Good afternoon, ladies and gentlemen, and welcome to the Eastman Kodak Q3 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. David Bullwinkle.

Thank you. Good afternoon. My name is David Bullwinkle, Director, Global Financial Planning and Analysis and Investor Relations for Kodak. Welcome to the Third Quarter Kodak Earnings Call. At 4:00 p.m. this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the third 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 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 will be Jeff Clarke, Chief Executive Officer of Kodak; and John McMullen, Chief Financial Officer of Kodak. Jeff will provide some opening remarks and his perspectives on the business and the quarter; then, John will take you through additional details of our third quarter results before we open it up to questions. I will now turn the call over to Kodak's CEO, Jeff Clarke.

Thanks, Dave. Welcome, everyone, and thank you for joining the investor call for Kodak's third quarter. We'll begin by summarizing overall performance for the quarter. Then, we'll give a big picture overview of the key businesses comprising Kodak's portfolio today. Several of which were in different stages in their life cycles. We'll walk you through Kodak's strategic growth businesses as well as our mature businesses and provide both current context and financial performance for each. Next, we'll update you on where we are and our ongoing efforts to reduce costs and optimize our structure to drive an increased efficiency and effectiveness throughout Kodak. Finally, we'll give you an update on our expectations for the full year. So to start with the overall performance. For the quarter, full company revenue was $564 million, flat year-over-year. The company delivered $19 million in net earnings for the quarter, a key milestone for us since our emergence. Operational EBITDA for the company was $89 million, a $47 million year-over-year increase. Within our strategic technology businesses, we achieved total revenue of $475 million in the quarter, with solid growth in several areas and overall growth at 8%. Our operational EBITDA for the strategic technology businesses up $64 million, improved by $67 million year-over-year, including $51 million of non-recurring brand licensing and intellectual property revenue. Now before going more deeply into the numbers, I'd like to provide you with an over arching perspective on where we are with our portfolio of businesses so you can understand the progress we're making as well as the challenges we're tackling head-on. Here's the big picture of Kodak today. Let's start with the Graphics business. Graphics is Kodak's largest business. It's foundational for us and represents over half our revenue. We've been successful over the course of the year in…

Thanks, Jeff, and good afternoon. Today, the company filed its Form 10-Q for the third 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 company's quarterly results. On Slide 13, you'll see a summary of our consolidated results for the quarter. Total company revenue of $564 million is flat year-over-year while gross profit increased $49 million. Gross profit margin was 28%, a 9 percentage point improvement year-over-year. This improvement includes the benefit of IP and brand licensing revenue within the quarter of $51 million. We also continued to drive year-over-year improvements in operating costs. Q3 SG&A expenses decreased by $26 million year-over-year. These improvements are the results of a number of actions, including headcount reductions and associated overhead costs, savings from global benefit changes, facilities consolidations and renegotiations of vendor contracts. As Jeff mentioned in his remarks, we will continue to focus on opportunities to further reduce our cost structure and improve organizational effectiveness going forward. Overall, the company's operational EBITDA for the quarter was $89 million, a year-over-year improvement of $47 million versus 2013. On a year-to-date basis, operational EBITDA is $119 million, slightly up from $116 million in 2013. The results of the third quarter represent improvement for the company and its operations. As we reported in our earnings release, net earnings for the quarter were $19 million compared to net earnings of $1.986 billion as recorded in Q3 in 2013. 2013 is a difficult compare due to the impacts of fresh start accounting implemented in September of 2013. Looking at Slide 14. On a year-to-date basis, when comparing our results for 2014 to the results for 2013 on an apples-to-apples basis, the comparable improvement was $399 million year-over-year. Applying the…

Thank you, John. Why don't we move on to questions, Dave?

Thanks, Jeff. Candace, we're ready to open the Q&A session. Please remind the callers of the instructions for asking questions.

[Operator Instructions] And our first question comes from the line of Shannon Cross of Cross Research.

The first one, can you just talk a bit about how we should think about the trajectory of the legacy businesses? And clearly, it's -- they've outperformed this year, but is there something that you think will continue to sort of I don't know, beat expectations as we go into '15. So it provides somewhat of a cushion as you ramp some of your growth businesses, or if you can just give a little bit more color on what you're seeing on the legacy side. And then, I have a couple of more questions.

