ODP - Earnings call transcript Q3 2018

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Operator

Good morning, and welcome to Office Depot's Third Quarter 2018 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 Office Depot, today's call is being recorded. I would like to introduce Tim Perrott, Vice President, Investor Relations. Mr. begin. now may you Perrott,

Timothy J. Perrott

company's CEO; Good our will the quarterly morning, Depot's is progress divisional us Office On well Smith, for of and Perrott. Vice our highlights President guidance XXXX. and an thank during achievements Quarter XXXX for update you CFO. our Gerry Third with including then This our call, noteworthy review results, for guidance some will financial am joining of the our Joe including Earnings performance, towards as quarter Lower, I update business, Executive Gerry for transformation. today's provide here and and XXXX Joe provide Conference Tim and the on initial Call. the as on on an our

comments, Gerry your for then some the closing have questions. up open will remarks, we'll Following and line Joe's

current I'd begin, company's of Act include These uncertainties expectations these we comments actual call is could SEC. in events concerning that to you this to statements of discussion the Before Harbor results on to which that to made the Litigation reflect Reform like detailed subject forward-looking Private Securities materially. Safe the differ statements, A certain cause filings factors forward-looking XXXX. of inform are factors and are with the a of subject number future uncertainties company's and contained the and provisions

the I our presentation simulcast on Today's will at Depot's available now investor.officedepot.com. call be to year. Smith. the today's at measures press measures and non-GAAP the slides we non-GAAP call Office of as presentation performance. some website CEO, on During the and we will GAAP directly as SEC comparable to is slide financial as well release, over use financial the and financial for comments most one earnings Gerry will call, accompanying archived reconciliations filings, The measures turn least are all being describe website the business our

Gerry P. Smith

you, It morning everyone and to be transformation making our joining today. for you and Thank discuss that significant the this the are quarter Tim, we to results to call great efforts. with is our on our good progress morning here third

Our again strengthened both more evidence division, our that provide and business our achieving benefits that business our an on building to way sales are strong quarter and our we well results organic goal BSD core provide the sustainable basis. our In of in results growing for tangible we quarter, this total a on drove very will stakeholders. with and all

our double services grow sales high-margin to digit segments. in continue service in our increases Retail driving businesses, We both BSD and

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phase our the one number core sales gaining during plan. our our mentioned we As priority had in strengthening of growth in been past, initial has business traction transformation and the

year. the that this again, great we quarter making this XX% increase progress $X.X area show versus revenue are prior of results, we billion, a as sales generated Our in

BSD is compared trends business. as on revenues division, businesses, grew an clearly sales and the major up of organically very to In of in core most were last our eCommerce X% to year, importantly, While the our third approximately X% pleased over and we organic year-over-year are overall down XXXX. quarter X% distribution in our in acquisition played which growth, role improving a CompuCom we see our BXB basis

to Our versus declined revenue. in growing have Division, on the part our continues prior representing although approximately BXB of In quarter XX% X% a business basis. largest Retail year, the improving enterprise, be sales of we year-to-date shown our trends total our

XXXX offset at recognition impact the during sales the down sales the period standard, CompuCom. in same these down Excluding of trends XXX X% XX% prior as Both new were of basis the lower revenue improved retail revenue year-to-date points improvements to year-to-date year. compared

their experiencing will of of CompuCom elaborate from largest impacted was significant who lower later, I one a currently by sales As customer, is business. reorganization its enterprise

our strengthening their addition omni-channel continued positive that business am the what year in focused powerful pleased Total company. trends I services was is a growth on has report than also strategy revenue growth services In quarter. ago. the core, revenue more services from it doubled to creating a to

CompuCom. in came the in increase that growth this combined of of to CompuCom acquisition, we Divisions quarter. this traction out Services a the strong from Retail began and year. our across of grew rolling performance enhanced subscription-based much services revenue earlier and we revenue result While BSD that outside I This accelerated services XX% the the want highlight is offerings

Our profitability growth are quarter disappointing of the despite CompuCom. remains investments solid making future position the and to us the in we results for

in to building to improve We capabilities our investing invest service customer experience. and are continuing

business. key end grew million And investing capital at balanced And stores, finally, business company. importantly, driving quarter new prepared are to flow for drove in drive which to elaborate operating the generated in the will $XXX year, in our and now in our with cash of to of was We're free year-to-date, already and million. We the levels $XXX guidance last growth the and when I our cover comments. in highlights the that we few XXXX. and strategy a a million. we and income elements for generation. year. continued of flat capital, in as our stimulating a of very will income support quarter margins on third his distribution investments in all making this XXXX, million, up additional in Adjusted a cash making pivot guidance his highlight mind, strong evidence Through of discipline result XXXX. in websites, Throughout period. leads $XXX million accomplishment, the will generated this our is division our this particularly flow operating position both our continued considering the the in on EBITDA This of X% be are business significant for resulting can to our cash surpassing adjusted and year, in on our the later our throughout as extremely are the the guidance focus With operational This core, deployment in of strengthened remarks. raising services. shown for best us we we as We are sales to slide for progress priorities, also we we our BSD approach our found technology generation quarter. $XXX quarter, $XXX performance $XXX efforts the this are free issuing our million Joe Joe new X. cash higher demand in made flow have deploying and our high we working in we've free highlights of centers

