Axalta Coating Systems Ltd. (NYSE:AXTA) Q4 2024 Earnings Call Transcript

Axalta Coating Systems Ltd. (NYSE:AXTA) Q4 2024 Earnings Call Transcript February 4, 2025

Axalta Coating Systems Ltd. beats earnings expectations. Reported EPS is $0.625, expectations were $0.52.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Axalta’s Coating Systems Q4 2024 Earnings Call. All participants will be in a listen-only mode. A question-and-answer session will follow the presentation by management. Today’s call is being recorded and a replay will be available through February 11th. Those listening after today’s call should please note that the information provided in the recording will not be updated and therefore may no longer be current. I will now turn the call over to Colleen Lubic, Vice President of Investor Relations. Please go ahead.

Colleen Lubic : Thank you and good morning. This is Colleen Lubic, Vice President of Investor Relations. We appreciate your continued interest in Axalta and welcome you to our fourth quarter and full year 2024 financial results conference call. Joining me today are Chris Villavarayan, CEO and President; and Carl Anderson, Chief Financial Officer. We released our financial results this morning and posted a slide presentation to the Investor Relations section of our website 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 and this slide presentation also contain various non-GAAP financial measures. We’ve included reconciliation of these non-GAAP financial measures in the most directly comparable GAAP financial measures. Refer to our filings with the SEC for more information. Please note that we did recently update the presentation for certain of our non-GAAP measures as described in the current report on Form 8K that we furnished to the SEC on January 21st. I will now turn the call over to Chris.

Chris Villavarayan : Thanks, Colleen, and good morning everyone. Let’s move to slide three. I’m excited to share that we achieved another record fourth quarter of full-year net sales and adjusted EBITDA. 2024 represented the highest net sales and adjusted EBITDA in our history. These outstanding results were made possible by the collective efforts of our global team as one Axalta, the culture that we have established with our A plan that has brought our priorities into focus. Despite weakness across all our four end markets, we outperformed consistently this year in Light Vehicle and Refinish, our two largest end markets. I want to express my appreciation to the Axalta team for their dedication throughout the year that has clearly paid off with these great results.

We delivered fourth quarter company record net sales of $1.3 billion. Contributions from the CoverFlexx acquisition in our Refinish economy segment, net new body shop wins, and above the industry growth in light vehicle more than offset a softer macroeconomic environment and foreign currency headwinds. Adjusted EBITDA increased by 10% year-over-year to a fourth quarter company record of $275 million. We delivered this result despite meaningful foreign currency headwinds in our fourth quarter, not anticipated in our prior guidance. This represents the 10th consecutive quarter of year-over-year adjusted EBITDA growth. Adjusted EBITDA margins improved by 170 basis points versus the prior year to 21%, which as you know was the margin objective set in our 2026 A plan.

We’re proud to deliver this result well in advance of our target date. Margin expansion was driven by favorable impacts from price mix, lower variable costs, savings from our transformation initiative and conversion on revenue from light vehicle volume growth. As you can see on this chart, adjusted diluted EPS was another great story for Axalta, growing 30% year-over-year to $0.60 in the quarter. In addition, our balance sheet continued to improve with total net leverage ratio declining for the eighth consecutive quarter for another company record of 2.5x, the high end of the range that we set in our A plan. Let’s move to slide four. Culture is at the foundation of our transformation. As demonstrated by the strength of our financial results, we have aligned the organization around the tenants of accountability, execution and operational excellence.

We are committed to safety in everything that we do and strive towards zero incidents. This year we achieved a TRIR of 0.3 and reduced our injury rate by approximately 50% compared to two years ago. In addition, we made investments in our operations and engineering, streamlined and optimized our organizational structure and brought our corporate employees together under one roof at the Navy Yard in Philadelphia. Specific to operational excellence, we enhanced efficiency, reduced costs and improved profitability across our manufacturing sites and supply chain. Notably, we reduced variable costs by 7%, improved delivery times by 10% and began the closure of two manufacturing sites, one in North America and the other in Europe, which will optimize our operations and improve our fixed costs.

Combined efforts across operations, procurement and product management reduced complexity in our manufacturing sites. We made good progress in reducing the number of SKUs, while creating common law inputs across our portfolio. This work is paying off. Our transformation savings are already ahead of plan, having achieved approximately $20 million in 2024 towards their goal of $75 million as described in the A plan. Growth is a major pillar of our A plan. Our teams executed strategic plans to win new business and deliver industry outperformance in a year where all of our end markets were down single digits. Due to their efforts, we secured approximately 2,800 net new body shop wins in Refinish and completed the acquisition of the CoverFlexx Group, which positions as well in the fast growing economy segment.

We drove full-year light vehicle net sales growth of 5%, despite a decline in global auto bills. And in Industrial Coatings, we increased our margins and earned accretive new business, which will ramp up to around $40 million at full run rate in 2025. At this point, I would like to take a moment and thank Shelley Bausch for her valuable contributions to Axalta as President of the Industrial Business over the past few years. She is responsible for returning the industrial business to profitability and pivoting it towards accretive growth in a challenging macro. As you may know, we announced a couple of weeks ago that Shelley is stepping down from her role at Axalta. Tim Bowes, who most recently was Senior Vice President and Chief Transformation Officer at Axalta, will succeed Shelley.

Tim has a strong track record of driving margin growth and business transformation. He was an excellent choice to take this business forward. Another key pillar of the A plan is sustainable innovation, which is what makes Axalta a global leader in coatings. We continue to push the boundaries in all end markets and have been widely recognized for these efforts. We have talked about the expected benefits of our game-changing Axalta Irus Mix machine. We are progressing well with the adoption of this new technology, installing 300 to-date. We expect this number to nearly double in 2025. This machine, combined with Axalta Irus Scan and Axalta Nimbus, delivers a full package of cutting-edge tools that measure and mix color faster and more accurately, driving efficiency and effectiveness to our body shop customers.

In January we announced a strategic partnership with Dürr for automotive digital paint solutions, combining Axalta’s groundbreaking technology with Dürr’s robotic experience. Dürr will serve as a robotics integrator for Axalta’s NextJet for light vehicle OEMs. I believe this agreement is an important step in delivering the vehicle customization customers desire, and is driving the future of digital paint technology. During 2024, Axalta was recognized with six prestigious industry awards for technology and innovation; three Edison, two BIG, and one R&D 100. These achievements bring Axalta’s total to 24 innovation awards over the last five years, and demonstrates our commitment to developing smarter and innovative solutions for our customers.

