Hello everyone, and welcome to the ACCO Brands Second Quarter 2023 Earnings Conference Call. My name is Emily and I will be coordinating your call today. I will now turn the call over to our host, Chris McGinnis, Senior Director of Investor Relations at ACCO Brands Corporation. Please go ahead.

Good morning, and welcome to the ACCO Brands' second quarter 2023 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today are Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands Corporation, who'll provide an overview of our second quarter results and an update on our 2023 priorities; Tom Tedford, President and Chief Operating Officer, who'll discuss the back-to-school season, new product innovation, and provide an update on cost savings initiatives and our daily 2022 ESG report; follow on Deb O'Connor, Executive Vice President and Chief Financial Officer, who'll provide greater detail on our second quarter results and the outlook for the third quarter and full-year. We'll then open up the line 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 PowerA 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 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. Following our prepared remarks, we will hold a Q&A session. Now, I'll turn the call over to Boris Elisman.

Thank you, Chris, and good morning, everyone. Thank you for joining us. Before we discuss the quarter, I'd like to begin with the announcement we made last night regarding Tom Tedford becoming ACCO Brands next Chief Executive Officer on October 1st. He will also be joining the Board of Directors at that time. I could not be more pleased to announce Tom as my successor. Having had the pleasure of working with Tom over the past 13 years, I have the utmost confidence in his ability to lead this company. To ensure a seamless transition, I will continue to serve ACCO Brands and all its stakeholders as executive chairman of the board with my planned retirement in the first half of 2024. This announced transition follows a multi-year succession plan that the board and I put in place. And it's exciting to finally share the news with all of you. Tom is exceptionally well qualified and prepared to lead ACCO Brands as it enters a new phase of strategic transformation centered on driving sustainable organic revenue growth. Tom has demonstrated success in every position held during his career at ACCO Brands, most recently, serving as President and Chief Operating Officer as he played an integral part in executing on our transformational strategies and growth initiatives. I'm confident that under Tom's leadership, ACCO Brands will continue to drive growth fueled by a strong, diverse brand. Congratulations, Tom. Now let me discuss our second quarter results. We are pleased with our results for the second quarter with sales above the midpoint of our outlook and adjusted EPS significantly above our outlook. These results reflect the strength of our brands and solid execution by our team, as well as the actions we have taken to transform our business, expanding our product categories, as well as our geography, bringing new innovative consumer-centric products to market, and streamlining our cost structure. We made significant progress in our margin recovery efforts in the second quarter with gross margins increasing by 450 basis points and adjusted operating margins improving by 220 basis points year-on-year. Our pricing, productivity, and restructuring actions have gained greater traction in the first half of 2023. While we are pleased with our strong start to the year, we are more cautious on the second half demand environment due to higher interest rates and prolonged economic uncertainty. We expect consumers, businesses, and our channel partners to remain prudent with their discretionary spending and inventory in the second half. We will continue to prioritize margin recovery and improve cash flow as we manage through this uncertain economy. In the second quarter, comparable global sales were down 5% versus last year. In North America, we were down due to difficult comparisons from the weaker macroeconomic environment and a more normalized supply chain in 2023. Last year, retailers were buying ahead of the season in greater quantities because of COVID-induced supply chain issues. In this year's second quarter, this has led to lower unexpected sales. We also saw a return of growth in gaming accessories. The current economic backdrop of higher inflation and interest rates continues to lead to softer consumer and retail demand, and we are now lapping the benefit of return-to-work trends with office occupancy rates that have stabilized at about 50% in the