Greetings, and welcome to Quaker Houghton’s First Quarter 2025 Earnings Conference Call. A brief question answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President Investor Relations. Mr Schnell, you may begin.

Thank you. Good morning, and welcome to our First Quarter 2025 Earnings Conference Call. 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 US markets yesterday, May 1st, 2025. 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 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, Jeff, and I’d like to welcome everyone to Quaker Houghton’s first quarter 2025 earnings call. First quarter results were directionally in line with our expectations, despite end-market demand being softer than we had anticipated. While our volumes declined 1.5%, we estimate our markets were down in aggregate a low to mid-single-digit percentage compared to the prior year, due to a continuation of soft industrial activity and uncertainty regarding tariffs, which impacted customer decision-making and order patterns. The team performed well, successfully gaining additional market share across all segments, despite the challenging global macroeconomic environment. Our results once again displayed the resilience in our business that comes from operating across diverse geographic end-markets with a robust and advantaged portfolio. We continue to maintain our focus on delivering the best outcomes for our customers and affirm a steadfast commitment to managing items within our control. We are advancing our previously announced $20 million cost program, which will be substantially complete in the first half of 2025. We also made important strategic investments, including acquiring three companies, which further enhance our portfolio and will expand our addressable market, while providing more avenues to serve our customers and accelerate our growth. Quaker Houghton is in a strong financial position. While tariffs have caused volatility, we are confident that we are well situated within our markets due to our “local for local” strategy and are positioned to mitigate most of the potential direct impacts to our supply chain. We continue to take steps to minimize impacts to our customers that may arise from tariffs, as we work together to navigate adverse conditions in the global supply chain. I will say a few words about the quarter, then provide some comments on the outlook for 2025. Then I will hand the call over to…

Thank you, Joe, and good morning, everyone. First quarter net sales were $443 million, a decline of approximately 6% from the prior year or 3% on a constant currency basis. Sales volumes declined approximately 1.5% as new business wins and a contribution from acquisitions of approximately 1% were more than offset by a continuation of the soft macroeconomic environment, primarily in the Americas and EMEA segments, which persisted throughout 2024 and weakened further in the first quarter of 2025. Selling price and product mix was approximately 1% lower and foreign exchange was a 3% unfavorable impact to net sales in the quarter. As expected, gross margins improved 120 basis points to 36.4% compared to the lows experienced in the fourth quarter of 2024, driven by positive mix. Gross margins declined year-over-year when compared to the record levels in the first quarter of 2024 due to the timing and impact of higher raw material costs, geographic and product mix and manufacturing absorption on lower volumes. Excluding one-time items, SG&A declined $7 million or 6% compared to the prior year. The decrease primarily reflects our disciplined cost management and reduction actions. We are progressing with the actions related to the additional annualized $20 million cost program announced last quarter and expect approximately $15 million of benefit in 2025 compared to the 2024 base. We delivered $69 million of adjusted EBITDA in the first quarter compared to $83 million and $65 million in the first and fourth quarters of 2024. Foreign exchange was a $4 million headwind year-over-year and a $1 million headwind sequentially. Adjusted EBITDA margins were 15.6%, reflecting the sequential improvement in gross margins and our cost actions taken in the quarter. Switching to our segment results. Net sales on our Asia-Pacific segment declined 2%, compared to the prior year, but…

Thank you, Tom. We are making progress refocusing the organization, streamlining our business processes and executing on our strategic pillars to drive growth. With that, we’d be happy to take your questions.

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your questions.

Hi, good morning.

Morning, Mike.

Want to congratulate the Browns on all the quarterbacks they collected during the draft, Joe. Maybe start out with the tariff situation. Are there some input cost or cross border finished goods selling concerns that we need to keep in mind for Quaker? Or is the main issue the impact on kind of overall demand and just the uncertainty that is out there as it’s impacting your customers?

