Axalta Coating : Q4 2021 Results Presentation (opens in new window)

Q4 & FY 2021 Financial Results

January 31, 2022

Legal Notices

Forward-Looking Statements

This presentation and the oral remarks made in connection herewith may contain certain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 regarding Axalta and its subsidiaries including our outlook and/or guidance, which includes net sales growth, currency effects, acquisition or divestment impacts, Adjusted EBIT, Adjusted diluted EPS, interest expense, income tax rate, as adjusted, free cash flow, capital expenditures, depreciation and amortization, diluted shares outstanding and various assumptions noted in the presentation, the effects of COVID-19 on Axalta's business and financial results, our and our customers' supply chain constraints and our ability to offset the impacts of such constraints, the timing or amount of any future share repurchases, contributions from our prior acquisitions and our ability to make future acquisitions. Axalta has identified some of these forward-looking statements with words "believes," "expects," "assumes," "estimation," "likely," "outlook," "forecasts," "may," "will," "should," "plans," "planned," "guidance," "to be," "call for," "goal," "could," "anticipated," "assumptions," "looking ahead," "we look," "view," "assessment," and "we see" and the negative of these words or other comparable or similar terminology. All of these statements are based on management's expectations as well as estimates and assumptions prepared by management that, although they believe to be reasonable, are inherently uncertain. These statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of Axalta's control, including the effects of COVID-19, that may cause its business, industry, strategy, financing activities or actual results to differ materially. The impact and duration of COVID-19 on our business and operations is uncertain. Factors that will influence the impact on our business and operations include the duration and extent of COVID-19, the extent of imposed or recommended containment and mitigation measures, and the general economic consequences of COVID-19. More information on potential factors that could affect Axalta's financial results is available in "Forward-Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" within Axalta's most recent Annual Report on Form 10-K, and in other documents that we have filed with, or furnished to, the U.S. Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021. Axalta undertakes no obligation to update or revise any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The historical financial information included in this presentation includes financial information that is not presented in accordance with generally accepted accounting principles in the United States ("GAAP"), including constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt, Adjusted net income, Adjusted EBITDA to interest expense coverage ratio, Adjusted EBIT margin and net leverage. Management uses these non-GAAP financial measures in the analysis of our financial and operating performance because they assist in the evaluation of underlying trends in our business. Adjusted EBITDA, Adjusted EBIT and Adjusted diluted EPS consist of EBITDA, EBIT and Diluted EPS, respectively, adjusted for (i) certain non-cash items included within net income, (ii) certain items Axalta does not believe are indicative of ongoing operating performance or (iii) certain nonrecurring, unusual or infrequent items that have not occurred within the last two years or we believe are not reasonably likely to recur within the next two years. We believe that making such adjustments provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period-to-period basis. Adjusted net income shows the adjusted value of net income (loss) attributable to controlling interests after removing the items that are determined by management to be items that we do not consider indicative of our ongoing operating performance or unusual or nonrecurring in nature. Our use of the terms constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt, Adjusted net income, Adjusted EBITDA to interest expense coverage ratio, Adjusted EBIT margin and net leverage may differ from that of others in our industry. Constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt, Adjusted net income, Adjusted EBITDA to interest expense coverage ratio, Adjusted EBIT margin and net leverage should not be considered as alternatives to net sales, net income, income before operations or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt, Adjusted net income, Adjusted EBITDA to interest expense coverage ratio, Adjusted EBIT margin and net leverage have important limitations as analytical tools and should be considered in conjunction with, and not as substitutes for, our results as reported under GAAP. This presentation includes a reconciliation of certain non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP. Axalta does not provide a reconciliation for non-GAAP estimates for constant currency net sales growth, Adjusted EBIT, Adjusted EBITDA, Adjusted diluted EPS, income tax rate, as adjusted, or free cash flow on a forward-looking basis because the information necessary to calculate a meaningful or accurate estimation of reconciling items is not available without unreasonable effort. For example, such reconciling items include the impact of foreign currency exchange gains or losses, gains or losses that are unusual or nonrecurring in nature, as well as discrete taxable events. We cannot estimate or project these items and they may have a substantial and unpredictable impact on our US GAAP results.

Constant Currency

Constant currency or ex-FX percentages are calculated by excluding the impact the change in average exchange rates between the current and comparable period by currency denomination exposure of the comparable period amount.

