Alliance Entertainment (AENT) Q4 2026 Earnings Call Transcript

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DATE

Thursday, Sept. 10, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Jeffrey Walker
• Chief Financial Officer - Amanda Gnecco
• Executive Chairman - Bruce Ogilvie
• Investor Relations - Paul Kuntz

TAKEAWAYS

• Revenue -- $1.15 billion, an 8% increase driven by broad-based growth across music, home entertainment, and collectibles.
• Fourth Quarter Revenue -- $268.1 million, representing 18% growth over the same period last year.
• Gross Margin -- 13.3%, expanding 80 basis points due to improved margins in physical movies and collectibles and lower wholesale freight costs.
• Adjusted EBITDA -- $41.5 million, a 14% increase reflecting gross profit growth that exceeded revenue expansion.
• Adjusted Diluted EPS -- $0.46, representing a 24% increase from $0.37 in the previous fiscal year.
• Vinyl Revenue -- $383 million, reflecting 13% growth as consumers continue to prioritize physical ownership of music.
• CD Revenue -- $156 million, a 25% increase supported by improved retail in-stock percentages and independent store demand.
• Physical Movie Revenue -- $339 million, increasing 22% following the integration of distribution contracts with Paramount and Amazon MGM Studios.
• Collectibles Revenue -- $32 million, representing 45% growth driven by higher average selling prices and premium licensed products.
• Fulfillment Fee Revenue -- $18.6 million, a 26% increase as the company expanded logistics services for omnichannel retailers.
• Operating Income -- $27.2 million, which included a $7.8 million non-cash write-off related to a vendor rebate receivable.
• SG&A Expense -- $66 million, an 18% increase reflecting higher payroll costs and professional services for public company operations.
• Interest Expense -- $7.6 million, a 28% decrease following the refinancing of the company's credit facility.
• Average Effective Interest Rate -- 6.1%, an improvement from 9.2% in fiscal year 2025.
• Operating Cash Flow -- a use of $1.7 million, compared with $26.8 million provided last year, reflecting higher investment in inventory and receivables.
• Working Capital -- $62.4 million at year-end, up from $45.4 million in the prior fiscal year.
• AutoStore Capacity -- 57,000 totes, after the company added 5,000 totes to its automated warehouse system during the fiscal year.
• Credit Facility Availability -- $45.7 million remaining on a $120 million revolving facility, with $74.3 million outstanding.
• Inventory -- $126.6 million, growing faster than revenue to support new studio relationships and anticipated demand.
• Net Income -- $13.1 million, compared to $15.1 million in fiscal year 2025.

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RISKS

• Gnecco stated, "Fiscal 26 also included a $7.8 million noncash write off of a historical vendor rebate receivable," noting the loss was associated with a vendor that ceased operations.
• Gnecco indicated that net cash used in operating activities was $1.7 million, reporting the change was "primarily driven by higher working capital requirements including increased inventory and receivables."

SUMMARY

Alliance Entertainment Holding Corporation (NASDAQ:AENT) reported increased annual revenue and expanded gross margins driven by a shift toward premium formats and exclusive content. Management stated that the company is utilizing its established distribution infrastructure to expand into higher-value categories such as licensed collectibles and third-party logistics. The company integrated major distribution agreements with Paramount and Amazon MGM Studios while investing in automation and NFC-enabled authentication technology. Management indicated that operational focus for the upcoming year includes improving cash conversion and increasing operating leverage through the use of AI-assisted tools in sales and marketing.

• CEO Walker stated, "Physical entertainment is becoming more specialized and increasingly centered around ownership fandom, and premium products," noting that consumers continue to purchase vinyl and 4K Ultra HD titles despite unlimited digital access.
• The company is developing a peer-to-peer marketplace using NFC-enabled chips to establish provenance and digital identity for collectibles such as vinyl records and Funko items.
• Management expects the upcoming release of Grand Theft Auto VI to serve as a catalyst for both the gaming and music segments, including a planned vinyl soundtrack release through Atlantic Records.
• A redevelopment of the WebAMI B2B platform is scheduled for launch in Jan. 2027, featuring AI-enabled search capabilities to help over 2,000 independent retailers manage inventory more effectively.
• The company participated in San Diego Comic-Con to promote its proprietary Handmade by Robots brand and Alliance Authentic preservation services, selling out of exclusive limited edition steelbooks on the day of release.
• Management is exploring future cross-category opportunities for major intellectual property releases, including the next James Bond film and multiple Beatles movies scheduled for 2028.

