Eastman Kodak Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $247M (down 1% YoY), gross margin held at 19%, and operational EBITDA was $2M; GAAP net loss was $7M as higher aluminum and manufacturing costs pressured profitability.
• AM&C continued to be the bright spot: segment revenue reached $74M (+$15M YoY) and operational EBITDA rose to $7M (+$6M YoY), while Print weakened to $165M revenue and -$9M operational EBITDA.
• Management emphasized U.S.-based manufacturing and progress on the cGMP pharma facility (expected online later in 2025), and moved the PROSPER ULTRA 520 press from controlled introduction to controlled production, a positive operational milestone.
• Liquidity tightened: cash declined to $158M (from $201M at year-end) and operating cash flow was -$38M, driven by investments in AM&C growth initiatives and higher commodity/manufacturing costs.
• No formal quantitative guidance was provided; catalysts to watch include KRIP pension plan termination (reversion proceeds expected 7–11 months after settlement and prioritized for debt reduction) and tariff developments impacting the plates business and input costs.

What Went Well and What Went Wrong

What Went Well

• AM&C momentum: Q1 segment revenue $74M (+$15M YoY) and operational EBITDA $7M (+$6M YoY), reflecting demand and investments in coating/chemicals capabilities.
• Strategic manufacturing: “We also manufacture all our film products and the world's fastest inkjet presses in the United States…we are the last remaining U.S. manufacturer of lithographic printing plates”.
• Product execution: “We are moving from controlled introduction to controlled production of our PROSPER ULTRA 520 press,” with installations underway—supporting future print revenue mix improvement.

What Went Wrong

• Cost headwinds: “Operational EBITDA…decreased…primarily driven by higher aluminum and manufacturing costs,” with similar impacts to gross profit.
• Print weakness: Q1 Print revenue fell to $165M (Q4 2024: $187M; Q3 2024: $182M) and operational EBITDA deteriorated to -$9M (Q4 2024: $1M; Q3 2024: -$9M).
• Cash burn: Quarter-end cash dropped to $158M and operating cash flow was -$38M; working capital built as inventory increased $15M and receivables rose $8M.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Eastman Kodak quarter one 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 would now like to hand the conference over to your first speaker today, Anthony Redding. Anthony, you may now begin.

Anthony Redding (Chief Compliance Officer)

Thank you, and good afternoon, everyone. I am Anthony Redding, Eastman Kodak Company's Chief Compliance Officer. Welcome to Kodak's first quarter 2025 earnings call. At 4:15 P.M. this afternoon, Kodak filed its Form 10Q and issued its release on financial results for the first quarter of 2025. You may access the presentation and webcast for today's call on our investor center at investor.kodak.com. During today's call, we will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements are based upon Kodak's expectations and various assumptions. Future events or results may differ from those anticipated or those 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 risk, 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 the forward-looking statements. All forward-looking statements attributable to Kodak or persons acting on its behalf only apply as of the date of this presentation and are 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 release just issued and the presentation provided contain certain measures that are deemed non-GAAP measures.

Reconciliations to the most directly comparable GAAP measures have been provided with the release within the presentation on our website and our investor center at investor.kodak.com. Speakers on today's call are Jim Continenza, Kodak's Executive Chairman and Chief Executive Officer, and David Bullwinkle, Kodak's Chief Financial Officer and Senior Vice President. We will not be holding a 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. Thank you, and have a great day.

Jim Continenza (Executive Chairman and CEO)

Welcome, everyone, and thank you for joining the first quarter 2025 investor call for Eastman Kodak. We continue to execute our long-term plan despite global economic uncertainty. Kodak also stays committed to being a primarily U.S. based manufacturer. We have expanded our U.S. operations in pharma. We've expanded in battery. We continue to invest in innovation across the board. We focus heavily on operational efficiencies, trying to drive our costs down. We have shut unprofitable businesses, allowing us to focus on growth businesses. We will continue to focus on our gross profit. I'm sure this is on a lot of people's minds: the tariffs. We will continue to work through them. They're changing in a changing environment. We need to take the short-term pain to get the long-term gain. We've got a staff of people that are well-versed on the tariffs.

