Quaker Houghton

Greetings and welcome to the Quaker Hatland Third 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 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Snell, Vice President of Investor Relations. Mr. Snell, you may begin.

Thank you. Good morning, and welcome to our Third Quarter 2024 Earnings Conference Call. On the call today are Andy Tomatic, our President and Chief Executive Officer, Tom Kohler, 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, October 31, 2024. 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 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. The third quarter once again highlighted the resilience of Quaker Houghton. Despite the persistent headwinds in the overall market environment, on a sequential basis, we delivered stable sales, strong and consistent margins, and another quarter of solid earnings and cash flow generation. Together, we are executing well, and I'm pleased with the progress we are making, advancing our enterprise strategy as we continue balancing our long-term objectives with the near-term market environment. Third quarter net sales were $462 million, 6% below the prior year, but consistent with the second quarter. While many of our end markets and regions remain challenged, our total volumes were once again stable on both a year-over-year and sequential basis. This result is driven by our disciplined execution, which is helping to offset the current macro backdrop. New business wins are trending within our expected range, demonstrating the value of our differentiated customer intimate model, our leading portfolio of solutions and services, and the quality of our team. as they remain focused on helping our customers improve their operations and businesses. Gross margins in the third quarter were 37.3%, overall in line with the prior year and the prior quarter. We have remained committed to our customer-focused value and use model, balancing our cost to serve with the current and expected raw material environment, as well as our growth aspirations. Our current financial profile is enabling us to deliver the best products with appropriate levels of service based on the value to our customers. We are also actively working to enhance our operational capabilities and improve our manufacturing and supply chain productivity. We are making steady progress, supporting our commitment to consistently deliver gross margins in the 37 to 38% range. In the third quarter, we generated adjusted EBITDA of $79 million and $1.89 of non-GAAP diluted earnings per share. These results emphasize the resilience of our business and our focus on positioning the company to continue our long-term outperformance. We ended the third quarter with over $200 million of cash and a net leverage ratio of 1.6 times our trailing 12 months adjusted EBITDA. Our strong financial position is supported by our cash generation capabilities. And year to date, we generated approximately $142 million of operating cash flow. Our balance sheet, business model, and cash flow characteristics provide significant opportunities to support and accelerate our model for value creation. Our focus on maximizing shareholder value is clear and supported by our balanced capital allocation strategy. To date, in 2024, we have acquired two technology-advantaged businesses that expand our markets and complement our portfolio of advanced and operating solutions. We have also paid down debt, and we have returned approximately $50 million to shareholders through dividends and opportunistic share repurchases. Turning to our segments, our Asia-Pacific segment has continued to deliver growth in the third quarter, despite mixed end-market conditions. driven by our focus on new business wins in metals and metalworking applications. Performance in our Asia-Pacific segment has significantly outperformed its markets year-to-date, with volumes higher by approximately 9% in 2024. Volumes in the EMEA segment increased compared to the prior year, whereas volumes in the Americas segment declined. The soft industrial production activity we have experienced in 2024 has continued in the third quarter across most end market segments in our EMEA and America segments. These segments were additionally impacted in the third quarter by extended customer downtimes and reduced production rates. This is especially evident with automotive, metals, and industrial customers. Despite the softer environment, our total sales were consistent with the prior quarter driven by our team's focus on earning new business across our diversified geographies and portfolio. It is through our team's efforts that we are performing consistently at, or better than, the aggregate performance of our underlying markets and regions in which we operate. Our segment financial profile has also improved, as segment operating margins are higher year to date. Our performance is the result of the actions we are taking to focus our portfolio optimize our operations and our cost structure. Our actions will continue to benefit the organization, further unlocking the growth potential of the enterprise as overall economic conditions begin to improve. Switching to the outlook, growth in our underlying markets remains restrained. We anticipate the soft underlying market conditions will persist through the fourth quarter. This will be further amplified by typical seasonal patterns as customers manage their own production and working capital through year end. We will continue to execute on what we can control. We will maintain a disciplined approach with our customer intimate model, seeking to continue to earn new business by improving outcomes for our customers, while also driving manufacturing and supply chain efficiencies, and prudently managing our investments, costs, and margins. I'm pleased to announce that we have achieved more than the original $20 million of run rate savings that we targeted on our cost and optimization program announced in 2022 on schedule. We are continuously working to identify further cost and optimization opportunities in EMEA and across our global business. In addition to our focus on cost management, we are also advancing our growth initiatives in several key areas. and we have taken clear and intentional actions to center the portfolio and our people where we can drive the most success for our customers now and in the future. We are building momentum on these efforts, which we believe will drive progress as we advance through 2025 and beyond. We are confident in our strategy and the long-term positive fundamentals of our industry. We have continued to outperform our end markets which have been softer than expected in 2024. We believe our ongoing investments will strengthen our ability to continue to outperform, delivering above-market profitable growth. Coupled with our cash generation capabilities, we have ample avenues to deliver strong earnings growth moving forward, especially as our markets begin to improve. As I've highlighted for several quarters, our enterprise strategy is centered around three key themes of globalizing, digitalizing, and leading in sustainability. Our strategy at its core is a modernization of our proven model. It is designed to amplify our value proposition, enhance our competitive position, and offer the services and solutions that our customers value, which in turn accelerates opportunities for growth. In 2024, we have made progress. We are being more intentional to globalize as we capitalize on our scale around the world. This is evident by the growth in our Asia Pacific segment as we build out our capabilities in China, India, and across Southeast Asia. Our acquisitions of IKV and Sutai directly enhance our portfolio of advanced and operating solutions and provide opportunities to innovate for and deploy our full portfolio to our global customer base. We have made progress in our global simplification efforts in the US and Europe, including using digital tools to reduce complexity in our business and drive efficiencies and a sharper focus on achieving better outcomes for our customers. As we advance the theme of digitalization, initial trials of our fluid intelligence offering are encouraging, and we continue to iterate on this important and leading platform. We have made progress building out our theme on sustainability and have several trials underway that provide performance and environmental benefits to our customers. And we're enhancing our global supply chain and manufacturing capabilities, improving our customer experience, for instance, in metal forging and across the e-mobility landscape. Our team is fully committed to strengthening our foundation, growing our capabilities, and driving long-term value for our customers and shareholders. Stepping back, we have continued to successfully navigate the unfavorable macro environment in 2024 by focusing on what we can control. We continue to earn new profitable business in all regions based on the quality of our leading portfolio of products, services, and technical expertise. We have significantly improved the profitability of the enterprise and are proactively optimizing our operations. We are prudently investing in our enterprise strategy to enhance our customer intimate model and unlock new opportunities. We are fully committed to expanding our leading position in this highly fragmented industry with attractive long-term secular growth drivers. And we have a strong financial position with a disciplined capital allocation strategy, which is hyper-focused on accelerating our growth and maximizing shareholder value. Our results are only made possible by the commitment of our talented team who is focused on the success of our customers and, in turn, our company. I'm inspired by them, motivated by the resilience of the organization, and excited by the opportunities ahead. With that, I'd like to pass it over to Tom to discuss the financials.