Ladies and gentlemen, thank you for standing by. Welcome to Axalta Coating Systems 2014 Third Quarter Earnings Conference Call. Presenting today will be Charlie Shaver, Chairman and Chief Executive Officer; and Robert Bryant, Executive Vice President and Chief Financial Officer. [Operator Instructions] Today's call is being recorded. Replay of this conference call will be available through December 18, 2014. Those listening after December 4, 2014, should please note that the information provided in this recording will not be updated, and it is possible that the information will no longer be current. At this time, I will turn the call over to Michael Finn, Senior Vice President and General Counsel of Axalta Coating Systems for a few brief legal notices.

Thank you, and good morning, everyone. I think you all know, we released our earnings press release last night and posted a slide presentation to the Investor Relations section of our website at www.axaltacs.com. We'll be referencing the slides during this call. Before we begin, I just like to remind everyone that following our IPO on November 12, we're still on our quiet period through December 6. Unfortunately, that means we're not going to be able to give financial guidance or make forward-looking statements on this call. If possible, when we get to the Q&A, please do not ask us questions which would require those sorts of answers. We'd appreciate that. Thank you. A few other points. I think you're all aware, but we would like to note that our business involves uncertainties and risks that may impact our results of operations, including those identified in the Risk Factors section of our registration statement on Form S-1. Our presentation today also contains certain non-GAAP financial measures. Please see our presentation and filings with the SEC for a discussion of the limitations of these measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Charlie.

Yes. Good morning, everyone, and thanks for joining us today. As Michael said, it's a little bit of a tricky call for us today because we are still in our quiet period. So bear with us as we navigate, I'm sure, through some of the questions today and some of our comments. And we look forward to, as we move forward in the future, being able to share a little bit more with you about the business. We are excited to host our first quarterly earnings conference call following the pricing of our IPO. And I'll begin today's call by providing a brief overview of Axalta, and then we'll jump in the highlights for the third quarter. Since we do have a fairly diverse crowd, and for many of you, it's the first time to be on one of our calls, you'd probably say it's worth taking a few minutes and talking about Axalta and then jumping into the financials. After that, I'll turn it over to our Chief Financial Officer, Robert Bryant, who will provide a little bit more detail about our quarterly results, and then we'll line up to take any questions from the audience. So if you do have a presentation in front of you, if you'll turn to Slide 3. It's probably worth -- just a couple of key points about our business for those of you who are new to the call or to the investment. We are a leading global manufacturer, marketer and distributor of high performance coatings. We generate 90% -- approximately 90% of our revenue in markets where we hold the #1 and #2 market position, including the #1 position in our core automotive refinish end market with approximately 25% of global share. Our business is organized into 2 distinct segments. And…

Thanks, Charlie, and good morning, everyone. During the third quarter, if you turn to Slide 5, you can see that during the third quarter, we grew our sales by 3.2% to $1.1 billion compared to the prior year period. These results were driven by volume growth of 2.8% as increases in North America and Asia were slightly offset by moderate declines in EMEA and stronger declines in Latin America. We realized 1.9% of growth as moderate price increases contributed to higher average selling prices across most of our regions. Partially offsetting the volume pricing growth was 1.5% from unfavorable currency translations, primarily as a result of devaluations in Latin America. Therefore, net sales growth using constant currency growth would have been a positive 4.7%. Adjusted EBITDA increased 17.5% year-over-year to $228 million for the quarter, driven primarily by higher sales with improved mix and lower manufacturing cost from productivity initiatives. We also saw a slightly higher -- slightly lower raw material cost this quarter compared to the prior year. Adjusted EBITDA expanded by 250 basis points to 20.6%. If you turn to Slide 6, we wanted to just take a moment to highlight the progression of our adjusted EBITDA. On a pro forma basis, as you can see, our adjusted EBITDA has expanded from $570 million in 2011 to $738 million in 2013. And on an LTM basis ended September 30 of this year, our adjusted EBITDA has increased to $833 million. Now as Charlie stated earlier, we've generated 6 straight quarters of year-over-year growth, starting with the first full quarter since the acquisition on February 1. Now while we've made meaningful progress to date throughout the organization, we're still in the early stages of implementing several initiatives in revenues, in costs and in productivity that we believe will continue…

[Operator Instructions] Our first question is from coming from the line of David Begleiter with Deutsche Bank.

This is actually Ramanan Sivalingam sitting in for David. Robert, do -- any way to quantify, on a dollar basis, the impact of lower raw materials in the quarter? And can you just remind us how much of your material basket is levered to oil?

