Q4 2023 The ODP Corp Earnings Call

February 28, 2024

Yeah.

Speaker Change: Good morning, and walk them through the ODP Corporation fourth quarter and for year 2023 earnings conference call.

Speaker Change: All lines will be on a listen only mode for today's call after which instructions will be given in order to ask the question.

Speaker Change: At the request of the ODP Corporation.

Speaker Change: This call is being recorded.

Temper Rock: I would now like to introduce temper rock, Vice President Investor Relations and Treasurer, Mr. Perrott, you may begin.

Perrott: Good morning, and thank you for joining us for the ODP Corporation fourth quarter and full year 2023 earnings conference call.

Perrott: This is Tim Perrott, and I'm here with Gerry Smith, our CEO and Anthony Scaglione Executive Vice President and CFO.

Gerry P. Smith Office Depot: During today's call Gerry will provide an update on the business focusing much of his commentary on our accomplishments for 2023, including our operational performance and the progress we're making on all of our initiatives to drive shareholder value.

Anthony Scaglione: After Jerry's commentary Anthony will then review the company's fourth quarter and full year financial results, including highlights of our divisional performance.

Anthony Scaglione: Following Anthonys comments, we will open up the line for your questions.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: A detailed discussion of these risks and uncertainties are contained in the company's filings with the U S Security and Exchange Commission.

Speaker Change: During this 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.

Speaker Change: GAAP financial measures are all available on our website at Investor Dot The ODP Corp Dot com.

Speaker Change: Today's call and slide presentation is being simulcast on our website and will be archived there for at least one year I'll now turn over the call to Jerry Smith Gerry.

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

Jerry Smith: Im excited to be here with you to discuss our results and accomplishments for 2023 as.

Jerry Smith: As well as to provide insight into project core.

Jerry Smith: Our new business optimization initiatives to continue to drive our low cost model and.

Jerry Smith: And our strategy to drive shareholder value as we move forward.

Speaker Change: First before I discuss our accomplishments for the year I want to thank all of you for the kind words and support during my medical leave.

Speaker Change: Glad to be back in a more energized than ever to lead our business and execute our plans to drive shareholder value.

Joe: I would like to thank our chairman Joe vessel, New zone for all of his efforts in helping us finish the year strong and providing leadership, while I was out thank you Joe.

Joe: Also I would like to thank my senior leadership team as well as the entire team at ODP for remaining focused and committed to driving operational excellence and shareholder value.

Joe: I'm very fortunate to have such a strong team a strong five C culture.

Joe: With World class capabilities that continue to deliver every day.

Now I would like to highlight our accomplishments for 2023.

Joe: 2023, it was a remarkable year for otp.

Joe: As we remain true to our <unk> culture, and driving operational excellence across our business.

Joe: During the year, we successfully implemented and reported under our new four business unit structure, driving our <unk> and BDC operations.

Joe: We remain committed and our dedication to operational excellence.

<unk> focus to enhancing shareholder returns.

Joe: Despite the ongoing challenges posed by a difficult macroeconomic environment, our first year of operating and restructuring yielded impressive results with strong EBITDA and earnings per share performance.

Joe: These results underscore the resilience of our low cost business model and the execution of our capital allocation strategy.

Joe: Furthermore, our unwavering commitment to operational excellence enabled us to exceed our guidance for free cash flow.

Joe: Supporting our capital allocation plans, including returning nearly $300 million to shareholders through our share repurchase program in 2023.

Joe: I couldnt be prouder of our team despite the obstacles presented by tough macroeconomic environment.

Joe: Clothing, and high inflation and interest rates supply chain volatility and a slowdown in consumer and business activity, we really stepped up and delivered exceptional performance.

Joe: Our results and achievements for the year are truly exemplify our team's unwavering dedication to our low cost business model and prudent approach to capital allocation.

Joe: All aimed at creating maximum long term value for our shareholders.

Joe: It is a testament to our hard work and commitment.

Joe: Now turning to the specifics of our major accomplishments in 2023 as shown on slide five.

Joe: First we drove strong operating performance achieving our revised guidance for the year. Despite a weaker top line impacted by the industry wide macroeconomic challenges and fewer stores and service our team delivered adjusted operating income and adjusted EBITDA results that were in line with our guidance and consistent with the prior year.

Joe: We leveraged our multiple routes to market global supply chain and logistics presence.

Joe: <unk> service infrastructure and kept our customers' needs at the forefront of everything we do.

Joe: Combining this performance with our disciplined capital allocation strategy, we drove an impressive 27% increase in adjusted earnings per share year over year.

Joe: Our strong performance in the year reflects our steadfast commitment to operational excellence and disciplined capital allocation. The two primary elements of our shareholder value creation formula.

Joe: Underpinning this impressive operational performance, we made excellent progress across our business units.

We expanded margins in our new business pipeline, our ODP business solutions, we drove strong external EBIT growth advair exceeding our goals, we expanded our product and service offerings at office depot, and we continue to work with customers at Paris, While also launching a strategic review of that business in Q4.

Joe: Enterprise wide the progress we are making continuous enhanced the foundation of our company.

Joe: <unk> us to drive long term profitable growth and strong free cash flow conversion.

Next with our strong balance sheet and liquidity position, we continue to execute on our shareholder focused capital allocation plan.

Joe: <unk> seen a significant number of shares during the year.

Joe: Supported by strong free cash flow generation.

Joe: That exceeded our guidance, we returned nearly $300 million to shareholders through our share repurchase program during 2023.

Joe: Since we initiated our $1 billion share repurchase authorization about 16 months ago in November of 2022, we bought back about $470 million of our stock roughly 10 million shares as of the present date.

Joe: This is a tremendous accomplishment and reflects our management and board commitment to our capital allocation strategy.

