Quaker Houghton

Greetings, my name is Daryl and I will be your call facilitator this morning. At this time, I would like to welcome everyone to Quaker Houghton's fourth quarter and full year 2021 earnings conference call. The question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Senior Director of Investor Relations. Mr. Schnell, you may begin.

Thank you, Daryl. Good morning, everyone. Welcome to Quaker Houghton's fourth quarter and full year 2021 earnings call. Joining us on the call today are Andy Tomatic, our Chief Executive Officer and President, and Shane Hostetter, our Senior Vice President and Chief Financial Officer, and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 24, 2022. Our press release and accompanying slides can be found on our investor website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. Today's discussion and materials also contain certain non-GAAP financial measures. and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now, it's my pleasure to hand the call over to Andy.

Thank you, Jeff, and good morning, everyone. In 2021, we made significant progress on our priorities in a very challenging environment. as our team demonstrated resilience navigating through a variety of headwinds. For the full year, we delivered 24% revenue growth and approximately 13% higher volumes. We also augmented our portfolio through acquisitions and implemented strong pricing actions to mitigate persistent cost pressures. We generated record sales and record adjusted EBITDA in 2021. We delivered on our $80 million of communicated synergy targets invested in productivity initiatives, reduced net leverage, and we delivered positive free cash flow. Turning specifically to the fourth quarter, we achieved $447 million of net sales, adjusted EBITDA of approximately $61 million, and adjusted diluted earnings per share of $1.29. Performance in the quarter can be characterized by strong revenue growth, fueled by significant pricing actions and healthy demand. However, we were challenged by higher than expected raw material cost escalation and supply chain pressures, which in turn impacted our margins. Despite these unprecedented challenges, the team executed well. In the fourth quarter, our revenue increased 16% from the prior year, with progress in all of our segments. Our revenue growth was primarily driven by strong pricing actions throughout the year, as well as the positive contribution from acquisitions. Organic volumes declined modestly compared to the prior year, despite new business wins. However, this was a function of lingering supply chain constraints, especially in automotive, as well as some shipping and logistics delays, and lower volumes from business we divested in conjunction with the combination. Excluding the impact of these items, total organic volume growth was consistent with the prior year period. By operating segment, organic volumes increased in Asia Pacific and in our global specialties business. Excluding the impact of the divested volumes, the Americas' organic volumes were consistent with the prior year period, while EMEA declined because that is where we saw the biggest impact from automotive and delayed shipments. Importantly, pricing increased across all of our operating segments, both on a year-over-year and sequential basis. It's also important to note that our ability to gain new business continues to contribute to our underlying performance, as we estimate new business wins contributed approximately 2.5% to sales in the fourth quarter of 2021. This continued success gives us confidence that Quaker Houghton is well positioned to expand our share of wallet with our customers, especially as they grow. Through our customer intimate model, we deploy our R&D capabilities and leverage the scale of the combined company with the expectation to continue to outpace market growth rates as we provide value-added solutions to our customers around the world. While sales remained positive for us in the quarter, the clear negatives were again the continued increase in our raw material costs, as well as supply chain and logistics constraints. Our basket of raw materials increased another 10% compared to the third quarter. The increase in costs in the fourth quarter were simply higher than we had anticipated. Also, similar to last quarter, in certain instances, raw material availability limited our sales growth. Nonetheless, we continue to prioritize our customer needs, including continuity of supply. Our ability to do so highlights the power of our global scale and our customer intimate model, which are critical to the success of our customers and Quaker Houghton. These increased costs were the primary drivers of the downward pressure on our gross margins in the fourth quarter. Though we have successfully implemented price increases, the magnitude of the inflationary pressures ultimately exceeded our expectations. As such, we have been implementing further pricing actions across our businesses. Our current expectation is that gross margins will begin to improve in 2022. So while I'm pleased with our execution, we have more work to do to recapture our margins as we demonstrate the value of our products and services as key components of our customer intimate model. In total, 2021 marked a significant step change in our profitability as we projected entering the year. We delivered $274 million of adjusted EBITDA for the full year, an increase of approximately 23% compared to the prior year. In 2021, we generated approximately $49 million of operating cash flow, despite a significant increase in working capital. Our balance sheet is strong, and our net leverage is near our targeted level, all the while we've remained active on M&A. The four acquisitions we completed in the fourth quarter and early in the first quarter of 2022 expanded our technology capabilities and geographic reach and are expected to add approximately $20 million in revenue and approximately $4 million in adjusted EBITDA for 2022. We will continue to remain opportunistic, executing on accretive deals at attractive multiples. Turning to the outlook, demand remains healthy across our end markets, with auto being the clear exception, as semiconductor chip availability limits production. In the first quarter, we expect to see new net sales, business wins, but we will contend with a difficult volume comparison versus the strong first quarter of 2021. We also face some headwinds in China, as well as the impact from divested volumes. We do anticipate benefiting from prior pricing actions and from the incremental pricing actions we have been taking throughout the quarter. These strategic pricing actions are essential and may also result in reduction of lower margin volumes. As I mentioned earlier, the headwinds that challenged our business in the second half of 2021 remained. as we expect raw material costs will continue to rise in 2022, but at a decelerating rate, with the largest impact in the first half of the year. Considering all factors, we believe gross margins will begin to recover as we progress through the year. We believe 2022 will be another strong year for Quaker Houghton, with net revenue growth above our long-term trend due to pricing. Our playbook has familiar drivers. One, grow in our end markets as they continue to recover and expand. Two, continue to earn new business wins. Three, capture the benefit from pricing actions. And four, improve our product and total gross margins as we work to offset the raw material and other cost inflation. All translating into another year of adjusted EBITDA growth. Stepping back, I'm confident in the growth engine underpinned by the customer intimate strategy at Quakerhout. It is a clear differentiator in the marketplace and only possible due to our highly skilled and dedicated people. I'm optimistic about the path forward and encouraged by the demand outlook and momentum in our business. Importantly, I'm convinced that we will continue to grow by providing the best products, services, and solutions to our customers. Our journey is just beginning. Our focus has shifted from integration to maximizing the benefits of our scale, footprint, and competencies. We can evolve and expand the success of our core business, accelerate our innovation engine for customers around the world, drive deeper customer relationships with tools and capabilities for the future, and get further embedded sustainably in our customers' workflows. We intend to invest to accelerate these growth initiatives over the course of the next few years. We will further develop our capabilities and improve our productivity and profitability as we invest to better enable our customers to keep pace with the demands of a changing world. The future is bright, and I'm excited about the opportunities that lie ahead. With that, I'd like to pass the call to Shane to review our financial results in more detail. Shane?