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00:03 Ladies and gentlemen, thank you for standing by. Welcome to Axalta’s First Quarter 2022 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 a replay will be available through May 3rd.

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. 00:32 I'll now turn the call over to Christopher Evans. Please go ahead, sir..

00:36 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 first quarter 2022 financial results conference call. Joining me today are Robert Bryant, CEO and Sean Lannon, CFO.

00:55 Yesterday afternoon we released our quarterly financial results and posted a slide presentation along with commentary to the Investor Relations section of our website at axalta.com, which we will be referencing during this call.

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 Axalta's operating and financial performance. These statements involve uncertainties and risks and actual results may differ materially from those forward-looking statements.

01:29 Please note that the company is under no obligation to provide updates to these forward-looking statement. Our remarks and the 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 GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. 01:58 I will now turn the call over to Robert..

02:01 Thank you, Chris, and good morning. As most probably saw a few weeks ago, Chris Evans recently joined Axalta, the lead Investor Relations and we're very excited to have him as part of our team. 02:13 With that, I would like to welcome everyone to our first quarter 2022 earnings call.

Let me begin by sharing how proud I am of what we have been able to accomplish this quarter and thank our global team for their hard work. Momentum continues to build in each of our businesses today, because of our team's customer focus and dedication to ensure that we deliver on our goal.

02:37 The entire Axalta team deserves credit for fostering growth and minimizing the financial impact of the various geopolitical crises and the ongoing supply chain challenges.

I want to specifically call out our China team where essential management and our manufacturing workforce volunteer to shelter in place at our plants and at our customers plants, throughout the weeks long COVID-19 lockdown to keep operations running and meet the needs of our customers. Thank you for your incredible commitment and resiliency.

03:11 Now to the key first quarter highlights on Slide three. We reported a strong result again this quarter and have a lot to be proud of given the overall environment. Constant-currency net sales growth of 13% exceeded our prior estimate in both Performance and Mobility Coatings.

Adjusted EBIT of $120 million achieved the very top-end of our guidance. Adjusted EPS of $0.31 was above our guidance range given the flow-through of strong earnings, modest benefits from a lower share count, and a slightly lower adjusted tax rate. I'm pleased with these results given the unprecedented degree of challenges, we had to overcome.

03:52 These include, first, the rapid pace of variable cost inflation, which we experienced across most cost categories and well above what we had factored into our original Q1 guidance construct; second, raw material and labor shortages, which created a difficult operating environment constraining many customers in our ability to fully serve a healthy consumer demand environment; and finally, direct and indirect impacts from geopolitical and macroeconomic issues, including the Russia-Ukraine conflict, as well as the effects of zero COVID policies in China.

04:27 Despite the approximately $22 million in earnings headwinds these three items created versus our January guidance framework we were still able to deliver a solid quarter and exceed our sales guidance, as strong pricing and better volumes yielded better-than-expected 10% year-over-year organic ex-FX growth, and also delivered EBIT at the top end of our range.

04:51 Volume improved 1% year-over-year with positive contribution from three of four end-markets, for the fifth consecutive quarter. Growth was supported by ongoing recovery, as well as from share gains that we are driving across the portfolio.

These achievements reflect our customers' preference for our differentiated technologies and our nice recognition of the great work from our commercial teams across all of our business lines.

Axalta is committed to driving secular growth and we are making encouraging progress, a stronger share position has allowed us to better leverage our fixed cost position driving higher incremental margins, which will serve us well as markets continue to recover the pre-pandemic levels.

05:35 We realized a remarkable 9% price-mix in the quarter, up from a reported 3.6% last quarter, driven by pricing actions that we have continued to implement in order to offset the impact of cost inflation. Both segments have shown strong pricing gains from past quarters with Mobility Coatings reaching record quarterly percent growth.

While we are happy with our pricing progress the unprecedented rate of variable cost inflation was driven Q1 profitability well below our historical low-20s percentage adjusted EBITDA margin range.

New pricing actions are already underway to offset existing uncovered and anticipated further inflationary costs coming as a result of higher oil prices and tight supply-demand balances in many commodity chains.

06:25 We expect that our margins will begin to recover in the second quarter as we drive further price improvement and enhance our fixed cost leverage position. During the quarter, we also repurchased $175 million in shares.

At the current valuation we see tremendous value in our equity and we'll remain opportunistic as we prioritize capital deployment for generating meaningful shareholder return while balancing a conservative balance sheet. 06:51 Moving onto Slide four. Axalta occupies unique and highly profitable positions in the coating industry.

We're aligned with mega trends that we believe create a strong growth trajectory for years to come. However, supply chain challenges have drastically impacted global trade, constrained demand and reduced global GDP. Recent geopolitical dynamics have only increased the temporary strain on global operations and worse than short-term visibility.

While we continue to have strong conviction in our strategic ambitions and direction, the degree of macro uncertainty today makes it challenging to forecast beyond the near-term with high confidence. Therefore, we're only providing Q2 guidance today. 07:35 Nonetheless I continue to see strong underlying trends.

We're launching new innovative products every quarter and each business is making strong progress toward our growth ambition by executing on topline growth. In Refinish our highly profitable industry leading aftermarket Auto Coatings business, the team is delivering on several strategic imperatives.

