Funko, Inc. Q2 FY2025 earnings call

• Mike Lunsford stepped in as Interim CEO again to accelerate organic growth initiatives, explore financial and strategic options, and identify the next CEO, with a search for a permanent CEO underway.
• Yves Le Pendeven discussed Q2 financial results affected by U.S. trade policies, and measures taken to mitigate impact like cost cutting, production shift, price raising.
• Outlook for second half of 2025 includes expected improvement compared to first half, with U.S. market resuming shipments to direct import customers and implementing price increases, international business gaining momentum, POS sales trends resilient, and tariff mitigation plan elements largely implemented.
• Mentioned debt amendment and ongoing work on refinancing debt, and shelf registration and ATM equity offering filed.

Total net sales for the second quarter were $193.5 million, a 22% decline compared to last year's second quarter. Direct-to-consumer sales comprised 21% of gross sales compared to 23% in the second quarter of last year. Gross profit was $62 million, equal to a gross margin of 32.1%. Last year's Q2 gross profit was $104 million with a gross margin of 42%. Gross margin was favorably impacted by approximately 350 basis points due to reduced discounting, but was more than offset by a shortfall in minimum guaranteed royalties, tripling of tariffs on imports, and build in inventory reserves.

• Expect second half of 2025 net sales to be down high single digits compared with the second half of 2024.
• Expect second half adjusted EBITDA margin to be in the mid- to high single digits range and Q4 results to ramp up over Q3.
• Tariff mitigation plan elements like price increases in U.S. market, production shift out of China, and reducing SG&A run rate are largely implemented. Estimated incremental duties and tariff costs in 2025 are approximately $40 million, down from earlier estimate of $45 million.

• Continuing uncertainty around global tariff policies as well as the macroeconomic environment may affect future sales and earnings.
• 10-Q filing for the 2025 second quarter includes disclosures about the company's ability to continue as a going concern.

Q: Looking at the adjusted EBITDA in the quarter and SG&A items navigating tariffs, any onetime SG&A items to consider?

A: About almost 5 points of margin decline year-over-year was directly attributed to the tariff announcement, which was a big variance compared to Q2 of last year.

Q: How to characterize orders paused in Q2 and their impact on Q3?

A: Interruption in shipping orders to direct import customers was in April and May, orders intended to ship in Q2 rolled over into early Q3, and now have resumed normal shipping patterns barring unforeseen new tariff announcements.

Q: Early customer reaction to price increases from July 1?

A: E-commerce sales saw no negative impact on unit volumes, wholesale data has some noise but no meaningful dip in POS unit volumes attributed to pricing changes yet.

Q: Clarifying on guidance, adjusted EBITDA margin for full year or second half?

A: Adjusted EBITDA margin of mid- to high single digits is for the second half of the year with progressive improvement from Q3 to Q4.

Q: Cash to last through end of year with ATM and S-3 filing?

A: Entered debt amendment with covenant waivers for flexibility, focused on refinancing debt before end of year and ATM gives additional flexibility to raise cash if needed