Hello, and welcome to the Axalta Coating Systems' Fourth Quarter and Full-Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chris Evans, Vice President, Investor Relations. Please go ahead, Chris.

Thank you, and good morning. This is Chris Evans, VP of Investor Relations. We appreciate your continued interest in Axalta and welcome you to our fourth quarter and full-year 2022 financial results conference call. Joining me today is Rakesh Sachdev, Non-Executive Board Chair; Chris Villavarayan, CEO and President; and Sean Lannon, CFO. Yesterday afternoon, we released our quarterly and full-year financial results, and posted a slide presentation along with commentary to the Investor Relations section of our Web site at axalta.com, which we will be referencing during this call. Our prepared remarks, the slide presentation, and our 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. Our remarks, the slide presentation, and our discussion may also contain various non-GAAP financial measures. In the Appendix to the slide presentation, 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 Rakesh.

Thank you, Chris. And welcome, everyone, to our fourth quarter and full-year 2022 earnings call. Let me begin by expressing my appreciation to the team for delivering another strong quarter. The company showed substantial improvement in profitability, most notably in our Mobility Coatings segment, and achieved earnings near the top of our fourth quarter guidance range, setting us on a positive trajectory into 2023. Before the management team outlines the details of our quarterly results, I want to introduce and welcome Axalta's new CEO and President, Chris Villavarayan. Chris joined us on January 1, where he recently wrapped up his tenure at Meritor, a global industry leader of commercial vehicle drive trains and engineered systems. Christ spent the past 22 years supporting and ultimately playing a leading role in the remarkable transformation of the company, which delivered above-market growth, margin expansion, and substantial shareholder value creation. Chris is a seasoned global executive who has distinguished himself as a strong leader. His decades of commercial and operational experiences align well with the skill sets that the Board believes are necessary to achieve Axalta's long-term strategic ambitions. The Board has a high degree of confidence that, under Chris' direction, Axalta will be better positioned to unlock value for all stakeholders. As for myself, I've transitioned to the role of Board Chair with Chris' appointment as the CEO. It has been a fantastic few months serving at the Interim CEO, getting deeper into our businesses, helping the team focus on the immediate value levers, and doing the initial planning for our 2023 objectives. The valuable insights I have gained over the past five months will clearly help as I lead the Board and support Chris to unlock the full potential of this company. I will now pass the call over to Chris. Chris?

Thank you, Rakesh, and good morning, everyone. I want to start by saying it is a true privilege, and I'm absolutely honored to become the CEO and President of Axalta. My first few weeks in the role has only strengthened my belief that Axalta is a true industry leader with immense opportunities ahead. In the coming weeks and months, I look forward to meeting many of you, our employees, customers, and investors, as we accelerate our growth plans. This is an important moment for Axalta. I'm committed to delivering superior financial returns and ensuring we meet our customers' demands. Now, on to our quarterly results, with highlights on slide four. The fourth quarter was strong and the team has a lot to be proud of. We delivered adjusted EBIT of $147 million, and adjusted diluted EPS of $0.38, both at or slightly above the top end of our fourth quarter guidance range. This was driven by pricing momentum and volume growth, with notable margin and profit recovery from Mobility Coatings. Constant currency net sales growth, of 14%, was very strong, driven by double-digit pricing growth across all our four end markets, and modest volume contribution. Volume growth, of 2%, was led by market recovery in both light and commercial vehicle. Our slate of award-winning new products and customer-centric service models are driving new wins across the portfolio. Meanwhile, post-COVID normalization in our end markets create a unique opportunity for us to grow volume and outpace broader industry trends. We again delivered strong year-over-year price mix growth of approximately 12% in Q4. Price mix improved 3% sequentially, the highest realized quarter-over-quarter improvement since 2020. This is a fantastic outcome that reflects strong execution of the new actions, and highlights our prioritization of margin recovery. Pricing in the period offset substantial year-over-year…

