Q2 2022 ODP Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good morning, and welcome to the ODP Corporation second quarter 2022 earnings Conference call all lines will be in a listen only mode for today's call after which instructions will be given in order to ask a question at the request of ODP Corporation today's call is being.
Recorded I would now like to introduce Tempur up Vice President of Investor Relations. Mr. <unk> you may now begin.
Good morning, and thank you for joining us for the ODP Corporation second quarter 2022 earnings Conference call.
This is Tim Perrott, and I'm here with Gerry Smith, our CEO and Anthony Scaglione Executive Vice President and CFO .
We will begin today's call with Jerry who will provide an update on the business focusing much of his commentary on our accomplishments in the quarter, including our operational performance and the progress we're making on all of our initiatives to continue driving shareholder value.
After Jerry's commentary.
He will then review the company's financial results, including the highlights of our divisional performance.
Following Anthonys comments, we'll open up the line for your questions Bill.
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 1095.
These forward looking statements reflect the company's current expectations concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially.
A detailed discussion of these risks and uncertainties are 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 describe 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 Dot The ODP Corp Dot com.
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 turn the call over to Gerry Smith Gerry.
Thank you Tim good morning to everyone joining our call today. We appreciate you joining us this morning, and hope that all of our listeners and their families continue to remain safe and healthy.
I'm excited to be here with you today to discuss our results and accomplishments for the second quarter.
We've continued our strong operational focus from the beginning of the year and our performance. This quarter reflects our ongoing commitment to our low cost model and to the core tenants to drive our business.
We delivered solid results. Despite the numerous market wide challenges, while making progress on our initiatives to complete the foundation of the new ODP and our four distinct business unit structure. Additionally, as we announced in July we took action to enhance returns for our shareholders putting in place a new share repurchase authorization.
And commencing a Dutch auction cash tender offer.
Overall I am extremely enthusiastic about the opportunities ahead for our business and how our better together strategy and business unit realignment has us positioned to drive growth and value for shareholders in the future.
Turning to slide four of the presentation. Our team continues to rise to the challenges posed by the macroeconomic environment.
We have witnessed the highest inflation in over 40 years as well as sourcing and supply chain conditions that continue to be impacted by higher fuel costs supply chain constraints and higher labor costs, while the lingering effects of Covid continue to have an impact on the nature of how people work.
All of these conditions have created significant challenges not only for our business, but for many companies across many industries.
While these conditions are having an impact to our business I'm very proud of our team for once again remained focused and delivering solid performance consistent with our pre announcement of preliminary results also advancing the foundation of our new business unit structure.
We accomplished this performance by remaining true to the core tenants that drive our business driving a low cost model, expanding our value proposition and moving into higher value businesses to pursue new avenues of growth.
As reflected in our results.
Executing along these priorities leveraging the strength of our business model and the flexibility of our infrastructure to address the market demands.
We continue to drive our low cost model providing.
Compelling value for our customers and helping us to generate solid operating results.
We're also remaining flexible to serve customers in new ways.
Or they're at home or in the office and expanding our value proposition by continuing to provide a broader set of products and services.
We're also continuing to invest in our digital platform capabilities through our various business unit as well as our supply chain and distribution business there to support the near term and future state of the business.
Under new leadership, and ODP business solutions, we're enhancing our disciplined focus on profitable growth.
<unk> improved results as more business customers return to the office.
And lastly, our BDC business continues to meet our customer needs as our home and small business office superstore, and we're making great progress in positioning this business for continued success.
We believe all of these actions are enhancing our foundation to drive increased long term value for shareholders.
Now turning to the highlights of our major accomplishments for the second quarter as shown on slide five.
Consistent with our pre announcement, we delivered solid operating performance in the quarter. Despite the industry wide challenges related inflation and supply chain constraints.
Our topline revenue performance remained healthy and our low cost model approach combined with flexible pricing and distribution strategies helped to drive solid operating results. Despite the more challenging backdrop in the quarter.
Next we made significant progress in the quarter on our strategic initiatives.
As we announced in June after reviewing alternatives for our consumer business and considering current market conditions.
