Affordability and stingier consumer spending are some of the key themes in macro headlines today, and though the stock market is up double digits in 2025, we should expect these headwinds to continue well into 2026. Watch out, in particular, for consumer discretionary stocks thatWith combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the ...

Core Insights - Funko, Inc. has launched a new artist-driven product line called Premium Blind Box, featuring two new series: Kiguzoomies and Funko Fun Squad [1] - The new product line builds on Funko's established success with blind box collectibles, emphasizing original artistry, bold creativity, and community engagement [1] - Future plans include expanding this vision through collaborations [1]

Core Insights - Funko's shares increased by 9.8% following the release of its third-quarter 2025 financial results, which showed a significant profit beat despite revenue falling short of expectations [1][2] Financial Performance - Net sales for Funko were reported at $250.9 million, a decline of 14.3% year-over-year, which missed analyst forecasts [2] - The company's adjusted earnings per share (EPS) were $0.06, exceeding the consensus estimate of a loss, indicating strong profitability [2] - Adjusted EBITDA reached $24.43 million, outperforming expectations by over 60%, reflecting effective cost management [2] Market Reaction - The stock closed at $3.33, marking a 10.3% increase from the previous close, indicating positive investor sentiment [3] - Funko's shares have shown extreme volatility, with 57 moves greater than 5% in the past year, suggesting that while today's movement is significant, it may not fundamentally alter market perception [4] Broader Market Context - The tech-heavy Nasdaq index fell approximately 1.4%, reflecting a wave of caution in the market, particularly affecting high-growth technology companies [5] - Leadership at Goldman Sachs and Morgan Stanley indicated a potential correction in equity markets over the next couple of years, viewing this cooling-off period as a healthy aspect of a long-term bull market [6]

Core Insights - Funko reported Q3 CY2025 revenue of $250.9 million, falling short of analyst expectations of $262 million, representing a 14.3% year-on-year decline [5] - The company achieved a non-GAAP profit of $0.06 per share, significantly exceeding analysts' consensus estimates of -$0.09 [5] Revenue Performance - Revenue of $250.9 million was a 14.3% decline year-on-year and a 4.2% miss against expectations [5] - Adjusted EBITDA was $24.43 million, beating estimates of $15 million, with a margin of 9.7% [5] Management Strategy - Management emphasized cost control and product strategy as key drivers for adjusted profitability, despite revenue shortfalls [3] - The CEO highlighted SKU rationalizations, reduced clearance sales, and price increases as effective measures to offset tariff pressures [3][4] Licensing and Partnerships - Funko secured multiyear licensing agreements with major studios like Warner Bros, NBC Universal, and Disney, enhancing its portfolio of over 900 active licenses [6] - These partnerships are viewed as critical for maintaining access to popular franchises and supporting future product launches [6] International Growth - Management noted strong double-digit growth in Europe, contrasting with a more subdued U.S. market [6] - Recent production shifts from China to Vietnam are expected to improve supply chain flexibility, despite minor delays [6] Product Innovation - New product formats, such as Bitty Pop! mini vinyl figures, have gained traction, with early success noted in Walmart's holiday campaign [6][7] - The company plans to leverage its speed-to-market advantage to capitalize on emerging pop culture trends [7] Direct-to-Consumer Strategy - Funko is enhancing its e-commerce experience and rolling out customization kiosks, including AI-powered builders and vending machine pilots [7] - These initiatives are seen as differentiators in a competitive collectibles market [7]

Financial Data and Key Metrics Changes - Total net sales for Q3 2025 were $250.9 million, in line with expectations, but down approximately $11 million year-over-year due to SKU rationalizations and reduced clearance sales [22][23] - Gross profit was $100.8 million, resulting in a gross margin of 40.2%, which was better than expected, with price increases offsetting increased tariffs [23] - Adjusted net income was $3.2 million, or 6 cents per diluted share, while adjusted EBITDA was $24.4 million, higher than expectations [23][24] - Direct-to-consumer sales mix decreased to 18% from 20% in the previous year due to reduced marketing spend [23] Business Line Data and Key Metrics Changes - The company celebrated the milestone of 1 billion units sold, with a 27% increase in membership in the fan loyalty program since the start of the year [7][8] - The anime segment represented 30% of sales in Q3, becoming the second largest fan vertical [15] - The introduction of Biddy Pop mini vinyl figures has been successful, making Walmart's 2025 top toy list and expected to be placed in 1,800 stores [16][20] Market Data and Key Metrics Changes - Global point-of-sale (POS) units were down only 3% year-over-year, with the U.S. market experiencing mid to high single-digit declines while EMEA saw low double-digit growth [32][33] - The company noted a cautious approach from U.S. buyers, while European markets showed stronger momentum [34] Company Strategy and Development Direction - The "Make Culture Pop" strategy focuses on culture, creativity, and commerce, aiming to transform pop culture into products and expand into new fandoms [9][20] - The company plans to enhance its international presence, particularly in Asia and Latin America, and improve direct-to-consumer capabilities [19][20] - Recent multi-year renewal agreements with major licensing partners, including Disney and Warner Bros., strengthen the company's competitive position [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain momentum and transform for growth, emphasizing the importance of operationalizing quick responses to trends [30][31] - The outlook for Q4 2025 includes modest net sales growth driven by new product launches and a gross margin of approximately 40% [24] Other Important Information - The company has engaged advisors for its refinancing process, which is ongoing, and has amended existing credit facilities to waive financial covenants for Q2 and Q3 [25] - The company has maintained a gross margin above 40% in six of the last seven quarters, indicating improved business quality [24][26] Q&A Session Summary Question: Opportunities for the next 12 months - Management highlighted the focus on maintaining performance momentum and expanding in areas like sports and music, with operationalizing quick strike capabilities as a priority [28][29] Question: Retail environment for Q4 - Management noted strong POS trends and a mix of cautiousness in the U.S. and momentum in Europe, with a significant content slate for Q4 [32][34] Question: Market for vending machines and kiosks - The company sees the Pop Yourself experience as unique and plans to create more experiences within retail partners' spaces [36] Question: European sales outlook - Management expects European sales to recover in Q4 following production delays and the launch of Pop Yourself [38] Question: Impact of pricing on demand - Management reported that price increases have been well-received, with unit sales holding up despite some market challenges [39]

