Funko(FNKO) - 2025 Q2 - Quarterly Results

Executive Summary Second Quarter 2025 Performance Overview Funko reported a challenging second quarter for 2025, with significant declines across key financial metrics, including net sales, gross profit, and a shift from net income to a substantial net loss, primarily attributed to a dynamic tariff environment Second Quarter Financial Results Summary (2025 vs 2024) | Metric | 2025 (Millions) | 2024 (Millions) | Dollar Change (Millions) | Percentage Change | | :----------------------- | :-------------- | :-------------- | :----------------------- | :---------------- | | Net sales | $193.5 | $247.7 | $(54.2) | (21.9)% | | Gross profit | $62.0 | $104.0 | $(42.0) | (40.4)% | | Gross margin | 32.1% | 42.0% | - | - | | SG&A expenses | $82.3 | $77.9 | $4.4 | 5.6% | | Net (loss) income | $(41.0) | $5.4 | $(46.4) | (859.3)% | | Net (loss) income per share | $(0.74) | $0.10 | $(0.84) | (840.0)% | | Adjusted net (loss) income* | $(26.7) | $5.6 | $(32.3) | (576.8)% | | Adjusted net (loss) income per share* | $(0.48) | $0.10 | $(0.58) | (580.0)% | | Adjusted EBITDA* | $(16.5) | $27.9 | $(44.4) | (159.1)% | Management's Strategic Commentary Interim CEO Mike Lunsford acknowledged the adverse impact of tariffs on Q2 performance and outlined strategic initiatives for the second half of 2025, focusing on cost reduction, product sourcing diversification, and price adjustments to stabilize the business and accelerate growth - Q2 2025 performance was impacted by a "dynamic and uncertain tariff environment"[4] - Expects headwinds to moderate and business to improve in H2 due to actions taken[4] - Strategic actions include cutting costs, diversifying product sourcing, and adjusting prices[4] - Team is focused on stabilizing the business, accelerating execution on growth initiatives, and unlocking Funko's long-term potential[4] Detailed Financial Results Net Sales Analysis Funko experienced a significant 21.9% year-over-year decline in total net sales for Q2 2025, driven by decreases across all brand categories and geographical segments, with the United States showing the steepest decline Net Sales by Brand Category Net Sales by Brand Category (Three Months Ended June 30) | Brand Category | 2025 (Thousands) | 2024 (Thousands) | Dollar Change (Thousands) | Percentage Change | | :--------------- | :--------------- | :--------------- | :------------------------ | :---------------- | | Core Collectible | $157,477 | $186,738 | $(29,261) | (15.7)% | | Loungefly | $31,847 | $41,483 | $(9,636) | (23.2)% | | Other | $4,145 | $19,436 | $(15,291) | (78.7)% | | Total net sales | $193,469 | $247,657 | $(54,188) | (21.9)% | Net Sales by Geography Net Sales by Geography (Three Months Ended June 30) | Geography | 2025 (Thousands) | 2024 (Thousands) | Dollar Change (Thousands) | Percentage Change | | :---------------- | :--------------- | :--------------- | :------------------------ | :---------------- | | United States | $117,874 | $163,021 | $(45,147) | (27.7)% | | Europe | $57,784 | $60,382 | $(2,598) | (4.3)% | | Other International | $17,811 | $24,254 | $(6,443) | (26.6)% | | Total net sales | $193,469 | $247,657 | $(54,188) | (21.9)% | Profitability Metrics The company's profitability significantly deteriorated in Q2 2025, with gross profit declining by over 40% and gross margin contracting by nearly 10 percentage points, leading to a substantial net loss and negative adjusted EBITDA, contrasting sharply with the prior year's positive figures Key Profitability Metrics (Three Months Ended June 30) | Metric | 2025 (Thousands) | 2024 (Thousands) | Change (YoY) (Thousands) | | :---------------------------------- | :--------------- | :--------------- | :----------------------- | | Gross profit | $62,040 | $104,048 | $(42,008) | | Gross margin | 32.1% | 42.0% | (9.9) pp | | SG&A expenses | $82,259 | $77,897 | $4,362 | | (Loss) income from operations | $(34,747) | $10,732 | $(45,479) | | Net (loss) income attributable to Funko, Inc. | $(40,490) | $5,115 | $(45,605) | | Basic (loss) earnings per