ODP - NASDAQ

Welcome to The ODP Corporation's Fourth Quarter and Full Year 2024 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 Perrott, Vice President, Investor Relations and Treasurer. Mr. Perrott, you may now begin.

Good morning, and thank you for joining us for The ODP Corporation's fourth quarter 2024 earnings conference call. I am Tim Perrott, and I am here with Gerry Smith, our CEO. Also joining us on the call today are Max Hood and Adam Haggard, our Co-CFOs. During today's call, Gerry will provide an update on the business, focusing much of his commentary on our results and accomplishments, including the progress we are making on our B2B pivot and our expansion into higher growth industry segments. After Gerry'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 will 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 is 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 are being simulcast on our website and will be archived there for at least one year. I'll now turn the call over to Gerry Smith.

Thank you, Tim, and good morning to everyone joining our call today. Thank you for joining us today to review our results in 2024. This morning, I'll walk you through our recent performance and the market challenges we 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 in 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, faced 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 are realigning our business, making targeted 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 are making extraordinary progress on our B2B pivot. We're expanding our business beyond traditional office supplies 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, they 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 optimized 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. 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 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 faced 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, 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 positioning 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 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 ten-year period. We are 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. 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 Veyor's unique visibility capabilities, where customers can view product availability, lead times, deliveries, and can track 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 recurring in-room supply needs essential to run hotel operations, reset in rooms between stays, and helping our customers exceed their guest 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 guest 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, inquiring 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 optimized 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 driving 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, and enhancing our go-to-market strategies to better position ODP for success in the B2B marketplace. Additionally, we're 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 made meaningful progress in our B2B pivot, significantly strengthening our platform to drive growth in an 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 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 are 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.

