Eastman Kodak Company

Thank you for standing by, and welcome to Eastman Kodak Q4 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. Please be advised that today's call is being recorded. I will now turn the call over to your host, Anthony Redding. Please go ahead.

Thank you, and good afternoon, everyone. I am Anthony Redding, Eastman Kodak Company's Chief Compliance Officer. Welcome to Kodak's fourth quarter and full year 2023 earnings call. At 4.15 p.m. this afternoon, Kodak filed its annual form 10-K and issued its release on financial results for the fourth quarter and full year of 2023. You may access the presentation and 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 CODAX expectations and various assumptions. Future events or results may differ from those anticipated or those 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 risk uncertainties and other factors described in more detail in Kodak's filings with the U.S. Securities and Exchange Commission from time to time. There may be other factors that may cause Kodak's actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to Kodak or persons acting on its behalf only apply as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in this presentation. CODAC undertakes 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 contains certain measures that are deemed non-GAAP measures. Reconciliations to the most directly comparable GAAP 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 Continenza, Kodak's Executive Chairman and Chief Executive Officer, and David Bullwinkle, Kodak's chief financial officer. 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. Thank you.

Welcome, everyone, and thank you for joining the fourth quarter and full year of 2023 investor call for Kodak. I am very pleased with the company's fourth quarter and full-year performance for 2023. We have been committed to executing our long-term plan for the past five years, and our efforts are now coming to fruition. We are starting to deliver year-over-year improvements in gross profit, operational EBITDA, and improved cash flow, which is further evidence of our growing ability to deliver strong results. Actions we have taken over the last few years include stabilizing our balance sheet, reorganizing as one codec, putting our customers first, focusing on our core competencies in print, advanced materials and chemicals, known as AMC, improving operational efficiency and reducing our cost of sale. We will continue to invest in opportunities that leverage our strengths as an industrial manufacturer to drive long-term growth and profitability. These actions have resulted in a solid foundation for the company, which allows us to make decisions from a position of strength and focus on initiatives that drive smart revenue and support our return to stabilizing the company's profitable growth. It should be noted that our success has not come from the result of financial engineering. Instead, we've improved our performance the hard way through operational excellence, investing in innovations, developing exciting new products, managing our costs, and selling our customers solutions that meet their needs and demands in a very challenging environment. Keeping our customers satisfied and world-class service takes everyone at Kodak contributing to the success of our customers. We only win if our customers win. Turning to the next slide. I am pleased with the continuing progress reported in the company's results for the fourth quarter 2023. Some highlights from the corridor are we continue to invest in a number of long-term growth initiatives in AMC, and we are seeing growing revenue contribution from those businesses. These AMC initiatives are a natural extension of our unique strengths in material science, layering, and coding, and chemical manufacturing developed over decades of experience. For example, we are moving forward with the construction of our CGMP facility to expand our existing business in unregulated key starting materials into manufacturing diagnostic testing reagent solutions. The facility is intended to help meet the growing demand for FDA-certified test reagents made in the USA As part of our heritage, we are committed to being the last manufacturer standing in film and proud of our role in continuing to make this artistic medium available to photographers and filmmakers who love the unique look of film. We are investing in a new film spooler in our manufacturing plant to increase our capacity and meet growing demand. Film is still the choice of many prominent directors and cinematographers, And I am proud of the fact that many of this year's Oscar nominees were shot on Kodak film. Again, I'd like to congratulate the entire cast, crew, producer, and director of Oppenheimer for choosing Kodak. We continue to invest in innovation across our complete portfolio of print solutions. Kodak is uniquely positioned as the only manufacturer that provides solutions for both traditional print and digital print process. We are excited about this year presenting at Drupa multiple products from traditional print, digital, and workflow. Many of our customers have significant CapEx investment in traditional printing equipment, including offset presses, CTPs, and plates. We see plate demand consistent for many years in the future. We will continue to manufacture in the US, Germany, and Japan to help our customers mitigate risk of supply so they can keep their operations productive. Performance highlights for the fourth quarter include revenue decrease of $30 million, which represents minus 10% compared to the prior year quarter, decrease of $35 million, minus 11%, excluding foreign exchange. The decline in revenue reflects our conscious decision we are making to prioritize increasing productivity, investing in innovation, and driving smart revenues. This strategy enables us to continue to lower cost of sale, get as efficient as we can, help us grow revenue, and maximize profitability. Gross profit percentage was 17% compared to 14% in the prior year quarter. Performance highlights for the full year include revenue decrease of $88 million, negative 7%, compared to the prior year, $89 million, negative 7%, excluding foreign exchange. Again, we are continuing to focus on smart revenue. Gross profit improved 40 million or 24% when compared to the prior year or 38 million plus 22% excluding foreign exchange. Gross profit percentage was 19% compared to 14% in the prior year despite rising costs and difficult macroeconomic conditions globally. I'm pleased with our performance for 2023, which reflects our ability to continue making progress despite ongoing headwinds by focusing on the execution of our long-term plan, investing in innovation, improving efficiency, and helping our customers stay productive and profitable. I will now turn it over to Dave Bullwinkle to discuss the fourth quarter 2023 financial results.

