Title

Presentation

Axalta Coating Systems Ltd. beats earnings expectations. Reported EPS is $0.59, expectations were $0.54.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Axalta Coating Systems Q1 2025 Earnings 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 a replay will be available through May 14. Those listening after today’s call should please note that information provided in the recording will not be updated and therefore, may no longer be current. I will now turn the call over to Colleen Lubic, Vice President of Investor Relations.

Colleen Lubic: Good morning, everyone, and thank you for joining us on the call today to discuss our fiscal 2025 first quarter results. This is Colleen Lubic, Vice President of Investor Relations. Joining me today are Chris Villavarayan, CEO and President; and Carl Anderson, Chief Financial Officer. We posted our first quarter financial results and our earnings release this morning. As a reminder, you can find additional materials, including today’s presentation and associated schedules on the Investor Relations section of our website at axalta.com, which we will be referring to 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 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. We’ve included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. Refer to our filings with the SEC for more information. We kindly ask that you limit yourself to one question at a time to give others the opportunity to have their questions addressed. I would like to turn the call over to Chris.

Chris Villavarayan: Thank you, Colleen. We’re pleased to report another strong quarter of financial results for our first quarter record for adjusted EBITDA and adjusted diluted EPS. I want to thank Axalta’s employees for rallying together to deliver our A Plan priorities and maintaining our strong execution and resilient performance. Net sales remained flat to the first quarter of last year on a constant currency basis, with contributions from CoverFlexx and a positive price-mix mitigating volume declines. Adjusted EBITDA was $270 million, representing a 4% increase year-over-year. Adjusted EBITDA margin grew by 140 basis points year-over-year, marking the 10th consecutive quarter of adjusted EBITDA margin growth. Driving A Plan initiatives, improving our operations and reinvesting in the business remain a top priority for us.

Despite wage inflation, operating expenses decreased by 4% from last year due to savings from our transformation initiative introduced in 2024. Capital expenditures have nearly doubled compared to Q1 of 2024, driven by incremental investments designed to enhance productivity in our operations. Our balance sheet remains robust with total net leverage remaining steady for the year-end at 2.5 times. Adjusted diluted EPS grew by 16% year-over-year to $0.59. This marks the seventh consecutive quarter of adjusted diluted EPS growth. Innovation is fundamental to enhancing the customer experience. In the first quarter, we are proud to be the recipients of two Edison Awards and a big innovation award. This is the seventh consecutive year that Axalta has earned an Edison Award, which honors industry-leading innovations in new products and services.

This year, Axalta’s Irus Scan and Axalta’s MyColor were recognized. Irus Scan is the first handheld color measurement device for the collision repair industry. It has the ability to capture color sparkle, hue [ph] shifting pigments and gloss to provide an accurate color match for vehicle repairs. Axalta’s MyColor offers an innovative color creation delivery process. This technology streamlines automotive OEM approvals enabling custom colors to be available in as little as four weeks instead of more than a year. We were presented with a big innovation award by the Business Intelligence Group for our Voltatex product. Voltatex is a wire enamel that improves the reliability and efficiency of electric vehicles and other high-performance electrical systems.

These awards underscore our strength of our product pipeline and our ability to convert investments in R&D and technology into solutions that appeal for our customers and differentiate Axalta’s offerings. Let’s move to Slide 4. Three of our four end markets showed macro declines in the quarter. Axalta, however, was able to generate positive organic net sales in both Mobility end markets, and achieve an organic net sales performance in Refinish above industry 10th compared to the same period last year. In Refinish, organic net sales decreased by 1%, while the industry was down mid-single digits based on industry metrics that we track. The external demand pressures experienced in 2024 continued to affect collision claims and body shop repair activity in the first quarter.

These factors are driven by insurance premium inflation, increasing repair costs and veining consumer confidence. Irrespective of the industry dynamics, we were able to add approximately 900 net new body shops, grow in adjacencies and expand further in the economy segment. Organic net sales in Light Vehicle increased by 2%. Volume for Light Vehicle aligned with global auto production, which rose by 1%. We also achieved double-digit volume growth year-over-year in both China and Latin America, surpassing auto production growth in both those geographies. Commercial Vehicle organic net sales grew by 2%, while Class 8 heavy-duty production in North America dropped by 17%. We mitigated industry pressure from the heavy-duty truck sector by executing on our commercial transportation solution priorities across various applications, including recreational and public safety vehicles.

Additionally, we expanded our presence outside the Americas. As a result, together with strong performance in Light Vehicle and price/cost stability, the Mobility segment’s margin expanded by 230 basis points to 16.5%, the highest margin since first quarter of 2021. Industrial organic net sales decreased by 4% year-over-year, in line with broader trends. Across our end businesses, we continue to see mixed signals. Industrial production in the United States increased slightly year-over-year in the first quarter, but contracted in March, while most European economies experienced declines. North American housing declined for the fourth consecutive quarter, causing a slow start to the season for our North American building products business. Despite these challenges, the team’s focus on portfolio mix and productivity improvements resulted in an adjusted EBITDA margin increase for the eighth consecutive quarter.

