Earnings call transcript Q4 2022

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Operator

Good afternoon, and welcome to Funko’s conference call to discuss financial results for the fourth quarter of 2022. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. And as a reminder, this call is being recorded.

I would now turn the call over to Ben Avenia-Tapper, Director of Investor Relations, to get started. Please proceed.

Ben Avenia-Tapper

afternoon. good and you, Thank With us Executive Operating Brian Chief today and the and Steve call Officer; Chief Financial are Nave, Chief Mariotti, Officer. on newly Officer appointed

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

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

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

we will investors and to released discussion. to during that financial comparable website, refer most directly information presentation earlier measures that financial these the Reconciliations in investor.funko.com. with GAAP found a the our earnings we visual financial and the U.S. All non-GAAP today. this Investor press available can In discussion can Relations measures release on supplemental to addition, X-K are items, consult along follow plus be

the to over turn Brian. will I call

Brian Mariotti

thank and for afternoon, today. everyone, Good us joining you,

operational back fully potential, that emphasize its the us. step believe an call recognize provide you update brand of first is into of this I’d for power December. because know, role important As also most role the of in to step my the Funko to want as but confront that I I first this back earnings I CEO Funko. the significant in of use the at CEO underway I issues is and into like call work to

situation, doubled urgency, we we ago, our got think we’ve than priority Since a our we here. more I Recognizing but current it’s IPO-ed is our addressing with years approximately Our of operations, to important how revenue. won’t happen overnight. understand it first which reset are X

we’ve new direct-to-consumer are pop-culture past This nascent of for into amazing added XX% total now business and growth and we a rapid revenue challenges have addressing. this our expanded brands that We’ve neuteography quarter. We taken brought of growth platform. multiple

that to we operational Our our can profitable foundation. do need will proves we growth. deliver so, reset to But history reliable,

With for turn brands but is for to the operational let’s that quarter. our we’re Demand reset. context, than the early results stronger in our still ever,

year XX% financial results grew our at the X% sales quarter, down net million, Looking the were fourth in we year-over-year. for year-over-year, wrapping $XXX which up

side, year-over-year. typically point has the trends, we most the on business, wholesale we direct-to-consumer And grew our channel while comment have don’t very encouraging. XX% wholesale In over, on been sell-through control we sales of

well industry POS broader In we growth, over growth of flat ahead posted QX, for the NPD estimates double-digit period. same the of

operational operations but unacceptable impacted combination our results challenges. work $X.XX. was degree. underway demand to was disrupted factors an share and that’s details we’re and While time operating financial EBITDA get fourth million of We’ll profitability issues our EPS and a clear quarter strong, heavily and our to an important how of macro the I to financial this more have discussing on shortly, Funko-specific going on performance spend track. our last want by inflection loss our our Adjusted operations hit business call a our that $X negative It earnings the on adjusted point, was a and remains was back

capacity. and both who CEO CEO industries. me serve We was Steve is today, recently, multibillion-dollar new Financial today’s execution wealth new e-commerce of the deeply for consumer e-commerce unlocking spanning unique where and CFO, expertise with More Board a that Funko’s is Walmart.com potential operations a He our and brings the Steve Steve have Steve of joined in retail, COO us he business. Nave, of leadership announced strengthened team Chief of Operating of retail. Officer. brand, begin, Chief all proposition. -- To management focused multi-channel in Our on our as will served Officer responsible and team. on aspects the and interim as a call, are early value we December consulting

We on We serving will as aligning and are exactly made in business, side the good CFO thrilled both progress to finance why Steve have capacity COO. Steve operations that’s the and of be board. and in

that we alignment and ultimately, the oversee to believe positioned work results. Allowing across to him financial to we’ll both be our organization functions, improve as Steve better efficiencies for we drive

savings. underway, will fulfillment SG&A save a Our efficiency reset. cost XXXX improvements million to These us believe well $XXX fall year still into gross and are we actions is operationally $XXX much annually. initiatives, between million Once reductions but and margin other these actions completed, categories, X very

category on of first focus improve execution gross Our the line. to is margin

Last we we together, which, remain primary annualized believe product Here, EBITDA. X price price $XX our have to our product we affordable quarter, million include increases price extending discussed been for levers: at resection in we an expect costs, our adjusted products to to our line. curly exclusive has The approximately and $XX customers. million and encouraging, contribute range

