Good day, ladies and gentlemen. Welcome to the Mattel, Inc. second quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Whitney Steininger. Ms. Steininger, you may begin.

Thank you, operator, and good afternoon, everyone. Joining me today are: Margo Georgiadis, Mattel's Chief Executive Officer; Richard Dickson, Mattel's President and Chief Operating Officer; and Kevin Farr, Mattel's Chief Financial Officer. As you know, this afternoon we reported Mattel's 2017 second quarter financial results. We will begin today's call with Margo, Richard, and Kevin providing commentary on our results, and then we will take your questions. To help guide our discussion today, we have provided you with a slide presentation. Our discussion and our slide presentation will reference non-GAAP financial measures such as gross sales, adjusted gross margin and adjusted gross profit, adjusted selling and administrative expenses, adjusted operating income or loss, adjusted earnings or loss per share, and constant currency. Our earnings release also includes non-GAAP financial measures. The information required by Regulation G regarding non-GAAP financial measures is included in our earnings release and slide presentation, and both documents are available in the Investors section of our corporate website, corporate.mattel.com. Before we begin, I'd 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 2016 Annual Report on Form 10-K, our 2017 quarterly reports on Form 10-Q, and other filings we make with the SEC from time to time, as well as in our other public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so. Now I'd like to turn the call over to Margo.

Good afternoon, everyone, and thanks for joining our call today. I would also like to thank those of you who attended or listened in on our Investor Day last month. We were pleased to walk through our new strategy and provide additional detail on our business and future growth drivers. On today's call, I'll briefly cover our second quarter performance, which was broadly in line with our expectations. Following that, I'll provide an update on our progress on the plan we outlined at our Investor Day. Richard will then provide additional business updates, and Kevin will walk you through the numbers in more detail. And then as always, we'll take your questions. So let's turn to the second quarter and our results. In constant currency, worldwide net sales were up 3% in the quarter and gross sales were up 2%, in line with the expectations we shared with you in June. I'll unpack the quarter in terms of the major drivers. First and most importantly, our key power brands, Barbie, Hot Wheels, and Fisher-Price, are performing well. Consumer takeaway at retail continues to show momentum, with global POS tracked at wholesale up for each of these brands. Core toys across these evergreen brands continue to sell well, with strong second quarter performance from key items like Hot Wheels basic cars, the world's best-selling toy. Hot Wheels track sets and play sets also sold well at retail, as we focus on improving attachment rates to grow our play systems. In particular we are pleased with our recently launched Hot Wheels Track Builder System Stunt Box. This system of play combines the magic of Hot Wheels cars and tracks with construction via smartly integrated MEGA Bloks products and has been a huge hit with consumers across our retail partners. Other top performers…

Thank you, Margo. I'd like to provide more specific updates for several key components of the business that Margo touched on in her review. I'll be focusing on what is driving success, how we're addressing challenges, and how we've translated insights, learnings, and innovations into a strong plan as we approach our most important period of the year. Margo shared that our key power brands, Barbie, Hot Wheels, and Fisher-Price, are demonstrating momentum and strong consumer demand. This is particularly important because they are not only our largest brands, but also the pilots for new strategic initiatives and best practices. I'll start with Barbie and three of the brand's key product lines, core dolls, accessories, and the expansion into younger girls with Dreamtopia. While each of these lines are showing double-digit POS increases, tracked at wholesale, Barbie sales declined in the quarter due to a tough year-over-year comparison with the renewal of our universal content distribution agreement last year. Let's take a closer look of what is driving POS strength. Dolls are growing worldwide, driven by strength in the U.S. The enhanced diversity of the line is driving brand relevance and encouraging incremental purchase. These dynamics were extended by the relaunch of Ken in June, which is already performing well. And the 1 billion-plus impressions we've generated to date also shows that the brand continues to be an important voice in the cultural conversation. The fast-growing accessories line leverages our system play strategy, offering a wide range of products that bridge Barbie dolls with a complete Barbie world. This is typically a volume driver for the brand in the second half, and we have a strong lineup, including the third-generation Dreamhouse, the latest DreamCamper, and the new and innovative DreamHorse. Dreamtopia expands the age range of the brand to younger…