Yes, so it's really a bifurcated performance in the legacy side. The Consumer Inkjet has done modestly better than we expected, and I think Film has done modestly worse than we've expected. I think we fixed the Film midyear when we went out and worked with studios. And I've come to a position where we're going to continue to manufacture film for the foreseeable future, and we've got some commitments. I hope everyone goes out and see Interstellar. It's out there on Kodak film and being printed, and so we'd love to see a payback for those directors that do use film. In terms of trajectory, we're -- we're -- we kind of this year, set up the year that the legacy -- the strategic businesses would improve by about $100 million in EBITDA, and the legacy business would go down by about $100 million. And we've been modestly less of a reduction than the $100 million in the legacy, but these businesses will -- from a film perspective, we expect it to stabilize and continue to provide EBITDA to the company -- and perhaps even as we build some new applications, such as functional printing using film, to even grow that over time. But the Consumer Inkjet business is going to decline and continue to decline, and that is planned because we don't sell printers anymore. So we -- the inkjet cartridges that we sell continue to go into a declining installed base. So I would not count on the mature businesses contributing significant amount of going forward because whatever improvements we make on the Film side, certainly, we're going to see a continued decline in the Consumer Inkjet side.

Okay. Great. And then, if you can talk a little bit on the FLEXCEL side -- market share. Where are you seeing demand from a competitive standpoint? Where you see the market going, and what do you think is driving the substantial growth there? That would be helpful.

Sure. So this is a really exciting story. Again, this is a business that we just really entered 6 years ago, and it uses so many of the underlying technologies of our company. So it's a really a great example of the portfolio of technologies coming together to make a disruptive product in the marketplace. So we entered the marketplace really 6 years ago, and we've got to about 9% to 10% market share now. So we're quite pleased with where we are. We think that market share is going to continue to grow, as I mentioned. We will be up about 400 installed FLEXCEL NX Systems out there, and we're seeing increased use of the packaging consumables on it. We -- I think, you saw the number 34% growth in the consumables. And so this is a nice business with good momentum in a growing market, and it's doing well. The differentiation is multiple. The primary one is that the resolution and output is visibly better than the competition, and that's how you go from 0% to 9%. This is an example of better technology going in, and we've achieved that through using our SQUAREspot Technology and a series of other technologies. But on top of it, by having a CTP that is integrated with the plate. Our competitors either sell CTPs or sell plates, but they don't have the integrated system, and it's materially different. So we think we've got a leg up. We have a competitive advantage, and that advantage is increasing over time as more people see the output of this product. So very excited about FLEXCEL NX.

Great. And then, just my last question is on the IP license -- or not the IP licensing -- sorry, the brand licensing. How should we think about that on sort of an ongoing basis? Clearly, I think there's a lot of opportunity from a Kodak brand standpoint. I know a lot of it is sort of onetime in nature, but it does provide us a nice boost to cash and margin. So how do you sort of think about that? I know you've mentioned new hires in that. So are you changing your strategy with it? Are you being more aggressive? Just where do you think that tops out?

Yes, good -- thank you for the question, Shannon, and let me go a little bit more into detail because not everyone is on the call maybe following this as closely as you are. The -- so we have a bucket called brand licensing and intellectual property licensing, and that the intellectual property licensing, which also includes litigation supporting our 7,000 patents. That -- this quarter was a pretty material number, with $51 million of EBITDA this quarter, and that will continue to be lumpy this intellectual property licensing as we go out and find parts of our intellectual property that is good to partner with or license or occasionally even sell a patent. So that's part of it. What Shannon asked is the brand licensing part of the equation. Now brand licensing is where we go approve a product like a camera or batteries, and we then license the Kodak name in exchange for a payment or a stream of payments. Historically, the company has had done the brand licensing with kind of one -- mostly up front onetime payments. And the approach we're going to take is we'll look at that occasionally, but we'll much rather build annuities because -- and longer term, revenue share-type annuities with our licensing partners. And what we have overdoes in licensing partners, and we can see that growing into the 20s and 30s. There's many, many products out there that we believe will be relevant to the consumer with the Kodak brand on it. It will have to be a product that has great quality because we're very protective of our brand and will have to have a very good partner that has good manufacturing capability and so forth. But you are right, we are investing more in this year. We see this as untapped opportunity. We've added some resources in this area. This organization is now reporting lithoto Steven Overman, our new Chief Marketing Officer, and we believe it will have a lot more energy. We have a booth set up at CES at the Consumer Electronics Show in January. And we're excited to roll out some new partnerships for that event.

And our next question comes from the line of Jen Ganzi of NewMark Capital.

Just to clarify, you mentioned I think last quarter that the PROSPER side of the business is ramping up, and I think you'd expect -- you were sort of at a run rate EBITDA of about $100 million at that point. Is that still -- are the numbers still accurate? Is it higher? Is it lower? Like how should we think about that?