Our board of directors unanimously determined is the best interest of the company and its shareholders not to divest the consumer business, nor pursuing a public company separation at this time.
That said, we've made progress in aligning our operating businesses into our BDC business and three distinct <unk> businesses.
This enables our dedicated teams to focus on meeting the respected customer needs and implement channel specific go to market strategies.
There is still work to be completed the fully operationalize the realignment.
Soon these changes will enable us to provide greater visibility into these operating businesses and their performance on a go forward basis.
What's the realignment, we will be able to provide clarity on the economic performance of each business unit and give our investors the opportunity to understand our value drivers more directly which should lead to greater shareholder value over time.
Additionally, we are better together by nearly the full capabilities are our business utilizing our holding company structure and through better alignment of resources to their long term growth opportunities.
Next we continue to make progress on our efforts to pursue new avenues of growth supporting one of our key tenants are driving new avenues of growth in the higher value markets.
We're advancing our digital platform business varys, receiving positive feedback from our private preview launch on the Microsoft platform, and making progress on adding new customers and suppliers to the ecosystem.
We're also making progress on solidifying the foundation for there are logistics and supply chain business, enhancing our supply chain capabilities and aligning our assets to support our captive BTC and <unk> businesses today and leverage existing and new customers to drive accelerated growth in the future.
This year will mark an important milestone for <unk> as we move closer to launching the business and we continue to expand our data driven platform to support our current and future routes to market.
Finally, as part of our effort to enhance return for our shareholders. We completed our accelerated share buyback plan during the quarter.
Through the ASR that we put in place in November of last year. We retired over three 5 million shares in the program.
Additionally, our board of directors approved a new $600 million share repurchase authorization and issued a $300 million.
Dutch auction cash tender offer which is ongoing at the present time.
As evidenced by these actions we're reinvesting the business, while also returning capital highlighting our team's commitment to creating shareholder value.
We're excited about our position us redeploy capital to pursue profitable growth and generate strong returns for our shareholders.
Now turning to more specifics of our performance for the quarter as shown on slide six.
Our performance in the second quarter reflects our team's continued commitment to operational excellence and to the value of the investment we've made in our infrastructure and partnership relationships that.
The macroeconomic backdrop remains challenging and global supply chain constraints and high inflation have free the recent industry wide sourcing and cost challenges.
Total landed cost of products, which includes the cost of goods plus transportation has risen market wide.
While ODP is not immune to these impacts and we're experienced increased cost pressure. The investments we made in our supply chain infrastructure and partner relationships place us in a better position than most companies to navigate through these challenges.
The investments we've made in our private fleet.
Flexibility of our distribution network, which includes our long term relationships with our distribution partners and suppliers.
And our global sourcing office all remain key differentiators.
Additionally, pricing flexibility is helping to balance revenue and cost of goods, helping us to maintain or improve margins.
Overall, our top line results were down slightly over last year, partially related to fewer retail locations in service versus a year ago due to planned store reductions.
The reduced store footprint and large traffic, resulting in lower sales year over year in our retail division, which was offset by stronger sales in our business solutions Division as we continue to see improving back office trends in the quarter.
All our compelling customer value proposition combined with our team's strong execution helped us drive approximately $54 million and adjusted operating income in the quarter and strong EBITDA results.
Now turning to our divisional performance, starting with our business solutions division or BSD as highlighted on slide seven.
Our BSD segment currently consistent in both our contract and our E. Commerce channels provides a strong value proposition with a broad product and service assortment backed by a trusted supply chain operation.
As a reminder, this segment of our business serves nearly half of the fortune 500 companies as well as medium and small enterprises and consumers through our digital presence.
<unk> revenue performance improved in the quarter up 6% year over year, driven by stronger traction in our contract channel as businesses continue to return to the office.
This result was particularly impressive given ongoing sourcing and supply chain challenges.
We saw improved demand among private enterprises and education customers through our contract channel.
Partially offset by lower sales through our ecommerce channel related to lower demand for certain product categories previously the higher demand during the pandemic.
Demand for core supply categories copy and print services Workspaces and technologies showed strong performance, partially offset by lower sales of cleaning and break room products relative to last year.
