Q2 2020 Eastman Kodak Co Earnings Call

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Ladies and gentlemen, thank you for steady.

Welcome to the Eastman Kodak second quarter 2020 conference call at this time all participants are in listen only mode. If your party operator assistance. Please press Star Zero is now my pleasure to introduce all deals.

Thank you and good afternoon, everyone I am proud guilds Eastman Kodak companies to tax officer, and director of Investor Relations Welcome to codec second quarter 2020 earnings call.

That's for 15 P.M. This afternoon Kodak filed in second quarter 2020 form 10-Q and issued its release on financial results for the second quarter, you may access to presentation and webcast for today's call on our Investor Center.

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During today's call will be making certain forward looking statements as defined by the private Securities Litigation Reform Act 1995.

All forward looking statements are based upon codecs expectations in various assumptions.

Future events or results may differ from those anticipated or expressed in the forward looking statements.

Certain factors that could cause actual events or results could differ materially from the forward looking statements include among others the risks.

Certainties and other factors described in more detail in codecs filing filings with the U.S. Securities Exchange Commission from time to time.

There may be other factors that may cause clinics actual results may differ materially.

Forward looking statements all forward looking statements attributable to Kodak persons acting on his behalf apply only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included we referenced in this presentation.

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.

Anticipated events.

In addition, the release just issued in the presentation provided contain certain measures that are gieve non-GAAP measures reconciliation says most directly comparable GAAP measures have been provided with the release and within the presentation on our website in our Investor Center.

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Speakers on todays call our Jim continent.

Codecs Executive Chairman, David Bullwinkle, Chief Financial Officer Kodak.

Before handing the call over to Jim I would like to acknowledge our announcement last week regarding the appointment of especially committee of independent directors to conduct an internal review of code exit activity in connection with the letter of interest.

The U.S. International Development Finance Corporation.

In light of this internal review, we cannot discuss the potential loan or is it related matters beyond the details provided on this call.

We will not be holding a formal kuni during today's call.

As always the Investor Relations team is available for follow up.

Now I'll turn the call over to Jim.

Welcome everyone and thank you for joining the second quarter Investor call for Kodak.

Slide four second quarter results were impacted by Corbett 19, as the pandemic continue to present challenges for the company around the World Dave will provide more details on the second quarter results and year to date shortly.

It was an essential business.

We have remained operational we put health and safety of our employee first by enforcing social testing thing measures requiring mask and provide the hand sanitizers to all the central workers.

I am grateful for the dedication and flexibility and the whole organization has shown at the unprecedented condition. In addition, as a called me well experienced in applied materials in chemicals, we have challenge ourselves to flex their manufacturing capabilities in order to serve.

Our country and all of the essential workers on the front line of a pandemic.

We will continue to produce a traditional quota products. We have also lover, Jackie somebody to manufacture a few IP.

And film for printed Circuit board using ventilators.

We have continued to see the benefit of the new organizational structure that we implemented in 2019.

Well what code that customer first model.

In the way we go to market the way our customers are reacting with US we are more nimble functional tangible and measurable.

What's ultimately result in being a more reliable partner for our customers.

In addition, the steps we took in 2019 to strengthen our balance sheet has provided us with financial flexibility.

Do you navigate through out the tender.

Recent conversion of a 95 million and convertible notes further strengthened the balance sheet.

Next I want to take a moment to discuss the potential loan from the U.S. government.

Please keep in mind that the ultimate two weeks ago, well only a letter of interest which was side for a potential alone.

More work is necessary to move this forward.

The potential loan announced it was about the ability to produce key starting materials.

And active pharmaceutical ingredient, yeah, we call them GSM edge or essential generic drugs in this country and much more on a much larger scale Kodak isn't iconic American brand with a heritage and innovation, including over 20000 patents throughout its history.

We have the potential to expand our production capabilities and capacity.

Our existing chemical manufacturing operations is located in Eastman business Park at 1200 acre.

City within the city in Rochester, New York, which is uniquely suited for chemical development and production.

Our best infrastructure Eastman business Park.

Include a wide variety and industrial utilities, including steam gas electric waste water treatment access to 13 miles and rail in the park.

Well, a fire safety and security services.

It's an incredible facility codec awful possesses deep expertise with over 100 years would come from manufacturing and experienced manufacturing and regulated chaos and critical components and pharmaceutical production.

For the past few years importantly, we appreciate and support the Dfc his decision to wait clarification before moving forward with the long process.