assessment driving product costs product development with from of cycle. cost down our the process bidding also introduction vendors a our more and competitive are life throughout more of We a comprehensive the

increase. pandemic, that by obstacles Since annual of mix in in fulfillment throughput since and the business the changed million a reducing second But XXXX. can we’ve center. include approximately on similar addressing execution, the other categories $XX fulfillment The our despite and has SG&A added our expenses portion focusing replan third overall we distribution spending spending. of The significant

and other Combined, we $XXX EBITDA. savings to adjusted annualized SG&A million $XX million in expect add reductions to fulfillment

addresses the distribution efficiency our action of first center. The

cost be that this to management believe will dramatically system expected implementing fulfill. running our system improve We’re we warehouse summer. and a to This is up

is The levels. our addressing inventory elevated improvement second action fulfillment

incremental inventory, in expect saving half that By this both we capacity We are our container rental first improve Arizona-based this which spending on and year, of expenses The margin to container intended is reduce rental we center. eliminating restricting do throughput will distribution targets. distribution our incremental of volume gross beyond SG&A the expect and centers incurring charges. our the by

taking the board, our are tighter reduction of line executing on with operating all initiatives cost of other Finally, approximately on-going, a including high steps these we actions a urgency. and spending workforce reduction are ensure to marketing is These degree changes to expenses focused aligned spend, results. XX%, top we reduce our across and are on with

me margins We under the half in year pressure. expect the significant for first the of

SG&A However, gross EBITDA adjusted margin of digits. by return to the year, expect and to the double we our of half improved fulfillment the second reduced for spending combination initiatives, margins

Most been already already underway for year first demand half work and to throughout and restocking, of is tentative will However, their post-holiday the our noted, continue sell-through remain that Many on weigh on half strong. operations. of XXXX year. that retail focus we us expect in have very the a partners as in of and is first to

expect we forward half year. the way. improvements second in second the along with our in That operational bulk We confidence on content expect half. in sales top in updating half, give look performance to coming in the the second our the progress trend, results robust half you I of the a coupled improve to first factors the rebound line calendar. These us the of

These we are exciting business direct-to-consumer product through experiences however, expected are are geographies. categories, our we sight important. most new on grow core to have opportunities new execution, our focused operational not collaborations, new and opportunities lost help bets. heavily grow improvements adjacent While Today, and of to the

of but in to opportunities in the near as accelerate future. Our well that we’re creation future these from confident top regain new and for I’m this know in a come the will help growth to be will positioned company our bottom. stronger allow here reset, execution These to out steps win deliver long-term us XXXX we will Funko us to operating our year the growth ensure and We a to leverage shareholders. we will value

turn to it results to Steve provide over more the of let’s financial details quarter. on the Now

Steve Nave

I potential. Thanks, excited forward operational I I’m to each Hey, and with initiatives we all It’s of you continue getting we as conversations look quarters business helping this have and on nice financial to to meet the future forward Brian. to you. coming look Funko’s unlock over underway. you. everyone. super about know to the

the jumping delivered down fourth $XXX prior quarter, X% year. results. In we million, net over into sales of the the Now

Friday direct-to-consumer XX% to grew Cyber channel Monday. Black million Our and $XX including driven very well-received events, by

most The in X% sell-in declined business by performance slower to $XXX retail offset across manage our through strong direct-to-consumer partners. we of side. our wholesale of was destocking on muted Wholesale as a period million the

all the net XX% were sales double-digit Europe relatively growth net X% from geographies. million, net of at Other In while emerging U.S., declined million. increased with sales in to international flat in our $XX million $XXX $XX sales

more logistics. collectible Loungefly core XX% lower our in net content, million, On saw current time-sensitive growth evergreen a X% we million, as as year demand. strong in full The grew category brand year-over-year to $XX basis, declined of light the prioritize to $XXX our to bringing constrained the on XX% sales brand content brand brands

challenges XX% strength and the our collectibles digital include fulfillment on-going million Among in poise business. $XX brands, was gains which our games by sales net other in to our products, offset declined digital of as our

