- Achieved solid North America back-to-school sell through; Five
Star® outperformed the market
- Realized double-digit sales and profit growth in the
International segment, led by Latin America
- Implemented multiple cost and pricing actions to improve margin
profile
- Generated $88 million in cash from operations; adjusted free
cash flow of $84 million
- Increased financial flexibility with a new bank amendment
- Declared $0.075 quarterly dividend
ACCO Brands Corporation (NYSE: ACCO) today announced its third
quarter results for the period ended September 30, 2022.
"Our third quarter results were in line with our October 13th
update. During the quarter, our North America segment had strong
sell-through in back-to-school, office and technology categories;
however, these improvements were more than offset by retailers'
more cautious approach to inventory replenishment. In Europe, the
current energy crisis and significant inflation have created a more
challenging macroeconomic environment, impacting sales and profits
in our EMEA segment. Our International segment delivered excellent
results with double digit growth in sales and profits. To offset
the near-term macroeconomic challenges, we have implemented cost
savings and pricing actions," said Boris Elisman, Chairman and
Chief Executive Officer of ACCO Brands.
"We remain confident in our strategy and that the solid
fundamentals of our overall business have us well positioned for
long-term profitable growth. The Company is well-capitalized and
generates robust free cash flow which will enable us to
successfully navigate the current economic environment. Our
strategic transformation plan to be a more consumer, brand, and
technology centric company remains on track," added Elisman.
Third Quarter Results
Net sales declined 7.8 percent to $485.6 million from $526.7
million in 2021. Adverse foreign exchange reduced sales $29.9
million, or 5.7 percent. Comparable sales fell 2.1 percent. Both
reported and comparable sales declines were due to lower inventory
replenishment by retailers and a challenging demand environment in
many countries, especially in Europe. These more than offset global
price increases and strong volume growth in our International
segment.
Operating loss was $63.0 million versus operating income of
$38.6 million in 2021 primarily due to a non-cash goodwill
impairment charge of $98.7 million related to the North America
segment. Adjusted operating income decreased to $42.8 million from
$57.0 million in the prior year. Both reported and adjusted
operating loss/income reflect the impact of higher inflation which
was not fully offset by price increases, lower volume and adverse
foreign exchange of $1.9 million, partially offset by lower
incentive compensation expense.
The Company reported a net loss of $68.7 million, or ($0.73) per
share, compared with net income of $20.2 million, or $0.21 per
share, last year. The net loss is primarily due to the non-cash
goodwill impairment charge of $98.7 million, with no associated tax
benefit. Foreign currency exchange reduced reported earnings per
share by $0.01. Adjusted net income was $24.1 million, or $0.25 per
share, compared with $31.7 million, or $0.33 per share in 2021. The
declines in underlying net income and adjusted net income were due
to the items noted above in operating income, partially offset by
lower net interest expense and a lower tax rate.
Business Segment Results
ACCO Brands North America - Sales of $257.2 million decreased
10.5 percent from $287.5 million in 2021 and comparable sales
declined 10.0 percent to $258.5 million. The decreases in both were
primarily due to lower volumes related to inventory destocking by
retailers and lower sales of gaming accessories, partially offset
by price increases and higher sales of computer accessories.
Operating loss was $78.4 million versus operating income of
$34.6 million in 2021. The loss is primarily due to the $98.7
million non-cash goodwill impairment charge. Adjusted operating
income of $25.8 million decreased from $41.6 million in 2021. The
decreases in operating income and adjusted operating income reflect
the impact of lower sales and gross margins from higher inflation
on purchased finished goods and transportation, and increased
go-to-market expense to support back-to-school sell-through.
ACCO Brands EMEA - Sales of $130.3 million decreased 19.1
percent from $161.1 million in 2021. The impact of adverse foreign
exchange reduced sales $24.1 million, or 15.0 percent. Comparable
sales of $154.4 million decreased 4.1 percent. Both reported and
comparable sales declines were due to lower volumes which more than
offset price increases. In Europe, the current energy crisis and
significant inflation have created a more challenging macroeconomic
environment impacting sales.
The segment posted operating income of $4.9 million compared
with operating income of $13.4 million in 2021. Adjusted operating
income was $7.4 million, down from $17.3 million in 2021. The
decreases in both operating income and adjusted operating income
were due to lower sales and reduced gross margins reflecting
negative fixed cost leverage and higher costs for raw materials and
freight due to significant inflation.
ACCO Brands International - Sales of $98.1 million increased
25.6 percent from $78.1 million in 2021 due to increased volume and
higher prices, primarily in Latin America from in-person education.
Adverse foreign exchange reduced sales by $4.5 million. Comparable
sales were $102.6 million, up 31.4 percent, for the same
reasons.
Operating income of $17.3 million increased from $7.3 million in
2021 due primarily to higher sales and improved expense leverage.
Adjusted operating income of $19.2 million increased from $9.8
million due to the same factors.
