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Edited Transcript of KODK earnings conference call or presentation 1-Apr-19 9:00pm GMT

Q4 2018 Eastman Kodak Co Earnings Call

ROCHESTER Apr 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Eastman Kodak Co earnings conference call or presentation Monday, April 1, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David E. Bullwinkle

Eastman Kodak Company - CFO & Senior VP

* James V. Continenza

Eastman Kodak Company - CEO & Executive Chairman

* William G. Love

Eastman Kodak Company - Director of IR & Treasurer

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Conference Call Participants

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* Eamon Trebilcock

Ellington Management Group, L.L.C. - Analyst & Investment Professional

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for your patience. You've joined the Eastman Kodak Q4 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, Bill Love.

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William G. Love, Eastman Kodak Company - Director of IR & Treasurer [2]

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Thank you, and good afternoon, everyone. I am Bill Love, Eastman Kodak Company's Treasurer and Director of Investor Relations. Welcome to Kodak's Fourth Quarter 2018 Earnings Call. At 4:15 p.m. this afternoon, Kodak filed its annual report on Form 10-K and issued its release on financial results for 2018. You may access the presentation and webcast for today's call on our Investor Center at investor.kodak.com.

During today's call, we'll 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 results or events 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 apply only 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 may 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 and within the presentation on our website in our Investor Center at investor.kodak.com. Speakers on today's call are Jim Continenza, Kodak's Executive Chairman; and David Bullwinkle, Chief Financial Officer of Kodak.

I will now turn the call over to Jim.

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James V. Continenza, Eastman Kodak Company - CEO & Executive Chairman [3]

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Thank you, Bill. Welcome everyone and thank you for joining the Fourth Quarter 2018 Investor Call for Kodak. Before we begin, I'd like to say moving from Chairman to newly appointed Executive Chairman, I have become an integral part of day-to-day operations as the company continues to execute on critical initiatives. I look forward to working with my team to help Kodak become cash flow positive, build long-term value for shareholders as we continue to deleverage our balance sheet, increase operational efficiencies and maximize potential of our key growth drivers.

Before I turn it over to Dave to discuss the 2018 financial results, I want to update you on the Flexographic Packaging division sales process. The company entered into an agreement to sell FPD on November 11, 2018. Subject to the satisfaction of customary closing conditions, the company expects to close the sale as early as April 8, 2019, and intends to use the proceeds to repay over $300 million of the term loans outstanding under the company's first lien credit agreement. As we previously mentioned, the FPD sale will be an important step in improving our balance sheet.

I will now turn it over to Dave to discuss the 2018 financial results and other important updates. David?

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David E. Bullwinkle, Eastman Kodak Company - CFO & Senior VP [4]

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Thanks, Jim, and good afternoon. Today, the company filed its Form 10-K for the year ended December 31, 2018, with the Securities and Exchange Commission. As always, I recommend you to read this filing in its entirety.

First, I would like to discuss the filing of the company's Form 12b-25, which extended the filing deadline for the company's Form 10-K. The company and its senior management have been engaged in a review process to enable Jim to execute the Chief Executive Officer certifications required to be filed as exhibits to the Form 10-K. In addition, the evaluation disclosure of aspects of the company's obligations under its credit agreements, all in the context of preparing to close the sale of FPD and working to refinance the remaining first lien term loans, resulted in the company being unable to file the Form 10-K within the prescribed time period.

As Jim mentioned, subject to the satisfaction of customary closing conditions, the company expects to close on the sale of FPD as early as April 8, 2019, and intends to use the proceeds to repay over $300 million of the term loans outstanding under the company's first lien term credit agreement. The company has also been engaged in negotiations to refinance the portion of the first lien term loans that will not be paid from proceeds from the sale of FPD.

I will now share further details on the full company results, operational EBITDA and cash flow results for 2018. Please note the results of FPD have been reported as discontinued operations in 2018 and the comparable 2017 period due to the expected sale of the division which will be completed soon.

On Slide 4, as we reported in our earnings release, our financial results were a net loss of $16 million for 2018 compared to net income of $94 million in 2017. The 2018 results include a benefit of $16 million related to the Korean withholding tax refund and $11 million associated with noncash changes in workers' compensation and legal reserves. The 2018 results also include expense of $13 million related to a trade name impairment, driven by the expected sale of FPD.

