Alliance Entertainment achieves $400,000 net income in Q1 2025, signaling strong operational efficiency and strategic growth initiatives.

OPERATOR - (00:00:00)

Greetings and welcome to the Alliance Entertainment Fiscal 2025 First Quarter Financial Results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now pass the call over to Paul Kunz, a member of Alliance Entertainment's IR team at RedChip.

Paul Kunz - Member of Investor Relations Team - (00:00:25)

Paul. Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that might be considered forward looking. While these forward looking statements represent the Company's current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward looking statements which reflect the Company's opinions only at the date of this presentation. Please keep in mind that the Company is not obligating itself to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events. Throughout today's discussion, management will attempt to present some important factors related to the business that may affect predictions. You should also review the company's Form 10K for a more complete discussion of these factors and other risks, particularly under the heading of Risk Factors. During this conference call, management will discuss non-GAAP financial measures, including a discussion of adjusted ebitda. Management believes non GAAP disclosures enable investors to better understand Alliance Entertainment's core operating performance. Please refer to the investor presentation for the reconciliation of each non GAAP measure to the most directly comparable GAAP financial measure. A press release detailing these results crossed the wire this afternoon at 4:01pm Eastern Time and is available in the Investor Relations section of Alliance Entertainment's website@aent.com your hosts today, Bruce Ogilvy, Executive Chairman and Jeff Walker, Chief Executive Officer and Chief Financial Officer, will present the results of operations for the fiscal 2025 first quarter ended September 30, 2024. At this time I will turn the call over to Alliance Entertainment Executive Chairman Bruce Ogilvy.

Bruce Ogilvy - Executive Chairman - (00:02:04)

