Mattel : 2023-Q2 Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

MAT.OQ - Q2 2023 Mattel Inc Earnings Call

EVENT DATE/TIME: JULY 26, 2023 / 9:00PM GMT

OVERVIEW:

Company reported Net sales of $1.087 billion, Adjusted operating income of $75 million, Adjusted EPS of $0.10, adjusted EBITDA of $37 million, Adjusted SG&A of $324 million, cash from operations of $326 million, free cash flow of $399 million, free cash flow of $361 million, Total debt of $2.328 billion, free cash flow of $400 million.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

JULY 26, 2023 / 9:00PM, MAT.OQ - Q2 2023 Mattel Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Anthony P. DiSilvestro Mattel, Inc. - CFO

David Zbojniewicz Mattel, Inc. - VP & Head of IR

Richard Dickson Mattel, Inc. - President & COO

Ynon Kreiz Mattel, Inc. - Executive Chairman & CEO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Andrew Edward Crum Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst

Arpine Kocharyan UBS Investment Bank, Research Division - Director and Analyst

Eric Owen Handler ROTH MKM Partners, LLC, Research Division - MD

Frederick Charles Wightman Wolfe Research, LLC - Research Analyst

Jason Daniel Haas BofA Securities, Research Division - VP

Linda Ann Bolton-Weiser D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

Stephen Neild Laszczyk Goldman Sachs Group, Inc., Research Division - Research Analyst

P R E S E N T A T I O N

Operator

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mattel, Inc. Second Quarter 2023 Earnings Conference Call. (Operator Instructions) David Zbojniewicz, Head of Investor Relations, you may begin your conference.

David Zbojniewicz - Mattel, Inc. - VP & Head of IR

Thank you, operator, and good afternoon, everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer; Richard Dickson, Mattel's President and Chief Operating Officer; and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon, we reported Mattel's 2023 second quarter financial results.

We will begin today's call with Ynon and Anthony providing commentary on our results, after which, we will provide some time for Ynon, Richard and Anthony to take questions. To help supplement our discussion today, we have provided you with a slide presentation. Our discussion, slide presentation and earnings release may reference non-GAAP financial measures, including adjusted gross profit and adjusted gross margin; adjusted other selling and administrative expenses; adjusted operating income or loss and adjusted operating income or loss margin; adjusted earnings per share; adjusted tax rate; earnings before interest, taxes, depreciation and amortization or EBITDA; adjusted EBITDA; free cash flow; free cash flow conversion; leverage ratio; net debt; and constant currency.

In addition, we may present changes in gross billings, a key performance indicator. Please note that we may refer to gross billings as billings in our presentation and that gross billings figures referenced on this call will be stated in constant currency unless stated otherwise. For today's presentation, references to POS and consumer demand exclude the impact related to our Russia business, given our decision to pause all shipments into Russia in 2022.

Our slide presentation can be viewed in sync with today's call when you access it through the Investors section of our corporate website, corporate.mattel.com. The information required by Regulation G regarding non-GAAP financial measures as well as information regarding our key performance indicator is included in our earnings release and slide presentation, and both documents are also available in the Investors section of our corporate website.

2

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

JULY 26, 2023 / 9:00PM, MAT.OQ - Q2 2023 Mattel Inc Earnings Call

The preliminary financial results included in the press release and slide presentation represent the most current information available to management. The company's actual results when disclosed in its Form 10-Q may differ from these preliminary results as a result of the completion of the company's financial closing procedures, final adjustments, completion of the review by the company's independent registered public accounting firm and other developments that may arise between now and the disclosure of the final results.

Before we begin, I'd like to caution you that certain statements made during the call are forward-looking, including statements related to the future performance of our business, brands, categories and product lines. Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements.

We describe some of these uncertainties in the Risk Factors section of our 2022 annual report on Form 10-K, our Q1 2023 quarterly report on Form 10-Q, our earnings release and presentation and other filings we make with the SEC from time to time as well as in other public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law. Now I'd like to turn the call over to Ynon.

