Alliance Entertainment Q2 2026 Earnings Call Transcript

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Provided by Quartr
February 12, 2026

Key Takeaways

  • Positive Sentiment: Profitability and margin expansion: Alliance reported net income of $9.4M and Adjusted EBITDA of $18.5M in Q2, with gross margin up 210 bps to 12.8%, reflecting what management calls a durable, higher-quality earnings baseline.
  • Positive Sentiment: Shift to premium physical media and exclusives: Management attributes improved pricing and sell-through to a move toward premium formats (4K, Steelbooks) and exclusive studio deals, including Paramount and the new Amazon MGM agreement.
  • Positive Sentiment: Collectibles and authentication platform as growth drivers: Collectibles revenue grew ~31% YoY, and the NState/Alliance Authentic initiative (NFC-enabled authentication and digital identity) is being positioned as a platform to monetize primary sales, authenticated resale, and deepen licensor ties.
  • Negative Sentiment: Category volatility from gaming and arcade declines: Quarterly revenue fell to $369M (from $394M) largely due to a $34M decline in arcade sales and a $24M drop in gaming hardware, driven by supply constraints and transitions with partners like Arcade1Up/Basic Fun!.
  • Positive Sentiment: Stronger liquidity and lower borrowing costs: Alliance replaced its prior ABL with a $120M five-year senior secured revolver that lowers borrowing costs by up to 250 bps and is intended to support working capital for premium inventory and strategic initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Alliance Entertainment Q2 2026
00:00 / 00:00

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Operator

Greetings, and welcome to Alliance Entertainment's second quarter fiscal year 2026 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now pass the call over to Paul Kuntz, a member of Alliance Entertainment's IR team at RedChip. Paul? Pardon me one moment, please, while we reconnect. Hi, everyone, this is the operator. We're still reconnecting. Thanks, everyone, for your patience.

Paul Kuntz
Investor Relations Representative at RedChip

Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent the company's current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect the company's opinions only as of the date of this presentation. Please keep in mind that the company is not obligating itself to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, management will attempt to present some important factors relating to the business that may affect predictions.

Paul Kuntz
Investor Relations Representative at RedChip

You should also review the company's Form 10-K, filed September 10, 2025, for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. During this conference call, management will discuss non-GAAP financial measures, including a discussion of Adjusted EBITDA. Management believes non-GAAP disclosures enable investors to better understand Alliance Entertainment's core operating performance. Please refer to the investor presentation or today's earnings press release for reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. Your host today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the second quarter of fiscal year 2026, ended December 31, 2025. Bruce Ogilvie, Executive Chairman, is also on the line and will participate during the Q&A session.

Paul Kuntz
Investor Relations Representative at RedChip

At this time, I will now turn the call over to Alliance Entertainment CEO, Jeff Walker.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Thank you, Paul, and good afternoon, everyone. We appreciate you joining us today. I want to begin by framing the second quarter in very clear terms, because the most important takeaway this quarter is the continued strength and durability of our earnings profile. During the second quarter, Alliance delivered another period of meaningful profitability. Net income increased year-over-year to $9.4 million, Adjusted EBITDA rose to $18.5 million, and gross margin expanded by 210 basis points to 12.8%. These results reflect continued execution against the profitability baseline we established last quarter. What's important is not just the level of earnings we delivered, but how we delivered them. The margin expansion we're seeing is not driven by short-term actions. It's the result of structural improvements in product mix, disciplined operating execution, and the leverage we've built into our infrastructure.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

When we spoke last quarter, we described fiscal 2026 as a year where Alliance would operate from a new baseline, one defined by higher quality revenue, stronger margins, and more consistent earnings power. The second quarter demonstrates that this is not a one-quarter phenomenon. Margin expansion continued, operating leverage remained intact, and our cost discipline held even as we continued to invest selectively in areas that support long-term growth. The performance this quarter reflects several themes that have been consistent across the business. We continue to see a shift towards higher-value products, particularly in premium physical media and collectibles. Our exclusive content partnerships are contributing to better pricing, stronger sell-through, and improved visibility with retail partners. Our distribution and fulfillment infrastructure continues to scale efficiently, allowing us to support growth while maintaining tight control over costs.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Taken together, the second quarter reinforces that Alliance is executing against a clear strategic plan that prioritizes earnings quality, margin durability, and disciplined growth. We're building a business that generates sustainable profitability and positions us well for long-term value creation. With that context, I'd like to walk you through the key drivers behind this performance, starting with how our content strategy and category focus are shaping results across the portfolio. One area I want to spend a few minutes on is physical media, because it's important to be clear about how we think about this category today. At Alliance, we do not view physical media as a legacy business. We view it as a collectible category, driven by enthusiasts, premium formats, and exclusivity. That distinction matters because it explains both the performance we delivered this quarter and the strategic decisions we're making going forward.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

