Eastman Kodak Q4 2023 Earnings Call Transcript

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March 14, 2024

There are 4 speakers on the call.

Operator

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

Speaker 1

Thank you, and good afternoon, everyone. I am Anthony Redding, Eastman Kodak Company's Chief Compliance Officer. Welcome to Kodak's 4th quarter and full year 2023 earnings call. At 4:15 p. M.

Speaker 1

This afternoon, Kodak filed its annual Form 10 ks and issued its release on financial results for the Q4 and full year of 2023. You may access the presentation and webcast for today's call on our Investor Center at investor.codec.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 Kodak's expectations and various assumptions. Future events or results may differ from those anticipated are those expressed in the forward looking statements.

Speaker 1

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 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 are referenced in this presentation.

Speaker 1

Kodak 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.

Speaker 1

We will not be holding a formal Q and A during today's call. As always, the Investor Relations team is available

Speaker 2

for follow-up. I will now turn the call over to Jim. Thank you. Welcome everyone and thank you for joining the Q4 and full year 2023 investor call for Kodak. I am very pleased with the company's 4th quarter and full year performance for 2023.

Speaker 2

We have been committed to executing our long term plan for the past 5 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 Kodak, 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 on a position of strength and focus on initiatives that drive smart revenue and support our return to stabilizing the company's profitable growth.

Speaker 2

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 innovation, 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.

Speaker 2

I am pleased with the continuing progress reported in the company's results for the Q4 2023. Some highlights from the quarter 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 and 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.

Speaker 2

We are investing in a new film spooler in our manufacturing plant to increase our capacity and meet growing demand. Phil 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.

Speaker 2

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 Roopa 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 U.

Speaker 2

S, Germany and Japan to help our customers mitigate risk of supply, so they can keep their operations productive. Performance highlights for the Q4 include revenue decrease of $30,000,000 which represents minus 10% compared to the prior year quarter, decrease of $35,000,000 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 revenue. 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.

Speaker 2

Performance highlights for the full year include revenue decrease of $88,000,000 negative 7 percent compared to the prior year 89,000,000 negative 7%, excluding foreign exchange. Again, we are continuing to focus on smart revenue. Gross profit improved $40,000,000 or 24% when compared to the prior year or $38,000,000 dollars 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.

Speaker 2

I will now turn it over to Dave Bullwinkle to discuss the Q4 2023 financial results.

Speaker 3

Thanks, Jim, and good afternoon. Today, the company has filed its Form 10 ks 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 Q3 of 2023.

Speaker 3

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 $29,000,000 being used by the company for general corporate purposes and working capital needs. Additionally, during the Q3 of 2023, Kodak entered into multiple long term brand licensing arrangements and recorded total deferred revenue of approximately $57,000,000 Kodak received approximately $12,000,000 $40,000,000 of cash proceeds related to these licensing arrangements in 2023 and the Q1 of 2024 respectively. Kodak expects to receive the remaining $5,000,000,000 in 20.25. Details of these financing and brand licensing transactions are disclosed in our Form 10 ks filed today. Additionally, there has been recent activity in the media about Kodak's U.

Speaker 3

S. Pension fund. We direct you to the company's statement on this topic and the Form 10 ks filed with the SEC today, including the statement within the liquidity section of MD and A. I will now share details on the full company results, operational EBITDA and cash flow for the Q4 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.

Speaker 3

The company's results reflect the continued focus on these priorities and the execution against this strategy. On Slide 7, for the Q4 of 2023, we reported revenues of $275,000,000 compared to $305,000,000 in the prior year quarter for a decrease of $30,000,000 or 10%. Adjusting for the favorable impact of foreign exchange of $5,000,000 in the current year quarter, revenue decreased by $35,000,000 or 11% compared to the prior year quarter. We have recognized improvements gross profit with an increase of $4,000,000 or 9% when compared to the prior year quarter. Excluding the favorable impact of foreign exchange, gross profit improved $2,000,000 or 5% when compared to the prior year quarter.

Speaker 3

Our gross profit percentage was 17% in the Q4 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 U. S.

Speaker 3

GAAP basis, we reported net income of $5,000,000 for the 4th quarter compared to net income of $7,000,000 in the prior year quarter, a decrease of $2,000,000 The 2023 2022 Q4 results include expense of $2,000,000 and income of $2,000,000 respectively, related to non cash changes in workers' compensation and employee benefit reserves and expense of $5,000,000 $1,000,000 respectively related to asset impairments. The Q4 of 2022 results also include income of $2,000,000 related to changes in the fair value of embedded derivative liabilities and income of $1,000,000 related to legal settlements. Excluding these current and prior quarter items, net income for 2023 was $12,000,000 compared to net income of $3,000,000 in the prior year quarter, reflecting an improvement of $9,000,000 Operational EBITDA for the quarter was a positive $2,000,000 compared to a positive $7,000,000 in the prior year quarter, a decline of $5,000,000 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 $3,000,000 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.

