Bill Love - Treasurer, and Director of IR Jeff Clarke - CEO David Bullwinkle - CFO.

Shannon Cross - Cross Research Gary Ribe - MACRO Consulting.

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 development of offerings based on both silver and copper technologies.

After extensive discussions with industry participants, it was clear our silver metal mesh technology would not meet our expectations, and we ceased further investment in 2016. We continue to invest in the lower cost copper metal mesh, began selling sensors for industrial applications, and have orders for industrial design in our pipeline.

However, despite this progress, the market opportunity and requisite ROI have not materialized as expected. The copper metal mesh touch sensors product set has not scaled as significantly as we had planned, is not meeting current milestones, and is therefore being shut down.

This is an example the disciplined approach we utilize in assessing each of our research and commercialization projects. Meeting specific and measurable milestones is key to this approach.

We will continue to invest in 3D printing technologies and materials, where there are large market opportunities, and where we have established partnerships with industry applications' leaders.

Given this product cancellation, I'd like to provide some overarching perspective on our portfolio of businesses so you can understand the progress we're making as well as the challenges we're tackling head on. Looking at slide six, we think of the company in four categories, Growth, Strategic Mature, Advanced Technologies, and Planned Declining.

Our Growth Engine includes SONORA within PSD, PROSPER within EISD, FLEXCEL NX within FPD, and our Software and Solutions Division. These growth areas are delivering growth, and represent 27% total company revenues in Q2 2017. This is an increase of $4 million or 4% in constant currency basis when compared to Q2 2016.

These growth areas are our highest priority, and of our highest existing and future expectations of returns. Our Strategic Mature Businesses are outlined at the bottom of page six, where are continuing to manage cost in each product family and optimize returns. In Q2, these businesses represent approximately 64% of our revenues.

This represents a decline of $31 million or 11% on a constant currency basis due primarily to price erosion and lower volumes in PSD. Our investment in Advanced Technologies includes ULTRASTREAM and initiatives within the AM3D division. Year-to-date we've invested $8 million in ULTRASTREAM, and $15 million for the group of products in AM3D.

And as discussed earlier, each of these investments have defined milestones which we monitor and assess to determine if funding will continue.

We are targeting our investments in Advanced Technologies where Kodak has a technological advantage primarily in material science at a reasonable cost of investment to disrupt the current market, and to provide meaningful upside opportunities for us.

One of the examples is our investments in light blocking materials focusing on the $9 billion market for blackout window treatments. Kodak's particle technology addresses $800 million of this market.

Our expectation is to capture 15% to 20% of this market over the next five years, which will result in meaningful revenue and operational EBITDA over time. Planned Declining Businesses are product lines where we have made the decision to stop new product development and to manage an orderly decline in the installed product in annuity base.

These product families include Consumer Inkjet in CFD, Versamark in EISD, and Digimaster in PSD. In Q2, these businesses represent approximately 9% of our revenues. The decrease in the Planned Declining Businesses is $9 million or 21% due primarily to the expected decline in sales from our Consumer Inkjet business.

Now, moving on to our second quarter results; all year-over-year comparisons will be discussed on a constant currency basis unless otherwise noted. Starting on slide seven, Kodak delivered second quarter revenues of $381 million, down from $423 million in the prior year quarter or 9%.

Operational EBITDA for the quarter was $14 million, consistent with our expectation, but down $8 million compared to the second quarter of 2016 due to the expected reduction in Consumer Inkjet, a one-time Industrial Films & Chemicals order in the prior period in our Consumer and Film Division, and higher aluminum cost and pricing pressures in our Print Systems Division.

These decreases were offset by improvements in our Enterprise Inkjet Systems Division. Slide eight illustrates Kodak's quality of earnings. Here, we present the impact of foreign exchange, aluminum pricing, and the expected runoff in the Consumer Inkjet business.

When adjusting for these items, second quarter operational EBITDA decreased $1 million or 6% year-over-year. We expect to have a meaningful improvement in the quality of earnings for the full year. Now, I'll talk about the business by division, which is presented on slide nine, for the second quarter of 2017.

