ACCO Brands : First Quarter 2024 Conference Call Slides

ACCO Brands | 1Q Earnings Conference Call | May 3, 2024

Forward-Looking Statements

Statements contained herein, other than statements of historical fact, particularly those anticipating future financial performance, business prospects, growth, strategies, business operations and similar matters, results of operations, liquidity and financial condition, and those relating to cost reductions and anticipated pre-tax savings and restructuring costs are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management based on information available to us at the time such statements are made. These statements, which are generally identifiable by the use of the words "will," "believe," "expect," "intend," "anticipate," "estimate," "forecast," "project," "plan," and similar expressions, are subject to certain risks and uncertainties, are made as of the date hereof, and we undertake no duty or obligation to update them. Forward-looking statements are subject to the occurrence of events outside the Company's control and actual results and the timing of events may differ materially from those suggested or implied by such forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. Investors and others are cautioned not to place undue reliance on forward-looking statements when deciding whether to buy, sell or hold the Company's securities.

Our outlook is based on certain assumptions which we believe to be reasonable under the circumstances. These include, without limitation, assumptions regarding the impact of inflation and global geopolitical and economic uncertainties and fluctuations in foreign currency exchange rates; and the other factors described below.

Among the factors that could cause our actual results to differ materially from our forward-looking statements are: a relatively limited number of large customers account for a significant percentage of our sales; sales of our products are affected by general economic and business conditions globally and in the countries in which we operate; risks associated with foreign currency exchange rate fluctuations; challenges related to the highly competitive business environment in which we operate; our ability to develop and market innovative products that meet consumer demands and to expand into new and adjacent product categories that are experiencing higher growth rates; the long-term impacts of the COVID-19 pandemic; our ability to successfully expand our business in emerging markets and the exposure to greater financial, operational, regulatory, compliance and other risks in such markets; the continued decline in the use of certain of our products; risks associated with seasonality; the sufficiency of investment returns on pension assets, risks related to actuarial assumptions, changes in government regulations and changes in the unfunded liabilities of a multi-employer pension plan; any impairment of our intangible assets; our ability to secure, protect and maintain our intellectual property rights, and our ability to license rights from major gaming console makers and video game publishers to support our gaming accessories business; our ability to successfully execute our multi-year restructuring and cost savings program and realize the anticipated benefits; continued disruptions in the global supply chain; risks associated with inflation and other changes in the cost or availability of raw materials, transportation, labor, and other necessary supplies and services and the cost of finished goods; risks associated with outsourcing production of certain of our products, information technology systems and other administrative functions; the failure, inadequacy or interruption of our information technology systems or its supporting infrastructure; risks associated with a cybersecurity incident or information security breach, including that related to a disclosure of personally identifiable information; our ability to grow profitably through acquisitions, and successfully integrate them; risks associated with our indebtedness, including limitations imposed by restrictive covenants, our debt service obligations, and our ability to comply with financial ratios and tests; a change in or discontinuance of our stock repurchase program or the payment of dividends; product liability claims, recalls or regulatory actions; the impact of litigation or other legal proceedings; the impact of additional tax liabilities stemming from our global operations and changes in tax laws, regulations and tax rates; our failure to comply with applicable laws, rules and regulations and self-regulatory requirements, the costs of compliance and the impact of changes in such laws; our ability to attract and retain qualified personnel; the volatility of our stock price; risks associated with circumstances outside our control, including those caused by public health crises, such as the occurrence of contagious diseases, severe weather events, war, terrorism and other geopolitical incidents; and other risks and uncertainties described in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, and in other reports we file with the Securities and Exchange Commission.

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Reg. G - Non-GAAP Financial Measures

An explanation of how we calculate each of our Non-GAAP financial measures and a reconciliation of our current period and historical non-GAAP financial measures to the most directly comparable GAAP financial measures can be found at the end of this presentation.

We use our non-GAAP financial measures both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe our non-GAAP financial measures provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance.

Our non-GAAP financial measures exclude certain items that may have a material impact upon our reported financial results such as restructuring charges, the impact of foreign currency exchange rate fluctuations, unusual tax items, goodwill impairment charges, and other non-recurring items that we consider to be outside of our core operations. On an interim basis, we also calculate adjusted income tax expense using our estimated annual income tax rate. These measures should not be considered in isolation or as a substitute for, or superior to, the directly

comparable GAAP financial measures and should be read in connection with the Company's financial statements presented in accordance with GAAP.

We also provide forward-lookingnon-GAAP comparable sales, adjusted earnings per share, free cash flow, adjusted EBITDA, and historical and forward-looking consolidated leverage ratio. We do not provide a reconciliation of these forward-looking and historical non-GAAP measures to GAAP because the GAAP financial measure is not currently available and management cannot reliably predict all the necessary components of such non-GAAP measures without unreasonable effort or expense due to the inherent difficulty of forecasting and quantifying certain amounts that are necessary for such a reconciliation, including adjustments that could be made for restructuring, integration and acquisition-related expenses, the variability of our tax rate and the impact of foreign currency fluctuation and material acquisitions, and other charges reflected in our historical results. The probable significance of each of these items is high and, based on historical experience, could be material.

