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Funko Reports 2023 Second Quarter Financial Results, Revises Full-Year Outlook

-- Company Provides Update on Operational Improvement Initiatives, Implements Substantial Additional Cost Savings Measures --

Funko, Inc. (Nasdaq: FNKO), a leading pop culture lifestyle brand, today reported consolidated financial results for its second quarter ended June 30, 2023.

Second Quarter Financial Results Summary: 2023 vs 2022

  • Net sales were $240.0 million for the 2023 second quarter versus $315.7 million for the 2022 second quarter
  • Gross margin was 29.2% for the 2023 second quarter versus 32.7% for the 2022 second quarter
  • SG&A expenses were $85.6 million for the 2023 second quarter versus $82.7 million for the 2022 second quarter
  • Net loss was $75.9 million, or $1.54 per share, for the 2023 second quarter, which includes a company established full valuation allowance against its deferred tax asset of $138.1 million, offset by an adjustment to the tax receivable agreement liability of $99.6 million, the net effect of which was a non-cash charge of $38.5 million. This compares to net income of $15.8 million, or $0.28 per diluted share, for the 2022 second quarter
  • Adjusted net loss* was $22.3 million, or $0.43 per share, for the 2023 second quarter versus adjusted net income* of $14.0 million, or $0.26 per diluted share per share
  • Negative adjusted EBITDA* was $7.6 million for the 2023 second quarter versus adjusted EBITDA* of $31.8 million for the 2022 second quarter

“For the 2023 second quarter, net sales and adjusted EBITDA* loss were within our guidance, and SG&A expenses were better than expected and an improvement over the preceding quarter,” said Michael Lunsford, recently appointed Interim Chief Executive Officer of Funko. “Ongoing inventory de-stocking by some of our larger U.S. wholesale customers impacted our topline and profitability. We anticipate that this softness will continue in the second half of this year and, as a result, we have lowered our full-year guidance.

“We have also begun re-shaping the company to focus our energies and resources on Funko’s core products. To that end, we are implementing a strategic plan to reduce the number of product lines and complexity in our business. Putting our fans and brand first, running the business like a lean startup and investing in areas where we can grow profitably, will guide and inform every decision we make.

“Over the remaining two quarters of the current year, we expect sales and gross margin to meaningfully ramp up compared with the recently completed second quarter. We also expect SG&A as a percentage of sales to decrease, primarily due to continuing cost reductions and operational improvements. Looking out a bit further, we see our financial performance rebounding in 2024, based in part on a full year of benefit to our gross margin and cost structure from our improvement efforts, the launch of Pop! Yourself, currently planned for later this month, and a return to more normalized sales to our wholesale customers.”

Restructuring, Cost Reduction Initiatives

Earlier this year, the company implemented an operational improvement and cost reduction plan that, once completed, is expected to generate annualized cost savings of between $155 million to $185 million.

“We are ahead of schedule on the key elements of our cost reduction plan,” said Steve Nave, Chief Financial Officer and Chief Operating Officer. “To date, we’ve made excellent progress on the disposal of inventory that was in excess of our warehouse capacity, which has enabled us to process customer orders more quickly and eliminate certain related storage costs and container rental charges.

“Despite this progress, last week we implemented a plan that includes, among other things, another round of cost-lowering initiatives and further reductions to our workforce of approximately 12%, or 180 positions. These actions are estimated to generate approximately $38 million of incremental annualized savings, of which approximately $20 million is related to the workforce reduction.”

Leadership Changes

As previously announced, Brian Mariotti took a leave of absence and ceased serving as the company’s CEO, and Michael Lunsford, a member of Funko’s board of directors since 2018, was appointed interim CEO. The company’s board of directors plans to shortly commence a search for a permanent CEO; the search will include both internal and external candidates.