Let’s turn to slide five. By all measures, 2024 was an excellent year for Axalta. We had the highest fourth quarter and annual net sales in the history of the company. We exceeded $1.1 billion in adjusted EBITDA for the first time and expanded our full year adjusted diluted EPS by 40%. I’m encouraged by the significant performance we have demonstrated in our financial results since May, when we released our 2026 A plan, which is proving to be a great framework for value creation. With adjusted EBITDA margins at 21%, self-help programs in place and working, and a strong commercial playbook, we’re establishing a strong foundation for long-term value creation. I will now turn the call over to Carl to go through our financial results and 2025 guidance.

Carl Anderson : Thank you, Chris, and good morning everyone. Before I comment on our performance, I wanted to note changes to certain of our non-GAAP financial measures that we announced in an 8K on January 21st. In order to align more closely with our peers and market practice, as well as following the resolution of an SEC comment letter, we are ceasing to adjust for step-up depreciation and amortization from the acquisition of DuPont performance coatings in the calculation of adjusted EBIT and adjusted net income, beginning with the fourth quarter of 2024. Concurrently, we are beginning to adjust for the amortization of all acquired intangibles in the computation of those same metrics. These changes will also impact the calculations of return on invested capital and adjusted diluted earnings per share.

The metrics reported today reflect these changes and comparable historical information is available at Axalta.com. For the full year 2024, step-up depreciation and amortization from the acquisition of DuPont performance coatings was $48 million, and the amortization of all acquired intangibles was $92 million. Please turn to slide six for a review of our fourth quarter results. Fourth quarter net sales increased by 1% year-over-year to $1.3 billion, primarily driven by a 2% price mix impact and the acquisition of CoverFlexx, partially offset by foreign currency translation and lower volumes. Gross margins were 34% in the fourth quarter, an increase of 150 basis points from the prior year period, while income from operations increased $25 million.

Improvement was driven by price mix contributions and lower variable costs. We experienced some additional benefit from lower raw material, energy, and freight expenses when compared to last year in the fourth quarter. For the full year, variable costs declined 7%. Currently, we see inflation in certain areas, but overall excess supply in many sectors continues to be our primary factor in prices. In 2025 we anticipate minimal raw material inflation in the first quarter and project that we will experience low single-digit inflation for raw materials for the full year 2025, which we expect to offset with our productivity programs. We remain disciplined in managing our fixed operating expenses in the quarter. SG&A was roughly flat compared to last year as the benefits from productivity programs and the transformation initiatives came in ahead of plan, which minimized the impact of higher labor costs.

Adjusted EBITDA in the quarter was $275 million, 10% better than last year, marking a fourth quarter record. Adjusted diluted earnings per share increased 30% to $0.60 per share, exceeding our expectations, primarily driven by lower tax and interest expense. Fourth quarter 2024 cash provided by operating activities was $234 million, and free cash flow totaled $177 million. The year-over-year decrease was driven primarily by increased planned capital expenditures as we continue to focus on scaling up our investments into our business. Additionally, higher-than-anticipated working capital was driven primarily by account receivable timing and lower payables resulting from inventory reductions. Moving to slide 7. Performance coating’s fourth quarter net sales declined 1% year-over-year to $843 million, primarily because of lower volumes and unfavorable foreign currency translation.

These headwinds were partially offset by contributions from the CoverFlexx acquisition and positive price mix in both end markets. Refinished net sales increased 2% to $545 million in the quarter. Incremental contributions from acquisitions and net body shop wins helped mitigate foreign currency headwinds and volume declines from industry trends. Industrial net sales declined 5% year-over-year to $298 million, due to volume declines predominantly driven by demand weakness in North America compared to the prior year period. Industry conditions remain soft in the fourth quarter, and we expect this to continue through the first quarter of 2025. Despite the macro conditions, we expanded adjusted EBITDA margins by approximately 300 basis points this year, and are on track to exceed the 400 basis point margin improvement objective set in the A plan.

Fourth quarter Performance Coating’s adjusted EBITDA increased 4% year-over-year to $198 million. Adjusted EBITDA margin increased by 90 basis points to 23.5%, primarily driven by lower variable costs, favorable price mix, and contributions from CoverFlexx. Let’s move to Mobility Coatings results on slide 8. Mobility Coating’s fourth quarter 2024 net sales were $468 million, an increase of 4% from the prior year period. Light vehicle net sales grew 9% in the fourth quarter. Volumes increased 6% year-over-year, even as global auto production was down 5%. The volume growth was primarily driven by China and Latin America, which more than offset anticipated declines in North America and Europe. Price mix was a mid-single digit tailwind in the quarter, driven by the timing of pricing benefits when compared to the fourth quarter of last year.

Commercial vehicle net sales declined 10% year-over-year, predominantly driven by a 13% drop in Class 8 production in North America and Latin America, which was consistent with the prior guidance framework. Mobility Coating’s adjusted EBITDA in the quarter improved to $77 million from $59 million, a 29% increase year-over-year. Adjusted EBITDA margin improved by 320 basis points versus the fourth quarter of last year, coming in at 16.4%. In addition, the full-year adjusted EBITDA margins of our mobility business ended the year at 15.3%. Through commercial courage and operational excellence, we have more than doubled the mobility coating’s adjusted EBITDA margin in two years. Turning to Slide nine for a review of our full-year results. Net sales grew 2% year-over-year to $5.3 billion, a new company record.

The improvement was driven by late vehicle volume growth and contributions from acquisitions, partially offset by foreign currency translation headwinds largely impacting the fourth quarter. Volumes grew up modestly on a full-year basis as growth in Mobility Coating’s was offset by a low single-digit decline in Performance Coating’s. We also achieved a record full-year adjusted EBITDA of $1.116 billion, predominantly driven by lower variable costs, positive price mix, and an approximately $20 million benefit from our transformation initiative announced early in 2024. Adjusted EBITDA margin improved by 280 basis points to 21.2%, achieving the full-year margin target outlined in the 2026 A plan two years earlier than planned. Adjusted diluted earnings per share increased by 40% to $2.35.

