Funko, Inc.

Good afternoon and welcome to Funco's conference call to discuss financial results for the second quarter of 2021. At this time, all participants are in listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. Please be advised that the reproduction of this call in whole or in part is not permitted without written authorisation from the company. And as a reminder, this call is being recorded. I will now turn over to Ben Avenia-Tapper, Director of Investors Relations, to get started. So, Ben, please proceed.

Thank you, and good afternoon. With us on the call today are Brian Mariotti, Chief Executive Officer, Andrew Perlmutter, President, and Jennifer Fall-Young, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Management will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable U.S. GAAP financial measures and supplemental financial information can be found in the earnings press release in 8K that we released earlier today. All of these items, plus a visual presentation that investors can consult to follow along with this discussion, are available on our investor relations website, investor.funco.com. I will now turn the call over to Brian.

Good afternoon, everyone, and thank you for joining us today. We are pleased to deliver an exceptional second quarter, highlighted by our largest offline performance in company history. Net sales came in at $236 million, up 141% compared to last year, reflecting broad-based strength across our brands, product categories, channels, and regions. We are now above pre-pandemic sale levels in all our major geographies. Our ability to drive this level of performance while navigating the fluid macro environment equals a tremendous execution by our teams. I am extremely proud of what we've accomplished during the last 18 months. We have become a more resilient and dynamic organization and found new and exciting ways to delight and engage our fans. The evolution of our virtual conventions is a great example of this. I spent the earlier part of the week at our first annual FunCon event, a hybrid virtual and physical event that we think represents the future of fan engagement. We had virtual conventions in the past. In fact, this is our seventh virtual event, but we've managed to elevate the scope and the success of these online and hybrid events in a massive way. Hosted out of our Hollywood store, we developed a mix of live and pre-recorded content for both live fans in the store and tens of thousands of additional fans online. This week, we've featured prize giveaways, opportunities to go behind the scenes and meet Funko artists, and celebrity features among a whole host of other fan engagement events. What we've unlocked with virtual and hybrid conventions is a format that provides a more tailored fan experience with greater brand control and similar revenue potential when compared with our traditional convention calendar. The event is only halfway done, but the initial stats have been extremely positive. We are on pace to beat our 2019 in-person sales numbers by more than 40%. That does not mean that we're abandoning in-person conventions in the future, but what it does mean is you can expect more virtual elements as we continue to elevate our fan experience. On the direct-to-consumer front, accelerating the expansion of our e-commerce platform was a key growth pillar even before the pandemic, but it became that much more important as physical retail was closed and or disrupted last year. Today, we are generating sustained traffic growth, and we've integrated tools and analytics to increase conversion rates and average purchase value on our site, driving steady performance improvement. We are also leveraging our strong social media presence and broadening the SKUs available. Our Funko Shop exclusives like Alice in the Wonderland Blacklight Series continue to sell out in minutes. But by expanding our catalog of POPs and other categories available on our sites, we're able to seamlessly provide additional item recommendations. In just the first two quarters of this year alone, average units per transaction and average orders per customer both increased by more than 35%. In a quarter that saw consumers return to brick and mortar retail, we maintained strong traffic and sales growth across all our sites. Turning to our Evergreen collection, the past 18 months have served as an important proof point of our ability to deliver compelling products irrespective of the current slate of new content. When cinemas closed last spring, sports leagues canceled seasons, and TV shows stopped filming, we refocused even more on our Evergreen properties. Our content catalog is a treasure trove of fan favorites, and it is no surprise that Evergreen titles dominated throughout 2020 sales. Today, We're maintaining the ability to create products that thrill and resonate from our entire catalog. In fact, Evergreen property revenue more than doubled in Q2 versus the prior. But now we're beginning to layer on new content, including an excellent theatrical release calendar, and the results speak for themselves. This past quarter, our list of top 10 properties includes new titles like Space Jam, A New Legacy, as well as classics like Lilo & Stitch and Seinfeld. And the last item I want to call out is the tremendously successful launch earlier this week of our first digital pop NFT collection with the Teenage Mutant Ninja Turtles. The first drop of 20,000 standard packs and 10,000 premium packs sold out in less than 15 minutes with more than 45,000 fans in the queue when the drop went live. Just like with our physical products, the first launch is always a learning opportunity. We will continue to refine the size of our drops, the cadence of which our drops occur, and the overall user experience. But the early response has been extremely encouraging and well above our expectations. I'm genuinely pleased with the team's ability to quickly execute against this initiative and deliver a product and buying experience that excited and delighted our fans. Q2 was a company-wide success, reflecting the effectiveness of our entire pop culture platform and our ability to connect with our fan bases around the world. Our pop and lounge-side brands each grew in excess of 130% over the prior year, as the reopening of specialty retail provided a huge lift to both brands. Pop benefited from the stronger content calendar, as well as our continued success with evergreen property revenue. Meanwhile, Lounsfly's unique and innovative approach to collectible fashion has made it particularly attractive to specialty as these retail partners look for opportunities to differentiate their experience and product. Initiatives like our exclusive program provide additional tiers of differentiation and continue to be a driver for new demand for the brand. From a product category perspective, our diversification efforts were headlined by LoungeFly, which grew 136% over 2020, led by bags, wallets, and accessories. We also generated strong growth in non-LoungeFly items, including games, plush, and action figures. On a regional basis, both the U.S. and Europe generated triple-digit growth over Q2 2020, and both regions exceeded 2019 performance. The reopening of specialty drove significant growth in both geographies. Within Europe, we saw recovery across the region, with the areas that lagged in Q1 of this year largely coming back in line as lockdown restrictions eased. In our other international markets, results approached or exceeded pre-pandemic 2019 levels as growth returned to nearly all regions. We delivered an excellent first half to the year, and we remain focused on executing against our key initiatives to increase our broad consumer appeal and expand our total addressable market. Against the backdrop of our record quarter and a really excellent first half, we are mindful of the macro uncertainties we are facing in the second half. Most notably, freight headwinds are accelerating sharply, causing product delays and substantial cost increases. Additionally, the rising concern around the Delta variant is beginning to weigh on our consumer sentiment. Despite these macro challenges, we now expect to achieve net sales of $900 to $930 million, up approximately $30 million at the midpoint from our previous guidance range, reflecting our second quarter outperformance and the exceptional demand for our products, which remains at an all-time high. Jen will share more details on our outlook when she reviews our financial results. Now, before I hand things over to Andrew, I want to express my enthusiasm for the management transition we announced this afternoon. Andrew and I have enjoyed a strong and highly productive partnership since she joined Funko in 2013. We will continue to collaborate closely through this transition process, and we are looking forward to maintaining our partnership in our new roles beginning next year. The business has never been stronger. We just reported our best sales quarter ever and have had the product and talent to ensure we are well positioned to deliver long-term growth and sustain shareholder value. We greatly appreciate the support of our partners, fans, and shareholders, and look forward to keeping you updated on our progress throughout the year. Now I'll turn the call over to Andrew to discuss our strategic initiatives.