ALLIANCE ENTERTAINMENT HOLDING CORP

Current report

Year over year, vinyl record sales increased from $70.5 million to $75.8 million (+$5.3 million, +7.6%) for the three months ending September 30, 2025. This growth was driven by an 8.3% increase in sales volume, partly offset by a 0.7% reduction in the average selling price. The modest decline in pricing was outweighed by higher unit demand, resulting in overall revenue growth of 7.6%. The increase in vinyl record revenue reflects continued consumer demand for physical music formats, particularly among collectors and enthusiasts seeking premium and limited-edition releases. The higher sales volume was driven by strong new release activity, expanded retail distribution, and the ongoing popularity of vinyl as a preferred format among both legacy and emerging artists.

Current report

Music Compact Disc (CD) sales declined modestly from $34.4 million to $33.9 million for the three months ended September 30, 2025, representing a decrease of $0.5 million or 1.4% year-over-year. The decrease was driven by a 5.2% drop in average selling price, partially offset by a 4.0% increase in unit volume. The modest decline reflects the continued shift toward streaming and digital formats, though demand for K-Pop titles and collectible editions helped support pricing and limit the overall revenue impact.

Current report

Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, rose from $52.9 million to $84.0 million (+$31.1 million, +58.7%) for the three months ended September 30, 2025, compared with the same period in the prior year. A 2.5% increase in average selling price, together with higher unit shipments, drove substantial year-over-year revenue growth. This strong performance reflects a consistent flow of theatrical releases and sustained consumer interest in premium formats such as 4K Ultra HD and collectible SteelBooks. The launch of a new exclusive content partnership earlier in the year further expanded our film portfolio, introducing several high-profile titles that bolstered both pricing leverage and in-store visibility. The continued shift toward premium, higher-margin content supported the improvement in average selling price and offset softness in lower-priced catalog products. Looking ahead, we expect this trend to persist as retailers emphasize curated, high-value selections and omnichannel strategies, positioning the Company to maintain growth momentum across its physical media segment.

Current report

For the quarter ended September 30, 2025, consumer products revenue, which includes both collectibles and electronics, rose from $7.3 million to $8.3 million (+$1.0 million, +14.4%) compared with the prior-year period. Within this category, Collectibles revenue grew from $4.8 million to $6.4 million (+$1.6 million, +31.9%). Although unit volume declined by 27.5%, the sharp 81.9% increase in average selling price more than offset that drop and drove the revenue advance. Following our acquisition of Handmade by Robots, completed in December 2024, we launched an enhanced pipeline of theatre and streaming-tie merchandise, positioning the business for increased collectible and merchandise sales and improved margins. The global collectibles market remains robust and projected steady growth. We continue to view collectibles as a key and profitable pillar of our entertainment-driven consumer products portfolio. Electronics revenue totalled $1.9 million, down from $2.4 million in the prior year ($0.5 million, 20%). The decline was primarily driven by a 34.2% reduction in average selling price, partially offset by a 21.6% increase in unit volume. The lower pricing reflects ongoing competitive pressures and changes in product mix, while the increase in volume suggests that demand remained relatively stable compared with the prior-year period.

Current report

Gaming product revenue declined from $57.1 million to $45.6 million (-$11.5 million, -20.2%), reflecting a broader slowdown in the gaming industry. Unit volume increased 42% year-over-year, while average selling price fell 43.8%, partly due to a pause in arcade hardware purchases following a reassessment of vendor partnerships, as well as limited hardware availability and delays in major game releases. Despite these factors, demand remains strong, with the market anticipating next-generation high-performance consoles. As a distributor of physical gaming products, we continue to adjust our offerings to align with consumer trends and maximize profitability, while monitoring potential supply challenges arising from market volatility and trade tensions with China.

Current report

**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, increased from $203 million to $217 million (+$13 million, +7%) year-over-year, reflecting the direct relationship between product costs and higher sales volume. Gross margin dollars rose $12 million, driven by both increased sales and improved margins. For the quarter ended September 30, 2025, gross margins expanded from 11.2% to 14.6% (+3.4 percentage points) compared with the same period of the prior year. This improvement was primarily supported by higher average selling prices and the successful launch of a new exclusive content partnership earlier this year. Additional factors contributing to margin expansion included enhanced inventory management and slight improvement of freight costs, which collectively strengthened overall profitability.