Thanks, Chris, and good morning, everyone. Net sales were $1.2 billion, an increase of 9% year-over-year for the fourth quarter while constant currency net sales increased 14% driven by pricing actions and strong market recovery in Mobility. Constant currency net sales growth included an 8% increase in Performance Coatings and an impressive 30% increase in Mobility Coatings as both light vehicle and commercial vehicle showed strong year-over-year performance. Fourth quarter volume improved 2% year-over-year as market recovery in Mobility more than offset the softer industrial environment and slower than expected recovery in China from COVID-19 lockdowns within Performance Coatings. Demand remains robust in Mobility Coatings where volumes grew 19% year-over-year due to pent-up demand and new business wins. Price mix increased 12% year-over-year and 3% sequentially, which is reflective of this being our key priority across every end market. FX translation was a headwind of 5% on net sales for the fourth quarter, driven by a weaker Euro and Chinese Renminbi. During the quarter, we've recorded a $15 million charge as part of a new cost savings initiative being implemented in early 2023. We also incurred $15 million of costs associated with the term loan refinancing, executed in December. The $30 million combined impacts of these two items are excluded from adjusted earnings. Fourth quarter adjusted EBIT was $147 million, 22% higher versus the $121 million reported in the prior-year. Axalta's adjusted EBIT margins increased by approximately 130 basis points year-over-year to 12%. This is the first increase since the current inflationary period began in early 2021 with improvement in profitability in Mobility Coatings and Performance Coatings. This is an important milestone towards our margin recovery goal. Q4 performance also included an approximate $17 million EBIT headwind associated with the impacts from the Rush-Ukraine conflict, China COVID-19 challenges and FX…

Thank you, Sean. I'd like to close out by thanking our global team. I had the opportunity to spend time with our team members in some of our manufacturing facilities. We have a talented group of operators who diligently help us serve our customers every day. I'm also grateful to our business and functional teams who are driving execution and accelerating Axalta's growth plan. With that, we will be pleased to answer your questions. Operator, please open the lines for Q&A.

Thank you. And now we can go to the question-and-answer session. [Operator Instructions] Our first question today is coming from Christopher Parkinson from Mizuho. Your line is now live.

Great, good morning. Chris, and understanding it's incredibly early, but just given your background and your experiences, are there any -- is there a preliminary thought process on what you can do to assist Axalta and better streamlining results in the Mobility segment, especially now that volumes and market share seem to be comfortably on the right track? Thank you.

Hey, good morning, Chris. Yes, absolutely. I think if you look at my background, a lot of it on the operations side. And as I think about Axalta in the short-term, it's purely about execution. And this is where Rakesh started, as you could see in the last two quarters, and you can see the inflection from Q3 too Q4. And we certainly are going to continue to drive execution. So, as I think about operations, supply chain, procurement, what are we doing to drive continued cost improvements here, as well as the drive for continued pricing to ensure we continue to drive that price cost graph, that's certainly the focus here, and that's certainly from my background also at Meritor.

Understood. And just a quick follow-up, on the Refinish side, it seems you've been also winning a decent amount of share in terms of body shop, and consolidation among some of your largest customers and [exclusive] [Ph] activities should also be a tailwind. When should we expect to see a lot of that through results in the Performance segment? Thank you.

Good question. So, I think as you know, Q1 Refinish is somewhat seasonal. So, as we see that continuing through the year, certainly in Q2, you should see the benefit from that. And again, if you think about the Refinish business, whether it's '21 to '22, they've seen record growth. And as we think about '23, certainly with the lens, again what we announced at -- also at the Investor Day, what you can see is they've gained about 3,000 shops. The MSOs, as you pointed out, continue to consolidate, so certainly significant opportunity there going forward.

Thank you so much.

You're welcome.

Thank you. The next question today is coming from John McNulty from BMO Capital Markets. Your line is now live.

Yes, thanks for taking my question. With regard to pricing, I guess can -- can you help us to think about how '23 looks if you didn't raise price any further in any of the channels, just what would we be seeing for a full-year price increase in 2023? And then what channels -- it does sound like there are certainly pockets where you feel you still are behind or have some inflationary pressures where you need further pricing. Can you fill in the blanks on that a little bit more and help us to understand the magnitude of -- and where you might need to see those price increases?