Organic Growth

Organic growth or ex-M&A percentages are calculated by excluding the impact of recent acquisitions and divestitures.

Segment Financial Measures

The primary measure of segment operating performance is Adjusted EBIT, which is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts and prior year financial results, providing a measure that management believes reflects Axalta's core operating performance. As we do not measure segment operating performance based on net income, a reconciliation of this non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP is not available.

Defined Terms

All capitalized terms contained within this presentation have been previously defined in our filings with the United States Securities and Exchange Commission.

Rounding

Due to rounding the tables presented may not foot.

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Q4 & Full Year 2021 Highlights

Fourth Quarter 2021

• Net sales increased 5.8% year-over-year to $1,137 million with continued growth from three of four end-markets; ongoing Performance Coatings growth including fifth consecutive quarter of year-over-year Industrial end-market growth, partly offset by continued OEM production constraints from supply shortages in Mobility Coatings
• • Performance Coatings price-mix +4.6%; Mobility Coatings price-mix +1.7%
• Income from operations of $95 million versus $163 million in Q4 2020; Adjusted EBIT of $121 million decreased 41.1% from Q4 2020 including substantial cost inflation impact in addition to Mobility volume headwinds
• Diluted EPS of $0.23 versus $0.30 in Q4 2020; Adjusted diluted EPS of $0.30 versus $0.58 in Q4 2020
• Strong cash flow from operations of $269 million; Liquidity of ~$1.4 billion at December 31, 2021
• Repurchased 1.0 million shares of common stock totaling $30 million at $30.94 average price per share

Full Year 2021

• Net sales of $4,416 million increased 18.2%; increased 14.5% ex-FX and M&A with substantial growth across all end-markets though Mobility Coatings substantially impacted by OEM production constraints
• Income from operations of $462 million versus $306 million in 2020; Adjusted EBIT of $623 million increased 16.1% from 2020 despite substantial cost inflation impacts year-over-year
• Diluted EPS of $1.14 versus $0.52 in 2020; Adjusted Diluted EPS of $1.67 versus $1.33 in 2020
• Cash flow from operations of $559 million versus $509 million in 2020
• Free cash flow of $455 million in 2021 versus $442 million in 2020
• Repurchased 8.2 million shares of common stock totaling $244 million at $29.58 average price per share
• Completed two M&A transactions for combined investment of $649 million

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Business Conditions, Inflation and Offsets

Business Conditions

• Continued global recovery in Refinish demand drivers, including traffic and body shop activity, but tempered by supply constraints; net sales volumes in Q4 remain below 2019 levels by high single digits
• Strong continued growth in Industrial, despite ongoing material supply constraints during Q4; overall demand strong across all Industrial end businesses
• Mobility Coatings seeing strong underlying market demand, but volume has been negatively impacted from ongoing semiconductor shortages

Inflation and Offsets

• Raw material inflation intensified in 2021; 15% variable cost inflation for full year, 24% in Q4
• Offsets via pricing actions taken: +3.6% price-mix in Q4 and +4.0% for full year 2021
• • Performance Coatings largely offset full year inflation with price actions; Mobility Coatings price-cost gap remains as of year end but ongoing price actions expected to continue to gain traction in 2022
• Focus on implementing structural cost control; achieved more than $50 million in full-year Axalta Way cost savings to help offset inflation in 2021

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Axalta's ESG Program

Progress To Date

• Initial Sustainability Report in 2013
• First set of sustainability goals developed in 2017
• ESG Steering Committee established and updated materiality assessment(1) conducted in 2021
• Solid ESG scores across key benchmarks, including ISS, MSCI, CDP, Sustainalytics
• Named one of America's Most Responsible Companies by Newsweek in 4Q 2021

Establishment of New Goals

• Materiality assessment conducted, incorporating key sustainability frameworks including SASB, GRI, and
  TCFD
• Internal and external stakeholders consulted, including customers, investors, suppliers, board members, community and local government leaders, and company executives

2030 Goals Highlights

• 2040 carbon neutral goal is one decade ahead of the deadline set by Paris Agreement
• Alignment of technology development and innovation investment to help customers accelerate their own sustainability initiatives and achievements
• Focus on our people via Diversity & Inclusion, safety, and employee development commitments

(1) Axalta's ESG materiality assessment was intended to discern the matters that our stakeholders believe are significant to Axalta; these matters may not be material from a financial perspective

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