trajectory delivered As strong row slide I'm continued this have The very Most of to piece a third has come. in the as started on and you growth of year believe success there as we are in over the trends proud factors in and ago a BSD that representing decade, know, grew team more the is performance quarter our positive best quarter, importantly, changing sales shown success BSD is There business. division in and our our several growth. BSD of BXB the its business. eCommerce their distribution its X. a organically dramatically of underpinning critical

resources mentality we channels of a improved help year is pipeline acquisition our First, have all build customer These to across our trends. of leading selling satisfaction retention us efforts a business. customer-focused scores customer carried and and strong that last reorganization new into increased our

marketing last the to enabling effectively with year focus towards we digital and on Second, and efficiently demand engage our customers. us generation made is shift more

we've eCommerce in conversion For seen the positive rates quarter sales, our in a row, third business. traffic and

additional opportunities generated as More are result combination, leads a of and being opportunities. our CompuCom. are with are Third, we capturing sales cross-selling we many through capitalizing growth on these

our still in to add to larger in level and year-over-year total for in of industry approximately on within the XX% progress a This experience like in we One resources capitalizing growing as capture as to I the capabilities this built strategy SKUs the believe services base. cleaning opportunity. highly growth Jan-San support BSD. our order print, breakroom moments is and current stages drivers our opportunity. and with adding and which well on share has We adjacency are on began to X. offering within this we spend dedicated pursuing now to wallet BSD adjacency and growth categories such generally have customer categories they as business of category our late opportunities existing Overall, adjacency We and particular, technology industry included as our strategy and significant cleaning of key have customer the this products. I of last organization with partnering is a furniture and offers early vendors aggressively as the growth in believe few account base. the quarter, our our XX% selling key growth and grown a includes operational fragmented, year, would includes breakroom, shown copy slide penetration This low of sales. in All deep assortment new across grew

strategy, by over to our to in component year and drive to in improvements gain services BSD and in the service continue primary before demand us. traction. and and Services transformation last the as businesses traction our Retail are we grow our continue trends to opportunities continuing efforts As we encouraged gain are both seeing our capabilities the are of

services, as We services print the marketing third services, ship, of in also and pack which all and major such drove Copy our categories. includes print and grew and service finishing quarter. documents in growth

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and strong showing signs which already are as of storage and capabilities, new is launching Software-as-a-Service service, as well IT-as-a-Service and demand. services We including also shredding

We services. are subscriptions We offer office wide build subscription-based also including reoccurring offering supplies others. our with licenses customers convenience relationships the working breakroom products, many of supplies, and to for by software a among of array

our and to have significant these stores improved our subscription-based sign traction We to continued we services point-of-sale online. up quickly customers to while systems in gain or for our have

subscriptions business quarter, third to the the in of is subscription it's up more quarter end from Our rapidly, climbed at second the approximately of end the XXXX. double growing and XXX,XXX than

most in in brand of retail and reoccurring experience through As expanded Investor we location. revenue share Meeting offerings. services Depot's streams. umbrella and services appointment service Workonomy introduced by this May this and Office our our by during business year, profitable We being propelling of will most revenue SMB driving stores, by SMBs for comprehensive the drive online by our for growth sustainable, our business customer's achieved Workonomy solutions and is accessible the

print range Our will where marketing installs from and need and solution diagnostics, when CompuCom managed repairs, from SMB a field service. they and our serve services our stores highly well and copy proven complete industry-leading and as customers technicians in services certified the IT-as-a-services and as our administrative The to in solutions.

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this quarter are rolling out We of Workonomy the fourth in visible year. in manner more a

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us. opportunity We are by very trends market encouraged by front the large these are of and very in excited

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event subscriptions For to new example, of completed offerings. Training we XX,XXX expertise skills develop around stronger for recently selling associates Depot over services and Days of our our our and second

investing are sales associates We instead order and to takers more of develop productive stockers.

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and also We're experience our a new to our and to continuing our focus customer services capabilities them are We front care. rolling highlighting layout, invest our enabling out on in improve up services to officially bring modifying in-store market. platform and technology store to investing capabilities, services with

also LED in-store thinking are appearance evaluating value technicians footprint. to (XX:XX:XX) cost-efficient ways in our energy and Retail investing serve about differently needs. in upgrades, additional benefiting available experience space specific broadband drive and to our lighting from costs with We We're also are our and customers' the

evaluate continuing bring to within customers. to store opportunities For offerings our and drive to traffic example, a store we're increased expanded

services to in more SMB our designing making and easier to both customers to out leading in technical of are our in in to terms approach our also reaching more access localized customers and communities services. demand. an offered service-oriented, taking for We We're of a be increase stores terms our expertise buy it

California, excited of very the the positive is have launched an early the are Gatos, about One in we receiving. and the we are co-working that demand we customer that has both higher co-working this for products our report At and remain areas been terrific. to in store. still and early opportunity attractive while than feedback test store for offering, been we and services average pleased feedback results showing in-store I'm at service phase, and are location, this also driving very Early has learn demand strong better our in sales Los

about and excited year. the test in co-working are and opportunity learn in are We the coming additional space this opportunities planning

