The ODP Corporation (ODP) Earnings Call Transcript & Summary

Thank you, everyone. I'm Michael Lasser, the hardline, broadline and food retail analyst from UBS. We could not be more excited to have ODP Corp. with us, including Gerry Smith, who is an honor and pleasure to be here. We are very grateful that you're here. We are also joined by the co-CFOs, Max Hood and Adam Haggard; as well as Tim Perrott, who runs the Investor Relations function. We are certain that Catherine Moore is back at home listening on the webcast, and she'll appreciate that we say hello to her. So with that being said, we're going to start out with a few opening remarks from Jerry, and there is a lot I'll begin to dive into. So I'm looking forward to it.

No, Perfect. So thanks for having us, Michael. And we appreciate it greatly. We are excited to be here today. We think we have a value story that makes a lot of sense. Obviously, a bit of a challenging 2024, and I know we'll get into that in some more detail. But if you look at the opportunities in front of us, some of the recent announcements we've had, we're excited with the hospitality business was really I want to dig in with you on that. As well as the supply chain opportunities that are emerging as well as our optimized for growth plan as well. So we think we're tremendously undervalued as a company. And you just go look at our asset value balance sheet value of Veyer alone is over $800 million. I ran $60 billion supply chain at Lenovo for 10 years. And to build the supply chain we have now, it would cost you $1 billion to $1.5 billion to go off and go do when you have a market cap at below $500 million, you get frustrated. But I think that as we go through this day, we want to show you the path of unlike some retailers or other B2B people in contracting markets, is what we have. We have a path to grow through this hospitality arrangement with one of the largest two hospitality providers in the world as well as a lot of other opportunities we've had in our traditional business as well as the path we're seeing from a retail perspective as well.

Yes. all very helpful comments. And Gerry, if I had to characterize your tenure at ODP Corp., you came in eyes-wide-open and you said, "Hey, we've got to act assertively. We've got a great business here, but the market is changing very rapidly. Let's take some actions and not sit still and make -- and take effort". With that being said, last year was a tough year.

Very tough.

And now for ODP corporate isolation, the markets that you serve, the consumer, so with all that being said, give us a sense of why it's been challenging and what ODP Corp. is doing to regain this traction that you're working to achieve?

So from a business model, strategic perspective. The two fundamental challenges are, obviously, 1/3 of the business is retail or 40%-ish. All retail sectors have headwinds pressures. And so we saw that from a retail perspective. And then our core market, our traditional market office supplies and adjacencies around that have been declining for over probably a 15-, 20-year period. Now we saw some acceleration of that in 2024, so a little bit more stabilization in Q1. But we -- so that's sort of a double whammy from a strategic perspective. Now we do believe with the assets -- our focus over the last year is how do we get to a pivot where we get value creation. We get looked at differently by our investor base, and we've done that. We've done a really good job over the last 8 years of taking cost out. I've talked to multiple times on that. I think that's candidly kept us where we're at and we're in a strong balance sheet position still. I did start making investments 5, 6 years ago, I'm building out the software capability, what I call a tech stack of our supply chain. That's been a CapEx investment for 5 or 6 years. That's done now. That allowed us to win business with the -- one of the largest social media e-commerce companies that -- I know my -- two of my kids use I'm pretty old, but...

Very young. He's got that youthful glow to him. So...

My grandkids are too young to use, but it's the biggest market segment, but they -- we signed a deal in early August to be one of their partners. We ramped that up very quickly. We went through -- they took basically two of our facilities, and we had a test through the peak period, which we were very -- we learned a lot, they learned a lot, but I think we're well positioned for future business with them as well. But that sort of opened up the eyes in the industry going, wow, that's a big partner. And so strategically, that's really important. The biggest thing we have to do is how do we go make sure our fixed cost structure of the business is in the right position. Our restructuring or optimized for growth restructuring plan was not just cost base, its growth based. That addresses it because we're taking out some fixed costs that we think is not necessary at this time. But the hospitality pivot, which I'll go in a lot of detail in a second, but across the three growth vectors across growing our traditional business, we had the deal we signed in November, $150 million a year. We're starting to ramp that up. We just signed a deal with CoreTrust for the private sector adjacency products. CoreTrust is the second largest GPO in the office supply space. The first is -- [ omni ] is one of the real procurement -- general procurement, yes. Sorry.

