AENT

• Strategic Business Shift

  • The company is repositioning from a declining traditional physical media distribution business to a high-value collectibles business, aligned with a structural market shift toward tangible, owned, fan-aligned products
  • Long-term strategy focuses on higher-value products, improved product mix, and a more scalable operating model that delivers both sustained revenue growth and earnings expansion
  • Evolution from a transactional distribution model to a full-lifecycle platform connecting content owners, retailers, and collectors, with participation in secondary market activity

• Core Category Execution

  • Growth is broad-based across formats, price points, and release types, with particular strength in limited-edition, international, and K-pop music titles
  • The 2026 Record Store Day was the largest ever, with Alliance shipping over 700,000 units to independent retailers; the company added limited-edition Handmade by Robots collectibles to the event for the first time, which sold out immediately
  • New distribution partnerships with Paramount (effective 2025) and Amazon MGM Studios (effective 2026) provide access to valuable entertainment franchises, strengthening retail and collector positioning
  • Collectibles growth is driven by higher average selling prices, expanded vendor sourcing, and improved mix toward premium, licensed offerings; Handmade by Robots, the company's owned brand, delivers higher margins and a scalable model for future owned brands

• New Strategic Initiative Progress

  • Launched Alliance Authentic during the quarter, integrated with acquired N-State Authentic, to offer authenticated, NFC-tracked collectibles with digital provenance
  • Initial Alliance Authentic offerings are limited-edition encapsulated premium vinyl, with plans to expand to other collectible categories; the infrastructure supports authentication, resale transparency, and long-term product lifecycle engagement
  • Relaunched Moody's Unlimited website as a curated collector destination for pre-orders and limited-edition products to boost collector lifetime value

• Financial and Capital Discipline

  • The quarter delivered 25% year-over-year net income growth to $2.3 million, and 4% adjusted EBITDA growth to $5.1 million; year-to-date net income is up 78% to $16.6 million, and adjusted EBITDA is up 47% to $35.7 million
  • Capital allocation prioritizes high-return inventory and exclusive content partnerships, followed by selective technology and infrastructure investments for growth initiatives; balance sheet liquidity remains strong with $56 million of credit facility availability, providing flexibility for operations and strategic investments

Management reaffirmed confidence in the company's long-term growth trajectory, with clear near-term execution priorities:

• Continued scaling of core high-demand categories, including premium physical media and high-value collectibles, supported by a strong pipeline of new releases, exclusive content, and licensed products
• Expansion of the owned and controlled brand model, starting with Handmade by Robots, to additional categories and partnerships
• Buildout of the Alliance Authentic and N-State Authentic platform infrastructure, with expansion to new product categories and expected new deal announcements in fiscal 2027 as the initiative moves out of the startup phase
• Management expects high demand for upcoming major Q4 FY2026 releases, including Grand Theft Auto 6 and its accompanying branded vinyl soundtrack, and the high-profile Amazon MGM Studios title Project Hail Mary

All core product segments delivered year-over-year revenue growth in Q3 FY2026, with broad-based strength across the portfolio:

• Music (Vinyl): Revenue of $99 million, up 15% year over year, contributing 38.4% of total Q3 net revenue
• Music (CD): Revenue of $39 million, up 90% year over year, contributing 15.1% of total Q3 net revenue
• Video (Physical Movies): Revenue of $61 million, up 5% year over year, contributing 23.6% of total Q3 net revenue
• Collectibles: Revenue increased 48% year over year, contributing the remaining 22.9% of total Q3 net revenue

Total Q3 net revenue across all segments was $258 million, up 21% year over year. The shift to higher-margin premium and collectible products drove disproportionate earnings growth relative to revenue for the nine-month year-to-date period: gross profit increased 21% year over year to $117.3 million, and gross margin expanded 170 basis points to 13.3%.

Management did not outline material new or unexpected operational risks in the call. Standard forward-looking statement risk disclosures were provided at the opening, referencing the full risk discussion included in the company's most recent Form 10-K filing. The only uncertainty noted related to the early startup stage of the Alliance Authentic and N-State Authentic initiatives, with no guarantee of market adoption or revenue contribution timeline. Gross margin contracted 80 basis points year-over-year in Q3 due to temporary mix shifts from lower-margin categories as revenue scaled, though management expects long-term margin expansion from ongoing mix improvement.

Q: How successful was the limited-edition Handmade by Robots Ozzy Osbourne and Hello Kitty Record Store Day release, and can Project Hail Mary drive meaningful DVD segment growth?

A: This was the first time Record Store Day approved a non-vinyl collectible. The 2,000-unit production run of each SKU sold out completely, despite receiving over 6,000 orders, and retail partners were very satisfied. The 30 encapsulated, NFC-enabled units of each SKU resold for $400-$500 (vs. $75 for non-encapsulated units), proving strong collector demand for authenticated offerings. Additional releases in the Record Store Day exclusive Handmade by Robots series are already planned for late 2026 and 2027. Project Hail Mary is expected to be a very high-volume hit release for the DVD segment when it launches in August.

Q: What collectible categories will be added to Alliance Authentic next, and what are your expectations for upcoming high-profile music and gaming releases?

A: After vinyl, Alliance Authentic has already launched encapsulated offerings for Funko Pops and Handmade by Robots figures. Next in the pipeline are encapsulated DVD steelbooks and physical video games for all major console platforms, with the goal of preserving uncirculated, authentic copies of popular products for long-term collecting. The upcoming Q4 release of Grand Theft Auto 6 is expected to be a breakout hit, and an accompanying official Grand Theft Auto soundtrack vinyl release will add additional cross-category upside. The 2026 music release pipeline remains strong, with recent major hits from Bruno Mars, Harry Styles, and BTS driving soaring vinyl and CD demand.

Q: Do you plan to pursue additional acquisitions similar to Handmade by Robots, and what categories will you target?

A: Management is actively engaged in multiple potential acquisition opportunities, with NDAs and ongoing discussions for several targets. The company prioritizes licensed product businesses that fit into its existing collectibles and physical media ecosystem, and is open to opportunities across a wide range of categories beyond just collectible figures. Acquisitions that create new sales and vendor opportunities for Alliance are particularly attractive. Management also publicly requested acquisition leads from the investment community.

Q: Is the strong current CD growth driven by one-off events like Record Store Day, or is it a structural shift? What is the long-term outlook for physical media?

A: CD growth is a structural, industry-wide trend, not just tied to Record Store Day. Record labels are refocusing marketing and production on CDs to meet renewed demand, after years of underinvesting in inventory. Alliance sold 13.5 million CD units in 2025, and growth has accelerated sharply in 2026. The decline rate for DVDs has slowed dramatically over the past two years, and management believes DVD may also bottom out and see a similar collector-driven resurgence, aligned with growing social media interest in building personal physical collections. The company's vinyl business has grown from a $5 million annual business seven years ago to a $400 million annual run rate today, demonstrating how structural collector trends can drive sustained growth.