Mattel, Inc.

draw your question press star one a second time thank you and i will now turn the conference over to mr david spoinevich head of investor relations you may begin thank you operator and good afternoon everyone joining me today are inan cries mattel's chairman and chief executive officer and anthony d silvestro mattel's chief financial officer

As you know, this afternoon, we reported Mattel's 2023 fourth quarter and full year 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 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 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.Mittell.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-K 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 disclosures 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 report on Form 10-K, our Q3 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 fourth quarter and full year 2023 earnings call. 2023 was a milestone year for Mattel. We extended our leadership in our key toy categories and gained significant share overall, achieved extraordinary success with the Barbie movie, and further strengthened our financial position. Fourth quarter results saw meaningful sales growth and margin expansion. Consumer demand for our product increased, and we continued to outpace the industry. Four-year sales were comparable to the prior year with gross margin expansion and significant increase in cash flow. Execution on our toy strategy was strong, considering we entered 2023 with a challenging retail inventory headwind and faced a toy industry decline during the year. We also made meaningful progress on our entertainment strategy across film, television, digital, and publishing. We achieved an investment-grade rating and resumed share repurchases for the first time since 2014. We ended 2023 with the strongest balance sheet we have had in years, with more resources to execute our strategy. Looking at key financial metrics for the fourth quarter as compared to the same quarter in the prior year, net sales increased 16% as reported, or 14% in constant currency. Adjusted gross margin improved 570 basis points to 48.8%. and adjusted EBITDA increased 48% to $234 million. POS increased low single digits in the quarter as we worked closely with our retail partners to meet the demand for our product. Looking at key financial metrics for the full year as compared to the prior year, net sales were comparable or down 1% in constant currency with growth in three or four regions. Adjusted gross margin improved 160 basis points to 47.5%. Adjusted EBITDA was $948 million, a decline of 2%. Free cash flow increased by $453 million to $709 million. And we ended the year with over $1.2 billion of cash after utilizing $203 million to repurchase shares. POS grew low single digits for the year and was up in three of four regions. Per SIRCANA, in the fourth quarter, Mattel gained share globally, driven by increases in dollars and vehicles, as well as games and building sets. For the full year, Mattel gained 70 basis points of share globally, driven by increases in dollars and vehicles, as well as gains in infant, toddler, and preschool, and building sets. Mattel was the number two global toy company for the quarter and year, and the number one toy company in the U.S. for the 30th consecutive year, where we achieved the largest annual share gain on record. The global toy industry declined 7% in 2023 per circana. That said, This followed extraordinary growth of 25% from 2019 to 2022, reaching an all-time high. It should be noted the industry in 2023 was 17% higher than 2019 pre-pandemic and the third largest ever. We are successfully executing our strategy to grow Mattel's IP-driven toy business and expand our entertainment offering. As it relates to our toy business, we made significant progress in scaling our portfolio, growing our franchise brands, and advancing e-commerce and D2C. We successfully relaunched Catalog IP and continued to strengthen our relationships with major entertainment partners and key retailers. In 2023, Barbie was the number one doll property globally and number two toy property overall. Hot Wheels gross billings achieved its sixth consecutive record year. Monster High was successfully relaunched globally and was the largest growth property in dolls. Disney Princess and Frozen performance was strong in its first full year back at Mattel. Infant Toddler Preschool continued to optimize the portfolio with new product innovation, and expanded its little people collector business. Mattel Creations, our D2C business serving adult fans, continued to grow, with user traffic up over 90%. And the company received an industry-leading 15 Toy of the Year nominations and seven awards, including for design and marketing. For our entertainment business, this was a breakout year as we demonstrated the power of our IP and demand creation capabilities. The Barbie movie was a cultural phenomenon, achieving the largest global box office in 2023, becoming Warner Brothers' highest box office movie in its 100-year history and the industry's 14th largest box office of all time. The movie, its filmmakers, and all-star cast, as well as the Barbie album, have received multiple nominations and awards, highlighted by eight Oscar nominations, including Best Picture. The Barbie album was honored on Sunday night with Grammy Awards for Compilation Soundtrack, Song of the Year, and Best Song Written for Visual Media. In addition to the 14 live-action movies in development, We recently announced Mattel Films' first animated movie, Bob the Builder. Award-winning actor and recording artist Anthony Ramos will voice the title character and co-produce with Oscar-winning animation studio Shadow