During the second quarter, physical movie revenue increased 33% year-over-year to $114 million. That growth was driven by continued strength in premium formats, including 4K, Ultra HD, and collectible SteelBook editions, where consumer demand remains strong and highly engaged. These products are not purchased as substitutes for streaming. They are purchased because of their quality, packaging, scarcity, and connection to the underlying franchise. The Paramount Pictures exclusive agreement, which went live on January 1, 2025, is a good example of how this strategy works in practice. That partnership significantly expanded our access to high-quality catalog and new-release content, improved retail visibility, and supported both higher average selling prices and stronger sell-through on premium formats. Just as importantly, it reinforces Alliance's role as a trusted full lifecycle partner to major studios.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

We're applying that same playbook with our new exclusive partnership with Amazon MGM Studios, which became effective January 1, 2026. While it's still early, we expect this agreement to further strengthen our premium physical media portfolio by adding highly recognizable franchises and curated releases that naturally lend themselves to collectible formats. Over time, this expands not only revenue opportunity, but also the quality and predictability of that revenue. What underpins all of this is studio trust. Studios partner with Alliance because we can manage the entire physical life cycle, from manufacturing and distribution to retail execution and inventory discipline, while preserving brand integrity and collector value. That trust leads to exclusivity. Exclusivity leads to differentiation, and differentiation supports both margin expansion and long-term demand. Physical media continues to perform because it has evolved into a collectible-driven category.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Our focus is not on chasing volume for volume's sake, but on curating the right products at the right price points for an audience that values ownership, quality, and authenticity. That approach is central to how we're building a structurally stronger and more profitable business. Building on that foundation, our collectibles business continues to be an area where we see both meaningful growth opportunity and attractive margin expansion. During the second quarter, collectibles revenue increased 31% year-over-year, reflecting continued momentum across our premium and licensed offerings. Growth was supported by a combination of expanded sourcing activity, higher value product launches, and improving mix within the category. That mix shift is the result of deliberate choices we have made to emphasize licensed, differentiated collectibles over more commoditized products.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Licensed collectibles benefit from stronger brand relevance, deeper collector engagement, and greater pricing power, and they align naturally with Alliance's long-standing relationships across film, music, and entertainment. As we continue to expand this portfolio, we see opportunities to grow both scale and profitability by introducing products that resonate more deeply with fans and collectors. A key contributor to that progress has been the continued integration of Handmade by Robots. Since transitioning from a distributed brand to an owned brand last year, Handmade by Robots has expanded its retail footprint, broadened its licensing pipeline, and contributed meaningfully to both revenue growth and margin improvement in the collectibles segment. More importantly, it gives us direct control over product design, sourcing, and lifecycle management, all of which are critical to building a scalable premium collectibles portfolio. As we look at collectibles holistically, we view this category as margin accretive, brand-enhancing, and strategically expandable.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

It strengthens our relationship with licensors, deepens engagement with collectors, and complements our physical media business by extending the same principles of scarcity, authenticity, and quality into adjacent product categories. That evolution sets the stage for the next phase of our collectibles strategy. With the acquisition of Endstate and the launch of Endstate Authentic, Alliance is extending beyond products and traditional distribution into a platform-driven model. Endstate Authentic adds technology-enabled layer to Alliance's existing strengths. Through NFC-enabled authentication and digital product identity, it allows physical products to be verified, tracked, and authenticated throughout their entire life cycle, from the initial sale through secondary markets. This capability expands Alliance's role from simply moving products to supporting long-term value creation around those products. Endstate matters now because the collectibles market is increasingly defined by authentication, provenance, and trust.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