XX us of I our Retail human our As Of component online spectrum strategy as services to deliver the making I X-mile nearly in within approximately year-to-date one view distribution-only our allows and increasing SMB up Pickup XX% as offering, last our Online our of in in of million when stated of in The million of differentiators stores. Buy be past, footprint purchase. It primary increase an also and of X the can a customers, year. over omni-channel interaction versus our and or importance prefer Retail are those key a which radius a competitors. of solutions Store to is seen customers continued presence compared our sales this

these trends am accomplishments best practices education-related important contributed I that and relative progress continue Back-to-school improving planning. XXXX results, drove where in in year to season. BXB We from In discuss selling our offerings. particularly solid and improvements continued performance back-to-school On take I'd we those with our area with efforts of to through preparation the our back-to-school in CompuCom. to already be like enterprise-wide time the quarter. back-to-school our continue we value We into now drive a were was a basis, early our our as to many of prior are meeting the our incorporating team some our strong relative proud education all our will an operational year, business. season, consumer-dominated very and realized to opportunity ago. a have also to sales heavily expand plans to

competitive grow As distribution brought slide new CompuCom X, valuable unique us allowing business-oriented are attract the acquisition services to capabilities a that shown differentiator and on partners. to our business and customers

We cross-selling are the are in already scaling capabilities SMB the opportunities and CompuCom address opportunity. successes large we to seeing business, across

results which Unfortunately, operating business. a lower its Their income. clearly progress, reorganization were customers, of with both this significant a by had and experiencing pleased we is one this are currently impacted its sales sales operating impact from on the of negative Although quarter were CompuCom's results for disappointing. largest

taken essentially Excluding said, improve been would performance. we impact, operating sales to flat have this have several being That future actions year-over-year.

entire introduced recently have their and dedicated to we a better leader customer organization ensure reorganized alignment clients' customer-facing of First, needs. have success our

the creates Second, we improve the removing improves streamlining a organization organization and operations flattening efficiency speed are structure are layers groups, and being and made. accountability. within agile our This the in significantly and which decisions velocity services to more

and tasks efficiency to routine We automate costs. improve the of to opportunities are the reduce pursuing organization within many

these was sales these help over growth. improve opportunities with on realigned have a they and significant as customer and wins operational these number a quarter on marking we experience other reduce that This year, numerous wins our consecutive expect a satisfaction, to new initiatives strong of Heading third, organization. well remain future encouraged for have their XXXX. I'm identify growth as the very service customer leader in fulfillment our far of and about bodes transformation and said, pursue us competition differentiate opportunities CompuCom's service us customers the next we of traction in by us CompuCom in already that as brought and for will drove services in could delivery fifth will nearly growth CompuCom year-over-year Year-to-date, key And, increase our logo new the impact very decade. we within pursue expect pursue all new new service more their cost XX% important strategic and of surpassed last with the industry positive initiatives our our to existing CompuCom We all have sales this order customers, growth to teams compared over performance for first service orders. Their in the from effectively improve quarters. without for several over developing also that an partnerships positions and for customer them. offerings us encouraged average, business. opportunities That and the world-class actions order in strategy have not we base. team, a a remain asset for step

growth of me to you combining past, opportunity. services-rich true As acquisition business heard customer-rich the a from this in business our with power comes powerful the say this unlock

our entire captured Year-to-date, services. to are across a CompuCom's opportunities, IT energy we value. has introduced our totaling only these We relationship, capabilities We've over captured to of These opportunities total made cross-selling in have that award-winning including several platform major wins combination leveraging with customers. via already omni-channel major millions are access contract possible that business by our several contract CompuCom. $XX combined million was

to XX, we and and how to about chain Turning now slide I'd are our like expanding talk network distribution supply capabilities.

chain a supply continues and business. backbone the to significant our expand network our our to competitive of As advantage business, provides

network approximately XXth with chain capability a services of ability capability to over XX.X% deliver on to desktop. in supply industry the the is as Our to largest unique U.S. national America the to a as well delivery provide the directly population few this next-day scale. in North have Very

supporting business a other our for centers, infrastructure network over as and affiliates opportunities. This ensure over to differentiator Depot and of in terms We over cross XX supported square serving our operations X pursue of Office strategically dedicated feet service by as critical combination This customers. commercial in fleet of a X,XXX facilities well positioning located space. seamless have is million last-mile transportation us vehicles for representing and distribution is both docks us to

increase areas investing costs. and lower network in of our further several are capabilities our efficiency to and We enhance

and fleet are and with automated facilities We new technology robotics. to our private making upgrades growing our

our and orchestration We gain into to new software system are to supply better implementing improve performance. chain visibility

also installing to profitability. make optimizes the improve are level, new greater chain We to allows decisions to and more SKU and that the ability supply costs software our network insight informed down providing

for reach Additionally, target our geographic effective an network. by has in distribution of new and previously means by allowed reach distribution network profitable expanding business that acquiring companies our This underserved distribution we were and the expand identifying accretive are to areas regional and customers. our

business investments are of service which returning I our opportunities from by in Hopefully these the supply services have in businesses utilizing third also to as growing This omni-channel customers, as confidence beyond our operational to We realizing for recently our utilizing over excited a a that the traction all as provider. With am excited I pursue three future. our benefits across otherwise our opportunities and third-party parties. chain number Lower, by detail these we us services and wins provided. such in conveyed on positions our I traditional to call Joe We provide empty. companies we trucks including deliveries our notable the are signed supply services will business turn backhaul potential more are the I've for and gaining a will unique that, CFO, the grow chain results. the financial

