ALLIANCE ENTERTAINMENT HOLDING CORP (AENT)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY2025 revenue was $393.7M, down 7.5% year over year (vs. $425.6M) and up sharply sequentially from Q1 FY2025 ($229.0M); GAAP diluted EPS was $0.14 (vs. $0.18 YoY; $0.01 in Q1) .
• Non-GAAP category momentum offset mix and promo headwinds: vinyl +12% YoY to $109M and physical movies +23% to $86M; Consumer Direct Fulfillment rose to 42% of gross revenue, supporting margin resiliency .
• Adjusted EBITDA was $16.1M (vs. $17.9M YoY), with operating expenses down 13% and distribution/fulfillment costs down 18% YoY, reflecting automation and warehouse consolidation benefits .
• Versus external consensus, Q2 FY2025 revenue missed ($393.7M vs. $421.3M) and EPS missed (non-GAAP reported $0.19 vs. $0.35); S&P Global consensus was unavailable in our tools today; figures shown are from MarketBeat and not S&P Global .
• Strategic catalysts: exclusive Paramount home entertainment license launched Jan 1, 2025, and acquisition of Handmade by Robots; management flagged a stronger back half setup as these initiatives scale .

What Went Well and What Went Wrong

What Went Well

• Higher-margin channels and categories: CDF reached 42% of gross revenue; vinyl +12% YoY to $109M; physical movies +23% YoY to $86M, aided by premium 4K UHD and SteelBook editions .
• Cost structure improvements: total OpEx -13% YoY; distribution/fulfillment -18% YoY; interest expense -15% YoY; driving resilience despite top-line pressure .
• Strategic wins: exclusive Paramount license and Handmade by Robots acquisition expand proprietary content and licensed collectibles; “set the stage for a strong second half” (Bruce Ogilvie) .

What Went Wrong

• Top-line compression and margin mix: revenue declined 7.5% YoY, with gross margin down to 10.7% (vs. 11.2%), reflecting product mix and promotional activity .
• EPS burden from non-cash warrants: a $2.5M warrant fair value charge reduced EPS by ~$0.05; adjusted EBITDA also down vs. prior year ($16.1M vs. $17.9M) .
• External consensus miss: revenue and EPS came in below external consensus; S&P Global consensus was unavailable via our tools; shown consensus is from MarketBeat for directional context .

Financial Results

Revenue and EPS vs Prior Periods and Consensus

Notes: S&P Global consensus was unavailable via our tools today; external consensus figures shown above are from MarketBeat and not S&P Global .

Profitability and Operating Metrics

Category/KPI Highlights

Guidance Changes

Management did not provide formal quantitative guidance ranges in Q2 FY2025 materials .

Earnings Call Themes & Trends

Management Commentary

• “Strategic investments and partnerships set stage for strong second half outlook… Higher-margin Direct to Consumer sales reach 42% of gross revenue” — Bruce Ogilvie, Chairman .
• “Our exclusive home entertainment distribution agreement with Paramount… solidifies our position as a leader in physical media… These two initiatives are key building blocks in our strategy to drive long-term growth” — Jeff Walker, CEO .
• “Net income of $7.1 million… includes a $2.5 million non-cash expense related to warrant liabilities… Excluding this impact, net income would have increased year-over-year” — Press release .
• “We delivered $16.1 million in Adjusted EBITDA this quarter… Our efforts to streamline operations, reduce distribution costs, and optimize inventory management are yielding results” — Jeff Walker .

Q&A Highlights

• Paramount impact: Management expects material contribution from catalog and new releases (e.g., Gladiator 2 initial ship forecast ~150k units), positioning Alliance to extend the life of collectible DVD formats across retail and online channels .
• Handmade by Robots strategy: Transition to licensee/manufacturer improves margin profile; ramping designs and variants across franchises (black light, glow, glitter) with mid‑2025 launches planned .
• Acquisition framework: Focus on accretive deals with cost synergies and/or new categories/customer sets; disciplined capital deployment and seasoned integration team .
• DTC optimization: Broader placement across major retail sites, drop-ship model reduces retailer inventory risk and expands “digital shelf”; store‑within‑store and featured products to drive conversion .
• Operational savings sustainability: Ongoing project pipeline; Minnesota facility exit produced meaningful savings; continued efficiency focus in Shepherdsville, KY .

Estimates Context

• External consensus (non‑S&P): Revenue $421.3M vs. actual $393.7M — miss; EPS $0.35 vs. non‑GAAP reported $0.19 — miss; GAAP EPS was $0.14. S&P Global consensus data was unavailable via our tools; external figures are from MarketBeat and not S&P Global .
• Key driver of EPS delta: Non‑cash warrant fair value expense of $2.5M reduced GAAP EPS by ~$0.05, masking underlying operational improvements .
• Estimate revisions outlook: Paramount license and higher‑margin collectibles/DTC mix may support upward revisions to revenue quality and EBITDA trajectory; lack of formal guidance remains a constraint on near‑term precision .

Key Takeaways for Investors

• Mix shift toward higher-margin channels (CDF 42%) and proprietary/licensed content (Paramount, Handmade by Robots) should support margin durability despite category seasonality and promotional activity .
• Structural cost improvements (automation, consolidation) are visible in OpEx and distribution/fulfillment lines, underpinning EBITDA resilience through cycles .
• Paramount license is a multi‑year catalyst with immediate proof points (Gladiator 2, deep catalog), expanding defensible content and retailer shelf presence across formats .
• Watch warrant liability volatility: non‑cash remeasurement creates EPS noise; focus on cash generation and adjusted EBITDA to gauge core performance .
• Balance sheet strengthening continues (lower revolver, improved liquidity availability), enhancing optionality for tuck‑in M&A and licensed IP expansion .
• Near‑term trading: Expect dispersion around estimate resets and headline reactions to Paramount release cadence; sequential top‑line build into 2H as pipeline flows. Medium‑term thesis: scaling exclusives/DTC + automation should expand EBITDA dollars per revenue dollar over FY2025–FY2026 .

Appendix: Additional Data

1H FY2025 Snapshot

Balance Sheet (Quarter-End)

Non-GAAP Reconciliation (Quarter)

Sources: Q2 FY2025 press release and 8‑K financials ; Q2 FY2025 call transcript ; Q1 FY2025 call transcript ; Q4 FY2024 8‑K . External consensus from MarketBeat due to S&P Global data unavailability in our tools .