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DATE

Thursday, February 12, 2026 at 12 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jeff Walker
  • Chief Financial Officer — Amanda Gnecco
  • Executive Chairman — Bruce Ogilvie
  • Head of Investor Relations/Moderator — Paul Kuntz

TAKEAWAYS

  • Net Revenue -- $369 million, representing a decrease from $394 million due to softness in lower-margin categories and a shift toward higher-value products.
  • Gross Profit -- $47.1 million, up from $42.3 million, driven by favorable product mix and expanded contribution from premium and exclusive offerings.
  • Gross Margin -- 12.8%, increasing by 210 basis points, attributable to premium content, exclusive product mix, and cost discipline.
  • Net Income -- $9.4 million, or $0.18 per diluted share, rising from $7.1 million, or $0.14 per share, indicating operating leverage and higher gross profit.
  • Adjusted EBITDA -- Approximately $18.5 million, increasing $2.4 million year over year, with adjusted EBITDA margin improving to 5% from 4.1%.
  • Physical Movie Revenue -- $114 million, up 33%, driven by demand in 4K Ultra HD and collectible steelbook editions.
  • Collectibles Revenue -- Up 31%, reflecting momentum in premium, licensed products and a shift toward proprietary and differentiated offerings.
  • Arcade Hardware Sales Decline -- Down $34 million, explicitly identified as a material revenue headwind due to Arcade1Up's business transition and supply impacts.
  • Gaming Hardware Revenue -- Down $24 million, with Microsoft console shortages and mixed supply allocation contributing to the decline.
  • Six-Month Net Revenue -- $623 million, flat versus the prior year, but offset by category shifts to higher-margin segments.
  • Six-Month Gross Profit -- $84.3 million, up from $67.8 million; gross margin expanded by 260 basis points to 13.5%.
  • Six-Month Net Income -- $14.3 million, or $0.28 per diluted share, almost doubling from $7.5 million, or $0.05 per share.
  • Six-Month Adjusted EBITDA -- $30.7 million, rising from $19.5 million, with growth linked to recurring margin expansion across premium categories.
  • Paramount Pictures Exclusive Agreement -- Live since January 1, 2025, supporting content access, pricing, and improved sell-through.
  • Amazon MGM Studios Exclusive Partnership -- Effective January 1, 2026; expected to enhance physical media portfolio and content pipeline.
  • NSTATE Authentic Acquisition -- Integrated NFC-enabled digital authentication for collectibles, enabling lifecycle verification as part of Alliance Authentic's technology platform strategy.
  • Handmade by Robots Integration -- Brand transition and direct ownership contributed to both collectibles revenue and margin expansion.
  • Working Capital -- Ended the quarter at approximately $74 million, with inventory increases attributed to seasonality and premium inventory focus.
  • Refinancing Activities -- Replaced asset-based facility with $120 million senior secured Bank of America facility, reducing borrowing costs by up to 250 basis points and extending maturity to five years.
  • Physical Music Sales (2025) -- Over 16 million vinyl records and 13 million compact discs sold, reinforcing ongoing demand for physical formats.
  • Alliance Authentic Launch -- Product rollout for authenticated collectibles, including encapsulated Funko Pop and video game titles, commencing commercial distribution with live orders toward February.

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RISKS

  • Arcade hardware segment experienced a $34 million decrease directly attributed to Arcade1Up business transition, with near-zero arcade sales during the holiday season cited as a revenue headwind.
  • Gaming hardware category saw a $24 million decline, with management noting ongoing supply shortages, particularly for Microsoft consoles, as a key driver.

SUMMARY

Alliance Entertainment Holding Corporation (AENT +0.00%) delivered substantial year-over-year earnings growth and margin expansion, supported by strategic category mix shifts and exclusive content partner agreements. The integration of NSTATE Authentic and the rollout of Alliance Authentic have initiated a technology-enabled collectibles platform, expanding the company's ecosystem within premium physical goods. Recent refinancing activities bolstered liquidity and extended maturity, improving capital flexibility for future investments. Both physical media and collectibles continued to outperform relative to lower-margin categories, with proprietary and licensed premium formats forming the backbone of current profitability.

