ALLIANCE ENTERTAINMENT HOLDING CORP
For the period ended Sep 30, 2026. Filed Nov 12, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 12, 2026
AENT$5.20+13.3%Stored close · as of Nov 12, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-14.
0001493152-26-023051
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-12.
0001493152-26-051226
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 68 previous paragraphs and 75 current paragraphs.
21 unchanged; 19 reworded; 34 added; 28 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 6 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2026, the Company estimates that it may be entitled to refunds of approximately $0.2 million in tariffs previously paid under the International Emergency Economic Powers Act (IEEPA), following the U.S. Supreme Court’s February 20, 2026 ruling that IEEPA does not authorize the imposition of tariffs.
Current report
As of September 30, 2026, there have been no material changes to the Company’s estimated refund amount or its assessment of the recognition of a related receivable. Accordingly, the Company has not recognized a receivable in the accompanying condensed consolidated financial statements.
Current report
The impact of currently effective tariffs on the Company’s results of operations for the three months ended September 30, 2026, was not material.
Current report
We consider the following metrics to be key performance indicators to evaluate our business, develop financial forecasts and make strategic decisions.
Current report
(1) EBITDA, Adjusted EBITDA, and Adjusted Net Income are financial measures not calculated in accordance with U.S. GAAP. For a reconciliation of each of these measures to net income, the most directly comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” in this Item 2.
Current report
Physical movie sales, which include DVD, Blu-ray, and Ultra HD formats, increased from $84.0 million to $101.1 million for the three months ended September 30, 2026, representing growth of $17.1 million, or 20.4%, compared with the same period in the prior year. The increase was primarily driven by a 22.1% increase in unit sales volume, partially offset by a 1.4% decrease in average selling price. Physical movies represented the Company’s largest product category as a percentage of total sales during the quarter, accounting for approximately 36.3% of revenue. Performance benefited from key title releases, includingScary Movie through the Company’s Paramount partnership andProject Hail Mary through the Amazon MGM Studios Distribution partnership. The Paramount partnership, which launched in January 2025, continued to contribute to sales growth through expanded product availability and retail distribution. In addition, the Amazon MGM Studios Distribution partnership broadened the Company’s title assortment across key retail channels, further supporting physical movie sales during the quarter. The Company’s expanded title assortment, including new releases and premium physical formats, supported revenue growth and helped mitigate the impact of lower average selling prices and softer demand for certain catalog titles.
Current report
Year over year, vinyl record sales increased from $75.8 million to $86.7 million for the three months ended September 30, 2026, representing an increase of $10.9 million, or 14.4%, compared to the prior-year period. The increase was driven by growth in both unit sales volume and average selling price, reflecting continued consumer demand for vinyl records. The quarter featured a variety of new releases and special-edition vinyl offerings across pop, rock, and alternative music, including releases from established artists and emerging acts. Continued consumer interest in new music, reissues, and collectible vinyl editions supported the category’s performance. Higher unit sales volume and average selling prices contributed to the year-over-year increase in revenue.
Current report
Music compact disc (CD) Sales increased from $33.9 million to $41.2 million for the three months ended September 30, 2026, representing an increase of $7.3 million, or 21.5%, compared to the prior-year period. The increase was driven by a 12.7% increase in unit sales volume and a 7.8% increase in average selling price. Growth reflected continued consumer demand for physical music products and renewed interest in CDs as a collectible format, particularly among dedicated fan bases. High-profile artist releases, including Stray Kids’ K-pop mini-album releaseTHIS AND THAT, contributed to demand, while continued interest in pop and international music supported sales. This renewed interest in CDs, combined with demand for special editions and artist-related merchandise, contributed to the category’s strong performance during the quarter, despite the broader music industry’s ongoing shift toward streaming and digital consumption.
Current report
For the three months ended September 30, 2026, collectibles revenue increased from $6.4 million to $11.9 million, an increase of $5.5 million, or 87.2%, compared to the same period in the prior year. Collectibles was one of the Company’s strongest-performing product categories during the quarter, with revenue approaching double the prior-year level and increasing its contribution to total sales from 2.5% to 4.3%. This substantial growth reflects the Company’s continued expansion in the collectibles market, supported by its ownership of Handmade by Robots, an expanding portfolio of licensed products, and broader sourcing initiatives and vendor relationships. The strong performance further demonstrates the growing importance of collectibles within the Company’s product portfolio and its ability to capitalize on consumer demand for distinctive and collectible merchandise.
Current report
For the three months ended September 30, 2026, electronics revenue increased from $2.0 million to $4.0 million, representing growth of $2.0 million, or 106.8%, compared to the prior-year period. Electronics was one of the Company’s fastest-growing product categories, with revenue more than doubling year over year and its contribution to total sales increasing from 0.8% to 1.4%. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related products, which complement the Company’s physical music and movie offerings. The increase reflects continued expansion in the category and demand for products that enhance the consumer experience with physical media. This growth further demonstrates the Company’s ability to capitalize on complementary product opportunities and broaden its revenue streams beyond physical entertainment media.
Current report
Distribution and fulfillment fee revenue increased $0.9 million, or 17.6%, to $5.7 million for the three months ended September 30, 2026, compared to $4.8 million in the prior-year period. The increase reflects higher demand for the Company’s distribution, fulfillment, and value-added logistics services. The Company continues to support studio and retail partners through its physical media distribution and fulfillment operations, including its relationships with Paramount and Amazon MGM Studios. Wholesale freight revenue, including DTC, increased $0.5 million, or 15.7%, to $3.8 million from $3.3 million in the prior year period. Digital revenue decreased $0.9 million, or 33.7%, to $1.8 million from $2.7 million in the prior year period. These revenue categories, together with customer allowances and the provision for estimated product returns, contributed to the Company’s total net revenue increase of $24.9 million, or 9.8%, to $278.8 million for the quarter.
Current report
**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, increased from $216.8 million to $236.7 million for the three months ended September 30, 2026, an increase of $19.9 million, or 9.2%, compared to the prior-year period. The increase was primarily attributable to higher sales volume and the corresponding increase in product costs. Gross profit increased by $5.0 million to $42.1 million, reflecting overall revenue growth and improved product margins. Gross margin improved from 14.6% to 15.1%, an increase of approximately 47 basis points, primarily driven by stronger product margins. These improvements were partially offset by higher royalty costs associated with increased business under the Company’s Paramount and Amazon MGM Studios distribution partnerships, as well as slightly higher freight costs, including increased fuel surcharges.
