Quaker Houghton

Greetings. Welcome to the Quaker Houghton First Quarter 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 Invest 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 Tomicich, 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 U.S. markets yesterday, May 2nd, 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 -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. Gross margins in the first quarter were 38.7%, 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 -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 in 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. Flickr Houghton'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 -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 muddled and in-line earnings. 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 -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 -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 metalworking, it will likely remain more tepid and mixed by end market. We expect these seasonal improvements in underlying market growth rates will continue to be complemented by our new business across all regions. First 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 -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 actions 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 purchases, 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 trying to improve 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 rationalization, 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 IKB, 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 investment 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 Houdin 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 Houdin has developed over time. They are 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 -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 Quaker Houghton, I would like to pass it over to Shane to discuss the financials.

Thank you, Andy. Good morning, everyone. Quaker Houghton once again performed well in the first quarter. Our net sales declined approximately 6% from the prior year to $470 million. The primary drivers of the -over-year change were lower selling price and product mix of approximately 5%, which primarily reflects the impact of our index-based contracts and lower sales volumes of approximately 1%. Our sales volumes, which have remained largely consistent sequentially for the fifth consecutive quarter, reflected softer industrial activity, primarily in the Americas and EMEA segments. These impacts were partially offset by an improvement in our Asia-Pacific segment, as well as new business wins, which were a net benefit across all sectors. Equally, our net sales increased approximately 1%. This was driven by an increase in volumes of 2%, reflecting a seasonal improvement in demand, which was partially offset by a decline of approximately 1% in selling price and product mix. Gross margins in the first quarter were 38.7%, which represents an increase of 400 basis points compared to .7% in the prior year, and an improvement of approximately 200 basis points sequentially, compared to .6% in the fourth quarter. Our execution capturing the value for our services and solutions, coupled with some modest raw material cost reduction and efficiency actions, have been the primary drivers of restoring our gross margins back within our targeted range. Exploiting one-time items, SG&A increased 5 million or 4% compared to the prior year, and 2 million or 2% sequentially. The increase compared to the prior year and prior quarter reflects inflationary impacts on our labor and related costs. We delivered 83 million of adjusted EBITDA in the first quarter, which represents an increase of 4 or 6% compared to the prior year, and an increase of 6 or 8% compared to the prior quarter. Our adjusted EBITDA margin was .7% in the first quarter, an increase compared to both the first quarter of 2023 of .8% and .5% in the prior quarter. These improvements primarily reflect the progress we've made advancing our profitable growth initiatives, while also balancing our near and financial and operational priorities. Switching to our segments, net sales in the Americas declined 9% year over year due to lower sales volumes and selling price improvements. Volumes in the Americas primarily reflect lower industrial activity in the region, primarily impacting our metalworking business. Our selling price largely reflects the impact of our net sales and volumes increased, reflecting more seasonal patterns as well as new business wins across both metals and metalworking. America's segment earnings increased approximately 1% compared to the prior year, primarily reflecting our margin improvement initiatives, which led to an increase of approximately 280 basis points year over year. Segment earnings and margins also increased on a sequential basis, reflecting higher volumes and an improvement in price and cost dynamics. Net sales in the EMEA were 9% lower year over year due to a decline in both sales volumes and selling price improvements. Overall market conditions remain challenged in this segment across most product categories. EMEA sales volume did increase on this sequential basis, and while volume trends were uneven through most of 2023, we believe they have largely stabilized. EMEA segment earnings increased approximately 6% in the first quarter compared to the prior year. This increase reflects our margin improvement and cost savings initiatives, which are a 330 basis point improvement. Similarly, EMEA segment earnings and margins both increased compared to the prior quarter. Net sales in the Asia-Pacific increased 6% compared to the prior year, triggered by a double-digit increase in sales volumes, which was partially offset by lower selling price and product mix. The volume increase reflects a broad improvement in underlying demand compared to the softer economic conditions in China in the prior year. It also reflects an improvement in Greater Asia as well as overall new business wins. Segment earnings in Asia-Pacific increased 10% compared to the prior year, driven by an improvement in gross margin. Margins in Asia-Pacific have been very resilient, and we will continue to balance our customer relationships with the value we provide compared to the cost to serve. Overall, we have made considerable progress improving our financial profile in all our segments, and we are well positioned to benefit from an improvement in underlying market conditions. Below the line, our interest expense was approximately $2 million lower in the first quarter compared to the prior year and $1 million lower compared to the fourth quarter of 2023, which reflects the significant reduction in our variable cost debt in 2023. Our cost of debt in the first quarter was approximately 6.4%, which is in line with where we exited the prior quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 27% in the first quarter. We continue to expect our effective tax rate in 2024 to be approximately 29%. Our gap diluted earnings per share were $1.95, and our non-gap diluted earnings per share were $2.09. This strong result represented an 11% -over-year increase in earnings per share, which was driven by an improvement in operating earnings and lower interest costs. Switching to liquidity, we generated $27 million of cash from operations in the first quarter, which has historically been our lowest quarter for cash generation. We expect to continue to improve our working capital efficiency as we progress through 2024 and expect another strong year of operating cash flow. Capital expenditures in the first quarter were approximately $4 million, and we also paid approximately $8 million in dividends in the quarter. We continue to expect capital expenditures will be between .5% and .5% of sales in 2024. Our balance sheet in liquidity remains strong. Our net debt at the end of the first quarter was $574 million, and our net leverage ratio remains at 1.8 times our adjusted yield. Our financial position and cash flow generation capabilities continue to enable us to execute on our disciplined capital allocation strategy aimed at value creation. We have started 2024 with another solid quarter for Flaker Health. We continue to demonstrate the earnings power of the organization despite the persistent and challenging end market environment. We remain focused on delivering our long-term targets while investing in our growth enablers as part of our enterprise strategy, which are expected to support and accelerate our profitable growth initiatives. This, combined with our disciplined capital allocation strategy, positions us well to deliver significant value creation. With that, I'll turn it back over to Andy.

