Good day and welcome to the iAccess Alpha Virtual Best Ideas Fall Investment Conference 2025. The next presenting company is Alliance Entertainment Holding Corporation. If you'd like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left side of your screen. Type your question into the box and hit the Send button to submit. I'd now like to turn the floor over to today's host, Bruce Ogilvie, Executive Chairman of Alliance Entertainment Holding Corporation. Sir, the floor is yours. Thank you, Matt. Thank you, operator. Hi, my name is Bruce Ogilvie and thank you guys for taking the time today to learn about us. If you look on your screen right here, you can see all these little different images of different types of toys, collectibles, music, movies, video games, and these are products that we distribute. We're a stocking distributor where we ship, pack, and ship to independent retailers, chain retailers, a physical brick-and-mortar location, as well as we do e-commerce fulfillment for these retailers doing drop shipping on their behalf. Of the 340,000 SKUs that we stock, we purchase from all these key suppliers. They're coming up right now. You can see on here, these are like, I call these the tentpole top shelf choice of suppliers of entertainment products. I'm sure most of them you've heard, they're consisting of movies, music, video games, toys, and collectibles. It's not easy to get open with these suppliers. You have to pay your bills on time, be fiscally responsible, add value, have good fill, and provide value for the retailers that they want us to service there. We've been able to do that over the year and attract all these big suppliers who we can take our products that we carry in our distribution center, which is in Shepherdsville, Kentucky. That's south of Louisville, about 25 minutes, selling to all these very large retailers. These are all the large retailers we sell to. They're traditional brick-and-mortar retailers. They're omni retailers where they sell brick-and-mortar as well as they ship to consumers, as well as straight internet retailers like Amazon. You can see here that these are top-notch retailers and they rely on us with our wide selection and our tribal knowledge and our expertise of knowing what new release titles to bring in, what quantities to bring in, which ones not to bring in, and then having a wide selection of products. These retailers rely on us to send them artwork, metadata, any information they need to upload onto their website so they can make the products that we distribute and sell available to their customers. They don't have to really take any inventory with. They rely on us on the e-commerce fulfillment, so to speak, because we just give them a feed of what we have in stock, which would be a quantity on hand, a zip code we ship on, the price they would pay. With that information, they can populate their buy button and direct orders to us, and then we can ship it to them, ship it to their consumer as a drop shipper. If this package arrives from, you think you're buying from any one of these retailers and it's any one of our products, it'll arrive at your doorstep and it'll look like it came from that retailer. It'll say shipped from that retailer, sold by that retailer. In the end, we're the ones that did all the heavy lifting and did all the work on behalf of that retailer. That works really, really well for these retailers. They don't have to, as I said, stock that inventory, be worried about it. That's where we come in with our expertise. Of Of our a little over $1 billion in revenue here, you can see the breakdown of sales. Vinyl, you can see, is like 32% of our revenue, which is $1 billion of 63. Gaming is 24%, movies consisting of DVD, Blu-ray, ultra high disc at 26%, and then the CD, yes, the CD is still selling. That's 12% of our revenue. If you take the music category, which is vinyl plus CD, you're looking at over $400 million, almost $450 million of revenue out of our over $1 billion. It's a big part of our category. You'll see that movies are growing, up from $205 million to $276 million. That's because we have licensing opportunities where we're taking over home entertainment departments for big tentpole studios like Disney and Paramount. Just recently this year, I mentioned Paramount, we did enter into a licensing agreement with them. We took over their home entertainment department. Basically, they can reduce headcount and then they would work on where we would sell the products on their behalf, manufacture the products to their specifications like they have in the past, and then sell it directly to Walmart, Best Buy, Target, Amazon, Barnes & Noble, whoever wants to carry a video product in their stores. That gave us a real shot in the arm to our gross profit because normally when you're a distributor, you work at relatively low margins, 15%, 12% to 15% range. With adding this licensing opportunities, as well as Handmade by Robots, we're increasing our gross profit, which you'll see on a later slide. On this slide, this is our Q4 highlights. Our fiscal year end is June 30. That's our Q4 ending June 30. You can see the big takeaway here is that our revenue is pretty down a little bit from what it was the same quarter last year. If you look to the far right there, you can see our earnings per share went from $0.05 for the quarter up to $0.11. It's more than doubled. Even with our revenue down just a small amount there, we were able to double our earnings per share. What's driving that is our efficiencies and our distribution costs. If you look down below, our gross profit has basically gone from $11.4 million last year to $15.8 million. You can see the big jump there. Of course, our adjusted EBITDA is jumping also there. That's what's really driving our recent rally in our stock, that these earnings are very strong. Looking at this trend that we're currently in, this trend will continue with the current fiscal year end, which started July 1, a big win for everybody happening there. The secret to one of our successes here is our distribution center. We have a distribution facility in Shepherdsville, Kentucky. It's our main facility at 661,000 square feet. We have all this sortation