Current report
Operating Expenses: Total operating expenses for the three months ended September 30, 2026, increased by $4.9 million, or 18.3%, to $31.5 million from $26.6 million in the prior-year period. Operating expenses increased as a percentage of net revenue from approximately 10.5% to 11.3%. The increase was primarily attributable to higher selling, general and administrative expenses and distribution and fulfillment costs.
Current report
Distribution and fulfillment expenses increased to $12.0 million for the three months ended September 30, 2026, compared to $9.9 million in the prior-year period, an increase of $2.1 million, or 21.2%. As a percentage of net revenue, these expenses increased to 4.3% from 3.9%. The increase was primarily attributable to higher warehouse payroll and other fulfillment costs associated with increased business activity. Warehouse payroll increased by $1.7 million, or 26.4%, to $8.0 million, with payroll costs increasing to 2.9% of net revenue from 2.5% in the prior-year period. Total fulfillment payroll cost per hour increased modestly by 1.7% year over year. Accordingly, the increase in payroll expense was primarily attributable to higher labor requirements associated with increased fulfillment activity, special projects, and changes in product mix. Certain products, such as vinyl records, require additional handling and specialized packaging, contributing to increased labor demands. Other warehouse expenses increased by $0.4 million, or 11.9%, to $4.0 million, while remaining consistent at 1.4% of net revenue. The Company continues to utilize a flexible labor model to accommodate changes in order volume and operational demand, while investing in warehouse automation and operational improvements intended to enhance productivity and support scalable growth.
Current report
Selling, general and administrative (“SG&A”) expenses increased by $2.9 million, or 19.0%, to $17.9 million for the three months ended September 30, 2026, compared to $15.1 million in the prior-year period. As a percentage of net revenue, SG&A expenses increased to 6.4% from 5.9%. The increase was primarily attributable to higher payroll and employee-related costs, consulting and professional service expenses, and costs associated with supporting the Company’s ongoing business operations and growth initiatives. Management continues to evaluate SG&A expenditures and business processes to identify opportunities to improve operational efficiency and scalability. As part of these efforts, the Company is expanding its use of artificial intelligence (“AI”) tools and automation technologies to streamline workflows, automate routine tasks, improve the efficiency and accuracy of financial and operational processes, and support continued growth while maintaining appropriate internal controls.
Current report
The difference between the Company’s effective income tax rate of 26% for the three months ended September 30, 2026, and the U.S. federal statutory income tax rate of 21% was primarily attributable to state income taxes, partially offset by the tax benefits associated with foreign-derived deduction eligible income under Section 250 of the Internal Revenue Code and nontaxable gains resulting from changes in the fair value of the Company’s warrant liabilities.
Current report
**Non-GAAP Financial Measures:**EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings per Diluted Share (collectively, the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as alternatives to net income, earnings per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net income before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, changes in the fair value of warrants, insurance claim recoveries, and restructuring costs and net gains and losses on the disposal of assets. We define Adjusted Net Income as net income adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and litigation costs and settlements, regulatory assessments and insurance settlements, and the income tax expense effect of these adjustments. We define Adjusted Earnings per Diluted Share as Adjusted Net Income divided by the weighted-average shares outstanding used in the calculation of diluted earnings per share in accordance with U.S. GAAP.
Current report
We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.
Current report
Management uses the Non-GAAP Financial Measures:
Current report
By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q as indicators of financial performance. Some of the limitations are:
Current report
Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only as a supplement. As noted in the tables below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and contingent consideration, litigation costs and settlements, regulatory assessments and insurance settlements, and restructuring costs and net gains and losses on the disposal of assets. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the adjustments described herein and in the reconciliation tables below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
Current report
The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income, for the three months ended September 30, 2026 and 2025:
Current report
(1) Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards.
Current report
(2) Represents costs incurred in connection with completed and contemplated business combinations, including advisory, legal, accounting and other professional fees.
Current report
(3) Represents amortization of intangible assets acquired in business combinations. The revenue generated by those intangible assets is not excluded from the Non-GAAP Financial Measures.
Current report
(4) Represents amortization of debt issuance costs incurred in connection with our credit facility with Bank of America and the terminated White Oak Credit Facility.
Current report
(5) Represents non-cash gains and losses resulting from the remeasurement of warrant liabilities and contingent consideration to fair value at each reporting date.
Current report
(6) Represents legal fees, settlement amounts and other costs associated with litigation matters that we do not consider indicative of our ongoing operating performance.
Current report
(7) Represents the income tax effect of the above adjustments. This adjustment uses a blended federal and state statutory income tax rate of 25% for all periods presented and is applied only to those adjustments that carry an income tax consequence. Changes in the fair value of warrants and contingent consideration are not deductible for income tax purposes and accordingly have not been tax effected.
Current report
(8) Represents total depreciation and amortization determined in accordance with U.S. GAAP, which includes amortization of acquisition-related intangible assets. Accordingly, no separate adjustment for that amortization is presented in the reconciliation of EBITDA to Adjusted EBITDA.
Current report
(9) Represents net gains and losses on the disposal of property and equipment.
Current report
(10) State Tax refund for abandoned property.
Current report
For the three months ended September 30, 2026, the Company generated $4.3 million of cash from operating activities, compared to $2.7 million in the prior-year period, an increase of $1.6 million. The increase reflects changes in working capital associated with the Company’s higher sales activity. Inventory represented a $25.4 million use of cash, compared to an $18.9 million use of cash in the prior-year period, reflecting increased investment in inventory to support sales and anticipated customer demand. Accounts payable provided $27.8 million of cash, compared to $18.5 million in the prior-year period, partially offsetting the increased investment in inventory. Trade receivables represented an $8.9 million use of cash, compared to a $0.8 million source of cash in the prior-year period, reflecting the timing of customer collections relative to sales. These working capital movements, together with changes in other operating assets and liabilities, contributed to the increase in net cash provided by operating activities.
Current report
For the three months ended September 30, 2026, cash used in investing activities was $0.2 million, compared to $0.3 million in the prior-year period. Investing activities primarily consisted of capital expenditures of $0.2 million in the current period, compared to $0.3 million in the prior-year period, reflecting limited investment in property and equipment during both periods. The decrease in cash used in investing activities reflects lower capital expenditures in the current period. There were no acquisition-related cash outflows during the current quarter.
Removed paragraphs (28)
Previous report
On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, LLC, a collectibles distribution company. This acquisition resulted in increased shelf space at our largest customers and expanded our product offerings.
Previous report
Upon consummation of the Merger, the most significant change in Legacy Alliance’s future reported financial position and results of operations was a decrease in net Equity of $787,000 as compared to Legacy Alliance’s consolidated balance sheet.
