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

Good day. Welcome to the IAccess Alpha Virtual Best Ideas Spring Investment Conference 2025. The next presenting company is Algorhythm Holdings, Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Gary Atkinson, CEO at Algorhythm Holdings, Inc. Gary, the floor is yours.

Thank you. Good afternoon, ladies and gentlemen. I want to thank everybody today for taking the time to listen in to our Algorhythm Holdings investor presentation. I also would like to thank the IAccess Alpha team for hosting us today at this virtual conference. This is our second time presenting. And so we're excited to give everybody an update on the business. As mentioned earlier, my name is Gary Atkinson. I am the CEO of Algorhythm Holdings. Algorhythm Holdings is a holding company. We own 2 distinct operating companies within Algorhythm Holdings. So we have an AI logistics technology company called SemiCab. This is a business that we recently acquired late last summer. I'm going to be spending some time giving everybody an update on SemiCab. And the second business that we own is a company called The Singing Machine Company, which is the worldwide leader in the home karaoke consumer space. So I'm going to kick off today's presentation with SemiCab. So I'm going to start off today by giving the premise that the truckload transportation industry is broken. You're going to hear me talk a lot about a lot of the inefficiencies in the traditional model today. It's an outdated system. It's highly inefficient, highly siloed and highly fragmented. And so I'd like to ask a question at the beginning, what if companies could reduce their transportation spend by 10%, cut empty miles by 70% and improve on-time delivery by 35%. So guys, this next slide here, this is the problem that SemiCab has set out from the very beginning to solve. This is the most important slide that I want to talk about today. So I would like everybody to pay the most attention to this here. The global trucking industry is massive, but it also is today massively inefficient. And I was blown away to find this out when I first heard it. But today, 1 out of every 3 miles that a truck drives is being driven empty. Another way of looking at that is, on average, 1 out of every 3 trucks that you see on the road is being driven empty. Another word for this concept is deadheading miles. And so in an almost $3 trillion industry, this massive inefficiency accounts for approximately over $900 billion in waste and shipping expenses, over 140 billion empty miles and is the leading contributor to global CO2 emission. So you have this massive problem in the logistics industry that is creating a lot of unnecessary congestion on the roads, a lot of wear and tear on the truck asset. You've got additional fuel being spent, labor time being wasted. So all of these issues are still very pervasive today, and this is the primary issue that SemiCab has set out to solve. So with these problems in mind, SemiCab is working with some of the best of the best, best-in-class consumer product companies to try to solve this problem. What I wanted to highlight here is that SemiCab has already done a lot of the hard work. We've already developed key relationships with top CPG brands throughout the world, a lot of Fortune 500 companies. And these brands all believe in the sustainability vision that SemiCab is set out to solve, and they see the opportunities and they're willing to collaborate with the SemiCab team in order to try to solve this problem. So I want to talk a little bit about the current traditional model today and why this model is broken. So you hear a lot about new technology providers that are coming into the space that are advertising themselves as more efficient. And really what these providers are doing, they're very, very different from what SemiCab is doing in the sense that a lot of these companies that are utilizing technology, all they're doing is they're taking the same existing process that's being currently utilized in the transportation industry, and they're just using technology to try to make it faster. So what they're doing is they're looking to reduce the friction between the shipper and the transportation provider, they're looking to eliminate humans in the process. And really, what they're doing is they're just taking the same old broken system and they're repeating it and they're making it faster and faster and faster and reducing the friction. But they're not actually setting out to solve the main problem, which we highlighted earlier, which is that today, approximately 1 out of every 3 miles that a truck is driven is being driven empty. And so a lot of times in my presentations, I have a lot of shareholders or investors that ask me, "Well, hey, isn't SemiCab just another version of a digital freight broker?" And my response to that is emphatically no. We are not just a smarter digital freight broker. So some examples of some freight brokers that you may have heard of, companies like Convoy, like Uber Freight. These guys are still basically setting out under the same traditional model where they're using software to speed up the pairing of a load between a shipper and a carrier, but they're really only interested in the simple goal of who can pick up a shipment on time and who can deliver it on time. But what happens to the truck after a delivery is really not their concern. And so these guys are not setting out to solve the big inefficiency that was stated at the beginning, which is that 1 out of every 3 miles is still being driven empty. So what are we doing differently? What is SemiCab doing that's so different from what the traditional model is? So again, the traditional model, you've got a shipper, you've got a carrier and you're just basically pairing a load between the shipper and the carrier to pick up goods on time and to deliver goods on time. Now obviously, that is a primary concern for us. That's a huge part of the terms of service is picking up and delivering on time. But the additional impact is we have a -- SemiCab has a collaborative transportation system. So what we're able to do through our software platform is we're able to peer across all the different customers that are on the platform. And we're not just thinking about picking up on time and dropping off on time. Our AI and machine learning algorithms are constantly looking ahead to see where is the next pickup, where is the next drop off? How can we optimize the trips before the trips have even been -- before those loads have even been