Q4 2019 Earnings Call

[music].

Good morning, and welcome to the Olympics depots fourth quarter and full year 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 in.

And Mr. Parati you may now begin.

Good morning them. Thank you for joining us for office Depot's fourth quarter 2019 earnings Conference call. This is Tim Perrott and I'm here with Jerry Smith, our CEO.

I'm also joined by Davidson Trella, our senior Vice President of financial planning, an analysis and interim finance leader, who will provide additional details on our financial results.

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

David will then review the Companys financial results for Q4, and full year, including our divisional performance.

Following David's comments, Jerry will have some closing remarks, and then we'll open up the call 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 and uncertainties 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 US Securities and Exchange Commission.

During the call we will use some non-GAAP financial measures as we described business performance.

The SEC filings as well as the earnings press release.

Presentation slides that accompanies today's comments.

And reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure are all available on our web site at Investor Don Office Depot Dotcom.

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

Sorry.

Thank you, Tim and good morning to everyone joining our call today.

It's great to be here with you. This morning to discuss our accomplishments for the fourth quarter and full year 2019, and our outlook for the year ahead.

We made significant progress throughout the year on our transformation improvement our platform for profitable growth and extending our position as a leading integrated BBB provider of business products and services.

Since 2017, we embarked on a multiyear transformation strategy rooted in strengthening our BBB business.

Developing more predictable revenue streams, and leveraging our assets to drive long term profitable growth.

Our primary focus in 2019 was to further improve our operating structure and enhance our competitive agility.

And as evidenced by our result, we made tremendous progress.

For the year, we improved our profitability.

Abandoned our value proposition and leverage key assets to enhance our BTB platform.

As shown on slide four I would like to highlight the primary drivers in the year supporting our goals.

First through solid execution of our business acceleration program, we streamlined our operations and made sustainable improvements to our business model.

As a result, we exceeded our operational goals for the year.

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.

This program exceeded even our own ambitious goals for the year delivering significant cost savings in driving improved operating performance.

Profitability was up year over year in each of our divisions.

Implementing this program resulted in a 2% increase in adjusted operating income for the year and 10% for the quarter.

We will continue to drive this program and use the benefits to make additional growth investments in the year ahead.

Second we continue to make enhancements to our integrated BBB platform to generate future profitable growth.

Our beauty businesses, which include our BSD and coffee calm divisions.

Generate approximately 60% of our total revenue and well over half of our operating income.

Under our new leadership in both divisions, we took several actions to build a stronger more profitable pipeline for future growth.

We refined our value proposition improved our sales operations in quality and refocused our strategy I coffee call.

These efforts combined along with the bap resulted in significant improvements in profitability and positions us to compete more effectively going forward.

Next we continued to gain traction outside of our traditional office product offerings.

Any growth in adjacent categories, like cleaning and Breakroom and copy and print services.

Our adjacent categories are over a third of our sales in our BSD Division.

And we are only at the beginning stages as these adjacent categories represent large and growing revenue opportunities.

We grew service revenues during the year in both our BSD and retail divisions, which were up 8% and 6%, respectively and improve the efficiency of our supply chain and form new partnerships filing we strengthened our balance sheet generated strong cash flow and remains shareholder focused with our.

Continued balanced capital allocation focus we paid down debt.

We returned cash to shareholders in the form of dividends and share buybacks.

And invested in high belly areas. This is supply chain.

Distribution and customer operations.

Strengthening our balance sheet, even further in 2020, we're happy to announce that we completed the final maturity of the timber note receivable, resulting in net cash of approximately $80 million received in the first quarter, we remain in a position of strength with approximately $1.7 billion in total.

Mailable liquidity when considering the cash received from the timber note receivable.

Our performance for the year was punctuated by our strong performance in the fourth quarter as shown on slide five.

We drove strong results in the fourth quarter.

As targeted actions to improve profitability resulted in significant increases in operating income.

However, as we've mentioned on previous calls some of these actions have had an adverse near term impact to revenue.

These actions along with lower sales in our retail division with fewer stores in service impacted revenue, which was down in the year in quarter, 3% and 6% respectively.

That said, we believe that these actions are necessary to improve our operations and to enhance our low cost delivery model designed to drive future growth in our BSD and comp become divisions.

Our operational results were terrific.

We generated $156 million and adjusted EBITDA, a 13% increase over the same period last year.

And adjusted operating income of $92 million, a 10% increase over the prior year.

We generated $135 million and adjusted free cash flow in the quarter and beat last years earnings per share by three cents.

Continued strong performance of our business acceleration program.

Supply chain efficiencies and deliberate actions, we've taken to improve profitability drove these strong results.

We continue to make progress on our transformation in the quarter enhancing our BTD platform driving increases in service revenues and gaining traction certain adjacent categories.

Services revenue was up 14% BSD and total service revenue remained at 16% of our consolidated revenue in the fourth quarter.

We are continuing to focus on growing our services business and with coffee columns refocused strategy, we expect to achieve higher levels of growth and service revenue in the future.

We grew certain adjacent categories in the quarter, including our cleaning and Breakroom and copy and print adjacency categories.

The investments we've made in our supply chain the backbone of our business continued to deliver with the highest productivity and customer satisfaction metrics on a record for our company.

We also entered into new innovative partnerships with companies such as ship.

Shifts as a member base delivery marketplace that offers personal shopping and same day delivery services.

Through our partnership ship members and more than 200 markets, serving over 60 million households has ability to source products from office depot on a same day delivery basis.

We are in the early stages of this opportunity, but we're very encouraged by the progress we made thus far.

And lastly, our approach to capital allocation remain balanced and we've returned value to shareholders through dividends paying down debt and buying back $29 million of our stock.

Moving to slide six.

Let me turn our attention to highlights within our business segments, beginning with our BSD Division.

Our business solutions Division.

The largest component of our BTD platform, serving about 10 million business customers, including 200000 enterprise customers and about half the fortune 500 drove improvements in operating performance throughout the year.

Under New leadership based these primary focus for the year was centered on improving profitability and build a stronger platform for future growth.

Targeted actions to improve the quality of the sales efforts and to enhance operational efficiency drove significant increases in our operating performance.

As evidence of our progress operating income was up an impressive 28% in the fourth quarter versus the prior year end up 12% for the year.

Revenue was flat year over year and down 3% in the fourth quarter largely due to the targeted actions taken improved operating margins and reduced unprofitable sales activities.

While these actions had a near term adverse impact on revenue. We believe it's the right approach to prepare our platform to drive profitable growth in the future.

Revenue also include results from our stated strategy of acquiring leading players in previously under serve localized markets.

These small acquisitions have allowed for an accretive means to grow our business customer base expand our distribution presence and grow our offerings beyond traditional office supplies.

We have completed an integrated five these acquisitions throughout the year and all are performing well.

One of our long term strategies for growth is expanding our product offerings beyond traditional office supplies are what we referred to as adjacent fees.

These adjacent categories accounted for 37% of total BSD sales in the quarter.

And Jason see categories include cleaning and Breakroom copy and print furniture and technology products.

Cleaning and Breakroom was a standout among these categories up over 8% of the year.

This category alone represents nearly 40% of our total adjacent fee revenue.

As this category as a 26 billion dollar growing industry. We are still in a very early stages of capitalizing on this attractive growth opportunity.

Additionally, our copy and print business grew throughout the year up 6% and now represents over a half a billion dollars in revenue in both BSD in retail and is growing on annual basis.

