AENT Alliance Entertainment Holding Corporation

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 first quarter ended September 30, 2023.

First Quarter and Subsequent 2023 Operational Highlights

• Signed a letter of intent (LOI) with White Oak Commercial Finance to secure three-year funding of up to a $150 million senior secured credit facility, the proceeds of which would be used to refinance the existing credit facility, fund working capital needs and provide for general corporate purposes.
• Distribution Solutions, a division of Alliance Entertainment partnered with Future Today, a leading distribution company in the digital space to expand their reach and offer viewers even more options for its licensed and owned video content.
• Partnered with Atari® and retro home arcade company, Arcade1Up, for the launch of the Arcade1Up Atari 50th Anniversary Deluxe Arcade Machine for the home through its COKeM International video game division.
• Shipped over 2.0 million units representing $32.0 million in K-POP sales during the fiscal year ended July 31, 2023, a 55% increase over the previous year, with exponential sales growth expected to continue with several other major K-POP acts scheduled to be released throughout the balance of 2023.
• Company’s Mill Creek Entertainment announced exclusive digital and physical release of Believe Entertainment’s supernatural thriller Nefarious, on Blu-ray™ and DVD following successful Premium Video-on-Demand (“VOD”) rollout.  
• Mill Creek also recently signed a home entertainment licensing agreement with The Walt Disney Company, to distribute over 1,800 titles of select physical (Blu-ray and DVD) live-action film and television properties from the ABC Signature, 20th Television, Hollywood Pictures, Touchstone Pictures, and 20th Century Studios content libraries. This development will continue to grow with all major movie studios.
• Company’s AMPED Distribution received a remarkable 20 nominations at the 2023 International Bluegrass Music Awards, further solidifying AMPED Distribution's commitment to supporting and promoting the very best in bluegrass music.
• Announced 100% vestment of equity grants to 597 employees under its 2023 Omnibus Equity Incentive Plan, establishing employee ownership.
• Participated in investor conferences including the ThinkEquity Conference and LD Micro Main Event XVI Conference.

Bruce Ogilvie, Chairman of Alliance Entertainment, commented, “The first quarter of fiscal 2024 was marked by continued progress securing new partnerships, diversifying our products offerings, and investing in our operations and proprietary technology with a shift toward larger scale automation. We believe we are well positioned to build on our foundation as one of the largest physical media and entertainment product distributors in the world.

“During the first quarter, we signed several partnerships including Future Today, developer and operator of a portfolio of hundreds of owned & operated channels on advertising video on-demand platforms, expanding our existing relationship. Future Today will create, launch, and manage two ad-supported Apps for Alliance: MOVIESPREE™ and NCircle TV. Our COKeM International video game division, the leader in U.S. distribution of video games and related products, partnered with Atari® and retro home arcade company, Arcade1Up, for the launch of the Arcade1Up Atari 50th Anniversary Deluxe Arcade Machine for the home.

“From a macro perspective, consolidation in our industry continues to provide additional avenues to capture market share. Most recently, Ingram Entertainment, once the largest distributor of physical media home entertainment products, announced it would exit the DVD and Blu-ray Disc business at the end of the year. We are now seeing increased interest and activity from some of Ingram’s current accounts, and we expect their close to provide us with additional revenue opportunities in the year to come,” concluded Ogilvie.

Jeff Walker, Chief Executive Officer of Alliance Entertainment, added, “The first quarter saw improving stabilization in our business segments during the quarter, with support tracking from higher average selling prices and decreased operating expenses. We continued to see retailers reacting relatively conservatively with their inventory positions in our first quarter. However, our extensive portfolio of unique content enabled our B2B revenues to improve year over year in Q1. Average selling prices improved in Vinyl, and the popularity of K-Pop helped us realize an 8% increase in the average selling price of CDs, however it was not enough to offset the negative impact of decreased volume. Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $43 million to $47 million, a 7.9% improvement versus the same period last year, with the average selling price of physical film products significantly increased year over year and more than offset the decline in volume. As well, the decline in demand for physical gaming products presents an opportunity as we typically benefit from industry consolidation, and while we captured an increase in the average selling price in Gaming, it was not enough to offset the negative impact of decreased volume. Consumer Products revenue decreased from $18 million to $11 million versus the prior year as the Toys & Collectibles industry grapples with normalizing sales volume in the post-pandemic era.

