Awesome! Well, good morning, everyone. Welcome to day two of the Morgan Stanley 2023 Global Consumer and Retail Conference. I'm Megan Alexander, the leisure products and services analyst here at Morgan Stanley. I'm really excited to be joined here today with Mattel, the company's CEO, Ynon Kreiz, and CFO, Anthony DiSilvestro. I don't think Mattel needs an introduction after the success of the Barbie movie this year, but they're a global toy manufacturer, owner of IP, including several brands, Barbie, Hot Wheels, Fisher-Price, to name a few. Just a quick disclaimer before we start. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So maybe we could start, you know, just by setting the table from a very high level today. You know, Mattel's business looks very different relative to a few years ago. You successfully returned the top line to growth. Profitability is vastly improved. The balance sheet is now a source of future growth opportunities, yet it appears the market might not be giving you full credit for some of these improvements, which, you know, I think today has a lot to do with the debate around the category. Considering that, maybe we could start with what you just think investors most underappreciate about Mattel's story today. Yeah, thank you, and thank you for inviting us, and thank you everyone for coming. We've had an incredible run over the last five years since we started our transformation, and the evolution was to transform Mattel from a toy manufacturer that was making item to an IP company that is managing franchises. You mentioned some of our progress on the financial side. It has been transformative, you know, going from a balance sheet that was a 25x leverage ratio in 2017 to being investment grade today. From a negative cash flow of $325 million in 2017 to over $400 million that we've projected this year, and it will be strong cash flow, and everything in between for market share gain and strength of our platform and, you know, all the way culminating with a very successful execution of our IP strategy has been, you know, great to be part of, and as part of it, also strengthening our company's culture, how we do business, how we operate, how we perform, and most importantly, how we are positioned for future growth. All of this is in place, and we continue to show it day in and day out. It is interesting that the market, yes, as you say, hasn't given us credit today. We very much see it, and we live in it. We started to buy our own share, of course, now that we have the capital to do that, and clearly the discrepancy between the intrinsic value, the progress, the momentum, the opportunities ahead of us and where the stock is, doesn't reflect that value. You know, it's hard to decipher the market. I think we all, everyone here in this building is trying to do that every day, and the market has its own vagaries. The one thing we can do is focus on execution and do what we do and let the market chase our performance rather than the other way around. In hearing what people ask and where maybe some of the sentiment is, there is... The toy industry sometimes is perceived to be low growth, although it has been growing consistently for over 10 years. It has been recession resilient. It has all the characteristics, the characteristic that you want from a, a discretionary income category, in that it plays into a fundamental human behavior. Children will always play with toys. Parents will always prioritize spending money on their children. It's a strategic category for retailers. It's experiential. It drives foot traffic. Every retailer has a toy aisle, and not just Walmart and Target. Every supermarket, every pharmacy, every gas station, everybody has a toy aisle. Excuse not everybody, but almost every retailer has a toy aisle, and it's because it is an important category. And so while the toy industry has been questioned and challenged, it is a great place to be at, and we believe in the long-term growth of the industry. And so even when we said that the industry is expected to decline this year, mid-single-digit, it comes off two double-digit growth years for the industry. The industry is up 22% between 2019 and 2022. So, coming off an all-time high, 22% increase within two years, staying flat in 2022, coming off this year by a few percentage points, given the economy, we don't believe speaks to any structural weakness in the industry. Yeah, that's a... maybe a follow-up on that. You know, as it relates to the category, you just talked about it, you know, the category did very well during COVID. I think on the third quarter call, you talked about it a little bit of coming off this COVID high. So wanted to get your thoughts a little bit in terms of how you think about normalization of spend in this category. You know, one could argue you don't really have pull forward because it's low price point. Parents are going to continue to buy things for their kids, even in tough times. And you could argue we started to see the normalization a bit last year. So are we getting to a point where, from an industry perspective, you know, it's somewhat bottomed, and you think we can rebuild going forward? How does the price per unit dynamic in a category like toys, that's, you know, typically low ASP play into your thoughts on that today? ... Yeah, we believe the industry is now reverting back to historical norms in terms of shopping patterns and the way the industry will be paced. 