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QUAKER HOUGHTON ANNOUNCES THIRD QUARTER 2021 RESULTS

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·32 min read
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- Record net sales of $449.1 million increased 22% compared to the third quarter of 2020

- Reported net income of $31.1 million, earnings per diluted share of $1.73 and non-GAAP net income of $29.4 million

- Non-GAAP earnings per diluted share of $1.63 increased 5% compared to the third quarter of 2020

- Adjusted EBITDA of $66.2 million increased 3% compared to the third quarter of 2020 resulting in record trailing twelve month adjusted EBITDA of $279 million

- $13 million invested in three acquisitions estimated to add $2 million of full year adjusted EBITDA in 2022

CONSHOHOCKEN, Pa., Nov. 4, 2021 /PRNewswire/ -- Quaker Houghton ("the Company") (NYSE: KWR), the global leader in industrial process fluids, today announced its third quarter of 2021 results.


Three Months Ended

September 30,


Nine Months Ended

September 30,

($ in millions, except per share data)

2021


2020


2021


2020

Net sales

$ 449.1


$ 367.2


$ 1,314.1


$ 1,031.8

Net income (loss) attributable to Quaker Chemical








Corporation

31.1


27.3


103.2


(8.8)

Earnings (loss) per diluted share attributable to








Quaker Chemical Corporation

1.73


1.53


5.76


(0.50)

Non-GAAP net income *

29.4


27.7


99.8


55.9

Non-GAAP earnings per diluted share *

1.63


1.56


5.56


3.15

Adjusted EBITDA *

66.2


63.9


213.4


156.5













*

Refer to the Non-GAAP Measures and Reconciliations section below for additional information

Third Quarter of 2021 Consolidated Results

Third quarter of 2021 net sales of $449.1 million increased 22% compared to $367.2 million in the prior year quarter primarily due to higher sales volumes of approximately 10%, which includes additional net sales from acquisitions of 4%, increases from selling price and product mix of 10% and the positive impact from foreign currency translation of 2%. The increase in organic sales volumes, which excludes the benefits of recent acquisitions, compared to the third quarter of 2020 was primarily driven by the Company's continued market share gains as well as the continued gradual improvement in end market conditions as it relates to the impacts of COVID-19. The increase in selling price and product mix is primarily the result of the Company's price increases implemented in 2021 to help offset the unprecedented increases in raw material costs the Company has experienced throughout 2021.

The Company had net income in the third quarter of 2021 of $31.1 million or $1.73 per diluted share, compared to third quarter of 2020 net income of $27.3 million or $1.53 per diluted share. Excluding costs associated with the combination with Houghton International, Inc. (the "Combination") and other non-core or non-recurring items in each period, the Company's third quarter of 2021 non-GAAP earnings per diluted share was $1.63 compared to $1.56 in the prior year third quarter. The Company's current quarter adjusted EBITDA of $66.2 million increased 3% compared to $63.9 million in the third quarter of 2020 primarily due to the increase in net sales, higher realized cost synergies from the Combination and benefits from foreign exchange gains compared to the prior year, partially offset by lower gross margins in the current quarter driven by higher raw material costs as well as higher selling, general and administrative expenses ("SG&A"). The Company's current quarter gross margin of 32.3% declined sequentially compared to 35.5% in the second quarter of 2021. While the sequential decline and continued gross margin headwinds were previously expected, the magnitude of the challenges from continued raw material cost increases and global supply chain and logistics pressures exceeded the Company's expectations. Partially helping to offset the lower gross margin, the Company estimates that it realized cost synergies associated with the Combination of approximately $19 million during the third quarter of 2021 compared to approximately $17 million during the third quarter of 2020.

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "We had record net sales for the third quarter despite being negatively impacted by the automotive semiconductor shortage and continued supply chain challenges. Good end-market demand continues to be the major contributor to our earnings performance as organic sales volumes increased 6% from the third quarter of 2020. We continued to see market share gains in the quarter as our net sales benefited 3% compared to the prior year from new business wins. The major negative trend in the quarter was the continued significant escalation of raw material costs. While we previously anticipated that our gross margins were going to be lower than the second quarter due to higher costs, since then our raw material costs have continued to escalate causing third quarter costs to be much greater than our expectations. This ultimately negatively impacted our sequential gross margins by 3.2% compared to the second quarter as our raw materials costs increased nearly 10% in the third quarter from the second quarter."

