Good afternoon, and welcome to Funko’s conference call to discuss financial results for the fourth quarter of 2022. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. And as a reminder, this call is being recorded. I would 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 Brian Mariotti, Chief Executive Officer; and Steve Nave, newly appointed Chief Operating Officer and 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 the most directly comparable U.S. GAAP financial measures and supplemental financial information can be found in the earnings press release and 8-K that we released earlier today. All 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 turn the call over to Brian.

Good afternoon, and thank you, everyone, for joining us today. As most of you know, this is my first earnings call as I step back into the role of CEO in December. I’d like to use this call to provide an update on the important work that is underway at Funko. I want to first emphasize that I stepped back into the role of CEO because I fully believe in the power of the Funko brand and its potential, but I also recognize significant operational issues confront us. Our first priority is a reset of our operations, which we are addressing with urgency, but it won’t happen overnight. Recognizing our current situation, I think it’s important to understand how we got here. Since we IPO-ed approximately 5 years ago, we’ve more than doubled our revenue. We have taken a nascent direct-to-consumer business and grown it to 15% of total revenue this past quarter. We’ve expanded into multiple demographics and we’ve added amazing new brands for our pop-culture platform. This rapid growth brought challenges that we are now addressing. Our history proves that we can deliver reliable, profitable growth. But to do so, we will need to reset our operational foundation. With that context, let’s turn to the results for the quarter. Demand for our brands is stronger than ever, but we’re still early in our operational reset. Looking at our financial results for the fourth quarter, net sales were $333 million, down 1% year-over-year, wrapping up the year in which we grew 29% year-over-year. In our direct-to-consumer business, the channel we have the most control over, we grew 37% year-over-year. And on the wholesale side, while we don’t typically comment on point-of-sales trends, wholesale sell-through has been very encouraging. In Q4, we posted double-digit POS growth, well ahead of estimates of flat growth for the broader industry over the same period. While demand remains strong, our fourth quarter profitability was heavily impacted by our operational challenges. Adjusted EBITDA was a loss of $6 million and adjusted EPS was a negative $0.35. It was clear on our last earnings call that the business and our operations hit an inflection point, a combination of macro factors and Funko-specific issues have disrupted our financial and operating performance to an unacceptable degree. We’ll share more details on our financial results shortly, but I want to spend this time discussing the important work that’s underway and how we’re going to get our operations back on track. Our Board and our management team are deeply focused on execution and unlocking the potential of Funko’s unique value proposition. To begin, we have strengthened our leadership team. Steve Nave, who is with me on today’s call, joined us in early December in an interim operations consulting capacity. We announced that today, Steve will serve as both the new Chief Financial Officer and Chief Operating Officer. Steve brings a wealth of expertise spanning retail, consumer, and e-commerce industries. He served as CFO, COO, and CEO of Walmart.com, where he was responsible for all aspects of a multibillion-dollar e-commerce business. More recently, Steve was the CEO at a multi-channel retail brand. We are thrilled to have Steve on board. We made good progress in aligning the finance and operations side of the business, and that’s exactly why Steve will be serving in both capacities as CFO and COO. Allowing Steve to oversee both functions, we believe we’ll be better positioned for him to drive that alignment as we work across the organization to improve efficiencies and ultimately, our financial results. Our efficiency improvements fall into 3 categories: gross margin initiatives, fulfillment cost