  • Management emphasized that “Margin expansion continued,” and cost discipline held despite select investment in strategic growth initiatives.
  • “Physical media continues to perform because it has evolved into a collectible-driven category,” indicating a structural repositioning in revenue sources.
  • Collectibles business, including the newly consolidated Handmade by Robots brand, now provides “meaningful growth opportunity and attractive margin expansion.”
  • Refinancing the credit facility reduced borrowing costs and extended maturity without changing Alliance Entertainment Holding Corporation’s “approach to capital management.”
  • Alliance Entertainment Holding Corporation remains in active conversations regarding further exclusive content and M&A opportunities, highlighting a “robust” pipeline under consideration but applying financial “discipline” and accretion requirements to any deals.
  • Premium inventory, exclusive partnerships, and selective technology investment remain focal points for capital allocation, avoiding indiscriminate growth in favor of earnings durability.

INDUSTRY GLOSSARY

  • Steelbook: A collectible, metal-encased edition of physical media releases (such as movies or games), valued by enthusiasts for unique packaging and limited availability.
  • NFC (Near Field Communication) Digital Chip: Embedded microchip enabling touch-activated product authentication and integration into digital platforms for collectibles.
  • Alliance Authentic: Alliance Entertainment Holding Corporation's technology-driven platform for authenticated, encapsulated collectibles leveraging NFC and serial tracking.
  • NSTATE Authentic: Acquired solution equipped for digital authentication, lifecycle tracking, and certification of physical collectibles—integrated into Alliance Authentic operations.

Full Conference Call Transcript

Paul Kuntz: Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent the company’s current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect the company’s opinions only as of the date of this presentation.

Please keep in mind that the company is not obligating itself to publicly revise or release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today’s discussion, management will attempt to present some important factors relating to the business that may affect predictions. You should also review the company’s Form 10-K filed 09/10/2025 for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. During this conference call, management will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA. Management believes non-GAAP disclosures enable investors to better understand Alliance Entertainment Holding Corporation’s core operating performance.

Please refer to the investor presentation or today’s earnings press release for reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. Your hosts today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the second quarter of fiscal 2026 ended 12/31/2025. Bruce Ogilvie, Executive Chairman, is also on the line and will participate during the Q&A session. At this time, I will now turn the call over to Alliance Entertainment Holding Corporation’s CEO, Jeff Walker.

Jeff Walker: Thank you, Paul, and good afternoon, everyone. We appreciate you joining us today. I want to begin by framing the second quarter in very clear terms, because the most important takeaway this quarter is the continued strength and durability of our earnings profile. During the second quarter, Alliance Entertainment Holding Corporation delivered another period of meaningful profitability. Net income increased year-over-year to $9.4 million, adjusted EBITDA rose to $18.5 million, and gross margin expanded by 210 basis points to 12.8%. These results reflect continued execution against the profitability baseline we established last quarter. What is important is not just the level of earnings we delivered, but how we delivered them.

The margin expansion we are seeing is not driven by short-term actions; it is the result of structural improvements in product mix, disciplined operating execution, and the leverage we built into our infrastructure. When we spoke last quarter, we described fiscal 2026 as a year where Alliance Entertainment Holding Corporation would operate from a new baseline, one defined by higher quality revenue, stronger margins, and more consistent earnings power. The second quarter demonstrates that this is not a one-quarter phenomenon. Margin expansion continued, operating leverage remained intact, and our cost discipline held even as we continue to invest selectively in areas that support long-term growth. The performance this quarter reflects several themes that have been consistent across the business.

We continue to see a shift towards higher-value products, particularly in premium physical media and collectibles. Our exclusive content partnerships are contributing to better pricing, stronger sell-through, and improved visibility with retail partners. And our distribution and fulfillment infrastructure continues to scale efficiently, allowing us to support growth while maintaining tight control over costs. Taken together, the second quarter reinforced that Alliance Entertainment Holding Corporation is executing against a clear strategic plan that prioritizes earnings quality, margin durability, and disciplined growth. We are building a business that generates sustainable profitability and positions us well for long-term value creation.

With that context, I would like to walk you through the key drivers behind this performance, starting with how our content strategy and category focus are shaping results across the portfolio. One area I want to spend a few minutes on is physical media, because it is important to be clear about how we think about this category today. At Alliance Entertainment Holding Corporation, we do not view physical media as a legacy business; we view it as a collectible category driven by enthusiasts, premium formats, and exclusivity. That distinction matters because it explains both the performance we delivered this quarter and the strategic decisions we are making going forward.

