Mattel : 2022-Q3 Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

MAT.OQ - Q3 2022 Mattel Inc Earnings Call

EVENT DATE/TIME: OCTOBER 25, 2022 / 9:00PM GMT

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2022 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.

OCTOBER 25, 2022 / 9:00PM, MAT.OQ - Q3 2022 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. - Vice-President 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

Andrew Paul Uerkwitz Jefferies LLC, Research Division - Equity Analyst

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

Eric Owen Handler MKM Partners LLC, Research Division - MD

Frederick Charles Wightman Wolfe Research, LLC - Research Analyst

Gerrick Luke Johnson BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst

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

Megan Christine Alexander JPMorgan Chase & Co, Research Division - Research Analyst

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

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mattel, Inc. [Third] (corrected by company after the call) Quarter 2022 Earnings Conference Call. (Operator Instructions) Thank you very much.

At this time, I would like to turn the call over to Mr. David Zbojniewicz, Head of Investor Relations. Sir, please go ahead.

David Zbojniewicz - Mattel, Inc. - Vice-President 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 2022 third 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 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.

2

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2022 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.

OCTOBER 25, 2022 / 9:00PM, MAT.OQ - Q3 2022 Mattel Inc Earnings Call

Our accompanying 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.

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, including risks and uncertainties associated with the COVID-19 pandemic and the Russia-Ukraine war. We describe some of these uncertainties in the Risk Factors section of our 2021 annual report on Form 10-K and on our second quarter 2022 quarterly report on Form 10-Q, 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 Ynon.

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

Thank you for joining our third quarter 2022 earnings call.

The third quarter results reflect the resilience of our diversified portfolio and the success in executing our strategy. Despite significant inflation, foreign exchange headwinds and a challenging macroeconomic environment, we achieved growth in Net Sales in Constant Currency and Adjusted

EBITDA.

Looking at the third quarter financial highlights compared to the prior year third quarter.

Net Sales were flat and up 3% in Constant Currency, making it the ninth consecutive quarter of growth. Year-to-date, Net Sales increased 10% and 13% in Constant Currency.

Adjusted Operating Income was down 1%. Year-to-date, Adjusted Operating Income was up 22%.

Adjusted Earnings Per Share was down $0.02. Year-to-date, Adjusted EPS was up $0.30 or 38%.

Adjusted EBITDA increased $10 million or 2%. Year-to-date, Adjusted EBITDA was up $125 million or 18%.

Per The NPD Group, for the third quarter and year-to-date, Mattel was the #1 toy company in the U.S. overall and #1 globally in our leader categories: Dolls, Vehicles and Infant, Toddler and Preschool. And our power brands, Barbie, Hot Wheels and Fisher-Price, were each the #1 property in their respective categories.

Looking at Gross Billings in the third quarter in Constant Currency compared to the prior year.

Mattel grew 3%.

Vehicles, Action Figures, and Building Sets all grew double digits, while Dolls was flat, and Infant, Toddler, and Preschool declined single digits.

3

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2022 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.

OCTOBER 25, 2022 / 9:00PM, MAT.OQ - Q3 2022 Mattel Inc Earnings Call

And geographically, our International segment grew double digits, partially offset by a mid-single-digit decline in North America.

Year-to-date, total company Gross Billings grew 13%.

Total company POS was essentially flat in the third quarter with growth in all international regions, offset by a decline in North America.

Our 2022 price increases have been successfully implemented. While it is still early, we have not seen a meaningful impact on consumer demand.

Adjusted EBITDA benefited from pricing actions and cost savings, which more than offset significant cost inflation.

We are maintaining guidance for the full year 2022 Net Sales growth in Constant Currency of 8% to 10%, yet we do see a more challenging macroeconomic environment and increased volatility heading into the latter part of the year.

As we expect higher pressure on Gross Margin, we are revising guidance for 2022 Adjusted EBITDA down slightly to $1.05 billion to $1.1 billion, representing growth of 4% to 9% versus 2021.

Anthony will cover our updated guidance in more detail shortly.

In the fourth quarter, we have higher advertising and planned promotional activity and have secured more shelf space and omni-channel retailer support compared to the prior year. We also have greater holiday toy list representation and a much stronger in-stock and inventory levels than this time last year.

We expect POS to accelerate in the fourth quarter and to outpace shipping.

