Funko Inc

Previous 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.

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 (as defined below), net income and cash flows.

Previous wording

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders. This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income. We have strategically adjusted our inventory buy-in to focus on core products in order to help mitigate this impact.

Current wording

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders. This has had an impact across our brands and geographies of reducing our net sales, gross margin (as defined below) and net income. We have strategically adjusted our inventory buy-in to focus on core products within new form factors offered with a variety of price points in order to help mitigate this impact.

Previous wording

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

Current wording

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

Previous wording

Net sales were $247.7 million for the three months ended June 30, 2024, an increase of 3.2%, compared to $240.0 million for the three months ended June 30, 2023. The increase in net sales was due primarily to increased sales to direct-to-consumer customers, mass-market retailers and distributors for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily as a result of strategic focus to grow direct-to-consumer sales and certain customers placing orders earlier than usual to secure vessel space. Our top ten wholesale customers represented approximately 32% and 35% of our sales for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Net sales were $292.8 million for the three months ended September 30, 2024, a decrease of 6.4%, compared to $312.9 million for the three months ended September 30, 2023. The decrease in net sales was due primarily to decreased sales to specialty retailers for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily as a result of the available content slate and performance of certain exclusive products. Our top ten wholesale customers represented approximately 34% and 33% of our sales for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

For the three months ended June 30, 2024, the number of active properties decreased 0.8% to 750 as compared to 756 for the three months ended June 30, 2023, and the average net sales per active property increased 4.0% for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. An active property is a licensed property from which we generate sales of products during a given period. We expect that the number of active properties and the average sales per active property will fluctuate from quarter to quarter based on what is relevant in pop culture at that time, the types of properties we are producing against and general economic trends.

Current wording

For the three months ended September 30, 2024, the number of active properties decreased 1.3% to 743 as compared to 753 for the three months ended September 30, 2023, and the average net sales per active property decreased 5.2% for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. An active property is a licensed property from which we generate sales of products during a given period. We expect that the number of active properties and the average sales per active property will fluctuate from quarter to quarter based on what is relevant in pop culture at that time, the types of properties we are producing against and general economic trends.

Previous 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.

Current wording

On a geographical basis, net sales in the United States decreased 7.4% to $194.4 million in the three months ended September 30, 2024 as compared to $210.0 million in the three months ended September 30, 2023. Net sales in Europe decreased 9.1% to $74.5 million in the three months ended September 30, 2024 as compared to $81.9 million in the three months ended September 30, 2023 and net sales in other international locations increased 13.5% to $23.9 million in the three months ended September 30, 2024 as compared to $21.0 million in the three months ended September 30, 2023.

Previous 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.

Current wording

On a branded product basis, net sales of the Core Collectible branded category decreased 2.3% to $227.8 million in the three months ended September 30, 2024 as compared to $233.3 million in the three months ended September 30, 2023, Loungefly branded products net sales decreased 17.6% to $47.3 million in the three months ended September 30, 2024 as compared to $57.4 million in the three months ended September 30, 2023 and net sales of other branded products decreased 20.8% to $17.6 million in the three months ended September 30, 2024 as compared to $22.2 million in the three months ended September 30, 2023.

Previous 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.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $173.0 million for the three months ended September 30, 2024, a decrease of 17.2%, compared to $208.9 million for the three months ended September 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 (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.

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 40.9% for the three months ended September 30, 2024, compared to 33.2% for the three months ended September 30, 2023. The increase for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was driven primarily by a $2.1 million recapture of inventory write-downs as aged inventory was able to be sold at better than expected margins during the three months ended September 30, 2024 versus a $10.6 million increase to inventory reserves for the three months ended September 30, 2023. The three months ended September 30, 2023 also incurred a one-time disposal cost of $6.1 million related to finished goods held at offshore factories.

Previous 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.

Current wording

Selling, general, and administrative expenses were $92.7 million for the three months ended September 30, 2024, a decrease of 1.4%, compared to $94.0 million for the three months ended September 30, 2023. The decrease was driven primarily by a $6.6 million decrease in professional fees, primarily related to the termination of a lease agreement and related expenses during the three months ended September 30, 2023 and a $1.4 million decrease in administrative fees, primarily related to a reduction in credit card processing fees, offset by a $7.0 million increase in advertising and marketing to support direct-to-consumer sales growth. Selling, general and administrative expenses were 31.7% and 30.0% of net sales for the three months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

Depreciation and amortization expense was $15.4 million for the three months ended September 30, 2024, a decrease of 0.3%, compared to $15.5 million for the three months ended September 30, 2023, primarily related to the type and timing of assets placed in service.

