The ODP Corporation Announces First Quarter 2021 Results

The ODP Corporation (“ODP,” or the “Company”) (NASDAQ: ODP), a leading provider of business services, products and digital workplace technology solutions through an integrated B2B distribution platform with an online presence and approximately 1,100 stores, today announced results for the first quarter ended March 27, 2021.

Consolidated (in millions, except per share amounts)	1Q21	1Q20
Sales	$2,366	$2,725
Sales change from prior year period	(13)%
Operating income	$55	$80
Adjusted operating income (1)	$91	$108
Net income	$53	$45
Diluted earnings per share (2)	$0.95	$0.84
Adjusted net income (1)	$68	$66
Adjusted earnings per share (most dilutive) (2)	$1.21	$1.21
Adjusted EBITDA (1)	$138	$157
Operating Cash Flow	$86	$188
Free Cash Flow (3)	$73	$163
Adjusted Free Cash Flow (4)	$79	$173

First Quarter 2021 Summary⁽¹⁾⁽²⁾

• Total reported sales of $2.4 billion, down 13% versus last year
• GAAP operating income of $55 million and net income of $53 million, or $0.95 per diluted share, versus $80 million and $45 million, or $0.84 per diluted share, respectively in the prior year
• Adjusted operating income of $91 million, down from $108 million in the first quarter of 2020; and adjusted EBITDA of $138 million, down from $157 million in the first quarter of 2020
• Adjusted net income of $68 million, or adjusted earnings per share of $1.21, versus $66 million or $1.21, respectively in the prior year
• Operating cash flow of $86 million and adjusted free cash flow of $79 million, versus $188 million and $173 million, respectively in prior year
• $1.7 billion of total available liquidity including $753 million in cash and cash equivalents

“It’s an exciting day for ODP, as we mark the continued evolution of our B2B pivot and digital transformation, drove solid quarterly results, and took the next step in unlocking shareholder value,” said Gerry Smith, chief executive officer of The ODP Corporation.

“While conditions related to COVID-19 persisted in the quarter and adverse weather temporarily impacted operations in the Southwest, the continued execution of our low-cost model drove solid operating and free cash flow results, as we continued to make meaningful progress on our strategic initiatives. We delivered our value proposition to customers at home, in the office, and through our Retail channel, which experienced strong demand, including a 35% year-over-year increase in our buy online, pick-up in store (BOPIS) offering. While COVID-19 conditions continued to impact our contract channel, we did achieve one of our highest levels of net new customer wins and are encouraged by the increased business activity and traction exiting the quarter,” he added.

“The significant progress on our B2B pivot and digital transformation initiatives have us well positioned for the future. Our digital platform business integrated BuyerQuest, our new procure-to-pay (P2P) platform, and we advanced our collaboration with Microsoft. Additionally, the supplier community continues to gain interest as they realize the broad capabilities and reach of our new digital platform. In all, we are well on our way to pursue future growth in the large and growing business commerce market.”

“Also, as we described in a separate release, we’re taking an important step to unlock shareholder value by planning a tax-free spin-off of our B2B businesses, creating two, independent, publicly-traded companies. As separate companies, we believe all stakeholders will benefit from the increased strategic focus and flexibility, aligned capital structures and growth profiles, which will enhance our prospects for long-term value creation. In support of our strategy, we are happy to announce that our Board has authorized a new $300 million stock repurchase program,” he added.

Consolidated Results

Reported (GAAP) Results

Total reported sales for the first quarter of 2021 were $2.4 billion, a decrease of 13% compared to the first quarter of 2020. The year-over-year decrease in revenue was primarily the result of fewer retail stores in service and lower sales driven by impacts related to the COVID-19 pandemic. Product sales in the first quarter were down 12% relative to the prior year period. Service revenue in the first quarter was down 19% related to lower comparable sales at CompuCom as a result of the COVID-19 outbreak and the previously disclosed malware incident, and lower sales of services in our BSD and Retail Division, both of which were negatively impacted by the COVID-19 outbreak.

Sales Breakdown (in millions)	1Q21	1Q20
Product sales	$2,051	$2,337
Product sales change from prior year	(12)%
Service revenues	$315	$388
Service revenues change from prior year	(19)%
Total sales	$2,366	$2,725

The Company reported operating income of $55 million in the first quarter of 2021, compared to $80 million in the prior year period. GAAP operating results in the first quarter included a total of $36 million of charges which include $10 million of SG&A expenses related to CompuCom’s efforts to address the malware incident and restore service delivery to impacted customers, $12 million of non-cash asset impairment charges primarily related to the impairment of operating lease right-of-use (ROU) assets associated with the Company’s retail store locations, and $14 million of merger, restructuring and other operating costs primarily associated with the Maximize B2B Restructuring Plan. Net income was $53 million, or $0.95 per diluted share in the first quarter of 2021, compared to $45 million, or $0.84 per diluted share in the first quarter of 2020.

