ALLIANCE ENTERTAINMENT HOLDING CORP

Previous wording

Additionally, Alliance manages a diverse portfolio of owned e-commerce brands, including Critics’ Choice, Collectors’ Choice, Movies Unlimited, DeepDiscount, popmarket, blowitoutahere, Fulfillment Express, Importcds, GamerCandy, WowHD, and others.

Current wording

Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Notable brands include DeepDiscount, PopMarket, ImportCDs, Critics’ Choice Video, Collectors’ Choice Music, Movies unlimited and WowHD.

Previous wording

On December 17, 2024, the Company acquired Handmade by Robots from Bensussen Deutsch & Associates, LLC, for $7.6 million. Handmade by Robots produces licensed vinyl figures that mimic the look of knitted or crocheted plush toys. These figures feature characters from popular franchises such as DC Comics, Ghostbusters, Harry Potter, Star Trek, and Stranger Things, and have become favorites among fans and collectors. The acquisition includes inventory, tooling equipment, and a trademark associated with the product line. This addition is expected to diversify our product offerings and add an exclusive line to our portfolio.

Current wording

On December 17, 2024, Alliance acquired Handmade by Robots from Bensussen Deutsch & Associates, LLC, for $7.6 million. Handmade by Robots produces licensed vinyl figures that mimic the look of knitted or crocheted plush toys. These figures feature characters from popular franchises such as DC Comics, Ghostbusters, Harry Potter, Star Trek, and Stranger Things, and have become favorites among fans and collectors. The acquisition included inventory, tooling equipment, and a trademark associated with the product line. This addition has diversified our product offerings by adding an exclusive line to our portfolio.

Previous wording

Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and have affected our results of operations. For example, macroeconomic events, including inflation, the U.S. Federal Reserve interest rates, and the Russia-Ukraine war have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”

Current wording

Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and have affected our results of operations. Alliance has navigated significant macroeconomic challenges in recent years, including inflation, the U.S. Federal Reserve interest rates, and the Russia-Ukraine war have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”

Previous wording

**Net Revenue:**Year over year, total net revenues decreased from $426 million to $394 million (-$32 million, -7.5%) for the three months ended December 31, 2024. Alliance Entertainment is a recognized leader in the entertainment industry, excelling in the licensing, production, and distribution of a diverse range of entertainment products and content, including motion pictures, music, gaming hardware, retro arcades, and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, our extensive portfolio of unique content, combined with our deep inventory, enables us to service bulk B2B and direct-to-consumer (DTC) channels with a vast selection of products unavailable through other distributors. Our recent acquisition of Handmade by Robots and Paramount licensing contract will further enhance our portfolio of exclusive content. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 42% of gross revenue for the three months ended December 31, 2024.

Current wording

**Net Revenue:**Year over year, total net revenues increased from $211 million to $213 million (+$1.8 million, +1%) for the three months ended March 31, 2025. Alliance Entertainment is a recognized leader in the entertainment industry, excelling in the licensing, production, and distribution of a diverse range of entertainment products and content, including motion pictures, music, gaming hardware, retro arcades, and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, our extensive portfolio of unique content, combined with our deep inventory, enables us to service bulk business-to-business (B2B) and direct-to-consumer (DTC) channels with a vast selection of products unavailable through other distributors. Our recent acquisition of Handmade by Robots and Paramount licensing contract will further enhance our portfolio of exclusive content. As a result of exclusive film and media content partnerships, the Company has already experienced a rise in sales and now contributes nearly 18% of total gross revenue. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 35% of gross revenue for the three months ended March 31, 2025

Previous wording

Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $70 million to $86 million ($16 million, 23%) versus the same period last year. The average selling price of physical film products increased 16% year over year and when combined with increased volume contributed to a significant revenue increase versus the same period last year. The consistent flow of new theatrical releases, combined with 4K and collectable SteelBook content, continues to drive home video sales. We expect the trend of higher price points to continue as brick & mortar retailers cater to the consumer preference for omnichannel shopping experiences and curated content versus inexpensive, mass market product offerings. Alliance Entertainment’s ability to offer retailers in-store and on-line channels a deep, extensive library of both music and movies helps provide them with the products for a cohesive shopping experience based on personal preference and engagement with their respective brands.