Overall BSD delivered exceptional operating results in 2018, and now it's time to grow the topline.

In the coming year with a stronger platform and improved processes. We are investing to derive the next phase of revenue growth in BSD.

I'd like to take a moment to discuss these drivers.

Using a targeted growth approach our team has established new rigor and discipline, improving sales efficiency and repositioning our value proposition.

We are utilizing data analytics to better understand customer segmentation.

Allowing us to deploy our resources most effectively to increase sales in existing accounts and improved targeting of new customer accounts.

We will expand our distribution read through high quality customer acquisitions, and importantly continually to expand share of wallet opportunities by driving adjacent see sales growth and evaluating new product category offerings.

There are several new end demand adjacent categories that we are evaluating in which we have a competitive advantage to serve.

Given our business relationships backed by our world class supply chain.

Additionally, we will continue to capture the numerous cross selling opportunities between BSD and comp become.

Just as we did over the past three years, when we change the trajectory of BSD from a business that was declining and into a growing and profitable business. Our platform is poised to drive the next phase of growth.

We are already seen early signs of success.

Our sales productivity is becoming stronger our total pipeline of new business is increasing and our adjacent categories are growing.

We are excited about the early progress as we execute our growth plan in 2020.

I'd now like to take some time to discuss our progress with club become starting on slide seven.

Call become as an important part in our BTB business and a key asset for us in developing our services businesses.

With a 32 year history, a blue chip customer base, including half the top 10 Fortune 500 companies and a brand name that stands for quality. There are world class offerings in large field force of highly trained technicians differentiate us from the competition and positions us for offering.

Unities that we could not pursue without them.

Turning to slide a comp you come clearly had a very challenging start to the year in 2019, however comp become has since made progress stabilizes operations.

Driving higher operating income increased pipeline of new business.

As part of this turnaround we hired a new leader for the division, which is mixed slattery, one with significant experience and a great vision and strategy.

He and his team have refreshed comp become strategy and brought new energy to accelerate future profitable growth.

With the initial focus on improving profitability comp become drove increases in operating income throughout the year as building a pipeline of new business that we expect will drive higher revenue growth in late 2020 and beyond.

The investments we made in new technology.

Actions, we've taken to improve operations and strong execution of the bap have resulted in improving profitability.

In the quarter company come generated $9 million in operating income.

Up 80% over last year and won new business in excess of $300 million in total lifetime contract value.

Revenue was lower by 16% in the quarter compared to last year's strong fourth quarter largely related to deliberate actions taken to improve profitability as well as the timing of both product orders and project related work.

As you heard last quarter Comping come has refocused strategy injecting new energy and taking full advantage of the company's core strengths and capabilities.

At its core copy calm as an organization that enabled enterprise employees to be productive.

And to refocus strategy of connecting people technology and the edge in a seamless experience as it well positioned to capture growth in a market that is large and growing.

We estimate the current addressable market for managed device workplace.

And infrastructure services in North America to be in excess of a $130 billion.

The industry is highly fragmented and despite our growth over 32 years, we've only capture a small portion leaving significant potential for growth.

And although it would take some time to realize this growth and we have much more work to do we believe that club pickup now is on the right path.

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 throughout the year, optimizing our retail footprint and improving our operating performance.

Helping to offset some of the traffic challenges of industry is facing.

We work throughout the year to improve our in store experience incentivized, our store managers and used a local approach to execute creative marketing and promotional strategies to improve performance.

As a result, we drove increases in key metrics, such as our conversion rate and sales per shopper.

Demand increased for our buy online pickup in store offerings up over 8% for the year and services revenue grew 6% for the year as well largely driven by increases in demand for our copy and print and subscription based services.

These positive trends along with our clients centered selling culture and the increase in loyalty customers, partially offset lower traffic trends in the quarter.

Same store sales were down about 4% for the quarter and for the year.

These positives taken together with strong execution of our business acceleration program.

Helped to drive higher margins, leading to a 21% increase the operating income in the fourth quarter and a 1% increase for the year.

As I've mentioned in the past, we continually evaluate the profitability as strategic value at each of our retail locations to assure we optimize our footprint, we had been refining our retail footprint, resulting in a higher number of store closures versus last year.

While this has had a negative impact to our sales contributed to the 6% decrease in revenue for the year.

These actions are proving that vitality of our network and helping drive increases and profitability that said, our retail footprint continues to be a complementary and an important component for overall distribution platform and the key differentiator versus online competitors.

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

We have launched store within store opportunities with companies like Lenovo and establish innovative services with partners like Telos, I'd, which positions us to deliver additional high value services targeted business and consumers alike.

Going forward, we will continue to optimize our retail footprint to the benefit of our shareholders, reducing exposure and focusing on driving more efficiencies in our operations.

Before I turn the call over to David for additional details on our financial results.

I would like to discuss our focus for 2020 as shown on slide 10.

As I've stated in the past our progress to date supports what I believe to be a very different business I think most perceive of office depot.

As you've heard a few times today, we're leading integrated BGB distribution company offering business products and services.

We have a highly valuable asset base that includes one of the largest and most unique distribution supply chain networks in the country.

Our transformation emphasizes b to b reduces reliance on retail and positions us to offer a broader array of products and services.

As we move forward in 2020, our focus will be on delivering top line growth.

Utilizing our BTB platform, we will invest to drive growth in our BSD and comp become divisions.

Take advantage of our expanded product and service offerings and continue to optimize our retail footprint for the benefit of our shareholders.

In support of these growth initiatives, we're adding selling resources.

Investing their delivery platform utilizing new intelligent tools and technology.

And leveraging our scale to reach more customers with a broader array of high quality business products and services.

Continued cost savings derived from both the business acceleration program and our retail optimization efforts will help support these investments in our future growth.

Through our targeted growth plan and our BSD division, we will pursue growth through new customer wins, greater penetration of existing accounts and business customer acquisitions were attractive.

We will continue to drive our JCC product and service categories, and evaluate new categories, which we have a competitive advantage to serve our customers.

In addition to our high growth adjacent categories.

We will continue to pursue additional opportunities that leverage our supply chain in unique ways.

Another key component growth is coffee Cup as you heard we made significant progress and stabilizing this business and growing its pipeline of new customers and we're very encouraged with our refocused strategy and new energy that takes advantage of comp becomes core strengths.

While this is still a work in progress we have confidence that clumpy column is on the right path to generate profitable growth and 2020 and beyond.

Underline our growth objectives is our continued focus on driving a low cost sustainable business model, we made significant progress in the past year and creating a more efficient business model driven largely by our business acceleration program. We will continue to execute upon this program and use these benefits along with benefit.

Generated from our retail optimization efforts to help fund our growth initiatives.

And we will remain committed to creating long term value for our shareholders.

We'll continue to our balanced approach to capital allocation, including opportunistic share repurchases and make disciplined investments in our BBB growth initiatives.

Additionally, we will continue to validate our operational structure to look for means to unlock future value.

As an example of this effort we anticipate completing our previously announced feasibility review of potential holding company reorganization by the end of the first quarter 2020.

With that I'll turn the call over to Dave It for more detail on our financial results.

Thank you Jerry and good morning, everyone I'm happy to be here today to discuss review our financial results for the fourth quarter and full year 2019, consistent with previous quarters. We've provided our results on both the GAAP basis and adjusted basis from continuing operations My comments, primarily address the performance from.