U.S. Lastly, sales of our computer accessories category continue to be negatively impacted by weaker IT spending. North America operating margin improved by 200 basis points due to our cumulative pricing and cost actions. In EMEA, the weak macroeconomic environment in the region continues to challenge demand from both our consumer and business customers. This positive decline, in combination with our pricing and cost initiatives, has helped to significantly restore lost profitability, allowing adjusted operating margin to expand by 610 basis points and adjusted operating income to more than triple. Last year, EMEA's profitability was severely impacted by very high inflation. I'm very pleased with our market recovery in that segment. Within our international segments, sales were down a bit in what is a seasonally small quarter and impacted by lower demand in Asia and Australia due to a soft macroeconomic environment. Latin America continues to perform well, and we expect sales growth through segments to resume in the second half of the year due to strong demand for our back-to-school offering. Although our adjusted operating margin was down very slightly in the second quarter, it improved healthily by 245 basis points for the first six months. We remain confident in our outlook for stronger margins in the second half. Before touching on our 2023 key priorities, I want to update you on our global technology accessories sales, which consists of our computer accessories products. Gaming accessories posted growth in the second quarter aided by a combination of a greater supply of tips for wireless gaming controllers, new product launches, and a strong slate of AAA game releases. We expect wireless controllers to be readily available as the remaining supply chain challenges have been alleviated. We remain focused on the international expansion of gaming accessories but are experiencing a slower rollout than expected. We're making progress and remain confident in the long-term growth opportunity for business updates in both our EMEA and international segments. We expect gaming accessories to grow in the second half. Computer accessory sales were weaker than expected. The slowdown we experienced in the first quarter did not show any improvement in the second quarter as businesses continued to be cautious about their IT spending in the current macroeconomic environment. We expect computer accessories to show sequential improvements throughout the remainder of 2023, given the new product rollout is at a lower level than we previously anticipated. As a result, we no longer expect the category to grow for the year. At the start of the year, I shared with you our four key priorities for 2023, which are the restoration of our growth margins, profitable management of our top-line, continued investments in our brands and new products, and tight management of our expenses and inventory. We continue to make progress on all four in the second quarter. The recovery of our growth margins has been our top priority, and the combination of cumulative global price increases and cost-saving actions has allowed us to recover much of the lost profitability from the high levels of inflation we have experienced over the last few years. As I said earlier, we are seeing great traction from our actions through the first half of 2023 which gives us confidence that these gains are sustainable over the longer term. We continue to manage our top line well in a challenging global economic environment. This is a testament to the strength of our brands, our broad assortment of consumer-desired products, and our superior customer service capabilities. On the expense line, we did a good job managing headcount and continue to closely monitor our discretionary spending. We also reduced our inventory by 16% to about $75 million compared to the prior year, which is driving improvement in our operating cash flow. Before I turn it over to Tom, I want to say I'm encouraged by our results in the first half of 2023. We're executing well in our plan, remain confident in our ability to drive long-term sustainable and profitable organic revenue growth as global economies improve. We have the right team in place to weather a difficult economic environment and are well-capitalized with no debt maturities until 2026 and low fixed interest rates on over half of our outstanding debts. We expect to continue to generate consistent strong cash flow and will prioritize dividend payments and debt reduction in 2023. Now I'll turn the call over to Tom to discuss back-to-school, new product innovation, and update our restructuring initiative and the upcoming ESG report. Tom?

