Singing Machine Reports 31% Increase in Net Sales in Third Quarter 2018 Results


FORT LAUDERDALE, Fla., Feb. 14, 2018 (GLOBE NEWSWIRE) -- 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, 2017.

Third Quarter and Year-to-Date Highlights:

  • Net sales for the quarter increased by $5.1 million (31%) to $21.5 million; net sales year-to-date increased 18% to $58.2 million.
  • Gross margin for the quarter decreased by 3.0% to 27.9%; year-to-date gross margin held steady to last year at 25.5% (compared to 25.7% in the prior year same quarter).
  • Income from operations for the quarter increased by 15% to $2.4 million.
  • Due to newly signed Tax Cuts and Jobs Act, Company recognized a one-time valuation adjustment to its deferred tax assets of approximately $330,000 in addition to the normal income tax provision, which resulted in the Company recognizing a total income tax provision of approximately ($1.1 million).  
  • Net income for the quarter decreased 12% to approximately $1.2 million; year-to-date net income decreased by $1.3 million to $1.4 million.
  • Year-to-date earnings per share of $0.04; EBITDA earnings per share of $0.08.

Singing Machine reports net sales of approximately $21.5 million for the quarter-ended December 31, 2017 period, compared to approximately $16.3 million in the same quarter the prior year.    The increase in net sales is primarily due to new promotional shipments to an existing major customer and the Company expanding its distribution nationwide to an existing customer’s brick and mortar retail locations. Year-to-date net sales increased by 18% to approximately $58.2 million compared to $49.3 million reported in the same period in the prior year. The primary reason for the growth was due to one major retailer ordering additional inventory for expanded holiday promotions, continued sales growth online with a major e-commerce retailer, as well as expanded nationwide distribution with an existing retailer.

Gross profit margin decreased by 3% from 30.9% to 27.9%. The decrease in gross margin was due to a higher mix of promotional product shipping in the 3rd quarter compared to the same period in the prior year.  Gross profit margin for the nine-month period held comparable to last year at 25.5% compared to 25.7% last year.

Total operating expenses increased to approximately $3.6 million compared to $3.0 million in the prior year.  The increase is primarily a result of an increase of approximately $0.36 million in variable selling expenses commensurate with the overall increase in net sales. The balance of the increase was due to an increase in general and administrative expenses related to new hires in the sales and marketing department and legal expenses associated with the Toys “R” Us Bankruptcy.

The Company reported a 14% increase to income from operations from $2.1 million to approximately $2.4 million for the quarter primarily due to the increase in overall sales.

An income tax provision was recognized for the quarter for $1.1 million based on an estimated full year effective tax rate of 34%. The $1.1 million income tax provision also includes a one-time additional income tax provision of $.33 million due to reduced valuation of the Company’s deferred tax assets caused by changes in tax laws enacted on December 22, 2017.  

Net income for the quarter decreased to $1.2 million from approximately $1.3 million in the same quarter of the prior year. The primary reason for the reduction in net income was due to the one-time tax provision charge described above. The Company reported earnings per share of $0.03 on a fully diluted basis for the quarter and $0.04 for the nine-month period.

Management Commentary:

Gary Atkinson, Singing Machine CEO commented, “We’re pleased with our 31% growth for the quarter and 18% growth in overall net sales year-to-date. This quarter we made strong strides towards our goal to make Singing Machine a global brand. Had it not been for the Toys “R” Us bankruptcy back in September 2017, this would have been a record-breaking year for Singing Machine in terms of sales and bottom-line profits.  Despite the short-term disruption, we remain confident about our long-term business plan to continue to grow the business. This quarter we saw tremendous growth in our digital music streaming and download services with an 88% growth in music revenue compared to last year with all key metrics improving.”

Bernardo Melo, Vice President of Sales, commented, “Singing Machine continues to win the holiday season with successful holiday promotions across all retailers. The great results reported this year are the result of our expanded retailer distribution both domestically and abroad.  We expanded domestically with new nationwide brick and mortar distribution with one major retailer. We also saw success abroad as we made our first shipments of karaoke products to Japan – a new territory for us.  We also saw a strong debut of our new Singing Machine Kids line of toy products that hit the shelves at many major retailers this year and sold-thru over 80%.  With many more exciting product releases scheduled in our karaoke and toy categories for 2018, we look forward to continuing our growth strategy.”

Earnings Call Information:

The Company will host a conference call today, Wednesday, 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 (866) 831-8713 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.

Investor Relations Contact:
Brendan Hopkins
(407) 645-5295
investors@singingmachine.com
www.singingmachine.com    
www.singingmachine.com/investors 

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, 2017.  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, 2017   March 31, 2017 
   (Unaudited)   
Assets
Current Assets     
 Cash$483,076  $2,305,439 
 Accounts receivable, net of allowances of $2,299,260 and $132,583, respectively 12,332,907   1,655,518 
 Due from PNC Bank    242,859 
 Accounts receivable related party - Starlight Consumer Electronics, Ltd 6,695    
 Accounts receivable related party - Cosmo Communications Canada, Ltd 56,470    
 Accounts receivable related party - Winglight Pacific, Ltd 1,150,104    
 Inventories, net 7,309,847   5,426,346 
 Prepaid expenses and other current assets 36,795   81,278 
 Deferred financing costs 13,332   21,606 
 Total Current Assets 21,389,226   9,733,046 
       
Property and equipment, net 515,356   412,805 
Other non-current assets 11,523   11,523 
Deferred financing costs, net of current portion 20,002    
Deferred tax asset 902,748   1,479,209 
 Total Assets$22,838,855  $11,636,583 
       
