Funko Reports Second Quarter 2022 Net Sales of $315.7 million, Up 33.7%
Everett, WA — Funko, Inc. reported its consolidated financial results for the second quarter ended June 30, 2022.
Second Quarter 2022 Financial Highlights
- Net sales increased 33.7% y/y to $315.7 million
- Net income declined 24.6% y/y to $15.8 million
- Net income margin1 contracted 390 basis points y/y to 5.0%
- Adjusted EBITDA2 declined 22.7% y/y to $31.8 million
- Adjusted EBITDA margin2 contracted 730 basis points y/y to 10.1%
- Cash flow used in operations of $30.1 million for the six months ended June 30, 2022
Second Quarter 2022 and Recent Operating Highlights
- Broad-based net sales growth in all geographies and brand categories
- Record net sales quarter for Loungefly ($70.0 million, +114% y/y) and Europe ($63.4 million, +22% y/y)
- Direct-to-consumer sales grew 26% y/y on continued growth in e-commerce and physical store operating metrics
- Continued to set the bar for accessible and fun entry into NFT collecting with frequent Digital Pop! NFT drops, including our largest-to-date, DC comics
- Acquired high-end collectible company Mondo, bringing iconic vinyl records, posters, and other collectibles to Funko’s pop culture platform
- “We are thrilled to report record second quarter net sales to cap off the strongest first half net sales in Funko’s history. All of our reported brand categories grew double digits, indicating robust demand across the brand portfolio,” said Andrew Perlmutter, Chief Executive Officer. “As we enter the second half of the year, our focus remains on executing against our four growth pillars, continued innovation in core collectibles, revenue diversification, international expansion and further development of our direct-to-consumer channel.”
Second Quarter 2022 Financial Results
The tables below show the breakdown of net sales on a brand category and geographical basis (in thousands):
| Three Months Ended June 30, | Period Over Period Change | |||||||
| Net sales by brand category: | 2022 | 2021 | Dollar | Percentage | ||||
| Core Collectible Branded Products | $ 233,045 | $ 192,069 | $ 40,976 | 21.3 % | ||||
| Loungefly Branded Products | 69,966 | 32,652 | 37,314 | 114.3 % | ||||
| Other | 12,705 | 11,389 | 1,316 | 11.6 % | ||||
| Total net sales | $ 315,716 | $ 236,110 | $ 79,606 | 33.7 % | ||||
| Three Months Ended June 30, | Period Over Period Change | |||||||
| 2022 | 2021 | Dollar | Percentage | |||||
| Net sales by geography: | ||||||||
| United States | $ 231,196 | $ 163,183 | $ 68,013 | 41.7 % | ||||
| Europe | 63,392 | 52,045 | 11,347 | 21.8 % | ||||
| Other International | 21,128 | 20,882 | 246 | 1.2 % | ||||
| Total net sales | $ 315,716 | $ 236,110 | $ 79,606 | 33.7 % | ||||
Gross margin1 in the second quarter of 2022 decreased 640 basis points to 32.7% compared to 39.1% in the second quarter of 2021, reflecting higher freight costs due to supply chain disruption.
SG&A expenses increased 50.7% to $82.7 million or 26.2% of net sales in the second quarter of 2022, compared to $54.9 million, or 23.2% of net sales in the second quarter of 2021, reflecting higher costs in the second quarter related to the relocation and consolidation of our distribution centers, ERP implementation-related expenses, as well as constrained spending in the second quarter of 2021 due to pandemic disruption.
Net income in the second quarter of 2022 was $15.8 million and net income margin1 was 5.0%, compared to net income of $20.9 million and net income margin1 of 8.9% in the second quarter of 2021. Adjusted Net Income (non-GAAP) was $14.0 million in the second quarter of 2022 versus Adjusted Net Income of $21.7 million in the second quarter of 2021. Adjusted EBITDA2 in the second quarter of 2022 was $31.8 million and Adjusted EBITDA margin2 was 10.1%, compared to $41.1 million and 17.4%, respectively, in the second quarter of 2021. A reconciliation of these non-GAAP measures to GAAP is provided below.
