Good day, ladies and gentlemen and welcome to the Eastman Kodak Quarter One 2016 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 follow at that time [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Bullwinkle. Please go ahead.

Thank you Christine. Good afternoon. My name is David Bullwinkle, Director, Global Financial Planning and Analysis and Investor Relations for Kodak. Welcome to the first quarter 2016 Kodak earnings call. At 4:15 p.m. this afternoon, Kodak filed its quarterly report on Form 10-Q and issued its release on financial results for the first quarter 2016. You may access the presentation and webcast for today’s call on our Investor 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. 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 and uncertainties described in more detail in Kodak’s annual report on Form 10-K for the year ended December 31, 2015. In Kodak’s report on Form 10-Q for the quarter ended March 31, 2016 and in other filing Kodak makes 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 website at 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, his perspectives on the quarterly financial performance, and update on the outlook for the Company. Then John will take you through our cost reduction update, additional details of our second quarter results and cash flow results and outlook before we open it up to questions. I will now turn this over to Kodak’s CEO, Jeff Clarke.

Thanks David, welcome everyone and thank you for joining the Q1 investor call for Kodak. Today we will share with you the progress we are making toward improving the performance of the company but first I would like to discuss the strategic and product decisions we announced in our last call. The last time we spoke we announced strategic and product decisions with regard to our PROSPER and silver touch sensor businesses. These decisions reflected discipline of our investment in portfolio management enabled our divisional structure. As a result of our commitment to complete the sale of PROSPER we are now presenting the business as an asset available for sale. Beginning with this quarter’s reporting. We have recast the prior period to present our results on a comparable basis. John and I will be highlighting those changes throughout the reminder of our discussion. With regards to the sales process interest in the technology and business remained strong. Due to the confidential nature of the process we do not intend to provide further details on the sale. We see significant opportunities in our growth businesses SONORA, FLEXCEL NX, Software and Solutions and Micro 3D Printing. In addition we continue to optimize our portfolio and commercialize the material science technology in new lines of business with opportunities for growth. On the call today I will talk about the Company results for the first quarter of 2016 and provide you an update on our 2016 guidance. John will then follow with more details on our guidance including a cost reduction update and cash flow performance after which we will welcome your questions. Now moving on to our results. Starting on slide 5, we delivered first quarter operational EBITDA of $29 million compared to $31 million in the first quarter of 2015. Operational EBITDA…

Thanks, Jeff, and good afternoon, everyone. Today, the company filed its Form 10-Q for the quarter ended March 31, 2016 with the SEC. I recommend you read this filing and in its entirety. As Jeff noted in his opening remarks, we are pleased with our first quarter performance. I’ll now provide a little more detail on the quarter. As we reported in our earnings release, the net loss for Q1 2016 on a GAAP basis was $15 million, compared to a net loss of $54 million in 2015, an improvement of $39 million year-over-year. This information is taken directly from the Company's consolidated statement of operations in the 10-Q. We’re pleased with the year-over-year improvement. Let me provide an update on our cost reduction programs. As you can see, on Slide 11, we continued our progress in reducing our cost structure by $7 million in the first quarter. Based on the first quarter’s run rate alone, this would suggest an annual reduction of approximately $25 million. The key driver of these difficult and necessary cost improvements, was company headcount down approximately 10% year-over-year, including the Q1 2016 reduction on a cumulative basis since the beginning of 2014, we have reduced total company headcount by approximately 30%. We continue to see opportunities for further efficiencies within our cost structure both at the divisional level and across global functions and we will continue to take actions as appropriate. Now let’s focus on cash. As shown on Slide 12, the company ended the quarter with $513 million in cash. This reflects a cash use of $34 million during Q1 2016. As Jeff mentioned previously this represents a significant improvement in the year-over-year cash use, an improvement of $69 million. As we've also mentioned in previous earnings calls we typically see our largest cash…

Thanks John. We’re happy to take your having any questions now. Operator please remind callers of the instructions for asking questions.

Your first question comes from the line of Trent Porter from Guggenheim Securities. Your line is open.

