Funko Inc

Previous wording

Funko is a leading pop culture lifestyle brand. Our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty. We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, video game, musician or sports team. We infuse our distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel, homewares and digital NFTs.

Current wording

Funko is a leading pop culture consumer products company. Our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty. We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, video game, musician or sports team. We infuse our distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel, homewares, digital NFTs, vinyl records and limited-edition posters.

Previous wording

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 31% 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 35% of our net sales generated outside of the United States. We also source, procure and assemble 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 uncertainty, unrest or instability in the United States, 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, new or increasing tariffs and general uncertainty over U.S. trade and tariff policies, rising interest rates and heightened 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 and net income. We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact.

Previous wording

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

Current wording

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S. GAAP. 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” in this item.

Previous wording

Our operating results and prospects will be impacted by developments in the market for pop culture consumer products. Our business has benefited from pop culture trends including (1) technological innovation that has facilitated content consumption and engagement, (2) creation of more quality content, (3) greater cultural prevalence and acceptance of pop culture fandom and (4) increased engagement by fans with pop culture content beyond mere consumption driven by social media and demonstrated by fan-centric experiences, such as Comic-Con events around the world. These trends have contributed to significant growth in the demand for pop culture products like ours in recent years; however, consumer demand for pop culture products and pop culture trends can and does shift rapidly and without warning. To the extent we are unable to offer products that appeal to consumers, our operating results will be adversely affected. This is particularly true given the concentration of our sales of products under certain of our brands, particularly our Core Collectible branded products, which represented approximately 73% and 76% of our sales for the years ended December 31, 2023 and 2022, respectively, and which are sold across multiple product categories.

Current wording

Our operating results and prospects will be impacted by developments in the market for pop culture consumer products. Our business has benefited from pop culture trends including (1) technological innovation that has facilitated content consumption and engagement, (2) creation of more quality content, (3) greater cultural prevalence and acceptance of pop culture fandom and (4) increased engagement by fans with pop culture content beyond mere consumption driven by social media and demonstrated by fan-centric experiences, such as Comic-Con events around the world. These trends have contributed to significant growth in the demand for pop culture products like ours in recent years; however, consumer demand for pop culture products and pop culture trends can and does shift rapidly and without warning, and content consumption trends by consumers are also rapidly evolving. To the extent we are unable to offer products that appeal to consumers, our operating results will be adversely affected. This is particularly true given the concentration of our sales of products under certain of our brands, particularly our Core Collectible branded products, which represented approximately 77% and 73% of our sales for the years ended December 31, 2024 and 2023, respectively, and which are sold across multiple product categories.

Previous wording

Historically, substantially all of our sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products. Our top ten customers represented approximately 43% and 44% of our sales for the years ended December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, we saw shifts in our client mix as a direct result of our growing direct-to-consumer business and enhanced online presence of our top customers.

Current wording

Historically, substantially all of our sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products. Our top ten wholesale customers represented approximately 31% and 32% of our sales for the years ended December 31, 2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, we saw shifts in our client mix as a direct result of our growing direct-to-consumer business and enhanced online presence of our top customers.

Previous wording

Inventory consists primarily of figures, plush, apparel, homewares, accessories and other finished goods, and is accounted for using the first-in, first-out (“FIFO”) method. Inventory costs include direct product costs and freight costs. We order inventory based on assumptions of future demand and maintain reserves for excess and obsolete inventories to reflect the inventory balance at the lower of cost or net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers, or liquidation, and expected recoverable value of each disposition category. We also monitor our warehouse operations for maximum throughput to minimize carrying costs and aging of on-hand inventory. We may from time to time, liquidate and/or dispose of inventory to increase warehouse operating efficiency. During the year ended December 31, 2023, the Company approved an inventory reduction plan to improve U.S. warehouse operational efficiency. The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the condensed consolidated statements of operations. The units were identified and recorded based on an estimate of product costs, associated capitalized freight, net of allocated inventory reserves of the identified units and an estimate of physical destruction costs

Current wording

Inventory consists primarily of figures, plush, apparel, homewares, accessories and other finished goods, and is accounted for using the first-in, first-out (“FIFO”) method. Inventory costs include direct product costs and freight costs. We order inventory based on assumptions of future demand and maintain reserves for excess and obsolete inventories to reflect the inventory balance at the lower of cost or net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers, or liquidation, and expected recoverable value of each disposition category. We also monitor our warehouse operations for maximum throughput to minimize carrying costs and aging of on-hand inventory. We may from time to time, liquidate and/or dispose of inventory to increase warehouse operating efficiency. During the year ended December 31, 2023, the Company approved an inventory reduction plan to improve U.S. warehouse operational efficiency. The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the consolidated statements of operations for the year ended December 31, 2023. The units were identified and recorded based on an estimate of product costs, associated capitalized freight, net of allocated inventory reserves of the identified units and an estimate of physical destruction costs.

