Hello, everyone, and thank you for joining the ACO Brands 4Q and Full Year 2024 Earnings Call. My name is Marie, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Chris McGinnis, Senior Director of Investor Relations, to begin. Please go ahead.

Good morning, and welcome to the ACCO Brands fourth quarter and full year 2024 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today is Tom Thetford, President and Chief Executive Officer of ACCO Brands Corporation. Tom will provide an overview of our fourth quarter and full year results and outline our 2025 priorities. Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our fourth quarter and full year results and provide our initial outlook for full year 2025 and the first quarter. We will then open a 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 excluded 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 this 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 forelooking 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 Thetford.

Thank you Chris. Good morning everyone and welcome to ACCO Brand's year-end 2024 earnings call. Last night, we reported full-year sales in adjusted EPS in line with our outlook, excluding greater-than-expected foreign currency headwinds. We delivered free cash flow of $132 million for the year in line with our outlook. While the operating environment remains challenging, I am proud of our team's successful execution of our strategic initiatives to reset our cost structure and position ACCO brands for better revenue outcomes in the future. Free cash flow was a bright spot in 2024, aided by both our cost actions and improved working capital management as we reduced inventory levels by 17% for the year and collected a significant amount of receivables in Brazil, given the timing of their sales. Our consistent cash flow and commitment to debt reduction has improved our financial position, with net debt down $94 million for the year. The improvement in our balance sheet allowed us to expand our capital allocation program to include share repurchases while continuing to support our quarterly dividend and debt repayment. We are well positioned to consider accretive M&A opportunities as well. In addition, during the year, we refinanced our bank credit facilities, extending maturity dates going out to 2029. Let me transition to a brief recap of the year, highlighting the progress we made against my first-year objectives and our updated strategy. At the beginning of 2024, we implemented decisive actions to reset and optimize our cost structure through the introduction of a $60 million multi-year cost reduction program. This program has simplified the organization, delayed our management structure, and rationalized our global footprint through a reduction of our manufacturing facilities. During the year we realized approximately $25 million in savings from the program. Our proactive approach to cost management allowed us to deliver improved operating margins as gross margins expanded 70 basis points versus the prior year and SG&A costs were almost $30 million lower than a year ago. We anticipate continued headwinds and uncertainties in 2025 and have expanded the scope of our cost savings program. We are now targeting $100 million in total savings by the end of 2026, increasing our current program target by $40 million. Decisions of this nature are inherently challenging, yet essential to enable us to address external challenges, protect our profitability, and ensure we have an operating model that will scale with volumes. As we improve our revenue outcomes, both organic and inorganic, we will be able to leverage this optimized cost structure for profit expansion. Our priorities have not exclusively focused on cost savings. Our work includes restoring sales growth through new product development, accretive acquisitions, price and promotional excellence, brand building, and other initiatives. However, revenue initiatives take longer to implement and realize the benefits. Our teams are focused on understanding consumer insights and finding innovative product solutions to solve unmet needs. We are partnering with our customers to unlock value for them with our leading brands, and we are aggressively defending leading category positions in our key markets. We have positioned key business leaders closer to customers, leading to strengthen customer relationships, which has opened additional growth opportunities. We have refocused our efforts related to innovation and new product development and have laid a solid foundation to improve our rate of new and refreshed product introductions. We have several exciting new and refreshed product launches across our portfolio of categories, including celebrating the 100th year of Swingline staplers, a new high-speed in-line commercial lamination solution, and we are expanding our line of more sustainable computer products. In 2024, we successfully entered adjacent categories, such as ergonomics, and we will continue to build on this progress. We are committed to investments in our leading brands. Our category shares remained strong in 2024, with many of our brands either maintaining or growing share. Our brands resonate with both consumers and our channel partners. These investments provide the fuel to maintain our leadership position while also driving additional share gain opportunities. We are identifying more opportunities across the portfolio and have other introductions planned, like a Beyond Console initiative within our gaming accessories business. We also shared with you the early success of broadening distribution across channels and categories. In 2024, we tested various products and new channels and are expanding on our initial success. Our near-term 2025 outlook assumes the demand environment remains highly volatile due to uncertainties around global economies, potential additional tariffs, soft consumer demand, and a strong U.S. dollar. The magnitude of impact from these factors on our business remains unpredictable. We anticipate 2025 sales to be down in the low to mid-single digits, but improving throughout the year on a year-over-year basis. I also want to address how we are handling the recent enacted tariffs that will impact certain products imported from China. Over the last number of years, we have taken a proactive approach to lessen our dependence on Chinese imports. We are in discussions with our customers and suppliers as we enact our plans to counter the potential impact from the latest round of U.S. tariffs. With the improvement in the balance sheet and our ability to consistently generate strong cash flow, we are actively exploring acquisition-based growth opportunities. We have a long history of successfully integrating acquisitions and will be prudent with our approach to M&A. We will evaluate highly synergistic and accretive opportunities, which will leverage our lower cost structure and provide scale and strengthen our company. In closing, we have aggressively managed our cost structure so that our organic and inorganic growth initiatives will enhance our profitability and cash flow. I remain excited about the opportunities ahead of us at ACCO Brands. Our experienced leadership team has shown its ability to navigate dynamic operating environments while also implementing meaningful change. Our strong balance sheet with no debt maturities until 2029, and low fixed interest rates on more than half of our debt put us in sound financial position as we invest in growth and improve productivity for a brighter future for ACCO brands. I will now hand it over to Deb, and we'll come back to answer your questions. Deb?

