Completed Holding Company Reorganization And
Initiated Strategic Restructuring Plan With B2B Focus
Operational Execution And Broad Ecosystem Met
Customer Needs During Challenging Period Due To Pandemic
Maintained Strong Balance Sheet with $1.5
Billion In Total Available Liquidity
GAAP Results Include Non-Cash Impairment
Charges Related To Goodwill And Other Intangibles
Announced CFO And CTO Appointments With Strong
B2B Expertise
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, announced results for the second quarter
ended June 27, 2020.
Consolidated (in millions, except
per share amounts)
2Q20
2Q19
YTD20
YTD19
Sales
$2,158
$2,588
$4,883
$5,356
Sales change from prior year period
(17)%
(9)%
Operating income (loss)
$(456)
$(15)
$(376)
$9
Adjusted operating income (1)
$10
$71
$119
$138
Net loss
$(439)
$(24)
$(394)
$(16)
Diluted (loss) per share (2)
$(8.19)
$(0.43)
$(7.31)
$(0.28)
Adjusted net income (loss) (1)
$(4)
$37
$62
$76
Adjusted earnings (loss) per share (most
dilutive) (1)(2)
$(0.07)
$0.68
$1.15
$1.38
Adjusted EBITDA (1)
$59
$125
$216
$243
Operating Cash Flow
$(8)
$(58)
$180
$2
Free Cash Flow (3)
$(23)
$(103)
$140
$(89)
Adjusted Free Cash Flow (4)
$(7)
$(48)
$166
$(34)
(1)
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, asset impairments, loss on extinguishment and
modification of debt, and executive transition costs.
Reconciliations from GAAP to non-GAAP financial measures can be
found in this release as well as on the Investor Relations website
at investor.theodpcorp.com.
(2)
After obtaining approval of the Company’s
shareholders on May 11, 2020, the Company’s Board of Directors
determined to set a reverse stock split ratio of 1-for-10 for a
reverse stock split of the Company’s outstanding shares of common
stock, and a reduction in the number of authorized shares of the
Company’s common stock by a corresponding ratio. The reverse stock
split was effective on June 30, 2020. All share and per share
amounts in this release have been retroactively adjusted for all
periods presented to give effect to this reverse stock split.
(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.
(4)
As used in this release, Adjusted Free
Cash Flow excludes cash charges associated with the Company’s
Business Acceleration Program of $13 million and its Maximize B2B
Restructuring Plan of $3 million in the second quarter of 2020,
cash charges associated with the Company’s Business Acceleration
Program of $23 million and its Maximize B2B Restructuring Plan of
$3 million in the first half of 2020, and the Federal Trade
Commission cash settlement of $25 million and cash charges
associated with the Company’s Business Acceleration Program of $30
million in both the second quarter and the first half of 2019.
Adjusted Free Cash Flow is a non-GAAP financial measure and
reconciliations from GAAP financial measures can be found in this
release.
Second Quarter 2020
Summary(1)
- Total Reported Sales of $2.2 Billion, down 17% versus last
year, reflecting ongoing impact of the COVID-19 outbreak on the
business environment.
- GAAP operating loss includes charges of $466 million, including
$401 million of non-cash asset impairment charges related to
goodwill and intangibles, which led to a GAAP operating loss of
$456 million and a net loss of $439 million, or $(8.19) per
share.
- Adjusted operating income of $10 million and adjusted EBITDA of
$59 million.
- Adjusted net loss of $4 million, or adjusted loss per share of
$(0.07).
- Prudent cash management resulted in operating cash flow of $(8)
million and adjusted free cash flow of $(7) million, versus $(58)
and $(48) million, respectively in prior year.
- $1.5 Billion of Total Available Liquidity Including $762
Million in Cash.
“I'm extremely proud of how our organization has risen to the
challenge of helping keep our employees safe, leveraging our supply
chain and service delivery for the marketplace, and giving back to
our communities in a time of need. I want to recognize and thank
our colleagues around the country who have shown their dedication,
courage, and agility in these efforts,” said Gerry Smith, chief
executive officer of The ODP Corporation. “Our diversified channel
offering positioned us to meet the needs of business customers and
consumers alike, while our value proposition continued to expand,
launching new product categories such as Personal Protective
Equipment (PPE), quickly satisfying the needs of customers and
driving additional growth in our adjacency categories. We prudently
managed cash and maintained our strong balance sheet with $1.5
billion in liquidity, providing a solid foundation to navigate the
challenges, while continuing to pursue future growth
opportunities,” he added.
