Greetings and welcome to Alliance Entertainment's first quarter fiscal year 2027 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow today's formal presentation. As a reminder, today's conference is being recorded. I will now turn the call over to Paul Kuntz, a member of Alliance Entertainment's IR team at Red Chip. Paul, please go ahead.

Thank 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. While these forward-looking statements represent the company's current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements which reflect the company's opinions only as of the date of this presentation. Please keep in mind that the company is not obligating itself to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, management will attempt to present some important factors relating to the business that may affect predictions. You should also review the company's Form 10-K, filed September 10, 2026, for a more complete discussion of these factors and other risks, particularly under the heading Risk Facts. will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA, adjusted net income, and adjusted earnings per share. Management believes non-GAAP disclosures enable investors to better understand Alliance Entertainment's core operating performance. Please refer to the investor presentation or today's earnings press release for reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. Your hosts today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will discuss the results for the first quarter of fiscal 2027, ended September 30, 2026. Bruce Ogilvie, Executive Chairman, is also on the line and will participate during the Q&A session. With that, Jeff, the call is yours.

Thank you, Paul, and good afternoon, everyone. I'm excited to share the progress we're making at Alliance and the opportunities we're building for the years ahead. We began fiscal 2027 with revenue growth of 10% reaching $278.8 million. Gross profit grew 13% to $42.1 million and gross margin improved to 15.1%. GAAP net income increased 56% to $7.6 million and diluted earnings per share increased 50% to 15 cents. Lower financing costs and favorable changes and the fair value of warrant liabilities also contributed to the earnings increase. Amanda will explain those drivers and our operating performance in a moment. The revenue growth is important because it came across several parts of our business. Movies, physical music, collectibles, and distribution and fulfillment services. We are building on that demand while expanding the products and services Alliance can offer. Our relationships with studios, labels, brands, and retailers give us a foundation to develop exclusive products, grow collectibles, and bring authentication technology to new customers. We believe these opportunities can make Alliance a larger and more valuable partner to the companies and fans we serve. Streaming has changed how people consume entertainment, but fans still want to own something that connects them to the music, stories, and characters they love. We're seeing that in special editions, vinyl records, and collectibles. Almost everyone is a super fan of something. For those customers, the right physical product is part of the experience. Alliance has the studio and label relationships, retail reach and fulfillment capabilities to bring those products to market. We can help a partner develop a product, get it in front of collectors and deliver it to their doors. That is why we're excited about the opportunity to do more with the platform we already have. Let me walk through how that is showing up across the business, starting with home entertainment. In Q1, physical movie revenue increased 20% to 101.1 million. Our relationships with Paramount and Amazon MGM Studios contributed through new releases, broader title availability, and expanded retail distribution. Our role also increasingly extends to developing the products collectors want. Take Project Hail Mary. Our creative team worked closely with the filmmakers to develop the artwork for the Amazon exclusive collector steelbook. That is a tangible example of the value we can add beyond traditional distribution. We can contribute to the creative product connected with the retailers and handle fulfillment. That broader role deepens our studio relationships and expands the ways we can create value. In physical music, vinyl revenue increased 14% to $86.7 million, while CD revenue increased 22% to $41.2 million. Both categories benefited from higher unit sales and average selling prices. New releases, reissues, and special editions supported vinyl demand, while high profile releases and Interest in K-pop and international music contributed to CD growth. Vinyl gets a lot of attention, but the CD results are another reminder of the breadth of the opportunity. When artists offer fans something distinctive, physical music can remain a meaningful part of the experience. On the retail side, we're helping our partners offer more of these products without having to carry every item in their own warehouses. They can offer a broader assortment online while we manage the inventory and ship directly to the consumer. Distribution and fulfillment fee revenue increased 18% to $5.7 million in the quarter, reflecting higher demand for these services. Collectibles was another standout for the quarter. Revenue increased 87% to 11.9 million from 6.4 million a year ago. The category represented 4.3% of our quarterly revenue compared to 2.5% in the prior year period. Growth reflected expanded licensed offerings broader sourcing and vendor relationships, and our own Handmade by Robots brand. With Handmade by Robots, we're working directly with licensors on product development and bringing those products to market through our existing retail relationships. We're participating in design and licensing as well as distribution with the potential to capture more value from each product. We are also offering encapsulated handmade by robot figures through Alliance Authentic, which launched in January with preserved vinyl. We're preparing to bring that same approach to premium movie steelbooks, extending the offering across more of the entertainment categories we already serve. With Alliance Authentic, our goal is to offer collectors a differentiated, authenticated product. We source the products directly from the labels, studios, and brands, and fans buy them already preserved, sealed, individually numbered, and NFC authenticated. The preservation and authentication are part of the product from the start, giving the collector confidence in what they own and creating opportunities for additional services and engagement after the initial sale. N State Authentic powers the NFC authentication technology behind Alliance Authentic. We are expanding that technology beyond our own products through commercial partnerships with other companies. That creates another way to grow, supplying authentication products and services to brands and collectors We may not reach through distribution alone. Earlier this week, we announced a strategic investment in ArtPix, a company bringing original, one-of-a-kind fine art into the trading card format. These aren't reproductions. Every card is an original piece of artwork, and end-states technology gives collectors a way to verify its authenticity. ArtPix has already been using our technology and recently extended its relationship with Endstate for another two years. What I like about this opportunity is that it shows how Endstate's technology can serve different collectible categories. They expand the market we can address and give us new ways to participate in the growth of collectibles. We are also investing now in AI implementations to help us grow revenue and improve the way we operate. This work includes automating financial workflows, accelerating software development, and giving our teams more capacity to serve customers and expand the business. As these initiatives are implemented and scaled, we expect them to support revenue growth and generate operating cost savings in fiscal 2028. We will evaluate the benefits against the cost of implementation and ongoing operation. Our objective is to improve productivity so that over time, we can grow the business without a proportional increase in operational costs. Alongside our continued investment in warehouse automation, this is an important part of our effort to convert more of Alliance growth into operating income and cash flow. With that, I'll turn the call over to Amanda to discuss first quarter financial performance.