Current wording

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 wording

Consumer products revenue decreased from $16 million to $12 million (-$4 million, -25%) compared to the prior year. 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, both the average selling price per unit and sales volume declined. However, 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. Ensuring we align our offerings with market trends and consumer preferences will be key as we deepen our partnerships with key licensors of these franchises.

Current wording

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 wording

Gaming product revenue decreased from $192 million to $140 million (-$52 million, -27%) reflecting a broader downturn in the gaming industry. Our average selling price and margins have increased significantly due to product mix and fewer discounts year over year, but total sales were impacted by a lack of hardware availability from key suppliers as current inventory is depleted. The market is anticipating the next generation of high-performance gaming consoles and, as a distributor of physical products, we anticipate strong future demand for hardware, accessories, and peripherals. We continue to proactively monitor industry trends to ensure we have the right product mix to meet market demand and maximize profitability.

Current wording

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 wording

**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, decreased from $378 million to $351 million (-$27 million or -7%) year over year primarily due to the direct relation of product costs to sales volume. Gross Margin dollars decreased year over year from $47.7 million to $42.3 million resulting in a margin decline from 11.2% to 10.7% for the three months ended December 31, 2024, over the same period prior year.

Current wording

**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 wording

**Operating Expenses:**Total operating expenses for the quarter decreased from $31.7 million to $27.5 million (-$4.2 million or -13%) anddecreased as a percentage of net revenue versus the same quarter prior year from 7.5% to 7.0%. Total Distribution and fulfillment expense declined from $15.1 million to $12.4 million (-$2.7 million, -18%) and decreased from 3.6% to 3.2% as a percentage of net revenue for the three months ended December 31, 2024, versus the same period prior year. 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 $9.4 million to $8.2 million (-$1.2 million, -13%) and, despite low unemployment rates, the average cost per labor hour declined approximately 5.5% for the three months ending December 31, 2024, versus the same period of the prior year. 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. And, as we continue to identify and implement business process changes to improve overall efficiency, total selling, general and administrative costs declined from $15.1 million to $13.8 million (-$1.3 million or -9%) year over year.

Current wording

**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 wording

**Interest Expense:**For the three months ending December 31, 2024, total interest expense decreased from $3.3 million to $2.8 million (-$0.5 million, -15%) versus the same period of the prior year. The primary driver was a reduction of the average revolver balance from $122 million to $85 million (-$37 million, -30%) over the same period of the prior year, partially offset by an increase of our effective interest rate from 8.9% to 9.6%.

Current wording

**Interest Expense:**For the three months ended March 31, 2025, total interest expense decreased from $3.1 million to $2.4 million (-$0.6 million, -20.2%) versus the prior year period. The primary driver was a reduction of the average revolver balance from $94 million to $68 million (-$26 million, -27%) over the prior year period, partially offset by an increase of our effective interest rate from 10.0% to 8.9%.

Previous wording

**Income Tax:**For the three months ended December 31, 2024, an income tax expense of $2.4 million was recorded compared to a benefit of $3.8 million for the same period in the prior year. Alliance reported a pretax gain of $9.4 million and $12.7 million for the three-months ended December 31, 2024, and 2023, respectively. The annual effective tax rate for the three months ended December 31, 2024, was 25% versus 30% prior year. The difference between the Company’s effective tax rate for the three months ended December 31, 2024, and the federal statutory rate primarily resulted from state income taxes and foreign derived intangible income.

Current wording

**Income Tax:**For the three months ended March 31, 2025, an income tax expense of $0.9 million was recorded compared to a benefit of $0.5 million for the prior year period. Alliance reported a pretax income of $2.8 million for the three months ended March 31, 2025, versus a loss of $3.9 million for the three months ended March 31, 2024. The effective tax rate was 35% and 43% for the three months ended March 31, 2025, and 2024, respectively. The difference between the Company’s effective tax rate for the three months ended March 31, 2025, and the federal statutory rate primarily resulted from state income taxes, foreign derived intangible income, and a discrete item for the impact of fair value adjustments related to the Company’s warrant liability. The difference between the Company’s effective tax rate for the three 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 wording

**Non-GAAP Financial Measures:**For the three months ending December 31, 2024, we had non-GAAP Adjusted EBITDA of approximately $16.1 million compared with Adjusted EBITDA of approximately $18.8 million in the same period of the prior year. We define Adjusted EBITDA as net gain 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 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.

