Mattel, Inc.

Good day, and thank you for your standby. Welcome to the Mattel Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. As a reminder, this conference call is being recorded. I would now like to turn the call over to David Spoinovich, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Joining me today are Inan Kraiz, Mattel's Chairman and Chief Executive Officer, Richard Dixon, Mattel's President and Chief Operating Officer, and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon, we reported Mattel's 2021 second quarter financial results. we will begin today's call with Enon and Anthony providing commentary on our results, after which we will provide some time for Enon, Richard, and Anthony to take your 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 and loss, and adjusted operating income loss margin, adjusted earnings and loss per share, earnings before interest, taxes, depreciation, and amortization or EBITDA, adjusted EBITDA, free cash flow, free cash flow conversion, leverage ratio, and constant currency. In addition, we 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. Our accompanying slide presentation can be viewed in sync with today's call when you access it through the investor 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 Investor section of our corporate website. We have elected to revise prior periods for certain immaterial out-of-period adjustments, which do not require us to amend previous filing. These adjustments are reflected in our second quarter earnings release and slide presentation and will be reflected in our 2021 second quarter Form 10-Q. These adjustments will also be subsequently updated on the financial history section of our investor relations website at a later date. Before we begin, I'd like to remind you that certain statements made during the call may include forward-looking statements related to the future performance of our business, brands, categories, and product lines. 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, including risks and uncertainties associated with the COVID-19 pandemic. We describe some of these uncertainties in the risk factor section of our 2020 Annual Report on Form 10-K, and our Q1 2021 quarterly report on Form 10Q, our earnings release and the presentation accompanying this call, 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 Inan.

Welcome to Mattel's second quarter 2021 earnings call. I hope that you and your families remain safe and healthy. Mattel had another exceptional quarter as the company significantly improved profitability and accelerated top-line growth. Consumer demand for our product was very strong. Mattel had market share gains across all regions in the second quarter per NPD. Key highlights for the second quarter as compared to the same period in the prior year are net sales were up 40%, as reported, and 36 in constant currency. Adjusted gross margin improved by 370 basis points and reached 47.5%, the 12th consecutive quarter of growing gross margin. And adjusted EBITDA was $131 million, more than four times the same period last year. Our tremendous momentum continued with strong double-digit growth in gross billings in each of our four regions, double-digit growth across the four reported categories, and double-digit growth in our three power brands, Barbie, Hot Wheels, and Fisher-Price, and Thomas & Friends, as well as double-digit growth for American Girl. This is an exciting time for Mattel. Having successfully completed the heavy lifting of the transformation over the past three years, we're now in growth mode and establishing Mattel as an IP-driven, high-performing toy company. Taking a broader look at this quarter as part of our recent performance and continuous significant improvement across key metrics, Gross billings grew double digits for the fourth quarter in a row. Total company POS grew double digits for the fourth quarter in a row, and we have achieved positive POS growth for the last five quarters. And global market share also grew for the fourth consecutive quarter, according to NPD. Also, according to NPD, Mattel was the largest and fastest growing of the top five toy manufacturers in the U.S. on a year-to-date basis. Looking at performance by region in the second quarter per NPD, Mattel's growth exceeded the industry by 9 percentage points in the U.S., 11 percentage points in EMEA, and 19 percentage points in Latin America. With more brick and mortar stores open in most markets, consumers return to in-person shopping experiences, particularly in regions with lower e-commerce penetration. This is a benefit for Mattel, given the breadth of our omnichannel presence, which includes more than 470,000 retail doors. As brick and mortar improved, e-commerce POS declined slightly but still represented more than 25% of our total POS, furthering the broad expansion in e-commerce in recent years and reaffirming our strategy to expand in the online retail and e-commerce space. According to NPD, Mattel was again the number one Prime Day toy manufacturer in the U.S., with twice as many items in the top 20 industry-wide versus last year. While we saw strong growth in the quarter, we were also managing through global supply chain challenges and cost inflation. Our supply chain and commercial organizations were able to minimize the disruption and continue to work closely with our retail partners as we aim to meet the significant consumer demand for our products. We also had another quarter of strong cash generation and we continue to improve our free cash flow conversion. Looking at second quarter gross billings in constant currency by category versus prior year, it is clear that the Mattel playbook is working across the portfolio. Dolls grew by an impressive 47%, with strong growth in Barbie, American Girl, Polly Pocket, and Universal's Spirit, which launched in June. DOLL's POS was strong, up double digits. Barbie continued its incredible performance, growing 41% with POS up double digits. Per NPD, Mattel's DOLL's category gained 4.5 share points in the quarter, and Barbie was the number one global DOLL's property in the second quarter and year to date. American Girl is becoming a playbook success story and now a growth driver for Mattel. American Girl increased 43%, the third consecutive quarter of growth, and the second quarter of double-digit growth. Vehicles increased significantly, up 62%, benefiting from a return to in-store impulse shopping. POS in the category was strong, up double digits. Hot Wheels grew 61%. According to NPD, Hot Wheels continued to build upon strength as the number one vehicle globally in the second quarter and year to date. We are achieving great success in the