expenses. lesser profit container $XX X due expectations reduced and multiple gross well extent, Fourth charges a to These quarter was margin and, chargebacks. to approximately including margin our to below gross Turning million. factors, rental factors XX%, by

capacity when this within was container by distribution constraints us improve, unloading center to continue do from our freights containers. charges incurred offset prevented rental While

historical our half pricing to to As costs our our this and Brian that practices, in product of the margin inventory year. combined management second discussed, us will with get range we on-going lower back allow believe increased

related of experienced onetime the non-cash SG&A ERP strategy. Moving constrained due deployment a million, was a $XX We costs to write-down on pivot which to to for $XXX capitalized charge operating million our expenses. headwinds logistics. in significant includes

in was In and incremental third-party addition, million fulfillment approximately there $X labor expenses.

due charges, and this quarter, all we rental year. are of fourth the in expenses, million, half of first to negative EBITDA $X the fulfillment container addressing additional which adjusted For was chargebacks

adjusted $X.XX. loss Finally, diluted share per was

of million. with ended as hand. credit the with to Please additional agreement total details. the to for amended we balance implement cash XX-K covenants sheet. financial room under We our Today, announced we $XXX filing million savings debt refer quarter provides the with Turning year’s an initiatives. ended on our additional quarter cost us which We $XX this of

quarter Inventory $XXX up year-over-year. end at XX% totaled million,

have center. and conducted proper fulfill to levels operating by network U.S. to our distribution our decided we’ve of exhaustive improve of overall to to efficient mentioned, our previously Brian fulfillment cost inventory our inventory As managing capacity our reduce analysis the an

We $XX expect first million write-down $XX this million. inventory and to between in action half an of result in the

on focused will initiatives our shareholder addressing position that we’ve incredibly improvement. move I long-term to our on for to executing I’ll us value. all been opportunities identifying sustained on that and We Before guidance, note believe drive

quarters. several However, in these time will initiatives cases, take and some

expect until don’t we result, EBITDA adjusted improve a throughout positive take hold. the sequentially year to of to half second initiatives XXXX, As but these be the as

million, For product year quarter hold. of actions, throughout efforts the quarter, million below inventory pricing $XXX gross as first expect this improved and $XXX the we we revenue inventory between anticipated write-down, our excluding margin past to expect be slightly sequentially our and take and costing

expect and to negative $XX to to quarter million. approximately by the expected XXXX. of sequentially for negative in lower We be million, $XX EBITDA returning territory the million is be between positive second SG&A half Adjusted $XX

million. share We based And $XX negative negative blended count on of loss negative $X.XX adjusted negative based tax XX.X a XX%. of share expect adjusted diluted to of a $XX diluted million of on loss net per $X weighted to rate average million

For the revenue X%. full improved, as growth operating year-over-year we gross X% year, between and and margins expect

adjusted second expect the in year million between to all half of with $XX be EBITDA that and of the the We effectively $XX year. coming for million

We’ve foundation and adjusted Funko, see into and and much do. progress, produce a to meaningful $XXX it benefit we XXXX confident half in stronger second still and rebuild between EBITDA. million there’s The two We’ve million us quarters to the are will steady annualized identified next more in capture made initiatives $XXX and will beyond. for

your time this appreciate afternoon. We

Brian. back Now to over I’ll it turn

Brian Mariotti

advance. very encouraged see by strong demand Thank to remain we and you, continue from closing, our In support we devoted the Steve.

value. we our to operational urgency recognize working be, want deliver are improvement we not said, results a drive with and we and margin are I’ve we need As them shareholder where to long-term to steps take

confident are ability our execute. to We in

operator Thank you it the and the will turn Q&A. I to time today, now over for for

Operator

The first the on America from line go Please from Perry Bank of Thank you. Lynch. Instructions] ahead. Merrill Alexander comes [Operator question

line open. Your is

Alexander Perry

I how of exclude software of headwinds for sort gross question. for operational the thanks that that we DC just any the from on when wholesale my Hi, guess the So percent rate new if lack been? guys double-digit growth indication like year? on will taking is, I being first, then that mentioned this You Thanks. much quarter. SG&A, POS guidance are guess the drag question pretty in have is would type obvious at what positive of the behind of And about weren’t sales, the the the some is of headwinds, operational would be up color warehouse the us? margin, XXXX there management it operational you be issues sort facing? Is of the if sort a

