ALLIANCE ENTERTAINMENT HOLDING CORP

Current report

Alliance provides integrated warehousing, distribution, technology, and logistics services that support the efficient distribution of entertainment products to retailers, e-commerce partners, and consumers. The Company’s proprietary technology platforms and operating systems facilitate order management, inventory visibility, electronic data interchange (“EDI”), and fulfillment activities across its wholesale, direct-to-consumer, and e-commerce channels. These capabilities provide customers with access to the Company’s in-stock inventory of more than 340,000 SKUs, including vinyl records, video games, compact discs, DVDs, Blu-ray discs, collectibles, consumer electronics, accessories, and other entertainment products. Combined with Alliance’s nationwide distribution network and fulfillment capabilities, these technology-enabled platforms allow customers to source a broad assortment of products through a single distribution partner. Alliance also provides retailers with back-office support, logistics services, and fully integrated EDI capabilities designed to simplify product onboarding, inventory replenishment, and order fulfillment. These services enable retail partners to efficiently expand their product offerings while leveraging Alliance’s inventory management and distribution infrastructure.

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Amazon MGM

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In January 2026, the Company entered into an exclusive home entertainment license agreement with Amazon MGM Studios Distribution to serve as the exclusive physical media distribution partner for the United States and Canada. Under the agreement, the Company distributes new releases and catalog titles across physical media formats, expanding its exclusive distribution portfolio and strengthening its relationships with major content licensors.

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Paramount Pictures

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On December 31, 2025, Alliance completed its strategic acquisition of Endstate Authentic LLC and established Endstate as a wholly owned subsidiary focused on authentication and resale technology. The acquisition supports the launch of Alliance Authentic, a new premium platform designed to create authenticated, certified vinyl collectibles and a trusted global marketplace for buying, selling, and trading investment-grade physical media. Endstate’s patented NFC-enabled authentication and digital product identity technology enables real-time product verification, counterfeit prevention, and authenticated resale services, forming the technological foundation of the Alliance Authentic platform. As part of the transaction, Endstate co-founders Bennett Collen and Stephanie Howard joined Alliance’s leadership team as President and Senior Vice President of Operations, respectively. The acquisition resulted in the recognition of $5 million of goodwill and $3.3 million of identifiable intangible assets as of June 30, 2026, primarily related to Endstate’s proprietary technology and digital identity systems. Management believes the acquisition strengthens Alliance’s strategic position in the growing authenticated collectibles market and supports the development of new technology-enabled and recurring revenue opportunities.

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As a result of the Merger, Alliance Entertainment became the successor to an SEC-registered company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

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The Company operated throughout the fiscal year ended June 30, 2026, amid continued macroeconomic uncertainty, including inflationary pressures, evolving trade policies, changes in tariff policies, and geopolitical instability related to ongoing global conflicts. Although inflation moderated compared to prior periods, consumer discretionary spending remained uneven across certain product categories. During the fiscal year, the Company continued to experience cost pressures associated with existing and proposed tariffs on imported goods, particularly products sourced internationally, including collectibles and certain consumer products. Management actively monitored these developments and continued to manage pricing, product mix, sourcing strategies, and inventory levels to help mitigate the impact of economic and trade-related volatility. While uncertainty surrounding the broader economic environment may persist, the Company believes its diversified product portfolio, broad supplier relationships, and emphasis on higher-value and collectible product categories position it to effectively navigate these challenges. For further discussion of the potential impacts of macroeconomic conditions on our business, financial condition, and results of operations, “Risk Factors”.

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Tariffs and Trade Policy

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The U.S. trade policy environment has undergone significant change since early 2025. From February 4, 2025, through February 24, 2026, the U.S. government-imposed tariffs on a broad range of imported goods under IEEPA. These tariffs affected certain products distributed by the Company. The impact of IEEPA tariffs on the Company’s cost of sales during the year ended June 30, 2026, was not material.

