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Earnings call: Eastman Kodak reports Q1 2024 results

EditorAhmed Abdulazez Abdulkadir
Published 05/11/2024, 11:10 AM
© Reuters.
KODK
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Eastman Kodak Company (KODK) has reported its financial results for the first quarter of 2024, showcasing a mixed performance amid a challenging global environment. The company filed its Form 10-Q and issued a release, which can be accessed on their investor center website. Despite a revenue decline, Kodak's gross profit percentage improved due to increased operational efficiency and a focus on advanced materials and chemicals. The company also announced investments in automation and back office simplifications, which impacted operational EBITDA.

Key Takeaways

  • Kodak's revenue for Q1 2024 was $249 million, a 10% decrease compared to the previous year.
  • Gross profit decreased by $1 million, but gross profit percentage increased from 18% to 20%.
  • Net income was $32 million, slightly down from $33 million in the prior year.
  • Operational EBITDA was $4 million, a decrease of $5 million from the previous year.
  • Cash balance increased by $7 million to $262 million at the end of Q1 2024.
  • Kodak continues to focus on investing in growth opportunities and maintaining operational efficiency.

Company Outlook

  • Kodak plans to concentrate on strategic investments for growth, increasing operational efficiency, and customer success.
  • The company is building out a cGMP clean lab and reagent facility to support its long-term growth initiatives.

Bearish Highlights

  • Revenue decline in line with the estimated overall market decrease.
  • The impact of significant investments led to a decrease in operational EBITDA.

Bullish Highlights

  • Gross profit percentage improvement reflects growth in Advanced Materials and Chemicals.
  • Continued investment in innovation within the print business.
  • Positive momentum established for driving profitable growth going forward.

Misses

  • Revenue missed the previous year's mark by $29 million.
  • Operational EBITDA fell by $5 million due to investments in automation and simplification efforts.

Q&A highlights

  • No formal Q&A session was held during the call.
  • The Investor Relations team is available for follow-up questions.

In summary, Eastman Kodak is navigating a tough economic landscape with strategic investments and a focus on efficiency and innovation. The company is leveraging its history in chemicals, layering, and coating to position itself for future growth. Despite the revenue dip, Kodak's ability to improve its gross margin indicates a resilient approach to market challenges.

InvestingPro Insights

Eastman Kodak Company (KODK) presented a nuanced picture in its Q1 2024 financial report, and to provide a deeper understanding of the company's current valuation and performance, InvestingPro data and tips can offer additional context.

InvestingPro Data highlights a Price / Book ratio for Kodak at 0.41 as of the last twelve months ending Q4 2023, signaling that the company is trading at a relatively low valuation compared to its book value. This could be appealing to value investors looking for potential bargains. The adjusted P/E Ratio stands at 5.12, which is low relative to many peers, suggesting that Kodak's earnings are not overvalued at the current stock price.

An InvestingPro Tip points out that Kodak has strong liquid assets that exceed its short-term obligations, indicating a stable financial position in terms of liquidity. This is a vital consideration for investors who prioritize financial health and risk management. Additionally, the company has shown a strong return over the last three months, with a 34.76% price total return, reflecting positive market sentiment and potential investor confidence in its strategic initiatives.

For readers looking to delve deeper into Kodak's financials and stock performance, InvestingPro offers additional insights. There are six more InvestingPro Tips available on the platform, providing a comprehensive analysis that could guide investment decisions. Interested investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes these valuable tips.

In summary, while Kodak faces challenges, the InvestingPro data and tips suggest there are aspects of the company's financials that could be seen as strengths, such as its low valuation metrics and strong recent stock performance. These insights could serve as a useful supplement to the information provided in the company's Q1 2024 financial report.

Full transcript - Eastman Kod (KODK) Q1 2024:

Operator: Good day, and thank you for standing by. Welcome to the Eastman Kodak Q1 2024 Earnings Conference Call [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anthony Redding. Please go ahead.

Anthony Redding: Thank you. And good afternoon, everyone. I am Anthony Redding, Eastman Kodak Company's Chief Compliance Officer. Welcome to Kodak's first quarter 2024 earnings call. At 4:15 p.m. this afternoon, Kodak filed its Form 10-Q and issued its release on financial results for the first quarter of 2024. 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 those 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 US 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 unanticipated events. In addition, the release 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 Web site 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, Kodak's Chief Financial Officer. 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. Thank you.

