SOURCE: The Singing Machine Company, Inc.

The Singing Machine Company, Inc.

February 14, 2017 09:00 ET

Singing Machine Reports Third Quarter 2017 Results

FORT LAUDERDALE, FL--(Marketwired - Feb 14, 2017) - The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCQX: SMDM) -- the North American leader in consumer karaoke products -- today announced its financial results for its third quarter ended December 31, 2016.

Third Quarter and Year-to-Date Highlights:

  • Year-to-date earnings per share of $0.07; EBITDA earnings per share of $0.10.
  • Gross margin for the quarter improved by 3.8% to 30.9%.
  • Net sales year-to-date increased 9% to $49.3 million; net sales for the quarter decreased to $16.3 million based primarily on earlier timing of shipments.
  • Net income before tax for the quarter held approximately the same to $1.9 million, compared to approximately $2.0 million in the same period last year.
  • Year-to-date net income before tax increased 33% to approximately $4.0 million compared to approximately $3.0 million in the same period last year.

Singing Machine reports net sales of approximately $16.3 million for the quarter-ended December 31, 2016 period, compared to approximately $20.7 million in the same quarter the prior year. The decrease in net sales is primarily due to timing of shipments which occurred earlier this fiscal year than last year, due to more year-round business and earlier retailer demand. Year-to-date net sales increased by 9% to approximately $49.3 million compared to $45.2 million reported in the same period in the prior year. The primary reason for the growth was due to one major retailer carrying a Black Friday promotion as well as expanded growth into the United Kingdom.

Gross profit margin increased by 3.8% from 27.1% to 30.9%. The increase in gross margin was due to cost reductions the Company achieved with its suppliers and better margin on the digital download series of products. 

Total operating expenses decreased to approximately $3.0 million compared to $3.4 million in the prior year. The decrease is a result of reduced variable selling expenses associated with the decrease in overall net sales. The balance of the decrease was due to an overall reduction in general and administrative expenses.

Despite the reduction in net sales for the quarter, the Company reported substantially the same income from operations of $1.9 million compared to income from operations of approximately $2.1 million in the same period in the prior year. Pre-tax income held consistent due to the Company reporting higher gross margin of 30.9% compared to 27.1% in the prior year and a reduction in overall operating expenses.

Year-to-date income from operations increased by 33% to approximately $4.0 million compared to approximately $3.0 million in the prior year.

Net income for the quarter decreased by approximately $0.7 million to $1.3 million compared to $2.0 million in the same period last year. The primary reason for the reduction in net income was due to a reversal of an income tax valuation reserve which the Company recognized last year. This year, there was no income tax valuation reversal which resulted in an increase of $0.6 million income tax provision. Net income through the first nine months was $2.7 million compared to approximately $2.6 million over the same period last year, due primarily to the increase in income tax provision.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, "We're pleased with our year-to-date growth in net sales and pre-tax bottom line. We had a planned reduction in overall 3rd quarter sales, which occurred due to more customers buying year-round and earlier demand from retailers. We anticipate less of a reliance on our third quarter and a healthier balance of sales between quarters as we continue to grow. This fiscal year we've grown net sales by 9% over last year and we've grown pre-tax net income by 33% to $4.0 million. On the product roadmap, we significantly expanded our distribution of our Digital Download Line of products and saw impressive growth in both downloading and streaming subscriptions."

Bernardo Melo, Vice President of Sales, commented, "The great results reported this year are the result of our expanded retailer distribution both domestically and abroad. We saw tremendous wins in the U.K. where our product was sold out before Christmas. We also had fantastic Black Friday and Christmas successes across all our major retailers with our sell-thru averaging about 88%. Ecommerce also continues to grow significantly year-over-year with ecommerce sales accounting for over 18% of Company sales and our major ecommerce retailer experienced a 40% increase in revenue on Singing Machine sales year-over-year. With many more exciting product releases scheduled and our new Singing Machine Kids line of toy products debuting this year, we look forward to continuing our organic growth strategy domestically and abroad."

