What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-07 · 114 added, 116 removed, 357 unchanged (39% of the section changed)

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Our results of operations for the year ended December 31, 2022, including a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023.

Funko is a leading pop culture lifestyle brand .

Funko is a leading pop culture consumer products company .

Our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty.

We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, video game, musician or sports team.

We infuse our distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel, homewares and digital NFTs.

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 35% of our net sales generated outside of the United States.

We also source and procure inventory, primarily out of Vietnam, China and Mexico.

We also source, procure and assemble inventory, primarily out of Vietnam, China and Mexico.

As such, we are exposed to and impacted by global macroeconomic factors.

Current macroeconomic factors remain very dynamic, such as greater political unrest or instability in Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel–Hamas War), and certain Southeast Asia regions as well as financial instability, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin, net income and cash flows.

Current macroeconomic factors remain very dynamic, such as greater political uncertainty, unrest or instability in the United States, Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel–Hamas War), and certain Southeast Asia regions as well as financial instability, new or increasing tariffs and general uncertainty over U.S.

trade and tariff policies, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin (as defined below), net income and cash flows.

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders.

This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income.

We have strategically adjusted our inventory buy-in to focus on core products in order to help mitigate this impact.

We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact.

Key Performance Indicators

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(1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S.

For a reconciliation of EBITDA and Adjusted EBITDA to net (loss) income, the most closely comparable U.S.

For a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most closely comparable U.S.

GAAP financial measure, see “Non-GAAP Financial Measures” in this item.

(2) Following correspondence with the Securities and Exchange Commission (the “SEC”), we no longer adjust our non-GAAP financial measures for one-time disposal costs for finished goods held at offshore factories, one-time disposal costs for unfinished goods held at offshore factories, and inventory write-down.

This change in presentation lowers adjusted EBITDA by $39.0 million for the year ended December 31, 2023.

This change did not impact periods prior to fiscal year 2023.

Factors Affecting our Business

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These trends have contributed to significant growth in the demand for pop culture products like ours in recent years;

however, consumer demand for pop culture products and pop culture trends can and does shift rapidly and without warning.

however, consumer demand for pop culture products and pop culture trends can and does shift rapidly and without warning, and content consumption trends by consumers are also rapidly evolving.

To the extent we are unable to offer products that appeal to consumers, our operating results will be adversely affected.

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Historically, substantially all of our sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products.

Our top ten customers represented approximately 43% and 44% of our sales for the years ended December 31, 2023 and 2022, respectively.

Our top ten wholesale customers represented approximately 31% and 32% of our sales for the years ended December 31, 2024 and 2023, respectively.

During the years ended December 31, 2024 and 2023, we saw shifts in our client mix as a direct result of our growing direct-to-consumer business and enhanced online presence of our top customers.

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warehouse operational efficiency.

The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the condensed consolidated statements of operations.

The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the consolidated statements of operations for the year ended December 31, 2023.

The units were identified and recorded based on an estimate of product costs, associated capitalized freight, net of allocated inventory reserves of the identified units and an estimate of physical destruction costs.

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We have caused and intend to continue to cause FAH, LLC to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement.

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it is not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets.

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it was not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets.

Consequently, the Company established a full valuation allowance of $123.2 million against its deferred tax assets, thus reducing the carrying balance to $0, and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive (loss) income in the year ended December 31, 2023.

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Components of our Results of Operations

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, and NFTs, primarily to retail customers and distributors.

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, NFTs, vinyl records and limited-edition posters, primarily to retail customers and distributors.

We also sell our products directly to consumers through our e-commerce operations, our retail stores and, to a lesser extent, at specialty licensing and comic book conventions and exhibitions.

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We evaluate the need for price increases along with other incentive arrangements and cost of product to help manage gross margins.

In 2022 and 2023, we instituted price increases for our products.

Sales terms typically do not allow for a right of return except in relation to a manufacturing defect.

In 2023, we instituted price increases for our products, and we may institute additional increases in 2025.

Sales terms typically do not allow for a right of return except in relation to a manufacturing defect and certain products purchased through our website.

Shipping costs billed to our customers are included in net sales, while shipping and handling costs, which include inbound freight costs and the cost to ship products to our customers, are included in cost of sales.

