Eastman Kodak Company

Good day and thank you for standing by. Welcome to the Eastman Kodak Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, 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 third quarter 2024 earnings call. At 4.15 p.m. this afternoon, Kodak filed this Form 10-Q and issued its release on financial results for the third quarter of 2024. You can access the presentation and webcast for today's call on our website and 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. 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 CODAC's filings with the US Securities and Exchange Commission from time to time. There may be other factors that may cause CODAC's actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to CODAC or persons acting on its behalf only apply as of the date of the presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in the 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 gap measures have been provided with the release and within the presentation on our website and our investor center at investor.codec.com. Reconciliations to the most directly comparable gap measures have been provided with the release and within the presentation on our website and our investor center at investor.codec.com. Speakers on today's call are Jim Continenza, Executive Chairman and Chief Executive Officer of Eastman Kodak, and David Bullwinkle, Chief Financial Officer and Senior Vice President of Eastman 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 third quarter 2024 investor call. We continue to be committed to executing our long-term plans. We continue to invest in innovation, increase operational efficiency, focus on smart revenue. When we say focus and invest in innovation, let's be clear, advanced material and print is what we do today. But inside of that is digital print, traditional print, advanced materials and chemicals, and film, motion picture film, Eastman Business Park, brand licensing, and other large investments have been building out of our CGMP clean lab, including the reagent facility. We're going to keep investing in battery technology. It's one of our core skill sets is substrate coating. So as I walk you through who we are, what we are, let's get into the numbers. Revenues of $261 million for the third quarter of 2024. versus $269 million for the third quarter of 2023. The decline has slowed and right where we expected it to be. So it's right within expectations. When we look at the gross profit, we're coming in the quarter at 17% in 2024 versus 19% for the third quarter of 2023. The numbers are strong. And let me tell you where we're at on this. When I look at the impact that we had on our plates business, from dumping from China and Japan over the last several years, it has drove the other U.S. manufacturers out of America. When we looked at what happened with those tariffs and the pressure put on, we fought hard and automated and invested to keep these jobs in America and fight for the U.S. printers. And we're going to cover that tariff later on in this discussion. So when I look at gross profit at 17, it's been a hard battle considering they were getting subsidies on multiple things, and the tariff numbers will reflect that. So let's talk about a big part of our future investments in the last five years, advanced materials and chemicals, as we refer to as AMC. As we continue to grow the different initiatives, and I touched on some of them earlier, which really comprises of film, chemicals, substrate coating for EVs, and again, the build-out of the reagent facility and the CGMP Clean Lab. It's exciting to see these dollars come to work and see the productivity increase Our film sales have increased on motion picture and in still film and other films. So on film, right, we're doing a shutdown in November, total shutdown. We've continued to invest in our manufacturing process. Well, we need to shut down completely to bring light into the dark, right? Film is made in the dark. So in November, we will be modernizing the plant, putting more investment within that, which has also caused us to use more cash in the quarter to build up inventories while we do this. But as we continue to see our commitment and our customer's commitment to film still in motion picture, we are going to continue to invest in that space and continue with that growth. We're also looking at, as we look at the park, the buildings and the infrastructure. We've invested heavily in the infrastructure. And I'm proud to say we just reopened another one of our buildings and we have now moved into that building. So the park's really coming to life. It's one of our key assets and something we can't forget. Every time I walk through that park, I see power, I see chemical recovery, I see waste management, I see a fire department, I see electricity, and I can go on and on of the power of that park. And we continue to put that to work and bring U.S. jobs back to the park. So I'm going to move on to commercial print. Let me bring you some highlights, and this is really important to get through. So as I mentioned earlier on the ITC, we were granted an affirmative decision, 3-1 from the ITC, on the plates tariff. What does that really mean? Being the last U.S. manufacturer, the others have all left, we reinvested in our plants, we bet on our American workers, and we were able to get a favorable ruling. What does that mean? It ranges anywhere from a 91.83% advance to a 353.09%. What does that mean? That means Kodak now has a level playing field that we could go out, compete, and sell plates and not have a disadvantage by government interference in the pricing of a commodity and a material. It's a big move for the U.S. and a great move, obviously, for Kodak and our customers. Now I'll turn over to Dave to discuss the financial results.

