Alliance Entertainment Reports Second Quarter Fiscal Year 2024 Financial Results

Alliance Entertainment Holding Corporation (Nasdaq: AENT) (“Alliance Entertainment”, “Company”), a distributor and wholesaler of the world’s largest in stock selection of music, movies, video games, electronics, arcades, toys, and collectibles, has reported its financial and operational results for the fiscal second quarter ended December 31, 2023.

Second Quarter FY 2024 and Subsequent Operational Highlights

• Closed a new 3-year $120 million senior secured asset-based credit facility with White Oak Commercial Finance, LLC, replacing the Company’s revolver with Bank of America.
• Consumer Direct Shipments (CDF) grew to 45% of gross sales revenue for the fiscal second quarter compared to 37% in the year-ago period, totaling 2.3 million shipments of 5.3 million units.
• Significantly Reduced inventory and debt, with fiscal second quarter year over year inventory decreasing from $175 million down to $114 million, and debt down from $177 million to $107 million.
• COKeM gaming division reported sales of the popular Arcade1Up home arcade machines that exceeded initial forecasts in the calendar fourth quarter of 2023.
• AMPED independent music distribution arm partnered with Vydia, an end-to-end solution to empower the next generation of music creators, managers, and labels, to expand Vydia’s capabilities for physical distribution.
• Partnered with Grail Game, the premier specialty bid site for high end collectibles, to create a new sales channel, and mystery box experiences for collectors.
• Launched a new publishing venture under the banner of Alliance Entertainment Publications to create and release high quality, full-color, fan-focused collectible magazines.
• AMPED achieved a record-breaking 24 Grammy nominations for 19 artists, highlighting the company's commitment to championing independent music and empowering artists to succeed.
• AMPED assisted with the successful physical launch of K-Pop band ATEEZ’s latest album, "THE WORLD EP.FIN : WILL", with physical CD and Vinyl sales powering the band’s first US number-one album within its first week of release.
• Alliance’s Mill Creek Entertainment, Pinnacle Peak Pictures, and Tread Lively announced another successful Home Entertainment release with THE BLIND, hitting #1 in pre-sales on Amazon during its first weekend across all movies and TV.
• Announced 100% vestment of equity grants to 597 employees under its 2023 Omnibus Equity Incentive Plan, establishing employee ownership.
• Participated in investor conference The ThinkEquity Conference.

Bruce Ogilvie, Chairman of Alliance Entertainment, commented, “During the second quarter of fiscal 2024 our momentum continued with positive net income and adjusted EBITDA, new partnerships and encouraging developments across our brands. We believe we have reached an inflection point through investing in our operations and proprietary technology with a shift toward larger scale automation, and our strategic focus on profitable sales.

“We signed several partnerships and launched a new publishing venture that highlights additional revenue opportunities in physical media. AMPED Distribution and Vydia, an end-to-end solution to empower the next generation of music creators, managers, and labels, are working together to expand Vydia’s capabilities for physical distribution. Vydia delivers digital content to over 200 global audio and video destinations, and this partnership adds physical retailer distribution for its artists. With Grail Game, the premier specialty bid site for high end collectibles, we are creating a new sales channel, and mystery box experiences for collectors. Our first game sold out of 3,000 boxes in only 18 hours as fans of high-end collectibles had the opportunity to win them in a Grail Game.

“We also launched a new publishing venture under the banner of Alliance Entertainment Publications, which is creating and releasing high quality, full-color, fan-focused Collectible Magazines, known in the industry as Bookazines, which are the fastest growing segment in magazine publishing. They will be sold through our extensive distribution network, including Customer Direct Fulfillment (“CDF”), through Alliance’s proprietary direct-to-consumer mail order print catalogs and websites, and to thousands of independent retailers and wholesale accounts. They will also be distributed to select retail destinations such as Barnes & Noble and Books-A-Million, further expanding to include big box retailers and grocery chains in 2024,” concluded Ogilvie.

