KODK Stock | Eastman Kodak Co Q4 2021 Earnings Call

Thank you for standing by and welcome to Eastman Kodak's fourth quarter and full year 2021 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 Dills.

Thank you and good afternoon everyone. I am Paul Dills, Eastman Kodak Company's Chief Tax Officer and Director of Investor Relations. Welcome to Kodak's fourth quarter and full year 2021 earnings call. At 4:15 p.m. this afternoon, Kodak filed its Form 10-K 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. 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 Chief Executive Officer, and David Bullwinkle, Chief Financial Officer of Kodak. We will not be holding a 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.

Thanks, Jim, and good afternoon. Today, the company filed its Form 10-K for the year ended December 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 $1.15 billion compared to $1.029 billion in the prior year for an improvement of $121 million. Adjusting for the favorable impact of foreign exchange of $16 million, revenue increased by $105 million compared to the prior year. On a U.S. GAAP basis, we reported net income for 2021 of $24 million compared to net loss of $541 million in 2020. The 2021 results include income of $7 million related to changes in fair value of embedded derivative liability features, $4 million related to non-cash changes in employee benefit reserves, $7 million related to legal settlements, and expense of $1 million related to net loss on the sale of assets. The 2020 results include expense of $382 million related to changes in fair value for the embedded derivative liabilities, $4 million related to non-cash changes in employee benefit reserves, $2 million related to the loss and extinguishment of debt, $3 million related to a trade name impairment, $3 million related to an increase in accounts receivable reserves, $10 million related to a net gain on the sale of assets, and the $167 million 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 million compared to adjusted net income of $10 million in the prior year. Operational EBITDA for 2021 was $11 million compared to a negative $1 million 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 million 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 million 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. As Jim indicated, our net debt improved by $294 million since March of 2019. That is largely due to the series of financial transactions the company announced in March of 2021, which provide access to new capital, addressed maturing obligations, and strengthened 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 million with a commitment to provide delayed draw term loans of up to an additional $50 million, which may be drawn on or before February 26, 2023. We also redeemed $100 million in Series A preferred stock, issued $100 million in Series B preferred stock in exchange for $100 million of Series A preferred stock, and issued $100 million in Series C preferred stock. The company also issued $25 million in unsecured convertible notes and raised $10 million 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 million of incremental cash in the year after fees, expenses, and incremental letter of credit facility funding, and provided the company with $50 million 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 million in cash and cash equivalents, an increase of $166 million from December 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 million in furloughs and pay reductions mentioned above, the year-over-year improvement in cash and cash equivalents was approximately $46 million. 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 million 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, the London Metal Exchange aluminum price continues to trade at a level well above historical prices. As of March 9, 2022, the LME euro price was approximately 2,700 compared to the price as of January 1, 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 million, driven primarily by cash use from net earnings of $32 million and cash used from balance sheet changes of $15 million, including a change in working capital of $14 million and a decrease in other liabilities of $29 million. Accounts payable increased by $38 million, inventory increased by $19 million, and accounts receivable increased by $5 million. Cash used in investing activities was $20 million during 2021 as compared to cash usage of $13 million in the prior year. Cash provided by financing activities was $238 million for 2021 compared to $10 million in the prior year. Cash provided by financing activities included $247 million of incremental cash after fees and expenses driven by the financial transactions announced on March 1st, which I referred to earlier. Restricted cash at the end of the year was $61 million, an increase of $1 million from December 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 million in Q1 of 2021. Subsequent to that point, our team has reduced restrictions on cash by $15 million 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-K, we remain in compliance with all applicable financial covenants. I will now turn the discussion back to Jim.

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