Yes. Hey, John, it's Sean. Good morning. So, as we think, I mean the last two quarters you've seen essentially 3% sequentially from Q2 to Q3, Q3 to Q4. So, we're signaling low single digits next year, so call it $150 million of just pure pricing carryover. I think the dynamics just in a deflationary environment, it's how quickly we deflate and how it ultimately impacts some of our raw material indexing. But with that said, even with Chris' prepared remarks, the margin recovery is still not fully there. We expect to fully recover, from a total Axalta perspective, in the first-half of next year. But Mobility is still behind, as well as Industrial; Refinish has quickly caught up. But that's really the focal areas, that being the two components within Mobility and Industrial.

Got it, fair enough. And then Chris, well, won't ask you too much on the operational side, obviously you have a lot to dig into. But I guess high level, if when you think about the area of leverage for Axalta and also returning of cash to shareholders, I guess can you give us kind of how you think about those topics in general, what you think might be the right leverage levels for Axalta going forward? And also, is it something where you would consider pushing the Board to maybe think about dividends versus buybacks, do you have a preference there? Just if you can give us -- just give us some of your early thoughts on how you think about that, that would be great?

Sure. I think initially, as Sean pointed out in his prepared remarks, our focus is on debt repayment. So, I think we're going to continue to drive that. We're at 3.8. Again, as you folks know, we were around 4. Our objective is to get that down around that 3 mark as we were before. And so that is going to be the primary focus for us going forward, especially with the current interest rate environment that's certainly driving the focus towards debt repayment. In terms of, let's call it, return to shareholders, it's probably something we'll look at later in the year. But right now, our absolute focus is on execution and debt repayment.

Got it, fair enough. And then maybe if you could just squeeze in one last one just around auto OEM. The volumes have been huge, and we were well aware of some of the big account wins that you had. Is there any initial fills -- it's not going to be like a big-box type thing, but are there any initial fills like where we should be thinking about that as we model out your performance relative to the broader global OEM market? Look, you've put out some huge numbers in the last couple of quarters. Is that an okay run rate, at least until that anniversaries or, again, was there maybe a little bit of a fill-in there that we need to consider?

Yes, I wouldn't call it necessarily a fill. I would expect that we're going to continue to outpace the market in 2023, maybe not exactly by the levels you saw in Q3 and Q4. Q4, in particular, we beat in every region. And it's really a twofold reason, John. It's the market wins, but more importantly, some of the OEMs and the platforms that we're actually serving product to are actually outpacing the market. So, China is probably a really big bright spot. The market was down roughly 6% in the fourth quarter. We were well over 30%, and a big part of that is just the platforms that we're actually serving are quite frankly, just outpacing the market altogether.

Got it. Thanks very much for the color, appreciate it.

Thank you. The next question is coming from Ghansham Panjabi from Baird. Your line is now live.

Thank you. Good morning, everyone.

Good morning.

Just given the real-time sequence in China as it relates to the reopening, can you just give us a sense as to where volumes are by sub-segment relative to perhaps the pre-COVID levels?

Yes, I mean the first quarter is typically fairly soft for us, Ghansham, with Chinese New Year and even the infection rates in the first two weeks in January. But I mean we're cautiously optimistic for '23. I think the first quarter is going to be pretty soft. Mobility has actually run pretty strong. Other than the COVID lockdowns in the second quarter, they've propped above that market, and it's run pretty well in Q3 and Q4. Refinish, with all the lockdowns, just impacted miles driven. So, that's probably the one region that just sort of further behind just given the COVID lockdowns. And Industrial, same thing, just given general slowdown in some of the European economic markets, the export market in China has impacted Industrial, and again just the COVID impacts. But again, we're cautiously optimistic we'll see slow recovery here. But we're pretty cautious on the first quarter guide as it relates to China.

Where did auto Refinish in China finish 2022 relative to 2019 levels?

That's a good question, Ghansham. We're certainly down a few points, probably high single digits opposite 2019.

Okay, fair enough. And then on slide nine, you have the historical and projected builds in global light vehicles, nice little chart there. So, assuming we get to 2019 levels by, let's say, 2024, is there any reason why you would not be above the 2019 EBIT margin levels for that segment, assuming that Commercial kind of hangs in and raw material cost inflation is relatively muted relative to price discipline?