reductions, and other SG&A savings. These actions are well underway, but 2023 is still very much a year to operationally reset. Once completed, we believe these actions will save us between $150 million and $180 million annually. Our first category of focus to improve execution is on the gross margin line. Here, we have 2 primary levers: price and product costs, which, together, we expect to contribute approximately $60 million to $70 million in annualized adjusted EBITDA. Last quarter, we discussed extending our price increases to include our exclusive product line. The reception has been encouraging, and we believe our products remain competitively priced for our customers. We are also driving down our product costs with the introduction of a more competitive bidding process from our vendors and a more comprehensive assessment of cost throughout the product development lifecycle. The second and third categories include addressing our fulfillment obstacles and reducing other SG&A spending. Since the pandemic, we’ve added approximately $85 million in annual fulfillment expenses despite similar overall throughput in our distribution center. The mix of the business has changed since 2021. By focusing on execution, we can replan a significant portion of that spending increase. Combined, we expect fulfillment savings and other SG&A reductions to add $90 million to $110 million in annualized adjusted EBITDA. The first action addresses the efficiency of our distribution center. We’re implementing a warehouse management system that we believe will dramatically improve our cost to fulfill. This system is expected to be up and running this summer. The second fulfillment improvement action is addressing our elevated inventory levels. We are beyond the intended capacity of our Arizona-based distribution center. The volume is restricting our distribution center's throughput and incurring incremental container rental charges. By eliminating this inventory, which we expect to do in the first half of this year, we expect that will both reduce SG&A spending expenses and improve our gross margin by saving on incremental container rental charges. Finally, we are taking steps to reduce operating expenses across the board, including a workforce reduction of approximately 10%, tighter marketing spend, and other cost reduction actions to ensure our spending is aligned with our top-line results. These changes are ongoing, and we are focused on executing all these initiatives with a high degree of urgency. We expect the margins in the first half of the year to remain under significant pressure. However, by the second half of the year, we expect the combination of gross margin initiatives, improved fulfillment, and reduced SG&A spending to return our adjusted EBITDA margins to double digits. 2023 is a year for us to focus on operations. Most of that work is already underway and will continue throughout the first half of the year. Many of our retail partners have been very tentative in their post-holiday restocking, and we expect that to weigh on the first half. However, as already noted, demand and sell-through remain strong. We expect a robust second half rebound in the content calendar. These factors give us confidence in the top-line performance in the second half. That sales trend, coupled with the bulk of our operational improvements coming in the first half, lead us to expect our results to improve in the second half of the year. I look forward to updating you on the progress along the way. While we are heavily focused on execution, we have not lost sight of opportunities to grow our core business through new collaborations, adjacent product categories, new direct-to-consumer experiences, and new geographies. These opportunities are exciting and expected to help grow our business. Today, however, operational improvements are the most important. Our execution here will help us ensure we’re well positioned to win in these new growth opportunities in the future. We know that 2023 will be a year to reset, but I’m confident we will come out of this a stronger Funko from top to bottom. These steps will allow us to regain our operating leverage as we accelerate growth in the near future and deliver long-term value creation for the company and our shareholders. Now let’s turn it over to Steve to provide more details on the financial results of the quarter.