Joe: Lastly, as a key accomplishment in 2023, we began operations reported results under our new four business unit structure.

Joe: This was the culmination of years of effort and analysis.

Joe: This was our first year of operation under our new structure driving distinct BTB in BDC businesses as well as starting up there are supply chain logistics business that has a nationwide coverage in global sourcing presence.

Joe: Our new structure helps to unlock odp's potential leveraging multiple routes to market and providing greater transparency and visibility into the valuable components of our business.

Joe: And we've learned a lot during our first year of operating under our new structure.

Joe: Some which has led us to project core our business optimization program designed to drive further efficiencies in our business enhance our core focus I'll provide more on the elements of project correlated in my discussion.

Joe: Now moving onto the highlights of our business unit performance, starting with ODP business solutions.

Joe: ODP business solutions, our <unk> distribution business.

Joe: As a reminder, serves large enterprises, including over 50% of the fortune 100, as well as medium and small business delivered strong bottom line operating results in the year.

Joe: <unk> solutions has expanded its margins and generate a meaningful increase in operating income. Despite a slightly softer topline that was influenced by macroeconomic factors that cause more cautious enterprise spending as well as a flattening of returned office trends.

Joe: Notwithstanding the more restrained level of business spending we continue to win new accounts and believe our revenue backlog opportunity is positioned to outpace other market participants, resulting in share gains. Additionally, as we mentioned on our last call. We are still working on the final stages of Onboarding some of our more recent large enterprise wins.

Joe: Taken longer to implement but we expect to have them up and running in the first half of this year.

Joe: Also of note our federation companies are regional tuck in M&A entities continue to be resilient and we have been successful growing this business, which now generate well over $600 million of revenue on an annual basis.

Joe: This market continues to be highly fragmented and our disciplined M&A approach gives us a tremendous runway to keep growing our platform strategically over time.

Joe: Our adjacency category penetration remained at 44% of the total division revenues.

Joe: Adjacency categories include cleaning and break room products as well as furniture technology products and copy and print services.

Joe: As a notable kpis for ODP business solutions, our adjacency category penetration may fluctuate.

Joe: From quarter to quarter, but our long term objective is to consistently grow these categories. Both on an absolute dollar and percentage basis as we expand our value proposition.

Joe: Continue to leverage our strengths in core categories.

Joe: ODP business remains competitively strong with its customer first approach.

Joe: And our net promoter score rating above 70%, retaining and winning new business with a continued 98% renewal when rates are helping drive net new business wins.

Joe: While we see continued near term top line challenges in the first half I couldnt be more excited about our long term prospects and our strong commitment to driving value for our customers across both core and adjacency categories.

Joe: Next up is office depot, or omni channel consumer business, which includes our profitable retail footprint and award winning E Commerce platform, providing a strong value proposition to small business education and home office customers.

Joe: This division continued to provide a positive shopping experience for its customers throughout the year, maintaining strong NPS exceeding 70% among the best in the industry.

Joe: Office depot drove strong operating income and free cash flow results. Despite the continued challenging macroeconomic environment impacting the top line.

Joe: The revenue decline was driven by a combination of fewer stores in service compared to last year related both to planned store closures as well as from lower in store and online traffic and demand.

Joe: Much of the weaker demand was driven by the slowing economy and higher inflation moderating the pace of consumer spending impacting overall demand both in store and online.

Joe: Stronger sales of copy and print services were more than offset by lower tech and workspace and sales as well as lower sales of other core categories.

Joe: When eliminated the favorable impact of sales from the 50 <unk> week included in last year's results comparable store sales were down approximately 5% for the year as Laura retail and online traffic outweighed higher conversion.

Joe: From an operating standpoint margins were flat with last year as the team worked to offset some of the topline challenges.

Joe: We remained disciplined with pricing scenarios in our gross margins went up as we work to maximize the profitability of every interaction.

Joe: Moving forward, we expect to continue optimizing our store footprint as we work to achieve flat comps over the next couple of years.

Joe: Also put in place several initiatives to drive sales, including launching or education, $3 65 initiative.

Joe: This initiative, which includes both our <unk> and our Omnichannel business is an integrated year round approach to improve our reach and better serve our education customers, including teachers students parents and school systems.

Joe: We're already seeing some good reception from local districts here in Florida on our ability to do more with them every single day versus only during the peak back to school season.

Joe: We're also remaining committed to expanding our offerings to all customers, including our expansion into new categories and continuing to rollout our in demand TSA sign up service to more stores throughout the year, which we expect will help drive additional store traffic during the year and beyond.

Joe: We remain encouraged by the potential these efforts have on the future.

Joe: And finally over the past two months and under our board's direction, we reevaluate the merits of fully separated our BDC business as way to increase shareholder value.

Joe: As part of this process, we retain a top three strategic consulting firm as.

Joe: Well. This is part of an investment bank to review the merits of a separation.

Joe: While we believe there is significant value creation in our unique routes to market at the present time, we do not see a full separation of our BDC business as a material Avenue for additional shareholder value creation, given certain dis synergies and costs associated with the separation.

Joe: Now turning to our progress at Behr.

Joe: As a reminder, there is our world class supply chain services and logistics provider with core competencies in distribution fulfillment transportation and global sourcing and purchasing.

Joe: There are assets and capabilities include 8 million square feet of infrastructure through our nationwide network of distribution centers Cross dock and other facilities throughout the United States and Canada, a global sourcing presence in Asia, a large private fleet of vehicles and next day business through delivery of 295% of the U S population base.

Joe: They serve the needs of their primary internal customers office depot in the ODP business solutions equally as well as for other third parties through our procurement and supply chain expertise.