Thank you, Boris, and good morning, everyone. I am honored and excited to lead this outstanding organization and our talented and dedicated team of professionals. Following a great leader like Boris is a privilege, and I thank Boris and our Board of Directors for their support in preparing me for this role. I would like to thank Boris for his mentorship and, on behalf of all of our employees, recognize his outstanding leadership of ACCO Brands as our CEO. Boris has been a transformational leader, keeping our people, brand, and customers at the forefront while expanding ACCO Brands geographically and in product offering. As CEO, I'm excited about the opportunity to work with our leadership team, the Board of Directors, and all of the talented employees around the world at ACCO Brands as we enhance share owner value by delivering against our key initiatives. I believe that our commitment to superior service to our valued customers, our innovative product offerings supported by iconic category-leading brands, and our loyal consumers provide great opportunities for sustainable organic growth. We also have significant opportunities to simplify our operations and our cost structure as we progress along our multi-year asset rationalization project. These efforts will be at the forefront of our leadership team's focus to drive value for our investors. Boris, congratulations on your upcoming retirement and we look forward to your continued support as executive chairman. Now let me transition to a few comments about the 2023 back-to-school season. In North America, back-to-school had a good start, as the timing of back-to-school shipments was earlier than anticipated. Our expectation is that these sales are a shift from Q3 and not incremental to our North America back-to-school season. While we believe our channel partners will rely more on replenishment this back-to-school season, we now expect them to manage their inventory more tightly. This is changing our sales expectations for the North America back-to-school season from approximately flat to moderately lower. While channel sales are better than anticipated, we are uniquely positioned to support our retail partners because of our domestic production capabilities. In our international segment, we have seen strong growth for our back-to-school offerings in Mexico, which also falls into the second and third quarters. Early indications for back-to-school demand in Brazil, which is in the fourth and first quarters, are also strong and suggest another year of solid growth from our Latin America back-to-school business. Moving to product innovation and new product introductions, we continue to build on our momentum and believe our investments in innovation and new product development will be key to delivering organic growth. In our technology accessories business, the Kensington team was recently awarded three Red Dot Design Awards, which recognized the innovative design solutions in our new computer accessories offerings. In EMEA, we have introduced an exciting line of ergonomic product solutions that support work-from-home environments. These sales have exceeded our expectations. The line further diversifies our product portfolio through more consumer-focused products. This is an example of key pivots our product teams are making as hybrid work is here to stay. In gaming accessories, we recently introduced new products in the controller and cases categories in conjunction with Nintendo's successful release of the Legend of Zelda video games, which are contributing to positive sales growth in gaming accessories. Moving to our restructuring initiatives, we continue to see benefits from our 2022 fourth-quarter restructuring actions and are on track to deliver the expected $13 million in annual cost savings. Year-to-date, we have recognized $6.5 million in savings. In EMEA, the facility closure that we announced in the first quarter is expected to be finished by the end of the third quarter, with savings to come in 2024. Last month, we announced the closure of a small assembly operation in North America. We continue to analyze our global footprint for opportunities for further cost optimization and consolidation. We also remain on track to deliver another $15 million in incremental savings from our ongoing productivity initiative. Finally, we remain committed to our ESG initiatives and goals. We'll soon release our 2022 ESG report. In it, we detail our progress towards a better tomorrow, highlighting the focus on our people, our product, and the planet. I encourage you to read it when it is released. Today, I want to highlight our employee safety records as we have been recently recognized as one of America's safest companies by EHS Today, a leading environmental health and safety publication. In addition to this well-deserved award, our Sydney, New York factory, and distribution facility just celebrated a million hours worked safely. I'm very proud of our team's commitment to a safe work environment and the recognition that ACCO Brands has received over the past year. I will now hand it over to Deb and will come back to answer your questions.