Current report

**Operating Expenses:**Total operating expenses for the quarter increased from $23.4 million to $26.6 million (+$3.2 million or +13.7%) and increased as a percentage of net revenue versus the same quarter prior year from 10.2% to 10.5%. Total Distribution and fulfillment expense increased from $9.0 million to $9.9 million (+$0.9 million, +10%) but remained consistent as a percentage of net revenue at 3.9% for the three months ended September 30, 2025, versus the same prior year period. We continue to invest in warehouse automation to reduce the need for total warehouse labor and utilize temporary labor forces to manage changes in demand. As a result, even though fulfillment payroll increased from $6.3 million to $6.4 million (+$0.1 million, 1.7%), it improved as a percentage of net revenue from 2.7% to 2.5% for the current quarter verses prior year. Average labor costs per hour were up approximately 3.0%, reflecting market conditions. The May 2024 consolidation of our Shakopee, Minnesota warehouse continues to drive cost savings and operational efficiencies through centralization.

Current report

We continue to identify and implement business-process changes aimed at improving overall efficiency and supporting long-term scalability, total selling, general, and administrative costs increased from $13.1 million to $15.1 million, a rise of $2.0 million or 15.1% year over year. This increase reflects strategic investments in infrastructure, technology, and personnel, including the addition of team members to support our new exclusive content partnership, all aimed at strengthening operational effectiveness and positioning the business for sustainable growth. Depreciation and Amortization remained consistent at $1.3 million for the quarter ended September 30, 2025, over the prior year period.

Current report

For the three months ended September 30, 2025, on net income of $4.9 million, the Company generated $2.7 million of cash from operating activities, compared to $11.6 million of cash used in the prior-year period. The year-over-year improvement was primarily driven by higher profitability and more efficient working capital management. Accounts payable increased by $18.6 million, compared to a $43.0 million increase in the prior year, reflecting more normalized purchasing activity and improved cash management practices following the prior year’s heavy build-up of inventory and supplier payments. Inventory increased by $18.9 million, versus a $41.1 million increase in the prior year period, largely due to the timing of inbound product shipments and inventory replenishment ahead of the holiday selling season. The more moderate inventory growth reflects improved forecasting, tighter purchasing controls, and a more balanced inventory position aligned with current demand levels.

Current report

Cash used in investing activities was $0.3 million for the three months ended September 30, 2025, compared to $0.1 million provided during the same period in the prior year. The variance primarily reflects increased capital expenditures related to facility improvements and warehouse automation, along with minor cash outflows from asset disposals as part of ongoing asset optimization efforts. No business acquisitions or contractual payments occurred during either period.

Current report

Net cash provided by financing activities totalled $0.4 million for the three months ended September 30, 2025, compared to $14.8 million in the prior-year period. Activity during the quarter primarily reflected borrowings and repayments under the Company’s previous revolving credit facility, which had net inflows of $0.4 million compared to $15.5 million in the prior year. The change reflects more stable working capital needs and improved cash generation from operations, resulting in lower reliance on external financing.

Previous report

Year over year, vinyl record sales increased from $78 million to $86 million (+$8 million, +11%) for the three months ending March 31, 2025. The average selling price of vinyl was down 7% but, combined with an increase in volume of 18.8%, resulted in an overall 10.5% increase in revenue growth compared to the same period in the previous year and combined with an increase in volume resulted in an overall 12% increase in revenue growth compared to the same period in the previous year. This growth was further supported by strong pre-sales activity leading up to Record Store Day, which continues to serve as a major catalyst for consumer interest and purchasing. We expect this upward trend to persist as music enthusiasts and collectors remain passionate about expanding their collections, appreciating the tangible experience of vinyl, and valuing the unique artwork and limited-edition offerings that events like Record Store Day promote.

