Funko Inc (FNKO) 2019 Q4 法說會逐字稿

Good afternoon and welcome to Funko's conference call to discuss financial results for the 2019 fourth quarter and full year.

(Operator Instructions)

Please be advised that the 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 would now like to turn the call over to Andrew Harless, Manager of Investor Relations, to get started.

Please proceed.

Thank you and good afternoon.

With us on the call today from management are Brian Mariotti, Chief Executive Officer; Andrew Perlmutter, President; and Jennifer Fall Jung, Chief Financial Officer.

A press release covering the company's fourth quarter 2019 financial results was issued this afternoon and is available on our Investor Relations website, investor.funko.com.

Before we begin, I need to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10-K for the fiscal year 2019 and our other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them.

We will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per diluted share, which we believe may be important to investors to assess our operating performance.

Reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release.

We've also prepared a visual presentation that investors can consult to follow along with this discussion, and it can be accessed at investor.funko.com.

I'll now turn the call over to Brian.

Good afternoon, everyone, and thanks for joining us.

I will begin with my remarks today with a review of 2019, and then I'll share our perspective of Funko's competitive positioning, the opportunities in front of us and how we're planning to drive growth in 2020 and beyond.

Before turning to my formal remarks, I would like to briefly comment on the coronavirus.

Our thoughts are with our employees, partners and communities around the world being impacted by this crisis.

We are closely monitoring the developing situation and tracking disruption to our supply chain.

At this time, we believe there will be an impact to the first half of 2020 due to manufacturing disruptions and delayed shipments which Jen will walk you through later in the call.

We are working closely with our manufacturing, logistic and retail partners to mitigate disruption and will provide update as appropriate.

Now turning to 2019.

In 2019, we delivered strong top line growth of 16% despite a tough finish in the fourth quarter.

As Q4 unfolded, orders from many of our top retail customers came in below expectations due to the softness surrounding the holiday shopping season.

At the same time, key tentpole releases underperformed.

Going forward, we will be focused on leveraging the diversity of our model through new products and categories as well as strategic partnerships that allow us to generate new revenue streams and expand our addressable market.

We have a winning culture at Funko, and the organization as a whole has a strong sense of accountability.

Our teams are leaning into the challenges of Q4 and putting the pedal to the floor in 2020.

We are planning to bring dozens of new products to market this year that we're tremendously excited about, and we're also building for the future by enhancing our infrastructure.

We have every confidence that the underlying strength of our business model remains intact and positions us for a continued growth and expansion over the long term.

We are committed to delivering our 2020 goals and increasing value for our shareholders.

There are a number of strategic and operational achievements from 2019 that we believe set us up for the future.

We completed the strategic acquisition of world-class game design studio, Forrest-Pruzan.

This expanded our addressable market to include the nearly $6 billion board game sector and enabled us to create Funko Games, our new division.

We successfully launched our first game with the release of Funkoverse in the fourth quarter, which has seen great initial success.

And we have much more in store for 2020, which we will discuss shortly.

Next, we entered into the nonlicensed toy market with the development of several innovative new lines alongside our Funko Animation Studios.

This new market opens up Funko to a younger demographic within the traditional toy aisle and allowing us to expand our footprint with existing retailers and further expands our total addressable market.

Third, we continue to enhance and build upon our Pop!

platform with new strategic partnerships.

We have a significant opportunity in front of us to further establish Pop!

as a broad-based entertainment platform encompassing physical and digital through figures, apparel, accessories, mobile games, short-form videos and board games.

We grew our international sales 23% primarily driven by the continued success in Europe, which grew 32%.

We grew sales of Loungefly products over 60% as we increase the number of licenses they produced against and expanded their distribution.

We launched a new mobile app and rolled out a fan loyalty program that allows users to track their Funko collection, create wish lists and browse our catalog.

To date, our app has over 7.5 million downloads, almost 40 million items added to collections and wish lists and over 150 million searches.

We've also expanded our physical retail presence with the opening of Funko's second flagship store in Hollywood late last year, and we're really pleased with the initial consumer response.