Thanks, Brian. Hey, everyone. It’s nice to meet you. I look forward to future conversations with each of you. I’m super excited about this business and helping to unlock Funko’s potential. I look forward to getting to know you all over the coming quarters as we continue on the operational and financial initiatives we have underway. Now jumping into the results. In the fourth quarter, we delivered net sales of $333 million, down 1% over the prior year. Our direct-to-consumer channel grew 37% to $49 million, driven by very well-received events, including Black Friday and Cyber Monday. The strong performance in our direct-to-consumer business was offset by slower sell-in on the wholesale side. Wholesale declined 6% to $284 million as we manage through a period of muted destocking across most of our retail partners. In the U.S., net sales declined 5% to $241 million, while net sales in Europe were relatively flat at $64 million. Other international net sales increased 45% from $28 million, with double-digit growth in all of our emerging geographies. On a brand category basis, net sales in our core collectible brands declined 7% to $244 million, on lower evergreen content, as we prioritize more time-sensitive current content in light of our constrained logistics. The Loungefly brand grew 31% to $71 million, bringing the full year growth to 68% year-over-year as the brand saw strong demand. Among our other brands, which include positions in digital products, net sales declined 13% to $18 million, as the ongoing strength of our digital collectibles was offset by fulfillment challenges in our games business. Turning to margin and expenses. Fourth quarter gross margin was 28%, well below our expectations due to multiple factors, including container rental charges and, to a lesser extent, chargebacks. These 2 factors reduced gross profit by approximately $15 million. While freight rates continue to improve, this was offset by container rental charges incurred when capacity constraints within our distribution center prevented us from unloading containers. As Brian discussed, we believe that our ongoing inventory management practices, combined with our lower product costs and increased pricing will allow us to get back to our historical margin range in the second half of this year. Moving on to operating expenses. We experienced significant headwinds due to constrained logistics. SG&A was $139 million, which includes a one-time $33 million non-cash charge for the write-down of capitalized costs related to a pivot in our ERP deployment strategy. In addition, there was approximately $3 million in incremental labor and third-party fulfillment expenses. For the fourth quarter, adjusted EBITDA was negative $6 million, due to container rental charges, chargebacks, and additional fulfillment expenses, all of which we are addressing in the first half of this year. Finally, adjusted diluted loss per share was $0.35. Turning to the balance sheet. We ended the quarter with $19 million of cash on hand. We ended the quarter with total debt of $246 million. Today, we announced an amended credit agreement that provides us with additional room under our financial covenants as we implement this year’s cost savings initiatives. Please refer to our 10-K filing for additional details. Inventory at quarter end totaled $246 million, up 48% year-over-year. As Brian previously mentioned, we’ve conducted an exhaustive analysis of our fulfillment network and have decided to reduce our inventory levels to improve our overall cost to fulfill by managing our inventory to the proper efficient operating capacity of our U.S. distribution center. We expect this action to result in an inventory write-down in the first half of between $30 million and $36 million. Before I move on to our guidance, I’ll note that we’ve all been incredibly focused on identifying and addressing opportunities for improvement. We believe that executing on our initiatives will position us to drive sustained long-term shareholder value. However, these initiatives will take time and in some cases, several quarters. As a result, we don’t expect adjusted EBITDA to be positive until the second half of 2023, but to improve sequentially throughout the year as these initiatives take hold. For the first quarter, we expect revenue of between $225 million and $255 million, excluding our anticipated inventory write-down. We expect gross margin to be slightly below this past quarter and to improve sequentially throughout the year as our inventory actions, pricing, and product costing efforts take hold. We expect SG&A to be sequentially lower by approximately $25 million. Adjusted EBITDA for the quarter is expected to be between negative $50 million and negative $45 million, returning to positive territory in the second half of 2023. We expect adjusted net loss of negative $53 million to negative $48 million based on a blended tax rate of 25%. And adjusted loss per diluted share of negative $1 to negative $0.90 based on a weighted average diluted share count of 52.3 million. For the full year, as gross and operating margins improve, we expect year-over-year revenue growth between 0% and 5%. We expect adjusted EBITDA for the year to be between $50 million and $75 million, with effectively all of that coming in the second half of the year. We’ve made steady progress, and there’s still much more to do. We’ve identified initiatives to capture between $150 million and $180 million in annualized adjusted EBITDA. The next two quarters will see us rebuild a stronger foundation for Funko, and we are confident it will produce meaningful benefits in the second half of 2023 and into 2024 and beyond. We appreciate your time this afternoon. Now I’ll turn it back over to Brian.