Previous report

Music Compact Disc (CD) sales declined from $25 million to $21 million for the three months ended March 31, 2025, representing a decrease of $4 million or 18.1% year-over-year. This drop was driven by an 8.9% reduction in the average selling price on the same number of units sold. The overall decline reflects the waning of the pandemic-era boost in physical media sales. However, the continued global popularity of K-Pop helped support the average selling price, softening the impact of the downturn.

Previous report

Physical movie sales, which include DVDs, Blu-ray, and Ultra HD formats, increased from $42 million to $58 million (+$16 million, +39%) for the three months ended March 31, 2025, compared to the same period last year. The average selling price of physical film products rose 27.6% year over year, and, when combined with higher unit volume, contributed to the significant revenue growth. A major driver of this performance was the launch of new exclusive content partnerships this quarter, which expanded the availability of high-demand titles. The steady release of new theatrical films, along with the popularity of premium 4K and collectible SteelBook editions, continues to fuel home video sales. We expect the trend of higher price points to persist as brick-and-mortar retailers prioritize curated, premium content and deliver an integrated omnichannel shopping experience. Alliance Entertainment’s extensive catalog of music and movies, accessible through both in-store and online platforms, positions retailers to offer a personalized and engaging experience that builds customer loyalty and supports brand differentiation.

Previous report

Consumer products revenue decreased from $9 million to $8 million (-$1 million, -8.7%) for the three months ended March 31, 2025, compared to the prior year period. The average selling price declined by 31.5%, and although volume increased by 32.3%, it was not enough to offset the pricing decline, resulting in an overall decrease in revenue. Sales were primarily impacted by changes in supply chain dynamics and purchasing strategies, along with the absence of standout or high impact releases this year. Consequently, the average selling price per unit declined. However, following our acquisition of Handmade by Robots, we anticipate a strong lineup of new theatrical and streaming releases that we anticipate will drive collectible and merchandise sales, and boost margins. The collectibles market remains an integral part of the entertainment segment, driven by its mix of nostalgic, investment, and intrinsic value. Working to align our offerings with market trends and consumer preferences will be key as we deepen our partnerships with key licensors of these franchises.

Previous report

Gaming product revenue declined from $43 million to $29 million, a decrease of $14 million or 32%, reflecting a broader slowdown in the gaming industry. Despite a significant increase in average selling price and margins, driven by an improved product mix and fewer discounts compared to the prior year period, overall sales were constrained by limited hardware availability from key suppliers, as existing inventory has been largely depleted. With the market eagerly awaiting the next generation of high-performance gaming consoles, we expect strong future demand for hardware, accessories, and peripherals. As a distributor of physical gaming products, we remain focused on monitoring industry trends and adjusting our product offerings to align with consumer demand and maximize profitability. However, we continue to closely watch for potential product availability issues stemming from ongoing market volatility and the trade tensions with China, which could impact manufacturing timelines, shipping costs, and overall supply chain stability.

Previous report

**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, increased from $183 million to $184 million (+$1 million or +0.4%) year over year primarily due to the direct relation of product costs to sales volume. Gross Margin dollars increased year over year from $28 million to $29 million for the three months ended March 31, 2025, over the same prior year period, resulting in a margin increase from 13.3% to 13.6%.

Previous report

**Operating Expenses:**Total operating expenses for the quarter decreased from $28.7 million to $25.5 million (-$3.2 million or -11.0%) and decreased as a percentage of net revenue versus the same quarter prior year from 13.6% to 12.0%. Total Distribution and fulfillment expense declined from $11.1 million to $10.0 million (-$1.1million, -10.2%) and decreased from 5.3% to 4.7% as a percentage of net revenue for the three months ended March 31, 2025, versus the same prior year period. We continue to invest in warehouse automation to reduce the need for total warehouse labor and utilize temporary labor forces to manage changes in demand. As a result, fulfillment payroll declined from $7.4 million to $6.3 million (-$1.1 million, -15.2%) for the current quarter, and, despite low unemployment rates, the average cost per labor hour declined approximately 5.0% for the three months ended March 31, 2025, versus the prior year period. In May of 2024, we consolidated operations by closing our Shakopee, MN warehouse, which also helped reduce operating costs and improve efficiency by centralizing operations and reducing redundancy. We continue to identify and implement business-process changes aimed at improving overall efficiency and supporting long-term scalability, total selling, general, and administrative costs increased slightly from $13.9 million to $14.2 million, a rise of $0.2 million or 1.7% year over year. This modest increase reflects strategic investments in infrastructure, personnel, and technology to enhance operational effectiveness. Depreciation and Amortization decreased from $1.4 million to $1.3 million (-$0.1 million, or -10.0%) for the quarter ended March 31, 2025, over the prior year period.

