Good afternoon, and welcome to Funko's Conference Call to discuss Financial Results for the Fourth Quarter of 2021. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that, reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this call is being recorded. I will now turn the call over to Ben Avenia-Tapper, Director of Investor Relations to get started. Please proceed.

Thank you, and good afternoon. With us on the call today are Andrew Perlmutter, Chief Executive Officer; and Jennifer Fall Jung, Chief Financial Officer. Before we begin, I'd like to remind everyone that, during the course of this conference call, management will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that, we highlight during the call, important factors that may affect our future results are described in our most recent SEC reports, and today's earnings press release. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable US GAAP financial measures and supplemental financial information can be found in the earnings press release and 8-K that we released earlier today. All of these items, plus a visual presentation that investors can consult to follow along with this discussion are available on our Investor Relations website investor.funko.com. I will now turn the call over to Andrew.

Good afternoon, everyone, and thank you for joining us today. Today is my first earnings call as the CEO, and it is my pleasure to announce Funko's best quarterly and annual results ever. We surpassed $1 billion in annual net sales and reported the highest full year adjusted EBITDA and EPS in company history. The strength was broad-based with growth in all channels geographies and brand categories, reflecting the power of the Funko brands to generate sustainable demand throughout the volatility of the past two years. Our employees, fans and partners all deserve a tremendous amount of credit for helping make this past year possible. I'll begin with some highlights from the year, before turning to the fourth quarter. In 2021, we grew figure revenue by 59%, sustaining excellent momentum in our core business, with strength across geographies and channels. We expanded into an entirely new market with the launch of digital Pop! NFT lineups. We launched new physical products like vinyl gold and Popsies, expanding our footprint with key retailers and introducing new fan bases to Funko, and we more than doubled our sales in the direct-to-consumer channel. These achievements contributed to more diverse revenue mix, and top line growth of 58% for the year, with adjusted EBITDA margin expansion of more than 200 basis points. Our ability to deliver product, while managing through supply chain disruptions has been critical to our performance. We took important steps this past year to onboard new factories, providing additional capacity, and further diversifying our manufacturing footprint, to partially mitigate these disruptions, while strengthening our foundation for the future. The guidance, we provide today assumes that the current level of supply chain disruption, and specifically freight inflation, will persist at least for the first half with only modest relief possible in the second…

Thanks, Andrew and good afternoon, everyone. We're pleased to report record fourth quarter results, highlighted by net sales growth of 48% over the prior year and 57% of our pre-pandemic 2019 results. This strong performance reflects continued demand and broad-based strength across our categories, geographies and channels. The overperformance relative to our expectations was primarily driven by wholesale both domestically and internationally. All comparisons are to the fourth quarter of 2020 unless otherwise stated. Net sales in the US increased 47% to $253 million while net sales in Europe grew 59% to $64 million and other international markets increased 32% to $19 million with growth in all primary regions. On a product category basis, Q4 net sales of figures including action figures grew 50% to $255 million driven by strong growth in our core POP! brand. Non-figure product sales increased 44% to $81 million primarily driven by bags and wallets under our Loungefly brand as mixed with higher Loungefly ASPs. While a small on a dollar basis, we also had strong growth from games, plush and accessories. And that our existing brand structure, the Pop brand grew 41% to $238.7 million, while the Loungefly brand grew 57% to $49.7 million and other brands grew 88% to $47.9 million. As part of our continued focus on building a leading pop culture branded company beginning in the first quarter of 2022, we will begin providing revenue under our new branch structure of Funko collectible brands, the Loungefly brand and other brands, which will include Funko toy and game brands and digital. The number of active properties in Q4 increased 26% to 915. Net sales per active property were $368,000 in the fourth quarter, an increase of 17%. For a list of our top performing properties in the quarter, please see our accompanying…

We will now begin the Q&A Session. [Operator Instructions] The first question is from the line of Stephanie Wissink with Jefferies. You may proceed.

Thank you. Good afternoon, everyone. We had two questions. The first is just on the diversification by property really impressive to see the top-10 at that 30% level. So Andrew maybe talk a little bit about the diversification. You mentioned some new categories in the arts and sneaker world that you're entering how do you think about that concentration effect continuing to mitigate over time?

Thanks for the question. Yes, we've put forth an effort to continue to diversify our revenue streams. And we're starting to see the fruits of that labor as you can see. So what you had referenced was the Gold program that we did that really focused on sports and music. We've talked about the diversification that we're seeing with the Loungefly brand the toys and games, which are smaller, but also create a lot more diversification. So I would say that what you're seeing is a result of a conscious effort to continue to diversify across all avenues of fandom and that goes anything from sports music video games TV movies et cetera. And you're starting to see us continue to grow our universe of properties.

That's helpful. And then Jen just one quick one for you. Thank you for all the information on freight rates. It's really helpful to hear. Anything we should be thinking about on your raw cost of goods in terms of resins anything you're seeing within the cost of goods basket beyond shipping that we should be thinking about within gross margin? Thank you.

Yes. And good to hear from you, Steph. Yes, really the main headwind for us is the uncertainty in the supply chain and that's what we've really reflected in our guidance. So that's why we really stay focused in terms of -- as you're looking at each of the quarters.