During the second quarter, physical movie revenue increased 33% year-over-year to $114 million. Growth was driven by continued strength in premium formats, including 4K Ultra HD and collectible steelbook editions, where consumer demand remains strong and highly engaged. These products are not purchased as substitutes for streaming; they are purchased because of their quality, packaging, scarcity, and connection to the underlying franchise. The Paramount Pictures exclusive agreement, which went live on 01/01/2025, is a good example of how this strategy works in practice. That partnership significantly expanded our access to high-quality catalog and new release content, improved retail visibility, and supported both higher average selling prices and stronger sell-through on premium formats.

Just as importantly, it reinforces Alliance Entertainment Holding Corporation’s role as a trusted, full life-cycle partner to major studios. We are applying that same playbook with our new exclusive partnership with Amazon MGM Studios, which became effective 01/01/2026. While it is still early, we expect this agreement to further strengthen our premium physical media portfolio by adding highly recognizable franchises and curated releases that naturally lend themselves to collectible formats. Over time, this expands not only revenue opportunity but also the quality and predictability of that revenue. What underpins all of this is studio trust.

Studios partner with Alliance Entertainment Holding Corporation because we can manage the entire physical life cycle, from manufacturing and distribution to retail execution and inventory discipline, while preserving brand integrity and collector value. That trust leads to exclusivity. Exclusivity leads to differentiation, and differentiation supports both margin expansion and long-term demand. Physical media continues to perform because it has evolved into a collectible-driven category. Our focus is not on chasing volume for volume’s sake, but on curating the right products at the right price points for an audience that values ownership, quality, and authenticity. That approach is central to how we are building a structurally stronger and more profitable business.

Building on that foundation, our collectibles business continues to be an area where we see both meaningful growth opportunity and attractive margin expansion. During the second quarter, collectibles revenue increased 31% year-over-year, reflecting continued momentum across our premium and licensed offerings. Growth was supported by a combination of expanded sourcing activity, higher-value product launches, and improving mix within the category. That mix shift is the result of deliberate choices we have made to emphasize licensed, differentiated collectibles over more commoditized products. Licensed collectibles benefit from stronger brand relevance, deeper collector engagement, and greater pricing power, and they align naturally with Alliance Entertainment Holding Corporation’s long-standing relationships across film, music, and entertainment.

As we continue to expand this portfolio, we see opportunities to grow both scale and profitability by introducing products that resonate more deeply with fans and collectors. A key contributor to that progress has been the continued integration of Handmade by Robots. Since transitioning from a distributed brand to an owned brand last year, Handmade by Robots has expanded its retail footprint, broadened its licensing pipeline, and contributed meaningfully to both revenue growth and margin improvement in the collectibles segment. More importantly, it gives us direct control over product design, sourcing, and life-cycle management, all of which are critical to building a scalable, premium collectibles portfolio.

As we look at collectibles holistically, we view this category as margin-accretive, brand-enhancing, and strategically expandable. It strengthens our relationships with licensors, deepens engagement with collectors, and complements our physical media business by extending the same principles of scarcity, authenticity, and quality into adjacent product categories. That evolution sets the stage for the next phase of our collectibles strategy. With the acquisition of NSTATE and the launch of NSTATE Authentic, Alliance Entertainment Holding Corporation is extending beyond products and traditional distribution into a platform-driven model. NSTATE Authentic adds a technology-enabled layer to Alliance Entertainment Holding Corporation’s existing strengths.

Through NFC-enabled authentication and digital product identity, it allows physical products to be verified, tracked, and authenticated throughout their entire life cycle, from the initial sale through secondary market. This capability expands Alliance Entertainment Holding Corporation’s role from simply moving products to supporting long-term value creation around those products. NSTATE matters now because the collectibles market is increasingly defined by authentication, provenance, and trust. As products become more premium and more valuable, collectors, licensors, and retailers all require greater confidence around authenticity, ownership history, and resale integrity. That need is especially pronounced in categories like vinyl, limited-edition collectibles, and other high-value physical goods. Importantly, this initiative is not about chasing near-term revenue; it is about building platform optionality.

NSTATE enables life-cycle monetization opportunities that did not previously exist in physical collectibles, including authenticated resale, brand protection, and deeper engagement between collectors and content owners, while reinforcing pricing discipline and margin quality. Alliance Authentic represents the first commercial application of this platform within our portfolio. By applying authentication, certification, and individually numbered releases to premium vinyl collectibles, we are demonstrating how this technology can be integrated into products we already source and distribute at scale. Over time, we believe this platform has the potential to enhance margins, strengthen relationships with licensors, and further differentiate Alliance Entertainment Holding Corporation in the market.

