Eastman Kodak Company (KODK) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Kodak's First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Bullwinkle.

Good afternoon. My name is David Bullwinkle, Director, Global Financial Planning and Analysis and Investor Relations for Kodak. Welcome to the First Quarter Kodak Earnings Call. At 4 p.m. this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the first quarter of 2014. You may access the presentation and webcast for today's call on our investor center at investor.kodak.com. During today's call, we'll be making certain forward-looking statements as defined by the United States Private Securities Act of 1995. These forward-looking statements are subject to a number of uncertainties or risk factors, which are clearly described in the company's 10-K and in the company's quarterly filings and which are qualified by the Safe Harbor Provisions in our filings. We advise listeners to read these important cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important risk factors or uncertainties. In addition, the release just issued and the presentation provided contain certain measures that are deemed non-GAAP measures. Reconciliations to the most directly comparable GAAP measures has been provided with the release and on our website in our investor center at investor.kodak.com. Speakers on today's call will be Jeff Clarke, Chief Executive Officer of Kodak; and Becky Roof, Chief Financial Officer of Kodak. Jeff will provide some opening remarks and his perspectives on the business and the quarter. Then Becky will take you through our first quarter results before we open it up to questions. I will now turn this over to Kodak CEO, Jeff Clarke.

Thanks, David. Welcome, everyone. It's been 7 weeks since our last call on March 19 when we issued 2013 results. I will discuss 4 primary areas on which Kodak is focusing to manage our business and achieve our plans: first, invest in and enable growth in our strategic technology businesses; second, manage the expected decline and optimize cash flow in the mature businesses; third, reduce costs and streamline processes to improve operating leverage and efficiency; fourth, I will discuss the nonlinear profile of our plan this year. Area 1 is growth. Kodak is in a strong position to lead our customers through their shifts in production efficiency, simplicity, value and growth in printing and imaging. Our customers are embracing our technology as reflected in the rapid growth in our key product areas. In 2014, we expect to achieve year-end installed base of PROSPER Presses of more than 40. We have created opportunities with OEM partners like Bobst and Timsons to accelerate our growth. Utilizing our Stream Technology, our PROSPER Presses provide quality which approaches offset, unrivaled productivity and low total ownership costs. We expect to increase by about 1/3 the number of PROSPER S-Series imprinting systems in the field to more than 1,000. These systems offer speeds which match offset web presses as well as high-value customization capabilities. We expect achieve a 25%-plus increase in placements of FLEXCEL Systems for Packaging customers to more than 400 units. We expect to quadruple both our SONORA volume and the number of customers at year end. This technology platform is breakthrough because of its environmental and economic benefits. Printers also achieved the quality, productivity and print capability of mainstream processed plates. We expect to grow our Unified Workflow Solutions business, which includes our industry-leading PRINERGY Workflow Software by about 10%. These products are part of our strategic technology businesses. The strategic technology businesses include established businesses where Kodak currently has significant market share, such as our Graphics business, including digital plates, our computer-to-plate output devices and workflow software. This category also includes the high-growth businesses such as Digital Printing Solutions, Packaging, Functional Printing, as well as Intellectual Property and Brand Licensing and Enterprise Services. Looking at our performance for the first quarter, you see Kodak's transformation is still a work in progress. While we achieved good growth in several of our product lines within the strategic technology businesses, we also had substantial declines in the mature businesses. Overall, the results are within our expectations for the company. Let me take you through the business highlights. While we are seeing good growth in several key products, revenue for our strategic technology businesses in total decreased by 11% for the quarter or 6% when removing nonrecurring IP Brand Licensing revenue. Our legacy businesses within the category, primarily Digital Printing and Graphics, represent strong annuity contributors with a large installed base, which is experiencing declines. In parallel, the emerging technologies on which we are focusing are developing an increasing scale. Therefore, we see revenue declines year-over-year in this category in total. Graphics revenue is down year-over-year by 4%. Approximately 3% of the decline results from volume reductions, and about 1% is a result of price erosion. We expect to see growth in the second quarter in Kodak plate volume, led by the growth in