Joseph T. Lower

Thank to everyone. discuss be today Gerry, I'm results. our good you, here quarter third with happy to and you morning,

mind our results part from As comments this basis the from for of period. the past, business we Office quarter adjusted that the on XXXX primarily as the only, have the the My was Also, basis. adjusted for CompuCom performance we prior-year provided both an operations. in Division of not have continuing operations a address Depot the basis company GAAP our and on financials results third total continuing will include in in keep

Solutions Business which the addition XX% and impact in XX% our quarter, for CompuCom the a of a of growth Total the the Turning the revenues driven $X.XX for decline sales adoption sales total acquisition third reported revenue Retail the service-based our same than driven grew XX, compared $X.XX a third across of third as have Division, results business well highlighted of primarily XX% services acquisition, that in period by Underlying XXXX. grew trends, to of sales CompuCom year. segment. prior totaled within revenue X% sales to than of more billion XXX%, with combined we double the service last in representing offset generating On the the for CompuCom The company total growth the slide quarter performance quarter in BSD key or measures year. quarter our continued new excluding was XXXX as in the standard. increase some sales billion more in by the the of sales third the basis, recognition improving represented Retail and our

quarter million, increased operating prior to GAAP $XXX Third flat income year. with

the acquisition-related the During quarter, $XX related company costs operating integration, activities. approximately incurred of merger million other the restructuring and expenses to

third and Excluding these CompuCom items, our accounting million periods in associated higher of expense was include adjusted in the Both The quarter the $XXX operating related income to million in $XXX primarily million, EBITDA the a increase negative $X did in prior-year the presentation third expense due year-over-year. and million of quarter increase impact $X third period. XXXX million prior plans. from down quarter the Adjusted in in X% quarter with representing change benefit year. associated third a the with was exist pension of acquisition million defined depreciation the the to impact XXXX. amortization compared XXXX was $XXX $XXX with prior of to standards the that The was in in the associated year, not

share compared or or after-tax continuing $X.XX the year. quarter the share in a earlier, net items mentioned $XX $X.XX operations adjusted $XX impact Excluding was million million income the to from per third from prior

activities performance a being has $XXX company-wide by million. in and we've operating quarter. our of results Free million generate to cash flow. provided solid $XXX of was for flow On guidance continuing already has the been million us free in year, allowed cash entire investment free year-to-date basis, strong the operations XXXX, particularly flow the on $XXX for with of cash $XXX the operating an focus Finally, Overall, with working flow million cash generated cash of capital our this quarter in of year. context exceeded third has

players important BSD $X.XX XX, which Reported or of highlights with the quarter the year-over-year to the were reflects of Let's Solutions compared strategy our year. business acquiring performance business. a trend and expand and reflect in base. increase our BSD third positive results sales our the improvement basis third organic points distribution approximately note, a quarterly Of to the customer now XXX growth for the of year. billion, prior related in that Services reach of sales stated niche BXB an continues first sequential X% XX% this X% year. X% markets localized product of our The selectively versus to in balance for focus heightened increase priority, distribution revenue the growth for turn to sales selling growth BSD, the of the quarter increased Division, reflecting Business prior our slide strategic increase of increased quarter in the started and

in I contract by million continued division. the primarily year's other partially am year versus making our increased operating our operating and BSD prior testament strengthening This in services offset by very in investments year. total reflecting compared progress year organic The cost see our and driving and eCommerce in XX% in driven were period. $XX implemented BSD the the higher in in been in our to improvement our that reduction in categories, with platform, initiatives and strength demand prior $XX performance decrease We up we quarter, our which have is pleased channels. prior are million past both the margins generation adjacency to a over third core. in great over the gross period, to growth The the division income was reported income of

down the X% the adjusting new new in resulting the partially prior primarily over million negative decreased X% the by standard. store $X.XX impact increases period. the were the reported billion of X%. $X.XX for the partly as order due prior revenue impact were the the year, Division revenue third impact our approximately declined for sales fewer average revenue to On of months Retail well sales of sales Turning recognition recognition the compared was volumes. in as impacts Comparable to store transactions. reported basis, to year to from $X total slide versus XX driven by quarter in billion past after of These closures adoption to offset standard, in The XX, sales decline a comparable

Importantly, of last Online Store on store improvement our season Retail trends compared points a Retail back-to-school a results offerings. is basis, was of fewer basis revenue Buy quarter. to a Pickup year-to-date result our growth closings, in year. our This and improved contributor accelerated in The to conversion an big the dramatic XXX improved

