Funko, Inc.

Hello all and thank you for your patience. Today's call will begin in approximately one minute's time. Good afternoon and welcome to Funco's 2023 third quarter financial results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a Q&A session and instructions will follow at the time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorisation from the company. As a reminder, this call is being recorded. I'll now turn the call over to Funco's Director of Investor Relations, Rob Jaffe. Please proceed.

Hello, everyone, and thank you for joining us today to discuss Funko's 2023 third quarter financial results. On the call are Mike Lunsford, our interim chief executive officer, and Steve Knave, the company's chief financial officer and chief operating officer. This call is being broadcast live at investor.funko.com. A playback will be available for at least one year on the company's website. I want to remind everyone that during 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 recent 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 Funco's press release announcing its 2023 third quarter financial results 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. I will now turn the call over to Mike Lunsford. Mike?

Thanks, Rob, and good afternoon, everyone. We're pleased to report better than expected financial results for the third quarter. Net sales were $313 million. adjusted net income was 2 million, and adjusted EBITDA was 25 million, all of which were above the high end of our guidance range. These results were primarily driven by strong direct-to-consumer sales, improved sales to several of our larger wholesale customers, both in the U.S. and in Europe, and the cost reductions and operational improvements we've implemented over the course of this year. On the last call, we outwound a path to achieve long-term profitable growth. We said that this strategy and approach will inform everything we do going forward. By focusing on the fans and our unmatched brand, by running the business with financial discipline, rejecting complexity and focusing on fewer products done extremely well, by investing in areas we can control, measure and grow profitably, and by keeping the flywheel turning, where each action we take builds on the previous one, propelling positive momentum. I'd like to call out a couple of highlights from the quarter that demonstrate the progress we've made executing that plan. I'll start with the first element of the plan, though some of the highlights relate to multiple elements of the plan. We believe our fans and customers are excited and engaged, and our brand is strong. So how do we quantify this? First, we grew direct consumer sales 32% year-over-year, with D2C sales in Q3 representing 17% of our sales mix versus 11% in the third quarter of last year. Second, across our website, the average order value grew 8% year-over-year to $60. Third, the successful online launch of Pop Yourself in August contributed to the strong D2C sales in Q3 and we expect sales to continue to ramp for the upcoming holidays. Pop Yourself is attracting new customers to our brand and to our D2C channel, with over 50% of customers purchasing Pop Yourself being new to our website. Four, Mondo sold more than 3,500 units at a $500 price point of a Masters of the Universe Battle Cat figure in an exclusive timed edition sale, our largest revenue drop ever. And finally, our Fans Reward Loyalty Program, which we just launched in May, has already surpassed 100,000 new members. In the third quarter, we also made progress focusing on fewer products done extremely well. On the fewer product side, we have stopped development of lower value product lines and SKUs. We believe this will ultimately help us expand gross margin and improve inventory management. On the done extremely well side, Loungefly won the Innovation Award at the Licensing Awards in September for its McDonald's French Fry cross-body bag. And Loungefly's Disney Nightmare Before Christmas toy, Undead Duck cross-body bag, one of the fastest-selling lines of Q3, saw 100% sell-through within the first week of sales. Bitty Pop, a line of miniature collectibles launched earlier this year, was a key contributor to wholesale sales in both the U.S. and Europe. making up nearly 5% of total sales. Aside from the tremendous growth potential, we are excited about this product line for a couple of reasons. First, we're not reliant on new content, and we're able to leverage the strength of evergreen properties. The top-selling biddy pops in Q3 were the original Star Wars and Harry Potter characters. And second, we're able to secure incremental shelf space and reach new customers in different aisles in specialty, mass, and value retailers. Turning to the company's leadership, I'll share a brief update on the CEO search. The search process is underway, and we're delighted with the quality and caliber of the candidates expressing interest in the position. I remain very excited about the opportunity ahead, and the candidates I have spoken with share my enthusiasm. We also announced today a change to our board of directors. Mike Kearns has been named to the board, replacing Rich Palms. Mike is a co-founder and managing partner at The Churning Group and has deep experience starting, managing, and investing in digital media and consumer technology companies. We welcome Mike and look forward to his counsel and insights. At the same time, we thank Rich for his contributions as a director. While he has resigned from the board, we are pleased that he will continue to serve in a new role as a strategic advisor to the company. And finally, as we previously announced, Brian Mariotti, who resigned from the board in September, also continues to serve as a strategic advisor to the company. With that, I'll turn the call over to Steve to cover our detailed financial results and guidance.