Quaker Houghton

Greetings. Welcome to the Quaker Houghton first quarter of 2024 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 from 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 now begin.

Thank you. Good morning, and welcome to our first quarter 2024 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 Traub, our General Counsel. Our comments relate to the financial information released after the close of U.S. markets yesterday, May 2, 2024. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during the 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 reconciliation 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. Quaker Houghton delivered a strong performance again in the first quarter of 2024. We advanced our enterprise strategy, further expanded our margins, grew earnings, and delivered another quarter of solid operating cash flow. I am proud of these results, which highlight our ongoing execution, as well as the resilience of our people and our business as we continue to successfully navigate the persistent and dynamic end market conditions. Our disciplined approach to managing our business is working to better position the company to perform well in any environment, for years to come. First quarter net sales were $470 million, 6% below the prior year's record result and 1% higher than the fourth quarter of 2023. Total reported volumes were once again stable on a year-over-year basis and were 2% higher sequentially. This is a result of us earning new business with our valued customers through our differentiated customer intimate model, as we and our customers endure through the sustained soft macroeconomic conditions. Those margins in the first quarter were 38.7 percent, 400 basis points higher than the prior year, and 200 basis points higher compared to the prior period. We have benefited from the active execution on our margin improvement initiatives, including driving efficiencies in areas like supply chain and procurement, as well as taking appropriate steps to enhance our overall operational performance. We also benefited from a modest decline in raw material costs from their peak levels, which have since stabilized, and we maintain a disciplined approach with our customer-driven total cost of ownership model. We generated adjusted EBITDA of $83 million in the first quarter, a 6% increase year over year, and $2.09 of non-GAAP diluted earnings per share, an 11% increase compared to the prior year. These strong financial results underscore the progress on our profitable growth initiatives and our commitment to driving success for and with our customers, while continuing to invest in our people, our growth pillars, and our enablers. In the first quarter, we generated approximately $27 million of operating cash flow, continuing our momentum from 2023. This was primarily driven by our improved operating performance, despite a modest working capital bill. We expect to build on these levels of cash flow in the coming quarters. Wickerhouten's balance sheet is strong, supported by our cash generation capabilities and our disciplined capital allocation strategy. Our net leverage ratio remains at 1.8 times our adjusted EBITDA, and provides significant optionality to invest in opportunities to accelerate our growth and support our framework for long-term value creation. I'm excited by the opportunities ahead to continue to unlock our growth potential. Turning to our segments, we once again delivered improved earnings and margin performance in all of our segments on a year-over-year basis. I am proud of the team's execution driving these results especially considering the mixed end market conditions we have encountered. Volumes in the Asia Pacific segment increased by a mid-teens percentage compared to the prior year. This is primarily the result of an improvement in China in both metals and metalworking that began to materialize in the back half of 2023 and has continued into 2024. We've also been encouraged by our growth in greater Asia, New business wins are a key driver to the improvements in our Asia-Pacific segment, complemented by the increase in underlying demand in the region. Volumes in the EMEA segment were consistent with the prior quarter, but declined compared to the prior year. This reflects a continuation of the volatile end-market activity in the region across both metals and metalworking, which was partially offset by our new business wins. volumes in the EMEA segment remain well below normalized levels, and we expect industrial activity will likely remain constrained in the region through at least the first half of 2024. That said, we continue to improve the profitability of the EMEA segment, and our execution on price-cost management drove more than 300 basis points of improvement in segment margins on both a year-over-year and sequential basis in the first quarter. Volumes in the America segment declined compared to the prior year, but improved sequentially. Demand in metals has continued to improve, whereas end market activity in metalworking has been more restrained, especially in industrial applications and packaging containers. New business wins were positive in the quarter in the America segment, despite the underlying soft market conditions, reflecting the value we provide to our customers with our services and solutions. Segment earnings in the Americas increased on both a year-over-year and a sequential basis, driven by a further improvement in this segment's margins. Our volume growth continues to be in line or better than our underlying markets in the respective regions we operate. We expect to build on our foundation and believe that we will further demonstrate the value embedded in our model as we progress through 2024 and as market rates improve from these low levels. Switching to the outlook, beginning with the second quarter, we expect a modest seasonal improvement in demand across all of our regional segments, but at varying degrees. We expect the positive momentum in metals to continue, and while we expect growth in metal working, it will likely remain more tepid and mixed by end markets. We expect these seasonal improvements in underlying market growth rates will continue to be complemented by our new business wins across