Great. Why don't we get started? Good morning, and thank you all for joining us today. I'm Arpine Kocharyan, Leisure, Gaming, and Lodging analyst, at UBS. I'm very pleased to have Anthony DiSilvestro, Chief Financial Officer of Mattel with us today. Anthony has been with Mattel since 2020, after nearly four decades of experience in various financial leadership roles within the consumer industry. We are going to talk about Mattel's strategy for growth, current state of the toy industry, balance sheet, and capital allocation strategy for Mattel. Before we begin, as a research analyst, I am required to provide certain disclosures relating to the nature of my relationship and that of UBS with any company on which I express a view today. These disclosures are available at ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after this meeting. With that out of the way, thank you, Anthony, so much for being with us today. Thanks for having me, Arpine. It's good to be here. Great. I have a few questions to start off, but first, why don't we sort of begin with your outlook for Mattel broadly. Investors are increasingly concerned about a weaker consumer given persisting inflationary pressures, lapping government stimulus. Maybe if you, if you could give a kind of a general sense of the sort of the state of the toy business coming out of a tough holiday season and outlook for Mattel. Sure. Great. Let me start. First of all, thank you for having us here today. Yeah, absolutely. It's great to be here. Let me start with some comments about Mattel and our outlook specifically for 2023 in the first quarter, and then I'm gonna come back and talk a little bit about the industry outlook. Today we are reiterating our 2023 guidance for Mattel, and that is for our net sales and constant currency to be comparable to the prior year. That includes a 3-4 percentage point negative headwind to accommodate an anticipated reduction in retail inventory levels. Our guidance does assume growth in consumer demand for our product with positive POS for the year, driven primarily by the performance of our dolls and vehicles categories. Our adjusted gross margin is expected to increase to approximately 47%, and that's compared to 45.9% in the prior year. Adjusted EPS is expected to be in the range of $1.10-$1.20 per share. Adjusted EBITDA is expected to be in the range of $900 million-$950 million, and that compares to $968 million in the prior year. It does reflect a significant increase in SG&A of about $100 million as incentive compensation is expected to return to target levels. Lastly, you know, free cash flow, we expect to exceed $400 million for free cash flow in 2023. As we've previously stated, we expect first half sales and earnings to be down significantly, and that's as we wrap 20% top line growth in the prior year and further impacted by the anticipated retail inventory reduction in 2023, which will be mostly felt in the first half of the year. Like I said, those retail inventory reductions are expected to be mostly in the first half with more of a concentration in Q1, and then diminish as we go through the second quarter. We also thought it would be helpful, you know, to provide, you know, more, a more specific outlook regarding our first quarter. For context, the first half is seasonally small for Mattel and the industry, with each quarter representing about 15% of full year sales historically. Given that context, we expect first quarter net sales to decline by 25%-30% in constant currency and for adjusted EBITDA to be in the range of -$30 million-$60 million, and that is due to the top line decline as well as incremental costs associated with inventory management. Importantly, the fundamentals of our business are strong. Quarter to date, we have achieved growth in consumer takeaway as measured by POS. For the full year 2023, despite continued macroeconomic challenges, we expect to outpace the industry and to gain market share. Coming back to the industry context and going back to the fourth quarter of 2022, we had a strong fourth quarter, right? We grew our consumer takeaway or POS by mid-single digits. We grew in each of our four regions. We outpaced the industry and gained market share. As you look at the industry for 2022, it was flat to 2021, and 2021 and 2020 were two record years. For 10 years through 2021, the industry grew, right? We believe, you know, we're in a growth industry, and the fact that it was flat in 2022, I think demonstrates the resilience of the industry to counter these macroeconomic challenges. One other fact, if you compare 2022 to 2019, the industry is up 22%. It's grown and it's holding steady. We really believe it's a growth industry for a number of reasons. I mean, toys, you know, are an important development and play pattern for children. Parents will always prioritize spending, you know, for their kids. The price points are affordable, right? We have everything from $1 to a Barbie Dreamhouse and everything, you know, in between. A lot of flexibility there. It's also a strategic category for retailers. It drives foot traffic, it's experiential. A toy shopper shops more often and buys more stuff. Again, a very important category, you know, for retailers. As we look to 2023, our expectation for the industry is for it to be flat