Funko, Inc. (FNKO) Earnings Call Transcript & Summary

Good morning, and welcome to the 2021 Annual Meeting of Stockholders for Funko, Inc. I will now turn the line over to Ken Brotman. Mr. Brotman?

Thank you, operator. Good morning, everyone. I am Ken Brotman, the Chairman of the Board of Funko, Inc. and the Chairman of today's meeting. I'm very happy to welcome you to our 2021 Annual Meeting of Stockholders, which we are holding virtually in light of the ongoing, but hopefully improving COVID-19 pandemic. On behalf of Funko, the members of the Board and the management of the company, I hope everyone is safe and healthy. Before I call the meeting to order, I'd like to introduce to you the other members of the Board and the officers of the company who are with us today. The other members of the Board in attendance are Brian Mariotti, our Chief Executive Officer; Gino Dellomo; Charlie Denson; Diane Irvine; Adam Kriger; and Michael Lunsford. In addition, participating today are Andrew Perlmutter, our President; Jennifer Fall Jung, our Chief Financial Officer; and Tracy Daw, our Senior Vice President, General Counsel and Corporate Secretary. I would also like to introduce Chad Miller of Ernst & Young, the company's independent auditor, who will have the opportunity to make a statement and will be available to respond to appropriate questions during the question-and-answer portion of the meeting. The meeting will now officially come to order. I will now turn things over to Tracy Daw to proceed.

Thanks, Ken, and welcome Funko stockholders. We will now proceed with the formal business of the meeting as set forth in the notice of annual meeting and proxy statement. It is now 9:02 a.m. Pacific Time, and the polls are open for voting on all matters before the meeting. If you have not already voted and wish to vote, the polls will remain open until we finish presenting the proposals and we close the polls. You do not need to vote during the meeting if you have already voted and do not wish to change your vote. On the virtual meeting web page, you will find the agenda for the meeting. You will also find the rules of conduct for today's meeting. Please review these rules carefully. Note that only stockholders, who are logged into the meeting using their 16-digit control number, will be able to vote and submit questions at today's meeting. As Funko's Corporate Secretary, I will file the proof of mailing of notice of the meeting with the records of the meeting. All stockholders of record at the close of business on April 9, 2021, or holders of a valid proxy are entitled to vote at the meeting. A complete list of the holders of record of the outstanding shares of the company's Class A and Class B common stock on the record date for the meeting is available on your screen, if you have logged into the meeting using your 16-digit control number. At this time, I'd like to introduce Steven Tollefson, a representative of Broadridge Financial Services. The Board of Directors has appointed a representative of Broadridge to act as Inspector of Election at today's meeting. Steven has signed the customary oath of office to execute his duties with strict impartiality. We will file this oath with the records of the meeting. I have been informed that a quorum is present this morning. Therefore, I hereby declare this meeting to be duly constituted for the transaction of business. And we will now proceed with the formal business of this meeting. There are 2 proposals to be considered by our stockholders at today's meeting. The company recommends that the stockholders vote for each of these proposals. The first item of business is the election of Charles Denson, Adam Kriger and Brian Mariotti to serve as Class 1 directors of the company for a term of office expiring at the Annual Meeting of Stockholders to be held in 2024. The second item of business is the ratification of the Audit Committee's appointment of Ernst & Young LLP as the independent registered public accounting firm of the company for the year ending December 31, 2021. Chad, from E&Y, would you like to make a statement?

I have no statement.

Thanks. That was the final proposal for today's meeting. If you wish to vote and you haven't already, please vote now by clicking on the voting button on the web portal and following the instructions. You do not need to vote electronically if you have already sent in your signed proxy or if you have voted by telephone or Internet. We will pause now for approximately 30 seconds before closing the voting polls. [Voting]

Thank you. The time is now 9:06 a.m. on June 4, 2021, and the polls are now closed for voting. I have received the preliminary report of the Inspector of Election to be kept with the company's records of the annual meeting. Based on this preliminary report of the Inspector of Election, Charles Denson, Adam Kriger and Brian Mariotti have been elected as Class 1 directors; and the appointment of Ernst & Young as our independent registered public accounting firm for the year ended December 31, 2021, has been ratified. The final tally of the votes will be published within 4 business days in a current report on Form 8-K to be filed with the Securities and Exchange Commission. With that said, I will now turn things back over to Mr. Brotman. Ken?

Thanks, Tracy. And thank you for participating in the official business of this year's Annual Meeting of Stockholders. This meeting is now adjourned. I will now turn the floor over to our Chief Financial Officer, Jennifer Fall Jung; and our President, Andrew Perlmutter, for a short presentation on the business.

Thanks, Ken. Despite the global pandemic, Funko had a strong year. We delivered net sales of $653 million and exited the year in a very strong financial position. We continued our product innovation with the extension of the Pop! platform, launching pop album and Vinyl Soda. In a low content year due to the pandemic, [Technical Difficulty] net sales, up from 51% in 2019. We continue to develop our Loungefly brand as a softline equivalent for fans to connect with their favorite characters and properties. And we grew our direct-to-consumer business with enhanced e-commerce functionality, added breadth and depth of product listings and launched funkoeurope.com. Now I'll turn it over to our President, Andrew Perlmutter, for a discussion of our key priorities for 2021.

Thank you, Jen. I'd like to highlight 4 key priorities for 2021. Growing the core pop culture business is priority number one. We plan to target underpenetrated genres to expand our addressable market, leverage Funko's strengths in building fun and nostalgic programs. Number two, diversify our revenue streams; create new and fun creative physical, digital NFT products; build out Funko's game portfolio with regular cadence of compelling titles; growth in our children's toy category. Our third key priority is accelerating D2C growth; strengthen e-commerce platform and fulfillment capabilities; build meaningful connections with our customers; drive traffic and conversion. And fourth, extend Funko's international reach, continued momentum in Europe, focus on underpenetrated markets, expand Funko's global brand recognition. With that, I will turn the call over to Ben Tapper for your questions and answers. Ben?

Thanks very much, Andrew. The management team is available to answer questions. Please note that we will only be answering questions that are within the parameters of the rules of conduct and only stockholders who have logged into the meeting using their 16-digit control number are able to submit a question through the question area of the web portal. Please feel free to submit your questions now. First question is, how do you plan on integrating NFTs in the future?

Thank you for the question. As we talked about previously, we are excited about the opportunity that the NFT business brings to our company. We are going to be launching our first NFT offering this month, which we are very excited about. We believe there is an incredible synergy in digital and physical collectibles. We understand the collectible market well, as that's what we do. And we think that there is a lot of opportunity to connect the physical and digital world through the NFT business, and we couldn't be more excited about the progress that we're making as we march towards this launch.

There are no further questions. Andrew, please proceed with any closing remarks.

With that, ladies and gentlemen, this concludes our 2021 Annual Meeting. I want to thank you for attending and for your interest in the affairs of Funko.