Nine Month Results
Net sales decreased 0.5 percent to $1,448.2 million from
$1,455.0 million in 2021. The unfavorable impact of foreign
exchange reduced sales by $68.4 million, or 4.7 percent. Comparable
sales increased 4.2 percent. Both reported and comparable sales
reflect the benefit of higher prices in all segments and strong
volume growth in the International segment, partially offset by
lower volumes in EMEA due to the challenging macroeconomic
environment, and in North America due to weaker sales of gaming
accessories.
Operating loss of $0.8 million compares to operating income of
$87.4 million in 2021, primarily due to the non-cash goodwill
impairment charge of $98.7 million, partially offset by the
favorable change of $25.5 million related to the PowerA contingent
earnout. Adjusted operating income declined to $123.5 million from
$148.8 million last year. Both reported and adjusted operating
loss/income reflect the impact of inflation that exceeded the
benefit of price increases, partially offset by reduced incentive
compensation expense. Unfavorable foreign exchange reduced
operating income $4.1 million.
Net loss was $32.0 million, or ($0.33) per share, compared with
net income of $48.4 million, or $0.50 per share, in 2021,
reflecting the changes in reported operating income noted above. In
addition, prior year net income included expenses related to the
debt refinancing which did not repeat in 2022. Adjusted net income
was $70.5 million, compared with $83.7 million in 2021, and
adjusted earnings per share were $0.73 compared with $0.86 in 2021.
The declines in adjusted net income reflect the changes noted above
for adjusted operating income, partially offset by lower net
interest expense.
Capital Allocation and Dividend
Year to date, the Company had $9.6 million of net cash outflow
from operating activities. Adjusted free cash outflow of $12.0
million represents cash used by operating activities of $9.6
million, excluding cash payments made for the PowerA contingent
earnout of $9.2 million, less cash used for additions to property,
plant and equipment of $11.8 million, plus cash proceeds from the
disposition of assets of $0.2 million. Year to date, the Company
paid $21.5 million in dividends and repurchased 2.7 million shares
for $19.4 million.
Effective November 7, 2022, the Company entered into an
amendment to its bank credit agreement which increases its maximum
consolidated leverage ratio covenant, beginning with the fourth
quarter of 2022, and favorably amends several other items.
ACCO Brands announced on November 7, 2022, that its board of
directors declared a regular quarterly cash dividend of $0.075 per
share. The dividend will be paid on December 12, 2022, to
stockholders of record as of the close of business on November 25,
2022.
"ACCO Brands has a transformed product portfolio that is more
consumer, brand and technology centric and geographically diverse,
which will deliver sustainable organic revenue growth as global
economies recover. Furthermore, we believe our price increases,
productivity improvement and cost reduction actions, together with
an expected moderation of inflation, position us well for margin
expansion, and profitability and cash flow improvement in the year
ahead," Elisman added.
Reaffirming Full Year 2022 Outlook
The full year outlook reflects a moderating demand environment
for the remainder of the year, continuing cost inflation, and
adverse foreign currency exchange. However, the Company anticipates
sequential gross margin improvement in the fourth quarter, as its
pricing and cost reduction actions further mitigate the impact of
cumulative inflationary cost increases. The full year impact of
foreign currency translation is expected to reduce net sales by
4.5% and adjusted EPS by $0.05.
Full Year 2022
Outlook
Net Sales*
$1.940 to $1.980 billion
Comparable Net Sales Growth
0% to 2%
Adjusted EPS
$1.05 to $1.10
Adjusted Free Cash Flow
$90M to $100M
Adjusted Tax Rate
Approximately 29%
Consolidated Leverage Ratio
3.8x to 3.9x
(*) Based on spot rates as of
10/31/2022
Webcast
At 8:30 a.m. EDT on November 8, 2022, ACCO Brands Corporation
will host a conference call to discuss the Company's third quarter
2022 results. The call will be broadcast live via webcast. The
webcast can be accessed through the Investor Relations section of
www.accobrands.com. The webcast will
be in listen-only mode and will be available for replay following
the event.
About ACCO Brands Corporation
ACCO Brands, the Home of Great Brands Built by Great People,
designs, manufactures and markets consumer and end-user products
that help people work, learn, play and thrive. Our widely
recognized brands include AT-A-GLANCE®, Five Star®, Kensington®,
Leitz®, Mead®, PowerA®, Swingline®, Tilibra® and many others. More
information about ACCO Brands Corporation (NYSE: ACCO) can be found
at www.accobrands.com.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with
generally accepted accounting principles (GAAP), we have provided
certain non-GAAP financial information in this earnings release to
aid investors in understanding the Company's performance. Each
non-GAAP financial measure is defined and reconciled to its most
closely related GAAP financial measure in the "About Non-GAAP
Financial Measures" section of this earnings release.
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, 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. Because actual results may
differ materially from those suggested or implied by such
forward-looking statements, you should not place undue reliance on
them 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 the COVID-19
pandemic and the war in Ukraine; changes in the competitive
landscape, including ongoing uncertainties in the traditional
office products channels; as well as the impact of inflation and
global economic uncertainties, fluctuations in foreign currency
exchange rates and acquisitions; and the other factors described
below.