Thanks, Jim, and good afternoon. This afternoon, the company filed its Form 10-Q for the quarter ended September 30, 2024 with the SEC. As I always do, I recommend you read this filing in its entirety. I will share details on the full company results, operational EBITDA and cash flow for the third quarter and nine months ending September 30, 2024. The company's results reflect the continued focus on executing against our priorities and long-term plan, including driving smart revenue and aligning with the right customers, pricing rationalization, cost reductions, launching new products, and investing in innovation and information technology systems. The company's financial results are within our expectations at this point in our long-term strategy and for the current year. On slide seven, we reported revenues of $261 million for the third quarter of 2024, compared to $269 million in the prior year quarter, a decrease of $8 million, or 3%. The decline in revenues slowed notably when compared to recent quarters. reflecting our ongoing focus on driving smart revenue and strong profitability. On a constant currency basis, revenue declined by $9 million compared to the prior year quarter. Gross profit decreased by $5 million or 10% when compared to the prior year quarter. Gross profit for the current year quarter was unfavorably impacted by a net change in employee benefit reserves of $3 million an inventory reserve adjustment of $4 million in the electrophotographic printing solutions business, and higher aluminum costs of $5 million. Foreign exchange had no impact on gross profit in the current year quarter. Our gross profit percentage was 17% in the third quarter of 2024 compared to 19% in the prior year quarter, unfavorably impacted by the factors previously noted. On a U.S. GAAP basis, we reported net income of $18 million for the third quarter of 2024 compared to net income of $2 million in the prior year quarter, an increase of $16 million. The 2024 and 2023 third quarter results include expense of $2 million and income of $3 million, respectively, related to non-cash changes in workers' compensation and employee benefit reserves. Prior year quarter also includes a loss on extinguishment of debt of $27 million resulting from a refinancing transaction. Excluding these current and prior year quarter items, net income for 2024 was $20 million compared to net income of $26 million in the prior year quarter. Operational EBITDA for the quarter was $1 million compared to $12 million in the prior year quarter. Excluding the impact of non-cash changes in workers' compensation and employee benefit reserves in the current and prior year quarters, operational EBITDA declined by $6 million when compared to the prior year quarter. Foreign exchange had no impact on operational EBITDA in the current year quarter. Operational EBITDA for the third quarter of 2024 was also unfavorably impacted by higher manufacturing costs driven by an increase in aluminum costs changes in employee benefit reserves, an inventory reserve adjustment, as well as an increase in costs associated with certain litigation matters. Turning to slide eight. For the nine months ending September 30, 2024, we reported revenues of $777 million compared to $842 million in the prior year period for a decline of $65 million, or 8%. Adjusting for the unfavorable impact of foreign exchange of $3 million in the current year period, revenue decreased by $62 million or 7% when compared to the prior year period. Gross profit decreased by $11 million or 7% when compared to the prior year period. Gross profit for the current year was unfavorably impacted by a net change in employee benefit reserves of $2 million an inventory reserve adjustment of $4 million in the electrophotographic printing solutions business, and higher aluminum costs of $1 million. Foreign exchange had no impact on gross profit in the current year period. Our gross profit percentage was 20% for the nine months ending September 30, 2024, compared to 19% in the prior year period. On a US GAAP basis, net income was $76 million for the nine months ending September 30, 2024, compared to net income of $70 million in the prior year period, an increase of $6 million. The 2024 year-to-date results include expense of $1 million related to non-cash changes in workers' compensation and employee benefit reserves, an income of $17 million related to a net gain on the sale of assets. The 2023 year-to-date results include charges of $2 million related to changes in the fair value embedded derivative liabilities, and $27 million related to a loss in the extinguishment of debt, and income of $9 million related to a refund from a non-U.S. governmental authority, and $3 million related to non-cash changes in workers' compensation and employee benefit reserves. Excluding these current and prior items, Net income for the nine months ending September 30, 2024 was $60 million compared to net income of $87 million in the prior year period, a decline of $27 million. Operational EBITDA for the period was $17 million compared to $43 million in the prior year period, a decline of $26 million. Excluding the impact of non-cash changes in workers' compensation and employee benefit reserves in the current and prior year periods, Operational EBITDA decreased by $22 million compared to the prior year period. Foreign exchange had no impact on operational EBITDA in