Speaker 3

Moving on to the company's 4th quarter cash performance presented on Slide 8. The company had a year end cash balance of $255,000,000 compared with $246,000,000 at the end of the Q3 of 2023, an improvement of $9,000,000 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 3 of the last 4 consecutive quarters. For the quarter ending December 31, 2023, cash provided by operating activities was $17,000,000 compared to $14,000,000 in the prior year quarter, reflecting improvement of $3,000,000 Q3 cash provided by operating activities was primarily driven by use of cash from net earnings of $15,000,000 and cash provided by balance sheet changes of $32,000,000 including a change in working capital of $24,000,000 and a decrease in other liabilities of $2,000,000 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 $17,000,000 in the current year period, an increase of $5,000,000 when compared to the prior year period, primarily resulting from an increase in capital expenditures as we continue to invest in growth initiatives.

Speaker 3

Cash used in financing activities was $2,000,000 for both the current year and prior year period, reflecting no change. Restricted cash decreased by $6,000,000 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 3 months ended December 31, 2023 was $9,000,000 On Slide 9, for the full year of 2023, the company had revenues of $1,117,000,000 compared to $1,205,000,000 in the prior year or a decline of $88,000,000 or 7%. Adjusting for the favorable impact of foreign exchange of $1,000,000 revenue declined by $89,000,000 or 7% compared to the prior year. Gross profit improved $40,000,000 or 24% when compared to the prior year.

Speaker 3

Excluding the impact of foreign exchange, gross profit improved $38,000,000 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 focus initiatives to mitigate the effects of the global economy and to make our operations more efficient. On a U. S.

Speaker 3

GAAP basis, we reported net income of $75,000,000 for 2023 compared to net income of $26,000,000 in 2022, an improvement of $49,000,000 from the prior year. The 2023 and 2022 results include expense of $2,000,000 and income of $3,000,000 respectively, related to changes in the fair value of embedded derivative liabilities, income of $1,000,000 $15,000,000 respectively, related to non cash changes in workers' compensation and employee benefit reserves, and expense of $5,000,000 $1,000,000 respectively related to asset impairments. The current year also includes a loss and early extinguishment of debt of $27,000,000 resulting from the refinancing transaction and income from a refund from a non U. S. Governmental authority of $9,000,000 The 2022 results also include income of $1,000,000 related to legal settlements.

Speaker 3

Excluding the impact of these current and prior year items, the 2023 adjusted net income was $99,000,000 compared to income of $8,000,000 in the prior year, an improvement of $91,000,000 year over year. Operational EBITDA for 2023 was $45,000,000 compared to $18,000,000 in 2022, an improvement of $27,000,000 or 150% from the prior year. Excluding the impact of non cash changes in workers' compensation and employee benefit reserves in 2023 2022 and the favorable impact of foreign exchange in the current year, operational EBITDA increased by $39,000,000 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.

Speaker 3

The company ended 2023 with $255,000,000 in cash and cash equivalents, an increase of $38,000,000 from December 31, 2022. During 2023, cash provided by operating activities was $38,000,000 Current year cash provided by operating activities was driven by cash flow from balance sheet changes of $38,000,000 including a decrease in working capital of $11,000,000 and an increase in other liabilities of $21,000,000 Within working capital, accounts payable decreased by $14,000,000 inventory decreased by $19,000,000 and accounts receivable increased by $16,000,000 Cash flow from net earnings was breakeven for 2023. Cash provided by operating activities improved by $154,000,000 from the prior year, driven by $120,000,000 improvement in balance sheet changes, including an improvement in working capital cash flows of $44,000,000 and an increase in cash flows from liabilities excluding borrowings and trade payables of $57,000,000 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 $32,000,000 in the current year, a decrease of $24,000,000 when compared to the prior year. The prior year includes a $25,000,000 equity interest investment in Wildcat Discovery Technologies.

Speaker 3

Cash provided by financing activities was $85,000,000 in the current year compared to $43,000,000 in the prior year. This improvement in cash from financing activities is driven by the impacts of the refinancing transaction, which occurred in the Q3 of 2023. Cash provided by financing activities in the prior year includes $49,000,000 of incremental cash after fees and expenses, driven by proceeds received from the delayed draw term loan exercised in the Q2 of 2022. Restricted cash at the end of the year of 2023 was $122,000,000 an increase of $53,000,000 from December 31, 2022. Restricted cash primarily represents cash collateral required to support workers' compensation liabilities, cash collateral supporting the letter of credit facility and certain aluminum supply contracts, in addition escrows to secure various ongoing obligations.

Speaker 3

As previously reported, the company deposited $68,000,000 during the Q3 of 2023, primarily from refinancing proceeds to support the security deposit required for the New York State Workers' Compensation Board. The current balance of $63,000,000 as of December 31, 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.

Speaker 3

Governmental authority and the prior year effect of exchange rates on cash, the year over year increase in cash and cash equivalents was $184,000,000 This is primarily the result of the year over year improvement in cash flow from operations of $154,000,000 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 ks, we remain in compliance with applicable financial covenants. I will now turn the discussion back to Jim.

Speaker 2

Thank you, Dave. In summary, Kodak continued to deliver strong performance for the Q4 year despite the challenging business environment globally, increasing gross profit through efficiency and innovation and lowering our cost of sales 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. We at Kodak, we are committed to investing in infrastructure, improving our processes, continue to reduce our cost of sale and increase our efficiencies.

Speaker 2

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 could 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 5 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.

Speaker 2

I want to thank you all for attending the call and your continued interest in Eastman Kodak.

Operator

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

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Earnings Conference Call
Eastman Kodak Q4 2023
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