Hello. I have three, if I can sneak them in. First one, you talked about industrial applications for Micro 3D, your copper mesh, and also about expanding your addressable markets. And so on the industrial applications, I was wondering if you could just give some examples for what kinds of industrial applications and sort of the addressable markets there. And then expanding addressable markets, have you – as I recall there were sort of technical hurdles or barriers to addressing the smaller format such as tablets and smartphones. Have you crossed those barriers? Is that a potential addressable market? And then I think I will ask the other two after.

Trent, I will these two and then my guess is more time for you. So, on the industrial apps, as you know our first implementation is touch screen sensors. We believe that we are going to be able to also print our ID tags, eventually print batteries and other types of logic. So, there are multiple industrial apps that that we see are our underlying copper mesh technology moving into. In terms of expanding addressable markets, in this case as we have mentioned before, the first market is really an all-in one machine an all-one device or a large screen that you know – that large television screen or large, large interactive screen in bathrooms or offices. And the reason is today copper needs to be plugged in rather than – because of its battery usage. And so, it hasn’t cut over into the markets like tablets and eventually handheld mobile phones. We’re making progress. And so in terms of expanding addressable markets, we now are looking at some of the tablet devices as a copper solution. So, the answer is yes we have made progress and we do see moving into battery operated as opposed to plug-in devices kiosks and et cetera going forward. But the best application today is the cost we bring, the resolution we bring, the connectivity we bring in plug-in devices, but tablets are coming.

Okay.

You got one more Trent?

Yes, I had a couple of more that are just sort of similar. I think they’re going to be easy. So the first one is I have been thinking previously that NexPress and VERSAMARK were sort of in decline. But it sounds – from your comments it sounds like you see opportunity in NexPress, and so I was just wondering if you could just qualitatively expand on that. Is it profitable today? And where do you see the opportunities set, how excited should we be about that? And then the next thing, the FLEXEL NX, I think your Investor Day, last year you showed the annuity was about $73 million, I think it’s probably a little bigger than that, but I was wondering if you could talk about – is that – what were the profitability of FLEXEL NX if it were stripped out by itself be today and then is the economics or the profitability that the growth trajectory changing or accelerating with the rollout of your wider format of FLEXEL NX and kind of how is that going, how is traction there and those are – that’s it for me.

Okay, a couple of questions. So NexPress is a strategic growth platform for us. It is one of the best high-end digital printers in the world. It prints coffee table books, art prints very, very sophisticated packaging and is a staple in over a 1,000 customer sites. And so, it’s a great product. It hasn’t grown significantly over the last couple of years. You see that in Drupa, we’re going to announce a couple of new products. We’re looking at reinvigorating the NexPress. This is an important digital press for us. It’s one that has unique features because of its ability to do extra bay and dimensional inks and white inks. And so it’s a really special platform. It’s a unique product and the more hasn’t grown a lot in the past, we are looking at it as a growth engine, although we don’t definite as is that. We put it in the PSD, but it’s an important product for us and it is profitable to answer your question. The other product set that we have is a black and white press called Digimaster, that is one that is clearly being facing a lot of competition under more traditional toner type machines from our competitors and we view that as really a legacy platform for us. VERSAMARK is a drop on demand technology, inkjet platform and it is also profitable, all three of these product sets are profitable. And VERSAMARK is as you can see it’s a fairly good sized business for us. It has some very nice dynamics in terms of profitability as you see we’re now breaking it out. But it is a business that is generally in decline and we view it as a legacy product. We will not be making significant new investments in either Digimaster or VERSAMARK whereas we’re going to make new investments in NexPress. With regard to FLEXEL NX, this is a great business. You asked about the profitability we broke out. In 2015, it came in at roughly $22 million and I certainly expect it to be you know well above that. I’m sorry in 2014, it was $22 million. It was $30 million in 2015 and it certainly could approach between $35 million to $40 million in 2016 as a standalone. And so, it – on FLEXEL NX, the packaging market is one of the fastest growing markets. It’s really standout product. It has technological and patent protection differentiation and we’re very pleased with that business. Thanks for your questions, Trent. Let’s move on to the next question please.

