Funko reiterates going concern warning as profits drop

Dive Brief:Funko said there is substantial doubt in the company’s ability to continue as a going concern for the next 12 months, according to a filing with the U.S. Securities and Exchange Commission.Leadership evaluated the company’s future liquidity, forecasts of expected tariffs and its ability to comply with a credit agreement, and anticipates it won’t be in compliance with its credit agreement covenants as of Dec. 31.Funko also stated that, based on announced tariffs and “other facts and conditions,” its cash flow may be insufficient to support working capital needs within the next year.Dive Insight:Funko said it is not forecast to have sufficient cash reserves to fully repay the loans under a credit agreement that matures in September 2026, and the agreement will need to be refinanced.The toy company has hired financial services firm Moelis & Company to advise on its refinancing process, CFO Yves LePendeven said on a call with analysts.Funko first issued a going concern warning in May. At that time, the company said it was in compliance with its debt covenants and had “ample” liquidity to operate the business.Since that time, the company brought on a new CEO, Josh Simon, from Netflix where he was serving as its vice president of consumer products.In the third quarter,net sales were down over 14% year over year to $251 million, while net income dropped nearly 80% to $948,000. Total current liabilities increased nearly 50% to $457.4 million.The company is focused on growth through its “Make Culture Pop” strategy, which is based around culture, creativity and commerce. Objectives include becoming the definitive brand for transforming pop culture into products, expanding its product offerings and expanding internationally with a focus on Asia and Latin America.“I’m only 60 days into the role, but it’s already clear how powerful the Funko brand is and how much growth opportunity lies ahead,” Simon said in a statement. “Our Make Culture POP! strategy is all about being at the center of the moments everyone is talking about. Beginning with lightning-fast launches like KPop Demon Hunters — where we’ll be one of the only licensees on shelves this holiday season — we’re moving fast to turn pop culture into products, expanding into new fandoms, delivering bold retail experiences, and celebrating the creativity that makes Funko unique.”