Funko, Inc.

Good afternoon and welcome to Funco's conference call to discuss financial results for the third quarter of 2022. 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 reproduction of this call in whole or in part is not permitted without written authorisation of the company. As a reminder this call is being recorded. I will now turn the call over to Ben Abinyatapa, Director of Investor Relations to get started. Please proceed.

Thank you and good afternoon. With us on the call today are Andrew Perlmutter, Chief Executive Officer, 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 all along with this discussion, are available on our investor relations website, investor.funko.com. I will now turn the call over to Andrew.

Good afternoon, everyone, and thank you for joining us today. It was great to meet many of you at our Investor Day event in September. Funko delivered another quarter of record sales in Q3, up 37% year-over-year to $366 million. Our strong net sales performance was driven by the power of the Funko brand, supported by the strength of our employees, fans, and retail and content partners across the globe. As discussed on our last earnings call, we continue to operate in an uncertain consumer market. While it is hard to pinpoint when this environment will normalize, we are confident that we are well-positioned to outperform our marketplace and continue to deliver strong, top-line performance over the long term. Our strong results come from across the entire portfolio as we generated year-over-year double-digit growth in all of our reported geographies and brand categories. LoungeFly again led the way, growing 57%, while poor collectibles and other brands grew 34% and 25% respectively. Direct-to-consumer grew 36%, while both Europe and other international exceeded 30% growth. We've managed to distinguish our brands by continually delivering products that connect fans from across all fandoms with their favorite content characters and stories in a uniquely Funko way. This, in turn, has cultivated an amazingly loyal and committed fan base of collectors and pop culture enthusiasts. This fan enthusiasm was particularly apparent with the return of in-person events. We drew massive sold-out crowds at San Diego and New York Comic Cons, as well as our own FunCon. Not only are these events great barometers of our fan engagement, they also led to many of this year's top DTC sales days. The enthusiasm our fans have for Funko is palpable. They dress up, they wait in line for hours, they carry the Funko flag. They are really our greatest brand ambassadors. Among our core collectible brands, Our flagship pop vinyl continues to generate growth through innovation. Our calendar program is a great example. We launched this line in 2018, and it has grown more than eightfold in four years. This year, we've expanded the concept to include a countdown to anything as we bring the fun of the countdown calendar to new holidays, such as Halloween. Emerging collectible brands, including Soda, Gold, and Popsies, we continue to show strong performance and see a long runway for growth. For example, our launch of Popsies at Walmart has been such a success that we'll be significantly expanding our shelf space allocated to emerging brands in 2023. Our new installation will include Popsies, as well as a number of other exciting initiatives to be announced in coming months. Finally, the most recent addition to our collectible brands is Mondo, which we acquired last quarter. While still early in that integration, we've already started to see synergistic benefits as we integrate Mondo into the Funko support functions. We believe the Mondo acquisition sets us up well for strong growth in music content. Much more to come on that. Turning to Loudfly, Demand across all channels, particularly our park partners, has been incredibly strong. LoungeFly's 57% growth in the quarter brings their year-to-date growth to nearly 90%. Importantly, LoungeFly's direct-to-consumer sales jumped from 10% of total sales in Q1 to 16% this past quarter, reflecting the growing strength of the brand. We believe this success is a direct result of our unique style of fan engagement, including our first brand tentpole event Summer of Loungefly, which strengthens the connection between our fans and the brands they love. In toys and games, we are now up to 180 games in our catalog, which is critical to the long-tail revenue central to the games business. Our incredible game designers continue to produce hits on both current and timeless IP. Within our collectible gaming business, our new Kingdom Media game has had an extremely strong introduction and was a finalist for the 2022 Toy of the Year in the Collectibles category. We soft-launched the title at D23 this year, and it's sold out every day. On the toys front, we recently launched the latest product in our highly successful Five Nights at Freddy's lineup. Featuring Snap technology, we've created an interchangeable action figure that is true to the game's most fundamental elements. Importantly, this is the