Q4 2023 Axalta Coating Systems Ltd Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Axalta's Q4 and full year 2023 earnings call. All participants will be in a listen-only mode.

Ladies and gentlemen, thank you for standing by welcome to adulthood, Q4, and full year 2023 earnings call. All participants will be in a listen only mode. A question and answer session will follow the formal presentation by management today's call is being recorded and a replay will be available through February.

Operator: A question and answer session will follow the presentation by the manager. Today's call is being recorded, and a replay will be available through February 15th. Those listening after today's call should please note that the information provided in the recording will not be updated and therefore may no longer be current. I will now turn the call over to Chris Evans.

Okay.

Those listening after today's call should please note that the information provided in the recording will not be updated and therefore may no longer be current.

I will now turn the call over to Chris Evans. Please go ahead Sir.

Chris Evans: Please go ahead. Thank you, and good morning. This is Chris Evans, VP of Investor Relations. We appreciate your continued interest in Axalta and welcome you to our fourth quarter and full year 2023 Financial Results Conference. Joining me today are Chris Villavarayan, CEO and President, and Carl Anderson, CFO. We released our quarterly financial results this morning and posted a slide presentation to the investor relations section of our website at Axalta.com, which we will be referencing during this call. Our prepared remarks, the slide presentation, and our discussion today may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Axalta's operating and financial performance. These statements involve uncertainties and risks, and actual results may differ materially from those projected.

Thank you and good morning. This is Chris Evans VP of Investor Relations. We appreciate your continued interest in <unk> and welcome you to our fourth quarter and full year 2023 financial results Conference call.

Chris Evans: Joining me today are Chris Bill of Orion, CEO, and President and Carl Anderson CFO.

Chris Evans: We released our quarterly financial results. This morning, and posted a slide presentation to the Investor Relations section of our website at exalted Dot com, which we will be referencing during this call.

Chris Evans: Our prepared remarks, the slide presentation and discussion today may contain forward looking statements, reflecting the company's current view of future events and their potential effect on exalt is operating and financial performance.

Chris Evans: These statements involve uncertainties and risks and actual results may differ materially from those forward looking statements.

Chris Evans: Please note that the company is under no obligation to provide updates to these forward. Our remarks and this slide presentation also contain various non-GAAP financial measures. In the appendix to the slide presentation, we've included reconciliations of these non-GAAP financial measures to the Most Directly Comparable Gap. For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. I will now turn the call over to Chris. Thank you, Chris.

Chris Evans: Please note that the company is under no obligation to provide updates to these forward looking statements.

Chris Evans: Our remarks and the slide presentation also contains various non-GAAP financial measures.

Chris Evans: In the appendix to the slide presentation. We've included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures for.

Chris Evans: For additional information regarding forward looking statements and non-GAAP financial measures. Please refer to our filings with the SEC I will now turn the call over to Chris.

Chris Evans: Thank you, Chris and good morning, everyone. This was another great quarter for exalt out I'm pleased that we met or exceeded all targets for our full year guidance and I wanted to thank the entire global team for their dedication and strong execution.

Chris Villavarayan: And good morning, everyone. This was another great quarter for Axalta. I'm pleased that we met or exceeded all targets for our full-year guidance, and I want to thank the entire global team for their dedication and strong execution.

Chris Villavarayan: Q4 net sales increased 5% year-over-year to $1.3 billion, with positive contributions from both segments. Volumes improved 2% year over year, led by a 9% growth in mobility coating. This represents our seventh consecutive quarter of mobility volumes growth as auto production has normalized from historic lows and we have successfully repositioned our portfolio with some of the fastest growing automotive OEMs. Price Mix was a 1% year-over-year improvement, with pure pricing approximately 3% better year-over-year when excluding mix effects and one-time pricing realizations.

Chris: Q4, net sales increased 5% year over year to $1 3 billion with positive contributions from both segments.

Chris: Williams improved 2% year over year led by a 9% growth in mobility coatings.

Chris: This represents our seventh consecutive quarter of mobility volumes growth as auto production have normalized from historic lows and we have successfully repositioned our portfolio with some of the fastest growing automotive Oems.

Chris: Price mix was a 1% year over year improvement with pure pricing of approximately 3% better year over year, when excluding mix effects and one time pricing realization all end markets contributor to better year over year pricing gains. This was a great achievement for our commercial teams and a demonstration on our.

Chris Villavarayan: All end markets contributed to better year-over-year pricing gains. This was a great achievement for our commercial teams and a demonstration of our ongoing emphasis on pricing realization. Going forward, we will remain disciplined as we face pressure from higher labor costs and strive to restore margins to historical levels.

Chris: Ongoing emphasis on pricing realization going forward, we will remain disciplined as we face pressure from higher labor costs and strive to restore margins to historical levels.

Chris Villavarayan: Adjusted EBITDA increased 21% year-over-year to $251 million, and adjusted EBITDA margins improved by 250 basis points to 19.3%. I would like to now review some of our key accomplishments from the past year on slides four and five. 2023 was a tremendous year for Axalta in which we achieved record net sales and adjusted EBITDA. 2023 net sales were $5.2 billion, 6% better versus 2022, with all end markets reporting positive price mix growth. Mobility coating volumes growth of 10.6% was supported by normalization of global auto production and further supplemented by new business wins, particularly in China.

Chris: Adjusted EBITDA increased 21% year over year to 251 million and adjusted EBITDA margins improved by 250 basis points to 19, 3%.

Chris: I would like to now I'll review some of our key accomplishments from the past year on slides four and five.

2023 was a tremendous year for example, in which we achieved record net sales and adjusted EBITDA 2023, net sales were $5 2 billion, 6% better versus 2022 with all end markets reporting positive price mix growth.

Chris: Ability coatings volumes growth of 10, 6% was supported by normalization of global auto production and further supplemented by new business wins, particularly in China. We have made substantial investments to support growth with local Chinese Oems over the past several years as exemplified with the <unk>.

Chris Villavarayan: We have made substantial investments to support growth with local Chinese OEMs over the past several years, as exemplified by the opening of our new manufacturing site in Jilin. We continue to see this region as an attractive long-term opportunity for the business. However, strong growth in mobility coatings was balanced by volume weakness in performance coatings that were centered around soft construction activity within our industrial end market. Yet, Refinish remains a very attractive and resilient market.

Chris: Opening of our new manufacturing site in Chile, we continue to see this region as an attractive long term opportunity for the business.

Chris: However, strong growth in mobility coatings was balanced by volume weakness in performance coating that were centered around soft construction activity within our industrial end market, yet refinish remains a very attractive and resilient market. The team delivered another excellent year with over two.

Chris Villavarayan: The team delivered another excellent year with over 2,500 net body shop wins, expanding on our leading position. Altogether, we remain focused on what we can control and are committed to profitable growth initiatives that reinforce the foundation of Axalta. To that end, I'm excited that during 2023, the technology team was honored with several awards for the incredible new innovations we produced for our customers. New offerings such as Axalta IRIS and NextJet are critical to support our long-term growth. And lastly, we completed the acquisition of André Coe, a Swiss refinished distributor. This strategic acquisition positions us well in the attractive Swiss auto aftermarket and gets us closer to our body shop customers.

Chris: 500, net body shop wins, expanding on our leading position altogether. We remain focused on what we can control and are committed to profitable growth initiatives that reinforced the foundation of exalt out to that end I'm excited that during 2023 the technology team was honored.

Chris: With several awards for the incredible new innovations, we produced for our customers new offerings, such as exalt of Iris and next yet are critical to support our long term growth ambitions and lastly, we completed the acquisition of Andre call a Swiss refinish distributor.

Chris: This strategic acquisition positions us well in the attractive Swiss auto aftermarket and gets us closer to our body shop customers.

Chris Villavarayan: Early results have been promising. We're on track with the integration plan and see lots of opportunity for growth, including in non-paint accessories. My main focus since joining Axalta has been to drive improved efficiency and performance across the enterprise.

Chris: Early results have been promising.

We're on track with the integration plan and see lots of opportunity for growth, including in non paint accessories. My main focus since joining <unk> has been to drive improved efficiency and performance across the enterprise. We have made progress on both these fronts. This year I'm excited to report.

Chris Villavarayan: We have made progress on both these fronts this year. I'm excited to report record annual adjusted EBITDA of $951 million and an improvement of 17% year over year. This was an incredible achievement for the team and an early reflection of the transformational journey underway. All four end markets delivered improved earnings and profitability versus 2022. Refinish had another solid performance with the third consecutive year of achieving record sales and earnings.

Chris: Our record annual adjusted EBITDA of 951 million, an improvement of 17% year over year. This was an incredible achievement for the team and an early reflection of their transformational journey underway.

Chris: All four end markets delivered improved earnings and profitability versus 2022.

Chris: Refinish had another solid performance with the third consecutive year, achieving record sales and earnings in both light and commercial vehicle. We have made incredible progress after several years of market challenges.

Chris Villavarayan: In both light and commercial vehicle, we have made incredible progress after several years of market challenges. Mobility Coating's second half-adjusted EBITDA is now consistent with 2019 run rates, setting us up well for 2024. And lastly, industrial earnings improved versus 2022 despite volumes being almost 20% below 2021 levels. The entire enterprise is delivering on our stated goal to drive profitable growth, and we are making progress towards a return to historic markets. Fully-adjusted EBITDA margins improved by 180 basis points to 18.4%.

Chris: Mobility coding second half adjusted EBITDA is now consistent with 2019 run rates setting us up well for 2024, and lastly, industrial earnings improved versus 2022 despite volumes being almost 20% below 2021 levels.

Chris: The entire enterprise is delivering on our stated goal to drive profitable growth and we're making progress towards a return to historic margins full year adjusted EBITDA margins improved by 180 basis points to 18, 4%.

Chris Villavarayan: During the year, we drove urgency and speed with our productivity and purchasing initiatives, which we believe accelerated the capture of incremental benefits in addition to deflationary gains. We're driving growth in areas with attractive returns while selectively shedding others that don't meet our margin threshold. Pre-cash flow was another bright spot.

Chris: During the year, we drove urgency and speed with our productivity and purchasing initiatives, which we believe accelerated the capture of incremental benefits. In addition to deflationary gains.

Chris: We're driving growth in areas with attractive returns, while selectively shedding others that don't meet our margin thresholds.

Chris: Free cash flow was another bright spot we ended the year at near record levels and drove inventory reduction and benefited from increased operating earnings.

Chris Villavarayan: We ended the year at near record levels and drove inventory reduction and benefited from increased operating earnings. 2023 adjusted diluted EPS of $1.57 improved by 6% year over year. For the first time in the history of Axalta, we ended the fiscal year with net leverage below three times and plan to continue to strengthen the balance sheet going forward.

Chris: 23 of adjusted diluted EPS of $1 57 improved by 6% year over year for.

Chris: For the first time in the history of <unk>. We ended the fiscal year with net leverage below three times and plan to continue to strengthen the balance sheet going forward, we demonstrated significant improvements in our operating performance and ended the year significantly more profitable than we started.

