Q4 2019 Earnings Call
Good afternoon, and welcome to Funko conference call to discuss financial results for the 2019 fourth quarter and full year. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time. Please be advised the reproduction of this call in whole or in part is not permitted without written off.
This action from the company as a reminder, this cosby recorded.
Now turn the call or to Andrew Harless manager of Investor Relations to get started please proceed.
<unk> and good afternoon with us on the call today from management or Brian Mariano <unk>, Chief Executive Officer, Andrew promoter, President and Jennifer Fall Young Chief Financial Officer.
A press release covering the company's fourth quarter 2019 financial results was issued this afternoon and is available on our Investor Relations website investors that funko dotcom before we begin I need to remind you that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act grew 1995 actual results may.
Differ materially from that as indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factor section our form 10-K for fiscal year 2019, and our other filings with the FCC any forward looking statements made on this call represent our views only as of today, we undertake no obligation to update them they'll be referring to.
Certain non-GAAP financial measures on todays call such as EBITDA adjusted EBITDA adjusted EBITDA margin adjusted net income adjusted earnings per diluted share, which we believe maybe important to investors to assess our operating performance a reconciliation of non-GAAP financial measures most directly comparable GAAP financial measures are included in our earnings release.
We've also prepared a visual presentation that investors can consult to follow along with his discussion they can be accessed at Investor day, Funko Dotcom I'll now turn the call over to Brian.
Good afternoon, everyone and thanks for joining us.
I will begin with my remarks today with a review of 2019, and then I'll share our perspective, a phone calls competitive positioning the opportunities in front of us and how we're planning to drive growth in 2020 M.B. odd.
Before turning to my formal remarks, I'd like to briefly comment on the Corona virus, our thoughts or with our employees partners and communities around the world being impacted by this crisis, we're closely monitoring the developing situation and tracking disruption to our supply chain.
This time, we believed there will be an impact to the first half a 2020 due to manufacturing disruptions and delayed shipments, which Jeff will walk you through later in the call.
We're working closely with our manufacturing logistics and retail partners to mitigate disruption and will provide updates as appropriate now turning to 2019.
In 2019, we delivered strong topline growth of 16%. Despite a tough finished in the fourth quarter.
Q4 unfolded orders from many of our top retail customers came in below expectations due to softness surrounding the holiday shopping season.
At the same time keep temple releases underperform.
Going forward, we'll be focused on leveraging the diversity of our model through new products and categories as well a strategic partnerships that allow us to generate new revenue streams and expand our addressable market.
We have a winning culture at funko and the organization as a whole has a strong sense of accountability. Our teams are leaning into the challenge is a Q4 and putting the pedal to the floor in 2020.
We're planning to bring dozens of new products to market. This year that were tremendously excited about and we're also building for the future by enhancing our infrastructure.
We have every confidence that the underlying strength of our business model remains intact and positions us for continued growth and expansion over the long term.
We are committed to delivering our 2020 goals and increasing value for our shareholders.
There are number of strategic and operational achievements from 2019 that we believe set us up for the future.
We completed the strategic acquisition of World Class game design studio Force present. This expanded our addressable market to include the nearly 6 billion dollar board games sector and enabled us to create bunko games, our New Division, we successfully launched our first game with the release of Bunko burst in the fourth quarter, which.
Seen great initial success and we have much more in store for 2020, which we will discuss shortly.
Next we entered into the non licensed 20 market with the development of several innovative new lines alongside our Funko Animation studios. This new market opens up funko to a younger demographic within the traditional toil, hitting allowing us to expand our footprint with existing retailers and further expands our total addressable market.
Third we continue to enhance and build upon our pop platform with new strategic partnerships, we have a significant opportunity in front of us to further establish pop as a broad based entertainment platform encompassing physical and digital through figures apparel accessories mobile games short form bid.
He goes and board games.
We grew our international sales, 23%, primarily driven by the continued success in Europe, which grew 32%.