Thank you, Tom, and good morning, everyone. I just want to take a moment on behalf of the executive leadership team to thank Boris and to congratulate Tom on being our next CEO. When we last spoke in May, we highlighted the slow demand environment due to the current macroeconomic backdrop. Despite this environment continuing in the second quarter, we were able to deliver our expected level of sales. We also continue to make progress in recovering our lost margin from the extreme inflation that challenged the company's margin profile over the last few years. Our margin profile significantly improved in the second quarter, which allowed us to deliver adjusted EPS above our outlook. In the second quarter of 2023, reported sales decreased by 5% versus the prior year. Comparable sales excluding foreign exchange were also down 5% versus a strong prior year when comparable sales grew by 5%. The sales decline was due to lower volumes across all three of our operating segments, more than offsetting global price increases. Gross profit for the second quarter was $164 million, an increase of 10% despite lower sales as gross margin improved by 450 basis points from the cumulative effect of our pricing and cost reduction actions. Adjusted SG&A expense of $98 million was up from $92 million in 2022. Adjusted SG&A as a percentage of sales increased by 230 basis points to 19.9%. Strong cost controls were more than offset by increases in incentive compensation expense and de-leveraging from the lower level of sales. Adjusted operating income was $66 million, up 14% compared with the $58 million last year. Adjusted EPS was $0.38 versus $0.37 in 2022, as our growth in adjusted operating income was largely offset by increases in interest and non-operating pension expenses. Now let's turn to our segment results. North America reported sales declined by 5% and comparable sales were down 4%. Volume declines more than offset our cumulative pricing actions. Sales in the second quarter were impacted by lower business and retailer demands due to the weak economic environment, as well as declines in our computer accessory category due to softer IT spending. North America adjusted operating income margin increased by 200 basis points to 20.7% from the prior year's second quarter, driven by pricing, improved mix, and cost savings actions. The second quarter is typically the highest revenue quarter in North America and benefits from economies of scale. Now let's turn to EMEA. Both reported and comparable sales for the quarter were down about 9% to $126 million, mainly due to volume decline. Demand continues to be impacted by the overall environment in the region, challenging both consumer and business customers. Sales of technology accessories declined in EMEA as well, reflecting industry-wide trends. Market shares in the region remain stable, but we have seen some trade downs to our lower-priced offerings. In the second quarter, EMEA posted adjusted operating income of $9.5 million, a significant increase from the $2 million a year ago. The operating margin rate improved by 610 basis points from the prior year to 7.6%. The improvement in adjusted operating income was due to our pricing and cost reduction actions. Moving to the international segment, reported and comparable sales in the second quarter decreased by 2%. The decline was due to lower volumes in Asia and Australia due to a weaker economic environment and lower sales of technology accessories, which more than offset price increases and growth in Latin America. The international segment posted adjusted operating income of $8 million, essentially flat to the prior year. Switching to cash flow and balance sheet items, due to the seasonality, we generally use cash in the first half of the year and generate significant cash flow in the second half of the year. Year-to-date, adjusted free cash flow was a use of $45 million versus a use of $96 million a year ago. The improvement was driven by improved working capital management as we lowered inventory levels by 16% versus the prior year and had lower prior year incentive payouts. We ended the quarter with a consolidated leverage ratio of 4.3 times, well below our five times covenant ratio, and now expect to end the year with a range of 3.3 to 3.5 times, lower than previous expectations. Longer term, we are still targeting 2 to 2.5 times. At quarter end, we had $424 million of remaining availability on our $600 million revolving credit facility. As shown on our earnings slide, more than half of our debt is at a fixed interest rate of 4.25% and does not mature until 2029. We ended the quarter with total gross debt of $1.85 billion, over $100 million lower than the prior year period, and our cash balance was $82 million. Turning to our outlook, we are providing a third-quarter outlook and updating our full-year guidance for 2023. For the third quarter of 2023, we expect reported net sales to be flat to down 3%, including a positive 4% benefit from foreign exchange. We expect adjusted EPS of $0.21 to $0.24. To provide context on our quarterly margin profile, historically, gross margins in the first quarter have decreased from the second quarter due to changes in customer and product mix. This third quarter, we expect our gross margins to stabilize similarly, with an expectation of a year-over-year improvement in the gross margin rate. Additionally, in the third quarter, SG&A costs are expected to be higher than the prior year due to increased marketing costs to support back to school and increased incentive compensation. Third-quarter interest and non-operating pension expenses are also expected to negatively impact adjusted EPS by $0.03 compared to last year. For the full year, we are updating our expectations for reported net sales to be within a range of down 1% to down 3%, including a positive 1.5% benefit from foreign exchange. We are lowering our expectation for comparable sales growth for the year to be down 2.5% to 4.5% due to prolonged economic uncertainties and lower sales of computer accessories. As Boris and Tom mentioned earlier, we are seeing cautious consumer and business sentiment and greater conservatism from our channel partners. This is creating greater uncertainty regarding demand in the second half, and we think it is prudent to take a more cautious approach with our sales outlook in this environment. Interest expense has increased since our last forecast due to more rate hikes by the Fed and ECB. Our expected mix of profitability by country has also slightly changed and modestly increased our expected tax rate. This is being partially mitigated by a more favorable impact from foreign exchange cancellation. Our gross margins are tracking ahead of our expectations, and we now expect full-year gross margins in the range of 31% to 32%. We continue to target a long-term range of 32% to 33%. In 2023, we expect higher SG&A costs due to increases in incentive compensation compared to the prior year. For the full year, we expect adjusted EPS to increase by 4% to 8% to $1.08 to $1.12. Adjusted operating income is expected to grow at mid-teen levels, partially offset by higher net interest costs of about $14 million and higher non-cash, non-operating pension expenses of $5 million. On Slide 15 of the earnings presentations, we highlight the approved operational performance and foreign exchange expectations, which are being offset by higher interest expense and taxes. The adjusted tax rate is expected to be approximately 30%, and intangible amortization for the full year is expected to be $44 million, which would be placed to approximately $0.32 of adjusted EPS. We are now expecting our free cash flow to be at least $107 million after CapEx of $20 million, and to end the year with a consolidated leverage bill within a range of 3.3 to 3.5 times. Looking at cash uses in 2023, we expect to continue to prioritize dividends and debt reductions. Now let's move on to Q&A where Boris, Tom, and I will be happy to take your questions.