Thanks Jim and good afternoon. Today the company filed its Form 10-K for the year ended December 31, 2023 with the Securities and Exchange Commission. As they always do, I recommend you read this filing in its entirety. Before I get into the details for the quarter and full year, I would like to briefly provide updates on some of the transactions the company completed within 2023, which provided additional liquidity to the company. As previously discussed, The company announced and closed on a refinancing transaction in the third quarter of 2023. On our last call, we provided an overview of the transaction, which in summary, after satisfying refinancing obligations and a prepayment premium, provided net cash proceeds of $29 million being used by the company for general corporate purposes and working capital needs. Additionally, during the third quarter of 2023, Kodak entered into multiple long-term brand licensing arrangements and recorded total deferred revenue of approximately $57 million. Kodak received approximately $12 million and $40 million of cash proceeds related to these licensing arrangements in 2023 and the first quarter of 2024, respectively. Kodak expects to receive the remaining $5 million in 2025. Details of these financing and brand licensing transactions are disclosed in our Form 10-K filed today. Additionally, there has been recent activity in the media about Kodak's U.S. pension fund. We direct you to the company statement on this topic and the Form 10-K filed with the SEC today, including the statement within the liquidity section of MD&A. I will now share details on the full company results operational EBITDA, and cash flow for the fourth quarter and full year 2023. Driving smart revenue, pricing rationalization, cost reductions, and customer-focused initiatives continue to be the priority for the company and have resulted in improvements in profitability as a result of the collective impact of these initiatives in the face of an extremely difficult global economic environment. The company's results reflect the continued focus on these priorities and the execution against this strategy. On slide seven for the fourth quarter of 2023, we reported revenues of $275 million compared to $305 million in the prior year quarter for a decrease of 30 million or 10%. Adjusting for the favorable impact of foreign exchange of $5 million in the current year quarter, revenue decreased by $35 million or 11% compared to the prior year quarter. We have recognized improvements in gross profit with an increase of $4 million or 9% when compared to the prior year quarter. Excluding the favorable impact of foreign exchange, gross profit improved $2 million or 5% when compared to the prior year quarter. Our gross profit percentage was 17% in the fourth quarter of 2023 compared to 14% in the prior year quarter. This improvement is a result of the actions our team has taken to mitigate the effects of the global economy, to make our operations more efficient, and to realize the value of our product offerings. These actions have established positive momentum as we continue to drive profitable growth going forward. On a US GAAP basis, We reported net income of $5 million for the fourth quarter compared to net income of $7 million in the prior year quarter, a decrease of $2 million. The 2023 and 2022 fourth quarter results include expense of $2 million and income of $2 million, respectively, related to non-cash changes in workers' compensation and employee benefit reserves. An expense of $5 million and $1 million, respectively, related to asset impairments. The fourth quarter of 2022 results also include income of $2 million related to changes in the fair value of embedded derivative liabilities and income of $1 million related to legal settlements. Excluding these current and prior quarter items, net income for 2023 was $12 million compared to net income of $3 million in the prior year quarter, reflecting an improvement of $9 million. Operational EBITDA for the quarter was a positive $2 million compared to a positive $7 million in the prior year quarter, a decline of $5 million, excluding the impact of non-cash changes in workers' compensation and employee benefit reserves in both the current and prior year periods and the favorable impact of foreign exchange in the current year period. Operational EBITDA decreased by $3 million when compared to the prior year quarter. Operational EBITDA for 2023 was unfavorably impacted by higher costs associated with investments in information technology systems and organizational structure to drive further operational efficiencies, partially offset by profitability related to pricing rationalization. Moving on to the company's fourth quarter cash performance presented on slide eight, the company had a year-end cash balance of $255 