all regions. Gross margins are expected to be in a similar range to that of the first quarter as we balance our customer relationships and our value pricing with our total cost to serve. Taken together, we expect to deliver another quarter of year-over-year and sequential growth in adjusted EBITDA in the second quarter of 2024. Switching to the full year, our expectations for 2024 remain unchanged from our fourth quarter earnings call. The current end market environment remains uncertain, and we expect the limited visibility and dynamic market conditions will persist at least through the first half of 2024. However, we are cautiously optimistic that underlying conditions will improve as we progress through the year. Our diversified portfolio and customer-intimate model are core features driving the strength of our customer relationships and the resilience of our business. We have and continue to take action to effectively manage the factors within our control while positioning the company for profitable growth. To that end, we are further advancing our growth pillars as part of our enterprise strategy, investing in our foundational enablers as we contemporize the organization. These enablers will support Quaker Houghton's ability to continue to outpace our underlying markets, leading to volume growth in 2024 and beyond. Through all of this, the team continues to be hyper-focused on executing on our objectives, including our expectation of delivering another year of earnings growth in 2024. We also anticipate another strong year of cash generation, building on the momentum of 2023. supporting our disciplined capital allocation priorities of investing in our organic growth, paying dividends, advancing our bolt-on M&A strategy, strengthening our balance sheet through debt repayment, and being opportunistic with share repurchases, consistent with our commitment to enhancing shareholder value. Quaker Houghton remains fully committed to our enterprise growth strategy, which is centered on enhancing value for our customers. The initiatives underway are gaining traction both internally and externally. We continue to be prudent with our growth-related investments, supporting initiatives that will deliver volume gains going forward. A benefit for us in the first quarter was our growth in Asia Pacific. While China improved from low levels in 2023, we also benefited in growth in greater Asia, capitalizing on the benefits of deploying, reinforcing, and expanding the full capabilities of our technology portfolio in that region. Our teams are also focused on simplifying the organization to deliver customer-valued solutions effectively and efficiently. This includes strengthening the cross-functional capabilities between our global functions to work together to reduce complexity, for example, through product rationalizations, which drives efficiency for our company and our customers as we continue to leverage our global scale and accelerate our growth by generating new business wins. We're also making additional progress to advance and optimize the intimacy of our model, including with digital capabilities for our direct and indirect channel strategy. We are now also expanding our refined channel strategies into Europe, which will further tailor the value of our differentiated customer-intimate business model to the specific needs of our customers. We're also pleased with the initial contributions from the acquisition of IKV, which has been performing in line with our expectations and will help accelerate our growth in our advanced and operating solutions in Europe and globally. Sustainability is another enabler of our enterprise strategy, We recently published the latest iteration of our sustainability report, which details the progress made leading our industry towards a better future. I am proud to note that we have achieved all of our 2023 interim milestones ahead of schedule and have launched new 2025 milestones, while we also continue to prioritize the foundational investments necessary to enable us to deliver on our 2030 goals. Additionally, we believe a more sustainable future presents challenges that we are uniquely positioned to help our customers pursue. For instance, a growth pillar for Quaker Houghton is capitalizing on the shift to e-mobility. The new opportunities in this space have tremendous challenges, and we are working diligently to develop and drive leadership with value-adding solutions in these areas with and for our customers. All of our initiatives underway are natural extensions, building upon the strong foundation that Quaker Houghton has developed over time. They're aimed at driving a more productive, responsive, and innovative organization, growing the company to deliver on the long-term needs of our customers and our industry, and ultimately continue to enhance value for shareholders. Stepping back, we remain committed to our financial and operational priorities and have made meaningful progress towards our goals. In the first quarter, we delivered our fifth quarter of stable volumes in a very dynamic market, highlighting our new business generation and delivered our seventh consecutive quarter of year-over-year gross margin expansion. We are dedicated to furthering our leading position in this attractive industry, which is supported by long-term secular growth drivers, earning the partnership of our customers by providing the best services and solutions tailored to their specific needs. We do this by capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential. We will continue to prudently invest to advance our growth initiatives. We will enhance our customer intimate model and cost position to ensure Quaker Houghton is the partner of choice for our customers, enabling us to achieve above market growth in 2024 and beyond. Our balance sheet is strong, supported by the cash generation capabilities of the organization, and supports our balanced capital allocation strategy, which remains focused on maximizing shareholder value. On behalf of the management team, I want to thank our 4,400 colleagues around the globe for their dedication to our customers and our company and for living our core values. With that, I'd like to pass it over to Shane to discuss the financials.