Alliance Entertainment Holding Corporation (AENT) Earnings Call Transcript & Summary

This is Craig Brelsford with RedChip Companies. Thank you for joining today's event with Alliance Entertainment, which trades on the NASDAQ under the ticker AENT. With us today, we have Bruce Ogilvie, the Executive Chairman of Alliance Entertainment. We will begin with a brief presentation in a moment and then we will answer your questions. [Operator Instructions]. Before we begin, please allow me to briefly read the safe harbor statement. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements pertaining to future financial and/or operating results, along with other statements about the future expectations, beliefs, goals, plans or prospects expressed by management constitute forward-looking statements. Any statements that are not historical facts should also be considered forward-looking statements. Of course, forward-looking statements involve risks and uncertainties. I now turn this webinar over to Bruce. Please go ahead.

Craig, thanks so much. Thank you, everybody, for joining us today. Alliance Entertainment, I'm the Chairman of. I've been with the company, since 2001 and today is our investor presentation for our results as of September 30, 2025. Our fourth quarter results will be released on February 12. So we have that to look forward to in the coming future here. So the quarter that just ended, this is -- if you're new to us, we had a fantastic quarter that just ended. For those that are on that are not new, you've seen these results before there. We're very, very happy and pleased with the performance we had there, just kind of record-breaking quarter for us there, growing in all our categories that were -- all our cylinders are hitting and all at once and firing appropriately at the right time. And in addition to our record breaking quarter, we introduced a HubSpot and we're in the process of transitioning it to that, getting our team to be on that. HubSpot is a very powerful tool, it really help us drive revenue, increased sales, not for any usage of to eliminate employees or anything like our headcount, mainly to continue to grow our sales without having to hire additional people to support those sales. And we look for HubSpot to be a great strength in that category to help us there. For the quarter there, we have our Handmade by Robots, which is adding to our business here. I had some other great announcements to make towards the end here, but we also added Virgin Music Group for that quarter there. So that really drove our sales and all these new things and things that we're adding there are just really making our company do really well and perform well there. In case you don't know, we are a supplier of entertainment products, over 325,000 SKUs that we stock in our distribution center, you can see it behind me by the screen there. And it's just one little snapshot of our warehouse there, let the little camera take a little drone ride behind us there. But inside this facility in Shepherdsville, Kentucky, those 325,000 SKUs and almost 871,000 square feet where we're pushing over $1 billion of revenue out of that location there. You can recognize all these top tentpole suppliers that we deal with there. These are real -- as far as entertainment products like movies, music, video games, toys and collectibles. We are a distributor of these, and we add value to the marketplace by carrying all these and by stocking all these SKUs and all these products, we sell it to all these different retailers that we partner up with. This is just kind of our top 20% of our customers do 80% of our revenue. And you can just see that these are really strong retailers that really rely on us for our service, our fill, our selection and our technology there. And we come in by offering all these products as well as stocking these products, where we can ship either directly to their store or if we want us to ship directly to the consumer on the behalf, we can do that also. 40% of our business is we're actually doing drop shipping on behalf of these retailers as well as our own brands, and that allows us to help them carry these products without any inventory risk and they rely on us to provide all that for them, which we do really well. Just a rough breakdown of our sales, how it goes. Vinyl, you can see is right around 31% of our business. If you look down below, you see CDs is another 11%. So the music category alone is over 40% of our revenue there, breaking down between vinyl and CD, not to mention video. Video, you can see it's up year-over-year. A lot of that has to do with the Paramount news that broke earlier this year. And so that's going really well, and we're happy with that whole situation there. Our gaming category continues to -- you can see the headwinds we've had there in the gaming category, and I'll talk more about that later. Collectibles is there. We're really trying to grow there, that can be using that with Handmade by Robots to be that area there. Just roughly, you can just see here how our earnings per share are growing there. You look at the revenue there, it's pretty constant there, $1.1 billion, $1.1 billion range. A trailing 12 months is close to $1.1 billion there. Our earnings per share right around $0.09 in fiscal year '24. It went up to $0.30 in fiscal '25, which has ended June 30. And then on September 30, we pick up another $0.08 there, almost close to $0.09 there. But on a trailing 12 months, it's $0.38. So you can just see that as the months go by, the quarters go by, we just continue to improve our earnings per share. On the far right there, you can see our adjusted EBITDA is also growing. So $2.2 million to $3.4 million, that trailing 12 months