No, I'll get. But --these folks see a lot of different business, so we want to...

So general procurement. So it's a traditional general procurement organization that companies used to do their buying for them. There's two big players in the space. One is our largest, and now we have the relationship and not the core office supplies, but the adjacency businesses around that. But that's a really big opportunity because we've met with their C&I met multiple times. We're excited by that potential. In the traditional business, it's the real growth potential across the business and more to come on that. So go try to stabilize and grow the traditional piece. And then obviously, the hospitality piece is by far, I believe, Michael, the biggest inflection point in the last 15 or 20 years.

Yes.

That is not a market you can just say, hey, I want to go into and enter this market. We do ship to that partner today, our traditional products. But in a -- once they start recognizing some of our -- they were having a challenge, and I'll get into a lot of detail on this -- there's two main distributor competitors in that space. One is struggling execution wise. The other one has higher margins in their traditional businesses and can't really grow too much. So it's about a $16 billion market in what we call the OS&E space from a hotel room perspective. Think sheets and towels, amenity products, shampoo, soaps, iron's, ironing boards, hangers, bedding, mattresses, all that product is a $16 billion market growing at a 4% to 6% CAGR. Two really important things, one that you always ask me, well, what about the e-commerce giant. They can't get into that because the group purchasing organizations for hospitality, they prescribe to the franchises, you have to buy this curated set of products, which is a preventative measure for there's no leakage. Unlike our traditional segment where you have more leakage. And so that's one it's invitation only. And so we got invited in. We went through a rigorous process with one of the top two people in the space. By going through that and passing that and getting that validation; a, gives us scale very importantly, it brings us about 60 suppliers that are -- there are different suppliers in our core traditional business. We've engaged those. We had contracts with those. We're ramping them up, connecting them via EDI, a lot of ramp-up process. And we've just done two press releases on what I call the paper -- it's the paper and ink and toner of the hospitality industry, amenities, and towels and sheets. And so Bell is the exclusive partner for Four Seasons for Hilton, for a number of chains across the world. One of the leading manufacturers. We've entered into an agreement with them to be a partner and a lot more opportunities to go-to-market on that. So now we have the supply base. Now we have the affirmation of scale from one of the largest partners in the world. And now it's about driving execution and ramping the business up. And we're excited because it's the same sales motion. It's the same supply chain motion. Why we won the deal, and the partner procurement person stood on stage and said, you won because of your supply chain capability. So all that CapEx investment we've had for 5 or 6 years, all that execution experience in the office supply industry for 30 years. That's the -- they had to find a distributor partner that could go off and have that customized delivery like we do every single day. So we have the muscle, we have the motion, now we have the partners, now we have the scale and size and affirmation of the leaders. We're getting a ton of inbound calls from other players in the space. And that's the $16 billion piece. What we're excited about is, there's a $60 billion market -- $16 billion of the $60 billion is the room, but then you think about cruise ships, then you think about senior homes, then you think about hospitals, then you think about prisons, you think about dorms and universities. All those are opportunities, and we're having a number of conversations with current customers, and I didn't know you did that.

Yes.

And so it's very early. It took us 9 months to go off and do. We put a lot of cash into build up some of the inventory across that piece. We just turned it on 2, 3 weeks ago. But in the back half of the year, we're going to start seeing some revenue results across that. And to be honest with you, I'm excited because I think we're -- again, it's logical. We know who we're competing against. We know there's execution risk. We know we can outperform. We have visibility tools in our supply chain software costing tools that people don't have. So we have some competitive advantage from a distribution perspective. And there's a mode around it.