Sure, I'd be happy to. So overall, Exalta's raw material basket was slightly down in Q3 on a year-over-year basis. Our raw materials account for approximately 50% of our cost of goods sold. And within that, of the raw material purchases we have, approximately 70% of our raws are oil based.

Got it, that's very helpful. And then, Charlie, maybe if you can just give us a quick snapshot of demand as it stands today by business in EMEA, that would be very helpful.

Sure. I'd be happy to take that, and I know Charlie has some additional color. I think if we look at it -- not as an overall region, but we look at it as we do on a segment basis -- if we look at our Performance Coatings segment, in EMEA, what we saw in the third quarter, currency was actually fairly neutral. In fact, the euro was not a factor in Q3. So despite the month-over-month depreciation of the euro in Q3, it's actually slightly ahead -- it's actually appreciated slightly versus the quarter in 2013. So that really was not -- currency was not really a driving factor. What we did see in the performance side were positive sales growth aided in particular by growth in the industrial end market. And then if we talk about our Transportation Coatings segment, we saw flattish conditions after slight growth in the second quarter. In the third quarter, we definitely saw conditions, both on the light vehicle as well as the commercial vehicle end markets, flatten out.

Our next question is coming from the line of John Roberts with UBS.

The 1.5% negative currency effect on sales. Was the effect similar in the adjusted EBITDA numbers? Or does that somehow get confined with the remeasurement adjustment and is not included in the EBITDA?

So in terms of the impact of the currency on our sales, as well at the EBITDA level, currency has a much greater impact for us at Axalta at the top line sales level. In terms of the impact at EBITDA, we're fairly hedged across a number of our geographies. So since we're periodically hedged or partially hedged with our cost structure, we don't necessarily see a one-for-one effect. In fact, it's much less than that.

Okay. And then as a follow-up, just maybe give us a sense of the lag effect in your businesses if -- for those of us that wanted to know how it will eventually play out in raw materials. So I'm not looking for a go-forward. Maybe you could just rank order which businesses respond more slowly to a drop in raw materials and which businesses respond [ph] quickly?

Sure. So I think there's 2 -- there's always 2 elements when we think about a change in oil prices in particular. Generally, falling commodity or input prices should benefit our sector, falling oil prices tend to act as a stimulus to consumers and boost discretionary income in miles driven, both of which have secondary benefits for Axalta. Historically, we don't see immediate cost reductions because the price of oil -- if the price of oil per barrel declines, those kinds of price reductions typically work their way through the system over several quarters before we really see any real change. I think certainly, in terms of the various raw material baskets, whether it's additives, pigments, solvents, monomers, certainly, the closer you are to the wellhead, in particular with solvents and monomers, you'll see a faster impact. But in the third quarter, raw material benefits, I think, from a market perspective, were not a major driver of our margin improvement. But we were able to make some inroads in diversifying our supply base in a couple of cases.

Our next question is coming from the line of John McNulty with Crédit Suisse.

So when we look at the commercial vehicles, number in particular kind of stood out as just some huge growth, I guess. Can you walk us through how we should think about the driver there? And is this traditionally a lumpy business where you can see a couple of big wins? Or is this something that -- this is just a good normal run rate to think about?

Yes, John. This is Charlie. I -- a lot of this in commercial vehicle -- as a result, over the past year, there's a lot of strength in North America heavy-duty truck. If you look at the builders, you look at our position there, the guys -- it's just a really good, strong, robust business. In addition, we, year-over-year, had a couple wins outside of North America. Now this segment, as you know, regionally really varies around the world, they've had different cycles. So right now, if you would look at heavy-duty truck in Europe, it's a marketplace that's actually off this year versus year-over-year. And they tend -- these markets tend -- certainly, economies drive the amounts of trucks and buses that get built. But also, regulatory demand drives -- changes well. So in China, we -- for example, in China, we think, in the next couple of years, there will be a lot of shift as China works on cleaner trucks, new trucks, waterborne coatings and trucks converting for solvent borne. So -- and that will be a very different cycle than what we will see here. But the short answer for us is really strong performance out of North America in the heavy-duty truck and bus.

[Operator Instructions] Our next question is coming from the line of Jonathan Chung with Lord Abbett.

So kind of asking, I guess, John Roberts' question slightly a little differently. From a raw materials -- as raw materials come down, which segment of your business is likely to be able to retain more of that benefit? And maybe help us appreciate the stickiness of that -- of the segment and maybe a little bit of why. And then I have one other question. That's all.

