Q1 2026 Alliance Entertainment Holding Corp Earnings Call
Speaker #1: A question-and-answer session will follow the former presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Kuntz. Thank you, sir.
Speaker #1: You may begin. Thank
Speaker #2: you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking.
Speaker #2: While these forward-looking statements represent the company's current judgment on what the future holds, they are subject to risk and uncertainties that could cause actual results to differ materially.
Speaker #2: You are cautioned not to place undue reliance on these forward-looking statements, which reflect the company's opinions only as the date of this presentation. Please keep in mind that the company is not obligating itself to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.
Speaker #2: Throughout today's discussion, management will attempt to present some important factors relating to the business that may affect predictions. You should also review the company's Form 10-K filed September 10th, 2025, for a more complete discussion of these factors and other risks, particularly under the heading risk factors.
Speaker #2: During the conference call, management will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA. Management believes non-GAAP disclosures enable investors to better understand ALIANCE ENTERTAINMENT's core operating performance.
Speaker #2: Please refer to the investor presentation for reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. A press release detailing these results across the wire this afternoon at 4:01 PM Eastern Time is available in the investor relations section of ALLIANCE ENTERTAINMENT's website at aent.com.
Speaker #2: Your host today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the 1st quarter of fiscal year 2026 and in September 30, 2025.
Speaker #2: Bruce Ogilvie, Executive Chairman, is also on the line and will be participating during the Q&A session. At this time, I will turn the call over to ALLIANCE ENTERTAINMENT CEO, Jeff Walker.
Speaker #3: Thank you, Paul. And good afternoon, everyone. I'm pleased to welcome you to today's call. We open fiscal 2026 with strong momentum, delivering both top-line expansion and improved profitability.
Speaker #3: Revenue grew 11% year over year to $254 million. Reflecting solid demand across physical media collectibles and direct-to-consumer channels. Adjusted EBITDA increased to $12.2 million from $3.4 million a year ago.
Speaker #3: A $259% improvement. While gross margin expanded $340 basis points to $14.6%. These results highlight the strength of our content portfolio, disciplined expense management, and the efficiency gains were achieving through automation and the early benefits of our AI initiatives.
Speaker #3: At the same time, our handmade by robots brand continues to scale rapidly. New collectible launches this quarter drove exceptional sell-through and expanded retail placement, and we're seeing growing fan engagement across both our own sites and partner channels.
Speaker #3: This business has quickly become a pillar of our collectible strategy, and we expect continued strength through the holiday season. We also strengthened our corporate governance, welcoming two new highly accomplished independent directors, Dimitri Kosko and Sheila Bangalore, each bringing deep expertise in finance, AI technology, and governance.
Speaker #3: Their experience complements our leadership team and supports the company's next phase of growth and innovation. Operationally, we're advancing our AI-powered sales transformation. The rollout of HubSpot Sales Hub and Microsoft
Speaker #1: And our teams are enabling work to be done faster and smarter. These tools are helping us convert opportunities more efficiently as we capitalize on our busiest quarter of the year.
Speaker #1: Finally , our exclusive content portfolio continues to expand through amped . We signed a new distribution agreement with Virgin Music Group , which adds another premium catalog to our growing roster of label partners .
Speaker #1: Combined with our ongoing in success film , gaming and collectibles , these partnerships reinforce alliance position at the center of physical media and pop culture ecosystem .
Speaker #1: Pagan together , fiscal 2026 is off to a strong start . We're executing on our strategy , driving profitable growth , advancing technology adoption , and deepening our relationship across entertainment categories .
Speaker #1: As we move through the balance of the year , our focus remains on delivering consistent results , expanding our exclusive content base , and creating long term value for our shareholders .
Speaker #1: This slide offers a quick snapshot of our performance over the past several fiscal years , and on a trailing 12 month basis through September 30th , 2025 .
Speaker #1: Over the trailing 12 months , revenue totaled nearly 1.1 billion , reflecting stable demand across our core . And categories the return to year over year top line growth .
Speaker #1: We saw this quarter . Adjusted EBITDA reached 45.3 million , from up 36.5 million in fiscal 2025 and 24.3 million in fiscal 2020 .
Speaker #1: For . That continued expansion demonstrates the structural improvements we've made in product mix and cost efficiency . Our adjusted EBITDA margin on a trailing basis now stands at roughly 4.2% .