Yes. There's a lot to unpack there. And it's interesting. One way that you could frame this is, listen, ODP Corp. has experienced challenge for the last few years, which in turn, has propelled it to act and say, "Hey, we got to figure out ways that we can grow this business and move into adjacent market." It's interesting because one of the holy conversations that are taking place with companies and investors is, wow, we're in a very dynamic, challenging environment. ODP Corp has been in a challenging environment for a while. So it's as though this environment is no even more challenging and you've been dealing with for a while. So, a, is that fair? And if you could give us some insight to how you're thinking about the day-to-day tariff and [ DOGE ] and everything, and then I want to unpack everything that you're doing to reposition this business?

No, I think we're used to the, say, the intensity of the cycle, right? I mean when you're in declining sectors. We did -- as we talked about before, we pulled hundreds of millions of dollars of SG&A out of the business. We run our business very tightly. But you're still fighting a challenge from a pressure perspective. Yes. We've focused on tariffs before. The first time the tariff engine came, we had 85% of our inventory coming from overseas in China.

Yes.

That's down to about 30% now. Now some people, when tariffs went away and changed his administration, they shipped it back to China. We didn't. We said, no, we're staying. And we stayed in Vietnam, Indonesia, Malaysia, other places from -- it was important from a diversification perspective. And so, yes, tariffs are a headwind, but we have the mechanism to drive that into cost into unit cost from a partner perspective, we're always transparent and say, when it comes, we're going to pass it through. If it -- no, I will say it's a bit of a ping-pong ball every day. What goes in, what goes out.

[indiscernible] on.

But we moved early, and we're positioned. We have the flexibility of just -- we know what our inventory cycle is, and we're watching. And as we get closer to making a decision, we'll drive that cost through. Will that change demand? You could. But you're also getting the upside from a cost perspective. We're also pushing back on our partners to say, how much of this is really the tariff, how much is the price? Are you trying to get extra margin on this? And so we're doing that data to be value, but we have the management system in place. We've experienced this before. I don't want to be [indiscernible]. I may have sort of, hey, it's extra work, absolutely. But we're pivoting, we're moving.

ODP Corp. is equipped to manage through it...

Right.

Without a doubt. With all that being said, I do want to turn to some of the strategies that you had started to impact. Before we get to hospitality, let's talk about retail a little bit. The strategy has been. And retail is ODP Corp. along with OfficeMax had been one of the really the consequential founders of this big box office supply market, and there's still a lot of cash flow and margin to be harvested. But that being said, all ODP Corp. talked about a different approach to how it's going to focus on retail with the fourth quarter. So if you could outline that and shed a little light on it?

Our optimized for growth plan actually brings us a ton of flexibility. We won't make any significant CapEx investments in the future. We will manage our store chain based on 4-wall cash flow and 4-wall EBITDA, they got to manage both. 96% of our chain is cash flow positive each store. And we'll also look at the fixed cost structure around that. What I mean by that is in the supply chain, retail does have some mechanism -- the cross docks and some other pieces are retail specific. And so we're looking at -- and we've already announced the restructuring that did some more notifications. Some of our supply chain locations that we still think we can cover with the same SLA levels, we're going to close a few of our supply chain. So that's been announced. So I'm -- we're -- the three of us are trying to get at the fixed cost structure of the business. So -- and we think there is an EBITDA lift in the future as we drive that out of the business. In fact, the overall restructuring plan, and it's all theoretical would be there's not a -- it's actually $380 million EBITDA cumulative positive over the life of the plan. And it's cash generation. What we're doing is the message we've given our teams is, if you perform well as a store and you're beating comp, your comp from the plant and you're showing that positivity. We'll manage you for cash and margin. So the main message for investors out there is we're going to manage this for cash and margin, and we have the flexibility to build in. Our lease liabilities, we really started this in 2020, we have talked about before with maximized B2B. It's almost the same plan. COVID changed things because everyone got a bump and we're going back to that core of that plan. Adam and Max and team have done a great job, our lease liability is 2.9 years as an average. So we don't have massive lease liability out there like a lot of other chains. And so we'll keep managing that theoretically for store is EBITDA positive, and Adam was telling an example earlier, we will -- we'll renew that for 1 or 2 years and keep that flexibility. So we don't have long-term lease exposure. But long-term, it's how do we maximize the retail business for cash and margin. We're not going to go off and do store in the store or new store footprints or try to do anything from a huge capital perspective. We are running better than planned here in January and February. And we've done some promotions that we think are valuable, and we're just going to keep looking at that. How does Kevin and his team keep driving to a smaller and smaller negative comp.