Previous report
The U.S. trade policy environment has undergone significant change since early 2025. From February 4, 2025, through February 24, 2026, the U.S. government-imposed tariffs on a broad range of imported goods under IEEPA. These tariffs affected certain products distributed by the Company. The impact of IEEPA tariffs on the Company’s cost of sales during the three months ended March 31, 2026, was not material.
Previous report
On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs, invalidating all IEEPA-based tariff orders. The President subsequently revoked the IEEPA tariff orders effective February 24, 2026. Following litigation before the U.S. Court of International Trade, CBP launched the CAPE portal on April 20, 2026, to process IEEPA refund applications. Based on its internal analysis of CBP entry records, the Company estimates it may be entitled to refunds of approximately $1.5 million in IEEPA tariffs previously paid. This amount has not been recognized in the financial statements as of March 31, 2026, due to uncertainties surrounding the refund process, including potential government appeal and administrative implementation. See Note 13 to the condensed consolidated financial statements.
Previous report
Despite the invalidation of IEEPA-based tariffs, other tariff authorities remain in effect. The administration has imposed a 10% temporary import surcharge under Section 122 of the Trade Act of 1974, effective February 24, 2026, and currently scheduled to expire July 24, 2026, along with continuing Section 301 tariffs on goods of Chinese origin and Section 232 tariffs on steel and aluminum products. The Company continues to evaluate the impact of the evolving trade policy environment on its sourcing, cost structure, and product distribution arrangements. While the Company’s exposure to currently effective tariffs has not been material to date, a further escalation of tariffs or the imposition of new tariff measures could adversely affect the Company’s cost of sales, gross margin, or supply chain in future periods.”
Previous report
Year over year, vinyl record sales increased from $86 million to $99 million for the three months ended March 31, 2026, representing an increase of $13 million, or 15%, compared to the prior-year period. The increase was primarily driven by higher unit sales volume, reflecting continued consumer demand for vinyl records. Growth during the quarter benefited from several notable vinyl releases, including major pop and rock comeback albums, high-profile pop titles, and early-year metal and industrial releases, as well as continued interest in collectible and limited-edition offerings. Sales were also supported by retailer and consumer purchasing in advance of Record Store Day in April 2026. Vinyl continued to perform well as a preferred physical music format among both established and emerging audiences, and increased demand more than offset relatively stable pricing during the period, resulting in overall year-over-year revenue growth.
Previous report
Music Compact Disc (CD) sales increased from $21 million to $39 million for the three months ended March 31, 2026, representing an increase of $19 million, or 90%, compared to the prior-year period. The increase in revenue was primarily driven by a 39% increase in unit sales volume, along with a 37% increase in average selling price. The growth in unit volume reflects sustained demand for physical music products tied to select high-profile releases and catalog strength, as well as continued consumer interest in collectible and value-priced CD formats. While the broader music market continues to shift toward streaming and digital consumption, CD performance during the quarter ended March 31, 2026, was supported by loyal fan purchasing behavior, particularly for major artist releases and genre-driven demand in pop and international music segments, with K-pop remaining a key driver of incremental volume, helping to offset long-term category decline pressures.
Previous report
Physical movie sales, which include DVD, Blu-ray, and Ultra HD formats, increased from $58 million to $61 million for the three months ended March 31, 2026, representing growth of $3 million, or 5%, compared with the same period in the prior year. The increase was primarily driven by higher unit shipments, along with a modest 0.5% increase in average selling price, resulting in overall revenue growth. Performance during the quarter benefited from a steady cadence of theatrical releases and continued consumer demand for premium physical formats, including 4K Ultra HD and collectible SteelBook editions. The primary driver of the increase was the Paramount partnership, which was initially launched in January 2025 but began to meaningfully ramp in April 2025, contributing to stronger title availability, improved retail placement, and increased volume during the current period. In addition, the Amazon MGM Studios Distribution partnership introduced during the year provided incremental catalog depth and further supported assortment expansion across key retail channels. A favorable product mix shift toward higher-margin premium products also contributed to the increase in average selling price and partially offset softness in lower-priced catalog titles.
Previous report
For the quarter ended March 31, 2026, collectibles revenue increased from $5 million to $8 million, a gain of $3 million, or 48%, compared to the same period last year. While unit volume declined by 11%, this was more than offset by a 67% rise in average selling prices, which drove the overall increase in revenue. The improvement reflects a mix shift toward higher-priced collectibles, supported by expanded sourcing efforts and the addition of new vendors in the latter half of 2025, which contributed incremental sales during the quarter. Performance also benefited from the transition of Handmade by Robots from a distributed brand in 2024 to an owned brand in 2025, along with improved margins from certain legacy brands following inventory optimization initiatives implemented in the prior year.
Previous report
For the quarter ended March 31, 2026, electronics revenue increased from $2.6 million to $4.0 million, representing growth of $1.4 million, or 53%, compared to the prior-year period. The increase was driven by a 19% rise in unit sales volume, along with a 29% increase in average selling price, both of which contributed to the overall revenue growth. The higher average selling price reflects a shift in product mix toward higher-priced items, as well as competitive pricing dynamics. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related products, which are typically sold as complementary items alongside physical music and movie media. Growth in the category was also supported by continued strength in vinyl and physical media sales, which helped drive demand for playback devices and related accessories.
Previous report
**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, increased from $184 million to $225 million for the year-over-year period, representing an increase of $41 million, or 22%, primarily reflecting higher sales volume and the corresponding increase in product costs. Gross margin dollars increased by $4 million, driven by overall sales growth, partially offset by margin compression. For the quarter ended March 31, 2026, gross margin declined from 13.6% to 12.8%, a decrease of 80 basis points compared with the same period in the prior year. The decrease was primarily attributable to a lower mix of digital sales, which carry higher margins, as well as reduced trade spending and vendor rebates received during the period. Additional pressure on margins resulted from slightly higher freight costs and increased product returns processed during the quarter, which negatively impacted gross margin.