Speaker #1: And in the first quarter alone , we achieved 4.8% , a level we view as the new baseline for fiscal 2026 . And beyond that margin , durability reflects higher value content .
Speaker #1: Automation benefits and early productivity gains from our AI initiatives . Earnings per share rose to $0.38 on a trailing 12 month basis . Building on a 30 cent last year and a $0.09 the year before , this earnings steady progression highlights the efficiency and strength of our even model , in a balanced revenue environment .
Speaker #1: On the balance sheet , we ended the quarter with 3.2 million in cash inventory of 121.7 million and debt of 66 million . Essentially flat versus June 30th , 2025 .
Speaker #1: But well below our year ago levels . Our equity position grew to 108 million , reflecting stronger retained earnings and disciplined working capital management .
Speaker #1: Subsequent to quarter end , we further strengthened our financial flexibility by closing a new five year , $120 million senior secured credit revolving facility with Bank of America .
Speaker #1: This agreement replaces our prior asset-based facility and reduces borrowing costs by up to 250 basis points, with an undrawn $61 million of availability at closing.
Speaker #1: The new structure provides lower interest expense , longer duration and greater liquidity to support both seasonal inventory needs and future growth initiatives . Together , these metrics show a company that's expanding margins , generating consistent earnings , and operating from a stronger financial foundation .
Speaker #1: We're entering the remainder of fiscal 2026 with the balance sheet , liquidity and operating discipline to sustain that momentum . Before I hand it over to I want to Amanda , take a moment to revisit what makes Alliance such a unique platform .
Speaker #1: The engine that powers the collectibles value chain at its core , Alliance Entertainment connects fans to music , movies , games , and collectibles they love .
Speaker #1: We sit at the intersection of content and commerce , curating , sourcing , and delivering products that celebrate pop culture across every format .
Speaker #1: Our model is built on fully integrated ecosystem from exclusive product development to omnichannel fulfillment . On the front end , we partner with more than 150 studios , labels and manufacturers to source and create the most sought after titles and license collectibles .
Speaker #1: Additionally , through our own brands Handmade like by Robots , we design and distribute exclusive products that collectors can't find anywhere else . Those products move through a centralized distribution and logistics network that reaches 35,000 retail locations and 175 online platforms worldwide .
Speaker #1: Whether it's a major retailer , especially store or a direct to consumer order , or our automation and fulfillment systems ensure accuracy , speed and cost efficiency at scale .
Speaker #1: From there , our omnichannel delivery model brings those products to life . Serving both B2B partners and consumers directly through our own retail group , which operates sites such as Deep Discount , COVID-19 Import , CDs and movies , and limited .
Speaker #1: structure This gives us complete visibility across the supply chain and allows us to respond quickly to demand shifts . Each business unit adds and entertainment music .
Speaker #1: Alliance Home Entertainment and Film and television , and our growing collectible segment plays a specific role in that ecosystem . Together , they create a diversified portfolio that blends recurring distribution revenue with higher margin proprietary content and collectibles .
Speaker #1: It's this combination of deep relationships , efficient infrastructure , and a focus on fan driven categories that gives Alliance its competitive edge and supports the margin we profile delivered in the first quarter .
Speaker #1: With that , I'll now turn it over to Amanda to walk through the financial results for the first quarter of fiscal 2026 . In more detail .
Speaker #2: Thanks , Jeff . For the ended quarter September 30th , 2025 , we generated net revenue of 254 million , an increase of 11% from 229 million reported in first the quarter of fiscal year 2025 .
Speaker #2: Cost of revenue . As a percentage revenue of improved from 88.6% to 85.4% , a 320 basis point improvement year over year . Gross profit increased 46% year over year to $37.2 million , with gross margin improving to 14.6% , up from 11.2% in the prior year period .
Speaker #2: Operating income increased nearly fivefold to $10.5 million , up from 2.1 million last year . Net income rose to 4.9 million , or $0.10 per diluted share , compared to 0.4 million , or $0.01 per share , in the prior year period .
Speaker #2: On an adjusted basis , EBITDA rose $12.2 million , up 259% from 3.4 million a year ago , representing an adjusted EBITDA margin of 4.8% .
