Algorhythm Holdings, Inc. (RIME) Earnings Call Transcript & Summary

Good day, everyone, and welcome to today's program, The Singing Machine fourth and first quarter earnings call. [Operator Instructions] Please note this call may be recorded [Operator Instructions] It is now my pleasure to turn the conference over to Brendan Hopkins. Please go ahead.

Thank you, Nicki. We'll start with a brief safe harbor, and we'll get going. Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. With that said, I'd like to turn the call over to Gary Atkinson, CEO of The Singing Machine.

Thanks, Brendan. Good afternoon, everybody. This is Gary Atkinson, CEO of the company. I'm joined on the call with Lionel Marquis, CFO; and Bernardo Melo, VP of Sales. I want to start off by just thanking everybody for joining us this afternoon to discuss our year-end and our first quarter results. It's been a long time since our last update with everybody here. So we have -- a lot has happened. Obviously, we filed our 10-K last week, which utilized the 45-day COVID extension. And this afternoon, we've released our first quarter earnings. Obviously, the 2 different reports tell very different stories, so we wanted to have the opportunity to give some of the background and talk about the narrative of each of those different reports. Lionel is going to cover the financial results of the 10-K and the first quarter. But before he does that, I just want to summarize last year and a few bullet points. Obviously, I think most of the people on the phone today know that last year, we suffered a major shipment for Black Friday to one of our large customers. That arrived to the customer damaged. That, obviously, costs us a few million dollars of damage. And that's reflected in some of those year-end numbers that Lionel will get into. We also invested heavily into Carpool Karaoke last year. It was a brand-new product, a brand-new license that we were very excited about, but it did not take off in the first year the way we had expected. And we have some updates on that later that Bernardo is going to get into. And then finally, I think last year, we operated the year under a lot of uncertainty with the trade war with China and the United States and tariffs that were being threatened that was causing our supply chain a lot of trouble. So all of these different factors all came together and contributed to the financial results that we reported last week. So with that being said, I want to turn it over to Lionel. He's going to walk us through some of the 10-K numbers, talk a little bit about the first quarter. And then we'll turn it over to Bernardo, who will give us some exciting sales updates. So with that, Lionel, it's all you.

