Earnings call: ODP Corporation outlines strategic initiatives amid challenges

ODP Corporation (ODP), a leading provider of business services and supplies, reported its first-quarter 2024 earnings with CEO Gerry Smith providing an overview of the company's performance amid a challenging macroeconomic environment.

Despite a slower-than-expected start to the year, with a 14% decline in reported revenue to $900 million, the company remains focused on strategic initiatives to drive efficiency and growth. The earnings call also addressed the decision to sell the VARIS business unit and the company's commitment to achieving significant cost savings through Project CORE.

Key Takeaways

• ODP Corporation reported a 14% decline in Q1 revenue, attributed to fewer retail stores and reduced consumer activity.
• The company's supply chain services provider, VEYER, showed strong performance with a 29% increase in third-party revenue and a 40% increase in EBITDA.
• ODP announced the pursuit of a sale for VARIS and expects over $100 million in annual savings from Project CORE.
• Despite market challenges, ODP is focused on cash generation, expense management, and expanding its product and service offerings.
• The company has a strong balance sheet with nearly $1 billion in liquidity and has repurchased $90 million of shares.

Company Outlook

• ODP anticipates a tech refresh in the second half of the year, particularly with AI-enabled PCs, which could benefit the tech industry.
• The company aims to achieve its 2024 guidance and build a platform for growth and value in 2025.
• Revenue is expected to trend towards the lower end of the -5% to -2% year-over-year range, with improvements in adjusted EBITDA, operating income, and earnings per share.

Bearish Highlights

• The B2B and B2C channels experienced reduced spending budgets, delays in onboarding customers, and weaker demand.
• The back-to-business season saw slower sales in core supply, technology, and furniture categories.

Bullish Highlights

• Initiatives like Education 365, back-to-school supply list generator, and classroom wish list capability are expected to drive sales.
• The Adopt-a-School program and new product categories are expanding the company's value proposition.
• Retail sales have shown improvement each month since January, with weather conditions impacting sales during that month.

Misses

• ODP's top-line decline was significant, with a reported revenue drop to $900 million.
• The company operated 56 fewer retail stores compared to the previous year, impacting overall sales.

Q&A Highlights

• Cybersecurity concerns have affected customer onboarding, but investments in top-class technology aim to address these issues.
• Cost reduction efforts have not negatively impacted market share; instead, they position the company to win more share.
• The company maintains a conservative cash flow outlook due to timing issues and working capital trends.
• ODP is committed to supporting VARIS customers and executives during the sale process.

ODP Corporation's first-quarter earnings call underscored the company's resilience in the face of a challenging start to 2024. With a strong balance sheet and a series of strategic initiatives, ODP is poised to navigate through the current economic headwinds while laying the groundwork for future growth and shareholder value.

InvestingPro Insights

ODP Corporation (ODP) has displayed a mix of challenges and resilience as per its first-quarter 2024 earnings report. To further understand the company's position and potential, here are some insights based on real-time data and InvestingPro Tips:

InvestingPro Data:

• The company currently holds a market capitalization of $1.59 billion, reflecting its scale in the business services and supplies industry.

• With a P/E ratio of 12.25 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 9.29, ODP trades at multiples that suggest a potentially attractive valuation relative to earnings.

• The stock has experienced a notable price decline over the last three months, with a total return of -19.66%. This could be indicative of market sentiment and the challenges noted in the earnings report.

InvestingPro Tips:

• ODP management has been actively repurchasing shares, which could signal confidence in the company's value and future prospects. This aligns with the company's report of having repurchased $90 million of shares.

• According to InvestingPro, analysts are predicting that ODP will be profitable this year, which may provide some optimism for investors despite the recent downturn in share price.

For investors looking to delve deeper into ODP Corporation's financial health and future outlook, InvestingPro offers additional insights. There are 10 more InvestingPro Tips available, which can be accessed at: https://www.investing.com/pro/ODP. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - ODP Corp (ODP) Q1 2024:

Operator: Good morning and welcome to the ODP Corporation's First Quarter 2024 Earnings Conference Call. All lines will be on a listen-only mode for today's call, after which instructions will be given in order 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 begin.

Tim Perrott: Good morning and thank you for joining us for the ODP Corporation's first quarter 2024 earnings conference call. This is Tim Perrott, and I'm here with Gerry Smith, our CEO, and Anthony Scaglione, our Executive Vice President and CFO. During today's call, Gerry will provide an update on the business, focusing much of his commentary on our results and accomplishments for the first quarter of 2024, including our operational performance and the progress we are making on all of our initiatives to drive shareholder value. After Gerry's commentary, Anthony will then review the company's first quarter financial results, including highlights of our divisional performance. Following Anthony's 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 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 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 will now turn the call over to Gerry Smith. Gerry?