“We continued to make progress on our strategy to position our
B2B platform to drive growth, strengthening our foundation and
positioning ODP for future success. We completed our holding
company reorganization and initiated our “Maximize B2B”
restructuring plan, a multiyear plan designed to accelerate our B2B
platform, reduce reliance on retail, generate new growth, and
achieve cost savings. We significantly strengthened our senior
management team, appointing a new chief financial officer and chief
technology officer, with both individuals bringing strong B2B
backgrounds and expertise to help drive our strategy. While the
business environment in North America is still recovering, our
strong balance sheet and asset base provides an excellent
foundation to navigate the challenges and pursue profitable growth.
Through our powerful ecosystem, which includes our global sourcing
capabilities, expansive and unique supply chain and distribution
network, sales force, and large customer base, we are well
positioned to pursue and capture profitable growth in the future,”
he added.
Consolidated Results
Reported (GAAP) Results Total
reported sales for the second quarter of 2020 were $2.2 billion, a
decrease of 17% compared to the second quarter of 2019. The
decrease in revenue was primarily the result of lower sales in the
Business Solutions Division (BSD) and CompuCom Division driven by
impacts related to the COVID-19 pandemic, combined with lower sales
in the Retail Division driven by lower volume and fewer retail
stores in service. Product sales in the second quarter were down
15% relative to the prior year period. Service revenue was down 26%
in the quarter related to lower comparable sales at CompuCom and
sales of service in our BSD and Retail Divisions, all of which were
negatively impacted by the COVID-19 outbreak. On a consolidated
basis, service revenue represented approximately 14% of total
Company sales in the second quarter of 2020.
Sales Breakdown (in millions)
2Q20
2Q19
YTD20
YTD19
Product sales
$1,857
$2,183
$4,194
$4,543
Product sales change from prior year
(15)%
(8)%
Service revenues
$301
$405
$689
$813
Service revenues change from prior
year
(26)%
(15)%
Total sales
$2,158
$2,588
$4,883
$5,356
The Company reported an operating loss of $456 million in the
second quarter of 2020, compared to an operating loss of $15
million in the prior year period. GAAP operating results in the
second quarter included $466 million of charges including $401
million of non-cash asset impairment charges, and $65 million in
merger and restructuring costs. Asset impairment charges of $401
million in the second quarter of 2020 included $363 million related
to impairment of goodwill and other intangible assets at CompuCom
and in the Company’s contract business combined, largely related to
the effects of the COVID-19 outbreak on current businesses
conditions. Asset impairment charges also included $25 million
related to the impairment of operating lease right-of-use (ROU)
assets associated with the Company’s retail store locations, with
the remainder primarily relating to the impairment of fixed assets.
Merger and restructuring costs of $65 million include $6 million
associated with the Business Acceleration Program (“BAP”), $51
million associated with restructuring charges related to the
recently announced Maximize B2B Restructuring Plan, and $7 million
in merger, acquisition and integration-related expenses. Net loss
was $439 million, or $(8.19) per diluted share in the second
quarter of 2020, compared to net loss of $24 million, or $(0.43)
per diluted share in the second quarter of 2019.
In the first half of 2020, the Company reported an operating
loss of $376 million, compared to operating income of $9 million in
the first half of 2019. Primary drivers of the reduction are lower
operating results and a $368 million increase in non-cash asset
impairment charges with $363 million related to goodwill and other
intangible assets impairment, slightly offset by a $2 million
decrease in merger and restructuring costs. Net loss for the first
half of 2020 was $394 million, or $(7.31) per diluted share,
compared to net loss of $16 million, or $(0.28) per diluted share,
in the first half of 2019.
Adjusted (non-GAAP) Results (5)
Adjusted results for the second quarter of 2020 exclude charges
and credits totaling $466 million, primarily comprised of $401
million in non-cash asset impairments and $65 million in merger and
restructuring costs. Additionally, the Company recognized a charge
of $12 million in the loss on extinguishment and modification of
debt, and the tax impacts associated with the above items.
- Second quarter 2020 adjusted EBITDA was $59 million compared to
$125 million in the prior year period. This included adjusted
depreciation and amortization(6) of $47 million and $51 million in
the second quarters of 2020 and 2019, respectively.
- Second quarter 2020 adjusted operating income was $10 million
compared to $71 million in the second quarter of 2019, primarily
driven by the negative impacts related to the COVID-19
pandemic.
- Second quarter 2020 adjusted net loss was $4 million, or
$(0.07) per diluted share, compared to adjusted net income of $37
million, or $0.68 per diluted share, in the second quarter of 2019.
Reduced interest expense and fewer outstanding shares contributed
to this performance.
For the first half of 2020, adjusted operating income was $119
million compared to $138 million in the first half of 2019.
Adjusted net income for the first half of 2020 was $62 million, or
$1.15 per diluted share, compared to $76 million, or $1.38 per
diluted share, in the first half of 2019. The year-over-year
decrease in adjusted operating income was primarily due to a
decrease in operating performance at the BSD and CompuCom Divisions
largely related to the COVID-19 pandemic and the impact of retail
store closures in the first half of 2020.
