false ODP Corp 0000800240 0000800240 2021-11-03 2021-11-03

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): November 3, 2021

 

THE ODP CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	1-10948	85-1457062
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
6600 North Military Trail, Boca Raton, FL		33496
(Address of Principal Executive Offices)		(Zip Code)

(561) 438-4800

(Registrant’s Telephone Number, Including Area Code)

Former Name or Former Address, If Changed Since Last Report: N/A

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on which Registered
Common Stock, par value $0.01 per share		ODP		The NASDAQ Stock Market (NASDAQ Global Select Market)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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Item 2.02. Results of Operations and Financial Condition.

The ODP Corporation (the “Company”) issued an earnings release on November 3, 2021, announcing its financial results for the third quarter ended September 25, 2021. A copy of the earnings release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information furnished pursuant to Item 2.02 in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits:

 

Exhibit 99.1		Earnings release of The ODP Corporation, dated November 3, 2021.
Exhibit 104		Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document.

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		THE ODP CORPORATION
Date: November 3, 2021		/s/ N. DAVID BLEISCH
		Name:	N. David Bleisch
		Title:	EVP, Chief Legal & Administrative Officer and Corporate Secretary

 

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Exhibit 99.1

 

 

The ODP Corporation Announces Third Quarter 2021 Results

Revenue of $2.2 Billion with GAAP EPS of $1.33; Adjusted EPS of $1.76

Commitment to Low Cost Model Helped Drive GAAP Operating Income of $104 Million and Adjusted Operating Income of $122 Million

Continued Progress on Separation Including Previously Announced CEO Appointments

Repurchased Shares Under Previously Announced Stock Repurchase Authorization

 

Boca Raton, Fla., November 3, 2021 — 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, today announced results for the third quarter ended September 25, 2021.

 

 

Third Quarter 2021 Summary^(1)(2)(4)

 

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“We’re making meaningful progress on all of our initiatives to unlock shareholder value while remaining true to our low-cost model approach and providing value for our customers,” said Gerry Smith, chief executive of The ODP Corporation. “I’m proud of our team for delivering solid operating results against a more demanding industry backdrop due to supply chain challenges and a slower pace of back-to-office trends in the quarter. The investments we’ve made in our private fleet, distribution assets, and diverse third party carrier relationships are helping us mitigate some of the impacts related to the recent industry-wide supply chain disruptions. Additionally, our supplier diversification, combined with our product assortment and flexible pricing strategies, adds to our strength as we continue to navigate these challenges.”

 

“The pace of back-to-office trends was slower during the quarter due to the well-publicized spread of the Delta variant. However, we’re encouraged by the increase in demand for our core products from companies who have returned to the office, highlighting additional growth opportunities in the quarters ahead. We were also pleased to see more students and teachers returning to the classroom during the back-to-school season, driving year-over-year demand in core school supplies and helping us partially offset lower sales in certain product categories previously in stronger demand last year during the earlier stages of the pandemic.”

 

“Moving forward, our entire team remains focused on unlocking the power of our asset base and creating greater value for all stakeholders in the future. We’re making progress on our plans for separation, and we are advancing our digital transformation efforts as Varis continues to make progress on its technology platform development and rollout plans, placing us in an excellent position to drive future value in the large and growing digital business commerce market,” he added.

 

Consolidated Results

 

Reported (GAAP) Results

Total reported sales for the third quarter of 2021 were $2.2 billion, a decrease of 7% compared to the third quarter of 2020. The year-over-year decrease in revenue was largely driven by 160 fewer retail stores in service, as well as lower traffic in our Retail and eCommerce channels in the quarter compared to last year. Product sales in the third quarter of 2021 were down 8% relative to the prior year period, driven by the lower store count and lower demand for cleaning and PPE categories compared to last year, as well as sourcing challenges for technology products and other categories. Service revenue in the third quarter of 2021 was up 3% relative to the prior year period, largely related to stronger demand for copy and print services in both BSD and Retail Divisions, as well as for managed print and fulfilment services.

 

 

The Company reported operating income of $104 million in the third quarter of 2021, compared to operating income of $102 million in the prior year period. GAAP operating results in the third quarter of 2021 included $18 million of charges including $5 million of non-cash asset impairment charges, and $13 million in net merger, restructuring and other operating costs. Asset impairment charges of $5 million in the third quarter of 2021 included $4 million related to impairment of operating lease right-of-use assets associated with the Company’s retail store locations, and the remainder was related to impairment of fixed assets. Net merger, restructuring and other operating costs of $13 million were primarily associated with activities related to the Company’s planned separation. Net income from continuing operations was $73 million, or $1.33 per diluted share in the third quarter of 2021, up from $34 million, or $0.63 per diluted share in the third quarter of 2020.

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Adjusted (non-GAAP) Results ⁽¹⁾⁽²⁾

Adjusted results for the third quarter of 2021 exclude charges and credits totaling $18 million as described above and the tax impacts associated with the above items.

 

 

Third Quarter Division Results

 

Business Solutions Division (BSD)

Retail Division

 

Spin-Off Progress and Plan for Separation

 

The Company continues to make progress on its plans to separate ODP into two, independent, publicly-traded companies, making advancements in all areas of the separation including organizational structure, operating and supply chain mechanics, IT support, and on the anticipated market-based commercial agreements between the companies. During the quarter, the Company announced the selection of the chief executive officers of both companies, which would become effective upon completion of the spin-off, as well as the company names for each of the two companies.

