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

Thank you, and thank you, everyone, for joining us this morning. We have a brief safe harbor, and we'll get started. 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 that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Gary Atkinson, CEO of Singing Machine.

Thank you, Brendan. Hi. Good morning, everybody. This is Gary Atkinson, CEO of Singing Machine Company. I'm also joined this morning with Lionel Marquis, company's CFO; and Bernardo Melo, VP of Global Sales and Marketing. I'd like to start the call today by recognizing and thanking the entire global operations team here at Singing Machine. It was -- the second quarter was a very challenging quarter from a supply chain perspective. If you all recall, earlier this year, there were a lot of news reports in the media about supply chain struggles in terms of accessing critical components like silicon chips, integrated circuits, raw materials. And a lot of that was true. A lot of what was reported was true, and I know that the entire global team and our manufacturing partners worked tirelessly to make sure the product was built and shipped out on time. So I do want to thank the entire team for putting us in this position to have a successful second quarter. Also, I just wanted to highlight some of the other events that happened during our second quarter in terms of -- we closed a successful $10 million private placement back in August, where we were able to bring a group of widely respected institutional funds and received a strategic investment from our longtime content partner in Stingray. If you recall, we used the proceeds of that private placement to buy back the former 51% majority owners' shares so that we could begin the process of transforming our business. And also during the second quarter, we have started the uplist process to begin to list our shares on to a national exchange. We believe this to also be part of the transformational story behind the company, where we do believe that uplisting to a…

Good morning, everyone. I just want to touch on the highlights of the second quarter. Our net sales were $17.4 million versus $22.3 million in the prior year for the quarter. We're approximately $4.9 million down. We have a couple of things going on here. Our Cpk microphone, our Carpool Karaoke Microphone, which did very well in the prior year, this first generation of microphone, we blend down the inventory. So we did about $2.3 million less this quarter than we did in the prior year same quarter. The other thing that happened, the $2.6 million difference between -- that was $2.3 million worth of the difference in the $4.9 million decrease. The second difference was primarily about $2.6 million, and that was primarily due to the delays from the Port of L.A. So looking at the same instance year-to-date, $23.4 million versus $25.3 million. The Carpool Karaoke Microphone was down $1.5 million from the same quarter last year, and about $400,000 was due to delays from the port of L.A. and the ability to ship some of the Walmart WiFi goods earlier this year to offset. So the Carpool Karaoke Microphone, I mean, we bled down version 1, but we recently introduced for this holiday season the second generation of the product, which I'm sure Sales will discuss later on in this presentation. Gross profit, we were $3.3 million versus $5.8 million last year, about $2.5 million difference. About $1.2 million was due to the sales volume shortfall and the other $1.3 million was primarily due to the amount of margin yield, gross profit margin yield, and we'll talk about that in a second. Year-to-date, $4.9 million of gross profit margin versus $6.8 million, of which $0.5 million was due to volume and $1.0 million was due to margin…

Thank you, Lionel. At this point, let's turn the call over to Bernardo Melo, VP of Global Sales and Marketing.

Guys, thank you for joining us and taking interest in our earnings call. I wanted to go through some of the -- I wanted to summarize some of the challenges that we face, especially from a sales and logistic situation, that you're going to hear here and you're seeing global. But this year has been an incredibly tough year with nothing to do with how we had executed programs prior to the year. One of the things that we did this year, and you had heard me in previous calls, were that we had secured a lot of the programs for the back end much earlier than we did in previous years. And we were lucky to write our purchase orders in advance. Gary recognized our global logistics team, but I want to do the same with the Hong Kong team working extremely hard securing containers at a time where everybody was bidding higher prices. Just to give you an example, we were usually paying about $3,300 a container. In some instances, we had paid this year about upwards of $20,000 a container just to get the items shipped and meet our commitments. And so Q2 were impacted by those challenges. Some of the programs were set a little bit late, later than we had hoped, but it could have been a lot worse. And that's an attribute to the Hong Kong team and the work that they have been doing and also the team in California that really stepped up to the plate, and we're able to turn things as soon as they got it back out. But it did affect not only our domestic business, but it affected our direct import business. As you guys may know, Walmart has the flexibility that once they get products in their…