Adjacency categories, including Workspaces technology, cleaning and break room as well as copy and print remained at 44% of total BSD sales in the quarter Farnell.
From an operating perspective, our operating income versus last year was up about 45%.
Upon our low cost model approach and flex our distribution assets.
This approach coupled with enterprise customer analysis, and pricing escalation scenarios helped to offset inflationary pressures that led to margin improvement in our contract business.
We also continued to do an excellent job in both retention and winning new business or retention rate remains very strong near historic levels, and we're earning new business, we're continuing to work with our customers to better understand their needs and the new normal environment.
Flexing their ecosystems and park them in a hybrid setting or in the office <unk>.
A true Testament to this can be seen in our recent results.
Our weekly sales trends indicate that were continuing to make progress towards recapturing volumes as the return to office trends continue and as we continue to work with our customers in a work from anywhere environment.
We're also announcing a new president David Centrella, a company veteran to lead the new OTT business solutions and are excited by the positive impact. He has already had on the business and team members.
As we look forward, David and his team will continue to make progress in executing upon initiatives to further drive customer profitability and growth.
Now turning to our performance in our retail division as shown on slide eight.
Our retail division again drove solid margin performance in the quarter as our team executed upon our low cost model approach and delivering a value proposition that continue to resonate with our customers.
I am extremely proud of our retail team for continuing to drive a positive shopping experience lending.
Leading to continued strong net promoter scores above 70% among the best in the industry.
Our revenue performance in the quarter was lower versus last year, partially driven by fewer stores and service as a result of planned store closures as well as large traffic trends in the quarter, which were partially offset by stronger sales per shopper as well as strong omnichannel sales in the quarter supported by our 20 minute pickup guaranteed.
From a product perspective, and increasing demand for copy and print services was offset by lower sales of cleaning and PPE products supplies as well as technology, and PC products, which were negatively impacted by supply chain and sourcing challenges.
The number of out of stocks in the quarter continued to run significantly higher than pre pandemic levels, most notably for our technology products and PC is driven by the continued shift towards us as well as overall challenges for components, including certain ink and toner were continuing to work with our vendors and partners to efficiently source these products and improve our inventory levels can we expect these.
Challenges persist in the near term.
Operationally our teams continued focus on our low cost model.
<unk> offset some of these challenges.
We delivered a 5% increase in operating income driven by lower SG&A expenses product mix and lower operating lease costs.
Turning to slide nine in the quarter, we continued to make progress on our strategic initiative of further aligning our assets to support our BBB and consumer businesses.
The foundation of our four business unit strategy.
As I mentioned last quarter early on we recognized a powerful combination of the numerous asset support of our business.
Accordingly, we have invested in and enhance our unique supply chain and distribution network.
Develop a strong market and digital presence.
Our offerings in the <unk> market.
We also took deliberate actions to support our strategy and created a flexibility to align these assets to support our business for the future.
Unlock shareholder value.
Through the process of analyzing assets that control our business and how to leverage these capabilities will continue to make progress on aligning these assets to support our go to market strategies, and our BDC BTB digital platform and distribution businesses. These efforts have helped us develop a clear line of sight.
For each of these businesses and the strategy behind driving future profitable growth.
We will share more at Investor day.
And during the quarter, we continued to separate the operational components of our business that are necessary as we build unique routes to market to support business customers and consumers.
This challenging mission involve hundreds of process reviews, and assessments uncoupling process inflows.
How much have existed for decades.
And while we still have some work to complete on this path in the coming year, we have mostly completed our strategic realignment, which has resulted in forming for highly focused operating businesses.
Reenergizing our teams all under a holding company structure.
Highlighting these.
First to ODP business solutions.
Leading BTB solutions provider, serving small medium and enterprise level companies.
This includes a contract sales channel of our BSD division, including our Federation entities comprised of the regional office supply companies, we acquired over the past few years targeting underserved geographic areas as well as granted toy semi commercial contract customers in Canada.
Next up is there created through our separation process and as our world class supply chain distribution procurement and global sourcing operations.
Both our <unk> and <unk> businesses as well as logistics need for other third parties in the future.
There provides a strong value proposition, which we plan to grow over the next few years as we continue to evolve the platform.
