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, Chief Executive Officer of Kodak Company. Mr. Continenza, the floor is yours.

Thank you, and hello, everyone. Thank you for joining. The meeting is now called to order. It is my pleasure to welcome you to Kodak's 2022 Annual Meeting of Shareholders, which is the company's 119th annual meeting. We are pleased to be able to facilitate convenient participation in this meeting by hosting it virtually again this year. I would like to recognize our director nominees, including myself, standing for reelection today. Those director nominees are: Thomas Golisano; Philippe Katz; Kathleen Lynch; Jason New; Darren Richman; and Michael Sileck. I would also like to tell you that during the past year, our directors demonstrated their continued strong commitment to our company and our shareholders by playing an active role in a number of important decisions and activities. I thank each and every one of them for their valuable contribution to Kodak. I would also like to thank them, they're always available, you should be aware of this, always available anytime you need them to participate, take calls, beyond just Board meetings. So again, thank you for all your support. Now I would like to introduce Roger Byrd, General Counsel, Secretary, Senior Vice President of the company. I have delegated to Roger authority to conduct the remainder of the business portion of the meeting. Mr. Byrd?

Thank you, Jim. I would like to start by acknowledging David Bullwinkle, the company's Chief Financial Officer and Senior Vice President, who is also in attendance today. Also, Denisse Goldbarg, Chief Marketing Officer of the company, is participating and will process any questions that are received. In addition, I would like to introduce you to Sean Lynch, the coordinating partner at Ernst & Young LLP, the independent accountants of the company. As noted in the proxy statement, a representative of Ernst & Young is in attendance today to respond to appropriate questions. Janet Moor of Computershare, who will be acting as our inspector of election for this 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 company's notice of annual meeting and proxy statement, along with its annual report on Form 10-K, have been distributed in accordance with the U.S. Securities and Exchange Commission rules and the New York Stock Exchange rules. If you need a copy of these materials, you can access them by clicking on the document section on the right side of your screen. As noted in the notice and proxy statement, the record date for voting at this meeting was the close of business on March 24, 2022. A list of the shareholders on the record date is also available to our shareholders by clicking on the documents section on the right side of your screen. I have received an affidavit of mailing showing that this notice of meeting -- that notice of this meeting was given. A copy of both the notice and the affidavit will be incorporated into the minutes of this meeting. There are 78,915,150 shares of our common stock and 1,043,629 shares of our Series C convertible preferred stock eligible to vote at this meeting. Because each share of the Series C preferred stock is convertible into 10 shares of common stock, the holders of 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 89,351,440 votes are entitled to be cast at this meeting. Janet Moor of Computershare, our inspector of election, has reported to me that shares corresponding to 63,829,252 votes are represented in person or by proxy, constituting 71.44% 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 document section on the right side of your screen. We ask that, in fairness to all shareholders attending this meeting, you honor these rules. As noted by the operator, the persons participating as shareholders may submit questions or comments at any time by clicking on the Q&A section located on the right side of your screen. Persons participating as guests do not have this functionality. Now here's the agenda for today's meeting. First, we will consider an act upon items of official business as outlined in our notice of annual meeting and 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 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 advanced 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. 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 2023 Annual Meeting of Shareholders or until their successors are duly elected and qualified: James V. Continenza; Thomas Golisano; Philippe Katz; Kathleen Lynch; Jason New; Darren Richman; and Michael Sileck. 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 and final proposal is the ratification of the Audit and Finance Committee's selection of Ernst & Young LLP as our independent registered public accounting firm. Denisse, have we received any questions from shareholders concerning the matters to be voted on?

No, we have not received any questions.

Thank you. It is now 1:08 p.m., 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 Vote section on the right side of your screen. Any shareholder who has already voted and does not want to change their vote does not need to take any further action. We'll just pause here for a moment to allow anyone who may be voting to cast or change their vote. [Voting]

The online voting will now be closed. The proxies are in 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. Additionally, the preliminary report of the inspector 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 in favor of the ratification of the Audit and Finance Committee's selection of Ernst & Young LLP as our independent registered public accounting firm. 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. Next, we will move to a brief summary of the state of the business. Before I turn the meeting back over to Jim, we want to advise you that during today's presentation, we'll be making certain forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All forward-looking statements, such as one describing what Kodak believes, expects or anticipates and similar expressions are based on Kodak's current expectations and assumptions. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements. Important factors that could cause actual events or results to differ materially from those forward-looking statements include 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. 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 arise after the date made or to reflect the occurrence of unanticipated events, except as may be required by law. I will now turn the meeting back over to Jim Continenza to provide the overview of the state of the business.