Steve Nave

Sure. phased Hey, the kind initiatives set around first the is underway, to this. it’s Steve. this of I’ll questions cut that come have in at your we first kind take efficiency going the year. of of operational throughout On

we’re not on the and with we’re already some gains already work although from that efficiency seeing inventory, example, yet. that, done For action we’re taking

benefit rental in some started been basically as cut a of we’ve as half there. already that ago. incurring see days to these starting are charges see We’ve couple of those container to we We

that seeing benefit get and continue already. So bigger through work we is we’re bigger to that to And going inventory. the as benefit

see the in a to labor to a days have really especially fully XX, confident warehouse is hamstring management implementation summer. side like that period, after takes biggest side, normally On the burn-in out XX kinks. in some of place our the we’re in on work we’ll systems we which in this that, burn distribution, variable that the And efficiency, U.S. expect nice system fulfillment. it really and systems But

Alexander Perry

primarily take the the And guess then little us sort due just this on inventory Can a really to lower X is of questions. reorders? wholesale follow-up on I it color give helpful. write-down? you of anticipated That’s sort Was more Great. not you Or issue, containers? just ERP what allow in unload And to which to the with sort Thanks. implementation go the the my the decision to is charge through the the led and logistics of last then quarter? didn’t question

Steve Nave

Sure.

operating but both terms be was when as to an off-site temporary of few as purely procure in put fall incurring were capacity it’s it thing. as The over had container ago. kind the place well storage as good, some to these running rentals year to inventory, that products then around of run are be. we storage XXX% to one capacity another in costs, a of needs weeks the the in On at we’ve all and the efficient to had facility it last we like we’d that And XX%

hit payback of and So costs. inventory, trade-off the storage able takes get but to as efficient reduction inventory to lot on that save being order on tightly is -- purely to costs. we’re that rid through be a money in work that storage and to operate We very pretty saving more of efficiently we’re get of understand the being going just result a that confident to more a of

launch year, part so question, We ERP of the a early were answer. On that this happen January, in to that Buckeye summer. was for be been to ERP we out launch this of of not tied of the to the bit the system unfortunately, call ERP. it’s And on let’s warehouse going with the the the an management figured would little facility scheduled involved it, time have

that ERP So including decision that the in much were than maybe strategy. we landscape, that could in implement cost our we to at EMEA successfully have in would more And invest quickly, system out very could original strategy we basically less business. made the the other pivot look the there a money the we that it took forward, move complete solutions a run

this in is ability a launch gives warehouse it the actually system to advance us management side benefit summer. the And

able from So until ERP path be will X separate warehouse but separately. sometime that not in down now completed we’re XXXX, Phase to go full-blown management that and

Alexander Perry

Perfect. That’s really helpful. Best of forward. luck going

Steve Nave

questions. the Appreciate you. Thank

Operator

question next from Linda Please & Bolton-Weiser of go Davidson The the ahead. line on D.A. Co. comes

Linda Bolton-Weiser

have but of in problems that it like hi. very inaccessible, many inventory answered was just your Yes, therefore, almost duplicative beginning like and was storage so this this that commentary, like had distribution was you you locations. I’m if because third-party and the I to missed center my understanding sorry

Or like to are So figure time saying about you now not -- accessing DC? the are I’m -- what last out the like trying that has this. all happened spoke you just you since I’m

Steve Nave

Yes, sure.

So June operate of sort distribution in we’ve since, I believe, mean, or I inventory that center to when just been manner. of efficient The operating problem cumbersome it last became summer July too with went live. the any it is

notion been not not as the pile up. the the We’ve inventory access issue because of to well we’ve say, using been it. It’s would inefficient able quite So system starting it, incredibly to that been both accurate. as I is

yes, cover seeing taking the some I mean, so that call, answered of of the benefits asked? the like from last Does were And you I everything we’re place. that changes already

Linda Bolton-Weiser

Yes. know before giving level per thereabouts. know fine. you were high Or because just to $XXX color you Or the I quite probably, on adjusted quarter, SG&A still SG&A talking didn’t like that what’s it’s said first but very be the previously, Yes, that? of quarter you -- know in about Is then that’s know going And to an I going million you were rough come that I case? it’s it down? guidance