We are continuing operation on an adjusted basis.

Total revenue of $2.5 billion in the fourth quarter was down 6% largely driven by lower sales in our retail and comp dcom divisions as well as from targeted actions to reduce unprofitable sales activities to improve profitability.

GAAP operating income in the quarter was $74 million up from $24 million last year.

Included in operating income was $11 million in merger and restructuring charges $3 million of which is associated with our business acceleration program.

We also recognized $6 million in asset impairments, mostly related to the change in accounting for the operating leases right of use assets associated with retail store locations.

Excluding these and other items, our adjusted operating income for the fourth quarter was $92 million up 10% from $84 million in the prior year.

Unallocated corporate expenses were $19 million in the quarter compared to $3 million in the prior year, reflecting higher incentive expenses associated with our overall performance in 2019, partially offset by savings associated with our business acceleration program.

Adjusted EBITDA was $156 million for the quarter up 13% compared to $138 million in the prior year.

This includes depreciation and amortization expense of $50 million in the fourth quarter of 2019 and 2018, respectively.

Excluding the after tax impact from the items mentioned earlier adjusted net income from continuing operations for the fourth quarter of 2009 team was $68 million or 12 cents per share compared to $52 million or nine cents per share in the prior year, an increase of three cents per share.

For the fourth quarter cash generated by operating activities was $152 million, which included $10 million of cash expenditures related to the business acceleration program.

Capital expenditures in the quarter were $27 million compared to $66 million in the prior year, reflecting lower investments in our retail operations, while continuing investments in our services platform distribution network in ecommerce capabilities.

Reported free cash flow was $125 million adjusting for $10 million in cash expenditures related to the business acceleration program adjusted free cash flow in the quarter was $135 million.

Turning to slide 13, we've highlighted some key performance measures for the full year 2019 for the year, we generated higher adjusted operating income made investments in our platform for future growth generated significant free cash flow paid down debt and return capital to shareholders.

Total company sales for the year totaled $10.6 billion for 3% decrease compared to the prior year. The decrease was primarily due to lower sales in our retail division related to lower comp sales and 54 fewer stores in service and lower sales in our comp become division largely related to targeted actions to reduce on.

Profitable sales activities and lower project related sales.

Underlying our sales trends.

Service base revenue grew across our business with BSD in retail generating an 8% and 6% growth in the year respectively.

Full year GAAP operating income was $191 million down from $254 million last year.

Primary drivers of the decrease or a 44 million dollar increase in merger and restructuring charges largely associated with the backup.

In a $49 million increase in asset impairment charges, mostly associated with the change in accounting for operating leases Aro you assets.

Excluding these and other items, our adjusted operating income for 2019 was $367 million exceeding our guidance for the year and an increase of 2% over the prior year.

Adjusted EBITDA was $590 million for the year of 4% increase compared to $567 million in the prior year.

Excluding the after tax impact from items mentioned earlier 2019, adjusted net income from continuing operations was $228 million or 41 cents per share compared to $199 million or 35 cents per share in the prior year, an increase of six cents per share.

Finally for the year cash provided by operating activities continuing operations was $366 million with adjusted free cash flow of $310 million meeting our goals for the year.

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

As a reminder, BSD as the largest component of our B to B integrated distribution business servicing customers from the fortune 500 to small and medium sized businesses.

Reported sales for the fourth quarter for BSD were $1.26 billion, a decrease of 3% compared to the prior period.

The year over year comparisons reflect the impact of targeted actions to reduce unprofitable sales and our contract in ecommerce channels.

As Jerry mentioned earlier these actions had a temporary negative impact to revenue. However, we believe they are necessary to strengthen our platform and improve our position to generate future growth.

These actions were partially mitigated by the positive impact of acquisitions and growth in certain adjacent categories adjacency sales represent 37% of our total BSD revenue.

The BSD Division reported operating income of $69 million in the fourth quarter up 28% compared to the prior period, representing 130 basis point improvement in margin.

The increase versus the prior year was driven by a combination of lower SGN a from cost efficiencies associated with the bap more.

In distribution costs and other actions to improve profitability.

Looking at Slide 15, we highlight the performance of the comp become division in general while revenue was down compared to a very strong fourth quarter last year comp becomes operating results have continued to recover from the slow start at the beginning of year.

Sales for the fourth quarter for comp Ecom were $237 million down 16% versus the prior year period.

The decrease was due in part to lower product sales occurring in the quarter and a deliberate effort to reduce or eliminate certain unprofitable sales and support activities to improve profitability.

The copy come Division reported operating income of $9 million in the fourth quarter of 2019 compared to operating income of $5 million in the prior year period.

GAAP cost efficiency measures and other cost reduction efforts helped to drive the year over year increase.

As Jerry addressed earlier, we continue to take actions to improve further operating performance, including implementing our refocused strategy increasing use of automation to further improve service efficiencies simplifying our operational structure 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 7% to $1 billion.

The decline in sales was largely related to the impact of store closures over the past 12 months, because we had 54 fewer stores compared to a year ago as well as the lower store traffic in volume.

These impacts were partially offset by increases in conversion rates average sales per customer and increases in loyalty program membership.

Same store sales declined about 4%, representing a slight improvement as compared to the same period last year.

The retail division reported operating income of $34 million in the fourth quarter up 21% over the same period last year as a percentage of sales. This represents an 80 basis point improvement in margins.

The increase in operating income versus prior year reflects higher gross margin lower ASP DNA from cost efficiency initiative, and an improvement in distribution and inventory management costs.

Turning to the balance sheet and cash flow highlights on slide 17, we ended the quarter with total liquidity of over $1.6 billion, consisting of $698 million in cash and cash equivalents and $920 million of availability under the asset based lending facility.

Total debt at the ended the quarter was approximately $681 million, resulting in a positive net cash position.

Total debt at the ended the quarter excludes $735 million in non recourse debt.

Supported by the timber notes receivable as we announced subsequent to quarter end, the nonrecourse debt and the $818 million timber note receivable reached maturity, resulting in a net cash payment to the company of approximately $88 million, including about $5 million and accrued interest income.

Taxes on this transaction are expected to be negligible based on the utilization of existing tax assets.

The positive cash impact, including the elimination of the non recourse debt and timber note receivable are not reflected in our year end financial results.

Moving to cash flow for the fourth quarter cash provided by operating activities was $152 million, which included $11 million and restructuring costs and $4 million in acquisition and integration related costs.

This compares to cash provided by operating activities of $61 million in the fourth quarter of the prior year.

Capital expenditures in the quarter were $27 million versus $66 million in the prior year, reflecting lower investment in retail operations, while continuing investments in our service platform distribution network and E commerce capabilities.

The cash charges associated with our business acceleration program in the quarter were $10 million Accordingly, adjusted free cash flow from continuing operations was $135 million in the fourth quarter 2019.

On slide 18, we highlight our continued balanced approach to capital allocation our priorities, we're focused on investing in our business, including our business acceleration program servicing dividends, expanding our distribution network paying down debt and selectively executing share buybacks.

During the year, we generated $366 million and operating cash flow.

After considering the $150 million in capital investments to further strengthen our b to b platform as well as significant cash investments in our business acceleration program, we paid $55 million and dividends paid down $98 million of debt and invested $27 million and high quality acquisitions.

Also bump back $40 million of our shares which leaves us approximately $160 million available on our current share buyback authorization.

