Good day, ladies and gentlemen and welcome to Mattel’s First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Martin Gilkes, Vice President, Corporate Strategies and Investor Relations. You may begin.

Thank you, Nicole and good afternoon everyone. Joining me today are Chris Sinclair, Mattel’s Chairman and Chief Executive Officer; Richard Dickson, Mattel’s Chief Operating Officer; and Kevin Farr, Mattel’s Chief Financial Officer. As you know, this afternoon we reported Mattel’s first quarter 2015 financial results. We will begin today’s call with Chris, Richard and Kevin providing commentary on our results and then we will take your questions. To help guide our discussion today, we are providing you with a slide presentation. Both our earnings release and slide presentation, include non-GAAP financial measures. The information required by Regulation G regarding non-GAAP financial measures is included in these materials and both documents are available in the Investors section of our corporate website, corporate.mattel.com. Before we begin, I would like to remind you that certain statements made during the call may include forward-looking statements relating to the future performance of our overall business, brands and product lines. These statements are based on currently available information and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ materially from those projected in the forward-looking statements. We describe some of these uncertainties in the Risk Factors section of our 2014 annual report on Form 10-K, our 2014 quarterly reports on Form 10-Q and other filings we make with the SEC from time-to-time, as well as in our public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so. Now, I would like to turn the call over to Chris.

Thanks, Martin and good afternoon everyone. I would like to thank you for joining us. And I do want to apologize upfront the presentations are going to be a little longer than typical. I think this is consistent with our commitment to try to give you a better feel for what we are doing with the business, what the outlook is for this year. So, with that, let’s get started. And I would say upfront, it’s been a busy and productive few months since I last spoke to you on the fourth quarter call. During that time, I have been deeply engaged inside the company and with the board and our management developing a comprehensive plan for a rapid turnaround of Mattel. Now, simply put, our focus is to move quickly to put the company back on track for growth and improve profitability. Our valuation of the business has reinforced the fact that our challenges are grounded primarily in execution, but it also pointed out the need to sharpen and expand some of our strategic priorities. And frankly, as the industry continues to grow, there is no reason in my judgment with our incredible portfolio of brands in our superior scale why we can’t be leading with that growth. Now, a couple of weeks ago, we announced an important step in our effort to get back on track. As CEO of Mattel, I will lead the company in this turnaround. We also promoted Richard Dickson to the role of President and Chief Operating Officer. Our goal of doing so was clear. The board and I don’t want to waste time in moving forward with the necessary changes to revitalize the business. I think I know this business pretty well. And over the past several months, Richard and I have developed…

Thank you, Chris and good afternoon everyone. As Chris pointed out to be the leader in our industry you must excel at creating both the big global brands and the hottest new toys, that’s why we gave our core brands the autonomy and fresh perspective to compete on their own terms and why we broke down barriers to create the revolutionary Toy Box where constant invention and blazing speed to market meet Mattel’s scale and horsepower to create competitive advantage on the toy side of our business. Now before I update you on progress against our strategic plan on some very important brands, I would like to share some exciting developments an area that is driving significant momentum and excitement across both our core brands and the Toy Box and that is strategic partnerships. In today’s world the capabilities, pace and vision of leaders, no matter how innovative they are cannot be limited to what they create on their own. By partnering with recognized leaders in technology, invention, marketing and product innovation, content, insights, media and other areas critical to our future success, Mattel is accelerating the pace of change and the implementation of our turnaround strategy. Two months ago at Toy Fair we began to announce the first of several important new Mattel strategic partnerships that will bring exciting and disrupted new ideas to the marketplace in record time including our game changing work with ToyTalk and Google. Our exclusive ToyTalk partnership leverages their cloud-based child safe artificial intelligence to allow kids to engage in real conversations with their toys. Hello Barbie demonstrates the potential of the technology, but is only the beginning of the collaboration as we are extending these revolutionary capabilities to other brands and lines including Thomas. Our unique relationship with Google began with the reinvention…