So -- we don't -- I hope I didn't state on the last call. Well, I'll get the transcript now. No, we don't have a -- PROSPER is a business that is not at EBITDA. It is -- we're -- it's not attributing to EBITDA. It is growing relatively rapid -- rapidly, and the way the PROSPER system is, we sell these systems out there. We have 2 types of products we sell. We sell presses, and we noted about 40 presses out in as an installed base. And then, we also sell components. On the components, they have fairly high margins and pretty good EBITDA. But the presses, we want to get out there in order to sell consumables, which are highly profitable going forward. And so -- and there still is a significant amount of engineering associated with this business. So this is a business that is not quite a start-up anymore, but it's falling into the stage where it's going to be a significant contributor. That -- the run rate on the business, I would -- I don't know if we've given that number before. Dave is shaking his head so I will -- we won't give it now. But again, it's a -- I'll give you a little of the back of the envelope to help you. We have 40 installed systems out there. The systems range in price between roughly $2 million and $3.5 million a piece. And then, we have components that can range from between $100,000 and $200,000 per component, and often our only components are sold for hybrid, digital printing environments and offset, primarily. Those systems can be sold in multiple units of each. The annuities, which is the ink, is quite profitable, and that business is growing in double digits in annuity, and that's exciting. And the page growth that I referenced in my remarks is up over 50%, and that bodes well for this increased installed base and people using the applications to print more, okay?

And our next question comes on the line of Trent Porter of Guggenheim Securities.

A couple of quick ones. First, the $100 million of R&D. Does that number come down materially when functional printing -- if your 2 functional printing businesses leave the nest so to speak? And then, also, I think like you said, you still got some R&D investment in the PROSPER Press, or does it simply get replaced with R&D in incremental growth opportunities?

Yes. I think the $100 million is a good placeholder at this size of our business to using your plans going forward. We, of course, are always looking for opportunities to have higher ROI on our R&D, but this is a fundamentally a technology-driven company. And we see significant additional opportunities beyond the touch screen sensor implementation in micro 3D printing. So there are additional micro 3D or a functional printing opportunities that we see I referenced a couple in my remarks. We're also doing a lot of basic science around inks and toners that support our electrophotographic business and our inkjet businesses, and we, of course, are working on engineering for new applications of PROSPER. While the 6000 Press has been completed, and that's a great writing system. The fact is there are many new applications such with new OEM partners that allow for additional R&D to open up this incredible technology to go into new markets. So net-net, I would -- I think, the $100 million is a number that I would use as a rough placeholder for the expenditures as long as we remain a company in the $2 billion range of the business. So if you just back that out a little bit, quite $1 billion of our revenue is around the graphic arts plates business. That business does take R&D around the SONORA implementation and new types of plates and for CTPs, but it typically has more closer to 1% or 2% R&D for that more mature business. Our more advanced businesses will be more of a 10% of revenue R&D. And so that's how you get to the $100 million on a $2 billion business. So -- and of course, as we grow further, we will invest more in these opportunities.

Okay. And then, I wanted to ask a couple more, if I could. The first one, any chance this -- the new China integrator that you announced, should we think of that as something that would ramp significantly more quickly than Kingsbury? It sounds like it's based on the same technology. So given the fact that you've already had the breakthroughs and the learnings with Kingsbury, does that go to market much quicker once it launches in the second half of 2015? And then, maybe I'll get to spit the second one out also. The $51 million in non-recurring IP, pre-petition you can almost set your watch by this kind of non-recurring IP settlement. But I assume sort of after that big IP sale, that wouldn't be the case. And so do you view this as a potential $51 million headwind that sort of might, if you're lucky, get filled by another or several more IP settlements in 2015? Or are you today looking at sort of a pipeline of cases, if you will, in that in combination with your visibility and the potential growth in brand licensing could fill this headwind?