to slightly up. We expect Mattel to outpace the industry and to gain market share. Great. you know, one of the key concerns that investors have about the toy sector in general is that, 2023 outlook seems to be back-end loaded, and you just reiterated your guidance. What gives you confidence that after declines in the first half, you're gonna see accelerated growth for the back half? Yeah, let me give some context because you could misperceive this idea of acceleration. Our quarterly performance in 2022 was significantly impacted by the timing and volatility of movements in retailer inventories, not by the underlying consumer takeaway of the business, which has been solid and growing. Let me explain a little bit more. You know, in the first half of 2022, our top line was up 20%, right? Driven primarily by an increase in retailer inventories. Then it kind of reversed. In the fourth quarter, our sales were down 19% as retailers took a more cautionary approach to replenishment, right? And while our gross billings were down 19% in constant currency, our POS was up mid-single digits. We're wrapping that. What we expect in 2023 is for the first half to be down as we wrap that 20% growth and further impacted by the reduction in 2023 of retailer inventories. As we move into Q4, the reverse is gonna happen, right? We're lapping that material reduction in retail inventories, we're gonna this bounce back. All the while, we expect consumer takeaway, you know, to be solid and growing. It really is about what happened in 2022, and as we wrap that, right, you're gonna get these, you know, significant changes on percentage terms, right? Yes. Yes. Yes. Anthony, could you go through some of the key growth drivers specifically for Mattel for this year and why not into 2024? Because you have some exciting licenses that you are taking over this year, but also lapping, as you said, tough comms and successful franchises like Jurassic, Lightyear by Pixar last year. What are those puts and takes? Sure. Let me comment on that in the context of our guidance. As I said a few minutes ago, our expectation is for net sales and constant currency to be comparable to the prior year, and that includes, again, a 3-4 percentage point headwind from the reduction in retailer inventories. We expect growth in both our dolls and vehicles categories, offset by declines in infant, toddler, and preschool, and in our challenger categories in aggregate. Let me break that down a little bit further. You know, if you listen to our investor presentation, you know, Richard Dickson calls 2023 the year of the doll. We've got a significant amount of activity, you know, happening. First, we have the return of the Disney Princess and Frozen franchise to Mattel. That's a significant win for us and will be a significant driver of top-line growth as well as, you know, profitability. Second, we have the global rollout of Monster High. This is something we started in 2022 in the US and are expanding globally in 2023. The third is, you know, we have a theatrical tie-in with Trolls later in the year, which is a nice doll property. Lastly, we have the Barbie movie in 2023 in July, which will premiere. Again, another catalyst to the dolls category growth. We also expect growth in the vehicles category. You know, Hot Wheels is on a tear, and it just has great momentum. It just completed its fifth consecutive record year. We also have a new innovation, right? We're extending the brand into RC as well as to what we call fingerboards or skate. These, I think is a testament to the strength of the brand and where it can travel. Significant growth, dolls and vehicles. Declines in infant, toddler, preschool. Then in our challenger categories, primarily in action figures. We're wrapping the very successful Jurassic World theatrical tie-in. Jurassic World is an evergreen property for us, but 2022 was a movie year, so you typically have a fall off following that. Also, we had Lightyear in 2022, which we're wrapping. Those are the kind of the puts and takes in terms of 2023. Thank you. That's very helpful. Anthony, one of the questions that I get often from investors is, does your guidance range incorporate some level of macro uncertainty and likelihood that we do perhaps go into a recession? Would you say that your flat and constant currency revenue outlook assumes current level of economic activity sort of continues, holds steady for the back half? Yeah, it's a good question. You know, we try to take into account, you know, what we have visibility to, what we have knowledge of, but certainly, you know, the guidance is, subject to further, you know, risks, volatility, things we can't, you know, really incorporate. We've tried to, you know, incorporate this volatile and challenging environment into our guidance, and I think that's the reason why, you know, our estimate for the industry is it for it to be flat to slightly up in 2023 and for us to outperform. We do the best we can. Again, it's been a challenging consumer environment, and there's been a lot of volatility out there and we try to factor that into the guidance. Thank you. Let's switch gears to margin, if that's okay. Sure, I love margins. Yeah, right. It seems as if some of the raw material costs, like resin and metals, have been easing, and you also