Your next question comes from the line of Shannon Cross from Cross Research. Your line is open.

Hi, thank you very much. My first question is just with regard to how we should think about currency for the year, I think you have mentioned that you are looking at it from where January was and maybe I was incorrect in that, but clearly…

Yes, that’s right.

Some of the moves that have happened…

Yes.

John will take it.

Yes, okay.

Thanks, Shannon. So, right now, we – based on where we address the January rates, where we’re expecting about $30 million – $30 million headwinds to revenue and $6 million to operational EBITDA for the year, from what we could see now.

Right, but currencies have moved substantially, so you’re still – I am just trying to understand, I am sorry if this is…

Yes, so that’s – when did you measure that Dave, say is that a couple of weeks ago or a week ago?

Yes, roughly a couple of weeks ago. What we have going on right Shannon is basically you would recognize that the euro is helping us slightly versus January rates and we’ve seen an improvement in the yen versus the dollar. So we do have some concentration of cost for instance in our packaging business in the yen, so that’s why you’re kind of seeing improvement with an offset from the yen.

Okay, okay. And then I am curious from a price perspective, I know you talked about some aggressive pricing are a bit more than you used to in the plate business. What are you seeing from the Japanese, because I mean the hope is that with the yen strengthening like it has that perhaps they realize there is not as much room to be as aggressive, but I am curious if there has been any sort of movements there or if this is just sort of the normal we have to live with?

I assume we meet our large unnamed Japanese competitor in the plate business, right.

Yes.

Yes, okay. You know this is a competitive industry. And so I do believe that our European competitor was more aggressive when there was a weakness in the euro last year and I would expect that the – everyone have to report the results and deliver. So strengthening yen all things equal should help us there. That said all of our competitors are – when you’re going for an available deal on plates, a multi-year deal, let me tell you the customers do very well. And I think the 6% year-on-year decline will require us to continue to drive productivity. And I am very pleased with the performance of PSD in the space. As you see even while facing this headwind which drove our revenue down 9%, we are able to have a – on a constant currency basis a 46% improvement in operational EBITDA. So this is not going to change over the next couple of years. We’re going to see competitive market out there. The currencies will impact people, but it’s going to be competitive and we’re going to have continued to drive better products, differentiated products. We have a very nice – and then we’ll see you in Drupa Shannon then we have a very nice portfolio right now with SONORA and some movements into the newspaper and packaging markets with our new product set. So that product differentiation has in the past muted some of the overall pricing that happens particularly at the low end of the plates and low quality plates. So, I think there are lots of moving parts here, not just the Japanese yen.

Okay, great. And then just lastly on PROSPER, given you’ve announced a sale and I know you don’t want to talk about the sale specifically, but can you talk a bit about what customer sort of said if there are concerns, if they are actually happy because it means that will be with – potentially I am hate to say, but a stronger balance sheet for instance or like who knows to who you are going sell it to, but a larger company? Or is there any trepidation for them in terms of purchasing and also just how are you sort of communicating with the employees, what their future is going to hold?

Yes, I am really pleased with how we’ve executed through our complex announcement. This is a new technology. It’s one that you know while it certainly has an installed base now of 58 systems out there, there – would you bring on the new customers, they are concerned about who is going to own it and this is something we’ve managed through, as I mentioned, we have got nine line of sight to nine in our pipeline and we’re doing very well on the 50% growth around the printing systems. So, I am very pleased with how we have executed. There has been a lot of time meeting with customers, a lot of time face to face and on the road to do this. We think Drupa, a lot of our customers and perspective buyers. We’re going to look – look at PROSPER in a very close way. In terms of the employee base, you know, I think they’re doing very well. I think they view Kodak as a good employer to them and no company is going to buy PROSPER that isn’t going to really be serious about this business. So, I think the employees will ultimately have a good home to go to. And one of the other things that I want to – are making very clear to our customers and employees, we’re investing significantly in this. This is an important product set that has momentum. Q1 was a terrific quarter, and just enhances the value of this for the ultimate owner. So, we’re going to invest through this. We are going to continue to – you have our engineering roadmap with ULTRASTREAM move forward and we’re excited to talk about this in a lot more detail at Drupa.