Thank you, Richard and good afternoon everyone. Since we last spoke we have been keenly focused on the turnaround of our business. As expected, foreign exchange negatively impacted our reported first quarter results. Looking beyond currency, the quarter did reflect solid progress in stabilizing the business as we saw encouraging trends in our top line revenues and global POS. Worldwide net sales of $923 million were down 2% for the first quarter in U.S. dollars. In constant currency, worldwide net sales were up 5%. Due to the significant strengthening of the U.S. dollar, we believe analyzing our business on a constant currency basis is more meaningful to understand our business results. Further we have adjusted our comparative P&Ls to present non-GAAP financial measures that exclude certain items related to MEGA and severance related to our cost savings initiatives. We believe this provides better visibility to the underlying performance of our business while we execute on the turnaround. Moving to the first quarter results normalizing for Easter global POS was up low single-digits on a comparable year-over-year basis. Looking at the middle of our P&L, our gross margins were down 210 basis points, consistent with our expectations which included the negative impact to mix primarily related to the acquisition of MEGA and higher royalty expense related to license properties. The increase in product related costs were essentially offset by our price increases and our cost savings initiatives. Our advertising rate was higher reflecting our investments to support key core brands throughout the year including additional spending in China and Russia to accelerate growth. Adjusted SG&A was flat for prior year in absolute dollars. This includes ongoing SG&A related to MEGA as well as funding our future cost savings initiatives which we are aggressively pursuing in 2015. As Chris said we are…

Thank you. [Operator Instructions] Our first question comes from the line of Tim Conder of Wells Fargo. Your line is now open.

Thank you and thank you all for the added color and the financial directors here. And Richard thank you for some of the additional details also, one of the piece there I wanted to drill into is the feedback mechanism. You talked a little bit about that how you are monitoring the effectiveness of the marketing spend and how that’s integrating with some of your new partners. Could you maybe expand on that from an enterprise wide basis how Mattel goes about maybe collectively monitoring the digital engagement, how your brands are accessed by consumers and then how you pair that up with the retail activity and feedback and how you look at product development?

Thanks Tim for the question.

Broad question.

Yes, you are right. We have a variety of different means and ways to get statistical information around the world. Certainly our research group is well equipped to study obviously the consumer and various different tests that we have around the world whether that be pricing tests to marketing tests effectiveness. We test all the commercials that we deliver out to the marketplace prior to them going obviously to test engagement with girls and reaction. But certainly the easiest result is when we see POS lifts and we see scores on the board happening at retail. From a digital perspective, we have all the – what we will call traditional means of engagement, various different means to assess and evaluate our engagement statistics, all of which are part of our digital group. And as we align these functions around the company we are getting much more sophisticated in actually using the data and leveraging it to execute new programs around the world. Specifically we would obviously don’t share the specifics of how we do it and the numbers themselves but we are using much of the information to reprogram test and learn and react very quickly in the marketplace both in the digital community and in our traditional marketing effectiveness.

Hey, Tim, it’s Chris. Let me just embellish a little bit this year, one of the other things we are spending a lot of time on is trying to get early reads in the market on discrete programs and things like pricing. So we are doing a series of high level spend tests right now on some of our core brands which is successful obviously we can accelerate quickly as we go into the back half of the year. And pricing is vital particularly in some of the markets where we are having so much foreign exchange pressure. So we have instituted a series of price tests which will get us to a lot smarter position on what we can and can’t do as we exit through the year. So I think Richard is right we have got a lot of testing, a lot of protocols in place but I think we are dramatically stepping up kind of real time testing and high level testing.

Well, Chris and Richard on that front how far are you would you say into realigning that type of feed – overall corporate wide feedback mechanism whether it’s pricing or whether it’s the engagement or anything or you – should that be completed by year end, the end of next year, where are we along that pathway?

To be honest with you Tim it’s a day-to-day decision making test. We have various different tests as Chris suggests whether that’s regional in context of pricing, retail execution, digital, media we are leveraging all of the information that we have and making real time decisions across multiple functions on an ongoing basis. Difficult to use examples specifically because there are a variety of different things happening, but we are reacting in real time and effectively moving media and various different learnings applied around the world as we see fit.

I think as we look to the future I think we are going to build on those learnings and continue to do it to have it quickly drive our business.

Okay. And Kevin, one last if I may, clarification on the Funding the Future, you talked about gross savings, any direct churn or commentary that you can give us on a net savings, whether that be for this year or by the end of ‘16?

Tim, we are aggressively working on this program. And I think as we talked about, we are at the high end of the $250 million to $300 million range. And we expect to deliver about $125 million this year, of which about 50% of that would go to gross margins, about 50% to SG&A. And I think we are going to continue to look for opportunities to streamline the business and we are going to continue to make investments as it makes sense to get those savings.

