Eastman Kodak Company (KODK) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Shareholders of Eastman Kodak Company. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Jim Continenza, Executive Chairman of Eastman Kodak Company. Mr. Continenza, the floor is yours.

Thank you so much. I apologize for the delayed start. Little technical difficulties from our very first virtual meeting, but I think we're up and running now and everything is fine. So first off, I'd like to call the meeting to order. It is my pleasure to welcome you to Kodak's 2020 Annual Meeting of Shareholders, which is the company's 117th Annual Meeting. Given the ongoing COVID-19 pandemic, I would like to begin by wishing you and your family and colleagues health and safety. The safety of our shareholders, employees, meeting participants is very important to us, which is why we are pleased to be able to facilitate a safe participation in this meeting by hosting a virtual annual shareholder meeting. The format also allows more convenient participation by our shareholders. I would also like to recognize our director nominees, along with myself, who are standing for reelection. Before I do that, I'd just like to remind our shareholders that I perhaps have the best slate of directors I've ever worked with in my life on this Board. Everyone's active, engaged, always helpful and willing to drive the company forward. We are one body and one mind, and I can't say enough about the Board that has been assembled here. I'll start off by nominating Todd Bradley, Jeff Engelberg, George Karfunkel, Philippe Katz, Jason New, William Parrett. During the past year, our directors have demonstrated their continued strong commitment to our company and our shareholders by playing active roles in a number of important decisions and activities. I want to thank them for all the value that they help contribute to Kodak. With that said, I'd like to introduce Roger Byrd, General Counsel, Secretary, Senior Vice President of the company. I'd like to delegate to Roger Byrd the authority to conduct the remainder of the business portion of the meeting. Mr. Byrd?

Thank you, Jim. I would like to start by acknowledging Dave Bullwinkle, the company's Chief Financial Officer and Senior Vice President, who is also in attendance today; and Denisse Goldbarg, Interim Chief Marketing Officer of the company, is also participating and will be processing any questions we receive. In addition, I would like to introduce you to Sean Lynch, coordinating partner at Ernst & Young LLP, the independent accountants for the company. As noted in the proxy statement, a representative of Ernst & Young is in attendance today to respond to appropriate questions and, if he desires, make a statement. Janet Moor of Computershare, who will be acting as our inspector of election for the meeting, is also in attendance. She will certify the voting results and has already executed her oath of office. Jim and I are the proxies named by the company for this meeting. We will vote the shares of those shareholders who have authorized us to do so in the manner they have stipulated. The proxy statement relating to this meeting was distributed in accordance with SEC and New York Stock Exchange rules, along with a copy of the company's annual report. If you need a copy of the annual report or the proxy statement, you can access them by clicking on the Annual Meeting Materials link on the left side of the meeting center screen. As noted in the notice and proxy statement, the record date for voting at this meeting was the close of business on March 26, 2020. A list of the shareholders on the record date is available to our shareholders by following the link towards the bottom of the page. I have received an affidavit of mailing showing that notice of the meeting was given. A copy of both the notice and the affidavit will be incorporated into the minutes of the meeting. There are 43,675,070 shares of our common stock and 2 million shares of our Series A convertible preferred stock eligible to vote at this meeting. Because each share of preferred stock is convertible into 5.7471 shares of common stock, the holders of the preferred stock are entitled to the number of votes equal to the number of full shares of common stock into which such shares could be converted. A total of 55,169,270 shares are entitled to be cast at this meeting. Janet Moor of Computershare, our inspector of election, has reported to me the shares corresponding to 49,123,298 votes are represented in person or by proxy, constituting 89.04% of the votes entitled to be cast. Therefore, we have a quorum present and we will proceed with the meeting. I direct your attention to the rules of conduct set forth for this meeting. These are made available to each shareholder in the Files section in the lower left of your screen. We ask that in fairness to all shareholders attending this meeting, that you honor these rules. As noted by the operator, persons participating as shareholders may submit questions or comments at any time by clicking on the message icon located in the upper right side of the meeting center screen. Persons participating as guests do not have this functionality. Now here's the agenda for today's meeting. First, we will consider and act upon items of official business as outlined in our proxy statement. The proposals to be voted on are: the election of directors, an advisory vote to approve the compensation of our named executive officers, an advisory vote on the frequency of future advisory votes on the compensation of our named executive officers, the approval of an amendment and restatement of the company's 2013 Omnibus Incentive Plan and the ratification of the Audit and Finance Committee's selection of Ernst & Young LLP as our independent registered public accounting firm. The company has not received notice from any of its shareholders, as required under its bylaws, of any other matter to be considered at today's meeting, and therefore, no other proposals may be properly introduced by shareholders. After we have acted on the official business matters, I will report the preliminary results of the voting as tabulated and verified by our inspector of election. I will then adjourn the formal business portion of the meeting. Following that, Jim Continenza and Dave Bullwinkle will provide a state of the business summary, and then we will address -- we will have a discussion period and address your questions relative to the business of the company. I will now provide a description of the matters to be voted on at today's meeting. The first proposal is the election of directors. The Board of Directors recommends that the following persons be elected to serve as directors until the 2021 Annual Meeting of Shareholders or until their successors are duly elected and qualified: Richard Todd Bradley, James V. Continenza, Jeffrey D. Engelberg, George Karfunkel, Philippe D. Katz, Jason New, William G. Parrett. The qualifications of the candidates are described in detail in our proxy statement. The second proposal is the advisory vote to approve the compensation of our named executive officers. An advisory vote is not binding on the company. However, the Board will duly consider the results of the advisory vote. The third proposal is the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers. Again, an advisory vote is not binding on the company. However, the Board will duly consider the results of the advisory vote. The fourth proposal is for the approval of the amendment and restatement of the company's 2013 Omnibus Incentive Plan. The final proposal is the ratification of the Audit and Finance Committee's selection of Ernst & Young LLP as our independent registered public accounting firm. Before we move on, Denisse, have we received any questions from shareholders concerning the matters to be voted on?

