Good day, ladies and gentlemen, and welcome to the Eastman Kodak Q4 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 follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Bill Love. You may begin.

Thank you, Gigi, 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 fourth quarter 2017 Kodak earnings call. At 4:15 p.m. this afternoon, Kodak filed its annual report on Form 10-K and issued its release on financial results for 2017. 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. 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 website in our Investor Center at investor.kodak.com. Speakers on today's call are Jeff Clarke, Chief Executive Officer of Kodak; and David Bullwinkle, Chief Financial Officer of Kodak. Jeff will provide some opening remarks, a review of Kodak's financial results, individual performance for 2017 and guidance for 2018. Then Dave will summarize results for the fourth quarter of 2017, provide an update on cost reductions and a review of 2017 cash performance and provide a cash outlook for 2018 before we open it up for questions. I will now turn the call over to Kodak's CEO, Jeff Clarke.

Thanks, Bill. Welcome everyone and thank you for joining the Q4 investor call for Kodak. On the call today, I will talk about the company, individual results for the full year 2017. I will also discuss some highlights for the year, challenges we faced and strategies we are taking. For 2017, Kodak delivered GAAP net income of $129 million in the fourth quarter and $94 million for the year. For the year, we delivered $57 million of operational EBITDA. We ended 2017 with cash of $344 million, down from $434 million at year-end 2016. In 2017, we experienced headwinds in our PSD business, associated with macroeconomic conditions with the price of aluminum, overall slowdowns in the commercial print industry and competitive pricing pressures. We're also impacted by a decline in our industrial film business. On the Q3 investor call, we outlined decisive actions to address these business factors. Our Print Systems Division announced in September a 4% to 9% worldwide plate price increase. We reduced investments in AM3D to focus on areas where we have existing proven commercialization or supplier agreements in place. We continued accelerating cost actions across the company. We have executed on these actions, and we'll begin to see the benefits in 2018. I'd like to highlight our achievements and actions in 2017, which are summarized on Slide 5. First, our packaging business continues to perform exceptionally well as demonstrated by strong growth in market share with FLEXCEL NX Plate volume growth of 17% compared to the prior year. On a constant currency basis, FLEXCEL NX revenues grew 14% and operational EBITDA grew 21%. The packaging business is well positioned for continued double-digit growth in both revenue and EBITDA for 2018. Second, we achieved profitability in EISD and delivered 13% PROSPER annuity growth. Third, in 2017, we…

Thanks, Jeff, and good afternoon. Today, the company filed its Form 10-K for the year ended December 31, 2017 with the Securities and Exchange Commission. As always, I recommend you read this filing in its entirety. First, some important updates and notable items in the 10-K filing and impacts on 2018 and forward. As I'm sure you are aware, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law, including the reduction in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Upon enactment, there is a onetime deemed repatriation tax on undistributed foreign earnings and profits, which is referred to as the transition tax. We recognized tax expense of $14 million related to the transition tax in 2017, which was fully offset by our foreign tax credits, resulting in no cash or P&L impacts. As Jeff noted in the 2018 guidance he provided, an accounting change has been made, which impacts Kodak's measure of operational EBITDA going forward. The change reclassifies the amortization of prior service credits out of operating results. This change will result in higher expense and operational EBITDA related to pensions in the amount of approximately $8 million. We have reflected this in our guidance for 2018, and we'll recast prior periods for comparability as we progress through the year. The impact on 2017 would have been approximately $8 million of additional expense in operational EBITDA. There was no cash impact from this accounting change. I will now share further details on the full company results and update on our cost structure initiatives and cash flow performance and the 2018 cash flow outlook. Starting on Slide 14. Net earnings for the full year 2017 on a GAAP basis were $94 million compared…

[Operator Instructions] And our first question is from Craig Carlozzi from Bulwark. Your line is now open.

Hey, guys. Thanks for the opportunity to ask a question. So I was just – pertaining to your capital structure, it looks like your term loan is pretty much due in 18 months from now. So I was wondering if you can walk me through how you’re thinking about addressing the maturity, and if the maturity solution has anything to do with either the monetization of assets or strategic transactions that you guys are working on? Thank you.

Yes. As we said in the past, we intend to refinance in – before the September 2019 maturity of the first lien debt. We are looking for several monetizations, and we would do those regardless of the debt structure and the timing. So we're pursuing those for strategic reasons. We do believe that we should deleverage the company and the timing is – those actions are irrespective of the timing.

And then regarding those actions, I realized there's a number of statements going on, and we certainly can't talk about them in great detail due to competitive reasons and otherwise, but are they – would you say, relative to three months ago, are they moving as expected? Have they been pushed out? Have they been more underwhelming? Or are you increasingly excited about the aggregate proceeds generated?

They are proceeding as expected.

Okay. Thank you.

Thank you. [Operator Instructions] And our next question is from Gary Ribe from MACRO Consulting. Your line is now open.