Among the factors that could cause our actual results to differ
materially from our forward-looking statements are: our ability to
improve profitability and adjusted free cash flow in the near-term
by curtailing hiring, reducing inventory and limiting discretionary
spending and capital expenditures; our ability to obtain additional
price increases and realize longer-term cost reductions; the
ongoing impact of the COVID-19 pandemic; a relatively limited
number of large customers account for a significant percentage of
our sales; issues that influence customer and consumer
discretionary spending during periods of economic uncertainty or
weakness; 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; 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 business; continued disruptions in
the global supply chain; risks associated with changes in the cost
or availability of raw materials, transportation, labor, and other
necessary supplies and services and the cost of finished goods; the
continued global shortage of microchips which are needed in our
gaming and computer accessories businesses; 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;
our ability to successfully integrate acquisitions and achieve the
financial and other results anticipated at the time of acquisition,
including planned synergies; 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; 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 like
COVID-19, 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, 2021, and in other reports we
file with the Securities and Exchange Commission.
ACCO Brands Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
September 30, 2022
December 31, 2021
(in millions)
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
78.0
$
41.2
Accounts receivable, net
351.3
416.1
Inventories
431.0
428.0
Other current assets
53.9
39.6
Total current assets
914.2
924.9
Total property, plant and equipment
577.5
656.4
Less: accumulated depreciation
(392.3
)
(441.8
)
Property, plant and equipment, net
185.2
214.6
Right of use asset, leases
88.5
105.2
Deferred income taxes
98.4
115.9
Goodwill
666.9
802.5
Identifiable intangibles, net
838.5
902.2
Other non-current assets
37.5
26.0
Total assets
$
2,829.2
$
3,091.3
Liabilities and Stockholders'
Equity
Current liabilities:
Notes payable
$
1.3
$
9.4
Current portion of long-term debt
27.3
33.6
Accounts payable
214.4
308.2
Accrued compensation
39.4
56.9
Accrued customer program liabilities
88.9
101.4
Lease liabilities
20.9
24.4
Current portion of contingent
consideration
—
24.8
Other current liabilities
111.4
149.9
Total current liabilities
503.6
708.6
Long-term debt, net
1,045.0
954.1
Long-term lease liabilities
75.1
89.0
Deferred income taxes
139.2
145.2
Pension and post-retirement benefit
obligations
176.9
222.3
Contingent consideration
—
12.0
Other non-current liabilities
108.1
95.3
Total liabilities
2,047.9
2,226.5
Stockholders' equity:
Common stock
1.0
1.0
Treasury stock
(43.4
)
(40.9
)
Paid-in capital
1,895.2
1,902.2
Accumulated other comprehensive loss
(555.6
)
(535.5
)
Accumulated deficit
(515.9
)
(462.0
)
Total stockholders' equity
781.3
864.8
Total liabilities and stockholders'
equity
$
2,829.2
$
3,091.3
ACCO Brands Corporation and
Subsidiaries
Consolidated Statements of
Income (Unaudited)
(In millions, except per share
data)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
% Change
2022
2021
% Change
Net sales
$
485.6
$
526.7
(7.8
)%
$
1,448.2
$
1,455.0
(0.5
)%
Cost of products sold
348.2
369.5
(5.8
)%
1,041.2
1,018.2
2.3
%
Gross profit
137.4
157.2
(12.6
)%
407.0
436.8
(6.8
)%
Operating costs and expenses:
Selling, general and administrative
expenses
93.9
101.8
(7.8
)%
284.3
293.5
(3.1
)%
Amortization of intangibles
9.9
11.6
(14.7
)%
31.5
35.2
(10.5
)%
Restructuring charges
0.1
0.3
(66.7
)%
2.3
4.2
(45.2
)%
Goodwill impairment
98.7
—
NM
98.7
—
NM
Change in fair value of contingent
consideration
(2.2
)
4.9
NM
(9.0
)
16.5
NM
Total operating costs and expenses
200.4
118.6
69.0
%
407.8
349.4
16.7
%
Operating (loss) income
(63.0
)
38.6
NM
(0.8
)
87.4
NM
Non-operating expense (income):
Interest expense
12.1
11.2
8.0
%
32.6
36.0
(9.4
)%
Interest income
(2.6
)
(0.6
)
NM
(6.2
)
(1.2
)
NM
Non-operating pension income
(0.5
)
(2.3
)
(78.3
)%
(3.2
)
(5.6
)
(42.9
)%
Other (income) expense, net
(7.4
)
0.1
NM
(10.2
)
4.0
NM
(Loss) income before income tax
(64.6
)
30.2
NM
(13.8
)
54.2
NM
Income tax expense
4.1
10.0
NM
18.2
5.8
NM
Net (loss) income
$
(68.7
)
$
20.2
NM
$
(32.0
)
$
48.4
NM
Per share:
Basic (loss) income per share
$
(0.73
)
$
0.21
NM
$
(0.33
)
$
0.51
NM
Diluted (loss) income per share
$
(0.73
)
$
0.21
NM
$
(0.33
)
$
0.50
NM
Weighted average number of shares
outstanding:
Basic
94.5
95.6
95.6
95.4
Diluted
94.5
97.3
95.6
97.0
Cash dividends declared per common
share
$
0.075
$
0.065
$
0.225
$
0.195
Statistics (as a % of Net sales, except
Income tax rate)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Gross profit (Net sales, less Cost of
products sold)
28.3
%
29.8
%
28.1
%
30.0
%
Selling, general and administrative
expenses
19.3
%
19.3
%
19.6
%
20.2
%
Operating (loss) income
(13.0
)%
7.3
%
(0.1
)%
6.0
%
(Loss) income before income tax
(13.3
)%
5.7
%
(1.0
)%
3.7
%
Net (loss) income
(14.1
)%
3.8
%
(2.2
)%
3.3
%
Income tax rate
