Good morning. This is Chris Mecray Vice President of Investor Relations. Thank you for joining the call today to review our Third Quarter 2019 Financial Results and for your interest in Axalta. Joining me today are Robert Bryant, CEO; and Sean Lannon, CFO. We released our financial results this morning and posted a slide presentation to the Investor Relations section of the 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 a 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. The 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'll now turn the call over to Robert.

Good morning and thank you for joining us. Axalta delivered a strong third quarter with adjusted EBIT, adjusted EBITDA, adjusted EPS, and free cash flow well ahead of expectations. We overcame important macroeconomic, political, and currency headwinds as well as the distraction caused by a strategic review process, which underscores the resiliency of our business model, our multiple value levers, and the commitment of our employees. Though net sales were impacted by volume headwinds across global markets where Axalta participates, Axalta's sales were still positive in the aggregate before FX and divestiture-related impacts. Operating profit and earnings per share both showcased solid execution and the benefit of continued margin recovery from pricing actions across most businesses and end markets and year-over-year operating cost reduction driven by our continual focus on Axalta Way. Free cash flow also improved notably from the prior year quarter. Axalta's review of strategic alternatives initiated in the June is also progressing. We do not have any incremental news to share with you today, but we will provide updates to the market as circumstances warrant. Turning to Slide 3, let's review a few operating highlights for the quarter. Consolidated organic and constant currency net sales were stable in Q3 in fact increasing 0.4%. This growth outcome included ongoing favorable price-mix effects of 3.8% this quarter which included some of the best improvements we have seen in any quarter as a public company. Performance Coatings' net sales increased 0.7% before foreign currency and M&A-related impacts. Transporting Coatings' net sales were flat ex-FX, reflecting lower Light Vehicle production volumes, offset by volume growth in our Commercial Vehicle end market. Price-mix in Light Vehicle continued to show positive gains with an increase of 2.8% as we made ongoing progress with multiple OEM customers to offset persistent and ongoing raw materials…

Thanks, Robert and good morning. Turning to slide 4, consolidated constant currency net sales decreased 1.4% year-over-year, including a 2% decrease in Performance Coatings and a flat result in Transportation Coatings. Excluding net negative divestiture-related impacts consolidated net sales increased 0.4% with Performance Coatings posting a 0.7% increase. The top line result consistent with last quarter reflected robust positive price mix contribution offset by volume pressure across all regions. Price mix was notably strong in Performance Coatings, including a component of mix benefit in Refinish along with solid underlying price recapture. Transportation Coatings price mix was also positive including ongoing recapture in Light Vehicle for the fourth sequential quarter offset slightly by weaker mix within Commercial Vehicle. FX translation was at 2% year-over-year net sales headwind for the period. The impact of FX translation at the profit level remains largely aligned with the overall corporate margins. Key sources of pressure included the euro the renminbi, Argentinian, peso and pound. Q3 adjusted EBIT of $191 million was a 17% increase from the prior year and margins improved 300 basis points to 17.3% driven by a combination of the price mix drop-through benefit as well as lower overall operating cost from continued productivity savings and lower stock-based compensation expense in the quarter. Partial offsets to these drivers included volume headwinds across most end markets accelerating negative FX impact and modest raw material inflation for the quarter. Turning to slide 5. Performance Coatings third quarter net sales decreased 2% year-over-year excluding a 2.3% negative FX impact and increased 0.7% excluding FX and net negative M&A-related impacts. Drivers of this 0.7% organic constant currency growth included a 5% increase in average price mix, partially offset by a 4.3% volume decrease. Axalta's Refinish end market produced Q3 constant currency net sales growth of 2.5% year-over-year,…

Thank you. [Operator Instructions] Our first question comes from the line of Laurent Favre with Exane BNP Paribas. Please proceed with your questions.

Good morning guys. I've got a couple of questions on the commercial side please. The first one when we think about the weaker orders, I'm just wondering when do you think you will start to see lower volumes? Is that already in Q4? Or do you think it's more for 2020? And then could you give us a bit more color on price mix in both the U.S. where it seems that it's still positive and in Europe where it seems that you have a bit of an issue there. And what is that issue? Thank you.

Yes. Laurent, it's Chris. Thank you for the question. I assume you're referring to commercial truck orders in your first question and in that respect orders have been weak for some months now. Production volumes are expected to begin to moderate in the relative near term in that market.