(5)
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, asset impairments and executive transition
costs. Reconciliations from GAAP to non-GAAP financial measures can
be found in this release as well as on the Investor Relations
website at investor.theodpcorp.com.
(6)
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.
Second Quarter Division Results
Business Solutions Division (BSD)
BSD reported sales were $1.0 billion in the second quarter of 2020,
down 23% compared to the second quarter of 2019. The year-over-year
sales performance reflects the impact due to the COVID-19 outbreak,
negatively impacting the Company’s contract channel as several
business customers paused operations or temporarily transitioned
into a remote work environment as a result of restrictions imposed
beginning in March 2020. Lower sales in the Company’s contract
channel were partially offset by an increase in sales in its
eCommerce channel, as well as growth in certain adjacency
categories. Adjacency categories, which include cleaning and
breakroom, technology, furniture, and copy and print, comprised
approximately 48% of total BSD revenues in the quarter. As a new
component of adjacency sales, the Company successfully launched a
new product category during the quarter, Personal Protective
Equipment (PPE), quickly leveraging its global sourcing and supply
chain capabilities to procure and deliver masks, gloves, and face
shields to customers including hospitals, first responders, and
local and state governments.
“Despite the challenging conditions caused by the COVID-19
pandemic, our team moved quickly to implement several strategies,
including utilizing our B2B platform to provide essential products
and services critical to helping our customers manage through the
crisis,” said Smith. “While we are encouraged by the improving
monthly trends in the quarter, the business disruption caused by
the COVID-19 outbreak may continue to impact sales in our BSD
Division in the second half of 2020 relative to last year’s
results. We continue to utilize our product and service offerings,
reliable delivery service options, and expanded value proposition
to pursue both near and long-term growth opportunities. With our
global sourcing and supply chain capabilities, our platform is
becoming a broader source of mission critical products and services
to a broader range of B2B customers,” he added.
Business Solutions Division (in
millions)
2Q20
2Q19
YTD20
YTD19
Sales
$1,024
$1,328
$2,358
$2,672
Sales change from prior year
(23)%
(12)%
Division operating income
$13
$86
$53
$132
Division operating income margin
1.3%
6.5%
2.2%
4.9%
BSD operating income was $13 million in the second quarter of
2020 compared to $86 million in the prior year period. The decrease
in operating income was related to the flow through impact of lower
product sales volume related to the effects of the COVID-19
pandemic and product mix, coupled with a lower gross profit margin
due to higher product costs and supply chain costs. This was
partially offset by a reduction in selling, general and
administrative expenses achieved through our Business Acceleration
Program.
Retail Division The Company’s
retail outlets are considered essential commerce by most local
jurisdictions, therefore the majority of our retail locations have
remained operational with the appropriate safety measures in place.
The Company also implemented a curbside pick-up option in all
locations, including a portion of retail locations that have
transferred to curbside pick-up only, as well as temporarily
reduced store hours by 2 hours per day. Due to the reduced hours
and certain locations solely providing curbside pickup for our
customers due to COVID-19, comparable store sales are not a
meaningful metric for the second quarter and first half of 2020,
and therefore are not provided.
The Retail Division reported sales were $912 million in the
second quarter of 2020, down 9% versus the prior year period.
Planned closures of underperforming stores and fewer transactions
drove the reported decline with 60 fewer retail outlets at the end
of the second quarter as compared to the prior year. Partially
offsetting this impact was increased demand for essential products
such as cleaning and breakroom supplies, technology products, and
other work/learn-from-home enabling products driven by customers
addressing the challenges posed by the COVID-19 outbreak, as well
as a 152% increase in our buy online, pick up in store (“BOPIS”)
offering. Compared to the prior year period, product sales in the
quarter were down 4%, while service revenue was down 38% as copy
and print services and subscription offerings were negatively
impacted by the effects related to the COVID-19 pandemic.
Retail Division (in millions)
2Q20
2Q19
YTD20
YTD19
Sales
$912
$1,000
$2,069
$2,175
Comparable store sales change from prior
year
N/A
N/A
Division operating income
$18
$9
$106
$76
Division operating income margin
2.0%
0.9%
5.1%
3.5%
Retail Division operating income was $18 million in the second
quarter of 2020, up 100% over the same period last year. As a
percentage of sales, this performance reflects an approximate 110
basis point margin improvement. The increase in operating income
versus the prior year was largely related to lower SG&A from
cost savings initiatives, improvements in distribution and
inventory management costs, and lower operating lease costs
recognized as a result of the new lease accounting standard.
During the second quarter of 2020, the Company closed 35 stores
and ended the quarter with a total of 1,260 stores in the Retail
Division.
