Funko Reports Second Quarter 2021 Sales of $236.1 Million, Up 141%

Record Quarter Driven by Broad-Based Strength Across Products, Channels, and Geographies

EVERETT, Wash.--(BUSINESS WIRE)--Funko, Inc. ("Funko,” or the “Company”) (Nasdaq: FNKO), a leading pop culture consumer products company, today reported its consolidated financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Financial Highlights

• Net sales increased 141% y/y to $236.1 million
• Gross margin¹ expanded 250 basis points y/y to 39%
• SG&A expenses increased 40% y/y to $54.9 million; as a percent of net sales, SG&A declined to 23%
• Net income increased $36.0 million y/y to $20.9 million
• Net income margin¹ expanded 2,420 basis points y/y to 9%
• Adjusted EBITDA² increased $40.8 million y/y to $41.1 million
• Adjusted EBITDA margin² expanded 1,720 basis points y/y to 17%
• Cash flow from operations of $71.4 million for the six months ended June 30, 2021
• Total liquidity³ increased 96% to $170.5 million

Second Quarter 2021 and Recent Operating Highlights

• Broad-based strength in all geographies - U.S. and Europe surpassed 2019 results, and U.S. net sales increased 110% to $163.2 million, Europe net sales increased 393% to $52.0 million, and Other International net sales rose 117% to $20.9 million over Q2 2020 results.
• Pop! branded products grew 137% on strong evergreen product sales (evergreen properties comprised 65% of total net sales) and a robust calendar of new content.
• Net sales of Other (non-figure) products increased 136%, led by Loungefly branded products which grew 132%, including bags, wallets and accessories, as well as strength in other categories, including games and plush.
• Direct-to-consumer sales increased more than 190% and now comprise 11% of net sales, driven by increased website efficiency coupled with sustained traffic growth.
• Launched first series of Digital Pop! NFTs (August 3, 2021) with Teenage Mutant Ninja Turtles.

“Our teams delivered the largest top line quarter in Company history,” said Brian Mariotti, Chief Executive Officer. “Second quarter net sales more than doubled versus a year ago and also eclipsed 2019 levels, reflecting broad-based strength across our products, channels and regions.”

“We are pleased with our strong year-to-date performance in 2021 and our ability to deliver against our core operating and growth strategies despite the challenges of the pandemic. As we approach the second half of the year, we are continuing to navigate the uncertain macro environment, while remaining focused on delighting and engaging our fans around the world.”

Second Quarter 2021 Financial Results

Net sales increased 141% to $236.1 million in the second quarter of 2021 compared to $98.1 million in the second quarter of 2020. The year-over-year increase reflects the impact of the COVID-19 pandemic in the comparable 2020 period as well as broad-based strength across geographies, products and channels.

In the second quarter of 2021, the number of active properties increased 23% to 795 from 644 in the second quarter of 2020 and net sales per active property increased 95%.

On a geographical basis, net sales in the United States increased 110% to $163.2 million and net sales in Europe increased 393% to $52.0 million. Net sales in other international regions increased 117% to $20.9 million, with all geographies reporting growth.

On a product category basis, net sales of Figures grew 142% to $187.2 million, reflecting strength in the U.S. and Europe, as well as the Company’s e-commerce sites. Net sales of Other (non-figure) products increased 136% to $48.9 million, reflecting strength in Loungefly branded products as well as games and plush.

On a brand basis, Pop! branded products grew 137% to $185.4 million, reflecting strong growth in the U.S. and Europe. Loungefly branded products grew 132% to $29.6 million. Both brands generated strong demand in the U.S. and Europe, as well as strength across our direct-to-consumer channels. Net sales of other branded products increased 193% to $21.1 million driven by board games, plush and action figures.

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

	Three Months Ended June 30,				Period Over Period Change
		2021		2020	Dollar		Percentage
Net sales by geography:
United States	$	163,183	$	77,904	$	85,279	109.5	%
Europe		52,045		10,561		41,484	392.8	%
Other International		20,882		9,634		11,248	116.8	%
Total net sales	$	236,110	$	98,099	$	138,011	140.7	%
	Three Months Ended June 30,				Period Over Period Change
		2021		2020	Dollar		Percentage
Net sales by product:
Figures	$	187,230		77,396	$	109,834	141.9	%
Other		48,880		20,703		28,177	136.1	%
Total net sales	$	236,110		98,099	$	138,011	140.7	%
	Three Months Ended June 30,				Period Over Period Change
		2021		2020	Dollar		Percentage
Pop! Branded Products	$	185,421	$	78,148	$	107,273	137.3	%
Loungefly Branded Products		29,579		12,743		16,836	132.1	%
Other		21,110		7,208		13,902	192.9	%
Total net sales	$	236,110	$	98,099	$	138,011	140.7	%

Gross margin¹ in the second quarter of 2021 increased 250 basis points to 39% compared to 37% in the second quarter of 2020, reflecting a healthy inventory position and fewer clearance events in the quarter.

