Good day, ladies and gentlemen, and thank you for your patience. You've joined Mattel's Third Quarter 2018 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. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Ms. Whitney Steininger with Investor Relations. Ma'am, you may begin.

Thank you, operator, and good afternoon, everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer; Richard Dickson, Mattel's President and Chief Operating Officer; and Joe Euteneuer, Mattel's Chief Financial Officer. As you know, this afternoon, we reported Mattel's 2018 third quarter financial results. We will begin today's call with Ynon and Joe providing commentary on our results and then we will provide time for Ynon, Richard and Joe to 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 profit, and adjusted gross margin, adjusted other selling and administrative expenses, adjusted operating income or loss, adjusted earnings or loss per share, earnings before interest, depreciation and amortization or EBITDA, adjusted EBITDA, 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 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 2017 Annual Report on Form 10-K, our 2018 Quarterly Reports on Form 10-Q, our earnings release and the presentation accompanying this call, in 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, except as required by law. Now, I'd like to turn the call over to Ynon.

Thank you, everyone, for joining our third quarter earnings call. I'm happy to say we are on track with the execution of our strategy and have made meaningful progress towards restoring profitability as we transform Mattel into an IP-driven, high-performing toy company. During the third quarter, gross sales were down 6% as reported and 4% in constant currency, primarily due to a negative 3% impact from Toys "R" Us and a negative 3% impact from the slowdown in our China business. At the same time, gross sales in North America were up 6%, which is the highest sales growth we've had in this key market for 11 quarters. Importantly, we have achieved profitability in the quarter as a result of savings realized from our Structural Simplification program, as well as a net benefit related to Toys "R" Us bankruptcy accounting. As a result, reported operating income was up 41% versus the same period last year, which is the first time in eight quarters that we have posted year-over-year growth in operating income. These results were achieved in spite of increased inflation in the cost of raw materials and plant labor. We are proud to say that we recaptured the position of the number one global toy company in each of the last four months through September, according to NPD. We're also the number one toy company in the U.S. and Latin America year-to-date through September. We continued to make tangible progress in reshaping our organization. We are on track to achieve or exceed our $650-million savings target for Structural Simplification. In addition, we're actively exploring strategic alternatives for our manufacturing footprint as we move towards a capital-light model, which could lead to additional efficiencies over time. We also have taken meaningful steps to drive future growth. This includes the creation…

Thank you, Ynon, and good afternoon everyone. Today, I'll begin by walking you through the financial results and updated outlook for the full year. Then I'll provide an update on our strategic investments and our continued progress against Structural Simplification. We are starting to see demonstrated improvement in our performance as a result of our continued strong execution. As Ynon mentioned, gross sales in the quarter were down 4% year-over-year in constant currency, driven by a negative 3% impact from Toys "R" Us and a negative 3% impact from the slowdown in our China business. As expected, POS for Mattel was down mid- to high-single digits for the quarter as consumers began transitioning from Toys "R" Us to other retailers. Our performance was roughly in line with the industry. And as Ynon said, we recaptured the number one global toy manufacturer position in each of the last four months through September, according to NPD. In looking at the full year, we said back at Toy Fair in February that we would be working to stabilize the top line in 2018. While we've made meaningful progress, especially in North America, there have been a number of developments throughout the year that have had a negative impact on our full-year outlook, including the impact of Toys "R" Us, a 3% foreign exchange headwind and a 3% negative impact from challenges in our China business. We expect the impact of these developments to result in a full-year top-line decline similar to prior year. Despite these headwinds on the top-line, I am pleased to report that our third quarter performance reflected significant improvement in our profitability, as we continue to realize the benefits of the actions taken towards Structural Simplification. In the third quarter, our adjusted gross margin was 43% of net sales, up…

Thank you, sir. Our first question comes from the line of Eric Handler of MKM Partners. Your line is open.

Yes. Thanks for taking the question. Joe, just a couple questions for you here. First, when you say you expect revenue for the full year to be down similar to last year, so that's about 10% on a net adjusted sales basis, are you talking gross sales or are you talking after the sales adjustments on that line?

I was talking gross sales.

You're talking gross sales. And then, how would you then think about the adjustments line, the sales adjustments line?

No. I didn't provide any guidance on that. I wanted to just give you the top line and the bottom line. It is a line we continue to work hard on, but remember, the majority of that money is going to happen here in the fourth quarter so.

