Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mattel, Inc. First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] And I would now like to turn the conference over to Jenn Kettnich, Head of Investor Relations. You may begin.

Thank you, operator, and good afternoon, everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer; and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon, we reported Mattel's first quarter 2025 financial results. We will begin today's call with Ynon and Anthony providing commentary on our results, after which we will provide some time for questions. Please note that during the question-and-answer session, we respectfully ask that you limit to one question and one follow-up, so that we can get to as many analysts and questions as possible today. Today's discussion, earnings release, and slide presentation may reference certain non-GAAP financial measures and key performance indicators, which are defined in the slide presentation and earnings release appendices. Please note that gross billings figures referenced on this call will be stated in constant currency unless stated otherwise. Our earnings release, slide presentation, and supplemental non-GAAP information can be accessed through the Investors section of our corporate website, corporate.mattel.com, and the information required by Regulation G regarding non-GAAP financial measures as well as information regarding our key performance indicators is included in those documents. The preliminary financial results included in the earnings release and slide presentation represent the most current information available to management. The company's actual results when disclosed in its Form 10-Q may differ as a result of the completion of the company's financial closing procedures, final adjustments, completion of the review by the company's independent registered public accounting firm, and other developments that may arise between now and the disclosure of the final results. Before we begin, I'd like to caution you that certain statements made during the call are forward-looking, including statements related to the future performance of our business, brands, categories, and product lines. Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements. We describe some of these uncertainties in the Risk Factors section of our latest Form 10-K Annual Report, our most recent earnings release and slide presentation, and other filings we make with the SEC from time to time as well as in 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.

Welcome, everyone, and thank you for joining Mattel's first quarter 2025 earnings call. We had a strong first quarter with topline growth and gross margin expansion, positive performance across most categories and markets, and continued operational excellence. Looking at key financial metrics for the first quarter as compared to the prior year, net sales grew 2% as reported and 4% in constant currency, adjusted gross margin increased 130 basis points to 49.6%, and adjusted EBITDA grew 7% to $57 million. We continue to benefit from a strong balance sheet including $1.24 billion in cash at quarter end after repurchasing $160 million of shares in the period. A key topic that further developed during the quarter is tariffs and global trade uncertainty, which are having a significant impact on the toy industry. While tariffs did not affect our first quarter financial results, we are taking mitigating actions designed to fully offset the potential incremental cost impact of tariffs on future performance in three key areas. Accelerating diversification of our supply chain and further reducing reliance on China sourced products, optimizing product sourcing and product mix, and where necessary taking pricing action in our U.S. business. Over the past several years, we have diversified our manufacturing footprint and developed a flexible model to adapt efficiently to changing market conditions. Today, we source products from a combination of owned and operated factories and third-party suppliers in seven countries. China currently represents less than 40% of global production for our toys, compared to an industry average of 80%. In terms of U.S. imports for Mattel, China represents less than 20% of global production. While China continues to be an important sourcing country for us on a global basis, we have been accelerating plans to further reduce reliance on China sourced products as part of…

Thank you for the kind words, Ynon. It's been a pleasure to be part of Mattel. In the first quarter, we grew top line and expanded gross margins with broad based category strength and continued operational excellence. Net sales increased 2% as reported and 4% in constant currency to $827 million. Adjusted gross margin increased by 130 basis points to 49.6%, adjusted operating loss improved by $7 million to a negative $16 million, driven by sales growth and gross margin expansion. Adjusted loss per share improved $0.02 to negative $0.03, and adjusted EBITDA increased 7% to $57 million. Turning to gross billings in constant currency. Total gross billings increased 5% with growth across most categories and regions. POS increased low single digits, including the adverse impact from a later Easter holiday this year. Dolls' gross billings increased 2%, primarily driven by growth in Disney Princess and Wicked, while Barbie and American Girl were both comparable to the prior year. Vehicles increased 6%, Hot Wheels increased 7%, driven by growth in die cast cars, both the kids and collector segments, and tracks and playsets. Infant, Toddler, and Preschool overall declined 5% due primarily to declines in Baby Gear and Power Wheels following planned exits, partly offset by growth in Preschool Entertainment, benefiting from the launch of Barney. While Fisher-Price POS increased low single digits in the quarter, Fisher-Price gross billings declined 1% due to Infant, mostly offset by growth in Fisher-Price Wood and Little People. As a reminder, in line with our strategy, most of the planned exits of Power Wheels and certain product lines in Baby Gear will have been completed by the end of this year. Challenger categories overall increased 14%, driven by growth in Action Figures and Games, partly offset by a decline in Building Sets. The growth…