Second Quarter 2023 Net Sales by Category and Geography

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

 

 

Three Months Ended June 30,

��

Period Over Period Change

Net sales by brand category:

 

2023

 

2022

 

Dollar

 

Percentage

Core Collectible Brands

 

$

173,665

 

$

233,045

 

$

(59,380

)

 

(25.5

)%

Loungefly Brand

 

 

50,002

 

 

69,966

 

 

(19,964

)

 

(28.5

)%

Other Brands

 

 

16,361

 

 

12,705

 

 

3,656

 

 

28.8

%

Total net sales

 

$

240,028

 

$

315,716

 

$

(75,688

)

 

(24.0

)%

 

 

Three Months Ended June 30,

 

Period Over Period Change

 

 

2023

 

2022

 

Dollar

 

Percentage

Net sales by geography:

 

 

 

 

 

 

 

 

United States

 

$

171,219

 

$

231,196

 

$

(59,977

)

 

(25.9

)%

Europe

 

 

50,495

 

 

63,392

 

 

(12,897

)

 

(20.3

)%

Other International

 

 

18,314

 

 

21,128

 

 

(2,814

)

 

(13.3

)%

Total net sales

 

$

240,028

 

$

315,716

 

$

(75,688

)

 

(24.0

)%

Balance Sheet Highlights - At June 30, 2023 vs December 31, 2022

  • Total cash and cash equivalents were $36.8 million at June 30, 2023 versus $19.2 million at December 31, 2022
  • Inventories were $187.3 million at June 30, 2023 versus $246.4 million at December 31, 2022
  • Total debt was $305.0 million at June 30, 2023 versus $245.8 million at December 31, 2022. Total debt includes the amount outstanding under the company's term loan facility, net of unamortized discounts, revolving line of credit and the company's equipment finance loan

Outlook for Fiscal 2023

Based on its current outlook, the company revised its 2023 full-year outlook and provided guidance for its 2023 third quarter, as follows:

 

Current Outlook

 

Previous Outlook

2023 Full Year

 

 

 

Net Sales

$1.05 billion to $1.12 billion

 

$1.19 billion to $1.26 billion

Adjusted EBITDA*

$20 million to $30 million

 

$65 million to $75 million

 

2023 Third Quarter

 

Net sales

$280 million to $310 million

Gross margin %

Increasing sequentially from Q2

SG&A expense

Improving sequentially from Q2

Adjusted net loss*

$5 million to $1 million

Adjusted net loss per share*

$0.10 to $0.03

Adjusted EBITDA*

$14 million to $19 million

*Adjusted net loss, adjusted net loss per diluted share and adjusted EBITDA are non-GAAP financial measures. For a reconciliation of historical adjusted net loss, adjusted loss 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 loss, adjusted net loss per diluted share and adjusted EBITDA 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, for the third quarter of 2023 the Company expects equity-based compensation of approximately $4 million, depreciation and amortization of approximately $15 million, interest expense of approximately $7 million and severance and restructuring expenses of approximately $3 million. For the full year 2023 the Company expects equity-based compensation of approximately $16 million, depreciation and amortization of approximately $59 million, interest expense of approximately $27 million, and severance and restructuring expenses of approximately $5 million, each of which is a reconciling item to net loss. See "Use of Non-GAAP Financial Measures" and the attached reconciliations for more information.

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, August 3, 2023, to further discuss its second 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.

Use of Non-GAAP Financial Measures

This release contains references to non-GAAP financial measures, including adjusted net income (loss), including per share amounts, adjusted EBITDA, and adjusted EBITDA margin, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Management uses these measures internally for evaluating its operating performance, for planning purposes, including the preparation of our annual operating budget and financials projections, and to assess incentive compensation for our employees, and to evaluate our capacity to expand our business. In addition, our senior secured credit facilities use adjusted EBITDA to measure our compliance with covenants such as senior leverage ratio. The company's management believes that the presentation of non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for the company's core business. Additionally, it provides a basis for the comparison of the financial results for the company's core business between current, past and future periods as they remove the impact of items not directly resulting from our core operations. The company also believes that including Adjusted EBITDA and the other non-GAAP financial measures presented in this release is appropriate to provide additional information to investors and help to compare against other companies in our industry. Non-GAAP financial measures have limitations as analytical tools and should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP. We caution investors that amounts presented in accordance with our definitions of adjusted net income (loss), including per share amounts, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate these measures in the same manner.

Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the financial tables following this release.

About Funko

Headquartered in Everett, Washington, Funko is a leading pop culture lifestyle brand. 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 retailer de-stocking, inflation and macroeconomic trends, our potential for growth, expectations regarding annualized cost savings and restructuring initiatives; 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: our ability to execute our business strategy; our ability to manage our inventories; our ability maintain and realize the full value of our license agreements; impacts from economic downturns; changes in the retail industry and markets for our consumer products; our ability to maintain our relationships with retail customers and distributors; risks related to the impact of COVID-19 on our business, financial results and financial condition; our ability to compete effectively; fluctuations in our gross margin; our dependence on content development and creation by third parties; the ongoing level of popularity of our products with consumers; our ability to develop and introduce products in a timely and cost-effective manner; our ability to obtain, maintain and protect our intellectual property rights or those of our licensors; potential violations of the intellectual property rights of others; risks associated with counterfeit versions of our products; our ability to attract and retain qualified employees and maintain our corporate culture; our use of third-party manufacturing; risks associated with climate change; increased attention to sustainability and environmental, social and governance initiatives; geographic concentration of our operations; risks associated with our international operations; changes in effective tax rates or tax law; foreign currency exchange rate exposure; our dependence on vendors and outsourcers; risks relating to government regulation; risks relating to litigation, including products liability claims and securities class action litigation; any failure to successfully integrate or realize the anticipated benefits of acquisitions or investments; future development and acceptance of blockchain networks; risks associated with receiving payments in digital assets; reputational risk resulting from our e-commerce business and social media presence; risks relating to our indebtedness, including our ability to comply with financial and negative covenants under our Credit Agreement, as amended; our ability to secure additional financing on favorable terms or at all; the potential for our or our third party providers’ electronic data or the electronic data of our customers to be compromised; the influence of our significant stockholder, TCG, and the possibility that TCG’s interests may conflict with the interests of our other stockholders; risks relating to our organizational structure; volatility in the price of our Class A common stock; and risks associated with our internal control over financial reporting. These and other important factors discussed under the caption “Risk Factors” in our quarterly report on Form 10-Q for the quarter ended June 30, 2023 and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Funko, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

(In thousands, except per share data)

Net sales

$

240,028

 

 

$

315,716

 

 

$

491,906

 

 

$

624,059

 

Cost of sales (exclusive of depreciation and amortization shown separately below)

 

170,019

 

 

 

212,597

 

 

 

372,322

 

 

 

412,246

 

Selling, general, and administrative expenses

 

85,632

 

 

 

82,693

 

 

 

185,693

 

 

 

161,113

 

Depreciation and amortization

 

14,893

 

 

 

11,483

 

 

 

28,869

 

 

 

21,954

 

Total operating expenses

 

270,544

 

 

 

306,773

 

 

 

586,884

 

 

 

595,313

 

(Loss) income from operations

 

(30,516

)

 

 

8,943

 

 

 

(94,978

)

 

 

28,746

 

Interest expense, net

 

7,264

 

 

 

1,667

 

 

 

12,950

 

 

 

2,877

 

Loss on debt extinguishment

 

 

 

 

 

 

 

494

 

 

 

 

Gain on tax receivable agreement liability adjustment

 

(99,620

)

 

 

 

 

 

(99,620

)

 

 

 

Other (income) expense, net

 

(401

)

 

 

435

 

 

 

421

 

 

 

832

 

Income (loss) before income taxes

 

62,241

 

 

 

6,841

 

 

 

(9,223

)

 

 

25,037

 

Income tax expense (benefit)

 

138,103

 

 

 

(8,952

)

 

 

127,783

 

 

 

(5,274

)

Net (loss) income

 

(75,862

)

 

 

15,793

 

 

 

(137,006

)

 

 

30,311

 

Less: net (loss) income attributable to non-controlling interests

 

(2,864

)

 

 

1,121

 

 

 

(8,697

)

 

 

5,757

 

Net (loss) income attributable to Funko, Inc.