Previous report

Results of Operations Nine Months Ended March 31, 2025, Compared to Nine Months Ended

Previous report

**Net Revenue:**Year over year, total net revenues decreased from $864 million to $836 million (-$28 million, -3.2%) for the nine months ended March 31, 2025. Alliance Entertainment remains a recognized leader in the entertainment industry, with strengths in licensing, production, and distribution across a wide range of categories, including motion pictures, music, gaming hardware, retro arcades, and pop culture collectibles. Our exclusive content partnerships have contributed to increased sales, with this category now accounting for approximately 13% of total gross revenue. With exclusive distribution rights for nearly 200 studios and labels across the film and music industries, our expansive portfolio and deep inventory allow us to efficiently serve both bulk B2B customers and direct-to-consumer (DTC) channels with a broad assortment of products not available through other distributors. Our recent acquisition of Handmade by Robots, along with the Paramount licensing agreement, further strengthens our library of exclusive and in-demand content. Additionally, our comprehensive DTC suite of distribution and inventory solutions, anchored by our consumer-direct subsidiary, DirectToU LLC, contributed approximately 38% of gross sales revenue for the nine-month period ended March 31, 2025.

Previous report

Year over year, vinyl record sales increased from $242 million to $266 million ($24 million, 10%) for the nine months ending March 31, 2025. The average selling price of vinyl rose 1.7%, and when combined with a 7.9% increase in volume, resulted in an overall 9.8% growth in revenue compared to the prior year. This performance was further supported by strong early demand and pre-sales in anticipation of Record Store Day in April 2025, which has become a major driver of limited-edition releases and consumer engagement. We expect music enthusiasts and collectors to continue fueling this upward trend through their passion for music, appreciation of album artwork, and desire to build and personalize their physical collections. Notable releases in the nine months ended March 31, 2025 included Taylor Swift’sThe Tortured Poets Department, Oasis’s 30 th anniversary reissue ofDefinitely Maybe, Chappell Roan’sThe Rise and Fall of a Midwest Princess and Sabrina Carpenter’sShort n’ Sweet.

Previous report

Music Compact Discs (CDs) sales decreased from $97 million to $94 million (-$2.5 million, -2.6%) for the nine months ended March 31, 2025. The average selling price declined modestly by 2.5% year over year, while unit volume increased slightly by 0.9%, helping to soften the impact of the price decrease. One of the key drivers behind this surge in unit sales was the continued strength of K-pop in the U.S. market. Despite a global decline of 19% in K-pop physical album sales in 2024, the genre remained a dominant force in the U.S., with seven K-pop albums ranking among the top 10 best-selling CDs. Albums from groups such as Stray Kids and Enhypen helped fuel this demand, driven by highly collectible physical editions and a deeply engaged fanbase. As a result, K-pop played a crucial role in mitigating the overall revenue decline and sustaining consumer interest in the CD format during this period.

Previous report

Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $159 million to $197 million (+$39 million, +25%) for the nine months ended March 31, 2025, versus the same period last year. The average selling price of physical film products increased 20.2% year over year, while a modest decrease in volume of 5.3% still contributed to a healthy revenue increase versus the same period last year. The consistent flow of new theatrical releases, combined with 4K and collectible SteelBook content, continues to drive home video sales. Additionally, the launch of a new exclusive content partnership in January 2025 significantly enhanced our film portfolio, bringing in a wave of high-profile titles that elevated both our pricing power and retail placement. We expect the trend of higher price points to continue as brick-and-mortar retailers cater to consumer preferences for omnichannel shopping experiences and curated content over inexpensive, mass-market offerings. We believe that ensuring our offerings align with market trends and consumer preferences is essential as we deepen our partnerships with key licensors of these franchises. At the same time, we remain vigilant about potential impacts from tariffs and related supply chain pressures, which could influence product availability and pricing structures. We are actively working to mitigate these risks through diversified sourcing strategies and close coordination with our partners.