As products become more premium and more valuable, collectors, licensors, and retailers all require greater confidence around authenticity, ownership history, and resale integrity. That need is especially pronounced in categories like vinyl, limited edition collectibles, and other high-value physical goods. Importantly, this initiative is not about chasing near-term revenue. It's about building platform optionality. Endstate enables lifecycle monetization opportunities that did not previously exist in physical collectibles, including authenticated resale, brand protection, and deeper engagement between collectors and content owners, while reinforcing pricing, discipline, and margin quality. Alliance Authentic represents the first commercial application of this platform within our portfolio. By applying authentication, certification, and individually numbered releases to premium vinyl collectibles, we're demonstrating how this technology can be integrated into products we already source and distribute at scale.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Over time, we believe this platform has the potential to enhance margins, strengthen relationships with licensors, and further differentiate Alliance in the market. Collectibles and authentication represent a natural extension of our strategy, building a higher quality, more defensible business by combining premium products and technology-enabled trust. With that, I'll turn it over to Amanda to walk through the financial results in more detail.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Thanks, Jeff. I'll start by walking through our financial performance for the second quarter, beginning with the income statement. For the quarter ended December 31, 2025, net revenue was $369 million, compared with $394 million in the prior year period. The year-over-year comparison reflects continued softness in certain lower margin categories, most notably gaming hardware and a deliberate shift in mix toward higher value products across physical media and collectibles. That mix shift is a key driver of profitability this quarter. Gross profit increased to $47.1 million, up from $42.3 million a year ago, and gross margin expanded by 210 basis points to 12.8%. That margin expansion was driven by a more favorable product mix, increased contribution from premium and exclusive offerings, and continued operational discipline.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Net income for the quarter increased to $9.4 million, or $0.18 per diluted share, compared with $7.1 million, or $0.14 per share in the prior year period. This improvement reflects higher gross profit, as well as operating leverage from a cost structure that continues to scale efficiently. On the adjusted basis, Adjusted EBITDA increased to approximately $18.5 million, up $2.4 million year-over-year. Adjusted EBITDA margin improved to approximately 5%, compared with 4.1% in the second quarter of last year. That expansion reflects the durability of our cost structure, including stable distribution and fulfillment costs as a percentage of revenue and ongoing benefits from automation that allows us to manage complexity without proportionate increases in labor or overhead.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Overall, the second quarter demonstrates that Alliance is generating stronger earnings and expanding margins, even as we continue to manage through category-level revenue variability. The quality of earnings this quarter reflects deliberate execution, not short-term actions, and provides a solid foundation as we move through the balance of fiscal 2026. Turning to the six-month results, which provide additional perspective on the underlying momentum in the business. For the six months ended December 31, 2025, net revenue was $623 million, essentially flat compared to the prior year period. While category performance varied within the portfolio, the overall revenue profile reflects a continued shift towards higher value products and premium formats. That mix shift translated into a significant improvement in profitability.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Gross profit for the six-month period increased to $84.3 million, compared with $67.8 million a year ago, and gross margin expanded by 260 basis points to 13.5%. The improvement was driven by increased contribution from premium physical media and collectibles, improved pricing and mix from exclusive content, and continued discipline across distribution and fulfillment. Net income for the six months increased to $14.3 million, or $0.28 per diluted share, compared with $7.5 million, or $0.15 per share in the prior year period. This nearly doubling of earnings reflects the operating leverage inherent in the business as margins expand and the cost structure remains controlled.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Adjusted EBITDA for the six-month period increased to approximately $30.7 million, up from $19.5 million last year, representing a year-over-year improvement of more than $11 million. That performance underscores the consistency we're seeing in margin expansion and earnings generation as higher quality mix and infrastructure leverage compound across multiple quarters. Our six-month results reinforce that the improvements we're delivering are not isolated to a single quarter. They reflect a structurally stronger earnings profile driven by better mix, exclusive content, and disciplined execution, and we provide a solid foundation as we continue to invest selectively and scale the business. Before I turn it back to Jeff, I want to touch briefly on our balance sheet and liquidity position. We ended the quarter with approximately $74 million in working capital, reflecting disciplined management of both inventory and payables.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Inventory levels increased modestly during the quarter, consistent with seasonal patterns and the timing of inbound product, but remained aligned with current demand and our focus on higher value, faster-moving products. Our balance sheet also benefited from the refinancing of our credit facility early in the quarter. We replaced our prior asset-based lending agreement with a new $120 million senior secured revolving credit facility with Bank of America. The new facility reduces our borrowing costs by up to 250 basis points, extends the maturity to five years, and provides greater flexibility to support working capital needs and strategic initiatives. Importantly, this refinancing strengthens our financial position without changing our approach to capital management.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