Thank you. Good afternoon, everybody. I just want to touch base. First of all, with the last year, let's put that behind us. It was a tough year last year. We had quite a few different aspects of the business that had some issues last year, but the Q, like as we move forward and looking forward, the numbers are looking a little bit better. So let's talk about 3/31 last year. For the year last year, we had a drop in sales of approximately $5.1 million from $46.5 million down to $41.4 million and a significant drop in our foreign distributors, particularly the U.K. and Canadian distributors. That -- they ended up very plush with inventory in the prior year, and they ended up ordering approximately $3.5 million less last year than they did this year. Gary alluded to the damaged goods process. We lost about $1.6 million in revenue on account of the damaged goods situation. There was also a $1.8 million loss on 2 major customers domestically, who ended up the year of 2019 with significant overstock and consequently ordered less. There was some good news last year as we offset -- all of this was offset by a gain to one major retailer of $1.5 million. We were only doing an internet fulfillment for them the year before, but we did get into their brick-and-mortar stores last year and we did very, very well with them, and that contributed a plus side of $1.5 million. On the gross profit side, okay, we went from $11.8 million down to $11 million in gross profit. I mean despite the 11% drop in net sales, we only lost about 7% in gross profit, okay. We lost $1.3 million of gross profit due to net sales decrease that contributed about 5 -- or $0.5 million, but we did get an increase, okay, to offset that $0.5 million, it has to do with the gross profit margin on the Carpool Karaoke that we did end up selling. The average Carpool Karaoke margin last year was approximately 62% as opposed to 28% to 30% of our other goods taken on an average as a whole, and that helped contributed or offset to the loss in GP somewhat. If you look at the operating expenses, those increased tremendously. They went up from $10.7 million to $14.3 million. If you look at the components, it was a very, very tough holiday season. And I think it's up approximately $700,000 in additional co-ops to move that inventory out. It's ancient history, but that's the way it fell out. We also had another $700,000 related to royalties and the roll-out of the marketing dollars that we spent to roll out that Carpool Karaoke product last year. In addition to that, we had some freight increases, just in general, outbound freight going out and also some of that freight related to the damaged goods products that we have to take back, if you will. So if you go into the general and administrative expenses, it was approximately -- we went from $5.8 to $6.6 million, an increase of $800,000. $700,000 of that was due to out-of-pocket expenses associated with the damaged goods. We had to take that as a loss because of the uncertainty of how much we would end up collecting from the insurance company. Therefore, it was considered to be a contingency, and we had to report the losses from that until we knew for certain what the collection from the insurance company was going to be. Now having that said, keep that in mind, as we go into the first quarter, you will hear about how much we've recovered on the insurance side of that damage goods piece. In addition to that, we had to buy another $100,000 -- about $135,000 in insurance -- extra accounts receivable insurance expense for JCPenney. We sold to them last year and wanted to protect their interest based on their financial status last year at that time. One of the big things that offset too as well is we did have [indiscernible] which is the old Fingerhut went bankrupt, and we got cost of about $250,000 of receivables there. As compared to the prior year, we actually recovered $400,000 from the Toys "R" Us bankruptcy from the prior year before that. So that's a huge swing. We got $300,000 that went bust on us this year, $400,000 that we recovered last year, that net difference between this year and the last is about $700,000. So net income-wise, we ended up at a $2.8 million loss versus a $600,000 net income last year, so $3.5 million swing. So let's talk about that. Damaged goods is $1.1 million. The rollout from -- for the Cpk product was about $300,000. The bad debt swing was about $0.7 million, and there was about $100,000 on the AR -- the extra AR insurance that we had to buy. So it's all a lot of onetime stuff that we picked up last year and that we expect to have recovery on this year. So that pretty much covers the highlights of fiscal year '20. Now let's fast-forward over the Q1 fiscal year '21. So for the quarter ended June 30, we did $3.3 million in sales versus $4.8 million the year before. It's an unfavorable variance of $1.5 million. $3.3 million of the decrease, okay, was -- there was a $3.3 million decrease. And it's strictly due to the delay in the shipment of Black Friday goods, which was the primary amount of what we shipped in the quarter last year compared to this year, where we had not shipped in Q1 any of that Black Friday product -- sorry, consequently, that's simply a delay due to COVID, our factories getting ramping up, getting back up to speed at 100% and the customer also because of COVID uncertainty placing their commitments and their orders a lot later than they did in the prior year. So you'll see some of that shift come up in Q2. So the good news now is that this was offset by an increase of $1.7 million in regular margin stuff, okay, for replenishment due to increased demand on Karaoke and another who ordered for a summer program to increase demand for indoor activity. Both of those were, in some cases, unexpected. One of them never orders anything for a summer program and they did, and they are capturing the increased demand on Karaoke due to COVID and activity, family activity demand. And what we sold them, okay, in that program, they practically sold out of everything that we've sent to them for cost. Gross profit margin-wise, despite a $1.5 million loss, we had a gain of approximately $200,000 in gross profit margin in gross profit, $1.2 billion versus $1.0 million. But despite the loss of 11% in net sales of $1.5 million, we gained $200,000 in profit. The delay in shipping of the Black Friday's good yields -- Black Friday goods yield a lower margin than the normal mix of products. Those are special promotion products. They have very little co-op and selling expenses associated with them, but they do carry a lower gross profit margin. So consequently, the mix of products that we sold were at full margin and hence, the increase in the gross profit and the gross profit percentage margin. Our operating expenses were pretty flat, okay? We look at selling expenses, they were approximately $89,000 higher than what they were in the prior quarter of last year. We had a decrease in discretionary marketing related to the Carpool Karaoke product at about $142,000. But it was offset on the other side by some extra co-ops that normally follow full margin product. So it's just normal business, if you will, nothing unusual there. General and administrative expenses, they were $1.36 million versus $1.37 million. So G&A was flat, okay? Other income, let's talk about other income. Here's where just -- all of these onetime damages that we took last year as a hit to profit and loss last year are now coming back the other way. But there was a partial settlement in June on the insurance, the damage on the insurance of approximately $1.4 million, including $1.3 million of the accounts receivable reserve that we have put aside for the claim last year and $131,000 gain over and above that insurance. We also cut a deal with the manufacturer who caused the damaged goods problem. They agreed to take $390,000 forgiveness on old accounts payable invoices, which also resulted in a onetime gain that helped us out. So all of that -- having that said, our net loss and income, we were approximately $200,000 -- $207,000 loss versus an $869,000 loss in the prior year, about $700,000 better with onetime recoveries accounting for approximately $400,000 and the rest due to the mix of products sold and the increase in the gross profit margin. Our inventory, again, good news there. Our inventory dropped by approximately $700,000. And a lot of it had to do with these replenishment orders that some were expected, some were not, better than what we had thought in the quarter. And consequently, we were able to move out a lot -- a good portion of that excess inventory that we were carrying from the end of the year last year. Accounts payable. We had held back invoices from the factory to help with our cash flow that had caused the damage. Since then, we've recovered 100% from the insurance company of all the damage that we have taken -- all the losses that had taken place. We haven't seen the full effect of that yet. Some of it will show up next quarter. In fact, another $800,000 -- about $850,000 of insurance claim money came in, and that will be reflected as a onetime gain in the coming quarter. We also received a PPP loan or a Paycheck Protection Program loan of approximately $444,000, which we intend to file for 100% forgiveness on as we have spent that money on those types of things like payroll and rent and utilities that the money was intended to be done for COVID relief. So those are all positive things that you will be seeing coming through in the coming quarters. That pretty much covers the financials for last year and this year. I'll turn it back over to Gary.