Got you.

And if they continue to do that, we'll keep the chain, we'll keep flexibility in place. If there's challenging economic headwinds or recessions, we're positioned to go off and accelerate some of the store closures if we need to.

So messages are maintaining max flexibility, optimizing for cash flow and profitability and going into the size wide open.

Exactly.

Okay. That's fair. Pivoting over to the B2B business, where a lot of the focus, a lot of the action has been. It's been an interesting environment for the contract business. It's always been a very competitive segment.

Yes.

Has it become more competitive? And why would that be the case?

In the 24-year very competitive with the other main competitor in the space. They were refine, they were looking at -- I think I won't talk for Stephane or the team, but I think they were aggressive, we were aggressive. That goes in cycles. If you go back and look at over the years, it's every 3 or 4 years, there's the head budding starts and then...

We want to head butts with Gerry. That's for sure.

But -- and we're both competitive. And so we're going to do that. But then it seems to tamper out and we have our wins, and we go back. And I think that's -- we're running that cycle. And I think I mean, we're obviously, we would never collude with a competitor. That would never happen. But I think that we respect them, but I think that over a period of time, that will probably subside some, and we'll go forward. But we wouldn't announce the maximized B2B plan and say we pivot and B2B if we only had the B2B business, the traditional B2B business. Because we have this opportunity in hospitality and we'll talk about Veyer well, but Veyer is the success they had with that e-commerce giant. We also got some additional -- we're getting some nice logos and some other wins in place. I mean just -- the three levers I'm pulling to absorb the fixed cost structure to drive our EBITDA higher and to create cash for the business or this four. One is the restructuring plan, but it's grow the core and fight in the core, grow the Veyer logos and look at these opportunities because, again, it absorbs fixed costs, as John puts logos and absorb the supply chain capacity. And obviously, the hospitality piece could dramatically change. If you look at the size of the market and just if it's -- even if we're somewhat successful in a $16 billion market. That's a big impact. But if we're somewhat successful in a $60 billion market, it's a huge impact.

Yes.

But I think the opportunity is wide open, especially that we know our competitive field. And the other two people have strategic issues they have to face. One is capped from a real true long-term growth perspective and others is very challenged from an execution performance perspective, which is why we were invited in why we were vetted so hard.

Yes.

And we passed the vet. And now we almost have a stamp of approval that says, "Okay, you got through them". And we've literally had one inbound that said "You got through them. We're not even going to go -- we're good -- we're not even going to go through a propagation process."

Yes. So to just summarize, the mindset is, listen, we've got a very financial -- a lot of financial flexibility. We've got all these emerging businesses. We're covering our costs. We're okay with a little bit of temporary competitiveness because we're going to come out of this in a really good spot. And the business that we're winning today will hold on to on the other side of it. So is that...?

And one piece is we still have a very strong balance sheet as well, unlike a lot of other people who -- two to three turns, four turns, we don't have that.

It's a competitive advantage.

Which is a competitive advantage for us, and we don't -- we tried saying in our earnings -- in last earnings that we don't see that getting worse. We see that improving, and we definitely have that confidence now that -- and we did make some investments in cash in Q4 to buy the inventory for tariffs -- ahead of the tariffs to buy inventory into the hospitality ramp into -- as we ramped up the 3PL e-commerce customer. There was some investment in that as well.

Got you.

All that should flow through cash flow wise as we get into the first half of the year.

So I want to talk about the big customer win. But before we do, on the B2B side, there is a lot of uncertainty as we have characterized throughout this conversation. Do you expect that to have an influence on how your -- some of your B2B customers are going to operate? Are they saying to you a we don't know what tomorrow is going to look like. So will...

We saw that in a lot of '24 as well. And so I...

Coming back to the point...