first step in building an entire ecosystem we have planned for this property. Stay tuned for more announcements. Finally, our digital brands continue to generate very strong growth. Since we entered the digital collectible space a year ago, we more than doubled our net sales versus the same quarter last year. Due to the sustained demand, we have increased drop frequency and grown the average size to well over a half a million dollars in net sales. We've had multiple drops that topped 1 million in net sales, and we've announced digital collectible collaborations with some of our largest wholesale partners. Just last month, we released a Halloween drop made up of entirely our own IP that sold out in under 30 minutes. A key point of differentiation for Funko digital collectors has been the introduction of additional utility. Our rarest digital collectibles are redeemable for a physical version of similar scarcity. This feature has been a key factor in bringing physical first collectors into the digital space. This remains a nascent market, and we're very excited about its future. Turning to channel highlights, within wholesale, we saw strong growth from our mask partners despite broadly high levels of inventory at retail. While Funko products continue to be traffic drivers for our retail partners, have seen some order delays or reductions given the broader economic climate our results in direct to consumer which i'll speak to shortly highlight the continued strength of the funco brand however we do expect these wholesale order reductions and delays to persist in the short term given the current macro environment these expectations have been reflected in our full year guidance our dvc channel saw another quarter of strong double-digit growth exceeding 30% and representing what we like to call our single largest customer by net sales. Average order value and traffic across our e-commerce sites were both of strong double digits. Turning to our international geographies, Europe posted another strong quarter with growth across both established and emerging regions. Demand remains very strong, and we continue to see excellent progress on our strategic partnership initiatives as we thoughtfully leverage the most efficient retailers in the region. Among the other geographies, we experienced excellent growth in LATAM and Oceania. While we're still in the early stages of reaching our growth potential in Asia, we've recently hired leaders experienced in the region to execute on our growth strategy in this critical market. As described in previous calls, we've experienced very strong growth over the past year and a half. This success necessitates infrastructure investment to ensure we have the capacity and capability to maintain and build on that growth over the long term. In Q2, we opened our consolidated fulfillment center. Moreover, we achieved this upgraded infrastructure without the benefit of the warehouse management software it was designed to operate with. Together with our ERP implementation in 2023, These software upgrades will better position us to sustain our double digit growth and drive efficiency as we continue to scale our operations. Supporting the complex upgrades to our core infrastructure has resulted in higher than expected short term operating expenses and increased margin pressure. These actions are critical to service our near term demand, as well as support our long term growth objectives. We are actively managing through these interim fulfillment dynamics, and we believe these investments will result in consistent margin expansion in the future. Due to the macro headwinds previously discussed, we are revising our full year net sales target to between $1.29 and $1.33 billion, up approximately 27% at the midpoint year over year. We are also lowering our full year EBITDA margin to high single digits as we manage through the previously mentioned infrastructure upgrades necessary to support the sustained growth. In closing, we are pleased with our ability to continue to generate and service robust demand. We again delivered record top line results amidst an uncertain consumer market. While we continue to manage through that uncertainty in the fourth quarter, we are still on pace to deliver high teens growth in the second half. Our very strong results through these three quarters and our confidence in the resiliency of our business model is a testament to the power of the Funko brand and the incredible loyalty of our fans. We remain similarly competent in our ability to achieve the five-year objectives we laid out at our recent investor day event, both top and bottom line. We are managing through these short-term macro factors and investing in infrastructure and operation upgrades. When combined with our focused execution, we believe these steps will enable future growth and margin expansion over the next several years. In closing, I'd like to thank our fans, partners, and employees for their continued dedication and support for FONCO. Now Jen will provide more details on the financial results of the quarter.