I just wanted to get maybe a little bit more color on the state of channel inventories where they stand. Why do you think sounds like you're a little bit more cautious in terms of the outlook there, but I just wanted to get a sense of channel inventories, your view for maybe the potential for follow-through orders. Is there potential upside in your guidance if maybe sell-through is a little bit stronger than expected?

Okay, Greg. Hi, this is Tom. Let me take an opportunity to respond to that. So, channel inventories are down modestly versus prior year across most of our product categories. As it relates to back-to-school specifically, we're really early in the season, Greg, so it's hard for us to give great clarity as to how the season will finish. As I said in my comments, we're uniquely positioned to support demand if the customers' demand forecasts are greater than what they are currently forecasting. Our customers are aware of that, and we're always in a great position to chase late-season demand. Right now, it's just too early for back-to-school to comment on whether that demand will ultimately materialize or not. So we wait patiently and are prepared to respond if demand is better than forecasted.

And how far from the prior peak technology sales?

Technology sales are down in the order of 20% or so from the prior peak. We expected things to recover throughout the year. We haven't seen that yet in the first half, so we've reduced our expectations for the full year. Now, we believe that the sales for technology accessories will be down overall for the year, even though we do expect some sequential improvement due to refresh cycles and upgrade cycles. But as I mentioned, they're just down too much to recover the full decline in the first year.

So when you view the outlook for that business, when you look at kind of the new product launches you're bringing to market, typical refresh cycles. Do you feel like that business has kind of troughed or reached a low so you can build from here, or is there a potential for more downside if the macro worsens?

No, absolutely. We think the worst is behind us. We think that things will improve throughout the year. What's been happening on the IT side specifically is there's been a lot of forward buying in the last couple of years. So people have bought a lot of PCs and accessories. Now, we're all digesting what we bought. That will be annualized, really should materialize in the second half of this year and certainly in 2024. So we do expect an improvement in the remainder of the year.

And you mentioned a slower global rollout for PowerA. What's driving that? Can you just maybe give us an update on your plans there?

Those are really, what I call, kind of transitional issues. When we notified our distribution partners of our intention to start selling direct, they basically stopped selling. So we have a little bit of a gap between them stopping their activities and our global team's own teams picking them up. So we're not as far along as we expected to be, but we're certainly making up ground. I expect us to catch up real soon. So that's why we mentioned the international expansion is a little bit slower than we previously anticipated.

Has the dynamic you mentioned affected PowerA's top-line revenue, or have the increased revenues had any impact?

It impacted the international top-line. So growth would've been even higher. Growth in Q2 was driven by North America for PowerA, but certainly as the international part kicks in during the second half of the year, we expect it to be a greater contributor to growth.

This is Joshua Zoepfel filling in for Joe Gomes. So I just had a quick question on the SKU reduction. I just want to kind of get a progress on that, how much have you guys reduced your SKUs and how much more are you guys willing to go on those?