Previous report
Operating Expenses: Total operating expenses for the quarter increased from $25.5 million to $29.7 million, an increase of 16.3% year over year, while declining as a percentage of net revenue from 12.0% to 11.5%. The increase in absolute dollars was driven primarily by higher selling, general and administrative (“SG&A”) expenses (excluding depreciation and amortization) and distribution and fulfillment costs. SG&A expenses increased from $14.2 million to $16.9 million, reflecting strategic investments in infrastructure, technology, and personnel to support the Company’s exclusive content partnerships and future growth initiatives. Despite the increase in dollars, SG&A as a percentage of net sales improved from 6.7% to 6.5% for the quarter ended March 31, 2026. Distribution and fulfillment expenses increased from $10.0 million to $11.1 million, or 11.3%, primarily due to higher shipping volumes, partially offset by improved operating leverage. However, these costs decreased as a percentage of net revenue from 4.7% to 4.3%. The Company continues to utilize a flexible labor model within its warehouse operations, with a higher proportion of temporary staffing to support seasonal and demand-driven fluctuations, while maintaining targeted investments in automation to enhance efficiency and scalability over time. Fulfillment payroll increased to $7.1 million from $6.2 million in the prior year, primarily driven by higher staffing levels to support increased demand; however, as a percentage of net revenue, it improved from 2.9% to 2.7%, reflecting improved labor productivity and operating leverage. This was further supported by a slight 0.3% decrease in average labor costs per hour. Depreciation and amortization expense remained consistent at $1.4 million compared with the prior-year period.
Previous report
**Non-GAAP Financial Measures:**For the three months ended March 31, 2026, we had non-GAAP Adjusted EBITDA of approximately $5.1 million compared with Adjusted EBITDA of approximately $4.9 million in the prior year period, or a year-over-year improvement of $0.2 million. We define Adjusted EBITDA as net income (loss) adjusted to exclude: (i) income tax expense; (ii) interest expense; (iii) depreciation and amortization; (iv) changes in the fair value of warrant liabilities; and (v) other non-recurring or non-cash items, including transaction costs and stock-based compensation. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. 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.
Previous report
Results of Operations Nine Months Ended March 31, 2026, Compared to Nine Months Ended
Previous report
**Net Revenue:**Year over year, total net revenues increased from $836 million to $881 million for the nine months ended March 31, 2026 (+$45 million, +5%). The increase reflected broad-based growth across the Company’s core physical entertainment categories, partially offset by softness in gaming and digital downloads. Overall performance benefited from continued demand for physical media, collectibles, and related services, as well as the Company’s broad distribution platform, deep inventory positions, and exclusive content arrangements. Alliance Entertainment remains a leading distributor of entertainment products and content across music, video, gaming hardware, electronics and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, the Company is well positioned to serve both business-to-business and direct-to-consumer channels. In addition, the acquisition of Handmade by Robots and the Paramount and newly obtained Amazon MGM Studios Distribution licensing contracts further expand the Company’s portfolio of exclusive and differentiated content. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 34.8% of gross revenue for the nine months ended March 31, 2026.
Previous report
Year over year, vinyl record sales increased from $266 million to $287 million (+$21 million, +8%) for the nine months ending March 31, 2026. The increase in revenue was driven by a 4% increase in unit sales volume and a 4% increase in average selling price. The growth in unit volume reflects continued consumer demand for physical music formats, particularly among collectors and enthusiasts seeking premium and limited-edition releases. Volume growth during the period was also supported by strong pre-orders and early purchasing activity ahead of Record Store Day in April 2026, as retailers and consumers prepared for anticipated limited-edition releases. In addition, higher average selling prices were driven by a favorable shift in product mix toward premium and specialty vinyl formats, including colored vinyl, boxed sets, and collectible editions. Overall, vinyl performance benefited from strong new release activity, expanded retail distribution, and sustained demand for vinyl as a preferred format among both established and emerging artists.
Previous report
Music Compact Disc (CD) sales increased from $94 million to $114 million for the nine months ended March 31, 2026, representing an increase of $20 million, or 21%, year over year. The increase was driven by a 14% increase in unit volume and a 6% increase in average selling price. The growth reflects strengthening demand for physical music products, supported by continued consumer interest in tangible and collectible formats despite the broader industry shift toward streaming and digital consumption. Sales during the period were supported in part by the release ofThe Life of a Showgirl, the twelfth studio album by Taylor Swift, which was released on October 3, 2025, and generated significant physical sales activity throughout the nine-month period ended March 31, 2026. In addition, sustained demand for K-pop releases continued to be a meaningful contributor to CD performance, driven by strong fan engagement and collectible multi-version purchasing behavior. Continued consumer interest in select physical releases and collectible CD editions also contributed to revenue growth, as fans continued to prioritize special editions and packaged formats even as broader industry trends favor streaming and digital formats.
Previous report
Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, increased from $197 million to $260 million for the nine months ended March 31, 2026, representing an increase of $63 million, or 31%, compared with the same period in the prior year, and accounted for approximately 30% of total net sales during the period. The increase in revenue was driven by a 3% increase in average selling price, together with a 28% increase in unit shipments, resulting in significant year-over-year growth. Performance during the period benefited from a consistent flow of theatrical releases and sustained consumer demand for premium formats, including 4K Ultra HD and collectible SteelBook editions. Growth was supported by the continued ramp of the Paramount exclusive content partnership, which was launched in January 2025, and contributed to expanded title availability, improved retail placement, and stronger unit performance throughout the period. In addition, the newly launched Amazon MGM Studios Distribution partnership in January 2026 further expanded the Company’s film portfolio and enhanced assortment breadth across key retail channels. A favorable shift in sales mix toward premium, higher-margin content supported the increase in average selling price and partially offset softness in lower-priced catalog titles.
Previous report
For the nine months ended March 31, 2026, collectibles revenue rose from $16 million to $22 million (+$6 million, +37%) compared with the prior-year period. Although unit volume declined 20%, a 71% increase in average selling price more than offset lower volumes and drove revenue growth. Results were supported by the addition of over 20 new collectibles vendors that began contributing sales in the latter part of 2025, generating more than $1.5 million in incremental revenue. Existing vendors also delivered higher sales driven by new product lines and Handmade by Robots’ transition from a distributed brand in 2024 to an owned brand in 2025 contributed meaningfully to year-over-year performance.
Previous report
For the nine months ended March 31, 2026, electronics revenue increased from $11 million to $12 million, representing growth of $1 million, or 6%, compared to the prior-year period. The increase was driven by an 8% rise in unit sales volume, partially offset by a 2% decline in average selling price. The decrease in average selling price primarily reflects changes in product mix and competitive pricing dynamics, reflecting continued demand for entry-level and mid-tier audio playback devices alongside premium accessory offerings. Electronics sales primarily consist of audio playback devices and related accessories, including turntables, headphones, speakers, and other ancillary products that complement physical music and movie media.