Thank you, Richard, and good afternoon, everyone. My plan for today is to walk you through our second quarter results and discuss potential headwinds and tailwinds for the remainder of the year. But before going any further, I want to remind everyone that unless otherwise noted, I'll be referring to net and gross sales in constant currency to provide better visibility into the underlying top line trends. And to provide more transparency into the fundamentals of the business, I'll also reference some adjusted financial results that exclude non-recurring executive compensation and severance related to our business transformation. As always, reconciliation to GAAP numbers are provided in our press release and slide deck. So let's walk through the P&L, beginning with the top line. In the second quarter, net sales were up 2% as reported and up 3% in constant currency versus the prior year. Gross sales were up 1% as reported and 2% in constant currency. From a brand perspective, sales growth in the second quarter was driven primarily by Cars 3, and partially offset by continued declines in Monster High and Ever After High, continued softness in MEGA, American Girl, and Thomas, and a decline in Barbie due to a tough year-over-year comparison with last year's renewal of our content distribution agreement with Universal. Excluding last year's licensing revenues from the content distribution deal, Barbie was up low single digits on a global basis for the quarter, with global POS up double digits. Looking at the business by region, we were pleased by the broad-based strength of our international segment this quarter, with gross sales growth of 6% as reported and 8% in constant currency and POS up low double digits. More specifically, we saw sales acceleration in the quarter in our Latin American business. We also saw sequential…

Thank you. Our first question comes from Felicia Hendrix with Barclays. You may begin.

Hi, thank you for taking my question. Kevin, can we start on this point you made about the credit revolver covenants? And in your comments, it seemed like you thought that there would be some flexibility. But if there's not, that's obviously not a good outcome. So can you help us feel comfortable with this?

Yes, I think it's pretty simple. We're highly confident that we can amend the ratio under the credit agreement before the end of the third quarter. We've been talking to our lead bank, and we're highly confident that we will be making that amendment.

Okay, thanks. And, Margo, a bigger picture question for you, something that we get asked all the time. You laid out very nicely and clearly at the Investor Day your roadmap and your plans to get this company on its right foot. Obviously, that's going to take time. And I think it would be unfair to hold you to a timeline, but we do get asked often how long this turnaround might take or how long your objectives might take to actually start being seen by the investment community.

So thank you for the question. We do want to be as transparent as we possibly can, which was the approach we had to pull that Investor Day as soon as I started, as we practically could. The transformation is significant and comprehensive because we are remapping the company for the future, reshaping our brand, our commercial supply chain organization so we can deliver the vision that we've laid out. It will take time to put all those steps together and reposition them. And as we have the roadmap that we can share back with you, which should happen in the next coming months, we will absolutely be as transparent as we can about the timeframe. Hopefully, as you look forward, you will begin to see a truly differentiated company that's set up to win in a future where kids are really acting very differently than they have in the past. So we're excited about that. And obviously, the now multiple years of consistently strong POS for our key power brands should give you the confidence. These are the brands that anchor our company, and we have plans to sustain that momentum going forward.

Okay, thanks, and my final question. Just with the weaker than expected POS for Cars, is $300 million still your goal?

It's Richard. Shipping for the second quarter has been generally in line with our expectations, although as noted, the early POS has been a bit at the lower end of our plan. As mentioned also, we had solid performance internationally. But we will continue to carefully align production to our evolving outlook, and we're working carefully and closely with Disney to activate all the support systems and enhance consumer demand around the film as we approach the holiday season.

So to interpret, are you maybe backing off from that prior objective a little bit now given what you've seen?

No, we're still on track for our goals. And as I mentioned, international is strong. The U.S. has started off a bit soft, but we anticipate as we drive the back half, with the partnership with Disney and the execution of retail, we're on track to deliver our plan.

Okay.

I think with regard to the $300 million, I think at this point we don't think we're going to exceed the $300 million, but we're tracking it closely, and we're going to build what we think we can sell. I think we've got some good results outside the U.S. We're going to track the U.S. closely. And if it's slower, we'll build lower and we don't expect it to be substantially lower than the $300 million.