Speaker #2: That's nearly triple the prior year rate of 1.5% , and aligns with the baseline we expect to maintain through fiscal beyond 2026 and .
Speaker #2: Overall , the first quarter delivered solid revenue growth , expanding margins and continued financial discipline . A clear reflection of the progress we've made across both operations and product mix .
Speaker #2: Our financial improvement is grounded in a strong operational foundation . Alliance operates one of the most advanced entertainment distribution networks in North America , processing more than 50 million units each year and capable of scaling to over 260,000 daily units during peak demand .
Speaker #2: This scale allows us to manage both major new releases and seasonal surges efficiently , without compromising speed or accuracy . Our investment in state of the art automation , including Autostore and sure sort systems , has materially increased throughout and lowered per unit handling costs .
Speaker #2: Those systems , combined with data driven inventory management , enables us to move hundreds of thousands of SKUs across 76 countries while maintaining quality and consistency .
Speaker #2: We're also realizing significant cost efficiencies from these initiatives . Energy efficient systems reduced manual touches and a flexible labor model are helping us control expenses even at volume rise .
Speaker #2: That efficiency directly supports the 340 basis points improvements we've achieved . This quarter . Just as important . These technologies protect product integrity and improve sustainability , minimizing waste and that every ensuring item reaches the customer in pristine condition .
Speaker #2: It's an advantage that builds trust with both retailers and consumers. While our operations are large, they're adaptable, nimble, and efficient. Whether we're fulfilling a mass merchant order, shipping direct to consumer, or handling a collector release.
Speaker #2: The same infrastructure powers each channel that versatility is what allows us to capture high margin opportunities . While maintaining discipline on cost . In short , the operational investments we've made over the past two years are delivering exactly what we intended .
Speaker #2: Greater efficiency , better scalability , and sustainable margin performance . They give us the confidence that the profitability profile we achieved in the first quarter is not a peak , but a new baseline .
Speaker #2: We can build upon . One of the key strengths of our business model is our omnichannel distribution network . That powers both B2B and direct to consumer growth .
Speaker #2: Alliance serves approximately 175 online retailers and more than 35,000 physical stores . Giving us unmatched reach across entertainment and collectibles . Through this network , we connect fans and retailers with the products they love .
Speaker #2: Whether it is vinyl , film , gaming , or licensed collectibles , or direct to consumer has become a major revenue driver . Now contributing 37% of total net revenue .
Speaker #2: We deliver this through both our owned e-commerce platforms and dropship partnerships, which allow customers to access the industry's deepest catalog without retailers carrying physical inventory.
Speaker #2: This capital light model expands our retail partners online assortment while keeping working capital requirements low for everyone involved . On the B2B side , our relationships with leading national chains , independent stores and specialty retailers remain a cornerstone of our business .
Speaker #2: We provide these partners with high quality , in-demand products supported by robust fulfillment , automated replenishments and seamless system integration . The result is stronger in stock performance , faster delivery and improved profitability for our retail customers .
Speaker #2: Our omnichannel platform is what makes Alliance so versatile. We can support a major studio release, fulfill thousands of individual collector orders, and manage retailer-specific campaigns, all through the same infrastructure.
Speaker #2: This flexibility gives us a competitive advantage in a market where consumers expect instant access, variety, and reliability. As retail continues to blend physical and digital experiences.
Speaker #2: role Our as trusted technology enables fulfillment partner becomes even more essential . It's a model that scales efficiently , serves our partners well , and continues drive to meaningful margin contributions across the business .
Speaker #2: With that , I'll turn it back to Jeff for remarks . closing
Speaker #1: Thanks , Amanda . As we think about the strength of our retail partnerships , one of the best examples is our role as category advisor for Walmart's video category .
Speaker #1: This designation reflects the depth of our expertise in physical media and the trust we've built with largest the retailer in the world in this capacity , Alliance provides Walmart with data driven analysis , consumer insights and operational support that inform how the video category is planned .
Speaker #1: Merchandised and executed across both in-store and online channels . Our team delivers strategic guidance on assortment , facings and promotional planning , helping Walmart align inventory and shelf space with real time shopper demand .
Speaker #1: We also provide forecasting and analytics that highlight emerging trends guiding their buying decisions and release timing for alliance . This more than a recognition of partnership is capability .
