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Algorhythm Holdings Inc. (RIME) reported a decrease in Q1 2025 sales, down to $2 million from $2.4 million in the prior period. Despite this, the company saw a significant improvement in gross margin, rising to 25% from 21%. The earnings call highlighted strategic shifts, including an acquisition and expansion efforts in India. Following the announcement, Algorhythm’s stock rose by 6.83%, reflecting investor optimism about future growth prospects. The company, currently valued at $6.23 million, faces significant challenges with an overall "WEAK" financial health score according to InvestingPro analysis.
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Key Takeaways
- Sales declined due to weaker karaoke product sales.
- Gross margin improved significantly to 25%.
- Completed acquisition of SMCB Solutions to bolster AI-driven freight solutions.
- Stock increased by 6.83% post-announcement.
Company Performance
Algorhythm Holdings faced a challenging Q1 2025 with a notable drop in sales, primarily attributed to reduced demand for its karaoke products. The company’s revenue has declined 27.89% over the last twelve months, with total revenue of $23.49 million. However, the company’s strategic focus on expanding its AI-driven freight optimization technology, particularly in India, positions it for potential growth. The acquisition of SMCB Solutions is expected to enhance its capabilities in this area.
Financial Highlights
- Revenue: $2 million, down from $2.4 million in the previous period.
- Gross profit: Stable at $500,000.
- Gross margin: Improved to 25% from 21%.
- Selling expenses increased to $760,000 from $630,000.
- General and administrative expenses rose to $2.5 million due to investments in the SemiCap business.
Market Reaction
Algorhythm’s stock rose by 6.83% following the earnings announcement, closing at $2.60. This movement reflects investor confidence in the company’s strategic initiatives and potential for growth, particularly in the Indian freight market. The stock is trading closer to its 52-week low of $1.71, showing a significant decline of 94.23% over the past six months. According to InvestingPro’s Fair Value analysis, the stock appears to be undervalued at current levels.
Outlook & Guidance
The company expects substantial revenue growth from its SemiCap business and plans to expand its truck fleet significantly. However, it anticipates a decline in karaoke product sales due to tariffs. Algorhythm is also exploring strategic alternatives for its singing machine business and considering expanding its SemiCap platform to the U.S. market.
Executive Commentary
CEO Gary Atkinson emphasized the company’s commitment to the SemiCap business, particularly in India, stating, "We are all in on semi cap, particularly semi cap India for the near term growth expectations." He also highlighted the significance of the National Digital Freight Exchange consortium, which includes over 35 major multinational companies.
Risks and Challenges
- Continued decline in karaoke product sales due to tariffs.
- Integration challenges following the acquisition of SMCB Solutions.
- Potential competition in the AI-driven freight optimization market.
- Economic uncertainties affecting global trade and logistics.
Q&A
During the earnings call, analysts inquired about the maturity of the SemiCap software platform, which was confirmed as commercially ready. Questions also focused on the $400 million addressable market in India and potential expansion into the U.S. market, with executives emphasizing minimal additional software development requirements.
Full transcript - Algorhythm Holdings Inc (RIME) Q1 2025:
Paul, Operator/Moderator: Good day, everyone, and welcome to Algorithm Holdings First Quarter twenty twenty five Financial Results Earnings Call. My name is Paul, 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 US 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 the reports that we filed with the Securities and Exchange Commission, including the cautionary statement included in our current and periodic filings. I would like to now turn the call over to Gary Atkinson, company CEO.
Gary Atkinson, CEO, Algorithm Holdings: Thank you. Good morning, ladies and gentlemen. I want to start off this morning by thanking everyone for taking the time to listen in and participate in our first quarter twenty twenty five earnings call. My name is Gary Atkinson, CEO of Algorithm Holdings. I also have on the call with me today Alex Andre, our CFO and General Counsel.