2020 COVID years were COVID years, 2021 and 2022 were very much aberrations, especially 2022, in terms of the movement of inventory and purchase or shopping seasons. And we believe 2023 will be back to normal in terms of shopping patterns and consumer behavior and also even, you know, industry inventory at the retail level and at our level, now reverting back to historical norms. I'll let maybe Anthony talk about price versus unit, but the one thing I will say about the, you know, the strength of the toy industry, another point that I think is worth noting, is that the, you know, the product, the items are affordable, and there's a very good range of price offering, you know, from $1, $1 and a few cents for a Hot Wheels die-cast car, all the way to, you know, a $500 Barbie collector doll that is also available out there. So, there's a broad range of product, mostly, much less of the $500 range, a lot less in the single and double digit level, which makes the product that we sell very affordable and very accessible to consumers of all demographics. Yeah, I would say on the volume and price, you know, question, one of the advantages and strength that we have is the diversity of our portfolio. You know, we play all the way across from a Hot Wheels, a little over $1, you know, to a Barbie DreamH ouse or American Girl dolls. So we're able to move up and down that spectrum, you know, and we are growing our POS. We grew in the third quarter, we've grown year to date, and that's coming from a combination of, you know, both volume and price. We have gone through a period over the last couple of years of some significant, you know, cost inflation, so we've tried to recover some of that, you know, through pricing over the last couple of years. Uh- I do actually want to say on pricing vis-a-vis our transformation, is that as Anthony noted, our numbers during the course of that period, we had to absorb 800 points of cost inflation impact, $600 million worth of headwind in cost inflation that we had to absorb in our numbers. The growth that we've achieved in the first four years of the company, going from $125 million of EBITDA to over $1 billion, and then slight decline in 2022, was in spite of that level of headwind of cost inflation. So we're in a pretty important time for the toy category today. I guess, you know, your Q4 guidance implied an expectation for accelerating POS through the holiday season. So can you talk about the drivers underpinning that expectation, just, you know, given your comments about a more challenging macro, the category reversion, and, you know, how much was driven by normalization and expectation of consumers to shop, you know, closer to the holiday season versus maybe an actual improvement in underlying demand versus what you've seen so far? Sure, I can take that. You know, the full year guidance that we provided on our third quarter call implied very strong fourth quarter performance in terms of top line growth and bottom line growth. And that growth is expected to come from a combination of POS growth, as well as, you know, the comparison to last year, impacted by retail inventory movements. And on the consumer demand side, we have a number of key drivers out there. We have more retail support in the fourth quarter, in terms of increased promotional activity, more shelf space, better and broader representation in toy catalogs. We're also seeing, and we've talked about this before, right? Shipping patterns returning to normal. What we mean by that is, about a third of our shipments in the first half, two-thirds in the second half, and this year, that's benefiting the year-over-year comparisons, particularly in the second half, and even more so in the fourth quarter as we wrap an atypical inventory, retail inventory decline, you know, last year. We are also increasing our advertising levels. That should help in terms of POS. We should also benefit from our tie-ins with the Trolls movie with Universal and Disney's Wish movie. So again, that's back to POS. So combination of POS, combination of the comparison. In sitting here today, we are well positioned for a strong fourth quarter. Quarter to date, POS remains positive, and we continue to expect a strong quarter, and to outpace the industry and to gain market share, both for the quarter and for the full year. Maybe if I could follow up on that. Are there any... You know, Barbie's been very strong this year. You talked about momentum. POS is positive. Retailers, from what we've heard so far, have talked about planning a bit more conservatively. So in the face of that strong POS in positive quarter to date, can you just talk about, you know, what you're seeing and hearing from retailers as it relates to replenishing alongside that POS growth that you're seeing? Yeah, I think, you know, this one of the strengths of Mattel is our ability to work with the major retailers, and given our scale, our ability to plan jointly with them and our ability to replenish throughout the, you know, holiday season. So we are very focused on executing our in-market plans right now and working, you know, very closely with retailers on replenishment and making sure, you know, to the extent possible, we have the right product in the right place and in the right quantity. ... Okay, awesome. And maybe considering everything we've discussed so far, you know, how do you, either of you, think about whether the category can return to growth next year? Obviously, Mattel has done very well this year. We're talking about reverting back from, you know, some pretty strong demand. But 2024 is also looking pretty light