FNKO

Hi, everybody. I'm Tristan, but most people know me online as Top Pops. Today, we are here on Hollywood Boulevard in front of Funko Hollywood. This is the only store that you can find on the Walk of Fame that has literally every corner of entertainment, music, TV, anime, gaming, sports, all in one place. Today, I'm here to host Funko's first quarter financial results. Let's go inside. Hey, Groot. Morning, Spider-Man. Joining me are Josh Simon, CEO of Funko, Yves LePendeven, CFO, and Jessica Kong, the GM of Loungefly.

Tristan, Top Pops, thanks for being here.

No, thank you.

Just so everyone knows, you are a super creator, influencer in the world of collectibles. You cover the space more broadly. I think you know more about Funko and Pop! than probably all of us combined at the table. We thought it would be great to have you here and bring a new perspective to our earnings call. Is this your first earnings call?

It is.

Okay, just to confirm.

Yeah. Yeah.

I figured. Well, awesome having you here. We appreciate it.

It's so great to be here. I know, guys, I've spent a lot of time talking about Funko from the fan side, and today I get to ask the questions from the business side. Let's get right into it. How was Q1 for Funko?

Great business question. You nailed it at the top. The Q1 was really strong. I think it was the example of our Make Culture POP! strategy kind of starting to really manifest itself in the market. We ended Q4 with some momentum, and we saw that continue into the year. Overall, our sales were up 5% in the quarter. If you look at just the core collectibles business, we're up 17%.

If I can jump in, too, it's obviously pleased about the sales growth, but we also reported our highest gross margin ever of 44%. That drove an adjusted EBITDA of $11 million, which was way better than we expected.

Wow, that's great. Let's talk about what's new on the product side. Josh, you've talked about Funko being at the center of culture. What did that look like this quarter?

I go back to the Make Culture POP! strategy, culture, creativity, and commerce. You know, on the culture side, we wanna be part of all of these sort of fan entertainment moments, pop culture moments that are going on around the world while they're happening. Some awesome examples of that in Q1, you know, the big movers were KPop Demon Hunters, the final season of Stranger Things, One Piece, which is always really strong for us. We're also, you know, starting to see some really other great dimensions of the business with Mando Grogu coming out.

Our Star Wars business is really showing some nice growth. I'll even just use a more recent example of, you know, Michael Jackson. This is one of my favorites, the, you know, Smooth Criminal vibe, that sort of iconic, you know, leaning look that always mesmerized me growing up. How did he do it? Great to be part of that moment with the Michael biopic out right now. From a creativity standpoint, it's really about how are we taking those moments and turning them into products and frankly adding some more newness and dimension to our product line. I think Bitty Pop! is a great example of that. We saw strength in the quarter coming off of Q4, rolling out into Walmart.

From a seasonal basis, I'll give a great example, which is, you know, this sort of Bitty Bouquet for your Valentine's Day lover. You know, you can, it's this sort of bouquet stand, and you can sort of swap out whatever Bitty Pop! you're interested in there, which I think is a great evolution of a moment that we can play out with Bitty Pop!. You know, I'll point out sort of something in the world of Demon Slayer, which is obviously a great IP for us. Kind of like a sumi ink paint deco to, you know, to the Pop!, which just helps to bring some freshness and newness to the fans of Demon Slayer. From a commerce standpoint, it's really about, you know, how do we bring these products to life for fans?

I think, you know, we like to say turning shelves into stages. Some really fun experiences that I think are examples of that from the quarter. I went a few weeks ago to WrestleMania 42 in Las Vegas. Awesome weekend. Those guys, you know, always do a great job. We came to life at the WWE Fan Expo at the Las Vegas Convention Center with a Pop! Yourself experience, so you could, you know, customize yourself in exclusive WWE gear that you can only get there. We built the Pops on site. We also launched a limited edition WWE covers on our D2C site as part of the WrestleMania weekend, which was awesome. I think it's, you know, selling for three to four times on eBay right now, which is cool to see.

Also in the world of sports, I had the chance also to go to Miami. We have a brand-new shop-in-shop that opened at the new Inter Miami stadium. I was able to attend the second game in that stadium. Also an awesome Pop! Yourself experience there, an exclusive Messi Pop!, which you can only get at the stadium. Actually we really rounded out with some incredible Loungefly product as well. I think Yves there in his bag of tricks. There's a great, you know, a great example of some of the Loungefly products that we're selling in the stadium there for Inter Miami.