Joe: As I pointed out in previous calls a key area of focus to assess various success and value creation is by looking at our progress with external third party customers.

Joe: In its first year of operating as a standalone business, various making tremendous progress has exceeded expectations.

Joe: Specialty providing service to its internal customers, while continuing to rapidly growing its business with third party customers.

Joe: Throughout the year and quarter, we're continuing to add new external customer logos to its slated business providing service for some of the nation's most renowned brands, which continue to drive revenue and EBITDA growth from third party customers. In fact third party revenue from external customers was up 25% over last year.

Joe: Most importantly, we exceeded our EBITDA goals as even if a third party customers more than doubled up 120% versus last year.

Joe: There are also made tremendous progress on its modernization roadmap through the year as they build additional capabilities and information systems that run the business.

Joe: There is partnering with World class Tech companies and deploying a gartner magic quadrant level tech stack that positions us to manage our business improved service levels and provide the flexibility necessary to deliver services to external third parties more effectively.

Joe: As one example, there successfully developed and its deployment in house blow past technology that we call. Their kinetic that provides critical cost intelligence to optimize our operations and service levels for our customers.

Joe: First also deploy a new warehouse management systems that support our operations and automate tasks and proving our ability to provide services to third party customers.

Joe: We are very encouraged by a very strong progress and how this positions ODP to drive profitable growth and as higher multiple business.

Joe: Now turning to <unk> on slide nine.

Joe: Various our digitally native beauty procurement platform launched about a year ago.

Joe: To enhance its platform with new features and functionality.

Joe: Deliver values to its customer.

Joe: Our various revenue ramp has been slower than we originally anticipated at this point in this journey, we remain encouraged by the value proposition that it provides to both customers and suppliers.

Joe: Well various continues to be strategically positioned to capture more of the procurement and supply chain ecosystem. We've begun a process through project core to evaluate the business further including its run rate costs.

Joe: Now moving onto project core.

Joe: As we continue to evolve are consistent with our low cost model approach today, we announced an initiative called project core our business optimization program.

Joe: We are launching this initiative after gaining insights from our first year of operations under our new four business unit structure.

Joe: Project core has a comprehensive initiative aimed at further streamlining operations sharpening our focus on our core business, while increasing shareholder returns for a new $1 billion share repurchase authorization.

Joe: This broad based plan includes cost efficiency actions across the entire enterprise.

Joe: And optimized our organizational structure to support the future growth of the business.

Joe: This initiative also includes cost reduction actions that virus as we further worked through the strategic options from that business.

Joe: I would add that we expect to provide a full update of our various review, including cost actions by our first quarter earnings call in early may of this year.

Joe: We are excited about our continued evolution of what project core will deliver to the company and its shareholders as we focus on continuous improvement across the business to drive EBITDA and free cash flow growth, while delivering value to shareholders through additional share repurchases.

Joe: We anticipate this comprehensive plan will generate annualized savings in the range of $50 million $60 million when fully implemented.

Joe: These savings will be achieved through cost efficiency measures across the entire enterprise, including organizational supply chain in Cogs efficiencies.

Joe: Well as further realignment of incentive plans to drive additional operating performance.

Joe: In connection with project core we're excited to announce that our board of directors approved a new fresh $1 billion share repurchase authorization valid over the next three years.

Joe: This new authorization replaces the previous one which had approximately $530 million left on the authorization.

Joe: We're excited about enhancing our share repurchase program and expect an increased pace of the share buybacks in the near term.

Joe: With that I will turn the call over to Anthony Scaglione for a more detailed review of our financial results.

Anthony Scaglione: Thank you Jerry and good morning to everyone on the call I'm happy to be here today to discuss our financial results for the fourth quarter and full year 2023, as I begin I'd like to Echo Jerry's comments and say, thank you to our entire team for remaining focused and continuing to drive our low cost business model during our first year operating under our new four business unit.

Anthony Scaglione: Its structure.

Anthony Scaglione: I would also like to thank chairman vast elusive for providing stewardship during our fourth quarter.

Anthony Scaglione: Our accomplishments this year is a clear demonstration of the total enterprises commitment to operational excellence and the flexibility of our business unit structure.

Anthony Scaglione: Now as I turn to the highlights of our financial results as shown on slide 12, I would like to point out that our prior year results include the positive impact related to the 50 <unk> week that occurred for us in 2022.

Anthony Scaglione: As with many companies with a retail component every four to five years. There is an extra week accounted for in the year, causing some distortions to year over year comparisons.

Anthony Scaglione: We highlighted this in our 2022 year end results and as I cover off on our performance for 2023, I will highlight this impact when comparing our results to the prior year.

Anthony Scaglione: Also consistent with previous quarters, we have provided our results on both a GAAP and adjusted basis.

Anthony Scaglione: Turning to the specifics of our fourth quarter results as shown on slide 12, we generated total revenue of $1 $8 billion in the quarter when eliminating the favorable impact of approximately $130 million related to the 50 <unk> week included in last year's results consolidated revenue was down approximately 9% on a year over year base.

Anthony Scaglione: <unk>.

Anthony Scaglione: This was primarily driven by lower sales in office depot, including 64 fewer stores in service compared to last year.

Anthony Scaglione: GAAP operating results included $74 million of charges, primarily related to $68 million noncash goodwill impairment in our various business units, resulting in a GAAP operating loss of $31 million in the fourth quarter.

Anthony Scaglione: Excluding the noncash charges, our adjusted operating income for the fourth quarter was $43 million. This compares to $58 million in last year's fourth quarter, which included approximately $20 million favorable impact related to the 50 <unk> week.

Anthony Scaglione: When eliminating the favorable impact for a more meaningful comparison adjusted operating income in the quarter was up about 13% year over year.