Speaker #1: It's a validation of the strategic value we bring to our retail partners . It demonstrates how our scale data and category knowledge go beyond distribution to help drive category growth across the industry .
Speaker #1: By pairing our operational excellence with deep consumer insight, we're not only supporting Walmart's success, we're strengthening the overall ecosystem for physical media and collectibles.
Speaker #1: Our exclusive distribution and licensing agreements provide a strong competitive edge . These partnerships secure alliance , unmatched access to premium and exclusive content pipelines , reinforcing our leadership position and ensuring we remain indispensable to both studios and retailers .
Speaker #1: Today , our exclusive distribution and licensing agreements collectively drive more than 365 million in annual sales and continue to expand across music , film and collectibles .
Speaker #1: Within Alliance Home Entertainment , our exclusive licensing agreement with Paramount Pictures has become a major revenue contributor . Under that agreement , we now handle the full lifecycle creation , manufacturing , marketing and retail distribution for Paramount's Blu ray , 4K and DVD catalog .
Speaker #1: The relationship has been a key driver of the 59% year over year increase in physical movie sales in the first quarter , and continues to strengthen our position as the leading distributor of premium film and TV content in North America .
Speaker #1: Across music . Our Ant Entertainment division represents more than 110 label partners , giving us the industry's most diverse catalog independent and specialty music content in collectibles were expanding our owned and licensed offerings , handmade by robots , which we acquired in December 2024 , has quickly grown into a cornerstone of our collectible strategy .
Speaker #1: We've expanded its retail footprint and licensing pipeline with upcoming releases featuring characters from Sanrio , Jurassic World , Peanuts , Sonic the Hedgehog , SpongeBob SquarePants , Toho and others , all of which will begin rolling out through fiscal 2026 .
Speaker #1: Our long standing collaboration with Weta Workshop also continues to deliver high quality collectibles and prop replicas from iconic franchises , while our new Master Replicas partnership adds another layer of premium , fan focused products .
Speaker #1: Together , these exclusive and owned brands form a powerful portfolio that drives high margin revenue , deepens our relationships with studios and licensors , and reinforces the Alliance's position at the center of entertainment and collectibles ecosystem .
Speaker #1: Before we move to Q&A, I want to touch on our ongoing strategic M&A priorities. M&A has always been a core part of how Alliance builds scale and capability.
Speaker #1: Over the years , we've completed 15 successful acquisitions , each expanding our reach across content , collectibles and fulfillment . Every deal has been grounded in the same principles strategic fit , operational synergy , and accretion .
Speaker #1: Today , our pipeline remains active , but our approach is as disciplined as ever . We're focused on opportunities that extend our licensing relationships , deepen our collectibles portfolio , and enhance our e-commerce and fulfillment capabilities .
Speaker #1: That includes specialty brands , niche distributors , and complementary entertainment businesses that align with our capital light model . Our success recent with Handmade by Robots is a great example of that strategy in action and acquisition that's delivering performance , expanding into new retail channels , and opening the door to high value licensing opportunities .
Speaker #1: We're now applying that same playbook to evaluate the next set of opportunities that can strengthen our position in the collectibles and physical media ecosystem.
Speaker #1: With the new Bank of America credit facility in place , we have both the financial flexibility and operational infrastructure to pursue these opportunities thoughtfully .
Speaker #1: And as we do , our focus will remain squarely on driving sustainable , profitable growth and building long term for our value shareholders .
Speaker #1: entering We're the rest of fiscal 2026 from a position of strength , supported by exclusive content , advanced operations and proven ability to execute the progress we made this quarter reinforces our confidence in that strategy , and we're excited about what comes next .
Speaker #1: Before we turn to questions , I want to take a moment to thank our employees across every Their division . hard work , creativity and execution are what drive our success .
Speaker #1: I'd also like to thank our customers , partners and shareholders for their continued support and trust in alliance Entertainment . We're proud of the momentum built and we've committed to delivering on the opportunities ahead .
Speaker #1: Operator we're ready to open the line for questions .
Speaker #3: you Thank . At this time , we will conduct a question answer session . If you would like to ask a question , please press star one on your telephone keypad .
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Speaker #3: equipment , it may be necessary to pick For up your handset before pressing the star keys . Once again , that's star one to ask a question at this time One moment while we .
Speaker #3: poll for question . The first question comes from Thomas Forte with maximum group . Please proceed .
