Funko Reports First Quarter 2024 Financial Results; Reiterates Full-Year Outlook for 2024
Q1 Net Sales Within Guidance Range, Gross Margin and Adjusted EBITDA Above Expectations; New CEO Appointed-–
Everett, WA Funko reported its consolidated financial results for the first quarter ended March 31, 2024.
First Quarter Financial Results Summary: 2024 vs 2023
- Net sales were $215.7 million compared with $251.9 million
- Gross profit was $86.3 million, equal to gross margin of 40.0%. This compares with $49.6 million, equal to gross margin of 19.7%, which included $30.1 million of charges related to the write-down of excess inventory in Q1 of 2023
- SG&A expenses were $85.6 million compared with $100.1 million, which included non-recurring charges of $5.1 million and $2.7 million, respectively. Details related to the non-recurring charges can be found in footnotes 4 and 5 of the attached reconciliation tables
- Net loss was $23.7 million, or $0.45 per share, compared with $61.1 million, or $1.17 per share
- Adjusted net loss* was $9.2 million, or $0.17 per share*, compared with $25.3 million, or $0.49 per share
- Adjusted EBITDA* was $9.6 million versus negative adjusted EBITDA* of $14.0 million
“For the 2024 first quarter, we reported solid overall financial results, with net sales within our guidance range, and gross margin and adjusted EBITDA well above our expectations,” said Michael Lunsford, Funko’s Interim Chief Executive Officer. “Net sales for Q1 would have been close to the midpoint of our guidance range but for sales of certain lower margin products that shifted to Q2 from Q1. As a result of better inventory management, we achieved higher than anticipated margins on sales into the value channel, which along with better-than-expected freight costs contributed to our Q1 gross margin of 40%. Given the good start to the year, we are reiterating our full-year 2024 guidance.
“Turning to our balance sheet, we continued to make progress lowering our inventory levels and paying down debt. Inventory was $112.3 million at March 31, 2024 down from $119.5 million at December 31, 2023 and total debt was $246.4 million at March 31, 2024 down $27.2 million from $273.6 million at December 31, 2023.”
Leadership Update
In a separate press release issued today, the company announced that its board of directors appointed Cynthia Williams as Chief Executive Officer (CEO), effective May 20, 2024. Williams is also expected to join the Funko Board of Directors on that date. Williams is a seasoned, highly regarded executive with deep experience across the consumer products, gaming and e-commerce industries. She has held senior leadership roles with some of the most well recognized companies in the world, including Hasbro, Microsoft and Amazon.
First 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 March 31, |
|
Period Over Period Change |
||||||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
Dollar |
|
Percentage |
||
|
Net sales by brand category: |
|
|
|
|
|
|
|
||||||
|
Core Collectible |
$ |
157,121 |
|
$ |
184,034 |
|
$ |
(26,913 |
) |
|
(14.6)% |
||
|
Loungefly |
|
40,676 |
|
|
|
51,211 |
|
|
|
(10,535 |
) |
|
(20.6)% |
|
Other |
|
17,902 |
|
|
|
16,633 |
|
|
|
1,269 |
|
|
7.6% |
|
Total net sales |
$ |
215,699 |
|
|
$ |
251,878 |
|
|
$ |
(36,179 |
) |
|
(14.4)% |
|
|
Three Months Ended March 31, |
|
Period Over Period Change |
||||||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