And just to add on as far as 2020 looking at Class four through eight we're expecting approximately an 8% decline at least where the current forecasts are for 2020.

Thank you. And on the price mix?

So that was largely a mix issue. We did see strong volumes in CV in the third quarter opposite of Q3 2018. And we did have a slight mix of impact as far as lower average selling price. It wasn't that we were giving any sort of pricing back. It was more of a mix issue for the quarter.

Thank you.

The next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question.

Hey, guys, good morning. I guess first off on auto Refinish and your callout on volume weakness there. It had a reference point on the impact from the economy slowing. Can you just give us a little bit more color on that? Which regions? And where was the inventory optimization in that segment most pronounced do you think?

Yes, Ghansham. Overall, in the Refinish business, the overall business continues to perform quite well. As we highlighted, we did see global volumes down roughly low single-digits due to some distributor inventory management. That would be predominantly in North America. And then as we've highlighted before the structural volume reduction from the solvent to waterborne conversion and given that MSOs buy more waterborne that also was the continual natural impact on volume. And in terms of the demand due to the economic conditions, we saw that perhaps somewhat in each market, but perhaps more acutely in Europe.

That's helpful, Robert. And then just for my second question on 2020 parameters. I mean obviously, there's a lot of variability on volumes. But how should we think about the flow-through effect of pricing on -- from what you've already accomplished? And then also how should we think about gross and net productivity realization in 2020?

Well I think overall if we look 2020, we'll be providing in our December outlook call more clarity on 2020. But I think as -- overall as we look at the year, we see a pretty strong setup for a better year in terms of core volumes across our businesses. We continue to expect to outperform the market next year in each one of our end markets. The key driver that is really the expectation that global auto builds will be stable and we've started to see some signs of that, but the China market has already begun to stabilize. And with ongoing innovation-driven product introductions and ongoing share capture in core Refinish market, we see 2020 as the year of positive volume development. On the pricing side, we do expect to continue to achieve price -- positive price mix next year that were dropped to the bottom line.

Thank you, Robert.

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

Good morning guys. This is Harris Fein on for Chris. Thanks for taking my question. When we think about industrial end markets, can you just give us a walk-through in terms of which verticals outperformed the segment average versus where you're facing some challenges? And which areas would you say, you're the most bullish on moving forward?

So if we look at the industrial overall, we saw that sales decreased in the quarter about 1% ex-FX and excluding our – the impact of our former China product joint venture. We did see volume pressure as you know from slower industrial markets, but we had strong price capture. And really for us, what's driving our outperformance relative to the market are our new product additions and also new customer acquisitions. If we look at the individual markets themselves in coil, we are seeing volume down slightly, but we are achieving pretty attractive price mix in that market. Overall in general, industrial we did see volume down somewhat in the mid to high single digits, but we also saw price up by the same amount in that market. Part of that is OEM related and that some of those products whether it's E-Coat or whether its metal coating systems go into the different tiers there. In Energy Solutions, we did see volume down in that market, but price mix also up in that market. There somewhat the demand was impacted by conditions in Europe as well as in China. And then in Powder, we saw volume down in most regions. But again with our price increases, price mix up compensating for that and we did see somewhat of slower conditions in Europe in particular in powder. Wood, we saw volume down low single digits, but price mix up by a commensurate amount and there really what we're seeing is that a lot of the new business gains that we're getting there and the higher selling prices are offsetting some of the core business volume challenges that are really a result of housing starts in remodel being a little bit soft. So overall, I think if we talk about that market our team is performing extremely well from a new customer acquisition and a new product introduction which is allowing us to perform better than the overall market.

And you also mentioned before that you closed the price-cost gap at the full company level. Just given the raw material environment can you just help us think about how your pricing strategy may change moving forward? And if they are -- and do you have any non-raw material cost buckets that are still maybe creating some pressure?

Well I think as we think about overall price mix, I mean we're constantly developing new technologies. We're constantly launching new products. We're constantly launching new colors. And all of those have an upward impact on price and we would expect that to continue as we move forward in the business. And in terms of the raw environment for next year, it's probably a little bit too early to call it. But I think we see it a fairly stable raw material pricing environment at least at this stage.

Thank you.

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

This is David Hong [ph] here for David. I guess first just on Refinish volume, what's your expectation for Q4 volume? And do you expect any additional inventory destocking in Q4?

