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 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 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, 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 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 format.
Just as importantly, it reinforces Alliance’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 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’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 relationship 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 Endstate, and the launch of Endstate Authentic, Alliance is extending beyond products and traditional distribution into a platform-driven model. Endstate Authentic adds a technology-enabled layer to Alliance’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 the secondary market. This capability expands Alliance’s role from simply moving products to supporting long-term value creation around those products. Endstate 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.
Endstate 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 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 game and 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 diluted 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.
Jeff Walker: Overall, the second quarter demonstrates
Amanda Gnecco: that Alliance 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
Paul Kuntz: profitability.
Amanda Gnecco: 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 diluted 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 improvement we are delivering is not isolated to a single quarter. They reflect a structurally stronger earnings profile, driven by better mix, exclusive content, and disciplined execution, and 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.
Jeff Walker: Importantly,
Amanda Gnecco: 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 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.
Jeff Walker: First,
Amanda Gnecco: 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 Endstate 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 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 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.
Jeff Walker: Great. Thanks. I have three questions. I will go one at a time.
Thomas Forte: So congrats on the MGM Amazon 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 Brothers, but any thoughts on Warner Brothers in general, in addition to your ability to sign additional studios beyond Paramount and MGM? Yeah.
Jeff Walker: Thank you for the question. This is Jeff Walker. On the active conversations with small and large studios, there is a lot of activity in it, and you know, once we have had Paramount on board and now, you know, MGM coming on board, I think those studios are definitely looking at Alliance 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 do not think either different way, what will happen is when a transaction happens, everybody looks at what is happening in the businesses, and they start to make decisions. So I think just companies making decisions instead of staying status quo is a good thing for Alliance overall within this space.
Thomas Forte: And then for my second question, on the gaming hardware front, can you talk about to what extent are we seeing external forces that are driving your revenue performance versus to what extent is it an internal emphasis on other categories? Yeah. So
Jeff Walker: gaming hardware right now, you have really got some differences between Nintendo, Microsoft, and Sony. We were pretty heavy Microsoft house and Nintendo distribution. So we have pretty good numbers here in 2025 with Nintendo and the new Slaves that is out, and, you know, that has really helped our physical hardware sales. On the other side, Microsoft has been very short on supply with consoles and so forth there. So that has hurt us on the hardware side. It is not necessarily a shift in the Alliance strategies. It is just a matter of availability on allocation. And then we also do consider the arcade business that we were doing with Arcade1Up in the hardware category of gaming.
And that business just in this last quarter was down $34 million from where we were a year ago. And right now, that business is going through a transition from Arcade1Up. The ownership there got transitioned over to Basic Fun, and we are in conversations with them about how we can help distribute. The arcades are now going to be coming through Basic Fun. So 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 essentially authenticated or verified collectibles, but stepping back, what are your thoughts on just 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 a lot of different opportunities in M&A. We are constantly in many robust conversations and
Thomas Forte: you know,
Jeff Walker: 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 to it and all those dynamics. So we constantly stay in a lot of acquisition conversations ongoingly. And sometimes something that does not click, you know, this quarter or this month might turn around in a year from now and be something that makes sense at that time because our business, as well as, you know, the acquired business, everybody has a lot of different initiatives and strategies and things that people are working on, and they are all in different stages.
So the acquisition aspect, especially when you are a strategic buyer, you are in a lot of strategic acquisition conversations on an ongoing basis. And so I am pretty optimistic about opportunities on the acquisition side, and we just continue to evaluate them in different aspects and see what financially fits and what, you know, has to financially be 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. Thank you.
Jeff Walker: One.
Operator: Next question is from Michael Kupinski from Noble Capital Markets. Please go ahead.
Jeff Walker: Thank you for taking my questions. Good afternoon, everyone. I am going to go back to the gaming division again, just to kind of clarify a couple things, Jeff. You mentioned that the business had a $34 million swing in the quarter. Is that correct? Correct. Okay. And in terms of just the cadence of how the gaming business looks like in terms of the second half of the fiscal second half of the year, should, just based on what you are telling us in terms of the arcade business and then I would assume in terms of the hardware portion of the business, it should start to show some moderating trends, would
Operator: think.
Jeff Walker: Should we see some moderating revenue trends going into the second half of the year? Is that what your expectation might be? Yeah. I think if you look at our numbers for the last quarter, our overall revenue was down $25 million overall. Our gaming hardware was down $24 million, and our arcade sales were down $34 million. So those
Thomas Forte: two represented a $58 million down number just for the quarter.
