Thank you for the tune in. I’d like to welcome you the ACCO Brands Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Prica, and I'll be your moderator for today. [Operator Instructions] I'd now like to turn the call over to your host, Chris McGinnis, Senior Director of Investor Relations to begin. Hey, Chris, please go ahead.

Good morning, and welcome to the ACCO Brands’ Fourth Quarter and Full Year 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 ACCO Brands Corporation. Tom will provide an overview of our fourth quarter and full year results and our 2024 priorities. Also speaking today is Deborah O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our fourth quarter and full year results and our 2024 and first quarter 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 amortization and restructuring costs, a noncash goodwill impairment charge, the change in fair value of the contingent consideration related to the Power A 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. Good morning, everyone and welcome to our fourth quarter and full year 2023 call. Last night we reported fourth quarter and full year results with reported sales as well as adjusted EPS and free cash flow exceeding our full year outlook. The stronger finish allowed us to end the year with the lower consolidated net leverage ratio at 3.4x, an improvement of 0.8x compared to last year. These results reflect our team's strong execution against the priorities we laid out at the beginning of 2023. Our top priority in 2023 was to restore our gross margin rates, which were challenged throughout 2022 due to the extreme levels of inflation. Through the cumulative effect of our pricing and cost actions, we successfully restored our gross margins to pre-pandemic levels, ending the year at a rate of 32.6%, a 420 basis point improvement compared to 2022. Additionally, as the demand environment remained challenging, we accelerated our efforts to rationalize our global footprint, announcing the closure of four facilities over the course of the year. We delivered $29 million in cost savings from our restructuring and productivity actions slightly ahead of the target we set at the start of 2023. Our broad assortment of value-to-premium offerings allowed us to win in back-to-school, especially in a price-conscious environment. In addition, we gained market share during the U.S. back-to-school season in both dollars and units. We continued to invest in growth by supporting our key brands and brought new and refreshed products to market. As I mentioned on our third quarter call, we are sharpening our focus on innovation and new product development. As a part of our restructuring, I have put leaders with the best track records in charge of these initiatives. Lastly, we managed our SG&A expenses and inventory well,…

Thank you, Tom and good morning, everyone. When we last spoke in November, we highlighted a slow demand environment due to the current macroeconomic backdrop. While this continued in the fourth quarter, we were able to report sales ahead of our outlook and we did benefit slightly from favorable foreign currency exchange. We continue to make great progress in recovering our lost margin from the extreme inflation that challenged the company's margin profile in 2022. Our gross margin profile significantly improved in the fourth quarter and full year and we managed cost well, which allowed us to deliver adjusted EPS and cash flow above our outlook. I want to provide more detail on the cost reduction program. As Tom discussed earlier, the program is targeting at least $60 million in pre-tax annual savings at the completion of the programs in late 2026. In the fourth quarter, we recognize restructuring charges of $21 million related to the program, largely in our North America segment. Total cash expenditures are expected to be $18 million in 2024. We expect to realize over $20 million of cost savings in 2024 specifically from this program. These savings will help offset merit and overall inflation, stabilizing profitability in a challenging sales environment. In 2025 and 2026, we expect a greater benefit to both profits and cash flows while positioning the company for growth. We are also moving from three operating segments to two, and will begin reporting under the New Americas and International segments, beginning with the first quarter of 2024. In addition, in the fourth quarter, we took a noncash goodwill impairment charge of $90 million. The charge is reflected in our North America segment, which carries a significant amount of goodwill from previous acquisitions. It reflects the market challenges that have impacted the segment…

[Operator Instructions] We have first question from Gregory Burns of Sidoti & Company.

Morning. With the goodwill impairment, was that tied to anyone acquisition in particular or was it just broad based across the portfolio of acquisitions you've done?

No, that's right, Greg. It's Deb. Hi. Thanks for joining. It was across the board. Really, we look at goodwill on a segment basis and the cash flows given some of the forecasting challenges that we've had just warranted that review. And once you get into it, unfortunately, our WAC was higher given interest rates and things like that, but it's broad based.

