FNKO - Earnings call transcript Q2 2022

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Operator

Hello everyone, and welcome to the Funko Reports Second Quarter 2022 Financial Results. My name is Emily, and I will be moderating today's call. [Operator Instructions] I will now turn the call over to our host, Ben Avenia-Tapper. Please go ahead.

Ben Avenia-Tapper

Thank you, and good afternoon. call Fall Andrew Jung, the Officer; Chief on Jennifer and Chief us today Perlmutter, are Executive With Financial Officer.

I'd this will begin, the the company other we like financial everyone regarding remind Before results. its that, forward-looking course statements of forecasts, conference discuss management and call, targets, and to during

actual today, materially our and are results subject what many risks represent best future statements actual judgment these about differ and our results that results could we expect. cause uncertainties While from current performance to as of to

addition call, to release. in in affect results any during In reports risks that, press described important our highlight we are our the SEC earnings may most recent factors that today's future

directly to financial measures discussion. will financial earlier during X-K can we and supplemental refer addition, financial released we In and found today. press non-GAAP release U.S. earnings comparable in information that the GAAP their measures most be the Reconciliations to

items, follow to investor.funko.com. investors now plus Relations that website the a I presentation this All on Investor available over call with of are turn along these our visual to Andrew. will consult can discussion

Andrew Perlmutter

strength million, more the $XXX afternoon, led second XX% the a prior sales categories $XX you another grew for year. joining in of $XXX report record quarter for and brand lineup our to brand three Net with net history. our all platform half the and over reaching us geographies across to increase million Loungefly Good sales based in strongest categories, off quarter of quarter The Robust continues shine in second channels. first of first quarter performance. company's row and than half our quarter second Funko's year, product the strength million culture for through sales pop our reported sales of I'm capping in doubling double-digits, excited the net of for compelling today. thank to a net broad demand for

Mondo, way, end the In known million. its quarter growing company, announced high integrated a best XX% much unique defines had business international that level of brand collectibles. the the best-in-class elevate to ever resources vinyl to and same Europe of the $XX that expect next and us best while and Funko we we've grown collectible the collectibles space other Games, elements leveraging June, can acquisition In the Mondo nurture brand also Our you Funko's Loungefly growth. posters within with records, to for the to

reconnect fans where person quarter. our direct-to-consumer Finally, in expectations has culminating seen to sales at dramatic day our loyal we two Comic-Con demand QX our thrilled events recorded weeks a ago, in passionate throughout live and in (ph) events for largest ever. at with events Diego the tentpole of all we're recovery San exceeded Sales

to been events seen just through for are to level these known course, ever is us. we've brand us We've Of highest is sales. roof, our about Demand that back thrilled to more to a expand direct the fans get engagement able anything the fan done than and for before. with become are we've enthusiasm the celebrating equips we've

factors half second We chain of but supply the optimistic impacting continue to many we about remain monitor macroeconomic the cautiously the and year. climate, global

implied are the of review at million raising the sales now midpoint I'll some $XX half strength our from half, the highlights for quarter of the our first of we second brand full for by the On our year our outlook categories. guidance. each net reaffirming

innovation is across the continual the core loyalty our the category collectible what brands from amazing drives fans. Within category,

all emerging across a the multimedia brands, net XX% and the on as increase Popsies, Pop! robust Pop! horizon. incremental sales category's slate opportunities delivered Our Deluxe growth, year-over-year flagship expansion activations Pop! like growth content each to and with and Die-Cast additional strong brand generated evergreen Complementing are exciting formats. supplemented contributing including double-digit Soda Pop!

still its will category. sit Mondo collectible within brands the early integration, in While

limited expect segment brands excellent into We opportunity current business and to end of high portfolio quality high to addition new collectibles tapping Mondo's model our attractive a Funko. of release of diverse market for be an range

Turning to games our and toys brands.

exciting Game, blueprint drive One key exciting among as new our Funko titles Games continues content reach target areas revenue best-selling releases diversification, audience. these of universally of Cheap growing legacy as Ted growth well Lasso loved (ph) provides Lasso catalog the Ted with the a quarter our to-date. to a to Party to during multiple broad was launch leverage category of launches. an