Previous report
Gaming product revenue declined from $226 million to $158 million, a decrease of $68 million, or 30%, for the nine months ended March 31, 2026. The decline was driven by a 29% decrease in average selling price, together with a slight 1% decrease in unit sales volume year-over-year. The reduction in average selling price primarily reflected a pause in higher-priced arcade hardware purchases following a reassessment of vendor partnerships, as well as limited availability of certain hardware products and delays in major game releases during the period. While unit volumes were supported in part by strong demand for the Nintendo Switch II following its release in June 2025, this was not sufficient to offset declines in other higher-value product categories, resulting in a slight overall decline in unit sales volume. As a result, overall revenue decreased during the period. As a distributor of physical gaming products, the Company continues to adjust its product mix and sourcing strategies to align with evolving consumer demand and to manage profitability.
Previous report
**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, increased from $739 million to $764 million (+$25 million, +3%) year-over-year, primarily reflecting higher overall sales volume. The increase was partially offset by a more favorable product mix and the impact of exclusive content partnerships, which supported higher-margin physical media sales. For the nine months ended March 31, 2026, gross margin increased from 11.6% to 13.3%, an expansion of 170 basis points compared with the prior-year period. The improvement was driven by higher average selling prices, a favorable shift toward premium and exclusive content, including the continued ramp of the Paramount partnership and the launch of Amazon MGM Studios Distribution in January 2026, as well as improvements in distribution-related economics, all of which contributed to enhanced overall profitability.
Previous report
**Operating Expenses:**Total operating expenses for the nine months ended March 31, 2026, increased from $76.4 million to $86.2 million (+$9.7 million, +12.7%), and rose as a percentage of net revenue from 9.1% to 9.8% compared with the same period in the prior year. The increase was primarily driven by higher selling, general, and administrative expenses, which grew from $41.1 million to $48.5 million (+$7.4 million, +18.1%) reflecting strategic investments in infrastructure, technology, and personnel to support exclusive content partnerships and ongoing growth initiatives. These increases also include costs associated with various operational and strategic projects undertaken during the period. Distribution and fulfillment expenses increased modestly from $31.4 million to $33.2 million (+$1.7 million, +5.5%) and remained consistent as a percentage of net revenue at 3.8% year over year. The Company continues to invest in warehouse automation initiatives while utilizing a flexible labor model, including a higher proportion of temporary staffing, to support demand variability and project-based activities. As a result, fulfillment payroll increased slightly from $20.7 million to $21.4 million (+$.7 million, +3.1%) however, it declined as a percentage of net revenue from 2.5% to 2.4%, reflecting improved labor productivity and operating leverage, despite an approximately 2% increase in average hourly labor costs driven by market conditions. The Company continues to identify and implement process improvements to enhance operational efficiency and support long-term scalability. Depreciation and amortization remained consistent at $3.9 million for the nine months ended March 31, 2026, compared with the prior-year period.
Previous report
**Interest Expense:**For the nine months ended March 31, 2026, total interest expense decreased from $8.1 million to $7.4 million (-$.7 million, -8.6%) compared with the prior-year period. Included in the $7.4 million for the current period is $1.6 million of non-recurring expense related to the amortization of deferred financing costs associated with the Company’s former White Oak credit facility, including advisory fees of $1.8 million previously paid to B&D Capital Partners, LLC, a firm partially owned by board member W. Tom Donaldson III. Excluding this non-recurring amortization, interest expense declined more significantly year-over-year, primarily due to a lower effective interest rate following the transition to Bank of America, which decreased from 9.4% to 7.7%, a reduction of 170 basis points. This benefit was achieved despite a modest increase in the average revolver balance to $81 million from $78 million, reflecting increased utilization of the facility to support working capital needs and improved cash flow flexibility.
Previous report
**Income Tax:**For the nine months ended March 31, 2026, an income tax expense of $5.8 million was recorded compared to $2.1 million for the prior year period. Alliance reported a pretax income of $22.3 million for the nine months ended March 31, 2026, versus $11.4 million for the nine months ended March 31, 2025. The effective tax rate was approximately 26% and 19% for the nine months ended March 31, 2026, and 2025, respectively. In accordance with ASC 740-270, the Company calculates its interim income tax provision using an estimated annual effective tax rate (“ETR”) applied to year-to-date ordinary income. This approach ensures that the interim tax expense reflects the best estimate of the annual tax rate, as required by U.S. GAAP. Items that are unusual, infrequent, or not expected to recur—such as discrete events—are recognized separately in the period in which they occur and are not included in the estimated annual ETR. The difference between the Company’s effective tax rate for the nine months ended March 31, 2026, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and fair value adjustments related to the Company’s warrant liability.
Previous report
**Non-GAAP Financial Measures:**For the nine months ended March 31, 2026, we had non-GAAP Adjusted EBITDA of approximately $35.7 million compared with Adjusted EBITDA of approximately $24.4 million in the prior year period, or a year-over-year improvement of $11.3 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; (iv) depreciation and amortization expense; and (v) other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. 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.
Previous report
For the nine months ended March 31, 2026, the Company generated $7.3 million of cash from operating activities, compared to $16.1 million generated in the prior-year period. The decrease in operating cash flow was primarily driven by working capital changes, most notably a use of cash in inventory of $23.8 million, compared to a $5.0 million increase in the prior-year period, reflecting higher purchasing activity and timing of inventory receipts to support sales growth and upcoming demand periods. Accounts payable increased by $3.2 million, compared to a $6.4 million increase in the prior year, indicating a lower level of vendor financing relative to the prior period and contributing to the reduction in operating cash flow. Partially offsetting these impacts, trade receivables increased by $1.0 million compared to a $3.3 million increase in the prior-year period, reflecting improved collections and more efficient receivables management. Overall, the change in operating cash flow reflects the Company’s investment in working capital to support growth, partially offset by improvements in receivables performance.
Previous report
Cash used in investing activities was $2.1 million for the nine months ended March 31, 2026, compared to $7.6 million used during the same period in the prior year. Cash used during the current period primarily reflects $1.0 million of capital expenditures related to facility improvements and warehouse automation, as well as $1.2 million of cash paid in connection with the Endstate acquisition completed on December 31, 2025, partially offset by minor proceeds from asset disposals. Cash used in the prior-year period was significantly higher and was primarily driven by $7.6 million of cash paid for the business acquisition relating to Handmade by Robots, with minimal capital expenditures in that period. The year-over-year decrease in investing cash outflows reflects lower acquisition-related spending in the current period compared to the prior year.
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Previous wording
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward-looking and carries with it risks and uncertainties. See “Statement Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors, of this Form 10-Q for a discussion of other uncertainties, risks and assumptions associated with these statements.
Current wording
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward-looking and carries with it risks and uncertainties. See Part II, Item 1A. Risk Factors, of this Form 10-Q for a discussion of other uncertainties, risks and assumptions associated with these statements.