Collectibles and authentication represent a natural extension of our strategy, building a higher-quality, more defensible business by combining premium products and technology-enabled trust. With that, I will turn it over to Amanda to walk through the financial results in more detail.

Amanda Gnecco: Thanks, Jeff. I will start by walking through our financial performance for the second quarter, beginning with the income statement. For the quarter ended 12/31/2025, net revenue was $369 million compared with $394 million in the prior-year period. The year-over-year comparison reflects continued softness in certain lower-margin categories, most notably gaming hardware, and a deliberate shift in mix toward higher-value products across physical media and collectibles. That mix shift is a key driver of profitability this quarter. Gross profit increased to $47.1 million, up from $42.3 million a year ago, and gross margin expanded by 210 basis points to 12.8%.

That margin expansion was driven by a more favorable product mix, increased contribution from premium and exclusive offerings, and continued operational discipline. Net income for the quarter increased to $9.4 million, or $0.18 per diluted share, compared with $7.1 million, or $0.14 per share, in the prior-year period. This improvement reflects higher gross profit as well as operating leverage from a cost structure that continues to scale efficiently. On an adjusted basis, EBITDA increased to approximately $18.5 million, up $2.4 million year-over-year. Adjusted EBITDA margin improved to approximately 5%, compared with 4.1% in the second quarter of last year.

That expansion reflects the durability of our cost structure, including stable distribution and fulfillment costs as a percentage of revenue and ongoing benefits from automation that allows us to manage complexity without proportionate increases in labor or overhead. Overall, the second quarter demonstrates that Alliance Entertainment Holding Corporation is generating stronger earnings and expanding margins, even as we continue to manage through category-level revenue variability. The quality of earnings this quarter reflects deliberate execution, not short-term actions, and provides a solid foundation as we move through the balance of fiscal 2026.

Turning to the six-month results, which provide additional perspective on the underlying momentum in the business: For the six months ended 12/31/2025, net revenue was $623 million, essentially flat compared to the prior-year period. While category performance varied within the portfolio, the overall revenue profile reflects a continued shift towards higher-value products and premium formats. That mix shift translated into a significant improvement in profitability. Gross profit for the six-month period increased to $84.3 million, compared with $67.8 million a year ago, and gross margin expanded by 260 basis points to 13.5%. The improvement was driven by increased contribution from premium media and collectibles, improved pricing and mix from exclusive content, and continued discipline across distribution and fulfillment.

Net income for the six months increased to $14.3 million, or $0.28 per diluted share, compared with $7.5 million, or $0.05 per share, in the prior-year period. This nearly doubling of earnings reflects the operating leverage inherent in the business as margins expand and the cost structure remains controlled. Adjusted EBITDA for the six-month period increased to approximately $30.7 million, up from $19.5 million last year, representing a year-over-year improvement of more than $11 million. That performance underscores the consistency we are seeing in margin expansion and earnings generation as higher-quality mix and infrastructure leverage compound across multiple quarters. Our six-month results reinforce that the improvements we are delivering are not isolated to a single quarter.

They reflect a structurally stronger earnings profile driven by better mix, exclusive content, and disciplined execution, and they provide a solid foundation as we continue to invest selectively and scale the business. Before I turn it back to Jeff, I want to touch briefly on our balance sheet and liquidity position. We ended the quarter with approximately $74 million in working capital, reflecting disciplined management of both inventory and payables. Inventory levels increased modestly during the quarter, consistent with seasonal patterns and the timing of inbound product, but remained aligned with current demand and our focus on higher-value, faster-moving products. Our balance sheet also benefited from the refinancing of our credit facility earlier in the quarter.

We replaced our prior asset-based lending agreement with a new $120 million senior secured revolving credit facility with Bank of America. The new facility reduces our borrowing cost by up to 250 basis points, extends the maturity to five years, and provides greater flexibility to support working capital needs and strategic initiatives. Importantly, this refinancing strengthens our financial position without changing our approach to capital management. We continue to operate with a disciplined view towards leverage, and our focus remains on maintaining liquidity, funding premium inventory and exclusive partnerships, and preserving optionality as we evaluate opportunities across the business. Overall, we believe our balance sheet is in a strong position.

