Form 8-K Funko, Inc. For: Aug 05
Funko Reports Second Quarter 2021 Sales of $236.1 million, Up 141%
Record Quarter Driven by Broad-Based Strength Across Products, Channels, and Geographies
EVERETT, Wash. August 5, 2021-- Funko, Inc. ("Funko,” or the “Company”) (Nasdaq: FNKO), a leading pop culture consumer products company, today reported its consolidated financial results for the second quarter ended June 30, 2021.
Second Quarter 2021 Financial Highlights
•Net sales increased 141% y/y to $236.1 million
•Gross margin1 expanded 250 basis points y/y to 39%
•SG&A expenses increased 40% y/y to $54.9 million; as a percent of net sales, SG&A declined to 23%
•Net income increased $36.0 million y/y to $20.9 million
•Net income margin1 expanded 2,420 basis points y/y to 9%
•Adjusted EBITDA2 increased $40.8 million y/y to $41.1 million
•Adjusted EBITDA margin2 expanded 1,720 basis points y/y to 17%
•Cash flow from operations of $71.4 million for the six months ended June 30, 2021
•Total liquidity3 increased 96% to $170.5 million
Second Quarter 2021 and Recent Operating Highlights
•Broad-based strength in all geographies - U.S. and Europe surpassed 2019 results, and U.S. net sales increased 110% to $163.2 million, Europe net sales increased 393% to $52.0 million, and Other International net sales rose 117% to $20.9 million over Q2 2020 results.
•Pop! branded products grew 137% on strong evergreen product sales (evergreen properties comprised 65% of total net sales) and a robust calendar of new content.
•Net sales of Other (non-figure) products increased 136%, led by Loungefly branded products which grew 132%, including bags, wallets and accessories, as well as strength in other categories, including games and plush.
•Direct-to-consumer sales increased more than 190% and now comprise 11% of net sales, driven by increased website efficiency coupled with sustained traffic growth.
•Launched first series of Digital Pop! NFTs (August 3, 2021) with Teenage Mutant Ninja Turtles.
“Our teams delivered the largest top line quarter in Company history,” said Brian Mariotti, Chief Executive Officer. “Second quarter net sales more than doubled versus a year ago and also eclipsed 2019 levels, reflecting broad-based strength across our products, channels and regions.”
“We are pleased with our strong year-to-date performance in 2021 and our ability to deliver against our core operating and growth strategies despite the challenges of the pandemic. As we approach the second half of the year, we are continuing to navigate the uncertain macro environment, while remaining focused on delighting and engaging our fans around the world.”
Second Quarter 2021 Financial Results
Net sales increased 141% to $236.1 million in the second quarter of 2021 compared to $98.1 million in the second quarter of 2020. The year-over-year increase reflects the impact of the COVID-19 pandemic in the comparable 2020 period as well as broad-based strength across geographies, products and channels.
In the second quarter of 2021, the number of active properties increased 23% to 795 from 644 in the second quarter of 2020 and net sales per active property increased 95%.
On a geographical basis, net sales in the United States increased 110% to $163.2 million and net sales in Europe increased 393% to $52.0 million. Net sales in other international regions increased 117% to $20.9 million, with all geographies reporting growth.
On a product category basis, net sales of Figures grew 142% to $187.2 million, reflecting strength in the U.S. and Europe, as well as the Company’s e-commerce sites. Net sales of Other (non-figure) products increased 136% to $48.9 million, reflecting strength in Loungefly branded products as well as games and plush.
On a brand basis, Pop! branded products grew 137% to $185.4 million, reflecting strong growth in the U.S. and Europe. Loungefly branded products grew 132% to $29.6 million. Both brands generated strong demand in the U.S. and Europe, as well as strength across our direct-to-consumer channels. Net sales of other branded products increased 193% to $21.1 million driven by board games, plush and action figures.