number again, roughly at 4.2% there. I know the closing price here is showing 6.75%, that was back on November 12. Today, it's right around the $8 range there. So you can see we've improved from that time there. And then you could see that our cap table there, 51 million shares outstanding. We're also employee owned 3.1 million shares in the float there. Just the same highlights I kind of talked about already you see for the quarter there, basically the fiscal year '25 quarter versus '26. So it was $0.01 a year ago, the same quarter, up to -- I know I said $0.08 there, but it's $0.10 was for the quarter when it came in there for the current quarter that just ended at September 30. So our net income is up as well as our EBITDA there. So what do we believe in? We believe in -- we're the engine of the collectibles value chain. We have all these different collectible type products. Movies, music, video games, toys and collectible. And we're just looking to be the leading guy in this category, this type of entertainment products and category departments. And that's what's really allowing us to grow, and that's what really keeps us relevant in the marketplace and the go-to place for consumers and retailers who want to purchase from us, and we have that area pretty well under control there. What makes us so good is our warehouse in Kentucky. I've showed you that picture in the background there. And what's driving that is we have this AutoStore. AutoStore is our automated storage retrieval system that we use for picking vinyl. It's been a real cost saver for us. It's been saving us -- making us more efficient there. We're on our -- we just finished our third full year of using it, so we're starting our fourth year. When we purchased it, it's about a $10 million purchase, but it saves us anywhere between $3 million to $3.5 million a year in labor savings and payroll savings there just makes us way more efficient there. It also gave us additional storage space. So we were able to expand and have more storage capacity, and this just makes us way more efficient and adding value to our business there. What's getting us are sales and our independent stuff, as you know, we sell to all these independent retailers. They really rely on us. We service over 3,500 independent music stores there. We're a proud supporter of record store day. It's -- it happens twice a year, April and November. It's very strong for us. And every year, record store day, they just get bigger and better, and I'm sure it will be bigger next year when it happens again because it always seems to. We're powering direct-to-consumer and B2B sites there. You have all these retail sites, where they rely on us to do drop shipping on their behalf. As I said, between 37% to 40% of our revenue is where we're doing drop shipping, shipping direct to consumers on their behalf there. We have our retail group, and these are all these different retail brands that we have that we use to sell direct to consumers. This allows us to reach the consumer in ways that may not be able to reach on their own, helping them buy the products they want. And at the same time, it gives us opportunities that we have inventory that's not selling as fast as we thought it should. We can use that as a way of vehicle to get a higher recovery and mitigate any inventory write-downs, which is always a concern. Just recently in the same quarter, we became the category adviser for Walmart. That's a very important category there. Walmart is relying on us to advise them on what the right movies are to have in their right departments and what areas. We tell them what titles they should bring in. There's a Chinese wall between us and Walmart, there is a third -- we use to help them do that and then what studios, they should participate in, what shelf space and locations they see get there. It's all about exclusive distribution and licensing. We're trying to build a moat around ourselves there. We have all these different little buckets there. So we're going to want to talk about Alliance Home Entertainment, Handmade by Robots [indiscernible] master replicators there, and I'll jump into here. So Alliance Home entertainment, big news there. We got Paramount pictures to be studio that we became their -- we took over their home entertainment division. So we are licensing the content. We're manufacturing and distributing, selling it to all the same retailers they used to sell to. Except now they just have to sit back and allow us to do their work. It allows them to reduce cost. They can reduce head count and we just basically take over their home entertainment department. The one big question everybody's already asked is, "okay, when is the next big studio you're going to get?" Well, that next big studio happen. We signed an exclusive agreement with MGM Amazon. Amazon owns MGM Studios. Over a year ago, they bought the studio there. Amazon really -- or I should say, MGM really wants to be in the home entertainment space [indiscernible]. They have plans to put out between 14 to 18 movies in this current calendar year that we're in. This agreement just started January 1. And we're really proud of the fact that they picked us and chose us for our skill. We had other competitors that they were talking to, but in the end with what they've seen we have done with Paramount and what we could do as a company and the kind of marketing we do to help them. They agreed to go with us, and we're very excited about that. In addition, it's just not all the movies they put out, Amazon has a huge catalog of content that they have on their Prime platform there. And those are things that we'll be able to put out to take advantage of their -- and expand their catalog. There's a lot