Axalta Coating Systems Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Exalta first quarter earnings conference 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 replays will be available through May 2nd. 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 would now like to turn the call over to Chris McCrae. Please go ahead, sir.

Thank you, and good morning. This is Chris McCrae, VP of Investor Relations. Thank you for joining the call today to review our first quarter 2019 financial results and for your interest in Exalta. Joining me today are Robert Bryant, CEO, and Sean Lannan, CFO. We released our financial results this morning and posted a slide presentation to the Investor Relations section of our website at exalta.com, which we'll be referencing during this call. Sean will address this in more detail later, but I'd like to note that we changed the basis of our profit guidance metrics to assume an incremental adjustment for the step-up of depreciation and amortization related to the February 2013 carve-out transaction. Our reported profit results referred to in this call have made this adjustment, which will be further detailed in our 10-Q filing. Both our prepared remarks and discussion today may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Exalta's operating and financial performance. These statements involve uncertainties and risks, and actual results may differ materially from those forward-looking statements. Please note that the company is under no obligation to provide updates to these forward-looking statements. This presentation also contains various non-GAAP financial measures. In the appendix, we've included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measures, Please refer to our filings with the SEC. I'll now turn the call over to Robert.

Good morning. Today I'm pleased to review our first quarter financial results and some key operational highlights from the period. Our first quarter results met and slightly exceeded our previously communicated expectations for the quarter with $144 million in adjusted EBIT and $207 million in adjusted EBITDA, putting us on track to deliver our full year financial expectations. During the quarter, the overall business climate for Exalta was mixed, including some volume headwinds given unsteady economies, particularly in China and parts of EMEA. That said, average price mix in the quarter remains solidly positive, and we continue to close the price-cost gap at a good pace, including ongoing strong price recapture in performance coatings and continued progress seen in light vehicle within transportation coatings. There were also many examples in the quarter of new product innovation and launches, and we continue to invest actively to promote long-term growth in our business, with successes seen in many areas. Turning to slide three, we grew first quarter net sales by 0.3% year over year, excluding the 4.8% negative impact from foreign currency headwinds. The growth, XFX, was driven in large part by ongoing tailwinds from price mix across the business as we continue to make solid progress in closing the consolidated price-cost gap that widened substantially in 2017 and 2018 due to significant raw material inflation pressures. This growth progress was offset to a large extent by volume headwinds, most notably in light vehicle, where build rates slowed in most major markets we served. Performance coatings net sales increased 2.4% before FX, with somewhat better overall growth from the refinish end market. This was largely driven by continued robust price mix capture and refinish, and by moderate fundamental volume headwinds witnessed in global industrial markets during the period, particularly in Europe. In transportation coatings, net sales decreased in the low single digits, XFX, consistent with the outcome from the fourth quarter, and driven by lower vehicle production in most global markets year over year, as we had largely expected in our first quarter guidance that we discussed in January. Price mix and light vehicle remain positive as we continue to make progress on our goal of returning to prior price levels with key automotive customers. For adjusted EBIT, we reported $144 million for the quarter, which was right around the high end of our expectations, driven by strong price mix drop through to earnings, offset in part by relatively modest consolidated volume largely from slower global auto production in the period. The comparison to last year's adjusted EBIT of $159 million was challenged by continued double-digit inflation and variable cost at the adjusted EBIT level, as well as by substantial swings in foreign exchange translation drop-through. FX was a 6% net sales tailwind in the prior year quarter and a 4.8% headwind this quarter. with associated EBIT impact at roughly our consolidated margin drop through. Adjusted EPS for the period, including the add back for depreciation and amortization step up from the original acquisition of our business, was $0.34, which compared with $0.39 in the prior year quarter, similarly burdened by the combination of FX headwinds and substantial variable cost inflation against the prior year comparison, in addition to automotive volume pressure. As you will see in our guidance, comparisons for these items are less challenging as the year progresses, and we believe the first quarter is likely the hardest of the 2019 quarters in terms of year-over-year comparisons. Turning for a minute to our end markets, for refinish, net sales grew 3.5% XFX in the period. We grew net sales in the mid-single digits across most regions we served, and volumes were notably higher in China. We continue to gain traction in offsetting variable inflation with appropriate price management to sustain the broader economics of this business. On the volume side, we've seen moderately lower results in North America, which we attribute to ongoing distributor channel focus on working capital management to increase cash flow, lower growth in miles driven, and the continued shift from solvent to waterborne paint systems. We remain confident in our full year targets in this region from both top and bottom line performance. In terms of our overall progress in refinish, we continue to build market share at the end shop level globally. And we see car throughput demand at the end market is stable from our channel checks and customer visits. Over time, we expect share gains to also translate to sustainable paint demand uptake. Our industrial coatings end market grew net sales at a modest 1% XFX in the quarter. including positive contribution from the Americas, offset somewhat by lower volumes in EMEA. Overall market conditions in EMEA were slower during the first quarter, as reflected in the macro level data for the region. The price mix outcome was strong, however, with low to mid single digit realization continuing in the quarter. Overall, we remain on track for our full year outlook for industrial, and are excited about the myriad new products that we are introducing in