BOCA RATON, Fla.--(BUSINESS WIRE)--The ODP Corporation (“ODP,” or the “Company”) (NASDAQ:ODP), a leading provider of business services, products and digital workplace technology solutions to businesses and consumers, today announced that, following the expiration of the January 2021 Cooperation Agreement between the Company and HG Vora, Marcus Dunlop, partner at HG Vora, has stepped down from the ODP Board of Directors, effective December 31, 2023. “We greatly appreciate Marcus Dunlop’s service as a Boar ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $2 billion, down 8% year-over-year, primarily due to a cautious demand environment and fewer stores in service [19][20] - GAAP operating income increased to $91 million, up over 8% compared to Q3 of last year, while adjusted operating income remained consistent at $95 million [20][21] - Adjusted net income for Q3 was $73 million or $1.88 per diluted share, representing a 27% increase in adjusted EPS year-over-year [21][22] Business Line Data and Key Metrics Changes - ODP Business Solutions generated revenue of approximately $1 billion, down 3% year-over-year, but expanded operating margins to 6%, a 100 basis point improvement [23][26] - Office Depot reported revenue of $1 billion, a 12% decline, with same-store sales down about 6% due to lower retail sales and online traffic [28][30] - Veyer achieved third-party revenue growth of over 50%, reaching $11 million, and total operating income of $10 million, up from $9 million last year [34][35] Market Data and Key Metrics Changes - The overall revenue decline was attributed to macroeconomic challenges, including cautious spending from enterprise customers and a softer back-to-school season [20][28] - The company noted a significant impact from fewer stores in service, with 71 fewer retail locations compared to the previous year [20][28] Company Strategy and Development Direction - The company emphasized its four business unit structure and three horizons strategy to drive operational excellence and long-term growth [8][10] - Veyer is transitioning from an internal cost center to a logistics and supply chain company, aiming for profitable growth and value creation [9][34] - The company is focused on capital allocation and share repurchase programs to enhance shareholder value, having repurchased approximately 660,000 shares for $32 million in Q3 [18][40] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the macroeconomic environment but expressed confidence in the company's operational excellence and disciplined capital allocation [14][41] - The company updated its revenue guidance to a range of $7.8 billion to $7.9 billion, while increasing adjusted EPS guidance to between $5.30 and $5.60 [41][42] Other Important Information - The company reported strong cash flow results, with operating cash flow of $112 million and adjusted free cash flow of $89 million for the quarter [22] - Varis, the B2B procurement platform, generated approximately $2 million in revenue but faced slower-than-expected growth due to onboarding challenges [37][39] Q&A Session Summary Question: Details on Business Solutions revenue decline but operating income increase - Management explained that the growth in operating income was due to better expense management and gross margin improvements despite lower sales [45][46] Question: Guidance on operating income for the year - Management indicated caution due to macro uncertainty but highlighted strong opportunities within Business Solutions [48][49] Question: Sequential growth expectations for Veyer and updates on Varis - Management expressed confidence in Veyer's growth trajectory and acknowledged Varis's slower ramp-up due to onboarding delays [50][51] Question: Sales decline sustainability and operating income implications - Management emphasized their ability to manage costs and maintain operating income despite sales declines [54][55] Question: Progress on Varis and onboarding challenges - Management noted that onboarding delays were primarily client-driven and related to large-scale wins taking longer than expected [70][71] Question: Strategies to improve retail traffic - Management discussed initiatives to drive traffic both in-store and online, including new product categories and marketing efforts [73][75]

Third Quarter 2023 QQ112200 Financial Results Safe Harbor Statement ...

Financial Statements [Condensed Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) Sales decreased in Q3 and YTD 2023, but operating income, net income, and EPS from continuing operations increased | Metric | 13 Weeks Ended Sep 30, 2023 (Millions) | 13 Weeks Ended Sep 24, 2022 (Millions) | 39 Weeks Ended Sep 30, 2023 (Millions) | 39 Weeks Ended Sep 24, 2022 (Millions) | | :--------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| | Sales | $2,009 | $2,172 | $6,025 | $6,385 | | Gross profit | $474 | $486 | $1,370 | $1,402 | | Operating income | $91 | $84 | $232 | $188 | | Net income from continuing operations | $70 | $67 | $176 | $142 | | Net income | $70 | $67 | $176 | $149 | | Basic EPS (Continuing operations) | $1.83 | $1.39 | $4.52 | $2.92 | | Diluted EPS (Continuing operations) | $1.79 | $1.36 | $4.38 | $2.84 | - Sales decreased by **8%** for the 13-week period and **6%** for the 39-week period year-over-year[7](index=7&type=chunk) - Operating income increased by **8.3%** for the 13-week period and **23.4%** for the 39-week period year-over-year[7](index=7&type=chunk) - Diluted EPS from continuing operations increased by **31.6%** for the 13-week period and **54.2%** for the 39-week period year-over-year[7](index=7&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Q3 2023 comprehensive income fell to $20 million due to pension adjustments; YTD rose to $132 million | Metric | 13 Weeks Ended Sep 30, 2023 (Millions) | 13 Weeks Ended Sep 24, 2022 (Millions) | 39 Weeks Ended Sep 30, 2023 (Millions) | 39 Weeks Ended Sep 24, 2022 (Millions) | | :------------------------------------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| | Net income | $70 | $67 | $176 | $149 | | Foreign currency translation adjustments | $(7) | $(19) | $0 | $(31) | | Pension valuation adjustments | $(43) | $(3) | $(44) | $(5) | | Total other comprehensive income, net of tax | $(50) | $(22) | $(44) | $(30) | | Comprehensive income | $20 | $45 | $132 | $119 | - Pension valuation adjustments significantly impacted other comprehensive income, with a **$(43) million** adjustment for the 13-week period and **$(44) million** for the 39-week period in 2023, compared to smaller adjustments in 2022[10](index=10&type=chunk) [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets decreased to $3,980 million by Sep 30, 2023, driven by reduced assets held for sale; equity declined | Metric | Sep 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----------------------------------------| :----------------------| :----------------------| | Cash and cash equivalents | $384 | $403 | | Receivables, net | $542 | $536 | | Inventories | $782 | $828 | | Current assets held for sale | $9 | $107 | | Total current assets | $1,754 | $1,910 | | Total assets | $3,980 | $4,149 | | Trade accounts payable | $818 | $821 | | Total current liabilities | $1,760 | $1,859 | | Total liabilities | $2,825 | $2,862 | | Total stockholders' equity | $1,155 | $1,287 | - Current assets held for sale decreased significantly from **$107 million** at December 31, 2022, to **$9 million** at September 30, 2023, following the sale of the corporate headquarters[13](index=13&type=chunk)[89](index=89&type=chunk) - Total stockholders' equity decreased by **$132 million**, from **$1,287 million** at December 31, 2022, to **$1,155 million** at September 30, 2023[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) YTD 2023 operating cash flow rose to $261 million; investing provided cash, financing used cash for repurchases | Metric | 39 Weeks Ended Sep 30, 2023 (Millions) | 39 Weeks Ended Sep 24, 2022 (Millions) | | :------------------------------------------------------------------| :-------------------------------------| :-------------------------------------| | Net cash provided by operating activities | $261 | $79 | | Net cash provided by investing activities | $28 | $15 | | Net cash used in financing activities | $(306) | $(151) | | Net decrease in cash, cash equivalents and restricted cash | $(17) | $(63) | | Cash, cash equivalents and restricted cash at end of period | $387 | $474 | - Cash provided by operating activities of continuing operations increased by **$182 million** year-over-year, driven by higher cash inflows from working capital, improved net income (after non-cash adjustments), and increased usage of deferred tax assets[164](index=164&type=chunk) - Investing activities provided **$23 million** in cash from continuing operations in 2023, a significant improvement from a **$59 million** use in 2022, largely due to **$105 million** from asset dispositions, including the corporate headquarters sale[166](index=166&type=chunk) - Cash used in financing activities increased to **$306 million** in 2023 from **$151 million** in 2022, primarily due to **$264 million** in common stock repurchases[168](index=168&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Stockholders' equity decreased to $1,155 million by Sep 30, 2023, due to $266 million in repurchases and higher comprehensive loss | Metric | Balance at Dec 31, 2022 (Millions) | Balance at Sep 30, 2023 (Millions) | | :-----------------------------------------| :---------------------------------| :---------------------------------| | Common Stock Shares | 65,636,015 | 66,695,068 | | Additional Paid-in Capital | $2,742 | $2,744 | | Accumulated Other Comprehensive Loss | $(77) | $(121) | | Accumulated Deficit | $(451) | $(275) | | Treasury Stock, at cost | $(928) | $(1,194) | | Total Stockholders' Equity | $1,287 | $1,155 | - The company repurchased **six million** shares of common stock at a cost of **$266 million** year-to-date 2023[72](index=72&type=chunk)[124](index=124&type=chunk) - Accumulated other comprehensive loss increased from **$(77) million** to **$(121) million**, primarily due to other comprehensive loss activity of **$(44) million** year-to-date 2023[71](index=71&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) [NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%201.