The ODP Corporation (ODP) Earnings Call Transcript & Summary

Good afternoon, everybody. The home stretch for the U.K. consumer. We know it's been a long day for everyone, but we're going to go hit big. Right now with The ODP Corp., we are super excited to have members of the team with us, including Anthony Scaglione, the company's Chief Financial Officer; and Tim Perrott, the company's Vice President of Investor Relations. ODP Corp. has a really interesting story. Many of you have -- might have spent some time with the predecessor company, Office Depot. ODP Corp., is very different, and you're going to hear about that today.

So where I want to start is -- it is a very interesting time in the macro, in the economy. Obviously, the banking industry is front and center. So a, what have you seen from the health of the consumer? And b, in your mind, to the extent that there are some issues in the access and the availability of credit, how is that going to play out for the office supply business?

Sure. Sure. First off, super excited to be here to tell the story. So thanks for hosting us. It's early days in terms of the -- what's going on in the banking world. Obviously, we're keeping our eye on, like everyone else, in terms of what it means for credit, what does it mean for small business. As you know, our go-to-market strategy is really consumer, small business, education clients. So you have to really look at it through that lens. And it's really early days.

Yes. Okay. And I want to unpack what you had just mentioned because one of the defining elements of ODP Corp.'s strategy over the last few years has been moving into this 4-BU structure, which, if you are not familiar with the acronym, it's 4 different business units. So to start, what have been the main factors for organizing what has historically been thought of as a retail office products company combined with a B2B office products company into this newly formed entity?

Yes. So 2022 is a very interesting year for The ODP Corp. and a lot of strategic options. As you recall, beginning of the year, we were pursuing a separation of the business between B2B and B2C. Then we were pursuing potentially the sale of our B2C business, which then culminated in our Board's decision to keep the entity together and really drive the 4-BU strategy. And why that's important because as you think about our routes to market, frustrating for me when I first joined, recognizing all the assets under the ODP umbrella, we were really only seeing one asset being recognized, which was our retail chain. So our ability to unlock the value for each of these assets is something that we're really excited about from a management team perspective. It took a lot of work to get here. That's our first year reporting under the structure. If you look at each of the component parts, and maybe I'll just do a quick high level, you have Office Depot, which is our retail business, which includes our retail chain plus our e-commerce, officedepot.com. Historically, that officedepot.com sat in our BSD division, which is our B2B business that we had historically reported. Then we have ODP Business Solutions, which now is our pure B2B distribution business, dealing with Fortune 500 all the way down to small- and medium-sized businesses. We stood up there, which is our logistics business. Prior to the separation, that was a cost center supporting the 2 business units. Now its own third-party business. Obviously, the 2 biggest customers that it has is Office Depot on the retail side and other B2B solutions on the B2B side. But it has a path for external growth. And we've announced that we expect that to be roughly $10 million of external EBITDA outside of the ecosystem of the ODP family. And then our last business unit, which we'll spend a little time on, is Varis, but we'll walk through that at the appropriate time.

Yes. And I was just going to add to what Anthony was saying, that $10 million is this year, right? And we have a path to growing it longer term to higher levels.

You see that, Tim is trying to raise the expectation right to his direct report. Whoa, this is great. We're going to really get into it.

Well, Gerry was very...

Yes. $20 million next year. So I want to unpack each of the segments because there's interesting dynamics that are happening with each. And what's -- let's start with the legacy Office Depot business, which long before even you got there, there's -- there was Office Depot, there's OfficeMax. These businesses came together. And over the last few years, the company spent time managing the portfolio, rationalizing some stores. How much room is there left to continue to pursue this strategy? And what are you seeing in the transfer rates from when you close stores to stores that are ongoing?

Yes. This has been -- for the organization, when I joined them over the last couple of years, even prior to when I joined roughly 3 years ago, it's been an exercise on rationalization. And we still have the same level of discipline within our real estate committee to look at the performance of the stores in light of a number of factors. How much of a lease liability are we willing to take? If you look at our average lease liability across the portfolio, it's roughly 3 years. That's pretty attractive. It makes us -- it allows us the ability to have optionality as it relates to how much duration do we want to have in the portfolio. And we've been rationalizing the book of business and the retail chain over the last couple of years. We expect to continue that rationalization. We outlined at Investor Day roughly 800 stores is where we think is a healthy network. So there's still some room left to squeeze the juice. Transfer rates continue to be in the high teens, low 20s. Still see good opportunities there. Obviously, as we get closer and closer to that 800-store count, transfer rates will continue to decline as the stores become more geographically dispersed. But we still see opportunities to continue to rationalize the portfolio.

