Q3 2019 Earnings Call

November 6, 2019

Good morning, welcome to the office Depot's third quarter 2019 earnings conference call all lines will be on a listen only mode for today's call after which instructions will be given in order to ask a question at the request of office depot today's call is being recorded I would like to introduce Tim Perrott, Vice President Investor relation.

And Mr. Peracchi you may now begin.

Good morning, Thank you for joining us for office Depot's third quarter 2019 earnings Conference call.

This is Tim Perrott, and I'm here with Jerry Smith, our CEO , Andrew Lauer, our executive Vice President and CFO .

Also joining us for the call today, we have mixed slattery president of our coffee calm division.

On today's call Jerry will provide an update on the business, including highlights of some noteworthy achievements for the quarter and progress towards our transformation.

Mick will share his insights on coffee calm and its refocused strategy to capture future growth and Joe will then review the Companys financial results for Q3, including our Division performance.

Following Joe's comments, Jerry will have some closing remarks, and then we will open up a line for your questions.

Before.

Described business performance.

The SEC filings as well as the earnings press release presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at Investor that office depot Dotcom.

Today's call and slide presentation is being simulcast on our website and will be archived there for at least one year.

I will now I'll turn the call over to office Depot's CEO , Jerry Smith Jerry.

Thank you Tim and good morning to everyone. Joining our call today is a pleasure to be with you. This morning discuss our performance for the third quarter of 2019, and the progress, we're making our transformation to enhance our position as a leading BBB provider of business products and services.

Our results this quarter again reflect our continued focus on profitability as we delivered improved operating results and continue to enhance our platform for future growth.

I will cover the key milestones in the quarter.

And additional details within our business units and Joe will address the specific financial results and our business units.

As Tim mentioned, we're thrilled to have mix slattery with us on the call today.

Nick join recently as the President of our coffee come Division and we will share with you his strategy to drive growth and profitability and it's very important component of our BBB platform.

As shown on slide four I'd like to start out with an overview of the primary drivers and accomplishments in third quarter.

Our focus again this quarter was to continue making enhancements to our BTB platform.

Including our distribution in supply chain capabilities.

Strengthening our business model and driving increases in profitability across our business.

Our results show that we made significant progress driving another quarter of improving operating results and strong free cash flow generation.

Profit margins were up across all three of our divisions as we continue to execute upon our business acceleration program.

As a reminder, our business acceleration program or bap as we refer to it is a multiyear effort designed to create a more competitive enterprise driving cost efficiencies that provide additional sources of capital to improve customer satisfaction and importantly fuel future growth.

As we previously announced this program is expected to deliver cost savings of at least $40 million this year and over $100 million a full run rate thereafter.

The positive impact of these efforts is clearly evident in the strong results we delivered in the quarter.

Next we continue to make progress enhancing our BTD plot.

Great future profitable growth.

Under his strong leadership in both our business solutions Division and comp become division, we are taking specific actions to build a stronger more profitable pipeline for future growth.

These actions involve refining our value proposition, improving our sales operations and refocusing our strategy a coffee comp.

These efforts combined along with the bap are resulting in significant improvements in profitability at our positioning us to compete more effectively going forward.

Lastly, we continued to strengthen our balance sheet and generates strong cash flow results during the quarter.

As we previously announced we took steps to line the maturity date other timber notes and associated receivable, which will result in a net cash inflow of over $80 million in January of 2020.

Also as an ongoing commitment to driving shareholder value as we announced this morning, we've increased the authorization of our existing stock repurchase program and extended its duration.

Beginning on slide five.

I'd like to share with you some of the specific highlights of our accomplishments in third quarter, beginning with our sales results.

Total revenue in the third quarter was $2.8 billion, a 4% decrease compared to last year, our baby business, which consists of our PSP and coffee calm divisions continue to generate approximately 60% of our total revenue.

The decrease in revenue compared to last year was largely driven by a 6% decrease in sales in our retail division. A result of lower same store sales combined with fewer stores in service and a 6% decline in revenue in our comp become division.

Retail same store sales of minus 3.6% was an improvement over last year and we continue to drive increase in our buy online pickup in store sales was partially mitigated the impact of the decline in retail traffic.

Revenue in BSD declined 1% relative to the same period last year, partially driven by our efforts to eliminate certain unprofitable sales activities, which had a negative impact to revenues.

Our operating performance improved significantly in the third quarter as evidenced by increases in operating income and strong free cash flow generation.

Profit margins were up across all three of our divisions versus last year, driven by solid execution of our operating plan and efficiencies delivered from the business acceleration program.

We generated $137 million in adjusted operating income in the quarter up 14% over last year and $191 million, an adjusted EBITDA up 11% over last year.

These results represent a substantial year over year improvement and underscore our focus on profitability.

Solid operational performance in our BBB divisions or complemented by strong execution in our retail division, which drove a 20% increase and operating income over last year.

This result was particularly impressive as it was achieved in the highly competitive back to school season.

Our BSD division continued to deliver strong profitability driving a 6% increase in operating income over the same period last year and an increase in profit margin as well.

In addition to our cost efficiency efforts in BSD gross margins improved distribution cost for a more efficient at our efforts to mitigate certain product cost increases are paying off.

Become also drove improvements in operating income relative to last year and relative to the first two quarters of this year as our business acceleration program continued to deliver cost efficiencies.

The foundation of our transformation initiatives continue to make positive progress.

Our new leadership in our BBB businesses are building, a stronger and more efficient platform to drive future growth and profitability.

We are driving efficiency gains in our supply chain through use of robotics, and automation and better leverage of our distribution network.

We are continuing to grow our supply chain as a service business and working on additional collaboration efforts with several companies.

Services revenue grew again in our retail business up 10% on a same store basis, driven largely by copy and print and subscription based services.

Total service sales remain at 15% of consolidated revenue despite the year over year revenue decline in services a comp become.

We expect our services revenue percentage to grow in the future, particularly as companies returns to growth and more services are implemented within our business units.

And finally as I mentioned, our balance sheet remains strong with a low leverage and significant available liquidity.

Moving to slide six let me now turn attention to the highlights within our business segments in the third quarter, beginning with our BSD division for the quarter BST revenue was down 1% compared to last year. However, our focus on profitability resulted in increase in operating income slightly higher year over year sale.

Sales in our core contract channel, which included the additive effect of the high quality customer tuck in acquisitions were offset by targeted actions to improve profitability.

