Quaker Houghton

Greetings and welcome to the Quaker Houghton third quarter 2023 earnings conference call. A brief question and answer session will follow the formal presentation. You may enter the question queue at any time by pressing star one. 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, Vice President of Investor Relations. Mr. Schnell, you may begin.

Thank you. Good morning. and welcome to our third quarter 2023 earnings conference call. On the call today are Andy Tomicich, our president and chief executive officer, Shane Hostetter, our executive 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, November 2nd, 2023. Our press release and accompanying slides can be found on our investor relations 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. and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure 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. The third quarter was another strong quarter for Quaker Hub. We achieved consistent top-line performance and further enhanced the profitability of our business, delivering another consecutive quarter of double-digit increases in adjusted EBITDA and non-GAAP earnings per share. Cash flow was also higher in the quarter. We have generated approximately $200 million of operating cash flow year-to-date, a record for the company, providing significant balance sheet optionality for the enterprise. Net sales were $491 million in the third quarter, similar to the prior year. We continue to benefit from our value-based pricing actions and cost management, which helped offset sustained soft end-market activity in a challenging operating environment. Volumes declined approximately 3% compared to the prior year after excluding the impact of the wind-down of tolling for products divested as part of the combination. However, sequentially volumes improved slightly and have been largely stable as we progressed throughout the year. We are encouraged by demand in our aerospace, automotive, and China businesses, but we are being impacted by softer steel and industrial activity, as well as customer order patterns, primarily in the Americas and Europe. Positively, we continue to gain additional business with new and existing customers, and we are pleased that these gains are trending at the high end of our long-term range. This drives us to outperform our end markets, as we are doing in 2023. The diversification of our broad portfolio is also providing resilience in the current dynamic market environment, and our people are continuing to deliver, supporting the productivity, sustainability, and growth of our customers and our company. In the third quarter, pricing increased an additional 2% compared to the prior year and has increased 11% year-to-date. We remain focused on earning value with our customers for the products and services we provide. While we continue to implement targeted actions that are balanced with our cost to serve, The pace of pricing gains is anticipated to slow in the coming quarters. Throughout 2023, we have made significant progress recovering our margin profile while balancing customer relationships and the long-term aspirations of our business. Gross margins in the third quarter were 37.4 percent, nearly five percentage points higher than the prior year, and our fifth consecutive quarter of year-over-year margin improvement. This was a result of a combination of our value-based pricing actions, product mix, and cost management, as well as a slight moderation in raw material costs that still remain at historically elevated levels. In the third quarter, we generated adjusted EBITDA of $84 million and $2.05 of non-GAAP diluted earnings per share. a 20% increase compared to the prior year. Our financial results are primarily driven by consistent execution, driving a recovery in our margins by focusing on solutions our customers value as we manage the ongoing, unsettled, and complex market environment. Despite these challenges, we continue to control what we can control. we generated $83 million of operating cash flow in the third quarter and approximately $200 million year-to-date. This is a testament to the strong cash generation capabilities of Quaker Houghton. The year-over-year improvement in our cash generation reflects not only the increase in our earnings, but also improved working capital management. We have continued to further strengthen our financial position and we have paid down $127 million of debt in 2023. With this performance, the company is well positioned to capitalize on the organic and inorganic opportunities ahead. Turning to our segments, we once again delivered earnings and margin performance in all of our segments on a year-over-year and sequential basis. We continue to contend with a soft demand environment compared to the prior year, especially in the EMEA and Americas segment. Volumes in the Asia Pacific segment increased due to a broad improvement in underlying demand. Notwithstanding, our results are generally in line with our underlying markets. On a sequential basis, overall volumes improved, comprised of an increase in Asia Pacific, a decline in EMEA, and flat volume in the Americas. We are pleased to see above-market volume performance in Asia-Pacific, led by new business wins in China in both metals and metalworking. We expect to continue to grow from these current low levels in Asia-Pacific in the fourth quarter and in 2024. Sequentially, volumes in the Americas remain steady in the third quarter, despite some incremental headwinds in the packaging and industrial market. The impact of the UAW strike was not a significant driver in the quarter. That said, we have continued to increase our share of wallet in 2023 in the Americas. EMEA continues to be impacted by soft market conditions and uncertainty. We expect demand in the EMEA market to remain at trough-like levels through the end of the year. We have continued to improve our cost position and financial performance in EMEA and are cautiously optimistic the market in the Americas and EMEA will begin to recover in the coming year. We have executed very well in 2023, despite a considerable amount of uncertainty, difficult market conditions, and