$

(72,998

)

 

$

14,672

 

 

$

(128,309

)

 

$

24,554

 

(Loss) earnings per share of Class A common stock:

 

 

 

 

 

 

 

Basic

$

(1.54

)

 

$

0.34

 

 

$

(2.71

)

 

$

0.58

 

Diluted

$

(1.54

)

 

$

0.28

 

 

$

(2.71

)

 

$

0.53

 

Weighted average shares of Class A common stock outstanding:

 

 

 

 

 

 

 

Basic

 

47,428

 

 

 

43,741

 

 

 

47,338

 

��

 

42,042

 

Diluted

 

47,428

 

 

 

53,824

 

 

 

47,338

 

 

 

53,976

 

Funko, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

June 30, 2023

(unaudited)

 

December 31,

2022

 

(In thousands, except per share amounts)

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

36,827

 

 

$

19,200

 

Accounts receivable, net

 

137,441

 

 

 

167,895

 

Inventory

 

187,311

 

 

 

246,429

 

Prepaid expenses and other current assets

 

44,651

 

 

 

39,648

 

Total current assets

 

406,230

 

 

 

473,172

 

Property and equipment, net

 

104,157

 

 

 

102,232

 

Operating lease right-of-use assets

 

66,060

 

 

 

71,072

 

Goodwill

 

135,865

 

 

 

131,380

 

Intangible assets, net

 

175,314

 

 

 

181,284

 

Deferred tax asset, net of valuation allowance

 

 

 

 

123,893

 

Other assets

 

9,935

 

 

 

8,112

 

Total assets

$

897,561

 

 

$

1,091,145

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Line of credit

$

141,000

 

 

$

70,000

 

Current portion of long-term debt, net of unamortized discount

 

21,883

 

 

 

22,041

 

Current portion of operating lease liabilities

 

18,330

 

 

 

18,904

 

Accounts payable

 

81,389

 

 

 

67,651

 

Income taxes payable

 

1,341

 

 

 

871

 

Accrued royalties

 

53,291

 

 

 

69,098

 

Accrued expenses and other current liabilities

 

92,790

 

 

 

112,832

 

Total current liabilities

 

410,024

 

 

 

361,397

 

Long-term debt, net of unamortized discount

 

142,067

 

 

 

153,778

 

Operating lease liabilities, net of current portion

 

76,897

 

 

 

82,356

 

Deferred tax liability

 

401

 

 

 

382

 

Liabilities under tax receivable agreement, net of current portion

 

 

 

 

99,620

 

Other long-term liabilities

 

5,420

 

 

 

3,923

 

Commitments and Contingencies

 

 

 

Stockholders’ equity:

 

 

 

Class A common stock, par value $0.0001 per share, 200,000 shares authorized; 47,497 and 47,192 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

5

 

 

 

5

 

Class B common stock, par value $0.0001 per share, 50,000 shares authorized; 3,293 and 3,293 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

Additional paid-in-capital

 

319,531

 

 

 

310,807

 

Accumulated other comprehensive loss

 

(426

)

 

 

(2,603

)

(Accumulated deficit) retained earnings

 

(68,294

)

 

 

60,015

 

Total stockholders’ equity attributable to Funko, Inc.

 

250,816

 

 

 

368,224

 

Non-controlling interests

 

11,936

 

 

 

21,465

 

Total stockholders’ equity

 

262,752

 

 

 

389,689

 

Total liabilities and stockholders’ equity

$

897,561

 

 

$

1,091,145

 

Funko, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Six Months Ended June 30,

 

2023

 

2022

 

(In thousands)

Operating Activities

 

 

 

Net (loss) income

$

(137,006

)

 

$

30,311

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

Depreciation, amortization and other

 

27,851

 

 

 

21,586

 

Equity-based compensation

 

8,437

 

 

 

7,322

 

Amortization of debt issuance costs and debt discounts

 

607

 

 

 

433

 

Loss on debt extinguishment

 

494

 

 

 

 

Gain on tax receivable agreement liability adjustment

 

(99,620

)

 

 

