Algorhythm Holdings, Inc. Q3 FY2025 Earnings Call

Good day, everyone, and welcome to the Algorhythm Holdings Third Quarter 2025 Financial Results Earnings Call. My name is Elvis, and I'll be your operator today. As a reminder, this call is being recorded. We have a brief safe harbor statement, and then we'll get started. This call contains forward-looking statements under U.S. 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 file with the Securities and Exchange Commission, including the cautionary statement found in our current and periodic filings. Now I'll turn the call over to Gary Atkinson, company CEO. Please go ahead, Gary.

Thank you. Good morning, ladies and gentlemen. Thank you for joining our third quarter 2025 earnings call. My name is Gary Atkinson, company's CEO. I'm also joined this morning by Alex Andre, company's CFO and General Counsel. I appreciate you taking the time to hear about the progress we've made as Algorhythm continues on its growth as a leading AI-driven logistics technology company. This quarter was a major milestone for us. It was the first reporting period since we completed the sale of our legacy Singing Machine business and transition to a clean financial presentation reflecting only our core operations at SemiCab. This is the new Algorhythm, a lean, technology-first organization focused squarely on disrupting freight logistics through artificial intelligence and network optimization. Before diving into our recent progress, I want to restate the core problem that SemiCab is solving and why our conviction in this business continues to grow. First, the global truckload transportation market is massive. It has a total addressable market of approximately $3 trillion per year. Second, the industry remains massively inefficient. On average, one out of every three miles driven by a truck is empty. These empty miles cost shippers and carriers over $1 trillion annually, not to mention the hidden impacts of unnecessary road congestion, wasted fuel and avoidable CO2 emissions. Third, SemiCab is uniquely positioned to address this problem. We are one of the first freight technology platforms to embed our AI-driven collaborative optimization model directly into the core of our architecture. Our platform is designed by default to continuously optimize every single load we process automatically, finding multilateral methods to reduce empty miles. And finally, we're seeing the proof. It's working. In India, our real-world case studies show many examples of truck utilization rates improving to approximately 85%, outperforming the industry average by more than 20 percentage points. If done at scale and with proper execution, we believe SemiCab can be an integral part of the infrastructure that coordinates all full truckload movements around the world. Alex will go into more detail shortly, but I want to call out several major achievements from the last few quarters. During the third quarter, revenue increased approximately 1,300% year-over-year, representing an annualized run rate of about $7 million. This year, we've added four new Fortune 500 clients in India, and we've converted five pilot programs into multimillion-dollar contract expansions. Across all awarded expansions, we are now tracking toward approximately $10 million in annual contractual run rate. This is a forward-looking metric and is dependent on continued access to trucks, but it is a strong indicator of the direction and scale that we're moving ahead with. We anticipate further customer activity before year-end, and we look forward to updating you as progress continues. With that, I will now turn the call over to Alex Andre, our CFO, who will walk through the third quarter financial results.

Thank you, Gary. Hello, everyone. The quarterly report that we will be filing with the SEC later today will present our financial results for the three and nine months ended September 30, 2025 and 2024. As Gary mentioned, we sold Singing Machine on August 1. Under applicable GAAP provisions, we reflected all financial results attributable to Singing Machine as discontinued operations in our financial statements. As a result, our balance sheet, income statement and statement of cash flows only reflect the financial results of our continuing operations, including the operations of SemiCab. Singing Machine's financial results for all periods reported in our financial statements are reflected in select line items referencing discontinued operations. Moving on to our third quarter financial results. Sales for the three months ended September 30, 2025, increased to $1.7 million from $100,000 last year, primarily due to the acquisition of SMCB Solutions Private Limited on May 2, 2025. SMCB, which owns our SemiCab business in India, was responsible for $1.7 million of revenue that we achieved during the third quarter of 2025. SemiCab's legacy U.S. business was responsible for the $100,000 of revenue that we generated during the third quarter of 2024. We recently announced that SemiCab's annualized revenue run rate has tripled more than $7 million since January 2025. This growth was reflected in the revenue that we generated this quarter. We expect SemiCab to generate around $2 million during our fourth quarter. During the next 12 months, we expect revenue to increase substantially with SemiCab's annualized revenue run rate increasing to between $15 million and $20 million by the end of next year. This will be largely attributable to the growth in our SemiCab India business but will also reflect some revenue that we expect to generate from SemiCab's new U.S.-based SaaS business that we recently announced. Gary will discuss SemiCab's U.S. SaaS business later during this call. Gross loss for the three months ended September 30, 2025, increased to $351,000 from $32,000 last year, with gross margin percentage decreasing to negative 20% this quarter from negative 25% last year. Gross loss is a function of the revenue that SemiCab generates from the managed services that it provides in India and the freight handling and servicing costs that comprise its cost of sales incurred in connection with the provision of those services. SemiCab pays for access to trucks and generates revenue by using these trucks to complete shipments for its customers. SemiCab enters into contracts for access to trucks when it enters into new territories, then begins generating revenue in these territories as it acquires customers there. SemiCab does not fully utilize the trucks that it is paying for when it first enters new territories as it obtains customers in the territories. As it is awarded more routes from its customers, it will be able to more fully utilize the trucks it has under contract. This will result in the amount of revenue generated from the trucks going up, spreading a larger revenue base over the relatively small cost of the trucks it is using in the territories. We expect gross loss to decrease over the next 12 months as the growth in revenue that SemiCab generates from obtaining additional routes from its growing customer base exceeds the increase in the cost of sales that it will incur as it enters into contracts for access to additional trucks. Operating expenses for the three months ended September 30, 2025, decreased to $1.2 million from $1.8 million last year. The decrease was due primarily to cost reduction measures that we implemented during the past couple of quarters and a decrease in operating expenses incurred during the three-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. We expect general and administrative expenses to increase over the next 12 months as we continue to invest in the growth and development of our SemiCab business. Net loss for the three months ended September 30, 2025, decreased to $1.8 million from $2.1 million last year. The decrease was due primarily to the cost reduction measures that we implemented during the past couple of quarters, and a decrease in operating expenses incurred during the three-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. Net loss available to common stockholders is expected to remain at similar levels over the next 12 months. We expect cost reduction activities that we are engaged in to beneficially impact our net loss but expect this to be offset by increases in the investment we will make in the growth and development of SemiCab. That concludes my overview of the third quarter financial results.