Yeah, good question, Mike. I’ll hold off commenting on the browns for another time. But I would say, we look at this in really three buckets, right? Raw material purchases, come in, some are single source, some are coming from China. We buy about 3,000 raw materials globally. There are raw materials that go out from the US that would have some impact. But largely as we look at this, because we are buying and producing locally, and we have dual sources of supply and ability to sort of qualify as needed we think that we can largely mitigate those impacts. There’s also some of these raw materials are on index base. So, we have levers in place, I guess, to delay and push some of these things back. But from a raw material purchase standpoint, pretty good shape overall. Finished goods similarly, I think, in this business, it’s hard to put water based products on a boat and be competitive shipping them around the world. So, we do manufacture locally. We do buy raw materials locally. And we’ve got a lot of flexibility in our footprint. For instance, we put a reactor in Thailand last year that gives us more capacity for other Asia and even China. So, some products that might have been coming from the US in the past are now more locally sourced. I think you hit on it, the bigger thing that’s harder to assess, I guess, is what’s the impact on demand going to be? We did see some impact in the first quarter. I think people are waiting to see how this unfolds. There’s a little bit of uncertainty, as we look into the second quarter, and it’s early, you know, I am happy to say, it’s sort of normal seasonal pickup that you would see heading from Q1 into Q2. But we’re keeping a close eye on it. I think we all wish we knew where this was going. It’s kind of a lot of uncertainty around will all these tariffs stick or not. But from an overall standpoint on margin and costs and really the impact to our customers, I think we’re pretty well mitigated.

All right. And then, Joe, during your prepared remarks there, when you were talking about strategy, you mentioned some re-centering of leadership. You mentioned the multi-channel approach, you mentioned some work you’re doing to kind of simplify the portfolio and improve brand awareness. It sounds like there is a lot going on behind the scenes right now to kind of make it easier to do business with Quaker Houghton. Can you maybe pick on a on a couple of those initiatives and give us a little more detail on the steps that you’re taking and what it’s going to lead to?

Sure, Mike. Yeah, good question. I mean, as I mentioned on the last call, I think one of the things we’re trying to drive at is reducing complexity in the company. I looked at how we were organized and there was a good bit of complexity around some of our product lines and not necessarily and strategically aligning with how we go to market. So, we have restructured the alignment of our strategy organization and product management with our business segments, certain metals, metalworking, advanced solutions, operating solutions. The advanced solutions and the operating solutions, those are probably 15%, 20% of our revenues. But these are newer technologies where we’ve got opportunity to cross-sell at an accelerated rate. And some of these products are new to our sales force, right? So, we’re looking at putting business development teams in to really help our regular sales force grow those things more quickly and increase the knowledge of the organization, bring that expertise to the interface with the customer. Brands is something that’s ongoing. We have a history of acquisitions. We’ve got a lot of brands and a lot of products and we’re spending time creating some more clarity around that. We still have legacy Houghton brands, legacy Quaker brands and many others. We want to have a Quaker Houghton brand family aligned with good, better, best positioning. And so that work continues and we’re making progress there. And I think the other one you hit on, which is really good is channel. Also, think just as I look at our business, a lot of complexity around - there’s a long tail of small customers, right? And all of our customers are important. But when you think about how we serve all these customers, we want everyone to have a good experience, a customer intimate experience with us. So, we’re using technology, we’ve created an inside sales channel or even implementing some e-commerce things where people can get on and get information and chat and that gives us a more scalable approach to service. And then it frees up our people to go after big game to go hunt the bigger target. So, you hit on it. There’s a lot going on there always is, but we feel really good about those things and a lot of energy in the company right now about these changes.

All right. And then, last question for me. You were pretty clear with the full year sales and earnings outlook. I was hoping that maybe you could give us a little bit more color on the puts and takes as we’re thinking about the second quarter EBITDA. It sounds like maybe you’re expecting some sequential improvement in volumes, which would be seasonal some contribution from Dipsol. But maybe just help us understand maybe on the cost side of the equation, how we should be thinking about that sequential growth and how that should contribute to EBITDA growth in the second quarter?

Yeah, hi, Mike. Good morning. It’s Tom. I’ll share a little bit on Q2. I think, as you mentioned, Joe hit kind of our outlook in the prepared remarks. As we look at Q2, I think net-net, we expect EBITDA to be modestly higher versus Q1. Joe mentioned directionally, we expect normal seasonality across our regions, and we are seeing that here in the first month in April for Q2, we anticipate that our share gains will continue, which will help to supplement the continued soft market environments that we’re seeing. And then, as you think about SG&A, core SG&A, we’re anticipating to be around Q1 levels. And then as you mentioned, then you add in Dipsol here starting in Q2. So, I think hopefully that gives you a little bit more color on how we’re thinking about Q2.