Thank you Paul and good afternoon everyone. I'm pleased to welcome you to Today's Call. For those of you that are new to our story, we bring entertainment to you. We are a category leading direct to consumer and e-commerce provider for for the entertainment industry servicing as the gateway between brands and retailers. With over 325,000 SKUs in stock,, we provide the world's largest selection of music, home video, movies, video games, gaming, hardware, arcades, collectibles, toys and consumer electronics we are a critical supplier for omni retailers helping them expand their long tail entertainment online selection and putting them on a level playing field with Amazon. We white label all their direct to consumer shipments to look like they are shipped by the Omni retailer, but in reality these are actually shipped by Alliance. We are a trusted partner to retailers and wholesalers worldwide including Walmart, Amazon, Best Buy, Costco, Target, Kohl's, BJ's, Meijer, plus over 2,500 independent music stores and and many other retailers. We are a trusted distributor of home entertainment movies for Paramount, Sony Pictures, Warner Brothers, Universal Pictures, Lionsgate and others for video games, video game consoles, Retro Arcades controllers and physical software games. We distribute products for Microsoft, Nintendo, Arcade1up, Activision, Electronic Arts, Sega, Ubisoft, Square Enix, Take 2 and others in music for vinyl records and CDs. We are a trusted distributor for Universal Music, Sony Music, Warner Music group and over 90 exclusive independent music labels. For collectibles. We distribute for Funko, Mattel, Lego, hasbro and over 50 other suppliers. Alliance is the exclusive North American distributor for Arcade1Up retro arcades. Alliance Entertainment is the global leader in the 10 billion physical media industry and we generate over 1.1 billion revenue in fiscal 2024 with our team of 654 dedicated employee owners. Our leading position in the industry provides us with unparalleled scale and leverage and has created significant structural and economic barriers of entry that we believe safeguards our market leadership position. We are a value added retail distributor with exclusive distribution rights for approximately 150 movie studios and music labels in the film and music industry. Our exclusive distribution and licensing deals accounted for over 250 million of our revenue in fiscal 2024. Our extensive portfolio of unique content combined with our deep inventory of long tail selections of of more than 325,000 in stock SKUs enables us to cater to bulk shipments for B2B and direct to consumer retailers with a vast selection of products. This helps us create sticky relationships with our retailers and growing these exclusive relationships is a key focus for us going forward. We have over 200 online retailers that rely on us to stock the world's largest selection of entertainment products for them and we ship to more than 35,000 storefronts reaching 72 countries globally. Importantly, we have a long and proven track record of growth through strategic acquisitions. Over the past 20 years we successfully acquired and integrated over a dozen companies allowing us to rapidly enter new markets, expand our product selection and further diversify our revenue streams building alliance from the ground UP through acquisitions into the Market Leader has created an all star team with an unrivaled experience and further strengthens our industry leading position as we remain very aligned with our shareholders, insiders and employees holding approximately over 94% of the outstanding shares of the company. After experiencing a surge in demand during the pandemic, many areas within the physical media market have been normalizing back to historical growth levels in the high single digits. Even the CD market has joined the revival with CDs outselling digital albums at a 3 to 1 margin in the first six months of the year. According to the mid year report from the Recording Industry association of America, nearly a quarter of our annual revenue is generated from products from which we are the exclusive distributor. These exclusive deals are managed through our Distribution Solutions, amped, no Creek and Arcade1Up divisions and they have significantly enhanced our market position by providing unique products that deepen relationships with both suppliers and retailers. Distribution Solutions was responsible for $134 million of this revenue in fiscal 2024. Distribution Solutions partners with over 60 movie studios to manufacture, supply market their home video content. We distribute this exclusive content to major retailers such as Amazon, Walmart and Target as well as thousands of other smaller retailers. By leveraging Alliance Entertainment's vast distribution network, this exclusive content creates a strong sticky relationship with retailers strengthening on the music side, our AMP division is a leader in the distribution of exclusive physical music content. AMP has exclusive relationships with more than 90 music labels distributing music across major retailers like Amazon, Walmart, Target as Well as over 2,500 independent music stores throughout the US labels and artists such as Shibuzzi, Usher and K Pop sensation Ateez can bypass the major music suppliers thus lowering their cost and self distribute themselves using AMP for their physical distribution needs. This allows them to focus on their own digital streaming and social media marketing while maximizing profitability. Through our extensive brick and mortar and omni retailer relationships. K Pop in particular has become a rapidly growing segment for amp, contributing significantly to our sales growth. Our Mill Creek division specializes in exclusive video content licensing for major studios including Disney, Sony pictures, Universal, Lionsgate, CBS, Paramount and others. Mill Creek licenses, manufactures and distributes DVDs for these leading studios, enhancing our ability to offer exclusive, unique in demand video content that is sought out by consumers and retailers alike. We also became the exclusive North American distributor for Arcade1Up during this first quarter. We began working with Arcade1Up on a non exclusive basis in 2020. Arcade1Up licenses and manufactures home arcades consoles with significant market share in the retro gaming space. Prior to Entering our exclusive agreement, Arcade One up accounted for 74 million of our fiscal 2024 revenue, and in Q1 of our fiscal year 25, we saw revenue from this relationship increased to 12.6 million, up over 20% from 10.2 million in Q1 of fiscal 24. We've had a long history of disciplined strategic acquisitions that have been critical to our leadership in the entertainment space. Starting with SuperD, which Jeff and I grew from 18 million in sales in 2001 to 194 million by 2013, we made the transformative acquisition of Alliance Entertainment, our largest competitor at the time, significantly expanding our footprint and establishing us as the largest distributor of the music and video globally. Since then, we've built on this foundation with targeted acquisitions. In 2016, AnConnect strengthened our vendor managed inventory capabilities and secured exclusive CD distribution rights with Walmart and Best Buy. In 2018, we entered the gaming space through Mecca and expanded further with the acquisition of its competitor Kokom in 2020. The lit key relationships with major retailers and suppliers including Microsoft, Sony and Nintendo. Our exclusive home video distribution business was enhanced with the 2018 acquisition of distribution Solutions from Sony Pictures, which grew from working with 18 studios at the time to nearly triple that today. Most recently in 2022, we added collectibles to our portfolio through the acquisition of Think3Fold, further diversifying our offerings. With each acquisition, we've diversified our offerings and strengthened our position as the premier distributor of physical entertainment products. We approach every deal with the same discipline strategy. To illustrate how we execute and scale these opportunities, let's take a closer look at our acquisition of Distribution Solutions. When we acquired distribution solutions in 2018, they were doing approximately 80 million in revenue and working with 18 studios. Fast forward to today and in fiscal 2024, distribution solutions accounted for $134 million in revenue and we're now working with nearly three times the number of studios. As we look at new deals, we continue to apply the same criteria that worked for us in the past and we're confident this strategy will continue to yield results in the future. Technology is the backbone of our operations and crucial driver of efficiency, cost savings and growth. In 2023, we began making strategic investments in automation and technological innovation to enhance our ability to serve our customers more effectively. One of these investments was the implementation of Auto Store Automated Storage and Retrieval System at our Shepherdsville, Kentucky warehouse. This state of the art system has transformed our operations in Kentucky, allowing us to process over 2,000 lines per hour with significantly fewer staffed as a result. Year over year. Our distribution and fulfillment costs in Q1 25 were 23% lower than Q1.24. Autostore also increased our storage capacity, enabling us to consolidate operations and close the larger of Our two Shakopee, Minnesota buildings, reducing lease space by 162,000 square feet and permanently lowering cost. Another important efficiency initiative was the installation of SureSortX system from OPEX in Q3 of fiscal 24. This innovative technology has further advanced our capabilities and has already delivered more than $500,000 in savings, as expected to save an additional $400,000 annually. It also allows us to efficiently handle larger products like collectibles and electronics, further expanding our capabilities and productivity. I will now hand the call over to Alliance CEO and CFO Jeff Walker, my partner.