Lastly, we strengthened our bench with new hires across the company.

Specifically, we fortified our operations, planning and supply chain teams to make us more efficient and bolstered our finance team to provide insights and help drive profitable growth.

Funko has innovative products, talented people and great partners, and the business is a strong cash flow generator.

One of the cornerstones of our model is diversity.

Diversity across our fan base.

Our products reach all 4 quadrants of consumers: men and women, boys and girls; diversity across product and licenses, across our retail partners and across the globe.

This has afforded us the unique ability to continually increase our addressable market by building programs against new content genres and expanding into new product categories.

For example, we have tripled our anime business in the last 2 years as we continue to add new anime licenses and expand our reach to new fan bases.

We believe genres, such as music, sports and others, have shown early successes that are ripe for the same disruption.

Importantly, there are secular trends happening across the industry that reinforce the durability of Funko's core business.

The proliferation and investment in high-quality, obsession-worthy content continues to be driven by the likes of Disney, Amazon, Netflix, Viacom, CBS, Hulu, Apple, HBO, Comcast and others that have estimated to spend over $120 billion in content alone in 2019.

We believe the content boom will carry on as these behemoths continue to fight for viewership.

However, content isn't just proliferating, it is becoming more accessible than ever for consumers around the world.

You can live stream television or sporting events from a phone, download and play high-quality video games in minutes and connect and create with communities who love the same thing as you.

Entertainment and content have a hobby and past time that people identify with and want to show their affinity for.

Fandom is on the rise, and we will continue to be fueled by growth in high-quality and accessible content as well as increased fan connectivity.

We believe in all of Funko's key tenets, a diverse customer base, broad array of licenses and product offerings, global distribution and world-class speed to market, coupled with powerful industry trends that will propel Funko in 2020 and beyond.

In the upcoming year, we will be focused on 4 growth priorities that we believe will continue to expand our addressable market and lead to increased profitability over the long term.

Priority number one is continuing to grow Funko's core pop culture business by leveraging evergreen properties in underpenetrated genres.

Priority number two is diversifying our revenue streams by building on the current platforms and launching new licensed and nonlicensed products.

Priority number three is to further penetrate international markets to increase our overall international sales mix.

And finally, our fourth priority is to increase our direct-to-consumer sales and drive further fan engagement through funko.com and our flagship stores.

We are laser-focused on increasing operational efficiency across the organization to support our growth and build scale for the future.

A critical component of this is retooling our supply chain.

We're taking a measured approach here and have already begun implementing new sales and inventory management processes that are expected to enhance our ability to plan, purchase inventory, forecast, fulfill and manage our operations.

Before I turn the call over to Andrew to talk in more detail about our plans for 2020, I want to share our excitement coming off of Toy Fair less than 2 weeks ago.

We saw tremendous initial reactions from both our retail and licensing partners to all of our amazing and innovative new product launches across toys, board games and figures.

In particular, we saw a lot of enthusiasm and excitement around the breadth of board games we're launching and the disruptive retail experience we're bringing to market with our new Snapsies toy line, which Andrew will discuss further.

I would like to thank each and every member of the Funko team as well as our licensing and retail partners, because without them, we wouldn't be able to surprise and delight our fans and connect them to the properties they love.

We also greatly appreciate the support of our shareholders, and look forward to updating you on our progress throughout the year.

I will now turn the call over to Andrew.

Thanks, Brian, and good afternoon, everyone.

As you heard, we had a highly successful Toy Fair and have a tremendous lineup of initiatives for 2020.

Let me provide some color on how we'll be executing against our top growth areas: driving the core business, introducing new products, increasing our international mix and expanding direct-to-consumer.

First and foremost, in 2020, we will be focused on continuing to grow Funko's core pop culture business.

Our ability to drive core business is centered around 2 things: one, leveraging Funko's strength and building fun, creative and nostalgic programs that utilize evergreen content; and two, targeting underpenetrated content genres to expand our addressable market.