Thank you, Steve. In closing, we remain very encouraged by the strong support and demand we continue to see from our devoted fans. As I’ve said, we recognize our results are not where we want them to be, and we are working with urgency to take operational steps we need to deliver margin improvement and drive long-term shareholder value. We are confident in our ability to execute. Thank you for your attention today, and I will now turn it over to the operator for Q&A.

Thank you. The first question on the line comes from Alexander Perry from Bank of America Merrill Lynch. Please go ahead. Your line is open.

Hi, thanks for taking my question. I guess just first, is there any indication on when the operational headwinds from the lack of the warehouse management software at the new DC will be behind us? And then I guess the obvious question is, how much of a drag on sales, gross margin, SG&A, is that this year? So if we sort of exclude the operational headwinds, what would the guidance have been? You mentioned some pretty positive color about wholesale POS being up double-digit percent in the quarter. Is that the type of growth rate that 2023 sort of would be if it weren’t for the operational issues you guys are facing? Thanks.

Sure. Hey, this is Steve. I’ll take the first cut at this. On your first set of questions around the operational efficiency initiatives that we have underway, it’s going to roll out in phases throughout the year. For example, we’re already taking action on the inventory, and we’re already seeing some efficiency gains from that, although we’re not done with that work yet. We are starting to see some benefit there. We’ve already started to cut down on these container rental charges that we’ve been incurring as we basically cut those in half as of a couple of days ago. So we’re seeing that benefit already, and that benefit is going to continue to grow as we work through the inventory. On the systems side, which is really the biggest constraint in our U.S. distribution, we expect to have a warehouse management system in place this summer. Normally, in a systems implementation like that, it takes 45 to 60 days to fully settle in and work out the kinks. But we’re confident that after that burn-in period, we’ll see some really nice efficiencies, especially on the variable labor side of fulfillment.

Great. That’s really helpful. And then I guess just on the sort of two follow-up questions. Can you give us a little more color on the anticipated inventory write-down? Was this due to sort of lower wholesale reorders? Or is it primarily just the logistics issue, which didn’t allow you to unload the containers? And then my last question is what sort of led to the decision to not go through with the ERP implementation and take the charge in the quarter? Thanks.

Sure. On the inventory, it’s purely an operational thing. The products are good, but the facility was running at over 100% capacity when it needs to run around 80% capacity to be as efficient as we’d like. We were incurring all these storage costs, both in terms of the container rentals as well as some off-site storage that we had to procure in the fall of last year, and then another temporary one that we've had to put in place a few weeks ago. So the inventory reduction is purely in order to be able to operate more efficiently and save a lot of money on storage costs. We worked that trade-off through pretty tightly to understand that it takes a hit to get rid of that inventory, but we’re confident about the payback we’re going to get from being more efficient and saving on storage costs. On the ERP question: it’s a bit of an involved answer. We figured out in the early part of this year, let’s call it January, that we were not going to be on time with the launch of the ERP that was scheduled to happen this summer. Unfortunately, the warehouse management system for the Buckeye facility would have been tied to the launch of the ERP. We took a look at the landscape and other system solutions that were out there that we could implement much more quickly, including the ERP that we run very successfully in our EMEA business. We decided that we could move forward and invest less money in a pivot in the strategy than it would have cost to complete the original plan. The side benefit is it gives us the ability to launch a warehouse management system in advance this summer. So the full-blown ERP Phase 1 will not be completed until sometime in 2024, but we’re able to separate warehouse management from that now and go down that path separately.

Perfect. That’s really helpful. Best of luck going forward.

Thank you. I appreciate the questions.

The next question on the line comes from Linda Bolton-Weiser of D.A. Davidson & Co. Please go ahead.

I apologize if this has been addressed already, as I missed the start of your comments. My understanding was that this distribution center was nearly inaccessible, resulting in the need for additional storage and inventory in third-party locations. Are you now indicating that you are able to access the distribution center? I'm trying to understand what changes have occurred since the last discussion on this topic.

Yes, sure. So I mean, we’ve been operating that distribution center since, I believe, June or July of last summer when it went live. The problem with the inventory is it just became too cumbersome to operate efficiently. So the notion that we’ve not been able to access it, I would say, is not quite accurate. We’ve been using it. It’s been incredibly inefficient both because of the system issue as well as the inventory piling up. So, yes, I mean, like I answered from the last call, we’re already seeing some of the benefits of the changes taking place. Does that cover everything you asked?

Yes, that's fine. Previously, I know you provided very rough guidance because you weren't entirely sure, but you mentioned an adjusted SG&A level of around $100 million per quarter. Is that still accurate? You indicated it would be that high in the first quarter and then decrease. Can you provide more details on that?

The SG&A expenses this year are facing some challenges due to the annualization of certain costs and payroll from last year. We are actively working to reduce these expenses. Within SG&A, the primary focus is on variable labor costs, particularly in our distribution centers, where we anticipate seeing improvements. While we are starting to see some benefits now, the significant advantages are likely to materialize later this year. Additionally, we have several cost reduction initiatives in progress that will contribute to further reductions.

