Ladies and gentlemen, thank you for standing by, and welcome to the Axalta Fourth Quarter and Full-Year 2018 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 replays will be available through February 6th. 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. I will now turn the call over to Chris Mecray. Please go ahead, sir.

Thank you, and good morning. This is Chris Mecray, VP of Investor Relations. We appreciate your continued interest in Axalta, and welcome you to our fourth quarter and full-year 2018 financial results conference call. Joining me today are Robert Bryant, CEO; and Sean Lannon, CFO. This morning, we released our quarterly financial results and posted a slide presentation in the Investor Relations section of our website at axalta.com, which we’ll 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. Please note that the Company is under no obligation to provide updates to these forward-looking statements. This presentation also contains various non-GAAP financial measures. In the appendix, we’ve included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. I will now turn the call over to Robert.

Good morning, everyone. Today, I am pleased to share with our financial results for the fourth quarter and full-year and key operational highlights and a few changes we will be making to our financial reporting basis in presentation, consistent with our evolution as a public company and based on shareholder feedback. Our fourth quarter results met our previously communicated ranges for 2018 guidance on both the top and bottom lines with fourth quarter organic net sales growth of over 2% and adjusted EBITDA of $235 million. We also exceeded our free cash flow expectations for the fourth quarter, which generated a full-year result of $362 million compared to our October guidance range of $330 million to $350 million. Customer demand and overall business trends remained generally consistent with our last quarterly update in October. We saw ongoing organic net sales growth in our Refinish and Industrial end markets, strong continued price recapture in Performance Coatings to offset input inflation and positive volume in North America Light Vehicles. We also saw the first reported quarter in over a year with positive price mix in transportation, which is the first step in showing progress on our global efforts to offset variable cost inflation in this segment. We anticipate ongoing stability in each of these looking forward into 2019. On the flip side, we've witnessed ongoing auto production slowness in China, as well as signs of reduced overall business activity in Europe. Overall, we’re satisfied with our 2018 results, especially considering the headwinds from inflation, foreign exchange, and Light Vehicle pricing. Some of these headwinds will persist including expected inflation impact to the P&L, at least through the first half of 2019. But, we are encouraged that we seem to be passed the peak [ph] some aspects of the inflation effect, while FX…

Thanks, Robert, and good morning, everyone. Turning to slide five, fourth quarter net sales before foreign currency impacts increased 2.7% year-over-year including 6.4% growth in our Performance Coatings segment and a decrease of 3.7% for Transportation Coatings. Acquisition contribution this quarter was 0.4%, as all 2017 acquisitions have now been fully lapsed. This fourth quarter result clearly represents two separate parts with negative volume of 2.1% largely driven by a decrease in Transportation Coatings and positive price mix contribution, driven presently by Performance Coatings. So, we note that our Light Vehicle end market and Transportation Coatings also reflected positive price mix in the quarter. FX translation shifted to a 2.5% headwind in the third quarter and remained largely consistent in the fourth quarter with the 3.3% impact with euro weakness versus the dollar still the primary driver coupled with continued weakness in a broad set of emerging market currencies. Fourth quarter, adjusted EBITDA of $235 million was in line sequentially with the third quarter and 4% lower than the prior year. Adjusted EBITDA margins decreased 70 basis points to 20.3% in the fourth quarter. The quarterly results reflect lower Transportation Coatings net sales, significant headwinds from input cost inflation, notable FX headwinds, higher overall inflation elements such as freight, logistics and packaging within other operating expenses, offset by positive progress in price mix in the quarter. Turning to slide six, Performance Coatings Q4 net sales increased 6.4% year-over-year excluding a 3% FX headwind. Constant currency growth was driven primarily by 6.5% increase in average price mix as well as 0.6% contribution from M&A. Refinish produced 6.3% constant currency net sales growth in the fourth quarter, driven principally by improved price mix in the period with product mix being a notable contributor to the results in this period. Axalta's Refinish end…

Thank you. At this time, we will be a conducting question-and-answer session. [Operator Instructions] Our first question comes from the line of John Roberts with UBS. Please proceed with your question.

Thank you. Robert, price mix was up 6.5% and auto refinish, I assume the raws are up similarly in the auto OEM coatings area or roughly approximate but I have a hard time seeing you get anywhere close to the amount of price in auto OEM that you've gotten auto refinish. So, do you need additional restructuring there to get your margins back in auto OEM rather than just price?

