Q1 2025 Funko Inc Earnings Call
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I want to remind everyone that during the course of this call management's discussion will include forward looking information.
These statements represent our best judgment as of today about the company's future results and performance.
Our actual results are subject to many risks and uncertainties that may differ materially from those stated or implied.
Including those discussed in our earnings release.
Additional information concerning factors that could cause actual results to differ materially is contained in our most recently filed SEC reports.
In addition, during this call we refer to non-GAAP financial measures that are not prepared in accordance with U S. Generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.
Investors are encouraged to review focused press release announcing its 2025 first quarter financial results for.
For the company's reasons for presenting non-GAAP financial measures.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company's earnings press release issued earlier today.
Cynthia Williams: I will now turn the call over to Cynthia Williams Cynthia.
Cynthia: Thanks, Rob Good afternoon, everyone and thank you for joining us.
Cynthia Williams: Start with some context.
Cynthia Williams: We came into 2025 with a clear idea in the first half of the year would be about setting a stronger foundation for funko, attracting new fans with intentional diversification into sports gaming and music and selling where the fan is through improved retail opportunities.
Cynthia Williams: And experiential engagements all of which are designed to delight, new and core collectors.
Cynthia Williams: But the pace and intensity of change in the macro environment has accelerated its amplified existing challenges and compress the timeline for making tough necessary decisions.
Cynthia Williams: Even so our strategy is sound and more importantly, we are executing it.
Cynthia Williams: We're staying disciplined moving with speed and adjusting in real time to protect the business, while continuing to invest in what's working.
Cynthia Williams: That resilience showed up in Q1, we.
Cynthia Williams: We delivered net sales of $191 million in line with guidance.
Cynthia Williams: Gross margin was 40% and adjusted EBITDA came in at a negative $5 million.
Cynthia Williams: Both ahead of expectations.
Cynthia Williams: Before I outline our tariff mitigation efforts, it's important to note that international performance continues to be a strength.
Cynthia Williams: According to <unk> market research.
Cynthia Williams: <unk> is gaining share among consumers internationally and outpacing the broader toy market.
Cynthia Williams: In Europe G five combined markets, where overall toy Pos growth was just 1%.
Cynthia Williams: <unk> grew by 8%.
Cynthia Williams: We're also expanding our global footprint with license and partner stores now operating in the United Arab Emirates and China.
Cynthia Williams: And with our newly announced location in the Philippines, marking our first physical presence in southeast Asia.
Cynthia Williams: The Philippines has been one of our strongest performing markets in Asia and this license store represented a commitment to selling whereas passionate fan base lifts.
Cynthia Williams: These are indicators that a more stable economies outside of the U S. The roadmap, we built is gaining traction.
Cynthia Williams: We're gaining share expanding reach and taking disciplined actions to strengthen the foundation of the business and that is giving us confidence.
Cynthia Williams: However in the U S. The pressure we faced in Q1 from tariffs to more selective consumer behavior have intensified in Q2.
Cynthia Williams: Given these complexities and the uncertainty related to the implementation of global tariffs.
Cynthia Williams: We are withdrawing our 2025 outlook we.
Cynthia Williams: We believe this is the most responsible course of action given how quickly these variables are shifting.
Cynthia Williams: That said, we continue to focus on the outcomes we can control.
Cynthia Williams: So let me tell you about what we're doing to mitigate the impact of tariffs.
Cynthia Williams: When the tariff announcement was made on April 2nd we immediately consulted our retail customers and subsequently paused most U S bound orders out of China for direct import partners as we worked collaboratively on tariff mitigation activities.
Cynthia Williams: Well this will clearly impact our second quarter, we believe a quick tariff mitigation efforts position us to enter Q3 with strong partners and agile logistics.
Cynthia Williams: Fortunately, we began diversifying our supply chain footprint as early as 2017 building relationships with our network of strategic partners across Vietnam, Cambodia, Indonesia and beyond.
Over time, we've established a more agile operating model.
Cynthia Williams: We believe enables us to respond to volatility without compromising long term strategy.
Cynthia Williams: In April we launched a cross functional tariff task force led by our new SVP of operations Cliff Engel, bringing together leaders across sourcing finance legal and commercial with a mission to protect margins preserve liquidity and optimize.
Cynthia Williams: Every lever within our control.
Cynthia Williams: Here's what we've done and what we're doing now.
Cynthia Williams: We've accelerated sourcing diversification to countries like Vietnam and Cambodia.
Cynthia Williams: Due to strategic and long standing manufacturing partnerships, we quickly secured enough capacity that enable us to reduce the manufacturing of U S bound products from China from a third to approximately 5% by the end of the year. This is Bob.