Great, thank you so much.

Thank you, Shannon.

Your next question comes from the line of Peter Rabover from Artko Capital. Your line is open.

Hey, guys. I have got a couple of questions. So, there was an announcement yesterday that you guys sold a small piece of your software business. Can you talk about that?

Sure. D2L was a very small business for us. It was really designing – it’s kind of workflow software for kind of that managing advertising and branding campaigns and managing certain digital and other assets for agencies or companies that do that. It’s the business that hasn’t grown for a lot of years. For us it’s a very complex sale and it’s a business that was not strategic for us. The buyer is very interested in expanding an investment in this and buying up some other – other companies in the space. And we weren’t willing to go and do that kind of rollup and reinvestment in this space. For us it’s a niche market that really a nice market, but a niche one that that was a bit distracting for us. The team is very good, the teams based in Connecticut and they’re very good and I think it’s going to be a good home for them. The revenue, EBITDA and cash price of this is all de minimis.

Okay, so you guys didn’t – you can’t talk about how much you go for it?

Yes, its de minimis and it – our agreement on the sale was not to disclose the details.

Okay, fair enough. Other couple of question on PROSPER. It looks like you guys have a $109 million of working capital with this business. Is that the right way to look at it?

Well, I think, I adapted 58, maybe if you look at the balance sheet in the K. Yes, so it’s like, you've got a $139 million of assets and $32 million of liabilities. You got $13 million, so this is page 19 of the K, for those of you who print it out when we released about an hour ago. We got 65 of receivables and inventories any they got PP&E of 36 and intangibles at 38. So I call it 65 and then back out of that 65 to six of payables and you're out about 58.

Okay, fair enough. Thanks. And then on the last call you guys said that, you guys had six PROSPER machines that got pushed out the Q1, but you only recognized three. So you maybe – is that just a longer sale process or how should we think about the other nine that you're talking about.

Yes. I covered this a bit in my remarks. We actually didn't recognize the revenue of any in Q1, but we in – but because they were two of them were commercial capital, one was a rental agreement. And so those – though and it's this kind of – one of the strategies I talked about last time is customers buying these machines often want to pay for them by the page over the 10 or 12 year life. And that's – that takes a lot of balance sheet to do. And so while these are great systems and they can be very profitable installed in ink sales and service and so forth. It's – we didn’t get all the revenue upfront. That's why the revenue per profit without even all of the metrics on it improves so materially. As I mentioned we have nine units that we've got line of sight too and these are ones that we've tried agreements on. But we don't recognized revenue on them until they're installed and accepted by the customer. So none of those that I've referred to in fact no system since post the announcement has gone up our pipeline or been delayed. So I'm very pleased you would have expected and I frankly expected some top tough headwinds on this. But the people who have committed to PROSPER are keeping their commitments where marching through the installation process and if you kind of go back to page eight of the deck, maybe you could put page eight of the deck up. And you can see we kind of how we outlined that with the asterisks at the bottom of the page. So again I am feeling good with where we are at PROSPER momentum.

Hey, I have a couple of questions. Can you guys talk about you’re the debt, and what your plans are for that. I know this is in your K you guys have that window between second and third year, which were in between September to pay down the second lien and what are the – are you still waiting for the PROSPER sale to take down as much debt as you can. How should we think about your balance sheet for, I guess going forward.

Yeah I think first of all, you should know, we talked about this in prior calls that we're always looking at what the opportunities with you for relative for us the that structure going forward. Clearly one of – with the sale of PROSPER that's an opportunity for us catalyst to bring our capital structure down if that’s decision. And possibly as the markets continue to improve the opportunity to refinance as well is out there for us. So, we'll keep you posted on a quarter-by-quarter basis. We're watching this every week. The markets have improved over the last month or so. So we'll keep watching and then obviously the sale of the business by PROSPER could play into that as well.

