Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Full Year ACCO Brands Earnings. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference call over to your speaker today, Christine Hanneman. Please go ahead.

Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to ACCO Brands first quarter and full year 2020 Earnings Conference Call. Speaking on the call today are Boris Elisman, Chairman, President and Chief Executive Officer of ACCO Brands Corporation; and Neal Fenwick, 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 and restructuring costs 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 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, including statements concerning the impacts of the COVID-19 pandemic on the company, 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. Among the factors that could cause our results to differ materially from our forward-looking statements, are the scope and duration of the COVID-19 pandemic, government actions and third-party responses to it, and the consequences for the global economy, as well as regional and local economies in which we operate, uncertainties regarding how geographies, distribution channels and consumer behavior will evolve over time in response to the pandemic and its impact on our business, operations, results of operations, financial condition and liquidity. 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. I will spend the next few minutes reviewing our fourth quarter and full year 2020 results, including the impact of the pandemic and commenting on the progress we are making against some of our strategic imperatives. Neal will follow me with more details and provide additional comments on our cost reductions, balance sheet and cash outlook. Then we'll take your questions. I'm pleased with our fourth quarter and full-year results in light of the pandemic and the current economic conditions. In the quarter, both sales and profits were within our expectations with fourth quarter comparable sales down 16% and adjusted EPS of $0.32 compared with $0.46 in 2019. A large part of our adjusted EPS performance in the quarter, is the result of many cost reduction actions we took throughout the year. Neal will discuss that in more detail in a few minutes. As anticipated, the fourth quarter sales declined largely as a result of slow sales in Latin America and a seasonal swing to commercial channels in North America. In Brazil there was very limited back-to-school business as public schools remain closed. Likewise our Mexico business was down significantly as schools and many offices remain closed there as well. As a result comparable sales in Latin America were down 35% versus 2019. In North America, a resurgence in COVID-19 cases in November and December kept offices and most schools closed. This, combined with a seasonal sales swing to slower growing commercial channels were the primary reason North America comparable sales were down 21%. Sales of large whiteboards, bulletin boards, large shredders and laminators, binding machines and binders continued to be weak. But there were also several bright spots. Our products that are focused on consumers, technology or home usage continued to…

Thank you, Boris, and good morning everyone. I'm going to discuss the impacts of COVID-19 throughout my comments. Those impacts include the operational, financial and other effects on ACCO Brands, our customers, and end users of our products, the school and business closures, work from home, remote and hybrid learning, government orders, and manufacturing distribution, supply chain or other disruptions resulting from COVID-19. And the actions of ACCO Brands, our customers and end users have taken in response to the pandemic, including actions we have taken to manage our inventory and credit risk under the circumstances. Most of my comments will be related to our full year results. Our 2020 reported and comparable net sales, both decreased approximately 15% due to lower demand from the impact of COVID-19. As Boris noted, we saw strong sales growth in product lines focused on work from home, such as our Kensington computer accessories and TruSens air purifiers. Sales to commercial channels remained very weak and drove most of the full year sales declines. Compared to 2019, sales to commercial and B2B customers declined 25% accounting for 80% of our sales decline. On the other hand ecommerce sales rose 17% while sales to tech specialist channels rose 31% partially due to a large contract in the third quarter and retail and mass sales were down 15% due to declines in store traffic. Full year net income was $62 million or $0.65 per share. Adjusted net income was $67 million and adjusted EPS was $0.70. The primary driver of the year-over-year sales decline with lower volume, factors benefiting adjusted EPS where our cost production efforts bettered profits in EMEA a lower tax rate, lower interest expense and share count. Our growth margin was approximately 30% compared to 32% in 2019. Decreases occurred in all segments…

Thank you. [Operator instructions] Your first question comes from Chris McGinnis from Sidoti & Company. Your line is open.

Yes, good morning. Thanks for taking my questions. I know it's very - I know it's early Boris, but I just want to ask back for maybe the conversations you're having with retailers now maybe its too early but it seems like it should be a bit more positive year than hopefully the last year? Then I also just want to ask about the change in e-commerce. How does that shift the buying patterns and can you just explain your thoughts around the back-to-school for North America this upcoming year and any color you can provide on that? Thank you.