Perfect. Thank you, Lionel. So obviously, as Lionel has talked about, the first quarter results tell a much different story than the year-end results. The first quarter was a lot brighter. I should note that the small loss that we reported in the fourth -- first quarter is the smallest first quarter loss that I've seen with the business, and I've been with the business now for close to 12 years. So it was a very strong first quarter for us. Obviously, the pandemic has created a huge demand for at-home entertainment spending, and we've definitely been benefiting from that trend. So I'm going to turn it over to Bernardo to cover some of the bright spots from Q1 from the sales perspective, including the recent success that we've been experiencing with Carpool Karaoke. So Bernardo, I'll turn it over to you.

I hope everyone is doing fine and staying healthy. As I cover some of these numbers, I just want to take a moment and just make sure that we all think of those that are struggling during this time and maybe have lost some family or friends, and we always keep them in conscious. But before I get into the Q1, I just wanted to cover a little bit of last year because I know last year looks kind of dim, and we had a lot of onetime challenges, obviously, with the damaged goods for the Black Friday event and some of the bankruptcies that we saw and also just the uncertainties of the tariffs. I mean there were times that we were trying to close deals, and we would ask what's the latest on the tariffs and not even the department knew -- the Department of Tariff knew what was going on. So that added to a lot of the hesitation from retail to see how they were going to invest in the business, how they were going to invest in the marketing of the business. And a lot of the commitments came later than usual. We were grinding this all the way to the end. And at the end, it forced us to invest in some co-ops and some marketing dollars that Lionel covered. And we were also launching Carpool Karaoke, which was a big expense for us last year, coming of the excitement of Toy Fair. But all in all, we still -- at retail, we still sold pretty well. And that kept the excitement going for the category, which is something that we fight through all the time as the excitement's still there for at-home karaoke. So -- and I'll go through some examples of retailers. Like, for example, Best Buy decided to get back in brick-and-mortar this year with Karaoke. I mean, last year, they put together a holiday program where they supported Carpool Karaoke and a couple of [Audio Gap] at the end, they ended up selling about 85% of the goods. A large portion of it was nonpromotional because it was during the December promotional [Audio Gap] left them a good taste in the mouth for Karaoke. Target continue to dedicate [indiscernible] space to Karaoke last year and they did well. They were one of the retailers where the commitment came really late because of management concern with the tariffs. Walmart continues to be a steady force for us year in and year out. Their business was sort of flat last year. The annual event was lower than usual, which I think, led them to their strategy this year to focus more on the digital strategy and longer than one big strategy. They've announced that they're going to close Black -- Thanksgiving, which is good news for families. Sam's Club also supported us with 3 items last year. They were usually a 1 SKU Club, and they support those with 3 items. They had sell-throughs of 80% last year. Costco did well with about 95% sell-through. They've could use a little more inventory towards the end, but we were out -- we were short on inventory on that item. And internationally was a struggle. I mean our international customers are continuing to be conservative. Our distribution has continued to expand. And some countries are doing better than others. Italy is holding steady. I mean our big loss was the U.K. That distributor that we deal with there was going through some changes internally. They were holding tight on inventory and looking at their overall business, so they dropped almost 100% in sales year-over-year, which led to some of the downward in international sales. And also, Canada was a big disappointment for us. Our distributor there was not managing the territory the way that we wanted to. So I'll talk a little bit about how we are fixing that issue moving forward. But overall, everybody who carries the item, they need sell-through. And even Amazon sold through well, and then we left about $1 million on the table with Amazon because of depo restrictions towards the end where they couldn't accept any more goods. So that left some sales on the table. But moving forward, this year, we had 3 mandates that we really wanted to accomplish even before we learned of the pandemic. We wanted to make sure that we sell inventory, we turn inventory for cash without discounting the inventory because these are all good inventory purchases. Our catalog continues to be strong. So we didn't want to introduce too many new items. We wanted to continue to push through our existing inventory and turn that into cash. We wanted to cut cost in marketing. We talked to retailers at the beginning of the year and said that we didn't see a lot of the benefit in investing heavy in upfront marketing, so we sort of slided that over into a little bit more back-end funding. So if they buy the inventory and we see that they're selling well, they will support that with funding, but we no longer wanted to commit with a lot of upfront marketing. So you'll see this year a lot of that marketing expense decrease. And obviously, we want to increase margin. Just because we're selling off inventory, we didn't