It provides the flexibility to invest where returns are attractive and positions Alliance Entertainment Holding Corporation to navigate both near-term operating needs and longer-term growth opportunities. I will close with a brief comment on how we are thinking about capital allocation. Our approach remains straightforward and disciplined. We prioritize investments that directly support the strategy Jeff outlined earlier and that enhance the quality and durability of earnings. First, we continue to allocate capital to premium inventory and exclusive content partnerships where demand visibility is strong and returns are attractive. These investments support higher-value products, improve mix, and reinforce our position with licensors and retail partners. Second, we invest selectively in technology and infrastructure that improves scalability and efficiency.

This includes automation, systems that support exclusive partnerships, and capabilities that strengthen fulfillment and inventory management. These investments are targeted and are evaluated based on clear operational and financial returns. Throughout all of this, maintaining flexibility and discipline is central to our approach. We are not pursuing growth for growth’s sake, and we remain focused on preserving liquidity, managing risk, and ensuring that capital deployment aligns with long-term value creation. That discipline has been an important contributor to the margin expansion and earnings growth we have delivered, and it will continue to guide our decision-making as we move forward. With that, I will turn it back to Jeff for closing remarks.

Jeff Walker: Thank you, Amanda. Before we open the call for questions, I want to spend a few minutes on how we are thinking about the remainder of the year and the long-term trajectory of our business. As we look ahead, we are not providing formal guidance, but we are confident in the durability of the margin profile we are building. The progress we have made over the past several quarters reflects deliberate changes in mix, stronger exclusive content relationships, and disciplined execution across the organization.

We continue to see a growing pipeline of premium and exclusive content across physical media, collectibles, and owned brands, and we believe that pipeline supports continued earnings quality as we move through the back half of fiscal 2026. From an execution standpoint, our priorities for the remainder of the year are clear. We are focused on scaling Alliance Authentic in a thoughtful and controlled way. The initial rollout is designed to prove the operational and economic model, and we will expand deliberately as we validate use cases across additional products and partners. We are executing against our new exclusive partnership with Amazon MGM Studios.

This agreement builds on the momentum we have established with Paramount and further strengthens our position in premium physical media. Our focus is on execution, retail visibility, and ensuring these releases reinforce our strategy around collectible formats and higher-value offerings. We will continue to expand our collectibles portfolio and owned brand. Handmade by Robots is a strong example of how we can grow both scale and value by controlling design, licensing, and distribution, and we see additional opportunities to apply that model across new products and partnerships. We also see significant long-term opportunity with NSTATE Authentic.

As adoption increases, we believe digitally verifiable authentication will become increasingly important across premium physical goods—not only with our own collectibles initiatives, but across third-party brands, licensors, and marketplaces. Our focus in the back half of the year is on deepening integrations, advancing external partnerships, and building the infrastructure necessary to support authenticated primary sales and secondary resale at scale. Over time, we believe this capability can enhance differentiation, strengthen relationships across the ecosystem, and contribute to margin expansion through higher-value, technology-enabled offerings. Across all of this, profitability discipline remains central. We are committed to maintaining the operating rigor that has driven margin expansion while investing selectively in areas that support long-term growth.

Stepping back, what is most important is how Alliance Entertainment Holding Corporation is evolving. We are moving from a traditional distributor towards a platform that supports premium products across their full life cycle. We are shifting emphasis from volume-driven outcomes to value-driven returns. And we are building an ecosystem that connects content owners, retailers, and collectors through trusted infrastructure, exclusive offerings, and technology-enabled capabilities. That evolution is deliberate, and it is already showing up in the quality of our earnings and the strength of our balance sheet. We believe it positions Alliance Entertainment Holding Corporation well to create durable, long-term value for our shareholders.

Before we turn to questions, I want to take a moment to thank our employees across every division. Their hard work, creativity, and execution are what drive our success. I would also like to thank our customers, partners, and shareholders for their continued support and trust in Alliance Entertainment Holding Corporation. We are proud of the momentum we have built and committed to delivering on the opportunities ahead. Operator, we are ready to open the line for questions.

Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question is from Thomas Forte from Maxim Group. Please go ahead.

