Ladies and gentlemen, hello and welcome to the ACCO Brands 3Q 2022 Earnings Conference Call. My name is Maxine, and I'll be coordinating today's call. If you would like to ask a question during the call, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to Chris McGinnis, Senior Director of Investor Relations, to begin. Chris, please go ahead when you're ready. Good morning, welcome to ACCO Brands Third Quarter 2022 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today are Boris Elisman, Chairman and Chief Executive Officer at ACCO Brands Corporation, and Deb O'Connor, 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, a non-cash goodwill impairment charge, and a change in fair value of the contingent consideration related to the PowerA earnout 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 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 Elisman. Good morning, everyone. Thank you for joining us. In mid-October, we issued a press release updating our third quarter and full year outlook, highlighting the fact that the third quarter proved to be more challenging given the economic environment, especially in Europe, and more cautious inventory replenishment by retailers. Last night, we issued our third quarter results reflecting sales at the midpoint and adjusted EPS at the high end of our guidance with our full year outlook unchanged. Let me start by saying the solid fundamentals of our business are intact, and we believe we have the right strategy and team to weather the economic challenges and deliver sustainable organic revenue growth once the economy improves. The transformative actions we have taken over the past few years to be more consumer-centric and geographically diverse have helped us maintain a global market share in 2022. There were many positives in the quarter. We had a solid back-to-school sell-through in North America. Our Five Star brand grew sales and market share in the back-to-school season and outperformed the overall market in dollars and units. Sales of our commercial products have benefited from a return to office trend, especially in North America, where office occupancy rates continue to improve and have recently reached a post-pandemic high. Our Kensington brand and computer accessories category grew double digits globally in the third quarter and year to date. Our international segment grew comparable sales over 30% and almost doubled adjusted operating income in the third quarter as in-person education returned in Brazil and Mexico. These successes were more than offset by a more cautious stance than anticipated from retailers on inventory replenishment and reduced sales of gaming accessories in North America, as well as reduced demand from a challenging environment in Europe. In EMEA, the significant high inflation, war in Ukraine, current energy crisis, and the stronger U.S. dollar have weighed on consumer sentiment, leading to sales and profit shortfalls. In addition, lower sales volume has resulted in stranded fixed costs in our manufacturing facilities. To counter the high rate of inflation in the region, we will be implementing our fourth round of price increases over the last 18 months on January first, 2023. In addition, we have reduced variable labor costs and discretionary spending in response to the lower demand and are looking at structural cost reduction initiatives to be implemented in 2023. While the third quarter sales environment was challenging in EMEA, both computer accessories and gaming accessories continued strong comparable sales growth trajectories in that market and combined were up low double-digit% in the quarter and year to date. As we look out to 2023, we are still on track to expand our gaming accessories initiatives to strengthen EMEA growth profile. In North America, the continued strength in back-to-school and return-to-office trends were more than offset by retailers' more cautious inventory replenishment and lower sales of gaming accessories. The North America margin rate in the third quarter was negatively impacted by expense deleveraging from the volume declines and higher inflation related to finished goods, inbound freight, and outbound transportation. These costs are currently elevated but are beginning to moderate. We expect higher commodities and freight costs to flow through the P&L in the fourth quarter. While we believe that the overall product inflation in North America has peaked, there are certain commodities that will stay at higher levels in the near and medium term. Regarding our video game and accessories category, we continue to believe in its long-term growth opportunity, which will increase our organic growth rate as we expand our product assortment and accelerate growth in our EMEA and international segments. Third quarter sales sequentially improved, but are still down from the pandemic high of prior year. We continue to hold a leading market share position in the third-party gaming accessories controller market and have increased our market share position in 2022, highlighting the strength of the product assortment, placements, and PowerA brand. The gaming market is in the midst of a normalization from the high demand related to the pandemic. The market continues to be challenged by the lack of semiconductor chips, which inhibit new console production and the availability of some gaming accessories. We now expect gaming accessories to be down approximately 15% for the full year, which is at the lower end of our previous expectations. Our longer term expectation is for sales in this product category to return to pre-pandemic industry growth trends, which historically were at low double digits growth rates. While ACCO Brands is not immune to the current economic environment, we have the right strategy and an experienced management team to navigate these challenges. We've been aggressive with our pricing and cost actions while continuing to invest in our product