want to sell it at a loss. We want to sell it at reduced margins. We wanted to maintain the margins high. And as you could see with the Q1 results, we increased margins from 21% to about 37%. And we hope that, that number stays not, in fact, 37%, but it stays at a nice increase for the entire year. So then the pandemic hit, and we saw a big boom in Karaoke sales. With parents being stuck at home with kids and looking for fun ways to keep them entertained, Karaoke became a go-to. It became a go-to for a lot of parents. And we reflected -- and that's reflected in some of the numbers. And I'm going to go through some key retailers and talk about what percentages we've seen year-over-year. And we have not seen that trend slow down one bit since some States have opened up. As a matter of fact, it remained strong during the summer. Summer is usually a very slow month for us for sell-through, but it has not been the case this year. So just to cover some highlights on some retailers here. I'll start with Target. Year-over-year, we are 149% increase in sales. Our digital sales are up 336% year-over-year. And that is with the top 2 SKUs of Target averaging anywhere between a 25% to 60% out-of-stock. We just couldn't keep up with the demand. Our factories were slow and ramping up with COVID. So as we were placing orders, as they were coming in, retailers were taking in. They were selling through really quick, and Target was a perfect example of that. And just to give you a quick example, since June week 4, we've already sold to Target 20,000 pieces of Carpool Karaoke, which is almost a 600% increase year-over-year during this -- during what happened last year with Carpool Karaoke. Walmart, they're up 43% year-over-year. Walmart.com is up 115% year-over-year. We got supported again with the annual event. As you'll see in our Q2, we're probably shipping somewhere around $3.2 million, $3.4 million in that annual event again this year. None of it went out in Q1. So that -- we expect that number to go in Q2. And thank God as everything went out good and we shipped well, and there hasn't been any damage so far. So that's good. Sam's Club is one that's been really encouraging for us. Their numbers have been so strong that they initiated a spring/summer program this year. So we took some left-over inventory that we had last year. We did a spring/summer program with them this year. And it was supposed to go all the way to September 30. They've already sold through 90-something percent of that, and we should be completely cleaned out come end of August to the point that they've already even invested into another early -- I mean late summer/early fall program with Carpool Karaoke. They're going to bring them into 90 clubs. We had some inventory left over in the club packaging, and they're bringing that in. So this year, they're going from 3 SKUs to 5 SKUs. They're supporting us on our new launch, which is the WiFi Pedestal, a much higher price point than they've carried in the past. And they've placed really good orders. They're so excited about the item that they placed to us for free, no cost to us, in a VIP annual catalog, so you guys will see that in November, which we're really excited about. Costco has also supported us on the new WiFi machine. And I'll let Gary talk about maybe what that could do for some of the back-end dollars. The WiFi machine comes already with a pre-installed Singing Machine app, which encourages people to use the app and pay monthly subscription. I'll continue to go with some of the accounts. The -- Amazon is up 65% year-over-year so far. We've set up direct fulfillment this year with Amazon, and we've also set up third-party sellers. So what we're finding is that when they're out of inventory, we could quickly turn on direct fulfillment and back them up with that inventory. So now we're cutting 2 or 3 weeks of lack of sales because of lack of inventory, and we're able to continue that on a daily basis. So they haven't been able to keep up with the Carpool Karaoke demand. So we're turning them on, on direct fulfillment. And while the flow of the goods go to the logistics system, we're averaging about 300 to 400 pieces a day on direct fulfillment, which is a nice pickup for us in sales, and therefore, they're reflecting 65% year-over-year. Our dropship directly. So we do a lot of dropship for dot coms, for Costco, Walmart, Target and so forth. And that percentage is up 344% year-over-year. So we're really excited as to how we're doing on the dot coms. As a matter of fact, even the singingmachine.com website, due to the recent success of Carpool Karaoke, is up 545% year-over-year. So these are all good numbers, really good encouraging numbers. We don't see the -- we haven't seen the slowdown at all. We've seen that those numbers became very steady through the summer. Even back-to-school, we didn't see that big dip, usually back-to-school brings on upon a different type of consumer behavior. For us, it's continuing all along. And retailers are ordering accordingly. So we're really excited about that. And last thing I just want to note that Canada, we're bringing it back in-house. We're no longer doing business with a distributor, which was our sister company. So we're bringing back that in-house. We've already started direct relationships with Toys "R" Us Canada, with Walmart Canada, with Costco Canada, and we're about to close Best Buy Canada as well. That would add about 10% to 15% in margin by doing it direct. And we're looking forward to growing that Canadian business back to the $3 million, $4 million that it should be. So with that being said, I just want to hand the call back over to Gary, and I'll stick around for any questions afterwards.

