--Q4 Net Sales, Gross Margin and Adjusted
EBITDA at Upper End of Expectations, Driven by Strong DTC Growth
and Continued Operational Improvement--
Funko, Inc. (Nasdaq: FNKO), a leading pop culture lifestyle
brand, today reported its consolidated financial results for the
fourth quarter and full year ended December 31, 2023. The company
also provided financial guidance for the 2024 first quarter and
full year.
Fourth-Quarter Financial Results Summary: 2023 vs
2022
- Net sales were $291.2 million versus $333.0 million
- Gross profit was $109.4 million, equal to gross margin of
37.6%, compared with $94.3 million, equal to gross margin of
28.3%
- SG&A expenses were $97.4 million, which included $8.0
million of non-recurring charges primarily related to fair market
value adjustments for assets held for sale. This compares with
$139.2 million, which included $32.5 million of non-recurring
charges related to the write down of an enterprise resource
planning system, for the fourth quarter of 2022
- Net loss was $10.8 million, or $0.21 per share, versus $42.2
million, or $0.89 per diluted share
- Adjusted net income* was $0.5 million, or $0.01 per diluted
share, versus adjusted net loss of $17.9 million, or $0.35 per
share
- Adjusted EBITDA* was $23.5 million versus negative adjusted
EBITDA* of $6.3 million
Full-Year Financial Results Summary: 2023 vs 2022
- Net sales were $1.1 billion versus $1.3 billion
- Gross profit was $333.0 million, equal to gross margin of
30.4%, which included $39.0 million of non-recurring charges
related to the disposal of excess inventory and finished and
unfinished goods held at offshore factories. This compares with
$434.0 million, equal to gross margin of 32.8%
- SG&A expenses were $377.1 million, which included $20.7
million of non-recurring charges primarily related to the
termination of a lease agreement, fair market value adjustments for
assets held for sale and severance and related charges. This
compares with $398.3 million for the 2022 full year, which included
$32.5 million of non-recurring charges related to the write-down of
an enterprise resource planning system
- Net loss was $154.1 million, or $3.19 per share, compared with
$8.0 million, or $0.18 per share
- Adjusted net loss* was $45.4 million, or $0.87 per share,
versus adjusted net income* of $29.6 million, or $0.57 per diluted
share
- Adjusted EBITDA* was $27.2 million compared with $97.4
million
“In 2023, we implemented a comprehensive plan to significantly
reduce costs, improve operational efficiencies and focus on our
core product offerings,” said Michael Lunsford, Funko’s Interim
Chief Executive Officer. “The major elements of that plan, which
addressed the company's inventory issues, unprofitable product
lines and SKUs, workforce size, and several other factors, were
successfully completed, and we believe our company is now on a
significantly more solid foundation upon which we intend to build
and grow.
“For the 2023 fourth quarter, net sales and adjusted EBITDA were
at the upper end of our guidance range, fueled in part by growth in
our direct-to-consumer (DTC) business, which accounted for 26
percent of our revenue and increased nearly 30 percent compared
with the same quarter of the prior year. Gross margin of 38 percent
was the highest of any quarter in 2023.
“Turning to our balance sheet, we substantially lowered our
inventory levels to $119 million at December 31, 2023 from $246
million at the end of last year and $162 million at September 30,
2023. We also paid down our debt by $26 million in the fourth
quarter and used the proceeds from a transaction related to our
Games business to further reduce our debt in the first quarter of
2024.
“Looking ahead, we face a softer content schedule following the
recent Hollywood strikes and uncertainty around shipping costs
caused by the Red Sea situation. Despite these headwinds, we expect
our bottom line to significantly improve in 2024 compared with
2023. Our belief is based on the actions we are taking to, among
other things, further expand our DTC business and increase sales of
Pop! Yourself and limited-edition products – areas we control and
can grow profitably.”
Leadership Update
The company also announced today that Steve Nave, Funko’s Chief
Financial Officer (CFO) and Chief Operating Officer, is resigning
effective March 15, 2024. Yves LePendeven, the company’s Deputy
CFO, will serve as Acting CFO as of the same date.
“Steve joined us a year ago to help with our cost reduction and
operational improvement plan,” said Lunsford. “We have made
significant progress against that plan and thank Steve for his
contributions. We wish Steve success in his future endeavors.
“I have worked with Yves for several years now, as both a board
member and as the interim CEO. I have complete faith in Yves to
lead our Finance and Accounting functions. We believe we now have
in place a strong, lean, aligned senior leadership team to support
the arrival of a new CEO and the growth of Funko.”