We plan to remain disciplined and strategic with capital deployment, which we expect will drive near double-digit EPS growth over the next several years. And finally, pre-cash flow of $451 million was roughly flat to the prior year, as higher earnings were offset by higher working capital. Turning to slide 10, we are excited to announce that we ended the year with a net leverage ratio of 2.5x, which is almost a half turn better than a year ago and is in line with the top end of our 2026 A plan target. Our balance sheet is now in a much stronger position, which provides greater optionality in how we can deploy capital going forward to create shareholder value. In the fourth quarter, we paid off the remaining $105 million of revolver borrowings that was used to help finance the CoverFlexx acquisition.

We ended the year with $1.4 billion in total liquidity, including a cash balance of approximately $600 million. Capital outlays in 2024 amounted to approximately $630 million deployed, with $300 million for M&A, $140 million in capital expenditures, approximately $90 million of gross debt reduction, and $100 million in share repurchases. In 2025, as outlined in the A plan, we intend to increase CapEx to approximately $175 million to $190 million, as we believe there are significant investment opportunities to drive productivity in our operations. We have $600 million remaining in share repurchase authority in a pipeline of accretive M&A opportunities, which we plan to evaluate in 2025. And finally, we continue to make excellent progress on a return on invested capital target of 15%.

In 2024, we expanded ROIC by 270 basis points to 14.6%, and have line of sight to potentially achieve our target this year. Let’s turn to slide 11 for our view on 2025 guidance. The new tariffs put into place by the U.S. government on Canada, Mexico, and China have the potential to create a challenging global trade environment. The duration of these actions and the ultimate impacts of global demand remain uncertain. Specific to Axalta, a majority of our raw materials are bought within the local trade borders where we produce. In addition, less than 10% of the raw materials used in our U.S. production are imported from China, and we have minimal raw material purchases from Mexico and Canada. We are actively evaluating resourcing some of our direct material buy and will explore pricing actions as appropriate.

We also believe there is excess capacity in the U.S. for certain customers to shift some production if required. Understanding that this is obviously a fluid situation, we are forecasting a full-year adjusted EBITDA impact of $10 million from tariffs, which is included in our guidance. The demand impact is still being assessed through discussions with customers. However, we still believe that net sales in 2025 will grow by low single digits. For the full year, we expect revenue to be in a range of $5.35 billion to $5.4 billion with positive contributions from both segments. We expect macro volatility to extend into 2025 and have plans to remain agile and execute against our strategy. In our Refinished business, we are expecting industry volumes to be flat to down low single digit percentages in both North America and EMEA.

We are expecting to continue to gain share in both regions from body shop gains, increased sales from accessories and Do-It-Yourself in retail, and we plan to harness the full value of CoverFlexx that should more than offset industry volume declines. In addition, we plan on driving pricing actions across all regions that will take effect in March. Overall, we are planning for another record net sales years in our Refinished business. In Industrial, we expect global industry volumes to be flat to up low single digit percent versus 2024. Industry conditions in Europe are still challenged, which we expect to continue at least through the first half of 2025. Industry dynamics aside, we will continue to focus on gaining accretive growth, customers, and margin improvement consistent with the A plan strategy.

For light vehicle, we assume global auto production will be in line with current industry forecasts of approximately 89 million builds. Our volume should continue to outpace global trends primarily due to customer mix and new business wins in China and Latin America. Lastly, in commercial vehicle, we assume North America Class 8 builds will remain below prior year before demand ramps back up in the second half and into 2026. Overall production is forecasted to be flat compared to 2024. For the full year, we expect adjusted diluted earnings per share to be between $2.50 and $2.60 per share, which is an increase of approximately 9% above 2024 at the midpoint of the range. Adjusted EBITDA is expected to be between $1.150 billion and $1.175 billion translating to an adjusted EBITDA margin of greater than 21%.

Our guidance includes flat variable costs versus 2024, plus approximately $10 million in direct tariff costs. We also expect that our transformation initiative will drive $30 million to $40 million of incremental benefit this year, mitigating headwinds from labor inflation. Full year free cash flow is expected to be approximately $500 million in 2025, which assumes increased capital expenditures partially offset by reduced cash interest. I will now hand the call back to Chris to review Slide 12 and provide an update against our A plan targets.

Chris Villavarayan : Thanks, Carl. We did a tremendous job accelerating performance in 2024 and have an opportunity to pull forward our A plan if the macroeconomic environment is more favorable than we anticipate. We expect to achieve greater than 21% adjusted EBITDA margins and deliver more than 50% in adjusted diluted EPF growth for next year against 2023 at the midpoint. This will be another year to stay focused and execute the key initiatives within our control. Our team is poised and ready, and I believe 2025 will prove to be another powerful story for us. Thank you for joining us today. This concludes our prepared remarks. Operator, please open the lines for Q&A.

Operator: Thank you very much. [Operator Instructions] We’ll take our first question from Mike Leithead with Barclays. Please go ahead.

Q&A Session

Mike Leithead : Great, thanks. Good morning, guys.

Chris Villavarayan: Good morning.

Mike Leithead: Two questions for me on mobility. First, in light vehicle, 6% volume growth is a big number. So is that mostly a dynamic of your customers winning share or are you winning like-for-like market share as well in the coatings market? And then second, price mix of 4% of the segment seems also like a big number. Is that mostly mix dynamic or just help us better understand how you got there?

Chris Villavarayan: Well, I’ll start with that. Good morning, Mike, and Happy New Year. And I’ll start with the first one and I’ll turn the second one over to Carl. Specific to the mobility wins, it’s actually a combination of both. First, as you can see, over the last nine quarters, we made choices with partnering with the right local players, primarily in China, as special, and as well as the new wins that we’re seeing in LATAM. And so we’re winning customers beyond what I would call market. We’re gaining market share here and we can significantly see that quarter-over-quarter. Especially if you look at China, we’ve had double digit growth through many of the quarters over the last year. When you look forward as well, the customers that we chose to play with, especially in China, has worked out to be the China customers that are growing.

We’ve picked EV players, as well as players that are in the ice market that are really growing market share beyond what we can see that the overall market is growing. And this is driven by two areas, not only their performance in China, but also their growth in Southeast Asia. We’re seeing how well they are doing, whether it’s in Malaysia, Indonesia, exports into Sri Lanka, even Australia, New Zealand. It’s really playing well, and we’ve partnered with the right players, as well as we’ve partnered early on with customers that we believe our market share is growing beyond.