On the our resonate Kingdomania, as base. built across see fans, brand designed their fans visible where and for portfolio serving amazing connections its the we've with years targets diversification platform the since another audience as community a our a stores up, of a traffic loyal five gaming revenue in The particularly on to collectible brands, into while strategy. Disney some collector fan ten for six to We've which ages toy brand. go This large the Disney and sales we most uptick the it. favorite all the expand we continues brand within made the flagship is characters. upside. side, Loungefly our directly acquired and loungefly.com, ten-fold Funko. a Within grown the deep our this at introduces have we'll remains growing continues Five again a community collectible for on collectible with as gaming to the continue tremendous slightly Funko. popular five of products quarter in leaned of brand's different Pixar to devoted seen significant soon our top net Further, and from game had gaming recently Battleworld, of announced top game Freddy's as best-selling Nights Kingdomania expand

NFT size as business, grow drop frequency. and participation increase Finally, turning to continue Digital enthusiasm our we Pop! and to

Pony excited continue My both this out Comics collectibles X.X with new XX We're opportunities digital and fans Our our fans presents. million of it in DC saw sold Scooby world Little recent drops drop the exploring while and many to under queue Doo NFT nearly in minutes.

strong in second driven was and quarter efficiency operating delivered improvements the with As strategic the retailers. our Europe. by in region, net across mentioned record targeting I particularly results broad-based continued earlier, European of international from sales Strength Pan business

Buckeye, in net sales. domestically. seen largest we we direct-to-consumer the our Importantly, of chain in we've growth and supply distribution in maintained to in business. strong brand internationally reflecting we during sales the the net the our customer, growth we'd own categories to headwinds, quarter, we Funko, Everett growth our double-digit are ongoing portfolio Despite Arizona across double-digit expand breadth brand generated region to to like from center relocation match our and the continue our say At

improved growth. order We higher results in QX, site for while to through continue foundation average In the operations, drive and and tools. we additional merchandising new Funko's first quarter delivered maintained payment reinforcing conversion options, summary, rates momentum strong value and

While we're that with thrilled are macroeconomic mindful uncertainties half, broadly. we the of first the the remain climate in

including As impact of monitoring further or we these some spending chains, are disrupt could consumer the factors, supply inflation closely. environment

are of billion confident per these fiscal deterioration disruption, to expect sustainable now our significant we through factors $X.XX share of impact macroeconomic $X.XX. $X.X term the operations. and would revenue the XXXX growth adjusted the and managed Acknowledging earnings long While deliver strength in on between $X.XX to half, and our climate, first billion in we ability and

we key half, updates growth our base, against second expand the into the core, innovate initiatives, international strategic unfolds. grow direct-to-consumer continue within revenue will to the forward business year our operations. We as providing execute our look diversify and Moving to

our investor announce to like would XX I September on holding event, York. close, I New Before we are which in

on additional I'd to our financials. roadmap and expansion. belief fans, you take and details I'll margin seeing some Funko call to continued double-digit sharing our support around We over many will employees the We providing thank our growth brand. incredible there. be depth to to With businesses forward sustain to and of partners you look through the like their turn in the that, for and Jen three-year

Jennifer Fall Jung

and Andrew, afternoon, everyone. Thanks, good

record of year. the We net growth XX% for with second sales are a report pleased over quarter prior to

$XX by outperformance was direct-to-consumer our strength brand, primarily the driven U.S. including market and our driven Our within results in brands more with categories, value million Net while new geographies brand and domestic across XX% net like own were our and to product sales doubled increased and increased iconic to channels. category retail to to and $XX increase strength On continued XX% $XX to revenue Soda relationships. sales sales a net items. category million. per lines. and sales broad-based consecutive XX% $XXX broadened continued wholesale form other channel. grew sales our The continue more X% brand million We've mass Loungefly net the with Popsies in net international million partner to to our grew successful $XXX by Europe our die-cast than innovation brands our factors The second basis, brand open million, collectible Pop! figures, SKU mix to effort high Loungefly new and our new reflecting its we while shifting for quarter in lineup the core

sales million. communication have Digital, as grew ourselves $XX category engagement. to we established Games leader Importantly, other net Toys which XX% Among brands, as as a well and fan in our includes and

to up revenue proof our Loungefly effectiveness and XXXX of Our second point constitute brands from the quarter now in of XX% investments net sales, strong and other XX% our a the of base. of diversify