SG&A expenses increased 40% to $54.9 million or 23% of net sales in the second quarter of 2021 compared to $39.1 million or 40% of net sales in the second quarter of 2020.

Net income in the second quarter of 2021 was $20.9 million and net income margin¹ was 9%, compared to a net loss of $15.0 million and net loss margin¹ of 15% in the second quarter of 2020. Adjusted Net Income² (non-GAAP) was $21.7 million in the second quarter of 2021 versus an Adjusted Net Loss of $10.2 million in the second quarter of 2020. Adjusted EBITDA² in the second quarter of 2021 was $41.1 million and Adjusted EBITDA margin² was 17.4%, compared to $0.2 million and 0.2%, respectively, in the second quarter of 2020. A reconciliation of these non-GAAP measures to GAAP is provided below.

Balance Sheet Highlights

Total liquidity³ as of June 30, 2021 totaled $170.5 million, an increase of 96% compared to June 30, 2020. Total liquidity was comprised of cash and cash equivalents of $95.5 million and total revolver availability of $75.0 million.

As of June 30, 2021, total debt was $177.4 million, a decrease of 26% compared to a year ago. Total debt includes the amount outstanding under the Company's term loan facility, net of unamortized discounts.

Inventories at the end of the second quarter of 2021 totaled $86.4 million, up 43% compared to a year ago.

Outlook

In 2021, the Company expects the following full year results:

• Net sales of $900 million to $930 million;
• Adjusted EBITDA margin² of 14.0% to 14.5%;
• Adjusted Net Income² of $57.4 million to $64.2 million, based on a blended tax rate of 25%; and
• Adjusted Earnings per Diluted Share² of $1.06 to $1.19, based on estimated adjusted average diluted shares outstanding of 54 million for the full year.

¹Gross margin is calculated as net sales less cost of sales (exclusive of depreciation and amortization) as a percentage of net sales. Net Income (Loss) margin is calculated as net income as a percentage of net sales.

²Adjusted Net Income (Loss), Adjusted Earnings (Loss) per Diluted Share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a reconciliation of historical Adjusted Net Income (Loss), Adjusted Earnings (Loss) per Diluted Share and Adjusted EBITDA to the most directly comparable U.S. GAAP financial measures, please refer to the “Non-GAAP Financial Measures” section of this press release. A reconciliation of Adjusted Net Income (Loss), Adjusted Earnings (Loss) per Diluted Share and Adjusted EBITDA margin 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, in 2021 the Company expects equity-based compensation of approximately $14 million, depreciation and amortization of approximately $42 million and interest expense of approximately $8 million, each of which is a reconciling item to Net Income. See "Non-GAAP Financial Measures" for more information.

³Total liquidity is calculated as cash and cash equivalents plus availability under the Company's $75 million revolving credit facility.

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, August 5, 2021, to further discuss its second quarter results and business outlook. A live webcast and 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.

About Funko

Headquartered in Everett, Washington, Funko is a leading pop culture consumer products company. 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 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 anticipated financial results, the underlying trends in our business, including macroeconomic trends, our potential for growth, and our strategic growth priorities. 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: risks related to the impact of COVID-19 on our business, financial results and financial condition; our ability to execute our business strategy; our ability to maintain and realize the full value of our license agreements; 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 manage our inventories; 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 our international operations; changes in effective tax rates or tax law; foreign currency exchange rate exposure; the possibility or existence of global and regional economic downturns; 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; reputational risk resulting from our e-commerce business and social media presence; risks relating to our indebtedness and our ability to secure additional financing; the potential for our electronic data or the electronic data of our customers to be compromised; the influence of our significant stockholder, ACON, and the possibility that ACON’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 June 30, 2021 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.