Yeah, that's right, Josh. This is our iconic mini backpack, for Inter Miami, along with one of the many bag charms that are available. Super fun collection.

I love that colorway, brings back memories. I grew up in Florida, so reminds me of, you know, the Miami Vice in the '80s, and we get to live out our sort of like Crockett and Tubbs, you know, duo here. It's a good one.

Speaking of Loungefly, Jessica, is there anything else new that you have?

Oh, well, you know what? I'm so glad you asked. Loungefly has a really strong base, right? We have an exceptionally loyal fan base. We have high brand equity and best of the best product placement in all of the Disney parks, right? We also have really great relationships with key retailers like BoxLunch and Hot Topic. We're also getting into premium. I can show you here our very first Swarovski collection that launched last year. This is a piece that was part of the collection selling at $400, which is well above the average $80-$90 price point that we normally hit. This sold out within hours.

Wow.

Right? Super excited to do more of these going forward. That being said, this year's really an important business reset for us, right? We cut our SKUs back by 50%, sales will be down as planned this year. That's really in order for us to improve SKU productivity and overall profitability in general, and we're already seeing the results of that, super encouraged by that. With that, we're doubling down on wearable storytelling. That means, one, expanding the styles that we do beyond the iconic mini backpack. With that, here is Heihei from Moana. She's a figural. She was actually our number one SKU last year, which is great, we'll continue to do more of these going forward. We also are doubling down on accessories.

Bag charms and pins are categories that are driving double-digit growth for us. Thank you, Yves. This is Mickey and Minnie, new figural bag charms that are launching later this year. Look, they hold hands.

Wow.

Cute.

Third, we are also expanding our reach with Gen Z. We'll be launching a new diffusion line that is much more everyday, functional, at a much more affordable price point.

This is all really great. Also, welcome to the team.

Thank you.

Now I've got to ask, is there any other changes you've made to the management team?

Yeah. We just had a brand-new head of marketing and brand start a couple weeks ago. Nik Rupp comes to us previously from Nike. Awesome to have him on board. I mentioned this last quarter, Andy Oddie, who's been with Funko for a long time, industry expert in many different ways, moved into a new role as our Chief International Officer. So, really giving some dedicated focus to growing the business in Latin America and Asia. He and I, about a month ago, spent a couple weeks touring the region. We met with our distributors. We spent time with our licensors and some retail partners in Korea and Japan and a few other locations. I came away, you know, really encouraged.

I think from an IP standpoint, you know, we already work with some of the biggest partners in the region. Like I'll use a sort of Zootopia from Disney as an example. This year, that was the highest grossing import movie ever in the history of China. Did about $630 million in box office there. Obviously we have a long-standing relationship with Disney. One Piece is another example of, you know, something in the anime world. Obviously we're into anime more broadly and, you know, really popular in the region. I think there's a lot of potential. It's gonna take some time to build the, you know, the foundation and the plans and kind of see us really supercharge that growth, but I definitely came away really encouraged about the opportunity in the region and also Andy, you know, helping to lead the charge for us there.

Yves, anything you want to add about the broader economic environment and what the rest of the outlook is for the year?

Obviously we're pleased with Q1. It was a strong start to the year. We expect that momentum to continue in Q2. Today we issued guidance for Q2. We think sales will be up low single digits to mid single digits and adjusted EBITDA between $5 million and $10 million. As we look to the second half of the year, it's a little bit too soon to say, but there are some favorable things going on. The current tariff rates that are in effect are a little bit lower than we'd planned, so that's great news, and we hope that continues. On the flip side, we're watching the news about oil prices pretty closely. We have not been negatively impacted yet, but it's a little bit too soon to say.

With that in mind, we're just reiterating our original guidance for the year, which was sales flat to up 3% and then adjusted EBITDA between $70 million and $80 million.

Thanks so much. Now, Josh, I've got to ask, is there anything that you're excited about coming up later this year?