The tables below show the breakdown of net sales on a geographical, product category and branded product basis (in thousands):
| Three Months Ended June 30, | Period Over Period Change | |||||||||||||||||||||||||
| 2021 | 2020 | Dollar | Percentage | |||||||||||||||||||||||
| Net sales by geography: | ||||||||||||||||||||||||||
| United States | $ | 163,183 | $ | 77,904 | $ | 85,279 | 109.5 | % | ||||||||||||||||||
| Europe | 52,045 | 10,561 | 41,484 | 392.8 | % | |||||||||||||||||||||
| Other International | 20,882 | 9,634 | 11,248 | 116.8 | % | |||||||||||||||||||||
| Total net sales | $ | 236,110 | $ | 98,099 | $ | 138,011 | 140.7 | % | ||||||||||||||||||
| Three Months Ended June 30, | Period Over Period Change | |||||||||||||||||||||||||
| 2021 | 2020 | Dollar | Percentage | |||||||||||||||||||||||
| Net sales by product category: | ||||||||||||||||||||||||||
| Figures | $ | 187,230 | $ | 77,396 | $ | 109,834 | 141.9 | % | ||||||||||||||||||
| Other | 48,880 | 20,703 | 28,177 | 136.1 | % | |||||||||||||||||||||
| Total net sales | $ | 236,110 | $ | 98,099 | $ | 138,011 | 140.7 | % | ||||||||||||||||||
| Three Months Ended June 30, | Period Over Period Change | |||||||||||||||||||||||||
| 2021 | 2020 | Dollar | Percentage | |||||||||||||||||||||||
| Pop! Branded Products | $ | 185,421 | $ | 78,148 | $ | 107,273 | 137.3 | % | ||||||||||||||||||
| Loungefly Branded Products | 29,579 | 12,743 | 16,836 | 132.1 | % | |||||||||||||||||||||
| Other | 21,110 | 7,208 | 13,902 | 192.9 | % | |||||||||||||||||||||
| Total net sales | $ | 236,110 | $ | 98,099 | $ | 138,011 | 140.7 | % | ||||||||||||||||||
Gross margin1 in the second quarter of 2021 increased 250 basis points to 39% compared to 37% in the second quarter of 2020, reflecting a healthy inventory position and fewer clearance events in the quarter.
SG&A expenses increased 40% to $54.9 million or 23% of net sales in the second quarter of 2021 compared to $39.1 million or 40% of net sales in the second quarter of 2020.
Net income in the second quarter of 2021 was $20.9 million and net income margin1 was 9%, compared to a net loss of $15.0 million and net loss margin1 of 15% in the second quarter of 2020. Adjusted Net Income2 (non-GAAP) was $21.7 million in the second quarter of 2021 versus an Adjusted Net Loss of $10.2 million in the second quarter of 2020. Adjusted EBITDA2 in the second quarter of 2021 was $41.1 million and Adjusted EBITDA margin2 was 17.4%, compared to $0.2 million and 0.2%, respectively, in the second quarter of 2020. A reconciliation of these non-GAAP measures to GAAP is provided below.
Balance Sheet Highlights
Total liquidity3 as of June 30, 2021 totaled $170.5 million, an increase of 96% compared to June 30, 2020. Total liquidity was comprised of cash and cash equivalents of $95.5 million and total revolver availability of $75.0 million.
As of June 30, 2021, total debt was $177.4 million, a decrease of 26% 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 2021 totaled $86.4 million, up 43% compared to a year ago.
Outlook
In 2021, the Company expects the following full year results:
•Net sales of $900 million to $930 million;
•Adjusted EBITDA margin2 of 14.0% to 14.5%;
•Adjusted Net Income2 of $57.4 million to $64.2 million, based on a blended tax rate of 25%; and
•Adjusted Earnings per Diluted Share2 of $1.06 to $1.19, based on estimated adjusted average diluted shares outstanding of 54 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. Net Income (Loss) margin is calculated as net income as a percentage of net sales.
2Adjusted Net Income (Loss), Adjusted Earnings (Loss) per Diluted Share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a reconciliation of historical Adjusted Net Income (Loss), Adjusted Earnings (Loss) 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 (Loss), Adjusted Earnings (Loss) 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 2021 the Company expects equity-based compensation of approximately $14 million, depreciation and amortization of approximately $42 million and interest expense of approximately $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 $75 million revolving credit facility.
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, August 5, 2021, to further discuss its second quarter results and business outlook. 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, including macroeconomic trends, our potential for growth, and our strategic growth priorities. 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 quarterly report on Form 10-Q for the quarter ended June 30, 2021 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.