Let’s move to Slide 5. With the increased trade tensions that emerged during the quarter, we wanted to provide some color on Axalta’s global landscape. As shown in the presentation, our business is geographically diverse with 38% of our net sales in North America and 16% in Asia-Pacific. Most importantly, approximately 90% of our products are manufactured and sold within the same region, significantly reducing our exposure to international tariffs. Additionally, only about 10% of our total purchases are currently impacted by the new tariffs. The team has already done a fantastic job of maximizing USMCA compliant products in North America, minimizing tariffs across the regions. Based on our current business model, we estimate tariffs imposed in 2025 could now cost approximately $50 million annually with about $25 million expected to impact in 2025.

Carl will take you through how this impacts the guide later in the discussion. Through various means, including in-sourcing, sourcing raw materials locally, reformulating products managing strategic inventory and pricing, we believe we have avenues for structural improvements if tariffs were to become permanent. I will now turn the call over to Carl to go through our financial results and updated 2025 guidance.

Carl Anderson: Thank you, Chris, and good morning, everyone. Let’s turn to Slide 6. First quarter net sales decreased by approximately 3% year-over-year to $1.26 billion, primarily driven by a 3% unfavorable foreign currency impact and lower volumes, partially offset by positive price-mix and contributions from CoverFlexx. Gross margins were 34% in the quarter, an increase of 110 basis points over last year. Income from operations increased by $55 million as we had significantly lower restructuring expense compared to a year ago when we announced and started to execute on our 2024 transformation initiatives. Adjusted EBITDA in the quarter was $270 million, 4% above last year, marking another record quarter for adjusted EBITDA performance.

Variable costs declined by low single digits, slightly better than anticipated. For the full year 2025, we now believe that raw material costs will be approximately flat year-on-year, excluding the direct impact of tariffs. Our productivity pipeline remains strong, and we expect it to drive sustained improvements to our operating model going forward. SG&A declined 2% when compared to the first quarter of last year, and our fixed operating expenses were down approximately 4%, inclusive of wage inflation. We continue to benefit from savings related to the 2024 transformation initiatives. Additionally, incremental cost management initiatives implemented at the start of the year also helped to mitigate the challenges from a weaker macro. And lastly, adjusted diluted earnings per share increased 16% to $0.59, a first quarter record, driven by higher overall earnings and lower interest expense compared to the first quarter of last year.

Moving to Slide 7. Net sales for Performance Coatings declined 3% year-over-year to $822 million, driven primarily by both lower volumes and unfavorable foreign currency impacts. These headwinds were partially offset by contributions from CoverFlexx. Refinish net sales decreased 2% to $511 million. The incremental contributions from CoverFlexx partially offset foreign currency headwinds and volume declines in Europe and North America. Price mix was roughly flat in the quarter as price increases were offset by negative mix impacts. Industrial net sales declined 6% year-over-year to $311 million due to volume declines predominantly driven by weakness in North America and Europe, partially offset by growth in China. Positive price mix partially mitigated the impact of unfavorable foreign currency headwinds.

Overall, first quarter Performance Coatings adjusted EBITDA increased 1% year-over-year to $197 million. Adjusted EBITDA margin increased by 100 basis points, 24.1%, primarily driven by lower operating expenses and lower variable costs. Let’s move to Mobility Coatings results on Slide 8. Mobility Coatings first quarter 2025 net sales were $440 million, a decrease of 1% from the prior year, inclusive of a 3% headwind from foreign currency. Light Vehicle net sales were down 1% in the first quarter. On a constant currency basis, net sales grew 2%, driven by volume growth in China and Latin America, which more than offset anticipated declines in North America and Europe. Price mix was a low single-digit tailwind in the quarter, driven by selective pricing and favorable mix.

Commercial Vehicle net sales declined 3%, primarily due to foreign currency headwinds. On a constant currency basis, net sales grew 2%, driven primarily by positive price mix. Mobility Coatings adjusted EBITDA in the quarter improved by 15% to $73 million. Adjusted EBITDA margin expanded by 230 basis points versus last year coming in at 16.5%. Margin expansion in both businesses were primarily driven by positive price mix and a reduction in operating expenses. Turning to Slide 9. Based on the current economic environment, we are updating our market expectations for the year. Uncertainty persists and recent industry data is coming in softer than we were forecasting at the beginning of the year. In our global Refinish business, we now expect the industry to be down low single to mid-single digits on a year-over-year basis compared to flat to down low single digits previously.

Insurance claims data continues to post declines in both North America and Europe. Repair costs have increased by over 10% since 2022, and the average age of the car park is approaching 13 years in North America. These industry drivers, along with higher distribution inventory levels in North America are expected to offset an increase in miles driven. Our strategy remains unchanged as we continue to add new body shops, expand further into the economy segment, accelerate accessory growth and look to add bolt-on M&A as evidenced by our execution during the quarter. Overall, we expect our Refinish results to outpace industry trends and deliver strong adjusted EBITDA again this year. For Industrial, we previously anticipated modest low single-digit growth year-on-year with positive trends in Europe and North America expected in the second half.

In February 2025, the ISM PMI signaled a second consecutive month of economic expansion. However, the rise in trade tensions and growing consumer pessimism led to a pullback in March manufacturing’s PMI erasing the gains from January and February. Additionally, GDP growth projection for the U.S., Europe and China are trending lower. Given the current climate, we now expect the industry to remain flat or to decline low single digits with a clear outlook for economic expansion dependent on future trade policy developments. Overall, we will continue to execute on our strategy of expanding margin in our Industrial business, cost actions and portfolio optimization. Global auto production for 2025 is now forecasted at just under 88 million units, a 2% decline from last year.