And it's been an interesting time for the office supply retail business. 2020, a massive wave of growth. People needed to buy PCs and other productivity products in order to work from home. 2021, consumer had a lot of money to spend, and Office Depot was some beneficiary of that. And now there is starting to be -- some of the historic pressures are starting to return. So what have you been seeing in the stores more recently? And what do you think are a realistic expectation for the outlook for this business is over the long run?

Yes. So we think there's an opportunity. It's the first time that we're bringing the omnichannel presence together. That's a really important distinction. Kevin Moffitt, who runs that business, is really running an end-to-end omnichannel. Prior to 2022, it was separate, right? We had our e-commerce business sitting under our BSD or our B2B division, and we had pure retail. So I think there's an opportunity from an omnichannel perspective to continue to drive value in the chain as it relates to the B2C. As it relates to the consumer, I think there's been a reimagination of what Office Depot stands for from an Office Depot store and omnichannel perspective that resonates with the consumer. If you think about the products and services we carry, many of them are to run business, right, run a small business, back-to-school, back to the office, returned -- working at home. Those are all areas where we have strength in the products we cover, technology products furniture products, and obviously, core office supplies. I think there's also opportunities over the next couple of years. And you'll see us dip our toe into some adjacencies, expanding the portfolio around things that we think what I call are like one standard deviation away from the core. And that could be anything from party supplies to potentially arts and crafts, expanding our category mix there. And I think those are all areas where we have great opportunities to continue to grow our base and hopefully go to -- get to that flat comp in 3 years.

Yes. So that's the goal: flat comp over time. And how would a downturn, how would an economic recession, especially one that is brought on by a credit shock, influence your thinking about potential store closures? Would it potentially accelerate the pace of the closures?

Yes. We definitely, to my earlier point, we definitely have a model that's very rigorous as it relates to how we view the comps. And roughly 1/3 of our leases come up every year in terms of that extension. And we would take that into consideration whether there's the risk-reward around extending or closing the store and utilizing that as an opportunity to continue to transfer.

Yes. I think when the office supply business model was originally formulated, it was -- there was never a consideration of having a pandemic and an evolution of the notion of working, where you're going to work evolve like it has because the business model has really been well situated for this transition to a hybrid environment, where you could -- Office Depot can capture the work-from-home spend and ODP Corp., the B2B side, can capture the work-from-the-office side. Is that a one-for-one trade-off? How do you think about that?

Yes. So if you really look at our customer segmentation, obviously, we have the Fortune 500 in the B2B business all the way down to the small- and medium-sized businesses. We have a very large public sector business. So that business comprises both education and traditional government work. That effectively has been a back-to-office, let's call it, from the get-go. There isn't really that much of a protracted dip. And as we look at the consumer, there's opportunities to continue to balance the portfolio around return-to-office and work-from-home. Now the interesting thing -- dynamic that I thought would have taken shape by now, and I'm sure everyone in this room is going to echo this if they work in an office, companies have yet to define what does the return -- what does a hybrid model actually means. And what I mean by that is, what are the defined days, what does it mean when you're at home, what does your workspace should look like. There's a lot of ergonomics. There's a lot of risk in terms of working in that hybrid model. That company is eventually going to have to figure out policy-wise what does that mean. To date, a lot of my peers that I speak to across many industries have left it to the employer to figure out the home aspect of it, even though they've defined some level of hybrid model. I think over time, that's going to be policy-driven by companies, policy-driven by HR. And that's going to bode well for how we can serve those customers in any environment.

Well, not be surprised to hear that most people in my office want me to work from home. I don't know why. But that's a whole different story.

And the other thing I would add is what we're seeing in the larger defined hybrid. We're seeing almost a double-dipping effect, where people are going to the office, utilizing our products and services and -- in often cases, taking that -- those products home as well.

Guilty as charged. Go ahead.