CompuCom Division The CompuCom
Division reported sales were $214 million in the second quarter,
down 17% compared to the prior year period. The year-over-year
decrease was due to project-related customer-imposed delays, lower
services volumes, and lower technology product demand as the
COVID-19 health crisis impacted business operations of certain
customers. Additionally, targeted actions to reduce unprofitable
sales activities in certain accounts impacted sales.
CompuCom Division (in millions)
2Q20
2Q19
YTD20
YTD19
Sales
$214
$258
$450
$506
Sales change from prior year
(17)%
(11)%
Division operating income (loss)
$4
$1
$7
$(13)
Division operating income (loss)
margin
1.9%
0.4%
1.6%
(2.6)%
The CompuCom Division operating income was $4 million in the
second quarter of 2020, compared to $1 million in the second
quarter of 2019. BAP cost efficiency measures helped to drive the
year-over-year increase. These cost reduction efforts helped offset
the costs incurred in anticipation of supporting the implementation
of new future service contracts as well as supporting new
project-related work in the quarter that did not materialize due to
the business disruptions caused by the COVID-19 outbreak.
“We remain encouraged by the opportunities ahead for CompuCom,”
said Gerry Smith. “CompuCom’s operational support continues to be
critical, building significant credibility with customers by
enabling them to remain operational during this period. While
near-term challenges remain due to COVID-19, CompuCom’s unique
capabilities to support distributed work forces with state of the
art technology, and a unique field force of over 6,100 field techs
and support personnel, have it well positioned to capitalize on
opportunities in this growing area,” he added.
Corporate and Other
Corporate expenses include support staff services and certain
other expenses that are not allocated to the Company’s operating
divisions. Unallocated expenses were $25 million in the second
quarter of 2020 compared to $26 million in the second quarter of
2019.
Balance Sheet and Cash Flow
As of June 27, 2020, ODP had total available liquidity of
approximately $1.5 billion, consisting of $762 million in cash and
cash equivalents and $708 million of available credit under the
Amended and Restated Credit Agreement. Total debt was $672
million.
For the second quarter of 2020, cash used in operating
activities was $8 million, which included $4 million in acquisition
and integration-related costs and $16 million in restructuring
costs, compared to cash used in operating activities of $58 million
in the second quarter of the prior year.
Capital expenditures in the quarter were $15 million versus $45
million in the prior year period, reflecting lower investment in
retail operations, while continuing growth investments in the
Company’s service platform, distribution network, and eCommerce
capabilities. The cash charges associated with the Company’s
Business Acceleration Program and its Maximize B2B Restructuring
Plan in the quarter were $13 million and $3 million, respectively.
Accordingly, Adjusted Free Cash Flow was $7 million outflow in the
second quarter of 2020.
Progress on B2B Transformation
The Company remained committed to its strategy of positioning
its B2B platform to drive future profitable growth. Progress in the
quarter included:
- Completed holding company
reorganization: Completed in June 2020, the reorganization
created a newly-formed holding company named “The ODP Corporation”.
This action simplifies the Company’s legal entity and tax
structure, and is expected to more closely align the Company’s
operating assets to its respective operating channels and increase
its operational flexibility. As a part of this action, the Company
also implemented a 1-for-10 reverse stock split effective June 30,
2020, with a corresponding reduction in the number of shares of the
Company’s common stock.
- Initiated “Maximize B2B” Restructuring
Plan: Initiated in May 2020, the restructuring plan’s
objective is to realign the Company’s operational focus to support
its “business-to-business” solutions and IT services business units
and improve costs. The multi-year plan focuses on accelerating
growth on its B2B platform, reducing reliance on its retail
consumer operations, and achieving significant cost savings while
moving to a variable cost business model. The plan is expected to
be substantially completed by the end of 2023.
- Announced key senior management
positions: The Company announced the appointment of a Chief
Financial Officer and a new Chief Technology Officer, both
individuals bringing strong B2B expertise to help execute the
Company’s strategy. Anthony Scaglione joins the Company as
Executive Vice President and Chief Financial Officer and previously
served as CFO at ABM Industries, a leading enterprise facilities
services company. Terry Leeper joins ODP as Chief Technology
Officer, previously serving as Head of Product and Tech at Amazon
Business.
2020 Guidance Remains Withdrawn
Related to the global business disruption and uncertainty caused
by the COVID-19 pandemic, on May 6, 2020, the Company withdrew its
previously issued 2020 guidance. Due to the continued uncertainty
of the severity and duration of the impacts related to the COVID-19
outbreak, the Company’s 2020 guidance remains withdrawn.