SONORA Plates. In fact, in April, we saw volume growth in the plate business versus last year. Highlights of the growth within Graphics include double the number of customers using SONORA, with plate volume up more than 5x, in line with our full year projections. Our customers are recognizing the advantages of SONORA Plates. W.O. Jones Printers, a family-owned, high-quality commercial lithographic printer in North Wales has increased customer confidence and strengthened its business model by shifting to Kodak SONORA XP Process Free Plates. Digital Printing Solutions also exhibited areas of growth in the quarter. In our PROSPER product line, we grew 23% year-over-year, including annuity growth of 34%. Japs-Olson Company, a large provider of quality direct mail communications based in St. Louis Park, Minnesota credits the PROSPER S-Series Systems for the recent growth of its hybrid printing operation. Japs purchased an additional 24 printhead this quarter, bringing their total S-Series printheads to 120, all driving personalized direct mail at offset speeds. We delivered growth in our Packaging business as well this quarter. The annuities generated from our FLEXCEL NX Systems grew by 55% in volume for the quarter, which also resulted in manufacturing productivity gains of about 10% in our worldwide packaging production. We expect continuing productivity improvements with higher volumes for the year, which will result in approximately $3 million of improved margin. Overall, operational EBITDA for the strategic technology businesses declined by $11 million year-over-year due to nonrecurring IP Brand Licensing revenue in the first quarter of last year. Without that reduction, operational EBITDA improved by $13 million. Again, it improved by $13 million. Our second focus area is mature businesses, which include Entertainment and Commercial Films, as well as Consumer Inkjet. Revenue decreased 43% year-over-year. Operational EBITDA for this business -- for these businesses was $8 million for the quarter. We will continue to manage these expected declines. The third area of focus is to reduce costs and streamline processes. I'm pleased with the reduction in operational SG&A, which is down $40 million on an annualized year-over-year run rate basis in Q1. This improvement in Kodak's cost structure will provide operating leverage to the growth we are planning in our strategic technology businesses in the second half of the year. Becky will review the details of our cost reduction programs in her remarks. We are also addressing [ph] of the cost of our manufacturing footprint in Graphics and satisfying the growing SONORA demand by implementing a regional manufacturing strategy. We are consolidating our plate manufacturing from 5 sites to 4 worldwide while increasing our capability to manufacture process free plates globally. We formulated this plan to drive local sourcing while continuously improving manufacturing quality, production efficiencies and customer service across our entire digital plate portfolio. As a result, we will realize $4 million in operational savings in 2014 and upon completion in the second quarter of 2015, expect to deliver another $20 million to $25 million in annual operational savings. Overall, this will increase our factory productivity by 14%. The company is also reviewing additional structural and vendor cost reductions and will be implementing them over the next few months. I'd also like to give you a brief update on the status of the Eastman Business Park sale process. We received several inquiries and have selected a global real estate firm to lead the process. EBP is one of the nation's largest and most diverse industrial and technology parks. It costs the company more than $10 million a year to operate beyond our own space requirements. We will continue to provide updates as we make progress. The fourth and final area I'd like to discuss is the nonlinear profile of our plan. As you'll recall, for the full year 2014, we expect to deliver revenue between $2.1 billion and $2.3 billion and operational EBITDA of $145 million to $165 million, with growth in our strategic technology businesses offset by the decline in mature businesses in both revenue and operational EBITDA. At the full company level, the first quarter operational EBITDA was $3 million. This is clearly not a linear run rate to deliver $145 million to $165 million in operational EBITDA for the year. Let me provide some additional detail on the second half skew in our plan. Our full year plan incorporates a significant proportion of our operational EBITDA in the second half of the year. The skew in our plan results from 3 factors, each delivering about 1/3 of the improvement from the first half to the second half EBITDA. First, as experienced in prior years, sales in both Graphics and Digital Printing businesses are seasonally weighted to later quarters. Second, the annuity revenues for our PROSPER and FLEXCEL product lines are increasing, driven by new equipment placements, as well as incremental new business in Functional Printing. Third, benefits from ongoing cost improvements will accrue as we gain efficiencies across administrative and manufacturing functions. I'll now turn the call over to Becky who will review the financial results for the quarter.