Current report

On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs, invalidating all IEEPA-based tariff orders. The President subsequently revoked the IEEPA tariff orders effective February 24, 2026. Following litigation before the U.S. Court of International Trade, CBP launched the CAPE portal on April 20, 2026, to process IEEPA refund applications. Based on its internal analysis of CBP entry records, the Company estimates it may be entitled to refunds of approximately $0.2 million in IEEPA tariffs previously paid. This amount has not been recognized in the financial statements as of June 30, 2026, due to uncertainties surrounding the refund process, including potential government appeal and administrative implementation. See Note 12 to the consolidated financial statements.

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Despite the invalidation of IEEPA-based tariffs, other tariff authorities remain in effect. The administration has imposed a 10% temporary import surcharge under Section 122 of the Trade Act of 1974, effective February 24, 2026, and expired on July 24, 2026, along with continuing Section 301 tariffs on goods of Chinese origin and Section 232 tariffs on steel and aluminum products. The Company continues to evaluate the impact of the evolving trade policy environment on its sourcing, cost structure, and product distribution arrangements. While the Company’s exposure to currently effective tariffs has not been material to date, a further escalation of tariffs or the imposition of new tariff measures could adversely affect the Company’s cost of sales, gross margin, or supply chain in future periods.

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We consider the following metrics to be key performance indicators to evaluate our business, develop financial forecasts and make strategic decisions.

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(1) EBITDA, Adjusted EBITDA, and Adjusted Net Income are financial measures not calculated in accordance with U.S. GAAP. For a reconciliation of each of these measures to net income, the most directly comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” in this Item 7.

Current report

Net Revenue: Net revenues increased 8%, or $86.0 million, to $1.149 billion for the fiscal year ended June 30, 2026, compared to $1.063 billion for the prior fiscal year. The increase was driven by continued demand across several key product categories, particularly physical media, together with expanded exclusive distribution relationships and the Company’s diversified sales channels. The Company operated throughout the fiscal 2026 in a challenging macroeconomic environment characterized by elevated interest rates, uneven consumer discretionary spending, evolving trade policies, and ongoing geopolitical uncertainty. Despite these conditions, Alliance continued to leverage its position as a value-added distributor with exclusive distribution rights for nearly 200 film studios, music labels, and other entertainment content providers. The Company’s extensive product assortment, deep inventory, and broad supplier relationships enable it to effectively serve both business-to-business (“B2B”) customers and direct-to-consumer (“DTC”) customers with a wide selection of entertainment products, many of which are not broadly available through other distributors. The Company’s proprietary DTC fulfillment and technology platform, led by its DirectToU LLC subsidiary, continued to support growth across multiple e-commerce channels and represented approximately 34% of gross revenue for the fiscal year ended June 30, 2026, compared to 37% in the prior fiscal year. The year-over-year decrease as a percentage of gross revenue primarily reflects stronger relative growth in the Company’s wholesale distribution business rather than a decline in DTC operations.

Current report

Year over year, vinyl record sales increased from $340 million to $383 million (+$43 million, 13%) for the year ending June 30, 2026. This growth was driven by a 7.4% increase in sales volume and by a 4.8% increase in the average selling price. The increase was driven by higher unit sales, continued consumer demand for physical music formats, and a favorable product mix that included premium and limited-edition releases. Demand remained strong throughout the fiscal year, supported by a robust release schedule from major recording artists and continued interest from both collectors and mainstream consumers. Record Store Day 2026, along with its companion Black Friday Record Store Day event, generated strong demand for exclusive and limited-edition vinyl releases and continued to reinforce consumer interest in the vinyl format. Notable vinyl releases during the fiscal year included Taylor Swift’sThe Tortured Poets Department: The Anthology on vinyl, Sabrina Carpenter’sShort n’ Sweet, Lorde’sVirgin, Billy Idol’sDream Into It, Bruce Springsteen’sTracks II: The Lost Albums, and other high-profile new releases and catalog reissues from major recording artists. These releases, together with continued demand for classic catalog titles and exclusive retailer editions, contributed to the Company’s vinyl sales growth. The Company’s leading vinyl distribution customers for the fiscal year ended June 30, 2026, included Walmart, Barnes & Noble, and Amazon.