INDUSTRY GLOSSARY

• 4K Ultra HD: A high-definition video format with four times the resolution of standard 1080p high definition.
• AutoStore: An automated storage and retrieval system using robots and bins to optimize warehouse space and efficiency.
• NFC: Near-field communication, a set of communication protocols that enables two electronic devices to communicate over a short distance.
• SKU: Stock Keeping Unit, a unique identifier for each distinct product and service that can be purchased.
• Steelbook: A premium, limited edition metal case for physical media such as movies and video games.
• WebAMI: Alliance Entertainment's proprietary business-to-business web platform used by independent retailers for ordering and inventory management.

Full Conference Call Transcript

Operator: Greetings, and welcome to Alliance Entertainment's fiscal year 26 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 would now like to turn the call over to Paul Kuntz, a member of Alliance Entertainment's IR team at Red Chip.

Paul Kuntz: Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call webcast may include predictions, estimates or other information that might be considered forward looking. While those 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 as of the date of this presentation.

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 information relating to the business that may affect predictions. You should also review the company's Form 10 k, filed today, 09/10/2026, for a more complete discussion of these factors and other risks particularly under the heading Risk Factors. During this conference call, management will discuss non GAAP financial measures, including a discussion of adjusted EBITDA, adjusted net income and adjusted earnings per share.

Management believes non GAAP disclosures enable investors to better understand Alliance Entertainment's core operating performance. Please refer to the Investor presentation or today's earnings press release for reconciliation of each non GAAP measure to the most directly comparable GAAP financial measure. Your host today, Jeffrey Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the fiscal year ended 06/30/2026. Bruce Ogilvie, Executive Chairman, is also on the line and will participate during the Q&A session. Before I turn the call over, I would like to congratulate Jeffrey on being named Billboard's Executive of the Week last week. Recognizing Alliance's role in helping drive the continued growth of physical music.

With that, Jeffrey, the call is yours.

Jeffrey Walker: Thank you, Paul, and good afternoon, everyone. We appreciate you joining us. Fiscal 26 was a year of acceleration for Alliance. Both financially and strategically. We grew the business, expanded margins, strengthened our position across physical entertainment and collectibles, and continued building new capabilities that can drive the next phase of growth.

Revenue increased 8% to $1.15 billion Gross margin expanded 80 basis points to 13.3% and adjusted EBITDA increased 14% to $41.5 million We also finished the year with strong momentum as fourth quarter revenue increased 18% year over year to $268.1 million We saw a broad based growth across physical music, home entertainment, collectibles, and fulfillment while continuing to shift the business toward premium products, exclusive content, and higher valued services. Several changes occurring across the entertainment industry are also increasing the value of the distribution and fulfillment infrastructure we have built over the past 3 decades. Physical entertainment is becoming more specialized and increasingly centered around ownership fandom, and premium products.

Consumers have virtually unlimited digital access to music and entertainment yet they continue to purchase vinyl records, CDs, 4K Ultra HD titles, field books, and other physical products. Those purchases are increasingly about owning something connected to an artist, movie, franchise, or community that matters to them. The latest industry data shows how strong that demand remains. The RIAA's 2026 midyear report showed US physical music revenue increasing nearly 26% in the first half of calendar 26. Including 17.7% growth in vinyl revenue and 58.6% growth in CD revenue. In home entertainment, DEG reported that consumer spending on 4K Ultra HD increased 12% calendar 25 even as the broader physical video market declined.

We saw those same trends in our own results. For fiscal 26, final revenue increased 13% to $383 million CD revenue increased 25% to $156 million and physical movie revenue increased 22% to $339 million. In home entertainment, that growth also reflects the expanding role Alliance is playing with major studios. Over the last 2 years, we have added significant relationships with Paramount and Amazon MGM Studios. Paramount became an exclusive physical media distribution partner for us in The US and Canada beginning in calendar 25. And we added Amazon MGM at the beginning of calendar 26.

These relationships are important not only for the products they bring to our portfolio, but for what they say about Alliance's position in the market. As studios and labels increasingly consolidate their physical media operations, content owners need partners that can coordinate manufacturing, inventory, retail execution, distribution, and ecommerce fulfillment efficiently at scale. That is exactly what Alliance has spent more than 3 decades building. We support more than 340 thousand in stock SKUs across more than 35 thousand retail and ecommerce storefronts with capabilities spanning wholesale distribution, drop ship fulfillment, inventory management, and direct to consumer execution. That infrastructure is becoming increasingly valuable as more content owners look to scaled specialists to manage these functions.

Fiscal 26 also demonstrated that our growth is becoming broader across categories. In addition to the strength in music and movies, collectibles revenue increased 45% to $32 million and distribution and fulfillment fee revenue increased 26% to $18.6 million. Collectibles, in particular, remain an important area of investment and growth. We are increasingly moving towards licensed premium and differentiated products with higher average selling prices and better margin characteristics. And because we already have relationships with entertainment licensors, major retailers, and ecommerce platforms, we can use infrastructure that already exists to expand into adjacent fan and collector categories without having to recreate the distribution platform. Handmade by robots is 1 example of that strategy.

