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James Continenza

Welcome, everyone, and thank you for joining the third-quarter 2024 investor call.
We continue to be committed to executing our long-term plan. We continue to invest in innovation, increase operational efficiency, focus on smart revenue. When we say focus and invest in innovation, let's be clear, advanced material and print is what we do today.
But inside of that is digital print, traditional print, Advanced Materials & Chemicals, film, motion picture film, Eastman Business Park, brand licensing, and other large investments that have been building out of our cGMP clean lab, including the reagent facility. We're going to keep investing in battery technology as one of our core skill sets is substrate coating.
So as I walk you through who we are, what we are, let's get into the numbers.
Revenues of $261 million for the third quarter of 2024 versus $269 million for the third quarter of 2023. The decline has slowed and right where we expected it to be. That's right within expectations.
When we look at the gross profit, we're coming in the quarter at 17% in 2024 versus 19% for the third quarter 2023. The numbers are strong. And let me tell you where we're at on this. When I look at the impact that we had on our plate business from jumping from China and Japan over the last several years, it has drove the other US manufacturers out of America.
When we looked at what happened with those tariffs and the pressure put on, we thought hard and automated and invested to keep these jobs in America and fight for the US printers. And we're going to cover that tariff later on in this discussion. So when I look at gross profit at 17%, it's been a hard battle considering they were getting subsidies on multiple things, and the tariff numbers will reflect that.
So let's talk about a big part of our future investments in the last five years, Advanced Materials & Chemicals, as we refer to as AMC, right? As we continue to grow the different initiatives, and I touched on some of them earlier, which really comprises of film, chemicals, substrate coating for EVs and, again, the build-out of the reagent facility and the cGMP clean lab, right, it's exciting to see these dollars come to work and see the productivity increase.
Our film sales have increased on motion picture and in still film and other films. So on film, right, we're doing a shutdown in November, total shutdown. We've continued to invest in our manufacturing process, while we need to shut down completely to bring light into the dark, right? Film is made in the dark. So in November, we will be modernizing the plant, putting more investment within that, which has also caused us to use more cash in the quarter to build up inventories while we do this.
But as we continue to see our commitment and our customer commitment to film, still in motion picture, we are going to continue to invest in that space and continue with that growth.
We're also looking at, as we look at the park, the buildings and the infrastructure. We've invested heavily in the infrastructure. And I'm proud to say we just reopened another one of our buildings, and we have now moved into that building. So the park is really coming to life. It's one of our key assets and something we can't forget.
Every time I walk through that park, I see power. I see chemical recovery. I see waste management. I see a fire department. I see electricity.
And I can go on and on of the power of that park, and we continue to put that to work and bring US jobs back to the park.
So I'm going to move on to commercial print. Let me bring you some highlights, and this is really important to get through. So as I mentioned earlier on the ITC, we were granted an affirmative decision 3:1 from the ITC on the plates tariff. What does that really mean? Being the last US manufacturer, the others have all left, we reinvested in our plants. We bet on our American workers, and we were able to get a favorable ruling. What does that mean? It ranges anywhere from a 91.83% then to a 353.09%. What does that mean?
That means Kodak now has a level playing field that we could go out, compete and sell plates and not have a disadvantage of government interference in the pricing of a commodity and a material. It's a big move for the US and a great move, obviously, for Kodak and our customers.
Now I'll turn it over to Dave to discuss the financial results.

