Funko, Inc.

Funko is a leading pop culture consumer products company that creates whimsical, fun, and unique products enabling fans to express their affinity for various content, including movies, TV shows, video games, music, and sports [Item 1]. The company operates at the intersection of pop culture and the "kidult" market segment, valued by content providers for connecting fans to properties, by retailers for a broad portfolio of licensed products, and by consumers for distinct, stylized products [Item 1]. The pop culture industry is characterized by technology innovation, leading to increased content accessibility and engagement, an evolution of content towards original scripted and franchise content with global appeal, and a dedicated and active fan base that seeks to express their passion through social communities and events [Item 1].

Funko's strategic differentiation is built on deep and extensive licensing partnerships, with over 250 content providers covering approximately 800 active licensed properties in 2025 [Item 1]. This extensive portfolio includes "evergreen" properties not tied to current releases, such as Mickey Mouse, Harry Potter, or classic Batman, which constituted approximately 69% of sales in 2025 [Item 1]. No single property accounted for more than 5% of sales in 2025, and the top five third-party properties contributed 19% of sales in the same year [Item 1]. The company also boasts a broad portfolio of brands, including Core Collectible (Pop! Vinyl, Bitty Pop!, Pop! Yourself), Loungefly (fashion accessories), and Mondo (boutique collectibles), designed to attract a wide array of fans across demographics [Item 1]. Products are generally offered at accessible price points, with standard Pop! Vinyl figures typically under $15 [Item 1]. Funko engages directly with fans through flagship retail stores, fan events, websites, mobile applications, and social media platforms [Item 1]. The company also has a diversified global distribution network, selling through specialty retailers, mass-market retailers, e-commerce sites, and directly to consumers [Item 1]. Key retail partners in the United States include Amazon, Hot Topic, Walmart, Target, and GameStop, while international partners include Amazon, Smyths Toys, and Carrefour [Item 1].

The core business model revolves around designing, sourcing, and distributing licensed pop culture consumer products [Item 1]. Revenue is generated from the sale of these products, with the majority recognized upon shipment or receipt of finished goods by the customer [Item 7]. The company routinely provides sales incentives, customer promotions, and allowances for returns and defective merchandise, which reduce gross sales [Item 7]. Direct-to-consumer sales accounted for approximately 24% of total sales in 2025 [Item 1].

Core Collectible branded products, which include Pop! Vinyl, Bitty Pop!, and Pop! Yourself, represented 80% of sales for the year ended December 31, 2025 [Item 1]. These products are characterized by their distinct stylized design, often featuring a rounded square head, no mouth, and a simple nose, typically standing about four inches tall [Item 1]. The Pop! brand extends across various product categories, including plush, accessories, apparel, and homewares [Item 1].

Loungefly branded products, generally licensed fashion accessories such as stylized handbags, backpacks, wallets, and clothing, represented 17% of sales for the year ended December 31, 2025 [Item 1]. Other brands, including Mystery Minis, Bitty Pop!, Pop! Yourself, Funko action figures, Funko Soda, Funko Plush, and Mondo (a boutique collectibles brand specializing in high-end collectibles, limited-edition art prints, and vinyl records), accounted for the remaining product offerings [Item 1].

For the fiscal year ended December 31, 2025, Funko reported net sales of $908.2 million ⁴, a decrease of 13.5% compared to $1,049.850 million ⁵ in 2024 [Item 7]. Cost of sales (exclusive of depreciation and amortization) was $556.940 million ⁶, resulting in a gross margin of 38.7% ⁷ for 2025, down from 41.4% ⁸ in 2024 [Item 7]. Operating expenses totaled $953.752 million ⁹, leading to an operating loss of $(45.543) million ¹⁰ [Item 7]. Net loss for the year was $(68.295) million ¹¹, and diluted EPS was $(1.24) ¹² [Item 7]. Cash and cash equivalents stood at $42.148 million ¹³ as of December 31, 2025, with total debt of $225.681 million ¹⁴ [Item 10]. Net cash used in operating activities was $(5.120) million ¹⁵ [Item 7].