Funko, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
		2021			2020			2021		2020
	(In thousands, except per share data)
Net sales	$	236,110		$	98,099		$	425,287	$	234,799
Cost of sales (exclusive of depreciation and amortization shown separately below)		143,756			62,182			254,609		143,599
Selling, general, and administrative expenses		54,875			39,110			106,142		86,423
Depreciation and amortization		10,188			11,071			20,450		22,060
Total operating expenses		208,819			112,363			381,201		252,082
Income (loss) from operations		27,291			(14,264	)		44,086		(17,283	)
Interest expense, net		1,973			2,691			4,210		5,346
Other (income) expense, net		(208	)		(243	)		971		671
Income (loss) before income taxes		25,526			(16,712	)		38,905		(23,300	)
Income tax expense (benefit)		4,582			(1,703	)		6,875		(2,559	)
Net income (loss)		20,944			(15,009	)		32,030		(20,741	)
Less: net income (loss) attributable to non-controlling interests		7,131			(4,424	)		11,703		(6,030	)
Net income (loss) attributable to Funko, Inc.	$	13,813		$	(10,585	)	$	20,327	$	(14,711	)
Earnings (loss) per share of Class A common stock:
Basic	$	0.36		$	(0.30	)	$	0.55	$	(0.42	)
Diluted	$	0.34		$	(0.30	)	$	0.52	$	(0.42	)
Weighted average shares of Class A common stock outstanding:
Basic		37,881			35,033			37,047		34,988
Diluted		40,555			35,033			39,207		34,988

Funko, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)
	June 30, 2021		December 31, 2020
	(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	95,474	$	52,255
Accounts receivable, net		138,855		131,837
Inventory		86,354		59,773
Prepaid expenses and other current assets		18,542		15,486
Total current assets		339,225		259,351
Property and equipment, net		54,000		56,141
Operating lease right-of-use assets		55,062		58,079
Goodwill		126,806		125,061
Intangible assets, net		197,706		205,541
Deferred tax asset		69,250		54,682
Other assets		4,653		4,735
Total assets	$	846,702	$	763,590
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt, net of unamortized discount	$	19,894	$	10,758
Current portion of operating lease liabilities		14,646		13,840
Accounts payable		38,523		29,199
Income taxes payable		5,782		425
Accrued royalties		42,056		40,525
Accrued expenses and other current liabilities		74,068		43,949
Total current liabilities		194,969		138,696
Long-term debt, net of unamortized discount		157,498		180,012
Operating lease liabilities, net of current portion		53,030		57,512
Deferred tax liability		788		780
Liabilities under tax receivable agreement, net of current portion		79,929		60,297
Other long-term liabilities		5,090		3,848
Commitments and Contingencies
Stockholders’ equity:
Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 39,245 and 35,657 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		4		4
Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 11,201 and 14,040 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		1		1
Additional paid-in-capital		239,269		216,141
Accumulated other comprehensive income		2,048		1,718
Retained earnings		44,730		24,403
Total stockholders’ equity attributable to Funko, Inc.		286,052		242,267
Non-controlling interests		69,346		80,178
Total stockholders’ equity		355,398		322,445
Total liabilities and stockholders’ equity	$	846,702	$	763,590

Funko, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended June 30,
		2021			2020
	(In thousands)
Operating Activities
Net income (loss)	$	32,030		$	(20,741	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and other		19,792			23,342
Equity-based compensation		6,211			5,038
Amortization of debt issuance costs and debt discounts		643			655
Other		1,319			695
Changes in operating assets and liabilities:
Accounts receivable, net		(7,169	)		54,599
Inventory		(26,383	)		218
Prepaid expenses and other assets		2,097			12,267
Accounts payable		8,305			(17,494	)
Income taxes payable		5,356			(419	)
Accrued royalties		1,531			(15,531	)
Accrued expenses and other liabilities		27,699			(10,421	)
Net cash provided by operating activities		71,431			32,208
Investing Activities
Purchases of property and equipment		(10,128	)		(11,676	)
Acquisitions of businesses and related intangible assets, net of cash		(1,001	)		-
Net cash used in investing activities		(11,129	)		(11,676	)
Financing Activities
Borrowings on line of credit		-			28,267
Payments on line of credit		-			(25,281	)
Debt issuance costs		-			(569	)
Payments of long-term debt		(13,875	)		(5,876	)
Distributions to continuing equity owners		(6,913	)		(2,675	)
Payments under tax receivable agreement		(6	)		(166	)
Proceeds from exercise of equity-based options		3,678			41
Net cash used in financing activities		(17,116	)		(6,259	)
Effect of exchange rates on cash and cash equivalents		33			1,625
Net increase in cash and cash equivalents		43,219			15,898
Cash and cash equivalents at beginning of period		52,255			25,229
Cash and cash equivalents at end of period	$	95,474		$	41,127

