Q3 2019 Earnings Call
Time, all participant line journalists gentlemen out after the speakers presentation, there will be a question and answer session.
A question during the session you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded if you're acquiring any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr. Bell Love. Thank you. Please go ahead Sir.
Thank you Skylar and good afternoon, everyone I am Bill Love Eastman Kodak companies Treasurer, and director of Investor Relations Welcome to codecs third quarter 2019 earnings call.
15, P.M. This afternoon Kodak filed its quarterly report on Form 10-Q .
Issued its really some financial results for the third quarter of 2019.
You may access the presentation and webcast for today's call on our Investor Center at Investor Dakota Dot 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 on kodak's expectations in various assumptions.
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 reference in the presentation materials and described in more detail in codecs filings with the U.S. Securities and Exchange Commission from time to time.
[noise] there may be other factors that may cause codecs actual results to differ materially from the forward looking statements. All forward looking statements attributable to Kodak persons acting on his behalf apply only as of the data this presentation.
Our expressly qualified in their entirety by the cautionary statements included or referenced in this presentation.
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 released 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 sentiment pack Investor Dakota Dot com.
I will now turn the call over to Jim.
Thank you Bill.
Welcome everyone and thank you for joining the third quarter boast. It's also called.
People do my team.
The company establish the strategic relationships into People's Republic, which I will walk you heard one bright spot.
The transaction quotes.
So kodak offset switching weights facility and treatment trade off.
Supply agreement to help Kodak fulfill customer.
Customer demand.
Intellectual property agreement under which colder waikiki.
<unk> technology to have worn to expand.
The markets in China.
This transaction will leverage the combination suites or hard ones market true.
Either more true.
And codecs World Class technology.
Together, we expect to accelerate the conversion of call it actually lower process free plates in China.
On cars quite warm in Macau.
Well pause or for a minute.
As we say to you for the last couple of calls were but with the one code.
We're going to look yet the oldest by your partner.
Mostly to the company.
Sounds fine serving more customers and establish.
Your September market.
We're thrilled about this.
Buying opportunity, we're over there, but with them they want to do more together in total we.
Oh, we're going to look at China is one of the growth Oreos, I guess, it young luggage and their strengths in hours.
Well, we look yes.
Can you help inform twice the company will focus on generating cash himself will find its organization structure.
Well to provide better alignment with our customers, we're moving to a customer first model.
Yeah, that'd be their employees the customers are the focus of what we have to focus comfort or poised and customers.
We will focus on.
Delivering world Class service automation.
Yeah, and leading edge technologies, we're going to leverage our that's material technology on the corporate console business.
We will continue its gonna be Cmos everyones, we're going to eliminate into late fall to vote for non core programs and products.
We're reducing our operating expenses.
We're going to go profitable revenue.
The volume of products in all process free plates grew 22%.
He annuities revenue for Kodak Prosper.
Grew 5%.
Again.
If you keep saying, they're just so we're clear.
We're going to move to generate free cash flow.
We're going to put a comfortable first model work backwards.
We're going to computer innovate fiberio still most Reits advanced materials.
Focus on core products.
Just wasn't really clear where the company is going.
What's the longer terms always Dave.
Just going through 2019 third quarter year to date financial results.
Thanks, Jim and good afternoon.
Today, the company filed its Form 10-Q for the quarter ended September 30, 29 team with the FCC.
As always I recommend you read this filing in its entirety.
Before we begin I would like to mention that we recently announced the retirement of below corporate Treasurer and director Investor Relations effective January 620, 20, Bill has made significant contributions to codecs transformation and it's been a valuable member of the finance leadership team Congratulations Bill.
Matthew a great James James James I don't like the things, though I don't know for several years. So when we went through our restructuring and came out I don't know for been possible with all the work you Doug.
There was a credible evidence the contributions he made some company well never before so.
Well, thanks for everything I won't personally. Thank you want every shareholder should be taken to walk so.
Thank you both I very much appreciate it.
Mastery resold assistant Treasurer will assume the role of corporate Treasurer, and Paul deals Chief Finance Officer will assume the additional rolls on director of Investor Relations.
As Jim previously mentioned on September 1st 2019, the company finalized the establishment of a strategic relationship.
Lucky had one graphics company limited in their People's Republic of China.
The deal included the sales Kodak stops at pretty clean facility in chime in China or supply agreements health codec fulfilled its customer demand and IP agreement under which codec licenses is placed technology, Taiwan to expand the market in China.
This transaction will leverage the combined strength of had one market leadership and Kodak's World class technology, which together are expected to accelerate the conversion of codec Sonora process free plates in China, Hong Kong, Taiwan in Macau.
On September 12, 29 team the company adopted a tax asset protection plan and adopted.
Complimentary protective amendment to a certificate of incorporation.
The purpose of these protection sister restrictions in terms of certain transfers and common stock in order to preserve the tax benefits on the Companys U.S. net operating losses and foreign tax credits.
The protections will expire on November 15th 2019, when the risk of losing the tax benefits under applicable tax rules is significantly reduced.