The proposed expansion of our chemical manufacturing operations to supply pharmaceutical need does not affect our existing business. We remain one of them personally committed to our core business of print advanced materials and chemicals, including continuing manufacturing of unregulated K ourselves.

And investing in groundbreaking innovation can meet our customer needs.

Turning to slide five reinforcing the commitment during the quarter, the company announced several new products and enhancement to existing products.

Support our vision for the print and digital packaging business.

The product announcements include enhancements to our industry, leading products Sonora plates to new quarter, Meghna plate centers, which will be the world fastest CTP devices.

Correct synergy demand workflow software, our first cloud based platform.

Joint development machine with you tackle polled the Utica Sapphire.

Digital.

Could you provide.

Known as the evil wide for us powered by quarter ULTRASTREAM continuous inkjet technology.

A revolutionary New Prosper Ultra 520 Inkjet trust.

That will really define what possible in terms of quality.

Kennedy and cost for digital printing.

I will now turn it over to Dave to discuss the 2022nd quarter and first half financial results.

Thanks, Jim and good afternoon today the company filed its form 10-Q for the quarter ended June 30, 2020, with the Securities Exchange Commission.

As always I recommend you read this filing in its entirety.

Before I get into the details for the quarter I would like to highlight an important transaction, which occurred subsequent to the second quarter.

On July 29 to 2020, the company received conversion notices from holders of the company's 5% secured convertible notes due 2021 exercising their rights to convert an aggregate of $95 million of principal amount of the notes into shares of the company's common stock.

The companys delivery.

Oh, the conversion shares and its payment of the accrued interest satisfies the company's obligations under the notes.

The remaining outstanding principal amounts of the notes is $5 million.

Additionally, I would like to make a few comments regarding the cofield 19 pandemic impacts.

The cobot 19 pandemic did have a negative impact on our second quarter sales volumes and collections of accounts receivable.

The conversion of accounts receivable to cash is taking longer and collection risk has increased since before the pandemic.

The percentage of past due amounts in accounts receivable has doubled when compared to the prior year.

The company has been able to maintain our operations to serve our customers and adapt to the changes in their businesses.

We anticipate that sales volumes will improve in the third quarter as global recovery continues.

I will now share further details on the comp on a full company results operational EBITDA and cash flow for the second quarter and first half of 2020.

On slide six for the second quarter of 2020 reported revenues of $213 million compared to $307 million in the prior year quarter for a decline of $94 million.

On a U.S. GAAP basis, we reported a net loss of $5 million for the second quarter compared to net income of $201 million in the prior year quarter.

The 2020 and 2019 second quarter results include expense of $4 million, an income of $3 million, respectively related to changes in value for the derivative embedded in the series a preferred stock and convertible notes.

Second quarter of 2020 results also include income of $1 million related to net gain on the sale of assets.

The second quarter of 2019 includes income of $209 million.

Hi, merrily related to the impact of the gain on the sale of the Flexographic packaging business.

Excluding these current and prior quarter items loss for 2020 was $2 million compared to a loss of $11 million in the prior year quarter, reflecting an improvement of $9 million.

Operational EBITDA for the quarter was a negative $7 million compared to negative 1 million dollar in the prior year quarter.

The decline in operational EBITDA is driven by the reduction in revenues as a result of the cobot 19 impacts on our business.

Operational EBITDA for the second quarter was unfavorably impacted by higher manufacturing costs.

Driven by unfavorable cost absorption due to volume declines of $13 million, partially offset by cost savings, including furloughs and pay reductions.

Foreign exchange did not have an impact on operational EBITDA.

During the second quarter volumes for Sonora process free plates declined by 33% and the annuity revenue for prosper declined by 25%, which was attributable to the market downturn related to the covert 19 pandemic.

Overall prosper revenue was flat year over year as a result of gross in print had component sales attributable to increased demand in packaging and personal care applications.

However, we will continue to face future revenue fluctuations throughout the year in the prosper business as these applications develop.

We continue to invest in future growth areas of ULTRASTREAM at advanced materials, which will lead to the new product introductions, Jim referred to earlier.

Turning to slide seven for the first half of 2020, we reported revenues of $480 million compared to $598 million in the prior year period for a decline of $118 million.

We reported a net loss of $116 million for the first half compared to a net income of $183 million in the prior year.

The 2020 and 2019 first half results include income of $49 million and $2 million, respectively related to changes in the value for the derivative embedded in the series a preferred stock and convertible notes.

The first half of 2020 also includes the impact of a tradename impairment for $3 million and increase in accounts receivable reserves of $4 million.