These actions included eliminating certain unprofitable sales activities at our e-commerce and contract channels.

While these actions had a negative near term impact to revenue they improve our competitive agility and position us for greater profitable growth in the future.

Our adjacent see categories grew and account for approximately 37% of total BSD sales.

Adjacency categories include cleaning and Breakroom copy and print.

Furniture, and technology products cleaning and Breakroom with a standout among these categories up nearly 10% year over year in the quarter.

Our cleaning and Breakroom category alone is about 40% of total adjacent sees.

As this category as a 26 billion dollar growing industry, we're still in the early stages of capitalizing on this attractive growth opportunities.

Turning the profitability margins in our BSD division improved significantly driving a 6% year over year increase in operating income.

Stronger gross margins cost efficiencies related to the backup and more effective and efficient distribution costs through these impressive results.

Additionally, the mitigation strategies, we put in place to address the rise in production cost for certain product categories also contributed to our performance.

Overall, BSD delivered strong operational results and I'd like to take a moment to discuss what we're doing to build upon our platform to drive the next phase of growth in BSD.

Under its new leadership, we're taking specific actions designed to improve and prepare our platform to drive sustained and sales growth and greater profitability in the future.

These actions are centered around improving sales efficiency.

Repositioning our value proposition.

Analyzing data analytics to improve sales and expanding adjacent categories to pursue greater share of wallet opportunities.

We are continuing to execute upon our plan of selectively acquiring leading players in markets, where we have little to no presence.

Expanding our distribution reach and increasing our customer base.

We're also focused on capturing the numerous cross selling opportunities between BSD and comp become.

Additionally, the actions, we've taken to reduce unprofitable sales activities and certain reseller channels and online categories improve our focus in places that a stronger position to deliver sustained profitable growth in the future.

Just as we did three years ago, when we turned around that trajectory of BSD from a business that was declining over 6% per year and into a growing and profitable business. We're preparing our foundation for our next phase of growth.

We are already seen early signs of success as our sales productivity is increasing our total pipeline of new in potential business is increasing.

And our adjacency categories of growing.

We're excited about the early progress we are seeing as we start to implement these improvements.

I'd now like to take some time to discuss our progress with comp become.

Coffee commas important part of our PDP business and a key asset for us and developing our services business.

With a tenured history and a brand and that stands for quality. There are world class offerings in large field force of highly trained technicians differentiate us from the competition and position us for opportunities that we could not pursue without them.

After a challenging start to the year comp become has continued to make progress.

Stabilizing this business driving higher operating income and increasing the pipeline its new business. Most importantly, we've hired a highly experienced leader at comp become mix Slattery, who is refreshing comp becomes vision and bringing new energy to accelerate profitable growth.

Mixed joins us from leadership position that several technology companies, bringing a wealth of experience in developing and growing leading technology led service businesses.

We welcome met because the team and I will turn it over to at him for a discussion on comp becomes refined strategic focus as plans for the future.

Thank you Gerry and thanks to all on the call who have joined US. This morning, a mix Slattery president of count become.

Hi, Jon Komp become four months ago, because I'm extremely excited about the potential to grow this business.

Comp become has a history of market leadership supporting end users and distributed technology.

A market, which has rapidly evolving.

This evolving digital marketplace is being shaped by technology evolution, new ways of working and most importantly employee demands for a better experience.

I'm confident that are rich capabilities and market reputation coupled with the power of office depot position us well to propel this business scored a.

I've been in the technology services industry for nearly 30 years building growing and running technology based businesses in a variety of industries.

I'm deeply familiar with the challenges business fees and empowering their employees with the technologies they need to be productive.

If you come has a compelling opportunity to enable our customers with the digital workplace services necessary to support their businesses aspirations.

Slide eight provides further context on GAAP income.

At its core comp become as a technology services provider focused on supporting the distributed technology needs of enterprise customers.

You will see we serve the enterprises in North America across a myriad of industries the top banks the top retailers half of the top 10 Fortune 500 companies. They all rely on the expertise of our 8000 plus employees and our reputation for quality to support their end users and distributed locations.

Independent assessments verify that our customers think highly of or services.

We are recognized as a north American market leader by industry analysts such as the Gartner group through a repeated positioning in their magic quadrant for managed workplace services.

We also recognized as one of the top providers when compared to where appears in areas like end user device managed services. Our team has much to be proud of.

I believe the evolution of the digital workplace market plays to copy comps strengths as highlighted on slide nine.

Much has been written about the changing workforce dynamics created by a workforce spending five generations.

Employees have diverse preferences and ways of working with technology that employers must support in order to make their employees productive.

At the same time, the very nature of work is changing the long time models work in nine to 500 assigned location with a desktop computer is giving way to flexible hours removed employees and virtual workforces demanding anytime anywhere access from a variety of company in personal devices.

These changes are fundamentally altering the way we need to support workers.

A couple that with the need to implement and leverage new digital technologies, while also managing increasingly sophisticated security threats and privacy regulations than the support challenge has become further complex.

Solving and seamlessly supporting these complex relationships for our customers is what we do.

And we do it well.

Our ability to manage technology devices from laptops tablets smartphones to servers and the edge networking devices and enable them coupled with our multichannel end user support offerings remote monitoring and automation enable us to create a compelling experience for customers in there and.

Please.

Add to those capabilities, our focus on facilitating end user collaboration and our unique ability to dispatch field technicians to customer locations across the U.S and Canada.

From retail outlets to branch banks to distributed offices, and we possess the capabilities required to deliver a compelling digital workplace experience.

And better yet the market is large and growing.

We estimate the current addressable market for the managed device workplace and infrastructure services in North America to be in excess of $130 billion.

The market is highly fragmented and despite our growth over 32 years, we've only captured a small portion of this market.

As the market evolves and our focus intensifies, we have significant potential for growth.

Evaluating the opportunity to join comp become I hadn't outside in perspective defined by a business with slowing growth.

And profitability pressure.

But my knowledge of the market in comp becomes longstanding market leadership painted a truly compelling picture.

Since joining I spent time talking to our customers in our employees.

Analyzing comp become strategic positioning.

Assessing our strengths reviewing our offerings and understanding the evolving needs of our customers.

As I reflect on my first 100 days account become it's clear I've joined the team dedicated to serving a marquee enterprise customer base with a rich set of capabilities, serving a very compelling in growing market from my perspective, our fundamental business challenges has been focus.