Earnings Call Information:

The Company will host a conference call today, Tuesday, February 14, beginning at 10:00 am Eastern time to discuss these results and answer questions. If you would like to participate on the call, please dial (877) 876-9175 and use conference ID: SMDM.

An audio rebroadcast of the call will be available later in the day after the earnings call and can be heard at: www.singingmachine.com/investors.

About The Singing Machine

Based in the U.S., Singing Machine® is the North American leader in consumer karaoke products. The first to provide karaoke systems for home entertainment in the United States, the Company sells its products worldwide through major mass merchandisers and on-line retailers. We offer the industry's widest line of at-home karaoke entertainment products, which allow consumers to find a machine that suits their needs and skill level. As the most recognized brand in karaoke, Singing Machine products incorporate the latest technology for singing practice, music listening, entertainment and social sharing. The Singing Machine provides consumers the best warranties in the industry and access to over 13,000 songs for streaming and download. Singing Machine products are sold through most major retailers in North America and internationally. See www.singingmachine.com for more details.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about the Company's business based, in part, on assumptions made by management and include, but are not limited to statements about our financial statements for the fiscal year ended March 31, 2016. You should review our risk factors in our SEC filings which are incorporated herein by reference. Such forward-looking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release.

   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
    December 31, 2016     March 31, 2016  
    (Unaudited)        
Assets  
Current Assets                
  Cash   $ 403,729     $ 2,116,490  
  Accounts receivable, net of allowances of $216,997 and $51,179, respectively     9,783,196       1,381,789  
  Due from PNC Bank     -       184,392  
  Accounts receivable related party - Cosmo Communications Canada, Ltd     55,849       19,077  
  Accounts receivable related party - Winglight Pacific, Ltd     130,505       -  
  Accounts receivable related party - other     -       7,075  
  Inventories, net     5,370,784       3,690,975  
  Prepaid expenses and other current assets     107,316       115,601  
  Deferred financing costs     40,125       74,077  
      Total Current Assets     15,891,504       7,589,476  
                 
Property and equipment, net     414,223       430,602  
Other non-current assets     11,505       11,394  
Deferred financing costs, net of current portion     -       21,606  
Deferred tax asset     1,104,887       2,408,531  
      Total Assets   $ 17,422,119     $ 10,461,609  
                 
Liabilities and Shareholders' Equity  
Current Liabilities                
  Accounts payable   $ 1,490,939     $ 722,213  
  Note payable related party - Ram Light Management, Ltd.     173,955       696,612  
  Due to related party - Ram Light Management, Ltd     -       400,000  
  Accrued expenses     2,066,644       650,115  
  Revolving line of credit     2,274,291       -  
  Capital lease     -        1,078  
  Obligations to customers for returns and allowances     3,825       121,092  
  Warranty provisions     1,075,927       292,500  
  Subordinated related party debt - Starlight Marketing Development, Ltd.     1,924,431       -  
      Total Current Liabilities     9,010,012       2,883,610  
                 
Subordinated related party debt - Starlight Marketing Development, Ltd.     -       1,924,431  
      Total Liabilities     9,010,012       4,808,041  
                 
Commitments and Contingencies                
                 
Shareholders' Equity                
  Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding     -       -  
  Common stock, Class A, $0.01 par value; 100,000 shares authorized; no shares issued and outstanding     -       -  
  Common stock, Class B, $0.01 par value; 100,000,000 shares authorized; 38,259,303 and 38,161,635 shares issued and outstanding, respectively     382,593       381,816  
  Additional paid-in capital     19,403,740       19,337,939  
  Subscriptions receivable     -       (6,400 )
  Accumulated deficit     (11,374,226 )     (14,059,787 )
      Total Shareholders' Equity     8,412,107       5,653,568  
      Total Liabilities and Shareholders' Equity   $ 17,422,119     $ 10,461,609  
                 
See notes to the condensed consolidated financial statements.  
                 