Okay. 2 separate questions. Let me address the first one first. So the Kingsbury process is replicable, and so now we're at production samples, we now can -- with Kingsbury can sell these machines to other manufacturers and that has always been the business model. So while Kingsbury here in Rochester, we'll -- we could -- we will print touch screen sensors and sell them to JTOUCH, as we announced in January. We will also replicate those systems, we can -- then, we can locate those systems in Rochester or anywhere around the world with other partners who want to make touch screen sensors. So the answer is this is a scalable business, and it's a vast business. The touch screen sensor business is very large. I reference a $30 billion annual size to this market, and we're very excited to be in it with -- at production quality at production levels now. And it does take a while to make use of these systems. They are very sophisticated, but we're very pleased with the opportunity with our Asian partner. On your second question, around the pipeline. So the $51 million, that -- $42 million of that was related to a settlement associated back with the Digital Imaging business. That Digital Imaging business, that was a set aside that the company could still pursue. That business -- we don't expect future licensing or legal settlement issues related to the digital imaging set of too many of the digital imaging patents and the digital camera patents that were sold as part of the bankruptcy. There are -- there remains 7,000 patents. Some of which are a different flavor of digital imaging, but most are of more of core technologies around electrophotographic, around the types of toners and materials science and around…

Okay, and then, this is my last question. As a segue from that, it occurs to me almost afraid to ask this question because I think you'll smack me down. But is it possible to somehow ballpark pro forma if the installed base of the PROSPER Press and the FLEXCEL NX system, if you began the year with a current installed base of those, and the PROSPER and Printing System and also began the year with the SONORA being 9% to 10% of digital plates. Is it possible that at least that order of magnitude, how much of a swing that would mean for sort of a pro forma EBITDA?

Yes, we're not going to give guidance on -- I think, this is -- can be a soft smackdown. We're not going to give any guidance for next year. I think, if you look at my remarks closely, you'll see that there are several factors happening in our portfolio. We've got a very stable Graphics parts business, the plates business that has a important growing component within it in SONORA. We have several businesses in FLEXCEL NX, Packaging, PROSPER and touch screen sensors that we expect to have solid growth in the future and we have some businesses that are going to decline and they overlay that by the efficiencies we've talked about in our cost structure, and you should be able to tune in to a range. But we're not going to give you guidance at this stage.

[Operator Instructions] And our next question comes from the line of Amer Tiwana of CRT Capital.

I have a bunch of questions. I'll start with my first one, which is around working capital. How do you see that shaking out for the rest of the year? And secondly, I was little bit surprised with your -- I don't know if it's cash guidance that you gave but you said cash will be around the level that it was at the end of third quarter. If I remember correctly, you had previously said that cash will be roughly going from 2013 to '14 flat and if I look at the numbers it was around $8.4 million at the end of '13. So if you could just explain to me, what the bridge is or if things don't work out as planned? That's my first question.

So let's go back refer people to the chart that we provided on the bridge and I'm going to let John take you through it again. I think, there are a couple -- the only high-level comment I will make is that the company will continue to pursue good cash uses that will drive recurring profits going forward. So when we originally gave some guidance around cash, several things have happened since then including the opportunity that we found to accelerate some reductions in both manufacturing and in our overall cost structure and those because a onetime cash usage with pretty good returns. So with that, I'll hand it over to John because he'll take you through inventory, working capital and everything else.

Thanks, Jeff. So first of all, I'll just go back a little bit to my prepared remarks in the slide that hopefully you are able to see here that we went through in the earnings presentation. So what we did here is we provided really a bridge of cash usage from the end of last year up to a year-to-date basis. So you see, obviously, interest and debt payments are part of our capital structure. We do have a significant amount of reorganization and legacy payments are coming out of Chapter 11 in the emergence process this year, and we are moving on our restructuring actions and that has a cash inflow, outflow. And in terms of prior year incentives, so the way the company operates a lot of the incentive compensation payments from the prior year are paid out into next year. So we're paying those for 2013. We're spending CapEx, investing back into the company and we have had some negative impact from a foreign exchange point of view. Now let me talk to you a little bit kind of about the second half impact, and how we get from where we are today to effectively in expectation of flat to modestly up between now and the end of the year. As Jeff mentioned, we are absolutely accelerating and increasing restructuring actions where we see good opportunities that make sense for the company going forward. And it is an important element of the company longer term, certainly, as we enter into 2015. But we're also investing in inventory to support a growing pipeline in the PROSPER space. In 2 ways really and Jeff talked about this in his remarks, but both in terms of our direct opportunities but also in terms of an expanding OEM portfolio for us…

Sure. That's helpful. On that question, maybe, the next question I can ask is around the balance sheet. You know, obviously, I think there is a significant opportunity here to perhaps address the debt structure. What are your plans over there?