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) ODP Corporation is a leading B2B and omni-channel provider with four segments; CompuCom was sold as discontinued operations - ODP Corporation is a leading provider of products, services, and technology solutions via an integrated B2B distribution platform and omni-channel presence[25](index=25&type=chunk) - The company operates through four reportable segments: ODP Business Solutions, Office Depot, Veyer, and Varis[25](index=25&type=chunk) - The CompuCom Division was sold on December 31, 2021, and is reported as discontinued operations[26](index=26&type=chunk) [NOTE 2. ACQUISITIONS](index=11&type=section&id=NOTE%202.%20ACQUISITIONS) The company acquires regional office supply businesses; a Q1 2023 acquisition was funded by cash and added to ODP Business Solutions - The company's strategy involves acquiring profitable regional office supply distribution businesses to expand its reach and distribution network[35](index=35&type=chunk) - In Q1 2023, a small independent regional office supply distribution business was acquired, funded with cash on hand, adding **$4 million** in goodwill[35](index=35&type=chunk)[36](index=36&type=chunk) - Operating results of the acquired business are combined with the ODP Business Solutions Division[36](index=36&type=chunk) [NOTE 3. MERGER, RESTRUCTURING AND OTHER ACTIVITY](index=12&type=section&id=NOTE%203.%20MERGER,%20RESTRUCTURING%20AND%20OTHER%20ACTIVITY) Restructuring expenses of $1M (Q3) and $2M (YTD) in 2023 relate to the 'Maximize B2B Plan' and 30 store closures | Expense Category | 13 Weeks Ended Sep 30, 2023 (Millions) | 13 Weeks Ended Sep 24, 2022 (Millions) | 39 Weeks Ended Sep 30, 2023 (Millions) | 39 Weeks Ended Sep 24, 2022 (Millions) | | :------------------------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| | Total Merger and transaction related expenses | $0 | $(7) | $0 | $(7) | | Total Restructuring expenses, net | $1 | $1 | $2 | $2 | | Total Other operating expenses | $0 | $14 | $0 | $47 | | Total Merger, restructuring and other operating expenses, net | $1 | $8 | $2 | $42 | - The Maximize B2B Restructuring Plan, extended through 2024, resulted in the closure of **30** retail stores year-to-date 2023, with total restructuring expenses of **$83 million** since inception through year-to-date 2023[44](index=44&type=chunk)[45](index=45&type=chunk) - Year-to-date 2023, cash payments for the Maximize B2B Restructuring Plan were **$7 million**[45](index=45&type=chunk) [NOTE 4. SEGMENT INFORMATION](index=13&type=section&id=NOTE%204.%20SEGMENT%20INFORMATION) ODP operates four segments; Q3 sales declined for ODP Business Solutions and Office Depot, Veyer's external sales rose - The four reportable segments are ODP Business Solutions, Office Depot, Veyer, and Varis, each with distinct business models and customer bases[51](index=51&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) | Division | 3Q 2023 External Sales (Millions) | 3Q 2022 External Sales (Millions) | YTD 2023 External Sales (Millions) | YTD 2022 External Sales (Millions) | | :----------------------------| :--------------------------------| :--------------------------------| :---------------------------------| :---------------------------------| | ODP Business Solutions | $996 | $1,030 | $3,001 | $3,004 | | Office Depot | $1,000 | $1,133 | $2,991 | $3,358 | | Veyer | $11 | $7 | $28 | $18 | | Varis | $2 | $2 | $5 | $5 | | Total | $2,009 | $2,172 | $6,025 | $6,385 | | Division | 3Q 2023 Operating Income (Millions) | 3Q 2022 Operating Income (Millions) | YTD 2023 Operating Income (Millions) | YTD 2022 Operating Income (Millions) | | :----------------------------| :----------------------------------| :----------------------------------| :-----------------------------------| :-----------------------------------| | ODP Business Solutions | $56 | $48 | $140 | $103 | | Office Depot | $66 | $83 | $186 | $228 | | Veyer | $10 | $9 | $31 | $25 | | Varis | $(17) | $(17) | $(48) | $(48) | | Total Divisions Operating Income | $115 | $123 | $309 | $308 | | Segment | Goodwill Dec 31, 2022 (Millions) | Acquisitions (Millions) | Goodwill Sep 30, 2023 (Millions) | | :----------------------------| :-------------------------------| :----------------------| :-------------------------------| | ODP Business Solutions | $142 | $4 | $146 | | Office Depot | $219 | $0 | $219 | | Veyer | $35 | $0 | $35 | | Varis | $68 | $0 | $68 | | Total | $464 | $4 | $468 | [NOTE 5. INCOME TAXES](index=16&type=section&id=NOTE%205.%20INCOME%20TAXES) The effective tax rate was 24% for Q3 and YTD 2023, down from 25%, mainly due to R&D tax credits and stock-based compensation benefits - Effective tax rates were **24%** for Q3 and YTD 2023, down from **25%** in Q3 and YTD 2022[65](index=65&type=chunk) - Key factors impacting the effective tax rate in 2023 included research and development tax credits and tax benefits from stock-based compensation awards[65](index=65&type=chunk) - The company maintains a U.S. valuation allowance for certain federal credits and state tax attributes[65](index=65&type=chunk) [NOTE 6. EARNINGS PER SHARE](index=16&type=section&id=NOTE%206.%20EARNINGS%20PER%20SHARE) Basic and diluted EPS from continuing operations significantly increased in Q3 and YTD 2023 due to higher net income and fewer shares | Metric | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Sep 24, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Sep 24, 2022 | | :--------------------------------------| :--------------------------| :--------------------------| :--------------------------| :--------------------------| | Basic EPS (Continuing operations) | $1.83 | $1.39 | $4.52 | $2.92 | | Diluted EPS (Continuing operations) | $1.79 | $1.36 | $4.38 | $2.84 | | Net Basic EPS | $1.83 | $1.38 | $4.52 | $3.06 | | Net Diluted EPS | $1.79 | $1.35 | $4.38 | $2.97 | - Weighted-average shares outstanding decreased from **48 million** to **38 million** for the 13-week period and from **49 million** to **39 million** for the 39-week period, contributing to higher EPS[66](index=66&type=chunk) [NOTE 7. DEBT](index=18&type=section&id=NOTE%207.%20DEBT) ODP operates under a $1.3 billion credit agreement maturing April 2025, with $53 million in FILO loans and $771 million available credit - The Third Amended Credit Agreement provides a **$1.2 billion** asset-based revolving credit facility and a **$100 million** FILO Term Loan Facility, maturing April 2025[68](index=68&type=chunk) - At September 30, 2023, outstanding FILO Term Loan Facility loans were **$53 million**, and available credit was **$771 million**, with no revolving loans outstanding[69](index=69&type=chunk) - The company was in compliance with all applicable covenants at September 30, 2023[69](index=69&type=chunk) [NOTE 8. STOCKHOLDERS' EQUITY](index=18&type=section&id=NOTE%208.%20STOCKHOLDERS'%20EQUITY) Accumulated other comprehensive loss rose to $(121) million. Six million shares were repurchased for $266 million YTD 2023, with $583 million remaining | Metric | Balance at Dec 31, 2022 (Millions) | Balance at Sep 30, 2023 (Millions) | | :-----------------------------------------| :---------------------------------| :---------------------------------| | Accumulated Other Comprehensive Loss | $(77) | $(121) | - The company repurchased **659 thousand** shares for **$32 million** in Q3 2023 and **six million** shares for **$266 million** year-to-date 2023[72](index=72&type=chunk) - **$583 million** remains available under the **$1 billion** stock repurchase program, which is authorized through December 31, 2025[72](index=72&type=chunk) - No cash dividends were declared in Q3 or YTD 2023, and none are anticipated in the foreseeable future[73](index=73&type=chunk) [NOTE 9. EMPLOYEE BENEFIT PLANS](index=19&type=section&id=NOTE%209.%20EMPLOYEE%20BENEFIT%20PLANS) North America net periodic pension benefit was $(2) million (Q3) and $(6) million (YTD). The UK plan's bulk annuity agreement resulted in a $44 million charge | Metric | 13 Weeks Ended Sep 30, 2023 (Millions) | 13 Weeks Ended Sep 24, 2022 (Millions) | 39 Weeks Ended Sep 30, 2023 (Millions) | 39 Weeks Ended Sep 24, 2022 (Millions) | | :-----------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| :-------------------------------------| | North America Net periodic pension benefit | $(2) | $(1) | $(6) | $(3) | | UK Net periodic pension benefit | $0 | $0 | $0 | $(2) | - In July 2023, the UK pension plan entered a bulk annuity purchase agreement covering **100%** of members, leading to a **$44 million** charge to other comprehensive income[80](index=80&type=chunk) - The UK pension plan buyout is expected to complete by 2024 using existing plan funds, with no material cash inflows or outflows anticipated[80](index=80&type=chunk) [NOTE 10. FAIR VALUE MEASUREMENTS](index=20&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) Asset impairment charges were $3 million (Q3) and $13 million (YTD) for retail store ROU assets. Corporate HQ sold for $104 million with no gain/loss - Asset impairment charges were **$3 million** in Q3 2023 and **$13 million** year-to-date 2023, mainly for operating lease ROU assets of retail stores[86](index=86&type=chunk) - The fair value of retail store assets is determined using discounted cash flow analysis with Level 2 unobservable inputs, considering updated assumptions for store performance and closure plans[86](index=86&type=chunk) - The corporate headquarters in Boca Raton was sold on April 6, 2023, for **$104 million**, resulting in no recorded gains or losses[89](index=89&type=chunk) [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces legal and environmental liabilities, but expects no material financial impact. Possible losses range from $15 million to $25 million - The company is involved in litigation and government reviews, but does not expect material financial impact[94](index=94&type=chunk)[95](index=95&type=chunk) - Estimated reasonably possible losses for OfficeMax retained liabilities (paper/forest products, asbestos) and environmental liabilities range from **$15 million** to **$25 million**[96](index=96&type=chunk) [NOTE 12. DISCONTINUED OPERATIONS](index=22&type=section&id=NOTE%2012.