Investor Relations:
investorrelations@funko.com
Media:
pr@funko.com
Funko, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Net sales | $ | 236,110 | $ | 98,099 | $ | 425,287 | $ | 234,799 | |||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 143,756 | 62,182 | 254,609 | 143,599 | |||||||||||||||||||
| Selling, general, and administrative expenses | 54,875 | 39,110 | 106,142 | 86,423 | |||||||||||||||||||
| Depreciation and amortization | 10,188 | 11,071 | 20,450 | 22,060 | |||||||||||||||||||
| Total operating expenses | 208,819 | 112,363 | 381,201 | 252,082 | |||||||||||||||||||
| Income (loss) from operations | 27,291 | (14,264) | 44,086 | (17,283) | |||||||||||||||||||
| Interest expense, net | 1,973 | 2,691 | 4,210 | 5,346 | |||||||||||||||||||
| Other (income) expense, net | (208) | (243) | 971 | 671 | |||||||||||||||||||
| Income (loss) before income taxes | 25,526 | (16,712) | 38,905 | (23,300) | |||||||||||||||||||
| Income tax expense (benefit) | 4,582 | (1,703) | 6,875 | (2,559) | |||||||||||||||||||
| Net income (loss) | 20,944 | (15,009) | 32,030 | (20,741) | |||||||||||||||||||
| Less: net income (loss) attributable to non-controlling interests | 7,131 | (4,424) | 11,703 | (6,030) | |||||||||||||||||||
| Net income (loss) attributable to Funko, Inc. | $ | 13,813 | $ | (10,585) | $ | 20,327 | $ | (14,711) | |||||||||||||||
| Earnings (loss) per share of Class A common stock: | |||||||||||||||||||||||
| Basic | $ | 0.36 | $ | (0.30) | $ | 0.55 | $ | (0.42) | |||||||||||||||
| Diluted | $ | 0.34 | $ | (0.30) | $ | 0.52 | $ | (0.42) | |||||||||||||||
| Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||
| Basic | 37,881 | 35,033 | 37,047 | 34,988 | |||||||||||||||||||
| Diluted | 40,555 | 35,033 | 39,207 | 34,988 | |||||||||||||||||||
Funko, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, 2021 | December 31, 2020 | ||||||||||
| (In thousands, except per share amounts) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 95,474 | $ | 52,255 | |||||||
| Accounts receivable, net | 138,855 | 131,837 | |||||||||
| Inventory | 86,354 | 59,773 | |||||||||
| Prepaid expenses and other current assets | 18,542 | 15,486 | |||||||||
| Total current assets | 339,225 | 259,351 | |||||||||
| Property and equipment, net | 54,000 | 56,141 | |||||||||
| Operating lease right-of-use assets | 55,062 | 58,079 | |||||||||
| Goodwill | 126,806 | 125,061 | |||||||||
| Intangible assets, net | 197,706 | 205,541 | |||||||||
| Deferred tax asset | 69,250 | 54,682 | |||||||||
| Other assets | 4,653 | 4,735 | |||||||||
| Total assets | $ | 846,702 | $ | 763,590 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt, net of unamortized discount | $ | 19,894 | $ | 10,758 | |||||||
| Current portion of operating lease liabilities | 14,646 | 13,840 | |||||||||
| Accounts payable | 38,523 | 29,199 | |||||||||
| Income taxes payable | 5,782 | 425 | |||||||||
| Accrued royalties | 42,056 | 40,525 | |||||||||
| Accrued expenses and other current liabilities | 74,068 | 43,949 | |||||||||
| Total current liabilities | 194,969 | 138,696 | |||||||||
| Long-term debt, net of unamortized discount | 157,498 | 180,012 | |||||||||
| Operating lease liabilities, net of current portion | 53,030 | 57,512 | |||||||||
| Deferred tax liability | 788 | 780 | |||||||||
| Liabilities under tax receivable agreement, net of current portion | 79,929 | 60,297 | |||||||||
| Other long-term liabilities | 5,090 | 3,848 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
| Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 39,245 and 35,657 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 4 | 4 | |||||||||
| Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 11,201 and 14,040 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 1 | 1 | |||||||||
| Additional paid-in-capital | 239,269 | 216,141 | |||||||||
| Accumulated other comprehensive income | 2,048 | 1,718 | |||||||||
| Retained earnings | 44,730 | 24,403 | |||||||||
| Total stockholders’ equity attributable to Funko, Inc. | 286,052 | 242,267 | |||||||||
| Non-controlling interests | 69,346 | 80,178 | |||||||||
| Total stockholders’ equity | 355,398 | 322,445 | |||||||||
| Total liabilities and stockholders’ equity | $ | 846,702 | $ | 763,590 | |||||||
Funko, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Operating Activities | |||||||||||
| Net income (loss) | $ | 32,030 | $ | (20,741) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization and other | 19,792 | 23,342 | |||||||||
| Equity-based compensation | 6,211 | 5,038 | |||||||||
| Amortization of debt issuance costs and debt discounts | 643 | 655 | |||||||||
| Other | 1,319 | 695 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | (7,169) | 54,599 | |||||||||
| Inventory | (26,383) | 218 | |||||||||
| Prepaid expenses and other assets | 2,097 | 12,267 | |||||||||
| Accounts payable | 8,305 | (17,494) | |||||||||
| Income taxes payable | 5,356 | (419) | |||||||||
| Accrued royalties | 1,531 | (15,531) | |||||||||
| Accrued expenses and other liabilities | 27,699 | (10,421) | |||||||||
| Net cash provided by operating activities | 71,431 | 32,208 | |||||||||
| Investing Activities | |||||||||||
| Purchases of property and equipment | (10,128) | (11,676) | |||||||||
| Acquisitions of businesses and related intangible assets, net of cash | (1,001) | — | |||||||||
| Net cash used in investing activities | (11,129) | (11,676) | |||||||||
| Financing Activities | |||||||||||
| Borrowings on line of credit | — | 28,267 | |||||||||
| Payments on line of credit | — | (25,281) | |||||||||
| Debt issuance costs | — | (569) | |||||||||
| Payments of long-term debt | (13,875) | (5,876) | |||||||||
| Distributions to continuing equity owners | (6,913) | (2,675) | |||||||||
| Payments under tax receivable agreement | (6) | (166) | |||||||||
| Proceeds from exercise of equity-based options | 3,678 | 41 | |||||||||
| Net cash used in financing activities | (17,116) | (6,259) | |||||||||
| Effect of exchange rates on cash and cash equivalents | 33 | 1,625 | |||||||||
| Net increase in cash and cash equivalents | 43,219 | 15,898 | |||||||||
| Cash and cash equivalents at beginning of period | 52,255 | 25,229 | |||||||||
| Cash and cash equivalents at end of period | $ | 95,474 | $ | 41,127 | |||||||
Funko, Inc. and Subsidiaries
Non-GAAP Financial Measures