Anthony Scaglione: Unallocated corporate expenses were $23 million in Q4, and adjusted EBITDA was $73 million in the quarter compared to $89 million in last year's fourth quarter.

Anthony Scaglione: This includes depreciation and amortization expense of $28 million and $31 million in the fourth quarters of 2023 and 2022, respectively.

Anthony Scaglione: Excluding the after tax impact from the items mentioned earlier adjusted net income for the fourth quarter was $35 million or <unk> 92 per diluted share compared to adjusted net income of $40 million or <unk> 85 per diluted share in the prior year period.

Anthony Scaglione: Turning to cash flow our team continued its cash flow focus in the quarter managing inventory levels and other working capital items, resulting in operating cash flow of $70 million cash.

Anthony Scaglione: Capital expenditures in the quarter were $29 million versus $31 million in the prior year and adjusted free cash flow in the quarter was $43 million.

Anthony Scaglione: Turning to slide 13, I've highlighted some key performance measures for the full year of 2023, we delivered impressive results in the year against the continued demanding macroeconomic backdrop meeting or exceeding our revised guidance ranges for the year.

Anthony Scaglione: Total company sales for the year totaled more than seven $8 billion, when eliminating the favorable impact of roughly $130 million related to the 50 <unk> week included in our prior years results total revenue was down approximately 6% year over year.

Anthony Scaglione: Lower revenue in the year was primarily due to a reduction in sales in office depot, driven by planned store closures as well as lower traffic in store and online.

Anthony Scaglione: As reflected on our full year GAAP basis, we recorded operating income of $201 million, which included $89 million of charges, primarily due to the $68 million noncash charge related to goodwill at various that I mentioned earlier.

Anthony Scaglione: This compares to operating income of $243 million in the prior year, which included approximately $20 million favorable impact related to the 50 <unk> week, which was included in last year's results.

Anthony Scaglione: Full year adjusted operating income was $290 million down slightly compared to adjusted operating income of $296 million last year, and adjusted EBITDA was $417 million for the year. These.

Anthony Scaglione: These were very impressive operating results given the continued challenging macro conditions and softer top line.

Anthony Scaglione: Excluding the after tax impact from the items mentioned earlier 2023, adjusted net income from continuing operations was $223 million or $5 60 per share up compared to $216 million or $4 40 per share in the prior year.

Anthony Scaglione: This represents a 27% increase in adjusted EPS year over year.

Anthony Scaglione: It's worth noting that our EPS performance in the year benefited from a lower full year effective tax rate driven by the benefit of tax planning and certain tax credits, which I will discuss further in guidance.

Anthony Scaglione: Finally regarding cash flow for the year cash provided by operating activities was $331 million, a significant increase compared to $237 million last year, we invested capex of $105 million in 2023, largely targeted at fixed asset improvements in maintenance or digital transformation <unk> platform and <unk>.

Anthony Scaglione: E Commerce capabilities in total we generated adjusted free cash flow of $235 million in 2023 exceeding our guidance for the year.

Speaker Change: Now I'd like to cover our business unit performance, starting with our ODP business solutions Division on slide 14.

Speaker Change: ODP business solutions continue to drive strong operating results in the fourth quarter and full year, improving its margin profile and generating significant increases in operating income.

Speaker Change: Revenue was approximately $900 million in the fourth quarter, which was down about 4% compared to last year after eliminating the $58 million favorable impact of sales related to the 50 <unk> week included in last year's results.

Speaker Change: Sales performance in the quarter was influenced by macro factors, causing a more cautious enterprise spending as well as flatter returned to office trends, resulting in lower sales across most categories compared to Q4 last year.

Anthony Scaglione: Additionally, lower sales of technology products, a factor that many other companies are experienced industry wide as well as lower large ticket sales in our furniture category contributed to the softer top line.

Anthony Scaglione: On an annual basis, while reported sales were down slightly after eliminating the impact of the 50 <unk> week as well as the impact of large onetime PPA order that we highlighted in our first quarter results last year sales were generally flat year over year.

Anthony Scaglione: While we continue to see some near term top line challenges due to continued tech softness in enterprise spend overall, we continued to win net new business, taking share and expect some of the tech sales to rebound in the second half as product life cycles, refresh, which could be boosted with the updated release of windows.

Anthony Scaglione: Breaking down our sales further our adjacency product categories as a percentage of total revenue Kpis for ODP business solutions remained at 44% in the quarter.

Anthony Scaglione: This percentage may vary from quarter to quarter, but our long term objective is to consistently grow this on both a dollar and percentage basis as we expand our value proposition and continue to leverage our strength in core categories.

Anthony Scaglione: Also our federation companies continued to perform well throughout the year driving both positive sales comps and healthy margins.

Anthony Scaglione: From an operating perspective, and consistent with our stated goals ODP business solutions continue to drive increases in operating income and margins during the year.

Anthony Scaglione: Operating income was $34 million in the quarter, which represented a 6% increase over the same period last year, when eliminating the $5 million favorable impact to operating income related to the 50 <unk> week included in our Q4 2022 results.

Anthony Scaglione: For the year operating income was $174 million up 24% compared to last year and up 28% compared to last year when eliminating the impact of the 50 <unk> week.

Anthony Scaglione: As a percentage of sales operating margins were up about 100 basis points over last year's results.

Anthony Scaglione: This margin improvement is a significant accomplishment given the macro challenges and places us on a path to generate growth and continued margin improvement over time, a goal we set out during our Investor day.

Anthony Scaglione: ODP business solutions remains in a position of competitive strength with a compelling customer offer and a highly capable sales force.

Anthony Scaglione: Moving forward, we are confident that ODP business solutions Foundation remains strong and we are competitively well positioned to continue to drive results in the future.

