Funko (FNKO) risk factors, FY2024 10-K

BUSINESS, ECONOMIC, MARKET AND OPERATING RISKS

1. 01Our success depends on our ability to execute our business strategy
2. 02Our success depends, in part, on our ability to successfully manage our inventories
3. 03If we fail to manage our growth effectively, our financial performance may suffer
4. 04Our business is dependent upon our license agreements, which involve certain risks
5. 05Global and regional economic downturns that negatively impact the retail and credit markets, or that otherwise damage the financial health of our retail customers and consumers, can harm our business and financial performance
6. 06Changes in the retail industry and markets for consumer products affecting our retail customers or retailing practices could negatively impact our business, financial condition and results of operations
7. 07If we do not effectively maintain and further develop our relationships with retail customers and distributors, our growth prospects, business and results of operations could be harmed
8. 08Our industry is highly competitive and the barriers to entry are low. If we are unable to compete effectively with existing or new competitors, our sales, market share and profitability could decline
9. 09Our gross margin may not be sustainable and may fluctuate over time
10. 10Our business is largely dependent on content development and creation by third parties
11. 11As a purveyor of licensed pop culture consumer products, we may not be able to design and develop products that will be popular with consumers, and we may not be able to maintain the popularity of successful products
12. 12We may not realize the full benefit of our licenses if the properties we license have less market appeal than expected or if sales from the products that use those properties are not sufficient to satisfy the minimum guaranteed royalties
13. 13An inability to develop and introduce products in a timely and cost-effective manner may damage our business
14. 14If we are unable to obtain, maintain and protect our intellectual property rights, in particular trademarks and copyrights, or if our licensors are unable to maintain and protect their intellectual property rights that we use in connection with our products, our ability to compete could be negatively impacted
15. 15Our success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the trademarks, copyrights and proprietary rights of other parties
16. 16Our operating results may be adversely affected and damage to our reputation may occur due to production and sale of counterfeit versions of our products
17. 17Our success is critically dependent on the efforts and dedication of our officers and other employees, and the loss of one or more key employees, or our inability to attract and retain qualified personnel and maintain our corporate culture, could adversely affect our business
18. 18Our operating results may fluctuate from quarter to quarter and year to year due to the seasonality of our business, as well as due to the timing and popularity of new product releases
19. 19Our use of third-party manufacturers to produce our products presents risks to our business
20. 20We are subject to a series of risks related to climate change
21. 21Increased attention to, and evolving expectations for, sustainability and environmental, social, and governance (“ESG”) initiatives could increase our costs or otherwise adversely impact our business and reputation
22. 22Our operations, including our corporate headquarters, primary distribution facilities and third-party manufacturers, are concentrated in certain geographic regions, which makes us susceptible to adverse conditions in those regions
23. 23Our substantial sales and manufacturing operations outside the United States subject us to risks associated with international operations
24. 24Increases in tariffs, trade restrictions or taxes on our products could have an adverse impact on our operations
25. 25Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition
26. 26Our business depends in large part on our vendors and outsourcers, and our reputation and ability to effectively operate our business may be harmed by actions taken by these third parties outside of our control
27. 27We are subject to various government regulations and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm our business
28. 28Our e-commerce business is subject to numerous risks that could have an adverse effect on our business and results of operations
29. 29We could be subject to future product liability suits or product recalls which could have a significant adverse effect on our financial condition and results of operations
30. 30We may not realize the anticipated benefits of acquisitions or investments, the realization of such benefits may be delayed or reduced or our acquisitions or investments may have unexpected costs
31. 31Digital assets are a novel asset class that carries unique risks, including extreme price volatility
32. 32Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties
33. 33Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our sales or profitability
34. 34Our indebtedness could adversely affect our financial health and competitive position
35. 35We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs
36. 36TCG has significant influence over us, including over decisions that require the approval of stockholders, and its interests, along with the interests of our Continuing Equity Owners and certain other parties, in our business may conflict with the interests of our other stockholders
37. 37Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” does not apply with respect to any director or stockholder who is not employed by us or our subsidiaries
38. 38Our principal asset consists of our interest in FAH, LLC, and accordingly, we depend on distributions from FAH, LLC to pay taxes and expenses, including payments under the Tax Receivable Agreement. FAH, LLC’s ability to make such distributions may be subject to various limitations and restrictions
39. 39In certain circumstances, FAH, LLC will be required to make distributions to us and the Continuing Equity Owners and certain of their transferees, and the distributions that FAH, LLC will be required to make may be substantial
40. 40Our Tax Receivable Agreement requires us to make cash payments in respect of certain tax benefits to which we may become entitled, the amounts that we may be required to pay could be significant, and we may not realize such tax benefits
41. 41The amounts that we may be required to pay to the TRA Parties under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize
42. 42We will not be reimbursed for any payments made to the TRA Parties under the Tax Receivable Agreement in the event that any tax benefits are disallowed
43. 43Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the TRA Parties that will not benefit Class A common stockholders to the same extent as it will benefit the Continuing Equity Owners and transferees
44. 44The Continuing Equity Owners own common units in FAH, LLC, and the Continuing Equity Owners have the right to redeem their common units in FAH, LLC pursuant to the terms of the FAH LLC Agreement for shares of Class A common stock or cash
45. 45You may be diluted by future issuances of additional Class A common stock or common units in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price
46. 46We do not intend to pay dividends on our Class A common stock for the foreseeable future
47. 47Delaware law and certain provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may prevent efforts by our stockholders to change the direction or management of our company
48. 48We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock

GENERAL RISKS

1. 49Changes in foreign currency exchange rates can significantly impact our reported financial performance
2. 50If we or our third-party providers fail to protect confidential information and/or experience data security incidents, there may be damage to our brand and reputation, material financial penalties, and legal liability, which would materially adversely affect our business, results of operations, and financial condition
3. 51Any impairment in the value of our goodwill or other assets could adversely affect our financial condition and results of operations
4. 52If our estimates or judgments relating to our critical accounting estimates prove to be incorrect, our operating results could be adversely affected
5. 53Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the price you paid for them
6. 54We may fail to meet analyst expectations, or analysts may issue unfavorable commentary about us or our industry or downgrade our Class A common stock, which could cause the price of our Class A common stock to decline
7. 55Our ability to use certain tax attributes may be limited
8. 56Failure to comply with anti-corruption and anti-bribery laws could result in fines, criminal penalties and materially adversely affect our business, financial condition and results of operations