We anticipate continuing to take a balanced approach to capital allocation, we recognize that our strong liquidity position gives us significant flexibility, including evaluating additional means in which to address the burden of the term loan.

Overall, we delivered strong operating results in the quarter and year and our team remains committed to creating value for shareholders and building upon our b to B platform.

With that I'll now turn the call back over to Jerry to discuss our 2020 guidance and closing remarks.

Thank you as you heard we made excellent progress throughout the year, improving our operational performance enhancing our position as a leading integrated BTB provider of business products and services.

In 2020, our focus will be on investing to drive topline growth in our BSD and comp become divisions.

Leveraging our low cost business model and continuing to rationalize our retail footprint.

Our 2020 guidance is as follows we expect sales of approximately $10.5 billion.

We expect to generate approximately $550 million of adjusted EBITDA.

We expect to deliver approximately $350 million in adjusted operating income and expect to drive approximately $300 million in adjusted free cash flow.

This guidance reflects positive sales trends in both our BSD and coffee Cup divisions offset by impacts from store closures as we continue to optimize our retail footprint.

It also considers additional growth investments fueled by the continued execution of our business acceleration program.

This guidance also assumes a stable global sourcing environment.

Without significant disruptions from factors such as the krona virus outbreak or significant changes in the tariff structure.

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

At this time, if he would like you asked a question Sam. Please press Star then the number one on your telephone keypad. If you would like cubic John Your question press the pound key well pause for just a moment to compile the Q1 day roster.

Our first question comes from the line Elizabeth Suzuki. Please state your company named and proceed with your question.

Hi, This is Jason HOS.

Eric on for lasers, there Jay Thanks for taking our questions.

So first one is just more of a housekeeping question could you say what.

BSD revenue growth was in fourth quarter on an organic basis, so excluding the benefit of any acquisitions.

Credit.

Jason This is David yes, so I would assume that up about 1% of the growth was attributed to our acquisitions.

Got it. Thank you and then for the go forward guidance. So.

I know you say, you're expecting topline growth in BSD and comp you Com could you talk about what sort of cadence you're expecting there and then what what the drivers will be and then is there any are there any future acquisitions baked into that guidance. Thanks.

Yes, Jason from a go forward perspective.

I'll break it up into two.

Two categories number one is.

We believe that with the operational cost improvements we made throughout this last year, where as we have the ability now to reinvest in growth I think from a cadence perspective, what we're looking for is.

The ability to.

You know target better our customers, we haven't strategy in place and coffee calm now we have a new targeted gross system from our b to b businesses, and so we think that with the better cost basis, we have the new sales processes. The strategies, we have in both of these units and our two new leaders in both those units are confident that we have the ability to grow.

And we're going to invest.

Some of the operating.

Income as well as degree to optimization into the growth of the business as well.

Great. Thanks, and then.

For a follow up just maybe on the profitability side. So some nice profit profitability improvement in for Q seems like the guidance doesn't make assume the same same rate of profitability.

Growth in interest in terms of like the year over year operating margins for the business lines in 2020, but maybe you could just speak to.

Kind of whats implied for for the guidance by Division that'd be helpful. Thanks.

Well, we don't breakout.

Provided by division profitability, but what I will say is where we're confident in these numbers I will say, we're taking some of these a lot of investments of what we created from Bath and we're invested back into growing the beat it would be as well as the coffee businesses.

Now, we're confident we're going to and we have the ability to go up and go do this I think Q4 demonstrated the value of our bat program and our retail optimization I think where we were quite happy that we overachieved our targets for Q4 and the run rate.

And we hit our run rates for the year end going into 2020, but it's all about growth and it's all about making sure we're taking BAF and putting that into growing that business as well as as well as our operating profit as well.

I understand thanks, and then if I could just add one more question just could you discuss how integrated each of the three business segments are with each other.

Well, we will obviously the teams interact and and work on joint activities that customers, but.

From a segment reporting perspective office, you retail business than you have your BSD. Those are all line as well as are our b to b contract sales business and copy come.

They all operate from that go to market risk respective independently, but we do cross sell across all our channels of distribution. Our mission is to be a trusted platform for BP products and services. When we're selling those PV to me that big customers, we want to sell through our sales team, we want to sell through inside sales team yourselves.

Our retail footprint, we want to sell through online platform as well as through a mix a cop become self sellers as well.

I think all our channels are important all are focused on creating a BBB marketplace platform to sell products and services. There are stickier customers IRA will be better business long term for this business.

Great that makes sense. Thank you.

Thank you.

For any questions. Please press star one on your telephone keypad. Our next question comes from the line of Michael Lasser. Please state. Your company name then proceed with your question.

Good morning, Smart card on for Michael Lasser. This morning company is yes, thanks for taking the questions.

So your retail comp remains steady throughout the year down 4% alright run rate for the business going forward do you guys ultimately see a sustainable level of sales per store that you can share with us and can the stores become profitable at that level. Thanks.

Well I think from a are we've done a lot to Kevin Mark and his team that outstanding job of optimizing the footprint. If you look at our profitability on a year over year basis on a lower on a lower sales.

From a year over year perspective, we actually were up a couple of million dollars from a year over year perspective, which I think is testimony integrate leadership at our our work on really focusing on conversion. We also focus on obviously additional services services up roughly six 8% any other services.

And so our a whole focus is finding the optimized footprint in retail and we're going to continue to try to drive profitability improvements across across the chain.

Great and on that store footprint rationalization and how many more store closures do you believe you need to proceed in order to get there.

Well I think what were.

From a store closure perspective, we're going to close slightly more stores in 2020 than we did in 2019.

And continue to focus on optimizing footprint and continue to looking at ways to drive traffic drive conversion and I will tell us ideas best successful partnership level has been a successful partner, we're always looking for new opportunities.

Dr.

Execution strategy, but I want to emphasize the store footprints important we up 6 million customers within.

Three or four square mile radius of our stores and so we're going to target those BTB customer as we start using local marketing programs and the second half the year, we're going to continue to do that to grow our BTB customer base.

Great. That's really helpful. And then just one more and more broadly given some of the Fourkscore sales declined supposed be SDN coffee com. What gives you confidence you'll be able to accomplish the topline growth that you're expecting without sacrificing profitability.

Well I think for things number one is we often we went out looked at some of the unprofitable business that we hadn't we rectify that situation number two as I've got two great new leaders in the business and that makes a difference number three is both have defined refined new strategies. How we go to market Mic has done a great job of simplify.

Finally, operating getting they vary clearing concise vision together and now a sell some of those results in Q3 and in Q4 I Love the trajectory Steve is that really good job really focused on our sales as a science and really get it our sales team engaged energize on a systematic way of going to market. We've done some segmentation work as well and wherever.

Very encouraged by what that segmentation work tells us and so on and lastly, we're investing in so if you go back to 27 in 2018, we were strengthen the core of the business, we got cash or cash generation vehicle you saw our net cash position, which I'm really proud to say last year was really get our cost structure in place we're going to continue to do.

Hi below cost model. This year now as we have those two engines in place we're going to drive growth across the business and we're committed to go make that happen.

Great. Thanks very much.

That concludes today's session toward today I will now I'll turn the call back over Q office Depot's CEO, Jerry Smith for any closing remarks. Thank.

Thank you all for joining us on the call today, we appreciate your time and support to be on the call and we look forward to speak with you again in the next quarter of a great morning, and thank you very much.

Thank you for your participation. This concludes today's call you may now disconnect.