Starting with the Print Systems Division, second quarter revenues were $236 million, a 7% decline compared to 2017. Our operational EBITDA declined by $6 million compared to the prior year quarter as we had higher aluminum costs, and continue to face industry pricing pressures.

Plate price erosion in the second quarter was approximately 4%, which we believe will continue through the remainder of the year, aluminum prices had a negative impact of approximately $3 million in Q2 2017, we expect aluminum will continue to represent a strong headwind in 2017.

We include a slide in the appendix presenting historical London Metal Exchange aluminum prices over the past six years, the LME Euro price remains near a two year high and has increased from €14.85 per metric ton to €16.33 per metric ton from September 2016 to June 2017.

For the quarter, overall plate volume was down 3% year-over-year which we believe indicates we maintained our market share position.

Based on recent competitive wins in the first half of the year, we expect to increase our share and see volume improvements in the second half of 2017, we continue to see solid growth in our environmentally advantage SONORA plate with an 18% year-over-year growth.

SONORA now accounts for 18% of our total unit plate sales as well, we expect SONORO growth to accelerate in 2018 beyond the 2017 numbers due to series of investments we're making which will improve the products feature set.

Moving onto the enterprising Enterprise Inkjet Systems division, division results present on slide nine include the results for Versamark Systems, the PROSPER business and our continued investments in ULTRASTREAM.

For the second quarter 2017, the EISD revenues were $35 million an 18% decline compared to the prior quarter due to the planned decline in Versamark and our plan shift from selling PROSPER presses to focusing on ink printing systems in annuities while transitioning our investment to ULTRASTREAM.

Operational EBITDA for the second quarter of 2017 was $1 million, an improvement of $8 million compared to the prior year period, we're pleased that EISD had positive operational EBITDA in the second quarter and is expected to generate positive operational EBITDA for the full year.

Moving onto slide 10, we provide an update on our growth of PROSPER recurring revenues for the trailing 12 month periods ending Q2 2016 and Q2 2017 recurring revenues grew by 33% and 29% respectively at actual currency rates, we expect continued strong growth in our recurring revenues throughout 2017.

Looking at slide 11, EISD recently hosted an analyst and press event, EISD announced a placement of the first PROSPER 6000S Hybrid printing and packaging which is one of the one of the highest growth applications for print, we also continue to make investments on our next generation ULTRASTREAM technology which remains on schedule but evaluation kits available in late 2017 and prior to availability in 2019.

In the past three months, ULTRASTREAM has passed a major milestone in this development, engineering the product content designs have been completed and successfully demonstrated in front of a select group of key analysts and media including IT Strategies, InfoTrends and International Data Corporation to name a few, concurrent with the development of ULTRASTREAM technology, EISD continues to advance engagements and is in active negotiations with interested OEM partners.

Moving back to slide nine, for the Flexographic Packaging division, revenues for the quarter was $37 million or 9% year-over-year growth, operational EBITDA was $8 million an increase of $2 million driven primarily by the higher FLEXCEL NX Plate and CTP revenues.

For the quarter, FLEXCEL NX revenues increased 16% and FLEXCEL NX plate volume grew 22% compared to the prior year quarter.

I'm pleased with the continued strength of the packaging business and the increasing operational EBITDA, FLEXCEL NX continues to outpace the market and deliver strong revenue and volume growth driven by the value proposition which provides substantial efficiencies to the printing operations of our customers.

For the software and solutions division revenues for the quarter were $22 million, a 5% increase from Q2 2016.

Operational EBITDA of negative $1 million was an improvement of $1 million from the prior year quarter, year-to-date at actual currency rates, we have license growth of 6% and we expect to see an acceleration of growth in licenses in the second half of the year which will drive an improvement in earnings as well.

Consistent with our other businesses, growth is not linear with the second half delivering more revenue, we're seeing strong demand for each of our market segments including packaging, digital and cloud services.

The consumer and film division includes industrial film and chemicals, motion picture, consumer inkjet and our consumer products group which includes licensing of the Kodak brand, for the quarter revenues for CFD were $47 million down 24% from $62 million driven primarily by lower revenue in the industrial film and chemicals largely due to a significant customer order in the prior year as well as an expected decline in consumer inkjet.

