19tf analysts joeeuteneuer v44pdf - mattel, inc

2/15/20191©2019 Mattel, Inc. All Rights Reserved. All other product names and associated designs mentioned or shown are trademarks and/or copyrighted properties of their respective owners.

©2019 Mattel, Inc. All Rights Reserved.

Forward-Looking Statements/Non-GAAP Financial MeasuresFORWARD-LOOKING STATEMENTS: This presentation contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “expects,” “intends,” “plans,” “confident that” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements are based on currently available operating, financial, economic and other information, and are subject to a number of significant risks and uncertainties. A variety of factors, many of which are beyond our control, could cause actual future results to differ materially from those projected in the forward-looking statements. Specific factors that might cause such a difference include, but are not limited to: (i) Mattel’s ability to design, develop, produce, manufacture, source and ship products on a timely and cost-effective basis, as well as interest in and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover Mattel’s costs; (ii) downturns in economic conditions affecting Mattel’s markets which can negatively impact retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of Mattel’s products; (iii) other factors which can lower discretionary consumer spending, such as higher costs for fuel and food, drops in the value of homes or other consumer assets, and high levels of consumer debt; (iv) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; (v) other economic and public health conditions or regulatory changes in the markets in which Mattel and its customers and suppliers operate, which could create delays or increase Mattel’s costs, such as higher commodity prices, labor costs or transportation costs, or outbreaks of disease; (vi) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel’s net revenues and earnings, and significantly impact Mattel’s costs; (vii) the concentration of Mattel’s customers, potentially increasing the negative impact to Mattel of difficulties experienced by any of Mattel’s customers, including the bankruptcy of Toys “R” Us, Inc., or changes in their purchasing or selling patterns; (viii) the future willingness of licensors of entertainment properties for which Mattel currently has licenses or would seek to have licenses in the future to license those products to Mattel; (ix) the inventory policies of Mattel’s retail customers, including retailers’ potential decisions to lower their inventories, even if it results in lost sales, as well as the concentration of Mattel’s revenues in the second half of the year, which coupled with reliance by retailers on quick response inventory management techniques increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve compressed shipping schedules; (x) the increased costs of developing more sophisticated digital and smart technology products, and the corresponding supply chain and design challenges associated with such products; (xi) work disruptions, which may impact Mattel’s ability to manufacture or deliver product in a timely and cost-effective manner; (xii) the bankruptcy of Toys “R” Us, Inc. or other of Mattel’s significant retailers, or the general lack of success of one of Mattel’s significant retailers which could negatively impact Mattel’s revenues or bad debt exposure; (xiii) the impact of competition on revenues, margins and other aspects of Mattel’s business, including the ability to offer products which consumers choose to buy instead of competitor’s products, the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees; (xiv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xv) changes in laws or regulations in the United States and/or in other major markets, such as China, in which Mattel operates, including, without limitation, with respect to taxes, tariffs, trade policies or product safety, which may increase Mattel’s product costs and other costs of doing business, and reduce Mattel’s earnings, (xvi) failure to realize the planned benefits from any investments or acquisitions made by Mattel, (xvii) the impact of other market conditions, third party actions or approvals and competition which could reduce demand for Mattel’s products or delay or increase the cost of implementation of Mattel’s initiatives or alter Mattel’s actions and reduce actual results; (xviii) changes in financing markets or the inability of Mattel to obtain financing on attractive terms (xix) the impact of litigation or arbitration decisions or settlement actions; and (xx) other risks and uncertainties as may be described in Mattel’s periodic filings with the Securities and Exchange Commission, including the “Risk Factors” section of Mattel’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and Mattel’s Quarterly Reports on Form 10-Q for fiscal year 2018, as well as in Mattel’s other public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

NON-GAAP FINANCIAL MEASURES: To supplement the financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Mattel presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures used herein include: gross sales, adjusted other selling and administrative expenses, adjusted operating income (loss), earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, and constant currency. Mattel uses these metrics to analyze its continuing operations and to monitor, assess and identify meaningful trends in its operating and financial performance. These measures are not, and should not be viewed as, substitutes for GAAP financial measures. Information required by Regulation G regarding non-GAAP financial measures, including definitions and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures, are included in Mattel’s February 7, 2019 earnings release (as exhibits) and earnings slide presentation (as an appendix), which will be available at the time of this presentation in the “Investors” section of our corporate website, http://corporate.mattel.com/, under the subheading “Financial Information –Earnings Releases.” We have not reconciled our non-GAAP financial measure guidance provided herein (gross sales, gross sales in constant currency, adjusted operating income (loss), EBITDA, and adjusted EBITDA) to the most directly comparable GAAP measures because material items that impact these measures cannot be reasonably predicted and, therefore, cannot be presented without unreasonable efforts.