I think, is there anything I'm not excited about? There's a lot this year. I mean, I mentioned it last quarter too, it's an awesome film slate this year, just sort of from beginning to end of the year. Mando Grogu soon, Toy Story, Avengers: Doomsday at the end of the year, which is awesome. We actually just spent some time across the street from our offices here in Burbank with the head of DC Studios last week, and think super excited for Supergirl. So big year for movies, TV shows. Sports is obviously also huge this year because of the World Cup. So, you know, we have the French, English, and U.S. national teams. We also have a great relationship with a lot of athletes.

I mentioned Messi, you know, earlier, who's playing for Argentina, Yamal for Spain, Haaland, you know, his Man City, is playing for Norway, and a few others. Then we even have the mascots. Can you, Yves, can you name any of the three mascots?

Don't put me on the spot.

We have the three mascots that represent U.S., Canada, and Mexico, who are hosting the game. Covering it from all dimensions. Look, the other thing I'd mention, we talk a lot about the importance of speed, getting product to market faster. We just had an awesome execution of that with WrestleMania. A surprise appearance from IShowSpeed, one of the biggest creators in the world. I think he has, like, 50 million followers each on YouTube, Instagram, and TikTok. Right as he was walking out to the ring, we dropped an IShowSpeed Pop! on our site and also on fanatics.com. You can expect a lot more of us both in that creator space and coming to market much faster, kind of in the moment for our fans throughout the year.

This is all really super exciting.

Yeah. Thank you.

Now let's turn to a couple questions that we have from a few analysts as well as some fans maybe even watching right now. First one we have here is coming in from Steve Laszczyk, Goldman Sachs. He asks, "What gives you confidence that the improving POS trends you saw in Q4 will continue in 2026?"

Actually, we had a great continuation of the Q4 trend. I'm happy to report, POS globally was up 6% in Q1. In the wholesale channel it was actually up 12%. By territory, that was up 6% in the U.S. and up 28% in Europe. You can see that's very much aligned to the sell in. It's very healthy trend, sell-in, sell-through, and we're pleased with that trend.

That's great. Actually another question from Stephen. What level of upside could we see from potential refunds of tariffs?

We've shared that we've paid approximately $20 million in IEEPA tariffs. We're taking all the steps that we need to obtain a refund, and kind of following the instructions there. Little bit uncertain on the timing. There is also a market to monetize tariff claims, and we're kind of exploring all of our options at this point, so more to come on that.

Okay. Next question we have here is coming in from Keegan Cox at D.A. Davidson. He asks, "Can you talk about gross margin drivers for Q1 and Q2?"

Sure. again, highest gross margin we've ever reported. It's not, you know, because of some kind of accounting adjustment or anything like that. It's really the result of so many things that we've been working on for the past six months to a year. Reducing the amount of discounting and promotional activity that we've been doing. We've also got renewed licensing agreements with our major partners. Just channel and sales mix all contributed to that 44% gross margin. Our guidance, 42%-44%, we expect that the trend should be able to hold for the rest of the year.

Okay. Perfect.

Yeah.

Next up we're gonna get into some fan questions here.

Great.

The first one's coming in from Da Bears Collection142. They ask, "What future Funkos are you excited for?"

I guess, like for me there's a few. Coming up at San Diego Comic-Con this year, I'm just gonna tease that we'll be launching and rolling out our POP! Mystery.

Very exciting.

Lineup, that's kind of taking a brand new lineup of people's favorite 4" Pop! vinyl figures, but putting them into more of a blind box mystery format. We're starting off with some really fun lines of WB horror, our own lineup on the POP! Horror line.

We got some really big IP coming into the future that I'm just gonna tease right now. There's also some really, I think, unique and compelling chase elements to it. That's one I'm particularly excited for. The other one I'd say is, you know, we've continued to see some traction in the world of, like, BookTok and Romantasy.

I would just say, like, if you can imagine, like, the biggest titles in that world, for those of you who, you know, who indulge as I do, we have those coming. We'll be announcing some of that soon, but I think that's just, like, a brand new category of fandom for us that I'm excited about.

I'll be honest, I'm pretty excited to make some videos on those too. Next one we actually coming in is from Fun To Collect, and they ask, "With Pop!s from The Fox and the Hound, Oliver & Company, and Atlantis already out, are you looking to keep expanding into older Disney films?"

Does Freaky Friday count in that?

Kinda.

That would be a personal favorite, but I mean, we work with Disney a lot obviously.

Yes.

We are constantly coming up with fun ways to, you know, bring some of their characters to life, I think. Definitely something we think about a lot on the Loungefly front as well.