of demand from consumers, even though they can stream it and watch as much as they want. They still want to own physical copy, particular very popular TV series, even streaming on Paramount or on Amazon there. We're always kind of blown away by how many people have seen Yellow Stone anywhere and everywhere they can, but still they want to buy their own DVD version or 4K version just add -- because they're a collector, they want the special packaging. That's where we come in, we add all that value in the marketplace there. So got Paramount and now we've got Amazon MGM, which is going to be a big, big plus here. And we're very excited about that, and that's just going to help our revenue for this calendar year starting up. Just kind of be a repeat of what we saw last year. Those who have been following us, you just saw that our earnings really took off last year, and that was with the addition of Paramount really added the tailwind there as well as Handmade by Robots and now we're going to be adding in Amazon MGM Studios. Our AMPED Music division, that's a division where we have over 100 labels, 110 labels that they rely on us to be their exclusive distributor. We have this inventory on consignment. We sell all these retailers. Sell all these labels that don't want to go through the major distribution and they want to do it themselves. So we like to think of AMPED as the fourth major. There's 3 major record companies. You have Sony and you will -- Warner Bros and you have Universal and then you have AMPED and AMPED every year just keeps growing. I talked about -- we just added a Virgin Music Group. That was a big crew for us to get that there and AMPED is having its best year ever this year there, and we're going to get the benefits of that very strong in the current quarter that we're in. So we're really happy with how the AMPED is really growing for us there. Handmade by robots. That's something we picked up last year. We bought the IP for this. You can see always look for -- they're called form factors, these little characters you can see on my screen here. We've been very busy licensing a lot of content, getting available in retail, getting shelf and positioning there. We're pretty excited about how this line is growing there. We have a lot of stuff planning to come out in 2026. Ultimate goal is to get it in biggest calendar year that just ended to be right around $10 million. We're a little bit shy of that, didn't quite hit the $10 million number there, but we see good things happening in calendar year '26. But I think I mentioned record store day earlier, one thing we have coming up is a pretty strong exclusive for record store day. I don't want to say release the title yet because I don't think it's been released, but we're pretty excited about Handmade Robots we have coming up for a record store day. [indiscernible] is one of our other lines. I'll skip over that there. So how do we grow? Where do we go? What do we do? Well, we got to where we got by doing a bunch of acquisitions. I joined the company in 2001. And between that time, Jeff and I, my partner, the CEO of the company. We did 15 successful acquisitions, and then went from roughly $18 million a year to a little over $1.4 billion, all by new acquisitions. And we're always trying to do that. And speaking of acquisitions, I was just going to mention that just as of the end of December there bought a company called Nstate. Nstate is a very strong company, it's a technology company, which is really great for us, and it's really going to complement Alliance Authentic, which I'm also going to talk about. But the Nstate relies the technology where you can really help in controlling any type of -- any of the counterfeiting, the merchandise there. So it uses an NFC chip that we can put into the product as part of the manufacturing side there. And when you take your cell phone and scan that chip, which is very easy to scan, it takes it to a portal to a website there where you can authenticate the product that you have there. So this is really going to work well in peer-to-peer websites and other planning that we have with the other share there. There's going to be a lot more to come out on it there, and you'll hear me more about it there. We're working on a good press release to describe it better to the marketplace there, but that will be coming down. So Nstate Authentic. And then that is going to be working in parallel with Alliance Authentic. We've talked about Alliance Authentic at the last -- in October there. And basically, we're talking about is we're taking product that we're putting and making -- taking an LPE, and kind of think of it like an uncirculated coin. And when we were kids, Jeff and I, we used to get these offers where you could buy uncirculated coins and it came in a nice beautiful plastic case. And then they've never been circulated. So they're in mint condition. Well, we have access because we are a distributor of all of these entertainment products that we can take those items put them in the vault. We call it the vault, where we take that items that we think are down the road that they're going to be some type of collector piece, encapsulate them and beautifully seal the case there. And then at the same time, also include the NFC chip that we got from our Nstate and then now that product is all sealed. It can also be numbered in any way you want it. There'd be limited numbers that we'll put out, limited quantities, so we'll create scarcity. And then when you buy that product, you have it, then you can also register your product and put it on the Alliance Authentic portal or website there, that's -- when you scan that NFC chip on the product, it will take you through that portal. And