Speaker #4: Great . Bruce . Jeff . Amanda . Congratulations on the quarter . I have three questions . I'll ask them one at a time .
Speaker #4: The first question is , could physical media outperform this holiday prior ones due to the versus relative favorability when it comes to tariff versus other categories , including apparel and toys .
Speaker #1: Good afternoon . This is Jeff Walker , CEO . We are definitely seeing strong strong , sales in all the entertainment categories now .
Speaker #1: right I think it's I don't know if it's related to the tariffs in other categories . And and the minimal amount of tariffs and music and video or actually no tariffs in music and video , but I think it's collectors are , are excited about their collections and you know , movies , music , gaming and collectibles are all all a huge thing of of gift items .
Speaker #1: And I think we're going to see a lot of , a lot of people being gifted items , especially vinyl , in particular .
Speaker #1: year This .
Speaker #4: Jeff . And Thanks , anyone's listening , I look forward to vinyl on my holiday list . So if someone wants to give me , vinyl something would be appreciated .
Speaker #4: So sticking with vinyl then can you talk about the performance of Taylor Swift's Life of a showgirl versus her last album ? The Tortured Poets department , as a proxy for the current state of consumer demand for vinyl .
Speaker #1: Well , I think a lot in the news there on You Taylor . of the records that she broke with that . Interestingly enough , for us , the Taylor Swift album , we did a lot of for fulfillment for that album .
Speaker #1: None of it was booked into the quarter that we reported; just that Street Date was October 3rd. We weren't allowed to ship anything out October 1st.
Speaker #1: until So we didn't book anything in the previous quarter or in the current just quarter . We reported , I think one thing also in mind with to keep all of the sales that she did on vinyl and CD , the CD sales for extremely Taylor were as well .
Speaker #1: And I , one of the things I've been saying about it is nobody had to buy a vinyl record or CD a of Taylor Swift .
Speaker #1: They can listen to her music on all the different digital and online platforms . So they're purely buying it because they want to collect something of their favorite artist .
Speaker #1: And and they're huge fans of And her . that really goes to the conversation about all our of media products are for fans and they're for collectors and that's what we're feeding right into that .
Speaker #1: And I don't see that slowing down . People have collected music and video and and other collectible gaming items for for centuries . sense .
Speaker #1: So In a right that's smack where at . we're The ability to listen to the music digitally doesn't derail desire to people's have something in their house that they can look at , and that they can show off to their friends and and so forth .
Speaker #1: There .
Speaker #5: Great . Thanks , Jeff .
Speaker #6: Tom . One thing I could just there , add there is a a the consumer is wanting to own their instead of rent their content content .
Speaker #6: And that starting to also is happen . There's a small little push in that area there , which is helping our business .
Speaker #4: Excellent . All right . So last one and thanks for taking all my questions . So it your deal with sounds like exclusive media doing incredibly well .
Speaker #4: physical your thoughts on forging deals with other exclusive studios
Speaker #1: we're Well , we're always working
Speaker #1: new on opportunities the company in . I do think that there's a path there ? for studios good to to a to really run , run that aspect of physical media of the them .
Speaker #1: And we're transition levels of conversations with studios on that big different small . there's a There's lot of studios out there that have fantastic and content we're just to show continuing and that prove great we're a for those to solution sales of physical media them for .
Speaker #1: continue to prove more that in a that quarter in and quarter out , the more And the that those studios opportunities will come our way .
Speaker #6: Tom , Yeah , one thing to add to Jeff says , that , one thing to add to that , that Tom , is we do because we do our own physical distribution ourselves .
Speaker #6: It's not outsourced to a third party that creates a tremendous advantage we have anybody , over trying to do what we're doing .
Speaker #4: All right . So Wonderful . thank you for taking all my questions . And congrats again on the quarter .
Speaker #1: you Thank .
Speaker #3: Thank you . The next question comes from Michael with Noble Kupinski Capital Partners . Please proceed
Speaker #3: .
Speaker #7: you and thanks for taking my Thank questions . And I want to offer my congratulations as well . It's a great quarter . A couple of questions .
Speaker #7: I understand that handmade by robots contributed in the quarter and you know , I was just wondering it the you had very strong results in collectibles and did handmade by robots .