David Bullwinkle

Thanks, Jim, and good afternoon. This afternoon, the company filed its Form 10-Q for the quarter ended September 30, 2024, with the SEC. As I always do, 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 third quarter and nine months ending September 30, 2024.
The company's results reflect the continued focus on executing against our priorities and long-term plan, including driving smart revenue and aligning with the right customers, pricing rationalization, cost reductions, launching new products and investing in innovation and information technology systems. The company's financial results are within our expectations at this point in our long-term strategy and for the current year.
On slide 7, we reported revenues of $261 million for the third quarter of 2024 compared to $269 million in the prior year quarter, a decrease of $8 million or 3%. The decline in revenue slowed notably when compared to recent quarters, reflecting our ongoing focus on driving smart revenue and strong profitability. On a constant currency basis, revenue declined by $9 million compared to the prior year quarter.
Gross profit decreased by $5 million or 10% when compared to the prior year quarter. Gross profit for the current year quarter was unfavorably impacted by a net change in employee benefit reserves of $3 million, an inventory reserve adjustment of $4 million in the Electrophotographic Printing Solutions business and higher aluminum costs of $5 million. Foreign exchange had no impact on gross profit in the current year quarter.
Our gross profit percentage was 17% in the third quarter of 2024 compared to 19% in the prior year quarter, unfavorably impacted by the factors previously noted.
On a US GAAP basis, we reported net income of $18 million for the third quarter of 2024 compared to net income of $2 million in the prior year quarter, an increase of $16 million. The 2024 and 2023 third quarter results include expense of $2 million and income of $3 million, respectively, related to noncash changes in workers' compensation and employee benefit reserves.
Prior year quarter also includes a loss on extinguishment of debt of $27 million resulting from a refinancing transaction. Excluding these current and prior year quarter items, net income for 2024 was $20 million compared to net income of $26 million in the prior year quarter.
Operational EBITDA for the quarter was $1 million compared to $12 million in the prior year quarter. Excluding the impact of noncash changes in workers' compensation and employee benefit reserves in the current and prior year quarters, operational EBITDA declined by $6 million when compared to the prior year quarter. Foreign exchange had no impact on operational EBITDA in the current year quarter.
Operational EBITDA for the third quarter of 2024 was also unfavorably impacted by higher manufacturing costs driven by an increase in aluminum costs, changes in employee benefit reserves, and inventory reserve adjustment as well as an increase in costs associated with certain litigation matters.
Turning to slide 8. For the nine months ending September 30, 2024, we reported revenues of $777 million compared to $842 million in the prior year period for a decline of $65 million or 8%. Adjusting for the unfavorable impact of foreign exchange of $3 million in the current year period, revenue decreased by $62 million or 7% when compared to the prior year period.
Gross profit decreased by $11 million or 7% when compared to the prior year period. Gross profit for the current year was unfavorably impacted by a net change in employee benefit reserves of $2 million, an inventory reserve adjustment of $4 million in the Electrophotographic Printing Solutions business and higher aluminum costs of $1 million. Foreign exchange had no impact on gross profit in the current year period.
Our gross profit percentage was 20% for the nine months ending September 30, 2024, compared to 19% in the prior year period.
On a US GAAP basis, net income was $76 million for the nine months ending September 30, 2024, compared to net income of $70 million in the prior year period, an increase of $6 million. The 2024 year-to-date results include expense of $1 million related to noncash changes in workers' compensation and employee benefit reserves and income of $17 million related to a net gain on the sale of assets.
The 2023 year-to-date results include charges of $2 million related to changes in the fair value of embedded derivative liabilities and $27 million related to a loss on the extinguishment of debt and income of $9 million related to a refund from a non-US governmental authority and $3 million related to noncash changes in workers' compensation and employee benefit reserves. Excluding these current and prior year items, net income for the nine months ending September 30, 2024, was $60 million compared to net income of $87 million in the prior year period, a decline of $27 million.
Operational EBITDA for the period was $17 million compared to $43 million in the prior year period, a decline of $26 million. Excluding the impact of noncash changes in workers' compensation and employee benefit reserves in the current and prior year periods, operational EBITDA decreased by $22 million compared to the prior year period. Foreign exchange had no impact on operational EBITDA in the current year period.
Operational EBITDA for the current year period was unfavorably impacted by lower volumes and higher manufacturing costs and inventory reserve adjustment, changes in employee benefit reserves, higher selling and administrative costs associated with investments in information technology systems, and organizational structure improvements to drive further operational efficiencies as well as costs associated with the drupa trade show and certain litigation matters.
Moving on to the company's cash performance presented on slide 9. The company ended the third quarter with $214 million in cash and cash equivalents, a decrease of $41 million from December 31, 2023, which is in line with our expectations. The decline reflects our continued CapEx investments in supporting AM&C growth initiatives, along with building working capital in this business to allow us to supply customers as we make improvements in our manufacturing facilities.
For the nine months ending September 30, 2024, cash used in operating activities was $11 million, primarily driven by a use of cash from net earnings of $25 million, partially offset by cash flow from balance sheet changes of $14 million, including a change in working capital of $26 million and a decrease in other liabilities of $39 million.
Within working capital, accounts payable decreased by $1 million, inventory increased by $25 million and accounts receivable decreased by $52 million compared to the prior year period. The decrease in accounts receivable is primarily due to $40 million of cash proceeds received in January 2024 from brand licensing. The team continues to focus on improving profitability and performance in working capital, which enhances the company's ability to generate cash.
Cash used in investing activities was $22 million for the nine months ending September 30, 2024, an increase of $7 million when compared to the prior year period, primarily due to an increase in capital additions of $24 million partially offset by proceeds from the sale of assets of $17 million.
Cash used in financing activities was $21 million for the nine months ending September 30, 2024, compared to cash provided by financing activities of $87 million in the prior year period. This change was primarily driven by net proceeds of $90 million received from refinancing transactions in the prior year period and $17 million related to the repayment of the amended and restated term loan agreement made during the first quarter of 2024 from the proceeds received from the sale of assets within investing activities.
Restricted cash decreased by $14 million when compared to the balance of $122 million as of December 31, 2023, primarily driven by strategic efforts to reduce cash collateral and escrow requirements for certain company obligations and business arrangements.
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 and cash collateral required under the letter of credit facility in addition to escrows to secure various ongoing obligations. We will continue to focus on alternatives to reduce restrictions on cash.
As presented on the bottom portion of the slide, excluding the effects of foreign exchange, prior year period impact of a refund from a non-US governmental authority and net proceeds from refinancing transactions, the year-over-year decrease in cash and cash equivalents was $34 million.
As stated earlier in my remarks, the company's financial results are within our expectations at this point in our long-term strategy. 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 applicable financial covenants. I will now turn the discussion back to Jim.

James Continenza

Thank you, Dave. Our ongoing investments are going to continue. We're going to continue to innovate. None of this is going to change. We're staying to our plan.
We're going to keep investing in AMC, our growth initiatives and our future, layering, coding and taking advantage of our skill sets.
I was just up in Rochester, and we have a massive, large apprentice program, four years of training and learning and dedication. And watching them graduate and come into our workforce full time and highly skilled, I'm so proud of them that made it through because it's a hard, hard thing to do, right, as we continue to increase jobs. So we're going to keep investing in those things we talk about.
And to make it clear, we're going to keep investing in battery technology as one of our core skill sets is substrate coating. And we're going to continue to invest in reagent and a clean lab facility. This is where we're going.
I want to thank our customers for staying loyal to us, helping us, supporting us, and help driving us bringing Kodak back to where it needs to be. And more importantly, I need to thank our employees because this is tough times, and they continually exceed the expectations that we put on them and the quality and the levels of the products that they develop and sell.
I want to thank everyone for dialing in, your interest in Kodak, and letting you know we're doing everything we can to help drive the value back in the business.

Operator

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