Carl Anderson: And Mike, just on your price mix question, related, part of it is mixed just with the different products and businesses that we came in, in the fourth quarter this year compared to last year. The other component was a year ago in the fourth quarter 2023. There was – you know, the comparison also provides a little bit higher price mix when you compare it to what happened a year ago.

Mike Leithead: Great. Thank you, guys.

Chris Villavarayan: Thank you.

Operator: Our next question comes from Chris Parkinson with Wolf Research. Please go ahead.

Chris Parkinson : First of all, an obligatory, Go Birds! Hopefully the city of Philadelphia has fully adopted you guys. When we take a step back and look at what’s happening in the refinished market and we just look at the claims data over the last year, you’re clearly outperforming. We know you want some decent sized customers or some very decent customers. And in the U.S., you are penetrating IRUS pretty well, in Europe. Can you give us some additional color on just how to triangulate how you perceive your relative performance in your two primary geographies over the next 12 months, and what the investment community should be monitoring to confirm that outperformance? Thank you so much.

Carl Anderson: Yeah, thanks, Chris. And yeah, certainly looking forward to this weekend. But, a lot of it is, we set out a strategy focused on four pillars; driving continued body shop wins, moving into adjacencies, driving into the retail segment, as well as M&A, okay, with what we did with CoverFlexx. Those were the four pillars that we drove in ’24, in what was a low and declining market. And as we look at ‘25, the market is no different across our two major geographies as you’ve defined as Europe and North America. So from our perspective, we’re going to be focused across those four elements going forward. Last year was a great story for us. We’ve averaged on 2,500 body shop wins is what we’ve always talked about, as you know Chris, and over the last four years we’ve done 10,000, but last year we did 2,800.

And so if you look at next year, the team is very, very focused on continuing to drive that body shop win and staying well above plan, that’s the first thing. The second one, we’re going to continue to look at accretive M&A. CoverFlexx has been a great story for us. A year and a half ago, Andre Cohen, an acquisition that allowed us to go into distribution and Europe certainly played a great part. And on top of that, through our retail stores, we’re going to push more in terms of adjacency. So what can we push in terms of fillers and putties and things like that we’ve got – that we got out of our U-POL acquisition, that’s certainly another element. And the final part of this is really the Irus Mix launch. So we did 300 last year. Our expectation is to double this, this year, mostly in Europe, so that we can continue to drive that.

We expect the market to be weaker as we have defined flat to weaker. What’s different between the two years? I would say weather is a little different. I mean, de-stocking, consumers pulling out, whether it’s from high insurance rates or essentially pocketing the insurance claims, those are the challenges we’re facing. But I would say weather is something that has been different. Obviously when you compare to ‘24 in Q1 and what we are seeing in weather with the snowstorms all the way along the East Coast, as well as snow all the way down to Florida, and the devastation on the West Coast, we haven’t seen it through. We’re not expecting it, but if that comes through as a tailwind in Q2, that’s certainly something we will be watching for.

Chris Parkinson : That’s very helpful. And just as a quick follow-up, at your Analyst Day last year you spoke a lot about industrial SKU rationalization. And certain things seem to be well ahead of schedule throughout mid-year. And it also seems as though you were able to raise price on certain substrates, a little bit better than perhaps you were previously anticipating. Can you just give us a quick update on how the street should be thinking about those dynamics into ‘25? Thank you.

Chris Villavarayan: That’s a great story for us, Chris. Just purely focused on the margin story, and then I’ll get into the sales story a bit. From a margin story you know, when we released the A plan just nine months ago in May, we had a plan to get 400 basis points of margin improvement. And if you listen to Carl’s script, we’ve essentially accomplished 300 basis points out of that. Shelley’s done a great job driving that, and I believe Tim will certainly accomplish the 100 basis points. And I do believe there’s actually upside on the margin story in industrials. So I believe we can get better than what we have defined in the A plan by just continuing to focus on margin here, and that does involve a little bit more rationalization of the portfolio, which we’ll be focused on.

What’s interesting is, even with all that drive, we were able to get $40 million of new incremental business. From a perspective of market, it’s actually the only market we’re defining for next year to go up – to be flat-to-up slightly. And my expectation is with the administration’s focused as one thing towards driving the economy. My expectation is, we should expect to see something improve on the back half of the year, number one. Number two, the areas where we play. So the building products business that we play in North America, my expectations is that would pick up in the back half, as well as energy solutions. Energy solutions, we are getting pulled, especially from a customer perspective with all our EV work in China, towards really entering that market and seeing that those businesses sit inside our industrial business.

So battery coatings and what we do for motors, coatings for motors, such as impregnating resins, all sits in our industrial business. And my expectation is we would see some more growth there in the back half of the year.

Chris Parkinson : Thank you so much.

Chris Villavarayan: You’re welcome, Chris.

Operator: Our next question comes from John McNulty with BMO Capital Markets. Please go ahead.

John McNulty: Yeah, good morning. Thanks for taking my question. So as part of the transformation initiative, I think you’ve got $30 million to $40 million of efficiency that are expected to come in, I guess, this year. I guess, can you help us to think about if there are any additional levers to pull, especially if the macro or tariff issues get a little bit worse than expected? Do you have different things that you can pull to adjust that to maybe accelerate it a little bit faster or get bigger numbers from it as we look through 2025?

Chris Villavarayan: Yeah, good morning, John. Yeah, I think it’s a fair characterization, is that we do have additional levers that we would have at our disposal and that we’re actively working on. So I think as you think about the transformation activities, there’s probably a little bit more we could do for that this year, potentially. But I think some of the other areas for us is weather and we’ve talked about it previously. It would be on our freight cost and some of the logistic works that the team is doing. We have really significant plans to kind of have that really impact us in ‘26. But I will tell you, there’s a lot of energy in trying to see if we can pull that forward a little bit into ‘25 as well. Also, I think for us, as we think about productivity inside the company within our plant network, that continues to be a very, very big focus for us and you can see it.

You know, we have a pretty significant step up in capital expenditures this year. So you may not get the full run rate, but there’s hopefully some a little bit more upside as we think about some of those levers for this year.