I guess why do you need to refinance at all. Why can't – I know you have a lot of cash in the U.S. you're going to get some money for PROSPER, and you guys don't really pay taxes. So why have debt.

We don't like the interest rates, do you think about the interest expense related to our debt roughly $66 million a year.

No, no, I understand that, that’s a high rate; I’m just saying why do you need that at all.

Why do you need to go refinance? Why can't you just pay it all off?

All right.

First of all, we have more debt in cash and we do need money around them in different group operate in 40 countries where we need cash and so forth. I think another way of it may perhaps answering the question is why do we need so much cash in the balance sheet and what opportunities do we have to. So what do we pay it down, but what we would – and we as John said, we look at that all the time. And we will do that when it is the right time to do it. However, there is a waterfall here that we've got to address in terms of both asset sales and others. And you can find that – you find that our loan agreements et cetera in section 2.07 if you want. But or you can take it offline with Dave if you want to dig into it.

But also – a way to think about it, is that our optionality improves over time as we continue to improve our cash flow into this quarter was a good. You know a good example on a year-over-year basis of the change we're seeing from a cash flow point of view. So obviously our optionality and the amount of cash that that we will require going forward, we continue to provide you know operationally our flexibility of roses well.

Okay great. Just two small questions, you guys have $4 million IPSD expense for the quarter is that kind of a run rate to think going forward.

We’ve got roughly of expense, but we do – I mentioned several opportunities there. We also have several partnerships where that are in the pipeline where people will pay us plus for those research services. So stay tuned.

Okay. And what was the capacity of the Business Park I guess at quarter-end including U.S.?

Yes, it’s about – we can handle a lot of new tenants. So, if you got someone, please send it our way. There's about 20% of the space that could be leased with modest leasehold improvements with investment leasehold improvement there is more. There's several hundred acres that could be designed to suite. And it is a one of the rare completely off the grid, completely functional water sewer electric power, steam power et cetera, and the synthetic labs in support. So it’s a great industrial park and it's an expensive. So if you got anyone, send him our way.

Great. Okay, I'll jump off. Thanks for answering all my questions.

Thank you, Peter, next call please.

Your next question comes from the line of Gary Ribe from MACRO Consultant. Your line is open.

Hey, guys. Thanks for taking my question.

Hi, Gary.

Hi, Gary.

I guess I just had a couple. I guess getting to Peter's point a little bit about the cap structure, you probably have some insight into the PROSPER sale process, you've got some working capital there and whatever else I'm not going to ask you to opine on that. But if you look at your ratios and your covenants, couldn't you tender for some of the debt now. So you tendered for $100 million, that's $7 million in interest that you don't pay. It would not be pretty accretive to your cash flow in the year? And wouldn’t be better to try to do that now while the debts at a discount, as opposed to after you close a deal and everybody realizes, hey, you guys got money.

Yes, I think wanted to take you, I’ll just be a little bit attitude to the other answer that, we're circling around this from all angles, and that's certainly an angle that that we look back. And so I can't talk about relative to PROSPER, but to your question is specific to that. And that's certainly something that we look at, but I can’t go much further latter on that.

Okay, I appreciate that.

Thank you, Gary. Any question, Gary?

Yes, I just have one more follow-up if you don't mind. The $10 million to $30 million of cash flow that's not really factoring an asset sales or anything?

It's not that factoring in big asset sales, so it would not include PROSPER or anything substantial. There are a couple like this recent one that that we caught, we had line of sight of, again it's a de minimus number. So I'm not going say, it’s like having any asset sales in there, but it's certainly don't have PROSPER or anything significant.

Okay. Thanks a lot guys.

Thank you, Gary. Next question.

Your next question comes from the line of Jen Ganzi from NewMark Capital. Your line is open.

Hi, thanks so much for taking my question. Just, I guess, just tell us a little bit about your guidance that you rise low-end by $5 million. Is that just is that more related to taking PROSPER out of the mix or is it more because you're seeing sort of better I guess performance in the beginning of the year?