Got it. And then, one other quick question for you. With regards to the movie business, so given you don't expect to take any financial risk, does that mean you expect to get any equity participation in these films? And if you do, how exactly is that going to work?

Yeah. Let me answer on the film side. This is Ynon. We intend to receive different forms of participation. It's a combination of cash for the rights, as well as royalties for back end and upside (32:50) in the movie. This is without taking on financial risk. And the driver, the reason we can receive good terms is because the IP is such high quality and in such high demand. So, without risking capital, we intend to still have meaningful participation in the upside (33:13) in the event of success.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Gerrick Johnson of BMO Capital Partners. Your line is open.

Hey. Good afternoon. Got a couple here. First, on the Chinese part. Is this slowdown a macro Chinese issue or is this a more micro Mattel issue?

It is more of our own issue. This is a self-inflicted situation related to a miscalculation of forecast and mismatch in supply versus demand. This will have an impact of 3% on the top line for the full year. And our team on the ground is managing through inventory at retail and are taking action to mitigate the decline. I should say that we do have great partnerships in place in China between Alibaba, Fosun, Babytree, NetEase and are continuing to engage with them to differentiate ourselves in the market and still see potential growth in China going forward. So, it is a local issue. It's a 2018 issue and we hope to work through it going forward.

Okay. Thank you for that. And how about shipments from China, are those containers getting through the ports okay? Is there any slowdown because of the tariff issue and inspection of containers? Thank you.

Not at all. We're fine.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Arpiné Kocharyan of UBS. Your line is open. Arpiné Kocharyan - UBS Securities LLC: Hi. Thank you very much. I wanted to talk about margins. It seems like high-30s gross margin guidance is still your guidance and given year-to-date performance that would imply Q4 has to be up definitely more than 800 points, 900 points to meet that guidance. Could you just go over some of the puts and takes? There was a lot of SKU rationalization last year that was margin disruptive and some distribution center issues but still on a declining top line, that seems aggressive. So, if you could just go through puts and takes. And then, I have a follow-up on China. Thanks.

Yeah. Sure. Remember, you have two big things. One is fourth quarter is your biggest quarter so obviously you have scale and then second thing if you remember last year I had the big write-off in the fourth quarter. So, from a year-over-year basis, I'm getting the benefit of the write-off I had last year that I don't have or not anticipating this year. And then you have the benefits from Structural Simplification. You have the benefits from the TRU sales reversal, which is a last-year issue. You have the benefits that I've been talking for the past two quarters of the Pennsylvania distribution facility that's online and achieving the savings and operating the way we want after we've gone through two-and-a-half quarters of problems with it. So, that's up and running great. And then, we did have a little bit of price increases in selected places. And then, it's just offset by the inflation as discussed. So, yeah, we feel pretty good about – we feel great about where we are and confident in the numbers we put out there. Arpiné Kocharyan - UBS Securities LLC: So, would you say, by my calculation, that's at least sort of half of that, potentially 800 basis points, 900 basis points of margin? Would you say that's about right in terms of impact? What's really, truly one-off?

Well, yeah. If you remember last quarter, I did say that part of the benefits we were going to get in the back half of the year were going to be mathematical in the sense of stuff that happened in last year that aren't repeating this year obsolescence is one. The TRU issue is the second one. So, yes, a portion of it is mathematics and another portion is real execution on our part to improve our profitability. Arpiné Kocharyan - UBS Securities LLC: Okay. And then, I have a quick follow-up on China. I'm sorry. I'm still sort of not understanding it, because 3% of top line is $165 million. That, to my knowledge, represents more than half of your China business. It's not – it doesn't seem like it's a slowdown. It seems like it's a significant, significant decline, because the base of that business could not have been more than $500 million. Could you just go over the scale of that decline?

Yeah. Look, we have not given out specific numbers in regards to China individually. I mean, look, the realities are in China it's very simple. It's a market that even though you see press headlines that the market is slowing, it still has great growth as a market and what's happened to us is something that was self-inflicted, where somebody overestimated the demand and therefore we were supplying to an overestimated demand and now we're having to work through those issues. That's it. It's something that gets corrected and we move on with life and then we can take advantage of the high growth opportunity in China. Arpiné Kocharyan - UBS Securities LLC: Okay. Thank you. And then, I have one quick one. It seems like industry sales softened significantly into the third quarter. As you look at the retail picture, not just for Mattel, but your competitors and kind of the Toys "R" Us situation and what retailers are doing, what is your explanation of what's happening at the demand level outside of Toys "R" Us? Given that the rest of the consumer picture seems okay, do you feel like it's TRU sales being pulled forward a bit into the first half of the year and that's having a bit of impact? Why do you think toys retail slow down significantly into Q3? Thank you.