Gerry Smith: Thank you, Tim, and good morning to everyone joining our call today. I'm happy to be here with you to discuss our results for the first quarter of 2024, as well as to provide insight into our progress with Project CORE, our business optimization initiative that is helping us enhance our position to continue to deliver shareholder value as we move forward. Before I cover our results, I wanted to highlight our continued commitment to operational excellence, which forms the cornerstone of our low-cost business model that is embedded in the DNA of all of our employees. As shown on Slide four, the powerful combination of our business unit structure and approach to operational excellence helps us to continue to drive efficiencies in our business, creating greater flexibility while navigating challenging macroeconomic conditions. Extending this approach, we launched Project CORE, an enterprise-wide initiative we announced in March. With the work we have done to date and aligned with our low-cost mindset, I'm pleased to announce we are accelerating Project CORE initiatives in 2024, giving us greater confidence in reaching our goals for the year and improving our position as we move forward. Now turning to our results for the quarter, as shown on Slide five. Overall, our start to the year was slower than we anticipated. The continued choppy macroeconomic conditions, along with a more restrictive business spending environment and reduced consumer activity created top-line headwinds in the quarter. In our B2B business, spending budgets among our enterprise customers continue to be constrained, and the impacts of well-publicized reductions in force, along with continued delays in onboarding of recent customer wins, impacted top-line results. However, we remain encouraged by the pace of new business wins and our strong customer base, and my team and I are initiating specific plans to convert our strong pipeline to revenue while simultaneously building greater traction with existing accounts. More on this in a few minutes. In our supply chain business, we continue to be encouraged by VARIS strong performance, expanding market presence, and continued traction with new third-party customers. In our B2C channel, consumer traffic and demand were lower in the period, impacted by weaker macro conditions, and further affected by challenging winter weather conditions during key weeks in the quarter, along with the year-over-year impact of store closures. And finally, VARIS, which we continue to see market opportunities, but have now positioned the business for a sale, which I will discuss shortly. While overall top-line performance in the quarter was disappointing, our team's focus on operational excellence and accelerating our initiatives through Project CORE have us in position to beat, and in some cases exceed, our revised operational guidance for the year. Next, with our strong balance sheet and liquidity position, we continue to execute on our shareholder-focused capital allocation plan, both investing in our business and accelerating the pace of our share repurchase in the quarter. Our balance sheet and liquidity continue to be sources of strength, and we are working towards renewing our facility with the support of our bank group, and we look forward to providing an update shortly. With our strong balance sheet, our capital allocation continues to be a pillar of our earnings algorithm, and I am pleased to report that we have continued to repurchase shares during the quarter, increasing the pace under our new authorization program we announced in March. In the quarter and through today, we have repurchased approximately $90 million of stock, including nearly $75 million under the recently announced authorization. We expect to continue executing aggressively in the near term under this plan. And overall, since our Investor Day meeting in November 2022, we have returned over $540 million to shareholders through stock repurchases, highlighting our management board's commitment to our capital allocation strategy. Next, we made tremendous progress under Project CORE, further streamlining our operations and sharpening our core focus. This initiative is enterprise-wide and also includes cost reduction actions at VARIS, which we have completed our evaluation of strategic options as we discussed in March. Overall, I am happy to say that we have made strong progress on our Project CORE initiatives in the first quarter, remaining focused on continuous improvement across the business to drive EBITDA and free cash flow growth into the future. With our plans to accelerate Project CORE, we now expect to achieve an annualized run rate savings of at least $100 million when fully implemented, further improving our position in the second half of the year and significantly as we move into 2025 and beyond. These savings are being achieved through cost efficiency measures across the entire enterprise, including our organizational structure, supply chain, and cost of goods sold savings through further efficiencies. Next up is VARIS. As I mentioned in our previous call, our management team and Board have been evaluating strategic options for this business. Our Board of Directors have approved a plan to pursue a sale of this business unit. As we work on our plans to execute, VARIS will be designated to held for sale and we have reduced the go-forward cash spend by nearly a third on an annualized run rate basis until we sell the business. Our reduced spend was directed in areas to further drive efficiencies without compromising our value proposition to existing and new customers. Anthony will provide more details on the in-year cash savings and adjusted earnings later on the call. Next, I'd like to comment on our guidance for 2024. In light of our slower top-line start to the year, we now expect a trend toward the lower end of our previously issued revenue guidance range of negative 5% to negative 2%. That said, and when considering our accelerated pace of Project CORE and decisions regarding VARIS, we are increasing our guidance for adjusted operating income, adjusted EBITDA, and adjusted EPS for the year. Anthony will provide more specific details later in the call. Now on Slide six, I would like to discuss the performance in our business units, starting with our B2B business ODP business solutions. ODP business solutions are B2B distribution business that serves large enterprises as well as medium and small businesses at a slow start to the year. Macroeconomic conditions and enterprise-level budget constraints, along with continued onboarding delays of certain customers, added pressure on the top-line. Sales were lower across most major product categories, led by technology and furniture. Adjacency category sales, which include cleaning and break room furniture technology and copy and print, were approximately 43% of total B2B sales. While disappointed with the slower than anticipated start to the year, the pace of average daily purchases remained consistent to the pace we saw late last year, actually in fiscal 2023, showing the top-line stabilizing as we progressed during the quarter. From an operating perspective, despite the flow-through impact of lower sales, our team remained focused on driving our low-cost model, resulting in EBITDA margins of nearly 4% in the quarter. Despite the challenging top-line, we remain in a strong market position, encouraged by our continued traction in new business wins and by our strong pipeline. Of course, a strong pipeline is only meaningful if it turns into revenue, and the initiatives that we are putting into place have our team focused on conversion. We remain competitively strong with a customer-first approach, including a net promoter score of 75% actually in the quarter, an indicator of high customer satisfaction. In addition, with our strong balance sheet and our ability to work creatively with customers, I remain confident in the long-term prospects of our B2B distribution business and our ability to grab share. We are not standing still, and my team and I are taking specific actions focused on gaining better traction on the top-line through implementing targeted actions with existing and prospective customers. I have initiated weekly customer reviews with our team, and we've created incentives to drive both sales to existing customers and capture new wins. Similar to the contract profitability reviews we executed fiscal 2022, that led to margin improvements we expect this process will lead to improved sales over time. These initiatives place us in a position to address the near-term