Eastman Kodak Company - Earnings Call - Q4 2021

Transcript

Speaker 0

Thank you for standing by and welcome to Eastman Kodak's Fourth Quarter and Full Year twenty twenty one Earnings Conference Call. At this time, all participants are in a listen only mode. I would now like to hand the call over to Paul Dils.

Speaker 1

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 twenty twenty one earnings call. At 04:15 p. M.

This afternoon, Kodak filed its Form 10 ks and issued its release on financial results for 2021. 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. 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, 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 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 an unanticipated event. In addition, the release just issued and the presentation provided contains certain measures that are deemed non GAAP measures. Reconciliations to the most directly comparable GAAP measures have been provided with the release and within the presentation on our website in our Investor Center at investor. Kodak dot com. Speakers on today's call are Jim Cottoneza, Kodak's Executive Chairman and Chief Executive Officer and David Bohlenkiel, Chief Financial Officer of Kodak.

We will not be holding a formal Q and A during today's call. As always, the Investor Relations team is available for follow-up.

Speaker 2

I will now turn the call over to Jim. Welcome everyone and thank you for joining the fourth quarter investor call for Kodak. Turning to slide five. I am pleased with our strong full year performance, reflecting continued improvement despite rapid inflationary pressures and resource constraints, including rising costs in raw materials, labor, electricity, natural gas, shipping and overall supply chain issues. In addition to the pressure surrounding workforce, we have been taking aggressive action to mitigate the impact of these unprecedented cost increases, including surcharges and variable market pricing.

We will continue to take actions to pass along these ongoing increases to our customers. We continue to operate as one Kodak, focusing on our customer first. We will continue to execute our long term plan as we navigate the impacts created by the pandemic and the war in Ukraine. Performance highlights for the year includes revenue increase of $121,000,000 or 12% compared to prior year to date period. When excluding the impact of foreign exchange, revenues increased $105,000,000 or 10% compared to the prior year.

I'd also like to point out, we reduced our net debt by $294,000,000 compared with March. We remain committed to our continued innovation in digital print. In October, Kodak announced another revolutionary new digital press, the Kodak Ascend Digital Press. This new press earned the prestigious European Digital Press Association 2021 EDP Award in the Industrial Print and Finishing Solutions, best holding carton solution category. Kodak also continued to invest and grow in the workflow software introducing printing on demand access solutions.

Turning to slide six, we continue to grow our print business including Kodak, Sonora Process Free Plates and Kodak Prosper Annuities for the year. And overall volumes increased in other business units. Our long term strategy continues to focus on our core competencies in print, advanced materials and chemicals, provide environmentally sustainable solutions turning the business to focus on innovation, growth and profitability. As disclosed in our 10 ks filing, we are working on new initiatives within the AMC Group to leverage our deep expertise in chemistry and strength in layering and coating on multiple substrates that come from over a century of experience in film manufacturing. These new initiatives are in various stages of commercialization and include EV energy storage battery material manufacturing.

We have started coating substrates for EV and energy storage materials. We've started limited production of approximately 3,000,000 square meters with a maximum capacity of 80,000,000 square meters. We will continue to explore opportunities to apply our extensive coating expertise to produce coated substrates in The U. S. I'm pleased to introduce light blocking technology.

We plan to leverage our existing proprietary technology to commercialize a carbonless fabric coating branded Caudalux. The product is designed to offer superior light management properties and coating compatibility with an unmatched range of fabrics. We are currently completing the installation of a full scale coating machine to coat fabric in Eastman Business Park located in Rochester, New York. Turning to slide seven. We're excited to introduce transparent antennas.

We are leveraging our proprietary copper and microwire technologies and high resolution printing expertise that will allow us to manufacture transparent antennas for the automotive commercial industry and other applications requiring excellent radio frequency and optical performance. I'm excited to introduce reagent manufacturing. As we continue to leverage our trusted brand and expertise in chemicals, we have started the construction of an approximately $20,000,000 facility to manufacture reagents for healthcare applications. As part of the investment, we are currently in the process of building out a clean room manufacturing facility and plan to pursue FDA certification as a CGMP facility. We plan to utilize the new capacity to manufacture limited volumes of testing reagents for the healthcare industry.

I will now turn it over to Dave to discuss the 2021 financial results.

Speaker 3

Thanks, Jim, and good afternoon. Today, the company filed its Form 10 ks for the year ended 12/31/2021 with the Securities and Exchange Commission. As always, I recommend you read this filing in its entirety. I will share details on the full company results, operational EBITDA and cash flow for 2021. On slide eight, as we reported in our earnings release, for 2021, we reported revenues of $1,150,000,000 compared to $1,029,000,000 in the prior year or an improvement of $121,000,000 Adjusting for the favorable impact of foreign exchange of $16,000,000 revenue increased by $105,000,000 compared to the prior year.

On a U. S. GAAP basis, we reported net income for 2021 of $24,000,000 compared to net loss of $541,000,000 in 2020. The 2021 results include income of $7,000,000 related to changes in fair value of embedded derivative liability features, dollars 4,000,000 related to non cash changes in employee benefit reserves, 7,000,000 related to legal settlements and expense of $1,000,000 related to a net loss on the sale of assets. The 2020 results include expense of $382,000,000 related to changes in fair value for the embedded derivative liabilities, dollars 4,000,000 related to non cash changes in employee benefit reserves, dollars 2,000,000 related to the loss and extinguishment of debt, dollars 3,000,000 related to a trade name impairment, 3,000,000 related to an increase in accounts receivable reserves, 10,000,000 related to a net gain on the sale of assets and the $167,000,000 non cash expense as a result of the increase in deferred tax valuation allowances outside The U.