If we look at the margin profile of both of those businesses, obviously they are two very different businesses with different market characteristics and different market structures. In order to return to the peak profitability that we had before, we do need to continue to raise prices. We also need to continue our flow of new products for those customers and we need to continue to create value for our customers. From a pure cost perspective, we have taken several cost measures in that business. And we will continue to take cost measures in that business, as necessary, depending on the development of the market from this point forward.

And then, just as a follow-up. What was the FX headwind at the EBITDA level? A lot of your raws are linked to the U.S. dollar. So, I don't think you see as much of a benefit on the cost side when currency is unfavorable as you see a hit in the revenue side.

Yes. We haven't historically disclose the actual FX impact to the bottom line, but it's fair to assume the FX headwinds on topline fall through at a consistent margin from an EBITDA perspective.

Our next question comes from the line of Don Carson with Susquehanna Financial. Please proceed with your question.

I just want to go back to your inflation comments. So, overall, what was the inflation in raw materials in 2018, what are you expecting 2019? And I think you mentioned that it was industrial that you expect to close that price cost gap by midyear. Sort of on the transportation side, can you comment more specifically when you would see that price cost gap closing or do you think it can fully close?

So, on the first part of your question related to raw materials, as we highlighted, we saw low double-digit inflation on a year-over-year basis 2018 compared to 2017. Our current assumption, based on our outlook and current oil prices as well as other supply considerations is low single digits in 2019. Obviously, that can change and evolve as the year goes on and as we see price of oil move up and down as well as some of the other supply considerations. And then, regarding transportation margin in that business, our goal long-term is to get those margins back to where they were historically. Obviously, there are cycles that any business goes through, both from a demand perspective as well as from a raw material perspective. But at the end of the day, the important thing for us and for our customers is that we continue to innovate with our products and that we continue to innovate with our services. And if we do that, I'm confident that we will continue to be rewarded with an appropriate margin level in that business.

Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.

I was just wondering if you can maybe give a little bit more detail on the volume weakness that you saw in the refinish business. It sounds like you mentioned that was related to some caution among distributors. Just wondering where that was happening and if you're seeing some of the macro weakness maybe start to weigh on demand at the consumer level, maybe lower propensity to get repairs done, given some of the macro uncertainty.

Mike, we continue to see the global demand appears steady. But, there was a general lack of urgency at the distributor level that drove a slightly lower outcome in Q4. We see this as a normal quarterly fluctuation in the market but not really any change to underlying end-market demand. As we have highlighted, any given quarter, you can have movements up and down. In Axalta’s case in particular, particularly in North America, we did see slightly negative volumes due to slower mainstream and accessories sales, but we had strong pricing. And that led to a mid single-digit net sales result for that business. So, I think we are very happy with the results of that business globally as well as in North America. As an additional data point, a couple of our largest body shop customers did see volumes and net sales up in the fourth quarter. And we know that one of our competitors and an accessory supplier, have highlighted slower sales. However, we believe that this appears to be more related to channel inventory as opposed to any type of end market demand, at least from what we are seeing.

Thanks for that additional color. And then, also, just wondering if you can give us an update on what you've been seeing in the Industrial Wood Coatings business. I know that in China there have been some signs of slowing, but I think that business is primarily North American for you. Any update on that business?

As you point out, our business currently is defined in the Americas region. So, that’s predominantly the U.S. and Mexico. We did see -- due to some of the macro trends, we did see volumes pull up just a little bit within core markets in the U.S. but we did have wood price increases that continued as a lot of our contracts are largely indexed to raw materials. So, overall, we are quite happy with the result.

Thank you. Our next question comes from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.

Thank you. You hit on this a little on the volume side, but can you just give us a kind of a broader state of the union on Refinish, just breaking out kind of the price -- I guess, you're hitting volumes, but also market share trends, and whether or not you think there are any upcoming kind of structural changes in industry that we should be aware of? Thank you.

Chris, overall, we continue to see the Refinish market for us perform quite well. As you know, on a full-year basis, we had good sales growth, as I said, in the mid single-digit range. We saw stable market conditions overall. We continue to win shops and gain share in North America in particular and also in Europe. As we look forward in 2019, we’re expecting relatively stable markets around the world with growth in every region. The only two callouts there might be China and Latin America where we might see a little bit lower or I wish to say, more modest volume growth. But overall, if you look at the underlying dynamics of the Refinish business, we feel very good about that business and don't see any major changes occurring, at least at this juncture.