“Looking ahead, we continue to expand and diversify by adding brands, product categories, and retail partnerships in combination with various cost-cutting and automation initiatives. We are investing in automating facilities and upgrading proprietary software, which are beginning to show significant improvements. To support this growth, we recently announced a signed a LOI to secure three-year funding of up to a $150 million senior secured credit facility, the proceeds of which would be used to refinance the existing credit facility, fund working capital needs and provide for general corporate purposes. We have received approval from the Investment committee, and we are moving to due diligence and field audit. Although subject to due diligence, negotiation, and the execution of definitive agreements, we expect to close this credit facility in December 2024. We believe that in combination with our cost-cutting initiatives we have put in place a long-term strategy with the competitive advantages that will position us for ongoing success,” concluded Walker.

First Quarter FY2024 Financial Results

• Net revenues for the fiscal first quarter ended September 30, 2023 were $226.8 million, compared to $238.7 million in the same period of 2022, a decrease of 5%, due mainly to our focus on profitable sales.
• Gross profit for the fiscal first quarter ended September 30, 2023 was $26.3 million, compared to $25.5 million in the same period of 2022, an increase of 3%, due to the strategy of profitable sales.
• Gross profit margin for the fiscal first quarter ended September 30, 2023 was 12%, up from 11% in the same period of 2022.
• Net loss for the fiscal first quarter ended September 30, 2023 was $3.5 million, compared to net loss of $7.5 million for the same period of 2022.
• Adjusted EBITDA for the fiscal first quarter ended September 30, 2023 was $1.3 million, compared to Adjusted EBITDA loss of ($4.1) million for the same period of 2022.

Jeff Walker added, “For the first quarter of fiscal year 2024, we were encouraged by an improvement in gross profit and gross margin over the prior year period as our cost-saving initiatives begin to yield positive results. For the fiscal first quarter ended September 30, 2023, Adjusted EBITDA was $1.3 million, compared to an Adjusted EBITDA loss of $4.1 million in the prior year. We believe that as transportation costs normalize, we utilize our investment in additional warehouse automation combined with staffing reductions implemented in Q4, we will continue to show ongoing improvement in the year to come.”

Capital Structure Summary

The company's outstanding common stock as of September 30, 2023, totaled 50,502,170 shares. The public float was approximately 2,079,860 shares as of September 30, 2023.

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

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)		September 30, 2023				September 30, 2022
Net Loss		$	(3,462	)		$	(7,509	)
Add back:
Interest Expense			3,140				2,354
Income Tax Benefit			(1,265	)			(2,638	)
Depreciation and Amortization			1,641				1,636
EBITDA		$	54			$	(6,157	)
Adjustments
IC-DISC			—				1,389
Stock-based Compensation Expense			1,328				—
SPAC Transaction Cost			—				640
Public Offering Transaction Cost			—				—
Change In Fair Value of Warrants			(124	)			—
Restructuring Cost			47				—
Adjusted EBITDA		$	1,305			$	(4,128	)

About Alliance Entertainment

Alliance Entertainment (NASDAQ: AENT) is a premier distributor of music, movies, toys, collectibles, and consumer electronics. We offer over 375,000 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) 491-8235AENT@mzgroup.us

