Alliance Entertainment, the distributor of entertainment products, has reported a mixed bag of financial results for the third quarter of fiscal year 2024. Despite a downturn in net revenues, which fell by 7.3% to $211 million compared to the previous year, the company saw an increase in gross profit by 2.5% reaching $28 million. This profit rise has been attributed to improved gross profit margins, now at 13.3%.
The net loss showed an improvement, shrinking to $3.4 million, a $4.4 million betterment from the prior year's figures. Adjusted EBITDA also showed positive movement, improving by $5.3 million to a current value of $2.9 million.
The company has made strides in reducing inventory and debt, with inventory levels dropping from $163 million to $108 million, and debt falling from $127 million to $87 million. Moreover, Alliance Entertainment has secured a new $120 million senior secured asset-based credit facility and announced the planned closure of their Minnesota facility as a cost-saving measure.
Key Takeaways
- Net revenues decreased by 7.3% to $211 million.
- Gross profit increased by 2.5% to $28 million, with a gross profit margin of 13.3%.
- Net loss improved to $3.4 million, marking a $4.4 million enhancement from the previous year.
- Adjusted EBITDA was up by $5.3 million to $2.9 million.
- Inventory levels and debt were significantly reduced.
- The company secured a $120 million credit facility.
- Alliance plans to close its Minnesota facility to save costs.
Company Outlook
- Alliance is focusing on investing in automation and software upgrades to enhance direct-to-consumer services.
- The company is actively exploring acquisitions to drive growth and expand into new categories.
- Expectations for revenue growth are pinned on the collectability of vinyl sales.
Bearish Highlights
- Net revenues saw a decline compared to the previous year.
- The company is cautious about overpaying for acquisitions.
Bullish Highlights
- Alliance reported an improved gross profit margin and reduced net loss.
- The company has been successful in direct-to-consumer fulfillment for major retailers.
- Strong consumer demand for entertainment products, particularly collectibles like vinyl, continues.
Misses
- The reduction in inventory was partly due to liquidation sales, impacting revenue.
Q&A Highlights
- Discussions included warehouse operations, acquisitions, and direct-to-consumer fulfillment.
- The company highlighted their cautious approach to acquisitions, focusing on value addition.
- Alliance emphasized the growth in their direct-to-consumer sector and e-commerce support for retailers.
In summary, Alliance Entertainment (ticker not provided) is navigating a challenging market with strategic moves aimed at improving operational efficiency and positioning itself for future growth through acquisitions and enhanced direct-to-consumer services. While revenue has dipped, cost-saving measures and a focus on high-demand collectible items present a potential path for recovery and expansion.
InvestingPro Insights
Alliance Entertainment's recent financial results show a company in transition, grappling with a challenging market but still finding ways to improve its bottom line. To provide a more comprehensive picture, here are some insights based on real-time data from InvestingPro and InvestingPro Tips.
InvestingPro Data:
- Market Cap (Adjusted): $117.14M
- Revenue (last twelve months as of Q3 2024): $1.11B, with a decline of 5.62%
- Gross Profit Margin (last twelve months as of Q3 2024): 11.9%
These figures highlight Alliance Entertainment's market position and recent performance trends. Despite the revenue decline, the company's gross profit margin outperforms the reported increase in the article, suggesting an efficient cost management strategy.
InvestingPro Tips:
- Alliance Entertainment has experienced a significant return over the last week, with a 15.0% price total return. This momentum could be indicative of market confidence in the company's strategic measures.
- The company is trading at a low revenue valuation multiple, which, coupled with the prediction by analysts that the company will be profitable this year, suggests a potential undervaluation that could interest investors.
For readers looking to delve deeper into Alliance Entertainment's financial health and future prospects, InvestingPro offers additional tips and metrics. Currently, there are 9 more InvestingPro Tips available that can provide further insights into the company's valuation, profitability, and stock performance. To access these tips and enjoy an additional 10% off a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24.