Good afternoon, and thank you, Jeff. Today, the company filed its Form 10-Q for the first quarter of 2014 with the SEC. I recommend that you read that filing in its entirety. I'm pleased to share my thoughts and comments on the quarterly results reported in that document and in our earnings release. First, I would like to review the improvement in our net loss quarter-over-quarter. As the slide demonstrates, we are comparing Q1 2014 to Q1 2013 on an apples-to-apples basis. The information is taken directly from the company's consolidated statement of operations in the 10-Q and adjust for large items in 2013 that provide an uneven comparison to 2014. As shown, the net loss for Q1 2014 was $36 million compared to net income in Q1 2013 of $283 million. However, 2013 included other operating income of $494 million, primarily from last year's gain of $535 million from the sale of the digital imaging patent portfolio. Our reorganization costs in Q1 last year were $120 million compared to $5 million in Q1 this year. And finally, last year, we had a loss on early extinguishment of debt in the amount of $6 million. Taking all this into consideration shows the comparable improvement of $54 million year-over-year. Turning to current quarter results. Consolidated company revenue declined 19% year-over-year, and gross profit decreased from $149 million in Q1 2013 to $86 million in Q1 2014. Offsetting these declines are improvements in operating costs in the current quarter versus the prior year. Q1 SG&A expenses decreased by $31 million year-over-year. In terms of a percentage of revenue, SG&A declined from 20% of revenue in 2013 to 18% of revenue in the current quarter. And we plan for this percentage to decline further as revenue grows in our succeeding quarters this year. This reduction resulted from a number of actions, including headcount reductions of approximately 1,750; the elimination of overhead costs upon the completion of the Document Imaging and Personalized Imaging sale to the Kodak Pension Plan in the U.K.; decreases in pension expense; facilities consolidations and renegotiations of vendor contracts during Chapter 11. In addition, the emergence from Chapter 11 in September of 2013 has significantly reduced the company's reorganization costs from $120 million in 2013 to $5 million in the current quarter. Overall, the company's operational EBITDA declined from $50 million in Q1 2013 to $3 million in Q1 2014. Both our operational EBITDA and income statement results for the first quarter are within our expected ranges. And as Jeff described, we have 3 key areas which are planned to cause our full year results to be heavily skewed to the second half of the year. Turning to year-over-year quarterly results in our operating segments. Our Graphics, Entertainment & Commercial Films or GECF segment's revenue declined by $70 million or 18%, resulting from volume declines in Entertainment and Commercial Films as the motion picture industry continues its transition from traditional film to digital distribution and graphics. The declined volumes in Entertainment and Commercial Films contributed 9% to the 18% decline, and Graphics contributed 2%. Licensing revenue also declined by $24 million as a result of a onetime event in Q1 2013, which contributed the remaining 7% to the revenue decline. As Jeff indicated, we expect volume improvements in Graphics in the second quarter fueled by our SONORA product and have already seen evidence that we will deliver on that expectation. GECF gross profit decreased $56 million as a result of the revenue reductions just described, as well as the impact of increased depreciation, amortization and other expense of $9 million resulting from the application of fresh-start accounting. Gross profit margin decreased from 22% in Q1 2013 to 9% in Q1 2014. Of the decline of 13 percentage points, Graphics showed a positive pickup of 4 percentage points over 2013, while Entertainment and Commercial Films showed a decline of 11 percentage points, and Intellectual Property and Brand Licensing showed a decline of 6 percentage points. Partially offsetting the reduction in gross profit on a year-over-year basis is an $11 million reduction in SG&A expense. This represents the overall reduction of SG&A costs I previously described plus benefits from restructuring actions taken to remove costs as revenue declines primarily within the Entertainment and Commercial Film areas. Year-over-year, GECF segment earnings declined by $46 million, and operational EBITDA decreased by $43 million due to the factors I just discussed. Moving on to the Digital Printing and Enterprise or DP&E segment. DP&E revenue in the first quarter decreased $31 million or 16% as a result of declines in Consumer Inkjet ink sales, which accounted for 11% of the decline, and Digital Printing revenues, which accounted for 4% of the decline. Enterprise Services and Solutions accounted for a 3% decline. Our Digital Printing and Packaging business, which includes our FLEXCEL NX equipment and consumables, partially offset these decreases due to increased annuities from a larger installed base, resulting in revenue increases of 2%. Gross profit for DP&E decreased by $10 million, resulting from the reduction in Consumer Inkjet revenue. In addition, depreciation and amortization expense increased by $5 million, primarily from the application of fresh-start accounting. Gross profit margin decreased from 26% to 25% due to a smaller proportion of sales from Consumer Inkjet ink in Q1 2014 versus Q1 2013. R&D expense also increased by $5 million year-over-year for DP&E in total due to fresh-start depreciation and an increase in expense as new products neared commercialization. DP&E segment loss increased by $7 million, and operational EBITDA decreased by $4 million due to the reasons described. On an annualized basis, the operational SG&A reduction in Q1 provides us with $40 million of cost improvement on a full year run rate basis. And we plan to achieve another $10 million of improvement throughout the year. These reductions have and will come from all areas and include headcount reduction, the movement of certain functions to lower-cost geographies and rigorous review and renegotiation of third-party extended expenditures as we continue to variabilize our cost structure. Based on the results we achieved in Q1, we expect that our 2014 revenue will fall within the range of $2.1 billion and $2.3 billion, and our operational EBITDA will fall within the range of $145 million to $165 million. These are the same ranges discussed on our last call. Focusing on our current cash flow and balance sheet. We're pleased with the progress we are making, as well as the strength of our balance sheet. As of March 31, 2014, we reported cash of $809 million and debt of $677 million. Of the total $809 million, $277 million is held within the U.S. and $532 million is held outside the U.S. On the March call, I indicated I would provide an update on our net operating loss or NOL situation when it was appropriate. In Note 17 of the December 31, 2013, Form 10-K, we disclosed that we have estimated NOLs of $1.382 billion on an aggregate worldwide basis. Final NOL amounts will be known once all tax returns are filed later this year. Approximately, 1/3 of our $1.382 billion disclosed NOLs are in the U.S. These NOLs are subject to annual Section 382 limitation, the amount you can use per year against taxable income. Federal NOLs have a 20-year carryforward. As of Q1 2014, we have not experienced a significant change to our NOL position nor do we expect to during the year. In Note 17 of the December 31, 2013, Form 10-K, we disclosed that we have estimated foreign tax credits or FTCs of approximately $101 million. The $101 million of FTCs were generated post-emergence and, thus, not subject to the Section 382 limitations. FTCs have a 10-year carryforward. As previously stated, Kodak expects to incur approximately $20 million in tax expense -- that would be cash tax expense for 2014. These taxes are incurred primarily in countries outside the U.S. I would now like to turn it back to Jeff for closing comments.