tendered. And so we're focused on, obviously, picking up and delivering on time, but also focused on where is that truck going after it's dropped off. And this model so far has proven very, very successful. So we've gone from the average industry, which is approximately 65% optimized or efficient. But through our software platform, we've seen cases where our software has gotten up to 90% efficient. So another way of thinking about that is that instead of 1 out of every 3 miles that a truck is being driven empty, that same load to our platform has gone to 1 out of 10 miles driven empty. So a big, big increase in the overall optimization and utilization of that truck. And it's important to note here, too, SemiCab, we're not an asset-heavy company, we don't own the trucks that we operate. We don't have relationships with the truck drivers. All of this is done through contractual relationships with the carriers, but we don't own any of these trucks or any of these assets. So we're simply a service provider. You think of this a lot like a virtual shipper where we have a software platform, and we're instructing these trucks where to go, but we don't actually own them. And I think that's a key distinguishing point in our model. So I thought it would be helpful to give everybody a bit of a visual as to sort of what I'm talking about here. So these are all actual screenshots that are coming directly out of the SemiCab transportation platform. So you can see in the top left-hand corner, this sort of messy spider web is a visualization of all of the successfully delivered trips that have been performed through the platform. The bottom left hand is that same visualization that's been run through our optimizer. So what that's showing in the bottom left-hand corner is all of the instances where we could have made those routes more efficient. So that's basically highlighting areas where there was a lot of bilateral heavily predictable volume where we could have prevented unnecessary truck movements as visualized through the optimizer. Same point in the top right-hand corner, what you're seeing there is you're seeing a geographic density of volume. So taking that visualization and running it through the optimizer in the bottom right-hand corner, what you're seeing there is you're actually seeing lanes. These are specific geographic lanes where there's highly predictable with tremendous volume. And these -- so what the predictor is showing us here, these lanes that are highlighted in the bottom right-hand corner, these are lanes where we know we can win. We know that there's enough predictable volume moving in 2 directions that we can bid on traffic that are going across those lanes, and we know we can get better pricing because of how efficient we can keep those trucks moving. So I wanted to show everybody just kind of a nice, clean visualization of how the data is coming through our platform. And I think this next case study here really highlights a lot of how the platform operates and some of the savings that we can bring to our customers. So we were talking late last year with a very large CPG company, and they were asking us, well, what do we think that we can deliver in terms of overall cost savings if that customer were to move all of their transportation over to our platform. And so they were kind enough to share with us basically 6 months' worth of real-time actual loads that they've processed. So this represented over 173,000 different loads, which was over 140 miles of truck movement, representing over $340 million worth of transportation spend just in the first 6 months of the year. And so we took all of that raw data and we ran it through our SemiCab AI optimization tool. And what it came back with is that the system said that it could optimize approximately 77% of all the loads that were fed into it, which would have represented savings of almost 12 million miles of truck movement with savings for the 6-month period of almost $30 million. So you can think of this as annualized close to $60 million of cost savings if that company had elected to use SemiCab to handle all of its transportation spend. So this is obviously really powerful data to be able to go back to our customers with to show them that with the same quality of service, picking up on time, dropping off on time, everything being handled the same, we could have delivered over $60 million a year in savings to that customer. And so some of the things that we're working on and developing now is when you have a very large customer like in this case, that has their own dedicated managed fleet, their own internal fleet of transportation, there is a product that we could develop for them, which is more on a SaaS model, which would be a percentage of cost savings that we can deliver to the customer. And this is sort of just kind of where we're thinking in terms of the future additional models that we could bring to the table, some additional products that we're thinking about deploying. So I wanted to talk to you about the internal talent that we have here at SemiCab. So SemiCab was founded by 2 lifelong supply chain industry experts, Ajesh Kapoor and Vivek Sehgal. These are 2 guys that come out of big tech. So coming out of Google, coming out of GT Nexus, who really spent their entire careers working on these difficult supply chain problems. And these -- Ajesh and Vivek felt so confident that they could fix and address this empty mile problem that they both left their respective companies and decided to found SemiCab back in 2019. And I'm excited to say that they're with us now. They're still part of the team, very, very, very involved and very excited and motivated as we work towards scaling here into the future. Just a quick corporate time line for SemiCab. So the platform was built from scratch back in 2019. Ajesh and Vivek utilizing their own in-house team in India to develop all of the software, the AI, the machine learning algorithms. And really, the whole point of this is to show that this technology, the software platform has been built for a number of years now. It's already been commercially deployed with a number of large Fortune 500 companies. The platform was built from the ground up to be able to handle high volume. So this system can handle literally millions of loads and transactions per second. So the key point here being is that the software is -- it's robust. It's enterprise level. It's been battle tested. And so we don't envision any issues in the future in terms of scaling and growing the business as we move forward. And