Dollar |
|
Percentage |
||
|
Net sales by geography: |
|
|
|
|
|
|
|
||||||
|
United States |
$ |
146,366 |
|
|
$ |
177,216 |
|
|
$ |
(30,850 |
) |
|
(17.4)% |
|
Europe |
|
54,243 |
|
|
|
58,455 |
|
|
|
(4,212 |
) |
|
(7.2)% |
|
Other International |
|
15,090 |
|
|
|
16,207 |
|
|
|
(1,117 |
) |
|
(6.9)% |
|
Total net sales |
$ |
215,699 |
|
|
$ |
251,878 |
|
|
$ |
(36,179 |
) |
|
(14.4)% |
Balance Sheet Highlights – At March 31, 2024 vs March 31, 2023
- Total cash and cash equivalents were $26.1 million at March 31, 2024 compared with $36.5 million at December 31, 2023
- Inventories were $112.3 million at March 31, 2024 down from $119.5 million at December 31, 2023
- Total debt was $246.4 million at March 31, 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 the company’s equipment finance loan
Outlook for 2024
Based on its current outlook, the company reiterated its 2024 full-year outlook and provided guidance for its 2024 second quarter, as follows:
|
|
Current Outlook |
|
2024 Full Year |
|
|
Net Sales |
$1.047 billion to $1.103 billion |
|
Adjusted EBITDA* |
$65 million to $85 million |
|
|
|
|
2024 Second Quarter |
|
|
Net sales |
$225 million to $240 million |
|
Gross margin % |
38% to 40% |
|
SG&A expense, in dollars |
$80 million to $85 million |
|
Adjusted net loss* |
$8 million to $4 million |
|
Adjusted net loss per share* |
$0.15 to $0.08 |
|
Adjusted EBITDA* |
$9 million to $15 million |
*Adjusted net loss, adjusted net loss per share and adjusted EBITDA are non-GAAP financial measures. For a reconciliation of historical adjusted net loss, adjusted loss per share, and adjusted EBITDA, to the most directly comparable U.S. GAAP financial measures, please refer to the “Non-GAAP Financial Measures” section of this press release. A reconciliation of adjusted net loss, adjusted net 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 second quarter of 2024 the company expects equity-based compensation of approximately $4 million, depreciation and amortization of approximately $16 million and interest expense of approximately $5 million. For the full year 2024, the company expects equity-based compensation of approximately $15 million, depreciation and amortization of approximately $63 million and interest expense of approximately $19 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.
|
Funko, Inc. and Subsidiaries |
|||||||
|
Condensed Consolidated Statements of Operations |
|||||||
|
(Unaudited) |
|||||||
|
|
Three Months Ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(In thousands, except per share data) |
||||||
|
Net sales |
$ |
215,699 |
|
|
$ |
251,878 |
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below) |
|
129,427 |
|
|
|
202,303 |
|
|
Selling, general, and administrative expenses |
|
85,595 |
|
|
|
100,061 |
|
|
Depreciation and amortization |
|
15,579 |
|
|
|
13,976 |
|
|
Total operating expenses |
|
230,601 |
|
|
|
316,340 |
|
|
Loss from operations |
|
(14,902 |
) |
|
|
(64,462 |
) |
|
Interest expense, net |
|
6,311 |
|
|
|
5,687 |
|
|
Loss on extinguishment of debt |
|
— |
|
|
|
494 |
|
|
Other expense, net |
|
1,553 |
|
|
|
821 |
|
|
Loss before income taxes |
|
(22,766 |
) |
|
|
(71,464 |
) |
|
Income tax expense (benefit) |
|
900 |
|
|
|
(10,320 |
) |
|
Net loss |
|
(23,666 |
) |
|
|
(61,144 |
) |
|
Less: net loss attributable to non-controlling interests |
|
(1,003 |
) |
|
|
(5,833 |