Cynthia Williams: Far faster than originally planned.
Cynthia Williams: We've also taken a holistic approach to cost discipline throughout the business achieving annualized reductions across product cost supply chain and fixed expenses.
Cynthia Williams: This includes reducing operating cost, including reducing our global workforce by more than 20% over the course of 2025 with the majority already implemented to date.
Cynthia Williams: Renegotiating pricing with Ocean freight partners with 100% of our volume locked in at contracted rates and a focused SKU rationalization effort to eliminate low margin lower velocity items.
Cynthia Williams: All of this sharpens, our cost structure and gives us greater agility to respond to shifting demand without compromising execution.
Cynthia Williams: Beginning in July will implement pricing changes originally planned as part of our 2025 product repositioning.
Cynthia Williams: As tariffs and the subsequent rising cost escalated, we carefully considered whether a further price increase would be necessary, but ultimately we chose to hold the line.
Cynthia Williams: Staying true to our fan first approach we continue to believe that collecting should still be fun and accessible even when the world gets more expensive.
Cynthia Williams: By holding the line on pricing, while continuing to invest in value. We know we're protecting what matters most the fee.
Speaker Change: <unk> experience.
Speaker Change: Investments and sculpt quality packaging and authentication continue because we believe better value doesn't have to mean higher cost.
Speaker Change: As we continue to navigate this complex trade environment. We also want to acknowledge the broader impact this moment has on our industry.
Speaker Change: Funko is proud to be part of the American creative economy.
Speaker Change: Our products are developed by teams across the United States from design to licensing to digital and we work with hundreds of domestic partners, who depend on the stability of this economy to drive jobs innovation and fan engagement.
Speaker Change: We support the Toy Association advocacy for zero tariffs on toys, and collectibles, and we stand with our peers and urging for free and fair trade policies that preserve creativity accessibility and the millions of emotional connections that fans make with our products.
Speaker Change: Every day.
Speaker Change: Twice and collectibles arent just goods.
Speaker Change: Their cultural Touchstones, they inspire self expression innovation and community.
Speaker Change: As one of the most culturally relevant players in our category, we take seriously our role not just as a licensee, but as a trusted brand partner.
Speaker Change: We're working closely with partners to find shared solutions that reduce the impact of tariffs from logistics and manufacturing to product design and the end consumer experience the silver lining.
We believe these collaborations have strengthened key relationships that will help propel our business forward.
Speaker Change: Combined these actions across our global network and business make each dollar work harder positioning us to deliver for the fan while maintaining the quality they expect from our products.
Speaker Change: Even in a disruptive environment, we're seeing clear evidence that our strategy is working.
Speaker Change: P O S data fan response and partner feedback all point to continued traction, especially around new formats differentiated IP and more targeted storytelling.
Speaker Change: Let me share a few examples of where that momentum is showing up across our ecosystem.
Speaker Change: Our direct to consumer business remains a critical pillar of our long term strategy, particularly as a source of fan engagement margin strength and first party data.
Speaker Change: Our fan rewards loyalty program continues to grow engaging our most valuable fans, who spend more return more often and have a stronger connection with our brand proposition.
Speaker Change: As we continue to scale pop yourself and refined personalization through our newly launched customer data platform.
Speaker Change: We see this segment, playing an outsized role in driving both profitability and brand advocacy.
Speaker Change: And perhaps one of the clearest green shoots is in sports.
Speaker Change: In the first four months of 2025.
Speaker Change: We launched pop yourself at NBA, all star weekend with 100% sell through.
Speaker Change: <unk> expanded into new team stores across major League baseball the National Football League and the National Basketball Association.
Speaker Change: We launched a limited edition pop of Alex Ovechkin within hours of his record breaking GUL and.
Speaker Change: Yesterday, we announced our first ever.
Speaker Change: W. N D. A pop figures launching with Azure Wilson Angel race, Brianna Stuart and Caitlin Clarke.
Speaker Change: And while this wasn't by our design, we were delighted to see Gee do Watkins pop sitting courtside during March madness standing in for the athlete herself while she recovered at home.
Speaker Change: It was a viral reminder of how deeply are fans connect with the stories behind our figures.
Speaker Change: The intersection of fandom, and sports continues to grow and funko is well positioned to participate as a leader in the sports collectibles space.
Speaker Change: We're still in early innings, but signals for continued growth are promising.
Speaker Change: At Suncor, we built a business that moves fast adapt smartly.
Speaker Change: And thinks long term.
Speaker Change: In Q1, we proved that again.
Speaker Change: Even amid uncertainty our team delivered better than expected results stayed disciplined and continued investing in the future.
Speaker Change: This is what execution looks like.
Speaker Change: Measured creative and fan burst.