Anthony Scaglione: Now turning to our results the office depot as shown on slide 15.

Anthony Scaglione: 2023 was our first full year operating office depot as a cohesive omnichannel business, combining its retail store and online presence.

Anthony Scaglione: In the year office depot generated $3 $9 billion in sales $230 million in operating income and generated significant cash flow. They also made significant progress bringing their strategy for success to life as they continue to refine their operating approach and invest in new tools, many of which were implemented in the back half.

Anthony Scaglione: This is to better position them for sales throughput and more efficiently operate their business.

Anthony Scaglione: To accomplish this while continuing to provide exceptional service and a compelling value proposition to small business education and home office customers. This is demonstrated by consistent NPS score above 70% among the highest in any consumer business.

Anthony Scaglione: In the quarter and year topline sales results were challenged as the slowing economy and high inflation moderated the pace of small business and consumer spending reported revenue for the quarter stood at $900 million and when.

Anthony Scaglione: <unk> the favorable impact of the 50 <unk> week of approximately $70 million to sales included in last year's results revenue declined 13%.

Anthony Scaglione: Same store sales were down about 5% over the same period last year when eliminating the positive impact of the 50 <unk> week.

Anthony Scaglione: <unk> sales were partially driven by 64 fewer retail outlets and service associated with planned store closures as well as lower demand relative to last year in certain product categories as a greater percentage of customers continued to return to the office, which resulted in lower online sales as well.

Anthony Scaglione: We closed 22 retail stores in the quarter and had 916 stores at quarter end.

Anthony Scaglione: From a product perspective strong sales of copy and print service were more than offset by lower sales year over year and supplies technology furniture, and PPE, while conversion rates were stronger in the quarter. The reduced sales of higher ticket items impacted average order volumes and thus resulted in lower sales per shopper from.

Anthony Scaglione: From an operating perspective margins were 5% flat with the same period last year as the teams work to offset some of the top line challenges, we remain disciplined with pricing as we work to maximize the profitability of every interaction. We continued to see good results in copy and print a highly profitable part of the business with sales up in the quarter.

Anthony Scaglione: That said operating income was $43 million in the quarter compared to $57 million in the same period in 2020 to last year's results included a favorable impact of approximately $15 million related to the 50 <unk> week when eliminating this impact operating income was essentially flat relative to last year, a considerable achievement considering the challenging.

Anthony Scaglione: Macro environment and softer top line.

Anthony Scaglione: Moving forward, we are continuing to execute upon our strategy optimizing our store footprint and working to achieve flat comps. We are continuing to be disciplined in managing pricing promotion and expenses to appropriately balanced profitability and sales performance as Jerry mentioned, we launched our education 365 initiatives, creating them working.

Anthony Scaglione: <unk> approach to serving education customers, including schools teachers parents and students year round.

Anthony Scaglione: We are also evolving our customer value proposition offering an expanded product assortment as well as services such as PSA enrollment through our relationship with Telus <unk>.

Anthony Scaglione: These initiatives when fully implemented should be added traffic drivers to our stores and all we're focused on driving the components of our business that we can control and believe we are well positioned to continue to drive this cash engine going forward.

Anthony Scaglione: Now turning to <unk> performance as shown on slide 16.

Anthony Scaglione: There are supply chain service and logistics provider drove impressive results and made significant progress during the first year of operating as its own business unit now.

Anthony Scaglione: Not only did they are efficiently serve its interest.

<unk> million dollars in the quarter.

In total we have repurchased approximately 10 million shares for roughly $470 million. Since the program began in late 2022, which includes the amounts repurchased in the first two months of this year.

We are also excited about increasing our share buyback plan through our new $1 billion three year share repurchase authorization recently approved by our board.

This new plan replaces our previous plan, which had a remaining authorization of approximately $530 million.

We expect to begin executing upon this plan immediately increasing our recent pace on a quarterly basis.

Our plan is supported by our operating cash flow and balance sheet, while staying within the overall targeted leverage goals, we set during our investor day in 2022.

Now moving on to slide 19 that highlights our updated guidance for 2024.

We're enthusiastic about the opportunities in our business to drive long term value, while remaining focused on prudently deploying capital to the benefit of shareholders as.

As we move forward into 2024, we remain cautious regarding the macroeconomic environment and expect that challenges posed last year will persist near term in the new year.

That said.

With regard.

Revenues to decline between 2% and 5% for the year relative to 2023.

With regard.

Some of the revenue drivers in our assumptions include ODP business solutions, growing plus or minus the rate of GDP.

They are continuing to get the revenue and EBIT growth path with external third parties with external EBITDA expected to grow 50% as we continued to invest in sales capabilities to keep the growth CAGR significantly above market in the upcoming years.

Presumably.

Consistent trends at various offset by reduced sales at office depot as we continue to rationalize the portfolio, but improve the deceleration trend compared to prior year.

Next we are expecting to deliver adjusted EBITDA in the range between $410 million to $430 million and adjusted operating income beats.

We're excited about the opportunities ahead to continue to create shareholder value and again I want to thank the entire team for staying committed to delivering these results as.

As we look forward into executing on project core and continuing to drive value to our customers across all routes to market.

With that operator, we will now take questions.

Thank you.

Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name announced.

So withdraw your question. Please press star one again.

Standby, while we compile the Q&A roster.

It's come from and then how does that intertwine with the various situation and as it relates to various what signposts and benchmarks and Timeframes or you are going to drive the ultimate various various decision process and then Anthony then as we get into the buyback.

Last year, you bought back 295 million so call it roughly $300 million would you expect the buyback to be.

Similar or greater than $300 million and what metrics are you using to kind of determine when and how much you buy.

Hey, Jeff I'll take the start of that.