development and go-to-market initiatives. We expect the environment to remain challenging and are currently evaluating other cost reduction initiatives, including our geographic footprint and facility rationalization projects. We hope to share more details with you on these initiatives on our fourth quarter call in February. Additionally, we remain confident in our transformation to drive sustainable organic revenue growth and are well capitalized with no debt maturities until 2026, fixed interest rates for over half of our outstanding debt, and low annual interest costs. We have taken actions to protect profitability and free cash flow by curtailing hiring, reducing inventory, and limiting discretionary spending and capital expenditures. Importantly, our third quarter cash flow generation was significant, and we prioritized dividend payments and debt reduction. We also amended our bank debt covenants to provide for greater flexibility, which combined with the company's strong cash flow generation, will allow ACCO Brands to successfully navigate the current economic environment. I will now hand it over to Deb, and we'll come back to answer your questions. Deb. Thank you, Boris, and good morning, everyone. Our third quarter 2022 reported sales decreased almost 8% as foreign currency was a 6% headwind in the quarter. Comparable sales were down 2%. The decline was due to lower volumes in our EMEA and North America segments, offsetting strong growth in our international segment. Adjusted operating income was $43 million compared with $57 million last year. Adjusted net income was $24 million compared to $32 million in 2021, and adjusted EPS was $0.25 versus $0.33 in 2021. In the third quarter, we took a non-cash goodwill impairment charge of $99 million. We had a significant amount of goodwill on our balance sheet from previous acquisitions such as Mead, GBC, and Esselte. This charge represents less than 15% of the overall goodwill balance. Given our stock price, the company's market capitalization is low, which triggered a review of our goodwill. The charge is reflected in our North America segment, which carries a significant portion of our total goodwill. Inflation was more of a headwind than we had previously anticipated, which is why our gross margin and operating income declines were more significant than our sales declines. Given the lower sales overall, we are experiencing fixed cost deleveraging in our facilities. While inflationary costs are beginning to come down, their lagging effect on our P&L will continue to impact our gross profit through the end of the year, but should improve as we progress through 2023. Third quarter adjusted SG&A expenses were $95 million compared with $101 million in 2021, primarily as a result of cost savings and lower incentive compensation accruals and the positive benefit of FX, partially offset by continued investment in our go-to-market programs. Adjusted SG&A expense as a percent of sales was 19.5%, above last year's 19.1% due to lower sales. However, year-to-date adjusted SG&A as a percentage of sales was down 40 basis points. Our near-term SG&A target remains at 19.5% of sales. Now let's turn to our segment results for the quarter. Comparable net sales in North America decreased 10% to $259 million. The decrease was due to lower inventory replenishment by retailers and volume declines in gaming accessories. As previously discussed, retailers purchased earlier in the year than typical to ensure product availability. Beginning in the third quarter, retailers' inventory replenishment was significantly less than anticipated. We performed well in the U.S. back-to-school season with approximately 10% comparable sales growth. Back-to-school sell-through was up 4%, outpacing market growth of 1%. North America adjusted operating income margin decreased due to higher costs of finished goods and specific commodity materials and higher inbound freight and outbound transportation costs that were not adequately offset by price increases. Just like EMEA, North America will be implementing another round of price increases on January 1, 2023. Now let's turn to EMEA. Net sales were down 19% to $130 million, primarily reflecting adverse FX. Comparable sales were down 4% to $154 million, mainly due to volume declines offsetting our price increases. In Europe, the current energy crisis and significant inflation have created a more challenging demand environment. The energy crisis is expected to worsen this winter, and we expect consumer sentiment to remain low through the end of this year and into 2023. EMEA posted lower operating income and margin from the lower sales volume, which led to underutilization of our manufacturing facilities and therefore de-leveraging of fixed costs. Boris referred to a review of our manufacturing footprint, which we are undertaking now. Price increases have not been large enough to offset accelerated inflation generally, especially for locally sourced raw materials. However, we are making sequential progress on the price-cost differential, and we expect our January price increases to meaningfully mitigate the overall impact of these inflationary cost increases. In addition, to allow for more frequent price changes, we are renegotiating several customer contracts. Moving to the international segment. Net sales increased 26%, and comparable sales rose 31%. We were encouraged to see volume contributing more than price to the increase. This growth was driven by improved demand in Latin America, especially in note-taking products, as schools and businesses continue to return to in-person education and work. The international segment posted higher adjusted operating income and adjusted operating margin as a result of higher sales and improved expense leverage. These improvements were driven by the rebound in Mexico and Brazil. Switching to cash flow and balance sheet items. In the quarter, we generated $84 million in adjusted free