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] ). And our first question comes from the line of Arpine Kocharyan with UBS. Your line is open.

Thank you so much for taking my question and thank you for the detailed prepared remarks. I wanted to go back to sort of the optimism, the encouraging comment you have in the prepared remarks about sort of fully offsetting the impact of incremental tariffs. Understanding it is very difficult to assess the timing of that. But, if you were to sort of outline the roadmap of how you get there, what would that timeline be? And assuming that current status co-holds for tariffs, in other words, reciprocal tariffs are paused and China remains where it is and also thinking about the fact that we won't really see much impact until Q3 as you indicated, could you maybe give us a sense on the current exposure in dollars for the year to the extent you can, of course. And then I have a quick follow-up.

Yeah. Hi. Let me talk about those a couple of questions there. As we said in our remarks, Q1 was not impacted by tariffs. We don't expect Q2 to be impacted. It's really in Q3 that we expect to see some tariff impact coming through as it works through the inventory of cycle. In terms of magnitude, and as we said, the situation is very fluid, and a lot of uncertainty around the macroeconomic environment. So, our planning approach has been to look at a range of potential scenarios and both upside and downside for Mattel regarding both the tariff and the potential impact on consumer spending and our U.S. sales. But, what I will say, if you look at the current state with tariffs at 145% in China, 10% rest of the world, and zero for Mexico, the incremental cost exposure this year relative to our initial planning assumption would be roughly $270 million. Now, from that, that's before you consider any of the mitigating action, and there is several of them. As Ynon mentioned in the remarks, we are accelerating diversification of our supply chain and further reducing reliance on China. We're also optimizing that product mix between the sourcing country and the selling market to minimize the tariff impact, and we are necessarily taking pricing actions in our U.S. business. There's also two additional levers that we mentioned. One is accelerating the cost savings under our OPG program, increasing the savings target to $80 million in 2025, and we also look to adjust our promotional activity to improve efficiency in the remainder of the year, and it's all those actions taken together that are designed to fully offset the cost impact of the incremental tariffs.

That is super helpful. Thank you. And then I have a quick follow-up. Others talk about Indonesia and Malaysia as kind of the next frontier for supply chain expansion, but Mattel, you have been in both of those markets for some time with sizable volume, could you maybe expand on where you see flexibility in your supply chain to transition out of China? Is it a matter of incremental tooling investment in factories that you already operated, and can they handle that much incremental volume? Kind of, what are the main bottlenecks, if you will, and kind of sort of urgent supply chain needs that you have at the moment, and how you're approaching them, and you did have helpful example on India on UNO. But any -- anything of the sort that you could sort of give investors a little bit more color would be very helpful.

Yes. Hi, Arpine. As you know, we've been on this journey for seven years. This has not happened overnight, and the goal was to establish a flexible, modular, resilient supply chain that is balanced and diversified by geography and by the product that we make. Today, we source product from a combination of owned and operated factories and third-party vendors in seven different countries, and that gives us a very balanced footprint with significant flexibility, including, we talked -- one example is the ability to dual source product is in high demand between more than one country. So with that, our supply chain is a meaningful competitive advantage that gives us not just the ability to produce quality products at affordable prices, but we can react and respond and address and take -- advantage of opportunities that open up in the marketplace. We said that by 2027, no one country would represent more than 25% of our total toy production. And when it comes to China, we talked about accelerating that further given the tariff situation. And to give you more context that you may know some of that, we talk about the fact that 80% of total production globally is from China. We index at less than half of that in terms of product coming from China for Mattel. In terms of U.S. imports, less than 20% of our global production come from China and we plan to reduce that to below 15% by 2026 and below 10% by 2027. With additional contingency plans to accelerate that if required. So, putting all of this together, and given the strength of our supply chain, we don't expect only to manage through this volatile period, but to strengthen our standing as a trusted partner for retailers and consumers and further strengthen our standing as a trusted partner for parents and families.