We've already seen it. We've been operating that way. I was calling out -- I called it a shadow recession to my board. And so I think there's a lot of softness anyway. I mean -- and we experienced that with as people were laying people off or people were -- our sector does get cut. And so we've experienced that. Again, we're seeing some -- a little bit of growth back. But I think it's a matter of finding those other areas that can grow, get into markets that we know are CAGR, 4% to 6% a year at the Hospitality segment in the last 5 years. I like that. I like the fact that I can go into the market the CapEx investments done, inventory investments is done, and it's now it's a matter of let's go be the competitors there with -- and very importantly, the margin structure of that business is even at the top end because we're going to the one of the top people in the industry to get the scale we need, which is lower margins for that industry, but same margins. That alone is about the same margins that we have.

Got you.

So that should be -- our goal is that's a 5-point business for us. As we move down into the mid-market of that, think of a smaller chains Choice Hotels or Motel 6 or some of the smaller brands, those are higher-margin opportunities across the business to go up and operate in.

Got you. I want to talk about CoreTrust because it was a nice win. With that being said, it sounds like it will take some time for that to flow through. Is there a transition period where, hey, the B2B office supplies market is still going through this a challenging market, and these new contract wins will take time to develop. So it's -- as outsiders expect the ramp to be progressive?

Yes. And I think you start really seeing that ramp building in Q3 and Q4.

Got you.

So the ex velocity of 25% is going to be -- we're pretty excited by. But I mean, again, we just turned on the tap. But Q1, Q2, you'll see a little, but then obviously, the CoreTrust relationships will ramp up and all these other relationships will ramp. And so as we -- the goal is to build momentum in the back half.

Now the CoreTrust, where you'll be delivering to the CoreTrust customers or their end markets. Are they already in your existing locales, such that it would be an ability to leverage the fixed cost and you're just adding an additional delivery on the...?

Yes. A lot of the -- we -- our supply chain delivers next day to 98.5% of zip codes across the country. And so it's no different.

Yes.

And so when trucks are out our routes, they can -- we do a lot of route analysis to make sure, if it's a full truck hold, that's great, but if it's partial, you can have multiple deliveries and so get the supply chain scale we need.

Got you.

I'm excited by -- we have the second largest GPO in the space. No, it's not the core business, but it's adjacency business, which gives us a toe in the door basically.

Can you explain that? I think there's probably some [indiscernible]...

Yes. From an adjacency, it's printing, it's technology, it's furniture, it's Jan/San. So it's a lot of other -- actually adjacency areas, which we want to expand into.

Yes.

But also, we can establish a relationship with those customers then obviously, if there's other opportunities across other product categories, we'll be well positioned to compete against the incumbent in the space.

Got you. Switching over to the hospitality opportunity that we've talked about to your point, $16 billion market, presumably, ODP Corp. gets very little, almost nothing from it now. And just to help frame it for folks, ODP Corp. went and said, "Hey, we've got this infrastructure where we're already doing daily deliveries of core supplies that support the fundamental operations of businesses across the United States." Why don't we take that core competency and use those abilities to support this market that has been dissatisfied with some of its incumbent providers. And so you went through this big -- the big process of winning that business and Tim takes all the credit for winning it is. So it's all believable [indiscernible]?

So I has to get credit to.

But -- and it's not true, right?

The seller on the account did a great job with that account. And make sure I don't say the count back to EBITDA. But -- and they were having a conversation, and they were just saying what -- and we've asked before to get in the space. We've always been said, no, I don't think you can do it. And I think there is frustration on their end of the current execution of one of the partners and got into a conversation, "Hey, I think we can do that for you guys." And so this was -- again, it's months and months ago, but once they went in and saw our Newville, Pennsylvania distribution center and did a tour now. They told me after the fact when they came into our sales kickoff, they say, "Hey, I knew exactly when I walked in the door". Now it took 6 months more of -- I'm glad we went through a tough qualification process because what it does is it proves hey, we're ready for that space. And we learned a lot. But -- and then they went and saw four other distribution centers just to affirm and we passed the flying colors, which is, again, I grew up in the supply chain guy at Lenovo and Dell for 25 years. When you have that experience, you can walk into a DC and say, "Oh, that's a good one". And that's what they did, and they really dug in. But I think that was the aperture. I'll give them a ton of credit for thinking bigger and saying, "Oh, wow, okay". And the more we talked about, hey, there's supply chain visibility software, a franchise will be able to look on their portal, their specific I'll say Latte Hotel in New York and say, I need to buy these many sheets, these many towels, this much Shampoo, blah, blah, blah. We'll tell them real time, what's your availability, what's the delivery time. And so they'll have a confidence level that the current providers don't have. And so we think having in that software stack capability we invested in for the last 5 years. It's one of the -- and again, she told his point like, this is why you won. It's that supply chain capability.

