Yahoo Finance Alliance Entertainment Holding Corporation (NASDAQ:AENT) Q2 2024 Earnings Call Transcript
Alliance Entertainment Holding Corporation (NASDAQ:AENT) Q2 2024 Earnings Call Transcript February 8, 2024
Alliance Entertainment Holding Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Alliance Entertainment Second 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 our publicly released results of any revisions 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 a reconciliation of each non-GAAP measure to their most directly comparable GAAP financial measure.
A press release detailing these results crossed the wires this afternoon at 4:05 PM Eastern Time, and it is available in the Investor Relations section of our company's Web site, aent.com. Your host today, Bruce Ogilvie, Executive Chairman; and Jeff Walker, Chief Executive Officer and Chief Financial Officer, will present results of operations for the fiscal second quarter ended December 31, 2023. At this time, I'll turn the call over to Alliance's Entertainment Executive Chairman, Bruce Ogilvie.
Bruce Ogilvie: Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's fiscal second quarter ended December 31, 2024 financial results conference call. For those of you that are new to our story, we bring entertainment to you. Alliance talks to world's largest selection of music, movies, video games, gaming hardware, arcades, collectibles, toys and consumer electronics. We are a trusted omnichannel supplier to the largest retailers and wholesalers across the globe and a trusted distributor for the world's most recognized entertainment and gaming brand. As 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 a gateway between brands and retailers.
We are a trusted omnichannel supplier to Walmart, Amazon, Best Buy, Costco, Target, Kohl's, BJ's, Meyer, Barnes and Noble, and 2000 additional retailers and wholesalers worldwide, and a trusted distributor for Disney, Paramount, Sony, Warner, Universal, Microsoft, Nintendo, Activision, Electronic Arts, Mattel, Hasbro, Sunco, Arcade1Up and 600 others. We have over 200 customers that sell online, worldwide and ship to more than 35,000 storefronts in 72 countries and distribute over 325,000 in stock SKUs to the largest retailers and wholesalers in the world. Our AMPED and Distribution Solutions division distribute physical exclusive music and exclusive video respectively, and our Mill Creek division engages in exclusive video licensing and content from Disney, Sony, Universal, Lionsgate, CBS and others.
Distribution Solutions has over 62 significant exclusive video studios that rely on Distribution Solutions to manufacture, supply and market video products and have direct sales through accounts with Amazon, Walmart, Target and thousands of retailers and Web sites through Alliance Entertainment's vast distribution channels. 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 and Noble, Best Buy and over 2,000 independent music stores in the US through Alliance Entertainment's worldwide distribution channels. Mill Creek licenses video content from studios to create, manufacture, market and sell video DVDs with content licensed from Disney, Sony, Universal, Lionsgate, CBS and significant independent studios.
Alliance provides traditional retailers with world class distribution and e-commerce capabilities by focusing on service, selection and technology by providing our 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 omnichannel expansion solutions for retailers, offering a full enterprise level infrastructure and drop ship 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 perform all stocking, warehousing and shipping functions through the consumer whose shipment they received, looks like it was sent by the large retailers we service.
Alliance is also a leader in vendor managed inventory solutions, providing solutions tailored to our customers to support their inventory needs. These value add services provide a highly technical critical business function for our partners. Alliance consolidates and distributes a vast portfolio of entertainment products, while a proprietary database powers, retailers, online music and gaming offerings, including vinyl, CDs, DVDs, Blu-ray, gaming products and retro arcades. Currently, we have over 325,000 unique SKUs in stock to support our customers vast selection of needs. Alliance has invested in enhancements to our automated handling equipment, which reduced shipping time, streamline order processing, reduce labor costs and also improve overall warehouse management.
Just over a year ago, we installed an automated storage retrieval system at our Shepherdsville warehouse. This improved warehouse operations allowing us to achieve increased levels of speed, reliability, capacity and precision that resulted in significant cost savings. This slide highlights our strategically located operations that include seven offices and four distribution centers, including our 873,000 square foot facility in Shepherdsville, Kentucky. In 2023, warehouse shipments totaled over 70 million units through our highly skilled workforce with tech enabled facilities and infrastructure that allows Alliance to achieve industry leading speed and accuracy metrics. I will now hand the call over to Alliance’s the CEO and CFO, my partner, Jeff Walker.