Cost of Sales

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight and outbound products to our customers and inventory management.

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight and duties and outbound products to our customers and inventory management.

Our cost of sales excludes depreciation and amortization.

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As part of a continuing effort to reduce manufacturing costs and ensure speed to market, we have historically kept our production concentrated with a small number of manufacturers and factories even as we have grown and diversified.

Our use of international manufacturers, particularly in China and Mexico, may increase the likelihood that our costs are adversely impacted by new tariffs.

Our product costs and gross margins will be impacted from period to period based on the product mix in any given period.

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We contract a portion of our freight needs and the remainder is acquired through the spot market, where there may be varying costs and transit times.

In late 2022, difficulties in our warehouse and distribution operations led us to incur a substantial amount of ground transportation and temporary storage costs.

We anticipate inflationary pressures throughout our supply chain in future periods, specific to shipping and, to a lesser extent, product costs.

We anticipate inflationary pressures throughout our supply chain in future periods, specific to freight and duties costs and, to a lesser extent, product costs.

Selling, General and Administrative Expenses

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Amortization relates to definite-lived intangible assets that are expensed on a straight-line basis over the estimated useful lives.

Our intangible assets, which are being amortized over a range of two to 20 years, are primarily comprised of trade names, customer relationships and intellectual property we recognized as part of the ACON Acquisition.

Our intangible assets, which are being amortized over a range of two to 20 years, are primarily comprised of trade names, customer relationships and intellectual property.

Interest Expense, Net

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Net sales $ 1,049,850 $ 1,096,086 $ (46,236) (4.2) %

Cost of sales (exclusive of depreciation and amortization shown separately below)

763,085 888,685 (125,600) (14.1) %

Cost of sales (exclusive of depreciation and amortization) 615,318 763,085 (147,767) (19.4) %

Selling, general, and administrative expenses 358,958 377,065 (18,107) (4.8) %

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Loss from operations 12,991 (103,827) 116,818 nm

Interest expense, net 27,970 10,334 17,636 nm

Interest expense, net 20,575 27,970 (7,395) (26.4) %

Loss on extinguishment of debt — 494 (494) nm

Gain on tax receivable agreement liability adjustment — (100,223) 100,223 nm

Other (income) expense, net (127) 787 (914) nm

Loss before income taxes (31,941) (23,041) (8,900) nm

Income tax expense (benefit) 132,497 (17,801) 150,298 nm

Net loss (164,438) (5,240) (159,198) nm

net (loss) income attributable to non-controlling interests

(10,359) 2,795 (13,154) nm

Other expense (income), net 2,922 (127) 3,049 nm

Loss before income taxes (10,506) (31,941) 21,435 (67.1) %

Income tax expense 4,564 132,497 (127,933) (96.6) %

Net loss (15,070) (164,438) 149,368 (90.8) %

net loss attributable to non-controlling interests

(352) (10,359) 10,007 (96.6) %

Net loss attributable to Funko, Inc.

$ (154,079) $ (8,035) $ (146,044) nm

$ (14,718) $ (154,079) $ 139,361 (90.4) %

Net sales were $1.0 billion for the year ended December 31, 2024, a decrease of 4.2% compared to $1.1 billion for the year ended December 31, 2023.

The decrease in net sales was primarily due to decreased sales to our mass-market retailers, e-commerce sites, and distributor customers, primarily as a result of slower inventory restocking and an overall challenging retail environment.

On a geographical basis, net sales in the United States decreased 21.8% to $755.6 million in the year ended December 31, 2023 as compared to $966.3 million in the year ended December 31, 2022, net sales in Europe increased 3.0% to $268.5 million in the year ended December 31, 2023 from $260.6 million in the year ended December 31, 2022 and net sales in other international locations decreased 24.9% to $72.0 million in the year ended December 31, 2023 from $95.8 million in the year ended December 31, 2022.

On a product category basis, net sales of Core Collectible branded products decreased 19.6% to $803.2 million in the year ended December 31, 2023 as compared to $998.4 million in the year ended December 31, 2022.

The decrease in net sales was primarily due to decreased sales to our specialty retailers and e-commerce site customers, primarily as a result of the available content slate and performance of certain exclusive products.