“Like many companies, our guidance for the year remains
withdrawn given the uncertainty related to the full impact of the
COVID-19 pandemic. We are implementing several strategies aimed to
address these challenges including utilizing our global sourcing
and supply chain capabilities to secure additional sources of
essential products and supplies, continuing to facilitate work from
home and virtual learning environments, and continuing efforts to
drive a low cost business model. Combined with our strong balance
sheet and available liquidity position, we are in a solid position
to navigate the challenges posed by this health crisis,” Smith
continued.
About The ODP Corporation
The ODP Corporation (NASDAQ:ODP) is a leading provider of
business services, products and digital workplace technology
solutions to small, medium and enterprise businesses. ODP,
operating through its direct and indirect subsidiaries, maintains a
fully integrated B2B distribution platform of approximately 1,300
stores, online presence, and thousands of dedicated sales and
technology service professionals, all supported by its world-class
supply chain facilities and delivery operations. 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. ©2020 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 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 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 Business Acceleration Program successfully or that
such program will not result in the benefits anticipated; 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, and the inability to keep supply
of skills and resources in balance with customer demand; failure to
execute effective advertising efforts and maintain the Company’s
reputation and brand at a high level; disruptions in computer
systems, including delivery of technology services; breach of
information technology systems affecting reputation, business
partner and customer relationships and operations and resulting in
high costs; unanticipated downturns in business relationships with
customers or terms with the suppliers, third-party vendors and
business partners; disruption of global sourcing activities,
evolving foreign trade policy (including tariffs imposed on certain
foreign made goods); exclusive Office Depot branded products are
subject to additional product, supply chain and legal risks;
product safety and quality concerns of manufacturers’ branded
products and services and Office Depot private branded products;
covenants in the credit facility; a downgrade in the Company’s
credit ratings or a general disruption in the credit markets;
incurrence of significant impairment charges; retained
responsibility for liabilities of acquired companies; fluctuation
in quarterly operating results due to seasonality of the Company’s
business; changes in tax laws in jurisdictions where the Company
operates; increases in wage and benefit costs and changes in labor
regulations; changes in the regulatory environment, legal
compliance risks and violations of the U.S. Foreign Corrupt
Practices Act and other worldwide anti-bribery laws; volatility in
the Company’s common stock price; changes in or the elimination of
the payment of cash dividends on Company common stock;
macroeconomic conditions such as future declines in business or
consumer spending; increases in fuel and other commodity prices and
the cost of material, energy and other production costs, or
unexpected costs that cannot be recouped in product pricing;
unexpected claims, charges, litigation, dispute resolutions or
settlement expenses; catastrophic events, including the impact of
weather events on the Company’s business; the discouragement of
lawsuits by shareholders against the Company and its directors and
officers as a result of the exclusive forum selection of the Court
of Chancery, the federal district court for the District of
Delaware or other Delaware state courts by the Company as the sole
and exclusive forum for such lawsuits; impacts of the Company’s
adoption of a limited duration shareholder rights plan including
potential deterrence of unsolicited offers to acquire the Company;
and the impact of the COVID-19 pandemic on the Company’s business,
including on the demand for its and our customers’ products and
services, on trade and transport restrictions and generally on our
ability to effectively manage the impacts of the COVID-19 pandemic
on our business operations. The foregoing list of factors is not
exhaustive. Investors and shareholders should carefully consider
the foregoing factors and the other risks and uncertainties
described in the Company’s Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K filed with
the U.S. Securities and Exchange Commission. The Company does not
assume any obligation to update or revise any forward-looking
statements.