Gerry As and sales results operations enterprise-wide improved our plans met reflected addressed the effort. and an earlier, coordinated

capabilities leverage trends while sales quarter strategy our services the year-over-year. prior offering, services in the is benefits This subscriptions, XX% of impact demand omni-channel third recognition. has our generate platform. positive success in effort revenue Retail our digital grown year-to-date Copy which an prior-year Buy Pickup the and unique technology XX% Our our marketing to increased as print, year. excluding Store and evidenced by presence important incremental to reflects and revenue component of the our through concerted Online in compared X% all omni-channel of Product period, decreased increased versus

in platform stronger, due $XX closures, connection million cost margins We services on to in services store with and in only in to and decrease efficiencies. experience, is volume operating with investments the Division offset average. million sustainable lower coupled $XX of period. the versus higher income of are was in-store our by This Retail the deleveraging XXXX year-over-year third in a quarter largely related prior-year and which enabling customers reported terms in generating encouraged by both growth The of more partially

our closed to Division. we store stores, quarter, count our the Retail two bringing in X,XXX total During

performance highlight of XX, Division. Looking slide CompuCom the at we the

results part I in in quarter for mentioned the Depot as of period. As reported of was only include the not CompuCom business XXXX the Office prior-year earlier, financials third

presented business, provide the historical quarter purposes of the for the made more adjustments we of restructuring third historical have sales only. for results sales this $XXX of year-over-year were versus the million, closely third adjusted Reported in acquisition Depot's costs The the XXXX and format. period. into align the take performance unaudited reference in with into results for the X% Division to account However, down perspective $XXX of greater prior-year XXXX reporting to CompuCom historical to Office quarter million treatment

one from million CompuCom sales orders. client the to these an The contracts were third a one reduction sales impact, the with XX CompuCom's After of to Services. CompuCom been over would bodes significant revenues year, revenue to as operationalized the represents of associate operating wins X XX% related CompuCom $X historical future quarter the XXXX income for the in compared of adjusted year-over-year. results. momentum accounting As in quarter This million months. get partially reported initiatives $XX its Division The in well significant in a is unfavorable approximately in to this down up customers and coupled going next service to impact decline in customers in the mentioned primarily gaining adjustments through largest service prior-year for one-time was Gerry addressed operational to largest the enterprise fifth decline the investments as mix, compared orders is at reorganization the support earlier, consecutive growth quarter of quarter demand occurring with restructuring of period. in from previously normalizing which due CompuCom's that product in with flat have new growth last for year-over-year

to more of implementing (XX:XX:XX) business general administrative improve Additionally, have expenses tends impacted administrative and result changes These reduction the for addressed, to also acquiring and which customer disappointing. as loaded, a a efficiencies. And of front-end in profitability quarter. are as be several the very brought and needs with alignment These made new our impacts initiatives leader in Gerry results targeted earlier recently sales company. cost selling, structural we cost new the lower and

and profitability other we quarters. improve confident we the changes With in these we coming the are and making will business, in that margins are

and of XXXX total of million Total million end consisting and million Turning of under $X.X in XX, timber $XXX and facility. quarter of $XXX debt billion, related the ended with to sheet cash cash $XXX we liquidity slide third was equivalents excluding balance availability cash our of the non-recourse the notes. highlights on flow quarter to million the lending asset-based in $XXX at the debt

slide to $X our $XXX third expenditures, The service excess strengthen business in operating we by quarter performance cash continuing total to the were approximately our in inventory and well invest as in approach free capital costs, costs. our included XXXX. $XXX we balanced Incorporating integration-related continue $XX generation outflows million. third free operations excess in activities year. and to continuing was generated million in our of Contributing to continued and capital working OfficeMax of $XXX robust growth. significant year-over-year to expenditures quarter cash the investments core million cash significant guidance $XX $XXX and well of earlier free and our provided related working in we payables acquisition allocation. For of future costs operations the flow was merger On generated the XXXX, million, the of capital. particularly of for XX, This of reflected Capital flow highlight from in million strong capital to improvements restructuring an improvements reflected XXXX. quarter million flow of $X million during cash totaling third as commitment million to Year-to-date,

distribution debt, focused flow. and cash remain priorities million network in down have operating dividends, Our Year-to-date, generated on expanding we servicing our buybacks. paying $XXX share

announced, the as building available businesses we $XXX Additionally, Zealand, for investments relating New our capital our a against $XXX considering cash and have generating of the to platform million our we in in strengthening our in of cash. to core total future deploy million previously we had and growth, year-to-date Australia completed in $XXX million sale After priorities.

we million, quarter year-to-date, per $XX consistent million now schedule. we of per repaid and paid $XX loan shareholders outstanding $X.XXX Looking totaling capital our our at repayment allocation with to have term share have

the our $XXX grew of cash acquisitions buyback an invested since priorities, balance ending share our our year. our business $XX we reinitiating meeting of increase in balance of of these program and back cash million third year. we beginning our end the earlier to million have shares million investing to capital million quarter, in distribution and the After to the We by this have over bought our since expand $XXX $XX network,

of we reducing are on given the would continued we lenders. achieved well we our on reverse focused in of addressing repurchase amount year acquire to and In million our made particular, we more developing We've and end, over XX nor to forward, strength undervalued shares sustainable believe Office have as our a I our million tremendously $X balance as balanced business. loan that throughout existing Depot repurchase to now is the generating, on a like year-to-date continuing XXXX. are efforts business, term plan and Going trends the To sheet, stock shares, [slide to have in reflect not historical discuss shareholders this traction we progress purchasing in bringing total $XX does a the one continue sales equity regain (sic) approach our to and what the XX]. burden excellent we our guidance of as slide shown progress to growth. October, cash