Yes. We're not expecting any material destocking Q4-over-Q4. We're currently out looking essentially a flat volume. So, no declines heading into Q4.

And then I guess another question on your Transportation segment. I guess what's your expectation for oil production in Q4 in 2020? And what's your target organic growth rate?

So I think you're going to see similar trends Q3 and Q4. The Q4 comp becomes a little bit easier as we start to see production builds down in Q4 of 2018. But by and large -- and we're currently following IHS guidance which is now down 5.8% for the year.

Thank you.

Your next question comes from the line of P.J. Juvekar with Citigroup. Please proceed with your question.

Good morning, and this is Eric Petrie on for P.J. Longer term what's your Refinish volume growth outlook as MSOs convert to waterborne technology and you're seeing lower collisions?

We look at our Refinish business in, as we said before, in the medium and long term. It's a business where we expect overall net sales to grow over time. We work with our customers every single day to help them be more efficient and to help them be more productive. Obviously that requires a pretty significant technology investment and technology support on our side and we recognize for that value in pricing. So as you look at the market and you think about over a period of time in terms of market growth. With MSOs, we are extremely well positioned with MSOs, expect that sales channel for us to continue to grow and we'll continue to support that channel, as well as continuing to support independent and small body shops, as well. So longer term, I think we expect net sales to continue to increase in the Refinish market.

Thank you. And secondly, you noted a modest tailwind in September from raw materials and that's expected to help offset the lower Light Vehicle production. So I was just wondering, out of the basket of raw materials where did you see the greatest tailwind? Was it resins, solvents, PiO2 or could you elaborate on that?

Sure. So we saw solvents, monomers, resins as flat or ever so slightly down. And then we continued to see price inflation in isocyanates and pigments. So again that did give us some confidence that we might be potentially at an inflection point. However, uncertainty around the Chinese tariffs are also very relevant to what the outlook is going to be for next year.

One clarification point on the raws, so for the quarter as a whole, we actually had a headwind, what we saw in September specifically that inflection point that Robert just commented on.

Great. Thank you.

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

Great. Thanks. Good morning. I'm just kind of thinking about 2020. Maybe you can just reiterate, kind of, some of the drivers that you see unfolding there, any improvement that you would expect in China? And then I guess, as far as, OEM, have you been -- given the progress, are you fully caught up on price-cost there? Thanks.

Yes. I think as we look at OEM for next year, as we talked about we are seeing signs of the China market as beginning to stabilize. We don't believe that China will experience a prolonged cyclical downturn like we may have seen in other markets historically. So I think we are fairly optimistic on the China market overall as we go forward.

And...

I was going to answer the other question in regards to Transportation. So when you look specifically at Light Vehicle, Robert did comment in his opening remarks, we're largely caught up at the total company level. We're still trailing when you look at that price-cost equation within Light Vehicle.

And then, next just wondering on the cost reduction front, do you still see that as kind of a ongoing $50 million opportunity or is there any upside or downside on that front?

Yes. So we're sticking with our original Axalta Way II $50 million a year. If we were to see an uptick on inflationary pressure, we may expedite some of those initiatives. But that's something we are working on thoroughly right now as we head into 2020. And we'll be providing more guidance once we go into December as far as the guidance update.

Great. Thanks.

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

Hi, guys. This is Steve Haynes on for Vincent. Maybe in regard to customer inventories outside of the Refinish business. Could you talk about where you see those levels? And if there's any anticipation of kind of a restock maybe in 2020 if they are on the lighter side of things? Thank you.

Outside of Refinish in our Transportation markets and Light Vehicle and Commercial Vehicle, our customers carry a relatively small amount of inventory. So, there's not really a risk there. And then from an industrial perspective, some of those sales are direct and some of those sales are through distribution, but in general, folks in industrial distribution tend not to carry overly high levels of inventory. So we wouldn't expect to see or have any major concerns in those other markets.

Okay. Thank you.

The next question comes from the line of Josh Spector with UBS. Please proceed with your question.

Yeah. Hey, guys. So just a question as your cash continues to grow in your -- in the midst of the strategic review process, do you have any plans for any cash allocation kind of over the next few months here? Or is that just going to build until you get to some resolution?