Sorry, I didn’t check your SG&A in the fourth quarter yet, but what was that number? Also, how much of the SG&A in the fourth quarter are unusual expenses that will eventually go away?

I might need to follow up with you on that question just to make sure that I’m capturing it correctly. Our fourth quarter SG&A was about $139 million, and that includes a $32 million charge for the ERP write-down that I just discussed. There were also small single-digit millions of other non-recurring one-time expenses.

Right. So even excluding the charge, that’s around $100 million. That’s a very large number for a company of your size. So I’m trying to figure out how much of it is unusual, like nonrecurring, sort of once you fix all your problems?

The items I just mentioned amount to approximately $40 million in nonrecurring expenses that we faced in the fourth quarter, which we will not encounter moving into 2024. There are additional challenges affecting this year's figures due to the annualized impact of any new hires from last year, which is a prime example of this. However, the cost reduction initiatives that Brian and I have discussed will significantly lower our SG&A expenses over time.

And will that be noticeable in the third quarter of 2023 or not until the fourth quarter?

It will be noticeable in the third quarter.

Okay. Got you. Thank you. And then one more thing on just the retail situation. I have a lot of my other companies talk about how specialty retailers didn’t stock up as much inventory, so they’re not reducing inventory because they never had it, but it’s the bigger box retailers that are more problematic. I think you talked about that. However, Walmart said their inventory was flat year-over-year in the last quarter. It seems like the problem is fixed almost pretty much. So is that the case? And why wouldn’t your sales growth then kind of snap back a little bit more quickly?

Yes, Linda, this is Brian. Yes, I would say that you’re accurate on the first part. Definitely, specialty has not had the dip that some of our bigger partners did when they had some over-inventory positions and they began basically canceling orders in late third quarter and throughout the fourth quarter. We are seeing some rebound, but we’re also still seeing a little bit of conservative nature in terms of ordering with some of the bigger accounts. The one thing that is in our favor and has been is lack of concentration, right? No single retailer is more than 8% of our overall business. And our number one customers are ourselves, at close to 15% for the quarter, which is our direct-to-consumer channels. But yes, it’s been a slow, but starting to show take on our bigger retailers in terms of increasing their orders with exclusive content in the everyday items.

Okay, all right. Thank you very much. I really appreciate it.

Thank you, Linda.

The next question on the line comes from Megan Alexander of JPMorgan. Please go ahead. Your line is open.

Hi, thanks for taking my question. To follow up on that, is there any way within the guide of the first quarter, at the midpoint, maybe down 25% that you could unpack the impact from maybe some normalizing seasonality, the impact of destocking? Just help us understand what the actual core underlying demand that you’re projecting there is and maybe what you’re expecting for POS. And are you seeing more destocking than your POS might suggest, given your inability to fulfill product? And when would you expect that dynamic to reverse?

Yes, I think there’s a lot to discuss, and it will take some time to explain it all. Those are great questions. We also need to consider that we are comparing ourselves to an unusually strong quarter in the first quarter of last year. When we set our sales expectations for the first quarter, we factored in that particularly January and February of last year had exceptionally high sales due to supply chain issues that pushed orders and restocking from the November and December timeframe into January and February. Therefore, the essentially flat to 5% growth expected for the first quarter of this year is largely due to that situation.

Yes, we are still seeing great trends in sell-through on POS. The brand continues to perform extremely well. However, we are experiencing a slower influx of orders from some larger customers. That said, as I mentioned in response to Linda's question, things are starting to improve, and we're feeling very optimistic about the strong POS.

Okay. And then maybe a separate question. Are there more investments in capacity needed after this? I think you mentioned you were running additional 3PLs and last I heard you hadn’t moved Loungefly into the new DC. So if that warehouse is already at 100% capacity, how should we be thinking about additional investments beyond this needed to achieve the growth you expect? And related to that, how much of the $180 million of savings actually flows through to the bottom line?

