--Q3 Net Sales, Gross Margin and Adjusted
EBITDA at High End or Above Expectations--
Funko, Inc. (Nasdaq: FNKO), a leading pop culture lifestyle
brand, today reported its consolidated financial results for the
third quarter ended September 30, 2024.
Third Quarter Financial Results Summary: 2024 vs 2023
- Net sales were $292.8 million compared with $312.9 million
- Gross profit was $119.8 million, equal to gross margin of
40.9%. This compares with $104.0 million, equal to gross margin of
33.2%, which included $6.4 million of non-recurring charges
- SG&A expenses were $92.7 million, which included $0.4
million of non-recurring charges. This compares with $94.0 million,
which included $9.9 million of non-recurring charges. Details
related to the non-recurring charges can be found in footnotes 4, 5
and 10 of the attached reconciliations
- Net income was $4.6 million, or $0.08 per diluted share,
compared with net loss of $16.2 million, or $0.31 per share
- Adjusted net income* was $8.0 million, or $0.14 per diluted
share*, compared to $1.7 million, or $0.03 per share
- Adjusted EBITDA* was $31.0 million versus $25.4 million
"We reported solid financial results for the 2024 third
quarter,” said Cynthia Williams, Chief Executive Officer of Funko.
“As expected, net sales were down compared with the prior-year
quarter, though in the top end of our guidance range. On the other
hand, we delivered better than expected profitability on improved
gross margins, as we did in the first two quarters of this
year.
"We've updated our full-year 2024 outlook for net sales to
reflect a more cautious consumer environment, which we began to see
in the third quarter. We now expect net sales to be at the low end
to slightly below our previous range. Adjusted EBITDA is a
different matter, we have raised our full-year outlook to above the
high end of the range.
"We are deep in the process of developing our strategic plan for
2025 and beyond, and pleased that we have already begun executing
several elements of that plan. Recently, we enabled
direct-to-consumer shipping capability to Canada, and we expanded
our collaboration with the National Football League (NFL), and its
fanbase of more than 200 million, to include the option to
customize Pop! Yourself with any NFL team logo. Additionally, and
just in time for the holidays, we are announcing that Harry Potter
accessories will be available to customize Pop! Yourself beginning
tomorrow."
Third Quarter 2024 Net Sales by Category and
Geography
The tables below show the breakdown of net sales on a brand
category and geographical basis (in thousands):
Three Months Ended September
30,
Period Over Period
Change
2024
2023
Dollar
Percentage
Net sales by brand category:
Core Collectible
$
227,845
$
233,269
$
(5,424
)
(2.3
)%
Loungefly
47,310
57,439
(10,129
)
(17.6
)%
Other
17,610
22,236
(4,626
)
(20.8
)%
Total net sales
$
292,765
$
312,944
$
(20,179
)
(6.4
)%
Three Months Ended September
30,
Period Over Period
Change
2024
2023
Dollar
Percentage
Net sales by geography (shipped
to):
United States
$
194,416
$
209,966
$
(15,550
)
(7.4
)%
Europe
74,473
81,938
(7,465
)
(9.1
)%
Other International
23,876
21,040
2,836
13.5
%
Total net sales
$
292,765
$
312,944
$
(20,179
)
(6.4
)%
Balance Sheet Highlights - At September 30, 2024 vs December
31, 2023
- Total cash and cash equivalents were $28.5 million at September
30, 2024 compared with $36.5 million at December 31, 2023
- Inventory was $118.6 million at September 30, 2024 down from
$119.5 million at December 31, 2023
- Total debt was $223.4 million at September 30, 2024 versus
$273.6 million at December 31, 2023. Total debt includes the amount
outstanding under the company's term loan facility, net of
unamortized discounts, revolving line of credit and equipment
finance loan
Outlook for 2024
Regarding its 2024 full-year outlook, the company lowered the
range for net sales and raised the range for adjusted EBITDA, and
provided guidance for its 2024 fourth quarter, as follows:
Current Outlook
2024 Full Year
Net Sales
$1.037 billion to $1.050
billion
Adjusted EBITDA*
$85 million to $90 million
2024 Fourth Quarter
Net sales
$280 million to $294 million
Gross margin %
38% to 40%
SG&A expense, in dollars
$93 million to $99 million
Adjusted net income (loss)*
($3) million to $1 million
Adjusted net income (loss) per diluted
share*
($0.05) to $0.02
Adjusted EBITDA*
$17 million to $22 million
*Adjusted net income (loss), adjusted net income (loss) per
diluted share and adjusted EBITDA are non-GAAP financial measures.