And once again, you mentioned this a little on the raw basket, but just can you hit on just a few product [Technical Difficulty] within the resin basket? Understanding there are few moving targets, just what do you see in the various regions in the epoxies, isocyanates and some of the inputs that caused issues and ‘18? And also, are you seeing any -- still seeing any residual effects from previous force majeures? Just any comment on that would be appreciated. Thank you.

So, for 2019, at least for the first quarter, resins overall, we expect to see our prices potentially be slightly down. It does vary whether we’re talking about epoxy or polyester whether talking about a epoxy or polyesters. But overall, the overall basket, we could see that be slightly down. In isocyanates, at least for the first quarter, we would expect prices to continue to be up, predominantly due to HDI. In solvents, if oil prices continue with their current levels, we would start to see some solvent -- our solvent prices come down a little bit given how closely related that is to price of oil. And then, for monomers, overall, we’re expecting our prices to be up. There are some products that could potentially be down, but when you look at the overall weighting of what's in their basket for us, the monomers category we expect to be up. With regard to pigments, pigments finally, which we do see some flattening in prices there, at least through the first quarter. And then, finally, in additives we see prices that we expect to continue to move up, predominantly due to tariffs and also China regulations.

Thank you. Our next question comes from the line of Robert Koort with Goldman Sachs. Please proceed with your question.

It’s Chris Evans on for Bob. You cited price mix benefits frequently in your prepared remarks. Just curious how much mix versus price did you see in the segments in the fourth quarter? And maybe, could you give a little bit more color on the origin or sustainability of this improved mix?

So, it was probably a 50-50 split between price mix; there was certainly richer mix on Refinish. And I think what we saw a little bit in the distribution behavior, some of their buying in the fourth quarter, they've got some of the priced product, which obviously impacted our mix benefit there and part of the reason why you saw volumes down a little bit in the distribution channel. But by and large, we’re not expecting a bigger mix shift year-over-year heading into 2019.

And then, maybe if you could reflect back on the net contributions you witnessed in 2018 from productivity and cost reductions? I'm just curious how relevant productivity might be in your 2019 guidance.

Our Axalta Way program continues to be an important element in terms of how we manage the Company and also the contributions that it makes from a financial perspective. We exceeded the $50 million in savings that we had projected to achieve in 2018. And as we look at the remaining $150 million in that program, we expect to see that somewhat ratably over the next three years, Chris.

Thank you. Our next question comes from the line of Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.

Yes. Thank you. Drilling in a little further on this price mix balance, is Refinish the business where you have the most potential to push mix, and how much longer term opportunity do you have there? Robert, you mentioned the new waterborne coatings or refinish coatings for Asia, how much of that market over there is still solventborne, and what kind of an opportunity longer term is that for you?

So, on the -- I'll take the second part of your question and I'll let Sean take the first part of your question. So, for China, as we look at that market, we expect to continue to see that market migrate over time from solventborne to waterborne technology. It’s still predominantly solventborne market. And given that the multinationals have the best waterborne technology, there are some locals that have waterborne technology but it’s not at the same level as the large multinationals. That would continue to be a benefit for Axalta as we move forward. Now, that being said, the premium end of the market in China, which is where we historically have been quite strong is one area of focus. The other area of focus is the mainstream and the economy markets where again we continue a strong push is those markets in terms of building out distribution, putting feet on the street and most importantly having the right products at the right price point and with the right positioning to meet the needs of our customers in those segments.

And I think mix longer term where we see global room for volume improvements, partially in the economy and mainstream space. So, we are not necessarily expecting retro mix over the long-term. But, when you go region by region and you look at the MSO space here in North America where they really value some of our more productive systems, you could see some richer mix coming through in 2019.

And then, just a question on your auto OEM business. How many employees do you have that are in these OEM paint lines? And when they slow, is that your cost burden to bear or are you directly compensated for those employees?

For competitive reasons, we don't want to provide too much information in that regard. But just generally, we have over 1,000 employees around the world that actually work on our OEM customer paint lines and/or involved in the support of those paint lines. As volumes come down, there are opportunities to pull back on that sales force or on that sales support area, if and when it was ever required.

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.

Robert, you and your competitor have had some destocking issues in the distributor channel in refinish. Where do we stand on distributor inventories today? And how do you get visibility for your planning purposes for demand from distributor channel?