THE ODP CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
13 Weeks Ended
26 Weeks Ended
June 27,
June 29,
June 27,
June 29,
2020
2019
2020
2019
Sales:
Products
$
1,857
$
2,183
$
4,194
$
4,543
Services
301
405
689
813
Total sales
2,158
2,588
4,883
5,356
Cost of goods sold and occupancy
costs:
Products
1,531
1,731
3,358
3,570
Services
211
272
479
559
Total cost of goods sold and occupancy
costs
1,742
2,003
3,837
4,129
Gross profit
416
585
1,046
1,227
Selling, general and administrative
expenses
406
515
928
1,090
Asset impairments
401
16
413
45
Merger and restructuring expenses, net
65
69
81
83
Operating income (loss)
(456
)
(15
)
(376
)
9
Other income (expense):
Interest income
—
5
3
11
Interest expense
(11
)
(23
)
(29
)
(46
)
Loss on extinguishment and modification of
debt
(12
)
—
(12
)
—
Other income, net
4
2
5
5
Loss before income taxes
(475
)
(31
)
(409
)
(21
)
Income tax expense (benefit)
(36
)
(7
)
(15
)
(5
)
Net loss
$
(439
)
$
(24
)
$
(394
)
$
(16
)
Loss per share
Basic
$
(8.34
)
$
(0.43
)
$
(7.46
)
$
(0.29
)
Diluted
$
(8.19
)
$
(0.43
)
$
(7.31
)
$
(0.28
)
THE ODP CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In millions, except shares
and par value)
June 27,
December 28,
2020
2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
762
$
698
Receivables, net
679
823
Inventories
1,005
1,032
Prepaid expenses and other current
assets
79
75
Timber notes receivable
—
819
Total current assets
2,525
3,447
Property and equipment, net
612
679
Operating lease right-of-use assets
1,272
1,413
Goodwill
593
944
Other intangible assets, net
363
388
Deferred income taxes
183
183
Other assets
317
257
Total assets
$
5,865
$
7,311
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade accounts payable
$
991
$
1,026
Accrued expenses and other current
liabilities
1,104
1,219
Income taxes payable
10
8
Short-term borrowings and current
maturities of long-term debt
30
106
Non-recourse debt
—
735
Total current liabilities
2,135
3,094
Deferred income taxes and other long-term
liabilities
189
176
Pension and postretirement obligations,
net
80
85
Long-term debt, net of current
maturities
642
575
Operating lease liabilities
1,102
1,208
Total liabilities
4,148
5,138
Commitments and contingencies
Stockholders’ equity:
Common stock — authorized 80,000,000
shares of $0.01 par value; issued shares — 62,514,546 at June 27,
2020 and 62,042,477 at December 28, 2019; outstanding shares —
52,657,353 at June 27, 2020 and 53,518,232 at December 28, 2019
1
1
Additional paid-in capital
2,650
2,652
Accumulated other comprehensive loss
(95
)
(66
)
Accumulated deficit
(484
)
(89
)
Treasury stock, at cost — 9,857,193 shares
at June 27, 2020 and 8,524,245 shares at December 28, 2019
(355
)
(325
)
Total stockholders’ equity
1,717
2,173
Total liabilities and stockholders’
equity
$
5,865
$
7,311
THE ODP CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In millions)
(Unaudited)
26 Weeks Ended
June 27,
June 29,
2020
2019
Cash flows from operating
activities:
Net loss
$
(394
)
$
(16
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
97
102
Amortization of debt discount and issuance
costs
2
4
Charges for losses on receivables and
inventories
16
14
Asset impairments
413
45
Loss on disposition of assets, net
5
1
Loss on extinguishment and modification of
debt
12
—
Compensation expense for share-based
payments
16
17
Deferred income taxes and deferred tax
asset valuation allowances
(3
)
(9
)
Contingent consideration payments in
excess of acquisition-date liability
(2
)
(11
)
Changes in working capital and other
operating activities
18
(145
)
Net cash provided by operating
activities
180
2
Cash flows from investing
activities:
Capital expenditures
(40
)
(91
)
Businesses acquired, net of cash
acquired
(18
)
(22
)
Proceeds from collection of notes
receivable
818
—
Other investing activities
2
—
Net cash provided by (used in) investing
activities
762
(113
)
Cash flows from financing
activities:
Net payments on long and short-term
borrowings
(30
)
(48
)
Debt retirement
(1,187
)
—
Debt issuance
400
—
Cash dividends on common stock
(13
)
(27
)
Share purchases for taxes, net of proceeds
from employee share-based transactions
(5
)
(9
)
Repurchase of common stock for
treasury
(30
)
(11
)
Contingent consideration payments up to
amount of acquisition-date liability
(1
)
(12
)
Other financing activities
(6
)
—
Net cash used in financing activities
(872
)
(107
)
Effect of exchange rate changes on cash
and cash equivalents
(6
)
4
Net increase (decrease) in cash, cash
equivalents and restricted cash
64
(214
)
Cash, cash equivalents and restricted cash
at beginning of period
700
660
Cash, cash equivalents and restricted cash
at end of period
$
764
$
446
Supplemental information
Right-of-use assets obtained in exchange
for new finance lease liabilities
$
3
$
12
Right-of-use assets obtained in exchange
for new operating lease liabilities
63
130
THE ODP CORPORATION GAAP to Non-GAAP
Reconciliations (Unaudited)
We report our results in accordance with accounting principles
generally accepted in the United States (“GAAP”). We also review
certain financial measures excluding impacts of transactions that
are not related to our core operations (“non-GAAP”). Management
believes that the presentation of these non-GAAP financial measures
enhances the ability of its investors to analyze trends in its
business and provides a means to compare periods that may be
affected by various items that might obscure trends or developments
in its business. Management uses both GAAP and non-GAAP measures to
assist in making business decisions and assessing overall
performance. Non-GAAP measures help to evaluate programs and
activities that are intended to attract and satisfy customers,
separate from expenses and credits directly associated with Merger,
restructuring, and certain similar items. Certain non-GAAP measures
are also used for short and long-term incentive programs.