Previous wording

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it is not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets. Consequently, the Company established a full valuation allowance of $123.2 million against its deferred tax assets, thus reducing the carrying balance to $0, and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive (loss) income in the year ended December 31, 2023.

Current wording

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it was not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets. Consequently, the Company established a full valuation allowance of $123.2 million against its deferred tax assets, thus reducing the carrying balance to $0, and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive (loss) income in the year ended December 31, 2023.

Previous wording

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, and NFTs, primarily to retail customers and distributors. We also sell our products directly to consumers through our e-commerce operations, our retail stores and, to a lesser extent, at specialty licensing and comic book conventions and exhibitions.

Current wording

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, NFTs, vinyl records and limited-edition posters, primarily to retail customers and distributors. We also sell our products directly to consumers through our e-commerce operations, our retail stores and, to a lesser extent, at specialty licensing and comic book conventions and exhibitions.

Previous wording

Revenue from the sale of our products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms. The majority of revenue is recognized upon shipment of products to the customer. We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. The estimated costs of these programs reduce gross sales in the period the related sale is recognized. We evaluate the need for price increases along with other incentive arrangements and cost of product to help manage gross margins. In 2022 and 2023, we instituted price increases for our products. Sales terms typically do not allow for a right of return except in relation to a manufacturing defect. Shipping costs billed to our customers are included in net sales, while shipping and handling costs, which include inbound freight costs and the cost to ship products to our customers, are included in cost of sales.

Current wording

Revenue from the sale of our products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms. The majority of revenue is recognized upon shipment of products to the customer. We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. The estimated costs of these programs reduce gross sales in the period the related sale is recognized. We evaluate the need for price increases along with other incentive arrangements and cost of product to help manage gross margins. In 2023, we instituted price increases for our products, and we may institute additional increases in 2025. Sales terms typically do not allow for a right of return except in relation to a manufacturing defect and certain products purchased through our website. Shipping costs billed to our customers are included in net sales, while shipping and handling costs, which include inbound freight costs and the cost to ship products to our customers, are included in cost of sales.

Previous wording

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight and outbound products to our customers and inventory management. Our cost of sales excludes depreciation and amortization.

Current wording

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight and duties and outbound products to our customers and inventory management. Our cost of sales excludes depreciation and amortization.

Previous wording

Our products are produced and assembled by third-party manufacturers primarily in Vietnam, China and Mexico. The use of third-party manufacturers enables us to avoid incurring fixed product costs, while maximizing flexibility, capacity and capability. As part of a continuing effort to reduce manufacturing costs and ensure speed to market, we have historically kept our production concentrated with a small number of manufacturers and factories even as we have grown and diversified.

Current wording

Our products are produced and assembled by third-party manufacturers primarily in Vietnam, China and Mexico. The use of third-party manufacturers enables us to avoid incurring fixed product costs, while maximizing flexibility, capacity and capability. As part of a continuing effort to reduce manufacturing costs and ensure speed to market, we have historically kept our production concentrated with a small number of manufacturers and factories even as we have grown and diversified. Our use of international manufacturers, particularly in China and Mexico, may increase the likelihood that our costs are adversely impacted by new tariffs.

Previous wording

Our shipping costs, both inbound and outbound, will fluctuate from period to period based on customer mix due to varying shipping terms and other factors. We contract a portion of our freight needs and the remainder is acquired through the spot market, where there may be varying costs and transit times. In late 2022, difficulties in our warehouse and distribution operations led us to incur a substantial amount of ground transportation and temporary storage costs.

Current wording

Our shipping costs, both inbound and outbound, will fluctuate from period to period based on customer mix due to varying shipping terms and other factors. We contract a portion of our freight needs and the remainder is acquired through the spot market, where there may be varying costs and transit times.

Previous wording

We anticipate inflationary pressures throughout our supply chain in future periods, specific to shipping and, to a lesser extent, product costs.

Current wording

We anticipate inflationary pressures throughout our supply chain in future periods, specific to freight and duties costs and, to a lesser extent, product costs.