Mr. Barry continued, "Looking forward, we expect raw material costs to continue to increase in the fourth quarter but we do expect the magnitude of the increases to be lower. We have and will be implementing more price increases to address these unprecedented increases in raw material costs. Our goal is to put enough price increases in place by the end of the year so we enter 2022 at our targeted product margin levels. From a revenue perspective, in the fourth quarter we expect to see continued good demand for most of our businesses but we do expect a negative impact in China due to power restrictions and its impact on our customers' production as well as a continued negative impact due to semiconductor shortages on automotive. While we expect some top line headwinds in the fourth quarter, we also expect to have sequential improvement in our product margins and we expect our adjusted EBITDA to be in a similar range to the third quarter. Looking ahead to 2022, we expect another strong year for Quaker Houghton with net sales and earnings growth to be above our normal long-term trends as we expect good growth in our end markets, continued market share gains and higher gross margins as our pricing initiatives catch up from the lag we are experiencing in 2021 due to significant raw material inflation."

Third Quarter of 2021 Segment Results

The Company's third quarter of 2021 operating performance in each of its four reportable operating segments: (i) Americas; (ii) Europe, Middle East and Africa ("EMEA"); (iii) Asia/Pacific; and (iv) Global Specialty Businesses, reflect similar drivers to that of its consolidated performance.



Three Months Ended

September 30,


Nine Months Ended

September 30,

Net Sales*

2021


2020


2021


2020

Americas

$ 150.8


$ 119.5


$ 425.3


$ 330.0

EMEA

122.2


94.0


365.5


276.5

Asia/Pacific

98.7


84.9


286.9


226.9

Global Specialty Businesses

77.4


68.8


236.4


198.4


Segment operating earnings*

Americas

$ 31.3


$ 31.1


$ 97.2


$ 70.6

EMEA

20.2


17.4


68.8


46.3

Asia/Pacific

23.3


27.3


74.0


66.1

Global Specialty
Businesses

20.7


21.2


69.0


58.1



*

Refer to the Segment Measures and Reconciliations section below for additional information

All four segments had higher net sales compared to the third quarter of 2020. Each of the segments continued to benefit from higher sales volumes, including additional net sales from acquisitions, as well as the positive impact of foreign currency translation and increases in selling price and product mix. Higher organic sales volumes for generally all segments are primarily driven by the Company's continued market share gains as well as the continued gradual year-over-year improvement in end market conditions as it relates to the impacts of COVID-19. As reported, the Company's Americas and EMEA segment operating earnings were higher compared to the third quarter of 2020 reflecting the increase in net sales including the benefits of acquisitions; however, all of the Company's segment's operating earnings were negatively impacted primarily by the unprecedented raw material cost increases and the impact of disruptions in the global supply chain that continued throughout the third quarter of 2021 and to a lesser extent by higher SG&A, including an increase in direct selling expenses associated with year-over-year inflation increases and increases due to increased net sales as well as lower levels of prior year SG&A as a result of temporary cost saving measures implemented in response to COVID-19.

Cash Flow and Liquidity Highlights

The Company has no material debt maturities until August 1, 2024. As of September 30, 2021, the Company's total gross debt was $900.7 million and its cash on hand was $141.4 million. The Company's net debt was $759.3 million, and its net debt divided by its trailing twelve months adjusted EBITDA was approximately 2.7 to 1 as of September 30, 2021. The Company's consolidated net leverage ratio, as defined under its bank agreement, was approximately 2.5 to 1 as of September 30, 2021 compared to a maximum permitted leverage of 4.0 to 1. Based on current projections of future liquidity and leverage, the Company does not expect any compliance issues with its bank covenants.

The Company had net operating cash flow of $12.1 million during the third quarter of 2021, bringing its year-to-date net operating cash flow to $2.5 million in the first nine months of 2021, as compared to a net operating cash flow of $112.0 million in the first nine months of 2020. The significant decrease in net operating cash flow year-over-year was primarily driven by a significant change in working capital, as the Company's strong current year net sales and volumes resulted in a large increase in accounts receivable coupled with an increase in inventory as a result of continued rising raw material costs as well as a build in inventory to ensure the Company has appropriate stock to meet its customer demands in anticipation of continuing stress on the Company's global supply chain.