We continue to operate with a disciplined view towards leverage, and our focus remains on maintaining liquidity, funding premium inventory and exclusive partnerships, and preserving optionality as we evaluate opportunities across the business. Overall, we believe our balance sheet is in a strong position. It provides the flexibility to invest where returns are attractive and positions Alliance to navigate both near-term operating needs and longer-term growth opportunities. I'll close with a brief comment on how we're thinking about capital allocation. Our approach remains straightforward and disciplined. We prioritize investments that directly support the strategy Jeff outlined earlier, and that enhance the quality and durability of earnings. First, we continue to allocate capital to premium inventory and exclusive content partnerships, where demand visibility is strong and returns are attractive. These investments support higher value products, improve mix, and reinforce our position with licensors and retail partners.

Amanda Gnecco
Amanda Gnecco
CFO at Alliance Entertainment

Second, we invest selectively in technology and infrastructure that improves scalability and efficiency. This includes automation, systems that support exclusive partnerships, and capabilities that strengthens fulfillment and inventory management. These investments are targeted and are evaluated based on clear operational and financial returns. Throughout all of this, maintaining flexibility and discipline is central to our approach. We are not pursuing growth for growth's sake, and we remain focused on preserving liquidity, managing risk, and ensuring that capital deployment aligns with long-term value creation. That discipline has been an important contributor to the margin expansion and earnings growth we've delivered, and it will continue to guide our decision-making as we move forward. With that, I'll turn it back to Jeff for closing remarks.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Thank you, Amanda. Before we open the call for questions, I want to spend a few minutes on how we're thinking about the remainder of the year and the long-term trajectory of our business. As we look ahead, we're not providing formal guidance, but we are confident in the durability of our margin profile we are building. The progress we made over the past several quarters reflects deliberate changes in mix, stronger exclusive content relationships, and disciplined execution across the organization. We continue to see a growing pipeline of premium and exclusive content across physical media, collectibles, and own brands, and we believe that pipeline supports continued earnings quality as we move through the back half of fiscal 2026. From an execution standpoint, our priorities for the remainder of the year are clear. We're focused on scaling Alliance Authentic in a thoughtful and controlled way.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

The initial rollout is designed to prove the operational and economic model, and we'll expand deliberately as we validate use cases across additional products and partners. We're executing against our new exclusive partnership with Amazon MGM Studios. This agreement builds on the momentum we've established with Paramount and further strengthens our position in premium physical media. Our focus is on execution, retail visibility, and ensuring these releases reinforce our strategy around collectible formats and higher value offerings. We'll continue to expand our collectibles portfolio and own brands. Handmade by Robots is a strong example of how we can grow both scale and value by controlling design, licensing, and distribution, and we see additional opportunities to apply that model across new products and partnerships. We also see significant long-term opportunity with Endstate Authentic.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

As adoption increases, we believe digitally verifiable authentication will become increasingly important across premium physical goods, not only with our own collectibles initiatives, but across third-party brands, licensors, and marketplaces. Our focus on the back half of the year is on deepening integrations, advancing external partnerships, and building the infrastructure necessary to support authenticated primary sales and secondary resale at scale. Over time, we believe this capability can enhance differentiation, strengthen relationships across the ecosystem, and contribute to margin expansion through higher value technology-enabled offerings. Across all of this, profitability discipline remains central. We're committed to maintaining the operating rigor that has driven margin expansion while investing selectively in areas that support long-term growth. Stepping back, what's most important is how Alliance is evolving.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

We're moving from a traditional distributor towards a platform that supports premium products across their full life cycle. We're shifting emphasis from volume-driven outcomes to value-driven returns, and we're building an ecosystem that connects content owners, retailers, and collectors through trusted infrastructure, exclusive offerings, and technology-enabled capabilities. That evolution is deliberate, and it's already showing up in the quality of our earnings and the strength of our balance sheet. We believe it positions Alliance well to create durable, long-term value for our shareholders. Before we turn to questions, I want to take a moment to thank our employees across every division. Their hard work, creativity, and execution are what drive our success. I'd also like to thank our customers, partners, and shareholders for their continued support and trust in Alliance Entertainment. We're proud of the momentum we've built and committed to delivering on the opportunities ahead.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Operator, we're ready to open the line for questions.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Thomas Forte from Maxim Group. Please go ahead.