Despite recent downward revisions due to tariffs and affordability concerns, we expect to outpace the industry, particularly in China and Brazil due to the successful ramp-up of new business wins. For the USMCA Class 8 market, the 2025 production forecast has been revised down to 255,000 units, a decline of over 20% compared to 332,000 units in 2024. Initially, industry projections were roughly flat year-over-year, but these were adjusted in April in response to softer consumer trends impacting the freight sector. Our business, however, continues to perform well as we gain new business in commercial transportation solutions and in Brazil, which are all aligned with our A Plan growth strategies. Let’s turn to Slide 10 for the second quarter and full year 2025 guidance.

In the second quarter, we anticipate macro factors to affect all four end markets, primarily driven by slowing global demand and lower body shop activity in North America. Net sales for the company are projected to decrease low single digits versus the prior year, with partial offsets from pricing actions in CoverFlexx. Second quarter adjusted EBITDA is projected to be between $280 million and $290 million, and adjusted diluted earnings per share is estimated to be between $0.60 and $0.63. While we expect to execute mitigation strategies and increased prices related to tariffs, we don’t expect to see a full run rate of the FX in the second quarter. For the full year, we remain cautious regarding the global demand environment and are slightly revising down our net sales guide based on current industry dynamics.

We now expect net sales to be in the range of $5.3 billion to $5.375 billion, an approximate 1% increase at the midpoint year-on-year. With the weakening U.S. dollar, we now expect the foreign exchange translation impact on revenue to be about a $25 million headwind year-on-year compared to $100 million headwind in our previous outlook. Our adjusted EBITDA and adjusted diluted earnings per share outlook remains unchanged as we are driving down operating costs to offset the impact from lower revenue. Adjusted EBITDA margins for the full year are now expected to be close to 22%, expanding approximately 60 basis points over last year. In addition, free cash flow is now expected to be in the range of $475 million to $500 million, down slightly from our previous outlook, driven primarily from increased cash outlays from higher restructuring costs.

I will now hand the call back to Chris.

Chris Villavarayan: Thanks, Carl. I want to emphasize that our top priority remains delivering on our A plan targets. From vast improvements in our safety metrics to supply chain optimization and meaningful business wins, we’re transforming the company. Based on our 2025 full year guidance, we are on track to achieve four of our five financial objectives a full year ahead of schedule, and the teams are executing well across all pillars. While the macro environment remains uncertain, the strategic actions we have taken enable us to be more stable and resilient through the cycles. We have consistently demonstrated our confidence for strong execution, meaningful cost actions and margin expansion. Thank you for joining us today. This concludes our prepared remarks. Operator, please open the line for Q&A.

Operator: [Operator Instructions] We’ll take our first question from Chris Parkinson with Wolfe Research. Your line is now open.

Chris Parkinson: Great. Thank you so much. Chris, Carl, there are three major things that have happened over the last 12 to 18 months, and it’s across cost execution, share gains and ultimately, price discipline. A lot of things you spoke about at your Analyst Day last year. Clearly, the world has changed as you’ve been highlighting in your prepared remarks, but can you just give a little bit more detail on how you’re thinking about these three major facets as it relates to the current economic environment? Thank you so much.

Chris Villavarayan: Yes. Good morning, Chris. Thanks for the question. I think all of those three elements that we defined in the A plan, if you put the five pillars of the A plan, essentially, those are two of the main pillars of the A plan, whether it’s the operational excellence or growth in which we focused on not only share gains but also pricing. And I think, as you can see, we’ve made significant progress through that. What’s changed primarily, if you think about where we started a year ago and where we forecasted all four markets that even from an industry forecast, every one of those markets have significantly changed. If you look at Mobility or Light Vehicle, we’re down about 2 million bills from where we forecasted.

If you look at Commercial Vehicle, we’re at 250,000 – 255,000 bills. That’s lower than replacement demand at 275,000, if you look at Refinish, you have seen significant changes here in terms of market decline. But the amazing thing – I think what I’m really proud of what we’ve been able to accomplish is even in that macro environment, all of those three elements have come and played a significant part in our execution strategy. From a cost standpoint, the margin expansion that you see consistently quarter-over-quarter and the EBITDA growth and the EPS performance is all coming from really a lot of the proactive cost actions we took. From a share gain standpoint, you can see that across all – at least three of our four end markets, we continue to expand and gain market well beyond the current market environment.

And finally, price-mix has been a consistent good story for us. So I would say the strategy continues to work. The A plan has, I think, been a great structure for us, and it’s really providing the resilience in a tough market.

Chris Parkinson: Thank you.

Chris Villavarayan: Welcome, Chris.

Operator: Thank you. We’ll take our next question from Mike Leithead with Barclays. Your line is now open.

Mike Leithead: Great, thanks. Good morning team. Just a question…

Chris Villavarayan: Good morning, Mike.

Mike Leithead: Good morning, Chris. Question on Refinish. You have that Slide 9 on the macro, which is helpful. I think it shows collision claims, body shop activity down something like high single digits on a two-year stack. And I think most investors historically have thought about Refinish being a fairly steady industry. So I guess, how does your team get comfortable that this is just a macro blip and not something more structural like ADAS or changing consumer insurance behavior? And how, if at all, are you pivoting the Refinish business to help handle this downturn?