$XX.X ahead communicated tracking cash are all key guidance $XX at now guidance year. versus our original to sales sales this the billion from both are XXXX previously. billion, for our we set and flow. on we again raising We of time, beginning At of approximate up measures the this expect We free

approximately year-to-date, We $XXX working by our expect capital focus cash to initiatives year. Our in operational million cash to in on discipline free the surpassing million us flow now flow year-end. already guidance free prior for generate $XXX and generate enabled have

our for providing our and income for and watch adjusted reaffirming metric investors guidance Finally, million frequently XXXX request. guidance EBITDA, closely we we operating approximately a are adjusted of measure $XXX a

approximate adjusted $XXX million expect XXXX. EBITDA to for We

today. provided this issuing following the year. long-term guidance outlook May consistent Meeting earlier at also the in Investor is This we are with for our We Day guidance that XXXX

both operating $XXX reflects We approximately to up approximately to $XXX million. higher be approximately sales year-over-year, EBITDA X% of approximately sales cash expect Adjusted flow of of X% positive million, approximately billion. year-over-year guidance free $XXX BSD approximately focus distribution million, adjusted also reflects income CompuCom $XX.X and our This as in generation. at cash Division. a trends rate sales flow addressing stabilizing and as Divisions and free Retail continued the It wage aimed trends and well supplier pressures cost initiatives targeted in on

year-to-date growth positioned these initiatives, Given we with we targets. momentum believe we and are performance to seeing achieve our well are strong the key our

into long-term over position to With company the closing entire business call powerful on remains Our a on transforming turn the believe for team Office we to company, his sustainable Gerry focused path I'll right growth. services Depot Gerry? and are that, successfully for comments. back the

Gerry P. Smith

place long-term our Thanks, improve CompuCom. I performance we we Joe. quarter to performance and traction are the our our of positioning at business excited in and for with pleased growth. company the am core in third in the I'm progress making the Overall, initiatives about have

momentum the including Division. BSD guidance well core at on key of in plan, particularly We our the our in top issued are we recapturing the initiatives in trends exceeding as beginning business, of sales we're year, continuing all line as and year-to-date build division, sales the our to in measures key improving our Retail of growth

by Second, and a and subscriptions and evidenced services-based driving building continued our reoccurring business momentum services of model growth as the offerings.

the network free service our enhancing and capital and Third, distribution end the cash $XXX and reach. quarter. very capabilities cash million generate flow lastly, operations platform improvements. increased exceeded our working We've and expanding for to cash free at through And strong importantly, our goal balance flow year, disciplined of our the third

right the questions. are We your the confident turn we call now we are take to that operator and making solid remain path. progress back on over can the and will I

Operator

comes question name, proceed your state first Suzuki. line company Elizabeth your of Our from Please with question. the then

Elizabeth L. Suzuki

Great. Hi. It's America. Suzuki Liz from Bank of

the curbing there? are operating improving you Retail baked margins, investments there are revenue guidance margin, on X% outlook? to expected Or to the services very higher that are you Or mix on margin services? implies margin in do term and of being worse, think getting some in which are that mix. is question the offsets so there near operations larger kind outgrow and up product but improvement, margin given conservatism only flat a and Just mean, to of become slight of then services the product a that be sales continue portion to XXXX I expect

Gerry P. Smith

a It's Good morning, Gerry. more conservative is of This Liz. approach.

Day, all seen we overachieved margin-wise. we've for expectations May, a in you and Back XXXX, remember, flat as smaller in of a As XXXX. we've that proportion said Investor from revenue-wise

we're overachieve, little And obviously, of being perspective. a it's obviously, and so to think lot we're labor up the stronger from But, there whether but conservative. headwinds yes, up plus we're hope and going believe, supply we, And, things, revenue a and plan, X% I we or I other a that across say as are board the Joe from margin – confident services and with plan we're I'll we're the growth the that, conservative. into well. will to that comment or is that the all taking very let chain headwinds a account achieve and

Joseph T. Lower

just relatively Gerry's, first Yes. growing at you Thanks, XX% of albeit still percent sales. quickly, echoing of small a A really Gerry. can of to on comments it's couple business appreciate, services, our XX%

The that heavily frankly, and the business, infrastructure both continue that our continue we both demand just grow generate continue invest I to we and, to build will want the and as second to is platform. thing emphasize distribution eCommerce in

transformation generate So lot invest if sustainable. accomplish you will, this a that continue of profitably, we're grow trying is so cash but to both, to

Elizabeth L. Suzuki

have China? to And Yeah, that how to subject that to what's then tariffs sense. imported being into baked it much makes do relates XXXX as from goods tariffs? you And products income operating guidance on exposure

Gerry P. Smith

in are We headwinds and closely. have monitoring into baked all obviously, our plan, we very that so,

actually sourcing physically, we of China, investments and to there and We any a making spent do we're plans achieve headwinds sales confident over still above. already business have our curtail over and make Again, we're office the and plan that that. place we'll confident in time the we achieve Joe and and investments. all that we're in feel have And building to global I our operations platform outstanding

Elizabeth L. Suzuki

Great. Thank you.