Very helpful. Thank you much. Thank you.

And your next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is open.

Hey, great. Thanks for taking the questions. Maybe Ynon on mitigating efforts on pricing. I was curious if you could talk a little bit more about what gives you confidence in your ability to pass along pricing the some of your largest retailers. I think there's some concern out there that retailers might look to push back on pricing, perhaps putting the margin of companies like yours at risk. I'm just curious that the conversations you're having there. And then second, maybe for Anthony on the demand side. I know it's hard to predict, but would be curious if you could just talk a little bit more about the range of outcomes you mentioned that you're considering on the demand side, should tariffs remain at current rates, are there any bans of outcomes we should be thinking about from our side if current rates stayed in place for the full year? Thank you.

Stephen, we work very closely with our retail partners, this is based in relationships that span decades of working collaboratively across categories, countries, and different situations. And we always have the consumer in mind when we talk about pricing, and we make sure that we offer a great product and experiences with the right balance of quality and value at affordable price points. And in this particular situation, we're taking a strategic approach. We talk about the fact that under the tariff scenarios that we're looking at, we expect that between 40% to 50% of our product in the U.S. will be priced at $20 or less. And for that matter, the number one toy item in the world, the Hot Wheel's Basic Car, we sell for just over $1. So, we clearly offer a very wide range of offering. And the fact that we have a diversified and flexible supply chain is going to be an important advantage for us that will help us keep prices affordable for consumers in this period of uncertainty.

Yeah. And then to the second part of the question, it's hard to get too specific on the upside and downsides around the potential scenarios, but certainly in terms of risk, there is the overall macroeconomic environment and what condition the overall consumer might be in the back part of the year. On the other hand, and as Ynon mentioned, given our unique capabilities and advantages, there is potential upside if there is product shortages generally or opportunities to gain additional shelf space. So again, a range of opportunities and downsides, which fits into our kind of a scenario planning approach.

Great. Thank you, both.

Thank you, Stephen.

And your next question comes from the line of Megan Clapp with Morgan Stanley. Your line is open.

Hi, good evening. Thanks so much. My first question is just more of a clarification related to Arpine's first question on the tariff impact. Really helpful, the $270 million, and understand that's before mitigation, but I just wanted to clarify the comment about offsetting -- fully offsetting the incremental cost. It seems like you'll be able to offset some of that $270 million this year, but actions like moving outside of China will take more time. So, just wanted to formally clarify that the ability to fully offset is more of a long-term comment, not necessarily a 2025 comment?

It was specifically a 2025 comment that the actions we detailed are designed to fully offset the cost impact of the incremental tariff.

Okay. Great. That's helpful. And then maybe just a follow-up on the guidance and based on that as well, it does seem like the decision to pause guidance at this point is driven more so by the uncertainty on the demand outlook rather than the cost impact. So, maybe you could just expand a bit more in terms of how you came to that decision to pause guidance and what exactly do you need to see between now and the end of July to be able to provide guidance again? And related to that, what exactly are you hearing from retailers in terms of ordering patterns?

Yeah. Megan, the way you're thinking about it is correct. There's kind of two parts to it, right? On the direct cost side, we have these actions that are designed to fully offset the cost impact. What's difficult to predict given the macro-economic uncertainties and what the consumer environment will be for the balance of the year is what's the demand side, right? And that's where we get into the scenario planning, have a number of upsides and downside, and because of that, we decided to pause the guidance until we have sufficient visibility, right, at which point, we'll come back and provide the market an update.

Okay.