(6.3
)%
33.1
%
(131.9
)%
10.7
%
ACCO Brands Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
Nine Months Ended September
30,
(in millions)
2022
2021
Operating activities
Net (loss) income
$
(32.0
)
$
48.4
Amortization of inventory step-up
—
3.0
Payments of contingent consideration
(9.2
)
—
Gain on disposal of assets
(0.1
)
—
Change in fair value of contingent
liability
(9.0
)
16.5
Depreciation
28.6
29.4
Amortization of debt issuance costs
2.0
2.1
Amortization of intangibles
31.5
35.2
Stock-based compensation
7.8
12.2
Loss on debt extinguishment
—
3.7
Non-cash charge for goodwill
impairment
98.7
—
Changes in balance sheet items:
Accounts receivable
48.8
(18.3
)
Inventories
(20.9
)
(116.2
)
Other assets
(20.1
)
(14.4
)
Accounts payable
(80.8
)
55.1
Accrued expenses and other liabilities
(47.2
)
3.2
Accrued income taxes
(7.7
)
(15.9
)
Net cash (used) provided by operating
activities
(9.6
)
44.0
Investing activities
Additions to property, plant and
equipment
(11.8
)
(13.9
)
Proceeds from the disposition of
assets
0.2
—
Cost of acquisitions, net of cash
acquired
—
15.4
Net cash (used) provided by investing
activities
(11.6
)
1.5
Financing activities
Proceeds from long-term borrowings
218.0
651.4
Repayments of long-term debt
(95.2
)
(638.8
)
Proceeds of notes payable, net
(7.6
)
2.3
Payment for debt premium
—
(9.8
)
Payments for debt issuance costs
—
(10.5
)
Dividends paid
(21.5
)
(18.6
)
Payments of contingent consideration
(17.8
)
—
Repurchases of common stock
(19.4
)
—
Payments related to tax withholding for
stock-based compensation
(2.5
)
(0.9
)
Proceeds from the exercise of stock
options
4.3
2.4
Net cash provided (used) by financing
activities
58.3
(22.5
)
Effect of foreign exchange rate changes on
cash and cash equivalents
(0.3
)
(1.5
)
Net increase in cash and cash
equivalents
36.8
21.5
Cash and cash equivalents
Beginning of the period
41.2
36.6
End of the period
$
78.0
$
58.1
About Non-GAAP Financial Measures
We explain below 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 follows.
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, transaction and integration expenses
associated with material acquisitions, the impact of foreign
currency exchange rate fluctuations and acquisitions, unusual tax
items, goodwill impairment charges, and other non-recurring items
that we consider to be outside of our core operations. 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.
Our non-GAAP financial measures include the following:
Comparable Sales: Represents
net sales excluding the impact of material acquisitions with
current-period foreign operation sales translated at prior-year
currency rates. We believe comparable sales are useful to investors
and management because they reflect underlying sales and sales
trends without the effect of acquisitions and fluctuations in
foreign exchange rates and facilitate meaningful period-to-period
comparisons. We sometimes refer to comparable sales as comparable
net sales.
Adjusted Gross Profit:
Represents gross profit excluding the effect of the amortization of
the step-up in inventory from material acquisitions. We believe
adjusted gross profit is useful to investors and management because
it reflects underlying gross profit without the effect of inventory
adjustments resulting from acquisitions that we consider to be
outside our core operations and facilitates meaningful
period-to-period comparisons.
Adjusted Selling, General and
Administrative (SG&A) Expenses: Represents selling,
general and administrative expenses excluding transaction and
integration expenses related to material acquisitions. We believe
adjusted SG&A expenses are useful to investors and management
because they reflect underlying SG&A expenses without the
effect of expenses related to acquiring and integrating
acquisitions that we consider to be outside our core operations and
facilitate meaningful period-to-period comparisons.
Adjusted Operating Income/Adjusted
Income Before Taxes/Adjusted Net Income/Adjusted Net Income Per
Diluted Share: Represents operating income, income
before taxes, net income, and net income per diluted share
excluding restructuring and goodwill impairment charges, the
amortization of intangibles, the amortization of the step-up in
value of inventory, the change in fair value of contingent
consideration, transaction and integration expenses associated with
material acquisitions, non-recurring items in interest expense or
other income/expense such as expenses associated with debt
refinancing, a bond redemption, or a pension curtailment, and other
non-recurring items as well as all unusual and discrete income tax
adjustments, including income tax related to the foregoing. We
believe these adjusted non-GAAP financial measures are useful to
investors and management because they reflect our underlying
operating performance before items that we consider to be outside
our core operations and facilitate meaningful period-to-period
comparisons. Senior management’s incentive compensation is derived,
in part, using adjusted operating income and adjusted net income
per diluted share, which is derived from adjusted net income. We
sometimes refer to adjusted net income per diluted share as
adjusted earnings per share or adjusted EPS.
