Good day, ladies and gentlemen and welcome to the Eastman Kodak Q2 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 call may be recorded. I would now like to introduce your host for today's conference, Bill Love. Please go ahead.

Thank you, David. Good afternoon, everyone. My name is Bill Love, Treasurer and Director of Investor Relations, Eastman Kodak Company. Welcome to the second quarter 2016 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 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 31st, 2016 and June 30th, 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 with 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 David Bullwinkle, Chief Financial Officer of Kodak. Jeff will provide some opening remarks, his perspectives on the quarterly financial performance, and then update on the outlook for the company. Then Dave will take you through our cost reduction update, first half results, 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 Bill. Welcome, everyone, and thank you for joining the Q2 investor call for Kodak. Today I am pleased to share our continued progress toward improving the company's performance. Kodak delivered net earnings in Q2 of $8 million. In the first half of 2016, we delivered $63 million of operational EBITDA, which positions us well to meet our full year guidance. In addition, in the first half, we reduced cash usage from $136 million to $32 million and improved GAAP net income by $70 million, driven by improved operations. The improved operations include $20 million from lower depreciation and amortization expense and $18 million from increased pension income. On the call today, I will talk about the company results for the second quarter of 2016. Dave will then follow with first half 2016 results, cost reduction update, cash flow performance, and after that we will welcome your questions. Before we move on to our financial results, I'd like to take a few minutes to discuss Kodak's success at Drupa 2016, a large print show which occurs every four years at Dusseldorf, Germany, over an 11-day period. We launched more than 20 new products and technologies at this show, which were well received by our customers and we exceeded our sales targets. With the introduction of our new products and technologies, we're well-positioned at the forefront of print, publishing, and packaging industries. We made a significant investment in the show, which will benefit us for years to come. Some examples of the key sales and partnerships from Drupa 2016 include the 500th order of a Kodak FLEXCEL NX System, the 21,000th Computer-to-Plate sale; strategic partnerships with Komori, Konica Minolta, Ricoh, Matti Technology, and manroland web systems. Our success at Drupa is a clear indication of the market's view of Kodak as…

Thanks, Jeff and good afternoon. It is my pleasure to be addressing you in my new role as Kodak's Chief Financial Officer, and I'm looking forward to continuing the relationships I have developed with many of you on the call. For those who may not be familiar with my background, I will give you a brief overview. I have been with Kodak since 2004 and I've held a number of roles of increasing responsibility in the finance organization. Most recently, I have been the Director of Global Financial Planning and Analysis, as well as the Director of Investor Relations and the Vice President of Finance. Prior to Kodak, I spent two years in Finance at Birds Eye Foods and six years at PricewaterhouseCoopers in its audit practice. I'm a CPA and an MBA. I have lived in the Rochester, New York area for 24 years. My wife and I have three children and I'm active in my community and serve on the Board of the Seneca Waterways Council of the Boy Scouts of America. My objective as CFO will be primarily focused on continuing the work which we have begun with our investors, customers, and employees. Specifically, I will drive transparency through clear communication of company objectives and measurement through delivery of results. In addition, the company has achieved good results in improving efficiency and productivity to improve on the operating leverage of all of its businesses. I will continue to drive progress in this area, working in all areas of the company to deliver simplification and continuous streamlining of processes. Today the company filed its Form 10-Q for the quarter ended June 30, 2016 with the Securities and Exchange Commission. I recommend you read this filing in its entirety. As Jeff noted in his opening remarks, we are pleased…

Thank you. And our first question comes from Shannon Cross with Cross Research. Your line is--

Hey Shannon.

Thank you very much. Hi, and Dave, congratulations on your new role. We look forward to continuing to work with you. My first question is what's going on in the software business? I mean I understand you had some delayed contracts in that, but should we expect to see a bounce back? And just sort of how should we think about the second half from a software revenue standpoint?

