Acco Brands Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 ECHO Brand Corp Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, Christine Hanneman. Please go ahead.

Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to Echobrand's first quarter 2020 conference call. Speaking on the call today are Boris Ellisman, Chairman, President, and Chief Executive Officer of Akko Brands Corporation, and Neil Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the investor relations section of akkobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude transaction, integration, and restructuring costs and reflect an adjusted tax rate. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile a forward-looking adjusted earnings per share, free cash flow, net leverage ratio, or adjusted tax rate guidance. Forward-looking statements made during the call, including statements concerning the impacts of the COVID-19 pandemic on the company, are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Among the factors that could cause our results to differ materially from our forward-looking statements is the scope and duration of the COVID-19 pandemic, government actions, and third-party responses to it, and the consequences for the global economy and its impact on our business operations, results of operation, financial condition, and liquidity. Please refer to our earnings release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session. Now, I will turn the call over to Boris Elisman. Good morning, everyone.

Thank you for joining us. I will spend the next few minutes reviewing the first quarter results, but I will spend most of my time giving you an update on our response to the coronavirus and its business implications on the second quarter. Neil will follow me with more color and details on the first quarter and provide additional comments on our cost reductions, balance sheet, and expected use of cash in 2020. Then we'll take your questions. Our first quarter is our smallest quarter of the year. Sales were down 2.5% to $384 million. Our adjusted EPS were 7 cents, down 1 cent from last year. These results were roughly in line with our expectations. The year started well, but March sales softened, especially in the last two weeks, due to COVID-19 related business and school closures. April, which is typically the softest month of the year for our business, deteriorated further due to incremental global government mandates and business closures, in addition to the timing of Easter. As we manage our response to the pandemic, our top priority is the health and safety of our employees. In mid-March, employees who could do their job from home began working from home. Most of our production and warehouse facilities remain open to meet customer demand as we are designated an essential business in most jurisdictions, although many have reduced staff and hours. We modified operating procedures at our production and warehousing facilities based on government guidelines and have taken additional steps to protect our employees. Those steps vary from location to location and include taking workers' temperatures daily, practicing social distancing, wearing masks, additional deep cleaning and disinfecting procedures, quarantines consistent with CDC and WHO guidelines, and adjusting our working schedules as appropriate to space out employee interaction. I want to thank all our employees for their efforts under these difficult conditions. We have also undertaken many cost reduction initiatives to better align our cost structure with the expected impact of much lower near-term demand. These efforts are in addition to our normal productivity programs. We're doing everything we can in the short term to mitigate the impact of the pandemic to ensure the long-term health and prosperity of our company and our employees. We just amended our bank agreement to provide additional flexibility to cover the possible impact of COVID-19. Neil will give you the specifics in a few minutes. Our board of directors approved the second quarter dividend payment, which will be paid in mid-June to shareholders of record. Moving on to my comments regarding the second quarter. As many of you know, our North America Vector School sell-in occurs mainly in the second and early third quarters. We manufacture over half of that inventory in the U.S., 30% in Vietnam, and less than 20% in China. Our supply chain is running normally after some minor disruption in February and March in China due to factory closures. We currently don't foresee any significant supply chain issues in meeting back-to-school orders. We were impacted by Amazon's decision in mid-March to stop replenishing inventory for what they deemed to be non-essential items. This reduced our March sales by a few million dollars, but in mid-April, Amazon began replenishing the inventory on many of our items. Also in March and continuing to April, we have seen strong demand for products that aid working, schooling, and crafting from home. In particular, our Kensington docking stations, five-star notebooks, TrueSense air purifiers, and Derwent art products have been so popular that we have been out of stock on some of these items due to high demand. However, overall demand for the second quarter is expected to be down significantly as many of our commercial customers and schools are closed or their customers are closed and not using our products. Let me now make some comments as to why I believe we're well positioned to withstand the current challenges. Our management team has faced difficult economic conditions before and has been working for the last 10 years to create a more resilient company. In 2008, 2009, we were primarily selling office products to large office supply stores. Today, we're a much more diversified global company. Beginning with the acquisition of the meat consumer and office products business in 2012, our strategy has been to expand our global presence, diversify our challenge of distribution, and add stronger brands and more differentiation to our product portfolio. We pursued this strategy through organic initiatives and with acquisitions. As a result, our business now is 50% consumer with a higher consumables mix, healthier go-to-market channels, and a broader range of customers. This makes us better able to withstand economic disruptions, which we believe will disproportionately impact the part of our business that is related to commercial office products, which is more susceptible to lower demand and channel disruption. Our financial situation is much different as well. In 2008, 2009, we were in a weak financial position, and it was difficult for us to borrow. We ended 2019 in strong financial shape. And at the end of the first quarter, with over $90 million in cash on hand, and $450 million undrawn on our $600 million committed credit facility. As noted earlier, we also amended our bank debt maintenance covenant, which will add flexibility to our facility. We have no debt maturities before May 2024. Given our financial strength and the proactive steps we have taken to reduce costs, we expect to be able to maintain good liquidity as we manage through the current environment. Finally, we're an organization that knows how to adapt to change. We will continue to evaluate our business strategy and participation as it relates to product categories, geographies, channels, and consumer behavior, and we will change as necessary as we deal with the uncertainties and near and long-term consequences of COVID-19. I'm confident in our market position, our brands, our financial strength, our people, and in our management team, which is experienced in dealing with difficult times. With that, I will turn the call over to Neil for a review of the segments, our outlook, and other financial commentary, and then I'll join him in answering your questions.