Guilty as charged. So there's an opportunity there to continue to work with our customers, continue to work. And that's where the technology plays a great world so that you can provide that transparency.

Give us a little bit of line of sight into the internal thinking where if the norm is work from the office 2 to 3 days per week, work from home 2 to 3 days per week. Does that mean the scale of the B2B business needs to be rethought just because there'll be less paper consumption, less paper clip consumption at the office?

Yes. So remember, 1/3 is that Fortune 1000. Everything else falls below that. So really talking about 1/3 of the business that truly has a hybrid real estate component that's meaningful. The rest of the business, again, it's going to be education, government and small businesses that have returned. And in that large sector, what we've done is we've worked with our customers around programs that help them define how they want to handle it. It hasn't been policy-driven yet, so it's one-off. And back to the point of individuals taking products and services home, we see opportunities to help provide additional transparency around usage. We have a growing adjacency business, as you know, that's giving us opportunities to work with them outside of traditional office supply. That business is roughly 40% of the total volume today. We've never led, and I think that's a big distinction. I should have given you a little bit of my background. I've been with Office Depot for 3 years. Prior to that, spent...

Which I think is 30 years in real life.

Yes. More than that. I'm only 27, by the way. And prior to that, I spent over a decade with a company here based in New York called ABM Industries, largest facility services provider. Why that's important? I understand that space very well, the janitorial space. And when I came to Office Depot and I -- one of the first things I said, "Let me just get a breakout of products and services, margins associated with them, et cetera, and end markets." We had, at the time, a $500 million janitorial supply business embedded within Office Depot. And when I saw that, I turned to Tim, I said, "Tim, like this is an area where I know, based on my experience, the multiples in these businesses are much higher than not only the multiple that we're getting for the blend, but even a multiple on the distribution business." Jan/San is a very good growth story. We should be leaning into this. And I think this is the first time we're still early days where we should be winning Jan/San business first, not office supply and then bringing the Jan/San behind. That's going to change a little bit sales approach and culture, but I think that's a great opportunity for The ODP Corp. and specifically Office Depot ODP Business Solutions to grow.

Yes. I think the perception from outsiders is that there's just 2 players in the office supply B2B distribution space where -- and that -- we know that, that's a misnomer on a couple of different planes. But to the extent that there are a couple of very well-capitalized dominant players, are you seeing anything different from a competitive standpoint? Any different promotional activity?

Well, we clearly saw the exit of our main competitor on the B2B side in furniture. That was an exit that they made late last year. We saw opportunities there. We picked up opportunity...

Rhymes with maple.

Yes. It rhymes with maple, yes. A little thing that -- so we have opportunities on the furniture side clearly at the end of 2022, and that has cascaded into early days in 2023. So we see opportunities to continue to drive. And we saw -- as you may have seen on the Investor Day, Dave gave a testimonial from one of our customers around what we can do in that space. And it's important because we're not just delivering chairs or desks. We're actually designing workspaces. And as you think about the return to office, a lot of companies we're dealing with are not taking new space. So I think it's a misnomer to think that lease space is going up. It's not. It's either going to shrink or stay exactly where it is today. But the use of the space is going to change. And we see our ability to work with customers on redefining the workspace with the products and suites. And again, we have the testimonial and the video at our Investor Day that's on our website, really is an area that we think could be a catalyst for growth in that business.

One other element of the strategy is to do some bolt-on acquisitions, which has been affectionately referred to as the Federation strategy. So can you give some more insight, a, into what the -- outside of Staples and The ODP Corp., maybe WB Mason too, what does the landscape look like within the sector that you're competing in? And that should give us a sense for what the consolidation opportunity is.