Next is <unk>, which as many of you know is our BTB digital platform technology business focused on transforming digital commerce between buying organizations and suppliers.
And finally office depot.
A leading provider of retail consumer and small business products and services and what our brand is most recognized for it.
Our progress in the quarter has been terrific and preparing our foundation to support the go to market strategies for each of these highly focused businesses and.
Moving forward, we're focused on leveraging these assets to drive future profitable growth.
Now I'd like to provide insight into our progress our digital platform business various as shown on slide 10.
As a reminder, various as a technology company that is focused on reducing the complexity and friction and BTB procurement and distribution.
Those are any experienced this space know that buyers and suppliers have been using inefficient legacy systems and processes for decades, and those systems create inefficiencies and drive our cost for both.
At the same time more and more <unk> transactions are moving online and the expectations from a workforce that it continues to be digitally enabled has propelled the need to engage suppliers.
Our seamless and frictionless way, while driving economics toward contract compliance and purchasing leverage.
And from a consumer perspective, we benefited from new and innovative solutions. However, there's a very wide gap when it comes to solutions tailored to the unique needs of businesses.
Is this gap the various is positioned to address.
The reality is that neither procurement organizations, nor suppliers are in a position to invest in technology and user experiences that are holistic for their employees or customers.
<unk>, our digital platform is being developed with our flexibility. So organizations can focus on what makes them prosper.
Moving them grow their strategic partnerships and their business.
Our focus is on enabling both buyers and suppliers to win through our seamless end to end solution.
In the quarter, we continue to make strong progress towards various development and platform launch in 2022.
We're receiving good feedback from the private preview launch on the Microsoft dynamics 365 business Central platform and we are incorporating feedback we are receiving.
We're continuing to attract new customers to the platform both buyers and suppliers and we are super excited by having Prentice and team give an update at our upcoming Investor day.
Wrapping up my comments and before I turn the call over to Anthony I want to thank all of our team members for performing at such a high level, while navigating all the macroeconomic uncertainty and as the company undertook a strategic review of our BDC business.
Progress we have made to establish our four business unit strategy places us in a position of strength.
As we pursue the large and growing market opportunity ahead of us and we're excited to highlight our business unit strategy and opportunity set for profitable growth during the Investor Day meeting we are planning for later this year.
With that I will turn the call over to Anthony for a more detailed review of our financial results.
Thank you Jerry and good morning, everyone I'm happy to be here today to discuss our financial results for the second quarter of 2022, and the actions we are taking to drive additional shareholder value.
Before I begin I'd like to say, how proud I am of our entire team for remaining focused and driving strong results in light of all the strategic considerations. The company has undertaken and against a challenging industry backdrop.
We continue to deliver upon our low cost model approach and utilize our assets to help offset some of the supply chain and cost pressures that the entire market has been experiencing.
We also continue to make progress on our operational separation activities as well as on our build out of our data driven platform for the future.
Our entire team rose to meet the challenges of the quarter as you heard earlier, the sourcing and supply environment remains challenging and inflation remains at its highest level in over 40 years, creating additional cost pressures not only for us, but for nearly every company and consumer.
Distribution and supply chain costs are up significantly fuel prices have spiked and labor scarcity and costs have continued to rise.
All of these factors have made it more challenging for us and nearly all industries the source.
Port and distribute products and services and to do so at a reasonable cost.
These costs and sourcing challenges have continued into the second quarter impacting our cost of goods sold supply chain and labor, particularly as we build up inventory for the upcoming expected strong back to school season.
That said, while we do see impacts to our operations, we remain in a strong position to help mitigate many of these impacts.
Record high inflation in energy prices have increased the overall cost of product from our suppliers impacting the cost of many of our skus, including paper furniture Tech and other essential office categories.
Next supply chain costs, continuing to be inflated as transportation labor and fuel costs have risen market demand remained strong fuel prices are higher more than 50% higher for diesel fuel and capacity remains constrained.
Accordingly, our supply chain cost to serve was up approximately 100 basis points in the quarter compared to last year due to higher transportation and container costs as well as higher third party logistic rates and labor.