John McNulty: Got it. Okay. No, that’s helpful. And then I guess just the second question just is on the balance sheet. So you’ve executed, as you kind of expected, you’ve got the balance sheet in pretty solid shape. I guess, can you speak to what you are seeing in terms of opportunities out there? It sounds like the M&A markets may be starting to kind of reopen up again. I know you had some success over the last couple of years, even when they were somewhat closed, but I guess what are you seeing from an M&A pipeline perspective? And should we assume that if it doesn’t happen, if things don’t materialize, it goes primarily towards buybacks?

Chris Villavarayan: Yeah, this is certainly something that, you know, Carl and I bounce off back and forth here John, but certainly from where Carl and the finance team have done an exceptional job getting us down to a 2.5x leverage here at the top end of our of our A plan. I – you know from my perspective we’re here a year and a half ahead of plan, and I also look at it as a great place from where the marketplace is. I think the current volatility in the marketplace is actually creating more opportunities for M&A for us. And I think the best way I can characterize this is you should expect to hear more from us on this front in the next couple of quarters. We do see the opportunity to do more in M&A as long as it certainly hits our ROIC targets or our return targets.

But with how the company has performed, structurally where we’re taking it operationally, I certainly see this as an opportunity where we can look at bolt-on’s that we can continue to create value. The last two certainly have helped us do that. And especially in this environment we certainly feel that we can continue to do more here.

John McNulty: Great. Thanks very much for the color.

Chris Villavarayan: You’re welcome.

Operator: Our next question comes from Mike Sison with Wells Fargo. Please go ahead.

Mike Sison : Hey, nice end of the year. I guess I had a question on the refinish market. You sort of noted it would be kind of flattish this year. It really hasn’t helped you a lot. Although you’ve been able to grow through – not a lot of growth in the market over the last couple of years. But where do you think we are in the refinish market? Is it a market that can grow the next couple of years? I don’t suspect we peaked here. Just give us some of the dynamics that you see that could maybe help grow the market over the next couple of years. And on the flip side, what risk do you see in ‘25 is the macro? It just seems challenging again. Thank you.

Chris Villavarayan: Thanks. Yeah, it’s a good question Mike. I think as you can see, what we’re forecasting for the market is for it to be flat to down a little bit. And so what’s driving it? I think there’s a lot of factors. There are factors that I believe are transitory. And I think there are factors that I would argue, we need to wait and see and which, which are more structural, right? And so, in terms of factors that I would call are transitory, insurance rates, you know with where inflation is, and where consumers are, and folks essentially deciding to pull spending on fixing their cars to essentially buy groceries. I think those are elements that consumer confidence can certainly change that, as well as any drop in insurance rates.

Also, something that will be a tailwind for us, is you got to remember where backlogs were in body shops, right? I mean, you go back to ‘23 backlogs were all the way to up to eight – six to eight weeks. Right now we’re actually getting back to normalized backlogs. I would call it two to three weeks and you would ask why so? I mean, if I had to wait eight weeks to fix my car, I mean either I’m just going to cash it and just work with the car I have, especially if it’s a minor collision, or you have other conditions where you have insurance companies also making calls when you are right on the edge to write-off the car. So I do believe there are elements that are transitory; elements that I would say that we, that we have to wait and see how this plays out, is obviously the destocking that we’ve seen in the marketplace, a lot of which we saw in ‘24, two very large distributors coming together and consolidating.

You would see that they’ve probably optimized their inventory platform. And so do you see that coming back? Probably not. So those are the things that we’re balancing over time. My expectation is all the transitory elements, when you start taking all that together, plus the fact that I do believe if you look at the United States, if you look at what we’re driving to return to work and miles, those are all going up. So my expectation is over time this will change, but the way we’re forecasting it, just as we did in ‘24, is to expect this market to be flat-to-down so that we over-performed. So even in this market, even in ‘25 we’re putting that as our forecast, so that we keep our teams over-performing, and anything that comes on top of that will be upside.

And again, as I answered Mike’s first question, if weather, which we haven’t tracked in all of this, you know the significant weather that we have seen this year, and again, this is something that you usually see a quarter later in Q2 or Q3, that could be a tailwind, but again, this is not something that we’re counting on at this point.

Mike Sison : Great, thank you.

Chris Villavarayan: You’re welcome.

Operator: Our next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews : Thank you and good morning, everyone. I’m wondering if you can touch a little bit more on the free cash flow. You’d raise the free cash flow guidance at 3Q, so I think about $500 million, and I think you wound up coming in below the prior guidance. So could you just bridge us to what happened between where you thought things were going to be at 2Q, 3Q, and 4Q? And then, that shortfall this year, how much of it do you think you can make back up next year? I see you’ve guided to $500 million, but that was kind of what you were expecting for this year. So if you could just help us from 2Q all the way through next year, that would be great.

Chris Villavarayan: Yeah. Good morning, Vincent. Yeah, I think for free cash flow for us, this was really just working capital and from a timing perspective. So if we kind of look at kind of what happened, and this is on a year-over-year type of kind of comparison as well, we had about a $70 million working capital, higher working capital this year than what we kind of did a year ago. And so relative to the guide, it’s really just the timing of some of the receivables and collections as it relates to that. Our account payables, if I look at my DPOs, we’re down probably six to seven days as well in the quarter. So we do think a lot of that will reverse itself and come back into 2025. We did kind of go forward with just the $500 million of free cash flow as a starting point. But as I look at the business, I would expect that should definitely be the floor. And we would hopefully drive that up as we go throughout the year, depending on, obviously, market conditions.

Vincent Andrews : Okay. And as a follow-up, the wins that you had in light vehicle, I think you cited better than industry performance in nine of the last 10 quarters. Have those wins been on index-based contracts or have they been on fixed-based contracts or no notable trend between the two?

Chris Villavarayan: It’s a combination of both. I would say on, as far as on those type of wins that we’ve had to-date. So some are index-based, some are not. Obviously, it depends on the jurisdiction and really the end customer as we think about that Vincent. But I do think, a point on Latin America for us, it was a very, very strong quarter, and that’s where we still have pretty significant upside as we kind of go forward. So we did increase the total wins that were beginning to come in, this additional wins that will be coming in 2025. So for now we’re seeing that $60 million to $70 million originally. I think we kind of gave a $50 million number. So that business will be rolling on here over the next 18 months. So we’re very excited about just what we’re seeing specifically in the Brazil market.