Jeff Walker - Chief Executive Officer and Chief Financial Officer - (00:13:11)

Thank you Bruce and thank you all for joining us today. We will now turn to an overview of our financial Results for the first quarter ended September 30, 2024. We generated 229 million in net revenue for the first quarter, up from 226.8 million in the first quarter of fiscal 2024. Our total cost of revenue was 203 million in the first quarter, compared with 201 million in the same quarter last year. This resulted in a gross margin of 11.2%, slightly below the 11.6% achieved in Q1 of fiscal 2024. We expect initiatives to streamline cost and enhance efficiency will drive margin improvement in future quarters. We are pleased to report we delivered net income of 400,000 for the quarter, a major improvement from the $3.5 million net loss in the same period last year, an impressive $3.9 million improvement and a clear signal that our focus on operational efficiency is paying off. This led a significant improvement in earnings per share, which went from a negative $0.07 per share in Q1 of fiscal 2024 to a profit of $0.01 per share in Q1 of fiscal 2025. Adjusted EBITDA for the quarter came in at 3.4 million, our sixth consecutive quarter of positive adjusted EBITDA. This slide compares our trailing twelve month top line and adjusted EBITDA to our financial performance over the last several years, showcasing how we've navigated a dynamic environment following an unprecedented surge in demand during the COVID 19 pandemic that drove our top line to a peak of 1.4 billion in fiscal 2022. Demand has normalized, with revenues adjusting to 1.1 billion for fiscal 23 and 24. As of the end of the first quarter, Quarter of fiscal 25, our trailing twelve month revenues are just over 1.1 billion and our adjusted EBITDA is trending higher at 26.4 million with our adjusted EBITDA margin now at 2.4%. Turning to our balance sheet, our focus on reducing inventory and debt has paid off with inventory levels dropping to 138 million and debt reduced to 85 million as of September 30, 2024. These reductions have streamlined our operations and improved our financial flexibility, positioning us well for continued growth and the execution of our acquisition strategy going forward. As we look to the future, Alliance Entertainment is poised for continued growth by leveraging our strength as a capital light low cost provider with unmatched reach in the industry. Our strategy remains clear expand our market share, improve our margins and drive EBITDA growth. First, we see tremendous opportunities to expand licensing opportunities in video and collectibles which will produce significant margin improvements in the future. Second, we continue to invest in automation and restructuring to enhance the operational efficiencies. Technologies like Autostore are already driving significant cost savings and these improvements will continue to boost our margins while providing the scalability we need to capture more market share. Thirdly, mergers and acquisitions remain central to our growth strategy. Through Strategic M and A, we plan to rapidly expand our product categories and verticals across music, home video, movies, video gaming and collectibles. By doing so, we will not only diversify our offerings but also strengthen relationships with our major retail partners. Positioning alliance for long term Success the opportunities ahead are significant. Family owned competitors are aging out and large movie studios and companies are looking to sell or license physical media rights. Our Capital Light model combined with our proven ability to integrate acquisitions sets us apart from the competition. These major movie studios will be leaning on alliance, providing us with opportunities to license their home video content and allowing these major movie studios to focus on their core competency of making movies, exhibiting in theaters, doing premium downloads and focusing on their streaming services. While we focus on our core competency distributing packaged physical media. We are excited about the road ahead and we are confident that our strategic initiatives will drive future growth and profitability in the quarters and years ahead. With that, I'd like to now hand over the call back to the operator to begin our question and answer session. Operator.