ALLIANCE ENTERTAINMENT HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
($ in thousands)		September 30, 2023				June 30, 2023
		(Unaudited)
Assets
Current Assets
Cash		$	1,225			$	865
Trade Receivables, Net			93,504				104,939
Inventory, Net			159,432				146,763
Other Current Assets			7,054				8,299
Total Current Assets			261,215				260,866
Property and Equipment, Net			12,831				13,421
Operating Lease Right-of-Use Assets			3,971				4,855
Goodwill			89,116				89,116
Intangibles, Net			16,306				17,356
Other Long-Term Assets			1,019				1,017
Deferred Tax Asset, Net			4,132				2,899
Total Assets		$	388,590			$	389,530
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable		$	154,745			$	151,622
Accrued Expenses			5,962				9,340
Current Portion of Operating Lease Obligations			3,699				3,902
Current Portion of Finance Lease Obligations			2,494				2,449
Revolving Credit Facility, Net			125,684				133,281
Shareholder Loan (subordinated), Current			10,000				—
Contingent Liability			50				150
Promissory Note			—				495
Total Current Liabilities			302,634				301,239
Warrant Liability			82				206
Finance Lease Obligation, Non- Current			6,388				7,029
Operating Lease Obligations, Non-Current			754				1,522
Total Liabilities			309,858				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 September 30, 2023 and June 30, 2023			—				—
Common Stock: Par Value $0.0001 per share, Authorized 550,000,000 shares at September 30, 2023, and at June 30, 2023; Issued and Outstanding 50,502,170 Shares as of September 30, 2023, and 49,167,170 at June 30, 2023			5				5
Paid In Capital			47,202				44,542
Accumulated Other Comprehensive Loss			(77	)			(77	)
Retained Earnings			31,602				35,064
Total Stockholders’ Equity			78,732				79,534
Total Liabilities and Stockholders’ Equity		$	388,590			$	389,530

ALLIANCE ENTERTAINMENT HOLDING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended				Three Months Ended
($ in thousands except share and per share amounts)		September 30, 2023				September 30, 2022
Net Revenues		$	226,755			$	238,701
Cost of Revenues (excluding depreciation and amortization)			200,501				213,233
Operating Expenses
Distribution and Fulfillment Expense			11,714				14,865
Selling, General and Administrative Expense			14,439				14,731
Depreciation and Amortization			1,641				1,636
Transaction Costs			—				640
IC DISC Commissions			—				1,389
Restructuring Cost			47				—
Total Operating Expenses			27,841				33,261
Operating Loss			(1,587	)			(7,793	)
Other Expenses
Interest Expense, Net			3,140				2,354
Total Other Expenses			3,140				2,354
Loss Before Income Tax Benefit			(4,727	)			(10,147	)
Income Tax Benefit			(1,265	)			(2,638	)
Net Loss			(3,462	)			(7,509	)
Net Loss per Share – Basic and Diluted		$	(0.07	)		$	(0.16	)
Weighted Average Common Shares Outstanding			50,502,170				47,500,000

ALLIANCE ENTERTAINMENT HOLDING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Three Months Ended				Three Months Ended
($ in thousands)		September 30, 2023				September 30, 2022
Cash Flows from Operating Activities:
Net Loss		$	(3,462	)		$	(7,509	)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation of Property and Equipment			590				622
Amortization of Intangible Assets			1,051				1,014
Amortization of Deferred Financing Costs (Included in Interest)			42				208
Bad Debt Expense			87				178
Stock-based Compensation Expense			1,328				—
Changes in Assets and Liabilities, Net of Acquisitions
Trade Receivables			11,348				8,462
Related Party Receivable			—				245
Inventory			(12,669	)			(27,025	)
Income Taxes PayableReceivable			(1,233	)			(3,226	)
Operating Lease Right-of-Use Assets			884				1,097
Operating Lease Obligations			(971	)			(5,216	)
Other Assets			1,142				2,345
Accounts Payable			3,123				(21,848	)
Accrued Expenses			(3,997	)			2,477
Net Cash Used in Operating Activities			(2,737	)			(48,176	)
Cash Flows from Investing Activities:
Cash Received for Business Acquisitions, Net of Cash Acquired			—				1
Net Cash Provided by Investing Activities			—				1
Cash Flows from Financing Activities:
Payments on Revolving Credit Facility			(260,259	)			(230,934	)
Borrowings on Revolving Credit Facility			252,621				278,449
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			(595	)			—
Net Cash Provided by (Used in) Financing Activities			3,494				47,515
Net Increase (Decrease) in Cash			360				(660	)
Cash, Beginning of the Period			865				1,469
Cash, End of the Period		$	1,225			$	809
Supplemental disclosure for Cash Flow Information
Cash Paid for Interest		$	3,140			$	2,013
Cash Paid for Income Taxes		$	44			$	293
Supplemental Disclosure for Non-Cash Investing Activities
Fixed Asset Financed with Debt		$	—			$	3,377