Specifically for labor costs wages for logistic workers and general wage labor across our retail operations combined were up mid single digits across the business.
Also our out of stocks remain at elevated levels, although we have seen some progress in this area and while we are beginning to make sourcing progress in certain areas. The highest challenged areas continue to be in certain technology product categories, including Pcs printers, and ink, causing our overall out of stocks to be higher than normal.
While these challenges have persisted in the second quarter, we continue to take actions to address these include leveraging our private fleet and third party relationships to help mitigate some of the cost increases and domestic transportation and ensure reliable service to our customers.
I would note that container costs for imported products saw a significant rise in the quarter and the first half of this year as we source certain products and built up inventory for upcoming back to school season. This has led to higher cost of inventory on a relative basis for certain products, primarily in the workspace category. However, we continue to see good demand in.
We expect to turn that inventory over the next few quarters.
We're also using proprietary developed slow patent data tool, helping us to optimize our supply chain operations to help reduce the cost to serve by route to market and product.
And as we stated last quarter, we've been utilizing flexible pricing actions in passing through cost increases where possible to compensate for increases in cogs, while continuing to remain competitive with the market.
Our team's ability to execute upon these actions is a reflection of the investments we have made over the years and is a core strength and our operational excellence.
As I pointed out on last quarter's call. The environment continues to be challenging and we expect these conditions to persist in the near term.
Said, we continue to be in a strong position to continue to mitigate some of these challenges and manage accordingly.
Now turning to the highlights of our financial results as shown on slide 12.
Consistent with previous quarters, we have provided our results on both a GAAP and adjusted basis we.
We generated total revenue of just over $2 billion in the second quarter, 2% lower than Q2 of last year.
This was a solid result, as we had 71 fewer stores in service compared to the same period last year.
We again saw improving back to office trend during the quarter, helping us drive stronger performance in our enterprise contract channel both year over year and sequentially.
We generated stronger sales through our contract channel in core supplies cleaning and break room copy and print categories, partially offsetting the lower sales of technology and in categories, primarily related to the supply chain challenges I mentioned earlier.
Our retail channel again drove solid operating performance, providing strong support for our hybrid workers education and small business customers.
GAAP operating income in the quarter was $28 million slightly down from $30 million last year.
Included in operating income with $26 million of charges, consisting primarily of $23 million in costs largely related to our separation activities and the remaining $3 million is associated with noncash asset impairment charges, primarily related to the company's retail store locations.
Part of the $23 million of restructuring costs, we incurred were directly attributable to the sale process, including legal and accounting expenses and certain costs that were principally related to an external separation.
That being said these cost awfully greatly facilitated our ability to stand up our BDC <unk> and their routes to market and we expect to continue effort to fully operationalized all elements of our business unit structure across our platform.
Year to date, we incurred $32 million of restructuring and separation costs associated with our refocused we're up the market and we anticipate additional separation costs as we fully streamline the structure.
Excluding these and other items, our adjusted operating income for the quarter was $54 million compared to $43 million in Q2 of last year. This includes $37 million of unallocated.
<unk> and other expenses in the second quarter of 2022.
Adjusted EBITDA of $91 million for the quarter was up compared to $84 million in last year's second quarter. This includes adjusted depreciation and amortization expense of $34 million and $36 million in the second quarters of 2022 and 2021, respectively.
Excluding the after tax impact from the items mentioned earlier adjusted net income for the second quarter was $39 million or <unk> 79 per diluted share compared to adjusted net income of $33 million or <unk> 58 per diluted share in the prior year period.
Turning to cash flow operating cash use in the quarter was $114 million, which included $14 million of restructuring costs. This compared to operating cash flow of $32 million last year.
Lower operating cash flow in the quarter was primarily related to the timing of working capital items, including inventory, which I will speak to in a moment timing of trade payables as we source certain products with tighter terms and the natural buildup of accounts receivable as we continue to see stronger BSD sales.
In addition, certain product costs were primarily impacted by the aforementioned container costs impacting their carrying value.
So while the dollar value of inventory is higher on a relative basis, causing some of the cash flow usage, we feel comfortable about the absolute level of inventory heading into the anticipated stronger back to school season, we expect.