Previous wording

Interest expense, net was $5.1 million for the three months ended June 30, 2024, a decrease of 30.1%, compared to $7.3 million for the three months ended June 30, 2023. The decrease in interest expense, net was due primarily to a lower average balance on debt outstanding, including $107.7 million outstanding on the revolving line of credit during the three months ended June 30, 2024, as compared to $141.0 million for the three months ended June 30, 2023.

Current wording

Interest expense, net was $5.0 million for the three months ended September 30, 2024, a decrease of 34.6%, compared to $7.6 million for the three months ended September 30, 2023. The decrease in interest expense, net was due primarily to a lower average balance on debt outstanding, including $107.1 million outstanding on the revolving line of credit during the three months ended September 30, 2024, as compared to $141.0 million for the three months ended September 30, 2023.

Previous wording

Other income, net was $0.6 million for the three months ended June 30, 2024, compared to $0.4 million for the three months ended June 30, 2023. Other income, net for the three 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.

Current wording

Other expense, net was $1.0 million for the three months ended September 30, 2024, compared to $0.1 million for the three months ended September 30, 2023. Other expense, net for the three months ended September 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

Income tax expense was $1.7 million for the six months ended June 30, 2024 and $127.8 million for the six months ended June 30, 2023. The decrease in income tax expense for the six months ended June 30, 2024 from June 30, 2023 was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the six months ended June 30, 2023.

Current wording

Income tax expense was $1.2 million for the three months ended September 30, 2024 and $3.1 million for the three months ended September 30, 2023. The decrease in income tax expense for the three months ended September 30, 2024 from September 30, 2023 was related to a return-to-provision adjustment during the three months ended September 30, 2023.

Previous wording

Net income was $5.4 million for the three months ended June 30, 2024, compared to net loss of $75.9 million for the three months ended June 30, 2023. The increase in net income for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily due to the tax impact related to recognizing a deferred tax asset valuation allowance, partially offset by a gain on the Tax Receivable Agreement liability adjustment, as discussed above.

Current wording

Net income was $4.6 million for the three months ended September 30, 2024, compared to net loss of $16.2 million for the three months ended September 30, 2023. The increase in net income for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily due to the increase in gross margin (exclusive of depreciation and amortization), as discussed above.

Previous wording

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

Current wording

The following table sets forth information comparing the components of net loss for the nine months ended September 30, 2024 and 2023:

Previous 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.

Current wording

Net sales were $756.1 million for the nine months ended September 30, 2024, a decrease of 6.1%, compared to $804.9 million for the nine months ended September 30, 2023. The decrease in net sales was due primarily to decreased sales to specialty retailers and e-commerce sites for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily as a result of the available content slate and performance of certain exclusive products. Our top ten wholesale customers represented approximately 32% of our sales for both the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

For the six months ended June 30, 2024, the number of active properties increased 0.1% to 825 as compared to 824 for the six months ended June 30, 2023, and the average net sales per active property decreased 5.9% for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, the number of active properties increased 2.6% to 892 as compared to 869 for the nine months ended September 30, 2023, and the average net sales per active property decreased 8.5% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous wording

On a geographical basis, net sales in the United States decreased 11.2% to $309.4 million in the six months ended June 30, 2024 as compared to $348.3 million in the six months ended June 30, 2023. Net sales in Europe increased 5.7% to $114.6 million in the six months ended June 30, 2024 as compared to $108.4 million in the six months ended June 30, 2023 and net sales in other international locations increased 11.8% to $39.3 million in the six months ended June 30, 2024 as compared to $35.2 million in the six months ended June 30, 2023.

