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Funko Reports Second Quarter 2022 Net Sales of $315.7 million, Up 33.7%    image

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.

 

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