Axalta Coating Systems Ltd. announced its financial results for the first quarter ended March 31, 2016.

“We are pleased that our first quarter results met our expectations and that our core markets continued to perform well,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “Our team continues to execute well and deliver on our key goals in spite of ongoing foreign currency volatility and uneven economic conditions in certain emerging markets.” Mr. Shaver added, “We remain on track with our productivity programs, which continued to drive incremental margin contribution, while also focusing on long-term opportunities to refine our operating strengths with solid investments and management concentrating on reducing complexity across our global businesses.”

First Quarter Consolidated Financial Results

Net sales of $955.6 million for the first quarter of 2016 increased 3.0% year-over-year excluding unfavorable foreign currency translation (decreased 3.4% as-reported). Net sales growth was driven by 5.1% higher average selling prices, offset by a 2.1% volume decline, primarily from slower demand in Latin America. Excluding Latin America, overall volumes increased low single digits for the quarter. Unfavorable foreign currency translation reduced net sales by 6.4%.

Adjusted EBITDA of $194.8 million for the first quarter grew 7.0% from $182.0 million in Q1 2015, while Adjusted EBITDA margin in the quarter expanded to 20.4% from 18.4% last year. Margin improvement was driven by favorable product mix and pricing, as well as lower input costs and savings from our operating improvement initiatives. These factors were partially offset by negative foreign currency translation, volume declines in Latin America, and modest operational expenditures for planned growth initiatives.

Performance Coatings Results

Net sales in Performance Coatings for Q1 2016 were $543.0 million, a 4.8% year-over-year increase excluding foreign currency translation (decrease of 2.5% as-reported). Net sales growth drivers included higher average selling prices of 5.4% in the period, more than offset by 7.3% unfavorable foreign currency translation and volume declines of 0.6%. Refinish end-market Q1 2016 net sales increased 5.3% on a constant currency basis (decreased 3.7% as-reported), while our Industrial end-market grew 3.8% excluding the impact of currency (increased 0.2% as-reported).

The Performance Coatings segment generated Adjusted EBITDA of $110.1 million in the first quarter, a 2.8% year-over-year increase. Positive pricing contributions, coupled with variable cost savings, were partially offset by negative foreign currency translation and incremental operating expense to support growth initiatives. Segment Adjusted EBITDA margin of 20.3% in Q1 2016 reflected a 110 basis point increase compared to the corresponding prior year quarter.

Transportation Coatings Results

The Transportation Coatings segment produced net sales of $412.6 million in the first quarter, a 0.7% increase excluding foreign currency translation versus first quarter 2015 (decrease of 4.5% as-reported). A 4.0% decrease in volume was offset by 4.7% positive contribution from price, while a 5.2% unfavorable foreign currency translation impact more than offset this modest net sales gain in the quarter. Transportation Coatings demand varied by end-market in Q1, with ongoing growth in Light Vehicle offset by a pullback in Commercial Vehicle. Light Vehicle net sales increased 3.6% on a constant currency basis year-over-year (decreased 1.1% as-reported), with ongoing strength in North America offset partly by the impact of incremental weakness in Latin America. Asia Pacific posted solid above-market net sales growth for the period. Commercial Vehicle net sales declined by 9.3% on a constant currency basis versus last year (decreased 15.8% as-reported), driven by a combination of slower heavy truck production as well as weaker demand from a variety of non-truck vehicle types served.

The Transportation Coatings segment generated Adjusted EBITDA of $84.7 million in Q1 2016, an increase of 13.1% compared to the first quarter of 2015, with positive price / mix and variable cost contributions partially offset by unfavorable foreign currency translation, lower volume effects, and moderate ongoing operating expense increases to support planned growth. Segment Adjusted EBITDA margin of 20.5% in Q1 2016 represented a significant increase from 17.3% in the prior year quarter.

Balance Sheet and Cash Flow Highlights

We ended the quarter with cash and cash equivalents of $419.5 million. Our net debt was $3.0 billion as of March 31, 2016, which resulted in a net debt to trailing twelve month Adjusted EBITDA ratio of 3.5x.

First quarter operating cash flow was a use of $18.0 million versus a use of $98.7 million in the corresponding quarter of 2015 reflecting lower working capital use and reduced restructuring cash outflows. Free cash flow, calculated as operating cash flow less capital expenditures, totaled a use of $58.3 million based on capital expenditures of $40.3 million.

“We were pleased that our balance sheet remained solid and cash flows notably improved in the first quarter, including a narrower use of working capital versus the prior year period,” said Robert W. Bryant, Axalta’s Executive Vice President and Chief Financial Officer. “For 2016, we continue to expect strong progress in reducing net debt leverage from a combination of Adjusted EBITDA growth, improved free cash flow, and further planned debt reduction during the course of the year.”

2016 Guidance Update

We are reiterating our outlook for the full year 2016 as follows:

• Net sales growth of 4-6% in constant currency; flat to down slightly as-reported

• Adjusted EBITDA of $900-940 million

• Interest expense of $180-190 million

• Income tax rate, as adjusted, of 25-27%

• Diluted shares of 242-245 million

• Working capital as a percentage of net sales of 11-13%

• Capital expenditures of ~$150 million