Capital expenditures in the quarter were $21 million compared to $60 million in the prior year period, reflecting targeted growth investments in our digital transformation supply chain and e-commerce capabilities.
In future quarters, we expect to increase our capital investments allocated to these initiatives and capabilities as we continue to make progress on various end there.
Adjusting for cash charges associated with our separation and restructuring plans in the quarter of approximately $14 million adjusted free cash flow in the quarter was a use of $121 million.
Now turning to slide 13.
Before I begin my discussion of our business unit performance I would like to highlight some of the futures segment reporting changes that we intend to implement beginning with our reporting out in Q3.
Beginning in Q3, we're planning to report on our four business unit segment structure as we near the completion of our operational separation.
As shown these segments, our ODP business solutions, our enterprise contract business, there our supply chain and procurement business office depot, our Omnichannel consumer business and <unk>, our digital platform business. One of the primary changes I would like to highlight is our e-commerce business, which is currently <unk>.
Largely reflected in our BSD segment will now be reflected in our consumer business going forward.
Building on the Omnichannel capabilities, we have today, which will be leveraged even further in the future.
And finally, there which today its operations are embedded and allocated to both our retail and BSD segments will become its own segment as they continue to support the supply chain needs of our consumer and <unk> businesses and pursue new third party relationships to further optimize the assets and our capabilities.
The work we've done to prepare to report under our four business unit structure with no easy task I would like to thank our entire team for rising up to meet this challenge and working diligently on our operational separation activities and positioning us to report on our <unk> segments earlier than anticipated.
We are excited to share more at our upcoming Investor day.
Now turning to our current business unit performance, starting with BSD as shown on slide 14.
Our BSD segment continues to deliver improving results as the return to office trends continued to gain traction total revenue in BSD was $1 2 billion in Q2 up 6% in the quarter relative to Q2 of last year driven by an increase in sales in our contract channel as businesses began to return to the office.
This was partially offset by lower sales velocity in our E Commerce channel, which we expected relative to the stronger demand experienced last year during the heightened conditions related to the pandemic.
For total BSD, we saw stronger demand for core supplies in certain adjacency categories, including cleaning and break room furniture, and copy and print services, helping to offset lower sales and technology categories.
More specifically in our contract channel sales for core supplies categories were up approximately 9% year over year, highlighting the strong correlation between the return to office activity in core supplies growing in the mix.
Totally categories, which are products outside of our traditional office product suite generated about 44% of total BSD revenues and remain an important component of the overall value proposition and product basket for our customers. These categories include cleaning and break room technology furniture and copy and print services.
Offsetting some of these product basket for our customers. These categories include cleaning and break room technology furniture, and copy and print services.
Offsetting some of these positives were lower sales through our ecommerce channel for certain supply product categories previously and strong demand during the height of the pandemic.
That being said our ecommerce channel continues to be a key component of our omnichannel presence, providing our customers with the convenience and ease of shopping online and to help fuel our strong and growing both this offering with those sales reflected in our retail business.
BSD operating performance continues to improve significantly over last year generating operating income of $45 million in the quarter up about 45% over last year.
This represented a 100 basis point increase as a percentage of sales a mix shift into core supplies lower SG&A and pricing strategies that we've been implanted helped to mitigate the increase in supply chain costs and inflationary pressures.
I would add that the work we started a few months ago utilizing our data driven approach and performing in line level reviews of customer contracts is helping us identify margin opportunities in the business meeting customer demands and the most efficient way.
Now turning to our retail division results as shown on slide 15.
Our retail division again drove solid operating results in the second quarter continuing to provide a strong value proposition to our home office education consumer and small business customers.
Reported revenue in the quarter was down 11% to $811 million driven by 71 fewer retail stores in service this year versus last year related to our planned store closures and lower store traffic, we closed 12 stores in the quarter ending the quarter with 1020 stores in operation.
Partially offsetting lower same store traffic in the quarter with higher conversion rates and average order volumes, leading to strong increases in sales per shopper. We continue to see strong demand for our copy and print services and increased demand in certain core supply categories on a comparable store basis.
