The ODP Corporation

Good morning and welcome to the ODP Corporation's first quarter 2025 earnings conference call. All lines will be on a listen-only mode for today's call, after which instructions will be given to ask a question. At the request of the ODP Corporation, today's call is being recorded. I would now 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 first quarter 2025 earnings conference call. This is Tim Perrott, and I'm here with Jerry Smith, our CEO. Also joining us on the call today are Max Hood and Adam Haggart, 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 first quarter of 2025, including the progress we're 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, 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 will open up the line for 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. Security 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.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, everyone. I'd like to start out by thanking all of you for joining our call today to review ODP's results and accomplishments for the first quarter of 2025. We appreciate your continued interest and support as we execute on our strategy to transform our business and position ODP for long-term growth. This morning, I'll provide an overview of our performance for the quarter and share updates on the progress we're making with our Optimize for Growth plan and our B2B pivot. Both initiatives are helping us adapt to evolving market conditions, improve operational efficiency, and position the company for future top-line opportunities. As I walk through our performance, I want to focus on a few key themes that reflect our progress and provide context for our results as shown on slide four of the presentation. First, our strategy is focused on leveraging our core strengths to accelerate our B2B pivot and enhance our position in our traditional enterprise market segment while expanding into new higher growth segments like hospitality and supply chain as a service. Our supply chain assets, distribution capabilities, and enterprise customer base set us apart in the industry and provide a strong foundation for future growth in both our traditional segments and beyond. As a key element to our strategy, we are executing our Optimize for Growth restructuring plan that realigns our organizational structure, product offerings, and go-to-market strategies to accelerate our B2B pivot and expand into new enterprise segments. This plan also helps us reduce fixed costs, increase operational flexibility, while reducing future reliance on our retail business. Second, strong execution of our strategy has led to early signs of traction in key areas of the business. In the quarter, we improved our overall year-over-year performance trends and generated significantly higher adjusted free cash flow, placing us in a better position as we move throughout the year and execute our strategy. Additionally, while yet to be notable in our results, we're making progress in expanding to new markets beyond traditional office supplies. And finally, We have a solid balance sheet and available liquidity and a business model that generates free cash flow, all which supports our strategy and provides flexibility for future growth. Let me now expand on these points and provide more detail on our performance for the quarter, starting with slide five of the presentation. Overall, we're off to an encouraging start to the year, with our overall performance reflecting positive momentum and improving year-over-year comparable trends in the first quarter. Our focus on core operations and the execution of our strategy helped us deliver a sequential improvement in adjusted EBITDA and generate a meaningful increase in adjusted free cash flow compared to last year. Specifically, on an adjusted basis, we drove $76 million in EBITDA and $45 million in free cash flow. Our performance was led by our consumer division, Office Depot, which delivered better top-line trends compared to last year while delivering higher margins on a sequential basis. This helped drive stronger cash flow generation driven by targeted consumer initiatives supported by our Optimize for Growth plan. While store closures impacted our total top line results, we're happy to report that our comparable store trends improved 300 basis points from the fourth quarter of 2024 and improved 500 basis points from the same period last year. Average order volumes are up over last year, our loyalty program enrollments are climbing, and categories like paper are performing better. This performance trend accelerated in the month of April, giving us confidence in our momentum as we move into the next quarter and throughout the balance of the year. In our B2B business, top line trends were about the same as last year, reflecting the continued soft market demand and impact of comping over one large customer loss from mid last year. I would also note that some of our recently announced new business contracts are still in the onboarding phase and are not yet running at full speed. That said, we're making progress in several areas. We're continuing to win new business, and we're making progress in our expansion into the hospitality industry. On the new business front, we recently added CoreTrust, a large group purchasing collective with over 3,500 enterprise members to our portfolio. We're actively onboarding CoreTrust and other large new business wins, which we expect will add to our performance in the second half of the year. Additionally, we expect that the progress we are making in the hospitality sector will begin to more meaningfully contribute to our results in the second half of the year, helping us change our trajectory. In all, given the new business we've added, our expected progress in the pace of onboarding, and our launch in the hospitality sector, we have growing confidence that our results will improve in the second half of the year. In our supply chain business, Vare, we continue to deliver strong results, achieving over 85% year-over-year revenue growth from third-party customers and adding significant new accounts to its portfolio. This performance highlights the value of our supply chain capabilities and the growing demand for our services. And finally, from a cash management standpoint, our team continues to effectively manage the business and inventory to maximize cash flow. Cash conversion improved significantly in the quarter, helping us generate $45 million in adjusted free cash flow, which was more than double the free cash flow we generated in the same period last year. I'd like to thank my team for their dedication and focus on cash management. Turning to slide six, I'd like to provide an update on our progress in the hospitality market. Three months ago, we announced a strategic partnership with one of the world's largest hotel management organizations, becoming a preferred provider for operating supplies and equipment. While we're at the early stage of our deployment, we made progress in expanding into this growing $16 billion market segment. We're excited about this opportunity as it aligns perfectly with our core strengths in supply chain and distribution and represents an important step in our efforts to diversify beyond office supplies. Our first partnership covers approximately 15,000 potential customer locations within this hotel management group, and we believe it will serve as a foundation for future growth in this segment and other related industries. Our key accomplishments include establishing agreements with leading suppliers like Sobo Westex and Hunter Amenities, giving us access to supply of premium hospitality products such as linens, towels, and personal care items. Next, building up inventory to meet anticipated demand. While inventory build and sourcing has taken a bit longer than we anticipated, We're gaining momentum and building our position to meet future demand. Next, adding sales talent with a deep hospitality experience to direct growth. Additionally, engaging with potential customers and franchisees whose feedback regarding our services has been positive and encouraging. Next, forge the relationship and sign a supply agreement with a key industry player that we believe will accelerate discussions with other hotel management companies. And lastly, we're also in ongoing discussions with several other key market participants to develop future relationships. While we are still in the early stages of our launch and have more work ahead, these efforts are laying the groundwork for ODP to deliver meaningful growth in this segment. We expect these initiatives to begin contributing more significantly to our results beginning the second half of the year. And finally, I want to highlight the progress we're making with our Optimize for Growth restructuring plan. This is shown on slide seven. As a reminder, This initiative focuses on capitalizing on our core strengths to accelerate growth in the B2B distribution and third-party logistics segments while reducing our fixed-cost infrastructure and limiting future retail exposure and associated liabilities. The plan realigns our organizational structure, product offerings, and go-to-market strategies to target high-growth opportunities in the B2B market while also expanding into new enterprise segments including hospitality, healthcare, and adjacent sectors. We made significant progress in the quarter, executing efficiency measures targeted at reducing fixed costs. We closed nine retail stores under the program and eliminated areas of corporate support structure. The progress we are making is helping us redirect resources and add flexibility to our operations in both our consumer and B2B divisions. Before I turn it over to Max, I'd like to reiterate that we are off to a better start to the year driving improved overall trends, and generating a significant increase in adjusted free cash flow. Our consumer business has improved, and we are anticipating continued momentum in months ahead. In our B2B business, we are winning new business and are anticipating better trends in the second half of the year as we onboard new customers and drive more meaningful results in the hospitality segment. We will continue to focus on the core, driving our strategy and initiatives, remaining committed to generating value for our shareholders. I'd also note that we are evaluating the tariff situation that has been evolving over the past few months. While we're not immune from potential impacts, our team has been working closely with our vendors, evaluating strategies, and we've taken previous actions we believe will help us mitigate potential impacts. With that, I'll turn it over to Max.