Ynon Kreiz - Mattel, Inc. - Executive Chairman & CEO

Thank you for joining our second quarter 2023 earnings call. Mattel's second quarter financial results were in line with company expectations. But this moment in time will largely be remembered as a key milestone in our company's history, the release of our first-ever theatrical movie to a global audience as part of our strategy to expand our entertainment offering and capture the full value of our IP. We will talk more about the Barbie movie shortly.

Turning to financials. Sales trends improved significantly from the first quarter but were down versus the prior year. This was primarily due to the continued impact of retailers managing inventory levels and industry softness as well as comparisons to the year ago quarter, which benefited from retailers building inventories earlier in the season.

Looking at key financial metrics for the second quarter as compared to last year. Net sales declined 12% as reported or 13% in constant currency. Adjusted EBITDA declined $37 million to $148 million and trailing 12-month free cash flow increased by $214 million to $361 million.

POS was down high single digits in the quarter and down low single digits for the first half of the year. POS continued to exceed shipping.

Per Circana, in the second quarter and year-to-date, Mattel gained share globally and in our 3 leader categories, Dolls, Vehicles and Infant, Toddler and Preschool.

Reflecting our strong financial position and confidence in our strategy, we continued to repurchase shares in the quarter, and we look to make further repurchases this year.

Our retailers have made considerable progress in adjusting their inventories of Mattel products and are below prior year levels. While the toy industry declined more than we expected in the second quarter, we believe consumers are deferring purchases in anticipation of increased spending during the holiday season.

However, given first half trends, we now expect the industry to decline modestly for the year, but remain significantly above pre-pandemic levels.

The fundamentals of our business are strong. We expect to outpace the industry, gain market share and are reiterating our full year guidance.

Looking at gross billings in the quarter. Dolls and Vehicles grew while Infant, Toddler and Preschool and our Challenger categories declined.

With respect to the Power Brands, Barbie and Fisher-Price declined, while Hot Wheels grew. The global rollout of Monster High and the launch of Disney Princess and Disney Frozen are building momentum.

3

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

JULY 26, 2023 / 9:00PM, MAT.OQ - Q2 2023 Mattel Inc Earnings Call

We continue to successfully execute our strategy to grow Mattel's IP-driven toy business and expand our entertainment offering in the second quarter.

As it relates to our Toy business, we launched a wide range of Barbie movie-related toys and products. Releases to date have sold out across major distribution channels, and we will be expanding the range in the second half. We continue to expand our franchise brands with the launch of new innovative products, including Hot Wheels Racerverse, a new character-driven play system.

We renewed our multi-category licensing partnership with Warner Bros. for their portfolio, including the DC Universe, Batwheels and Harry Potter, among others.

As it relates to our entertainment business, the Barbie movie premiered globally last Friday to incredible success and became the largest opening weekend at the box office of 2023.

This first production of Mattel Films brought together some of the world's most prolific filmmakers and talent of our generation. The world-class Barbie marketing organization and Mattel's broad expertise in demand creation in strong collaboration with Warner Bros. team promotional engine and global distribution platform have made the movie hard to ignore.

The success of the box office during the first weekend combined with positive film reviews and the entire buildup towards its release made it more than a movie. It has become a cultural phenomenon. Exceptional media coverage and product tie-ins,cross-platform amplification from Warner Bros. Discovery cable and streaming services, a global philanthropic campaign and of course, a sellout toy line, significantly broadened the film's reach and fan engagement.

We could not be prouder of the creative vision and execution of Greta Gerwig and are grateful for the partnership with Margot Robbie and LuckyChap Entertainment, Noah Baumbach, David Heyman, and of course, Warner Bros. commitment to the project from the very beginning. This would also not have been possible without the dedication of the Mattel Films and Barbie teams and everyone at Mattel who have been a part of the Barbie movie.

This is a milestone moment for Mattel in a showcase for the cultural resonance of our IP, our ability to attract and collaborate with top creative talent and the capabilities of our franchise management organization. This also speaks to the potential of Mattel Films and the significant progress of our strategy to capture the full value of our IP.