%20DISCONTINUED%20OPERATIONS) CompuCom Division was sold in 2021 for $104 million cash, a $59 million note, and a $9 million earn-out. No Q3/YTD 2023 results - The CompuCom Division was sold on December 31, 2021, with a total cash purchase price of **$104 million**[98](index=98&type=chunk) - The consideration included an interest-bearing promissory note, amended to **$59 million** in February 2023, and an earn-out provision valued at **$9 million**[98](index=98&type=chunk) - No financial results from discontinued operations were reported for the third quarter or year-to-date 2023[99](index=99&type=chunk) Management's Discussion and Analysis (MD&A) [Overview](index=23&type=section&id=Overview) ODP is a leading B2B and omni-channel provider with four divisions. Consolidated sales decreased 8% (Q3) and 6% (YTD) due to lower demand and store closures - The company operates through ODP Business Solutions, Office Depot, Veyer, and Varis divisions, with CompuCom previously sold as discontinued operations[103](index=103&type=chunk)[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - Consolidated sales decreased by **$163 million** (**8%**) in Q3 2023 and **$360 million** (**6%**) year-to-date 2023 compared to prior year[114](index=114&type=chunk)[115](index=115&type=chunk) - Sales decline in ODP Business Solutions was driven by lower B2B demand, particularly in technology, while Office Depot's decline was due to planned store closures, lower demand, and reduced average order values[114](index=114&type=chunk)[115](index=115&type=chunk) | Division | 3Q 2023 External Sales (Millions) | 3Q 2022 External Sales (Millions) | YTD 2023 External Sales (Millions) | YTD 2022 External Sales (Millions) | | :----------------------------| :--------------------------------| :--------------------------------| :---------------------------------| :---------------------------------| | ODP Business Solutions | $996 | $1,030 | $3,001 | $3,004 | | Office Depot | $1,000 | $1,133 | $2,991 | $3,358 | | Veyer | $11 | $7 | $28 | $18 | | Varis | $2 | $2 | $5 | $5 | | Total | $2,009 | $2,172 | $6,025 | $6,385 | [Operating Results by Division](index=25&type=section&id=Operating%20Results%20by%20Division) ODP Business Solutions saw Q3 sales decrease 3% but operating income rise 17%. Office Depot sales fell 12%, income dropped 20%. Veyer's external sales and income grew | Division | 3Q 2023 Sales (Millions) | 3Q 2022 Sales (Millions) | YTD 2023 Sales (Millions) | YTD 2022 Sales (Millions) | | :----------------------------| :-----------------------| :-----------------------| :-----------------------| :-----------------------| | ODP Business Solutions | $996 | $1,030 | $3,001 | $3,004 | | Office Depot | $1,000 | $1,133 | $2,991 | $3,358 | | Veyer (External) | $11 | $7 | $28 | $18 | | Varis | $2 | $2 | $5 | $5 | | Division | 3Q 2023 Operating Income (Millions) | 3Q 2022 Operating Income (Millions) | YTD 2023 Operating Income (Millions) | YTD 2022 Operating Income (Millions) | | :----------------------------| :----------------------------------| :----------------------------------| :-----------------------------------| :-----------------------------------| | ODP Business Solutions | $56 | $48 | $140 | $103 | | Office Depot | $66 | $83 | $186 | $228 | | Veyer | $10 | $9 | $31 | $25 | | Varis | $(17) | $(17) | $(48) | $(48) | - ODP Business Solutions operating income increased by **17%** in Q3 2023 and **36%** year-to-date 2023, driven by favorable product margins[131](index=131&type=chunk)[132](index=132&type=chunk) - Office Depot Division's comparable store sales decreased by **6%** in Q3 2023 and **5%** year-to-date 2023, reflecting lower store traffic and average order value[136](index=136&type=chunk) - Veyer Division's external sales increased by **$4 million** in Q3 2023 and **$10 million** year-to-date 2023, contributing to higher operating income[138](index=138&type=chunk) - Varis Division's operating loss remained flat at **$(17) million** in Q3 2023 and **$(48) million** year-to-date 2023, as investment costs were offset by lower employee-related costs[139](index=139&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) Total liquidity was $1.2 billion at Sep 30, 2023, including $384M cash and $771M credit. YTD operating cash flow rose to $261M; $266M in stock was repurchased - Total liquidity was approximately **$1.2 billion** at September 30, 2023, including **$384 million** in cash and cash equivalents and **$771 million** in available credit[125](index=125&type=chunk)[154](index=154&type=chunk) - Cash provided by operating activities of continuing operations increased to **$261 million** year-to-date 2023, up from **$79 million** in the prior year, driven by improved working capital management[125](index=125&type=chunk)[164](index=164&type=chunk) - The company repurchased **six million** shares of common stock for **$266 million** year-to-date 2023, with **$583 million** remaining under the current **$1 billion** stock repurchase program[124](index=124&type=chunk)[158](index=158&type=chunk) - Capital expenditures are estimated to be up to **$100 million** in 2023, funded by available cash and operating cash flows[157](index=157&type=chunk) - No cash dividends were declared in Q3 or YTD 2023, and none are anticipated in the foreseeable future[161](index=161&type=chunk) [New Accounting Standards](index=32&type=section&id=New%20Accounting%20Standards) Refers to Note 1, 'Summary of Significant Accounting Policies,' for new applicable accounting standards [Critical Accounting Policies](index=32&type=section&id=Critical%20Accounting%20Policies) No significant changes to critical accounting policies since Dec 31, 2022, except for updates in Note 1 - No significant changes to critical accounting policies since December 31, 2022, except for updates in Note 1[171](index=171&type=chunk) Other Information [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in interest rate, foreign exchange, and commodities risks since the 2022 Form 10-K - No material change in interest rate, foreign exchange, and commodities risks as of September 30, 2023[173](index=173&type=chunk) [Controls and Procedures](index=33&type=section&id=Controls%20and%20Procedures) Disclosure controls and procedures were effective as of Sep 30, 2023, with no material changes in internal control - Disclosure controls and procedures were effective as of September 30, 2023[175](index=175&type=chunk) - No material changes in internal control over financial reporting during the quarter ended September 30, 2023[176](index=176&type=chunk) [Legal Proceedings](index=33&type=section&id=Legal%20Proceedings) Refers to Note 11 for legal proceedings; no material changes to risk factors from 2022 Form 10-K - No material changes with respect to risk factors disclosed in the 2022 Form 10-K[177](index=177&type=chunk) [Risk Factors](index=33&type=section&id=Risk%20Factors) No material changes to risk factors previously disclosed in the company's 2022 Form 10-K - No material changes to the risk factors disclosed in the 2022 Form 10-K[177](index=177&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 659 thousand shares for $32 million in Q3 2023; $583 million remains for repurchases under the $1 billion program | Period | Total Shares Purchased (Thousands) | Average Price Paid Per Share | Value of Shares Yet to Be Purchased (Millions) | | :------------------------------| :---------------------------------| :---------------------------| :---------------------------------------------| | July 2, 2023 — July 29, 2023 | 197 | $48.54 | $605 | | July 30, 2023 — August 26, 2023 | 210 | $49.26 | $595 | | August 27, 2023 — Sep 30, 2023 | 252 | $48.06 | $583 | | Total | 659 | $48.59 | | - As of September 30, 2023, **$583 million** remained available for repurchases under the **$1 billion** stock repurchase program, authorized through December 31, 2025[180](index=180&type=chunk)[181](index=181&type=chunk) - No cash dividends were declared in Q3 or YTD 2023, and none are anticipated in the foreseeable future[183](index=183&type=chunk) [Other Information](index=34&type=section&id=Other%20Information) CEO Gerry Smith is on temporary medical leave; Joseph S. Vassalluzzo is acting as Principal Executive Officer - CEO Gerry Smith is on temporary medical leave; Joseph S. Vassalluzzo is acting as Principal Executive Officer[184](index=184&type=chunk)[197](index=197&type=chunk) - Mr. Smith is expected to remain on medical leave for several more weeks[184](index=184&type=chunk) [Exhibits](index=35&type=section&id=Exhibits) Lists exhibits filed with Form 10-Q, including certifications and Inline XBRL documents - Includes certifications of Principal Executive and Financial Officers (31.1, 31.2, 32)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - Contains various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk) [Form 10-Q Cross-Reference Index](index=36&type=section&id=Form%2010-Q%20Cross-Reference%20Index) Provides a cross-reference index to the traditional SEC Form 10-Q format for item location - Provides a cross-reference index to the traditional SEC Form 10-Q format for enhanced readability[4](index=4&type=chunk)[195](index=195&type=chunk) [Signatures](index=37&type=section&id=Signatures) Report signed by Joseph S. Vassalluzzo (PEO), D. Anthony Scaglione (PFO), and Max W. Hood (PAO) on November 8, 2023 - Signed by Joseph S. Vassalluzzo (Principal Executive Officer), D. Anthony Scaglione (Principal Financial Officer), and Max W. Hood (Principal Accounting Officer)[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Date of signing: November 8, 2023[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)

The ODP Corporation (NASDAQ:ODP) Q2 2023 Earnings Conference Call August 9, 2023 9:00 AM ET Company Participants Tim Perrott - Vice President, Investor Relations & Treasurer Gerry Smith - Chief Executive Officer Anthony Scaglione - Executive Vice President & Chief Financial Officer Conference Call Participants Jeff Lick - B. Riley Michael Lasser - UBS Joe Gomes - Noble Capital Operator Good morning, and welcome to The ODP Corporation's Second Quarter 2023 Earnings Conference Call. All lines will be on a lis ...