Thanks, Andrew, and good afternoon, everyone. We delivered strong third quarter net sales growth of 37% over the prior year. Our results were broad-based with strength across our geographies and channels. Once again, each of our three reported brand categories grew double digits. Multiple factors drove our top-line outperformance, including another excellent quarter from LoungeFly. In the U.S., net sales increased 37% to $262 million. While net sales in Europe grew 33% to $78 million, and other international net sales increased 43% to $25 million. On a brand category basis, core collectible brands net sales grew 34% to $282 million, driven by innovation in our pop brand and increased contribution from our emerging brands in the category. The lounge slide brand grew 57% to $62 million, with particular strength in our parts business, as Andrew mentioned. Among our other brands, which includes toys and games and our digital brands, net sales grew 25% to $22 million. This quarter, we saw particularly strong contributions from our digital category. Turning to margin and expenses, third quarter gross margin was 35%, a sequential increase of approximately 200 basis points due to a more favorable product mix than the prior quarter. Freight rates have improved significantly since their recent highs earlier this year. However, we did not realize the benefit in the third quarter due to the timing of inventory delivery. For context, if we had been able to receive freight under the end quarter rate per container, it would have contributed roughly an additional $7 million in gross profit. We expect to benefit from the rate improvements as 2023 progresses. We remain committed to gross margin improvement, which will come in three main components. First is the improvement in freight that I just described. Second is driving more efficient sourcing for more cost-effective geographies. And third is a broader application of the price increases we announced late last year. To provide more detail on the pricing lever, we were deliberately cautious when we implemented our first price increases in almost five years. Based on our observations over the past year from both wholesale and our D2C channel, we've taken steps to apply the price increase more comprehensively, which we expect to be in full effect by early to mid-2023. Turning to SG&A, I'll start with a few comments on the significant upgrades to our infrastructure that we've previously announced. These investments are critical to our ability to keep pace with the strong double-digit growth we've generated over the past year and a half. It's also vital to support our long-term growth plans. In the short term, these investments add additional expense as we operate out of the new DCs without the intended software system in place. These higher expenses consisted primarily of greater labor costs within the facility and additional machinery to support product movement. We've also added additional third-party logistics or 3PO warehouses. Together, these initiatives will enable us to continue to support our strong demand until our software upgrades are in place next year. We believe these increased expenses will be short-term in nature, but expect them to continue until the rollout of our new ERP next year. In the third quarter, these additional investments reduced adjusted EBITDA by approximately $5 million. As a result of these infrastructure upgrades, SG&A as percentage of net sales increased sequentially to 27% or $98 million. For the third quarter, adjusted EBITDA was $36 million with an adjusted EBITDA margin of 10% reflecting elevated freight rates, limited application of our pricing increases, and the investments we are making to serve a strong current demand and support future growth. Finally, adjusted diluted earnings per share were 28 cents. Turning to the balance sheet, we ended the quarter with $150 million in total liquidity, roughly double our second quarter position. This comprises $125 million under our revolver and $25 million of cash. We ended the quarter with total debt of $250 million at 41% compared to Q3 of last year. as we access our revolver to support the near-term infrastructure investment and offset our increased working capital needs stemming from our inventory timing. Inventory at quarter end totaled $266 million. Inventory levels remain higher than the prior year, which was a particularly tight inventory environment due to port delays and supply chain congestion. We believe that our inventory is generally high quality. We will continue to work through our inventory levels and expect to make sequential progress. Now to the guidance for 2022. We are advising our full-year net sales target to $1.29 to $1.33 billion, or approximately 27% growth year-over-year at the midpoint. As the fourth quarter is typically our lowest gross margin quarter, we expect a Q4 gross margin to decline sequentially due to margin seasonality and ongoing inventory management. For full-year adjusted EBITDA margins, we now expect high single digits. We expect adjusted net income of $39 to $41 million based on a blended tax rate of 25% and adjusted earnings per diluted share of $0.70 to $0.80 based on a weighted average diluted share count of $55.2 million. As I previously mentioned, the reduction in our full-year net sales and adjusted EBITDA margin outlook is a function of the broader macroclimate and our continued investment in more efficient fulfillment capabilities to support our future growth. We now expect this SG&E investment impact on our margin profile to largely persist until the completion of our software upgrade next year. With a year and a half of very strong double-digit growth behind us, we are on the right path to deliver on our five-year objective layout in our investor day, including increasing net sales to $2 billion and driving adjusted EBITDA margin to approximately 20%. We look forward to updating you on our progress. We appreciate your time this afternoon. Now, Andrew and I would be glad to take your questions.