the end market this year on a similar cadence to the last several years. Light vehicle net sales declined 5.4% XFX in the quarter, driven by lower production volumes at our OEM customers in all regions except Latin America. The China market remained under pressure, but encouragingly appears to have bottomed and we are optimistic about several different support measures that the Chinese government has announced in the last month specific to the automotive sector, which could help lift demand relatively quickly in this market. EMEA did see a combination of continued impact from regulatory overhang from the emission standard changes, as well as likely fundamental softness related to Brexit and China demand. But these factors may be mitigated as the year progresses. Global production forecasts from IHS for the year have come down slightly during the last quarter and now remain at assumed 1% production decline for the full year, including a 3.6% reduction from EMEA and a 2.7% decline in North America, offset by a 2.8% growth in Latin America and a flat outcome for China, including a back half rebound in that market. Commercial vehicle net sales increased 6.6% XFX in the quarter, driven by ongoing strength across the America's truck markets and broadly stable global commercial vehicle markets. Price mix remained down slightly in the quarter, which is sequentially consistent and reflects customer and sub-market variability in terms of realized pricing. Regarding our balance sheet and cash flows, first quarter free cash flow was as expected with a use of $75 million. in our normally seasonally weaker first quarter given debt interest and other annually scheduled cash payments. We have reconfirmed our full year free cash flow targets of $430 to $470 million for the full year. In terms of leverage, we finished the quarter at 3.6 times net debt to trailing 12 months adjusted EBITDA, up from 3.4 times at year end, which reflected slightly lower adjusted EBITDA, a use of cash from working capital, and incremental share repurchases. We continue to see value in our stock at current levels and repurchased $66 million in the first quarter at an average price of $25.82. Exalta made strong strides in many areas within our operations as we continue to push to lower total production cost, increase global efficiency, and satisfy our customers. In the quarter, We finished installing a new bonding metallic powder line in our Houston plant, offering new capacity to serve this fast-growing segment within powder coatings. Overall, we would note that we are on track to offset fixed-cost inflation this year through a broad set of productivity initiatives. We are also making progress related to our significant project to shut down and relocate our production site in Belgium. In terms of innovation and investment highlights, In refinish, we extended our fast cure technologies in Asia Pacific with the launch of VOC Extreme, a highly productive filler, and a new Chromax productive clear coat. In our industrial end market, we launched a wide range of new products in the first quarter. A few examples include new products in industrial wood coatings to address the pre-finished commercial siding markets, successful extension of our Durapon coil and extrusion product line to China markets, and the energy solution We gained new approvals to extend our market share of insulating coatings in the motor market used in electric vehicles. We also had record success rates in the first quarter in growing our industrial e-coat market presence globally. Finally, in transportation coatings, Exalta continued its global introduction of Lumero 1K and 2K products, our newest high-performance clearcoats for the OEM market, offering improved appearance and enhanced scratch resistance at lower dry film thickness. As of this quarter, we have launched a 1K offering in the US and a 2K offering in Europe. Regarding our 2019 execution priorities, we remain firmly focused on meeting our objective of generating profitable growth. We expect second quarter to remain moderately challenging given ongoing lower auto production rates in key markets we serve as well as somewhat subdued industrial coatings demand in North America and Europe. Still, we are encouraged by signs of acceleration in macro data points from China in recent weeks, by the China stimulus measures enacted in April for the auto sector, and by attention paid to resolving ongoing trade disputes. These and other factors continue to underpin our confidence in the full-year outlook. Further, We remain committed to actively managing our cost structure to ensure broader margin stability regardless of the volume backdrop, and our Exalta Way planning remains highly engaged and an integral part of our goal achievement. During the first quarter, as our new CEO, I hosted Exalta's leaders from around the world at a meeting where we aligned on our four key strategic imperatives, people, innovation, performance, and growth. Our goal with people is to implement a high-performance, customer-centric, and metrics-driven culture to increase accountability. For innovation, we seek to adopt a mindset of innovation and change across Exalta to increase speed and nimbleness. For performance, our goal is to deliver industry-leading profitability and operational performance. For growth, our objective remains to achieve above-market growth and diversify our portfolio through organic growth and acquisitions. For each of these priorities, we have designated KPIs for every leader across our organization to align with these goals. Importantly, we have also adjusted some of our compensation metrics to further align management with our financial objectives, which we also touched on back in January. We have steepened the risk-reward payout curve associated with overall execution while adding focus on cash generation. We have also included return on invested capital and earnings per share growth as longer-term metrics for key leaders. These changes are further detailed in our recently filed proxy statement. As you know, we have a few open key positions at Exalta, but we are on track to fill those with excellent candidates who are aligned with Exalta's strategic imperatives and the execution-oriented culture we are striving to create. I'm excited about the team we are putting together and look forward to providing you with future updates. Finally, as you have seen, we've launched this quarter a revised approach to our reporting format, which we highlighted also on our last earnings call. We are pleased to now be reporting out with a focus on adjusted EBIT and adjusted earnings per share, and we have likewise aligned our internal compensation metrics along the same lines. We believe this change refines the focus of our leadership on the complete picture of value creation as well as capital deployment, which we anticipate will help us generate profitable growth and create solid shareholder value in the long term. With that, I'll turn the call over to Sean to further review our financial results.