Yes. Yes. Great question. So if you think about traditional office supply, you have the 2 big behemoths, and then you have a super-regional like a WB Mason. But if you look at the landscape across the U.S., there's a tremendous amount of independent dealers. Now typically, those dealers will have a start in office supplies. So if you look at -- their legacy is going to be office supply, but they've done a tremendous job of diversification over those years, where now office supplies may be 40% or 50% of the mix and other products and services are the other 50%. And why it's a compelling acquisition strategy, it's really 3 reasons. Number one, highly fragmented, so it gives us an opportunity from a consolidation standpoint to really leverage our scale in that space. Number two, their products and services typically can add complementary opportunities for us from an adjacency strategy standpoint. And number three, we bring a tremendous amount of synergies in the back from the back-office standpoint. So if you look at our COGS, our back office, we tend to leave the front office. And many times, the brand stays the same. And it's important because what we saw prior to that is we would acquire these -- I would call these local independent dealers. And these are typically companies where revenue in the $20 million to $30-plus-million range, so not very large. There's a few larger ones, but typically, that's the range. What we saw is when we try to bring them into the ODP umbrella, after a few years, the salespeople would churn. And we would lose a lot of that local content, that local knowledge, that local relationship. So many -- since the Federation strategy and as Gerry Smith put the Federation name across the strategy, and I think he borrowed it from another successful EMC had a Federation strategy. So he borrowed the name from there. When he put that in place, he made it very clear: let's keep that front office the same. Let's drive the synergies from a COGS perspective, from a supply chain perspective. And typically, we're netting down to 4 to 5x EBITDA when you compare it in the B2B space, highly synergistic for that business.

And is there any other player going after this similar strategy?

It's typically -- I mean we occasionally will see Staples there. Now the difference is they have an acquire-and-consume strategy. We have an "acquire and leave the operations alone," and sellers tend to like that because it gives them an opportunity. And we've seen tremendous growth in that Federation business over the last couple of years. Even through pandemic, it was the best-performing business in ODP Business Solutions.

Is that on an organic basis?

Organic.

Yes. That's great. There's a lot of fear out there about the economy. How -- what's your expectation if there is a recession? And some of the indications are that the white-collar employment could be more difficult than blue-collar or low-skilled workers. How do you see that impacting the demand for B2B office supplies?

Yes. I mean, clearly, we're keeping our eye on it. The good thing is we've been very vigilant on costs within the organization. And I think that DNA has reverberated throughout the organization. So we know how to handle costs and know how to drive more efficiency on a go-forward basis should there be a bump in the road from an economic standpoint. What we're seeing today, obviously, the news is fresh from last week, fresh this week, how it's all going to play out. Obviously, it's anyone's guess whether this tips us into recession, whether we're in a recession already. We haven't seen yet much change in -- coming out of the gate. We did mention at year-end that we saw some consumer weakness, and we expected that weakness to not deteriorate further but to stay kind of consistent, and that's what our guidance implies.

Has it surprised you? Or were...

No. I'm just going to add too, just the strength of the balance sheet that we have as well, right?

Yes. We'll get to that. We'll get to that. Is -- has it -- I mean you serve the Fortune 1000. And if someone like a Meta is laying off 20,000 employees, it would be natural to expect that the consumption of office supplies is going to go down. Is it that, hey, so a lot of the employers who are letting go of workers at this point have been in this hybrid or maybe...

Hybrid, yes. That's what I was going to say. Yes, it's definitely a tale of 2 cities, right, in terms of what you're seeing as the unemployment or the risks that are occurring throughout the industry right now tend to be more tech at this point where the hybrid has commanded most of that landscape. So we don't see much of a delta in terms of what we saw. And remember, we're still in the early days of recovery in many respects in the Fortune 1000, even defining what that hybrid model is going to look like. So Dave is seeing still continued strength in that tailwind happening throughout this year. And it clearly was a strength that happened in the back half of last year.

Because presumably, you have a bird's eye view and probably be a leading indicator of weakness in the broader labor marketing. Your message is, we're not -- consumer was a little softer, but we're not seeing it so far on the B2B side.

On the B2B side, no.

On the...

And we -- and just so -- we track our B2B business across a number of different subsectors, and we look at it on a weekly basis. Say, pre-pandemic, where was this business? During pandemic, obviously had to hit how that business is coming back. And we're seeing week-over-week continued progress, which obviously gives us the runway to our long-term targets in 2025.

That's great. And you mentioned seeing a little bit of consumer weakness as of the end of the fourth quarter. How did that manifest?

Predominantly in our retail, just the traffic. Traffic is a little worse than we would have expected. Now there's a little bit of distortion with all-day shifts this year and the timing therein. So there's a little bit of noise in the numbers, but primarily traffic.

And does the retail business tend to index to any particular type of demographic, economic segment?

