Acco Brands Corporation

Ladies and gentlemen, thank you for standing by. And welcome to the fourth quarter and full year Aquabrands earnings. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to turn the conference call over to your speaker today, Christine Hanneman. Please go ahead.

Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to Atco Brands' fourth quarter and full year 2020 earnings conference call. Speaking on the call today are Boris Ellisman, Chairman, President, and Chief Executive Officer of Atco 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 AtcoBrands.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 our forward-looking non-GAAP measures. 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 are the scope and duration of the COVID-19 pandemic, government actions and third-party responses to it, and the consequences for the global economy, as well as the regional and local economies in which we operate, uncertainties regarding how geographies, distribution channels, and consumer behavior will evolve over time in response to the pandemic and its impact on our business, operations, results of operations, 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 Ellisman.

Good morning, everyone. Thank you for joining us. I will spend the next few minutes reviewing our fourth quarter and full year 2020 results, including the impact of the pandemic, and commenting on the progress we're making against some of our strategic imperatives. Neil will follow me with more details and provide additional comments on our cost reductions, balance sheet, and cash outlook. Then we'll take your questions. I'm pleased with our fourth quarter and full year results in light of the pandemic and the current economic conditions. In the quarter, both sales and profits were within our expectations, with fourth quarter comparable sales down 16%, an adjusted EPS of 32 cents compared with 46 cents in 2019. A large part of our adjusted EPS performance in the quarter is the result of many cost reduction actions we took throughout the year. Neil will discuss that in more detail in a few minutes. As anticipated, the fourth quarter sales declined largely as a result of slow sales in Latin America and a seasonal swing to commercial channels in North America. In Brazil, there was very limited back-to-school business as public schools remained closed. Likewise, our Mexico business was down significantly as schools and many offices remained closed there as well. As a result, comparable sales in Latin America were down 35% versus 2019. In North America, A resurgence in COVID-19 cases in November and December kept offices and most schools closed. This, combined with a seasonal sales swing to slower growing commercial channels, were the primary reason North America comparable sales were down 21%. Sales of large whiteboards, bulletin boards, large shredders and laminators, Binding machines and binders continue to be weak. But there are also several bright spots. Our products that are focused on consumers, technology, or home usage continue to see strong demand. Several of our product lines did well all year. Our Kensington computer accessories, TruSense air purifiers, and Derwent art supplies all sold well. as people continue to outfit their home offices, entertain themselves at home, and remain concerned about wellness. Late in the quarter, we introduced smart air purifiers, and we have other launches on tap in 2021 to build on our momentum in the wellness area, which we think would be a significant category for us over time. EMEA continued its good performance with comparable sales in the fourth quarter down just one percent country and channel fragmentation in europe benefits us in addition our teams did a great job of servicing customers throughout the pandemic and we believe we have taken market share under our lights brand which is highly recognizable in europe we introduced lights wow and lights cozy colorful home office storage and organizational products take advantage of work-from-home needs. Sales of personal shredders and DIY tools remained strong as more people worked from home. Kensington Products also posted a solid sales gain in EMEA for the full year, with a particularly strong fourth quarter. Overall, Kensington became our top-selling brand in 2020, with strong double-digit sales growth, including a significant order we referenced in the third quarter. We were also encouraged by progress in Australia and Asia as the rate of sales decline in these areas has improved sequentially since the second quarter. During the quarter, we acquired PowerA and are very excited to have that business under our umbrella. For those of you who may not know, PowerA is a leading player in video gaming accessories such as controllers, power charging stations, and headphones. As many of you may be aware, the video gaming companies introduced the next generation of platforms in late 2020, and another refresh is expected in 2021 or 2022. Historically, this has generated strong demand for gaming accessories for a lengthy period following the platform introductions. We anticipate PowerA will benefit from this for a few years. In 2021, We are expecting PowerA sales growth of approximately 15% and EBITDA in the range of 55 to 60 million. We are very pleased to report that our 2020 free cash flow continues to be robust, coming in at 104 million, including the transaction costs of the PowerA acquisition. Overall, we continue to manage the business well. amid a historic pandemic and a difficult economic environment, with demand for our products being impacted in many geographies by remote education, working from home, high unemployment, and closed or disrupted business situations. Our business benefits from the breadth and balance of our geographic and product portfolio were not dependent on any one area for success and had done a good job partially mitigating channel customer and product line declines with growth somewhere else. While we have seen our business improve in the second half of 2020, there's still a lot of uncertainty around when offices and schools will fully reopen, which will increase demand for many of our products. All of our production and warehouse facilities have remained open to the extent necessary to meet customer demand. Most of our office employees continue to work from home. We'll continue to adapt our strategy to respond to both challenges and opportunities in the current environment. We're assuming a shift in consumer behavior post-pandemic and are changing product and channel portfolio investments as a result. This includes making larger investments in growth areas such as video gaming accessories, wellness products, work, learn, or play from home products and computer accessories, while reducing our investments in some commercial office products, such as wide-format laminators and large whiteboards, as we expect demand for such products to remain weak. We are a large, diversified, global company with a strong balance sheet, and we deliver consistent, strong free cash flow. As such, we are positioned well to take advantage of the economic recovery, which we believe could occur later in 2021. Now 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. Neil?