Previous wording
Alliance is a leading global wholesaler and distributor of collectibles, physical media, entertainment products, hardware, and accessories across multiple platforms. Through an established multi-channel strategy, the Company serves as a key link between leading content producers and manufacturers and top-tier retail partners, both domestically and internationally. Alliance partners with premier suppliers, including Universal Pictures, Nintendo, Warner Bros. Home Entertainment, Walt Disney Studios, Sony Pictures, Lionsgate, Universal Music Group, Sony Music Entertainment (including The Orchard), Warner Music Group, Microsoft, Take-Two Interactive, Electronic Arts, Funko, and Mattel. The Company maintains an in-stock assortment of over 340,000 SKUs, including vinyl records, video games, compact discs, DVDs, Blu-ray titles, and collectibles. In addition to its wholesale operations, Alliance distributes exclusive content through AMPED Distribution and Alliance Home Entertainment, and operates as a value-added wholesale distributor, direct-to-consumer (“DTC”) distributor, and e-commerce provider. Its customer base includes leading retailers such as Walmart, Amazon, Barnes & Noble, Target, Verizon, BJ’s Wholesale Club, Costco, eBay, Best Buy, and Kohl’s, among others. The Company sells export-permitted products to customers in more than 70 countries worldwide.
Current wording
Alliance is a leading global wholesaler and distributor of collectibles, physical media, entertainment products, hardware, and accessories across multiple platforms. Through an established multi-channel strategy, the Company serves as a key link between leading content producers and manufacturers and top-tier retail partners, both domestically and internationally. Alliance partners with premier suppliers, including Universal Pictures, Nintendo, Warner Bros. Home Entertainment, Sony Pictures, Lionsgate, Universal Music Group, Sony Music Entertainment (including The Orchard), Warner Music Group, Music Video Distribution, Electronic Arts, Funko, Hasbro, Blokees Technology Inc. and Mattel. The Company maintains an in-stock assortment of over 350,000 SKUs, including vinyl records, video games, compact discs, DVDs, Blu-ray titles, and collectibles. In addition to its wholesale operations, Alliance distributes exclusive content through AMPED Distribution and Alliance Home Entertainment, and operates as a value-added wholesale distributor, direct-to-consumer (“DTC”) distributor, and e-commerce provider. Its customer base includes leading retailers such as Walmart, Amazon, Barnes & Noble, Target, BJ’s Wholesale Club, Vintage Stock, GameStop, eBay, Best Buy, and Midwest Tape, among others. The Company sells export-permitted products to customers in more than 70 countries worldwide.
Previous wording
Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Notable brands include CDWow, Vinyl Unlimited, DeepDiscount, PopMarket, Collectibles Unlimited, Critics’ Choice Video, Collectors’ Choice Music, Movies Unlimited and WowHD.
Current wording
Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Notable brands include CDWow, WowHD, DeepDiscount, PopMarket, Blind Box/Mystery Collectibles, Collectibles Unlimited, Critics’ Choice Video, Collectors’ Choice Music, Movies Unlimited and BlowItOutaHere.
Previous wording
Alliance provides advanced distribution and technology platforms that enable the efficient sale and fulfillment of physical entertainment products and collectibles across retail and e-commerce channels. These capabilities are further enhanced by Handmade by Robots, which expands the Company’s portfolio of premium licensed collectibles, and Alliance Authentic (formerly Endstate), which delivers NFC-enabled authentication and digital product identity technology to support product verification and authenticated resale. Together, these capabilities strengthen Alliance’s position in the collectibles market by enabling secure, traceable, and scalable distribution of high-value physical products. In addition, Alliance supports its retail partners with integrated back-office services, including fully operational EDI and logistics infrastructure, to facilitate both ongoing operations and new product launches.
Current wording
Alliance provides integrated distribution and technology solutions that facilitate the sale and fulfillment of physical entertainment products and collectibles through retail and e-commerce channels. The Company’s capabilities are complemented by Handmade by Robots, which broadens its offering of premium licensed collectibles, and Alliance Authentic (formerly Endstate), which provides NFC-enabled authentication and digital product identity technology to support product verification and authenticated resale. These complementary businesses enhance Alliance’s ability to serve the collectibles market through secure, traceable, and scalable distribution of high-value physical products. Alliance also provides retail partners with comprehensive back-office support, including established EDI and logistics infrastructure, to streamline ongoing operations and support new product launches.
Previous wording
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 21.
Current wording
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 20.
Previous wording
As a result of the Merger, Alliance Entertainment became the successor to an SEC-registered company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Current wording
As a result of the Merger, Alliance Entertainment became the successor to an SEC-registered company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
Previous wording
The Company continues to operate amid macroeconomic uncertainty during the period ended March 31, 2026, including inflationary pressures, evolving trade policies, and geopolitical instability related to ongoing global conflicts. While inflation has moderated compared to prior periods, consumer discretionary spending remains uneven, impacting demand across certain product categories. The Company continues to experience cost pressures associated with existing and potential tariffs on imported goods, particularly for internationally sourced physical media and collectibles. In response, management continues to actively manage pricing, product mix, and sourcing strategies to mitigate the effects of economic and trade-related volatility. While these conditions may persist, the Company believes its diversified product portfolio and focus on higher-value and collectible offerings position it to effectively navigate the current environment. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”
Current wording
The Company continues to operate in an environment of macroeconomic uncertainty during the period ended September 30, 2026, including persistent inflationary pressures, evolving trade policies and geopolitical instability. Inflation remains a factor affecting the cost of goods and consumer purchasing power, while changes in trade policies and tariffs create uncertainty regarding the cost of imported products, including physical media and collectibles. These conditions may affect consumer discretionary spending, product demand and the Company’s operating costs. Management continues to monitor these developments and evaluate pricing, product mix and sourcing strategies to mitigate potential adverse impacts. Although the extent and duration of these uncertainties remain difficult to predict, the Company believes its diversified product portfolio, established distribution capabilities and focus on higher-value and collectible products provide flexibility in responding to changing market conditions. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”
Previous wording
Results of Operations Three Months Ended March 31, 2026, Compared to Three Months Ended
Current wording
Results of Income Three Months Ended September 30, 2026, Compared to Three Months Ended
Previous wording
**Net Revenue:**Year over year, total net revenues increased from $213.0 million to $258.2 million (+$45.2 million, +21.2%) for the three months ended March 31, 2026. The increase was driven by broad-based growth across several key product categories, most notably CDs, vinyl records, collectibles, and electronics. CD sales increased significantly, rising approximately 90% year-over-year, while vinyl remained the largest category, growing by 14.7%, supported in part by increased demand ahead of Record Store Day in April. Collectibles and electronics also delivered strong growth, reflecting continued consumer demand for higher-value and premium physical products. Video (DVD/Blu-ray/UltraHD) and gaming revenues increased by 4.6% and 12.4%, respectively, contributing to overall growth, though at a more moderate pace. Digital downloads declined by $1.1 million (-31.4%), consistent with the Company’s strategic focus on physical media and collectibles. Overall, revenue performance during the quarter reflected strong demand across core physical product categories and a continued shift in mix toward higher-value offerings, partially offset by declines in digital formats. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 30.4% of gross revenue for the three months ended March 31, 2026.