Thank you, Tom, and good morning, everyone. Our fourth quarter and full year results were as expected except for an increase in the impact from unfavorable foreign currency exchange rates this change in rates from the time we issued our fourth quarter outlook to the end of the year resulted in 12 million dollars of lower sales and two cents of lower eps in the fourth quarter the overall demand environment remained soft as discretionary spending by both consumer and business remained constrained similar to the third quarter sales trends in the fourth quarter were considerably better than the first half of the year as tom mentioned earlier in the fourth quarter we recorded additional restructuring charges of 11 million dollars as we expand the scope and size of our multi-year cost savings program given the volume declines and uncertainty in the environment we felt it prudent to put plans in place to realize additional savings we anticipate an additional 40 million dollars in cost savings bringing the expected cumulative annualized cost savings to 100 million dollars at the end of 2026 now turning to sales reported sales in the fourth quarter decreased eight percent comparable sales excluding foreign exchange were down six percent versus the prior year the sales decline was due lower volumes globally with continued weakness in Brazil. These declines more than offset growth in technology accessories from new product introductions and strong execution of our international expansion for gaming. Turning to our office product categories, although office occupancy rates have stabilized over the past year, consumption of many products we sell continues to be influenced by new hybrid work habits and low in-office rates. During 2025, we expect these declines to moderate and be more in line with historical trends of down low single digits after several years of volatility. These categories remain very meaningful for us and provide a very solid margin profile and strong cash flows. Gross profit for the fourth quarter was $156 million, a decrease of 9% compared to the prior year, with the margin rate similar to last year. However, for the full year, we expanded our margin rate to 70 basis points. SG&A expense of $91 million was down 10% versus the prior year due to our cost reduction actions. Adjusted operating income for the fourth quarter was $64 million, down 6%, but the margin rate improved 30 basis points versus the prior year, reflecting a strong gross margin rate in SG&A cost reductions. Now let's turn to our segment results for the fourth quarter. In the America segment, sales declined 12%, with foreign exchange having a larger negative impact than previously expected due to the strengthening of the U.S. dollar. Comparable sales declined eight percent. The exit of lower margin business accounted for about two percent of the decline in the quarter. We also had lower sales for our learning and creative products in Brazil and for our office related categories. These declines were partially offset by growth and technology accessories. The Americas adjusted operating income margin for the fourth quarter decreased 80 basis points to 16.6 percent compared to the prior year as lower volumes more than offset lower costs now let's turn to our international segment for the fourth quarter comparable sales declined three percent as the demand environment remained soft for our business essential categories this was somewhat offset by growth in technology accessories international adjusted operating income margin for the fourth quarter increased 90 basis points to 16.5 percent with adjusted operating income up slightly this improvement in adjusted operating income margin rate was due to both our pricing and cost reduction actions we finished the year with free cash flow of 132 million dollars this reflects lower inventory and strong collections of receivable in brazil from the timing of their sales this year. We ended the year with total net debt of $766 million, $94 million lower than the same time last year. Remember, we recently refinanced our credit facility, and we downsized our revolver to $468 million from $600 million, while extending our nearest maturity to 2029. At year end, we had almost $330 million available available for borrowing under our revolver, which is more than adequate for our needs. We finished the year with a consolidated leverage ratio of 3.4 times, well below our 4 times covenant ratio. Longer term, we are still targeting a ratio of 2 to 2.5 times. We will continue to use our free cash flow to enhance shareholder value by deploying capital through a balanced approach. This strategy, whether through debt reduction, dividends, share repurchases, or strategic M&A, is designed to drive value accretion to our shareholders. During the year, we return $15 million to shareholders in the form of share repurchases, while also using $28 million to support our dividend. Now let's move to the full year outlook for 2025. For the full year, we expect comparable sales to decline 1 to 5%. It is a challenging environment to forecast given the potential for additional tariffs, adverse foreign currency exchange, and weakening consumer demand. Barring unexpected effects of some of these uncertainties, we do expect year-over-year sales trends to improve as we progress throughout the year, reflecting a more consistent demand environment. For the full year, we expect adjusted EPS to be in a range of a dollar to a dollar five per share. We expect full year gross margins to improve compared to 2024. SG&A costs will be comparable to the prior year as savings from our cost actions are offset by increases in merit and incentive compensation expense and other inflationary pressures. The adjusted tax rate is expected to be approximately 30 percent intangible amortization for the year is expected to be 45 million dollars which equates to 32 cents per share for free cash flow we are expecting to be within a range of 105 to 115 million dollars over the last two years cash flow has benefited from improved working capital reflecting our significant efforts to reduce inventory after the supply chain disruptions a few years ago. Last year, we had unusually high collections in Brazil, driving some of the working capital improvement. In 2025, we expect strong cash flows, but normalized for the Brazil collections and more similar to historical levels. We expect to end 2025 with a consolidated leverage ratio of approximately 3 to 3.3 times. Given the timing of our product sales, historically the first quarter is relatively small compared to other quarters. We are forecasting comparable sales to be down 5 to 8% with adverse foreign exchange a significant headwind. We expect our loss per share to be within a range of 3 to 5 cents for the quarter. The first quarter is always our smallest quarter in terms of sales which is impacting our bottom line. Now let's move on to Q&A where Tom and I will be happy to take your questions. Operator?