Operation EBITDA for CFD was a negative $5 million down $15 million for the quarter driven by expected reduction in consumer inkjet in the same customer order comparison previously mentioned.

We expect CFD to deliver positive EBITDA contribution for the full year driven by brand licensing and motion picture film growth, three major studios recently signed multi-year contracts to purchase Motion Picture Film from Kodak, during 2017, many major movies including the record breaking Wonder Woman and Dunkirk were recorded on Kodak film, the Kodak Super 8 cameras expected to be available for sale in 2018 and we expect it to be an important contributor to CFD revenue and EBITDA.

We expect to see variability in the CFD business results this year due to the timing of our brand licensing business which varies due to the timing and scalability of new licensees, timing with Motion Picture Film Productions and prior one time industrial film orders.

The Advanced Materials and 3D Printing Technology division includes Micro 3D Printing, the company's research lab as well as intellectual property licensing not directly related to the other business divisions as we discussed previously I will continue to share more granularity into commercialization and the $7 million investment made in the second quarter of 2017.

The first area of investment is our Micro 3D printing technology which focused -- which is focused on copper mesh touch sensors. During Q2, we invested approximately $3 million on this technology. Through the cancellation of the touch sensor program, we expect to save approximately $5 million annually.

The second area of investment is in light-blocking materials, we invested processing $2 million to commercialize this technology in the quarter, we are producing particles and expanding capacity in line with our alliance with the major textiles, specialty fabric manufacturer and as we bring Kodak's light-blocking technology to market.

The third area of investment is our materials development for 3D Printing, we invested approximately $1 million in the quarter for development projects to commercialize materials for major 3D Printing customers, Karbon, high profile 3D Printing company continued to order under the supply agreement Kodak to produce materials for the printers and we expect additional categories to be added to the remainder of 2017.

In Q2, we also signed a JDA and are supplying advanced materials to 3D Systems, one of the industry leaders in 3D Printing. The fourth area of investment is for printed electronics, we invested approximately $1 million in Q2 of 2017.

This investment includes the development of printed transparent antenna to be used in a variety of applications and transparent grids for electrostatic dust removal films used for cleaning solar panels. In both cases, we're in dialog with partners to fund the commercialization of this technology.

Each of these focused investments is a growth opportunity for Kodak, we are encouraged by the pipeline for these investments, please will begin to recognize revenue along three new areas and believe the each have potential to provide meaningful future revenue and earnings.

Continued our final division, Eastman Business Park, revenues for the quarter were $4 million, an increase of $1 million compared to the prior year quarter, we continue to track tenants to EBK with an addition in Q2 of a controlled environmental, I'm sorry a controlled environment agriculture company.

In addition to rent, a traditional EBP tenant also consumes utilities resulting in an improved financial profile for the division and overall cost of Kodak. On slide 12, we're presenting our adjusted 2017 guidance to reflect current negotiations on an expected advanced technology transaction.

Included in our original outlook was an IP license from Kodak which would have resulted in approximately $15 million of revenue, EBITDA and cash proceeds. As negotiations progressed, we transition from a license of IP to the expected formation of a jointly owned company.

This approach is expected to bring in more cash to Kodak and provide larger upside on an accelerated timeline than the original IP license structure, we are adjusting cash flow outlook and EBITDA guidance to reflect the impact of this expected transaction.

As you can see on the slide, we continue to forecast revenues of $1.5 billion to $1.6 billion and have lowered our operational EBITDA guidance by $15 million to a range of $90 million to $105 million. We have also increased our cash outlook by $10 million to a range of zero to generation of $10 million.

Dave will take you through more details on cash in his comments. As shown on slide 13 provides a comparable view of operational performance we've illustrate the impact of foreign exchange. The impact of supplier price increases aluminum and the expected and buying in the consumer and jet business.

Our revised guidance reflects an improvement of 20% to 40% in operational EBITDA from 2016. To summarize on slide 14, we continue to see strong execution in the FLEXCEL NX plates, SONORA processed plates and the profitable business.

