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Funko Reports Third Quarter 2024 Financial Results; Updates 2024 Full-Year Outlook image

Funko Reports Third Quarter 2024 Financial Results; Updates 2024 Full-Year Outlook

Q3 Net Sales, Gross Margin and Adjusted EBITDA at High End or Above Expectations- –

Funko, Inc 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.”

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.

 

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.

 

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