Okay. So, it’s still a little bit influx on a net basis.

That is correct.

Okay. Okay, thank you gentlemen.

Thank you. And our next question comes from the line of Linda Bolton Weiser of B. Riley. Your line is now open.

Hi. Can you Kevin just comment on your accessibility to commercial paper in order to fund working capital and if that’s been impacted at all by the company’s declines in earnings last year? And also do you expect to be able to have availability under the credit facility as a backup to the working capital funding? So, I am just kind of testing here whether there is any issue at all even if earnings don’t come out maybe according to plan whether there is any issue at all about funding working capital in the first part of the year? Thanks.

Yes, we have strong liquidity. We do have as you mentioned the backup revolver of $1.6 billion, but we have got great credit ratings. We have got A minus with Fitch. We have got strong investment credit ratings with S&P and Moody’s. And we have very liquid access to commercial paper markets. So, we have got strong liquidity in 2015.

And then also just on the currency impact on the sales and earnings, the gap – in terms of the gap between the impact between bottom line and top line, the negative 5% top line and negative 20% bottom line, that’s one of the biggest of all the companies really I follow that’s the biggest impact on the bottom line that I have seen given the top line of negative 5%. So, can you just further explain that? I mean, I guess it’s the idea that you have so much production in Asia, I guess that’s the issue. And also if you look at the currency comparisons, they actually flatten out a little bit by the fourth quarter if currency kind of stays where it is now. So, why would the impact get so much bigger like say in the third and fourth quarter? Thanks.

That really has to do with the seasonality of our business. And I think as we look at the currency from the top line perspective, it is 4% to 6%, but when you weight that to our profile, which is more weighted to Europe and to countries like Russia, Brazil and Mexico that’s where you see, it’s based upon our weighted sales mix. So, that’s why it has such an impact to our bottom line of $0.30 to $0.35. And basically, when you look at our cost, China doesn’t really factor in, because really our dollar costs, our cost of our inventory are U.S. dollar costs.

Okay, thanks. And then finally, actually your comments about POS and actually your actual shipment or sales performance in the quarter was quite a bit better than I guess I would have expected. So, how did you so quickly turn a worsening of POS? I believe you had said in fourth quarter, POS performance kind of worsened versus third quarter. How did you turn that around to such an improvement so quickly in the first quarter? I mean, just what was done so quickly? And it sounds like you are talking that this is the trend that it’s not just a one-off or that you think it’s the beginning of a favorable trend. So, could you give a little more color? Thanks.

Well, Richard maybe take a crack first.

Well, I think what we are most pleased with is specifically the Barbie trend, which has had obvious challenges and we have had a nice early read that the programming work that we have done that I mentioned back last year, where we literally no rock has gone unturned in the context of our marketing programs. We mentioned that we completely redid all our commercial advertising creative testing, most effective test that we have had in years, completely new graphics associated with the commercial advertising. We have refreshed all of our merchandising in our stores. We emphasized the tentpole specifically that was in the mix, which was Princess Power into a pop culture trend that really leveraged the power of the global connectivity that Barbie has in pop-culture to really create a superhero if you will trend in the marketplace, in addition to that our digital alignment across all touch points of Barbie reinforcing the same messaging. And last but not least our renewed partnerships at retail, our commercial group has done a brilliant job executing against these tent poles working and collaborating with our retail partners to ensure that the Barbie presence and merchandising mix is properly displayed. And last but not least we took a good look at our media mix and made adjustments accordingly to ensure all of these programming works were best executed and delivered. And we are pleased with the results so far. And as I mentioned we continued to tighten up, it’s a daily event here and looking into second quarter, third quarter and fourth quarter. But we are quite pleased with the early read so far with the work that we have applied.

And I would also add to that I think ending the year with clean retail inventories in North America and good products at retail to start the year. From that perspective we saw a good lift on POS across our brands except for Monster High and I think that helped us too. We also saw it in places like Brazil and Mexico where we are relatively clean on inventories as we entered the year.

Great. Thanks very much.

Thank you. And our next question comes from the line of Drew Crum of Stifel. Your line is now open.

Okay. Thanks. Good afternoon everyone. So one of the strategic objectives you talked about in the slide deck was to increase growth in emerging markets and invest in expanded sales distribution, could you give us a sense as to what the incremental investments look like they are and any sense on timing?