Previous wording

Depreciation expense is recognized on a straight-line basis over the estimated useful lives of our property and equipment. Amortization relates to definite-lived intangible assets that are expensed on a straight-line basis over the estimated useful lives. Our intangible assets, which are being amortized over a range of two to 20 years, are primarily comprised of trade names, customer relationships and intellectual property we recognized as part of the ACON Acquisition.

Current wording

Depreciation expense is recognized on a straight-line basis over the estimated useful lives of our property and equipment. Amortization relates to definite-lived intangible assets that are expensed on a straight-line basis over the estimated useful lives. Our intangible assets, which are being amortized over a range of two to 20 years, are primarily comprised of trade names, customer relationships and intellectual property.

Previous wording

Net sales were $1.1 billion for the year ended December 31, 2023, a decrease of 17.1% compared to $1.3 billion for the year ended December 31, 2022. The decrease in net sales was primarily due to decreased sales to our mass-market retailers, e-commerce sites, and distributor customers, primarily as a result of slower inventory restocking and an overall challenging retail environment.

Current wording

Net sales were $1.0 billion for the year ended December 31, 2024, a decrease of 4.2% compared to $1.1 billion for the year ended December 31, 2023. The decrease in net sales was primarily due to decreased sales to our specialty retailers and e-commerce site customers, 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 years ended December 31, 2024 and 2023, respectively.

Previous wording

On a geographical basis, net sales in the United States decreased 21.8% to $755.6 million in the year ended December 31, 2023 as compared to $966.3 million in the year ended December 31, 2022, net sales in Europe increased 3.0% to $268.5 million in the year ended December 31, 2023 from $260.6 million in the year ended December 31, 2022 and net sales in other international locations decreased 24.9% to $72.0 million in the year ended December 31, 2023 from $95.8 million in the year ended December 31, 2022.

Current wording

On a geographical basis, net sales in the United States decreased 9.7% to $682.0 million in the year ended December 31, 2024 as compared to $755.6 million in the year ended December 31, 2023, net sales in Europe increased 5.7% to $283.8 million in the year ended December 31, 2024 from $268.5 million in the year ended December 31, 2023 and net sales in other international locations increased 16.8% to $84.1 million in the year ended December 31, 2024 from $72.0 million in the year ended December 31, 2023.

Previous wording

On a product category basis, net sales of Core Collectible branded products decreased 19.6% to $803.2 million in the year ended December 31, 2023 as compared to $998.4 million in the year ended December 31, 2022. Net sales of Loungefly branded products decreased 15.2% to $214.5 million in the year ended December 31, 2023 as compared to $253.0 million in the year ended December 31, 2022. Net sales of other products increased 10.0% to $78.4 million in the year ended December 31, 2023 as compared to $71.3 million the year ended December 31, 2022.

Current wording

On a product category basis, net sales of Core Collectible branded products increased 0.2% to $804.4 million in the year ended December 31, 2024 as compared to $803.2 million in the year ended December 31, 2023. Net sales of Loungefly branded products decreased 19.9% to $171.8 million in the year ended December 31, 2024 as compared to $214.5 million in the year ended December 31, 2023. Net sales of other products decreased 6.1% to $73.6 million in the year ended December 31, 2024 as compared to $78.4 million in the year ended December 31, 2023.

Previous wording

Cost of sales (exclusive of depreciation and amortization) was $763.1 million for the year ended December 31, 2023, a decrease of 14.1%, compared to $888.7 million for the year ended December 31, 2022. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of lower net sales. Product costs decreased $83.8 million or 18.4%, shipping and freight costs decreased $59.9 million or 31.5% and license and royalty costs decreased $33.4 million or 15.7%, partially offset by increases in other costs of $52.4 million, which included domestic inventory and one-time offshore finished and unfinished goods write-offs and increased inventory reserves.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $615.3 million for the year ended December 31, 2024, a decrease of 19.4%, compared to $763.1 million for the year ended December 31, 2023. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of certain costs incurred during the year ended December 31, 2023, that were not recurring during the year ended December 31, 2024. Other costs decreased $73.7 million or 91.0%, primarily related to domestic inventory and one-time offshore finished and unfinished goods write-offs and increased inventory reserves for the year ended December 31, 2023. Product costs decreased $32.9 million or 8.8%, shipping and freight costs decreased $30.3 million or 23.3% and license and royalty costs decreased $10.8 million or 6.0%.

Previous wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of sales, was 30.4% for the year ended December 31, 2023, compared to 32.8% for the year ended December 31, 2022. Gross margin (exclusive of depreciation and amortization) decreased 240 basis points for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to the factors noted above.