Chris Villavarayan: We demonstrated significant improvements in our operating performance and ended the year significantly more profitable than we started. While Axalta's transformation is just beginning, I'm encouraged by the pace of progress. Our teams are focused on the right objectives, and we're winning together as one Axalta.

Chris: While exalt is transformation is just beginning I'm encouraged by the pace of progress. Our teams are focused on the right objectives and we're winning together as one example.

Carl D. Anderson: As we exit 2023, I'm encouraged by the trajectory of our core markets and excited about the investments being made across the business. I believe we're well set up as we head into 2024 after a solid fourth quarter and a transformational 2023. I will now hand the call off to Carl to review our financial results. Thank you, Chris, and good morning, everyone.

Speaker Change: As we exit 'twenty twenty-three I'm encouraged by the trajectory of our core markets and excited about the investments being made across the business I believe we're well set up as we head into 2024 after a solid fourth quarter and a transformational 2023, I will now hand, the call off to <unk>.

Speaker Change: Carl to review our financial results.

Carl D. Anderson: Thank you, Chris and good morning, everyone.

Carl D. Anderson: Before reviewing our financial results in more detail, I would like to highlight that we have changed our primary reporting... from Adjusted EBIT to Adjusted EBITDA. The change was made to reflect the way we measure the financial performance of our two segments and allocate resources, as well as to be more closely aligned to the design of our long-term incentive. We have provided historical reconciliations in the appendix. Press, Let's turn to slide 6.

Carl D. Anderson: Before reviewing our financial results in more detail I would like to highlight that we have changed our primary reporting metric from adjusted EBIT to adjusted EBITDA.

Carl D. Anderson: The change was made to reflect the way we measure the financial performance of our two segments and allocate resources as well as more closely aligned to the design of our long term incentive plans.

Carl D. Anderson: We have provided historical reconciliations in the appendix of the press release.

Carl D. Anderson: Let's turn to slide six.

Carl D. Anderson: Fourth quarter net sales increased 5% year over year to $1.3 billion, with positive sales contributions from both sectors. Consolidated volumes were up 2% year over year as strong mobility coatings growth more than offset declines in performance coating, and price mix improved by 90, compared with Prior Year. If your pricing benefit was approximately 300 basis points higher compared to last year, but was partially offset by negative mix and a challenging comparison from the fourth quarter. Adjusted EBITDA in the quarter was $251,000, a 21% increase from $208 million in the prior year period. Adjusted EBITDA margin improved by 250 basis points to 19%. Unit rate variable costs were approximately 12% lower year over year, with improvements across nearly all categories, marking the third consecutive quarter of realized deflation. Supplied demand imbalances in isocyanates, monomers, and epoxy resins help drive a large portion of the benefit.

Carl D. Anderson: Fourth quarter net sales increased 5% year over year to $1 3 billion.

Carl D. Anderson: With positive sales contributions from both segments.

Carl D. Anderson: Consolidated volumes were up 2% year over year as strong mobility coatings growth more than offset declines in performance coatings.

Carl D. Anderson: Price mix improved by 90 basis points compared to the prior year period.

Carl D. Anderson: The peer pricing benefit was approximately 300 basis points higher compared to last year, but was partially offset by negative mix and a challenging comparison from the fourth quarter of 2022.

Carl D. Anderson: Adjusted EBITDA in the quarter was 251, million% to 21% increase from $208 million in the prior year period.

Carl D. Anderson: Adjusted EBITDA margin improved by 250 basis points to 19, 3%.

Carl D. Anderson: Unit rate variable costs were approximately 12% lower year over year with improvements across nearly all categories, marking the third consecutive quarter of realized deflation.

Carl D. Anderson: Supply demand imbalances in isocyanate monomers, and epoxy resins helped drive a large portion of the benefit.

Carl D. Anderson: We are also pleased with the additional savings driven by the productivity initiatives, we launched last year, which enabled us to improve negotiating flexibility and contract terms.

Carl D. Anderson: We are also pleased with the additional savings driven by the productivity initiatives we launched last year, which enabled us to improve negotiating flexibility in contracts. We believe that the favorable raw material environment will continue into 2024, with comparisons strongly benefiting the first half of the year. Yet, as Chris highlighted earlier, we will remain disciplined in managing our cost structure as we go forward. And finally, Adjusted Diluted Earnings Per Share increased 13% year-over-year to $43,000, despite significantly higher, Moving to slide 7. Performance Coatings' fourth quarter net sales improved by 4% year-over-year to $849 million.

We believe that the favorable raw material environment will continue into 2024 with comparison strongly benefiting the first half of the year.

Carl D. Anderson: Yeah, It's Chris highlighted earlier, we will remain disciplined in managing our cost structure as we go forward.

Carl D. Anderson: And finally adjusted diluted earnings per share increased 13% year over year to 43.

Carl D. Anderson: Despite significantly higher interest expense.

Carl D. Anderson: Moving to slide seven.

Carl D. Anderson: Performance coatings fourth quarter net sales improved by 4% year over year to $849 million.

Carl D. Anderson: We finished organic net sales improved by a mid single digit percent compared to the prior year period with positive price mix and volume.

Carl D. Anderson: We finish with organic net sales improved by a mid-single-digit percent compared to the prior year period, with positive price mix and volume. This was the 12th consecutive quarter of positive year-over-year net sales growth, and we ended the year with record annual returns. Industrial organic net sales were mid-single-digit percent lower year-over-year as positive price mix was more than offset by lower volumes, principally due to weaker activity in the North America construction market and from the strategic decision to exit certain customers. We see early signs of stabilization, however, demand appears at this time to be relatively muted in the early part. For more information, visit www.fema.gov.

Carl D. Anderson: This was the 12th consecutive quarter of positive year over year net sales growth and we ended the year with record annual Refinished earnings.

Carl D. Anderson: Industrial organic net sales were mid single digit percent lower year over year as positive price mix was more than offset by lower volumes, principally due to weaker activity in North America construction market and from the strategic decision to exit certain customers.

Carl D. Anderson: We see early signs of stabilization. However demand appears at this time to be relatively muted in the early parts of 2024.

Carl D. Anderson: Despite lower reported volumes amid a soft macroeconomic backdrop, the industrial team improved margins considerably year-over-year through cost management and pricing. Performance Coatings' fourth quarter adjusted EBITDA was $192 million versus $169 million in the prior year, with solid contributions from both. Segment Adjusted EBITDA Margins Improved by 200% Led by favorable price-cost dynamics, which more than offset lower volumes in industrial and higher variable labor. Turning to mobility coatings results in side A.

Carl D. Anderson: Despite lower reported volumes and Medisoft macroeconomic backdrop, the industrial team improve margins considerably year over year through cost management and pricing discipline.

Carl D. Anderson: Performance coatings fourth quarter, adjusted EBITDA was $192 million versus $169 million in the prior year period with solid contributions from both end markets.

Carl D. Anderson: Segment, adjusted EBITDA margins improved by 200 basis points led by favorable price cost dynamics, which more than offset lower volumes in industrial and higher variable labor costs.

Carl D. Anderson: Turning to mobility coatings results on slide eight.

Carl D. Anderson: Fourth quarter mobility coatings net sales increased 7% to $449 million year over year. Light Vehicle Organic Net Sales increased by a mid-single-digit percent compared to the prior year period. Volumes were once again very strong, led primarily by above market growth in China. The UAW strike in North America ultimately had limited impact in the quarter.

Carl D. Anderson: Fourth quarter mobility coatings, net sales increased 7% to $449 million year over year.

Carl D. Anderson: Light vehicle organic net sales increased by mid single digit percent compared to the prior year period.

Carl D. Anderson: Volumes were once again very strong led primarily by above market growth in China.

Carl D. Anderson: The UAW strike in North America, ultimately had limited impact in the quarter.

Carl D. Anderson: Our expectation for global light vehicle production in 2024 is relatively stable following the strong recovery and build over the past two years. Over this time, the team has done a great job in diversifying our sales mix and positioning us favorably with the fastest-growing OEM. However, price mix declines year-over-year driven by negative mix impacts and the absence of a one-time price benefit we realized in the fourth quarter of 2022.

Carl D. Anderson: Our expectation for global light vehicle production in 2024 is relatively stable following the strong recovery in builds over the past two years.

Carl D. Anderson: Over this time the team has done a great job in diversifying our sales mix and positioning us favorably with the fastest growing Oems.

Carl D. Anderson: Price mix declined year over year, driven by negative mix impacts in the absence of a onetime price benefit we realized in the fourth quarter of 2022.

Carl D. Anderson: However, pure pricing was up low versus the prior. Commercial vehicle organic net sales improved by a high single-digit percentage compared to the fourth quarter of 2020. The year-over-year improvement was led by low teens volume growth in Latin America with sustained strong demand. We expect North America Class 8 truck demand will decline modestly.

Carl D. Anderson: However, the pure pricing was up low single digits versus the prior year.

Carl D. Anderson: Commercial vehicle organic net sales improved by a high single digit percentage compared to the fourth quarter of 2022.

Carl D. Anderson: The year over year improvement was led by low teens volume growth in Latin America with sustained strong demand in North America.

Carl D. Anderson: We expect North America class eight truck demand will decline modestly in 2024 as we are encouraged by elevated backlogs and positive comments from our large customers, who see less downside than third party industry forecasters.

Carl D. Anderson: As we are encouraged by elevated backlogs and positive comments from our large customers, See Less Downside Than Third-Party Industry Foreclosure, Mobility Coatings Adjusted EBITDA improved to $59 million from $39 million.

Carl D. Anderson: Mobility coatings adjusted EBITDA improved to 59 million from 39, Million% to 50% increase year over year.

Carl D. Anderson: 50% increase year-over-year. The adjusted EBITDA margin improved by 380. 13.2%, driven by lower variable input costs and robust volume growth. Turning to slide 9 for a review of our full year results. Net sales grew 6% year-over-year to $5.2 billion, a new company record. The net sales improvement was driven primarily by positive price-mix contributions across every end market. Volumes were down modestly on a full-year basis as growth in mobility coatings was offset by a slight decline in performance.

Carl D. Anderson: Adjusted EBIT margin improved by 380 basis points to 13, 2% driven by lower variable input costs and robust volume growth.

Carl D. Anderson: Turning to slide nine for a review of our full year results.

Carl D. Anderson: Net sales grew 6% year over year to $5 2 billion, a new company record.

Carl D. Anderson: Net sales improvement was driven primarily by positive price mix contributions across every end market.

Carl D. Anderson: Volumes were down modestly on a full year basis as growth in mobility coatings was offset by a slight decline in performance coatings.

Carl D. Anderson: Adjusted EBITDA was $951 million $841 million improvement and a new company record as favorable price and raw material trends offset headwinds from increased productivity investments and higher variable labor expenses.