challenges, and I remain excited about our long-term prospects and our strong commitment to driving value for our customers and shareholders. Next up is Office Depot (NASDAQ:ODP), our omni-channel consumer business that provides a strong value proposition to small business, education, and home office customers. Q1 was also a challenging quarter for Office Depot. The macro environment continued to impact the level of consumer activity, both in our business and in the retail industry as a whole, as market data shows that overall discretionary retail sales were down significantly in the first few months of the year. For our B2C business, the revenue decline was driven by a combination of fewer stores and service compared to last year and from lower in-store and online traffic and demand. Much of the weaker demand was driven by the slower economy and higher inflation moderating the pace of consumer spending and impacting overall demand both in-store and online. Adding to that challenge at the start of the year, severe weather conditions forced the closure of hundreds of our stores during the critical back-to-business season, impacting the pace of core supply sales. At the same time, the expected recovery in our technology and furniture categories failed to materialize, both of which have been underperforming over the past year. That said, with the acceleration of AI and increasing need for computing power, we expect growth from the anticipated AI PC refresh in the back half of the year, which would help sales in Office Depot. Also, we continue to offer great value in depth with our in-store and online furniture offerings, including many private label premium offerings. From an operating standpoint, we remain focused on cash generation, carefully managing our expense structure, and working to maximize margins despite the top-line challenges. We drove EBITDA margins of just under 7% for the division in the quarter. While it was a challenging start to the year, we remain excited about the initiatives we have in place to help drive sales and greater stability. These include our Education 365 initiative, which involves both our B2B and our omni-channel businesses and is an integrated year-round approach to improve our reach and better serve our education customers, including teachers, students, parents, and school systems. We are already seeing good reception and a positive reaction from school districts on our ability to do more with them every single day versus only during the peak back-to-school season. And we're continuing to develop innovative programs to help accelerate growth. For example, we will launch a back-to-school supply list generator, allowing parents to quickly download and access their children's school supply lists created by their specific teacher. We will also launch our classroom wish list capability, allowing teachers to create a customized wish list of any of the 100,000-plus items available on officedepot.com, making it easy for parents to support their classroom by purchasing items from the list. Purchases through both of these programs are eligible for our 5% back-to-school programs, which provides 5% of eligible sales directly back to their child's school to purchase critical supplies for the school year. Lastly, our Adopt-a-School program will continue this year, in which every one of our approximately 900 stores is paired with a local school in need of support. In 2023, we raised $6 million through this program. We're also remaining committed to expanding our value proposition, including our expansion to new product categories and services, including expanding our TSA sign-up service and passport photo services. Additionally, our Celebrations and Dorm Room Product Categories expansion is beginning to receive positive recognition as a greater number of customers realize that OD Does It, the themes of our new marketing outreach campaign. Overall, we remain encouraged by the potential of all of these efforts and our expected positive impacts to sales in the future. Now turning to our continued progress and momentum at VEYER. VEYER, our world-class supply chain services and logistics provider, continued strong performance and momentum into 2024. As I pointed out in previous calls, our progress with external third-party customers is one of the key areas of focus to assess VEYER's success and value creation. VEYER continues to make strong progress efficiently providing service to its internal customers while continuing to grow its business with our third-party customers. In the quarter, VEYER continued to add new external customers to its portfolio business, providing services for some of the nation's most renowned brands and continuing to drive revenue and EBITDA growth from third-party customers. In fact, third-party revenue from external customers is up about 29% over last year's first quarter. And very importantly, EBITDA from third-party customers increased nearly 40% year-over-year. VEYER also continues to make progress on building its go-to-market service capabilities and executing on its modernization roadmap as they build additional functionality in the information systems that run the business. VEYER has been deploying a Gardner Magic Quadrant-level tech stack by partnering with world-class tech companies along with internal development to help position us to improve service levels, manage our business, and provide the flexibility necessary to deliver services to external third parties more effectively. While the market remains competitive and is not immune from the effects of a weaker economy, we are very encouraged by VEYER's strong progress in how this positions ODP to drive profitable growth in this higher multiple business. Now turning to VARIS. While VARIS continues to be strategically positioned to capture more of the procurement and supply chain ecosystem, its revenue ramp has been slower than we originally anticipated at this point in its journey. As part of Project CORE, we reduced the cash burn by over a third on a go-forward basis, and our board has approved a plan to pursue a sale of this business, a process that we've already initiated. As we pursue the sale, we will continue to maintain our strong service levels to our current customers and suppliers, supporting the platform through the sales process. Now turning to insights into our accelerated plan for Project CORE and our key areas of focus as we move into the balance of the year. While we are disappointed with our start to the year and continue to face headwinds, we remain enthusiastic about opportunities ahead and the strength of our foundation that is being enhanced by Project CORE. As I mentioned earlier, we are accelerating our efforts under this plan with a focus on capturing greater efficiencies in our business and improving how we serve customers. We expect this initiative to have a significant benefit in the second half of the year and place us in a much stronger position as we head into 2025 and beyond. We expect to capture greater cost efficiency savings this year, which will position us with the ability to generate over $100 million in run rate savings on an annual basis when fully implemented, moving us to the top quartile in many of our cost buckets on a go-forward basis, which will allow us to effectively compete in the long-term. Our entire team remains focused on driving our business and our low-cost model to the benefit of our shareholders and customers alike. We are taking initiatives to improve the sales trajectory this year and for the future, including improving the new customer onboarding process and performing customer-specific reviews to gain greater sales traction at ODP Business Solutions. In our stores and online, we're expanding our value proposition and adding convenient services to help drive additional traffic. At VEYER, we will continue to grow our third-party top-line EBITDA. Additionally, we will remain focused on executing our capital allocation plan and continue our accelerated pace of share repurchase under our new authorization. Our team will also diligently pursue the sale of VARIS while maintaining the appropriate service levels for its customers. While challenges exist, we continue to focus on the key levers of our business and expect that our foundation will only continue to improve. With our operational excellence, additional low-cost model initiatives, and capital allocation, we will continue our path to driving a significant shareholder value and an even greater run rate savings going forward. With that, I'll turn the call over to our CFO, Anthony Scaglione.

