Good afternoon, and welcome to Funko's Conference Call to discuss Financial Results for the First Quarter of 2022. 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 in today's earnings press release. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to their 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 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. Q1 was an excellent start to the year building on the strength and momentum of 2021, we significantly outperformed our top line revenue expectations effectively navigating ongoing headwinds throughout the global supply chain. Revenue was $308 million, an increase of 63% over the prior-year, and well above our target range. Our results were broad based with strength across brand categories, geographies and channels, particularly within the domestic mass market and online retailer channels. Q1 highlights include a number of positive indicators across the business that demonstrates the strength of the Funko Pop! Culture platform underpinned by our ability to connect with our fan bases across the world. We continue innovating in our core collectible brands category generating 53% revenue growth over the prior-year. Loungefly grew 104% year-over-year and now represents 60% of the total business. We delivered strong sales growth in our direct-to-consumer channels, led by increased traffic on our websites, enhancements across our e-commerce site grow year-over-year improvements, an important efficiency metrics including conversion and bounce rates. Our channel wide price increases were effective and helping to offset ongoing supply chain cost pressure while we maintain strong unit demand. And together with our newest NFT partner Warner Bros. we released Scooby-Doo, which was our largest Digital Pop! NFT drop to date surpassed only this morning by our second Warner Bros. collection DC Comics. These strong results can be attributed to three primary factors, exceptional consumer demand, a portfolio comprised of compelling industry leading brands and focused execution by the entire team. Our excellent first quarter performance gives us even greater confidence in the business going forward. As a result, we are raising our full-year revenue and earning targets. Now I'll review some of the highlights from the quarter for…

Thanks, Andrew. And good afternoon, everyone. We're pleased to report a record first quarter with net sales growth of 63% over the prior year. Our results were broad base with strength across our brand categories, geographies, and channels. The outperformance was primarily driven by domestic wholesale either by a lesser extent, to demand that shifted from Q4 of 2021 due to supply chain disruptions. Net sales in the U.S. increased 70% to $232 million, while net sales in Europe grew 43% to $57 million and other international net sales increased 48% to $19 million. To provide better insight into our entire brand portfolio, we began reporting net sales on a brand category basis this quarter, including the prior year period for comparison purposes. With our core collectible brand, net sales grew 53% to $240 million driven by strong growth in our core Pop! brand and supplemented by our emerging collectible brands. In addition, our Loungefly brand more than doubled to $50 million primarily driven by bag and wallet sales, a rebound in some of Loungefly's most important wholesale partners, including theme parks, and improving product availability relative to Q4 2021. Among our other brands, which includes Toys & Games, as well as digital net sales grew 140% to $19 million. On a product category basis figures, which includes action figures increase net sales by 59% to $240 million driven by strong growth in our core Pop! brand, Five Nights at Freddy's toy collection and our newer figure lines. Non-figure product sales increased 77% to $68 million, primarily driven by strong demand in bags and wallets under our Loungefly brand. As our portfolio brand evolves, the number of active properties is no longer a relevant metric to analyze the health of the business. Beginning this quarter, we will report this metric…

Thank you. [Operator Instructions] We have a question from Stephanie Wissink from Jefferies. Stephanie, your line is open. Please go ahead.

Thank you, everyone. We have two questions, if we could. The first Andrew, if you could just talk a little bit more about Loungefly. It's just been so powerful as a driver outside of the core business. So I'd like to give you a chance to share with us what's similar about the ramp in Loungefly, relative to your fan base business. And then what's unique that you find that it's augmenting the rate of that growth being so much stronger, so much faster?

Hey, thanks for the question. So I think that what we're experiencing with Loungefly is, you're seeing a company like Funko, get a hold of companies like Loungefly, and really put our resources behind it. And it's a relatively small company. So as we put it into our distribution channels, and we take advantage of our licensing relationships, retailer relationships, our global distribution, obviously especially, I mean it's really growing very quickly in EMEA for us, I think that's why you're seeing sort of this explosive growth with that brand. Obviously, we're thrilled with the consumer base, because there's such a huge overlap with Pop culture and the love for the same IP is our core fans. Obviously, it's a more female demographic than our core collectibles, customers, fans. And so I would say that that's really what's adding to the success of the -- and the quick, the fast growth.