I will now share further details on the phone company results operational EBITDA and cash flow <unk> third quarter and nine month period ending September 32019.
Please note the results of the results of SPD had been reported as discontinued operations for the third quarter and year to date September Thirtyth between 19, and the comparable 2018 periods due to the sale of the division.
Additionally, certain amounts have been reclassified for the current and prior year periods due to assets held for sale reporting requirements related to the had one transaction.
On slide five as reported in our earnings release net loss for the third quarter of 29 team on a U.S. GAAP basis was $5 million compared to net income of $19 million in the prior year quarter.
For the nine months ending.
Number 30, 29 team reported net income was $170 million compared with nothing.
$2 million for the nine months ending September 32018.
Excluding the impact from the net gain on sale of affects the graphic packaging Division business Division excuse me, a $5 million workers' compensation and legal reserve adjustments $2 million and the related changes in the fair value for the derivatives embedded in the series a preferred stock and convertible note.
$4 million net loss for the third quarter of 29 team was $4 million compared to a net income of $4 million in the prior year quarter.
The adjusted year to date loss on this basis for 29 team was $29 million compared to a loss of $10 million in the prior year period.
Which primarily reflects reduced non cash pension income and nonrecurring costs of completing the S.P.D. sale.
Turning to slide six and a third quarter 29 team, we reported revenues of $315 million compared to $329 million in the prior year quarter for a decline of 14 million.
Adjusting for the unfavorable impact of foreign exchange of $5 million and license revenue received from the high bond transaction of $13 million revenue declined by $22 million compared to the prior year quarter.
Operational EBITDA for the quarter was $14 million compared to $9 million in the prior corner.
Excluding the see real impact of foreign exchange and aluminum costs.
License revenue received from the high one transaction and adjusting for the increase in workers' compensation reserves operational EBITDA decreased by $9 million.
Through September Thirtyth 2019, we reported revenues of 930 $913 million compared to $979 million in the prior year period for a decline of $66 million.
Adjusting for the unfavorable impact of foreign exchange of $25 million and license revenue received from the hogwash transaction of $13 million revenue declined by $54 million compared to the prior year period.
Operational EBITDA for the year to date period was $7 million compared to a negative $2 million in the prior year period.
Moving to see real impact of foreign exchange and aluminum costs license revenue received from the high one transaction and adjusting for the increase in workers' compensation reserves operational EBITDA declined by $8 million.
We delivered strong year to date performance in our key growth engines on a year over year basis and volumes for Sonora process free plates grew by 22%.
And the annuity revenue from cross for grew by 5%.
Also continued to invest in future growth areas ultra stream and advanced materials.
Moving onto the company's cash performance presented on slide seven.
The company ended the third quarter was $225 million in cash and cash equivalents.
The decrease of $8 million from December 31st 2018, and an increase of $27 million from June 30, 2019 cash balance of $198 million when adjusted for the assets associated with Kodak's offset printing placed facility in Sherman, China being reported.
In assets held for sale.
Cash cash equivalents unrestricted cash for the nine months ended September 32019 increased by $12 million compared to a decrease.
$113 million in the prior year period.
Restricted cash and cash included in assets held for sale.
Increased by $20 million as compared to a decrease of $7 million in the prior year period.
The current year includes the remaining cash prepayment of $8 million received in the U.S. or services and products provided by the company to the buyer that PB, which was secured by a corresponding restricted cash deposit in China.
This restricted cash in China is being released periodically as services and products are provided to the buyer.
Additionally, there was an increase of $14 million related to the impact on the B L from the sale of SPD assets.
The company also establish an escrow a $14 million in China to secure various ongoing obligations under the agreements and kind of strategic relationship with Taiwan.
The net decrease in cash and cash equivalents was $8 million through September 30, 2019, compared to a net green decrease of $106 million in the prior year period, representing significant improvement in cash flow.
We continue to evaluate opportunities to reduce restricted cash and to benefit from our cash positions around the world.
For the nine months ending September 30, 2019 cash used in operating activities was $4 million driven primarily by cash use from net earnings.
$36 million, partially offset by cash generated from balance sheet changes $32 million, including a change in working capital of $25 million and a decrease in other liabilities of $5 million.
Accounts payable increased by $13 million inventory increased by $18 million and accounts receivable decreased by $30 million, we continue to expect ongoing improvement and working capital.
Cash provided by investing activities was $315 million during the nine month period ended September 30, 2019, as compared to use of $16 million in the prior year period.
The current year included proceeds from the sale of affects the graphic packaging division and the hot long transaction.
Cash used in financing activities was $295 million year to date 2019 compared to a use of $10 million in the prior year period.
The current year included $395 million cash used for the full repayment.
Senior secured first lien term credit agreement, partially offset by the issuance of the secured convertible notes of $100 million.
Finally as disclosed in our Form 10-Q , we remain in compliance with the covenants under our credit agreements.
We will now open the call to your questions. Operator, please remind participants on the instructions to ask questions.
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Well again I'd like to thank everyone for joining the call.
We appreciate your support quicker won't have good evil.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.