Anthony Scaglione: Thank you, Gerry, and good morning to everyone on the call. I'm happy to be here today to discuss our financial results for the first quarter of 2024. As I begin, I'd like to say thank you to our entire team for remaining focused on driving initiatives under Project CORE and remaining focused on our low-cost business model. Despite our slower start to the year, I'm confident in our team's ability to drive our business and deliver efficiencies through Project CORE, positioning us to reach our goals for the year and beyond. Turning to the specifics of our first quarter results as shown on Slide 12, we generated total revenue of $1.9 billion in the quarter, which was down about 11% compared to last year's first quarter. This was primarily driven by lower sales in Office Depot, including 56 fewer stores in service compared to last year, and reduced transactions, as well as lower sales in ODP Business Solutions. GAAP operating income in the quarter was $18 million, which includes $33 million of charges, of which $27 million related to net merger and restructuring expenses, primarily related to Project CORE activities. Excluding these charges, our adjusted operating income for the first quarter was $51 million compared to $99 million in last year's first quarter. Unallocated corporate expenses were $24 million. Adjusted EBITDA was $82 million in the quarter compared to $131 million in last year's first quarter. This includes depreciation and amortization expense of $29 million and $30 million in the first quarters of 2024 and 2023, respectively. Excluding the after-tax impact from the items mentioned earlier, adjusted net income for the first quarter was $40 million, or $1.05 per diluted share, compared to adjusted net income of $75 million, or $1.78 per diluted share in the prior year period. Turning to cash flow, operating cash flow was $38 million, down primarily due to the flow-through impact of lower sales and timing related to working capital. Capital expenditures in the quarter were $35 million versus $27 million in the prior year period. Adjusted free cash flow in the quarter was $7 million. While we recognize we've had a slow start to the year, our teams remain keenly focused as we have proven in the past on managing the variables of cash flows to reach our goals for the year. Now turning to our results in our B2B distribution division on Slide 13. As Gerry mentioned, ODP Business Solutions had a challenging start to the year as macroeconomic conditions, more cautious enterprise spending, and the ongoing onboarding delays impacting top-line results in the quarter. Revenue was $900 million in the first quarter, which was down about 8% compared to last year. Contributing to the weaker top-line was lower sales of technology products, a factor that many other companies are experiencing industry-wide, as well as supplies and lower sales of larger ticket items in our furniture category, which all contributed to the softer top-line. While we expect to see some nearer-term top-line challenges due to continued enterprise softness, we remain encouraged by the net new business we are winning, taking share. We also expect some of the tech sales to rebound in the second half as product life cycles, including Windows Refresh, and companies beginning to invest more aggressively in AI-enabled technologies, which should help fuel PC sales. Breaking down our sales data further, our adjacency product categories as a percentage of total revenue at KPI for ODP Business Solutions was 43% in the quarter, slightly lower, but consistent with recent trends. From an operating perspective, the flow-through effect of lower revenues resulted in an operating income of $30 million in the quarter compared to $39 million in a prior year period. EBITDA margins were approximately 4% in the quarter, down about 50 basis points year-over-year. While we are disappointed with the slower-than-anticipated start of the year, ODP Business Solutions remains in a position of competitive strength, with a compelling customer offering and a highly capable sales force. Looking at our top-line performance over the past few months, the pace of average daily purchases has remained consistent to what we experienced exiting 2023, which indicates the top-line is stabilizing in the quarter. And with the initiatives we have implemented, including our account-by-account reviews and incentives, we expect the pace of sales trends to improve over time. We are also encouraged by the strength of our balance sheet and ability to work with our customers across multiple dimensions to drive a value proposition that few in the industry can meet, giving us confidence in our foundation and our ability to drive improved results in the second half of the year and beyond. Now turning to our results in our consumer division, Office Depot, as shown on Slide 14. In the first quarter, Office Depot's top-line continued to be challenged as the slowing economy and persistent, although beginning to moderate, inflation impacted the pace of consumer spending. This was compounded by fewer stores in service and discreet severe weather impacting sales during the busy back-to-business season. Reported revenue for the quarter stood at $900 million, a 14% decline, driven by 56 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 technology and furniture. On a comparable basis, sales were down roughly 10%, as lower retail and online traffic and transactions outweighed higher conversion. From an operating perspective, operating income was $50 million in the quarter or 5% of sales, down compared to last year's first quarter as our team worked to offset the top-line decline. Moving forward, we are continuing to optimize the store footprint and driving our business through expanding our value proposition, focusing on strong customer satisfaction, and driving operational excellence throughout the organization. We are seeing early signs of traction in our new categories of products and services. Our NPS scores remain at 70 or above, among the highest in the industry, and our one ODP approach to our education customers through Education 365 is improving our position moving forward. Our Education 365 initiative creates a more consistent approach to serving educational customers, including schools, teachers, parents, and students year-round. In addition, we recently launched our newest ad campaign, OD Does It, intended to drive further awareness in the host of services and categories we provide that may not be known to many small businesses and consumers. It's an exciting campaign, and we hope everyone takes the opportunity to view it online. In all, we're focused on expanding our value proposition and driving the components of our business that we can control, and we believe we are well-positioned to continue to drive this cash engine going forward. Now turning to VEYER's performance as shown on Slide 15. VEYER, our impressive supply chain services and logistics provider, continued to drive its momentum and delivered impressive results in the quarter. Not only did VEYER efficiently serve its internal customers, ODP Business Solutions, and Office