Thank you, Becky. I'm very excited about the strategic technology businesses. They are the growth opportunities for Kodak. We will make significant investments in these businesses, including approximately $100 million of R&D, as well as $40 million of CapEx. These will be -- these investments will be in the next generation of our PROSPER Press and writing systems, OEM partnership agreements in Digital Printing and Functional Printing, Packaging product enhancements, including smart packaging solutions, continuing developments and capacity in our process free plates and workflow software. In addition, we've strengthened our management team. Just last week, we brought in a terrific talent in Eric Mahe to formulate strategy and coordinate efforts in software, OEM partnerships and channel marketing. He has an outstanding track record over his 25 years in the technology businesses, with such companies as Pitney Bowes, Sun Microsystems, PA and Xerox. We'll now be happy to take your questions.

[Operator Instructions] And our first question comes from the line of Trent Porter of Guggenheim Partners.

Yes, I have a long 2-part question. So when I think about the -- your nonlinear ramp in the strategic technology businesses, it seems to me that some of this ramp you probably have a tremendous amount of visibility into. For example, the JTOUCH agreement in Functional Printing. And you -- I'm guessing you have a fair amount of visibility into your forecasts for growth in installed base. Maybe you got orders or something. So I was wondering if you could help us, if possible, give a little bit more flesh on the bones in terms of visibility first by maybe apportioning this ramp between how much is coming from growth in the annuity from the PROSPER Presses and the FLEXCEL NX, and then how much is coming from Functional. And anything else you can tell us about the visibility that you've got.