Current report

Music Compact Discs (CDs) sales increased from $125 million to $156 million (+$31 million, +25%) for the year ended June 30, 2026. The increase was driven by a 17.6% increase in unit volume and a 6.6% increase in average selling price, reflecting continued consumer demand for physical music formats and a favorable product mix, supported by a robust release schedule from major recording artists, anniversary reissues, deluxe collector’s editions, and multi-disc box sets**.** Notable releases during the period included BTS’sARIRANG, Morgan Wallen’sI’m the Problem, Harry Styles’Kiss All the Time. Disco, Occasionally, and Olivia Rodrigo’sYou Seem Pretty Sad for a Girl So in Love, among other high-profile new releases. These releases, together with continued demand for catalog titles and collector-oriented editions, contributed to increased unit sales and higher average selling prices across the CD category.

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Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $279 million to $339 million (+$60 million, +22%) for the year ended June 30, 2026, versus the same period last year. The increase was driven primarily by a 20.8% increase in unit volume, with a 0.6% increase in average selling price providing additional support to revenue growth. Growth in physical movie sales was supported by a strong pipeline of theatrical releases, continued consumer demand for premium physical formats, including 4K Ultra HD and collectible SteelBook editions, and expanded content availability resulting from the Company’s studio relationships. During the 2026 fiscal year, the Company continued to benefit from its exclusive distribution relationship with Paramount, which expanded the Company’s portfolio of film content, and entered into a new distribution relationship with Amazon MGM Studios, further enhancing access to a broader range of new releases and catalog titles across retail and e-commerce channels. Notable releases during the fiscal year includedWicked,Moana 2,Gladiator II, Paramount’sThe Running Man andYellowstone, and other high-profile theatrical releases. In addition, continued demand for catalog films, anniversary editions, premium formats, and collector-focused releases contributed to increased consumer engagement with physical home entertainment products and supported growth across the Company’s DVD, Blu-ray, and Ultra HD categories.

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Year-over-year, gaming sales decreased from $255 million to $187 million (-$68 million, -27%) for the 12 months ended June 30, 2026. The decrease was primarily driven by a 24.6% decline in average selling price and a 2.6% decrease in unit volume. The decline in average selling price was primarily attributable to changes in product mix compared to the prior year, which benefited from a greater mix of premium-priced hardware products associated with the Nintendo Switch 2 launch at the end of the last fiscal year ended June 30, 2025. During the 2026 fiscal year, the gaming category was impacted by the transition following major hardware introductions, a more limited pipeline of major software releases, and evolving consumer purchasing patterns. While demand for gaming content and accessories remained supported by the broader gaming ecosystem, sales reflected the normalization of hardware-related demand following the prior year’s console launch cycle. As a leading distributor of physical gaming products, Alliance continues to leverage its broad retail relationships, supplier network, and inventory management capabilities to support customers across the gaming category. Management continues to adjust purchasing and inventory strategies to align with product release schedules, consumer demand trends, and changing market conditions.

Current report

For the year ended June 30, 2026, consumer products revenue, which includes Collectibles and Electronics, increased from $37 million to $48 million (+$11 million, +30%) versus the prior year. Collectibles revenue totaled $32 million, up from $22 million the prior year (+$10 million, +45%). Collectibles revenue growth was driven by a 65.7% increase in average selling price, partially offset by a 13.2% decrease in unit volume. The increase in average selling price reflects a favorable shift in product mix toward higher-value collectibles, including premium figures, limited-edition products, and licensed merchandise. The Company continued to expand its collectibles portfolio following its acquisition of Handmade by Robots, adding new product offerings across established entertainment franchises and licensed properties. The collectibles category continues to represent an important component of the Company’s entertainment product portfolio, supported by consumer interest in recognizable entertainment brands and unique collectible offerings. Management continues to focus on expanding product offerings, strengthening supplier relationships, and leveraging the Company’s distribution network to support growth in this category.

