Funko, Inc. Class A Aktie

Hi, everybody. I'm Tristan, but most people know me online as Top Pops. Today, we are here on a Hollywood Boulevard in front of Funko Hollywood. This is the only store that you can find on the Walk of Fame that has literally every corner of entertainment, music, TV, anime, gaming, sports, all in one place. Today, I'm here to host Funko's first quarter financial results. So let's go inside.

Joining me are Josh Simon, CEO of Funko; Yves Le Pendeven, CFO; and Jessica Kong, the GM of Loungefly.

Tristan, T Pop, thanks for being here.

Now just so everyone knows, you are a super creator influencer in the world of collectibles. You cover the space more broadly. I think you know more about Funko and Pop! than probably all of us combined at the table. So we thought it would be great to have you here and bring a new perspective to our earnings call. I think is this your first earnings call? Okay, just to confirm, I figured.

Well, awesome having you here. We appreciate it.

No, it's so great to be here. guys, I've spent a lot of time talking about Funko from the fan side. And today, I get to ask the questions from the business side. So let's get right into it. How was Q1 for Funko?

Great business question. You nailed it at the top. The Q1 was really strong. I think it was the example of our Make Culture Pop! strategy kind of starting to really manifest itself in the market.

We ended Q4 with some momentum, and we saw that continue into the year. Overall, our sales were up 5% in the quarter. And if you look at just the Core Collectibles business, we're up 17%.

And if I can jump into, it's obviously pleased about the sales growth, but we also reported our highest gross margin ever at 44%, and that drove an adjusted EBITDA of $11 million, which was way better than we expected.

Wow, that's great. Now let's talk about what's new on the product side. Josh, you've talked about Funko being at the center of culture. What did that look like this quarter?

So I go back to the Make Culture Pop! strategy, culture, creativity and commerce. So on the culture side, we want to be part of all of these sort of fan entertainment moments, pop culture moments that are going on around the world while they're happening. Some awesome examples of that in Q1. The big movers were KPop Demon Hunters, the final season of Stranger Things, One Piece, which is always really strong for us.

But we're also starting to see some really other great dimensions of the business with Mando, Grogu coming out, our Star Wars business is really showing some nice growth. And then I'll even just use a more recent example of Michael Jackson. This is one of my favorites, the smooth criminal vibe that's sort of iconic leaning look that always mesmerized me, growing up, like how did you do it? But great to be part of that moment with the Michael Biopic out right now.

Then from a creativity standpoint, it's really about how are we taking those moments and turning them into products and frankly, adding some more newness and dimension to our product line. I think Bitty Pop! is a great example of that. We saw strength in the quarter coming off of Q4 rolling out into Walmart.

From a seasonal basis, I'll give a great example, which is this sort of Bitty Bouquet for your Valentine's Day lover. You can -- if the sort of bouquet stand and you can sort of swap out whatever Bitty Pop! you're interested in there, which I think is a great evolution of a moment that we can play on with Bitty Pop!.

I'll point out sort of something in the world of Demon Slayer, which is obviously a great IP for us, kind of like a Sumi-Ink paint deco to the Pop!, which just helps to bring some freshness and newness to the fans of Demon Slayer.

And then from a commerce standpoint, it's really about how do we bring these products to life for fans. I think we like to say, turning shelves into stages, some really fun experiences that I think are examples of that from the quarter. I went a few weeks ago to WrestleMania 42 in Las Vegas. Awesome weekend. Those guys always do a great job. We came to life at the WWE Fan Expo at the Las Vegas Convention Center with a Pop! Yourself experience, so you could customize yourself in exclusive WWE gear that you could only get there. We built the Pop! on site. We also launched a limited edition WWE covers on our D2C site as part of the WrestleMania weekend, which was awesome. I think it's selling for 3 to 4x on eBay right now, which is cool to see.

And then also in the world of sports, I had the chance also to go to Miami. We have a brand-new shop in shop that opened at the new Inter Miami Stadium. I was able to attend the second game in that stadium. Also an awesome Pop! Yourself experience there, an exclusive Messi Pop!, which you can only get at the stadium.

And then actually, we really rounded out with some incredible Loungefly product as well. I think Yves there in his bag of tricks. There's a great example of some of the Loungefly products that we're selling in the stadium there for Inter Miami.

Yes, that's right, Josh. So this is our Iconic Me backpack for Inter Miami, along with one of the many bag charms that are available. So a super fun collection.

I love that colorway brings back memories. I grew up in Florida. So it reminds me of the Miami Vice in the '80s, and we get to live out our sort of like Crockett and Tubbs duo here. So it's a good one.

Now speaking of Loungefly, Jessica, is there anything else new that you have?

Well, you know what, I'm so glad you asked. So Loungefly has a really strong base, right? We have an exceptionally loyal fan base. We have high brand equity and best of the best product placement in all of the Disney parks, right?

We also have really great relationships with key retailers like BoxLunch and Hot Topic. And we're also getting in premium. And so I can show you here our very first Swarovski collection that launched last year, this is a piece that was part of the collection, selling at $400, which is well above the average $80 to $90 price point that we normally hit. And this sold out within hours, right? So super excited to do more of these going forward. That being said, this year is really an important business reset for us, right? So we cut our SKUs back by 50% and so sales will be down as planned this year. But that's really in order for us to improve SKU productivity and overall profitability in general. And we're already seeing the results of that. So super encouraged by that.

So with that, we're doubling down on wearable storytelling. So that means, one, expanding the styles that we do beyond the iconic mini backpack. And so with that, here is, Heihei from Moana, She's a figural, she was actually our #1 SKU last year, which is great, and we'll continue to do more of these going forward.

We also are doubling down on accessories, bag charms and pins are categories that are driving double-digit growth for us. And so thank you, Yves. This is Mickey and Minnie new figural bag charms that are launching later this year. And look, they hold hands.

And then third, we are also expanding our reach with Gen Z. And so we'll be launching a new diffusion line that is much more everyday functional at a much more affordable price point.

This is all really great. Also welcome to the team. Thank you. But now I've got to ask. Is there any other changes you made to the management team?

Yes. We just had a brand-new Head of Marketing and Brand starts a couple of weeks ago, Nik Rupp comes to us previously from Nike. Awesome to have him on board.

And I mentioned this last quarter, Andy Oddie, who's been with Funko for a long time, industry expert in many different ways, moved into a new role as our Chief International Officer, so really giving some dedicated focus to growing the business in Latin America and Asia.

He and I, about a month ago, spent a couple of weeks touring the region. We met with our distributors. We spent time with our licensors and some retail partners in Korea and Japan and a few other locations. And I came away really encouraged.

I think from an IP standpoint, we already work with some of the biggest partners in the region, like I'll use the sort of Zootopia from Disney as an example. This year, that was the highest grossing import movie ever in the history of China. It did about $630 million in box office there. And obviously, we have a long-standing relationship with Disney. One piece is another example of something in the anime world, and obviously, we're into anime more broadly and really popular in the region. So I think there's a lot of potential. It's going to take some time to build the foundation, the plans and kind of see us really supercharge that growth, but I definitely came away really encouraged about the opportunity in the region and also Andy helping to lead the charge for us there.

Yves, anything you want to add about the broader economic environment and what the rest of the outlook is for the year?

Yes. So obviously, we're pleased with Q1. It was a strong start to the year. We expect that momentum to continue in Q2. So today, we issued guidance for Q2, we think sales will be up low single digits to mid-single digits. And adjusted EBITDA between $5 million and $10 million.

And then as we look to the second half of the year, it's a little bit too soon to say, but there are some favorable things going on, the current tariff rates that are in effect are a little bit lower than we planned. So that's great news, and we hope that continues.

On the flip side, we're watching the news about oil prices pretty closely. We have not been negatively impacted yet, but it's a little bit too soon to say. So with that in mind, we're just reiterating our original guidance for the year, which was sales flat to up 3% and then adjusted EBITDA between $70 million and $80 million.

Thanks so much. And now, Josh, I've got to ask. Is there anything that you're excited about coming up later this year?

I think is there anything I'm not excited about. There's a lot this year. I mean I mentioned in the last quarter too, it's an awesome film slate this year, just sort of from beginning to end of the year, Mando, Grogu, soon Toy Story, Avengers Doomsday at the end of the year, which is awesome. We actually just spent some time across the street from our offices here in Burbank with the Head of DC Studios last week and I think super excited for Supergirl.

