Alliance Entertainment Holding Corporation (AENT) Earnings Call Transcript & Summary

Thank you. Prior to starting the official presentation, I want to remind all of you that remarks delivered during this call and webcast could contain predictions, estimates, or other material that may be viewed as forward-looking. Although such forward-looking statements reflect what the company presently believes the future will bring, they carry risks and uncertainties that may lead actual outcomes to vary materially. We caution you against relying on these forward-looking statements, since they convey the company's views solely as of today's presentation date. Please remember that the company undertakes no obligation to update or publicly issue any revised version of these forward-looking statements should new information or later events arise. During today's discussion, management will try to lay out several key factors tied to the business that could influence predictions. You should additionally examine the company's Form 10-K, filed today, September 10, 2026, for a fuller treatment of these factors and other risks, especially in the section titled Risk Factors. On this conference call, management will address non-GAAP financial measures, among them adjusted EBITDA, adjusted net income, and adjusted earnings per share. Management holds the view that non-GAAP disclosures allow investors to gain a clearer picture of Alliance Entertainment's core operating performance. Kindly consult the investor presentation or today's earnings press release for a reconciliation of every non-GAAP measure against the most directly comparable GAAP financial measure. Our hosts today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will walk through the results of operations for the fiscal year ended June 30, 2026. Bruce Ogilvie, Executive Chairman, is also on the line and will take part in the Q&A session. Before handing over the call, I want to congratulate Jeff on being named Billboard's Executive of the Week last week, which recognized Alliance's role in helping drive the continued growth of physical music; with that, Jeff, the call is yours.