Perfect. Great update, Bernardo. Thanks for the good numbers. Just one thing I want to -- and we're running a little bit over on time. I want to make sure people have a chance to ask questions. But I also just want to note one major thing that Bernardo didn't touch on. So with the Carpool Karaoke's recent success, it wasn't really reflected in the first quarter because the retailers didn't have a chance to place any big reorders in that first quarter. But we did see earlier this year a trend that kind of came out of the field. Kids on TikTok started just on their own, finding the Carpool Karaoke microphone and posting about it and using it in the car, and it's just gone viral. I mean there's no other way to say it. I mean we've probably had now 200 million to 300 million views on TikTok of kids all using the Carpool Karaoke microphone in fun, engaging creative ways. ESPN picked up on it as one of our influencers did a drive-by commentary on a pickup basketball game. So that got highlighted on ESPN and SportsCenter. Access Hollywood did a little feature story on that influencer. And it's -- every microphone that we're selling is going into another kid's hand, who's posting it on social media and it's really spreading. We've been sort of seeing -- at the height, we've been seeing sales over 2,000 units per day. That's per day. It's back down a little bit from that, but we're still selling hundreds and hundreds of units every single day on Carpool Karaoke, and I think we've only just scratched the surface of that. So we're really excited, reenergized. We still think -- we always believe that Carpool Karaoke was a great product. Obviously, if you look on Amazon, you see the product is well reviewed, people really enjoy it. So we've got a lot of renewed energy behind that product category. So I just wanted to say that. And at this point, I want to turn it over to questions, just to make sure people have an opportunity to ask anything of us.