Current wording

On a geographical basis, net sales in the United States decreased 9.8% to $503.8 million in the nine months ended September 30, 2024 as compared to $558.3 million in the nine months ended September 30, 2023. Net sales in Europe decreased 0.7% to $189.1 million in the nine months ended September 30, 2024 as compared to $190.4 million in the nine months ended September 30, 2023 and net sales in other international locations increased 12.4% to $63.2 million in the nine months ended September 30, 2024 as compared to $56.2 million in the nine months ended September 30, 2023.

Previous wording

On a branded product basis, net sales of Core Collectible branded products decreased 4.4% to $343.9 million in the six months ended June 30, 2024 as compared to $359.5 million in the six months ended June 30, 2023, Loungefly branded products decreased 17.1% to $82.2 million in the six months ended June 30, 2024 as compared to $99.1 million in the six months ended June 30, 2023 and net sales of other branded products increased 12.2% to $37.3 million in the six months ended June 30, 2024 as compared to $33.3 million in the six months ended June 30, 2023.

Current wording

On a branded product basis, net sales of Core Collectible branded products decreased 3.6% to $571.7 million in the nine months ended September 30, 2024 as compared to $592.8 million in the nine months ended September 30, 2023, Loungefly branded products decreased 17.3% to $129.5 million in the nine months ended September 30, 2024 as compared to $156.6 million in the nine months ended September 30, 2023 and net sales of other branded products decreased 1.0% to $54.9 million in the nine months ended September 30, 2024 as compared to $55.5 million in the nine months ended September 30, 2023.

Previous wording

Cost of sales (exclusive of depreciation and amortization) was $273.0 million for the six months ended June 30, 2024, a decrease of 26.7%, compared to $372.3 million for the six 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.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $446.0 million for the nine months ended September 30, 2024, a decrease of 23.3%, compared to $581.3 million for the nine months ended September 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 (exclusive of depreciation and amortization) as a percentage of net sales, was 41.1% for the six months ended June 30, 2024, compared to 24.3% for the six months ended June 30, 2023. The increase for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was driven primarily by a one-time inventory write-down of $30.1 million recognized during the six months ended June 30, 2023 as well as 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 six months ended June 30, 2024.

Current wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales (exclusive of depreciation and amortization) as a percentage of net sales, was 41.0% for the nine months ended September 30, 2024, compared to 27.8% for the nine months ended September 30, 2023. The increase for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was driven primarily by a one-time inventory write-down of $30.1 million recognized during the nine months ended September 30, 2023 as well as a $10.8 million recapture of inventory write-downs as aged inventory was able to be sold at better than expected margins during the nine months ended September 30, 2024 versus a $22.1 million increase to inventory reserves for the nine months ended September 30, 2023. Shipping and freight costs associated with inventory that was sold during the nine months ended September 30, 2024 decreased $31.5 million versus the nine months ended September 30, 2023.

Previous wording

Selling, general, and administrative expenses were $163.5 million for the six months ended June 30, 2024, a decrease of 12.0%, compared to $185.7 million for the six months ended June 30, 2023. The decrease was driven primarily by a $22.0 million decrease to personnel and related costs (including salary and related taxes/benefits, commissions, equity-based compensation and variable warehouse labor and third-party logistics expenses), a $3.7 million decrease in rent, facility and warehouse support, primarily related to third-party logistics rent, offset by a $3.9 million increase in advertising and marketing costs, primarily to support direct-to-consumer sales growth. Selling, general and administrative expenses were 35.3% and 37.7% of net sales for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Selling, general, and administrative expenses were $256.2 million for the nine months ended September 30, 2024, a decrease of 8.4%, compared to $279.7 million for the nine months ended September 30, 2023. The decrease was driven primarily by a $22.7 million decrease to personnel and related costs (including salary and related taxes/benefits, commissions, equity-based compensation and variable warehouse labor and third-party logistics expenses), a $7.0 million decrease in professional fees, primarily related to the termination of a lease agreement and related expenses during the nine months ended September 30, 2023 and a $4.1 million decrease in rent, facility and warehouse support, primarily related to third-party logistics rent, offset by a $11.0 million increase in advertising and marketing costs, primarily to support direct-to-consumer sales growth. Selling, general and administrative expenses were 33.9% and 34.7% of net sales for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Depreciation and amortization expense was $31.0 million for the six months ended June 30, 2024, an increase of 7.4%, compared to $28.9 million for the six months ended June 30, 2023, primarily related to the type and timing of assets placed in service.

