Good day, ladies and gentlemen, and welcome to the Eastman Kodak Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] I would now like to turn the call over to Mr. Bill Love. Sir, you may begin.

Thank you, Chelsea, and good afternoon everyone. My name is Bill Love, and I am Eastman Kodak Company's Treasurer and Director of Investor Relations. Welcome to the second quarter 2017 Kodak earnings call. At 4:15 PM this afternoon, Kodak filed its quarterly report on Form 10-Q, and issued its release on financial results for the second quarter of 2017. You may access the presentation and webcast for today's call on our Investors Center at investor.kodak.com. During today's call, we will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. All forward-looking statements are based upon Kodak's expectations and various assumptions. Future events or results may differ from those anticipated or expressed in the 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. There may be other factors that may cause Kodak's actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to Kodak or persons acting on its behalf apply only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in this presentation. 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 Web site in our Investors Center at investor.kodak.com. Speakers on today's call will be Jeff Clarke, Chief Executive Officer of Kodak; and Dave Bullwinkle, Chief Financial Officer of Kodak. Jeff will provide some opening remarks, his perspective on Kodak's financial performance, and guidance for 2017. Then, Dave will summarize first-half 2017 results, provide an update on cost reductions, and review cash performance before we open it up to questions. I will now turn the call over to Kodak's CEO, Jeff Clarke.

Thanks, Bill. Welcome everyone, and thank you for joining the Q2 investor call for Kodak. Kodak delivered net earnings of $4 million in Q2, and $11 million in the first half of 2017. For the second quarter, we delivered $14 million of operational EBITDA. For the first half of 2017, the company's operational EBITDA totaled $22 million. Our cash decline in Q2 2017 was $8 million primarily to support investment in new technologies, and for working capital to support growth in the second half of the year, offset by a $25 million reduction in the required ABL collateral. The performance to date is within our expectations for the first half of the year. We expect to see a higher proportion of revenues, earnings, and cash flow in the second half of the year. This will be driven by stronger -- I'm sorry, this will be driven by the normal stronger second half seasonality in addition to the following factors. First, revenues from brand licensing was in CFD. Second, the commercialization of certain AM3D programs, third, a reduction in the investment in copper metal mesh touch sensors, and fourth, continued productivity improvement and operational cost reduction. In addition, we'll see continued strength in our growth engine for FLEXCEL NX, SONORA Process Free Plates, PRINERGY software, and PROSPER. In this call, I will talk about strategic and product decisions, the company and divisional results for the second quarter, and our 2017 guidance. Dave will then follow-up with more details on year-to-date divisional results, and a detailed discussion of cash flow, after which we'll welcome your questions. Today, in addition to our earnings review, we're announcing our decision to shut down our investment focused on copper metal mesh touch sensors. As a reminder, we first initiated investments in touch screen technology through the…

Thank you, Jeff and good afternoon. Today the company files its Form 10-Q for the quarter ended June 30, 2017 with the Securities and Exchange Commission. As always I recommend you read this filing in its entirety. As we have noted our second quarter performance is consistent with our expectations and we are pleased with the growth in key product areas. I will share further details on the full company results and update on our cost structure and cash flow results and more detail on our full year cash flow outlook. Starting on slide 16, we summarized the GAAP financial results for the second quarter of 2017. As reported in our earnings release net earnings for the second quarter were $4 million compared to net earnings of $8 million in the second quarter of 2016 the decline of $4 million. Adjusted for the $14 million favorable impact from the revaluation of the derivatives embedded in the series A preferred stock. Lower interest expense of $8 million partially offset by $8 million of lower pension income and higher restructuring expense of $4 million the year-over-year decline in net earnings would have been $14 million. Moving to slide 17 year-to-date through June 30, 2017 net income was $11 million or $18 million above the net loss of $7 million for the same period in 2016. Adjusting for the items impacting comparability including the impact of the derivative embedded in the series A preferred stock of $36 million lower interest expense of $16 million. The one time depreciation and amortization catch up for PROSPER of $12 million. Litigation proceeds of $10 ten million received in 2016 lower pension income of $13 million and higher restructuring expense of $7 million. The year-over-year increase in earnings would have been $8 million. For the six months…

Certainly. [Operator Instructions] And our first question comes from the line of Shannon Cross with Cross Research. Your line is open.

Thank you very much. Hello, nice to talk to you.

Hi, Shannon. How are you?

Good. I guess my first is on the strategic sale or partnership with the IP. I was just trying to understand to the extent you can talk about it why you made the decision to announce that you're going to be doing this on this quarter's call versus after it was actually complete. I mean, is it almost done? What confidence level do you have in finalizing this?

