Algorhythm Holdings Inc (RIME) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Singing Machine first-quarter results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question and answer session. (Operator Instructions).

As a reminder, this conference is being recorded Monday, August 16, 2004.

I would now like to turn the -- (technical difficulty) -- to today's Chairman Mr. Jay Bauer.

Please go ahead, sir.

Thank you, operator, and good morning.

With me this morning are interim CEO Y.P.

Chan and CFO Jeff Barocas.

After our prepared remarks, we will be available to answer your questions.

With the highly seasonable nature of our business, the Company historically has reported a loss in the first quarter and this year was no exception.

I think that what is truly important in the results we announce this morning is that our loss declined substantially despite lower revenue.

This is a notable accomplishment I think that reflects the success of the cost cutting initiative that Y.P. and the team have implemented of our the past few quarters.

We believe that our cost structure is now appropriate for our company, going forward.

Now, can turn more of our energy to selling our products and building the foundation for our company's future.

Revenue declined as we had planned primarily because, this year, we began shipping our new products later than we did a year ago.

We shipped about $500,000 of old inventory in the first quarter with the balance of revenue represented about equally for the sale of goods that were returned early this year, repaired and resold and initial shipments of our new products for the 2004 season.

Volume shipments of our new products by our vendors in China really did not begin until this month.

Based on our orders in hand, the gross margin we expect to earn on this shipment and our current cost structure, we currently expect our fiscal second quarter to be much better on substantially higher sales than we reported for quarter one.

This is important.

It is important that you understand the normal seasonal pattern of new order bookings in our business.

While we normally receive a flow of orders at a certain level throughout the year, the first major wave of orders typically comes in during our fiscal first quarter, which is what has happened this year as well.

Now, to be frank about it, our financial problems may have kept our customers from giving us as much business as they otherwise would.

As you know we take substantial orders in the first round and it is these orders that will impact our financial results favorably in the current quarter.

The next critical search of orders typically does not begin until our customers see how the products they are beginning to receive now sells through once the holiday shopping season gets underway in late September.

Then, assuming the sell-through is healthy, we typically receive another wave of reorders beginning in October.

This is the pattern we hope to see again this year.

What we do not know at this point is how strong the orders will turn out to be.

Some of this will depend on the success of our new products, of course, and some on our success in demonstrating to our customers that we will continue to be here to service them.

We will have a better fix on reorders when we host our conference call for the fiscal second quarter.

On the music side, business typically picks up in our fiscal third quarter and extends into the fourth quarter as people buy additional CDs for the machines they have received for Christmas.

Though we don't expect music to make a big difference in our results until the December quarter, although there would be some sales reflected in our September quarter results as well.

Our liquidity position remains tight.

To help alleviate this situation during the first quarter, I personally loaned the Company $200,000 to supplement cash we generated from selling inventory and liquidating Accounts Receivable.

Overall, I am satisfied by the progress we have made and our continuing to make in restoring the Singing Machine to financial health.

We're not out of the woods but we are more optimistic about the future of our company than we have been for some time.

Karaoke continues to be a healthy category at retail.

Our new products continue to be well received by our customers and the outlook for the current quarter certainly is encouraging.

Now, I'm going to ask Jeff to review numbers then we will answer your questions.

Jeff?

Thanks, Jay.

I will begin with the disclaimer.

Please note that this conference call will include forward-looking statements.

These statements are based on current expectations, estimates and projections about our business based in part on the assumptions made by management.

These statements are not guarantees of future performance and actual results may differ materially.

A more detailed discussion of these risks and uncertainties is contained in this morning press release and Singing Machine's various filings with the SEC.

The statements made during this call are made only as of the date of the call and we undertake no obligation to abide date these statements.

I will now briefly review our financial results for the fiscal quarter of 2004.

For more detailed financial information, I urge you to read our Form 10-Q, which we expect to file in the next few days.

For the reason Jay explained, net sales for the first quarter of fiscal 2005 ended June 30, 2004 increased to $3.8 million, compared to 7.6 million for the first quarter of fiscal 2004.

Gross margin decreased in the quarter to 20 percent from 22 percent last year, primarily because of product mix.

We are selling a higher percent of all of the machines out of inventory and from returns.

Based on -- (technical difficulty) -- of the newer model machines that are shipping for the September quarter, we anticipate an improved gross margin in the second quarter compared to the first.

Total operating expenses declined by approximately $2 million, or over 50 percent, to 1.9 million from 3.9 million last year.

I am proud to note that this decline reflected lower operating expenses in virtually every category.

On the bottom line, the net loss declined to approximately 1.6 million, or 18 cents per share, from 2.3 million, or 28 cents per share, for the same period last year.

Turning to the balance sheet, at June 30, 2004, we had cash and restricted cash on hand of $1.2 million, essentially the same as reported at March 31 of this year.

Receivables declined to about $2 million from 3.8 at the end of the fiscal year and net inventories was down to 4.7 million from 5.9.

Our current liabilities decreased to 13.9 from the 15.2 from three months earlier.

As I mentioned our on our last conference call, our more significant Accounts Payable is a $3.6 million obligation to one of our factories in China.

We have agreed to a payment plan with the factory, which provides for the most significant -- (technical difficulty) -- paid on or before March 31, 2005.

Our cash on hand is limited.

We plan on financing our working capital needs from the collection of Accounts Receivable and sale of existing inventory.

We are continuing to evaluate our options with respect to the third-quarter financing.

I should note that our factoring agreement with Bloomberg (ph) was terminated on July 14.

We currently expect to order about $8 million in new inventory for domestic stock for the new season.

The precise amount will depend on the pace of orders, especially by October, as well as the availability of financing.

Operator, at this time, we are ready to take questions.

(Operator Instructions).

Linda Donnelly (ph) of Wachovia Securities.

Thank you.

I have two questions.

Can you describe to us what some of the new products are?

Can you update us on who your top customers are?

Linda let me take that question.

This year, we're introducing five new products.

Two of them are brand-new, very radical from (indiscernible) design with (indiscernible) 88 and 89.

The (indiscernible) model (indiscernible) look and see, you are able to see in the retail store in September, essentially the 988 model -- (technical difficulty) -- pedestal that has a combination of camera, TV monitor and also radio in one unit is -- it also has a model wireless microphone and a wide microphone to allow people to perform and look in the screen and the speaker look outward then as you truly have a stage performance.

The second unit we have is what we call a personal entertainment system; it's model 989, which has also all a camera, a radio tuner and also a (indiscernible) turner (ph), a five-inch black and white TV's.

The third model we have is third and fourth model are more high-tech model which we introduced.

The fifth model is also has some modification from a previous design.

Currently, the second question -- currently, our top customers are the RadioShack, the Costco, the Best Buys and Sam's Club and Circuit City, yes.

Great, thank you very much.

No problem.

(Operator Instructions).

Mr. Speaker, I am afraid there are no further questions at this time.

I will now turn the call back to you.

Please continue with your presentation or closing remarks, sir.

If there is no more questions, Jay, do you want to provide the closing comment?

Yes.

I would like to thank the participants for their time and for listening to our information.

We will, of course, update you in the future of anything that we think would be noteworthy.

Otherwise, we will have a conference call scheduled again for our next quarter, at which time we will then report the results of that as well to you.

Thank you very much and all the very best to every one of you.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.

Have a good day.