Fourth Quarter 2023 Net Sales by Category and
Geography
The tables below show the breakdown of net sales on a brand
category and geographical basis (in thousands):
Three Months Ended December
31,
Period Over Period
Change
2023
2022
Dollar
Percentage
Net sales by product brand:
Core Collectibles
$
212,776
$
243,340
$
(30,564
)
(12.6
)%
Loungefly Branded Products
54,908
73,346
(18,438
)
(25.1
)%
Other
23,552
16,354
7,198
44.0
%
Total net sales
$
291,236
$
333,040
$
(41,804
)
(12.6
)%
Three Months Ended December
31,
Period Over Period
Change
2023
2022
Dollar
Percentage
Net sales by geography:
United States
$
197,368
$
240,647
$
(43,279
)
(18.0
)%
Europe
78,138
61,869
16,269
26.3
%
Other International
15,730
30,524
(14,794
)
(48.5
)%
Total net sales
$
291,236
$
333,040
$
(41,804
)
(12.6
)%
Balance Sheet Highlights - At December 31, 2023 vs December
31, 2022
- Total cash and cash equivalents were $36.5 million at December
31, 2023 versus $19.2 million at December 31, 2022
- Inventories were $119.5 million at December 31, 2023 versus
$246.4 million at December 31, 2022
- Total debt was $273.6 million at December 31, 2023 versus
$245.8 million at December 31, 2022. Total debt includes the amount
outstanding under the company's term loan facility, net of
unamortized discounts, revolving line of credit and the company's
equipment finance loan
Outlook for 2024
Based on its current outlook, the company provided its 2024
full-year outlook and 2024 first-quarter guidance, as follows:
Current Outlook
2024 Full Year
Net Sales
$1.047 billion to $1.103 billion
Adjusted EBITDA*
$65 million to $85 million
2024 First Quarter
Net sales
$214 million to $227 million
Gross margin %
~37%
SG&A expense, in dollars
$87 million to $88 million
Adjusted net loss*
$17 million to $13 million
Adjusted net loss per share*
$0.32 to $0.24
Adjusted EBITDA*
$0 million to $5 million
*Adjusted net loss, adjusted net loss per diluted share and
adjusted EBITDA are non-GAAP financial measures. For a
reconciliation of historical adjusted net loss, adjusted loss per
diluted share, and adjusted EBITDA, to the most directly comparable
U.S. GAAP financial measures, please refer to the “Non-GAAP
Financial Measures” section of this press release. A reconciliation
of adjusted net loss, adjusted net loss per diluted share and
adjusted EBITDA outlook to the corresponding GAAP measure on a
forward-looking basis cannot be provided without unreasonable
efforts, as we are unable to provide reconciling information with
respect to certain items. However, for the first quarter of 2024
the company expects equity-based compensation of approximately $4
million, depreciation and amortization of approximately $16 million
and interest expense of approximately $6 million. For the full year
2024, the company expects equity-based compensation of
approximately $15 million, depreciation and amortization of
approximately $64 million and interest expense of approximately $18
million, each of which is a reconciling item to net loss. See "Use
of Non-GAAP Financial Measures" and the attached reconciliations
for more information.
Conference Call and Webcast
The company will host a conference call at 4:30 p.m. Eastern
Time (1:30 p.m. Pacific Time) today, March 7, 2024, to further
discuss its fourth-quarter and full-year results and business
update. A live webcast, presentation materials and a replay of the
event will be available on the Investor Relations section on the
Company’s website at investor.funko.com. The replay of the webcast
will be available for one year.
Use of Non-GAAP Financial Measures
This release contains references to non-GAAP financial measures,
including adjusted net income (loss), including per share amounts,
adjusted EBITDA, and adjusted EBITDA margin, which are financial
measures that are not prepared in conformity with United States
generally accepted accounting principles (U.S. GAAP). Management
uses these measures internally for evaluating its operating
performance, for planning purposes, including the preparation of
our annual operating budget and financials projections, and to
assess incentive compensation for our employees, and to evaluate
our capacity to expand our business. In addition, our senior
secured credit facilities use adjusted EBITDA to measure our
compliance with covenants such as senior leverage ratio. The
company's management believes that the presentation of non-GAAP
financial measures provides useful supplementary information
regarding operational performance, because it enhances an
investor's overall understanding of the financial results for the
company's core business. Additionally, it provides a basis for the
comparison of the financial results for the company's core business
between current, past and future periods as they remove the impact
of items not directly resulting from our core operations. The
company also believes that including Adjusted EBITDA and the other
non-GAAP financial measures presented in this release is
appropriate to provide additional information to investors and help
to compare against other companies in our industry. Non-GAAP
financial measures have limitations as analytical tools and should
be considered only as a supplement to, and not as a substitute for
or as a superior measure to, financial measures prepared in
accordance with U.S. GAAP. We caution investors that amounts
presented in accordance with our definitions of adjusted net income
(loss), including per share amounts, adjusted EBITDA and adjusted
EBITDA margin may not be comparable to similar measures disclosed
by our competitors, because not all companies and analysts
calculate these measures in the same manner.
