Eastman Kodak Company Q1 2023 Earnings Call
Good afternoon, and thank you for standing by welcome to the Eastman Kodak first quarter 2023 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'd now like to hand, the conference over to Anthony Reading. Please go ahead.
Thank you and good afternoon, everyone I am Anthony ready Eastman Kodak Company's Chief compliance officer, welcome to Kodak's first quarter 2023 earnings call.
415 P. M. This afternoon Kodak filed its Form 10-Q and issued its release on financial results for the first quarter of 'twenty to 'twenty three you.
You may access the presentation and webcast for today's call on our Investor Center at Investor Kodak Dot.
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During today's call, we will be making certain forward looking statements as defined by the private Securities Litigation Reform Act of $19 95.
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.
Factors that could cause actual events or results could differ materially.
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.
From the forward looking statements all forward looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included a reference in there.
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.
non-GAAP measures.
Mmm challenging business environment. It is important to note that the progress we have made didn't happen overnight.
It is the result of investing in executing on our long term plan.
Staying focused on our core competencies of advanced materials and print.
Over the last four years.
We've innovated and build a foundation for growth and profitability we have strengthened.
Financial position and focused on driving smart revenue in our core businesses by realizing the value of our offerings. The successful implementation of the strategy allows us to continue investing and monetizing our new growth initiatives.
We continue to invest in previously announced longterm growth initiatives.
And our advanced materials, and chemical group, including littering and coding substrates for E V batteries and energy storage and the controls introduction of our total loss light blocking fabric business, we're starting to see revenue for the businesses. In addition, we continue to see <unk>.
Growing demand in our film business.
We have invested in a significant infrastructure upgrade including full implementation of Salesforce and R. S. Sappy ERP system that has made us serially better in terms of efficiency and reporting we must be as efficient as possible eliminate always and increase our productivity.
<unk> to meet customers needs and stay profitable in challenging environments.
We continue to invest in our corporate business, especially digital print.
We have launched too groundbreaking inkjet presses the.
Prosper ultra 520th, perhaps which rivals asset or quality and productivity and the prosper 7000 Turbo press, which is the world's fastest inkjet press. In addition, we have lost our protocol inkjet inks, which are the gold standard for color for many decades, you will hear more next quarter about the rollout strategy.
Of these products.
Which is designed to maximize productivity and value for our customer. Most importantly, we continue to execute.
On our go to market strategy stay focused on our customers and developing solutions that address their challenges and create new opportunities. We put our customers first because we will only when they win.
Turning the slide six performance highlights for the first quarter include revenues were $278 million.
A decline of $12 million or 4%.
Compared to the prior year.
Justin for unfavourable impact of foreign exchange.
Of 10 million revenues decreased by $2 million or roughly flat.
Revenue was slightly impacted.
Also by our decision to suspend manufacturing and sales.
A R E. P. S line due to increased cost of supply chain issues.
This decision does that in any way affect our ability our commitment to continue the service all existing EPS presses in the field. There was a tradeoff here, we increase our gross profit by $17 million or 52% as we increase efficiency in our supply chain in our operations.
Continuing to focus on smart revenue over what does that mean, we focus on things that fall within our core competencies and things that we can execute better than others.
And we know that we could do a good job for our customers and help them achieve greater profitability.
Our gross profit percentage.
It was 18% a quarter, one 2023 compared to 11% in the prior year quarter, which is partially attributable to the investment we've made in infrastructure and streamlining our operations.
I'm proud to say as a result.
Of our execution and a lot of hard work by the team product is generated $8 million of cash in the first quarter 2023, compared to a decrease of $53 million in the first quarter of 2022.
These improvements are encouraging, but we understand that we are not out of the woods. We have a lot of work still to do in these very difficult times we.
We intend to continue to execute our strategic plan with a goal of driving smart revenue.
In the near term sustainable profitable growth in the future.
I will now turn it over to Dave to discuss the first quarter 2023 financial results.
Thanks, Chairman good afternoon. This afternoon. The company filed this Form 10-Q for the quarter ending March 31, 2023 with the SEC.
Always recommend you read this filing in its entirety.
Before I get into the details for the quarter I would like to comment on a financing transaction that occurred in the first quarter of 2023 as.
As previously discussed our last call on March 14th.
23, the company entered into an amendment to it's amended ABL credit agreement in its letter of credit facility agreement to among other things extend the maturity from February 26th 2024 June 12th 2024.
At a requirement to maintain daily minimum liquidity of $50 million. In addition to maintain the existing quarterly minimum liquidity of $80 million.
And provide that upon the original maturity date of the amended ABL credit agreement on February 26th 2024.
Decrease the aggregate amount of commitments from $90 million $81 million.
This extension provides us with more flexibility and additional time to implement a longer term solution to our capital structure given the macroeconomic conditions.
Additionally, as disclosed in our Form 10-Q Kodak changed its organizational structure during the first quarter of 2023 to combine the traditional printing segment in the digital printing segment into one segment aimed the print segment.
Changes are made the codex other segments.
As a result of this change Kodak now has three reportable segments print advanced materials of chemicals and brand.