limited visibility in many of our end markets and regions. Looking to the fourth quarter, we are encouraged by improvement in some products and end markets. We expect the current tepid demand environment will likely continue through the balance of the year. We also anticipate some increased variability in customer order patterns in the fourth quarter as companies manage their own working capital. If ratified, the three recently announced tentative agreements with the UAW will lessen the impact in the fourth quarter. By region, we expect a sequential improvement in the Asia Pacific region, led by China, and for demand to remain at lower levels in the Americas and the EMEA regions. We anticipate the fourth quarter will follow a more normal seasonal trend compared to recent years. However, we continue to expect to deliver another quarter of year-over-year improvement in adjusted EBITDA. We also expect another quarter of solid cash generation. In summary, we are on track to deliver a meaningful improvement in margins, in a strong double-digit increase in earnings in 2023. Additionally, throughout this year, we have generated significant cash flow, invested in our business, increased our dividend, and strengthened our overall financial position. Looking towards 2024, we are squarely focused on profitable growth. By advancing our strategy, including contemporizing the organization, and enhancing the value we provide to our customers. While macro and end market visibility remains limited, we believe the destocking impacts our customers have faced are largely behind us, and we are cautiously optimistic on many of our end markets for 2024, including automotive and aerospace, as well as our China and emerging markets businesses. Taken together, we expect to grow volumes above our market rates in 2024. We are also making progress on our cost and efficiency actions and remain laser focused on earning share of wallet through additional customer valued solutions. We have built momentum in our business and we are well positioned heading into 2024. As we continue to manage the immediate realities of the world, the leadership team at Quaker Houghton remains fully committed to our enterprise growth strategy and driving long-term value for stakeholders. Much of our focus over the past two years has centered around mitigating the top financial and operational risks the company faced and driving efficiencies to further optimize our delivery of customer-valued services and solutions. Our strong business model and financial position has also enabled us to simultaneously continue investing in developing future opportunities. As I have highlighted in previous quarters, Our strategic pillars are centered around leveraging our global scale, deploying digital capabilities, and leading in sustainability. These pillars are positioning Quaker Houghton to continue to meet the current and long-term needs of our customers and deliver value for our company and our shareholders. One area of focus is to leverage our scale to advance the intimacy of our model. There are several commercial initiatives underway and I am pleased with the early progress. For example, we are optimizing our current direct and indirect channel strategy. We are advancing our capabilities and partner strategy to effectively and efficiently deliver the level of service and support that customers value more exactly. This will be further enhanced with our fluid intelligence offering as we deploy digital capabilities to complement our service model which will in turn provide openings to both deepen relationships with our customers and improve the productivity of our people, as well as our customers' operations. We are also working to accelerate opportunities to increase wallet share, supported by our scale. One example is through better leveraging our full global technology portfolio, including expanded sustainability options into new and existing markets. This is especially true with our portfolio of advanced and operating solutions, whether for developed or emerging geographies. We have added talented local leaders and experts who are working closely with our global strategy, R&D, and other teams to advance our efforts, many of which were made possible by the combination. We expect to realize some additional benefit from these ongoing efforts, which are making good use of our global scale in 2024 and beyond. These important initiatives are just some of the ongoing activities that are bringing our enterprise strategy to life. They are natural extensions of our differentiated approach, building on the foundation of providing customer intimacy. In summary, we are focused on capitalizing on the positive momentum we have built, and we are fully committed to further unlocking our potential. We have a strong market position in our industry, which in turn has attractive long-term growth characteristics. We are making meaningful progress on our financial and operational priorities and have significantly improved our margin profile, strengthened our balance sheet, and are demonstrating the strong cash generation capabilities of Quaker Health. We are focused on driving success for and with our customers and earning new businesses supporting our customers as they pursue new opportunities, as well as manage through the challenges impacting their business. We continue prudently investing to advance our growth initiatives, building on our strong foundation. It is through our strategic pillars that we will deliver profitable above market growth in 2024 and beyond. I'm proud of our execution through 2023. delivering on our financial, operational, and strategic objectives while managing through a myriad of challenges that have impacted us and our customers. I am confident in the Quaker Houghton team who continue to develop and deploy our leading portfolio of products and services in our differentiated, customer-intimate, solution-based business model. And I remain excited by the opportunities we have together to enhance the value of our customers and our business as we generate long-term value for shareholders. With that, I'd like to pass it over to Shane to discuss the financials.