Thomas Forte
Thomas Forte
Managing Director and Senior Consumer Internet Analyst at Maxim Group

Great, thanks. I have three questions. I'll go one at a time. So congrats on the Amazon MGM deal. Can you talk about your ability to sign additional exclusive deals with studios? And then, obviously, it seems like it'd be beneficial to Alliance Entertainment if Paramount and Warner Bros. But, any thoughts on Warner Bros. in general, in addition to your ability to sign additional studios beyond Paramount and MGM?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Yeah, thank you for the question. This is Jeff Walker. We're in active conversations with small and large studios. There's a lot of activity in it, and, you know, once we have had Paramount on board and now, you know, MGM coming on board, you know, I think the studios are definitely looking at Alliance as the premier solution, when the time comes that a studio wants to move into a licensing model on their physical DVD product. It's very difficult for me to comment on the Warner and Paramount-Netflix saga that's going on there. There's a lot of different aspects to it.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

I think either different way, what will happen is when a transaction happens, everybody looks at what is happening in the businesses, and they start to make decisions. So, I think just companies making decisions instead of staying status quo is a good thing for Alliance overall within this space.

Thomas Forte
Thomas Forte
Managing Director and Senior Consumer Internet Analyst at Maxim Group

And then for my second question, on the gaming hardware front, can you talk about to what extent are we seeing external forces that are driving your revenue performance versus to what extent is it an internal emphasis on other categories?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Yeah, so at gaming hardware right now, you've got, you really got some differences between Nintendo, Microsoft and Sony. We're pretty heavy Microsoft house and Nintendo distribution. So we have a pretty good numbers here in 2025 with Nintendo and the new Switch that's out, and you know, that's really helped our physical hardware sales. On the other side, Microsoft has been very short on supply with consoles and so forth there, so that has hurt us on the hardware side. It's not necessarily a shift in the Alliance strategies. It's just a matter of availability on allocation.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

And then we also do consider the arcade business that we were doing with Arcade1Up in the hardware category of gaming, and that business, just in this last quarter, was down $34 million from where we were a year ago. And right now, that business is going through a transition from Arcade1Up. The ownership there got transitioned over to Basic Fun! and we're in conversations with them about how we can help distribute the arcades that are now gonna be coming through Basic Fun! So we're gonna start to see some products there as we move into the middle of 2026.

Thomas Forte
Thomas Forte
Managing Director and Senior Consumer Internet Analyst at Maxim Group

Okay, great. And then my last one, you talked about your recent strategic M&A as it relates to essentially authenticated or verified collectibles. But, stepping back, what are your thoughts on just the strategic M&A opportunities in front of you today, broadly?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Broadly, there's a lot. As you know, there's, we're in a lot of different categories, and there's a lot of different opportunities in M&A. We're in many. We're constantly in many robust conversations, and, you know, it, when we look at mergers and acquisitions, it's not a shortage of opportunities. It's trying to find the right opportunities at the right time, with the right financial metrics to it and all those dynamics. So we constantly stay in a lot of acquisition conversations ongoingly, and sometimes something that doesn't click, you know, this quarter or this month, might turn around and a year from now be something that makes sense at that time.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Because our business as well as, you know, the acquired business, everybody's, you know, got a lot of different initiatives and strategies and things that people are working on, and they are all in different stages. So it's the acquisition aspect, especially when you're a strategic buyer, you're in a lot of strategic acquisition conversations on an ongoing basis. And so I'm pretty optimistic about opportunities on the acquisition side, and we just continue to evaluate them in different aspects and see what financially fits and what you know, it has to financially be accretive to Alliance Entertainment. That's our intention. So we're always in a lot of conversations there.

Thomas Forte
Thomas Forte
Managing Director and Senior Consumer Internet Analyst at Maxim Group

Great, thanks for taking my questions.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Mm-hmm, thank you.