) |
|
Net loss attributable to Funko, Inc. |
$ |
(22,663 |
) |
|
$ |
(55,311 |
) |
|
|
|
|
|
||||
|
Loss per share of Class A common stock: |
|
|
|
||||
|
Basic |
$ |
(0.45 |
) |
|
$ |
(1.17 |
) |
|
Diluted |
$ |
(0.45 |
) |
|
$ |
(1.17 |
) |
|
Weighted average shares of Class A common stock outstanding: |
|
|
|
||||
|
Basic |
|
50,706 |
|
|
|
47,248 |
|
|
Diluted |
|
50,706 |
|
|
|
47,248 |
|
|
Funko, Inc. and Subsidiaries |
|||||||
|
Condensed Consolidated Balance Sheets |
|||||||
|
(Unaudited) |
|||||||
|
|
March 31, 2024 |
|
December 31, 2023 |
||||
|
|
(In thousands, except per share amounts) |
||||||
|
Assets |
|
|
|
||||
|
Current assets: |
|
|
|
||||
|
Cash and cash equivalents |
$ |
26,110 |
|
|
$ |
36,453 |
|
|
Accounts receivable, net |
|
101,207 |
|
|
|
130,831 |
|
|
Inventory, net |
|
112,282 |
|
|
|
119,458 |
|
|
Prepaid expenses and other current assets |
|
38,659 |
|
|
|
56,134 |
|
|
Total current assets |
|
278,258 |
|
|
|
342,876 |
|
|
Property and equipment, net |
|
85,587 |
|
|
|
91,335 |
|
|
Operating lease right-of-use assets |
|
57,833 |
|
|
|
61,499 |
|
|
Goodwill |
|
133,678 |
|
|
|
133,795 |
|
|
Intangible assets, net |
|
163,413 |
|
|
|
167,388 |
|
|
Deferred tax asset, net of valuation allowance |
|
— |
|
|
|
— |
|
|
Other assets |
|
6,703 |
|
|
|
7,752 |
|
|
Total assets |
$ |
725,472 |
|
|
$ |
804,645 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
||||
|
Current liabilities: |
|
|
|
||||
|
Line of credit |
$ |
107,000 |
|
|
$ |
120,500 |
|
|
Current portion of long-term debt, net of unamortized discount |
|
22,218 |
|
|
|
22,072 |
|
|
Current portion of operating lease liabilities |
|
17,002 |
|
|
|
17,486 |
|
|
Accounts payable |
|
47,794 |
|
|
|
52,919 |
|
|
Income taxes payable |
|
2,116 |
|
|
|
986 |
|
|
Accrued royalties |
|
41,896 |
|
|
|
54,375 |
|
|
Accrued expenses and other current liabilities |
|
80,369 |
|
|
|
90,494 |
|
|
Total current liabilities |
|
318,395 |
|
|
|
358,832 |
|
|
Long-term debt, net of unamortized discount |
|
117,221 |
|
|
|
130,986 |
|
|
Operating lease liabilities, net of current portion |
|
67,441 |
|
|
|
71,309 |
|
|
Deferred tax liability |
|
156 |
|
|
|
402 |
|
|
Liabilities under tax receivable agreement, net of current portion |
|
— |
|
|
|
— |
|
|
Other long-term liabilities |
|
4,700 |
|
|
|
5,076 |
|
|
|
|
|
|
||||
|
Commitments and Contingencies |
|
|
|
||||
|
|
|
|
|
||||
|
Stockholders’ equity: |
|
|
|
||||
|
Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 50,963 and 50,549 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively |
|
5 |
|
|
|
5 |
|
|
Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 2,276 and 2,277 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively |
|
— |
|
|
|
— |
|
|
Additional paid-in-capital |
|
330,005 |
|
|
|
326,180 |
|
|
Accumulated other comprehensive loss |
|
(788 |
) |
|
|
(180 |
) |
|
Accumulated deficit |
|
(116,727 |
) |
|
|
(94,064 |
) |
|
Total stockholders’ equity attributable to Funko, Inc. |
|
212,495 |
|
|
|
231,941 |
|
|
Non-controlling interests |
|
5,064 |
|
|
|
6,099 |
|
|
Total stockholders’ equity |
|
217,559 |
|
|
|
238,040 |
|
|
Total liabilities and stockholders’ equity |
$ |
725,472 |
|
|
$ |
804,645 |
|
|
Funko, Inc. and Subsidiaries |
|||||||
|
Condensed Consolidated Statements of Cash Flows |
|||||||
|
(Unaudited) |
|||||||
|
|
Three Months Ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(In thousands) |