Carl D. Anderson: Adjusted EBITDA was $951 million, a $141 million improvement and a new company record. Its favorable price and raw material trends offset headwinds from increased productivity investments in higher variable labor. The contribution from mobility coatings to adjusted EBITDA growth was substantial, improving by nearly $100 million versus the prior year period. Adjusted EBITDA margin improved by 180% to 18.4%, with a notable step up in the second half of the year to 19.6%, versus 17% in the first. Adjusted diluted earnings per share increased by 6% to $1.57.

The contribution from our more mobility coatings to adjusted EBITA growth was substantial improving by nearly $100 million versus the prior year period.

Carl D. Anderson: Adjusted EBITDA margin improved by 180 basis points to 18, 4% with a notable step up in the second half of the year to 19, 6% versus 17% in the first half.

Carl D. Anderson: Adjusted diluted earnings per share increased by 6% to $1 57, despite a $74 million interest expense headwind.

Carl D. Anderson: Despite a $74 million interest expense headwind, a modestly higher tax rate, and $23 million in exchange losses stemming from the revaluation of assets denominated principally in the Argentinian Peso and Turkish Lira, we have recently taken action that is intended to help mitigate foreign exchange risk in Argentina. Free cash flow of $447 million increased by 174% compared to the prior year, led by Hire Operating Profit and Targeted Working Capital Reductions stemming from the Mid-Year Productivity Initiative.

Carl D. Anderson: Modestly higher tax expense.

Carl D. Anderson: And $23 million in exchange losses stemming from revaluation of assets denominated principally in the Argentinean peso in Turkish lira.

Carl D. Anderson: We have recently taken action that is intended to help mitigate foreign exchange risk in Argentina going forward.

Carl D. Anderson: Free cash flow of $447 million increased by 174% compared to the prior year led by higher operating profit and targeted working capital reductions stemming from mid year productivity initiatives.

Carl D. Anderson: As a result of the stronger operating results, we ended the year with a substantially improved balance. Turning to slide 10, we ended the year with $1.2 billion in total liquidity, including a cash balance of approximately $700 million. Our total net leverage ratio ended the year at 2.9 times, nearly a full turn below last year at our best ever year-end leverage ratio.

Carl D. Anderson: As a result of the stronger operating results. We ended the year with a substantially improved balance sheet.

Carl D. Anderson: Turning to slide 10, we ended the year with $1 $2 billion in total liquidity, including a cash balance of approximately $700 million.

Carl D. Anderson: Our total net leverage ratio ended the year at two nine times nearly a full turn below last year and our best ever year end leverage ratio.

Carl D. Anderson: Capital outlays in 2023 amounted to over $500 million, balanced between $214 million of gross debt, $138 million in capital expenditures, $106 million in M&A, and $50 million in share repurchase. Going forward, we expect to modestly increase internal investments in CapEx, net of a significant decline in ERP-related spending in 2024, with an emphasis on improving return on invested capital. We see many value creation avenues for capital allocation, including further growth stat reduction, opportunistic share buybacks, and a creative M&A and strategic opportunity. During the fourth quarter, we refinance our 2025 senior notes set to mature in January, with approximately $500 million of new notes with a maturity date of February 2031. As a result of this refinancing, we do not have another bond maturity until 2026. Consequently, our plan is to keep interest expenses flat.

Carl D. Anderson: Capital Outlays in 2023 amounted to over $500 million balance between $214 million of gross debt reduction of $138 million and capital expenditures of $106 million in M&A and $50 million in share repurchases.

Carl D. Anderson: Going forward, we expect to modestly increase internal investments and Capex net of a significant decline in ERP related spending in 2024 with an emphasis on improving return on invested capital.

Carl D. Anderson: We see many value creation avenues for capital allocation, including further gross debt reduction and opportunistic share buybacks and accretive M&A and strategic opportunities.

Carl D. Anderson: During the fourth quarter, we refinanced our 2025 senior notes set to mature in January of 'twenty five.

Carl D. Anderson: With approximately $500 million of new notes with a maturity date of February 2031.

Carl D. Anderson: As a result of this refinancing we do not have another bond maturity until 2027.

Carl D. Anderson: Our plan is to keep interest expenses flat in 2024, despite the net increase in interest associated with the bond refinancing.

Carl D. Anderson: Thanks for watching. Available offsets include growth stat reduction, interest rate derivatives, and the option to reprice our term loan at potentially favorable rates. We intend to continue to strengthen our balance sheet and believe deleveraging is one of the most important value creation levers for Axalta in the near future. The high end of our target net leverage of 2.5 times should be achievable in 2024 through natural deleveraging and disciplined capital allocation. I will now turn the call back to Chris for our 2024 financial guidance. In closing, thanks, Carl. Let's turn to slide 11.

Carl D. Anderson: Available offsets include gross debt reduction interest rate derivatives, and the option to reprice, our term loan at potentially favorable rates.

Carl D. Anderson: We intend to continue to strengthen our balance sheet and believe deleveraging is one of the most important value creation levers for adults in the near term.

Carl D. Anderson: The high end of our target net leverage of two five times should be achievable in 2024 through natural deleveraging and disciplined capital allocation.

Carl D. Anderson: I'll now turn the call back to Chris for 'twenty, 'twenty, four financial guidance and closing remarks, thanks, Carl Let's turn to slide 11, I'm proud of the team for executing well and driving record 2023 financial performance I see considerable opportunity to build from here and fully expect us to achieve another record year.

Chris Villavarayan: I'm proud of the team for executing well and driving record 2023 financial performance. I see considerable opportunity to build from here and fully expect us to achieve another record year of earnings in 2024. Net sales in the first quarter are expected to be approximately flat year-over-year.

Carl D. Anderson: Earnings in 2024.

Chris: Net sales in the first quarter are expected to be approximately flat year over year.

Chris Villavarayan: We project volumes and price mix growth to be modest and roughly balanced for the period. First quarter adjusted EBITDA is projected to be roughly 13% year-over-year to approximately $240 million, with a majority of the improvements supported by margin growth. First quarter adjusted diluted EPS is expected to be roughly $0.40.

Chris: We project volumes and price mix growth to be modest and roughly balanced for the period first quarter. Adjusted EBITDA is projected to be roughly 13% year over year to approximately $240 million with the majority of the improvement supported by margin growth first quarter adjusted diluted EPS is expected to be rough.

Chris: 40 <unk> full.

Chris Villavarayan: Full-year net sales are expected to grow by a low single-digit percent year-over-year with positive contributions from both segments. As for the end markets, we assume a stable refinish environment with upside opportunity for Axalta as we continue to drive body shop wins and further penetrate non-paint accessories. In industrial, we expect volumes to remain at current run rates through the year as we do not yet see signs of an upturn. For Light Vehicle, we assume flat global bill rates following a strong production recovery in 2023 and expect Axalta to slightly overperform, driven by business wins and mix. And lastly, in commercial vehicles, we assume North American Class 8 demand will begin to slow mid-year before demand ramps back up in 2025 and 2026, ahead of new emission standards being implemented in 2027. Full-year adjusted EBITDA is expected to be between $1.01 billion and $1.05 billion, equating to adjusted diluted EPS between $1.80 and $1.95.

Chris: Full year net sales are expected to grow by a low single digit percent year over year with positive contributions from both segments.

As for the end markets, we assume a stable refinish environment with upside opportunity for exalt out as we continue to drive body shop wins and further penetrate non paint accessories in industrial we expect volumes to remain at current run rates through the year as we do not yet see signs of an <unk>.

Speaker Change: Ill turn.

Speaker Change: For light vehicle, we assume flat global build rates falling a strong production recovery in 2023, and expect exalt or just slightly over perform driven by the business wins and mix.

Speaker Change: Price mix is expected to be positive net of any rmi impacts and lastly in commercial vehicle, we assume north American class eight builds will begin to slow midyear before demand ramps back up in 2025, and 26 ahead of new emission standards being implemented.

Speaker Change: In 2027 full.

Speaker Change: Full year adjusted EBITDA is expected to be between one point or 1 billion and one point, all 5 billion equating to adjusted diluted EPS between $1 80, and $1 95.

Chris Villavarayan: We foresee a typical quarterly earnings cadence with seasonal strength in the middle of the year. Guidance includes a mid-single-digit variable cost deflation tailwind that is first half-weighted. Full year free cash flow is expected to be between $400 and $450 million in 2024.

Speaker Change: We foresee a typical quarterly earnings cadence with seasonal strength in the middle of the year guidance includes a mid single digit variable cost deflation tailwind that is first half weighted.

Speaker Change: Full year free cash flow is expected to be between 400 and $450 million in 2024, the midpoint of our range assumes increased capital expenditures and less of an improvement from working capital. After a significant one time benefit of reductions we saw in 2023.

Chris Villavarayan: The midpoint of our range assumes increased capital expenditures and less of an improvement from working capital after a significant one-time benefit from the reductions we saw in 2023. I believe that we are well positioned to deliver on these commitments as we continue to drive Axalta to new record levels of sales and earnings. I'd like to invite everyone to an event on May 15th, where we intend to introduce our three-year strategy. For more details and registration information, please refer to our IR website and the save the date included in our Q4 presentation materials. Thank you for joining us today.

Speaker Change: I believe that we are well positioned to deliver on these commitments as we continue to drive X alto to new record levels of sales and earnings I'd like to invite everyone to any event on May 15, where we intend to introduce our three year strategy for more detail and registration information.

Speaker Change: Refer to our IR website and the save the date included in our Q4 presentation materials.

Speaker Change: For joining us today. This concludes our prepared remarks, operator, please open the lines for Q&A.

Operator: This concludes our prepared remarks. Operator, please open the lines for Q&A. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Speaker Change: Thank you well now be conducting a question and answer session.

Speaker Change: That's a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we call for questions. Thank you. Our first question is from David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Good morning.

Speaker Change: Participants using speaker equipment, and they'd be necessary to pick up your handset before pressing the star.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Thank you. Our first question is from David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter: Thank you and good morning, I'm, Chris can you discuss in refinish your expectations for pricing in 2024.

Chris Villavarayan: Chris, can you discuss and reaffirm your expectations for pricing in 2024? Yeah, we're good morning, David. We're still planning to add, let's call it mid single digits, low to mid single digits pricing as we think about how we performed last year and where we see 24, very good, and can you discuss just also anywhere in the portfolio where you're seeing pricing pressure that might impact 2024? That's a So far, as I see the portfolio, I think, you know, we're seeing that the industry is being quite disciplined. I think we're all facing the same pressures, whether it's labor, and also uncertainties going forward.

David Begleiter: Yeah.

David Begleiter: Good morning, David we're still planning to have had let's call. It mid single digits low to mid single digits pricing as we think about job, how we performed last year and where we see 24.

Speaker Change: Very good and can you discuss just also anywhere in the portfolio are you seeing pricing pressure.

Speaker Change: That might impact 2024.

David Begleiter: That's a great question, so far as I see the portfolio I think you know we're seeing that the industry is being quite disciplined I think we're all facing the same pressures, whether it's labor and also uncertainties going forward and I think a lot of the recovery, we have seen in pricing and making sure.

