Q4 2020 Eastman Kodak Co Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Eastman Kodak Q4, 2000 of 'twenty earnings Conference call.
At this time all participants on a listen only mode. If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker for today Paul of deals you may begin.
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Thank you and good afternoon, everyone I am Paul Dils, Eastman Kodak company's Chief tax officer, and director of Investor Relations.
Welcome to Kodak's fourth quarter and full year 2020 earnings call.
At 415 P. M. This afternoon Kodak filed its 2020 form 10-K and issued its release on financial results for the fourth quarter and full year of 2020.
You may access the presentation on the webcast for today's call on our Investor Center at Investor Day, Kodak 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 on.
All forward looking statements are based upon kodak's expectations and 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.
The 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 before looking statements.
All forward looking statements attributable to Kodak or persons acting on its behalf of apply only as of the date of this presentation.
And are expressly qualified in their entirety by the cautionary statements included or referenced in the 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 release just issued and the presentation provided contains certain measures that are deemed non-GAAP measures reconciliations.
The reconciliations to the most directly comparable.
Comparable GAAP measures have been provided with the release and within the presentation.
On our website in our investors center at Investor Day Kodak Com.
Speakers on today's call are Jim Collins of Kodak's Executive Chairman and David Bullwinkle, Chief Financial Officer of Kodak.
So you will not be holding of 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.
Welcome everyone and thank you for joining the fourth quarter investor call for Kodak.
Beginning on slide four fourth quarter results continue to be impacted by COVID-19.
As the pandemic continues to present challenges for the company around the World. The company was able to mitigate some of it the impact through cost savings, including furloughs and pay reductions Dave will provide more detail on the company's results shortly key.
Key Kodak achievements for 2020.
In 2020.
196 billion of cash and cash equivalents.
Generated cash in third and fourth quarter for 2020 again as I keep saying, we're going to continue to focus on free cash flow, we would grow our way out of this not cut our way out of it reduction of net debt.
By 368 million.
Compared with March of 2019.
Number one priority was to maintain the safety of our employees and our customers during this pandemic.
Continue to invest in our business again, we want innovation awards in print and digital packaging business.
The customer first model the one Kodak model.
This approach is clearly paying off for us materially fixed our balance sheet and financial Foundation.
We've been talking about that for a couple of years, let's fix the foundation.
Let's get hold of our debt.
Let's find a path forward, let's recapitalize. The then raise growth capital as we find our path both of them.
The steps of the last couple of years and we're proud to say that we're heading in the right direction.
Turning to slide five.
We recently announced exciting news that reflect the beginning of Kodak next chapter on March 1st codec, and the LT series of financial transactions that provide access to new capital addressing maturing obligations and strengthening the company's ability to invest in strategic growth opportunities.
And print advanced materials and chemicals, which include also new initiatives.
The transaction reflects investors the board of management's confidence in the company's strategy and technologies, placing.
Placing kodak in the best financial position in years, Dave will provide specific details shortly however.
But at a high level the transaction includes fin.
Financing transactions with Kennedy Lewis of investment management.
Which includes a five year senior secured term loan of up to $275 million.
$225 million funded at close.
And the 50 million delayed draw for up to 24 months issuance of 25 million Nonvoting convertible note 1 million common shares issued at $10 per share upon close of the term loan and convertible notes.
Series, a preferred stock redemption.
And exchange.
With funds managed by southeastern asset management.
The redemption of 100 billion of existing 200 million series day.
Convertible preferred stock exchange.
Five year extension of the remaining 100 million series, a convertible preferred stock for series B convertible preferred stock.
This is adding the us to have southeastern continue to support the company they want to be part of us.
I can't thank them enough for their support through the years.
And issuance of $100 million of series C convertible preferred stock.
Two Grand Oaks capital, an investment firm founded by businessmen and Paychex Baldor, Tom Golisano, we're excited to have Tom joining of the Kodak family and helping us through the next chapter of Kodak.
The amended and extended ABL facility, a new $50 million letter of credit facility issued.