equipment, different types of handheld, paperless picking, wireless picking, but a piece of equipment we invest in. If you ever have a chance, I can't do it on this presentation, but if you ever download our deck from our IR site, which is just aent.com, the ticker symbol of our stock, and just go to the investor relations page and load this deck, you'll see there's hyperlinks on there. If you click on those hyperlinks, you'll get a really good view of our warehouse and our operation here. A really simple AutoStore was an investment we made. Before AutoStore, for picking vinyl, we had 41 different people walking around the warehouse through the mezzanines, picking up the product that we need to ship the vinyl shipments out the door. Instead of the person walking to the shelf location, the AutoStore, the shelf location comes to the processor. Those 41 people reduced down to seven people there, which gave us a payroll savings of $3 million to $3.5 million a year. That automation, you'll see when we look at our financials later on, I point out there that we've really made our operating way more efficient from what it currently was. Because we sell a lot of music and we sell a lot of vinyl, and then we sell this vinyl to over 3,500 independent music stores that are scattered around the U.S. There's a big event that happens every year, and that's called Record Store Day. That's usually the Saturday, well, it's two Saturdays a year, but the main one happens right around the month of April there, right around tax time. The second, the other Saturday is the Saturday after Black Friday. What we have is like 400 titles that can only be purchased at an independent music store, no chain retailers. This latest Record Store Day, we shipped over 600,000 units to those stores. That's one of the reasons why our quarter was so strong there because vinyl is a higher gross profit item for us there. I mentioned how we do drop shipping for the retailers. That's our omnichannel just repowering DTC and business-to-business growth. 40% of our business is where we are shipping directly to the consumer on behalf of those retailers that we service there. We also, about $85 million of our total, over our billion dollars in revenue, comes from our own brands that we own. These brands that we market and sell directly to the consumer. We also sell on Amazon Marketplace and eBay Marketplace under these brands. This allows us to really have a pulse on what people are buying. We can see for ourselves. We track all the information. Plus, it also gives us an opportunity to deal with any inventory, that slow-moving inventory that we can't return or send back to the supplier. We can sell it at a discount there just to move it out. That keeps our inventory risk much lower and better for all involved there. Just recently, for Walmart, we were named the category advisor for their video department. That's a big shot in the arm for us. A lot of that came because of the Paramount opportunity that we have there that started January 1, and these are the kinds of services we provide, being that expert. We're there just to advise them what titles they should bring in, what should they not bring in, of all the different studios that are available, and we're very familiar with them. $375 million of our revenue is where we're the exclusive distributor and some form of licensing. We're trying to build a moat around ourselves so that we can always ensure that these products, that we're the exclusive seller, and then those products, it creates a very sticky relationship with all the retailers that we sell to and deal with. Plus, it pretty much ensures that we're able to get paid by those retailers. There are like three different areas there, and I'm just going to talk about two. Alliance Home Entertainment, that's our video division, and you saw previously there, their video sales are increasing. That's because of us picking up more movie studios that we distribute or licensing. Paramount was the latest one that we added, and that's doing really well. The next little division you see there is AMP, our AMP division there. That consists of all these independent labels, music labels that I'm back. Sorry about that. That consists of all these independent music labels that we are an exclusive distributor of there. I would call it your do-it-yourself type artists. Those artists want to do it themselves. As far as on the digital side, they're very capable of doing, but they really need us to do their physical distribution on the physical CDs, whether it be LPs or CDs. This last little division there is called Handmade by Robots. I'm sure all of you have heard of a company called Funko. Funko has these nice little figurines that they sell to retailers. They do about $1 billion in revenue. I'm sure that that revenue, that $1 billion is probably down to $800 million. We realized that we have a really good distribution reaching out to all these retailers. We also distribute the Funko products to a lot of retailers, but we had our own little form factor like this and licensed and take advantage of our relationship with the movie studios, the record companies, the collectibles, and the gaming suppliers. If we could license and put our own guys like that, we're doing well. We had some real success so far this year. So far, we've got a large order into Costco. Walmart took in titles there, and we had a bunch of titles going into Target at this time. That's a growth area opportunity, which is just going to continue to make us more profitable. I talked about Alliance Home Entertainment already there. Basically, the big title there is Paramount. Paramount's giving us a big shot in the arm. There are other opportunities. It's not just Paramount. We're talking with Warner Home Video, Universal Pictures, also Lionsgate, and Sony Pictures. Other opportunities where they might want to also outsource their home entertainment department there. I talked about AMPED already. You can just see the different artists we have there. We have just a lot of items on the chart there, doing really well. AMPED is a very strong area for us there. We're happy with that. Just briefly, that's a picture of me on the far right there, and that's