Okay. And just for one more in. You gave 80 basis points of pressure from -- it seems like more of a transitory D.C. and ERP implementation and transition. Any context on when that 80 basis points is concentrated? Is it first half second half? Anything we should be mindful of?

Yes. Yes, first half for sure. We will probably launch in the beginning early the Q3 for the ERP, but the distribution center move will happen in the first half.

Okay. Helpful as always. Thank you, everyone.

Thanks, Steph.

Thank you. The next question is from the line of Linda Bolton-Weiser with D.A. Davison. You may proceed.

Yes. Hello. Congratulations on a strong quarter and year. So your growth outlook for the top line for the next year is quite a bit above what the Street had. And maybe you could just give a little more color? Is it that there's going to be just so many more entertainment properties as we come out of the pandemic, or is it new distribution, more geographic expansion? Just can you kind of give us a little more flavor on just why you have confidence in that very high growth rate continuing?

Hey, Linda, it's Andrew. Thanks for the question. Good talking to you. So I would say that as we take a look at the business and where we're coming off of 2021, we are – it's not necessarily about content or theatrical. You're seeing the reflection of us diversifying our business. And that goes across channels of distribution, that goes across geographies. You're starting to see the company really action some of the initiatives that we've been working on over the past couple of years. And I think that is being reflected in what you're seeing in that. I'll hand it over to Jen to add in.

Yes. Hey, Linda, thanks so much. And keep in mind too that we did announce that we have – we are putting into play a price increase last year that will go into effect mid to late Q1. So that is contributing to the top line as well. And we are – at this point we're not seeing pullback in units. So it's a combination of units and price increases.

Okay. Great. Also – can you – I have several brand companies that are pushing on their DTC strategy and trying to really drive that business – but sometimes there's cautionary tales about being able to balance that initiative with your relationships with your retail partners. Can you talk about how you're kind of balancing that and making sure that your DTC doesn't threaten that important business with retailers?

Absolutely. So that is one of the differentiators about our business and it always has been whether it's differentiation of retailers in the marketplace of which now Funko is one. We drive differentiation through products. So exclusivity on different products that we drive different people to various retailers. We have retailers that overindex in anime properties and retailers at overindex in sports and music. And so the variety of products that we make and our ability to make specific products for specific retailers drives foot traffic to those retailers. That's our key differentiator. Very different than I think some of the competitors that you might be referring to or other branded businesses that you're referring to where they don't have that breadth of SKUs that we have, that's always been sort of a differentiator for Funko and it will be continue to be in the future.

Got you. Thank you. And then finally just in terms of your game and toy expansion. You are small but you're getting bigger. And let's see, I see that Funkoverse I think that was one of your first products that's still out there on the market. But have you had any major lines of products in the toy game area that did not succeed that you've discontinued since you entered the category?

You know for the most part there are different life spans, when it comes to various items and some items are not meant to be in the market for a long time. I think with games and toys for example -- I'm sorry games for example -- it's not -- that is not necessarily the goal is actual longevity -- so to see uncover still on the shelf is a great sign. And we think that there's tremendous longevity in that category with titles that really resonate with consumers. If you take a look at some of the great games out there that have been around forever, that sort of tied to that specific industry not everything will be on the shelf forever. But the longer the better we really like that about the games business. It's very different than some of our other businesses. In the toy business, it goes both ways. There are smaller initiatives that are more in and out programs that we've had a couple of. And then there are bigger initiatives that we want to build on more of a branded approach in the toy aisle than an unbranded approach which is more of a short-term opportunity. So I'm not sure if that answers your question, but I would say longevity on the game wall is definitely a goal. And then it comes down to the toy release like for example, I'll use the Turbo Man that we had last year in Walmart, you may see an iteration of that on the shelf, but you won't see most likely that exact same item the next year, but it was a tremendously successful item. That's part of the strategy around keeping things fresh. And again something that slightly differentiates Funko from some other people in the aisle.

Great. Thank you very much.

Thank you.

Thank you. The next question is from the line of Megan Alexander with JPMorgan. You may proceed.

Good morning. Thanks very much and congrats as well on the strong results. On the gross margin, can you just remind us historically, how much of your freight contracts, are contracted versus spot? And how are you thinking about planning that this year? Are you going to try and maybe lean more on spot, given it seems like hopefully people think freight rates the spot rate could come down later in the year?

Yes. So historically, we've been a little bit different in that we do operate in the spot market. And we anticipate continuing that given all the uncertainties in the freight world right now.

Got it. And then, in terms of the price increases can you just talk about -- do you look to maintain gross margin rate? And I guess if freight does pull back a little bit more than expected, could that be a good guide to gross margin in the back half relative to what you're expecting right now?

Yeah. There's really a lot of uncertainties in that. And so we try to make sure we are prudent in looking at the full year and trying to provide some guidance. From a price perspective, I think that's the first part of your question, eventually, yes, that would be the margin accretive piece to it, but we really do need to see kind of where freight kind of settles and normalizes.

Got it. That’s helpful. Thank you.

Thank you.

Thank you.

Thank you. [Operator Instructions] So there are no additional questions at this time. I will now pass it back to the management team, for any further remarks.

Thank you all for joining today. I appreciate it. Special thank you, to our employees, and our fans and our partners for a wonderful 2021, we look forward to a great 2022. Thank you.

That concludes today's conference call. Thank you. And have a great day.