No. Because I mean, if you look at our subsector of where we have strength, it's in education. You have the back-to-school, you have the teachers, you have parents bringing their kids back and again. If you look at our ability to add adjacencies, there's some logical adjacencies that we should theoretically be in today is we're going to be dipping our toe in. Small- and medium-sized businesses, they've been kind of the heartbeat. Obviously, that is one where we will monitor, but we haven't seen. And then, obviously, the last grouping is going to be the pure consumer, which we've always said there's a lot of optionality for pure consumer. It's our target audience, but it's not the demographic that we see in our file.

And you mentioned potential for cost reduction in the event that the environment does slow. What levers would you pull in order to protect profitability?

Yes. So we've done a tremendous job at taking cost out. We continue to be very vigilant. Like we put in programs late last year that effectively froze head count. And it was really important coming out of the 4-business unit structure when we were in the process of selling part of the business that we said, hey, until the dust settles, we need to really make sure that people are in their roles, which we are moving, as you can imagine, a lot of individuals within the organization, a lot of disruption potentially that we had the ability for the dust to settle before taking more normal actions from an HR perspective. That has helped us because ultimately, it allowed us to drive more efficiency in our corporate structure. And as we sit here today, we're not going to lean back into the way we were thinking of potentially hiring some of the backfills in those areas. So that's one lever. We have initiatives around our cost of goods sold, supply chain, everything that happened in 2022. We're seeing some release in terms of costs coming down. We're being very proactive with our vendors around driving that cost efficiency back into our business and driving that cost efficiency also across our platform both on the B2B and B2C side so that we see opportunities there. And then the last is we're not in the point of restructuring the business, but if things got worse, that's always going to be something that we'll look at.

And I think with the supply chain, a, would you consider it normal-ish now? And b...

Getting there.

Getting there? Yes. Where is there still challenges?

Still challenges on certain products, still challenges on delays and getting products in. The shipping costs have come down dramatically. We were dealing with containerships. And our business model has always been spot and forward. So we have a blend. So we didn't see the spikes if we were 100% spike. I mean the spot rate exposed, and we're not seeing 100% of the drop day 1. So there's a little bit of a balanced approach, which over time is going to serve us and has served us well. But we're seeing that come down quite dramatically.

And speaking of which, what we're hearing from some across the consumer sector is, look, we took it on the chin when rates spiked, and that dragged our profitability. We need to earn a little bit of it back now that cost coming down. What's your mindset?

That's exactly our mindset. And we have opportunities in our contractual. So if you think about the retail side or the consumer side, more dynamic pricing, as you can imagine, right, transparent pricing. If you look at the B2B side, it's contractual. So the ability to go back to the customer, change pricing is not as frequent as immediate when you're seeing costs. So those conversations started last year. We were very successful and continued this year. So there's still a little bit of an opportunity from a margin standpoint just purely from pricing.

Before we talk about the balance sheet because I know Tim is very excited -- advertise.

He's a [ trite ].

Excuse me, Tim. I mean Investor Relations and Treasurer. I apologize.

It's okay. It's okay.

And we will get to it. We'll get some time to shine and talk about share repurchases, too. Before we do, there are other exciting elements of the story, including Veyer. Can you give a sense -- explain the Veyer story. Why has it made sense to do so? A lot of retailers, a lot of site-based businesses and distribution businesses have the assets that Office Depot has. Why does Office Depot have the ability to monetize this excess capacity?

Yes. I think there's 2 things -- main things to highlight. When you look at our asset base, 9 million...

And maybe you should explain what just -- for anyone who's new, what...

