Funko, Inc.

Previous wording

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

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) (the “2024 10-K”). This discussion and analysis contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in this Quarterly Report on Form 10-Q.

Previous wording

•“we,” “us,” “our,” the “Company,” “Funko” and similar references refer: Funko, Inc., and, unless otherwise stated, all of its direct and indirect subsidiaries, including FAH, LLC.

Current wording

•“we,” “us,” “our,” the “Company,” “Funko”and similar references refer to: Funko, Inc., and, unless otherwise stated, all of its direct and indirect subsidiaries, including FAH, LLC.

Previous wording

•“Continuing Equity Owners” refers collectively to ACON Funko Investors, L.L.C., Fundamental, the Former Profits Interests Holders, certain former warrant holders and certain current and former executive officers, employees and directors and each of their permitted transferees, in each case, that owned common units in FAH, LLC after our initial public offering (“IPO”) and who may redeem at each of their options, their common units for, at our election, cash or newly-issued shares of Funko, Inc.’s Class A common stock.

Current wording

•“Continuing Equity Owners”refers collectively to ACON Funko Investors, L.L.C., the Former Profits Interests Holders, certain former warrant holders and certain current and former executive officers, employees and directors and each of their permitted transferees, in each case, that owned common units in FAH, LLC after our initial public offering (“IPO”) and who may redeem at each of their options, their common units for, at our election, cash or newly-issued shares of Funko, Inc.’s Class A common stock.

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 (as defined below), 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 36% of our net sales in the three months ended March 31, 2025 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, including greater political uncertainty, new or increasing tariffs and general uncertainty over U.S. trade and tariff policies, 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, 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 (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.

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. Moreover, tariffs on imports have adversely impacted and are expected to adversely impact our costs, and we intend to raise prices for certain of our products. This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income, and could impact consumer discretionary spending in future periods. We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact. For additional information regarding our financial condition, see “Liquidity and Financial Condition” below.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

The following table sets forth information comparing the components of net loss for the three months ended March 31, 2025 and 2024:

Previous 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.

Current wording

Net sales were $190.7 million for the three months ended March 31, 2025, a decrease of 11.6%, compared to $215.7 million for the three months ended March 31, 2024. The decrease in net sales was due primarily to decreased sales to specialty and mass market retailers for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Previous 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.

Current wording

On a geographical basis, net sales in the United States decreased 16.7% to $121.9 million in the three months ended March 31, 2025 as compared to $146.4 million in the three months ended March 31, 2024. Net sales in Europe decreased 0.1% to $54.2 million in the three months ended March 31, 2025 as compared to $54.2 million in the three months ended March 31, 2024. Net sales in other international locations decreased 3.1% to $14.6 million in the three months ended March 31, 2025 as compared to $15.1 million in the three months ended March 31, 2024.

Previous 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.

Current wording

On a branded category basis, net sales of the Core Collectible branded category decreased 8.0% to $144.5 million in the three months ended March 31, 2025 as compared to $157.1 million in the three months ended March 31, 2024. Loungefly branded category net sales decreased 13.0% to $35.4 million in the three months ended March 31, 2025 as compared to $40.7 million in the three months ended March 31, 2024. Other branded category net sales decreased 39.2% to $10.9 million in the three months ended March 31, 2025 as compared to $17.9 million in the three months ended March 31, 2024.

Previous 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.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $113.9 million for the three months ended March 31, 2025, a decrease of 12.0%, compared to $129.4 million for the three months ended March 31, 2024. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of decreased sales, as discussed above.

Previous 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.

Current wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of net sales, was 40.3% for the three months ended March 31, 2025, compared to 40.0% for the three months ended March 31, 2024. The increase in gross margin (exclusive of depreciation and amortization) for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was driven primarily by the savings in product cost due to the mix of product sold.

Previous 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.

Current wording

Selling, general, and administrative expenses were $84.8 million for the three months ended March 31, 2025, a decrease of 0.9%, compared to $85.6 million for the three months ended March 31, 2024. The decrease was driven primarily by a $3.6 million decrease in personnel and related costs (including salary and related taxes/benefits, commissions and equity-based compensation), a $1.6 million decrease in administrative fees, primarily driven by a reduction of bad debt expense, and a $1.3 million decrease in professional fees, primarily driven by non-recurring acquisition transaction costs and other expenses during the three months ended March 31, 2024, partially offset by an increase of $4.1 million in advertising and marketing fees. Selling, general and administrative expenses were 44.5% and 39.7% of net sales for each of the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Depreciation and amortization expense was $15.3 million for the three months ended March 31, 2025, a decrease of 2.0%, compared to $15.6 million for the three months ended March 31, 2024, primarily related to the type and timing of assets placed in service.

Previous 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.

Current wording

Interest expense, net was $3.8 million for the three months ended March 31, 2025, a decrease of 39.0%, compared to $6.3 million for the three months ended March 31, 2024. The decrease in interest expense, net was due primarily to lower average balance of debt outstanding during the three months ended March 31, 2025.

