Mattel, Inc.

Good afternoon, my name is Brianna and I will be your conference operator today. At this time, I would like to welcome everyone to Mattel's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. Thank you. I will now turn the call over to David Swanovich, Head of Investor Relations. You may begin your conference.

Thank you, Operator, and good afternoon, everyone. Joining me today are Inan Kryze, Mattel's Chairman and Chief Executive Officer, and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon, we reported Mattel's second quarter 2024 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. Our slide presentation can be viewed in sync with today's call when you access it through our 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 Investors 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 2023 annual report on Form 10-K, our Q1 2024 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 Mattel's second quarter 2024 earnings call. This was a good quarter for Mattel, where we achieved significant gross margin expansion and growth in adjusted EBITDA and adjusted EPS. We further strengthened our balance sheet and more than doubled free cash flow in the trailing 12-month period. We are well-positioned for the second half with new product innovation and increased retail support and are reiterating our full-year guidance. Looking at key financial metrics for the second quarter compared to the same period in the prior year, net sales declined 1% as reported, and were comparable in constant currency. Adjusted gross margin increased 430 basis points to 49.2%. Adjusted EBITDA improved $23 million to $171 million, and adjusted earnings per share increased 9 cents to 19 cents. Gross billings declined 2%, with low single-digit declines in North America, EMEA, and LATAM, partially offset by high single-digit growth in APAC. POS was comparable in the quarter and first half and positive for dolls, vehicles, building sets, and games. Mattel gained share globally in the second quarter and maintained its leadership position in dolls, vehicles, and infant, toddler, and preschool with Barbie, Hot Wheels, and Fisher-Price as number one in their respective categories per circana. Free cash flow in the trailing 12-month period was $826 million compared to $361 million in the same period a year ago. We repurchased $200 million of shares in the first half of 2024. In line with our capital allocation priorities, we expect to continue share repurchases in the second half of the year. We are executing our strategy to grow Mattel's IP-driven toy business and expand our entertainment offering. And this year, we are prioritizing growth in profitability, gross margin expansion, and strong cash generation. We continue to position the company for long-term growth and expect to benefit from innovation across the toy portfolio and market share gains, meaningful progress across multiple entertainment verticals following the success of the Barbie movie, greater efficiencies and productivity improvements primarily driven by the optimizing for profitable growth program and a strong balance sheet with financial flexibility. On the toy side of the company, in the second quarter, Dahl's gross billings declined, while POS was positive. Vehicles was up, and POS was positive. In infant order and preschool, the Fisher-Price power brand grew double digits. reflecting the early success of our new strategy. Challenger categories in total grew, led by games and the success of Uno, Shorm, No Mercy. Mattel gained share in games in the second quarter per Circana, and Mattel Creations, our DTC channel serving adult fans and collectors, continued to increase traffic and significantly grew its subscriber base. We continue to make progress in capturing value of our IP outside the toy aisle. In film, we announced Masters of the Universe will be released in theaters worldwide on June 5, 2026, distributed by Amazon MGM Studios. And Monster High will be co-developed with Universal Pictures and Academy Award-winning producer and screenwriter Akiva Goldsman. In television, Barney's World, a new animated series, will debut this fall on Macs and Cartoon Network, and Hot Wheels Let's Race Season 2 and a new Barbie animated series will premiere this fall on Netflix. In digital gaming, we announced a multiyear licensing agreement with video games publisher Outright Games, and moving forward, We look to extend digital gaming beyond IP licensing to self-publishing of material mobile games. This has the potential to significantly increase revenue and profit at low investment and would be complementary to our existing model. The toy industry performed better than anticipated in the first half and was comparable to the prior year period. We expect the toy industry to decline modestly in 2024, which is an improvement from our outlook at the start of the year. Beyond 2024, we believe trends will further improve and that the industry will return to growth and continue to grow over the long term. The fundamentals are strong. Toys are an important part of consumers' lives And retailers see the category as a strategic lever. For Mattel, we expect our toy business to grow in the second half and look forward to a good holiday season with new product innovation, increased retail support, more marketing and promotions, and new content. Across our later categories, we expect dolls to benefit from Barbie's 65th anniversary celebration, the launch of two new Barbie segments, two theatrical movies, Universal's Wicked and This Is Moana 2, and new television content. Vehicles will grow, driven by increased distribution, new innovative products, and more content. and infant, toddler, and preschool will benefit from the global launch of Fisher-Price Woods, increased shelf space, the relaunch of Barney, and continued momentum in Little People. We expect to outpace the industry and gain market share this year in gross sales and earnings in 2025. In closing, This was a good second quarter and first half of the year for Mattel, where we achieved significant gross margin expansion and continued to improve profitability. We are well positioned for the second half and are reiterating our full year guidance. We are in a strong financial position to execute our strategy to grow our IP driven toy business and expand our entertainment offering. And now, I will turn the call over to Anthony.