He $167 million noncash expense as a result of the increase in deferred tax valuation allowances outside the U.S. and income of $9 million related to the net gain on the sale of assets.

The first half of 2019 includes income of $209 million related primarily to the impact of the gain on the sale of the Flexographic packaging business.

Excluding these current and prior year items results for 2020 were breakeven compared to a loss of $28 million in the prior year.

This increase reflects the impacts of our cost reduction initiatives as we continue the transformation of our business focused on the key areas of print advanced materials and chemicals.

[noise] operational EBITDA for the period was a negative $15 million compared to a negative $6 million in the prior year period.

Excluding the increase in accounts receivable reserves of $4 million operational EBITDA declined by $5 million.

Operational EBITDA for the first half of the year was unfavorably impacted by higher manufacturing costs, driven by unfavorable cost absorption due to volume declines of $19 million, partially offset by cost savings, including furloughs and pay reductions.

Foreign exchange did not have an impact on operational EBITDA.

On a year to date basis volumes for Sonora process free plates declined by 9% and the annuity revenue for prosper declined by 14%, which was attributable to the market downturn related to the cobot 19 pandemic.

Overall, prosper revenue increased $1 million compared to the prior year period as a result of growth in print had component sales attributable to increased demand in packaging and personal care applications.

However, as I noted previously we will continue to face future revenue fluctuations throughout the year in the prosper business has these applications develop.

We also continued to invest in future growth areas of ultra stream and advanced materials.

Moving onto the company cash performance presented on slide eight the company ended the second quarter with $180 million in cash and cash equivalents, a decrease of $53 million from December 30, Onest 2019.

For the six months ending June 30, 2020 cash used in operating activities was $64 million driven primarily by cash use from net earnings of $33 million and cash use from balance sheet changes of $31 million, including a change in working capital of $3 million and a decrease in others.

Liabilities of $31 million.

Accounts payable decreased by $50 million inventory increased by $17 million and accounts receivable decreased by $64 million.

Included in the balance sheet changes, a 14 million dollar historical obligation to quota caleres.

That was eliminated by offsetting $11 million of accounts receivable and the recognition of a $3 million deferred gain.

In addition, cash used for the reduction of other liabilities includes pension payments severance payments for restructuring actions value added tax and income tax payments and accrued interest.

Payments for the first half of 2020 have increased for income taxes, and restructuring payments offset by a reduction in accrued interest.

Cash used in investing activities was $5 million in the first half of 2020 as compared to cash provided by investing activities of $297 million in the prior year period.

The prior year included proceeds from the sale of the Flexographic packaging Division.

Cash used in financing activities was $6 million in the first half compared to a use of $294 million in the prior year period.

The prior year included $395 million of cash used for the full repayment of the senior secured first lien term credit agreement, partially offset by the issuance of the secured convertible notes of $100 million.

As I have indicated on past calls the company was focused on reducing restricted cash in 2020 in order to fund operations and our continued restructuring activities.

In the first half of 2020 restricted cash was reduced by $25 million due to our efforts, which included the amendment of our ABL facility during the first quarter.

Restricted cash at the end of the quarter. It was $32 million, we will continue to focus on alternatives to reduce restrictions on cash.

Additionally, in order to make cash available to other jurisdictions across the company and in the world during the second quarter, a Chinese subsidiary of Kodak transferred approximately $70 million to a U.S. subsidiary of Code Act to complete an intercompany transaction.

This transaction reduces the cash considered trapped in China.

And enables the company to operate with lower minimum operating cash balances, which further strengthens the companys financial position.

Finally, our form 10-Q discloses that we remain in compliance with covenants under our credit agreements.

To summarize the cobot 19 pandemic had a significant impact on our operations in the quarter and the company was able to reduce costs to partially offset these impacts.

The company's balance sheet and financial position have been significantly strengthened.

Due to the intercompany transaction in the second quarter and the conversion of secured convertible notes, which occurred subsequent to the quarter.

I will now turn the discussion back to Jim.

Hi, I'm extremely proud of Codeshare.

And our ability to navigate the past few months. Despite the challenges from the pandemic, we continue to innovate and move our business forward. The six recent products announced the most products introduced by Kodak and several years highlights our commitment to R&D and represent.

Important steps towards restoring quota to its rightful place at the forefront of print.

Doubling down on digital and inkjet.

Kodak is well position to capture the opportunity with accelerated shift to digital print that's a world without experiencing thank you for your time today, we look forward speaking with you again.

The next quarter.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating.

Disconnect.

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