Jim Continenza: Welcome, everyone. And thank you for joining the first quarter 2024 investor call for Eastman Kodak. I am very pleased with the company's performance for the first quarter of 2024 following our strong performance in 2023. We have been committed to executing our long term plan for five years now. We have strengthened our balance sheet, refinanced our long term debt. We're now generating cash, which will allow us to keep investing in our businesses, investing in innovation and print, advanced materials and chemicals. I am pleased to announce that we have won our fourth Stevie award, our third gold for our strategy in digital print technology. Improving operational efficiency and reducing cost of sales, we promised our customers, we would become more efficient and we have. We've delivered on the expectation that we set. We have achieved this by investing in new technologies, such as IT systems, manufacturing equipment and business controls. Helping our customers with the right solution from our unmatched portfolio, we continue to invest in a broad spectrum of solutions for print. Our focus has been meeting our customers' needs, we win only when our customers win. Now we are preparing for the next stage. Investing in long term opportunities that leverage our unique strengths in chemicals, layering and coating developed over 130 years of history that has set a foundation for our future as a growth company. Everyone, and I mean everyone at Kodak is contributing to our success and excited about our future. I'd like to thank our employees for their competitive spirit and their winning attitude. Turning to Slide 5. I am pleased with our continued progress in the company's results for the first quarter 2024. Here are some highlights for the quarter. In our print business, we continued to invest in innovation across our complete portfolio of offset and digital solutions. We are uniquely qualified to help customers navigate and deliver the right solutions based on their needs. We are showcasing a range of new products at drupa also running live demonstration of our PROSPER ULTRA 520 Press to demonstrate that unmatched combination of speed and quality. Last year, Kodak filed a petition with the US Department of Commerce and the US International Trade Commission requesting relief from unfair trade imports of plates from China and Japan. The Commerce Department has recently announced a preliminary finding and its countervailing duty and antidumping investigations, and the provisional duty on imports of plates manufactured in China and Japan are now being imposed. You can find more details in our recent 10-Q filing. In our AMC business, we are committed to film and continue to invest in manufacturing capacity to meet growing demand in both still and motion picture film. We continue to expand OEM manufacturing for other types of film to help absorb fixed manufacturing costs in our factories. We will continue to invest in long term growth initiatives that leverage our unique strength in chemicals, layering and coating and vast manufacturing infrastructure. We are currently building out a cGMP clean lab along with our reagent facility currently under construction in Eastman Business Park in Rochester. Turning to Slide 6, performance highlights for the first quarter. Revenues decreased $29 million, approximately 10% compared to the prior year quarter. The revenue decline is in line with Kodak's estimate of the decline of the overall market. Despite the revenue decline, gross profit decreased only $1 million, a negative 2% compared to the prior year quarter. Gross profit percentage increased quarter-over-quarter by approximately 10% from 18% to 20%. This performance reflects growth in Advanced Materials and Chemicals and our commitment to improving our operational efficiency and investing in automation in this difficult economic environment. Now I'll turn it over to Dave to discuss the first quarter 2024 financial results.