Our top ten wholesale customers represented approximately 31% and 32% of our sales for the years ended December 31, 2024 and 2023, respectively.

On a geographical basis, net sales in the United States decreased 9.7% to $682.0 million in the year ended December 31, 2024 as compared to $755.6 million in the year ended December 31, 2023, net sales in Europe increased 5.7% to $283.8 million in the year ended December 31, 2024 from $268.5 million in the year ended December 31, 2023 and net sales in other international locations increased 16.8% to $84.1 million in the year ended December 31, 2024 from $72.0 million in the year ended December 31, 2023.

On a product category basis, net sales of Core Collectible branded products increased 0.2% to $804.4 million in the year ended December 31, 2024 as compared to $803.2 million in the year ended December 31, 2023.

Net sales of Loungefly branded products decreased 19.9% to $171.8 million in the year ended December 31, 2024 as compared to $214.5 million in the year ended December 31, 2023.

Net sales of other products increased 10.0% to $78.4 million in the year ended December 31, 2023 as compared to $71.3 million the year ended December 31, 2022.

Net sales of other products decreased 6.1% to $73.6 million in the year ended December 31, 2024 as compared to $78.4 million in the year ended December 31, 2023.

Cost of Sales and Gross Margin (exclusive of depreciation and amortization)

Cost of sales (exclusive of depreciation and amortization) was $615.3 million for the year ended December 31, 2024, a decrease of 19.4%, compared to $763.1 million for the year ended December 31, 2023.

Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of lower net sales.

Product costs decreased $83.8 million or 18.4%, shipping and freight costs decreased $59.9 million or 31.5% and license and royalty costs decreased $33.4 million or 15.7%, partially offset by increases in other costs of $52.4 million, which included domestic inventory and one-time offshore finished and unfinished goods write-offs and increased inventory reserves.

Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of certain costs incurred during the year ended December 31, 2023, that were not recurring during the year ended December 31, 2024.

Other costs decreased $73.7 million or 91.0%, primarily related to domestic inventory and one-time offshore finished and unfinished goods write-offs and increased inventory reserves for the year ended December 31, 2023.

Product costs decreased $32.9 million or 8.8%, shipping and freight costs decreased $30.3 million or 23.3% and license and royalty costs decreased $10.8 million or 6.0%.

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of sales, was 41.4% for the year ended December 31, 2024, compared to 30.4% for the year ended December 31, 2023.

Gross margin (exclusive of depreciation and amortization) decreased 240 basis points for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to the factors noted above.

Gross margin (exclusive of depreciation and amortization) increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, due to the factors noted above.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $359.0 million for the year ended December 31, 2024, a decrease of 4.8%, compared to $377.1 million for the year ended December 31, 2023.

The decrease was driven primarily by a $28.8 million decrease in software expense, resulting mostly from the abandonment of an enterprise resource planning cloud computing arrangement of $32.5 million in 2022 and a $9.6 million decrease in personnel expenses, commissions and stock option expense, offset by an increase of $13.6 million in professional fees, primarily related to non-recurring severance payments, termination of a lease agreement and related expenses and impairment of assets held-for-sale.

Selling, general, and administrative expenses were 34.4% of sales for the year ended December 31, 2023, compared to 30.1% of sales for the year ended December 31, 2022, primarily due to the non-recurring events described above.

The decrease was driven primarily by a $19.5 million decrease in personnel expenses, commissions and stock option expense, a $12.3 million decrease in professional fees, primarily related to non-recurring severance payments, termination of a lease agreement and related expenses and impairment of assets held-for-sale during the year ended December 31, 2023, offset by an increase in advertising and marketing fees of $20.3 million in 2024, primarily in support of our direct-to-consumer channel.

Selling, general, and administrative expenses were 34.2% of sales for the year ended December 31, 2024, compared to 34.4% of sales for the year ended December 31, 2023, due to the factors noted above.

Depreciation and Amortization

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Interest Expense, Net

Interest expense, net was $28.0 million for the year ended December 31, 2023, an increase of 170.7%, compared to $10.3 million for the year ended December 31, 2022.

The increase in interest expense, net was due to higher average balances of debt outstanding as well as higher interest rates during the year ended December 31, 2023.