Depot, they also continued to drive revenue and EBITDA growth from external third-party customers. On a consolidated basis, VEYER drove sales of $1.2 billion, predominantly supporting the purchasing and supply chain operations of ODP Business Solutions and Office Depot, which are effectively eliminated upon consolidation. In addition to supporting its internal customers, VEYER continued to make progress with external third-party customers, continuing to attract new external logos and providing service for some of the nation's most renowned brands. In the quarter, we launched many social media campaigns, getting the word out further about this business and the value proposition it can provide customers across our national network, including our global sourcing capability. For Q1, VEYER grew third-party revenue by 29%, resulting in sales of $9 million. From a bottom-line perspective, VEYER drove a 40% increase in EBITDA from third-party customers, driving third-party EBITDA of $3 million. We are really excited about VEYER's continued progress, and it's evident that VEYER's compelling value proposition is resonating with our expanded set of customers and how this higher multiple business positions ODP to drive profitable growth in the future. Now turning briefly to VARIS on Slide 16. During the quarter, VARIS generated approximately $2 million in revenue flat with last year, primarily derived from subscriptions from existing customers. VARIS generated an operating loss of $14 million and improvement over last year. And as Gerry mentioned, our Board of Directors approved a plan to pursue a sale of VARIS, an initiative we have already begun. We are actively working with interested parties and are aggressively pursuing a path to sale. Given the approval to sell this business, from an accounting perspective, VARIS will be treated as held-for-sale and part of discontinued operations, and its results will be reclassified out of continuing operations starting in Q2 and for all historical periods presented. Also from a cash perspective, VARIS has been realigning their cost structure, including OpEx and CapEx. From a cost-to-operate, we have reduced the cash burden of VARIS from approximately $65 million, which was incurred in fiscal 2023, to about a $45 million full-year annual cost for fiscal 2024. We have balanced the cost actions to allow us to maintain the integrity of the platform and continue to provide excellent service to VARIS' customers in advance of the sale. Now briefly turning to our balance sheet highlights as shown on Slide 17. Our balance sheet and liquidity position remain strong, ending the quarter with total liquidity of nearly $1 billion, consisting of $282 million in cash and cash equivalents and $689 million in availability under our asset-based lending facility. Total debt at the end of this quarter was approximately $125 million. In January, we paid down our $53 million balance on our final term loan facility, reducing interest costs, and we have launched a renewal of our ABL, which we look forward to announcing in the very near future. As previously mentioned, we've continued to buy back shares at an accelerated pace, repurchasing approximately $90 million of our shares since the beginning of the year, including over $70 million since the initiation of our new authorization. In total, we have repurchased nearly 11.5 million shares for approximately $540 million since our Investor Day in late 2022. Now moving on to Slide 18 that highlights our updated guidance for 2024. Despite our slow start to the year, we remain confident in our operational excellence approach and enthusiastic about the opportunities in our business to drive long-term value while remaining focused on prudently deploying capital to the benefit of shareholders. As Gerry mentioned, we have accelerated our initiatives under Project CORE and now expect to generate run rate savings of over $100 million when fully implemented, including about $50 million in-year capturing both organizational and other initiatives and excluding VARIS. We also now expect to incur restructuring costs in the range of $40 million to $50 million excluding VARIS, primarily related to severance and project costs as we execute our plan. Given the timing of actions, we did not have material savings from Project CORE in Q1, although we did execute the first wave of organizational realignment, incurring $25 million in costs related to this initiative in the quarter. The positive impact of Project CORE will begin to be recognized in Q2 and throughout the balance of the year with most of the run rate savings in place as we exit 2024. As we move forward, while macroeconomic and general business conditions pose challenges in the quarter and we expect these conditions to persist in the near term, our team's continued focus on driving our low-cost model, enhanced by our acceleration of Project CORE and the VARIS sale process, have positioned us to update our operational guidance for 2024. We are updating our 2024 guidance as follows. First, with our slower top-line start of the year, we are expecting revenues to trend toward the lower end of our current guidance range of between negative 5% to negative 2% year-over-year. We are increasing our adjusted EBITDA guidance to a range of $430 million to $450 million, up from a range of $410 million to $430 million. We are increasing our adjusted operating income to a range of $320 million to $340 million, up from a range of $280 million to $300 million. We are also increasing our adjusted earnings per share to a range of $6.30 to $6.60 per share, up from a range of $5.60 to $5.80 per share. And finally, we are reaffirming our adjusted free cash flow guidance of generating greater than $200 million for the year. Our guidance for continuing operations assumes some nearer-term top-line challenges but an overall stabilization of macroeconomic and business conditions. These assumptions include improving omnichannel trends at Office Depot, accelerated new winds onboarding and overall growth at ODP Business Solutions in the second half of the year, continued momentum and expansion at VEYER, and higher interest expense associated with projected ABL borrowings, along with a more normalized tax rate for the balance of the year for EPS purposes. While our guidance assumes incremental improvement in the overall macroeconomic environment throughout 2024, we remain cautious on the state of the U.S. economy, primarily workforce employment and the consumer, as well as international trade policies and agreements that could further impact the level of consumer and business confidence. In summary, notwithstanding our slower start to the year, we remain encouraged by our strong foundation, the flexibility of our business model, and our ability to continue to drive operational excellence accelerated by Project CORE. Combined with our focused and disciplined capital allocation approach, we believe this algorithm creates a very compelling value proposition for all shareholders. With that, Operator, we will now take questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Greg Burns with Sidoti. Your line is open.

