Q2 2023 Eastman Kodak Company Earnings Call
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Good day and thank you for standing by welcome to the Eastman Kodak second quarter 2023 earnings Conference call. 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 at any reading. Please go ahead.
Thank you and good afternoon, everyone.
Be ready Eastman Kodak company's chief compliance officer.
Welcome to Kodak's second quarter 2023 earnings call.
At 415 P. M. This afternoon Kodak filed its Form 10-Q and issued its release on financial results for the second quarter of 2023.
You may access the presentation and webcast for today's call at our Investor Center at Investor Doc Kodak Dot com.
During today's call, we'll be making certain forward looking statements.
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 risk.
Uncertainties and other factors described in more detail in Kodak's spouses 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 apply only as of the day.
Eight of this presentation and are expressly qualified in their entirety by the <unk>.
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 may want to reflect the occurrence.
Unanticipated ebay.
In addition, Dr.
Release Jets issued and the presentation provided contains certain measures that are deemed non-GAAP measures.
Let's see and driving smart revenue and today, we're starting to see the benefits of these long term investments, we're seeing them through increased gross profit cash performance, despite ongoing external challenges, which affect the markets worldwide. It's important to note that the progress we have made reflects our commitment to our ongoing execution of our.
Long term plan thing focused on our core business of print advanced materials and chemicals, continuing to invest in products and infrastructure that allows us to better serve our customers and constantly streamline our business operations.
Some highlights from the second quarter.
That's part of the control the introduction of a new inkjet presses.
We are completing the placement of two new machines, a prosper ultra 520 for us which offers offset quality unmatched production speeds.
And the process of 7000 herbal.
Which is the world's fastest inkjet press ultra.
<unk> presses are scheduled to be in production in the third quarter of this year.
Reflecting on our commitment to digital print during the second quarter, we expanded to strengthen our position with the acquisition of graphic systems services known as G. S. S.
We've had a longterm relationship with GSS over the years.
And the product portfolio, including making transport and other components.
<unk> is critical to call back as a supplier for supporting prosper for well over 20 years.
Their expertise and resource will enable us to design build or complete integrated solutions for customers on the stream and also stream platforms.
We continue to invest in previously announced longterm growth initiatives and advanced materials and chemicals.
Including code of luck light blocking technology and coding substrates for EV batteries.
We are starting to see revenue contributions from these businesses.
In addition, we continuously growing demand.
And are still in motion picture film business.
Great example of the ongoing relevance of film as an artistic medium is Christopher Nolan Oppenheimer.
Which was shot on Kodak large format film.
Including both color film and a 65 millimeter black and White film created by Kodak specifically for the production.
In addition.
<unk> is being screen in the IMAX format, using large format film prints, which produced in eye-popping viewing experience for the audience, who see this masterpiece phone.
We'd like to thank Christopher Nolan.
An IMAX for their continued support of them.
We recently renewed our supply agreement for film.
With our long term customer Kodak hilarious.
In a deal that will run through 2028.
We are committed to manufacturing film as long as there is demand from the filmmakers and photographers worldwide.
We're also pleased to announce the vision care industry leader.
Escolar Sadhika has chosen to add the Kodak brand tours extraordinarily broad portfolio of.
License brands.
This perpetual license agreement.
Escolar Sadhika the exclusive right to use products registered trademarks for products and services and a full range of product categories.
We recently concluded the transactions to strengthen our financial position by refinancing codecs that.
We took this action proactively to extend our maturity of our debt and to eliminate our asset base revolving credit facility ABL or will be covered on this later by day bowling Kolar CFO .
The requirements under the new financing are consistent with how we run our business.
During the style will provide increased financial and operational flexibility as we continue to execute our long term strategic plan.
Performance highlights for the second quarter.
Revenues were $295 million, a decline of $26 million or 8% compared to the prior year.
The decline in revenue reflects a conscious decision that we're making to prioritize increased productivity investing in innovation and driving smart revenue globally. This strategy enabled us to increase gross profit.
$12 million or 24% compared to the prior year.
Our gross profit percentage was 21%.
In the second quarter of 2023 compared to 16%. The prior year allows his contributions have come through advancements in efficiencies and investments and advanced materials and chemicals.
Our cats performance also improved year over year for the first half an increase of $6 million in the six months ending June 30th 2023.
Compared with a decrease of $73 million in the prior year period.
An improvement of $79 million.
These improvements are encouraging and provide a clear indication that we are on the right track.
In terms of executing our long term strategy. However, we recognize that we still have a lot of work to do in terms of continuing to generate free cash flow.
Pay down our debt.
And delivering the leading edge solutions to our customers.
We always keep in mind right, we prioritize the customer.
Poor customer first company.
We only when when they when we needed to continue.
To invest profitably and innovation efficiencies in technology to help them grow and drive their business.
I will now turn it over to Dave to discuss R. Q2, 2023 financial results.
Thanks, Jim and good afternoon today the company filed this Form 10-Q for the quarter ended June 32023, with the Securities and Exchange Commission is always I recommend you read this filing in its entirety.
Before I get into the details for the quarter I'd like to comment on a financing transaction that the company announced enclosed in July .