(Unaudited)
EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), earnings (loss) per share or any other performance measure derived in accordance with U.S. GAAP. 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, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items. We define Adjusted Net Income (Loss) as net income (loss) attributable to Funko, Inc. adjusted for the reallocation of income (loss) 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, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items, and the income tax (expense) benefit effect of these adjustments. We define Adjusted Earnings (Loss) per Diluted Share as Adjusted Net Income (Loss) 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 caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures 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 the Non-GAAP Financial Measures:
•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. The Non-GAAP Financial Measures 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 our unaudited condensed consolidated financial statements included elsewhere 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, Non-GAAP Financial Measures 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 U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, certain severance, relocation and related costs, foreign currency transaction gains and losses 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:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Net income (loss) attributable to Funko, Inc. | $ | 13,813 | $ | (10,585) | $ | 20,327 | $ | (14,711) | |||||||||||||||
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) | 7,131 | (4,424) | 11,703 | (6,030) | |||||||||||||||||||
Equity-based compensation (2) | 3,521 | 2,625 | 6,211 | 5,038 | |||||||||||||||||||
Certain severance, relocation and related costs (3) | 56 | 793 | 81 | 1,006 | |||||||||||||||||||
Foreign currency transaction (gain) loss (4) | (208) | (243) | 971 | 671 | |||||||||||||||||||
Income tax (expense) benefit (5) | (2,642) | 1,681 | (4,667) | 1,587 | |||||||||||||||||||
| Adjusted net income (loss) | $ | 21,671 | $ | (10,153) | $ | 34,626 | $ | (12,439) | |||||||||||||||
Adjusted net income (loss) margin (6) | 9.2 | % | (10.3) | % | 8.1 | % | (5.3) | % | |||||||||||||||
| Weighted-average shares of Class A common stock outstanding-basic | 37,881 | 35,033 | 37,047 | 34,988 | |||||||||||||||||||
| Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock | 16,317 | 15,972 | 16,537 | 15,942 | |||||||||||||||||||
| Adjusted weighted-average shares of Class A stock outstanding - diluted | 54,198 | 51,005 | 53,584 | 50,930 | |||||||||||||||||||
| Adjusted earnings (loss) per diluted share | $ | 0.40 | $ | (0.20) | $ | 0.65 | $ | (0.24) | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||
| Net income (loss) | $ | 20,944 | $ | (15,009) | $ | 32,030 | $ | (20,741) | |||||||||||||||
| Interest expense, net | 1,973 | 2,691 | 4,210 | 5,346 | |||||||||||||||||||
| Income tax expense (benefit) | 4,582 | (1,703) | 6,875 | (2,559) | |||||||||||||||||||
| Depreciation and amortization | 10,188 | 11,071 | 20,450 | 22,060 | |||||||||||||||||||
| EBITDA | $ | 37,687 | $ | (2,950) | $ | 63,565 | $ | 4,106 | |||||||||||||||
Adjustments: | |||||||||||||||||||||||
Equity-based compensation (2) | 3,521 | 2,625 | 6,211 | 5,038 | |||||||||||||||||||
Certain severance, relocation and related costs (3) | 56 | 793 | 81 | 1,006 | |||||||||||||||||||
Foreign currency transaction (gain) loss (4) | (208) | (243) | 971 | 671 | |||||||||||||||||||
Adjusted EBITDA | $ | 41,056 | $ | 225 | $ | 70,828 | $ | 10,821 | |||||||||||||||
Adjusted EBITDA margin (7) | 17.4 | % | 0.2 | % | 16.7 | % | 4.6 | % | |||||||||||||||
| (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) | 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. For the three and six months ended June 30, 2020, represents severance, relocation and related costs associated with the consolidation of our warehouse facilities in the United Kingdom and charges related to the global workforce reduction implemented in response to the COVID-19 pandemic. | ||||
| (4) | 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. | ||||
| (5) | Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented. | ||||
| (6) | Adjusted net income (loss) margin is calculated as Adjusted net income (loss) as a percentage of net sales. | ||||
| (7) | Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales. | ||||
Second Quarter 2021 Earnings August 5, 2021
HOLLYWOOD UPDATE 2 Cautionary Notes This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this presentation, including statements regarding our future results of operations and financial position, industry dynamics, our mission, growth opportunities, business strategy and plans and our objectives for future operations, including expanding into new product categories, our e-commerce business, the underlying trends in our business, and the ongoing impact of COVID-19 on our business and expected recovery are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this presentation are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements 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 without limitation 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; risks associated with our internal control over financial reporting; and the important factors discussed under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and our other filings with the Securities and Exchange Commission. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date hereof, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. You should read this presentation with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward- looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this presentation, and except as otherwise required by law, we do not plan to publicly update or revise any forward-looking statements contained in this presentation, whether as a result of any new information, future events or otherwise. Unless otherwise indicated, information contained in this presentation concerning our industry, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described above. These and other factors could cause results to differ materially from those expressed in the estimates made by independent parties and by us.