Comparing 2025 to 2024, net sales decreased by $141.641 million ¹⁶ or 13.5% ¹⁷ [Item 7]. This decrease was observed across all distribution channels due to adverse impacts from tariff disruption and general macroeconomic uncertainty [Item 7]. Geographically, net sales in the United States decreased by 19.9% to $546.3 million ¹⁸, while Europe saw a 1.6% increase to $288.3 million ¹⁹, and other international locations decreased by 12.5% to $73.5 million ²⁰ [Item 7]. On a product category basis, Core Collectible branded products decreased by 10.1% to $723.3 million ²¹, Loungefly branded products decreased by 9.8% to $155.0 million ²², and other products decreased by 59.4% to $29.9 million ²³, primarily due to a reduction in product offerings including certain toys, games, and NFTs [Item 7]. Gross margin (exclusive of depreciation and amortization) decreased from 41.4% in 2024 to 38.7% in 2025 [Item 7].

During 2025, Funko moved production of certain products from China to Vietnam to mitigate the impact of U.S. implemented tariffs [Item 1]. The company also instituted price increases for certain products to help manage gross margins [Item 7]. In January 2024, Funko sold all outstanding inventory and certain intellectual property related to Funko Games to an independent third-party, entering into a multi-year exclusive worldwide license and distribution agreement for minimum guaranteed royalty payments [Item 6]. In August 2025, Josh Simon was appointed Chief Executive Officer [Item 1].

Funko's Credit Facilities under the Credit Agreement will mature on December 31, 2027 ²⁴ [Item 10]. The company expects its existing resources, future cash flows from operations, and cash and cash equivalents to provide sufficient liquidity for at least the next twelve months from the issuance date of the financial statements, including compliance with all covenants under the Credit Agreement [Item 2]. The company plans to either amend the Credit Agreement to further extend the maturity, seek alternative financing arrangements prior to the maturity of the debt, or opportunistically pursue other business opportunities or strategic transactions with the assistance of financial advisors [Item 2]. If these plans are not completed before the end of the fiscal year December 31, 2026, the debt would be reclassified from a long-term liability to a current liability [Item 2].

Funko intends to enhance its ability to identify trends and increase speed to market, as demonstrated by its quick response to the popularity of KPop Demon Hunters in 2025, which resulted in one of its biggest presale events [Item 1]. The company aims to rebuild credibility and enthusiasm with core collectors and mega fans by improving execution around limited editions, storytelling, and drop cadence [Item 1]. Funko is also exploring expanding into new areas of pop culture through trend mashups and collaborations with iconic brands and categories such as footwear, automotive, and cosmetics, with specific intentions to do more in K-Pop, sports, music tours, fashion, and architecture, and to work with content creators like Twitch streamers, YouTubers, and influencers [Item 1]. Anime remains a significant fan vertical, and the company plans to expand in Asia and EMEA [Item 1].

The company intends to further enhance its innovation by expanding assortments and aggressively growing and adding new form factors for fans, leveraging its 25-year product archive [Item 1]. A key growth area is the expansion of Bitty Pop!, mini vinyl figures, to include more licensed and original characters and environments for world-building [Item 1]. Funko is also expanding its presence in the blind box format with new Premium Blind Box collections, an artist-driven product line featuring bold and imaginative designs and chase variants, with plans to add more offerings from internal and external artists [Item 1].

Operationally, Funko sees a significant opportunity to amplify its retail presence by focusing on bringing products to life on-shelf and online through experiences that delight consumers and drive growth and newness for its partners worldwide [Item 1]. The company believes its sales are currently underpenetrated internationally, with sales generated from customers outside the United States accounting for approximately 40% of sales in 2025 [Item 1]. Funko is investing in the growth of its international business, both directly and through third-party distributors, with opportunities to increase sales in regions like Asia and Latin America through direct sales to retailers, co-branded franchise stores, and expanded distributor relationships [Item 1]. Within its direct-to-consumer business, Funko intends to simplify the e-commerce site and app experience, including a more intuitive design, improved functionality for limited drops, wish lists, and loyalty programs [Item 1]. The company also plans to deploy AI-based technological enhancements to its Pop! Yourself builder [Item 1].