Maybe I'll start off. Again, as you can see from our year guide, we're certainly going up. And we're also a little bit lower than where the external forecasters are because we're being somewhat conservative. But again, Ghansham, I think what you have to take into consideration is the inflation that we have faced in the marketplace, right? And then offsetting that margin gap on the top end between where we were at the full look with cost inflation built in. However, if you look quarter-by-quarter, even if you go into Q1, we're driving increased margins in the Mobility business, and that's the objective going forward. As you know, if you went back to, let's call it, Q1 levels, we were running at about $35 million. And this quarter, we were at $22 million, so we're -- or we're -- the Q1, we're building into '22. So, certainly we're progressing in the right direction, but still a ways to go there.

Okay, perfect. Chris, look forward to meeting you at some point.

Absolutely.

Thank you. Next question today is coming from Vincent Andrews from Morgan Stanley. Your line is now live.

Thanks, and good morning, everyone. Could I ask on the Mobility pricing in the quarter, how much of that was new bespoke pricing versus the flow-through of the indexation contracts?

Yes, so fourth quarter, actually the vast majority was new pricing contract negotiations as opposed to raw material indexing. When you think about the whole year, it's probably a 50-50 split as far as the contribution between raw material indexing and just pricing negotiations.

Okay, that's helpful. And Chris, maybe just preliminarily, you talked in that slide about the sort of strategic goals. When you think about operations and supply chain, is the stuff that you're envisioning, is this sort of more tactical and nimble stuff or is it more sizable restructuring kind of stuff that would have significant cash costs associated with it?

Well, three weeks in, probably a little early to call, Vincent. But what I'm absolutely focused on right now is more the tactical and nimble stuff because we have to react absolutely quickly here, continuing the path that Rakesh and the team have built up, and obviously the monumental step-up they did in Q4, and we got to continue that through Q1, Q2, Q3. So, the first step is just purely focused on driving those execution aspects, whether it's utilization of our plants better, whether it's procurement, and whether it's our supply chain improvement. So, those are the drivers we're driving initially.

Okay, fair enough. Thanks for the questions.

Sure.

Thank you. The next question is coming from Alex Yefremov from KeyBanc Capital Markets. Your line is now live.

Thanks. Good morning, everyone. In fourth quarter, sequentially, your sales were about flat, your EBIT was about flat. And yet your price-cost gap runs by $56 million sequentially. I guess the question is why didn't more of that price-cost benefit show up in EBIT, and would it show up sometime later?

Hey, Alexi good morning. The big thing is refinish volumes. Q4 and Q1 are typically the soft quarters from a refinish perspective. So, coming off Q3, that's really where you see sort of some margin compression. Obviously nothing structural, just the seasonality of how Refinish works, Alexi.

Okay, that's helpful. Thanks a lot. And then -- you also talked about E-coat on EV battery components, could you talk about that product, what's your content? What is the gross opportunity there?

Yes. I mean -- and you're probably referencing a press release that came out few weeks ago, where we won an award. But it's really the entire infrastructure of an EV vehicle where the E-coat is going on. So, as far as our EV exposure within Energy Solutions, on that, roughly, $130 million business, it's still sitting around 30%. So, it's still pretty small, but obviously a bigger opportunity for us longer-term.

Thanks a lot.

Thank you. Next question is coming from Jeff Zekauskas from J.P. Morgan. Your line is now live.

Thanks very much. During your preliminary remarks, I think you said that working capital could be improved by 300 basis, you have about $5 billion in sales, so 300 basis points is $150 million. Your working capital change this year was negative 265. Why isn't the working capital opportunity larger and in general over the past 10 years, I think working capital has only been positive once for Axalta. Why is it that you tend to normally run with negative working capital year-on-year?

Yes, so Jeff, we signal roughly 8% as our historical levels on a LTM basis at the end of any fiscal year. So, we're calling out the target is to get back to those historical levels. That's not necessarily going to entirely happen in 2023, but it's certainly a bigger opportunity for free cash flow generation. Within the overall working capital elements, what we're signaling is AR inventory accounts payable on accruals, I think you may be picking up prepaids, which I think you're aware we have these business incentive payments within refinish that are a typical outflow. And they range from $60 million to $70 million annually, just for perspective there, Jeff.