Full transcript - Alliance Entertainment Holding Comp (AENT) Q3 2024:
Operator: Greetings, and welcome to the Alliance Entertainment Third Quarter Fiscal Year 2024 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. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our 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 our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves 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, we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-K for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. During this conference call, we will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA. We believe 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 to 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 is available in the Investor Relations section of our company’s website aent.com. Your hosts today, Bruce Ogilvie, Executive Chairman; and Jeff Walker, Chief Executive Officer and Chief Financial Officer, will present the results of operations for the fiscal third quarter ended March 31, 2024. At this time, I will turn the call over to Alliance Entertainment Executive Chairman, Bruce Ogilvie.
Bruce Ogilvie: Thank you, operator, and good afternoon, everyone. I’m pleased to welcome you to today’s fiscal third quarter ended March 31, 2024 financial results conference call. For those of you that are new to our story, we bring entertainment to you. Alliance stocks the world’s largest selection of music, movies, video games, gaming hardware, arcades, collectibles, toys, and consumer electronics. We are a trusted omni-channel supplier to the largest retailers and wholesalers across the globe and a trusted distributor to the world’s most recognized entertainment content and gaming brands. As – from our most recent June 30, 2023 fiscal year-end, we produced over $1.1 billion in annual revenue and employed over 700 team members. Alliance is the gateway between brands and retailers. We are a trusted omni-channel supplier to Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), Best Buy (NYSE:BBY), Costco (NASDAQ:COST), Target, Kohl’s, BJ’s, Meyer, Barnes & Noble, Dell (NYSE:DELL), Verizon (NYSE:VZ), over 2,000 additional independent music retailers and wholesalers worldwide, and a trusted distributor for Walt Disney (NYSE:DIS), Paramount, Sony (NYSE:SONY) Pictures, Warner Brothers, Universal Pictures, Microsoft (NASDAQ:MSFT), Nintendo, Activision, Electronic Arts (NASDAQ:EA), Mattel (NASDAQ:MAT), Hasbro (NASDAQ:HAS), Sunco, Arcade1Up, Universal Music (AS:UMG), Sony Music, Warner Music Group, and over 600 other suppliers. We have over 200 customers that sell online worldwide that rely on our supplied metadata of descriptions and images we ship to more than 35,000 storefronts in 72 countries and are a stocking distributor of over 325,000 in-stock SKUs to the largest retailers and wholesalers in the world. For this slide, you will see nine months of sales of our current fiscal year compared to the previous four years. We wanted to show you how diversified Alliance is and how consistent sales by configuration are. The diversified products offered are a big part of Alliance’s winning formula, and will balance out steady flow of new releases with evergreen, consistent catalog titles. Over $200 million of our $1.1 billion is product where we are the exclusive distributor, but we have licensed and sell exclusively. AMPED and Distribution Solutions divisions distribute physical exclusive music and exclusive videos, respectively, and our Mill Creek division engages in exclusive video licensing with content from Disney, Sony, Universal, Lionsgate, CBS, and others. Distribution Solutions being $120 million of the $200 million has over 62 significant exclusive video studios that rely on Distribution Solutions to manufacture, supply, market video products, and has direct sales accounts with Amazon, Walmart, Target, thousands of retailers and websites through Alliance Entertainment’s vast distribution channels, by having exclusive content that creates a sticky relationship with retailers. Distribution Solutions has also developed digital video distribution consisting of streaming and premium downloads with fiscal year 2023 digital revenue of $8.4 million and year-to-date fiscal year 2024 is $17 million. Of the $17 million year-to-date fiscal year 2024, two titles consisting of Nefarious and The Blind totaled $7.9 million. AMPED has more than 90 exclusive labels that rely on AMPED to supply and market music, vinyl, and CD, and sells and markets music through Amazon, Walmart, Target, Barnes & Noble, Best Buy, and over 2,000 independent music stores in the U.S. through Alliance Entertainment’s worldwide distribution channels. Artists and labels are attracted to AMPED, like USHER or ATEEZ, the K-pop artists, because they use AMPED as their exclusive physical distributor and the artists do their own digital and social media marketing to maximize their profitability. K-pop artists like ATEEZ are a rapidly growing genre for AMPED. Mill Creek licenses video content from studios to create, manufacture, market, and sell video DVDs with content licensed from Walt Disney, Sony Pictures, Universal Pictures, Lionsgate, CBS, Paramount, and other significant studios. This is a little history about our growth and where we are today. In 2013, Jeff and I had built up Super D from $18 million in sales starting in 2001 to $194 million. The major event that happened in 2013 was Super D acquiring Alliance Entertainment. Alliance