Carl Anderson: Just maybe only to add to that, Vincent, in terms of jurisdictions, as you know we moved our RMI indexing from about 30% of our total in mobility up to over north of 50%, and it depends on the regions. For example, in LATAM, because there’s so much volatility, we stay, we avoid RMI indexing or having something because we, the customers are used to having conversations at a much faster pace than if you were in other regions like North America or Europe.

Vincent Andrews : Okay. Thanks very much. That’s helpful.

Chris Villavarayan: Thank you.

Operator: Our next question comes from John Roberts with Mizuho. Please go ahead.

John Roberts : Thank you. And congrats on a nice quarter in guidance. Do you think you’ll be providing new multi-year targets once you’ve hit all of the 2026 A plan targets?

Chris Villavarayan: Absolutely. If you really look at this with a little bit of help from a macro, we’re forecasting all our macros to be down with this slight improvement in industrial. But just finishing on Page 12, and if you really look at the performance of where we are against our a plan and it’s something that we just released in May of last year. And even if you look at sales, sales would be up $100 million more if it wasn’t for FX. My perspective is we can accelerate a ton of this through ’25. And so my hope is that you know, maybe by the end of this year, but certainly by the beginning of next year, we release our next plan and we show you guys where we can go with this company in the future. I’m absolutely thrilled that of the performance that we’ve had to date with this company. And I do believe there’s a great upside with what else we can do with it.

John Roberts : And I apologize if I missed this, but how are you thinking about FX for both the March quarter in full ’25, both sales and EBITDA.

Chris Villavarayan: Yeah, I think John as we think about full year, we’re planning somewhere between $80 million to $100 million of FX headwinds on a year-over-year basis. So call that 1.5% to close to 2% on a year-over-year comparison. In the first quarter we’re seeing pretty close to around say $25 million, most likely $30 million of FX headwinds in the first quarter. And if you think about the EBITDA impact on that, maybe just from a Q1 basis, it’s probably in that $5 million range, which is also similar to – actually, if you kind of go back even in the fourth quarter of last year, when we put the guide out for the year, we did have FX kind of really move against us relative to our guide in October, and that was probably another $5 million headwind that we had on EBITDA Q4.

John Roberts : Thank you.

Chris Villavarayan: Thank you.

Operator: We’ll next go to Duffy Fischer with Goldman Sachs. Please go ahead.

Duffy Fischer : Yeah. Good morning, guys. A question, just when you guys talk about, like let’s say the 2,800 wins you had last year in Refinish, help us with the economics on that. Like, what would the average sales be on a win? And then what do the margins look like initially? Do you come in below average and then grow into it over a couple of years or how do we take those numbers and roll those through a model?

Chris Villavarayan: So we don’t break that out to that level of detail, but one thing I would say is it would be – I mean, as you can see in the performance of the business overall year-over-year, even if you take out a bit for pricing, what you can see is it’s coming at or accretive to the margins in the refinish business. So I think that’s the best way to characterize that. But we don’t break out the sales per shop or provide an average in that sense Duffy. But one other thing for you is, for you another way to look at this is we also provide a net number, right? So this includes – this is inclusive of what losses we have. So every time you look at this number, just look at it as always incremental sales for us, that’s coming into the portfolio.

And so you take that and you know what we do on average for pricing for the business. And you can quickly get a sense that as you can see the improvement in the business year-over-year, that it’s coming in at or slightly accretive to the overall margin of the business.

Carl Anderson: Yeah. And Duffy, if you look at just Performance Coatings, in total for the year ‘24, the margin expansion was 250 basis points. Obviously, part of that was industrial, but with refinish being the larger component of that, you could see that even with all these new wins coming on, there was still expansion during the year, which is consistent with how we how we think about [inaudible] when we go to market.

Duffy Fischer : Thank you. And then just the $10 million number that you gave out for tariffs, is that incremental just on the tariffs that are kind of being talked about, the Mexico, the China, the Canada, or is that inclusive of things like the anti dumping on epoxy into Europe that have kind of already occurred? And if it’s not inclusive of those, roughly how big has that hit been on some of these raw materials that are getting anti dumping?

Carl Anderson: Yeah, so Duffy, I think we looked at obviously as we were preparing yesterday with the fluid situation. The $10 million was really attempting to incorporate both, what we did in the 10% in China, as well as what we saw from Canada and Mexico yesterday. Obviously there’s a 30 day reprieve on that. So it’s probably a little bit less than $10 million as we think about it now, just based off what we’re seeing from that, you know from Canada and Mexico. But as it relates to some of those other anti dumping TIO [ph] too, it’s kind of already fully loaded into our outlook at this point. I think the teams have done a good job in managing around that, as we think about whether that’s inclusive of things like that, as we think about whether that’s through alternative sources, whether that’s just some other productivity initiatives that we’ve been – that we’re executing.

Duffy Fischer : Terrific. Thank you guys.

Chris Villavarayan: Thank you. Just one last thing for you Duffy. On the $10 million, I mean obviously, this is a full year view as a team. It’s not like we found out about tariffs in the last week or on Saturday. We’ve obviously known tariffs were coming for a couple of months here. One of the things that we are working is looking at onshoring and also having – making sure some of our suppliers have strategic inventories in – on continent or in the United States. And so certainly, so that’s our top end of our number based on what we thought from just the weekend, but we do. There’s mitigation activities that we can certainly drive towards that.

Duffy Fischer : Thanks again.

Operator: And we’ll next go to Ghansham Panjabi with Baird. Please go ahead.

Ghansham Panjabi : Hey guys, good morning. There’s obviously a lot of progress on your self-improvement initiatives last year. Maybe you can share some specifics in terms of what we should look forward to in 2025 at Axalta. And then for my second question, Carl, in terms of the improvement, ‘24 versus ‘25, let’s say $50 million plus or minus. Can you just summarize the bridge items? I know you call that cost savings of 30 to 40 and a bit of a tariff impact. But just, what are you embedding sort of for base volume and price on a core basis, excluding CoverFlexx. Thanks.

Chris Villavarayan: So, I’m going to start. Thanks for the question Ghansham and Happy New Year. Hey so, if I think about the self help, and if I broke it up into the three or four initiatives, overall under our transformation initiative. One of the first things that we had is to look at our SG&A. We had a plan to reduce 5% of our salaried workforce around 600 folks as with what you saw and how we announced it last quarter or for the full year of ’23. We had a target of $10 million for last year. We accomplished $20 million. Our target for this year is about $30 million, and conceptually with the, let’s call it negotiations that we put in place, inclusive of the two plans that we had in Europe and North America to close, we are on schedule or there might be a little bit of upside, but our expectation is to still hit that $30 million.