Financial Performance - Net sales for the three months ended September 30, 2025, were $250.9 million, a decrease of 14.3% compared to $292.8 million for the same period in 2024[111] - Net income for the three months ended September 30, 2025, was $0.9 million, down 79.2% from $4.6 million in the same period in 2024[121] - Net sales for the nine months ended September 30, 2025, were $635.1 million, a decrease of 16.0% from $756.1 million in the same period of 2024[123] - Net loss for the nine months ended September 30, 2025, was $68.1 million, compared to a net loss of $13.7 million in the same period of 2024[133] - Net income attributable to Funko, Inc. for Q3 2025 was $901,000, a decrease from $4.33 million in Q3 2024, while the nine-month net loss was $67.18 million compared to a loss of $13.22 million in the same period last year[139] - Adjusted net income for Q3 2025 was $3.22 million, down from $7.95 million in Q3 2024, with a nine-month adjusted net loss of $41.30 million compared to a profit of $4.28 million in the prior year[139] - EBITDA for Q3 2025 was $22.32 million, down from $26.15 million in Q3 2024, while the nine-month EBITDA was a loss of $6.89 million compared to $51.98 million in the same period last year[139] Sales Breakdown - Net sales in the United States decreased by 20.1% to $155.4 million for the three months ended September 30, 2025, compared to $194.4 million in 2024[112] - Net sales in Europe decreased by 0.4% to $74.2 million for the three months ended September 30, 2025, compared to $74.5 million in 2024[112] - Net sales of the Core Collectible branded category decreased by 12.0% to $200.4 million for the three months ended September 30, 2025, compared to $227.8 million in 2024[113] - Other branded category net sales decreased by 67.0% to $5.8 million for the three months ended September 30, 2025, compared to $17.6 million in 2024, primarily due to rationalizing underperforming items[113] - Net sales in the United States decreased by 22.7% to $389.6 million, while net sales in Europe increased by 1.6% to $192.1 million[124] - The Core Collectible branded category saw a 12.1% decrease in net sales to $502.4 million, and the Loungefly category decreased by 13.6% to $111.9 million[125] Cost and Expenses - Gross margin for the three months ended September 30, 2025, was 40.2%, a decrease from 40.9% in the same period in 2024, primarily due to increased shipping, freight, and duty costs[115] - Cost of sales for the three months ended September 30, 2025, was $150.2 million, a decrease of 13.2% from $173.0 million in the same period in 2024[114] - Cost of sales (exclusive of depreciation and amortization) was $395.5 million, down 11.3% from $446.0 million in the prior year[126] - Gross margin (exclusive of depreciation and amortization) decreased to 37.7% from 41.0% due to increased shipping, freight, and duty costs[127] - Selling, general, and administrative expenses decreased by 13.9% to $79.8 million for the three months ended September 30, 2025, compared to $92.7 million in 2024[116] - Selling, general, and administrative expenses were $246.9 million, a decrease of 3.6% from $256.2 million in the previous year[128] Cash Flow and Liquidity - Net cash used in operating activities for the nine months ended September 30, 2025, was $33.21 million, a significant decline from $63.74 million provided in the same period of 2024[152] - Net cash used in investing activities was $23.0 million, primarily for tooling and molds, compared to $13.4 million in the same period of 2024[154] - Net cash provided by financing activities was $57.8 million, mainly from net borrowings of $75.0 million on the Revolving Line of Credit Facility, offset by $17.3 million in payments on loans[156] - As of September 30, 2025, total indebtedness included $99.2 million under the Term Loan Facility and $135.0 million under the Revolving Credit Facility[157] - The company had $39.2 million in cash and cash equivalents and $(157.5) million in working capital as of September 30, 2025, compared to $34.7 million and $(18.7) million respectively at the end of 2024[166] - The company expects significant future liquidity needs for tax distributions, interest payments, and capital expenditures, including a new ERP system[170] Financial Covenants and Compliance - The company anticipates potential non-compliance with financial covenants under its Credit Agreement, raising substantial doubt about its ability to continue as a going concern for the next twelve months[142] - The Credit Agreement includes a term loan facility of $180 million and a revolving credit facility of $100 million, with maturity in September 2026[141] - The company anticipates non-compliance with the maximum Net Leverage Ratio and minimum Fixed Charge Coverage Ratio covenants by December 31, 2025[161] Market Risks and Challenges - The company has experienced adverse impacts from the challenging retail environment and announced tariffs, which are expected to continue affecting performance[144] - The company is exposed to market risks from changes in interest rates, foreign currency, and inflation[177] - There have been no material changes in market risk compared to the previous disclosure in the 2024 10-K[177] Strategic Plans - Management's liquidity plan includes monitoring pricing strategies, reducing overhead costs, and potentially shifting manufacturing out of China to mitigate increasing costs[148] - The company plans to raise additional cash through equity or debt issuance and is considering strategic alternatives, including a potential sale of the company[149] - The Form S-3 registration statement allows the company to offer up to $100.0 million of various securities, effective until August 15, 2028[163] Seasonal Trends - Over 50% of net sales historically occur in the third and fourth quarters, indicating a seasonal trend in sales[171] Accounting Policies - Critical accounting policies include revenue recognition, inventory, and goodwill assessments, which could materially affect financial results[173]