Okay, so excellent question, Trent. So the -- we do have a lot of color on this. I don't want to go into all of the color, but I'll try to answer your questions as best I can. First, at the highest level, realize that Kodak has a lot of fixed costs. And so in a quarter like Q1 where we have materially less revenue than in the following 3 quarters, that fixed cost make -- drives our margin down because we don't cover that with the top line. And so I mentioned, for example, our largest business, Graphics, the plates business. This business, for the first time in many, many quarters, grew in April. Its decline of the 4% in this past quarter is one of the smallest declines we've seen in some period of time. So the fact that these businesses have seasonality, and then they -- as they -- I mean, they absorb additional factory capacity, and they cover the fixed costs that we're working our way to try and reduce. So the first part is that -- and just think of -- I'd like to consider that as well. In terms of visibility into the things, yes, we have a pretty good visibility. The fact is most of our PROSPER Systems are long sale cycles. These are not systems that are sold over a 2-month period, so we have a good visibility into our backlog. Obviously, like any company, when you're sitting in May, we've got 7 months to close some of these products. And these products have high revenue, in the case of the systems, and high revenue and high margin, in the case of the components. In terms of the annuities, we have good -- excellent visibility into the annuities because we know the systems that have been placed, and we can track very closely the annuities that they're burning. In terms of materiality by group, I will share with you that largest materiality of swing in terms of the top line is in the inkjet printing systems. In terms of Functional Printing, you're -- in the JTOUCH agreement, the UniPixel agreement, the Kingsbury relationship, we've said for some time that this is a second half business. This is a business that when we do achieve the revenue, it is treated much like an annuity. It goes very quickly to the top line and all the way through to the bottom line, as well as covering overhead costs. So we continue to project that we will have a contribution from the Functional Printing business in the second half of the year and that, that will have a meaningful impact on the second half skew versus the first half skew. The other thing to remember is that on top of the Graphics business, which I referenced, and on top of the Inkjet business, we are seeing very solid growth in our Packaging business. And that Packaging business had not only top line growth on the FLEXCEL systems that we sell, but it also has the growing annuity, of which we did share on -- in my remarks that that's a $4 million half-on-half swing. So hopefully, that -- and the other thing is obviously there -- the third element I mentioned was the cost side. We have very good visibility into our ability to take out costs. Some of the costs associated with manufacturing have already been announced, and we're moving the lines in the plates business there. So those are pretty predictable, too.

Okay, understood. And so the -- on the Eastman Kodak industrial park, is it possible to -- I think the answer is no. But if you could give us any way to ballpark or guesstimate how material potential proceeds from a sale, if it does happen, could be, do you think?

It's a complex -- it's a very complex industrial park. And I'm not going to tip our buyers to negotiate -- pre [ph] with our buyers. But we expect a good price from it as any good real estate salesperson would say in any transaction.

And our next question comes from the line of Amer Tiwana from CRT Capital.

My first question is regarding the Consumer Inkjet business, if you could give us some sense of what EBITDA contribution was in the quarter.

We don't disclose specifics on that. However, it was -- we do share with you -- if you go to Page 6 of the slides, you'll see that there was $8 million of overall EBITDA in the quarter from both our Commercial Films and Consumer Inkjet business. And you should realize that a larger portion of that is in the Inkjet than the Consumer -- Commercial Films business.

Sure. Secondly, I wanted to ask you about the strategic businesses. And you had given a range of about $100 million of target EBITDA. Given your performance in this quarter, I know you're reiterating your guidance for 2014. Are we still expecting about $100 million from the strategic businesses?

So the answer is we are not changing the original guidance. I just want to fully understand what's your basis. We're looking at a -- in the strategic businesses, what we gave -- just so everyone on the call has the same numbers, we gave a operational EBITDA projection for the strategic businesses of $100 million to $115 million, up from $9 million in 2013. So yes, the $100 million is still what we're projecting. And on the top line, we're projecting anywhere from $1.825 billion to $1.975 billion at the high end, about an 8% growth. And so yes, obviously, as you make a plan during the year, you have lots of puts and takes between areas. But we're still projecting that those are in the ranges that we -- that we're looking for.

Sure. And my last question is regarding your working capital. Any sense of what we should expect for the full year. And to that end, I assume your cash -- you had given year-end cash guidance which remains the same as well.

This is Becky. Let me address that. Our cash used in operations in the first quarter was a very positive trend. Due to the seasonal nature of our business, we traditionally consume cash in the first quarter. During Q1 2014, $44 million of cash was used in operating activities, which is an improvement of $215 million compared to the $259 million of cash we used in operating activities during first quarter of 2013. With regards to the full year, we expect our cash balance to remain even, year end-to-year end. There, of course, will be puts and takes during the year as we generate cash from working capital in some quarters and use cash from working capital in other quarters. But generally, we expect to stay even year end-over-year end.

And our next question comes from the line of Donald Madigan from Garden State Securities.

Yes. I just have a simple question. I've been wondering, you mentioned UniPixel. Your earnings estimate, are they included in this quarter report? Or is it -- when do you expect to generate future revenue from either UniPixel or Kingsbury?