Adjusted Income Tax
Expense/Rate: Represents income tax expense/rate
excluding the tax effect of the items that have been excluded from
adjusted income before taxes, unusual income tax items such as the
impact of tax audits and changes in laws, significant reserves for
cash repatriation, excess tax benefits/losses, and other discrete
tax items. We believe our adjusted income tax expense/rate is
useful to investors because it reflects our baseline income tax
expense/rate before benefits/losses and other discrete items that
we consider to be outside our core operations and facilitates
meaningful period-to-period comparisons.
Adjusted EBITDA: Represents
net income excluding the effects of depreciation, stock-based
compensation expense, amortization of intangibles, the change in
fair value of contingent consideration, interest expense, net,
other (income) expense, net, and income tax expense, the
amortization of the step-up in value of inventory, transaction and
integration expenses associated with material acquisitions,
restructuring and goodwill impairment charges, non-recurring items
in interest expense or other income/expense such as expenses
associated with debt refinancing, a bond redemption, or a pension
curtailment and other non-recurring items. We believe adjusted
EBITDA is useful to investors because it reflects our underlying
cash profitability and adjusts for certain non-cash charges, and
items that we consider to be outside our core operations and
facilitates meaningful period-to-period comparisons.
Adjusted Free Cash Flow:
Represents cash flow from operating activities, excluding cash
payments made for contingent earnouts, less cash used for additions
to property, plant and equipment, plus cash proceeds from the
disposition of assets. We believe adjusted free cash flow is useful
to investors because it measures our available cash flow for paying
dividends, funding strategic material acquisitions, reducing debt,
and repurchasing shares.
Consolidated Leverage Ratio:
Represents balance sheet debt, plus debt origination costs and less
any cash and cash equivalents divided by adjusted EBITDA. We
believe that consolidated leverage ratio is useful to investors
since the company has the ability to, and may decide to use a
portion of its cash and cash equivalents to retire debt.
We also provide forward-looking non-GAAP comparable sales,
adjusted earnings per share, adjusted free cash flow, adjusted
EBITDA, and adjusted tax rate, 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.
ACCO Brands Corporation and
Subsidiaries
Reconciliation of GAAP to
Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share
data)
The following tables set forth a
reconciliation of certain Consolidated Statements of Operations
information reported in accordance with GAAP to adjusted Non-GAAP
Information for the three months ended September 30, 2022 and
2021.
Three Months Ended September
30, 2022
SG&A
% of Sales
Operating (Loss)
Income
% of Sales
(Loss) Income before
Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net (Loss) Income
% of Sales
Reported GAAP
$
93.9
19.3 %
$
(63.0)
(13.0)%
$
(64.6)
(13.3)%
$
4.1
(6.3)%
$
(68.7)
(14.1)%
Reported GAAP diluted income per share
(EPS)
$
(0.73)
Release of charge for Russia business
(A)
0.7
(0.7)
(0.7)
(0.1)
(0.6)
Restructuring charges
—
0.1
0.1
0.1
—
Goodwill impairment charge
—
98.7
98.7
—
98.7
Amortization of intangibles
—
9.9
9.9
2.6
7.3
Change in fair value of contingent
consideration
(B)
—
(2.2)
(2.2)
(0.6)
(1.6)
Operating tax gains
(H)
—
—
(7.3)
(2.5)
(4.8)
Other discrete tax items
(I)
—
—
—
6.2
(6.2)
Adjusted Non-GAAP
$
94.6
19.5 %
$
42.8
8.8 %
$
33.9
7.0 %
$
9.8
29.0 %
$
24.1
5.0 %
Adjusted diluted income per share
(Adjusted EPS)
$
0.25
Three Months Ended September
30, 2021
Gross Profit
% of Sales
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
157.2
29.8 %
$
101.8
19.3 %
$
38.6
7.3 %
$
30.2
5.7 %
$
10.0
33.1 %
$
20.2
3.8 %
Reported GAAP diluted income per share
(EPS)
$
0.21
Inventory step-up amortization
(C)
0.6
—
0.6
0.6
0.3
0.3
Transaction and integration expenses
(D)
—
(1.0)
1.0
1.0
0.3
0.7
Restructuring charges
—
—
0.3
0.3
0.3
—
Amortization of intangibles
—
—
11.6
11.6
4.2
7.4
Change in fair value of contingent
consideration
(B)
—
—
4.9
4.9
1.8
3.1
Adjusted Non-GAAP
$
157.8
30.0 %
$
100.8
19.1 %
$
57.0
10.8 %
$
48.6
9.2 %
$
16.9
34.8 %
$
31.7
6.0 %
Adjusted diluted income per share
(Adjusted EPS)
$
0.33
See "Notes to Reconciliations of GAAP to
Adjusted Non-GAAP Information and Net (Loss) Income to Adjusted
EBITDA (Unaudited)" for further information regarding adjusted
items.