OPERATOR - (00:19:05)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star and then two. If you'd like to remove a question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. It seems at this moment we have no questions from the conference call. And I would like to hand over to Paul for any webcast questions.

Paul Kunz - Member of Investor Relations Team - (00:19:47)

Thank you. And we do have a few webcast questions that have already come in. Our first question, inventory levels have reduced year over year. How do you balance inventory optimization with ensuring adequate stock for anticipated seasonal or market driven demand surges?

Jeff Walker - Chief Executive Officer and Chief Financial Officer - (00:20:06)

Yeah, okay. This is Jeff Walker, CEO. I'll address this question here. You know, we have very sophisticated purchasing systems and very experienced buyers in all the different configurations that we, that we purchase, We're, you know, a significant business here that purchases almost $1 billion a year of products. And as a stocking warehouse, we're focused on making sure that we have that product in stock ready to go for all of our customers, retailers and customers that rely on us for that. We really have two different types of product, the evergreen sellers, which is a big part of our business. In all the different categories, there's ongoing sellers and those have pretty consistent sales patterns with those and they have also historical sales patterns from Q4 of last year as well. And then we have new release product that we determine. You know, as we need to pre order new release product coming in, we're collecting orders and demand from all of our customer base to determine how many of a particular SKU that we need to pre order and have ready there. So our inventory also does increase pretty substantially here from in the fourth quarter as we gear up for a significant sales increase during Q4. So you will see our inventory higher today on our September 30th balance sheet than it was on June 30th because some of that inventory is coming in and getting bought and prepared for fourth quarter coming up.

Paul Kunz - Member of Investor Relations Team - (00:22:11)

Thank you, Jeff. And our next question we have what specific measures are being considered to drive margin expansion in the coming quarters?

- (00:02:39)

We are a critical supplier for omni retailers, helping them expand their long tail entertainment online selection and putting them on a level playing field with Amazon.

Jeff Walker - Chief Executive Officer and Chief Financial Officer - (00:22:24)

Yeah, on the margin side, we're definitely seeing some improvements in margin right now. I know that our margin was a little bit lower this last quarter than the year before. We did move through a little bit of some overstock inventory that we, we still had. We've, we've gone through that at this point. And so we're going to see margins enhancing without having any additional overstock inventory there. We are also seeing enhancements as we move more into some more licensing models on inventory rather than straight distribution. Those definitely enhance margin for us as well as this being very focused on Getting additional rebates and so forth from. From our suppliers as we continue to move forward.

Paul Kunz - Member of Investor Relations Team - (00:23:27)

Thank you, Jeff.

- (00:02:51)

We whitelabel all their directtoconsumer shipments to look like they are shipped. By the omniretailer, but in reality, these are actually shipped by alliance. We are a trusted partner to retailers and wholesalers worldwide, including Walmart, Amazon, Best Buy, Costco, Target coals, BJS Meyer plus over 2000. 500 independent music stores and many other retailers. We are a trusted distributor of home entertainment movies for Paramount, Sony Pitchers, Warner Bros. Universal pitchers, Lionsgate and others for video games, video game consoles, retro arcades, controllers and physical software games. We distribute products.

Paul Kunz - Member of Investor Relations Team - (00:23:28)

And our next question you mentioned, mergers and acquisitions have been a big part of Alliance's growth. Can you talk more about the criteria that you use for potential acquisitions, and are there any specific targets that you can talk about on the horizon?