For a reconciliation of historical adjusted net income (loss),
adjusted net income (loss) per share, and adjusted EBITDA, to the
most directly comparable U.S. GAAP financial measures, please refer
to the “Use of Non-GAAP Financial Measures” section of this press
release. A reconciliation of adjusted net income (loss), adjusted
net income (loss) per share and adjusted EBITDA outlook to the
corresponding GAAP measure on a forward-looking basis cannot be
provided without unreasonable efforts, as we are unable to provide
reconciling information with respect to certain items. However, for
the fourth quarter of 2024 the company expects equity-based
compensation of approximately $4 million, depreciation and
amortization of approximately $15 million and interest expense of
approximately $5 million. For the full year 2024, the company
expects equity-based compensation of approximately $14 million,
depreciation and amortization of approximately $62 million and
interest expense of approximately $21 million, each of which is a
reconciling item to net loss. See "Use of Non-GAAP Financial
Measures" and the attached reconciliations for more
information.
Conference Call and Webcast
The company will host a conference call at 4:30 p.m. Eastern
Time (1:30 p.m. Pacific Time) today, November 7, 2024, to further
discuss its third quarter results and business update. A live
webcast and a replay of the event will be available on the Investor
Relations section on the Company’s website at investor.funko.com.
The replay of the webcast will be available for one year.
Use of Non-GAAP Financial Measures
This release contains references to non-GAAP financial measures,
including adjusted net income (loss), including per share amounts,
adjusted EBITDA, adjusted EBITDA margin and adjusted net income
(loss) margin, which are financial measures that are not prepared
in conformity with United States generally accepted accounting
principles (U.S. GAAP). Management uses these measures internally
for evaluating its operating performance, for planning purposes,
including the preparation of our annual operating budget and
financials projections, and to assess incentive compensation for
our employees, and to evaluate our capacity to expand our business.
In addition, our senior secured credit facilities use adjusted
EBITDA to measure our compliance with covenants, such as senior
leverage ratio. The company's management believes that the
presentation of non-GAAP financial measures provides useful
supplementary information regarding operational performance because
it enhances an investor's overall understanding of the financial
results for the company's core business. Additionally, it provides
a basis for the comparison of the financial results for the
company's core business between current, past and future periods as
they remove the impact of items not directly resulting from our
core operations. The company also believes that including adjusted
EBITDA and the other non-GAAP financial measures presented in this
release is appropriate to provide additional information to
investors and help to compare against other companies in our
industry. Non-GAAP financial measures have limitations as
analytical tools and should be considered only as a supplement to,
and not as a substitute for or as a superior measure to, financial
measures prepared in accordance with U.S. GAAP. We caution
investors that amounts presented in accordance with our definitions
of adjusted net income (loss), including per share amounts,
adjusted EBITDA and adjusted EBITDA margin may not be comparable to
similar measures disclosed by our competitors, because not all
companies and analysts calculate these measures in the same
manner.
Detailed reconciliations of non-GAAP financial measures to the
most directly comparable GAAP financial measures are included in
the financial tables following this release.
About Funko
Headquartered in Everett, Washington, Funko is a leading pop
culture lifestyle brand. Funko designs, sources and distributes
licensed pop culture products across multiple categories, including
vinyl figures, action toys, plush, apparel, housewares and
accessories for consumers who seek tangible ways to connect with
their favorite pop culture brands and characters. Learn more at
www.funko.com and follow us on X (Twitter) (@OriginalFunko) and
Instagram (@OriginalFunko).