Thank you, Jeff. Turning to our financial results, I will highlight the key drivers of our first quarter performance, including revenue growth, Gross Margin, Operating Expenses, and Earnings, before discussing cash flow and our balance sheet. Unless otherwise noted, all comparisons are to the first quarter of fiscal year 2026, the prior year period. Net revenue increased 10% to $278.8 million from $254 million. As Jeff discussed, Growth in movies, physical music, and collectibles drove our revenue performance. This was partially offset by lower gaming revenue, reflecting reduced availability of Microsoft products, the absence of arcade products this quarter, and a challenging comparison against the prior year period, which benefited from the Nintendo Switch 2 launch. Gross profit increased 13% to $42.1 million from $37.2 million. Gross margin improved to 15.1% from 14.6%, an increase of 50 basis points. The improvement reflected stronger product margins partially offset by higher royalty costs associated with certain studio distribution relationships and increased freight expenses including fuel surcharges. Total operating expenses increased 18% to $31.5 million from $26.6 million. As a percentage of revenue, operating expenses increased 80 basis points to 11.3%. Distribution and fulfillment expenses increased to $12 million from 9.9 million. The increase was primarily driven by higher warehouse labor requirements associated with increased fulfillment capacity, special projects, and changes in the product mix. Importantly, hourly fulfillment payroll costs increased just 2%, with the majority of the expense increase attributable to higher labor utilization rather than wage inflation. We remain focused on aligning labor capacity with volume and improving fulfillment efficiency as the business grows. Selling, general, and administrative expenses increased to $17.9 million from $15.1 million. primarily reflecting higher employee-related costs, consulting and professional service expenses, and costs supporting our ongoing operations and growth initiatives. Operating income was $10.6 million compared with $10.5 million. While gross profit increased, higher operating expenses offset much of that growth. Improving operating leverage remains a key priority, and we are focused on managing expenses, streamlining workflows, and leveraging technology to support more efficient operations. Gap net income increased 56% to $7.6 million from $4.9 million, and diluted earnings per share increased 50% The year-over-year improvement was driven primarily by lower financing costs and favorable non-cash warrant valuation adjustments. First, interest expense declined 49% to $1.2 million, and our average effective interest rate fell to 5.3%, from 8.4% following the October 2025 refinancing with Bank of America. The lower rate more than offset the higher average revolver borrowings during the quarter. Second, we recorded a non-cash gain of 0.9 million from changes in the fair value of warrant liabilities compared with a non-cash loss of 1.5 million a year ago. That was a favorable year-over-year swing of $2.3 million before income taxes. As a non-cash valuation adjustment, this change does not reflect the underlying performance of our operations. Income tax expense increased to $2.7 million from $1.9 million, while the effective tax rate decreased to 26% compared with 28% the prior year quarter. Turning to our adjusted results. Adjusted EBITDA increased 1% to $12.3 million. Adjusted net income was essentially unchanged at $7.2 million. And adjusted diluted earnings per share remained at $0.14 per share. Reconciliations and descriptions of the adjustments are included in our earnings release. Turning to cash flow, we generated $4.3 million from operating activities. compared with $2.7 million a year ago, an increase of 58%. As we outlined in our last earnings call, improving cash generation and working capital efficiency remains a central priority for fiscal year 2027. This quarter's improvement represents positive progress, particularly as we continue to invest in inventory to support our business. During the quarter, inventory represented a $25.4 million use of cash, while trade receivable used $8.9 million, reflecting the timing of sales and customer collections. These investments were partially offset by $27.8 million increase in our accounts payable. We also reduced outstanding borrowings under our revolving credit facility by $3.4 million during the quarter. While cash flow improved, our business continues to require significant working capital investment, particularly in inventory. We remain focused on improving inventory productivity, accelerating collections, and managing working capital more efficiently as revenue grows. These efforts are central to our objective of converting a greater share of earnings into operating cash flow. Our approach to capital allocation remains disciplined and consistent. We are prioritizing investments that support profitable growth, strengthen our capabilities, and enhance long-term returns. We will remain disciplined in evaluating acquisition opportunities prioritizing strategic alignment and attractive financial returns. In closing, we delivered solid revenue and gross profit growth, benefited from lower financing costs, and improved operating cash flow. As we move through fiscal year 2027, our focus is on building on that progress, strengthening operating leverage, and converting more of our growth into sustainable earnings and cash generation. The operational improvements and technology initiatives Jeff discussed are important components of that strategy. With that, I will turn the call back over to Jeff.