Chris Villavarayan: And I think a lot of the recovery we've seen in pricing and making sure that we're all pricing for value, we can see that benefit. That said, I would say on the industrial side, we are seeing some pressure in Europe. But, you know, as I think about our portfolio, we're going to stay focused on driving for the value we provide for our customers. Thank you.

David Begleiter: We're all pricing for value, we can see that benefit that said I would say on the industrial side, we are seeing some pressure in Europe, but as I think about our portfolio, we're going to stay focused on driving for the value we provide for our customers.

Speaker Change: Thank you.

Operator: Our next question is from John McNulty with BMO Capital Markets. Please proceed with your question. Yeah, good morning.

Speaker Change: Our next question is from John Mcnulty with BMO capital markets. Please proceed with your question.

John Roberts: Yeah. Good morning, Thanks for taking my question it.

Chris Villavarayan: Thanks for taking my question. It seems like, you know, in addition to the price-raw materials mix, you've made some decent headway early on in kind of efficiency improvements and that type of thing. I guess, can you call out some of the bigger items there and how we should be thinking about how that may continue as we look through 2024? That's a great question, John.

John Roberts: It seems like you know in addition to the price raws mix you've made some some decent headway early on and kind of efficiency improvements and in that type of thing I guess can you can you call out some of the bigger items, there and how we should be thinking about how that may continue as we look through 2024.

John Roberts: That's a great question, John I think coming on board.

Chris Villavarayan: I think, you know, coming on board a year ago, we talked about some of the purchasing initiatives that we had in place. And that certainly paid dividends, especially if you look at Q4 and our performance of 12% on material performance. And if you take a look at, let's call it half of it being, you know, what the industry is calling deflation, we certainly did better than that. And especially when I compare with our peers that I would call being three to four times our size, it's great to see the performance coming through.

John Roberts: A year ago, we talked about.

John: Some of the purchasing initiatives that we had in place and that's certainly paid dividend, especially if you look at Q4, and our performance up 12% on material.

John: Our formats and if you take a look at let's call. It half of it being you know what the industry's calling as deflation, we certainly did better than that and as especially when when I compare with our peers that I would call being three to four times our size, it's great to see the performance coming through and was really work.

Chris Villavarayan: And it was really worth the purchasing teams sitting down with our suppliers and driving some of those actions to really price ourselves back to where we were. As you know, we took about $650 million of incremental cost through the last two years, and it was really resetting a bit of that and driving that cost-benefit through. Now, this started, I would call it mid-year, and so as we talked about in previous calls, it was really about burning through that inventory, and we saw that benefit certainly hit us in Q4. As I think about 24, it's really how are we structuring agreements so that we can be more resilient as we see, let's call it, fluctuations in the market, and that's certainly how we're playing it. But I would call it, as you can see in our guide, what we're seeing is we're driving, I would call it, low to mid-single digits, low to mid-single digits expectations for deflation going through 24. Got it, fair enough.

Purchasing teams sitting down with our suppliers and driving some of that those actions to really price ourselves back to where we saw as you know we took about $650 million of incremental cost through the last two years and it was really resetting a bit of that and driving.

John: That cost benefit through now.

John: Now this started I would call it mid year and so we as we talked about in previous calls it was really about burning through that inventory and we saw that benefit certainly hit us in Q4 as I think about 24, its really Halloween structuring agreements. So that we could be more resilient as we see let's call it fluctuation.

John: And the market and that's certainly how we're playing it but I I would call. It as we as you can see in our guide what we're seeing is we're driving I would call mid single digits low to mid single digits expectations for deflation going through 'twenty four.

Speaker Change: Got it fair enough and then just maybe like a small one on the on the industrial side. It sounds like you walked away from some business I guess, how should we think about what that sales impact would be as we look at 2024 is that something of note where its a few percent or is it as a kind of a rounding error how should we think about it.

Chris Villavarayan: I guess, how should we think about what that sales impact would be as we look at 2024? Is that something of note where it's a few percent? Or is it kind of a rounding error?

Chris Villavarayan: How should we think about it? I would call it low to flat to low, mid single digits. You know, as you can look at our guide, and, you know, in terms of volume, we're essentially calling it, you know, overall, the business growing by flat to mid single digits up, mostly mid single digits up. And the difference there is, you know, we believe will continue to grow on refinish and will certainly grow on auto, even though the market is flat. We believe that on the auto side, we will gain in China as we continue to win there, but in the industrials, we expect that to be low single digits down as well as the CV impact at the back end of the year. I got it.

Speaker Change: I I would call it low to flat.

Speaker Change: Flat to low mid single digits.

Speaker Change: As you can look at our guide and in terms of volume were essentially calling at you know overall of the business growing by flat to mid single digits up mostly mid single digits up and the difference. There is we believe we will continue to grow on refinish will certainly grow on auto.

Speaker Change: Even though the market is it's flat.

Speaker Change: We believe that on the auto side, we will gain in China as we continue to win there, but in industrial we expect that to be low single digits down as well as the CV impact at the back end of the year.

Speaker Change: Got it thanks very much for the color.

Operator: Thanks very much for the call. You're welcome. Our next question is from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Speaker Change: You're welcome.

Kevin Mccarthy: Our next question is from Kevin Mccarthy with vertical Research partners. Please proceed with your question.

Kevin Mccarthy: Yes. Good morning, Chris can you speak to the amount of variable cost deflation in the fourth quarter and what your outlook would be for raw materials and variable costs in 2024.

Operator: Chris, can you speak to the amount of variable cost deflation in the fourth quarter and what your outlook would be for raw materials and variable costs in 2024? So I'm going to start and then probably hand it over to Carl. I mean, we certainly saw, I would call it, you know, a low single digit, double digit performance in variable cost performance, 12 percent, as I said in the prepared remarks. But I'll turn it over to Carl as to how we see things going forward. Yeah. Good morning, Kevin.

Chris: So I'm going to start and then probably hand, it over to Carl I mean, we certainly saw I would call it.

Chris: Low single digit double digit performance in variable cost performance, 12% as I said in the prepared remarks, but I'll turn it over to Karl as to how what we see going forward. Yes. Good morning, Kevin Yes, we look for 2024, we're expecting.

Carl D. Anderson: Yes, we look for 2024. We're expecting, you know, probably about mid single-digit deflation and most of our commodity spend will be front weighted. So I think we'll probably do a little bit better in the first half of the year. And, you know, the cops will get tougher as we think about Q3 and Q4 going forward.

Carl D. Anderson: Probably about mid single digit deflation in most of our commodity spend.

And I think that will be front weighted so I think we'll probably do a little bit better than the front half of the year and the.

Karl: The comps will get tougher as we think about Q3 and Q4 going forward, but for the full year, we are expecting about a middle mid single digits deflationary benefits from our spin.

Carl D. Anderson: But for the full year, we are expecting about a middle, mid single digit deflationary benefits from our. Very good. And then as a second question, Carl, you noted in your prepared remarks the progress that you've made on the balance sheet. What are your latest thoughts on capital allocation? You know, in terms of kind of reinvigorating some repurchase activity, what you're seeing in the private market, but also, you know, potential to establish a common dividend at some point. Well, yeah, I think, first, obviously, we're very pleased with having leverage under three at 2.9 times. I think if you just do, you know, look at the guidance we provided, you know, we'll be right in line at So we will, I think share repurchases will definitely be part of the overall strategy, and as well as M&A. As Chris pointed out, we had the acquisition we did in the fourth quarter in Switzerland.

Speaker Change: Very good and then.

Speaker Change: Second question Karl you noted in your prepared remarks, you know the progress that you've made on the balance sheet. What are your latest thoughts on capital allocation.

Karl: You know in terms of.

Karl: Kind of reinvigorating some repurchase activity, what you're seeing in the private market.

Karl: But also potential to establish a common dividend at some point.

Karl: Well I think well first obviously, we're very pleased with having leverage sub three at two nine times I think if you just do you now look at the guidance. We provided will be right in line at the top end of our target range by the end of this year. So it does provide us a little bit more flexibility and options.

Karl: <unk> and how we deploy capital. So we will I think share repurchases will definitely be part of the overall strategy and as well as M&A as Chris pointed out we had the acquisition we did in the fourth quarter.

Karl: Switzerland, and I think where we can see those type of.

Carl D. Anderson: And I think where we can see those types of very creative deals, especially more in refinish, we would look to deploy capital there as well. But we're overall just pleased because I think the balance sheet now will provide us with a lot of flexibility. Thank you.

Karl: Very accretive deal, especially more in refinish, we would look to deploy capital there as well, but we're overall pleased because I think the balance sheet now we will provide us a lot of flexibility going forward.

Speaker Change: Thank you.

Thank you.

Speaker Change: Our next question is going to Steve Byrne with Bank of America. Please proceed with your question.

Operator: Our next question is from Steve Byrne with Bank of America. Please proceed with your, Yes, thank you. Is the 9% EBIT margin in mobility, or you present it as more of a 13% EBITDA margin, seems like it's back to where it was historically. Is this the new normal?

Steve Byrne: Yes. Thank you.

Steve Byrne: The 9% EBIT margin in mobility.

Steve Byrne: Yeah.

Steve Byrne: Anything that is more of a 13% EBITDA margin. It seems like it's back to where it was historically.

Steve Byrne: Is this the new normal.

Operator: Is this, does this have some meaningful upside in your view, from something other than just, you know, projecting auto build rates and, you know, commercial vehicle builds? Is there anything that you're doing in mobility that could drive a real change, whether it's technology or some kind of a structural change that you're doing internally? Anything that you would highlight is giving you more optimism than just a 9% EBIT margin? Great question, Steve

Steve Byrne: Is this does this have some meaningful upside in your view.

Steve Byrne: Something other than just you know projecting.

Steve Byrne: Projecting the auto build rates in.

Steve Byrne: Commercial vehicle build theres anything that youre doing in mobility that could drive.

Steve Byrne: A real change, whether it's technology or some kind of a structural change that youre doing internally anything that you would.

Steve Byrne: I would highlight is giving you more optimism than just a 9% EBIT margin.

Speaker Change: Question, Steve, It's certainly I wouldn't call it the new normal.

Chris Villavarayan: It's certainly, I wouldn't call it the new normal. You know, just looking back at Axalta over the last four or five years, I would say we've grown by a billion dollars in revenue, just under a billion dollars in revenue. But the challenge has been to convert it back to historical margins. So if I look at that business, I do believe there's more upside in what we can do both structurally and in growth and other regions. As well as, you know, as you put the investment in, we've talked about a $35 million increase in capital investment, what we can do to drive productivity initiatives in this business. And so this is part of what we plan to discuss or show you at our May STRAT meeting about what more we can do with this business.

Speaker Change: Just looking back at <unk>.

Speaker Change: <unk> for the last four five years I would say we have grown by $1 billion of revenue of just under $1 billion of revenue, but the challenge has been to convert on it back to historical margins. So if I look at that business I do believe there is more upside than what we can do both structurally bolt and growth in other <unk>.