will be lapping, you know, lower freight costs starting from Q2 of this year. Spot prices and freight are down north of, I don't know, 50%, 60%. My question is: Is there room for your margin outlook to be a bit better, given also the fact that FX headwinds are also easing a little bit as you look at sort of currencies that you're exposed to, at least what we can model? Yeah. Good question. Look, you know, we are expecting our adjusted gross margin to expand in 2023. Our guidance is for, you know, approximately 47% compared to 45.9% last year. We are anticipating gross margin expansion, and there's a few positive and negative drivers. On the positive side, we're gonna get a benefit from pricing. You know, over the last couple of years, we've absorbed, I think, close to 800 basis points of cost inflation. We took pricing in 2021, took pricing again in 2022. We'll have a carryover benefit of that, you know, 2022 pricing action into 2023. That's a positive. The second is our cost savings initiatives. Recently we increased the target on our Optimizing for Growth program to $300 million from $250 million. This is the program that ends in 2023. The majority of that $300 million will benefit, you know, cost of goods sold. We've got a great track record of identifying and delivering against cost savings initiatives, and that will continue into 2023 and beyond. On the negative side, we ended 2022 with our owned inventory levels a bit elevated, so we wanna bring those back down. The way we do that is we, you know, we lower our production levels to, you know, below what we anticipate to sell to correct that. Unfortunately, that comes with a negative fixed cost absorption impact on gross margin. The last, which is a slight negative, is cost inflation. Cost inflation has moderated significantly compared to 2020, and 2021. Actually the primary driver of the cost inflation is labor rates. We're seeing pressure in some of our key supply chain markets, which is creating some cost inflation. With respect to ocean freight, we are seeing, you know, spot prices come down, but there's a bit of a lag between the spot prices and when it hits our P&L for two reasons. One is, the majority of our ocean freight is contracted through annual contracts that we enter into in the second quarter, right? As we redo those negotiations, we'll benefit. Then we have our normal inventory turnover, 60 to 90 days. Inventory gets hung up on the balance sheet, comes through 60 to 90 days later, in terms of the P&L. That cost inflation moderation will be mostly kind of a second half impact. It's good to see, you know, some of these input costs, you know, coming down and, you know, look forward to benefiting from that. Right. No, absolutely. In terms of SG&A and your cost saving strategy there and where you are. Yeah. We've made great progress. If you look back, you know, at 2017, SG&A was 31% of sales, and we're about at 24% now. We've done a really good job of managing our dollar level of SG&A, and then as you grow the top line, you get a nice scale benefit, you know, coming through. The challenge for us in 2023, right, is incentive compensation, right? You know, significantly down in 2022. The assumption is we return to target levels in 2023. That's creating, you know, a bit of a headwind on SG&A. With, you know, looking beyond 2023, we would expect to continue to scale and continue to reduce SG&A as a percentage of net. Yeah. Mattel has been very clear about its asset light approach to IP monetization. Maybe if you could go over that strategy and what that could mean for growth for the company in the medium term. Sure. This goes back to our strategy and our investment thesis, which really has, you know, two parts. You know, one being, location-based entertainment, content, both theatrical, you know, and TV. With respect to something like theatrical, you know, for example, we take a capital light approach. So we're not investing in the production, you know, of these movies. What we bring is our IP, and what that does is enables us to work with multiple studios. We, you know, in addition to the Barbie movie, we have 14 films, you know, in development. So we're able to spread that around, work with, again, different studios, in a capital light approach. You know, we benefit, you know, from, you know. I'll give you an example of the Barbie movie. You know, producer fees, participations in box office, participations in profit levels. Again, it's a capital light approach. We're not putting capital at risk to do this. You know, we think it, you know, gives us, you know, a nice diversification and nice upside potential in terms of profitability. When you think about, you know, these adjacencies, whether it's consumer products, digital gaming, or the theatrical piece, you know, it's very high margin, right? It should be, you know, very accretive to our overall profitability. That is, you know, Barney. We announced Barney, and it's on CNN and Wall Street Journal, and everybody's excited. Yeah. It's big stuff, yeah It's big stuff, yeah About Barney coming back. To me, that's just a great example of, again, there's more stuff in the library, but bringing that content back and then capitalizing it, on it, not only in, you know, in content, but from a full franchise approach. That's