In terms of what are the other initiatives, the other one was supply chain. And again, with the current dynamics in terms of volumes and where things are moving, this remains still a very, very strong opportunity. And we certainly see this as something that we can continue to drive here. Overall across this over the three year plan we had about $25 million, and that’s certainly something that we’re going to continue to drive. Now, I think to that question in terms – the next one is productivity within our plants. And to the question about our free cash flow impact, our working capital impact. One of the elements is, capital in Q4 if you noticed actually doubled from Q3, and what we’re doing is really investing in our plants to start driving productivity.

Now, that’s not going to come quickly, but my expectation is, we’re certainly going to be in a different spot in ’26, because of the levels of investments that we’re putting. We needed – half of that investment was needed, because it’s sustaining. Going through COVID, there was a lot of capital or a lot of investments that we did not make. But I would call it a quarter to another half of it is driven towards productivity initiatives. And that certainly will come into fruit in about, I would say, the back half of this year and into ‘26. So those are the elements that I believe are what’s still left on the self-help front. That will certainly keep us going in the right path as I look to where the markets are heading for ‘26 or ‘25.

Carl Anderson: Yeah, and Ghansham just the bridge on just EBITDA year-over-year, it’s relatively straightforward and simple, the way that we’re looking at it. So I would say on the incremental $100 million or so of higher revenue, kind of at the midpoint, you should expect us to convert at that, at 35% to 40%. So call that $35 million to $40 million, which will kind of get you to the low end of the guide everything else being equal. As it relates to the transformation initiatives of the $30 million to $40 million, we believe that will be somewhat offset with labor inflation that we are expecting this year, as well as the potential impact from tariffs. I think above and beyond that, where there could be further opportunity to get to the higher point would be, you know again, right now we are assuming kind of a flattish a variable COG or a raw material environment on a net basis.

If there’s a little bit of opportunity there, that would actually help us get to the upper end of the range. And as Chris said, its productivity. I think the productivity again, if we’re successful on some of the execution items, that could provide a little bit more tailwind as well.

Ghansham Panjabi : Perfect. Thank you.

Chris Villavarayan: Thank you.

Operator: Next we’ll take our question from Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead.

Aleksey Yefremov : Thanks and good morning everyone. I wanted to come back to the refinished market and ask you about your mainstream versus premium market strategy. Any update there on how this is evolving? Do you maybe use additional M&A to enhance this mainstream market strategy in the coming quarters?

Chris Villavarayan: Yeah, so thanks for the question Aleksey, and again Happy New Year to you too. And just in terms of the premium segment, you know if you look at a lot of the body shop wins, these have been very, very focused on the premium side. The entry with CoverFlexx has really given us an opportunity into the mainstream and economy. So in terms of how well that’s working, I would say we’re largely in line with our deal dynamics that we established in buying it. I would say the market is slightly weaker based on obviously the consumer pressures, whether it’s insurance rates or here it’s a lot more where consumers are essentially pocketing the insurance claim versus investing or getting their cars fixed. But that said, the business case has been very strong and where it’s really played out well is the fact that we can drive the adjacencies, whether it’s fillers, whether it’s everything else that Axalta provides, putties and everything that we bring in from third parties with tapes and all of that, is really helping us strengthen that market.

I do believe Alexi that there’s far more opportunities and adjacencies here, especially in other regions, right. So we have obviously started here with North America, but I do believe that there are more opportunities as we think about Europe and Asia, and these are the things that we’re going to be focused here in the next two quarters.

Aleksey Yefremov : Great thanks Chris. And maybe to follow-up on Carl’s answer on the $500 million of revenue, can you provide any details on the volume versus price? You already gave us FX?

Carl Anderson: Yeah, I mean I think as we look at it in total, we are expecting as I said in the prepared remarks. You know our finish team is going to be executing some pricing actions beginning in March. If I look at price mix for the full year, we do expect it to be positive, probably up in that 1% to 2% type, volumes kind of being down a little bit, with some offsets as we think about kind of new business wins. So, if you think about the bridge, I mean we’re kind of managing it in total, that’s why I think I obviously tend to look at just the conversion on that incremental revenue into that 35% to 40% range.

Aleksey Yefremov : Great thanks a lot.

Chris Villavarayan: Thank you.

Carl Anderson: Thank you.

Operator: We’ll next go to Mike Harrison with Seaport Research Partners. Please go ahead.

Mike Harrison : Hi good morning. Congrats on a nice quarter. I was hoping that we could dig in, Chris, a little bit more on what you guys are seeing in the China light vehicle market. It sounds like you guys are pretty happy with the customers that you are positioned with. But if you look at – there’s more than 100 different car brands there. A lot of them over time could be consolidated. Do you guys view this as a threat or as an opportunity? Maybe just talk a little bit about how you are thinking about your longer term position within the Chinese light vehicle market.

Chris Villavarayan: Okay, thanks for the question Mike. Maybe I’ll break it up into three parts, because I will first give you a view of the customer dynamics, and then maybe move it into a little bit of a market dynamics, which also enables growth and why we believe strongly in this marketplace. So from a customer dynamics, the folks that we are partnered with in China, are some of the largest players especially in the EV space and on the ice side as well. What differentiated us, what enabled us to get in here early, was really I think four factors. The first one was, we worked – we started off early with companies that were just starting out and we were very, very focused on the local market, as opposed to entrenched players from the outside.

And this enabled us to build that partnership over many years. The second one, and it enabled us to be embedded in their plans. So a lot of our folks work within their plans to provide the quality, the service, the timely delivery and response. And it’s just done and just an amazing job in building the relationship. And that second element of it is really around the relationships between our teams and there’s over time in developing the colors. China has just done an amazing job of breaking boundaries. The customers demand for color. It just breaks boundaries and that’s something that we’ve always been there. And the last element of this is, as we work through these two, we put in capacity, I believe, before many others, and had the capacity as they were growing.

