Company Overview

Alliance Entertainment is a distributor of music, movies, video games, electronics, toys, and other entertainment products. The company sells its products to retailers and directly to consumers through its subsidiary DirectToU.

Recent Developments

In July 2022, Alliance purchased Think3Fold, a collectibles distribution company, which expanded Alliance’s product offerings.

In February 2023, Alliance merged with a special purpose acquisition company called Adara Acquisition Corp. This merger provided Alliance access to public markets and capital to fund operations and growth.

Financial Performance

First Quarter 2024 Compared to First Quarter 2023

Metric	Q1 2024	Q1 2023	Change
Revenue	$211 million	$228 million	-7%
Gross Margin	13.3%	12.0%	+1.3 pts
Operating Expenses	$28.8 million	$34.7 million	-17%
Net Loss	$3.4 million	$7.8 million	Improved $4.4 million

• Revenue declined due to economic conditions negatively impacting consumer discretionary spending
• Gross margins improved by focusing on higher value products
• Reduced operating expenses through work force optimization
• Lower net loss through expense control and product mix shift

Revenue Changes by Product

• Gaming: Declined from $55 million to $43 million (-22%)
  • Transitioning to hardware and accessories from games
• Vinyl: Increased from $75 million to $78 million (+4%)
• CDs: Declined marginally from $25.6 million to $25.4 million (-1%)
• Movies: Increased from $33 million to $42 million (+27%)
  • Higher average prices for 4K and SteelBook
• Toys & Collectibles: Declined from $19 million to $9 million (-53%)
  • Rationalizing less profitable product lines

First Nine Months 2024 Compared to First Nine Months 2023

Metric	9M 2024	9M 2023	Change
Revenue	$864 million	$912 million	-5%
Gross Margin	11.8%	8.1%	+3.7 pts
Operating Expenses	$88.3 million	$106.7 million	-17%
Net Income	$2.1 million	$(30.8) million	$32.9 million improvement

• Overall revenue decline but significant profitability improvement
• Gross margins expanded through SKU optimization
• Reduced operating costs through work force and process optimization
• Dramatic increase in net income

Revenue Changes by Product

• Gaming: Declined from $333 million to $287 million (-14%)
  • Transitioning to hardware and accessories from games
• Vinyl: Consistent at $242 million
• CDs: Increased from $91 million to $97 million (+7%)
• Movies: Increased from $147 million to $159 million (+8%)
• Toys & Collectibles: Declined from $65 million to $35 million (-46%)
  • Rationalizing less profitable product lines

Financial Position

• Strong cash generation in 2024
  • Optimized working capital and inventory levels
• Renewed credit facility provides adequate liquidity
  • $120 million facility
  • $115 million of availability
• 19.4 million warrants outstanding
  • Potential source of additional capital if stock price increases

Outlook

Alliance is well-positioned to navigate challenging economic conditions. By focusing on exclusive high-value product lines, shifting to automation to reduce costs, and optimizing the product mix, Alliance has set itself up for improved profitability.

The company is focused on continuing to expand gross margins while tightly controlling operating expenses. If macroeconomic conditions stabilize or improve, Alliance is poised to rapidly scale profitable revenue growth.