Additionally, our omnichannel presence on a same store basis continue to grow with strong <unk> sales in the quarter.
Putting the success is our 20 minute pickup guarantee will continues to be a strong value proposition for our customers.
Balancing this progress we saw lower demand for product categories related to the pandemic, including PPE and cleaning products furniture technology and certain supplies.
I would mention that out of stocks also added to lower sales of technology products like Pcs as well as ink during the quarter.
From an operating perspective, we continued to deliver solid operating margin performance in the quarter, despite the higher cost challenges.
We generated operating income of $46 million in the quarter up 5% compared to last year operating margins were slightly just under 6% of revenue up about 90 basis points compared to last year as continued cost efficiencies and SG&A product mix pricing strategies helped to offset and mitigate higher product and.
Why chain costs.
Now briefly turning to additional balance sheet and capital allocation highlights as shown on slide 16.
Our balance sheet continues to be a source of strength ending the quarter with total liquidity of approximately $1 4 billion.
Consisting of $417 million in cash and cash equivalents and $953 million in availability under our asset based lending facility total debt at the end of the quarter was approximately $194 million.
From an overall capital allocation perspective, we have continued to take actions to enhance shareholder returns in several areas first in the quarter. We completed our ASR plan that we put in place in Q4 of last year retiring an additional 730000 shares in Q2 in total for our ASR plan, we retired over three.
One 5 million shares under the program.
Adding this to our open market share repurchases last year, we have returned over $300 million to shareholders since Q2 of last year.
Next in an ongoing effort to enhance returns to shareholders in July our board approved a $600 million share repurchase authorization, and we launched a $300 million Dutch auction tender offer which is ongoing to date.
This action reflects the confidence our board has in our strategy and is a true testament of our teams commitment to creating shareholder value and to the strength of our balance sheet, we will share more about the outcome of the Dutch tender offer at the conclusion of the program now turning to our 2022 guidance as shown on slide 17.
Our guidance for 2022 remains consistent with our pre announcement press release, we issued on July 18th 2022 for the year, we're expecting consolidated revenue in the range of $8 45 to $8 6 billion.
Adjusted EBITDA in the range of $430 million to $460 million adjusted operating income in the range of $285 to $315 million and adjusted earnings per share of $4 10 to $4 50 per share.
Additionally, we are anticipating adjusted free cash flow in the range of $200 million to $225 million. This outlook assumes a reasonably stable macroeconomic environment for the second half of the year and it also recognizes that our fiscal year and this year will occur on December 31, which may affect the timing of certain income statement and working capital items.
We've executed well in the first half of the year driving solid results and making significant progress on aligning our assets to support our four business unit strategy for the future.
Our strong balance sheet diversified routes to market and long term free cash flow conversion profile has positioned us with the ability to launch our tender offer and continue to invest in our business while remaining in a position to continue to enhance shareholder returns overtime.
Operationally our team will remain highly focused on executing across our business working to mitigate cost pressures and utilizing our data driven approach in our contract channel to drive profitable growth, while delivering upon our consumer plan.
We're very excited about the progress we are making in various working to complete its build out and adding to its capabilities, while gaining momentum with new customers and suppliers. We are seeing real positive velocity in all areas.
In summary, we're excited about the opportunities for the future and look forward to presenting the new ODP at our Investor Day meeting later in the year with that operator, we will turn it over for questions.
Thank you as a reminder to ask a question you will need to press star one one please.
Please standby, while we compile the Q&A roster.
We have a question from Mike Lasser with UBS. Your line is open.
Good morning, Thanks, a lot for taking my question.
My first question is on the decision to put the separation of the business is done.
Two parter.
Washington, inherently going to be a cyclical business over the long run.
What conditions need to exist.
So you do move forward with the separation.
As you concluded the analysis, what the synergy number did you come up with that would've needed to be overcome in order to make the economics work for separation.
Thanks, Michael and good morning, this is Jerry.
Anthony I will double team.
From a board perspective, we looked at all the different options we felt that.
<unk> strategy was by far the best strategy at this time from an economic perspective.
Creating shareholder value, we do think that.
Yeah.
