The ODP Corporation Price & Performance (ODP)

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 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 The. Today's call and slide presentation is being simulcast on our website and will be archived there for at least one year. I'll now turn the call over to Jerry Smith. [indiscernible] Thank you, Tim, and good morning to everyone joining our call today.

Thank you for joining us today to review our results and accomplishments for the fourth quarter and full year 2024. The 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 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 The 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. [indiscernible] While our recent results have been challenging, we've been working diligently behind the scenes to change our trajectory position ODP for a stronger future. We 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 strength in supply chain and distribution operations, or realigning our business making target investments in our core capabilities and strategically position 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. [indiscernible] at its core is what our B2B pivot is all about. Transforming our business unlock sustainable growth, and long term success. [indiscernible] Looking back on both the highlights and the challenges, it and our recent progress in positioning our business for future growth, 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. 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, [indiscernible] 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 and are opening new and exciting avenues for future growth. The first of these is in the hospitality industry. A growing $16,000,000,000 marketplace [indiscernible] 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 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 [indiscernible] impacting our operations and customer behavior in some of our major markets in the The. [indiscernible] 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 and we've been working to drive demand by introducing new products and partnerships deliver greater value to our customers. We've expanded our product assortment to include celebration category and greeting cards. While also enhancing our service offerings with TSA signed 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 [indiscernible] 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 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 continues to grow. Meanwhile, in our supply chain business The, [indiscernible] we made remarkable progress attracting new third party customers delivering impressive growth in third party revenue. Up 150% compared to the same period last year and up over 50% overall in 2024. [indiscernible] While these challenges weighed on our performance, our team has been diligently aligning the core assets that form the backbone of our business 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 distribution supply chain segments. This included the largest enterprise contract we've ever won a landmark agreement valued up to $1,500,000,000 in revenue over a ten year period. We're making solid progress on boarding 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. And 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 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 $16,000,000,000 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 and 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 Verra's unique visibility capabilities where customers can view product availability lead times, deliveries, 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 reoccurring in room supply needs as essential to run hotel operations. Resetting rooms between stays, and helping our customers exceed their gift expectations. This includes providing high quality carries and towels, such as robes and slippers and towels, to elevated bed linens, such as pillows and duvet 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 $16,000,000,000 per year hospitality supply industry. A large industry that values our core strengths 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 acquiring 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 $60,000,000,000 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 new standard of quality a 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 Optimize for Growth plan. [indiscernible] 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, [indiscernible] 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 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 are 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 The The 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 we continue to optimize our retail store footprint. However, I want to emphasize that while we are eliminating growth investments in retail, [indiscernible] we remain fully committed delivering exceptional customer experience our active retail locations. From a financial perspective, we expect this plan to be accretive to the business generating more than $1,300,000,000 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, have evaluated the current state of our business and the relative strength and capabilities of our core competencies. From this, we've taken action [indiscernible] we made meaningful progress in our B2B pivot significantly strengthening our platform to drive growth in 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 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 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. You, Jerry, 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 10. Please note that our results as presented are for continuing operations. We generated total revenue of $1,600,000,000 in the quarter, which was down about 10% compared to last year's fourth quarter. [indiscernible] 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 $20,000,000 versus $52,000,000 in the prior year period. This included $12,000,000 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 $32,000,000 compared to $57,000,000 in last year's fourth quarter. [indiscernible] Unallocated corporate expenses were $21,000,000 in Q4, Adjusted EBITDA was $58,000,000 in the quarter compared to $83,000,000 in last year's fourth quarter. This includes depreciation and amortization expense of $24,000,000 in the fourth quarters of twenty twenty four and 2023, respectively. Excluding the after tax impact from the items mentioned earlier, adjusted net income from continuing operations for the fourth quarter was $20,000,000 or $0.66 per diluted share, compared to adjusted net income of $43,000,000 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 $34,000,000 which included $70,000,000 related to legal matter partially offset by $4,000,000 in restructuring spend. This compared to cash provided by operating activities of continuing operations of $71,000,000 in the same period last year.

We 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 $25,000,000 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 $57,000,000 compared to free cash flow of $48,000,000 generated in the same period last year. Turning to Slide 11, I've highlighted some key performance measures for the full year 2024. Total company sales for the year were $7,000,000,000 compared to $7,800,000,000 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. [indiscernible] as well as lower sales volume in ODP Business Solutions. As reflected on a full year GAAP basis, we recorded operating income of $163,000,000 versus $330,000,000 in the prior year. Full year adjusted operating income was $173,000,000 compared to $351,000,000 in 2023. Adjusted operating income from continuing operations excludes $70,000,000 of income related to legal matter monetization where the company is engaged in legal proceedings as a plaintiff. Offset by a total of $80,000,000 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 was $114,000,000 or $3.3 per share, compared to $263,000,000 or $6.61 per share in the prior year. Finally, regarding cash flow for the year, cash provided by operating activities was $159,000,000 compared to $360,000,000 last year. CapEx was $98,000,000 in 2024 reflecting growth investments in the company's core operations. In total, we generated adjusted free cash flow of 33 The, I would like to cover our business unit performance starting with our ODP Business Solutions division on Slide 12.