Our second quarter results were impacted by investments in our advanced materials and 3D printing division and ULTRASTREAM. We expect to have year-on-year improvements in our comparable 2017 operational EBITDA and cash flow now. I'll now turn it over to Dave to discussed details on net earnings and cash flow performance..

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 ending June 30, 2017 diluted earnings per share was $0.02 per share compared to diluted loss per share of $0.26 per share in the prior year period. This improvement is a result of the items highlighted above. Turning to slide 18, we are presenting our divisional results for the six months period ending June 30, 2017 and 2016.

As a reminder 2017 results have been recast to present the divisional results on a comparable basis for the retention of PROSPER and ULTRASTREAM within the enterprising chip systems division. Through June 30, 2017 operational EBITDA was $22 million compared to $42 million in the prior year period.

On a constant currency basis operational EBITDA declined by $17 million.

The EBITDA declines as a $11 million in PSD driven by pricing pressures in aluminum cost and $24 million in CFD driven by expected declines in consumer inkjet and onetime impacts and just in industrial films and chemicals and motion picture films were partly offset by continued and strong performance and improvements in the enterprise inkjet systems division of $13 million and Flexographic Packaging division of $4 million.

As Jeff noted earlier, we expect continued pricing pressures in PSD and improving performance in CFD in the second half coming from increased brand licensing revenue and tighter cost controls.

Now for an update on operating costs as shown on slide 19, since December 31, 2013 operating expenses on a run rate basis have been reduced by 47% and corporate costs were down 36%. The key driver of these cost improvements is reduced headcount which is down 32% over this period.

Operating expenses as a percent of revenue from the second quarter was 18% or down 4 percentage points as compared to 2013. For the full year 2017 we expect an improvement in operating expenses as a percentage of a run rate of revenue from 18% to 17%. Our target for corporate cost is 5% of revenue down from our current run rate of 6%.

Overcoming the lapse of income from transition services to a divested business and modest current year investments in automation by implementation of continued productivity initiatives Our investments in ULTRASTREAM and advanced materials and 3D printing impact Kodak's overall operating expenses run rate percentage of revenue by approximately 3% or $45 million.

While we expect modest revenue in 2017, these investments are focused on delivering revenues in 2018 and beyond which we believe will improve our operating model. Moving on to the company cash performance presented on slide 20.

Beginning in the first quarter of 2017 the company adopted ASU 2016_18 which requires the reporting of cash equivalents and restricted cash along with cash in the beginning period and ending period balances on the statement of cash flows.

For further information on this change please refer to Note 1 basis of presentation and recent accounting pronouncements and Note 2 cash, cash equivalents and restricted cash in our Form 10-Q. As shown in our Form 10-Q.

The company ended the second quarter with $389 million in cash, cash equivalents and restricted cash a decrease of $89 million from December 31, 2016. Cash and cash equivalents reported in the balance sheet as of June 30, 2017 were $370 million down $64 million for the year-to-date period and down $8 million from the end of the first quarter.

Restricted cash declined by $25 million from December 31, 2016 primarily due to the replacement of certain letters of credit issued under the ABL revolving credit facility with surety bonds which released $20 million of restricted cash and an additional $5 million related to higher excess availability in the ABL revolving credit facility borrowing base.

Year-to-date 2017 cash used in operating activities was $74 million driven primarily by the seasonal working capital usage of $43 million, negative cash earnings of $18 million and other balance sheet changes up $13 million. During the six month period ended June 30, 2017 the company used $14 million of cash for investing activities.

Capital expenditures of $17 million which includes our investment in new Flexographic line in Weatherford Oklahoma, was partially offset by modest proceeds from asset sales. Cash used in financing activities for the first half of 2017 was $7 million or $1 million less than the prior year period.

On a year-over-year basis, the company used $31 million more cash in the first six months of 2017.

This is primarily driven by lower cash earnings of $18 million higher use from balance sheet cash changes driven by increased cash used in working capital of $26 million and higher cash used in investing activities for capital expenditures and lower asset sale proceeds of $12 million.

These cash uses were partially offset by the $20 million higher release of restricted cash. As well as the $4 million favorable exchange impact. As I will share with you in detail we expect cash generation in the second half of 2017.