No, we have not.

Thank you. With that, it is now 1:15, and the polls are now open. If you have not voted or wish to change your vote, you may do so now by clicking on the link provided online. Any shareholder who has already voted and does not want to change their vote does not need to take any further action. [Voting]

The online voting will now be closed. The proxies are in the possession of the inspector of election who will count the votes. The preliminary report of the inspector shows that the director nominees named in the proxy statement have been elected. The preliminary report of the inspector also shows that a majority of the votes were cast in favor of the advisory vote to approve the compensation of our named executive officers and for the frequency of future advisory votes on the compensation of our named executive officers to be every year. Additionally, the preliminary report of the inspector shows that a majority of the votes were cast in favor to approve the amendment and restatement of the company's 2013 Omnibus Incentive Plan and that the Audit and Finance Committee's selection of Ernst & Young LLP as our independent registered public accounting firm has been ratified by our shareholders. This concludes the business portion of the meeting. I'm aware of no other business that should be brought before this meeting and, accordingly, hereby adjourn the meeting. I would like to note that the flexibility to conduct this meeting virtually is based on temporary relief from New Jersey's in-person meeting requirements that would apply, but for the current state of emergency declared by the Governor of New Jersey. This flexibility may not be available in future years unless New Jersey further amends its laws. The company intends to hold the virtual annual meetings whenever permitted. The proxy statement for next year's annual meeting will describe how the annual meeting will be conducted. Next, we will move to a brief summary of the state of the business and a question-and-answer session. Before I turn the meeting over to Jim, we want to advise you that during today's presentation, we'll be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. All forward-looking statements, such as when describing what Kodak believes, expects or anticipates and similar expressions, 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 those stated in the 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 the 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. I will now turn the meeting back over to Jim Continenza to begin the overview of the state of the business.

Thank you, Roger. Slide 1 -- Slide 2. Meagan, are you up?

Yes. Go ahead.

Okay. So we have Slide 2. Let's go to Slide 3. Kodak at a glance. 2019 revenues were $1.2 billion, approximately 4,500 employees through our global operations. 2019 was a challenging year for Kodak. We've made great changes, redirected the business and became focused on 3 major areas and became One Kodak. Slide 4. When we say One Kodak, we became a functional, measurable, trackable, measurable organization where all parties are involved in focusing on the needs of the customer and the employees. Kodak -- Slide 5. Kodak is committed to the print industry. It's our strength. It's in our DNA. It's what we do best. We are one of the world leaders in technology, and we'll continue to innovate in this space. Slide 5 (sic) [ Slide 6 ]. Kodak is doubling down on digital. Based on our advanced technologies, know-how and knowledge, from chemistry to equipment and application, we are going to continue to double down on digital. Also the direction, we will help drive where the market is going. More and more, you will see the move from offset plates to digital. They have now crossed over where the efficiencies and the values have come together and Kodak is going to lead the way. The current crisis has not changed our strategy at all. It's made it very difficult. We are managing through it. But we're still very focused on what's best for the print, advanced materials and chemicals business. We look for opportunities in the new world and where we're going. Slide 7, to make sure, sorry. We are going to continue to invest in advanced print technology. We're going to launch exciting new products in June via virtual press conference. As you know, drupa was canceled. We are moving forward on a virtual press day, ranging from process-free plates, the new generation and groundbreaking innovations in digital print. It's an exciting day for Kodak. Further simplification of the organization allows us to better focus on our customers. We have created also a customer advisory board, allowing them to share and get feedback and help develop strategies and products and relationships going forward. 2019 -- I'm going to turn this over to Dave Bullwinkle on Slide 8.