There is a business that we stood up that basically has all of our supply chain assets and our procurement functions within, and I'll get into a little bit more detail. Within the supply chain, 9 million-plus square feet of distribution capacity across the U.S., our ability to deliver next day, 98.5% of the ZIP codes. Great relationships with 3PLs across the nation, 600-plus fleet on the ODP side and probably another 400, 500 on the Federation side. So over 1,000 trucks on the road. So we have a tremendous asset here that no one -- it's really hard -- if you think about replicating that asset, it's going to cost a lot more than the value that we've built up over the last couple of years in doing that. Where we have an opportunity and why we stood up there is really twofold. One is we wanted to have a separate entity servicing the 2 business units. Each business on a lot of optionality in the future did we ever strategically look at the business unit to have a supply chain that's separate and distinct. As you can imagine, as we were going through the strategic evaluation last year, we had to break that apart to support that business. Now having it as a separate entity provides that transparency, which is great. The second thing that is exciting about Veyer is, as we look at the capacity within our B2B and B2C channel, there's opportunity to continue to utilize capacity within Veyer. And what I mean by that is, typically, you're in the 80%, 85% utilization. That means there's at least 10% of utilization that should come as we bring other products and services. We do that today and we have historically done that, but it was more happenstance. It was a cost center that working with vendors, working with certain third parties. We did it as a means of falling in our lap. Now that we stood it up, we stood up team around driving that third party. And we have a goal of bringing that EBITDA, which was roughly about $5 million external this year, doubling that in '23 and then a path to $30 million by 2025. So super, super exciting that we're able to now showcase the value of that asset.

Tim just said $60 million by 2025. But that's...

$30 million plus, add the plus somewhere.

There's one thing talking about this and outlining the concept. There's another thing actually doing it because it's one of the big debates when the strategic review took place was are these businesses that could actually be disentangled. And the message that you're sending by virtue of creating this business unit is that we've done the heavy lifting to create a supply chain that has been disentangled. What has been done to really create this separate business?

Yes. So I would say 80% of the heavy lift is behind us. And that's...

What is it...

I'll get to that. And that was a tremendous lift across the enterprise, both financial, operational lift and the physical list of certain assets that we had to move. And what that culminated in is commercial agreements, right? Because we have contractual legal agreements between Veyer and ODP Business Solutions that are very [ strictly ] in nature, where you can go and see exactly how Veyer is charging for distribution, for the procurement activities, for any third-party logistic offset activities, stipulated on a contract that both ODP Business Solution and Office Depot have the opposite of. So it's a very transparent way of showing the value that Veyer is driving for each of the businesses at arm's length rates.

Have any of the assets needed to be separated in order to create the processes that make this operate?

Yes. So we had to do work -- and that's why I said 80%. We had to do work to physically bifurcate the IT systems just to begin to flow. We still have work ahead of us on making that more seamless and drive efficiencies from an intercompany standpoint and as well as how we want to run the business long term from a third party. So there's a little bit incremental work that we have to do there. But the majority of the legal work, the asset separation is in place.

And is this is the same sales force account management -- account managers who are calling on Boeing or whoever, XYZ customer, going to that customer and saying, hey, we know that we're delivering some office supplies to you. Do you know that we could actually take your uniforms back and drop them off at the dry cleaner?

That's work that's still ahead of us. And if you think about who's going to the customer, it's really a BSD or ODP Business Solution customer. Veyer is the support and logistics arm. Veyer does have a very small sales team. It's an area that over the next few years as they continue to grow, it's in our plan to grow the sales team commensurate with that.

Got it. Moving over to Varis, which you may not realize, but you have 2 of the executives who are creating the Amazon of the office supply space.

No. No, not at the...

Sorry, they -- and those guys in Seattle created the Office Depot of the retail segment. So this is...

Yes. Yes, super excited. But -- we had a presentation last week. Hopefully, some of you have seen it, where we brought the Amazon business team effectively that built Amazon business to New York to showcase what we've been investing in over the last couple of years. It's an industrial-strength B2B platform. And the distinction, it's not office supplies. It's everything, right? It's a contractual spend that customers may have with ODP, that customers may have with other suppliers on the platform or customers may have with suppliers that are not on the platform that they want on the platform. So we launched the platform in Q4 of last year. So we're just in the launch phase. Super, super excited about the feedback we're receiving. We just announced a 2,000-chain retailer that's growing. So you can -- you probably can -- many 2,000 retailers that are growing is coming on to the platform. And why that's important is because if you think about in the retail chain or anyone who has boxes across an enterprise, when I ran -- was CFO of ABM, we had offices across the country, right? We used to call them branch offices. Each office was managed in somewhat independently. As much as I wanted to coordinate spend, as much as I wanted to link that spend to get the synergies, really, really hard without technology and really, really hard without contractual agreement that you can track. So what happens is you try to put agreements in place. You typically are successful half of the time, and the other half, it's loose spend happening on credit cards, happening at the local level. Our technology brings all that under one umbrella. So the CFO of this 2,000-chain organization can hit a button and see how much he's spending across categories that are consistently across the 2,000 chains. So really, really powerful way for a consumer of our platform or the buyer of our platform to see consolidated spend and also drive synergies with the consolidated spend. Why that's important for a supplier, most suppliers are able to meet the contractual needs of that customer and see how compliant they are. So what we're seeing is that people come on the platform, usage is going up, spend is going up, and contractual compliance is going up. So win-win on both sides. Really, really early days. Super excited about how this model is starting to progress. One of the key indicators is going to be the transaction volume. It's something that we're going to share sometime this year.