Recent Acquisition Activity

During the third quarter of 2021 and early in the fourth quarter, the Company has completed several smaller acquisitions that expand its strategic product offerings and increase the Company's presence in its core metalworking industries. In total, the Company's initial purchase price for these acquisitions was approximately $13 million, which is subject to post-closing adjustments as well as certain earn-out provisions that could total approximately $4 million in additional consideration pending future performance or growth thresholds. The Company estimates that these acquisitions in aggregate will add full year net sales of approximately $15 million and approximately $2 million of full year adjusted EBITDA going forward. The Company's acquisitions that were completed consist of:

  • Remaining interest in Grindaix, a private German business and former joint venture with Quaker Houghton, which provides solutions that precisely measure and optimize fluid applications for the metalworking industry;

  • Select assets from 3-S Mühendislik A.S. ("3-S"), a private Turkish company that provides hydraulic fluids, coolants, cleaners, and rust preventative oils within Turkey. 3-S has been a distributor for Quaker Houghton in Turkey since 2003; and

  • Baron Industries ("Baron"), a privately held company headquartered in Madison Heights, MI, USA, that provides vacuum impregnation services of castings, powder metal and electrical components. Baron expands the Company's geographic presence as well as broadens its product offerings and service capabilities within its existing impregnation business that was initially entered into as part of its past acquisition of Norman Hay.

Non-GAAP Measures and Reconciliations

The information included in this press release includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader's understanding of the financial performance of the Company, are indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company's operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income (loss) attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income (loss) before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the "two-class share method." The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

As it relates to 2021 and 2022 projected adjusted EBITDA growth for the Company, including as a result of our recent acquisitions, as well as other forward-looking information described further above, the Company has not provided guidance for comparable GAAP measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to determine with reasonable certainty the ultimate outcome of certain significant items necessary to calculate such measures without unreasonable effort. These items include, but are not limited to, certain non-recurring or non-core items the Company may record that could materially impact net income, as well as the impact of COVID-19. These items are uncertain, depend on various factors, and could have a material impact on the U.S. GAAP reported results for the guidance period.

The Company's reference to trailing twelve months adjusted EBITDA within this press release refers to the twelve month period ended September 30, 2021 adjusted EBITDA of $278.9 million, which includes (i) the nine months ended September 30, 2021 adjusted EBITDA of $213.4 million, as presented in the non-GAAP reconciliations below, and (ii) the twelve months ended December 31, 2020 adjusted EBITDA of $222.0 million, as presented in the non-GAAP reconciliations included in the Company's fourth quarter and full year 2020 results press release dated February 25, 2021, less (iii) the nine months ended September 30, 2020 adjusted EBITDA of approximately $156.5 million, as presented in the non-GAAP reconciliations below.

The following tables reconcile the Company's non-GAAP financial measures (unaudited) to their most directly comparable GAAP (unaudited) financial measures (dollars in thousands unless otherwise noted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations


Three Months Ended

September 30,


Nine Months Ended

September 30,


2021


2020


2021


2020

Operating income

$ 36,010


$ 34,859


$ 119,720


$ 24,653

Houghton combination, integration and other
acquisition-related expenses (a)

5,963


6,913


18,977


23,442

Restructuring and related charges

(880)


1,383


593


3,585

Fair value step up of acquired inventory sold



801


226

CEO transition costs

285



1,097


Inactive subsidiary's non-operating litigation costs

320



613


Customer bankruptcy costs




463

Facility remediation costs, net

1,490



1,490


Indefinite-lived intangible asset impairment




38,000

Non-GAAP operating income

$ 43,188


$ 43,155


$ 143,291


$ 90,369

Non-GAAP operating margin (%)

9.6%


11.8%


10.9%


8.8%









EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations


Three Months Ended

September 30,

Nine Months Ended

September 30,


2021


2020


2021


2020

Net income (loss) attributable to Quaker Chemical Corporation

$ 31,058


$ 27,304


$ 103,243


$ (8,812)