my partner, Jeff Walker. I think it's kind of important to understand from a cap table perspective that Jeff and I and insiders, we own pretty much about, you know, pretty close to, I know it says 77% of insider ownership, but there's a children's trust that's not considered a beneficial owner. That's part of that, and it was related to my family. There's roughly 51 million shares that are outstanding, and 48 million of those shares are owned by Jeff Walker and myself. How did we end up with so much equity? All that shares down because we originally were a SPAC in 2020. We merged with the SPAC in 2023. We de-SPAC, had 99% redemptions. The 11.5 million shares that were supposed to go out to the public, only 167,000 shares remained. That's how we have so much equity. We realize that there is not enough float out there. We're certainly looking at ways or things that we could do to increase that float without creating dilution, but no current plan is in place right now. That's the rest of our operation team that's surrounding me there. I'm going to drop down to the balance sheet, but that's just very important for everybody to understand that. If you look at our balance sheet here, you can see that, you know, where our accounts receivable are, our inventory all in line for a company our size there. Our inventory turns very fast. We collect our money very, very fast. We have an ADL line of credit, a $120 million line of credit. You can see there that our loan balance year over year dropped down from $70 million down to $55 million. That's happening because we're generating a free cash flow, and that free cash flow we're using to pay down our line of credit. We expect that same trend to continue this year, that $55 million number, you know, not doing any acquisitions, should drop down to the $25 million, less than $30 million range by the next June 30th there. I will just point out one little highlight on the income statement there. On the income statement there, you can see when it comes up there that you can look at our distribution and fulfillment expense. Year over year, it's gone down. That's because of that AutoStore Automated Storage & Retrieval System that I mentioned earlier. We've been able to, you know, look, we're always trying to make our operation more efficient. What can we do to make investments in areas to make it so we can just really cut down our cost and fulfillment cost and running our distribution stuff over there? That's really important. You can see that our interest expense has also come down. We're certainly going to get some help from the Fed pretty soon here as they start to cut rates. We're in the middle of swapping out our current financing early in order to get a lower interest rate. Currently, we're at SOFR plus 4, and then our new financing rate will drop down to SOFR to 1.625. That's a big win for the company. There are some research reports that have been put out there. Analysts just recently, Maxim, picked up, we picked up coverage with Maxim, and they have a $10 target price on our stock. Our stock is currently trading above $7. If you look at the history of our stock and the trading range last year about this time, it was basically the start of our stock where it was down in the $2 range and right after we released our earnings. In January, it got all the way up to a little bit over $11.50. I probably hit that, that's where it peaked out. I just should share that part of our cap table, we do have close to 9 million warrants that are out there at a strike price of $11.50. It's on a five-year schedule, and there's about another two and a half years left on that. I think it would be a good thing if any investors today got in today and they got in the stock of where it was at. Just knowing that $11.50 is the top number, history should repeat itself again, and that would be a nice return for any investors that want to participate in our stock today. I think at this time that I'm ready to open it up for questions. I'm going to check the Q&A spot to see if there's any questions. I'm ready to answer any questions you have. The question is, as EBITDA grew to 36.5%, what are the levers? The main levers is that our gross profit definitely increased, going from that where it was all the way up to above 15%. That's going to continue the rest of this year, and that's going to be what's really driving to make our EBITDA higher there. Obviously, any new opportunities we can get, if we can pick up other licensing opportunities, if we can do any more acquisitions, the company got to where it was. I joined the company in 2001, and we were doing $18 million in revenue. My partner, Jeff Walker, and I moved the company from $18 million to $1.4 billion by doing over 15 acquisitions in that 20-year period there. Today, I'll be meeting with somebody with a possible acquisition opportunity. That's really what we need to do is to grow our top line so the company can see if the company is growing. At the same time, maintain our gross profit in the north of 15% range. That's our main goal there. AI initiatives, sure. Prior to that, there was AI. We always had our own internal AI of metrics that we know what to purchase, what not to purchase. We have in our everything that we ever sell or ship or somebody orders that we're out of stock on. All that information, that data warehouse of information, goes back to the 20 years with the information we have. When a new release comes out or something happens that somebody happens to pass away or we lose, we kind of know based upon past history what the right quantity is to bring in. We basically know what's selling and what zip code and what store location all around the United States. With that information and then using the tools of AI, we can certainly improve that and enhance that and just come up with the results more quickly. Just recently, we pretty much made our company an all-office Copilot house through Microsoft. All of our Excel, Outlook, and Word, it's all Microsoft. We expanded the number of seat users. We've really encouraged and weaned our employees to use the AI tool, use Copilot. We have forums that we work with our employees and our team members. Obviously, we just want to make