Chris Villavarayan: Yes, that’s a really good question, Mike. And I think if you look at the business and you even go back six to nine quarters, the business has been low to mid-single digits claims decline for at least nine quarters. So we’ve been facing, let’s call it, a weak macro in Refinish for about nine quarters. And what’s driving that? Parts of it, you could argue, are structural and parts of it have been, let’s call it, destocking that happened through the first half of last year related to a large distributor, LKQ, acquiring FinishMaster. But if you went through some of the other changes, for example, we’ve faced three to four years of hyperinflation. We see claims have continued to go down, primarily also driven by the cost of repairs and full write-offs.

Another aspect of this is insurance premiums. If you look from a 2023 to a 2024 basis have gone up about 20%. So there’s been a lot of factors that have driven the decline. If you break it down to consumer confidence here, one of the things you can notice is folks have been pulling collision off their claims and a lot of it is also related to folks also cashing in claims just based on where the economy is. So to your question is, how do you get comfortable around 2025 and where the market is going? I think parts of that structural, let’s call it, change you might see some sign of life or light coming in the back half. Insurance claims are starting to flatline. Used car pricing is coming up, which helps. Miles driven is still continuing to grow up.

We see a 1% increase. We had some bad weather last year. And most importantly for me, the way I’m looking at it is the back half of last year, we had, let’s call it, high single-digit decline. So we’re going to start lapping it in the back half of this year. So I do believe there’s an opportunity for this to become at least more stable. But if you look at our guide, we’re still predicting this to be down mid to single – mid to high single digits. We’ve moved our forecast from flat to low single digits to mid to high single digits – mid-single digits decline in the back half of the year. So it kind of gives you a perspective that we’re planning for the continued decline here. And any light of any balance or any stability in the market would be a good new story for us.

Mike Leithead: Thank you so much.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from Steve Byrne with Bank of America. Your line is now open.

Steve Byrne: Yes. Thank you. How much of this 400 basis point margin expansion target for industrial has already been achieved? And do you have other initiatives that are still playing out this year that will drive that margin? And more importantly, are there other initiatives you’re considering beyond A plan? I got the impression from your year ago investor event on the tour that the productivity initiatives that you’re looking at now are just scratching the surface.

Carl Anderson: Steve, good morning. It’s Carl. I can take that question on industrial. So if I look at the margin performance, in 2024, we were pretty close to driving about 300 basis points of an increase in our Industrial margin business – in our Industrial business. And I think as we kind of look forward this year, even in a pretty challenging macro, we are planning for the two probably most likely exceed our 400 basis points margin target from improvement that we laid out a year ago. So I think the team has done a very good job of executing on various cost actions internally. I think we’re benefiting from our purchasing team and the continued progress that they’re making and managing our raw materials and our buy.

And then also, I think there are selective pricing actions that the team has been executing – have executed over the last 12 months as well. So I think we feel very good about the margin trajectory of that business. And this year, we’ll definitely look at – we’ll be exceeding the target we laid out back in May of last year.

Operator: Thank you. We’ll take our next question from John Roberts with Mizuho. Your line is now open.

Chris Villavarayan: Good morning, John.

Operator: John, please check the mute function on your device. John, your line is open. We will now take our question from Ghansham Panjabi with Baird. Your line is open.

Ghansham Panjabi: Hey, guys. Good morning.

Chris Villavarayan: Good morning, Ghansham.

Ghansham Panjabi: Good morning, Chris. I just want to go back to your comments on auto refinish and just kind of zooming out to the high level, many of the factors you’ve touched on as it relates to affordability and collision claims and insurance, et cetera, are probably going to be quite sticky for a while. So I’m just curious as to your thoughts as it relates to what could be the catalyst for the industry from a volume standpoint going forward? And just given your expansion into the broader market, the economy segment, et cetera, for that business, price mix has been very positive for that segment for a very long time. Do you see that trend line sort of changing as you adjust your strategy as well towards the economy? Thank you.

Chris Villavarayan: Yes. Thanks for the question. Yes, there are elements of that, that is sticky. If you think about where, for example, insurance claims and the broader macro, specifically, if consumer confidence continues to wane and folks with inflation sticking where it is, you’re right, Ghansham, there’s a risk that this stays for a bit longer. But if you start then breaking it down into our strategy, what are the things that will drive that? Well, one more thing, there are opportunities for that to break. For example, if you see where the backlogs were when you go back to COVID at body shops, they were quite long. We were talking about 12 weeks to 16 weeks. That is starting to come down. And what you can see is with the reduced backlogs, there’s an opportunity there for repair costs to also go down over time, which will drive more business back into the body shops.

Another element of this is with where the tariffs and where new car pricing is being driven, used car pricing going up also creates an opportunity where you have more folks putting cars into the repair base. And the final aspect of this is, as I watch this, the car park continues to increase. So again, I do believe that there are opportunities for this marketplace to improve. We’re not counting on that. And I think it’s – what’s important, to the second half of your question, is how are we addressing this? If you look at our Q1 performance on body shop wins, normally, we average about 600 body shop net wins a quarter, we did 900. And if you look back over the last two to three years, we’ve done about 2,400 to 2,600 net body shop wins.