We have a number of unique evergreen programs slated for 2020.

These include new takes on beloved characters, such as our Marvel Venomized line; content that we're leveraging for the first time, such as Disney Theme parks; and expanding on past successes, such as Harry Potter.

Additionally, we will be focused on building programs to grow underpenetrated genres such as anime, sports and music.

In 2020, we will be growing our anime license base, increasing the product categories we produce against and further expanding distribution.

In fact, we just announced an exclusive partnership with Bandai, which allows Funko for the first time ever to distribute anime properties in Japan, the largest market for anime merchandise in the world.

We've also expanded our rights under Pokémon and Dragon Ball Z, 2 additional examples of our ability to leverage existing licenses to drive growth.

Within the music category, we are building successful programs against favorite artists such as Guns N' Roses, BTS, Kurt Cobain and Queen, and believe we are becoming the go-to licensee within the music industry.

In 2020, we will be adding additional fan-favorite artists such as MIGOS, Tupac and Ice Cube, to name a few.

Additionally, we will be launching a new pop line called Pop!

Albums, which recreates covers of iconic albums, with our initial launch being a replica of the notorious B.I.G album, another great example of how we can utilize the pop look and feel against new content to attract a broader audience.

In the sports category, we will continue to leverage our broad universe of sports licenses, which include the NFL, NBA, NHL, WWE, English Premier League, MLB and more.

Additionally, we will be launching localized fan shops within the mass channel for the first time in 2020.

This will allow consumers to find an assortment of their local home team products in their neighborhood stores.

Turning to new products.

As part of our strategy to further diversify our revenue streams across licensed and nonlicensed goods, we will be releasing new toy lines, board games and figure lines and growing our softlines business, while also building Funko's own IP portfolio.

In the second half of the year, we will be entering the toy aisle with new nonlicensed toy lines such as Snapsies, Boogey Monsters and Gashouse Game.

Snapsies is a toy line that utilizes Funko's patent-pending snap-and-match technology, which allows kids to create custom characters with each snap.

In addition to traditional merchandising options for Snapsies, we are also offering retailers a disruptive retail experience that utilizes interactive machines.

Using a touch screen display, kids will be able to immerse themselves in the world of Snapsies through video shots created by our own Funko Animation Studios.

Snapsies is expected to launch in Q3 and opens us up to potential new channels outside of our traditional retail distribution.

Also on deck for this year, we are collaborating with one of the top brands in the world to launch our first ever battle-inspired game that will be targeted at a younger demographic.

The line features cooperative gameplay and micro collectibles that only Funko can bring to the table, coupled with action-pack storytelling that this world-class entertainment partner is known for.

We will have more to share on this exciting release later in the year.

Our Funko Games division will be releasing dozens of new offerings in 2020.

This will include new Funkoverse-branded games, new licensed games, such as Back to the Future: Back in Time and Pan Am; and nonlicensed games, such as Last Defense and Yacht Rock.

We will be adding to our assortment of figure lines with the launch of Vinyl Soda!, a stylized collectible vinyl figure package inside of soda can.

It comes with the opportunity to be surprised by an ultra-rare chase piece that will delight collectors.

This line was launched in specialty stores in Q1, and we've seen a great initial reaction from our fans.

Now moving to international growth.

We expect to see strong momentum in EMEA in 2020 as we continue to bring on new retailers and expand within existing retailers.

This will include non-pop category expansion and the implementation of shop-in-shop statements within flagship retail stores.

We also expect to drive growth in underpenetrated regions as we refine our distribution and sales strategies in key markets.

Direct-to-consumer is another critical area of focus.

In 2020, we will begin shifting our selling strategy from a flash-sale approach to a more robust e-commerce website, with broad-based capabilities that includes more mainline items.

Importantly, we can leverage insights and data from our new Funko app and loyalty program, while also tapping our fan ecosystem to generate buzz on social media.

We will employ a phased approach to ensure that we appropriately scale our fulfillment capabilities, while growing sales.

Funko has a lot of innovation and excitement coming to the market later this year.