Perfect. Thank you, Alex. Before we open up the call to questions, I would like to close by highlighting a new initiative that we announced last week that we believe will meaningfully accelerate our growth and further transform our business. The launch of SemiCab Apex, our new SaaS platform for the U.S. and global markets. Apex is an important evolution of our go-to-market strategy and a major expansion of our business model. It offers a combination of high margins, rapid scalability and global adaptability delivered through cloud-based software that is frictionless for customers. Here are a few key reasons why we are so excited about Apex. Apex is a high-margin SaaS product. Because Apex is delivered entirely as software without any physical freight operations, it carries significantly higher gross margin. As adoption increases, we expect Apex to significantly improve our blended company margins and strengthen overall profitability. Apex scales quickly. Unlike our managed services business, Apex does not require access to trucking fleets to grow revenue. Apex can be deployed within any enterprise shippers business that manages their own dedicated fleet, or Apex can be implemented with a 3PL warehouse or carrier network. Apex is also extremely easy to implement. We designed Apex to integrate into existing TMS or transportation management systems via commonly used APIs without requiring a major IT integration project. This dramatically reduces customer friction and speeds up time to market. Apex is globally deployable. Because we are solving a global inefficiency that is not dependent on region-specific physical operations, Apex can be deployed in the U.S., India, Europe, Middle East or any market around the world where shippers need better visibility, planning and optimization. I'll close on this note. Apex is the future of SemiCab. We're building toward a world where our platform powers millions of loads every day across tens of thousands of shippers globally, where we are positioned to generate recurring revenue and transaction fees on each and every one of these loads that is coming through the SemiCab platform. With that, I would now like to open the call for any questions.

We have a question from Brian Tantalo, an investor.

Congratulations on a great quarter. I appreciate the update. You mentioned Apex, which sounds extremely exciting. Can you explain what the go-to-market strategy is and what we should be looking for as points of progress?

Yes, Brian, thank you for your question. I'm glad to share more about Apex. We are very excited about this product launch, especially in the U.S. For our go-to-market strategy, we have identified three different verticals to target with the Apex product. The first is enterprise shippers, which include fast-moving consumer goods companies similar to those we serve in India, or any enterprise customers with a dedicated fleet. For instance, companies like Pepsi, Coca-Cola, or Walmart—which manage 50% to 60% of their trucking in-house—could implement the SemiCab Apex platform alongside their existing TMS systems. We’re not asking customers to replace their TMS; instead, we want them to integrate some API connections to our cloud-based Apex platform to optimize their operations. The second vertical includes 3PL warehousing customers that provide freight brokerage services. They could use the SemiCab Apex platform to offer new services to their existing clientele, essentially white-labeling our platform as a 5PL service provider. This creates another revenue stream. Lastly, we are targeting the carriers themselves. Large transporters with thousands of trucks can leverage SemiCab to enhance their current operations. These are the three identified verticals, and as we advance discussions with these customer groups, we will expand our sales team accordingly. I hope that clarifies your question.

It was helpful. Congratulations again.

Next, we have Eric Nickerson of Third Century Partners.

I joined the call just as you were wrapping up your remarks and opening the floor for questions. I just want to know if this call will be available on the website so I can listen to it there.

Yes. This call is recorded. It will be available on our website a little bit later today once the recording becomes available. And we can share it out with you, Eric.

Okay. Good. I'll do that. Just one other question. A moment ago, you said you're particularly excited about the United States. Is that to say that you think the U.S. market is going to be a better immediate place to attack than India? Did I hear you right?

I'm really excited about the U.S. and the Apex launch because the margins on SaaS are usually between 90% and 95% gross margins. This means the Apex launch can significantly improve the company's financials, especially since it can scale quickly. Currently, one of the limitations on growth in India is access to trucks. In contrast, the Apex launch in the U.S. is not restricted by physical access; it's entirely software-based, cloud-driven, and can scale as quickly as a customer desires. While we're certainly enthusiastic about growth opportunities in India, it requires more operational effort due to the need for trucks and on-site management. Both businesses are valuable and complement each other, but one can grow much more rapidly than the other.

Okay. Good. I won't bother you with the stuff; it will probably just make you repeat what you've already said. I'll listen to the call on the transcript.

And we have no further questions at this time. Gary, I'll turn the program back over to you for any closing comments.

All right. Well, that concludes our prepared portion of the call today. I want to just thank everybody for taking the time to join us and we look forward to continuing to update everybody in the near-term future as we continue to scale the business, add clients, expand clients and continue to grow. So thank you again for all your support, and we'll be talking soon. Thank you.

That concludes our meeting today. Thank you for joining. You may now disconnect.