Finally as disclosed in our Form 10-Q we remain in compliance with our covenants on our credit agreements in particular companies the EBITDA used in the secured leverage ratio as calculated under the first lien term loan credit agreement exceeded the EBITDA necessary to satisfy the covenant ratio by $26 million.

To summarize the company's second quarter 2017 performance was what we expected, and reflects continued good execution in our key product areas, including PROSPER, SONORO, Workflow Software, and FLEXCEL NX.

We continue to expect a skew to stronger performance in the second half, particularly in the fourth quarter of the year in revenue, operational EBITDA, and cash.

As shown on slide 21, consistent with our adjusted guidance for operational EBITDA, we have updated our cash outlook for 2017 to be within a range of flat to an increase of $10 million, or $10 million higher than our prior outlook.

The updated range for cash primarily reflects the $25 million in cash collateral return from our ABL, as described earlier, partially offset by a reduction in cash from working capital driven by accounts payable due to reduced business growth assumptions in our businesses and higher tax payments.

In addition, we expect an increase in cash from asset sales and investments, which is reflected in Other. This includes the expected transaction in Advanced Materials Technology Jeff described earlier. As I mentioned earlier in my remarks, in total for the remainder of the year we expect to generate cash.

The increase in cash used in working capital in the first half will transition to a source of cash for the company as presented in the slide. Inventory and accounts payable balances will be impacted by increases in sales volumes consistent with our expected second half business performance, and provide a source of cash for the company.

Turning to slide 22, we have improved the cash flow of the company significantly over the past three years. As presented on the slide for the years ended December 31st, 2014 and 2015, cash declined by $128 million and $161 million respectively excluding debt repayments.

In 2016, the company used $29 million of cash net of debt repayments which reflects an improvement of $132 million compared to 2015. This was driven by the improvements in our business performance, including lower operating expenses, as well as the reduction in reorganization costs, restructuring cash payments and legacy cash uses.

In addition, for 2017, we expect to deliver a range of zero to $10 million in cash generation, or an increase is cash of $2 million to $12 million net of our expected debt repayments of $2 million, which represents an improvement in our cash flow between $31 million and $41 million compared to 2016 as we expect to begin to monetize our technology investments while continuing to manage our cost structure and balance sheet.

We are pleased with our cash management efforts, and our ability to fund investments in growth areas, while improving our cash flow. We will now open the call to your questions. Chelsea, please remind participants of the instructions to ask questions..

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 businesses that we're planning on declining, that's our Consumer Inkjet, our Digimaster, those are ones where we're not investing any more, as well as Versamark. We're not investing in those, but they're profitable, and in one-off. And that's about 10% of our business, a relatively small part of our business now.

And then the question to the new technologies, this is the area we're investing a fair amount of money in both ULTRASTREAM, about $15 million a year in ULTRASTREAM and that is our next generation inkjet business, where, as you can see from the presentation, it's off to a very good engineering milestone perspective. We have high expectations for it.

But it won't start contributing until 2019. And then I went through the AM3D business, where we've made the biggest change. And this is the area that we measure with enormous rigor, because these are early commercialization projects where they have to meet technical milestones, and market milestones, as well as partnership funding milestones.

And in this case, we've chosen to shut down the copper metal mesh technology, as you suggest -- as your question asked, because it didn't continue to make the milestones that are requisite for the ROI that we rigorously look to.

And this is a development over the last 90 days as the market has moved, and as we've gotten customers we're realizing that we can't scale this to the extent that we had expected. And as such we're going to shut it down and save roughly $5 million a year.

And the other part of that portfolio discussion comes with the realization that some of these other areas have less risk and higher probability of achieving commercialization. So, Shannon, kind of a long answer, but from a portfolio perspective, yes, all of our projects have hard rigor and review.

But as we look at these there's -- none or on the quote chopping block, as I'm paraphrasing your words. These have to meet the milestones every day. As long as they meet them they get the future investment. As they start to fall behind then they get more rigor, and eventually in the case of the copper metal mesh, they didn't make it..

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..