Thank you, Gerry, and good morning to everyone on the call. I'm Max Hood, Co-CFO. I would like to cover the specifics of our results for the fourth quarter on slide ten. Please note that our results as presented are for continuing operations. We generated total revenue of $1.6 billion in the quarter, which was down about 10% compared to last year's fourth quarter. This was largely related to lower sales in our retail business, Office Depot, primarily due to 47 fewer stores in service compared to last year, and reduced retail and online consumer traffic as well as lower sales in ODP Business Solutions. GAAP operating income in the quarter was $20 million versus $52 million in the prior year period. This included $12 million of charges primarily related to non-cash asset impairments of operating lease right-of-use assets associated with the company's retail store locations. Excluding these charges, adjusted operating income for the fourth quarter was $32 million compared to $57 million in last year's fourth quarter. Unallocated corporate expenses were $21 million in Q4. Adjusted EBITDA was $58 million in the quarter compared to $83 million in last year's fourth quarter. This includes depreciation and amortization expense of $24 million in the fourth quarters of 2024 and 2023, respectively. Excluding the after-tax impact from the items mentioned earlier, adjusted net income from continuing operations for the fourth quarter was $20 million or $0.66 per diluted share, compared to adjusted net income of $43 million or $1.13 per diluted share in the prior year period. Turning to cash flow, operating cash flow from continuing operations in the quarter was $34 million, which included $70 million related to legal matter monetization where the company is engaged in legal proceedings as a plaintiff, partially offset by $4 million in restructuring spend. This compared to cash provided by operating activities of continuing operations of $71 million in the same period last year. The reduction in cash flow was primarily due to the flow-through impact of lower sales, but also the timing of certain smaller items related to working capital, including inventory investments related to new business wins, and forward buys to help mitigate tariff risks. We expect these investments in working capital to turn into cash relatively quickly in the first half of the year. Capital expenditures in the quarter were $25 million, flat with the prior year period, targeted primarily in growth investments in the company's core operations. Adjusted free cash use in the quarter was $57 million compared to free cash flow of $48 million generated in the same period last year. Turning to slide eleven, I've highlighted some key performance measures for the full year 2024. Total company sales for the year were $7 billion compared to $7.8 billion in the prior year. The decrease in revenue was largely related to lower sales in Office Depot, primarily due to fewer stores in service, as well as lower traffic in-store and online, as well as lower sales volume in ODP Business Solutions. As reflected on a full-year GAAP basis, we recorded operating income of $163 million versus $330 million in the prior year. Full-year adjusted operating income was $173 million compared to $351 million in 2023. Adjusted operating income from continuing operations excludes $70 million of income related to legal matter monetization where the company is engaged in legal proceedings as a plaintiff, offset by a total of $80 million of charges related to asset impairments and restructuring. Excluding the after-tax impact from the items mentioned earlier, 2024 adjusted net income from continuing operations was $114 million or $3.30 per share compared to $263 million or $6.61 per share in the prior year. Finally, regarding cash flow for the year, cash provided by operating activities was $159 million compared to $360 million last year. CapEx was $98 million in 2024, reflecting growth investments in the company's core operations. In total, we generated adjusted free cash flow of $33 million in the year. Now I would like to cover our business unit performance starting with our ODP Business Solutions division on slide twelve. ODP Business Solutions faced a challenging year as performance was influenced by a persistently weak macroeconomic environment and difficult business conditions. Elevated inflation and widely publicized corporate layoffs contributed to tighter budgets and reduced enterprise spending, all within an intensely competitive landscape. These headwinds persisted into the fourth quarter. Revenue was $827 million in the fourth quarter, which was down 9% compared to last year when including the effects of the weaker Canadian dollar. Otherwise, the decline would have been flat with last year. From a product standpoint, most categories were lower on a year-over-year basis, including technology products, a factor that many other companies are experiencing industry-wide. Our adjacency product categories as a percentage of total revenue, a primary KPI, was 44% in the quarter, generally consistent with last year and recent trends. From an operating perspective, the flow-through effect of lower revenues, pricing mix, and related fixed cost deleveraging resulted in operating income of $25 million in the quarter compared to $34 million in the prior year period. Despite the challenges, we are encouraged by our recent momentum highlighted by significant new customer wins and an overall improvement in deal flow, which is strengthening our late-stage pipeline. Notably, we are making progress in onboarding the largest new customer in our history, a milestone we expect will drive meaningful contributions to our business in future quarters. As Gerry mentioned, we anticipate securing additional large-scale business customers of similar size this year. We're also thrilled about our recent entry into the hospitality industry, which positions us to deliver our value proposition in a large and rapidly growing market. Overall, while the past year presented challenges, we are optimistic about our long-term trajectory and expect ODP Business Solutions' top-line performance to stabilize and begin to improve in future quarters. Now turning to our results in our consumer division, Office Depot, as shown on slide thirteen. Office Depot's top line continued to be challenged as the weaker economy and the impact of inflation reduced the pace of spending during a highly competitive period for our business. Traffic trends and demand were lower year over year, compounded by consumers reprioritizing spend due to high energy and food costs. Additionally, we had fewer stores in service versus last year, and the effects related to the severe weather negatively impacted sales. Reported revenue for the quarter stood at $784 million, a 13% decline driven by 47 fewer retail stores in service versus last year, as well as lower traffic and transactions in both our retail and e-commerce channels. Demand was lower across most categories, including supplies, print, and furniture. On a comparable store basis, sales were down 8%. That said, we've begun to see improved traction in our retail business, driven by profitable sales campaigns and value-added promotions, which are helping to boost demand as we start the new year. From an operational standpoint, operating income for the quarter was $30 million, reflecting the impact of lower sales, mix, and deleveraging in supply chain and occupancy costs. While this result was lower compared to the same period last year, it did show sequential improvement. Moving forward, we will continue optimizing our store footprint as we execute on our optimize for growth restructuring plan. We're also working to further enhance our customer value proposition through a wider variety of products and services. We are expanding our value proposition through a multitude of partnerships, including with Telos for our TSA sign-up programs now available in about 210 stores, and relationships with Hallmark, Crayola, Dun and Bradstreet, and Verizon. We are also applying key learnings from last year's performance in the back-to-school categories to refine our strategies and drive stronger results. Additionally, we have optimized our pricing and promotion strategy to better align with demand elasticity, helping to improve our performance moving forward. Now turning to Veyor's performance, as shown on slide fourteen. Veyor continued to experience lower volumes from its internal customers, ODP Business Solutions and Office Depot, while continuing to build its momentum and driving revenue growth from third-party customers. On a consolidated basis, Veyor delivered sales of $1.1 billion in the quarter, primarily derived from supporting the purchasing and supply chain operations of ODP, which are effectively eliminated upon consolidation. Veyor continued to make strong progress with third-party customers, including onboarding and executing upon a major contract with one of the world's largest social media-focused e-commerce companies that Gerry mentioned earlier. Being mindful that some of Veyor's third-party profitability is accounted for as contra expense instead of flowing through revenue, for Q4, Veyor delivered third-party revenue of $20 million, up 150% over last year. Veyor drove third-party EBITDA of $1 million, down year over year as the company invested in resources to onboard its slate of new customers in the quarter. Now, I'll turn it over to Adam to cover our balance sheet highlights and amended 2024 guidance.