Yeah, for sure. Our fans love Disney classics, right? That's something that is core to our portfolio, and we'll always continue to develop into that.

Cool. Sounds good. This next one here is actually kind of a joint question. There was two people that asked. It is Wasatch Pop and Chad Beaton. They are asking the possibility of retail footprint expansions.

Well obviously you're here in the, you know, the Hollywood store today. I think the next step that we really think about from a retail and a retail experiential standpoint is what we could do with our partners in that space. We're currently working on revitalizing and reconceiving our space with FAO Schwarz in New York. We're in the early stages there. I think that's an incredible sort of global flagship shopping destination. I think they do experiential retail better than anyone. They've been incredible partners. There's some newness we're bringing there. We are working on expanding how we think about that Pop! Yourself kiosk experience and how that could come to life with some retail partners. We'll be testing that later this year with some partners.

We haven't, you know, quite announced yet, but we will be, you know, rolling that out. We'll continue to experiment here in this store. We have a lot of space. I think we'll introduce and refine some concepts that in success I can imagine us rolling out into more places around the world.

Sounds pretty good.

Yeah.

This next one that we've got here is coming in from Noah MTV, and he asked, "What's your favorite comic book character you'd like to see become a Pop!?" Anybody?

I mean, look, we do a lot in that space, and I think, you know, that's kind of goes back to the core DNA of the company. I would say, you know, across the team we're all really excited about DC's Absolute Universe.

Yes.

Is sort of how, you know, I think it's super unique. It's a fresh take on that world. You know, the books have been great, chart-topping. I think that's an area that I think we're continued to really explore, continue exploring.

That's pretty cool.

Yeah.

I'll be honest, I'm excited about those.

Yeah.

Now that you've mentioned it's pretty cool.

Yeah.

That pretty much wraps up the questions. I don't know if you have any final words.

I have, well, a couple things. First of all, just back to, you know, thanking you for being here and World Cup, we are kicking off a bespoke Pop! Yourself experience. Right now with Pop! Yourself you can actually get yourself popped in a U.S. World Cup kit, and then next week we're launching some additional accessories. It's not out yet, but we did do a version of Top Pops for you here. You can accessorize yourself with the World Cup trophy. That's a little thank you for being here today and a little, a little token of gratitude for your first earnings call. Great work.

It matches exactly what I'm wearing.

Yeah, exact-

So, this is like-

Exactly

Thank you so much for this.

Exactly.

This is honestly, it's been fun.

No, we appreciate it. I'll mention, you know, a lot of the information we talked about today, some additional investor materials and a presentation is available on our investor relations website along with this for anyone who wants to watch it over and over again, as I'm sure, you know, many people out in the world will. I encourage it.

Yeah. Perfect. Well, thank you guys so much.

Hi, everyone, and welcome to Funko's 2025 Fourth Quarter Financial Results Conference Call. I'm Katie Wilson, and I'm here at the Funko store in Hollywood. With me are Josh Simon, our Chief Executive Officer; and Yves Le Pendeven, our Chief Financial Officer. Welcome, guys.

Hello.

Josh, I have heard this is one of your favorite places in Los Angeles.

It is. Yes, I've been on the job for about 6 months now. I think I've spent the majority of my time in this store. They actually gave me a key to the store earlier this week, so I can come and go even after hours. But what I love about being here is it really embodies the strength and how much fun the Funko brand is. You kind of see around us here from an IP standpoint, KPop Demon Hunters, Mickey Mouse, Michael Jordan in the background. I come here over the weekends. And there's people from all over the world, all ages, all demographics, and it's really fun watching them kind of discover their favorite fandom or IP. And so we thought it would be a fun new way to do the earnings call from here today.

So how have your first 6 months been?

Well, see, we're just getting back from the Toy Fair circuit. So London Toy Fair, Nuremberg, New York Toy Fair. I've been going to these toy fairs for a while in various capacities. And I can say, definitely, I felt more energy around the Funko brand than I have in a bit. It was really fun to meet with our licensors and retailers. In Q4, we also had a great presence at New York Comic Con. So I had a great chance to meet with a lot of our fans and YouTubers. And so the energy was great. And we're seeing that energy translate into momentum on the business side. In Q4, our net sales were better than expected, profitability at the higher end expectations. And I know Yves will dive into that detail here in a little bit.

