Before we begin, please allow me to briefly read this Safe Harbor statement. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements pertaining to future financial and/or operating results, along with other statements about the future expectations, beliefs, goals, plans, or prospects expressed by management, constitute forward-looking statements. Any statements that are not historical fact should also be considered forward-looking statements. Of course, forward-looking statements involve risks and uncertainties. I now turn this webinar over to Bruce. Please go ahead.
Hi, Craig. Thanks so much. Thank you, everybody, for joining us today. Alliance Entertainment, I'm the Chairman of. I've been with the company since 2001, and today is our Investor Presentation for our results as of September 30th, 2025. Our fourth quarter results will be released February 12, so we have that to look forward to in the coming future here. Sorry about that. So the quarter that just ended, this is if you're new to us, we had a fantastic quarter that just ended. For those that are not new, you've seen these results before there. We're very, very happy and pleased with the performance we had there. Just kind of record-breaking quarter for us there, growing in all our categories that all our cylinders are hitting all at once and firing appropriately at the right time.
In addition to our record-breaking quarter, we introduced HubSpot. We're in the process of transitioning to that, getting our team to be on that. The HubSpot is a very powerful tool to really help us drive revenue, increase sales, not for any usage of to eliminate employees or anything like our headcount, mainly to continue to grow our sales without having to hire additional people to support those sales. We look for a HubSpot to be great to strengthen that category to help us there. For the quarter there, we have our Handmade by Robots, which is adding to our business here.
I have some other great announcements to make towards the end here, but we also added Virgin Music Group for that quarter there. So that really drove our sales. All these new things and things that we're adding there are just really making our company do really well and perform well there.
In case you don't know, we are a supplier of entertainment products. Over 325,000 SKUs that we stock in our distribution center. You can see it behind me by the screen there. It's just one little snapshot of our warehouse there. I'll let the little camera take a little drone ride behind us there. Inside this facility in Shepherdsville, Kentucky, those 325,000 SKUs and almost 871,000 sq ft, where we're pushing over $1 billion of revenue out of that location there. You can recognize all these top 10 suppliers that we deal with there. These are real, as far as entertainment products of movies, music, video games, toys, and collectibles.
We are a distributor for these, and we add value to the marketplace by carrying all these and by stocking all these SKUs and all these products. We sell it to all these different retailers that we partner up with. This is just kind of our top 20% of our customers do 80% of our revenue. And you can just see that these are really strong retailers that really rely on us for our service, our fill, our selection, and our technology there.
And we come in by offering all these products as well as stocking these products where we can ship either directly to their store or if we want us to ship directly to the consumer on their behalf, we can do that also. 40% of our businesses, we're actually doing drop shipping on behalf of these retailers as well as our own brands. And that allows us to help them carry these products without any inventory risk. And they rely on us to provide all that for them, which we do really well. Just a rough breakdown of our sales, how it goes. Vinyl, you can see right around 31% of our business. If you look down below, you see CDs is another 11%.
So the music category alone is over 40% of our revenue there, breaking down between vinyl and CD. Not to mention video. Video, you can see it's up year over year. A lot of that has to do with the Paramount news that broke earlier this year. And so that's going really well. And we're happy with that whole situation there. Our gaming category continues to have, you can see the headwinds we've had there in the gaming category. And I'll talk more about that later. Collectibles is there. We're really trying to grow there. That's using that with Handmade by Robots to be that area there.
Just roughly, you can just see here how our earnings per share are growing there. You look at the revenue there, it's pretty constant there. $1.1 billion, $1.1 billion range. Trailing 12 months is close to $1.1 billion there. Our earnings per share are right around $0.09 in fiscal year 2024. We went up to $0.30 in fiscal 2025, which ended June 30th, and then on September 30th, we picked up another $0.08 there. It was close to $0.09 there, but our trailing 12 months, it's $0.38, so you can just see that as the months go by, the quarters go by, we just continue to improve our earnings per share.