sure we keep our data internal and nothing gets external. Like we're all busy working on the 10K last week, and you can obviously use it to help you write things faster and easier there, pull from our data there to make it more efficiently. At the same time, you got to make sure it doesn't get out early. It has to be properly controlled there. The question is, with Handmade by Robots to span in the Costco, what revenue scale is going? When we bought it from the previous owners, which was BDA, it was doing about $5 million in revenue. This year, we're expecting to get it to be $10 million this calendar year. Our goal is within a total of three years, we'd like to get it up to $100 million in revenue. The only thing that's holding us back, because we have excellent distribution, is really getting the right licenses for the products that we want to make and we want to sell. Sorry, I'm waiting for the questions to refresh. Are there any new large CapEx programs on the horizon? No, nothing, no large CapEx. We've pretty much invested quite a bit of the CapEx already since 2013. Right now, we've invested about $22 to $25 million worth of stuff. $10 million was for the AutoStore Automated Storage & Retrieval System, which was a four-year lease. We put in three different mezzanines. That was about a $10 million cost there. We don't have any plan. As far as capacity, the question is, yes, we have the ability to flex up and flex down. When I say flex, you know, flex product out, any product that is what we call cold storage or not, you know, we're storing it for other people who pay us to store their inventory. We push that to a cold storage facility. If there's a new hot product that's coming in, right now, the building is 100% full, but not 100% full of base and need to generate, stopping us from generating revenue. We just take advantage of the fact that we have a fixed cost there. We try to pack in as much as we can efficiently there. If we need to move that out to bring in some new line or product, I would say we're right around 65% of where we have 35% of space that we can flex into as we need it. It was for Record Store Day, it was 660,000 units, and then I multiply that by around $15 to $18, $20 range would be the average selling price there. That's kind of revenue that's generated by that. Yes, we have more opportunities with Paramount. As I said earlier, that was Universal Pictures, Warner Home Video, and then Lionsgate, Sony Pictures. I'm sure everybody heard the news that Paramount is trying to buy Warner Home Video. That's a good opportunity for us. If they are successful in getting them, we might be able to get more opportunity there. As far as what are the opportunities from an acquisition front there, we're always looking for something where it might be a competitor so that, you know, we could add that or take a competitor out of the marketplace. That would be a competitor. The current suppliers that we purchase from, if we buy certain products or categories of things, then it means that we could become the distributor of that as well as the owner and have that. That would give us higher gross profit items there. Lastly, as far as, you know, looking for other acquisitions there, we're always on the prowl for something like that. If you have time to search online, you can read how we were kind of in the running to buy this company called Diamond Comics. It didn't go our way, but it just wasn't meant to be. Yes, the question is, direct-to-consumer fulfillment revenue at 37%. Yes, that's correct. That's because we are the authorized drop shipper for a lot of these, especially for Amazon. Amazon, as you know, they have these great big huge DCs. As big as they are, they can't keep everything in it. They want to keep the fastest turning items in their DCs. The items that aren't as fast turning, they want to house that for companies like us. We are, you know, anything we're an exclusive distributor of, and if they choose not to stock it in their DC, they know they can get it shipped out of our facility. We feed them, you know, a stock on hand file of what their price would be, what zip code we ship it from, and what quantity we have on hand. That's something we update every 15 minutes in a Delta file for them. That keeps their buy button lit up all the time there. I think I have answered all the questions. I don't see any red marks, so I think with that, I can stop. Thank you guys for taking the time. I really encourage you to go to our website, www.aent.com. Just go in there and look for the investor relations page. We've got all kinds of videos. I have the same deck that you were looking at today there too. You can go through the deck and you can download the deck very easily. Click on the hyperlinks, look at the video of our distribution center. I think you'll be very impressed. Also, there's a video in there that tells you how AutoStore was made. Oh, another question came in there. Is vinyl going to last? Yes, vinyl is something that the younger audience really has it. People are realizing that they don't want to rent their music. They want to own their music. Whether that be movies or whether that be music, that's the consumer that we have there. Also, the consumer likes to collect. Vinyl is something that can be a collectible item. People have been collecting vinyl all their lives. You can go empty out your parents' garages and they've got vinyl that they bought when they were young. Now they're like collector's items because they're all original condition, original from back when. The artist will make more money selling physical media than they will on the streaming platforms. You're talking about on a stream, you're going to take fractions of a cent to get on a stream. If it's a CD or an LP, you're talking royalties of anywhere from $2 to $5, depending on who the artist is. There is a big need and want for artists wanting to do the physical product, and the consumer wants it too because they feel they're doing the good thing for the artist. I think with that, I'm at my 30-minute limit, so I'm going to stop. Thank you. That concludes Alliance Entertainment Holding Corporation's presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.