We grew sales of allows light products over 60% as we increased the number of licenses they produced against and expanded their distribution.
We launched a new mobile app and rolled out a fan loyalty program that allows users to track their funko collection.
Great wish lists and browse our catalog.
Today, our App has over 7.5 million downloads almost 40 million items added to collections in wish lists and over 150 million search as well.
We've also expanded our physical retail presence with the opening a funko second flagship store in Hollywood late last year, and we're really pleased with the initial consumer response lastly, we strengthen our bench with new hires across the company specifically the afforded by our operations planning and supply chain teams.
To make us more efficient and bolstered our finance team to provide insights and helped drive profitable growth.
But the west innovative products talented people and great partners and the business is a strong cash flow generator one of the cornerstones of our model is diversity diversity across our fan base our products reach all four quadrants of consumers men and women boys and girls.
Diversity across products and licenses.
Across our retail partners and across the globe.
This is afforded us the unique ability to continue we increase our addressable market by building programs against new content genres, and expanding into new product categories.
For example, we have tripled our enemy business and the last two years as we continue to add new enemy licenses and expand our reach to new fan bases, we believe genres, such as music sports and others have shown early successes that are ripe for the same destruction.
Importantly, there are a secular trends happening across the industry that reinforce the durability of funko as core business, the proliferation and investment in high quality obsession worthy content continues to be driven by the likes of Disney Amazon Netflix Viacom CBS Kulu Apple.
HBIO, Comcast and others that have estimated spend over $120 billion in content alone in 2019.
We believe the content boom will carry on as these behemoths continue to fight for viewership.
However content isn't just proliferating is becoming more accessible than ever for consumers around the world you can live stream television or sporting events from a phone download and play high quality video games in minutes and connecting create with communities who love. The same things you do entertainment content have a hobby in past time that.
People identify with and want to show their affinity for.
Random is on the rise and we will continue to be fueled by growth in high quality and accessible content as well as increased van conductivity.
We believe it all up on goes key tenants a diverse customer base.
Broad array of licenses and product offerings global distribution and world class speed to market, coupled with powerful industry trends that will propel funko in 2020 and beyond.
In the upcoming year, we'll be focused on for growth priorities that we believe we'll continue to expand our addressable market and lead to increased profitability over the long term.
Priority number one is continuing to grow funko core pop culture business by leveraging evergreen properties in Underpenetrated genres priority number two is diversifying our revenue streams by building on the current platforms and launching new licensed and non licensed products.
Priority number three is to further penetrate international markets to increase our overall international sales mix and finally, our fourth priority is to increase our direct to consumer sales and drive further fan engagement through funko dot com and our flagship stores.
We are laser focused on increasing operational efficiency across the organization to support our growth and build scale for the future.
A critical component of this is retooling our supply chain.
We're taking a measured approach here and have already begun implementing new sales and inventory management processes that are expected to enhance our ability to plan purchase inventory forecasts fulfill and manage our operations.
Before I turn the call over to Andrew to talk in more detail about our plans for 2020, I want to share our excitement coming off toy fair or less than two weeks ago. We saw tremendous initial reactions from both our retail one licensing partners to all of our amazing innovative new product launches across toys board games and figures.
In particular, we saw a lot of enthusiasm and excitement around the breadth of board games were launching and a disruptive retail experience, we're bringing to market with our new snaps East toy line, which Andrew will discuss further.
I would like to thank each and every member of the funko team as well as our licensing or retail partners because without them, we wouldn't be able to surprise and delight, our fans and connecting to the properties. They love.
We also greatly appreciate the support of our shareholders and look forward to updating you on our progress throughout the year I'll now turn the call over to Andrew Thanks, Brian and good afternoon, everyone. As you heard we had a highly successful toy fair and have a tremendous lineup of initiatives for 2020, let me provide some color on how will be executing against our top growth.
Yes, driving the core business, introducing new products, increasing our international mix and expanding direct to consumer.