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Good morning, and welcome to the Olympics depots fourth quarter and full year 2019 earnings conference call all lines will be on they 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 timber Rod Vice President Investor Relations Mr. Peracchi may now begin.

Good morning, and thank you for joining us for office Depot's fourth quarter 2019 earnings Conference call.

This is Tim Perrott, and I'm here with Jerry Smith, our CEO.

I'm also joined by David Santrella, Our senior Vice President of financial planning and analysis and interim finance leader, who will provide additional details on our financial results.

Today's call Jerry will provide an update on the business, including highlights of some noteworthy achievements for the year and progress toward our transformation.

David will then review the Companys financial results for Q4, and full year, including our divisional performance.

Following David's comments, Jerry will have some closing remarks, and then we'll open up the call 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 and uncertainties 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 SEC filings as well as the earnings press release.

Visitation slides that accompanies todays comments.

And reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure are all available on our website at Investor Day Office Depot Dotcom.

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

Sorry.

Thank you, Tim and good morning to everyone joining our call today.

It's great to be here with you. This morning to discuss our accomplishments for the fourth quarter and full year 2019, and our outlook for the year ahead.

We made significant progress throughout the year on our transformation improvement our platform for profitable growth and extending our position as a leading integrated BBB provider of business products and services.

Since 2017, we embarked on a multiyear transformation strategy rooted in strengthening our BBB business.

Developing more predictable revenue streams, and leveraging our assets to drive long term profitable growth.

Our primary focus in 2019 was to further improve our operating structure and enhance our competitive agility.

And as evidenced by our result, we made tremendous progress.

For the year, we improved our profitability expanded our value proposition and levers key assets to enhance our BTB platform.

As shown on slide four I would like to highlight the primary drivers in the year supporting our goals.

First through solid execution of our business acceleration program, we streamlined our operations and made sustainable improvements to our business model.

As a result, we exceeded our operational goals for the year.

As a reminder, our business acceleration program or Bath as we refer to it is a multiyear effort and 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.

This program exceeded even our own ambitious goals for the year delivering significant cost savings and driving improved operating performance.

Profitability is up year over year in each of our divisions.

Implementing this program, resulting in a 2% increase in adjusted operating income for the year and 10% for the quarter.

We will continue to drive this program and use the benefits to make additional growth investments in the year ahead.

Second we continue to make enhancements to our integrated BBB platform to generate future profitable growth.

Our beauty businesses, which include our BSD and coffee comp divisions.

Generate approximately 60% of our total revenue and well over half of our operating income.

Under our new leadership in both divisions, we took several actions to build a stronger more profitable pipeline for future growth.

We refined our value proposition improved our sales operations in quality and refocused our strategy I copy call.

These efforts combined along with the bap resulted in significant improvements in profitability and positions us to compete more effectively going forward.

Next we continued to gain traction outside of our traditional office product offerings.

Turning to growth in adjacent categories, like cleaning and Breakroom and copy and print services.

Our adjacent categories are over a third of our sales in our BSD Division.

We're only at the beginning stages as these adjacent categories represent large and growing revenue opportunities.

We grew service revenues during the year and both are PSD and retail divisions.

Which were up 8% and 6% respectively improve the efficiency of our supply chain and form new partnerships. Finally, we strengthened our balance sheet generates strong cash flow and remains shareholder focused with our continued balanced capital allocation focus we paid down debt.

We returned cash to shareholders in the form of dividends and share buybacks.

And invested in high belly areas. This is supply chain.

Distribution and customer operations.

Strengthening our balance sheet, even further in 2020, we're happy to announce will be completed the final maturity of the timber note receivable, resulting a net cash of approximately $80 million received in the first quarter, we remain in a position of strength with approximately $1.7 billion in total.

Billable liquidity when considering the cash received from the timber note receivable.

Our performance for the year was punctuated by our strong performance in the fourth quarter as shown on slide five.

We drove strong results in the fourth quarter.

As targeted actions to improve profitability resulted in significant increases in operating income.

However, as we've mentioned on previous calls some of these actions have had an adverse near term impact to revenue.

These actions along with lower sales in our retail division with fewer stores in service impacted revenue, which was down in the year in quarter, 3% and 6% respectively.

That said, we believe that these actions are necessary to improve our operations and to enhance our low cost delivery model designed to drive future growth in our BSD and copy come divisions.

Our operational results were terrific.

We generated $156 million and adjusted EBITDA increased 13% increase or the same period last year.

And adjusted operating income of $92 million, a 10% increase over the prior year.

We generated $135 million and adjusted free cash flow in the quarter and beat last years earnings per share by three cents.

Continued strong performance of our business acceleration program.

Supply chain efficiencies and deliberate actions, we've taken to improve profitability drove these strong results.

We continue to make progress on our transformation in the quarter enhancing our BTB platform driving increases in service revenues and gaining traction certain adjacent categories.

Services revenue was up 14% in BSD and total service revenue remained a 16% our consolidated revenue in the fourth quarter.

We're continuing to focus on growing our services business and with coffee called refocused strategy, we expect to achieve higher levels of growth in service revenue in the future.

We grew certain adjacent categories in the quarter, including or cleaning and breakroom and copy and print adjacent categories.

Investments, we've made in our supply chain the backbone of our business continued to deliver with the highest productivity and customer satisfaction metrics on a record for our company.

We also entered into new innovative partnerships with companies such as shipped.

Shipped as a member base delivery marketplace that offers personal shopping in same day delivery services.

Through our partnership ship members and more than 200 markets surveyed over 60 million households have the ability to source products from office depot on a same day delivery basis.

We are in the early stages of this opportunity, but we're very encouraged by the progress we made thus far and lastly, our approach to capital allocation remain balanced and we returned value to shareholders through dividends paid down debt and buying back $29 million of our stock.

Moving to slide six.

Let me turn our attention to highlights within our business segments, beginning with our BSD Division.

Our business solutions Division, the largest component of our BTB platform, serving about 10 million business customers, including 200000 enterprise customers and about half the fortune 500 drove improvements in operating performance throughout the year.

Under New leadership based these primary focus for the year was centered on improving profitability and build a stronger platform for future growth.

Targeted actions to improve the quality of the sales efforts and to enhance operational efficiency drove significant increases in our operating performance.

As evidence of our progress operating income was up an impressive 28% in the fourth quarter versus the prior year.

Up 12% for the year.

Revenue was flat year over year and down 3% in the fourth quarter largely due to the targeted actions taken improved operating margins and reduced unprofitable sales activities.

While these actions had a near term adverse impact on revenue. We believe it's the right approach to prepare our platform to drive profitable growth in the future.

Revenue also include results from our stated strategy of acquiring leading players and previously under served to localize markets.

These small acquisitions have allowed for an accretive means to grow our business customer base.

Spanned our distribution presence and grow our offerings beyond traditional office supplies.

We had completed an integrated five of these acquisitions throughout the year and all are performing well.

One of our long term strategies for growth is expanding our product offerings beyond traditional office supplies.

What we refer to as adjacent sees.

These adjacent categories accounted for 37% of total BSD sales in the quarter.

And Jason see categories include cleaning and Breakroom copy and print furniture and technology products.

Cleaning and Breakroom was a standout among these categories up over 8% of the year.

This category alone represents nearly 40% of our total adjacency revenue.

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

Additionally, our copy and print business grew throughout the year up 6%.

Thats over a half a billion dollar than revenue in both BSD in retail and is growing at an annual basis.