Jeff Walker - Chief Executive Officer and Chief Financial Officer - (00:23:47)

Yeah, we're definitely active in acquisition conversations right now. Obviously, from on specific targets, we're under very strict NDAs for that. I will say that we really have two different strategies for acquisitions. As most people on this call know, we have a very diversified business in music video gaming and collectibles. And within those categories, there are either wholesalers or distributors, in some cases manufacturers in each of those categories that provide us with some good acquisition opportunities, that in many cases those become opportunities of consolidation and roll up into Alliance. And those are very accretive to value when we do that type of acquisition, because typically there's a lot of cost synergies that come out, and in that particular case, those are very valuable acquisitions for us. The second group of acquisitions that we're looking at is we sell entertainment products, and we're focused on licensed entertainment products,. And there still are many categories of licensed entertainment products, that we currently are not selling. And so an opportunity for us to get into a new category of licensed entertainment products,, that is a real big win for us to continue to expand our overall selection. And that type of acquisition can provide us with a new set of vendors, suppliers in a different category of entertainment products, as well as a new set of customers. And when you put that type of business with alliance, we may not get as many of the overall synergies in that, but we get a whole new opportunity to sell their products to the alliance existing customers and our products to the target company's existing customers. And that's where you potentially get some very big sales expansion. And so, you know, in that particular acquisition opportunity, we're looking at some pretty interesting opportunities there. And the focus is really trying to take one plus one and make three out of that and create some real significant incremental value for alliance shareholders.

- (00:03:31)

From Microsoft Nintendo Arcade one up, Activision, Electronic Arts, Dega, Ubisoft. Square antics take two and others. And music for vinyl, records and cds. We are a trusted distributor.

Paul Kunz - Member of Investor Relations Team - (00:26:33)

Great. Thank you, Jeff. Sounds very exciting. That actually looks like we don't have any further questions from the webcast audience, so I'll just leave it back to you there, Jeff. Or if you want to pass back to the operator.

- (00:03:46)

For Universal Music, Sony Music, Warner Music Group, and over 90 exclusive independent music labels for collectibles we distribute for Funko, Mattel, Lego, Hasbro and over 50 other suppliers. Alliance is the exclusive north american distributor for arcade one up retro arcades.

Bruce Ogilvy - Executive Chairman - (00:26:48)

I'll take that. This is Bruce here. Yes, operator, we're all done, and thank you very much. Thank you, everyone, for dialing in.

- (00:04:06)

Alliance Entertainment is the global leader in the 10 billion physical media industry, and we generate over 1.1 billion revenue in fiscal 2024 with our team of 654 dedicated employee owners.

OPERATOR - (00:26:56)

Thank you. Ladies and gentlemen, that concludes today's conference thank you for joining us. You may now disconnect your lines.

- (00:04:21)