Speaker #7: Did that have broad retail distribution in the quarter ? I was just wondering if you can just give me a little color of what we could expect , especially as we kind of go into the second quarter .
Speaker #7: Should we start looking for more of a significant impact of that brand , you know , as we go into the second quarter , maybe the third quarter , just kind of wanted to kind of get your thoughts on the impact of that brand on that segment .
Speaker #1: Yeah . Hey , Michael , good to good to hear from you . You know , handmade by robots . We acquired that almost a year ago .
Speaker #1: We've been really ramping up with licensing and new designs , new IP coming out . We have significant releases this month here in November , and we have some new licenses getting finalized with Disney and some of the other big licensors right now , I would say that for fiscal , we're doing well with the brand for fiscal 26 .
Speaker #1: So we're in today . I don't think handmade is going to make a huge impact on the the overall financial aspect of Alliance .
Speaker #1: everybody knows , Alliance is As a big company and we're really ramping that up . I think we're going to start to see financial impact in fiscal 27 and 28 .
Speaker #1: With respect to handmade , as this continues to ramp up on the brand and we continue to get more placement with retailers . And so forth , we are continuing to add to the team the handmade team to drive those sales and so forth , going forward .
Speaker #1: So most of the the growth in alliances , revenue and profitability here in fiscal 26 is not going to be attributed to to handmade , even though it's on a significant growth pattern for that business .
Speaker #1: It just started small and . It's it's growing quickly .
Speaker #7: Thanks for that color . And so I want to go back to the vinyl question . Vinyl sales seem to be a little stronger than what I was expecting .
Speaker #7: It was just wondering if you can maybe give us your thoughts on what was the factor . There . Certainly . You just mentioned that Taylor Swift wasn't a big factor in the quarter , so can you kind of give us some thoughts were the on what driving factors in vinyl in the quarter ?
Speaker #1: Well , we're we're we're we're seeing . Continuous consumer demand in vinyl across the board . I think also the artists and particular have really there's been a lot of new releases .
Speaker #1: And I think top new releases are are new top artists are having pretty , pretty strong following and success right now . And music overall is , is a category that consumers are gravitating to .
Speaker #1: And the vinyl continues to expand . And it's pretty wide it's range from all ages in the vinyl and and then there are some other additional components with vinyl with reissues and some of the older catalog pieces of vinyl .
Speaker #1: They are reissuing those on a different color vinyl or some other aspect there . And that really build some helps more new demand to that particular vinyl piece .
Speaker #7: Gotcha
Speaker #7: .
Speaker #1: And I think one last , one last thing on that , I think a couple very big artists from the past are looking at bringing out some of their vinyl in the near future in colored vinyl that has only been available in black vinyl .
Speaker #1: And I think things like that can really help support the vinyl sales .
Speaker #7: Gotcha . And then the movie segment seemed to an exceptional quarter . Certainly benefiting from Paramount . And I'm just wondering if I maybe underestimated the paramount aspect of that , or if there were other , maybe other significant lift that outside of Paramount deal .
Speaker #7: And I was just wondering if you can just kind of frame for us the significance of the Paramount licensing agreement to the movie segment , there or if were maybe other contributing factors that that might , have , might have accounted for such strong results in in the movie movie segment .
Speaker #1: Yeah , I think overall , our movie division is is doing pretty well . We are seeing some really crazy strong numbers with steelbook , which is a collectible version of , you know , a steel packaged DVD .
Speaker #1: We're we're a big distributor on that for all the studios , and we're seeing really good sell through there . In addition , you know , it's a collectible steelbook .
Speaker #1: It's a nice higher price point as well . And the numbers are pretty robust with steelbook respect to with Paramount , we've had solid releases and we've really spent a lot of time making sure that we've got all the all the catalog product out and we've got it all in stock and our in-stock percentages are good .
Speaker #1: think And I one thing to think about in Paramount there at the time that we picked up the Paramount business , the bulk of video DVD at this point is a Walmart stores , Amazon and Alliance .
Speaker #1: The three of us do the majority , almost 90% of all the DVD sales and alliance supports a lot of other stores , including Barnes and Noble .
Speaker #1: A lot of e-commerce for Walmart and Target , and a lot of independent stores and so forth . That's our niche in it .