was $725 million in revenue to our $194 million. We merged our operations in California into Alliance’s warehouse operations in Kentucky. After the acquisition of Alliance combined, we became the largest distributor of music and video in the world and was the start of our major consolidation path. In 2016, we acquired Anderson Merchandisers, which included the vendor-managed inventory accounts providing all music to 3,900 Walmart stores and all 900 Best Buy stores. Being solely music and movies, we were looking for a third category of content to distribute. This led us in 2018 to the acquisition of Mecca. Mecca had direct relationships with Microsoft, Sony, and Nintendo. By acquiring them, we were able to become a distributor of video game products. The Mecca acquisition gave us about another $100 million worth of revenue. In the same year, 2018, we were offered the opportunity to take over Distribution Solutions from Sony Pictures. Distribution Solutions gave us another vendor number with Walmart, which allowed us to now become a supplier to Walmart about 20 different movie studios that we were exclusive to for Distribution Solutions. In 2020, we acquired Mecca’s competitor COKeM, and eventually consolidated Mecca into COKeM. That expanded our relationship with Best Buy, Target, Kohl’s, Dell, and Verizon. We also started distributing retro arcades from Arcade1Up. We only show this slide to share that we have a proven track record of completing acquisitions and will continue with that same strategy to grow and diversify our company. We are currently working on four possible future transactions. We put ourselves on hold for acquisitions in 2022 and 2023 for our SPAC merger and getting our new three-year line of credit in place. Alliance provides traditional retailers with world-class distribution and e-commerce capabilities by focusing on service, selection, and technology, providing retailers superior service, stocking the world’s largest physical media and entertainment selection and state-of-the-art technology systems and facilities. Alliance provides efficient omni-channel expansion solutions for retailers offering a full enterprise-level infrastructure and white-label dropships orders directly to consumers on behalf of its customers. The entire ordering, confirmation, and invoicing process is automated, allowing customers to focus on sales while we refer all the stocking, warehousing, and shipping functions. To the consumer, the shipment they receive looks like it was sent by the large retailers we service. It’s a win for retailers as there’s no inventory risk for all the 200 online retailers that rely on Alliance. Alliance is also a leader in vendor-managed inventory solutions, providing solutions tailored to customers to support their inventory needs. These value-add services provide highly technical, critical business function for our partners. Alliance consolidates and distributes a vast portfolio of entertainment products over six major categories, while our proprietary database powers retailers’ online music and gaming offerings, including vinyl, CDs, DVD, Blu-ray, gaming products, and retro arcades. Currently, we have over 325,000 unique SKUs in stock to support our customers’ vast selection needs. Alliance has invested in enhancements to our automated handling equipment, which reduces shipping times, streamline order processing, reduce labor costs, and also improve overall warehouse management. In January 2023, we announced we went live with AutoStore, automated storage and retrieval system in our Shepherdsville warehouse. The system improved warehouse operations, allowing us to achieve increased levels of speed, reliability, capability, precision that resulted in significant cost savings. With AutoStore, we went from 41 pickers down to seven, and receiving went down from 14 associates down to four. During the last quarter, we announced the installation of Sure Sort X, a cost-saving sortation technology system from the warehouse automation solutions provider OPEX at our Kentucky facility. Utilizing this new Sure Sort X technology results in annual labor savings of nearly $400,000, along with an immediate savings of $460,000 from avoiding retrofitting older sorting technology set to be retired. With the introduction of Sure Sort X, the larger format sorter complements the five existing CD, DVD, and vinyl record sorters at Alliance, giving our warehouse the ability to move away from manual sortation of larger products, specifically toys and electronics and accessories. In the investor presentation, there are hyperlinks to see AutoStore, OPEX, and other processes we do in Kentucky. This slide highlights our strategically located operations that include seven offices and four different distribution centers, including 873,000 square foot facility in Shepherdsville in Kentucky. In 2023, warehouse shipments total over 70 million units through our highly skilled workforce, and tech-enabled facilities and infrastructure that allows Alliance to achieve industry-leading speed and accuracy metrics. I will add that in Shakopee, Minnesota, because of AutoStore in Kentucky, we were able to close the larger two buildings, removing 198,000 square feet of our 220,000 square feet we have currently leased. That closure process started in January will be fully completed by May 31. The warehouse cost savings will be significant in our 2025 fiscal year numbers. I will now hand the call over to Alliance’s CEO and CFO, Jeff Walker, my partner.