Gerry P. Smith

Elizabeth. Thanks,

Operator

state Our company McShane. the proceed Kate comes question. Please from with next question and line then of your your

Kate McShane

a that Thanks. the And for chance control if the you product longer CompuCom, is couple in if with takes I Hi. large mix reorg, then question. been puts and there customer? wondered a you those And term would and do could bigger it term margin walk What one taking I going question. my ex-the through CompuCom. a change few large us the that I how back? questions to come just was wondered issue, for Thanks forward? around had regards shorter Citi. customer then sales questions a have

Gerry P. Smith

leader Yeah, have though. we're that's lot Zimmer I will really on we cake. opportunity driving back, recover. from have customer onboard be Xerox. always confidence And is there sales to be we large icing going of who imperative. think is a customer clear, many a sales – in years to to He's I'm in I spent really over he services pleased focus Mike to the very there. plus current I a of course, came And taking the very, get that want He come the hired experienced team have. across growth mid-October. If top business. him the on we've of

sales of – early operational issues CompuCom midyear. to invested seeing at are well. We've there as perspective, the we're Office we're a CompuCom the some going with issues have Depot, leadership operational change definitely the into dug at of more. the we and that get model. business saw I we're in What investing – will from So I through we've some say already

with We cost at have we that a better the help operational we even and great and retention driving margins do a will improvements, job working well. think as customer at transformation job of CompuCom, some doing leaders operational can which a team drive is

add there drive we margin. the CompuCom. Those even you work, And the our as we comments to starting is putting try share on in that across our well. don't so focus, reorganization Joe, of things across we're kicking then two of Depot that many Plus, are and cross-selling an more and driving. and lastly, some sales sure focus. up both higher there's being key leaders key and customer operational why the Office top need accounts a lastly, of we're sat of make And to wallet there's of some – and achieve to

Joseph T. Lower

the on the one, three at comment into not just if I you quarter, say, fall but specific to profitability, customer would buckets. and the really margins, we're in look Yeah, going on challenges they

have be; the productive Gerry as have and of can just, have you issue third, single being efficient and relatively items You with referenced, just is operationally not then, associated one-time which operations. some you kind that as the frankly, customer issue;

a relevant. And operations, do will margins the of you over as look to think items we I XXXX improvement one-time I anticipate XXXX. less improve particularly to improve being as fourth quarter, continue see the you result will as

Kate McShane

you. That's very helpful. Thank

Gerry P. Smith

Thank you.

Operator

of next Please comes Michael state with question from Our name, line the Lasser. company your then question. proceed your

Michael Lasser

taking UBS. a Thanks morning. question. my lot Michael Lasser for from It's Good

of year look get core you million what year-over-year. year-to-date light like your be declined there operating to going of to million has income, challenge assumed business? seems Because incremental to $XX as So of $XX have your a by income in operating the and the you it fact that next guidance about it's

Gerry P. Smith

expectations say other of A was Michael, understand closure We're the again. the beginning Well, anymore. driven doing through previous I'll that We've year. We're year. reset improvements. We're and from that our decline things. not structural lot actually store driving the it

us strategy – believe have and And again, actually I've to now. invest step doing in definitely – always said a the we I'm I that of let's second. we're place engine are flow the believe engine us of strengthened May we as structural and could color across progress we'll a will quarters do I'm we're on up free few business. let important. grow again. It's comments add We've core And as cash That's initiatives that lot earnings the well. earnings, year on I'll working that I row, we're us and driving drive and our we to which back to think going we're sustainable put And on very XXXX we're getting pleased a first think substantially. progress three and a the even engine. stronger. plan profit – we we pleased will of services that we've to straight didn't core said is, to that, going said which grow two of very the made BSD core in now the drive margins working people this the grow that get We're Joe have done. didn't think We're I flat, think well we're confident more for a our emphasis reset the from the and have more have year. profit first. and that the that business I've even could we out a going lot doing business. and people committed make with on now. making accelerate And even I we more we now, for in think cash from flow number allow sales have a that to help

Joseph T. Lower

you addition BSD. expect of repeatedly, at to, Yeah. you The operating obviously, add We level, which, mentioned only performance commentary improved we've the I'll in of those the the sales we of as kind just enables between get And improvement. look is average it are if the And a that on improved operating at recognize X% at anticipate CompuCom, drivers has growth primary margin. growing we kind some higher at which high to a services have growth. year-over-year X% leverage us performance and benefit

Michael Lasser

this quarter organic X% it the how where is the and Two BSD to growth more does was questions. compare quarter One prior last quarter?

Joseph T. Lower

a improved if So go you basis it's XXX year-over-year. year, points organically back

basis basis XXX XXX So, points last quarter, from year-over-year. points

Michael Lasser

Okay.

second organically So quarter? on points XXX basis the acceleration of and from both a basis reported

Joseph T. Lower

It is approximately correct.