Thank you, Max. And it's great to be here with everyone this morning. I'm Adam Haggard, Co-CFO. Turning to slide sixteen, our balance sheet and liquidity position remained solid, ending the quarter with total liquidity of $644 million, consisting of $166 million in cash and cash equivalents, and $478 million of available credit under the fourth amended credit agreement. Total debt was $279 million. Moving over to capital allocation, we continue to execute our capital allocation strategy, primarily investing in our core to drive the future of our business. We invested $25 million in CapEx in the quarter, targeted in our supply chain operations, distribution business, and IT innovation to set ourselves apart in the industry. We also bought back $43 million in share repurchases in the quarter. As we move forward, we expect to prioritize our capital allocation towards investment in core B2B resources over share repurchases, positioning us to capture the growth opportunities Gerry discussed earlier at ODP Business Solutions and Veyor. We have tremendous opportunity to invest in growth in our B2B business, and we believe this approach will drive the highest ROI and create long-term value for our shareholders. Before I turn the call back to Gerry, I would like to make a few final comments about our optimized for growth restructuring plan and outlook. This is shown on slide seventeen. As Gerry mentioned, this plan is focused on positioning ODP to accelerate revenue growth in our B2B business and to reduce fixed costs throughout the organization. Throughout this multiyear plan, we will prioritize investments in resources and infrastructure critical to growth in the B2B sector while reducing fixed costs associated with retail operations, including store and distribution center leases. Concurrently, we will suspend growth investments in our retail business as we continue to optimize our retail store footprint. Over the life of this restructuring plan, we expect to incur total cash costs in the range of $185 million to $230 million while generating a total uplift in EBITDA of $380 million over the life of the plan. This is driven by cost savings related to store consolidation and supply chain optimization. When considering the total expected value generated, including the reduction of lease liabilities, the plan is expected to generate approximately $1.3 billion in total value. This does not include the expected benefits of early capture of B2B revenue. Now a final comment regarding our 2025 outlook. As we execute our restructuring plan and analyze the pace of our entry into the $16 billion hospitality market and the traction of our new recent business wins, we are planning to provide more specific guidance for the year in the coming quarters. That said, directionally, we expect to generate higher levels of free cash flow this year over last year, and expect to maintain the same level of leverage throughout the year. We also expect to gain traction in our B2B segment through our new business contracts, including generating growth in the hospitality segment throughout the year. With that, I will turn the call back to Gerry.