Overall BSD delivered exceptional operating results in 2018, and now it's time to grow the top line.

In the coming year with a stronger platform and improved processes. We are investing to derive the next phase of revenue growth in BSD.

I'd like to take a moment to discuss these drivers.

Using a targeted growth approach our team has established new rigor and discipline, improving sales efficiency and repositioning our value proposition.

We are utilizing data analytics to better understand customer segmentation.

Allowing us to deploy our resources most effectively to increase sales in existing accounts and improved targeting of new customer accounts.

We will expand our distribution you read through high quality customer acquisitions.

And importantly, continuing to expand share of wallet opportunities by driving adjacent see sales growth and evaluating new product category offerings.

There are several new end demand adjacent categories that we are evaluating in which we have a competitive advantage to serve.

Given our business relationships backed by our world class supply chain.

Additionally, we will continue to capture the numerous cross selling opportunities between BSP and copy comp.

Just as we did over the past three years, when we change the trajectory of BSD from a business that was declining and into a growing and profitable business. Our platform is poised to drive the next phase of growth.

We are already seen early signs of success.

Our sales productivity is becoming stronger our total pipeline of new business is increasing.

And our adjacent categories are growing.

We are excited about the early progress as we execute our growth plan in 2020.

I'd now like to take some time to discuss our progress with club become starting on slide seven.

Call become as an important part of our BTB business and a key asset for us in developing our services businesses.

With that 32 year history, a blue chip customer base, including half the top 10 Fortune 500 companies and a brand name that stands for quality. There are world class offerings and large field force of highly trained technicians differentiate us from the competition and positions us property.

Hi, guys that we could not pursue without them.

Turning to slide a copy of come clearly had a very challenging start to the year. In 2019. However copy column has since made progress stabilizes operations.

Having higher operating income increased its pipeline of new business.

As part of this turnaround we hired a new leader further division, which is mixed slattery, one with significant experience and a great vision and strategy.

He and his team have refresh comp become strategy and brought new energy to accelerate future profitable growth.

With the initial focus on improving profitability.

Become drove increases in operating income throughout the year and build a pipeline of new business that we expect will drive higher revenue growth in late 2020 and beyond.

The investments we made in new technology.

Actions, we've taken to improve operations and strong execution of the bap have resulted in improving profitability.

In the quarter copy come generated $9 million in operating income.

80% over last year and won new business in excess of $300 million in total lifetime contract value.

Revenue was lower by 16% in the quarter compared to last year strong fourth quarter largely related to deliberate actions taken to improve profitability as well as the timing at both product orders and project related work.

As you heard last quarter Comping calm has refocused strategy injecting new energy and taking full advantage of the company's core strengths and capabilities.

At its core coffee calm as an organization that enable enterprises employees to be productive.

It's refocused strategy of connecting people technology and the edge in a seamless experience has it well positioned to capture growth in a market that is large and growing.

We estimate the current addressable market for managed device workplace.

And infrastructure services in North America to be in excess of a $130 billion.

The industry, it's highly fragmented and despite our growth over 33 years, we've only capture a small portion leaving significant potential for growth.

And although it would take some time to realize this growth and we have much more work to do we believe that club pickup now is on the right path.

I'd now like to spend a few minutes on our retail division's performance.

And the initiatives under way to maximize value in this area of our business.

We made good progress throughout the year, optimizing our retail footprint and improving our operating performance.

Vince offset some of the traffic challenges of industry is facing.

We worked throughout the year to improve our in store experience.

Incentivized, our store managers and use a local approach to execute creative marketing and promotional strategies to improve performance.

As a result, we drove increases in key metrics, such as our conversion rate and sales per shopper.

Demand increased for our buy online pickup in store offerings up over 8% for the year and services revenue grew 6% for the year as well largely driven by increases in demand for our copy and print and subscription based services.

These positive trends along with our clients centered selling culture and the increase in loyalty customers, partially offset lower traffic trends in the quarter.

Same store sales were down about 4% for the quarter and for the year.

These positive taken together with strong execution of our business acceleration program.

Helped to drive higher margins, leading to a 21% increase operating income in the fourth quarter and a 1% increase for the year.

As I've mentioned in the past, we continually evaluate the profitability of strategic value at each of our retail locations sure sure. We optimize our footprint we had been refining our retail footprint resulted in a higher number of store closures versus last year.

While this has had a negative impact to our sales contributed to the 6% decrease in revenue for the year.

These actions are proving the vitality of our network and helping drive increases and profitability that said, our retail footprint continues to be a complementary and an important component for overall distribution platform and the key differentiator versus online competitors.

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

We have launched store within store opportunities with companies like Lenovo.

Established innovative services with partners like Telos, I'd, which positions us to deliver additional high value services targeted business and consumers alike.

Going forward, we will continue to optimize our retail footprint to the benefit of our shareholders.

Reducing exposure and focusing on driving more efficiencies in our operations.

Before I turn the call over to David for additional details on our financial results I would like to discuss our focus for 2020 as shown on slide 10.

As I've stated in the past our progress to date supports what I believe to be a very different business I think most perceive of office depot.

As you've heard a few times today, where a leading integrated BDP distribution company operating business products and services.

We have a highly valuable asset base that includes one of the largest and most unique distribution supply chain networks in the country.

Our transformation emphasizes b to b reduces reliance on retail and positions us to operate broader array of products and services.

As we move forward in 2020, our focus will be on delivering top line growth.

Utilizing our BTB platform, we will invest to drive growth in our BSD and copy comp divisions.

Take advantage of our expanded product and service offerings and continue to optimize our retail footprint for the benefit of our shareholders.

In support of these growth initiatives Redding selling resources.

Investing their delivery platform utilizing new intelligent tools and technology.

And leveraging our scale to reach more customers with a broader array of high quality business products and services.

Continued cost savings derived from both the business acceleration program and our retail optimization efforts will help support these investments in our future growth.

Through our targeted growth plan at our BSD Division.

We will pursue growth through new customer wins, greater penetration of existing accounts and business customer acquisitions were attractive.

We continue to drive our adjacent product and service categories, and evaluate new categories, which we have a competitive advantage to serve our customers.

In addition to our high growth adjacent categories.

We will continue to pursue additional opportunities that leverage our supply chain in unique ways.

Another key component growth is copy call.

As you heard we made significant progress in stabilizing this business and growing its pipeline of new customers and we're very encouraged with our refocused strategy and new energy that takes advantage of coffee comscore strengths.

While this is still at work in progress we have confidence that could be column is on the right app to generate profitable growth and 2020 and beyond.

Underline our growth objectives is our continued focus on driving a low cost sustainable business model, we made significant progress in the past year in creating a more efficient business model driven largely by our business acceleration program.

We will continue to execute upon this program and use these benefits along with benefits generated from our retail optimization efforts to help fund our growth initiatives.

And we will remain committed to creating long term value for shareholders. We will continue to our balanced approach to capital allocation, including opportunistic share repurchases and make disciplined investments in our BBB growth initiatives.

Additionally, we will continue to validate our operational structure look for means to unlock future value.

As an example of this effort we anticipate completing our previously announced feasibility review of have potential holding company reorganization by the end of the first quarter 2020.

With that ill turn the call for today, but for more detail on our financial results.

Thank you Jerry and good morning, everyone I'm happy to be here today to discuss with you our financial results for the fourth quarter and full year 2019, consistent with previous quarters. We've provided our results on both the GAAP basis and adjusted basis from continuing operations My comments, primarily address the performance from.

