Eastman Kodak Company

Thank you for attending today's Eastman Kodak first quarter 2022 earnings call. My name is Bethany and I will be your moderator for today's call. All lines will be muted during the presentation of the call. I would now like to pass the conference over to our host, Paul Dills. Please go ahead.

Thank you and good afternoon, everyone. I am Paul Dills, Eastman Kodak Company's Chief Tax Officer and Director of Investor Relations. Welcome to Kodak's first quarter 2022 earnings call. At 4.15 p.m. this afternoon, Kodak filed its Form 10-Q and issued its release on financial results for the first quarter 2022. You may access the presentation and the webcast for today's call on our Investor Center at investor.kodak.com. During today's call... We will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. All forward-looking statements are based upon Codex expectations and various assumptions.

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Future events or results may differ from those anticipated or expressed in the forward-looking statements. Important factors that could cause actual events or results to differ materially from these forward-looking statements include, among others, the risks, uncertainties, and other factors described in more detail in Codex filings with the U.S. Securities and Exchange Commission from time to time. There may be other factors that may cause Codex actual results to differ, materially from the forward-looking statements. All forward-looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in this presentation. Kodak only takes no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In addition, the release just issued and the presentation provided contain certain measures that are deemed non-GAP measures. Reconciliations to the most directly comparable GAP measures have been provided with the release and within the presentation on our website. in our Investor Center at investor.kodak.com. Speakers on today's call are Jim Contenanza, Kodak's Chief Executive Officer and Executive Chairman, and David Bolenko, Chief Financial Officer of Kodak. We will not be holding a formal Q&A during today's call. As always, the Investor Relations Team is available for follow-up. I will now turn the call over to Jim.

Welcome, everyone, and thank you, for joining the first quarter investor call for Kodak. We started 2022 with a strong balance sheet, including $309 million of cash and cash equivalents as of March 31, 2022. We are building off the success of 2021. Our revenues increased by $25 million, or 9%, compared to the prior year quarter. which demonstrates our commitment to our customers in the midst of a challenging economic environment. When excluding the impact of foreign exchange, revenue increased 35 million or 13% compared to the prior year quarter. This is following a growth year in 2021. We are recognizing a strong growth in our print businesses, including Kodak Sonora process replates, and Kodak Prosper annuities, and overall volume increase in our businesses. During the first quarter, volume of Sonora Process Replace grew by 24%, and the annuity revenue for Prosper improved by 2%. We continue to navigate through the ongoing global impact associated with COVID-19 pandemic, the war in Ukraine, and other global events. The company is experiencing supply chain disruption, shortages in distribution materials and labor, and increased cost of distribution materials and labor. We have implemented numerous measures to mitigate these challenges, including increasing safety stock materials, increasing lead times, and implementing pricing actions. Despite the above shortages and cost increases, We have taken unprecedented steps to ensure supply for our customers. Our long-term strategy continues to focus on our core competencies in print, advanced materials, and chemicals, turning the business to focus on innovation, growth, and profitability. We remain committed to continued innovation in digital print, including the revolutionary new Kodak Ascend digital press. This is aimed at the retail point of purchase and packaging market. As discussed in our last call, we are working on new initiatives within our AMC group to leverage our deep expertise in chemistry and strengths in layering and coating on multiple substrates that come from over a century of experience in film manufacturing. These new initiatives are in various stages of commercialization and include EV energy storage battery material manufacturing. We have started coating substrates for EV and energy storage materials. We will continue to apply our extensive expertise to produce coated substrates in the U.S. Light blocking technology. We plan to commercialize a carbonless fabric coating branded CODELUX. The product is designed to offer superior light management properties and coating capabilities with an unmatched range of fabrics. Transparent antennas. We are leveraging our proprietary technologies in high resolution printing to manufacture custom transparent antennas for the automotive and other applications. Reagent manufacturing. As we continue to leverage our trusted brand and expertise in chemicals, we have started the construction of an approximately $20 million lab and manufacturing facility to produce reagents for healthcare applications. We will now turn it over to Dave to discuss the first quarter 2022 financial results.