Steve Nave

Yes.

we the year, some SG&A expenses payroll last got our -- we expenses there incurred new headwinds this we’ve some -- payroll annualization the So that of year. that and

very working to that bring aggressively down. are We

labor. just labor of it’s labor, variable the variable the than variable mostly is more distribution our SG&A Inside centers. Well, but

of that number even previous are we’re not -- got seeing this Brian see now, that benefit Again, year. more. later benefit mean down that improvements to we’ve takeout And until going initiatives there. back are going alluded but cost then underway bring some to a you’re to until real answers, to it my I So probably not

Linda Bolton-Weiser

SG&A unusual at eventually fourth yet, And then that number? I in will the away? much quarter expenses sorry, fourth how but go that what your in that -- is quarter the didn’t So was type glance SG&A of

Steve Nave

need question capturing might on just correctly. I with to you that that follow I’m it to make up sure

a that was discussed. of other then millions -- $XXX single-digit quarter non-recurring just Our that -- for expenses. ERP was includes $XX fourth And the included small onetime about I that SG&A charge million, write-down million

Linda Bolton-Weiser

Right.

the number whatever, very That’s So size. your that’s a like excluding large charge, of $XXX for company a million. even

few know, on I’m So $XX like if figure trying was things something. below you’ve was like it like, going these don’t SG&A million a what’s or I got to out ago, normal just your because all quarters

So like once you how that’s much nonrecurring all of it like sort problems? is of your unusual fix

Steve Nave

the we best see year, that you’re and I reduction Well, a mentioned, expenses things mentioned about that this There going million total expense in to just not Brian that’s going that last that the got in But $XX that the other took the to to of that’s into of XXXX. mean, pretty about hit example initiatives annualization number with as I our any some the I’ve the over in year are see of headwinds we’re quarter -- forward that SG&A fourth going that. time. hires nonrecurring going new is well, again, dramatic cost to -- going are place takeout mentioned for

Linda Bolton-Weiser

in fourth XXXX will third be quarter? that or not And until noticeable quarter

Steve Nave

quarter. It in will be third noticeable

Linda Bolton-Weiser

never talked just specialty problematic. up so they’re but had Thank that retailers thing about how that. one a much you because think bigger have it, you. big-box not lot And of situation, as I on the didn’t my stock it’s more Got And companies reducing they the talk about Okay. inventory I inventory, other are retailers retail you. more then

much. like year-over-year pretty like problem It was last inventory seems However, quarter. flat Walmart said, in their is the almost fixed the

bit growth So back why quickly? wouldn’t sales little the is And case? kind snap more then a that like of your

Brian Mariotti

some orders Yes, and Yes, of they some accurate bigger the not and in say this I late the positions would partners first also dip third had began on part. is inventory had quarter did quarter. that has they Linda, basically Brian. Definitely, canceling specialty you’re that fourth our when over

that also bigger than and we’re lack seeing with the We conservative of is rebound, of of I retailer X% in overall some as but is our more mean has terms the accounts. our ordering been still is one are little I in seeing of favor nature right? of a some thing business. concentration, one mean, bit no

mean, for the one direct-to-consumer And take quarter yes, slow terms the it’s but then close in items. ourselves a in XX% their to of percent, at been our obviously, number retailers our increasing orders customers starting exclusive on channels. is our which to with But show bigger I everyday content

Linda Bolton-Weiser

Okay, really much. Thank allright. I very appreciate it. you

Brian Mariotti

Thank you Linda.