Current wording

**Non-GAAP Financial Measures:**For the three months ended March 31, 2025, we had non-GAAP Adjusted EBITDA of approximately $4.9 million compared with Adjusted EBITDA of approximately $2.9 million in the prior year period, or a year-over-year improvement of $2.0 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) 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 wording

Net Revenue: Year over year, total net revenues decreased from $652 million to $623 million (-$29 million, -4.4%) for the six months ended December 31, 2024. Alliance Entertainment is a recognized leader in the entertainment industry, excelling in the licensing, production, and distribution of a diverse range of entertainment products and content, including motion pictures, music, gaming hardware, retro arcades, and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, our extensive portfolio of unique content, combined with our deep inventory, enables us to service bulk B2B and direct-to-consumer (DTC) channels with a vast selection of products unavailable through other distributors. Our recent acquisition of Handmade by Robots and Paramount licensing contract will further enhance our portfolio of exclusive content. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled approximately 40% of our gross sales revenue for the six months ended December 31, 2024.

Current wording

**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 wording

Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $117 million to $139 million ($22 million, 19%) versus the same period last year. The average selling price of physical film products increased 17% year over year and partially offset by a decline in volume contributed to a healthy increase versus the same period last year. The consistent flow of new theatrical releases, combined with 4K and collectable SteelBook content, continues to drive home video sales. We expect the trend of higher price points to continue as brick & mortar retailers cater to the consumer preference for omnichannel shopping experiences and curated content versus inexpensive, mass market product offerings. Alliance Entertainment’s ability to offer retailers in-store and on-line channels a deep, extensive library of both music and movies helps provide them with the products for a cohesive shopping experience based on personal preference and engagement with their respective brands.

Current wording

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 wording

Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $578 million to $555 million (-$23 million, -4%) year over year primarily due to the direct relation of product costs to sales volume. Gross margin dollars decreased year over year from $74.0 to $67.8 resulting in a margin decline from 11.3% to 10.9% for the six months ended December 31, 2024, over the same period prior year.

Current wording

**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 wording

Operating Expenses: Total operating expenses decreased from $59.7 million to $50.9 million (-$8.8 million, -15%) and decreased as a percentage of net revenue over the same period of the year from 9.1% to 8.2%. Total distribution and fulfillment expense declined from $26.9 million to $21.4 million and decreased from 4.1% to 3.4% as a percentage of net revenue for the six months ended December 31, 2024, versus the same period prior year. 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 $16.7 million to $14.5 million (-$2.2 million, -13%) and, despite low unemployment rates, the average cost per labor hour declined 5% for the six months ended December 31, 2024. 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. And, as we continue to identify and implement business process changes to improve overall efficiency, total selling, general and administrative costs declined from $29.7 million to $26.9 million (-$2.8 million, -9%) year over year.

Current wording

**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 wording

Interest Expense: For the six months ended December 31, 2024, interest expense decreased from $6.5 million to $5.7 million (-$1.2 million or -18%) versus the same period of the prior year. The primary driver was a large reduction of the average revolver balance from $123 million to $83 million (-$40 million, -33%) and partial offset by a increase of our effective interest rate from 8.7% to 9.6% for the six months ended December 31, 2024 versus the six months ended December 31, 2023.

Current wording

**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 wording

Income Tax: For the six months ended December 31, 2024, an income tax expense of $1.2 million was recorded compared to a expense of $2.5 million for the same period in the prior year. Alliance reported a pretax gain of $8.7 million and pretax gain of $8.0 million for the six-months ended December 31, 2024, and 2023, respectively. The annual effective tax rate (“ETR”) for the six months ended December 31, 2024, was 14% versus 32% prior year. The difference between the Company’s effective tax rate for the six months ended December 31, 2024, and the federal statutory rate primarily resulted from state income taxes, foreign derived intangible income, and a discrete item from an out-of-measurement period adjustment to the deferred tax liability related to software costs.