Interest expense, net was $20.6 million for the year ended December 31, 2024, a decrease of 26.4%, compared to $28.0 million for the year ended December 31, 2023.

The decrease in interest expense, net was due to lower average balances of debt outstanding during the year ended December 31, 2024.

Loss on Debt Extinguishment

As a result of the debt amendment in February 2023, a $0.5 million loss on debt extinguishment was recorded for the year ended December 31, 2023 as unamortized debt financing fees were written-off.

As a result of the amendment to our Credit Agreement entered into in February 2023, a $0.5 million loss on debt extinguishment was recorded for the year ended December 31, 2023 as unamortized debt financing fees were written-off.

Gain on Tax Receivable Agreement Liability Adjustment

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The long-term portion of the tax receivable agreement liability was reduced and we recorded a gain of $100.2 million during the year ended December 31, 2023.

Other (Income) Expense, Net

Other income, net was $0.1 million and other expense, net was $0.8 million for the years ended December 31, 2023 and 2022, respectively.

Other (income) expense, net for the years ended December 31, 2023 and 2022 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S.

Income Tax Expense (Benefit)

Income tax expense was $132.5 million for the year ended December 31, 2023, compared to an income tax benefit of $17.8 million for the year ended December 31, 2022.

The increase in income tax expense was related to recognizing a full valuation allowance on the Company’s deferred tax assets.

Other Expense (Income), Net

Other expense, net was $2.9 million and other income, net was $0.1 million for the years ended December 31, 2024 and 2023, respectively.

Other expense (income), net for the years ended December 31, 2024 and 2023 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S.

Income Tax Expense

Income tax expense was $4.6 million for the year ended December 31, 2024, compared to $132.5 million for the year ended December 31, 2023.

The decrease in income tax expense was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the year ended December 31, 2023.

Net loss was $15.1 million for the year ended December 31, 2024, compared to $164.4 million for the year ended December 31, 2023.

The increase in net loss was primarily the result of lower net sales and nonrecurring events for the year ended December 31, 2023 as compared to the year ended December 31, 2022, as discussed above.

The decrease in net loss was primarily the result of lower net sales, offset by the nonrecurring events for the year ended December 31, 2023, as discussed above.

Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted (Loss) Earnings 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.

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.

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 (loss) income, (loss) earnings per share or any other performance measure derived in accordance with U.S.

We define EBITDA as net (loss) income 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, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down, tax receivable agreement liability adjustments, one-time cloud-based computing arrangement abandonment expenses, one-time disposal costs for unfinished and finished goods held at offshore factories and other unusual or one-time items.

We define Adjusted Net (Loss) Income as net loss attributable to Funko, Inc.

adjusted for the reallocation of income 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.

GAAP and should not be considered as an alternative to net loss, loss per share or any other performance measure derived in accordance with U.S.

We define EBITDA as net loss before interest expense, net, income tax expense, depreciation and amortization.

We define Adjusted Net Income (Loss) as net loss attributable to Funko, Inc.

adjusted for the reallocation of 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, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down, tax receivable agreement liability adjustments, one-time cloud-based computing arrangement abandonment expenses, one-time disposal costs for unfinished and finished goods held at offshore factories and the income tax expense effect of these adjustments.

We define Adjusted (Loss) Earnings per Diluted Share as Adjusted Net (Loss) Income 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.

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.

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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 (loss) income or other financial statement data presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K as indicators of financial performance.

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 loss or other financial statement data presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K as indicators of financial performance.

Some of the limitations are:

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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, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down, tax receivable agreement liability adjustments, one-time cloud-based computing arrangement abandonment expenses, one-time disposal costs for unfinished and finished goods held at offshore factories and other unusual or one-time items.

As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items.

It is reasonable to expect that certain of 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.

Each of the 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.