What we've said in the past, which I'm reiterating that -- today, is that we expect revenue and earnings contribution from our Functional Printing business, which includes both UniPixel and Kingsbury in the second half of the year. We are incurring costs in that business now, so costs are falling through -- we're obviously losing businesses book [ph] as we're pre-revenue in those important OEM relationships. Yet we do expect to deliver both revenue and positive EBITDA in the second half of the year.

And our next question comes from the line of Jen Ganzi [ph] from Newmark Capital.

I was just wondering, did you just mention that the sort of the Commercial Inkjet printing is also down this quarter?

So we didn't break out specifics within our strategic technology businesses or within our Digital Printing and -- Digital Printing business, but did you do...

We talked -- I believe what I said was that our Digital Printing and Packaging results have revenue increases of 2%.

Okay. Between the 2 of them?

I did not break that out.

Okay. So I was just curious. I guess [indiscernible] talked about sort of that inkjet printing solutions. Is that one of the businesses that are going to -- that are sort of back-half loaded then?

Yes. I mentioned earlier that the largest swing in top line, first half to second half, is in the inkjet printing systems. And this is our -- again, our PROSPER Presses, our PROSPER components. That's what is driving the largest half-on-half growth. And that business, again, has a lot of investment costs, as I've mentioned, in it. And so as we build the annuity stream and continue to sell high-revenue and high-margin components, as well as high-revenue and modest-margin systems, that will improve both revenue and our profitability in that business. And it will be a second half improvement in EBITDA versus the first half.

Okay, got you. So these are all contracted situations and such. And then just to understand a little bit about sort of the runoff businesses, I know you're not breaking it out. But seeing sort of your Graphics, Entertainment & Commercial Films business kind of swing to -- swing really negative on the EBITDA side, is -- can we sort of kind of guess that there could potentially be some sort of negative margin on those runoff businesses at this point? Or is that not the right assumption?

So here's what has happened. And if you go to Page 6, you'll see that this is a -- these businesses, both Consumer Inkjet and Entertainment and Commercial Films, are declining rapidly, I think 43% year-over-year. And the operational EBITDA went from $44 million down to $8 million. I did not disclose that either of them are profitable or negative. But I did say, if you remember, in my earlier remarks that the Inkjet business is more profitable than the Commercial Films and -- Entertainment and Commercial Films business. Our objective in managing these businesses is to manage it from an optimal cash flow perspective. We have certain inventories in place. We have a series of assets in place in these businesses, and we're trying to manage it for optimal cash. And that's what we are going to do. Is there a possibility that it makes [indiscernible] in the negative EBITDA at one point in one of the businesses? Of course, that's possible. But we try and optimize cash flow and try and mitigate that with other cost actions.

And our next question comes from the line of Shannon Cross from Cross Research.

Jeff, I think you've now been at Kodak about 2 months. I think that's right in terms of timing. I'm just curious as to if you could give us -- you take a step back, and sort of give us your impressions of what you've found in the business, what surprised you, what -- then either on the positive or negative side, sort of how you're thinking about the business now that you've had a few weeks to sort of absorb things.

Yes. And I think, Shannon, you can kind of tell the tone through my remarks. This is a business where we have fantastic market-changing assets. I'm very, very excited about our Inkjet businesses, our PROSPER Systems. I'm very exciting -- excited about our SONORA plates that add both environmental and efficiency attributes to our customer. I'm very excited about our flexible plates business, which is growing very rapidly in the packaging market. So we've got a series of assets that each can be very large businesses for Kodak. However, each of these businesses is still in an early stage in their development. And none of these businesses has yet built the annuity streams that you need in a business like this when you're managing with the very rapid declines of your Entertainment and Commercial Films and Consumer Inkjet businesses, as well as some of the more flat and the more secular declines with your EPS business, and you're not in your traditional non-process free plates. So what you've got here is a very mixed portfolio, all great products. But we're clearly going to emphasize the growth of these products and the strategic products I've outlined. And that's going to be the key toward the real leverage of the cost structure in Kodak and the growth of the company. So this is a year of transition. And what I found is we've got a great ability to scale these businesses. We're seeing some nice trajectory on some of these businesses. But at the same time, we've got some real mature product sets that are going to decline. So given that, what do you do? You prioritize rigorously around where you're going to invest and you manage for cash flow the other businesses. And at the same time, you try and streamline your processes and run the company in a much more efficient way. I mean, we all know that Kodak is a company that at one point was much, much larger than it is today. And there's still some reengineering of processes and streamlining that we need to do to get the overhead structures in line with the current size of the business. So it's been an exciting 2 months. I've had the opportunity to meet several of our customers. I've done reviews of almost all of our global businesses, spent last week in Europe, going to fly out tomorrow to get back to Europe for another 10 days to meet with more customers and look at more opportunities. So I'm pleased with where we are, but we have a lot of work to do.