Yes, so we speak about this fairly frequently in our public statements. It's an ongoing process for us. We've accelerated that over the last year as we've started to face the realities of the uncertain economic environment and changes in consumer preferences as the impacts of the prolonged work-from-home environment really are here to stay. I would say we are going to continue the work that we're doing. We feel like we're in a really good spot in terms of our SKU reduction process. We're not in a position to talk about the specific numbers, but we feel like we're making progress against our internal objectives, with the primary focus being in two segments: North America and EMEA.

And so forgive me if I missed this, but I saw that SG&A expenses just increased both really sequentially and year-over-year. Is that really all like incentive compensation, or was there more pushing that?

No, that's right. It's pretty much the incentive compensation. Last year, we were relieving some of the incentive comp in the back half and second quarter. So you'll continue to see that into the back half.

And last thing from me, I guess that, so I saw that you guys are obviously a little bit into the back-to-school years, but what have been the impressions of the season so far? Now, obviously, it's still early, but is there anything that you guys have noticed so far in the season?

Yes, I think the first thing that I would say is we've executed very well early. The first step in back-to-school, a successful back-to-school is ensuring our channel partners have inventory at the right time. Our supply chain teams and our sales teams have done a great job of preparing our retail partners to have a successful back-to-school season. I will tell you that we have seen a bit of a mixed shift on the shelf, so we're seeing a little more offerings across the lower price point spectrums. We'll see how that translates throughout the season. As I mentioned in my prepared remarks and to the first question, we're really early, so it's dangerous to draw conclusions at this point in the season, but we watch it closely every single week.

Just wondering if you could discuss the comparable sales percentage change outlook by Q3 geographic regions as you think about it for the full year?

Sure, Kevin. For the full year, from a comparable sales standpoint, for the total company, we expect sales to be down 2.5% to 4.5% at a comparable level. In the international segment, we expect low-double-digit growth, while for both North America and EMEA, we expect mid-single-digit declines.

Could you talk about the factors that enable you to increase your free cash flow outlook a bit for full-year 2023 as well as be able to favorably revise your year-end leverage ratio target?

Yes. We have seen, as you saw in the second quarter, that we reported strong working capital management, which has allowed us to significantly improve over the prior year. I talked about it last time where we ended '21 with high inventory that got paid for in '22, and then in '22 we ended up with lower inventory that we're not needing to pay for in '23. So we've seen some significant improvement in cash flows that should not go away. We've also got about $17 million of incentive comp that didn't pay out this year that paid out last year, and all of those factors carry through to the full year. The improvement, I would say, in the cash flow is really from our continued expectation of that working capital management. We've done a nice job on receivables and on payables, and so we're anticipating at least $110 million of free cash flow at this point. Our leverage ratio reflects that as well as slightly higher EBITDA as we look to that.

And also gross margin is trending better than your original expectations? I believe you had talked about getting to 2021 levels and 2023, which would have been around 30.5%, and now you're talking about 31% to 32% for the full year 2023. So can you talk about maybe what's trended more favorably there than the original expectations on the gross margin front?

It's all of the cumulative impact from the pricing efforts that we've implemented over the last two years and all of the cost reduction and restructuring efforts that have been put in place. We're still seeing some inflation in goods, both in the quarter in Q2 and a year-to-date. And we expect some inflation to continue for the remainder of the year. But the offsetting impact of all of the cost reduction efforts is driving better gross margins. We now expect them to be in the 31 to 32 range for the year. So, very nice job in just executing and recovering. It's really all about recovering what we've lost over the last two years.

And then lastly, you feel like you're fully caught up on inflation, and have you seen any moderation there and what's the outlook for price increases?

We think we have caught up with inflation in 2023. We don't expect, certainly not in the U.S. and Europe, additional price increases in 2023. We may do some tweaking in our other regions that are just driven by currency exchange rates, but not in our major geographies. Inflation is down, but it's there, and today it's really driven by labor inflation, and that's permeating into pretty much every aspect of the P&L. We expect labor inflation to continue into next year. So I do anticipate price increases next year, because we do have to offset that inflation, but nothing in 2023.