So I see the strength of our performance in Q1 as a good sign of market share wins. And that’s – if you go back over that same period of time, what’s essentially led to our overperformance because the market has been weak over the last couple of years is our continued win ratio. The cool part of this is also then getting into the mainstream and economy business. Obviously, CoverFlexx helped us with this. Our market share there is significantly lower than where we are in the premium. As you know, in the premium we lead. Axalta is the leader in refinish. We have over 40% market share. But in mainstream and economy, this is somewhere between 9% to 11%. So we have a great opportunity to grow there. And a lot of the wins that we saw in last quarter was also in this space.

This does affect us from – if you look at from a margin perspective because it’s lower than what we have in refinish, but net-net to Axalta, it’s accretive. It’s a great story for us. And certainly, the strategy that we’re going to continue to execute over the next few quarters.

Ghansham Panjabi: Perfect. Thank you.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from Kevin McCarthy with Vertical Reach Partners. Your line is now open.

Kevin McCarthy: Good morning, all. Chris, I appreciate the detail that you provided on Slide 5 regarding the gross tariff impacts and the mitigation actions. Just wondering if you could clarify a few things. Is the intent to fully mitigate the tariff impacts that you quantified? And how long might it take for you to accomplish that? And then I’m specifically curious about the bottom action of executing pricing. Have you announced any new pricing actions? Or if not, what sort of timing are you contemplating for that lever?

Chris Villavarayan: Yes. Good morning, Kevin. Good question. So stepping back and looking at the impact of tariffs for us, what I talked about was $25 million in this year or a $50 million year impact over the full year. If you break that down and you think about the impact for Axalta, again, as I said in my remarks, 90% is local for local and 10% of raws even after going back to the announcement we made at the year-end call, is pretty much similar is the impact of raw materials that are going across orders. And then what I want to break it down to is there are probably about four or five levers we can pull before we look at pricing. And that’s certainly the approach we’re taking at speed first. And it’s primarily, if you start looking at it, we have the opportunity to vertically integrate.

We have – with where volumes are in some of the regions, not so much in China, but certainly in North America, we have the ability to vertically integrate, which is essentially manufacture more in our facilities because we have available capacity. We’re working with our supply base to essentially bring in material for local for local. So if they have plans or if they can move capacities around, we’re working with that. Specific to Refinish, we’re also working on some strategic inventory actions. So 90% of what we do is we work through distribution and our distribution partners have inventory. So we’re working with them to essentially use up some of the inventory until we determine or have a more clarity on where we’re going with tariffs.

And finally, there’s lots of opportunity to reformulate working with our engineering teams to reformulate products of available supply on continent to be able to offset some of the cost. And then we will look at pricing. Now to your question on pricing, we have gone out with pricing as we normally do. We implemented about a 7% pricing, for example, in the beginning of the year within Refinish in North America, about 4% in Europe. These are pricing actions that we took proactively in some regions because we were already facing the impact of the tariff coming in earlier on, on the 10% tariff – the $10 million that we talked about in Q1. Those were actions that we took. Again, as I look at it, it’s certainly something that we have in plan for – to offset, but we are very confident in offsetting the $25 million of tariff impact this year.

It might take us probably a quarter, but we’ll certainly get it done this year.

Kevin McCarthy: Very good. Thanks very much.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from Joshua Spector with UBS. Your line is now open.

Lucas Beaumont: Good morning. This is Lucas Beaumont on for Josh. So I just wanted to look at the updated EBITDA phasing for the year. So you’re now kind of pointing to low single-digit declines in 2Q, but then shifting to kind of 7% growth in the second half. So on the one hand there, you’ve got some new wins coming in the second half, but on the other hand, the macro environment is sort of getting weaker with increased headwinds there. So can you kind of just walk us through your assumptions in the setup there and what’s giving you confidence on sort of being able to deliver on that stepped-up second half growth outlook? Thanks.

Carl Anderson: Yes Thanks, Lucas. Yes, if you look at just the first half total EBITDA using the midpoint of our current guidance, relative to the full year, that implies about the first half will be about 48% of our total EBITDA. A year ago, we did about 49%. So I think the EBITDA progression year-on-year is very similar to what we had a year ago. To your point, as we think about some of the wins, specifically in Brazil, are beginning to ramp up in the third quarter, which will provide some significant tailwind as we think about that revenue that will be coming in, in the second half of the year. And then I think as we look at the rest of the businesses as well, we are planning for overall revenue to be slightly higher as we think about it in the second half, just driven by a little bit more stabilization, what Chris pointed out and refinish as we kind of finish out the year as well as industrial.

We don’t forget our Industrial business was down about 6%. And in the first quarter, we believe that trend line will begin to change as we kind of get into the second half.

Operator: Thank you. We’ll take our next question from Jeff Zekauskas with JPMorgan. Your line is open.

Jeff Zekauskas: Thanks very much. Normally, your EBITDA steps up in second quarter from the first quarter. And normally, it’s more Refinish driven. I think you spoke about your Refinish prices being flat year-over-year. So is the idea that it might take some time before the benefits of those price increases make themselves felt. And then secondly, can you talk about how the Light Vehicle market demand helped to you in March and April?

Carl Anderson: Yes. Thanks, Jeff. Yes. If I look at – you’re right, typically, Q1 to Q2, you do see a sequential tick up. And you’re seeing that right with our EBITDA guide. We’re going to be up about $15 million EBITDA at the midpoint. And if I look at kind of the businesses as well, we’re kind of forecasting to be down about low single-digit percent on a year-over-year basis in the second quarter. But it’s still – that is implying that your second quarter revenue will be running probably $50 million to $70 million higher on a sequential basis. So that’s still kind of holding true for us embedded in the guide. The one thing that Chris referenced regarding some of the cost impacts from tariffs, we are seeing that a little bit of headwind in the second quarter before we can kind of fully recover that.