ACCO Brands Corporation and
Subsidiaries
Reconciliation of GAAP to
Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share
data)
The following tables set forth a
reconciliation of certain Consolidated Statements of Operations
information reported in accordance with GAAP to adjusted Non-GAAP
Information for the nine months ended September 30, 2022 and
2021
Nine Months Ended September
30, 2022
SG&A
% of Sales
Operating (Loss)
Income
% of Sales
(Loss) Income before
Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net (Loss) Income
% of Sales
Reported GAAP
$
284.3
19.6 %
$
(0.8)
(0.1)%
$
(13.8)
(1.0)%
$
18.2
(131.9)%
$
(32.0)
(2.2)%
Reported GAAP diluted income per share
(EPS)
$
(0.33)
Charge for Russia business
(A)
(0.8)
0.8
0.8
0.2
0.6
Restructuring charges
—
2.3
2.3
0.6
1.7
Goodwill impairment charge
—
98.7
98.7
—
98.7
Amortization of intangibles
—
31.5
31.5
8.3
23.2
Change in fair value of contingent
consideration
(B)
—
(9.0)
(9.0)
(2.3)
(6.7)
Operating tax gains
(H)
—
—
(11.2)
(3.8)
(7.4)
Other discrete tax items
(I)
—
—
—
7.6
(7.6)
Adjusted Non-GAAP
$
283.5
19.6 %
$
123.5
8.5 %
$
99.3
6.9 %
$
28.8
29.0 %
$
70.5
4.9 %
Adjusted diluted income per share
(Adjusted EPS)
$
0.73
Nine Months Ended September
30, 2021
Gross Profit
% of Sales
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax (Benefit) Expense
(E)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
436.8
30.0 %
$
293.5
20.2 %
$
87.4
6.0 %
$
54.2
3.7 %
$
5.8
10.7 %
$
48.4
3.3 %
Reported GAAP diluted income per share
(EPS)
$
0.50
Inventory step-up amortization
(C)
3.0
—
3.0
3.0
0.9
2.1
Transaction and integration expenses
(D)
—
(2.5)
2.5
2.5
0.7
1.8
Restructuring charges
—
—
4.2
4.2
1.3
2.9
Amortization of intangibles
—
—
35.2
35.2
10.6
24.6
Change in fair value of contingent
consideration
(B)
—
—
16.5
16.5
5.0
11.5
Refinancing costs
(E)
—
—
—
3.7
1.0
2.7
Operating tax gains
(H)
—
—
—
(9.3)
(3.1)
(6.2)
Bond redemption
(F)
—
—
—
9.8
2.6
7.2
Pension curtailment
(G)
—
—
—
1.4
0.4
1.0
Other discrete tax items
(I)
—
—
—
—
12.3
(12.3)
Adjusted Non-GAAP
$
439.8
30.2 %
$
291.0
20.0 %
$
148.8
10.2 %
$
121.2
8.3 %
$
37.5
30.9 %
$
83.7
5.8 %
Adjusted diluted income per share
(Adjusted EPS)
$
0.86
See "Notes to Reconciliations of GAAP to
Adjusted Non-GAAP Information and Net (Loss) Income to Adjusted
EBITDA (Unaudited)" for further information regarding adjusted
items.
ACCO Brands Corporation and
Subsidiaries
Reconciliation of Net (Loss)
Income to Adjusted EBITDA (Unaudited)
(In millions)
The following table sets forth a
reconciliation of net (loss) income reported in accordance with
GAAP to Adjusted EBITDA.
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
% Change
2022
2021
% Change
Net (loss) income
$
(68.7)
$
20.2
NM
$
(32.0)
$
48.4
NM
Inventory step-up amortization
(C)
—
0.6
(100.0)%
—
3.0
(100.0)%
Transaction and integration expenses
(D)
—
1.0
(100.0)%
—
2.5
(100.0)%
Stock-based compensation
0.6
3.2
(81.3)%
7.8
12.2
(36.1)%
Depreciation
9.0
9.8
(8.2)%
28.6
29.4
(2.7)%
(Release) charge for Russia business
(A)
(0.7)
—
NM
0.8
—
NM
Amortization of intangibles
9.9
11.6
(14.7)%
31.5
35.2
(10.5)%
Restructuring charges
0.1
0.3
(66.7)%
2.3
4.2
(45.2)%
Goodwill impairment charge
98.7
—
NM
98.7
—
NM
Change in fair value of contingent
consideration
(B)
(2.2)
4.9
NM
(9.0)
16.5
NM
Pension curtailment
(G)
—
—
NM
—
1.4
(100.0)%
Interest expense, net
9.5
10.6
(10.4)%
26.4
34.8
(24.1)%
Other (income) expense, net
(7.4)
0.1
NM
(10.2)
4.0
NM
Income tax expense
4.1
10.0
(59.0)%
18.2
5.8
213.8 %
Adjusted EBITDA (non-GAAP)
$
52.9
$
72.3
(26.8)%
$
163.1
$
197.4
(17.4)%
Adjusted EBITDA as a % of Net Sales
10.9 %
13.7 %
11.3 %
13.6 %
See "Notes to Reconciliations of
GAAP to Adjusted Non-GAAP Information and Net (Loss) Income to
Adjusted EBITDA (Unaudited)" for further information regarding
adjusted items.