Okay, thanks for the clarity. I appreciate it.

Thank you. Our next question comes from Michael Ng with Goldman Sachs. You may begin. Michael Ng - Goldman Sachs & Co.: Great, thanks so much for the question, maybe just a follow-up to Felicia's question. I thought – I was wondering if you could just elaborate a little bit on the activations that you're implementing with Disney in the second half to improve POS for Cars.

We're working very closely with Disney. We have incredible marketing and promotional programs throughout the world. They're fully supporting the activation of the Cars 3 franchise, both in our aisle and outside the aisle. Retailers continue to support the franchise, which has been over a decade's worth of well-known, if you will, performance around the world. And so as we drive towards the DVD launch and various other promotional plans around the world, we're confident in the execution. And then, as I mentioned, our close partnership with Disney and our retailers are driving towards the planned performance through the end of the year. Michael Ng - Goldman Sachs & Co.: Okay. And just on Hot Wheels, the double-digit POS growth for the brand was pretty impressive. I was just hoping that you could elaborate a little bit on the disconnect between the POS and the sales decline in the quarter. I think it was just particularly stark. I think this is the first time Wheels has declined in three years. Thanks.

In general, the disconnect between our POS and shipping in the second quarter is largely North American related. And as we've stated, POS outpaced shipping in the quarter. It was driven by tight management of our inventory levels. And again, as Margo mentioned, to a lesser extent the shift to e-com, as that channel continues to carry lower inventory levels. The short-term disconnects between POS and shipping are not unusual in our business and they typically align over time, and the trends are obviously different across markets. And we are enjoying POS momentum across all of our key power brands, and we are expecting the shipments to align with retail over time. Michael Ng - Goldman Sachs & Co.: Okay, thanks, and just a quick follow-up for Kevin on the covenant for the credit agreement. What's the actual ratio where the covenant becomes an issue, and where do you think you can negotiate that up to?

With regard to the current covenant, we renegotiated it in the second quarter to 3.75 times. And at the time of the June amendment, we did not have Q2 actual results. When we look at the timing of revenues in the second half, which currently we see more of that shifting from the third quarter to the fourth quarter, so given our 2Q performance and the shift in revenues, we want to make sure we have sufficient flexibility on the current debt-to-EBITDA ratio of our credit facility at the end of the third quarter of 2017. We're still looking at that. We've talked to our lead banks, and we haven't determined what we're going to take that ratio up to, but it will be higher than 3.75 times. And accordingly, we're going to attempt to amend that in the third quarter, and we're highly confident that we can get that amendment based on the discussions with banks. Michael Ng - Goldman Sachs & Co.: Thank you very much.

Thank you. Our next question comes from Arpiné Kocharyan with UBS. You may begin. Arpiné H. Kocharyan - UBS Securities LLC: Hi, thanks. It seems like the outlook for full year in terms of sales is unchanged, up low single digit. That still implies mid to high single-digit growth in the back half, with some tough comps ex Disney Princess, I guess in Q3. As you look at the business today, I guess what gives you confidence that type of growth is attainable? And then I had a follow-up.

I think, as you said, we are sticking to our low single-digit growth for the year. And when we look at the drivers, first, we've got POS momentum in our key core brands, and we're looking at incremental licensed entertainment portfolio, including Disney's Cars 3 and Warner Bros. Justice League, as I said, our key power brands of Barbie, Hot Wheels, and Fisher-Price, and our strategic investments in emerging markets, which again I think will be partially offset by continued declines in Monster High and Ever After High. Arpiné H. Kocharyan - UBS Securities LLC: Okay. Margo, when we last saw you at the Analyst Day, there was a bit of uncertainty surrounding the reinvestment plan, and I understand not much has passed since mid-June. But perhaps you could give us an update on that reinvestment plan. Specifically, what could hit P&L from OpEx perspective, and what could be under CapEx at least for this year? How much do you plan to spend?