Jeff Walker: Thank you, Bruce, and thank you all for joining us today. We will now turn to an overview of our financial results in the third quarter ended March 31, 2024. Net revenues for the fiscal third quarter ended March 31, 2024 were $211 million, compared to $227 million in the same period of 2023, a decrease of 7.3%. Consumer direct shipments were 33% of gross sales revenue for the three months ended March 31, 2024. Year-over-year for the nine months ended March 31, revenue generated by consumer direct shipments increased from 34.4% to 39.1% of gross sales, an increase of 4.7%. Gross profit for the fiscal third quarter ended March 31, 2024 was $28 million compared to $27.3 million in the same period in 2023, an increase of 2.5%. Gross profit margin for the fiscal third quarter ended March 31, 2024 was 13.3%, up from 12% in the same period of 2023, an increase of 130 basis points. Net loss for the fiscal third quarter ended March 31, 2024, was $3.4 million compared to net loss of $7.8 million for the same period of 2023, an improvement of $4.4 million. Adjusted EBITDA for the fiscal third quarter ended March 31, 2024, improved by $5.3 million to $2.9 million from an adjusted EBITDA loss of $2.4 million for the same period of 2023. We have taken significant steps over the past year to strengthen our balance sheet with additional cost savings initiatives planned. Throughout 2023 and into 2024, we are highly focused on reducing inventory and debt. With fiscal third quarter year-over-year inventory decreasing from $163 million to $108 million and debt down from $127 million to $87 million. We also expect significant cost savings with the planned closing of our Minnesota facility on or before May 31, 2024. Additionally, to support growth, we recently secured a new three-year, $120 million senior secured asset-based credit facility with White Oak Commercial Finance, the proceeds of which was used to refinance the existing credit facility, fund working capital needs, and provide for general corporate purposes. These steps have also positioned us to focus and execute on implementing our acquisition strategy going forward. On this slide, you can see fiscal year 2022, we were experiencing the benefits of COVID with peak sales of $1.42 billion. Fiscal year 2023, our sales normalized after COVID with sales of $1.16 billion. For fiscal year 2023, adjusted EBITDA was negatively affected with one-time supply chain costs of $35.8 million. We have gotten past those one-time supply issues. For the fiscal nine months ending March 31, 2024, our adjusted EBITDA was 2.6% of revenue. We are continuing to reduce operating costs and improve margins in 2024 to maintain a 4% to 5% adjusted EBITDA to sales. In addition to growth in our year-over-year quarterly gross profit, we reduced operating costs $4.5 million, or 15.2%, through warehouse efficiencies and new technology implemented, going from $29.7 million down to $25.2 million. These efficiencies will have an ongoing positive impact going forward. Gross profit improvements and expense reductions also led to a fourth consecutive quarter of positive adjusted EBITDA, increasing to $2.9 million in the fiscal third quarter, compared to an adjusted EBITDA loss of $2.4 million in the prior year. Net revenue for the first nine months of our fiscal year ending March 31, 2024, totaling $864 million, compared to $912 million in the same period of 2023, a decrease of 5.3%. Gross profit was $102 million compared to $74 million in the same period of 2023, an increase of 38.4%. Gross profit margin was 11.8% up from 8.1% in the same period of 2023. Net income was $2.1 million compared to a net loss of $30.8 million for the same period of 2023. Adjusted EBITDA for the nine months ended March 31, 2024 was $22.2 million compared to adjusted EBITDA loss of $21 million for the same period of 2023. This slide shows the quarterly results since Q1 2020 for gross profit, GAAP net income, and adjusted EBITDA. Comparing Q3 fiscal year 2020 to Q3 fiscal year 2024, adjusted EBITDA has decreased from $4.8 million to $2.9 million, which is a decrease of 39% over the past four years. We have taken