Thank you, Amanda. What excites me about Alliance today is that we're building on a growing core business while opening additional paths for growth. Our distribution relationships put us close to the products and brands fans want. Our work in collectibles and product development expands the role we can play. End States authentication technology gives us opportunities to serve other companies and their customers. For the rest of fiscal 2027, our focus is on putting those opportunities to work, building on demand in our core categories expanding our collectibles offering and growing the customer base for authentication. At the same time, we're investing in AI and automation that we expect to help us generate revenue growth and operating cost savings in fiscal 2028. We have more ways to grow than we did before, and our job is to turn that potential into results for shareholders. That means executing with discipline, managing working capital and translating growth into stronger operating earnings and cash generation. I'm excited about the business we're building and looking forward to sharing our progress. I want to thank our employees for their hard work and content and licensing partners, collectors and shareholders for their continued support. Operator, we're ready to open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw it, please press star then 2. And at this time, we will pause momentarily to assemble our roster. and today's first question comes from Michael Kopinski with Noble Capital Markets. Please proceed.

Hello, this is Richard Magnuson in for Michael Kopinski. Thank you for taking our call. You mentioned fuel charges impacting freight costs. Can you tell us how much of that is continuing to this quarter? And then regarding tariffs, how much of the collectibles and electronics business is still exposed?

Hello, this is Jeff Walker.

Starting with the fuel cost, we definitely have some increased fuel costs right now with fuel surcharges. I don't consider it a super high threat to our profitability of our business, but we would definitely like to see the fuel surcharges coming down. With respect to the tariffs, Tariffs are not a big concern for us at this point. We did get our significant refund on the tariffs. We already received that money back. And with respect to our handmade by robots, we're not seeing a lot of impact on that. And then on all the other collectibles that other companies Produce that we buy from. We're not seeing a huge impact on that in our business here at this time.

