Acco Brands Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the 2Q 2021 Echo Brands earnings conference call. At this time, all participants are in a literacy-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 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Christine Hanneman. Thank you. Please go ahead.

Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to ACCO Brands' second quarter 2021 conference call. Speaking on the call today are Boris Ellisman, Chairman, President, and Chief Executive Officer of ACCO 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 accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude transaction, integration, amortization, and restructuring costs and other non-recurring items 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. Beginning with the first quarter of this year, we changed the way we calculate and report adjusted non-GAAP results by excluding non-cash amortization of intangible assets. Please see our press release for further explanation of this change. 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. Please refer to our earnings release and FCC 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 a few minutes reviewing the second quarter highlights. Nir will follow me with details on the numbers and provide additional comments on our balance sheet, cash flow, and second half outlook. Then we'll take your questions. We had an excellent quarter with a rebound in demand for many of our commercial products reflecting the economic recovery. Second quarter sales and profits exceeded our internal expectations as we posted a significant increase in total sales as well as robust organic growth for both the second quarter and year to date. Our total second quarter sales were near record levels and comparable to 2019. And each of our segments experienced a steady improving level of demand throughout the quarter. I'm very pleased with our performance and remain confident in our strategy of transforming our business to become more consumer-oriented. In general, the U.S., EMEA, Australia, New Zealand, and Asia continue to see strong recoveries as more people return to offices, hiring rebounded, and many schools return to in-person learning. EMEA had an excellent quarter, driven by outstanding organic sales growth returning the business to pre-pandemic levels. We believe we continue to take share as customers move toward the well-known brands and more reliable service that we provide. Strong sales growth is widespread, led by computer accessories, DIY tools, wellness products, shredders, art supplies, and a general increase in demand from all categories. In North America, we had a robust recovery of office and commercial categories, which improved sequentially throughout the quarter as offices begin reopening. Our second quarter is usually driven by North America back-to-school orders, and we expect most schools will be open for in-person, five-day-a-week education beginning this fall. Our major customers of back-to-school inventory remaining from last year saw our second quarter sales, while very good, were lower than normal expected selling. We plan for this in our second quarter guidance. We have expectations for a strong total season, which should trigger greater replenishment needs in the second half, where our ability to locally produce product may be an added benefit due to global supply chain problems. PowerA had a very good second quarter performance, with sales up 19%. It would have been even better, but gaming console product availability was restricted due to supply chain challenges, including semiconductor chip shortages. There is substantial demand for overall gaming products, and the console producers are backorders. We expect many more gaming consoles to ship in the seasonally stronger second half, and believe PowerAid sales will increase as it is well positioned to take advantage of greater demand. We continue to expect 25% sales growth for the year from PowerAid. Our integration of Farway continues on track, and we expect to end the transition services agreement with the previous owner in August. We are pleased with this acquisition in all aspects. Turning to the international segment, the region overall had a good quarter. Latin America is still operating in a challenging environment, but vaccinations are increasing, and that should bode well for office and school reopenings to accelerate. In the quarter, The segment had organic sales growth and profit improvement, despite sporadic lockdowns in various parts of the region. We're expecting continued recovery in this segment over the next few quarters. Moving on, last year our Kensington computer accessories business received the largest order it has ever had, which means a difficult comparison in the second and third quarters this year. Despite the difficult comps, the Kensington business grew in the quarter, as we continue to introduce new, innovative products. One of those products, which I spoke about during our first quarter earnings call, is the studio dock for Apple iPads. That product has been so popular that it is now out of stock, and we have a lengthy backorder list, which we expect to fulfill in the second half. Despite increased competition, our TrueSense wellness products continue to perform well in the quarter, with double-digit growth from last year. Expanded product offerings in this category later this year and next should fuel continued growth of health and wellness products. Turning to the supply side of the business, the main issues we face worldwide are continued supply chain disruptions due to COVID-19 impacts and high inflation. We're carrying more inventory where possible because of elongated supply chain lead times. Logistics costs have risen significantly compared with last year's rates as have the cost of commodities such as oil, plastics, steel, and paper. While the rates of increase have subsided, we expect cost to stay at these elevated levels at least for the rest of the year. As a result, we have taken price increases in most countries and announced additional price increases that will occur later this summer and fall. Favorable foreign exchange is helping to mitigate some of the higher costs in EMEA, Canada, and parts of our international segment. In summary, we continue to focus on executing our strategy of improving sales growth and profitability by shifting our business towards more consumer-centric products and faster-growing channels. As occurred this quarter, our growth will come from acquisitions such as PowerA, as well as organic sales from demand recovery, innovative new products, and market share gains. We have adapted quickly to take advantage of the changing post-pandemic environment by aggressively pursuing the long-term opportunities we think will grow most rapidly. We're making larger investments in growth areas such as video gaming accessories, wellness products, work, learn, or play from home products, and computer accessories. and are reducing our investments in some commercial office products that we expect will remain relatively weak longer term, although we're seeing some post-pandemic recovery even in these product lines as offices reopen. We now have better visibility for the second half and are expecting a sustained economic recovery in all regions in the third quarter. We believe that environment will lead to continued organic sales growth with inflation offsetting some of the gross profit gains from volume growth. For the full year, we're expecting record sales and a strong profit performance. Now I will turn the call over to Neil for a more detailed review of the segments, our outlook, and other financial commentary. And then I'll join him in answering your questions. Neil?