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$ (14,718) $ (154,079)

Reallocation of net (loss) income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1)

Reallocation of net loss attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1)

(352) (10,359)

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Loss on extinguishment of debt (5)

Foreign currency transaction loss (gain) (6)

Foreign currency transaction loss (6)

Tax receivable agreement liability adjustments (7)

547 (100,223)

One-time cloud based computing arrangement abandonment (8)

One-time disposal costs for finished goods held at offshore factories (9)

One-time disposal costs for unfinished goods held at offshore factories (10)

Inventory write-down (11)

Income tax expense (benefit) (12)

Income tax expense (8)

1,668 157,386

Adjusted net (loss) income $ (45,397) $ 29,566

Adjusted net income (loss) (9)

$ 8,687 $ (74,666)

Weighted-average shares of Class A common stock outstanding-basic

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Adjusted weighted-average shares of Class A stock outstanding-diluted 54,092 52,353

Adjusted (loss) earnings per diluted share $ (0.87) $ 0.57

Loss per diluted share $ (0.28) $ (3.19)

Adjusted earnings (loss) per diluted share $ 0.16 $ (1.43)

Year Ended December 31,

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Interest expense, net 20,575 27,970

Income tax expense (benefit) 132,497 (17,801)

Income tax expense 4,564 132,497

Depreciation and amortization 62,583 59,763

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Loss on extinguishment of debt (5)

Foreign currency transaction loss (gain) (6)

Foreign currency transaction loss (6)

Tax receivable agreement liability adjustments (7)

547 (100,223)

One-time cloud based computing arrangement abandonment (8)

One-time disposal costs for finished goods held at offshore factories (9)

One-time disposal costs for unfinished goods held at offshore factories (10)

Inventory write-down (11)

Adjusted EBITDA (9)

(1) Represents the reallocation of net (loss) income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC in periods in which income was attributable to non-controlling interests.

$ 94,741 $ (11,822)

(1) Represents the reallocation of net loss attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC in periods in which income 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 timing of awards.

(3) For the year ended December 31, 2023, includes costs related to the termination of a lease agreement and related expenses, fair market value adjustments for assets held for sale, partially offset by acquisition-related benefits.

For the year ended December 31, 2022, includes acquisition-related costs related to investment banking and due diligence fees.

(3) For the year ended December 31, 2024, includes a net one-time legal settlement gain of $1.4 million related to a previously disclosed Loungefly customs-related matter and costs of $4.8 million related to contract settlement agreements and related services for assets held for sale (including fair market value adjustments of $1.3 million) related to a potential business initiative and the sale of certain assets under Funko Games.

For the year ended December 31, 2023, includes a lease termination charge related to the abandonment of a potential business initiative of $5.0 million, expenses related to assets held for sale of $6.8 million (including fair market value adjustments of $6.5 million), related charges of termination of service contracts, architecture and design fees of $1.6 million related to the potential business initiative, and a purchase agreement termination charge of $1.0 million related to the abandonment of a potential business initiative, partially offset by acquisition-related benefits of $975,000 related to a working capital adjustment under the Mondo Collectibles, LLC acquisition.

(4) Represents certain severance, relocation and related costs.

For the year ended December 31, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses, and charges related to severance and benefit costs for reductions-in-force.

For the year ended December 31, 2022, includes charges related to residual one-time relocation and severance costs for U.S.

warehouse personnel in connection with the opening of a warehouse and distribution facility in Buckeye, Arizona.

For the year ended December 31, 2024, includes severance and benefit costs related to certain management departures of $2.1 million.

For the year ended December 31, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses of $382,000, and charges related to severance and benefit costs for reductions-in-force of $5.2 million.

(5) Represents write-off of unamortized debt financing fees for the year ended December 31, 2023.

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For the year ended December 31, 2023, reflects a reduction of the tax receivable agreement liability as a result of recognizing a full valuation allowance of the Company's deferred tax assets and anticipated inability to realize future tax benefits.

(8) Represents abandoned cloud computing arrangement charge related to the enterprise resource planning project for the year ended December 31, 2022.

(9) Represents one-time disposal costs related to unfinished goods held at offshore factories for the year ended December 31, 2023.

(10) Represents one-time disposal costs related to finished goods held at offshore factories primarily due to customer order cancellations for the year ended December 31, 2023.

(11) Represents an inventory write-down, outside of normal business operations, to improve U.S.

warehouse operational efficiency, for the year ended December 31, 2023.

(8) Represents the income tax expense effect of the above adjustments.

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For the year ended December 31, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets.

For the year ended December 31, 2022, this also includes the $11.0 million discrete benefit from the release of a valuation allowance on the outside basis deferred tax asset.

