Evertt, WA — Funko  reported its consolidated financial results for the fourth quarter and fiscal year ended December 31, 2020.

Fourth Quarter 2020 Financial Highlights

• Net sales increased 6% to $226.5 million
• Gross margin1 increased to 37.2%
• SG&A expenses decreased 6% to $53.6 million
• Net income increased $21.2 million to $14.9 million
• Net income margin expanded 950 basis points to 6.6%
• Adjusted EBITDA2 increased 29% to $33.2 million
• Adjusted EBITDA margin2 expanded 270 basis points to 14.7%
• Cash flow from operations increased 69% to $46.9 million
• Total liquidity3 increased 71% to $127.3 million compared to prior year

Fourth Quarter 2020 Operating Highlights

• U.S. net sales increased 18% to $171 million, representing Funko’s largest quarter ever domestically
• Net sales of non-figure products grew 30% compared to 2019, primarily driven by strength within its Loungefly branded products which increased 51% in the quarter
• Pop! brand grew 1% in the quarter driven by 12% growth in the U.S.
• Extended Funko’s direct-to-consumer reach through launching funkoeurope.com
• Funko’s direct-to-consumer sales nearly doubled compared to prior year driven by continued strong demand on its e-commerce sites
• Continued to diversify Funko’s product portfolio through the launch of Snapsies
• 68% of sales were attributable to evergreen content

“We are pleased to finish the year with strong fourth quarter results, including 6% sales growth, which reflects better than expected performance across our brands, products, channels and geographies,” said Brian Mariotti, CEO. “Against a challenging environment in 2020, our teams were resilient, quickly adapted to the dynamic environment and remained focused on executing our strategic growth priorities. During the year, we successfully strengthened our direct-to-consumer platform, launched new games and toys that extended our reach, expanded our presence among key retail partners in mass and digital, and drove robust fan engagement through global virtual events.”

“We believe the Company is strongly positioned to deliver solid top line growth and improved profitability in 2021. We are remaining focused on our strategies to maximize Funko’s core pop culture platform, drive further category diversification, expand internationally and accelerate our direct-to-consumer business. For the full year, we expect to achieve revenue growth of 25% to 30% versus 2020, which also reflects growth from pre-pandemic levels in 2019.”

Fourth Quarter 2020 Financial Results

Net sales increased 6% to $226.5 million in the fourth quarter of 2020 compared to $213.6 million in the fourth quarter of 2019. The year-over-year increase primarily reflects strength within the United States which was partially offset by continued COVID-19 impacts within international regions, especially Europe.

In the fourth quarter of 2020, the number of active properties increased 9% to 724 from 667 in the fourth quarter of 2019 and net sales per active property decreased 2%.

On a geographical basis, net sales in the United States increased 18% to $171.5 million. Net sales in Europe decreased 24% to $40.3 million and net sales in other international regions decreased 7% to $14.7 million, both primarily driven by continued impacts from COVID-19.

On a product category basis, net sales of figures were flat at $170.2 million reflecting strength within the domestic market which was offset by international performance. Net sales of other products increased 30% to $56.3 million versus the fourth quarter of 2019, primarily reflecting strong growth in our Loungefly branded products as well as strength within our games, plush and accessory categories.

On a product brand basis, Pop! branded products grew 1% to $169.4 million reflecting double-digit domestic growth offset by international performance. Loungefly branded products grew 51% to $31.6 million in the quarter reflecting strength in both its wholesale and direct-to-consumer channels. Net sales of other branded products increased 5% to $25.5 million primarily reflecting strength in Funko’s expanded board game, toy and figure offerings.

The tables below show the breakdown of net sales on a geographical, product category and branded product basis (in thousands):

Gross margin1 in the fourth quarter of 2020 increased 800 basis points to 37.2% compared to 29.2% in the fourth quarter of 2019, primarily due to a one-time charge of $16.8 million related to the write-down of inventory in the fourth quarter of 2019. The one-time inventory write down impacted fourth quarter 2019 gross margin1 by 790 basis points. Gross margin1 for the fourth quarter 2020 reflected improved inventory management and lower product costs as a percentage of net sales due to a mix shift toward direct-to-consumer sales, which was partially offset by higher shipping related expenses.

SG&A expenses decreased 6% to $53.6 million in the fourth quarter of 2020 compared to $57.3 million in the fourth quarter of 2019, primarily reflecting cost savings initiatives taken in 2020.