More strategic piece and then Andrew.

It will chime in as well so a great question.

From a project core perspective.

I want to remind the investor base for this this is the third time, we've done this we do it well before we need to do it.

We've been proactive and got ahead of the curve every single time, and so and the 50 to 60 that we're talking about that's the that's the committed target.

Other two times, we committed we actually overachieve that pretty dramatically and I will just tell you from what was our culture, our low cost model operating excellence, our backgrounds are buying Anthony and other other leadership become from industries that you drive cost on a consistent basis, and where we're going to push real hard from an overall perspective to overachieve that and so you know not going there.

If you have any of the other people on the call our committed number the number run rate wise, we're committing is 50 to 60.

I think that there's a lot of opportunity that's going to be across all aspects of the business. So we're optimizing whether its cogs, whether it's headcount whether it's you know.

Business transformation or stopped doing stuff, we shouldn't be doing from a process perspective, we're looking at every single aspect of the business again, I think the four business unit structure after having a year running we've learned a lot, but you know as that came back and had a chance to look at it and spoke with Anthony spoke with chairman, Joe and the board and the leadership team. We've all assess we think theres a significant off.

You need to go get ourselves, even a better cost position.

I like to position them and then we're going to use that to drive free cash flow drive share buyback as well as continue to make sure it went well.

Our low cost model wins, I always say that I think that's important and I'll, let Anthony answer share buyback I will say from a virus perspective, we started the review process with the board in Q4, we will have it full disclosure we're in the middle of that so we're not going to give a lot of details right now, but you know there is a part of the costume project core cost reduction process.

To make that Super clear as well as every other part of the company, but we will have a full disclosure on may 8th from.

Where we landed from Paris, and the and the plan going forward I'm going to flip it over to Anthony from specifics of the share buyback and in buckets et cetera, and you have great to be back look forward to spend some time with <unk> Hey, good morning, Jeff.

Great question. So from a buyback perspective, you know I think we've demonstrated we've remained committed and disciplined as we look at deploying the capital from a buyback standpoint, you know clearly looking at the macro situation looking at our cash flows our balance sheet managing the overall pace, along with where we look from a leverage stands.

But just based on the math, we will be increasing the pace and taking into consideration our opportunistically. The cash flows as well as the returns we're looking at from investments we make into the business.

Great and then I'm just kind of curious do you ever look at kind of where the stock trades at in terms of EBIT multiple of EBITDA is there a level that you kind of you Hey, this is <unk>.

More attractive versus maybe not as attractive.

We are you know, we clearly put the program in the last couple of quarters, we put a program under the <unk> five and we provide parameters around that execution, which takes into consideration a number of factors, including share price as well as our liquidity.

And timing so all of those things are a factor then I think <unk>.

You've seen that we've demonstrated a pretty good outcome as it relates to the execution and Jeff We still believe whats your target, which we think were undervalued. So we think we're undervalued right now we're going to continue to buy shares back or it turns back and love your target of 65.

Great. Thank you very much and I'll, let someone else ask some questions best of luck.

Thanks, Mike.

Please standby for our next question.

Our next question comes from the line of Michael Lasser with UBS. Your line is open.

Speaker Change: Good morning. Thank you so much for taking my question, what led to the decision that it doesn't make strategic or financial sense.

Speaker Change: Separate our ODP business solutions from.

Speaker Change: The office depot business.

Speaker Change: Can you provide more of the financial framework around that conclusion.

Speaker Change: Hum.

Temper Rock: Michael I'll talk about the process, we went through it and I'll, let Anthony dive into specifics, but what we did as you know our number one job as a leadership team and as a board is to enhance shareholder value. So we're always looking at ways to do that whether that's share buyback, whether that's growth, whether that's separation and we will evaluate that and so it.

Perrott: Spawning into from Investor feedback perspective, we went in and out and actually hired a top three consulting firm in the world.

Gerry P. Smith Office Depot: And used actually the team that did the separation work before which gives us a lot of credibility and a lot of experience and background as well as one of the top investment banks in the world and they both came back with the answer of no separation doesn't makes sense value why is it this time because of the fact that the synergies across the business and in a number of other one time costs.

Anthony Scaglione: Going off doing that I'll, let Anthony you get into a lot of detail, but it was pretty clear.

Anthony Scaglione: In both separate studies were done both came to the same conclusion and again I think it's a good testimony to our board.

Speaker Change: Governance is going through that process and really using quality people to do it and coming up with an answer of what's the best way to maximize shareholder value. The answer as of today is keep it together drive the four business units and our strategy and continue to low cost model buyback shares drive cash flow drive EBITDA.

Speaker Change: Yeah, Michael I think Gerry mentioned, all the key areas. The only other thing I would add to that is clearly with the four business unit structure, we're providing that transparency and we feel like as we continue to execute under the four visits in a structure. The multiple appreciation that we think we have with certain parts of the business that may.

Speaker Change:

Speaker Change: Associated with a retail multiple will continue to provide that clarity, but the gerry's point I think the board and the management team have exhibited.

Speaker Change: Our ability to look at this from time to time, but at this time staying together is the best course of action.

Jerry Smith: Does that also influence your perspective on the potential scale of that business.

Jerry Smith: The consumer business.

Jerry Smith: Yeah, we've obviously, we've gone through that process as well over the last couple of years clearly we've always exhibited a.

Speaker Change: And openness to look at the best value for the business at this time. It was a separation you should a sale process ever presents itself I think we've exhibited our ability to react to that and determine whether that's in the best interest of shareholders as well and we always have the lens of shareholder value with every single arm.

Speaker Change: Opportunity or a transaction that we look at across the business, what's the abaxis waiting what what's the best way to maximize shareholder value.

Speaker Change: Okay.