Our leading position in the industry, provides us with unparalleled scale and leverage, and has created significant structural and economic barriers of entry that we believe safeguards our market leadership position. We are a valueadded retail distributor with exclusive distribution rights for approximately 150 movie studios and music labels in the film and music industry. Our exclusive distribution and licensing deals accounted for over 250,000,000 of our revenue in fiscal 2024. Our extensive portfolio of unique content combined with our deep inventory of longtail selections of more than 325,000 Instock skus enables us to cater to bulk shipments for b to b. And direct to consumer retailers with a vast selection of products. This helps us create sticky relationships. With our retailers and growing these exclusive relationships is a key focus for us going forward. We have over 200 online retailers that rely on us to stock the world's largest selection. Of entertainment products for them, and we shipped to more than 35,000 storefronts, reaching 72 countries globally. Importantly, we have a long and proven track record of growth through strategic acquisitions over the past 20 years. We successfully acquired and integrated over a dozen companies, allowing us to rapidly enter new markets, expand our product selection and further diversify our revenue streams. Building alliance from the ground up through acquisitions into the market leader has created an All Star team. With an unrivaled experience and further strengthens our industryleading position as we remain very aligned with our shareholders, insiders and employees, holding approximately over 94% of the outstanding shares of the company. After experiencing a surge in demand during the pandemic, many areas within the physical media market have been normalizing back to a historical growth levels in the high single digits. Even the CD market has joined the revival, with CD's outselling digital albums at a three to one. Margin in the first six months of the year. According to the mid year report from the Recording Industry association of America. Nearly a quarter of our annual revenue is generated from products from which we are the exclusive distributor. These exclusive deals are managed through our distribution of solutions amped mill creek and arcade. One up. Divisions, and they have significantly enhanced our market position by providing unique products that deepen relationships with. Both suppliers and retailers. Distribution solutions was responsible for 134,000,000 of this revenue in fiscal 2024 distribution solution partners with over 60 movie studios to manufacture, supply market their home video content. We distribute this exclusive content to major retailers such as Amaz. Amazon, Walmart and Target, as well as thousands of other smaller retailers, by leveraging Alliance Entertainment's vast distribution network. This exclusive content creates a strong, sticky relationship with retailers, strengthening ongoing demand. On the music side, our Amp division is a leader in the distribution of exclusive physical music content. AMP has exclusive relationships with more than 90 music labels, distributing music across major retailers like Amazon, Walmart Target, as well as over 2500 independent music stores throughout the US. Labeled nrs such as Shabuzi, Usher and Kpop sensation atees can bypass major music suppliers, thus lowering their cost and self distribute themselves using Amp for their physical distribution needs. This allows them to focus on their own digital streaming and social media marketing while maximizing profit. Profitability through our extensive brick and mortar and omnire. Relationships. KPop in particular has become a rapidly growing segment for AMP, contributing significantly to our sales growth. Our Mill Creek division specializes in exclusive video content licensing for major studios, including Disney, Sony Pictures, Universal Lionsgate, CBS, Paramount and others. Mill Creek licenses, manufacturers and distributes DVDs for these leading studios. Enhancing our ability to. Offer exclusive, unique, indemand video content that is sought out by consumers and retailers alike. We also became the exclusive north american distributor for arcade Runup. During this first quarter, we began working with RK one upon a non exclusive basis. In 2020, RK went up licenses and manufacturers home arcades, consoles. With significant market share in the retro gaming space prior to entering our exclusive agreement. RK one up accounted for 74 million of our fiscal 2024 revenue. And in Q, one of our fiscal year 25, we saw revenue from this relationship increase to 12.6 million, up over 20%. From 10.2 million. In q one of fiscal 24. We've had a long history of discipline, strategic acquisitions that have been critical to our leadership. In the entertainment space, starting with Super D, which Jeff and I grew from 18 million in sales. In 2001 to 194,000,000 by 2013. We made the transformative acquisition of alliance. Entertainment. Our largest competitor at the time, significantly expanding our footprint and establishing us as the largest distributor of the music and video globally. Since then, we've built on this foundation with targeted acquisitions. In 2016, an Connect strengthened our vendor managed inventory capabilities. And secured exclusive cd distribution rights with Walmart Invest buy in 2018. We entered the gaming space through Mecca and expanded further with the acquisition of its competitor, Cocom, in 2020, solidifying key relationships with major retailers and suppliers, including Microsoft, Stony, and Nintendo. Our exclusive home video distribution business was enhanced with the 2018 acquisition of distribution solutions from Sony pitchers which grew from working with 18 studios at the time to nearly triple that today, most recently in 2022. We added collectibles to our portfolio through the acquisition of think threefold fur. Further diversifying our offerings. With each acquisition. We've diversified our offerings and strengthened