that portal will then let you know that what you have is authentic and you didn't have to get some counterfeit item there. At the same time, you can register your product that makes this really easy to register. And then once it's registered then everybody knows where this product is and what it is and what's out there. And then for some reason, you were lucky enough to get the #1 of the top 10 and somebody wanted to buy it from you, they might approach you to buy it on the marketplace there in that peer-to-peer marketplace there where those items can be sold Alliance will be the gatekeeper of the supporter of that marketplace there, they just won't stop with vinyl. It could be many of the other products, the collectibles that we have. There's all kinds of items that we sell where we can create this encapsulate it and number it and then put the authentication built into it there. Big beautiful things are going to happen with that. We're pretty excited about that and that's all planned for our 2026. So you got Nstate, Authentic, you've got Alliance Authentic. Those 2 together are really -- together working really well. With Nstate, it brings us all that technology, it's all licensed, it's got patents. We're talking to a lot of other retailers to help them -- not retailers, other labels and content holders to come up with ways where they can protect their goods from counterfeiting, authenticate it and then we'll be -- specialized in that area there. We've added some very strong people. That team is going to do really well. So we're pretty excited about there from that standpoint there. The Insider ownership, Jeff and myself, so Jeff is the CEO, you can see it there, and I'm the Executive Chairman there. Insider ownership is pushing right around 78% there. So that's a good thing. And part of -- some of the auto ship, there's a trust account for my children there, but that puts the inside ownership right around over 90% ownership there. Jeff and I have been doing this for a long time, and we really believe in the company, and we think it's just making the company well capitalized, becoming a public company and just leading it for the next period there, we will have this company be around forever. There is just no shortage of products and content and things that we can distribute. It's very easy for us to pivot and diversify, go in other areas there. And then that's what we're really good at that there. Very strong sales leadership team here that we have there, just a lot of strong people that we rely on. Because we've done all these acquisitions, and I mentioned it earlier, we really picked up the cream of the cream of people. That really add value to the company there. They're really good at what they do, and they make Jeff and I look very smart. And we just realized that we can build a strong team around us and makes those look really good. We've made them all employee owners. So everybody's vested in the company. Everybody is all rolling in the same direction. We're trying to drive shareholder value. So we're very excited about all that there. More on the sales leadership team here, you could see there, we cover all areas of the marketplace there where we're selling to large chain retailers. Dana there you see the heads of our AMPED division there. And we have our Alliance Home Entertainment division. So as you can see, we're just very well diversified. More on the operations side of our people here. And then operational leadership, IT, it's all about IT to get everything done and then a very strong board here. So we have independent directors there outside there. There's 5 outside independent directors there, Jeff and I are the 2 insiders for a total of 7 there. We just recently added Shiela and Dmitry there. But Terry, Chris and Tom have been with us since the day one there. Terry heads up our Audit Committee there. And so we're adding that. So we're pretty happy where the company has there looking forward to meeting with our two new board -- we've been working with the two new ones for a couple of months now. But they're going to add a lot of value. And of course, our 3 regulars we can always rely on there. Just some rough numbers here. These are just more detail of our numbers there. I think the only thing I'd like to highlight here is if you look at our distribution and fulfillment expense, and you'll see it staying right around 3.9% there. Our SG&A as a percentage of revenue went down a little bit there. You can see our interest expense is going down. The reason it's going down is we're borrowing less money for one thing. And we just had a new line of credit. We just changed from White Oak to Bank of America on October 1. So our cost went from SOFR to 4.5, 4.0, I should say, SOFR went down to SOFR plus 1.58. So it's a big win for the company there. And as our profits grow, our interest costs are going to go down because our borrowing is going to be down. So it's just a big win there. Just on the balance sheet here. A lot of people say, "Gee, we guys don't have much cash." We have a lot of cash the cash is based on our availability of our line of credit, which is between north $40 million to $50 million. So we have a lot of dry powder to do acquisitions there. And our cash is always swept every night to pay down our line of credit. Speaking of line of credit, you could see there that it's right around $65 million range. So there's a shareholder loan there that's now been retired. So all in, it's about $65 million. So -- and we're expecting that over the next few quarters, that's going to drop down to the $30 million range because we're generating so much free cash flow there. And I think with that, I'm ready to open it up for a Q&A right now for anybody.