Sure. So I think in general, our customer base understands. As we see an increase in raw materials, we have discussions with our customer base about price adjustments to reflect that. And certainly, as oil prices or raw material prices come down, and if they stay down over a period of time, we will see our supply base seek out some sharing in that benefit, and our customers also can benefit from that. On the Performance and the -- more the Performance versus the Transportation segment side of the business, I would say that the -- more sticky in the Performance side of the business and less sticky in the Transportation segment.

Yes, Jonathan. This is Charlie. I think it's a function of -- if you look on the Performance side, just the sheer diversification number of countries, 120,000 body shops around the world. On the Transportation side, you have more global. These are -- this is a sophisticated customer base, and they tend to look at all their raws carefully and all their suppliers. I'm like Robert though, nothing happens. It has to come down and stay down for a while to get into those discussions with them.

And I would just add to what Charlie said. I think it would be erroneous to assume that just because oil prices come down, we will, de facto, see a one-for-one or a dramatic increase in our raw materials. You really have to look at it by each individual category. And there are certain supply and demand dynamics within each one of those categories. So in some, there's a tight supply and not the same type of price leverage and in others, it's the opposite.

All right. Not to kind of ask you guys to give me anything overly detailed on the conference call or anything. I think some of your competitors as well as kind of other coatings companies have suggested every 10% move in energy is -- it translates to roughly about a 1% margin improvement. And would that be any different for you guys given kind of the conversation we just had on the performance piece of the business?

I think certainly, there's certainly a theoretical or a mathematical calculation. But I think all of us can do in the industry with regards to what our total raw material consumption related to oil and also energy costs and how this -- how energy costs are affected by oil. And there's certainly a mathematical relationship there that, we would suspect would not be dramatically different between Axalta and its major competitors. But then, actually, how much of that filters through to profitability in each one of the companies, I think it's highly dependent upon the end market mix as well as the segment mix.

All right, okay. And then this is my last question. Can you remind us, from the cost side of the equation how -- what are you guys are kind of working on? I don't think it's really forward-looking because I think you guys had mentioned. I just can't find it in my notes anywhere. Because I was pretty impressed with the margin improvement this quarter. And so I'm just kind of thinking about how much else we're working towards that. That's all of my questions.

Sure. Happy to, Jonathan. I think in the S-1, I think we talked a little bit about some of our cost-reduction efforts. And perhaps, the primary cost-reduction effort that we have going on at the company right now is our fit for growth program, which is a global productivity and efficiency enhancement program, at this point, primarily targeted on Europe. And as we discussed in the S-1, that program off the baseline of 2014 will generate approximately $100 million in cost savings at the EBITDA level by the end of 2017.

Our next question is coming from the line of Robert Koort with Goldman Sachs.

I was wondering if you could talk about pricing or any change in expectations as the MSO component of your business grows. Do you just suspect you'll lose some of your pricing ability there? Or do you think it will just be the same as it's always been?

Yes, Bob. This is Charlie. I think as MSO segment continues to grow, certainly what we've seen over the past year, and we do believe that will continue to grow, certainly in North America. For those of you not that familiar with it on the call, it's a consolidation that's going on in North America among larger body shops, not only at a national level but in a regional level and -- but not so much in other parts of the world. I think that -- I think our pricing power will be -- continue to be fine in that marketplace. It's a very different business model, the way -- what the MSOs look for. They demand a more direct relationship with the paint distributor versus the -- excuse me, the paint supplier versus the distributor. But I think we feel okay about that right now, I think. But it is a very different business model, the service level is different, the training, everything else that goes on. So in many cases, they need less of some of that than some of the smaller shops do who really depend on you being more engaged partly with them. The body shops, the MSOs, what they're demanding is productivity. As long as you continue to work with them, provide innovation, provide productivity, and I think that's why we're one of the couple of people well suited to serve them, I think we believe overall margins in the business will be fine.

And if you go to your OEM business, I know you guys have talked about 20-some-odd new wins there. If you could look far enough out in development plans of those customers, is that a number that should continue to roll at that rate? In other words, as you start up a few new plants, somebody else is going to build another few plants out in the future and so that should be a sustaining number? Or is there something about that number that happened to be more episodic in [indiscernible] to go down over time?

Yes. I think overall as we look at the business we've won over the last 18 months or so. We believe it's possibly more than our fair share just because of who we're aligned with. They tended to grow faster in capacity addition than the overall market. So looking forward, you almost have to kind of just look at the different OEMs and what their plans are, and I think we'll continue. Our view, as always, we're aligned with certain OEMs that we like being aligned with. I think as long as we continue to provide the right service and products for them, clearly, our expansion in China has positioned us well to participate in that. But I think their capacity -- you would have to look at their capacity expansions to kind of figure out is that going to be faster or slower than everybody else. And I don't know that we have any more of a window than anybody else other than just -- we really like who we are aligned with in those players. And we believe -- there's no reason to believe we wouldn't continue to get our fair share.