The Prince segment is comprised of five lines of business pre press solutions business to prosper business. The software business electric photographic training solutions business in the verse American business.
The advanced materials of chemicals segment is comprised of three lines of business industrial filming chemicals motion picture and advanced materials and functional parenting.
The brand segment contains the brand licensing business.
All other is comprised of the operations of Eastern business Park.
I will now share details on the full company results operational EBITDA and cash flow results for the first quarter.
Turning the slides seven as we reported in our earnings release for the first quarter of 2023, we reported revenues of $278 million compared to $290 million in the prior year quarter for decline of $12 million or 4%.
On a constant currency basis revenue declined by $2 million or 1% compared to the prior year quarter basically flat in revenue year over year.
As Jim mentioned pricing cost reductions in customer focused initiatives continue to be a priority for the company. We continue to recognize a significant improvements and profitability as a result of the combination of these initiatives.
We continue to recognize improvements in gross profit with an increase of $17 million or 52% when compared to the prior year quarter.
Excluding the unfavourable impact of foreign exchange gross profit improved $19 million or 58% when compared to the prior year quarter.
Our gross profit percentage was 18% in Q1 2023 compared to 11% in the prior year quarter.
This improvement as a result of the many actions our team is taken to mitigate the effects of the global economy to make our operations more efficient.
As well as implementing pricing actions.
On a U S. GAAP basis, we reported net income of $33 million for the first quarter compared to a net loss of $3 million in the prior year quarter, an increase of $36 million contributing to this increase is $10 million of income from insurance reimbursement of legal expenses incurred in prior periods.
The 2023, and 2022 first quarter results includes expensive $1 million and $3 million, respectively related to changes in the fair value of embedded derivative liabilities and expensive $1 million in income of $4 million, respectively related to non-cash changes in workers compensation and play.
Benefit reserves.
The first quarter of 2023 also includes income of $9 million related to a refund from a non U S governmental authority.
Excluding these current and prior items income for 2023 was $26 million compared to loss of $4 million in the prior year quarter, reflecting an increase of $30 million.
Operational EBITDA for the quarter with a positive $9 million compared to a negative $7 million in the prior year quarter.
An increase of $16 million or 229%.
Excluding the impact of non-cash changes in workers compensation and played benefit reserves in both the current and prior year and the unfavourable impact of foreign exchange in the current year operational EBITDA increased $22 million or 200 per cent from the prior year quarter.
Operational EBITDA for the first quarter of 2023 was favorably impacted by improve profitability related to pricing actions and improved operational efficiency.
Actually offset a higher continued ongoing global cost increases.
During the first quarter science for synar process replace declined by 14% or 12% when including volume pursuant to a licensing agreement under which Kodak receives royalties.
And the annuity revenue for prosper declined by 6%.
Constant currency basis, prosper annuity revenue declined by 1%.
As Jim mentioned, we are focused on key innovations in our print business to deliver new products that our customers need to drive their businesses forward.
Moving on to the company cash performance presented on slide eight the company ended the first quarter with $225 million in cash and cash equivalents, an increase of $8 million in the first quarter of 2023.
Compared to the decrease of $53 million in the first quarter of 2022.
This is the second consecutive quarter that the company has increased its cash balance.
Cash provided by operating activities was $14 million driven primarily by cash flow from net earnings of $11 million in cash flow from balance sheet changes, a $3 million, including a change in working capital of $2 million.
A decrease in miscellaneous receivables of $7 million and a decrease in other liabilities of $13 million.
Within working capital accounts payable increased by $3 million inventory increased by $13 million.
Counts receivable decreased by $12 million compared to December 31st 2022.
Yeah. She used in investing activities was $5 million in the first quarter flat when compared to the prior year period.
Yeah. She used in financing activities was $1 million for the quarter also flat when compared to the prior year period.
Restricted cash at the end of the quarter was $69 million flat when compared to December 31 2022.
Restricted cash primarily represents cash collateral required under the new letter of credit facility and certain aluminum supply contracts. In addition to escrow is to secure various ongoing obligations.
As presented on the bottom portion of the slide excluding the current your impact of a refund from a non U S. Governmental authority the company delivered a $52 million improvement in cash flow in the first quarter of 2023 compared to the prior year.
Finally, we remain compliance with all applicable financial covenants I will now turn the discussion back to gym.
In summary, delivering strong performance in the first quarter generating cash increase.
Increasing profitability, while continuing to invest in our future.
Fight the challenges are extremely difficult business environment with a lot of uncertainty.
Outperformance reflected the success of the actions we have taken over the last four years.
Which are creating a strong foundation that allow us to continue to innovate invest and grow.
We will continue to invest.
And our businesses and our AMC growth initiatives.
We will continue to put our customers first delivering the solutions, we need to thrive endlessly evolving market.
Driving the efficiency improvements they expect.
Our goal is to build on our positive momentum we have created partner with our customers deliver innovation and execute on our plan.
Thank you for attending the call and your continued interest and he's been Kodak.
Grapevine.
This concludes today's conference call. Thank you for participating you may now disconnect.
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