Executive Summary

Revenue was $17.1M for the quarter ended September 30, 2022; diluted EPS was $0.08, and gross margin expanded to 23% from 19% YoY, driven by lower inbound logistics and price actions .
Management emphasized margin improvement “by over 400-basis points,” aided by shifting a majority of business to FOB-China to improve timing/efficiency and reduce supply-chain risk .
Retail conditions remain volatile with elevated inventory across consumer products; two major customers reduced current-year purchases after ending the prior holiday season with excess inventory, partially offset by strength at other large partners .
Liquidity improved with a new $15M revolving credit facility (seasonally reduced to $7.5M Jan–Jul) with ~$4M currently available, replacing Crestmark/Iron Horse facilities .

What Went Well and What Went Wrong

What Went Well

Gross margin expanded to 23.2% vs 19.2% YoY, primarily due to lower inbound container costs and price increases; CEO highlighted achieving “over 400-basis point” margin improvement vs last year .
Streaming product line growth: Streaming revenue reached $4.798M vs $1.708M YoY for the quarter, reflecting strong demand for WiFi streaming/Casting products .
Balance sheet and liquidity strengthened with a new Fifth Third Bank facility up to $15M (seasonally $7.5M), with ~$4M availability at filing, improving working capital flexibility heading into the holiday quarter .

What Went Wrong

Operating expenses rose by ~~$802K YoY to ~~$3.379M, driven by higher legal/professional/IR/stock transfer costs (~~$303K), compensation (~~$239K), and warehouse/labor supplies (~$98K) .
Other income swung negative: interest expense increased (~$76K YoY), and last year benefited from a $236K AP settlement gain; net other result was a ~$302K deterioration YoY .
Customer concentration remains high: three customers represented 43%, 29%, and 10% of quarterly net sales, heightening exposure to retail inventory dynamics and purchase timing .

Financial Results

Quarter ended September 30, 2022 (company refers to this as Q2 of fiscal year); prior quarter is Q1 (June 30, 2022); prior-year comparable quarter is September 30, 2021. Estimates were unavailable via S&P Global.

Metric	Q3 2021 (Sep 30, 2021)	Q1 FY2023 (Jun 30, 2022)	Q2 FY2023 (Sep 30, 2022)	Consensus
Revenue ($)	$17,368,973	$11,692,054	$17,113,636	N/A
Diluted EPS ($)	$0.43	$(0.01)	$0.08	N/A
Gross Profit ($)	$3,327,304	$3,180,530	$3,963,969	N/A
Gross Margin (%)	19.2%	27.2%	23.2%	N/A
Income from Operations ($)	$750,013	$146,842	$584,651	N/A
Operating Margin (%)	4.3%	1.3%	3.4%	N/A
Net Income ($)	$692,373	$(16,003)	$296,467	N/A

Segment/Product line breakdown (quarter):

Product Line	Q3 2021	Q2 FY2023
Classic Karaoke Machines ($)	$13,336,000	$9,132,000
Licensed Product ($)	$94,000	$4,000
SMC Kids Toys ($)	$1,021,000	$622,000
Microphones & Accessories ($)	$1,210,000	$2,558,000
Streaming ($)	$1,708,000	$4,798,000
Total Net Sales ($)	$17,369,000	$17,114,000

Geography (quarter):

Region	Q3 2021	Q2 FY2023
North America ($)	$16,729,000	$16,138,000
Europe ($)	$156,000	$306,000
Australia ($)	$484,000	$670,000
Total Net Sales ($)	$17,369,000	$17,114,000

Selected KPIs (quarter):

KPI	Q3 2021	Q1 FY2023	Q2 FY2023
Selling Expenses ($)	$733,485	$605,197	$899,590
G&A Expenses ($)	$1,776,997	$2,370,424	$2,417,405
Interest Expense ($)	$110,864	$160,113	$185,827
Reserve for Sales Returns (end of period) ($)	$750,000	$882,000	$1,691,000

Balance sheet highlights (Q2 FY2023 vs FY2022 year-end):

Metric	Mar 31, 2022	Sep 30, 2022
Cash ($)	$2,290,483	$2,978,683
Accounts Receivable, net ($)	$2,785,038	$10,640,685
Inventories, net ($)	$14,161,636	$16,022,436
Total Current Assets ($)	$19,842,413	$30,958,695
Total Current Liabilities ($)	$12,022,411	$18,249,411
Shareholders’ Equity ($)	$10,036,424	$14,944,388

Guidance Changes

No quantitative guidance ranges were provided for revenue, margins, OpEx, tax, or EPS. Management commentary focused on margin improvement and operational positioning; no formal guidance updates were furnished .