Our teams are invigorated and staying focused on executing at the highest level.

I will now turn the call over to Jen to take you through our financials.

Thanks, Andrew, and good afternoon, everyone.

At a high level, the fourth quarter was disappointing.

But as you heard from Brian, we had a number of successes in 2019, and we're focused on our 4 key priorities to drive growth in 2020 and beyond.

Turning now to our quarterly performance.

Q4 net sales came in at $214 million, down 8%.

The year-over-year decline reflects 3 primary factors: one, a weak holiday season for many of our retail partners, which resulted in order significantly below initial indications as well as lower-than-expected repurchase orders from our top customers; two, underperformance in the key tentpole properties in the quarter; and three, difficult comparisons to Fortnite, which was a significant sales driver in Q4 of last year.

The number of active properties increased 14% to 667 and net sales per active property were $320,000, down 20% year-over-year primarily reflecting tough fourth quarter sales performance.

In the quarter, our top 10 performing properties were Harry Potter, Frozen 2, Avengers: End Game, Star Wars Episode IX, Dragon Ball Z, DC Comics, Fortnite, My Hero Academia, Star Wars: Classic and Game of Thrones.

We continue to see underlying strength in the evergreen category, including the diversity of products and number of properties.

As a percentage of our total mix, evergreen properties accounted for 52% of net sales in Q4.

Some of our stronger performing evergreen programs in the quarter included Harry Potter, DC Comics, Star Wars: Classic, Marvel Comics, Disney Classic and Pokémon.

In the fourth quarter, net sales in the U.S. decreased 9%, while the international sales decreased 8%.

Within international, Australia and Canada declined year-over-year, which was partially offset by double-digit growth in Europe.

On a product category basis, Q4 net sales figures were down 10% to $170 million, primarily reflecting the overall softness at retail discussed earlier.

Other sales decreased 4% to $43 million, reflecting a decrease in plush and accessories partially offset by double-digit growth in our Loungefly brand.

Sales of our Pop!

brand products were down 6% in the quarter, which is primarily attributable to the Q4 impacts I just described.

On a full year basis, Pop!

products were up 20%, reflecting the broad-based appeal of the Pop!

brand as an entertainment platform.

Turning now to gross margin, which, as a reminder, excludes depreciation and amortization.

Fourth quarter gross margin, excluding a onetime charge of approximately $17 million related to the write-down of inventory, increased 110 basis points to 37.1%.

We made the strategic decision to reset and clear through these slower-moving goods in order to improve operational capacity and drive efficiency going forward.

At the same time, we are implementing initiatives around sourcing, demand planning and inventory management designed to enhance order visibility and improve our ability to chase sales opportunities.

In 2020, excluding the inventory write-down in Q4 of 2019, we expect gross margins to strengthen on a full year basis.

This will be driven by 2 key factors: one, continued operational improvements driven by reduced customer noncompliance chargebacks and strengthened inventory management practices; and two, lower cost of goods resulting from the increased scale and the mix shift toward higher-margin products, such as licensed and nonlicensed gains and nonlicensed toys.

Q4 selling, general and administrative expenses increased to $57 million primarily reflecting investments in headcount, marketing, domestic warehouse operations and the consolidation of our U.K. warehouse, including severance and related costs.

Because we have a largely fixed cost base, SG&A deleveraged as a percentage of sales, coming in at 26.8% versus 19.3% a year ago.

In 2020, we plan to focus spending on supporting new revenue streams, enhancing our systems and processes, improving organizational efficiency and building scale.

We expect to increase our marketing spend to support our new product launches and D2C initiatives, while also annualizing the personnel and infrastructure investments made in the back half of 2019.

Therefore, we expect SG&A to deleverage on a full year basis in 2020, with more significant pressure in the first half, followed by improvement in the third and fourth quarters.

We are also planning for an ERP implementation in the U.S. in 2021, which will require some initial SG&A investment this year.

Q4 net interest expense decreased to $2.9 million from $4.5 million last year, reflecting the successful refinancing of our credit facilities in September 2019.