Speaker Change: That's number one.

Joe: Your expectation that your topline trends are going to get better throughout the year seems to be driven in part by the expectation that technique.

Joe: Technology trends will improve the counter argument might be that.

Joe: There's been a very strong backdrop for the labor market. So.

Joe: It's hard to see that it will get much better from here outside of an improvement in technology, what else would drive an improvement to the top line.

Joe: In the back half of the year.

Speaker Change: Yeah, Michael I'll take the first part of that Oh.

Joe: The ODP business solutions has one of the strongest backlog we've had in the history of OTT ODP business solutions. So as that backlog starts to convert we really view that as more of a second half type of opportunity is that searched dave's business, they're doing a great job of getting out there from a 98% win rate and a ton of net new business, which we know is share taking.

Joe: It does take time for those larger accounts to transition as those start to rack in in Q1 and Q2, we see some strength there and the technology refresh we're talking about is probably a P C perspective.

Joe: If you look at the number of the PC manufacturers I also sit on an external board semiconductor board that everyone's looking at back half of 'twenty 'twenty four from a recovery perspective that might not happen, but the reality is that's where a lot of data from a tech space perspective, So big Windows refresh coming and we think we can take advantage of that both from a consumer is.

Joe: Well as for.

Speaker Change: Office Depot ODP business solutions perspective, Yeah, and I would also just add Michael as you think about the process, we've been undertaking with the store rationalization, we're clearly.

Speaker Change: Continuing to make progress as it relates to what the ultimate store count is going to look like over the next couple of years, which means the stores that are in the system are the better performing stores.

Joe: Do you think about the walk to Jerry's point Youre going to have some growth coming out of ODP business solutions youre going to have offset that by the wraparound effect of closed stores. The wraparound effect of activity for additional stores and then the variability is going to come from the Salesforce same store sales comp.

Joe: We expect to improve slightly compared to this year. So strong backlog strong renewal at a net new business from ODP business solution, plus the refresh and tech.

Joe: The reasons, why we think we're going to change that direction.

Speaker Change: Thank you for that my last question is.

Speaker Change: <unk> ODT Corp has taken out a significant amount of cost from a structure in the last several years.

Joe: Outside of clothing stores, whereas there are opportunity what bucket.

Joe: To further streamline the cost structure, especially in a way that doesn't have some negative impact on the company.

Joe: Top line results. Thank you very much.

Joe: I'm smiling at that one because if everyone here knows that's I always say the low cost model wins.

Joe: It's a number of areas you always look at I mean, theres cogs opportunities across the business I've ran large procure realizations for many years of my life you always go out and learn from Michael Bell I mean, he would always ask okay. Great you got the savings, but what are you gonna get tomorrow. So the reality is every day and we're going to attack Cogs. This year as well as our indirect costs were going to look at all of them.

Joe: They are implementing AI in some some of the productivity across different parts of the organization and we're gonna look at Org structures over every single organization is going to get looked at but I want to remind everyone on the call of.

Joe: Over the last seven years, we've taken out not counting store closures I'm looking at Adam over 600 $600 million to $700 million of operating cost SG&A not counting store closures, that's a separate bucket.

Joe: Look at our EBITDA today that says you know we've done a very good job of finding cost, but guys I've done. This for 25 30 years in Tech hardware. It you had to do it every single year. Anthony you did it for ease a little bit younger than me 20 years and from it.

Joe: And in a low margin high high value business as well, we both know how to do this and you're always looking at ways to find how do you run the business better how do you run the business more efficiently how do you automate how do you transform how do you take unnecessary steps out of the business now we've assessed it we think there's opportunity and we're going to go get it and we're going to overachieve that and it's going to position us.

Joe: To be a better low cost position than we are today, just as we've done in the past.

Speaker Change: Yeah, and I think that as Jerry pointed at the integrated in our DNA, Michael So for US it's part of the way we do our our business. We're constantly looking at ways to be more efficient from an org design standpoint to looking at new routes to market to driving efficiencies in our supply chain. So we feel highly confident confident that.

Joe: This is continuing to be right in line with our expectations and it's not going to necessarily tilt.

Joe: And in a different direction.

Speaker Change: Thank you very much.

Speaker Change: Thank you Michael.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Greg Burns with Sidoti Your line is open.

Speaker Change: Good morning.

Speaker Change: What's the timing of the savings on project core.

Joe: Could you just give us a timeline of when you expect to start to see some of those savings is it back half loaded as a prorated throughout the year, how should we think about that.

Joe: It should start Greg in Q2, and then continue out throughout the year. So our guide of roughly $30 million of the year, it's going to build as we continue to execute on the program, but the run rate exiting 'twenty four should get at that 50 to 60, but it'll build starting roughly in Q2.

Speaker Change: Okay great.

Speaker Change: And when you look at ferrous.

Speaker Change: What your expectations were for adoption and revenue growth.

Joe: Maybe a year ago versus where that business that does that now what would you say has been the primary I guess bottleneck in terms of driving adoption in the market.

Speaker Change: Well I think it's I think the team has worked hard to build a good platform. It's just it's taken longer than we expected from a revenue ramp perspective. They have had some good last four five months month over month says really good growth, but that being said, it's it's not at the pace that we expected and we're doing a strategic review on that business.

Joe: A full readout you know come may 8th of the future direction of the business.

Speaker Change: Okay, and I guess, there's a strategic review simply like a cost optimization.

Joe: No play or is there are there other things on the table, we're looking at all alternatives for the various business.

Joe: Not just call it optimization all alternatives for the various business.

Speaker Change: Okay great.

Speaker Change: And then.

Joe: And with Bayer what what is the revenue mix, there predominantly and whats the outlook or timeline on maybe expanding the.