First, increased market access, this quarter we won over 500 net body shops globally and well over 200 new stock point through distribution customers.

Second we're growing our premium market leadership, we are the leader with MSOs, who continued to be allocated more workflow from insurance companies in North America, as well as independent body shops. We are retaining and winning new customers each quarter as we capitalize on our unique customer value proposition.

Third, we continue to gain share in mainstream and economy segment, where we haven't had as large of historical presence. 08:38 The addition of new points of distribution is helping to build a sales pipeline in under-represented geographies and markets.

We have witnessed good growth progress and execution on all fronts this quarter as evident in our above market volume growth. Another area of focus is the integration of U-POL.

We are well underway in integrating the business and executing on cost synergies, but our true enthusiasm for the acquisition is centered around realizing commercial synergies, which we believe will further the U-POL value creation opportunity beyond what we previously communicated.

U-POL gains us exposure to adjacencies in the automotive, body repair business namely in fillers, putties, glazes and aerosols, where Axalta did not participate in a meaningful way. 09:27 Moving into these categories positions us to capture more repair dollars per vehicle.

We can also drive commercial synergies through maximizing the cross-selling of Axalta and U-POL products across our global customer base. We're already beginning to see the value creation play out as our distribution partners and key body shop accounts are beginning to stock U-POL products.

In addition U-POL gains us exposure to adjacencies in both consumer and industrial protective coatings. 09:58 In Industrial Coatings, we are driving organic growth in a constrained environment led by strong pricing gains. Industrial price-mix increased by a mid-teens percentage year-over-year and by a mid-single digit percentage sequentially.

A number of additional pricing actions were instituted in late Q1, which should sustain positive pricing momentum into the remainder of the year reporting a return to significantly higher profitability.

10:24 In Mobility Coatings, our industry-leading light-vehicle and commercial OEM business, we secured record pricing gains and outperformed the market from a volume perspective in Q1. Pricing momentum is building every month.

While we are negotiating better pricing we are also building a more inflation resilient portfolio by partnering with our customers to increase the percentage of Mobility customer contracts with indexed pricing mechanisms, now between 35% and 40% for the entire segment.

10:56 Recent share gains and light vehicle are driving above market growth and setting us up with the right customer mix -- when global production returns to normalized levels in the future. In commercial vehicle, we continue to hold the leadership position globally in heavy-duty truck market.

We are focused on pricing traction to help offset cost inflation and see strong market demand despite customer production constraints. Lastly, we're driving growth across all end markets with innovative and differentiated product offering.

Two new exciting product launches just received recognition with the prestigious 2022 Edison Award, which on are some of the most innovative product developments in the world.

Our patented Spies Hecker full waterborne repaired system technology was awarded bronze in Edison sustainability category and represents the first paint offering for the collision repair market where all coatings layers from primer to clear coat are water based.

11:59 This is truly sustainable solution provides best-in-class appearance and performance, while reducing solvent emissions by more than 60%. Next Axalta’s high resolution digital paint coating system won bronze in Edison's material science category.

This patent in coating technology supports the mass customization megatrend with a novel coating it can be applied with zero over spray and reduces energy consumption as well as waste generated from the masking process.

These are just two great examples of Axalta's innovation pipeline and product differentiation, which we are supporting customers productivity needs in sustainability ambitions, creating a large market pull for our offering. 12:44 Turning to Slide five and six for a discussion of key market and demand trends.

Vehicle miles traveled in the United States and Europe have nearly recovered to pre-pandemic levels, but changes in driving behavior, namely the prevalence of work-from-home, seems to have led to lower congestion levels and less collision claims than before the start of the pandemic.

Based on paint consumption data from our proprietary e-commerce platform we estimate Q1 body shop activity remained in the mid-80s% and low 90s% respectively for the US and Europe relative to 2019, consistent with the level of collision claims. 13:23 Within the quarter our U.S.

body shop customers reported a step-up in activity during March that we believe reflected some modest market improvement though remains constrained by a growing backlog of repair work given parts and labor shortages at the body-shop level.

We believe that return to in-person work is an important factor in driving market recovery and are encouraged by U.S. office occupancy, which improved from the low 20s% to 42% versus prior year. 13:55 In Industrial coatings, a healthy demand environment was again limited by supply constraints, namely in Building Products and General Industrial.

In total these constraints represented a mid-to-high single digit percent drag against our 1% volume growth in the period. Regionally North America and Asia Pacific contributed most significantly to our year-over-year growth.

14:19 Moving to Mobility Coatings, the expected normalization of global auto production rates in 2022 has been impacted by the Russia-Ukraine conflict, as well as China COVID-19 lockdowns, resulting in downward revisions of earlier production estimates.

Full-year 2022 global production industry estimates are now forecasted to be 80.6 million, 4% above 2021, but still 9% below pre-pandemic 2019 levels. 14:50 Once supply chain constraints and cost headwinds abate the benefit to Axalta will be significant.

This is highlighted by an approximately $140 million earnings gap between our trailing 12-month Mobility Coatings Adjusted EBIT and our pre-pandemic 2019 profitability levels, when global auto builds reached 89 million. We're not sitting still and waiting for the market to recover.

In the current environment we focus on what we can control, prioritizing productivity, better price to offset cost inflation, and new market gains. Following these actions, we expect to be in an even better position once supply chain constraints diminish and the market recovers.