First and foremost in 2020, we will be focused on continuing to grow fund coast core pop culture business, our ability to drive core business is centered around two things one leveraging funko strength and building fun creative and the strategic programs that utilize evergreen content and to targeting underpin.
Penetrated content genres to expand our addressable market.
We have a number of unique evergreen program slated for 2020. These include new takes on beloved characters such as our Marvel minimize line.
Content that we're leveraging for the first time, such as Disney theme parks and expanding on past successes such as Harry Potter. Additionally, we will be focused on building programs to grow underpenetrated genres, such as Anomie sports and music in 2020, we will be growing our anomie licensed base increasing the product.
Categories, we produce against and further expanding distribution.
In fact, we just announced an exclusive partnership with band, which allows funko for the first time ever to distribute animate properties in Japan, the largest market for anomie merchandise in the world.
We've also expanded our rights under Pokemon and Dragon Ballsy, two additional examples of our ability to leverage existing licenses to drive growth.
Within the music category, we are building successful programs against favorite artists such as guns in Roses, Bts, Kurt Cobain and Queen and believe we're becoming the go to licensee within the music industry.
In 2020, we will be adding additional fan favorite artists such as me goes to POC and ice cube to name a few.
Additionally, we will be launching new pop line called pop albums, which recreates covers of iconic albums with our initial launch being a replica of the notorious biagi album.
Another Great example of how we can utilize the pot look and feel against new content to attract a broader audience.
In the sports category, we will continue to leverage our broad universe of sports licenses, which include the NFL NBA NHL WWD English Premier League MLB and more Additionally, we will be launching localized fan shops within the mass channel for the first time in 20.
20, this will allow consumers to find an assortment of their local hometeam products in their neighborhood stores.
Turning to new products as part of our strategy to further diversify our revenue streams across licensed and unlicensed goods, we will be releasing new toy lines board games and figure lines and growing our soft lines business. While also building antos owned IP portfolio.
In the second half of the year, we will be entering the toy deal with new non licensed toy line, such a snap sees well be monsters and gas asking.
Staff sees as a toy line that utilizes one coast patent pending snap and match technology, which allows kids to create custom characters with each snap.
In addition to traditional Merchandizing options for snap sees we are also offering retailers are disruptive retail experience that utilizes interactive machines using a touch screen display kids will be able to immerse themselves in the world of snap sees through video shorts created by our own Onco Animation Studios.
Snaps is expected to launch in Q3 and opens us up to potential new channels outside of our traditional retail distribution.
Also on deck for this year, we're collaborating with one of the top brands in the world to launch our first ever Battle inspired game that will be targeted at a younger demographic.
The line features co-operative gameplay and micro collectibles, the only funko can bring to the table coupled with action packed storytelling that this world class Entertainment partner is known for we will have more share on this exciting release later in the year.
Our funko games division will be releasing dozens of new offerings. In 2020. This will include new funko verse branded games, new license games, such as back to the future back in time, and Pam and non licensed games, such as last offense and yacht rock.
We will be adding to our assortment of figure lines with the launch of vinyl soda stylized collectible vinyl figure package and Cytosorb Mccann.
It comes with the opportunity you'd be surprised by ultra rare chase piece that will delight collectors.
This line was launched in specialty stores in Q1, and we've seen a great initial reaction from our fans.
Now moving to international growth, we expect to see strong momentum in EMEA in 2020, as we continue to bring on new retailers and expand within existing retailers.
This will include non pop category expansion and the implementation of shop in shop statements within flagship retail stores.
We also expect to drive growth in Underpenetrated regions, as we refine our distribution and sales strategies in key markets.
Direct to consumers another critical area of focus in 2020, we will begin shifting our selling strategy from a flash sale approach to a more robust E. Commerce website with broad based capabilities that includes more main line items importantly, we can leverage insights and data from our new funko App and loyalty program, while also tab.
During our fan ecosystem to generate buzz on social media.