Joe: The penetration of <unk>.

Joe: Services that that business is providing to third party customers.

Speaker Change: I'll start with answering you kept the detail first first of all so the first year of that business I want to thank you all again for us its entire team for stand that business up we're super happy with the progress made of 120%.

Joe: On EBITDA growth for the business is outstanding it's still small.

Joe: We have a news great lifts joined US externally, we're excited with Craig's background and experience were super bullish across a number of areas, whether it's backhaul where their traditional three PL services, we now have licensing to ship from.

Joe: From our global sourcing office to the to the U S from a licensing perspective, so all aspects of the supply chain, we can go off and monetize and so there's a number of areas and as we use our warehouse management system update systems, our ability to respective markets come online with even more capabilities. So all their traditional.

Joe: Factors of services across three PL, we can we can over over the next couple of years returning on so the potential is very high John won a ton of logos this year.

Joe: Or a different manufacturers as well as customers and we're turning on it will have a bear day, probably investor day later in the ear and we'll we'll go through a lot of detail on that but I'm super excited with that business and the opportunity it to be within the confines of our capital plan that is very important I want everyone to hear that all the <unk>.

Joe: Pensions is already within the confines of our capital plan. There is no incremental investment here, but we see that over the next three or four years to being a big contributor to the value of the company Anthony Yeah, and I would just say.

Joe: As you decompose the revenue mix in a majority of the revenue today is coming from historically, our GSL procurement operations, well, where we're seeing the highest growth is clearly on the third party.

Joe: <unk> logistics side as it relates to managed services and some of the other services, we're providing from a three PL perspective. So that's where we are seeing the highest velocity from a growth standpoint, but the majority of revenue today continues to come from the G. S. L. The other thing I would just mentioned is that and we articulated this at Investor day and.

Joe: Throughout the year. There is a component of EBITDA that is contra revenue of contracts that doesn't show up as revenue. So that's why we identify the EBITDA contribution as a key driver as we continue to leverage all routes to market within that business.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Speaker Change: What are you, saying back around next question.

Speaker Change: Our next question comes from the line of Joe Gomes with Noble capital. Your line is open.

Joseph T. Lower: Hey, good morning suggestions open filling in for Joe gowns.

Speaker Change: So I'll, just say congrats great quarter, and a good year and I kind of wanted to start off just first of all just heading towards the business solutions I know I saw.

Joe: Revenue was down 4% on a comp basis can you just kind of.

Joe: Can you break out how much that was just related to the P. P E technology and just overall weakness in the economy.

Speaker Change: Yeah, So tech with the a.

Joe: A big driver of that from a year over year perspective, it was down close to double digits.

Joe: Two what we saw in 2020 to.

Joe: Remember everything has to be adjusted for that 50, <unk> week I think it's important to make sure that that's part of that and hopefully you have the bridge from a 20 <unk> perspective.

Joe: Perspective, when we look at the software, it's a combination of pack being down as well as what we're seeing reduced consumption from our large enterprise and that was really a back half as some of the return to office is installed as Jeremy mentioned in his prepared remarks from our new wind perspective, we feel confident that we are taking share the darker.

Joe: Taking a little longer to ramp but these are large enterprise accounts that we feel excited about those accounts coming online and contributing this year, but it is taking a little bit longer for those to come online in <unk>.

Joe: Generally the revenue that we see as part of the pipeline was basically flat, we'd take the 53 week out right.

Joe: Well, a little a little bit below flat.

Joe: Yeah.

Joe: Yes.

Speaker Change: Yeah, I just wanted to kind of as.

Speaker Change: Can you talk a little bit of a federation, but as you know is there really any update just on any potential new acquisitions there.

Speaker Change: Yeah, we have a very robust pipeline I think one of the things that I give a lot of credit to the team.

Speaker Change: Dave and Brian who run both ODP business solutions and Federation discipline I think that's the key right. We're buying very good federation companies as they come into the fold culture.

Joe: Culture is very important synergies as it relates to the opportunities from a.

Joe: Supply chain standpoint, very important but we remain disciplined so we have a very healthy and robust pipeline, but theres a lot of criteria and a lot of areas that we look at from a hurdle standpoint to ensure that we are acquiring the best of the.

Joe: First as it relates to Federation and continue the trajectory that you've seen over the last couple of years.

Joe: Okay.

Speaker Change: Yeah, Perfect and then just the last one if I may.

Joe: I know you guys talked a little bit just about the education very 65 by.

Speaker Change: Any more color as to that and are we still on track just a Q1 launch.

Speaker Change: Yeah, We we started actually late last year and I think what we learned through our back to school.

Speaker Change: In 2023 was we can be relevant all year round, we don't look at it as just a once a year back to school push obviously back to school is going to be critically important like it is every year, but we have relationships at the district, we have relationship with the teachers, we have relationship with the students.

Joe: We can be selling each and every day all year round and the combination of our ODP business solutions and our retail team at office depot, combining the approach. So that we are addressing it from school district, all the way down the student, we see opportunities and where we've launched it in Q4 and we're starting to see some of that progress.

Joe: In Q1, and we will continue to update along the year.

Speaker Change: Yes, perfect. That's all from me congrats yes.

Speaker Change: Thanks again.

Speaker Change: Well, thank you team thinking fastest for calling in and we want to thank everyone for joining the call. We're excited with her again. Thank you for my our team and our delivery of our results in 2023, we're excited to continue to get ourselves and execute the low cost model with project core and we're excited with our billing or share buyback position because we believe.

Joe: Low cost model as well as our capital allocation plan is the key to maximizing shareholder value and we'll continue to find ways to grow our business as well. So thank you everyone have a great day.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Joe: Yes.

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Anthony Scaglione: Okay.