15:36 In Commercial Vehicle, where we have an industry-leading share in North America and EMEA, strong demand is outpacing constrained production rates. Heavy-duty and medium-duty truck order backlog is now 11-months and eight months, respectively, creating a long-dated growth dynamic for production rates to climb beyond 2022.

15:56 Moving to Slide seven, I’ll cover price cost and our focus on margin recovery. First, I’d like to remind everyone that we have a successful history of managing inflationary periods and quickly recovering loss profitability, our business is resilient. We have the ability to increase price when it's needed.

16:15 From the chart on this slide you can get a sense of the pace of inflation we have experienced. Even though this inflationary period is uniquely rapid and broad-based, we are already making great progress towards offsetting the impact.

16:28 In Performance Coatings, we have been able to quickly raise price and have offset the majority of the $220 million cumulative year-over-year variable cost and logistics inflation incurred since the second of 2021.

In Mobility Coatings, lagging index pricing mechanisms in some contracts, and multi-quarter pricing discussions in others, mean we have begun to accelerate pricing.

Every business at Axalta is focused on margin recovery and we expect to cover the majority of existing price cost gaps and incremental headwinds by Q4 of this year at the consolidated level. 17:07 Before I turn the call over to Sean to discuss our financial results, I wanted to touch briefly on some ESG highlights from the quarter on Slide eight.

As you may remember we announced our 2030 ESG goals in January, which reflect how meaningful progress in environmental, social and corporate governance is central to Axalta’s strategy and success. We have already begun to execute against these goals and have engaged with many of our customers and other stakeholders to discuss our plans.

17:36 A major commitment is for us to develop new sustainable technologies and increase the proportion of our sales and sustainable solutions. As many of our mobility customers are rapidly shifting to produce more electric vehicles we're aligning our technology to support them and to drive growth in our own business.

Our new AquaEC Flex product for the mobility sector is a great example of our technology and innovation investments being deeply connected with key sustainability mega trends.

In addition to the two Edison Award products, I mentioned this product enables our OEM customers to reduce CO2 emissions in their own operations by lowering the temperatures required for an electric vehicles more intricate body frame. This is a great launch for us, well aligned with our ESG commitment.

18:25 Now I'll turn the call over to Sean to discuss our financial results beginning with Slide nine..

18:30 Thanks, Robert, and good morning. As you heard the first quarter delivered strong pricing execution with contributions from across the portfolio. Healthy demand environment supported volume growth, but the continuation of supply constraints was a headwind and also contributed to further challenges from cost inflation.

18:48 Net sales of $1.2 billion increased 10% year-over-year for the first quarter, while constant currency net sales increased 13%, driven by pricing actions, demand strength across most of our businesses, and benefits from two acquisitions we completed in 2021.

19:05 Constant currency net sales growth included a 19% increase from Performance Coatings and 3% growth from Mobility Coatings, reflecting Light Vehicle up 1% while Commercial Vehicle was up an impressive 10%.

First quarter volume improved 1% with positive contribution from three of four end-markets, offset by a low single-digits percent decline in Light Vehicle volumes, which outpaced the approximate 5% decline in global Q1 auto production.

19:34 Price-mix contribution increased 9% in the aggregate, up from our reported 3.6% last quarter, with improvement across all end-markets led by mid-teens improvement in Industrial Coatings. FX translation was a headwind of 3% for Q1, driven by the weaker Euro and Turkish Lira.

19:53 First quarter Adjusted EBIT was $120 million versus $183 million in the prior year quarter, reflecting pricing actions, strong demand, and volume trends across all end-markets except Light Vehicle, which was more than offset by substantial increases in raw material and logistics cost inflation realized versus the first quarter of 2021.

I did want to note that we took a $6 million accounting charge associated with accounts receivable and inventory obsolescence reserves, and these are excluded from our adjusted EBIT stemming from sanctions imposed on Russia. 20:28 Turning to Slide 10.

Performance Coatings Q1 net sales increased 15.1% year-over-year and 18.6% ex-FX, driven by 2.5% higher volumes, a 10.7% increase in average price-mix, up from the 4.6% reported last quarter, and a 5.4% increase from acquisitions.

20:50 Refinish reported a 15.6% net sales increase, or 19.7% ex-FX, driven by a high single-digit price-mix benefits, above-market volume growth, and by a high single-digit contribution from the U-POL acquisition.

Volumes increased in every region despite raw material supply impacting our ability to meet all of our demand with the exception of China, where COVID-19 lockdowns drove a modest volume decline.

21:17 Industrial Q1 net sales increased 14.5%, or 17.3% ex-FX, driven largely by mid-teens percent improvement in average price-mix, as well as a low single-digit acquisition contribution, and slightly positive volume growth.

Demand trends in most of the Industrial end-businesses we serve remained healthy during the period; though supply constraints were a limiting factor, representing a high-single digit percent drag on sales.

21:46 Performance Coatings reported Q1 adjusted EBIT of $95 million versus $117 million in Q1 2021, driven by ongoing volume growth and drop through benefits of price-mix, which were more than offset by headwinds from higher variable costs.