3 FUNKO 2021 IS BUILT ON THE PRINCIPLE THAT EVERYONE IS A FAN OF SOMETHING…
4 FUNKO 2021 … and Funko Has Something for Every Fan Movies TV Music Sports Anime Games Note: Represents a sampling of our current portfolio offerings as of June, 2021.
HOLLYWOOD UPDATE 5 Q2 Summary and Recent Operational Highlights Q2 2021 Financial Summary Q2 2021 Operational Highlights Net sales increased 140.7% to $236.1 million Gross margin(1) expanded 250 bps to 39.1% SG&A expenses increased 40% to $54.9 million; as a percent of net sales, SG&A declined 1,670 bps to 23.2% Net income increased $36.0 million to $20.9 million Net income margin expanded 2,420 bps to 8.9% Adjusted EBITDA(2) increased $40.8 million to $41.1 million Adjusted EBITDA margin(2) expanded 1,720 bps to 17.4% Cash flow from operations of $71.4 million Total liquidity(3) increased 96% to $170.5 million Broad-based strength in all geographies – US and Europe surpass 2019 results: U.S. net sales increased 110% to $163.2 million, Europe net sales increased 393% to $52.0 million, and Other International increased 117% to $20.9 million Pop! branded products grew 137% on strong evergreen product sales (65% of net sales) and a robust new content calendar Net sales of Other (non-figure) products increased 136%, led by Loungefly branded products which grew 132% including bags, wallets, and accessories, as well as strength in other categories, including games and plush Direct-to-consumer sales increased more than 190% and were 11% of net sales driven by driven by increasing website efficiency coupled with sustained traffic growth Launched of first series of Digital Pop! NFTs with Teenage Mutant Ninja Turtles(4) (1) Gross margin is calculated as net sales less cost of sales (exclusive of depreciation and amortization) as a percentage of net sales. (2) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. Please see the Supplemental Financial Information section for a reconciliation to the most directly comparable US GAAP measures for Adjusted EBITDA. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales. (3) Total liquidity is calculated as cash and cash equivalents plus availability under the Company’s $75.0 million revolving credit facility. (4) Digital Pop! launched August 3, 2021.
HOLLYWOOD UPDATE 6 Q2 Earnings Summary 2Q’21 2Q’20 % Change Net Sales Gross Profit(1) Gross Margin %(1) SG&A D&A Income (Loss) From Operations Operating Margin % Net Income (Loss) Net Income (Loss) Margin % Adjusted Net Income (Loss)(2) Adjusted Net Income (Loss) Margin %(2) Adjusted Earnings (Loss) per Share(2) Adjusted EBITDA(2) Adjusted EBITDA Margin %(2) millions, except per share amounts, unaudited $236.1 140.7% $92.4 157.1% 39.1% $27.3 n/m 11.6% $0.40 n/m $41.1 n/m 17.4% $21.7 n/m 9.2% $20.9 n/m (1) Gross Profit and Gross Margin are calculated exclusive of depreciation and amortization. (2) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin and Adjusted Earnings (Loss) per Share are non-GAAP measures. Please see the Supplemental Financial Information section for a reconciliation to the most directly comparable US GAAP measures for Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Net Sales. Adjusted Net Income (Loss) Margin is defined as Adjusted Net Income (Loss) divided by Net Sales. $54.9 $10.2 (8.0%) 40.3% 8.9% YTD’21 YTD’20 % Change $425.3 81.1% $170.7 87.1% 40.1% $44.1 n/m 10.4% $0.65 n/m $70.8 554.5% 16.7% $34.6 n/m 8.1% $32.0 n/m (7.3%) 22.8%106.1 20.4 7.5% $98.1 $35.9 36.6% ($14.3) (14.5%) ($0.20) $0.2 0.2% ($10.2) (10.3%) ($15.0) 39.1 11.1 (15.3%) $234.8 $91.2 38.8% ($17.3) (7.4%) ($0.24) $10.8 4.6% ($12.4) (5.3%) ($20.7) 86.4 22.1 (8.8%)
HOLLYWOOD UPDATE 7 Q2 Active Properties & Net Sales per Active Property Second Quarter Active Properties up 23% Net Sales per Active Property up 96% Active Properties Net Sales per Active Property Funko is built on having a large and diverse set of licenses with the ability to leverage evergreen content Net sales per active property increased in the quarter reflecting broad-based demand strength $ in thousands, unaudited Active Properties & Net Sales per Active Property Year-to-Date 644 795 $152 $298 $- $100 $200 $300 $400 $500 $600 $700 $800 $900 Q2'20 Q2'21 735 846 $319 $504 $- $100 $200 $300 $400 $500 $600 $700 $800 $900 YTD'20 YTD'21 Active Properties up 15% Net Sales per Active Property up 58%