Our measurement of these non-GAAP financial measures may be
different from similarly titled financial measures used by others
and therefore may not be comparable. These non-GAAP financial
measures should not be considered superior to the GAAP measures,
but only to clarify some information and assist the reader. We have
included reconciliations of this information to the most comparable
GAAP measures in the tables included within this material.
Free cash flow is a non-GAAP measure, which we define as cash
flows from operating activities less capital expenditures. We
believe that free cash flow is an important indicator that provides
additional perspective on our ability to generate cash to fund our
strategy and expand our distribution network. Adjusted Free Cash
Flow is also a non-GAAP measure, which we define as free cash flow
less the Federal Trade Commission cash settlement and cash charges
associated with the Company’s Business Acceleration Program and its
Maximize B2B Restructuring Plan.
(In millions, except per share amounts)
Q2 2020
Reported (GAAP)
% of Sales
Less: Charges &
Credits
Adjusted
(Non-GAAP)
% of Sales
Assets impairments
$
401
18.6
%
$
401
$
—
—
%
Merger and restructuring expenses, net
$
65
3.0
%
$
65
$
—
—
%
Operating income (loss)
$
(456
)
(21.1
)%
$
(466
)
$
10
(8)
0.5
%
Loss on extinguishment and modification of
debt
$
(12
)
(0.6
)%
$
(12
)
$
—
—
%
Other income, net
$
4
0.2
%
$
2
$
2
(9)
0.1
%
Income tax benefit
$
(36
)
(1.7
)%
$
(41
)
$
5
(10)
0.2
%
Net loss
$
(439
)
(20.3
)%
$
(435
)
$
(4
)
(11)
(0.2
)%
Loss per share (most dilutive)
$
(8.19
)
$
(8.12
)
$
(0.07
)
(11)
Depreciation and amortization
$
48
2.2
%
$
1
$
47
(12)
2.2
%
Q2 2019
Reported (GAAP)
% of Sales
Less: Charges &
Credits
Adjusted
(Non-GAAP)
% of Sales
Selling, general and administrative
expenses
$
515
19.9
%
$
1
$
514
(7)
19.9
%
Assets impairments
$
16
0.6
%
$
16
$
—
—
%
Merger and restructuring expenses, net
$
69
2.7
%
$
69
$
—
—
%
Operating income (loss)
$
(15
)
(0.6
)%
$
(86
)
$
71
(8)
2.7
%
Income tax expense (benefit)
$
(7
)
(0.3
)%
$
(25
)
$
18
(10)
0.7
%
Net income (loss)
$
(24
)
(0.9
)%
$
(61
)
$
37
(11)
1.4
%
Earnings (loss) per share (most
dilutive)
$
(0.43
)
$
(1.11
)
$
0.68
(11)
Depreciation and amortization
$
53
2.0
%
$
2
$
51
(12)
2.0
%
THE ODP CORPORATION
GAAP to Non-GAAP
Reconciliations
(Unaudited)
YTD 2020
Reported
(GAAP)
% of Sales
Less: Charges &
Credits
Adjusted
(Non-GAAP)
% of Sales
Assets impairments
$
413
8.5
%
$
413
$
—
—
%
Merger and restructuring expenses, net
$
81
1.7
%
$
81
$
—
—
%
Operating income (loss)
$
(376
)
(7.7
)%
$
(494
)
$
119
(8)
2.4
%
Loss on extinguishment and modification of
debt
$
(12
)
(0.2
)%
$
(12
)
$
—
—
%
Other income, net
$
5
0.1
%
$
2
$
3
(9)
0.1
%
Income tax expense
$
(15
)
(0.3
)%
$
(48
)
$
33
(10)
0.7
%
Net income (loss)
$
(394
)
(8.1
)%
$
(456
)
$
62
(11)
1.3
%
Earnings (loss) per share (most
dilutive)
$
(7.31
)
$
(8.46
)
$
1.15
(11)
Depreciation and amortization
$
97
2.0
%
$
2
$
95
(12)
1.9
%
YTD 2019
Reported (GAAP)
% of Sales
Less: Charges &
Credits
Adjusted
(Non-GAAP)
% of Sales
Selling, general and administrative
expenses
$
1,090
20.4
%
$
1
$
1,089
(7)
20.3
%
Assets impairments
$
45
0.8
%
$
45
$
—
—
%
Merger and restructuring expenses, net
$
83
1.5
%
$
83
$
—
—
%
Operating income
$
9
0.2
%
$
(129
)
$
138
(8)
2.6
%
Income tax expense (benefit)
$
(5
)
(0.1
)%
$
(37
)
$
32
(10)
0.6
%
Net income (loss)
$
(16
)
(0.3
)%
$
(92
)
$
76
(11)
1.4
%
Earnings (loss) per share (most
dilutive)
$
(0.28
)
$
(1.66
)
$
1.38
(11)
Depreciation and amortization
$
102
1.9
%
$
2
$
100
(12)
1.9
%
13 Weeks Ended
26 Weeks Ended
June 27,
June 29,
June 27,
June 29,
Adjusted EBITDA:
2020
2019
2020
2019
Net loss
$
(439
)
$
(24
)
$
(394
)
$
(16
)
Income tax expense (benefit)
(36
)
(7
)
(15
)
(5
)
Loss before income taxes
(475
)
(31
)
(409
)
(21
)
Add (subtract)
Interest income
—
(5
)
(3
)
(11
)
Interest expense
11
23
29
46
Adjusted depreciation and amortization
(12)
47
51
95
100
Charges and credits, pretax (13)
476
86
504
129
Adjusted EBITDA
$
59
$
125
$
216
$
243
Amounts may not foot due to rounding. The
sum of the quarterly amounts may not equal the reported amounts for
the year due to rounding.
