The ODP Corporation

Good morning and welcome to the ODP Corporation's fourth quarter and full year 2024 earnings conference call. All lines will be on a list only mode for today's call, after which instructions will be given to ask the question. At the request of the ODP Corporation, today's call is being recorded. I would like to introduce Tim Peratt, Vice President, Investor Relations and Treasurer. Mr. Peratt, you may now begin.

Good morning, and thank you for joining us for the ODP Corporation's fourth quarter 2024 earnings conference call. This is Tim Peratt, and I'm here with Jerry Smith, our CEO. Also joining us on the call today are Max Hood and Adam Haggard, our co-CFOs. During today's call, Jerry will provide an update on the business, focusing much of his commentary on our results and accomplishments for the fourth quarter and full year 2024, including the progress we are making on our B2B pivot and our expansion into higher growth industry segments. After Jerry's commentary, Max will then review the company's results for the quarter and year, including highlights of our divisional performance, followed by Adam, who will highlight our balance sheet and comment on our go-forward plans. Following our comments, we'll open up the line for your questions. Before we begin, I need to inform you that certain comments made on this call include forward-looking statements. which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company's current expectations concerning future events and are subject to a number of 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 our 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.theodpcorp.com. 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 the call over to Jerry Smith. Jerry?

Thank you, Tim, and good morning to everyone joining our call today. Thank you for joining us today to review our results and accomplishments for the fourth quarter and full year 2024. This morning, I'll walk you through our recent performance and the market challenges we've faced over the past year. I'll also focus on our promising strategic path forward, highlighting the significant progress we're making in our B2B transformation and the exciting strides we've taken to position ODP for growth and new and expanding segments beyond traditional office supplies. As I reflect on 2024, it was undoubtedly a challenging and dynamic year for ODP. While we met our revised guidance, we were disappointed in our results for the year. We faced a number of challenges, both macroeconomic and structural, during a highly competitive period for our business, impacting our business and our industry. And we are not alone, as many businesses across several industries, particularly those with retail exposure, face similar challenges. Over the past year, our management team and board have taken a hard look at the state of our industry and our business. While our recent results have been challenging, we've been working diligently behind the scenes to change our trajectory and position ODP for a stronger future. Our team has been analyzing and working to address the challenges facing the retail industry and traditional market segments. We've been identifying winning strategies that leverage our core strengths and work to align our business to seize new growth opportunities. Recognizing our unique strengths in supply chain and distribution operations, we're realigning our business, making target investments in our core capabilities, and strategically positioning ourselves to expand in new market segments that require unique capabilities and a commitment to exceptional service quality. Today, we're excited to see the early stages, what we call the green shoots, of these efforts beginning to take shape. This, at its core, is what our B2B pivot is all about, transforming our business to unlock sustainable growth and long-term success. Looking back on both the highlights and the challenges, and our recent progress in positioning our business for future growth, I want to focus my remarks on three key message points that I hope to leave with you from this call today. These are outlined on slide four of the presentation. First, while market-wide challenges have presented headwinds, the core competitive strengths that underpin our business provide a solid and flexible foundation for our future growth. These strengths include our robust supply chain assets, distribution capabilities, and expansive B2B customer base that sets us apart in the industry. They not only enable us to continue winning new business in our traditional segments, but also position us to successfully expand into new and growing industry sectors, providing key competitive advantages to win in dynamic industry segments. This is the heart of our B2B pivot, leveraging what we do best to drive sustainable growth and unlock new opportunities. Second, leveraging these core strengths, we're making extraordinary progress on our B2B pivot and we're expanding our business beyond traditional office supplies and into new, large, and growing industry segments. We are on the brink of one of the most pivotal periods in our company's history as our core competencies are being recognized and are opening new and exciting avenues for future growth. The first of these is in the hospitality industry, a growing $16 billion marketplace where we recently announced a milestone agreement with a leading hospitality management company to become a key supplier and distribution partner. And third, Building on our recent successes and momentum, we are accelerating our B2B pivot and have launched our Optimize for Growth restructuring plan to accelerate revenue growth