Funko Inc

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2024. This discussion and analysis contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in this Quarterly Report on Form 10-Q.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”). This discussion and analysis contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in this Quarterly Report on Form 10-Q.

Previous wording

•“Tax Receivable Agreement” refers to a tax receivable agreement entered into between Funko, Inc., FAH, LLC and each of the Continuing Equity Owners and certain transferees.

Current wording

•“Tax Receivable Agreement” or“TRA” refers to a tax receivable agreement entered into between Funko, Inc., FAH, LLC and each of the Continuing Equity Owners and certain transferees.

Previous wording

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 32% of our net sales generated outside of the United States. We also source and procure inventory, primarily out of Vietnam, China and Mexico. As such, we are exposed to and impacted by global macroeconomic factors. Current macroeconomic factors remain very dynamic, such as greater political unrest or instability in Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel-Hamas War), and certain Southeast Asia regions as well as financial instability, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin, net income and cash flows.

Current wording

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 34% of our net sales generated outside of the United States. We also source and procure inventory, primarily out of Vietnam, China and Mexico. As such, we are exposed to and impacted by global macroeconomic factors. Current macroeconomic factors remain very dynamic, such as greater political unrest or instability in Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel-Hamas War), and certain Southeast Asia regions as well as financial instability, including uncertainty around freight costs and consumer spending, and heightened interest rates and inflation that could reduce our net sales or have impacts to our gross margin, net income and cash flows.

Previous wording

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), or non-GAAP financial measures. For a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most closely comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” below.

Current wording

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), or non-GAAP financial measures. For a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most closely comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” below.

Previous wording

The following table sets forth information comparing the components of net loss for the three months ended March 31, 2024 and 2023:

Current wording

The following table sets forth information comparing the components of net income for the three months ended June 30, 2024 and 2023:

Previous wording

On a geographical basis, net sales in the United States decreased 17.4% to $146.4 million in the three months ended March 31, 2024 as compared to $177.2 million in the three months ended March 31, 2023. Net sales in Europe decreased 7.2% to $54.2 million in the three months ended March 31, 2024 as compared to $58.5 million in the three months ended March 31, 2023. Net sales in other international locations decreased 6.9% to $15.1 million in the three months ended March 31, 2024 as compared to $16.2 million in the three months ended March 31, 2023.

Current wording

On a geographical basis, net sales in the United States decreased 4.7% to $163.0 million in the three months ended June 30, 2024 as compared to $171.1 million in the three months ended June 30, 2023. Net sales in Europe increased 20.8% to $60.4 million in the three months ended June 30, 2024 as compared to $50.0 million in the three months ended June 30, 2023 and net sales in other international locations increased 27.7% to $24.3 million in the three months ended June 30, 2024 as compared to $19.0 million in the three months ended June 30, 2023.

Previous wording

On a branded category basis, net sales of the Core Collectible branded category decreased 14.6% to $157.1 million in the three months ended March 31, 2024 as compared to $184.0 million in the three months ended March 31, 2023. Loungefly branded category net sales decreased 20.6% to $40.7 million in the three months ended March 31, 2024 as compared to $51.2 million in the three months ended March 31, 2023. Other branded category net sales increased 7.6% to $17.9 million in the three months ended March 31, 2024 as compared to $16.6 million in the three months ended March 31, 2023.

Current wording

On a branded product basis, net sales of the Core Collectible branded category increased 6.4% to $186.7 million in the three months ended June 30, 2024 as compared to $175.5 million in the three months ended June 30, 2023, Loungefly branded products net sales decreased 13.4% to $41.5 million in the three months ended June 30, 2024 as compared to $47.9 million in the three months ended June 30, 2023 and net sales of other branded products increased 16.9% to $19.4 million in the three months ended June 30, 2024 as compared to $16.6 million in the three months ended June 30, 2023.

Previous wording

Cost of sales (exclusive of depreciation and amortization) was $129.4 million for the three months ended March 31, 2024, a decrease of 36.0%, compared to $202.3 million for the three months ended March 31, 2023. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of decreased sales, as discussed above, as well as the non-recurring inventory write-down charge of $30.1 million recorded in the three months ended March 31, 2023.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $143.6 million for the three months ended June 30, 2024, a decrease of 15.5%, compared to $170.0 million for the three months ended June 30, 2023. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of lower costs as a percentage of net sales as described below.