(7)
Adjusted selling, general and
administrative expenses for the second quarter and first half of
2019 both exclude charges for executive transition costs of $1
million.
(8)
Adjusted operating income for all periods
presented herein excludes merger and restructuring expenses, net,
asset impairments (if any) and executive transition costs (if
any).
(9)
Adjusted other income, net for the second
quarter and first half of 2020 both exclude credits for
Indemnification asset adjustments of $2 million.
(10)
Adjusted income tax expense for all
periods presented herein exclude the tax effect of the charges or
credits not indicative of core operations as described in the
preceding notes.
(11)
Adjusted net income and adjusted earnings
per share (most dilutive) for all periods presented exclude merger
and restructuring expenses, net, asset impairments (if any),
executive transition costs (if any), loss on extinguishment and
modification of debt (if any), indemnification asset adjustments
(if any), and exclude the tax effect of the charges or credits not
indicative of core operations.
(12)
Adjusted depreciation and amortization for
all periods presented herein excludes accelerated depreciation
caused by updating the salvage value and shortening the useful life
of depreciable fixed assets to coincide with the planned store
closures under an approved restructuring plan, but only if
impairment is not present.
(13)
Charges and credits, pretax for all
periods presented include merger and restructuring expenses, net,
asset impairments (if any), executive transition costs (if any),
loss on extinguishment and modification of debt (if any) and
indemnification asset adjustments (if any).
THE ODP CORPORATION
GAAP to Non-GAAP
Reconciliations
(Unaudited)
13 Weeks Ended
26 Weeks Ended
June 27,
June 29,
June 27,
June 29,
Free cash flow
2020
2019
2020
2019
Net cash provided by (used in) operating
activities
$
(8
)
$
(58
)
$
180
$
2
Capital expenditures
(15
)
(45
)
(40
)
(91
)
Free cash flow (14)
$
(23
)
$
(103
)
$
140
$
(89
)
Amounts may not foot due to rounding. The
sum of the quarterly amounts may not equal the reported amounts for
the year due to rounding.
(14)
In the second quarter of 2020, Free Cash
Flow includes the impact of cash charges associated with the
Company’s Business Acceleration Program of $13 million and its
Maximize B2B Restructuring Plan of $3 million. In the first half of
2020, Free Cash Flow includes the impact of cash charges associated
with the Company’s Business Acceleration Program of $23 million and
its Maximize B2B Restructuring Plan of $3 million. Accordingly,
adjusting for these items, Free Cash Flow on an adjusted basis was
a cash outflow of $7 million and a cash inflow of $166 million,
respectively, in the second quarter and first half of 2020. In both
the second quarter and first half of 2019, Free Cash Flow includes
the impact of the Federal Trade Commission cash settlement of $25
million and cash charges associated with the Company’s Business
Acceleration Program of $30 million. Accordingly, adjusting for
these items, Free Cash Flow on an adjusted basis was a cash outflow
of $48 million and a cash outflow of $34 million, respectively, in
the second quarter and first half of 2019.
THE ODP CORPORATION
Store Statistics
(Unaudited)
Q2
Q2
YTD
2019
2020
2020
Retail Division:
Stores opened
—
—
—
Stores closed
39
35
47
Total retail stores (U.S.)
1,320
1,260
—
Total square footage (in millions)
29.4
28.0
—
Average square footage per store (in
thousands)
22.3
22.2
—
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805005292/en/
Tim Perrott Investor Relations 561-438-4629
Tim.Perrott@officedepot.com Danny Jovic Media Relations
561-438-1594 Danny.Jovic@officedepot.com
ODP (NASDAQ:ODP)
Historical Stock Chart
From Jun 2024 to Jul 2024
ODP (NASDAQ:ODP)
Historical Stock Chart
From Jul 2023 to Jul 2024