Mattel(MAT) - 2024 Q3 - Quarterly Report

Part I Financial Statements This section presents Mattel's unaudited consolidated financial statements for the period ended September 30, 2024, including the Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, and Stockholders' Equity, along with detailed notes covering accounting policies, segment information, debt, and contingencies Consolidated Balance Sheets As of September 30, 2024, Mattel's total assets increased to $6.51 billion from $6.24 billion year-over-year, while total stockholders' equity rose to $2.31 billion from $2.04 billion, with cash and equivalents improving significantly to $723.5 million and total debt remaining stable at approximately $2.33 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Sep 30, 2023 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Total Current Assets | $3,180,380 | $3,042,099 | $3,122,347 | | Total Assets | $6,513,733 | $6,244,554 | $6,435,822 | | Total Current Liabilities | $1,298,619 | $1,304,556 | $1,342,480 | | Long-Term Debt | $2,333,260 | $2,328,897 | $2,329,986 | | Total Liabilities | $4,200,787 | $4,209,088 | $4,286,609 | | Total Stockholders' Equity | $2,312,946 | $2,035,466 | $2,149,213 | Consolidated Statements of Operations For the third quarter of 2024, net sales decreased 4% year-over-year to $1.84 billion, but net income surged 155% to $372.4 million, primarily due to a significantly lower provision for income taxes, with diluted EPS for Q3 at $1.09 Q3 & Nine Months Statement of Operations (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,843,904 | $1,918,788 | $3,733,141 | $3,820,531 | | Gross Profit | $978,996 | $977,934 | $1,898,602 | $1,793,527 | | Operating Income | $488,341 | $473,858 | $536,030 | $421,596 | | Net Income | $372,376 | $146,319 | $400,955 | $67,034 | | Diluted EPS | $1.09 | $0.41 | $1.16 | $0.19 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q3 2024 was $391.8 million, a significant increase from $109.4 million in Q3 2023, driven by higher net income and a positive swing in other comprehensive income from a loss of $36.9 million to a gain of $19.4 million, mainly due to favorable currency translation adjustments Comprehensive Income (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $372,376 | $146,319 | $400,955 | $67,034 | | Other Comprehensive Income (Loss) | $19,412 | $(36,889) | $(10,737) | $(22,663) | | Comprehensive Income | $391,788 | $109,430 | $390,218 | $44,371 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used for operating activities improved to $61.6 million from $79.6 million in the prior year, while cash used for investing activities increased to $151.7 million and cash used for financing activities rose to $314.2 million, primarily due to increased share repurchases Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash flows used for operating activities | $(61,583) | $(79,641) | | Net cash flows used for investing activities | $(151,740) | $(93,912) | | Net cash flows used for financing activities | $(314,228) | $(119,451) | | Change in Cash and Equivalents | $(537,831) | $(305,500) | | Cash and Equivalents at End of Period | $723,532 | $455,735 | Notes to Consolidated Financial Statements The notes provide detailed explanations for the financial statements, covering basis of presentation, segment information changes, debt structure, restructuring programs, and legal contingencies, including the new "Optimizing for Profitable Growth" program, a new revolving credit facility, and updates on litigation - In Q1 2024, the American Girl business was integrated into the North America segment, changing the reportable segments to North America and International, with prior period data reclassified to conform[71] - The "Optimizing for Profitable Growth" (OPG) program was announced in February 2024, targeting $200 million in annual gross cost savings by 2026, with cumulative charges of $73 million recorded as of September 30, 2024[60][64][124] - In July 2024, Mattel entered into a new $1.40 billion senior unsecured revolving credit facility maturing in 2029, replacing the prior secured facility[28] - A settlement was preliminarily approved in August 2024 for the Fisher-Price Rock 'n Play Sleeper class action lawsuit, with the accrued liability not material[68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the third quarter and first nine months of 2024, highlighting a 4% decline in Q3 net sales year-over-year due to the 2023 Barbie movie success, but significant gross margin expansion to 53.1% and a 154% increase in net income, supported by strong liquidity and a new credit facility Results of Operations—Third Quarter In Q3 2024, net sales fell 4% to $1.84 billion, while gross profit was flat at $979.0 million and operating income grew 3% to $488.3 million, with gross margin improving by 210 basis points to 53.1% due to supply chain efficiencies and cost savings, leading to a 154% surge in net income to $372.4 million Q3 2024 vs Q3 2023 Consolidated Results (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,843.9 | $1,918.8 | -4% | | Gross profit | $979.0 | $977.9 | 0% | | Gross Margin | 53.1% | 51.0% | +210 bps | | Operating income | $488.3 | $473.9 | +3% | | Net income | $372.4 | $146.3 | +154% | Q3 2024 Gross Billings by Category (in millions) | Category | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Dolls | $757.1 | $884.5 | -14% | | Infant, Toddler, and Preschool | $349.8 | $361.1 | -3% | | Vehicles | $580.0 | $518.5 | +12% | | Action Figures, Building Sets, Games, and Other | $364.3 | $357.7 | +2% | | Total Gross Billings | $2,051.1 | $2,121.8 | -3% | - Gross margin increased to 53.1% from 51.0% year-over-year, driven by supply chain efficiencies (+190 bps), OPG program savings (+80 bps), favorable FX (+70 bps), and cost deflation (+50 bps), partially offset by unfavorable mix (-180 bps)[89] Results of Operations—First Nine Months For the first nine months of 2024, net sales decreased 2% to $3.73 billion, while gross margin expanded significantly by 400 basis points to 50.9% due to efficiencies and cost deflation, leading to a 27% rise in operating income to $536.0 million and a nearly six-fold increase in net income to $401.0 million Nine Months 2024 vs 2023 Consolidated Results (in millions) | Metric | Nine Months 2024 | Nine Months 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $3,733.1 | $3,820.5 | -2% | | Gross profit | $1,898.6 | $1,793.5 | +6% | | Gross Margin | 50.9% | 46.9% | +400 bps | | Operating income | $536.0 | $421.6 | +27% | | Net income | $401.0 | $67.0 | +498% | Nine Months 2024 Gross Billings by Category (in millions) | Category | Nine Months 2024 | Nine Months 2023 | % Change | | :--- | :--- | :--- | :--- | | Dolls | $1,465.6 | $1,631.1 | -10% | | Infant, Toddler, and Preschool | $675.1 | $708.6 | -5% | | Vehicles | $1,247.4 | $1,165.9 | +7% | | Action Figures, Building Sets, Games, and Other | $763.2 | $755.0 | +1% | | Total Gross Billings | $4,151.4 | $4,260.6 | -3% | Liquidity and Capital Resources Mattel's primary liquidity sources are its cash balance, a new $1.40 billion revolving credit facility, and operating cash flows, with cash and equivalents at $723.5 million as of September 30, 2024, and $887.8 million in operating cash flow for the trailing twelve months, while total debt remained stable at $2.33 billion Capitalization Summary (in millions) | Component | Sep 30, 2024 | Sep 30, 2023 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Cash and equivalents | $723.5 | $455.7 | $1,261.4 | | Total debt | $2,333.3 | $2,328.9 | $2,330.0 | | Stockholders' equity | $2,312.9 | $2,035.5 | $2,149.2 | | Total capitalization | $4,646.2 | $4,364.4 | $4,479.2 | - Cash and equivalents stood at $723.5 million, with $499.4 million held by foreign subsidiaries[129] - In the first nine months of 2024, cash used for operating activities improved to $61.6 million from $79.6 million year-over-year, while cash used for financing increased to $314.2 million from $119.5 million, mainly due to $158.4 million of higher share repurchases[133] Quantitative and Qualitative Disclosures About Market Risk Mattel is primarily exposed to foreign currency exchange rate risk, particularly from the Euro, Chinese yuan, and Mexican peso, which it mitigates using foreign currency forward exchange contracts, with a hypothetical one percent change in the U.S. dollar estimated to impact Q3 net sales by approximately 0.3% and have a minimal impact on EPS - The primary currencies causing foreign currency transaction exposure in the first nine months of 2024 were the Euro, Chinese yuan, and Mexican peso[145] - Mattel estimates that a 1% change in the U.S. dollar would have impacted its third-quarter net sales by approximately 0.3% and would have less than a $0.01 impact on its net income per share[145] Controls and Procedures Management, including the CEO and CFO, concluded that as of September 30, 2024, the company's disclosure controls and procedures were not effective due to a previously disclosed material weakness in internal control over financial reporting, for which a remediation plan is underway with new controls implemented but requiring further testing - The CEO and CFO concluded that disclosure controls and procedures are not effective as of September 30, 2024, due to a material weakness in internal control over financial reporting[146] - A remediation plan is in progress, with new program change management controls implemented in Q3 2024, however, the material weakness is not yet considered remediated as additional time is needed for testing and implementation of other controls[147] Part II Legal Proceedings This section incorporates by reference the details from Note 20 of the financial statements, which discusses ongoing litigation, including key cases related to Yellowstone do Brasil, the Fisher-Price Rock 'n Play Sleeper, and the Fisher-Price Snuga Swings - This section references Note 20, which details contingencies and legal proceedings concerning Yellowstone do Brasil, Fisher-Price Rock 'n Play Sleeper, and Fisher-Price Snuga Swings[149][67][68] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes to risk factors from the 2023 Annual Report on Form 10-K were reported[150] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, Mattel purchased approximately 3.8 million shares of its common stock for an average price of $19.10 per share, with $731.7 million remaining authorized for repurchase under its $1.00 billion program announced in February 2024 Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | July 1-31 | 5,677 | $19.28 | $800,014,073 | | August 1-31 | 3,733,131 | $19.10 | $731,693,173 | | September 1-30 | 53,845 | $19.04 | $731,693,173 | | Total | 3,792,653 | $19.10 | $731,693,173 | - As of September 30, 2024, $731.7 million remained available for share repurchases under the $1.00 billion program authorized in February 2024[151]