The adjusted EBIT margin for the segment decreased to 11.6% from 16.6% in the prior-year period given the drivers noted. 22:11 Moving to Slide 11. Mobility Coatings net sales increased 3% in Q1 ex-FX, including a 4.9% price-mix tailwind offset by 1.9% lower volumes.

The 1.9% volume decreases improved markedly from the 11% decrease last quarter thanks to stronger demand from our customer base, including new business starting to come on line. 22:35 Light Vehicle net sales increased 1% ex-FX in the quarter, including a 3.5% volume decrease, which outperformed a global auto production decline of approximately 5%.

Price increased by mid single-digits. Commercial Vehicle Q1 net sales increased 10% ex-FX, driven by strong truck production globally, excluding China. Price-mix also increased mid single-digits. 23:01 Mobility Coatings reported Q1 adjusted EBIT of $1 million versus $39 million in the prior year quarter.

Adjusted EBIT and associated margins in Q1 were impacted by variable cost inflation, with only modest offsets and positive pricing. Pricing gains are accelerating and we expect to cover the majority of incremental variable cost inflation between Q2 and Q4. 23:23 Moving to our debt and liquidity summary on Slide 12.

Axalta’s Q1 balance sheet and liquidity profile remained solid. We ended the quarter with slightly over $1.1 billion in total liquidity. Our net leverage ratio ended the quarter at 4.1 times, reflecting an increase from 3.5 times at December 31st.

Net leverage remains somewhat elevated due to the seasonal phasing of free cash flow and share repurchases totaling $175 million in the quarter. We continue to expect this to drop as we move to the back end of the year on stronger full-year operating results and normal free cash flow generation.

24:00 On Slide 13, we'll review Q2 guidance and full-year commentary. For the second quarter net sales we expect between 11% and 13% year-over-year growth, including a 4% FX headwinds and a 4% positive M&A contribution. The top line guide assumes low double-digit better pricing, continuing the acceleration of gains we've seen in recent quarters.

Our forecast also includes a 2% to 3% sales headwind from China COVID lock-downs and from the Russia-Ukraine conflict. 24:33 We expect to generate adjusted EBIT of $135 million to $165 million in the second quarter. With D&A of approximately $80 million inclusive of $24 million of step up D&A.

Interest expense for the quarter is anticipated to be approximately $34 million, where adjusted earnings per share we anticipate a range of $0.35 to $0.45 for the second quarter inclusive of an FX headwind of $0.02 per share. Within our second quarter forecast, we further assume raw material inflation in the high '20s as a percentage versus Q2, 2021.

25:11 As we look for the full-year, it remains challenging to provide a detailed forecast given the degree of supply chain and geopolitical uncertainty.

Nonetheless looking ahead, we expect strong mid-teens annual organic growth in both Performance and Mobility Coatings, driven by pricing actions already being executed and volume growth from modest market recoveries and share gains.

25:34 We are encouraged by refinish recovery given improved vehicle miles driven and upward trending office occupancy rates. But we remain measured in our outlook as we monitor the possible impacts from regional and global impacts from the conflict between Russia and Ukraine, as well as impacts from the extended COVID-19 lockdowns in China.

25:53 For mobility global auto build rates have been revised lower month-after-month by industry consultants and have settled close to our current 80 million production rate assumption, which is slightly above the 79 million we last forecasted.

At these levels, we expect to see annual volume uplift from market growth plus upside from new customer wins. Likewise global medium-duty and heavy-duty truck build rates are projected to increase 4% in 2022, ex-China with our commercial vehicle volumes likely to exceed market rates given our strong and growing positions.

26:28 Regarding cost factors, our current assessment is that rates of overall raw material and cost inflation will continue at high levels. Given current baseline expectations and assuming Brent crude between $110 and $115 per barrel.

We expect to largely cover the existing price cost gap and incremental headwinds this year with some lag in Mobility Coatings being offset by strength in Performance Coatings. Altogether, we anticipate stronger earnings performance this year versus 2021.

26:58 Lastly, our typical second half weighted distribution of operating cash flow and a favorable outlook for sequential earnings growth should reduce our net leverage considerably by year-end..

27:10 Thank you, Sean. It was indeed a remarkable quarter. Our teams delivered very strong organic growth and remain focused on driving margin recovery with additional pricing actions underway in every business. I believe that we are laying the groundwork to deliver substantial earnings growth as supply chain constraints wane and end markets recover.

27:32 With that, we'll be pleased to answer any questions. Operator, could you please open the lines for Q&A..

27:40 Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Chris Parkinson with Mizuho. Please proceed with your question..

28:09 Great, thank you so much. Robert your team is taking out a lot of cost over the years. I think most investors understand there -- obviously could be further volatility in variable costs.

But just -- could you just help us and perhaps Sean as well just how should we be thinking about the broad framework for incremental margins as volumes fully recover especially mobility and if you want to hit on the intermediate and the long term next one or two years that would be very helpful, thank you..

28:37 Chris, as we look at our cost structure as you point out, we've made great strides over the past couple of years, especially during the COVID period, where we took a lot of structural cost out of the business.

We now feel that we have the cost structure where we want it, and the biggest lever is really going to be the return of volume and leveraging our operating model. So as we see volumes come back and costs abate the drop-through will actually be very attractive for our business..

29:13 Got it.