And I would add that the situation is still evolving and therefore, it could be that one scenario that we put out today on demand will change within a few short weeks. So, we do have different levers, and as Anthony said, planning for different scenarios. But given that volatility and uncertainty, we decided to pause on guidance and continue to focus on mitigating actions and operational excellence.

Okay. Thank you. That's helpful. I'll pass it on.

Your next question comes from the line of Kylie Cohu with Jefferies. Your line is open.

Hey, there. Thank you so much for taking my question. I guess kind of asking the pricing question a different way, how much pricing action do you think would be required at the current tariff level? And anything kind of to that same point is, have you done any work on elasticities that you'd be able to share with us? Thanks.

Yeah. It's hard to get too specific on the pricing thing. We are working closely with our retail partners and as we talk about pricing, we always keep the consumer in mind and try to find that right balance between price and value while maintaining our high quality standards. We are taking a strategic approach to pricing across the portfolio and have very flexible framework that can quickly adapt should the tariffs -- to the tariffs change. And I think an important fact to consider is under the current scenarios we are considering, we expect that 40% to 50% of our product in the U.S., we price at $20 or less. So, we have a broad portfolio in terms of price points and innovation and brands and flexible supply chain. But, obviously, again, we'll keep the consumer in line. In terms of price elasticity, and again, this comes back to why we're looking at scenarios. It's really difficult to say we're going to be in a situation where the entire industry is impacted, the competitive set is impacted, in a context, you can't really rely on the historical traditional pricing studies in that context. So again, we're monitoring the situation, working closely with the retailers, and we'll adjust as necessary.

Great. Thanks so much for the color. And then I guess my follow-up is on inventory levels. You mentioned it briefly, but how are inventory levels looking post the Easter holiday? You also mentioned some timing shifts in between Q1 and Q3, but any major changes to like the total number of orders overall?

Yeah. So, we're in a good spot with inventories both owned and at retail. Our owned inventories are where they should be for this time of year. Retail inventories are also at appropriate levels, they are up a little bit versus last year, and that's because of the impact of the slightly later Easter holiday, and as we prepare for theatrical tie-ins specific -- specifically around Minecraft and Jurassic World. So we feel really good about the inventory situation at this point in the cycle.

Great.

And your next question comes from the line of Alex Perry with Bank of America. Your line is open.

Hi. Thanks for taking my questions here. I guess first, just a follow-up on Megan's question from earlier. Have you seen any changes in key retailer buying behavior as of late or changes in holiday order patterns? I think you specifically called out, inability to predict holiday and a couple of the materials, so just wanted to see if you've seen anything yet, or it's just very uncertain environment, which led you to pause the guide? Thanks.

Yeah. So we haven't seen any pull forward. It's notable. We haven't seen any material cancellations. The only thing we see is in the DI space, and DI is a smaller portion of our business. We could see some movement in our gross billings performance between quarters, starting in Q2, related to direct import shipments as our retail partners assess their direct import trade mix. So, we could see some -- little bit of volatility in that context.

Got you. That makes sense.

[indiscernible] Alex, if I may, what I would add is that according to the Toy Association, there are some cancellations and delays in shipping and production of product in China given the U.S. tariff situation. As the Toy Association put out in their note is that they estimate that about 96% of the industry is made of small to medium enterprises. Many companies produce their entire inventory in China. And so there potentially could be a change in the industry dynamics in terms of product that is coming into the country from China, and that is primarily within the companies that are less diversified in terms of their own supply chain. This is something to keep in mind.

That makes sense. So I guess just to ask about that as a follow-up. Is that -- should that lead to share shifts and potential market share gains for you if others are maybe seeing cancellations and you're not given your diversified supply chain and maybe your ability to take price? And then my other follow-up was just going to be on the 2Q point-of-sale up double-digit percent. What's driving that? And then how close would you expect sort of POS and revenue to track? I know you have the direct import dynamic going on in the quarter, but just wanted to ask how we should think about topline in the second quarter in light of the POS commentary you gave? Thanks.