our position as the premier distributor physical entertainment products. We approach every deal with the same discipline strategy. To illustrate how we execute and scale these opportunities, let's take a closer look at our acquisition of distribution solutions. When we acquire distribution solutions in 2018, they were doing approximately 80 million in revenue and working with 18 studios. Fast forward to today and in fiscal 2024, distribution solutions accounted for 134,000,000 in revenue, and we're now working with nearly three times the number of studios as we. Look at new deals. We continue to apply the same criteria that work for us in the past. And we're confident this strategy will continue to yield results in the future. Technology is the backbone of our operations and crucial driver of efficiency, cost savings and growth in 2023 we began making strategic investments in automation and technological innovation to enhance our ability to serve our customers more effectively. One of these investments was the implementation of. Autostore, automated storage and retrieval system. At our Shepherdsville, Kentucky, warehouse. This state of the art system has transformed our operations in Kentucky. Allowing us to process over 2000 lines per hour. With significantly fewer staffed. As a result, year over year, our distribution of fulfillment cost in Q 125 were 23% lower. Than q 124 Autostore also increased our storage capacity, enabling us to consolidate operations and close the larger of our two shockapee Minnesota buildings, reducing lease space by 162,000 square. Feet and permanently lowering cost. Another important efficiency. Initiative was the installation of shearsore X systems from Opex in Q three of fiscal 24 this innovative technology has further advanced our capabilities and has already delivered more than $500,000 in savings as expected, to save an additional $400,000 annually. It also allows us to efficiently handle larger products like collectibles and electronics, further expanding our capabilities and productivity. I will now hand the call over to alliance, the CEO and cfo, jeff walker, my partner. Thank you, Bruce. And thank you all for joining us today. We will now turn to an overview. Of our financial results for the first quarter and in September 30, 2024. We generated 229,000,000 in net revenue for the first quarter. Up from 226.8 million. In the first quarter of fiscal 2024. Our total cost of revenue was 203,000,000 in the first quarter, compared with 201,000,000. In the same quarter last year. This resulted in a gross margin of 11.2%, slightly below the 11.6% achieved in Q one of fiscal 2024. We expect initiatives to streamline cost and enhance efficiency will drive margin improvement in future quarters. We are pleased to report we delivered net income of 400,000 for the quarter. A major turnaround from the $3.5 million net loss in the same period last year. An impressive $3.9 million improvement and a clear signal that our focus on operational efficiency is paying off. This led a significant improvement in earnings per share. Which went from a negative seven cents per share. In q one of fiscal 2024 to a profit of share. In q one of fiscal 2025. Adjusted ebitda for the quarter came in at 3.4 million. Our 6th consecutive quarter of positive adjusted ebitda. This slide compares our trailing twelve month top line and adjusted EBITDA to our financial performance. Over the last several years, showcasing how we've navigated a dynamic environment. Following an unprecedented surge in demand during the Covid-19 pandemic that drove our top line to a peak of 1.4 billion. In fiscal 2022. Demand is normalized, with revenues adjusting the 1.1 billion for fiscal 23 and 24 as of the end of the first quarter of fiscal 25, our trailing twelve month revenues are just over 1.1 billion. And our adjusted ebitda is trending higher. At 26.4 million. With our adjusted ebitda margin now at 2.4%. Turning to our balance sheet, our focus on reducing inventory and debt has paid off with inventory levels dropping to 138,000,000. And debt reduced to 85 million. As of September 30, 2024, These reductions have streamlined our operations and improved our financial flexibility. Positioning us well for continued growth and the execution of our acquisition strategy going forward. As we look to the future, Alliance Entertainment is poised for continued growth by leveraging our strength as a capital lite lowcost provider with unmatched reach in the industry. Our strategy remains clear. Expand our market share, improve our margins, and drive EBITDA growth. First, we see tremendous opportunities to expand licensing opportunities in video and collectibles, which will produce significant margin improvements in the future. Second, we continue to invest in automation and restructuring to enhance the operational efficiencies. Technologies like autostore are already driving significant cost savings, and these improvements will continue to boost through our margins while providing the scalability we need to capture more market share. Thirdly. Mergers and acquisitions remain central to our growth strategy. Through strategic m and A, we plan to rapidly expand our product categories and verticals across music. Own video movies, video gaming and collectibles. By doing so, we will not only diversify our offerings but also strengthen relationships with our major retail partners. Positioning alliance for long term success. The opportunities ahead are significant. Family owned competitors are aging out, and large movie studios and companies are looking to sell or license physical media rights. Our capitalite model combined with our proven ability. To integrate acquisitions sets us apart from the competition. These major movie studios will be leaning on alliance. Providing us with opportunities to license our home video content. And allowing these major movie studios. To focus on their core competency of making movies, exhibiting in theaters, doing premium downloads, and focusing on their streaming services. While we focus on our