As previously discussed the company's ABL in cash Collateralised letter of credit facility. The set to mature in June 12th 2024 the.
The company is utilized the capacity under these facilities primarily to issue letters of credit to support its legacy self insured workers compensation liability with various jurisdictions.
Ah June 30, 2023, the company entered into an amendment to the existing term loan credit agreement among the company in certain funds affiliated with Kennedy Louis investment management LLC.
To provide the company with a commitment to provide refinancing term loans and an aggregate principal amount of $450 million.
On July 21st 2023.
Ended and restated term loan credit agreements became effective in the company completed its borrowing.
The company received net proceeds from the refinancing term loans of approximately $435 million of which $318 million represents the aggregate principal amount of the term loans plus accrued paid in kind or unpaid cash interest was paid by the company to re.
Finance the existing term loan credit agreements.
Approximately $28 million of the net proceeds from refinancing term loans are used to repay install the company's outstanding convertible notes, representing the aggregate principal amount of the convertible notes plus accrued paid in kind interest.
As a result, the company's obligations under the convertible notes were cancelled.
The company also amended and restated the existing term loan credit agreement too among other things extend the maturity date to the earlier of August 15th 2028 or.
For the date that is 91 days prior to the maturity date are mandatory redemption date of any of the companies that outstanding series be preferred stock or series see preferred stock or any extensions or refinancings.
The refinancing term loans bear interest at a rate of 7.5 per cent per annum payable in cash and five per cent per annum payable in-kind are in cash at the company's option for an aggregate interest rate is 12.5 per cent per annum.
Companies previous interest rate under the term loans was 8.5% per annum in cash and 4% per annum in-kind for the same aggregate interest rate of 12.5% per annum.
The amended and restated term loan credit agreement does not include the financial maintenance Covenant.
Also on June 30th 2023, the company entered into an amendment to the existing letter of credit facility agreement with Bank of America, which became effective on July 21st 2023.
Under the terms and conditions of the June 2023 L. C facility Amendment.
The LC lender committed to issue additional letters of credit on the company's behalf and an accurate amount of up to $50 million to an aggregate principal amount of commitments of up to $100 million until August 30th 2023.
Upon which the aggregate Elsie facility commitments will reduce to $50 million.
With the funding from the net proceeds from the refinancing term loans the balance on deposit in the LC cash collateral account was increased by an additional $59 million.
The LC facility agreement does not include a minimum liquidity or financial maintenance covenant, but does require the company at all times to post cash collateral and an amount greater than or equal to 104% of the aggregate amount of letters of credit issued and outstanding at any given time.
The company expects to directly cash collateralised, all or a substantial portion of its undiscounted actuarial workers' compensation obligations with the New York State workers compensation board to reduce the aggregate Elsie facility commitments to $50 million prior to August 30th 2023.
Lastly, the company repaid in full the amounts outstanding under its existing ABL credit agreement and the agreement was terminated.
The lender security interest in any of the companies or its subsidiaries assets or property securing the existing ABL credit agreement was released.
We are pleased with the completion of these transactions to proactively.
Solidify our capital structure and replace our ABL facility. These arrangements provide for an extended term for the term loan and Elsie facility contingent on our ability to convert redeem or extend the existing series B N C preferred stock pastor current maturities of May 26th.
2026.
I will now share further details on the full company results operational EBITDA in cash flow for the second quarter and first half of 2023.
On slide seven for the second quarter of 2023 reported revenues of $295 million compared to $321 million in the prior year quarter, a decline of $26 million or 8%.
Foreign exchange had no impact on revenue in the current year quarter.
As Jim mentioned pricing cost reductions in customer focused and innovations continue to be a priority for the company and we continue to recognize significant improvements in profitability as a result of the collective impact of these initiatives.
Gross profit increased by $12 million or 24% when compared to the prior year quarter.
Foreign exchange had no impact on gross profit in the current year quarter.
Gross profit percentage was 21% in Q2 2023 compared to 16% in the prior year quarter.
In addition, we've seen an improvement in gross profit margin from the 18% we reported in the first quarter of 2023 <unk>.
This improvement as a result of the many actions our team has taken to mitigate the effects of the global economy and to make our operations more efficient.
On a U S. GAAP basis, we reported net income of $35 million for the second quarter compared to net income of $20 million in the prior year quarter.
2023, and 2022 second quarter results include expense of $1 million in income of $4 million, respectively related to changes in the fair value of embedded derivative liabilities, an income of $1 million and $4 million, respectively related to non-cash changes in workers compensation.
<unk> an employee benefit reserves.
Excluding these current and prior year.
Order items income for 2023, it was $35 million compared to income of $12 million in the prior year quarter, reflecting an improvement of $23 million.
Operational EBITDA for the quarter was $22 million compared to $11 million in the prior year quarter.
Excluding the impact of non-cash changes in workers compensation and employee benefit reserves and the curtain prior year quarters operational EBITDA improved by $14 million when compared to the prior year quarter.
Operational EBITDA for the second quarter of 2023 was favorably impacted by improved profitability related to pricing actions and improved operational efficiency, partially offset by higher continued ongoing global cost increases.