And that’s when you’ll start seeing some of those pricing actions kind of kick in to provide a full quarter coverage. And then relative to Mobility, I think the one point that we wanted to really highlight with that business, the team has done a really just a phenomenal job of continuing the outperformance in China as well as in Brazil. That is coming in. And you can see the margin performance within that business now. We delivered 16.5% EBITDA margin in Q1. And as we look forward, even in this challenging macro for autos and what we’re forecasting at this point, we expect that mobility business to be running north of 16% for the full year.

Chris Villavarayan: Maybe just to add just – I think Carl has captured all of it, just add probably a little bit more color on the Refinish margin. One of the other things that we’re working with is working with our distribution partners who have inventory, obviously, in the system to be able to use up some of that inventory to manage the impact of tariffs. So that’s how we’ve also defined our Q2 guide. And then when I come back, again to add to Carl’s points, I mean, the – on the Mobility side, certainly, the marketplace has been in a great shape, not only if we look at our performance in LatAm and China, but we’re also seeing signs of life in North America with currently some of the business plan – the family plans that we’ve – that have been announced by the Big 3.

So we’ll wait and see how all this plays out. Obviously, there’s also the challenge of supply chains to make those cars based on the impact of tariffs on things like raw materials and semiconductors. But once we get past that, you do see an opportunity for quite a tailwind also in that marketplace.

Jeff Zekauskas: Thank you.

Chris Villavarayan: Thank you.

Operator: Thank you. We’ll take our next question from Vincent Andrews with Morgan Stanley. Your line is now open.

Vincent Andrews: Hi, I just wanted to get a little more detail on the free cash flow guidance. It was, I think, a single target before $500 million, now its $475 million to $500 million. So what’s causing the sort of introduction of the range in the lower end? And just looking at your cash flow statement, can you remind us what’s in that other accrued liabilities bucket that was a $106 drawdown of cash in the quarter?

Carl Anderson: Yes. Thanks, Vincent. Yes, if I look at the free cash flow guide, we did put a range on that. The one thing you’ll notice in the first quarter, we had about $11 million of restructuring expense. A lot of that was cost actions as we were really kind of getting out in front of some of the headwinds we’re seeing from the macro environment. So I would say the bulk of that impact on free cash flow is really driven by just higher restructuring cash outlays that we’re going to have in the rest of the year is what kind of drove the range. So overall, we feel very good. It’s going to be a very solid and very strong free cash flow year for us. And then as I think about your question about other liabilities, the big change there is the bulk of that relates to our annual bonus payment accrual as well as some additional restructuring charges.

Vincent Andrews: Thank you very much.

Chris Villavarayan: Thank you.

Operator: Thank you. We’ll take our next question from Aleksey Yefremov from KeyBanc. Your line is now open.

Aleksey Yefremov: Thanks. Good morning, everyone. Chris, you already spoke about your Refinish value segment. I was hoping to get a little more details on how this segment is doing relative to the broader market. Is this segment benefiting because of a sort of value nature? Or is this segment of consumer not doing as well? And if you can tell us if you’re growing in this segment faster than your Refinish business overall, in line or slower?

Carl Anderson: Sure. Great question. I’ll break it into three sections. Alex, good morning. The first one is if you think about it for us, we got into this with CoverFlexx. Obviously, we had U-POL and we put all this together and what we were driving is to obviously expand our market share from, let’s call it, that 10% up. And so from that perspective, CoverFlexx as a whole, we’re right on – if we look at our 2024 deal metrics, we’re right on plan. So that’s working out well. If you look at, the second half of your question, how is the market responding. Obviously, this is the, let’s call it, this aspect relates to where consumers are a little bit more cautious. This is more value driven. So the consumers here are not so much tied to insurance, and these are folks that are making choices on repairing their cars outside insurance or just improving the look of their cars.

And from that perspective, the consumer confidence is waning. So you can see, let’s call it here, demand is a little bit weaker. Now to your last question about how are we performing here, I would say, if I looked at just Q1 performance in our win ratio, I would say we’re performing above the market here. And you can also see it a little bit in our performance when I look at it in how our margins are trending because this is growing faster than our premium business because we have such significant market share in our significant – in our premium business. This is obviously a business that we took on to grow. So it is growing faster. And so that’s a great sign. But again, I would say, confidence – the consumer confidence in this market, though, is probably dropping more than what we’re seeing in our premium segment.

So I hope that provides the color you’re looking for.

Aleksey Yefremov: Great. Thanks, Chris.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from John McNulty with BMO Capital Markets. Your line is now open.

Caleb Boehnlein: Hey, good morning. This is Caleb on for John. So for the full year sales guide you lowered that despite FX being less of a headwind than it was at the start of the year, but the EBITDA guide remained intact due to what you said earlier on the cost savings, what you also capped the $30 million to $40 million of cost savings goal for the year. So maybe could you just talk to like how that’s exactly netting out or if there’s maybe potential upside to the $30 million to $40 million cost savings you’re looking for?

