Alliance Entertainment Holding Corporation (NASDAQ:AENT), a distributor of music, movies, and game products, announced a change in its accounting firm on Monday.
The company's Audit Committee and Board of Directors have decided to part ways with BDO USA, P.C., the previous independent registered public accounting firm, and have engaged Grassi & Co., CPAs, P.C. as the new auditor.
The dismissal of BDO, effective November 18, 2024, comes after the firm’s reports on Alliance Entertainment’s financial statements for the fiscal years ending June 30, 2024, and 2023, which included an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern.
However, these reports did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified regarding uncertainty, audit scope, or accounting principles.
The company disclosed that during the fiscal years mentioned and the subsequent interim period leading up to the dismissal, there were no disagreements with BDO on matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if unresolved, would have warranted a reference in BDO's reports.
Nonetheless, there were reported material weaknesses in internal control over financial reporting, as detailed in the company's Annual Reports on Form 10-K for the fiscal years ended June 30, 2024, and June 30, 2023.
Alliance Entertainment has provided BDO with the disclosure pertaining to their dismissal and has included BDO's letter to the Securities and Exchange Commission, which agrees with the company's statements, as Exhibit 16.1 in the Current Report on Form 8-K.
The appointment of Grassi & Co. as the new auditor was also confirmed on November 18, 2024. Prior to this engagement, Alliance Entertainment had not consulted with Grassi & Co. on any matters that would require disclosure under SEC regulations.
This corporate update is based on the company's recent SEC filing. The change in auditors is part of the company's ongoing efforts to address its financial reporting processes.
In other recent news, Alliance Entertainment reported a significant turnaround in net income for the first quarter of Fiscal 2025, despite a slight decrease in gross margin from 11.6% to 11.2%. The company announced a modest increase in net revenue, from $226.8 million to $229 million, and a shift from a $3.5 million loss to a $400,000 profit in net income. This marks the sixth consecutive quarter of positive adjusted EBITDA at $3.4 million for Alliance Entertainment.
Strategic investments in automation have led to a 23% reduction in distribution costs year-over-year. The company also reduced inventory levels and debt to $138 million and $85 million, respectively. In light of these recent developments, Alliance Entertainment plans to continue investing in operational efficiencies and expand licensing opportunities.
The company aims to improve margins and expand market share through new licensing opportunities in video and collectibles. Further automation investments and strategic mergers and acquisitions are on the horizon to diversify offerings and strengthen retail partnerships. Alliance Entertainment is positioning itself for growth as family-owned competitors exit the market, and major studios look to license physical media rights.
InvestingPro Insights
Alliance Entertainment's recent change in auditors comes amid a backdrop of significant financial performance and market valuation metrics. According to InvestingPro data, the company's market capitalization stands at $219.63 million, with a P/E ratio of 24.63. This valuation reflects the market's current assessment of AENT's earnings potential.
InvestingPro Tips highlight that Alliance Entertainment is trading at a low P/E ratio relative to its near-term earnings growth, suggesting potential undervaluation. This could be particularly relevant given the company's recent auditor change and efforts to address financial reporting processes. Additionally, AENT has shown strong returns over the last month and three months, with price total returns of 22.13% and 218.06% respectively, indicating positive market sentiment despite the auditor transition.
It's worth noting that InvestingPro offers 11 additional tips for Alliance Entertainment, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights could be valuable for those looking to understand the full impact of the auditor change on AENT's future prospects.
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