Previous report

Consumer products revenue decreased from $35 million to $27 million (-$8 million, -23%) for the nine months ended March 31, 2025 versus the prior year period. This drop was primarily driven by shifts in supply chain dynamics and evolving purchasing strategies from key retail partners, which led to more conservative ordering patterns and tighter inventory controls. Additionally, the absence of major, high-impact releases during the period limited consumer excitement and demand across key product categories. As a result, while the average selling price per unit declined due to increased promotional activity and a less premium product mix, unit volume rose modestly. This slight uptick in volume was not enough to offset the overall revenue decline, but it reflects ongoing consumer interest in the category despite a more challenging market environment. Following our acquisition of Handmade by Robots, we anticipate a strong lineup of new theatrical and streaming releases that will drive collectible and merchandise sales, boosting margins. The collectibles market remains an integral part of the entertainment segment, driven by its mix of nostalgic, investment, and intrinsic value. We believe that ensuring our offerings align with market trends and consumer preferences is essential as we deepen our partnerships with key licensors of these franchises. At the same time, we remain vigilant about potential impacts from tariffs and related supply chain pressures, which could influence product availability and pricing structures. We are actively working to mitigate these risks through diversified sourcing strategies and close coordination with our partners.

Previous report

Gaming product revenue decreased from $287 million to $226 million (-$61 million, -21%) for the nine months ended March 31, 2025, compared to the prior year period, reflecting a broader downturn across the gaming industry. While this category has historically been a strong performer, this period’s results were impacted by several interrelated factors. Most notably, a lack of hardware availability from key suppliers constrained our ability to meet consumer demand, as inventories of popular consoles and gaming devices were depleted. In addition, major gaming publishers shifted their release timelines, resulting in fewer blockbuster game launches during the period. Despite the overall revenue decline, our average selling price and margins improved meaningfully over the prior year period, driven by an improved product mix favoring premium accessories and collector-focused offerings, along with fewer discounts compared to the prior year period. These gains helped partially offset lower volumes. The gaming market is now in a transitional phase, with consumers and retailers anticipating the next generation of high-performance gaming consoles. As a leading distributor of physical gaming products, we are positioning ourselves to capitalize on the expected resurgence in demand for hardware, peripherals, and accessories once these new platforms are introduced. We continue to closely monitor industry developments and are aligning our inventory and purchasing strategies to ensure we are well-equipped to support both our retail partners and gaming consumers in the upcoming cycle. With the anticipated release of next-generation gaming consoles, and increased demand for premium accessories and collector editions, we expect a renewed surge in consumer interest and are preparing accordingly to meet that demand.

Previous report

**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, decreased from $762 million to $739 million (-$23 million, -3%) year over year primarily due to the direct relation of product costs to sales volume. Gross margin dollars decreased year over year from $102 million to $97 million resulting in a slight margin decline from 11.8% to 11.6% for the nine months ended March 31, 2025, over the same prior year period.

Previous report

**Operating Expenses:**Total operating expenses decreased from $88.4 million to $76.4 million (-$11.9 million, -13.5%) and decreased as a percentage of net revenue over the prior year period from 10.2% to 9.1%. Total distribution and fulfillment expense declined from $38 million to $31.4 million and decreased from 4.4% to 3.8% as a percentage of net revenue for the nine months ended March 31, 2025, versus the prior year period. We continue to invest in warehouse automation to reduce the need for total warehouse labor and utilize temporary labor forces to manage changes in demand. As a result, fulfillment payroll declined from $24.1 million to $20.7 million (-$3.2 million, -14%) and, despite low unemployment rates during the period, the average cost per labor hour declined 5.1% for the nine months ended March 31, 2025. In May 2024, we streamlined our operations by closing the Shakopee, MN warehouse, a move that helped lower operating costs and enhance efficiency by centralizing our logistics and eliminating operational redundancies. We continue to identify and implement business process changes to improve overall efficiency, and total selling, general and administrative costs declined from $43.7 million to $41.1 million (-$2.6 million, -5.9%) year over year.