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1Q 2024 Key Messages

• Reported net and comparable sales down due to weaker consumer and business spending and from the exit of lower margin business
• Lower demand for end of season back-to-school in Brazil
• Computer accessories rate of decline is moderating
• Gaming accessories grew
• Gross margin expanded 120 basis points due to moderating input costs, cost savings and strategic pricing
• Executing on our $60 million multi-year cost reduction program

1. Achieved $4 million in savings in the first quarter

• 1. On track to deliver savings of over $20 million in 2024
• Generated free cash flow of $26 million, an improvement of $51 million versus the prior year
• 3.5x leverage ratio at quarter end, versus 4.3x last year
• Maintain free cash flow outlook of at least $120 million in 2024

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1Q Results Summary

Comparison Versus Prior Year

SALES

Down 11% to $359M;

Comparable sales down 11%

to $357M

OPERATING

INCOME

$5.9M versus $10.1M;

adjusted operating income

$16.2M versus $24.3M

• Volume impacted globally by weaker consumer and business spending and from the exit of lower margin business in the Americas segment
• Americas sales decline reflects industry wide trends and lower season end demand for back-to-school products in Brazil
• International sales decline reflects weaker economic activity due to softer consumer and business spending
• Operating income dollars and margin rate lower due to the lower sales volumes and negative fixed cost leverage, more than offsetting moderating input costs, cost reduction initiatives and pricing
• Americas segment adjusted operating margin down due to lower sales volumes and negative fixed cost leverage
• International segment adjusted operating margin expanded despite the sales decline due to moderating input cost and cost actions

EPS

Loss per share of ($0.07) versus loss per share of ($0.04); adjusted EPS $0.03 versus $0.09

FREE CASH FLOW

$26M versus prior year

outflow of $25M

• Adjusted EPS down due to lower level of net income
• Free cash flow improved $51M driven by working capital
• Dividend payments of $7M
• Gross debt down $138M year over year
• 3.5x consolidated net leverage ratio at quarter end

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1Q Segment Financial Metrics

		1Q 2024	1Q 2023	Y/Y
$ in millions		Change
	ACCO Brands Americas
Sales	$197.1	$230.0	(14.3%)
Comparable Sales	$194.8	$230.0	(15.3%)
Adjusted Operating Income	$12.3	$18.7	(34.2%)
Adjusted Operating Margin	6.2%	8.1%	(190 bps)
ACCO Brands International
Sales	$161.7	$172.6	(6.3%)
Comparable Sales	$162.4	$172.6	(5.9%)
Adjusted Operating Income	$16.9	$17.5	(3.4%)
Adjusted Operating Margin	10.5%	10.1%	40 bps

Note: Comparable Sales and Adjusted Operating Income are Non-GAAP Financial Measures

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1Q Segment Results Summary

Comparison Versus Prior Year

Americas

• Lower sales due to softer consumer and business demand and from the exit of low margin business
• Lower end-of-season back- to-school sales in Brazil
• Gaming accessories category growth
• Adjusted operating margin down 190 basis points reflecting lower sales and negative fixed cost leverage

International

• Lower sales due to softer consumer and business demand for legacy products
• Computer accessories rate of decline is moderating
• Gaming accessories category growth
• Adjusted operating margin improved 40 basis points from the moderating input costs, cost actions and pricing

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1Q 2024 Margin Reconciliation

1Q	Change vs.	Items of Significant	Bps
2024	Prior Year	Impact

Gross Profit

$110.4M	($8.9M)	Pricing/Product Cost	140
		Cost Savings	50

Gross Margin	30.8%	+120 Bps	Volume	(120)
			FX/Other	50
SG&A	$94.2M	($0.8M)	Cost Savings	(90)
			Sales Deleverage	290
SG&A Margin	26.2%	(260 bps)	Incentive Compensation	50
			Investments/Other	10

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Free Cash Flow

				Change vs
$ in millions*	1Q 2024		1Q 2023	2023
Net cash provided by operations	28		(23)	51
Additions to PP&E	(2)		(2)	--
Free cash flow	26		(25)	51
Dividends paid	(7)		--	(7)
Other, net	(2)		(2)	--
Increase in debt	42		90	(48)
Increase in cash on hand	58		65	(7)

Debt/Cash Reconciliation	Debt	Cash
$ in millions*
Beginning of period 12/31/2023	926	66
Increase	42	59
FX	(7)	(1)
End of period 03/31/2024	961	125

*Numbers may not foot due to rounding

Note: Adjusted free cash flow is a non-GAAP financial measures

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Capital Structure

	($ in millions)
Facility	Balance1	Interest Rate Methodology	Rate
$600M multicurrency revolver	71	SOFR + CSA3	+ 175 bps, 30 bps unused	7.07%
USD Term Loan A	76	SOFR + CSA3	+ 175 bps	7.18%
EUR Term Loan A	208	EURIBOR + 175 bps	5.65%
AUD Term Loan A	30	Australian BBSR + 175 bps	6.17%
Subtotal Senior secured credit facilities2	385	Weighted average	6.26%
Senior unsecured notes	575	4.25% fixed		4.25%
Total Gross Debt2	961	Weighted average interest rate	5.06%

1. Currencies converted using March 31, 2024, closing spot rates.
2. Is not net of debt issuance costs of $6.2 million.
3. Credit Spread Adjustment of 10 bps.
4. • Capital structure as of March 31, 2024
   • Company had cash on hand of $124.6M
   • Fixed rate debt matures in 2029; credit facility matures in 2026
   • Debt is split 60/40 fixed and variable with weighted average rate of 5.06%

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