in our B2B business. We are realigning our resources and capital to more rapidly capture B2B growth opportunities while simultaneously reducing our reliance on retail. Let me take a few moments to expand on these points and provide more insight into our recent results and accomplishments. This is shown beginning on slide five of the presentation. As I stated, 2024 was clearly a challenging year for our industry and for our business. The weak macroeconomic environment impacted demand in both our B2C and B2B channels during a highly competitive period for our business, creating pressure on our results. This was compounded by unusually severe weather conditions occurring in the second half of the year, impacting our operations and customer behavior in some of our major markets in the South. We felt the impact of these challenges across all channels of our business. In our B2C channel, Office Depot, we experienced lower consumer traffic and demand in both our in-store and online channels. This was largely driven by the macroeconomic factors I mentioned earlier, along with shifting consumer spending priorities as rising energy and food costs pressured household budgets. These challenges were not unique to us, as many other retailers have faced similar headwinds. That said, we have not been sitting still, and we've been working to drive demand by introducing new products and partnerships to deliver greater value to our customers. We've expanded our product assortment to include celebration categories and greeting cards, while also enhancing our service offerings with TSA sign-up services, expanded printing services, and wireless services through Verizon. And over the past several weeks, we began to see improved traction in our retail business, driven by targeted profitable sales campaigns and value-added promotions, which are helping to boost demand as we start the new year. In our B2B channel, ODP Business Solutions, we face headwinds throughout the year, including high inflation, constrained corporate spending budgets and layoffs, and strong competition. Additionally, certain product categories continue to experience structural declines. However, our core strengths, including our robust supply chain, flexible distribution capabilities, and broad enterprise customer base remain key differentiators that enhance our competitive position. Despite these challenges, we achieved significant wins, securing large and profitable new B2B contracts that position us well for the future. our pipeline of new business opportunities also remains strong and continues to grow. Meanwhile, in our supply chain business there, we made remarkable progress attracting new third-party customers and delivering impressive growth in third-party revenue, up 150% compared to the same period last year and up over 50% overall in 2024. While these challenges weighed on our performance, Our team has been diligently aligning the core assets that form the backbone of our business to strengthen our competitive position. The flexibility and competitive advantage these assets provide enable us to drive growth in both our traditional market segments and in new higher growth industries. To that end, we continue to secure meaningful new business contracts in our traditional segments while position ourselves to expand in new industry segments. For example, as we announced in Q4, we secured the largest new contracts in our company's history within our traditional B2B distribution and supply chain segments. This included the largest enterprise contract we've ever won, a landmark agreement valued up to $1.5 billion in revenue over a 10-year period. We're making solid progress onboarding this new customer and expect revenue contributions to ramp up as we move through the year and beyond. In our supply chain business, we successfully launched strategic warehousing and fulfillment services to support one of the world's leading social media-driven e-commerce platforms. These are just two examples of transformative new business wins. With our strong pipeline and core competencies, We are confident in our ability to secure additional customers of similar size and scale in the year ahead. The flexibility of our asset base allows us to leverage our core strengths across multiple industries, positioning ODP to expand in new, higher growth segments. This brings me to my second key message, which is highlighted on slide six. We are making monumental progress in our B2B transformation. positioning ODP to drive profitable growth in new and expanding industry segments. And what I believe is one of the most exciting developments in the history of our company, let me say that again, in the history of our company, and the results of focused strategic efforts by our team, we have secured a landmark agreement with one of the world's leading hotel management companies to become a preferred supplier and distribution partner in the hospitality industry. This agreement marks a pivotal step in our evolution beyond traditional office supplies and is truly a game changer for ODP, representing a significant inflection point as we enter the $16 billion hospitality supply industry, a market that is growing steadily and offers immense potential for ODP. Our partner was extremely impressed by the strength reliability, and technical capabilities of our supply chain and distribution operations, selecting ODP as one of only a few preferred providers for operating supplies and equipment, or OS&E. Another key attribute that was mentioned, and perhaps the most important, was that ODP is very easy to do business with, listens to the customer, and delivers a very high level of customer