AENTW

Management Statement and Operational Highlights

• Earnings Performance: Net income for Q2 2026 was $9.4 million, adjusted EBITDA rose to $18.5 million, and gross margin expanded by 210 basis points to 12.8%. The margin expansion is due to product mix shift, disciplined execution, and infrastructure leverage.
• Product Mix Shift: Continued shift towards higher-value products in physical media and collectibles, with premium formats and licensed collectibles driving growth.
• Content Partnerships: Exclusive partnerships with Paramount and Amazon MGM Studios have expanded content access, improved retail visibility, and supported higher average selling prices.
• Balance Sheet: Refinanced credit facility to a $120 million senior secured revolving credit facility with Bank of America, reducing borrowing cost and providing greater flexibility for working capital and strategic initiatives.

Guidance

• Management is confident in the durability of the margin profile but did not provide formal guidance.
• Focus on scaling Alliance Authentic, executing on the Amazon MGM Studios partnership, expanding the collectibles portfolio, and leveraging Endstate Authentic for long-term value creation. The company aims to deepen integrations, advance external partnerships, and build infrastructure for authenticated sales and resale at scale.

Segment Performance

• Physical Media: During the second quarter, physical movie revenue increased 33% year over year to $114 million, driven by strength in premium formats like 4K Ultra HD and collectible steelbook editions. The Paramount Pictures and Amazon MGM Studios exclusive agreements have expanded access to content and improved retail visibility.
• Collectibles: Collectibles revenue increased 31% year over year. Growth was supported by expanded sourcing, higher-value product launches, and a shift towards licensed, differentiated collectibles. Handmade by Robots has contributed to revenue growth and margin improvement. Endstate Authentic adds a technology-enabled authentication layer to the collectibles business, enabling verification and tracking of physical products throughout their life cycle.

Risks

• Studio Dependence: Reliance on studio partnerships and content availability which could impact revenue.
• External Factors: Gaming hardware and arcade business affected by supply chain issues, allocation problems, and transitions in business ownership (e.g., arcade business moving from Arcade1Up to Basic Fun).
• New Initiative Risks: Challenges in scaling technology-driven solutions like Alliance Authentic and potential issues with authentication adoption and platform expansion.

Question and Answer

• Q: Congrats on the MGM Amazon deal. Talk about signing additional exclusive deals with studios. A: Jeff Walker stated there are active conversations with studios, and Alliance is viewed as the premier solution for studios looking to move into licensing physical DVD products when the time is right.
• Q: Gaming hardware revenue performance.: Jeff Walker mentioned gaming hardware was impacted by supply shortages with Microsoft and the transition of the arcade business from Arcade1Up to Basic Fun, but comps in 2026 are easier as there are no high comps from 2025.
• Q: Strategic M&A opportunities.: Jeff Walker said the company is constantly in acquisition conversations, looking for accretive opportunities that fit financially and strategically with Alliance Entertainment Holding Corporation.