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements regarding our
product offerings and strategic plan, anticipated financial
results, including without limitation, equity-based compensation
and financial position. These forward-looking statements are based
on management’s current expectations. These statements are neither
promises nor guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements, including, but not
limited to, the following: our ability to execute our business
strategy; our ability to manage our inventories and growth; our
ability to maintain and realize the full value of our license
agreements; impacts from economic downturns; changes in the retail
industry and markets for our consumer products; our ability to
maintain our relationships with retail customers and distributors;
our ability to compete effectively; fluctuations in our gross
margin; our dependence on content development and creation by third
parties; the ongoing level of popularity of our products with
consumers; our ability to develop and introduce products in a
timely and cost-effective manner; our ability to obtain, maintain
and protect our intellectual property rights or those of our
licensors; potential violations of the intellectual property rights
of others; risks associated with counterfeit versions of our
products; our ability to attract and retain qualified employees and
maintain our corporate culture; our use of third-party
manufacturing; risks associated with climate change; increased
attention to sustainability and environmental, social and
governance initiatives; geographic concentration of our operations;
risks associated with our international operations; changes in
effective tax rates or tax law; our dependence on vendors and
outsourcers; risks relating to government regulation; risks
relating to litigation, including products liability claims and
securities class action litigation; any failure to successfully
integrate or realize the anticipated benefits of acquisitions or
investments; future development and acceptance of blockchain
networks; risks associated with receiving payments in digital
assets; risk resulting from our e-commerce business and social
media presence; our ability to successfully operate our information
systems and implement new technology; risks relating to our
indebtedness, including our ability to comply with financial and
negative covenants under our Credit Agreement, as amended; our
ability to secure additional financing on favorable terms or at
all; the potential for our or our third-party providers’ electronic
data or the electronic data of our customers to be compromised; the
influence of our significant stockholder, TCG, and the possibility
that TCG’s interests may conflict with the interests of our other
stockholders; risks relating to our organizational structure;
volatility in the price of our Class A common stock; and risks
associated with our internal control over financial reporting.
These and other important factors discussed under the caption “Risk
Factors” in our quarterly report on Form 10-Q for the quarter ended
September 30, 2024 and our other filings with the Securities and
Exchange Commission could cause actual results to differ materially
from those indicated by the forward-looking statements made in this
press release. Any such forward-looking statements represent
management’s estimates as of the date of this press release. While
we may elect to update such forward-looking statements at some
point in the future, we disclaim any obligation to do so, even if
subsequent events cause our views to change. These forward-looking
statements should not be relied upon as representing our views as
of any date subsequent to the date of this press release.
Funko, Inc.
Condensed Consolidated
Statements of Operations
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2024
2023
2024
2023
(In thousands, except per
share data)
Net sales
$
292,765
$
312,944
$
756,121
$
804,850
Cost of sales (exclusive of depreciation
and amortization)
172,956
208,936
445,992
581,258
Selling, general, and administrative
expenses
92,662
93,992
256,154
279,685
Depreciation and amortization
15,411
15,465
46,409
44,334
Total operating expenses
281,029
318,393
748,555
905,277
Income (loss) from operations
11,736
(5,449
)
7,566
(100,427
)
Interest expense, net
4,971
7,601
16,363
20,551
Loss on debt extinguishment
—
—
—
494
Gain on tax receivable agreement liability
adjustment
—
—
—
(99,620
)
Other expense, net
998
98
1,994
519
Income (loss) before income taxes
5,767
(13,148
)
(10,791
)
(22,371
)
Income tax expense
1,170
3,076
2,859
130,859
Net income (loss)
4,597
(16,224
)
(13,650
)
(153,230
)
Less: net income (loss) attributable to
non-controlling interests
267
(1,215
)
(432
)
(9,912
)
Net income (loss) attributable to Funko,
Inc.
$
4,330
$
(15,009
)
$
(13,218
)
$
(143,318
)
Earnings (loss) per share of Class A
common stock:
Basic
$
0.08
$
(0.31
)
$
(0.26
)
$
(3.01
)
Diluted
$
0.08
$
(0.31
)
$
(0.26
)
$
(3.01
)
Weighted average shares of Class A common
stock outstanding:
Basic
52,523
48,237
51,781
47,641
Diluted
53,428
48,237
51,781
47,641
Funko, Inc.
Condensed Consolidated Balance
Sheets
(Unaudited)
September 30,
2024
December 31,
2023
(In thousands, except per
share data)
Assets
Current assets:
Cash and cash equivalents
$
28,546
$
36,453
Accounts receivable, net
172,653
130,831
Inventories
118,563
119,458
Prepaid expenses and other current
assets
35,471
56,134
Total current assets
355,233
342,876
Property and equipment, net
78,805
91,335
Operating lease right-of-use assets,
net
55,158
61,499
Goodwill
133,887
133,795
Intangible assets, net
155,587
167,388
Other assets
4,904
7,752
Total assets
$
783,574
$
804,645
Liabilities and Stockholders’
Equity
Current liabilities:
Line of credit
$
95,000
$
120,500
Current portion of long-term debt
22,413
22,072
Current portion of operating lease
liabilities
17,365
17,486
Accounts payable
78,295
52,919
Accrued royalties
61,213
54,375
Accrued expenses and other current
liabilities
93,910
91,480
Total current liabilities
368,196
358,832
Long-term debt
105,967
130,986
Operating lease liabilities
63,345
71,309
Other long-term liabilities
5,634
5,478
Commitments and Contingencies
Stockholders’ equity:
Class A common stock, par value $0.0001
per share, 200,000 shares authorized; 52,692 and 50,549 shares
issued and outstanding as of September 30, 2024 and December 31,
2023, respectively
5
5
Class B common stock, par value $0.0001
per share, 50,000 shares authorized; 1,433 and 2,277 shares issued
and outstanding as of September 30, 2024 and December 31, 2023,
respectively
—
—
Additional paid-in-capital
339,834
326,180
Accumulated other comprehensive income
(loss)
3,951
(180
)
Accumulated deficit
(107,282
)
(94,064
)
Total stockholders’ equity attributable to
Funko, Inc.
236,508
231,941
Non-controlling interests
3,924
6,099
Total stockholders’ equity
240,432
238,040
Total liabilities and stockholders’
equity
$
783,574
$
804,645
Funko, Inc.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
Nine Months Ended September
30,
2024
2023
(In thousands)
Operating Activities
Net loss
$
(13,650
)
$
(153,230
)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization
46,409
42,592
Equity-based compensation
10,530
7,521
Loss on debt extinguishment
—
494
Gain on tax receivable agreement liability
adjustment
—
(99,620
)
Deferred tax expense
—
123,206
Other, net
(271
)
1,143
Changes in operating assets and
liabilities, net of amounts acquired:
Accounts receivable, net
(38,547
)
1,314
Inventories
3,306
84,797
Prepaid expenses and other assets
25,253
8,244
Accounts payable
23,851
2,536
Accrued royalties
6,838
(7,240
)
Accrued expenses and other liabilities
23
(14,624
)
Net cash provided by (used in)
operating activities
63,742
(2,867
)
Investing Activities
Purchases of property and equipment
(20,796
)
(30,861
)
Acquisitions of businesses and related
intangible assets, net of cash acquired
—
(5,274
)
Sale of Funko Games inventory and certain
intellectual property
6,754
—
Other
655
551
Net cash used in investing
activities
(13,387
)
(35,584
)
Financing Activities
Borrowings on line of credit
25,000
71,000
Payments on line of credit
(50,500
)
—
Payments of long-term debt
(25,365
)
(16,911
)
Payments under tax receivable
agreement
(8,960
)
—
Other, net
1,250
(2,780
)
Net cash (used in) provided by
financing activities
(58,575
)
51,309
Effect of exchange rates on cash and cash
equivalents
313
(173
)
Net change in cash and cash
equivalents
(7,907
)
12,685
Cash and cash equivalents at beginning of
period
36,453
19,200
Cash and cash equivalents at end of
period
$
28,546
$
31,885
The following tables reconcile the Non-GAAP Financial Measures
to the most directly comparable U.S. GAAP financial performance
measure, which is net income (loss), for the periods presented:
Three Months Ended September
30,
Nine Months Ended September
30,
2024
2023
2024
2023
(In thousands, except per
share data)
Net income (loss) attributable to Funko,
Inc.