The market evolved we diluted our focus in an attempt to capitalize on multiple trends digital transformation in cloud computing Aiotv.

At the core comp you calm as an organization that enables enterprises employees to be productive.

And we're getting back to and refocusing on that core mission.

Working with my leadership team, we've refreshed our strategy and our instilling a renewed sense of focus across the organization.

Slide 10 highlights a renewed focus.

We connect people technology and the edge with a seamless experience.

Let me expand on our vision a bit.

We are the bridge that connects employees in distributed locations to the technology they need to be productive.

We don't write the applications people use we make sure that when associates need to process, a retail transaction look up a customer account in the bank view a medical record analyze the sales dashboard joint of video conference.

Simply read an email we make sure that the employee can get to the services they need to be productive.

Our renewed vision is free and by four ambitions that serve as guideposts as we invest in creating our future.

At the core we want to deliver a ready now experience for digital workplace users, enabling seamless uninterrupted secure access to the technology resources required to be productive.

When employees need assistance or have questions. We will provide an always there concierge outcome to provide support advice and resolve issues to drive digital worker productivity.

We also want to strive for is zero dispatch edge, delivering solutions, which minimize the need for onsite engineering or field support through remote monitoring automation configuration and self healing technology.

Lastly, we strongly believe we can be advocates for supporting our customers aspirations to live green by enabling more flexible in virtual ways of working while also efficiently managing the full lifecycle of our customers technology footprint, including environmentally correct dispose.

We'll have devices.

In conjunction with our aspirations envision we've mapped out the transformation program with a number of strategic imperatives to accelerate growth, including reinventing the comp you calm customer experience.

Elevating our brand in the market reinventing our core expanding our multichannel go to market efforts and energizing our teams.

One of the key elements of this strategy is unlocking the synergies with office depot.

Specifically, we are working very closely with the BSD team in particular to shape a series of standardized powered by comp you Com digital workplace services, which can be targeted towards mid market enterprises.

We believe this is an underserved market, which faces the same challenges as the larger enterprise market.

This is a market that the BST team services today, and we believe represents significant future growth potential.

In summary from extremely excited to be account become and to be part of Jerry's team I.

I believe the digital workplace market will have both significantly over the next few years and comp you com is well positioned to capitalize on this opportunity.

We have work to do to accelerate growth and optimize our business results, but we have a shared vision a plan and the right level of urgency to make this happen.

With that thank you for your time, and let me turn it back over to Jerry.

Thank you Mick we're energized and excited about the path for comp become we're already beginning to see improving results with new bookings in the quarter copying $300 million and contract value.

We're excited about this result, and look forward to the continued leadership you're providing the team.

On the falling slide I'd now like to spend a few minutes on our retail division's performance and the initiatives underway to maximize value in this area of our business.

We made good progress in the quarter and improved our operational metrics, helping to offset some of the traffic challenges the industry is facing.

We created a better in store experience utilize local playbooks incentivized, our store managers and executed created promotion strategies to improve performance.

As a result, we drove increases in the conversion rate.

Average order volume and sales per shopper in fact sales dollars per shopper with as highest level and has been all year.

Demand increase for our buying online pickup in store offering services revenue grew 10% on a comparable basis and customers that are rewards program increased dramatically.

These positive trends along with our clients centered selling culture is creating better customer engagement, resulting in improvements in same store sales trends same store sales were down 3.6% representing over 100 basis points improvement over the same period last year.

Also our back to school season performance delivered solid results, we realized many operational improvements from the prior year and are already incorporating those best practices into our 2020 planning.

Back to school will continue to be an important opportunity as we expand our educational related offerings.

These efforts combined with our refined promotional strategies in cost efficiency measures drove a 20% increase in operating income and higher margins.

As I have mentioned in the path, we continually evaluate the profitability and strategic value at each of our retail locations to ensure we optimize our footprint.

We have been refining our retail footprint this year, resulting a higher number of store closures versus last year.

While this had a negative impact to our revenue. These actions are improving the vitality of our network and contributing to the overall profitability of our retail business now and in the future that said our retail footprint continues to be a complementary component of our overall distribution platform.

And a key differentiator versus online competitors.

To that end, we continue to think about our retail space differently at our pursuing additional ways to drive value for our footprint and increased store traffic.

We've launched store within store opportunities with Lenovo and established new partnerships with companies like Telos I'd in order to deliver additional high value services targeted business and consumers alike.

With that I'll turn the call over to our CFO , Joe Lauer for more detail on our financial results.

Thank you Gerry and good morning, everyone.

Im happy to be here today to discuss with you our financial results for the third quarter of 29 team.

Consistent with previous quarters, we have provided our results on both a GAAP basis and adjusted basis from continuing operations.

My comments will primarily address the performance from our continuing operations on an adjusted basis.

Total revenue of $2.8 billion in the third quarter was down 4% largely driven by lower sales in our retail and comp you come divisions.

GAAP operating income in the quarter was $108 million up from operating income of $105 million last year.

Included in operating income was $22 million and merger and restructuring charges.

Comprised of $16 million associated with our business acceleration program.

$5 million and asset impairments and $6 million in integration expenses.

Excluding these and other items, our adjusted operating income for the third quarter was $137 million up 14% from $120 million in the prior year.

Unallocated corporate expenses were $23 million in the quarter compared to $18 million in the prior year, reflecting a tax incentive received in the third quarter of last year that was not repeated in the current period.

Adjusted EBITDA was $191 million for the quarter.

Up 11% compared to $172 million in the prior year.

This includes depreciation and amortization expense of $51 million and $48 million in the third quarter of 2019, and 28 team respectively.

Excluding the after tax impact from the items mentioned earlier adjusted net income from continuing operations for the third quarter of 29 team was $84 million or 15 cents per share.

Compared to $71 million or 13 cents per share in the prior year.

For the quarter cash generated by operating activities was $212 million, which included $29 million of cash expenditures related to the business acceleration program.

Capital expenditures in the quarter were $32 million.

Compared to $47 million in the prior year period, reflecting lower investment in our retail operations, while continuing investments in our service platform distribution network and ecommerce capabilities.

Reported free cash flow was $180 million adjusting for the $29 million in cash expenditures related to the business acceleration program.

Adjusted free cash flow in the quarter was $209 million.

