Operational efficiencies drove improved profitability
Strengthened balance sheet including 33% reduction in revolver debt
Higher-margin Direct to Consumer sales increased to 34% of gross revenue
PLANTATION, Fla., Nov. 12, 2024 (GLOBE NEWSWIRE) -- Alliance Entertainment Holding Corporation (Nasdaq: AENT), a global distributor and wholesaler specializing in music, movies, video games, electronics, arcades, and collectibles, reported its financial and operational results for the first quarter ended September 30, 2024.
First Quarter FY 2025 and Subsequent Highlights
- Net revenue increased to $229 million in Q1, with year-over-year sales increases in vinyl, up 4.8%, compact discs (CDs), up 4.0%, physical movie sales, up 13.2%, and gaming products, up 8.6%, contributing to revenue growth.
- Higher-margin Direct-to-Consumer (DTC) sales contributed 34% of Q1 gross revenue, up from 30% in the prior year period.
- Distribution and fulfillment expense decreased to $9 million in Q1, down 23% from the prior year period, driven by automation initiatives, which remain ongoing, as well as improved efficiencies realized from the May 31, 2024 closing of the Company's Shakopee, MN facility.
- SG&A expense decreased to $13 million in Q1, down 9% from the prior year period.
- Operating income improved to $2 million in Q1, up from an operating loss of $1.6 million in the prior year period, primarily driven by reductions in expenses highlighted above.
- Net income was $0.4 million in Q1, a $3.9 million improvement from the net loss of $3.5 million in the prior year period.
- Adjusted EBITDA improved to $3.4 million, increasing $2.1 million from an Adjusted EBITDA of $1.3 million in Q1 FY24.
- Inventory levels were reduced to $138 million as of September 30, 2024, down from $159 million as of September 30, 2023, as a result of effective inventory management.
- Revolver balance reduced by 33%, from $126 million on September 30, 2023, to $85 million as of September 30, 2024, significantly improving liquidity and reducing debt service costs.
- Signed an exclusive distribution agreement with Arcade1Up for retail and website fulfillment in North America. In the first quarter of its exclusive agreement with Arcade1Up (Q1 FY25), Alliance generated $12.6 million revenue, up from $10.2 million in the corresponding year ago period.
- Alliance Entertainment's Distribution Solutions division signed an exclusive partnership with Magenta Light Studios for physical home entertainment releases in the US and Canada, further strengthening the Company's growing share of exclusive physical media product sales.
- Participated in investor conferences including the ThinkEquity Conference, Wall Street Wonders, and Trickle Research Microcap.
Bruce Ogilvie, Chairman of Alliance Entertainment, commented, "We are pleased to report a strong start to fiscal 2025, reflecting the continued success of our strategic initiatives and the resilience of our core business segments. Steady growth in higher-margin Direct-to-Consumer sales, coupled with increased operational efficiencies, strengthens our foundation for delivering sustained profitability. Our ongoing investments in automation and operational restructuring, including advanced technologies like AutoStore, are driving meaningful cost savings while providing the scalability needed for future growth.
"Looking ahead, we remain focused on leveraging our strengths as a capital-light, low-cost provider with unparalleled industry reach and customer service. Building on our leadership position while addressing emerging opportunities in underpenetrated channels, such as digital video streaming, we are well-positioned to deliver efficient, scalable solutions that create value for our partners and shareholders alike."
Jeff Walker, Chief Executive Officer of Alliance Entertainment, added, "Our Q1 results reflect the success of our ongoing operational strategies, which focus on efficiency and profitability. Higher-margin Direct-to-Consumer sales now represent 34% of gross revenue, up from 30% a year ago, and we continue to achieve meaningful cost reductions, with distribution and fulfillment expenses down 23% year-over-year, driven by automation and the consolidation of our operations.
"We are particularly proud of our employees and their contributions to the improvements in both our adjusted EBITDA and net income. We achieved our sixth consecutive quarter of positive adjusted EBITDA, which increased to $3.4 million in Q1, up from $1.3 million in the same period last year. This strong improvement was driven by cost efficiencies achieved through warehouse automation initiatives and the strategic reduction of non-essential expenditures, which were also key drivers to our net income turnaround, which improved by $3.9 million year-over-year to $0.4 million this quarter.
"We continue to see increasing sales across key product categories, with vinyl and compact disc sales growing 4.8% and 4.0% year-over-year, respectively, fueled by increasing consumer demand for premium and collectible formats. Physical movie sales rose 13.2%, with higher average selling prices reflecting the appeal of 4K UHD and SteelBook editions. Gaming products also performed exceptionally well, growing 8.6% due to increased sales of retro arcade systems and gaming hardware. This growth was further bolstered by our new exclusive distribution agreement with Arcade1Up, signed in July, which positions Alliance as their sole partner for retail and website fulfillment across North America, building upon the highly successful non-exclusive agreement we first entered into in 2021.
