Axalta ting Systems .(AXTA) - 2025 Q1 - Quarterly Report

PART I: Financial Information Financial Statements (Unaudited) Q1 2025 saw decreased net sales but significantly higher net income, asset growth, and lower operating cash flow Condensed Consolidated Statements of Operations Despite lower Q1 2025 net sales, net income more than doubled due to reduced costs and operating charges Q1 2025 vs Q1 2024 Statement of Operations (in millions, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net sales | $1,262 | $1,294 | | Cost of goods sold | $829 | $865 | | Other operating charges | $14 | $61 | | Income from operations | $176 | $121 | | Net income attributable to common shareholders | $99 | $41 | | Diluted net income per share | $0.45 | $0.18 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q1 2025 comprehensive income turned positive to $161 million, driven by favorable currency translation adjustments Q1 2025 vs Q1 2024 Comprehensive Income (in millions) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income | $99 | $39 | | Foreign currency translation adjustments | $62 | $(44) | | Comprehensive income (loss) attributable to common shareholders | $161 | $(3) | Condensed Consolidated Balance Sheets Total assets grew to $7.41 billion as of March 31, 2025, with a corresponding increase in shareholders' equity Balance Sheet Overview (in millions) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $2,821 | $2,723 | | Total assets | $7,411 | $7,249 | | Total current liabilities | $1,330 | $1,354 | | Total liabilities | $5,289 | $5,293 | | Total shareholders' equity | $2,122 | $1,956 | Condensed Consolidated Statements of Cash Flows Q1 2025 operating cash flow decreased due to working capital changes, while investing cash use increased Q1 2025 vs Q1 2024 Cash Flows (in millions) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Cash provided by operating activities | $26 | $34 | | Cash used for investing activities | $(44) | $(19) | | Cash used for financing activities | $(8) | $(82) | | Decrease in cash | $(26) | $(67) | | Cash at end of period | $578 | $627 | Notes to Condensed Consolidated Financial Statements Notes detail a $9 million acquisition, transformation initiative costs, a lower tax rate, and segment sales data - In Q1 2025, the company completed a strategic acquisition in the Performance Coatings segment for aggregate consideration of $9 million[30] - The 2024 Transformation Initiative resulted in pre-tax charges of $6 million for Q1 2025, primarily for employee severance and exit costs[34] - The effective tax rate for Q1 2025 was 23.0%, a decrease from 33.9% in Q1 2024, due to favorable tax benefit changes and prior-year initiative impacts[53] Net Sales by Segment (in millions) | Segment | Q1 2025 Net Sales | Q1 2024 Net Sales | | :--- | :--- | :--- | | Performance Coatings | $822 | $848 | | Mobility Coatings | $440 | $446 | | Total | $1,262 | $1,294 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 2.5% net sales decrease due to currency and volume, offset by improved profitability Overview Axalta is a global coatings manufacturer with two operating segments and a presence in over 140 countries - The company operates in two segments: Performance Coatings (refinish and industrial) and Mobility Coatings (light and commercial vehicle OEMs)[110][111][112] - Axalta has a global presence with 43 manufacturing facilities, 4 technology centers, 45 customer training centers, and serves over 140 countries[109] Business Highlights Q1 2025 net sales fell 2.5% due to currency headwinds and lower volume, despite acquisition contributions Net Sales by End-Market (in millions) | End-Market | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Refinish | $511 | $519 | (1.5)% | | Industrial | $311 | $329 | (5.6)% | | Light Vehicle | $340 | $342 | (0.8)% | | Commercial Vehicle | $100 | $104 | (3.2)% | | Total | $1,262 | $1,294 | (2.5)% | - The 2.5% decrease in net sales was driven by a 2.7% headwind from foreign currency and a 1.5% volume decline, partially offset by a 1.1% acquisition contribution and 0.6% from price/mix[113] Results of Operations Lower cost of sales, reduced operating charges, and decreased interest expense improved Q1 2025 profitability - Net sales decreased by $32 million (-2.5%) due to unfavorable currency effects (-2.7%) and lower volume (-1.5%), partially offset by acquisition (+1.1%) and price/mix improvements (+0.6%)[119] - Cost of sales as a percentage of net sales decreased from 66.8% to 65.7%, driven by lower variable input costs and favorable price/mix[120][122] - Other operating charges decreased by $47 million, primarily due to a $44 million reduction in costs related to the 2024 Transformation Initiative[124][126] - Interest expense, net, decreased by $10 million due to lower principal and decreased variable interest rates on term loans[128] Segment Results Performance Coatings' margin improved despite lower sales, while Mobility Coatings' Adjusted EBITDA grew 14.5% Performance Coatings Segment Results (in millions) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $822 | $848 | (3.1)% | | Adjusted EBITDA | $197 | $196 | 1.0% | | Adjusted EBITDA Margin | 24.1% | 23.1% | N/A | Mobility Coatings Segment Results (in millions) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $440 | $446 | (1.3)% | | Adjusted EBITDA | $73 | $63 | 14.5% | | Adjusted EBITDA Margin | 16.5% | 14.2% | N/A | Liquidity and Capital Resources The company maintains strong liquidity with $778 million available and expects savings from its transformation initiative - As of March 31, 2025, availability under the Revolving Credit Facility was $778 million[140] - The 2024 Transformation Initiative is expected to result in total cash expenditures of $105-115 million and yield annualized net savings of approximately $75 million once fully executed[144] - The company believes cash flow from operations, cash on hand, and available borrowing capacity will be adequate to meet liquidity needs for the next twelve months[155] Cash Flow Summary (in millions) | Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Net Cash Provided by Operating Activities | $26 | | Net Cash Used for Investing Activities | $(44) | | Net Cash Used for Financing Activities | $(8) | Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks were reported from the previous year-end Form 10-K disclosure - There have been no material changes in the market risks previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[164] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[165] - No changes occurred in the Company's internal control over financial reporting during Q1 2025 that have materially affected, or are reasonably likely to materially affect, these controls[166] PART II: Other Information Legal Proceedings The company is not involved in any material litigation outside the ordinary course of business - The company is not involved in any litigation other than that which has arisen in the ordinary course of business and does not expect any pending lawsuits to have a material adverse effect[167] Risk Factors No material changes in risk factors were reported from the previous year-end Form 10-K disclosure - There have been no material changes in our risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024[169] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[170] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[171] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[172] Other Information No material other information was reported, and no new director or officer trading plans were adopted - During the three months ended March 31, 2025, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[173] Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements and required certifications