Thank you, Shane. Our team has executed well, and I'm excited by the opportunities ahead for Flaker Health. With that, we'll be glad to address your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. One moment, please, so we'll poll for questions once again at star one. Thank you. Our first question this morning is from the line of Mike Harrison with Seaport Research Partners. Please receive your questions.

Hi, good morning. Congrats on a nice start to the year.

Morning, Mike. Thanks.

I was hoping that we could maybe start up by getting a little bit more color on what's going on in NIA. Obviously, very nice operating margin improvement, and you've kind of gotten back to where you were maybe a few years ago, kind of in that low 20s type of operating margin level. Maybe just help us understand kind of what actions have taken place already that have enabled you to get to that level. What other actions are yet to come? And I guess if we have a view that volumes are kind of bouncing along the bottom there and maybe positioned to improve over time, where could operating margin go from this low 20s level?

Yeah, thanks. Thanks, Mike. Appreciate you asking the question. Our regions in general are moving towards the right range from a segment margin perspective, but as you highlight, EMEA still has some challenges. The macro situation there persists, and we're continuing to deal with that. But we have now reached our highest level since the first quarter of 21 on a segment margin basis, and even on a -over-year basis, we went up 300 basis points. It's really a combination of managing the spread on price costs, on the value we're adding for our customers and the cost to serve them, as well as some self-help on some of our cost efficiencies within the region. It's a journey. We're not there yet, and it's not always going to be linear, but we're going to stay focused on that, working on self-help, as well as positioning that region when the recovery does come from the underlying markets that benefits us beyond the new business we're winning, that we're going to really leverage some success there.

All right, great. You commented a few times that you're seeing good performance, not just in China, but within greater Asia. I was curious if you could maybe talk a little bit about how you feel like you're positioned from a competitive standpoint in both China and greater Asia. Are those areas maybe the best opportunities for you guys to gain new business and benefit from your enterprise growth strategy, and maybe just talk a little bit about demand trends, if there are any differences between what you're seeing in China and in greater Asia?

Yeah, thanks, Mike. We see good opportunities for new business wins really across all of our regions, but in particular in Asia, I'd highlight on a -over-year basis, in China we grew double-digit percentages, and realizing that a year ago there was the COVID situation, we still outperformed that with new business wins. So while things improved in China, we then, I think, even did an even better job. We've continued to see sequential improvement in China through 2023, and we expect that to continue. But broader Asia, we're doing really well, especially in India and Southeast Asia. A lot of opportunities there, strong performance on both a -over-year and -over-quarter basis. And again, that's a combination of the opportunities that are existing in the market, as well as our ability to continue to find new opportunities for value and serve those in new business wins with our customers.

All right, and then the last question for me is just on the outlook. You mentioned that you expect to see volume growth, and it sounds like at least on gross margin you expect that to kind of be stable -on-quarter. I was curious if maybe you can give us some kind of modeling assumptions on how much volume growth we might want to bake into the remainder of the year. And as we think about not just gross margin, but EBITDA margin, do you expect to see some improvement from the .7% level that you delivered in the first quarter?