Adjusted (non-GAAP) Results ⁽¹⁾⁽²⁾

Adjusted results for the first quarter of 2021 exclude charges and credits totaling $36 million as defined above, as well as a credit of $7 million for other income related to the release of certain liabilities of its former European Business, and the tax impacts associated with the above items.

• First quarter of 2021 adjusted EBITDA was $138 million compared to $157 million in the prior year period. This included adjusted depreciation and amortization⁽⁵⁾ of $44 million and $49 million in the first quarters of 2021 and 2020, respectively.
  
  
• First quarter 2021 adjusted operating income was $91 million compared to $108 million in the first quarter of 2020, including the impacts related to the COVID-19 pandemic.
  
  
• First quarter 2021 adjusted net income was $68 million, or $1.21 per diluted share, compared to $66 million, or $1.21 per diluted share, in the first quarter of 2020.

First Quarter Division Results

Business Solutions Division (BSD)

• Reported sales were $1.1 billion in the first quarter of 2021, down 16% compared to the same period last year. Sales performance was impacted by conditions caused by the COVID-19 outbreak, which impacted schools and business operations
• Demand in our eCommerce channel increased 3% with growth in certain adjacency product sales, which comprised 44% of total BSD revenues in the quarter
• Operating income was $17 million in the first quarter of 2021 compared to $40 million in the prior year period

Retail Division

• Reported sales were $1.0 billion in the first quarter of 2021, down 10% versus the prior year period, but up sequentially from $951 million in the fourth quarter of 2020. Planned closures of underperforming stores drove the reported decline with 149 fewer retail outlets at the end of the first quarter as compared to the prior year. The Company closed 8 stores in the quarter and had 1,146 stores at quarter end
• Partially offsetting these impacts were increased sales per shopper as well as a 35% increase in our buy online, pick up in store (BOPIS) offering
• Operating income was $100 million in the first quarter of 2021, up 15% over the same period last year. As a percentage of sales, this performance reflects an approximate 210 basis point margin improvement

CompuCom Division

• Reported sales were $196 million in the first quarter of 2021, down 17% compared to the prior year period. The year-over-year decrease was due primarily to lower services volumes related to the COVID-19 outbreak and other factors, as well as lower billed service revenues as a result of the malware incident
• CompuCom reported $1 million operating loss in the first quarter of 2021, compared to $3 million operating income in the prior year period
• The Company continues to make progress on its plan for a value-maximizing sale of its CompuCom Division to maximize CompuCom’s full potential and drive forward its future value and success

B2B Pivot and Digital Transformation Progress

As a primary component of its strategy to drive growth in higher value industry segments, the Company has made significant progress on its B2B pivot and digital transformation initiatives. The Company recently established its new technology business, announced its digital transformation leadership team, acquired one of the leading Procure-to-Pay software companies, and entered into a collaboration with Microsoft corporation.

During the quarter, the Company’s new technology platform business integrated BuyerQuest, its new leading P2P eProcurement software platform, launching new customers and growing its pipeline of new business opportunities. Furthering its collaboration with Microsoft, in April, the Company’s digital technology business successfully completed a live technical demonstration of the platform at an industry technology conference, representing an important step as the Company prepares for a full launch to Microsoft’s Business Central customers scheduled for late 2021. The Company continues to generate strong interest from suppliers as they begin to recognize the expansive reach and innovative capabilities of the new digital platform.

Balance Sheet and Cash Flow

As of March 27, 2021, ODP had total available liquidity of approximately $1.7 billion, consisting of $753 million in cash and cash equivalents and $946 million of available credit under the Third Amended Credit Agreement. Total debt was $367 million.

For the first quarter of 2021, cash provided by operating activities was $86 million, which included less than $1 million in acquisition and integration-related costs and $6 million in restructuring costs, compared to cash provided by operating activities of $188 million in the first quarter of the prior year, which included $4 million and $10 million, respectively, of the same costs. The reduction in operating cash flow was driven primarily by higher working capital usage in the quarter.

Capital expenditures in the quarter were $13 million versus $25 million in the prior year period, reflecting lower investment in retail operations, while continuing growth investments in the Company’s digital transformation, distribution network, and eCommerce capabilities. The cash charges associated with the Company’s Maximize B2B Restructuring Plan and its Business Acceleration Program in the quarter were $5 million and $1 million, respectively. Accordingly, Adjusted Free Cash Flow was $79 million in the first quarter of 2021.