[Operator Instructions] And our first question comes from the line of [ Eric Nickerson ].

Interesting information on this call. Just handful of off-the-wall questions. I'm guessing your margin on a Carpool Karaoke is about, what, $8 or $10 per unit? Am I close?

It's high.

It's a little bit -- it's a lot more than that.

Go ahead, Bernardo.

Yes. No, we average -- although we did a price drop this year to $49 to be a little bit more aligned with what the market was asking for, we still average somewhere around 45% to 50% margin overall on that.

So more like $6 or $7?

I could give you the correct number shortly. But yes, it's close to about $8, $9, yes.

Okay. And one more thing on Carpool Karaoke. When it -- after it's been around for a while, I mean like a couple of years or so, it will settle into some sort of a predictable seasonal pattern. And I'm wondering what you guys are estimating that will be, once it's settled in, what you expected seasonality to be in terms of sales?

Well, you know...

That's a good question

Yes, go ahead, Gary. Go ahead.

Yes. No, I mean I think that's a good question. We've always been looking for an item that could be counter-seasonal. A lot of our core karaoke business is heavily skewed towards the fourth quarter. This item is obviously an item that sells well in the summer. We always thought it would be. It just took a year for kids to really catch on and start using it. And it's -- adults are finding it now, too. So we think at full bore, I mean this could be a great spring/summer item and obviously makes a great holiday gift item as well. So this really could be more of a year-round product for us. And again, I think we've only scratched the surface of how many units we can sell once enough people get it in their hands. And the word of mouth has been really, really strong. I mean we spent literally $0 marketing this year, and it's all been organic grassroots, just purely social media-driven. So I think we've now found the sweet spot, and now we know how to push this thing. And so it could be large. We always thought it could be large. We were disappointed it didn't start out that way, but sometimes great products just take time to get into the right hands and it goes from there.

Yes. That'd be good. That's something that's strong in the spring and summer. Okay. You said the Karaoke sales have been really good here as a result of the pandemic, and they stayed strong even though maybe that's going to be behind us. Have you made an effort to estimate how much of that is pull forward from what you might normally expect at Christmas time?

Yes, that's a good question. What we're seeing is Karaoke is still a very big giftable item. So we don't think it's going to have that much of an effect towards the fourth quarter. And neither do the retailers because the projections that we're seeing are still very in line with what our fourth quarter numbers look like. And Sam's Club is a perfect example of that. They invested about 12,000 units just for their summer program and yet did not cut any orders for the fall holiday. As a matter of fact, they've increased some orders for that. And so although we're seeing now some of the purchases being bought as activities, we still foresee the giftable aspect of it to remain very, very strong during the holiday season. Like -- and that's even an example for Carpool Karaoke, right? We have some people that are using it. And parents that may be hesitant to buy it right now because they want to put it on their holiday list. So we're still seeing that, and we're still seeing it from retailers that are putting effort into putting the category on ads or on -- Give!Guides and things of that nature.

Okay. So to perhaps oversimplify a little, what you think you're seeing now is people are buying it for themselves. And when Christmas rolls around, they'll be buying it for somebody else.

Yes. Correct. And just to answer your first question, depending on the program, it's anywhere between $10 to $15 a unit on Carpool Karaoke.

Cool. All right. So those damaged goods from last year, wondering, are they -- do you still have any of that? And is there any salvage value in it, if you have it?

Those are...

So the answer -- yes, the answer to that is no. We don't have any left because we destroyed all of it in the field. It was not salvageable. There was mold on it inside the units, everything else. We didn't want to take any kind of chance of having any of that out of the fence. So that's part of why the out-of-pocket cost that we absorbed last year was so much because not only did we have to warehouse them until we got everything inspected by the insurance company, but the disposition of the goods, the proper disposition, okay, of those goods was a couple of hundred thousand dollars just in of itself. We've received 100%. We recaptured 100% of everything that we lost last year, and that's going to flow through this year's P&L. Half of that, we captured as a receivable last year. So the whole project was $2.4 million loss, okay? We recognized about half of that last year because we were able to put a receivable through last year so that we didn't absorb the full impact of that. But the other $1.2 million that we had to absorb last year, and that's going to turn around this year. You're going to see that flow through.

