Acco Brands Corporation

After the presentation, there will be the opportunity for any questions, which you can ask by pressing start, followed by the number one on your telephone keypads. I'll now turn the call over to our host, Chris McGinnis. Please go ahead.

Good morning, and welcome to the Acro Brands third quarter 2023 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today is Tom Tedford, President and Chief Executive Officer of Acro Brands Corporation. Tom was named CEO on October 1st. Tom will provide an overview of our third quarter results and 2023 priorities. Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our third quarter results and provide an update to the full year outlook. We will then open the lines for questions. 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, a non-cash goodwill impairment charge, the change in fair value of the contingent consideration related to the power rate earn out, 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 the 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 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 SEC filings for an explanation of certain risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now, I will turn the call over to Tom Tedford.

Thank you, Chris, and good morning, everyone. Thank you for joining us. Before I discuss our third quarter results, I want to thank Boris for his mentorship throughout the years. We have partnered closely to ensure a smooth leadership transition, and we will continue to work together until he officially retires in early 2024. I would also like to thank our dedicated team at Akko Brands for their good work in the quarter. We made significant progress against our key priorities while facing a challenging demand environment. Since I became CEO on October 1st, we have been reviewing our strategies to ensure we have the right focus on driving long-term value for our stakeholders as we navigate the current global demand environment. We have a strong team, category-leading brand, and a passion in our business to win. Now, let's transition to the third quarter commentary. The third quarter was highlighted by the improvement in our gross margin, strong free cash flow generation, and our solid management of expenses. which led to growth in operating income and adjusted EPS at the high end of outlook. At the start of 2023, we laid out four key priorities, which were the restoration of our gross margin, profitable management of our top line, continued investment in our brand and new products, and tight management of expenses and inventory. Our top priority entering 2023 was recovering lost margin from the high rate of inflation experienced in 2022. Year to date, we have delivered 380 basis points of gross margin improvement, driven by the combination of our cost savings actions and the cumulative effect of price increases. With the improvement in gross margin, we are back to our 2019 gross margin rate. Additionally, we have focused on more profitable revenue streams while remaining committed to supporting our broad assortment of consumer-desired products and delivering superior service to our customers. Globally, we grew or maintained our market share in key categories and have introduced exciting, award-winning new product solutions. We reacted quickly to a more challenging demand environment and prudently managed our spending within the quarter. We reduced inventory by 15%, or almost $63 million, versus the prior year, while improving our service levels to our customers. We also announced the next phase of our footprint rationalization program and continued to optimize our supply chain. Our execution on these initiatives led to significantly improved cash flow, debt repayment, and a lower leverage ratio. While we executed well against our key priorities within the quarter, comparable sales were down 10% versus last year. The global macroeconomic backdrop continues to challenge our categories. Weaker than expected, global business IT spending has muted demand for our Kensington branded computer accessories. Additionally, sales trends did not improve as expected in our gaming accessories categories. While near-term challenges persist, we believe technology accessories remain an important source of long-term, profitable growth for the company. Global sales for our Kensington-branded computer accessories are down year-to-date, after five years of double-digit growth in the categories. We protected investments in the business with exciting new products being introduced. We believe as business IT spending recovers, so will the demand for our computer accessories categories. We've made progress on our international expansion of gaming accessories and remain confident in the long-term growth opportunity in both our EMEA and international segments as we expand our channel reach introduce new products, and leverage our local commercial teams. Transitioning to the segments, I will focus my commentary this morning on North America. In the North America business, category trends worsened during the quarter, and we continue to see retailers tightly manage their inventories, causing sales to be weaker than anticipated. Back to school is an important season for ACCO brands in North America, And despite a soft market, our brands performed well and delivered value for our customers. We understand the importance of execution during the back to school season, and I am proud of our performance. From setting planograms on time, to effective demand generation campaigns, to strong consumer value propositions, we delivered for our customers and consumers. Previous industry forecasts for the season called for sales to be flat to modestly lower in 2023. However, based on the most recent external data we tracked, the back-to-school season was weaker than forecasted. Despite the weaker season, the strength of our brands allowed us to gain market share in both dollars and units. The weaker than expected season was an additional headwind in North America versus our expectations. And lastly, I want to share a few comments and observations from my first month as CEO. I am humbled by the support of our dedicated and talented team at ACCO Brands. While near-term challenges persist, we have a long history of delivering value for our customers and our shareholders. As we analyze our current performance, we are identifying ways to strengthen the company, including opportunities to accelerate growth and further optimize our cost structure. In my first days as CEO, we held a summit with our business leaders focused on innovation and new product development. Improving the outcomes of the company's innovation efforts is one of my top priorities. ACCO Brands has a strong history of leading our categories with innovative solutions. I am committed to reimagining how we invest in new product innovation and accelerating the progress of this important work. We are reviewing our near-term strategic plans for each category and segment and are in the process of finalizing their requirements to deliver new product introductions to achieve our revenue and profit objectives. Our restructuring and productivity initiatives are achieving our targets. We are evaluating more opportunities to further simplify our business and reduce our costs. While the third quarter was challenging from a demand perspective, we remain confident that our collection of leading brands, along with our geographic diversity, will allow ACCO Brands to deliver sustainable organic revenue growth as global economies improve. We have the right team in place with a proven ability to respond to and operate well in challenging economic environments. I am proud of our execution today in 2023. We have a solid balance sheet with no debt maturities until 2026 and low fixed interest rates for over half of our outstanding debt. We expect to generate consistent, strong cash flow and will continue to prioritize dividend payments and debt reduction. I will now hand it over to Deb, and we'll come back to answer your questions. Deb?