Yes, and then your CapEx was 151. Can you remind me what's maintenance CapEx and what did you spend on that was the difference between maintenance and the 151?

We don't call out specific years for maintenance CapEx, but over time it's $30 million to $50 million, Jeff, on average in a given year, I'd say 2020, 2021, we certainly underspent from a CapEx perspective, so we're expecting a little bit more of an uptick, closer to that $50 million to $60 million in 2023 within maintenance, and then we'll get back to the normal, more normal run rate in 2024.

Okay, great. Thank you so much.

Thank you. Next question today is coming from Mike Leithead from Barclays. Your line is now live.

Great, thanks. Good morning. First question, just on the input side of the equation, can you just remind us how big energy and labor costs are relative to say, raw materials in your overall cost basket?

Sure, so energy is right around $75 million, that's up from $33 million two years ago. So, we've essentially doubled, labor costs run about $900 million annually.

Got it. Okay. And then second, just on the outlook, I think historically the first quarter has been something like 22% or 23% of where you end up normally delivering for the full-year. I appreciate the visibility is quite low, but just is that still a rough estimate as we start this year or should we expect a steeper ramp just as we start to catch up on some of those margin and cost initiatives?

Yes, directionally that's a good number and what I called out earlier in the Q&A, refinish, historically range roughly 21% of the profitability in the first quarter opposite the full-year for refinish. So, that's really what's driving the overall EBITDA contribution being down in that 22% range.

Great, thank you.

Thank you. Next question today is coming from Steve Byrne from Bank of America. Your line is now live.

Yes, you guided the first quarter raws to be up high single-digit, for raw materials purchased today, what would you say they would be on a year-over-year basis and what would you estimate the monthly lag before it would flow through COGS?

Yes, Steve, probably the best way to look at this is versus fourth quarter and it's down. I mean, we're seeing across almost every basket down low to mid-single-digits that we're actually procuring right now with the exception of pigments. And I bifurcate pigments, TiO2 and carbon blacks are relatively flat opposite fourth quarter, but some of the specialty pigments are actually still inflating a bit. And then energy costs are expected to be up slightly opposite fourth quarter.

But when do you see the year-over-year deflation flowing through cost, could you see it in second quarter?

Yes, so we're expecting some marginal benefits in the first quarter, but again, we're sitting with essentially record high inventory levels. We expect more of that to flow through actually in the second quarter, and that's why we're a little bit more cautious on the margins in the first quarter.

And can you address what led to the customer win in Mobility? Is there, I doubt that's easy to achieve with such large customers. And I guess I'm raising it as an issue with how do you get price in that business without threatening to walk away from contracts?

I mean, we price for value, Steve, and there's and you saw that in the fourth quarter, some of these discussions went over two quarters for us ultimately to get to retroactive improvements. But Hadi Awada and the team that he's built over the last two years, we really started to see the progress 18 months ago. And some of these conquest wins, they take 18 months to two years to ramp-up and actually for us to get the sales. So, this has been a continuation of his team continuing to drive service, bringing good products and bringing the right team to the market. And equally important, I think we should mention that all that new business is coming in at margins that we're very proud of.

Okay, thank you.

You're welcome.

Thank you. Next question today is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live.

Yes, good morning. In the first quarter of '23, would you expect to run your assets at a similar rate to the first quarter of '22 or higher or lower and how might that answer vary by your major businesses?

I would expect them to run pretty similar. Volumes are relatively stable. Mobility is going to be slightly up versus the first quarter of 2022. Industrial volumes will be slightly down, but overall it's going to be very, a very similar buying picture.

Okay. And then as a follow-up, Sean, in your prepared remarks, I think you referenced $5 million of retroactive price adjustment. Can you speak to what that is, why it occurred and whether we should expect any additional so-called retroactive adjustments in the first quarter and beyond?