Okay. Just one more. I noticed a few months ago, you guys did a promotion saying you were giving away songs for free. I guess just to keep the awareness of it. Are we still -- are you still doing that?

So you're right. We ran a pandemic promotion to raise awareness for our app as a goodwill gesture. So we unlocked the entire catalog for free for a month. We saw it was successful, not successful in the sense of generating revenue, but successful in the sense we gained a lot of good publicity, some goodwill, and we were able to acquire new users that downloaded the app and started using it. So revenue took a hit in that month and the month after. But after that, we've steadily seen double-digit growth in active paying subscribers since that time. So I think it was beneficial all the way around. Consumers got to use it while they were stuck at home for free, and now we're kind of reaping the benefit of it as a lot of those users have used it, downloaded it, liked it, and now they're staying on as paying subscribers.

And our next question comes from the line of [ Jonathan Eldorado ].

So I just was wondering, are all Karaoke Best Buy and Target, is everything fully stocked at this point with the Carpool Karaoke Mic, is there anything else?

No. Not necessarily. It kind of -- the hit kind of happened a little bit late this year. So at the beginning, we were a little bit hesitant of overstocking the shelves. But the beauty of this is because of the demographics of this has skewed younger, which our general demographics is -- our sweet spot is usually 35 to about 55 years old, usually a mom buying for their kids. This has been -- Carpool has skewed a lot younger. So digital sales have really been the uplift for it. So I believe as long as the dot coms, including Amazon, especially, continue to support it, we won't see any downward in sales.

Is Target still out of stock?

No. Target is in stock. They have about -- close to about 8,000 units filtering into the system. As of yesterday, they're out of stock, went down from about 72% to about 40%, and we saw 100% increase in sales because of that. So yes, they should be -- by the end of the week, they should be fully back in stock.

So there's no problem with creating them in China and shipping them over?

As a matter of fact, we have a -- and Lionel -- this is music to Lionel's ears, but we placed reorders already for -- to come in, in late October, early November, which was when we anticipate the current stock to sort of being dwindled down to almost nothing.

Would there be any follow-up Carpool Karaoke products or new model or something?

We are working on a new version of it, especially for the club next year. The clubs, you always got to try to create newer models. So we are working on a possible change to one of the models. But the reality is this model hasn't really even hit its peak. Originally, we were estimating somewhere around 200,000 to 300,000 pieces. So I think we're still probably a year away from having to really change the current model because they're still not in enough people's hand. It's still fairly new item in the market.

And then I had a question about the WiFi product that I guess will be around Christmas time. Is this the first WiFi product?

So we have -- the WiFi product is coming into our warehouses right now and turning around and shipping off to our club stores here, I think, any week now. It's not the first WiFi machine we've ever built. We did try one about 5 years ago. It was a little bit ahead of its time. We ran into a lot of hardware issues and bugs with that product. So we took a step back, took a little bit of time to redevelop and redesign. And so this year is really the first, I think, meaningful launch. About 5 years ago, we only launched about 5,000 or 10,000 pieces into the market. This year, we're launching a much larger program with both Sam's Club and Costco. So we're going to put a lot more product into the market with that WiFi streaming capability. So I expect that's going to do a lot for our music subscription sales. And we've played with it in the office. It's a really, really nice, powerful karaoke machine that I think will appeal to an older demographic.

And it appears that we have no further questions at this time.

Okay. Perfect. Well, again, we appreciate everybody being on the call today to get the update on the year-end and the first quarter. I do anticipate that our filing times are going to get back to normal now. So we were not expecting any future delays in filing our quarterly statements. So we look forward to touching base with everybody on the second quarter. So thank you, everybody. Have a great rest of the day.

This does conclude today's conference. You may disconnect your line at any time, and enjoy the rest of your day.