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

EVERETT, Wash.--(BUSINESS WIRE)-- Funko, Inc. (Nasdaq: FNKO), a leading pop culture lifestyle brand, today 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."

Third Quarter 2024 Net Sales by Category and Geography

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

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:

*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.

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, November 7, 2024, to further discuss its third quarter results and business update. A live webcast and a 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.

Use of Non-GAAP Financial Measures

This release contains references to non-GAAP financial measures, including adjusted net income (loss), including per share amounts, adjusted EBITDA, adjusted EBITDA margin and adjusted net income (loss) margin, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Management uses these measures internally for evaluating its operating performance, for planning purposes, including the preparation of our annual operating budget and financials projections, and to assess incentive compensation for our employees, and to evaluate our capacity to expand our business. In addition, our senior secured credit facilities use adjusted EBITDA to measure our compliance with covenants, such as senior leverage ratio. The company's management believes that the presentation of non-GAAP financial measures provides useful supplementary information regarding operational performance because it enhances an investor's overall understanding of the financial results for the company's core business. Additionally, it provides a basis for the comparison of the financial results for the company's core business between current, past and future periods as they remove the impact of items not directly resulting from our core operations. The company also believes that including adjusted EBITDA and the other non-GAAP financial measures presented in this release is appropriate to provide additional information to investors and help to compare against other companies in our industry. Non-GAAP financial measures have limitations as analytical tools and should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP. We caution investors that amounts presented in accordance with our definitions of adjusted net income (loss), including per share amounts, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate these measures in the same manner.

Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the financial tables following this release.

About Funko

Headquartered in Everett, Washington, Funko is a leading pop culture lifestyle brand. 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 X (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 product offerings and strategic plan, anticipated financial results, including without limitation, equity-based compensation and financial position. 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: our ability to execute our business strategy; our ability to manage our inventories and growth; our ability to maintain and realize the full value of our license agreements; impacts from economic downturns; 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 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 climate change; increased attention to sustainability and environmental, social and governance initiatives; geographic concentration of our operations; risks associated with our international operations; changes in effective tax rates or tax law; 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; future development and acceptance of blockchain networks; risks associated with receiving payments in digital assets; risk resulting from our e-commerce business and social media presence; our ability to successfully operate our information systems and implement new technology; risks relating to our indebtedness, including our ability to comply with financial and negative covenants under our Credit Agreement, as amended; our ability to secure additional financing on favorable terms or at all; the potential for our or our third-party providers’ electronic data or the electronic data of our customers to be compromised; the influence of our significant stockholder, TCG, and the possibility that TCG’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 September 30, 2024 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.

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:

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Source: Funko, Inc.