Quaker Houghton

Greetings. Welcome to Quaker Houghton fourth quarter and full year 2023 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, Vice President of Investor Relations. Mr. Schnell, you may begin.

Thank you. Good morning. and welcome to our fourth quarter and full year 2023 earnings conference call. On the call today are Andy Tomatic, our President and Chief Executive Officer, Shane Hostetter, our Executive Vice President and Chief Financial Officer, and Robert Trout, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 29, 2024. 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. 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 is my pleasure to hand the call over to Andy.

Thank you, Jeff, and good morning, everyone. Quaker Houghton finished 2023 strong. For the full year, we generated record net sales of $1.5 billion, adjusted EBITDA of $320 million, and non-GAAP earnings per share of $7.65. We also showcased the cash generation capabilities of the enterprise, generating a record $280 million of operating cash flow for the full year, strengthening our financial position. Our performance was empowered by the team's ongoing execution on our margin initiatives aimed at improving the profitability of our business. And our focus on the future never wavered. In 2023, we made considerable progress advancing our enterprise strategy and enhancing our customer intimate model, delivering valuable services and solutions to our customers. Together, we successfully managed through significant macroeconomic headwinds that our company and our customers have faced, and I am proud of our collective accomplishments in 2023. Our results in the fourth quarter were in line with our expectations. Fourth quarter net sales were $467 million, 4% lower than the prior year, but with stable volumes. Net sales were down 5% compared to the third quarter, but largely in line with our expectations. And the fourth quarter normally has seasonal impacts, primarily in the Americas and EMEA segments. The fourth quarter and the full year highlighted the resilience of our business. In fact, our volumes in 2023 have remained stable sequentially throughout the entire year, despite the challenging end market conditions in all regions. In 2023, we focused on our top financial priority of recovering our margin profile. while balancing customer relationships and the long-term aspirations of our business. Our team delivered. Gross margins in the fourth quarter were 36.6%, nearly 4.5 percentage points higher than the prior year, and near our long-term target range in a seasonally lower quarter. This improvement reflects successful execution on our margin recovery initiatives, as well as moderating raw material costs. which remain at historically elevated levels. In the fourth quarter, we also generated adjusted EBITDA of $77 million, a 13% increase year-over-year, and $1.78 of non-GAAP diluted earnings per share, a 28% increase compared to the prior year. These results were a function of our clear focus on providing the best solutions for our customers as we worked together managing the complexities of the market environment. Cash flow was a highlight once again in the fourth quarter. We generated an additional $81 million of operating cash flow in the fourth quarter, and in total, we generated $279 million of operating cash flow in 2023, driven by our improved operating performance and active working capital management. In addition, our strong cash generation enabled us to reduce our variable rate debt by approximately $200 million in 2023. Our net leverage ratio also improved and is now 1.8 times adjusted EBITDA, the lowest level since the combination in 2019. Our strong cash flow and strong financial position continue to provide significant optionality for the enterprise to generate long-term value. Turning to our segments, we once again delivered improved earnings and margin performance in all our segments on a year-over-year basis. As expected in the fourth quarter, market conditions remained soft in both metals and metalworking, and our volumes largely reflected our underlying markets in each region. Volumes in the Asia Pacific and EMEA segments increased compared to the prior year's same quarters. Our increase in the EMEA segment was due to the timing of orders and new business wins. And while EMEA volumes improved slightly in the fourth quarter, volumes in this segment remain significantly below normalized levels, as industrial activity remains constrained in the region. The year-over-year increase in our volumes in Asia Pacific segment in the quarter was due to an improved demand in both metals and metalworking across Asia. China itself was consistent with the prior year period, which was a solid result considering the Lunar New Year was more of a benefit to the fourth quarter of 2022. Volumes in the Americas segment declined compared to the prior year, largely reflecting the softer overall demand environment, especially in industrial applications. Our metals business saw improved volumes in the Americas. On a sequential basis, overall volumes in the quarter declined approximately 3 percent. This was comprised of increases in EMEA and Asia Pacific and a decline in the Americas, primarily relating to normal seasonal patterns. I am pleased that we continue to perform in line or better than our underlying markets while also taking actions to better position the company for long-term profitable growth. I expect we will continue to grow from these low levels as we move through 2024. Switching to the full year, 2023 was a successful year for Quaker Houghton. We are encouraged that volumes have remained stable throughout 2023, despite soft underlying end market conditions and our prudent margin improvement initiatives. Importantly, we continue to gain additional business, and these gains are trending within our expected long-term range. We remain focused on earning appropriate value for the product and service solutions we provide. In 2023, price and product mix increased approximately 7% year over year. Combined with a moderate improvement in raw material costs, we drove a 460 basis point improvement in gross margins, and a 25 percent increase in adjusted EBITDA while continuing to invest in our people and our growth pillars. And as I mentioned previously, we also generated record cash flow in 2023, strengthening our balance sheet. In summary, our 2023 performance