David Bullwinkle: Thanks, Jim, and good afternoon. This afternoon, the company filed its Form 10-Q for the quarter ending March 31, 2024 with the SEC. 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 the first quarter of 2024. In the face of an extremely difficult global environment, Kodak continued to build on its strong foundation during the first quarter of 2024, driving smart revenue, pricing rationalization and cost reductions delivering a gross profit percentage of 20% and generating cash while continuing to invest in long term growth initiatives. The company's results reflect the continued focus on these priorities and the execution against our long term strategy. On Slide 7, we reported revenues of $249 million for the first quarter compared to $278 million in the prior year quarter for a decline of $29 million or 10%. Gross profit decreased by $1 million or 2% when compared to the prior year quarter. Our gross profit percentage was 20% in the first quarter of 2024 and compared to 18% in the prior year quarter, which is a result of the actions our team has taken to mitigate the effects of the global economy to make our operations more efficient and to realize the value of our product offerings. These actions have established positive momentum as we continue to drive profitable growth going forward. Foreign currency had no impact on revenues or gross profit for the first quarter of 2024 versus the prior year period. On a US GAAP basis, we reported net income of $32 million for the first quarter of 2024 compared to $33 million in the prior year quarter, a decrease of $1 million. The 2024 and 2023 first quarter results include income of $1 million and expense of $1 million, respectively, related to noncash changes in workers' compensation and employee benefit reserves. The first quarter of 2024 results includes income of $17 million related to a net gain on sale of assets and the prior year first quarter results include expense of $1 million related to changes in the fair value of embedded derivative liabilities and income of $9 million related to a refund from a non-US governmental authority. Excluding these current and prior quarter items, net income for 2024 was $14 million compared to net income of $26 million in the prior year quarter, reflecting a decline of $12 million. Operational EBITDA for the quarter was $4 million compared to $9 million in the prior year quarter, a decline of $5 million. Excluding the impact of noncash changes in workers' compensation and employee benefit reserves in both the current and prior year quarters, operational EBITDA decreased by $7 million when compared to the prior year quarter. Operational EBITDA for the first quarter of 2024 was unfavorably impacted by significant investments in automation and simplification of back office functions. For the balance of the year, we plan to concentrate on the fundamentals from our strategic plan, investing for growth, increasing operational efficiency and helping our customers succeed. Moving on to the company's cash performance presented on Slide 8. The company ended the first quarter with a cash balance of $262 million, an increase of $7 million from December 31, 2023. Foreign exchange had an unfavorable impact on cash of $3 million for the current quarter. The team continues to focus on improving profitability and performance in working capital, which enhances the company's ability to generate cash. Cash provided by operating activities was $17 million for the current quarter compared to $14 million in the prior year quarter, reflecting an improvement of $3 million. Current quarter cash provided by operating activities was primarily driven by a use of cash from net earnings of $11 million and cash provided by balance sheet changes of $28 million, including a change in working capital of $45 million and a decrease in other liabilities of $19 million. Within working capital, accounts payable increased by $7 million. Inventory increased by $15 million and accounts receivable decreased by $53 million compared to the prior year period, primarily due to $40 million of cash proceeds from brand licensing. Cash provided by investing activities for the first quarter increased by $12 million compared to the prior year period due to proceeds from the sale of assets of $17 million, partially offset by an increase in capital additions of $5 million Cash used in financing activities for the first quarter increased by $17 million compared to the prior year period, driven by $17 million of an amended and restated term loan prepayment during the first quarter of 2024 from the proceeds received from the sale of assets within investing activities. Restricted cash decreased by $4 million when compared to the balance as of December 31, 2023. As a reminder, restricted cash primarily represents cash collateral supporting the company's undiscounted actuarial workers' compensation obligations with the New York State Workers' Compensation Board, cash collateral required under the letter of credit facility and certain aluminum supply contracts in addition to escrows to secure various ongoing obligations. As presented on the bottom portion of the slide, excluding the effects of foreign exchange and the prior year impact of a refund from a non-US governmental authority, the company delivered an $11 million improvement in cash in the first quarter of 2024 compared to the prior year period. We are pleased with the financial performance of the company for the first quarter of 2024. We will continue to focus on maintaining the strength of the foundation we have worked hard to create, which provides us the opportunity to fund our ongoing operations and invest in growth opportunities to continue to execute our strategy. Finally, we remain in compliance with all applicable financial covenants. I will now turn the discussion back to Jim.

Jim Continenza: Thank you, Dave. In summary, Kodak continued to deliver strong profit and improved cash performance despite a challenging business environment. We continue to invest in our unmatched portfolio of solutions for both offset and digital print. We will showcase a wide range of new products at drupa this month, and I'm excited for the world to see what we've been working on. We are investing in the next generation of business in AMC that will set the stage for Kodak as a growth company. Our success is due in large part to the competitive spirit of our employees and their winning attitudes as I stated before. We will continue to put our customers first, offering them a complete range of solutions, a reliable supply and ongoing innovation in both offset and digital print and Advanced Materials & Chemicals. I want to thank everyone for attending this call and your continued interest in Eastman Kodak. Thank you, and have a good evening.

Operator: This concludes today's conference call. You may now disconnect.

End of Q&A:

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