Thank you, Bernardo. I appreciate the update. I just want to leave -- I want to make sure we have plenty of time to address questions but just wanted to sort of summarize with some parting thoughts on the quarter and particularly as we move into our holiday quarter. In terms of supply chain, I mean, obviously, it's posed a challenge to us. We see supply chain as a short-term disruption to our business that we think will continue to be a challenge over the coming 1 to 2 quarters, but that's not to say that our business model has changed in any way. The core strength of the business is still the same. We're still the captain of the category at every single major retailer. We are still the market-leading brand that consumers look for and recognize in the home karaoke space. And with the recent placement and the reconstitution of our shares, I believe the company is in best position it's ever been in to execute our business strategy moving forward, which is to transform from a purely hardware distribution model to more of a hardware recurring revenue subscription-based revenue model where we look to grow out our recurring revenue and subscriptions for content. So that -- I don't -- that I believe we are in the best position to execute on that, and that is still the long-term vision for the company over the coming few years. And with the support of the Stingray Group as a strategic investor in the company, I believe we're going to be well positioned to take advantage of that. So at this point, I know we have a couple of minutes, so I'll turn it over to answer questions.

[Operator Instructions] We will take our first question from Rommel Dionisio from Aegis Capital.

Gary, about a year ago, after the holidays, I think in your commentary, you talked about how the pricing environment was good. The promotional environment was low. You didn't need a lot of advertising into the holiday season. And just given the inflationary environment we're seeing overall, well, tightness on supply chain, which obviously you guys are not alone with in facing, are you seeing a similar environment as we enter Black Friday now with low promotions, little necessary advertising and solid pricing? Is that kind of a similar consumer demand that you -- makeup that we're going -- that you're seeing going into the holidays?

Sure. I can definitely touch on that. And if I miss anything, Bernardo can certainly comment. But in terms of what we're seeing, I mean, a lot of these promotional ads and circulars have been sort of prenegotiated at the beginning of the season. So rewind back to sort of March, April, when we were building out these programs with all of our major customers. A lot of these supply chain challenges have not really sort of surfaced out there. And so we had worked programs, created forecast based on a certain amount of promotional activity to be happening for the holiday quarter. And a lot of that is still going on. I mean we still have major promotions running with Costco, planned promotions running with Amazon. Certainly, Walmart just is in the midst of their big Black Friday promotion. So a lot of those things have still happened. But I will say that Bernardo and the team have been very successful in terms of passing on price increases due to supply chain back on to the retailers. And to the extent there's not enough inventory in the pipeline to warrant running a promotion, I know we've been pretty aggressive about just cutting back on as much of that as possible. So Bernardo, if you have any other thoughts, you want to add to that, feel free to chime in.

Yes. I would like to say that we've been pretty consistent from years past in the promotions that we've decided to participate in. I think one of the things that we've stayed away was having those closeout items that we were promoting in the past. The last couple of years, we sort of stayed away from that because our product mix has been good A-plus inventory that is go-forward items. So -- but for the most part, Walmart, Target and Amazon followed similar promotion schedules. We did have a promotional schedule with Sam's Club and Costco this year that was predetermined versus in the past we've sort of ran it based on where they were sitting on inventory, and we approved those. But this year, we had predetermined programs with promos, but the club and the retailers bought into those programs and promos. So they were -- like Gary had said, they were already secured right around January, February and March.

[Operator Instructions] And it appears we have no further questions at this time.

Okay. Well, I appreciate everybody's time this morning to hop on and learn more about our second quarter earnings update. I look forward to touching base with everybody for our third quarter, a big holiday quarter update. So thank you all. And obviously, if any questions in the meantime, feel free to reach out to Brendan Hopkins, and we can schedule update calls. Okay. Thank you, everybody. Take care.