Detailed reconciliations of non-GAAP financial measures to the
most directly comparable GAAP financial measures are included in
the financial tables following this release.
About Funko
Headquartered in Everett, Washington, Funko is a leading pop
culture lifestyle brand. Funko designs, sources and distributes
licensed pop culture products across multiple categories, including
vinyl figures, action toys, plush, apparel, housewares and
accessories for consumers who seek tangible ways to connect with
their favorite pop culture brands and characters. Learn more at
www.funko.com, and follow us on Twitter (@OriginalFunko) and
Instagram (@OriginalFunko).
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements regarding our
anticipated financial results and financial position, the
underlying trends in our business and the retail industry,
including ongoing impacts from the Hollywood strikes and
uncertainty relating to the situation in the Red Sea, our potential
for growth, expectations regarding annualized cost savings and the
impact of restructuring initiatives; and our strategic growth
priorities. These forward-looking statements are based on
management’s current expectations. These statements are neither
promises nor guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements, including, but not
limited to, the following: our ability to execute our business
strategy; our ability to manage our inventories and growth; our
ability to maintain and realize the full value of our license
agreements; impacts from economic downturns; changes in the retail
industry and markets for our consumer products; our ability to
maintain our relationships with retail customers and distributors;
risks related to the impact of COVID-19 on our business, financial
results and financial condition; our ability to compete
effectively; fluctuations in our gross margin; our dependence on
content development and creation by third parties; the ongoing
level of popularity of our products with consumers; our ability to
develop and introduce products in a timely and cost-effective
manner; our ability to obtain, maintain and protect our
intellectual property rights or those of our licensors; potential
violations of the intellectual property rights of others; risks
associated with counterfeit versions of our products; our ability
to attract and retain qualified employees and maintain our
corporate culture; our use of third-party manufacturing; risks
associated with climate change; increased attention to
sustainability and environmental, social and governance
initiatives; geographic concentration of our operations; risks
associated with our international operations; changes in effective
tax rates or tax law; our dependence on vendors and outsourcers;
risks relating to government regulation; risks relating to
litigation, including products liability claims and securities
class action litigation; any failure to successfully integrate or
realize the anticipated benefits of acquisitions or investments;
future development and acceptance of blockchain networks; risks
associated with receiving payments in digital assets; risk
resulting from our e-commerce business and social media presence;
our ability to successfully operate our information systems and
implement new technology; risks relating to our indebtedness,
including our ability to comply with financial and negative
covenants under our Credit Agreement, as amended; our ability to
secure additional financing on favorable terms or at all; the
potential for our or our third party providers’ electronic data or
the electronic data of our customers to be compromised; the
influence of our significant stockholder, TCG, and the possibility
that TCG’s interests may conflict with the interests of our other
stockholders; risks relating to our organizational structure;
volatility in the price of our Class A common stock; and risks
associated with our internal control over financial reporting.
These and other important factors discussed under the caption “Risk
Factors” in our annual report on Form 10-K for the year ended
December 31, 2023 and our other filings with the Securities and
Exchange Commission could cause actual results to differ materially
from those indicated by the forward-looking statements made in this
press release. Any such forward-looking statements represent
management’s estimates as of the date of this press release. While
we may elect to update such forward-looking statements at some
point in the future, we disclaim any obligation to do so, even if
subsequent events cause our views to change. These forward-looking
statements should not be relied upon as representing our views as
of any date subsequent to the date of this press release.