Yes, it's a good question. So, I think what we need to remember when we look at software and services is that we have in that business the relatively steady PRINERGY Software business that has primarily maintenance and new license growth and that business has been generally pretty stable. We expect that to grow in the second half. It was more flattish in the first half, but we do expect it to grow in the second half. But the real movement in that business is around the timing of contracts in the service side of the business. These are primarily in South America and these contracts are specifically around scanning information relative to elections. And the timing of this has to do with both the timing of the government and the timing, frankly, of some of the government changes that happen as governments change. So we -- you'll see an unsteady set of surges of some of these revenues. And that is kind of the dog -- I'm sorry, the tail wagging the dog of this overall business. The core underlying software business is healthy. It will grow in the second half and I think we had some nice new products in Drupa that came out as well. So, I'm confident that PRINERGY is healthy and going to grow well. The timing of that -- these software -- excuse me, these service contracts coming to fruition and reaching revenue recognition will continue to be variable.

Okay. Thanks. That's helpful. And then with regard to Drupa, clearly, you had a very good Drupa. I think Drupa overall was a strong show for the commercial print industry. I'm curious as to, given the upside relative to your expectations, how that sort of positions second half timing of when some of those -- I know you talked a bit about the PROSPER orders, but timing of when some of that benefit maybe on the Plate business and that rolls through. And is there something that makes you more confident in your full year numbers in that? Or is it something that was closer to your plan and so perhaps not as impactful at least for the next couple of quarters?

I have two primary observations. The first one was we were -- during the first quarter call back in May; we discussed with you our concerns about the delay of orders that typically happens during this period of time. And then we did see that with our NEXPRESS product, where our year-over-year press sales did go down, yet we got a lot of orders for second half. And so in that sense pushed -- what would've been even a press stronger Q2 a little bit into the second half. A little bit the same around CTPs, but PROSPER, as I mentioned, we're able to pull three orders across the line; we have three still we're working on. And that was a strong performance. So, the answer on the front end is I'm very pleased with the second quarter results given the variability and expense relative to the investment in Drupa. And so Q2 came in stronger than we had envisioned because of some expected delays and expenses that -- which we were able to overcome with other parts of the business.

Okay.

For the second half, the answer is yes. We do believe that this improves our confidence. We were hoping for a good Drupa, it came in a little better. We're not going to adjust guidance for that because we have some other headwinds offsetting it. But, in general, it was a good Drupa and it should -- it does improve our confidence for the full year.

Okay, great. And just two more questions. One, I know it's small, but I'm just curious, Business Park -- Kodak Business Park revenue down. Was there something that lost tenant or something that sort of drove that [Indiscernible]?

No, no. This is the small numbers and rounding.

Okay.

And so I think it's best to think about it on a year-to-date basis. So, on a year-to-date basis, revenue for the Park has gone from about $6.6 billion -- or $6.6 million, I wish it was billion, $6.6 million up to $7.3 million, so kind of a solid 12% growth and profit, EBITDA, has gone from $600,000 to $1 million. So, I think you've got to really look on a year-to-date basis to understand the strength of the business. And it's an anomaly around rounding that makes those numbers look worse than they were.

Okay. That's helpful. And then Dave, can you just talk a bit about timing with the registration statement; I know you said you have to wait till it's effective. But I'm just curious as to what you're hearing from perhaps some of the people that registered, or how you're thinking about utilizing the registration.

Sure. We filed the S-3 today. The SEC will review or not review. We're not sure about that timing specific to how long that will take to become effective. Certainly, you'll notice that on the website when it does. With respect to the parties involved, we can't really comment on what their expectations or plans are, of course, with respect to utilizing the registration statement.

Is there any limitation with timing on when -- by when they have to use it? I'm sorry, I don't know.

The shelf registration, by its nature and definition, is available for three years once it becomes effective, I believe. So that would be a limitation. Of course, once we get to that end of three year period, we can decide whether or not we're going to renew the shelf or not.

Yes, just one other comment. It typically takes about two to six weeks to become effective.