By way of quick agenda, Alex will be providing a comprehensive update on our financial results of operations for the first quarter. But before Alex provides his comments, I would like to take a few minutes to talk about our vision for the business and to recap some accomplishments so far year to date. I’m thrilled at the work the team has accomplished this past quarter, and I believe we are in one of the most important times in our company’s history to date. As we recently announced, we closed the acquisition of SMCB Solutions Private Limited, also known as SemiCAD India. As some of you may recall back in July, we acquired Semicap’s US operations, intellectual property, and technology, and also brought over their entire team to form Semicap Holdings LLC under our algorithm holding company structure.
What became clear to us was that Semicap’s technology was compelling with great potential, but it was their India subsidiary and its unique position in the market that made this opportunity too good to pass up. In my view, the transaction for Semicap India is one of the most exciting, impactful opportunities for the company and its shareholders today. The opportunity that we saw was straightforward. With explicit Indian government support, more than 35 of the world’s largest multinational Fortune 1,000 companies in the consumer packaged goods industry saw the benefit of working together in a collaborative environment to solve one common problem, and that is the massive freight inefficiencies in the Indian market. Together, they created a consortium whereby the entire group could benefit from one shared transportation network, where trucks moved goods with vastly better efficiency metrics than the industry norm.
And as a group, they could all receive the benefits of better transportation costs. In India, this platform is known as the National Digital Freight Exchange or the NDFE. A very key point here is the NDFE was built in close collaboration with SEMICAD. In many ways, it was built specifically to take advantage of the AI technology that SEMICAD has created. In fact, today, Semicab is the exclusive technology provider to the NDFE.
From a financial perspective, the NDFE presents a very large business opportunity. The total freight spend across the NDFE group is over 1,400,000,000.0 US dollars annually. Semicap has analyzed much of the underlying shipping data and and has identified approximately 400,000,000 in annual freight spend that is ideally suited for optimization. This is our initial addressable market. When we first acquired SemiCat’s US operations, we immediately began funding SemiCat India.
We knew that they were onboarding new pilot shipping contracts, names like Unilever, Apollo Tire, Marico. We knew they needed to gain access to a larger carrier fleet, serve these new and growing client opportunities. We chose to fund all of this while we navigated the process of acquiring DemiCat India as an Indian legal entity. While the process admittedly took longer than expected, it is now complete. This was by far our most critical accomplishment year to date.
To summarize, during the transition period between July of last year and now, we have seen Semicap’s U. And India sales grow almost fivefold. They have almost doubled their number of clients. We now serve three of the top ten and five of the top 50 largest consumer packaged goods companies in the world. We have supported early critical pilot programs with clients like Procter and Gamble and Asian Paints, ramping each program successfully.
We have added new pilot programs with Unilever and Marico among others. We have increased our fleet substantially with access now to over 500 trucks when we need it, and we now have the capacity to increase our business in India to over 20,000,000 on an annualized revenue basis as quickly as needed. We are currently lining up an additional 1,000 trucks over the second half of this year in preparation for further expected client expansion in in India. In short, we see semi cap India at an early stage of a major inflection point. We look forward to sharing updates on this progress in the coming months.
At this point, I’d like to now ask our CFO, Alessandro, to walk everyone through the results of operations for the first quarter of twenty twenty five.
Paul, Operator/Moderator: Thank you, Gary. Hello, everybody. As Gary mentioned, the financial periods that I’m gonna cover today consist of the three month periods ended 03/31/2025 and 02/2024. Please note that if you review our 10 Q financial statements that we completed a one for 200 reverse stock split in February. And in accordance with GAAP, all of our numbers in those in that report in the financial statements reflect that reverse stock split.
Sales decreased to $2,000,000 during our February from 2,400,000.0 during the February, primarily due to lower sales of our sitting machine karaoke products. Sales of our karaoke products accounts for the majority of our revenue during the February. Karaoke is a traditionally seasonal business. So consistent with past years, our revenue was lower than what we typically generate during other periods. Sales were negatively affected by increased inflation of the past year, and the fact that karaoke products are more of a discretionary buy.