Adjusted earnings per diluted share came in at $0.18 compared to $0.42 in Q4 of last year, and we generated adjusted EBITDA of $26 million, reflecting an adjusted EBITDA margin of 12%.

While the fourth quarter was challenging, for the full year, we achieved 15% growth on the top line, strengthened our gross margins and generated adjusted EBITDA of $123 million and adjusted EBITDA margin of 15.5%.

Moving to the balance sheet and cash flow.

We ended the year with cash and cash equivalents of $25 million and total debt of $242 million.

Inventory totaled $62 million, down 28% versus a year ago, which is primarily attributable to the $17 million inventory write-down at the end of the fourth quarter.

We generated strong cash flow from operations of $91 million in 2019, which is up substantially from 2018 due to a decrease in the change of net working capital.

Capital expenditures in Q4 totaled approximately $15 million, bringing full year spending to $42 million.

Investments were deployed toward tooling and molding for the development of new products and SKUs, the build-out for our Hollywood store and new U.K. warehouse and ongoing maintenance CapEx related to technology hardware and warehouse equipment.

Now I'll turn to our 2020 outlook.

As we outlined in our formal remarks today, we expect that top line growth will be largely weighted toward the second half, with sequential improvement as we move through the year.

First, we are up against particularly challenging comparisons in the first and second quarters, which can be traced to the strength of multiple properties in the first half of 2019, including Fortnite, Avengers: Endgame, Captain Marvel, final season of Game of Thrones, Stranger Things, Toy Story 4 and Spider Man: Far from Home.

Second, many of our growth initiatives, including the introduction of new toys and games, are expected to be coming to market in the third and fourth quarters.

Lastly, the new release content slate is stronger in the back half of 2020 with Marvel Eternals, second season of The Mandalorian, release of Wandavision, and the Falcon and the Winter Soldier.

Additionally, as Brian discussed, we are closely monitoring our supply chain and operations as it relates to the impact from the coronavirus.

While the situation is dynamic, we have reflected our current assumptions in the updated full year guidance we are providing today.

We anticipate that Q1 net sales will decline in the mid-teens and net sales in the first half will decline to mid-single digits.

These ranges include the estimated impact of manufacturing disruptions and delayed shipments due to the crisis at this time, and may need to be revised in the future.

For the full year 2020, we expect net sales in the range of $840 million to $865 million, representing a year-over-year growth of 6% to 9%.

This includes approximately 2 points of anticipated impact related to the coronavirus.

Adjusted EBITDA of $115 million to $125 million, and adjusted net income of $43 million to $51 million based on a blended tax rate of 25% and which translates to an adjusted earnings per diluted share of $0.85 to $1, based on weighted average diluted share count of 51 million.

Please note that the share count may fluctuate due to the treasury stock method and the share price as the year progresses.

We appreciate your time this afternoon.

Now we will ask the operator to open the call to questions.

(Operator Instructions) Your first question comes from Erinn Murphy with Paper Sandler.

A couple of questions for me.

I guess, first, on the guidance.

Jen, on the first quarter, can you just help us think about how you're looking at U.S. versus international trends?

And then, I guess, relatedly, on the SG&A side, just with the U.K. DC consolidation.

How long into the first half should we see some duplicative costs in the P&L?

Yes.

Thanks for the question, Erinn.

Hope you're doing well.

On the first question for Q1, I would just relatively think about it consistently across the 2 regions as we report out on international in the U.S. And then in terms of the cost and the SG&A for the duplication, we are on track and on budget, looking to go live at the end of the month.

So we're feeling really good about that transition to the new distribution center.

There will be some incremental costs that come into Q2 as we continue to wind down the original distribution center.

So I would look at it as a first half event.

Okay.

Got it.

And then maybe just stepping back with what you're seeing right now from a supply chain perspective, just given the coronavirus outbreak.

Can you share a little bit more about any -- or any more detail on what you're actually seeing?

Kind of, how long are the average delays?