Current report

Electronics revenue was $16 million, up slightly from $15 million in the prior year (+$1 million, +7%). The increase was driven by a 9.3% increase in unit volume, partially offset by a 1.7% decrease in average selling price. The decrease in average selling price primarily reflected changes in product mix and competitive pricing dynamics within the category. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related products, which are often sold as complementary products alongside the Company’s physical music and movie offerings. Growth in the category was supported by continued consumer interest in vinyl and physical media formats, which contributed to demand for playback devices and related accessories. Management continues to leverage the Company’s product assortment and distribution channels to support sales across the electronics category.

Current report

Distribution and fulfillment fee revenue increased $3.8 million, or 25.7%, to $18.6 million for the fiscal year ended June 30, 2026, compared to $14.8 million in the prior fiscal year. The increase was primarily driven by higher fulfillment and distribution activity associated with the Company’s expanded studio relationships, including its exclusive distribution partnership with Paramount and new distribution relationship with Amazon MGM Studios. These partnerships contributed to increased physical distribution and fulfillment volumes as the Company supported a broader portfolio of film releases across its retail and e-commerce channels. The increase also reflects continued demand for the Company’s value-added logistics and fulfillment services provided to customers. The remaining $17.3 million of net revenue for the fiscal year ended June 30, 2026, compared to $13.3 million in the prior fiscal year, consisted of digital download and freight revenue, net of customer allowances and the provision for estimated product returns, none of which was individually material.

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Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, increased from $931 million to $997 million (+$66 million or 7%) compared to the prior fiscal year. The increase was primarily attributable to higher sales volume and the corresponding increase in product costs. Gross profit increased by $19 million compared to the prior year, reflecting higher net revenues and improved product margins. Gross margin increased from 12.5% to 13.3%, an improvement of 80 basis points, for the fiscal year ended June 30, 2026, compared to the prior fiscal year. The improvement was primarily driven by stronger margins in the Company’s physical movie and collectibles categories, which benefited from an expanded portfolio of premium and exclusive content, improved product mix, and increased demand for higher-margin offerings. Gross margin also benefited from favorable returns activity and lower wholesale freight costs as a percentage of sales.

Current report

Operating Expenses: Total Operating Expenses increased 22% year over year and increased as a percentage of revenue from 9.7% to 10.9%, or 1.2 percentage points. The increase was primarily driven by a vendor transaction loss, as well as higher Distribution and Fulfilment expenses and SG&A expenses.

Current report

Vendor Transaction Loss: During the fiscal year ended June 30, 2026, the Company recorded a $7.8 million vendor transaction loss related to the write-off of a receivable associated with a historical rebate arrangement with Tastemakers. The receivable represented amounts previously accrued under a contractual vendor rebate program and was expected to be recovered through future purchase order deductions and other contractual recovery mechanisms. During the 2026 fiscal year, Tastemakers ceased operations and was no longer able to fulfill its obligations under the arrangement, resulting in the determination that the remaining receivable balance was no longer recoverable. Accordingly, the Company recorded a non-cash charge of approximately $7.8 million to write off the remaining balance. The Company does not consider this charge reflective of its ongoing operating performance, as it resulted from a specific counterparty insolvency event rather than current-period merchandising, purchasing, or distribution activities.

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Total Distribution and Fulfillment expense increased to 3.9% of net revenue for the fiscal year ended June 30, 2026, compared to 3.8% (0.1 percentage point) in the prior fiscal year. The increase was primarily attributable to higher order fulfillment activity associated with increased sales volumes, partially offset by continued operational efficiencies. Fulfillment payroll remained consistent at approximately 2.5% of net revenue despite a $2.4 million, or 9.1%, increase in payroll expense, reflecting the Company’s ability to leverage higher sales volumes while maintaining labor efficiency. During the fiscal year, the Company continued to invest in warehouse automation and operational improvements designed to enhance productivity and optimize labor resources. Average labor costs increased modestly by 1.5% year over year, while non-payroll fulfillment expenses, including shipping supplies and packaging materials, also increased. The increase in shipping supplies was primarily driven by higher sales volumes, particularly within the vinyl category, which generally requires more specialized packaging and handling than traditional bulk shipments.