Okay. And then regarding inventory, the inventory increased approximately 20% sequentially to $152 million, reflecting preparation for the holiday selling season. How much of that inventory increase represents normal seasonal stocking versus new studio licensing and collectibles opportunities and What level of inventory reduction and cash generation should investors expect during the second and third fiscal quarters?

With respect to the inventory up for September 30th, it's pretty consistent with our patterns really every year at this time. We have to bring in inventory as we start shipping even some late September but heavily in October into our major retail markets. customers, and so forth. So our inventory does go up as we really right in that late September timeframe. You will continue to see that come down and back to our normal cadence on our inventory after the holidays here. We feel we're in a pretty good inventory. We feel we're in a pretty good inventory position right now.

Thank you.

And as a reminder, if you do have a question over audio, please press star then one. And our next question comes from Thomas Forte with Maxim. Please go ahead.

Great. So I apologize for joining late and asking questions you may have already discussed, but I have a handful of questions. I'll go one at a time. So the first question I had was, you recently announced an anime related effort with Jack Specific. Can you talk about why you're doing it and why you think it's a good opportunity for Alliance Entertainment?

Thank you for the question, Tom.

So we are pretty heavy into anime, especially with our collectibles and also in some of our video content that we sell. And this is a great connection here with Jackson and Alliance. We're really focused on selling those products into the collectible stores. That is a huge sales channel for us. We're pretty significant, not only in the music stores out there, but independent collectible stores as well. So this is a good matchup for us. And we're definitely pretty heavily invested in anime products and quite a bit of our collectible growth is in that anime category as well.

Excellent. And for my second question, I had the pleasure of hosting a panel with you on it and you had some outstanding answers on how Allianz is leveraging artificial intelligence that I think investors may not fully appreciate. So can you for investors who may not have had the opportunity. Can you talk about how you're capitalizing on AI on multiple levels?

Definitely. First and foremost, I'm definitely very pro-AI CEO here, and I think it's going to be incredible for our business over the next years here as we implement more AI capabilities. We look at it kind of in a couple different ways. First and foremost, we have been focusing on how we use AI to expand our sales. And part of that is how we get more targeted to not only our wholesale customers, what's wanted and needed for their stores, but also on our consumer brands and so forth, how we can target the right customer with the right product using AI tools. and I think we're seeing some of the results of that definitely with these last, all of 2026 here with pretty significant sales increases and I do think some of our AI initiatives have been helping to drive that. The next part is we over the summer began to train a group of our IT programmers, our technology programmers and with AI tools and that's been a very successful program. We're now into round two with a secondary group of our technology professionals going through an everyday class on AI technology to help give them all the tools to really speed up our technology development and that's going to translate into some very significant wins for us. In the meantime, we're working on completing a project in the AR side with AI that's a cash application using AI. We've got a project in the works right now on our AP side, which matches up vendor invoices and receipts and all of that. We've also got a redevelopment of our web AMI, which is Alliance's B2B website, and that's a core rebuild using AI. The speed and performance of the prototype right now is exceptional, and we're adding new features to what we currently have with WebAIMI. We're purposely not rolling that out right now because it's right in the middle of Q4, but that's set for a launch in mid-January. with subsequent releases through the whole first quarter of January. That's significantly going to help our store buyers and our customers with their purchasing online and help them with suggested titles and titles that they're missing and so forth there. And then the last part of our AI initiative is with all of our business team, which is sales, accounting, purchasing and so forth there. Everybody is currently on co-pilot and working with co-pilot. Right now we're moving into the second phase of advanced training with everybody and really the intention is how are we making our team as AI fluent as possible and that's where we're going with it right now and when I look at this we're in a perfect position to to really lead in our industry with our AI capabilities. And it's gonna be extremely important going forward. And I think we're positioned really well. And the last thing I will say is we are investing some money into this right now. And it is part of our operating expenses right now with help on all this stuff. But I think just as we invest in a, significant equipment in the warehouse and so forth. We have to invest with AI training with our entire team at Alliance. And it's also a huge win for the team that's at Alliance because we all need to have a really high level of AI fluency going forward for our professions and our jobs.