correct. Capital Light. Barbie. I was amazed to hear Barbie cited at the Oscars the other night. It was amazing. There's a lot of concern that the brand is still at pretty, sort of elevated levels of sales versus 2019, and that there could be a reversal back to 2019 levels, which could mean the brand could decline despite a key marquee box office event this summer. What's your response to that? What's your take on that? Yes. We certainly don't expect that to happen, right? Our guidance is the expectation that Barbie will grow in 2023. Look, it's had a, you know, it's had a great run. It's doubled over the last five years. It hit a record in 2021. It held its own in 2022. You know, the way to think about Barbie is, you know, we have what we call the Mattel Playbook. For each of our brands, it's about each brand having a brand purpose, cultural relevance, design-led innovation, commercial execution. We have capabilities across all of those. Barbie is the best example of how successful, you know, we've been. Look, if you think about the Barbie movie, you know, there's two pictures and a teaser out there, the buzz on the Barbie movie is just-. You know, tremendous, right? With the Barbie movie, you know, again, we mentioned some of the direct movie economics, all right? We'll have a, you know, dedicated toy line which will appeal to, you know, a collector audience, as well. The movie is really a great catalyst to reengage on the consumer product side, right? To enter again, to, you know, move into further into some of these, you know, adjacencies. I think if you have the opportunity to watch, you know, or listen to Richard Dickson's investor presentation, he did a much better job than I could in articulating, you know, the Barbie and the future for Barbie. Again, we're very pleased with the performance and couldn't be more confident about the future outlook. No, excellent. If we could stay on Barbie for a second, and particularly the movie, because there seems to be some pushback that it might not be as toyetic because it's live action, it's not animated, it's not necessarily geared towards children, right? In terms of who goes and sees that at a theater. How do you think it lifts the brand? Is it the consumer product aspect of it? Is it the halo effect? How are you looking at that? It's really all the above. It's, you know, true historically, a live action movie doesn't bring the same toy lift that an animated movie would bring. You know, the mandate for the Barbie movie is to create great product that people wanna come and see in the theater. You know, in success, what it'll do is just one more element, you know, to a very broad franchise approach, you know, to Barbie, right? Again, all the buzz certainly is gonna help. We'll have movie specific, related products. Again, it'll be a catalyst, you know, to consumer products. One more element in our franchise approach. I mean, we do animated content for Barbie.. Very successful, you know, on Netflix. It's not like we don't do animated, and again, we do, you know, a lot of different things, you know, for Barbie. It is, you know, again, very culturally relevant. There's a lot of buzz with the movie. I think that in and of itself will spur, you know, collector. It'll spur parents to kind of reengage hopefull. With Barbie if they haven't. You kind of phased out of it. You're bringing it back, and you're bringing it back with great content. If you look at the rankings, if you look at the sort of the strategy, how meaningful is this franchise for your growth and outlook for this year as well as next? It won't be. If you're launching it this year. In 2023. We began the global rollout in the U.S. in 2022, you know, tied into new content. You know, we had a live action musical air on Nickelodeon. We also had an animated series, both of which have been very, you know, successful. The relaunch has gone exceedingly well in 2022, and we're, you know, moving globally in 2023. We'll roll it out, you know, in our, in our other regions. We think, you know, Monster High, you know, and its, you know, brand purpose of inclusivity is more relevant now than it's ever been. We're very optimistic about the, you know, potential performance for the brand. We're actually on the sequel of the live action musical, given its performance, so that'll continue to, you know, drive the awareness through content as well. All proceeding well on the Monster High front and very excited about it. In terms of the profitability of the brand, if you could speak to the, kind of the scale in fashion dolls that you have and how that fits in the brand portfolio in terms of profitability? Sure. There are two product categories, fashion dolls and die-cast cars, where we have a significant and competitive cost advantage in the manufacturing given our scale, given our expertise and capabilities around manufacturing these products. When something like Pixar Princess comes back to the portfolio or we launch Monster High, we are leveraging an asset base and capability that has a distinct economic advantage, right? The, the margin profile, right, both in fashion dolls and die-cast cars, is very, very attractive for us. One of the things that surprised me over the past few days being in meetings with you was that you said, including even royalties, Pixar