Eastman Kodak Company (KODK) on Q2 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by and welcome to the Eastman Kodak Q2 2021 earnings conference call. At this time, all participants are on a listen-on mode. We will not be having Q&A on today's conference call. I will now return the conference over to your host, Mr. Paul Dils. Please go ahead.
Paul Dils: 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 Second Quarter 2021 earnings call. At 4:15 PM this afternoon, Kodak filed its Form 10-Q and issued its release on financial results for the Second Quarter, 2021. You may access the presentation in the webcast for today's call on our Investor Center at investor.kodak.com And in 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, the 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 our 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 anticipated events. In addition, the release was 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.com. Speakers on today's call are Jim Continenza Kodak's Executive Chairman, and David Bullwinkle, Chief Financial Officer of Kodak. We will not be holding the 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.
Jim Continenza: Welcome, everyone. And thank you for joining the Second Quarter Investor call for Kodak. Turning to Slide 4. I am pleased with our strong Second Quarter performance, reflecting the execution of our long-term plan that we put in place 2.5 years ago. We are focused on our strengths and core competencies as an industrial manufacturer established a customer-first model, de-levered our balance sheet, and raise additional capital. We are winning in the key marketplaces with our innovative products, solutions, and sales and service execution. The result is improved performance in our businesses and a solid foundation. We continue to execute our long-term plan, despite the challenges and uncertainties related to supply chain, commodity, and labor costs created by the pandemic. We plan to continue to focus on our strengths as an industrial manufacturer to drive long-term value and sustainability. Our changing culture to a customer-first model and our simplified organizational structure provide a "One - Kodak " customer-first experience. Improvements we have made include automation of our front-end CRM customer-facing applications, alignment, and consolidation of our service organization, improved cost structure, and balance sheet, focus on core competencies, raised additional capital to be used for investing in the future innovation and growth. We are recognizing strong growth in our businesses, including SONORA Process-Free Plates, and PROSPER annuities this quarter, and overall volume increase in our other businesses. Our strategy continues to focus on our core competencies and leveraging our deep knowledge base to continue product innovation to meet our customers' needs and provide environmentally sustainable solutions. I will now turn it over to Dave to discuss the Second Quarter 2021 financial results.
David Bullwinkle: Thanks, Jim. And good afternoon. Today, the Company filed its Form 10-Q for the quarter ended 30 June 2021, with the Securities and Exchange Commission. As always, I recommend you read this filing in its entirety. Before I get into the details for the quarter, I would like to reiterate that the Company is executing on the plan we put in place 2.5 years ago to create a growing, sustainable Company that provides employment for future generations. We've made improvements in our core businesses by focusing on the areas of Print, Advanced Materials, and Chemicals. We've created a strong balance sheet with the capacity for investment in growth. We continue to explore areas for growth where we can leverage our expertise in Print, Advanced Materials, and Chemicals. We are pleased with the progress we have made and plan to continue to execute our long-term plan. I will now share further details on the Company results, operational EBITDA, and cash flow for the Second Quarter and first half of 2021. And I progress to the slides we've prepared, is worth noting that the Company has shown significant improvement in each metric year-over-year for the quarter and the first half of 2021. On Slide 5 for the Second Quarter of 2021, we reported revenues of 291 million compared to $213 million in the prior-year quarter for an improvement of $78 million. Adjusting for the favorable impact of foreign exchange of $10 million in the current year quarter, revenue increased by $68 million compared to the prior-year quarter. On a U.S. GAAP basis, we reported a net income of $16 million for the second quarter compared to a net loss of $5 million in the prior-year quarter. The 2021 and 2020 second-quarter results include income of $1 million and expense of $4 million respectively, related to changes in the fair value of embedded derivative liabilities. The second quarter of 2021 results also include income of $6 million related to legal settlements and income of $3 million related to non-cash changes in workers' compensation reserves. Excluding these current and prior quarter items, income for 2021 was $6,000,000 compared to a loss of $1,000,000 in the prior-year quarter, reflecting an improvement of $7 million. Operational EBITDA for the quarter was a positive $10 million compared to a negative $7 million in the prior-year quarter. Operational EBITDA for the Second Quarter was favorably impacted by foreign exchange and a decrease in Workers Compensation reserves. When excluding these items operational EBITDA improved by $13 million. Operational EBITDA for 2021 