Current wording
**Net Revenue:**Year over year, total net revenues increased from $254.0 million to $278.8 million (+$24.9 million, +9.8%) for the three months ended September 30, 2026. The increase was driven by growth across several key product categories, most notably DVD/Blu-ray/UltraHD, CDs, vinyl records, and collectibles. DVD/Blu-ray/UltraHD sales increased 20.4% year over year, while CD sales increased 21.5% and vinyl sales grew 14.4%, remaining one of the Company’s largest product categories. Collectibles revenue increased 87.2%, and electronics revenue increased 106.8%, reflecting growth in these product categories. These increases were partially offset by a 40.4% decline in gaming revenue and a 33.7% decline in digital downloads, consistent with the continued shift in the Company’s revenue mix toward physical entertainment products and collectibles. Overall, revenue growth reflected strong performance across the Company’s core physical product categories, particularly video, CDs, vinyl, and collectibles. In addition, the Company’s direct-to-consumer (DTC) suite of distribution and inventory solutions for the e-commerce retail industry, including its consumer-direct subsidiary DirectToU LLC, accounted for approximately 36.2% of gross revenue for the three months ended September 30, 2026.
Previous wording
Gaming product revenue increased from $29 million to $33 million for the three months ended March 31, 2026, representing an increase of $4 million, or 12%, compared to the prior-year period. The growth was driven by a 6% increase in unit sales volume and a 7% increase in average selling price. The improvement in performance was primarily attributable to steady demand for the Nintendo Switch II, which was released in June 2025 and therefore did not contribute to the prior-year quarter. Sales during the current period benefited from continued consumer interest in this next-generation console platform and related software titles, as well as improved product availability compared to the prior year. Gaming product sales primarily consist of consoles, physical game titles, and accessories. As a distributor of physical gaming products, the Company continues to align its product mix and distribution strategy with evolving consumer preferences, while monitoring supply chain conditions and broader industry trends.
Current wording
For the three months ended September 30, 2026, gaming revenue decreased from $45.6 million to $27.2 million, a decline of $18.4 million, or 40.4%, compared to the prior-year period. The decline was primarily driven by lower unit sales volume, reflecting reduced availability of Microsoft products and the absence of arcade products during the current period. In addition, the prior-year period benefited from sales associated with the launch of the Nintendo Switch 2 in June 2025. Gaming sales primarily consist of consoles, physical game titles, and accessories. The Company continues to align its product mix and distribution strategy with evolving consumer demand and market conditions.
Previous wording
**Interest Expense:**For the three months ended March 31, 2026, total interest expense decreased from $2.4 million to $1.6 million (-$.9 million, -35.6%) versus the prior year period. The decrease was primarily driven by a lower effective interest rate, which declined from 8.9% to 7.3%, following the transition of the Company’s revolving credit facility from White Oak to Bank of America. This reduction in borrowing costs was partially offset by an increase in the average revolver balance from $68.4 million to $81.4 million (+$15.7 million, +23%), reflecting increased utilization of the facility to support working capital needs and improved liquidity.
Current wording
**Interest Expense:**For the three months ended September 30, 2026, interest expense decreased from $2.3 million to $1.2 million, a decrease of $1.1 million, or 48.8%, compared to the prior-year period. The decrease was primarily driven by a lower effective interest rate, which declined from 8.4% to 5.3%, following the transition of the Company’s revolving credit facility from White Oak to Bank of America on October 1, 2025. The reduction in borrowing costs was partially offset by an increase in the average revolving credit facility balance from $73.8 million to $84.4 million, an increase of $10.6 million, or 14.3%, reflecting greater utilization of the facility to support working capital requirements. Overall, the lower effective interest rate more than offset the impact of higher average borrowings, resulting in a significant year-over-year reduction in net interest expense.
Previous wording
**Income Tax:**For the three months ended March 31, 2026, an income tax expense of $0.3 million was recorded compared to $0.9 million for the prior year period. Alliance reported a pretax income of $2.6 million for the three months ended March 31, 2026, versus income of $2.8 million for the three months ended March 31, 2025. The effective tax rate was 12% and 33% for the three months ended March 31, 2026, and 2025, respectively. In accordance with ASC 740-270, the Company calculates its interim income tax provision using an estimated annual effective tax rate (“ETR”) applied to year-to-date ordinary income. This approach ensures that the interim tax expense reflects the best estimate of the annual tax rate, as required by U.S. GAAP. Items that are unusual, infrequent, or not expected to recur—such as discrete events—are recognized separately in the period in which they occur and are not included in the estimated annual ETR. The difference between the Company’s effective tax rate for the three months ended March 31, 2026, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and fair value adjustments related to the Company’s warrant liability.
Current wording
**Income Tax:**For the three months ended September 30, 2026, an income tax expense of $2.7 million was recorded compared to $1.9 million for the prior year period. Alliance reported a pretax income of $10.3 million for the three months ended September 30, 2026, versus income of $6.7 million for the three months ended September 30, 2025. The effective tax rate was 26% and 28% for the three months ended September 30, 2026, and 2025, respectively. In accordance with ASC 740-270,Interim Reporting, the Company calculates its interim income tax provision by applying an estimated annual effective tax rate to year-to-date ordinary income before income taxes. The estimated annual effective tax rate is based on projected annual pretax income, expected permanent differences, state income taxes, and other relevant tax considerations. The tax effects of significant unusual or infrequently occurring items, as well as certain other discrete tax events, are recognized in the interim period in which they occur and are excluded from the estimated annual effective tax rate.
Previous wording
**Liquidity:**On October 1, 2025, Alliance Entertainment Holding Corporation entered into a new Loan and Security Agreement providing for a $120 million senior secured revolving credit facility with Bank of America, N.A. (the “Revolving Credit Facility”), which replaced the Company’s prior asset-based credit facility with White Oak Commercial Finance, LLC (the “Prior Credit Facility”). The Revolving Credit Facility enhances the Company’s liquidity profile and provides increased financial flexibility to support working capital needs and ongoing operations. In addition, the Company continues to implement strategic initiatives focused on cost control and the sale of higher-value products. Based on the availability under the Revolving Credit Facility, cash on hand, cash generated from operations, and working capital, management believes the Company has sufficient liquidity to fund its operations and meet its obligations for at least twelve months from the issuance of these consolidated financial statements.