Speaker Change: Ive will now walk you through our financials.
Speaker Change: Thanks, Cynthia hi, everyone. Thanks for joining us today.
Speaker Change: For the first quarter total net sales were $197 million, which was within our guidance range direct to consumer sales comprised 22% of our gross sales, which is comparable to last year's first quarter.
Speaker Change: It's worth noting that shipping delays on products crossing the Mexico border hampered sales of pop yourselves in Q1.
Speaker Change: Gross profit was $76 9 million equal to gross margin of 43%.
Speaker Change: SG&A expenses were $84 8 million, which was well below our guidance range.
Speaker Change: Adjusted net loss of $17 $8 million or <unk> 33 per share was better than expected.
Speaker Change: And finally negative adjusted EBITDA was $4 7 million also better than expected.
Speaker Change: Turning to our balance sheet at March 31, we had cash and cash equivalents of $25 $9 million.
Speaker Change: Total debt was approximately $202.2 million up $19.4 million from the end of the previous quarter.
Speaker Change: Net inventory was $87 $7 million.
Speaker Change: Down from $92 $6 million at the end of Q4.
Speaker Change: And total company liquidity was $99 million, a decrease from $124 $7 million at the end of Q4.
Cynthia Williams: Turning to our outlook as Cynthia mentioned, we have decided to withdraw our formal 2025 full year outlook.
Cynthia Williams: The ongoing changes to global tariff policies as well as uncertainty about the macroeconomic environment makes it difficult to provide reliable projections.
Cynthia Williams: However, I will provide a couple of high level thoughts on our future performance.
Cynthia Williams: For the second quarter, we expect our results to be negatively impacted by the effect of the tariff policies.
Cynthia Williams: In terms of the tariffs themselves on our cost of goods sold as well as the disruption to sales related to direct import orders out of China.
Cynthia Williams: Because of this today's 10-Q filing includes disclosures about the company's ability to continue as a going concern.
Cynthia Williams: At this time, we are in compliance with our debt covenants and we have ample liquidity to operate the business. We have begun discussions with our lenders to obtain covenant relief in Q2, and we are evaluating strategies to refinance our debt. We are highly confident we will resolve this issue.
Cynthia Williams: Turning to the second half of 2025, we expect our performance to improve compared with the first half based on the following <unk>.
Cynthia Williams: Most importantly, we expect to fully offset the impact of incremental tariffs within the year.
Cynthia Williams: At current rates, we estimate the incremental tariff costs to represent approximately $45 million. The offsets are driven by actions within our control, including accelerating our sourcing diversification initiatives implementing price increases and reducing costs.
Cynthia Williams: Yes.
Cynthia Williams: Additionally, in the U S market, we're working closely with our largest customers to resume shipping direct import orders out of China.
Cynthia Williams: Finally, we also believe our international business, which represents more than one third of our sales will continue to gain momentum.
Cynthia Williams: Cynthia that's it for me back over to you.
Cynthia Williams: Thanks Abe.
Speaker Change: Before we open it up for questions I want to reiterate that while we're navigating a challenging macro environment. We're also seeing the upside of our actions.
Cynthia Williams: We're strengthening partnerships sharpening our focus and.
Cynthia Williams: And moving with greater speed and clarity about what matters, most delivering for our fans.
Cynthia Williams: I want to thank our teams our partners and the fans who continue to show up for this brand.
Cynthia Williams: It is because of their support that we remained focused we're moving fast and we are building for the long term with our community alongside US every step of the way.
Cynthia Williams: With that let's open the line for questions.
Cynthia Williams: Thank you if you would like to ask a question. Please dial star followed by one on your telephone keypad now if you change your mind I would like to exit the Q P style store followed by two and finally when preparing to ask your questions. Please ensure that youll phone is on mute locally.
Speaker Change: Our first question today will be from the line of Antares total them with Goldman Sachs. Please go ahead. Your line is open.
Antares total: Hi, This is <unk> on for Stephen and appreciate you guys taking the questions.
Speaker Change: You guys talked through a lot of mitigation efforts you are taking in response to the current tariff situation can you offer any extra color on what some of these actions look like in practice in particular, when it comes to passing through price adjustments and maybe to the extent that you're already having those conversations can you talk about what changes you're seeing and retailer sentiment.
Antares total: Or purchase patterns coming out of Easter. Thanks.
Speaker Change: And terrorist thanks for the question.
Speaker Change: First I'd say the pricing that we're doing with a decision that we've made back in January. So we've had the benefit of talking to our retail partners about this for several months now beginning back around the time of New York Toy Fair.
Speaker Change: The positive part of that was that we were able to talk about where we were positioned versus other collectibles and the sentiment was generally that in pop culture, Collectables, we're still a fantastic value and priced below comparable competitors and so they've been a law.