share | $(0.74) | $0.10 | $(0.84) | | Adjusted net (loss) income | $(26,686) | $5,563 | $(32,249) | | Adjusted (loss) earnings per diluted share | $(0.48) | $0.10 | $(0.58) | | Adjusted EBITDA | $(16,531) | $27,917 | $(44,448) | Balance Sheet Highlights As of June 30, 2025, Funko's balance sheet showed an increase in cash and inventories compared to December 31, 2024, but also a significant rise in total debt, primarily driven by increased borrowings on its line of credit Balance Sheet Key Metrics (June 30, 2025 vs December 31, 2024) | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | Change (Thousands) | | :-------------------------- | :------------------------ | :-------------------------- | :----------------- | | Cash and cash equivalents | $49,151 | $34,655 | $14,496 | | Inventories | $101,344 | $92,580 | $8,764 | | Total current assets | $287,773 | $287,059 | $714 | | Line of credit | $145,000 | $60,000 | $85,000 | | Current portion of long-term debt | $108,849 | $22,512 | $86,337 | | Total debt (including current portion) | $256,605 | $182,815 | $73,790 | | Total stockholders' equity | $182,077 | $236,353 | $(54,276) | Cash Flow Activities For the first six months of 2025, Funko reported negative net cash from operating activities, an increase in cash used in investing activities, but a substantial positive net cash flow from financing activities, primarily due to increased borrowings on its line of credit Net Cash Flow Activities (Six Months Ended June 30) | Activity | 2025 (Thousands) | 2024 (Thousands) | Change (Thousands) | | :-------------------------------------- | :--------------- | :--------------- | :----------------- | | Net cash (used in) provided by operating activities | $(44,442) | $60,395 | $(104,837) | | Net cash used in investing activities | $(15,241) | $(5,989) | $(9,252) | | Net cash provided by (used in) financing activities | $73,663 | $(49,285) | $122,948 | | Net change in cash and cash equivalents | $14,496 | $5,098 | $9,398 | | Cash and cash equivalents at end of period | $49,151 | $41,551 | $7,600 | Outlook and Guidance Second Half 2025 Expectations Funko anticipates an improvement in financial performance during the second half of 2025 compared to the first half, projecting high single-digit net sales decline year-over-year and mid-to-high single-digit adjusted EBITDA margin, with Q4 expected to outperform Q3 - Financial performance is expected to improve compared with the first half of 2025[9] - Net sales are projected to be down high single-digits compared with the second half of 2024[9] - Adjusted EBITDA margin is expected to be in the mid- to high single-digits range[9] - Q4 results are anticipated to ramp up over Q3[9] - The outlook includes the anticipated impact of recent tariff rates but does not account for any further tariff actions[7] Non-GAAP Financial Measures Definition and Reconciliation Funko utilizes non-GAAP financial measures, such as adjusted net income/loss and adjusted EBITDA, to provide investors with supplementary information on operational performance and facilitate period-over-period comparisons, while acknowledging their limitations and potential non-comparability with other companies' metrics - Non-GAAP financial measures (adjusted net income/loss, adjusted EBITDA, adjusted EBITDA margin) are used internally for evaluating operating performance, planning, and assessing incentive compensation[10] - These measures enhance understanding of core business results and allow for comparison by removing the impact of items not directly resulting from core operations[10] - Non-GAAP measures have limitations as analytical tools and may not be comparable to similar measures disclosed by competitors[10] Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income (Three Months Ended June 30) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Net (loss) income attributable to Funko, Inc. | $(40,490) | $5,115 | | Reallocation of net (loss) income attributable to non-controlling interests | $(514) | $304 | | Equity-based compensation | $3,112 | $3,276 | | Acquisition costs and other expenses | — | $(1,605) | | Certain severance, relocation and related costs | — | $101 | | Foreign currency transaction loss (gain) | $1,463 | $(563) | | Income tax expense (benefit) | $9,743 | $(1,065) | | Adjusted net (loss) income | $(26,686) | $5,563 | | Adjusted net (loss) income margin | (13.8)% | 2.2% | | Adjusted (loss) earnings per diluted share | $(0.48) | $0.10 | Reconciliation of Net (Loss) Income to Adjusted EBITDA (Three Months Ended June 30) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Net (loss) income | $(41,004) | $5,419 | | Interest expense, net | $4,522 | $5,081 | | Income tax expense | $848 | $789 | | Depreciation and amortization | $14,528 | $15,419 | | EBITDA | $(21,106) | $26,708 | | Equity-based compensation | $3,112 | $3,276 | | Acquisition costs and other expenses | — | $(1,605) | | Certain severance, relocation and related costs | — | $101 | | Foreign currency transaction loss (gain) | $1,463 | $(563) | | Adjusted EBITDA | $(16,531) | $27,917 | | Adjusted EBITDA margin | (8.5)% | 11.3% | Company Information About Funko Funko is a leading global pop culture lifestyle brand, offering a diverse range of products including vinyl figures, fashion accessories, and high-end art under brands like Funko, Loungefly, and Mondo, catering to the growing 'Kidult economy' worldwide - Funko is a leading global pop culture lifestyle brand with a diverse collection of brands including Funko, Loungefly, and Mondo[12] - Products span vinyl figures (Pop!, Bitty Pop!, Pop! Yourself), micro-collectibles, fashion accessories, apparel, plush, action toys, high-end art, and music collectibles[12] - Products are at the forefront of the growing 'Kidult economy,' inspiring fans globally[12] - Founded in 1998 and headquartered in Washington state, with global offices, retail locations, operations, and licensed partnerships[12] Forward-Looking Statements and Risk Factors The press release includes forward-looking statements regarding future performance and strategy, which are subject to various known and unknown risks and uncertainties, encompassing the ability to execute business strategy, manage debt, maintain licenses, economic downturns, and impacts from tariffs and trade restrictions - The press release contains forward-looking statements regarding product offerings, strategic plans, anticipated financial results, and the impact of the macroeconomic environment, including tariffs[13] - These statements are based on management's current expectations but involve known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially[13] - Key risks include the ability to execute business strategy, manage inventories, risks related to indebtedness (including compliance with covenants and going concern), maintaining license agreements, impacts from economic downturns, changes in the retail industry, competition, fluctuations in gross margin, dependence on third-party content, intellectual property rights, attracting and retaining employees, third-party manufacturing, international operations (tariffs and trade restrictions), and litigation[13] Unaudited Condensed Consolidated Financial Statements Statements of Operations This section presents the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2025, and 2024, detailing the company's revenues, expenses, and resulting net loss Funko, Inc. Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net sales | $193,469 | $247,657 | $384,208 | $463,356 | | Cost of sales | $131,429 | $143,609 | $245,297 | $273,036 | | Selling, general, and administrative expenses | $82,259 | $77,897 | $167,066 | $163,492 | | Depreciation and amortization | $14,528 | $15,419 | $29,790 | $30,998 | | Total operating expenses | $228,216 | $236,925 | $442,153 | $467,526 | | (Loss) income from operations | $(34,747) | $10,732 | $(57,945) | $(4,170) | | Interest expense, net | $4,522 | $5,081 | $8,371 | $11,392 | | Other expense (income), net | $887 | $(557) | $1,055 | $996 | | (Loss) income before income taxes | $(40,156) | $6,208 | $(67,371) | $(16,558) | | Income tax expense | $848 | $789 | $1,692 | $1,689 | | Net (loss) income | $(41,004) | $5,419 | $(69,063) | $(18,247) | | Net (loss) income attributable to Funko, Inc. | $(40,490) | $5,115 | $(68,078) | $(17,548) | | Basic (loss) earnings per share | $(0.74) | $0.10 | $(1.26) | $(0.34) | | Diluted (loss) earnings per share | $(0.74) | $0.10 | $(1.26) | $(0.34) | Balance Sheets This section provides the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing the company's assets, liabilities, and stockholders' equity Funko, Inc. Condensed Consolidated Balance Sheets (Unaudited) | Asset/Liability/Equity | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :------------------------------------------ | :------------------------ | :-------------------------- | | Assets: | | | | Cash and cash equivalents | $49,151 | $34,655 | | Accounts receivable, net | $99,963 | $119,882 | | Inventories | $101,344 | $92,580 | | Total current assets | $287,773 | $287,059 | | Property and equipment, net | $72,658 | $78,357 | | Goodwill | $133,989 | $133,652 | | Total assets | $694,909 | $707,254 | | Liabilities: | | | | Line of credit | $145,000 | $60,000 | | Current portion of long-term debt | $108,849 | $22,512 | | Accounts payable | $66,514 | $63,130 | | Accrued royalties | $46,396 | $61,362 | | Total current liabilities | $449,496 | $305,794 | | Long-term debt | $2,756 | $100,303 | | Total liabilities and stockholders' equity | $694,909 | $707,254 | | Stockholders' Equity: | | | | Total stockholders' equity attributable to Funko, Inc. | $181,169 | $233,019 | | Total stockholders' equity | $182,077 | $236,353 | Statements of Cash Flows This section details the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2025, and 2024, categorizing cash movements into operating, investing, and financing activities Funko, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net loss | $(69,063) | $(18,247) | | Net cash (used in) provided by operating activities | $(44,442) | $60,395 | | Net cash used in investing activities | $(15,241) | $(5,989) | | Net cash provided by (used in) financing activities | $73,663 | $(49,285) | | Effect of exchange rates on cash and cash equivalents | $516 | $(23) | | Net change in cash and cash equivalents | $14,496 | $5,098 | | Cash and cash equivalents at end of period | $49,151 | $41,551 | Non-GAAP Reconciliations This section provides detailed reconciliations of non-GAAP financial measures, specifically Adjusted Net (Loss) Income and Adjusted EBITDA, to their most directly comparable U.S. GAAP financial measures for the three and six months ended June 30, 2025, and 2024 Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income (Six Months Ended June 30) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Net (loss) income attributable to Funko, Inc. | $(68,078) | $(17,548) | | Reallocation of net (loss) income attributable to non-controlling interests | $(985) | $(699) | | Equity-based compensation | $6,377 | $7,100 | | Acquisition costs and other expenses | — | $1,579 | | Certain severance, relocation and related costs | — | $1,967 | | Foreign currency transaction loss (gain) | $1,639 | $1,013 | | Income tax expense (benefit) | $16,531 | $2,914 | | Adjusted net (loss) income | $(44,516) | $(3,674) | | Adjusted net (loss) income margin | (11.6)% | (0.8)% | | Adjusted (loss) earnings per diluted share | $(0.81) | $(0.07) | Reconciliation of Net (Loss) Income to Adjusted EBITDA (Six Months Ended June 30) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Net (loss) income | $(69,063) | $(18,247) | | Interest expense, net | $8,371 | $11,392 | | Income tax expense | $1,692 | $1,689 | | Depreciation and amortization | $29,790 | $30,998 | | EBITDA | $(29,210) | $25,832 | | Equity-based compensation | $6,377 | $7,100 | | Acquisition costs and other expenses | — | $1,579 | | Certain severance, relocation and related costs | — | $1,967 | | Foreign currency transaction loss (gain) | $1,639 | $1,013 | | Adjusted EBITDA | $(21,194) | $37,491 | | Adjusted EBITDA margin | (5.5)% | 8.1% |