Balance Sheet Highlights
Total liquidity3 as of June 30, 2022 totaled $86.2 million, a decrease of 53.0% compared to June 30, 2021, reflecting normal quarterly variability in cash flows, higher working capital requirements due to supply chain disruptions, and the acquisition of Mondo. Total liquidity was comprised of cash and cash equivalents of $56.2 million and total revolver availability of $30.0 million.
As of June 30, 2022, total debt was $234.5 million, an increase of 32.2% compared to a year ago. Total debt includes the amount outstanding under the Company’s term loan facility, net of unamortized discounts.
Inventories at the end of the second quarter of 2022 totaled $234.0 million, up 170.9% compared to a year ago, reflecting receipt of delayed inventory as pandemic-related supply chain disruptions began to improve toward the end of the quarter.
Outlook
The Company expects the following full year 2022 financial results:
- Net sales of $1.30 to $1.35 billion (+26% to +31% y/y);
- Adjusted EBITDA margin2 of approximately 14.6% at the midpoint of our revenue range, which assumes only modest relief in freight rates through Q4;
- Adjusted Net Income2 of $101.8 million to $107.3 million, based on a blended tax rate of 25%; and
- Adjusted Earnings per Diluted Share2 of $1.88 to $1.99, based on estimated adjusted average diluted shares outstanding of 54.1 million for the full year.
1Gross margin is calculated as net sales less cost of sales (exclusive of depreciation and amortization) as a percentage of net sales.
2Adjusted Net Income, Adjusted Earnings per Diluted Share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a reconciliation of historical Adjusted Net Income, Adjusted Earnings per Diluted 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 Income, Adjusted Earnings per Diluted Share and Adjusted EBITDA margin 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, in 2022 the Company expects equity-based compensation of approximately $13.6 million, depreciation and amortization of approximately $48.5 million, interest expense of approximately $6.2 million, severance and restructuring expenses of approximately $10 million and foreign currency transaction loss of $0.8 million, each of which is a reconciling item to Net Income. See “Non-GAAP Financial Measures” for more information.
3Total liquidity is calculated as cash and cash equivalents plus availability under the Company’s $100 million revolving credit facility.
Funko, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In thousands, except per share data) | |||||||
| Net sales | $ 315,716 | $ 236,110 | $ 624,059 | $ 425,287 | |||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 212,597 | 143,756 | 412,246 | 254,609 | |||
| Selling, general, and administrative expenses | 82,693 | 54,875 | 161,113 | 106,142 | |||
| Depreciation and amortization | 11,483 | 10,188 | 21,954 | 20,450 | |||
| Total operating expenses | 306,773 | 208,819 | 595,313 | 381,201 | |||
| Income from operations | 8,943 | 27,291 | 28,746 | 44,086 | |||
| Interest expense, net | 1,667 | 1,973 | 2,877 | 4,210 | |||
| Other expense (income), net | 435 | (208) | 832 | 971 | |||
| Income before income taxes | 6,841 | 25,526 | 25,037 | 38,905 | |||
| Income tax (benefit) expense | (8,952) | 4,582 | (5,274) | 6,875 | |||
| Net income | 15,793 | 20,944 | 30,311 | 32,030 | |||
| Less: net income attributable to non-controlling
interests |
1,121 | 7,131 | 5,757 | 11,703 | |||
| Net income attributable to Funko, Inc. | $ 14,672 | $ 13,813 | $ 24,554 | $ 20,327 | |||
| Earnings per share of Class A common stock: | |||||||
| Basic | $ 0.34 | $ 0.36 | $ 0.58 | $ 0.55 | |||
| Diluted | $ 0.28 | $ 0.34 | $ 0.53 | $ 0.52 | |||
| Weighted average shares of Class A common stock outstanding: | |||||||