(9) Following correspondence with the SEC, we no longer adjust our non-GAAP financial measures for one-time disposal costs for finished goods held at offshore factories, one-time disposal costs for unfinished goods held at offshore factories, and inventory write-down.

This change in presentation lowers adjusted net income (loss) by $29.3 million and adjusted EBITDA by $39.0 million for the year ended December 31, 2023.

Liquidity and Financial Condition

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The Credit Facilities are secured by substantially all assets of the borrowers under the Credit Facilities and any of their existing or future material domestic subsidiaries, subject to customary exceptions.

On June 11, 2024 (the “Consent Effective Date"), the Credit Agreement Parties entered into that certain Limited Waiver and Limited Consent (the “Limited Waiver and Limited Consent”), with the lenders party thereto (the “Required Lenders”) and the Administrative Agent.

Pursuant to the Limited Waiver and Limited Consent, the Administrative Agent and the Required Lenders have agreed to irrevocably and permanently waive, from any time prior to or after the Consent Effective Date, the Credit Agreement Parties’ compliance with the covenant to maintain a minimum threshold of Qualified Cash (as defined in the Credit Agreement).

On November 25, 2022, the Company entered into a $20.0 million equipment finance agreement ("Equipment Finance Loan").

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Year Ended December 31,

Net cash provided by (used in) operating activities $ 30,935 $ (40,134)

Net cash provided by operating activities $ 123,524 $ 30,935

Net cash used in investing activities (25,228) (39,796)

Net cash provided by financing activities 25,596 54,639

Net cash (used in) provided by financing activities (99,242) 25,596

Effect of exchange rates on cash and cash equivalents (852) 518

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Operating Activities.

Our net cash provided by (used in) operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, equity-based compensation, accretion of discount on long-term debt, as well as the effect of changes in working capital and other activities.

Net cash provided by operating activities was $30.9 million for the year ended December 31, 2023, compared to net cash used in operating activities of $40.1 million for the year ended December 31, 2022.

Our net cash provided by operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, equity-based compensation, as well as the effect of changes in working capital and other activities.

Net cash provided by operating activities was $123.5 million for the year ended December 31, 2024, compared to $30.9 million for the year ended December 31, 2023.

Changes in net cash provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors.

Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt.

Our accounts receivable typically are short term and settle in approximately 30 to 90 days.

The increase for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to changes in working capital, which increased net cash provided by operating activities by $186.8 million and were primarily due to increases in inventory of $204.7 million and accounts receivable of $21.4 million and a decrease to income taxes payable of $15.1 million.

These were offset by increases in accounts payable of $29.0 million, accrued royalties of $23.8 million and accrued expenses and other liabilities of $12.1 million and a decrease in net income, excluding non-cash adjustments.

Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 57 days).

The increase for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to changes in net loss of $149.4 million, offset by changes in certain non-cash items, including depreciation and amortization, equity-based compensation, tax receivable liability adjustments and deferred tax expense of $16.8 million and changes in working capital of $39.9 million, which decreased net cash provided by operating activities.

Working capital changes were primarily due to increases in inventory of $96.3 million and accounts receivable of $30.9 million, offset by increases in accounts payable of $27.2 million, accrued royalties of $21.7 million and accrued expenses and other liabilities of $19.9 million and a decrease to prepaid expenses and other assets of $19.0 million.

Investing Activities .

Our net cash used in investing activities primarily relates to the purchase of property and equipment and acquisitions, net of cash acquired.

For the year ended December 31, 2023, net cash used in investing activities was $39.8 million, which was used for the purchase of property and equipment, primarily related to tooling and molds.

In addition, we used $5.4 million in net cash for the acquisition of MessageMe, Inc.

For the year ended December 31, 2024, net cash used in investing activities was $25.2 million, which was used for the purchase of property and equipment, primarily related to tooling and molds, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games.

For the year ended December 31, 2023, net cash used in investing activities was $39.8 million and was primarily related to purchases of tooling and molds used in our production product lines and for the acquisition of MessageMe, Inc.

(d/b/a HipDot).

For the year ended December 31, 2022, net cash used in investing activities was $78.1 million and was primarily related to purchases of tooling and molds used in our production product lines and for the acquisition of Mondo.

Financing Activities .