So we see back two questions. One is what capabilities for investments in ODP Corp. needs to make in order to satisfies this customer? And two, how does it ensure that it does not disappoint this big important customer? Because obviously, this customer is coming off of a situation where they were not happy with their incumbent provider.

So first, we've made the investment. Yes, it's done. So there's...

Yes, what does that mean? You went out and bought some towels and linens.

Well, they -- once we won the deal, they gave us allocated supply. Again, it's so important for the investors to understand you have to have the supplier relationships, the towel provider, the amenities provider and the other ones we've signed up, we cut contracts with them. We connect the EDI perspective did all the work you would do to onboard a customer in very, very record time. They said it's faster than anything that they've seen before.

Yes.

But what I did is I lined the company up 3 days a week, Monday, Wednesday, Friday. We look at this as an opportunity. And at my level, across probably 100 people on the call, where are we at across every sector of this business, and we went off and execute and got ourselves because we saw the opportunities. This is a pivot to change the valuation of this company dramatically and -- have a multiple of a B2B distributor versus a retailer that's less than a 2x EBITDA. And so that's the opportunity. And so we've made that -- we've already made the supply chain investment. We've made the inventory investment. Now if they go off and hyper grow the business, we might have to put some cash in just to inventory, but that's just a onetime and that's going to pay out. From an execution perspective, we're keeping the same maniacal focus on execution of -- again, I ran a $60 billion supply chain. I had daily business reviews every single day across the lot of supply chain. We're going to continue to -- we review this 3 times a week at my level to make sure we don't fumble the ball; we don't drop the ball whatever analogy you want to use. We're going to make sure we are flawless with execution across this. And they've been a great partner. We do make a mistake or we're not getting clarity of forecasting, we have built a really good relationship. And I've moved some of our more experienced leaders in the organization into helping manage the ramp of that business. And additionally, we're reallocating resources from a sales perspective, from the traditional core to -- and hiring talent that comes from that sector from the hospitality sector as well. So we're looking at go-to-market. We're looking at -- we've tested the web interface. We've tested the supply chain. I mean, there is a very rigorous process to ramp this business up. We're not going to mess this up.

Yes.

Because this is the opportunity, this is the inflection point for our company. I'm a very large shareholder of the company. I didn't monetize my compensation. I've kept investing in the company, and that's important. Because I believe this is going to fundamentally change the path.

Put your money where your mouth is, that makes a ton of sense. Now with that being said, are there cultural differences with this industries versus they don't order differently or anything like that?

Well, we're learning some -- there's some speed and timing differences, but you give us an example, like if someone's ordering some paper clips and pens, they might not need it until next week, where the supplies tend to historically have more frequent deliveries.

Got you.

This is more, hey, I want it every 2 weeks, here's what I want. That's why the visibility software have having that pane of glass they can look into and say, this is my franchises I own. We can schedule those deliveries. We could fill the trucks up, which is economical for both sides, from a cost perspective. But it's nothing out of the ordinary, as I keep saying, it's a similar supply chain motion. There -- and yes, we're still learning, and we're trying to figure that out. And it's such a -- the potential is there, and we're trying to make sure that we don't overestimate to the street or underestimate to the street. We're just saying, give us some time to learn and ramp this up because once we dial this in, we'll know exactly what we go off and going to do. The goal is this is the first -- where is the second signing, where is the third signing?

Just without giving too much, the way this works is you have an umbrella brand or multiple brands, and then independent operators who then are able to buy these products from ODP Corp. So presumably, as these independent operators talk and say, wow, I just got some [indiscernible] towels from ODP Corp. and they were delivered on time, in full with a great experience, then it builds upon itself.