Speaker Change: And I as well as you know.

Speaker Change: As you put the investment we have.

Speaker Change: Talked about a 35 million dollar increase in capital investment and what we can do to drive productivity initiatives in this business and so this is part of what we plan to discuss our show you in our May meeting is what more we can do with this business.

Chris Villavarayan: And then one question for you on, you know, the industrial exposure in construction. Do you have visibility into, into distributor inventory levels of products that your coatings were a part of? Do you have a view as to whether those, those inventory levels in the channel, you know, are normal now? Or is there, you know, a share loss or gain?

Speaker Change: And then one question for you on you know the.

Speaker Change: Do your industrial exposure and construction.

Speaker Change: Do you have visibility into.

Speaker Change: <unk> distributor inventory levels of products.

Speaker Change: Your coatings were a part of do you have a view as to whether those those inventory levels in the channel.

Speaker Change: Our normal now.

Speaker Change: Or is there a share loss or gain anything that you can comment on that.

Chris Villavarayan: Anything that you can comment on that? Consistently, with the exception of the businesses we've decided to exit, I would say our share has been pretty much in line with what we had previously. That said, inventories that are at our customers or at distributors are low from where we have seen historically.

Consistently with the exception of the businesses, we have decided to exit our I would say we are our share has been pretty much in line with what we had previously.

Speaker Change: That said inventories that are at our customers or distributors are low from where we've seen historically, there's only as I look at it if this market picks up especially in North America. There is only upside here and the good news here is that especially when we think about our wood coatings business. You know you can see.

Chris Villavarayan: As I look at it, if this market picks up, especially in North America, there's only upside here. The good news here, especially when we think about our wood coatings business, you can see all our major customers investing heavily in capacity. If I look over the last six months to nine months, we have seen announcements of about a billion dollars being put into investments to build plants.

Speaker Change: All our major customers investing heavily on capacity I mean, if I look over the last six.

Speaker Change: Six months to nine months, we have seen announcements of about a $1 billion being put into investments to build plants. So as this market recovers. There's just all I see here, especially on our siding business.

Chris Villavarayan: As this market recovers, there's just all I see here, especially in our wood siding business, you just believe there's got to be upside with all the investments that are being put in place. That's certainly what we're doing as well, to prepare for this upturn at some point. Thank you, you up. Our next question is from Ghansham Panjabi with Baird. Please proceed with your question. Thank you. Good morning, everyone.

Speaker Change: You just believe there's got to be upside with all of the investment that has been put in place and that's certainly what we're doing as well as to prepare for this upturn at some point.

Speaker Change: Thank you.

Speaker Change: Youre welcome.

Speaker Change: Yes.

Sam: Our next question Sam.

Samsung Zombie: Samsung Zombie with Baird. Please.

Sam: Please proceed with your question.

Samsung Zombie: Thank you and good morning, everyone.

Operator: Hey, Chris, can you just give us a sense as to the market conditions for auto refinish across your major regions? I know you commented about expecting a little bit of volume growth in 2024. What's that being driven by? Is it just better uptake, easier comparisons, or technology?

Samsung Zombie: Hey, Chris you know.

Samsung Zombie: Can you just give us a.

Sense as to the market conditions water refinish across your major regions. I know you commented about expecting a little bit of volume growth in 2024.

Chris: What is that being driven by is it just better uptake easier comparisons technology, what does what's going on across your major markets. There well I would say its flat to up about two 3% is what we're predicting going forward into <unk> into 'twenty, four and I'll just walk you through the markets to your question.

Chris Villavarayan: What's going on across your major markets? Well, I would say it's flat to up about, you know, 2-3% is what we're predicting going forward into 2024. And I'll just walk you through the markets to your question. North America is incredibly strong, but, you know, limited in the sense of just, as you've always heard, the ability for body shops to get labor.

Chris: North America is incredibly strong but limited in the sense of just as you are always hard.

Chris: The ability for body shops to get labor, so that there is inventory.

Chris Villavarayan: So, you know, there's inventory sitting at the body shops for work to be done. It's just getting the labor to be able to drive that. And that's a great case for Axalta because, you know, our story has consistently been the efficiency that we provide to our body shops. If I think about Europe, Europe is what I would call stable to flat.

Chris: Inventory sitting at the.

Chris: The body shops for work to be done, it's just getting the labor to be able to drive that and that's a great case for exalt hub because our story has consistently been the efficiency that we provide to our body shops, if I think about <unk>.

Chris: Europe Europe is okay is what I would call it stable to flat here.

Chris Villavarayan: Here, where, you know, if you look at our guide and what we're showing as a slight increase, it's really the new wins. Whether it's the wins with BMW that we announced last quarter or with the Andre Co acquisition, there's opportunity here to grow. And China or Asia has been weak or flat to down, which is what we've seen.

Chris: Here we're.

Chris: If you look at our guide and what we're showing is as a slight increase it's really the new new wins, whether it's the wins with BMW that we announced last quarter or with the Andre Cole acquisition. There is opportunity here to grow and China or Asia has been has been weak or flat or flat to down is what we have seen.

Operator: So, but the only part of that is that China is also a small part of our business, but overall, you know, I would call it flat to slightly up. And then in terms of the consumer uptake for EVs, I mean, the narrative seems to have shifted, and the market is based on the trade press, etc. After all the outsized growth over the last few years, can you just touch base on what you're seeing, you know, in terms of developments, etc., on EVs and if that dynamic shift will impact you in any way?

Chris: <unk>.

Chris: So, but the only part of that is China is also a small part of our business, but overall I.

Chris: I would call it flat to slightly slightly up ghansham.

Ghansham: Great. Thank you and then in terms of the.

Speaker Change: The consumer uptake for Evs I mean, the narrative seems to have shifted in the market just based on the trade press et cetera. After all the outsized growth over the last few years can you just touch based on what you're seeing.

Speaker Change: In terms of developments et cetera on Evs, and if that dynamic shift will will impact you in any meaningful way yeah, absolutely I think first of all there is.

Chris Villavarayan: Yeah, absolutely. I think first of all, you know, the overall element for Axalta is where EV agnostic. I mean, I think most of our coatings are on the outside of cars.

Speaker Change: The overall element for <unk>, it's where our EV agnostic I mean, I think most of our coatings are on the outside of the car. So we don't really care, if it's <unk> or ice.

Chris Villavarayan: So we don't really care if it's EV or ice. You know, in that sense, it's not really been such an issue. The good news, though, for us is, you know, if we look at our growth, especially, you know, if you look at last quarter, overall Axalta growing by mid single digits, but mobility growing by 9%. A lot of that is our growth also in China. And in China, we're growing at two to three times the rate of the overall market, and it's primarily because of our growth in EV. We're working with a lot of local players that are in the EV space that are growing. And the great news there is, as you know, with China investing $70 billion in incentives over the next four years, that's driving the local market. But it's also great creating a great platform to use that to move into, let's call it, Southeast Asia.

Speaker Change: In that sense, it's overall been not so much of an issue. The good news, though for US is if we look at our growth, especially if you look at last quarter.

Speaker Change: Overall <unk> growing by mid <unk>.

Speaker Change: <unk> digits, but mobility growing by 9% a lot of that is our growth also in China and in China. We're growing at two to three times the rate of the overall market and it's primarily because of our growth in EV where are with.

Speaker Change: A lot of local players players that are in the EV space that are growing and the great News. There is as you know with China investing $70 billion of investment.

Speaker Change: Incentives through over the next four years, that's driving the local market, but it's also creating a great platform to use that to move into let's call. It.

Speaker Change: Southeast Asia, So we see that as a growth platform and.

Chris Villavarayan: So we see that as a growth platform. And, you know, the other element that's helping us there is the fact that, over the last few years, we have invested in there for manufacturing, whether it's waterborne capability at Jardin or our new plant that we just launched last quarter with Jilin, with just the capacity and the ramp up is just in line. So it's really driving the growth that we saw in Q4. Thank you so much.

Speaker Change: The other.

Speaker Change: The other element that is helping US there is the fact that we have made over the last few years, we put investment and therefore manufacturing whether its a waterborne capability at <unk> or a new plant that we just launched last quarter with dealing with just the capacity and the ramp up is just in line. So it is.

Speaker Change: Really driving the growth that we saw in Q4.

Speaker Change: Perfect. Thank you so much.

Operator: Our next question is from Michael Sison with Wells Fargo. Please proceed with your question. Cheers, guys. Nice outlook for the year for 24. In terms of pricing, you would mention that it would be positive for both segments, a little bit of color. You know, the fourth quarter was down for mobility. You talked about a lot of knobs there, so do you think the corn turns the corn in the first quarter for pricing, and then, So actually, do you need to announce price increases, or are those already... Yeah, Michael. Good morning.

Speaker Change: Youre welcome.

Speaker Change: Okay.

Speaker Change: Our next question is from Michael <unk> with Wells Fargo. Please proceed with your question.

Michael: Cheers guys nice.

Michael: Outlook for the year were 24.

Michael: And the pricing you had mentioned that.

Michael: And be positive for both segments in it.

Michael: All right a little bit of color. There you know fourth quarter was down from the ability you talked about a lot of <unk>.

Michael: <unk> there so when you think.

Michael: It turns the corner in the first quarter.

Michael: For pricing and then.

Speaker Change: So actually do you need to announce price increases or are those already.

Speaker Change: Yeah.

Speaker Change: Yeah. Thanks, Michael Good morning, Yeah, I think as we look at mobility in the fourth quarter I think as we referenced in the prepared remarks, a little bit more than half of that really related to a a comparison, we had from the fourth quarter of 2022 with the rest of that being mix has an impact so as we fast forward for the first quarter and for the full year, we do.

Carl D. Anderson: Yeah, I think as we look at mobility in the fourth quarter, I think, as we referenced in the prepared remarks, a little bit more than half of that really related to a comparison we had from the fourth quarter of 2022, with the rest of that being mixed as an impact. So as we fast forward for the first quarter and for the full year, we do see pricing being positive in both of our segments. And specifically, as we think about a refinished business, the team has already a couple weeks ago actually launched and executed new pricing. So we're already beginning to see the benefits of that, following up in the first quarter with flat sales growth. That sales girl sort of, throughout the year.

Speaker Change: Do see pricing being positive in both of our segments and specifically as we think about our refinish business. The team is already.

Speaker Change: A couple of weeks ago, actually launched and executed new pricing. So we're already beginning to see the benefits of that.

Speaker Change: Follow up.

Speaker Change: In the first quarter flat sales growth.

Speaker Change: Sales growth sort of.

Speaker Change: So throughout the year is it.

Carl D. Anderson: Is it a quarter better, third quarter, fourth quarter better? I am trying to get a feel of how we ramp up the low single digits. Yeah, you know, our expectations are, you know, as you start getting into the second quarter, you should definitely see an increase kind of in that low single digit kind of percentage increase, which would really kind of roughly carry through the next several quarters thereafter. So it's really just the first quarter where we're, at least the initial guide is holding it flat, but you should start seeing that step up. Thank you...