Jeff Walker: And overall, outside of that, the company and the sales were a growth year over year. I will say that both of these categories, the arcade business and the gaming hardware, calendar 2024 we really had some significant strong sales in both of those, arcades and gaming hardware. And then really, as we rolled into calendar 2025, we have been impacted with that, really all of 2025. And so as we move to 2026, our comps in gaming hardware and arcades, we do not have high comps 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 with trying to get more allocation, and
Thomas Forte: and I think, ultimately,
Jeff Walker: you know, next holiday season our arcade business will be up again because we had virtually no arcade business this Christmas or this holiday season, and we will be getting some stock back in for next season. So that is kind of the flow on that. That is great color. And then 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? You know, I know that you said that you are in discussions with several studios now. Do you have any sense of how quickly maybe some of these licensing deals might
Thomas Forte: come to fruition. I mean,
Jeff Walker: I am just kind of trying to get a sense of how long the tail is in terms of trying to structure and how these licensing deals might take to come about.
Thomas Forte: Well, I
Jeff Walker: think first off, you have to realize they are complicated transactions. To move a whole business of physical product sales, marketing, the odds and odds and patience aspect of all of the creation of the product, it is a big transaction to move one of those. And we have done a really good job with Paramount moving that over, and now we know how to do it. And, you know, we are running quickly on the Amazon MGM side. As far as time frame, that is really not something that I can discuss, and we just really do not know. It is a timing, it is complicated.
And, you know, I think at the end of the day, I do not know when the end of the day is, I think the studios see that Alliance is a great solution at the time that it makes sense for each studio to move into a licensing agreement on their physical DVD. So I think I have to leave it at that. We are seeing some smaller studios in conversations as well right now. So those are not as big of a project to switch over as these major studios are. But I think we are well positioned to be the licensing partner that the studios use for physical media in the future.
Thomas Forte: Good.
Jeff Walker: And then, yeah, I was just wondering if you can provide a little bit more color on your launch of 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 that there might be some other specific business opportunities that could be forged with the studios and so forth. I was just wondering if there are any more thoughts that have been kind of forged with those discussions, if some things have gelled with them and how those discussions have gone.
Thomas Forte: Well, there is
Jeff Walker: a lot of opportunities right now with the technology that we have with Endstate with the NFC digital chips, and also authentication, and then the marketplace technology that they have as well. We are looking at conversations with music labels, with video studios, and even with our own products that we are doing with Paramount and MGM as examples. Gaming companies have special edition box sets and limited edition collectibles. We see all of those type of products as big opportunities that should have an NFC digital chip in the packaging in a particular special edition product that is made. When you look at that and you go, okay, now somebody can scan that.
If you take it one step further, and you put a digital chip in a very nice collectible movie box set or music box set or gaming box set, and you put that chip in there working with the manufacturers, and they put that in, then you can also enhance additional content through the blockchain because you own that piece of a physical collectible. And so working with the labels and the studios and the gaming companies, you think of a collectible, a box set of something as the ultimate collectible. Well, then what else can you do to add content to it?
Can you add an unreleased interview with the artist or the actor or something like that attaches to that collectible that you own? So we are looking at how we now can provide some really incredible solutions through the labels, to the studios, and the gaming companies, and collectible companies to really enhance what these collectibles can be. Yep. And I know this is, Nathan. Times for this segment, but I was just wondering, do you have any time frame when you might, or milestones that you might want to provide investors, when we might start to see revenues kicking in for Authentic? Well, we went live with the vinyl. We have got Jeffrey Smith on board.
We have a couple other people joining his team next Monday, experienced people that will help us to focus on the marketing there. We have engaged the PR department to help us with the PR with respect to Alliance Authentic. So those are some of the things that are happening to get the word out of the product that we have. I think consumers really like the product that we have created with the vinyl and the ultimate vinyl collectible, and so we should start to see some traction on that pretty quickly here. And final question. I know that you made a nice tuck-in acquisition on the technology side.
I was wondering what your current appetite might be for further M&A?
Thomas Forte: Well, we
Jeff Walker: always have a pretty big appetite on that, Michael. You know that. As I mentioned earlier on the call, we are always in a bunch of conversations, and there is
Thomas Forte: there is
Jeff Walker: acquisitions that are accretive or consolidation stuff. Those are fairly easy and straightforward. And then there are acquisitions that get us into new opportunities and expansion of skill sets and things that we have. So I think the Endstate Authentic was a great acquisition for us. It really opens the doors to a lot of different aspects. And you also have to realize the more that we can use that technology to do products and offerings with our vendor partners, our music, video, and gaming partners, the more integrated Alliance gets with each of them, and that is a big win for us.
So we are looking at how we are important to the music, video, and gaming industry, and we are continuing to build that strength. And 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. Great. Thanks for taking all my questions. I appreciate it. 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.
Jeff Walker: One of our first questions
Paul Kuntz: 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 super 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 that typical to have major new releases, but, you know, Q1, coming up at 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. But those three tempo ones are pretty significant releases that are already showing up with some good online preorder sales.
