The ODP Corporation (NASDAQ:ODP) Q1 2024 Earnings Conference Call May 8, 2024 9:00 AM ET Corporate Participants Tim Perrott - Vice President of Investor Relations and Treasurer Gerry Smith - Chief Executive Officer Anthony Scaglione - Executive Vice President, Chief Financial Officer Conference Call Participants Greg Burns - Sidoti Michael Lasser - UBS Joe Gomes - Noble Capital Operator Good morning and welcome to the ODP Corporation's First Quarter 2024 Earnings Conference Call. All lines will be on a list ...

[The ODP Corporation First Quarter 2024 Results](index=1&type=section&id=The%20ODP%20Corporation%20First%20Quarter%202024%20Results) [First Quarter 2024 Financial Highlights](index=1&type=section&id=First%20Quarter%202024%20Financial%20Highlights) The company reported a challenging first quarter with an 11% sales decline and significantly lower profitability metrics Q1 2024 Consolidated Financial Summary (GAAP & Non-GAAP) | Selected GAAP and Non-GAAP measures: | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Sales | $1,871M | $2,108M | | Sales change from prior year period | (11)% | | | Operating income | $18M | $95M | | Adjusted operating income | $51M | $99M | | Net income from continuing operations | $15M | $72M | | Diluted earnings per share from continuing operations | $0.40 | $1.71 | | Adjusted net income from continuing operations | $40M | $75M | | Adjusted earnings per share from continuing operations (fully diluted) | $1.05 | $1.78 | | Adjusted EBITDA | $82M | $131M | | Operating Cash Flow from continuing operations | $38M | $157M | | Free Cash Flow | $3M | $128M | - The decrease in reported sales was primarily driven by lower sales in the **Office Depot and ODP Business Solutions Divisions**[3](index=3&type=chunk) - Operating cash flow from continuing operations was **$38 million**, a significant decrease from **$157 million** in the prior year period[5](index=5&type=chunk) - The company ended the quarter with **$971 million** of total available liquidity, including **$282 million** in cash and cash equivalents[5](index=5&type=chunk) [Management Commentary and Strategic Decisions](index=3&type=section&id=Management%20Commentary%20and%20Strategic%20Decisions) Management addressed a slow start by accelerating 'Project Core' and pursuing a sale of the Varis business unit - The company launched and is accelerating its **'Project Core'** initiatives to offset the impact of the challenging business environment and remains committed to its 2024 guidance[5](index=5&type=chunk) - The Board of Directors has approved a strategic decision to pursue a **sale of the Varis business unit**[6](index=6&type=chunk) - The company has increased its pace of share repurchases, buying back approximately **$90 million** of its stock since the beginning of the year[5](index=5&type=chunk) - Management cited more **cautious spending activity** and delays in onboarding new customers at ODP Business Solutions, along with **reduced consumer activity** at Office Depot, as key performance headwinds[5](index=5&type=chunk) [Divisional Performance](index=5&type=section&id=Divisional%20Performance) Sales declined in the ODP Business Solutions and Office Depot divisions, while Veyer's third-party logistics grew [ODP Business Solutions Division](index=5&type=section&id=ODP%20Business%20Solutions%20Division) The B2B division's sales decreased by 8% to $0.9 billion due to weaker macroeconomic conditions and cautious spending ODP Business Solutions Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Reported Sales | $0.9B | $1.0B | | Sales Change | -8% | +3% | | Operating Income | $30M | $39M | | Operating Margin | 3% | 3.6% | - Adjacency categories, including cleaning, furniture, and technology, constituted **43%** of the division's total sales[12](index=12&type=chunk) [Office Depot Division](index=5&type=section&id=Office%20Depot%20Division) The retail division's sales fell 14% to $0.9 billion, driven by store closures and a 10% decline in comparable sales Office Depot Division Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Reported Sales | $0.9B | $1.1B | | Sales Change | -14% | -8% | | Operating Income | $50M | $85M | | Operating Margin | 5% | 8% | | Comparable Store Sales | -10% | -3% | - The company closed **13 retail stores** during the quarter, ending with **903 stores**[13](index=13&type=chunk) [Veyer Division](index=5&type=section&id=Veyer%20Division) The logistics division's operating income decreased due to lower internal sales, but third-party customer sales grew 29% - Operating income was **$9 million**, down from **$15 million** in the prior year, driven by lower sales to internal customers[14](index=14&type=chunk) - Sales and EBITDA generated from third-party customers showed significant growth, **increasing 29% and 40% respectively**, reaching $9 million in sales and $3 million in EBITDA[15](index=15&type=chunk) [Varis Division](index=7&type=section&id=Varis%20Division) The B2B platform's revenue was flat at $2 million, with an improved operating loss as the company plans its sale Varis Division Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Revenue | $2M | $2M | | Operating Loss | $(14)M | $(17)M | - The Board of Directors has approved a plan to **sell the Varis business**, with activities commencing immediately[21](index=21&type=chunk)[6](index=6&type=chunk) [Capital Allocation, Balance Sheet, and Cash Flow](index=7&type=section&id=Capital%20Allocation%2C%20Balance%20Sheet%2C%20and%20Cash%20Flow) The company accelerated share repurchases and maintained solid liquidity despite a sharp decline in operating cash flow - The company repurchased **957 thousand shares for $50 million** in Q1 2024 and an additional **$40 million** post-quarter, totaling approximately **$90 million** year-to-date[16](index=16&type=chunk) - As of March 30, 2024, ODP had total available liquidity of **$971 million**, consisting of **$282 million** in cash and **$689 million** in available credit[17](index=17&type=chunk) - Cash from operating activities was **$38 million**, compared to **$157 million** in Q1 2023, with the change largely related to the timing of working capital[17](index=17&type=chunk) - Capital expenditures were **$35 million**, up from **$27 million** in the prior year, reflecting investments in digital transformation and distribution[18](index=18&type=chunk) [Project Core and 2024 Guidance](index=7&type=section&id=Project%20Core%20and%202024%20Guidance) ODP accelerated its 'Project Core' savings plan and increased its full-year 2024 guidance for key profitability metrics - Project Core is being accelerated to maximize savings, with expected in-year savings of approximately **$50 million** and annualized savings over **$100 million**[21](index=21&type=chunk) - As part of Project Core, the Board of Directors has approved a plan to **sell the Varis business**[21](index=21&type=chunk) Updated Full-Year 2024 Guidance | Metric | Previous FY 2024 Guidance | Updated FY 2024 Guidance | | :--- | :--- | :--- | | Sales | Decline of 2% - 5% | Affirmed Lower End | | Adjusted EBITDA | $410 million - $430 million | Increased to $430 million - $450 million | | Adjusted Operating Income | $280 million - $300 million | Increased to $320 million - $340 million | | Adjusted Earnings per Share | $5.60 - $5.80 per share | Increased to $6.30 - $6.60 per share | | Adjusted Free Cash Flow | Greater than $200 million | Affirmed | [Financial Statements and Reconciliations](index=15&type=section&id=Financial%20Statements%20and%20Reconciliations) Unaudited statements detail declines in sales and profitability, a reduced cash balance, and lower operating cash flow [Consolidated Statements of Operations](index=15&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 sales were $1.871 billion, down from $2.108 billion, with net income falling sharply to $15 million Q1 2024 vs Q1 2023 Income Statement Highlights (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Sales | $1,871 | $2,108 | | Gross Profit | $410 | $481 | | Operating Income | $18 | $95 | | Net income from continuing operations | $15 | $72 | [Consolidated Balance Sheets](index=16&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $3.735 billion from $3.886 billion at year-end 2023, with cash declining to $282 million Balance Sheet Highlights (in millions) | Account | March 30, 2024 | December 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $282 | $392 | | Total current assets | $1,524 | $1,678 | | Total assets | $3,735 | $3,886 | | Total current liabilities | $1,624 | $1,693 | | Total liabilities | $2,666 | $2,785 | | Total stockholders' equity | $1,069 | $1,101 | [Consolidated Statements of Cash Flows](index=17&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased significantly to $38 million from $157 million in the prior-year period Q1 Cash Flow Highlights (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38 | $157 | | Net cash used in investing activities | $(34) | $(36) | | Net cash used in financing activities | $(113) | $(185) | | Net decrease in cash | $(110) | $(59) |