Thank you very much, Bruce. As Bruce said, we are opening this event up to your questions. [Operator Instructions] Bruce, we've got a couple of questions already here, typed in. Can you discuss who your key competitors are such as who you beat out for Amazon MGM?

So Amazon MGM, they could have stayed with Warner Home Video, but they chose not to. And then the other company is SDS, that's studio distribution services. That's a joint venture between Universal Pictures and Warner Home Video. I don't believe they talk -- any conversations with Sony Pictures, but those were probably the ones that we were up against. I can't tell you for sure because I was not told that, but I just know that from my experience in being close to the situation.

Thanks, Bruce. What percentage of revenue does the Paramount contract represent? And is it growing?

We don't really we're not really showing that out just because we're trying to be sensitive to Paramount as a public company. You can -- maybe you could look at our video sales and you could see what they've grown that might give you an indication. So you can see video, where it was for the quarter and look what it was year-over-year and look how much it's growing. It wouldn't be all Paramount, and also we have other studios that we also have exclusive distribution for. So there's 2 kinds of video distribution that we do. We either -- and I forgot to mention this, but for Alliance Home Entertainment, we have over 60 studios that we're the exclusive distributor of them, but we don't license the content. We just we explicitly distribute and sell it to the retailers on their behalf, kind of a consolidator. The same way that AMPED operates. And so we have those studios. And as time goes on, we're always able to pick up more of those studios. But what really drives the needle for us is when we were able to license the product like we did with Paramount there, which really added a lot to our bottom line.

Thank you, Bruce. EBITDA grew more than 250% year-over-year in the first quarter of your fiscal 2026. What are the key operational drivers behind that margin expansion? And how sustainable is it?

Well, every quarter is not going to be like that quarter. So no. What -- mainly 2 things that kind of drove it there is our gross profit really, really went up. So you can see we went from 11.2% to 14.6%. That was Handmade by Robots and Paramount that definitely helped impacted that. We also -- our sales and hardware, we have a lot less hardware sales that we had with Microsoft. And that's a great top line, but it's really lowest gross margin. So we've been specializing on trying to work with getting out of low-margin sales and trying to get higher margin sales. And that's something that all our shareholders have been asking us to do and we'll continue to head down that path in calendar year 2026.

Bruce with DTC now contributing roughly 37% of net revenue, where do you see the highest margin opportunities between DTC and B2B going forward?

I think they're both about the same because in direct-to-consumer in doing drop-shipping on behalf of the retailers, we definitely don't have the same freight expense we have when we're shipping direct to the stores. We ship to the stores and we -- a lot of time, the freight side of that is being handled mostly by us, some by the retailer, but not always. But when you're drop shipping on behalf of the retailers, that freight is usually handled 100% by that retailer. So the price of the product -- and shipping product into store and there could be merchandise that could be involved in different things. So there's pros and cons on both sides there. I can't say we prefer one over the other. They're both equally -- we like them both just the same.