Jeff Walker, Chief Executive Officer of Alliance Entertainment, added, “The second quarter continued to support tracking from higher average selling prices and decreased operating expenses. Our Consumer Direct Shipments (CDF) suite of distribution and inventory solutions for the e-commerce retail industry grew to 45% of gross sales revenue for the fiscal second quarter compared to 37% in the year ago period, totaling 2.3 million shipments of 5.3 million units to customers worldwide.

“Average selling prices improved in Vinyl, up 4.4% in the fiscal second quarter over the prior year. Potential expansion of K-Pop to the vinyl format this year may improve results going forward. The popularity of K-Pop helped us realize a 19% increase in the average selling price of CDs. Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, decreased slightly from $71 million to $70 million versus the same period last year. The average selling price of physical film products significantly increased year over year but was offset by the decline in volume. The consistent flow of new theatrical releases continues to drive home video sales, and when combined with the release of 4K content, drove the average selling price higher.

“We have taken significant steps over the past year to strengthen our balance sheet, with additional cost savings initiatives planned. Throughout 2023 we were highly focused on reducing inventory and debt, with fiscal second quarter year over year inventory decreasing from $175 million to $114 million, and debt down from $177 million to $107 million. We also expect significant cost savings with the planned closing of our Minnesota facility on or before May 31, 2024. Additionally, to support growth, we recently secured a new 3-year $120 million senior secured asset-based credit facility with White Oak Commercial Finance, the proceeds of which was used to refinance the existing credit facility, fund working capital needs, and provide for general corporate purposes. These steps have also positioned us to focus and execute on implementing our acquisition strategy going forward.

“Looking ahead, we continue to expand and diversify by adding brands, product categories, and retail partnerships to build a strong pipeline. We believe we are now well positioned to continue investment in automating facilities and upgrading proprietary software, which are beginning to show significant improvements. Combined with our cost-cutting initiatives, significant reduction in debt, and reduction in inventory due to improved management, we believe we can improve EBITDA and inventory turns moving forward. Taken together, we begin calendar year 2024 ready to drive accretive growth and build additional value for our shareholders,” concluded Walker.

Second Quarter FY 2024 Financial Results

• Net revenues for the fiscal second quarter ended December 31, 2023, were $425.6 million, compared to $445.2 million in the same period of 2022, a decrease of 4.4%.
• Gross profit for the fiscal second quarter ended December 31, 2023, was $47.7 million, compared to $20.9 million in the same period of 2022, an increase of 128%.
• Gross profit margin for the fiscal second quarter ended December 31, 2023, was 11.2%, up from 4.7% in the same period of 2022.
• Net income for the fiscal second quarter ended December 31, 2023, was $8.9 million, compared to net loss of $15.5 million for the same period of 2022.
• Adjusted EBITDA for the fiscal second quarter ended December 31, 2023, was $17.9 million, compared to Adjusted EBITDA loss of ($14.5) million for the same period of 2022.

1H FY 2024 Financial Results

• Net revenues for the six months ended December 31, 2023, were $652.3 million, compared to $683.9 million in the same period of 2022, a decrease of 4.6%.
• Gross profit for the six months ended December 31, 2023, was $74.0 million, compared to $46.4 million in the same period of 2022, an increase of 59.5%.
• Gross profit margin for the six months ended December 31, 2023, was 11.3%, up from 6.8% in the same period of 2022.
• Net income for the six months ended December 31, 2023, was $5.5 million, compared to net loss of $23.0 million for the same period of 2022.
• Adjusted EBITDA for the six months ended December 31, 2023, was $19.2 million, compared to Adjusted EBITDA loss of ($18.6) million for the same period of 2022.

Jeff Walker added, “For the second quarter of fiscal year 2024, we were encouraged by ongoing improvement in gross profit and gross margin over the prior year period as our cost-saving initiatives and focus on positive sales continue to yield results. Improvements also led to a positive net income of $8.9 million, and third consecutive quarter of positive Adjusted EBITDA, increasing to $17.9 million in the fiscal second quarter, compared to an Adjusted EBITDA loss of $14.5 million in the prior year.”