Thank you, Roger. Let me start it out with Kodak at a glance. We continue to be a global company. We act as One Kodak. Over the last 3 years, we started the reorganization to become One Kodak to better serve our customers and our shareholders. We focus on 3 key areas, print, advanced materials and chemicals. This is who we are. This is what we've done for well over 130 years. And this is our core competency. Our goal is to create long-term value. We focus on long-term value growth in these challenging times. It's difficult and it's critical that we focus long-term. There's a lot of short-term events that have taken place, and you can't react to them. You must stay the course of your long-term plan and adopt its strategy appropriately. Executing our strategy. We are on track to where I thought we would be in the last 3 years. We materially fixed the balance sheet to strengthen our company ability to invest in strategic growth. Create One Kodak. The organizational structure put the customer first. Our customers have seen it, acknowledged it and have helped us grow the business because of it. We established laser focus on our core competencies and our businesses, layering, coating, chemistry, chemical, print, service, innovation, software. This is who we are. That laser focus has helped us become bigger partners and better partners to our customers. We're investing millions of dollars back in our infrastructure. We're now working on the back end. We did the front end, focusing on our business, focusing on the customer, to now put them back and then to bring us better efficiencies and better serve our customers. And most importantly, we really leverage our competitive differentiator, and that's our service. Our service technicians are some of the best-trained, most knowledgeable and most professional in the industry. Some key accomplishments. We continue to maintain the safety of all of our employees, our customers and everyone through this pandemic. I want to be clear. We start every leadership meeting with health and safety. It kicks it off. We talk about our people. And we make sure, globally, we're not cutting any corners, making sure our people are safe, the #1 priority in our business. We delivered revenue growth in the first quarter after a very strong performance in 2021 despite extremely challenging business conditions. In 2021, we grew all 4 categories of our business. We continue to supply our customers despite supply chain challenges. You have a pandemic. You have shipping issues. You have logistics on top of that. Inside of that, we're having more. I want to also add a shortage of materials. And with that, we continue to supply our customers. Hats off to all the people in Kodak that work around the clock to make sure we're getting these materials in and out the doors so our customers don't have to shut down. They rely on us, they count on us, and we want them to know that they can. We announced 4 growth initiatives in advanced materials and chemicals. I'm going to spend more time on them on another slide. It's the key to who we are. It's going to grow our business. And we rely heavily on that group and division to drive our entire company. Lastly, we won some prestigious awards this year. Last year, we won the Stevie Silver Award for Maverick for the Year. This year, the American Business Award Gold Stevie goes to Kodak for manufacturing and management. We want to thank our peers for recognizing us and the things that we're doing. Also, we launched the new ASCEND. Within that, the European Digital Press Association 2021 EDP Award went to ASCEND, our point-of-sale digital press, the new technology and the new innovation and the new area for us to expand in. We continue to make sure the company is functional, accountable, measurable and trackable. Back to AMC long-term growth initiatives. 3 years ago, we refocused our business on Eastman Business Park. We looked at our core competencies. We looked at our abilities. We looked at the equipment. We looked at our technologies. We looked at our buildings and our infrastructure. It is one of the most incredible infrastructures in the world, water treatment, chemical treatment, rail, power plant. And we're taking advantage of that infrastructure. Going back to our core. When you look at our core, layering and coating. In doing so, we moved into EV battery storage materials and manufacturing. We are now coating substrates for materials used in equipment -- excuse me, in measuring, manufacturing EV battery storage batteries. We are putting our knowledge, again, in equipment and buildings in Eastman Business Park back to use. It's interesting. We jokingly inside say that George Eastman accidentally created a battery business. The processes in manufacturing film and battery coating are very similar. One is done in the light, one is done in the dark, one uses a solution, one uses a slurry. And yet, this is our core know-how. This is a big opportunity for us, and we're going to continue to grow it. On top of that, we also have a small production lab that helps others learn how to do their manufacturing. That's become a very big business for us also over time. It will keep growing. We're excited about the growth in this area and our knowledge. Light blocking technologies. This has long been trying to figure out where we go with this incredible technology. Over the last 3 years, we opted to grow it, invest in it and take it to the next level. In doing so, we'll be commercializing coating of different substrates and fabrics. It's branded KODALUX, and most importantly, we're going to be actually doing the coating. So not only are we making the materials now, we're going to be in the coating business. We have several customers that are interested. This is a breakthrough technology in superior light blocking performance. Transparent antennas. Leveraging our proprietary copper microwire technologies and high-resolution printing. This is important. When you look at the business and what we do, we literally take film that is clear. We print copper so fine in a 5D or mesh network that it's invisible to the naked eye. It allows you now to put additional sensors in other areas on windows and glass. So we look at the automotive industry. There are 6 data points that are still available, front and back window and the 4 sides. This allows you now to put additional sensors and other technologies in the vehicle. And lastly, but one of the more important features that we're doing, we continue to invest in our medical future. We will be building a $20 million facility to manufacture reagents for the health care applications, including a new clean lab for us to help develop and test other products. The next phase of our strategy, continue to put the customer first, while focusing on profitability, revenue growth and innovation. We continue to invest in print technologies that are innovative to the industry. We'll be launching the ULTRASTREAM technology, the ASCEND and digital packaging. We're going to continue to drive our digital strategy in the print industry. We continue to invest in AMC. These growth initiatives are critical. It's the heart and soul of who we are. We use it in all parts of our business. Through our printing technologies, again, it's driven through AMC; it's the chemicals, dispersions and the technologies, allow us to reach the speed that we do and the quality that we drive. We continue to focus on the environmental sustainability, not just in the print industry, but in all industries that we are related to. We most recently completed a sustainability report. I would ask you, please take time to take a look at it. We take this very seriously at Kodak, water-based things, our oil -- our water treatment, chemical treatment, not just for us, but for the region, clean power. We will continue to want to be the role model and drive this in the industry. Our SONORA Process-Free Plates, virtually use no chemicals other than water in the production. It really cleans up the print industry, and we continue to grow those revenues in that area. With that, I would like to turn the 2022 financial highlights over to Dave Bullwinkle, our CFO. David?

