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The ODP (ODP) - 2024 Q3 - Earnings Call Transcript
ODPThe ODP (ODP)2024-11-06 19:20
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Financial Data and Key Metrics Changes - The company generated total revenue of 1.8billioninQ32024,downabout111.8 billion in Q3 2024, down about 11% compared to the same quarter last year, primarily due to lower sales in Office Depot and ODP Business Solutions [20][21] - GAAP operating income was 102 million, compared to 108millionintheprioryear,withadjustedoperatingincomedroppingto108 million in the prior year, with adjusted operating income dropping to 41 million from 112million[21][22]−AdjustedEBITDAwas112 million [21][22] - Adjusted EBITDA was 62 million, down from 138millioninthepreviousyear[22]−Adjustednetincomefromcontinuingoperationswas138 million in the previous year [22] - Adjusted net income from continuing operations was 24 million or 0.71perdilutedshare,comparedto0.71 per diluted share, compared to 85 million or 2.17perdilutedshareintheprioryear[22]BusinessLineDataandKeyMetricsChanges−ODPBusinessSolutionsrevenuewas2.17 per diluted share in the prior year [22] Business Line Data and Key Metrics Changes - ODP Business Solutions revenue was 916 million, down about 8% year-over-year, impacted by macroeconomic conditions and corporate layoffs [24][25] - Office Depot's revenue stood at 861million,a15861 million, a 15% decline, driven by fewer stores and lower traffic during a competitive back-to-school season [27][28] - Veyer reported third-party revenue of over 14 million, a 30% increase year-over-year, while managing lower volumes from internal customers [30] Market Data and Key Metrics Changes - The overall retail industry saw a 5% decline in back-to-school demand compared to last year, affecting both B2C and B2B channels [8][9] - The company faced significant disruptions due to hurricanes, impacting customer activity and operations in major service areas [7][8] Company Strategy and Development Direction - The company is focusing on a strategic pivot to B2B, leveraging its supply chain and customer base to capture growth in adjacent high-value industry sectors, including hospitality [11][12] - A significant new B2B contract worth up to 1.5billionovertenyearswasannounced,markingapivotalmomentforthecompany[12][15]−ThecompanyisstreamliningoperationsbysellingitsVarisDivision,whichsimplifiesitsstructureandreducesfuturecapitalcommitments[15][31]Management′sCommentsonOperatingEnvironmentandFutureOutlook−ManagementacknowledgedthatQ3performancewasbelowexpectationsduetochallengingmacroeconomicconditionsandcompetitivepressures[6][19]−Thereisoptimismaboutstabilizingtrendsandnewbusinesswins,withafocusoncapturinggrowthopportunitiesintheB2Bspace[19][39]−Thecompanyisamendingits2024guidance,maintainingrevenueexpectationsatapproximately1.5 billion over ten years was announced, marking a pivotal moment for the company [12][15] - The company is streamlining operations by selling its Varis Division, which simplifies its structure and reduces future capital commitments [15][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that Q3 performance was below expectations due to challenging macroeconomic conditions and competitive pressures [6][19] - There is optimism about stabilizing trends and new business wins, with a focus on capturing growth opportunities in the B2B space [19][39] - The company is amending its 2024 guidance, maintaining revenue expectations at approximately 7 billion but lowering adjusted EBITDA and operating income outlooks [35][36] Other Important Information - The company has a strong liquidity position with total liquidity of $728 million, consisting of cash and available credit [32] - Capital allocation strategy is shifting towards investing in core B2B resources, with a substantial reduction in share repurchases expected [17][33] Q&A Session Summary Question: Market share trends in Business Solutions and retail - Management believes they are holding their own in market share, citing a significant new B2B contract as evidence of stability despite challenges from hurricanes [42][43] Question: Why should the market not extrapolate recent performance into next year? - Management emphasized the trajectory change due to new contracts and ongoing stabilization in the market, which should not be overlooked [46][47] Question: Insights on new industry segments targeted - Management highlighted leveraging core strengths to penetrate growing markets like hospitality, with existing customer relationships aiding in this transition [52][53] Question: Impact of hurricanes on performance - Management noted the hurricanes had a substantial impact, but quantifying the exact effect is challenging due to the complexity of disruptions [61][62] Question: Free cash flow guidance visibility - Management indicated positive cash generation is expected in Q4, but uncertainty remains due to working capital shifts and investments [68][69]