It’s hard to have -- I mean, I think, as Axalta, we have pretty good visibility into how much product do we have with our distributors in general, not necessarily in each and every point of distribution that they have. That visibility we have. We don't necessarily have visibility into competitor levels or other products like accessories that are in those warehouses. When we visit, of course, we might happen to take a glance over and see how much inventory might be there. But for the most part, we don't have a lot of visibility about that overall from an industry perspective. What I would say from an Axalta perspective is last year, as you know, I should tell you in 2017, we made several changes there in adjusting many of our commercial policies, and that resulted in distributors carrying and pulling down inventory levels. So, at this juncture from an Axalta perspective, most of our distributors are carrying the amount of Axalta product that they need for the foreseeable future. Given some of those commercial changes as well as some of the limits that we’ve placed on the ability to pre-buy ahead of price increases, certainly that has ameliorated that aspect of the supply chain. However, if there is consolidation within distribution, that would be, I guess, the primary remaining element that could result at some point in the future in actual reduction in total inventory held for distribution. But I think again, the important thing here is to look at -- distribution is what happens in the middle. What happens at the end with the end consumer is what's most important for the long-term health of the business.

Thank you. And a question for Sean. Sean, as a new CFO, how do you think about your net leverage of 3.4 times? And we are late in the economic cycle, some economies have slowed down. So, what’s your comfort level in terms of leverage and what should we expect for 2019 in terms of buyback and share repurchases? Thank you.

So, today where we sit, we are very comfortable with the free cash flow profile and where leverage sits, where we are now targeting as 2.5 times. And so, we will continue to build cash. We are not necessarily looking to actively pay down debt. When you think about our overall debt profile we’re at slightly below 3.8%, so pretty healthy interest rate there. So, again, not a huge return by paying down debt. When we think about share buybacks, we did slightly over $100 million just in the fourth quarter. We’ll continue to be opportunistic but we're not going to set targets for 2019. We want to continue to remain -- flexibility and value all the potential items in the pipeline around M&A, internal projects as well as share buybacks from a capital deployment perspective.

Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

I just wanted to go back to the guidance range. I expect that you would probably narrow that as you go through the year, as you did in ‘18, but maybe can just help us confirm what would push you to the upper or lower end? I mean, is it fair to assume, given some of your comments on weakness arising in China and Europe recently that you are expecting now to be closer to the lower end? Also, is it fair to assume that volume is unlikely to surprise to the upside, so it would be more like price and cost that would be the main lever that would push you to the upside?

I think as always it's fairly consistent with prior years. The overall macro environment is certainly the most important variable from an overall demand perspective. Although it affects cost but it also affects volume and certainly the discussions that are ongoing with China and the trade discussions there. And I think if we see those get resolved favorably and quickly, we believe that we could see greater demand out of China across a multitude of product lines. The other element of course is always raw material inflation. We assumed a level of raw material inflation slightly above the current levels, at least from a Brent perspective, and then from an oil forecast and we've layered what we believe will continue to be some of the supply constraints, as well as the impact from at least Phase 1 of the tariffs. Now, if we go to Phase 2, of course, that could change things quite a bit. So, the overall raw material basket and then our ability to push through price increases to offset that if that's in excess of what we see in the budget, would be another element. And then, finally, the last element of course is foreign exchange.

And then, I also just wanted to touch on this, if you didn't already, if I missed it. But the cost reductions that you've targeted for 2019, is that $50 million, is there a potential that you could find more in case there is a greater slowdown to stay within your EBITDA range?

Yes. So, currently, we are targeting the $50 million, and that's largely offsetting inflation at this point. But if we see any sort of slowdowns or potential slowdown as far as getting price on the LV space, there's more potential opportunity we would aggressively go after.

Thank you. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed with your question.

In your sales guidance for 2019, you estimate 2% to 3% growth. I would expect that that would be oil price, and so your base case is that your volumes are flattish. Is that correct on a consolidated basis?

So, Jeff, it's primarily price, but there is an aspect of volume growth in there, modest, but there is an aspect.

So, in terms of the deployment of your cash flow, in 2016 and 2017, you really were pretty aggressive in making acquisitions. And then, when 2018 came along, there is something in the first quarter. But, there really hasn't been any acquisition since then, and you've really elevated your share repurchase outlays. Is that because the acquisition pipeline thinned out or acquisitions became more expensive, or was it that your own stock became more expensive -- more inexpensive and you wanted to be opportunistic? Can you talk about the shift in cash flow deployment?