We will employ phased approach to ensure that we appropriately scale, our fulfillment capabilities, while growing sales.
Funko has a lot of innovation and excitement coming to the market later this year.
Our teams are invigorated and staying focused on executing at the highest level.
I will now turn the call over to Gen to take you through our financials.
Thanks, Andrew and good afternoon, everyone at a high level the fourth quarter was disappointing and as you heard from Brian We had a number of successes in 2019, and we're focused on our four key priorities to drive growth in 2020 and beyond.
Turning now to our quarterly performance Q4, net sales came in at 214 million down 8%.
Year over year decline reflects three primary factors one a week holiday season for many of our retail partners, which resulted in order significantly below initial indications as well as low as an expected we purchase orders from our top customers to underperformance in the key typical property in the quarter and three difficult comparisons to four.
At night, which was a significant sales driver in Q4 last year.
The number of active properties increased 14% to 657 net sales per active property were 320000 down 20% year over year, primarily reflecting test fourth quarter sales performance.
In the quarter, our top 10, performing properties, where Harry Potter frozen to Adventures Engain Star Wars episode, nine Jakone Buzzy DC Comics fortnight, My hero Academia, Starwood classic and game of Thrones.
We continue to see underlying strength in the evergreen category, including the diversity of products and number of properties as a percentage of our total mix evergreen properties accounted for 52% of net sales in Q4, some of our stronger performing evergreen programs in the quarter included Harry Potter DC Comics starboard Classic Marvel Comics Disney.
Classic and pokemon.
In the fourth quarter net sales in the U.S. decreased 9% led the international sales decreased 8% within International Australia, and Canada decline year over year, which was partially offset by double digit growth in Europe.
On a product category basis Q4, net sales figures were down 10% to 170 million, primarily reflecting the overall softness at retail discussed earlier other sales decreased 4% to 43 million, reflecting a decrease in plush and accessories, partially offset by double digit growth in our lounge five brand.
Sales of our pop brand products were down 6% and acquire which is primarily attributable to the Q4 impacts I. Just described on a full year basis pop products were up 20%, reflecting the broad base appeal. The pot ran as an entertainment platform.
Turning now to gross margin, which as a reminder, excludes depreciation and amortization fourth quarter gross margin. Excluding a one time charge of approximately 17 million related to the write down of inventory increased 110 basis points to 37.1%.
We made the strategic decision to reset and clear through these slower moving goods in order to improve operational capacity and drive efficiency going forward.
At the same time, we're implementing initiatives around sourcing demand planning and inventory management designed to enhance order visibility and improve our ability to chase sales opportunities.
In 2020, excluding the inventory write down in Q4 of 2018, we expect gross margins to strengthen on a full year basis. This will be driven by two key factors. One continued operational improvements driven by reduced customer noncompliance, chargebacks and strength in inventory management practices and to lower cost of goods.
Tilting from the increase scale and the mix shift toward higher margin products, such as licensed and unlicensed gain and non license toys.
Q4, selling general and administrative expenses increased to 57 million, primarily reflecting investments in head count marketing domestic warehouse operations in the consolidation of our UK warehouse, including severance and related costs.
Because we have a largely fixed cost base SGN, a de leverage as a percentage of sales coming in at 26.8% versus 19.3% a year ago.
In 2020, we plan to focus spending on supporting new revenue streams, enhancing our systems and processes, improving organizational efficiency and building scale, we expect to increase our marketing spend to support our new product launches and DTC initiatives. While also annualizing the personnel and infrastructure investment made in the back half of 29.
Team.
Therefore, we expect SG nature deleverage on a full year basis in 2020 with more significant pressure in the first half followed by improvement in the third and fourth quarters.
We're also planning for an ERP implementation in the U.S. in 2020 line, which will require some initial SGN a investment this year.
Q4, net interest expense decreased to $2.9 million from $4.5 million last year, reflecting the successful refinancing of our credit facilities in September 2019.