Depreciation and amortization (a)(b)

21,542


21,022


66,334


63,764

Interest expense, net

5,637


6,837


16,725


22,109

Taxes on income (loss) before equity in net income

795


2,245


26,702


(7,603)

of associated companies (c)




EBITDA

$ 59,032


$ 57,408


$ 213,004


$ 69,458

Equity income in a captive insurance company

(108)


(542)


(4,071)


(697)

Houghton combination, integration and other

5,786


6,913


12,871


22,679

acquisition-related expenses (a)




Restructuring and related charges

(880)


1,383


593


3,585

Fair value step up of acquired inventory sold



801


226

CEO transition costs

285



1,097


Inactive subsidiary's non-operating litigation costs

320



613


Customer bankruptcy costs




463

Facility remediation costs, net

2,019



2,019


Indefinite-lived intangible asset impairment




38,000

Pension and postretirement benefit costs,

(343)


(1,375)


(596)


22,491

non-service components




Brazilian non-income tax credits



(13,293)


Currency conversion impacts of hyper-

58


154


336


278

inflationary economies




Adjusted EBITDA

$ 66,169


$ 63,941


$ 213,374


$ 156,483

Adjusted EBITDA margin (%)

14.7%


17.4%


16.2%


15.2%









Adjusted EBITDA

$ 66,169


$ 63,941


$ 213,374


$ 156,843

Less: Depreciation and amortization - adjusted (a)(b)

21,365


21,022


65,616


63,002

Less: Interest expense, net

5,637


6,837


16,725


22,109

Less: Taxes on income before equity in net

9,765


8,337


31,277


15,473

income of associated companies – adjusted (c)




Non-GAAP net income

$ 29,402


$ 27,745


$ 99,756


$ 55,899


Non-GAAP Earnings per Diluted Share Reconciliations


Three Months Ended

September 30,


Nine Months Ended

September 30,


2021


2020


2021


2020

GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation
common shareholders

$ 1.73


$ 1.53


$ 5.76


$ (0.50)

Equity income in a captive insurance company per diluted share

(0.01)


(0.03)


(0.23)


(0.04)

Houghton combination, integration and other acquisition-related expenses per
diluted share (a)

0.26


0.30


0.58


1.03

Restructuring and related charges per diluted share

(0.04)


0.06


0.03


0.15

Fair value step up of acquired inventory sold per diluted share



0.03


0.01

CEO transition costs per diluted share

0.01



0.05


Inactive subsidiary's non-operating litigation costs per diluted share

0.02



0.03


Customer bankruptcy costs per diluted share




0.02

Facility remediation costs, net, per diluted share

0.09



0.09


Indefinite-lived intangible asset impairment per diluted share




1.65

Pension and postretirement benefit costs, non-service components per
diluted share

(0.02)


(0.06)


(0.03)


0.83

Brazilian non-income tax credits per diluted share

(0.04)



(0.48)


Currency conversion impacts of hyper-inflationary economies per diluted share

0.00


0.01


0.02


0.02

Impact of certain discrete tax items per diluted share

(0.37)


(0.25)


(0.29)


(0.02)

Non-GAAP earnings per diluted share

$ 1.63


$ 1.56


$ 5.56


$ 3.15





(a)

The Company recorded $0.2 million and $0.7 million of accelerated depreciation expense related to the Combination during the three and nine months ended September 30, 2021, respectively, compared to $0.8 million during the nine months ended September 30, 2020. In the three and nine months ended September 30, 2021 all $0.2 million and $0.7 million, respectively, was recorded in cost of goods sold ("COGS"), while in the nine months ended September 30, 2020, $0.7 million was recorded in COGS and $0.1 million was recorded in Combination, integration and other acquisition-related expenses. The amounts recorded within COGS are included in the caption Houghton combination, integration and other acquisition-related expenses in the reconciliation of Operating income to Non-GAAP operating income and GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share. In addition, the total amounts are included within the caption Depreciation and amortization in the reconciliation of Net income (loss) attributable to Quaker Chemical Corporation to Adjusted EBITDA; however, they are excluded in the reconciliation of Adjusted EBITDA to Non-GAAP net income. In addition, during the nine months ended September 30, 2021, the Company recognized a gain of $5.4 million associated with the sale of certain held-for-sale real property assets which was the result of the Company's manufacturing footprint integration plans. This gain was recorded within Other income (expense), net and therefore is included in the caption Houghton combination, integration and other acquisition-related expenses in the reconciliation of Net income (loss) attributable to Quaker Chemical Corporation to Adjusted EBITDA and GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share, however it is excluded in the reconciliation of Operating income (loss) to Non-GAAP operating income.