Thanks, Jim, and good afternoon. Before we get into the details for the quarter, I would like to make a few general comments. The company's performance for the first quarter reflects the results of strategic efforts we have taken based on our long-term strategy. This is evidenced by revenue growth that we have reported. However, the ongoing global impacts associated with the COVID-19 pandemic, the war in Ukraine, and other global events continue to impact the company's operations. The company is experiencing supply chain disruptions, shortages in materials and shortages of labor. Costs for labor, material and distribution are rising rapidly as well. We have implemented numerous measures to mitigate these challenges, including increasing safety stock on certain materials, increasing lead times, providing suppliers with longer forecasts of future demand, certifying additional sources of substitute materials where possible and implementing pricing actions these countermeasures are providing us the opportunity to continue levels of supply to our customers

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I will now share details on the full company results, operational EBITDA, and cash flow results. for the first quarter. Turning to slide seven, as we reported in our earnings release for the first quarter of 2022, we reported revenues of $290 million compared to $265 million in the prior year quarter for an improvement of $25 million. On a constant currency basis, revenue improved by $35 million. On a U.S. GAAP basis, we reported net loss of $3 million for the first quarter compared to net income of $6 million in the prior year quarter. The 2022 and 2021 first quarter results include expense of $3 million and $1 million, respectively, related to changes in the fair value of embedded derivative liabilities. The first quarter of 2022 also includes income of $4 million related to non-cash changes in workers' compensation reserves. Excluding these current and prior year items, loss for 2022 was $4 million compared to income of $7 million in the prior year quarter. Operational EBITDA for the quarter was a negative $7 million compared to a positive $3 million in the prior year quarter. Excluding the unfavorable impact of foreign exchange and adjusting for non-cash changes in workers' compensation reserves in the current year, operational EBITDA decreased $13 million from the prior year quarter. Operational EBITDA for the first quarter of 2022 was favorably impacted by growth in revenue due to improved pricing and volume offset by higher ongoing global cost increases. During the first quarter, volumes for Sonora process-free plates grew by 24%, and the annuity revenue for Prosper improved by 2%. We continued to invest in our core competencies and future growth areas of UltraStream and advanced materials and chemicals. Moving on to the company cash performance presented on slide eight. The company ended the first quarter with $309 million in cash and cash equivalents, a decrease of $53 million from December 31st, 2021. As presented on the bottom portion of the slide, excluding the prior year impact of net proceeds from refinancing transactions, funding of the letter of credit facility, and the effect of exchange rates on cash, The quarter-to-date decrease in cash and cash equivalents was $29 million, primarily driven by use of cash from working capital. Cash used in operating activities was $43 million, driven primarily by cash use from net earnings of $21 million and cash used from balance sheet changes of $22 million, including a change in working capital of $10 million and a decrease in other liabilities of $13 million. Accounts payable increased by $31 million, inventory increased by $32 million, and accounts receivable increased by $9 million compared to December 31, 2021. We used cash and working capital in order to strengthen our ability to supply our customers. We have increased safety stock on certain materials, increased lead times, provided suppliers with longer forecasts of future demand, and certified additional sources or substitute materials. Gas used in investing activities was $5 million in the first quarter, an increase of $4 million when compared to the prior year period. The increase is primarily attributable to increased capital expenditures as we invest in the growth areas previously described. Gas used by financing activities was $1 million compared to cash provided by financing activities of $242 million in the prior year period. Cash provided by financing activities in the prior year period included $247 million of incremental cash after fees and expenses driven by the financial transactions announced on March 1st, 2021. Restricted cash at the end of the quarter was $65 million, an increase of $4 million from December 31st, 2021, mainly related to legal contingency collateral required outside the U.S. Restricted cash primarily represents cash collateral required under the new letter of credit facility in addition to escrows to secure various ongoing obligations. We will continue to focus on alternatives to reduce restrictions on cash, and we view this as an upside opportunity for incremental liquidity for the company. Finally, we remain in compliance with applicable financial covenants. I will now turn the discussion back to Jim.

Thank you, Dave. In summary, we continue to navigate through an unusual, challenging business environment and deliver overall growth. We also continue to see increase in customer satisfaction and market share in key trade businesses, achievements which reflect the success of our ongoing strategy. As we stated, we plan to continue to focus on commercial print as well as a number of long-term growth initiatives in advanced materials and chemicals. We also continue to invest in product innovations. We at Kodak will continue to execute on our customer first in one Kodak model. Thank you all for attending the call and your continued interest in Eastman Kodak. Have a good evening.

That concludes the Eastman Kodak first quarter 2022 earnings call. I hope you all enjoy the rest of your day. You may now disconnect your lines.

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