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited)  
                         
    For Three Months Ended     For Nine Months Ended  
    December 31, 2016     December 31, 2015     December 31, 2016     December 31, 2015  
                                 
                                 
Net Sales   $ 16,319,804     $ 20,667,069     $ 49,308,247     $ 45,194,527  
                                 
Cost of Goods Sold     11,283,550       15,066,443       36,625,678       33,784,839  
                                 
Gross Profit     5,036,254       5,600,626       12,682,569       11,409,688  
                                 
Operating Expenses                                
  Selling expenses     1,610,430       1,936,715       4,262,531       4,225,677  
  General and administrative expenses     1,319,871       1,431,993       4,033,853       3,736,230  
  Depreciation     39,217       47,497       126,807       122,162  
Total Operating Expenses     2,969,518       3,416,205       8,423,191       8,084,069  
                                 
Income from Operations     2,066,736       2,184,421       4,259,378       3,325,619  
                                 
Other Expenses                                
  Interest expense     (102,276 )     (91,847 )     (185,341 )     (244,765 )
  Financing costs     (18,519 )     (18,519 )     (55,558 )     (55,558 )
Total Other Expenses     (120,795 )     (110,366 )     (240,899 )     (300,323 )
                                 
Income Before Income Tax Provision     1,945,941       2,074,055       4,018,479       3,025,296  
                                 
Income Tax Provision     (633,783 )     (67,142 )     (1,332,918 )     (441,836 )
                                 
Net Income   $ 1,312,158     $ 2,006,913     $ 2,685,561     $ 2,583,460  
                                 
Income per Common Share                                
  Basic   $ 0.03     $ 0.05     $ 0.07     $ 0.07  
  Diluted   $ 0.03     $ 0.05     $ 0.07     $ 0.07  
                                 
Weighted Average Common and Common                                
Equivalent Shares:                                
  Basic     38,244,825       38,161,635       38,210,502       38,140,458  
  Diluted     39,164,627       38,686,019       39,130,305       38,638,925  
                                 
See notes to the condensed consolidated financial statements.  
   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    For Nine Months Ended  
    December 31, 2016     December 31, 2015  
                 
                 
Cash flows from operating activities:                
  Net Income   $ 2,685,561     $ 2,583,460  
  Adjustments to reconcile net income to net cash used in operating activities:                
      Depreciation     126,807       122,162  
      Amortization of deferred financing costs     55,558       55,558  
      Change in inventory reserve     171,711       139,000  
      Change in allowance for bad debts     165,818       (27,219 )
      Stock based compensation     54,698       14,885  
      Change in net deferred tax asset     1,303,644       441,836  
  Changes in operating assets and liabilities:                
    (Increase) decrease in:                
      Accounts receivable     (8,567,225 )     (8,805,401 )
      Due from PNC Bank     184,392       -  
      Accounts receivable - related parties     (160,202 )     (636,131 )
      Inventories     (1,851,520 )     3,231,011  
      Prepaid expenses and other current assets     8,285       (59,439 )
      Other non-current assets     (111 )     -  
    Increase (decrease) in:                
      Accounts payable     768,726       (621,982 )
      Due to related parties     (400,000 )     129,782  
      Accrued expenses     1,416,529       1,567,766  
      Obligations to clients for returns and allowances     (117,267 )     (392,728 )
      Warranty provisions     783,427       863,981  
        Net cash used in operating activities     (3,371,169 )     (1,393,459 )
Cash flows from investing activities:                
  Purchase of property and equipment     (110,428 )     (142,116 )
        Net cash used in investing activities     (110,428 )     (142,116 )
Cash flows from financing activities:                
  Net proceeds from revolving line of credit     2,274,291       1,928,556  
  Proceeds from subscription receivable     6,400       -  
  Proceeds from exercise of stock options     11,880       -  
  Payments on note payable related party - Ram Light Management, Ltd.     (522,657 )     (266,909 )
  Payments on capital lease     (1,078 )     (9,418 )
        Net cash provided by financing activities     1,768,836       1,652,229  
Net change in cash     (1,712,761 )     116,654  
                 
Cash at beginning of period     2,116,490       116,286  
Cash at end of period   $ 403,729     $ 232,940  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for interest   $ 185,341     $ 218,733  
                 
See notes to the condensed consolidated financial statements.  
                 

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