Yeah. I'll take the first question. I mean we do have several important strategic advantages between the strength of our brands, the variety of our product offering at multiple price points, and importantly, our supply chain and ability to offer prices, that are competitive and affordable, we believe that is a competitive advantage for the company. And while we do call for the -- for zero tariffs on toys, we supported Toys Association call for zero tariffs on toys, because we believe it should be affordable and reachable for as many people as possible given the toys are such an important part of children's lives. In a world where we can benefit from our strength and competitive advantages, we do believe that we will not only manage through this volatile period, but strengthen our standing, as a trusted partner for retailers and consumers. And we are committed to continuing the uninterrupted supply of quality products across a wide range of affordable price points to consumers and families worldwide.

And just to clarify the point on POS. So for the first quarter, our POS is up low single digits. And then in April, so quarter-to-date, we said we're up double-digits. That's primarily driven by the Easter timing, Easter holiday timing. When you look at year-to-date through April, which includes the Easter holiday in both periods were up low-single digits.

Perfect. Really helpful. Best of luck going forward.

Thank you.

Thank you.

And your next question comes from the line of Eric Handler with ROTH Capital. Your line is open.

Okay. Hi. Good afternoon. Thanks for the question. Looking for a little bit of a clarification on the last question. It sounds like 2Q, a lot of the net sales number is going to be dependent on direct imports. Are you willing to quantify just how much could be the swing factor with direct imports?

No, it's hard to quantify the impact given the volatility in the market right now.

Okay. And then secondly, as I think about your most profitable product lines, I imagine that's Barbie and Hot Wheels, where are those products manufactured? And if you have to start moving things around, is there any risk of disruption with those product lines?

Without getting too specific, we manufacture, as you know, die cast cars, fashion dolls in owned and operating -- owned and operated plant where we have a significant competitive advantage and cost advantage. And the majority of those two product lines are manufactured outside of China.

Great. Thank you.

Sure.

And your final question comes from the line of Chris Horvers with JP Morgan. Your line is open.

Thanks very much and congratulations, Anthony, on your last conference call going out with the bank for sure. So my first question is on the gross margin. Where did that come in relative to your expectations? It's interesting to hear you talk about upside and downside scenarios. Did gross margin come in better than expected? And I guess if you would have recast this year, would you have changed the gross outlook if we didn't have tariffs?

Yeah. So the first quarter was a little bit better than we expected. Very difficult to answer the second part of your question given the evolving tariff situation that's going up.

Understood. And then a two-parter. Can you share with us what percentage of your products were under $20 last year? And then, as you think about the potential disruption of the many independents in the toy industry, when would you expect to start to hear from retailers that, hey, Mattel, we need more product from you because we need more shelf -- you need to take out more shelf space? Thanks very much.

Yeah. I would say the percentage of product at $20 and below is slightly higher than the 40% to 50% range that we gave you. I mean, obviously, yes, we consider price increases and some of these are going to move up, but we're very cognizant of price points, price gaps, promotional prices, the range that we have in our portfolio, everything from a single die cast Hot Wheel to a Barbie Dream out. So we're very well positioned to provide consumers quality products again across a wide range of affordable price points.

Thanks very much.

Thank you, Chris. Well, Anthony, thank you again for five years of excellent work and contribution, and partnership. On behalf of the team, the Board, and all of our investors and analysts who, I am, sure you enjoyed working with you.

Thank you.

And thank you, everyone, for your questions today. I'd just say in conclusion, we had a strong quarter, off to a strong start in the second quarter with growing consumer demand quarter-to-date up double-digit. Our brand portfolio, flexible supply chain and balance sheet are clear advantages for Mattel. And, I hope this came through on this call in terms of our ability to respond and adapt with agility and a strong execution. We are very good at managing complexities, and we expect to strengthen our competitive position in this process. And finally, I would say that importantly, we very committed, as we said on the call today, uninterrupted supply of quality products at a wide range of affordable price points for children and families around the world, and remain an important partner for retailers and families. And now, I'll turn it back to the operator. Thank you.

Thank you. And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.