HOLLYWOOD UPDATE 8 Top Properties Breakout 1 2 3 5 7 4 6 8 9 10 Top 10 Properties % of Net Sales The top property in Q2’21 represented 6% of sales Evergreen properties accounted for 65% of sales in Q2’21 Q3’20 40% 7%* Q2’20 40% Q4’20 33% 6%*9%* Q2’21 Commentary Q1’21 30% 4%* *% of net sales Q2’21 31% 6%*
HOLLYWOOD UPDATE 9 Q2 Product Category Performance 142% Increase 136% Increase The Figures category grew 142% in Q2 driven by broad-based strength across geographies; Funko’s Other product category grew 136% in Q2, driven by strength within our Loungefly branded products as well as board games and plush. $77.4 $187.2 Q2'20 Q2'21 $46.1 $87.4 YTD'20 YTD'21 Figures Second Quarter Year-to-Date Other Second Quarter Year-to-Date $20.7 $48.9 Q2'20 Q2'21 79% Increase 90% Increase $188.7 $337.9 YTD'20 YTD'21 $ in millions, unaudited
HOLLYWOOD UPDATE 10 Something for Everyone FIGURES OTHER *% of net sales for Q2’ 21 79% of Sales* 21% of Sales* Funko is providing fans with an increasingly diverse array of products and categories
HOLLYWOOD UPDATE 11 Q2 Product Brand Performance Pop! 137% Increase Both Pop! and Loungefly branded products generated strong wholesale demand in the U.S. and Europe regions, as well as strength across our direct-to-consumer channels; Other branded products growth was driven by board games, new figure lines and toy offerings Loungefly Other 132% Increase 193% Increase $78.1 $185.4 Q2'20 Q2'21 $12.7 $29.6 Q2'20 Q2'21 $7.2 $21.1 Q2'20 Q2'21 $ in millions, unaudited
HOLLYWOOD UPDATE 12 YTD Product Brand Performance Pop! 76% Increase Loungefly Other 106% Increase 104% Increase $191.2 $335.8 YTD'20 YTD'21 $26.2 $54.1 YTD'20 YTD'21 $17.4 $35.4 YTD'20 YTD'21 $ in millions, unaudited
HOLLYWOOD UPDATE 13 Q2 Geographic Performance United States 110% Increase The United States region grew 109% with strength across all channels and product categories; Europe grew 393%, with results exceeding 2019 levels on region-wide recovery; Other International grew 117% with all regions generating growth in the quarter Europe Other International 393% Increase 117% Increase $77.9 $163.2 Q2'20 Q2'21 $10.6 $52.0 Q2'20 Q2'21 $9.6 $20.9 Q2'20 Q2'21 $ in millions, unaudited
HOLLYWOOD UPDATE 14 YTD Geographic Performance United States 70% Increase Europe Other International 154% Increase 52% Increase $176.4 $299.7 YTD'20 YTD'21 $36.1 $91.8 YTD'20 YTD'21 $22.2 $33.8 YTD'20 YTD'21 $ in millions, unaudited
HOLLYWOOD UPDATE 15 Q2 & TD Adjusted EBITDA(1) Adjusted EBITDA(1) Second Quarter Year-to-Date Adjusted EBITDA Margin(1) (1) See Supplemental Financial Information section for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to the most directly comparable US GAAP measure. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales. 0.2% 17.4% 6.6%4.6% 16.7 Healthy inventory, less clearance activity and a shift in marketing spend drove Adjusted EBITDA margin(1) improvement to 17.4% in Q2 $ in millions, unaudited $0.2 $41.1 Q2'20 Q2'21 $10.8 $70.8 YTD'20 YTD'21
HOLLYWOOD UPDATE 16 Q2 & TD Adjusted Net Income (Loss)(1) (1) See Supplemental Financial Information section for a reconciliation of Adjusted Net Income (Loss), a non-GAAP measure, to the most directly comparable US GAAP measure. Adjusted Net Income Margin is defined as Adjusted Net Income (Loss) divided by net sales. Adjusted Net Income (Loss)(1) Second Quarter Year-to-Date Adjusted Net Income (Loss) Margin(1) (10.3%) 9.2% 6%(5.3%) 8.1 Q2 Adjusted Net Income (Loss) margin(1) improved significantly due to much greater operating leverage from higher sales $ in millions, unaudited $(12.4) $34.6 YTD'20 YTD'21 ($10.2) $21.7 Q2'20 Q2'21
HOLLYWOOD UPDATE 17 Key Balance Sheet Highlights (1) Total Debt is defined as the amount outstanding under the Company’s Line of Credit plus Current Portion of Long-Term Debt, Net of Unamortized Discount plus Long-Term Debt, Net of Unamortized Discount (2) Total liquidity is calculated as cash and cash equivalents plus availability under the Company’s $75.0 million revolving credit facility. 6/30/2020 YoY % Change Cash & Cash Equivalents Accounts Receivable, net Inventory Total Debt(1) $41.1 $94.1 $60.4 $239.9 $ in millions, unaudited 132.1% 47.6% 43.1% (26.1%) 6/30/2021 $95.5 $138.9 $86.4 $177.4 Total Liquidity(2) $87.0 95.9%$170.5