Current wording

Depreciation and amortization expense was $46.4 million for the nine months ended September 30, 2024, an increase of 4.7%, compared to $44.3 million for the nine months ended September 30, 2023, primarily related to the type and timing of assets placed in service.

Previous 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.

Current wording

Interest expense, net was $16.4 million for the nine months ended September 30, 2024, a decrease of 20.4%, compared to $20.6 million for the nine months ended September 30, 2023. The decrease in interest expense, net was due primarily to a lower average balance on debt outstanding during the nine months ended September 30, 2024 as compared to the nine months ended September 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 six months ended June 30, 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 nine months ended September 30, 2023, as unamortized debt financing fees were written-off.

Previous wording

As a result of recognizing a full valuation allowance related to the Company’s deferred tax assets, the Company determined as of June 30, 2023 that no future tax benefits were expected to be realized under the Tax Receivable Agreement. The long-term portion of the Tax Receivable Agreement liability was reduced and we recorded a gain of $99.6 million during the three months ended June 30, 2023.

Current wording

As a result of recognizing a full valuation allowance related to the Company’s deferred tax assets, the Company determined as of September 30, 2023 that no future tax benefits were expected to be realized under the Tax Receivable Agreement. The long-term portion of the Tax Receivable Agreement liability was reduced and we recorded a gain of $99.6 million during the nine months ended September 30, 2023.

Previous 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.

Current wording

Other expense, net was $2.0 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively. Other expense, net for the nine months ended September 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

Income tax expense was $0.8 million for the three months ended June 30, 2024 and $138.1 million for the three months ended June 30, 2023. The decrease in income tax expense for the three months ended June 30, 2024 from June 30, 2023 was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the three months ended June 30, 2023.

Current wording

Income tax expense was $2.9 million for the nine months ended September 30, 2024 and $130.9 million for the nine months ended September 30, 2023. The decrease in income tax expense for the nine months ended September 30, 2024 from September 30, 2023 was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the nine months ended September 30, 2023.

Previous wording

Net loss was $18.2 million for the six months ended June 30, 2024, compared to $137.0 million for the six months ended June 30, 2023. The decrease in net loss for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to the decrease in cost of sales (exclusive of depreciation and amortization), and selling, general and administrative expenses and tax impact related to recognizing a deferred tax asset valuation allowance, partially offset by a gain on the Tax Receivable Agreement liability adjustment, as discussed above.

Current wording

Net loss was $13.7 million for the nine months ended September 30, 2024, compared to $153.2 million for the nine months ended September 30, 2023. The decrease in net loss for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to the decrease in cost of sales (exclusive of depreciation and amortization), and selling, general and administrative expenses and tax impact related to recognizing a deferred tax asset valuation allowance, partially offset by a gain on the Tax Receivable Agreement liability adjustment, as discussed above.

Previous 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.

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, one-time disposal costs for unfinished and finished goods held at offshore factories, 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, tax receivable agreement liability adjustments, one-time disposal costs for unfinished and finished goods held at offshore factories 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, …

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, 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.

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, one-time disposal costs for unfinished and finished goods held at offshore factories 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

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

Current wording

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

Previous 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.

Current wording

(4)For the three months ended September 30, 2024, includes charges related to contract settlement agreements for warehouse leased space. For the nine months ended September 30, 2024, includes one-time legal settlement gain and contract settlement agreements and related services to and the fair market value adjustments of certain assets held for sale. For the three and nine months ended September 30, 2023, includes costs related to the termination of a lease agreement and related expenses, partially offset by acquisition-related benefits.

Previous 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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

(9)For the three and six months ended June 30, 2023, represents one-time disposal costs related to unfinished inventory held at offshore factories.

Current wording

(9)For the nine months ended September 30, 2023, represents one-time disposal costs related to unfinished goods held at offshore factories.

Previous 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.

Current wording

(11)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 nine months ended September 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 six months ended June 30, 2024 and 2023 (in thousands):

Current wording

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

Previous 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).

Current wording

Operating Activities. Net cash provided by operating activities was $63.7 million for the nine months ended September 30, 2024, compared to net cash used in operating activities of $2.9 million for the nine months ended September 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 58 days).