Sure. The first thing that I’ll say is we’re leaving no stone unturned on the supply chain side. So we’re looking at every possible option to enhance the network in a way that’s more financially efficient than what we’re delivering today. Specifically on things like Loungefly, we’re moving the Loungefly direct-to-consumer business into Buckeye that hasn’t happened already. It’s like happening this week or next. So we’re going to start fulfilling that product out of the Buckeye, Arizona facility here very soon. We are looking at all of the third-party logistics partners that we have, not just the Loungefly partners, but all of them to understand if there are some synergies we can get by collapsing those into one or two larger facilities, etc. As it relates to Buckeye specifically, the inventory reduction initiative is going to allow that building to handle the capacity that we need for the next couple of years for sure. But we are also still looking at potential long-term 3PL solutions as we grow into more volume.

Yes. I’ll add just one more thing on to what Steve said, which is a real hyper-focus on FOB pickups from some of our bigger customers that we finally had a chance to set up direct ship. We’re also pushing a lot more volume out of Asia in 2023 than we ever have before. So another encouraging trend for us as we put in the WMS for mid-summer and really think that the efficiencies in the warehouse in terms of getting product out the door and cost to fulfill will be on their way down starting in the third quarter.

Okay. That’s helpful. Maybe if I could sneak in one more, just as a follow-up to the previous question. Is there any way you can share what DDC looks like through the first two months of the year relative to the 37% you talked about in the fourth quarter?

Yes. I mean, look, it just continues to grow for us. I mean, it is our strongest growth category. The fact that we have control over that makes it a little bit easier with some of the difficulties in the last quarter, 1.5 quarters of some of the bigger retail partners. We continue to just broaden the ability to fulfill quicker out of those direct-to-consumer orders. We have great content coming out of the D2C channel. So we do expect significant growth for direct-to-consumer throughout the entire year. Obviously, the content slate gets a little bit better toward the middle and end of the year as compared to the content slate in 2022, which was about as poor as I’ve seen it in years. Loungefly and Funko continue to do really great things in direct-to-consumer, and Mondo’s business, which is going to grow significantly this year since we acquired it, is pretty much all direct-to-consumer. So we will continue to see a lot of growth in that channel for us, and we’re really happy about that.

Okay, thank you very much.

Thanks, Megan.

The next question on the line comes from Gerrick Johnson of BMO. Please go ahead. Your line is open.

Hi, good afternoon. Thank you very much. Steve, can you talk about the inventory that you are liquidating, what type of product that is? I think it’s important given that a lot of your customers are collectors. And where is that product being liquidated? And how is that being done?

Sure. We’ve gone after the oldest inventory first. Again, inventory that we felt like we could sell over time, but due to the operational constraints, it’s just better to get out of it. We’ve looked at all the inventory that’s been the oldest as our first bucket. Then we’re looking at anything where we feel like we’re selling quite a bit of it, but we might have more weeks of supply than we need to manage the business efficiently. There are about 8 different lenses that we’re using to look at all of our inventory to determine which units are going to get destroyed. Speaking to how and where that’s happening, we’re using a third party, not far from our distribution center in Buckeye, Arizona, so we’re not going to incur too much transportation expense to do that, but we’re using a facility that can certify the destruction for us so that we can provide certificates of destruction to our licensors.

Okay. So it’s being destroyed, clear. And the product, I guess, would be a whole range of products from pop on to other products that you sell, I don’t know.

Yes, absolutely.

Okay. And Steve, can you discuss the inventory at Hobby and specialty a bit more? More importantly, now that you’ve taken on this role and examined the situation, do you have confidence in Funko’s systems and their ability to track that inventory?

Well, that’s a 2-part question for sure. My confidence level is yes; we don’t have the best systems right now, which is why we talk about things like an ERP and a warehouse management system. I have confidence that we’re going to get to a place where our systems infrastructure supports the business the way it needs to. In the meantime, a lot of this stuff is done semi-manually. We’ve implemented lots of redundant controls in the generation of the products that we’ve flagged to get rid of as well as kind of the execution of getting the files passed back and forth between our planning group and the distribution center. I’m confident we can do this without messing it up. Very confident. One thing I wanted to go back and just emphasize though, Garrett, is yes, we are destroying this product, but we’re doing it through a very green third-party firm that’s going to recycle everything to the extent it can be recycled. So I just wanted to make sure that everybody knew that we’re trying to do this as responsibly as possible.