from an entertainment perspective, which historically has been very important for driving a halo to the category. So maybe just any thoughts you have overall on the category and what are the, you know, main drivers in terms of thinking about whether it can return to growth in 2024. Yeah, you're right in terms of the entertainment calendar or new movies. This is a fact that movies, the less big tentpole movies next year that will drive toys. We will talk about 2024 at the end of next quarter, is when we're going to be more kind of give a more of a overview for, you know, heading into next year. But for Mattel, it's important to say that most of our business is driven by our own brands, our own IP. And for years and years, decades, we've done it with no movies, with no content, just creating demand for the experience, for the toy, for the play system, for the product that we sell. We did increase our business around third-party relationships and, you know, Disney Princess is one great example of how we created another growth driver or brought in, added a new growth driver for our portfolio. But the majority, the vast majority of our business is driven by our own IP, and that gives us a very... Puts us in a very good position, given the fact that we're less dependent on entertainment properties. And also, it's important to say that by category, there's different impacts in terms of the strength or availability of entertainment brands, of movies. Historically, action figures is the one category that is most directly linked to big entertainment movies, although others can also be related. As a whole, it will be a factor, and we'll talk more specifically about the industry at the end of this quarter. Okay, great. Maybe, you know, thinking about the macro and the pressures on the consumer, you've talked about the industry historically being resilient, albeit maybe not recession-proof. Can you just talk about what you historically see in terms of consumer behavior into a more challenging macro, and maybe how what you've seen so far this year? Is it, you know, do consumers buy less toys, they still buy toys, but they might buy less of them? Do they trade down to maybe unbranded toys or lower price points, or do you see any changes in category mix? Maybe, you know, just touch on a little bit of the dynamics and how you'd expect the consumer to react in a, you know, tougher environment. Yeah, we continue to believe that the toy industry is an area where the propensity to shop and spend money is high, given the strong characteristics of the industry. It as a category, it's very driven, it's very much driven by innovation, but also by big, strong, quality brands. And the importance of strong brands is higher, is getting higher. It's the same thing for in content, in movies, in streaming, in every other area. The ubiquitous distribution, the availability of shelf space and virtual shelf space, unlimited shelf space makes it that much more important to stand out in quality and brand awareness. It's very hard. It's probably gotten harder to launch new brands from scratch because of so much distraction and other options that consumers have. That's where we believe that we are in a good position, not just in terms of the strength of our existing brands, but how you continue to execute and drive new demand and continue to excite and delight and engage fans wherever they are. While children spend more time online and on screen, on other screens, they multitask, and they still play with, you know, physical product, and the parents prefer that, and anyone who has children would attest to that. We all know that the benefit of play is an important factor in children's development. And what we've done as a company, and a key part of our success, has been how we evolved as an IP company and infused cultural relevance and brand purpose into everything we do. This is part of our evolution from selling items to managing franchises. What we've done is we brought in very clear brand purpose for each and every one of our lines, which is the reason to be or a higher reason, the benefit of engaging with our brands, whether it's Barbie's inspire the limitless potential in every girl, or Hot Wheels driving the challenging spirit in every child, and/or developing girls with strong characters through American Girl. Then also, the other thing that we did that served us very well is connecting with cultural trends and trendsetters to create that timeliness. We know that our brands are timeless, and our job has been to make them also timely and relevant to today's consumers. By doing that, we're able to elevate our offering beyond the items that we sell off shelves and turn them to be experiences that connect with fans at an emotional level. You know, we've said it before, but just to repeat it here, is that maybe our biggest evolution as a company was to think of people who buy our product, not just as consumers, but as fans, that, that do have an emotional connection, emotional relationship with our brands. Toys are tactile. Children hold our product and hug our product. So the level of emotional relationship is very high, and when you have a lot of fans, it's an audience. And this is what really informed and helped us shape our approach to how we make the Barbie movie or how we make television shows and how we create digital experiences or location-based entertainment opportunities. We're speaking to fans that have an emotional relationship with our brands, and this culturally, internally, changed our