Alliance Entertainment Q1 Earnings Call Highlights

Key Points

• First-quarter revenue rose 10% to $278.8 million, while net income increased 56% to $7.6 million. Operating income was nearly flat as higher expenses offset gross profit growth; lower financing costs and a favorable warrant valuation change helped boost reported net income.
• Growth came from physical entertainment: movie revenue increased 20%, vinyl 14%, CDs 22% and collectibles 87%. Lower gaming revenue partly offset those gains.
• Alliance is testing vinyl and CD displays at 14 Best Buy stores and said a successful trial could lead to expansion to 100–300 stores in 2027, though that rollout is not confirmed.

Alliance Entertainment NASDAQ: AENT reported a 10% increase in fiscal first-quarter revenue as sales of physical movies, music and collectibles rose, though higher operating expenses limited growth in operating income.

Revenue reached $278.8 million for the quarter ended September 30, 2026, up from $254 million a year earlier. Net income rose 56% to $7.6 million, or $0.15 per diluted share, helped by lower financing costs and a favorable change in the value of warrant liabilities.

During the earnings call, CEO Jeff Walker also disclosed a 14-store test with Best Buy featuring vinyl records and CDs. He said Alliance anticipates the test will succeed and could expand to between 100 and 300 stores in 2027, although the rollout remains an expectation rather than a confirmed plan.

Music, Movies and Collectibles Drive Growth

Physical movie revenue rose 20% to $101.1 million. Walker said relationships with Paramount and Amazon MGM Studios contributed through new releases, wider title availability and expanded retail distribution.

Vinyl revenue increased 14% to $86.7 million, while CD revenue grew 22% to $41.2 million. Both categories benefited from higher unit sales and average selling prices, according to Walker. He cited new releases, reissues and special editions for vinyl, along with high-profile releases and interest in K-pop and international music for CDs.

Collectibles revenue climbed 87% to $11.9 million from $6.4 million, reaching 4.3% of quarterly revenue compared with 2.5% a year earlier. Walker attributed the growth to expanded licensed offerings, broader sourcing relationships and the company’s Handmade by Robots brand. Distribution and fulfillment fee revenue increased 18% to $5.7 million.

Those gains were partly offset by lower gaming revenue. CFO Amanda Gnecco cited reduced availability of Microsoft products, the absence of arcade products and a difficult comparison with the prior-year quarter, which benefited from the Nintendo Switch 2 launch.

Asked about the next quarter, Walker said he thought gaming could be positive, citing the company’s relationship with Nintendo and comparisons with last year. He also said Alliance had shipped Grand Theft Auto VI to retail partners, although he cautioned that the title would not completely reverse the company’s gaming numbers.

Costs Offset Gross Profit Growth

Gross profit increased 13% to $42.1 million, and gross margin improved to 15.1% from 14.6%. Gnecco said stronger product margins were partly offset by higher royalty costs tied to certain studio distribution relationships and increased freight expenses, including fuel surcharges.

Operating expenses rose 18% to $31.5 million. Distribution and fulfillment expenses increased to $12 million from $9.9 million, primarily because of higher warehouse labor requirements associated with additional fulfillment capacity, special projects and changes in product mix. Selling, general and administrative expenses rose to $17.9 million from $15.1 million.

As a result, operating income was nearly flat at $10.6 million, compared with $10.5 million a year earlier. Adjusted EBITDA increased 1% to $12.3 million, while adjusted net income was essentially unchanged at $7.2 million and adjusted diluted earnings per share remained at $0.14.

Gnecco said the improvement in GAAP net income was driven primarily by lower financing costs and noncash warrant valuation adjustments. Interest expense fell 49% to $1.2 million following an October 2025 refinancing. Alliance also recorded a $0.9 million gain on warrant liabilities, compared with a $1.5 million loss a year earlier. Gnecco noted that the valuation change did not reflect underlying operating performance.

Cash Flow and Investment Plans

Operating cash flow rose to $4.3 million from $2.7 million. Inventory was a $25.4 million use of cash during the quarter, while trade receivables used $8.9 million; those uses were partly offset by a $27.8 million increase in accounts payable.

Walker said the September inventory buildup was consistent with seasonal patterns as Alliance prepared shipments to retailers. He expects inventory to decline after the holidays, but did not provide a specific reduction or cash-generation forecast.

The company is investing in artificial intelligence for sales targeting, software development and financial workflows. Walker said Alliance expects those initiatives to support revenue growth and operating cost savings in fiscal 2028, while evaluating benefits against implementation and operating costs.

Walker also said the company’s AutoStore operating lease has two $250,000 monthly payments remaining, in December and January. Once those payments end, he expects an annual benefit of approximately $3 million to pretax income.

Authentication and Best Buy Test

Alliance is expanding its Alliance Authentic line of preserved, numbered and authenticated collectibles, using NFC technology from Endstate Authentic. Walker said the company is preparing to extend the offering to premium movie steelbooks and is pursuing authentication partnerships beyond its own products.

Alliance recently made a strategic investment in ArtPics, which produces original artwork in trading-card form. Walker said ArtPics had already been using Endstate’s technology and extended its relationship for two more years. He also described a pipeline of potential acquisitions and strategic investments, primarily in collectibles, music and video.

The Best Buy test began in late October, Walker said, with a display featuring vinyl, CDs and turntables. He said the company was beginning to see sales through the point-of-sale system and was optimistic about expanding the music department to more stores if the test succeeds.

About Alliance Entertainment (NASDAQ:AENT)

Alliance Entertainment is a distributor and wholesaler of physical entertainment products, including vinyl records, CDs, DVDs, Blu-ray discs, video games, toys, collectibles, books and consumer electronics. The company supplies products from a broad range of studios, record labels, publishers and manufacturers. Its customers include retailers, e-commerce businesses and specialty stores. Alliance Entertainment also provides distribution and fulfillment services, helping businesses source and deliver entertainment products to consumers.

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