Adjusted earnings per diluted share came in at 18 cents compared to 42 cents in Q4 of last year, and we generated adjusted EBITDA of 26 million, reflecting an adjusted EBITDA margin of 12%.
Well the fourth quarter was challenging for the full year, we achieved 15% growth on the topline strengthen our gross margins in generated adjusted EBITDA of 123 million and adjusted EBITDA margin of 15.5%.
Moving to the balance sheet cash flow, we ended the year with cash and cash equivalents at 25 million and total debt of 242 million.
Inventory totaled 62 million down 28% versus a year ago, which is primarily attributable to the $17 million inventory write down at the end of the fourth quarter.
We generate strong cash flow from operations of $91 million in 2018, which is up substantially from 2018 due to a decrease in the change of networking capital.
Capital expenditures in Q4 totaled approximately $15 million, bringing full year spending to 42 million in.
Investments were deployed toward.
Cooling and molding for the development of new products and skews.
The build out for our Hollywood store in new UK warehouse and ongoing maintenance capex related to technology hardware and warehouse equipment.
Now, let's turn to our 2020 outlet.
As we outlined in our formal remarks today, we expect that topline growth will be largely weighted toward the second half with sequential improvement as we move through the year.
First we are up against particularly challenging comparisons in the first and second quarters, which can be traced to the strength of multiple properties in the first half of 2019, including fortnight Adventures endgame Captain Marvel final season of game of Thrones Stranger things toy story, four and spiderman far from him.
Many of our growth initiatives, including the introduction of new toys and games are expected to be coming to market in the third and fourth quarters Lastly, the new release content slate is stronger in the back half of 2020 with Marvel Internals second season, as Amanda Lorien release of one division and the Falcon and the winter soldier.
Additionally, as Brian discussed, we're closely monitoring our supply chain and operations as it relates to the impact from the current affairs.
Situation is dynamic we have reflected our current assumptions in the updated full year guidance, we are providing today.
We anticipate that Q1 net sales will decline in the mid teens and net sales in the first half will decline to mid single digits.
These ranges include the estimated impact of manufacturing disruption and delayed shipments due the crisis at this time and may need to be revising the future.
For the full year 2020, we expect net sales in the range of 840 to 865 million representing a year over year growth of 6% to 9%. This includes approximately two points of anticipated impact related to the current of virus.
Adjusted EBITDA of 115 to 125 million.
And adjusted net income of 43 million to 51 million based on a blended tax rate of 25% and which translate to an adjusted earnings per diluted share of 85 cents to one dollar based on weighted average diluted share count 51 million.
Please note that the share count may fluctuate due to the treasury stock method and the share price as the year progresses.
We appreciate your time. This afternoon now we will ask the operator to open the call for questions.
Thank you if you like to ask the question. We ask that you. Please press Star then one on your telephone keypad again star one to queue for question.
So just a moment to couple of acuity roster.
Your first question comes from Erinn Murphy with Piper Sandler Your line is open.
Great. Thanks, good afternoon.
A question for me I guess first on the guidance.
On the first quarter can you just help us think about how you're looking at U.S. versus international trends and then I guess related.
Side, just with the UK.
Consolidation, how long into the first half should we see some duplicative costs.
In the piano.
Yes, no excuse me.
Thanks for the question Aaron happiness well.
On the first question for Q1, I would just relatively think about it consistently across that you across the two regions as we report out on international in the U.S.
And then in terms.
The cost the DNA for the duplication and we are on track and on budget looking to go live at the end of the month, so feeling really good about that transition to the new distribution center, there will be some incremental cost that come into.
Q2, as we continue to wind down the original distribution center. So I was looking as a first half.
Event.
Okay got it and then maybe just stepping back with what you're seeing right now from a supply chain perspective, just given kind of virus outbreak can you share a little bit more about any.
Anymore.
Actually seen kind of how long are the average delays and then what are some of your contingency plan. If we continue to see.