Owning the brand gives us greater participation in product development, licensing, and economics rather than serving solely as the distributor of a third party product. We see opportunities to apply that approach selectively as we are developing our collectibles portfolio. Our fulfillment business is another extension of the same infrastructure. As retailers expand online assortments, they increasingly need partners that can efficiently manage large catalogs and fulfill products directly to consumers. Our breadth of inventory and drop ship capabilities allow retailers to offer substantially more selection without carrying every product in their own stores or distribution centers.

We also continue investing in automation to improve the scalability of that platform, During fiscal 26, we ordered 5 thousand additional totes for our auto store system bringing total capacity to 57 thousand totes. These investments are helping us create higher throughput while maintaining labor efficiency which is important as we continue growing fulfillment volumes. We are bringing the same focus on automation to sales and marketing. We implemented HubSpot in January 2026 to give our teams better visibility automate workflows, and strengthen customer engagement. We are also rebuilding our WebAMI B2B platform with AI enabled capabilities designed to help retail buyers discover products more efficiently improve purchasing accuracy, and make our sales organization more productive.

The new WebAMI platform is scheduled to launch in first quarter 27. Across the organization, we are using AI assisted tools to reduce manual work and cost. Improve decision making, and increase productivity. We are also extending our participation beyond the initial sale of physical product. Following our acquisition of Endstate Authentic, at the beginning of the calendar year, we continued developing NFC-enabled authentication and digital product identity capabilities through Endstate Authentic and Alliance Authentic. We are already expanding Alliance Authentic beyond music have launched preserved and encapsulated hand made by robots and select Funko collectibles on the platform. And we are preparing to bring the same treatment to premium video steelbooks.

By combining preservation, authentication, and premium presentation, we believe we can transform products fans already value into what Alliance Authentic is designed to deliver. The ultimate collectible. And because these are products we already source, distribute, and fulfill, we have an opportunity to expand that model across categories at scale. As we enter fiscal 27, several growth factors are coming together. We intend to build on the exceptional momentum in physical music, capture a full year of Amazon MGM, accelerate our higher margin collectibles business and owned brands, and expand Alliance Authentic and Endstate Authentic into additional product categories.

We also expect continued growth in fulfillment while using automation and AI from warehouse operations to sales and marketing to the WebAMI redevelopment to make the business more productive. Our objective is to pair growth in these higher value areas with better operating leverage and stronger cash conversion. We believe the changes taking place across physical entertainment are creating attractive opportunities for scaled specialized operators. Alliance has spent decades building the infrastructure relationships, and capabilities required to operate in that environment. At fiscal 26, provided meaningful evidence that those assets are becoming increasingly valuable With that, I will turn the call over to Amanda to discuss our fiscal 26 financial performance in more detail.

Amanda Gnecco: Thanks, Jeffrey. I will walk through our fiscal 26 financial results, Beginning with revenue and gross margin, Then covering operating expenses, profitability, cash flow, and our balance sheet. Net revenue for fiscal year 26 increased 8% to $1.15 billion compared to $1.06 billion in fiscal year 25. Gross profit increased 15% to $152.3 million from $133 million. And gross margin expanded 80 basis points to 13.3% from 12.5%. The improvement in gross margin reflected stronger margins in physical movies and collectibles. Increased contribution from premium and exclusive content, favorable product mix, returns activity, and lower wholesale freight cost as a percentage of sales. Gross profit grew faster than revenue during the year.

Reflecting improvement in the economics of our business as our mix continues to evolve. Turning to operating expenses. Selling, general, and administrative expenses increased to $66 million from $56 million in fiscal year 25. The increase primarily reflected higher payroll and employee related costs to support the larger business. As well as increased consulting and professional service costs associated with strategic initiatives and public company operations. As we enter fiscal year 27, expense discipline and converting gross profit growth into stronger operating leverage are important priorities. Fiscal 26 also included a $7.8 million noncash write off of a historical vendor rebate receivable. Associated with tape makers, following the counterparty cessation of operations.

We do not consider this charge representative of our ongoing operating performance. Including that charge, GAAP operating income was $27.2 million compared with $30.1 million in fiscal year 25. Net income was $13.1 million compared to $15.1 million in the prior year. On a non GAAP basis, adjusted EBITDA increased 14% to $41.5 million up from $36.5 million last year. Adjusted net income increased 24% to $23.4 million and adjusted diluted earnings per share increased 24% to $0.46 per share up from $0.37 in fiscal year 25. Turning to interest expense. We saw substantial benefit from the refinancing of our credit facility. Interest expense declined 28% to $7.6 million. from $10.6 million.