Thanks, Jim. As Jim described, we have implemented many changes, including a focus on the customer as part of our execution of our strategy. Revenue performance reflects the impacts of these changes that we have implemented. Revenues for the first quarter of 2022 increased by $25 million or 9% compared to the prior year quarter, which demonstrates our commitment to customer support and satisfaction in the midst of a challenging economic environment. When excluding the impact of foreign exchange, revenue increased $35 million or 13% compared to the prior year quarter, this occurring on top of significant growth in 2021 for the full year. We are recognizing strong growth in our businesses, including Kodak SONORA Process-Free Plates and Kodak PROSPER annuities for the year and overall volume increases in our other businesses. During the first quarter, volumes for SONORA Process-Free Plates grew by 24% and the annuity revenue for PROSPER improved by 2%. We continue to navigate through the ongoing global impacts associated with the COVID-19 pandemic, the war in Ukraine, and other global events continue to impact the company's operations. The company is experiencing supply chain disruptions, shortages of materials and labor and increased costs in labor, material and distribution. We have implemented numerous measures to mitigate these challenges, including pricing actions. Operational EBITDA for the quarter was a negative $7 million compared to a positive $3 million in the prior year. Operational EBITDA was favorably impacted by growth in revenue due to improved pricing and volume, offset by higher ongoing global cost increases. Cash used in our operations of $53 million is driven primarily by cash used from net earnings of $21 million and cash used from balance sheet changes of $22 million, including a change in working capital of $10 million and a decrease in other liabilities of $13 million. We used cash and working capital by increasing inventory levels in order to strengthen our ability to supply our customers. We have increased safety stock on certain materials, increased lead times and certified additional sources or substitute materials. Despite the above challenges, we continue to put our customers first and have been able to provide uninterrupted supply for our customers. Our long-term strategy continues to focus on our core competencies in print, advanced materials and chemicals and drive innovation, growth and profitability, as Jim described. Lastly, for your convenience and because the company uses non-GAAP measures in this presentation, we have provided a reconciliation of these measures to the most closely comparable GAAP measure as the last slide of this presentation. And I'll hand it back over to Jim to summarize.

Thanks, David. As David alluded to, again, right, these difficult times are global. We're dealing with them. The fact that we have manufactured in 3 key regions, Asia, Europe and U.S., we're able to take care of our customers, move supply, keep things in order and continue to develop new products. We're fortunate to have the structure that we have and leverage it. We ship products around the world to keep the factories running, to keep our customers satisfied. All I can ask is thank you for your support, stay tuned, much more to come. With that, I would like to turn this back over to Roger Byrd.

Thank you, Jim. Ladies and gentlemen, this concludes the meeting. Thank you for your interest and participation today.

This concludes the meeting. You may now disconnect.