Current wording
**Liquidity:**On October 1, 2025, Alliance Entertainment Holding Corporation entered into a Loan and Security Agreement with Bank of America, N.A. establishing a $120 million senior secured revolving credit facility (the “Revolving Credit Facility”), replacing the Company’s previous asset-based credit facility with White Oak Commercial Finance, LLC (the “Prior Credit Facility”). The Revolving Credit Facility provides enhanced borrowing capacity and greater financial flexibility to support the Company’s working capital requirements and ongoing operating activities. In addition, the Company has continued to implement strategic initiatives focused on reducing operating expenses and optimizing its product mix through the sale of higher-margin products. Based on the Company’s financial performance for the quarter ended September 30, 2026, together with available borrowing capacity under the Revolving Credit Facility, cash on hand, cash flows generated from operations, and existing working capital resources, management believes the Company has sufficient liquidity to fund its operations, meet its financial obligations, and support its strategic objectives for at least the next twelve months from the date these consolidated financial statements are issued.
Previous wording
Our primary sources of liquidity are cash on hand, cash provided by operating activities, and borrowings under our revolving credit facility. As of March 31, 2026, the Company had $1.2 million of cash on hand and $64 million outstanding under the Revolving Credit Facility. While working capital requirements increased during the period, reflecting higher inventory levels to support sales growth, period-end borrowings under the revolving credit facility decreased from $68 million under the Prior Credit Facility as of March 31, 2025, to $64 million as of March 31, 2026, primarily due to the timing of repayments and improved availability under the new facility. As a result, availability increased from $52 million to $56 million over the same period (+$4 million, +8%).
Current wording
Our primary sources of liquidity are cash on hand, cash provided by operating activities, and borrowings under our revolving credit facility. As of September 30, 2026, the Company had $0.6 million of cash on hand, a decrease of $0.2 million compared to $0.8 million as of June 30, 2026. Outstanding borrowings under the Revolving Credit Facility were $72.0 million as of September 30, 2026, a decrease of $2.0 million, or 2.7%, compared to $74.0 million outstanding as of June 30, 2026. The decrease in outstanding borrowings primarily reflects net repayments under the Revolving Credit Facility during the quarter. The Revolving Credit Facility, which replaced the Prior Credit Facility on October 1, 2025, provides increased borrowing capacity and financial flexibility. As of September 30, 2026, approximately $48.0 million remained available under the Revolving Credit Facility, compared to approximately $46.0 million as of June 30, 2026.
Previous wording
Under the Revolving Credit Facility, the Company may request the issuance of letters of credit, which reduce availability under the borrowing base and increase outstanding borrowings. As of March 31, 2026, the Company had a $750,000 letter of credit outstanding, which reduced availability under the Revolving Credit Facility and increased borrowings outstanding by a corresponding amount. The letter of credit is collateralized under the terms of the credit agreement and does not represent restricted cash held by the Company.
Current wording
Under the Revolving Credit Facility, the Company may request the issuance of letters of credit, which reduce availability under the borrowing base and increase outstanding borrowings. As of September 30, 2026, the Company had a $750 thousand letter of credit outstanding, which reduced availability under the Revolving Credit Facility and increased borrowings outstanding by a corresponding amount. The letter of credit is collateralized under the terms of the credit agreement and does not represent restricted cash held by the Company.
Previous wording
As of March 31, 2026, the Company intends to continue relying primarily on its borrowing capacity under the Revolving Credit Facility, as well as any renewal or replacement of such facility, to fund working capital and other operational requirements. The availability of additional cash proceeds from the potential exercise of outstanding Warrants is contingent upon the market price of the Company’s Class A common stock exceeding the Warrant exercise price of $11.50 per share. Given that the market price of the Class A common stock was $7.34 as of April 24, 2026, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities, and liquidity needs.
Current wording
As of September 30, 2026, the Company intends to continue relying primarily on its borrowing capacity under the Revolving Credit Facility, as well as any renewal or replacement of such facility, to fund working capital and other operational requirements. The availability of additional cash proceeds from the potential exercise of outstanding Warrants is contingent upon the market price of the Company’s Class A common stock exceeding the Warrant exercise price of $11.50 per share. Given that the market price of the Class A common stock was $4.60 as of September 30, 2026, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities, and liquidity needs.
Previous wording
**Cash Flow:**The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements for the nine months ended March 31, 2026, and 2025.
Current wording
**Cash Flow:**The following table summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements for the three months ended September 30, 2026, and 2025.
Previous wording
Net cash used in financing activities was $5.3 million for the nine months ended March 31, 2026, compared with net cash used of $7.6 million in the prior-year period. Financing activities during the current period primarily reflected net repayments under the Company’s revolving credit facility and the repayment of $10.0 million of loans from Bruce Ogilvie, Executive Chairman of the Board and a principal stockholder of the Company, as well as $0.7 million of deferred financing costs associated with the transition to the Bank of America credit facility. This compared to the prior-year period, which primarily reflected net repayments under the revolving credit facility and higher acquisition-related financing activity. The lower level of net cash used in the current period reflects improved liquidity management and more efficient utilization of the Company’s revolving credit facility following its transition to Bank of America, which provides enhanced borrowing capacity and more favorable financing terms.
Current wording
Net cash used in financing activities was $4.2 million for the three months ended September 30, 2026, compared with net cash provided by financing activities of $0.4 million in the prior-year period. Financing activities during the current period primarily reflected net repayments of $3.4 million under the Company’s revolving credit facility and $0.8 million in payments on financing leases. In the prior-year period, financing activities primarily reflected net repayments under the revolving credit facility and payments on financing leases. The increase in net cash used in financing activities primarily reflects higher net repayments under the revolving credit facility during the current period. The Company actively manages borrowings and repayments under its revolving credit facility to meet working capital requirements and support ongoing operations. The transition to the Bank of America credit facility provides access to financing at a lower interest rate, which is expected to reduce borrowing costs. This transition supports the Company’s efforts to manage liquidity and financing costs while funding ongoing operating requirements.
Previous wording
No changes were made to the critical accounting estimates discussed in the 2025 Annual Report during the nine months ended March 31, 2026.
Current wording
No changes were made to the critical accounting estimates discussed in the 2026 Annual Report during the three months ended September 30, 2026.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations