Alliance Entertainment Holding Corporation: Form 10-Q for the Quarter Ended March 31, 2024
In the first quarter of 2024, Alliance Entertainment Holding Corporation experienced a decline in revenue and increased net losses. The company’s cash and cash equivalents decreased, while accounts payable and accrued liabilities increased. The company’s stock price has been volatile, and it has faced legal proceedings and risks.
Company Overview
Alliance Entertainment is a distributor of music, movies, video games, electronics, toys, and other entertainment products. The company sells its products to retailers and directly to consumers through its subsidiary DirectToU.
Recent Developments
In July 2022, Alliance purchased Think3Fold, a collectibles distribution company, which expanded Alliance’s product offerings.
In February 2023, Alliance merged with a special purpose acquisition company called Adara Acquisition Corp. This merger provided Alliance access to public markets and capital.
Financial Performance
First Quarter 2024 Compared to First Quarter 2023
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $211 million | $228 million | -7% |
| Gross Margin | 13.3% | 12.0% | +1.3 pts |
| Operating Expenses | $28.8 million | $34.7 million | -17% |
| Operating Loss | -$0.8 million | -$7.4 million | +$6.6 million |
| Net Loss | -$3.4 million | -$7.8 million | +$4.4 million |
- Revenue declined 7% due to economic uncertainty reducing consumer spending
- Gross margins improved due to less excess inventory and fewer price promotions
- Operating expenses declined due to lower distribution costs and reduced overhead
- Operating and net losses narrowed significantly
Segment Performance
- Gaming sales fell 22% but profitability increased due to higher average prices
- Vinyl sales grew 4% driven by 10% increase in average prices
- Movie sales jumped 27% thanks to more collectible and premium offerings
- Consumer products sales halved as toys & collectibles industry resets post-pandemic
First Nine Months 2024 Compared to First Nine Months 2023
| Metric | 9M 2024 | 9M 2023 | Change |
|---|---|---|---|
| Revenue | $864 million | $912 million | -5% |
| Gross Margin | 11.8% | 8.1% | +3.7 pts |
| Operating Expenses | $88 million | $107 million | -18% |
| Operating Income | $13.6 million | -$33 million | +$47 million |
| Net Income | $2.1 million | -$31 million | +$33 million |
- Revenue decreased due to tough macroeconomic environment
- Gross margins expanded significantly thanks to inventory control
- Overhead costs lowered via distribution optimization and job cuts
- Company returned to profitability after sizeable losses last year
Segment Performance
- Gaming sales fell but margins doubled through hardware & retro gaming focus
- Vinyl revenue flat but average prices rose 6%
- Movie sales increased on higher pricing for collectible steelbooks & 4K
- Toys & collectibles sales halved but margins more than doubled
Cash Flow
- Operating cash flow increased by $39 million to $48 million
- Reduced inventory levels and higher turns boosted cash generation
- Lower debt levels decreased interest costs
Liquidity Position
- New 3-year $120 million credit facility signed in December 2023
- Improved inventory management and cost cutting enhanced liquidity
- Credit facility availability increased from $2 million to $34 million
Business Outlook
- Tough economic climate will continue to constrain consumer spending
- Company focusing on higher margin products and tighter cost controls
- Debt reduction and inventory optimization improving financial position
- Management initiatives have returned company to profitability
- Macro uncertainty persists but Alliance is well positioned competitively
Key Risks
- Prolonged economic weakness could reduce sales and earnings
- Rising interest rates may increase debt service costs
- Supply chain disruptions can impact ability to meet customer demand
- Labor shortages could increase fulfillment expenses
- Goodwill impairment possible if actual performance lags projections
Final Thoughts
After a difficult 2023, Alliance Entertainment has made excellent progress in rightsizing its business, reducing costs, and boosting profitability. While economic uncertainty persists, the company’s wide product portfolio, pricing power, loyal customer base and experienced management team provide confidence it can navigate the challenging business conditions ahead. Continued focus on higher margin offerings, prudent expense control and balance sheet improvements should allow Alliance to continue creating value for its shareholders over the long term.