Well, there's no denying that Toys "R" Us liquidation had an impact on the U.S. market specifically. But to put it in context, the Toys "R" Us situation is a very specific situation to Toys "R" Us. This is not a reflection on the rest of the industry and people do confuse that. Based on the research that we see, take Euromonitor research, for example, that was published in May this year, they project that the industry will grow through 2022 at 4.7% CAGR and this is based on a study they have done in 32 countries, making up about 80% of the global toy industry. So, we do expect a disruption in 2018 but that impact will subside during 2019 and beyond. And as it relates to this year, what we see are all the other retailers moving in and picking up the demand for toys and catering for consumers, who are looking to buy products. Now, fundamentally speaking, the fact that one retailer is out of business doesn't mean that consumers will change what they do, what they consume, and the toys they like. The market will realign over time and based on what we know, we expect growth to continue in the industry. Arpiné Kocharyan - UBS Securities LLC: Thank you very much.

Thank you. Our next question comes from the line of Mike Ng of Goldman Sachs. Your line is open. Michael Ng - Goldman Sachs & Co. LLC: Great. Thanks so much for the question. I just have a few if I could. In North America I think you said you expect the 4Q revenue to decline year-over-year because of the impact of Toys "R" Us. I just wanted to understand this a little bit better in the context of the very strong 3Q North America growth despite 400 basis point headwind from Toys "R" Us. Does this imply that the headwind from Toys "R" Us is increasing in 4Q versus 3Q? Or is the underlying growth in North America slowing down?

Yes. Q4 will have the greatest impact year-on-year from Toys "R" Us. Michael Ng - Goldman Sachs & Co. LLC: Okay. And then, I was wondering if you could just comment on the 300-basis-point headwind from Toys "R" Us in the quarter on the top line. Is that a gross or a net number? Said differently, Toys "R" Us was 8% of revenue last year. Does that mean that you recaptured the majority of the lost Toys "R" Us revenue, or?

So, you're talking about on the top line? As far as recapturing, we haven't really estimated – it's hard to estimate what recapturing really is if you think about Walmart or Target. It's hard to estimate what the impact of recapturing really is. Michael Ng - Goldman Sachs & Co. LLC: Okay. And then, I was just wondering if you could comment on your owned inventories, which were down fairly substantially in the quarter. Do you feel like those inventories are in a good place to fulfill demand going forward? And could you just comment on the health of what you believe retail inventory of Mattel's products are? Thank you.

Look, we are very focused on managing our inventory very tightly and making sure it's aligned with demand and the production output. We are in a healthy place now. We are very cognizant of legacy issues and supply chain challenges we had in the past and we are very focused on fixing it going forward. When we talk about reshaping operations, which is part of – is a key pillar in our strategy, this is a big part of that component. To make sure that we are on top of our own production capabilities, that we optimize pricing, that we deliver product on time, that our distribution is up – is on par with our expectation, and all of that takes a lot of heavy lifting, but we are making good progress and feel that we are in a healthy place now. Michael Ng - Goldman Sachs & Co. LLC: Great. Thank you very much.

Thank you. Our next question comes from the line of Tim Conder of Wells Fargo. Your line is open.

Thank you. I just wanted to get – and I apologize if I missed this during your earlier comments. Got disconnected there for a little bit. But China list four (44:19), what do you view as you or the industry's risk to that? There's some commentary earlier in the week by a competitor from that perspective but wanted to hear your thoughts. And then, just to sort of stay on the channel inventories, it seemed like exiting Q2 you felt very good with the exception of China and you've already commented about how that's an issue you'll have cleaned up by the end of the year here. Just to make sure everything else at this point you feel good about the channel inventories or are there some pockets you may be seeing some things that need to be addressed?