Yes, we're not expecting any big retrospective, but you can imagine, Kevin, some of these discussions last a multitude of months and sometimes two quarters, ultimately to get this to the finish line. And so, that's really what you're seeing the dynamic in the fourth quarter. Some of these discussions have been going on for two quarters and you're seeing the realization once we actually reached a final verdict, with the customers and actually able to invoice them. But we're not expecting big retros in the first quarter in our current guide.

Understood. Thank you very much.

Thank you. Next question is coming from John Roberts from Credit Suisse. Your line is now live.

Welcome, Chris.

Thank you.

Maybe I could lean on you a little bit for your auto experience. The auto dealer inventories are still relatively low. Do the auto producers still have constraints keeping them from fully further restocking or are they unconstrained and you think they're just cautious about rebuilding their -- [multiple speakers]

No, I believe there're still constraints and a lot of my experience was on the commercial vehicle side. And as I think about, where commercial vehicle trucks and truck production sits, there's historic backlogs on that side and if you look at some of the recent customer announcements with your earnings calls, you can see there's continued pent-up demand as we look into moving into next year. And it grows across both baskets, whether it's the Mobility side or sorry the light vehicle side or the commercial vehicle side. And you can see even with our numbers, right, so we're going from $82 million, up to $83 million to $84 million in '23, but if you look at the external forecasters there at $85 million, so we do have some op upside here, but again we are being cautious primarily, if you think about China, if you think about Europe, we want to make sure we have a fixed cost model that is slightly lower and then we are prepared for the upside here. So, and if you look overall, I think the key message is that we have, let's call it a market that we believe is going up primarily because inventories are still tight on both sides. On top of that though, as Sean mentioned on the last point, we're outpacing end market activity, whether we're driving growth in as you heard on the Mobility side, on the light vehicle side with, Hadi and the team have driven significant growth in China. And then on top of that, on the heavy side, they've also closed with Navistar here. So, anyway, great story across the board.

And then, just a quick one, Sean, not that it's big, but what's driving color pigment prices up? It's very few things are actually going up right now.

Yes, it's just a supply demand imbalance that continues to inflate those.

Okay. Thank you.

Thanks, the next question today is coming from David Begleiter from Deutsche Bank. Your line is now live.

Thank you, good morning. Sean, first given your new contract structures in Mobility, could you remind us what happens when raws actually come down, how much do prices decline here or how much they hold?

Yes. So, David, we are still behind our mobility, which we will see in the price cost slide. So, outside the indexing contracts, we are still going to be pushing price even if we do see a deflationary environment. But to your point maybe on the indexing, in general we are on six-month lag. So, again, depends on the pace of deflation. But we would expect to give back potentially something on roughly 40% of those contracts.

Very good. And Chris, again welcome aboard. As you put a fresh eyes on mobility, what do you think the biggest issue was last 18 months? And were there any structural reasons why this business can't return to prior levels of earnings forgetting margins because they will go up or down based on other factors? But earnings dollars -- can we get back to prior levels? Thank you.

Well, I think it's focused on execution as I think about the business. And I know that might sound pretty simplistic. But if you look at the last quarter -- two quarters and what was done, that was primarily the focus. It was focused around driving pricing. Again, I think as Sean mentioned, it's about making sure we are getting the value from our -- that we are providing for our service. And essentially in this space, I look at it as if you look at it if you look at where our customer margins are, where our margins where for the last year, we certainly can't invest. And if we are providing the value that's driving the growth, we certainly need to be pushing pricing here whether as we have discussed above and beyond where we are. And we believe we are providing that level of -- sorry, value because we certainly are continuing to grow. So, that's certainly going to be our focus as we go forward. So, one is pricing. The second part is execution. So, what does that mean? We've obviously had supply chain constraints in plants. And it's not associated with the capacities of our plants or the utilization of our plants. It's really about how we drive the supply chain from a procurement standpoint right through the facilities to get the volume out. And then we have made choices there that's obviously limited our ability to drive that gap. So, certainly those two are the focuses we are going to continue. So, simply put focus on execution.

, :

Thank you very much.

Thank you. Next question today is coming from Mike Sison from Wells Fargo. Your line is now live.