Yes, thanks for the question Chris. It is a little bit too early for back-to-school, but let me share with you how we're thinking about it. We do think that North America back-to-school will be much more skewed towards physical presence of school children. If you remember last year and we talked about back-to-school, in Q3 we said that around 75% were remote, or hybrid and only 25% were going to school physically. We believe that the numbers will probably be reversed. Again, this is our -- I currently believe it is a fluid situation by certainly what we are hearing it is pointing that way. Retailers do have carryover inventory that they have from last season because the sell out was weak. So we expect as a result of that and all of the uncertainty they'll be fairly conservative, and they are upfront purchases and then as they see the sellout they will chase the supply, which will likely benefit domestic manufacturers such as such as ACCO Brands. So, there's nothing more specific that we can provide at this point, because due to all the uncertainty some of the decisions are being delayed until later times and more clarity is provided. But that's kind of how we're thinking about it, going into it. As far as e-commerce is concerned, as Neal mentioned, for us it was a big winner in 2020 with 17% of growth in that channel for the year. All the trends there continue. We think e-commerce will continue to be a winner in 2021, both overall, but also for back-to-school, they were a big winner for back-to-school as well and that should continue and we are well positioned to benefit from growth in e-commerce, both third party e-commerce players, as well as our own direct-to-consumer sales.

Thanks for taking the question, I'll jump back in queue. Thank you.

Thanks Chris.

And your next question will come from Bradley Thomas from KeyBanc Capital Market. Your line is open.

Good morning. This is Andrew on for Brad. I just wanted to talk about, we've all heard the news that Staples has proposed to acquire Office Depot, was wondering if you could remind us how big those customers are to you and what level of risk might there be if that deal came to fruition?

Both customers are less than 10% for us. So you know, beyond that, we don't really provide details, but they are significantly smaller than they used to be. We think if something were to happen there, the risk is very manageable. We are assuming for the next forecasting period, that sales in that particular channel will continue to decline. So if they decline a little bit more, as a result of any potential combination, we think we can manage that pretty well.

Understood, thank you. I will jump back in the queue.

Thank you, Andrew.

And your next question will come from Joe Gomes from Nobel Capital. Your line is open.

Good morning, Boris and Neal. Thanks for taking the question.

Good morning, Joe.

I was wondering, EMEA had a really nice quarter relative to what's going on here, but towards the end of the year now here into the, obviously into January we were seeing the new stories of new types of virus strains, especially in the UK. Just kind of, if you could kind of go over the quarter, did you see monthly sequential improvement and how has that kind of played out so far here in the first quarter? Is it kind of stalled due to some more of these new variants of the virus coming out? Thank you.

Thanks, Joe. EMEA continues to perform really well, continues to perform really well in the second half of the year and that was certainly the case in Q4, where their sales were down slightly over 1% versus 2019. There are several factors that benefit us in EMEA. The fact that we sell to 27 different countries, and we're not dependent on any one to execute flawlessly is a big benefit. Very fragmented channel structure is a big benefit. How the European governments have managed the pandemic, and especially the support they provided to employment to keeping people employed, is a big benefit. The fact that much of our sales, around 40% of our sales in EMEA take place in Germany and Germany is one of the countries that best managed the pandemic. And the job that our team has done, both in supporting customers through these difficult times and becoming a de facto go to company during these difficult times, as well as the emphasis we have on growth initiatives in EMEA and they are fairly broad compared to some of our other regions, so all of those in combinations portend really well for us and we're six weeks into 2021. And that momentum that we had in the second half of the year and in Q4 in EMEA certainly has continued into the initial couple of weeks of 2021.

Thanks for that Boris. I'll get back in queue.

Thank you, Joe.

And your next question will come from Kevin Steinke from Barrington Research. Your line is open.

Good morning. Neal, in your prepared comments, you talked about reinstating incentive compensation in 2021 and also growth initiatives this year. And then also the $30 million to $40 million of savings you expect, I'm just trying to get a sense for the size of the incentive compensation and growth initiatives, how much we should expect that to be in terms of increased expense versus 2020?