Let's now turn to slide 14, which highlights the performance of our BSD Division as a reminder, BSD is the largest component of our b to B integrated distribution business.

Serving customers from the fortune 500 to small and medium sized businesses.

Reported sales in the third quarter for BSD were $1.35 billion, a decrease of 1% compare to the prior year period.

The year over year comparison reflects lower volume and traditional office product categories.

Mitigated by the positive impact of customer tuck in acquisitions and growth in certain adjacency categories.

Adjacency sales represent 37% of our total PST revenue.

Targeted actions to improve profitability in certain areas of our contract in ecommerce channels contributed to the year over year decrease in revenue.

As Jerry mentioned earlier these actions included eliminating certain nonprofitable sales activities within these channels.

While we believe these actions had a temporary negative impact to revenue, we believe that that are necessary to strengthen our platform and improve our position to generate future growth.

The BSD Division reported operating income of $71 million in the third quarter of 6% increase compared to $67 million in the prior year period.

That's nearly a 40 basis point improvement in profit margin.

The increase versus the prior year was driven by a combination of lower estuary from cost efficiencies associated with the business acceleration program.

Improved gross margins from our efforts to mitigate certain product cost increases including tariffs.

And more efficient distribution costs.

Included in operating results were continued investments in demand generation upgrades to our ecommerce platform and enhancements to our service delivery capabilities.

Looking at Slide 15, we highlight the performance of the comp become division.

In general while revenue was down compared to last year comp you comps operating results have continued to recover from a slow start at the beginning of the year.

Sales in the third quarter for coffee calm were $252 million down 6% versus the prior year period.

The largest driver of the decrease was associated with lower sales from project related revenue within existing accounts.

This impact was partially offset by an increase in product related sales versus last year.

The coffee come Division reported operating income of $3 million in the third quarter of 2019.

Compared to an operating income of $1 million in the prior year period.

And a sequential improvement over the $1 million, an operating income generated in the second quarter of 29 team.

The year over year increase was largely related to business acceleration program related cost efficiency efforts.

As Mick addressed earlier, we continue to take actions to improve future operating performance, including a refocused strategy increased use of automation to further improve service efficiency.

Simplifying the operating structure to improve service velocity.

And aligning sales efforts to better serve customers and accelerate cross selling opportunities.

Turning to slide 16 reported total sales in the quarter for our retail division declined 6% to $1.2 billion.

The decline in sales was largely related to lower traffic and volume as well as the impact of store closures over the last 12 months as we had 55 fewer stores compared to a year ago.

These impacts were partially offset by increases in conversion rates average sales per customer.

And in buy online pickup in store sales, which were up 6% over the same period last year.

Same store sales declined 3.6%. However, this metric improved over 100 basis points versus the trend one year ago.

Product sales were down 8% in the quarter, while service revenue on a comparable basis increased 10% compared to the prior year period.

Okay, and print and subscriptions drove the sales increase in services during the quarter.

The retail division reported operating income of $84 million in the third quarter up 20% over the same period last year.

As a percentage of sales.

This represents 150 basis point improvement in margins the increase in operating income versus the prior year reflects higher gross margins lower us DNA from cost efficiency measures higher services sales.

And an improvement in distribution and inventory management costs.

The retail divisions operating income results also include the impact of investments in additional service delivery capabilities sales training and other customer oriented initiatives.

Turning to the balance sheet and cash flow highlights on slide 17, we ended the third quarter of 29 team with total liquidity of over $1.5 billion, consisting of $588 million in cash and cash equivalents.

And $962 million of availability under our asset based lending facility.

Total debt at the end of the quarter was approximately $700 million, resulting in net debt of $110 million when offset against cash.

Total debt excludes $737 million.

And non recourse debt related to the timber notes as.

As we recently announced we secured a three month 735 million dollar bridge loan facility. The proceeds of which were used to refinance the existing nonrecourse debt obligation, allowing us to cost effectively align the notes maturity date with the associated $817 million timber note receivable due.

To January 29 2020.

Upon final maturity of both instruments in January of 2020, the company expects to receive pre tax net cash payment of approximately $82 million.

Moving to cash flow for the third quarter cash provided by operating activities was $212 million.

Which included $30 million in restructuring costs, largely associated with the business acceleration program and $3 million and acquisition and integration related costs.

This compares to the cash provided by operating activities of $304 million in the third quarter of the prior year.

Capital expenditures in the quarter were $32 million versus $47 million in the prior year, reflecting lower investment in retail operations, while continuing investments in our service platform distribution network and ecommerce capabilities.

The cash charges associated with our business acceleration program in the quarter were $29 million Accordingly, adjusted free cash flow from continuing operations was $209 million in the third quarter of 29 team.

On slide 18, we highlight our continued balanced approach to capital allocation in the quarter.

Our priorities, we're focused on invested in our business, including our business acceleration program servicing dividends and paying down debt.

During the quarter after the $32 million and capital investments, we paid for $2 million in dividends repaid $90 million of debt and invested $29 million as we executed our business acceleration program.

Going forward, we plan to continue a balanced approach addressing our business shareholders and lenders.

Additionally, as we announced earlier today, our board of directors approved a feasibility review.

Have a holding company reorganization that if implemented with creative new holding company called the ODP Corporation.

The intent of this reorganization as to simplify our legal entity and tax structure.

More closely align our operating assets with their respective operating channels.

An increase our operational flexibility.

If implemented existing shares of office depot would convert on a one to one basis into shares of the ODP Corporation.

The feasibility review intended to be completed by the end of the first quarter 2020.

Would also include confirmation that the anticipated reorganization would be a tax free transaction for you as income tax purposes for office depot shareholders.

Also we announced today as part of our ongoing commitment to drive shareholder value.

Our board of directors approved an increase in the authorization of our existing stock repurchase program.

We are increasing the authorization to $200 million.

And extending the program until the end of 2021.

The new authorization includes the remaining authorized amount under the previous stock repurchase program. Accordingly, The company will now have approximately $190 million available for share repurchases.

We intend to resume opportunistic share repurchases under this program in future quarters.

Overall, we delivered another quarter of strong operating results and our team remains committed to unlocking the value of our asset base and building upon our b to B platform.

Consider our performance year to date today, we are reaffirming our 2019 guidance.

With that I'll turn the call back over to Jerry for his closing comments Jerry.

Thank you Joe.