(b)

Depreciation and amortization for the three and nine months ended September 30, 2021 includes $0.3 million and $0.9 million, respectively, and for the three and nine months ended September 30, 2020 included approximately $0.2 million and $0.9 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Statement of Operations, which is attributable to the amortization of the fair value step up for the Company's 50% interest in a Houghton joint venture in Korea as a result of required purchase accounting.



(c)

Taxes on income before equity in net income of associated companies – adjusted includes the Company's tax expense adjusted for the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of Net income (loss) attributable to Quaker Chemical Corporation to adjusted EBITDA, above, determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility. This caption also includes the impact of certain specific tax charges and benefits in the three and nine months ended September 30, 2021 and 2020, which the Company does not consider core or indicative of future performance.

Segment Measures and Reconciliations

The Company's operating segments, which are consistent with its reportable segments, reflect the structure of the Company's internal organization, the method by which the Company's resources are allocated and the manner by which the chief operating decision maker assesses the Company's performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company's container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for each of the Company's reportable segments are comprised of the segment's net sales less directly related COGS and SG&A. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company's reportable segments include interest expense, net and other income (expense), net.

The following tables reconcile the Company's reportable operating segments performance to that of the Company's (dollars in thousands):



Three Months Ended

September 30,


Nine Months Ended
September 30,



Net Sales

2021


2020


2021


2020


Americas

$ 150,799


$ 119,540


$ 425,343


$ 330,012


EMEA

122,241


94,005


365,491


276,546


Asia/Pacific

98,659


84,877


286,924


226,850


Global Specialty Businesses

77,373


68,802


236,359


198,417


Total net sales

$ 449,072


$ 367,224


$ 1,314,117


$ 1,031,825



Segment operating earnings

Americas

$ 31,273


$ 31,099


$ 97,155


$ 70,590

EMEA

20,153


17,439


68,802


46,269

Asia/Pacific

23,285


27,304


73,990


66,106

Global Specialty Businesses

20,663


21,161


69,041


58,114

Total segment operating earnings

95,374


97,003


308,988


241,079

Combination, integration and other acquisition-related expenses

(5,786)


(6,913)


(18,259)


(22,786)

Restructuring and related charges

880


(1,383)


(593)


(3,585)

Fair value step up of acquired inventory sold



(801)


(226)

Indefinite-lived intangible asset impairment




(38,000)

Non-operating and administrative expenses

(38,691)


(39,786)


(122,760)


(110,282)

Depreciation of corporate assets and amortization

(15,767)


(14,062)


(46,855)


(41,547)

Operating income

36,010


34,859


119,720


24,653

Other income (expense), net

647


(239)


19,344


(22,407)

Interest expense, net

(5,637)


(6,837)


(16,725)


(22,109)

Income (loss) before taxes and equity in net income of associated companies

$ 31,020


$ 27,783


$ 122,339


$ (19,863)

