Funko, Inc. Q3 FY2024 earnings call

• Realigned senior management team responsibilities: Andy Oddie takes on Global Sales and Business Development plus licensing relationships and moves to LA; Johanna Gepford focuses on growth initiatives and new business lines.
• In sports: Expanded NFL collaboration, CeeDee Lamb ad, Dodgers World Series Champions 5-Pack preorder; in music: Launched Reba McEntire preorder; outbound licensing: Funko Fusion launched, Loungefly partnership with Disney, long-standing partnership with Ferrero reaching over one billion Kinder Joy eggs shipped.
• Direct-to-consumer: Expanded shipping to Canada, Pop! Yourself has Harry Potter accessories launch starting tomorrow.
• Strategic plans: Developing 2025 and beyond strategy, expect to share details on Q4 call.

Third quarter net sales were $292.8 million. Direct-to-consumer sales were down 7% year-over-year, comprising 20% of gross sales. Pop! Yourself business modestly comped up year-over-year. For the full year, net sales range is lowered to $1.037 billion to $1.05 billion, and adjusted EBITDA range is raised to $85 million to $90 million. Fourth quarter guidance: net sales between $280 million and $294 million; gross margin between 38% and 40%; SG&A expense of $93 million to $99 million; adjusted net income between an adjusted net loss of $3 million or $0.05 per share and adjusted net income of $1 million or $0.02 per diluted share; adjusted EBITDA between $17 million and $22 million.

• Lowered full-year net sales range to $1.037 billion to $1.05 billion, high end still within previous range.
• Raised full-year adjusted EBITDA range to $85 million to $90 million.
• Fourth quarter net sales between $280 million and $294 million; gross margin 38%-40%; SG&A $93M-$99M; adjusted net income range: adjusted net loss $3M or $0.05 per share to adjusted net income $1M or $0.02 per diluted share; adjusted EBITDA $17M-$22M.

• Consumers seeking value lead to wholesale customers being cautious ahead of uncertain holiday consumer spending.
• Potential tariff impact: Early enactment could cause rush to ship products into US, potentially challenging capacity.

Q: Talking about cautiousness, seeing wholesalers remaining cautious. From POS, any corroboration? On DTC becoming more responsive to promo. GM guidance still in 38%-40% range.

A: Globally Q3 POS sales down single-digit YOY, US down low-double-digits vs EMEA double-digit growth. DTC consumers slow during full price, responsive to promotions. Q4 sales expected during Black Friday, Cyber Monday period, with higher promotional period leading to lower gross margin and higher SG&A.

Q: Margin drivers in 3Q and outlook for 4Q. Film slate.

A: Q3 margin driven by favorable gross margin, lower inventory reserves, freight and duties costs. Q4 expected to have more discounting during promotional period, ramped up marketing spend. Film slate: Deadpool did well in Q3, Wicked is big for Q4 with related products.

Q: Consumers more sensitive to promotions with low price point items. Color on category.

A: Not on price point of core Pop! offering. Core Pop! has range from Bitty Pop! (few dollars) to standard Pop! ($12-$15) and Mondo collectibles (several hundred). Saw response in average price point range, not so much on Mondo high end. Target sales of Bitty Pop! strong.