Klaus Vedfelt Introduction The stock of The ODP Corporation (NASDAQ:ODP), an entity which operates an integrated B2B distribution platform, as well as an omnichannel retail consumer business, hasn't quite set the world alight over the past six months. At a time when its peers from the small-cap discretionary space have notched returns of 22%, ODP has managed to generate returns of only half that threshold. YCharts Adverse macro conditions (which have impacted both in-store and online traffic), a weak return ...

FORT LAUDERDALE, Fla., April 08, 2024 (GLOBE NEWSWIRE) -- The Mark Cuban Foundation, in partnership with The ODP Corporation, is bringing the only artificial intelligence (AI) camp of its kind, free of charge, to high school students in Fort Lauderdale. With a custom and highly-relevant curriculum focused on teaching students about the latest developments in the world of AI and Generative AI, the camp will provide the tools to make these technologies work for them and promises to educate, inspire and fuel t ...

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BOCA RATON, Fla.--(BUSINESS WIRE)--The ODP Corporation (“ODP,” or the “Company”) (NASDAQ:ODP), a leading provider of products, services, and technology solutions to businesses and consumers, announced today that its executive vice president and chief financial officer, D. Anthony Scaglione, and vice president of investor relations and treasurer, Tim Perrott, will participate in the UBS Global Consumer & Retail Conference on March 13th, 2024. About The ODP Corporation The ODP Corporation (NASDAQ:ODP) is a ...

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