All right. So, Jeff, I'm going to assume that you already talked about Grand Theft Auto 6. and how that could be wonderful. We have not. You have not?

Not yet.

Go ahead. So that would be my next question. How should we think about Grand Theft Auto 6? It looks like the gaming category was down. Can one title alone reignite the category for you?

Well, my conspiracy theory is that Microsoft is down all day today because people are downloading Grand Theft and GTA 6. The magnitude of this game is pretty incredible. I was expecting the internet to go down on next Thursday, the 19th, when you can actually play it all. It is a significant game for us. It's not going to completely reverse our gaming numbers. It is a significant shipping. We have shipped that product this week. It went out at the beginning of this week to all of our different retail partners. We are also very optimistic about the vinyl record for Grand Theft Auto that is street dating next week. And I think overall it's It's great for the entertainment side. And, you know, we have a significant amount of business this quarter, even without Grand Theft Auto. But it's a big game for sure.

All right. And then I apologize if we've already discussed this, but it looks like we had another quarter where CD sales grew faster than vinyl. Anecdotally, I feel like I'm hearing a lot more conversations about the resurgence and CDs. I'm just wondering if you feel like versus last quarter feels more durable or bigger. Any thoughts there would be appreciated.

Well, I think that's going to continue.

Same as on the vinyl side. We're not seeing a slowdown here. We're seeing consistent growth in that. We also... So I think collectors are being collectors that they're fans and they're collecting both CD and vinyl. So I think it's going to continue. I don't see any slowdown in that right now.

Excellent. All right. And then last two for me. So you've successfully called multiple bottoms. So are we closer to the bottom on DVDs?

I think we are.

I think it's either 27 here that we're at the bottom there. I will say with respect to our sales, we're seeing a resurgence on the DVD side. And we have a strength in DVD right now obviously with our Paramount and MGM side of our business. but also with those especially on the Paramount side this year we've released new catalog titles that have helped support that and on the MGM side we're working on the same thing to continue to release a product that was not available previously but I do see a trend right now on the DVD side and I think it's somewhat also going to follow along if you're following along with the theatrical numbers in the movie theaters. This is going to be the highest year ever here in 26, finally passing up 2019 and getting back on track there. So I think that's part of the growth back on the video side. And I'm actually... starting to see some posts right now of people opening video rental stores. And they will have to get product for those stores from Alliance as we're really the video distributor for a store like that. And I think a lot of us on this call would love to see a great video rental store in their neighborhood to go you know, with the family and pick out some type of, you know, some DVD to watch that night. So that could definitely be on its way back.

Excellent. All right. So then last one, and thank you again for taking on my questions. So I'd appreciate your current thoughts on strategic M&A, assuming you haven't talked about that yet. If you have, then feel free to pass on that one.

I've got a pretty robust... pipeline right now that I'm working on. It's a big, big focus for me personally right now on the M&A side. We're definitely seeing some interesting opportunities, conversations that we were in a year or two ago that we're back in those conversations. And we definitely see some good opportunities out there. And they can go anywhere from collectibles into Music and video predominantly in those three areas. And we also did the investment there into ArtPix recently. So we are looking also at strategic investments similar to ArtPix. So you have the aspect of a complete acquisition of a company and then also the aspect of a strategic investment especially if it's a company that we're working with with N State and implementing or already implementing the NFC chips and how we're helping a company like ArtPix to grow that business. I'm super excited about ArtPix. Everybody on the call should take a quick look at their website, ArtPix Artists. It's a fantastic business model. and I've talked a little bit about collectibles in the past. The one thing I love about our picks is each one of the cards is an individually drawn card from an artist. So they're one of ones and for all of you that follow along in collectibles, something that's a one of one is scarcity, you know, the top of the scarcity ladder there and So when you have a significant artist that's doing big art pieces and they're doing one-of-one cards and those cards are autographed, we have our NSC, our in-state NSC chip on the back of the card and then that's encapsulated. So now you've got the authenticity of that one-of-one card. It's a great business model. And Garib, who's the CEO there, is extremely connected into the comic book and art world. And there's just a lot of crossover between what he's doing and what Alliance is doing in the industries that we're in. So I'm super excited about that opportunity there right now.