Speaker Change: Quarter, better third quarter fourth quarter better.

Speaker Change: I'm trying to get a feel of how we ramp up the low single digits, yeah, our expectations.

Speaker Change: Start getting into the second quarter, you should definitely see an.

Speaker Change: The increase kind of in that.

Speaker Change: Low single digit kind of percentage increases, which it wouldnt really kind of roughly carry in the next several quarters. Thereafter. So it's really just the first quarter, where we were at least the initial guide is at work are holding it flat, but you should start seeing that step up in the second quarter.

Speaker Change: Thank you. Thank you.

Speaker Change: Our next question is from Alexia <unk> with Keybanc capital markets. Please proceed with your question.

Operator: Our next question is from Aleksey Yefremov with KeyBank Capital Markets. Please proceed with your question. Good morning, everyone.

Alexia: Good morning, everyone can you give us some thoughts on your bridge for Q1 from Q4 more often than not EBITDA is about flat sequentially from Q1 into Q4 from Q4 to Q1 and you're guiding to flat sales. So what are some of the other factors here.

Operator: Could you give us some thoughts on your bridge for Q1 from Q4? You know, more often than not, EBITDA is about flat sequentially from Q1 to Q4, from Q4 to Q1, and you're guiding to flat sales. So what are some of the other factors here?

Carl D. Anderson: Yeah, as we look at the bridge, you know, we were going to be down, you know, about $11 million of EBITDA from Q4 to Q1. We referenced what we saw as it relates to just revenue being down slightly. Obviously, you have the conversion impact as it relates to that, and it's also really just the seasonality that we have within our business, specifically in refinish. So that tends, the first quarter for us tends to be the low point for refinish, just based on especially what we see here in North America and a little bit more in Europe. So that's it's more of a mixed story as well that impacts us on a sequential basis. And then we also have in China, you know, with the Chinese New Year, that also has an impact on the first quarter, specifically for our late field. Thanks. And turning to industrial, you're talking about soccer, North American construction volumes. Could you maybe discuss residential, non-residential exposure, any potential benefit from infrastructure spending, and any other factors?

Speaker Change: Yes, we look at the bridge.

Alexia: Going to be down about.

Speaker Change: About $11 million of EBITDA Q4 to Q1, we referenced what we saw as it relates to just the revenue being down slightly obviously you have the conversion impact as it relates to that and it's also really is just the seasonality that we have within our business specifically in refinish, so that tends to.

Speaker Change: The first quarter for us tends to be the low point for refinish.

Speaker Change: Just based off of especially what we see here in North America, and a little bit more in Europe. So those are really it's more of a more of a mixed story as well that impacts us on a sequential basis.

Speaker Change: And then we also have in China.

Speaker Change: The Chinese new year that also has an implication to for the first quarter, specifically for our light vehicle business there.

Speaker Change: Thanks.

Speaker Change: Turning to industrial.

Speaker Change: You're talking about soccer North American construction volumes could you maybe discuss residential nonresidential exposure any potential benefit from infrastructure spending and any other factors.

Chris Villavarayan: So yeah, absolutely. So I would call it a split between residential and non-residential, whether you look at it as our wood business, or our building products business, or our GI business. In terms of, you know, as we forecast forward, again, we're showing residential being muted or down, you know, with interest rates and where we see, you know, building comps coming out. But that said, on the industrial side, on the GI side, the question is how infrastructure spending, especially this year with elections, would play out in the back end. So at this point, we're forecasting this to be flat to down slightly. And it's primarily just to continue to drive the focus on, you know, building the foundation of the business and making sure that we have the right cost structure for when we pick up again. Thanks a lot.

Speaker Change: So yeah, absolutely so I would call it a split between residential and non residential whether you look at it.

Speaker Change: As our wood business or our building products business or our Gi business in terms of as we forecast forward again, we're showing residential being.

Speaker Change: Muted or down.

Speaker Change: With where interest rates and where we see.

Speaker Change: Building comps coming out, but that said on the industrial side on the Gi side.

Speaker Change: Question is how infrastructure spend, especially this year with elections would play out in the backend.

Speaker Change: At this point, we're forecasting this to be flat to down slightly and it's primarily just to continue to drive the focus on building the foundation on the business and making sure that we have the right cost structure for when we pick up again.

Speaker Change: Thanks, a lot.

Speaker Change: Okay.

Speaker Change: Our next question is from Michael lithium.

Operator: Our next question is for Mike Leithead with Barclays. Please proceed with your question. Great. Thanks. Good morning, guys. Good morning.

Michael: Barclays. Please proceed with your question.

Michael: Great. Thanks, Good morning, guys good.

Michael: Good morning.

Operator: Morning. First question for Chris: I think you made a comment in the prepared remarks about potentially pruning some areas that don't meet your margin threshold. I guess, can you talk a little bit more about where your portfolio currently stands, and is it just pruning, or are there any bigger portfolio actions worth exploring? No, it's just that I think the starting point is just pruning.

Michael: First question for Chris I think you made a comment in the prepared remarks around potentially crooning. Some areas that don't meet your margin threshold I guess can you talk a little bit more you've been there for about a year now your observations.

Speaker Change: Where in your portfolio currently stands and is it just pruning or is there any bigger portfolio actions worth exploring.

Chris: No. It's just I think the starting point is just pruning and a perfect example of that is if you think about our light vehicle business.

Chris Villavarayan: And, you know, a perfect example of that is, you know, if you think about our light vehicle business last year, we announced that we were getting out of our plastics interiors business, a small portion of that where, obviously, we didn't have scale. That said, you know, as I look forward into 24th, there are segments of the business within, let's call it across all three portfolios, whether it's our industrial, a bit of our mobility, and then, in some sense, in some of our regions in Refinish that we might be looking at. Again, you know, the focus for me is, as I think about it, we grew by a billion dollars in revenue. If you think through the last four or five years, the first thing is just returning the base case to, you know, historical margins. That alone has about 100 to 150 million dollars of incremental opportunity, as you can see in what we have given as a guide for 24, heading north of this billion dollars. We're on the path to get back there, but we are not there yet.

Speaker Change: Last year, we announced.

Speaker Change: Getting out of our plastics interiors business, a small portion of that where obviously we didn't have scale.

Speaker Change: That said as I look forward in into 'twenty fourth there are segments of the business within let's call. It across all three portfolios, whether it's our industrial a bit of our arm mobility and then even in some sense in some of our regions in refinished up we might be looking at.

Speaker Change: Again.

Speaker Change: The focus for me is as I think about it we grew by a 1 billion.

Speaker Change: Billion of revenue if you think through the last four or five years. The first thing is just returning the base case to historical margins that alone has about $100 million to $150 million of incremental opportunity as you can see in what we have given as a guide for 'twenty four.

Speaker Change: Heading north of this $1 billion, we're on path to get back there, but we're not there yet so for me I think that first that is looking at all four end markets and seeing what more we can do to drive this back and then we'll start thinking about if there is any portfolio mix beyond that.

Chris Villavarayan: So for me, I think the first step is looking at all four end markets and seeing what more we can do to drive this back. And then we'll start thinking about if there is any portfolio mix beyond that. Great, that's super helpful.

Speaker Change: Great. That's super helpful. And then as a follow up I apologize a bit of a technical question for Carl.

Carl D. Anderson: And then as a follow-up, I apologize, a bit of a technical question for Carl. I think earlier this year, Axalta took a fairly large charge from the Argentine peso that was included in your adjusted EBIT. I think you briefly mentioned an FX charge in the remarks, but I don't see it mentioned anywhere in the release. So did Axalta take a charge from Argentine peso devaluation this quarter, and was it included or excluded from your adjusted earnings results? Yeah, so we did it for the fourth quarter, specifically for Argentina.

Speaker Change: I think earlier this year exalt took a fairly large charged from the Argentine peso that was included in your adjusted EBIT. I think you briefly mentioned an FX charge in our remarks, but I don't see it mentioned anywhere in the release, so did exalted take a charge from Argentine peso deemed out in this quarter wasn't included or excluded.

Speaker Change: <unk> from your adjusted earnings results, Yes, So we did it for the fourth quarter, specifically, Argentina. So it's not included in EBITDA, but it is included in our EBIT adjusted EBIT number so at which is in the reconciliation.

Carl D. Anderson: So it's not included in EBITDA, but it is included in our adjusted EBITDA, which is in the. Great, thank you. Thank you. The next question is from Jeff Zekauskas with J.P. Morgan. Please proceed with your question. Thanks very much. I think your SG&A was up by about 11% on an adjusted basis. Maybe it's 8% unadjusted, and your R&D was up a little bit more than 11%. Those are relatively high numbers for 2024. Do you have expectations about your growth in overhead? Good morning, Jeff.

Speaker Change: Great. Thank you. Thank you.

Speaker Change: Our next question is Greg yes.

Greg: <unk> with J P. Morgan. Please proceed with your question.

Greg: Thanks very much.

Greg: I think your SG&A was up by about 11% on an adjusted basis, maybe it's 8% on a trusted.

Greg: And your R&D was up a little bit more than 11%.

Greg: Those are relatively high numbers for 2024.

Greg: Do you have expectations about your growth in overhead costs.

Carl D. Anderson: You know, if you look at SG&A, about half of that impact, for at least 24 months, whether you look at even the fourth quarter or the full year for SG&A, is really related to variable compensation expense, with the remaining half of that being just kind of, you know, I would call it just more inflationary labor type of cost. And so, as we look forward into 2024, that is an area of focus for us where we would be looking to drive that rate of increase down, you know, considerably on a year-over-year basis. Great

Speaker Change: Good morning, Jeff.

Speaker Change: If you look at SG&A about.

Jeff: Half of that impact for at least for 24, whether you look at even the fourth quarter or the full year for SG&A really related to variable compensation expense.

Jeff: With the remaining half of that being just kind of I would call. It just more inflationary labor type of cost and so as we look forward into 2024 that is an area of focus for us.

Jeff: We were we wouldn't be looking to drive that rate of increase down considerably.

Jeff: Considerably on a year over year basis.

Operator: Can you remind us what percentage of your light vehicle business roughly is China now and maybe where it was two or three years ago? Yeah, it's about, you know, maybe I'll maybe quote it on a revenue basis. It's about about $250 million in revenue. Okay. Thank you so much.

Speaker Change: Great.

Speaker Change: Can you remind us.

Speaker Change: What percentage of your light vehicle business roughly is China, now and maybe where it was two or three years ago.

Speaker Change: Yes, it's about you know.

Speaker Change: Maybe quoted and revenue basis, it's about $250 million of revenue for China.

Speaker Change: Okay great.

Speaker Change: Thank you so much thank you.

Operator: Thank you. Our next question is from Mike Harrison with Seaport Research Partners. Please proceed with your question. Hi, good morning.