Jeff Walker: Thank you, Bruce. And thank you all for joining us today. We'll now turn to an overview of our financial results in the second fiscal quarter ended December 31, 2023. Net revenues for fiscal second quarter ended December 31, 2023 were $426 million compared to $445 million in the same period of 2022. Of note, our consumer direct shipments grew to 45% of gross sales revenue for the fiscal second quarter compared to 37% in the year ago period, totaling 2.3 million shipments of 5.3 million units. Gross profit for the fiscal second quarter ended December 31, 2023 was $47.7 million compared to $20.9 million in the same period of 2022, an increase of 128%. Gross profit margin for the fiscal second quarter ended December 31, 2023 was 11.2%, up from 4.7% in the same period of 2022.
Net income for the fiscal second quarter ended December 31, 2023 was $8.9 million compared to a net loss of $15.5 million for the same period of 2022. Adjusted EBITDA for the fiscal second quarter ended December 31, 2023 was $17.9 million compared to adjusted EBITDA loss of $14.5 million for the same period of 2022. Over the last 12 months, we have significantly reduced inventory and debt with fiscal second quarter December 31, 2023 year-over-year inventory decreasing from $175 million, down to $114 million and debt down from $177 million to $107 million. We also closed on a new three year $120 million senior secured asset based credit facility with White Oak Commercial Finance LLC, replacing the company's revolver with Bank of America. On this slide, you can see fiscal year 2022, we were experiencing the benefits of COVID with peak sales of $1.42 billion in revenue.
Fiscal 2023, our sales normalized after COVID with sales of $1.16 billion. For fiscal 2023, adjusted EBITDA was negatively affected with a one time supply chain cost of $35.8 million. We've gone past those onetime supply issues. For the second quarter ending December 31, 2023, our adjusted EBITDA was 4.2% of revenue. We are continuing to reduce operating costs and improve margins in 2024 to get back to 5% adjusted EBITDA of sales. For this slide, you will see six months of sales compared to the previous four fiscal years. We wanted to show you how diversified Alliance is and how consistent sales by configuration are. The diversified products offered is a big part of the Alliance winning formula. In addition to the huge growth and our year-over-year quarterly gross profit, we reduced operating costs $5.2 million through warehouse efficiencies and new technology implemented going from $35.4 million down to $30.2 million.
These efficiencies will have an ongoing positive impact going forward. On this slide, gross profit improvement and expense reductions also led to a third consecutive quarter of positive adjusted EBITDA, increasing to $17.9 million in the fiscal second quarter compared to an adjusted EBITDA loss of $14.5 million in the prior year. EBITDA as a percentage of sales was a strong 4.2%. The first half of our fiscal year saw net revenues for the six months ending December 31, 2023 totaled $652 million compared with $684 million in the same period of 2022, a decrease of 4.6%. Gross profit was $74 million compared to $46.4 million in the same period of 2022, an increase of 59.5%. Gross profit margin was 11.3%, up from 6.8% in the same period of 2022.
Net income was $5.5 million compared to a net loss of $23 million for the same period of 2022. Adjusted EBITDA for the six months ending December 31, 2023 was $19.2 million compared to adjusted EBITDA loss of $18.6 million for the same period of 2022. For this slide, it shows the quarterly results in Q1 2020 for gross profit net income for GAAP and adjusted EBITDA. Comparing Q2 fiscal year ‘20 to Q2 fiscal year ‘24, adjusted EBITDA has increased from $11.2 million to $17.9 million, which is a 60% increase 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, we were highly focused on reducing inventory and debt with fiscal second quarter year-over-year inventory decreasing from $175 million to $114 million and debt down from $177 million to $107 million.
We also expect significant cost savings 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 senior secured asset based credit facility with White Oak Commercial Finance. The proceeds of which we've used to refinance the existing credit facility, fund the 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. Going back to what Jeff mentioned regarding our acquisition strategy. Alliance has a proven track record of [successively] 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 Think 3Fold. 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 toward 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 relationships will grow existing revenue lines and improving capabilities will generate a more attractive overall service offering. Leveraging existing relationships, Alliance can expand into new consumer product segments, growing its product offering 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 the entertainment industry with over 30 years of operations 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 a focused commitment of service, selection of technology, suppliers and brick and mortar retailers, omni retailers, online retailers and consumers rely on the company's platforms to fuel transition 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 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, arcade, toys, collectibles and consumer electronics. 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: [Operator Instructions] Our first question comes from the line of Ashok Kumar with ThinkEquity.
See also 15 Blue-Collar Jobs That Pay at Least $75,000 a Year and 15 Most Respected Countries in Asia.
To continue reading the Q&A session, please click here.
