Eastman Kodak Co

NYSE:KODK

Q3-2025 Earnings Call

[Operator]

Good day, and thank you for standing by. Welcome to the Eastman Kodak Quarter 3 2025 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 the first speaker today, Anthony Redding. Please go ahead.

[Anthony Redding, executive]

Thank you, and good afternoon, everyone. Welcome to Kodak's Third Quarter 2025 Earnings Call. At 4:15 p.m. this afternoon, Kodak filed its Form 10-Q and issued its release on financial results for the third quarter and the 9 months ending September 30, 2025. You may access the presentation and webcast for today's call on our Investor Center at investor.kodak.com.

During today's conference call, we will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Investors are cautioned not to unduly rely on forward-looking statements, and such statements should not be read or understood as a guarantee of future performance or results. 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 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. 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 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. 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 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, Kodak's Chief Financial Officer and Senior Vice President. 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 Continenza. Thank you, and have a great day.

[James Continenza, executive]

Welcome, everybody, and thank you for joining Eastman Kodak Third Quarter 2025 Investor Call. Let me start off with saying this quarter has been our best performance in years. I can't wait to share the information with you. We are starting to see a return from our long-term investments and growth initiatives. We also continue to increase our operational efficiencies. It's just part of our culture to get better every day. As you'll see as we go through this presentation, we continue to delever the balance sheet. I will talk more about this later in the presentation.

The third quarter was our best quarter in many years. The highlights include revenue, $269 million versus $261 million last year. That's an $8 million improvement or approximately 3%. This doesn't happen accidentally. We have continued to execute on our long-term plan and our investments, and we're seeing the results of those investments.

I'm not concerned about the revenues staying pretty much flat, considering all the upheaval in the markets today. We continue to focus on smart revenue and growth initiatives and investing in the company. We are a proud U.S. American manufacturer. The company is proud to see the hard work of our senior team and all of our employees and executing our long-term plan is resulting in gross profit of 25% versus 17% in the third quarter last year, equal to an increase of 8%, which translates into $23 million in gross profit.

Let me give you an update on the U.S. pension reversion process. We're approaching the culmination of a multiyear process of accessing the overfunding of our U.S. pension plan. It has always been our intention to access the excess funds to delever and strengthen our balance sheet.

Based on our strong execution of managing the pension plan reversion process, we now expect to get approximately $600 million, which is $100 million more than we originally estimated. About $450 million will be in cash and $150 million will be in hedge funds that will convert to cash over time. The company will have the opportunity to not only pay down term debt, but also repay other obligations. Once everything is settled, we expect to be net cash positive. Over the last several years in this role, we've done 3 financings to continue to keep our balance sheet ahead of the company's needs.

This is the next step. The appropriate amount of debt and minimal covenants and the freedom to accelerate growth is what we're trying to achieve. All the plan participants are getting everything they're entitled to under the pension plan. Our new benefit plan offered to U.S.-based employees is identical to the prior plan. It's part of our culture to always take care of our people.

Moving on back to the company and business results. Advanced Materials and Chemicals, we continue to invest in our core business of Advanced Materials and Chemicals. The business today is seeing the growth of those investments as expected. Revenue is up 15% year-over-year. Our growth initiatives -- we went back to our core competency of layering and coating. We pretty much over the years have abandoned the park and our core competencies.

We reinvested in those and brought those back. It is fundamentally who Kodak is. We are the world's best at layering and coating, and we brought back those competencies to Rochester, New York. In doing so, we expect to continue to see growth in these initiatives. Some are in their infancy and some have matured, but we are going to continue to invest in our Advanced Materials and Chemicals. It's what we do best.

Our Advanced Materials and Chemicals pharmaceutical initiative is in progress as expected. Our new cGMP pharmaceutical manufacturing facility is now certified to manufacture and sell regulated products and is up and running, starting with diagnostic reagents. Our goal is to continue to expand our product line over time.

Let me give you some additional news in the Advanced Materials and Chemicals [indiscernible] film in particular, again, one of our greatest core competencies over a century of making film. We've added millions of dollars into that factory into finishing our lines and increased capacity into OEM and other products. We shut the plant down last year to rebuild it, and we pretty much almost doubled our capacity in the finishing side of our business, and there are different types of film.

