Axalta Releases Fourth Quarter and Full Year 2023 Results

PHILADELPHIA, Feb. 08, 2024 (GLOBE NEWSWIRE) -- Axalta Coating Systems Ltd. (NYSE:AXTA) (“Axalta”), a leading global coatings company, announced its financial results for the fourth quarter and full year ended December 31, 2023.

Fourth Quarter 2023 Highlights

• Net sales increased 4.9% year-over-year to $1.3 billion
• Net income increased $30 million year-over-year to $74 million and Adjusted EBITDA increased $43 million year-over-year to $251 million
• Adjusted EBITDA margin improved 250 basis points year-over-year
• Cash provided by operating activities of $286 million and Free Cash Flow of $254 million
• Paid down $55 million of principal on term loan and refinanced 2025 senior notes extending maturity to 2031
• Net Leverage Ratio of 2.9x, lowest in company history at year-end

Fourth Quarter 2023 Consolidated Financial Results

Fourth quarter 2023 net sales increased 4.9% year-over-year to $1.3 billion. The increase in net sales was driven by a 2.3% foreign exchange benefit, 1.7% improvement in volumes, and 0.9% price-mix growth.

Net income increased 68% year-over-year to $74 million versus $44 million in the prior-year period. The increase in net income was driven by significant earnings improvement in both segments. Net income benefited from pricing actions executed throughout the year, positive mix impacts and variable cost deflation, partially offset by higher productivity investments and higher variable labor expense. Adjusted EBITDA improved to $251 million compared to $208 million in the fourth quarter of 2022. Adjusted EBITDA margin of 19.3% improved by 250 basis points compared to the prior-year period. Diluted earnings per share of $0.33 compared to $0.20 in the prior-year period, while adjusted diluted earnings per share improved by 13% to $0.43 compared to $0.38 in the same period last year in spite of a higher effective tax rate and interest expense.

Fourth quarter 2023 cash provided by operating activities was $286 million versus $246 million in the prior-year period with free cash flow totaling $254 million compared to $206 million in the same period last year. The year-over-year increases were driven primarily by working capital benefits.

Cash and cash equivalents at year end were $700 million and total liquidity was $1.2 billion. The net debt to trailing twelve month (“LTM”) Adjusted EBITDA ratio (total net leverage ratio) was 2.9x at quarter-end versus 3.8x as of December 31, 2022. In the quarter, an additional $55 million of term loan principal was paid down, contributing to the $200 million of gross debt reduction for full year 2023.

Discussion of Segment Results

Performance Coatings fourth quarter 2023 net sales were $849 million, up 3.7% from the prior-year period driven by strong price-mix in both end-markets. Refinish volumes were up modestly year-over-year against a stable market environment. Industrial volumes were lower year-over-year as stable volumes in Europe were more than offset by soft macroeconomic conditions in North America, particularly in construction markets.

The Performance Coatings segment generated Adjusted EBITDA of $192 million in the fourth quarter compared to $169 million in the prior-year period, with associated margins of 22.6% and 20.6%, respectively. The increases in segment Adjusted EBITDA and Adjusted EBITDA margin were driven by better price-mix and variable cost deflation, which more than offset higher labor expenses and lower Industrial volumes.

Mobility Coatings fourth quarter 2023 net sales were $449 million, up 7.3% from the prior-year period. Growth was driven predominantly by strong volumes with improvement in all regions. Price-mix was lower year-over-year from lower mix plus an unfavorable comparison given a one-time pricing benefit recorded in the prior-year period. Light Vehicle volume growth exceeded global auto production, especially in China. North America Commercial Vehicle class 8 production was down 7% year-over-year.

The Mobility Coatings segment generated Adjusted EBITDA of $59 million in the fourth quarter compared to $39 million in the prior-year period, with associated margins of 13.2% and 9.4%, respectively. The increases in segment Adjusted EBITDA and Adjusted EBITDA margin were driven by improved volumes and raw material deflation.

Fiscal Year 2023 Consolidated Financial Results

Full year 2023 net sales increased 6.1% year-over-year (5.6% excluding foreign currency translation) to $5.2 billion. Net income totaled $269 million versus $192 million in 2022. The increase in net income was driven by strong price-mix growth and variable cost deflation offset partially by higher labor expense, costs related to productivity investments plus increased interest and tax expenses. Adjusted EBITDA improved to $951 million from $811 million in fiscal year 2022. Adjusted EBITDA margin of 18.4% improved by 180 basis points year-over-year with solid contributions from both segments. Diluted earnings per share of $1.21 compared to $0.86 in 2022, while adjusted diluted earnings per share for 2023 improved by 6% to $1.57 compared to $1.48.

Fiscal year 2023 cash provided by operating activities was $575 million versus $294 million in the prior year driven primarily by working capital benefits and improved earnings. Free cash flow totaled $447 million compared to $163 million in 2022, an increase of $284 million. On October 2, 2023, we completed the acquisition of Andrè Koch AG and the results of the business are reported within Axalta's Performance Coatings segment.