Jeff, we continue to focus on M&A, both small bolt-on transactions as well as more transformative transactions. And we do have a good pipeline of deals. That being said, we have been selective in the transactions that we have pursued, and we've also been focused on integrating well the acquisitions that we’ve made thus far. So, we’ve been also pretty disciplined in terms of valuations, not the valuations have been unreasonable but a few of the major assets that have come to market in the past six to nine months, many of those have been in public auction or auction scenarios. And we felt that some of the prices that were required and some of the prices that were eventually paid for some of those assets, did not generate a return that we found satisfactory. So, I think we’re going to continue to be disciplined on capital deployment. The larger spend on our share repurchase program that really fundamentally is linked to the fact we had $675 million program, to-date we’ve purchased about $312 million against that. So, we did want to show progress on our share repurchase program. Especially given the lower stock price, it became very attractive to buy back our stock. And that’s the way that the share repurchase program was structured. It was structured to be highly opportunistic. So, we were offsetting dilution. But, if we did see the stock price go down, the share repurchase program would kick in and would accelerate the volume of purchases, which is exactly what the program did.

Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Robert, what are you seeing on your auto OEM price increases? And what's level of competitor support you are seeing in the marketplace?

What I’d say is we issued a press release towards the end of last year where we highlighted that we were going out to the market with price increases that we had made pretty much all of the efforts that we could make internally from a cost reduction perspective without starting to cut into muscle and bone in that business that would potentially compromise the long-term health of that business. So, I think we supported our customers by trying to rightsize our cost structure as much as we possibly could. But we reached a point where we had to go out with price increases. And so, that is indeed what we have done, and you start to see some of the results of that in our Q4 results and I’d expect that you would see that moving forward.

And just on Refinish, Robert, looking at your volumes, they were down in 2017; they were roughly flat in 2018. What's the level of confidence on actually growing volumes in Refinish in 2019?

Well, I think, big picture, you have to remember a couple of things, right. First, we are always working with our customers. I mean, it’s not about the volume of the paint; it’s about the value that we are creating in the net sales that we are generating. So, we are always working with our customers to help them use less paint and to make them more efficient, number one. Number two, as we continue to see this shift from solventborne to waterborne, waterborne just uses a lower volume and uses less paint than solventborne. So, structurally, you will see volume decrease slightly over time, just given the nature of the business. Now, we capture that through price and we also capture that and are more focused on capturing the service element of what we do, not only in OEM but also in the Refinish business. But, if we look at the customer wins that we've had around the world and if we look at the number of body shops that we have in Axalta network, and given some of the paint management systems in the color match systems that we have, we have pretty good insight to the number of shops that we are servicing. We've actually seen a net shop gain that is higher than stated of our competitors. And we have also experienced some important customer wins over the last 12 months that will begin to materialize in our numbers in 2019. So, I think overall, we feel very good about the Refinish business.

Thank you. Our next question comes from the line of Aleksey Yefremov with Nomura Instinet. Please proceed with your question.

Just to piggyback on the Refinish volume question. Thanks for the explanation, Robert. Maybe, is there a metric that would be used to assess sort of the underlying level of demand, other than the number of shops? Maybe is there -- do you have like a number of cars painted or something similar to assess the demand level?

Aleksey, this is Chris. There really isn’t a global metric that adequately captures the entire market. So, there's a hesitancy to provide something of that type for any given region that we might be able to source or capture because while that might be accurate for any given country, it really wouldn’t -- it really wouldn’t capture the global picture. So, we stay away from trying to quote specific market metrics because it could be misleading. It is a big global business; we sell into over 130 countries. We have a disparate business across both premium and mainstream products out there. But, what holds up and what's persistent is the growth in population, the growth in middleclass, leading to increased car park, leading to increased miles driven globally. So, there's a structural driver there, underlying everything else. So, all this discussion about waterborne versus solvent borne and other things within given markets is in that broader context of market growth.

So, maybe just to follow up again. Do you think the actual area painted by Axalta in the Refinish business, is it growing, flat declining?

Do you mean geographic area?

No. I mean, I don’t know, square feet of panels painted in 2018 versus ‘17 and so forth?

We wouldn't have visibility on a fine metric like that, but we do know for example that broader translate that removal of a bumper to repair lead to the painting of the entire bumper whereas years ago it might just bang out a dent and paint that section. So, there are some things like that that happen in the market. But no, we don't have fine point metric like that to capture.

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

I guess, just a quick question on Industrial. Obviously, volumes were positive during the fourth quarter, which is encouraging, given just what we've seen from the macro standpoint. Did you see any deterioration towards the end of the quarter as customers perhaps scale back on inventories? Just give us some more context on how volume stays for that business during the quarter.