And just a quick follow-up just -- relative to all of our own end market assumptions, can you just discuss Axalta’s ability to outperformance respective end markets starting with light vehicle, especially given some of your new business wins? And just perhaps obviously just a structural longevity as the refinish market and key themes of industrial that would also be particularly helpful, just so we can get a hand on the growth, I'll go over the next one or two years.

Thank you so much..

29:42 Yes, so if we look at things overall, I think we're seeing strong underlying market demand really across the board, within our different businesses and really the primary issue right now are just supply constraints as it is for everyone.

I mean within refinish market conditions continue to be supportive, but supply constraints are somewhat limiting our ability to fully serve demand. We do believe that there is recovery coming and we're starting to see that as office occupancy rates tick back up as we highlighted from the low-20% in the U.S.

last year or two 42% this quarter and that should lead to more congestion on the roads. So I think our expectation continues to be that we'll see the refinish market recover to pre-pandemic levels and we again remain very bullish on that business.

30:32 And I’ve highlight with the acquisition of U-POL we just have a wonderful opportunity to leverage our sales and distribution channels further by pushing additional products and services through existing sales and distribution channel. So that's also an added plus to the secular direction of the refinish business.

Within Industrial, very happy to see the strong sequential volume growth, as well as robust pricing gains that led to the 15% sales increase.

If we look at some of the markets within Industrial just in the first quarter Building Product sales were, up 22%; Energy Solutions sales were, up 25%; and General Industrial was, up 11% for the quarter versus the prior year.

So with that just highlights is that we're executing extremely well against our strategic plan, which was to accelerate growth in Building Products and Energy Solutions and further build out our platform in Energy Solutions, which we'll be talking more about in the future.

31:38 And with regard to Mobility, Mobility showing strong signs of return as we see sequential year-over-year volume improvement. Obviously, it's still early, but as global production improves and then also the new wins that we had last year and that we continue to generate this year come to fruition.

The one area to really highlight there is our sequential price improvement. And again, I would just highlight that in that business -- our business includes only exterior body paint as we define it.

But there are elements of the automotive business -- automotive OE business that actually reside within Industrial, where we had 15% price capture, therefore on a like-for-like basis with some of our peers, our actual price capture in Mobility was much higher..

32:33 Very helpful color. Thank you so much..

32:37 Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question..

32:44 Yes. Good morning and thanks for taking my question. So in the Mobility business you had commented you're about $140 million behind, kind of, where you were pre-COVID.

I guess can you help us to understand how much of that is volume driven? And how much of that is price versus raws as you're starting to, kind of, see the acceleration in pricing and starting to catch up, maybe how much of that we can narrow back down even without a recovery in the volumes? I guess, can you help us to think about that?.

33:14 Yes. John, it's probably 50-50 going back to 2019 levels, we are at 89 million builds. Certainly the controllable right now is catching up on price and clearly you saw that momentum pick up from fourth quarter of the first quarter, you're going to see it again essentially double in the second quarter, compared to the first quarter.

But once we get back to sort of that 89 million, 90 million builds, you know, coupled with the fact of pricing traction you're going to see the effect into Chris Parkinson's earlier question, the volumes are camouflage and all the progress we've made from a cost structure perspective, so it's really going to help margins when we get back to those levels..

33:53 Got it, got it. No, that makes sense. And then from a capital allocation perspective, so the buyback was kind of off the charts, at least relative to kind of how we were expecting things to play out at least in the quarter.

I guess can you speak to how much of that was just the buying opportunity just given how weak the stock had been earlier in the quarter versus how much is around your confidence and the ability to squeeze out more cash as the year goes on to kind of further, kind of, fill up or strengthen the balance sheet and get your kind of, cash flows back on track again? And can you help us to think about that?.

34:35 The magnitude of the buyout that you saw in the first quarter was really a reflection of how undervalued. We believe our equity was and as we’d always stated we would have a stock repurchase program that would offset dilution, plus an additional few percentage points each year.

However, we would remain opportunistic and if we ever really saw a dislocation in the intrinsic value of the company and the equity price that we would step in and step in strongly, and that's what you saw in the first quarter..

35:07 Yes. And John on your point on cash flow getting back on track. I mean 2020 we did over $440 million, last year we did $455 million. So we've been dropping through cash flow over 50% of EBITDA. So we're happy with the progress we're making, we're confident we're going to delever as long as we don't do anything big on the M&A front.

So we're -- again we're being opportunistic given where the share price sits in the first quarter, but we expect the normal seasonality of cash flow build in the back half of 2022..

35:37 Got it. Thanks very much for the color. Appreciate it..

35:42 Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question..

35:49 Hi, everyone. Good morning. This is actually Matt Krieger on the line, sitting in for Ghansham. My first question is obviously you delivered results that were ahead of your initial first quarter expectations.

But can you talk about some of the key variances relative to your initial guide that drove that? And how those variances have fared as we've moved into early 2Q?.

36:15 Yes. I mean volume was probably the bright spot on the light vehicle side, we had initially assumed 17 million global builds, IHS came in closer to 19.5 million builds and certainly, we benefited from outperforming the actual overall market.

We saw volume improvement also within the performance side of the business and then the other bright spot is clearly pricing we were initially expecting around 7% price, we got upwards of 9%, but that has actually offset the impacts that we saw with Russia and the China dynamics, as well as the fact that we saw incrementally about $20 million in variable logistics and variable raw material costs..