Second Quarter 2023 QQ112200 Financial Results Safe Harbor Statement ...

[Financial Statements](index=3&type=section&id=Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements, covering key financial performance and position [Condensed Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) Net income rose to **$34 million** for 13 weeks and **$107 million** for 26 weeks, significantly increasing diluted EPS from continuing operations Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | 13 Weeks Ended July 1, 2023 | 13 Weeks Ended June 25, 2022 | 26 Weeks Ended July 1, 2023 | 26 Weeks Ended June 25, 2022 | | :-------------------------------------- | :-------------------------- | :--------------------------- | :-------------------------- | :--------------------------- | | Sales | $1,908 | $2,034 | $4,016 | $4,212 | | Gross profit | $415 | $431 | $897 | $916 | | Operating income | $46 | $28 | $141 | $104 | | Net income | $34 | $27 | $107 | $82 | | Basic earnings per share (Continuing) | $0.89 | $0.40 | $2.70 | $1.54 | | Diluted earnings per share (Continuing) | $0.87 | $0.39 | $2.61 | $1.49 | [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Comprehensive income increased to **$38 million** for 13 weeks and **$113 million** for 26 weeks, driven by net income and foreign currency adjustments Consolidated Statements of Comprehensive Income Highlights (in millions) | Metric | 13 Weeks Ended July 1, 2023 | 13 Weeks Ended June 25, 2022 | 26 Weeks Ended July 1, 2023 | 26 Weeks Ended June 25, 2022 | | :------------------------------------------------------------------ | :-------------------------- | :--------------------------- | :-------------------------- | :--------------------------- | | Net income | $34 | $27 | $107 | $82 | | Foreign currency translation adjustments | $5 | $(11) | $7 | $(12) | | Total other comprehensive income, net of tax | $4 | $(13) | $6 | $(8) | | Comprehensive income | $38 | $14 | $113 | $74 | [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets decreased to **$3,961 million** as of July 1, 2023, primarily due to reduced cash and current assets, leading to lower stockholders' equity Consolidated Balance Sheets Highlights (in millions) | Metric | July 1, 2023 | December 31, 2022 | | :------------------------------------ | :----------- | :---------------- | | Cash and cash equivalents | $335 | $403 | | Current assets held for sale | $13 | $107 | | Total current assets | $1,738 | $1,910 | | Total assets | $3,961 | $4,149 | | Trade accounts payable | $864 | $821 | | Accrued expenses and other current liabilities | $903 | $1,005 | | Total current liabilities | $1,782 | $1,859 | | Total liabilities | $2,800 | $2,862 | | Total stockholders' equity | $1,161 | $1,287 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash provided by operating activities improved to **$149 million** for 26 weeks, with investing activities providing **$46 million** and financing activities using **$263 million** Consolidated Statements of Cash Flows Highlights (in millions) | Metric | 26 Weeks Ended July 1, 2023 | 26 Weeks Ended June 25, 2022 | | :---------------------------------------------------- | :-------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $149 | $(84) | | Net cash provided by investing activities | $46 | $39 | | Net cash used in financing activities | $(263) | $(74) | | Net decrease in cash, cash equivalents and restricted cash | $(67) | $(120) | | Cash, cash equivalents and restricted cash at end of period | $337 | $417 | - Cash provided by operating activities of continuing operations increased to **$149 million** in the first half of 2023, compared to cash used of **$84 million** in the prior year, driven by improved working capital management, particularly in receivables and inventories[161](index=161&type=chunk) - Investing activities generated **$41 million** in the first half of 2023, primarily from **$101 million** in proceeds from asset dispositions, including the sale of the corporate headquarters, partially offset by **$51 million** in capital expenditures[163](index=163&type=chunk) - Financing activities used **$263 million** in the first half of 2023, mainly due to **$231 million** in common stock repurchases and **$23 million** in share purchases for taxes[165](index=165&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Total stockholders' equity decreased to **$1,161 million** due to **$233 million** in common stock repurchases, partially offset by **$107 million** in net income Changes in Stockholders' Equity (in millions, except share amounts) | Metric | Balance at Dec 31, 2022 | 26 Weeks Ended July 1, 2023 Activity | Balance at July 1, 2023 | | :------------------------------------------------------------------ | :---------------------- | :----------------------------------- | :---------------------- | | Common Stock Shares | 65,636,015 | 961,091 | 66,597,106 | | Common Stock Amount | $1 | $0 | $1 | | Additional Paid-in Capital | $2,742 | $(5) | $2,737 | | Accumulated Other Comprehensive Loss | $(77) | $6 | $(71) | | Accumulated Deficit | $(451) | $107 | $(344) | | Treasury Stock | $(928) | $(234) | $(1,162) | | Total Equity | $1,287 | $(126) | $1,161 | - The company repurchased **5 million shares** of common stock at a cost of **$234 million** in the first half of 2023, with **$615 million** remaining available under the current stock repurchase program as of July 1, 2023[71](index=71&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed disclosures on accounting policies, financial performance, and position, offering context to the condensed financial statements [NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%201.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's significant accounting policies, including segment reporting, cash and cash equivalents, and discontinued operations - The ODP Corporation operates through four reportable segments: ODP Business Solutions Division, Office Depot Division, Veyer Division, and Varis Division, providing B2B distribution solutions and omni-channel retail presence[22](index=22&type=chunk) - The CompuCom Division was sold on December 31, 2021, and is presented as discontinued operations[23](index=23&type=chunk) - Cash and cash equivalents held outside the United States amounted to **$97 million** at July 1, 2023, with **$25 million** repatriated from Canada during Q2 2023[26](index=26&type=chunk) [NOTE 2. ACQUISITIONS](index=10&type=section&id=NOTE%202.%20ACQUISITIONS) This note outlines the company's acquisition activities, including details on recent purchases and their financial impact - In the first half of 2023, the Company acquired a small independent regional office supply distribution business in the U.S., consistent with its strategy to expand its distribution network[32](index=32&type=chunk) - The acquisition was funded primarily with cash on hand and resulted in **$3 million** of goodwill, allocated to the ODP Business Solutions Division[33](index=33&type=chunk) [NOTE 3. MERGER, RESTRUCTURING AND OTHER ACTIVITY](index=11&type=section&id=NOTE%203.%20MERGER,%20RESTRUCTURING%20AND%20OTHER%20ACTIVITY) This note provides details on merger, restructuring, and other operating activities, including expenses and strategic plans Merger, Restructuring and Other Operating Expenses, Net (in millions) | Expense Category | 13 Weeks Ended July 1, 2023 | 13 Weeks Ended June 25, 2022 | 26 Weeks Ended July 1, 2023 | 26 Weeks Ended June 25, 2022 | | :------------------------------------------------------ | :-------------------------- | :--------------------------- | :-------------------------- | :--------------------------- | | Merger and transaction related expenses | $0 | $0 | $0 | $0 | | Restructuring expenses, net | $1 | $0 | $1 | $1 | | Other operating expenses | $0 | $23 | $0 | $33 | | Total Merger, restructuring and other operating expenses, net | $1 | $23 | $1 | $34 | - The Maximize B2B Restructuring Plan, extended through 2024, aims to optimize the retail footprint and generate savings. The Company closed **6** and **26** retail stores in Q2 and H1 2023, respectively[41](index=41&type=chunk) - Total estimated restructuring costs for the Maximize B2B Restructuring Plan are expected to be up to **$95 million**, with **$82 million** incurred through H1 2023[42](index=42&type=chunk) - Other operating expenses were **$0** in Q2 and H1 2023, a significant decrease from **$23 million** and **$33 million** in the prior year periods, which were related to the previously planned separation of the consumer business[45](index=45&type=chunk) [NOTE 4. SEGMENT INFORMATION](index=12&type=section&id=NOTE%204.