I'll provide a brief wrap up comments then turn it over for your questions. Our recent performance validates the progress we are making towards our transformation and represents another quarter of improving operating results.

The addition of strong leadership in both BSD end call become have already and will continue to enhance our btwob hard by fine tuning our go to market strategy and prudently our value proposition expanding our offerings and refining our focus.

We're excited about the refresh strategy that Mitch outlined in his comments today clearly his leadership and approach has called become on the right app to capture growth and a large and expanding digital workforce marketplace.

The initiatives underway in BSD will strengthen our platform and position us for the next phase of growth.

These efforts are supported by one of the largest and most unique supply chain and distribution networks in the country.

All the while while we are operating our retail franchise to optimize profitability and cash flow.

Collectively we're taking the necessary steps to execute the transformation that we started when they arrive three years ago.

Our competitive position is improving our balance sheet remains strong and we remain committed to creating value for all of our stakeholders.

Ill now I'll turn the call back over the operator, we can take your questions.

Hi, I'm just wondering if you would like to ask a question Press Star then the number line on your telephone keypad, we'll pause for just a moment compile the chemo nave roster.

Our first question comes from the line of Michael Lasser. Please state. Your company name then proceed with your question.

Good morning, its smartcard on for Michael Lasser Company is yes, thanks, a lot for taking the questions.

Within your BSD unit, there was a slight decline and overall sales how did performance look on organic basis. Thanks.

Good morning, Michael.

This is Jerry so mark sorry.

Overall, we have.

About.

So we.

Hey differently.

We have readjusted, our operating model in the sales we shifted a big portion of the of the of the team from outside inside we had that had a slight impact than in the quarter.

Our Federation strategies continued important added about 3% in the growth.

That is a customer acquisition engine for us.

We are really I view at the same way as you acquired enterprise account you acquire customers from like Federation perspective.

I think a longer term if you look back historically that was a rapidly declining business, we've got that to a certain level. It was important we made this model adjustment.

I think you'll see a little bit impacting Q3 in Q4, and some potentially in Q4, but going forward. We think it's the right.

Right approach long term for the company. So we're also focusing on improving salesforce effectiveness and efficiency.

And there's a lot of transformation efforts to make sure sales people are spending more time selling less time doing sales administrative type of tasks.

The number of transformation efforts around that.

Okay, and then the retail business there is some underlying improvement and the gross margin you noted that cost mitigation efforts helps were there any underlying changes the competitive environment as well and would you expect to assign stabilizing overtime. Thanks.

I'll answer first we'll adjust out a few comments that were really focused on driving efficiency and effectiveness distribution. Our promotional strategy, we've refined and went deeper and I'll say more narrow and I think it's just a lot of good work by Kevin's team, John Gan Force team and our marketing teams of ensuring we.

Have the right promotions right value proposition, the REIT strategies and we saw.

Obviously, we saw a lot of margin improvements I'm really proud of the team for their efforts for that so we're going to continue the same focus going forward.

Yes, I would echo what Joe said I think it really was a reflection of a very.

Co-operative collaborative effort.

Driving sales.

Improving the efficiency of promotion.

And really refining the operating model more than I think of it as a competitive dynamic.

Great. Thank you very much.

Your next question comes from the line of Liz Suzuki. Please state. Your company name then proceed with your question.

Great. Thanks, Sam Company is bank of America, I'm, just looking at the strength and retail service revenue can you break down the categories within services that were particularly strong I think you guys mentioned to copy and print and subscriptions I'm just wondering how much of the services mix those categories represent and then if there were any other particular categories.

Then services that that that allow.

Yes. It was good morning. This is Jerry.

Majority of the services or copy and print that's the I'll say that.

By far the largest we also has some tech services, we sell in the space and we've grown that business pretty well and I think the other pieces. There. There are some other JCC taxes services, but I'd say, primarily copy and print is the focus we spent a lot of time bolt on ecommerce as well as in the store focusing on growing that piece of the bill.

Listen, we're real pleased with that that activity.

Great and then once that growth in services, primarily like chose the improvement in operating margin I'm, just thinking about how sustainable that improvement as if the retail comps remain negative and then any any sense of the magnitude as deposits that you guys called out in the press release, including how much margin cost savings you guys et cetera.

I think thats, a small contributor I think the biggest contributor was.

Hey.

A daily focus by our merchant and retail teams to really drive the right promotional strategy in the right value proposition.

We spent a long time and effort of refining that model I think thats what were pleased with I think thats gives us some traction going forward as well.

Services did have an impact, but it's really operational improvement from the from the model.

Joe anything else that.

Thank you summed it up correctly that service is fully do have a benefit if you look at the performance in the magnitude of the improvement.

And also improved not just the Max Yep, great. Thank you.

Yeah. The one additional question from the line of Chris Horvers. Please stay your company name then proceed with your question.

Hi, guys is Jerry solve them from J.P. Morgan on for Chris. So could you describe some of the benefits of the potential new holding company structure and there's this real like maybe a signal, but you might potentially spin off one of your divisions in the near future.

Yeah, but I don't want people to jump to conclusions what we announce the feasibility study to do this and really this is a very in a public holding company structure that you frankly, I've seen many other companies like Google and Xerox implement.

Which effectively creates a public holding company that that allows us to have separate operating as it is below that.

Better aligned the assets.

Frankly, this simplifies the legal entities it simplifies the tax structure it improves our laminack rates flexibility.

So I don't want anyone to kind of jump to conclusions. This is something that we've been looking at we've come to a point that we feel it's necessary to do arguably should have been done back at the time of the depot Max merger.

And something that we will be evaluating over the course of the next several months with an intense or an expectation that we would implement.

The end of the first order 2020.

Got it Okay, just one more on the Terrace, what was the carousel impact the gross margin in the corridor and how should we be thinking about Kara pressure on four q.

Yeah. We every talk about in the past me, obviously, we were pretty successful admitted getting terror impact given the margin performance as we've indicated on the direct procurement are tariff exposure.

Less than $15 million.

Pay it'd be about the same into for which we anticipate we will be able to mitigate in much. The same way we did in Q3.

Great. Thank you yep.

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Yeah, I think it ruin it for joining our call today, we look forward to our next call and look forward to pain to ruin transform off the seatbelt. Thank you very much.

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Good morning, and welcome to the office Depot's third quarter 2019 earnings Conference call all lines will be on a listen only mode for today's call after which instructions will be given in order to ask a question at the request of office depot today's call is being recorded.

