Alliance Entertainment — First Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Net revenues increased 10% year-over-year to $278.8 million from $254.0 million in the first quarter of fiscal 2026.
• Gross profit increased 13% to $42.1 million from $37.2 million; gross margin expanded 50 basis points to 15.1% from 14.6%.
• GAAP net income rose 56% to $7.6 million from $4.9 million; GAAP diluted EPS increased 50% to $0.15 from $0.10.
• Operating income was $10.6 million, compared to $10.5 million in the prior-year quarter.
• Adjusted EBITDA increased approximately 1% to $12.3 million from $12.2 million.
• Adjusted net income was $7.2 million compared to $7.3 million; adjusted diluted EPS remained unchanged at $0.14.
• Interest expense decreased 49% to $1.2 million from $2.3 million, reflecting a reduction in the average effective interest rate to 5.3% from 8.4% following the October 2025 refinancing.
• Net cash provided by operating activities increased 58% to $4.3 million from $2.7 million.
• Inventory increased to $152.0 million at September 30, 2026, from $126.6 million at June 30, 2026.
• Total liabilities were $303.6 million as of September 30, 2026, compared to $281.0 million at June 30, 2026.

Guidance and Future Outlook:

• Management stated fiscal 2027 is off to a strong start with continued revenue growth and gross margin improvement.
• Priorities for fiscal 2027 include profitable growth, working-capital efficiency, expense discipline, and improving operating leverage.
• The company anticipates supporting anticipated sales activity as it enters the holiday season.
• Management believes substantial availability under the revolving credit facility provides financial flexibility to support strategic initiatives.

Business Segments and Product Lines:

• Physical movie revenue increased 20% to $101.1 million, supported by new releases and expanded retail availability through exclusive distribution relationships with Paramount and Amazon MGM Studios.
• Vinyl revenue increased 14% to $86.7 million from $75.8 million, driven by higher unit sales and average selling prices.
• CD revenue increased 22% to $41.2 million from $33.9 million, supported by new releases, reissues, and collectible editions.
• Collectibles revenue surged 87% to $11.9 million from $6.4 million, representing 4.3% of quarterly revenue compared to 2.5% in the prior-year period; growth was supported by expanded licensed merchandise, broader sourcing, and the Handmade by Robots™ brand.
• Distribution and fulfillment fee revenue increased 18% to $5.7 million from $4.8 million.
• Gaming revenue declined by $18.4 million, primarily due to lower product availability and the absence of prior-year sales associated with the Nintendo Switch 2 launch.
• Digital downloads also experienced declines, partially offsetting growth in other segments.

Market and Competitive Landscape:

• The company serves over 35,000 retail and e-commerce storefronts with more than 340,000 unique in-stock SKUs.
• Management highlights a market trend where consumers who stream content still desire physical products to own and collect, driven by "superfans."
• Content owners are increasingly seeking partners who understand both products and market delivery to serve these engaged consumers.
• The company leverages proprietary authentication technology (Endstate Authentic and Alliance Authentic™) to support product verification and authenticated resale.

Risks and Challenges:

• Forward-looking statements note risks related to inventory obsolescence and increased inventory levels.
• The company faces risks regarding reliance on a concentration of suppliers and customers, and the potential failure to add new customers or expand sales to existing ones.
• Significant indebtedness exists, with risks associated with refinancing existing debt and potential breaches of the revolving credit facility covenants.
• Potential impacts from inflation, tariffs, higher interest rates, geopolitical risk, and evolving regulations are noted.
• Risks include litigation, regulatory enforcement, and the inability to develop and maintain effective internal controls.

Management Commentary and Tone:

• CEO Jeff Walker expressed confidence, noting that physical formats are gaining recognition for their value to superfans and that the company is well-positioned to serve this demand.
• CFO Amanda Gnecco highlighted the benefits of the strengthened financing structure, lower borrowing costs, and progress in cash generation despite continued inventory investment.
• Management emphasized the company's ability to offer limited edition and exclusive collectibles as a key differentiator.
• The tone regarding the "superfan" market is optimistic, viewing the demand for physical products as a long-term trend rather than a temporary anomaly.

Other Key Points:

• The company ended the quarter with approximately $48.9 million of availability under its $120 million revolving credit facility, plus $33.4 million of additional collateral-supported borrowing capacity above the commitment limit.
• Total outstanding debt under the revolving credit facility was approximately $70.8 million as of September 30, 2026.
• The company recorded a non-cash gain of approximately $0.9 million related to warrant remeasurement, compared to a non-cash loss of approximately $1.5 million in the prior-year period.
• The company continues to invest in warehouse automation and artificial intelligence to streamline workflows and improve operational efficiency.
• A conference call was scheduled for November 12, 2026, at 4:30 p.m. Eastern Time to discuss results.