relaunch of Matchbox, as well as strong growth with Disney's Cars. Infant, toddler, and preschool was up 12%, driven by Fisher-Price and Thomas & Friends power brand with growth across little people, infant, newborn, and Imaginext. Fisher-Price score grew 15% with POS down low single digits due to the comparison to the high demand in baby gear last year when families went into quarantine. Per NPD, Fisher-Price continued to be the number one infant, toddler, and preschool property globally and gained share. As expected, Power Wheels was down, also due to the comparison to the high quarantine-related demand last year. Thomas & Friends was up 14%. Action figures, building sets, games, and other are challenging categories together grew 28%. Action Figures was another success story, with gross billings more than doubling, driven by Jurassic World, the relaunch of Masters of the Universe, and WWE. Building Sets was up double digits, driven by Mega Bloks and the continued success of Pokemon and Halo. Per NPD, Mattel grew global share in the action figures and building sets categories in the second quarter and year to date. Games declined double digits as we lapped high comps a year ago in this surge category. Per NPD, Uno remains the number one card game globally. Flash grew double digits, driven by Mattel's product tied to Star Wars, and an expanding range of other licensed offerings. Mattel's performance exceeded expectations as our strategy to improve profitability and accelerate top-line growth in the short term continued to show outstanding results on our path to establish Mattel as an IP-driven, high-performing toy company. The Optimizing for Growth program remains on track to deliver on the previously announced goal to achieve savings of $250 million by 2023. Our strategy is driving growth across Mattel's three power brands, as well as key flagship franchises, including American Girl, Mega, Polly Pocket, and Uno. We are leveraging our resources to relaunch iconic catalog IP, including Masters of the Universe, Matchbox, and Monster High, where we see significant upside potential. We are also strengthening Mattel's standing as a partner of choice for the major entertainment companies, including Disney, Microsoft, Nickelodeon, Nintendo, Universal, Warner Brothers, and WWE, and have licensing agreements for several highly anticipated properties in 2022 and beyond. Looking at our mid to long-term strategy, we continued to make progress towards capturing the full value of our IP. Mateo launched its first non-fungible tokens featuring three unique NFTs from the Hot Wheels NFT Garage series that were auctioned on the Mattel Creations Collector platform. With the launch, we are creating a new way for innovation and artistry to converge in the toy space and will continue to express our brands in the NFT format as we launch new creations throughout the year. The animated Masters of the Universe Revelation series was just released on Netflix last week and a second series He-Man and the Masters of the Universe premieres in the fall. Barbie's next animated special, Big City Big Dreams, will launch on Netflix in September. Polly Pocket is being developed into a live-action motion picture in partnership with MGM, with Lena Denham writing and directing, and Lily Collins starring as Polly, and also co-producing. This marks our 13th movie in development. We are happy to share that the new Barbie feature movie is greenlit and will go into production in 2022 for a targeted release in 2023. Greta Gerwig is now also confirmed to direct as well as write. During the quarter, we evolved our citizenship strategy and goals and launched several key initiatives, including Mattel Playback, a new toy take-back program to recover and reuse materials from old Mattel toys for future Mattel products. Barbie Loves the Ocean, our first fashion door line made from recycled ocean-bound plastic. And the Fisher-Price Safe Start Awareness Campaign, engaging and educating parents and caregivers on important topics such as safety, health, and development of babies and children. As part of our diversity, equity, and inclusion goals, we achieved 100% base pay equity for all employees performing similar work globally. Today, we announced Mattel has been recognized as a 2021 Great Place to Work by the Great Place to Work Institute. We will shortly be publishing a new citizenship report that expands on our strategy and goals in this important area. The strength of the quarter and comprehensive top line growth is adding momentum to our transformation strategy. As was the case in the first quarter, there was some COVID-related year-over-year benefit this quarter, but we again outpaced the industry and believe our exceptional results are attributable to the strength of our brands and the quality of our executions. This is also evident when comparing this quarter to the second quarter in 2019 before COVID, with net sales being higher by 19%. Given our first half results and expectations for continued growth in the second half of the year, we are now raising our full-year guidance for net sales growth in constant currency to be in the range of 12% to 14%. We're also raising our full year guidance for adjusted EBITDA to be between $875 and $900 million. As it relates to our stated goals beyond 2021, we are well positioned to achieve mid single digit net sales growth in constant currency in 2022 and in 2023. and an adjusted operating income margin in the mid teens by 2023. With our strong momentum and positive outlook and taking into account what we know today, we expect to exceed $1 billion in adjusted EBITDA in 2022. Taking a macro view, the industry as a whole is expected to grow in the coming years. Euromonitor has increased their industry forecast again and now estimates a growth rate of 5.4% CAGR over the next five years through 2025. Within this environment, we believe we will outpace the industry and continue to grow our market share. In closing, this was another exceptional quarter for the company. Our strength is foundational and broad-based, and we believe we are in the strongest position we have been in many years to improve profitability and accelerate top-line growth. Mattel is on a growth trajectory. Our multi-year transformation strategy is working, and we are establishing Mattel as an IP-driven, high-performing toy company. I would like to thank the entire Mattel organization for the outstanding results and our team's ability to drive world-class innovation and creativity across the portfolio. We remain focused on growing long-term shareholder value. And now, I'm happy to turn it over to Anthony to discuss Mattel's financial results. Thank you. Anthony, over to you.