We are now facing a new challenge with the recent trade war, an increase in tariffs on goods imported from China, which is where all of our products are manufactured. As a result of these challenges, we expect total annual sales of our carry IP products to decrease over the next twelve months due to the effects of the tariffs on our business. However, we expect revenue generated from our semi cap business to increase substantially over the next twelve months as we generate more business from our growing customer base. Gross profit stayed about the same for both periods of $500,000 While sales decreased, cost of goods sold decreased by a corresponding amount due to a corresponding decrease in production. Our gross margin improved from 21% to 25% due to a decrease in returns.
Selling expenses increased to 760,000 for our first quarter of twenty twenty five from 630,000 for the February due to an increase in online marketing and social media advertising campaigns that we engaged in. Our g and a expenses increased to 2,500,000.0 during the February from 2,100,000.0 for the February due primarily to a half million in investments that we made in the development of our semi cap business. Other expenses increased to $6,500,000 from $25,000 last year due to an increase of $6,500,000 for onetime noncash losses associated with the change in fair value of the Class A and B warrants that we issued in the public offering of securities that we completed in December of twenty twenty four. The Series A and Series B warrants had features and contingencies that necessitated liability treatment rather than equity treatment. This resulted in us recording an $8,900,000 loss on the issuance of warrants on our income statement during the fourth quarter of twenty twenty four and a $16,600,000 warrant liability on our balance sheet at 12/31/2024.
Our stockholders’ equity was negatively impacted by this, with the effect of the warrant liability being a decrease in our stockholders’ equity from $5,000,000 to an actual deficit of $11,600,000 at 12/31/2024. During the February, all the contingencies on the warrants were satisfied and the Series B warrants were exercised in full. This resulted in the $16,600,000 warrant liability being reclassified to stockholders’ equity as of 03/31/2025. As a result, we achieved stockholders’ equity of $3,300,000 on our balance sheet at 03/31/2025. During the first quarter of twenty twenty five, the fair value of the Series A and Series B warrants was remeasured at the respective remeasurement dates, and we recorded a onetime noncash charge of $6,500,000 on the income statement that I described moments ago.
Now that the warrants are reflected in the stockholders’ equity on our balance sheet, we will not incur any further noncash losses related to the periodic remeasurement of the warrants. As I mentioned earlier, as of 12/31/2024, we had a stockholders’ deficit of 11,600,000.0. As a result, we were not in compliance with the Nasdaq listing requirement that we maintain stockholders’ equity of at least 2,500,000.0. At March 31, we had stockholders’ equity of 3,300,000.0, and we’re back in compliance with all of Nasdaq’s listing requirements. We did not receive any formal communications from Nasdaq as a result of stockholders’ deficit that we had at 12/31/2024 and are in full compliance with all of the Nasdaq’s listing standards.
Finally, the net loss attributed to controlling interest that we show on our income statement consisted of a loss of a hundred 3 thousand that was allocated to Semi Cab Inc. As a result of its 20% membership interest that holds in Semi Cab Holdings LLC, which owns our Semi Cab business. That concludes my discussion of our q one two thousand twenty five financial results. Thank you, Gary.
Gary Atkinson, CEO, Algorithm Holdings: Great. Thank you, Alex. And before I shift over to taking questions, I just wanna wrap up with a few closing remarks here. So I started the call by unpacking the semi cap business. We’ve also fielded many questions in the recent months on the future of our consumer electronics karaoke business, the singing machine.
We have been monitoring this business closely over the past two to three holiday seasons. We have seen this business face supply chain challenges, volatile retail demands, and various economic headwinds. The recent uncertainties driven by the global shift in tariff policy has only further added more uncertainty. We do clearly see India benefiting from the recent global trade restructuring. They already have seen domestic growth and now will benefit from manufacturing shifting away from China to India.
As a corporate strategy, we are all in on semi cap, particularly semi cap India for the near term growth expectations. With difficult decisions to make regarding capital allocation and the best return on investment, we continue to seek out strategic alternatives for the signal machine business. In my opinion, semi cap presents too much growth potential for shareholders for us not to make it our top priority. With that being said, I do wanna thank everybody for their time and interest. Before we wrap up, we do have a little bit of time left.