We will comply with all of them and continue to work to better serve our customers as the administration finalizes the tariffs globally. Our core business continues to perform as expected. Highlights from the first quarter include revenue of $247 million compared with $249 million for the first quarter 2024, roughly flat year-over-year. The rate of decline has slowed, which is in line with expectations. Gross profit percentage of 19% compared with 20% for first quarter 2024 was roughly flat year-over year. Here are some highlights. Our advanced materials and chemical group, AM&C, is key to Kodak's future. Ongoing investments in AM&C growth initiatives include our new CGMP pharma manufacturing facility to be online later this year, expanding our current pharma business into manufacturing FDA-regulated diagnostic test reagents. I'm pleased to say demand for various types of film, still motion picture, NDT, and others continues to grow.

We've invested in expanding our capacity in the film facility. Moving on to highlights from our commercial print business. We are moving from controlled introduction to controlled production of our Prosper Ultra 520 press. We've completed install sales of several Prosper Ultra 520 presses, which are currently being installed in customer sites. We have also seen continuous demand for our U.S.-made lithographic printing plates. We have been committed to manufacturing in the U.S. for over 100 years. A primary example is our investment in the new pharma facility in Eastman Business Park in Rochester, New York. We also manufacture all of our film products and the world's fastest inkjet presses in the United States. We are the last remaining U.S. manufacturer of lithographic printing plates. As a reminder, our AM&C growth initiatives continue to be U.S.-based.

Our commitment to manufacturing in-country reduces our environmental impact, gives our customers the highest quality, and a more reliable supply. I'd like to give an update also on the U.S. pension plan. The current termination and settlement process is proceeding as planned. We expect a significant portion of any reverted asset to be used to reduce long-term debt and therefore the annual cost of servicing that debt. You can find additional information in our Form 10Q filing. I will now turn it over to David Bullwinkle to discuss the financial results.

David Bullwinkle (CFO and SVP)

Thanks, Jim, and good afternoon. This afternoon, the company filed its Form 10Q for the quarter ending March 31, 2025, with the SEC. As I always do, I recommend you read this filing in its entirety. Before I get into the details for the quarter, I would like to provide a brief status update on the termination process for the U.S. Kodak Retirement Income Plan, or CRIP, and on an amendment to our term loan credit agreement. On January 21, 2025, Kodak's board of directors approved the termination of CRIP, effective March 31, 2025. The CRIP termination and settlement process is proceeding as planned, with selection mailings being sent to participants in the early summer and the purchase of annuities planned for the fourth quarter of 2025.

We estimate it will take 7-11 more months to receive any pension reversion proceeds from the settlement of CRIP after required debt prepayments. Please be reminded, as previously disclosed, this timeframe is subject to factors beyond Kodak's control, including, but not limited to, the regulatory review and approval of various aspects of the terms of CRIP, CRIP's activities, and the termination and liquidation process. Additionally, the company entered into the Second Amendment to the amended and restated credit agreement for the term loan that provides the company the option to make the next six quarterly interest payments following the amendment in the form of payments in kind or PIK. In addition, term debt prepayment requirements associated with certain transactions have been revised within the amendment. For further details on both of these topics, please refer to the Form 10Q filed with the SEC today.

I will now share details on the full company results, operational EBITDA, and cash flow for the first quarter of 2025. In the face of an extremely difficult global environment with economic uncertainties around global trade and inflation, Kodak continued to build on its strong foundation during the first quarter of 2025, delivering results reflecting the continued focus on executing against our priorities and long-term plan, including driving smart revenue, implementing pricing rationalization and cost reductions, launching new products, and investing in innovation in information technology systems to increase our operational efficiency. On slide 7, we reported revenues of $247 million for the first quarter of 2025 compared to $249 million in the prior year quarter, for a decline of $2 million or 1%. The decline in revenue has slowed, which reflects our ongoing focus on driving smart revenue and strong profitability.

