Quaker Houghton

Greetings and welcome to the Quaker Hound third quarter 2026 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 John Dalhoff, Director of Investor Relations.

Mr. Dalhoff, you may begin. Thank you. Good morning and welcome to Quaker Houghton's third quarter 2026 earnings conference call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer, Tom Coler, 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, October 29, 2026. 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 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 Joe.

Thank you, John. Good morning, everyone. Our positive earnings momentum continued in the third quarter as we delivered our fifth consecutive quarter of year-over-year profitability growth, resulting from continued volume growth, disciplined cost management, and pricing actions to offset persistent inflation. This resulted in the highest adjusted EBITDA in our company's history for the second consecutive quarter. Sales volumes increased 3%, marking our third consecutive quarter of year-over-year volume growth, We continue to outperform the composite of our underlying end markets, which we estimate were flat to slightly down in aggregate and achieved net share gains in the mid single digits. This represents our 12th consecutive quarter of positive net share gains, with all three regions reaching or exceeding the upper end of our target range. Our results were led by strong growth in the Americas and another quarter of improved operating earnings in EMEA, despite challenging operating conditions in that region. Asia Pacific continued its momentum, delivering year-over-year volume growth for the 13th consecutive quarter. Underlying market conditions remain mixed around the world. We continue to see relative strength in steel and aluminum end markets in North America, while global automotive light vehicle production remained weak, declining approximately 2% across all powertrains, including a more than 10% decline for internal combustion engine vehicles according to global data. Most regions experienced steady demand, though China showed signs of softening economic activity throughout the quarter, counterbalanced by shifts in industrial production to other parts of Asia. Total steel production in China declined approximately 2% in the quarter, according to the World Steel Association. Our performance demonstrates the strength of our customer-intimate business model and the resilience of our global operating network. Despite continued volatility across our markets, our teams are executing consistently to deliver products to our customers, gain share and convert top line growth into higher earnings. Focusing on third quarter results. Net sales increased 10% year over year, driven by a 7% increase in price and mix, resulting from successful pricing actions necessary to offset persistent inflation. Churn remained at low single-digit levels despite multiple rounds of price increases, a testament to the thoughtful way we are working with our customers to implement tailored data-driven pricing. Volume growth was led by the Americas, where we continued to advance our share wallet initiatives with net share gains driven by cross-selling. Industrial activity in steel production improved against the prior year quarter where previously idle customer capacity continued to ramp up while new capacity coming online in metals provided an additional tailwind to volume growth. Asia Pacific delivered another solid quarter with sales volumes increasing 5%. We continued to win business in higher growth geographic markets like India and Vietnam and expanded our position with electric vehicle OEMs and component manufacturers. In China, we are increasingly winning with Chinese automotive producers, broadening our customer base that historically relied more heavily on foreign manufacturers operating within the country. This shift has been essential to our volume trajectory, as we have continued to grow throughout the year despite internal combustion engine vehicle production in China being down approximately 20% year-to-date, demonstrating our ability to grow with the new winners in EV. Volumes in EMEA declined sequentially with normal seasonality related to the summer holidays and were also impacted by customer pre-buying activity from the second quarter in line with our expectations. Excluding this timing impact, we estimate the volumes would have been flat in the region versus the prior year. We believe the majority of the second quarter pre-buy activity worked its way through the system during Q3 with little to no impact expected in the fourth quarter. Gross margin percentage was consistent with the second quarter as expected with higher net selling prices and improved capacity utilization offsetting raw material cost increases. SG&A declined sequentially and as a percentage of sales as actions taken throughout the year to reduce our structural cost base continued to positively impact our results. Through the first three quarters, Operating cash flow totaled $48 million, below recent periods primarily due to higher working capital. The timing of higher sales volumes and pricing during the second and third quarters increased receivables significantly since the beginning of the year. To maintain supply continuity, we temporarily increased inventory during the transition to our new production facility in China and the closure of our plant in Germany. and recent raw material inflation further increased the working capital and cash impact of these builds. We are taking focused actions to improve cash conversion by unwinding the inventory we built to support our network transitions as we close out the year and move into the first quarter of 2027. Beyond these near-term actions, we continue to strengthen the business through our transformation program and our vision of operating as one Quaker Houghton. Actions taken during the year under this program will generate annualized run rate savings exceeding $10 million. Our master data initiatives are advancing and we continue to complete foundational work supporting our business transformation strategy. These initiatives will simplify how we operate, improve the consistency of our global processes, and enhance the customer experience. I want to give a brief spotlight on our EMEA segment which continues to demonstrate resilience and growth amid a persistently difficult macroeconomic and geopolitical environment. Demand in the region has been weak for the past several years, but we continue to outperform underlying end markets through share gains while improving profitability in an inflationary environment. Over the past two quarters, segment operating margins reached levels not seen since the beginning of 2024. while operating earnings were the highest in over five years. This performance demonstrates that our strategy in the region is working, with network optimization and customer intimate commercial execution translating into stronger financial results. Turning to the Middle East, the pace and intensity of the conflict in the region remains volatile, but we continue to maintain strong service levels. While our business in the Middle East and Africa represents less than 3% of total company net sales, revenue in the third quarter grew 24% compared to the prior year. The reach and flexibility of our global network have enabled us to maintain supply continuity consistently through the conflict, translating into new business wins and stronger customer relationships. Finally, we are making exciting advancements in fluid intelligence, which combines our technical expertise with new measurement, automation, and digital service capabilities. Earlier this month, we previewed some of our new hardware at the 2026 aluminum global exhibition in Dusseldorf, Germany. This new generation of equipment continues to advance our offering by improving the accuracy and reliability of critical sensor technology. Additionally, We recently launched an enhanced software platform that will reduce barriers between our customers and their data, make fluid data easier to interpret and analyze, and provide a more consistent interface for viewing information. The new platform will create a more consistent digital experience for customers today while establishing a foundation for future data integration, advanced analytics, and AI-enabled insights. Turning to the outlook, we expect to see normal seasonal demand patterns during the fourth quarter, typically marked by lower volumes in EMEA and the Americas due to the holiday season. In the Americas, new and previously idled steel capacity continues to come online, which should help support healthy demand in what is typically a slower seasonal quarter. Asia Pacific has historically been our strongest region during this period. Activity could be somewhat softer this year in Asia, as geopolitical and economic uncertainty have tempered industrial demand in China. While global fourth quarter volumes have declined by an average of 4% over the past five years sequentially from Q3, the uncertainty of the current macroeconomic situation this year increases the possibility of a slightly more pronounced seasonal decline. Raw material costs remain elevated around the world. Based on our current outlook and barring any significant market disruptions, we anticipate incremental raw material inflation in the fourth quarter and do not expect a significant decline in input costs until sometime in 2027, which will largely depend on a resolution of the ongoing conflicts in the Middle East and Eastern Europe. We expect stable product margins in the fourth quarter, with targeted pricing actions tempering inflation. However, seasonally lower volumes and reduced fixed cost absorption associated with the holiday period will bring some downward pressure to gross margins. Despite this, we expect fourth quarter revenue and profitability to exceed the prior year and full year adjusted EBITDA to improve an estimated and many more. In closing, I am proud of our team's performance and the consistency of execution we are demonstrating across the company. We remain focused on finishing the year strong and carrying our positive momentum into 2027. With that, I will turn the call over to Tom to walk through the financials in more detail.