Yeah, thanks Mike. So, you know, when we think about the outlook, I want to start with where we started so far in 2024. You know, in the first quarter, we increased our volume sequentially, we expanded our margins, we grew earnings, and we generated positive cash flows. And we expect that we're going to get some further momentum as we move into the second quarter. Underlying markets are a little hard to predict. We're kind of viewing those as potentially similar with maybe a little bit of seasonality benefit in the Americas and APAC as we move into the second quarter. We know we're going to continue to stay focused on our new business winds across all of our regions, and that's really going to drive some additional volume growth, not just in the second quarter, but as we go forward. You know, gross margins now are in the expected range that we had communicated, and we anticipate we'll be in the similar range in the second quarter. That's a combination of our assumption on raw material prices now stabilizing, maybe even with a little bit of pressure as we go forward, and relatively stable prices for us against the value we're providing for our customers. So, yet for the second quarter, we're expecting EBITDA growth on both a -over-year and sequential basis, driven by some of that volume that will win with new business. And then on the full year basis, as I highlighted in the prepared remarks, it's still a pretty dynamic macro environment, so the visibility is always a little bit challenging. We're cautiously optimistic that the underlying markets will begin to improve, especially as we think about the second half of the year. We're hyper-focused on new business winds and everything that we're doing, and that's really going to be key to drive in our improvements in volumes as we move through 2024. Gross margins, you know, we started 2024 very strong, and all else equal, we expect to be kind of in our communicated range, our target range that we've talked about multiple times, which would lead us on a -over-year basis to some expansion compared to 2023. So, we think we're going to have a solid year for Quaker Houghton, grow volumes, grow our earnings, and build on the record results that we delivered in 2023. And last, I don't want to miss the opportunity to highlight, too, you know, we anticipate good cash generation continuing, so we can use that in our discipline capital allocation strategy, where we're continuing to prioritize growth opportunities and really maximize returns for our shareholders.

Yeah, just to add to Mike, as I look at, you know, Q1 to Q2, normal seasonality usually is in the range of low single digits, just to put a little bit more of a qualification to it.

All right, thanks very much.

Thanks, Mike. Our next question is from the line of David Begleiter with Deutsche Bank. Pleased to see you with your questions.

Thank you. Very strong gross margins in the first quarter, so congrats on that. Now that you're at, you're actually above your long-term target, where can you go from here? Thank you.

Yeah, thanks, David. Yeah, the team did a great job, really, not just in the first quarter, but in a number of quarters here as we've been improving this area, as we're focused on profitable growth across our entire portfolio. As I previously indicated, our target is to be in that 37 to 38 percent gross margin range consistently through the cycle, and it won't always be linear, and there could be moments where we undershoot or overshoot just based on timing. You know, we do have some index contracts and raw materials that the timing changes there, and when we actually convert that into pricing. So in Q2, we think we're going to be in the range of what we had in the first quarter. We expect more stability as we work to operate consistently in our target range with fewer price swings, and we'll be managing that price-cost balance, and we believe that's going to, along with some of our volume growth, help us to generate earnings growth for the full year.

Thank you. Andrew, so just in Q2, do you expect volumes for the entire company to be positive in Q2?

Yeah, I mean, I think we expect some seasonality as we move forward in particular in the Americas and in Asia. You know, Europe is a little more dynamic. We would normally expect a little more seasonality there, and it's still quite volatile, so it's a little more difficult to predict there, but we would anticipate a little bit of a bump in Q2 from a volume perspective, and of course, we're going to continue to stay focused on those new business wins as well.

Thank you.

Thanks.

Next question is from the line of John Tan, with CJA Securities. Please receive your questions.

Hi, this is Justin on for John. Can you give us an update on what kind of headwind you expect from FX at current rates, if any, versus 2023?

Yeah, thanks, Justin. As we sit here, I don't expect much headwinds, not from a majority perspective, so give or take 1% on that side.

Thanks. That's helpful. And then a second, if I can. I know you touched on it in the prepared remarks, but on capital allocation priorities, can you give us an update on the pipeline for M&A and how you balance paying down debt versus share repurchases?

Yeah, sure. So capital allocation strategy remains as it has been. We're very disciplined around generating shareholder value there. So of course, we're spending money on capex to support some of our organic growth, both for innovation and efficiencies, and we'll continue being a dividend payer. But on the inorganic side, we have a very healthy portfolio from an M&A standpoint, and we know that's a strong lever to unlock shareholder value, so we're going to continue to move forward on that. We've got a strong balance sheet to be able to support us on that. As we've highlighted, though, in the absence or just timing of when opportunities come along, we're not going to just let cash build. So we have continued to, we paid down debt in 2023, and now we have the tool available to, opportunistically, if share buybacks were to make sense. But we'll continue to follow a strategy that typically results in the highest shareholder value on growing the business and making sure we're maximizing their returns.

I appreciate the color. Thanks for taking the questions.

Yep,

thank you. The next question is from the line of Lawrence Alexander with Jeffries. Please just hear with your questions.