Funko, Inc. and Subsidiaries
Non-GAAP Financial Measures
(Unaudited)

EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), earnings (loss) per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net income (loss) before interest expense, net, income tax expense (benefit), depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, certain severance, relocation and related costs, foreign currency transaction gains and other unusual or one-time items. We define Adjusted Net Income (Loss) as net income (loss) attributable to Funko, Inc. adjusted for the reallocation of income (loss) attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, certain severance, relocation and related costs, foreign currency transaction gains and other unusual or one-time items, and the income tax (expense) benefit effect of these adjustments. We define Adjusted Earnings (Loss) per Diluted Share as Adjusted Net Income (Loss) divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

Management uses the Non-GAAP Financial Measures:

• as a measurement of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
• for planning purposes, including the preparation of our internal annual operating budget and financial projections;
• as a consideration to assess incentive compensation for our employees;
• to evaluate the performance and effectiveness of our operational strategies; and
• to evaluate our capacity to expand our business.

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss) or other financial statement data presented in our unaudited condensed consolidated financial statements included elsewhere in this press release as indicators of financial performance. Some of the limitations are:

• such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
• such measures do not reflect changes in, or cash requirements for, our working capital needs;
• such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, certain severance, relocation and related costs, foreign currency transaction gains and other unusual or one-time items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

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:

	Three Months Ended June 30,						Six Months Ended June 30,
		2021			2020			2021			2020
	(In thousands, except per share data)
Net income (loss) attributable to Funko, Inc.	$	13,813		$	(10,585	)	$	20,327		$	(14,711	)
Reallocation of net income (loss) attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock ^(1)		7,131			(4,424	)		11,703			(6,030	)
Equity-based compensation ^(2)		3,521			2,625			6,211			5,038
Certain severance, relocation and related costs ^(3)		56			793			81			1,006
Foreign currency transaction (gain) loss ^(4)		(208	)		(243	)		971			671
Income tax (expense) benefit ^(5)		(2,642	)		1,681			(4,667	)		1,587
Adjusted net income (loss)	$	21,671		$	(10,153	)	$	34,626		$	(12,439	)
Adjusted net income (loss) margin ^(6)		9.2	%		(10.3	)%		8.1	%		(5.3	)%
Weighted-average shares of Class A common stock outstanding-basic		37,881			35,033			37,047			34,988
Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock		16,317			15,972			16,537			15,942
Adjusted weighted-average shares of Class A stock outstanding - diluted		54,198			51,005			53,584			50,930
Adjusted earnings (loss) per diluted share	$	0.40		$	(0.20	)	$	0.65		$	(0.24	)

	Three Months Ended June 30,						Six Months Ended June 30,
		2021			2020			2021			2020
	(amounts in thousands)
Net income (loss)	$	20,944		$	(15,009	)	$	32,030		$	(20,741	)
Interest expense, net		1,973			2,691			4,210			5,346
Income tax expense (benefit)		4,582			(1,703	)		6,875			(2,559	)
Depreciation and amortization		10,188			11,071			20,450			22,060
EBITDA	$	37,687		$	(2,950	)	$	63,565		$	4,106
Adjustments:
Equity-based compensation ^(2)		3,521			2,625			6,211			5,038
Certain severance, relocation and related costs ^(3)		56			793			81			1,006
Foreign currency transaction (gain) loss ^(4)		(208	)		(243	)		971			671
Adjusted EBITDA	$	41,056		$	225		$	70,828		$	10,821
Adjusted EBITDA margin ^(7)		17.4	%		0.2	%		16.7	%		4.6	%

(1)	Represents the reallocation of net income (loss) attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock in periods in which income (loss) was attributable to non-controlling interests.
(2)	Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards.
(3)	For the three and six months ended June 30, 2021, represents severance, relocation and related costs associated with residual payment of global workforce reduction implemented in response to the COVID-19 pandemic. For the three and six months ended June 30, 2020, represents severance, relocation and related costs associated with the consolidation of our warehouse facilities in the United Kingdom and charges related to the global workforce reduction implemented in response to the COVID-19 pandemic.
(4)	Represents both unrealized and realized foreign currency gains and losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.
(5)	Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented.
(6)	Adjusted net income (loss) margin is calculated as Adjusted net income (loss) as a percentage of net sales.
(7)	Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales.