Funko, Inc.

Good afternoon and welcome to Funko's 2024 third quarter of financial results conference call. 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 authorization from the company. As a reminder, this call is being recorded. I will now turn the call over to Funko's director of investor relations, Rob Jaffe. Please proceed.

Hello, everyone, and thank you for joining us today to discuss Funko's 2024 third quarter financial results. On the call are Cynthia Williams, our chief executive officer, and Yves Lapindevin, the company's chief financial 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 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 Funko's press release announcing its 2024 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 earnings release, press release issued earlier today. I will now turn the call over to Cynthia Williams. Cynthia?

Thanks, Rob. Good afternoon, everyone, and welcome to Funco's 2024 Third Quarter Financial Results Conference Call. We reported a solid overall financial performance for the quarter. Net sales of $293 million were, as expected, down compared with Q3 of last year, though at the high end of our guidance range. Growth margin was 41%, and adjusted EBITDA was $31 million, both of which exceeded the top end of our guidance range. turning briefly to our 2024 full-year outlook. We are seeing some indications that consumers are increasingly looking for value, which among other things has resulted in certain wholesale customers remaining cautious ahead of uncertain consumer spending during the holidays. We have therefore lowered the range for net sales to $1.037 billion to $1.05 billion, the top end of which is still within our earlier guidance range. Our profitability is a different story and a very positive one. Our improved gross margins have continued to produce better than expected bottom line results. Therefore, we are raising the range for adjusted EBITDA to $85 million to $90 million. Eve will discuss the third quarter financial results and our guidance in more detail in just a moment. On the last call, I told you about my initial impressions of the company and the team. Since then, we realigned certain responsibilities of the senior management team. Andy Otte, our chief commercial officer, is taking on global sales and business development efforts in addition to overseeing our licensing relationships. Moreover, he has moved to Los Angeles to be physically closer to many of our licensing partners, as well as our U.S. sales teams. And Johanna Gepford, our Senior Vice President of Growth Initiatives, is now fully dedicated to overseeing growth initiatives and our newer business lines, which includes managing our global direct-to-consumer channel, Pop Yourself, Mondo, and digital collectibles. We are actively recruiting to add expertise in a few key areas, including creative product development, brand management and marketing, and business development associated with organically expanding our reach and our fandom. Also, on the last call, I laid out our plan to grow Funko by taking a fan-centric approach, which revolves around delighting our core fans, attracting new fans, selling where the fans are, and improving the fan experience. Since then, our senior leadership team has been deep in the process of developing our strategic plan for 2025 and beyond. We expect to share details on our Q4 calls. In the interim, I'm pleased that we've already begun executing several elements of the plan. While these may not be significant revenue drivers this year, They are representative of the approach we are taking to grow fandoms and expand our points of distribution. I'll highlight several of these recent developments. In the area of sports, we expanded our collaboration with the National Football League to include the option for its fan base of more than 200 million people to customize Pop Yourself with any NFL team logo. The partnership kicked off in Kansas City, where we celebrated the season opener and introduced Funko and Pop Yourself to a new legion of fans. Sales of Pop Yourself with NFL accessory packs exceeded our launch expectations. To put a finer point on this, from launch through the end of Q3, more than 40% of Pop Yourself sales included NFL accessory packs, and total daily sales increased by more than 150%. We anticipate a new round of customer interest around the NFL playoffs and the Super Bowl. Next, C.D. Lamb, a Pro Bowl wide receiver for the Dallas Cowboys and holder of several NFL records for receptions at only 25 years old, has partnered with us on a clever advertisement that is part of our national NFL campaign. His Pop is being exclusively sold on our direct-to-consumer website, Funko.com, and it is flying off the virtual shelf. And within 20 minutes of the last out, we went live with a limited edition collectible Pop Los Angeles Dodgers 2024 World Series Champions 5-pack on Funko.com. This pre-order item will only be available for two and a half weeks through November the 18th. In the area of music, we launched a pre-order for Reba McEntire wearing the famous red dress she wore to the 1993 Country Music Awards. Reba is a huge country music star and actor. She is also a coach on the hit television show, The Voice. which has a weekly viewership of nearly 6 million people. On a recent episode of The Voice, Reba gifted an extremely limited edition Funko Pop of herself to the contestants who chose to join her team. I want to briefly mention some recent successes with our outbound licensing program, which elevates Funko's brand equity and delivers royalty income. First, Funko Fusion, Our indirect foray into the video game world provides a different way for new fans to engage with Funko. An action-adventure video game developed in collaboration with 1010 Games and NBCUniversal, Funko Fusion launched on both PlayStation 5 and Xbox Series X and S in September, and it was the best-selling new video game in the U.S. within its launch week. It will soon be released on both PlayStation 4 and Nintendo Switch just in time for the holidays. Second, we recently partnered with the Walt Disney Company and video game developer Gameloft to bring the world of Lounge Fly to life for the first time within interactive entertainment. The six million active fans of Disney's Dreamlight Valley video game are currently able to enjoy wearing in-game some of their favorite lounge flight backpacks and bags. And last, I would like to take a moment to shine a light on our longstanding and incredible partnership with Ferrero, one of the world's largest manufacturers of chocolate products. As of today, Ferrero has shipped over 1 billion Funko-branded Kinder Joy eggs. This is a remarkable milestone and a testament to both companies' reach and brand strength. We are excited about our future with the Ferrero team, and we're in discussions to expand and extend the partnership. In the area of selling where the fans are, we further built out our direct-to-consumer shipping capability to now include Canada. In the first weeks after launch, turning on Canada led to daily sales of Pop Yourself nearly doubling our average daily volume. We have now sold well over 1 million total units of Pop Yourself since the launch last Q3. I'm also pleased to share that earlier this morning, the Toy Association announced that Pop Yourself is a finalist for the prestigious 2024 Collectible of the Year Award. We are honored that Pop Yourself has been recognized for its uniqueness and creativity. And in the area of delighting our core fans, we have expanded our collaboration with Warner Brothers to allow Pop Yourself to be customized with Harry Potter accessories. Millions of devoted Harry Potter fans can now combine personalizing Pop Yourself with their passion for Harry Potter. You are the first to hear this. The official launch starts tomorrow. The last two items DTC shipping to Canada and the Harry Potter accessories for Pop Yourself are both well-timed for the upcoming holiday season. We are certainly excited about the breadth of these positive developments, as well as the other opportunities we are evaluating to grow and diversify our business. We know how to serve our core fans, and we are developing the muscle to attract and serve new fans. With that, I will now turn it over to Eve to take you through the financials. Eve?