significant steps over the past year to strengthen our balance sheet with additional cost savings initiatives planned. Throughout 2023 and 2024 to date, we have been highly focused on reducing inventory and debt with third quarter year-over-year inventory decreasing from $163 million to $108 million and debt down from $127 million to $87 million. We also expect significant cost savings for the fiscal year ending 2025 with the planned closing of our Minnesota facility in May of 2024. Additionally, to support growth, we recently secured a new three-year $120 million secured asset-based senior credit facility with White Oak Commercial Finance. the proceeds of which was used to refinance the existing credit facility, fund working capital needs, and provide for general corporate purposes. These steps have also positioned us to focus and execute on implementing our acquisition strategy going forward. I will now turn the call back over to Bruce.
Bruce Ogilvie: Thank you, Jeff. Alliance has a proven track record of successfully acquiring and integrating competitors and complementary businesses. We have acquired over a dozen companies in the last 20 years, including Alliance Entertainment, AN Connect, Mecca Electronics, Distribution Solutions, CokeM, and Think3Fold. We also continue to focus on acquiring more licenses and exclusive distribution agreements in music, video gaming, collectibles, and electronics. Expanding our existing product and service offering and executing our acquisition strategy will drive Alliance’s efforts towards increasing market share. Alliance will further invest in automating facilities and upgrading proprietary software. Alliance’s direct-to-consumer, or DTC, services are in greater demand as consumer preferences shift and stress retailers’ e-commerce and DTC capabilities. Enhancing DTC relationship will grow existing revenue lines and improving capabilities will generate a more attractive overall service offering. Leveraging existing relationships, Alliance can expand a new consumer product segments growing its product offerings, and providing more selection and diversity to our existing customer base while attracting new customers in the process. In closing, Alliance is a leading global entertainment wholesaler, direct-to-consumer distributor, and e-commerce provider for entertainment industry with over 30 years of operations and experience within the entire Alliance management team, which beneficially owns more than 81% of the common shares outstanding and has extensive knowledge and tribal knowledge to lead the company towards future growth. We are a leader in fulfillment and e-commerce distribution with over 325,000 SKUs physically in stock, protected by focused commitment of service, selection, and technology. Suppliers and brick-and-mortar retailers, omni-retailers, online retailers, and consumers rely on our company’s platform feel transactional volume for trusted, dependable relationships. Through the expansion of partnerships with our vendors and our customers, as well as investment in existing facilities, Alliance expects us to continue to grow revenue and expand margins. Again, we have a proven track record of M&A having successfully acquired and integrated 12 significant businesses in 2003. There are significant future acquisition and consolidation opportunities to drive future growth through the acquisition of complementary businesses and competitors. Finally, the company’s technology platform increases the efficiency of transactions, reduces labor costs, provides great mobile accessibility, and incorporates modern marketing and fintech tools. We look forward to providing our shareholders with further updates in the near term as we strengthen our leadership position as the premier distributor of music, movies, video games, arcades, toys, collectibles, and consumer electronics. We also look forward to seeing some of you at our upcoming Investor and Analyst Day in at our warehouse in Shepherdsville, Kentucky, next week on May 16. I thank you all for attending now, and I’d like to hand the call back over to the operator to begin our question-and-answer session. Operator?
Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ashok Kumar with ThinkEquity.
Ashok Kumar: Thank you very much. And just a three-part question. How much further room for growth margin expansion do you see as you optimize for profitable sales and what’s a realistic long-term growth margin target? Then two is you’ve had good success with M&A historically. So what does the pipeline look now in terms of potential acquisitions to drive in organic growth and expand it to new categories? And the third part is the, what are the biggest opportunities you see to grow your D2C and e-commerce as a percentage of sales, and how are you investing to enhance your capabilities here? Thank you.
Jeff Walker: Thank you, Ashok. This is Jeff Walker here. Okay, you got me three lots of questions here. On the gross margin side, we’re definitely seeing a lot more focus on profitable sales. Last fiscal year, we were definitely still working on some liquidation sales that really impacted our gross margins. So we’re continuing to see our gross margins approve here for fiscal 2024. And I think you’re going to see an improvement in gross margin going into fiscal 2025 as well. So from the gross margin side, we’re pretty strong there. One of the other things that we are seeing is from our gross profit with operating expenses, we are consolidating into Kentucky from Minnesota, and we are also seeing less labor pressure. A couple years ago, there was definitely a lot of pressure on labor where we were having to do a lot of extra bonuses and things in the warehouses, and that has definitely used up a little bit that’s helping our margins operating costs going forward. From the acquisition side, some very robust conversations right now. We really built Alliance over the years through acquisition. And with the diversity of our business in all the different categories that we mentioned earlier on the call, there’s a lot of different participants, competitors, small competitors, big competitors in each of the different categories, then there’s a lot of good strategic acquisitions there. But we also have to be cautious that we’re focused on the right acquisition at the right price. We’re not known to overpay on acquisitions, and we’re not going to go down that path to do that today. So some of the acquisitions become conversations that last for a time period as everybody kind of settles into what’s the right price for a transaction to happen. And we’re really looking for acquisitions that become accretive to value in the business. So we want to look at something that when we do one plus one, we get three out of that equation. And that’s really the critical component there is that there’s really, in our acquisitions, there’s kind of two components. One is a straight consolidation where we’re taking out a lot of overhead and expenses, and we compete on a lot of the same customers and products. That part is very good accretive value. And then there’s acquisitions where it gets us into a new category or with some new vendors or customers, like in the past when we acquired Mecca and that got us into the gaming component there. So there are still some other product configurations and areas that are within entertainment and also within collectibles and things that people collect. On the third question, the DTC, we’re having some great success in our direct-to-consumer. You have to realize that Alliance is really the leading direct-to-consumer fulfillment company in all of entertainment. What drives that is for Internet fulfillment, it’s all about having the product in stock and on the shelf. And you heard us earlier in this call specifically say that we have 325,000 SKUs, and in stock is the very important component of that. It’s not, 325,000 in the database. Those are actually in stock, available for sale on major websites here in the U.S. and around the world. That aspect is what our major retailers and our major customers on DTC are relying on. And a couple examples of that is, in this last six months, we have picked up all of the target.com video and music direct-to-consumer fulfillment. So all CDs, vinyl records, DVDs that are purchased on Target are coming from the Alliance warehouse facility with Target’s brand and name on those orders. We also have been doing for years all the music and video for Walmart, as well as Barnes & Noble. And we are also, over in the gaming side, we are doing all the Microsoft Xbox products for Costco and Costco.com and Costco warehouses. On the DTC side, that’s an area where the retailers, it’s a fantastic opportunity for the retailers. And they don’t have any inventory risk in that. They take inventory feeds from us, what’s available. They sell it. They send us the order. We ship it direct to the customer. And the last part on the DTC is we’ve been very big on the arcades from Arcade1Up. We’ve got significant DTC business there with Wayfair (NYSE:W), Dell, Best Buy, Walmart, Target, Amazon, Home Shopping Network, QVC, Home Depot (NYSE:HD). All of the arcades that are up on all those retailer sites are coming from Alliance and are getting filled from Alliance.