To ask a question, please start off Lobby 1 now. When preparing to ask a question, please ensure that you are unmuted locally. And our first question of the day comes from the line of Megan Alexander from JPMorgan Chase. Please go ahead.

Hi, guys. Thanks for taking my question. I guess, you know, maybe starting on the top line, 3Q is strong. I think at the midpoint, you know, the guide implies 4Q down, you know, call it 5%. Given where, you know, is that related to destocking and the macro? And I guess, you know, given where inventory levels are, are you anticipating destocking continues into 23? And, you know, are you, do you think you're going to have to take any actions on any of your owned inventory? And how does that change how you're thinking about, or does it change how you're thinking about growing the top line, you know, double digit?

Yeah, so thank you for the question. Good to speak with you. I'll kick it off and then I can hand it over to Jen. Yeah, we are very happy with our top line growth in Q3. We definitely feel that we've outperformed the market and have been pushing hard in what's been an uncertain consumer market. I would say our our largest sort of hurdle in the back half is really about our wholesale partners, what they're doing at retail. I think we've heard from the broader marketplace that, you know, some of our retail partners are pulling back, you know, they're tightening up their inventory, which is, you know, which, which kind of, which was reflected in our pulling the value. So, you know, the signs that we're seeing on the Funko brand now and in the second and the back half, are positive. If we go to our .com direct-to-consumer site, people are spending more money and buying more items than ever before. So that's a really positive sign that we're seeing. Yes, there are outside pressures that we're dealing with that have had an effect on inventory. And we are always looking at the health of our inventory and deciding if we need to action it or not. I'll let Jen comment on that if she's got anything to add.

Yeah. Thanks, Megan. Nice to speak with you. As we think about our inventory, yes, it is up year over year. We remember last year was a pretty tight inventory environment because we were dealing with the supply chain challenges. So there is a little bit of nuance in the number underneath the covers. That being said, we are constantly looking at the quality of our inventory, and we think it generally is very healthy right now. And in the event where we have seen, you know, pull back a little bit in Q4, we have been making the right edits to our inventory, whether it be cutting receipts or pushing receipts out to make sure that we are managing this and managing it down towards the end of the year. Definitely an area for us.

Okay, thank you. And then maybe a follow-up for you, Jen, as well. Can you just help us maybe better understand the components of the margin in 4Q? You know, maybe how much of the, can you give us like a full year, you know, gross margin range? And just to try and understand how much of the additional pressure is gross margin versus SG&A. And then, you know, just trying to understand within that how much of of it is transitory and maybe related to inventory actions that you can get back next year?

Yeah. So, you know, in general, what we typically see in normal years that our Q4 course margin does come down a little bit from Q3 simply because that is when all of our retailers will take advantage of their contractual discounts with us. So that's a normal trend that we see underneath the covers. We have accounted for in the event we might have to do a little bit discounting because we know the inventory is tight across our retailers in the back half of the year. So we've taken that into consideration. From an SG&A perspective, I'll let you guys do the work on your models, but we'll see a slight uptick in Q4 from Q3 from a total dollar basis, but you know, that's really related to some of the infrastructure that we've had to put in place to make sure that we can maintain and continue to grow the business. So, you know, we'll see a little bit of dollar uptick in SG&A in Q4, not significant, but that's where you see the pressure points.

And then when do you expect the ERP software system to be rolled out? And should this, you know, if it's in the middle of next year, should this pressure increase? Should you get this pressure back in the second half of next year?

So I think that, you know, the way that we're looking at next year is, you know, there are three main areas of gross margin that we're looking at actioning to help us improve that in the near term. You know, we talked about price increases, aggressive sourcing out of Asia to leverage price cost decreases from our factories, and then lower shipping containers, which we're seeing you know, come down between $8,000 and $6,000 per container. So as we flow in that new inventory at lower container rates, we should start to get some of the upside benefit of that. On the SG&A and the additional costs with the growth and the infrastructure that we're having to invest in, you know, to support the growth, we would expect that to be middle of next year. You know, we are pushing hard to get that ERP up and running. Which also, by the way, brings that the software to optimize our warehouse, which, you know, we built the warehouse to run on WMS. And because of the ERP delay, that's pushing back to WMS. So, you know, we've obviously found a lot of manual work around supposed to get this, you know, the record 37% product out last quarter. And we're going to continue to do so until we get this up and running, which is fantastic. Like I said, middle of next year is what we're looking at.

Okay, thank you. I'll pass it on. Thank you.

Our next question comes from the line of Linda Bolton-Weiser of DA Davidson. Linda, please go ahead.

Yes, thank you. So I'm trying to figure out the math here just for the fourth quarter. I mean, are we talking EBITDA down – 50%, 30%, 20%. I'm just trying to like figure out the math here. There's a lot of moving pieces, but EBITDA in dollar terms will be down significantly in the fourth quarter, correct?

Pardon me? Down compared to?

So down, will EBITDA in dollars be down significantly year over year in the fourth quarter?

Well, you know, what we guided to was high single digits EBITDA percentage on the year. So, you know, I'll let you guys kind of work out how you want to, given we only have one quarter left, let you guys, you know, work on your models there. But, you know, we are seeing, you know, pressure on the margin front, as we mentioned, and we do have some additional investments for future growth that we're maintaining.