Net income in the fourth quarter of 2020 was $14.9 million and net income margin was 6.6%, compared to a net loss of $6.3 million and net loss margin of 2.9% in the fourth quarter of 2019. Adjusted Net Income2 (non-GAAP) was $15.2 million in the fourth quarter of 2020 versus $8.9 million in the fourth quarter of 2019. Adjusted EBITDA2 in the fourth quarter of 2020 was $33.2 million and Adjusted EBITDA margin2 was 14.7%, compared to $25.7 million and 12.0%, respectively, in the fourth quarter of 2019. A reconciliation of these non-GAAP measures to GAAP is provided below.

Balance Sheet Highlights

Total liquidity3 as of December 31, 2020 totaled $127.3 million, an increase of 71% compared to December 31, 2019. Total liquidity was comprised of cash and cash equivalents of $52.3 million and total revolver availability of $75.0 million.

As of December 31, 2020, total debt was $190.8 million, a decrease of 21% compared to a year ago. Total debt includes the amount outstanding under the Company’s term loan facility, net of unamortized discounts. During the fourth quarter of 2020, the Company repaid $11.8 million in outstanding debt under its term loan in addition to its normally scheduled principal payment of $5.9 million.

Inventories at year-end totaled $59.8 million, a decrease of 4% compared to a year ago.

Outlook

In 2021, the Company expects the following full year results:

• Net sales growth of 25% to 30%;
• Adjusted EBITDA margin2 of 13.5% to 14.0%;
• Adjusted Net Income2 of $44 million to $51 million, based on a blended tax rate of 25%; and
• Adjusted Earnings per Diluted Share2 of $0.84 per share to $0.96 per share, based on estimated adjusted average diluted shares outstanding of 52.5 million for the full year.

For the first quarter of 2021, the Company anticipates net sales will increase approximately 30%.

“We feel confident about the trajectory of the business and believe we are well-positioned from a strategic, operational and financial perspective,” said Jennifer Fall Jung, CFO. “We expect to continue investing for growth in 2021 while also driving strong Adjusted EBITDA margins and improvement on the bottom line.”

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, March 11, 2021, to further discuss its fourth quarter and fiscal year results. A live webcast and 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.

About Funko

Headquartered in Everett, Washington, Funko is a leading pop culture consumer products company. 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 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 anticipated financial results, the underlying trends in our business, the anticipated impact of COVID-19 on our business, our potential for growth, our strategic growth priorities, our expected liquidity and our strategy. 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: risks related to the impact of COVID-19 on our business, financial results and financial condition; our ability to execute our business strategy; our ability to maintain and realize the full value of our license agreements; 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 manage our inventories; 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 our international operations; changes in effective tax rates or tax law; foreign currency exchange rate exposure; the possibility or existence of global and regional economic downturns; 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; reputational risk resulting from our e-commerce business and social media presence; risks relating to our indebtedness and our ability to secure additional financing; the potential for our electronic data or the electronic data of our customers to be compromised; the influence of our significant stockholder, ACON, and the possibility that ACON’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 annual report on Form 10-K for the fiscal year ended December 31, 2020 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. and Subsidiaries
Non-GAAP Financial Measures

Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), earnings per share or any other performance measure derived in accordance with U.S. GAAP. We define Adjusted Net Income as net income (loss) attributable to Funko, Inc. adjusted for the reallocation of income attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, customs investigation and related costs, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments, the one-time inventory write-down and other unusual or one-time items, and the income tax expense (benefit) effect of these adjustments. We define Adjusted Earnings per Diluted Share as Adjusted Net Income divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We define EBITDA as net income (loss) before interest expense, net, income tax expense (benefit), depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, customs investigation and related costs, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments, the one-time inventory write-down and other unusual or one-time items. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales. We caution investors that amounts presented in accordance with our definitions of Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, 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. We present Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Management uses Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as a measurement of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations; for planning purposes, including the preparation of our internal annual operating budget and financial projections; as a consideration to assess incentive compensation for our employees; to evaluate the performance and effectiveness of our operational strategies; and to evaluate our capacity to expand our business.

By providing these non-GAAP financial measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, our senior secured credit facilities use Adjusted EBITDA to measure our compliance with covenants such as senior leverage ratio. Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss) or other financial statement data presented in this press release as indicators of financial performance. Some of the limitations are:

• such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
• such measures do not reflect changes in, or cash requirements for, our working capital needs;
• such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, Adjusted Net Income, Adjusted Earnings per Diluted Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted Net Income, Adjusted Earnings per Diluted Share, Adjusted EBITDA and Adjusted EBITDA margin include adjustments for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, customs investigation and related costs, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments, the one time inventory write-down and other unusual or one-time items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

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:

View source version on businesswire.com: https://www.businesswire.com/news/home/20210311005991/en/

Investor Relations:
investorrelations@funko.com

Media:
pr@funko.com

Source: Funko, Inc.

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