Yeah. Certainly, there will the some decisions coming out of the strategic review process as far as capital deployment. But we continue to focus on what we previously communicated that being M&A organic growth opportunities, I mean, looking at opportunistic share buyback followed by potentially paying down debt. Debt today is sitting below 3.6% as far as weighted average cost. So that is an extremely attractive at the moment, but the other parties remain the same.

Okay. And I mean I know you're not going to comment on anything with the strategic process itself, but if the result of that is do nothing, how are you thinking about what the Axalta itself strategy is over the next couple of years? Does anything kind of change in your mind? Or anything you consider doing differently?

I think our strategy is very well defined in terms of what we're trying to achieve overall as a company. In each -- and in each one of our end markets wouldn't expect any major changes in strategic direction coming out of the strategic review process itself.

Okay. Thanks.

The next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Hey, guys. Nice quarter. When you think about 2020 and volumes do recover, which has been quite some time since we had volume growth for anybody. But can you maybe walk us through the leverage needs of the segment, if maybe it should be stronger than it's been in the past? You've got pricing. You've got cost savings. And just maybe give us a feel for that as we head into 2020?

Mike, can you clarify a little bit? You said what are the leverage needs?

If you get volume growth, what is the earnings leverage from volume growth going forward as you head into 2020?

Yeah, Mike. So we provide annual guidance and the reason for that is that each annual guide period is going to incorporate the drop-through of volume and incremental margin that we'd expect to see from that as well as any one-off investments or period unique cost elements that would fall in the period. So, generally, we have commented that a business like ours can see very strong drop-through of volume naturally given the high gross margin business that we have. But more specifically, our annual guidance is meant to capture all elements in the period, but as most people understand the coating's business is a strong business from the standpoint of incremental margin potential.

Okay. And then just a quick follow-up on Refinish. It's been a while since that market seems to have grown. What do you think needs to happen? I know you're coming out with a lot of new good products and such. What are you -- where are you looking for in terms of the market to show some growth going forward?

Well, I think overall at absolute value level, we've seen attractive growth in Refinish and we achieved attractive growth in the third quarter. We expect that to continue. We also continue our focus on building out our mainstream business and also in penetrating countries around the world where our market share in those individual countries might be lower than our global and our regional share. So, I think we're pretty optimistic about the topline growth opportunities in that business.

Great. Thank you.

Your next question comes from line of Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.

Hi, this is Luke Washer on for Steve. I wanted to talk about the volume slowdown in your Refinish business. Was the slowdown -- did you see any kind of lower collision activity during the quarter? Or was that mostly destocking and the other factors you said?

Yes, it was largely the other factors. Collision rates within the quarter weren't a major driver. It was really the continued conversion of solvent to water as well as some destocking. And again Robert commented, but we did see more of a macro impact in the European region.

Great. Thanks. And just one more on the variable cost inflation. Could you remind us how much of your variable costs are raw materials versus say labor and distribution? And how would you characterize kind of labor and distribution cost year-over-year this quarter?

The labor and distribution relatively flat at the COGS level, variable COGS at about 60% just for perspective.

Great. Thank you.

Your next question comes from the line of Bob Koort with Goldman Sachs. Please proceed with your question.

Hey guys. It's Anthony Walker [ph] on for Bob. In light of the macro headwinds, your volume performance in Light Vehicle I thought was pretty impressive. Can you talk about how impactful the strikes you referenced were during the quarter? And how much share did you guys gain? And how much of that contributes to the quarterly performance. Thanks.

Yes. So, we're not going to get down to the granular level as far as quantifying the impacts on the strikes. I would give you some incremental. As far as the impacts we saw in Q3, we're expecting similar impacts in Q4. Although the strikes are essentially doubled in time, we are expecting to make up some of that difference in the back half of the quarter.

All right. And then just if you could comment on your ability to take share both on the Light Vehicle segment leading to some I think outgrowth relative to [indiscernible]

I think it continues to be -- we have good -- very good competitors in that market with good technologies. We have a very strong product portfolio. Our line service and technical support in that business is some of the best in the industry. And I think as we continue to compete in that end market, we will continue to leverage both our product technology as well as our service and support.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Good morning. It's Silke Kueck for Jeff. How are you?

Hey good morning Silke.

Hi. I was wondering whether you could follow-on to like the variable cost question that was asked previously. You said like 60% of your COGS are variable costs. And even if those were up 5% this quarter if that's a raw material headwind, if you really have that much, that's only maybe $20 million, but your prices were up 3.8%. And so that's really an incremental $44 million on your sales base, and so it does look like the -- whatever the price-cost realization -- like it's definitely much better right because you've had these really nice gross margin expansion.