Okay. Let me start and take the tariff question first. We are being very watchful. This is something that will impact the entire toy industry. The Toy Industry Association of America reported recently that 85% of all toys sold in the U.S. are imported from China. In our case, it is actually less than two-thirds, so we are somewhat in a better position. And actually, I should say, I should point out an important advantage is that Hot Wheels and Barbie products, the majority of Hot Wheels and Barbie products are not manufactured in China. So, there's no threat on the majority of that business. Our job is to design an organization that is flexible, it can respond to headwinds and challenges like tariffs in China and this is part of our plan to move towards a capital-light model that will give us more flexibility as we are looking to optimize our supply chain across the world.

Yeah, in regard to your second question, you've seen that our inventory is down. Across the board, we have everybody focused on making sure that inventory is healthy, not only at the retailer but at our levels too. It is one of our A-number-one focuses that we take. We want to make sure that our retailers are taken care of along with ourselves and we're servicing them properly.

Okay. And then, to circle back to the third quarter retail slowing, would you believe that the – or is the majority of that due to the comparables of Toys "R" Us? Or, again, I just want to make sure there's nothing else that you're seeing, whether domestically or Europe, that should be influencing that.

Yeah. I think, yeah. If you think about it, the Toys "R" Us liquidation ran until the end of June. So now that that's behind us, you're now focused on the back half of the year. The fourth quarter, you're going to have that negative comparison because obviously the bulk of historic Toys "R" Us sales were in the fourth quarter. But, yeah, there's nothing that we think is going to affect the business on a going-forward basis. We think it's going to be pretty healthy.

Okay. And lastly, Joe or, Ynon, however you want to answer this question, just sort of walking through some math that we had, what you reported, now you've updated, even though the top line's going to be a little bit lighter, directionally on an adjusted EBITDA basis, do you feel comfortable that something north of $200 million is within the ballpark, just sort of a benchmark guidepost here for 2018?

Yeah. I didn't provide any guidance on the EBITDA number. Look, you can pretty easily get to a number that you can get comfortable with, but we didn't give any specific guidance on it.

Okay. Thank you, Joe.

Thank you. Our next question comes from the line of Felicia Hendrix of Barclays. Your line is open.

Hi, thanks. Good evening. Good afternoon, rather. Joe, in your financials, now it looks like you are taking out the Toys "R" Us adjustment, so can you just walk us through the decision there?

Yes. That decision was through our discussions with the SEC that they prefer that we did not do the math for you and that we provided the raw numbers and let you do the math on your own. So, we're just complying with a comment letter that they had that you can see. It's on public file, so you can see it. That's the reason for the change.

Okay. And then, and this is for both of you, Ynon and Joe. Maybe I'm a little bit confused, but I'm just trying to reconcile the implied fourth quarter revenue guidance. So, based on what you said and what you reported this year, it looks like the revenues will be down about 13%, which means that you're shipping 13% less year-over-year in the fourth quarter, but you kind of did better in the third quarter, so, I mean, it was down. So, I'm just trying to understand. I guess it gets kind of to the retail inventories and push back to that, like I just don't understand the cadence here.

Actually, it's really just that there's a bigger impact last year in Toys "R" Us in the fourth quarter versus the third quarter. That's all it is. Our inventories, everything else, we're fine. We're going into the fourth quarter strong. We've got great relationships with everybody. We're working it hard. We're feeling very good internally about what's going on and carrying forward. That's the issue.

Okay. I guess maybe asked another way. I mean, for a lot of us who've modeled and you've seen all the sell-side model for the year, inclusive of the fourth quarter, it's a little bit of a surprise to us, but since you guys don't give guidance, I mean, is that fourth quarter implied guidance now in line with perhaps what you were thinking last quarter or with your overall plan? Or is it more than you expected?

Yeah. No. The interesting thing is in the part of the reason we gave top-line guidance is to get everyone's models adjusted because internally, we feel very, very good about the numbers. And the fact of the matter is, is Toys "R" Us impact in the third quarter was low single digits and the fourth quarter it'll be double digits, so that's the issue.

Okay. And then, just finally on American Girl, I mean, I know some of the problem is that you guys are kind of working through some decisions that were made from the prior management team. So, how long do you think it'll take for you to work through all the third-party channel stuff?

So, we've decided that we are obviously hard at work at American Girl. This will be a multiyear turnaround. The focus of the turnaround, as you know, is obviously on the omni-channel experience that we have, catalog, e-commerce and our own stores, evaluating our price/value equation, enhancing customer relationships through improved data management and CRM and most importantly as well, modernizing the brand's content, which with new talent in the organization and the new partnerships that we've established in the content arena, we're very confident that we're going to be able to address that quickly. So, one to watch, absolutely. We are working feverishly on driving the turnaround for that brand. Despite all of the challenges, Net Promoter Scores remain high, loyalty remains high. Our conversion of the customers we do have is very impressive and so we still are very confident in the DNA of the brand and we'll work hard to turn that around.