Thanks, Jim. On Slide 8, we're summarizing some of our key financial accomplishments completed in 2019, among other items as well. 2019, we ended the year with the same amount of cash we started with, the $233 million compared to 2018 that was flat. We completed during the year a sale of Flexographic Packaging Division, which allowed us to pay down a significant portion of our first lien term loans. We also issued $100 million of principal amount of 5% secured convertible notes, which are due in 2021, which allowed us to repay in full the $395 million of first lien term loans. Later in the year, we also established a strategic relationship in the People's Republic of China with Lucky HuaGuang Graphics Co. Ltd. And we've achieved growth in our growth areas of Kodak SONORA Plates growing by 22% and Kodak PROSPER annuities growing by 5% on a year-over-year basis. These actions, among many others, resulted in a much stronger financial position and a well-poised company entering 2020 with great momentum toward cash generation in 2020. Slide 9. For the first quarter of 2020, our revenues were $267 million, a decrease of about $24 million compared with the first quarter of 2019. And we ended the quarter with a cash balance of $209 million, a decrease of $24 million from December 31, 2019, primarily due to growth in AR resulting from delays in payments from customers. In our key product areas, Kodak SONORA continued to grow at 18% on a year-over-year basis, and annuity revenue for Kodak PROSPER declined by 4% due to the impacts of the COVID situation. As you know, we are geographically diverse in PROSPER with greater impacts in APR and emer in Q1 than in the U.S. region. Handing it back to Jim for Slide 10.

Thank you, David. Back to 2019, monumental year, major restructuring, major change, major shift in focus. If we didn't do the decisions we made in 2019, I don't believe we'd be having these conversations today. COVID-19 impacted everyone, impacted the globe, impacted our customers. We are continuing to focus on keeping our customers and employees safe. We put safety first in front of all of our employees. We file -- we meet every single week, and for a while every day, on how to handle this pandemic. I've been through the Internet bubble, the banking bubble, the telecom bubble, the housing bubble. And I don't mean just lived through. I have worked through them in different distressed businesses. No one has ever seen anything like this and the uncertainty and lack of information, where to go, plus the threat to life. And I give my team a lot of credit for the efforts and the things that they have done. Unbelievable job. And also for Dick for really taking it serious on COVID-19 and protecting our employees. He's done an outstanding job. Following the guidance of the government and all health organizations, we are encouraging virtual work at home. We were able to deploy this in less than a week, Microsoft Teams everywhere, video and everyone up and running. Distancing, mask, personal hygiene on-site for employees, temperature screening at all sites, hand sanitizer everywhere that we can put it. We're also leveraging our resource to help America and help the world fight the pandemic. Kodak is making IPA for hand sanitizer. We're also making face shields using our ESTAR film base. We've also donated many of them to our customers to keep them safe, not just the hospitals. On top of that, our PCB, Printed Circuit Board, is making a film that's going into respirators in one of the major auto manufacturers. So we are glad that we're playing our part in trying to help U.S. and the world get through this pandemic. Taking steps to preserve Kodak's financial strength, right? Today, we're managing liquidity. Our objective is to position Kodak for a strong rebound when the condition state improve. But we're not waiting. We took this time to train our personnel, reorganize ourselves, take the current actions that are needed and also work towards -- going forward for, really, 2021. What are we going to look like when the world comes back? And how is it going to come back? We spend a lot of time trying to understand where this is going and gathering that information. On Slide 11, by the way. We've got to continue to focus on collecting payments from our customers and minimizing accounts receivable. This is an all-out effort. And I'm proud to say as we were kind of blindsided on some of these, we stayed on top of many of them. We have assigned key accounts to key executives, including myself, who are responsible for collecting and bringing these dollars in. We have some few large customers that are making up the bulk of that AR. But overall, Kodak is doing everything we can to maximize and bring in those payments. And it's an all-team effort. And this is common at about every business right now. And unfortunately, a lot of our customers have received some government assistance and as we've seen some incoming revenues on AR, we continue to refine the sales organization to generate revenues and better serve our customers. This is the key issue, everyone. If you look at where the world is today, we are living in a virtual world. We're working from home. We're not in personal contact. We are building a sales organization to work virtual, to work in person, to work whatever the world is going to bring us. And we are seeing some great sales generation come forward. We spend a lot of time on training, product development, getting systems in place, allowing our sales organization to continue to work from home, if needed, and generate revenues. Great accomplishment to ourselves. With that, Slide 12, I'd like to open up for any Q&A.

Thanks, Jim. It's now time for the final part of the program, our discussion period. [Operator Instructions] We look forward to answering your questions about the business of the company as fully and fairly as possible. We do, however, reserve the right to not answer questions that involve confidential information. Likewise, we do not plan to discuss matters that are personal to a shareholder or otherwise inappropriate. Denisse, have we received any questions from shareholders concerning the business of the company?

No, we have not.

Okay. With that, ladies and gentlemen, this concludes the meeting. Thank you for your interest and participation today.

This concludes the meeting. You may now disconnect.