These transactions represent the next step in our strategy for returning the company to grow and help position us to invest in our core business and print advanced materials chemicals and new initiatives. We're excited about having these investors on our capital structure and as part of our business and business strategy.
We look forward to the next chapter of Kodak.
Their experience and guidance to help us achieve our goals.
I will now turn it over to Dave to discuss the details of our recently added financing transaction.
And the 'twenty 'twenty financial results.
Thanks, Jim and good afternoon.
Before I get into the details for the quarter I would like to comment on a series of important financing transactions that occurred in the first quarter of 2021.
As Jim mentioned on March 1st we announced a series of financial transactions that provide access to new capital address maturing obligations and strengthen the company's ability to invest in strategic growth opportunities in our core businesses.
First Kodak entered into financing agreements with Kennedy Louis investment management Kennedy. Louis has provided Kodak with an initial $225 million term loan.
And our commitment to provide delayed draw term loans of up to an additional $50 million, which may be drawn on or before February of 'twenty six 'twenty 'twenty three.
The term loans mature in five years and bear interest comprised of 8.5% payable in cash quarterly.
And 4% Pik interest.
The company has also issued Kennedy Lewis $25 million of 5%.
Unsecured convertible promissory notes due may 'twenty eight 'twenty 'twenty six.
The convertible notes bear, 5% Pik interest, where the conversion price of $10 per share and have a mandatory conversion option by the company if the share price equals or exceeds $14.50 for 45 of 60 trading days.
Additionally, Kennedy Louis has purchased 1 million shares of the company's common stock at a purchase price of $10 per share.
As part of the agreement Kennedy Lewis will have the right subject to certain conditions for three years or until they hold less than 50 per cent of the initial principal amount of the term loans to nominate one person to be elected to the company's board of directors.
With the proceeds from these transactions Kodak repurchased 1 million shares of the Companys, 5.5% series, a convertible preferred stock due to mature on November 15th 2021 from funds managed by southeastern asset management for $100 million plus accrued and unpaid.
Dividends.
In addition, Kodak has issued the south Eastern managed funds 1 million shares of series B convertible preferred stock in exchange for the remaining series a preferred stock for a total of $100 million.
The series B preferred stock has a four per cent quarterly dividend payable in cash with the mandatory redemption in five years in 91 days.
The conversion price is $10 50 per share with the mandatory conversion option by the company if the price equals or exceeds $14.50 for 45 of 60 trading days.
Additionally, Grand Oaks capital, an investment firm founded by a businessman and Paychex founder Tom Gala Sano has committed to invest a total of $100 million in the company.
The firm purchased $75 million of Kodak, 5% series C convertible preferred stock and has agreed to purchase an additional $25 million of this series of preferred stock subject to HSR Act clearance.
The series C preferred stock as of five per cent quarterly dividend payable and series C preferred stock with the mandatory redemption in five years of 91 days.
The conversion price is $10 per share with the mandatory conversion option by the company. After a two year period, if the price equals or exceeds $20 per share for 45 of 60 trading days in year, three or $15 per share in years four or five.
As part of the agreement Grand Oaks capital, we'll have the right subject to certain conditions for three years or until the hold less than 50 per cent of the initial amount of the preferred shares or common stock into which it is converted to nominate one person to be elected to the company's board of directors.
Codecs existing ABL facility as amended and extended using the same lending group with prorated reduction of commitments.
The amendment extends the term to three years and reduces the commitment from $110 million to $90 million.
Additionally, a new $50 million letter of credit facility was entered into with the subset of the ABL facility group.
This agreement also contains a three year term.
These transactions together provide the company with approximately $210 million of incremental cash after fees expenses and incremental ABL funding to invest in growth opportunities in kodak's core businesses of print advanced materials and chemicals.
An additional $25 million will be funded no later than 45 days from the closing of the other transactions subject only to Hart, Scott Rodino Act approval and $50 million of delayed draw on the term loan will remain available for up to 24 months.