We built a new plant, we expanded a plant and all of that really enabled us to grow. So the strength that we have with the large players, to your point if there is any consolidation, my expectation is that the large players will lead a lot of the consolidation and we have a good place there. The second part of this is, specific to the market dynamics. The stimulus has helped, but I think it’s been a part of their growth story. Obviously the capability that the – the new vehicles coming out of China, especially on the side, the electronics and just the interaction with the vehicles have really played a part, and just that demand is not only a China specific demand, but we’re certainly seeing it in Southeast Asia. So, I think, China’s become the manufacturing hub for, again as I said, Malaysia, Indonesia, Australia, New Zealand, Bangladesh.

I mean, and even Sri Lanka and that demand is also pushing demand for us from a refinish standpoint, because we supply the customers. So, this relationship has been great on both those two fronts, and the final expectation is, I do think China is going to drive to make sure that, specific to this industry, that the demand stays strong beyond stimulus going forward, and all of this will play well for us in ‘25.

Mike Harrison : All right, thanks for that. And then I was hoping that you could also talk a little bit more about this agreement Dürr with on digital paints. Maybe talk about how this partnership can help you accelerate the commercialization of the NextJet product line.

Chris Villavarayan: Sure, great. Thanks for the question on this one. This is certainly something that we are proud of and a true credit to the Mobility team. Hadi was the President there and his team and the great work that they’ve done driving this. Durr is a leader. I mean, they have over 50% of the robotics and systems in OE plants, and they are just putting two leaders together, us from the coating side and putting them together and the ability for us to essentially coat, two-tone a car. So imagine, if you had to change the paint of a black or coat a black roof or a hood, the normal process is it goes through a paint process. It’s pulled off to an offline process, and that is done and it creates inefficiencies and it creates cost.

And what we’ve been able to do is through this process, put it through the main line and its bringing two strong companies together. And I believe this technology, it’s not just two-toning hoods, but whatever you want in terms of essentially putting a logo or putting something specific on a car. That’s something that we’re able to do right off the main paint line. It’s a great technology and something that we’re absolutely proud of. The additional feature here from a sustainability standpoint is the over spray coming from this is negligible. So, the amount that we drive in terms of reducing over spray and paint is something that I think will be a great win for OEs as well in the future.

Mike Harrison : Thanks very much.

Chris Villavarayan: You’re welcome.

Operator: We’ll next go to Jeff Ziolkowski with JP Morgan. Please go ahead.

Jeff Ziolkowski: Thanks very much. Two questions. In order to hit your free cash flow target for next year, your cash flow from operations has to rise by, I don’t know, a $100 million or $150 million. So I take it, one principle way you would do that is increasing accounts payable. Is that a big piece of that increase? And secondly – I’m sorry, go ahead.

Chris Villavarayan: Oh, no, yeah, just to answer maybe the first question there Jeff.

Jeff Ziolkowski: Sure.

Chris Villavarayan: Yeah, I think it’s specifically within working capital. I think there’s a couple of different things. I think one is, as I did reference, our DPOs did dip a lot lower in the fourth quarter, kind of I would say more abnormally. So that would, we would probably normalize that. So, that’s called sex, seven days. So that’s going to be definitely a piece of the story. And then on account receivables again, I think there continues to be some further opportunities. We think about managing that as we kind of go forward, and of course inventory will continue to be in focus for us. I think the teams did a very good job late in the year, but I think we need to see a consistent performance as we think about ‘25.

Jeff Ziolkowski: And then for Chris, if it turned out that there really were 25% tariffs on Canada and Mexico, what do you think that would do to the price of a car made in the U.S.? And how do you think it would affect car production?

Carl Anderson: So first, maybe in terms of – I kind of look at it from our perspective first, and then maybe I’ll bring it. If I think about it, and we certainly – you know since the weekend, we were very, very focused in terms of looking at how much of an impact this would have on us. And in reality, if I think about the number of cars that are built in Mexico and Canada, this would affect about 5% to 6% of our revenue. Now, in terms of the impact. For a car, this would have about a $3,000 impact per car. However, as I said, the threat of tariffs is not something new. We’ve known about this for a couple of months. So we’ve certainly – the mobility teams have certainly started working with our OE’s, because the OE’s have been making plans to look at, at least the ones that we’ve been associated with, to look at moving production, looking at what they can do to offset a lot of this.

And there are specifics also when you think about what’s actually built, components that are built in the U.S., and then shipped to Mexico as part of an overall assembly strategy and then brought back. So there are elements of this, but overall, I would say the impact on a car is about $3,000, but my expectation is over – based on the time we have and over the time we have, the OE’s will be driving significantly to find measures around that, and that is what we’re absolutely focused with our customers to make sure that we help them off that.

Jeff Ziolkowski: Thanks so much.

Chris Villavarayan: You’re welcome.

Operator: And our last question comes from Steve Byrne with Bank of America. Please go ahead.

Rock Hoffman : Hi, this is Rock Hoffman and on Steve Byrne. Just drilling into refinish, within the 2,800 net body shop wins, what fraction of those are adopting Irus Mix? And has your view of the market potential for this technology expanded beyond high end premium facilities?

Chris Villavarayan: No, we’re still very focused on the high end Premium facilities. I would say the 2,800, most of those are just starting without the Irus Mix. We’re using the Irus Mix, actually launching it in Europe. And a lot of that is with our premium customers in Europe. Again, next year we’re doubling the number of installations. There is probably a good chance that some of those 2,800 might have those. But at this time, we’re starting with our customers that have been with us for a long time, and making sure that they have the access to the equipment first.

Chris Villavarayan: And so I think that’s it to close. I did want to take a minute and really say, I’m really excited about what’s happening here Axalta. It’s been two years since I’ve joined this incredible team, and since then, we’ve worked closely together towards a common a plan goal, to optimize all areas of this great company and perform at a higher level. The improvement that we have made over this period clearly shows that we are onto something. In two years we have increased sales by more than 8%, expanded EBITDA margins by 460 basis points, EPS by 46%, free cash flow by 177%, and improved the leverage from 3.8x to 2.5x. This would not be possible without the dedication and company pride of every single employee here, and I am absolutely thankful for that.

It’s been an amazing ride, and it’s exceeded my expectation in every single way, and I can’t wait to show you what we’re going to do in 2025. Happy New Year, everybody, and I look forward to working with you this year. Thank you.

Operator: Thank you. This does conclude today’s program. Thank you for your participation. You may disconnect at any time.