Ashok Kumar: Bruce and Jeff, thank you so much and all the best.
Jeff Walker: Thank you, Ashok.
Operator: [Operator Instructions] Ladies and gentlemen, at this time, we will take questions from the webcast.
Unidentified Company Representative: Our first webcast question asks, Can you speak to why net revenues decrease for the three and nine month period and how should we think about fiscal Q4?
Jeff Walker: Yes. We have had a decrease in the quarter and the nine months fiscal. I mentioned a little bit about that previously. In the previous year, we definitely had a lot of liquidation product that we were selling through and moving through. That product we no longer have and it has impacted our top line revenue a little bit because we were doing sales on those. The good part is we’re more focused on the profitable sales and we don’t have that, we have less liquidation sales going through. And so that’s part of the reason why you’re seeing the margin and so forth increase as we’re moving forward here. End of fiscal Q4, we put out a press release about our record store day sales. It was a record for our Record Store Day, as well as our indie sales team. They had our highest monthly sales to date. And April started off very strong. Revenue was about 10% above last year for April of 2024. And we really had a pretty big aspect all put together within that. Obviously, we have Record Store Day. We all know that Taylor Swift’s new release came out here in April as well. And with that Taylor Swift one, we did all the exclusive vinyl for Target.com. We filled all their orders on that, which was very significant numbers this year. And then also, we’ve had a pretty big project we’ve been working on with Microsoft and Verizon. I’m sorry, not Microsoft, Nintendo and Verizon and Verizon’s doing a lot of Nintendo switch giveaways. And we’re the distributor in the middle selling a Nintendo product to Verizon. So all of that’s been very positive impact for the beginning of Q4 here and should continue for the rest of the quarter.
Unidentified Company Representative: Our next question asks, in terms of new growth initiatives, what are you doing to improve the revenue line? Can you talk about any verticals that show elevated growth during the quarter? For example, vinyl, gaming, digital, et cetera.
Jeff Walker: Well, I’ve been talking to a lot of people recently, and I keep saying it’s a great time to be a music artist right now. Music is really on fire. And from an artist’s perspective, CDs are still selling. Vinyl is going through the roof and continuing to be super strong. Obviously, music artists have digital revenue, and they also have concerts and things like that that they’re doing. So the music side has been super strong. You really have to realize that vinyl is, it’s a collectible item. People are collecting it, and it’s really becoming strong there. We also have put out some press releases in the recent past on the K-pop music coming out of Korea. I can’t say anything more than that stuff’s on fire right now. And the collectability of that from the fans has been very, very strong. One of the other parts of that is our AMPED division, which is exclusive distribution of music. We do have some K-pop labels in there, and one of them that has ATEEZ is a pop K-pop artist, that they are really producing some great sales there on that side. We’ve also moved into some new areas. We have gone down the path of live commerce. There’s Internet sales that are happening, obviously, on Amazon, Walmart, Target and websites. But in today’s world, a lot of sales are starting to move towards live commerce. And that is live auction, live commerce on why not. And we just did one this last week with Star Wars product with eBay (NASDAQ:EBAY) Live. And we feel that that’s a very strong category of a new sales channel that wasn’t in existence a few years ago. When we look at the breadth of products that we have and the collectability of those products, Alliance is primed to be a leader in the live commerce sales channels there. And then the additional one that has been a really big win for us here in fiscal 2024 and expected to continue into 2025 and forward is our digital expansion into digital video. We’ve had digital video for several years now, and it’s really starting to pick up with the volume there. And Bruce mentioned Nefarious and Blind, two big DVD titles that came out this year that drove a lot of digital revenue and are continuing to be very strong weekly digital revenue right now.
Unidentified Company Representative: Next question asks, congratulations on the record store day event. It seems like vinyl is continuing to grow. Can you talk about the macro thematic to what is driving this and is this sustainable going forward?