Okay.

Two weeks would be if the SEC chose to -- didn't have a lot of comments and typically six weeks, if there had to be some comments and some adjustments to the filing.

Okay, great. Thank you so much.

Sure. Next question please.

[Operator Instructions] And our next question comes from Amer Tiwana with Cowen and Company. Your line is now open.

Hi Amer.

Hi guys. Congratulations David.

Thank you.

My first question is around timing for PROSPER, I'm sure somebody was going to ask that.

Okay. As I said, I'm not going to comment about PROSPER, but we did say we expect it to happen this year and so I'll stick to that. We're in August now and there's five months left in this year, so my -- kind of it would continue to be in that range.

Maybe you can talk about the process a little bit as to how do you feel about it, how many people are in the data room or something? More color in regards to how we should think about it?

I remain confident that there is a solid demand for this exceptional technology. But I'm not going to get into details. As you might expect in a competitive process, it's very important to manage it in a way that our bankers want us to do. And so we're not going to comment publicly on it until we have a deal to announce.

Understood. Just in terms of your guidance for the full year, you've maintained it. I was wondering you gave us some good color around things that you think are levers such as U.K., you're monitoring that, the $90 million of revenue. What is that specifically and which segment does that primarily fall in? And just generally speaking, what do you feel the most comfortable with? If you were to outperform, which segments do you think would be responsible for that or if there was under performance? I know you pointed to a couple of things, but maybe you can talk about that.

So, just to give you a little more color on Brexit and the impact on Kodak. The roughly 10% reduction in the sterling to U.S. dollars will impact us by about $3 million of EBITDA. And so, the headwind to Kodak of that event -- the currency movement of that event is about $3 million for this year. In terms of the mix of business of the -- again, it's roughly 5% of Kodak's business, about -- it's pretty similar to the rest of our business, about 60% of that business is in the Print Systems Division. We're a little larger than that in the Consumer and Film business, that's about 22%, 23% of it and the rest is an Enterprise Inkjet Software and Micro 3D Printing. So, the big divisions that will be impacted by that are Print Systems and Consumer and Film. But in total, we're talking about a $3 million headwind on guidance of $135 million to $150 million. So, I think we'll be able to work our way through that headwind.

Great. In terms of seasonality, historically, we used to think about your first half as about 25% of your earnings; second half roughly 75%. If I look at your numbers now, it's more like 53% to 58%, roughly, according to guidance would be in the second half. Is that because we have taken PROSPER out or is there something else going on?

Its excellent question and first of all I think it was the very strong first half and so that's point one for us. Particularly in the Print Systems Division with a year-over-year improvement of $9 million adjusted for currency in the first half, that was a strong half, we would expect increased sequential half-to-half performance in PSD and in our Packaging business. So, those are the two businesses that typically drive the strong second-half improvement. The other thing that has helped us in the past when you compare first half versus second half is the continued decrease in the loss of the PROSPER business. And as I mentioned earlier, PROSPER has improved $11 million in the first half over last year. It will continue to move -- to improve significantly, but that's in discontinued operations. So, while that will help our cash flow second half over first half, having a lower loss in the PROSPER business, it won't show up in the operational EBITDA that we report to you. So, last year, one of the big drivers of second half [Indiscernible] performance was the improvement in PROSPER. The other businesses -- Software and Services Division also I do expect to have a better second half than first half on a sequential basis. EISD, in -- the Versamark business had a good first half as you know. It delivered $10 million of operational EBITDA. That will be down in the second half and that is just the nature of that business. We don't sell many new Versamark systems, so this is kind of really an ink sales into a relatively stable base. The biggest decline we'll see in the second half that will cause the normal 25/75 to be more 45/60 or 50 -- high 50s, a little bit more than that in the second half, will be the CFD division. So, Consumer -- our Consumer business had, as you can see here, actually a better year-on-year result for the first time in many years and that had to do with a couple one-timers and the one-timer being a strong film sale to a specific customer and continued strength in the motion picture business. We expect those to continue to do well year-over-year, but not have significant seasonality. But the big drop will be in the Consumer Inkjet business. And that Consumer Inkjet business continues to deteriorate and will deteriorate quite materially in the second half over the first half. So, I think you should not be thinking 25/75, you should be targeting the midpoint of our range and realizing that we delivered 63 in the first half; and you can do the math for the rest.