And then what are some of your contingency plans if we continue to see kind of global travel stop and just this kind of sustained outbreak through the first half?

Like what type of things can you control?

Can you dual source?

Just curious on that.

Yes, it's Brian.

Great question.

Obviously, we're in better shape than some with the fact that we do produce 70% of the goods that are produced outside of China, with primarily Vietnam being our main producer.

It doesn't mean that some components like tooling do not come from China, they do.

And sometimes, that can affect even some of the Vietnam shipments.

But as of right now, we're about 3 weeks of sliding production behind, and we're getting numbers of about 45% to 50% capacity at our Chinese factories.

Now we do have capacity that we can move into Vietnam, if this were to be continuing to be a problem in China.

So there is an ability to load up Vietnam with more products and even dramatically reduce our exposure, where traditional toy companies that produce, mainly in China, can't.

So I think we're in good shape.

Obviously, we can't really speak to the economy and what this does for people and whether they're going out and shopping and all that stuff.

And we obviously have some stuff slide from Q1.

I think that's pretty much obvious at this point.

But I do believe, as the year goes on, we're in really good shape, and we have levers to pull to protect ourselves.

Yes.

That being said, keep in mind, we're in the same place, I think, as most people.

There's still a lot of information coming out, so we will continue to monitor the situation.

Okay.

And then just last question, I guess, Brian, this would also be for you.

Can you just talk a little bit more about the opportunity that you see in direct-to-consumer?

Just how big is that business today?

Where could it go as you really start to kind of clean that channel up and really focus on the full price opportunity there?

Yes, we're making -- we have made a bunch of investments over the last couple of years and getting ourselves into a position to be able to start pulling levers when it comes to D2C.

The app is just one great investment that we've done over the last couple of years where we're being able to engage with our fan base, push information to them and use this to eventually turn on direct-to-consumer.

I think our first strategy is just going to be increasing the amount of SKUs offered on the website.

Right now, we're primarily flash-sale based, a couple of new items a week pop up.

They sell it in minutes, and we go on to the next week.

So the idea of carrying maybe upwards to 1,000 SKUs for the year -- by the end of the year is exciting for us.

And I think we can time that with new releases and add exclusive content to that and put a loyalty program in place that's going to make it exciting for people to shop on funko.com.

So we're excited about that business.

Obviously, the margins are better.

And we just think that taking control of some of our own narrative when it comes to our own products and our own marketing is just a natural evolution for us as we continue to mature as a company.

Your next question comes from Stephanie Wissink with Jefferies.

This is Ashley on for Steph Wissink.

If I assume a pretty big step-up in the second half than the first half, what degree of visibility do you have today into that setup, other corresponding bookings or indications of interest?

And are you -- I assume you're talking about sales?

Yes.

Yes.

So as we look at the year, obviously, we've indicated that you will see progression throughout the year by quarter.

Keep in mind, there is just inherent seasonality within our business that we do see.

We have also factored in the content slate.

As we mentioned on the prepared remarks, we do see a heavier content slate towards the back half of the year.

But overall, I think keep in mind, too, that we do have some of our new programs coming out in the -- or new properties and -- sorry, our new products coming out towards the back half of the year as well.

So there's a couple of things going on.

The seasonality, though, if you do look historically, I think 2019 was a bit of an anomaly.

It's not completely that differentiated from how we've been looking historically.

Okay.

Great.

Then if I could just squeeze in one more.

What kind of cost cuts do you have if sales come in below or vice versa?

How should we think about leverage if you opt to delever?

Yes.

We -- as we've said, our cost base is fairly fixed.

Of course, we do have levers that we could pull.

But at this point, we really are focused on investing in our infrastructure and investing for growth.

So that's why we will continue to see deleverage this year.

But obviously, we would -- if things were to turn significantly down for the economy or whatnot, we would obviously always look for areas to cut back.

Your next question comes from Drew Crum with Stifel.

Brian, what percentage of sales came from owned IP?