Our financing activities primarily consist of proceeds from stock issuances, the issuance of long-term debt, net of debt issuance costs, the repayment of long-term debt, payments and borrowings under our line of credit facility, distributions to members and the payment of contingent consideration.

For the year ended December 31, 2024, net cash used in financing activities was $99.2 million, primarily related to net repayments on the Revolving Line of Credit of $60.5 million, payments under the Term Loan and Equipment Financing Loan of $31.1 million and payments to TRA parties of $9.0 million.

For the year ended December 31, 2023, net cash provided by financing activities was $25.6 million, primarily related to proceeds from net borrowings on the Revolving Line of Credit of $50.5 million, partially offset by payments under the Term Loan and Equipment Financing Loan of $22.6 million.

For the year ended December 31, 2022, net cash provided by financing activities was $54.6 million, primarily related to proceeds from net borrowings on the Revolving Line of Credit of $70.0 million and proceeds of $20.0 million from the Equipment Finance Loan, offset by payments under the Tax Receivable Agreement of $7.7 million, distributions to the Continuing Equity Owners of $10.7 million, and net payments on the Term Loan Facility of $18.0 million.

Financial Condition

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If our operating results fail to improve or if we are otherwise unable to maintain compliance with the financial or other covenants under the Credit Agreement, our lenders could, among other things, terminate all outstanding commitments thereunder and accelerate all outstanding borrowings and other obligations, which would require us to seek additional financing.

Even in the absence of such event, if we are unable to generate sufficient cash flows from operations in the future, and if availability under our Revolving Credit Facility is not sufficient we may have to obtain additional financing.

If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted.

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We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

As noted above, on September 17, 2021, we entered into the Credit Facilities which, as amended, are secured by substantially all assets of the Borrowers and any of their existing or future material domestic subsidiaries, subject to customary exceptions.

As of December 31, 2024, we had $112.2 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $1.0 million) and $60.0 million outstanding borrowings under our Revolving Credit Facility, leaving $90.0 million available under our Revolving Credit Facility.

The Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50% of the original principal amount of the Term Loan Facility, with any outstanding balance due and payable on the Maturity Date.

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The Revolving Credit Facility also terminates on the Maturity Date and loans thereunder may be borrowed, repaid, and reborrowed up to such date.

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) Term SOFR, EURIBOR, HIBOR, CDOR, SONIA and/or the Central Bank Rate, as applicable, plus (x) 2.50% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 1.50% per annum, in each case of clauses (i) and (ii), subject to two 0.25% per annum step-downs based on the achievement of certain leverage ratios following July 29, 2022.

Each of Term SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0.00% floor.

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus (x) 4.00% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 3.00% per annum, in each case of clauses (i) and (ii), subject to two 0.25% step-downs based on the achievement of certain leverage ratios following February 28, 2023.

Each of SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0% floor.

For loans based on ABR, the Central Bank Rate or the Canadian prime rate, interest payments are due quarterly.

For loans based on SONIA, interest payments are due monthly.

For loans based on Term SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

For loans based on Daily Simple SONIA, interest payments are due monthly.

For loans based on SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to:

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In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a maximum Net Leverage Ratio and a minimum fixed charge coverage ratio (in each case, measured on a trailing four-quarter basis).

The maximum Net Leverage Ratio and the minimum fixed charge coverage ratio for the fiscal quarter ending December 31, 2022 are 2.50:1.00 and 1.25:1.00, respectively, and such ratios will apply again commencing with the fiscal quarter ending March 31, 2024.

As of December 31, 2023 and 2022, we were in compliance with all covenants in our respective credit agreements in effect at such time.

The maximum Net Leverage Ratio and the minimum fixed charge coverage ratio are 2.50:1.00 and 1.25:1.00, respectively.

As of December 31, 2024 and 2023, we were in compliance with all financial covenants in our respective credit agreements in effect at such time.

We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts.

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Working capital is impacted by seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our line of credit.

For further discussion of changes in our debt, see below, and Note 10, Debt of the notes to our consolidated financial statements.

For further discussion of changes in our debt, see below, and Note 10, "Debt" of the Notes to Consolidated Financial Statements included in this Form 10-K.

Future Sources and Uses of Liquidity

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Credit Facilities .