||||||
|
Operating Activities |
|
|
|
||||
|
Net loss |
$ |
(23,666 |
) |
|
$ |
(61,144 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
||||
|
Depreciation, amortization and other |
|
15,045 |
|
|
|
13,745 |
|
|
Equity-based compensation |
|
3,824 |
|
|
|
3,642 |
|
|
Amortization of debt issuance costs and debt discounts |
|
440 |
|
|
|
267 |
|
|
Loss on debt extinguishment |
|
— |
|
|
|
494 |
|
|
Other |
|
605 |
|
|
|
(1,702 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
||||
|
Accounts receivable, net |
|
28,803 |
|
|
|
8,031 |
|
|
Inventory |
|
6,767 |
|
|
|
55,824 |
|
|
Prepaid expenses and other assets |
|
15,760 |
|
|
|
(8,063 |
) |
|
Accounts payable |
|
(6,844 |
) |
|
|
(12,139 |
) |
|
Income taxes payable |
|
1,144 |
|
|
|
(34 |
) |
|
Accrued royalties |
|
(12,479 |
) |
|
|
(22,742 |
) |
|
Accrued expenses and other liabilities |
|
(14,892 |
) |
|
|
(6,449 |
) |
|
Net cash provided by (used in) operating activities |
|
14,507 |
|
|
|
(30,270 |
) |
|
|
|
|
|
||||
|
Investing Activities |
|
|
|
||||
|
Purchases of property and equipment |
|
(4,157 |
) |
|
|
(12,746 |
) |
|
Acquisitions, net of cash received |
|
— |
|
|
|
(5,274 |
) |
|
Sale of Funko Games inventory and certain intellectual property |
|
6,754 |
|
|
|
— |
|
|
Other |
|
161 |
|
|
|
233 |
|
|
Net cash provided by (used in) investing activities |
|
2,758 |
|
|
|
(17,787 |
) |
|
|
|
|
|
||||
|
Financing Activities |
|
|
|
||||
|
Borrowings on line of credit |
|
— |
|
|
|
71,000 |
|
|
Payments on line of credit |
|
(13,500 |
) |
|
|
— |
|
|
Debt issuance costs |
|
— |
|
|
|
(1,957 |
) |
|
Payments of long-term debt |
|
(13,941 |
) |
|
|
(5,621 |
) |
|
Contributions on behalf of continuing equity owners |
|
2 |
|
|
|
— |
|
|
Proceeds from exercise of equity-based options |
|
— |
|
|
|
87 |
|
|
Net cash (used in) provided by financing activities |
|
(27,439 |
) |
|
|
63,509 |
|
|
|
|
|
|
||||
|
Effect of exchange rates on cash and cash equivalents |
|
(169 |
) |
|
|
145 |
|
|
|
|
|
|
||||
|
Net change in cash and cash equivalents |
|
(10,343 |
) |
|
|
15,597 |
|
|
Cash and cash equivalents at beginning of period |
|
36,453 |
|
|
|
19,200 |
|
|
Cash and cash equivalents at end of period |
$ |
26,110 |
|
|
$ |
34,797 |
|
The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net loss, for the periods presented:
|
|
Three Months Ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(In thousands, except per share data) |
||||||
|
Net loss attributable to Funko, Inc. |
$ |
(22,663 |
) |
|
$ |
(55,311 |
) |
|
Reallocation of net loss attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1) |
|
(1,003 |
) |
|
|
(5,833 |
) |
|
Equity-based compensation (2) |
|
3,824 |
|
|
|
3,642 |
|
|
Loss on extinguishment of debt (3) |
|
— |
|
|
|
494 |
|
|
Acquisition transaction costs and other expenses (4) |
|
3,184 |
|
|
|
1,010 |
|
|
Certain severance, relocation and related costs (5) |
|
1,866 |
|
|
|
1,735 |
|
|
Foreign currency transaction loss (6) |
|
1,576 |
|
|
|
822 |
|
|
Inventory write-down (7) |
|
— |
|
|
|
30,084 |
|
|
Income tax expense (8) |
|
3,979 |
|
|
|
(1,901 |
) |
|
Adjusted net loss |
$ |
(9,237 |
) |
|
$ |
(25,258 |
) |
|
Adjusted net loss margin (9) |
|
(4.3 |
)% |
|
|
(10.0 |
)% |
|
Weighted-average shares of Class A common stock outstanding – basic |
|
50,706 |
|
|
|
47,248 |
|
|
Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock |
|
2,725 |
|
|
|
4,364 |