Current wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of sales, was 41.4% for the year ended December 31, 2024, compared to 30.4% for the year ended December 31, 2023. Gross margin (exclusive of depreciation and amortization) increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, due to the factors noted above.

Previous wording

Selling, general, and administrative expenses were $377.1 million for the year ended December 31, 2023, a decrease of 5.3%, compared to $398.3 million for the year ended December 31, 2022. The decrease was driven primarily by a $28.8 million decrease in software expense, resulting mostly from the abandonment of an enterprise resource planning cloud computing arrangement of $32.5 million in 2022 and a $9.6 million decrease in personnel expenses, commissions and stock option expense, offset by an increase of $13.6 million in professional fees, primarily related to non-recurring severance payments, termination of a lease agreement and related expenses and impairment of assets held-for-sale.

Current wording

Selling, general, and administrative expenses were $359.0 million for the year ended December 31, 2024, a decrease of 4.8%, compared to $377.1 million for the year ended December 31, 2023. The decrease was driven primarily by a $19.5 million decrease in personnel expenses, commissions and stock option expense, a $12.3 million decrease in professional fees, primarily related to non-recurring severance payments, termination of a lease agreement and related expenses and impairment of assets held-for-sale during the year ended December 31, 2023, offset by an increase in advertising and marketing fees of $20.3 million in 2024, primarily in support of our direct-to-consumer channel.

Previous wording

Selling, general, and administrative expenses were 34.4% of sales for the year ended December 31, 2023, compared to 30.1% of sales for the year ended December 31, 2022, primarily due to the non-recurring events described above.

Current wording

Selling, general, and administrative expenses were 34.2% of sales for the year ended December 31, 2024, compared to 34.4% of sales for the year ended December 31, 2023, due to the factors noted above.

Previous wording

Depreciation and amortization expense was $59.8 million for the year ended December 31, 2023, compared to $47.7 million for the year ended December 31, 2022, primarily driven by the type and timing of assets placed into service.

Current wording

Depreciation and amortization expense was $62.6 million for the year ended December 31, 2024, compared to $59.8 million for the year ended December 31, 2023, primarily driven by the type and timing of assets placed into service.

Previous wording

Interest expense, net was $28.0 million for the year ended December 31, 2023, an increase of 170.7%, compared to $10.3 million for the year ended December 31, 2022. The increase in interest expense, net was due to higher average balances of debt outstanding as well as higher interest rates during the year ended December 31, 2023.

Current wording

Interest expense, net was $20.6 million for the year ended December 31, 2024, a decrease of 26.4%, compared to $28.0 million for the year ended December 31, 2023. The decrease in interest expense, net was due to lower average balances of debt outstanding during the year ended December 31, 2024.

Previous wording

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

Current wording

As a result of the amendment to our Credit Agreement entered into in February 2023, a $0.5 million loss on debt extinguishment was recorded for the year ended December 31, 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 $102.2 million during the year ended December 31, 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 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 $100.2 million during the year ended December 31, 2023.

Previous wording

Other income, net was $0.1 million and other expense, net was $0.8 million for the years ended December 31, 2023 and 2022, respectively. Other (income) expense, net for the years ended December 31, 2023 and 2022 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 $2.9 million and other income, net was $0.1 million for the years ended December 31, 2024 and 2023, respectively. Other expense (income), net for the years ended December 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.

Previous wording

Income tax expense was $132.5 million for the year ended December 31, 2023, compared to an income tax benefit of $17.8 million for the year ended December 31, 2022. The increase in income tax expense was related to recognizing a full valuation allowance on the Company’s deferred tax assets.

Current wording

Income tax expense was $4.6 million for the year ended December 31, 2024, compared to $132.5 million for the year ended December 31, 2023. The decrease in income tax expense was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the year ended December 31, 2023.

Previous wording

Net loss was $164.4 million for the year ended December 31, 2023, compared to $5.2 million for the year ended December 31, 2022. The increase in net loss was primarily the result of lower net sales and nonrecurring events for the year ended December 31, 2023 as compared to the year ended December 31, 2022, as discussed above.

Current wording

Net loss was $15.1 million for the year ended December 31, 2024, compared to $164.4 million for the year ended December 31, 2023. The decrease in net loss was primarily the result of lower net sales, offset by the nonrecurring events for the year ended December 31, 2023, as discussed above.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted (Loss) Earnings 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) income, (loss) earnings per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net (loss) income 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 debt extinguishment, 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 cloud-based computing arrangement abandonment expenses, one-time disposal costs for unfinished and finished goods held at offshore factories and other unusual or one-time items. We define Adjusted Net (Loss) Income as net loss attributable to Funko, Inc. adjusted for the reallocation of income 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 debt extinguishment, 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 cloud-based computing arrangement abandonment expenses, 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 (Loss) Earnings per Diluted Share as Adjusted Net (Loss) Income 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 me…

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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 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, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items. We define Adjusted Net Income (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 debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments 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 basis for comparing our ongoing results of operations.

