Eastman Kodak Q1 2024 Earnings Call Transcript

There are 4 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Eastman Kodak Q1 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 speaker today, Anthony Ren.

Operator

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 Q1 2024 earnings call. At 4:15 p. M.

Speaker 1

This afternoon, Kodak filed its Form 10 Q and issued its release on financial results for the Q1 of 2024. 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 or 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 for follow-up. I will now turn the call over to Jim. Thank you.

Speaker 2

Welcome everyone and thank you for joining the Q1 2024 investor call for Eastman Kodak. I am very pleased with the company's performance for the Q1 of 2024 following our strong performance in 2023. We have been committed to executing our long term plan for 5 years now. We have strengthened our balance sheet, refinanced our long term debt. We're now generating cash, which will allow us to keep investing in our businesses, investing in innovation and print, advanced materials and chemicals.

Speaker 2

I am pleased to announce that we have won our 4th Stevie Award, our 3rd goal for our strategy in digital print technology, improving operational efficiency and reducing cost of sale. We promised our customers we would become more efficient and we have. We've delivered on the application that we set. We have achieved this by investing in new technologies such as IT systems, manufacturing equipment and business controls. Helping our print customers with the right solution from our unmatched portfolio, We continue to invest in a broad spectrum of solutions for print.

Speaker 2

Our focus is in meeting our customers' needs. We win only when our customers win. Now we are preparing for the next stage, Investing in long term opportunities that leverage our unique strengths in chemicals, layering and coating developed over 130 years of history that has set a foundation for our future as a growth company. Everyone, and I mean everyone at Kodak is contributing to our success and excited about our future. I'd like to thank our employees for their competitive spirit and their winning attitude.

Speaker 2

Turning to Slide 5. I am pleased with our continued progress in the company's results for the Q1 2024. Here are some highlights for the quarter. In our print business, we continued to invest in innovation across our complete portfolio of offset and digital solutions. We are uniquely qualified to help customers navigate and deliver the right solutions based on their needs.

Speaker 2

We are showcasing a range of new products at Drupa, also running live demonstration of our Prosper Ultra 520 press to demonstrate its unmatched combination of speed and quality. Last year, Kodak filed a petition with the U. S. Department of Commerce and the U. S.

Speaker 2

International Trade Commission requesting relief from unfair trade imports of plates from China and Japan. The Commerce Department has recently announced a preliminary finding in its countervailing duty and antidumping investigations and the provisional duty on imports of plates manufactured in China and Japan are now being imposed. You can find more details in our recent 10 Q filing. In our AMC business, we are committed to film and continue to invest in manufacturing capacity to meet growing demand in both still and motion picture film. We continue to expand OEM manufacturing for other types of film to help absorb fixed manufacturing costs in our factories.

Speaker 2

We will continue to invest in long term growth initiatives that leverage our unique strength in chemicals, layering and coating and vast manufacturing infrastructure. We are currently building out a cGMP clean lab along with our reagent facility currently under construction in Eastman Business Park in Rochester. Turning to Slide 6, performance highlights for the Q1. Revenues decreased $29,000,000 approximately 10% compared to the prior year quarter. The revenue decline is in line with Kodak's estimate of the decline of the overall market.

Speaker 2

Despite the revenue decline, gross profit decreased only $1,000,000 a negative 2% compared to the prior year quarter. Gross profit percentage increased quarter over quarter by approximately 10% from 18% to 20%. This performance reflects growth in Advanced Materials and Chemicals and our commitment to improving our operational efficiency and investing in automation in this difficult economic environment. Now I'll turn over to Dave to discuss the Q1 2024 financial results.

Speaker 3

Thanks, Jim, and good afternoon. This afternoon, the company filed its Form 10 Q for the quarter ending March 31, 2024 with the SEC. As always, 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 Q1 of 2024. In the face of an extremely difficult global environment, Coda continued to build on its strong foundation during the Q1 of 2024, driving smart revenue, pricing rationalization and cost reductions, delivering a gross profit percentage of 20% and generating cash while continuing to invest in long term growth initiatives.

Speaker 3

The company's results reflect the continued focus on these priorities and the execution against our long term strategy. On Slide 7, we reported revenues of $249,000,000 for the Q1 compared to $278,000,000 in prior year quarter for a decline of $29,000,000 or 10%. Gross profit decreased by $1,000,000 or 2% when compared to the prior year quarter. Our gross profit percentage was 20% in the Q1 of 2024 compared to 18% in the prior year quarter, which 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.