37:00 Yes, I would just add to what Sean said Matt to the second part of your question regarding April conditions. I think when you look at what we accomplished in the first quarter, it's really impressive, I mean we would have had a blow out quarter had we not had the incremental headwinds and approximately $22 million more in earnings.

And I think that's worth noting, but thus far in April top line sales conditions really appear to be similar to what we've seen on -- in the first quarter. And on the cost side, we're seeing oil trade slightly better than our guidance outlook, but the price does remain pretty volatile.

So that could be the other variable as we think about the second quarter. We're also closely monitoring the developments in the Russia-Ukraine situation in China, but really at this time April hasn't given us much of a reason to move guidance up or down at this point..

37:56 Great. That's definitely helpful.

And then just focusing on the bottom line here, can you provide some added detail on what a realistic timeline for price cost parity across your various business units might look like? And then expanding on that, what level of pricing do we need to see across your portfolio to offset the level of inflation that you're currently experiencing in the high '20s range? Is that mid-teens pricing, high teens pricing, 20% plus pricing flow through.

Give us a sense of what we should be looking for from that perspective?.

38:32 So if we hit average oil and there is not a perfect correlation with all the raw material baskets, but if average oil for 2022 is up around $115 per barrel, we're going to need to get almost 10% price to offset exiting 2021, we had roughly at $70 million gap including logistics.

We had called out roughly $50 million just raw materials, but we're solving for the full cost stack for the full-year..

39:01 Great. That's helpful, thanks..

39:07 Thank you. Our next question comes from the line of PJ Juvekar with Citi. Please proceed with your question..

39:15 Yes. Hi, good morning, you know, question on your industrial business, you got really good pricing there, volumes were a bit soft due to supply chain issues. So it seems like the underlying demand was still strong, but you had some -- the supply chain issues.

But the question on this underlying demand with Europe slowing down with the war and China shut downs recently with COVID, how do you see the underlying demand perform for rest of the year?.

39:46 I think is -- there is a question of underlying demand and then there's a question of what we're able to supply. And just given the mix of raw materials, as well as the overall volume of the Industrial business, that's really the inhibitor, PJ.

But if you look at the demand profile of the business, demand was exceptionally strong in North America in particular and we’d again we talk about each one of our unique businesses. We did see Building products, as well as energy solutions grow quite strongly and even Industrial -- general industrial being up being up 11%.

Could we see some softness in particular in the general industrial business in Europe, just given some of the pressures there? 40:36 Yes, we could see some softness there, I think it's too early to really tell, but I think the other -- each one of the regions is stronger and each one of the individual industrial segments.

So they do kind of balance each other out somewhat. And it's also just important to remember that it's a very highly fragmented customer base, so we are able to increase price. And it does also give us some insulation from some of those macro trends..

41:06 Great, thank you.

And can you talk about your battery coatings products for EVs at the PAT level? And what's in the pipeline there? And what would you say your market share is in that business?.

41:18 Let highlight that in particular, I know you're asking about batteries.

But we're really one of the top companies in the world when it comes to electric motors in our Energy Solutions business or Energy Solutions Coatings for which we've won multiple Technology Awards they're used in electric motors and vehicles, industrial applications, wind turbines, transmission towers, electrical conduits, but also fuel storage containers, battery trays, closures and covers.

And so we have now leveraged our Energy Solutions business to grow into battery cells, battery modules and battery packs. 41:58 Now that being said, we see a much larger opportunity in the global electrification market and we'll be talking about that more in the future.

And in terms of market share at this point, it's a nascent, but a quickly growing market share..

42:18 Thank you..

42:22 Thank you. Our next question comes from the line of Alex Yefremov with KeyBanc Capital Markets. Please proceed with your question..

42:30 Thank you. Good morning, everyone.

Robert you mentioned some new wins in Mobility, could you discuss how are you pricing those wins? Are they being done at margins sort of similar to what we see today in the segment? Or some normalized level of how you make sure that there is good return in capital for those new deals?.

42:51 Sure, at a variable contribution level we've been pricing all of our new business at what we have historically deemed to be attractive levels, and I would say that are reflective of current market conditions. And in particular the business that we have won in China has been at very attractive margins..

43:12 And Alex just on return on invested capital, I mean, we don't necessarily need to invest additional assets, I mean, we're essentially filling up our plants with the volume. So as far as the incrementals on those, they're also very attractive..

43:26 I mean that really just your question, I think the increasing sales in Mobility has really been through our technology, our customer intimacy and relationships and frankly our service. And our team in Mobility in particular in Asia has just been doing an outstanding job..

43:46 Thank you, very helpful. Turning to Refinish it sounds like your customers continue to pay shortages of materials and personnel.

Do you have any insight weather these issues are getting better not getting better? Or and what could be the pace of improvement here for the rest of the year?.

44:12 It does still remain an issue for body shops in particular in the U.S., anecdotally we have heard over the last month that it has been getting better, but again I would characterize that is anecdotal as opposed to data driven..

44:29 Got it. Thanks a lot..

44:34 Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question..