Previous wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of net sales, was 40.0% for the three months ended March 31, 2024, compared to 19.7% for the three months ended March 31, 2023. The increase in gross margin (exclusive of depreciation and amortization) for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was driven primarily by the non-recurring inventory write-down charge of $30.1 million recorded in the three months ended March 31, 2023.

Current wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales (exclusive depreciation and amortization) as a percentage of net sales, was 42.0% for the three months ended June 30, 2024, compared to 29.2% for the three months ended June 30, 2023. The increase for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was driven primarily by a recapture of inventory write-downs as aged inventory was able to be sold at better than expected margins and lower shipping and freight costs associated with inventory that was sold during the three months ended June 30, 2024.

Previous wording

Selling, general, and administrative expenses were $85.6 million for the three months ended March 31, 2024, a decrease of 14.5%, compared to $100.1 million for the three months ended March 31, 2023. The decrease was driven primarily by a $14.3 million decrease in personnel and related costs (including salary and related taxes/benefits, commissions and equity-based compensation), a $2.5 million decrease in facilities and rent, primarily from our third-party logistics facilities, offset by an increase of $2.5 million in professional fees. Selling, general and administrative expenses were 39.7% of net sales for each of the three months ended March 31, 2024 and 2023, respectively.

Current wording

Selling, general, and administrative expenses were $77.9 million for the three months ended June 30, 2024, a decrease of 9.0%, compared to $85.6 million for the three months ended June 30, 2023. The decrease was driven primarily by a $7.7 million decrease in personnel and related costs (including salary and related taxes/benefits, commissions, equity-based compensation and variable warehouse labor and third-party logistics expenses), a $2.8 million decrease in professional fees, primarily related to a one-time legal settlement and reduction in acquisition related activities, offset by a $3.5 million increase in advertising and marketing to support direct-to-consumer sales growth. Selling, general and administrative expenses were 31.5% and 35.7% of net sales for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Depreciation and amortization expense was $15.6 million for the three months ended March 31, 2024, an increase of 11.5%, compared to $14.0 million for the three months ended March 31, 2023, primarily related to the type and timing of assets placed in service.

Current wording

Depreciation and amortization expense was $15.4 million for the three months ended June 30, 2024, an increase of 3.5%, compared to $14.9 million for the three months ended June 30, 2023, primarily related to the type and timing of assets placed in service.

Previous wording

Net sales were $215.7 million for the three months ended March 31, 2024, a decrease of 14.4%, compared to $251.9 million for the three months ended March 31, 2023. The decrease in net sales was due primarily to decreased sales to specialty and other retailers and e-commerce sites for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Net sales were $463.4 million for the six months ended June 30, 2024, a decrease of 5.8%, compared to $491.9 million for the six months ended June 30, 2023. The decrease in net sales was due primarily to decreased sales to e-commerce sites and specialty retailers for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily as a result of the available content slate and performance of certain exclusive products. Our top ten wholesale customers represented approximately 31% and 32% of our sales for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Interest expense, net was $6.3 million for the three months ended March 31, 2024, an increase of 11.0%, compared to $5.7 million for the three months ended March 31, 2023. The increase in interest expense, net was due primarily to higher interest rates on debt outstanding during the three months ended March 31, 2024.

Current wording

Interest expense, net was $11.4 million for the six months ended June 30, 2024, a decrease of 12.0%, compared to $13.0 million for the six months ended June 30, 2023. The decrease in interest expense, net was due primarily to a lower average balance on debt outstanding during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Previous wording

As a result of the debt refinancing in February 2023, a $0.5 million loss on debt extinguishment was recorded for the three months ended March 31, 2023 as unamortized debt financing fees were written-off.

Current wording

As a result of the debt refinancing in February 2023, a $0.5 million loss on debt extinguishment was recorded for the six months ended June 30, 2023, as unamortized debt financing fees were written-off.

Previous wording

Other expense, net was $1.6 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively. Other expense, net for the three months ended March 31, 2024 and 2023 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S. dollar.