And our average effective interest rate improved to 6.1% from 9.2%. This improved our borrowing economics and provides a stronger financing platform as we manage the working capital requirements of our business. Moving to cash flow. Net cash used in operating activities was $1.7 million in fiscal year 26. Compared with $26.8 million of cash provided by operating activities in fiscal year 25. The year over year change was primarily driven by higher working capital requirements including increased inventory and receivables. Both balances grew faster than revenue during the year, contributing to the decline in operating cash flow. In fiscal year 27, our objective is to convert a greater share of earnings into operating cash flow.

By moderating working capital growth relative to revenue improving inventory productivity, and strengthening receivable collections. As a result, working capital increased to $62.4 million at 06/30/2026, compared with $45.4 million a year earlier. As Jeffrey noted, improving cash conversion is a key priority in fiscal year 27. Our focus is on disciplined inventory management, receivable collections, and working capital efficiency. While continuing to support attractive growth opportunities across the business. At year end, $74.3 million was outstanding under our $120 million revolving credit facility. leaving $45.7 million of availability. The facility also provides subject to certain conditions and lender consent up to $50 million of additional borrowing capacity. Providing further potential financial flexibility as the business grows.

During fiscal year 26, we also repaid $10 million of related party borrowings further simplifying our financing structure. Our capital allocation priority remain straightforward. First, we will fund working capital required to support attractive organic growth. Second, we will invest selectively in initiatives designed to increase both growth and productivity. Including automation and AI, our WebAMI B2B redevelopment, Endstate and Alliance Authentic, and the continued expansion of Handmade by Robots. Third, we are focused on improving cash conversion and balance sheet efficiency. And finally, we will continue to evaluate acquisition selectively, where the strategic fit and expected return justify the use of capital. With that, I will turn it back to Jeffrey.

Jeffrey Walker: Thank you, Amanda. Before we open the call for questions, I want to close with a few recent examples that bring our strategy to life and explain why I am so excited about where Alliance is going. In July, I had the opportunity to spend time with sir Richard Branson on Necker Island and present him with an Alliance Authentic preserved copy of the Sex Pistols Never Mind the Bullocks Here's the Sex Pistols. Because that album is so closely connected to the history of Virgin Records, It was a particularly meaningful moment for myself and Richard.

We were taking an iconic physical record, 1 with real cultural and personal significance, and showing how preservation, authentication, and digital identity can help protect its condition, provenance, and story over time. For someone who has spent his entire career in physical entertainment, It was a remarkable illustration of what Alliance Identity can become. Later that month, we brought the strategy direct to collectors at San Diego Comic-Con. Alliance Authentic joined Handmade by Robots inside the Lucasfilms Pavilion where we presented preserved music and licensed collectibles to 1 of the most engaged fan communities in the world. We also secured an additional 5 thousand units of the previously sold out Project Hail Mary Amazon exclusive limited edition collector's steelbook.

These units sold out again on the same day they were made available. Our studio and label relationships give us access to some of the most important products and franchises in entertainment. Handmade by Robots gives us an owned brand through which we can participate directly in product design, licensing, exclusivity, and go to market execution. Alliance Authentic adds preservation, authentication, and digital product identity. And our distribution and fulfillment network gives us the ability to bring those products to retailers and consumers at scale. When those capabilities come together, we are doing more than moving units through a distribution network.

We can help shape the product, create scarcity and differentiation, build a direct relationship with the collector, protect the product's identity, and participate more fully in the value created around it. We are focused on turning moments like these into repeatable commercial capabilities across licensed products, premium limited edition, direct collector engagement, and authentication services, with additional opportunities across the life cycle of the product. The response we saw this summer strengthened our conviction that collectors want products with meaning, quality, scarcity, authenticity, and the story. Alliance is increasingly positioned to help content owners and licensors create those products and bring them to market.

We are also seeing extraordinary excitement around the major entertainment release heading into fiscal 27 Grand Theft Auto VI is a great example. Rockstar's extended look debuted on Netflix in late August and generated enormous level of consumer engagement highlighting just how significant this release has become as a cultural event. We buy directly from Take 2 and expect to participate across the launch, including the game itself and related products. We also expect to participate in the excitement around GTA VI through music. A GTA VI vinyl release featuring recording artist, is expected through Atlantic Records And given the level of interest around the franchise, believe it could be among our strongest selling album releases of the holiday season.