44:41 Yes, good morning, Robert in your prepared remarks, you referenced company stronger share position and you went on to allude to penetration in the economy segment of Refinish and it sounds like you picked up some share in Mobility.

Is there a way to size how much volume uplift you might be enjoying in those businesses or perhaps other businesses where you've gained share relative to underlying market growth?.

45:12 Well, I think we take a look at volume in particular and if we look at volume in the first quarter at least, our volume growth was the strongest in Refinish in particular in North America and Latin America followed by commercial vehicle in EMEA and Latin America.

And then industrial in North America and then as we've highlighted our light vehicle business in China. And our penetration, I think would have been even greater of we have had sufficient raw materials.

If you think about it, the lack of raw materials is kind of left us with a current backlog in Refinish and Industrial of approximately $50 million, which is about 4% of Q1 sales. So we actually had even more demand and potentially could have had even more share, if we have been able to get our hands on those raw materials.

46:09 So I think the team is doing a great job, not only in the Mobility business, but also in the Industrial business and in Refinish.

And in Refinish, as we've highlighted the mainstream in the economy segments have been areas of focus for us and we've made in particular good inroads there in Latin America with a new business model, as well as with China and U-POL only allows us to further leverage that position, because most of U-POL sales and distribution network goes to more mainstream and economy sites, which has allowed us from a cross-selling perspective to more deeply penetrate with our Refinish products, as well as getting our U-POL products into more of our distribution, as well as some of our larger body shops in Europe and in the US..

47:05 And then secondly, if I may, can you comment on what you saw in China in the first quarter in both here in auto and industrial businesses? And what was the trajectory as COVID re-surged in March into early April, curious as to your thoughts on the underlying economy there?.

47:30 I think when you look again at underlying demand in China, demand there has remained really strong. The lockdowns however have made it more challenging to service our customers, but our team there has been doing a great job keeping customers running, even if it's meant living at their sites, which they've voluntarily been doing.

So I think we feel really good about what's going on there. On the Mobility side, again, we’ve made some changes from an organizational perspective over the last 18-months, that have really helped us more deeply penetrate the market in particular with Chinese domestics, we've had a pretty significant amount of growth in China.

48:14 And then on the Industrial side, we've also brought in new talent over the past year with very specific domain expertise in the industrial markets that are the largest and play best with our technology portfolio in China and they've also made really, really good inroads.

Now in terms of the financial impact as we look at the quarter the COVID-19 lockdowns in China we saw really kind of create a relatively modest headwind in Q1. We expect it to be a little bit more material in Q2 with the shutdowns, so the April results we expect to be most impacted as the lockdowns are kind of in full swing in Shanghai.

But we expect the business should start to normalize in May, unless we see COVID spread to other areas and then our guidance assumption is kind of, if there is a full return to normal operations in June. If the lockdowns are lifted. So again all of that depends on the trajectory of where we go from here.

Again as a reminder, China is about 10% of our annual sales and we've assumed about a 1.5 month impact in the second quarter..

49:34 That's really helpful. Thank you, Robert..

49:40 Thank you. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question..

49:47 Thank you and good morning everyone. Just wanted to get a little more insight into the 35% to 40% of the index pricing, you have now, which is up from prior indication. Where are you looking to get that figure? And what is it that's driving those customers onto those contracts versus the ones that are staying often.

Is it new folks that are coming in where you have new wins? Or is it you're converting existing customers or both.

And as a follow-up to that, just when we get to a period of deflation, which hopefully eventually we will get to presumably those contracts will automatically reset on some timeframe, but then you'll be looking to hold on to price in the balance of the business.

Maybe just wanted to sort of get some insight into that interplay?.

50:39 The optimal level of -- I’d say the optimal level of index contracts is difficult to say, it's really more of a customer preference.

There are some customers that prefer to have an index contracts in place, it just makes the amount of time that we as well as our customers spend on price negotiations, run a lot more smoothly every, every customer is different and every purchasing organization within each OEM is different, some prefer not to have an index contracts and just to have price negotiations verbally.

So it's really more a function of what our customer preferences are. 51:19 Most of the contracts on average have about a six-month adjustment. So for example, July 1st we'll see an adjustment to the majority of the index contracts that will start to see that flow through at the beginning of the third quarter.

And then likewise, if you were to see raw material prices come down, you would see those prices come down six months later.

I think the important element to emphasize there is the through cycle profitability and so as we've structured these arrangements with our customers, we have tried to put them through the mid-point of the cycle on attractive level of profitability for us, which we think we've achieved in terms of how we've structured those contract.

And in particular, you know, versus the amount of value that we actually create for our OEM customers, which as you know is quite substantial..

52:13 And then maybe just a follow-up on U-POL, I think you've had the business since September and obviously it's been a tricky time with raw materials and pricing.

Have they been able to be as nimble as you've wanted them to be? Or if you had to come in with best practices or just how is pricing going with the acquisition?.

52:29 Yes. So, I mean as far as the integration activities are going very well, I mean we're essentially seven months into the journey right now. On the cost side, we only had roughly $10 million of synergies, we're well on track. We have targeted 12 to 18-months on that front. So we're in good shape on the cost side.

As far as the commercial synergies and Robert covered this a bit in his prepared remarks but we're making really good progress as far as integrating their commercial teams and really driving those efforts and actually seeing the progress.