Group 1 - The article does not provide any relevant content regarding company or industry insights [1]

Q3 Supplemental Information NOVEMBER 2025 Funko, LLC © 2025 Cautionary Notes This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our future results of operations and financial position, industry dynamics, business strategy and plans and our objectives for fut ...

Financial Performance - Net sales for Q3 2025 were $250.9 million, a decrease of 14.3% from $292.8 million in Q3 2024[5] - Gross profit was $100.8 million, resulting in a gross margin of 40.2%, compared to a gross margin of 40.9% in the previous year[6] - Net income for Q3 2025 was $0.9 million, or $0.02 per diluted share, down from $4.6 million, or $0.08 per diluted share in Q3 2024[6] - Adjusted EBITDA for Q3 2025 was $24.4 million, compared to $31.0 million in Q3 2024[6] - Funko, Inc. reported a net loss of $68,115,000 for the nine months ended September 30, 2025, compared to a net loss of $13,650,000 for the same period in 2024[22] - Adjusted EBITDA for the nine months ended September 30, 2025, was $3,238,000, a decrease from $68,476,000 for the same period in 2024[23] - The company reported an adjusted net loss margin of 6.5% for the nine months ended September 30, 2025, compared to 0.6% for the same period in 2024[23] Debt and Liabilities - Total debt increased to $241.0 million as of September 30, 2025, up from $182.8 million at the end of 2024[11] - The company's total liabilities rose significantly to $641,658,000 as of September 30, 2025, compared to $470,097,000 as of December 31, 2024, marking an increase of 36.5%[20] - Funko, Inc. experienced a significant increase in the line of credit, which rose to $135,000,000 as of September 30, 2025, compared to $60,000,000 as of December 31, 2024[20] Assets and Equity - Total current assets increased to $299,943,000 as of September 30, 2025, up from $287,059,000 as of December 31, 2024, representing a growth of 4.5%[20] - Cash and cash equivalents at the end of the period were $39,177,000, an increase from $34,655,000 at the beginning of the period, reflecting a net change of 11.5%[21] - The company’s total stockholders' equity attributable to Funko, Inc. decreased to $182,684,000 as of September 30, 2025, down from $233,019,000 as of December 31, 2024, a decline of 21.6%[20] Inventory and Expenses - Inventories increased to $99.8 million at September 30, 2025, from $92.6 million at December 31, 2024[11] - SG&A expenses were $79.8 million, including a non-recurring charge of $1.0 million, compared to $92.7 million with a non-recurring charge of $0.4 million in the prior year[6] - Funko, Inc. recorded depreciation and amortization expenses of $44,319,000 for the nine months ended September 30, 2025, slightly down from $46,409,000 in 2024[22] - The company’s inventories increased to $99,805,000 as of September 30, 2025, up from $92,580,000 as of December 31, 2024, indicating an increase of 7.3%[20] Strategic Initiatives - The Bitty Pop! line contributed significantly to sales, being featured on Walmart's 2025 Top Toy List[3] - The company expects modest net sales growth from Q3 2025 and a gross margin of approximately 40% for Q4 2025[11] - The company plans to continue expanding into new fandoms and enhancing retail experiences as part of its Make Culture POP! strategy[4]

Core Viewpoint - A prudent approach is recommended for Funko (NASDAQ: FNKO) shares due to limited visibility in the interim, lack of strategic communication, and increased margin pressure dynamics [1] Company Analysis - Funko has successfully established a well-known brand, but faces persistent challenges that may impact its future performance [1] Investment Strategy - The analysts behind the profile focus on uncovering overlooked investment ideas through a second-level thinking approach, aiming for asymmetric results by understanding the company deeply [1]