ODP Business Solutions faced a challenging year as performance was influenced by a persistently weak macroeconomic environment and difficult business conditions. Elevated inflation, tighter budgets and reduced enterprise spending, all within an intensely competitive landscape. These headwinds persisted into the fourth quarter Revenue was $827,000,000 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, [indiscernible] 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 $25,000,000 in the quarter compared to $34,000,000 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 Jerry 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 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 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 13.

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 The the effects related to the severe weather negatively impacted sales. Reported revenue for the quarter stood at $784,000,000 a 13% decline, driven by 47 fewer 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 $30,000,000 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. Are expanding our value proposition through a multitude of partnerships, including with Telos for our TSA sign up programs now available in about two ten 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 Now turning to Veres' performance as shown on Slide 14. Bayer 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 On a consolidated basis, Vayer delivered sales of $1,100,000,000 in the quarter, primarily derived from supporting the purchasing and supply chain operations of ODP Business Solutions and Office Depot which are effectively eliminated upon consolidation. Bayer continued to make strong progress with third party customers including on boarding and executing upon a major contract with one of the world's largest social media focused e commerce companies that Jerry mentioned earlier.

Being mindful that some of Aire's third party profitability is accounted for as contra expense instead of flowing through revenue, For Q4, Vare delivered third party revenue of $20,000,000 up 150% over last year. Vare drove third party EBITDA of $1,000,000 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.

It's great to be here with everyone this morning.

I'm Adam Haggard, Co CFO. Turning to Slide 16. Our balance sheet and liquidity position remained solid. Ending the quarter with total liquidity of $644,000,000 consisting of $166,000,000 in cash and cash equivalents, and $478,000,000 of available credit under the Fourth Amendment Credit Agreement. Total debt was $279,000,000 Moving on to capital allocation. We continue to execute our capital allocation strategy primarily investing in our core to drive the future of our business. Invested $25,000,000 in CapEx in the quarter. Targeted in our supply chain operations, distribution business and IT innovation to set ourselves apart The the industry. [indiscernible] We also bought back $43,000,000 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. [indiscernible] positioning us to capture the growth opportunities Jerry discussed earlier at ODP Business Solutions and Aver. 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 Jerry, I would like to make a few final comments about our optimize for growth restructuring plan and outlook.

This is shown on Slide 17. As Jerry 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 consumer and 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 $185,000,000 The $230,000,000 while generating a total uplift in EBITDA of $380,000,000 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 $1,300,000,000 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 $16,000,000,000 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 Jerry.

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, [indiscernible] are genuinely excited about the future of our business.

Our core competitive strength such as our robust supply chain, advanced distribution capabilities and expansive B2B customer base [indiscernible] 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, [indiscernible] 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 and we're actively planning to target these segments in the future. Finally, [indiscernible] 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, [indiscernible] reduce fixed costs Together, these efforts form a powerful formula for driving future growth 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. Our first question comes from the line of Greg Burns with Sidoti. Your line is now open.

Good morning.

Can you just talk a little bit about the genesis of the hospitality deal did they come to you or did you you source that deal internally through some of your external growth initiatives? And then now that the deal has been announced, could you talk about maybe the market reception to that deal and what 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 on the traditional business side with that customer. And it really came from a question of else can we do for you and the procurement person there had the vision of had a need for a reliable world class, predictable supply chain. The started the genesis of it. That person saw five different The. And on stage in front of our sales teams basically said despite our supply chain The the key weapon is going to be a differentiator for us, which we've been saying for a long time.

We're super excited by this. This is an indentation only type of industry. It's complex. It's hard to but our supply chain motion has that capability. We have visibility tools for their franchisees and for their customer base. Will be a lot of joint sales efforts across the board but we're we have spent a long time working this. This was not an overnight piece. And it took a lot of time and effort. We realigned the entire company to go make sure we got this. But we are super excited because their distribution partners are limited. And so The 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 that The made the investments in inventory already. And so we're ready to go. And it's just a matter of it's very early. We literally just launched in the last couple of weeks.

We're going to wrap this up and it's again, it's a 4% to 6% 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, The partner, it gives us tremendous credibility from a because we've gone through the The they've gone through the due diligence and the of us as a supplier. Also got calls from related industries as well, a part of The $60,000,000,000 segment that I spoke about in my script. That are 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 adjacencies. I'm also super excited by the actual suppliers The are new to us and we ramped those up very quickly and our team did a great job at that. We're partnering with our our partner and the suppliers. But 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 one of the providers, we're going to do joint go to market together, do a lot of distribution for The.