Current report

Selling, General and Administrative (“SG&A”) expenses increased $10.2 million, or 18.2%, to $66.2 million for the fiscal year ended June 30, 2026, compared to $56.0 million in the prior fiscal year. As a percentage of net revenue, SG&A expenses increased to 5.8% from 5.3% in the prior fiscal year. The increase was primarily attributable to higher payroll and employee-related costs associated with supporting the Company’s continued growth, as well as increased consulting and professional service expenses related to strategic initiatives and public company operations. Management continues to review SG&A expenditures and business processes to identify opportunities to improve operational efficiency, including the ongoing evaluation and implementation of artificial intelligence tools and automation technologies to enhance workflows, streamline financial and operational processes, and support scalable growth while maintaining appropriate controls.

Current report

Operating Income: Total Operating Income decreased 9.7% year over year and decreased as a percentage of revenue from 2.8% to 2.4%, or 0.4 percentage points. The decrease was primarily attributable to the $7.8 million vendor transaction loss, partially offset by higher gross profit resulting from increased revenues and improved gross margins.

Current report

**Non-GAAP Financial Measures:**EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings per Diluted Share (collectively, the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as alternatives to net income, earnings per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net income before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, changes in the fair value of warrants and vendor transaction loss, insurance claim recoveries, and restructuring costs and net gains and losses on the disposal of assets. We define Adjusted Net Income as net income adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and litigation costs and settlements, regulatory assessments and insurance settlements, and the income tax expense effect of these adjustments. We define Adjusted Earnings per Diluted Share as Adjusted Net Income divided by the weighted-average shares outstanding used in the calculation of diluted earnings per share in accordance with U.S. GAAP.

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We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

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Management uses the Non-GAAP Financial Measures:

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By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K as indicators of financial performance. Some of the limitations are:

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Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only as a supplement. As noted in the tables below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and contingent consideration, litigation costs and settlements, regulatory assessments and insurance settlements, and restructuring costs and net gains and losses on the disposal of assets. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the adjustments described herein and in the reconciliation tables below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

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The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income, for the years presented:

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(1) Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards.

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(2) Represents costs incurred in connection with completed and contemplated business combinations, including advisory, legal, accounting and other professional fees.

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(3) Represents amortization of intangible assets acquired in business combinations. The revenue generated by those intangible assets is not excluded from the Non-GAAP Financial Measures.

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(4) Represents amortization of debt issuance costs incurred in connection with our credit facility with Bank of America and the terminated White Oak Credit Facility.

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(5) Represents non-cash gains and losses resulting from the remeasurement of warrant liabilities and contingent consideration to fair value at each reporting date.

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(6) Represents a loss recognized on a receivable due from a vendor for rebates owed before the company went out of business*.*

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(7) Represents legal fees, settlement amounts and other costs associated with litigation matters that we do not consider indicative of our ongoing operating performance.

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This pivotal role extends to connecting these manufacturers with top-tier retail partners both domestically and internationally. Notable partners encompass giants like Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, BJ’s Wholesale Club, Rent A Center, Kohl’s, Target, Shopify, and others.

Previous report

Alliance provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates. These technology-led platforms with access to the Company’s in stock inventory of over 340,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, toys, electronics and collectables, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory. Alliance is the retailers’ back office for in-store and e-commerce solutions. All electronic data interchange (“EDI”) and logistics are operational and ready for existing retail channels to add new products.