Is that why [indiscernible]?

Why they came searching was the other person was gapped out of supply, didn't have ability and franchisees didn't have product. How do -- you have to have shampoo in the hotels. You have to have sheets and towels. You have to have slippers and robes and hangers. I mean you can't not deliver that.

And it's also a highly curated offering, right? So in other words, these franchisees and where they might have a group of hotels under another brand, they can't just go off and say, I'm going to go try this brand of towel, that brand of towel, linens. It's really part of the brand of the hotel itself, right? So they have to adhere with certain standard. And that's really key because if you think about the traditional office supplies.

Or they lose their franchise.

Or they lose their franchise. The traditional office supplies business, right, you have leakage, you have people who will buy off contract that happens all the time. It's always happen. In the hospitality area. You don't have that because they can't go buy off of contract. I'm going to buy towels off of on this online provider or that online provider. They have to have a certain standard, certain qualified product that they can bring in. And that's why that business is super attractive to us. We have the muscle memory. No leakage, we have the muscle memory. We have the supply chain, the business relationships, right? We already have a lot of trust with these companies because we serve a lot of them today, right? They know us, they understand that we're a reliable source. So that puts us in a good position.

If you had to guess what percentage of the sites you might be already delivering office supplies to -- is it in the low-teen 5%?

Much higher than that.

Much higher. So you already have that muscle memory of -- we know that in rural Texas there's a hotel that we're already occasionally bringing some paper and get toner to and now...

The work now is really on go-to-market. Just getting that message out to the customer where the end customer or the franchisee knows, hey, I'm not just buying office supplies or ink and toner or a PC from these guys. I can buy my whole basket, one delivery boom. And that's what we're excited by the website work we've done with the partner is we'll have a curated assortment across the board of products. And again, they're already a customer, we go in and just -- it makes it easy for them.

Got you. We talked a lot about retail. We talked a lot about B2B, I want to talk about Veyer, which, again, will be one of the enduring legacies of Gerry Smith tenure at the ODP Corp., just creating this structure that can leverage some of the existing terms of capabilities just to put it in very real and simple terms. What it means, what the -- their business is, where our ODP Corp. is already sending a truck from x, y, z site to a, b, c distribution center. So there -- that distribution capability that's based on that truck could be monetized...

Correct. Which we are doing today.

Especially through this to be unnamed social media company as an example.

Yes. For them specifically, we're doing the actual the 3PL work within the DC. Product comes in. They've got tons of orders going on from a marketplace perspective. We do the pick, the sort and the shipment out to them. And -- but it's a really -- it's a great business because it's right in our core of what we're really good at from a 3PL perspective.

Yes. And a, how -- so you've had some nice wins? How is the receptivity to doing more business with more customers? And b, how should we think about the inflection point that this really starts to move the needle?

I think that the big e-commerce, social media when put a lot of credibility out there. They're doing it for these guys I mean that's...

And it's my space. Just got a couple of beads of sweat but we're good.

No. It's a significant partner. And I think -- and we have had a number of other logo wins. We've got apparel companies, cosmetic companies, water. I mean you name it; we've got logos across that. But the goal is now that we have this affirmation. I think that also the win on the hospitality side because of our supply chain capabilities is such an affirmation point of, okay, let's look at these guys differently. And so I think we're just -- I mean, John and team have done a good job of methodically building that. We had to get a 3PL tech stack in place. And important to understand that most companies just have a 1PL, which means they can adjust their inventory and ship it, but they can't bring someone else's in. We have the capability to intermix inventory and bring someone else's inventory in, keep it separate, theoretically, then ship it back out to. And that came live after 5 years of work in January. So all that -- so this is all timing-wise lining up.

Yes.