Our continuing operation on an adjusted basis.

Total revenue of $2.5 billion in the fourth quarter was down 6% largely driven by lower sales in our retail and comp dcom divisions as well as from targeted actions to reduce unprofitable sales activities to improve profitability.

GAAP operating income in the quarter was $74 million up from $24 million last year.

Included in operating income was $11 million and merger and restructuring charges $3 million of which is associated with our business acceleration program.

We also recognized $6 million in asset impairments, mostly related to the change in accounting for the operating leases right of use assets associated with retail store locations.

Excluding these and other items, our adjusted operating income for the fourth quarter was $92 million up 10% from $84 million in the prior year.

Unallocated corporate expenses were $19 million in the quarter compared to $3 million in the prior year, reflecting higher incentive expenses associated with our overall performance in 2019, partially offset by savings associated with our business acceleration program.

Adjusted EBITDA was $156 million for the quarter up 13% compared to $138 million in the prior year.

This includes depreciation and amortization expense of $50 million into fourth quarter of 2019 and 2018, respectively.

Excluding the after tax impact from the items mentioned earlier adjusted net income from continuing operations for the fourth quarter of 2009 team was $68 million or 12 cents per share compared to $52 million or nine cents per share in the prior year, an increase of three cents per share.

For the fourth quarter cash generated by operating activities was $152 million, which included $10 million of cash expenditures related to the business acceleration program.

Capital expenditures in the quarter were $27 million compared to $66 million in the prior year, reflecting lower investments in our retail operations, while continuing investments in our services platform distribution network in ecommerce capabilities.

Reported free cash flow was $125 million adjusting for $10 million in cash expenditures related to the business acceleration program adjusted free cash flow in the quarter was $135 million.

Turning to slide 13, we've highlighted some key performance measures for the full year 2019 for the year, we generated higher adjusted operating income made investments in our platform for future growth generated significant free cash flow paid down debt and return capital to shareholders.

Total company sales for the year totaled $10.6 billion, a 3% decrease compared to the prior year.

The decrease was primarily due to lower sales in our retail division related to lower comp sales and 54 fewer stores in service and lower sales in our comp become division largely related to targeted actions to reduce unprofitable sales activities and lower project related sales.

Underlying our sales trends.

Service base revenue grew across our business would be at the in retail generating an 8% and 6% growth in the year respectively.

Full year GAAP operating income was $191 million down from $254 million last year.

Primary drivers of the decrease 44 million dollar increase in merger and restructuring charges largely associated with the backup.

And a $49 million increase in asset impairment charges, mostly associated with the change in accounting for operating leases Aro you assets.

Excluding these and other items, our adjusted operating income for 2019 was $367 million exceeding our guidance for the year and an increase of 2% over the prior year.

Adjusted EBITDA was $590 million for the year before percent increase compared to $567 million in the prior year.

Excluding the after tax impact from items mentioned earlier 2019, adjusted net income from continuing operations was $228 million or 41 cents per share compared to $199 million or 35 cents per share in the prior year, an increase of six cents per share.

Finally for the year cash provided by operating activities continuing operations was $366 million with adjusted free cash flow of $310 million meeting our goals for the year.

Let's now turn to slide 14, which highlights the performance of our BSD Division as a reminder, BSD as the largest component of our b to B integrated distribution business servicing customers from the fortune 500 to small and medium sized businesses.

Reported sales for the fourth quarter for BST were $1.26 billion, a decrease of 3% compared to the prior period.

The year over year comparisons reflect the impact of targeted actions to reduce unprofitable sales and our contract in ecommerce channels.

Jerry mentioned earlier these actions had a temporary negative impact to revenue. However, we believe they are necessary to strengthen our platform and improve our position to generate future growth.

These actions were partially mitigated by the positive impact of acquisitions and growth in certain adjacent categories adjacency sales represent 37% of our total BSD revenue.

The BSD Division reported operating income of $69 million in the fourth quarter up 28% compared to the prior period, representing 130 basis point improvement in margin.

The increase versus the prior year was driven by a combination of lower SGN a from cost efficiencies associated with the map.

More efficient distribution costs and other actions to improve profitability.

Looking at Slide 15, we highlight the performance of the comp become division in general while revenue was down compared to a very strong fourth quarter last year comp becomes operating results have continued to recover from the slow start at the beginning of the year.

Sales for the fourth quarter for comic Con were $237 million down 16% versus the prior year period.

The decrease was due in part to lower product sales occurring in the quarter and a deliberate effort to reduce or eliminate certain unprofitable sales and support activities to improve profitability.

The copy come Division reported operating income of $9 million in the fourth quarter of 2019 compared to operating income of $5 million in the prior year period.

GAAP cost efficiency measures and other cost reduction efforts helped to drive the year over year increase.

As Jerry addressed earlier, we continue to take actions to improve further operating performance, including implementing our refocused strategy increasing use of automation to further improve service efficiencies simplifying our operational structure 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 7% to $1 billion.

The decline in sales was largely related to the impact of store closures over the past 12 months, because we had 54 fewer stores compared to a year ago as well at the lower store traffic in volume.

These impacts were partially offset by increases in conversion rates average sales per customer and increases in loyalty program membership.

Same store sales declined about 4%, representing a slight improvement as compared to the same period last year.

The retail division reported operating income of $34 million in the fourth quarter up 21% over the same period last year as a percentage of sales. This represents an 80 basis point improvement in margins.

The increase in operating income versus prior year reflects higher gross margin lower asked DNA from cost efficiency initiatives.

And improvement in distribution and inventory management costs.

Turning to the balance sheet in cash flow highlights on slide 17, we ended the quarter with total liquidity of over $1.6 billion, consisting of $698 million in cash and cash equivalents and $920 million of availability under the asset based lending facility.

Total debt at the ended the quarter was approximately $681 million, resulting in a positive net cash position.

Total debt at the ended the quarter excludes $735 million in non recourse debt supported by the timber notes receivable as we announced subsequent to quarter end, the non recourse debt and the $818 million timber note receivable reached maturity, resulting in a net cash payment to the company.

Only $88 million.

Including about $5 million and accrued interest income.

Taxes on this transaction are expected to be negligible based on the utilization of existing tax assets.

The positive cash impact, including the elimination of the non recourse debt and timber note receivable are not reflected in our year end financial results.

Moving to cash flow for the fourth quarter cash provided by operating activities was $152 million, which included $11 million and restructuring costs and $4 million, an acquisition and integration related costs.

This compares to cash provided by operating activities of $61 million in the fourth quarter of the prior year.

Capital expenditures in the quarter were $27 million versus $66 million in the prior year, reflecting lower investment in retail operations, while continuing investments in our service platform distribution network in ecommerce capabilities.

The cash charges associated with our business acceleration program in the quarter were $10 million Accordingly, adjusted free cash flow from continuing operations was $135 million in the fourth quarter 2019.

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

Our priorities, we're focused on investing in our business, including our business acceleration program servicing dividends.

Expanding our distribution network paying down debt and selectively executing share buybacks.

During the year, we generated $366 million and operating cash flow.

After considering the $150 million in capital investments to further strengthen our b to b platform as well as significant cash investments in our business acceleration program, we paid $55 million and dividends paid down $98 million of debt and invested $27 million and high quality acquisitions we.