Thanks, Paul, and good afternoon to all of you; we're glad you could be with us. For Alliance, fiscal 2026 brought acceleration on both the financial and strategic fronts. We expanded the business, widened margins, reinforced our standing in physical entertainment and collectibles, and kept developing new capabilities capable of fueling the coming stage of growth. Revenue rose 8%, reaching $1.15 billion. Gross margin widened 80 basis points, hitting 13.3%. And adjusted EBITDA climbed 14%, totaling $41.5 million. We ended the year carrying considerable momentum as well, with fourth quarter revenue up 18% year over year, landing at $268.1 million. That growth was broad-based, spanning physical music, home entertainment, collectibles, and fulfillment, even as we kept steering the business toward premium products, exclusive content, and higher-valued services. A number of shifts taking place in the entertainment industry are likewise raising the worth of the distribution and fulfillment infrastructure assembled across our past three decades. Physical entertainment is growing more specialized, increasingly oriented around ownership, fandom, and premium products. Consumers enjoy virtually unlimited digital access to music and entertainment, but they still buy vinyl records, CDs, 4K Ultra HD titles, SteelBooks, and other physical products; such purchases increasingly revolve around owning something tied to an artist, movie, franchise, or community that holds meaning for them. The newest industry figures reveal just how robust that demand remains. The RIAA's 2026 midyear report showed U.S. physical music revenue climbing nearly 26% during the first half of calendar 2026, which included 17.7% growth in vinyl revenue and 58.6% growth in CD revenue; on the home entertainment side, DEG reported that consumer spending on 4K Ultra HD rose 12% in calendar 2025, even while the broader physical video market shrank. Our own results reflected those very trends. In fiscal 2026, vinyl revenue rose 13%, reaching $383 million. CD revenue rose 25%, reaching $156 million; and physical movie revenue rose 22%, reaching $339 million. Within home entertainment, that growth also mirrors the widening part Alliance plays with major studios. During the last two years, we brought on significant relationships with Paramount and Amazon MGM Studios. Paramount turned into an exclusive physical media distribution partner for us in the U.S. and Canada starting in calendar 2025, and we brought Amazon MGM aboard at the beginning of the calendar year; such relationships matter not just for the products they add to our portfolio, but for what they reveal about Alliance's standing in the market. As studios and labels keep consolidating and outsourcing physical media operations, content owners require partners able to coordinate manufacturing, inventory, retail execution, distribution, and e-commerce fulfillment efficiently at scale. That is precisely what Alliance has devoted more than three decades to building; we support over 340,000 in-stock SKUs across more than 35,000 retail and e-commerce storefronts, with capabilities spanning wholesale distribution, dropshipping facilities, fulfillment, inventory management, and direct-to-consumer execution. That infrastructure grows more valuable as additional content owners turn to scaled specialists to handle these functions. Fiscal 2026 also showed our growth widening out across categories. Beyond the momentum in music and movies, revenue from collectibles rose 45% to $32 million, while distribution and fulfillment fee revenue grew 26% to $18.6 million. Collectibles especially stay a key area of opportunity and growth. We're shifting more and more toward licensed, premium, and differentiated products that carry higher average selling prices and better margin characteristics. And since we already hold relationships with entertainment licensors, major retailers and e-commerce platforms, we can leverage existing infrastructure to move into adjacent fan and collector categories without rebuilding the distribution platform from scratch. Handmade by Robots is one illustration of that strategy. When we own the brand, we participate more in product development, licensing, and economics instead of acting purely as the distributor of a third-party product. We see chances to apply that approach selectively as we keep developing our collectibles portfolio. Our fulfillment business is yet another extension of the same infrastructure. As retailers grow their online assortments, they need partners who can efficiently manage large catalogs and fulfill products directly to consumers more and more. Thanks to our breadth of inventory and dropship capabilities, retailers can offer substantially more selection without carrying every product in their own stores or distribution centers. We also keep investing in automation to boost the scalability of that platform. Over fiscal 2026, we ordered 5,000 additional totes for our AutoStore system, which brought total capacity to 57,000 totes. These investments are helping us achieve higher throughput while maintaining labor efficiency, which matters as we continue growing fulfillment volumes; we're bringing that same focus on automation to sales and marketing. We implemented HubSpot in January 2026 so our teams gain better visibility, automate workflows, and strengthen customer engagement. We're also rebuilding our WebAIMI B2B platform with AI-enabled capabilities designed to help retail buyers discover products more efficiently, improve purchasing accuracy, and make our sales organization more productive. The new WebAIMI platform is scheduled to launch in first quarter 2027. Throughout the organization, we're using AI-assisted tools to cut manual work and costs, improve decision-making, and increase productivity. We're also extending our participation past the initial sale of physical product. After our acquisition of N-State Authentic at the beginning of the calendar year, we continued developing NFC-enabled authentication and digital product identity capabilities through N-State Authentic and Alliance Authentic. We're already expanding Alliance Authentic beyond music. We have launched preserved and encapsulated Handmade by Robots and select Funko collectibles on the platform. And we're preparing to bring the same treatment to premium video SteelBooks. By combining preservation, authentication, and premium presentation, we believe we can transform products fans already value into what Alliance Authentic is designed to deliver, the ultimate collectible; and since these are products we already source, distribute and fulfill, we have an opportunity to extend that model across categories at scale. Looking ahead to fiscal 2027, we see multiple growth areas converging. Our plan is to keep the outstanding momentum going in physical music, get a complete year out of Amazon MGM, speed up our collectibles segment and own brands, which carry higher margins, and bring Alliance Authentic along with N-State Authentic into more product categories. On top of that, we anticipate further expansion and fulfillment, while applying automation and AI across everything from warehouse operations to sales and marketing and the WebAIMI redevelopment, all of which should make the business more productive. What we're aiming for is combining growth in these higher value areas with improved operating leverage and stronger cash conversion. In our view, the shifts happening throughout physical entertainment are opening up appealing opportunities for specialized operators with scale. Alliance has invested decades into building the infrastructure, relationships, and capabilities needed to compete in that kind of environment, and fiscal 2026 gave us meaningful evidence that those assets are growing more valuable. With that said, I'll hand the call to Amanda so she can walk through her fiscal 2026 financial performance in more detail.