HOLLYWOOD UPDATE 18 Liquidity Overview (1) Total liquidity is calculated as cash and cash equivalents plus availability under the Company’s $75.0 million revolving credit facility. Funko’s liquidity position remains strong and increased 96% from Q2’20 levels to $170.5 million Total Liquidity(1) $101.7 $87.0 $106.9 $127.3 $149.7 $170.5 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 2020 2021 $ in millions, unaudited
HOLLYWOOD UPDATE 19 Debt Overview (1) Total Debt is defined as the amount outstanding under the Company’s Line of Credit plus Current Portion of Long-Term Debt, Net of Unamortized Discount plus Long-Term Debt, Net of Unamortized Discount Total debt decreased 26% versus Q2’20 Total Debt(1) $242.5 $239.9 $208.1 $190.8 $183.0 $177.4 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 $ in millions, unaudited 2020 2021
Supplemental Financial Information
HOLLYWOOD UPDATE 21 Condensed Consolidated Statements of Operations (Unaudited) 2021 2020 2021 2020 Net sales $ 236,110 $ 98,099 $ 425,287 $ 234,799 Cost of sales (exclusive of depreciation and amortization shown separately below) 143,756 62,182 254,609 143,599 Selling, general, and administrative expenses 54,875 39,110 106,142 86,423 Depreciation and amortization 10,188 11,071 20,450 22,060 Total operating expenses 208,819 112,363 381,201 252,082 Income (loss) from operations 27,291 (14,264) 44,086 (17,283) Interest expense, net 1,973 2,691 4,210 5,346 Other (income) expense, net (208) (243) 971 671 Income (loss) before income taxes 25,526 (16,712) 38,905 (23,300) Income tax expense (benefit) 4,582 (1,703) 6,875 (2,559) Net income (loss) 20,944 (15,009) 32,030 (20,741) Less: net income (loss) attributable to non-controlling interests 7,131 (4,424) 11,703 (6,030) Net income (loss) attributable to Funko, Inc. $ 13,813 $ (10,585) $ 20,327 $ (14,711) Earnings (loss) per share of Class A common stock: Basic $ 0.36 $ (0.30) $ 0.55 $ (0.42) Diluted $ 0.34 $ (0.30) $ 0.52 $ (0.42) Weighted average shares of Class A common stock outstanding: Basic 37,881 35,033 37,047 34,988 Diluted 40,555 35,033 39,207 34,988 Three Months Ended June 30, (In thousands, except per share data) Six Months Ended June 30,
HOLLYWOOD UPDATE 22 Condensed Consolidated Balance Sheets (Unaudited) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 95,474 $ 52,255 Accounts receivable, net 138,855 131,837 Inventory 86,354 59,773 Prepaid expenses and other current assets 18,542 15,486 Total current assets 339,225 259,351 Property and equipment, net 54,000 56,141 Operating lease right-of-use assets 55,062 58,079 Goodwill 126,806 125,061 Intangible assets, net 197,706 205,541 Deferred tax asset 69,250 54,682 Other assets 4,653 4,735 Total assets $ 846,702 $ 763,590 Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt, net of unamortized discount $ 19,894 $ 10,758 Current portion of operating lease liabilities 14,646 13,840 Accounts payable 38,523 29,199 Income taxes payable 5,782 425 Accrued royalties 42,056 40,525 Accrued expenses and other current liabilities 74,068 43,949 Total current liabilities 194,969 138,696 Long-term debt, net of unamortized discount 157,498 180,012 Operating lease liabilities, net of current portion 53,030 57,512 Deferred tax liability 788 780 Liabilities under tax receivable agreement, net of current portion 79,929 60,297 Other long-term liabilities 5,090 3,848 Commitments and Contingencies Stockholders’ equity: Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 39,245 and 35,657 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 4 4 Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 11,201 and 14,040 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in-capital 239,269 216,141 Accumulated other comprehensive income 2,048 1,718 Retained earnings 44,730 24,403 Total stockholders’ equity attributable to Funko, Inc. 286,052 242,267 Non-controlling interests 69,346 80,178 Total stockholders’ equity 355,398 322,445 Total liabilities and stockholders’ equity $ 846,702 $ 763,590 (In thousands, except per share amounts)