And I'm guessing some of that was driven by this guy, Derpy, right behind me.

One of my favorites, near and dear to my heart, obviously, KPop Demon Hunters. And look, what's great about that one is I think it really demonstrates one of our superpowers, which is how quickly we're able to move in creating these really great collectibles. I think it was about 4 months from ideation and design to getting into fans and consumers' hands in Q4. We also won the Viral Hit of the Year award from Toy Book, which is a really coveted awards program. So that was great. There were plenty of other really fun ways that we came to life in Q4 as well. It was the final season of Stranger Things sadly, but the Duffers were on the Tonight show with Jimmy Fallon, and they actually reenacted the season and the series finale using only Funko Pop. So that was really fun to see. We launched Pop! Yourself in Europe, which is the experience where you can create a custom Funko Pop of you or a loved one. And we rolled out Bitty Pop! into Walmart. Bitty Pop! is this great example of how we're able to continue to add dimensions to the iconic Funko Pop silhouette. It rolled out in all Walmart doors in Q4. It was incremental placement in the toy aisle. It was incremental placement at impulse and out of aisle, and it really helped to drive some strong sales in Q4 as well.

So during the last earnings call, you talked about the make culture Pop strategy. I believe you mentioned culture, creativity and commerce. How is that going so far?

Well, if you remembered those -- the 3 Cs, then so far, so good. It's going great. Look, our -- the idea is that how do we participate in all of those moments that are shaping culture. Really, the goal is to become the preeminent brand for turning pop culture into collectibles and also turning those collectibles we create into culture and cultural moments. So let's start with culture. I've said it a few times here. But really, that means just being at the center of the moments that fans are talking about like while it's actually happening. KPop Demon Hunters is a great example of that. But we do it pretty broadly. We have great relationships with licensors all over the world, pretty much a portfolio of about 900 actively managed licenses at the moment. But in addition to that, there's still a ton of whitespace that we could get after. Sports is one that's a little bit more nascent for us, but we launched a really great new partnership with Topps and Fanatics. We're part of the new MLB Super Pack with trading cards and blind Bitty Pop! products. That rolled out in Walmart, Target, GameStop, sporting goods stores like DICK'S. So just sort of one example in sports. But even in these massive fandoms, I think there's plenty more opportunity for us.

And speaking of sports, by the way, did I see Funko in a Super Bowl commercial?

You did. You did. It was surprising for all of us. I mean I sat down with my family to watch the Super Bowl. And in one of those first commercial breaks, like on comes this really great spot from the NFL that's sort of celebrating the intergenerational love of football and like in an opening frame, in a young kids bedroom, there's a shelf filled with NFL Funko pops. So that was really great to see. In that sports space, though, I mentioned there continues to be more opportunities in Miami, Inter Miami, the football or soccer club there, if you're here in the U.S., is opening up a brand-new stadium, Miami Freedom Park in a couple of weeks on April 2. We have a presence in their flagship store. It's a Funko and Loungefly shop-in-shop with exclusive products and also a really great unique Pop! Yourself experience that you could only do there in the stadium. And in addition to these sports moments, Q4 was also really great from an entertainment perspective. We had Zootopia 2 from Disney, which was a great movie and a massive hit. Wicked: For Good and Evil also a great film for us. And other areas that we're expanding into as well, I think the -- I'm sure Yves is a huge fan of this, but the world of romantasy and BookTok, if I'm not mistaken. We just -- we dropped a little teaser video for The Cruel Prince, which is a really popular book on TikTok. It generated like 1 million views within a couple of days. And so that's an area you'll see us expanding into more. Obviously, anime has been huge for us. There are big titles that everyone has heard of like One Piece, which we continue to do well in. And then newer titles like Dandadan, which was a top seller for us at Walmart in Q4 and continued growth in video games as well, a great franchise, Mouse: P.I that was also strong for us in Q4.

And how are you participating in those surprise moments that pop up?