Okay. Thank you very much.

Yes, thank you, Gerrick.

The next question on the line comes from Stephen Laszczyk of Goldman Sachs. Please go ahead.

Hi, thanks for taking the question. Maybe just one more on the new distribution system. I was wondering if you could talk a little bit more about what the biggest differences will be between the new system compared to the one proposed last year? And do you anticipate that the new system, once implemented, will have an opportunity for efficiency over the long term as the plan you laid out at Investor Day last year?

Yes, Steve. That’s a good question, and I’d like to clarify something for everybody. The new warehouse management system that we’re talking about deploying this summer is what I would call a warehouse management system light. It’s not necessarily the permanent solution, but it’s something we know we can deploy very quickly with very little incremental cost, relatively speaking. It may be that as we complete our analysis around what the right permanent solution is that would be tied to a full ERP launch; we may go in a different direction again. Although I expect what we’re going to find with the lighter system that I just mentioned is we’re going to end up with about 70% to 80% of the feature and functionality that we would have gotten with a full-blown top-shelf warehouse management system. It’s such a leap forward for our business to have that percentage of features I mentioned that it’s going to produce amazing benefits in terms of our ability to operate efficiently, but it may not be the full-term solution going forward. The benefit of taking this bifurcated approach to the deployments is we won’t be dependent on the actual ERP to get the systems implemented. When we implement the new ERP, we don’t have to implement a new top-shelf warehouse management system if we decide to go down that path at the same time. We can still keep it bifurcated through the ERP, let that burn in, and figure out the issues that every system implementation has, and then go back and upgrade our warehouse management system if we decide that that’s worthwhile.

Thanks, that’s helpful. And then maybe separately, could you talk some more about the assumptions behind your 2023 outlook, maybe just in terms of your outlook for the economy, the health in pacing of the consumer and what you’re hearing out of the retail channels in terms of the back half orders picking up? That would be helpful.

Yes, I'll take that one. Yes, look, we have visibility to our order book through Q3. We also know there’s a lot of great content coming in 2023 compared to 2022. We’re seeing, as I said earlier, a thaw from some of the bigger customers in terms of ordering back to their normal levels on a week-to-week basis for us. The combination of all three makes us think we’re in a really good position to start building momentum towards the second half of the year. As we do that, the implementation of the Parachute and the FOB fulfillment are increasing dramatically in Asia, plus better systems in place like Steve said. Every angle that we’re looking at in terms of getting better at fulfilling, getting faster at fulfilling, and reducing our cost to fulfill should all start to take shape in Q3 and Q4. So ultimately, based on the super positive POS for the brand and the fact that specialty has always been a big part of our overall business with the lack of concentration we have, we see this continuing to build back to what we think are really good levels in the second half of the year.

Great. Thank you.

Thank you, Steve.

The final question on the line comes from Andrew Uerkwitz of Jefferies. Please go ahead.

Great. Thank you. I appreciate the time. Just two quick ones. The first one is with all these moving pieces and kind of a stronger back half; could you share with us a little bit of color around what you think like exit rate gross margins or exit rate operating margins would be as we exit this year and get a lot of these issues behind us?

I’m not sure if we’re sharing that level of detail yet about the exit rate on the year, but you’ll certainly see those trends improve throughout the year.

Got it. And then…

I think as we get towards the very end of Q3 and Q4, we’re going to start seeing our EBITDA in positive double digits. So we are getting back to historical numbers that Funko has operated for years and years. Again, like Steve said, it’s going to take us a little while to get there. But as we end the year, we’re going to feel like we’re in a really good place going into Q1 of 2024 with numbers that are much more in line with how we’ve operated the business for the last couple of years.

Got it. That’s helpful. I appreciate it.

Thank you, Andrew.

We currently have no further questions, so I’ll hand back to the management team for any closing remarks.

Yes. I appreciate everybody’s questions and their time. Thank you very much.

This concludes today’s conference call. Thank you all for joining. You may now disconnect from the call.