Funko, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(Unaudited)
Three Months Ended December
31,
Twelve Months Ended December
31,
2023
2022
2023
2022
(in thousands, except per
share data)
Net sales
$
291,236
$
333,040
$
1,096,086
$
1,322,706
Cost of sales (exclusive of depreciation
and amortization shown separately below)
181,827
238,711
763,085
888,685
Selling, general, and administrative
expenses
97,380
139,229
377,065
398,272
Depreciation and amortization
15,429
13,160
59,763
47,669
Total operating expenses
294,636
391,100
1,199,913
1,334,626
(Loss) income from operations
(3,400
)
(58,060
)
(103,827
)
(11,920
)
Interest expense, net
7,419
4,480
27,970
10,334
Loss on extinguishment of debt
—
—
494
—
Gain on tax receivable agreement liability
adjustment
(603
)
—
(100,223
)
—
Other (income) expense, net
(646
)
(971
)
(127
)
787
(Loss) income before income taxes
(9,570
)
(61,569
)
(31,941
)
(23,041
)
Income tax expense (benefit)
1,638
(14,869
)
132,497
(17,801
)
Net (loss) income
(11,208
)
(46,700
)
(164,438
)
(5,240
)
Less: net (loss) income attributable to
non-controlling interests
(447
)
(4,481
)
(10,359
)
2,795
Net (loss) income attributable to Funko,
Inc.
$
(10,761
)
$
(42,219
)
$
(154,079
)
$
(8,035
)
(Loss) earnings per share of Class A
common stock:
Basic
$
(0.21
)
$
(0.89
)
$
(3.19
)
$
(0.18
)
Diluted
$
(0.21
)
$
(0.89
)
$
(3.19
)
$
(0.18
)
Weighted average shares of Class A common
stock outstanding:
Basic
50,384
47,179
48,332
44,555
Diluted
50,384
47,179
48,332
44,555
Funko, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
December 31,
2023
2022
(in thousands, except per
share data)
Assets
Current assets:
Cash and cash equivalents
$
36,453
$
19,200
Accounts receivable, net
130,831
167,895
Inventory, net
119,458
246,429
Prepaid expenses and other current
assets
56,134
39,648
Total current assets
342,876
473,172
Property and equipment, net
91,335
102,232
Operating lease right-of-use assets
61,499
71,072
Goodwill
133,795
131,380
Intangible assets, net
167,388
181,284
Deferred tax asset, net of valuation
allowance
—
123,893
Other assets
7,752
8,112
Total assets
$
804,645
$
1,091,145
Liabilities and Stockholders'
Equity
Current liabilities:
Line of credit
$
120,500
$
70,000
Current portion long-term debt, net of
unamortized discount
22,072
22,041
Current portion of operating lease
liabilities
17,486
18,904
Accounts payable
52,919
67,651
Income taxes payable
986
871
Accrued royalties
54,375
69,098
Accrued expenses and other current
liabilities
90,494
112,832
Total current liabilities
358,832
361,397
Long-term debt, net of unamortized
discount
130,986
153,778
Operating lease liabilities, net of
current portion
71,309
82,356
Deferred tax liability
402
382
Liabilities under tax receivable
agreement, net of current portion
—
99,620
Other long-term liabilities
5,076
3,923
Commitments and contingencies
Stockholders' equity:
Class A common stock, par value $0.0001
per share, 200,000 shares authorized; 50,549 shares and 47,192
shares issued and outstanding as of December 31, 2023 and 2022,
respectively
5
5
Class B common stock, par value $0.0001
per share, 50,000 shares authorized; 2,277 shares and 3,293 shares
issued and outstanding as of December 31, 2023 and 2022,
respectively
—
—
Additional paid-in-capital
326,180
310,807
Accumulated other comprehensive loss
(180
)
(2,603
)
(Accumulated deficit) retained
earnings
(94,064
)
60,015
Total stockholders' equity attributable to
Funko, Inc.