<unk> to this price point.
Speaker Change: Since early January.
Speaker Change: As the tariffs came in we continued conversation with them as we discussed should we go higher and we really received not only a lot of support for not going Oh, we entered into some healthy discussions about how to hold the line on that pricing and so if anything its deepened some.
Speaker Change: <unk> ships.
Speaker Change: With those retail partners. So that's the color there the pops will be priced at $14 99, and that's the price point that are exclusive had been being sold out.
Speaker Change: That's our suggested retail price so it's a price increase.
Speaker Change: Versus the $12 price that nonexclusive tab, but it's the same price of what we did with exclusives and we're investing some of that and improving the quality of the scopes and the packaging and then the fan experience.
Speaker Change: Yeah.
Speaker Change: Awesome and maybe just as a quick follow up can you also talk maybe more about the Pos trends that you're seeing so far in the quarter and maybe what you're looking for over the next few months in terms of trends.
Speaker Change: There are two maybe can a bit more confidence in the rest of the year.
Speaker Change: Sure I'll start with the U S market, obviously thats the focus.
We've talked in our last couple of calls about consumers are looking for value being a little bit more more choosy, we've actually seen some encouraging trends in the U S market for larger retailers the year to date.
Speaker Change: POS has been down mid single digits.
Speaker Change: Part of that I would say it was driven by certain mass partners that we've had there were some softness in football and support costs earlier in the year, we've actually seen an improvement in our trends for the past four weeks, we've actually been up low single digits.
Speaker Change: Pos in the U S. So that's that's a very encouraging trend in Europe, which I'll point out again is over a third of our business. We continue to see good Pos high single digit comps year over year.
Speaker Change: And that business is gaining momentum.
And I know, we said it in the script, but it's worth pointing out that.
Speaker Change: Sales in Europe are G five markets actually outpaced the toy industry in Q1, we were at 8% up in Pos as reported by sarcoma in the toy industry was up 1%.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question will be from the line of Keegan coax with D. A Davidson.
Speaker Change: Please go ahead your line is open.
Keith: Hi, This is Keith and thanks for taking my question.
Keith: So I kind of just wanted to get some clarity on the pricing so those prices were already.
Keith: Planned for the year they were in response to the original 20% tariffs right.
Keith: That's correct.
Speaker Change: It's nice to meet you virtually by the way welcome to the call.
Keith: Nice to meet you well.
Speaker Change: Perfect and then just.
Speaker Change: Just a follow up on margin side I was wondering if margins came in kind of above your expectations and if you guys could go through the drivers of that.
Speaker Change: Sure Yeah nice to meet you again.
Speaker Change: Yes, our gross margin came in slightly above the high end of our guidance range.
Speaker Change: I would just point out that in Q1.
Speaker Change: There wasn't really much of a tariff impact in the quarter.
Speaker Change: We saw across the board just slight slight.
Speaker Change: Improvements over what we had forecasted both in terms of our product margins are inventory reserves.
Speaker Change: And our discounts and allowances so nothing no major driver to call out, but everything kind of came in line or slightly better than what we were expecting for Q1.
Speaker Change: Great and then one more if I can I may be 20% head count reduction.
Speaker Change: Most of that has already taken place.
Speaker Change: It's really only a <unk> benefit I guess, but as we look forward how should I think about it.
Speaker Change: When I think about it keagan is we really haven't.
Speaker Change: Yes, sorry, yes, it will show up in the cost savings we had a action that took place in March and then another that took place yesterday, which I have to say it was quite challenging for the management team and of course, most importantly for the employees, where we had.
Speaker Change: <unk> and colleagues and fans who helped build funko.
Speaker Change: Who aren't with us anymore, and so that's very difficult decision.
Speaker Change: That that is the.
Speaker Change: The majority of that 20%.
Speaker Change: The remainder of it is about things that we won't be back filling where we had some attrition.
Speaker Change: Or some hires that we had plans that we're not doing it will bring us down to.
Speaker Change: Finish up at 20%. So when you think about the benefit of it a portion of it has already occurred in this quarter in Q2.
Speaker Change: And you'll see more of it throughout the remainder of the year.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Yeah.
Speaker Change: With no further questions on the line at this time I will now turn the call back over to management for any closing remarks.
Speaker Change: Well. Thank you everyone for joining us today on the call. We look forward to sharing our progress with you when we meet next time. Thanks, so much.
Speaker Change: Yeah.
Speaker Change: This will conclude funko is 2020, following first quarter financial results conference call.
Speaker Change: Thank you to everyone, who joined US today you may now disconnect your lines.
Speaker Change: Okay.