Speaker #1: So when we we got the Paramount license business , we have our existing business that improved the margins from there , but we picked up the paramount business to Walmart and Amazon , and that is what's driving some of our Paramount sales growth .
Speaker #7: Well , congratulations and good luck on the rest of the year .
Speaker #1: Thank you. We're looking for a great fourth quarter.
Speaker #3: Thank you . At this time , I would like to turn the call back to Paul Kuntz for web questions , please proceed .
Speaker #8: Thank you . Our first question we had is you mentioned serving as category advisor for Walmart's video business . Could you elaborate on how that role translates incremental into revenue or share gains alliance ?
Speaker #8: for whether that model expand into could product categories ?
Speaker #1: Okay , so the category advisor role with Walmart , I think everybody needs to understand that this is a independent group of people that are are alliance employees that are dedicated to be the category advisor team for Walmart on behalf of all the studios .
Speaker #1: And so this is this team assists Walmart in their video direction with store planning , promotional aspects and future plans in the video category .
Speaker #1: And so that team is there to represent all the studios and work with Walmart on strategic initiatives . Going forward . And so with that , they're not connected to our alliance sales team .
Speaker #1: That is focused on selling not only paramount product , but all of our distributed video product to Walmart in the sales aspect , there .
Speaker #1: So the the advisory role doesn't necessarily translate extra into revenue for Alliance . What it does translate into is confidence in alliance team from .
Speaker #1: And the Walmart , which is a big aspect going forward in our long term strategies with all the studios . And so forth .
Speaker #1: As you got to realize that we are at Alliance , we're also the third largest physical account behind Walmart and Amazon with all the studios product on physical , physical product , there .
Speaker #1: And then the whether it could expand into other product categories . We are the we're not they don't have a specific category advisor for music , but the Alliance team sales team , we do manage and sell all the vinyl and CDs at Walmart .
Speaker #1: Currently in that as well . One thing I want to mention that I just for recalled is they advisor role also is focused on the combination of the store strategy and the e-commerce strategy .
Speaker #1: And that's something that we're right in the middle of is we do all the e-commerce fulfillment for Walmart on music and video , and so that that strategy there helps to coordinate all of that together .
Speaker #1: So that it's really an omnichannel strategy for Walmart with respect to to video and also for music .
Speaker #8: Thank you . And our next question , you talked about early implementing AI from a simple tools standpoint , how are these tools helping your teams ?
Speaker #1: Oh , AI is great . We're hot on AI here right now . A couple things we're doing . We we've definitely rolled out Copilot as we're Microsoft based company here with our software , and we've got 280 people on Copilot license actively working with that on a daily basis , helping them be more efficient and , in aspects of of doing their roles and our team is very excited about that .
Speaker #1: We have internal training programs and so forth in place , and even best practices calls that we're doing , and we're really seeing a big impact on that .
Speaker #1: I think we rolled that out in July or August of this year , and really look at it and say , you know , we continue this roll with that over , you know , this year , this 12 months , how much better ?
Speaker #1: And advance we will be next July with respect to that . On the AI side . And then the last part is we also are rolling into a HubSpot implementation on our sales management , which also involves our HR team and our marketing team .
Speaker #1: That's really going to streamline business . There . And that platform has a lot of robust tools and things . Leaning on AI strategies and abilities .
Speaker #1: There .
Speaker #8: Great . Thank you . And our next question , you've talked about momentum heading into the holiday season . What are you most excited about from a product or partnership standpoint in Q2 ?
Speaker #8: And how is the holiday demand shaping up so far ?
Speaker #1: Well , holiday is shaping up pretty well . We're we're pretty excited about this quarter that we're in . We're seeing consumer demand pretty , pretty strong across the board .
Speaker #1: And we're we're just seeing solid numbers right now . I know Vinyl's continuing strong and our handmade is is on a on a roll right now as that's building .
Speaker #1: And and the video side , we're doing a lot of new new strong things too . So . We should have a strong quarter here .
Speaker #8: Thank you . And our next question . You highlighted a significant 17% reduction in interest expense year over year with the new Bank of America facility .
Speaker #8: What's the expected annualized savings and how does that impact free cash flow trajectory in fiscal 26 ?
Speaker #1: Yeah , that was a big improvement for us going to Bank of America . We reduced our interest from sulfur for to a sulfur 1 in 5 eighths .