cash flow. Year to date, we had a $12 million use of adjusted free cash flow, which reflects our seasonality. Sequentially, inventory was down $40 million from the second quarter, but remains high due to inflation and lower than expected third quarter sales volume. Our accounts payable balances are relatively low as much of our inventory was purchased earlier in the year and payments for those goods were made by quarter-end. As we bring inventory down, we should shift into a more normal payables balance. We announced an amendment to our bank credit agreement, which increases the maximum consolidated leverage ratio beginning with the fourth quarter of 2022 and favorably amends several other items. The increase in the consolidated leverage covenant up to 5x allows for greater financial flexibility and headroom for the company during these challenging economic times. The amendment does not change our interest rate pricing grid. We ended the quarter with a consolidated leverage ratio of 3.9x. We expect that ratio to be approximately 3.8x-3.9x at year-end. Longer term, we are still targeting 2x-2.5x. CapEx year to date was $12 million. We also paid dividends of $22 million year to date and repurchased 2.7 million shares of stock in the second quarter for $19 million. At quarter end, we had $417 million of remaining availability on our $600 million revolving credit facility. As shown on our earnings slides, more than half of our debt is fixed and not impacted by interest rate increases, and we have no maturities until 2026. Turning to our outlook, we are reaffirming our guidance presented in October for sales, adjusted earnings per share, and adjusted free cash flow. For the full year, our outlook is for comparable sales to be flat to up 2%. I think this demonstrates the progress of the transformation and portfolio shift and resilience of the company in a really tough economic period. We also expect foreign currency impact to remain a headwind, with a 4%-5% negative impact on sales and a $0.05 negative impact on adjusted EPS. Full-year adjusted EPS is expected to be in a range of $1.05-$1.10. The adjusted tax rate is expected to be approximately 29%. Intangibles amortization for the full year is estimated to be $42 million, which equates to approximately $0.31 of adjusted EPS. We expect our adjusted free cash flow to be within a range of $90 million-$100 million after CapEx of $15 million. Looking at cash uses for the remainder of 2022, we expect to continue to prioritize dividends and debt reduction. We have been chasing inflation for the last 18 months. We expect sequential adjusted gross margin improvement in the fourth quarter, but growth margins will be down versus the prior year. The additional price increases in January, along with our cost savings initiatives, will get us further to our long-term adjusted gross margin of 33%. This is an ongoing challenge due to the magnitude and persistence of inflation. Sales in October continued to reflect significant inventory de-stocking by retailers with their cautious approach to replenishment. Given this trend and the likelihood that it continues, we would be tracking to the midpoint of our 2022 sales and adjusted EPS outlook. Even though we expect certain areas of our business to achieve growth in 2023 and many of our brands to maintain or increase market share, if the macro environment continues in the current state, we expect our overall volumes will decline. However, this decline is expected to be fully or partially offset by price. 2023 should look differently than 2022 from a cadence perspective and more similar to 2021 when resellers were conservative with their inventory. In fact, we expect first half 2023 comparable sales to be approximately at 2021 levels, less the negative impact of adverse FX of around $30 million a quarter. We expect full year gross margins to expand and for SG&A to remain at our 19.5% rate in 2023. We expect full year free cash flow to grow compared to 2022, driven by the improved profitability and a more normal working capital cycle. We will provide additional details in February when we report our annual results. Now let's move on to Q&A, where Boris and I will be happy to take your questions. Operator? Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure your line is unmuted. Our first question comes from Joe Gomes from Noble Capital. Please go ahead, Joe. Your line is now open. Good morning, and thanks for taking the questions. Good morning, Joe. Just wanted to get maybe a little deeper dive into the outperformance of the international segment. Is this all just related to the rebound in Mexico and Brazil, or, you know, how are the other parts of the international segment performing? It's being led by very strong performance in Brazil and Mexico, as both of those countries have rebounded from a couple of years of COVID. Schools are open, offices are open, and we're seeing, you know, very strong business for back to school in Mexico and in preparation for back to school and just office business in Brazil. If we look at outside of those two countries, Chile has done well and has grown mid- to high-single digits in the quarter. Then, Australia is recovering. They had a very tough first half of the year with a lot of COVID cases in Australia, but saw a small growth in Q3, and Asia is still difficult. It's a small part of our business, but we are seeing some sales declines in Asia just driven by weaknesses due to zero COVID policies in many of those countries and just the weak macro in Japan. That segment's done very well on passing price to offset the inflation it's seeing as well. Okay. Thank you for that. Thanks, Joe. On the inventories, you know, you guys talked a little bit about, you know, how you built it in anticipation. It came down somewhat in the third quarter. How much more do you think you've got to come down there to be where you'd like to be, in terms of the inventory levels? You know, we