I don’t know if we want to give you any specifics on that Drew but I would tell you it’s a substantial amount of money in China. And we have been gating it out there sort of testing as we go. But that will be ramping up through the balance of the year. Russia we have also stepped up our investment but we are being extremely careful there to ensure that we do not have any problems on receivables or getting our money back on inventory. So we are controlling that tightly but so far even in Russia we are finding – we are getting pretty good POS momentum right now and sort of stepping up investment as we go.

And those investments in emerging markets are both advertising to create higher demand around our core brands. And it’s also in places like China more boots on the ground in China to basically continue to have more sales people and cover more distribution points.

Got it, okay. And then two questions for Richard, Richard you have been back with the company now for about a year and you have had an opportunity to observe Monster High, it’s been on a downward trajectory for the last couple of quarters, is this a brand that you think can be saved and from a holistic perspective is it one that you want to throw a lot of money at reinvest in this franchise, I just want to know how you are thinking about Monster High as you look ahead. And then you also alluded to a renewed focus on monetizing some of the brands to fill and just wanted to get a sense as to what properties you are looking at and what the timing is there? Thanks.

Sure. As it relates to Monster High despite the fact that we are experiencing challenging POS it remains the top five fashion doll property globally generating an enormous amount of sales and credibility around the world not only with consumer engagement but with retailers. We continue to manage Monster High transitioning if you will from growth property into what we are defining as an evergreen core brand. Based on everything that we see from research to consistent feedback from consumers and retailer response Monster High is absolutely a strong viable property. In fact we see areas of real opportunity as we started to engage in our consumers both digitally and with research showing them new products associated with what’s coming in the back half, which again I have mentioned scale, new forms, various new content associated with what we will call surprising and delighting that the core consumer with Monster High to the point where we really believe that this is absolutely a viable brand moving forward. And we have also started to leverage our assets that we have been building in the high school franchise if you will, Ever After High, we have been building a nice slow build. We are continuing to be pleased with the POS and impact. We are getting more and more results of girls engaging with the brand. We have done a great new content offering working with Netflix, where Ever After High will be launching a new Netflix original content series this spring and fall and by combining Monster High and Ever After High into a overall high school franchise if you will. We really believe that there is further opportunity for expansion in the brand. That being said, we are working on the blocking and tackling through this difficult period of reengaging if you will in the front half for what we hope to be will be a nice recovery in the second half for the franchise. As it relates to theatricals, it’s obvious in today’s world that content is an incredible mover as it relates to any brand, particularly in the kids space and movies certainly move mountains if it’s a good film and it has good proposition and then certainly it can drive a lot of toy value. We experienced that with being a licensee of many of the top properties and movies that are out there. And we have agreements in place with some top studios and talent for some of our most iconic and core brands. Brands of course like Barbie, Hot Wheels are primary brands, that we intend on featuring theatricals for. We are evaluating creative. We are making sure that we work with the best-in-class as we develop these stories, but ultimately, we are determined to work on that behalf and release a theatrical on one of, if not more than one of our core brands in the coming years. There will be more updates on that as we develop more progress against those initiatives.

Great. Thanks guys.

Thank you. Our next question comes from the line of Jaime Katz of Morningstar. Your line is now open.

Good afternoon, everybody. Thanks for taking my questions. So, I think you guys have been talking about inventory and pockets of inventory that have been concerning over the last handful of quarters. And I am curious where you feel you are maybe an innings on working through that, because it seems like every quarter, they are working down more and more, but there are still these pockets of inventory. So, can you maybe speak to that?

Yes, maybe let me speak to it by region. I think in the U.S. as we said exiting 2014, our inventories were down 30% and as we exit the fourth or the first quarter, it’s also down 30%. So, I think from the perspective of inventories, I think in the U.S., we are in pretty good shape. I think that’s true in Latin America too in places like Brazil and in Mexico. So, really I think when we look at inventories in total, it’s really an overhang in Europe that we have talked about. We have made some progress in the first quarter. And as we get to looking forward, we are going to be working aggressively to get that inventory to where it needs to be prior to hitting the holiday season.

Yes, this stuff in Europe is really sort of rifle shot it at a few brands and a few core markets. Unfortunately, it’s part of the reason why we are a little sluggish in the first quarter in Europe, but as we work this stuff aggressively, we want to be in position by the time we hit the important fall season to make sure that’s cleaned up. Beyond that, I don’t think we are in bad shape anywhere. I think it started to cleanup pretty well.