Congratulations on the Amazon MGM win. Can you provide some sense of the scale and economics of that agreement and what it might contribute in 2026?

I think they'll be very close to what Paramount did for us. Both studio -- listen, Paramount is not going to be asleep at the wheel in 2026. They're wanting to put out a lot of pictures and they want to grow. And I'm sure you've read everything to trade off. They want to grow. And Amazon is right up there. I think what we're going to -- have a pickup maybe a little bit over Paramount, but not much is taking advantage of their catalog that has not been worked as well as it was last year. So it's right in that range, but it's -- I can't say it's actually going to come to fruition. It really depends how the movies do with the box office, which we don't have any control over that.

Creating collectible vinyl is adding to a wonderful market. Vinyl Collectibles are over-the-top passionate about their rare records, I guess you meant collectors. Vinyl Collectors are over-the-top passionate about their rare records, especially the limited COLV, if you know what that one is. COLV in all caps. Maybe this person could write again and explain what he meant there, especially the limited COLV should be big down the line. Thank you. I guess it's just a comment. Do you have anything to say?

Well, we agree. Vinyl -- I mean people have been collecting vinyl for years. But we're just going to make it a little more structured and with Alliance Authentic, it will be -- like I call it the Uber vinyl collectors on Alliance Authentic. But people do collect vinyl. There's a lot of vinyl people who buy vinyl and they don't even open it up. Where they'll buy 2 copies, 1 for their play and 1 they want to listen. We just think that seeing how the collectible market is so strong and what can we do and take advantage of our situation as a major distributor of collectible vinyl or any collectible it would be toys, movies and video games, we see tremendous opportunity to take advantage of that there. And Alliance Authentic is going to be a foundation for that, especially the peer-to-peer, where the collectors have the ability to sell it or easily and register very easily and make it pretty seamless. Just little Nstate with what they develop there. And just for holding your phone up, you don't have to -- you don't have to have an app to use it. You just hold your phone up to the NFC chip that's inside and they're not very expensive, the chips, but you put that on there. And that just -- it's like a QR code that takes you right to the portal and put your information in it's registered. Now you know that's a valid item there, and now it's just available for people who might want to buy it. There might be some guy that says, "Look, I got to have the 1989 number for Taylor Swift." I'm just making that up, I'm not saying that would really happen there or it could be Travis's number 87. So who knows?

Yes. Bruce. And this person wrote in and said COLV means colored vinyl.

Yes. There's lots of colored vinyl. They make different variants that when you come out with -- we have many different records that we've distributed and for -- to create exclusivity for a particular retailer, or for particular event, they would do colored vinyl different colors or they could be vinyl and just variant colors it's spread all around there. So it makes it very colorful. But yes, totally agree.

And thank you, Bruce, for that. [Operator Instructions] Bruce, Handmade by Robots continues to gain traction. What are some future opportunities or brands you see in that market and how will collectibles become as a percentage of total EBITDA over the next few years?

Well, our 3-year plan with Handmade by robots, we'd like to get into $100 million, and we feel we can do that licensing the right titles. And we just got signed up with Disney, so we have the Star Wars that titles coming out there, all the Peanuts characters are all coming out. And there's other odd ones in the pipeline there. We're constantly sending out on social media alerts about what's happening, what's going on. We have people to talk about it. We just did a live event like TV with the Walmart on that promoting the new titles that were coming out. So I think we're pretty happy that we have with how it's going there. But yes, by the end of the 3 years, $100 million that would add about $40 million worth of EBITDA. Now we're just getting through the first 12 months. We came in a little light of that $10 million number we were hoping for there. But we're pretty sure we can get back on track. So over the next 2 years, we can get up to that $100 million number.

Alliance now distributes more than $365 million in exclusive license content every year, what additional licensing categories or franchises could materially expand that figure?