the current year period. Operational EBITDA for the current year period was unfavorably impacted by lower volumes and higher manufacturing costs, an inventory reserve adjustment, changes in employee benefit reserves, higher selling and administrative costs associated with investments in information technology systems and organizational structure improvements to drive further operational efficiencies, as well as costs associated with the Drupal trade show and certain litigation matters. Moving on to the company's cash performance presented on slide 9, the company ended the third quarter with $214 million in cash and cash equivalents, a decrease of $41 million from December 31, 2023, which is in line with our expectations. The decline reflects our continued CapEx investments in supporting AM&C growth initiatives, along with building working capital in this business to allow us to supply customers as we make improvements in our manufacturing facilities. For the nine months ending September 30, 2024, cash used in operating activities was $11 million. primarily driven by use of cash from net earnings of $25 million, partially offset by cash flow from balance sheet changes of $14 million, including a change in working capital of $26 million and a decrease in other liabilities of $39 million. Within working capital, accounts payable decreased by $1 million, inventory increased by $25 million, and accounts receivable decreased by $52 million compared to the prior year period. The decrease in accounts receivable is primarily due to $40 million of cash proceeds received in January 2024 from brand licensing. The team continues to focus on improving profitability and performance in working capital, which enhances the company's ability to generate cash. Cash used in investing activities was $22 million for the nine months ending September 30, 2024, an increase of $7 million when compared to the prior year period, primarily due to an increase in capital additions of $24 million, partially offset by proceeds from the sale of assets of $17 million. Cash used in financing activities was $21 million for the nine months ending September 30, 2024, compared to cash provided by financing activities of $87 million in the prior year period. This change was primarily driven by net proceeds of $90 million received from refinancing transactions in the prior year period and $17 million related to the repayment of the amended and restated term loan agreement made during the first quarter of 2024 from the proceeds received from the sale of assets within investing activities. Restricted cash decreased by $14 million when compared to the balance of $122 million as of December 31, 2023, primarily driven by strategic efforts to reduce cash collateral and escrow requirements for certain company obligations and business arrangements. As a reminder, restricted cash primarily represents cash collateral supporting the company's undiscounted actuarial workers' compensation obligations with the New York State Workers' Compensation Board and cash collateral required under the 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. As presented on the bottom portion of the slide, excluding the effects of foreign exchange prior year period impact of a refund from a non-U.S. governmental authority and net proceeds from refinancing transactions, the year-over-year decrease in cash and cash equivalents was $34 million. As stated earlier in my remarks, the company's financial results are within our expectations at this point in our long-term strategy. We will continue to focus on maintaining the strength of the foundation we have worked hard to create. which provides us the opportunity to fund our ongoing operations and invest in growth opportunities to continue to execute our strategy. Finally, we remain in compliance with applicable financial covenants. I will now turn the discussion back to Jim.

Thank you, Dave. Our ongoing investments are going to continue. We're going to continue to innovate. None of this is going to change. We're staying to our plan. We're going to keep investing in AMC, our growth initiatives, and our future, layering, coding, and taking advantage of our skill sets. I was just up in Rochester, and we have a massive, large apprentice program, four years of training and learning and dedication, and watching them graduate and come into our workforce, you know, full-time and highly skilled. I'm so proud of them that made it through because it's a hard, hard thing to do. As we continue to increase jobs, we're going to keep investing in those things we talked about. And to make it clear, we're going to keep investing in battery technology. It's one of our core skill sets is substrate coating. And we're going to continue to invest in reagents and a clean lab facility. This is where we're going. I want to thank our customers for staying loyal to us, helping us, supporting us, and helping driving us bringing Kodak back to where it needs to be. And more importantly, I need to thank our employees. Because this is tough times, and they continually exceed the expectations that we put on them and the quality and the levels of the products that they develop and sell. I want to thank everyone for dialing in your interest in Kodak and letting you know we're doing everything we can to help drive the value back in this business.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.