Furthermore, the transactions address the mandatory redemption of the series a preferred stock that was required in November of 2021 extend the maturity date of the company's ABL and limit the amount of cash needed to service capital.
Prior to the financing transactions, which closed on February 26, 2021.
In accordance with the U S. GAAP accounting rules, there was substantial doubt about the company's ability to operate as a going concern due to the recent history of negative operating cash flow maturity of the ABL credit agreement in 'twenty 'twenty. One redemption date in November of 2021 for the series a convertible preferred stock.
And increased challenges in managing cash during the COVID-19 pandemic.
The additional liquidity provided by the financing.
The extension of the maturity date of the ABL credit agreement and the repurchase and exchange of the series a convertible preferred stock eliminates the substantial doubt about codex ability to continue as a going concern.
As previously mentioned in the third quarter, the company discovered deficiencies and controls required to safeguard its assets.
The company has determined the controls were inadequate with regard to the timely input and verification of master data updates per equity grants and therefore resulted in the detection of errors or misstatements in employee equity account balances.
This control weakness did not result in the misstatement of any current or prior period financial statements.
The company has remediated these control deficiencies as of December 31, 'twenty 'twenty.
Documentation and supervisory review controls around Master data were strengthened and an audit trail of stock based compensation award additions and modifications performed by the service provider is now being maintained.
A complete reconciliation of the repository of equity grants is being performed and controls have been strengthened by employing an independent reconciliation process and ensuring appropriate segregation of duties.
I will now share further details on the full company results operational EBITDA and cash flow for 2020.
On slide six as we reported in our earnings release for 'twenty 'twenty reported revenues of one point O two $9 billion compared to 1.2 for $2 billion in the prior year for a decline of $213 million.
Adjusting for the favorable impact of foreign exchange of $9 million in license revenue received in the prior year from the Hog long transaction of $13 million revenue declined by 200 of $9 million compared to the prior year.
On the U S. GAAP basis, we reported net loss for 2020 of $541 million compared to net income of $116 million in 2019. The 'twenty 'twenty results include expense of $382 million related to changes in value.
For the derivative of embedded in the series a preferred stock and convertible notes.
$2 million related to the loss on extinguishment of debt.
$4 million related to noncash changes in workers' compensation and post employment reserves.
$10 million related to a net gain on the sale of assets.
$3 million related to of trade name impairment.
$3 million related to an increase in accounts receivable reserves and the 167 million dollar noncash expense as the results of the increase in deferred tax valuation allowances outside the U S.
The 2019 results include a net gain on asset sales due primarily to the sale of the S. P. D business of $201 million noncash changes in workers' compensation adjustments of $3 million expense of $4 million related to trade name impairments and the related.
<unk> and the fair value for the derivatives embedded in the series a preferred stock and convertible notes of $42 million.
Excluding the impact of these current and prior year items. The 'twenty 'twenty adjusted net income was $10 million compared to loss of.
Of $36 million in the prior year.
Operational EBITDA for 'twenty, 'twenty was negative $1 million compared to $13 million in 2019.
Excluding the current year impact of the increase in accounts receivable reserves. The license revenue received from the hogwash transaction in 2019 and adjusting for the increase in workers' compensation and post employment reserves operational EBITDA increased by $3 million from the prior year.
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Operational EBITDA for 'twenty 'twenty was unfavorably impacted the higher manufacturing costs, driven by unfavorable cost absorption due to volume declines of $29 million, partially offset by cost savings, including furloughs and pay reductions.
Foreign exchange did not have an impact on operational EBITDA.
On a full year basis the <unk>.
Volumes for Sonora process free plates declined by 6% and the annuity revenue for prosper declined by 7%, which was attributable to the market downturn related to the COVID-19 pandemic.
At the height of the impact of COVID-19 in 'twenty, 'twenty, which was our second quarter volumes for Sonora process free plates decreased by 33% and prosper annuity revenue decreased by 25 per cent.
The company began to recognize some recovery of volumes during the third and fourth quarters of 'twenty 'twenty and the beginning of 2021.
We expect to continue to place our solutions with new and existing customers in these areas.
