The FINANCIAL — Eastman Kodak Company on November 9 reported financial results for the third quarter, ended September 30, 2016, delivering continued profitability on a GAAP basis driven by improved operations.
Highlights include:
GAAP net earnings were $12 million for the quarter ended September 30, 2016, compared with a net loss of $21 million for the same period a year ago. Income from continuing operations was $22 million for the quarter, a $28 million improvement over the prior year.
The company ended the quarter with a cash balance of $489 million, a decline of $24 million for the quarter. Adjusted for cash of $18 million used to prepay debt, the cash balance declined by $6 million in the quarter. In the same period a year ago, the cash balance declined by $55 million.
Revenues for the third quarter were $380 million, compared with revenues of $425 million in the same period last year, a decline of $45 million, or 11%.
Operating expenses (SG&A and R&D expenses) on a GAAP basis were $54 million for the third quarter, a 14% reduction compared to the prior-year third quarter.
Operational EBITDA for the third quarter of 2016 was $35 million, down $12 million compared to the third quarter of 2015. Operational EBITDA declined $9 million for the quarter on a constant currency basis.
The company reiterated 2016 revenues guidance of $1.5 billion to $1.7 billion and Operational EBITDA guidance of $135 million to $150 million.
The company remains committed to completing the sale of the KODAK PROSPER business, which is presented within discontinued operations. Kodak continues to make significant investments in the business, which grew its year-over-year annuity revenue by 41% in the third quarter.
“Kodak posted a second consecutive profitable quarter and we’re on track to meet our full-year guidance,” said Jeff Clarke, Kodak Chief Executive Officer. “We have an increasing proportion of our revenues coming from growth and other strategic businesses which reflects our improved quality of earnings.”
Net earnings improved by $33 million year over year to $12 million for the quarter ended September 30, 2016. This was due to improved operations, including $11 million from lower depreciation and amortization expense, as well as $11 million from increased pension income.
Revenues in the third quarter of 2016 were $380 million, an 11% decline from the third quarter of 2015. The decrease was primarily driven by declines in the Print Systems Division, the Kodak Technology Solutions business within the Software and Solutions Division and the expected continuing decline in legacy consumer inkjet printer cartridge sales, according to Kodak.
The company’s cash balance was $489 million at the end of the quarter. For the nine-month period ended September 30, 2016, the company reduced cash usage by 70%, from $191 million in 2015 to $57 million this year, which included $20 million in debt payments.
“I’m especially pleased with the improvement of our cash flow performance this year and the progress we’ve made toward our full-year goal of cash generation,” said David Bullwinkle, Kodak Chief Financial Officer. “Generating cash and strengthening our financial position will enable us to invest in future growth opportunities.”
Print Systems Division (PSD) Kodak’s largest division, had third quarter revenues of $250 million, a 10% decline compared to the third quarter of 2015, primarily due to competitive pricing pressures and unit sales declines in Prepress. Operational EBITDA for the quarter was $27 million, down $2 million, or 7%, from the same period a year ago.
KODAK SONORA Plate volume increased by 9% for the third quarter. Excluding the Latin America region, which was impacted by trade and economic factors, SONORA Plate volume was up 16% year over year. In addition to SONORA growth, the company saw continued success with two new products, KODAK LIBRA Plates and KODAK ELECTRA MAX Plates, which expand the application set for Kodak plates.
Enterprise Inkjet Systems Division (EISD) (which now comprises the KODAK VERSAMARK business due to the classification of the PROSPER business as a discontinued operation) had third quarter revenues of $18 million, flat with the same period in 2015. Operational EBITDA was $4 million, an increase of $2 million compared to the prior year.
For the quarter, PROSPER business EBITDA declined by $6 million, primarily due to costs related to underperforming presses and losses related to the placement of four PROSPER presses in the quarter. Annuity revenues, which are the key measure of success in this business, improved year over year by 41%. The sale process for the PROSPER business continues, and Kodak expects to make an announcement by the end of 2016.
Micro 3D Printing and Packaging Division (MPPD) had solid results for the quarter, driven by continued strong performance of the KODAK FLEXCEL NX Packaging business. Revenues for the third quarter increased to $34 million from $32 million in the same period a year ago, or a 6% improvement. Operational EBITDA declined by $2 million, primarily driven by the prior-year gain from the termination of the relationship with UniPixel and unfavorable foreign exchange rates. On a constant currency basis, Operational EBITDA was flat year over year.
Revenues for the FLEXCEL NX Packaging business increased by 17% and the company placed ten Computer-to-Plate units in the quarter. FLEXCEL NX Plate volume grew by 13% year over year, reflecting consistent growth in all regions.
In Micro 3D printing, Kodak continues to focus on advancing its copper metal mesh technology, which will broaden the company’s addressable markets into tablet and notebook computers. In the third quarter, the company recognized revenue from an Asian OEM customer.
Software and Solutions Division (SSD) revenues for the third quarter were $20 million, down from $30 million in the same period last year. Operational EBITDA was $1 million, a $1 million decline from the prior-year period, due to the variable timing of government service contracts in Latin America.
Consumer and Film Division (CFD) revenues for the third quarter were $54 million, down from $64 million in the same period last year. Operational EBITDA was $1 million, down from $12 million in Q3 2015. Performance for the division was driven primarily by an expected $9 million decline in revenues from sales of consumer inkjet printer cartridges.
Intellectual Property Solutions Division (IPSD)had Operational EBITDA of negative $3 million for the third quarter of 2016, an improvement of $1 million compared with negative $4 million for the year-ago period. The division continues to develop relationships with Silicon Valley-based Carbon and eApeiron which will contribute to future profitability. Significant progress was made this quarter with development of light blocking materials for applications such as curtains.
Eastman Business Park Division (EBPD) had revenues of $4 million, an increase of $1 million over the third quarter of 2015. Operational EBITDA was $1 million, a $1 million improvement from the prior year. A project by RED-Rochester, LLC to convert existing EBP facilities from coal to natural gas, which began in the third quarter, will improve the economics for Kodak and tenants of the Park who purchase utilities.
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