Operator

The on Please the from comes JPMorgan. line of next ahead. Alexander go Megan question

open. Your line is

Megan Alexander

guess there you midpoint, Is the question. Hi, to first maybe guide from XX% quarter, seasonality, up the way thanks for some my normalizing on unpack impact any the down the that follow at taking within I maybe the of that. destocking. of impact maybe could

help understand reverse? And underlying that actual what POS more seeing product? what your inability there to projecting fulfill you’re and And might expect you’re core Just dynamic you when you to are maybe POS. is us that given expecting would your demand the suggest, for than destocking

Steve Nave

artificially Yes, the think we unpack going take I unpack an so little comp first time high But mean it’s in questions. of you’ve keep you. to for trying Also, mind to a great last are year. lot there, in got quarter bit there’s think to -- a quarter that to to that I I and of

quarter, look caused year, into like orders So the from of line our November, lot and challenges to consideration that and -- at orders -- move it’s first February. a last really time into sales for and December supply had chain we taking especially January into February specifically when replenishment guide as January a sales,

a as flat So the of part first of is basically the of a for obviously, this X% quarter to growth, that. result pretty big which year muted,

Brian Mariotti

Yes.

trends the POS. on sell-through We’re great seeing still definitely on

better said starting we’re it’s very coming the -- thaw from again, little brand extremely It’s continues for of lot POS. I encouraged bigger to by of and in definitely the some But just orders to by strong customers. us, bit, amount but Linda, slower question looking we’re a well. do like the a So a the on that, last

Megan Alexander

more And I you think XPLs Lounge additional investments question. there a moved the after mentioned capacity Are separate hadn’t running then needed new in you DC. Okay. this? into you heard were maybe lie I and last

if warehouse this much kind And expect? at achieve needed actually investments is How capacity. to flows about to we to bottom be related the that line? additional the how XXX% $XXX of million So that, you thinking the of should already beyond of growth savings through

Steve Nave

Sure.

So the is first that I’ll stone thing say on chain no the leaving side. we’re supply unturned

we’re to at So the today. than network in enhance every option way a looking we’re what possible that’s more financially delivering efficient

Specifically on next. happening things direct-to-consumer or Buckeye like hasn’t Loungefly the It’s into already. week business Loungefly, we’ve moved that happened this like

So we’re very Arizona going product of Buckeye, to start soon. here that out fulfilling the facility

we at We that of those them all two get the to can have, synergies just partners third-party we Loungefly are there partners, larger all collapsing some are of the by if into not but one understand or looking logistics etcetera. facilities,

for handle capacity more that to into relates we more inventory next But the grow handle to are we long-term the still and we at going initiative of it allow to looking years As Buckeye potential XPL solutions as is to needed reduction building that volume. specifically, sure. for couple the also

Brian Mariotti

just Yes. direct set real thing said, hyperfocus customers bigger from finally what our one up a had FOB of pickups ship. is some Steve on to on chance we a that I’ll add more which to

a pushing in volume lot have also So we’re we ever before. XXXX out than of Asia more

door really the mid-summer getting to out cost on and fulfill efficiencies of warehouse just and in terms product for quarter. to So we us in will another WMS way that encouraging the be third think their starting down trend in the for the as put

Megan Alexander

like to you months Is share way what if I in any Okay. the to the of the fourth more, question. sneak you in previous could two the XX% first That’s just helpful. a about Maybe can the one quarter? looks there DDC relative follow-up talked as year through

Brian Mariotti

easier retail the I the for it little of a it look, iterative quarter, partners. X.X that we makes fact of mean, is grow growth It on some strongest control bit have difficulties quarters category just I some X in it us. of the the our is the continues of to that. with Yes. last bigger mean

We out broaden we just fulfill of coming the orders. continue direct-to-consumer channel. of quicker those the DXC ability great And to to content out have

So was gets better the significant the we seen about I’ve do which direct-to-consumer the growth year as Obviously, slate in poor a and toward expect little year. throughout it in to of bit as the content slate years. end for the entire content as again, middle XXXX, compared

So do again, really year great since which to to direct-to-consumer acquired Mondo’s continue this is Funko in Loungefly direct-to-consumer. grow significantly things much is and and it, business, all going pretty we

So we’re happy see for channel on that we to heat a lot of that. will continue and really us, about

Megan Alexander

thank Okay, you very much.

Brian Mariotti

Thanks Megan.

Operator

question next ahead. The go on Johnson Please of comes BMO. the Gerrick from line

line is Your open.

