Acco Brands Corporation

Hello everyone and welcome to the ACO Brands second quarter 2025 conference call. My name is Ezra and I will be your coordinator today. If you would like to ask a question, please press star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. We will be taking questions after the prepared remarks. I will now hand over to Chris McGinnis, Head of Investor Relations to begin. Please go ahead.

Good morning and welcome to the ACO Brands second quarter 2025 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 ACO Brands Corporation. Tom will provide an overview of our second quarter results and provide an update on our 2025 priorities. Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer who will provide greater detail on our second quarter results and our outlook for the third quarter and full year. We will then open the line for questions. Slides that accompany this call have been posted to the Investor Relations section of acobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, non-cash goodwill and intangible asset impairment charges, and other non-recurring items and unusual tax items and include adjustments to reflect the estimated annual tax rate on quarterly earnings. 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 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 Tetford.

Thank you, Chris. Good morning, everyone, and welcome to ACO Brands second quarter 2025 earnings call. Last night, we reported second quarter sales and adjusted EPS in line with our outlook. Sales in the quarter improved sequentially as customers and consumers digested the evolving global trade environment. We continue to make excellent progress on our $100 million multi-year cost reduction program, realizing additional savings in the second quarter that brought the cumulative program total to over $40 million. We are also making great progress on our tariff mitigation actions. As a multinational company, approximately 60 percent of sales are outside the U.S., which are not impacted by U.S. tariffs. For those markets, our current supply chain provides excellent value. As we mentioned last quarter, our proactive China Plus One approach in the U.S. has positioned us well to navigate the evolving trade landscape. To date, we have announced two strategic price increases while maintaining our competitive position, secured improved terms with third-party manufacturing partners, and accelerated production shifts to cost-competitive countries for U.S.-bound products. These efforts are critical to protect profitability and to ensure ACO brands have a balanced supply chain optimized for cost, quality, and service. Now turning to our second quarter performance. Consolidated second quarter comparable sales were down 10.5 percent and within our guidance range. As expected, sales in the Americas segment were disrupted due to the tariff announcements in the U.S., particularly early in the quarter as our customers adjusted their purchasing plans and monitored the impact to the consumer. Gaming accessories glued modestly in the segment, driven by our leading third-party accessory product assortment supporting the release of Nintendo's Switch 2 console. Sales for -to-school products were down in the quarter as U.S. retailers were cautious with their early season orders. We forecast our U.S. and Canada -to-school season to be down mid to high single digits, but it is still early in the season and stronger consumer demand could improve the forecasted results. We have sufficient inventory to support potential upside from replenishment orders, and our teams are working closely with customers to support their -to-school demand. In Latin America, sales were weaker than expected, particularly in Mexico due to a constrained consumer and competition at lower price points. However, we were encouraged by the recent performance with trends improving in June. In Brazil, sales were down modestly in what is a seasonally low sales quarter. -to-school sales occur later in the year in Brazil and we are closely watching order input and remain positive about our expanded product offering for the upcoming season. We are also paying close attention to an increase in low-priced product entering Latin America from China, and we will react accordingly with price and assortment. In the international segment, sales declined but at an improved rate compared to the first quarter. Gaming accessories grew mid-single digits driven by the Nintendo Switch 2 launch and our continued international expansion. While sales of office products remain soft in certain European markets like Germany, the UK, and France, we maintained our grew share in most categories across the region. Looking at our global technology businesses, Kensington computer accessory sales declined modestly in the quarter. We expect improving trends in the second half of the year led by a stabilized market dynamic, a growing pipeline, and revenue from new product introductions. In gaming accessories, PowerA delivered modest growth across both segments this quarter highlighted by our role as a Nintendo licensed third-party manufacturer of accessories for the Switch 2 console, which launched globally on June 5th. Our comprehensive product assortment at launch included a wide range of controllers, cases, and other accessories. Many of these products have exclusive IP related to Nintendo games. While Switch 2 related sales were modest in the second quarter given the timing of the June release, we expect more meaningful sales in the coming quarters as adoption increases and as our product portfolio expands. Global sales of office products were soft in the quarter. We have good syndication of our product assortment, and a lower rate of sales is from our core offerings and due to lower demand. We continue to refine our new product development approach to enhance our category positions and enter faster growing adjacencies. Now let me highlight the progress we're making on our revenue growth initiatives. Within computer accessories, we've improved our innovation pipeline with a number of new product introductions set to double in 2025 compared to 2024. One key product I would like to highlight is our new Thunderbolt 5 docking station supporting Apple users. This feature-rich docking station expands our reach into the premium Apple ecosystem. We are focused on strategically expanding our assortment into higher growth categories through organic and inorganic efforts. The Repeat Tools product line in Europe has entered the work lights category, offering professional-grade solutions for -it-yourself enthusiasts and small business owners. These products leverage our highly trusted Repeat brand while maintaining competitive price points. Additionally, in Europe, we're expanding our successful ergonomics product portfolio with the innovative new compact sit-stand desktop series, specifically designed for the hybrid work environment. Along with other complementary ergonomic accessories. Our recent acquisition of Bureau Seating has been fully integrated, strengthening our position in Australia and New Zealand. Given this success, we are evaluating expansion opportunities and additional markets where we see potential for the brand and the product category. Now let me update you on our multi-year cost reduction program. In the quarter, we realized $8 million in cost savings and since the program's inception, have achieved annualized cost savings, totaling more than $40 million. Savings have primarily come from optimizing our manufacturing footprint, headcount reductions, and delayering the organizational structure. As a part of these planned efforts, we have recently announced changes to our leadership team with key appointments. Jed Peters and Rubens Pasos assumed leadership positions for North America and Latin America respectively, effective in July. And AJ Spikerbett will lead our international segment, beginning in 2026. They bring a vast amount of commercial experience, deep product knowledge, and a strong customer relationship that will help accelerate our transformation. These important initiatives, combined with improving demand trends and favorable FX tailwinds, position us for sequential improvement in the third quarter. With sales declines moderating from current levels. The foundational work we're doing today, streamlining our operations, investing in higher growth categories, and optimizing our cost structure, is building a platform for sustainable, profitable growth. While we remain focused on navigating the current market dynamics with discipline and agility, I'm confident we're making the right strategic decisions to enhance our competitive position and improve our revenue performance. Before I hand the call over to Deb, I would like to thank the employees of Aco Brands for their tireless efforts in support of our strategy. I'm proud of our team and the work we are doing to transform our company. I will come back to answer your questions. Deb?