In doing so, we also recently launched our own direct distribution brand of films. The purpose in doing so is to stabilize the market and make sure that supply is available everywhere as demand has increased. We're excited about the motion picture business, the increase we've seen there, the commitment that more and more directors are using motion picture film and also the increase in demand in still film. This is part of our ongoing commitment to the industry.

I'm going to move on to some of our highlights of our core business, our commercial print business. As we did over the years, we continue to invest in new products, and you're seeing that today. We will continue to deliver and provide a full range of product solutions to both offset and digital print. As an example, we provide pre-press workflow software called PRINERGY from their world-class CTP, Computer Plate Machines that etches the plate.

We then provide lithographic printing plates that are made right here in Columbus, Georgia and the United States. We also manufacture them in Germany and in Japan. This allows us to supply each region and make sure we're meeting customer demand. We also offer some of the best digital presses in the market.

On top of that, right, world-class service. What that tells you is we're a full-service provider for our printing industry customers. We also don't have print isn't litho or digital. It's both, it's and. Customers need both. That's why we supply both. But we will continue to be very clear, to grow, innovate and invest in our printing business. I want to touch on a topic from last quarter that generated a lot of misleading reporting and demonstrated a fundamental misunderstanding of the circumstances leading to the going concern disclosure.

The media coverage caused a diversion of resources to answer unfounded questions from a variety of sources. Management spent countless hours with customers, suppliers and investors around the globe counteracting the false narrative that was created.

This is a complicated topic, closely related to the reversion process. Please read the 10-Q disclosure carefully and feel free to reach out to our Investor Relations team if you have any questions at all. The prior condition about Kodak's ability to continue as an ongoing concern has been resolved, eliminating the need for the going concern disclosure in this quarter. Again, please read the 10-Q carefully or call our Investor Relations if you have any questions. I will now turn it over to Dave to discuss our third quarter financial results.

[David Bullwinkle, executive]

Thanks, Jim, and good afternoon, everyone. Thank you for joining us today. This afternoon, the company filed its Form 10-Q for the third quarter ended September 30, 2025, with the SEC. As I always do, I recommend you read this filing in its entirety.

We are very pleased to report Kodak had an excellent quarter with strong business performance that delivered significant year-over-year growth in gross profit and operational EBITDA. Additionally, our consolidated revenue grew as a result of the continued expansion of our Advanced Materials and Chemicals business. We also increased our cash balance by $13 million from June 30, 2025.

Later in my remarks, I will provide a summary of financial highlights and additional commentary on the quarter and year-to-date results. At this time, I would like to provide an update on significant developments in the termination and settlement process for the U.S. Kodak Retirement Income Plan or KRIP.

On the second quarter 2025 earnings call, we communicated key milestone events within the termination and settlement process that were expected to occur. These were the transfer of annuity obligations and lump sum settlements. We have executed on these items and are on plan for a reversion of excess assets in December of 2025.

Now for the specifics on these milestones. On October 21, 2025, the annuity obligations for all KRIP annuitants was transferred to Metropolitan Tower Life Insurance Company through the purchase of a group annuity contract. The premium for this was funded directly and solely by the assets of KRIP. This covers approximately 27,000 participants and beneficiaries and represents $1.8 billion of pension obligations. On October 1, 2025, KRIP settled approximately $76 million of pension obligations through lump sum payments to deferred vested participants.

And on October 31, 2025, KRIP settled approximately $157 million of pension obligations through lump sum payments to active participants. We expect the remaining liabilities for missing participants approximately $15 million of pension obligations to be transferred to the Pension Benefit Guaranty Corporation, or PBGC missing participant program in late November 2025.

After KRIPs liabilities and applicable regulatory requirements have been fully satisfied, we estimate KRIPs surplus assets at $1 billion. From these surplus assets, the company expects to transfer or otherwise contribute 25% to fund the new U.S. Kodak cash balance replacement plan for active participants, which is identical to active employee benefit features of the prior plan and settle the 20% excise tax liability attributable to the reversion.