So first off, just about your comments about volume decline. Where does that go? Has the consumer moved away from buying your products, or has it completely moved away from the categories?

There's a couple of things to that, Hamed. A big part of volume declines is driven by our computer accessories business. We mentioned that's down substantially. There were no price increases in computer accessories. So all of the decline in revenues follows the decline in volume, and that's just shifting. We grew the computer accessory business by 38% from 2019 through 2022. So some of that was a shift in purchases from '23 into '22 into '21. And that's going away. We feel very, very confident about that. Another part of the volume shift is lower usage due to fewer people working in offices. A significant percentage of our portfolio is still driven by office products usage, especially so in our EMEA segment. Given that we are at, roughly 50% office capacity at one time, there is less usage of our types of products. And that's something that we need to adjust to. This is what Tom mentioned in his prepared remarks in terms of optimization, footprint optimization, and asset utilization optimization initiatives that we have to make sure that we are adjusting both our footprint to that reality as well as our product innovation program to really focus on more hybrid work and shifting more to consumer and hybrid as opposed to in-office types of environments.

Okay. And then as far as the implied Q4 guidance goes, it's suggesting you're going to be up sequentially from Q3 quite a bit. It's never been up that much. I think you're implying something around $60 million in sales. It's usually been 20 million or 30 million. What's the clarity that you have and your expectation that Q4 could be as solid as you're suggesting your full-year guidance?

Well, obviously we give it some thought. That is our best estimate of what it would be, but it is six months away or five months away, so there's always uncertainty in some of that guidance. I would say that the compares that you alluded to is more of Q3 being a little bit lower than typical, rather than Q4 being higher than typical. We are more cautious on Q3, as further indicated by our Q3 revenue guidance and comparable guidance of minus 4 to minus 7 that Deb alluded to. From a sequential standpoint, we don't look at Q4 as being that abnormal compared to prior years, and certainly in terms of prior year, the comparison, because there's also a strong improvement versus the prior year. That's more of a last year issue where we had very high inventory channel inventory reduction last year on the revenue side. And we had very high inflation costs in our COGS last year, which are all behind us. So, that's the reason for the Q4 outlook. And Deb, I don't know if you have any additional comments.

No, actually I can say that last part was exactly right.

I had two questions. The first one is on the software economic outlook or macro-outlook that you have in the second half. I understand the Kensington piece, but was curious in North America specifically, if you could sort of talk about if there were greater weakness on the business side or the retail side or away from Kensington, if there were other products or categories that were driving it, or if it was more equal weighted?

It's more on both consumer and business sides, less so on technology accessories. Some of it is the things that all of you read about in terms of Fed increasing rates and things being a little bit slower. And some of it is the commentary we're hearing from our channel partners, both on the retail and business side, that given this uncertainty, they plan to be a little more conservative in their inventory carrying and purchasing policies. With all of that feedback, we thought it was prudent to be more conservative in our sales guidance.

And then historically you guys have done a pretty good job versus some of the private label offerings, but in this kind of environment, it wouldn't be abnormal if private label takes more share. I just wanted to confirm that that wasn't the case here in your outlook.

No, I mean, you're absolutely right. Historically, our brands have done really well in a difficult environment. Last year, in Q3, we were already talking about a recession and our channel was reducing inventory, and yet Five Star gained a couple of points of share during the back-to-school season. So we have performed well, but as Tom said, retailers are featuring more private labels and giving them more of a presence on the shelf. So we'll have to just see how that all plays out. We do expect our brands to do well, but there probably will be some trade down to lower-priced products, either from us or from private labels.

Thank you, Emily. And thank you everybody for your interest in ACCO Brands. We're encouraged about our first half results and about the remainder of 2023 as we stay focused on executing against our priorities, keeping margin improvement at the forefront. We've managed well in difficult environments and are confident in our ability to navigate the current economic challenges. 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 third quarter. Thank you.

Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.