The company anticipates inflationary pressures throughout its supply chain in future periods, specifically concerning freight, duty, and tariff costs, and to a lesser extent, product costs [Item 7]. Funko also expects inflationary pressures on goods and services for general operations [Item 7A]. The company has partially mitigated these pressures through price increases on certain products [Item 7A].

Funko's primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service, and general corporate needs [Item 7]. The company's registration statement on Form S-3, effective August 15, 2025, allows for the sale of up to $100.0 million ²⁵ of Class A common stock, preferred stock, debt securities, warrants, purchase contracts, or units for its own account, and permits certain selling stockholders to offer and sell 12,626,024 ²⁶ shares of Class A common stock [Item 7]. Additionally, an At-the-Market Sales Agreement entered into on August 15, 2025, allows for the offer and sale of Class A common stock with an aggregate gross sales price of up to $40.0 million ²⁷ [Item 7].

Funko faces significant risks including global and regional economic downturns impacting retail and credit markets, and changes in retail practices, which can harm its business and financial performance [Item 1A]. Substantial international sales and manufacturing operations expose the company to risks such as changes in global trade markets and policies, including tariffs, and fluctuations in foreign currency or tax rates [Item 1A]. The company's indebtedness, totaling $219.9 million ²⁸ as of December 31, 2025, could adversely affect its financial health and competitive position, and there is no assurance of securing additional financing on favorable terms or at all [Item 1A]. Funko is highly dependent on content development by third parties, and the market appeal of licensed properties and products is crucial, with no single property accounting for more than 5% of sales in 2025, and the top five third-party properties representing 19% of sales [Item 1]. The company is subject to intellectual property risks, including the ability to obtain, protect, and enforce its own rights, and the reliance on licensors to protect their intellectual property, with an accrual of $29.6 million ²⁹ as of December 31, 2025, related to ongoing and future royalty audits [Item 14]. Fluctuations in gross margin, seasonal impacts (with approximately 58% of net sales in the third and fourth quarters in 2025 [Item 1]), and the timing and popularity of new product releases can affect business success [Item 1A]. Reliance on vendors and outsourcers for manufacturing, transportation, logistics, and IT systems also poses risks to reputation and operational effectiveness [Item 1A]. Legal risks include ongoing securities class action litigation, potential product liability suits or recalls, and non-compliance with various laws and regulations, such as the settlement of $5.4 million ³⁰ for the Lynch vs. Mariotti, et al. case [Item 14]. Information technology risks include the operation of e-commerce, information systems, and compliance with data privacy laws like GDPR and CCPA [Item 1A]. TCG has significant influence over the company, and its interests, along with those of other Continuing Equity Owners and TRA Parties, may conflict with other stockholders [Item 1A]. The Tax Receivable Agreement requires cash payments to TRA Parties equal to 85% of realized tax benefits, which could be significant and may exceed actual tax benefits [Item 1A]. The company has identified material weaknesses in internal control over financial reporting as of December 31, 2025, related to the order-to-cash process, segregation of duties, and IT general controls [Item 9A].

Management's message to shareholders emphasizes that Funko is a leading pop culture consumer products company built on the belief that everyone is a fan of something, creating whimsical, fun, and unique products that enable fans to express their affinity [Item 1]. The company is operating in a challenging retail environment due to tariff disruption and macroeconomic uncertainty, which has adversely impacted net sales, gross margin, and net income [Item 7]. Management has strategically adjusted inventory buy-in to focus on non-exclusive core products and instituted price increases for certain products to mitigate these impacts [Item 7]. The company's financial condition continues to improve as a result of 2025 implemented price increases and cost savings initiatives [Item 2]. Management plans to either amend the Credit Agreement to further extend the maturity, seek alternative financing arrangements prior to the maturity of the debt, or opportunistically pursue other business opportunities or strategic transactions with the assistance of financial advisors [Item 2]. The three strategic priorities emphasized for the period ahead are to "Make Culture Pop!" by enhancing the ability to identify trends and supercharge speed to market, further enhancing innovation by expanding assortments and adding new form factors, and amplifying retail presence by focusing on bringing products to life on-shelf and online through experiences [Item 1].