So it feels to me a little bit like a bomb has dropped on my head. You know, like you've really, up until the second quarter when you did have an EBITDA decline, you've had pretty strong EBITDA growth in the last five quarters. And you just had a big analyst meeting where you stood up in front of everybody in September and you talked about, you know, really kind of aggressive margins Um, goals going forward. So I guess I'm having trouble marrying like the two ideas here. I mean, when you had the analyst meeting, did you know that you had these operational issues?

So on the investor day, if that's what you're referring to, I think that's what you're referring to. I just want to take a minute to remind that that is a long-term view of our business that we're still very bullish on, and we absolutely believe in the long-term vision of this. I think what you're experiencing right now is a contraction of the retail marketplace, which we're seeing across the entire industry, and you're seeing us executing against two major infrastructure projects, in order to deliver that future revenue. It just so happened to fall in a year where there was this broader economic pressure. And again, I think that that's what you're seeing, which is why we're confident this is a short-term situation that we have to overcome. We are rolling out multiple large infrastructure projects in a tough year, and that's what you're seeing in the back half of the year.

So, right, so if we think about the long-term you know, I'm going back and looking at your EBITDA margin. And since 2016, it has declined in every single year except for 2021. So you had an EBITDA margin of 22% in 2016. And now here we are at high single digit EBITDA margin. So you've been investing all along, because that's been impacting your margin all these years, all the infrastructure investments. And so I guess I'm just not seeing with relatively strong top line growth most of the time, why your margin has declined so much over the last five, six years. Can you just help me understand? And then how do I get confidence that all of a sudden you're going to have a big period of margin expansion, even though you've had five, six years of margin decline?

We are absolutely focused on improving our overall margin. As we noted in the investor deal, we see a past 20% over the longer term. As Andrew mentioned earlier, there are several factors that we're already putting into place that are going to help that. We have already negotiated some better pricing with our factories. We are rolling out, starting next year, it'll take place mainly in Q2, more broad-based price increases across the board. And we will also see the benefit of the reduced shipping rate. What you're seeing this year is that we didn't quite get all the pricing that we had anticipated, and our shipping expense, we are still amortizing those higher shipping costs that we brought in with our inventory. So we are feeling very good about being able to achieve that. It's absolutely a priority of ours, and that's why we did want to share that number at the investor day.

So can I just ask – Like, how is the consumption, the demand for your products, is it strong or has it weakened?

Yeah, I mean, I think if you took a look at the Q3 versus the market and other people, you know, in our sort of sector, that tells you everything you need to know, right? The demand is there, right? We are seeing record numbers of consumers come to Funko.com They're spending more dollars per transaction to buy more items. That tells us everything we need to know. What you're seeing from a broader perspective is largely something that's not really 100% within our control. If a retailer has the mandate to lower their inventory, we are going to be caught up in that. Even keeping key programs and exclusives that are driving foot traffic to those retailers, there is a broader edict. for our wholesale retail partners to end the year with lighter inventory. I think that that's what you're seeing.

But it sort of implies that you've been selling into the channel at a pace that exceeds your POS growth. I mean, is that the case?

I'm sorry, say that again?

It sort of implies that in the last two, three quarters, four quarters, you've been selling into the channels, into Walmart and Target, at a pace that exceeds your POS growth. Do you have a sense as to if that has been happening? You've been shipping more in at a rate that's higher than what it's been selling through at?

Yeah, it's a broader context, Linda. As you've heard across the board, retailers across the board are bringing down their inventories. It's not a direct reflection of our sell-in versus our sell-through. It's really the macroeconomic environment, as well as our own internal operational issues that we're currently working through to make sure that we can deliver goods on time. So that's what you're seeing. And if you look at the back half, you know, we are still up in the low teens on the back half of the year. And overall, you know, approaching, you know, when the high 20s grow on the year. So we're still feeling there is demand out there for our products. Our online channel is demonstrated over that, and we feel good. It's about working through this near term as retailers want to get clean for their inventory by end of year. So those are the challenges that we're working through, but we think, you know, it was proven just to make sure that we align our inventory with our sales, and that's what we're doing, and that's what's reflected in our guidance.

Can you tell me the incremental investment by having duplicative 3PLs or whatever you were talking about in dollar figures, how much will that increase SG&A in the first half of 2023?