And lower volumes.
During the second quarter volumes for some more process replace declined by 9%, but increased by 3% when including volume pursuant to a license agreement under which Kodak receives royalties.
Annuity revenue for prosper declined by 9%, which was attributable to industry print volumes.
On a constant currency basis annuity revenue for prosper declined by 8%.
Turning the slide eight for the first half of 2023 reported revenues of $573 million compared to $611 million in the prior year period for a decrease of $38 million.
Adjusting for the unfavourable impact foreign exchange of $10 million in the current year revenue decreased by $28 million compared to the prior year.
We reported significantly higher gross profit with an increase of $29 million or 35% when compared to the prior year period.
Excluding the unfavourable impact of foreign exchange gross profit improved $31 million or 37% when compared to the prior year.
Our gross profit percentage was 20% for the first half of 2023 compared to 14% in the prior year.
As we have consistently stated we will prioritize smart revenue rather than trading profitability for revenue growth.
These results reflect or disciplined approach to make our operations more efficient to better serve our customers.
On a U S. GAAP basis, net income was $68 million for the first half of 2023 compared to net income of $17 million in the prior year.
2023 first half results include charges of $2 million related to changes in the fair value of embedded derivatives liabilities and income of $9 million related to a refund from a non U S governmental authority.
The 2022 first half results include income of $1 million related to changes in the fair value of the embedded derivative liabilities.
An income of $8 million related to non-cash changes in workers compensation and employee benefit reserves.
Excluding these current and prior year items income for 2023 was $61 million compared to income of $8 million in the prior year period, reflecting an increase.
A $53 million from the prior year period.
Operational EBITDA for the period was $31 million compared to $4 million in the prior year period.
Excluding the unfavourable impact of foreign exchange in the current year and non-cash changes in workers compensation and employ benefit reserves in the prior year operational EBITDA increased $36 million.
Operational EBITDA for 2023 was favorably impacted by growth in gross profit due to the factors described.
On a year to date basis volumes for snore processed replaced declined by 11% or five.
5%, when including volume pursuant to a license agreement under which Kodak receives royalties and.
And the annuity revenue from prosper declined by 7%, which was attributable to industry print volumes.
On a constant currency basis annuity revenue for prosper declined by 4%.
Moving onto the company's cash performance presented on slide nine.
The company ended the second quarter with $223 million in cash and cash equivalents.
An increase of $6 million from December 31st 2022.
This is compared with a cash use of $73 million in the prior year period, reflecting an improvement of $79 million.
For the six months ending June 32023 cash provided by operating activities was $21 million driven primarily by positive cash flow from net earnings of $18 million in cash provided by balance sheet changes a $3 million <unk>.
Including a use of cash for working capital of $1 million and a decrease in other liabilities of $9 million.
Within working capital accounts payable decreased by $7 million inventory increased by $11 million in accounts receivable decreased by $17 million.
Ash provided by operating activities improved I $124 million from the prior year.
Driven by an 82 million dollar improvement and balance sheet changes, including an improvement in working capital cash flows of $62 million.
We are comfortable with our levels of working capital and have maintained our focus on serving our customers throughout this difficult economic period.
Yeah. She used in investing activities was $11 million in the first half.
An increase of $2 million when compared to the prior year period.
Yeah. She used in financing activities was $2 million in the first half of 2023 compared to cash provided by financing activities are $47 million in the prior year period.
Dash provided by financing activities in the prior year includes $49 million of incremental cash in the first half of 2022 after fees and expenses driven by proceeds received related to the delayed draw term loan.
Restricted cash at the end of the quarter was $69 million unchanged from December 31st 2022.
Restricted cash primarily represents cash collateral required under the existing letter of credit facility and certain aluminum supply contracts. In addition to ask grows to secure various ongoing obligations.
We will continue to focus on alternatives to reduce restrictions on cash.
As presented on the bottom portion of the slide excluding the prior year impact of net proceeds from the delayed draw term loan financing.
Current year receipt of a refund from a non U S governmental authority and the current and prior year effective exchange rates on cash a.
A year over year increase in cash and cash equivalents was $117 million.
Finally, we remain in compliance with all applicable financial covenants and I will turn the discussion back to gym.
Thank you Dave <unk>.
In summary, Kodak delivery continued strong performance in the second quarter increase in gross profit.
And improving our cats performance, despite a challenging business environment globally.
Our performance demonstrates a positive impact of our commitment to our long term strategy.
The incredible efforts of all of our employees and execution of our strategy, we have made numerous fries and.
I was starting to see the benefits of our efforts.
But make no mistake, we still know we have a long way to go.
We will continue to take these actions that strengthen our financial possession and.
And create a strong foundation for investment and growth.
We will continue to invest in <unk>.
<unk> chemicals.
We will continue to streamline our operations.
Is a commitment we make to our customers to be as efficient as we can be as we supply them and support them and their businesses. We will continue to put our customers first.
Delivering solutions, they need while driving efficiency improvement, but they expect.
I want to thank everyone for joining this call and your interest in Eastman Kodak.
This concludes today's conference call. Thank you for participating you may now disconnect.
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