On the far right there, you can see our adjusted EBITDA is also growing. So 2.2%-3.4%. That trailing 12 months number again, roughly at 4.2% there. I know the closing price here is showing $0.675. That was back on November 12. Today's right around the $8 range there. So you can see we've improved from that time there. Then you can see our cap table there, 51 million shares outstanding. We're also employee-owned, 3.1 million shares in the float there.
Just the same highlights I kind of talked about already. You just see for the quarter there, basically the fiscal year 2025 quarter versus 2026. So it was $0.01 a year ago, the same quarter up to, I know I said $0.08 there, but it's $0.10 was for the quarter of what it came in there for the current quarter that just ended September 30th there. See our net income is up as well as our EBITDA there.
What do we believe in? We believe in we're the engine of the collectibles value chain. We have all these different collectible-type products, movies, music, video games, toys, and collectible. And we're just looking to be the leading guy in this category, this type of entertainment products and category departments. And that's what's really allowing us to grow, and that's what really keeps us relevant in the marketplace and the go-to place for consumers and retailers who want to purchase from us. We have that area pretty well under control there.
What makes us so good is our warehouse in Kentucky. I've showed you that picture in the background there. And what's driving that is we have this AutoStore. AutoStore is our automated storage retrieval system that we use for picking vinyl. It's been a real cost- saver for us. It's been saving us, making us more efficient there. We just finished our third full year of using it, so we're starting our fourth year. We purchased this about a $10 million purchase, but it saves us anywhere between $3 million to $3.5 million dollars a year in labor savings and payroll savings there. Just makes us way more efficient there. It also gave us additional storage space, so we were able to expand and have more storage capacity. This just makes us way more efficient in adding value to our business there.
What's getting us our sales and our independent stuff is we sell to all these independent retailers. They really rely on us. We service over 3,500 independent music stores there. We're a proud supporter of Record Store Day. It happens twice a year, April and November. It's very strong for us. And every year, Record Store Day just gets bigger and better. And I'm sure it'll be bigger next year when it happens again because it always seems to. We're powering direct-to-consumer and B2B sites there. You have all these retail sites where they rely on us to do drop shipping on their behalf. As I said, between 37%-40% of our revenue is where we're doing drop shipping, shipping direct to consumers on their behalf there.
We have our retail group, and these are all these different retail brands that we have that we use to sell direct to consumers. This allows us to reach the consumer in ways they may not be able to reach on their own, helping them buy the products they want. And at the same time, it gives us opportunities that we have inventory that's not selling as fast as we thought it should. We can use that as a vehicle to get a higher recovery and mitigate any inventory write-downs, which is always a concern.
Just recently, in this quarter, we became the Category Advisor for Walmart. That's a very important category there. Walmart is relying on us to advise them on what the right movies are to have in their right departments and what areas. We tell them what titles they should bring in. There's a Chinese wall between us and Walmart. There's a third party we use to help them do that. And then what studios that should participate and what shelf space and locations they should get there. It's all about exclusive distribution and licensing. We're trying to build a moat around ourselves there. We have all these different little buckets there, so I'm going to talk about Alliance Home Entertainment, Handmade by Robots, Wētā and Master Replicas there. I'll jump into it here.
Alliance Home Entertainment, big news there. We got Paramount Pictures to be a studio that we took over their Home Entertainment division. So we are licensing the content. We're manufacturing and distributing, selling it to all the same retailers they used to sell to, except now they just have to sit back and allow us to do their work. It allows them to reduce costs. They can reduce headcount. We just basically take over their Home Entertainment department.
The one big question everyone's always asked is, okay, when's the next big studio you're going to get? That next big studio happened. We signed an exclusive agreement with MGM Amazon. Amazon owns MGM Studios. Over a year ago, they bought the studio there. Amazon really, or I should say MGM, really wants to be in the home entertainment space. They have plans to put out eight or between 14-18 movies in this current calendar year that we're in.