"Our disciplined approach to strengthening our balance sheet remains a cornerstone of our strategy. We reduced revolver debt by 33% year-over-year, improving our financial flexibility and reducing debt service costs. Additionally, inventory levels were reduced to $138 million as of September 30, 2024, down from $159 million in the prior year, reflecting effective inventory management and our preparation for the upcoming holiday season. These improvements highlight our commitment to maintaining a strong liquidity position and operational efficiency while keeping us in a prime position to execute our acquisition strategy and capitalize on future growth opportunities.
"As we look toward the remainder of fiscal 2025, we remain focused on expanding and diversifying our product offerings while strengthening relationships with our retail partners. By continuing to secure exclusive distribution agreements and leveraging our advanced operational capabilities, we are well-positioned to capture new opportunities across the entertainment landscape.
"Our commitment to disciplined cost management, operational efficiency, and strategic growth initiatives has established a solid foundation for the future. Demand for physical media remains robust, and we anticipate continued strength in these areas as major releases hit the market. With a clear strategy in place, we are confident in our ability to deliver sustained value for our shareholders while continuing to adapt and thrive in a dynamic marketplace," concluded Walker.
Conference Call
Alliance Entertainment Executive Chairman Bruce Ogilvie and CEO and CFO Jeff Walker will host the conference call, which will be followed by a question-and-answer session. A presentation will accompany the call and 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: | Tuesday, November 12, 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: | 13749818 |
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 RedChip Companies at 1-407-644-4256.
The conference call will be broadcast live and available for replay at https://viavid.webcasts.com/starthere.jsp?ei=1694666&tp_key=8881080bbe and via the investor relations section of the Company's website here.
A telephone replay of the call will be available approximately three hours after the call concludes and can be accessed through November 19, 2024, using the following information:
| Toll-free replay number: | 1-844-512-2921 |
| International replay number: | 1-412-317-6671 |
| Replay ID: | 13749818 |
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:
Dave Gentry
RedChip Companies, Inc.
1-407-644-4256
AENT@redchip.com
| ALLIANCE ENTERTAINMENT HOLDING CORP. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands except share and per share amounts) | September 30, 2024 | September 30, 2023 | ||||||
| Net Revenues | $ | 228,990 | $ | 226,755 | ||||
| Cost of Revenues (excluding depreciation and amortization) | 203,455 | 200,501 | ||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | 9,018 | 11,714 | ||||||
| Selling, General and Administrative Expense | 13,145 | 14,439 | ||||||
| Depreciation and Amortization | 1,258 | 1,641 | ||||||
| Restructuring Cost | 50 | 47 | ||||||
| Gain on Disposal of Fixed Assets | (15 | ) | - | |||||
| Total Operating Expenses | 23,456 | 27,841 | ||||||
| Operating Income (Loss) | 2,079 | (1,587 | ) | |||||
| Other Expenses | ||||||||
| Interest Expense, Net | 2,839 | 3,140 | ||||||
| Total Other Expenses | 2,839 | 3,140 | ||||||
| Loss Before Income Tax Benefit | (760 | ) | (4,727 | ) | ||||
| Income Tax Benefit | (1,157 | ) | (1,265 | ) | ||||
| Net Income (Loss) | 397 | (3,462 | ) | |||||
| Net Income (Loss) per Share - Basic and Diluted | $ | 0.01 | $ | (0.07 | ) | |||
| Weighted Average Common Shares Outstanding - Basic | 50,957,370 | 50,502,170 | ||||||
| Weighted Average Common Shares Outstanding - Diluted | 50,965,970 | 50,502,170 | ||||||
| ALLIANCE ENTERTAINMENT HOLDING CORP. UNAUDITED CONSOLIDATED BALANCE SHEETS | ||||||||||
| ($ in thousands) | September 30, 2024 | June 30, 2024 | ||||||||
| (Unaudited) | ||||||||||
| Assets | ||||||||||
| Current Assets | ||||||||||
| Cash | $ | 4,290 | $ | 1,129 | ||||||
| Trade Receivables, Net | 102,411 | 92,357 | ||||||||
| Inventory, Net | 138,488 | 97,429 | ||||||||
| Other Current Assets | 6,451 | 5,298 | ||||||||
| Total Current Assets | 251,640 | 196,213 | ||||||||
| Property and Equipment, Net | 12,526 | 12,942 | ||||||||
| Operating Lease Right-of-Use Assets | 21,374 | 22,124 | ||||||||
| Goodwill | 89,116 | 89,116 | ||||||||
| Intangibles, Net | 12,549 | 13,381 | ||||||||
| Other Long-Term Assets | 955 | 503 | ||||||||
| Deferred Tax Asset, Net | 7,500 | 6,533 | ||||||||