Hi, guys. How are you? Given that you guys used so much cash on the front end of the year, do you have an estimate of how much cash you expect from the front end?

We are not going to provide any quarterly guidance. We do expect, in the first half of the year, used cash similar to what we saw in 2017 and to generate cash in the back half of 2018.

Got it. And then as it relates to the covenant, I guess, would you expect to get a waiver?

No. Well, we've got $26 million of covenant headroom, as Dave stated, in Q4. We're sitting with $344 million of cash. We expect the performance of the company from both an operational EBITDA perspective and a cash perspective to improve over prior year. And as such, we are projecting that we're going to stay within covenants.

Okay. Great. That’s all for me.

Thank you. Our next question is from Amer Tiwana from Cowen. Your line is now open.

Hi, guys. How are you? My first question is regarding the plates business. This year, in terms of price, seems like a pretty meaningful move. And you mentioned you have sort of taken action to sort of mitigate that. And, I think, if I'm correct, you said 4% to 9% or 4% to 7% increase? In terms of the guidance that you're providing, what is the assumption that you're using on the price increase embedded in the guidance?

So first of all, we're not going to give divisional guidance. That said, we are pleased with the results to date of the 4% to 9%, and that's 4% to 9%, not 4% to 7%, 4% to 9% price increase that we've announced back in November. As you – as we noted on Slide 7 and to our remarks, that in 2017, we saw price erosion of 4%. So we expect to see it meaningfully better than that. We're not going to give specific guidance, but you should, in general, expect us to be able to mitigate most of the price erosion based on our price increase strategy.

Got it. The next question I have is around PROSPER. Can you give us the installed base number for how many are out there now?

Yes, we're around 65 systems out there. We expect that will grow this year, and it may even grow a little bit more into 2019. But in 2019, we will have the ULTRASTREAM technology available. And while that addresses a broader market, it will, because of the speed of it on a relative basis, and quality, it will provide an alternative to PROSPER. So that base of 65 will grow probably another 10 to 15 systems over the next two years, and we are looking and focusing, as I talked about in the November call, into very specific applications. Very high-performance applications for those presses as we're going for more broad-based performance coming out of the new ULTRASTREAM technologies.

Understood. Just two more quick ones. One, on aluminum price, that seems to be a headwind. Have you guys hedged for 2018? Or how are you thinking about that? Are you expecting some relief on that front?

Sure. So we're hedged about 2/3 of annual volume – purchase volume. It's 2/3 hedged at this point in time, which is typical of where we are at any point in time in history. We hedge primarily through forward-purchase contracts with specific suppliers. And therefore, we're relatively locked on the $22 million headwind, which we see in 2018 versus 2017 on aluminum cost increase.

Understood. And my last question is around the CFD business. My understanding was that this was sort of – you guys have agreed certain contract situations, but this was a cost-plus type business at this point, seeing where the numbers eventually shook out for 2017, it seems like it’s starting to be a negative contribution. What are the plans around this business? And do you expect in 2018 to turn this around or.

So the CFD business, we’re not – just for those items – we’ll put back Slide 10 up. The CFD business has many components. It’s about $200 million in revenue and, as you can see, it had an EBITDA loss of $16 million. We expect that this division will have a meaningful improvement in 2018, in part because of the decline that’s been going on for years in our consumer inkjet business, I’ll remind investors that, that business, we stopped selling the printers about five years ago, and so we’ve been having the benefit of the annuity coming out of the cartridges. However, that goes down each year by about 40%. So it won’t have as much of a difficult compare on a year-over-year basis as it’s had in the past. We also had several compare issues and several vendor issues that are now behind us in 2017. So we’re quite optimistic that, that business, going into next year, will have a meaningful better performance, and we’ll continue to do what it does in terms of covering some of our fixed legacy cost around Eastman Business Park. So I think you can look at 2016 – I’m sorry, 2017 as really a low point in that business, and we’ll see growth in brand licensing, we’ll see improvements in motion picture, we’ll see our vendor issues behind us, we’ll see a lower decline in our consumer inkjet and relative to the industrial films and chemicals, that one will continue to be one, we’ll be working hard to turnaround, but that will continue to provide an operating loss for us. So overall, it’s going to be a pretty significant improvement over a low-water mark in 2017.

Understood. That’s all I have. Thank you very much for your answers.

Thank you. There are no further questions at this time.

I want to thank everyone for joining us. I want to Just to summarize, the company was profitable on a GAAP basis in 2017. We’re executing well in the SONORA Plates, FLEXCEL NX and PROSPER business. We continue to invest in the growth areas that we have noted, but we are much more focused in our prioritization than in prior years. And 2018 is a year where we expect to have a year-on-year improvements on a comparable operational EBITDA basis and on the cash flow basis as well as continuing strong market share growth and revenue growth in FLEXCEL NX, SONORA and PRINERGY. I want to thank everyone for their time.

Ladies and gentlemen. Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.