So a big year for movies, TV shows. Sports is obviously also huge this year because of the World Cup. And so we have the French, English and U.S. national teams. We also have a great relationship with a lot of athletes. I mentioned Messi earlier, who's playing for Argentina, Yamal for Spain, Haaland, Man City is playing for Norway and a few others. And then we even have the mascots. Can you name any of the three mascots. The three mascots that represent U.S., Canada and Mexico who are hosting the game. So covering it from all dimensions.

And then look, the other thing I had mentioned, we talk a lot about the importance of speed, getting products to market faster. We just had an awesome execution of that with WrestleMania, a surprise appearance from IShowSpeed, one of the biggest creators in the world. I think he has like 50 million followers each on YouTube, Instagram and TikTok, right as he was walking out to the ring, we dropped an IShowSpeed Pop! on our site and also on fanatics.com. And so you can expect a lot more of us, both in that creator space and coming to market much faster kind of in the moment for our fans throughout the year.

This is all really super exciting. And now, let's turn to a couple of questions that we have from a few analysts as well as some fans maybe even watching right now.

First one we have here is coming in from Stephen Laszczyk, Goldman Sachs, he asks what gives you confidence that the improving POS trends you saw in Q4 will continue in 2026?

Actually, we had a great continuation of the Q4 trend. So I'm happy to report POS globally was up 6% in Q1. In the wholesale channel, it was actually up 12%. And then by territory, that was up 6% in the U.S. and up 28% in Europe. And you can see that's very much aligned to the sell-in. So it's a very healthy trend, sell-in, sell-through, and we're pleased with that trend.

Great. Now actually another question from Stephen. What level of upside could we see from potential refunds and tariffs?

So we've shared that we've paid approximately $20 million in our IEEPA tariffs we're taking all the steps that we need to obtain a refund and kind of following the instructions there. A little bit uncertain on the timing.

There is also a market to monetize tariff claims, and we're kind of exploring all of our options at this point. So more to come on that.

Okay. Next question we have here is coming in from Keegan Cox at D.A. Davidson. He asked, can you talk about gross margin drivers for Q1 and Q2?

Sure. Again, highest gross margin we've ever reported. And it's not because of some kind of accounting adjustment or anything like that. It's really the result of so many things that we've been working on for the past 6 months to a year. So reducing the amount of discounting and promotional activity that we've been doing. We've also got renewed licensing agreements with our major partners. And then just channel and sales mix all contributed to that 44% gross margin. And then our guidance, 42% to 44%. We expect that the trend should be able to hold for the rest of the year.

Okay. Perfect. Next up, we're going to get into some fan questions here. And the first one is coming in from [ TheBearsCollection142 ], they ask, what future Funko are you excited for?

I guess, like, for me, there's a few. So coming up at San Diego Comic-Con this year, I'm just going to tease that we'll be launching and rolling out our Pop! Mystery lineup. And so that's kind of taking the -- a brand new lineup of people's favorite 4-inch pop vinyl figures, but putting them into more of a blind box mystery format.

We're starting off with some really fun lines of WB Horror, our own lineup on the Pop! Flora line. We have some really big IP coming into the future that I'm just going to tease right now. And there's also some really, I think, unique and compelling chase elements to it. So that's one I'm particularly excited for.

The other one I'd say is we've continued to see some traction in the world of like BookTok and Romantasy. And so I would just say like, we -- if you can imagine like the biggest titles in that world for those of you who indulge as I do, we have those coming, and we'll be announcing some of that soon. But I think that's just like a brand-new category of fandom for us that I'm excited about.

I'll be honest, I'm pretty excited to make some videos on those, too.

Next one, we actually coming in is from [ FuntoCollect ], and they ask with Pop! from the Fox and the Hound, Oliver and Company, and Atlantis already out, are you looking to keep expanding into older Disney films?

Does Freaky Friday count? That would be a personal favorite. But I mean maybe on the -- we work with Disney a lot, obviously. So there's we are constantly coming up with fun ways to bring some of their characters to life. I think definitely something we think about a lot on the Loungefly front as well. .

Yes, for sure. Our fans love Disney Classic, right? That's something that is core to our portfolio, and we'll always continue to develop into that.

Cool. So good. This next year is actually kind of a joint question. There was two people that asked, it's [ Wasatch Pop and Chad Beaton ]. They are asking the possibility of retail footprint expansions.

Well, obviously, you're here in the Hollywood store today. I think the next step that we really think about from a retail and a retail experiential standpoint is what we could do with our partners in that space. And so we're currently working on kind of, I think, I'll say, revitalizing and reconceiving our space with FAO Schwarz to New York. We're in the early stages there, but I think that's an incredible sort of global flagship shopping destination. I think they do experiential retail better than anyone. They've been incredible partners so there's some newness we're bringing there.

We are working on expanding how we think about that pop yourself kiosk experience and how that could come to life with some retail partners. So we'll be testing that later this year with some partners. We haven't quite announced yet, but we will be rolling that out.

And then we'll continue to experiment here in this store. We have a lot of space, and I think we'll introduce and refine some concepts that in success, I can imagine us rolling out into more places around the world.

Sounds pretty good. Yes. Now this next one that we've got here is coming in from [ Noah MTV ], and he asked, what's your favorite comic book character you'd like to see become a Pop!?

I mean, look, we do a lot in that space, and I think that kind of goes back to the core DNA of the company. I would say across the team, we're all really excited about DC's Absolute Universe sort of how I would -- I think it's super unique. It's a fresh take on that world. The books have been great, chart topping. I think that's an area that I think we're continue to really explore -- continue to explore.

I'll be honest, I'm excited about those. So now that you've mentioned it, it's pretty cool. Yes. But that pretty much wraps up the questions. I don't know if you have any final words?

I have -- well, a couple of things. First of all, just back to thanking you for being here. And World Cup, we are kicking off a bespoke Pop! Yourself experience. So right now with Pop! Yourself, you can actually get yourself popped in a U.S. World Cup kits. And then next week, we're launching some additional accessories. So it's not out yet, but we did do a version of Top Pops for you here, you can accessorize yourself with the World Cup trophy. So that's a little thank you for being here today and a little token of gratitude for your first earnings call.

That is exactly what I want. Thank you.

No, we appreciate it. And then I'll mention a lot of the information we talked about today, some additional investor materials and the presentation is available on our Investor Relations website, along with this for anyone who wants to watch it over and over again as I'm sure many, many people out in the world will, I encourage it.

Yes. Perfect. Well, thank you so much.

Thank you.

Thank you.

Hi, everyone, and welcome to Funko's 2025 Fourth Quarter Financial Results Conference Call. I'm Katie Wilson, and I'm here at the Funko store in Hollywood. With me are Josh Simon, our Chief Executive Officer; and Yves Le Pendeven, our Chief Financial Officer. Welcome, guys.

Hello. Josh, I have heard this is one of your favorite places in Los Angeles.

It is. Yes, I've been on the job for about 6 months now. I think I've spent the majority of my time in the store. I even -- they actually gave me a key to the store earlier this week, so I can come and go even after hours. But what I love about being here is it really embodies the strength and how much fun the Funko brand is. You kind of see around us here from an IP standpoint, KPop, Demon Hunters, Mickey Mouse, Michael Jordan in the background, come here over the weekends. And there's people from all over the world, all ages, all demographics, and it's really fun watching them kind of discover their favorite Fandom IP. And so we thought it would be a fun new way to do the earnings call from here today.

So how have your first 6 months been?

Well, See, we're just getting back from the Toy Fair circuit. So London Toy Fair, Nuremberg, New York Toy Fair. I've been going to these Toy fairs for a while in various capacities. And I can say, definitely, I felt more energy around the Funko brand than I have in a [indiscernible]. It was really fun to meet with our licensors and retailers. In Q4, we also had a great presence at New York Comic Con. So I had a great chance to meet with a lot of our fans and YouTubers.

And so the energy was great. And we're seeing that energy translate into momentum on the business side. In Q4, our net sales were better than expected. Profitability at the higher end. And I know Eve will dive into that detail here in a little bit.

And I'm guessing some of that was driven by the Sky Derby right behind me. .

One of my favorites, near and dear to my heart, obviously, KPop Demon Hunters. And look, what's great about that one is, I think it really demonstrates one of our superpowers, which is how quickly we're able to move in creating these really great collectibles. I think it was about 4 months from ideation and design to getting in into fans and consumers' hands in Q4. We also won the viral hit of the year award from [ Toy Buck ], which is a really coveted awards program.