Additionally, as part of its ongoing commitment to drive shareholder value in support of its strategic initiatives, the Company announced today that its Board of Directors authorized a new $300 million stock repurchase program. This new program, available through June 30, 2022, replaces the current share repurchase program that was temporarily suspended during the onset of COVID-19. The authorization permits the Company to repurchase common stock from time-to-time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The stock repurchase program may be modified, extended, suspended or discontinued at any time. The exact number and timing of share repurchases will depend on market conditions and other factors, and will be funded through available cash balances. “Reflecting our team’s confidence in the future, this new authorization will allow us to opportunistically enhance the return of capital to shareholders as we execute our strategic initiatives. As we make progress, our Board of Director’s will continue to evaluate our capital allocation plans in order to maximize long-term value for shareholders,” Smith added.

(1)	As presented throughout this release, adjusted results represent non-GAAP financial measures and exclude charges or credits not indicative of core operations and the tax effect of these items, which may include but not be limited to merger integration, restructuring, acquisition costs, and asset impairments. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Company’s Investor Relations website at investor.theodpcorp.com.
(2)	All share and per share amounts in this release have been retroactively adjusted for the prior period presented to give effect to a 1-for-10 reverse stock split which was effective on June 30, 2020.
(3)	As used in this release, Free Cash Flow is defined as cash flows from operating activities less capital expenditures. Free Cash Flow is a non-GAAP financial measure and reconciliations from GAAP financial measures can be found in this release. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Company’s Investor Relations website at investor.theodpcorp.com.
(4)	As used in this release, Adjusted Free Cash Flow is defined as Free Cash Flow excluding cash charges associated with the Company’s Maximize B2B Restructuring Plan and its Business Acceleration Program. Adjusted Free Cash Flow is a non-GAAP financial measure and reconciliations from GAAP financial measures can be found in this release as well as on the Company’s Investor Relations website at investor.theodpcorp.com.
(5)	Adjusted depreciation and amortization each represents a non-GAAP financial measure and excludes accelerated depreciation caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with planned store closures under an approved restructuring plan, but only if impairment is not present. Accelerated depreciation charges are restructuring expenses. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Company’s Investor Relations website at investor.theodpcorp.com.

About The ODP Corporation

The ODP Corporation (NASDAQ:ODP) is a leading provider of business services and supplies, products and digital workplace technology solutions to small, medium and enterprise businesses, through an integrated business-to-business (B2B) distribution platform, which includes world-class supply chain and distribution operations, dedicated sales professionals and technicians, online presence, and approximately 1,100 stores. Through its banner brands Office Depot®, OfficeMax®, CompuCom® and Grand&Toy®, as well as others, the Company offers its customers the tools and resources they need to focus on their passion of starting, growing and running their business. For more information, visit news.theodpcorp.com and investor.theodpcorp.com.

The ODP Corporation and Office Depot are trademarks of The Office Club, Inc. OfficeMax is a trademark of OMX, Inc. CompuCom is a trademark of CompuCom Systems, Inc. Grand&Toy is a trademark of Grand & Toy, LLC in Canada. ©2021 Office Depot, LLC. All rights reserved. Any other product or company names mentioned herein are the trademarks of their respective owners.

FORWARD LOOKING STATEMENTS

This communication may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements or disclosures may discuss goals, intentions and expectations as to future trends, plans, events, results of operations, cash flow or financial condition, the potential impacts on our business due to the unknown severity and duration of the COVID-19 outbreak, or state other information relating to, among other things, the Company, based on current beliefs and assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” “propose” or other similar words, phrases or expressions, or other variations of such words. These forward-looking statements are subject to various risks and uncertainties, many of which are outside of the Company’s control. There can be no assurances that the Company will realize these expectations or that these beliefs will prove correct, and therefore investors and stakeholders should not place undue reliance on such statements.

Factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, highly competitive office products market and failure to differentiate the Company from other office supply resellers or respond to decline in general office supplies sales or to shifting consumer demands; competitive pressures on the Company’s sales and pricing; the adverse effects of an unsolicited tender offer on our business, operating results or financial condition; the risk that the Company is unable to transform the business into a service-driven, B2B platform that such a strategy will not result in the benefits anticipated; the risk that the Company will not be able to achieve its strategic plans, including the announced separation of the B2B Operations and the sale of CompuCom, and the high costs in connection with these transactions which may not be recouped if these transactions are not consummated, the risk that the Company may not be able to realize the anticipated benefits of acquisitions due to unforeseen liabilities, future capital expenditures, expenses, indebtedness and the unanticipated loss of key customers or the inability to achieve expected revenues, synergies, cost savings or financial performance; the risk that the Company is unable to successfully maintain a relevant omni-channel experience for its customers; the risk that the Company is unable to execute the Maximize B2B Restructuring Plan successfully or that such plan will not result in the benefits anticipated; the risk that the Company will not be successful in maximizing the full potential of its CompuCom Division; failure to effectively manage the Company’s real estate portfolio; loss of business with government entities, purchasing consortiums, and sole- or limited- source distribution arrangements; failure to attract and retain qualified personnel, including employees in stores, service centers, distribution centers, field and corporate offices and executive management