So, Arpiné, as you know, we just hired our new CTO last week, and one of the biggest investment areas is our IT infrastructure. So he is undertaking a full review over the next 30 days. We actually have a board meeting at the end of August, and we're planning to try to expedite our decision-making around the way in which we want to pace and optimize those different investments. So as soon as we have that information, we will get that to you as quickly as possible. Arpiné H. Kocharyan - UBS Securities LLC: Great, thank you.

Thank you. Our next question comes from Tim Conder with Wells Fargo Securities. You may begin.

Thank you. Kevin, just a little bit more clarification on the credit agreement relative to commercial paper. If you could just remind us, on a seasonal basis, the industry generally uses commercial paper, but just the mix as we roll through the year of the commercial paper, revolver usage, and just if you could give us a little bit of that. And then, Margo, Kevin, Richard, whoever wants to take this, on the inventories by year end, it would appear that, due to increasing e-commerce and so forth, but also maybe due to as you're looking to tighten up the overall demand forecasting, production planning, you really want to exit this year extremely clean with inventories. And would that potentially against Cars 3 set you up for some potential revenue growth in 2018?

Okay, let me first take the revolver versus commercial paper. We haven't really accessed the revolver since 2009. We basically have great liquidity in the commercial paper markets, and the revolver is a backup facility to those commercial paper markets. Regarding inventories, again, I think what we're really looking at is to tightly manage our inventory, both our owned inventory. We want to end the year clean with regard to retail inventories. So as I said earlier, we've made the tough decisions really right now as to what we expect to sell in the second half based upon our POS trends. And what we're trying to do is ship in what's going to sell through, and then we want to end the year with clean inventories at retail as well as our owned inventories. I think with regard to the Cars question, we're going to wait and see what happens with regard to the release of the DVD and streaming on-demand, and we will adjust accordingly our production in the back half of the year to support revenues in 2018 if there is more revenue that we generate because of the strong POS around the globe.

Okay. And, Margo, again, we appreciate everything that you outlined, and I think from a broad perspective very well done in June, and that there are a lot of moving parts. The CTO, you just described the hire, what's going on there. You said I think earlier that over the roadmap turnaround I guess timeline over the coming months, should we anticipate something maybe 90 days from now or on the Q4 call as far as maybe that mix of OpEx, CapEx, and the cadence over as we look out into 2018 and maybe that goes through early 2019? I guess would that be a third quarter, fourth quarter potential to get a little bit of that timeline?

So we are very committed to providing transparency around the transformation plan. So what you can definitely expect us to do is on every call to give you an update on specific actions that we've been taking and the progress that we're making against the areas that we outlined against in the transformation, which is why even on this call, even though it's been such a short amount of time, we wanted to share some of the specific actions that we've already taken in just the last few weeks since we saw you in New York.

Okay, okay. Last question would be your power brands you've been very, very clear on, but some other brands that maybe have not been as prominent and just focusing the organization's resources and attention. Could we see some of the owned brands over a period of a few years here just basically bleed those down and then toss them in the vault here for few years? Is that a reasonable assumption?

As we've always said, we are continuing to innovate in our core brand portfolio. The key brands of those, obviously Barbie, Hot Wheels, and Fisher-Price, are gaining more momentum. Certainly we have our challenged brands that we've talked to you about in terms of American Girl, Thomas, and MEGA. And our biggest challenge has been Monster High. And as I've mentioned, we're driving innovation in our girls' portfolio, with Enchantimals being a new brand for us that we're excited about. We've introduced obviously other new brands and inspiring new girls' play patterns based on insights with Super Hero Girls and most recently announced with WWE a new line of World Wide Wrestling female figures, so there's a lot of innovation that we're working on both with our own IP and with our licensed partners. An example, of course, is Jurassic as we move forward. But ultimately, we have a strong innovation pipeline and plan, and we will continue to update you accordingly.