So that was great. There were plenty of other really fun ways that we came to life in Q4 as well. It was the final season of Stranger Things Sadly, but the Duffers were on the Tonight Show with Jimmy Fallon and they actually reenacted the season and the series finale using only Funko Pop. So that was really fun to see. We launched Pop Yourself in Europe, which is the experience where you can create a custom Funko Pop of you or a loved one. And we rolled out Bitty Pop into Walmart. Bitty Pop is this great example of how we're able to continue to add dimensions to the iconic Funko Pop silhouette. It rolled out in all Walmart doors in Q4. It was incremental placement in the toy aisle. It was incremental placement at impulse and out of aisle and it really helped to drive some strong sales in Q4 as well.

So during the last earnings call, you talked about the Make Culture POP! strategy. I believe you mentioned culture, creativity and commerce. How is that going so far?

Well, if you remember those -- the 3 Cs that so far, so good. It's going great. Look, our -- the idea is that how do we participate in all of those moments that are shaping culture. Really, the goal is to become the preeminent brand for turning pop culture into collectibles, and also turning those collectibles we create into culture and cultural moments. So let's start with culture.

I've said it a few times here. But really that means just being at the center of the moments that fans are talking about, like while it's actually happening. KPop Demon Hunters is a great example of that. But we do it pretty broadly. We have great relationships all over world over the world, and pretty much a portfolio of about 900 actively managed licenses at the moment. But in addition to that, there's still a ton of white space that we could get after.

Sports is one that's a little bit more nascent for us, but we launched a really great new partnership with top fanatics, we're part of the new MLB Super pack with trading cards and blind Bitty Pop! products that rolled out in Walmart, Target, GameStop, sporting goods stores like DICK'S. So just sort of one example in sports. But even in these massive fandoms, I think there's plenty more opportunity for us.

And speaking of sports, by the way, do I see Funko in a Super Bowl commercial?

You did. You did. It was surprising for all of us. I mean, I sat down with my family to watch the Super Bowl. And in one of those first commercial breaks like -- on comes is really great spot from the NFL that's sort of celebrating the intergenerational level of football and like in an opening frame in a young kids' bedroom there's a shelf filled with NFL, Funko POPs. So that was really great to see.

In that sports space, though, I mentioned there's continues to be more opportunities in Miami, Inter Miami, the football or soccer club there, if you're here in the U.S. is opening up a brand-new stadium Miami Freedom Park in a couple of weeks on April 2. We have a presence in their flagship store. It's a Funko and Loungefly shop-in-shop with exclusive products and also a really great, unique POP yourself experience that you could only do there in the stadium.

And in addition to these sports moments, Q4 was also really great from an entertainment perspective. We had Zootopia 2 from Disney, which was a great movie and a massive hit. Wicked: For Good and Evil also a great film for us. And other areas that we're expanding into as well, I think the -- I'm sure Eve is a huge fan of this, but the world of romantasy and book talk, if I'm not mistaken. We just -- we dropped a little teaser video for The Cruel Prince, which is a really popular book on TikTok, it generated like 1 million views within a couple of days.

And so that's an area you'll see us expanding into more. Obviously, Anime has been huge for us. There are big titles that everyone has heard of like One Piece, which we continue to do well in. And then newer titles like [indiscernible], which was a top seller for us at Walmart in Q4 and continued growth in video games as well, a great franchise, mouse P.I. that was also strong for us in Q4.

And how are you participating in those surprise moments that pop up?

i mean a lot of it is through speed, as I mentioned earlier, related to KPop Demon Hunters, but we have a new program called HyperStrike. The idea behind that is like how can we design, manufacture and get products and collectibles into our fans' hands in a matter of days or weeks. So we'll be rolling that out in a more commercial way later this year, but we started experimenting with it in Q4. We were doing a lot of like one-of-one characters for celebrities and friends of Funko.

One thing we try to kind of experiment with is like the insane world of the sort of like online videos, user-generated content, meme culture that come up. So there's a great guy named Jason Giambi. He's known as the quarter zip guy. It was one of these like crazy viral trends in Q4. We decided, let's make a video of Jason and his mocha and send it to him as a gift and his reaction was great. I think we have a little clip of it to show.

[Presentation]

Yes. And it's really exciting because this is a new type of product we're offering.

It is. And 1 example of a new type of product we're offering because that second C creativity is really about how we take these pop culture moments and then translate them into physical form in some way. So obviously, Bitty Pop, I talked a little bit about as a new example of a product that's been around for a couple of years, and we're really seeing some strong growth there. It capitalizes on what people love about Funko Pop. We've sold 1 billion units of POPS over the years. It's just really iconic silhouette. And so there's more dimensions of POP and some net new products that we're working on to drive additional growth.

The thing that's great about that iconic silhouette is starting to think about how we can reach fans and tell stories in new ways. And so we recently announced a partnership with an incredible production company called [ Rideback ], really great storytellers. I think they're experts at creating worlds from products. They produce the LEGO movies, they produce the live action, Lilo & Stitch, really, really excited to work with them.

We're developing some new ideas with them from big feature and animated series ideas in addition to a really interesting, unique AI-based animation toolkit they have called [ Sperry ] that will allow us to create some content much faster. And bring new and iconic forms of storytelling to Funko fans everywhere.

You also mentioned Commerce as a part of Make Culture POP!. I have a guess that this store is a part of that. Are you expanding how you think about commerce? And is that happening around the world?

Yes. We really have fans all over the world, and we want to make sure that we're showing up wherever our fans shop. As we like to say, turning shelves into stages. This store is obviously a best expression of how we're able to do that. But there's a ton of other opportunity in the U.S. from a retail standpoint and outside of the U.S. Europe, which has been our primary driver outside of the U.S. for a number of years now is really strong.

At the end of the year, we were actually the second largest collectible brand by market share right after Pokemon, which is great. From January 25 to January 26, our sales were up 20% in the EU. That was basically about double the market growth there according to Circana retail tracker. And similar to what we've been able to sort of grow in Europe, the next idea is how do we do that in Latin America and Asia. So as part of that, we just created a new role for a guy named Andy Oddie, who is our long-time Chief Commercial Officer. He has 40 years of really great experience in the toy and collectible space, building businesses. He's our new Chief International Officer. He's going to be focused on growth in Asia and Latin America.

And I think his dedicated focus is really going to help us to get traction there. And the opportunity is big for 2 reasons. I mean you think of China, Japan, Korea. China and Japan are the second and third largest toy markets outside of the U.S. So there's a lot of incremental business growth we know we can get in those countries. But the other great thing is like so many cultural trends now globally are being influenced by Asia.

So Obviously, Anime has always been a really big fandom for us, largely coming from Japan. We've seen a huge growth in all things, K culture, Korean Beauty, KPop, Korean foods. So I think our business opportunity to grow there is strong and then the cultural influence that I think will provide a halo of growth all over the world as we develop more relationships with licensors and creators in that region, I think, will also be pretty massive for us.

Turning to you, Yves, could you say a little bit more about the financial results.

Sure, happy to. This is an earnings call after all. So let's get to the numbers. So for the fourth quarter, our net sales were $273 million. We were pleased to finish the year on a high note. We had guided to Q4 being up modestly over Q3. We were actually up 9%, so better than we expected. And by the way, there's more details, including these slides are posted on our IR website.

For gross margin, we were at 41%, and that was, again, slightly higher than guidance. And by the way, with the exception of the second quarter in 2025, we've now been above 40% for the last -- 7 of the last 8 quarters. So really pleased with that trend. Our SG&A expenses were $91 million. And that was down 12% from Q4 of last year. And finally, adjusted EBITDA was $23 million, which again was at the high end of our expectations.

How is the financial outlook for 2026?

So for 2026, we expect net sales to be up modestly year-over-year, but a substantial improvement in profitability. So specifically, we're guiding to net sales being flat to up 3% compared with 2025 and our adjusted EBITDA between $70 million and $80 million. So let me give you a little bit more color on that. For sales, we expect our Funko core product lines to be up high single digits year-over-year, but that's offset by Loungefly, down double digits, and that's primarily due to the SKU cuts that we implemented last year.

