a reminder, if you'd like to ask a question, you may signal by pressing star one on your telephone. Our next question will come from Brian Contalo. Please go ahead.

Speaker 3

Hey, good morning, Gary. Congratulations on a great update.

Speaker 5

Thank you, Brian. Good morning.

Speaker 3

Obviously, with the spin-off as well of Singing 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. Could 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 on these customers? How should we look at it as far as the opportunity going forward?

Speaker 5

Yeah, no, that's a great question. Thank you for that. Just touching on the first part, now with the sale of Singing Machine, obviously, like you said, there's a lot of additional advantages, but the main thing that I think of is the focus, right? Prior to August 1, there was a capital allocation problem. We had to sort of take the limited dollars that 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 trucking logistics platform. Now in terms of just customers and penetration, we've seen now in these 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.

Speaker 5

We've been taking up additional customers that are outside of the NDFE, which is the National Digital Freight Exchange. Our customers are talking, and we're kind of getting free marketing and biz dev from word of mouth. We are seeing some new customer wins that are coming in outside of the NDFE. With our existing customer base, which I would consider sort of like our big four, which is Asian Paints, Apollo Tyres, Procter & Gamble, and Trelogs, 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. There are material increases to overall volume, lanes, traffic that they're expecting to be giving us here. I have to be a little vague, unfortunately, just because we haven't publicly announced those yet. Yeah, we're seeing solid growth coming.

Speaker 3

Okay. 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?

Speaker 5

Yeah. If you're, the challenge we're running into is there's plenty of demand. Like, we guess there's plenty of demand to grow this business strict in India. Where we're a little bit constrained is just access to the trucks. Certainly, having additional working capital will help us expand the number of the fleet size of the trucks and just make sure we always have a pool of carriers that are available to deploy trucks in real time when we need them. 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 5

If we have 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. There are plans here for the U.S. as well, which again, we haven't discussed yet. The nice thing about this business model is it's certainly not limited to just India. This is a global business model.

Speaker 3

All right, great. Thanks for the cover and congrats again.

Speaker 5

Thank you. Thank you. Thanks for the questions.

Speaker 2

We'll hear next from Brendan Hopkins with Litchfield Hills Research.

Operator

Hi. Gary, thanks for bringing me back on board. I want to introduce myself to everybody. I've worked with Gary in the past. We've had a great relationship. One of the things 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, some with limited access to management. I just want to let everyone know I'm always available to add additional color to any press releases, which we're going to try and be very transparent as the states of the growth go. I'm always available to give more color or to set up a call with management, you know, offline call with management. One of the things I'm getting in my initial feedback is, oh, what distinguishes any tab from a digital freight floater?

Speaker 5

Great. Thank you. Thank you, Brendan. Definitely excited to have you come back aboard. That's a great question. 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 SemiCab story. 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. I want to be very clear. SemiCab is not just a digital freight broker. When I think of a digital freight broker, I think of basically a huge load board that all they do is just try to pair supply to trucks with demand with loads. 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.

Speaker 5

Just to restate what the mission of SemiCab 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. You're talking about a 66% utilization of a truck on average. SemiCab is a software platform built specifically to address that problem. 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%. We've seen it with our platform upwards of 90%. I think in India, we're probably averaging around 85% utilization on trucks. 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. It's working. We're seeing it working. It's an important distinction.

Speaker 5

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. I appreciate the opportunity to kind of clarify that.

Speaker 3

Great. That's it for me.

Speaker 5

Okay. Thanks, Brendan. I think that's it for time. I just saw we bumped up to 10:30 A.M. 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. Obviously, as Brendan just introduced himself, his email and his phone number are now on the bottom of press releases. I encourage everybody that has questions, feel free to reach out to Brendan. We look forward to continuing the dialogue. Thank you, everybody. With that, we will conclude today's call.

Speaker 2

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.

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