The ODP Corporation

Good morning, and welcome to the ODP Corporation's second 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 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 second quarter 2025 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 second quarter of 2025, including the progress we are making on our strategy and our expansion into higher growth industry sectors. 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 outlook. Following our comments, we will then 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 US 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.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 by thanking everyone for joining our call today to review our results and accomplishments for the second quarter of 2025. As always, we appreciate your continued interest and support as we execute our strategy and position ODP for long-term growth. This morning, I'll provide an overview of our improved performance in the quarter and highlight the progress we are making on our overall strategy. As I cover our performance, I want to focus on a few key takeaways that I think reflect our progress and provide context for our results. These key points are shown on slide four of the presentation. To start, our results this quarter clearly demonstrate that we're executing our strategy and making meaningful progress. Our strategy centers on leveraging our supply chain and distribution strengths to accelerate growth in our B2B business, reinforcing our traditional business while expanding into higher growth areas like hospitality, and adjacent markets. At the same time, we remain focused on maximizing value and cash flow from our retail segment. Our Optimize for Growth plan underpins this strategy, directing assets and capital toward higher return B2B opportunities while reducing fixed costs in our business. Second, our progress this quarter is driving meaningful improvement and momentum across the business, surpassing average external expectations by most measures. We've improved year-over-year trends in our B2B business, and in our consumer business, we're driving significantly stronger results. And most importantly, our improved performance is leading to significantly higher adjusted free cash flow, positioning us to further strengthen our balance sheet and liquidity position. And lastly, looking ahead, we expect these positive trends to continue in the second half of the year driven by additional top line improvement in our BDB distribution business and sustained strength in our retail channel. Let me expand on these points and provide more detail on our performance for the quarter, starting with the slide five of the presentation. Our improved performance this quarter underscores the positive momentum we're building across our business as we remain focused on operational excellence and disciplined execution of our strategy. We delivered stronger revenue trends trends that improved month to month throughout the quarter, resulting in solid adjusted EBITDA and robust growth in adjusted free cash flow, both exceeding expectations. On an adjusted basis, we delivered $47 million in EBITDA and generated $13 million in free cash flow for the second quarter. This strong cash generation is especially notable as we typically see cash outflows in Q2 due to inventory build ahead of the back to school season. These impressive results were driven by improved performance in both our B2B and consumer segments. In our B2B distribution segment, we drove stronger revenue traction with comparable revenue trends improving by approximately 200 basis points, both sequentially and year over year. This was driven by continued progress in onboarding new business wins and stronger demand from new customers despite the ongoing softness in general enterprise spending. We're particularly excited about our progress with Core Trust, a group purchasing collective with over 3,500 enterprise members, which we announced last quarter. Onboarding is progressing well, and we expect this, along with other recent wins, to further benefit our performance in the second half of the year. Additionally, although still small, our early stage expansion into the hospitality segment is gaining momentum and beginning to contribute to our results. I'll provide more details on this shortly. Turning to our retail segment, Office Depot, our team continued to deliver strong results, driving improved top-line trends both year-over-year and sequentially. This performance, fueled by targeted sales initiatives and operational excellence under our Optimize for Growth plan, is translating to strong results and increased free cash flow. While planned store closures impacted total sales, comparable store sales trends improved by 200 basis points versus last year. Additionally, when excluding the impact of an industry-wide e-commerce marketplace program that benefited sales last year but was discontinued in 2025, our comparable sales showed even greater improvement on an apples-to-apples basis. This performance represents a significant turnaround from last year. Our team's execution is creating meaningful value in our consumer business with higher average order volumes, increased loyalty program enrollments, and improved performance in key categories like paper. Although it's still early in the back-to-school season, our strong performance has continued through July, giving us stronger confidence in our momentum for the remainder of the year. In our supply chain business, VAER, we achieved 90% year-over-year revenue growth from third-party customers and we're expanding our new business pipeline. Operationally, VEHR generated a 32% increase in EBITDA from third-party customers, underscoring the strength of our supply chain capabilities and growing market presence. VEHR remains a key asset supporting our global operations, navigating the evolving tariff environment, and enabling effective inventory management, particularly as we expand into the hospitality segment. We're also making progress in optimizing Bayer's supply chain assets, working to improve fixed