There's multiple angles of growth here. And we think it's I believe it's the most important inflection point in the company in the last fifteen years versus retail and versus versus our core, this is a growth sector. This is an area that 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 this like a hunting license? Do you now have to go out to the individual operators and secure business? 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?

Yes, it's a combination of both. There are some products that they've given us exclusive distribution The. So that will be helpful once 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, The ability for the partners and the joint selling that we're doing with that distribution with that The hospitality partner having joined sales and go to market with that 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 I'm excited with the go to market. I'm excited with the go to market with the suppliers as well into their customer base also.

Okay. And And we're shifting assets sales assets to be a exclusively dedicated on the hospitality segment and hiring capabilities from the outside as well.

Dave and his team have done a great job put 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 have aligned and invested behind this. Okay. And then with The optimize for growth plan, the cost savings and The the uplift in EBITDA you're projecting, what is the timeframe of that plan like when do you expect you mentioned, I guess, dollars $380,000,000 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 The 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 will be more savings and more costs on the back end of this this program. One thing that should be said is that we're looking at roughly $30,000,000 to $40,000,000 of cost and we're but subsequently we're looking at savings to match that cost. So it's a net neutral overall experience for the organization. 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 the acceleration of the optimization there and The of the refocusing The 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 optimize the shareholder value of our 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.

Good morning. This is actually Zane Brock on for Michael Lasser. Thanks a lot for taking our questions. Could you please discuss your assumption for the growth in the B2B office suppliers market this year? And within the core segment, what are your expectations for ODP's market share through the course of the year?

So, if I Zan, if I heard you correctly, you're looking for 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?

Yes. Just wanted to share 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. There's a it's becoming more and more fragmented as time moves on. So market share is a little hard to gauge as what's going on in the office supply sector.

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

Yes. Look, I mean, overall, what we're looking at, 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 The. 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 2025.

Thank you for that. And my second question [indiscernible] offset a likely deterioration in the B2C And as a part of that, what is your what is the minimum CapEx that is needed to 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 VERA business which will help offset over time Obviously, there's timing windows, but we believe The 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, but the reality is the opportunities there we have the entrance in, which 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 off and go do that. John is going to go grow his business and over a period of time, 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 it's 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?

Yes. 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 Zofield with Noble Capital Markets. Your line is now open.

Hey, good morning guys. Thanks for taking my question.

So you guys touched The really on the guidance in prepared remarks. Can you guys kind of expand on those remarks and maybe just add a little bit more clarity to them? Yes.

So Josh, it's Adam again. More or The, the new customer segments that we're heading into are The have a different pace than our normal customer base. And because of that different pace in revenue, we are we're in the early days, right? If 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 meaning However, it does it does give us pause with coming out with guidance right now just because of how that pace is is going to work within our business. Not only The, but we're reinvesting 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 obviously, you guys are seeing really good growth in that kind of hospitality segment or future growth. And that it seems like it's a bright spot for you guys Can you guys talk about really maybe The adjacent markets that you guys maybe have seen? Is there one that maybe has a bit more interest than the others?

Maybe healthcare, cruise lines you guys have mentioned before. Can you guys just talk about a little bit of that pipeline?

Yes. I mean, obviously, if you think of towels and sheets, and amenities, all those are you go down the line, crucial. Cruise lines, hospitals, nursing homes, prisons, healthcare from a hospital perspective.

All those are areas that we've had inbounds already from some of The sectors. So all those are potential. That's why I keep trying to highlight the importance of supply base.

So we'll have over 60 new suppliers from The space and that's makes a huge difference because it allows us now an entry an immediate entry in as we get these inbounds to have conversations of how we can fulfill.

And that's the $60,000,000,000 segment.

Yes.

Okay, that's helpful.

And then I guess last one for me is, can you guys obviously expand a little bit just kind of on that free cash flow decline? Obviously, it was negative in the quarter. In adjusted free cash flow way. Just a little bit more clarity and color on that.

Yes. 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 investment that was there. We also had a working capital investment with trying to get ahead of the tariffs And then The other working capital investment we had was going into The 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. The were it was an investment that was consciously made And yes, that pretty much sums it up. Thank you so much, guys.

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

Yes. So we thank everyone for joining the call today. I just want to emphasize The 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 they're one of their preferred partners. We are starting to ship product. This opens up the $16,000,000,000 market. It also opens up the supply base I spoke about opens up The $60,000,000,000 market and 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 do 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 we're currently receiving from a market perspective. You everyone for The call joining the call today and we look forward to talking to you in the future.

Thank you for your participation. This concludes today's call. You may now disconnect. [indiscernible]