points versus margin gross decrease QX a cost primarily supply due was quarter basis first chain P&L, the XXXX, down XXX XX%, inflation. of Moving to

our XX% to as QX. sales. project. As was our last this large elevated hitting to Arizona QX some somewhat to of from spot as the of of due higher our although a center $XX total on for in XXXX, in Relative freight. saw for quarter of as benefit partially reminder, quarter, we saw versus distribution expenses QX, SG&A margins XXXX. peers. later rates related share brands points, first net freight little Last described emerging million basis trans-ocean mix as relocation ERP of the declined resulted to Buckeye, QX year, our are were we or we we Conversely, to beginning revenue P&L in well XXX the improve, market the In Everett rates product than rely a quarter

we Regarding momentum in delay ultimately want contributed recently our factors we plans remaining yet steps our did with but the rates, the EBITDA adjusted to support in year ERP, acknowledge infrastructure not stability felt decision margins XX% to the P&L, platform anticipated significant call number There reflecting to deterioration environment than freight EBITDA in on difficult remain million year. rates $XX but shifting We of details an adjusted product up we were more this wasn't margin by that impair decision We our that XXXX Wrapping fully our macroeconomic with today the deliver could have per the margin XXXX. the we you that to consistent that second share business. the elevated around made are temper to earnings spending. mix ready results, full in plan to diluted and of a freight November. until for half Adjusted a less on or to a was QX EBITDA of have implementation expansion track $X.XX. the adjusted XXXX

Turning to of $XX million $XX to under quarter revolver cash QX million XX% quarter the as end representing subside. $XXX and revolver, million of with leveraged of the totaled our near and balance the total we $XXX million. as of debt liquidity We term million, begin quarter our Inventory sheet, infrastructure remaining investments. last at of ended ended $XX availability total we cash with equivalents to compared shipping up year, delays for

half inventory demand up consumer our high are believe quality is and well support leaves forecast. the inventory year-over-year, second to growth positioned generally our we levels us While strong meet our and

for the macroeconomic significant XXXX, chain the guidance experience congestion a deterioration which in demand we further factors. due to Now or to consumer assumes don't supply to

billion target $X.X are raising outperformance $X.XX $XX our reflecting million billion, and net in full the sales our We year quarter. to second between

target year For margins, continue EBITDA we full margin consistent to a adjusted with XXXX.

$X.XX based net We $XXX.X rate average and diluted based of share million. earnings a $X.XX blended We million expect appreciate tax afternoon. on on $XX.X your XX% at the income adjusted of weighted this to million share count to diluted of $XXX.X time adjusted per

and Now, your to would be I Andrew questions. glad take

Operator

with Jefferies. go [Operator Instructions] Our ahead. Wissink please first from question today Stephanie Stephanie, comes

Stephanie Wissink

Thank day, everyone. you. Good

have for We questions inventory. first Jen, two on is the you.

in of talk about much bit to a transit? the you How to where be DC give for little that just to much inventory the related relocation? you a could us reside? Just more dimensionalize inventory it is How would appreciated? be If might chance

Jennifer Fall Jung

rolled QX, as you're Difficulty] Hey, know, within QX a in into chain. little well. a had Yeah. delays the actually How of congestion the bit Inventory, what Great. seeing Seth. lot of that are And so QX supply we that ended to you? just as you [Technical due

into the and that about the the down inventory managing the congestion results. in to we're year. just Knowing of that on as on those be and year, a good the delivery had half really now healthy they position back we're through dates half come far. is Although feel looking than we back our It seeing poised really was saw in deliver transit so times earlier we're more we time

So there into the customers. portion out of a to that in-transit, the working get our to is that DC we're large and but get

Stephanie Wissink

All big direct-to-consumer innovation, one growth your drivers, Andrew just great. right. on That's for then And is you diversification, international.

four something those that laterally would drivers? rank the do drivers you outperforming of any you more them to almost you the expectation there look other. do than Or your those business? of about If within Is at is power equal as think force had where

Andrew Perlmutter

Thanks Yeah. silo Seth. put initiatives we're the actually them on for focused Difficulty] sort We that its has [Technical Hey, individual own question. on of driving. each

of So pointed We -- days kind ever sales drivers. We're growing broad one direct-to-consumer just lot We're towards will putting effort some Difficulty] business. that. rate our biggest to to a [Technical of we which excited lot of a resources largest Comic-Con, that. Diego off San it's in hard of say about in was I the of four that have direct-to-consumer expand our thrilling. history, stack came in

Mondo, product from tremendous you're Obviously, exciting. growth Loungefly. really that's acquired So diversification, seeing

constantly one focus versus to on very we're we're Difficulty] on. an world. focused Difficulty] going [Technical That's build [Technical that that we're focused on area So

So to question. that each of we initiatives that your to a because pick pillar. really have helps rank level it's individual one to kind hard of stack answer rank of If sort up stack

Stephanie Wissink

Thanks. Thank It you. Very does. helpful.