Princess brand is actually margin accretive versus corporate average. That's correct. Obviously, we'll get the top line growth this year. We expect to continue to grow it beyond 2023. From a margin, perspective and inclusive of the royalty, accretive to our overall, company margin profile. I know. That's right. That was very interesting, at least to me. Fisher-Price, you've guided to a decline for the brand this year. I guess, what is the strategy there and how do you grow that segment, which is essentially fundamentally tied to birth rates, right? More babies need to be born for the brand to grow, but birth rates have been challenging, not only in the U.S., but across the world. We haven't seen much uptick there. How do you think about this brand strategically? Yeah. First let me say that, you know, the guidance, all right, was for Fisher-Price, for infant, toddler, preschool, to decline, but that includes obviously the impact of the retail inventory, you know, reduction. You know, the business has been, you know, relatively stable over the last, you know, couple of years. Fisher-Price is a great brand. You know, this thing has been around, you know, for 90 years. It's a well-known brand. It's trusted by parents with respect to quality and the brand, you know, recognition. You know, we are the leader in the infant, toddler, preschool category. Fisher-Price is the number one property within infant, toddler, preschool. The thing to understand about Fisher-Price, it's made up of a portfolio of sub-segments. Some of those segments are lower margin than others. We've kinda shifted a bit and we de-emphasized, you know, some of the lower margin segments and focused more on the higher margin segments, which includes things like Little People and Imaginext, which have been growing very nicely for us. There's a lot of opportunity in something like Little People, particularly around the collector. We have a deal now with the NFL, so we'll put the, you know, the player o n the bobblehead. Really exciting. That'll be great. We're also trying to leverage our own IP, right? You know, things like Barbie and Hot Wheels, you'll see, you know, show up within, you know, the Fisher-Price category, something like My First Barbie, right? Cross-pollination of brands. Exactly. To me, that's, you know, fantastic because we've got a catalog of IP, we own it, let's capitalize on it and use it. You also see some third-party IP, you know, coming through. We feel good about, you know, the prospects, you know, for Fisher-Price and, you know, what's been happening within the portfolio. Great. why don't we talk about American Girl since we're talking about brands. Iconic brand. seems like you're more and more focused on the immersive experiences, which could mean more real estate. You're opening a new store, flagship store in LA. How do you think about this brand strategically? Look, I, you know, American Girl is a cherished brand. It stands for premiumness, quality, and it's more than just a product. You know, it has a heritage in storytelling. We recently announced, you know, we're, you know, upping our investment in publishing. One of the core elements of that publishing strategy is, you know, is American Girl. You know, we think the business has been impacted a bit by the economic challenges that consumers are facing and the impact that's had on higher priced items. Something like the Barbie Dreamhouse or American Girl. You know, these are, you know, these are premium price products. We think that, you know, that has, you know, had an impact. We've been rightsizing the retail footprint. We think it's important, obviously, to maintain a retail footprint, particularly, in some of the major cities. You mentioned we're reopening in the Westfield Century City in L.A., so we're looking forward to that. We're also making some adjustments to, you know, our Girl of the Year proposition. You'll see some new product coming out in 2023 as well. Again, a great brand, and we're very optimistic about the future for that one as well. Why don't we switch gears to capital allocation plans? You just announced a buyback program, a first in almost 19 years. Most investors were looking for a full investment grade upgrade before you announced buybacks, and it happened earlier than expected. Maybe if you could go over that decision-making and maybe take the opportunity to discuss your capital allocation priorities going forward. You know, we have a series of capital allocation priorities that have been pretty consistent. I think the thing to think about in terms of capital allocation, it's a very dynamic process. What makes sense one day, a certain set of assumptions may not make sense on another day, you know, as those assumptions change. But our priorities are first to invest, to drive organic growth in our business. This is good examples, building capabilities in DTC or e-commerce, or investing in capital to expand the capacity of die-cast cars or fashion dolls. You know, as I said before, we have a distinct competitive cost advantage in those areas. That's, you know, first and foremost, the most important. Second is to, you know, maintain a leverage ratio of 2 to 2.5 x debt to adjusted EBITDA. You know, we finished 2022 at 2.4x. We are inside that range, and we've been in that