Okay. And then when you look at the outlook for technology spending, what gives you confidence that you see it either stabilize or rebound as we go into the back half of this year? Are you seeing anything in particular that gives you confidence in that view?

Yes, Greg, good morning. This is Tom. Let me give you a couple of insights or points of insights that may help address that question. So first of all, yes, we are starting to see some signs of life within parts of our technology accessories business. So that's the first reason for optimism. Number two, right, we're cycling through a fairly significant dip in a historically consistent industry, right. The laptop PC industry has historically been kind of a 3 to 5% CAGR business, and we saw that dip pretty significantly. So history would tell we, that it will return and rebound. In addition, you have AI computing, Windows 11, you have a number of different other developments that are going to require new deployments of PCs in the near term. So a number of different factors give us confidence that it will return. We are being cautious in our view, and we think it likely is a late 2024 story before we get into more robust spend.

How much is that business down for the peak, maybe in absolute dollars if you give it or percentage -wise?

Yes, are you speaking to the computer accessories specifically, Greg?

Yes, Kensington.

Yes, we're down a good double digit in that category over the last year.

Okay, and then on the gaming side, what's the nature of your partnership with Epic? Is it a global licensing agreement? Is it North America-specific? Can you just give us some more details there? And then when you look at the growth potential for PowerA, how much of that business is levered to the switch? I think there's a new switch coming out from Nintendo, and maybe also we're starting about three years past the pandemic now. Is there a potential replacement cycle with some of those that bubble of pandemic activity that happened a few years ago? Thank you.

Sure. So, first, let me take the Fortnite question. It is a global license we just announced it. So we're in the early stages of commercializing it in the markets in which we compete in. And then in terms of gaming in general, it is fairly cyclical, and it is tied to console launches. And our business is tied disproportionately to Xbox and Nintendo, Microsoft and Nintendo. We have not heard definitively when new console releases will hit the market, so it's difficult for us to comment specifically. But we do see rebounds, nice rebounds, and attach rates when new consoles are introduced. And so that is definitely an opportunity for us to expand sales when those consoles hit the market. So, we're excited about that. We keep a close eye on it, but we don't have any insights definitively as to when the [inaudible] or Xbox and Nintendo will drop new consoles.

We now have Joseph Gomes of NOBLE Capital.

Good morning. Thanks for taking my questions. Just wanted to see if you could dive in a little bit more detail into what drove the better than expected fourth quarter top line?

Sure. I think we saw a little bit of demand moderating in the fourth quarter throughout the organization. And I think as we look to the future, or hopefully that continues, as we talk about the first and second quarter being a little bit more pressured, but kind of longer term in the year, reflecting more like that fourth quarter.

Okay, and have you seen any significant or material switch to the generic products from branded?

Joe, this is Tom, so thank you for the question. We watch market shares across all of our key categories quite closely, and we haven't seen any significant or material shifts in trend and market share. So that is something we pay very close attention to, and candidly it's a big focus of ours in 2024 and beyond, is to take market share in each of our categories. But to answer the question specifically, we haven't seen a material shift or change in trend in market shares in these uncertain economic times. Our brands have held up quite well.

Okay, great. One last one for me, I get back in queue. In the release, you talked about exiting low margin businesses. Again, I'm wondering if you could give us a little more color on what specifically are you exiting?

Yes, another solid question, Joe, and thank you. So the concentration of those business exits is predominantly in our U.S. business, and there is a range that we have exited globally, and I'll talk about that in a moment. But it's predominantly private-label business, and it's predominantly around the back-to-school season, so it's disproportionately impacting us in the first half of the year, as Deb mentioned earlier. While we're exiting those businesses, it frees up, frankly capacity of our marketing team and our sales team to focus on more value-added revenue streams, and frankly, it's going to impact our gross margin in a positive way. So we view that net as a positive development, even though it does impact the top line in the short term. And then specifically to global product exits, we have exited certain products within our wellness category. And that was a category that was really impacted by the pandemic where we saw a number of competitors, mostly from Asia, come into the market and really drive down the price points into the category that we just believe were unsustainable for us. And so we made a tough decision, but we believe the right business decision to exit certain categories in the wellness space globally. So those are the two primary drivers that impact that piece of the conversation. And we think they both better position us long term.