And as you roll out some new products in the second half, nonlicensed specifically, your $840 million to $865 million revenue guidance range, how should we think about nonlicensed product as a percentage of that total?

Small but significantly growing compared to all the previous years, we've been in the work with -- obviously, we're excited.

We're excited this is our first main foray in producing original IP that we think is going to at least have some sort of impact on the top line.

And so we are excited about that and the margins to go along with it.

We've been very, very conservative in what we think the original IP is going to do in 2020.

And we're going to hopefully evaluate a successful launch in the second half of the year and then have more, I guess, a better outlook on what that white space is and what that potential growth is for '21.

But as you saw in some of the reports in -- at our Toy Fair analyst-wise and otherwise, a real positive reaction to what we displayed for the first time in the girls toys, specifically the ability to disrupt that space with some technology, we're very, very proud of and coupling that with the animation studio, we're excited.

I mean this is going to be something that we will continue to do on a year-on-year basis.

We have 150 world-class artists that want a voice.

We think we can do this.

We've disrupted the collectible aisle on pop culture entertainment licensed merchandise.

We think we can do the same with toys.

We're just going to be superconservative about what that guidance is in 2020, specifically until we get a better read.

Okay.

Got it.

And then with respect to Japan, did you guys generate any sales out of Japan in 2019?

And just, I guess, a point of clarification, the distribution agreement with Bandai, did I hear correctly, you're restricted to anime only?

Or can you sell other products into that market?

It's a great question.

Obviously, we felt like over the last 4 or 5 years, we've got a wonderful partner over there, Hot Toys, but the numbers weren't what they should be.

And a lot of it just came from Bandai's strategic positioning within the territory and our inability to get anime-type properties into Japan.

As a matter of fact, we've got none.

And so we weren't giving -- we were playing with one hand tied behind our back over there.

So Bandai will be the new distribution partner.

They will carry all of our goods.

But the big win there is obviously the anime titles.

Again, Japan has been a small territory for us.

We're going to start to see moderate growth in '20 with a much more positive outlook in '21, giving them the chance to really get their feet wet in how to distribute Funko products.

But we are excited about the relationship and what it means to potentially grow, we think, a very important and very influential market.

Okay.

And then just...

And just to remind you -- sorry, Drew, just keep in mind, it's really a Q4 play there.

Okay.

And then, Jen, just one last one from me.

CapEx, $42 million in 2019, should that step down in '20?

Yes, in '20 -- in 2019, we did have a Hollywood store included in that CapEx.

So I would, at this current time, expect it to return to our more normalized levels.

The biggest piece of what we normally spend on is the tooling and molding.

So given where we are today, that's what we would say.

But initiatives change throughout the year, and we'll update if there's anything new.

Your next question comes from Michael Swartz with SunTrust Robinson.

Brian, I just wanted to start with you.

Some of your commentary around direct-to-consumer and building out your e-commerce platform.

I think, you said you're going to have 1,000 SKUs by the end of the year.

I guess, how do you manage the potential conflict with some of your retail partners in doing that?

Look, I think this is probably the number one reason we've waited this long.

We've been very careful as a smaller company to work very hard in growing our -- not only our brick-and-mortar retail partners' business, but also their e-commerce business.

And we're at a point right now, where you guys are very aware of the retail environment and there are people -- some companies that maybe aren't as strong as they used to be.

We've got great partners go out of business over the last 3 or 4 years and there is a reason to put this in the right place and start replacing some of those people that have not -- are no longer with us as far as retail partners.

So we will continue to do what we do best, which is find retail partners and impair them with content that matches their fan base or their demographic.

And I think that won't affect our business to continue to grow, but we just need to take a little bit more control of the narrative right now.

And this seemed like about the right time to really push forward.

And then we had some things we had to do on our end back-end wise and app development-wise and maturity wise and processes-wise and operational-wise to get ourselves in a position that when we do open up the SKU count, that we don't mess it up.

We do it the right way and give our customers a great experience.

So I think that's kind of what the thought process is behind it.

All right.