Speaker 3

Foreign currency had no impact on revenues or gross profit for the Q1 of 2024 versus the prior year period. On a U. S. GAAP basis, we reported net income of $32,000,000 for the Q1 of 2024 compared to $33,000,000 in the prior year quarter, a decrease of $1,000,000 The 2024 and 2023 Q1 results include income of $1,000,000 and expense of $1,000,000 respectively, related to non cash changes in workers' compensation and employee benefit reserves. The Q1 of 2024 results includes income of $17,000,000 related to a net gain on sale of assets and the prior year Q1 results include expense of $1,000,000 related to changes in the fair value of embedded derivative liabilities and income of $9,000,000 related to a refund from a non U.

Speaker 3

S. Governmental authority. Excluding these current and prior quarter items, net income for 2024 was $14,000,000 compared to net income of $26,000,000 in the prior year quarter, reflecting a decline of $12,000,000 Operational EBITDA for the quarter was $4,000,000 compared to $9,000,000 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 quarters, operational EBITDA decreased by $7,000,000 when compared to the prior year quarter. Operational EBITDA for the Q1 of 2024 was unfavorably impacted by significant investments in automation and simplification of back office functions. For the balance of the year, we plan to concentrate on the fundamentals from our strategic plan, investing for growth, increasing operational efficiency and helping our customers succeed.

Speaker 3

Moving on to the company's cash performance presented on Slide 8. The company ended the Q1 with a cash balance of $262,000,000 an increase of $7,000,000 from December 31, 2023. Foreign exchange had an unfavorable impact on cash of $3,000,000 for the current quarter. The team continues to focus on improving profitability and performance in working capital, which enhances the company's ability to generate cash. Cash provided by operating activities was $17,000,000 for the current quarter compared to $14,000,000 in the prior year quarter, reflecting an improvement of $3,000,000 Current quarter cash provided by operating activities was primarily driven by a use of cash from net earnings of $11,000,000 and cash provided by balance sheet changes of $28,000,000 including a change in working capital of $45,000,000 and a decrease in other liabilities of $19,000,000 Within working capital, accounts payable increased by $7,000,000 inventory increased by $15,000,000 and accounts receivable decreased by $53,000,000 compared to the prior year period, primarily due to $40,000,000 of cash proceeds from brand licensing.

Speaker 3

Cash provided by investing activities for the Q1 increased by $12,000,000 compared to the prior year period due to proceeds from the sale of assets of $17,000,000 partially offset by an increase in capital additions of $5,000,000 Cash used in financing activities for the Q1 increased by $17,000,000 compared to the prior year period, driven by $17,000,000 of an amended and restated term loan prepayment during the Q1 of 2024 from the proceeds received from the sale of assets within investing activities. Restricted cash decreased by $4,000,000 when compared to the balance as of December 31, 2023. 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, cash collateral required in the letter of credit facility and certain aluminum supply contracts in addition to escrows to secure various ongoing obligations. As presented on the bottom portion of the slide, excluding the effects of foreign exchange and the prior year impact of a refund from a non U. S.

Speaker 3

Governmental authority, the company delivered an $11,000,000 improvement in cash in the Q1 of 2024 compared to the prior year period. We are pleased with the financial performance of the company for the Q1 of 2024. 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 all applicable financial covenants. I will now turn the discussion back to Jim.

Speaker 2

Thank you, Dave. In summary, Kodak continued to deliver strong profit and improved cash performance despite a challenging business environment. We continue to invest in our unmatched portfolio of solutions for both offset and digital print. We will showcase a wide range of new products at Drupa this month and I'm excited for the world to see what we've been working on. We are investing in the next generation of business in AMC that will set the stage for Kodak as a growth company.

Speaker 2

Our success is due in large part to the competitive spirit of our employees and their winning attitudes, as I stated before. We will continue to put our customer first, offering them a complete range of solutions, a reliable supply and ongoing innovation in both offset and digital print and advanced materials and chemicals. I want to thank everyone for attending this call and your continued interest in Eastman Kodak. Thank you and have a good evening.

Earnings Conference Call
Eastman Kodak Q1 2024
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