| Basic | 43,741 | 37,881 | 42,042 | 37,047 | |||
| Diluted | 53,824 | 40,555 | 53,976 | 39,207 | |||
Funko, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, 2022
(unaudited) |
December 31, 2021 |
||
| (In thousands, except per share amounts) | |||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ 56,191 | $ 83,557 | |
| Accounts receivable, net | 195,644 | 187,688 | |
| Inventory | 233,974 | 166,428 | |
| Prepaid expenses and other current assets | 37,909 | 14,925 | |
| Total current assets | 523,718 | 452,598 | |
| Property and equipment, net | 94,742 | 58,828 | |
| Operating lease right-of-use assets | 71,358 | 53,466 | |
| Goodwill | 132,464 | 126,651 | |
| Intangible assets, net | 184,089 | 189,619 | |
| Deferred tax asset | 116,542 | 74,412 | |
| Other assets | 15,767 | 11,929 | |
| Total assets | $ 1,138,680 | $ 967,503 | |
| Liabilities and Stockholders’ Equity | |||
| Current liabilities: | |||
| Line of credit | $ 70,000 | $ — | |
| Current portion of long-term debt, net of unamortized discount | 17,427 | 17,395 | |
| Current portion of operating lease liabilities | 17,398 | 14,959 | |
| Accounts payable | 114,218 | 57,238 | |
| Income taxes payable | 417 | 15,994 | |
| Accrued royalties | 49,997 | 58,158 | |
| Accrued expenses and other current liabilities | 113,920 | 121,267 | |
| Total current liabilities | 383,377 | 285,011 | |
| Long-term debt, net of unamortized discount | 147,094 | 155,818 | |
| Operating lease liabilities, net of current portion | 83,230 | 50,459 | |
| Deferred tax liability | 582 | 648 | |
| Liabilities under tax receivable agreement, net of current portion | 100,875 | 75,523 | |
| Other long-term liabilities | 3,559 | 3,486 | |
| Commitments and Contingencies | |||
| Stockholders’ equity: | |||
| Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 46,832 and 40,088 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 5 | 4 | |
| Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 3,293 and 10,691 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | — | 1 | |
| Additional paid-in-capital | 304,258 | 252,505 | |
| Accumulated other comprehensive (loss) income | (2,575) | 1,078 | |
| Retained earnings | 92,604 | 68,050 | |
| Total stockholders’ equity attributable to Funko, Inc. | 394,292 | 321,638 | |
| Non-controlling interests | 25,671 | 74,920 | |
| Total stockholders’ equity | 419,963 | 396,558 | |
| Total liabilities and stockholders’ equity | $ 1,138,680 | $ 967,503 | |
Funko, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | |||
| 2022 | 2021 | ||
| (In thousands) | |||
| Operating Activities | |||
| Net income | $ 30,311 | $ 32,030 | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||
| Depreciation, amortization and other | 21,586 | 19,792 | |
| Equity-based compensation | 7,322 | 6,211 | |
| Amortization of debt issuance costs and debt discounts | 433 | 643 | |
| Other | 2,588 | 1,319 | |
| Changes in operating assets and liabilities, net of amounts acquired: | |||
| Accounts receivable, net | (9,667) | (7,169) | |
| Inventory | (68,921) | (26,383) | |
| Prepaid expenses and other assets | (27,985) | 2,097 | |
| Accounts payable | 57,661 | 8,305 | |
| Income taxes payable | (15,542) | 5,356 | |
| Accrued royalties | (9,776) | 1,531 | |
| Accrued expenses and other liabilities | (18,149) | 27,699 | |
| Net cash (used in) provided by operating activities | (30,139) | 71,431 | |
| Investing Activities | |||
| Purchases of property and equipment | (33,713) | (10,128) | |
| Acquisitions of businesses and related intangible assets, net of cash | (13,968) | (1,001) | |
| Other | 61 | — | |
| Net cash used in investing activities | (47,620) | (11,129) | |
| Financing Activities | |||
| Borrowings on line of credit | 70,000 | — | |