Thank you, Jeff. I'll take you through the financial results for fiscal 2026, starting with revenue and gross margin, then moving on to operating expenses, profitability, cash flow, and the balance sheet. For fiscal year 2026, net revenue rose 8%, reaching $1.15 billion, up from $1.06 billion in fiscal year 2025. Gross profit climbed 15%, hitting $152.3 million versus $132.9 million, while gross margin widened by 80 basis points, going to 13.3% from 12.5%. That gross margin gain came from better margins in physical movies and collectibles, a larger contribution from premium and exclusive content, favorable product mix, returns on purchases, and increased sales terms activity, along with lower wholesale freight costs as a percentage of sales. Gross profit outpaced revenue growth for the year, which shows the economics of our business improving as our mix keeps evolving. Now for operating expenses: selling, general, and administrative expenses rose to $66 million, compared with $56 million in fiscal year 2025. That rise mainly came from higher payroll and employee-related costs needed to support a bigger business, plus greater consulting and professional service costs tied to strategic initiatives and public company operations. As we head into fiscal year 2027, keeping expenses disciplined and turning gross profit growth into stronger operating leverage are key priorities. Fiscal 2026 also carried a $7.8 million non-cash write-off of a historical vendor rebate receivable tied to Tace Makers after that counterparty ceased operations. We don't view this charge as reflective of our ongoing operating performance. With that charge included, GAAP operating income came to $27.2 million, versus $30.1 million in fiscal year 2025. Net income was $13.1 million, compared with $15.1 million a year earlier. On a non-GAAP basis, adjusted EBITDA rose 14% to $41.5 million, up from $36.5 million last year. Adjusted net income grew 24% to $23.4 million, and adjusted diluted earnings per share also rose 24% to $0.46 per share, up from $0.37 in fiscal year 2025. Turning to interest expense, refinancing our credit facility delivered a substantial benefit. Interest expense fell 28% to $7.6 million from $10.6 million, and our average effective interest rate improved to 6.1% from 9.2%. That made our borrowing economics better and gives us a stronger financing platform as we handle the working capital needs of the business. Moving to cash flow: net cash used in operating activities was $1.7 million in fiscal year 2026, versus $26.8 million of cash provided by operating activities in fiscal year 2025. That year-over-year swing was mainly due to higher working capital requirements, including more inventory and receivables. Both balances grew faster than revenue during the year, which drove the decline in operating cash flow. In fiscal year 2027, our goal is to turn a larger share of earnings into operating cash flow by moderating working capital growth relative to revenue, improving inventory productivity, and strengthening receivable collections. Consequently, working capital rose to $62.4 million at June 30, 2026, compared with $45.4 million a year earlier. As Jeff mentioned, better cash conversion is a key priority in fiscal year 2027. Our priority is managing inventory with discipline, collecting receivables, and running working capital efficiently, all while still backing appealing growth chances throughout the company. When the year closed, $74.3 million remained drawn on the $120 million revolver, which left $45.7 million available. Subject to specific conditions and lender approval, that facility additionally offers as much as $50 million in extra borrowing room, giving us added potential financial flexibility as operations expand. In fiscal year 2026, we likewise paid down $10 million of related party borrowings, which further streamlined how our financing is structured. Our approach to allocating capital stays simple. To start, we'll supply the working capital needed to fuel appealing organic growth. Next, we'll place selective bets on efforts meant to boost both growth and productivity, among them automation and AI, our WebAIMI B2B redevelopment, N-State and Alliance Authentic, plus the ongoing buildout of Handmade by Robots. Third, our attention is on lifting cash conversion and making the balance sheet more efficient. And last, we'll keep assessing acquisitions selectively, in cases where strategic fit and anticipated returns warrant committing capital. Having said that, I'll hand things back to Jeff.

Thank you, Amanda. Before we take questions, I'd like to wrap up with several recent illustrations that show our strategy in action and why my enthusiasm for Alliance's direction runs so deep. Back in July, I got to spend time with Sir Richard Branson at Necker Island, and I handed him an Alliance Authentic Preserve copy of the Sex Pistols album, *Never Mind the Bollocks, Here's the Sex Pistols*. Since that record is tied so tightly to Virgin Records' story, the moment carried special weight for Richard and for me. What we were doing was taking a legendary physical record — one with genuine cultural and personal weight — and demonstrating how preservation, authentication, and digital identity can safeguard its condition, its provenance, and its narrative across time. For a person who has built an entire career in physical entertainment, it stood out as a striking example of what Alliance Authentic might grow into. That same month, we took the strategy straight to collectors at San Diego Comic-Con. Inside the Lucasfilm's Pavilion, Alliance Authentic teamed up with Handmade by Robots, and there we showed preserved music along with licensed collectibles to one of the world's most passionate fanbases; on top of that, we locked in another 5,000 units of the Project Hail Mary Amazon exclusive limited edition collector's SteelBook, which had previously sold out. Those units were gone again the very day they became available. Thanks to our studio and label relationships, we can reach some of entertainment's most significant products and franchises. Through Handmade by Robots, we hold an owned brand that lets us take part directly in product design, licensing, exclusivity, and go-to-market execution. Alliance Authentic contributes preservation, authentication, and digital product identity. And with our distribution and fulfillment network, we can deliver those products to retailers and consumers at scale. When those capabilities combine, we aren't merely pushing units through a distribution network. We can help shape the product, generate scarcity and differentiation, forge a direct relationship with the collector, safeguard the product's identity, and take part more fully in what gets created around it; our focus is on converting moments like these into repeatable commercial capabilities spanning licensed products, premium limited editions, direct collector engagement, and authentication services, with further opportunities across the product's lifecycle. What we witnessed this summer reinforced our belief that collectors want products offering meaning, quality, scarcity, authenticity, and story. Alliance is ever more positioned to help content owners and licensors build those products and deliver them to market; we're also seeing tremendous excitement building around a major entertainment release coming in fiscal 2027 — *Grand Theft Auto VI* is a prime example. Rockstar's extended look premiered on Netflix in late August and drove an enormous level of consumer engagement, underlining just how much this release has become a cultural event. We purchase directly from Take-Two and anticipate participating throughout the launch, covering the game itself as well as related products. Through Atlantic Records, a GTA 6 vinyl project with big-name recording artists should be arriving, and considering how much interest surrounds this franchise, we think it may rank among the best-performing albums we put out during the holiday period. This shows nicely how one big entertainment moment can spark demand simultaneously in multiple Alliance segments, gaming, hardware, accessories, and physical music. Such chances are exactly why fiscal 2027 has us so enthusiastic. Our core business carries momentum, we hold growth platforms in collectibles and authentication, and we now have new AI and automation tools capable of boosting Alliance's productivity as we expand. Over 30-plus years, Alliance has built up relationships, infrastructure, and capabilities throughout physical entertainment. That base now underpins a far wider opening, premium formats, exclusive products, own brands, authentication, fulfillment, and direct collector engagement; our view is that Alliance keeps gaining a position not merely to take part in physical entertainment's evolution, but to assist in shaping it. My thanks go to Alliance employees everywhere for their dedication and efforts. I also want to express appreciation to our customers, content and licensing partners, collectors, and shareholders for standing with us.