Current wording

Other expense, net was $1.0 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. Other expense, net for the six months ended June 30, 2024 and 2023 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S. dollar.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Loss per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net loss, loss per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net loss before interest expense, net, income tax expense (benefit), depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down and other unusual or one-time items. We define Adjusted Net Loss as net loss attributable to Funko, Inc. adjusted for the reallocation of loss attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down and the income tax expense effect of these adjustments. We define Adjusted Loss per Diluted Share as Adjusted Net Loss divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

Current wording

EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), earnings (loss) per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net income (loss) before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down, tax receivable agreement liability adjustments, income tax expense and other unusual or one-time items. We define Adjusted Net Income (Loss) as net income (loss) attributable to Funko, Inc. adjusted for the reallocation of income (loss) attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down and the income tax expense effect of these adjustments. We define Adjusted Earnings (Loss) per Diluted Share as Adjusted Net Income (Loss) divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down and other unusual or one-time items. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

Current wording

Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, loss on extinguishment of debt, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, inventory write-down, tax receivable agreement liability adjustments and other unusual or one-time items. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

Previous wording

The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net loss, for the periods presented:

Current wording

The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income (loss) and earnings (loss) per diluted share, for the periods presented:

Previous wording

(1)Represents the reallocation of net income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock in periods in which income was attributable to non-controlling interests.

Current wording

(1)Represents the reallocation of net income (loss) attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock in periods in which income (loss) was attributable to non-controlling interests.

Previous wording

(3)Represents write-off of unamortized debt financing fees for the three months ended March 31, 2023.

Current wording

(3)Represents write-off of unamortized debt financing fees for the six months ended June 30, 2023.

Previous wording

(4)For the three months ended March 31, 2024, includes contract settlement agreements of related services to and fair market value adjustments of certain assets held for sale. For the three months ended March 31, 2023 includes acquisition-related costs related to due diligence fees.

Current wording

(4)For the three and six months ended June 30, 2024, includes one-time legal settlement gain and contract settlement agreements of related services to and fair market value adjustments of certain assets held for sale. For the three months ended June 30, 2023 includes one-time bank monitoring fees. For the six months ended June 30, 2023, includes acquisition-related costs related to investment banking and due diligence fees.

Previous wording

(5)For the three months ended March 31, 2024, includes charges related severance and benefit costs related to certain management resignations. For the three months ended March 31, 2023, includes charges related severance and benefit costs related to reduction-in-force.

Current wording

(5)For the three and six months ended June 30, 2024, includes charges related severance and benefit costs related to certain management departures. For the three months ended June 30, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses. For the six months ended June 30, 2023, includes charges related to severance and benefit costs for a reduction-in-force.

Previous wording

(6)Represents both unrealized and realized foreign currency losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.

Current wording

(6)Represents both unrealized and realized foreign currency gains and losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.

Previous wording

(7)For the three months ended March 31, 2023, represents an inventory write-down charge, outside normal business operations to improve U.S. warehouse operational efficiency.

Current wording

(7)For the six months ended June 30, 2023, represents a one-time inventory write-down to improve U.S. warehouse operational efficiency.

Previous wording

(8)Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented.

Current wording

(10)Represents the income tax expense effect of the above adjustments, except for the tax liability receivable adjustment. This adjustment uses an effective tax rate of 25% for all periods presented. For the three and six months ended June 30, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets.

Previous wording

The following table shows summary cash flow information for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table shows summary cash flow information for the six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Operating Activities. Net cash provided by operating activities was $14.5 million for the three months ended March 31, 2024, compared to net cash used in operating activities of $30.3 million for the three months ended March 31, 2023. Changes in net cash used in or provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors. Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt. Our accounts receivable typically are short term and settle in approximately 30 to 90 days.

Current wording

Operating Activities. Net cash provided by operating activities was $60.4 million for the six months ended June 30, 2024, compared to net cash used in operating activities of $12.0 million for the six months ended June 30, 2023. Changes in net cash provided by operating activities result primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors. Timing of those cash payments can vary throughout the year based on our inventory buy-in and licensor contracts. Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt. Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 55 days).

Previous wording

The increase in net cash provided by operating activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to a decrease in net loss excluding non-cash adjustments of $40.9 million and changes in working capital that increased net cash provided by operating activities by $3.8 million. Within working capital, the primary drivers were increases to prepaid expenses and other assets of $23.8 million and accounts receivable, net of $20.8 million, and decreases in accrued royalties of $10.3 million, offset by decreases to inventory of $49.1 million and an increase in accrued expenses and other current liabilities of $8.4 million.

Current wording

The increase in net cash provided by (used in) operating activities for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to a decrease related to changes in working capital that increased net cash provided by operating activities by $27.2 million. The working capital decrease was primarily due to decreases in inventory of $51.5 million and accounts receivable of $25.0 million, offset by increases in prepaid expenses and other assets of $27.0 million, and decreases in accrued royalties of $13.5 million and accrued expense and other current liabilities of $11.7 million.