So I do wanna, take this opportunity to take in a few questions from the audience.
Paul, Operator/Moderator: 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. Once again, to ask a question, please press star and one on your phone now, And we will pause for a moment to populate the question and answer. And our first question comes from Ed Woo of Ascendiant Capital.
Great. Thanks for answering my questions. On semi cap, do you have to spend much more on the software development, or in what state is the software that you’re using right now for your, you know, customers and for your various pilots with your customers?
Gary Atkinson, CEO, Algorithm Holdings: Yeah. That’s that’s a great question, Adam. I’m glad you brought that up. So the nice thing about the the acquisition that we made with Semicab is that this business was fairly commercially secured and scaling already. So the business just started back in 2019 and and built from scratch.
And so now we’ve basically acquired a technology platform that is well beyond its growing pain period. It’s it’s now a platform that is already commercially transacting with major multinational enterprise customers handling, you know, thousands and thousands of loads every month. And so for us, that was one of the main benefits that we saw is we weren’t basically investing into the speculation or an idea. We were investing into a a working and proven software platform. So in terms of just ongoing, I mean, obviously, with software, nothing is ever, quote unquote, done.
Right? It’s always there’s there’s always maintenance that needs to be done, feature updates. But by and large, the overall main platform It’s transacting and and doesn’t need any, you know, large software development or investments.
Paul, Operator/Moderator: And then Okay. The acquisition of SemiCap India, besides the operations right now going on in India, is there any business or pilots in The US or in other markets outside of India?
Gary Atkinson, CEO, Algorithm Holdings: Yes. So we acquired the the Semi Cab, the US division as well. So in The US, there’s two main one of the two main business platforms that semi cab offers. Right? So we’ve got the managed services aspect to the business, and that’s the traditional sort of trucking model that takes advantage of the AI platform.
And that’s that’s operational primarily in India. That’s that’s the the the main driver of revenue. And then we have a new business model that we’re looking to bring to The US. And it’s something we haven’t quite announced yet, so I don’t wanna publicly talk about it yet. But we are operating in two geographies, and we are looking to address The US market.
And we will be making some announcements relatively soon regarding that.
Paul, Operator/Moderator: Great. Thank you for answering my questions, and I wish you guys good luck. Thank you. Thank you.
Gary Atkinson, CEO, Algorithm Holdings: Alright. Thank you. And
Paul, Operator/Moderator: our next question comes from David Scott of Catalyst International. Great. Hi, Gary. Great job. So can you go back to this you said something about $400,000,000 in India that Semicap thinks is well suited for what they do.
Can you just kind of help us understand, like, how fast that might actually happen?
Gary Atkinson, CEO, Algorithm Holdings: Yeah. Absolutely. Yeah. Thanks, David. Thanks for the question.
So, yeah, like I mentioned earlier, I mean, the National Digital Freight Exchange is a very, very large consortium of over 35 major multinational fortune 1,000 companies. As a group, they do over 1,400,000,000.0 US in in annual freight spend. And so we do see this is a very real this is kind of the our initial addressable market. We do see opportunities there to to go after about 400,000,000 of that freight spend that is has already been kind of run through our freight optimizer and is business that we believe we can go after in a very aggressive way. So it is real.
It will take you know, in terms of timing, I see that being something that we can address in the in the relatively near term future, so I’m talking over the next two to three years. But that is kind of the the size of the immediate tie, and that’s honestly not even really going after new new logos or new clients within a group. That’s all achievable within the existing customers that we’re serving now. Okay. Thank you.
Okay. Thanks for the question.
Paul, Operator/Moderator: And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.
Gary Atkinson, CEO, Algorithm Holdings: Okay. Well, I wanna thank everybody again for your time and interest this morning. Look forward to sharing more updates, here in the near term future, particularly on the semi cap business, and look forward to talking to you all again next quarter. Thanks, everybody.
Paul, Operator/Moderator: Thank you. This does conclude today’s first quarter twenty twenty five earnings call. Thank you for your participation. You may disconnect at any time.
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