And 1 thing that I'll jump in and add about Loungefly is that we are really excited about what the growth potential for that business could be. I think there's a really unique way to own this space of wearable storytelling as we like to call it. We know there's a really passionate fan base there for the product. So -- as a result of that, we just put in place our first ever GM for the Loungefly business, Jessica Kan. She's a lot of really great experience across lifestyle brands and experiential we think she'll be really great for the business. She's about a month in. We're already pretty far along in building the strategy and plans to get that brand and business back to growth, and we'll share more details about that in the next quarter.

Thanks, Josh. So back to our guidance. For gross margin, we expect 41% to 43% for 2026 and that increase over the recent trend is really driven by the renewal of some key licensing agreements with our major studio partners which will result in lower minimum guaranteed royalties. As far as tariff assumptions, we're assuming that tariff rates remain around 15% for the remainder of the year. And in terms of refunds, we're exploring all avenues, and we'll update our guidance when we have more information later this year.

So finally, with regard to adjusted EBITDA, we expect a substantial improvement. That really is driven by actions that we've already taken That includes all of the tariff mitigation strategies that we implemented last year, including price adjustments and cost reductions annualizing. The renewal of the licensing contracts that I mentioned. And finally, just beginning to see traction on some of our growth initiatives, primarily in the Funko product lines, including Bitti POP and POP yourself, which we launched in Europe last quarter.

Josh, how do you see 2026 shaping up?

We're all really excited for 2026. I think it's probably the strongest entertainment slate that I've seen in the last for 5 years. From a film standpoint, we've got Mandalorian, Toy Story 5, Moana live action, all tons of great things for Disney Super Girl from D.C., Masters of the Universe, Minions 3, Spider Man: Brand New Day. Avengers: Doomsday at the end of the year. this week, Netflix's live action series of 1 piece just debut season 2 of One Piece, which is always huge for us. Then obviously, in the sports world, it's a World Cup year.

We have the England, U.S. and French teams. I mentioned we just signed this new deal with McLaren, some new product launches that we have coming up that I'm just going to tease for a little bit now. But really, when you take a step back and look at what's driving the toy industry right now, there's 3 trends. It's coming from growth in collectibles, growth in licensed IP and growth in kidults, those are all areas that sort of squarely are in the Funko wheelhouse. And so it's really just about us executing this year.

Well, with that, we'll turn to our questions here. And the first question is coming in from Stephen Laszczyk of Goldman Sachs. Please describe the shape of the flat to plus 3% guidance past Q1. Should it be pretty consistent throughout the year and what gets you to the top versus low end of that guide?

Sure. I'll take that one. Yes, it should actually be pretty consistent throughout the year. This is not a hockey stick plan where we depend on having a huge second half of the year. We actually expect Q2 to comp up a little bit over last year that was pretty disrupted by the tariff impact when those were first announced and then also pretty steady growth throughout Q3 and Q4 as well.

To what extent does Funko view original content creation as a growth driver? How much does the company plan to invest in original content? And how does AI play into this strategy?

I mean, look, I'd say as a growth driver, I think it can be a serious growth driver in the long term. I mean, obviously, our entire business is driven by entertainment content and IP. And so I think as we explore more dimensions of storytelling through the Funko universe, I think over time, assuming those things are hits and people love it and watch it. We think it can actually drive growth, but it's going to take time to develop, produce and sort of get that content out to audiences. .

Look, I think we're seeing the same trends everyone is from an AI standpoint and storytelling. We really believe in the power of people to tell great stories, our design teams and creative teams internally to craft these great characters. So far, it's been a great tool for efficiency and letting our teams focus more on the creative work than the busy work. And then I think from a capital standpoint, I mean, look, we're looking to partner with the same exact partners who we already work with on the licensor side some of the biggest studios around the world to help us develop and create these elements of content, movies, TV, et cetera.

So from our standpoint, we're looking to rely on their expertise on the storytelling side and the partnership side and shouldn't be a significant capital investment from us.

Does Funko need to use any of its extended credit agreement in 2026? Or will the company continue to pay down debt like they did in Q4?

So the answer is no, we don't expect to need to do any additional borrowing. We're managing right now on our operating cash flows and expect to continue to do so. We make regular quarterly principal and interest payments on the debt, and we plan potentially later in this year and certainly early next year to make some incremental debt paydowns like we did in Q4.

Eric Wold of Texas Capital asks, can you break out the POS trends and inventory restocking domestically versus Europe? And if you saw any noticeable trends positive or negative as the quarter progressed, what about so far during Q1?

Yes, great question. We did see a continuation of the trend that we spoke about in Q3. We continue to see great double-digit growth in POS sales in Europe. And in the U.S., we actually saw an improving trend throughout Q4 to a positive comp year-over-year. And actually, we've seen that trend continue into Q1. From a retailer inventory point of view, we watch that, obviously, very closely from the larger partners that report that information to us. And I think it's in a healthy place right now. and restocking is kind of going as we'd expect.

Within the 2026 guidance, what would you highlight as the key initiatives to both drive top line results and margin versus 2025.

I guess I'll start from a top line standpoint, I mean, obviously, I just -- I talked about the content slate. That's a huge driver of top line growth this year. Bitti POP is another example of that. A lot of the broader initiatives that I mentioned will start to seed into this year. So -- so international growth, some of the new products, those are things that we'll see, but you'll really start to see us drive incremental growth from that sort of further into the future. There's also some fun new initiatives that we have this year, too.

We talked about World Cup. We have a fund lineup that's going to launch later this year, celebrating America's 50th I mentioned the POP mystery products that are launching later this year. So all of those things will start to add up. But I think like the strength we've seen in Bitti, the strength we've seen in the entertainment slate should drive a lot of the top line growth. And Yves, you want to take the margin...

Yes, sure. From a margin perspective, I spoke about some of the main drivers already. The good news is we're forecasting to have a better margin than we've ever had. And those -- that's largely driven by things that are in our control, such as the price adjustments that we made last year and the renewal of some of our major licensing contracts. Now as we kind of go through the rest of the year, there will probably be puts and takes. I'm hoping for some favorable trends within the tariff world.

Currently, we're paying 10%, the newly announced 10% tariff rates that may go up to 15%. I'm sure what that might be later on in the year. On the other hand, we're also monitoring the situation right now in terms of oil prices and potential impact to shipping costs. So there are a few unknowns But for the most part, we feel confident about maintaining that level of gross margin.

Keegan Tierney Cox of D.A. Davidson asks. Can you quantify the tariff impact you experienced in 2025? And what incremental pressure you expect in the first half of 2026?

Sure. So in 2025, our total tariffs and duties were close to $40 million. And about half of that was related to the IEEPA tariffs are the ones that were recently struck down.

And for the first time, we've also invited investor questions from our investor base. So the first one is, to what extent has Funko signed new or expanded IP partnerships ahead of the relatively strong film slate in 2026?

Well, look, I think as it relates to the film slate itself, the good news is last year, we renewed licenses with all of the major studios around the world. Disney, which is inclusive of Lucasfilm, Pixar, Marvel, Netflix, Paramount, Universal, we really value those relationships. We spend a lot of time with those partners. So from slate standpoint, I think we're in pretty great shape there.

I mentioned some of the World Cup teams that we signed licensing deals with. I think for us, like the -- kind of talking about some of the white space earlier. For me, the focus is really thinking about what are those net new kind of white space incremental areas where we don't currently operate. So I'd say the world of creators is a huge example of that. We have appointed a new Board member, [indiscernible], who represents some of the biggest creators in the world, who everyone is familiar with on Twitch and YouTube and TikTok. He's been a really invaluable adviser and looking to tap into his expertise and guidance as we embark in more in that space.

Coming in from an investor in South Africa, the whole of South Africa would love it if you would make Funko pops of the Springbok rugby team.

Interesting. Well, let's see, I don't want to let South Africa down. So we will look into it. But it's funny, it's a great question. I can't expound a lot on rugby, which I apologize to any fans out there, but I respect the sport. But it's a great question. I think it definitely, I think, showcases both opportunity that exists in sports and also just kind of the global extent of our fandom. So fun to hear a question from an investor in South Africa.

Well, we will look into it.

Well, that does wrap up our questions. Josh, any final words?

Well, I just want to thank you for hosting and being here today. Thank everyone for watching. Excited to be back in May with our next earnings call and continue to share our progress across the business.

Good afternoon, and welcome to Funko's 2025 Third Quarter Financial Results Conference Call. [Operator Instructions]

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this call is being recorded.

I will now hand the conference over to Funko's Director of Investor Relations, Rob Jaffe. Please proceed.

Hello, everyone, and thank you for joining us today to discuss Funko's 2025 Third Quarter Financial Results. On the call are Josh Simon, our recently appointed Chief Executive Officer; and Yves Le Pendeven, the company's Chief Financial Officer. This call is being broadcast live at investor.funko.com. A playback will be available for at least 1 year on the company's website. I want to remind everyone that during the course of this call, management's discussion will include forward-looking information. These statements represent our best judgment as of today about the company's future results and performance.

Our actual results are subject to many risks and uncertainties that may differ materially from those stated or implied including those discussed in our earnings release. Additional information concerning factors that could cause actual results to differ materially is contained in our most recently filed SEC reports. In addition, during this call, we refer to non-GAAP financial measures that are not prepared in accordance with the U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Funko's press release announcing its 2025 third quarter financial results for the company's reasons for presenting non-GAAP financial measures.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company's earnings press release issued earlier today. Also, we have posted supplemental financial information on the Investor Relations section of the company's website, which includes, among other things, a net sales bridge, a gross margin bridge and key IP and product drivers.

I will now turn the call over to Josh Simon. Josh?

Thanks, Rob. Good afternoon, everyone, and thank you for joining us. This is my first earnings conference call at Funko, and I want to start by saying I couldn't be more thrilled to be joining the team at this exciting time.

Over the course of my career, I've seen this industry from a variety of perspectives, making movies at Disney, creating products at Nike and most recently leading the global consumer products and live experiences division at Netflix. Now across all those worlds, I gained a strong understanding for fandom, the culture of entertainment and how it translates into physical products. And I can unequivocally say there is no one better at it than Funko.

There's one clear trend I saw across my years in entertainment and consumer products. Almost every filmmaker, creator or celebrity with whom I've worked inevitably asked that they would get their own Funko Pop! It seems as a sign of having made it in the entertainment world among the biggest Hollywood talent from the outside that love for Funko and its brand and products was energizing.

Now I want to begin with some takeaways for my first 60 days after diving deep into the business and speaking with our customers, licensors and employees. Then I'll outline some of what I think it will take to get back to growth. I have the opportunity to meet with some of our most passionate fans at our retail stores and at New York Comic-Con.

I've been able to spend time with our employees in the U.S. and Europe and we've engaged in senior leadership strategy sessions with key retailers like Hot Topic, Walmart and Target, licensed stores like Disney, Warner Bros., Universal and Netflix. And I have a deep, long-standing set of relationships with most of these partners and welcomed an honest dialogue.

In talking with our partners, I heard 2 consistent themes. First and most importantly, they see the growth opportunity together and are energized by the far-reaching scope of our brand and products; and second, they suggested some very clear areas where we can improve.

We definitely appreciate and value their feedback, and we'll use it to further strengthen our competitive advantages, namely first, we have a passionate and broad fan base. In September at a fan event at our Hollywood store, I was able to celebrate an important milestone for the company, 1 billion units sold. This amazing achievement puts us in very rare company among the most successful toy brands in the world.

Membership in our fan loyalty program has grown 27% since the start of the year. We have a strong footprint of 9 million followers across our social media channels. And our customer base is highly diversified and evenly split between male and female with purchasers across an 18- to 55-year-old demographic, many of whom are buying for kids.

Second, we work with the world's biggest IP and serve fans across every corner of the pop culture universe. Our robust relationships across multiple genres, more than 900 active licensed properties and 250-plus content providers create a strong moat around this industry-leading portfolio of licenses. Our product offering is highly diversified. We're not reliant on one character or single franchise.

Now I'm pleased to announce that we've recently signed several multiyear renewal agreements with major licensing partners, Warner Bros, NBC Universal, 20th Century, Paramount and our biggest partner, the Walt Disney Company, which includes Pixar, Marvel and Lucasfilm.

Third, our products are sold everywhere fan shop through a large and diversified global network of retailers, including more than 1,400 mass market specialty, e-commerce and mom-and-pop partners around the world as well as our own websites and flagship stores. There are very few brands that are equally relevant across a mass retailer like Walmart and that can spark a robust resale market on eBay at the same time.

I'm still early into my tenure here, but my leadership team and I have identified our areas of focus and are ready to act immediately. Our growth will be driven by what we're calling our Make Culture POP! strategy, built at the intersection of 3 pillars: culture, creativity and commerce. This is where Funko has excelled and will align our priorities and organization to maximize the opportunity in these 3 focus areas.

Let's start with culture. We aim to be the definitive brand for transforming pop culture into products. That includes fandoms that are existing strengths like film and TV, along with exploring new corners of pop culture through categories like footwear, cosmetics and food. We can do more in the areas of K-pop, sports, music tours and fashion and working with relevant content creators to expand into newer areas of fandoms like Twitch streamers, YouTubers and influencers. We want our products to be at the center of the moment everyone is talking about, created by us or with us.

Now some examples of what that means. We will look to identify trends even faster and supercharge our speed to market. Let me give you a quick example of what I mean through the lens of KPop Demon Hunters, Netflix's most popular movie ever. Our team was among the first to recognize the appeal of this property for both mass audiences and collectors. We moved quickly to create an exciting line of the products that's become one of our biggest presale items ever when it launched on funko.com a month ago. And the Funko team was able to bring this product offering to market within just a couple of months across pop figures, backpacks and accessories compared with much longer lead times by other major toy companies.

This speed to market is one of our unique advantages and will be one of the only toy companies that have KPop Demon Hunters' products on retail shelves this holiday season. We're operationalizing our quick strike and hyper strike offense across our entire value chain to make this more repeatable.

By operating at a faster pace and being more on trend, we also aim to position our products at the center of what everyone is talking about across all corners of pop culture. For example, we partnered with The Late Show with Stephen Colbert for a surprise on air product reveal time to the show's 10th anniversary in September. The episode featured Stephen Colbert unveiling a brand-new Funko Pop! and marked a major crossover moment between late-night television and fandom culture.

The launch included a live studio audience giveaway creating a shared moment of celebration between Colbert, his millions of at-home viewers and Funko collectors around the world. In music, we added to our Funko Pops music artist collection [La Fede], the Latin American sensation with nearly 30 million fans across Instagram and TikTok.

In just a few weeks, our partnership has driven more than 5.7 million views on social media and is representative of our efforts to work with more artists who are in the global zeitgeist and create touch points for our growing customer base outside of the U.S.

In addition to [Fede], we recently added a number of other artists to our Funko Pop music artist collection, including the K-pop and BTS, the Swedish rock band Ghost, Sabrina Carpenter, and classic artists like Tom Petty, Metallica and Ozzy Osbourne. Now an important part of cultural relevance also comes from embracing our community of passionate collectors around the world.

Just as I saw at NIKE, supporting the collectors market through exclusive drops, and giving them something special is critical to building fan communities and driving brand awareness and excitement. It's a major priority for us to rebuild credibility and enthusiasm with core collectors and mega fans who have been loyal to us for years by improving execution around limited editions, storytelling and drop cadence.

In the third quarter, we dropped a number of limited edition collectible pop figures with various tiers of rarity, Don Hero from the Lord of the Rings, Star killer from Star Wars, Sonic, Spider Cat, Bob's Big Boy and Fantasm. Each of these one-of-a-kind pops sold out within 1 hour.

For the community of sports stands, we expanded our relationship with Inter Miami of major league soccer. At the start of this MLS season, we have dedicated retail space at the team's new state-of-the-art home stadium where fans will be able to purchase on-site a pop yourself with Inter Miami's official logo, standard Funko Pop figures of the team's most famous players and exclusive products only available at the store or take the growing global fandom of anime.

We have even more opportunity to grow this business, which represented 30% of our sales in Q3 and is now our second largest and vertical. The U.S. market for anime remains very strong, and we've only scratched the surface with expansions in Europe, Asia and Latin America.

Now let's talk about creativity. The goal is to continue innovating new form factors, expanding our product offering and obsessing over the details across design, development and storytelling, so our products feel meaningful for fans. We've built a beloved and truly unique franchise with Pop! and we're working on adding additional dimensions for fans, more excitement and bringing compelling new products to market.