We also continue to invest in future growth areas of ultra stream and advanced materials.
Moving on to the company cash performance presented on slide seven cash.
Cash cash equivalents and restricted cash for 'twenty 'twenty decreased by $34 million compared to an increase of $23 million in the prior year.
Restricted cash and cash included in assets held for sale increased by $3 million as compared to an increase of $23 million in the prior year.
The prior year includes $14 million for the establishment of an escrow in China to secure various ongoing obligations under the agreements for the strategic relationship with Hogwash and.
In $19 million.
In funding related to the ABL, primarily due to the sale of F. P D.
Included in the 'twenty 'twenty balance sheet changes as of 14 million dollar historical obligation to Kodak hilarious that was eliminated by offsetting $11 million of accounts receivable and the recognition of of $3 million deferred gain.
Additionally, in 'twenty 'twenty, the company declared and paid four quarterly dividends on its series a convertible preferred stock that we're in arrears for a total of $11 million.
In the fourth quarter of 'twenty 'twenty. The company also increased restricted cash by $12 million, primarily and in anticipation of the letter of credit facility that I described earlier.
We continue to evaluate opportunities to eliminate restricted cash in 'twenty, 'twenty, one and to benefit from our cash positions around the world.
During 'twenty 'twenty cash used in operating activities was $35 million driven primarily by cash used from net earnings of $25 million and cash used in balance sheet changes of $10 million, including a change in working capital of $9 million and a decrease in other liabilities of 20 <unk>.
$6 million and.
Accounts payable decreased by $36 million inventory decreased by $12 million and accounts receivable decreased by $33 million.
Cash used in investing activities was $13 million during 'twenty 'twenty as compared to cash generated of $311 million in the prior year.
The prior year included proceeds from the sale of the F. P D and the hogwash transactions.
Cash provided by financing activities was $10 million for 'twenty 'twenty compared to a use of 200 of $98 million in the prior year.
The prior year included 300 of $95 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. The company generated positive cash flow in the second half of 'twenty two.
<unk>, which reflects benefits from working capital improvements and cost savings, including furloughs and pay reductions.
Which occurred during the year.
The company will remain focused on cash generation in 2021.
Finally, we remain in compliance with all applicable financial covenants.
In summary, the company has managed through 'twenty 'twenty. Despite the challenges presented by the COVID-19 pandemic, increasing its cash balances in both the third and fourth quarters of the year.
We have further strengthened our balance sheet by removing legacy liabilities.
The financing transactions announced in March 2021 provided the company with incremental liquidity to pursue growth. We are excited to focus on growth opportunities in 2021.
I will now turn the discussion back to Jim.
Thank you Dave.
In summary, with a stronger capital structure and financial position, our 2021 priorities for Kodak and cool.
Continue.
To focus on organizing our business around our customers.
Accelerating our.
Restructuring efforts and generating free cash flow continue to invest in our strategic growth opportunities and print advanced materials chemicals, and new initiatives utilizing our technologies.
And extensive experience in all of these areas.
Sorry.
Before we conclude the call Dave is there anything else you'd like from listeners.
Yes, Jim.
Earlier this evening Kodak filed two shelf registration statements following the filing of the 'twenty 'twenty form 10-K.
These replace two existing shelf registration that had been withdrawn.
Under one of the new registration statements. The company will have the flexibility to issue and sell up to $500 million of securities.
Which is approximately $350 million less than the previous registration statement.
The second new registration statement registers, the resale of common stock.
Issuable under the new convertible securities issued on February 26th of.
As well as the outstanding common stock previously registered and the 1 million shares of common stock issued on February 26.
The shelf registration statement relating to the series a preferred stock and the common stock issuable. Upon its conversion has been withdrawn as the series a preferred stock has been retired.
The new registration statements will not become effective until any necessary SEC review has been completed.
Thanks, Jim.
Thank you Dave and thank you.
Two of the listeners for attending the call.
And for your continued interest from you spoke on this concludes our call for today.
Good day week.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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