service. Underpinning this commitment was VAERS' unique visibility capabilities where customers can view product availability, lead times, deliveries, contract the product through our supply chain. This is a unique capability in the market that few, if any, possess. Through this partnership, ODP Business Solutions will serve as a distribution partner supporting the reoccurring in-room supply needs essential to run hotel operations resetting rooms between stays, and helping our customers exceed their gift expectations. This includes providing high-quality terries and towels, such as robes and slippers and towels, to elevated bed linens, such as pillows and duvets, and beauty products such as shampoos and soaps, all thoughtfully packed to meet the unique needs of each client and their guests. Additionally, we'll be expanding our product portfolio to include hotel room technology and in-room amenities, further enhancing the gifts experience. To put this in perspective, this agreement places ODP as one of only a few preferred and trusted suppliers in the $16 billion per year hospitality supply industry, a large industry that values our core strengths and is growing mid-single digits. And while this is early, we're already beginning to receive inbound calls from other potential customers in the industry as well as related industries acquiring about our capabilities. And when you consider the related segments where our core competencies also shine, including healthcare and other industries, the addressable market opportunity grows significantly, collectively to over $60 billion per year in total addressable market. Our partner is excited about this newly expanded collaboration, and our team is ready and excited we've already begun fulfilling some early initial orders and serving customers. We are excited that ODP is uniquely positioned to create a new standard of quality and reliable service in this growing industry segment. Now, turning to my final point, following a comprehensive review of our business and building on our recent successes, including our entry into the hospitality industry, We're excited to announce the launch of our Optimize for Growth plan. This strategic initiative is designed to accelerate revenue growth in B2B by leveraging our core strengths, including our supply chain and procurement expertise, robust distribution network, and strong B2B customer relationships. This plan focuses on thriving growth in the B2B distribution and 3PL industry segments, while reducing our reliance on retail business and its associated liabilities. Unlike previous restructuring efforts, this initiative is not solely about improving efficiencies. Instead, it is a forward-looking strategy aimed at realigning our resources and investments to enable us to more quickly capture the significant B2B growth opportunities we've discussed today while reducing fixed costs. As part of this effort, We are reshaping our organizational structure, refining our product offerings, enhancing our go-to-market strategies to better position ODP for success in the B2B marketplace. Additionally, we are accelerating our expansion into new and growing industry segments, including the hospitality, healthcare, and other adjacent sectors we discussed earlier. In support, we are prioritizing investments in the resources and infrastructure critical to drive B2B growth, while simultaneously reducing fixed costs associated with our retail operations, such as store and select distribution leases. At the same time, we are suspending growth investments in our retail business as we continue to optimize our retail store footprint. However, I want to emphasize that while we are eliminating growth investments in retail, we remain fully committed to delivering exceptional customer experience in our active retail locations. From a financial perspective, we expect this plan to be accretive to the business, generating more than $1.3 billion in total value over its duration. This estimate does not include additional value we anticipate from the early capture of our B2B revenue opportunities, which we believe will further enhance our growth trajectory. In summary, 2024 brought us market-wide challenges. That said, over the past year, we've evaluated the current state of our business and the relative strength and capabilities of our core competencies. From this, we've taken action and we made meaningful progress in our B2B pivot, significantly strengthening our platform to drive growth in expanded and rapidly evolving marketplace. We recognize that our key assets continue to provide a flexible foundation that enhances our competitive position in both our traditional segments and positions us to enter new industry sectors. We are using these assets to drive growth in industry sectors where our core competencies provide a competitive advantage. This is the essence of our B2B pivot. We are making progress and entering large and growing new industry segments where these core strengths resonate. And while it is still early, we're beginning to see the benefits from our efforts and expect this to grow throughout the year. And we're aligning our business to more rapidly capture these B2B opportunities and reduce our reliance on retail. While it takes some time for these efforts to fully materialize in our financial results, we are confident that the opportunities we are pursuing will pave the way for sustainable, profitable growth in the future. The future is bright, and ODP is well-positioned to capitalize on these opportunities and deliver long-term value for our stakeholders. With that, I will now turn the call over to Max Hood for a review of our financial results.