Carl Anderson: Yes. I think it’s a good question. I think I had two points on that. I do think overall, based off some of the recent cost actions that we’ve executed. This was really under a different plan than maybe the original transformation initiative of the $30 million to $40 million that we’re highlighting before. So we’re definitely seeing more opportunities on the cost side that we’re executing on. So I would say that would be the first point. I think the second point is, when we started the year, when we kind of gave a full year outlook at the time, I think there’s always some degree, some level of conservatism as well that we had with the original outlook. And I would – and that’s coming into play now, especially with revenue being a little bit softer than we originally were anticipating. And so I would say it’s between both of those items that allowed us to be able to hold serve on our EBITDA range at this point.

Caleb Boehnlein: Okay. Thanks for the color and congrats on the quarter.

Chris Villavarayan: Thank you.

Carl Anderson: Thank you.

Operator: Thank you. We’ll take our next question from Mike Harrison with Seaport Research Partners. Your line is now open.

Mike Harrison: Hi, good morning.

Chris Villavarayan: Good morning, Mike.

Mike Harrison: Within the Refinish business, you noted that you’re seeing customers cashing in claims and with reduced insurance claims, probably a lot of damage or dings and things like that, that’s not being repaired right now. What does that mean when these damaged vehicles are sold when somebody wants to buy a new car or traded in for a used car? How much business do you guys have with big resellers like CarMax or AutoNation or other dealership groups? And are you starting to see any growth in that segment of the market for Refinish coatings? Thanks.

Chris Villavarayan: Yes, that’s a great question, Mike. I think that’s the good news, if there is any good news is the fact that with new car pricing going up, with the possibility of tariffs is what we are seeing is used car pricing going up. And as you look at folks essentially turning in cars into a dealership, and the dealership looking at taking that repair cost and essentially splitting it up to your point and looking at things like CarMax, those folks and what they’re doing in that space, which provides us an opportunity here to see a lot more cars coming in at some point. Again, I think it’s a question of time that drives stability back in the marketplace because you’ve seen four to six quarters of, let’s call it, significant decline in this marketplace.

So I do believe that, that is a good opportunity for us. We have a really strong presence in that marketplace. So I do think that is an opportunity for us long-term. I think a lot of what is driving the current market is, as you – I’m sure I’ve heard from every call is the level of uncertainty. I think once we have some clarity on the uncertainty, the market dynamics will play out over a period of time. It’s just a question of time. I think folks are just waiting to make decisions whether it’s the folks like CarMax and the actual repair folks as well as the consumer itself. So as I view it, it’s just a question of time. And obviously, the longer that the uncertainty plays out, that creates a bit of a risk for us. But beyond that, I do believe that there’s an opportunity for stabilization in the marketplace over time.

Mike Harrison: Thanks very much.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from Laurent Favre with BNP. Your line is now open.

Laurent Favre: Yes. Good morning. A question on capital allocation, please. Can you talk about your priorities in terms of cash deployment between deleveraging given uncertainty versus share buybacks or indeed other M&A as we hear that there are some assets on the block? Thank you.

Carl Anderson: Yes. Thank you. Yes. So capital allocation for us continues and will remain a significant lever for us to drive value creation for our shareholders going forward. As I look at our free cash flow in the first quarter is always a seasonal low point. And if you think about the next three quarters, we expect to deliver about $500 million of cash flow over that time period. So if you look at the capital allocations priority here in the first quarter, we did ramp up our capital expenditures. We almost double that from what we did a year ago, which was consistent with our A Plan as we continue to see very significant productivity opportunities within our network. Having said all of that though, if I look at just our interest expense and where that’s running at about $180 million, that’s exactly what we have to be the interest expense for 2026.

Our net leverage is at 2.5 times. So as we go forward, we – our plan is really to allocate capital between share repurchases as well as opportunistic M&A. Just given where we are from an overall interest expense and leverage profile, we are going to continue to naturally delever as we go forward. So it does open up those opportunities to be selective and focused really to share [ph] buybacks and opportunistic M&A.

Chris Villavarayan: And just maybe just to add a little bit on the look on M&A. As I said in the last quarter, I think this is certainly something that we will continue to look at for the rest of the year. From our perspective, I think there were two things that coming in, we were trying to solve for Axalta. One was the financial performance and really building the foundation for us to be able to grow. And I think with what we have done with the four out of the five elements of the A Plan, we’ve certainly been able to accomplish that, from my perspective, even in the challenging macro. As I think about what is the next evolution of what we have to solve with Axalta, it’s really the growth algorithm. And so anything that provides a growth factor above our current end markets and that really provides value with the operational emphasis that we have for our shareholders and also for us as a company, I think those are the things that we will continue to look at an opportunistic path considering where the market plays out today.

Laurent Favre: Okay. Thank you.

Carl Anderson: Thank you.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from David Begleiter with Deutsche Bank. Your line is now open.

David Begleiter: Thank you. Good morning. Chris, Mobility margins, they were very nice in the quarter. Where can it go longer-term? Can they get to upper teens or even 20% longer-term? Thank you.

Chris Villavarayan: It’s a good question, David. Good morning. I think we’re certainly proud of where that team has done an exceptional job getting the margins. And what’s interesting, if you really break it out and pull out of it and look at it just taking a minute here is the fact that the Commercial Vehicle has a significantly higher margin than our Light Vehicle business. And with the significant decline that we saw in Q1 and actually we’re forecasting for the rest of the year, you can see what the teams have been able to do with the Light Vehicle business to be able to add and combine to be able to manage the decline in margin. The really, really good new story for me there is being proactive in going after and growing the CTS business, which is really looking at RVs and sports utility vehicles and all the ambulances and special fire trucks and getting all those contracts in place and being proactive to see the possibility of a decline and winning all that business.