Thanks, Adam. Before we open the floor for questions, I'd like to take a moment to reiterate a few key points. First, we recognize this has been a challenging and dynamic year for our company, our industry, and our shareholders. I want to express my deepest gratitude to our entire team for their incredible efforts in working to navigate these headwinds and implement the initiatives necessary to position us for long-term success. Thank you, team, for your dedication and hard work. Second, despite the challenges, we are genuinely excited about the future of our business. Our core competitive strengths, such as our robust supply chain, advanced distribution capabilities, and expansive B2B customer base, provide a strong and flexible foundation for future growth. These assets differentiate us in the marketplace and position us to win new business in our traditional segments while enabling us to expand into new and exciting growing industry sectors. And we're already making great strides. Not only are we securing significant new business in our traditional B2B segment, but we've also successfully entered a large and rapidly growing new market, the hospitality sector. This marks a monumental milestone for ODP as it allows us to leverage our core competencies into a new industry where our strengths are highly valued. Beyond hospitality, we see significant opportunities in other adjacent industry segments that we believe will benefit from our expertise, and we're actively planning to target these segments in the future. Finally, to accelerate these efforts, we're executing our optimize for growth restructuring plan. This initiative is designed to enhance our ability to capture B2B growth opportunities, reduce fixed costs, and decrease our reliance on retail. Together, these efforts form a powerful formula for driving future growth and increasing shareholder value. We are confident the future is bright for ODP. With that, I'll turn it over to the operator for your questions.

Star one one on your telephone and wait for your name to be announced. Our first question comes from the line of Greg Burns with Sidoti. Your line is now open.

Morning. Can you just talk a little bit about the genesis of the hospital deal? Did they come to you, or did you source that deal internally through some of your external growth initiatives? And then now that the deal's been announced, can you talk about maybe the market reception to that deal and kind of doors it's maybe opening up for you in the broader hospitality segment?

Sure, Greg. Thank you so much. First, we had an existing relationship on the traditional business side with that customer. And it really came from a question of what else can we do for you? And, you know, the procurement person there had the vision of a need for a reliable world-class, predictable supply chain. That's sort of the genesis of it. That person saw five different distribution centers for our business, not just one, but looked at five different ones and on stage in front of our sales teams, basically said our supply chain is the key weapon. It's going to be a differentiator for us, which we've been saying for a long time. You know, we're super excited by this. This is an invitation-only type of industry. It's complex. It's hard to enter, but our supply chain motion has that capability. We have visibility tools for their franchisees and for their customer base. There will be a lot of joint sales efforts across the board. But, you know, we have spent a long time working on this. This was not an overnight piece. And, you know, it took a lot of time and effort. We realigned the entire company to make sure we got this. But, you know, we are super excited because their distribution partners are limited. And so we're one of their preferred partners. We have some exclusive products with them as well. So we believe this is a huge opportunity for a growth sector. We've made the investments in inventory already. And so we're ready to go. And it's just a matter of it's very early. Literally just launched in the last couple of weeks. We're going to ramp this up, and it's again, it's a four to six percent CAGR per year. It's one of the top players in the industry. It's given us tons of credibility. We've had inbound calls from people within that sector of the industry, some of the other large players. And because of the fact it's who it is, this partner, it gives us tremendous credibility because they've gone through the due diligence of us as a supplier. We've also got calls from related industries as well, a part of that $60 billion segment that I spoke about in the script. Because some of the suppliers have the tools or the products that we need to go off and be successful in those segments. So we're excited by hospitality. We're excited by the adjacencies. I'm also super excited by the actual suppliers that are new to us, and we ramped those up very quickly, and our team did a great job at that by partnering with our partner and the suppliers. But, you know, that's also a ticket in. You can't just walk into an industry. You have to have the supply base to do it. We have that now, and we have some with one of the providers, we're going to do joint go-to-markets together, do a lot of distribution for them. So there's multiple angles of growth there, and we think it's a I believe it's the most important inflection point in the company in the last fifteen years. And we versus retail and versus our core, this is a growth sector. This is the area that we can exit into, and I think the potential is very large in the future.

Great. And how should we think about the revenue ramp from this deal? Is this like a hunting license? Do you now have to go out to the individual operators and secure business, you know, so will it ramp slowly over time? Like, how should we think about how this builds and how you gain share maybe from the existing distribution partners?