approach to the opportunity and how we think about our goals and what we do every day. And a key part of our success, we believe, has been driven by that approach, together with a strong purpose and the cultural relevance that we infused into our offering. Maybe to follow up to that, how did the success of the Barbie movie, you kind of just alluded to it, but change your approach to how you're thinking about the entertainment strategy, whether it's the opportunity to invest more and, and see more of the return, or did it change the relationships or conversations you're having with, with partners, whether at the retail level or, or the brand level? Maybe you could just talk a little bit about that. Yeah, the Barbie movie has been a milestone moment, and you can even say a watershed moment. You know, even for the industry, for this movie to be the number one movie in the history of Warner Bros., in terms of box office, 100 years of Warner Bros., which is one of the most revered, you know, esteemed studios in the industry, and number 14 movies of all times and still going, heading into what may end up being a good award season for the movie as well. And not just the movie, by the way, but even the soundtrack that has been -- is now nominated for 11 Grammys, which makes it the highest number for of any soundtrack ever, and second only to Thriller in terms of Grammy nominations. We haven't won yet awards, but just in terms of the nominations. So even that execution has been stellar. So you know, what it did do, it did illustrate the strength of our brands, and it's not just Barbie. It's the strength and cultural resonance of our brands, our ability to attract and collaborate with top creative talent, and the way we evolved as a company in literally just being able to do that and having a seat at the table and able to amplify and engage that level of talent out there. And of course, the other reveal was our marketing capability outside of the toy aisle, because what happened is Warner Bros. did an amazing job in marketing the movie. And, you know, that's what they do, and they've done a great job here. And what happened is that we partnered with them and amplified that even further and brought in our retail relationships. We marketed the movie in thousands and thousands of storefronts. We brought in, we had 165 different consumer product partners that marketed the movie in their channels and created that, what eventually became a cultural phenomenon. And much of that success is driven by our ability to create that level of excitement and demand, which is something we have been doing within the toy aisle, but now we can do it outside of the toy aisle. It definitely changed dynamics for the company as an important player in Hollywood, and not just movies, but also television, and not just content, but also location-based entertainment and attraction opportunities, all the way to digital experiences, consumer product and merchandise, and other parts of the entertainment industry that are driven by big brands, big franchises. It elevated the conversations, it strengthened our position, and it brought in more partners that would like to collaborate with us. So it has been an important accelerator for our entertainment strategy. It has been a great driver for Barbie that will play out not just this quarter or this year, but for years to come in terms of how much more the aperture is now open. New fans, it really recontextualized how people think of Barbie. Those who didn't know how much the brand has evolved now think of it very differently. And as you know, the movie appealed mostly to adults. It wasn't targeting children. So you have a whole, huge market out there of women and men, parents and grandparents and/or just young adults that love the brand and have a strong relationship with it now, and we believe it will play out very strongly for Barbie in years to come. ... Great! Maybe shifting gears a bit to the margin side of things. So gross margins inflecting positively after some challenges earlier this year, obviously a pretty large benefit from Barbie in the back half. There seems to be some debate as to whether you can continue to see a gross margin expansion next year, given you're going to have to lap some of these benefits. You know, given that, maybe Anthony, you could spend some time just talking about the puts and takes, headwinds versus tailwinds, as we think about gross margins going forward. Sure, sure. Yeah, it's a little, as Ynon said, a little early to get too specific on 2024, but I can certainly make some comments. First, we feel good about the progress we're making in 2023. You know, in the prior year, we're at 45.9% gross margin. Our last guidance forecast 47%-48% this year, so we are expecting to make some gains. There's three primary drivers of that. One is cost savings from our Optimizing for Growth program, the second is pricing, and the third we think of as mix, and that includes the accretive impact related to the Barbie movie. Now, those positive drivers have been partly offset by a negative fixed cost absorption impact related to reductions in own inventory that we've achieved this year. This is while inflation is not expected to have a material impact. So good progress in 2023. You know, as we look to 2024, we see some positive drivers. One is, you know, the continued benefit of cost savings, and the second is we're going to wrap this fixed cost absorption impact that we had in 2023. So a couple of tailwinds to point you to. Longer term, you know, we