%20SEGMENT%20INFORMATION) This note presents detailed financial information for each operating segment, including sales, operating income, and goodwill allocation - The ODP Business Solutions Division serves B2B customers, including Federation entities, expanding reach and offerings beyond traditional office supplies[48](index=48&type=chunk) - The Office Depot Division operates **952 retail stores** and an eCommerce platform, providing products and services to consumers and small businesses[49](index=49&type=chunk) - Veyer Division handles supply chain, distribution, procurement, and global sourcing for internal divisions and third-party customers[51](index=51&type=chunk) - Varis Division is a tech-enabled B2B indirect procurement marketplace, including BuyerQuest, focused on digital commerce for businesses[52](index=52&type=chunk) Sales and Operating Income by Division (in millions) | Division | Q2 2023 Sales | Q2 2023 Op. Income | H1 2023 Sales | H1 2023 Op. Income | Q2 2022 Sales | Q2 2022 Op. Income | H1 2022 Sales | H1 2022 Op. Income | | :---------------------------- | :------------ | :----------------- | :------------ | :----------------- | :------------ | :----------------- | :------------ | :----------------- | | ODP Business Solutions Division | $1,002 | $45 | $2,011 | $84 | $1,000 | $36 | $1,984 | $55 | | Office Depot Division | $905 | $35 | $2,008 | $120 | $1,039 | $49 | $2,240 | $145 | | Veyer Division | $1,322 | $6 | $2,742 | $21 | $1,416 | $8 | $2,947 | $16 | | Varis Division | $2 | $(14) | $4 | $(31) | $1 | $(16) | $4 | $(31) | | Total Consolidated Sales | $1,908 | | $4,016 | | $2,034 | | $4,212 | | | Total Divisions operating income | $72 | | $194 | | $77 | | $185 | | Disaggregated Sales by Major Categories (in millions) | Major Sales Categories | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--------------------- | :------ | :------ | :------ | :------ | | Supplies | $947 | $976 | $1,999 | $2,026 | | Technology | $527 | $601 | $1,143 | $1,273 | | Furniture and other | $271 | $301 | $549 | $612 | | Copy and print | $163 | $156 | $325 | $301 | | Total | $1,908 | $2,034 | $4,016 | $4,212 | Goodwill by Segment (in millions) | Segment | Balance as of Dec 31, 2022 | Acquisitions | Balance as of July 1, 2023 | | :---------------------------- | :------------------------- | :----------- | :------------------------- | | ODP Business Solutions Division | $142 | $3 | $145 | | Office Depot Division | $219 | $0 | $219 | | Veyer Division | $35 | $0 | $35 | | Varis Division | $68 | $0 | $68 | | Total | $464 | $3 | $467 | - The Varis reporting unit's fair value exceeded its carrying amount by **21%** in the Q4 2022 annual impairment assessment, but changes in critical assumptions could lead to future impairment charges[59](index=59&type=chunk) [NOTE 5. INCOME TAXES](index=15&type=section&id=NOTE%205.%20INCOME%20TAXES) This note explains the company's income tax provisions, including effective tax rates and factors influencing tax expense Effective Tax Rates | Period | Q2 2023 | H1 2023 | Q2 2022 | H1 2022 | | :----- | :------ | :------ | :------ | :------ | | Rate | 28% | 24% | 29% | 26% | - Effective tax rates were primarily impacted by tax benefits from stock-based compensation awards, state taxes, and the mix of income/losses across jurisdictions[63](index=63&type=chunk) - The Company maintains a U.S. valuation allowance for certain federal credits and state tax attributes, which may be impacted by future pretax income projections[63](index=63&type=chunk) [NOTE 6. EARNINGS PER SHARE](index=15&type=section&id=NOTE%206.%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share from continuing operations Earnings Per Share Calculation (in millions, except per share amounts) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------------------------- | :------ | :------ | :------ | :------ | | Net income from continuing operations | $34 | $20 | $107 | $75 | | Net income | $34 | $27 | $107 | $82 | | Weighted-average shares outstanding | 38 | 49 | 40 | 49 | | Basic EPS (Continuing operations) | $0.89 | $0.40 | $2.70 | $1.54 | | Diluted EPS (Continuing operations) | $0.87 | $0.39 | $2.61 | $1.49 | | Net diluted earnings per share | $0.87 | $0.54 | $2.61 | $1.63 | - Diluted EPS from continuing operations increased significantly in Q2 2023 (**$0.87** vs **$0.39**) and H1 2023 (**$2.61** vs **$1.49**) due to higher net income and lower weighted average shares outstanding[121](index=121&type=chunk) [NOTE 7. DEBT](index=16&type=section&id=NOTE%207.%20DEBT) This note describes the company's debt facilities, including credit agreements, outstanding loans, and compliance with covenants - The Third Amended Credit Agreement provides for up to **$1.3 billion** in asset-based revolving credit and FILO Term Loan facilities, maturing in April 2025[67](index=67&type=chunk) - In H1 2023, the Company drew down **$165 million** to fund common stock repurchases and working capital, which was repaid, resulting in no revolving loans outstanding at July 1, 2023[68](index=68&type=chunk) - As of July 1, 2023, the Company had **$57 million** in outstanding FILO Term Loan Facility loans, **$39 million** in standby letters of credit, and **$811 million** in available credit, remaining in compliance with all covenants[68](index=68&type=chunk) [NOTE 8. STOCKHOLDERS' EQUITY](index=16&type=section&id=NOTE%208.%20STOCKHOLDERS'%20EQUITY) This note provides information on changes in stockholders' equity, including stock repurchases and accumulated other comprehensive loss Accumulated Other Comprehensive Loss Activity (in millions) | Metric | Balance at Dec 31, 2022 | Other Comprehensive Income Activity | Balance at July 1, 2023 | | :----------------------------------- | :---------------------- | :---------------------------------- | :---------------------- | | Foreign Currency Translation Adjustments | $(39) | $7 | $(32) | | Pension | $(38) | $(1) | $(39) | | Total | $(77) | $6 | $(71) | - A new **$1 billion** stock repurchase program was approved in October 2022, available through December 31, 2025. The Company repurchased **724 thousand shares** for **$31 million** in Q2 2023 and **5 million shares** for **$234 million** in H1 2023[70](index=70&type=chunk)[71](index=71&type=chunk) - As of July 1, 2023, **$615 million** remains available for stock repurchases. The Company does not anticipate declaring cash dividends in the foreseeable future[71](index=71&type=chunk)[73](index=73&type=chunk) [NOTE 9. EMPLOYEE BENEFIT PLANS](index=17&type=section&id=NOTE%209.%20EMPLOYEE%20BENEFIT%20PLANS) This note outlines the company's employee benefit plans, including pension obligations and related financial impacts Net Periodic Pension Benefit (in millions) | Plan / Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :----------------------------- | :------ | :------ | :------ | :------ | | North America Pension Plans | $(2) | $(2) | $(4) | $(2) | | UK Pension Plan | $0 | $(1) | $0 | $(1) | - In July 2023, the UK pension plan Trustees entered an agreement for a bulk annuity purchase, covering **100%** of members, with a full buyout anticipated as early as 2024, expected to be non-cash[81](index=81&type=chunk) [NOTE 10. FAIR VALUE MEASUREMENTS](index=18&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value measurements of financial instruments and asset impairment charges - The Company recognized asset impairment charges of **$6 million** in Q2 2023 and **$10 million** in H1 2023, primarily related to operating lease ROU assets of retail store locations[86](index=86&type=chunk) - The corporate headquarters in Boca Raton was sold on April 6, 2023, for **$104 million**, with no gains or losses recorded from the transaction[89](index=89&type=chunk) Financial Instruments Fair Value (in millions) | Financial Instrument | July 1, 2023 Carrying Amount | July 1, 2023 Fair Value | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Fair Value | | :------------------------------------------------------ | :--------------------------- | :---------------------- | :--------------------------- | :---------------------- | | Company-owned life insurance | $136 | $136 | $138 | $138 | | New Facilities loans under Third Amended Credit Agreement | $57 | $57 | $57 | $57 | | Revenue bonds | $75 | $76 | $75 | $76 | | American & Foreign Power Company, Inc. 5% debentures | $16 | $13 | $15 | $14 | [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) This note describes the company's commitments and contingent liabilities, including legal proceedings and environmental matters - The Company is involved in various legal proceedings and does not believe contingent liabilities will materially affect its financial position, results of operations, or cash flows[94](index=94&type=chunk)[95](index=95&type=chunk) - The estimated range of reasonably possible losses for environmental liabilities is approximately **$15 million to $25 million**[96](index=96&type=chunk) [NOTE 12. DISCONTINUED OPERATIONS](index=20&type=section&id=NOTE%2012.