We have to remember that Industrial for us is -- it's a multitude of markets; it's wood; it's coil; it’s energy solutions; it’s our general industrial business; it's powder coating. So, it does vary a little bit by market. So, one business where we did see a little softening through the quarter was in the North America wood business for us. That would be the main area that I think we would call out and highlight. But again, as we've mentioned before, our Industrial business, even though it's a $1.2 billion to $1.3 billion business for us globally, given the size of the addressable market, we still have a lot of room to grow. And we have a very good team that’s executing extremely well. So, I think our general outlook on Industrial continues to be quite positive.

And then, just to clarify Sean's point on 2.5 times net-debt-to-EBITDA being the target from a balance sheet standpoint. Should we interpret that as the priority for ‘19 being debt paydown or is that sort of a longer term target and we should still expect M&A and sort of share buybacks as the year unfolds? Thanks so much.

Unfortunately, debt paydown won't help us with our net leverage ratio, only with the gross leverage ratio. So, I think what you would expect to see there is, given how lower cost of debt is, it doesn't really make a lot of sense to pay down gross debt in this environment. It makes more sense to build up cash and then selectively deploy that cash to the highest return projects across the Company. That being said, if we do see rates move up more considerably, I’d remind everyone that we are fairly significantly hedged, we are capped out across the majority of our debt portfolio. So, we are in a very good position. So, we wouldn’t expect to do much debt paydown in 2019, unless, again we were to see a spike in rates or a dramatic change in the macro environment. When you look at something like interest rate coverage, we are in a very, very healthy position, even when you run certain downside scenarios on the business. That being said, if there are momentary aberrations in the debt markets where we have the opportunity to do something creative and potentially bring down our gross debt level, we will take advantage of those.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

A question on Europe. Obviously, the WLTP situation is sort of shading volume there. Do you have any sense when that sort of expires and runs its course, what do you think the underlying volume trends are going to be like in that market in 2019?

If you look at Europe overall for 2018, at least according to HIS, from a build or production perspective, the market was down about 1% -- about 1.2%. And I think the current forecast that they have Europe is to be flat on the year at 0%, and embedded in that assumption is the belief that WLTP will work its way through the system. And then as it does, you will see production return to more normal rates unaffected by WLTP. That being said, I think with all the activities, the macroeconomic environment in Europe today, I think our view on at least light vehicle in that market and also commercial vehicle for 2019 is fairly cautious at this point.

If I could just ask a follow-up, Robert, when you talked about changing the -- you are going to show EBIT instead of EBITDA, did you say -- I thought you maybe said something about that you are going to change the way you add back incentive comps. So, in another words, maybe you are not going to add back stock-based compensation anymore. Was that correct?

So, that’s accurate. Robert also commented on the fact that we are changing our incentive compensation target internally for management to align with our externally reported numbers. But you're exactly right. Stock-based compensation will no longer be added back for EBIT reporting going forward.

Our final question for this morning will come from the line of Duffy Fischer with Barclays. Please proceed with your question.

First question on the P&L. SG&A was down almost 25% in Q4. What were the drivers there? And can we extend those lower levels going forward into this year?

So, Duffy, two points to get back to apples-to-apples. So, in 2017, there was about $43 million in that related to severance and one-time elements around the merger and acquisition talks with Akzo and Nippon. And then, there was an $18.7 million reclass out of SG&A up in the COGS in 2018. So, that drives your entire difference between ‘17 and ‘18. So, you roughly have a flat ‘17 versus ‘18 comparison when you normalize for those. But as far as extrapolating the results for fourth quarter, yes, I mean, that should be a normal run rate as a percentage of net sales.

And then, if you go to the cash flow statement, the prepaid expenses in other line has eaten roughly almost $250 million in cash over the last two years. Should we think about that as coming back in cash at some point getting released or is that more like an investment that we should think about that earning 10%, 12%, 15%, and so that's actually now running through the P&L today?

So, what you're seeing in that line item are these upfront customer incentive payments that we talked about at length last quarter. You saw an uptick from the run rates. Historically, it’s been running around $80 million. You saw a bigger uptick this year because of a few bigger customers where we gave the incentives too. But, as far as the cash coming back -- and that will be coming in through price, over time; it won't be coming through that line, but it will be coming back through AR collections as we get more price with those customers.

Ladies and gentlemen, that does conclude our question-and-answer session. I'll turn the floor back to Mr. Bryant for any final comments.

Thank you everyone for joining today. I appreciate your interest in Axalta and look forward to talking with you again when we have our Q1 results.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.