Reconciliation of Net Cash
Provided (Used) by Operating Activities to Adjusted Free Cash Flow
(Unaudited)
(In millions)
The following table sets forth a
reconciliation of net cash provided (used) by operating activities
reported in accordance with GAAP to Adjusted Free Cash Flow.
Three Months Ended September
30, 2022
Three Months Ended September
30, 2021
Nine Months Ended September
30, 2022
Nine Months Ended September
30, 2021
Net cash provided (used) by operating
activities
$
88.3
$
99.1
$
(9.6)
$
44.0
Net cash (used) provided by:
Additions to property, plant and
equipment
(4.8)
(4.6)
(11.8)
(13.9)
Proceeds from the disposition of
assets
—
—
0.2
—
Payments of contingent consideration
—
—
9.2
—
Adjusted free cash flow (non-GAAP)
$
83.5
$
94.5
$
(12.0)
$
30.1
Notes to Reconciliations of
GAAP to Adjusted Non-GAAP Information and Net (Loss) Income to
Adjusted EBITDA (Unaudited)
A.
Represents an impact to operating expense
related to our Russia business.
B.
Represents the change in fair value of the
contingent consideration for the PowerA acquisition. The change in
fair value of the contingent consideration is assessed every
quarter and is included as expense/income in the consolidated
statements of income.
C.
Represents the amortization of step-up in
the value of inventory associated with the PowerA acquisition.
D.
Represents transaction and integration
expenses associated with our acquisitions.
E.
Represents the write-off of debt issuance
costs and other costs associated with the Company's 2021 debt
refinancing and discharge of its obligations on the senior
unsecured notes due in 2024.
F.
Represents a call premium on the 2021
redemption of the senior unsecured notes due in 2024.
G.
Represents a pension curtailment related
to restructuring projects.
H.
Represents certain indirect tax credits in
Brazil and gains related to the release of unneeded reserves for
certain operating taxes.
I.
The adjustments to income tax expense
include the effects of the adjustments outlined above and discrete
tax adjustments.
ACCO Brands Corporation and
Subsidiaries
Supplemental Business Segment
Information and Reconciliation (Unaudited)
(In millions)
2022
2021
Changes
Adjusted
Adjusted
Reported
Adjusted
Operating
Reported
Adjusted
Operating
Adjusted
Adjusted
Operating
Operating
Income
Operating
Operating
Income
Operating
Operating
Reported
Income
Adjusted
Income
(Loss)
Reported
Income
Adjusted
Income
(Loss)
Net Sales
Net Sales
Income
Income
Margin
Net Sales
(Loss)
Items
(Loss)
Margin
Net Sales
(Loss)
Items
(Loss)
Margin
$
%
(Loss) $
(Loss) %
Points
Q1:
ACCO Brands North America
$
208.5
$
13.9
$
5.9
$
19.8
9.5%
$
188.8
$
(0.7)
$
11.9
$
11.2
5.9%
$
19.7
10.4%
$
8.6
76.8%
360
ACCO Brands EMEA
156.1
5.6
3.5
9.1
5.8%
156.9
16.8
4.4
21.2
13.5%
(0.8)
(0.5)%
(12.1)
(57.1)%
(770)
ACCO Brands International
77.0
4.2
2.0
6.2
8.1%
64.8
0.6
2.5
3.1
4.8%
12.2
18.8%
3.1
100.0%
330
Corporate
—
(16.9)
4.4
(12.5)
—
(17.8)
6.9
(10.9)
—
(1.6)
Total
$
441.6
$
6.8
$
15.8
$
22.6
5.1%
$
410.5
$
(1.1)
$
25.7
$
24.6
6.0%
$
31.1
7.6%
$
(2.0)
(8.1)%
(90)
Q2:
ACCO Brands North America
$
306.6
$
50.7
$
6.5
$
57.2
18.7%
$
295.1
$
53.8
$
6.1
$
59.9
20.3%
$
11.5
3.9%
$
(2.7)
(4.5)%
(160)
ACCO Brands EMEA
137.9
(1.5)
3.6
2.1
1.5%
157.0
9.9
3.9
13.8
8.8%