231,941
368,224
Non-controlling interests
6,099
21,465
Total stockholders' equity
238,040
389,689
Total liabilities and stockholders'
equity
$
804,645
$
1,091,145
Funko, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
Year Ended December
31,
2023
2022
2021
(in thousands)
Operating Activities
Net (loss) income
$
(164,438
)
$
(5,240
)
$
67,854
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation, amortization and other
57,389
47,919
40,056
Equity-based compensation
10,534
16,591
12,994
Amortization of debt issuance costs and
debt discounts
1,274
902
1,118
Loss on debt extinguishment
494
—
675
Gain on tax receivable agreement liability
adjustment
(100,223
)
—
—
Deferred tax expense (benefit)
123,124
(17,414
)
(361
)
Other
4,090
5,244
1,403
Changes in operating assets and
liabilities, net of amounts acquired:
Accounts receivable, net
40,513
19,075
(56,648
)
Inventory
122,479
(82,214
)
(107,166
)
Prepaid expenses and other assets
3,242
(7,263
)
3,700
Accounts payable
(17,968
)
11,043
26,933
Income taxes payable
75
(15,018
)
15,585
Accrued royalties
(14,723
)
9,082
17,633
Accrued expenses and other liabilities
(34,927
)
(22,841
)
63,586
Net cash provided by (used in) operating
activities
30,935
(40,134
)
87,362
Investing Activities
Purchase of property and equipment
$
(35,131
)
$
(59,148
)
$
(27,759
)
Acquisitions of business and intangible
assets, net of cash acquired
(5,364
)
(19,479
)
199
Other
699
562
179
Net cash used in investing activities
(39,796
)
(78,065
)
(27,381
)
Financing Activities
Borrowings on line of credit
$
71,000
$
120,000
$
—
Payments on line of credit
(20,500
)
(50,000
)
—
Debt issuance costs
(1,957
)
(405
)
(1,055
)
Proceeds from long-term debt, net
—
20,000
180,000
Payment of long-term debt
(22,581
)
(18,000
)
(198,375
)
Contingent consideration
—
—
(2,000
)
Distributions to continuing equity
owners
(1,118
)
(10,710
)
(9,277
)
Payments under tax receivable
agreement
(4
)
(7,718
)
(1,715
)
Proceeds from exercise of equity-based
options
756
1,472
3,794
Net cash provided by (used in) financing
activities
25,596
54,639
(28,628
)
Effect of exchange rates on cash and cash
equivalents
518
(797
)
(51
)
Net change in cash and cash
equivalents
17,253
(64,357
)
31,302
Cash and cash equivalents at beginning of
period
19,200
83,557
52,255
Cash and cash equivalents at end of
period
$
36,453
$
19,200
$
83,557
Supplemental Cash Flow
Information
Cash paid for interest
$
24,635
$
8,856
$
5,679
Income tax payments
1,059
22,363
1,462
Establishment of liabilities under tax
receivable agreement
—
30,034
20,691
Issuance of equity instruments for
acquisitions
—
1,487
—
Tenant allowance
—
17,236
—
The following tables reconcile the Non-GAAP Financial Measures
to the most directly comparable U.S. GAAP financial performance
measure, which is net income (loss), for the periods presented:
Three Months Ended December
31,
Twelve Months Ended December
31,
2023
2022
2023
2022
(in thousands, except per
share data)
Net (loss) income attributable to Funko,
Inc.
$
(10,761
)
$
(42,219
)
$
(154,079
)
$
(8,035
)
Reallocation of net (loss) income
attributable to non-controlling interests from the assumed exchange
of common units of FAH, LLC for Class A common stock (1)
(447
)
(4,481
)
(10,359
)
2,795
Equity-based compensation (2)
3,013
4,592
10,534
16,591
Acquisition transaction costs and other
expenses (3)
7,320
—
14,241
2,850
Certain severance, relocation and related
costs (4)
702
1,572
6,486
9,775
Loss on extinguishment of debt (5)
—
—
494
—
Foreign currency transaction (gain) loss
(6)
(641
)
(4,990
)
854
(3,232
)
Tax receivable agreement liability
adjustments (7)
(603
)
3,987
(100,223
)
3,987
One-time cloud based computing arrangement
abandonment (8)
—
32,492
—
32,492
One-time disposal costs for finished
inventory held at offshore factories (9)
135
—
6,283
—
One-time disposal costs for unfinished
inventory held at offshore factories (10)
—
—
2,404
—
Inventory write-down (11)
254
—
30,338
—
Income tax expense (9)
1,486
(8,890
)
147,630
(27,657
)
Adjusted net income (loss)
$
458
$
(17,937
)
$
(45,397
)
$
29,566
Adjusted net income (loss) margin (13)
0.2
%
(5.4
)%
(4.1
)%
2.2
%
Weighted-average shares of Class A common
stock outstanding-basic
50,384
47,179
48,332
44,555
Equity-based compensation awards and
common units of FAH, LLC that are convertible into Class A common
stock
2,808
4,335
4,021
6,967
Adjusted weighted-average shares of Class
A stock outstanding - diluted
53,192
51,514
52,353
51,522
Adjusted earnings (loss) per diluted
share
$
0.01
$
(0.35
)
$
(0.87
)
$
0.57
Three Months Ended December
31,
Twelve Months Ended December
31,
2023
2022
2023
2022
(in thousands)
Net (loss) income
$
(11,208
)
$
(46,700
)
$
(164,438
)
$
(5,240
)
Interest expense, net
7,419
4,480
27,970
10,334
Income tax expense