$
4,330
$
(15,009
)
$
(13,218
)
$
(143,318
)
Reallocation of net income (loss)
attributable to non-controlling interests from the assumed exchange
of common units of FAH, LLC for Class A common stock (1)
267
(1,215
)
(432
)
(9,912
)
Equity-based compensation (2)
3,430
(916
)
10,530
7,521
Loss on extinguishment of debt (3)
—
—
—
494
Acquisition transaction costs and other
expenses (4)
287
5,467
1,866
6,921
Certain severance, relocation and related
costs (5)
114
3,703
2,081
5,784
Foreign currency transaction loss (6)
1,005
1,074
2,018
1,495
Inventory write-down (7)
—
—
—
30,084
Tax receivable agreement liability
adjustments (8)
—
—
—
(99,620
)
One-time disposal costs for unfinished
goods held at offshore factories (9)
—
—
—
2,404
One-time disposal costs for finished goods
held at offshore factories (10)
—
6,148
—
6,148
Income tax expense (11)
(1,481
)
2,494
1,433
146,144
Adjusted net income (loss)
$
7,952
$
1,746
$
4,278
$
(45,855
)
Adjusted net income (loss) margin (12)
2.7
%
0.6
%
0.6
%
(5.7
)%
Weighted-average shares of Class A common
stock outstanding-basic
52,523
48,237
51,781
47,641
Equity-based compensation awards and
common units of FAH, LLC that are convertible into Class A common
stock
2,755
4,443
2,182
4,430
Adjusted weighted-average shares of Class
A stock outstanding - diluted
55,278
52,680
53,963
52,071
Adjusted earnings (loss) per diluted
share
$
0.14
$
0.03
$
0.08
$
(0.88
)
Three Months Ended September
30,
Nine Months Ended September
30,
2024
2023
2024
2023
(amounts in thousands)
Net income (loss)
$
4,597
$
(16,224
)
$
(13,650
)
$
(153,230
)
Interest expense, net
4,971
7,601
16,363
20,551
Income tax expense
1,170
3,076
2,859
130,859
Depreciation and amortization
15,411
15,465
46,409
44,334
EBITDA
$
26,149
$
9,918
$
51,981
$
42,514
Adjustments:
Equity-based compensation (2)
3,430
(916
)
10,530
7,521
Loss on extinguishment of debt (3)
—
—
—
494
Acquisition transaction costs and other
expenses (4)
287
5,467
1,866
6,921
Certain severance, relocation and related
costs (5)
114
3,703
2,081
5,784
Foreign currency transaction loss (6)
1,005
1,074
2,018
1,495
Inventory write-down (7)
—
—
—
30,084
Tax receivable agreement liability
adjustments (8)
—
—
—
(99,620
)
One-time disposal costs for unfinished
goods held at offshore factories (9)
—
—
—
2,404
One-time disposal costs for finished goods
held at offshore factories (10)
—
6,148
—
6,148
Adjusted EBITDA
$
30,985
$
25,394
$
68,476
$
3,745
Adjusted EBITDA margin (13)
10.6
%
8.1
%
9.1
%
0.5
%
(1)
Represents the reallocation of
net income (loss) attributable to non-controlling interests from
the assumed exchange of common units of FAH, LLC for Class A common
stock in periods in which income (loss) was attributable to
non-controlling interests.
(2)
Represents non-cash charges
related to equity-based compensation programs, which vary from
period to period depending on the timing of awards.
(3)
Represents write-off of
unamortized debt financing fees for the nine months ended September
30, 2023.
(4)
For the three months ended
September 30, 2024, includes charges related to contract settlement
agreements for warehouse leased space. For the nine months ended
September 30, 2024, includes one-time legal settlement gain and
contract settlement agreements and related services to and the fair
market value adjustments of certain assets held for sale. For the
three and nine months ended September 30, 2023, includes costs
related to the termination of a lease agreement and related
expenses, partially offset by acquisition-related benefits.
(5)
For the three and nine months
ended September 30, 2024, includes severance and benefit costs
related to certain management departures. For the three and nine
months ended September 30, 2023, includes charges to remove
leasehold improvements and return multiple Washington-based
warehouses, and charges related to severance and benefit costs for
a reduction-in-force.
(6)
Represents both unrealized and
realized foreign currency gains and losses on transactions
denominated other than in U.S. dollars, including derivative gains
and losses on foreign currency forward exchange contracts.
(7)
For the nine months ended
September 30, 2023, represents a one-time inventory write-down to
improve U.S. warehouse operational efficiency.
(8)
Represents reduction of the tax
receivable agreement liability as a result of recognizing a full
valuation allowance of the Company’s deferred tax assets and
anticipated inability to realize future tax benefits.
(9)
For the nine months ended
September 30, 2023, represents one-time disposal costs related to
unfinished goods held at offshore factories.
(10)
For the three and nine months
ended September 30, 2023, represents one-time disposal costs
related to finished goods held at offshore factories primarily due
to customer order cancellations.
(11)
Represents the income tax expense
effect of the above adjustments, except for the tax liability
receivable adjustment. This adjustment uses an effective tax rate
of 25% for all periods presented. For the nine months ended
September 30, 2023, this also includes $123.2 million recognized
valuation allowance on the Company’s deferred tax assets.
(12)
Adjusted net income (loss) margin
is calculated as adjusted net loss as a percentage of net
sales.
(13)
Adjusted EBITDA margin is
calculated as adjusted EBITDA as a percentage of net sales.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241107672005/en/
Investor Relations: investorrelations@funko.com
Media: pr@funko.com
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