 

Deferred tax expense

 

123,206

 

 

 

 

Other

 

(3,124

)

 

 

2,588

 

Changes in operating assets and liabilities, net of amounts acquired:

 

 

 

Accounts receivable, net

 

33,405

 

 

 

(9,667

)

Inventory

 

61,640

 

 

 

(68,921

)

Prepaid expenses and other assets

 

237

 

 

 

(27,985

)

Accounts payable

 

13,400

 

 

 

57,661

 

Income taxes payable

 

559

 

 

 

(15,542

)

Accrued royalties

 

(15,807

)

 

 

(9,776

)

Accrued expenses and other liabilities

 

(26,315

)

 

 

(18,149

)

Net cash used in operating activities

 

(12,036

)

 

 

(30,139

)

 

 

 

 

Investing Activities

 

 

 

Purchases of property and equipment

 

(22,712

)

 

 

(33,713

)

Acquisitions of businesses and related intangible assets, net of cash acquired

 

(5,274

)

 

 

(13,968

)

Other

 

420

 

 

 

61

 

Net cash used in investing activities

 

(27,566

)

 

 

(47,620

)

 

 

 

 

Financing Activities

 

 

 

Borrowings on line of credit

 

71,000

 

 

 

70,000

 

Debt issuance costs

 

(1,957

)

 

 

 

Payments of long-term debt

 

(11,258

)

 

 

(9,000

)

Distributions to TRA Parties

 

(1,103

)

 

 

(10,224

)

Payments under tax receivable agreement

 

 

 

 

 

Proceeds from exercise of equity-based options

 

287

 

 

 

559

 

Net cash provided by financing activities

 

56,969

 

 

 

51,335

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

260

 

 

 

(942

)

 

 

 

 

Net change in cash and cash equivalents

 

17,627

 

 

 

(27,366

)

Cash and cash equivalents at beginning of period

 

19,200

 

 

 

83,557

 

Cash and cash equivalents at end of period

$

36,827

 

 

$

56,191

 

The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income, for the periods presented:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

(In thousands, except per share data)

Net (loss) income attributable to Funko, Inc.

$

(72,998

)

 

$

14,672

 

 

$

(128,309

)

 

$

24,554

 

Reallocation of net (loss) income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1)

 

(2,864

)

 

 

1,121

 

 

 

(8,697

)

 

 

5,757

 

Equity-based compensation (2)

 

4,795

 

 

 

3,953

 

 

 

8,437

 

 

 

7,322

 

Loss on extinguishment of debt (3)

 

 

 

 

 

 

 

494

 

 

 

 

Acquisition transaction costs and other expenses (4)

 

444

 

 

 

1,920

 

 

 

1,454

 

 

 

2,850

 

Certain severance, relocation and related costs (5)

 

346

 

 

 

5,453

 

 

 

2,081

 

 

 

7,133

 

Foreign currency transaction loss (6)

 

(401

)

 

 

434

 

 

 

421

 

 

 

831

 

One-time inventory write-down (7)

 

 

 

 

 

 

 

30,084

 

 

 

 

Tax receivable agreement liability adjustments (8)

 

(99,620

)

 

 

 

 

 

(99,620

)

 

 

 

One-time disposal costs for unfinished inventory held at offshore factories (9)

 

2,404

 

 

 

 

 

 

2,404

 

 

 

 

Income tax expense (10)

 

145,551

 

 

 

(13,602

)

 

 

143,650

 

 

 

(16,067

)

Adjusted net (loss) income

$

(22,343

)

 

$

13,951

 

 

$

(47,601

)

 

$

32,380

 

Adjusted net income margin (11)

 

(9.3

)%

 

 

4.4

%

 

 

(9.7

)%

 

 

5.2

%

Weighted-average shares of Class A common stock outstanding-basic

 

47,428

 

 

 

43,741

 

 

 

47,338

 

 

 

42,042

 

Equity-based compensation awards and common units of FAH, LLC that are convertible into Class A common stock

 

4,481

 

 

 

10,083

 

 

 

4,423

 

 

 

11,935

 