see upside in gross margin. It is our expectation that over time, the combination of cost savings and pricing should exceed cost inflation and contribute, you know, to margin expansion. The last thing I'll mention is, you know, as we expand our entertainment offering and move into these adjacent verticals, they are margin accretive. You know, things like film, digital gaming, location-based entertainment, consumer products, publishing, are all going to help. So, we're making progress, and, we see further upside on the gross margin front. Maybe two follow-ups to that. The first being, you talked about 800 basis points of cost inflation. Where are we in terms of the inning of recovering that? And then on the long term, you know, you, I think Mattel peaked at 53%-54% gross margin previously. I think maybe you answered it there, but is there anything structurally different about the business that would preclude you from getting back to that level in the future? No, we don't have a specific goal or a forecast, but there's no impediment, right, to gross margin expansion from, you know, where we sit today, both on the toy business and the accretive benefit related to the entertainment offering. And then maybe shifting, shifting gears to the SG&A side of things. You've, you've taken a lot of cost out of the business, you know, since you've joined. Can you just maybe help contextualize some of the major changes in your expense structure today versus 2019 or whatever reference point you want to use? And I think you're coming up on the end of your current cost savings program, so whether you see kind of incremental opportunities beyond that to take cost out of the business. Yeah, we have a strong track record of delivering meaningful cost savings. You know, if you look up till and through 2020, we took out about $1.2 billion of costs, right? And structurally, you know, we've got one third fewer SKUs, we have one third fewer non-manufacturing headcount, we have five fewer manufacturing plants. So very significant structural changes that happened. In 2021, we announced our new Optimizing for Growth program. That was a three-year program designed to drive further efficiencies and actually to help our growth profile as well. We've been very successful with that. We have since raised the target to $300 million by the end of 2023, and we are going to surpass that goal by the end of the year. Even though that program is going to end, you know, this idea of focusing on productivity, efficiency, and cost savings is really part of our DNA and will continue to be a focus area for us. It's part of our algorithm. It's part of how we manage the business. So we'll continue to look at the entire, you know, cost structure, whether it's COGS or SG&A or even non-working marketing, to look for opportunities. You know, one thing we disclosed in our last 10-Q was actions were taken to further optimize our manufacturing footprint in Asia. So this is a never-ending process, and we continue to focus on it. Yeah, we've done a lot of work to continue to strengthen our toy business, how we work, how we perform, you know, and while we did take $1.3 billion cost out of the business, we still see more opportunities to further optimize how we work. Maybe, you know, the numbers will not be as big in terms of cost savings per se, but we absolutely believe we can continue to optimize and further improve how we work. And if you think about the investment thesis in Mattel, there are two parts to the opportunity. One is what we do within the toy side of the company, and we believe there's still significant upside we can capture in growth, in profitability, in margin expansion, in market share gains, in all the things that we do. Most of the work that we have done to date was to strengthen that platform and position it for long-term growth in a category that is projected to grow and is healthy and strong and robust and sizable at $100 billion globally. So this is just a toy business, and if you say stop here, and this is your opportunity, that alone, we believe, is significant in terms of upside potential and, and, and value creation. And of course, everything we do on the entertainment side of the company, on the IP side of the, of, of, of, of our strategy, in success, this will be transformative in terms of growth, in terms of, margin expansion and all these verticals that come on top of what we do on the toy side of the industry. The, you know, one of the benefits of that strategy is that it's not new. It's not an invention. It's not something novel that we came up with and said, "Here, here's a great idea." It's been done before. Taking strong brands from one category and porting it to others has been done before and very successfully so. We believe that we have the capabilities to execute that. We are executing it, and we have already a few very strong case studies or showcases of how we do what we do and why we believe we can execute well. It is really about execution. It's not about the strength of our brands, it's not about the size and of the opportunity, and not even about the strategy in and of itself. It's whether we can do that, and we believe we can, and we are. It's not that we do it all on our own. The partnership model that we are applying increases the likelihood of success. So when we talk about making great movies and winning audiences and executing at a high level, we're not saying that we will do all of it alone. We bring in and attract the best partners out there that have done it before