Kind of global travel stop and.
This kind of sustained outbreak through the first half like what type of thing and you control can you do.
On that.
Yes, it's Brian Great question.
Obviously, we're in better shape and some with the fact that we do produced 70% of the goods that are produced outside of China.
Primarily Vietnam being our main producer doesn't mean that some components like tooling.
Not come from China, They do and sometimes that can affect even some of the Vietnam shipments, but as of right now were about three weeks of of sliding bright production behind.
Yeah, and we're getting numbers about 45% to 50% capacity at our Chinese factories now we do have capacity that we can move into Vietnam. If this were continuing to be a problem in China. So there is an ability to to load up Vietnam with more products and even dramatically.
Our exposure.
We are traditional toy companies that producing mainly in China can so I think we're in good shape, obviously, we can't really speak to the economy and what this does for people and whether they're going out and shopping all that stuff in it and we obviously have some stuff slide from Q1.
I think thats pretty much.
Obviously at this point, but I do believe as the year goes all we're in really good shape, and we have levers to pull to protect ourselves.
Yes that being said.
In mind we.
We're in the same place I think as most people. There's there's still a lot of information coming out. So we will continue to monitor the situation.
Okay and then just last question I guess, Brian is that also be for you can you talk a little bit more about the opportunity that you see in direct to consumer just how big of that business today, where could it go is you really start.
Clean that channel up and really focus on the full price opportunity. There. Thank you, yes, we make it we have beta a bunch of investments over the last couple of years and getting ourselves into a position.
To be able to start pulling levers when it comes to D to C. The App is just one great investment that we've done over the last couple of years, where we're being able to to engage with our fan base push information to them.
In uses to eventually turn on direct to consumer I think our first strategy is just going to be increasing the amount of skews offered on on the web site right now were primarily flash sale based a couple new items a week pop up they saw minutes and we go onto the next week.
So the idea of caring maybe upwards to 1000 skews for for the year by end of the year is exciting for US I think we can time that with new releases and add exclusive content to that and put a loyalty program in place that's going to make it exciting for people to shop on Funko dock call. So we're excited about that business, obviously the margins.
Or better and we just think that.
Taking control some of our own narrative when it comes to our own products and are on marketing. It's just a natural evolution for US we continue to mature as a company.
Great. Thank you ill, let someone else go ahead. Thank you.
Your next question comes and Stephanie with SMIC with Jefferies. Your line is open.
Hi, this is actually on for.
And our question the Guy.
Step up in the second half in the first half what visibility do you have today.
Our the corresponding booking or.
Thanks.
Are you I assume you talked about sales.
Yes.
So as we look at the year.
All obviously.
We've indicated that you will see progression throughout the throughout the year by quarter keep in mind. There is just inherent seasonality within our business that we do see and we have also factored in and the content slate as we mentioned on the prepared remarks, we do see a.
Heavier content slate toward the back half of the year, but overall I think you.
Keep in mind to that we do have some of our new programs coming out in the our new properties and I'm.
All right products coming out towards the back half of the year as well. So there's a couple of things going on the seasonality, though if you do look historically I think 2019 was a bit of a anomaly, it's not completely that differentiated from how we've been looking historically.
Okay, great if I could just squeeze in one more what kind of cost plus you have come in below or vice versa. How should we think about leverage.
Overdeliver.
Yeah, we.
As we said our our cost base is fairly fixed.
Of course, we do have levers that we could pull that at this point, we really are focused on investing in our infrastructure and investing for growth.
So thats why we will continue to see deleverage this year, but obviously we would.
If things were too.
Significantly down for the economy or whatnot, we would obviously always look for areas to cut back.
Okay, great. Thank you so much of hospital someone else.
Your next question comes from drew Crum with Stifel. Your line is open.
Okay. Thanks, guys good afternoon.
Brian what percentage of sales came from owned IP and then.
You rollout some new products in the second half non license specifically.
