Liabilities under Tax Receivable Agreement

9 Months Ended

Sep. 30, 2023

Liabilities Under Tax Receivable Agreement [Abstract]

Liabilities under Tax Receivable Agreement

On November 1, 2017, the Company entered into a tax receivable agreement with FAH, LLC (the “Tax Receivable Agreement”) and each of the Continuing Equity Owners, and certain transferees of the Continuing Equity Owners have been joined as parties to the Tax Receivable Agreement (the parties entitled to payments under the Tax Receivable Agreement are referred to herein as the "TRA Parties") that provides for the payment by the Company to the TRA Parties of 85% of the amount of tax benefits, if any, that it realizes, or in some circumstances, is deemed to realize, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of common units of FAH, LLC for Class A common stock of Funko, Inc. or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement (the “TRA Payment”).

During both the three and nine months ended September 30, 2023 the Company acquired 0.1 million common units of FAH, LLC. During the three and nine months ended September 30, 2022 the Company acquired 0.0 million and 6.5 million common units of FAH, LLC, respectively. During the three and nine months ended September 30, 2023, the Company did not recognize an increase to its net deferred tax assets due to the full valuation allowance. As a result of the exchanges during the three and nine months ended September 30, 2022, the Company recognized an increase to its net deferred tax assets in the amount of $0.0 million and $30.0 million, respectively.

The following table summarizes changes in the amount of the Company’s Tax Receivable Agreement liability (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Beginning balance	$	9,562	$	112,733	$	109,187	$	82,884
Additional liabilities for exchanges	—		13		—		29,862
Liability reduction	—		—		(99,620)		—
Payments under tax receivable agreement	—		—		(5)		—
Ending balance	$	9,562	$	112,746	$	9,562	$	112,746

As of September 30, 2023, the Company’s total obligation under the Tax Receivable Agreement, including accrued interest, was $9.8 million, which was included in accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheets. At December 31, 2022, the Company’s total obligation under the Tax Receivable Agreement, including accrued interest, was $109.2 million, of which $9.6 million was included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. As reflected in Note 2. Significant Accounting Policies, the Company determined that payments to the TRA Parties related to unrealized tax benefits under the Tax Receivable Agreement are no longer probable and estimable. Based on this assessment, the Company reduced its Tax Receivable Agreement liability as of June 30, 2023.