Gerrick Johnson

collectors. that product you much. is done? being And of you your about Hi, that good what is that important And talk being liquidating, are Steve, afternoon. how is? lot inventory of Thank that you very given the customers are a where can type product that liquidating? I it’s think

Steve Nave

Sure.

constraints, time, of went due we Again, could we sell the inventory operational that to obviously, first. after felt but out to like it’s So better we get over it. just oldest inventory the

been of supply to different determine using I going need, are manage all that at which get to are to oldest as the bucket. inventory mean destroyed. all we’re sure, first that’s inventory X we our where feel we bit selling we’re quite the then And lenses a anything to look units we’re looking of it, more at but business looked we’ve at the efficiently. our weeks about right, like there than might we So have of

but going how Buckeye, incur so we’re do destruction to we’re facility where our and not to the Arizona, too we third that’s that that party we’re us can to licensors. Speaking not happening, of certificates so that, provide much they’re certify to using far center destruction in and a transportation using for a expense from can distribution our

Gerrick Johnson

Okay.

destroyed, whole to that the don’t of range a know. guess, from being other products I product, clear. be pop on And would it’s So I product you sell,

Brian Mariotti

Yes, absolutely. Yes.

Gerrick Johnson

Okay.

now that had the confidence more? can track specialty And hood, you you’ve to this Steve, you you -- more wondering, stepped Hobby Funko’s in and Do a you little the role inventory ability systems and at look under and inventory? into and do talk have a I’m Okay. that the bit about importantly,

Steve Nave

a Well, sure. like we confidence ERP right yes, My is management things have level, for don’t question talk warehouse and we an X-part a now, system. why that’s best which about the systems

business confidence our I done place where systems a a the it’s have we’re to infrastructure In the lot stuff of way to So that this going get is meantime, semi-manually. to. supports the

in we kind of execution passed like and products getting on this that I’m this as planning the And get have it initiatives we’ve that of well put the messing the our as files inventory group of so the confident. effort, redundant we’ll confident of that flagged generation do rid back between in and we’ve especially Very to many center up. distribution forth the without controls

thing that can are we for we’re just the wanted I back going third-party and to green a destroying to through very One recycled. yes, this recycle extent product, though, firm everything, doing but emphasize is it it go you be that’s Garrett, to

that we’re just most make to wanted sure everybody trying possibly the to knew we way responsible that I this So do can.

Gerrick Johnson

very you Okay. much. Thank

Steve Nave

you thank Gerrick. Yes,

Operator

Goldman of on Please question The Stephen ahead. go Sachs. Laszczyk the comes next line from

Stephen Laszczyk

for more one more I will the system that do bit the efficiency taking at out be for last a new And question. was the could the have laid talk the the over year? a as once thanks distribution system opportunity anticipate system. new implemented plan long just little one what will proposed compared differences if on wondering Hi, Maybe to Investor Day between you you new last you term the the about year? biggest

Steve Nave

Yes, Steve.

question, for good and clarify [Indiscernible] something So everybody. that’s a to

call little direction but new I about go we that incremental not we cost, deploy right solution, deploying be would management tied this complete we’re the permanent that light. relatively management know that analysis warehouse what in ERP is may solution it is full what So very to around speaking. a the It system it’s would that permanent different we summer something a as again. It’s quickly very that necessarily be system the launch, with we warehouse talking be may our a can

just ability I XX% the that find the mentioned would we’re functionality such going top warehouse is full full-blown forward produce feature but benefits we’re have we in to going a XX% it’s of with have not going what XX% to our a Although business up XX% forward. that I for of to It’s with system expect end to to with operate terms to system. lighter to may our gotten leap and amazing it shelf be solution about the the efficiently, going management that term

top that’s if worth the Now implemented. the to of decide be taking And we through new if we management the dependent is at approach the one will have it when implementation ERP, say bifurcated we the warehouse keep then that implement and to actual our and deployments get we let worth the I that and has system juice to tweaks means that burn warehouse bifurcated that ERP go that squeeze. system go new the every that decide also system management in, time, still down We out ERP, the can the to path. implement shelf issues won’t this a figure the we on systems benefit upgrade is that same don’t, back the

Stephen Laszczyk

outlook, just terms separately, retail helpful. orders behind your more assumptions be of some in the the the that’s maybe the about Thanks, back consumer of the up, channels that maybe you’re helpful. in then of out what your of outlook hearing the would picking And economy, health half and for you in XXXX pacing terms could talk