Maybe to add to the question, I think we definitely see tremendous growth opportunities in our power brand franchises. So we will be investing heavily behind those as the new initiatives evolve. Obviously, the top three are firing on all cylinders across the globe, so we're going to step on the gas there. For the ones that are in turnaround, we're going to ensure we have great turnaround plans for them in place, so that they can realize their full potential, like Thomas and American Girl because these are amazing franchises that we can revitalize and are taking every action we can. I would then think about we have a portfolio of more category-oriented brands which we bring to market at retail, and they play a very important role in different markets for different reasons. And so we do believe in those brands, but we want to make sure that we're thinking about our category strategies, and Richard is spending a lot of time with his team really thinking about strategy for the girls' category, the vehicles category, the games category. These are all categories we've performed well. And then we're working on optimizing our licensed partner portfolio. Our entertainment partners are incredibly important to our business, and we really value the quality of relationships we have with people like Disney, Universal, and Nickelodeon. And what we're working with them on is how can we think as innovatively as we can about how we can develop new franchises together so that we can maintain a deeper pipeline of those great story-driven brands.

Okay. Very helpful, thanks, Margo.

Thank you. Our next question comes from Linda Bolton Weiser with D.A. Davidson. You may begin. Linda Bolton Weiser - D. A. Davidson & Co.: Hi, thanks. So when you talk about the return to premium positioning of American Girl, can you explain a little bit more what that means because it implies that WellieWishers has cannibalized the positioning So is it something regarding changing WellieWishers or something there? How do you intend to reestablish the premium positioning of American Girl? Thanks.

Sure. I think it references back to our investor conversation. And the primary effort that we have right now is investing in the product and the product experience as well as our own retail store experience and online experience. We have made significant strides and changes in recent days, if you will, to ensure that the premier positioning of the brand from a product perspective is enhanced as well as looking at our retail experiences. And most notably, you'll see it in our New York City flagship, a real new aesthetic, new experiences to go with that, and ultimately a great product presentation that is more reflective of the premier positioning of the brand itself. We will be able to share a lot more with you and invite you to the store, of course, to see it for yourself, and we can certainly walk you through some of the exciting changes that we're making on that brand.

And your specific – it's Margo – question on WellieWishers, that's been a very successful franchise for us, and it's been a wonderful way to introduce many, many more girls to the franchise that shares all the values of the original American Girl dolls. And so we're excited about the potential of that franchise, and we have been pleased with being able to offer expanded distribution for that franchise as a way to help people more understand the power of the American Girl story. Linda Bolton Weiser - D. A. Davidson & Co.: Okay. And can I just ask a question about the upcoming holiday season? Thinking about happened last year at Christmas with the retreat of consumer demand after Black Friday and then the discounting that occurred into the Christmas period, is there anything that you would do differently this year if the same kind of slowdown were to occur? You did share pretty significantly the burden of the promotion with the retailers last year. Is there something you would do differently if the same scenario were to play out again?

I think that obviously this year and probably subsequent years going forward, an increased focus on the omni-channel execution. We are driving an increased amount of digital presence as we execute our promotions online and drive consumer demand. We have learned a lot in this space and the idea of the seamless shopping experience for the consumer. We are driving tight alignment between our shipping and POS expectations with our retail partners. And as you know, the back half of this business with bricks and mortar is particularly important in terms of block and tackling both in-aisle space, incremental space, those top toy lists, and ensuring that we have the right product, price, and promotion happening when the ducks are flying. So we are driving what we know how to do very well, which is to execute against this category at retail and working on all the learnings to improve our performance.

I'd just add to that. I think with regard to making those tough calls we talked about to temper our revenue expectations for the year, we're doing that right now. We're looking at year-to-date POS, and we're aligning our full-year revenues with regard to what we think POS is going to be for the balance of the year, so we went from mid-to-high single digits to low single digits. And I think that's going to be a big part of execution in the fall that we ship in what's going to sell through, and then we end with clean retail inventories as well as our owned inventories in our warehouses. Linda Bolton Weiser - D. A. Davidson & Co.: Okay, thank you .

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Whitney Steininger for closing remarks.

Thank you, everyone, for joining the call today. There will be a replay of this call available via webcast and audio beginning at 8:00 PM Eastern Time today. The webcast link can be found on our Investors page. Or for an audio replay, please dial 404-537-3406. The passcode is 47074747. Thank you for participating in today's call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Have a great day.