So bump back $40 million of our shares which leaves us approximately $160 million available on our current share buyback authorization.

We anticipate continuing to take a balanced approach to capital allocation, we recognize that our strong liquidity position gives us significant flexibility, including evaluating additional means in which to address the burden of the term loan.

Overall, we delivered strong operating results in the quarter and year and our team remains committed to creating value for shareholders and building upon our b to B platform.

With that I'll now turn the call back over to Jerry to discuss our 2020 guidance and closing remarks.

Thank you as you heard we made excellent progress throughout the year, improving our operational performance enhancing our position as a leading integrated BTB provider of business products and services.

In 2020, our focus will be on investing to drive topline growth in our DSD and comp become divisions.

Leveraging our low cost business model and continuing to rationalize our retail footprint.

Our 2020 guidance is as follows we expect sales of approximately $10.5 billion.

We expect to generate approximately $550 million of adjusted EBITDA.

We expect to deliver approximately $350 million and adjusted operating income and expect to drive approximately $300 million in adjusted free cash flow.

This guidance reflects positive sales trends in both our BSD and coffee Cup divisions offset by impacts from store closures as we continue to optimize our retail footprint.

It also considers additional growth investments fueled by the continued execution of our business acceleration program.

This guidance also assumes a stable global sourcing environment.

Without significant disruptions from factors such as the krona virus outbreak or significant changes in the tariff structure.

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

At this time, if you would like you asked a question Sam. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key well pause for just a moment to compile that came with a roster.

Our first question comes from the line of Elizabeth Suzuki. Please state your company named and proceed with your question.

Hi, This is Jason Haas.

Derica on for investors there Jay Thanks for taking our questions.

So first one is just more of a housekeeping question could you say what.

BSD revenue growth was in fourth quarter on an organic basis, so excluding the benefit of any acquisitions.

Okay.

Hey, Jason This is David yes, so I would assume that up about 1% of the growth was attributed to our acquisitions.

Got it thank you.

And then for the go forward guidance so.

I know you say, you're expecting topline growth in BSD and comp your com could you talk about what sort of cadence you're expecting there and then what what the drivers will be and then is there any are there any future acquisitions baked into that guidance. Thanks.

Okay.

Yes, Jason from a go forward perspective.

Yes, I'll break it up into two.

Two categories number one is.

We believe that with the operational cost improvements we made throughout this last year, where.

We have the ability now to reinvest in growth I think from a cadence perspective, what we're looking for is.

The ability to.

Target better our customers, we haven't strategy in place and coffee calm now we have a new targeted gross system from our b to B businesses and so we think that go with the better cost basis, we have the new sales processes. The strategies. We have in both of these units in our two new leaders in both those units are confident that we have the ability to grow.

And we're going to invest.

Some of the operating.

Income as well as degree to optimization into the growth of the business as well.

Great. Thanks, and then.

For a follow up just maybe on the profitability side. So some nice profit profitability improvement in Fourq Q seems like the guidance Doesnt make assume the same same rate of profitability.

Growth and just in terms of like the year over year operating margins for the business lines in 2020, but maybe you could just speak too.

Kind of whats implied for for the guidance by Division that'd be helpful. Thanks.

Well, we don't breakout.

Provided by division profitability, but what I will say is where we're confident in these numbers I will say, we're taking some of these a lot of investments of what we created through Bath and we're invested back into growing the beat it would be as well as they call it because businesses.

We're confident we're going to and we have the ability to go up and go do this I think Q4 demonstrated the value of our bat program and our retail optimization I think where we were quite happy that we overachieved our targets for Q4 and the run rate.

And we hit our run rates for the year in going into 2020, but it's all about growth and it's all about making sure we're taking bath and putting that into growing that business as well as as well as our operating profit as well.

I understand thanks, and then if I could just add one more question just could you discuss how integrated each of the three business segments are with each other.

Well, we will obviously the teams interact and and work on joint activities that customers, but.

From a segment reporting perspective office, you retail business than you have your PST as our online as well as are our b to b contract sales business and copy comp.

Ill operate from a go to market risk respective independently, but we do cross sell across all our channels of distribution. Our mission is to be a trusted platform for BP products and services when we're selling those BB credit the big customers, we want to sell through our sales team, we want to sell through inside sales stimulants.

Our retail footprint, we want to sell through our online platform as well as through mix, a cop become self sellers as well.

Thank all our channels are important all are focused on creating a BBB marketplace platform to sell products and services there are stickier customers.

The better business long term for this business.

Great that makes sense. Thank you.

Thank you.

For any questions. Please press star one on your telephone keypad. Our next question comes from the line of Michael Lasser. Please state. Your company name then proceed with your question.

Good morning, Smartcard on for Michael Lasser. This morning company is yes, thanks for taking the questions.

So your retail comp remains steady throughout the year down 4% alright run rate business going forward you guys ultimately see a sustainable level of sales per store that you can share with us and can the source become profitable at that level. Thanks.

I think from our we've done a lot to Kevin often it seemed that outstanding job of optimizing the footprint. If you look at our profitability on a year over year basis on a lower on a lower sales.

From a year over year prospectus, we actually were up a couple million dollars from a year over year perspective, which I think is testimony integrate leadership at our our work on really focusing on conversion. We also focus on obviously additional services services up roughly six 8% depending on the services and so our a whole focus is finding that.

Optimized footprint in retail and we're going to continue to try to drive profitability improvements across across the chain.

Great and on that store footprint rationalization now many more store closures do you believe you need to proceed in order to get there.

Well I think what were.

From a store closing perspective, we're going to close slightly more stores.

2020 than we did in 2019.

And continue to focus on optimizing the footprint and continue looking at ways to drive traffic drive conversion and I will tell us ideas. The successful partnership level has been a successful partner, we're always looking for new opportunities.

Dr.

Execution strategy, but I want to emphasize the store footprints important we have 6 million customers within.

Three or four square mile radius of our stores and so we're on target those BTB customers, we started using local marketing programs and the second half a year or we're going to continue to do that to grow our PDP customer base.

Great. That's really helpful. And then just one more and more broadly given some of the Fourq you sales decline so does the SDN copy.

What gives you confidence you'll be able to accomplish the topline growth that you're expecting without sacrificing profitability.

Well I think for thanks number one is we often we went out looked at some of the the unprofitable business that we hadn't we rectify that situation number two as I've got two great new leaders in the business and that makes a difference number three is both have.

Fine to refine new strategies, how we go to market Mic has done a great job of simplify the operating getting a very clear and concise vision together and now a sell some of those results in Q3 and in Q4 I Love the trajectory Steve is that really good job really focusing our sales as a science and it really get at our sales team engaged.

Energized.

Systematic way of going to market, we've done some segmentation work as well and we're very encouraged by what that segmentation work tells us and so on and lastly, we're investing.

If you go back to 27 in 2018, we were strengthen the core of the business mcgarr cash or cash generation vehicle you saw our net cash position, which I'm really proud of.

Last year was really good or cost structure in place, we're going to continue to drive to low cost model. This year now as we have those two engines in place, we're going to drive growth across the business.

We're committed to go make that happen.

Great. Thanks very much.

That concludes today's session for today I will now I'll turn the call back over to obviously post CEO Jerry Smith for any closing remarks.

Thank you all for joining us on the call today, we appreciate your time and support to the on the call and we look forward to speak with you again in the next quarter of a great morning, and thank you very much.

Thank you for your participation. This concludes today's call you may now disconnect.