Yeah. It's a combination of both. There are some products that they've given us exclusive distribution to. So that will be helpful as we ramp that up. And it also is a hunting license as well. And we believe with the supply chain tools, the visibility tools, and the ability for the partners and the joint selling that we're doing with that hospitality partner, having joint sales and go-to-market with that is going to be very, very valuable for us as well. So we have to do both. But I think it's exciting that we have exclusive products, excited with the go-to-market. I'm excited with the go-to-market with the suppliers as well into their customer base also. And we are shifting assets, sales assets, to be exclusively dedicated to the hospitality segment and hiring capabilities from the outside as well. Dave and his team have done a great job putting a bunch of resources dedicated to this across Dave's team. And some of our most tenured people. So across the board, we're really aligned and invested behind this.

Okay. And then with the optimize for growth plan, the cost savings and the uplift in EBITDA you're projecting, what is the time frame of that plan? Like, you know, when do you expect you mentioned, I guess, $380 million of EBITDA uplift over a certain period. What is that time period, and how should we expect what is the cadence of that? Do you expect much this year, or is it more back-end loaded?

Hey, Greg. This is Adam Haggard. So to answer your question, we're looking at a multiyear plan here. Right? This isn't going to be a one or two-year experience for us. We're looking at more of a three to four-year approach. We believe that there'll be more savings and more costs on the back end of this program. One thing that should be said is that we're looking at roughly $30 to $40 million of cost, but, subsequently, we're looking at savings to match that cost. So it's a net neutral overall experience for the organization. We think that we'll be able to generate more cash moving forward and continue to keep leverage and liquidity constant while we're working throughout this program.

Okay. Thanks. And when you look at the retail segment, I appreciate kind of the acceleration of the optimization there and the refocusing of the assets. But have you considered maybe strategic alternatives for that business? I know in the past, there's been some thought about maybe splitting up the two businesses.

So, Greg, we always are looking for ways to maximize the shareholder value of our base. Right? So whatever that may look like, we're always open to exploring those opportunities.

Okay. Thank you.

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

Hi. Good morning. This is actually

So if I heard you correctly, you're looking for forward-looking. Are we in the OP business? Are we on a decline in the OP business, the office supply business? Is that the genesis of your question?

Yeah. Just wanted to hear about your expectations on market share.

Market share is a little tough to gauge. Right now, we're seeing a lot of those products in that sector are on macro declines. Right? They have been for quite some time. It's becoming more and more fragmented as time moves on. So market share is a little hard to gauge as to what's going on in the office supply sector.

Okay. And then your assumption for the growth in the B2B office suppliers market?

Yeah. We look. I mean, overall, what we're looking at in the B2B segment is that we're holding strong in our lane at this point. The overall business itself has been on a constant trend. We saw throughout 2024 the business has been pretty consistent. We don't see it really moving in the future from the trend that it's currently been on, and anything that changes, obviously, in future quarters, we'll have some guidance updates as we move forward. We'll give you an update as we see, you know, 2025.

Thank you for that. And my second question is, do you think the benefit to the B2B business will more than offset a likely deterioration in the B2C? And as a part of that, what is the minimum CapEx that is needed for the B2C business going forward?

I'll take the first part. Absolutely, the expectation is to grow in hospitality, grow in 3PL, and the Veyor business, which will help offset over time. Obviously, there are timing windows, but we believe that why this is so important is that the hospitality piece can be one of the largest segments of our business in the future. That will help offset any type of optimization from a retail business perspective longer term. That's not going to be an exact science, you know, but the reality is the opportunities there we have to get we have the entrance in, which it's again, it's the invitation only. We've passed that hurdle. We're ramping. We have new suppliers. So we got to go grow that business. Dave and his team are focused and dedicated to go do that. John's going to go grow his business over a period of time to do everything we can to ensure we are supplementing decline on B2C with growth in B2B.

Thank you. If I can ask one more, how much exposure does ODP have to the federal government? What could be the impact from the efficiency measures that are being implemented? And has the company already seen an impact?