Previous 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.

Current wording

Other expense, net was $0.2 million and $1.6 million for the three months ended March 31, 2025 and 2024, respectively. Other expense, net for the three months ended March 31, 2025 and 2024 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S. dollar.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted Net 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.

Current wording

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

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, 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.

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, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses 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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous 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.

Current wording

(4)For the three months ended March 31, 2024, includes charges related severance and benefit costs related to certain management resignations.

Previous wording

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

Current wording

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

Previous 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.

Current wording

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

Previous wording

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs.

Current wording

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs. Our primary sources of cash flows have been cash flows from operating activities and borrowings under our credit facilities.

Previous wording

If our operating results fail to improve or if we are otherwise unable to maintain compliance with the financial or other covenants under the Credit Agreement, our lenders could, among other things, terminate all outstanding commitments thereunder and accelerate all outstanding borrowings and other obligations, which would require us to seek additional financing. Even in the absence of such event, if we are unable to generate sufficient cash flows from operations in the future, and if availability under our Revolving Credit Facility is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

Current wording

Even in the absence of an event of default, if we are unable to generate sufficient cash flows from operations in the future, and if availability under our Revolving Credit Facility is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

Previous wording

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

Current wording

The following table shows summary cash flow information for the three months ended March 31, 2025 and 2024 (in thousands):

Previous 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).

Current wording

Operating Activities. Net cash used in operating activities was $22.3 million for the three months ended March 31, 2025, compared to net cash provided by operating activities of $14.5 million for the three months ended March 31, 2024. Changes in net cash used in or provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors. Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt. Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 57 days).

Previous wording

Investing Activities. Our net cash used in investing activities primarily consists of purchases of property and equipment. For the nine months ended September 30, 2024, net cash used in investing activities was $13.4 million, which primarily related to purchases of tooling and molds used in production for our product lines, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games. For the nine months ended September 30, 2023, net cash used in investing activities was $35.6 million and was primarily related to purchases of tooling and molds used in production our product lines. In addition, we used $5.3 million in net cash for the purchase of the stock of MessageMe, Inc. (d/b/a HipDot) in the nine months ended September 30, 2023.

Current wording

Investing Activities. Our net cash used in investing activities primarily consists of purchases of property and equipment. For the three months ended March 31, 2025, net cash used in investing activities was $6.4 million and was primarily related to purchases of tooling and molds used for production of our product lines. For the three months ended March 31, 2024, net cash provided by investing activities was $2.8 million related to the sale of inventory and certain intellectual property marketed under and related to Funko Games of $6.8 million, offset by purchases of tooling and molds used for production of our product lines of $4.2 million.

Previous wording

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

Current wording

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

Previous wording

For the nine months ended September 30, 2024, net cash used in financing activities was $58.6 million, primarily related to payments of $25.5 million on the Revolving Credit Facility and payments on the Term Loan Facility and Equipment Finance Loan of $25.4 million. For the nine months ended September 30, 2023, net cash provided by financing activities was $51.3 million, primarily related to a draw of $71.0 million on the Revolving Credit Facility, offset by payments on the Term Loan Facility and Equipment Finance Loan of $16.9 million.

Current wording

For the three months ended March 31, 2025, net cash provided by financing activities was $19.3 million, primarily related to borrowings on the Revolving Line of Credit Facility of $25.0 million, offset by payments on the Term Loan Facility and Equipment Finance Loan of $5.8 million. For the three months ended March 31, 2024, net cash used in financing activities was $27.4 million, primarily related to payments on the Term Loan Facility and Equipment Finance Loan of $13.9 million and repayment of borrowings on the Revolving Line of Credit Facility of $13.5 million.

Previous wording

The Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50% of the original principal amount of the Term Loan Facility, with any outstanding balance due and payable on the Maturity Date. The first amortization payment commenced with the quarter ended on December 31, 2021. The Revolving Credit Facility also matures on the Maturity Date and loans thereunder may be borrowed, repaid, and reborrowed up to such date.

Current wording

As of March 31, 2025, we had $107.9 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $0.8 million) and $85.0 million outstanding borrowings under our Revolving Credit Facility, leaving $65.0 million of availability under our Revolving Credit Facility. In April 2025, we borrowed an additional $60.0 million, leaving $5.0 million of availability under our Revolving Credit Facility. The Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50% of the original principal amount of the Term Loan Facility, with any outstanding balance due and payable on the Maturity Date. The first amortization payment commenced with the quarter ended on December 31, 2021. The Revolving Credit Facility also terminates on the Maturity Date and loans thereunder may be borrowed, repaid, and reborrowed up to such date.