To introduce Tim Perrott, Vice President Investor Relations Mr. Peracchi you may now begin.

Good morning, Thank you for joining us for office Depot's third quarter 2019 earnings Conference call.

So Tim Perrott, and I'm here with Jerry Smith, our CEO and Joe Lauer, our executive Vice President and CFO .

Also joining us for the call today, we have mic Slattery president of our copy called Division.

On today's call Jerry will provide an update on the business, including highlights of some noteworthy achievements for the quarter and progress towards our transformation.

Nick will share his insights on coffee calm and its refocused strategy to capture future growth and Joe will then review the Companys financial results for Q3, including our Division performance.

Following Joe's comments, Jerry will have some closing remarks, and then we will open up a line for your questions.

Before we begin I need to inform you that certain comments made on this call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These forward looking statements reflect the company's current expectations concerning future events and are subject to a number of factors I.

Days that could cause actual results to differ materially.

A detailed discussion of these factors and uncertainties is contained in the company's filings with the U.S. Securities and Exchange Commission.

During the call we will use some non-GAAP financial measures as we described business performance the FCC filings as well as the earnings press release presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our.

Website at Investor that office depot Dot com.

Today's call and slide presentation as being Simulcasts on our website and will be archived there for at least one year I will now turn the call over to office Depot's CEO Jerry Smith.

Jerry.

Thank you Kim and good morning, everyone. Joining our call today is a pleasure to me with you. This morning discuss our performance for the third quarter of 2019, and the progress we're making it our transformation to enhance our position as a leading BBB provider a business products and services.

Our results this quarter again reflect our continued focus on profitability as we delivered improved operating results and continue to enhance our platform for future growth.

I'll cover the key milestones in the quarter.

An additional detailed within our business units and Joe who will address the specific financial result in our business units.

As Jim mentioned, we're thrilled to have mixed flattery with us on the call today.

Nick Joint recently as the President of our coffee calm division and we'll share with you hit strategy to drive growth and profitability and it's very important component of our BBB platform.

As shown on slide four I'd like to start out with an overview of the primary drivers and accomplishments in the third quarter.

Our focus again this quarter was to continue making enhancements to our baby platform.

Including or distribution in supply chain capabilities.

Strengthening our business model and driving increases in profitability across our business.

Our results show that we made significant progress driving another quarter of improving operating results and strong free cash flow generation.

Profit margins were up across all three of our divisions as we continue to execute upon our business acceleration program.

As a reminder, our business acceleration program or Bath as we refer to it is a multiyear effort designed to create a more competitive enterprise driving cost efficiencies that provide additional sources of capital to improve customer satisfaction and importantly fuel future growth.

As we previously announced this program is expected to deliver cost savings of at least $40 million this year and over 100 million dollar the full run rate thereafter.

Positive impact that these efforts is clearly evident in the strong results we delivered in the quarter.

Next we continue to make progress enhancing our BBB plus.

Generate future profitable growth.

Under his strong leadership in both our business solutions Division and coffee comp division were taking specific actions to build a stronger more profitable pipeline for future growth.

These actions involve refining our value proposition, improving our sales operations and refocusing our strategy a coffee costs.

These efforts combined along with the bap are resulting in significant improvements in profitability and our positioning us to compete more effectively going forward.

Lastly, we continued to strengthen our balance sheet and generates strong cash flow results during the quarter.

As we previously announced we took steps to line the maturity date other timber notes.

Associated receivable, which will result in a net cash inflow of over $80 million in January of 2020.

Also as an ongoing commitment to driving shareholder value as we announced this morning, we've increased the authorization of our existing stock repurchase program and extended its duration.

Beginning on slide five.

I'd like to share with you some of the specific highlights of our accomplishments in third quarter, beginning with our sales results.

Total revenue in the third quarter was $2.8 billion, a 4% decrease compared to last year, our baby business, which consist of our BSD and copy calm divisions continue to generate approximately 60% of our total revenue.

The decrease in revenue compared to last year was largely driven by a 6% decrease in sales in our retail division.

As a result of lower same store sales combined with fewer stores in service and a 6% decline in revenue in our core become division.

Retail same store sales of minus 3.6% was an improvement over last year and we continue to drive increase in our buy online pickup in store sales, which partially mitigated the impact of the decline in retail traffic.

Revenue at PST declined 1% relative the same period last year, partially driven by our efforts to eliminate certain unprofitable sales activities, which had a negative impact to revenues our operating performance improved significantly in the third quarter as evidenced by increases in operating income and strong.

Free cash flow generation.

Profit margins are up across all three of our divisions versus last year, driven by solid execution of our operating plan and efficiencies delivered from the business acceleration program.

We generated $137 million in adjusted operating income in the quarter up 14% over last year and $191 million, an adjusted EBITDA up 11% over last year.

These results represent a substantial year over year improvement and underscore our focus on profitability.

Solid operational performance in our BBB divisions or complemented by strong execution in our retail division, which drove a 20% increase and operating income over last year.

This result was particularly impressive as it was achieved or in a highly competitive back to school season.

Our BSD division continued to deliver strong profitability driving a 6% increased operating income over the same period last year and an increase in profit margins as well.

In addition to our cost efficiency efforts in BSD gross margins improved distribution cost for a more efficient at our efforts to mitigate certain product cost increases are paying off.

Comp become also drove improvements in operating income relative to last year and relative to the first two quarters of this year as our business acceleration program continued to deliver cost efficiencies.

The foundation of our transformation initiatives continue to make positive progress.

Our new leadership in our BTB businesses, our build a stronger and more efficient platform to drive future growth and profitability.

We are driving efficiency gains in our supply chain through use of robotics, and automation and better leverage of our distribution network.

We're continuing to grow our supply chain as a service business and working on additional collaboration efforts with several companies.

Services revenue grew again in our retail business up 10% on a same store basis.

Were largely by copy and print and subscription based services.

Total service sales remain at 15% of consolidated revenue despite the year over year revenue decline in service is a coffee Cup.

We expect our services revenue percentage to grow in the future, particularly as copy.

Returns to growth and more services are implemented within our business units.

And finally as I mentioned on our balance sheet remains strong with a low leverage and significant available liquidity.

Lightly higher year over year sales at our core contract channel, which included the additive effect at the high quality customer tuck in acquisitions were offset by targeted actions to improve profitability.

