Alliance Entertainment
Alliance Entertainment recovered from a post-pandemic slowdown through higher demand for direct-to-consumer (D2C) fulfillment, cost savings and continued demand for vinyl LPs and CDs.
For the fiscal year ended June 30, the Plantation, Fla.-based distributor had net revenue of $1.1 billion, it announced Sept. 19, down slightly from $1.16 billion in the prior fiscal year. But by emphasizing cost efficiencies and high-margin products, Alliance increased gross profit 24% to $128.9 million and gross profit margin by 270 basis points to 11.7%. As a result, net income jumped by $40 million to $4.6 million from a net loss of $35.4 million a year earlier.
“Our strategic shift toward higher-value offerings is proving successful, and we expect to benefit from new hardware releases in the coming year,” Alliance CEO Jeff Walker said in a statement. “Similarly, in consumer products, we improved margins and pricing, demonstrating the effectiveness of our inventory rationalization efforts.”
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Music accounted for 42% of Alliance’s consolidated revenues—30% for vinyl records accounted and 12% for CDs. AMPED, Alliance’s independent music distribution business, had net sales of $78 million in fiscal 2024, up from $75 million. AMPED is the exclusive distributor for over 90 record labels and has exclusive relationships with such artists as Usher and ATEEZ.
Video games were the company’s biggest segment, accounting for 31% of consolidated revenue in the fiscal year. DVDs and Blu-Ray products were 19% of revenue. Collectibles and consumer products were 4% of consolidated revenues.
Higher-margin D2C sales accounted for 36% of fiscal year sales, up from 31% in the prior year, and helped improve profitability. “This shift highlights the effectiveness of our approach in meeting evolving consumer preferences, and it is helping to diversify and strengthen our revenue base,” Alliance chairman Bruce Ogilvie said in a statement.
A leading distributor of entertainment products with more than 325,000 SKUs in stock, Alliance counts Walmart, Amazon, Best Buy, Target and Shopify as clients. The company also has a number of owned brands. The DirectToU divisions consists of ImportCDs, Deep Discount, Collectors Choice Music and Collectors Choice, among others. Mill Creek Entertainment is an independent studio for DVDs, Blu-Rays and digital distribution. NCircle is Alliance’s children’s and family entertainment brand.
The latest earnings improved on a sharp drop in sales and a net loss after sales spiked during during the previous two years due to the COVID-19 pandemic. From fiscal 2022 to 2023, sales fell from $1.42 billion to $1.16 billion in fiscal 2023 and adjusted EBITDA plummeted from $60 million to a loss of $17.6 million. The company’s debt ballooned to $133.3 in fiscal 2023 from $45.6 million in fiscal 2020. Inventory rose, too, to a peak of $249.4 million in fiscal 2022 from $62.8 million in fiscal 2020. Both debt and inventory came down dramatically in fiscal 2024, to $79.6 million and $97.4 million, respectively.
Shares of Alliance, which trade on the Nasdaq, closed at $2.76 on Monday, up 35.3% since earnings results were released. The company’s shares briefly traded over the counter after a merger with the NYSE-listed Adara Acquisition Corp, a special purpose acquisition company, or SPAC, fizzled and left the company with a float too small to trade on the NYSE. The company had a small offering on the Nasdaq in June of 2023 and has a float of 3.1 million shares out of 50.9 million shares outstanding.
Alliance Entertainment’s plan to go public through a reverse merger with Adara Acquisition Corp. — a special-purpose acquisition company (SPAC) — got sideswiped by the collapse of the SPAC market.
While the deal was finalized Monday (Feb. 13) and Alliance Entertainment is now a publicly traded company, it leaves the media wholesaler without the initial intended benefit of reaping tens of millions of dollars in new funding to continue making acquisitions to fuel growth and to modernize its warehouse equipment.
That’s because only Adara shareholders owning 167,00 shares (out of 10 million total) have chosen to participate as stockholders in the merged entity. As a result, Alliance Entertainment only received about $1.67 million, which likely isn’t enough to cover the legal and investment banking fees for the transaction.
Alliance Entertainment Holding
The company’s light stock float also leaves it ineligible to be listed by the New York Stock Exchange as originally planned, so now Alliance is being carried on the OTC pink-sheet marketplace.
Alliance Entertainment — which carried a $480 million valuation going into the deal — remains a formidable powerhouse as a one-stop rack jobber and independent distributor and overall entertainment software wholesaler, however. While the company brought in $28.62 million in net income on revenue of $1.42 billion for its fiscal year ended June 30, 2022, it lost $8.34 million on sales of $238.7 million for the three-month period spanning from July to September.
Alliance Entertainment announced its plans to go public via a SPAC reverse merger in June 2022. At that point, investor excitement over the SPAC route to public listings had already cooled from its high in 2021, but by the end of the year, it had totally tanked. And even if Alliance Entertainment didn’t raise as much money as it had hoped by going public, there are other benefits. As a publicly traded company with audited financial statements that need to surpass the scrutiny of the Securities and Exchange Commission, it should now be able access capital and options to raise funding through debt beyond its previous reliance on bank loans.
“We believe that today’s milestone combined with our strong revenue growth, expanding customer base and product offering, and several successful acquisitions, will help accelerate our future expansion initiatives,” said Alliance Entertainment CEO Jeff Walker in a statement. “Alliance Entertainment today is well positioned to continue to capitalize on shifts towards eCommerce and Omni-Channel strategies, especially with retailers and manufacturers’ vastly increased reliance on their DTC (Direct to Consumer) fulfillment and distribution partners. We are at an inflection point that now positions us to execute a multi-prong growth strategy that we expect will deliver a double-digit revenue growth rate with strong cash generation to the bottom line.”
Alliance Entertainment serves as a physical music, movies and video games wholesaler to retailers including Amazon, Best Buy, Target, Kohls and Gamestop, as well as independent stores; it’s also a rack jobber to chains like Walmart and Barnes and Noble. It additionally provides e-commerce fulfillment to many of those retailers and runs its own online websites including Deepdiscount.com, Popmarket.com, Importcds.com, Critic’s Choice Video, Collectors Choice Music and Movies Unlimited, while fielding its own brands on eBay, Amazon Marketplace and Discogs as well. In total, nearly $540 million, or 38% of Alliance’s revenue, is generated through the above online sales.
In total, Alliance says it stocks over 485,000 unique entertainment products from Microsoft, Nintendo, Activision, Electronic Arts, Sega, Funko, Disney, Warner Home Video, Universal Video, Sony Pictures, Fox, Lionsgate, Paramount, Warner Music, Sony Music, Universal Music, Mattel, Lego, Hasbro, Arcade1Up and another roughly 500 entertainment product manufacturers. Within that, the company also fields independent distribution companies like music distributor AMPED, video distributor Solutions and video game distributor Cokem that exclusively carry over 57,000 vinyl, CD, DVD and video games titles combined.
“This business combination [with Adara] will further enable our significant focus on a strategic roll-up strategy of acquiring and integrating competitors and complementary businesses which we believe will drive an accelerated competitive position and value creation,” said Alliance Entertainment chairman Bruce Ogilvie in a statement. Being a publicly traded company will allow for further investment, he added, in automating facilities and upgrading proprietary software, which he said makes management “confident we can grow revenue and expand margins.”
Ogilvie continued, “We will also continue to expand into new consumer product segments, growing our product offering and providing more to our existing customer base while attracting new customers in the process.”
Walker and Ogilvie retain nearly 95% ownership in Alliance Entertainment and their shares are subject to an extended lock-up period.
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