costs and operational efficiency through our Optimize for Growth plan. I'll share more details on these initiatives shortly. Finally, from a cash management perspective, our team continued to execute effectively, optimizing business operations and inventory to maximize cash flow. Cash conversion remains strong, resulting in $13 million in adjusted free cash flow for the quarter, more than double the amount generated in the same period last year. This is particularly impressive given that we typically see a use of cash in most second quarter results given the inventory buildup in advance of the back to school season in the third quarter. As we move forward, we are intensifying our focus on inventory management, which we expect will drive further improvements in working capital in future quarters. I want to thank the team for their dedication and disciplined approach to cash management. Now, I'd like to provide an update on our progress in the hospitality market. This is shown on slide six. We are making significant progress in our entry into the hospitality industry. About six months ago, we announced a major strategic partnership with one of the world's largest hotel management organizations, becoming a preferred provider for operating supplies and equipment, which includes essential items like towels and linens and amenities like soaps and shampoos and many other products. This agreement marked a major milestone, positioning ODP to enter the $16 billion hospitality segment, a growing market that demands high service capabilities and aligns perfectly with our core strengths in supply chain and distribution. This partnership covers approximately 15,000 members with hotels and related assets, which serve as a strong foundation for future growth in hospitality and adjacent markets. Over the past several months, We've established key supply agreements with leading industry suppliers such as Sobel Westex and Hunter Amenities, ensuring access to premium hospitality products. While inventory build and sourcing took longer than anticipated, we've made substantial progress and have improved our position to meet the expected growing demand in the future. We've also recently strengthened our team by adding experienced sales professionals to drive future growth in this segment. The new talent we've added during the quarter brings many years of proven expertise in building successful supply businesses within the hospitality industry. Our team is energized and ready to hit the ground running, and we're excited about the value they will bring as we execute our plans. Also this quarter, we've broadened the launch of our OS&E product offering, directly engaging with potential hospitality customers, and we've onboarded about 1,000 new hotel properties under our current partnership. While building momentum takes time, we are encouraged by the strong early response and growing demand that we're beginning to see in the market. While still small, we have seen robust month-over-month growth, and importantly, our expanded offering is driving increased interest in our traditional office products among hospitality customers, both existing and new. Initial data indicates a meaningful increase in demand for our traditional products among existing hotel customers Following the expansion of our offering to include OS&E hotel products. These early results demonstrate that our broader product assortment is beginning to have a positive impact on overall sales. We're encouraged by early results and the positive industry dynamics. We've added a key sales leader with deep hospitality expertise and are in advanced discussions with over a half dozen additional large hotel management companies to become their preferred supplier. We expect to sign agreements with one or two more major hotel management companies this year. Overall, we are very encouraged by our progress and believe hospitality will become a more meaningful contributor to our sales 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 is focused on streamlining our fixed cost infrastructure to improve our margin profile while leveraging our core strengths to accelerate growth in our B2B market segments. This includes our expansion into new enterprise verticals such as hospitality, as well as in healthcare and other adjacent sectors in the future. We continue to make meaningful progress this quarter, further optimizing both our retail store operations and supply chain infrastructure to better serve customers and drive greater efficiency. Under the plan, we closed about two dozen retail stores and three distribution facilities in Q2. While there's more work ahead, we are on pace and we're confident that these efforts will lead to a more efficient operating model and drive margin improvement in the future. Before I turn it over to Max, I want to thank our team for their dedication to our core business and commitment to operational excellence. We are making solid progress on our strategy, delivering stronger year-over-year revenue trends while driving strong increases in adjusted free cash flow. Based on our performance so far, we expect to maintain this momentum into the second half of the year, assuming a relatively stable tariff environment and no major changes in the broader economy or enterprise market. Regarding the tariff environment, while we are not immune, we believe we are well-positioned to adjust, and we have taken proactive measures to position ourselves effectively to help mitigate potential impacts as the situation continues to evolve. Supporting our outlook as we enter the second half of the year, we anticipate driving additional top-line improvement at ODP Business Solutions while maintaining strong results in our retail channel. We are ahead of expectations on cash generation and now expect adjusted free cash flow to exceed $115 million for the year, further strengthening our balance sheet and liquidity. We remain focused on executing our strategy driving our core initiatives, and delivering value for our shareholders. With that, I will turn it over to Max for a review of our financial results.