Yeah, we haven't given 2023 guidance just yet. We'd like to give a more holistic picture on that. We did disclose that it's about a $5 million hit in terms of warehouse labor in Q3, just as we've had to put more bodies to get the goods out the door versus having the systems in place to do so. It's definitely been a headwind for us in the quarter and will be in Q4.

But those expenses of whatever magnitude, it's going to be in like the first quarter and the second quarter of 2023. Is that what you're thinking for the elevated expenses?

We will continue to have the 3PL expense as we work through, but we are actually currently working on getting more equipment into our distribution center to more streamline our fulfillment and get some of those costs down. We've also opened an additional 3PL in Arizona to help some of our throughput. So there are some additional expenses, but these should be ones that help continue to support our growth, and we are looking to get those down as we kind of move forward.

Thank you, and as a reminder, if you'd like to ask a question, please dial staff or other one on your telephone and keypad now. And our next question is from the line of Garrett Johnson of BMO. Please go ahead.

I'd actually rather give my time back to Linda if she wants to keep going. Seriously, performance at your recent Comic-Con events, wondering how those events, New York and San Diego, have gone for you guys now that everything's back in person. And how are those events comparing to pre-pandemic? And then related to this infrastructure thing, how did it become a surprise? You know, how did it catch you off guard that you'd be, was it the delay in the operating system or what was it that caused the surprise?

So let me kick it off. Hey, Gary, it's Andrew. Thanks for the question. So let's talk with the in-person events. We'll start there. San Diego Comic-Con was up strong, double digits. New York Comic-Con was up triple digits as far as our sell-through was concerned. We could not even handle the demand that we had in our booth. That was the biggest complaint was, man, how do you guys grow your footprint here so that you can satisfy more of the consumer demand? So it's like drinking out of a firehouse, let me put it that way. So we could not – when I talk about the confidence that I have in our brand, that – compiled with what, or combined with what we're seeing on funcode.com is exactly what I'm talking about. So does that, does that give you a good idea?

It's great. Yeah. Thank you.

Great. So on the, why was it a surprise? So I think that it's a combination and, you know, Jen can chime in here as well. You know, it was a, we launched the new warehouse. We made the decision to move the new warehouse with a delayed ERP. And part of that ERP is what's called a WMS, which is Warehouse Management Software. And basically, that helps you optimize the layout of that warehouse. And so when the ERP delayed, it came with the extra work around having to create manual processes to optimize that warehouse, which would normally have been done in an operating system, but unfortunately we didn't have that. So that's, was it a surprise? I would say it caused us more manual processes than we expected. So yes, I think that that was something that, you know, caught us a little bit off guard, but obviously we're pushing through and we're creating the manual workarounds to continue to get that revenue out the door.

And I would just add to that, you know, given that we did launch it in Q2, we did expect, you know, any new DC, we did expect, you know, hiccups around the launch of it. What I think is the bigger, you know, unfortunate part is that they continued on, whereas we expected them in Q2. So you're seeing a little bit of that as well. But we are, again, investing in growth and investing in 3PLs. We specifically left our lounge fly business in a 3PL and not moved it in here to continue to support its growth. It grew 50% in the quarter. So we want to protect that business as well. So we are doing everything we can to fix our operational hiccups.

Okay, great. And I know it's difficult, given the nature of your distribution, to give us a POS number for the quarter. But how about your POS performance at your major mass market accounts?

Yeah, we are happy with what we're seeing, you know, go through the register. Obviously, you're right, you know, our POS is a lot different than some of the other people in the marketplace because of our distribution is so much more specialty oriented. But yeah, we're very happy. We continue to see, you know, not only good unit sell-through, but also higher ASPs. So it's largely positive. I will say, obviously, There is the over-inventory situation that the retailers are dealing with across the board. And maybe it's not over-inventory, but they're trying to cut back inventory. I'm sure you've heard that from other people, where they are looking to end the year clean on inventory. So I think that's having some sort of effect on the newness that we're pushing in.

Okay. Thank you. Thank you, Andrew.

Thank you. Thank you.

As a final reminder, if you would like to ask a question, please tell staff follow by one on your telephone keypad now. It appears we have no further questions being registered at this time, so I'll hand back to Andrew for any closing remarks.

All right. Thank you very much. We appreciate everybody's questions today and look forward to talking to you again soon. Thank you.

Thank you to everyone who has joined us today. This concludes the call and you may now disconnect your lines.