Speaker Change: Okay.

Speaker Change: Our next question is from Mike Harrison with Seaport Research Partners. Please proceed with your question.

Michael J. Harrison: Hi, good morning.

Chris Villavarayan: We saw the nice improvement that you guys delivered in inventory levels during 2023. Are those inventories where you want them to be at this point in the year? And, I guess, is there any way for you to quantify the impact? Presumably, if you're working down inventory, you were running your plants more slowly.

Michael J. Harrison: You saw the nice improvement that you guys delivered in inventory levels. During 2023 are those inventories are where you want them to be at this point in the year and I guess is there any way for you to quantify the impact presumably if youre working down inventory you were running your plants.

Michael J. Harrison: We're slowly can you quantify the impact of lower fixed cost absorption last year.

Chris Villavarayan: Can you quantify the impact of lower fixed cost absorption last year? And presumably, you'll make some of that up this year if you run your plants a little bit harder? Sure, I'll take that.

Michael J. Harrison: And presumably youll make some of that up this year, if you're running your plants a little bit harder.

Speaker Change: Sure I'll take that so in terms of you know as <unk>.

Chris Villavarayan: So in terms of, you know, as I think about quantifying the improvement, we certainly saw a significant one-time improvement. You know, if you take our improvement in free cash flow, I would call it just less than half of that was driven by that performance. Looking forward into 2024, you know, we're not obviously signaling that we would get too much better than that, though, as there are pockets of the business that we can improve. Maybe I'll break it down by industry.

Speaker Change: I think about quantifying the improvement we certainly saw a significant one time improvement.

Speaker Change: If you take our improvement in free cash flow I would call. It just less than half of that was driven by that performance.

Speaker Change: Looking forward into 'twenty 'twenty four we're not obviously signaling that we would get to much better than that though there are pockets of the business that we can improve.

Speaker Change: I'll break it down by business. If you look at the four end markets.

Chris Villavarayan: You know, if you look at the foreign markets, my perspective is especially on where we're forecasting volumes to be possibly lower, especially in our industrial business. That is certainly something that we are looking at further opportunities for inventory reduction as well. That's probably an area where we're also looking at, you know, fixed cost absorption. So that's something that, you know, the team, the industrial team is very focused on as we look forward to what extra opportunity there is in terms of utilization of the facilities we have, with the understanding that this volume will obviously be needed at some point, so that's certainly something that we're focused on. Across the rest of the platform, I think we're at a good point in terms of efficiency.

Speaker Change: My perspective is especially with where we are forecasting volumes to be possibly lower special, especially on our industrial business that is certainly something that we are looking at further opportunities in inventory reduction as well, that's probably an area, where all where we're also looking at fixed cost absorption.

Speaker Change: So that's something that the team the industrial team is very focused on as we look forward on what extra opportunity there is.

Speaker Change: In terms of utilization of the facilities, we have with the understanding that this volume will obviously be needed at some point. So that's certainly something that we're focused on across the rest of the platform I think we're at a good point in terms of efficiency. There is probably something more that we can do in <unk>.

Chris Villavarayan: There is probably something more that we can do in terms of utilization, but that will probably be something that we would work through the year because we are showing two of the businesses going up slightly in volume. And Michael, and maybe just to add to that as well, it was I just looked at the top of the house from, you know, our conversion on the incremental revenue. So in 2023, we had about $300 million of higher revenue, and our EBITDA was up $140 million. So it's about a 47% conversion rate on the incremental revenue. And as you look to 2024, you know, we're expecting to have, you know, conversion on the incremental revenue about.

Speaker Change: Terms of utilization, but that will be probably something that we would work through the year. Because we are showing two of the business is going up slightly in volume.

Speaker Change: And Michael maybe just to add to that as well as I just look at the top of the house from.

Michael: Our conversion on the incremental revenue. So in 2023, we had about $300 million of higher revenue and our EBITDA was up $140 million. So it's about a 47% conversion on the incremental revenue and as you look to 2024.

Michael: Expecting to have a conversion on the incremental revenue about 60% to 65%. If you just look at what we've put out from a guide perspective, so I do think.

Operator: , https://www.patreon.com, and I think you're seeing a pretty healthy... All right, thanks very much. And then just curious about that refinish business; I don't see that there's an acquisition contribution line in there. Can you comment on how much of the volume that you saw in the quarter or revenue in the quarter was from that Andre Koch acquisition? Yeah, we had about $14 million of revenue in the fourth quarter that was related to the recent acquisition of Andre Koch. Perfect. Thanks very much.

Michael: As Chris alluded to we kind of like where you know where we are but there is always more productivity and there is more efficiencies, we can get and I think youre seeing a pretty healthy conversion as we enter into this year.

Speaker Change: Alright, Thanks, very much and then just curious in that refinished business I don't see that there is an acquisition.

Speaker Change: Contribution line in there can you comment on how much of the volume that you saw in the quarter are revenue in the quarter was from it Andre Koch equity Yeah, we had about.

Speaker Change: About $14 million of revenue in the fourth quarter that related to the recent acquisition of Andre Cohen.

Speaker Change: Perfect. Thanks, very much thank you.

Carl D. Anderson: Thank you. Our next question is from Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Great, thanks for taking my question. Congratulations on the 23 progress. I guess I just wanted to get your perspective on where you are in your evolution.

Speaker Change: Our next question is from Arun Viswanathan with RBC capital markets. Please proceed with your question.

Arun S. Viswanathan: Great. Thanks for taking my question Congrats on the 23 progress.

Arun S. Viswanathan: I guess I just wanted to get your perspective on where you are in your evolution I.

Operator: So I think you've mentioned long-term margin targets several times on this call, but that you're not necessarily there. So obviously, we made very good progress on 23 of 180 basis points on a consolidated basis to the 18-4. And refinish now, or at least performance coatings.

Arun S. Viswanathan: I think you've mentioned long term margin targets several times on this call but.

Arun S. Viswanathan: That you're not necessarily there. So obviously had very good progress in 'twenty three are up 180 basis points on a consolidated basis to the 18 for and Refinish now our early performance coatings I know, it's being dragged down a little bit by industrial but it appears that youre potentially closer to that.

Chris Villavarayan: I know it's being dragged down a little bit by industrial, but it appears that you're potentially closer to that normalized level within refinish, at least over 20%. So how much more do you think there is on the margin front? Do you expect to kind of approach 20% on a consolidated basis over the next couple of years? And is that 100 million that you referenced kind of the main driver of that coming back? That's great. A good question, Arun.

Arun S. Viswanathan: Normalized level within refinish at least.

Arun S. Viswanathan: Over 20% so how much more do you think there is on the margin front do you expect to kind of approach 20% on a consolidated basis over the next couple of years and is that $100 million you referenced kind of the main driver of that.

Speaker Change: Coming back to you.

Arun S. Viswanathan: This is Greg good question, our own if I give you the answer to that you might not show up in May so, but I'll give it to you I'll I'll break it down a bit more I think to.

Chris Villavarayan: If I give you the answer to that, you might not show up in May, so I'll give it to you. I'll break it down a bit more. I think, you know, if you take, you know, where we're heading for 24, you know, it's that, call it 100 basis points. But, you know, and I think there's been a lot of questions about Q1 to Q2, and Q3 jumps up.

Arun S. Viswanathan: To your point the progress in 'twenty three now we jumped up a 180 basis points if you take.

Arun S. Viswanathan: Where we are heading for 'twenty four.

Arun S. Viswanathan: It's that call it 100 basis points, but.

Arun S. Viswanathan: I think there is a lot of questions about Q Q1 to Q2 Q3 jump off but if you look at how the guide would work through Q1 to Q2, Q3, and Q4 Q2, and Q3 have always been our stronger quarters as we have been somewhat cyclical and you would argue Q2 and Q3 would.

Chris Villavarayan: But if you look at how the guide would work through Q1 to Q2, Q3 and Q4, Q2 and Q3 have always been our stronger quarters as we have been somewhat cyclical, and you would argue Q2 and Q3 would need to get to that 20% almost to be able to hit where we have guided. To your point, that essentially means we're coming back. Very close.

Arun S. Viswanathan: Need to would need to get to that 20% almost to be able to hit where where we have guided to your point that essentially means we're coming back very.

Arun S. Viswanathan: Very close I still believe there's more opportunity here.

Chris Villavarayan: I still believe there's more opportunity here. You know, if we look at the earnings potential of this company, I, you know, going back to just converting on the incremental sales, as you know, Carl answered that last question, I do believe that there's more opportunity here. And that's what you will see.

Arun S. Viswanathan: We look at the earnings potential of this company.

Arun S. Viswanathan: Going back to just converting on the incremental sales as in our.

Arun S. Viswanathan: Carl answer to that last question I do believe that there's more opportunity here and that's what you will see in May we want to lay out a three three year target with what we are going to accomplish year over year to see what more we can do to drive the earnings potential and on top of that even if we looked at let's call. It.

Chris Villavarayan: In May, we want to lay out a three-year target with what we're going to accomplish year over year to see what more we can do to drive earnings potential. And on top of that, even if we look at, you know, let's call it this low single-digit or mid single-digit growth, what more we can accomplish with that. And so, across growth and earnings potential, I think there's a lot of value that we can drive to shareholders, and that's certainly what we'll lay out for you in May. That's great!

Arun S. Viswanathan: Low single digits or mid single digit growth, what more we can accomplish with that and so across the growth and the earnings potential I think there is a lot of value that we can drive to shareholders and that's certainly what we will lay out for you in may.

Speaker Change: That's great and then maybe I can just ask a similar question as a follow up on free cash flow. So.

Carl D. Anderson: And then maybe I can just ask a similar question as a follow-up on free cash flow. So, you know, you're converting over 40% of your EBITDA into free cash flow. And given what you've said so far, you know, with your incremental margins going up, it looks like you're probably going to be headed higher on that conversion as well. So, over the next couple of years, with your leverage down under three now, and free cash flow may be approaching $500 million in the next couple of years, is that kind of normalized free cash flow? And if so, how do you expect to spend that once you reach that level?

Speaker Change: We're converting over 40% of your EBITDA and the free cash flow and given what you've said so far.

Speaker Change: With your incremental margins going up it looks like you are probably going to be headed higher on that conversion as well. So over the next couple of years with your leverage down under three now.

Speaker Change: And free cash flow, maybe approaching five 500 plus million dollars in the next couple of years.

Speaker Change: Is that kind of normalized free cash flow and if so how do you expected to spend there.

Speaker Change: Once you reach that level, Yeah, I think we would view that as normalized cash flow, especially being over $500 million as we get into 2025 and beyond I think we will be as I mentioned leverage will be right, where we want from a target perspective.

Carl D. Anderson: Yeah, I think we would view that as normalized cash flow, especially being over $500 million as we get into 2025 and beyond. I think we will be, as I mentioned, leverage will be right where we want from a target perspective at the end of this year. And so we will have optionality in front of us.

Speaker Change: Almost at the end of this year.

