CORRECTING and REPLACING Funko Reports Record Third Quarter 2022 Sales of $365.6 million, Up 36.6%

Sustained Growth Driven by Broad-Based Strength Across Reported Brand Categories, Channels, and Geographies

EVERETT, Wash., November 05, 2022–(BUSINESS WIRE)–The Outlook paragraph of the release dated November 3, 2022 has been updated to read: “… Adjusted Net Income² of $39 million to $41 million, based on a blended tax rate of 25%; and Adjusted Earnings per Diluted Share² of $0.70 to $0.80, based on estimated adjusted average diluted shares outstanding of 55.2 million for the full year.” This replaces the following language from the original release: “… Adjusted Net Income² of $47 million to $49 million, based on a blended tax rate of 25%; and Adjusted Earnings per Diluted Share² of $0.85 to $0.95, based on estimated adjusted average diluted shares outstanding of 55.2 million for the full year.”. This change is consistent with the prepared remarks we shared on our earnings call on November 3, 2022.

The updated release reads:

FUNKO REPORTS RECORD THIRD QUARTER 2022 SALES OF $365.6 MILLION, UP 36.6%

Sustained Growth Driven by Broad-Based Strength Across Reported Brand Categories, Channels, and Geographies

Funko, Inc. (“Funko,” or the “Company”) (Nasdaq: FNKO), a leading pop culture lifestyle brand, today reported its consolidated financial results for the third quarter ended September 30, 2022.

“We delivered another quarter of record net sales growth, with robust demand across our brand portfolio. Our sustained success is a testament to our employees, our partners, and our loyal and highly engaged fan base,” said Andrew Perlmutter, Chief Executive Officer. “As we continue to support our rapid growth, we are making needed short-term investments to upgrade our infrastructure to help provide the capability and capacity to support our future growth.”

Third Quarter 2022 Financial Summary Versus Prior Year

• Net sales increased 36.6% to $365.6 million

• Gross profit increased 32.6% to $127.9 million

• Gross margin¹ contracted 100 basis points to 35.0%

• Net income decreased 39.3% to $11.1 million

• Net income margin¹ contracted 390 basis points to 3.0%

• Adjusted EBITDA² decreased 11.2% to $35.7 million

• Adjusted EBITDA margin² contracted 520 basis points to 9.8%

• Cash flow used in operations of $64.7 million for the nine months ended September 30, 2022

• Total liquidity³ of $150.1 million compared to $193.2 million

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Third Quarter 2022 Operating Highlights

• Double-digit net sales growth across all brand categories

• Strong international growth as Europe net sales grew 32.9% y/y while Other International grew 42.6%

• Direct-to-consumer (DTC) net sales increased 36.5% y/y, driven by strong growth in average order value and e-commerce site traffic

• More than doubled Digital Pop! NFT net sales, with multiple top-tier drops, increasing drop frequency and average revenue per drop

• Began integration of high-end collectibles company Mondo under Core Collectible Brands

• Introduced “countdown to anything” with expanded countdown calendars to include multiple holidays, driving more than 8x net sales growth in only 4 years

Third Quarter 2022 Financial Results

The tables below show the breakdown of net sales on a brand category and geographical basis (in thousands):

Gross margin¹ in the third quarter of 2022 decreased 100 basis points to 35.0% compared to 36.0% in the third quarter of 2021, reflecting a change in product costs outpacing previous price increases on certain products.

SG&A expenses increased 63.5% to $97.9 million or 26.8% of net sales in the third quarter of 2022 compared to $59.9 million or 22.4% of net sales in the third quarter of 2021. SG&A expenses for the third quarter of 2022 were higher than expected due to increased infrastructure investment to accommodate recent rapid growth and provide capacity for sustained future growth.

Net income in the third quarter of 2022 was $11.1 million and net income margin¹ was 3.0%, compared to net income of $18.4 million and net income margin¹ of 6.9% in the third quarter of 2021. Adjusted Net Income² (non-GAAP) was $15.1 million in the third quarter of 2022 versus Adjusted Net Income² of $21.1 million in the third quarter of 2021. Adjusted EBITDA² in the third quarter of 2022 was $35.7 million and Adjusted EBITDA margin² was 9.8%, compared to $40.2 million and 15.0%, respectively, in the third quarter of 2021. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measures is provided below.

Balance Sheet Highlights

Total liquidity³ as of September 30, 2022 totaled $150.1 million, a decrease of 22.4% compared to September 30, 2021. Total liquidity was comprised of cash and cash equivalents of $25.1 million and total revolver availability of $125.0 million.

As of September 30, 2022, total debt was $250.2 million, an increase of 40.9% compared to a year ago, as we accessed our revolver to maintain appropriate liquidity as working capital needs have increased in recent quarters. Total debt includes the amount outstanding under the Company’s term loan facility, net of unamortized discounts.

Inventories at the end of the third quarter of 2022 totaled $265.8 million, up 88.7% compared to a year ago. We expect to make sequential progress in inventory levels in the fourth quarter of 2022.

Outlook

In 2022, the Company expects the following full-year results:

• Net sales of $1.29 billion to $1.33 billion;

• Sequential decline in gross margin due to margin seasonality and ongoing inventory management;

• Adjusted EBITDA margin² of high single digits;

• Adjusted Net Income² of $39 million to $41 million, based on a blended tax rate of 25%; and

• Adjusted Earnings per Diluted Share² of $0.70 to $0.80, based on estimated adjusted average diluted shares outstanding of 55.2 million for the full year.

¹Gross margin is calculated as net sales less cost of sales (exclusive of depreciation and amortization) as a percentage of net sales. Net Income margin is calculated as net income as a percentage of net sales.

²Adjusted Net Income, Adjusted Earnings per Diluted Share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a reconciliation of historical Adjusted Net Income, Adjusted Earnings per Diluted Share and Adjusted EBITDA to the most directly comparable U.S. GAAP financial measures, please refer to the “Non-GAAP Financial Measures” section of this press release. A reconciliation of Adjusted Net Income, Adjusted Earnings per Diluted Share and Adjusted EBITDA margin outlook to the corresponding GAAP measure on a forward-looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to certain items. However, in 2022 the Company expects equity-based compensation of approximately $15.7 million, depreciation and amortization of approximately $46.5 million, interest expense of approximately $8.9 million, severance and restructuring expenses of approximately $10.1 million and foreign currency transaction loss of $1.8 million, each of which is a reconciling item to Net Income. See “Non-GAAP Financial Measures” for more information.

³Total liquidity is calculated as cash and cash equivalents plus availability under the Company’s $215 million revolving credit facility as of September 30, 2022.

Conference Call and Webcast

The Company will host a conference call at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) today, November 3, 2022, to further discuss its third quarter results and business outlook. A live webcast and replay of the event will be available on the Investor Relations section on the Company’s website at investor.funko.com. The replay of the webcast will be available for one year.

About Funko

Headquartered in Everett, Washington, Funko is a leading pop culture consumer products company. Funko designs, sources and distributes licensed pop culture products across multiple categories, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who seek tangible ways to connect with their favorite pop culture brands and characters. Learn more at www.funko.com, and follow us on Twitter (@OriginalFunko) and Instagram (@OriginalFunko).

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our anticipated financial results and financial position, the underlying trends in our business, including supply chain constraints, inflation, and other macroeconomic trends, our potential for growth, expectations regarding infrastructure investments, expectations regarding inventory levels and our strategic growth priorities. These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: risks related to the impact of COVID-19 on our business, financial results and financial condition; our ability to execute our business strategy; our ability to maintain and realize the full value of our license agreements; changes in the…