Andrew Perlmutter

Thank you.

Operator

Weiser please with from Bolton ahead. Davidson. Linda, go next Our question Linda comes D.A.

Linda Bolton Weiser

Hello. Yes.

were the not inventory So, the refilling the thing, because you're channel. first levels in exactly reported toy they sort companies, the quite half same which shipment they in I high know but growth of

So channels the is that's growth U.S., the where what you or high shipment than purely of you consumption their with you in first half growth? that POS on like lower sort think of high was is actually just going of the kind reselling Do growth. what was a in reflection the is, your

Jennifer Fall Jung

QX. That sales QX that was of was How an you high Yeah. of as are a you? extremely [Technical mechanism Difficulty], recall, more the growth. slipping into

that's growth our came did So retail we managing there and our about QX they currently feel as fruition. We really increase about from. where we growth price good in to where feel of see in well. with good Keeping partners start is inventory as that those that mind a sit. our come little to there But bit

Linda Bolton Weiser

associated XXXX. side, the mean you less ERP talked about XXXX? out that to going there's Does And cost pushing into SG&A initiative be associated cost also this that on in with

Jennifer Fall Jung

great a that's question. XXXX. There'll actually And and puts No. takes about be

so the throughout work other to factors We year, that. the offsetting will run continue, initiatives but there's on rate to the continue still will

major as so as XXXX business don't for made business we we go headwind see season. into interruption the but feel decision So holiday in the it far, the we good right not to a we have

Linda Bolton Weiser

for how look? in declining can whether, or but flow And then be of I'm like, have about develop too down. strong, high trend year-over-year? really, you your I'm your flow just flow. And I kind XXXX just XXXX, cash Okay. kind in curious just pandemic you of do this if had the that then down of any up free XXXX. during level was flow a cash wondering might you concerned and cash mean, sense really cash I'm of

Jennifer Fall Jung

there as moving running. this [Technical underneath high distribution great couple cash, the covers We well. as Difficulty] the a year a as lot is distribution Everett centers be major That's to you're between seeing on it whether [Technical a and was a had question. Difficulty] up of to with that that the Buckeye down the associated center cash fee get Yeah. What our to well continuing inventory in focus

once of So all we you QX we cash the inventory. of saw inventory, QX that got in at lot a inventory uses had as came then and in

inventory And what But point just in what half year, [Technical do so in [Technical anticipate up Difficulty] we you're done time. of the back maybe some because those of Difficulty] and have it coming seeing. we the a back

worked our accordion We have have with we banks an agreement. and debt did within our

So to managed in we've that that's leverage and our queue.

the that balance sheet. So and you'll see onto come additional see you cash so

Linda Bolton Weiser

you Okay. so Thank That's much. it me. for

Jennifer Fall Jung

Linda. Thanks,

Operator

question next Megan Alexander with JPMorgan. Megan. comes Please [Operator Instructions] Our go from ahead,

Megan Alexander

macro. Hi. the Thanks our just very to question. wanted much on start for taking I

it was of on consumer any elaborate You clearly just on you consumer I you factors retail is you're like sentiment. and the clarify. I a therefore Or order an a change seeing It seem weighing or off under that called does consumer in out the holding trends hoping could Are to more latter, bit? end lot being that. is prudent. the just pressure just wanted acknowledgment the just

Andrew Perlmutter

it. in. Jenn, the chime latter. really It's can take you I'll

that I a we that, I’d don't really ball. have say think crystal

turns So Obviously, I pointing think if that pressure there is back that's the of we're the that. We're of why aware in year, on out. the something half consumer.

are Our aware that. of retail partners

just we So to just we're I add cautiously holds. the want it to year as really of anything know the back Jen, think about you sort of half cautious what that? being