still have ways to go. We are pleased with the progress that we made through the year. I mean, we built a lot of inventory last year in the second half, primarily driven by supply chain difficulties. We started taking it down earlier this year. We wish we could have done more, but due to slower sales, lower volumes in Q3, we're still a little bit high. My anticipation is we'll still make significant progress in the fourth quarter. Really come end of this year, early next year, we'll be in the normal working capital cycle. The supply chain issues are pretty much behind us, so there's not a reason to hold more inventory than we need to come end of this year. You know, once we're normalized, we'll be able to go with a normal working capital cycle in 2023. Yeah, that's right. Just, Joe, don't forget, you know, high inflation, 10%-11%, is also on those inventory balances as you just think about the level. Right. Okay. One more, if I may. You know, a lot of companies have talked about the difficulty in the hiring and retention environment. Just wondering how you guys are finding, you know, your ability to hire people and/or retain people that you want to retain. We haven't had any issues. We saw a little bit of a pickup in attrition last year in 2021 in the summer. This year it's been running pretty flat. I mean, it's still a very competitive market, but we're not having, you know, difficulties either with attrition or with hiring people. Okay, great. I'll get back in queue. Thank you. Thank you, Joe. Thank you. Our next question comes from Greg Burns from Sidoti. Please go ahead. Your line is now open. Morning. With the added covenant flexibility with the new amendment going to 5x, what do you foresee? Like, where do you foresee leverage kind of peaking here, given the current outlook? Do you feel like you're gonna rise to that level and work down from there? Or how should we think about leverage going forward? Yeah, I know. So Greg, as I talked about fourth quarter this year, you know, we're gonna be in that 3.8, 3.9, and the new ratio is at kind of 4.5. It's at 4.5. So, you know, that kind of 50-60 basis point differential would be, you know, as we look out, kind of the lowest point or the highest point differential. You know, we really gotta get more headroom for next year as we go into this uncertainty, but not worse than kind of that 50 basis point spread, if that's what you're looking to. Okay. Yeah. We don't expect to get to five. No, that's right. We got it for flexibility and headroom, given the uncertainty in the environment. Typically, our leverage peaks in Q2 as we build inventory for back to school. As Deb said, you know, we expect to be at least 50 points below that 5x. Greg, the one nice thing too is the banks were really supportive on that seasonality. Going forward, we'll have that higher ratio in the first and second quarters for that seasonality that Boris spoke to. Okay, great. In North America with the retail side of the business, where do inventories, channel inventories currently stand? Can you just talk about how that impacts. You gave a little color on how that's gonna impact the first half of next year. Do you see a stronger sell-in in the early part of the year next year to replenish those inventories? How does that historically play out? Yeah. The inventories right now are pretty low in the channel. It doesn't mean that they won't be able to go lower. It all depends on what the sell-through is. You know, retailers will carry a certain number of weeks on hand depending on what the sell-through is. We expect retailers to be conservative with inventory all the way through the first half of next year. This year, as Deb mentioned in the prepared remarks, they brought in inventory early because of the supply chain issues to prepare for back to school. We think that's not gonna happen next year. We think that, given both the economic challenges and easing of supply chain, they will be more chasing inventory. They'll bring in only what's necessary and then try to chase sales with additional purchases in Q3. We think that that's what happened in 2021. We think what's likely is retailers will be conservative with inventory in the first half, and then as they sell through in Q3, they will bring more inventory in. Okay. On the commercial side in North America, how far below pre-pandemic levels is that business still? Do you think you can get back to pre-pandemic levels there? Yeah. We're about. If you look at, you know, during the pandemic, we lost, let's call it 15% or so on the commercial side. We made up about two-thirds of that, so we're down about 5%. Yes, we are clawing our way back, and people are going back to offices, and that's driving POS. We think that we will be able to make it up in 2023. Okay. Just lastly on PowerA. Do you think that business is fully kind of reset from the pandemic bubble, or is there additional kind of normalization that needs to happen in North America? What's the status on your strategy to kind of expand that business globally? Do you have the footprint fully in place to do that, or is there more investments that needs to be made? Globally is going very well. The business has been growing globally in 2022, and that's both in EMEA and internationally. We will continue to invest and expand that footprint and the sales growth. We feel very comfortable in our ability to do that. In North America, it's still normalizing, and my expectation is that we'll continue to do that through Q4, just driven partially by still supply chain issues. There's still semiconductor chip shortages that affect people's ability to buy both Xbox Series X as well as the PlayStation 5s. The lack of chips for some of the wireless accessories. That's impacting availability as well. You know, as well as just normalization of demand. You know, people were staying home and playing games. Now they're traveling and going out and playing less games, and I think