Chief Financial Officer

JoeEuteneuer

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Strategy to Unlock Full PotentialTransforming Mattel into an IP-driven, high-performing toy company

Our mission is to create innovative products and experiences that inspire, entertain and develop children through play

2018 was a year of retail disruption

in the toy industry


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2019 Est.


Toy Industry OutlookGlobal toy industry expected to return to growth

Source: Euromonitor Passport Toys and Games 2018 EditionNote: Growth rates based on Retail Sales at current prices in USD at fixed 2017 exchange rates

2020 Est.

2021 Est.

2022 Est.

Euromonitor Projected Global Traditional Toys & Games Industry Retail Sales

2019 Gross Sales


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2019 Gross SalesGross Sales expected to be flat in constant currency

Given declines in recent years, sales stabilization in

2019 is significant improvement

Note: Bars shown for illustrative purposes onlySource: MAT Form 10-Ks 2013-2017; MAT 2/7/19 Earnings Release; MAT Internal Analysis

Gross Sales in Constant Currency

20142013 20182015 20172016

$B

2019 Est.

YOY % Change -4%

1% ~flat-10%

-7% ~flat


2019 Foreign Exchange ImpactBased on current Spot Rates, FX would have a low-single digit negative impact to Gross Sales

*Percent of Net Sales based on Actual Currency**Spot rates as of February 11, 2019

Percent of 2018 Net Sales*

Current Spot Rate**

vs 2018 Avg

Euro 12% -3%

Mexican Peso 6% 0%

British Pound 4% -2%

Canadian Dollar <4% -3%

Brazilian Real <4% +1%

Russian Ruble <4% -4%

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2019 Gross Sales by BrandGross Sales expected to be flat, primarily driven by Barbie and Hot Wheels, offset by Thomas and American Girl

2019 assumptions, based on constant currency

Other Brands

Continued growth with POS momentum and celebration of 60th anniversary (though not to extent of 2018)

Continued growth with POS momentum (though not to extent of 2018)

Stabilization of Fisher-Price by end of year and deceleration of Thomas decline

Continued decline; multi-year turnaround

Declines driven by year-over-year comparisons vs. small licensed properties in 2018


1H 2019 ConsiderationsQ1 2019 Gross Sales expected to be lower than Q1 2018;Flat 2019 Gross Sales in constant currency

No meaningful year-over-

year comparisons in Q3 and Q4

Q1

2018

2019

Q2Theatrical release

Late Easter in 2019

Relaunch

Low-single digit negative impact, due to absence of Toys “R” Us in Q1 2019

Theatrical release

Mid-single digit negative impact from Foreign Exchange, based on current spot rates*

Low-single digit negative impact from decline in China business

*Spot rates as of February 11, 2019

Early Easter in 2018

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TM

For 2019, we will continue to break out Owned / Partner brands and Barbie, Hot Wheels, American Girl, and Fisher-Price and Thomas Gross Sales


2019 Gross Sales ReportingBeginning in Q1 2019, our reporting will include category breakouts

DollsInfant / Toddler /

Preschool VehiclesChallenger Categories*

Action Figures

Building Sets Games Others

Sample Brands by Category

*Challenger Categories will be one reported category

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TM TM

2019 Expenses


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Substantial profit improvement driven by strong operational execution

Structural Simplification $149M incremental benefit to the 2019 P&L from 2018 actions


Full Year 2018Savings*

2018 Exiting Annual Run-Rate

Savings*

2018 ExitingSavings* to

Materialize as Incremental

Savings in 2019 P&L

Gross Profit Savings $177M $224M $47MAdvertising & Promotion Savings $30M $30M $0

SG&A Savings $165M $267M $102M

Total Savings $372M $521M $149M

*Cost savings are pre-cost inflation and exclude impact of foreign exchangeSource: Mattel internal analysis

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Actions Taken Through 2018 Outlook

2018 Exiting Annual Run-Rate

Savings*

IncrementalAnnual Run-Rate

Savings* Exiting 2019

Cumulative Annual Run-Rate

Savings *Exiting 2019

Gross Profit Savings $224M $101M $325MAdvertising & Promotion Savings $30M $2M $32M

SG&A Savings $267M $26M $293M

Total Savings $521M $129M+ $650M+f

On-track to exceed cumulative $650M run-rate cost savings exiting 2019

Structural Simplification


*Cost savings are pre-cost inflation and exclude impact of foreign exchangeSource: Mattel Internal Analysis

Expect incremental $129M+ of run rate savings exiting 2019, with $50-75M to materialize in H2 2019 P&L; expect approx. $50M in 2019 severance and restructuring costs

