Financial Data and Key Metrics Changes - For Q2 2025, total net sales were $193.5 million, a 22% decline compared to the same quarter last year, primarily due to disruptions from U.S. tariff policies [8][9] - Gross profit was $62 million, resulting in a gross margin of 32.1%, down from 42% in Q2 of the previous year [9][10] - Adjusted net loss was $26.7 million or $0.48 per share, compared to adjusted net income of $5.6 million or $0.10 per diluted share in the prior year [10] - Negative adjusted EBITDA was $16.5 million, compared to adjusted EBITDA of $27.9 million in the same quarter last year [10][11] Business Line Data and Key Metrics Changes - Direct-to-consumer sales comprised 21% of gross sales, down from 23% in the same quarter last year [9] - The company experienced a significant decline in minimum guaranteed royalties due to sales disruptions and increased tariffs [10] Market Data and Key Metrics Changes - In the U.S. market, POS sales reported by larger wholesale customers were down just 5%, indicating resilience compared to the decline in year-over-year sell-in [13] - International business, representing over one-third of sales, saw 18% POS sales growth in the first half of the year and 28% growth in Q2 [13] Company Strategy and Development Direction - The company is focused on accelerating organic growth initiatives and exploring financial and strategic options, including a search for a new CEO [6][18] - A tariff mitigation plan has been implemented, including price increases in the U.S. market and shifting production out of China [14][15] - The company aims to fully offset the financial impact of incremental tariffs within the current year, with estimated costs reduced from $45 million to $40 million [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by U.S. trade policies but expressed confidence in a robust plan for improved financial performance in the second half of the year [7][12] - The company expects second half net sales to be down in the high single digits compared to 2024, with adjusted EBITDA margins projected in the mid to high single digits range [12][33] Other Important Information - The company executed an amendment to its credit facilities, providing waivers for financial covenants, which offers additional flexibility during this period [15] - The company is focused on refinancing its debt due in September 2026 and has engaged advisors for this process [16] Q&A Session Summary Question: Adjusted EBITDA and SG&A items - Management noted that almost five points of margin decline year-over-year was attributed to the tariffs announcement, impacting adjusted EBITDA [22][23] Question: Resumption of orders - Management confirmed that orders paused in Q2 have resumed, with good visibility on Q3 order patterns [25][26] Question: Customer reaction to price increases - Early customer reactions to price increases have shown no negative impact on unit volumes, with continued strong sell-through [30][31] Question: Guidance on adjusted EBITDA margins - Adjusted EBITDA margins of mid to high single digits are expected for the second half of the year, with improvement from Q3 to Q4 [33] Question: Cash flow and liquidity - Management acknowledged liquidity challenges but emphasized the flexibility provided by the recent credit agreement amendments and the ATM filing [35][36]
Funko(FNKO) - 2025 Q2 - Earnings Call Transcript