Greg Burns: I guess Project CORE originally had some cost savings for VARIS baked into it. Now, with the increase you're pointing to this quarter, I just want to make sure that is separate from VARIS and VARIS' projected savings there is incremental to that $100 million. And when you look at the increased operational forecast, particularly from maybe like an earnings perspective, how much of that is being driven by VARIS versus maybe Project CORE? Thank you.

Anthony Scaglione: Maybe I'll start, Greg. Good to hear from you. Good question. It is a complicated guide with a lot of moving parts. If you dissect the guide, the higher expected core savings are providing us with the capacity to both invest in our core operations to help ignite some of the top-line and address some of the nearer term pressure from a softer top line that we saw in Q1. As you think about it from a VARIS perspective, we've communicated in our prepared remarks, we've already taken action to reduce the cash burden. So from a pure core perspective, excluding VARIS, we're anticipating approximately $50 million of run rate savings in year and $100 million exiting 2024, with most of that coming through organizational realignment.

Gerry Smith: Let me jump on that, Greg, because one of the things we said in our last call is, we committed to the first reduction, and Anthony and I both said we're going to go after it and get more, and we did. I want to emphasize that we're set up with a great balance sheet. We're set up with $100 million in run rate improvements next year. We're set up with the ability to increase our guidance this year, and so that's excluding VARIS, and obviously there's VARIS goodness as it's held for sale. But the reality is, we did what we said we were going to do. We went out and got more costs, and candidly, we have line of sight into more costs, and we're going to continue to look at other ways to optimize the business that are non-labor oriented, but the reality is we have good line of sight. We have a number of initiatives going on across the company. So we're confident that our low-cost model operational excellence and the initiatives we're having to drive sales are going to help us hit the year, and it's going to help us, especially into 2025 from a run rate perspective, and we want to be the last person standing in this industry. We think we have the best balance sheet. We think we have the best cost position, and we have an outstanding net promoter score, and we have the right go-to-market routes.