Current wording

**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 wording

Non-GAAP Financial Measures: For the six months ended December 31, 2024, we had non-GAAP Adjusted EBITDA of approximately $19.5 million compared to Adjusted EBITDA of approximately $19.2 million for the prior year or a year-over-year improvement of $0.3 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (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 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.

Current wording

**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 wording

**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 Revolving Credit Facility replaced the Company’s revolver with Bank of America (the “Prior Credit Facility”).

Current wording

**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.

Previous wording

Our primary sources of liquidity are cash on-hand, cash provided by operating activities, and borrowings under our credit facility. As of December 31, 2024, in addition to the $2.5 million of cash, we carried a $70 million revolver balance on our $120 million credit facility (the “Revolving Credit Facility”) under the Loan and Security Agreement with White Oak Commercial Finance, LLC. Year over year, we have converted accounts receivable and inventory to cash which was used to reduce the revolver balance from $101 million on December 31, 2023, to $70 million (-$31 million or -31%) on December 31, 2024. As a result, our availability increased from $19 million on December 31, 2023 to $50 million on December 31, 2024 ($31 million, 163%).

Current wording

Our primary sources of liquidity are cash on-hand, cash provided by operating activities, and borrowings under our credit facility. As of March 31, 2025, in addition to the $2 million of cash, we carried a $65 million revolver balance on our $120 million Current Credit Facility. Year over year, we have converted accounts receivable and inventory to cash which was used to reduce the Current Credit Facility balance from $73 million on March 31, 2024, to $68 million (-$2 million or -3%) on March 31, 2025. As a result, our availability increased from $47 million on March 31, 2024, to $52 million on March 31, 2025 (+$5 million, +11%).

Previous wording

We intend to principally rely on our borrowing capacity under the Revolving Credit Facility as well as any renewal or replacement of such facility. The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash. Since the exercise price of the Warrants of $11.50 per share is significantly greater than the current market price of the Class A common stock $5.29 as of February 10, 2025 we do not expect the Warrants to be exercised until such time, if ever, that the market price of the Class A common stock exceeds the exercise price of the Warrants. Although the Company does not currently intend to do so, following this offering, the Company may seek to raise additional capital through the sale of equity securities.

Current wording

As of March 31, 2025, the Company intends to continue relying primarily on its borrowing capacity under the Current Credit Facility, as well as any renewal or replacement of such facility, to fund working capital and other operational requirements. The availability of additional cash proceeds from the potential exercise of outstanding Warrants is contingent upon the market price of the Company’s Class A common stock exceeding the Warrant exercise price of $11.50 per share. Given that the market price of the Class A common stock was $2.40 as of May 12, 2025, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities and liquidity needs.

Previous wording

**Cash Flow:**The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the six months ended December 31, 2024, and 2023.

Current wording

**Cash Flow:**The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the nine months ended March 31, 2025, and 2024.

Previous wording

For the six months ended December 31, 2024, on net income of $7.5 million, the Company’s cash provided by operating activities was $13.6 million versus $26.1 million provided by operations for the six months ended December 31, 2023. Compared to the same six-month period last year, there was a $2 million improvement in net income combined with approximately a $2 million decrease in inventory versus a decrease of $33 million decline in inventory for the same six-month period prior year. The key driver was carrying $97 million of inventory at June 30, 2024 versus $147 million at June 30, 2023 (-$50 million, -34%) due to the relatively high inventory position because of the supply chain disruptions that occurred in the prior year. By December 31, 2024 our inventory valuation was approximately $96 million versus $114 million December 31, 2023 (-$18 million, -16%).

Current wording

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 wording

The cashflow used in investing activities was $7.6 million for the six months ended December 31, 2024, and $131 for the same period prior year. The use of funds was driven by the acquisition of Handmade by Robots.

Current wording

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 wording

No changes were made to the critical accounting estimates discussed in the 2024 Annual Report during the six months ending December 31, 2024.

Current wording

No changes were made to the critical accounting estimates discussed in the 2024 Annual Report during the nine months ended March 31, 2025.