positions us to invest in and capitalize on the opportunities ahead. Switching to the outlook, we expect another solid year for Quaker Houghton in 2024, building on the accomplishments we have already achieved. Beginning with the first quarter, we anticipate that the current difficult market conditions and uncertainty will persist. We expect a seasonal improvement in demand led by the Americas, and to a lesser extent, the EMEA segment, which will in turn drive an increase in net sales compared to the fourth quarter of 2023. And while trends in Asia Pacific segment appear to be improving, growth in that region will be tempered in the first quarter compared to the fourth quarter due to the Lunar New Year holiday. We remain encouraged by the demand outlook in aerospace and primary metals markets, as well as our China and greater Asia Pacific businesses. While material costs have stabilized and we expect gross margins will be similar to fourth quarter levels, Therefore, we expect adjusted EBITDA growth on a sequential and year-over-year basis in the first quarter of 2024. For the full year, we expect the current end market environment will likely persist throughout the first half of 2024. We are cautiously optimistic on end market and raw material cost outlooks, and we expect to continue benefiting from the diversification of our portfolio, leading to volume growth in 2024. Our team is highly focused on executing on our priorities, controlling what we can control. We have demonstrated considerable progress on our margin recovery journey, and we have more opportunity. We also anticipate making further progress on our enterprise strategy, investing in our foundation, advancing our growth pillars, and contemporizing our organization. We will continue investing in our talented people, as well as our internal systems and processes, building our capabilities and advancing our customer intimate model for the future. Taken together, we expect to deliver another year of earnings growth in 2024. And consistent with our history, we also forecast another strong year of cash generation. We remain committed to our capital allocation priorities, investing in our organic growth, paying dividends, advancing our bolt-on M&A strategy, and strengthening our balance sheet through debt repayment. Additionally, while we intend on prioritizing growth investment, consistent with our commitment to enhancing shareholder value, our board has also approved a new $150 million share repurchase authorization. Quaker Houghton is fully committed to our growth strategy. The end market environment has continued to test our resolve, but our team has not lost focus on our priorities, centered on enhancing the value we provide to our customers. We have managed through the immediate challenges our business has faced while maintaining our focus on the future. We have also improved our foundation. We are driving efficiencies and we are optimizing our processes and offerings. augmenting the durability of our differentiated, customer-intimate business model. Our strategic pillars remain centered on 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. Leveraging our scale remains a critical way to advance and optimize the intimacy of our model, including with our direct and indirect channel strategy. We initially embarked on this improvement area in the U.S., and we expect to make further progress on this work in 2024, expanding into Europe. Leveraging our global scale also helps to drive new business wins. We do so by deploying, reinforcing, and expanding the full capabilities of our technology portfolio. Consistent with this, in the first quarter, we bolstered our portfolio of specialty greases with the acquisition of IKV Tribology in Europe. This acquisition complements our portfolio of advanced and operating solutions and will help accelerate our growth in these areas. We also continue making progress on our digital transformation. We successfully completed a phased launch of the latest iteration of our Fluid Trend platform, which was a significant milestone in our multi-year digitization journey. This, as well as our more general focus on data and internal process improvements, will help transform how we effectively and efficiently deliver customer intimacy in the future. And we are also well underway leading in sustainability. and committed to achieving our short, medium, and long-term objectives. As an example, the electrification of the automobile is providing several nascent but real and meaningful opportunities for us to accelerate our growth. These new opportunities have tremendous challenges and complexities, which is exactly the space where we thrive. We are working diligently to develop and drive leadership with value-adding solutions in these areas for our customers. These are just some of the examples of the important initiatives that we are advancing at Quaker Houghton. They are natural extensions of our differentiated customer intimate approach and are additive to our potential as we position the company for the decades of growth ahead. Overall, we remain focused on and committed to capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential. Our industry has attractive long-term growth characteristics, and we have earned a leading position, gaining the trust of our customers by providing them with the best services and solutions. We are well positioned from a financial and operational perspective, having improved our profitability, strengthened our balance sheet, and restored the cash generation capabilities of the organization. We will never lose sight of our mission, driving success for and with our customers. This partnership fuels our ability to earn new business as we support our customers, helping them to manage complexity and enabling them to pursue new opportunities. We will continue to prudently invest to advance our growth initiatives. It is through our strategic pillars, our leading portfolio of products and services, and our customer-intimate solution-based business model that we will achieve profitable above-market growth. and we remain committed to our balanced capital allocation strategy as we focus on maximizing shareholder value. I am proud of the execution and performance throughout 2023, and I am confident in our ability to move forward together for our customers and our company. With that, I'd like to pass it over to Shane to discuss the financials.