Putting the online and the retail businesses together the real value generator for us so there'll be a BDC business that we think is going to be a great business that we can get value by putting in the online into the physical and digital experiences together and we think it's a great cast engineering, Kevin and his team has done a remarkable job on customer experience.
<unk> management low cost model.
Our customer satisfaction as well and we think that from a valuation perspective by leasing. These other three areas, we're going to have a bigger valuation opportunity with our traditional <unk> business, the ODP business solutions, which Dave Centrella will run and we think and I have talked about since day, one that we have a lot of value in our assets, especially.
John Edwards, who will have two big internal customers to start out, but we're also getting some other logos and will continue to build that business and we think our supply chain business as well as our various digital but for our business I'll make a few comments on that front essent team have made remarkable progress on bookings and adding suppliers.
The product launches.
In Q4, but this is 'twenty two is a build year. We're ahead of plan now across.
Every kpis of that business and we're super excited to talk more about at Investor day, but if you look at those four areas. We think not just being viewed as a retail business across the whole business, but having this separation will be great and then obviously, we'll continue to evaluate the future value opportunities are but we think at this time with the economic conditions we have.
These four businesses are best in state integrated intact.
Anthony.
Michael.
I think it's less about the dis synergy number in absolute and more about the economic conditions and Terry just mentioned and the current market. So as we looked at the <unk> strategy and we looked at the opportunities afforded by the <unk> strategy that drive further economic.
As well as the transparency that we will be providing through the <unk> strategy. We felt that this is the best opportunity that over time should allow us to continue to command.
Multiple expansion in each of these businesses, which today doesn't afford it based on the transparency that the further alignment will provide.
Okay and my follow up question is on <unk>.
SG&A SG&A dollars declined $13 million.
Year over year.
<unk> a portion of that is due to the savings.
Lease expense from closing stores, you are making sizable investments in other areas of the business that would require.
Incremental operating.
<unk> solar.
How much further can you reduce your cost structure without a potentially sacrificing some of the customer experience.
It's unsustainable that it hasnt had an impact as of yet because the NPS scores.
It has been pretty good traffic has been under pressure and may be if not capturing the full totality of how consumers need to detail.
And I think it's a great question, Michael but I think it's important to emphasize that one of our hallmark strategies in one of our hallmark things I'm trying to drive with Anthony into the DNA of the company that we call the low cost model.
Not just cutting heads, but looking for inefficiencies is trying to get productivity.
Redesigning processes.
We've done a tremendous job over the last four or five years and Tim can get into more details of the specifics offline, but of taking tremendous amount of cost out of this business Super proud of that.
<unk> spending of 30 years and tech hardware.
You do that to stay alive every year and so that's the kind of minds that we're trying to bring us find ways to optimize that business look for better efficiencies.
A lot of lean six Sigma type of work for some of our transformation team, but we always think there's opportunity in.
Why NPS is so important and Kevin's team has been.
Above 70 score is tremendous that's world class. If we do think it is important to meet and greet. We do is we know there is a conversion difference when you do it if theres a better customers that cut across the whole business we're focused on.
That customer experience piece.
Anthony I had my leaders job is to balance of let's continue to operate in a low cost model to always make sure. We are putting money in investment we're excited by the opportunity to grow our supply chain business. We're excited by the opportunity with <unk>, which is really not just office supply it's a true marketplace.
It will be much more I'll say cyclically dependent like you've talked about and so we're trying to address that through investments I think we've done a really good job of balancing that plus we've also done a good job, but we think in the last couple of years, especially of returning capital to our shareholders as well $300 million last year, we had $600 million.
Split between the tender out of <unk> over the next couple of years. So we're trying to have that balance of strategy investment low cost model at that obviously shareholder return as well a great question. So thank you.
I think the other night.
Thank you Michael any other additional questions.
Oh, good I'll turn it over to have a good day.
Thank you so much.
There are no other questions in the queue I would like to turn the call back to Gerry Smith for closing remarks.
Want to thank everyone for joining the call today and again, Michael Thank you for the questions.
We look forward to our Investor day in the fall and thank you everyone for joining us today and we are committed to continue to drive shareholder value.
Make sure we focus on our customers as well thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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