S. Excluding the impact of these current and prior year items, the 2021 adjusted net income was $7,000,000 compared to adjusted net income of $10,000,000 in the prior year. Operational EBITDA for 2021 was $11,000,000 compared to a negative $1,000,000 in 2020. Excluding the unfavorable impact of foreign exchange in the current year and an increase in accounts receivable reserves in the prior year and adjusting for the impact of changes in employee benefit reserves, operational EBITDA increased by $2,000,000 from the prior year. Operational EBITDA for 2021 was favorably impacted by improvement in revenue and manufacturing costs from increases in volume, partially offset by ongoing global cost increases in 2021.

The current year operational EBITDA results did not benefit from $25,000,000 in savings from temporary pay reductions and furloughs that largely ended in January 2021. Since these reductions were reinstated beginning in January 2021, the level of improvement year over year in operational EBITDA is much more significant than what is reported. We are proud of the improvements we have created in 2021. On a full year basis, volumes for Sonora Process Free Plates improved by 31% and the annuity revenue for PROSPER improved by 21%. We also continued to invest in future growth areas of UltraStream and Advanced Materials.

Our balance sheet improved during 2021 as well. Jim indicated that our net debt improved by $294,000,000 since March. That is largely due to the series of financial transactions the company announced in March, which provide access to new capital, address maturing obligations and strengthen the company's ability to invest in strategic growth initiatives in our core businesses. Summarizing those financial transactions, Kodak entered into a term loan for $225,000,000 with a commitment to provide delayed draw term loans of up to an additional $50,000,000 which may be drawn on or before 02/26/2023. We also redeemed $100,000,000 in Series A preferred stock, issued $100,000,000 in Series B preferred stock in exchange for $100,000,000 of Series A preferred stock and issued $100,000,000 in Series C preferred stock.

The company also issued $25,000,000 in unsecured convertible notes and raised $10,000,000 from the sale of common stock to the same debt holder. We also amended and extended our ABL at the same time. These transactions together provided the company with $233,000,000 of incremental cash in the year after fees, expenses and incremental letter of credit facility funding and provided the company with $50,000,000 of incremental liquidity through the delayed draw. Jim mentioned several initiatives which the company is investing in to provide future growth. The balance sheet improvement which occurred during 2021 provides the platform for these investments.

Moving on to the company cash performance presented on slide nine. The company ended 2021 with $362,000,000 in cash and cash equivalents, an increase of $166,000,000 from 12/31/2020. As presented on the bottom portion of the slide, excluding net proceeds from refinancing transactions, funding of the letter of credit facility, proceeds from stock option exercises, project and consulting payments and the impact of foreign exchange as well as adjusting for the $25,000,000 in furloughs and pay reductions mentioned above, the year over year improvement in cash and cash equivalents was approximately $46,000,000 This improvement is significant and occurred despite the increase in costs, which we continue to manage. As an example, aluminum costs increased by approximately $80,000,000 on an annual basis throughout 2021, but were more than offset by the numerous measures that have been implemented to mitigate these costs by our team. In fact, as we move into 2022, Exchange aluminum price continues to trade at a level well above historical prices.

As of 03/09/2022, the LME euro price was approximately 2,700 compared to the price as of 01/01/2020 of approximately $1,600 but has been as high as approximately $3,200 within that period. In addition, other input costs like labor, shipping, chemicals and other raw materials, electricity and natural gas have risen significantly. The war in Ukraine further exacerbates these challenges and also impacts the price and continuity of supply as well as availability. To mitigate these impacts, we will continue to execute on our plan through surcharges, price actions and factory and distribution efficiencies as we strive to maintain continuity of supply for our customers. During 2021, cash used in operating activities was $47,000,000 driven primarily by cash use from net earnings of $32,000,000 and cash used from balance sheet changes of $15,000,000 including a change in working capital of $14,000,000 and a decrease in other liabilities of $29,000,000 Accounts payable increased by $38,000,000 Inventory increased by $19,000,000 and accounts receivable increased by $5,000,000 Cash used in investing activities was $20,000,000 during 2021 as compared to cash usage of $13,000,000 in the prior year.

Cash provided by financing activities was $238,000,000 for 2021 compared to $10,000,000 in the prior year. Cash provided by financing activities included $247,000,000 of incremental cash after fees and expenses driven by the financial transactions announced on March 1, which I referred to earlier. Restricted cash at the end of the year was $61,000,000 an increase of $1,000,000 from 12/31/2020. Restricted cash primarily represents cash collateral required under the new letter of credit facility in addition to escrows to secure various ongoing obligations. The refinancing transactions created the need to increase restricted cash by $14,000,000 in Q1 of twenty twenty one.

Subsequent to that point, our team has reduced restrictions on cash by $15,000,000 during the year, which reflects significant effort and a more efficient balance sheet. We will continue to focus on removing restrictions on cash to create liquidity for the company. Finally, as disclosed in our Form 10 ks, we remain in compliance with all applicable financial covenants. I will now turn the discussion back to Jim.

Speaker 2

Thank you, Dave. In summary, in 2021, we continue to navigate through an unusual challenging business environment and delivered revenue growth in all segments for the first time in years. We also saw increase in customer satisfaction and market share in our key print businesses, achievements which reflect the success of our ongoing strategy. We continue to focus on our core businesses in commercial print, advanced materials and chemicals, invest in product innovations and put our customers first in everything we do. Thank you for attending the call and your continued interest in Eastman Kodak.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.