Yes, I guess the first point is it will be variable depending on our performance, because all of our incentives are, but it is a headwind year-over-year and it's a significant one in the kind of double-digit millions. So closer towards 17-ish million in terms of total headwind assuming that we hit all of our performance targets. And, it's an important piece of the momentum that we expect to see in the business is getting the worldwide teams focused on growing the business again. It's for the full year, obviously, that impact and it will have an impact each quarter, but the business hopefully will be recovering to drive that.

Okay, great. That's very helpful. Thanks for taking the questions.

Thanks, Kevin.

Your next question will come from Hale Holden from Barclays. Your line is open.

Good morning, thanks for taking my call. I just had two questions. In the slide deck, you called out some commodity costs, headwinds or input cost headwinds and I was wondering if you could give us a little bit more color on that? And then, in the presentation Boris, you talked a little bit about how reopening in Australia had gone well, once Victoria had lifted restrictions, and I was wondering, if there are any takeaways we could get from that for what the broader business could look like when restrictions fall away?

Sure, regarding inflation, and I'll let Neal add to that as well, but right now, what we're seeing driving the most inflation is supply chain costs associated with product coming from Asia to the other parts of the world. There's a container shortage in China as a result of the imbalance and trade between what's coming in, into China, what's going out of China and that's driving huge increases in container costs and inbound freight and we're seeing that throughout the world, in U.S. and in Europe, and in other parts of the world. We expect those costs to stay elevated in the near term. Hopefully, they'll decline in the second half of the year, but certainly in the near term, we expect them to stay elevated. That's what's driving the fairly significant inflation that we're seeing right now. As far as other commodities are concerned, it's been fairly benign, although certainly oil is up compared to the prior year, so that's going to drive some level of inflation. And then, people costs, as Neal answered to a previous question will certainly be a source of inflation as well. Neal, do have anything to add to that?

Yes, there's one other, which was we saw a lot of currency fluctuations during the year as a whole and so overall FX for us was an adverse drag. And because we source a lot of product in China or U.S. dollars and sell it in international markets in local currencies, it's a source of inflation in those markets.

Hale, I'm sorry, and remind me of your second question, please?

You have talked about reopening in Australia and some of the benefits you had seen there when the restrictions fell away I think at Victoria, and I was just wondering if there were takeaways for other markets we could think through?

Yes, Australia, as many of you know, also is one of the countries that managed the pandemic very well. They have very low incidence of COVID. Their schools are open, their offices are open. We saw little decline in Australia in the second half of the year, a little decline in Q4 and in fact that in December their sales were up compared to prior year. So certainly, we're hopeful that if that's how the world's going to look like, after we recover from COVID, that as people go back to the offices, we'll see similar levels of performance and demand. But Australia numbers were good in the second half of the year.

Great, thank you very much.

Thanks, Hale.

And your next question will call from William Reuter from Bank of America. Your line is open.

Hi, so my first question is on the cost savings, the $80 million or so that you saved last year, some of those were temporary and some are permanent. Have you talked about what component of those may be coming back this year?

Well, certainly the incentive part that Neal talked about is going to come back. Some of the -- we also took some salary cuts and that’s obviously, is going to come back. And then we also significantly reduced discretionary spend throughout the company with the sales decline and that's going to be variable of the sales upcoming back, then we will invest more. Obviously, if things get delayed, as far as recovery is concerned that we will temper down on those expenses as well. We don't really have it broken down by a proportion of how much is temporary, how much is permanent. As Neal mentioned in response to the previous question, most of our anticipated increases in expenses this year have to do with restoring the incentive compensation and then the discretionary expenses will depend on sales.

Okay. And then you mentioned freight, I know that logistics in terms of supply chain from Asia has been getting a little bit messed up at times. In terms of PowerA, given the console launches, I would imagine they have some pretty good tailwinds here, and it's important to get product on the shelves. Is there any concern that there could be some disruption there that may, I guess, delay sales or eliminate them?