It is a great example of how a major entertainment event can create demand across several parts of Alliance at once. Gaming, hardware, accessories, and physical music. Opportunities like these are why we are so excited about fiscal 27. We have momentum in our core business, new growth platforms and collectibles and authentication, and new tools in AI and automation that can make alliance more productive as we scale. Alliance has spent more than 3 decades building relationships, infrastructure, and capabilities across physical entertainment. Today, that foundation is supporting a much broader opportunity Premium formats, exclusive products, own brand, authentication, fulfillment, and direct collector engagement.

We believe Alliance is increasingly positioned not just to participate in the evolution of physical entertainment but to help shape it. I want to thank our employees across Alliance for their hard work and contributions. I would also like to thank our customers content, and licensing partners collectors and shareholders for their continued support. Operator, we are ready to open the line for questions.

Operator: Thank you. Now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. 1 moment, please, while we poll for questions. Our first question is from Thomas Forte with Maxim Group.

Thomas Forte: Great. So Bruce, Jeffrey, Amanda, congratulations on a very strong fiscal year. I have 3 questions. Jeffrey, They get progressively harder. I will go 1 at a time. So the easiest 1 first I do not think you were very affected by tariffs meaning that most of your music efforts and your movie efforts were not subject to tariffs I think you had some small tariffs on handmade by robots. But we have been hearing a lot about tariff refunds in the June quarter. And I am just curious if you were able to secure any.

Jeffrey Walker: Hey, Tom. Good to hear from you. Yes. We definitely secured some credits back and we have received the majority of the credits that we are waiting for to come back. Good. Alright. And then my second question is it is very interesting and impressive to see the very strong growth in CDs I know it is way too early. To talk about you know, when you looked at the 19 years you have seen a recovery in vinyl. But I would appreciate it if you could compare and contrast what you are seeing in CDs why do you think CDs are doing so well, And how it is similar to and different from trends in vinyl? Yeah.

I think first off, there. there is there is a big push for people that are fans to collect product. of their favorite artists. I will say in CDs in particular, I recall maybe about 18 months ago, we were at a our music trade show, and we were talking with the labels about CDs and what we were seeing as the growth of it. And 1 of the big topics was that everybody had kind of forgotten about CDs a little bit, and you know, the in stock percentages and the fill percentages and things like that were not that great. And there was a lot of conversation about we.

We have gotta make sure that all the classic albums, the top albums need to be in stock and available and you know, and so forth there. And so that is really happened over the last year, which is definitely helping the sales here. And then the second part of that consumers were coming in, buying CDs, and you have independent music stores and so forth going, hey. Sales are going up. Maybe we build back up our section a little bit. So now you are seeing more selection at the store and on the store shelves. And all of that continues to enhance it.

1 of the things in the decline that was a big challenge is there is no product on the store shelf as it kept declining, declining, declining. There was fewer and fewer and fewer places to buy it. It also goes the other way. So you see vinyl more stores, bigger selections, and more different retailers as well. that is been helping support the sales of vinyl. And so now you are seeing that trend happening on CDs. So I do expect it to continue with what we are seeing because the consumer demand is there. The retailers, the wholesalers, and the labels are all producing product, making sure product is available.

And that is the whole combination needs to work together.

Thomas Forte: Alright. Great. And then third and final for me, I know that you are excited with good reason for Grand Theft Auto VI. But I feel like if you looked at your performance, in your fiscal fourth quarter, and just your fiscal year and you looked at your gaming versus kind of the rest of the portfolio, that the gaming did not do as well So when you step back, how do you look at your efforts in gaming and how do you consider from a portfolio standpoint when to emphasize or deemphasize different categories of physical media.

Jeffrey Walker: I think. I mean, we are emphasizing and deemphasizing based on the trends we are seeing, Tom, on that. You know, this is this Grand Theft Auto 1 in particular is a historic game it is going to change the gaming industry here as well as there is there is a lot of other aspects revolving around this particular game. So it will be a huge fourth quarter. it is gonna be you could say, a Grand Theft Auto Christmas and that is what is coming for everybody on the retail side. it is a big thing happening there.

Thomas Forte: Okay. Thank you for taking my questions.

Jeffrey Walker: Thank you, Tom.

Operator: Our next question is from Michael Kupinski with Noble Capital Markets.

Michael Kupinski: Thank you for taking the questions and I offer my congratulations on a great year. A couple of questions here. Your physical movie revenue obviously increased strongly 22% due to Paramount and Amazon MGM, as you mentioned. Now that they are on the platform, I was wondering how much incremental revenue opportunity remains from those relationships as we cycle into fiscal 27? And then I was wondering maybe you can just give us an update on some discussions you might have with other major studios or content owners that would consolidate your distribution with you.