Hey, guys. Nice quarter. Just one question, in terms of refinish volumes, you talked about it being seasonally weak. Or, typically seasonality first quarter versus fourth quarter. But what do you think about the second quarter? There are odds that the seasonality could be similar improvements? And maybe talk about the regions? Maybe China is not as strong sequentially. But any thoughts about what you are seeing for a typical improvement in 2Q versus 1Q in refinish?

Mike, we are only guiding to the first quarter, but we fully expect there will be a nice uptick in the second quarter of 2023. We also think the cautiousness that we are seeing in China, hopefully, that will fade away pretty quickly. And we will see the benefits in the second quarter as well.

Great. Thank you.

Thank you. Next question is coming from PJ Juvekar from Citi. Your line is now live.

Yes. Good morning. And Chris, welcome to Axalta.

Thanks PJ.

As China reopens, how do you think about that benefiting your industrial demand versus auto OEM? In auto OEM, you mentioned China was a big growth driver for you. So, talk about sort of what kind of pace of improvement you expect. And on the flipside, if China does rebound then oil demand and prices could go up. And could that create some potential headwind? Thank you.

Let me start off. Again, three weeks in the role. And then I'll probably hand it over to Sean, but again, obviously we are being conservative and being cautious that's our approach for China. But to your point, there is upside as you think especially since we have significant new business wins are ramping there. So, that is a bright spot for us. On the industrial side though, I would say globally we are seeing softening. And even in China, we forecasted that we are being somewhat muted. I think the bright spot for us just answering your question on the regional side. If I think about where is the opportunity for industrial, it's really North America. And we look at our building products business where we see some great growth. In the siding business also as Sean pointed out on the EV side, we are also seeing growth there. But then coming back to China and as we look at the overall basket, I would say we are being somewhat conservative as we go through it. Obviously, it's got fits and starts. We went through an experience as we started out from let's call it the COVID lockdown early in the month January, but we certainly see a lot of our facilities opening up, and it seems like the same story for rest of China. So, short-term we are being somewhat conservative. And I'll now turn it to Sean.

Yes, on the mobility side that market is actually being operating really well. So, we are still pretty optimistic even in our first quarter guide on how our business continues to run outside of obviously the Chinese New Year impacts. Industrial and refinish, both of those were roughly $120 million businesses. So, there is certainly incremental improvement. But relative to total Axalta, those businesses are still pretty small. So, certainly some upside there as we think about full recovery, and just as far as China economy coming back and the impacts on sort of inflation-deflation, I guess we are somewhat neutral. We see a potential argument on both sides. But for our business, the regional arbitrage from the supply chain perspective, we expect about to be a net benefit as we think about the raw material environment.

Thank you. And then, my second question is you are getting some significant volume growth in light vehicles. But you are also talking about the need to get pricing. I am just putting those two comments together, was Axalta trying to loading price or acting tough on price to gain share? And is that what we are seeing? And now, you are saying that we need to get pricing back up? Is that the right way to interpret those two points?

No, absolutely not. So, the variable margins that are coming through for the new business wins are coming through at historical levels. Where we are really focused on getting price is on the legacy contracts and continuing the push from a margin perspective.

Thank you.

Thank you. Our final question today is coming from Josh Spector from UBS. Your line is now live.

Yes, hi. Thanks for squeezing me in. Just two quick follow-ups, I guess one on the new win side of it, the refinish the NFOs, the new stocking centers in Europe and the mobility side if markets broadly were flat, what do you think Axalta does at a volume level? And then just on the mobility side from an earnings perspective, you historically talked about it the recovery being 50:50, price cost, market recovery. Has that calculus changed given some of the pricing you got in fourth quarter and some of the dynamics you talked about? Thanks.

Yes. So, I mean I would expect us assuming a flat market across the board that we are going to up low single digits really across all of our end markets. As far as the mobility volume, I think we said in the third quarter that it's probably has shifted more to 60:40 as far as the pricing. And it's probably now back to the 50:50 between volume and price given what we are able to do in the fourth quarter from a pricing perspective.

Okay, thank you.

You are welcome.

Thank you. We have reached end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference webcast. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.