After the capitalization of the replacement plan and settlement of the excise tax, the company projects remaining proceeds will approximate $600 million, consisting of cash of approximately $450 million and $150 million in noncash assets, primarily hedge funds, which are in the process of redemption. Kodak believes no material amount of income tax will be owed on the reversion proceeds due to available tax attributes at the company.

How will we utilize these funds? Approximately $305 million of the cash proceeds will be used to pay the company's term loans as required by our credit agreements, which will reduce the principal balance to approximately $200 million, lowering interest expense going forward.

Furthermore, including the reversion proceeds, we expect to end 2025 with a cash balance of more than $300 million. Kodak will then be in a net positive cash position with respect to the term loans and our Series B preferred stock obligations. The replacement plan is projected to have assets with a value of approximately $250 million after initial funding, allowing Kodak to provide valuable benefits to its current employee base for the foreseeable future without additional cash cost to the company.

As stated earlier, the replacement plan provides benefits to active employees at the same level as the KRIP plan. Additionally, as we previously reported, on August 8, 2025, the Series C preferred stock held by Grand Oaks Capital was exchanged for shares of common stock of the company. This exchange eliminated the entire outstanding amount of the original $100 million in Series C preferred stock and over $24 million of outstanding accrued paid-in-kind dividends.

Lastly, as disclosed in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2025, Kodak had debt coming due within 12 months and its plans to adequately fund its debt obligations at that time were not solely within the company's control, and therefore, were not deemed probable under U.S. GAAP.

As included in our Form 10-Q filing today, the company extended the maturity dates of the term loans and the letter of credit facility agreement, settled approximately $2.1 billion of KRIP pension obligations and is in the process of transferring the remaining liabilities of approximately $15 million for any missing participant to the PBGC.

Upon completing the transfer of these remaining liabilities to the PBGC, all pension obligations under KRIP will be fully settled and the excess pension assets will be distributed to the company and the Kodak cash balance plan. Based on the actions completed by management, the company plans to receive sufficient proceeds from the reversion of cash to the company in December 2025 to adequately fund the company's debt obligations required to be paid from such proceeds or otherwise maturing within 12 months as of the filing of our Form 10-Q for the third quarter 2025.

Therefore, the prior conditions that required Kodak under U.S. GAAP accounting standards to include cautionary disclosure about its ability to continue as a going concern have been fully resolved. Please refer to the Form 10-Q filed with the SEC today for further information and disclosure on all of these matters.

I will now share a summary of financial highlights of the full company results, operational EBITDA and cash flow for the third quarter and first 9 months of 2025. Kodak continued to build on its strong foundation during the third quarter of 2025. In the face of an extremely difficult global environment with economic uncertainties around global trade and inflation, Kodak delivered strong financial results, particularly within gross profit and operational EBITDA, which reflects meaningful progress towards executing against our priorities and long-term goals.

On Slide 7, highlights of the third quarter 2025 results are as follows: revenues of $269 million, up $8 million or 3% year-over-year. Revenue up $4 million on a constant currency basis. Gross profit of $68 million, up $23 million or 51% compared to 2024, attributable to improved pricing and volume and lower aluminum costs, partially offset by higher manufacturing costs.

Gross profit is up $22 million on a constant currency basis. Our gross profit percentage for the third quarter was 25% compared to 17% in 2024. The company's GAAP net income for the third quarter of 2025 was $13 million, down $5 million or 28% from 2024. These results include a $26 million decrease in noncash pension income, excluding service cost component in 2025 due to our lower expected return on assets for KRIP as a result of a change in investment strategy.

Net income was down $4 million year-over-year when adjusted for an asset impairment charge and noncash changes in workers' compensation and employee benefit reserves. The company's operational EBITDA for the third quarter 2025 was $29 million, up $28 million from 2024, favorably impacted by improved pricing and volume, lower aluminum costs, lower spend related to certain litigation matters and a prior period inventory reserve adjustment, partially offset by higher manufacturing costs.