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The Handmade by Robots acquisition enhances our portfolio by adding an exclusive collectible line that expands our reach into licensed pop culture merchandise. While the financial contribution of Handmade by Robots since the acquisition date has not been material to our consolidated results for fiscal 2025, we expect this product line to provide incremental revenue growth opportunities in future periods.

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Macroeconomic conditions, including persistent inflation, continued to influence our operating environment in fiscal 2025. Warehouse costs declined year-over-year, reflecting improved operating efficiencies, and interest expense under our credit facility decreased due to lower borrowings. At the same time, renewed tariff discussions on imported physical media and electronics present potential cost increases that could pressure future gross margins. While we did not experience material supply chain disruptions in fiscal 2025, we continue to monitor these factors and their potential impact on our business, financial condition, and results of operations. For further discussion of related risks, see Part I, Item 1A. ‘Risk Factors.

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Net Revenue: Year-over-year, total net revenues slightly decreased from $1,100 million to $1,063 million (-$37 million, -3%) for the year ended June 30, 2025. Like other U.S. retailers and distributors, we continue to face macroeconomic headwinds stemming from high interest rates, cautious consumer spending due to reduced purchasing power, and ongoing geopolitical uncertainties. Despite these challenges, Alliance Entertainment distinguishes itself as a value-added retail distributor with exclusive distribution rights for approximately 175 film and music studios and labels. Our robust portfolio of exclusive content, coupled with deep inventory levels, positions us to effectively serve both bulk B2B customers and the direct-to-consumer (DTC) market with a broad selection of products not readily available through other distributors. Our proprietary DTC distribution and inventory solutions—anchored by our consumer-direct subsidiary, DirectToU LLC which contributed approximately 37% of gross revenue for the year ended June 30, 2025, up from 36% in the prior year.

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Year over year, vinyl record sales increased from $329 million to $340 million ($11 million, 3%) for the year ending June 30, 2025. This growth was driven by a 3.8% increase in sales volume, partly offset by a 0.5% reduction in the average selling price. The modest decline in pricing was outweighed by higher unit demand, resulting in overall revenue growth. Robust early demand and pre-sales ahead of Record Store Day in April 2025 also supported performance. We expect continued momentum from collectors and music enthusiasts drawn to the physical format and limited-edition releases. Notable vinyl releases during the twelve months ended June 30, 2025, included Taylor Swift’sThe Tortured Poets Department (including its Anniversary Anthology vinyl edition), Sabrina Carpenter’s deluxeShort n’ Sweet, Billy Idol’sDream Into It (his first new album in over a decade), Lorde’s critically acclaimedVirgin, and Bruce Springsteen’s archival box set*Tracks II: The Lost Albums.*Our leading vinyl distribution partners for the period included Walmart, Barnes & Noble, and Amazon.

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Music Compact Discs (CDs) sales slightly decreased from $130 million to $125 million (-$5 million, -4%) for the year ended June 30, 2025. The decline was primarily the result of a 4.5% reduction in average selling price, which more than offset a modest 0.4% increase in unit volume. While consumer demand showed slight improvement, pricing pressure weighed on overall revenue performance. A key driver of the decline in average selling price for CD sales was increased pricing pressure and a shift in consumer purchases toward lower-priced formats. Throughout the year, interest in expanded anniversary re-issues, collector’s editions, and multi-disc box sets remained steady. However, these premium formats represented a smaller share of total sales compared to prior years, as more consumers gravitated toward standard, lower-priced releases. This shift in product mix contributed to the overall decline in average selling price.

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Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $204 million to $279 million (+$75 million, +37%) for the year ended June 30, 2025, versus the same period last year. Unit volume rose by 14.8% year over year, and an 18.8% increase in average selling price further amplified growth, resulting in strong overall revenue performance. The strong growth in physical movie sales was driven by a steady pipeline of theatrical releases and continued consumer interest in premium formats such as 4K Ultra HD and collectible SteelBooks. The launch of a new exclusive content partnership in January 2025 further strengthened our film portfolio, introducing a slate of high-profile titles that enhanced both our pricing power and retail visibility. This shift toward premium content significantly contributed to the increase in average selling price, even as overall volume declined. We expect this trend to continue, as brick-and-mortar retailers increasingly prioritize curated, high-value offerings to meet demand for omnichannel shopping experiences over lower-cost, mass-market inventory. With a robust content pipeline and strengthened retail partnerships, we are well-positioned to capitalize on evolving consumer preferences and deliver sustained growth across our physical media business.