Thomas Forte: Great. Thanks. I have three questions. I will go one at a time. So congrats on the Amazon MGM deal. Can you talk about your ability to sign additional exclusive deals with studios? And then obviously it seems like it would be beneficial to Alliance Entertainment Holding Corporation if Paramount won Warner Bros. Any thoughts on Warner Bros. in general, in addition to your ability to sign additional studios beyond Paramount and MGM?

Jeff Walker: Thank you for the question. We are in active conversations with small and large studios. There is a lot of activity, and once we had Paramount on board and now Amazon MGM coming on board, I think studios are definitely looking at Alliance Entertainment Holding Corporation as the premier solution when the time comes that a studio wants to move into a licensing model on their physical DVD product. It is very difficult for me to comment on the Warner and Paramount-Netflix saga that is going on there. There are a lot of different aspects to it. I think either way, when a transaction happens, everybody looks at what is happening in the businesses and they start to make decisions.

So I think companies making decisions instead of staying status quo is a good thing for Alliance Entertainment Holding Corporation overall within this space.

Thomas Forte: And then for my second question, on the gaming hardware front, can you talk about to what extent we are seeing external forces that are driving your revenue performance versus to what extent it is an internal emphasis on other categories?

Jeff Walker: In gaming hardware right now, you really have some differences between Nintendo, Microsoft, and Sony. We were pretty heavy on Microsoft and Nintendo distribution. We have pretty good numbers here in 2025 with Nintendo and the new Switch that is out, and that has really helped our physical hardware sales. On the other side, Microsoft has been very short on supply with consoles, and that has hurt us on the hardware side. It is not necessarily a shift in Alliance Entertainment Holding Corporation’s strategy; it is just a matter of availability on allocation. We also consider the arcade business that we were doing with Arcade1Up in the hardware category of gaming.

That business, in this last quarter, was down $34 million from where we were a year ago. Right now, that business is going through a transition. Arcade1Up’s ownership transitioned over to Basic Fun, and we are in conversations with them about how we can help distribute the arcades that are now going to be coming through Basic Fun. We are going to start to see some products there as we move into 2026.

Thomas Forte: Okay, great. And then my last one: you talked about your recent strategic M&A as it relates to authenticated or verified collectibles. Stepping back, what are your thoughts on the strategic M&A opportunities in front of you today broadly?

Jeff Walker: Broadly, there is a lot. As you know, we are in a lot of different categories, and there are many different opportunities in M&A. We are constantly in many robust conversations. When we look at mergers and acquisitions, it is not a shortage of opportunities; it is trying to find the right opportunities at the right time with the right financial metrics and dynamics. We constantly stay in a lot of acquisition conversations. Sometimes something that does not click this quarter or this month might turn around in a year and be something that makes sense at that time because our business, as well as the potential acquired business, has a lot of different initiatives and strategies at different stages.

As a strategic buyer, you are in a lot of strategic acquisition conversations on an ongoing basis. I am optimistic about opportunities on the acquisition side, and we continue to evaluate them in different aspects to see what financially fits. It has to be financially accretive to Alliance Entertainment Holding Corporation. That is our intention, so we are always in a lot of conversations there.

Thomas Forte: Great. Thanks for taking my questions.

Jeff Walker: Thank you.

Operator: Next question is from Michael Kupinski from Noble Capital Markets. Please go ahead.

Michael Kupinski: Thank you for taking my questions. Good afternoon, everyone. I am going to go back to the gaming division again and clarify a couple of things, Jeff. You mentioned that the business had a $34 million swing in the quarter. Is that correct?

Jeff Walker: Correct.

Michael Kupinski: Okay. And in terms of the cadence of how the gaming business looks in the second half of the fiscal year, based on what you are telling us in terms of the arcade business and the hardware portion of the business, should we see some moderating revenue trends going into the second half of the year? Is that your expectation?

Jeff Walker: I think if you look at our numbers for the last quarter, our overall revenue was down $25 million. Our gaming hardware was down $24 million and our arcade sales were down $34 million. Those two represented a $58 million down number just for the quarter, and overall, outside of that, the company’s sales were up year-over-year. I will say that both of these categories—arcade and gaming hardware—in calendar 2024 had significant strong sales. As we rolled into calendar 2025, we were impacted, really all of 2025.

As we move to 2026, our comps in gaming hardware and arcades will not be as high from 2025 rolling into 2026, so we are not going to see as much of an impact of the gaming hardware changes. We are still in conversations trying to get more allocation, and I think ultimately next holiday season our arcade business will be up again because we had virtually no arcade business this holiday season, and we will be getting some stock back in for next season. That is the flow.