Previous wording

Investing Activities. Our net cash provided by (used in) investing activities primarily consists of purchases of property and equipment. For the three months ended March 31, 2024, net cash provided by investing activities was $2.8 million and was primarily related to the sale of inventory and certain intellectual property marketed under and related to Funko Games, offset by purchases of tooling and molds used for production of our product lines. For the three months ended March 31, 2023, net cash used in investing activities was $17.8 million and was primarily related to purchases of tooling and molds used for production of our product lines as well as cash paid for the stock purchase of MessageMe, Inc. (d/b/a HipDot).

Current wording

Investing Activities. Our net cash used in investing activities primarily consists of purchases of property and equipment. For the six months ended June 30, 2024, net cash used in investing activities was $6.0 million, which primarily related to purchases of tooling and molds used in production for our product lines, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games. For the six months ended June 30, 2023, net cash used in investing activities was $27.6 million and was primarily related to purchases of tooling and molds used in production our product lines. In addition, we used $5.3 million in net cash for the purchase of the stock of MessageMe, Inc. (d/b/a HipDot).

Previous wording

Financing Activities. Our financing activities primarily consist of proceeds from the issuance of long-term debt, net of debt issuance costs, the repayment of long-term debt, payments and borrowings under our line of credit facility, distributions to the Continuing Equity Owners and proceeds from the exercise of equity-based options.

Current wording

Financing Activities. Our financing activities primarily consist of proceeds from the issuance of long-term debt, net of debt issuance costs, the repayment of long-term debt, payments and borrowings under our line of credit facility, payments to the TRA Parties and proceeds from the exercise of equity-based options.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities was $27.4 million, primarily related to payments on the Term Loan Facility and Equipment Finance Loan of $13.9 million and payments on the Revolving Line of Credit Facility of $13.5 million. For the three months ended March 31, 2023, net cash provided by financing activities was $63.5 million, primarily related to borrowings on the Revolving Line of Credit Facility of $71.0 million, offset by payments on the Term Loan Facility and Equipment Finance Loan of $5.6 million.

Current wording

For the six months ended June 30, 2024, net cash used in financing activities was $49.3 million, primarily related to payments of $30.5 million on the Revolving Credit Facility and payments on the Term Loan Facility and Equipment Finance Loan of $19.6 million. For the six months ended June 30, 2023, net cash provided by financing activities was $57.0 million, primarily related to a draw of $71.0 million on the Revolving Credit Facility, offset by payments on the Term Loan Facility and Equipment Finance Loan of $11.3 million.

Previous wording

On September 17, 2021, FAH, LLC and certain of its material domestic subsidiaries from time to time (the “Credit Agreement Parties”) entered into a new credit agreement (as amended from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., PNC Bank, National Association, KeyBank National Association, Citizens Bank, N.A., Bank of the West, HSBC Bank USA, National Association, Bank of America, N.A., U.S. Bank National Association, MUFG Union Bank, N.A., and Wells Fargo Bank, National Association (collectively, the “Initial Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent, providing for a term loan facility in the amount of $180.0 million (the “Term Loan Facility”) and a revolving credit facility of $100.0 million (the “Revolving Credit Facility”) (together the “Credit Facilities”). Proceeds from the Credit Facilities were primarily used to repay the Company’s former credit facilities. On April 26, 2022, the Credit Agreement Parties entered into Amendment No. 1 to the Credit Agreement (the “First Amendment”) with the Initial Lenders and JPMorgan Chase Bank, N.A. as administrative agent, which allows for additional Restricted Payments (as defined in the First Amendment) using specified funding sources. On July 29, 2022, the Credit Agreement Parties entered into Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with the Initial Lenders and Goldman Sachs Bank USA (collectively, the “Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent, which increased the Revolving Credit Facility to $215.0 million and converted the Credit Facility interest rate index from Borrower (as defined in the Credit Agreement) option LIBOR to SOFR. On February 28, 2023 the Revolving Credit Facility was reduced to $180.0 million and again to $150.0 million on December 31, 2023. The Credit Facilities are secured by substantially all assets of the borrowers under the Credit Facilities and any of their existing or future material domestic subsidiaries, subject to customary exceptions.