Jeffrey Walker: Hey, Michael. Good to hear from you. With respect to Paramount and MGM, 1 of the things that we are seeing we are seeing pretty strong sales numbers on both of those. As well as we have been very much focusing on adding new catalog products to their collections. There was a lot of great content that both Paramount and MGM did not have released. Previously or it was released in 1 format, but maybe not released in a 4K format. Or in a steelbook format. So those type of items are stuff that we are expanding the catalog.

And in particular, with Paramount right now in the second half here of 26, we have got a significantly more new releases They are not new movies. They are releases of existing movies that are really gonna help bolster our catalog position there with Paramount. So we are pretty excited about that side of it. And so from that perspective, With respect to the other studios, I really cannot comment too much. We are in a lot of different conversations, obviously, on that side as we have seen in the past.

And it is each 1 of them has a different situation and different conversation, and we still do believe that Alliance is a great opportunity for a studio to license product to us. Because at the end of the day, we have really a huge substantial sales channel with all of our ecommerce capabilities, our store capabilities, fulfillment side of it. To help maximize the sales of those. Studios. So I think that is where we are at on that right now.

Michael Kupinski: Gotcha. Thanks. And then on your proprietary products, it was just wondering if you can maybe give us a little color, the growth How much of the growth is coming from proprietary products like handmade by robots versus third party licensed merchandise?

Jeffrey Walker: Yeah. The majority of our growth is coming from our third party products right now. We are pretty heavily investing in handmade by robots Alliance Authentic, as well as Endstate. Those are all opportunities for alliance that have very significantly strong margin profiles in those 3 categories. And we are definitely we have quite a bit of investment dollars into those right now. From building our teams on that side as well as working to market and generate new business. In all 3 of those categories. So you are gonna continue to see that investment that we are making right now on those 3 categories in particular.

And on our current sales level, it is to your specific question, it is really the third party ones that are that are really significantly growing.

Michael Kupinski: Gotcha. And then your fulfillment fee revenue increased a strong 26%. And you said that you added 5 thousand totes onto your AutoStore capacity. I was just wondering if you can just tell us how much additional revenue can the existing infrastructure and auto store capacity accommodate before another meaningful CapEx investment is required.

Jeffrey Walker: We still have capacity currently, and we are always looking at how we maximize our capacity there. I do not think we have a pressing need right now for a huge CapEx investment. If we go down the CapEx side, it will be for more towards automation rather than size of the building per se. So we are looking at new opportunities to make the warehouse more efficient through different automation. So different product than the auto store, but same type of result where we use some technology there to really help reduce our overall costs on that aspect.

So we still do have capacity, but you know, as different things pick up in 1 area and move around, we definitely are maneuvering with that in our warehouse operations. I will I will also say that we have also really run the business where we get the sales and we get the opportunity, and then we invest in the systems to make that happen. We are not we are not really a company that likes to go build a bunch of stuff and hope that the sales and opportunities show up. And so we are pretty prudent about that.

We, you know, we get the capacity up there and the volume up there, and then we look at, okay, how do we how do we, you know, solve this capacity challenge? So we are pretty prudent on our capital expenditures.

Michael Kupinski: Yep. And it seems like your SG and A expense increased a fairly strong 18%. I was just wondering, it sounds like a lot of that was to support future growth. I was just wondering, how should we look at SG and A leverage as we go into fiscal 27?

Jeffrey Walker: I think there is a lot in there to support the growth, especially in some of the new categories So that I was just mentioning there. We do have some AI projects in the works Those could help us be a little more efficient. With some of our SG and A expenses. as well. So we are we are. We are pretty heavy on that side right now. I am a I am a CEO that is that is very pro AI and technology.

So we have got a lot of our leadership team working on a lot of different AI solutions that can help us not only grow sales, which is the number 1 priority, but help with operational expenses as well. And we are going to continue to see some improvements in that a lot directly From those AI initiatives.

Michael Kupinski: And Jeff, if I could squeeze 1 more in. About Alliance Authentic. I was just wondering if you are there specific commercial milestones that we should look for On Alliance Authentic and Endstate we have our own commercial milestones.

Jeffrey Walker: I think, really, the biggest things that we are looking at first and foremost is the number of collectors that we have in the ecosystem. So what that means is how many people have 1 of the collectible items we have, whether it is vinyl or handmade robot or a Funko. Encapsulated. We are also right about ready to launch SteelBook encapsulated as well. And so the bigger that we grow that ecosystem, of our collectors, really helps us with the second phase of that, which is the peer to peer marketplace. Using the NFC chips there and developing that.