1,638
(14,869
)
132,497
(17,801
)
Depreciation and amortization
15,429
13,160
59,763
47,669
EBITDA
$
13,278
$
(43,929
)
$
55,792
$
34,962
Adjustments:
Equity-based compensation (2)
3,013
4,592
10,534
16,591
Acquisition transaction costs and other
expenses (3)
7,320
—
14,241
2,850
Certain severance, relocation and related
costs (4)
702
1,572
6,486
9,775
Loss on extinguishment of debt (5)
—
—
494
—
Foreign currency transaction (gain) loss
(6)
(641
)
(4,990
)
854
(3,232
)
Tax receivable agreement liability
adjustments (7)
(603
)
3,987
(100,223
)
3,987
One-time cloud based computing arrangement
abandonment (8)
—
32,492
—
32,492
One-time disposal costs for finished
inventory held at offshore factories (9)
135
—
6,283
—
One-time disposal costs for unfinished
inventory held at offshore factories (10)
—
—
2,404
—
Inventory write-down (11)
254
—
30,338
—
Adjusted EBITDA
$
23,458
$
(6,276
)
$
27,203
$
97,425
Adjusted EBITDA margin (14)
8.1
%
(1.9
)%
2.5
%
7.4
%
(1)
Represents the reallocation of net income
attributable to non-controlling interests from the assumed exchange
of common units of FAH, LLC in periods in which income was
attributable to non-controlling interests.
(2)
Represents non-cash charges related to
equity-based compensation programs, which vary from period to
period depending on timing of awards.
(3)
For the three months ended December 31,
2023, includes fair market value adjustments for assets held for
sale. For the year ended December 31, 2023, includes costs related
to the termination of a lease agreement and related expenses, fair
market value adjustments for assets held for sale, partially offset
by acquisition-related benefits. For the year ended December 31,
2022, includes acquisition-related costs related to investment
banking and due diligence fees.
(4)
Represents certain severance, relocation
and related costs. For the three months ended December 31, 2023,
includes residual charges for severance and benefit costs for
reductions-in-force. For the year ended December 31, 2023, includes
charges to remove leasehold improvements and return multiple
Washington-based warehouses, and charges related to severance and
benefit costs for reductions-in-force. For the three months ended
December 31, 2022, includes charges related to severance for the
transition of management personnel. For the year ended December 31,
2022, includes charges related to residual one-time relocation and
severance costs for U.S. warehouse personnel in connection with the
opening of a warehouse and distribution facility in Buckeye,
Arizona.
(5)
Represents write-off of unamortized debt
financing fees for the year ended December 31, 2023.
(6)
Represents both unrealized and realized
foreign currency losses (gains) on transactions other than in U.S.
dollars.
(7)
Represents recognized adjustments to the
tax receivable agreement liability. For the year ended December 31,
2023, reduction of the tax receivable agreement liability as a
result of recognizing a full valuation allowance of the Company's
deferred tax assets and anticipated inability to realize future tax
benefits.
(8)
Represents abandoned cloud computing
arrangement charge related to the enterprise resource planning
project for the three months and year ended December 31, 2022.
(9)
Represents one-time disposal costs related
to unfinished goods held at offshore factories for the year ended
December 31, 2023.
(10)
Represents one-time disposal costs related
to finished goods held at offshore factories primarily due to
customer order cancellations for the year ended December 31, 2023.
Incremental charge during the three months ended December 31, 2023
were related to a true-up of original estimate of third-party
destruction costs.
(11)
Represents an inventory write-down,
outside of normal business operations, to improve U.S. warehouse
operational efficiency for the year ended December 31, 2023.
Incremental charge during the three months ended December 31, 2023
were related to a true-up of original estimate of third-party
destruction costs.
(12)
Represents the income tax expense effect
of the above adjustments. This adjustment uses an effective tax
rate of 25% for the years ended December 31, 2023 and 2022. For the
year ended December 31, 2023, this also includes $123.2 million
recognized valuation allowance on the Company’s deferred tax
assets. For the year ended December 31, 2022, this also includes
the $11.0 million discrete benefit from the release of a valuation
allowance on the outside basis deferred tax asset.
(13)
Adjusted net income (loss) margin is
calculated as Adjusted net income (loss) as a percentage of net
sales.
(14)
Adjusted EBITDA margin is calculated as
Adjusted EBITDA as a percentage of net sales.
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