Anthony Scaglione: And Greg, just one more clarity point on VARIS so that it's clear. Last year, VARIS was approximately mid-40s from an EBITDA burden perspective. With the actions that we've taken as part of the project or original Project Core, it's roughly about $10 million of savings from an EBITDA perspective, but now that we're positioning it as available for held-for-sale, the full impact is coming out of continuing operations. So hopefully, that helps the bridge.

Greg Burns: Okay, perfect. Thanks. And then you mentioned some challenges in onboarding customers. Is that something on your end, on the customer's end? Like, what is causing the delays in getting some of these larger enterprise customers onboarded?

Gerry Smith: It's been a combination of both. Some of the customers have some cybersecurity concerns, we're invested into, I'll say, top-in-class technology that very few people in our space will have, and some of these customers, that gives them more confidence. And we handle a number of the biggest banks in the world already, and we think our cybersecurity is excellent. This will make it even better. And just from an onboarding perspective, there's a number of people who've seen some softness, but the reality is, we have a great pipeline, we're converting that pipeline. I really want to stress the initiative of we're doing weekly deal reviews, Anthony and I, we did that a couple years ago on cost, that had tremendous improvement, a lot of confidence in Dave Centrella and his team, and we're going to go out and be aggressive and win share. And so we're going to get super aggressive on that, and we're going to turn the business into a growth trajectory over a period of time, and we think because of our improved cost position, because of our high net promoter score, because of our additional best-in-class cybersecurity type of capabilities, we're going to be in a position to gain share and be a last person standing in the space.

Operator: One moment for our next question. Our next question comes from Michael Lasser with UBS. Your line is open.

Michael Lasser: Is there any evidence that the cost reductions that you are taking could be having a negative impact on your market share, such that that's amplifying some of the top-line pressures that you've been experiencing?

Gerry Smith: Michael, the answer is absolutely not. I mean, we have very clear evidence that it does not. It's putting us actually in a better position to win share over time and gain traction. We spent a lot of time auditing and looking at cost processes we did take out to make sure there's no compliance issues, to make sure we have coverage from a sales perspective, and I just want to emphasize our net promoter score still continues to be very high. That's world-class, 75%, and over 70% in retail as well. That is outstanding net customer experience and customer service, and that's a great judge for us going forward watching that carefully. But, candidly, I'm excited that we committed and delivered what we said we'd do last quarter of getting more costs. We're going to be in a position with the balance sheet we have and the cost position we have to be even more aggressive going forward, and actually I'm excited with our ability to also return capital to our shareholders as well.

Anthony Scaglione: And I'll just add, Michael. We're investing in our sales account, so we have acquisition hunters both in business solutions and there as part of the initiative. So, to Gerry's point, we see opportunities going forward with the investments that we're making.