So when people have their collectible, if they want to sell it or you know, sell it basically or buy them. We have a good marketplace and ecosystem for that. So we are investing quite a bit to develop that whole component there. it is operational today. And we are working on building more people with, the collectible products. The last part is we do have Comic Con New York coming up, and we did a lot with Alliance Authentic in San Diego Comic-Con and got a lot of collectors into the ecosystem through the Comic Con there as well.

Michael Kupinski: Gotcha. Thank you. that is all I have. Luck on 2027.

Jeffrey Walker: Thank you, Mike.

Operator: Thank you. Our next question is from David Heiserman with ThinkEquity.

David Heiserman: Thank you very much. Thank you, Jeffrey. Thank you, Amanda. 1 of my questions was specifically about the development of secondary market peer to peer marketplace so that you would control the entire distribution delivery in chain of custody provenance for all your collectibles. But my second question as an Eagles fan, I love seeing, the Eagles player up there on your super exciting brand. With Endstate Authentic, can you describe what the horizon would be for that going forward? Is that something that would be on every sports team around the world? And every event especially within the NFL team in Australia tonight.

Jeffrey Walker: Yeah. So with Endstate Authentic, the technology that we have is great there. There is a huge amount of opportunities across all sorts of different collectible platforms. it is based on an NFC digital chip, And we have our own proprietary software with that. But it is really becomes an authentication aspect. That chip has its own digital codes to it that cannot be replicated and so forth. And so when you put that product, that chip into an encapsulated product, it could go into any items that are graded or authenticated. So you think of cards and collectibles and things like that people grade and authenticate. Chips like that are very valuable in those particular areas.

It can also go into products when products are originally manufactured and made, putting a chip in there and that you then can prove the authentication and you know, the aspect that it is not a fake 1 of it or something that is been knocked off. So you are gonna continue to see not just with Endstate across the board, a significant movement into these NFC chips into a lot of different products. And you see them even in high end fashion products right now. They are starting to put them in some of the high end fashion bags and different things like that as well. it is it is really, really valuable for the authentication of the product.

And so we are in the forefront of that, and we are focused heavily on collectibles and those type of things with the NFC technology. And I have been myself and Ben, who heads up Endstate, We are in a lot of different conversations right now of getting the. You know, our Endstate technology integrated into a lot of good opportunities. I do not really wanna speak on specifics about them right now because we are working under NDAs on a lot of those, but there is some great opportunity there with that technology. No doubt.

David Heiserman: Thank you very much.

Jeffrey Walker: Thank you.

Operator: I would now like to pass the floor over to Paul Kuntz for any webcast questions. Thank you.

Paul Kuntz: And we actually, I covered a few of these already, but we do have some. And I just wanna let attendees know we are running past 45 minutes now. So if we do not get to any of your questions and you have left contact information, we will reach out after we wrap up. But 1 of the questions we have, Jeffrey, what are you seeing in the DVD demand going forward?

Jeffrey Walker: Yeah. So on the DVD side, my personal opinion on DVD is you know, we have we have been seeing a decline on DVD for you know, more than the last decade, a significant decline on that. And I personally have a belief that we are very close to the bottom of the decline.

We are definitely seeing much slower rates of decline And with that, I am seeing a lot of social media conversation on DVD similar to what we are seeing on CD and vinyl that consumers wanna have their favorite movie at home and their collection And, you know, on the video side, we all know how complicated it is trying to find the movie you wanna watch and what platform it is on and whether it is on a platform or not. And so the DVD side is definitely ripe for a turnaround there.

1 of the challenges we have is not very many retailers stock DVD, and you know, we are in the right position to try to help that. Right now going forward. So I am I am I am optimistic that whether it is 2027 or 2028, we are gonna see the bottom of DVD, and we are gonna start to see it increasing similar to what we are seeing in vinyl and CD. it is people wanna collect their favorite movies. They wanna have them at their house. it is the same situation there. So I am pretty optimistic about that. And the trends that we are seeing seem to be going in that direction.

Paul Kuntz: Great. Thank you. And our next question you learn anything from the reaction at San Diego Comic-Con that could influence the products Alliance develops or brings to market next?

Jeffrey Walker: Well, Comic Con is a fantastic convention for people that have not been there before. there is they have a New York Comic Con coming up in just about a month from now. The fan base at Comic Con is fantastic. You know, they are they are focused on all their favorite products and IP and characters and it is a fantastic thing to watch there as well as you know, just like there is a shift to physical product and collectability, there is also a human shift to go to events and spend time at an event. And have experiences and do all of that.

You know, the people pay a lot of money to go to Comic Con, and they go there because it is it is part of their life and part of their experience. And you know, you are seeing not just Comic Cons, but anime shows, vinyl record shows, collector shows. Trading card shows, all that kind of stuff being very robust right now as it is an experience for people, and it feeds their fandom and what they are collecting. So when we look at our products in there, we are definitely focused on what we can do as far as providing like, Comic Con exclusives of Handmade by Robots Same thing with Alliance Authentic.