These actions included eliminates certain unprofitable sales activities at our e-commerce in contract channels.

While these actions had a negative near term impact to revenue they improve our competitive agility and position us for greater profitable growth in the future.

Our adjacent categories grew and account for approximately 37% of total BSD sales.

Jason see categories include cleaning and Breakroom copy and print.

Literature, and technology products cleaning and Breakroom with a standout among these categories up nearly 10% year over year in the quarter.

Our cleaning and Breakroom category alone is about 40% of total adjacent fees.

As this category that 26 billion dollar growing industry, we're still in the early stages of capitalizing on this attractive growth opportunity.

Turning the profitability margins in our BSD division improved significantly driving a 6% year over year increase in operating income.

Stronger gross margins cost efficiencies related to the backup and more effective and efficient distribution costs drove these impressive results.

Additionally, the mitigation strategies they put in place to address the rise in production cost per certain product categories also contributed to our performance.

Overall, BSD delivered strong operational results and I'd like to take a moment to discuss what we're doing to build upon our platform to drive the next phase of growth in BSD.

Under its new leadership, we're taking specific actions designed to improve and prepare our platform to drive sustained and sales growth and greater profitability in the future.

These actions are centered around improving sales efficiency.

Repositioning our value proposition.

Analyzing data analytics to improve sales and expanding adjacent categories to pursue greater share of wallet opportunities.

We are continuing to execute upon our plan to selectively acquiring leading players in markets, where we have a little to no presence.

Expanding our distribution reach and increasing our customer base.

We're also focused on capturing the numerous cross selling opportunities between BSD and copy calm.

Additionally, the actions, we've taken to reduce unprofitable sales activities and certain reseller channels and online categories improve our focus in place us in a stronger position to deliver sustained profitable growth in the future.

Just as we did three years ago, one we turned around that trajectory at PST from a business that was declining over 6% per year and into it growing and profitable business. We're preparing our foundation for our next phase of growth.

We're already seeing early signs of success as our sales productivity is increasing our total pipeline of new in potential business is increasing and our JCC categories are growing.

We are excited about the early progress we are seeing as we start to implement these improvements.

I'd now like to take some time to discuss our progress with coffee column.

Coffee comments important part of our BTB business and a key asset for us and developing our services business.

With a tenured history and a branding that stands for quality there are world class offerings and large field force highly trained technicians differentiate us from the competition and position us for opportunities that we could not pursue without them.

After a challenging starts for the year copy Com has continued to make progress stabilizing this business driving higher operating income and increasing the pipeline of its new business. Most importantly, we've hired a highly experienced leader at comp become mix Slattery, who is refreshing coffee comes vision.

And bringing new energy to accelerate profitable growth.

Mix joins us from leadership position that several technology companies, bringing a wealth of experience in developing and growing leading technology led service businesses.

We welcome met to the team and I will turn it over to him for a discussion on comp becomes refined strategic focus is plans for the future.

Thank you Gerry and thanks to all on the call who joined US. This morning on mix Slattery president of comp become.

Jon Komp become four months ago, because I'm extremely excited about the potential to grow this business.

Become has a history of market leadership supporting end users and distributed technology.

The market, which has rapidly evolving.

This evolving digital marketplace is being shaped by technology evolution, new ways of working and most importantly employee demands for a better experience.

I'm confident that are rich capabilities and market reputation coupled with the power of office depot position us well to propel this business forward.

And in the technology services industry for nearly 30 years building growing and running technology based businesses and a variety of industries.

I'm deeply familiar with the challenges business face and empowering their employees with the technologies they need to be productive.

Comp you come as a compelling opportunity to enable our customers with the digital workplace services necessary to support their businesses aspirations.

Slide eight provides further context on GAAP income.

At its core comp you come as a technology services provider focused on supporting the distributed technology needs of enterprise customers.

Independent assessments verify that our customers think highly of or services.

We are recognized as a north American market leader by industry analysts such as the Gartner group through our repeated positioning in their magic quadrant for managed workplace services.

We also recognized as one of the top providers when compared to our peers in areas like end user device managed services. Our team has much to be proud of.

I believe the evolution of the digital workplace market place to copy comps strengths as highlighted on slide nine.

Much has been written about the changing workforce dynamics created by a workforce spending five generations.

Employees have diverse preferences and ways of working with technology that employers must support in order to make their employees productive.

At the same time, the very nature of work is changing the long time model is working nine to 500 and assign location with a desktop computer is giving way to flexible hours remote employees and virtual workforces demanding anytime anywhere access from a variety of company in personal devices.

These changes are fundamentally altering the way we need to support workers.

A couple that with the need to implement and leverage new digital technologies, while also managing increasingly sophisticated security threats and privacy regulations and the support challenge has become further complex.

Solving and seamlessly supporting these complex relationships for our customers is what we do.

And we do it well.

Yes.

Add to those capabilities, our focus on facilitating end user collaboration and our unique ability to dispatch field technicians to customer locations across the U.S and Canada from retail outlets to branch banks to distributed offices.

And we possess the capabilities required to deliver a compelling digital workplace experience.

Better yet the market is large and growing.

We estimate the current addressable market for the managed device workplace and infrastructure services in North America to be in excess of $130 billion.

The market is highly fragmented and despite our growth over 32 years, we've only captured a small portion of this market.

The market evolves and our focus intensifies, we have significant potential for growth.

Evaluating the opportunity to join comp become idle outside in perspective defined by a business with slowing growth in.

And profitability pressure.

But my knowledge of the market in comp becomes longstanding market leadership painted a truly compelling picture.

Since joining I've spent time talking to our customers in our employees.

Analyzing copy comp strategic positioning.

Assessing our strengths reviewing our offerings and understanding the evolving needs of our customers.

Because the market evolved we diluted our focus in an attempt to capitalize on multiple trends digital transformation in cloud computing Aiotv.

At the core comp you come as an organization that enables enterprise employees to be productive.

And we're getting back to and refocusing on that core mission.

Working with my leadership team, we've refreshed our strategy and our instilling a renewed sense of focus across the organization.

Slide 10 highlights a renewed focus.

We connect people technology than the edge with a seamless experience.

Let me expand on our vision a bit.

We are the bridge that connects employees and distributed locations to the technology they need to be productive.

We don't write the applications people use we make sure that when associates need to process, a retail transaction look up a customer account in the bank view of medical record analyze a sales dashboard joint of video conference.