On September 17, 2021, the Company entered into the Credit Facilities.

For a discussion of our Credit Facilities, see Note 10, Debt of the notes to our consolidated financial statements.

On September 17, 2021, the Company entered into the Credit Facilities, which mature in September 2026.

For a discussion of our Credit Facilities, see Note 10, "Debt" of the Notes to Consolidated Financial Statements included in this Form 10-K.

Offerings of Registered Securities .

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As noted above, our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs.

For a description of the Company's future maturities of debt, see Note 10, Debt, and for a description of the Company's operating lease agreements, see Note 11, Leases.

For a description of the Company's future maturities of debt, see Note 10, "Debt" in the Notes to Consolidated Financial Statements, and for a description of the Company's operating lease agreements, see Note 11, "Leases" in the Notes to Consolidated Financial Statements included in this Form 10-K.

See Note 13 "Liabilities under Tax Receivable Agreement" in the Notes to Consolidated Financial Statements included in this Form 10-K for a discussion of our obligations under the Tax Receivable Agreement.

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Recent Accounting Pronouncements

See discussion of recently adopted and recently issued accounting pronouncements in Note 2, Significant Accounting Policies of the notes to our consolidated financial statements.

See discussion of recently adopted and recently issued accounting pronouncements in Note 2, "Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in this Form 10-K.

Critical Accounting Policies and Estimates

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Revenue from the sale of our products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms.

When we collect cash from the customer and have not yet filled our obligation for delivery of product or service, we recognize deferred revenue.

The majority of revenue is recognized upon shipment of products to the customer.

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historically adjustments to these estimates have not been material.

We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.

Accordingly, shipping and handling activities that are performed by us, whether before or after a customer has obtained control of the products, are considered fulfillment costs to satisfy our performance obligation to transfer the products and are recorded as incurred within cost of goods sold.

We have made an accounting policy election to exclude from revenue all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (for example, sales, use, value added, and certain excise taxes).

We enter into agreements for rights to licensed trademarks, copyrights and likenesses for use in our products.

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Royalty expenses for the years ended December 31, 2024, 2023 and 2022 were $168.9 million, $179.7 million and $213.1 million, respectively.

Inventory consists primarily of figures, plush and accessories and other finished goods, and is accounted for using the first-in, first-out, or FIFO, method.

Our license agreements typically grant our licensors the right to audit our compliance with the terms and conditions of such agreements.

Any such audit could result in a dispute over whether we have paid the proper royalties and a requirement that we pay additional royalties.

We record an audit reserve based on historical audit findings and revenues subject to audit.

We adjust our estimates at least quarterly or when facts and circumstances used in the estimate process change;

historically adjustments to these estimates have not been material.

As of December 31, 2024 and 2023 , we had a reserve of $23.5 million and $18.1 million, respectively, related to ongoing and future royalty audits, based on estimates of the costs we expect to incur.

Inventory consists primarily of figures, plush, accessories and other finished goods, and is accounted for using the first-in, first-out, or FIFO, method.

Inventory costs include direct product costs and freight costs.

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To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the Tax Receivable Agreement between current and non-current.

During years ended December 31, 2023 and 2022, the Company acquired an aggregate of 1.8 million and 6.5 million common units of FAH, LLC, respectively, in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in FAH, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the years ended December 31, 2023 and 2022, the Company recognized an increase to its net deferred tax assets in the amount of $0.0 million and $30.6 million, respectively, and corresponding Tax Receivable Agreement liabilities of $0.0 million and $30.0 million, respectively, representing 85% of the tax benefits due to the Continuing Equity Owners.

In addition, during the year ended December 31, 2023, the Company recognized a gain of $100.2 million and during the year ended December 31, 2022 and 2021, the Company recognized an expense of $4.0 million and $1.6 million, recorded within other (income) expense, net on our consolidated statements of operations related to remeasurement adjustments of Tax Receivable Agreement liabilities.

During years ended December 31, 2024 and 2023, the Company acquired an aggregate of 1.2 million and 1.8 million common units of FAH, LLC, respectively, in connection with the redemption and/or exchange of common units, none of which resulted in an increase in the tax basis of our investment in FAH, LLC subject to the provisions of the Tax Receivable Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis