Funko, Inc. 10-Q Summary: Q2 2025
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2025. Funko, Inc. is a global pop culture lifestyle company selling vinyl figures, plush, and accessories. The company is currently operating under an Interim Chief Executive Officer, Michael Lunsford, following the departure of the former CEO. The filing highlights significant operational challenges driven by a challenging retail environment, macroeconomic uncertainty, and the impact of new tariffs on imports from China, Vietnam, and Mexico.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Net Sales | $193.5 million | $247.7 million | $384.2 million | $463.4 million |
| Gross Margin | 32.1% | 42.0% | 36.2% | 41.1% |
| Operating Loss | $(34.7) million | $10.7 million (Income) | $(57.9) million | $(4.2) million |
| Net Loss (Attributable to Funko) | $(40.5) million | $5.1 million (Income) | $(68.1) million | $(17.5) million |
| Diluted EPS | $(0.74) | $0.10 | $(1.26) | $(0.34) |
| Cash & Equivalents | $49.2 million (as of June 30, 2025) | |||
| Total Debt Outstanding | ~$256.6 million (Revolving: $145M, Term: $104.2M, Equipment: $8M) | |||
| Working Capital | $(161.7) million (Negative) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 21.9% in Q2 and 17.1% YTD compared to 2024. The decline was broad-based, with U.S. sales dropping 27.7% in Q2 and Core Collectible sales falling 15.7%.
- Margin Compression: Gross margin declined significantly due to increased inventory reserves, higher shipping/freight costs, and the impact of tariffs. SG&A expenses increased as a percentage of sales (42.5% in Q2 2025 vs. 31.5% in Q2 2024).
- Debt Restructuring: On July 16, 2025, the company entered into Amendment No. 4 to its Credit Agreement. This amendment waived compliance with Net Leverage and Fixed Charge Coverage covenants for Q2 and Q3 2025 but permanently reduced the Revolving Credit Facility commitment from $150 million to $135 million and increased interest margins.
- Going Concern Warning: Management has concluded there is substantial doubt about the company's ability to continue as a going concern for the next twelve months due to forecasted covenant non-compliance and insufficient working capital.
Outlook, Risks, and Management Commentary
- Strategic Review: The Board has initiated a formal review of strategic alternatives, including a potential sale of the company, to maximize shareholder value and comply with debt milestones.
- Liquidity Plan: Management plans to mitigate risks by shifting manufacturing out of China, reducing overhead, increasing sales of higher-margin products, and potentially raising additional cash through equity or debt issuance.
- Covenant Risk: The company forecasts it will not be in compliance with financial covenants by the end of Q4 2025. Failure to cure or waive these covenants could result in an event of default, allowing lenders to accelerate debt and seize assets.
- Internal Controls: Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting, specifically regarding order-to-cash processes and journal entry reviews.
- Legal: A securities class action lawsuit regarding the IPO was settled for $14.75 million (paid by insurance) and dismissed in June 2025. Other litigation regarding wage/hour violations and fiduciary duties remains ongoing.
Investor Verification Checklist
- Covenant Compliance: Verify the status of the waiver for Q4 2025 and the likelihood of securing further amendments or refinancing before the September 2026 maturity.
- Strategic Alternatives: Monitor for updates on the sale process or other strategic transactions initiated by the Board.
- Inventory Valuation: Review the adequacy of inventory reserves given the 78.7% drop in "Other" branded category sales and the risk of obsolescence.
- Capital Raising: Assess the dilution impact of potential equity issuances required to meet working capital needs.
- Internal Control Remediation: Track progress on remediation plans for material weaknesses in financial reporting to ensure future data reliability.