Good morning, it's Dan Rizzo on for Lawrence. Given the cost counting you guys have done and how you've kind of improved productivity, is there a difference in incremental margins by the different regions or in the different end markets? Does one outperform the other?

Yeah, I mean, there's always a little bit of variation, but in general, all of our regions and end markets are in a similar level. We focus on the value we're adding for customers, and we target appropriate levels kind of across end markets and across geographies. As I commented a few minutes ago, we have some opportunities to continue to manage the price balance in Europe, which we'll continue to work on. And we're always going to look for efficiencies and how we can improve things. But generally speaking, we've got similar profiles across the portfolio.

And as volume growth potentially ramps up, have you ever quantified what you think incremental margins are for you guys just kind of on a broad basis?

Yeah, Dan, we've not quantified that. I just remind you from a perspective of manufacturing cost, it's not a heavy component of our cost of goods sold, right? It's more raw materials, the majority on that side. There will be a benefit as volumes ramp up, but we have not quantified that.

Okay. And then my other question, you mentioned Alex Beelze as a tailwind, but I was wondering if it's just like EV or if it's EV and hybrid, or is there a difference between the two? Because doing from reading that hybrid cells are outpacing EV cells. I was wondering if that matters to you guys at all?

Yeah, it's a great question. You know, just dealing with pure EV, it's pretty nascent at the moment, but it's evolving pretty quickly with a lot of complexities. And as customers have more complexities, that's better for us because we can help them by adding value and solving some of their challenges and whether that's new materials, new designs, new processes. And we're investing with them to be in the right position in the space. Then when you think about hybrid, there's the opportunities not only with the electric side, but also with the standard ICE engine, where we already help customers pretty significantly. So we're going to continue to stay partnered with them, customer intimate, help them meet their challenges, regardless of the power train that they're planning to put into their vehicles.

Thank you very much.

Thanks.

Our last question comes from the line of Arun Viswanathan with RBC. Please just use your question.

Sorry about that, it was on me. Yeah, so looking at the volume trend, it looks like you've kind of stayed a little bit kind of consistent here and flattish. Maybe you can just kind of go through some of your end markets, specifically kind of automotive and obviously metal and metal build working, maybe aluminum as well. Maybe what you're seeing in some of those end markets, it seems like things are kind of stable, but maybe a little bit of slowing, especially given the rate environment. Thanks.

Yeah, sure. So I would like to highlight, even beyond what's going on in the markets, we're continuing to find new opportunities with customers and we continue to do that. But yeah, markets in general are clearly soft, especially when you compare back to the 2019 and earlier levels really across. And when you think about our primary metals, we've seen some improvement, especially as we move through 2023. Still a lot of room to go though to get back to the previous levels. And then in metalworking, which has more end markets, a little bit of a mixed bag. So, you know, there's been some challenges in the industrial, some of the industrial applications and packaging container. Whereas we've continued, you know, it's not as fast as we'd like to see it, but we've seen some improvements in automotive and in aerospace, and we believe that the demand opportunities are still there. So we're optimistic that those will start to balance out as we move forward. We've seen some positive signs, but I wouldn't call them trends yet. And that leaves us a little bit cautiously optimistic about the back half on what the underlying markets can do for us. But we're going to control what we can control. And we're very focused on new business wins, regardless of what those end markets are doing.

Great. Thanks for that. And then just as a follow up, maybe you can just give us some color on the M&A environment. I know that may be an area of focus, maybe in technology or geography. So how are you thinking about some of the opportunities that you're seeing there? Thanks.

Yeah, sure. Yeah. And again, I mean, this is a key component of our capital allocation strategy to add shareholder value. We know when we take advantage of our customer intimate model and build growth, we add value for our shareholders. And M&A is a key part of that. We've got a range of sizes of deals, types of deals and geographies for each of them. There's a lot of opportunities in our pipeline. We're moving forward. We just executed on one last quarter that we talked about with IKB, which we just gave a little bit of an update. And they're all focused on how we take advantage of our customer intimate model. And typically there's one or more of the three angles we always look for, channel to market, geographic player, technology. And as I mentioned last quarter, the IKB acquisition checked all three of those boxes for us. We got a great, a really improved balance sheet and we continue to generate cash. So we'll continue to evaluate the options that are available. We'll keep moving those forward and we believe we'll continue to add shareholder value by utilizing inorganic growth as part of our capital allocation.

Thanks a lot.

Thank you.

Thank you. At this time, we've reached the end of our question and answer session. I'll turn the floor back to Andy Talmatyx for closing remarks.

Yeah, thanks very much. We really appreciate the continued interest Quaker Houghton and ask you to please reach out to Jeff if you have any additional follow-up questions. Thanks and have a great day.

This will conclude today's conference. We disconnect your lines this time. Thank you for your participation.