Operator

As a reminder, to ask a question over the phone, please press star one. The next question is from Michael Kupinski from Noble Capital Markets. Please go ahead.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

Thank you for taking my questions. Good afternoon, everyone. I'm gonna go back to the gaming division again, just to kind of clarify a couple of things, Jeff. You mentioned that the arcade business had a $34 million swing in the quarter. Is that correct?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Correct.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

Okay. And in terms of just the cadence of how that, the gaming business looks like in terms of the second half of the fiscal second half of the year, or should... Just based on what you were telling us in terms of the arcade business, and then I would assume in terms of the hardware portion of the business should start to show some moderating trends, I would think. Should we see some moderating revenue trends going into the second half of the year? I mean, is that what your expectation might be?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Yeah, I think if you look at our numbers for the last quarter, our overall revenue was down $25 million overall. Our gaming hardware was down $24 million, and our arcade sales were down $34 million. So those two represented a $58 million down number just for the quarter, and you know, overall, outside of that, the company and the sales were a growth year-over-year. I will say that both of these categories, the arcade business and the gaming hardware, calendar 2024, we really had some significant strong sales in both of those arcades and gaming hardware. And then really, as we rolled into calendar 2025, we've been impacted with that, really all of 2025.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

And so as we move to 2026, our comps in gaming hardware and arcades, we don't have high comps from 2025 rolling into 2026. So we're not gonna see as much of an impact of the gaming hardware changes. We're, you know, we're still in conversations with Microsoft, trying to get more allocation, and I think ultimately, you know, next holiday season, our arcade business will be up again because we, we had virtually no arcade business this Christmas or this holiday season, and we will be getting some stock back in for next season. So that's kind of the flow on that.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

That's great color. And then going back to your licensing deals, obviously, you set the stage for with the Amazon MGM coming fairly quickly after your Paramount deal. Do you have any color in terms of the like maybe the timing? You know, I know that you said that you're in discussions with several studios now. Do you have any sense of like, how quickly maybe some of these licensing deals might come to fruition? I mean, I'm just kind of trying to get a sense of how long the tail is in terms of trying to structure and how these licensing deals might take to come about.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Well, I think, first off, you know, you have to realize they're complicated transactions, you know, to move a whole business of physical product sales, marketing, the authentication aspect of all of, you know, the creation of the product. It's a big part of the business, you know, big transaction to move one of those. And we've done a really good job with Paramount moving that over, and now we know how to do it, and, you know, we're running quickly on the Amazon MGM side. As far as timeframe, that's - it's really not something that I can discuss, and I - we just really don't know. It's the timing is complicated.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

And, you know, I think at the end of the day, I don't know when the end of the day is. I think the studios see that Alliance is a great solution, at, you know, the time that it makes sense for each studio to move into a licensing agreement on their physical DVD. So I think I have to leave it at that, where, you know, having the first one and the second one. We are seeing some smaller studios in conversations as well right now, so those aren't as big of a project to switch over as, you know, these major studios are. But I think we're well positioned to be the licensing partner that the studios use for physical media in the future.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

Good. And then, I was just wondering if you could provide a little bit more color on your launch of Authentic. I know that you indicated that you have been in talks with some studios which found this idea of great interest to them, and that you thought that there might be some other specific business opportunities that could be forged with the studios and so forth. I was just wondering if there are any more, you know, thoughts have been kind of, you know, forged with those discussions that, you know, some of, some things more, you know, have gelled with them and how those discussions have gone.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Well, there's a lot of opportunities right now with the technology that we have with Endstate, with the NFC digital chips, and also authentication, and then the marketplace technology that they have as well. We're looking at conversations with music labels, with video studios, and even with our own products that we're doing with Paramount and MGM as examples. Gaming companies have special edition box sets and limited edition collectibles. We see all of those type of products as big opportunities that should have an NFC digital chip in the packaging, in the particular special edition product that is made.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

And when you look at that and you go, okay, now somebody can scan that. If you take it one step further, and you put a digital chip in a very nice collectible movie box set or music box set or gaming box set, and you put that chip in there working with the manufacturers, and they put that in, then you can also enhance additional content through the blockchain because you own that piece of a physical collectible. And so that's working with the labels and the studios and the gaming companies, you know, as creating. You know, you think of a collectible, a box set of something as the ultimate collectible. Well, then what else can you do to add content to it?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Can you add, you know, an unreleased interview with the artist or the actor or something like that, that attaches to that collectible that you own? So we're looking at how we now can provide some really incredible solutions to the labels, to the studios, and the gaming companies and collectible companies to really enhance, you know, what these collectibles can be.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