This agreement just started January 1st. And we're really proud of the fact that they picked us and chose us for our skill. We had other competitors that they were talking to. But in the end, with what they'd seen we had done with Paramount and what we could do as a company and the kind of marketing we do to help them, they agreed to go with us. And we're very excited about that. In addition to just not all the movies they put out, Amazon has a huge catalog of content that they have on their Prime platform there. Those are things that we'll be able to put out there, take advantage of there, and expand that catalog.
There's a lot of demand from consumers. Even though they can stream it and watch as much as they want, they still want to own a physical copy of a particular very popular TV series, even streaming on Paramount or on Amazon there. We're always kind of blown away by how many people have seen Yellowstone anywhere and everywhere they can, but still they want to buy their own DVD version or 4K version just because they're a collector. They want the special packaging. That's where we come in. We add all that value in the marketplace there. We've got Paramount, and now we've got Amazon, MGM, which is going to be a big, big plus here. We're very excited about that.
And that's just going to help our revenue for this calendar year and starting up. Just kind of be a repeat of what we saw last year. Those who've been following us, you just saw that our earnings really took off last year. And that was with the addition of Paramount really added that tailwind there as well as Handmade by Robots. And now we're going to be adding in Amazon MGM Studios.
Our AMPED music division, that's a division where we have over 100 labels, 110 labels that they rely on us to be their exclusive distributor. We have this inventory and consignment. We sell to all these retailers. So all these labels that don't want to go through the major distribution and they want to do it themselves. So we like to think of AMPED as the fourth major. There's three major record companies. You have Sony, and you have Warner Bros., and you have Universal, and then you have AMPED, and AMPED every year just keeps growing.
I talked about, we just added a Virgin Music Group. That was a big coup for us to get that there, and AMPED is having its best year ever this year there, and we're going to get the benefits of that. Very strong in the current quarter that we're in, so we're really happy with how the AMPED is really growing for us there. Handmade by Robots. That's something we picked up last year. We bought the IP for this. You can see all these little forms. They're called form factors. It's these little characters you can see on my screen here. We've been very busy licensing a lot of content, getting it available in retail, getting shelf and positioning there.
We're pretty excited about how this line is growing there. We have a lot of stuff planning to come out in 2026. Ultimate goal is to get it this calendar year that just ended to be right around 10 million. We're a little bit shy of that. Didn't quite hit the 10 million number there. But we're seeing good things happening in calendar year 2026. But I think I mentioned Record Store Day earlier. One thing we have coming up is a pretty strong exclusive for Record Store Day. I don't want to say release the title yet because I don't think it's been released. But we're pretty excited about Handmade by Robots we have coming up for Record Store Day.
Wētā is just one of our other lines. I'll skip over that there. So how do we grow? Where do we go? What do we do? We got to where we got by doing a bunch of acquisitions. I joined the company in 2001. Between that time, Jeff and I, my partner, the CEO of the company, we did 15 successful acquisitions. We went from roughly $18 million a year to a little over $1.4 billion, all by new acquisitions. We're always trying to do that.
Speaking of acquisitions, I was just going to mention that just as of the end of December there, I bought a company called Endstate. Endstate is a very strong company. It's a technology company, which is really great for us. It's really going to complement Alliance Authentic, which I'm also going to talk about. The Endstate relies on technology where you can really help in controlling any type of the counterfeiting of merchandise there. So it uses an NFC chip that we can put into the product as part of the manufacturing side there. And when you take your cell phone and scan that chip, which is very easy to scan, it takes it to a portal to a website there where you can authenticate the product that you have there. So this is really going to work well in peer-to-peer websites and other planning that we have to share there.
There's going to be a lot more to come out on it there. And you'll hear me more about it there. We're working on a good press release to describe it better to the marketplace there. But that'll be coming down, s o Endstate Authentic. And then that is going to be working in parallel with Alliance Authentic.