Liabilities and Shareholders' Equity 
Current Liabilities     
 Accounts payable$4,387,118  $1,381,870 
 Current portion of bank term note payable 500,000    
 Due to related party - Starlight Electronics Co., Ltd 120,432    
 Due to related party - Merrygain Holding Co.,Ltd 51,316    
 Due to related party - Starlight R&D, Ltd. 113,872    
 Accrued expenses 2,748,250   626,331 
 Revolving line of credit 3,465,332    
 Obligations to customers for returns and allowances    38,460 
 Warranty provisions 1,369,700   223,700 
 Current portion of subordinated related party debt - Starlight Marketing Development, Ltd. 570,484   1,924,431 
 Total Current Liabilities 13,326,504   4,194,792 
       
Bank term note payable, net of current portion 250,000    
Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion 244,883    
   Total Liabilities 13,821,387   4,194,792 
       
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; 38,282,028 and 38,259,303  shares issued and outstanding, respectively 382,820   382,593 
 Additional paid-in capital 19,576,141   19,412,787 
 Accumulated deficit (10,941,493)  (12,353,589)
 Total Shareholders' Equity  9,017,468   7,441,791 
 Total Liabilities and Shareholders' Equity $22,838,855  $11,636,583 
       

 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
               
     For Three Months Ended  For Nine Months Ended
     December 31, 2017  December 31, 2016  December 31, 2017  December 31, 2016
               
               
Net Sales $21,461,835  $16,319,804  $58,203,731  $49,308,247 
               
Cost of Goods Sold 15,464,273   11,283,550   43,389,465   36,625,678 
               
Gross Profit 5,997,562   5,036,254   14,814,266   12,682,569 
               
Operating Expenses           
 Selling expenses 1,971,728   1,610,430   4,816,931   4,262,531 
 General and administrative expenses 1,574,984   1,319,871   6,941,728   4,033,853 
 Depreciation 66,623   39,217   153,225   126,807 
Total Operating Expenses 3,613,335   2,969,518   11,911,884   8,423,191 
               
Income from Operations 2,384,227   2,066,736   2,902,382   4,259,378 
               
Other Expenses           
 Interest expense (145,922)  (102,276)  (241,503)  (185,341)
 Financing costs (3,333)  (18,519)  (28,272)  (55,558)
Total Other Expenses (149,255)  (120,795)  (269,775)  (240,899)
               
Income Before Income Tax Provision 2,234,972   1,945,941   2,632,607   4,018,479 
               
Income Tax Provision (1,080,142)  (633,783)  (1,220,511)  (1,332,918)
               
Net Income$1,154,830  $1,312,158  $1,412,096  $2,685,561 
               
Income per Common Share           
 Basic $0.03  $0.03  $0.04  $0.07 
 Diluted$0.03  $0.03  $0.04  $0.07 
               
 Weighted Average Common and Common Equivalent Shares:
           
 Basic  38,282,028   38,244,825   38,271,946   38,210,502 
 Diluted 39,137,161   39,164,624   39,127,079   39,130,305 
               

 

The Singing Machine Company, Inc. and Subsidiaries 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
          
     For Nine Months Ended 
     December 31, 2017    December 31, 2016 
          
          
Cash flows from operating activities:      
 Net Income$1,412,096  $2,685,561  
 Adjustments to reconcile net income to net cash used in operating activities:      
  Depreciation 153,225   126,807  
  Amortization of deferred financing costs 28,272   55,558  
  Change in inventory reserve (125,000)  171,711  
  Change in allowance for bad debts 2,166,677   165,818  
  Stock based compensation 163,581   54,698  
  Change in net deferred tax asset 576,461   1,303,644  
 Changes in operating assets and liabilities:      
 (Increase) decrease in:      
  Accounts receivable (12,844,066)  (8,567,225) 
  Due from PNC Bank 242,859   184,392  
  Accounts receivable - related parties (1,213,269)  (160,202) 
  Inventories (1,758,501)  (1,851,520) 
  Prepaid expenses and other current assets 44,483   8,285  
  Other non-current assets    (111) 
 Increase (decrease) in:      
  Accounts payable 3,005,248   768,726  
  Due to related parties 285,620   (400,000) 
  Accrued expenses 2,121,919   1,416,529  
  Obligations to customers for returns and allowances (38,460)  (117,267) 
  Warranty provisions 1,146,000   783,427  
   Net cash used in operating activities (4,632,855)  (3,371,169) 
Cash flows from investing activities:      
 Purchase of property and equipment (255,776)  (110,428) 
   Net cash used in investing activities (255,776)  (110,428) 
Cash flows from financing activities:      
 Net proceeds from revolving line of credit 3,465,332   2,274,291  
 Proceeds from bank term note 1,000,000     
 Payment of bank term note (250,000)    
 Proceeds from subscriptions receivable    6,400  
 Proceeds from stock options    11,880  
 Payment of deferred financing costs (40,000)    
 Payment on note payable related party - Ram Light Management, Ltd.    (522,657) 
 Payment on subordinated debt - related party (1,109,064)    
 Payments on capital lease    (1,078 
   Net cash provided by financing activities 3,066,268   1,768,836  
Net change in cash (1,822,363)  (1,712,761) 
          
Cash at beginning of period 2,305,439   2,116,490  
Cash at end of period$483,076  $403,729  
          
Supplemental disclosures of cash flow information:      
 Cash paid for interest$222,649  $185,341  
 Cash paid for income taxes$30,000  $