All right, that's great. And then Jennifer for you is on your remarks around the one-time project spend for ERP and DC RELO. Can you just help us think through the total amount that you anticipate spending and then anything more by cadence by quarter would be really helpful?

Yes, thanks for the question. Nice to hear from you, Steph. So yes, we reported out that was about 80 basis points on the year, all of which will happen in the first half of the year. It's about two points of pressure just in Q2 on adjusted EBITDA. So we're launching, or we did launch the new DC in April, and the ERP is set to come out at the end of the quarter.

Okay, so anything trickling into the back half or should we assume that it's pretty much done after Q2?

Yes, it's really the pressure is all in the first half of the year, specifically Q2.

Okay, thank you.

Thank you. [Operator Instructions] Our next question is from Megan Alexander from JPMorgan. Megan, your line is open. Please go ahead.

Hi, guys, thanks for the question. I wanted to spend a little bit more time on the TCG announcement. In their press release, they talked about the opportunity for Funko to develop its own properties into entertainment franchise, similar to what they've done with things like Exploding Kittens. So can you just talk about that opportunity a little bit more. How you see this investment helping to accelerate that? And in terms of the marketplace, what is the primary marketplace for reselling of Funko at this point, and how exactly will that work in order -- in making eBay the primary marketplace?

Hey, its Andrew. Thanks for the question. So, let me take the second part of your question first, which is eBay has always been our preferred visual secondary marketplace. That's where our fans prefer to go for the secondary marketplace. And so we -- we've had a long standing relationship with eBay and we think this will just prove to strengthen that relationship over time. We're really excited about partnering up with them on multiple initiatives that were quite frankly in the works for a while now. So we're excited just to continue to grow those opportunities. When we take a look at the TCG partnership, we -- their portfolio of companies is really an interesting, it provides us with a lot of opportunity. There are some overlaps with what they do with the collector community, there's a lot of entertainment overlaps, and as we talk about things like the Funko generating our own IP, and potentially going after the entertainment space, these are all things that we've been talking about for a little while now. And we think that, there are going to be opportunities presented to us, by way of this new partnership that we're really excited about. It's still early days, and we're still exploring, all the different potential opportunities, but we are thrilled with the connections and the networking in the doors that this partnership could open up for us.

Great, that's really helpful. And maybe just a follow-up. It seems like you've raised the top-line for a little bit more than where you'd be the street on revenue in 1Q. Is that just what you're seeing quarter to date or can you talk a little bit more about that? And then, on the bottom-line, you talked about 2Q gross margin being lower sequentially on freight. Did anything change in terms of the expectations in the back half? Are those more or less unchanged?

Yes, great. This is Jen, so we feel really good about our guidance, guiding to $1.275 billion to $1.325 billion 24% to 29% growth rate. So we feel really confident about our ability to deliver on that for the full-year. And as you look at the margin rates, yes, we will see more pressure on gross margin in the second quarter. There was a little bit of a benefit from just some timing shifts in Q1. So that's why we do feel that margins will go down in the second quarter sequentially, the quarter-over-quarter, but then as we get into Q3 and Q4, there's we haven't necessarily changed a ton of input on Q3 and Q4, we did have freight remaining fairly high, but we do think there'll be -- a little bit of relief in Q4. So unfortunately, it's a bit of a hockey stick on the margin front the way it looks, but Q2 is where we're seeing the pressure from the SG&A perspective on the investments as well as on pressure from freight.

Awesome, thank you.

Thank you.

Thank you. [Operator Instructions].

All right, thank you everybody for the questions. And thank you to all of our fans and employees for our fantastic Q1. Thank you very much.

Thank you, everyone for joining today's call. You may now disconnect your lines, and have a lovely day.