We've talked about Alliance Authentic at the last in October there. Basically, what we're talking about is we're taking product that we're putting and taking an LP and kind of think of it like an uncirculated coin. And when we were kids, Jeff and I, we used to get these offers where you could buy uncirculated coins, and they came in a nice, beautiful plastic case. And then they've never been circulated, so they're in mint condition. Well, we have access because we are a distributor of all these entertainment products that we can take those items, put them in the vault.
We call it the vault where we think of items down the road that they're going to be some type of collector piece, encapsulate them in a beautifully sealed case there. And then at the same time, also include the NFC chip that we got from Endstate. And then, now that product is all sealed, it can also be numbered in any way you want it. It'd be limited numbers that we'll put out, limited quantities, so it creates scarcity.
And then when you buy that product and you have it, then you can also register your product and put it on the Alliance Authentic portal or website there. That's when you scan that NFC chip on the product. It'll take you to that portal. And that portal will then let you know that what you have is authentic and you didn't have to get some counterfeit item there.
At the same time, you can register your product. It makes it really easy to register. And then once it's registered, then everybody knows where this product is and what it is and what's out there. If for some reason you were lucky enough to get the number one of 10 and somebody wanted to buy it from you, they might approach you to buy it on the marketplace there in that peer-to-peer marketplace there where those items can be sold.
Alliance will be the gatekeeper or the supporter of that marketplace there. It just won't stop with vinyl. It could be many of the other products, the collectibles that we have. There's all kinds of items that we sell where we can create this, encapsulate it, and number it, and then put the authentication built into it there. Big, beautiful things are going to happen with that. We're pretty excited about that. That's all planned for 2026. So you got Endstate Authentic, and then you've got Alliance Authentic. Those two together are really together working really well.
With Endstate, it brings us all that technology. It's all licensed. It's got patents. We're talking to a lot of other retailers to help them, not retailers, other labels and content holders to come up with ways where they can protect their goods from counterfeiting, authenticate it, and we'll be specialized in that area there.
We've added some very strong people to that team that's going to do really well. So we're pretty excited about there from that standpoint there. The insider ownership, Jeff and myself. So Jeff is the CEO, you can see there, and I'm the Executive Chairman there. The insider ownership is pushing right around 78% there. So that's a good thing. And part of some of the ownership, there's a trust account for my children there. But that puts the insider ownership right around over a 90% ownership there.
Jeff and I have been doing this for a long time, and we really believe in the company. And we think just making the company well capitalized, becoming a public company, and just leading it for the next period there, we'll have this company be around forever. There is just no shortage of products and content and things that we can distribute. It's very easy for us to pivot and diversify and go in other areas there. And then that's what we're really good at there. Very strong sales leadership team here that we have there. Just a lot of strong people that we rely on. Because we've done all these acquisitions that I mentioned earlier, we really picked up the cream of the cream of people that really add value to the company there.
They're really good at what they do, and they make Jeff and I look very smart, and we just realized that we can build a strong team around us. It makes us look really good. We've made them all employee owners, so everybody's vested in the company. Everybody is all rowing in the same direction. We're trying to drive shareholder value. So we're very excited about all that there.
More on the sales leadership team here, you can see there. We cover all areas of the marketplace there where we're selling to large chain retailers. Dean up there, you seeing he heads up our AMPED division there, and we have our Alliance Home Entertainment division. As you can see, we're just very well diversified. More on the operation side of our people here, and then operation leaderships, IT, it's all about IT to get everything done.
We have a very strong board here. So we have independent directors there outside there. So there's five outside independent directors there. Jeff and I are the two insiders for a total of seven there. We just recently added Sheila and Dmitry there. But Terri, Chris, and Tom have been with us since day one there. Terri heads up our audit committee there. And so we're adding that. So we're pretty happy where the company is there. Looking forward to meeting with our two new board members. I mean, we've been working with the two new ones for a couple of months now, but they're going to add a lot of value. And of course, our three regulars, we can always rely on there.
