Funko, Inc.

Good afternoon and welcome to Funko's 2025 Third Quarter Financial Results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press star 9 to raise your hand, star 6 to unmute. 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 hand the conference 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 2025 third quarter financial results. On the call are Josh Simon, our recently appointed Chief Executive Officer, and Yves Lependevin, 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 2025 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. Also, we have posted supplemental financial information on the investor relations section of the company's website, which includes, among other things, a net sales bridge, a gross margin bridge, and key IP and product drivers. I will now turn the call over to Josh Simon. Josh?

Thanks, Rob. Good afternoon, everyone, and thank you for joining us. This is my first earnings conference call at Funko, and I want to start by saying I couldn't be more thrilled to be joining the team at this exciting time. Over the course of my career, I've seen this industry from a variety of perspectives, making movies at Disney, creating products at Nike, and most recently leading the global consumer products and live experiences division at Netflix. Now across all those worlds, I gained a strong understanding for fandom, the culture of entertainment, and how it translates into physical products. And I can unequivocally say there is no one better at it than Funko. There's one clear trend I saw across my years in entertainment and consumer products. Almost every filmmaker, creator, or celebrity with whom I've worked inevitably asked if they would get their own Funko Pop. It's seen as a sign of having made it in the entertainment world among the biggest Hollywood talent. From the outside, that love for Funko and its brand and products was energizing. Now, I want to begin with some takeaways from my first 60 days after diving deep into the business and speaking with our customers, licensors, and employees. Then I'll outline some of what I think it will take to get back to growth. I had the opportunity to meet with some of our most passionate fans at our retail stores and at New York Comic Con. I've been able to spend time with our employees in the US and Europe, And we've engaged in senior leadership strategy sessions with key retailers like Hot Topic, Walmart, and Target, licensors like Disney, Warner Brothers, Universal, and Netflix. And I have a deep, longstanding set of relationships with most of these partners and welcomed an honest dialogue. In talking with our partners, I heard two consistent themes. First and most importantly, they see the growth opportunity together and are energized by the far reaching scope of our brand and products. And second, they suggested some very clear areas where we can improve. We definitely appreciate and value their feedback and we'll use it to further strengthen our competitive advantages. Namely, first, we have a passionate and broad fan base. In September at a fan event at our Hollywood store, I was able to celebrate an important milestone for the company, 1 billion units sold. This amazing achievement puts us in very rare company among the most successful toy brands in the world. Membership in our fan loyalty program has grown 27% since the start of the year. We have a strong footprint of 9 million followers across our social media channels, and our customer base is highly diversified and evenly split between male and female, with purchasers across an 18 to 55-year-old demographic, many of whom are buying for kids. Second, we work with the world's biggest IP and serve fans across every corner of the pop culture universe. Our robust relationships across multiple genres, more than 900 active licensed properties, and 250 plus content providers create a strong moat around this industry leading portfolio of licenses. Our product offering is highly diversified. We're not reliant on one character or single franchise. Now, I'm pleased to announce that we've recently signed several multi-year renewal agreements with major licensing partners, Warner Brothers, NBCUniversal, 20th Century, Paramount, and our biggest partner, the Walt Disney Company, which includes Pixar, Marvel, and Lucasfilm. Third, our products are sold everywhere fans shop. through a large and diversified global network of retailers, including more than 1,400 mass market specialty e-commerce and mom-and-pop partners around the world, as well as our own websites and flagship stores. There are very few brands that are equally relevant across a mass retailer like Walmart, and they can spark a robust resale market on eBay at the same time. I'm still early into my tenure here, but my leadership team and I have identified our areas of focus and are ready to act immediately. Our growth will be driven by what we're calling our Make Culture Pop strategy, built at the intersection of three pillars, culture, creativity, and commerce. This is where Funko has excelled and will align our priorities and organization to maximize the opportunity in these three focus areas. Let's start with culture. We aim to be the definitive brand for transforming pop culture into products. That includes fandoms that are existing strengths like film and TV, along with exploring new corners of pop culture through categories like footwear, cosmetics, and food. We can do more in the areas of K-pop, sports, music tours, and fashion, and working with relevant content creators to expand into newer areas of fandoms like Twitch streamers, YouTubers, and influencers. We want our products to be at the center of the moments everyone is talking about, created by us or with us. Now, some examples of what that means. We will look to identify trends even faster and supercharge our speed to market. Let me give you a quick example of what I mean through the lens of K-pop Demon Hunters, Netflix's most popular movie ever. Our team was among the first to recognize the appeal of this property for both mass audiences and collectors. We moved quickly to create an exciting lineup of products that has become one of our biggest presale items ever when it launched on Funko.com a month ago. And the Funko team was able to bring this product offering to market within just a couple of months across pop figures, backpacks, and accessories, compared with much longer lead times by other major toy companies. This speed to market is one of our unique advantages and will be one of the only toy companies to have K-Pop Demon Hunters products on retail shelves this holiday season. We're operationalizing our Quick Strike and Hyper Strike offense across our entire value chain to make this more repeatable. By operating at a faster pace and being more on trend, we also aim to position our products at the center of what everyone is talking about across all corners of pop culture. For example, we partnered with The Late Show with Stephen Colbert for a surprise on-air product reveal timed to the show's 10th anniversary in September. The episode featured Stephen Colbert unveiling a brand new Funko Pop and marked a major crossover moment between late night television and fandom culture. The launch included a live studio audience giveaway creating a shared moment of celebration between Colbert, his millions of at-home viewers, and Funko collectors around the world. In music, we added to our Funko Pops music artist collection with Fade, a Latin American sensation with nearly 30 million fans across Instagram and TikTok. In just a few weeks, our partnership has driven more than 5.7 million views on social media and is representative of our efforts to work with more artists who are in the global zeitgeist and create touch points for our growing customer base outside of the US. In addition to Fade, we've recently added a number of other artists to our Funko Pops music artist collection, including the K-pop band BTS, the Swedish rock band Ghost, Sabrina Carpenter, and classic artists like Tom Petty, Metallica, and Ozzy Osbourne. Now, an important part of cultural relevance also comes from embracing our community of passionate collectors around the world. Just as I saw at Nike, supporting the collector's market through exclusive drops and giving them something special is critical to building fan communities and driving brand awareness and excitement. It's a major priority for us to rebuild credibility and enthusiasm with core collectors and mega fans who have been loyal to us for years by improving execution around limited editions, storytelling, and drop cadence. In the third quarter, we dropped a number of limited edition collectible pop figures with various tiers of rarity.