Current wording

On September 17, 2021, FAH, LLC and certain of its material domestic subsidiaries from time to time (the “Credit Agreement Parties”) entered into a new credit agreement (as amended from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., PNC Bank, National Association, KeyBank National Association, Citizens Bank, N.A., Bank of the West, HSBC Bank USA, National Association, Bank of America, N.A., U.S. Bank National Association, MUFG Union Bank, N.A., and Wells Fargo Bank, National Association (collectively, the “Initial Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent (the “Administrative Agent”), providing for a term loan facility in the amount of $180.0 million (the “Term Loan Facility”) and a revolving credit facility of $100.0 million (the “Revolving Credit Facility”) (together the “Credit Facilities”). Proceeds from the Credit Facilities were primarily used to repay the Company’s former credit facilities. On April 26, 2022, the Credit Agreement Parties entered into Amendment No. 1 to the Credit Agreement (the “First Amendment”) with the Initial Lenders and JPMorgan Chase Bank, N.A. as administrative agent, which allows for additional Restricted Payments (as defined in the First Amendment) using specified funding sources. On July 29, 2022, the Credit Agreement Parties entered into Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with the Initial Lenders and Goldman Sachs Bank USA (collectively, the “Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent, which increased the Revolving Credit Facility to $215.0 million and converted the Credit Facility interest rate index from Borrower (as defined in the Credit Agreement) option LIBOR to SOFR. On February 28, 2023 the Revolving Credit Facility was reduced to $180.0 million and again to $150.0 million on December 31, 2023. On June 11, 2024 (the “Consent Effective Date"), the Credit Agreement Parties entered into that certain Limited Waiver and Limited Consent (the “Limited Waiver and Limited Consent”), with the lenders party thereto (the “Required Lenders”) and the Administrative Agent. Pursuant to the Limited Waiver and Limited Consent, the Administrative Agent and the Required Lenders have agreed to irrevocably and permanently waive, from any time prior to or after the Consent Effective Date, the Credit Agreement Parties’ compliance with the covenant to maintain a minimum threshold of Qualified Cash (as defined in the Credit Agreement). The Credit Facilities are secured by substantially all assets of the borrowers under the Credit Facilities and any of their existing or future material domestic subsidiaries, subject to customary exceptions.

Previous wording

As of March 31, 2024 and December 31, 2023, we were in compliance with all covenants in our respective credit agreements in effect at such time. We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts. If economic conditions worsen and negatively impact the Company’s earnings and operating cash flows, this could impact our ability to regain compliance with our amended financial covenants and require the Company to seek additional amendments to our Credit Agreement or cause us to default on our obligations under the Credit Agreement.

Current wording

The Credit Facilities are secured by substantially all of the assets of the borrowers under the Credit Facilities and any of its existing or future material domestic subsidiaries, subject to customary exceptions. As of June 30, 2024, the Credit Agreement Parties were in compliance with all of the covenants in the Credit Agreement and as of December 31, 2023, the Credit Agreement Parties were in compliance with the modified covenants that were amended pursuant to the Third Amendment and within the Waiver Period. We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts. If economic conditions worsen and negatively impact the Company’s earnings and operating cash flows, this could impact our ability to regain compliance with our amended financial covenants and require the Company to seek additional amendments to our Credit Agreement or cause us to default on our obligations under the Credit Agreement.

Previous wording

As of March 31, 2024, we had $125.2 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $1.5 million) and $107.0 million outstanding borrowings under our Revolving Credit Facility, leaving $43.0 million availability under our Revolving Credit Facility.

Current wording

As of June 30, 2024, we had $120.9 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $1.4 million) and $90.0 million outstanding borrowings under our Revolving Credit Facility, leaving $60.0 million available under our Revolving Credit Facility.

Previous wording

On July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC. The Form S-3 was declared effective by the SEC on July 26, 2022 and will remain effective until through July 25, 2025. The Form S-3 allows us to offer and sell from time-to-time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and allows certain selling stockholders to offer and sell 17,318,008 shares of Class A common stock in one or more offerings. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

Current wording

On July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC. The Form S-3 was declared effective by the SEC on July 26, 2022 and it will remain effective through July 25, 2025. The Form S-3 allows us to offer and sell from time-to-time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and allows certain selling stockholders to offer and sell 17,318,008 shares of Class A common stock in one or more offerings.

Previous wording

As of March 31, 2024, we had $26.1 million of cash and cash equivalents and $(40.1) million of working capital, compared with $36.5 million of cash and cash equivalents and $(16.0) million of working capital as of December 31, 2023. Working capital is impacted by the seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our Revolving Credit Facility.

Current wording

As of June 30, 2024, we had $41.6 million of cash and cash equivalents and $(26.3) million of working capital, compared with $36.5 million of cash and cash equivalents and $(16.0) million of working capital as of December 31, 2023. Working capital is impacted by the seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our Revolving Credit Facility.