%20DISCONTINUED%20OPERATIONS) This note provides information on the financial impact and status of discontinued operations, specifically the CompuCom Division - The CompuCom Division was sold on December 31, 2021, for a cash purchase price of **$104 million**, a **$55 million** promissory note (amended to **$59 million** in Feb 2023), and an earn-out provision of up to **$125 million**[97](index=97&type=chunk)[98](index=98&type=chunk) - The Company had no financial results related to discontinued operations in Q2 and H1 2023, compared to **$7 million** in insurance proceeds received in Q2 and H1 2022[99](index=99&type=chunk) [Management's Discussion and Analysis (MD&A)](index=20&type=section&id=Management's%20Discussion%20and%20Analysis%20(MD%26A)) This section provides management's perspective on the company's financial condition and results of operations [Overview](index=21&type=section&id=Overview) Consolidated sales decreased by **6%** in Q2 2023 and **5%** in H1 2023, primarily due to lower demand and planned store closures - Consolidated sales decreased by **$126 million (6%)** in Q2 2023 and **$196 million (5%)** in H1 2023 compared to the prior year periods[113](index=113&type=chunk) - ODP Business Solutions Division sales increased by **$4 million** in Q2 2023 and **$31 million (2%)** in H1 2023, driven by paper, furniture, cleaning, breakroom supplies, and copy/print services, partially offset by declines in technology and PPE[113](index=113&type=chunk) - Office Depot Division sales decreased by **$134 million (13%)** in Q2 2023 and **$234 million (11%)** in H1 2023, mainly due to planned store closures and lower demand in retail stores and eCommerce, particularly in categories previously boosted by COVID-19[113](index=113&type=chunk) External Sales by Division (in millions) | Division | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :---------------------------- | :------ | :------ | :--------- | :------ | :------ | :--------- | | ODP Business Solutions Division | $999 | $995 | 0% | $2,004 | $1,973 | 2% | | Office Depot Division | $897 | $1,031 | (13)% | $1,991 | $2,225 | (11)% | | Veyer Division | $10 | $7 | 43% | $17 | $10 | 70% | | Varis Division | $2 | $1 | 100% | $4 | $4 | 0% | | Total | $1,908 | $2,034 | (6)% | $4,016 | $4,212 | (5)% | - Total gross profit decreased by **$16 million (4%)** in Q2 2023 and **$19 million (2%)** in H1 2023. ODP Business Solutions saw higher gross profit due to favorable product margin, offset by a decrease in Office Depot Division due to lower sales[115](index=115&type=chunk) - Total gross margin remained at **22%** for both Q2 and H1 2023[116](index=116&type=chunk) - Selling, general and administrative expenses decreased by **$15 million** in Q2 2023 and **$28 million** in H1 2023, mainly driven by store closures and strategic initiatives in the Office Depot Division[118](index=118&type=chunk) - Diluted EPS from continuing operations increased to **$0.87** in Q2 2023 (from **$0.39**) and **$2.61** in H1 2023 (from **$1.49**) due to higher net income and lower weighted average shares[121](index=121&type=chunk) - The company repurchased **724 thousand shares ($31 million)** in Q2 2023 and **5 million shares ($234 million)** in H1 2023, with **$615 million** remaining under the current stock repurchase program[122](index=122&type=chunk) - Total liquidity at July 1, 2023, was approximately **$1.1 billion**, comprising **$335 million** in cash and **$811 million** in available credit[123](index=123&type=chunk) [Operating Results by Division](index=25&type=section&id=Operating%20Results%20by%20Division) This section details the individual performance of ODP's four operating divisions, highlighting sales trends and operating income changes [ODP Business Solutions Division](index=25&type=section&id=ODP%20Business%20Solutions%20Division) This division reported increased sales and operating income in Q2 and H1 2023, driven by higher demand and favorable product margins ODP Business Solutions Division Performance (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Sales (external) | $999 | $995 | $2,004 | $1,973 | | % change of total sales | 0% | | 1% | | | Division operating income | $45 | $36 | $84 | $55 | | % of total sales | 4% | 4% | 4% | 3% | - Sales increased by **$2 million** in Q2 2023 and **$27 million** in H1 2023, driven by higher demand and inflationary price adjustments in paper, furniture, cleaning, breakroom supplies, and copy/print services, partially offset by declines in technology, ink, toner, office supplies, and PPE[126](index=126&type=chunk)[127](index=127&type=chunk) - Operating income increased by **25% to $45 million** in Q2 2023 and **53% to $84 million** in H1 2023, mainly due to favorable product margin and higher gross profit[129](index=129&type=chunk)[130](index=130&type=chunk) [Office Depot Division](index=26&type=section&id=Office%20Depot%20Division) This division experienced decreased sales and operating income in Q2 and H1 2023, primarily due to planned store closures and lower demand Office Depot Division Performance (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Sales (external) | $897 | $1,031 | $1,991 | $2,225 | | % change of total sales | (13)% | | (10)% | | | Division operating income | $35 | $49 | $120 | $145 | | % of total sales | 4% | 5% | 6% | 6% | | Comparable store sales decrease | (8)% | N/A | (5)% | N/A | - Sales decreased by **13%** in Q2 2023 and **10%** in H1 2023, primarily due to planned store closures, lower demand, and reduced average order values, despite increased copy and print services sales[132](index=132&type=chunk) - eCommerce platform sales represented **30%** of total sales in Q2 2023 and **29%** in H1 2023[133](index=133&type=chunk) - Operating income decreased by **29% to $35 million** in Q2 2023 and **17% to $120 million** in H1 2023, mainly due to lower sales, partially offset by improved product margin in Q2[134](index=134&type=chunk) - The division operated **952 retail stores** as of July 1, 2023, down from **1,020 stores** at the end of Q2 2022[134](index=134&type=chunk) [Veyer Division](index=27&type=section&id=Veyer%20Division) This division saw decreased internal sales but increased external sales in Q2 and H1 2023, with mixed operating income results Veyer Division Performance (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Sales (external) | $10 | $7 | $17 | $10 | | Sales (internal) | $1,312 | $1,409 | $2,725 | $2,937 | | % change of total sales | (7)% | | (7)% | | | Division operating income | $6 | $8 | $21 | $16 | | % of total sales | 0% | 1% | 1% | 1% | - Internal sales decreased by **7%** in both Q2 and H1 2023, primarily due to reduced demand from the Office Depot and ODP Business Solutions Divisions[136](index=136&type=chunk) - External sales increased by **$3 million** in Q2 2023 and **$7 million** in H1 2023, driven by supply chain services and product sales to third parties[136](index=136&type=chunk) - Operating income decreased to **$6 million** in Q2 2023 due to lower internal sales but increased to **$21 million** in H1 2023 due to higher favorable impact from product costing[136](index=136&type=chunk) [Varis Division](index=27&type=section&id=Varis%20Division) This division reported increased sales in Q2 2023 and a reduced operating loss, with continued investment in its technology platform Varis Division Performance (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------ | :------ | :------ | :------ | :------ | | Sales (external) | $2 | $1 | $4 | $4 |\ | % change of total sales | 100% | | 0% | | | Division operating loss | $(14) | $(16) | $(31) | $(31) | | % of total sales | (700)% | (1,600)%| (775)% | (775)% | - Sales increased by **$1 million** in Q2 2023 and were flat in H1 2023, predominantly from subscription services[137](index=137&type=chunk) - Operating loss decreased to **$14 million** in Q2 2023 due to lower employee-related costs, remaining flat at **$31 million** in H1 2023[137](index=137&type=chunk) - The Company expects to continue investing in growing the Varis Division, incurring costs related to internally developed software and technology platform expansion[137](index=137&type=chunk) [Corporate](index=28&type=section&id=Corporate) This section details corporate-level financial impacts, including asset impairment charges, restructuring expenses, and unallocated overhead - Asset impairment charges were **$6 million** in Q2 2023 and **$10 million** in H1 2023, primarily for operating lease ROU assets of retail store locations[139](index=139&type=chunk) - Merger, restructuring and other operating expenses, net, decreased significantly to **$1 million** in both Q2 and H1 2023, from **$23 million** and **$34 million** in the prior year periods, respectively[142](index=142&type=chunk) - Unallocated expenses decreased to **$19 million** in Q2 2023 (from **$23 million**) due to lower legal fees and corporate incentive expense, remaining flat at **$42 million** in H1 2023[144](index=144&type=chunk) Other Income and Expense (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :---------------- | :------ | :------ | :------ | :------ | | Interest income | $2 | $1 | $4 | $2 | | Interest expense | $(5) | $(4) | $(10) | $(9) | | Other income, net | $4 | $3 | $6 | $5 | - The effective tax rate was **28%** for Q2 2023 and **24%** for H1 2023, primarily influenced by tax benefits from stock-based compensation and the mix of income across jurisdictions[147](index=147&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Total liquidity was **$1.1 billion** at July 1, 2023, with improved operating cash flows and significant share repurchases - Total liquidity was approximately **$1.1 billion** at July 1, 2023, consisting of **$335 million** in cash and cash equivalents and **$811 million** of available credit[152](index=152&type=chunk) - The sale of the corporate headquarters in April 2023 for **$104 million** increased cash and liquidity, partially offset by an **$83 million** reduction in available credit[152](index=152&type=chunk) - The Company expects 2023 capital expenditures to be up to **$100 million**, funded by available cash and operating cash flows[155](index=155&type=chunk) - In H1 2023, the Company repurchased **5 million shares** of common stock for **$234 million** under its **$1 billion** stock repurchase program, with **$615 million** remaining available[155](index=155&type=chunk) - Cash provided by operating activities of continuing operations was **$149 million** in H1 2023, a significant improvement from cash used of **$84 million** in H1 2022, driven by improved working capital[161](index=161&type=chunk) - Cash provided by investing activities of continuing operations was **$41 million** in H1 2023, primarily from **$101 million** in proceeds from asset dispositions[163](index=163&type=chunk) - Cash used in financing activities of continuing operations was **$263 million** in H1 2023, mainly due to common stock repurchases[165](index=165&type=chunk) [New Accounting Standards](index=32&type=section&id=New%20Accounting%20Standards) This section refers to Note 1, 'Summary of Significant Accounting Policies,' for a description of new applicable accounting standards - For a description of new applicable accounting standards, refer to Note 1. 'Summary of Significant Accounting Policies' in Notes to Condensed Consolidated Financial Statements[167](index=167&type=chunk) [Critical Accounting Policies](index=32&type=section&id=Critical%20Accounting%20Policies) The Company's critical accounting policies remain consistent with the 2022 Form 10-K, with no significant changes other than updates in Note 1 - There have been no significant changes to critical accounting policies since December 31, 2022, except for updates described in Note 1 'Summary of Significant Accounting Policies'[168](index=168&type=chunk) [Other Information](index=33&type=section&id=Other%20Information) This section covers additional disclosures including market risk, controls, legal proceedings, risk factors, equity sales, and exhibits [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in the Company's interest rate, foreign exchange, and commodities risks compared to the 2022 Form 10-K - No material change in interest rate, foreign exchange, and commodities risks information disclosed in the 2022 Form 10-K as of July 1, 2023[170](index=170&type=chunk) [Controls and Procedures](index=33&type=section&id=Controls%20and%20Procedures) The Company's disclosure controls and procedures were effective as of July 1, 2023, with no material changes in internal control over financial reporting - As of July 1, 2023, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed is timely reported[172](index=172&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended July 1, 2023, that materially affected or are reasonably likely to materially affect it[173](index=173&type=chunk) [Legal Proceedings](index=33&type=section&id=Legal%20Proceedings) For a description of the Company's legal proceedings, refer to Note 11, 'Commitments and Contingencies,' in the financial statements - For a description of legal proceedings, refer to Note 11. 'Commitments and Contingencies' in Notes to Condensed Consolidated Financial Statements[174](index=174&type=chunk) [Risk Factors](index=33&type=section&id=Risk%20Factors) No material changes occurred to the risk factors disclosed in the 2022 Form 10-K and the Form 10-Q for the quarter ended April 1, 2023 - No material changes with respect to the risk factors disclosed in the 2022 Form 10-K and the Form 10-Q for the quarter ended April 01, 2023[174](index=174&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased **724 thousand shares** for **$31 million** in Q2 2023, with **$615 million** remaining under the stock repurchase program - The Company repurchased **724 thousand shares** of common stock at a cost of **$31 million** in Q2 2023[176](index=176&type=chunk) - As of July 1, 2023, **$615 million** remained available for additional repurchases under the current stock repurchase program[176](index=176&type=chunk) Common Stock Repurchases (Q2 2023) | Period | Total Number of Shares Purchased (In thousands) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program (In thousands) | Approximate Dollar Value of Shares that May Yet Be Purchased Under Repurchase Program (In millions) (1) | | :--------------------------- | :-------------------------------------------- | :--------------------------- | :-------------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------- | | April 2, 2023 — April 29, 2023 | 216 | $44.35 | 216 | $637 | | April 30, 2023 — May 27, 2023 | 238 | $42.42 | 238 | $627 | | May 28, 2023 — July 1, 2023 | 270 | $43.08 | 270 | $615 | | Total | 724 | $43.24 | 724 | | - No cash dividends were declared in Q2 or H1 2023, and the Company does not anticipate declaring cash dividends in the foreseeable future[179](index=179&type=chunk) [Other Information](index=34&type=section&id=Other%20Information) D. Anthony Scaglione, EVP and CFO, terminated his Rule 10b5-1 trading plan on June 14, 2023, without executing any sales transactions - D. Anthony Scaglione, EVP and CFO, terminated his Rule 10b5-1 trading plan on June 14, 2023, without executing any sales transactions[180](index=180&type=chunk) [Exhibits](index=35&type=section&id=Exhibits) This section lists the exhibits filed with the Form 10-Q, including equity incentive plan agreements, officer certifications, and Inline XBRL documents - Exhibits include Varis, Inc. Equity Incentive Plan Option Award Agreement, officer certifications (Rule 13a-14(a) or 15d-14(a), and 18 U.S.C. Section 1350), and Inline XBRL documents[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) [Form 10-Q Cross-Reference Index](index=35&type=section&id=Form%2010-Q%20Cross-Reference%20Index) This index provides a cross-reference to the traditional SEC Form 10-Q format, detailing where each required item can be found - The index provides a cross-reference to the traditional SEC Form 10-Q format, indicating the page numbers for each item[190](index=190&type=chunk) [Signatures](index=36&type=section&id=Signatures) This section contains the official signatures certifying the accuracy and completeness of the report [Signatures](index=37&type=section&id=Signatures) The report is signed by the CEO, EVP & CFO, and SVP & Chief Accounting Officer on August 9, 2023 - The report is signed by Gerry P. Smith (CEO), D. Anthony Scaglione (EVP & CFO), and Max W. Hood (SVP & Chief Accounting Officer) on August 9, 2023[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)

ODP Corporation (NASDAQ:ODP) Q1 2023 Earnings Conference Call May 10, 2023 9:00 AM ET Company Participants Timothy Perrott - VP, IR Diego Scaglione - EVP & CFO Gerry Smith - CEO & Director Conference Call Participants Michael Lasser - UBS Operator Good morning, and welcome to The ODP Corporation's First Quarter 2023 Earnings Conference Call. [Operator Instructions]. At the request of the ODP Corporation, today's call is being recorded. I would like to introduce Tim Perrott, Vice President, Investor Relation ...