Understood. And lastly, in terms of your Micro 3D, should we -- when do you expect to see something meaningful in terms of revenue? Should we expect that in the fourth quarter or is that a 2017 event?

Yes, as I made abundantly clear last fall at the Analyst Meeting that many of you on the call were at, is that this company for many years has overpromised on some of our breakthrough new technologies and when they will be commercially successful. We really believe in the technology around copper touch screen sensors and additive manufacturing through Micro 3D Printing. We think this is a very important business. Historically, we have judged the ramp of that business too aggressively. So, I'm not going to make the same mistake that I made earlier and other parts of our company made even earlier than that and build this into our guidance. And so as I've said in my remarks, we're circumspect on this business, it's a nice opportunity for us. I was pleased that we have product at a partner now and that we have a robust pipeline. But it does take -- it is a long sales cycle, it is a long implementation sales cycle. And it's a bit like an annuity business: when you get these into products, they typically stick there for a long time. So, -- but there's not that many sockets yet with them in. So, we're going to be circumspect. I'm not going to promise anything and certainly you should not expect significant results in the second half of this year.

Thank you very much. That's all I have and good luck.

Thank you.

Thanks Amer.

Next question please.

Thank you. And our next question comes from Peter Rabover with Artko Capital. Your line is now open.

Hi Peter.

Hey, guys. Congratulations Dave. Can -- I guess I'll ask the PROSPER question another way. Why is it taking so long?

Yes, I think we announced this and May and it's -- we announced this in March and its early August. We're not even rounding into September. This is a complex product and an important product and we want to get the sales process right. There was significant demand for this product set coming out of Drupa. I think it was very important that prospective buyers had a chance to kick the proverbial tires of the product, see it in production, to hear a long list of pleased customers. And there is significant diligence associated with technology that is this significant and robust. So, the timeline I laid out then was it would take a year, I'm sticking to that timeline.

Okay, great. Thanks. Maybe I guess with the S-3 registration, can you guys comment--

Peter, we lost you.

David I just want to check that you and the rest of the callers are still on.

Do you--

You guys can hear me? Good. I thought we were at Delta Air Lines for a minute there.

Can you guys hear me, or --?

We can.

Hear you fine.

Hey can you guys comment on your capital structure strategy I guess for the S-3 filing and with the September 18th deadline to refinance one of the liens?

September 2018, is that what you're referring to in terms of the deadline? Just to make sure I understand your question.

No, in your K, your second lien, the expensive one, you had -- it stated you had a window of this year, up until September 18th of this year to buy back at a--

Okay. Yes. The window -- the call premium this year is 101 until September 3rd of this year on the second lien. And then reduces to kind of 100 or so at par. So, we removed that premium in September of 2016 -- September 3rd. In terms of refinancing, we continue to be opportunistic. We're certainly monitoring the market constantly to identify an opportunity to do something with that. We believe PROSPER could be a catalyst to do that when that's complete as well.

Peter, do you have a follow-up question or should we move on? Okay. Next question please.

I'm showing no further questions at this time.

All right. So, thank you everyone. I appreciate everyone's time today. Just to reiterate really what I spoke to maybe go back to slide 19. The company was profitable on a GAAP basis this quarter. Second quarter continues to represent an improving quality of earnings. Our PROSPER business is executing well and that bodes well for the sale process. Our year-over-year cash flow performance has improved significantly and we're maintaining the guidance that we gave in the beginning of the year. So, I'm very pleased with the second quarter. I want to thank everyone on the phone for their time, attention, and support. Thank you very much.

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