Alliance Entertainment (AENT) - 2024 Q3 - Quarterly Report

Revenue Growth and Sales Performance - Net revenues increased from $227 million to$229 million, a 1% year-over-year growth for the three months ended September 30, 2024[116] - Vinyl record sales grew by $3.2 million (4.8$70.5 million, driven by a 4.9% increase in average selling price[117] - Physical movie sales (DVDs, Blu-Ray, Ultra HD) increased by $6.1 million (13.2$52.9 million, with an 18.6% rise in average selling price[117] - Gaming product revenue rose by $4.5 million (8.6$57.1 million, attributed to higher sales of hardware and retro arcades[119] - Consumer products revenue declined by $3.4 million (-31.6$7.3 million due to a decrease in average selling price per unit[118] - Direct-to-consumer (DTC) business contributed approximately 34% of gross revenue for Q3 2024, up from 30% in the same period last year[116] Cost and Margin Analysis - Cost of revenues increased by $2 million (1$203 million, while gross margin decreased from 11.6% to 11.2%[120] - Total operating expenses decreased by $5 million (-17.9$23 million, with distribution and fulfillment expenses dropping by $2.7 million (-23$0.3 million (-10%) to $2.8 million for the three months ending September 30, 2024, driven by a reduction in the average revolver balance from$124 million to $81 million (-35$3.4 million for the three months ending September 30, 2024, compared to $1.3 million in the same period of the prior year[123] - The company's revolver balance decreased from$126 million on September 30, 2023, to $88 million (-$38 million or -28%) on September 30, 2024, due to improved cash conversion from accounts receivable and inventory[128] - Net cash provided by financing activities was $14.7 million for the three months ending September 30, 2024, compared to$3.1 million in the same period prior year, primarily due to increased borrowing for inventory[132] - The company's liquidity ratio improved to 1.34 from 0.87 last year, reflecting a stronger ability to meet short-term obligations[129] - Inventory decreased by $41 million for the three months ending September 30, 2024, compared to a$13 million increase in the same period prior year, driven by lower inventory on-hand to support sales[131] Credit Facilities and Financial Stability - The company entered into a $120 million senior secured asset-based credit facility with White Oak Commercial Finance, LLC, replacing the prior credit facility with Bank of America[125] - The company concluded it has sufficient cash to fund operations for at least twelve months, supported by the new credit facility, strategic initiatives, and financial performance[126] Internal Controls and Remediation - Material weaknesses in internal control over financial reporting were identified, primarily related to entity-level controls, IT general controls, and financial close processes[136][137][138] - Remediation efforts for material weaknesses are ongoing, with significant actions expected to be finalized by the fiscal year ending June 30, 2025[139][140][141] Legal Proceedings and Risks - Alliance is involved in legal proceedings, claims, and government investigations, which could result in monetary damage awards, fines, penalties, or injunctive orders, potentially affecting the company's business and financial condition[145][146] - A class action lawsuit filed on March 31, 2023, alleges breaches of fiduciary duties related to the Business Combination, with potential losses currently unestimable[147] - COKeM faces a lawsuit seeking damages of at least$20,913,200 plus 9% interest for alleged contributory trademark infringement and related claims[148] - A class action complaint filed on August 8, 2024, alleges violations of the Video Privacy Protection Act (VPPA) by disclosing user data to Facebook, with financial impact currently unestimable[149] Inventory and Operations - Alliance Entertainment maintains in-stock inventory of over 325,000 SKU products and serves more than 70 countries worldwide[101]