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Capital-Light ModelExpect to advance our manufacturing footprint toward a capital-light model during 2019, with benefit first expected in 2020

Evaluating several scenarios that align with our business objectives

Transition expected to improve gross margin in 2020

Savings will be incremental to our Structural Simplification cost reductions


2019 Strategic InvestmentsIncreasing strategic investments to approx. $100M in 2019, with over 90% Operating Expense

2019 Key Initiatives

RestoringProfitability

• Improve efficiency: IT transformation initiatives focused on digital design & development and non-consumer facing systems

RegainingTopline Growth

• Grow Power Brands in additional categories• Increase digital engagement and POS with online content, including

animated series, influencer programs and product related videos

Capturing Full Value of IP

• Continue to grow our IP outside of toy, including live events (e.g., Learning Centers) and digital games (e.g., recently released UNO app)

Source: Mattel Internal Analysis

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2019 Gross MarginGross Margin improvement; expected to be in the low 40’s

Structural Simplification 200-300bps of improvement

Line Architecture 50-100bps improvement from proactive management

Input Costs 100-200bps negative impact from input cost increases, driven by inflation in raw materials and plant labor

Foreign Exchange 50-100bps negative impact based on current spot rates (Feb 11, 2019)

Sales Adjustments Flat year-over-year

2019 Gross Margin AssumptionsHistorical Gross Margin

Gross Profit as a percent of Net Sales based on actual currency

20172013

53.6%

20152014 2016 2018

Low40s%

2019 Est.

37.3%

49.8% 49.2% 46.8%39.8%

Source: MAT Form 10-Ks 2013-2017; MAT 2/7/19 Earnings Release; MAT Internal Analysis


2019 P&L

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2017A 2018A 2019E Approx. Comments

Gross Sales $5,514M $5,076M Flat in constant currency

Current spot rates* indicate a 2% negative impact for the full year

Gross Margin %(as a % of net sales) 37.3% 39.8% Low 40’s Continued progress from Structural

Simplification

Advertising (as a % of net sales) 13.2% 11.7% Increase

vs. Prior YearWithin historical range of 11-13% of Net Sales; increase driven by strategic investments

Adjusted SG&A $1,406M $1,395M Decreasevs. Prior Year

Continued progress from Structural Simplification, partially offset by increase in strategic investments and merit increases

Adjusted EBITDA $123M $198M $350M to $400M Improvements in Gross Margin and SG&A

Adjusted Operating Income (Loss) ($207M) ($115M) Slightly

Positive Improvements in Gross Margin and SG&A


2019 P&LExpecting continued improvement to our Adjusted EBITDA

Actual currency

*Spot rates as of February 11, 2019Note: Refer to the Reconciliation of GAAP and Non-GAAP Financial Measures included in Mattel’s 8-K dated February 7, 2019Source: MAT 2/7/19 Earnings Release and Mattel Internal Analysis

2019 Cash Flow


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2019 Cash Flow MetricsContinue to have adequate liquidity to run our business

2017A 2018A 2019E Approx. Comments

Adjusted EBITDA $123M $198M $350M to $400M Improvements in Gross Margin and SG&A

Severance andRestructuring $65M $104M $50M Cost to achieve 2019 savings

Interest Expense $105M $182M $190M Full year impact of $500M debt raised in May 2018

Net Cash Taxes $102M $65M Flat In-line with prior year; currently reviewing tax structure

Capital Expenditures $297M $152M In-linewith Prior Year Roughly in-line with 2018

Change in Net Working Capital ($12M) ($11M) Neutral Assuming working capital is neither a benefit

nor a detriment to cash

Year End Cash Balance $1,079M $594M $450M to $500M Adequate ABL availability

Actual currency

Note: Refer to the Reconciliation of GAAP and Non-GAAP Financial Measures included in Mattel’s 8-K dated February 7, 2019Source: MAT 2/7/19 Earnings Release and Mattel Internal Analysis


Debt MaturityNext debt maturity October 2020

Wtd. average coupon ~5.5%4.35% 2.35% 3.15% 6.20% 5.45%Coupon 6.75%

$M at Actual Currency

Long-Term Debt Maturity Profile

$250 $350 $250 $250 $300

Mar 2023$0

2019 Oct 2020 Aug 2021 Dec 2025

$1,500*

Oct 2040 Nov 2041

Senior Notes High Yield Notes

Access to $1.6B ABL

credit facility (expires

June 2021)

n/a

*The $1.5B high yield notes due 2025 are callable at Mattel’s option starting in 2020

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Methodical Execution


Strategy to Unlock Full PotentialTransforming Mattel into an IP-driven, high-performing toy company

Our mission is to create innovative products and experiences that inspire, entertain and develop children through play

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19tf analysts joeeuteneuer v44pdf - mattel, inc

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