Okay. And then for Fisher-Price, the cadence of the slowdown really turned itself around at least in North America, where there is no FX headwind. Is there something that changed this quarter or some different products launch that we should be thinking about that maybe drove that or maybe what has helped that resonate with consumers a little bit better?

Yes. We are encouraged by our Fisher-Price results for the quarter. Global Fisher-Price POS, including Thomas, was up with both as Kevin mentioned, the U.S. up in low single-digits and international up also in low-teens. Frankly, the work that we have been doing with Fisher-Price over the course of many months in fact year has been starting to prove itself. Markets are getting more streamlined and clean. We have initiated a major marketing campaign as I mentioned best possible start, which has been uniting the brand with a global initiative that is streamlining much of the fragmented communication with a very directed message. The brand has delivered some really wonderfully innovative product as I mentioned the Smart Connect line. There has been some great testing in the concept of some new advertising that we have created. And we are seeing some great traction across all of the product lines. So all in all, as I mentioned we are very encouraged with the work that the Fisher-Price brand group has done. We are starting to see early reads that are encouraging. And I think as we continue in our efforts to present the brand as a child development brand with all the new messaging that we are putting forth with a globally aligned statement, hopefully that trend will continue.

Excellent. And then…

Fisher-Price is pretty broad based in its traction right now and it’s an enormous success in places like Asia and Latin America. So we are getting some benefit from that lift as well.

Okay.

And I think the other line it’s doing well is Imaginext which has been a challenge for us in the last couple of years.

Yes. Lastly was there anything that stood out in Asia Pacific in the region that really catalyzed that segment?

I think its good growth in China and I think after a couple of years of challenging comps with regard to Australia we did see Australia get back to growth in the first quarter this year.

Okay, thank you.

Nicole, I think we have time for one more question.

Perfect. Our next question comes from the line of Steph Wissink of Piper Jaffray. Your line is now open.

Thanks. Just a couple of housekeeping items guys. I want to make sure I understood global POS I think you indicated up low single-digits adjusted for Easter is that correct. And then also does that include or exclude MEGA on a comparable basis. And then secondly with – go ahead.

Let me answer that. So with regard to it, it is comparable to the fact that Easter was 2 weeks earlier. We did adjust it to make it comparable and it does exclude MEGA.

Okay, thanks. And then Kevin just with respect to your comments on cash I think you mentioned $800 million to $1 billion at year end, does that assume any incremental debt to what you are carrying today. And then if you could just give us an update on the gross to net revenue spread, I think that’s been something we have been watching as you report your Qs, if you can give us that update that will be great?

Yes. I think with regard to debt, now there is no incremental debt planned in getting to the $800 million to $1 billion. And with regard to sales adjustments, again we are not – I am not going to get into what we expect for the year, but I think it’s going to be higher than average. Our average has been about nine, it’s probably going to be more the same of what it was last year as we really look to drive top line in 2015.

Okay, that’s really helpful. And then just my last question is with respect to the back half bookings. If we just take the guidance that you gave us line by line it would imply that the back half might not be as robust as the quarter you just reported so give us some sense of your retail interactions and how maybe the holiday is shaping up in terms of bookings trends at this point?

I am not quite sure how you interpret that, but we don’t expect any deceleration as we go through the back half of the year. We have got a lot of activity building and I think our retail activity is probably stronger. Our media is stronger leading into the fourth quarter. So we have a lot of headwinds but we are not looking for a tail off if that’s your question.

I guess my comments related to ForEx and having ForEx be from a perspective of bigger impact on the back half of the year only because that is the seasonal nature of our business and that’s probably more directed on the EPS piece than on the sales piece.

Alright. So, Kevin just to clarify your comments on revenues being flat or consistent with 2014, that was including foreign currency?

Again, I didn’t give you guidance on revenues, what I did say is that we are going to work very hard this year to get back to making progress Chris said over the long-term we want to deliver revenue growth in the low to mid single-digits. As we look at 2015, we want to make progress on that but we do have headwinds with regard to currencies be likely. So what I said is look in 2015 we want to make progress in stabilizing the business on a constant currency basis.

Okay, thank you. I will follow-up offline.

Great. Thanks, Steph.

Thank you. There will be a replay of this call available beginning at 8 PM Eastern Time today. The number to call for the replay is 404-537-3406 and the pass code is 9012257. Thank you for participating in today’s call.