And we have a follow-up from the line of Trent Porter of Guggenheim Partners.

Yes. So I was wondering, the -- first of all, the mature businesses that the -- you did $8 million, and the decline seems -- and we expected a steep decline, but it was steeper than I expected in the first quarter. Is there a nonlinearity that you're expecting there and seasonality? And then if I have time, I had a second question on the SONORA. Assuming that the volume quadruples, what would that make the SONORA Plates in terms of percentage of total plate revenue? What would it do to your blended margin? And are you gaining share in the plates market as a result of your SONORA Plates?

All right. Let me see if I get all those. First, I think if I can paraphrase what you said, it -- are the mature businesses declining a little more -- a little faster than we had expected? And second, is there a second half linearity on a favorable basis in those businesses? And the answer is the Inkjet business is declining both slower than we had expected, and the Film business is declining a little bit faster than we had expected. In terms of second half linearity, yes. While both these businesses are declining, the second half -- first half, second half is relatively better. That doesn't mean that they're growing first half and second half. It's just that the decline is at a lower rate. And so that will give you a sense of where we are in the mature businesses. Your second question was what I'm very excited about -- is SONORA. Yes, we believe we are gaining share with SONORA because it is a unique product. One of the things I mentioned in my remarks is that we are not only going to increase the rate of -- the number of placements of SONORA Plates, but we're going to materially also increase the customer base. Many of these are new customers choosing to take the -- all the efficiencies of a process free plate -- of moving the process free out of their system. And there's lots of economics. I urge you to go to our white paper, which we have published on this, which we use with the customers, that shows that there's not only material environmental savings by reducing the chemistry, there is material water savings as a result. And there are significant labor savings as you take out an entire step in offset process. In terms of the total percentages, we're not disclosing the total percentages. But you -- but I would expect that the total non-process piece of the business will continue to exceed 20%, and SONORA is a large part of that process. And it would not surprise me that if we continue to see this growth, that SONORA will become an increasingly large part of the Graphics business over the next couple of years. In terms of margins, the main thing we're doing in terms of improving margin is lowering our manufacturing costs by moving from 5 plate factories to 4. What we're also doing is adding SONORA lines. I was in Germany last week, did an operational review of our manufacturing process and reviewed the new SONORA line we have in Germany. Very excited about it. As you probably heard, we're also adding a SONORA line to our Georgia factory. So this additional regional capacity is going to allow us to get these -- more of these plates out there, where there's substantial customer demand. Thanks for the question, Trent. I think -- are there any other more questions, operator?

We have one final question from the line of Christopher Hillary from Independence Capital.

I wanted to ask on the outlook you gave. What are some of the things that are driving the range on the high and the low end? Is it the pace of decline in the mature businesses? Is it some of your growth businesses and getting those placements out in the second half of the year? Can you just give us a little more context? And does the first quarter kind of non- [ph] -- if it does -- does the first quarter have a big impact to the seasonality on that?

No, the range -- we left a lot of range. When we started the year and gave this guidance, we wanted to have a relatively broad range. And the reason is that unlike most companies, we've got multiple moving parts. At the same time, were taking out costs and reengineering our factories and a lot of our processes. We have businesses that are materially growing and businesses that are materially declining. Trying to get that just right in terms of predictability as well as operations is quite a challenge. And so we've put a broader range than we would typically do because there's a lot of variables. Now that we've got 4 months of actuals, and I've just finished our fifth month, obviously, we're seeing more -- we're seeing a closer sense of where we're getting. That said, we're going to hold with these ranges because frankly, there's a lot, as you can tell, to go in the second half of this year as well as the rest of this quarter. So we think it's prudent to hold a little bit broader range simply because our business had multiple transformations across it. Thank you very much. I thank everyone for joining us on the call today. We look forward to reporting out again at the end of the second quarter. And we're pleased, as I said, with some of the growth in our key areas. And we do realize we have a lot of work to still do. So I thank you, all, and wish you all the -- I'm sorry, a good rest of your day. Bye-bye. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may, all, disconnect.