We continued to make good progress in capturing value of our IP outside the toy aisle in other areas as well. As part of the Barbie movie, Mattel partnered with Warner Bros. and Warner Music Group to release the Barbie music album produced by Marc Ronson. The album features a stellar lineup of some of the most celebrated music artists in the world, including Dua Lipa, Nicki Minaj and Ice Spice, Billie Eilish, Lizzo, Sam Smith and other major global talent.

Mattel also entered into over 165 consumer product partnerships tied to the Barbie movie with cross-category displays in thousands of stores globally.

In television, the Barbie Dream House Challenge, a home makeover competition series hosted by Ashley Graham, premiered July 16 on HGTV to great success.

The episode ranked as a top 5 cable premiere among women and adults 25 to 54 years old. The Hot Wheels Ultimate Challenge prime time show which premiered on NBC and Peacock on May 30, has performed well and ranks as a top NBC alternative series to launch on Peacock.

In digital gaming, Hot Wheels Unleashed 2: Turbocharged, the upcoming sequel to the successful digital game for console and PC was announced.

The game will launch this fall.

4

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

JULY 26, 2023 / 9:00PM, MAT.OQ - Q2 2023 Mattel Inc Earnings Call

And in live events, Mattel announced the Monster High live tour also coming this fall in partnership with the Family Entertainment Live.

As we announced today, Richard Dickson, President and Chief Operating Officer, will step down from his position with the company effective August 3, 2023.

I would like to thank Richard for his tremendous contributions to the company and congratulate him on his opportunity to become CEO of Gap Inc. Richard has led the growth of some of the world's most iconic and purpose-driven brands. I'm personally grateful for the friendship, the partnership and for his work in developing and growing the best brand and franchise team in the business today. We wish Richard great success in his new role.

The company has promoted Lisa McKnight to Executive Vice President and Chief Brand Officer, overseeing all of Mattel's Toy categories and global brands as well as design and development. Josh Silverman has been promoted to Executive Vice President and Chief Franchise Officer. His role has expanded to include leadership of digital gaming and license entertainment, in addition to his responsibilities overseeing global consumer products, publishing, promotions and location-based entertainment businesses as well as franchise strategy and management for Mattel.

Lisa and Josh will report to me. The company has also promoted Chris Down to Executive Vice President and Chief Design Officer, reporting to Lisa.

Lisa has held senior leadership positions at Mattel for nearly 25 years and has been the Global Head of Barbie since 2016 and Dolls since 2019. In this role, she has led the charge in repositioning and scaling the Barbie brand and driven significant portfolio expansion with complementary brands.

She has also led the successful relaunch of Monster High and played a key role in winning back the licensing rights to Disney Princess and Disney Frozen franchises.

Josh Silverman joined Mattel in 2022 as Global Head of Consumer Products and Chief Franchise Officer, following 20 years in leadership roles with The Walt Disney Company and Marvel. Since joining Mattel, he has expanded the company's consumer products, location-based entertainment and publishing businesses.

Most notably, Josh oversaw the execution of more than 165 consumer products partnerships and retail tie-ins related to the Barbie movie. Our strong and talented leadership team and the entire brand management organization are in an excellent position to continue to execute our strategy to grow our IP-driven Toy business and expand our entertainment offering.

In closing, our second quarter financial results were in line with expectations. But it was much more than that in terms of advancing our entertainment strategy. Following the incredibly successful Barbie movie release, we look forward to continue capitalizing on the many exciting opportunities to capture the full value of our iconic brands outside the toy aisle.

We expect to achieve our full year guidance to outpace the industry and gain market share. We are well positioned to continue executing our multi-year strategy and create long-term shareholder value.

And now I will turn the call over to Anthony.

Anthony P. DiSilvestro - Mattel, Inc. - CFO

Thanks, Ynon. While comparisons improved from the first quarter, our second quarter financial results were negatively impacted as retailers continued to manage inventory levels compared to the buildup in the prior year. And while we gained share, we saw some overall industry softness.

Net sales of $1.087 billion declined 12% or 13% in constant currency, compared to the prior year. Adjusted gross margin of 44.9% was comparable to the prior year and a significant improvement from the first quarter comparison to the prior year. Adjusted operating income was $75 million, a decline of $47 million compared to the prior year due primarily to lower sales.

5

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.