and have their own track record in the field, and the Barbie movie is a great example for that, and there will be more. And obviously, all of our other movies are all with some of the leading talent of our generation, and not just in movies or, you know, our collaboration with on digital gaming and television and location-based entertainment are all with great partners that have a proven track record. So that capitalized, partnership-driven model to capture value from our IP, we believe is the right equation, the right balance of risk and upside in how we capturing value from our IP. And given the strength of our portfolio, the heritage and you know and value that is vested in that portfolio, we believe we're in an excellent position to do that and continue to grow our company outside of the toy aisle. You touched on it a bit earlier, but you're now in the position where your balance sheet is source of strength. You know, it's 25x to 2x today. So, you know, you started buying back stock earlier this year, I think, first time since 2014. You've also kind of discussed an appetite for M&A. So, you know, given what we talked about in terms of how the market's doing, your stock and where your stock price is today, how should we think about how you're internally talking about those two opportunities and balancing them in the current environment? Yeah, we have a set of capital allocation priorities that provide us, you know, the flexibility to manage our capital structure, to invest in growth and to create value for our shareowners, right? The first priority is to make investments to drive organic growth. The second is to maintain a leverage ratio between 2-2.5x, and we expect to end this year at 2.5x. Our debt portfolio is well positioned. We don't have any maturities until 2026, and we have a below-market average coupon of 4.7%, so really well positioned on the debt side. Given the improvements that we've made, we can now consider two other capital allocation priorities. The third is M&A and other corporate development opportunities. You know, this is an area where we'll have a very disciplined approach. Any deals that we do will need to be, you know, advance our strategy, be accretive to growth, provide attractive financial returns, as well. And then the fourth is share repurchases. We view share repurchases as a very flexible and effective tool to manage our capital structure. And as you noted, you know, we have actually been in the market. Year to date through Q3, we repurchased $110 million of our stock. This is the first time since 2014. At that time, we had $93 million remaining under our current authorization. So we'll get through Q4, and we're assessing our plans. I'm sorry, we'll get through 2023. We'll assess our plans for 2024 and have something to share at a future date. Great. I wanted to leave a few minutes to see if there were any questions in the room. Yeah, someone behind the podium. Hi, Bevin Walsh, Kingdon Capital. Can you just set the record for us straight here? There's a lot of alternative data out there. Is the branded toy industry more or less promotional this holiday versus last holiday? And are you seeing more retailer-funded promotions this year versus last year? Thank you. Yeah, well, the holiday season is continuing, right? It's not over yet. We have seen, I would say, more promotional activities, but that doesn't necessarily mean more discounting, right? So again, I think, you know, retailers are competitive. They're trying to, you know, win the consumer, and so we are seeing a higher level, you know, of promotional activity. ... Sorry, if I could just ask a follow-up question. Are you seeing a higher level of discount versus last year, or is it about the same? I would say there's a slightly higher level of discounting, but not significant. Sorry if I missed this part, but can you talk about what parts of your IP you're most excited about over the next three years? You know, you've had a lot of success on a look-back basis, but if we look out on whatever time horizon, two years, five years, whatever it is, where are the sort of the future excitement or tentpoles that you think are ahead, that you guys can take from what you have, that transformation that you've been on, what's the next step from the top line? Yeah. You know, it's easy to talk about Hot Wheels or American Girl or UNO as some of our more known brands that resonate already. But one of the interesting thing of our strategy is that we do it across the portfolio, and success can come from anywhere. So, you know, having a Rock 'Em Sock 'Em project movie with Vin Diesel or a Matchbox movie with Skydance that developed Mission: Impossible and Top Gun, that, you know, of brands that are not as big as our power brands today can also play out really, really well. And that is or Major Matt Mason, which is a toy we haven't commercialized in decades, that we're now developing with Tom Hanks as the lead. So success can come from anywhere. You know, we took a page, you know, even if you look at the, our closest comp at Hasbro, you know, when Transformers started, came out, it was a very small brand that wasn't- didn't register and people weren't aware, and it became a multi-billion dollar franchise. So one of the, the strength of, of our approach is that we do it at scale, and success can come from anywhere. Well, I think we're out of time, and I think that's a great place to end. So Ynon and Anthony, thank you so much for joining us, and thank you everyone in the room for joining. Thank you.