Just some rough numbers here. These are just more detail of our numbers there. I think the only thing I'd like to highlight here is we look at our distribution of fulfillment expense, and you'll see it's staying right around 3.9% there. Our SG&A as a percentage of revenue went down a little bit there. You can see our interest expenses going down. The reason it's going down is we're borrowing less money, for one thing. And we just had a new line of credit.
We just changed from White Oak to Bank of America on October the 1st. So our cost went from SOFR to 4.5, 4.0, I should say. So it broke down to SOFR plus 1.625. So that's a big win for the company there. And as our profits grow, our interest costs are going to go down because our borrowing is going to be down. So it's just a big win there.
Just on the balance sheet here, a lot of people say, "Gee, you guys don't have much cash." We have a lot of cash. The cash is basically our availability of our line of credit, which is between north of $40 million-$50 million. So we have a lot of dry powder to do acquisitions there. And our cash is always swept every night to pay down our line of credit. Speaking of that line of credit, you can see there that it's right around the $65 million range. So there's a shareholder loan there that's now been retired. So all in, it's about $65 million. And we're expecting that over the next few quarters, that's going to drop down to the $30 million range because we're generating so much free cash flow there.
I think with that, I'm ready to open it up for a Q&A right now for anybody.
Thank you very much, Bruce. As Bruce said, we are opening this event up to your questions. Click the Q&A button and type in your question if you would like to type your question into the text box, or you can use the raise hand button, and we will allow you to speak to Bruce. Bruce, we've got a couple of questions already here typed in. Can you discuss who your key competitors are, such as who you beat out for Amazon MGM?
Amazon MGM, they could have stayed with Warner Home Video, but they chose not to. And then the other company is SDS, that's Studio Distribution Services. That's a joint venture between Universal Pictures and Warner Home Video. I don't believe they had any conversations with Sony Pictures, but those were probably the ones that we were up against. I can't tell you for sure because I was not told that, but I just know that from my experience and being close to the situation.
Thanks, Bruce. What percentage of revenue does the Paramount contract represent, and is it growing?
We're not really showing that out just because we're trying to be sensitive to Paramount as a public company. Maybe you could look at our video sales, and you could see what they've grown. That might give you an indication, so you can see video where it was for the quarter and look what it was year- over- year and look how much it's grown. It wouldn't be all Paramount.
Also, we have other studios that we also have exclusive distribution for, so there's two kinds of video distribution that we do, and I forgot to mention this, but for Alliance Home Entertainment, we have over 60 studios that we're the exclusive distributor of them, but we don't license the content. We exclusively distribute and sell it to the retailers on their behalf, kind of a consolidator, the same way that AMPED operates, and so we have those studios.
And as time goes on, we're always able to pick up more of those studios. But what really drives the needle for us is when we were able to license the product like we did with Paramount there, which really added a lot to our bottom line.
Thank you, Bruce. EBITDA grew more than 250% year- over- year in the first quarter of your fiscal 2026. What are the key operational drivers behind that margin expansion, and how sustainable is it?
Every quarter is not going to be like that quarter, so no. Mainly, two things that kind of drove it there is our gross profit really, really went up, so you can see we went from 11.2% to 14.6%. That was Handmade by Robots and Paramount. It definitely impacted that. Our sales in hardware, we have a lot less hardware sales than we had with Microsoft, and that's great top line, but it's really low gross margin. So we've been specializing in trying to work with getting out of low margin sales and trying to get higher margin sales, and that's something that all our shareholders have been asking us to do, and we'll continue to head down that path in calendar year 2026.
Bruce, with D2C now contributing roughly 37% of net revenue, where do you see the highest margin opportunities between D2C and B2B going forward?