Thanks, Richard. You were prepared. You knew I was going to ask that. All right. Thank you.

Thank you. Our next question comes from the line of Greg Badishkanian of Citi. Your line is open.

Hey, guys. It's actually Fred Wightman on for Greg. If we look at that $160 million in cost savings year-to-date, can you just walk through the bigger buckets of the bridge to the $500 million that you're expecting by the end of the year?

Oh, you mean as far as where it's coming from?

Yeah, please.

Yeah. So, you're going to have roughly $200 million is going to come out of cost of goods sold. You'll have the $30 million to $40 million that we're going to get in advertising here in the fourth quarter and then the balance will come out of SG&A. A number of actions have already been taken. You saw the 22% reduction in workforce. You've heard us talk about all of the initiatives we have at the manufacturing plants. And you've heard Ynon talk about this. This isn't about expense take-out. It's about reorganizing and becoming a far more efficient organization. And all those things, they have multiple projects contribute to getting to that exiting run rate.

Great. Thanks. And if we look at the strategic roadmap slide, one of the short to mid-term goals talks about expanding the brand portfolio. Is that something that you think is likely to come from acquisitions? Is that something that you guys think you can develop internally? Is that talking about licensing? How are you thinking about that?

Yeah, this is a combination of three components. The first is leveraging our own library, more of the dormant brands that we haven't commercialized in full. And as we noted in the prepared comments, we have hundreds of those, so there's a huge portfolio that we can commercialize. Then, you have the brands that we do not know that exist yet. These are all the brands that we will create as we're looking to drive and innovate and create the next big brands for the industry. So, these two components are Mattel-owned brands and the third I mentioned are licensed brands. This is where we are looking to position Mattel as a partner of choice for the big – the other media platforms around the world, especially the entertainment companies that own the big movie franchises. It is fair to say that we lost a few key licenses along the way and we intend to go back and compete for them in a much more front-footed way. We've done as a case in point a great job with Jurassic World, which exceeded everybody's expectations and we are looking to collaborate with other partners going forward.

Great. Thanks.

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

Hi. Thanks for taking my question. I'm curious about the working capital metrics that you guys had improving on the balance sheet and you've made some pretty good strides at unlocking some value there in the last quarter and I just am wondering what you guys expect going forward, particularly on the receivables side, maybe as you move to some smaller retailers, which could provide a headwind on that line. Thanks.

Sure. We still expect to manage receivables very tightly. We would think that receivables should be down along with inventory going down here into the fourth quarter. So, we feel pretty good about our positioning and the effort going on across the company to really manage those two balances very tightly.

Okay. And then, you guys have made some key hires for the commercial organization. Are there any priorities you guys would like to share with us that might help us think about if there's a way to squeeze some cost savings out of that side of the business? Thank you.

This is less about cost savings and much more about addressing highly-accretive business verticals, where we have incredible potential to commercialize our library. I think I just want to put things in perspective because when we talk about our portfolio, this catalog spans girls, boys, infant and preschool demographics. We have dolls and vehicles, action figures, construction, games from learning and development, superheroes, spies, space explorers, princesses, you name it. So, we have so much opportunity around our own catalog that has not been commercialized, that it's going to be mostly about cadence and the way we progress our efforts on that front. We did talk about film. And as we said before, there are a few big projects in the works. We're not ready to announce anything at this time, but it is in motion and we're also looking at the other verticals that are highly-accretive businesses in and of themselves. Historically, we have done things in those areas, but it was mostly about marketing and promotion. Our approach now is about commercializing these areas as successful verticals in and of themselves and that's where we see the potential and you should expect more to come in that area.

Thank you.

Thank you. At this time, I'd like to turn the call back over to Whitney Steininger for any closing remarks. Ma'am?

Thank you, Lateef. Thank you, everyone, for joining the call today. The replay of this call will be available via webcast and the audio beginning at 8:30 PM Eastern Time today. The webcast link can be found on our Investor page or for an audio replay please dial 404-537-3406. The pass code is 318-7885. Thank you for participating in today's call.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may disconnect at this time.