Brian Mariotti

absolutely. take yes, Yes, that I’ll one. Yes, I -- look,

through our of obviously, lot to book have visibility also compared through we XXXX the order QX. we XXXX. And in all great look, a there’s content So to know way

terms a like say, or their falling some normal week-to-week back bring basis levels us. customers liking said the earlier, of seeing, in on We’re for bigger to if of I

combination the momentum towards we So the X, between year. a all think the really of half second I mean, good of building start position to in we’re

every the then our should taking better angle faster, in QX. implementation and QX we in and Steve dramatically hold of said, looking we’re the better systems do and FOB reducing fulfill Asia fulfilling the as to And in at the getting fulfilling, places Parachute in place terms and cost of that increasing getting fulfillment that, like and all obviously, and just be

concentration think been what of build big POS we the the part of So specialty our second we super of to always based and positive the levels We for half with year. brand lack see are ultimately overall a really continuing in business back thing to on good the have. the this

Stephen Laszczyk

you. Thank Great.

Brian Mariotti

Steve. you Thank

Operator

from The the comes line final on question Jefferies. go ahead. Andrew Uerkwitz Please of

Your line is open.

Andrew Uerkwitz

Great. Thank you. I appreciate the time.

Just two quick ones.

color with operating exit The around bit margins a exit kind behind a gross pieces of moving would get back what we like of lot you exit stronger you these this kind and think us first be rate little or of these a margins all us? as one of half, year with is share rate and could issues

Steve Nave

-- I’m you trends for about on certainly level ride for detail but if the not you you’ll we’re those the yourself yet see the the -- throughout sure can as rate the of we’ll and along exit bring certainly year, those sharing year, improve. see that

Andrew Uerkwitz

then….go And ahead. it. Got

Brian Mariotti

going and I think start we to towards QX, the the get EBITDA in double end as in positive. the QX very we’re our digits of seeing

getting are said, and in really take Again, feel a to little So we to that Steve to year, years of good going years. has numbers we into end we’re to as back like But going there. for we’re a Funko like it’s place get really, XXXX. operated us QX going the while historical

are we’ve for that numbers couple years. with last So in the with more line how much the operated business we of

Andrew Uerkwitz

it guess, growth of always and question, And kind helpful. That’s seat it. how holding back with -- a I or all in this those lines? these initiatives you projects back R&D issues, last then is that Dealing you’ve I come now guy. the or along appreciate it. is anything affecting been creative Got

Brian Mariotti

on conscious XXXX better some which that and to look, thing, company have on No, made we focused entire been of of push one decisions lot than heck cut our a to be the initiatives was into a SG&A. some so we is operationally to

short of same yes, the the And will of as of in nature of promising not we’ve affect we in can. made company a direction the some we couple wanted It the term. so our sacrifices very think, possibly for fast fixing entire I ales those as terms investments pulling but XXXX,

all a a process. But important really and And was I partners watched on is have nice that had for excited we response product us from on that that had lines micro which configured these our an are falling problems. that all this pop basis, pop of is have direction ERP continue WMS one unfortunately, meanwhile, ERP of a same year for retail company insanely fairly the the is think in we’re time. which Look, never global two three a The that launching of it that to the we warehouse arrived fixing phenomenal about, collectible. or later middle new just a on

a content since dropping, be great Loungefly fix slate, have than to to much issues So operational of Mondo fire. issues And on acquired three we like some fulfillment reduce we we seems more double to products planned feel better and our just it. new our SG&A. we’ve while

so the on And has Napa. been focus

of can. have as get market, we’ll order -- as some the business we up and you’re in some initiatives in pick see that other think with new to the as going fast possibly then we I the in new products we still XXXX back disruptive

Andrew Uerkwitz

you. counter that. Got it. Appreciate Thank guys. appreciate Really [Ph] on to

Brian Mariotti

Thank you Andrew.

Operator

so We the hand back remarks. closing currently any no I’ll questions, further to team have management for

Brian Mariotti

questions Yes. everybody’s appreciate I lines. their would and

much. So thank you very

Operator

This concludes conference Thank joining. all call. today’s for you

You may now disconnect from the call.

Funko (FNKO) 1 Mar 232022 Q4 Earnings call transcript