Michael Kupinski: That is great color. Going back to your licensing deals, obviously you set the stage with the Amazon MGM coming fairly quickly after your Paramount deal. Do you have any color in terms of the timing? I know you said you are in discussions with several studios now. Do you have any sense of how quickly some of these licensing deals might come to fruition? I am trying to get a sense of how long the tail is in terms of structuring and how long these licensing deals might take to come about.

Jeff Walker: First off, you have to realize they are complicated transactions. To move a whole business of physical product—sales, marketing, operations, and the creation of the product—is a big transaction. We did a really good job with Paramount moving that over, and now we know how to do it. We are running quickly on the Amazon MGM side. As far as time frame, that is not something I can discuss, and we really do not know. It is complicated. I think at the end of the day—whenever that is—the studios see that Alliance Entertainment Holding Corporation is a great solution at the time that it makes sense for each studio to move into a licensing agreement on their physical DVD.

We are seeing some smaller studios in conversations as well right now. Those are not as big of a project to switch over as the major studios, but I think we are well positioned to be the licensing partner that studios use for physical media in the future.

Michael Kupinski: Good. And then I was wondering if you can provide a little more color on your launch of Alliance Authentic. I know that you indicated that you have been in talks with some studios which found this idea of great interest to them, and that you thought there might be specific business opportunities that could be forged with the studios and so forth. Are there any more thoughts that have been forged with those discussions, and how have those discussions gone?

Jeff Walker: There are a lot of opportunities right now with the technology we have with NSTATE—NFC digital chips, authentication, and the marketplace technology as well. We are in conversations with music labels and video studios, and with our own products that we are doing with Paramount and Amazon MGM, as examples. Gaming companies have special edition box sets and limited-edition collectibles. We see those product types as big opportunities that should have an NFC digital chip in the packaging. When you look at that and go one step further—putting a digital chip in a high-end collectible movie, music, or gaming box set—then you can also enhance additional content through the blockchain because you own that physical collectible.

Working with labels, studios, and gaming companies, we can make the ultimate collectible, then ask what else can we add—an unreleased interview with the artist or actor, for instance—attached to that collectible you own. We are looking at how we can provide incredible solutions for labels, studios, gaming companies, and collectible companies to really enhance what these collectibles can be.

Michael Kupinski: Do you have any time frame or milestones when investors might start to see revenues kicking in for Alliance Authentic?

Jeff Walker: We went live with the vinyl. We have Jeffrey Smith on board. We have a couple other people joining his team next Monday—experienced people who will help us focus on marketing. We have engaged PR to help with Alliance Authentic. Those are steps to get the word out on the product. Consumers really like the product we have created with the vinyl—the ultimate vinyl collectible—so we should start to see some traction pretty quickly here.

Michael Kupinski: Final question. I know that you made a nice tuck-in acquisition on the technology side. What is your current appetite for further M&A?

Jeff Walker: We always have a pretty big appetite, Michael. As I mentioned earlier on the call, we are always in a bunch of conversations. There are acquisitions that are accretive or consolidation-focused—those are fairly easy and straightforward. Then there are acquisitions that get us into new opportunities and expand skill sets. NSTATE Authentic was a great acquisition for us. It really opens the doors to a lot of different aspects. The more we can use that technology to do products and offerings with our vendor partners—our music, video, and gaming partners—the more integrated Alliance Entertainment Holding Corporation gets with each of them, and that is a big win.

We are looking at how we are important to the music, video, and gaming industry, and we are continuing to build that strength. I think they are looking at us that way, and that is why we are seeing these strong agreements coming with all these partners we work with.

Michael Kupinski: Great. Thanks for taking all my questions. I appreciate it.

Jeff Walker: Thank you.

Operator: There are no further phone questions at this time. I will now turn it over to Paul Kuntz for any webcast questions.

Paul Kuntz: Thank you. One of our first questions—you did not speak on music sales. Can you provide an update on vinyl and CD trends, and how you are thinking about the music category within the broader premium physical strategy?

Jeff Walker: Music is great. We are very excited right now on the music side. I know we did not put a lot of that in our communication for this quarter, but our vinyl and CD sales are extremely strong right now. This particular quarter that we are in, it is not typical to have major new releases, but in Q1, coming up in February, we have the new Bruno Mars coming through, and then we have a big Harry Styles new release and a BTS release this quarter, as well as lots of other releases. Those three tentpoles are pretty significant releases that are already showing up with good online preorder sales.