And I think now it's a matter of -- a new sales leader were in place. We're going to go leverage some of the other signings we've had to have some interest in a 3PL perspective as well. And it's just -- it's now time to go off and execute the sales piece. It's early still. But the potential -- there's two real huge values. One, obviously, is -- I'd love to see John in the hundreds of millions of dollars of business 5 years from now with. It's a 15, 20-point business from an EBITDA perspective. So obviously, much more accretive than the traditional business. But the other piece, it does is it fills capacity. And again, why we were so successful with Lenovo as we became 1 from #5 to #1 we filled capacity and then your cost scale at crazy to the competitive side. That's what I'm trying to do here is across the core wins, across hospitality, across the 3PL and across optimized for growth, we're optimizing our fixed cost structure, which we should see when we are successful, a significant EBITDA absorption, fixed cost absorption, which will drive the EBITDA lift across the business.

Got you.

And so again, I'm pulling three different angle levers on the gross side, plus the other side of -- you know we're good at cost. You said that before and okay, we're going to go find -- we did great SG&A, we're going to go find to the fixed cost structure across the business.

Got you. So the quick and dirty manage the retail business, maximize growth...

Cash and margin.

Cash and margin, maintain significant flexibility, core office supplies, operating in a challenging sector, very competitive, but ODP has a right to win the balance sheet, the flexibility to come out of this cycle, which it -- which will eventually occur. And on top of that, there's a plethora of new business wins that will layer on top of that as the recovery...

Hospitality in a huge way 3PL in a significant way. All drive the strategic #1 initiative is get accretive growth to drive our fixed cost structure across the business.

So if there was a criticism or maybe some constructive feedback coming out of the quarter, it was in light of all this, what was the thought process between behind not giving more concrete financial guidance?

Primarily the fact all these vectors are converging at the same time, and we're trying to get line of sight into the flow of that information, which is -- and we tried coming out and giving a guidance that cash will be better, which I think was important to have that message, and we're confident that's going to happen. But Tim, why don't you jump in.

Yes. I think just directionally on cash, that was key. The fact that our balance sheet is only going to strengthen, right? So those two key components as well as just understanding, we just turned on the switch for hospitality a couple of weeks ago, right? So understanding the buying patterns, how customers buy, what's that cycle look like? Understanding that, plus we're executing or optimized for growth plan, which is another big restructuring plan. So all those things coming together, we wanted to get a little bit more under our belt to see what that flow is so that we can give a much better accurate picture. We think things are obviously beginning to stabilize and improve. Just on the traditional business. Now we're moving into the hospitality space, which is a space that's as big, if not bigger, obviously, than traditional office products, plus with a limited number of competitors because the requirements are so high to get into this space and no leakage. So I mean the opportunity for us is immense. We want to get a little bit more under our belt so we can start to more specifically lay out where we think EBITDA is going to land for the year, where -- what that trajectory looks like, which we intend to do when we have a little bit more clarity on that. But it's -- the opportunity for us, cash better, balance sheet getting stronger and then coming back with more specific look for the rest of '25 and beyond because this is -- we're not building something for '25. We're building something for the long-term.

'26, '27, '28, '29.

Yes, exactly. And we're positioned -- I mean, it goes back to our muscle memory of supply chain, our distribution capabilities, our balance sheet, and we have a very large B2B customer base that we've built trust with. We're leveraging all those assets not just in traditional, we're going at hospitality and then we have all this other space, right, to continue to leverage those things that are the same mechanism, the same motion in order to grow. So that's what we're excited about.

Where I want to conclude is you have a lot that's in your control, and you're not sitting still.

Exactly.

As we sit here a year from now, and I'm going to mandate that Tim brings the team back. If something hadn't gone according to your plan, what would that be? Is it going to be macro? Is it going to be the state of the industry? How do you think about that?

I think we are aware of the macroeconomic challenges. I mean, obviously, if there was a worldwide severe recession, that's different. But if it's what we saw in '24 and '25, and again, some people said '24 was a great year, but if you're in AI, it was, if you're in video, it was. But if you really dig down in and double-click down, I mean -- it's been challenging for everyone. So I'm expecting for -- I'm anticipating more of the same to operate, it's going to be tough and obviously keep that maniacal cost focus and just execution piece. My #1 focus is let's go surprise ourselves by outperforming the hospitality and 3PL and these 2 new relationships we have on the traditional side.

Yes. Great job.

Please join me in thanking Jerry and Tim and the team for a wonderful discussion.