Nice work, Bruce, Jeff, and Amanda, on a really robust fiscal year. There are 3 things I want to ask, Jeff, and they'll get tougher as I go. I'll ask them 1 at a time, so here's the simplest 1 first. My sense is tariffs didn't hit you too hard. Um, in other words, the bulk of what you do in music and in movies wasn't subject to them. I believe Handmade by Robots carried a few modest tariffs. Still, there's been plenty of talk lately about tariff refunds during the June quarter, and I'm just wondering whether you managed to lock any down.

Uh, hey there, Tom, glad to hear from you. Uh, yeah, we uh, we certainly got uh a number of credits returned and uh the bulk of the credits we're still expecting have come back to us.

All right. My follow-up question, then: it's quite fascinating and striking to witness such robust expansion in CDs. Um, I realize it's far too soon to discuss, you know, when you consider the 19 years during which vinyl saw a rebound, yet I'd value it if you could draw parallels and points of difference between what's happening with CDs, why you believe CDs are performing so strongly, and in what ways that resembles and.

What we observe with vinyl? Sure, I'd say to begin with, there's a significant drive among fans to gather items from their most-loved artists. I'd note that with CDs specifically, I remember roughly 18 months back, we attended our music trade show and chatted with the labels regarding CDs and what we observed was its expansion. And a major subject was that everyone had somewhat overlooked CDs. And, you know, the in-stock percentages and the fill percentages and such weren't all that good. And plenty of discussion occurred about how we must ensure that all the classic albums, the top albums must be stocked and obtainable and, you know, things of that nature. And so that truly came about across the past year, which is certainly aiding sales here. And the next piece of that is, customers were walking in purchasing CDs and you've got independent music stores and so on saying, hey, sales are climbing. Perhaps we should rebuild our section somewhat. So at present you're noticing greater selection in the store and upon the store shelves. And all of that keeps on boosting it. And the downturn that was a major difficulty is there's no product upon the store shelf as it kept falling, falling, falling. There were fewer and fewer and fewer spots to purchase it. It likewise functions in reverse. So you notice vinyl, additional stores, larger selections, and more varied retailers too; that's been aiding the backing of vinyl sales; and so at present you're noticing that pattern occurring with CDs. So I do anticipate it will persist given what we're observing. Consumer demand exists. The retailers, the wholesalers, and the labels are all making product, ensuring product is on hand. And that's the entire mix that must operate in concert. Thank you.

Okay, sounds good. So for my third and last question — I get why everyone's pumped about *Grand Theft Auto VI*, and rightly so — but when I look at how you did, both in your fiscal Q4 and across the whole fiscal year, and I compare gaming against the other parts of the portfolio, it seems like gaming underperformed. So taking a step back, how are you assessing what you've done in gaming? And, um, how do you decide, from a portfolio perspective, when it's time to lean into or pull back on various kinds of physical media?

Well, Tom, the way we lean in or pull back comes down to the trends we observe. You know, this particular title is a landmark release. It's going to transform the gaming sector here, and there are plenty of other dimensions tied to this specific game as well. So the fourth quarter will be massive. You could call it a Grand Theft Auto Christmas. That's what's headed everyone's way on the retail side. Something big is going on there.