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Holiday quarter/FY	N/A	N/A	None provided
Gross Margin	Holiday quarter/FY	N/A	“Improve gross margins” narrative; no numeric range	None provided
OpEx/Tax/EPS	Holiday quarter/FY	N/A	N/A	None provided

Earnings Call Themes & Trends

Note: Q3 2022 earnings call transcript was not retrievable due to a document database inconsistency; themes below reflect MD&A and press release commentary for Q1 and Q2.

Topic	Previous Mentions (Q1 FY2023)	Current Period (Q2 FY2023)	Trend
Supply chain/logistics	Inflationary pressure; port delays; semiconductor shortages; higher drayage/fees; cautious on timing mismatches	Significant decrease in inbound container costs; FOB-China shift improved shipment efficiency; margins benefitted	Improving logistics cost; execution shift to FOB-China
Retail inventory/macro	Ongoing inflation; risk to consumer spending; logistical timing risks	Elevated inventory across consumer products; two major customers reduced purchases; volatility persists	Macro headwinds continue; channel inventory normalization needed
Product performance	Initial spring set at major CE customer drove Q1 revenue; favorable mix supported margins	Streaming line revenue up materially; microphones/accessories up; classic machines down YoY	Mix shifting toward streaming/accessories
Financing/Liquidity	Existing Crestmark/Iron Horse facilities; renewed IHC; available borrowing ~$3M	New Fifth Third $15M facility (seasonal $7.5M); ~$4M availability at filing	Liquidity flexibility improved
Customer concentration	Two customers were 50% and 37% of Q1 sales	Three customers 43%, 29%, 10% of Q2 sales	Concentration remains elevated

Management Commentary

“This was a very strong quarter… $17 million in top line sales… contributed to the 23% growth in year-to-date net sales and almost $29 million in net sales for the fiscal-year-to-date period.” — Gary Atkinson, CEO .
“We… improve gross margins by over 400-basis point compared to the same quarter last year… shifting a majority of our business to FOB-China… to avoid potential supply-chain disruptions.” .
“As we enter our holiday quarter, the market remains volatile… with generally elevated levels of inventory present throughout the entire consumer products market.” .
“We continue to look for and invest into new serviceable markets… we believe there are a number of significant growth opportunities… at compelling margins.” .

Q&A Highlights

The Q3 2022 earnings call transcript was not accessible due to a document retrieval inconsistency; Q&A highlights are not available for this period.

Estimates Context

Wall Street consensus estimates (S&P Global/Capital IQ) were unavailable for MICS at the time of query due to missing CIQ mapping; therefore, no estimate comparisons can be provided for this quarter.

Key Takeaways for Investors

Margin recovery is tangible: gross margin improved to 23.2% YoY, aided by lower inbound logistics costs and price actions; management reiterated focus on sustaining margin gains via FOB-China and operational efficiencies .
Revenue was essentially flat YoY at $17.1M, reflecting mixed retail dynamics; strong streaming and accessories growth offset lighter classic karaoke sales and reduced purchases by two major customers .
Operating expense growth bears watching (legal/professional/IR/corporate costs) as it tempered operating leverage despite better gross profit; OpEx rose ~$802K YoY .
Liquidity and working capital flexibility improved with Fifth Third’s $15M revolving facility (seasonal $7.5M), ~$4M available at filing; this supports inventory financing and holiday season execution .
Channel inventory overhang remains a near-term risk; management highlighted elevated inventories across consumer products and volatile demand conditions into the holiday quarter .
Customer concentration risk is significant; top three customers comprised ~82% of quarterly sales, magnifying exposure to individual retailer purchasing cycles and inventory positions .
Strategic mix shift toward streaming (recurring content tie-ins) and accessories is positive for margins and diversification; streaming revenue more than doubled YoY for the quarter .

SINGING MACHINE CO INC (MICS)·Q3 2022 Earnings Summary