Yeah. And I know this is nascent times for this segment, but I was just wondering, do you have any timeframe when you might, you know, or milestones that you might want to provide investors when you might start to see, you know, revenues kind of kicking in for Authentic?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Well, we went live with the vinyl. We've got Jeffrey Smith on board, we have a couple other people joining his team next Monday. Experienced people that will help us to focus on the marketing there. We've engaged a PR department to help us with the PR with respect to Alliance Authentic. So those are some of the things that are happening to get the word out of the product that we have. I think consumers really like the product that we've created with the vinyl and the ultimate vinyl collectible. And so we should start to see some traction on that pretty quickly here.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

And final question, I know that you made a nice tuck-in acquisition on the technology side. I was wondering what your current appetite might be for further M&A?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Well, we always have a pretty big appetite on that, Michael, you know, you know that. We, As I mentioned earlier on the call, we're always in a bunch of conversations, and there's, there's, you know, acquisitions that are, accretive or consolidation stuff. Those are fairly easy and straightforward, and then there's acquisitions that get us into new opportunities and expansion of skill sets and things that we have. So I think the Endstate Authentic was a great acquisition for us. It really opens the doors to a lot of different aspects. And you also have to realize, the more that we can use that technology to do product, products and offerings with our vendor partners, our music, video, and gaming partners, the more integrated Alliance gets with each of them, and that's a big win for us, you know?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

So, we're looking at how we're a important aspect to the music, video, and gaming industry, and we're continuing to build that strength. And I think they are looking at us that way, and that's why we're seeing these strong agreements coming with all these partners we work with.

Michael Kupinski
Michael Kupinski
Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets

Great. Thanks for taking all my questions. I appreciate it.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Thank you.

Operator

There are no further phone questions at this time. I will now turn it over to Paul Kuntz for any webcast questions.

Paul Kuntz
Investor Relations Representative at RedChip

Thank you. One of our first questions: You didn't speak on music sales. Can you provide an update on vinyl and CD trends and how you're thinking about the music category within the broader premium physical strategy?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Oh, music's great. We're, we're super excited right now on, on the music side. I know we didn't put a lot of that in our, in our communication for this quarter, but, our, our vinyl and CD sales are extremely strong right now. This particular quarter that we're in, it's not that typical to have major new releases in Q1. But, you know, coming up at the end of February, we got the new Bruno Mars coming through, and then we've got a big Harry Styles new release and a BTS release this quarter, as well as, a lot of other releases. But those three tentpole ones are pretty significant releases that are already showing up with some good pre-order, online pre-order sales.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

And you're definitely seeing the labels really focused on these artists right now, and the music industry is significantly strong. I do wanna throw out a little stat that I was kind of shocked on. For 2025, Alliance sold over 16 million vinyl records, and we sold over 13 million CDs. So some people that say, "You know, CDs are dead. Who buys CDs anymore?" We still sold 13 million CDs last year. We are seeing some pretty strong sales on the CD side, and there's definitely a lot of communication along social media right now on physical music, vinyl, CD, and as well, DVD right now, too, as far as people wanting to collect their favorite artist music and so forth.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

All of this is still happening while, you know, everybody can listen to the music on a digital platform and so forth, but the collectors want to have their, you know, a collection of their favorite artists at their house. So we're looking at how we're continuing to work with the labels to create more and better product for the fans there.

Paul Kuntz
Investor Relations Representative at RedChip

Thank you, Jeff. Another question we had: Could you please expand on the gross margins for this quarter? Seems like the market was expecting a number around 15% in line with past rebasing margin profile comments.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

The margins for this, say that again? Can you repeat the question there?

Paul Kuntz
Investor Relations Representative at RedChip

Yeah, absolutely. Could you please expand on the gross margin for this quarter? Seems like the market was expecting a number around 15% in line with past rebasing margin profile comments.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Yeah, I think we had some pretty good growth in our margin this quarter compared to last year. We margin ends up being somewhat product mix driven. And we, you know, we do sell more, even though our hardware and gaming and so forth was down, overall, we still sell quite a bit of hardware and so forth in the holiday quarter. I think overall, we're pretty happy with where our margin is trending right now. But we tend to see it a little bit lower in Q4 than the other three quarters of the year. It's typical trend for us.