Speaker Change: And so we will have optionality in front of us and so I think we will be looking to deploy some of that capital.

Carl D. Anderson: And so I think we will be looking to deploy some of that capital, and at share. As well as, we will be evaluating and continue to evaluate, you know, M&A-related opportunities for the company. So, those are kind of the two areas that we will be focused on. And I think we're definitely going to be looking to, you know, continue the momentum that we had in 23 into 24 and getting leverage where, you know, to the target range. Thanks.

Speaker Change: And looking at share repurchases as well as we.

Speaker Change: We will be evaluating and continue evaluating M&A related opportunities that we believe will be accretive.

Speaker Change: For the company. So so those are kind of in the two areas that we will be focused on and I think we're definitely going to be.

Speaker Change: Looking to <unk>.

Arun S. Viswanathan: Continue.

Arun S. Viswanathan: None of them that we had in 'twenty three 'twenty four and getting leverage were to the target range that we outlined.

Operator: Thank you. Our next question is from Vincent Andrews with Morgan Stanley. Please proceed with your question. Good morning, this is Steve Haynes on behalf of Vincent.

Speaker Change: Thank you.

Arun S. Viswanathan: Our next question is from Vincent Andrews with Morgan Stanley. Please proceed with your question.

Arun S. Viswanathan: Good morning. This is Steve Haynes on for Vincent maybe.

Operator: You just want to come back to the guide for a sec. So I think, you know, historically, your first quarter is maybe 22 or 23% of what you do annually. So if we were to kind of use that to annualize your first quarter guide, it suggests something a bit above the midpoint of where you've got it for the full year. So is there something different in the phasing this year? Or are you being a bit conservative in the back half? That's, I guess, maybe causing some of this.

Steven Haynes: Maybe just wanted to come back to the guide for a sock.

Steven Haynes: So I think historically your first quarters, maybe 22 or 23% of what you do annually. So.

Steven Haynes: So if we were to kind of use that to annualize your first quarter guide it suggests something.

Steven Haynes: A bit above the.

Arun S. Viswanathan: The midpoint of where you've guided the full year. So.

Arun S. Viswanathan: Is there something different in the phasing this year or are you being a bit conservative in the back half, that's maybe causing some of this or maybe there's just something else on the math.

Operator: Or maybe there's just something else in the math that we're missing there. No, I think you're looking at the right way. I mean, simplistically, if you take the two hundred and forty million divide by point two, three, you get about a billion forty-three, which is kind of right in the guidance range that we provided, although a little bit at the higher end versus the midpoint.

Speaker Change: So I think you're looking at the right way I mean, simplistically, if you take the $241 million EBITDA divide by three you get about $1 43, which is kind of right in the guidance range that we provided albeit a little bit at the higher end versus the mid 0.5.

Carl D. Anderson: But no, I think the seasonality that we expect this quarter and for this full year is similar to what we've had. Okay, and then also in the 2023 numbers, there are some elevated costs tied to ERP and other investment. What, what is the 2024 guide, I guess, assuming the bridge in terms of further costs related to either of those things?

Speaker Change: I think that seasonality that we expect this quarter and for this full year is similar to what we've had in the past.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Then also in the 2023 numbers, there's some elevated costs tied to ERP and other investment.

Speaker Change: What does the 2020 for a guide I guess, assuming in the bridge in terms of further costs related to either of those things yes.

Carl D. Anderson: Yeah, so we had about $40 million in costs related to ERP as well as consulting costs for some of the productivity initiatives that we had this year. As we look into 2023, I would expect that to drop by at least $30 million. So you know, kind of that new run rate of costs in 24 will be, you know, call it in that 10 million, maybe five to 10, Okay. Thank you. I appreciate it.

Speaker Change: Yeah, So we had about $40 million.

Speaker Change: Costs related to ERP as well as consulting cost for some of the productivity.

Speaker Change: <unk> that we had this year as we as we look into 2023, I would expect that to drop down by at least $30 million. So kind of that new run rate of costs in 'twenty four would be call. It in that $10 million, maybe five to 10 million type of range.

Speaker Change: Okay. Thank you appreciate it thank you.

Operator: Our next question is from Josh Spector with UBS. Please proceed with your question. Yeah, hi, good morning.

Speaker Change: Our next question is from Josh Spector with UBS. Please proceed with your question.

Joshua Spector: Yeah, Hi, good morning, if I go back earlier in the year I mean, when you guys had the production issue that impacted refinish, you talked about a couple of hundred million dollars backlog.

Operator: Um, if I go back earlier in the year, I mean, when you guys had the production issue that impacted refinish, you talked about a couple hundred million dollar backlog. Where is that now? Does that still exist?

Joshua Spector: Or is that now does that still exist that really matter as we looked into 2024.

Chris Villavarayan: Does that really matter as we look into 2024? Yeah, Josh. I'll take this one. So, you know, you certainly won't hear us talking about S4 going forward. I think, you know, in terms of where we finished the year, I would say all our North American plants are back to pre-implementation run rates. And our facility in West Virginia has done a stellar job of bringing the backlog back to what we had normalized prior to the implementation of S4. And as we think about, you know, going forward, as you think about Q1, we don't show there's no upside, or we don't see any benefit from, let's call it, a backlog improvement. We're back to where we were.

Speaker Change: Yeah, Josh I'll take this one so.

Speaker Change: You certainly wont hear us talking about <unk> for going forward I think in.

Speaker Change: In terms of where we finished the year I would say all our north American plants are back to pre implementation run rates and our facility in West Virginia has done a stellar job of bringing the backlog back to what we have on.

Speaker Change: Our normalized pre the implementation of S. Four and as we think about going forward.

Speaker Change: You think about Q1, we don't show that there is no upside or we don't see any benefit from let's call. It a backlog improvement we are back to where we are we do believe there's more efficiency that we can get from our S. Four system.

Chris Villavarayan: We do believe there's more efficiency that we can get from our S4 system, so that is something that the IT and the operational teams are working on. But certainly not something that should drive anything meaningful through, let's call it the front half of the year.

Speaker Change: So that is something that the <unk> and the operational teams are working on.

Speaker Change: But certainly not something that should drive something meaningful through through let's call. It the front half of the year.

Carl D. Anderson: The objective there is just to get the efficiency and the system working great before we roll that out into smaller chunks over the next several years in the rest of the world. Thanks. And just a quick follow-up on the acquisition. So I mean, you sized it earlier, maybe 1% or so of performance.

Speaker Change: The objective there is just to get the efficiency in the system working great before we roll that out into smaller chunks into over the next several years and the rest of the world.

Speaker Change: Okay, and just a quick follow up on the acquisition side that earlier, maybe 1% or so of performance.

Carl D. Anderson: Did you report that in volume? And, I guess, is that how you plan to report M&A forward? I guess, why not separate it out to make the organic volume more clear?

Speaker Change: We'll report that in volumes and I guess is that how you plan to report M&A or I guess why not separate it out to make the organic volume more clear so.

Carl D. Anderson: Yeah, I mean, it is reported in volumes as well. And, you know, given the size of that particular acquisition, it was relatively small. Obviously, we, you know, depending on, you know, what, where we end up on the next one, we would, you know, we would have, we would evaluate and, most likely, break. Okay. Thank you. Our next question is from John Roberts with Mizzou Hope. Please proceed with your question. Thank you, Chris.

Speaker Change: Yeah. It is reported in volumes as well and given the size of that particular acquisition. It was relatively small obviously.

Speaker Change: Pending on where we end up on the next one.

Speaker Change: We would have we would evaluate most likely break that out for you.

Speaker Change: Okay. Thank you. Thank you.

Speaker Change: Our next question is from John Roberts with Mizuho. Please proceed with your question.

John Roberts: Chris I think the prior management's switched from EBITDA to adjusted EBIT back in 2019 to get the organization focused on reinvestment in growth and to have some capital allocation in the earnings numbers why the switchback to EBITDA right now.

Operator: I think the prior management switched from EBITDA to adjusted EBITDA back in 2019 to get the organization focused on reinvestment and growth and to have some capital allocation in the earnings numbers. Why the switch back to EBITDA right now? Yeah, I'll start now.

John Roberts: Yeah I'll start this is Carl I can turn it to Chris as we look at just how we manage the business.

Chris Villavarayan: This is Carl. I can turn it to Chris. As we look at just how we manage the business across our business units, it is on a, it's more on an EBITDA basis. I think one of the key items that we are really going to be driving the organization is return on investment capital performance. And we will be kind of using that as we approve new capital investments in the business. We're going to be attacking that, if you would, on the front end of the process, as opposed to, and maybe, I think Carl's captured most of it, but maybe just stepping out and maybe just a level up. And, you know, overall, the perspective I have is that some of those choices that were made in the past about growth for the sake of growth are something that we have to change.

Chris: Cross our business units. It is it's more on an EBITDA basis, I think one of the key.

Chris: Items that we are really going to be driving in the organization is return on invested capital performance and we will be kind of using that as we as we approve new capital investments in the business, we're going to be attacking that if you would on the front end of the process as opposed to.

Speaker Change: Especially given that all of the team now is in place we have operations kind of running off and being run by each of the Bu President So.

Speaker Change: That's how we've kind of run it.

Speaker Change: But I would tell you that we will have a very keen interest and we will be highly focused on getting a return on invested capital to levels candidly the companies that achieved before.

Speaker Change: Maybe I think Carlos captured most of it but maybe just stepping out and maybe just to level up and overall.

Speaker Change: Perspective, I have as you know.

Carl Anderson: Some of those choices that were made in the past of growth for the sake of growth is something that we have to change and really that ROIC Matt.

Chris Villavarayan: And really, that ROIC metric and driving it into EBITDA became more significant, as I thought, you know, as we re-pivot the company. And I think that's where we really drove the decision to first, you know, drive the operational teams into the P&L and have the BU teams run it as one unit and be responsible for the choices that we make. And as we can see with our first acquisition under the refinish team, we certainly are seeing that performance come through. And that's how we'd like to manage going forward. And then, were powder coatings volumes up in the quarter, or were they down in line with the overall industrial coating segment?

Speaker Change: Metric and driving it into EBITDA became more significant as I thought.

Speaker Change: As we pivot the company and I think Thats, where we really drove the decision to first.

Speaker Change: Drive the operational teams into the P&L and have the Bu teams run it as one unit and be responsible for the choices that we make and as we can see with our first acquisition under the refinish team. We certainly are seeing that performance come come through and that's how we'd like to manage going forward.

Speaker Change: And then we're powder coatings volumes up in the quarter or were they down in line with the overall industrial coating segment.

I was roughly in line with the overall section. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, www.microsoft.com.ca

Speaker Change: That was roughly in line with the overall segment itself. Thank you.

Speaker Change: Thank you.

Chris Villavarayan: This concludes today's conference you may disconnect.

Speaker Change: Your lines at this time, thank you for your participation.

Carl D. Anderson: Okay.

Chris Villavarayan: Yeah.

Chris Villavarayan: Okay.