|
|
Adjusted weighted-average shares of Class A stock outstanding – diluted |
|
53,431 |
|
|
|
51,612 |
|
|
Adjusted loss per diluted share |
$ |
(0.17 |
) |
|
$ |
(0.49 |
) |
|
|
Three Months Ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(amounts in thousands) |
||||||
|
Net loss |
$ |
(23,666 |
) |
|
$ |
(61,144 |
) |
|
Interest expense, net |
|
6,311 |
|
|
|
5,687 |
|
|
Income tax expense (benefit) |
|
900 |
|
|
|
(10,320 |
) |
|
Depreciation and amortization |
|
15,579 |
|
|
|
13,976 |
|
|
EBITDA |
$ |
(876 |
) |
|
$ |
(51,801 |
) |
|
Adjustments: |
|
|
|
||||
|
Equity-based compensation (2) |
|
3,824 |
|
|
|
3,642 |
|
|
Loss on extinguishment of debt (3) |
|
— |
|
|
|
494 |
|
|
Acquisition transaction costs and other expenses (4) |
|
3,184 |
|
|
|
1,010 |
|
|
Certain severance, relocation and related costs (5) |
|
1,866 |
|
|
|
1,735 |
|
|
Foreign currency transaction loss (6) |
|
1,576 |
|
|
|
822 |
|
|
Inventory write-down (7) |
|
— |
|
|
|
30,084 |
|
|
Adjusted EBITDA |
$ |
9,574 |
|
|
$ |
(14,014 |
) |
|
Adjusted EBITDA margin (10) |
|
4.4 |
% |
|
|
(5.6 |
)% |
|
|
Three Months Ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(In thousands, except per share data) |
||||||
|
Cost of sales (exclusive of depreciation and amortization shown separately) |
$ |
129,427 |
|
|
$ |
202,303 |
|
|
Inventory write-down (7) |
|
— |
|
|
|
30,084 |
|
|
Adjusted cost of sales (exclusive of depreciation and amortization shown separately) |
$ |
129,427 |
|
|
$ |
172,219 |
|
|
Adjusted gross margin (11) |
|
40.0 |
% |
|
|
31.6 |
% |
|
(1) |
Represents the reallocation of net income 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 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 three months ended March 31, 2023. |
|
|
(4) |
For the three months ended March 31, 2024, includes contract settlement agreements of related services to and fair market value adjustments of certain assets held for sale. For the three months ended March 31, 2023, includes acquisition-related costs related to due diligence fees. |
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(5) |
For the three months ended March 31, 2024, includes charges related severance and benefit costs related to certain management resignations. For the three months ended March 31, 2023, includes charges related severance and benefit costs related to reduction-in-force. |
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(6) |
Represents both unrealized and realized foreign currency losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts. |
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(7) |
For the three months ended March 31, 2023, represents an inventory write-down charge, outside normal business operations to improve U.S. warehouse operational efficiency. |
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(8) |
Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented. |
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(9) |
Adjusted net loss margin is calculated as adjusted net loss as a percentage of net sales. |
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(10) |
Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of net sales. |
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(11) |
Adjusted gross margin is calculated as net sales less adjusted cost of sales (exclusive of depreciation and amortization shown separately) as a percentage of net sales |