Previous wording

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) Term SOFR, EURIBOR, HIBOR, CDOR, SONIA and/or the Central Bank Rate, as applicable, plus (x) 4.00% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 3.00% per annum, in each case of clauses (i) and (ii), subject to two 0.25% per annum step-downs based on the achievement of certain leverage ratios following February 28, 2023. Each of Term SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0.00% floor. For loans based on ABR, the Central Bank Rate or the Canadian prime rate, interest payments are due quarterly. For loans based on SONIA, interest payments are due monthly. For loans based on Term SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

Current wording

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus (x) 4.00% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 3.00%, in each case of clauses (i) and (ii), subject to two 0.25% step-downs based on the achievement of certain leverage ratios following February 28, 2023. Each of SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0.00% floor. For loans based on ABR, the Central Bank Rate or the Canadian prime rate, interest payments are due quarterly. For loans based on Daily Simple SONIA, interest payments are due monthly. For loans based on SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

Previous wording

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a maximum Net Leverage Ratio and a minimum fixed charge coverage ratio (in each case, measured on a trailing four-quarter basis). The maximum Net Leverage Ratio and the minimum fixed charge coverage ratio for the fiscal quarter ended September 30, 2024 are 2.50:1.00 and 1.25:1.00, respectively.

Current wording

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a Maximum Net Leverage Ratio and a Minimum Fixed Charge Coverage Ratio (in each case, measured on a trailing four-quarter basis). The Maximum Net Leverage Ratio and the Minimum Fixed Charge Coverage Ratio for the fiscal quarter ended March 31, 2025 and each quarter through maturity are 2.50:1.00 and 1.25:1.00, respectively.

Previous wording

On July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC. The Form S-3 was declared effective by the SEC on July 26, 2022 and it will remain effective until no later than July 25, 2025. The Form S-3 allows us to offer and sell from time-to-time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and allows certain selling stockholders to offer and sell 17,318,008 shares of Class A common stock in one or more offerings.

Current wording

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

Previous wording

As of September 30, 2024, we had $28.5 million of cash and cash equivalents and $(13.0) million of working capital, compared with $36.5 million of cash and cash equivalents and $(16.0) million of working capital as of December 31, 2023. Working capital is impacted by the seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our Revolving Credit Facility.

Current wording

As of March 31, 2025, we had $25.9 million of cash and cash equivalents and $(41.5) million of working capital, compared with $34.7 million of cash and cash equivalents and $(18.7) million of working capital as of December 31, 2024. Working capital is impacted by the seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our Revolving Credit Facility.

Previous wording

As noted above, historically, our primary sources of cash flows have been cash flows from operating activities and borrowings under our credit facilities. We expect these sources of liquidity to continue to be our primary sources of liquidity. For a discussion of our credit facilities, see “Credit Facilities” above and Note 4, Debt. In addition, as described above, on July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on July 26, 2022. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

Current wording

In addition, as described above, on July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on July 26, 2022. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

Previous wording

As noted above, our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs. There have been no material changes to our liquidity and capital commitments as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

As noted above, our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs. Except as described above, there have been no material changes to our liquidity and capital commitments as described in our 2024 10-K.

Previous wording

Additional future liquidity needs may include tax distributions, the redemption right held by the Continuing Equity Owners that they may exercise from time to time (should we elect to exchange their common units for a cash payment), payments under the Tax Receivable Agreement and general cash requirements for operations and capital expenditures (including a future enterprise resource management system (ERP), additional platforms to support our direct-to-consumer experience, and capital build out of new leased warehouse and office space). The Continuing Equity Owners may exercise their redemption right for as long as their common units remain outstanding. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments we will be required to make to the TRA Parties will be significant, which will be contingent on future realizability of the Company’s deferred tax assets. Any payments made by us to the TRA Parties under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise have been available to us or to FAH, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided however, that nonpayment for a specified period may constitute a material breach under the Tax Receivable Agreement and therefore may accelerate payments due under the Tax Receivable Agreement.

Current wording

Additional future liquidity needs may include tax distributions, interest payments, repayment of our debt facilities, the redemption right held by the Continuing Equity Owners that they may exercise from time to time (should we elect to exchange their common units for a cash payment), payments under the Tax Receivable Agreement and general cash requirements for operations and capital expenditures (including a future enterprise resource management system (ERP), additional platforms to support our direct-to-consumer experience, and capital build out of new leased warehouse and office space). The Continuing Equity Owners may exercise their redemption right for as long as their common units remain outstanding. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments we will be required to make to the TRA Parties will be significant, which will be contingent on future realizability of the Company’s deferred tax assets. Any payments made by us to the TRA Parties under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise have been available to us or to FAH, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided however, that nonpayment for a specified period may constitute a material breach under the Tax Receivable Agreement and therefore may accelerate payments due under the Tax Receivable Agreement.

Previous wording

There have been no significant changes to our critical accounting policies to our disclosure reported in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

There have been no significant changes to our critical accounting policies to our disclosure reported in “Critical Accounting Policies and Estimates” in our 2024 10-K.