Yes, there are a lot of moving parts on why we brought the guidance up. But in general it had to do with the quality of earnings that we saw in the first quarter, the fact that there was no collateral damage associated on our other businesses from PROSPER. And so we have been a little bit cautious because we weren't quite sure – you are not something like this and then you spend a lot of time explaining it to your customers as opposed to selling them the rest of your business and it turned out that you we’re able to manage that quite well. So that's the primary reason why we brought up the midpoint to low-end of the guidance.

Okay, got you. And just kind of a going back to I guess some of the applications that you're talking about I guess for your growth businesses. How should we think about the timing of some of those deals you had mentioned, I guess with the sort of your other super dark curtains and things like that like. Will we be seeing any of those revenues in EBITDA this year or is that more of a 2017 event? I just want to get a sense of timing on those initiatives.

Yes. So I mentioned that we expect – we expect to cover a good portion of the $4 million run rate, $16 million annual expense of our research labs with these types of transactions. So yes, we do expect to sign several deals this year. I won't get specific on it, but I can mention in the high single even double-digit of revenue on this. And so, yes, we're close to signing some deals here and I think these will be important.

Okay, but they're more like 2017 in terms of when we start seeing I guess cash flow to us from them. Is it the way to think to the investor community?

Yes. When these deals come in we typically would expect on the IPSD’s side. But we would typically expect is that there would be a long-term agreement signed with the research labs by parties whether that be in the case of antimicrobials, a royalty agreement, and a supply agreement, in the case of small particle technology that goes into light blocking that would be again a royalty stream and perhaps an upfront payment. So there are – each one of these deals can take a different complexion. So it's – and we're in the process of doing that. We will do the right long-term thing for the company here in terms of – not just selling something of these things right off and making sure that we get the full value. That said we’re open to have a balance of upfront payments and royalty streams.

Okay, got you. And then just looking at the remaining EISD business and I guess looks like you are going to be focusing on the NexPress and investing in that. Now that Prosper is being – well, I mean I guess after Prosper are being sold. I guess it declined slightly this year. Is that something that you think can return the gross like post the sell the Prosper. And then I think I guess how do you think about the trajectory of like sort of that EISD segment as PROSPER.

Yes. On the first remark which is in that division is a legacy business that will be declining somewhere between 20% and 30% a year. And so that is a business that we saw a good decline last year and that will continue as it is replaced by other technologies. In terms of – just to be clear, the NexPress business and Digimaster that we saw within PSD. And so …

Okay. So really that’s – that’s really just a benchmark business and will be declining?

Yes, it is, yes. I mean Enterprise Inkjet Systems division is for all acronyms and so that is our last Enterprise Inkjet business other than Prosper which has been discard.

Got you, okay. And then just final question. I know that at the Investor Day back in October you had given sort of some preliminary I guess it is a projections guidance everyone would call it on like 2017 based off of your thoughts of what 2016 we're going to look like, but it sounds like things are maybe going a little bit better than you'd anticipated. So do you have sort of updated thoughts on 2017 based on what you’ve been seeing so far in 2016 and with regard to the separation of Prosper and how that affects our consumer business, is there anything you talk to – it’s maybe even a brushstroke to tell us at this point.

Yes, I mean, I remember even so I'm not going to give any new guidance at all or [indiscernible] in this direction. But we do looking forward to talking about the future at the right time. Let's remind everyone on the call we said there will be about $180 million to $210 million of debt in 2017. But $25 million of that was the Prosper and or the Micro 3D business. So we dust out some of that and bring it down that four of those, and then that will offset somewhat by kind of [indiscernible] in other areas. But I don't want to get into specifics on that.

Jen, thank you very much and appreciate everyone. Taking the time, we’re around the here. So I appreciate the time and questions. And if there's any follow-up Dave Bullwinkle will be available for your calls. And I look forward to talking to all of you in next quarter. Thank you very much.

Thanks everybody.

This concludes today's conference call. You may now disconnect.