here, just I wanted to talk about some of the markets that SemiCab is currently serving. So we -- back late last summer, we had acquired SemiCab U.S., which is the parent company. Obviously, operating in the U.S., this -- the division that we acquired also owns all of the IP to the software platform. And SemiCab also has a subsidiary business that operates in India. We've been under process now for a few months working on acquiring the Indian subsidiary, which is still moving forward as planned, just going through some of the government regulatory hurdles, but planning for that acquisition to occur here in the near-term future. And we're very excited about the Indian business primarily because of this. So there's a program called the National Digital Freight Exchange in India. This is a program that has been supported and endorsed by basically India, the Indian government's equivalent of the Chamber of Commerce and Department of Transportation. And the NDFE was created with the sole vision of trying to solve some of India's most challenging infrastructure and congestion problems. And so what the NDFE has done is it's been able to successfully lobby some of the largest CPG companies in India to join this program with the goal of sharing data collaboratively across the platform with the shared combined vision of ultimately becoming more efficient, reducing congestion and ultimately saving all of those customers' money on their transportation spend. So we're very excited. SemiCab is the exclusive provider to the NDFE. So we see the opportunities in India to be tremendous. The combined annual transportation spend between these companies is in the orders of hundreds of millions of dollars a year in annual transportation spend. So I'm going to switch gears here quickly. We're going to go spend the last 10 minutes or so of the presentation focusing now on The Singing Machine Company and provide some updates on that business. So as a bit of background, Singing Machine is the worldwide leader in home karaoke. The business has been operating for over 40 years now. We primarily serve all of the major big box retailers throughout North America. So our products are distributed and merchandised in all the Walmarts nationwide, Target, Best Buy, Amazon, Sam's Club, Costco. Basically, you name it, Singing Machine products are represented there. Obviously, karaoke is very much a global phenomenon. And as such, Singing Machine is a global brand. So a majority of the company's sales are done throughout North America, but we also have distribution globally into South America, the U.K., Europe, the Nordic countries, Australia and starting this year with Costco's international program, we will be delivering and servicing many of the countries in Southeast Asia as well. Singing Machine has also had in its DNA, a long history of innovation. So we've done collaborations with top brands like Supreme, Nickelodeon, MTV. I also want to highlight a large collaboration we did with Carpool Karaoke, which was a segment that was started by James Cordon in The Late Late Show. And Singing Machine had the official licensed Carpool Karaoke microphone that we developed specifically for the automotive space. It was widely, widely successful and popular. And based on that popularity, we started to see a lot of the automotive OEMs that started to replicate that on their own. So we saw brands like Tesla that started incorporating karaoke microphones into the car. A lot of Asian Chinese auto manufacturers also started adding karaoke microphones into the car. But Singing Machine obviously was the pioneer. We were the first to do it. And as such, we announced late last year a really exciting partnership deal with BYD, which is the largest EV car company in the world. They just recently surpassed Tesla in terms of number of vehicles produced and sold worldwide. And so as part of that deal, Singing Machine, our technology will now be put into every single car starting this year, expanding globally. So this is a global program. And the key here is that this is not -- we're not asking the customer or BYD is not asking the customer to purchase the microphone. This is a one-to-one attach rate. So for every new car that gets manufactured, our Singing Machine microphone will be prebuilt into the car as it rolls off the production line. So this is a highly scalable business model for us. I like it because it doesn't cannibalize the core consumer product business. And it's something, quite frankly, that we can replicate. So we're getting a tremendous amount of interest from a lot of other automotive OEMs here in the States and also abroad to replicate this model to bring karaoke microphones to the car. And as such, we're also seeing tremendous input from a lot of the TV OEMs. And so we're also working on a microphone that integrates directly into and with the different TV OEM brands. And so part of it now is a lot of these TV brands are looking to capture the consumer and bring them on to their own streaming app store to deliver content, and they see karaoke as a really fun, engaging, entertaining way to be able to capture that core consumer. So we're really excited. I think there's a lot of opportunities here on the karaoke integrations with OEM providers moving forward. And just before I wrap up the presentation, I know I'm getting tight on time here. I just wanted to kind of leave it here with the last unique feature that Singing Machine is deploying. This was done at the request of BYD, but we've just recently produced a vocal effect feature called Pitch Perfect. And the whole goal for this new feature is to make anybody sound like a good singer. And so I know, particularly when it comes to karaoke, one of the biggest hurdles is people not having confidence in their own singing ability, maybe not wanting to pick up the microphone and try a song. But now we've developed this feature very similar to AutoTune that enables people to essentially almost even hum a song, and it will correct that singer's voice in real time to the lead melody of the song. And it will make anybody sound like a much better singer. So we think of it very similar to sort of like training wheels on a bicycle, but for your voice. So no matter how poorly you sing or how well you sing, the software is always keeping you on perfect pitch and in the timing of the melody of the song. So with that being said, that concludes my time for this afternoon. I'll quickly take a look here to see if there's any questions and see if I can wrap these up over the last few minutes here.