Michael Lasser

million guiding year, consider you the capital, free million the big saw million working And of $XXX as working improvement Okay. that year, you flow, given then $XXX that quarter capital boost cash that gain in from you're this in next we this experienced should nature? $XXX one-time on a and

Joseph T. Lower

incremental improving in accelerating do. will for will to works we how to working continue generate year-over-year significant as at working million that have Just by sheet. done do of improvements challenge as we and kind to we how one-time then of capital definition is improve continue free which, you Right? looked But strive successfully, and all kind improve work clearly, capital of $XXX benefits. ourselves the one-time we generation of which all have is balance to we levers cash look, are flow very appreciate If and receivables, baseline capital by payments, the nature, you we extending terms, you working we continue

Michael Lasser

Thanks very Okay. much.

Gerry P. Smith

to something that. add I'll

Michael Lasser

Yeah. ahead. Go

Gerry P. Smith

structural in as improvements improvements partners, built payment working on and we place news is though, terms, some well, we with robotics made, on the The automation in is put now. DSO, our the engine good

continue burden company, dividends, us there do to months the supply want so XX cash things of generating to need invest of improvements And in the I the all the business. highlight stock, the which substantial of ago from run to pay buy the reduce chain, to in debt, to allow today, engine is back to will invest we

our return improved so question, on Appreciate it you And the invested dramatically. Michael. for has Thank capital greatly.

Michael Lasser

you, Gerry. Thank

Operator

of Christopher then Horvers. your Our next line company question. question comes from your name, proceed state with Please the

Christopher Horvers

Thanks. Christopher Horvers, JPMorgan.

So and buying given is cash very cash get if that debt there? and plus outlook, not, or sort lower an in something could results like focused to of Is factors of Clearly terms opportunity get restructure now it's the high. are your free back the or time pay-down financial a flow the term I And paying gating what on But you and levels restructure rate? loan? levels LIBOR looks brighter know you're It down stock. there XXX. to

Joseph T. Lower

question. the for thanks Chris,

and As the look May be It's something going loan. we we are continuing at. have communicated early Day, of terms as term the looking to clearly at we're Investor as back the structure at to

fourth coming my mentioned we've so clearly, both the something in the mentioned, sheet. priorities looking and I is one our we're for be P&L changes balance anniversary the anniversary, the quarter. price, that And, one-year is date key as comments, going and improving to up the As in repurchase a which with of at

Christopher Horvers

the rate of I that guess, And you of thoughts go what then, sort rate can or got if of on comparable refinance to, – any comparable sort where might I you. sort it? what's

Joseph T. Lower

are comfortable today, assume at work improve without but rate and point, will this that more. should where much speculating not I'm saying you endeavor to the too we from Yeah, we

Christopher Horvers

deteriorated. last then North BSD American Got improvements seen it. comps versus the terms organic of quarter maybe and in And Retail in you've actually

Retail XQ the you thinking of us comp? growth about the you're give any during quarter? in BSD in could for organic terms outlook So Or in how color cadence the

Gerry P. Smith

raised we've XXXX. commitment our for Obviously, and guidance today

on group our Malaszenko, eCommerce have team Steve adjacency good all will and under (XX:XX:XX) under have the his improvements. continued and those continue. We our momentum done team work the Natalie and

going growing bullish also. regional more to And that continue let's those we're chain has and so and we're on customer to organically. of And trend make at distribution and look to grow and first get organically very buy And been clear, are companies successful, continue to players our relationships. be continuing federation small strategy supply

the vision eCommerce that place, and team committed are sales have we in Natalie team think we the success, to Steve as drive So and and well. and

come I'm and big, optimistic we're of grow proud So and very in no it to we'd is team, continue very statement, and we'll a time year. thought have And going of and could out a going a growing proud the with And, XXXX going have is would working, really one in to ago, team, next would sales no we're this we over the to one first to that, we're decade continue. thought we're grow that. as growth and we're organically well. that, I'm to engine big we're again, And do the – that again, and year-and-a-half going this going grow fact very, business to growing continue

Christopher Horvers

And down division was actually $X Corporate was $XX in like BSD the million, looks last year-over-year, at first if half it number year. million. and this math, relative is was $XX profitability, Retail million my about then were and question that our also improved last look Other and it $XX you The down quarter to million. the million line and $X By

that what's So in a and basis? that could on the line? you line about you in fourth are And thinking that variability help driving quarter us understand go-forward how

Joseph T. Lower

Yeah.

go compensation matters of the to and have do matters both you well of come related kind So, that combination as per as variations quarter. tax-related

though, an said, we and look as annual $XXX are between it million somewhere $XXX you as it's recognized. often at just million If certain events but quarters fluctuates basis, between

Christopher Horvers

Got it.

Okay.

would that that suggest that be means should well? line that quarter, So the year-over-year down as fourth

Joseph T. Lower

Approximately.

Christopher Horvers

right. All

very Thanks Okay. much.

Operator

any CEO, over back That concludes the will now Smith, I for remarks. Depot's Office closing today. Q&A call Gerry turn session to the for

Gerry P. Smith

thank I and strong just outstanding to for an want quarter. team my

us cash day. working. for participants for outstanding you are Have you Thank you We'll And in and joining today much. the a see thank engines and XX sales Our your days. great questions. very

Operator

concludes call. today's This Thank you participation. your for

may now You disconnect.

The ODP Corporation (ODP) 7 Nov 182018 Q3 Earnings call transcript