Machine and Jennifer Lopez, Nuyorican Productions. We also announced our partnership with Paramount Pictures to develop the American Girl live-action feature film. Mattel Television Studios premiered 12 series and specials, including Monster High, Hot Wheels, Polly Pocket, Barbie, Thomas and Friends, Fireman Sam, and Pictionary, as well as a Monster High movie sequel. In digital gaming, Hot Wheels Unleashed 2 Turbo Charge was released, and the first standalone Barbie game on Roblox was launched. achieving over 130 million visits since October. The Mattel 163 joint venture grew its mobile gaming revenues to almost $200 million in 2023. We also launched our own book publishing business, Mattel Press, with sales and distribution managed by Simon & Schuster. We continue to improve operations and achieved $132 million of cost savings in 2023. We successfully concluded the Optimizing for Growth program, which achieved total annualized savings of $343 million between 2021 and 2023, well beyond our initial target of $250 million and revised target of $300 million. Today, we announced a new optimizing for profitable growth program that will target an additional $200 million of annualized savings between 2024 and 2026. The program's aim is to achieve further efficiencies and cost-saving opportunities that we believe can further improve our productivity, profitability, and competitive position. Aligned with our capital deployment strategy, Mattel's board of directors has approved a new $1 billion share repurchase authorization. We were also pleased to announce earlier today that Julius Janikowski and Don Ostroff have joined Mattel's board of directors. Julius and Don are respected leaders who have extensive combined experience in media, entertainment, and technology, and bring expertise in finance, M&A, and government regulation. Todd Bradley and Ann Lunas recently stepped down from the board, and I would like to thank them for the many years of dedicated service. We are grateful for their support and guidance and playing an active role during their tenure. We are also excited to welcome Chris Farrell, who recently joined the company as Chief Strategy Officer. Chris brings expertise in strategic planning, M&A, corporate development, and investment banking in the consumer and retail sectors. These additions will serve Mattel well as we execute our strategy, explore growth opportunities, and enhance long-term shareholder value. In terms of our expectations for the year, we believe we are well positioned competitively and will continue to outpace the industry and gain market share. We expect the toy industry to decline in 2024, although at a lesser rate than 2023. The anticipated decline is due to a lighter toyetic theatrical film slate and the impact of the shift in consumer spending patterns towards experiences and services, which we believe will moderate over the year. Our 2024 plan emphasizes growth in profitability, gross margin expansion, and strong cash generation. With the benefit of a strong balance sheet and consistent with our capital allocation priorities, we intend to explore M&A and other corporate development opportunities, as well as repurchase shares. Some of the highlights for 2024 include Barbie's 65th anniversary celebration and related activations, as well as innovation in new segments and play patterns. Hot Wheels will expand its die-cast universe and benefit from a new animated series on Netflix. Fisher-Price will expand its core product lines, introduce an exciting new segment, and extend its licensed entertainment offerings. And our challenging categories will bring more innovative product to market. We look forward to sharing more details at our investor event in March, including our category strategies, as well as power brands, Barbie, Hot Wheels, and Fisher-Price. In addition, we will continue to progress our entertainment strategy in film and television, as well as digital and live experiences. We expect Mattel's net sales in constant currency for the full year to be comparable to prior year and for adjusted EPS to grow double digit and be in the range of $1.35 to $1.45. Free cash flow is expected to be approximately $500 million. We expect our full year POS to be comparable to 2023 and aim to outpace the toy industry and gain market share. Beyond 2024, we believe toy industry trends will further improve and that the industry will return to growth and continue to grow over the long term. The fundamentals of the toy business are strong. Toys are an important part of consumers' lives. and retailers see the category as a strategic lever. For Mattel, we expect to grow sales and earnings in 2025 with the anticipated benefit of improving industry trends, innovation in toys, expansion of our entertainment offering and licensing partnerships, as well as savings from our Optimizing for Profitable Growth program. In closing, 2023 was defined by our strong execution in both toys and entertainment. Consumer demand for our product continued to grow, and meaningful market share gains demonstrated the strength of our portfolio as a whole. The breakout success of the award-winning Barbie movie was a showcase for our entertainment strategy and cultural relevance of our brands outside the toy aisle. Mattel is in the strongest financial position it has been in years with significant free cash flow generation, a new optimization program, and a new share repurchase authorization. As we start a new year, we believe we are well positioned to continue the successful execution of our multiyear strategy to grow our IP-driven toy business and expand our entertainment offering and create long-term shareholder value. Anthony will cover the financials in more detail.