Alliance Entertainment Holding Corporation

Good day and welcome to iAccess Alpha's BuySide Best Ideas Summer Conference 2024. The next presenting company is Alliance Entertainment. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your questions. I'd now like to turn the floor over to today's host Bruce Ogilvie, Chairman of Alliance Entertainment Holding Corporation. Bruce, over to you.

Thank you, operator. My name is Bruce Ogilvie, and yes, thank you for taking the time today. And I'm on the phone today with my partner, Jeff Walker. And what Jeff Walker and I do is we are a distributor of entertainment products consisting of movies, music, video games, toys, collectibles. On the slide, you can see it there on the left-hand side of the screen, These are all the vendors and suppliers that we currently distribute for. We are a stocking distributor of all these entertainment products. If you look on the left-hand side there, these are like what I would call the who's who, the top brands of these major entertainment products that we are a stocking distributor of. We stock over 325,000 SKUs in stock, and being a distributor of these products, content providers and decide there, you have to be fiscally responsible, you have to pay your bills on time, it's not easy to get open with them, and you have to provide good service, no share shifting, which we're able to accommodate and do. Of these 325,000 SKUs that we actually physically stock in our warehouse, we dish these up or sell these to all these online retailers on the right-hand side of the page. These online retailers, what they want to do is they want to be as good as Amazon. They own brick-and-mortar locations. but they also want to offer products to their consumers. We have all this and we're able to package it together and put it together and make it look like it came from these retailers, but yet it came from our warehouse. So if you were to go into like a Barnes & Noble store or a Target store and you went looking for a particular album or some type of entertainment product, and for some reason they were out of it, they would say, hey, please go to our website and you can find it. They don't want you to go to Amazon's website They want you to go to their website, and that's where we step in. So you would go to their site. You would find the items you're looking for. You'd place that order. It would get shipped, and within two days, it would be in your mailbox, and you'd be very happy that it arrived in perfectly good condition. But what you don't know is you think it came from that retailer you ordered from, but it really came from us, Alliance Entertainment, with our ability to ship it directly to the consumer on behalf of those retailers. We have what we call a white label service where it's packaged and made to look like it came from them, but really came from us. And that's the secret sauce to our success there. Now, as good as Amazon is, and they are the gold standard, they are relying on us also to do fulfillment to their customers. If you go into their place and order with them, if there's order now, shifts in three hours to 42 minutes, we're part of that countdown program that Amazon has where you have to ship within six hours or less. So we're able to do all that, provide that good service there, and help these retailers compete with Amazon and make their job very simple there. The retailers have no inventory risk. We can make it very simple for them. We provide a metadata of everything that we have in stock, including the images, the artwork, and we'll basically give them in that file the total quantity on hand, what zip codes we ship it from, and what their price will be. And that makes everybody happy in the process. That's about 40% of our business is e-commerce sales we ship to these consumers. And the other 60% is just traditional wholesale where we wholesale and ship it directly to brick-and-mortar locations. Shipping to those locations there could be as large as Walmart's 3,900 locations or Target's 1,800 locations, as well as your small independent music store which is over 2,500 of them are now in the United States today. The independent music retailer is doing better than they ever have right now Vinyl is really hot right now in that category there, and they're all very profitable, which makes a very large part of our customer base. On the next slide here I'm showing you here, when it comes up there, you're going to see the breakdown of our sales by configuration. We're pretty diversified. We started out primarily as a music company, and we pivoted into movies and into video games, and now into collectibles. And we're also always looking for new products that can fit really well into our ecosystem of our warehouse. Because we have all this setting up with all these retailers we do business with who count on us for these types of services where we can easily add other products and diversify. Pretty good links there if you get a chance to look at our deck there. Talk about the growth of vinyl, there's a hyperlink there. And the other side we have these collectible products also that we're doing. And that's really our next growth area working to add a fifth strong category there. And we have the four strong, three strong categories right now with the collectibles and expanding the data to be so much better there. Next slide here, I'm going to show you here, is we're trying to build a moat around our, I'm sorry, our acquisition history, just a bland slide. We like to, I'm sorry, my slide went out of order here. My bad. What I wanted to talk about is that we're trying to build a moat around our business. $200 million of our $1.1 billion comes from independent products that we're the exclusive distributor of. And the best thing about being an exclusive distributor is we have no competition. It's broken down into two different divisions, distribution solutions and AMP. What these are are independent labels or independent... uh, studios that we are the sole exclusive distributor of the physical product. And this really creates a sticky relationship with all our retailers. And the best thing is we don't have any competition. DS consists of 62 labels, uh, and those 52 labels that makes about 120 million of our 200 million and AMP has 90 labels, which makes up about 80 million to 200 million. The third category that we have there is a Mill Creek. Uh, Mill Creek is our licensing division and where we are is we're licensing the physical content there. And when we say we license it, it's a higher margin area for us if we are the licensor as well as the exclusive distributor, and it just complements what we already have in place there. Currently, you can see there we're doing Disney, Sony, Universal Pictures, Lionsgate, CBS, Paramount, and some other independent studios. You might say, well, why would we want to do this? Well, we really believe that physical product is never going to go away. There's always going to be a need for it. It's a very convenient item there. It has a higher price. higher clarity, which you can see the resolution is better. There's no latency. And as all these big, huge companies that we showed earlier there, the more their business becomes highly digital, their core competency of manufacturing and distributing physical product is not as strong as it used to be. That's where we step in and we can take over all that. And ideally, in the long run, we would be the licensor of all that content there. We could have 100% market share instead of a smaller market share than we have right now. This is really, when we look at this as a growth category for us, where we're just going to expand as the market, as the overall changes in the market place, which everybody is aware of there, we can come in and step in, and we can be, you know, have a greater market share, even though as the market may be declining in some areas there, But overall, our total business will grow because we'll have higher market share.

Real quick, this is Jeff Walker. I just wanted to add to that. That area there of exclusive distribution is a big area where we're in different conversations from an acquisition opportunity. There's definitely a lot of roll-up strategies within that exclusive distribution channel there that we're currently involved in.