Beyond this year, 2023 is shaping up well. This will be driven by strong cross-category innovation and the broadening of our portfolio, including the global rollout of Monster High, the return of Disney Princess and Frozen franchises, and the addition of Universal's Trolls, as well as the global premiere of the Barbie movie, our first theatrical release.

We plan to provide full year guidance for 2023 during our 2022 fourth quarter call.

The year-to-date performance and full year outlook are in line with our strategy to grow Mattel's IP-driven toy business and expand our entertainment offering.

Mattel strengthened its position as a partner of choice for the major entertainment companies. We recently extended our relationship with The Pokemon Company by signing a multiyear license renewal for building sets in all major markets.

Mattel Creations continues to gain momentum as a highly curated DTC experience targeting the collector market with exciting new products and an international expansion.

We continue to make progress on capturing the full value of our IP in highly accretive business verticals outside of the toy aisle.

The Monster High live-action television musical movie premiered earlier this month and was the #1 kids and family movie on Paramount+ during its launch week. The movie also reached over 4 million total viewers on linear Nickelodeon networks. Following this strong performance, the sequel has just been greenlit. The Monster High animated series will launch just in time for Halloween.

Pictionary premiered on Fox and CBS affiliates in September and is growing audience week-over-week. A second season of the new animated preschool series, Deepa & Anoop, will premiere on Netflix in November. And we recently announced new seasons for Thomas & Friends, Polly Pocket and Fireman Sam.

4

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2022 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.

OCTOBER 25, 2022 / 9:00PM, MAT.OQ - Q3 2022 Mattel Inc Earnings Call

The latest Barbie animated movie was just released on Netflix today, part of a new multiyear agreement with Netflix for exclusive content that will also include 3 original series.

The Barbie theatrical film continues to generate audience excitement. Having completed principal photography this past summer, the movie is currently in post production, and we eagerly anticipate its global release in July next year.

We also expanded our presence in Roblox to include Barbie and Polly Pocket in the Livetopia virtual world, in addition to our Hot Wheels and Masters of the Universe stand-alone games on the platform.

In the growing space of NFTs, we announced a digital art collaboration for Barbie with women's empowerment brand, Boss Beauties, for 15,000 one-of-a-kind NFTs to debut later this year on Mattel Creations.

Mattel is being recognized for its achievements in workplace culture and employee well-being. Mattel was recently included among the World's Best Employers by Forbes, Best Workplaces for Innovators by Fast Company, 100 Best Companies by Seramount and the Healthiest 100 Workplaces in America.

All in all, this was a good quarter for Mattel with the ninth consecutive quarter of year-over-year net sales growth in constant currency.

Year-to-date results show that we are successfully navigating a complex environment. The strategy to grow our IP-driven toy business and expand our entertainment offering is working.

We look forward to the all-important holiday season and believe we are on track to achieve another growth year for the company.

While we are seeing higher volatility related to macroeconomic challenges that may impact consumer spending, the toy industry has historically demonstrated its resilience during difficult economic times and is forecast to grow for the full year and thereafter.

We believe our fundamentals are strong. Mattel's portfolio is resilient and well balanced with thriving brands that continue to drive increased consumer engagement and cultural relevance. There is new product innovation in all categories, and we are entering new white space opportunities.

Our partnerships with the major entertainment companies are growing, and we are winning new key licenses. We are making progress on capturing the full value of our IP in highly accretive business verticals outside the toy aisle with more opportunities in content, digital experiences, and consumer products.

The balance sheet is healthy and about to become another growth lever. Our world-class leadership team and global organization are executing with excellence. We believe we are well positioned to further grow the business, increase market share and create long-term shareholder value.

And now Anthony will cover the financial performance in more detail.

Anthony P. DiSilvestro - Mattel, Inc. - CFO

Thanks, Ynon, and good afternoon. As Ynon said, we achieved good results for the quarter, in the midst of a challenging macroeconomic environment. We generated Net Sales of $1.756 billion, flat to the prior year and up 3% excluding the negative impact of currency translation.

Adjusted Gross Margin increased by 50 basis points as the benefit of pricing actions and cost savings more than offset cost inflation.

Adjusted Operating Income was $398 million, declining 1% due primarily to an increase in advertising expense, mostly offset by the increased Adjusted Gross Margin percentage.

5

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2022 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.