PowerA has managed their supply chain fairly well, given what's going on. The lead times associated with some of their products are up to six months or so. So they have to be well ahead of it and they are planning for growth. So they're ordering the products up front. We could always use more product. Right now we are really supply constrained versus demand constrained, but kind of given the plans that I've outlined and given what we anticipate to happen throughout 2021, I think PowerA is in fairly decent shape. And a lot of the delays in the port in the West Coast are starting to reduce, so that's also helping.

Good to hear. All right, I'll pass it to others. Thank you.

Thanks, Bill.

And your next question will come from Karru Martinson from Jefferies. Your line is open.

Good morning. With the success of the PowerA acquisition and certainly the demand being there, what's the outlook for M&A for you guys as you look at your capital structures and kind of getting back to that 2 to 2.5 times target leverage ratio?

Well, this year we're going to be focusing on delivering the business and supporting our dividend. If there is a small acquisition and when I say small, let's say less than $50 million, that's a tuck-in, that makes sense, we'll take a look at it, but we're not contemplating anything large this year. We'll be focused on integrating PowerA and delivering the business and then come 2022, we think we will be in position potentially to do more, but right now the focus is on integration and delivering.

Okay and just given the cap structure, the notes 2024 callable, what's your thoughts there?

We wanted to -- what happens in the capital markets all of the time and it's something we're well aware of and as coal gets cheaper later in the year as well.

All right, thank you very much. I appreciate it.

Thanks, Karru

And your next question will come from Hamed Khorsand from BWS Financial. Your line is open.

Good morning. I was just wanting to see how much, or how -- the delta between last year sales in 2019 that was harmed because of equipment sales, how much of that do you think comes back this year? And are you planning to increase any of the equipment manufacturing to have adequate supply?

Thanks for the question Hamed. It's difficult to say. We have better visibility near term, that's why we provided guidance for Q1 only, and certainly in Q1 we don't expect a recovery compared to 2019. We expect the kind of level of sales that we saw, or the trend that we saw in the second half of the year and in Q4 to continue in Q1. We're certainly hopeful that things will begin to recover in the second half of the year and if they do, and people start going back to their offices that we do expect a recovery in equipment sales as well. Right now, we don't really anticipate that. Even if that happens and that recovered to the level of 2019, we think that's a little bit too quickly, but any recovery will be good recovery. That's an important business for us and if it starts growing, it will certainly help with our performance.

I mean just to reiterate right that point, different countries the recovery will be different times. And you know we certainly expect South America to recover slower. And so, we do anticipate a recovering environment all the way through 2022, as I mentioned in my remarks.

Got it. Thank you very much.

Thanks, Hamed.

[Operator Instructions] Your next question comes from Jeff Hutz from J.P. Morgan. Your line is open.

Hi, thanks for taking the question. Just two quick ones on PowerA, did you say how PowerA is doing since you acquired it, meaning in January and February? That's question one. And the second part is, can you remind us, is PowerA gross margin and EBITDA margin accretive, and we know it's growth accretive, but just on the margin front, is it accretive or how does it stack up? Thanks.

Thanks, Jeff. We didn't say, but PowerA is doing really well in the six weeks since we acquired them, so we're very pleased with their performance and growth. And as far as margins are concerned, I know they are EBITDA accretive, very significantly, EBITDA accretive. As far as gross margins Neal, I'll let you comment on that, whether they're positive.

They're very much in line.

In line with our averages and the gross margin level and part of why they are EBITDA accretive is because we left their former owner with all of the fixed costs. So once we're off the transition services agreement, we're able to leverage our fixed cost base, and that's what makes it really incrementally much stronger EBITDA.

Great, thank you.

Thanks, Jeff.

We have no further questions in queue at this time. I'll turn the call back over to the presenters for closing remarks.

Thank you, Michelle. Thank you, everybody for your interest in ACCO Brands. To summarize, while we continued to see impacts of COVID-19 in our business in Q4, I'm pleased with our overall response and relative results. With the addition of PowerA we will continue to transform our business towards being more consumer-focused and are well positioned to benefit from economic recovery, which could occur later this year. We look forward to reporting on our progress at our next call. Have a great day.

Thank you, everyone for joining us today. This will conclude today's conference call. You may now disconnect.