Thank you, Deb. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question is from Joe Gomez of Noble Capital. Your line is open. Please go ahead.

Good morning. Thank you for taking my questions. Hello, Joe.

Good morning, Joe.

So I want to kind of start out on a big, real big picture here. Tom, talk about, you know, the primary focus moving forward about improving sales trends and, you know, some of the things you mentioned, new product development, acquisitions, brand building, all that you guys have done in spades in the past, you know, in brands, eight of your brands are number one in market share already. What is different this time that you haven't done in the past that you foresee that is going to change the sales trajectory?

Yeah, it's a great question, Joe. So let me do my best to answer it with information I'm comfortable sharing at this time. So it's apparent to us that the majority of the categories that we're competing in now, our path to growth is through share gains. And so while that is a strategy, that's a difficult one to execute. We have too many headwinds in too many of our existing categories. And so you heard me allude to it in my opening remarks, my prepared remarks, that we're looking at things such as expanding beyond console and gaming. We recognize that we're going to have to get into adjacent categories in greater emphasis and with greater impact to the sales line. We started that this year with ergonomics, and we had early success with a number of our initiatives, particularly in our European business. and we'll continue to focus on near adjacencies in all of our businesses, technology accessories, learning and creative, and the office product categories. And we believe that, along with looking at inorganic opportunities, changes the growth profile of the company moving forward.

Okay, thank you for that. And on the gaming side, you talked about previously, you know, you had some partnerships. I think one was with Epic Games, another one getting distribution into Japan for Nintendo and Sony. And really haven't heard anything much about those efforts. I was wondering if you'd give us maybe a little update on those.

Yeah, Joe, another good question. So, you know, gaming for us was good in 2024, and the drivers of the performance were new product introductions and effective execution in our international expansion. We didn't see that until late in the year, right? And so Japan had a really strong Q4. I think it's premature to talk about whether that's long-term success, but we were certainly encouraged by what we saw late in the year with our international expansion efforts. And those were enabled by a number of our licenses that we secured throughout the year and in 2023. So while we have been discussing this, the licensing work that we've done has enabled us to open doors in markets like Japan, which we've talked about on previous calls. I do expect some headwinds in 2025, particularly early as Nintendo is moving to their next gen of Switch. We anticipate that demand for our current products for Nintendo support are going to be weak in the first half of the year, and we'll see what happens in the back half once they launch.