We now have William Reuter from Bank of America.

Good morning. So firstly, you mentioned some increased competition in terms of gaming accessories. What's going on there? Is it new entrance who are producing products that are competing with your own or are the branded manufacturers making additional products that are somehow in competition with yours?

Yes, Bill, thank you for the question. So it's a bit of both. It is some existing competitors getting a bit more aggressive in certain channels and with certain customers in certain markets. And it is some new entrance into certain markets. They're not new into the category globally, but they've entered into new countries as they've expanded their efforts. And so it's a combination of both of those factors that we are dealing with in the category at the moment.

Is the new competition that is not necessarily the branded guys, but more like yourself, are they introducing products that have greater functionality, or are they trying to either introduce lower list prices, are they being more promotional? What is their strategy?

Yes, it's really driven on promotions and some pricing actions to take peg space in retail. We're not seeing globally new entrants into the competitive set. However, we are seeing some competitors act differently as they are likely trying to move through excess inventory and gain market share in a declining cycle of the category. So we have good plans in place. We think we're well positioned long term with our retail partners. We think our products add more value to the gaming experience. We think we're a better value for all of the consumers who choose PowerA. So we think we're well positioned long term, but we have seen some things that are a little bit different than what we've seen historically in the last 12 months.

Okay. And then on the traditional office products or computer accessories business is, how were POS in those categories in the fourth quarter? And if you could talk about how inventory levels are at retail due to the selling sales, are they working to reduce their inventory such that your sell-in is actually below sell-through? How do those two compares?

Okay. Yes. It's a good question though. So POS, as Deb mentioned earlier, moderated a bit in Q4, which was an encouraging development for the business. And I think that was reflected in our sales performance. We saw kind of mixed POS depending on the category, which isn't inconsistent with what we typically see, but we did see improvement in trends and a number of key business categories for us. The POS being down is reflected in our current inventory positions with our key customers. We track that information fairly closely, particularly here in the U.S. and our weeks of supply are pretty consistent year-over-year. However they are buying to POS with POS being down, obviously purchases are down as well.

And we have the next question from Hale Holden of Barclays.

Hey, good morning. Tom, that was a pretty full-throated kind of embrace of innovation. So I was wondering if you could give us some categories that you guys were focused on or how much you thought new products could move the needle?

Yes, Hale, it is a big emphasis of our senior leadership team at ACCO Brands leaning in more heavily than we have historically into product development and new product innovation. We see opportunities for growth really in the entire portfolio. Now, the strategies that we're going to deploy are going to be a bit different in categories that have some specular headwinds. It's going to be about market share gains. And so what can we do? What can we introduce to better position us to take market share. And then in certain categories, obviously, we're going to follow form factor changes in computer accessories. For example, we'll follow console development and gaming, but we will lean in across each of them and not the same, right? We'll disproportionately distort resources and investments to where we believe the highest growth opportunities reside. So in the near term, we're clearly focused on computer accessories and gaming accessories. Those businesses provide us the long-term growth opportunities and with the reset that we've seen in the marketplace provide opportunities for us to lean in with some product options for consumers and businesses. That doesn't mean the rest of the portfolio will be starved. We'll absolutely invest in other categories, but those two categories will get distorted investments compared to others.

Great. Thank you. And then, Deb, can you, I guess, give us a sense of the dollar shift between first half and second half on incentive comp? Is that stock-based comp or cash comp that's coming out of SG&A in terms of the swing?

Sure. Yes, it's the swing. I mean, we had a half year plan historically that we aren't having anymore, and so our whole way of looking at it and incentive comp kind of takes us back to how most companies do it, which is the pro rata way. And it's probably a couple a cent shifts out of the first half into the second.

We have had no further questions, so I'd like to hand it back to Tom Tedford for any final remarks.

Thank you for your interest in ACCO Brands. We look forward to talking to you in a couple of months to report on our first quarter results.

Thank you for joining. I can confirm that does conclude today's ACCO Brands fourth quarter and full year 2023 earnings conference call. You may now disconnect your lines. And please enjoy the rest of your day.