Alliance Entertainment (AENT) - 2023 Q3 - Quarterly Report

Financial Performance - Net revenues for the three months ended September 30, 2023, were $226,755,000, a decrease of 5% from $238,701,000 in the same period of 2022[13]. - The company reported a net loss of $3,462,000 for the three months ended September 30, 2023, compared to a net loss of $7,509,000 in the same period of 2022, indicating a 54% improvement[13]. - Operating loss for the quarter was $1,587,000, an improvement from an operating loss of $7,793,000 year-over-year[13]. - For the three months ended September 30, 2023, the net loss was $3,462,000, a significant improvement from a net loss of $7,509,000 for the same period in 2022, representing a reduction of approximately 54%[22]. - Net cash used in operating activities for the three months ended September 30, 2023, was $2,739,000, compared to $48,176,000 for the same period in 2022, indicating a substantial decrease in cash outflow[22]. - Basic and diluted loss per share for Class A Common Stock was $(0.07) for the three months ended September 30, 2023, compared to $(0.16) for the same period in 2022[42]. - Non-GAAP Adjusted EBITDA improved to approximately $1.3 million from $(4.1) million in the same period last year[140]. Revenue and Sales Trends - Vinyl record sales increased by 1.3% year-over-year, from $66 million to $67 million, with an average selling price increase of 3.9%[135]. - Physical movie sales rose by 7.9% year-over-year, from $43 million to $47 million, driven by new theatrical releases and higher average selling prices[135]. - Consumer products revenue decreased by 40.4% year-over-year, from $18 million to $11 million, reflecting post-pandemic normalization in sales volume[135]. - Gaming product revenue declined by 25.9% year-over-year, from $71 million to $53 million, despite an increase in average selling prices[135]. - Customer 1 accounted for 18.5% of revenue in Q3 2023, down from 24.9% in Q3 2022, indicating a diversification in customer revenue sources[35]. Assets and Liabilities - Total current assets increased slightly to $261,215,000 as of September 30, 2023, compared to $260,866,000 at June 30, 2023[10]. - Total liabilities decreased marginally to $309,858,000 from $309,996,000[10]. - Cash balance increased to $1,225,000 as of September 30, 2023, from $865,000 at June 30, 2023[10]. - Trade receivables, net as of September 30, 2023, were $93.504 million, down from $104.939 million as of June 30, 2023[48]. - Inventory, net increased to $159.432 million as of September 30, 2023, from $146.763 million as of June 30, 2023[49]. - The Company has a revolving credit facility with an outstanding balance of $125.684 million as of September 30, 2023, down from $133.323 million as of June 30, 2023[68]. Cost Management - Cost of revenues for the same period was $200,501,000, down from $213,233,000, reflecting a 6% reduction[13]. - Total Operating Expenses decreased from $33.3 million to $27.8 million, representing a decline from 13.9% to 12.3% of net revenue[138]. - Costs incurred with MVP Logistics, LLC, were $1.0 million for the three months ended September 30, 2023, down from $2.0 million in the same period in 2022[79]. - Cash paid for interest increased to $3,140,000 in Q3 2023 from $2,013,000 in Q3 2022, reflecting a rise of approximately 56%[22]. Strategic Initiatives - The company has plans for market expansion and new product development, although specific details were not disclosed in the financial statements[12]. - Management is evaluating cost reduction opportunities and process efficiencies as part of its overall growth and diversification strategy[33]. - The company added Think3Fold LLC to its portfolio on July 1, 2022, as part of its expansion strategy[26]. Financing and Capital Structure - The company issued 1,335,000 shares of common stock, resulting in an increase in paid-in capital to $47,202,000[16]. - Following the merger with Adara, the total shares of common stock outstanding increased to 49,167,170[97]. - A letter of intent was signed for a potential $150 million senior secured credit facility to refinance existing debt and fund working capital needs[146]. - The Credit Facility was reduced from $225 million to $175 million as of April 21, 2023, and is currently under negotiation for renewal[145]. Goodwill and Impairment Testing - The Company tested goodwill for impairment and concluded that the fair value of equity is higher than the carrying value, indicating no impairment[159]. - The Company has the option to perform a qualitative assessment for goodwill impairment, which may lead to a one-step impairment test if fair value is deemed less than carrying amount[160]. - The contingent consideration related to the Think3Fold acquisition had a fair value of zero as of September 30, 2023[91]. Miscellaneous - The effective tax rate for the three months ended September 30, 2023, was 26%, consistent with the rate for the same period in 2022[72]. - The Company has a 401(k) Plan with automatic enrollment at a 3% contribution rate, and a matching contribution of $0.50 for every dollar up to 4%[71].