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Year-over-year, gaming sales decreased from $338 million to $255 million (-$83 million, -25%) for the 12 months ended June 30, 2025. Unit volume declined by 61.5%, reflecting limited hardware availability and delays in major game releases from key publishers. However, this was partially offset by a 93.4% increase in average selling price, driven by a stronger product mix that included more premium accessories, collector-focused items, and reduced discounting. The June 2025 release of the Nintendo Switch 2 also contributed to elevated price points but did not fully offset the steep drop in units sold. As a leading distributor of physical gaming products, we are well-positioned to benefit from the upcoming wave of next-generation console releases and growing demand for high-end gaming accessories. We continue to adapt our inventory and purchasing strategies to align with evolving industry trends and are prepared to support both retailers and consumers as the market rebounds.

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For the year ended June 30, 2025, consumer products revenue, which includes Collectibles and Electronics, decreased from $43 million to $37 million (-$6 million, -14%) versus the prior year. Collectibles revenue totaled $22 million, down from $26 million the prior year (-$4 million, -15%). Unit volume increased 19.5%, but this growth was outweighed by a 30% decline in average selling price, resulting in lower overall revenue. 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 category, driven by its mix of nostalgic, investment, and intrinsic value. We continue to view this category as an important and profitable part of the entertainment ecosystem. Electronics revenue was $15 million, down slightly from $16 million in the prior year (-$1 million, -6%). This decline was driven by a 5.3% decrease in unit volume combined with a 4.1% decrease in average selling price. The softer pricing reflects ongoing competitive pressures and product mix shifts, while the modest volume decline indicates more stable demand compared to the prior year.

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Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $972 million to $931 million ($41 million or 4%) year over year primarily due to the direct relation of product costs to sales volume. gross margin dollars increased $4 million year over year on lower sales and higher gross margins. Gross margins increased from 11.7% to 12.5% (+.8 percentage points) for the year ended June 30, 2025, versus June 30, 2024. The improvement in the gross margin was primarily driven by higher average selling prices and the successful launch of a new exclusive content partnership. Additionally, enhanced inventory management and increased vendor rebate activity contributed to stronger profitability and overall margin expansion.

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Operating Expenses: Total Operating Expenses declined 10.3% and decreased as a percentage of revenue from 10.4% to 9.7% (.7 percentage points) year over year. Distribution and Fulfillment expenses declined in terms of absolute dollars and the percentage of revenue, and Selling General and Administrative (SG&A) expenses declined in terms of absolute dollars as well.

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Total Distribution and Fulfillment Expense, as a percentage of net revenue, decreased from 4.4% to 3.8% (.6 percentage point) for the year ended June 30, 2025, versus the prior year. This improvement was driven by reductions in both fulfillment and payroll expenses, as we implemented a strategic plan to streamline operations without compromising service levels. In May 2024, we closed our Shakopee, MN warehouse and consolidated fulfillment operations in Shepherdsville, KY, enhancing efficiency, eliminating redundancies, and lowering operating costs for the twelve-month period. We also continue to invest in warehouse automation to reduce reliance on permanent labor, while leveraging temporary labor to manage fluctuations in demand. As a result, total fulfillment payroll expenses declined by $5 million, or 17%, for the year ended June 30, 2025. Despite historically low unemployment rates, the average cost per labor hour fell by 4.6% year over year. Additionally, non-payroll fulfillment costs, including storage, declined significantly, reflecting continued efforts to optimize warehouse operations and improve cost structure.