I mean a lot of it is through speed, as I mentioned earlier, related to KPop Demon Hunters, but we have a new program called Hyper Strike. The idea behind that is like how can we design, manufacture and get products and collectibles into our fans' hands in a matter of days or weeks. So we'll be rolling that out in a more commercial way later this year, but we started experimenting with it in Q4. We were doing a lot of like one-on-one characters for celebrities and friends of Funko. One thing we tried to kind of experiment with is like the insane world of the sort of like online videos, user-generated content meme culture that come up. So there's a great guy named Jason Gyamfi. He's known as the quarter zip guy. It was one of these like crazy viral trends in Q4. We decided let's make a video of Jason and his Matcha and just send it to him as a gift. And his reaction was great. I think we have a little clip of it to show. [Presentation]

Yes. And it's really exciting because this is a new type of product we're offering.

It is. And one example of a new type of product we're offering because that second C creativity is really about how we take these pop culture moments and then translate them into physical form in some way. So obviously, Bitty Pop!, I talked a little bit about as a new example of a product that's been around for a couple of years, and we're really seeing some strong growth there. It capitalizes on what people love about Funko Pop. We've sold 1 billion units of pops over the years. It's this really iconic silhouette. And so there's more dimensions of Pop! and some net new products that we're working on to drive additional growth. The thing that's great about that iconic silhouette is starting to think about how we can reach fans and tell stories in new ways. And so we recently announced a partnership with an incredible production company called Rideback, really great storytellers. I think they're experts at creating worlds from products. They produce the LEGO movies. They produced the live action, Lilo & Stitch. Really, really excited to work with them. We're developing some new ideas with them from big feature and animated series ideas in addition to a really interesting unique AI-based animation toolkit they have called Spuree that will allow us to create some content much faster and bring new and iconic forms of storytelling to Funko fans everywhere.

You also mentioned commerce as a part of Make Culture POP!. I have a guess that this store is a part of that. Are you expanding how you think about commerce? And is that happening around the world?

Yes. We really have fans all over the world, and we want to make sure that we're showing up wherever our fans shop. As we like to say, turning shelves into stages, this store is obviously a best expression of how we're able to do that. But there's a ton of other opportunity in the U.S. from a retail standpoint and outside of the U.S. Europe, which has been our primary driver outside of the U.S. for a number of years now is really strong. At the end of the year, we are actually the second largest collectible brand by market share right after Pok mon, which was great. From January '25 to January '26, our sales were up 20% in the EU. That was basically about double the market growth there according to Circana Retail Tracker. And similar to what we've been able to sort of grow in Europe, the next idea is how do we do that in Latin America and Asia. So as part of that, we just created a new role for a guy named Andy Oddie, who is our long-time Chief Commercial Officer. He has 40 years of really great experience in the toy and collectible space building businesses. He's our new Chief International Officer. He's going to be focused on growth in Asia and Latin America. And I think his dedicated focus is really going to help us to get traction there. And the opportunity is big for 2 reasons. I mean you think of China, Japan, Korea. China and Japan are the second and third largest toy markets outside of the U.S. So there's a lot of incremental business growth we know we can get in those countries. But the other great thing is like so many cultural trends now globally are being influenced by Asia. So obviously, anime has always been a really big fandom for us, largely coming from Japan. We've seen a huge growth in all things, K-Culture, Korean beauty, K-Pop, Korean food. So I think our business opportunity to grow there is strong and then the cultural influence that I think will provide a halo of growth all over the world as we develop more relationships with licensors and creators in that region, I think, will also be pretty massive for us.

Turning to you, Yves. Could you say a little bit more about the financial results?

Sure. Happy to. This is an earnings call after all. So let's get to the numbers. So for the fourth quarter, our net sales were $273 million. We were pleased to finish the year on a high note. We had guided to Q4 being up modestly over Q3. We were actually up 9%, so better than we expected. And by the way, there's more details, including these slides that are posted on our IR website. For gross margin, we were at 41%, and that was again slightly higher than guidance. And by the way, with the exception of the second quarter in 2025, we've now been above 40% for the last 7 of the last 8 quarters. So really pleased with that trend. Our SG&A expenses were $91 million, and that was down 12% from Q4 of last year. And finally, adjusted EBITDA was $23 million, which again was at the high end of our expectations.

How is the financial outlook for 2026?

So for 2026, we expect net sales to be up modestly year-over-year, but a substantial improvement in profitability. So specifically, we're guiding to net sales being flat to up 3% compared with 2025 and our adjusted EBITDA between $70 million and $80 million. So let me give you a little bit more color on that. For sales, we expect our Funko core product lines to be up high single digits year-over-year, but that's offset by Loungefly down double digits, and that's primarily due to the SKU cuts that we implemented last year.