I think Silke as Sean mentioned although we did see some flattening or some attenuating of raw material inflation in September overall for the quarter, it was still a headwind for us. But you are correct from an actual variable contribution margin perspective. The strong performance that we had in price mix dropped very well to the bottom line.

And Silke, I would add that you're somewhat overstating prospective variable cost headwinds in the quarter. It was not to the magnitude that you suggest. But certainly the magnitude of price cost is meaningful and certainly overcomes the variable cost headwind.

So when you look at your gross margin expansion, you're saying half of it comes from the productivity improvements and maybe half of it from whatever the raw material versus price realizations are?

Yes. I would say it's probably heavier weighted towards price mix, when you look at the quarter in particular. The variable cost headwinds in the quarter the way to think about it's probably low single digits at the EBIT level to give some context. So it was really a price mix story at the gross margin level.

That's helpful. And my second question is, when I look at your Transportation Coatings results the overall volumes were down 1.5% and maybe that Bryant said like the Light Vehicle volumes being down, I don't know, maybe like 3% to 4% something like that. And -- which is much better performance than what your competitors reported. Do you think all of that is due to market share gains or some of it is due to a different geographic split? Is there like any insight that you have into that?

We did perform relatively better in the quarter. I think in fairness it's largely a function of the particular regional mix, the customer mix, and then the actual product platforms that we were on for the quarter.

Do you think it has more to do with the regional mix and less to do with market share gains?

Yes. It was more of a regional mix. North America was actually fairly flat year-over-year. And had it not been for the strikes, we actually would have a positive volume story so it's more on the regional side than specific customer wins.

Okay, that’s helpful. Thanks very much.

The next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

Hi, guys. This is Colton Bina on for John McNulty. Thanks for taking my question. Just a follow-up on Light Vehicle volumes, I was wondering, have you seen any impact there from the switchover emission standards from China five to China 6, or do you expect to see any impact in 4Q? I know it had been a bit of a headwind in some businesses in the first half of the year.

Yes. That's a fair observation. We are seeing, as you know, the China six regulations being pulled about a year ahead to -- we are pulled about a year ahead to July 2019 in several cities. But if you look at it most of the international OEM production is nearly 100% compliant. That's really giving those players an edge over the China domestics, while they still catch up. So to the extent that someone is more heavily weighted to the international players as opposed to the domestics you're seeing the benefit.

Relative to those other what we're talking about Light Vehicle end customers but those Light Vehicle end customers that are non-domestic are seeing a benefit because they've met those standards sooner.

Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

So when you look across the end markets within Performance, it's more towards a 50-50 split. Light Vehicle certainly much heavier weighted towards price compared to mix. And CV as I stated that was a negative mix story and not so much to do with actual price.

Well, just to clarify I think all-time high margins were in the middle of 2016 at 23.5% EBITDA margins. We achieved 22.5% EBITDA margins in this quarter. I think as we look forward on the Transportation side there is much more of the price gap that we still would like to close as we go forward. And as we talked about in terms of offsetting cost inflation each year with Axalta Way initiative as well as additional Axalta Way initiatives to go beyond that and reduce our structural base costs. Those continue to be an area of keen focus.

Okay. Thanks a lot.

Your final question comes from Paretosh Misra with Berenberg. Please proceed with your question.

Thanks. Thanks for taking my question. So given where we are in the Light Vehicle business with volumes under pressure. Is there any color you could provide on margins in that business versus your Industrial business. In other words, if Light Vehicle is a still higher-margin sub-segment versus Industrial? Of course it would be great if you could give us a range.

Yeah. We do not provide information about the profitability of our end markets. At a segment level, however, our Performance Coatings segment margins are higher than our Transportation Coatings segment margins.

Got it. And then last one on the CapEx and I apologize if I missed that. CapEx forecast went down because of timing issues. So, which project was that?

We actually haven't stated all the projects. There's just been a general delay in some of the spending. The original guidance was at $160 million and that's what you're seeing bringing it down to $130 million. Some of those project delays will just slip into 2020. I wouldn't necessarily expect a huge ramp-up in CapEx next year. It's something we're working towards. And we'll provide incremental guidance for 2020 once we get into December.

Fair enough. Thanks guys.

Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.