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 Kuntz, a member of Alliance Entertainment's IR team at RedChip. 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 any 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 business that may affect predictions. You should also review the company's Form 10-K 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 reconciliation of each non-GAAP measure for the most directly comparable GAAP financial measure. A press release detailing these results crossed the wire this afternoon at 4:01 p.m. Eastern Time and is available in the Investor Relations section of Alliance Entertainment's website at aent.com. Your host today, Bruce Ogilvie, 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 Ogilvie.

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 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 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-Two, and others. And 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…

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 30th, 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 costs 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 $0.07 per share in Q1 of fiscal 2024 to a profit of $0.01 per share 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 12-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 of fiscal '25, our trailing 12-month revenues are just over $1.1 billion and our adjusted EBITDA is trending higher at $26.4…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] 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.

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 searches?

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 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 Q4 of last year as well. And then we have new release product that we determine, you know, 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 from, you know, 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.

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 the 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 just being very focused on making - 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 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?

Yeah, we're definitely active in acquisition conversations right now. Obviously, from 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 other 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. Yes, 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.