Mattel Inc (NASDAQ:MAT) Q1 2020 Earnings Conference Call - Final Transcript

May 05, 2020 • 05:00 pm ET


Mattel Inc (NASDAQ:MAT) Q1 2020 Earnings Conference Call - Final Transcript


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Joe Euteneuer

will be immaterial to our financial results, but will modestly benefit our liquidity given that some tax payments may be deferred.

Turning to the balance sheet. We ended the quarter with a cash balance of $499 million, including $150 million of short-term borrowings drawn down from our senior secured revolving credit facilities. We drew on our credit facilities in the first quarter to address any potential near-term capital market disruptions. This was followed by a similar $250 million drawdown in April. Please note that we expect the second quarter borrowing needs to be relatively consistent with the prior year's quarter. Our working capital decreased year over year as a result of a decrease in accounts receivable and lower inventory. More specifically, net accounts receivable decreased 15% year over year, and our days sales outstanding improved by two days to 80 days. Owned inventory decreased $55 million versus the prior year. The decrease in owned inventory is primarily due to the plant closures that took place in February and March relating to COVID-19.

Capital expenditures totalled $35 million for the quarter compared to $24 million last year as we continue to invest in the modernization of our IT systems and improve the efficiency of our operations. Moving on to the second quarter. Our supply chain continues to do a tremendous job rapidly responding to the dynamic environment, and we have begun to see increasing demand for our toys. As Ynon said, the retail disruptions we faced in March are expected to continue in the second quarter, and we believe the main challenge in the current environment has become getting our products in the hands of consumers. In addition, we will be impacted by the shift in the entertainment slate. Given the combination of these factors, we expect a more significant revenue decline in the second quarter than we experienced in the first quarter. Our accomplishments over the past two years have allowed us to establish a more flexible financial structure that positions us well to respond to changing market conditions. These accomplishments include: our cost savings efforts, which we expect to deliver $1 billion of cumulative savings exiting the year; our more streamlined cost structure that is now approximately 75% variable; and the much improved productivity and performance of our supply chain, driven by our capital light program.

We continue to expect the 2020 P&L will benefit from realized savings of $92 million related to structural simplification and $50 million related to our capital light program. We do not anticipate COVID-19 to have any impact on the savings related to these programs. Looking at the P&L for the full year. We do expect to see continuing improvement in our supply chain and retail distribution as quarantine restrictions are relaxed. We are also planning for increased demand for our products as the economy reopens, an expectation of a much improved second half and the all-important holiday season. We hope to have a much clearer picture in the coming months. However, considering the