Jennifer Fall Jung

what positive economy signs to Yeah. see I and saw pandemic, we again. would would down shut just the during then we would add similar the some

we're crystal want being this sure have at So to prudent. We a ball. point, we make don't

Megan Alexander

on you, gross maybe it. margin. helpful. And for then a Got That's follow-up the quickly Jen,

margin gross some we going back cadence it benefit but from Maybe ocean for to you're talk makes to on start can outlook commentary see relief and you freight? seeing the soon, about ad little any You a that mention half? bit are not did a sense the

Jennifer Fall Jung

is back QX. normal will our on see the question. What the think that. shipping Yeah. we and QX in sequentially in going know relief at into higher then be and in there's QX is you'll some cadence. you'll half [Technical Great than to which and you Difficulty] as more see QX, look we But not

some put we as modest improvement So in there well.

looking are higher we But that sell actually those at the do in we're seeing do to As QX have down. we're the have seeing that prices recall, we we actually at in inventory [Technical Difficulty], came rates. come and

So that's as benefit QX will much why not QX. see as

Megan Alexander

remind just airfreight And at us, it. what's can last so, airfreight expectation use year? this year? if did your for you you Got And all

Jennifer Fall Jung

Difficulty] not yes, at airfreight. did plans we don't [Technical It's, Minimally We this do point. minuscule. have

Megan Alexander

Very you. helpful. Thank Okay.

Andrew Perlmutter

Thank you.

Operator

We have no further questions.

I'll So Andrew. now back hand to

Andrew Perlmutter

to question. just I'd appreciate say jumping thank there And one today. I there? you more question Can sure think there's might the like I we make you. out more on no call be

Operator

Apologies.

have through ahead. from Markets. go had with Gerrick, Capital please question BMO We come another just Johnson Gerrick

Gerrick Johnson

All pulled I Good the Andrew. right. shipping you, I holiday third wanted forward to you Thank mean, starting to from anything into And season? about you the fourth? catch. the for or if second third the quarter -- the ask the quarter

Andrew Perlmutter

we not. have No,

Gerrick Johnson

Or happen maybe building you before, more XX:XX bit Game and right. this? And had XX:XX are guys your little the and of to AAA you spreads deal licensing this that? developing. Games with then you with All but Are studio? going just agreement what's actively Is a Can kind you this Okay. What out me mentioned just deal? planning tell Games? about a on a is

Andrew Perlmutter

you. And There's we mentioned have going on question. that. great Yes, lot should it's here. Thank probably a a

deal. licensing a is that yes, So

out building studio. are a We not

they're as IP We are as with. to going release to well and represents that our IP Games game XX:XX on with work to working that Funko with brand other be the partnering them

Diego our outsourced way, Very at an was it's Comic-Con It huge fans. it deal. was debuted about thoughts. and it So excited by San the licensing

Gerrick Johnson

maybe of opportunity. category growth still pandemic? we the side And about Okay, since game you come the business as other Do I more one have out that see How games, board physical the great. a as the the

Andrew Perlmutter

a do. us. business That's we great Yes, been for really

We continue grow. to

different on It's us. our box which with you're different been of retail talking an that very familiar a work a wall store the Difficulty] area for to of [Technical to with space really in expanded consumer white continue with. We good team. the buying games Having

relationships are the into we've on relationship are Some us We to things These other talked success Ted the We best yet. Game. exciting. early come. and is this new fans, and mentioned the more things retailers for of and announced a of Kingdomania. we're the that Disney on we area the Very in building expansion the cranking that store. like so out Kingdomania. the bullish through Party the are yet couple haven't Lasso I'm we're that had the about bullish just a new of days initiatives our out fans, enjoying really really

Gerrick Johnson

Okay, great. Andrew. Thanks,

Andrew Perlmutter

you. Thank

Operator

have you. Thank no Instructions] time, At we [Operator further this questions.

you. Andrew, will back to hand I So,

Andrew Perlmutter

us Appreciate you fans Thanks employees right. and All everybody you. possible. for make to this everybody Appreciate our and all Thank Thank today. help it. joining it. to of

Operator

now Thank concludes lines. you, us for disconnect your joining This our and call, everyone today. may you

Funko (FNKO) 4 Aug 222022 Q2 Earnings call transcript