Previous wording

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net (loss) income or other financial statement data presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K as indicators of financial performance. Some of the limitations are:

Current wording

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net loss or other financial statement data presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K as indicators of financial performance. Some of the limitations are:

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 debt extinguishment, 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 cloud-based computing arrangement abandonment expenses, 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 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 debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, 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

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

Current wording

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

Previous wording

(4)Represents certain severance, relocation and related costs. For the year ended December 31, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses, and charges related to severance and benefit costs for reductions-in-force. For the year ended December 31, 2022, includes charges related to residual one-time relocation and severance costs for U.S. warehouse personnel in connection with the opening of a warehouse and distribution facility in Buckeye, Arizona.

Current wording

(4)Represents certain severance, relocation and related costs. For the year ended December 31, 2024, includes severance and benefit costs related to certain management departures of $2.1 million. For the year ended December 31, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses of $382,000, and charges related to severance and benefit costs for reductions-in-force of $5.2 million.

Previous wording

(12)Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for the years ended December 31, 2023 and 2022. For the year ended December 31, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets. For the year ended December 31, 2022, this also includes the $11.0 million discrete benefit from the release of a valuation allowance on the outside basis deferred tax asset.

Current wording

(8)Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for the years ended December 31, 2024 and 2023. For the year ended December 31, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets.

Previous wording

On September 17, 2021, the Company entered into a new credit agreement (the “Credit Agreement”) 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 $235.0 million term loan facility and its former $75.0 million revolving credit facility. On July 29, 2022, the Revolving Credit Facility was increased to $215.0 million and 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, the Company entered into a new credit agreement (the “Credit Agreement”) 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 $235.0 million term loan facility and its former $75.0 million revolving credit facility. On July 29, 2022, the Revolving Credit Facility was increased to $215.0 million and 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. 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).

Previous wording

Operating Activities. Our net cash provided by (used in) operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, equity-based compensation, accretion of discount on long-term debt, as well as the effect of changes in working capital and other activities.

Current wording

Operating Activities. Our net cash provided by operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, equity-based compensation, as well as the effect of changes in working capital and other activities.

Previous wording

Net cash provided by operating activities was $30.9 million for the year ended December 31, 2023, compared to net cash used in operating activities of $40.1 million for the year ended December 31, 2022. Changes in net cash 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

Net cash provided by operating activities was $123.5 million for the year ended December 31, 2024, compared to $30.9 million for the year ended December 31, 2023. Changes in net cash 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 (average 57 days).

Previous wording

The increase for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to changes in working capital, which increased net cash provided by operating activities by $186.8 million and were primarily due to increases in inventory of $204.7 million and accounts receivable of $21.4 million and a decrease to income taxes payable of $15.1 million. These were offset by increases in accounts payable of $29.0 million, accrued royalties of $23.8 million and accrued expenses and other liabilities of $12.1 million and a decrease in net income, excluding non-cash adjustments.

Current wording

The increase for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to changes in net loss of $149.4 million, offset by changes in certain non-cash items, including depreciation and amortization, equity-based compensation, tax receivable liability adjustments and deferred tax expense of $16.8 million and changes in working capital of $39.9 million, which decreased net cash provided by operating activities. Working capital changes were primarily due to increases in inventory of $96.3 million and accounts receivable of $30.9 million, offset by increases in accounts payable of $27.2 million, accrued royalties of $21.7 million and accrued expenses and other liabilities of $19.9 million and a decrease to prepaid expenses and other assets of $19.0 million.

Previous wording

Investing Activities. Our net cash used in investing activities primarily relates to the purchase of property and equipment and acquisitions, net of cash acquired. For the year ended December 31, 2023, net cash used in investing activities was $39.8 million, which was used for the purchase of property and equipment, primarily related to tooling and molds. In addition, we used $5.4 million in net cash for the acquisition of MessageMe, Inc. (d/b/a HipDot).

Current wording

Investing Activities. Our net cash used in investing activities primarily relates to the purchase of property and equipment and acquisitions, net of cash acquired. For the year ended December 31, 2024, net cash used in investing activities was $25.2 million, which was used for the purchase of property and equipment, primarily related to tooling and molds, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games.