So that’s been a great story. And I think, going to your question on margins, if I look at this as a cyclical low point, there is opportunity for upside here in margin. Obviously, I would call it 16 is a good spot for us to start off with. And it’s certainly something that we’re planning to hold, and I look forward to maybe are talking about some better opportunities. But again, we want to see how we grow in LatAm and also grow – continue to grow in CTS before we can commit to anything here.

David Begleiter: Thank you.

Operator: Thank you. We’ll take our next question from Mike Sison with Wells Fargo. Your line is now open.

Mike Sison: Hey, good morning. Just one quick one on Refinish industry volumes are going to be down this year. What do you think happens to volumes if we do go into a U.S. recession? And then could you maybe give me a quick history lesson. When was the last time industry volumes were positive or collision claims were positive? And what was the environment? Was it better interest rates, better consumer sentiment, just sort of maybe a backdrop of when those – when the markets were better?

Chris Villavarayan: Yes, I think, just looking at data, I would say it’s got to be pre-pandemic where volumes have been increasing, to be honest with you. And if I look at it, I certainly – if I look at my tenure here, and I would say that in the last nine quarters, we have continued to see volume declines and obviously, claims have also declined during that time. If you look at our industry, our business, specifically in Refinish, though, if you went back even beyond the nine quarters and you went right back to the pandemic and looked at four years or 16 quarters, this business has consistently grown sales and performed financially quarter-over-quarter better over the last at least 14 quarters that I have data in front of me.

And I would tell you the performance is really driven – it’s not – I think there’s a perspective that this is pricing, but it’s really a multitude of, let’s call it, execution philosophies that they’ve driven, whether it’s M&A, whether it’s growing body shop, net body shops winning, it’s the value proposition that they bring to the customers. I look at the fact that whether it’s for color or efficiency, we are the best in the marketplace at both of those things, and I can say that because we continue to be the leader in the premium segment. So the consistency of essentially reducing the time and the effort and the cost within our body shops is the reason why this team has won over 10,000 body shops if I look at that same period of the last three to four years.

So I think that’s the strength of our business even though we have seen volume declines for what I would say is over four to five years. Now specific to what the future holds for the business. I think, as I said, I do believe that insurance premiums flat lining here as I look at Q1, the fact that used car pricing is starting to go up and also the availability of capacity and, let’s call it, the possibility of repair costs coming down, and you can see this also with actions that certain states are taking. They’re essentially driving the loss thresholds from 75% up to 85%. I think four states have enacted that. And finally, the fact that we are wrapping high-single digit claims increases or decreases from the last half of – back half of last year into this year, I do believe that there’s an opportunity for this marketplace to stabilize here.

So I hope that gives you some clarity of what I see the back half of 2025 doing.

Mike Sison: Great. Thank you.

Chris Villavarayan: You’re welcome.

Operator: Thank you. We’ll take our next question from Patrick Cunningham with Citi. Your line is now open.

Patrick Cunningham: Hi, good morning, and thanks for squeezing me in here. It seems like you’re still forecasting some back half growth in industrials, but overall housing sentiment building products is not great with indirect and direct impacts from tariffs, high interest rates. So why does that outlook still hold? And how meaningful are these new business wins from a top line perspective?

Carl Anderson: Yes. Thanks, Patrick. Yes, as I look at the second half for industrial, we are seeing the market up slightly, if I look on a sequential basis, but you’re talking probably incrementally $10 million to $15 million higher each quarter, as I think about the third quarter and the fourth quarter from what the run rate was in the second quarter. So not a significant dollar increase, but I will tell you, as we think about the base business, the team are in Asia-Pacific continues to outperform. So we’re seeing that growth is helping offset some of the weakness here you’re seeing in North America. And I will say Europe has begun to stabilize and showing some pockets of potential growth as well. So I think those are the two areas where we think we have a little bit of higher revenue opportunities in the second half.

Chris Villavarayan: Yes. Maybe just to give a shout out to our team in China, I think even looking at our April results, I would say specifically in what we do for coatings, our Voltatex product that we do provide coatings for both motors and what we provide even for, let’s call it, windings or rounds, we provide this product that essentially does a great job in connectivity or conductivity as well as reducing heat, and it’s just an exceptional product that we’ve seen some great growth with. So the teams have done an exceptional job continuing to grow there. China has been a good story for us in our Industrial business.

Patrick Cunningham: Great. Thank you.

Chris Villavarayan: Thank you.

Operator: Thank you. We have reached out allotted time for questions. I will now turn the program back over to Chris Villavarayan for any additional or closing remarks.

Chris Villavarayan: Well, thank you. Before we close, I really want to emphasize that the A Plan is working. We consistently delivered operational excellence and exceeded our financial challenges, financial targets in a challenging macro. Again, I really want to thank the Axalta’s employees for uniting around a clear set of priorities, And while we believe the environment in 2025 is somewhat uncertain, I’m confident that our team will perform at the high level that we have, and we’re well-positioned for when the markets turn around. And with that, thank you for joining us today.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.