On a constant currency basis, revenue increased by $1 million or essentially flat when compared to the prior year quarter. Gross profit decreased by $3 million or 6% when compared to the prior year quarter. Excluding the unfavorable impact of foreign exchange, gross profit declined by $2 million or 4% when compared to the prior year quarter. Our gross profit percentage was 19% in the first quarter of 2025 compared to 20% in the prior year quarter. On a U.S. GAAP basis, we reported a net loss of $7 million for the first quarter of 2025 compared to net income of $32 million in the prior year quarter, a decrease of $39 million. The 2025 and 2024 first quarter results include expense of $1 million and income of $1 million, respectively, related to non-cash changes in workers' compensation and employee benefit reserves.

The first quarter of 2024 results also include income of $17 million related to a net gain on the sale of assets. Excluding these current and prior year quarter items, net loss for 2025 was $6 million compared to net income of $14 million in the prior year quarter, reflecting a decline of $20 million. Operational EBITDA for the quarter was $2 million compared to $4 million in the prior year quarter, for a decline of $2 million. Excluding the impact of non-cash changes in workers' compensation and employee benefit reserves in both the current and prior year quarters and the impact of foreign exchange in the current year quarter, operational EBITDA improved by $1 million when compared to the prior year quarter.

Both gross profit and operational EBITDA for the first quarter of 2025 was unfavorably impacted by higher aluminum and manufacturing costs, partially offset by price increases and volume improvements. Moving on to the company's cash performance presented on slide 8, the company ended the first quarter with a cash balance of $158 million, a decrease of $43 million from December 31, 2024. Our use of cash was primarily driven by our continuing investments in AM&C growth initiatives and increased commodity and manufacturing costs. Foreign exchange had a favorable impact on cash of $2 million in the current year quarter.

Cash used in operating activities was $38 million for the current year quarter, driven primarily by the use of cash from net earnings of $14 million and the use of cash from balance sheet changes of $24 million, including a change in working capital of $17 million, a decrease in miscellaneous receivables of $3 million, and a decrease in other liabilities of $20 million. Within working capital, accounts payable increased by $6 million, inventory increased by $15 million, and accounts receivable increased by $8 million. The change in working capital for the prior year period included the receipt of $40 million of cash proceeds from brand licensing. The team continues to focus on improving profitability and performance in working capital, which enhances the company's ability to generate cash.

Cash used in investing activities was $7 million for the current year quarter, primarily comprised of capital expenditures and reflects a $14 million decrease when compared to the prior year quarter. The prior year quarter included proceeds from the sale of assets of $17 million. Cash used in financing activities for the first quarter of 2025 improved by $16 million when compared to the prior year quarter. Prior year quarter included the $17 million prepayment of the amended and restated term loan agreement made from the proceeds received from the sale of assets within investing activities. Restricted cash decreased by $2 million when compared to the balance as of December 31, 2024, primarily driven by strategic efforts to reduce cash collateral and escrow requirements for certain company obligations and business arrangements.

As a reminder, restricted cash primarily represents cash collateral supporting the company's undiscounted actuarial workers' compensation obligations with the New York State Workers' Compensation Board and cash collateral required under the letter of credit facility, in addition to escrows to secure various ongoing obligations. We continue to focus on opportunities to reduce restrictions on cash. As presented on the bottom portion of the slide, excluding the change in restricted cash and the effects of foreign exchange, the company recognized a $55 million decrease in cash and cash equivalents in the first quarter of 2025 compared to the prior year period. We will continue to focus on maintaining the strength of the foundation we have worked hard to create, which provides us the opportunity to fund our ongoing operations, invest in our growth initiatives, and convert our historical investments into returns for the long term.

Finally, as disclosed in our Form 10Q, we remain in compliance with all applicable financial covenants. I will now turn the discussion back to Jim. Thank you.

Jim Continenza (Executive Chairman and CEO)

Thank you, Dave. In summary, as a long-time manufacturer for over 100 years, Kodak remains committed to maintaining and expanding our manufacturing in the U.S. across all of our businesses. I am pleased to say our AM&C business continues to deliver profitable growth and return on our investments. Accessing the excess pension fund asset will help pay down debt and reduce interest costs, allowing Kodak to continue to invest in profitable growth businesses. I'd like to thank our employees for their hard work, our customers for their loyalty, and our shareholders for their support. Have a good evening.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.