And Jen, just on maybe a little clarification on the coronavirus impact.

I think it looks like you're embedding maybe $15 million or so impact to the top line.

What would the impact be to EBITDA?

And second part of that question is, what are your -- I guess, what are you assuming how long this disruption goes on?

Is it to the end of March, to the end of April?

Right now, we're considering the impact that we've included in here is mainly a first -- well, is a first half impact, with the majority of it happening in Q1.

And then, as we mentioned earlier, at this point, our SG&A is relatively fixed.

So as those flow through gross margin, that will be the impact all the way down to the bottom line.

Your next question comes from Michael Ng with Goldman Sachs.

It was encouraging to see that the Pop!

products themselves outperform the company and figures in both the quarter and the year.

So I was hoping you could talk a little bit about the resilience of Pop!

that you're seeing.

And then on the other side of the coin, could you just talk about some of the brands within figures that may not be performing as well as that Mystery Minis or Dorbz?

Yes, Mike, great question.

And thanks, I appreciate it.

Yes, we're pretty ecstatic.

I mean we're kind of in an uncharted territory, right?

I mean we have a platform that's grown 10 straight years.

And every year, the number has gotten bigger to try to grow from.

So we're pretty proud of what we consider the platform and the brand we've created, and we do believe that, that platform is what people on a global basis view pop culture through.

So it's kind of our filter that it's been accepted on a worldwide basis of how to view pop culture.

So we're excited about the health of that business.

We always look at pop as a Trojan horse that gets us into any new territory and any retailer.

It always leads with Pop!, and then it falls with Loungefly and Mystery Minis and other things.

So to take the second part of your question, we always want to try different formats.

In all of them, Mystery Minis is probably the one exception.

Most of them are very small in scale compared to the -- obviously, the behemoth, 900-pound gorilla that is Pop!.

But the ones that we're really going to focus on right now is Paka Paka and that nonlicensed IP through the fun delivery system of the machine.

And we're also letting our -- some of our retail partners purchase that in PDQs without the machine.

We have content to support both and very excited about the initial response to soda.

When you're getting yelled at by retailers and fans and distributors that they're not getting enough, their allocation isn't big enough for soda that's selling right, is selling too quickly, that's something we haven't really heard a lot of in the last couple of years, and it's been probably the most excited we've been about a vinyl line since Pop!'s inception in 2010.

So you're going to see a lot of focus for us on continuing to do the Mystery Mini line.

It's always been a very successful line with us with Blind Bag and soda and, obviously, Paka Paka, and then, obviously, Pop!.

Those are our big vinyl initiatives at this point.

(Operator Instructions) Your next question comes from Tami Zakaria with JP Morgan.

Could you talk about the rollout cadence of Snapsies and some of the other toy -- nonlicensed toys?

And how many retail doors initially you expect to get into this year?

Sure, I can take that.

It's Andrew Perlmutter.

We -- the initial rollout plan for really all of our toy IPs will be -- both licensed and non will be in the back half of the year towards fall.

Most retailers do their fall sets in August.

That's when we would be timing those rollouts.

And what was the second part of your question?

How many retail doors you expect to get into?

So just coming off of Toy Fair, we know that we've got a couple of very multi-door strategic partners lined up.

I think Target was mentioned as one of them, which they are.

And we are coming off of Toy Fair, we're solidifying the rest of the distribution.

It was the first time that the majority of our customers saw the item and it got a very good feedback.

So now we're following up to see who is going to execute.

Got it.

And so my follow-up question is, the inventory write-down in the fourth quarter that you took, could you comment on how you're selling down this inventory?

Is it through your DTC channel or through your regular retail partners?

Yes.

Tami, we are actually -- we have written down the inventory.

We are -- we will dispose of it in the most environmentally friendly way.

We're actually talking to a couple of foundations right now, and most likely, we'll be looking to donate it.

There are no further questions at this time.

Great.

Thank you for everyone for joining the call today.

We'll update you soon.

Thanks.

Thank you.

This concludes today's conference call.

You may now disconnect.