million compared with $246 million at the end of the third quarter of 2023, an improvement of $9 million from the prior period. Throughout the year, our team improved profitability and performance in working capital, which enhanced the company's ability to generate cash, which we delivered in three of the last four consecutive quarters. For the quarter ending December 31, 2023, cash provided by operating activities was $17 million compared to $14 million in the prior year quarter, reflecting an improvement of $3 million. Current quarter cash provided by operating activities was primarily driven by use of cash from net earnings of $15 million and cash provided by balance sheet changes of $32 million. including a change in working capital of $24 million and a decrease in other liabilities of $2 million. Cash provided by working capital was driven by actions taken to mitigate inflation and rising costs, including cost-cutting efforts, improved inventory management, and implementation of pricing actions, all of which have more than offset these negative impacts of the global economy. Cash used in investing activities was $17 million in the current year period, an increase of $5 million when compared to the prior year period, primarily resulting from an increase in capital expenditures as we continue to invest in growth initiatives. Cash used in financing activities was $2 million for both the current year and prior year period, reflecting no change. Restricted cash decreased by $6 million when compared to the prior year period, primarily due to a change in the security deposit collateral required for the New York State Workers' Compensation Board. As presented on the bottom portion of the slide, excluding the effects of foreign exchange, the quarter-over-quarter increase in cash and cash equivalents for the three months ended December 31, 2023, was $9 million. On slide 9, for the full year of 2023, the company had revenues of $1.117 billion compared to $1.205 billion in the prior year or a decline of $88 million or 7%. Adjusting for the favorable impact of foreign exchange of $1 million, revenue declined by $89 million or 7% compared to the prior year. Gross profit improved $40 million or 24% when compared to the prior year. Excluding the impact of foreign exchange, Gross profit improved $38 million, or 22%, compared to the prior year. Our gross profit percentage was 19% for the full year of 2023, compared to 14% in the prior year. This is a result of the many actions our team has taken, including driving smart revenue, pricing rationalization, cost reduction, and customer-focused initiatives to mitigate the effects of the global economy and to make our operations more efficient. On a US GAAP basis, we reported net income of $75 million for 2023 compared to net income of $26 million in 2022, an improvement of $49 million from the prior year. The 2023 and 2022 results include expense of $2 million and income of $3 million, respectively, related to changes in the fair value of embedded derivative liabilities. income of $1 million and $15 million, respectively, related to non-cash changes in workers' compensation and employee benefit reserves, and expense of $5 million and $1 million, respectively, related to asset impairments. The current year also includes a loss and early extinguishment of debt of $27 million resulting from the refinancing transaction and income from a refund from a non-U.S. governmental authority of $9 million. The 2022 results also include income of $1 million related to legal settlements. Excluding the impact of these current and prior year items, the 2023 adjusted net income was $99 million compared to income of $8 million in the prior year, an improvement of $91 million year over year. Operational EBITDA for 2023 was $45 million compared to $18 million in 2022, an improvement of $27 million or 150% from the prior year. Excluding the impact of non-cash changes in workers' compensation and employee benefit reserves in 2023 and 2022 and the favorable impact of foreign exchange in the current year, operational EBITDA increased by $39 million from the prior year. Operational EBITDA for 2023 was favorably impacted by profitability relating to pricing rationalization and improved operational efficiency executing on cost controls, partially offset by higher continued ongoing global cost increases and lower volumes. Moving on to the company's full-year cash performance presented on slide 10. The company ended 2023 with $255 million in cash and cash equivalents. an increase of $38 million from December 31st, 2022. During 2023, cash provided by operating activities was $38 million. Current year cash provided by operating activities was driven by cash flow from balance sheet changes of $38 million, including a decrease in working capital of $11 million and an