Funko(US:FNKO)2024-05-10 00:31Financial Data and Key Metrics Changes - Total net sales for Q1 2024 were $215.7 million, within the guidance range but at the lower end due to some lower-margin products shifting to Q2 [63] - Gross margin was 40%, significantly higher than any quarter in 2023 and well above guidance [29][63] - Adjusted net loss was $9.2 million or $0.17 per share, which was better than the guidance range for the quarter [12] - Adjusted EBITDA was $9.6 million, exceeding guidance expectations [12][63] Business Line Data and Key Metrics Changes - Direct-to-consumer sales mix in Q1 was 23%, up from 19% in the previous year's Q1, indicating a 5% growth despite a lack of new entertainment releases [28] - The Pop! Yourself line performed well, especially as a Valentine's Day gift, and is expected to continue generating revenue during upcoming holidays [11][36] Market Data and Key Metrics Changes - The U.S. market underperformed compared to Europe in Q1, with a notable delta in growth rates attributed to the Hollywood strikes affecting content availability [49] - The company anticipates a strengthening content schedule in the second half of the year, which should positively impact sales [64] Company Strategy and Development Direction - The company is focusing on fewer products done extremely well, emphasizing evergreen and replenishment sales to drive SKU efficiencies [26] - There is a renewed focus on direct-to-consumer business, which is expected to help improve gross margins [28][42] - The new CEO, Cynthia Williams, aims to explore substantial growth opportunities in on-demand music, sports, and international markets [18][20] Management's Comments on Operating Environment and Future Outlook - Management noted that the financial results are expected to be stronger in the second half of 2024 due to natural seasonality and easing impacts from the Hollywood strikes [15][64] - The company is committed to reducing SG&A as a percentage of sales as revenues ramp up in the latter half of the year [51] Other Important Information - The company has made significant progress in reducing inventory levels, which were $112 million at the end of Q1, down from $119 million at the end of 2023 [9][13] - Total debt was reduced by $27 million, bringing it to approximately $246.4 million [13] Q&A Session Summary Question: What are the main drivers behind the stronger gross margin in Q1? - Management indicated that lower than anticipated freight costs and improved inventory management were key drivers [24][45] Question: Is the gross margin of 38% to 40% a new baseline going forward? - Management expressed caution in committing to this range as a new normal but acknowledged it as a potential model for future projections [23][33] Question: What trends are observed with first-time customers ordering Pop! Yourself? - A high percentage of first-time customers are purchasing Pop! Yourself, indicating strong interest, though follow-up purchase rates are still being assessed [35][36] Question: How does the company view U.S. versus international growth dynamics? - Management noted that the U.S. market was more impacted by the Hollywood strikes compared to Europe, which had a more stable business model [39] Question: What is the outlook for SG&A expenses in Q2? - SG&A expenses are expected to remain elevated due to investments in direct-to-consumer growth and marketing costs [42]