Your your 840 865 million dollar revenue guidance range.
How should we think about non licensed product as a percentage of that Tony.
Small, but significantly growing compared to all the previous years, even though were the obviously we're excited we're excited this is our first Maine.
Foray into in producing original IP that we think it's going to at least have some sort of impact on on the on the top line.
We are excited about that and the margins to go along with it.
We have been very very conservative in what we think the original IP is going to do in 2020, and we're going to hopefully evaluate a successful launch in the second half of the year and then have more.
I guess, a better outlook on what that white spaces, and what that potential growth is for 21, but.
As you saw in some of the reports and out at toy fair analysts wise and otherwise.
Real positive reaction to what we what we displayed for the first time in the girls toy specifically the ability to disrupt that space with some technology, we're very very proud of and coupling that with the animation studio.
We're excited to be this is going to be something you know that we will continue to do on a year on year basis, We have 150 World class artist at one of ways. We think we can do this we have disrupted the collectible island pop culture Entertainment licensed merchandise. We think we can do the same toys were just going be super conservative about what that guidance is in.
In 2020, specifically until we get a better right.
Okay got it and then with respect to Japan did you guys generate any sales out of Japan in 2019, and just a point of clarification. The distribution agreement with band I did I hear correctly your restricted to animal and it may only or can you sell other product into that market.
Oh, it's a great question, obviously, you know we felt like over the last four five years, you've got a wonderful partner over their hot ways, but the numbers were what they should be in in a lot of it just came from.
[music].
Bad ice strategic positioning within the territory and our inability to get animate type properties into Japan is a matter back we've got none and so we weren't giving we're playing with one hand tied behind our back over there. So.
And I will be the new distribution partner, they will carry all of our goods.
But the big when there is.
Is obviously.
The enemy title.
Again.
Hi.
Japan has been a small territory for us we're going to start to see moderate growth in 20 with a much more positive outlook and 21, giving them the chance to really get their feet wet in how to distribute funko products, but we are excited about the relationship and what it means to potentially grow a we think a very important in varying.
Influential market.
Okay and just great.
Sorry, just keep in mind, it's and it's really Q4.
Play there.
Okay, and then just one last one from me.
Thats 42 million in 2019 should that step down.
Tony.
Yes in 22.
2018, we did have a Hollywood store included in that Capex. So yeah I would you at this current time expected to return to our more normalized levels. The biggest piece of what we normally spend on is the Julian molding sale.
You know given where we are today thats, what we would say but.
In addition issues at the year and we'll update if theres anything new.
Okay. Thanks, guys.
Yes.
Your next question comes from Michael Swartz with Suntrust Robinson.
Okay.
Hey, good good afternoon guys.
Brian just wanted to start with you some of your commentary around direct to consumer and building out.
Your E Commerce platform I think you said you're going to thousands skews by the ended the year I guess, how do you manage the potential conflict with some of your retail partners in doing that.
Look I think this is probably the number one reason we've waited this long.
We've we've been very careful as a smaller company too.
Work very hard and growing our not only our brick and mortar retail partners business, but they're also their ecommerce business and we're at a point right now where you know you guys are very aware of the you know the retail environment and there are people. Some companies that are maybe aren't as strong as they used to be we've got we've had great partners quite a business over the last three or four year.
And there is a reason to to put this in right place in start replacing some of those people that have not are no longer with us as far as retail partner so.
We will continue to do what we do best which is fine retail partners and impair them with content that matches their their fan base or their demographic and I think we doubt won't affect our business to continue to grow but we just need to take a little bit more control. The narrative right now and this seemed like the about the right time to really.
The push forward and then we had some things we had do on our end backend wise and App development wise and maturity wise and processes rising.
Operational wise to get ourselves in a position the when we do open up the SKU count that we don't we don't mess it up we do it the right way and give our customers a great experience. So I think thats kind of with the thought process is behind it.
All right. Thank you in it and just on maybe a little clarification on on the Corona virus impact.