But 2024 was strong, and it was really driven by new products and international expansion which we talked about previously on on calls okay great and then one more if i may you know one of the things you talked about you know throughout last year you know was retailers and their inventory positions and you know uh them taking a a uh holding less inventory than normal and i know it's very early days to talk about back to school for this year but as you're sitting there today you know kind of give us your view of of what you think the retailers will do on the inventory front?

Yeah. As you said, it's early, so we don't have a lot of insights on BTS 2025 in North America, but we do anticipate that leading retailers in the U.S. will be conservative with their approach. They'll hold us, again, to a fairly high standard in terms of coming out of the season clean from an inventory perspective. So I don't anticipate any headwinds or tailwinds, frankly. I think it'll be consistent with what we saw last year in North America.

Great. Thanks. I'll get back in queue.

Okay, Joe. Thank you.

We have a question from Greg Burns of Sidoti. Please go ahead. Okay.

Good morning. The remainder of the cost savings, the $75 million that you expect to get over the next two years, what is the timing or the cadence of that? Is that going to be kind of ratable over the next two-year period or back-end weighted in 26 or this year? How should we think about modeling that in?

Yeah, we're thinking next year, you know, we gave this year's number of $25 million, next year kind of in that $40 million range, and then the remainder in 26.

Okay. Okay. And when you look at M&A opportunities, is it going to be more focused in those kind of near adjacent categories or might you do something like the gaming acquisition, getting into a whole new market?

What is your preference when you look at M&A? yeah you know greg it's it's probably a bit premature to talk about anything specifically but we want to make sure that what we are doing is relatively low risk you know m&a inherently has risk associated with it but you can take that term and that wording as you wish but you know we're looking at highly accretive relatively low risk m&a opportunities in the near term Yeah, something that gives us a payback pretty quickly so we keep that leverage ratio where we're comfortable.

Okay, so you wouldn't be necessarily looking to lever up the balance sheet anymore than it currently is with one of these transactions?

I mean, acquisitions kind of poppy up a little bit, but we're looking for acquisitions that have good payback, and we're very cognizant of our leverage ratio and keeping it as low as we can. Okay, thanks.

And then in Brazil, have you seen any change there? I know, like, this last quarter, the start to the back-to-school season was weak there. Have you seen any improvement or any change in the outlook there for the first quarter?

Yeah, Greg. So, in Brazil, we're really wrapping up the back-to-school season. So, we're getting insights from sell-out of our product. Certainly, the trends, we believe, improved modestly from what we saw in Q4, but it's a little early for us to obviously publicly talk about it. But we are seeing modestly improvement, modestly improving trends in Brazil. But we're also seeing some things that we need to react to as a business, right? The price points are very competitive there. We've seen consumers trading down, and so our teams are actively looking at the insights from this year's back-to-school season and putting in plans to react to them for 2026 and make sure that we're in the best possible position to take market share and defend our leading category positions.

All right. Thank you.

Thank you.

As a reminder, to ask a question, please press star followed by one on your telephone keypad. We have a question from Kevin Steinke of Barrington Research. Please go ahead.

Good morning. Just starting off, I guess, with more of a housekeeping question, just in terms of the sales outlook for both the first quarter and the full year 2025, you talked about comparable sales. you know does that are you building any sort of uh currency impact into that or is that kind of would that be in addition to the comparable sales uh ranges that that you're talking about yeah kevin so we're comparable is without fx um and we're anticipating the fx headwind in the first quarter to be you know kind of four percent and then it tapers off to like two percent as we end the year but it's a pretty strong headwind that we're facing on the fx but comparable does exclude the fx okay uh thank you that's helpful um and so uh when when we we think about tariffs can you just maybe just walk us through some of the scenario planning you're thinking through or going through to account for all the variances and possibilities that could potentially happen on that front?

Yeah, Kevin, that's a good question, obviously one that our team is actively working as we speak. I think the first thing to reinforce is we have a very balanced supply chain. We're not overly dependent on imports from China, which is the one tariff that we know has been enacted, that we've reacted to. Our supply chain is diverse. It includes other countries of origin in Asia that support the U.S., but we also have local manufacturing really across the globe that enables us to be competitive from a supply chain perspective, which is helpful in this scenario. So our teams have sent price increase intent letters out to our customers So we are working on passing along the impact of tariffs and price, and we're also actively managing our supply chain to ensure that we have the most cost-competitive sources really across the globe. And, you know, I'm pretty comfortable with where we are, but as you know, it's difficult work and it's changing pretty rapidly. So as we get more information, we process that internally and we work with our customers and our suppliers to mitigate the impact of the company.