| Payments of long-term debt | (9,000) | (13,875) | |
| Distributions to continuing equity owners | (10,224) | (6,913) | |
| Payments under tax receivable agreement | — | (6) | |
| Proceeds from exercise of equity-based options | 559 | 3,678 | |
| Net cash provided by (used in) financing activities | 51,335 | (17,116) | |
| Effect of exchange rates on cash and cash equivalents | (942) | 33 | |
| Net change in cash and cash equivalents | (27,366) | 43,219 | |
| Cash and cash equivalents at beginning of period | 83,557 | 52,255 | |
| Cash and cash equivalents at end of period | $ 56,191 | $ 95,474 | |
The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income, for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In thousands, except per share data) | |||||||
| Net income attributable to Funko, Inc. | $ 14,672 | $ 13,813 | $ 24,554 | $ 20,327 | |||
| Reallocation of net income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1) | 1,121 | 7,131 | 5,757 | 11,703 | |||
| Equity-based compensation (2) | 3,953 | 3,521 | 7,322 | 6,211 | |||
| Acquisition transaction costs and other expenses (3) | 1,920 | — | 2,850 | — | |||
| Certain severance, relocation and related costs (4) | 5,453 | 56 | 7,133 | 81 | |||
| Foreign currency transaction loss (5) | 434 | (208) | 831 | 971 | |||
| Income tax expense (6) | (13,602) | (2,642) | (16,067) | (4,667) | |||
| Adjusted net income | $ 13,951 | $ 21,671 | $ 32,380 | $ 34,626 | |||
| Adjusted net income margin (7) | 4.4 % | 9.2 % | 5.2 % | 8.1 % | |||
| Weighted-average shares of Class A common stock outstanding-basic | 43,741 | 37,881 | 42,042 | 37,047 | |||
| Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock | 10,083 | 15,972 | 11,935 | 16,537 | |||
| Adjusted weighted-average shares of Class A stock outstanding – diluted | 53,824 | 53,853 | 53,977 | 53,584 | |||
| Adjusted earnings per diluted share | $ 0.26 | $ 0.40 | $ 0.60 | $ 0.65 | |||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (amounts in thousands) | |||||||
| Net income | $ 15,793 | $ 20,944 | $ 30,311 | $ 32,030 | |||
| Interest expense, net | 1,667 | 1,973 | 2,877 | 4,210 | |||
| Income tax (benefit) expense | (8,952) | 4,582 | (5,274) | 6,875 | |||
| Depreciation and amortization | 11,483 | 10,188 | 21,954 | 20,450 | |||
| EBITDA | $ 19,991 | $ 37,687 | $ 49,868 | $ 63,565 | |||
| Adjustments: | |||||||
| Equity-based compensation (2) | 3,953 | 3,521 | 7,322 | 6,211 | |||
| Acquisition transaction costs and other expenses (3) | 1,920 | — | 2,850 | — | |||
| Certain severance, relocation and related costs (4) | 5,453 | 56 | 7,133 | 81 | |||
| Foreign currency transaction loss (5) | 434 | (208) | 831 | 971 | |||
| Adjusted EBITDA | $ 31,751 | $ 41,056 | $ 68,004 | $ 70,828 | |||
| Adjusted EBITDA margin (8) | 10.1 % | 17.4 % | 10.9 % | 16.7 % | |||
| (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) | For the three and six months ended June 30, 2022 includes acquisition-related costs related to investment banking and due diligence fees. |
| (4) | For the three and six months ended June 30, 2022, includes charges related to one-time relocation costs for U.S. warehouse personnel and inventory in connection with the new opening of a warehouse and distribution facility in Buckeye, Arizona. For the three and six months ended June 30, 2021, represents severance, relocation and related costs associated with residual payment of global workforce reduction implemented in response to the COVID-19 pandemic. |
| (5) | 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. |
| (6) | Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented. |
| (7) | Adjusted net income margin is calculated as Adjusted net income as a percentage of net sales. |
| (8) | Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales. |