I think they're both about the same because in direct-to-consumer and doing dropshipping on behalf of the retailers, we definitely don't have the same freight expense we have when we're shipping direct to the stores. When we ship to the stores, a lot of time the freight side of that is being handled mostly by us, some by the retailer, but not always. But when you're dropshipping on behalf of the retailers, that freight is usually handled 100% by that retailer. So the price of the product and shipping product into store, and there could be merchandise that could be involved in different things. So there's pros and cons on both sides there. I can't say we prefer one over the other. They're both equally, we like them both just the same.
Congratulations on the Amazon MGM win. Can you provide some sense of the scale and economics of that agreement and what it might contribute in 2026?
I think it'll be very close to what Paramount did for us. Listen, Paramount is not going to be asleep at the wheel in 2026. They're wanting to put out a lot of pictures. And they want to grow. And I'm sure you've read everything to trade how they want to grow. And Amazon's just right up there. I think where we're going to have a pickup, maybe a little bit over Paramount, but not much, is taking advantage of their catalog that has not been worked as well as it was last year. So it's right in that range, but I can't say if it's actually going to come to fruition. It really depends how the movies do at the box office, which we don't have any control over that.
Creating collectible vinyl is adding to a wonderful market. Vinyl collectibles are over the top passionate about their rare records. I guess he meant collectors. Vinyl collectors are over the top passionate about their rare records, especially the limited COLV, if you know what that one is. COLV in all caps. Maybe this person could write again and explain what he meant there. Especially the limited COLV should be big down the line. Thank you. Oh, I guess it's just a comment. Do you have anything to say?
We agree. I mean, people have been collecting vinyl for years. But we're just going to make it a little more structured. And with Alliance Authentic, it'll be like I was going to say we call it the Uber vinyl collectors on Alliance Authentic. But people do collect vinyl. There's a lot of vinyl. People buy vinyl, and they don't even open it up. Or they'll buy two copies, one for they play and one they want to listen. We just think that seeing how the collectible market is so strong and what can we do and take advantage of our situation as a major distributor of collectible vinyl or any collectible, whether it be toys, movies, video games, we see a tremendous opportunity to take advantage of that there.
And Alliance Authentic is going to be a foundation for that, especially the peer-to-peer where collectors have the ability to sell it very easily and register very easily. It's pretty seamless. Just a little end state with what they developed there and just for holding your phone up. You don't have to have an app to use it. You just hold your phone up to the NFC chip that's inside.
And they're not very expensive, the chips, but you put that on there. And it's like a QR code that takes you right to the portal. And boom, put your information in. It's registered. Now you know that's a valid item there. And now it's just available for people who might want to buy it. There might be some guy that says, "Look, I got to have the 1989 number for Taylor Swift." I'm just making that up. I'm not saying that would really happen there. Or it could be Travis's number, 87. So who knows?
Yeah, thanks, Bruce. And this person wrote in and said COLV means colored vinyl. Colored vinyl.
Yeah, there's lots of colored vinyl. They make different variants. When you come out with, we've had many different records that we've distributed, and to create exclusivity for a particular retailer or for a particular event, they would do colored vinyl in different colors, or there could be vinyl in just variant colors and spread all around there, so it makes it very colorful, but yes, totally agree.
Thank you, Bruce, for that. Again, to reach Bruce, you can use that text box that will open up when you click on the Q&A button. Then to the left of that, you'll see the raise hand button if you would like to speak to Bruce.
Bruce, Handmade by Robots continues to gain traction. What are some future opportunities or brands you see in that market, and how will collectibles become as a percentage of total EBITDA over the next few years?
Our three-year plan with Handmade by Robots, we'd like to get it to $100 million. We feel we can do that licensing the right titles. We just got signed up with Disney, so we have the Star Wars titles coming out there. All the Peanuts characters are all coming out. There's other ones in the pipeline there. We're constantly sending out on social media alerts about what's happening, what's going on. We have people to talk about it.