And could you give me a guess, something historically, how many plants you would lose a year as the model years expire or platforms get retired? Is it 1, 3, 5?

Yes. It's probably a hard number to figure out just because of -- if you look at this business over the last 5 to 6 years, there was a lot of rationalization going on in places like Europe where capacity was being dropped off and some capacity was being replaced in Asia. And so yes, I don't know that we have a really good number. Just -- if you look at it every year, what drops out in new adds. Now we have -- during the time we run the business, we actually haven't lost any business or had any plant shutdown. So we kind of have -- we kind of think through the next couple of years where capacity might be added or deleted. But with the industry in a growth mode, we don't see a lot of plants shutting down right now, and we haven't had any appreciable losses at any plants in the RFQs. I think we've highlighted that every year, there's probably anywhere from 15% to 20% of people's business is put up in RFQs. And all we can do is -- we kind of look at what -- for the last couple of years, what we wanted, we feel like it's our fair share.

Our next question is coming from the line of Jeff Zekauskas with JPMorgan.

A couple of issues. Can you talk about the relationship between your share count and your share price?

Jeffrey, could you elaborate on your question? We just want to make sure that we understand what you're saying -- what you're asking.

When you think about how your share count is changing, is it affected by the change in the share price since the IPO? And if it is, to what degree?

In terms of the actual amount of shares that were offered as well as including the greenshoe itself. On the exercise of the greenshoe, we haven't seen any change in the number of shares that were offered and in terms of the size of the offering that was also constant.

So maybe I can follow-up on that. My second question is your industrial growth, I think it was sort of low single digits. Valspar reported a few days ago, and I think their industrial numbers were sort of generally high-single digits, or did you have any reflection on the difference between your growth rate in industrial and the recent Valspar results?

I think as we think about our business in industrial, it's a very attractive opportunity for us. It's not an end market that was given a great deal of priority in previous years, and we're certainly putting a lot of effort in terms of resources, in particular on the commercial side and on the technology side, to bring to market the product technologies which we already have and the products which we already have to bear. And as we've put in place our go-to-market strategy, that's in sort of a nascent stage and is ramping up. So in terms of -- if our results would be as high as Valspar's, the answer to that is probably not. That also has to do somewhat with our current geographic footprint in that business. But that is a business where we are keenly focused and that will be a growth area for Axalta moving forward.

Our next question is coming from the line of John Roberts with UBS.

Normally, when we see raw materials declining, we also have demand dropping. And this is a little different this time because raw materials aren't declining because of demand. Could it be that this demand environment, that this plays out much more [ph] in terms of how raw materials flow through the entire value chain, relative to when demand is dropping and it flows [ph] quickly?

Yes, John. This is Charlie. I think your points are well taken, and I think it's also why some of -- a couple of the coatings companies have highlighted in some cases, why it may take a while for some of this to work through. Because I think when you think about monomers, solvents, isocyanates and pigments, every one of those kind of has their own supply-demand scenario. So for example, it's well known in isocyanates right now, even BI, is fairly tight. However, there's a lot of capacity being added in China and other places actually, even in Europe. So I think every one of this got their own supply-demand scenario. And you're correct, if you look in some of those like in North America where we've got growth going on, you've got -- you don't have declining demand in all these sectors. So I think that's why we're studying that and looking at it, but every one of them has got their own drivers. We also have a marketplace in our [ph] markets that are more -- we got the waterborne coatings, you got acrylics in some of those, you got the propylene-based products that -- propylene is probably not going to go along. So yes, I think the drivers are very different than in the past. I do think over time, with the capacity being added in a couple of these segments over the next year or 2, we'll enjoy some reductions that may be delayed a couple quarters because of just different supply situations.

It appears there are no further questions at this time. I would now like to move the floor back over to management for any additional concluding comments.

Look, thanks, everyone, for your time and attention this morning. We're excited about our third quarter and we're -- as well as in the middle of fourth quarter. Look forward to dialoguing with you over the next month or so. As Robert highlighted, we'll be coming out with our 2015 guidance as we can get out of the quiet period and talk a little bit more about the business. Appreciate everybody's response over the past month or so in the IPO. It's an exciting day for us as a public company, and we look forward as we go into 2015, sharing a lot of those activities with you and what -- with what -- will probably prove to be an exciting year just as every year is in this business. So thanks, again, for all your time, attention and participation in our investment, and we look forward to the coming year.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.