And just to be clear, so -- and using the 2,000-store chain that's growing as an example, historically, this chain has had needs to buy garbage bags, paper clips...

Lightbulbs.

Lightbulbs.

Paper towels.

And some of the chain might have common purchasing and...

Yes. They'll have -- they may have an agreement with Office Depot today or ODP Business Solutions today where we're delivering. The way that, that local chain is going to interact with ODP is going to be direct most often. And you start to multiply all the direct relationships you have. When you need something immediately and you need to be an efficient way of gathering it, what happens is people say, forget about this, I'll just put it on my card or I'll just buy that my local store, bring it in and expense it. You have that loose spend happening, which in many organizations, that loose spend is quite dramatic. This provides a consumer-like experience, where it's literally, as you saw on the demo, very consumer-like, I won't use the name, where you can roll this out pretty efficiently. You're not punching in and out, which a lot of technology on the B2B procurement side, difficult to use. You're going out this websites and coming in. You have to identify the expense code. You're putting a lot of burden on branch managers or office personnel that don't have the time or the experience to really be trained. By having the consumer-like experience, you can roll this out pretty efficiently across the 2,000 chains.

And so if that 2,000-store chain was having loose, different and nonstandard processes to buy some of these products, the goal now is you go to this chain, you say, all right, everyone is entitled that gets logged in for the various website or whatever, portal wherever they're going to go. And the goal is to have all of those stores when they need a lightbulb, go to Veyer, type in lightbulb. And there might be multiple providers of lightbulb or whatever they're going to find, most suits their needs...

Most suit their needs. And most likely, it's going to be what's contractually at the headquarters, the lightbulb that they want the branch to use, where you're going to have 2 or 3 lightbulbs versus many lightbulbs if you just do a normal query. And the key is those lightbulbs are tied to a contract that's tied to pricing that may be behind the scenes, more efficient from an enterprise perspective.

It reduces leakage.

Yes. Right.

And then within some period of time, those lightbulbs are going to be delivered to that store?

That's right. Yes, that's right. Yes, so you're facilitating the upfront to reduce the leakage to Tim's point and to provide that end-to-end solution to that local.

Yes.

And give us the early wins. Tell us where Varis stands. You mentioned you hired a gentleman named Prentis Wilson. He brought in 20 or 30 people from his team at Amazon business. You had bought Firequest, and that served as a platform to create the technology that connects the buyers and sellers. Where does it stand today?

So peak investment is behind us. We mentioned 2022 is the peak investments. We have continued investment as we scale the platform this year, but you're going to see year-over-year declines in that OpEx and CapEx. CapEx will always be part of the equation as we add functionality, but most of those -- the growth investments that we put in CapEx is behind us. So the platform is here, the platform is ready. We're continuing to get feedback from customers on what opportunities are ahead of us: payment opportunities, potentially adding services to the platform. And that's why we distinguish GTV, gross transaction value, versus gross merchandising because transaction will cover services. Small distinction, but it's going to be one of those areas whereas customers use the platform and want to add additional providers, we can add service providers as well.

Meaning if someone needs snow all the way, you could...

Or cleaning, yes.

You could -- they could go and source a provider through this platform. And is it a chicken-or-an-egg issue, where you need a sufficient amount of providers to get more users and vice versa? How do you...

We're building both sides of the. I think it becomes kind of a self-fulfilling process. As suppliers come on the platform and buyers use those suppliers and get familiar with the platform, the buyers are saying, well, I like a snow removal.

Rub it in. Go ahead.