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements, including statements regarding the potential effects of the COVID-19 pandemic and global supply chain constraints on the Company's business, results of operations, and financial condition, our expectations that we will maintain sufficient liquidity and remain in compliance with the terms of the Company's credit facility, statements regarding remediation of our material weaknesses in internal control over financial reporting, expectations about future demand and raw material costs, and statements regarding the impact of increased raw material costs and pricing initiatives, on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including but not limited to the potential benefits of the Combination and other acquisitions, the impacts on our business as a result of the COVID-19 pandemic and global supply chain constraints as well as any projected global economic rebound or anticipated positive results due to Company actions taken in response, and our current and future results and plans and statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company's products and services is largely derived from the demand for its customers' products, which subjects the Company to uncertainties related to downturns in a customer's business and unanticipated customer production slowdowns and shutdowns, including as is currently being experienced by many automotive industry companies as a result of supply chain disruptions. Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID-19 pandemic, including actions taken in response to the pandemic by various governments, which could exacerbate some or all of the other risks and uncertainties faced by the Company, including the potential for significant increases in raw material costs, supply chain disruptions, customer financial instability, worldwide economic and political disruptions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automobile, aircraft, industrial equipment, and durable goods industries. The ultimate impact of COVID-19 on our business will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus including as new variants emerge, the continued uncertainty regarding global availability, administration, acceptance and long-term efficacy of vaccines, or other treatments, for COVID-19 or its variants, the longer-term effects on the economy of the pandemic, including the resulting market volatility, and by the measures taken by governmental authorities and other third parties restricting day-to-day life and business operations and the length of time that such measures remain in place, as well as laws and other governmental programs implemented to address the pandemic or assist impacted businesses, such as fiscal stimulus and other legislation designed to deliver monetary aid and other relief. Other factors could also adversely affect us, including those related to the Combination and other acquisitions and the integration of acquired businesses. Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results. All forward-looking statements included in this press release, including expectations about business conditions during 2021 and future periods, are based upon information available to the Company as of the date of this press release, which may change. Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to the Risk Factors section, which appears in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, and in subsequent reports filed from time to time with the Securities and Exchange Commission. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Conference Call

As previously announced, the Company's investor conference call to discuss its third quarter performance is scheduled for November 5, 2021 at 8:30 a.m. (ET). A live webcast of the conference call, together with supplemental information, can be accessed through the Company's Investor Relations website at investors.quakerhoughton.com. You can also access the conference call by dialing 877-269-7756.

About Quaker Houghton

Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world's most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge and customized services. With approximately 4,200 employees, including chemists, engineers and industry experts, we partner with our customers to improve their operations so they can run even more efficiently, even more effectively, whatever comes next. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the United States. Visit quakerhoughton.com to learn more.

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)










(Unaudited)


Three Months Ended
September 30,


Nine Months Ended
September 30,


2021


2020


2021


2020

















Net sales

$ 449,072


$ 367,224


$ 1,314,117


$ 1,031,825









Cost of goods sold

303,941


227,032


858,341


660,396









Gross profit

145,131


140,192


455,776


371,429

%

32.3%


38.2%


34.7%


36.0%









Selling, general and administrative expenses

104,215


97,037


317,204


282,405

Indefinite-lived intangible asset impairment

-


-


-


38,000

Restructuring and related charges

(880)


1,383


593


3,585

Combination, integration and other acquisition-related expenses

5,786


6,913


18,259


22,786









Operating income

36,010


34,859


119,720


24,653

%

8.0%


9.5%


9.1%


2.4%









Other income (expense), net

647


(239)


19,344


(22,407)

Interest expense, net

(5,637)


(6,837)


(16,725)


(22,109)

Income (loss) before taxes and equity in net income of associated companies

31,020


27,783


122,339


(19,863)









Taxes on income (loss) before equity in net income of associated companies

795


2,245


26,702


(7,603)

Income (loss) before equity in net income of associated companies

30,225


25,538


95,637


(12,260)









Equity in net income of associated companies

848


1,804


7,668


3,536









Net income (loss)

31,073


27,342


103,305


(8,724)









Less: Net income attributable to noncontrolling interest

15


38


62


88









Net income (loss) attributable to Quaker Chemical Corporation

$ 31,058


$ 27,304


$ 103,243


$ (8,812)

%

6.9%


7.4%


7.9%


-0.9%









Share and per share data:








Basic weighted average common shares outstanding

17,812,216


17,743,538


17,800,082


17,704,662

Diluted weighted average common shares outstanding

17,870,392


17,800,865


17,860,068


17,704,662









Net income (loss) attributable to Quaker Chemical Corporation common
shareholders - basic

$ 1.74


$ 1.53


$ 5.78


$ (0.50)

Net income (loss) attributable to Quaker Chemical Corporation common
shareholders - diluted

$ 1.73


$ 1.53


$ 5.76


$ (0.50)

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)






(Unaudited)


