Axalta Coating Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Exalta's third quarter 2023 earnings conference call. All participants will be in a listen-only mode. A question and answer session will follow the presentation by management. Today's call is being recorded and the replay will be available through November 8th. Those listening after today's call should please note that the information provided in the recording will not be updated. and therefore may not longer be current. I will now turn the call over to Chris Evans. Please go ahead.

Thank you and good morning. This is Chris Evans, VP of Investor Relations. We appreciate your continued interest in Exalta and welcome you to our third quarter 2023 financial results conference call. 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 Exalta.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 Exalta's operating and financial performance. These statements involve uncertainties and risks, and actual results may differ materially from these forward-looking statements. Please note that the company is under no obligation to provide updates to these forward-looking statements. Our remarks and the slide presentation also contain various non-GAAP financial measures. In the appendix of the slide presentation, 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 will now turn the call over to Chris.

Thank you, Chris. Good morning everyone and welcome to our third quarter 2023 earnings call. I'm pleased to report on a great third quarter. I want to thank the entire global team for their tremendous efforts in delivering an exceptional result. I'm proud that Exalta is back on track with the momentum we began earlier this year. Both commercially and operationally, we have made many notable accomplishments this quarter that I will highlight for you. I'm particularly pleased that the North American ERP implementation issues we experienced last quarter are now resolved and production volumes at our refinish facility in Virginia are ahead of pre-implementation rates. Q3 net sales increased by 6% year-over-year to $1.3 billion, a new company record. The top-line improvement was led by a solid quarter from mobility coatings, which delivered double-digit organic net sales growth. Price mix increased by 6% year-over-year, with strong contributions from every end market. This was a great outcome for the team. We will maintain our pricing discipline going forward as we face pressure from higher labor costs and strive to recover margins to pre-pandemic levels. Adjusted EBIT of $188 million and adjusted EBITDA of $261 million increased by 27% and 24%, respectively, year over year, and both were near record levels. Mobility coding strove the majority of the improvement in earnings. and the segment is now at a quarterly run rate consistent with 2019 levels. The team has done a great job prioritizing margin recovery while also building an attractive book of business wins in high growth areas. Company-adjusted EBIT margins improved by 240 basis points year-over-year to 14.3%. This improvement largely stems from raw material deflation, cost discipline, and continued pricing efforts. Sustained margin improvement remains a key priority for us going forward and will remain an important target heading into 2024. Free cash flow increased by 131 million year-over-year to 182 million. This positive trend is a direct result of our ongoing focus to reduce working capital. We believe that we are well-positioned to deliver approximately 400 million of free cash flow for the full year 2023. Given this degree of earnings and cash flow growth, our balance sheet has now strengthened considerably. Exalta's net leverage ratio continues to improve and is significantly lower than Q3 of last year. Given our strong commercial and operational performance, we have increased our full-year financial guidance. This updated forecast puts us on pace to deliver record-adjusted EBITDA in 2023. The pieces are coming together at Exalta, but before giving you more color on the quarter, I want to briefly discuss leadership updates on Exalta's board of directors. Steve Chapman, who has been a director since 2020, has chosen not to seek reelection. We extend our gratitude to Steve for his significant contributions to Exalta. His wealth of experience, specifically his global operational insight, has played a pivotal role navigating our journey through the pandemic and post-pandemic dynamics over the last several years. Also, we're delighted to welcome Mary Zappone to our board, effective October 25th. Mary will serve on the Audit and the Environment, Health, Safety, and Sustainability Committees. Mary is currently the CEO of Sundyne, a leader in design and manufacture of mission-critical pumps and compressors for the chemical, industrial, and energy markets, a position she has held since 2021. Mary brings a wealth of experience to our team with more than two decades in senior leadership positions, including CEO of Brace Industrial Group and service champ. She has a proven record in industries directly relevant to Exalta. I'm confident that she will make a meaningful contribution to our board. Let's now go to slide five with the highlights of several notable accomplishments this quarter. In October, we acquired Andre Co., a long-term refinish distribution partner. This acquisition is immediately accretive and aligns neatly with our strategy to diversify and expand our refinish offerings. It also increases our presence in Switzerland, an attractive region for us. We're excited to welcome the Andre Co. team to Exalta. Next, we were recently named the exclusive supplier for BMW Group's private paint label in 15 European countries plus South Africa. This agreement includes BMW's network of 730 franchise dealership repair shops and adds to the existing supplier agreements with BMW Group in other regions. We're thrilled with this expanded relationship. It speaks to the strength of our deep customer relationships and the Refinish team's dedication to the highest standards of quality, efficiency, and sustainability. Innovation is critical to the health of our business long-term. This is why I'm excited about our new partnership with Czar to introduce Axelta's NextJet, an advanced paint application tool that allows for precise paint placement. This emerging technology enables inline customization of color schemes, including two-toning and striping. NextJet is being tested with customers today, and we plan to bring it to limited commercial use in 2024. This is an excellent example of how we're working with our customers to understand their requirements and developing technology to meet those needs. Lastly, I want to highlight the official opening of our new mobility coatings manufacturing facility in Jilin, China. This site produces waterborne and solvent-borne coatings for the automotive OEM space. Adding local capacity enables Exalta to meet the growing demands for the China market, where we have continued to expand our position and see sustained long-term growth. Let's move to slide six. My main focus since joining Exalta has been to drive improved efficiency and performance across the portfolio. Our financial performance is beginning to reflect the operational initiatives underway that are driving these improvements across the enterprise, including managing price. We have instituted a more rigorous pricing approach, which is helping margins return to target levels across all end markets. Pockets of opportunity are being pursued as well, and we will remain disciplined given the inflationary pressures in labor and select raw materials. Next, we have been focused on cost optimization. We have initially prioritized this opportunity in procurement given the cost we have incurred in the past two years and the favorable buying environment. In the last nine months, We have bid out more than two-thirds of our total $2.5 billion of spend and have driven substantial savings. This is a direct result of our consulting initiative we put in place earlier this year. We have invested in our manufacturing capabilities. As I said earlier, our North American operations have made great strides following our ERP implementation. Production volumes at our Virginia plant are ahead of pre-implementation rates, and we're making good progress at reducing the backlog. And finally, we have improved inventory levels to drive better free cash flow. We have reduced inventory by approximately 80 million year-to-date. This is yet another consulting initiative that we have seen great return on investment. I'm pleased with our progress, but this will be an ongoing effort with more actions underway. I look forward to sharing our strategic plan for the company at a capital markets day early next year. I could not be more excited for what the future has in store for Exalta and all our stakeholders. I will now turn the call over to Carl for a review of our financial performance.