was favorably impacted by growth in key product areas and improved manufacturing costs from favorable cost absorption due to increases in sales volume, partially offset by savings from temporary furloughs and pay cuts in the prior-year period that largely ended in January 2021. During the second quarter, volumes for SONORA Process-Free Plates improved by 84%, and the annuity revenue for PROSPER improved by 50%, which was attributable to the market turnaround as the COVID pandemic impacts lessen. We continued to invest in future growth areas of ULTRASTREAM and Advanced Materials. Turning to Slide 6 for the first half of 2021, we reported revenues of $556 million compared to $480 million in the prior-year period for an improvement of $76 million. Adjusting for the favorable impact of foreign exchange of $19 million in the current year. Revenue increased by $57 million compared to the prior -year. We reported a net income of $22 million for the first half compared to a net loss of $116 million in the prior -year. The 2021 first-half results include income of $7 million related to legal settlements and income of $3 million related to non-cash charges in Workers Compensation reserves. The 2020 first-half results include income of $49 million related to changes in the fair value of embedded derivative liabilities. The first half of 2020 also includes the impact of a trade name impairment for $3 million; an increase in accounts receivable reserves of $3 million; a $167 million non-cash expense as a result of the increase in deferred tax valuation allowances outside the U.S.; and income of $9 million related to the net gain on the sale of assets. Excluding these current and prior-year items, income for 2021 was $12 million compared to a loss of $1 million in the prior-year period, reflecting an improvement of $13 million from the prior-year period. Operational EBITDA for the period was a + $13 million compared to a - $15 million in the prior-year period. Excluding the favorable impact of foreign exchange and a decrease in workers compensation reserves in the current year, and an increase in accounts receivable reserves in the prior -year, Operational EBITDA improved by $21 million. Operational EBITDA for 2021 was favorably impacted by growth in key product areas and improved manufacturing costs from favorable cost absorption due to increases in sales volume partially offset by savings from temporary furloughs and pay cuts in the prior-year period that largely ended in January 2021. On a year-to-date basis, volumes for SONORA Process-Free Plates improved by 38%, and the annuity revenue for PROSPER improved by 28% which was attributed to the market turnaround related to the COVID-19 pandemic. We continued to invest in future growth areas of ULTRASTREAM and advanced materials. Moving on to the Company cash performance presented on slide 7. The Company ended the Second Quarter with $395 million in cash and cash equivalents. An increase of $199 million from 31 December 2020 during the Second Quarter, we used $6 million in cash and improvement of more than $20 million compared to the prior-year quarter, driven by increases in revenue and profit. as I have just described. For the 6 months ending 30 June 2021, cash used in operating activities was $21 million driven primarily by cash use from net earnings of $3 million, and a cash use from balance sheet changes of $18 million, including a change in working capital of $2 million and a decrease in other liabilities of $20 million. Accounts payable increased by $27 million, inventory increased by $30 million, and accounts receivable decreased by $1,000,000. These changes in working capital are expected with the increase in sales and manufacturing volumes the Company has experienced in 2021. Included in the decrease in other liabilities are restructuring payments, pension contributions for plans outside the U.S., and changes in various accruals and liabilities. Cash used in investing activities was $5 million in the first half, flat when compared to the prior year. Cash provided by financing activities was $241 million in the first half of 2021 compared to cash used in financing activities of $6 million in the prior-year period. Cash provided by financing activities included $247 million of incremental cash in the first half of 2021 after fees and expenses, driven by the financial transactions announced on 03/01. Restricted cash at the end of the quarter was $74 million, an increase of $14 million from December 31, 2020. This increase was primarily a result of cash collateral required under the new letter of credit facility. We will continue to focus on alternatives to reduce restrictions on cash. And we view this as an upside opportunity for incremental liquidity for the Company. Finally, we remain in compliance with all applicable financial covenants. And I will now turn the discussion back to Jim.
Jim Continenza: Thank you, Dave. In summary, our strong Second Quarter performance reflects the impact of improvements we've made and our continued focus on our core competencies as part of our long-term plan. Over the last 2.5 years, we have concentrated on our strengths as an industrial manufacturer to establish a customer-first model, One Kodak, de-levered our balance sheet is raise additional capital. The result is improved performance in our businesses and a solid foundation for the future. Thank you for attending the call and your continued interest in Kodak. Have a great evening.
Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. Have a great day. You may all disconnect.
End of Q&A :