Okay.

Thank you, Tom.

Thanks for taking my questions, and congrats on a fantastic year. So, a few things I wanted to ask. Your physical movie revenue clearly grew a lot — 22% — thanks to Paramount and Amazon MGM, as you said. Since they're now on the platform, I'm curious how much additional revenue upside is left from those partnerships as we move into fiscal 2027. And then, could you possibly share any update on talks you may be having with other big studios or content owners that would bring more of their distribution together with yours?

Hey, Michael, good to hear from you. Regarding Paramount and MGM, we've observed pretty solid sales performance from each of them, and we've been putting a lot of emphasis on expanding their collections with fresh catalog titles. Plenty of great material from Paramount and MGM had never been released, or had shown up in a single format but maybe never as a 4K or a SteelBook. So those sorts of items are what we're relying on to build up the catalog. And particularly where Paramount is concerned at the moment, during the back half, 2026, we've got significantly more new releases coming. Uh, they aren't, they aren't new films. They're releases of existing movies that will really help strengthen our catalog position there with Paramount. That part of the business has us pretty enthusiastic. As for the remaining studios, there isn't a whole lot I'm able to share — as you've noticed before, plenty of discussions are underway on that front. Every single one comes with its own circumstances and its own set of talks. Our view hasn't changed that Alliance represents a strong opening for a studio looking to hand us licensing rights, since ultimately we bring an enormous distribution network, spanning everything from e-commerce and retail operations through fulfillment, which lets those studios get the most out of their sales. That's essentially where things stand at the moment.

Understood, Jeff. Appreciate it; moving on to your own brands, I wanted to see if you could share a bit more detail. The expansion — what portion of it stems from proprietary lines such as Handmade by Robots as opposed to licensed goods from third parties?

Sure, at this moment most of our expansion comes from our third-party items. We're putting substantial resources behind Handmade by Robots, Alliance Authentic, and N-State Authentic too. All three of those represent opportunities for Alliance with notably robust margin characteristics; and right now we've certainly committed a fair amount of investment capital toward them. That covers growing our teams in that area, plus efforts to market and bring in new business across all three of those categories; you'll keep seeing that spending we're making today focused especially on those three categories; and given where our sales currently stand, to answer what you asked directly, the third-party ones are truly the ones expanding quite dramatically.

Understood. And next, your revenue from fulfillment fees climbed a solid 26%, and you mentioned that 5,000 totes were added to your AutoStore capacity. I was simply curious whether you could share how much more revenue the current infrastructure and AutoStore capacity can handle before another significant CAPEX outlay becomes necessary?

Necessary? Uh, we we can we still possess capacity, uh, at present, and we continually examine ways to get the most out of our capacity there. I don't believe we have, uh, uh, an urgent requirement at this moment for a massive CAPEX, um, uh, outlay. If we move in the CAPEX direction it would lean more toward automation instead of uh the dimensions of the of the the facility itself. So We are reviewing fresh possibilities to boost warehouse efficiency via various automation, a different product from the AutoStore, yet delivering a similar outcome where we apply some technology there to genuinely assist in lowering our total expenses on that; that element. So we still do possess capacity, yet as various items ramp up in one spot and shift about, we certainly are adjusting with that in our warehouse operations. I will also mention that we've also genuinely operated the business where we secure the and we secure the chance and afterward we put money into the systems to bring that about; we're not truly a company that prefers to go construct a bunch of things and wish that the sales and chances appear; so we're fairly cautious regarding that; we, you know, we get the the capacity up there and the volume up there, and afterward we examine, okay, how do we, how do we, you know, resolve this uh capacity problem? So, We're fairly cautious with our capital expenditures. Yep.

Also, it looked as though your SG&A costs rose by a pretty solid 18%. I was simply asking, you know, it sounds like much of that went toward backing upcoming expansion. I was simply asking, what's the right way for us to think about SG&A leverage as we head into fiscal 2027?

Certainly. I believe quite a bit in there is meant to back the growth, particularly across a few of those newer categories I just brought up. We've got certain AI projects underway; those might allow us to become somewhat more efficient with a portion of our SG&A costs too. So right now we're rather heavy on that front. As a CEO, I'm strongly in favor of AI and technology; so many members of our leadership team are working on numerous different AI solutions that can assist us not just in growing sales, which is the top priority, but but also in helping with operational expenses. And we're going to keep seeing certain gains there, many of them coming directly from those AI initiatives.