Capital Structure Summary

The company's outstanding common stock as of December 31, 2023, totaled 50,930,770 shares. The public float was 2,204,072 shares as of December 31, 2023. Management owns 81% of outstanding common stock.

For additional information, please see the company's quarterly report on Form 10-Q filed with the SEC.

Second Quarter Conference Call

Alliance Entertainment Executive Chairman Bruce Ogilvie, and CEO and CFO Jeff Walker will host the conference call, followed by a question-and-answer session. The conference call will be accompanied by a presentation, which can be viewed during the webcast or accessed via the investor relations section of the Company’s website here.

To access the call, please use the following information:

Date:	Thursday, February 8, 2024
Time:	4:30 p.m. Eastern Time, 1:30 p.m. Pacific Time
Toll-free dial-in number:	1-877-407-0784
International dial-in number:	1-201-689-8560
Conference ID:	13743609

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact MZ Group at 1-949-491-8235.

The conference call will be broadcast live and available for replay at https://viavid.webcasts.com/starthere.jsp?ei=1651014&tp_key=12996f9586 and via the investor relations section of the Company's website here.

A replay of the webcast will be available after 7:30 p.m. Eastern Time through April 8, 2024.

Toll-free replay number:	1-844-512-2921
International replay number:	1-412-317-6671
Replay ID:	13743609

Non-GAAP Financial Measures: 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 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.

US-GAAP NET INCOME (LOSS) TO ADJUSTED EBITDA RECONCILIATION
	Three Months Ended				Three Months Ended
($ in thousands)	December 31, 2023				December 31, 2022
Net Income (Loss)	$	8,914			$	(15,515	)
Add back:
Interest Expense		3,328				3,544
Income Tax Expense (Benefit)		3,789				(5,878	)
Depreciation and Amortization		1,412				1,529
EBITDA	$	17,443			$	(16,320	)
Adjustments
IC-DISC		—				1,444
Stock-based Compensation Expense		58				—
SPAC Transaction Cost		—				367
Change In Fair Value of Warrants		(41	)			—
Merger-related Contingent Losses (Gains)		461				—
Gain/Loss on Disposal of PPE		—				(3	)
Adjusted EBITDA	$	17,921			$	(14,513	)

	Six Months Ended				Six Months Ended
($in thousands)	December 31, 2023				December 31, 2022
Net Income (Loss)	$	5,452			$	(23,025	)
Add back:
Interest Expense		6,468				5,898
Income Tax Expense (Benefit)		2,525				(8,516	)
Depreciation and Amortization		3,054				3,166
EBITDA	$	17,499			$	(22,477	)
Adjustments
IC-DISC		—				2,833
Stock-based Compensation Expense		1,386				—
SPAC Transaction Cost		—				1,007
Restructuring Cost		47				—
Change In Fair Value of Warrants		(165	)			—
Merger-related Contingent Losses (Gains)		461				—
Gain/Loss on Disposal of PPE		—				(3	)
Adjusted EBITDA	$	19,228			$	(18,640	)

About Alliance Entertainment

Alliance Entertainment (NASDAQ: AENT) is a premier distributor of music, movies, toys, collectibles, and consumer electronics. We offer over 325,000 unique in stock SKU’s, including over 57,300 exclusive compact discs, vinyl LP records, DVDs, Blu-rays, and video games. Complementing our vast media catalog, we also stock a full array of related accessories, toys and collectibles. With more than thirty-five years of distribution experience, Alliance Entertainment serves customers of every size, providing a robust suite of services to resellers and retailers worldwide. Our efficient processing and essential seller tools noticeably reduce the costs associated with administrating multiple vendor relationships, while helping omni-channel retailers expand their product selection and fulfillment goals. For more information, visit www.aent.com.