You are definitely seeing the labels really focused on these artists right now, and the music industry is significantly strong. A stat that surprised me: for 2025, Alliance Entertainment Holding Corporation sold over 16 million vinyl records, and we sold over 13 million CDs. For people who say CDs are dead—who buys CDs anymore—we still sold 13 million CDs last year. We are seeing strong sales on the CD side, and there is a lot of social media communication right now on physical music—vinyl, CD—and DVD as well, as people want to collect their favorite artists’ music. All of this is happening while everyone can listen on digital platforms, but collectors want a collection of their favorite artists at home.

We are working with the labels to create more and better product for the fans.

Paul Kuntz: Thank you, Jeff. Another question: could you please expand on the gross margin for this quarter? It seems like the market was expecting a number around 15% in line with past rebasing margin profile comps.

Jeff Walker: I think we had pretty good growth in our margin this quarter compared to last year. Margin ends up being somewhat product-mix driven, and we do sell more—even though our hardware and gaming were down overall, we still sell quite a bit of hardware in the holiday quarter. Overall, we are pretty happy with where our margin is trending right now, but we tend to see it a little bit lower in Q2 (holiday quarter) than the other three quarters of the year. It is a typical trend for us.

Paul Kuntz: Our next question: as you look at NSTATE Authentic longer term, where do you see the greatest strategic opportunity—internal applications within your own portfolio, third-party adoption, or authenticated resale—and how should investors think about its role in the broader platform strategy?

Jeff Walker: Bennett and Stephanie on the NSTATE team are extremely busy right now with all the opportunity conversations that opened up with them joining us at Alliance Entertainment Holding Corporation. There are big opportunities within our own portfolio—obviously we are doing Alliance Authentic—and they are also working with our home entertainment team to see what we can do on some video product as well. There is a lot going on internally. On the third-party aspect, we communicate with all the top record labels, top studios, and top gaming companies. The application of NFC chips and authentication in products is a big area of opportunity where our technology can help with things artists and studios are looking to do going forward.

We are bullish on those opportunities. There are also grading and authentication companies interested in authenticated resale as well as NFC chips. NSTATE has a very packed slate of new-account conversations right now.

Paul Kuntz: We have one more question. Can you provide an update on Alliance Authentic and what you have learned from the initial rollout? How should we think about the pace of expansion from here?

Jeff Walker: The pace of expansion is going to ramp up quickly. As I mentioned earlier, we have Jeffrey on board and two other great people joining next week to assist him on the Alliance team, plus the PR we are launching. We are at Toy Fair this weekend. On the Alliance Authentic side, we are launching Funko Authentic and Handmade by Robots Alliance Authentic product. These are Funko Pop or Handmade by Robots characters encapsulated in a case similar to what we are doing on the vinyl. They have the NFC digital chip in it, they are 100% authentic because we know we bought it direct from Funko, or in Handmade by Robots’ case, we are the manufacturer.

They are uncirculated and encapsulated as a collectible. Those are getting launched this weekend at Toy Fair, and we will be able to start shipping with orders toward February. We already have them in production and into the facility. This business is not easy to start up—there is a lot of work in perfecting the encapsulation cases and all aspects that go into creating that—but the opportunity is there where we will have an encapsulated Funko Pop in the marketplace, and I think there will be a lot of opportunity for sales. All three categories are in place. We also have cases on the way for encapsulating video steelbooks as well as video games—Xbox, PlayStation, and Switch.

There are people who want to collect those and have one encapsulated as a piece of history for those games as well. Those will roll out this quarter and start to get into the marketplace.

Paul Kuntz: Excellent. That was actually our last question.

Operator: Great. Thank you. I would like to turn the floor back over to Jeff Walker for any closing comments.

Jeff Walker: I just want to say we are excited about all the new opportunities we have here for 2026. As an entire company, we are having a great time working with Bennett on the NSTATE side and Jeffrey on Alliance Authentic. Those big initiatives for Alliance Entertainment Holding Corporation are going to make a big difference here in 2026. If you look at it a year from now—where Alliance Authentic and NSTATE Authentic will be—it is going to be significantly better and different. That is what we are very focused on right now. Thank you, everybody, for joining the call.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.