And one thing that I'll jump in and add about Loungefly is that we are really excited about what the growth potential for that business could be. I think there's a really unique way to own this space of wearable storytelling as we like to call it. We know there's a really passionate fan base there for the product. So as a result of that, we just put in place our first-ever GM for the Loungefly business, Jessica Kong. She's a lot of really great experience across lifestyle brands and experiential. We think she'll be really great for the business. She's about a month in. We're already pretty far along in building the strategy and plans to get that brand and business back to growth, and we'll share more details about that in the next quarter.

Thanks, Josh. So back to our guidance. For gross margin, we expect 41% to 43% for 2026. And that increase over the recent trend is really driven by the renewal of some key licensing agreements with our major studio partners, which will result in lower minimum guaranteed royalties. As far as tariff assumptions, we're assuming that tariff rates remain around 15% for the remainder of the year. And in terms of refunds, we're exploring all avenues, and we'll update our guidance when we have more information later this year. So finally, with regard to adjusted EBITDA, we expect a substantial improvement. That really is driven by actions that we've already taken. That includes all of the tariff mitigation strategies that we implemented last year, including price adjustments and cost reductions annualizing, the renewal of the licensing contracts that I mentioned. And finally, just beginning to see traction on some of our growth initiatives, primarily in the Funko product lines, including Bitty Pop! and Pop! Yourself, which we launched in Europe last quarter.

Josh, how do you see 2026 shaping up?

We're all really excited for 2026. I think it's probably the strongest entertainment slate that I've seen in the last 4 or 5 years. From a film standpoint, we've got Mandalorian and Grogu, Toy Story 5, Moana Live action, all -- tons of great things for Disney. Supergirl from DC, Masters of the Universe, Minions 3, Spider-Man: Brand New Day, Avengers: Doomsday at the end of the year. This week, Netflix's live action series of One Piece just debuted, Season 2 of One Piece, which is always huge for us. Then obviously, in the sports world, it's a World Cup year. We have the England, U.S. and French teams. I mentioned we just signed this new deal with McLaren, some new product launches that we have coming up that I'm just going to tease for a little bit now. But really, when you take a step back and look at what's driving the toy industry right now, there's 3 trends. It's coming from growth in collectibles, growth in licensed IP and growth in kidult. Those are all areas that sort of squarely are in the Funko wheelhouse. And so it's really just about us executing this year.

Well, with that, we'll turn to our questions here. And the first question is coming in from Stephen Laszczyk of Goldman Sachs. Please describe the shape of the flat to plus 3% guidance past Q1. Should it be pretty consistent throughout the year? And what gets you to the top versus low end of that guide?

Sure. I'll take that one. Yes, it should actually be pretty consistent throughout the year. This is not a hockey stick plan where we depend on having a huge second half of the year. We actually expect Q2 to comp up a little bit over last year that was pretty disrupted by the tariff impact when those were first announced and then also pretty steady growth throughout Q3 and Q4 as well.

To what extent does Funko view original content creation as a growth driver? How much does the company plan to invest in original content? And how does AI play into this strategy?

I mean, look, I'd say as a growth driver, I think it can be a serious growth driver in the long term. I mean obviously, our entire business is driven by entertainment content and IP. And so I think as we explore more dimensions of storytelling through the Funko universe, I think over time, assuming those things are hits and people love it and watch it, we think it can actually drive growth, but it's going to take time to develop, produce and sort of get that content out to audiences. Look, I think we're seeing the same trends everyone is from an AI standpoint in storytelling. We really believe in the power of people to tell great stories, our design teams and creative teams internally to craft these great characters. So far, it's been a great tool for efficiency and letting our teams focus more on the creative work than the busy work. And then I think from a capital standpoint, I mean, look, we're looking to partner with the same exact partners who we already work with on the licensor side, some of the biggest studios around the world to help us develop and create these elements of content, movies, TV, et cetera. So from our standpoint, we're looking to rely on their expertise on the storytelling side and the partnership side and shouldn't be a significant capital investment from us.

Does Funko need to use any of its extended credit agreement in 2026? Or will the company continue to pay down debt like they did in Q4?