Forward Looking Statements

Certain statements included in this Press Release that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether identified in this Press Release, and on the current expectations of Alliance’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by an investor as, a guarantee, an assurance, a prediction, or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of Alliance. These forward-looking statements are subject to a number of risks and uncertainties, including risks relating to the anticipated growth rates and market opportunities; changes in applicable laws or regulations; the ability of Alliance to execute its business model, including market acceptance of its systems and related services; Alliance’s reliance on a concentration of suppliers for its products and services; increases in Alliance’s costs, disruption of supply, or shortage of products and materials; Alliance’s dependence on a concentration of customers, and failure to add new customers or expand sales to Alliance’s existing customers; increased Alliance inventory and risk of obsolescence; Alliance’s significant amount of indebtedness; our ability to refinance our existing indebtedness; our ability to continue as a going concern absent access to sources of liquidity; risks and failure by Alliance to meet the covenant requirements of its revolving credit facility, including a fixed charge coverage ratio; risks that a breach of the revolving credit facility, including Alliance’s recent breach of the covenant requirements, could result in the lender declaring a default and that the full outstanding amount under the revolving credit facility could be immediately due in full, which would have severe adverse consequences for the Company; known or future litigation and regulatory enforcement risks, including the diversion of time and attention and the additional costs and demands on Alliance’s resources; Alliance’s business being adversely affected by increased inflation, higher interest rates and other adverse economic, business, and/or competitive factors; geopolitical risk and changes in applicable laws or regulations; risk that the COVID-19 pandemic, and local, state, and federal responses to addressing the pandemic may have an adverse effect on our business operations, as well as our financial condition and results of operations; substantial regulations, which are evolving, and unfavorable changes or failure by Alliance to comply with these regulations; product liability claims, which could harm Alliance’s financial condition and liquidity if Alliance is not able to successfully defend or insure against such claims; availability of additional capital to support business growth; and the inability of Alliance to develop and maintain effective internal controls.

For investor inquiries, please contact:MZ GroupChris Tyson/Larry Holub(949) [e-mail]

ALLIANCE ENTERTAINMENT HOLDING CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)	December 31, 2023				June 30, 2023
	(Unaudited)
Assets
Current Assets
Cash	$	2,655			$	865
Trade Receivables, Net		183,564				104,939
Inventory, Net		113,933				146,763
Other Current Assets		6,438				8,299
Total Current Assets		306,590				260,866
Property and Equipment, Net		12,525				13,421
Operating Lease Right-of-Use Assets		3,090				4,855
Goodwill		89,116				89,116
Intangibles, Net		15,331				17,356
Other Long-Term Assets		274				1,017
Deferred Tax Asset, Net		1,089				2,899
Total Assets	$	428,015			$	389,530
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable	$	212,297			$	151,622
Accrued Expenses		7,982				9,340
Current Portion of Operating Lease Obligations		3,252				3,902
Current Portion of Finance Lease Obligations		2,540				2,449
Revolving Credit Facility, Net		—				133,281
Contingent Liability		511				150
Promissory Note		—				495
Total Current Liabilities		226,582				301,239
Revolving Credit Facility, Net		96,939				—
Shareholder Loan (subordinated), Non-Current		10,000				—
Warrant Liability		41				206
Finance Lease Obligation, Non- Current		5,736				7,029
Operating Lease Obligations, Non-Current		215				1,522
Total Liabilities		339,513				309,996
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Preferred Stock: Par Value $0.0001 per share, Authorized 1,000,000 shares, Issued and Outstanding 0 shares as of December 31, 2023 and June 30, 2023		—				—
Common Stock: Par Value $0.0001 per share, Authorized 550,000,000 shares at December 31, 2023, and at June 30, 2023; Issued and Outstanding 50,930,770 Shares as of December 31, 2023, and 49,167,170 at June 30, 2023		5				5
Paid In Capital		48,058				44,542
Accumulated Other Comprehensive Loss		(77	)			(77	)
Retained Earnings		40,516				35,064
Total Stockholders’ Equity		88,502				79,534
Total Liabilities and Stockholders’ Equity	$	428,015			$	389,530