Simply reading email, we make sure that the employee can get to the services they need to be productive.

Our renewed vision stream by four ambitions that serve as guide posts as we invest in creating our future.

At the core we want to deliver a ready now experience for digital workplace users, enabling seamless uninterrupted secure access to the technology resources required to be productive.

When employees need assistance or have questions. We will provide an always there concierge outcome to provide support advice and resolve issues to drive digital worker productivity.

We also want to strive for is zero dispatch hedged delivering solutions, which minimize the need for onsite engineering or field support through remote monitoring automation configuration and self healing technology.

Lastly, we strongly believe we can be advocates for supporting our customers aspirations to live green by enabling more flexible and virtual ways of working while also efficiently managing the full lifecycle of our customers technology footprint, including environmentally correct dispose.

We'll have devices.

Elevating our brand in the market reinventing our core expanding our multichannel go to market efforts and energizing our teams.

One of the key elements of this strategy is unlocking the synergies with office depot.

We believe this is an underserved market, which faces the same challenges because the larger enterprise market.

This is a market that the BST team services today, and we believe represents significant future growth potential.

In summary from extremely excited to be account become and to be part of Jerry's team I.

I believe the digital workplace market will evolve significantly over the next few years and comp you com is well positioned to capitalize on this opportunity.

We have work to do to accelerate growth and optimize our business results, but we have a shared vision a plan and the right level of urgency to make this happen.

With that thank you for your time, and let me turn it back over to Jerry.

Thank you Mick we're energized and excited about the path for copy come we're already beginning to see improving results with new bookings in the quarter copying $300 million and contract value.

We're excited about this result, I look forward to the continued leadership you're providing the team.

On the following slide I'd now like to spend a few minutes on our retail division's performance and the initiatives underway to maximize value in this area of our business.

We made good progress in the quarter and improved operational metrics, helping to offset some of the traffic challenges the industry is facing.

We created a better in store experience utilize local playbooks incentivized, our store managers and executed created promotion strategies to improve performance.

As a result, we drove increases in the conversion rate.

Average order volume and sales per shopper in fact sales dollars per shopper with as highest level. It has been all year.

Demand increase for our buying online pick up in store offering services revenue grew 10% on a comparable basis, a customer that our rewards program increased dramatically.

These positive trends along with our clients centered selling culture is creating better customer engagement, resulting improvements in same store sales trends same store sales were down 3.6% representing over 100 basis points improvement over the same period last year.

Also our back to school season performance delivered solid results.

We realized many operational improvements from the prior year and are already incorporating those best practices into our 2020 planning back to school will continue to be an important opportunity as we expand our educational related offerings.

These efforts combined with our refined promotional strategies in cost efficiency measures drove a 20% increase in operating income in higher margins.

As I have mentioned in the path, we continually evaluate the profitability and strategic value of each of our retail locations to ensure we optimize our footprint.

We have been refining our retail footprint this year, resulting a higher number of store closures versus last year.

While this had a negative impact to our revenue. These actions are improving the vitality of our network and contributing to overall profitability of our retail business now and in the future that said our retail footprint continues to be a complementary component of our overall distribution platform.

And a key differentiator versus online competitors.

To that and we continue think about our retail space differently at our pursuing additional ways to drive value for our footprint and increased store traffic.

We've launched store within store opportunities with Lenovo and established new partnerships with companies like tell us I'd in order to deliver additional high value services targeted business and consumers alike.

With that I'll turn the call over to our CFO , Joe Lauer for more detail on our financial results.

Thank you Gerry and good morning, everyone.

Im happy to be here today to discuss with you our financial results for the third quarter of 29 team.

Consistent with previous quarters, we have provided our results on both a GAAP basis and adjusted basis from continuing operations. My comments will primarily address the performance from our continuing operations on an adjusted basis.

Total revenue of $2.8 billion in the third quarter was down 4% largely driven by lower sales in our retail and comp you come divisions.

GAAP operating income in the quarter was $108 million up from operating income of $105 million last year.

Included in operating income was $22 million and merger and restructuring charges.

Comprised of $16 million associated with our business acceleration program.

$5 million, an asset impairments and $6 million and integration expenses.

Excluding these and other items, our adjusted operating income for the third quarter was $137 million up 14% from $120 million in the prior year.

Adjusted EBITDA was $191 million for the quarter.

Up 11% compared to $172 million in the prior year.

This includes depreciation and amortization expense of $51 million and $48 million in the third quarter of 2019, and 28 team respectively.

Excluding the after tax impact.

From the items mentioned earlier adjusted net income from continuing operations for the third quarter of 29 team was $84 million or 15 cents per share.

Compared to $71 million or 13 cents per share in the prior year.

For the quarter cash generated by operating activities was $212 million, which included $29 million of cash expenditures related to the business acceleration program.

Capital expenditures in the quarter were $32 million.

Reported free cash flow was $180 million.

Adjusting for the $29 million in cash expenditures related to the business acceleration program.

Adjusted free cash flow in the quarter was $209 million.

Let's now turn to slide 14, which highlights the performance of our BSD Division.

As a reminder, BSD is the largest component of our b to B integrated distribution business.

Serving customers from a fortune 500 to small and medium sized businesses.

Reported sales in the third quarter for BSD were $1.35 billion decrease of 1% compared to the prior year period.

The year over year comparison reflects lower volume in traditional office product categories mitigated by the positive impact of customer tuck in acquisitions and growth in certain adjacency categories.

Adjacency sales represent 37% of our total BSD revenue.

Targeted actions to improve profitability in certain areas of our contract in ecommerce channels contributed to the year over year decrease in revenue.

As Jerry mentioned earlier these actions included eliminating certain nonprofitable sales activities within these channels.

While we believe these actions had a temporary negative impact to revenue. We believed that there are necessary to strengthen our platform and improve our position to generate future growth.

The BSD Division reported operating income of $71 million in the third quarter of 6% increase compared to $67 million in the prior year period.

Thats nearly a 40 basis point improvement in profit margin.

The increase versus the prior year was driven by a combination of lower SGN aperam cost efficiencies associated with the business acceleration program.

Improved gross margins from our efforts to mitigate certain product cost increases including tariffs.

And more efficient distribution costs.

Included in our operating results were continued investments in demand generation upgrades for E Commerce platform.

Enhancements to our service delivery capabilities.