HOLLYWOOD UPDATE 23 Condensed Consolidated Statements of Cash Flows (Unaudited) 2021 2020 Operating Activities Net income (loss) $ 32,030 $ (20,741) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and other 19,792 23,342 Equity-based compensation 6,211 5,038 Amortization of debt issuance costs and debt discounts 643 655 Other 1,319 695 Changes in operating assets and liabilities: Accounts receivable, net (7,169) 54,599 Inventory (26,383) 218 Prepaid expenses and other assets 2,097 12,267 Accounts payable 8,305 (17,494) Income taxes payable 5,356 (419) Accrued royalties 1,531 (15,531) Accrued expenses and other liabilities 27,699 (10,421) Net cash provided by operating activities 71,431 32,208 Investing Activities Purchases of property and equipment (10,128) (11,676) Acquisitions of businesses and related intangible assets, net of cash (1,001) - Net cash used in investing activities (11,129) (11,676) Financing Activities Borrowings on line of credit - 28,267 Payments on line of credit - (25,281) Debt issuance costs - (569) Payments of long-term debt (13,875) (5,876) Distributions to continuing equity owners (6,913) (2,675) Payments under tax receivable agreement (6) (166) Proceeds from exercise of equity-based options 3,678 41 Net cash used in financing activities (17,116) (6,259) Effect of exchange rates on cash and cash equivalents 33 1,625 Net increase in cash and cash equivalents 43,219 15,898 Cash and cash equivalents at beginning of period 52,255 25,229 Cash and cash equivalents at end of period $ 95,474 $ 41,127 Six Months Ended June 30, (In thousands)
HOLLYWOOD UPDATE 24 Reconciliation of Non-GAAP Financial Metrics (Unaudited) 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. 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. For the three and six months ended June 30, 2020, represents severance, relocation and related costs associated with the consolidation of our warehouse facilities in the United Kingdom and charges related to the global workforce reduction implemented in response to the COVID-19 pandemic. 4. 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. 5. Represents the income tax (expense) benefit effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented. 6. Adjusted net income (loss) margin is calculated as Adjusted net income (loss) as a percentage of net sales. 2021 2020 2021 2020 Net income (loss) attributable to Funko, Inc. $ 13,813 $ (10,585) $ 20,327 $ (14,711) 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) 7,131 (4,424) 11,703 (6,030) Equity-based compensation (2) 3,521 2,625 6,211 5,038 Certain severance, relocation and related costs (3) 56 793 81 1,006 Foreign currency transaction (gain) loss (4) (208) (243) 971 671 Income tax (expense) benefit (5) (2,642) 1,681 (4,667) 1,587 Adjusted net income (loss) $ 21,671 $ (10,153) $ 34,626 $ (12,439) Adjusted net income (loss) margin (6) 9.2 % (10.3)% 8.1 % (5.3)% Weighted-average shares of Class A common stock outstanding-basic 37,881 35,033 37,047 34,988 Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock 16,317 15,972 16,537 15,942 Adjusted weighted-average shares of Class A stock outstanding - diluted 54,198 51,005 53,584 50,930 Adjusted earnings (loss) per diluted share $ 0.40 $ (0.20) $ 0.65 $ (0.24) Three Months Ended June 30, (In thousands, except per share data) Six Months Ended June 30,
25 Reconciliation of Non-GAAP Financial Metrics (Unaudited) 1. Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards. 2. 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. For the three and six months ended June 30, 2020, represents severance, relocation and related costs associated with the consolidation of our warehouse facilities in the United Kingdom and charges related to the global workforce reduction implemented in response to the COVID-19 pandemic. 3. 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. 4. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales. 2021 2020 2021 2020 Net income (loss) $ 20,944 $ (15,009) $ 32,030 $ (20,741) Interest expense, net 1,973 2,691 4,210 5,346 Income tax expense (benefit) 4,582 (1,703) 6,875 (2,559) Depreciation and amortization 10,188 11,071 20,450 22,060 EBITDA $ 37,687 $ (2,950) $ 63,565 $ 4,106 Adjustments: Equity-based compensation (1) 3,521 2,625 6,211 5,038 Certain severance, relocation and related costs (2) 56 793 81 1,006 Foreign currency transaction (gain) loss (3) (208) (243) 971 671 Adjusted EBITDA $ 41,056 $ 225 $ 70,828 $ 10,821 Adjusted EBITDA margin (4) 17.4 % 0.2 % 16.7 % 4.6 % Three Months Ended June 30, (amounts in thousands) Six Months Ended June 30,
