Funko, Inc. 10-Q Summary: Quarter Ended September 30, 2025
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2025. Funko, Inc. operates as a global pop culture lifestyle company selling licensed consumer products (vinyl figures, plush, apparel) primarily through retail partners. The company is currently navigating a challenging retail environment characterized by tariff disruptions, macroeconomic uncertainty, and retailer inventory reductions. Management has initiated a formal review of strategic alternatives, including a potential sale of the company.
Key Financial Metrics
| Metric | Q3 2025 | Q3 2024 | YTD 9M 2025 | YTD 9M 2024 |
|---|---|---|---|---|
| Net Sales | $250.9 million | $292.8 million | $635.1 million | $756.1 million |
| Gross Margin (excl. D&A) | 40.2% | 40.9% | 37.7% | 41.0% |
| Operating Income (Loss) | $6.4 million | $11.7 million | ($51.5 million) | $7.6 million |
| Net Income (Loss) | $0.9 million | $4.6 million | ($68.1 million) | ($13.7 million) |
| Net Income (Loss) Attributable to Funko | $0.9 million | $4.3 million | ($67.2 million) | ($13.2 million) |
| EPS (Diluted) | $0.02 | $0.08 | ($1.24) | ($0.26) |
| Cash and Equivalents | $39.2 million | $34.7 million (Dec 2024) | N/A | |
| Total Debt Outstanding | $240.9 million | $193.3 million (Dec 2024) | N/A | |
| Working Capital | ($157.5 million) | ($18.7 million) (Dec 2024) | N/A |
Note: Debt includes $135.0 million on the Revolving Credit Facility, $99.7 million on the Term Loan, and $6.7 million on Equipment Finance.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 14.3% in Q3 and 16.0% YTD compared to 2024. The decline was broad-based, with U.S. sales dropping 20.1% in Q3 and 22.7% YTD due to tariff impacts and retailer order cancellations.
- Margin Compression: Gross margin declined to 37.7% YTD from 41.0% in the prior year, driven by increased shipping, freight, and duty costs, as well as higher inventory reserves.
- Profitability Shift: The company swung from a net loss of $13.7 million in the first nine months of 2024 to a loss of $68.1 million in the same period of 2025. Operating expenses decreased slightly, but not enough to offset the revenue drop.
- Liquidity Deterioration: Working capital turned significantly negative ($157.5 million deficit) compared to a $18.7 million deficit at year-end 2024. Operating cash flow was negative $33.2 million YTD, compared to positive $63.7 million in 2024.
Outlook, Risks, and Management Commentary
- Going Concern Warning: Management has determined there is substantial doubt about the company's ability to continue as a going concern for the next twelve months. This is due to anticipated non-compliance with financial covenants (Net Leverage and Fixed Charge Coverage ratios) and insufficient cash flows to meet working capital needs.
- Debt Covenants: The company entered into a Fourth Amendment to its Credit Agreement in July 2025, waiving covenants for Q2 and Q3 2025. However, the company anticipates non-compliance for Q4 2025. Failure to meet "Outstanding Milestone Covenants" (related to refinancing or a sale) by November 25, 2025, could trigger an event of default.
- Strategic Review: The Board is evaluating strategic alternatives, including a potential sale of the company, to maximize value and satisfy debt obligations.
- Internal Controls: Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting, specifically regarding income tax processes and journal entry reviews.
- Tariff Impact: New tariffs on imports from China, Vietnam, and Mexico are expected to continue adversely affecting costs and margins.
Investor Verification Checklist
- Covenant Compliance: Verify the status of the "Outstanding Milestone Covenants" and whether the November 25, 2025 deadline for refinancing or sale milestones has been met or extended.
- Liquidity Plan Execution: Assess the progress of management's plan to raise additional cash via equity/debt issuance or asset sales to avoid default.
- Inventory Valuation: Review the adequacy of inventory reserves ($10.0 million as of Sept 30, 2025) given the decline in sales and potential for obsolescence.
- Legal Contingencies: Monitor the status of ongoing securities class action litigation (e.g., *Lynch vs. Mariotti* and *Construction Laborers Pension Trust v. Funko*) and royalty audit reserves ($29.6 million).
- Strategic Alternatives: Track any announcements regarding the sale of the company or significant asset divestitures.