Okay, thank you. Yeah, I guess it's been a while since you've done acquisitions, but can you talk about what you're doing internally to build that pipeline and, you know, how the pipeline is shaping up? competition for opportunities, valuations, et cetera, to the extent that you're, you know, comfortable talking about some of those topics?

Yeah, I think, you know, our pipeline is I'm comfortable with it. I'm probably uncomfortable talking about anything that's specific to it other than what we've already said, right? There'll be synergistic acquisitions. We're going to take a very balanced approach. We're going to be very disciplined. We're going to ensure that it doesn't have an adverse impact to leverage. You know, we want to be careful. As Deb said earlier, we want to be careful with what we do from a leverage perspective. Inherently, it'll go up a bit, but we want to be able to pay that down relatively quickly. So we're really taking a balanced approach to looking at these opportunities, ensuring that they are strategically relevant to us, they put us in a better position as a company, but also financially meet criteria that we've laid out and have aligned as a management team and with our board too.

Okay. Well, thank you for taking the questions. I'll turn it back over.

Okay, Kevin. Thank you.

We have a question from William Reuter from Bank of America. Please go ahead.

Good morning. My first on the 40 million of savings in 25, how will that break down between SG&A and COGS, and what are maybe one or two of the largest buckets there?

Yeah, we're going to, there's a lot for our footprint rationalization that we've been talking about, and that we, you know, announced last year, a couple closures. So all of that is going to be up in our COGS number. So when you get done, you probably have, you know, kind of 50-50, maybe more heavily weighted to the COGS size, the margin size. But, yeah, it represents that as well as, you know, the SG&A reductions that we've talked to you about as well.

Got it. That's helpful. And then on the M&A front, it seems like the tone is slightly different this quarter when you discuss it. maybe a little more either aggressive or optimistic. Is this something based upon what you've seen in the environment in terms of opportunities? Is it based upon some, you know, behaviors and challenges in terms of kind of your organic business? I guess, am I reading it correctly that the tone may be a little bit more aggressive than it's been in the past? And what are the reasons for that?

You know, let me just kick it off and then I'll let Tom talk more strategically. But, you know, the environment was improving in the whole interest expense, interest rates. And so, you know, a year ago or a year and a half ago, we weren't talking about it at all, right, given the environment. So I think some of that has also changed. Now we're watching it closely because that also is changing every day as far as what's going to happen with rates and how M&A activity shapes up, but that's part of it, right? The environment has opened up a bit more than it would have been a year and a half ago.

Yeah, Bill, I think Deb said it well. You know, we have a long history, as we've suggested in our opening remarks of acquisitions. It's a part of our DNA. We do it well. But I think that the main change in tone is really just the environment. A year ago, as Deb mentioned, with interest rates relatively high, with our debt higher than it is today, we just did not feel like we were in a position to actively pursue M&A opportunities. And as our debt has gone down, as the environment has improved, we think it's important to consider all opportunities that get presented to us in the pipeline, and that's what we're doing.

Got it. And then just lastly, in terms of clearly most acquisitions do bring some elevated leverage for a period of time.

How high would you be willing to take leverage, you know, immediately upon an acquisition and then, you know, deliver from there? yeah you know i think it's going to depend on the acquisition itself and the payback and sort of how we look at the synergies that could come off of it um you know we're not going to let ourselves get up to the point you know that we had been right after the power a acquisition um we'll keep it we'll keep it around there got it all right that's all for me thank you thank you we currently have no further questions so i will hand back to tom ted for it for closing remarks thank you

everyone for joining us. We are pleased with our strong execution on our strategic initiatives in 2024. Our proactive actions are yielding positive results and better positioning us for long-term growth. We have a strong balance sheet and generate consistent cash flows, which we will use to invest in both organic and inorganic revenue opportunities. We are actively pursuing highly synergistic, accretive M&A that will provide scale and leverage from our leaner, optimized cost structure. That will result in higher levels of profitability in the future. We appreciate your interest in ACO Brands and look forward to talking with you when we report our first quarter results in May.

This concludes today's call. Thank you for joining. You may now disconnect your lines.