Well, just adding, the MGM Amazon, that's going to add another $40 million of range. It could be less than that or more than that. So that will add to that there. We do have another big label coming in, that's going to be part of the AMPED group that's coming in. We're all -- constantly always working on exclusive licensing and distribution opportunities.

As a category adviser for Walmart video, how does that strategic role enhance Alliance's competitive moat without creating any conflicts of interest?

Well, obviously, we can't push only our products. It has to be what is best for Walmart. And that's very typical Walmart. They have other -- for other -- all their departments. They have a category adviser. On the music side, we're basically the category adviser because we supply all the music for Walmart, 100%, they don't deal with anybody else. But on the video side, they deal with other studios. And so they rely on a category adviser who will then pro rata share their expenses with all the studios. And then it's up to us to use all our information and our knowledge that we have available. But once again, there's a Chinese wall between Alliance proper and the category adviser so that we're giving Walmart the best advice that they want. So they will -- we want Walmart to succeed and be happy to want those departments to grow because we don't want them to shrink the department and get out of the video most retailers shrink down their video departments and Best Buy totally got out of it there, but Walmart has they -- they want to be the last company in it. So we need to do everything in our power to make sure that they're getting the ROI they want. They're getting the turns, and they're getting the sales movement that justifies the sales per square foot. So we're highly motivated to make that all work.

Inventory levels increased ahead of the holiday season. How confident are you that automation and demand visibility will translate this into higher free cash flow?

Well, inventory always goes up before Q4. It's our -- you may have to remember, Q4 is one extra month. You take the first 9, you take the first 9 months divided by 9, and if you want to -- what we plan, we usually do in the quarter, you did multiply that by 4. So we're very confident that we we've demonstrated -- well, we had a bad year there with arcades. We got stuck with a lot of inventory that -- because of the supply chain issues. Historic normally, we'll ramp up before Christmas, and then we come out of Christmas, we want to make sure -- we're at the right level of it, getting the terms that we're getting. Returning our inventory in pretty much over 7 turns a year. That's pretty good for a distribution company there, especially carrying the big selection that we have there.

And we have time for a few more of your questions here. The balance sheet shows declining leverage year-over-year. How does management prioritize debt reduction versus M&A in this current environment?

Well, obviously, cash is king. That's what I would say that, the cash is always king. We will have to generate profits and free cash flow to reduce the debt. But having dry powder and having our borrowing cost of money so much lower than what it was when we were SOFR at 4.5% versus a SOFR 1.58%, Jeff would much rather, and I totally agree with him that if we have this available line of credit, we should be using that to find other businesses to buy or do something to use that very low cost of capital to buy something that's going to generate is a higher rate of return. And so that's kind of how we look at it as that balance there. We don't want to be $160 million worth of annual debt service. But at the same time, we need to -- it has to be the right balance there. It's very important to our suppliers that they see us that we have -- we are making money. It's that we are generating free cash flow. We don't have a lot of debt, but it's relative that -- supported the size of our business and you have to have a balance there. And at the same time, we don't want to issue shares of stock to by other companies because that creates a dilution to the shareholders. They're not happy to hear that. Nor are we as because we're large shareholders, too. So that's kind of the big picture.

Thanks a lot, Bruce, for those answers. And of course, thank you to our attendees for your great questions. For more information on Alliance Entertainment, reach us at 1-800-REDCHIP or e-mail us at [email protected]. Please visit the information page created by Red Chip for Alliance Entertainment, it's Aentinfo.com. There, you can view and download the investor presentation and fact sheet and sign up for news alerts on Alliance Entertainment. Watch small stocks, big money, Red Chip's program featuring exciting small cap companies every Saturday night at 7:00 p.m. Eastern on Bloomberg USA. And finally, join RedChip's next webinar with Jupiter Neurosciences tomorrow at 4:15 p.m. U.S. Eastern. Register for all Red Chip webinars at redchip.com/events. Thanks again to those many participants today, and thank you, Bruce.

Thank you.