We have high confidence level in finalizing it. The reason we're talking about it on the call is because it has a meaningful impact on our guidance for both cash and operational EBITDA. And so when we give guidance we want to make sure that we take a snapshot of the things that are going to be impacting guidance. This is one that is going to be impacting guidance in a good way. We're very pleased that the negotiations have evolved to the point where we're in negotiations around forming a company. I don't want to give any more details on the technology or the partner, but it's a positive development for Kodak, and we'll obviously share a lot of information when it's finalized.

Okay. And then you're setting down copper, you set down silver before, obviously tough decisions. How are you thinking about your product portfolio beyond that? And I know you don't want to make any announcements right now, but just in general. Do you think what you have now is pretty stable for the next, say, 12 months, or are you undergoing reviews of various businesses right now to determine whether or not they should remain growing concerns?

Yes, so again, I tried to address that in the call by breaking our portfolio into four sections. And maybe we can put the slide back up so people can just follow this as I speak about it. So there's one part of our business which comprises about 27% of our revenue, which is the growth area. That area is doing extraordinarily well. This is our very successful industry leading flexible packaging business. It's our industry leading offset SONORA plate, and it is our PROSPER business which today is in an installed base of about 60 presses that provide lucrative annuities, as well as Imprinting Systems. So that growth portion of our portfolio is solid. We're investing in it for growth, we're adding sales people. And in the case of flexible packaging we're investing and expanding our manufacturing factory in Weatherford, Oklahoma. So those are -- that area, and for our quarter of the portfolio everything is executing well, solid, kind of double-digit performance. Also in there obviously is our Software and Services business, PRINERGY also a leading area. So that part is our most highest expected returns, and is very strong. Then we have about 60% of our business that is what we call Strategic Mature. This is a business -- this is primarily our traditional CTP plates business as well as our electrophotographic business. These are profitable businesses, but businesses where the market for them are in decline. And those we manage more for cost. We don't have to invest as much in those. I wouldn't go as far as to call them cash cows because we make additional investments as it makes sense. But those are businesses that we don't expect to grow at the rates we're seeing in the growth engines. And then we have the…

Is there any potential to sell those assets or at least to license the IP to someone?

We will retain some significant IP, and we will continue to try and license that. There are other applications using the IP and the know-how that we learned. So trying to apply copper metal mesh in touch sensors at very low microns is one of the harder challenges in material science. And it was a high risk reward program. There are lower risk with still significant return programs, a couple of them I've mentioned, such as the printed antenna, that has a lower risk -- a much easier ability to manufacture and design. And so that program will benefit from what we learned, and the know-how, and some of the technical engineering that we will retain, as well as IP from the copper metal mesh program. As will other -- as mentioned, and 3D materials.

Okay, great. And then, Dave, can you talk a little bit about aluminum pricing, and currency, and any other puts and takes we should think about given some of the fairly significant moves that we've seen recently, at least certainly in the currency side?

Sure, Shannon. So we've provided some sensitivity in the past around FX rates. We've not seen anything significantly enough to change guidance for. We believe any foreign exchange movements are within our ranges. And we still expected roughly the headwind that we focused on and put on the slide. With respect to aluminum, as Jeff noted in his remarks, we've seen the price at the end of June come down, so we may get some modest tailwind, although over the last couple of days it's been up, actually spiking. Still down modestly from where it was last year around this time, but we're relatively well hedged at this point, so we don't expect a significant impact, positive or negative, to the company in 2017 from aluminum.

Okay. And then just one last question on the on the film side, how do we think about the contracts that you've signed with the studies, and the runoff you're seeing obviously in the consumer inkjet business. Just how are you sort of thinking about this business in 2018 and beyond? Are you getting enough from the studies to justify keeping everything going?

Well, the business itself is comprised of a lot of areas. As you know, it's, with $47 million of revenue in Q2, you need to think of this business as about a $200 million business. The motion picture portion of it is about $40 million to $45 million a year. So motion picture has a high profile. It's a product that's quite profitable for us. But it doesn't -- it's still only about a quarter of the overall revenues in CFD. And so we're very pleased with the progress we're making. The pipeline of both motion picture film for major motion pictures, but also for television now. Last year, we really just had two television series, Westworld, then The Walking Dead. Now we're up to four or five. And so we're very pleased with some of the growth in that area, but it's not going to be overly material relative to a $200 million business. So the larger part of the business is the industrial film, where we make films for printed circuit boards, we sell a series of chemicals that support the nine million rolls of still photography that could [indiscernible], we make a series of chemicals associated with other businesses around sensitizing and so forth. So that business headwind has been in the industrial film area, where as, again, the motion picture has done well, as has the brand licensing which is in this business. So the way I think about it is, it's a business that has a lot of fixed cost that we cannot easily transition out of given the Eastman Business Park, and some of the legacy issues around the electricity contracts for the park, and so forth. So it's important that we stay in the consumer business. It would be beneficial to the company to be in the consumer business with the film division even if we're losing money on an EBITDA level because the stranded costs would be so substantial if we got out of it. And we're doing well in a couple of segments, most notably motion picture, and doing well in the printed circuit board part of this. All this said, we expect this business to be a positive contributor this year. Now, while we were down $5 million in the second quarter here, we do expect to have positive contribution for the full year, positive EBITDA for the full year in CFD, even with the significant runoff of the consumer inkjet business. So this business, on an incremental basis, has significant contribution to the company, but even on a nominal basis will contribute this year. And we are very optimistic about the future growth in several categories, particularly brand licensing for CFD, motion picture film, and some of the other categories of industrial films.