ALLIANCE ENTERTAINMENT HOLDING CORPORATIONUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
($ in thousands except share and per share amounts)	December 31, 2023				December 31, 2022				December 31, 2023				December 31, 2022
Net Revenues	$	425,586			$	445,162			$	652,341			$	683,862
Cost of Revenues (excluding depreciation and amortization)		377,883				424,265				578,384				637,495
Operating Expenses
Distribution and Fulfillment Expense		15,144				20,365				26,858				35,230
Selling, General and Administrative Expense		15,116				15,044				29,553				29,777
Depreciation and Amortization		1,412				1,529				3,054				3,166
Transaction Costs		—				367				—				1,007
IC DISC Commissions		—				1,444				—				2,833
Restructuring Cost		—				—				47				—
(Gain) on Disposal of Fixed Assets		—				(3	)			—				(3	)
Total Operating Expenses		31,672				38,746				59,512				72,010
Operating Income (Loss)		16,031				(17,849	)			14,445				(25,643	)
Other Expenses
Interest Expense, Net		3,328				3,544				6,468				5,898
Total Other Expenses		3,328				3,544				6,468				5,898
Income (Loss) Before Income Tax Expense (Benefit)		12,703				(21,393	)			7,977				(31,541	)
Income Tax Expense (Benefit)		3,789				(5,878	)			2,525				(8,516	)
Net Income (Loss)		8,914				(15,515	)			5,452				(23,025	)
Net Income (Loss) per Share – Basic and Diluted		0.18				(0.33	)		$	0.11			$	(0.48	)
Weighted Average Common Shares Outstanding		50,930,770				47,500,000				50,716,470				47,500,000

ALLIANCE ENTERTAINMENT HOLDING CORPORATIONUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six Months Ended				Six Months Ended
($ in thousands)	December 31, 2023				December 31, 2022
Cash Flows from Operating Activities:
Net Income (Loss)	$	5,452			$	(23,025	)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating Activities:
Inventory Write-down		—				10,800
Depreciation of Property and Equipment		1,027				1,138
Amortization of Intangible Assets		2,027				2,028
Amortization of Deferred Financing Costs (Included in Interest)		159				83
Bad Debt Expense		333				330
Gain on Disposal of Fixed Assets		—				(3	)
Changes in Assets and Liabilities, Net of Acquisitions
Trade Receivables		(78,957	)			(69,193	)
Related Party Receivable		—				245
Inventory		32,831				68,547
Income Taxes PayableReceivable		2,557				(9,098	)
Operating Lease Right-of-Use Assets		1,764				1,748
Operating Lease Obligations		(1,957	)			(1,943	)
Other Assets		2,217				(5,424	)
Accounts Payable		60,675				(28,981	)
Accrued Expenses		(2,022	)			12,088
Net Cash Provided by (Used In) Operating Activities		26,106				(40,660	)
Cash Flows from Investing Activities:
Capital Expenditures		(131	)			—
Cash Received for Business Acquisitions, Net of Cash Acquired		—				1
Net Cash (Used In) Provided by Investing Activities		(131	)			1
Cash Flows from Financing Activities:
Payments on Revolving Credit Facility		(591,057	)			(580,484	)
Borrowings on Revolving Credit Facility		558,768				621,048
Proceeds from Shareholder Note (Subordinated), Non-Current		46,000				—
Payments on Shareholder Note (Subordinated), Current		(36,000	)			—
Issuance of common stock, net of transaction costs		3,516				—
Deferred Financing Costs		(4,211	)			—
Payments on Financing Leases		(1,201	)			—
Net Cash (Used in) Provided By Financing Activities		(24,185	)			40,564
Net Increase (Decrease) in Cash		1,790				(95	)
Cash, Beginning of the Period		865				1,469
Cash, End of the Period	$	2,655			$	1,374
Supplemental disclosure for Cash Flow Information
Cash Paid for Interest	$	6,468			$	5,898
Cash Paid for Income Taxes	$	44			$	586
Supplemental Disclosure for Non-Cash Investing and Financing Activities
Stock-based compensation conversion to stock	$	1,386			$	—
Fixed Asset Financed with Debt	$	—			$	8,252
Capital Contribution (Note 13)	$	—			$	6,592