increase in other liabilities of $21 million. Within working capital, accounts payable decreased by $14 million, inventory decreased by $19 million, and accounts receivable increased by $16 million. Cash flow from net earnings was breakeven for 2023. Cash provided by operating activities improved by $154 million from the prior year, driven by $120 million improvement in balance sheet changes. including an improvement in working capital cash flows of $44 million and an increase in cash flows from liabilities excluding borrowings and trade payables of $57 million. We are very comfortable with our levels of working capital and have maintained our focus on serving our customers throughout this difficult economic period. Cash used in investing activities was $32 million in the current year, a decrease of $24 million when compared to the prior year. The prior year includes a $25 million equity interest investment in Wildcat Discovery Technologies. Cash provided by financing activities with $85 million in the current year compared to $43 million in the prior year. This improvement in cash from financing activities is driven by the impacts of the refinancing transaction which occurred in the third quarter of 2023. Cash provided by financing activities in the prior year includes $49 million of incremental cash after fees and expenses driven by proceeds received from the delayed draw term loan exercised in the second quarter of 2022. Restricted cash at the end of the year of 2023 was $122 million, an increase of $53 million from December 31st, 2022. Restricted cash primarily represents cash collateral required to support workers' compensation liabilities, cash collateral supporting a letter of credit facility, and certain aluminum supply contracts. In addition, escrows secure various ongoing obligations. As previously reported, the company deposited $68 million during the third quarter of 2023, primarily from refinancing proceeds to support the security deposit required for the New York State Workers' Compensation Board. The current balance of $63 million as of December 31st, 2023 is reported as restricted cash on our statement of financial position. We will continue to focus on alternatives to reduce restrictions on cash. As presented on the bottom portion of the slide, excluding the changes in restricted cash for each period, the impact of net proceeds from the refinancing transaction in the current year and the delayed draw term loan financing in the prior year The current year receipt of a refund from a non-U.S. governmental authority and the prior year effect of exchange rates on cash, the year-over-year increase in cash and cash equivalents was $184 million. This is primarily the result of the year-over-year improvement in cash flow from operations of $154 million. We are pleased with the company's cash flow performance and the health of our balance sheet. we will continue to focus on the execution of our long-term strategy. Finally, as disclosed in our Form 10-K, we remain in compliance with applicable financial covenants. I will now turn the discussion back to Jim.

Thank you, Dave. In summary, Kodak continued to deliver strong performance for the fourth quarter and year despite still challenging business environment globally, increasing gross profit through efficiency and innovation, and lowering our cost of sale to make sure we stay competitive so our customers can stay competitive. We have built a strong foundation and continue to gain momentum thanks to the efforts of our employees and the loyalty of our customers. We will continue to invest in the business as a whole, which includes print and AMC. With a solid foundation, we are looking ahead to develop the next generation of business that will create our future. At Kodak, we are committed to investing in infrastructure, improving our processes, continue to reduce our cost of sale, and increase our efficiencies. We have made a major efficiency improvement, but there's still opportunity for gains. We will continue to put our customers first, offering them a complete range of solutions, a reliable supply that they can count on, and continue to innovate, which will keep them at the leading edge of technology. I am extremely proud of the progress we have made, especially the change in our culture and the winning attitude that our employees now bring to our customers and to our shareholders. I want to thank our customers for their loyalty and their support during these last five challenging years and staying with Kodak long-term, and hopefully they'll be reaping the benefits of our investments and our innovations to help grow their share of the market We win when they win. I want to thank you all for attending the call and your continued interest in Eastman Kodak.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.