Alliance Entertainment (AENT) - 2023 Q4 - Annual Report

Financial Performance - For the year ended June 30, 2023, net revenues decreased from $1,417 million to $1,159 million, a decline of $259 million or 18% year-over-year [331]. - The gross margin declined to 9.0% compared to 12.9% in the prior year, primarily due to inventory adjustments and increased transportation costs [333]. - B2B wholesale customer base revenue was down almost 20% year-over-year, but improved to a decline of 8% in Q4 as economic conditions stabilized [331]. - Vinyl sales decreased 2% to $324 million, while gaming products revenue decreased 30% to $391 million, totaling $715 million or 62% of revenue mix [332]. - Consumer products revenue increased from $58 million to $80 million, a growth of $22 million or 37% year-over-year, benefiting from the acquisition of Think3Fold [332]. - For the year ended June 30, 2023, the company reported a net loss of $35.4 million compared to a net income of $28.6 million for the same period in 2022 [352]. Cost and Expenses - The cost of revenues, excluding depreciation and amortization, decreased from $1,235 million to $1,055 million, a reduction of $180 million or 15% year-over-year [333]. - Total Operating Expenses as a percentage of net revenue increased from 9.9% to 11.8% year-over-year [335]. - Interest Expense rose from $4.1 million to $11.7 million, an increase of 189%, due to a higher average revolver balance of $156 million and an effective interest rate increase to 6.0% [336]. - The company recorded an inventory write-down of $7.1 million for gaming arcades and $15.3 million in excessive transportation costs [334]. - Fulfillment payroll decreased from $46.5 million to $40.4 million, while average cost per labor hour decreased by 3% [335]. Cash Flow and Liquidity - Cash provided by operating activities was $3.4 million, a significant improvement from $(83.6) million used in operations in the previous year [352]. - Inventory decreased by $99.7 million year-over-year, which was a key factor in the reduced cash used in operations [352]. - The revolver balance decreased from $136 million to $133 million year-over-year, with availability dropping from $48 million to $2 million [342]. - Cash and cash equivalents and borrowing capacity under the revolving credit facility totaled $0.9 million and $1.7 million, respectively, as of June 30, 2023 [341]. - Net cash used in financing activities was $3.2 million for the year ended June 30, 2023, compared to cash provided of $81.0 million in the prior year [353]. Equity and Debt - Following the merger with Adara, net equity decreased by $787,000 compared to Legacy Alliance's consolidated balance sheet [322]. - The company failed to meet the Fixed Charge Coverage Ratio covenant requirement, leading to an amendment of the Credit Facility [344]. - Amendment No. 13 extended the termination date of the Credit Facility to December 31, 2023, with restrictions on new debt and investments [346]. - The exercise price of the Warrants is $11.50, significantly higher than the current market price of $1.32, which may limit cash proceeds from warrant exercises [347]. Tax and Adjustments - Income tax benefit of $9.1 million was recorded compared to an expense of $9.4 million in the prior year, with a pretax loss of $(44.5) million [337]. - Non-GAAP Adjusted EBITDA for the year ended June 30, 2023, was approximately $(17.6) million, down from $60.0 million in the prior year [338]. - The company performed a goodwill impairment test and concluded that there was no impairment, as the fair value of equity exceeded the carrying value [357]. - The fair value of the company's reporting unit exceeded its carrying value by less than 10% as of June 30, 2023 [361]. Acquisitions and Investments - The company acquired Think3Fold for no consideration, impacting the cash flow from investing activities [353]. - Accounts Payable increased by approximately $69 million due to liabilities related to the Think3Fold acquisition [352]. - The company has not issued dividends, maintaining an expected dividend yield of 0% [366].