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This section presents the unaudited condensed consolidated financial statements and their accompanying notes for the reporting period [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the 13-week period ended April 1, 2023, show a decrease in sales but an increase in operating and net income compared to the same period in 2022. Total assets decreased slightly from year-end 2022, while total liabilities saw a minor increase. The company generated significantly more cash from operations year-over-year, which was primarily used for substantial stock repurchases [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2023, The ODP Corporation reported sales of **$2.108 billion**, a decrease from **$2.178 billion** in the prior-year period. Despite lower sales, operating income increased to **$95 million** from **$76 million**, and net income rose to **$72 million** from **$55 million** year-over-year. Diluted earnings per share from continuing operations increased significantly to **$1.71** from **$1.09** Q1 2023 vs Q1 2022 Statement of Operations (in millions, except per share) | Metric | 13 Weeks Ended April 1, 2023 | 13 Weeks Ended March 26, 2022 | | :--- | :--- | :--- | | **Sales** | $2,108 | $2,178 | | **Gross Profit** | $481 | $484 | | **Operating Income** | $95 | $76 | | **Net Income** | $72 | $55 | | **Diluted EPS (Continuing Operations)** | $1.71 | $1.09 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of April 1, 2023, total assets were **$4.041 billion**, a slight decrease from **$4.149 billion** at year-end 2022, primarily due to a reduction in cash and cash equivalents. Total liabilities increased marginally to **$2.893 billion** from **$2.862 billion**. Total stockholders' equity decreased to **$1.148 billion** from **$1.287 billion**, largely driven by treasury stock repurchases Balance Sheet Summary (in millions) | Account | April 1, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $1,813 | $1,910 | | **Total Assets** | $4,041 | $4,149 | | **Total Current Liabilities** | $1,845 | $1,859 | | **Total Liabilities** | $2,893 | $2,862 | | **Total Stockholders' Equity** | $1,148 | $1,287 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of 2023, net cash provided by operating activities was **$157 million**, a significant improvement from **$30 million** in the same period of 2022. Net cash used in investing activities was **$36 million**, while net cash used in financing activities increased to **$185 million**, primarily due to **$201 million** in common stock repurchases. This resulted in a net decrease in cash of **$59 million** Cash Flow Summary (in millions) | Cash Flow Activity | 13 Weeks Ended April 1, 2023 | 13 Weeks Ended March 26, 2022 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $157 | $30 | | **Net Cash from (used in) Investing Activities** | ($36) | ($14) | | **Net Cash used in Financing Activities** | ($185) | ($64) | | **Net (Decrease) Increase in Cash** | ($59) | $20 | - The company repurchased **$201 million** of common stock for treasury in Q1 2023, a significant financing activity not present in Q1 2022[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's structure of four reportable segments: ODP Business Solutions, Office Depot, Veyer, and Varis. Key activities in Q1 2023 include a small acquisition in the ODP Business Solutions division, ongoing restructuring under the 'Maximize B2B' plan, and significant stock repurchases. The company also completed the sale of its corporate headquarters subsequent to the quarter's end - The company operates through four reportable segments: ODP Business Solutions Division, Office Depot Division, Veyer Division, and Varis Division[25](index=25&type=chunk) - In January 2023, the company acquired a small independent regional office supply distribution business, which is included in the ODP Business Solutions Division[34](index=34&type=chunk) - Under the Maximize B2B Restructuring Plan, the company closed **20 retail stores** in Q1 2023, with total expected restructuring costs up to **$95 million**[42](index=42&type=chunk)[43](index=43&type=chunk) - The company's corporate headquarters in Boca Raton, classified as held for sale for **$104 million**, was sold on April 6, 2023[85](index=85&type=chunk) [Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Part%20I%20-%20Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, operating results by division, and liquidity and capital resources [Overview](index=19&type=section&id=Overview) The ODP Corporation operates through four divisions: ODP Business Solutions, Office Depot, Veyer, and Varis. In Q1 2023, consolidated sales decreased by **3%** to **$2.108 billion**, driven by an **8%** decline in the Office Depot Division, partially offset by a **3%** increase in the ODP Business Solutions Division. Despite lower sales, gross profit was nearly flat, and operating income improved due to lower SG&A expenses, particularly from store closures and cost-saving initiatives External Sales by Division (in millions) | Division | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | ODP Business Solutions | $1,005 | $978 | 3% | | Office Depot | $1,094 | $1,194 | (8)% | | Veyer | $7 | $4 | 75% | | Varis | $2 | $2 | 0% | | **Total** | **$2,108** | **$2,178** | **(3)%** | - Total selling, general and administrative (SG&A) expenses decreased by **$14 million** in Q1 2023 compared to Q1 2022, mainly due to a **$22 million** decrease in the Office Depot Division from store closures and strategic initiatives[111](index=111&type=chunk) [Operating Results by Division](index=22&type=section&id=Operating%20Results%20by%20Division) In Q1 2023, the ODP Business Solutions Division saw a **3%** sales increase and a **105%** rise in operating income, driven by strong demand in core categories. The Office Depot Division's sales fell **8%** due to store closures and lower demand, with operating income down **11%**. The Veyer Division's operating income grew to **$15 million** from **$8 million** due to favorable product costing. The Varis Division's operating loss widened to **$17 million** from **$15 million** due to continued investment in its technology platform [ODP Business Solutions Division](index=22&type=section&id=ODP%20Business%20Solutions%20Division) The ODP Business Solutions Division reported a **3%** increase in total sales for Q1 2023. This growth was driven by higher sales in core categories like paper, furniture, and technology, partially offset by a **$57 million** decline in personal protective equipment. Operating income more than doubled to **$39 million** from **$19 million** in the prior year, a **105%** increase, due to the flow-through impact of higher sales and improved gross profit ODP Business Solutions Division Performance (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | **Total Sales** | $1,009 | $984 | | **% Change** | 3% | N/A | | **Division Operating Income** | $39 | $19 | | **% of Total Sales** | 4% | 2% | [Office Depot Division](index=23&type=section&id=Office%20Depot%20Division) The Office Depot Division's sales decreased by **8%** in Q1 2023, attributed to planned store closures and lower demand for products like technology and furniture. Comparable store sales declined by **3%**. Despite the sales drop, operating income as a percentage of sales remained flat at **8%**, although absolute operating income fell **11%** to **$85 million** from **$96 million** in Q1 2022. The number of retail stores decreased from **1,032** to **959** year-over-year - Comparable store sales decreased by **3%** in Q1 2023, reflecting lower store traffic and average order value[121](index=121&type=chunk)[124](index=124&type=chunk) - The number of retail stores decreased to **959** at the end of Q1 2023, down from **1,032** at the end of Q1 2022[126](index=126&type=chunk) - eCommerce platform sales represented **29%** of the Office Depot Division's total sales in Q1 2023[123](index=123&type=chunk) [Veyer Division](index=24&type=section&id=Veyer%20Division) The Veyer Division, the company's supply chain and sourcing operation, reported a **7%** decrease in total sales, primarily due to lower internal sales to the Office Depot and ODP Business Solutions divisions. However, operating income nearly doubled to **$15 million** in Q1 2023 from **$8 million** in Q1 2022, driven by a favorable impact from product costing on its gross profit - Internal sales, which represent the majority of the division's revenue, decreased due to lower demand from the Office Depot and ODP Business Solutions divisions[128](index=128&type=chunk)[130](index=130&type=chunk) - Division operating income increased to **$15 million** from **$8 million** year-over-year, attributed to higher favorable impact from product costing[131](index=131&type=chunk) [Varis Division](index=24&type=section&id=Varis%20Division) The Varis Division, a tech-enabled B2B procurement marketplace, reported flat sales of **$2 million** in Q1 2023 compared to the prior year. The division's operating loss increased by **13%** to **$17 million** from **$15 million**, reflecting continued investments in expanding and scaling its technology platform and product offerings, particularly amortization of internally developed software - The division's operating loss widened to **$17 million** in Q1 2023 from **$15 million** in Q1 2022, driven by investments to scale the technology platform[133](index=133&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) As of April 1, 2023, The ODP Corporation had total liquidity of approximately **$1.1 billion**, consisting of **$343 million** in cash and **$803 million** available under its credit facility. The company generated **$157 million** in cash from operations in Q1 2023. A significant use of cash was the repurchase of **4 million shares** for **$202 million**. The company estimates total capital expenditures for 2023 to be up to **$100 million** - Total liquidity was approximately **$1.1 billion** at the end of Q1 2023, comprising **$343 million** in cash and **$803 million** in available credit[148](index=148&type=chunk) - The company repurchased **4 million shares** for **$202 million** in Q1 2023, with **$646 million** remaining available under the current **$1 billion** stock repurchase program[152](index=152&type=chunk) - Cash provided by operating activities increased significantly to **$157 million** in Q1 2023 from **$30 million** in Q1 2022, primarily due to improved working capital management[157](index=157&type=chunk)[158](index=158&type=chunk) [Part II - Other Information](index=30&type=section&id=Part%20II%20-%20Other%20Information) This section addresses key risk factors, particularly related to IT systems, and details the company's equity security repurchases [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company supplemented its risk factors to highlight the potential adverse effects of a breach of its information technology systems. This includes risks associated with collecting and storing personally identifiable information, the secure transmission of data, and increased cyber risks from the integration of generative artificial intelligence (AI). A security breach could damage reputation, lead to substantial costs, and negatively impact customer relationships - A new disclosure was added to supplement risk factors, focusing on the adverse effects of a breach of information technology systems[171](index=171&type=chunk) - The company acknowledges increased cyber risks associated with the integration of generative artificial intelligence (AI) into its business processes[172](index=172&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In the first quarter of 2023, the company repurchased a total of **4.263 million shares** of its common stock at an average price of **$47.47** per share, for a total cost of approximately **$202 million**. As of April 1, 2023, **$646 million** remained available for future repurchases under the company's **$1 billion** stock repurchase program, which is authorized through December 31, 2025 Share Repurchases in Q1 2023 | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 28, 2023 | 1,579 | $49.40 | | Jan 29 - Feb 25, 2023 | 481 | $51.82 | | Feb 26 - Apr 1, 2023 | 2,203 | $45.14 | | **Total** | **4,263** | **$47.47** | - As of April 1, 2023, **$646 million** remained available for repurchases under the current stock repurchase program[179](index=179&type=chunk)

ODP Corp (NASDAQ:ODP) Q4 2022 Earnings Conference Call March 1, 2023 9:00 AM ET Company Participants Timothy Perrott - VP, IR Gerry Smith - CEO & Director Diego Scaglione - EVP & CFO Conference Call Participants Operator Good morning and welcome to the ODP Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. I would like to introduce Tim Perrott, Vice President, Investor Relations and Treasurer, Mr. Perrott, you may now begin. Timothy Perrott Good morning and thank you for joining us fo ...