Previous report

**Interest Expense:**For the nine months ended March 31, 2025, total interest expense decreased from $9.5 million to $8.1 million (-$1.4 million, -14.9%) versus the prior year period. The primary driver was a large reduction of the average revolver balance from $114 million to $79 million (-$35 million, -31%) and partial offset by an increase of our effective interest rate from 8.8% to 9.4% for the nine months ended March 31, 2025, versus the nine months ended March 31, 2024.

Previous report

For the nine months ended March 31, 2025, on net income of $9.3 million, the Company’s cash provided by operating activities was $16.1 million compared to $46.1 million for the nine months ended March 31, 2024. The year-over-year comparison reflects a $7.2 million improvement in net income combined with a $5.0 million decrease in inventory, versus a $39.0 million decrease the prior-year period. A key driver of the year-over-year reduction in inventory levels was the elevated inventory position we carried in prior periods as a result of earlier supply chain disruptions. As of March 31, 2025, inventory was approximately $93 million compared to $108 million at March 31, 2024 (a decrease of $15 million, or 14%), which was primarily driven by improved inventory management and tighter control over purchasing and replenishment processes.

Previous report

The cash flow used in investing activities was $7.6 million for the nine months ended March 31, 2025, and $0.1 million for the same period prior year. The use of funds in investing activities was primarily driven by the acquisition of Handmade by Robots.

Previous report

Net cash used in financing activities totaled $7.6 million, an improvement over the $45.2 million used in the prior year, driven by reduced borrowings on revolving credit facilities due to tighter cash management controls in the current nine month period.

Previous report — wording carried elsewhere

On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, LLC, a collectibles distribution company. This acquisition resulted in increased shelf space at our largest customers and expanded our product offerings.

Previous report — wording carried elsewhere

**Income Tax:**For the nine months ended March 31, 2025, an income tax expense of $2.1 million was recorded compared to an expense of $2.0 million for the prior year period. Alliance reported a pretax gain of $11.4 million and pretax gain of $4.1 million for the nine months ended March 31, 2025, and 2024, respectively. The annual effective tax rate was 19% and 50% for the nine months ended March 31, 2025, and 2024, respectively. The difference between the Company’s effective tax rate for the nine months ended March 31, 2025, and the federal statutory rate primarily resulted from state income taxes, foreign derived intangible income, and discrete item for the impact of fair value adjustment related to the Company’s warrant liability, and from an out-of-measurement period adjustment to the deferred tax liability related to software costs. The difference between the Company’s effective tax rate for the nine months ended March 31, 2024, and the federal statutory rate primarily resulted from state income taxes, foreign derived intangible income, and a discrete item for goodwill related to the Think3Fold acquisition.

Previous report — wording carried elsewhere

**Non-GAAP Financial Measures:**For the nine months ended March 31, 2025, we had non-GAAP Adjusted EBITDA of approximately $24.4 million compared to Adjusted EBITDA of approximately $22.2 million for the prior year period, or a year-over-year improvement of $2.2 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; (iv) depreciation and amortization expense; and (v) fair value of Warrants and other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. We use Adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process. We present Adjusted EBITDA as a supplemental measure because we believe such a measure is useful to investors as a reasonable indicator of operating performance. We believe this measure is a financial metric used by many investors to compare companies. This measure is not a recognized measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. See the table below for a reconciliation, for the periods presented, of our GAAP net income (loss) to Adjusted EBITDA.

Previous report — wording carried elsewhere

**Liquidity:**On December 21, 2023, Alliance Entertainment Holding Corporation entered into a Loan and Security Agreement, providing for a three-year $120 million senior secured asset-based credit facility, with White Oak Commercial Finance, LLC (the “Current Credit Facility”). The Current Credit Facility replaced the Company’s revolver with Bank of America.