Okay. So I see one question here that's come in. Is there an agreement to take over the acquisition of SemiCab India? So I'll start off by -- and I touched on that earlier in the presentation. We have been working on the acquisition of SemiCab India. The process has taken longer than we anticipated, which is really just a function of a lot of the regulatory hurdles that, unfortunately, just part of doing business in India, we've had to work through and navigate. But we are progressing on that front. We feel confident that, that deal will get concluded here in the near-term future. So we look forward to providing updates on that. There is another question here. And unfortunately, there's a lot of questions that are coming in here. I probably won't be able to get to all of these, but I do encourage anybody that has additional questions. I have one-on-ones that we're doing tomorrow and obviously always available to answer additional questions in the future. But I'll just try to grab one more question here before I have to wrap up for the day. There's another question. How does the model interact? So this is a question related to SemiCab. How does the SemiCab model interact with non-SemiCab customers? So right now, the business model of the SemiCab is not currently open to non-SemiCab customers. We -- I think in the future, we'll be able to develop products specifically for shippers, but also for freight brokers and then also for carriers. Those products really haven't been deployed just yet. And the only reason for that is because there's so much low-hanging fruit with the customers that we currently are doing business with now. So we're really dedicating all of our time and attention and manpower into servicing the customers that we have now because that -- those customers, if we can keep our efficiency scorecards up, those are the customers that have tremendous amounts of growth opportunities into the future. Let's see. Maybe I can grab one more question here. Okay. Last question here, I'll take. Can you address the economics of SemiCab? So the economics of SemiCab is quite simple. So obviously, SemiCab has a contractual relationship with all of our customers, our shippers. And we operate very similar to them. We operate a lot like a transportation provider. So we come in -- as far as the customer knows, SemiCab is coming in, picking up the goods and delivering it to the end the final destination. But like I mentioned earlier, SemiCab, we do not own or operate any of these assets, any of the trucks ourselves. So what we do is we contract with a lot of the local shipping providers to handle those loads on our behalf. And our long-term relationships are structured in a way whereas the platform scales, as it becomes more optimized and more efficient, we're able to capture more of that gross margin. So what we're doing now is we're able to pass on a lot of the cost savings of the efficiencies down to our customers. And as we grow and as we scale the business, we're able to capture a large percentage of that cost savings, and that's going to be powering our business model moving forward. So hopefully, I can expand on that if there's any more questions. Unfortunately, everybody, there's just a lot of questions that have come in, and I just can't grab all of them. But I certainly welcome everybody. I appreciate all of everybody's time and attention today and some of the great questions that have been asked. I look forward to following up with everybody here in the future, and I have availability for one-on-ones tomorrow. So with that said, I want to thank everybody for your time today. Look forward to providing more updates on the SemiCab business as we move forward in the future. And with that, I will conclude our prepared statements for the day. Thank you all.

Thank you. That concludes Algorhythm Holdings, Inc.'s presentation. Thank you for joining us for the presentation portion of the IAccess Alpha Virtual Best Ideas Spring Investment Conference 2025. We hope to see you at our next virtual event, the IAccess Alpha Virtual Best Ideas Summer Investment Conference on June 24 to 25, 2025. Have a great evening.