September 30,
2021


December 31,
2020

ASSETS








Current assets




Cash and cash equivalents

$ 141,393


$ 181,833

Accounts receivable, net

433,631


372,974

Inventories, net

254,894


187,764

Prepaid expenses and other current assets

63,278


50,156

Total current assets

893,196


792,727





Property, plant and equipment, net

190,833


203,883

Right of use lease assets

34,314


38,507

Goodwill

630,669


631,212

Other intangible assets, net

1,048,688


1,081,358

Investments in associated companies

94,110


95,785

Deferred tax assets

18,409


16,566

Other non-current assets

31,608


31,796

Total assets

$ 2,941,827


$ 2,891,834





LIABILITIES AND EQUITY








Current liabilities




Short-term borrowings and current portion of long-term debt

$ 52,611


$ 38,967

Accounts and other payables

219,601


198,872

Accrued compensation

40,655


43,300

Accrued restructuring

4,050


8,248

Other current liabilities

93,042


93,573

Total current liabilities

409,959


382,960





Long-term debt

839,275


849,068

Long-term lease liabilities

24,599


27,070

Deferred tax liabilities

174,405


192,763

Other non-current liabilities

109,893


119,059

Total liabilities

1,558,131


1,570,920





Equity




Common stock, $1 par value; authorized 30,000,000 shares; issued
and outstanding 2021 - 17,888,577 shares; 2020 - 17,850,616 shares

17,889


17,851

Capital in excess of par value

914,277


905,171

Retained earnings

505,635


423,940

Accumulated other comprehensive loss

(54,723)


(26,598)

Total Quaker shareholders' equity

1,383,078


1,320,364

Noncontrolling interest

618


550

Total equity

1,383,696


1,320,914

Total liabilities and equity

$ 2,941,827


$ 2,891,834

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)






(Unaudited)


Nine Months Ended
September 30,


2021


2020

Cash flows from operating activities




Net income (loss)

$ 103,305


$ (8,724)

Adjustments to reconcile net income (loss) to net cash provided by operating
activities:




Amortization of debt issuance costs

3,562


3,562

Depreciation and amortization

65,440


62,818

Equity in undistributed earnings of associated companies, net of dividends

(7,563)


1,415

Acquisition-related fair value adjustments related to inventory

801


229

Deferred compensation, deferred taxes and other, net

(21,865)


(30,657)

Share-based compensation

8,441


17,820

(Gain) loss on disposal of property, plant, equipment and other assets

(4,819)


105

Insurance settlement realized

-


(818)

Indefinite-lived intangible asset impairment

-


38,000

Combination and other acquisition-related expenses, net of payments

(1,705)


2,498

Restructuring and related charges

593


3,585

Pension and other postretirement benefits

(5,638)


16,219

(Decrease) increase in cash from changes in current assets and current
liabilities, net of acquisitions:




Accounts receivable

(68,664)


30,225

Inventories

(72,962)


2,137

Prepaid expenses and other current assets

(24,512)


(113)

Change in restructuring liabilities

(4,557)


(12,772)

Accounts payable and accrued liabilities

32,652


(13,481)

Net cash provided by operating activities

2,509


112,048





Cash flows from investing activities




Investments in property, plant and equipment

(12,823)


(12,184)

Payments related to acquisitions, net of cash acquired

(31,975)


(3,132)

Proceeds from disposition of assets

14,744


11

Insurance settlement interest earned

-


41

Net cash used in investing activities

(30,054)


(15,264)





Cash flows from financing activities




Payments of term loan debt

(28,558)


(28,132)

Borrowings (repayments) on revolving credit facilities, net

39,143


(16,485)

Repayments on other debt, net

(585)


(527)

Dividends paid

(21,175)


(20,520)

Stock options exercised, other

704


2,385

Purchase of noncontrolling interest in affiliates

-


(1,047)

Distributions to noncontrolling affiliate shareholders

-


(751)

Net cash used in financing activities

(10,471)


(65,077)





Effect of foreign exchange rate changes on cash

(2,486)


(529)





Net (decrease) increase in cash, cash equivalents and restricted cash

(40,502)


31,178

Cash, cash equivalents and restricted cash at the beginning of the period

181,895


143,555

Cash, cash equivalents and restricted cash at the end of the period

$ 141,393


$ 174,733

(PRNewsfoto/Quaker Houghton)
(PRNewsfoto/Quaker Houghton)
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