The 2017 results include a benefit of $101 million associated with the release of a valuation allowance on deferred tax assets outside the U.S. The 2017 results also include $58 million of expense related to goodwill and trade name impairments, $47 million of income related to changes in value for the derivative embedded in the Series A preferred stock, and $12 million of depreciation and amortization expense related to PROSPER asset remeasurement. Excluding these current and prior year items, the loss for 2018 was $30 million compared to income of $16 million in the prior year.

Turning to Slide 5. For 2018, we reported revenues of $1.325 billion compared to $1.386 billion in 2017 for a decline of 4%. On a constant currency basis, revenue declined by 6%. Operational EBITDA for 2018 was $1 million compared to $10 million in 2017. Excluding the unfavorable impacts of foreign exchange and aluminum costs, offset by the favorable impact of a reduction in workers' compensation reserves, operational EBITDA improved to $21 million compared to $10 million in the prior year. Adjusted operational EBITDA for 2018 after the expected declines of consumer inkjet was $16 million compared to a loss of $1 million in 2017. In 2018, we delivered strong performance in our key growth engines. Volumes for SONORA Process Free Plates grew by 19%, and the annuity revenue for PROSPER grew by 8%. We also continued to invest in future growth areas, ULTRASTREAM, light blocking materials and printed electronics.

Moving on to the company cash performance presented on Slide 6. The company ended 2018 with $246 million in cash and cash equivalents, a decrease of $97 million from December 31, 2017. When adjusted for $14 million of proceeds from a nonrecurring transaction expected to be received in December of 2018 but received in 2019 -- January 2019, our ending cash balance was within our expectations. During 2018, cash used in operating activities was $62 million, driven primarily by a change in working capital of $28 million and a decrease in liabilities, excluding trade payables, of $31 million.

Cash used in investing activities was $22 million for 2018 as compared to a use of $24 million in the prior year period. Cash used in financing activities was $11 million for 2018 compared to the use of $29 million in the prior year period. Finally, as disclosed in our Form 10-K, we remain in compliance with our financial covenants under our credit agreements. In particular, the company's EBITDA, used in the secured leverage ratio, as calculated under the first lien term loan credit agreement, exceeded the EBITDA necessary to satisfy the covenant ratio by $20 million.

I will now turn the discussion back to Jim.

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James V. Continenza, Eastman Kodak Company - CEO & Executive Chairman [5]

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Thank you, Dave. In summary, as we work to ensure that Kodak returns to financial health, we will not make forward-looking statements. Instead, we will take action by focusing on our core competencies in printing, imaging, working closely with our customers, deleveraging the company and improving operational efficiencies to achieve our primary goal, generating free cash flow on a consistent basis and sustainable basis. We will now open the call up for questions.

Operator, please remind participants of the instructions to ask the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Eamon Trebilcock of Ellington Management.

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Eamon Trebilcock, Ellington Management Group, L.L.C. - Analyst & Investment Professional [2]

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With regards to refinancing of the remaining term loan, can you put a little more meat on the bone there? I mean, do you guys expect to be able to refinance that stub? And if not, is there -- can you guys use excess cash to repay that stub if the refinancing is not possible?

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David E. Bullwinkle, Eastman Kodak Company - CFO & Senior VP [3]

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Sure. This is Dave. So we can't obviously comment on specific terms, but we are in advanced negotiations with a large and existing term loan lender to provide debt refinancing, the debt outstanding subsequent to the paydown of debt from the packaging sale proceeds. We've previously disclosed that we expect to receive from packaging that it really hasn't changed. So the remaining debt that we expect to have and it is what we call the stub debt or remaining debt after the packaging sale would be somewhere in the neighborhood of $70 million to $90 million. And we expect to complete that within a reasonable time line of the FPD sale closing. And we have high confidence we'll get that done.

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Operator [4]

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(Operator Instructions) And as there appears to be no further questions in queue, I'd like to turn the call back over to Jim Continenza for any closing remarks. Sir?

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James V. Continenza, Eastman Kodak Company - CEO & Executive Chairman [5]

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Thank you, everyone.

As you can tell, we have a lot going on in the business. We are very proud that we've been able to incubate the business and then sell it and move it on. Now we'll get back to our core competencies, as we said, and I look forward to working with everyone in my team in turning the company around. Thank you.

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Operator [6]

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Ladies and gentlemen, this concludes today's conference. Thank you for participation, and have a wonderful day. You may disconnect your lines at this time.