that's gonna be still the case in Q4. We do expect that to recover and rebound in 2023, and we expect growth in the PowerA business in 2023. Just to kind of drill in on that growth outlook, is that mostly gonna be coming from the rest of the world? Do you first think North America can grow too, or is that mostly gonna be coming from Europe and Asia? We do expect North America to grow, but the growth rates will be much higher in Europe and in international than it would be North America. But we do expect growth in North America. Okay. All right. Thank you. Thanks, Greg. Thank you. Our next question comes from Kevin Steinke from Barrington Research. Please go ahead. Your line is now open. Good morning. Hi, Kevin. Morning, Boris. Just wanted to start off by asking about gross margin and you noted that you expect some improvement in 2023 in light of the price increases you're implementing on January first and maybe some cost reductions. You know, I would assume we should think of gross margin progression as I don't know fairly gradual and you know still maybe meaningfully below that 33% target. Just trying to get a sense of how much you think can be accomplished, and I know you know inflation is kind of still the wild card, but you know any thoughts on gross margin progression? Yeah. I mean, I'll just start it out, and I'll let Boris add on. I think you're exactly right. You know, it's gonna be a gradual improvement and expansion in growth margin. You know, we are still fighting, and we still haven't gotten to the price cost differential as we sit here in the third quarter, right? We've got, you know, 10%-11% inflation, 8%-9% price, so we're still lagging, and we've got to do the catch-up on that. That's gonna, you know, take that January price increase to do it. You're right, it's gonna be gradual. It's gonna be throughout the year and, you know, I think the 33% is a little bit aways. Yeah. I agree with that, Kevin. We're gonna be making progress. I'm expecting progress in Q4 and certainly throughout 2023, but I don't think we're gonna get fully to that 33% number until after 2023. We're still gonna be catching up in 2023. Right. Okay. Yeah. Makes sense. You mentioned in your prepared comments modifying some contracts to allow for more price increases. It maybe sounded like that was fairly isolated to a few customers. I'm just trying to get a sense as to, you know, how broad of an initiative that is and how meaningful that could be in terms of your ability to catch up to inflation, maybe a little more quickly. That's specific to EMEA. We really couldn't do price increases more than twice a year. In normal environment, that's okay, but when you have inflation, you know, 14% a year, that's not frequent enough. Our teams are working with customers to modify the contracts to allow us to do more frequent price increases so we can keep up with inflation. You know, by the way, it works both ways. It's both increases and decreases. I'm sure nobody will complain about more frequent price decreases, but nevertheless, it's contractually allows us to do both. Okay. Great. Thank you for taking the questions. Thanks, Kevin. Should be. Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Hamed Khorsand from BWS Financial. Please go ahead. Your line is now open. Hi. Good morning. The first question was, is the lower stocking levels resulting in shorter order intervals from retailers? Meaning, you know, more frequent and smaller orders, Hamed? Is that what you mean? Yes. Yes. It is resulting in that. That is correct. Are you able to, you know, be efficient in that kind of operating structure? Well, you know, we do have minimum order quantities. So we charge above a certain amount, the outbound freight is included in the price, and it's not free below a certain amount; they have to pay for outbound freight. So there is a built-in financial incentive to keep orders at a certain level. What happens in reality is, retailers go to wholesalers for really small orders because it's not economical for them to get it from us. You know, even though there is some shifting to more frequent lower dollar orders, there is economic incentive built in not to make it inefficient for us. Okay. Has the product mix changed greatly for you as to what retailers are willing to stock? How does that relate to the inventory you have in your warehouses? You know, it really hasn't changed. I know retailers typically stock A and B items and then the, you know, C and D items they offer, they order on an as-needed basis. That has continued. I mean, over time, if I look at over the last, you know, 5, 10 years, certainly the mix has changed more towards computer accessories and school and learning products away from storage and organization. If I look at, you know, within this year, kind of individual SKUs, it's still, you know, A and B SKUs being stocked and C and D SKUs being brought in just in time. You know, what's really driving this brake on replenishment is just the economic outlook and retailers becoming very, very conservative with how much inventory they wanna stock, given that they're forecasting an economic recession. Okay. Great. Thank you. Thanks, Hamed Khorsand. Thank you. This concludes our Q&A session for today, so I'll hand the call back to Boris Elisman for closing remarks. Thanks, Maxine. Thank you everybody for your interest in ACCO Brands. Previously, we have managed well in difficult environments and are confident in our ability to navigate current economic challenges. We're also confident we have the right strategy and believe we're well positioned to continue to deliver organic sales growth, compelling market performance, and improve financial results as global economies recover. We look forward to talking to you in a couple of months to report on our fourth quarter results. Thank you. Thank you, ladies and gentlemen. This concludes today's call. Thank you for joining. You may now disconnect your lines.