Michael Lasser: And my follow-up question is, what has been the internal conversation about slowing some of the cost cuts or preserving capital in light of what seems to be an increasingly pressured macro environment such that you would be better positioned if you preserve your resources on the other side of this coming out of it? And as part of that, why are you not picking up your free cash flow outlook for the year despite increasing your EBITDA outlook for the year? Thank you very much.

Gerry Smith: Yes. Well, I'll start then and I'll have Anthony close, but a great question. And the Board and myself and Anthony and team are having a lot of conversations about the balance between capital allocation and we've committed to have that stronger, stronger going forward with our repurchase program. But to your point, we do have some ability to reinvest back in growth and we're spending a lot of time as a board now in our July meeting and subsequent meetings really discussing additional adjacencies, additional businesses we can invest to while maintaining the balance of making sure we're aggressive on our shareholder allocation as well. And so this, from an internal perspective, what I've said is, low-cost model helps us drive growth and that gives us the ability to have a growth fund to invest back in the business, which is exactly what we're going to do here in the next, in '24 and '25. But again, we are committed to our share repurchase program. We believe we can continue at an accelerated pace since we started in February, but we're going to balance that with growth as well as we're going to make smart investments across the business over a period of time. Anthony?

Anthony Scaglione: Yes. And on the cash flow overall, we're just being conservative as it relates to working capital trends looking at the outlook. It's just more of a timing issue, Michael. I think we've exhibited a pretty high discipline around EBITDA, the cash flow conversion. We expect that to continue, but we're just being conservative as it relates to some timing elements in working capital.

Operator: One moment for our next question. Our next question comes from Joe Gomes with Noble Capital. Your line is open.

Joe Gomes: On VARIS, any sense, I know it's early days of timing, number one, number two, in retaining top executives there, are you having to do anything in order to keep top executives at the unit while it's being sold?

Gerry Smith: So Prince and his team, the leadership team, are committed to continuing to support customers and support the business as we go through the sale process. We're actively engaged with a number of investors and we're going to continue to maintain the support for our customers and the team. And so, I want to be really clear publicly to our customers on VARIS that we're here to support them and we're going to continue to support the executive team as well as our customers going forward through the sale process. Q - Joe Gomes Okay. And you talked about some of the challenged product lines. I was wondering is there anything you can point out in terms of maybe there's some strength of positive signs in various product categories?

Gerry Smith: Well, I think we're seeing strength from a month-to-month basis from across some of the businesses. January was a time especially that retail has got a lot stronger every month since the beginning of the year. It was a tough January. Weather was an impact. People don't like to go to retail stores when it's five degrees outside. And so, we did see a pretty impact for a lot of the storms. But the reality is it's gotten better every month. which is encouraging for us. We've seen average daily sales across our ODP business solution business stay consistent and start to grow as well. And so, we're confident that it's not going to get worse. We're confident it's getting better. And we like the initiatives of what we're doing from -- because of our cost position to get aggressive. I do think there is, I come from the tech industry. I think there's a tech refresh coming in the back half of the year especially with AI-enabled PCs. And we're excited for that. We're starting to see some glimpses a little bit of a tech refresh right now. But I think in the back half of the year we think not just us but the entire tech industry has a much better chance with AI-enabled PCs to have a huge refresh cycle going forward especially late '24, early '25. We're well positioned to benefit from that as well. Anthony, anything else there?

Anthony Scaglione: Yeah, I think we've seen some strength in -- remaining strength in copy and print that's been a pretty consistent performer. We are introducing and have introduced new categories, so I really encourage you to take a look at our ad campaign. It really showcases some of the products and categories we're not known for. And I think that could be an opportunity for us down the road to initiate and grow sales.

Operator: This concludes the Q&A session for today. I will now turn the call back over to ODP Corporation CEO, Gerry Swift for any closing remarks.

Gerry Smith: Yes. Thank you everyone for joining the call today. We appreciate it greatly. We believe we have a very strong foundation. You can look at our balance sheet, we're in an outstanding position from a balance sheet perspective. With the Project CORE issues, we talked about having the $100 million in future run rate is a huge value from a low-cost business model perspective and a huge value for us in the ability to go off and hit our guidance for 2024. I want to reemphasize that and have an outstanding 2025 type of platform to build growth and build value for the shareholders. So, again, we look forward to future calls. We're going to continue to focus on driving growth in the business. And as I said, we have line-of-sight into additional costs and we're going to continue to go after that and put ourselves in a position to be the last person standing in this industry. Thanks, everyone, and have a great day.

Operator: Thank you for your participation. This does conclude today's call. You may now disconnect.

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