ALLIANCE ENTERTAINMENT HOLDING CORP Q4 FY2024 earnings call

• Alliance Entertainment is a category-leading direct-to-consumer and e-commerce provider for the entertainment industry, serving as a gateway between brands and retailers with over 325,000 SKUs. • The company has a proven track record of acquisitions, having acquired companies like Distribution Solutions, ANconnect, Mecca, COKeM, and Think 3Fold to expand product selection and market reach. • Technology is a backbone of operations; in 2023, they implemented AutoStore automated storage and retrieval system at their Kentucky warehouse and Sure Sort X system in their Kentucky facility, leading to cost savings and efficiency improvements. • Fiscal 2024 results: Net revenues were $1.1 billion, gross profit was $128.9 million (up 24% from prior year), net income was $4.6 million (a $40 million improvement from fiscal 2023), and adjusted EBITDA was $24.3 million (up $41.9 million from fiscal 2023).

In fiscal 2024, Distribution Solutions accounted for $134 million in revenue. Consumer direct shipments increased to 36% of gross revenue. For the fiscal year ended June 30, 2024, net revenues were $1.1 billion. Gross profit was $128.9 million, a 24% increase from the prior year, with a gross profit margin of 11.7% (up from 9% in fiscal 2023).

• Jeff Walker expects EBITDA to trend upwards and return to a 4%-5% range as fiscal 2025 and 2026 progress, noting 2024 was a year of cleanup and consolidation. • Anticipates significant interest expense reduction in fiscal 2026 due to continued debt reduction and potential Fed interest rate cuts. • Focus on increasing exclusive distribution opportunities in video, music, and collectibles, with a focus on video licensing opportunities via the Mill Creek division.

• Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. The company cautions not to place undue reliance on forward-looking statements.

Q: Given the changes and positive developments, can we expect adjusted EBITDA to trend closer to 4%-5% in future quarters and years?

A: Jeff Walker says EBITDA is trending upwards and they believe it can get back to the 4%-5% range, noting 2024 was a year of cleanup and consolidation.

Q: How will interest rate reductions impact earnings?

A: Jeff Walker expects a significant decline in interest expense in fiscal 2026 due to continued debt reduction and potential Fed rate cuts, with a notable impact in fiscal 2025 and 2026.

Q: What growth initiatives are Alliance focused on in fiscal 2025?

A: Jeff Walker mentions focusing on increasing exclusive distribution opportunities in video, music, and collectibles, including significant video licensing opportunities with the Mill Creek division.

Q: Collectible sales were down in fiscal 2024. What's the future for collectibles?

A: Jeff Walker says the collectible market was overstocked during COVID, but is normalizing. The overall collectible industry is robust, and Alliance sees exclusive distribution opportunities and acquisition opportunities in collectibles.

Q: Clarity on offering, filing, and intent to raise cash for future acquisitions?

A: Jeff Walker mentions an S-1 filing earlier this year with intent to raise capital for acquisitions, dependent on having significant acquisitions queued, and the diverse business provides many acquisition opportunities.

Q: Expected expense reduction in fiscal 2025 from the closing of the Minnesota warehouse and additional reductions planned?

A: Jeff Walker says fiscal 2025 is forecasting about $5 million in operational savings from the Minnesota warehouse closure, with a smaller facility in Minnesota to be exited in September 2025, providing additional savings.