One example already showing traction is Bitty Pop!, our mini vinyl figures. Bitty Pop! is integral to our evolving strategic partnership with Walmart. Last month, Bitty Pop! was officially introduced in their toy aisle and made Walmart's 2025 top toy list and was featured in Walmart's toy boat catalog, which went out to over 40 million homes in the U.S. just in time for the upcoming holiday season.

On top of that, an out-of-aisle placement of Bitty Pop! is expected to land in 1,800 Walmart stores later this month. We have built out the Bitty Pop! line to include the ability to world build. We intend to further expand the line to include more license than original characters and environments that allow fans to create realistic worlds or use their imagination to create new ones.

As the Blind Box format continues to grow in popularity around the world, we're planning to expand our existing blind box offering, Mystery Minis. These collectible figures, which have been on the market for the last 12 years are smaller than our pop vinyl and larger than our Bitty Pop! figures. We see additional growth potential in the Blind Box space across new IPs, genres and fandoms spanning films, series and social media, and our own original characters.

Earlier this week, we initiated a limited launch with several of our specialty retail partners for our new premium wine box collection, an artist-driven product line that gives fans the opportunity to discover gold and imaginative new designs.

Beginning with 2 entries in this category, we intend to expand into new IP over the course of 2026. Our premium Blind Box line includes a chase variant, and we're looking to add more offerings for both internal and external artists.

Now it's also important to note we have a diverse product archive of formats going back 25 years, many of which I think can be leveraged in more relevant ways to capture the hearts of today's fans and collectors.

Now let's talk about commerce. We see a significant opportunity to expanding internationally, particularly in Asia and Latin America, enhance our presence with existing retail partners and deepen our digital and direct-to-consumer capabilities.

To start, there's a significant opportunity to grow our international business with a more dedicated focus in Asia and Latin America. This was an area of particular focus for me at Netflix, and there is a clear lane for Funko to excel in these important geographies.

With our D2C business, we intend to simplify the experience on our e-commerce site and app. This includes a more intuitive design, improved functionality around limited edition drops, wishlists and loyalty programs. Pop! Yourself, which just launched in Europe is a great example of the unique experience only we can offer. And we're planning to add a new AI-powered builder later this year, which allows the user to upload a picture and recommends options to more quickly build a customized pop, which we think will be transformative.

We're also planning new innovative retail experiences such as selling Bitty Pop! products through vending machines with a surprise for mystery element to the purchase experience. In addition to the Pop! Yourself kiosks at Inter Miami's new stadium, beginning early next year, we plan to add more Pop! Yourself kiosks to support other year-round retail experiences and pop-up activations both in the U.S. and in Europe.

We also plan to refresh existing kiosks in our flagship stores with enhanced capabilities, including the AI-powered builder. Now to summarize, our Make Culture POP! strategy is focused on maximizing opportunities at the intersection of culture, being at the center of the moment everyone is talking about across more fandom, creativity through new products and form factors, and commerce by being more strategic with partners in the U.S. and Europe, Latin America and Asia and direct-to-consumer.

Now to be clear, we already have many ongoing initiatives against this plan underway. We're building the right team and capabilities to attack these opportunities in a focused manner and drive growth. Now that said, I'm only 60 days in, and we have a lot more to come. I'm excited and confident about our team and the opportunity working with our partners to ignite growth and to sell the next 1 billion Pop! products.

And with that, I'll turn it over to Yves to review our Q3 results.

Thanks, Josh. Hey, everyone. Thanks for joining us today. For the third quarter, total net sales were $250.9 million, in line with our expectations. Compared with Q3 of last year, approximately $11 million of the decrease in net sales can be attributed to SKU rationalizations as well as a reduction of clearance sales. As a reminder, we posted supplemental financial information on our website, which includes a net sales as well as a gross margin bridge.

Direct-to-consumer sales mix in the quarter was 18% of our gross sales down from 20% in last year's Q3 due in part to a pullback in marketing spend. Gross profit was $100.8 million equal to gross margin of 40.2%, which was better than expected. Price increases helped fully offset the impact of increased tariffs. It's worth noting that with the exception of our 2025 second quarter, which was significantly impacted by tariffs, we have maintained a gross margin in the 40% plus range since the first quarter of 2024 were in 6 of the last 7 quarters.

SG&A expenses were $79.8 million compared to $92.7 million last year. Approximately half of the reduction came from a full quarter benefit of cost reduction actions taken in Q2 and the other half came from a reduction in marketing spend. Adjusted net income was $3.2 million or $0.06 per diluted share. And finally, adjusted EBITDA was $24.4 million, which was higher than our expectations.

Turning to our balance sheet. At September 30, we had cash and cash equivalents of $39.2 million. Net inventory was $99.8 million and our total debt was approximately $241 million.

Turning now to our outlook. We're pleased with our Q3 results and the progress made against the second half outlook, which we shared last quarter. We now expect for the 2025 fourth quarter net sales to increase modestly from Q3 2025, driven in part by the launch of Pop! Yourself in Europe and sales of our KPop Demon Hunters product lines, gross margin of approximately 40% and adjusted EBITDA margin to be in the mid- to high single digits range.

A few comments on our refinancing process. Our 10-Q filing for the 2025 third quarter includes disclosures about the company's ability to continue as a going concern. As previously announced, we executed an amendment to our existing credit facilities, which mature in September of 2026.

The amendment waived financial covenants for Q2 and Q3 and introduced a minimum cash requirement and a series of milestones to demonstrate progress against a refinancing transaction. We've engaged Moelis & Company LLC to advise the company on our refinancing process, and that process is ongoing.

With that, I'll turn it back over to Josh.

Thanks, Steve. Compared with where we were 2 years ago, we've made progress on improving the quality of our business. Our gross margin trend has largely improved. We have a stronger retail footprint. We've fully implemented a price increase and inventory owned and in the channel is lower and at healthier levels. Now I want to reiterate the sense of urgency and opportunity around our Make Culture POP! strategy, executing across the intersection of culture, creativity and commerce.

In the short term, I'm looking to maintain the momentum Yves discussed. Over the long term, what's most exciting to me, and I hope is equally exciting to our investors are the multiple opportunities to transform the company for substantial growth. We have a strategic advantage from building this company over the last 27 years, and we intend to leverage that legacy and relationship with our community of fans to take advantage of the huge opportunity in the increasingly global world of entertainment and pop culture fandom. I'm incredibly excited about joining Funko.

From my perspective, the company has lots of potential on which we've already begun acting. And with that, we'll open the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Stephen Laszczyk with Goldman Sachs.

Josh, welcome. Thank you for all those thoughtful highlights on the strategy. I'm curious as you look out ahead against some of those opportunities that you outlined, how you're thinking about what opportunities exist over the next 12 months to execute against how investors should be thinking about what you're prioritizing the sizing of some of those opportunities. Perhaps what point of the strategy do you feel like you need to get correct here over the next year or so before it unlocks the option value over the longer term to take Funko to the next level, so to speak. Anything -- any top priorities that come to mind, I think, would be helpful for us to understand. And then I have a follow-up.

Great. I appreciate the question. I mean, look, I'd say in the short term, our focus is on continuing the performance momentum that we've been talking about and then over the long term, obviously, transforming for more growth. I do really think it comes down to -- and I'll give you some specifics around the Make Culture POP! strategy. In the short term of the area of culture, I think there's really some areas of fandom where we can continue to expand.

Obviously, as you know, we've been doing a lot in the areas of sports and music. But we just -- there's opportunities to move quicker in those areas. And so as an example, we just recently were able to launch the Dodgers Championship 5 pack. There's some really great details to it. It even includes them sort of wearing their alternate road uniforms. So really like how we think about operationalizing quick strike end-to-end capabilities, sensing trends, designing and manufacturing more quickly and getting it to consumers in new ways is really an important part of the cultural impact that we're looking to drive. And obviously, we share more details about that in the future.

On the creativity side, I mean, we're really focusing on how we bring more dimensions to our core franchise, which is Pop! Bitty is a really great example of that. Obviously, we mentioned how it's rolling out into Walmart now. I'm spending a lot of time engaging more broadly with the creative community bringing people internally to help think about new sort of evolutions of products that we can launch, leveraging my relationships across the entertainment industry and the product space, thinking about how we can more closely collaborate with talent. Those are all sort of immediate things that we can do to continue to evolve our form factors and creative product strategy.

And then on the commerce side, I mean, I've been able to engage with some really great strategic meetings with some of our biggest retailers over the last couple of months. International is a huge component of that. And so I think particularly based on pre-existing relationships I have there, we'll look to come back next quarter and talk in a little bit more specifics about some goals that we're immediately looking to get after with retail partners in Asia and Latin America.

And look, I should also note on the -- because I think this is an important point to highlight on the commerce side as well. We were able to execute some really great extensions of our licensing deals with all the biggest studios in the last few months. And so I think that puts us on really firm footing to kind of take everything that we talked about as part of our Make Culture POP! strategy and drive growth through those relationships as well.

That's great. That's really helpful. And then if I could just ask a question, maybe more in the near term in the quarter and the broader retail environment, maybe for both Josh and Yves on 4Q. Just as you have conversations with retailers heading into this holiday season, anything you'd point out in terms of the cadence of stocking, how they're approaching restocking this year, how they're particularly engaging with Funko as a brand, as a partner this holiday season that differs from perhaps what you've seen in historic years or perhaps where the levers are as we get deeper into holiday on where restocking could come from upside, downside in the model, et cetera?

Stephen, this is Yves. I'll start by saying I think we're kind of encouraged by our POS trend, which has remained relatively strong and stable. In Q3, our global kind of POS in units was down only 3% year-over-year. Now we are continuing to see a pretty big difference in our various territories that we operate in. U.S. was more like down mid- to high single digits in units and then EMEA was up in low double digits. So we continue to see the consumer demand for our products. That being said, obviously, the tariff announcements earlier this year pretty significantly disrupted in Q2, kind of shipping of our orders out of Asia. And in Q3, I'd say we kind of continue to have a bit of a hangover effect from that.

What you have to keep in mind is that retailers were placing their buys for Q3 and early Q4 shipments during, what I call, kind of peak uncertainty about what the tariff rates are going to be, how the consumer is going to hold up through the holiday period. And that was in part why our sell-in was down over last year in Q3.

I would say as we head into the holiday period, it's a bit of a mix depending on the channel and the retailer, but I would say that we continue to have good momentum in Europe. In the U.S., a little bit more cautiousness, I think, from buyers. We do see a little bit more strength and momentum in the mass channel, and Josh mentioned the growth in Bitty Pop! sales there. So we're encouraged by that. It feels like for the smaller kind of specialty mom-and-pops distributors. And maybe a little bit of speculation here, but it feels like might be more kind of financially impacted by the tariffs or just generally more cautious about overcommitting to inventory.

Yes. And what I would continue with is the content slate is pretty big for us in Q4. The final season of Stranger Things will launch, and that's a big priority for some of our biggest retail partners as well as us. Obviously, the sequel or the Part 2 of Wicked will also be in the market, and we have products there.

And then I think most importantly, just as a reminder, we really will have a lot of unique shelf space through our KPop Demon Hunters assortment across both Funko and Loungefly. So I think some good sort of content slate strength and shared priorities with our retail partners on that front.

Your next question comes from the line of Keegan Cox with D.A. Davidson.

Tom, I just wanted to ask a little bit as you open up this creativity in commerce. I know you talked a little bit about the vending machines and kiosks. I was just wondering how do you look at that market? It seems pretty competitive. I've seen a few of your competitors moving in there, just like my mall visits and retail visits. Just curious to how you see that market and how you plan to attack it?

Yes. Well, look, I think for us, the primary driver and excitement is around the Pop! Yourself experience, which is pretty unique to us. The ability for a fan to go and create customized Funko Pop! of themselves or a friend as a gift is something that I think we are uniquely able to offer. And so when we talk about the kiosk strategy, we have examples of those kiosks that currently exist in a couple of locations, primarily in our flagship stores. But we've already been deep into conversations with some of our bigger retail partners about how we can start to create experiences within their real estate footprint and bring that experience to more of our fans around the country and around the world. So it's -- I think we offer a pretty unique angle there.

Got it. And then as I was just looking at the results, Europe sales down slightly versus an easier comparison last year. I know you're launching Pop! Yourself in the fourth quarter, but what are you seeing outside of that in Europe?

Well, like I mentioned previously, our POS trend is pretty strong in Europe. I would say one of the factors that's not super material, but we did have a little bit of production delays that impacted our European sales in the quarter, just some orders that just couldn't make it out of the factory in time. As a reminder, we moved pretty aggressively to move production from China to Vietnam. And so that was a bit of a result of that, but we expect those orders to ship in Q4. And then along with the launch of Pop! Yourself in Europe, which happened a few weeks ago, we expect Europe to be back to growth in the fourth quarter.

Got it. And one more, if I can, just on pricing. I know you were able to essentially offset all of the tariff costs. But are you seeing that impact demand? I mean the POS for the U.S. essentially with weeks. I'm wondering how pricing played into that?

We've actually been pleasantly surprised by that. We rolled out the price increases. They were in effect on the shelf in early July. I mean we did anticipate that there would be slightly lower unit volumes. It's hard to attribute that directly to the price increase and not to the other kind of factors going on in the U.S. market. But generally, it's been in line with our expectations. I mentioned the POS trend so that the unit sales have held up pretty well. And then the price increases are fully in effect. So it's gone pretty well for us.

There are no further questions at this time. I will now turn the call back to management for closing remarks.

Thanks, everyone, for joining us on the call today. We look forward to sharing our progress on our next call.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, and welcome to Funko's 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Funko Director of Investor Relations, Rob Jaffe. Please proceed.

Hello, everyone, and thank you for joining us today to discuss Funko's 2025 2nd quarter financial results. On the call are Mike Lunsford, our Interim Chief Executive Officer; and Yves Le Pendeven, the company's Chief Financial Officer. This call is being broadcast live at investor.funko.com. A playback will be available for at least 1 year on the company's website. I want to remind everyone that during the course of this call, management's discussion will include forward-looking information. These statements represent our best judgment as of today about the company's future results and performance.

Our actual results are subject to many risks and uncertainties that may differ materially from those stated or implied including those discussed in our earnings release. Additional information concerning factors that could cause actual results to differ materially is contained in our most recently filed SEC reports. In addition, during this call, we refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.

Investors are encouraged to review Funko's press release announcing its 2025 2nd quarter financial results for the company's reasons for presenting non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company's earnings press release issued earlier today. Also, we have posted supplemental financial information on the Investor Relations section of the company's website, which includes, among other things, a gross margin bridge and key IP and product drivers.

I will now turn the call over to Mike Lunsford. Mike?

Thanks, Rob. Good afternoon, everyone, and thank you for joining us. Many of you know me from my time as Funko's Interim CEO in 2023 and 2024, and as a long-time board member. For the past month, I stepped in again at the Board's request to help Funko realize the full potential of its business by accelerating the organic growth initiatives, exploring financial and strategic options for the business, and identifying Funko's next CEO. We have commenced a search for a permanent CEO. The search will focus on external candidates, and we expect to name the CEO in the near future.

Now let's move on to our financial performance and outlook. As we signaled on our last call, our Q2 financial results reflect the impact of the ever changing and uncertain U.S. trade policies. Nonetheless, we moved quickly to mitigate the financial impact of higher tariffs by cutting costs, including a workforce reduction of approximately 20%, accelerating our shift in production out of China to other sourcing countries, raising prices and making other necessary changes to minimize the ongoing impact of these trade disruptions. While additional changes to the economic and trade environment may affect our future sales and earnings, we believe we now have a relatively robust plan for the back half of the year that will result in improved financial performance compared with the first half.

I'll now turn it over to Yves to provide more detail on our Q2 results and second half outlook.

Thanks, Mike. Hey, everyone. Thanks for joining us today. For the second quarter, total net sales were $193.5 million. The 22% decline compared with last year's second quarter was primarily due to the disruption of sales related to U.S. tariff policies, more specifically, a pause of orders out of China by our direct import customers. Direct-to-consumer sales comprised 21% of gross sales compared with 23% in the second quarter of last year. Gross profit was $62 million, equal to gross margin of 32.1%. Last year's Q2 gross profit was $104 million, equal to gross margin of 42%. Gross margin was favorably impacted by approximately 350 basis points as a result of reduced discounting compared to Q2 of last year.

However, that was more than offset by a shortfall in minimum guaranteed royalties caused by the sales disruption the tripling of tariffs on imports and a build in inventory reserves versus inventory reserve relief in the same quarter last year. As a reminder, we posted supplemental financial information on our website, which includes a gross margin bridge. SG&A expenses were $82.3 million, SG&A expenses for the second quarter of last year were $77.9 million, which included a nonrecurring net benefit of $1.5 million.

