Mattel, Inc.

If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. David Spojnevich, Vice President of Investor Relations, you may begin your conference.

Thank you, Operator, and good afternoon, everyone. Joining me today are Inan Kreis, Mattel's Chairman and Chief Executive Officer, and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon we reported Mattel's 2023 third 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 questions. To help supplement our discussions 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 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 investor section of our corporate website, corporate.matel.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. 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 factor section of our 2022 Annual Operating Report, or Form 10-K, our Q2 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 Inan.

Thank you for joining our third quarter 2023 earnings call. Mattel's strong third quarter performance reflects the successful execution of our strategy to grow Mattel's IP-driven toy business and expand our entertainment offering. Our financial results exceeded expectations and showed meaningful sales growth and margin expansion with very strong free cash flow. Consumer demand for our product increased in the quarter and we continued to outpace the industry. The company benefited from the success of the Barbie movie with significant contributions from box office participation, the movie toy line, and consumer product partnerships. Looking at key financial metrics for the third quarter as compared to the year-ago period. Net sales increased 9% as reported, or 7% in constant currency. Adjusted gross margin improved 270 basis points to 51%. Adjusted EBITDA increased 22% to $580 million, and trailing 12-month free cash flow increased by $158 million to $461 million. POS was up mid-single digits in the quarter and up low single digits year to date. We expect POS to continue to grow as we enter the holiday season. Tercer Cana, in the third quarter and year to date, Mattel gained share globally and in its three leader categories, dolls, vehicles, and infant order and preschool, as well as in building sets. Following 22% growth from 2019 to 2022, The global toy industry was down year to date and in the third quarter per circana. We expect the industry to decline mid single digits for the full year. As it relates to Mattel, we are very well positioned competitively and expect a strong holiday season. Going into the fourth quarter, We have a broad-based lineup of innovative toys across multiple categories, play patterns, and price points. This applies to our own franchises as well as partner IP, including the upcoming Universal Trolls and Disney Wish movies. We have greater retailer support versus the prior year with more shelf space, larger representation across major holiday catalogs, and plans for increased advertising. We expect to continue to outpace the industry and gain market share in the fourth quarter and full year. Given Mattel's year-to-date performance and expectations for the fourth quarter, we are updating our 2023 guidance to reflect an improved margin and profit outlook. Anthony will provide more details shortly. Reflecting the strength of our financial position and confidence in creating long-term shareholder value, we made additional share repurchases in the quarter and expect to continue repurchases as part of our capital allocation priorities. Our strategy to grow our IP-driven toy business and expand our entertainment offering is serving us well. We are focused on accelerating top line by scaling our portfolio, growing franchise brands, and advancing e-commerce and D2C, increasing profitability by continuing to optimize our operations, and capturing the full value of our IP outside the toy aisle. As it relates to the performance of our toy business in the third quarter, dolls continue to grow with the benefit from the Barbie movie-related toy line and adult collector base, the expanded Disney Princess and Disney Frozen line, and the global rollout of Monster High. Vehicles performed exceptionally well, driven by Hot Wheels. The franchise is on track for a sixth consecutive record year of growth as we continue to innovate in new segments, including the new race-averse line. In infant, toddler, and preschool, fisher price declined, but shipping and POS trends improved in the quarter. Little People Collector continued to expand and now features all 32 NFL teams. Challenger categories in aggregate declined as it comped an exceptionally strong film slate last year. Building sets grew, and in games we announced Pictionary versus AI, the first physical board game to integrate AI into gameplay. We also renewed Mattel's multi-category agreement with Nintendo. In terms of our entertainment business, This was a breakout quarter for Mattel. The Barbie movie, Mattel's first major theatrical release, became a global cultural phenomenon, breaking numerous box office records and becoming the highest-grossing film of 2023. The movie was a showcase for the cultural relevance of our IP, our ability to attract and collaborate with top creative talent, and our demand creation capabilities at a global scale. The movie has broadened Barbie's fan base, which will be an important contributor for the brand as part of our long-term franchise management strategy. It also speaks to the potential of Mattel Films and the significant progress of our strategy to capture the full value of our IP. Mattel Television premiered new episodes of the Monster High animated series and a live-action movie sequel, a special for Polly Pocket, a new series for Barbie, and new seasons of Thomas and Friends, Fireman Sam, and the Pictionary game show. We also announced Hot Wheels Let's Race, a new animated series that will premiere on Netflix in spring 2024. In digital gaming, Mattel and Game Fam unveiled a Barbie Dream House experience on Roblox, Barbie's first ever standalone game on the platform. Our commitment to workplace culture and corporate citizenship continues. Mattel was named as one of the world's best employers by Forbes for the third year in a row, and one of the 100 best companies by Saramont for the second year in a row. It is a reflection of how we are empowering a culture of growth, optimism, and wellbeing for our global team. In September, Mattel published its latest citizenship report, which highlights the progress we have made across our three ESG pillars, sustainable design and development, responsible sourcing and production, and thriving and inclusive communities. We are committed to being a responsible corporate citizen and to our aim to contribute to a more diverse, equitable, inclusive, and sustainable future. In closing, Mattel's third quarter results reflect our success in executing our strategy with a Barbie movie marking a milestone for the company. We look forward to a strong holiday season for Mattel and expect to achieve our updated four-year guidance and continue to grow market share. Looking beyond 2023, we believe we are well-positioned to grow our IP-driven toy business and expand our entertainment offerings. We will benefit from the cultural relevance of our brands, continued innovation and demand creation capabilities across our portfolio, increased content and consumer product executions, as well as ongoing financial discipline and cash flow management. We plan to provide fuller guidance for 2024 on our 2023 fourth quarter call. I would like to thank the entire Mattel organization for their achievements, hard work, and commitment to creating shareholder value. Before I turn the call over to Anthony, on behalf of Mattel, I would like to express our sadness following the horrific attacks in Israel. We condemned terrorism and the unthinkable violence taking place including the ongoing hostage situation. Our thoughts are with all those who are suffering, have lost loved ones, and are still in harm's way.