We had some great Star Wars collectibles on vinyl that were encapsulated. From Japanese pressings of the vinyl records that we sold there at Comic Con. We are at more that we can do with movies and so forth. With exclusives and those type of shows. it is really a culmination of all these different IP and fandom there. And it is it is where the collectors that we are trying to develop where they are they are coming through. And those people also, as you all can realize, are fairly heavy on social media and posting and developing that stuff.

So when we are with a strong presence, that rolls out into a lot of social media going forward there. So we are. You know, as you can tell, we are also investing in shows like that to build our brands as well. And you know, there is cost to do that, but we are definitely seeing a win in that side by focusing on those Comic Cons and other collector shows.

Paul Kuntz: Great. Thank you, Jeffrey. Then we had another question. On the new WebAMI platform, what will a retail buyer actually be able to do different once the AI enabled version goes live.

Jeffrey Walker: So what. Just for everybody's info, WebAMI is our web platform for our b to b So we have almost 2,000 independent retailers and so forth. They use that website to place orders, to look up product, to search for products. it is a pretty robust website. It does a significant amount of our sales come through there. With the enhancement, we are rebuilding the entire back end of it as well as new enhancements. it is all been AI enabled coming from the back end. The core part of it is completed. We are we are now working on different functionality on the front end and we are planning to launch this in January 2027 after the holiday season.

It includes significant speed improvements, in the platform as well as search capabilities. And when I talk about search capabilities, it goes beyond only searching for basic product, kind of a linear search, but it will also help if you are looking for something Star Wars related, it will bring up the movies, the music, the collectibles, all things revolving around that. Or if you wanted to go into some other category, it can it can cross search across all the different products.

And 1 of the things that is important for us is being able to communicate to our buying customers all the different things that Alliance stocks and all these different categories And that will really help the buyers at the retail locations find stuff when something's hot and selling. Or, you know, they are going to have an in store appearance or a listening party for a new release on a music title? What other products from that artist are available and so forth. So it. We would expect it to dramatically help our sales in that in that side. It will be a big improvement for Alliance and we are.

The way it is turning out right now, it is gonna be 1 of the top well, it will be the top b to b platform within our industry for sure.

Paul Kuntz: Great. Thank you, Jeffrey. And as we are coming close to the. Full hour here, this will be, I guess, the last question we do. Beyond GTA VI, are there other major releases or franchises coming up that could create opportunities across several alliance categories at the same time.

Jeffrey Walker: Oh, yeah. there is lots on that product side. We have actually put together our own product council here with music, movies, and collectible altogether because we have and gaming. So we have teams from each of those, and we get together and look at what is coming out in the future and what the combined opportunities and things are. Some of those definitely revolves around movies. And I will give you 1 piece of information that is coming. Of the new James Bond movie is an Amazon MGM movie. it is, they are working on that movie right now. it is looking like we are kind of hearing maybe theater is the end of 27.

And you know, that will go into DVD for us through Amazon MGM in 2028. And then we are looking at, okay, what other collectibles revolving around James Bond, What are the music soundtracks and things revolving around that? And you can imagine when they put out a big movie like that has such a history to it, what that looks like in the 20. Late 27 and 2028 revolving around kind of everything James Bond. And so we are trying to coordinate all of our different configurations to plan ahead for something like that.

1 other 1 that is coming up that was really, was communicated by Tony is the new Beatles movie that is coming out in April 2028. there is multiple movies that the Beatles are putting out. And you guys can all imagine the combination that we have from music and the movie side and the collectible side trying to revolve around The Beatles coming up in 2028 and what that does for us. So those are kind of 2 examples, but you can see how there is such a correlation between all these platforms and these configurations altogether.

And what those opportunities can present for us when we put our 4 teams of gaming and collectibles and music and video all together to try to strategize on how we have the best combination of product offering for those big initiatives that are happening. Very exciting opportunities there. Yes, sir.

Paul Kuntz: Very exciting. Jeffrey, if you have any final comments you would like to leave before we wrap up?

Jeffrey Walker: Well, I am super excited on where we are going. I know you guys see our collectible sales increase over the last year. They have really ramped up even more recently, and you know, I people told me to get out of the music industry a long time ago, and those people are I am kind of telling them I told you so now that we are seeing vinyl and CD resurgence like it is. So we are we are definitely in the right place at the right time, and we have got a fantastic team of people at Alliance. And there is a lot of great business conversations happening every day.

And that is what we are all focused on here. And making some stuff happen as you can see.

Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

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