Bruce Ogilvie: Well, it’s everything vinyl today. I think part of it is vinyl is obviously a collectible item. People like to have a vinyl collection, show it off to their friends and so forth. And obviously people like the sound of vinyl as well. So it’s continuing to really drive forward. And we definitely have seen a pretty big shift from the music artists and the record labels, where they were previously thinking of vinyl as kind of an afterthought because in the past the sales weren’t that significant. But in today’s world, the sales of vinyl on a big new release are becoming very significant numbers. And it’s something that the record labels are spending much more time focusing on. And then the other component in the vinyl is a lot of great collectible sets where a lot of limited edition items in vinyl as well. Like a good example right now, we do all the music, including vinyl and CD, for Walmart. And over the last 12 months, we’ve secured over 100 different exclusive vinyl titles for Walmart. And one of the big ones that I’m a big fan of is the Bob Marley legend, vinyl, that’s a evergreen seller, a top 10 or top 20 seller for years and years. Well, the limited edition one was a rainbow vinyl version. So that the disc is rainbow color and not just the black vinyl. So that’s something new and collectible that people want to have and, people want to not only collect it, they want to watch it turn on their turntable. So that’s what’s driving vinyl. And we have to also realize that its vinyl is a collectible item. The collectible products in across all entertainment, across sports, across cars, everything is very popular right now with people, and people are collecting a lot of stuff. And Alliance is really selling a lot of product that is collectible, and that’s the majority of the product that’s in our warehouse is stuff that people are collecting and adding to their collections.
Unidentified Company Representative: Our next question asks, can you talk more about DTC and the progress there?
Bruce Ogilvie: Yes. I hit on that quite a bit there with Ashok’s question. We’re really continuing to fine-tune our direct-to-consumer. We definitely have added some people into our direct-to-consumer team that’s really focusing a lot with a lot of our major retailers, making sure listings and product selection and product pages and everything are dialed in and are looking great to really support the e-commerce initiatives that all the retailers have. That’s a big initiative for every brick and mortar retailer and e-commerce retailers of continue to expand their selection, have that stuff available for sale. It’s really driving a lot of sales for Alliance and for the retailers.
Unidentified Company Representative: And our last webcast question asks, can you provide additional color on your views of the consumer’s posture around your products? Also, are the restructuring costs all behind you now?
Bruce Ogilvie: Well, on the consumer – I mean, the consumers are definitely still rabid fans of entertainment products. So we’re still seeing strong demand on our product categories there. I think the restructuring costs, we didn’t have a whole lot of overall restructuring costs. We are definitely winding down the warehouse there in Minnesota. There was a small amount of cost to wind that down. It’s really the cost savings of that consolidation. And the other big part to think about is we acquired COKeM in September of 2020. So it’s been three and a half years at this point. This consolidation came about because the lease on the main facility was expiring here in May. And the other component, though, is we have been operating on two legacy computer systems. And so the COKeM legacy computer system is being retired as well here, which is it’s not just the rent of the building and things like that, but retiring a whole separate computer system definitely helps us from IT costs as well as accounting costs, as well as audit costs and compliance costs and all those things to not have to have two legacy operating system. So there is a pretty substantial savings that we’re seeing some of that savings here and the majority of that savings is going to hit fiscal 2025 starting really in the next couple months here.
Operator: Thank you. Ladies and gentlemen
Unidentified Company Representative: That concludes our webcast questions.
Operator: Ladies and gentlemen, we’ve reached the end of the question-and-answer session. And I would now like to turn the call back to Mr. Ogilvie for closing remarks.
Bruce Ogilvie: Thank you, operator. I’d like to thank each of you for joining our financial results conference call today and look forward to continuing to update you on our ongoing progress and growth. If you – we were unable to answer your questions, please reach out to our IR firm, MZ, who would be happy – more than happy to assist with you. Thanks, everybody, today, and thank you for your time. Thank you, operator.
Operator: This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.
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