Adjusted weighted-average shares of Class A stock outstanding - diluted

 

51,909

 

 

 

53,824

 

 

 

51,761

 

 

 

53,977

 

Adjusted (loss) earnings per diluted share

$

(0.43

)

 

$

0.26

 

 

$

(0.92

)

 

$

0.60

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

(amounts in thousands)

Net (loss) income

$

(75,862

)

 

$

15,793

 

 

$

(137,006

)

 

$

30,311

 

Interest expense, net

 

7,264

 

 

 

1,667

 

 

 

12,950

 

 

 

2,877

 

Income tax expense (benefit)

 

138,103

 

 

 

(8,952

)

 

 

127,783

 

 

 

(5,274

)

Depreciation and amortization

 

14,893

 

 

 

11,483

 

 

 

28,869

 

 

 

21,954

 

EBITDA

$

84,398

 

 

$

19,991

 

 

$

32,596

 

 

$

49,868

 

Adjustments:

 

 

 

 

 

 

 

Equity-based compensation (2)

 

4,795

 

 

 

3,953

 

 

 

8,437

 

 

 

7,322

 

Loss on extinguishment of debt (3)

 

 

 

 

 

 

 

494

 

 

 

 

Acquisition transaction costs and other expenses (4)

 

444

 

 

 

1,920

 

 

 

1,454

 

 

 

2,850

 

Certain severance, relocation and related costs (5)

 

346

 

 

 

5,453

 

 

 

2,081

 

 

 

7,133

 

Foreign currency transaction loss (6)

 

(401

)

 

 

434

 

 

 

421

 

 

 

831

 

One-time inventory write-down (7)

 

 

 

 

 

 

 

30,084

 

 

 

 

Tax receivable agreement liability adjustments (8)

 

(99,620

)

 

 

 

 

 

(99,620

)

 

 

 

One-time disposal costs for unfinished inventory held at offshore factories (9)

 

2,404

 

 

 

 

 

 

2,404

 

 

 

 

Adjusted EBITDA

$

(7,634

)

 

$

31,751

 

 

$

(21,649

)

 

$

68,004

 

Adjusted EBITDA margin (12)

 

(3.2

)%

 

 

10.1

%

 

 

(4.4

)%

 

 

10.9

%

(1)

Represents the reallocation of net (loss) income attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock in periods in which income was attributable to non-controlling interests.

(2)

Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards.

(3)

Represents write-off of unamortized debt financing fees for the six months ended June 30, 2023.

(4)

For the three months ended June 30, 2023 includes one-time bank monitoring fees. For the six months ended June 30, 2023 includes acquisition-related costs related to due diligence fees. For the three and six months ended June 30, 2022 includes acquisition-related costs related to investment banking and due diligence fees.

(5)

For the three months ended June 30, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses. For the six months ended June 30, 2023, includes charges related to severance and benefit costs for a reduction-in-force. For the three and six months ended June 30, 2022, includes charges related to one-time relocation costs for U.S. warehouse personnel and inventory in connection with the new opening of a warehouse and distribution facility in Buckeye, Arizona.

(6)

Represents both unrealized and realized foreign currency gains and losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.

(7)

For the six months ended June 30, 2023, represents one-time inventory write-down to improve U.S. warehouse operational efficiency.

(8)

Represents reduction of the tax receivable agreement liability as a result of recognizing a full valuation allowance of the Company’s deferred tax assets and anticipated inability to realize future tax benefits.

(9)

For the three and six months ended June 30, 2023, represents a one-time disposal costs related to unfinished inventory held at offshore factories.

(10)

Represents the income tax expense effect of the above adjustments, except for the tax liability receivable adjustment. This adjustment uses an effective tax rate of 25% for all periods presented. For the three and six months ended June 30, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets. For the three and six months ended June 30, 2022, this also includes the $11.0 million discrete benefit from the release of a valuation allowance on the outside basis deferred tax asset.

(11)

Adjusted net (loss) income margin is calculated as Adjusted net (loss) income as a percentage of net sales.

(12)

Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales.

 

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