Operational EBITDA was up $24 million year-over-year when adjusted for noncash changes in workers' compensation and employee benefit reserves and the impact of foreign exchange.

Turning to Slide 8. A summary of year-to-date results for the 9 months ended September 30, 2025, include revenues of $779 million, up $2 million or roughly flat year-over-year. Revenue is down $4 million on a constant currency basis year-over-year. Gross profit improvement of $13 million or 9% or $12 million on a constant currency basis. The company's gross profit percentage was 21% compared to 20% in 2024.

Company's net loss was $20 million, down $96 million when compared to 2024. This is largely driven by a $70 million decrease in pension income, excluding service cost component in 2025 related to the KRIP plan. The company's net income was down $59 million when adjusted for an asset impairment charge, a gain on the sale of assets and noncash changes in workers' compensation and employee benefit reserves as presented on the slide.

Operational EBITDA was $40 million, up $23 million from 2024, favorably impacted by improved pricing, lower spend on investments and a prior period inventory reserve adjustment, partially offset by higher aluminum and manufacturing costs and a decline in manufacturing volume.

Operational EBITDA was up $21 million year-over-year when adjusted for noncash changes in workers' compensation and employee benefit reserves as well as the impact of foreign exchange.

Moving on to cash performance highlights for the 9 months ended September 30, 2025, as presented on Slide 9. The company ended the third quarter with an unrestricted cash balance of $168 million, an increase of $13 million from June 30, 2025, primarily driven by improved profitability from operations covered earlier in my remarks.

In addition, as presented on the slide, net cash used in operations improved by $2 million for the 9 months ended September 30, 2025. The 2024 period includes $40 million of cash proceeds from brand licensing. This is partially offset by a $19 million increase in PIK interest under the term loan arrangement in 2025. The cash balance at September 30, 2025, decreased $33 million from December 31, 2024, primarily driven by capital expenditures to fund growth initiatives and changes in working capital.

Restricted cash increased by $3 million, primarily due to an increase in cash collateral required to support the company's actuarial workers' compensation obligations with the New York State Workers' Compensation Board. Excluding the change in restricted cash and the effects of foreign exchange, the company recognized a $2 million increase in cash and cash equivalents when compared to the prior year period.

In closing, and as highlighted earlier, we delivered strong third quarter financial results. And we have executed flawlessly on the pension reversion process, which resolves any uncertainties with respect to our ability to deal with our debt obligations. We continue to improve the strength of the foundation we have worked diligently to create, which provides us the opportunity to fund our ongoing operations, invest in our growth initiatives and convert our historical investments into returns for the long term.

In addition, we will continue our disciplined approach to cash management, driving operational efficiencies and margin improvement to deliver sustainable long-term value for our shareholders. Finally, as disclosed in our Form 10-Q, we remain in compliance with all applicable financial covenants. I will now turn the discussion back to Jim. Thank you.

[James Continenza, executive]

Thank you, Dave. In summary, as we continue to invest in our core business, it gives us a competitive advantage. It's a core competency. We've done most of this for decades. Once again, a strong quarter in many ways, one of our best quarters in many years, $23 million in gross profit.

Advanced Materials and Chemicals continues to execute as expected. We continue to execute on the reversion plan, which is allowing us to then fix the balance sheet to where we deem it appropriate and giving us the freedom to accelerate our growth.

Let me be clear, so there's no misunderstanding. Just delevering and fixing your balance sheet doesn't make you a better company. We have to continue to put our customer first, care for our employees, execute on our long-term plan, invest in R&D, expect execution and operational excellence at all times. It is our job to make sure that this company is better today and better when we leave than when we got here.

Our job is to care for shareholders and make sure they get the return they're looking for from a company. Our job is to take care of our customers and make sure we're exceeding their expectations and most importantly, care for our employees to make sure they're equipped to do all the things that are needed to deliver excellence in this company.

Once again, I want to thank our employees, outstanding job of delivering, our leadership team that makes this happen and our customers for staying with us. I'm blessed to have great investors and a Board who has stayed the course on long-term investing and never took a shortcut and delivering for shareholders. Thank you, and good night.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.