Retained UBS Investment Bank as its financial adviser on the sale of its Flexographic Packaging Division; Entered into a non-binding LOI for a $400 million, 18-month loan which would be used to refinance its existing term debt during the sale process for the Flexographic Packaging Division
Eastman Kodak Company (NYSE: KODK) today reported financial results for the second quarter 2018, delivering net earnings of $4 million on revenues of $372 million and continued growth in its KODAK SONORA Process-Free Plates, KODAK FLEXCEL NX Packaging and KODAK PROSPER Inkjet businesses.
Second-quarter highlights include:
GAAP net earnings of $4 million for the quarter ended June 30, 2018.
Operational EBITDA for the quarter of $9 million.
Revenues for the quarter of $372 million.
Key product lines achieved strong year-over-year growth for the quarter:
Volume for KODAK SONORA Process-Free Plates grew by 19 percent.
Volume for KODAK FLEXCEL NX Plates grew by 8 percent.
Annuity revenues for the KODAK PROSPER inkjet platform grew by 3 percent.
The company ended the quarter with a cash balance of $275 million and expects to generate cash in the second half of 2018.
2018 revenue guidance remains at $1.5 billion to $1.6 billion and Operational EBITDA guidance revised to $55 million to $60 million to reflect increased aluminum supplier costs and timing of commercialization of new products.
Additional developments:
Kodak has
retained UBS Investment Bank as the company’s financial adviser in the sale of its Flexographic Packaging Division.
entered into a non-binding letter of intent for a $400 million, 18-month loan with an existing term loan lender which would be used to refinance its existing term debt.
initiated efficiency actions expected to result in $40 million of annualized savings and improved liquidity.
included disclosure of going concern assessment in its Form 10-Q filing for the second quarter.
Revenues for the quarter ending June 30, 2018 were $372 million, a decline of $9 million compared with the second quarter of 2017. The company reported second-quarter GAAP net earnings of $4 million and Operational EBITDA of $9 million, down $3 million compared with the second quarter of 2017. The decrease was primarily driven by the $7 million year-over-year adverse impact of the cost of aluminum, which was partially offset by growth in key products as well as cost reductions in Kodak’s Advanced Materials and 3D Printing Technology Division.
“We continue to see growth in our SONORA plates, FLEXCEL NX and PROSPER annuities businesses. When adjusted for aluminum and foreign exchange, Operational EBITDA increased thirty three percent year over year,” said Jeff Clarke, Kodak Chief Executive Officer. “For the second half of 2018 our priorities will be focused on the sale process for the Flexographic Packaging Division, improving efficiency of our operations through the announced restructuring actions and continuing to deliver growth in strategic areas.”
The company reiterated 2018 guidance for revenues of $1.5 billion to $1.6 billion and revised guidance for Operational EBITDA to $55 million to $60 million to reflect increased aluminum supplier costs and timing of commercialization of new products.
Kodak ended the quarter with a cash balance of $275 million, down $38 million from the March 31, 2018 cash balance of $313 million. The company expects a cash balance of $300 million to $310 million at year-end 2018.
“The company’s use of cash in Q2 primarily reflects the seasonal build of working capital. We expect to generate cash over the remainder of the year and to address the September 2019 maturity of the term loan,” said David Bullwinkle, Kodak Chief Financial Officer. “To strengthen our liquidity, we have initiated actions to reduce operating costs, including driving greater efficiencies in investment spending and operations of our mature businesses.”
Print Systems Division (PSD), Kodak’s largest division, had Q2 revenues of $227 million, a decrease of $9 million compared with Q2 2017. Operational EBITDA for the quarter was $8 million, compared with $15 million for the same period a year ago. The decline was due to higher costs for aluminum, the primary material used to manufacture the division’s offset printing plate products, and continued industry pricing pressures.
PSD’s environmentally-advantaged KODAK SONORA Process Free Plates had continued strong performance for the quarter, delivering 19 percent year-over-year growth in unit sales. SONORA Plates now account for 22 percent of the division’s total plate unit sales.
During the quarter PSD continued its rollout of new SONORA X Process-Free Plates, supplying over 100 customers in Asia and Europe. The new product is expected to increase the reach of Kodak’s process-free plates from 30% to 80% of market applications.
Enterprise Inkjet Systems Division (EISD), including the KODAK PROSPER and KODAK VERSAMARK businesses and the investment in ULTRASTREAM inkjet technology, had second-quarter revenues of $33 million, down from $35 million in the same period in 2017. Operational EBITDA was $1 million, flat when compared with the same period in the prior year.
For the second quarter of 2018 the PROSPER business continued to deliver strong performance with year-over-year annuity growth of 3 percent.
The company continues to invest in the development of KODAK ULTRASTREAM, the next-generation inkjet writing system, which is scheduled to launch in 2019.
Flexographic Packaging Division (FPD) includes KODAK FLEXCEL NX Systems and Plates as well as other packaging products, such as analog flexographic plates and letterpress plates, proofing products and services. FPD’s performance for the quarter was driven by continued growth in KODAK FLEXCEL NX Plates. Revenues for Q2 were $38 million, up $1 million compared with the same period a year ago. Operational EBITDA for Q2 was $9 million, an increase of $1 million compared with the second quarter of 2017.
For the quarter, FLEXCEL NX plate volume continued to grow, increasing 8 percent year over year. The division continues to invest in new product development and infrastructure, including a plate manufacturing line in Weatherford, Oklahoma scheduled to be on line in early 2019.
Software and Solutions Division (SSD) revenues for Q2 were $20 million, a $2 million decline compared with the same period last year. Operational EBITDA was negative $1 million, flat when compared to Q2 2017.
Consumer and Film Division (CFD) revenues for the second quarter were $48 million, an increase of $1 million over Q2 2017. Operational EBITDA was negative $4 million for the quarter, compared with negative $5 million in Q2 2017. CFD’s Industrial Film & Chemicals business experienced strong order volume in the quarter which more than offset the expected decline in Consumer Inkjet. The division’s brand licensing business continues to perform well, adding three new licensees during the quarter.
Advanced Materials and 3D Print Technology Division (AM3D) had revenue of $1 million for the quarter and Operational EBITDA of negative $5 million, an improvement of $2 million compared with the same period in the prior year. The division continues to focus on investments in light-blocking particles and printed electronics.
Eastman Business Park Division (EBPD) had Q2 2018 revenues of $5 million, an increase of $1 million compared with the same prior year period. Operational EBITDA was flat compared with the second quarter of 2017.
Going Concern Assessment
Kodak has included a disclosure regarding its going concern assessment in its Q2 Form 10-Q filing. While the company is optimistic about the potential sale of its Flexographic Packaging Division, as well as the anticipated refinancing of its term debt, these plans are not solely within Kodak’s control and therefore are not deemed “probable” under U.S. GAAP accounting rules. Please read Footnote 1 to the financial statements contained in the company’s 10-Q to see the precise disclosure and planned mitigating actions.
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