The expectation pre-all the additional pricing we are expecting to do high-teens as far as growth rates and slightly higher than that from an EBITDA perspective.

With the additional pricing, we expect to be north of that, but I would characterize U-POL very similar to the overall Refinish with good pricing hour and we’ll make good progress on that front..

53:23 Great, thank you very much..

53:27 Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question..

53:33 Hey guys, good morning.

In terms of mobility you -- at the 80.6 million auto build outlook that you have for ’22, is there good improvement in the second half? Is pricing catches up? Or are we still sort of at this breakeven point given you gave us an outlook for the auto build?.

53:54 Yes, we will be making steady progress as we work through the year. We're expecting volumes to continue to pick up sequentially, coupled with the fact that pricing will start to outpace that the COGS inflation rates..

54:11 Got it. And then yes, no just as a quick follow-up on the business, there's not a lot of businesses I don't think that are kind of losing money in Coatings and I think that's probably for everybody. But is this a good business for Axalta longer term given how cyclical it's been.

I understand it's been kind of weird unprecedented times, but when you think about where you could redeploy potentially and I know timing is a bad? Is this something that you should hold onto or maybe the vast at some point and then invest in things in Performance Coatings, which is held up a lot better?.

54:50 I think to answer your question, we have to look at kind of the moment in history that we are right now, which is fairly, fairly unprecedented. I think if you take COVID and then on top of COVID, you ask -- you add massive cost inflation and then you add a semiconductor shortage and then on top of that, you add supply chain issues.

It does create a rather unique point in history that we would certainly hope would never be repeated.

As we think about the business over the longer term again, we think that over the next five years once those conditions ameliorate, we are going to see secular demand that is going to make this business an extremely strong performer within our portfolio.

The lack of inventory at OEMs at dealer life, the need of car rental companies to replenish their fleets, there's just a tremendous amount of secular demand.

55:51 In addition to the continued conversion from Ice vehicles to electric vehicles where we have additional content per vehicle that will also be an impetus and is the business changes in works, we also have some additional technologies, as well as some additional areas of market focus that we think are going to even improve potentially the margin profile of the business to that of a higher level than sort of the 2016, 2017 period.

So again, as far as Light Vehicle we do remain positive on that business. It's just a tough point in time when you have this many exogenous variables go against you..

56:32 And Mike, I just -- I did want to call out one point, because I think some folks lose sight of this, light vehicle is still EBITDA positive. EBIT has been impacted by all the depreciation and amortization from the carve-out from DuPont back in ’13, but it's still is generating cash and I did want to highlight that point..

56:51 Got it. Thank you..

56:55 Thank you. Our next question comes from the line of Mike Leithead with Barclays. Please proceed with your question..

57:02 Great, thanks, good morning guys. Just one from me, I wanted to circle back to John's earlier question on the buyback. Robert, you obviously talked about finding great value in your equity price in 1Q.

And when I just look at your current share price, it's maybe I don't know 10-ish percent below your average acquired price in 1Q? So should we expect healthy buybacks to continue into 2Q here?.

57:26 So we're not providing discrete guidance on that. I think we're going to remain opportunistic, we also are keeping an eye on M&A activities, as well as deleveraging over time. But it's certainly on the agenda that continue to look at..

57:44 I guess maybe a different way to come at it we have your average 1Q share diluted count. What did the quarter end that, I'm just trying to back into your 2Q shares outstanding guidance there? Thanks..

57:59 So we acquired 6.4 million shares, we got roughly a $4 million diluted average benefit in the first quarter and we're expecting Q2 guide to be at $2.22. I'm not sure if I answered your question precisely, there..

58:17 No, I think that's helpful. We can follow-up offline. Thank you..

58:22 Thank you. Our next question comes from the line of Joshua Spector with UBS. Please proceed with your question..

Good morning. This is Lucas Beaumont on for Josh. I just wanted to go back to the contract re-pricing in Light Vehicle if we could.

So could you tell us sort of roughly how much of your contracts have sort of been repriced already today? And how much you expect to be re-priced by the end of the year, please?.

58:46 The way to think about that is that the contracts vary and linked between three and four years. So in any given year there is about 25% to 33% of the contracts that are coming up for quote or for rebidding. So you have an built-in price adjuster of about a quarter of the business at least kind of every year as business is rebid and requited.

The other element to keep in mind is that the color palette of all so as you might have a given vehicle platform is there is a color change? Of course, you'll be repricing those colors at current economics..

59:29 Great, thanks. And then, so just thinking about if mobility markets going to fail to improve or end up remaining like a strain for a number of additional quarters. Do you guys have any like contingency plans, where you would think about taking any temporary or sort of permanent cost actions.

I guess how meaningful could that be? Or it gives you more, you would just wait it out until we sort of get through it? Thanks..

59:58 So at this point, you know, over the last two years, we've done a fair amount of reductions both structural, as well as holding on the -- some of the temporary savings. So unless we saw a significant demand destruction, I think we're in a pretty good place, right now it's just to focus on price.

And I think what you're going to see in the second quarter is a nice uptick and price realization to continue to help our margins..

60:28 Thank you. Ladies and gentlemen, thank you. This concludes our Q&A session and does concludes our call today. We thank you for your interest and participation. You may now disconnect your lines..