It looks like you're embedding maybe about $15 million, so impact to the topline what would the impact be to EBITDA and second part of that question is what are your I guess what are you assuming how long. This disruption goes on is it the end of March to the into April.
Right now we're considering the impact that Weve included in here is mainly a first is what is the first half.
Impact with the majority of it happening in Q1, and then yes, we mentioned earlier at this point.
Our S Genie is relatively fixed.
So as those flow through.
Gross margin that that'll be the impact on again to the bottom line.
Okay. Thank you.
Your next question comes from Michael Huang with Goldman Sachs Your lines open.
Great. Thank you for the question is encouraging to see that the products themselves outperformed the company and and figures.
Both the quarter in the year. So I was hoping you could talk a little bit about the resilience of pop that you're seeing and then on the other side of the coin could you talk about some of the brands within figures that may not be performing as well as that mystery minis or or dorms. Thank you.
Yes, Mike Great question.
Thanks, I appreciate it yes, we're pretty static I mean, we're kind of in uncharted territory right and we have a platform. That's growing 10 straight years at all and every year the numbers gotten bigger to try to grow from so we're pretty proud of we consider the platform and the brand we've created and and we do believe that that platform.
Is is what people want to global basis view pop culture through so it's kind of our filter.
That has been accepted on a worldwide bases of how to view pop culture. So we're excited about the health of that business. We always look at pop as a Trojan horse that gets us into any new territory in any retailer always leads with pop and then it falls of lounge fly in midstream Minis and other things. So just to take the second part of your question.
We always want to try different formats in all of them.
Mystery Minis is probably the one exception most of them are are very small in scale comparative that obviously, the behemoths 900 pound gorilla that is that is part but.
The ones that were really going to focus on right. Now is is pocket pocket in that non licensed IP through the the fund delivery system of the machine and we're also letting or some of our retail partners purchased and PDQ without the machine we have content support both and very excited about the initial response to soda.
When you're getting.
Yelled at by retailers and fans.
And distributors that they're not getting into up their allocation is a big enough of soda selling value, it's selling too quickly.
It's something we Havent really hurt a lot of in the last couple of years and that's been probably the most excited we've been about a vinyl line since pops inception in 2010, so you're going to see a lot of focus for us on continuing to do the mystery. Many line. It's always been a very successful lined with us would fly bag.
And soda and obviously pocket pocket and then obviously pop those are our big Bino initiatives at this point.
Great. Thank you very much.
Again, if you like to ask the question. Please press Star One. Your next question comes from Tammy Korea with JP Morgan Your line is open.
Hi, Thanks for taking my question.
Could you talk about the rollout cadence of snap season, some of the other two non license toys and how many retail doors initially expected getting to this year.
Sure I can take that it's Andrew parameter.
We the the initial rollout plan for.
Really all of our toy IP.
We'll be both license amnon will be in the back half of the year towards towards fall.
Most retailers do their fall sets.
In August.
So when we would be timing those rollouts.
What was the second part of your question.
Retail doors.
To get into.
So just coming off of toy fair, we know that we've got.
A couple of very.
Multi door strategic partners lined up I think target was mentioned as one of them, which they are and we are coming off a toy fair were solidifying the rest of the distribution. It was the first time that the majority of our customer solve the item.
And it got a very good feedback. So now we're following up to see who's going to execute.
Got it and so my follow up question is.
The inventory write down in the fourth quarter that you took a could you comment on how you're selling down this inventory.
You are DTC channel or to your regular retail partners.
Yes.
Hey, Dan.
We are actually we have.
Written down the inventory, we are well dispose of it unless environmentally friendly way, we're actually talking to a couple of foundations right now most likely will be looking to donate it.
Got it thank you so much.
Thank you.
There are no further questions at this time.
Great. Thank you for everyone for joining the call today, we'll update you soon thanks. Thank you.
This concludes today's conference call you may now disconnect.
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