Quaker Houghton

Greetings and welcome to the Quaker Houghton first quarter 2022 earnings conference call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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, Kyle. Good morning, everyone. Welcome to Quaker Houghton's first quarter 2022 earnings conference call. Joining us today are Andy Tomatic, our chief executive officer and president, 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, May 5th, 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. This presentation also contains certain non-GAAP financial measures. The company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For more 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. Quaker Houghton delivered first quarter results that were in line with our expectations, despite another quarter with an extremely challenging backdrop. We delivered record net sales and growth of approximately 10% compared to the first quarter of 2021. This was driven by strong price capture aimed at mitigating the significant inflationary pressures on our margins. In the quarter, we expanded our portfolio of leading technical capabilities through two small acquisitions. We also invested in productivity initiatives. and we remain focused on providing best-in-class products and solutions to better serve our customers. In the first quarter of 2022, we achieved $474 million of net sales, adjusted EBITDA of approximately $60 million, and adjusted diluted earnings per share of $1.42. Results in the quarter can be characterized by strong revenue growth fueled by significant pricing actions and broadly favorable demand environment. But we were challenged by a high degree of uncertainty caused by inconsistent raw material availability, persistent and significant inflationary pressures, and ongoing supply chain disruptions that limited our ability to capitalize on additional growth opportunities. This was further amplified by geopolitical events that posed even greater challenges. Nonetheless, the team executed well, and despite the degree of the cost headwinds that we faced, we delivered stable gross margins compared to the prior quarter. Our revenue increased 10% compared to the prior year period, with price-led growth in all of our segments. And while selling price and product mix increased 17% compared to the prior year, organic volumes declined. This was in line with our expectations and was primarily attributable to the difficult comparison to a very strong first quarter of 2021. Sequentially, the company's organic sales volume increased approximately 3%, as continued new business wins were partially offset by sequentially lower volumes in China. Shane will shed more light on the moving pieces of the comparison momentarily. Switching to our operating segments, price capture was strong across all of our segments. both on a year-over-year and sequential basis. Volumes increased in our global specialties business, which benefited from strong demand in greases, in aerospace, and continued momentum in aluminum cans. Volume declined modestly in our other regional segments compared to a very strong prior year. However, volumes increased sequentially in all of our segments except Asia Pacific, which reflected lower activity in China due to the Lunar New Year the Olympics, and more recently, the production curtailments related to China's zero COVID policy. Supporting our growth is our ability to gain new business throughout the portfolio. We estimate our net new business wins contributed approximately 2% to sales in the first quarter of 2022. This continued success reinforces our confidence that Quaker Houghton is well positioned to leverage the scale and the capabilities of the combined company. Building on our customer-intimate model with our targeted investments, we will continue to drive long-term growth above market growth rates by providing value-added, innovative solutions to our customers around the world. While sales remain positive for us again this quarter, the increases in our raw materials and other costs, as well as supply chain constraints, remained a challenge. Our basket of raw materials increased over 5% in the first quarter of 2022 and are up more than 40% year over year. Similar to last quarter, in certain instances, raw material availability limited our sales growth, including our ability to secure new business. The continued inflationary pressures on our raw materials, manufacturing, and other costs were the primary drivers of the downward pressure on our gross margins in the first quarter of 2022 compared to the prior year. However, our realized pricing has again largely offset the dollar impact of the raw material inflation through the first quarter. But it's clear that recovering our gross margin percentage to pre-pandemic levels is a top priority for the company. We are implementing further aggressive pricing actions in the second quarter and have more planned as we expect the complexities of supply chains will continue to impact raw material pricing and availability through 2022. Continuity of supply and product availability are critical to our customers' operations, and we remain committed to prioritizing their needs by leveraging our global sourcing capabilities and expertise. This is a prime example of where we earn value at our customers. Our R&D and field experts also partner closely with our customers to offer innovative, value-enhancing solutions that improve our customers' processes and lower total cost of ownership. These collaborations build lasting partnerships with our customers. This is a clear competitive advantage for Quaker Houghton and highlights the power of our technical capabilities and global scale, which are essential to the success of our customers and our company. With our customers' value-driven approach and differentiators, we are encouraged by the demand outlook for our products and services globally. Assuming the current environment is not overcome by the ongoing geopolitical and macro events, especially in China, it also remains our expectation that gross margins will begin to improve later this year. So as we step back, the first quarter demonstrated execution against our clear priorities. We are still at the onset of our journey and have a lot of work to do, but I'd like to re-emphasize our core priorities. First, we are focused on our strategic pricing initiatives, which are aimed at recovering our margin profile to pre-pandemic levels. Second, we are committed to growth through new profitable business wins and increasing our share of wallet with our current customers. And third, we are investing in our business, to drive a meaningful multi-year improvement in our systems and processes to drive more productivity, generate more value with our customers, and execute on our 2030 sustainability goals. Additionally, the strength of our balance sheet and free cash flow profile will enable us to remain opportunistic with attractive and accretive deals, bolstering our product offering and geographic approach. Turning to the outlook, I am encouraged by the current demand profile across our end markets. However, this outlook should be taken into context of the recent geopolitical events that have magnified the uncertainty in the market, most significantly in China. To that end, in the second quarter, we expect sales to be negatively impacted by production curtailments in China, principally due to the zero COVID policy shutdown, which went into effect in March and remains in effect. As a reminder, China represents less than 20% of sales for Quaker Houghton. Though the extent of the lockdowns are not yet fully understood, if the restrictions remain in effect, we estimate China production could be halved in the quarter. With this uncertainty, specifically in China, we'll pose some new near-term challenges. It does not alter the confidence in our strategy or the overall direction of our company. we remain focused on delivering on the items within our control. As such, in adding to the specific pricing increases in the second quarter, we will implement additional global price increases above anticipated raw material inflation, which will begin to flow through the results in the third quarter. So while we expect gross margins to be slightly down in the second quarter compared to the first quarter, due in large part to the estimated impact of China COVID restrictions, It is our expectation that gross margins will improve sequentially in the third quarter as we capture the benefit of our aggressive pricing actions and targeted cost actions. Together with a favorable demand environment and the assumption that China production will recover, we expect strong year-over-year EBITDA growth in the second half of the year. To summarize, I'm confident in our differentiated customer intimate strategy underpinning the growth engine that is Quaker Houghton. I'm pleased with our execution in the quarter, which saw price and mix increases another 3% over the fourth quarter of 2021, while earning new business. We expect continued price capture as we progress throughout the year, which should help to begin to drive to a recovery in margins. I'm encouraged by the demand outlook, albeit with reduced near-term visibility, especially related to China. and believe our investments in technology and systems will increase our productivity and enhance our offerings to our customers. We are better leveraging our innovation engine around the world, driving deeper customer relationships with the proper tools and capabilities for the future, and working to get more deeply embedded in our customers' workflows. Together with our value-based pricing initiatives, we are taking necessary action to improve our business. We are not standing still and we are determined to drive results. We believe our model positions us well, especially when raw materials and other inflationary pressures eventually recede. Positive momentum is evident in our business. We have a prudent capital allocation strategy and a solid and experienced playbook to unlock our growth potential. I'm optimistic about the many opportunities ahead. Finally, I don't want to miss the opportunity to highlight that we released our 2021 Sustainability Report, where we outlined the progress we've made on our 2030 goals. Our commitment to sustainability is at the core of Quaker Houghton. We continue to deepen our understanding of the changing landscape and are investing to find innovative ways to deliver long-term shareholder value in a transitioning world. With that, I'd like to pass the call to Shane to review our financial results in more detail. Shane?