“We finished the year out strong and intend to build on this momentum in 2024,” said Chris Villavarayan, Axalta’s CEO and President. “2023 was a transformative year. We took decisive action to fully offset lingering inflationary headwinds and as a result achieved record sales and Adjusted EBITDA. We believe we are only just beginning to unlock the potential of this enterprise.”

Reporting Changes

Beginning with the fourth quarter 2023, we replaced Adjusted EBIT with Adjusted EBITDA as one of the primary performance metrics, with Adjusted Diluted EPS remaining as the other primary performance metric. Reconciliations are provided for Adjusted EBITDA and Adjusted Diluted EPS as well as Adjusted EBIT to the most directly comparable financial measures calculated in accordance with US GAAP. In addition, Axalta replaced Adjusted EBIT with Adjusted EBITDA as the primary measure of segment operating performance. More information can be found below in the section titled “Segment Financial Measures.”

Financial Guidance

First Quarter 2024 Outlook:

• Net Sales: Flat Year-Over-Year
• Adjusted EBITDA: ~$240 million
• Adjusted Diluted EPS: ~$0.40

Full Year 2024 Outlook:

LSD = low-single-digit

Axalta does not provide a reconciliation for non-GAAP estimates for Adjusted EBITDA, Adjusted Diluted EPS, Free Cash Flow, and tax rate, as adjusted, 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. See “Non-GAAP Financial Measures” for more information.

Conference Call Information

As previously announced, Axalta will hold a conference call to discuss its fourth quarter and full year 2023 financial results on February 8, 2024 at 8:00 a.m. ET. The dial-in phone number for the conference call is +1-201-689-8560. A live webcast of the conference call will also be available online at www.axalta.com/investorcall. For those unable to participate, a replay will be available through February 15, 2024, with a dial-in number of +1-412-317-6671 and pin: 13743605.

Public Dissemination of Certain Information

We intend to use our investor relations page at ir.axalta.com as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the U.S. Securities and Exchange Commission’s (the “SEC”) Regulation Fair Disclosure (or Reg. FD). Investors should routinely monitor that site, in addition to our press releases, SEC filings and public conference calls and webcasts, as information posted on that page could be deemed to be material information.

Cautionary Statement Concerning Forward-Looking Statements

This release 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, but not limited to, our outlook and/or guidance, which includes net sales growth, Adjusted EBITDA, Adjusted Diluted EPS, Free Cash Flow, depreciation and amortization (“D&A”), step-up D&A, tax rate, as adjusted, diluted shares outstanding, interest expense and capital expenditures. Axalta has identified some of these forward-looking statements with words such as “intend,” “potential,” “believe,” “guidance,” “outlook,” and “projection,” 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, as well as impacts from operational disruptions related to our ERP system implementation, that may cause its business, industry, strategy, financing activities or actual results to differ materially. 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 Quarterly Report on Form 10-Q, and in other documents that we have filed with, or furnished to, the SEC. 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. Final results for the full year, which will be reported in our Annual Report on Form 10-K for the year ended December 31, 2023, may vary from the information in this release. In particular, until our financial statements are issued in our Annual Report on Form 10-K, we may be required to recognize certain subsequent events (such as in connection with contingencies or the realization of assets) which could affect our final results.

Non-GAAP Financial Measures

The historical financial information included in this release includes financial information that is not presented in accordance with generally accepted accounting principles in the United States (“GAAP”), including Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, total net leverage ratio, adjusted net income and Adjusted Diluted EPS. 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 otherwise 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 common shareholders 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 Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, total net leverage ratio, adjusted net income and Adjusted Diluted EPS may differ from that of others in our industry. Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, total net leverage ratio, adjusted net income and Adjusted Diluted EPS should not be considered as alternatives to net sales, net income (loss), income (loss) from 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. Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, total net leverage ratio, adjusted net income and Adjusted Diluted EPS 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 release 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 Adjusted EBITDA, Adjusted Diluted EPS, 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 GAAP results.

Constant Currency

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

Segment Financial Measures

The primary measure of segment operating performance is Adjusted EBITDA, 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.

About Axalta Coating Systems

Axalta is a global leader in the coatings industry, providing customers with innovative, colorful, beautiful and sustainable coatings solutions. From light vehicles, commercial vehicles and refinish applications to electric motors, building facades and other industrial applications, our coatings are designed to prevent corrosion, increase productivity and enhance durability. With more than 150 years of experience in the coatings industry, the global team at Axalta continues to find ways to serve our more than 100,000 customers in over 140 countries better every day with the finest coatings, application systems and technology. For more information visit axalta.com and follow us @axalta on Twitter.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods presented (in millions):

The following table reconciles net income to adjusted net income for the periods presented (in millions, except per share data):

The following table reconciles cash (used for) provided by operating activities to free cash flow for the periods presented (in millions):

The following table reconciles income from operations to adjusted EBIT and segment adjusted EBIT for the periods presented (in millions):

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods presented (in millions):

Released February 8, 2024