Paul Kuntz
Investor Relations Representative at RedChip

Thank you. Our next question: As you look at Endstate Authentic longer term, where do you see the greatest strategic opportunity, internal applications within your own portfolio, third-party adoption, or authenticated resale? And how should investors think about its role in the broader platform strategy?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Well, I'll tell you that, Bennett and Stephanie on the Endstate team are extremely busy right now with all the opportunity conversations that just opened up with them joining with us here at Alliance. So obviously, there's some really big opportunities within our own portfolio. You know, obviously, we're doing Alliance Authentic. And then also, they're working with our home entertainment team to see what we can do on some video product as well. So there's a lot going on internally. And then the second into the third-party aspect, you know, we communicate with all the top record labels, the top studios, the top gaming companies.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

You know, the question is, you know, how their application of NFC chips and the products and so forth, you know, there's just a lot of opportunities, a lot of conversations happening where our technology can now help with things that artists and studios are looking to do going forward. So we're pretty, pretty bullish on their opportunities right now. There also is grading companies, authentication companies, and so forth that are interested in the authenticated resale as well as the NFC chips there. So, they've got a very, very packed new account conversations right now for Endstate.

Paul Kuntz
Investor Relations Representative at RedChip

Thank you, Jeff. And we have one more question. Can you provide... I think you already touched on this a little bit with Michael, but can you provide an update on Alliance Authentic and what you've learned from the initial rollout? How should we think about the pace of expansion from here?

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

Yeah. I think the pace of expansion is going to ramp up pretty quickly here. You know, as I mentioned earlier, we got Jeffrey on board. We got two other great people to come in next week to assist him that are joining the Alliance team, and the PR that we're launching. We are also launching. So we are at Toy Fair this weekend. On the authentic side, we are also launching Funko Authentic and also Handmade by Robots Alliance Authentic product. And what those are Funko Pop! or Handmade by Robots character, encapsulated in a case similar to what we're doing on the vinyl. They have the NFC digital chip in it.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

They are 100% authentic because we know we bought it direct from Funko or on Handmade, we are the manufacturers, and then they're uncirculated, and they're encapsulated as a collectible. Those are getting launched this weekend at Toy Fair, and we'll be able to start shipping on those with orders towards the end of February here. We've already got them into production and into the facility. And, you know, this business is not an easy one to start up. You know, you've got to—there's a lot of work in perfecting the encapsulation cases and all the aspects that go to create that. But you also have the opportunity there, where now we will have an encapsulated Funko Pop! into the marketplace, and I think there's gonna be a lot of great opportunity for sales.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

So all of those three categories are in place. We do have cases on the way right now for encapsulating video SteelBook as well as video games, so Xbox, PlayStation, and Switch. So there's people that wanna have a collect those and wanna have one encapsulated as a piece of history for those games as well there. So that's our that's all gonna roll out. Those other ones will roll out this quarter as well and start to get into the marketplace.

Paul Kuntz
Investor Relations Representative at RedChip

Excellent. That was actually our, our last question.

Operator

Great. Thank you. I would like to turn the floor back over to Jeff Walker for any closing comments.

Jeff Walker
Jeff Walker
CEO at Alliance Entertainment

I just wanna say to everybody, we're super excited with all the new opportunities we have here for 2026. And, you know, we're, as the entire company, we're having a great time working with Bennett on the Endstate side and Jeffrey on the Alliance Authentic. Those big initiatives for Alliance are gonna make a big difference here in 2026. And I think if you look at it a year from now, where is Alliance Authentic and Endstate Authentic gonna be? It's gonna be significantly better and different a year from now. And that's what we're very, very heavily focused on right now. Thank you, everybody, for joining the call.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Amanda Gnecco
      Amanda Gnecco
      CFO
    • Jeff Walker
      Jeff Walker
      CEO
Analysts
    • Michael Kupinski
      Director of Research and Senior Media & Entertainment Analyst at Noble Capital Markets
    • Paul Kuntz
      Investor Relations Representative at RedChip
    • Thomas Forte
      Managing Director and Senior Consumer Internet Analyst at Maxim Group
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