Yeah. No. I mean, it's not a huge impact for our business. We don't do a ton of federal business at this moment.

Okay. Thank you so much.

Thank you. Our next question comes from the line of Joshua

Hey. Good morning, guys. Thanks for taking my question. So you guys touched some really on the guidance and preparing remarks. You know, can you guys can you guys kinda expand on those remarks and maybe just add a little bit more clarity to them?

Yeah. So, Josh, it's Adam again. More or less, the new customer segments that we're heading into have a different pace than our normal customer base. And because of that different pace and revenue, we are, you know, we're in the early days. Right? If you give, like, a baseball analogy, we just came out of spring training, and we're in the first inning of this. We're very excited about it. We know that it's going to have a meaningful change in the B2B business. However, it does, you know, it does give us pause with coming out with guidance right now just because of how that pace is going to work within our business. Not only that, but we're investing in changing our capital allocation to grow and create those unique assets inside that B2B business. And our delivery, our distribution side, more or less, it's in the future coming quarters, it will have more certainty as to how that business is going to react into this new segment. And at that point, we'll be able to come out with firm guidance and be able to forward look better.

Okay. That's helpful. And, you know, obviously, you know, you guys are seeing really good growth in that kind of hospitality segment or future growth. And that it seems like it's a, you know, it's a bright spot for you guys. Can you guys talk about really maybe there's some adjacent markets that you guys may have seen? Is there one that's maybe has a bit more interest than the others? You know, maybe healthcare, cruise lines you guys have mentioned before. Can you guys just talk about a little bit of that pipeline?

Yeah. I mean, obviously, you know, if you think of towels and sheets, and all, you know, amenities, all those are, you know, you go down the line. Cruise lines, you know, hospitals, you know, nursing homes, you know, prisons, you know, healthcare from a hospital perspective. All those are areas that we've had inbounds already from some of those sectors. So all those are potential. That's why I keep trying to highlight the importance of supply base. So, you know, we'll have over sixty new suppliers in from this space, and that makes a huge difference because it allows us now an entry, the immediate entry in as we get these inbounds to have conversations of how we can fulfill. And that's the $60 billion segment.

Yes. Okay. That's helpful. And then, again, last one for me is, you know, you guys obviously expand a little bit just kind of on that free cash flow decline? Obviously, you know, it's negative in the quarter. And adjusted free cash flow way. Yeah. Just a little bit more clarity and color on that.

Yeah. There were three major areas of investment that were made in Q4. One was within our social media e-commerce customer that we had. We had a working capital that was there. We also had a working capital investment with, you know, trying to get ahead of the tariffs. And then, the other working capital investment we had was going into this new hospitality segment. So those are three big points that we made a conscious investment into, and that conscious investment, we will reap the benefits of them through 2025. That's why we feel very confident in our free cash flow being up year over year. But that really sums up the experience as to what we tried to get ahead of in Q4. It was an investment that was consciously made, and, yeah, that pretty much sums it up.

Alright. Thank you so much, guys.

Thank you. That concludes the Q&A session for today. I will now turn the call back over to The ODP Corporation's CEO, Gerry Smith, for any closing remarks.

Yeah. So we thank everyone for joining the call today. I just want to emphasize that we believe this is an extremely important inflection point in our company's history. We have an opportunity with a partner that's one of the largest in the hospitality sector. We are now, you know, they're one of their preferred partners. We are starting to ship products. This opens up the $16 billion market. It also opens up the supply base I spoke about, opens up the $60 billion market. And, you know, we still have a strong balance sheet, and we have the ability with our extensive customer base to continue to do well in 3PL, continue to grow our share in B2B core as well as, and we think this hospitality pivot is extremely important for the business, and we're going to continue to optimize for growth, gives us tremendous value in the future from an EBITDA uplift perspective as well as reducing our fixed cost exposure across the business as well as our lease liability. So we think we're well-positioned for a lot of value creation that we don't think we're currently receiving from a market perspective. Thank you, everyone, for joining the call today. Look forward to talking to you in the future.