core competency. Distributing package physical media. We are excited about the road ahead, and we are confident that our strategic initiatives will drive future growth and profitability. In the quarters and years ahead. With that. I'd like to now hand over the call back to the operator to begin our question. And answer. Session operator. Thank you. We will now be conducting a question and answer session. If you would like to ask. A question, please? Press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two. If you'd like to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up handset before pressing the star. Keys. One moment, please, while we pull for questions. It seems at this moment we have no questions on the conference call, and I would like to hand over to paul for any webcast questions. Thank you. And we do have a few webcast questions that have already come in. Our first question. Inventory levels have reduced year over year. How do you balance inventory optimization with ensuring adequate stock for anticipated seasonal or market driven demand surges. Okay. This is jeff walker, CEO. I'll address this question here. We have very sophisticated purchasing systems and very experienced buyers. In all the different configurations. That we purchase. We're a significant business here that purchases almost $1 billion a year of products. And as a stocking warehouse, we're focused on making sure that we have that product. In stock, ready to go. For. All of our customers. Retailers and customers. That rely on us for that. We really have two different types of product. The Evergreen Sellers, which is a big part of our business. In all the different categories. There's ongoing sellers. And those have pretty consistent sales patterns with those. And they have also historical sales patterns from Q four of last year as well. And then we have new release product that we determine. As we need to preorder new release product coming in. We're collecting orders and demand from all of our customer base. To determine how many of a particular SKu that we need to preorder and have ready? There. So our inventory also does increase pretty substantially here. In the fourth quarter as we gear up. For a significant sales increase during q four. So you will see our inventory. Higher today on our September 30 balance sheet than it was on June 30, because some of that inventory is coming in and. Getting. Bought and prepared for fourth quarter coming up. Thank you, Jeff. And our next question we have. What specific measures are being considered to drive margin expansion in the coming quarters? Yeah. On the margin side. We're definitely seeing some improvements in margin right now. I know that. Our margin was a little bit lower. This last quarter than a year before. We did move through a little bit of some overstock inventory that we still had. We've gone through that at this point, and so we're going to see margins. Enhancing. Without having any additional overstock inventory there. We are also seeing enhancements as we move. More into. Some more licensing models on inventory rather than straight distribution. Those definitely enhance margin for us. As well as. This being very focused on. Getting additional rebates and so forth from our suppliers as we continue to move forward. Thank you, Jeff. And our next question. You mentioned mergers and acquisitions have been a big part of alliances growth. Can you talk more about the criteria that you use for potential acquisitions. And are there any specific targets that you can talk about on the horizon. Yeah. We're definitely active in acquisition conversations right now. Obviously. On specific targets. We're under very strict NDAs for that. I will say that. We really have two different. Strategies for acquisitions. As most people on this call know, we have a very diversified business in music, video, gaming. And collectibles. And within those categories, There are either wholesalers or distributors in some cases. Manufacturers. In each of those categories. That provide us with some good acquisition opportunities. That in many cases, those become opportunities of consolidation. And roll up. Into alliance, and those are very accretive to value when we do that type of acquisition. Because typically there's a lot of cost synergies that come out, and in that particular case. Those are very valuable acquisitions for us. The second group of acquisitions that we're looking at is we sell entertainment products and we're focused on licensed entertainment products, and there still are many categories of licensed entertainment products that we currently are not selling. And so an opportunity for us to get into a new category of licensed entertainment products that is. A real big win for us to continue to expand. Our overall selection. And that type of acquisition can provide us with a new set of vendors. Suppliers. In a different category of entertainment products as well as a new set of customers. And when you put that type of business with alliance, we may not get as many of the overall synergies in that, but we get a whole new opportunity to sell their products to the alliance existing customers. And our products. To the target company's existing customers, and that's where you potentially get some very big sales expansion. And so. In that particular acquisition opportunity. We're looking at. Some pretty interesting. Opportunities there, and the focus is really trying to take one plus one and make three out of that. And create some real significant. Incremental value for alliance shareholders. Great. Thank you, Jeff. Sounds very exciting. That actually looks like. We don't have any further questions from the webcast audience. So I'll just leave it back to you there, Jeff, or if you want to pass. Back to the operator. I'll take that. This is Bruce here. He has. Operator, we're all done and. Thank you very much. Thank you very much for dialing in. Thank you, ladies and gentlemen. That concludes today's conference. Thank you for joining us. You may now disconnect your lines.