(19.1)
(12.2)%
(11.7)
(84.8)%
(730)
ACCO Brands International
76.5
6.3
2.3
8.6
11.2%
65.7
2.8
2.0
4.8
7.3%
10.8
16.4%
3.8
79.2%
390
Corporate
—
(0.1)
(9.7)
(9.8)
—
(16.6)
5.3
(11.3)
—
1.5
Total
$
521.0
$
55.4
$
2.7
$
58.1
11.2%
$
517.8
$
49.9
$
17.3
$
67.2
13.0%
$
3.2
0.6%
$
(9.1)
(13.5)%
(180)
Q3:
ACCO Brands North America
$
257.2
$
(78.4)
$
104.2
$
25.8
10.0%
$
287.5
$
34.6
$
7.0
$
41.6
14.5%
$
(30.3)
(10.5)%
$
(15.8)
(38.0)%
(450)
ACCO Brands EMEA
130.3
4.9
2.5
7.4
5.7%
161.1
13.4
3.9
17.3
10.7%
(30.8)
(19.1)%
(9.9)
(57.2)%
(500)
ACCO Brands International
98.1
17.3
1.9
19.2
19.6%
78.1
7.3
2.5
9.8
12.5%
20.0
25.6%
9.4
95.9%
710
Corporate
—
(6.8)
(2.8)
(9.6)
—
(16.7)
5.0
(11.7)
—
2.1
Total
$
485.6
$
(63.0)
$
105.8
$
42.8
8.8%
$
526.7
$
38.6
$
18.4
$
57.0
10.8%
$
(41.1)
(7.8)%
$
(14.2)
(24.9)%
(200)
Q4:
ACCO Brands North America
$
271.0
$
34.2
$
7.7
$
41.9
15.5%
ACCO Brands EMEA
187.9
21.6
3.3
24.9
13.3%
ACCO Brands International
111.4
20.9
2.0
22.9
20.6%
Corporate
—
(13.1)
2.5
(10.6)
Total
$
570.3
$
63.6
$
15.5
$
79.1
13.9%
YTD:
ACCO Brands North America
$
772.3
$
(13.8)
$
116.6
$
102.8
13.3%
$
1,042.4
$
121.9
$
32.7
$
154.6
14.8%
ACCO Brands EMEA
424.3
9.0
9.6
18.6
4.4%
662.9
61.7
15.5
77.2
11.6%
ACCO Brands International
251.6
27.8
6.2
34.0
13.5%
320.0
31.6
9.0
40.6
12.7%
Corporate
—
(23.8)
(8.1)
(31.9)
—
(64.2)
19.7
(44.5)
Total
$
1,448.2
$
(0.8)
$
124.3
$
123.5
8.5%
$
2,025.3
$
151.0
$
76.9
$
227.9
11.3%
See "Notes to Reconciliations of GAAP to
Adjusted Non-GAAP Information and Net (Loss) Income to Adjusted
EBITDA (Unaudited)" for further information regarding adjusted
items.
ACCO Brands Corporation and
Subsidiaries
Supplemental Net Sales Change
Analysis (Unaudited)
% Change - Net Sales
$ Change - Net Sales (in
millions)
GAAP
Non-GAAP
GAAP
Non-GAAP
Comparable
Comparable
Net Sales
Currency
Net Sales
Net Sales
Currency
Net Sales
Comparable
Change
Translation
Change
Change
Translation
Change
Net Sales
Q1 2022:
ACCO Brands North America
10.4 %
— %
10.4 %
$
19.7
$
—
$
19.7
$
208.5
ACCO Brands EMEA
(0.5)%
(7.9)%
7.4 %
(0.8)
(12.4)
11.6
168.5
ACCO Brands International
18.8 %
(3.9)%
22.7 %
12.2
(2.5)
14.7
79.5
Total
7.6 %
(3.6)%
11.2 %
$
31.1
$
(14.9)
$
46.0
$
456.5
Q2 2022:
ACCO Brands North America
3.9 %
(0.5)%
4.4 %
$
11.5
$
(1.4)
$
12.9
$
308.0
ACCO Brands EMEA
(12.2)%
(12.6)%
0.4 %
(19.1)
(19.8)
0.7
157.7
ACCO Brands International
16.4 %
(3.7)%
20.1 %
10.8
(2.4)
13.2
78.9
Total
0.6 %
(4.6)%
5.2 %
$
3.2
$
(23.6)
$
26.8
$
544.6
Q3 2022:
ACCO Brands North America
(10.5)%
(0.5)%
(10.0)%
$
(30.3)
$
(1.3)
$
(29.0)
$
258.5
ACCO Brands EMEA
(19.1)%
(15.0)%
(4.1)%
(30.8)
(24.1)
(6.7)
154.4
ACCO Brands International
25.6 %
(5.8)%
31.4 %
20.0
(4.5)
24.5
102.6
Total
(7.8)%
(5.7)%
(2.1)%
$
(41.1)
$
(29.9)
$
(11.2)
$
515.5
2022 YTD:
ACCO Brands North America
0.1 %
(0.4)%
0.5 %
$
0.9
$
(2.7)
$
3.6
$
775.0
ACCO Brands EMEA
(10.7)%
(11.9)%
1.2 %
(50.7)
(56.3)
5.6
480.6
ACCO Brands International
20.6 %
(4.5)%
25.1 %
43.0
(9.4)
52.4
261.0
Total
(0.5)%
(4.7)%
4.2 %
$
(6.8)
$
(68.4)
$
61.6
$
1,516.6
(A) Comparable net sales represents net
sales excluding material acquisitions and with current-period
foreign operation sales translated at the prior-year currency
rates.
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