Yes, sure. So let me talk a little bit about opportunities in general. Clearly, when it comes to our debt structure, we are watching the marketplace constantly in terms of overall where the market is, and what it means for us. And we are opportunistically looking at that in terms of what it could mean from us down the road in terms of our financing structures. But if you think about other things as we move forward from a cash point of view, I think it's important to carry some of these things forward, and if you look at -- heading into 2015, there's a number of things that are going to help us from a cash flow performance point of view. Clearly, the actions that we've taken, from a cost structure and organization point of view have kind of a rolling snowball effect as we enter 2015 to the extent that we can accelerate those, we will. And there's a benefit to our performance going forward from doing that. There, there will be a material decline in the things that we've highlighted here around reorganization and legacy payments on a year-to-year basis. It doesn't mean that we won't have any residual expenses next year, but we should see a significant decline on that. I will tell you as a CFO of approaching 4.5 months to 5 months. I see opportunities for us going forward from a working capital point of view, and we'll be putting a lot of focus on that. We are now and moving into 2015. And on from a foreign exchange point of view, hopefully, it won't be a negative impact but that's not something we can plan for. But that just to give a little color on how we think about it as we exit the year and move forward. Hopefully, that's helpful.

Yes, that is. I'll just ask one more and then I'll perhaps get back on the queue. Again, in terms of opportunities that we can see here, you have outlined a significant number of things on the cost save side. Perhaps, and this is maybe when we talk about the EBITDA, the $51 million of non-recurring EBITDA that's in the numbers. Maybe you can talk about what impact of cost saves you can expect relative to 2014 going into '15 that may offset some of that non-recurring cash, cash flow. Maybe that's one way of asking guidance for 2015.

Yes. So again, let me repeat some of the things that we said because we are not going to get into guidance on this call, but we did outline that we've got a $50 million reduction this year that we'll realize on the P&L. A portion of that will carry over into next year because it wasn't all done on the first day of the year. The second item is we have done a material change to our global benefit programs and that will benefit us by $20 million year-over-year. The third one, we closed a factory and went from 5 to 4 factories -- this factory in Leads. We'll have a $20 million to $25 million impact on the annualized basis, $4 million of which will be reached -- realized this year. And next year, a portion of it will be realized because it won't be completed until the third quarter. So those are big swing numbers. And then, I also -- as you're doing your puts and takes and as -- I'm sure you are, we mentioned that we have some mature businesses that will continue to decline and there are businesses that are also going to grow.

And our last question comes from the line of Jen Ganzi of NewMark Capital.

I think, I got cut off before. So apologies for that. Just would've follow-up with a few other ones. Just on the Graphics side, is it possible for you to give a breakdown of volume versus price there?

We don't want that. Let's just assume that Agfa and FujiFilm are on the call, so let's not go there.

Okay. Fair enough. And then, just to reconfirm. Your EBITDA for the growth businesses, you mentioned was it going to be $85 million to $95 million versus I think it was like around like $100 million to $110 million?

Yes. So the original guidance for the strategic businesses was $100 million to $115 million, and the revised guidance is -- let me just double check, make sure I say the same thing, and the revised guidance is $90 million to $95 million.

Okay, $90 million to $95 million.

Sorry. I'm sorry. That's the year-over-year improvement. So we haven't been specific. So okay, so $100 million, $105 million. It will be single-digit decline and remember effectively that was $100 million to $115 million improvement that we had, and now we're saying we're going to have an improvement of about $90 million to $95 million. Okay?

Okay. Got it. And then, just on the M&A misses on the PROSPER side. Did you give any indications of what like your revenue growth rate is there versus just the volume growth rate?

We didn't do that. We're reviewing our systems. I think the exciting thing is, you've got about 50% page growth on the annuities. We have a mix. We a lot of swing factors in there. We didn't give a specific number out, but you can be assured that we're quite excited about continued growth of the PROSPER presses getting up to 40, and then the increased ability to do the OEM ones as well.

Okay, great. And then, I think it was on the last call. You mentioned that you expected to -- for 2014, quadruple the SONORA volume. Is that still the case?

I think -- we're at the triple, 3 over 300% -- over 300% is where we are.

Okay, great. And then just lastly, just housekeeping. Just to confirm the U.S. cash balance is $230 million, correct?

That's correct.

Well, thank you, everyone. I appreciate people taking the time in the call. As always, Dave Bullwinkle's phone is available. If you have any follow-up questions. And let me just -- in summary, I just want -- again, thank you. We continue to carefully manage this portfolio for Kodak. We're taking the actions that we believe necessary as well as making the continued investment we see going forward. I remain bullish about Kodak, and I'm very pleased that we hit a milestone this quarter. We're back in the black, and I'm very excited about that. So we look forward to talking to you when -- if I see you out there, if not, we'll see you on the next call sometime next year. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.