Wonderful. Thanks, Jeff, for taking all my questions. I appreciate it.

Thank you, Tom.

And at this time, we will take the next question over audio from Steve Chick with CBIS Garden Capital. Please go ahead.

Hi, thanks. Congrats on a good quarter, guys. I want to follow up on the gaming question, you know, because as I look at the category, you kind of called out You know, the 40% decline in this quarter and reduced availability of Microsoft product. I wonder if you could elaborate on that. And then as you look to the next quarter, you're comparing against a pretty easy trend in that category from a year ago. And with GTA and anything else, I'm actually kind of wondering if the upcoming quarter could be even positive in that segment.

Yeah, I do think it will be positive in that segment because the two big things that dragged us last year was Microsoft hardware and our comp on the arcade business that we had. I think, so one of the really strong parts in our gaming business is our relationship with Nintendo on the hardware and the software and We do a lot of great special projects with Nintendo with the major retailers and so forth there. And really in today's space, it really does seem like it's Nintendo that's committed to physical gaming product for the long run. You have Microsoft and Sony really kind of on the edge as far as where their future direction is with physical gaming software. And so we're pretty well positioned and we focus a lot of our time and energy with Nintendo and helping them do well with their game launches and their hardware launches and so forth. So I do think that we have a solid, great opportunity there on the Nintendo side.

Okay, that's helpful. And then separately, the auto store lease, I think, ends the last payment, those monthly payments you've been making. I think the last one is to be made in January. Correct me if I'm wrong on that. And it's like $250,000, which is pretty significant. How's that going to show up as we head into 2027? Is that a lease expense that you're no longer going to be incurring? Or where is it? Yeah, we're...

Yeah, we're pretty happy about that. It's $250 a month. We got December and January left, and then we will not have that expense. So yeah, you will see a net income. Because it's an operating lease, you're going to see a $3 million pickup annually on our net income, our pre-tax income, without that lease payment. It's a significant win for us.

Yeah, no, for sure. And then last, if I could, so the Class E share nullification from August, is that like kind of what's the plan from here? I mean, are you kind of entertaining anything else to do with those shares? If you could speak to that, it would be great.

Right now, we're in our Inquiry Research mode on those, trying to determine what the next steps are with those. That's kind of where we're at right now. So I don't have too much other detail on that at this time.

Okay. I figured I'd ask that.

Okay, great. Congrats again. Thanks. Thank you.

Our next question is from David Heiserman with Think Equity. Please go ahead.

Thank you very much, Jeff. Can I go back to one of your exciting comments you made earlier? Is Grand Theft Auto 6 going to release a soundtrack on vinyl? Will N-State be authenticating that?

Well, they are releasing it on vinyl. The street date is November 20th. It's coming through Atlantic Records and it's got a whole bunch of A top artists on that album. A lot of songs that are in the game as well. So it's going to be a big release. And yes, we will be encapsulating a limited amount of those. But the bigger aspect is the overall sales through a lot of sales channels on that as well.

Does everyone know that or is that like an inside scoop?

No, it's pretty well out there on that. Yeah, they've released different songs already, not all the songs, but they have released some songs on it. Yeah, it's pretty well out there. It's definitely going to be one of the top 10 titles of this quarter. It could end up being the top title of this quarter. with all the major artists that are on it. Thank you.

And then in trying to get onto the ArtPix website, I stumbled upon StarPix. Is that a similar project of one of your founders?

I think StarPix is a component that Gareb was doing with ArtPix.

but we're really focused on the RPICS aspect of it. Thank you.

And at this time, I would like to turn the conference over to Paul Kuntz to review any questions submitted over the webcast.

Thank you. Our first question, what have you learned from the initial rollout of Alliance Authentic and which product categories do you see as the biggest opportunities for expansion?