Great. Thank you so much for all your answers. Appreciate it.

Thank you, Shannon. Next call, please.

[Operator Instructions] And our next question comes from the line of Gary Ribe with MACRO Consulting. Your line is open.

Hi, Gary.

Hi, Gary.

Hi, Jeff. Hi, Dave. How are you guys doing?

Well, thank you.

Very good.

I had a question on the cash. I guess you guys had used about $89 million in the first two quarters. So if I'm understanding your guidance correctly, you're hoping to generate somewhere between $89 million and $99 million of cash from the backend of the year?

So, we've used cash from an operating cash perspective of $64 million for the first half, the difference being the restricted cash release, which we were able to accomplish in the first half or the second quarter. So our guidance of or outlook for cash balance change from zero to $10 million would indicate or suggest that we generate about $65 million to $75 million in the second half. That generation will come primarily from, of course, improving operational EBITDA. You can, of course, can back in to the second-half number based on our guidance as well. That will be somewhere between $65 million and $80 million for the second half. We'll also be generating cash from working capital, significant cash. To date we've used about $45 million in working capital, and we expect for the full year we'll generate cash there of about $20 million, so that's a big swing primarily coming from inventory and accounts payable as I'd said in my remarks.

Okay, got it. That makes sense. I guess just kind of higher level. You're kind of going through all these various divisions and whatnot, and various growth and mature, what have you. I mean, to what extent does the mature businesses belong with the growth assets? And longer term is there something that you can do to kind of unlock value, because I think you've got some pretty valuable properties, but it doesn't -- you're never going to get credit for that in the market if they're all cobbled together this way. I don't know if there's a nice way to say that, it's just how it is.

Yes, Gary, thanks for the question and observation. One of the reasons why we talk about the company in seven divisions for a relatively small company from a market cap perspective and $1.5 billion in revenue is to give investors that granularity around the different parts of this company. And so, yes, the packaging business is on a completely -- the packaging printing business is on a completely different trajectory than our non-environmentally managed plate business. Our software business is very different than our film business. So we have very different businesses, each on different trajectories. That's why we're giving you this level of detail by each business. In terms of the strategic willingness of the company to try and be pragmatic around selling parts off and/or acquiring parts to get different levels of scale in some of our more attractive businesses, I think we have shown with the attempt on PROSPER that we're willing to try and sell different parts of business to monetize and change the portfolio. From an organic perspective, we're in a much better position than we were a couple of years ago where we have our growth businesses are now a much larger percentage of the company, and our investments in advance technologies now have real supply contracts and revenue that -- contracts in place. So there has been a big change there, but the company will remain pragmatic in both M&A and around the portfolio. We will look at East divisions as invisible, while there are some synergies across. Many of these businesses could standalone as a company on their own. And we are pragmatic as we look at that.

Got you. I mean you have got some pretty massive potential synergies with your biggest competitor out there. He was on the record saying he could spend €500 million, like, I mean it gives to me that there is a lot of opportunity there, and you know, I am going to hope that you guys will pick up the phone and call him.

Well, as I said, the company remains pragmatic around our business and bringing value to shareholders, obviously on anything speculative I can't comment.

Yes, thanks. Thanks, guys.

Thank you, Gary.

Thank you, Gary.

Chelsea, could you poll and see if there're any other questions?

Certainly [Operator Instructions] And I'm showing no further questions at this time.

Thank you, Chelsea. I would like to thank everyone for joining the call. To summarize, we continue to see strong execution in our FLEXCEL, SONORA, and PROSPER businesses. Our second quarter results included some significant investments for the future and advanced materials in our 3D printing business and ULTRASTREAM, and we do expect to have year-on-year improvements in our comparable 2007 operational EBITDA and cash flow. And so, we believe we are on track to achieve many of the things in our plans. Thank you very much. I appreciate your time.

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