Speaker #1: And at that type of difference , if you run about a $60 million borrowing across 12 months , I believe that's about a million and a half interest savings per year .
Speaker #1: And so we're we're in a pretty good shape with that . And and then also will get the or have been getting the benefit of the fed rate reductions .
Speaker #1: As that has been bringing down the sulfur as well . On top of that . So we're as we move into January and beginning of of 26 , we're going to be sitting with a pretty , pretty nice interest rate cost going forward for calendar 26 .
Speaker #1: So we're pretty happy about .
Speaker #8: Thank you . And our next question . Handmade by to have robots seems traction . Our owned IP products now meaningfully lifting blended gross margin .
Speaker #1: I think I got most of that with answer there Mike earlier . It's overall margin . We're seeing good margin in handmade by robots .
Speaker #1: The overall sales volume is , you know , compared to our 11. 1 billion in revenue is not at the level that it's going to make significant impact .
Speaker #1: Yet this year in fiscal 26 . But I think you'll see impact start to in fiscal 27 . And and 28 from an earnings standpoint , there .
Speaker #8: Thank you . And then we have question . If Paramount doesn't win the bid to acquire Warner Bros . Discovery does that influence alliances chance of getting a licensing deal with Warner Brothers ?
Speaker #1: I think those are totally separate conversations . There . The the studios at some point all , we believe in the future will move towards a licensing model on on physical media , and we are positioning ourselves to be the the front runner .
Speaker #1: the place that As to studios would to move . They different time frames and initiatives within their organizations , and so but with respect paramount to the , whatever happens with , with Warner , I don't know don't I that that's .
Speaker #1: That that means one way or the other for us , there will . I , you know , this saw some more news today about David Ellison wanting to feature some more focused more on theatrical releases for Paramount .
Speaker #1: That is smack dab a for run home Alliance . If they release a few more , you know , top tentpole theatrical releases that those movies roll into our our , you release DVD after that .
Speaker #1: So we are optimistic with Paramount itself, whether they acquire one or not, that they are investing in content. That investment in content will be a positive thing for Alliance.
Speaker #8: Thank you . And our next question , as you look ahead to the rest of fiscal 26 , what gives you the most confidence in Alliance's ability to sustain the strong margin performance that you've established over the past two quarters ?
Speaker #1: Well , the the results that we've been producing the last two quarters are not they're not a fluke . There are where our business is currently , and we see a lot of strength in there .
Speaker #1: We have a lot of initiatives that we're working on for 2026 . Internal initiatives for organic growth and and other opportunities to grow the business .
Speaker #1: So we're we're pretty bullish as to what we've got . I have you have to realize that I have an all star team of people here at Alliance .
Speaker #1: It's not it's not not just me and it's not just me and Bruce . I mean , we have a significant team of all stars in all these different areas , and each one of these areas that alliance is participating in those leaders are running fast in those areas .
Speaker #1: And that's why you're starting to see this , you know , this performance and the growth that we're putting together is because we've got a big team of people that are all running fast in their in their areas .
Speaker #1: And working to add new customers , new sales , new product lines to their areas . That's all that's driving us forward here .
Speaker #1: And and part of that too , is we got remember to that entire my team here is over 700 people that are also have shares in the company went .
Speaker #1: public two and a half years As we ago , everyone on the team . Was awarded shares and I knew newcomers onto the team or in a vesting program for their shares .
Speaker #1: And so we have the entire organization on focused driving this business forward . And growing the doing great business and work . And so that's what seeing you're .
Speaker #1: And I have no reason to doubt that our team is going to to to do that all through 2026 . And beyond .
Speaker #8: Thank you . And we're coming up on an hour here . That looks like the last question that came in any final comments that you would like to leave with the audience ?
Speaker #8: Before we wrap up ?
Speaker #1: I'm just excited on what we're doing . We're , we're we're on a roll . As I just said , we've got a great team .
Speaker #1: It's fun working in the team. Everybody's working hard, and we have a lot of fun stuff coming up. So I think that's where we're at.
Speaker #1: We're super excited to be able to put together good numbers and continue doing that and driving that forward . That's what we're working right now and we're working on hard on it .
Speaker #1: And thank you everybody for joining our call today .
Speaker #3: Thank you . This concludes today's teleconference . You may disconnect your lines at this time . Thank you for your participation and have a great day .