Adjusted net loss was $26.7 million or $0.48 per share compared to adjusted net income of $5.6 million or $0.10 per diluted share. And finally, negative adjusted EBITDA was $16.5 million compared to adjusted EBITDA of $27.9 million. Turning to our balance sheet. At June 30, we had cash and cash equivalents of $49.2 million. Net inventory was $101.3 million, our total debt was approximately $256.6 million, and total company liquidity was $54.2 million, which was comprised of $49.2 million in cash and cash equivalents and $5 million available to borrow on our revolving credit facility. Turning now to our outlook. Continuing uncertainty around global tariff policies as well as the macroeconomic environment understandably make it difficult to provide a formal outlook. However, I will provide a couple of high-level thoughts on our second half performance.

For the back half of 2025, we expect our performance to improve compared with the first half. We expect second half net sales to be down high single digits compared with the second half of 2024. We expect second half adjusted EBITDA margin to be in the mid- to high single digits range and we expect Q4 results to ramp up over Q3. Our belief in an improved second half of 2025 compared with the first half is based on several factors, including in the U.S. market, we have resumed shipping orders to our direct import customers and fully implemented our price increases.

In addition, we are encouraged by the relatively resilient trend in POS sales. In the first half of 2025, POS sales reported in units by some of our larger wholesale customers were down just 5%, significantly better than the decline in year-over-year sell-in which again was impacted by the pause in orders by our direct import customers. In Q2, POS sales comped up 3% over Q2 of last year. Meanwhile, our international business which represents more than 1/3 of our sales, continued to gain momentum with 18% POS sales growth in the first half of the year and 28% POS sales growth in Q2.

Also, we remain on track to launch Pop! Yourself in Europe in time for the upcoming holiday season. And we saw good growth in Q2 from our Bitty Pop! line as well as from our sports products category. We continue to expect to fully offset the financial impact of incremental tariffs within the current year. We now estimate the incremental duties and tariff costs in 2025 to be approximately $40 million compared to our earlier estimate of $45 million. The key elements of our tariff mitigation plan which include increasing prices in the U.S. market, shifting production out of China and into Vietnam and other sourcing countries and reducing our SG&A run rate are all largely implemented.

A few comments on our debt and other corporate matters. As announced 3 weeks ago, we executed an amendment to our existing credit facilities. The amendment includes waivers for the maximum net leverage ratio and the minimum fixed charge coverage ratio for the fiscal quarters ended June 30, 2025, and ending September 30, 2025. The waivers to financial covenants provide the company with additional flexibility during this dynamic period. Nonetheless, like last quarter, our 10-Q filing for the 20,252nd quarter includes disclosures about the company's ability to continue as a going concern.

We are now turning our attention to refinancing our debt, which becomes due in September of 2026. We've engaged [ Moelis & Company LLC ] to advise the company on the refinancing process as well as to evaluate other financial and strategic options. To bolster our liquidity during this process, today, we filed with the SEC a Form S-3, which renews our shelf registration and enables the company to issue equity. Today, we also filed with the SEC a prospectus for an at-the-market or ATM equity offering, which once our Form S3 goes effective, will allow us to sell shares of our common stock from time to time, having an aggregate value of up to $40 million.

With that, I'll turn it back to you, Mike.

Thanks, Yves. I want to return to the 3 areas of focus of the Board. We have commenced the search for a new CEO and hope to name someone by the end of this quarter. We continue to work on accelerating organic growth initiatives and returning to the level of profitability you expect from Funko and believe we are making good progress on improving our financial performance in the back half of the year. Finally, as Yves described, we have also made good progress on financial and strategic options, including finalizing the debt amendment and filing the ATM. Funko's Board and I believe that Funko's best chapters are still ahead. We're committed to profitable growth, operational discipline and above all, delivery for our fans in ways that only Funko can.

With that, we'll open the call for questions. Operator?

[Operator Instructions] Our first question today comes from Eric Wold from Texas Capital Bank.

A few questions, and I apologize, I haven't had a chance to read through the entire 10-Q, so I know somebody may be in there. I guess, first question, looking at the adjusted EBITDA in the quarter, obviously, I build a lot of disruptions in the quarter around gross margin kind of navigating the tariffs and kind of getting around the shipments in the quarter. Doesn't like anything added back to adjusted EBITDA around potential kind of onetime SG&A items in the quarter around the disruption. Anything that you potentially call out maybe not to be added back. But anything that $82 million [indiscernible] the quarter that you may be kind of say was somewhat not normal as you kind of navigated around the issues in the quarter that we kind of -- as you think about it as a kind of model going forward?

Eric, this is Yves. That's a great question. It's a little bit hard to quantify in terms of the top line disruption in the quarter that was just isolated to the tariff announcement. What I would point you to are some supplemental slides that we posted on our IR website, and I did provide a gross margin bridge there. You'll see on there that about almost 5 points of our margin decline year-over-year was directly attributed to the tariff announcement.

So I think that's one thing I would point to in the quarter that was -- I don't know that I'd call it onetime, but it certainly was a big variance compared to Q2 of last year.

Got it. And then when you talk about -- on the first quarter call, you talked about you halted, the Q2 inbound orders to avoid the tariffs you talked about now you kind of resumed those. Now as you think about Q3 in the orders that were kind of halted or paused in Q2. How would you characterize the orders that were paused where the majority of those kind of resumed, canceled? Somewhere in between? How should we think about the orders in Q3? Are those kind of the ones that were paused in Q2 going to push in Q3 or new kind of trying to get a sense of kind of what was kind of shifted or was there a good percentage of those in Q2 that were positive we're going to end up being cancel the result will be something else kind of came up between Q1, Q2 and where we are sit today?

Yes, that's a great question. So I think the interruption in terms of shipping the orders to direct import customers was primarily happening in the April and May months. The good news is we were able to kind of work out pricing arrangements with our key customers to get those orders moving again in June. There are some orders that were intended to ship in Q2 that have rolled over into early Q3. Again, it's a little bit difficult to quantify that but the good news is that we've got those orders flowing again.

We've implemented our price adjustments. And we're -- we have a pretty good visibility on our Q3 order book right now, and things are looking good in terms of normal kind of shipping patterns and seasonality of the business, I would say, at this point in time, barring any kind of unforeseen new announcements about tariffs and so forth that we've kind of resumed normal shipping patterns.

Our next question comes from Keegan Cox with D.A. Davidson & Co.

My first question, I just wanted to kind of get any idea of early customer reaction to your price increases from July 1.

Sure. It's something that we're watching very closely. We have kind of real-time e-commerce data. And the great news there is that we've adjusted pricing beginning early July. As far as our e-commerce sales have gone, we've seen no negative impact on unit volumes, continued great sell-through on the new items that we're launching at the higher prices. In terms of our wholesale data, we have about half of our customers, larger customers that report their POS sales directly to us. And again, it's a little bit too early to say. Some of those customers were still selling through items at the older prices throughout July, while bringing in the new items at the higher prices.

So it's a little bit of a -- there's some noise in there when we look at the July data, but I'm happy to report that similar to our e-com business, we don't see a meaningful did in POS unit volumes that could attribute to the pricing changes.

Got it. And then just a clarifying question on the guidance. The adjusted EBITDA margins of mid- to high single digits, is that for the full year or just for the second half?

That is for the second half of the year and then a progressive improvement from Q3 to Q4.

Got it. And just to follow up on that. Do you guys think you'll have enough cash to last through the end of the year with the ATM and the S3 filing because you're pushing out right on your revolver and things like you've been bleeding cash?

Well, I mean, obviously, our liquidity has been impacted by the fact that sales were disrupted for a couple of months, and that led to lower collections than we expected. But as I said in the call, we've entered into our fourth amendment to our credit agreement. We have covenant waivers, which is great news. We also announced the filing of an ATM today, which gives us additional flexibility if we want to raise cash, we'll have the ability to do so. But we're very focused on the refinancing process, and our goal is still to refinance our debt before the end of this year.

Thank you. We have no further questions. So I will now hand back over to the management team for closing remarks.

Well, thank you, everyone, for joining us on the call today. We look forward to sharing our progress on our next call. Talk to you next time.

This concludes today's call. Thank you for joining, everyone. You may now disconnect your lines.