range for a few quarters now. Achieving an investment-grade rating is an important milestone for Mattel. You know, Moody's upgraded us to investment grade last year. Fitch recently affirmed the BB+ with a positive outlook, and S&P recently affirmed our ratings. We feel our balance sheet is significantly stronger and in a better position than it's been in years. When you think about it, we paid down $250 million of debt in the fourth quarter that was maturing in 2023. Sitting here today, we don't have any maturities until 2026. We have a debt portfolio with an average coupon of 4.7% and a duration of about, you know, seven years. We don't need to pay down any more debt. We are in a good spot. As I said earlier, we expect to generate over $400 million of free cash flow in 2023, wh hich raises the question, what do you do with it? What do you do? Right. Given the improvements we've made on the balance sheet and our outlook for free cash flow, it opens up other capital allocation priorities. The third was M&A and corporate development opportunities. We will, you know, with our strength and balance sheet, we'll consider M&A where it is strategically compelling, financially attractive, accelerates growth and comes with the right risk profile. The fourth is share repurchase. You know, given today, we believe our stock is undervalued, we made the decision to resume share repurchase, and we have resumed those share repurchases. Look, as I said, it's a dynamic process, and given the current valuation, we thought it was important for, you know, for us to return to share repurchases. As you mentioned, we haven't done that since, you know, 2014. Great. I wanna return to potential, perhaps M&A. You had previously talked about, and I quote, "Balance sheet becoming a source of growth for Mattel." We interestingly didn't hear that during Q4, but there was a lot going on in Q4. If you could just talk about what that means, right? When someone hears balance sheet becoming a source of growth, you sort of automatically think about M&A opportunities. What could make sense for Mattel, and how we understand that potential? Yeah. I think the comment about the balance sheet becoming a source of growth, really to me it's two things. One is, it enables us to consider M&A, and it enables us to do share repurchases, right? When it comes to, you know, M&A, you know, we have, you know, a scalable enterprise, and we think there may be opportunities to add to that. In a very, you know, accretive way. You know, without getting, you know, this is somewhat hypothetical, but if you think about our portfolio, there may be opportunities to expand our position in our leader categories: dolls, vehicles, infant toddler, preschool. There may be opportunities to, you know, build within our challenger categories and to, you know, perhaps get them to be leader categories. There may be opportunities to build capabilities which enable our entertainment strategy, you know, right? Whether it's, you know, DTC or subscription models, right, as a couple, you know, of examples. There may be opportunities to expand geographically. We still have, you know, some white space geographically to potentially capitalize on. I think the, you know, the key message here is we will take a very disciplined approach, you know, to M&A. It would have to, you know, really enhance our growth profile. It would have to be, you know, strategically compelling, very financially, you know, attractive. 'Cause we are cognizant of the risks of M&A, particularly around execution, and we certainly don't wanna do anything to jeopardize what's happening to our business, you know, organically, which we're very confident about in both in 2023 and the ability for our strategy, you know, to grow our IP-driven toy business, drive the entertainment offering, to, you know, which we believe will create significant value for our shareholders. Anthony, I wanted to keep this to 40 minutes, so we don't have much time. Maybe in closing remarks, you could sort of recap, you know, you're in a great financial position, strong balance sheet, positioned for growth, share taker. In terms of sort of what keeps you up at night looking at Mattel at this point, what is? Yeah. I would say it's, you know, I'm very confident about, you know, internally our strategy, our ability to execute, our capabilities, right? I think, you know, it's the exogenous factors, right? There's still a lot of volatility in the co- economy. You see what's happening with the, you know, the banking industry. What's the knock-on effect of that to consumer sentiment, consumer spending? You know, these are things, you know, we don't control. On the other hand, you know, the toy industry has demonstrated its resilience. We have demonstrated our agility and ability to respond to changing circumstances in the market. If you go back to, you know, the supply chain disruptions and how effectively we managed, you know, through those. I'm very, you know, again, it's these exogenous factors, but I take some comfort, with respect to the resiliency of the industry and the capabilities of Mattel to manage through. Great. Well, I think, that's a great note to close on. Anthony, thank you so much for being- Thank you. Here today, and thank you everyone for joining. Thanks. Thank you.