So the product of Alliance Authentic is fantastic. The ability to encapsulate an uncirculated product, whether it's a vinyl record, we're doing handmade by robots, we're doing Funko Pops, we're just ready to launch some steelbook in that. And then encapsulating those and putting an NFC chip in it that authenticates that that piece is real. When you take that item and you look out 10 to 20 years down the road on those items, and then there's only a limited number of them on the vinyl as an example. One of them, to your question about what was really hot, we were at New York Comic-Con and the Rolling Stones recent album had, I think it was five different album covers that were Marvel characters on the album cover. It was a Marvel album cover. They were limited edition vinyl records and then we took five units of those and encapsulated those and numbered them one through five. So when you look now in that particular album, Those all sold out very quickly at Comic-Con. And when you take that and you go 10 or 20 years down the road, and I don't know the exact amount, let's say they sold 5,000 units of each of those albums, and there's five of those that were encapsulated, uncirculated at the beginning, you can imagine that those five are the most valuable five units of that product that was made. and that's what this is all about is creating the ultimate vinyl collectible or the ultimate Funko collectible because it's a first off known to be authentic and real. It's uncirculated and it has the chip in it and there's only a limited number of them that were preserved in that condition. So that's why I'm so bullish on this particular product Thank you. And our next question.

How much more opportunity is there to expand your relationship with the major studios, particularly beyond traditional distribution?

Well, we're constantly in conversations with all of our studio partners. You know, we are the licensee for Paramount and MGM, Amazon MGM, but also We're the third largest account for Universal, Sony, Warner, Lionsgate, Disney. The three big accounts for physical DVD at this time is Walmart and the stores, Amazon and Alliance. So, you know, we're a significant partner with all of those studio partners and we work hard to market all the product on video whether it's through our independent stores, whether it's online. We're driving right now with our own brand of Movies Unlimited that we've been focusing a lot on rebranding that, remarketing that. That website is producing serious growth in sales right now. And that website is focused on all movie product. And so we do feel that we're an integral part in a lot of different conversations with our studio partners right now.

Great. Thank you, Jeff. And we're coming up close to an hour here, so this will probably be our last question. How big is the opportunity for NSTATE Authentic?

NSTATE Authentic has – I've been working a lot with Bennett, who's the president of it, This year we've had a lot of great conversations with customers, existing customers and new potential customers. It's a very interesting business model having an NFC chip for authenticity and the areas that we can deploy that chip. We've got existing customers in the watches and the high-end watches industry. We're in a lot of conversations in the art industry. Stephanie as well on the team is still working on a lot of stuff in apparel and sneaker aspect there. Trading cards, collectibles, grading companies, all those areas are areas where an NFC chip is extremely valuable. So we're seeing some great conversations right now We are also exploring what other products on the Alliance side separate from Alliance Authentic that we can implement NFC chips in, which gives the ability to potentially add more content to that product by scanning the chip, has opportunities to create marketplaces and things like that for resale. So I'm still extremely bullish on the opportunities that we have there with N State Authentic. And Paul, I got one more thing I want to close with that we didn't talk about. One of the things, initiatives that some of you may know, we don't have a lot of press on it, but it's definitely not a secret because it's out in the stores right now. We are doing a 14 store test with Best Buy right now on vinyl records and CDs. They went live about three weeks ago in late October. As many of you probably know, Best Buy really got out of the music and even the video in the stores. And earlier this year, they approached us about doing a vinyl department and Best Buy. And we've been working on this for the last six months. A bunch of great people on the Lions team have been heavily working on this. We designed three full racks of vinyl and a CD rack. And then there's also a turntable with Victrola turntables in there. And we've got a 14-store test that went live, like I said, in October. and we anticipate this test to be successful and be looking to roll out into more than 100 plus, 100 to 300 stores in 2027 on the vinyl side there or music, not just vinyl and Best Buy and we're pretty excited to get Best Buy back in it and so I guess circling back to the very first question about the longevity of vinyl and CD. You know, now we've got Best Buy who probably 15, 20 years ago was the number one seller of music in the U.S. at one point there, getting back into having a section. They're in a prominent place in Best Buy. They allocated us a 14 foot by 14 foot section to put a music department into Best Buy. So we're pretty bullish on that. We've got a great team that's managing what titles are going in there and so forth. And we're definitely starting to see the sales click through the point of sale system there. So it's a big new opportunity. And it's exciting to get Best Buy back in the fold on the music.

and at this time, this does conclude today's question and answer session as well as today's conference. Thank you for attending today's presentation and you may now disconnect your lines.

Thank you.