So the answer is no, we don't expect to need to do any additional borrowing. We're managing right now on our operating cash flows and expect to continue to do so. We make regular quarterly principal and interest payments on the debt, and we plan potentially later in this year and certainly early next year to make some incremental debt paydowns like we did in Q4.

Eric Wold of Texas Capital asks, can you break out the POS trends and inventory restocking domestically versus Europe? And if you saw any noticeable trends positive or negative as the quarter progressed? What about so far during Q1?

Yes, great question. We did see a continuation of the trend that we spoke about in Q3. We continue to see great double-digit growth in POS sales in Europe. And in the U.S., we actually saw an improving trend throughout Q4 to a positive comp year-over-year. And actually, we've seen that trend continue into Q1. From a retailer inventory point of view, we watch that obviously very closely from the larger partners that report that information to us. And I think it's in a healthy place right now and restocking is kind of going as we'd expect. Yes.

Within the 2026 guidance, what would you highlight as the key initiatives to both drive top line results and margin versus 2025?

I guess I'll start, and from a top line standpoint, I mean, obviously, I just -- I talked about the content slate. That's a huge driver of top line growth this year. Bitty Pop! is another example of that. A lot of the broader initiatives that I mentioned, we'll start to seed into this year. So international growth, some of the new products, those are things that we'll see, but you'll really start to see us drive incremental growth from that sort of further into the future. There's also some fun new initiatives that we have this year, too. We talked about World Cup. We have a fun lineup that's going to launch later this year, celebrating America's 250th. I mentioned the Pop Mystery products that are launching later this year. So all of those things will start to add up. But I think primarily like the strength we've seen in Bitty, the strength we've seen in the entertainment slate should drive a lot of the top line growth. And you want to take the margin...?

Yes, sure. From a margin perspective, I spoke about some of the main drivers already. The good news is we're forecasting to have a better margin than we've ever had. And those -- that's largely driven by things that are in our control, such as the price adjustments that we made last year and the renewal of some of our major licensing contracts. Now as we kind of go through the rest of the year, there will probably be puts and takes. I'm hoping for some favorable trends within the tariff world. Currently, we're paying 10% -- the newly announced 10% tariff rates that may go up to 15%. Unsure what that might be later on in the year. On the other hand, we're also monitoring the situation right now in terms of oil prices and potential impact to shipping costs. So there are a few unknowns. But for the most part, we feel confident about maintaining that level of gross margin.

Keegan Cox of D.A. Davidson asks, can you quantify the tariff impact you experienced in 2025? And what incremental pressure you expect in the first half of 2026?

Sure. So in 2025, our total tariffs and duties were close to $40 million and about half of that was related to the IEEPA tariffs, so the ones that were recently struck down.

And for the first time, we've also invited investor questions from our investor base. So the first one is to what extent has Funko signed new or expanded IP partnerships ahead of the relatively strong film slate in 2026?

Well, look, I think as it relates to the film slate itself, the good news is last year, we renewed licenses with all of the major studios around the world. Disney, which is inclusive of Lucasfilm; Pixar; Marvel; Netflix; Paramount Universal. We really value those relationships. We spend a lot of time with those partners. So from a '26 slate standpoint, I think we're in pretty great shape there. I mentioned some of the World Cup teams that we signed licensing deals with. I think for us, like the -- kind of talking about some of the white space earlier, for me, the focus is really thinking about what are those net new kind of white space incremental areas where we don't currently operate. So I'd say the world of creators is a huge example of that. We appointed a new Board member, Reed Duchscher, who represents some of the biggest creators in the world who everyone is familiar with on Twitch and YouTube and TikTok. He's been a really invaluable adviser and looking to tap into his expertise and guidance as we embark more in that space.

Coming in from an investor in South Africa. The whole of South Africa would love it if you would make Funko pops of the Springboks Rugby team.

Interesting. Well, let's see, I don't want to let South Africa down. So we will look into it. But it's funny, it's a great question. I can't expound a lot on Rugby, which I apologize to any fans out there, but I respect the sport. But it's a great question. I think it definitely, I think, showcases both the opportunity that exists in sports and also just kind of the global extent of our fandom. So fun to hear a question from an investor in South Africa. But we will look into it.

Well, that does wrap up our questions. Josh, any final words?

Well, I just want to thank you for hosting and being here today. Thank everyone for watching. Excited to be back in May with our next earnings call and continue to share our progress across the business.