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A key contributor to the decline in operating expenses was a $1.7 million, or 2.9%, reduction in Selling, General, and Administrative (SG&A) expenses for the year ended June 30, 2025, compared to the prior year. SG&A costs decreased from $57.7 million to $56 million, while remaining relatively steady as a percentage of net revenue at 5.3%, compared to 5.2% in the prior year. In addition to lower overhead, Transaction Costs fell from $2.1 million to $1.0 million. We continually review SG&A expenses, including business processes, to identify opportunities for further cost reductions and operational efficiency.

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**Non-GAAP Financial Measures:**For the year ended June 30, 2025, we had non-GAAP Adjusted EBITDA of $36.5 million compared with Adjusted EBITDA of $24.3 million prior year or an improvement of $12.2 million year-over-year. We define Adjusted EBITDA as net income or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) other infrequent, non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. 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.

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The Company has implemented certain strategic initiatives to reduce expenses and focus on the sale of higher margin products. As a result of the new credit facility, combined with these initiatives and the Company’s financial performance for the year ended June 30, 2025, the Company has concluded that it has sufficient cash to fund its operations and obligations (from its cash on hand, operations, working capital and availability on the credit facility) for at least twelve months from the issuance of these consolidated financial statements.

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Our primary sources of liquidity are existing cash provided by operating activities and borrowings under our credit facility. As of June 30, 2025, in addition to the $1.2 million of cash, we carried a $57 million revolver balance on our $120 million credit facility under the Loan and Security Agreement with White Oak Commercial Finance, LLC. Since June 30, 2024, our availability increased from $44 million to $54 million, an increase of $10 million, as we converted accounts receivable and inventory to cash which was used to reduce the revolver from $73 million to $57 million ($16 million or 22%) year over year.

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For the year ended June 30, 2025, the Company generated $26.8 million in cash from operating activities on net income of $15.1 million, compared to $55.8 million in the prior year. The year-over-year change was primarily driven by a $10 million increase in net income and a $22 million increase in accounts payable, compared to an $18 million decrease in accounts payable in the prior year, reflecting the impact of improved cash management practices. Inventory increased by $5 million as of June 30, 2025, whereas in the prior year it had decreased by $49 million. The significant reduction in the prior year reflected efforts to draw down surplus inventory that had accumulated during the pandemic due to supply chain disruptions. That inventory had supported sales throughout fiscal 2024, contributing to the large swing. Additionally, working capital declined modestly by $3 million year over year—from $48 million to $45 million. Changes in the inventory and sales mix during fiscal 2025 led to higher payable balances to vendors offering extended payment terms.

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Cash Flows used in investing activities for the 12 months ended June 30, 2025 were at $8 million. By comparison, for the 12 months ended June 30, 2024, cashflow used in investing activities was $0.1 million. In fiscal year 2025, Alliance Entertainment reported a significant increase in cash used for business acquisitions, totaling approximately $7.6 million. This outflow was related to a planned acquisition that ultimately did not materialize. Although the transaction was not completed, the funds had already been disbursed as part of the acquisition process. The company is currently in the process of recovering these funds, and the reimbursement is expected to be reflected in future reporting periods. This one-time event temporarily inflated investing cash outflows and does not reflect ongoing acquisition activity.

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For the year ended June 30, 2025, net cash used in financing activities totaled $19 million, compared to $55 million in the prior year. The current year’s financing activity primarily reflects net repayments on the revolving credit facility of $15.7 million, resulting from $986.1 million in payments and $970.4 million in borrowings. In contrast, the prior year saw heavier net repayments of $60.3 million. Additionally, there were no proceeds from shareholder loans in fiscal 2025, while the prior year included $46 million in inflows and $36 million in repayments. Other financing activities in the current year include $2.8 million in payments on financing leases, consistent with the prior year, which saw $3.0 million. Overall, the lower cash used in financing activities in fiscal 2025 reflects more moderate debt activity and the absence of shareholder-related financing transactions.