 

It was announced that Gerry Smith will continue to serve as the CEO of the ODP Corporation following the separation. As a leading supplier of B2B solutions serving small, medium and enterprise level companies, The ODP Corporation will consist of several operating companies, including the contract sales channel of ODP’s current Business Solutions Division, which will be renamed ODP Business Solutions, and ODP’s newly formed B2B digital platform technology business, which will be named Varis. ODP Business Solutions and Varis will be

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owned by ODP, but operated as separate businesses. ODP will also continue to own the global sourcing operations and other sourcing, supply chain and logistics assets.

 

As previously announced, Kevin Moffitt, currently EVP, Chief Retail Officer of The ODP Corporation, will be appointed CEO of Office Depot upon completion of the spin-off. After the successful completion of the spin-off, the new company will be named Office Depot, Inc., a leading provider of retail consumer and small business products and services distributed via approximately 1,100 Office Depot and OfficeMax retail locations and an award-winning eCommerce presence, officedepot.com.

  

The separation is expected to allow The ODP Corporation and Office Depot, Inc., to pursue unique market opportunities and growth strategies, improving value for all stakeholders. While the companies will be separate, independent companies, it is anticipated that they will share commercial agreements to allow them to continue to leverage scale benefits in such areas as product sourcing and supply chain. The expected timing remains the same as previously announced, with estimated completion in the first half of 2022.  

 

Digital Transformation Initiatives

 

Aligned with its strategy to drive growth in high value industry segments, the Company continued to make progress on its digital transformation initiatives during the quarter. Varis, a newly formed technology company focused on filling the growing demand for a modern, trusted, digital B2B platform that transforms how businesses buy and sell, continued to advance its development. These accomplishments included integrating and bringing the capabilities of its leading P2P software platform, BuyerQuest, to new customers, as well as continuing to make progress on its technology development. The Company is also advancing its collaboration with Microsoft and remains focused on bringing BuyerQuest’s value proposition to Microsoft’s Business Central customers in the future.

  

Balance Sheet and Cash Flow

 

As of September 25, 2021, ODP had total available liquidity of approximately $1.7 billion, consisting of $753 million in cash and cash equivalents and $953 million of available credit under the Third Amended Credit Agreement. Total debt was $353 million.

 

For the third quarter of 2021, cash provided by operating activities from continuing operations was $121 million, which included $3 million in restructuring costs, compared to cash provided by operating activities of continuing operations of $256 million in the third quarter of the prior year, which included $4 million in acquisition and integration-related costs and $16 million in restructuring costs.

 

Capital expenditures in the third quarter of 2021 were $19 million versus $13 million in the prior year period, reflecting continuing growth investments in the Company’s digital transformation, distribution network, and eCommerce capabilities. The cash charges associated with the Company’s Maximize B2B Restructuring and the planned separation of the consumer business in the quarter were $2 million and $19 million, respectively. Accordingly, Adjusted Free Cash Flow⁽⁴⁾ was $123 million in the third quarter of 2021.

 

As part of the ongoing commitment and support of its strategic initiatives, the Company repurchased $76 million in stock of the Company, retiring 1.7 million shares of its stock during the quarter. Additionally, in October 2021, the Company repurchased approximately 600 thousand shares for a total cost of $24 million.

 

 

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About The ODP Corporation

 

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

 

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

 

FORWARD LOOKING STATEMENTS

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

Factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, highly competitive office products market and failure to differentiate the Company from other office supply resellers or respond to decline in general office supplies sales or to shifting consumer demands; competitive pressures on the Company’s sales and pricing; the adverse effects of an unsolicited tender offer on our business, operating results or financial condition; the risk that the Company is unable to transform the business into a service-driven, B2B platform that such a strategy will not result in the benefits anticipated; the risk that the Company will not be able to achieve its strategic plans, including the proposed separation of its consumer business and the planned sale of CompuCom, and the high costs in connection with these transactions may not be recouped if these transactions are not consummated; the risk that the Company may not be able to realize the anticipated benefits of acquisitions due to unforeseen liabilities, future capital expenditures, expenses, indebtedness and the unanticipated loss of key customers or the inability to achieve expected revenues, synergies, cost savings or financial performance; the risk that the Company is unable to successfully maintain a relevant omni-channel experience for its customers; the risk that the Company is unable to execute the Maximize B2B Restructuring Plan successfully or that such plan will not result in the benefits anticipated; 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 and lost revenue; 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; 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

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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; 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.

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THE ODP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

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THE ODP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)

 

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THE ODP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

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THE ODP CORPORATION

BUSINESS UNIT PERFORMANCE

(In millions)

(Unaudited)

 

 

 

 

 

 

 

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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 excluding cash charges associated with the Company’s Maximize B2B Restructuring, the Business Acceleration Program, and the planned separation of the consumer business.

(In millions, except per share amounts)

 

 

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THE ODP CORPORATION

GAAP to Non-GAAP Reconciliations

(Unaudited)

 

 

 

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.

 

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THE ODP CORPORATION

GAAP to Non-GAAP Reconciliations

(Unaudited)

 

 

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.

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THE ODP CORPORATION

Store Statistics

(Unaudited)

 

 

 

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