And you are definitely seeing the labels really focused on these artists right now, and the music industry is significantly strong. I do want to throw out a little stat that I was kind of shocked on. For 2025, Alliance sold over 16 million vinyl records, and we sold over 13 million CDs. So some people that say CDs are dead, who buys CDs anymore? We still sold 13 million CDs last year.
We are seeing some pretty strong sales on the CD side, and there is definitely a lot of communication along social media right now on physical music, vinyl, CD, and as well DVD right now too, as far as people wanting to collect their favorite artist music and so forth. And all of this is still happening while everybody can listen to the music on a digital platform and so forth, but collectors want to have a collection of their favorite artists at their house. And so we are looking at how we are continuing to work with the labels to create more and better product for the fans there. Thank you, Jeff.
Another question you had, could you please expand on the gross margins for this
Paul Kuntz: quarter? It seems like the market was expecting a number around 15% in line with past rebasing margin profile
Jeff Walker: The margins for this—say that again. Can you repeat the question there?
Paul Kuntz: Absolutely, yes. 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 comp.
Jeff Walker: Yeah. I think we had some pretty good growth in our margin this quarter compared to last year. Margin ends up being somewhat product-mix driven, and we, you know, we do sell more—even though our hardware and gaming and so forth was down overall, we still sell quite a bit of hardware and so forth in the holiday quarter. I think overall, we are pretty happy with where our margin is trending right now, but we tend to see it a little bit lower in Q4 than the other three quarters of the year. It is a typical trend for us.
Paul Kuntz: And our next question, as you look at Endstate Authentic longer term, do you see the greatest strategic opportunity in 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: I will tell you that Bennett and Stephanie on the Endstate team are extremely busy right now with all the opportunity conversations that just opened up with them joining with us here at Alliance. So obviously, there are some really big opportunities within our own portfolio. They are in conversations—obviously, we are doing Alliance Authentic, and then also they are working with our home entertainment team to see what we can do on some video product as well. So there is a lot going on internally. And then the second into the third-party aspect, we communicate with all the top record labels, the top studios, the top gaming companies.
And so the question is how their application of NFC chips in the products and so forth—there is just a lot of opportunities, a lot happening where our technology can now help with things that artists and studios are looking to do going forward. So we are pretty bullish on their opportunities right now. There also are grading companies, authentication companies, and so forth that are interested in the authenticated resale as well as NFC chips there. So they have a very, very packed new-account conversations right now for Endstate. Thank you, Jeff.
Paul Kuntz: And we have one more question. Can you provide—I think you already touched on this a little bit with Michael—but can you provide an update on Alliance Authentic and what you learned from the initial rollout? How should we think about the pace of expansion from here?
Jeff Walker: Yeah. I think the pace of expansion is going to ramp up pretty quickly here. We have got, as I mentioned earlier, we have got Jeffrey on board. We have got two other great people to come in next week to assist him that are joining the Alliance team, and the PR that we are launching. We are also launching—so we are at Toy Fair this weekend. On the Authentic side, we are also launching Funko Authentic, and also Handmade by Robots Alliance Authentic product. And what those are Funko Pop or Handmade by Robots character 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 on Handmade we are the manufacturers. And then they are uncirculated, and they are encapsulated as a collectible. Those are getting launched this weekend at Toy Fair, and we will be able to start shipping on those with orders towards February here. We have already got them into production and into the facility. And, you know, this business is not an easy one to start up. There is a lot of work in perfecting the encapsulation cases and all the aspects that go to create that.
But you also have the opportunity there where now we will have an encapsulated Funko Pop into the marketplace, and I think there is going to be a lot of great opportunity for sales. So all of those three categories are
Paul Kuntz: are
Jeff Walker: are in place. We do have cases on the way right now for encapsulating video steelbook, as well as video games, so Xbox, PlayStation, and Switch. So there are people that want to collect those and want to have one encapsulated as a piece of history for those games as well there. So that is all going to roll out. Those other ones will roll out this quarter as well and start to get into the marketplace.
Thomas Forte: Excellent.
Paul Kuntz: That was actually our last question.
Operator: Great. Thank you. And I would like to turn the floor back over to Jeff Walker for any closing comments.
Jeff Walker: I just want to say that everybody works with all the new opportunities we have here for 2026. And, you know, as an entire company, we are having a great time working with Bennett on the Endstate side and Jeffrey on the Alliance Authentic. Those big initiatives for Alliance are going to make a big difference here in 2026. And I think if you look at it a year from now, where is Alliance Authentic and Endstate Authentic going to be? It is going to be significantly better and different a year from now. And that is what we are very, very heavily 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.
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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Alliance Entertainment Q2 2026 Earnings Transcript was originally published by The Motley Fool