We just did a live event, live TV with the Walmart on that, promoting the new titles that were coming out. I think we're pretty happy with how it's going there. Yes, by the end of three years, $100 million, that would add about $40 million with the EBITDA. Now we're just getting through the first 12 months. We came in a little light of that $10 million number we were hoping for there. But we're pretty sure we can get back on track. So over the next two years, we can get up to that $100 million number.
Alliance now distributes more than $365 million in exclusive licensed content every year. What additional licensing categories or franchises could materially expand that figure?
Just adding the MGM Amazon, that's going to add another $40 million in range. Could be less than that or more than that. That'll add to that there. We do have another big label coming in that's going to be part of the AMPED group that's coming in. We're constantly always working on exclusive licensing distribution opportunities.
As a Category Advisor for Walmart Video, how does that strategic role enhance Alliance's competitive moat without creating any conflicts of interest?
Obviously, we can't push only our products. It has to be what is best for Walmart, and that's very typical Walmart. They have one for all their departments. They have a category advisor. On the music side, we're basically the Category Advisor because we supply all the music for Walmart 100%. They don't deal with anybody else, but on the video side, they deal with other studios, and so they rely on a category advisor who will then pro rata share their expenses with all the studios, and then it's up to us to use all our information and our knowledge that we have available, but once again, there's a Chinese wall between Alliance proper and the Category Advisor, so we're giving Walmart the best advice that they want, so we want Walmart to succeed and be happy.
We want those departments to grow because we don't want them to shrink the departments and get out of video. Most retailers shrink down their video departments. Best Buy totally got out of it there, but Walmart has a belief they want to be the last company in it, so we need to do everything in our power to make sure that they're getting the ROI they want. They're getting the turns, and they're getting the sales movement that justifies the sales per square foot, so we're highly motivated to make that all work.
Inventory levels increased ahead of the holiday season. How confident are you that automation and demand visibility will translate this into higher free cash flow?
Well, inventory always goes up before Q4. You have to remember Q4 is one extra month. You take the first nine months divided by nine, and if you want to know what we plan to usually do in the quarter, you multiply that by four, so we're very confident that we've demonstrated a year of, well, we had a bad year there with the arcades. We got stuck with a lot of inventory because of the supply chain issues, but historically, normally, we'll ramp up before Christmas, and then when we come out of Christmas, we want to make sure we're at the right level of getting the turns that we're getting. We're turning our inventory pretty much over seven turns a year. That's pretty good for a distribution company there, especially considering the big selection that we have there.
We have time for a few more of your questions here. The balance sheet shows declining leverage year- over- year. How does management prioritize debt reduction versus M&A in this current environment?
Obviously, cash is king. That's why I would say that. Cash is always king. We have to generate profits and free cash flow to reduce the debt. But having dry powder and having our borrowing cost of money so much lower than what it was when we were at SOFR at 4.5 versus a SOFR 1.625 , Jeff would much rather, and I totally agree with him, that if we have this available line of credit, we should be using that to find other businesses to buy or do something to use that very low cost of capital to buy something that's going to generate us a higher rate of return. And so that's kind of how we look at that balance there.
We don't want to be at $160 million worth of debt service. But at the same time, it has to be the right balance there. It's very important to our suppliers that they see us, that we are making money, that we are generating free cash flow. We don't have a lot of debt, but it's relative debt supported to the size of our business. And you have to have a balance there. And at the same time, we don't want to issue shares of stock to buy other companies because that creates a dilution to the shareholders. They're not happy to hear that. Nor are we because we're large shareholders too. So that's kind of the big picture.
Thanks a lot, Bruce, for those answers. And of course, thank you to our attendees for your great questions.
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And finally, join RedChip's next webinar with Jupiter Neurosciences tomorrow at 4:15 P.M. U.S. Eastern. Register for all RedChip webinars at redchip.com/events. Thanks again to those many participants today. And thank you, Bruce.
Thank you.