Yes, exactly. Here's what I'd like to use, and here's the contract I have with them, in many cases. And that contract then gets imported. We take the intake of the information. So if it was a transaction, you're basically bringing in the catalog and then you're providing and lighting that up. And then working with that supplier, we said, do you want to expose your catalog to other buyers? And if the answer is yes, now you just have an ecosystem where the suppliers are gaining customers in a way that they wouldn't have had gained in the past. So it becomes this naturally building ecosystem between buyers and suppliers.

And to the extent that there has been feedback, I'm sure a lot of it's been good. But to the extent that there's been feedback that says, hey, this has been a little cluttery or areas for improvement. What is...

On the payment side?

Right.

The end-to-end payments, as you think about the larger the enterprise, the more integrated it is with ERP, the nice thing is our sweet spot outside of 2,000-chain retailer is small- to medium-sized businesses where they don't have many of the technology and tools that other larger enterprises have. So we're bringing not only the technology, but we're also giving them the opportunity to really have an experience that they wouldn't be able to afford if they were looking at potentially alternative procurement-type platform.

And it's a large market, right? It's that midsized market is in terms of transaction volume for all of.

That's right..

Before we get to Tim's cherry on top...

The conversation...

Let's put the whip cream on the sundae. You recently had a meeting where you outlined some goals over the next 3 years. Can you give the audience a taste of what those goals are? What is the financial formula going to look like for the business?

Yes. So from an algorithm standpoint, it's really driving the operational excellence that we've driven over the last couple of years, continuing to see rationalization in Office Depot, so bringing that store count modeling that to roughly 800. And again, this is going to be highly dynamic based on...

From 1,000 or so.

From about 1,000 or so, highly dynamic based on all the criteria I mentioned earlier. Our B2B business returning to profitability levels that we saw pre-pandemic. They obviously took the largest drop during the pandemic, and they're slowly clawing back and ahead of plan based on where we thought they were going to be in 2023. And then we have Varis -- Veyer, which is our logistics and transportation business growing from $10 million-ish this year, up to $30 million-plus of EBITDA by 2025. And then we have Varis, which is scaling rapidly. And we expect roughly about $120 million of top line and a break-even cash flow -- operating cash flow by 2025.

Yes. And I was just going to add to what Anthony is saying too, and that's one of the -- I think, the real nice benefits of the 4-BU model that we've created is now you're going to start to see the transparency of this, right? So we're reporting on this new 4-BU model where you can see, hey, they've got a $4 billion-plus B2B distribution business. They have a logistics business that's generating this, which we think -- obviously, the $30 million that we keep targeting in the Investor Day is just the beginning, right? So if we're successful with that, we want to grow beyond that. And then Varis, right, Varis -- and all these have very different multiples to the business, whereas today, we're largely looked at only on a consumer or a retail basis. So it gives us some opportunity for investors to see the real transparency in the other parts of the business.

And then the second part of the algorithm is obviously the share buyback, which you're in a...

Yes. Let's put a bow. So talk to the group about where the capital structure sits today. And why is there so much opportunity to buy back stock without introducing additional risk for either equity holders or debt holders?

Yes. So we have, what I would say, a fortress balance sheet coming out of 2022. And when we look at the opportunities ahead of us, the investments that we've made, the investments that we'll continue to make and balance that with a very attractive entry price, in our opinion, to return capital to shareholders, we felt leaning in and announcing that $1 billion share buyback was the right thing to do, supported by our Board. We've been aggressive with that buyback. We most recently just did a private transaction with one of our larger shareholders for 2 million shares, which was part of our plan over the next year. It's just an acceleration. So it was a win-win for us, a win-win for HG Vora. And they continue to be one of our larger non-indexed shareholders and continue to sit on our board and be constructive from a Board perspective.

And so $1 billion represents 1/3 to 1/2 of...

1/2 of our market cap.

I was trying to be generous.

We see tremendous opportunity. They'll more than double our EPS in the next couple of years, which we outlined the CAGR that we have over the next couple of years. And we think that algorithm of the building the Office Depot, driving that cash flow and that discipline that you've seen growth in ODP Business Solutions and then having that hyper growth in those 2 new business units, coupled with that return of capital, it's a formula that hopefully gets a lot of investors excited.

Well, on that note, it's going to be fun for all of us to watch. Please join me in thanking Anthony and Tim on a wonderful conversation today.

Thank you.

Appreciate it.

Thanks.