| Total Assets | $ | 395,660 | $ | 340,812 | ||||||
| Liabilities and Stockholders' Equity | ||||||||||
| Current Liabilities | ||||||||||
| Accounts Payable | $ | 176,253 | $ | 133,221 | ||||||
| Accrued Expenses | 6,091 | 9,371 | ||||||||
| Current Portion of Operating Lease Obligations | 2,192 | 1,979 | ||||||||
| Current Portion of Finance Lease Obligations | 2,892 | 2,838 | ||||||||
| Contingent Liability | 511 | 511 | ||||||||
| Total Current Liabilities | 187,939 | 147,920 | ||||||||
| Revolving Credit Facility, Net | 85,423 | 69,587 | ||||||||
| Finance Lease Obligation, Non- Current | 4,270 | 5,016 | ||||||||
| Operating Lease Obligations, Non-Current | 19,714 | 20,413 | ||||||||
| Shareholder Loan (subordinated), Non-Current | 10,000 | 10,000 | ||||||||
| Warrant Liability | 288 | 247 | ||||||||
| Total Liabilities | 307,634 | 253,183 | ||||||||
| 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 September 30, 2024, and June 30, 2024 | - | - | ||||||||
| Common Stock: Par Value $0.0001 per share, Authorized 550,000,000 shares at September 30, 2024, and at June 30, 2024; Issued and Outstanding 50,957,370 Shares as of September 30, 2024, and June 30, 2024 | 5 | 5 | ||||||||
| Paid In Capital | 48,058 | 48,058 | ||||||||
| Accumulated Other Comprehensive Loss | (79 | ) | (79 | ) | ||||||
| Retained Earnings | 40,042 | 39,645 | ||||||||
| Total Stockholders' Equity | 88,026 | 87,629 | ||||||||
| Total Liabilities and Stockholders' Equity | $ | 395,660 | $ | 340,812 | ||||||
| ALLIANCE ENTERTAINMENT HOLDING CORP. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2024 | September 30, 2023 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | 397 | $ | (3,462 | ) | |||
| Adjustments to Reconcile Net Loss to | ||||||||
| Net Cash Used in Operating Activities: | ||||||||
| Depreciation of Property and Equipment | 426 | 590 | ||||||
| Amortization of Intangible Assets | 832 | 1,051 | ||||||
| Amortization of Deferred Financing Costs (Included in Interest) | 351 | 42 | ||||||
| Bad Debt Expense | 302 | 87 | ||||||
| Deferred Income Taxes | (967 | ) | - | |||||
| Stock-based Compensation Expense | - | 1,328 | ||||||
| Gain on Disposal of Fixed Assets | (15 | ) | - | |||||
| Changes in Assets and Liabilities, Net of Acquisitions | ||||||||
| Trade Receivables | (10,341 | ) | 11,348 | |||||
| Inventory | (41,060 | ) | (12,669 | ) | ||||
| Income Taxes Payable\Receivable | (424 | ) | (1,233 | ) | ||||
| Operating Lease Right-of-Use Assets | 750 | 884 | ||||||
| Operating Lease Obligations | (486 | ) | (971 | ) | ||||
| Other Assets | (1,176 | ) | 1,142 | |||||
| Accounts Payable | 43,032 | 3,123 | ||||||
| Accrued Expenses | (3,243 | ) | (3,999 | ) | ||||
| Net Cash Used in Operating Activities | (11,622 | ) | (2,739 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Expenditures | (10 | ) | - | |||||
| Net Cash Provided by Investing Activities | (10 | ) | - | |||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on Revolving Credit Facility | (201,660 | ) | (260,259 | ) | ||||
| Borrowings on Revolving Credit Facility | 217,144 | 252,621 | ||||||
| Proceeds from Shareholder Note (Subordinated), Current | - | 46,000 | ||||||
| Payments on Shareholder Note (Subordinated), Current | - | (36,000 | ) | |||||
| Issuance of common stock, net of transaction costs | - | 1,332 | ||||||
| Payments on Financing Leases | (691 | ) | (595 | ) | ||||
| Net Cash Provided by Financing Activities | 14,793 | 3,099 | ||||||
| Net Increase in Cash | 3,161 | 360 | ||||||
| Net Effect of Currency Translation on Cash | - | - | ||||||
| Cash, Beginning of the Period | 1,129 | 865 | ||||||
| Cash, End of the Period | $ | 4,290 | $ | 1,225 | ||||
| Supplemental disclosure for Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | 2,975 | $ | 3,140 | ||||
| Cash Paid for Income Taxes | $ | 234 | $ | 44 | ||||
| Supplemental Disclosure for Non-Cash Investing Activities | ||||||||
| Fixed Asset Financed with Debt | $ | 7,161 | $ | - | ||||
Non-GAAP Financial Measures: 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.
| Three Months Ended | Three Months Ended | ||||||
| ($ in thousands) | September 30, 2024 | September 30, 2023 | |||||
| Net Income (Loss) | $ | 397 | $ | (3,462 | ) | ||
| Add back: | |||||||
| Interest Expense | 2,839 | 3,140 | |||||
| Income Tax Benefit | (1,157 | ) | (1,265 | ) | |||
| Depreciation and Amortization | 1,258 | 1,641 | |||||
| EBITDA | $ | 3,337 | $ | 54 | |||
| Adjustments | |||||||
| Stock-based Compensation Expense | - | 1,328 | |||||
| Change In Fair Value of Warrants | 41 | (124 | ) | ||||
| Restructuring Cost | 50 | 47 | |||||
| Loss on Disposal of Property and Equipment | (15 | ) | - | ||||
| Adjusted EBITDA | $ | 3,413 | $ | 1,305 | |||