Yes. Very helpful. Thanks very much.

Our next questions are from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Hey. Good morning. This is Kevin Estok on for Laurence. So you guys mentioned some order volatility. I was curious, I guess, how much has volatility increased and maybe where have they increased the most and like if there’s a regional skew there. And I guess what have customers been saying that I guess they would need to see the return to more stable order patterns?

Yeah, I think, I mean, I think that volatility has really been in place for a few years now and probably accelerated here in the first quarter because of tariffs. But the areas that have been most impacted and at least in the first quarter were really Europe and the Americas. We saw things decline in the second half of last year. They declined further in the first quarter and that was a little bit unexpected. But also, I think people are managing their inventories down, they got stuck with some higher inventories toward the end of the year and they’re really being prudent about their own operating plans looking out ahead, right? I can’t, I wouldn’t put a pin on any particular product line or area. I think it’s just around lumpiness in the order pattern. Asia, they had the Lunar Holiday again, and sometimes that’s a non-event, sometimes it’s a little bit more impactful. I think this year it was a little bit more impactful as again, their markets overall are tepid, but we were able to show some growth there really coming from share gains.

Got it. Okay. Thank you. And then just my second question. So there’s been talk out of the administration on deregulation. And I guess, I was just wondering whether, I guess, you saw that there could be any direct impact on your business from broader deregulation or if you’ve heard from any of your US-based customers that you service that basically deregulation could have a material impact. Most people we’ve been hearing have said that essentially the impact would be minor. So I’m just curious what your thoughts are there?

Yeah, think similar thoughts there. It’s anything that service business growth we’re supportive of. I think, for us, regardless if regulations are in place, actually, that sometimes requires innovation and different solutions from us as a supplier to help our customers get through it. So, either way, we’re not really - we have never really been impacted by regulation and don’t expect that will be a material headwind going forward. More tailwind, say thank you..

Got it. All right. Thank you. I appreciate it.

The next question is from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Hi, good morning and thank you for taking my questions. First one is, could you talk about the approximate contribution from acquisitions and the outlook for this year? Maybe beyond that, talk about the growth and synergy potential of Dipsol, especially as auto markets are likely to be one of the harder hit markets in the current environment and kind of what the expectations are there underlying it?

Hi, Jon. So in terms of contribution from Dipsol, they did approximately $80 million of sales in 2024, approximately $15 million worth of EBITDA in 2024. So, as you think about the business for us, we acquired them in April, so you get roughly three quarters of that here in 2025.

Yeah, I’ll just add, really excited about Dipsol. It’s a great fit for our business. It brings a new technology, it expands our addressable market and from a strategic perspective, right down the fairway it fits similar customer base. So, and it gives us a, you know, a bigger footprint in Japan and in with some of those customers, which are really important globally. You mentioned automotive, we kind of bake that into our outlook. There is uncertainty in automotive. That’s probably the area that we’ve seen most of the impact so far this year, it doesn’t really change our overall guide where we expect to come in similar to 2024, very similar to 2024 with all the puts and takes we mentioned, but automotive it’s a question mark right now with tariffs.

Okay, thank you. And then maybe if I could get just a little bit more color on the underlying tariff assumption that you have. Is that assuming the full boat, April 2nd plus China tariffs? Or are you expecting something less, as you build to that flat year-over-year expectation?

Yeah, I mean, base assumption is as of today, what we know today and yeah, I don’t really know, there’s this 90 day kind of cliff that everyone’s looking at. It would be hard to say what’s going to happen. Will that really go through or not go through? We’ve not assumed anything different from kind of current status.

Yeah and I would say that, as we came into the year, we were thinking our markets would grow, sort of 1% to 2%. Now as we’ve observed sort of markets here, Q4 into Q1, our markets are down low-single-digits percent. So it’s hard to predict where the ultimate output or outcome of the tariff discussions go. But what we’re observing today is it feels like our markets continue to be soft and have weakened here in Q1.

Okay, fair enough. If I could slip one more in there, just any thoughts on capital allocation? I know you obviously bought these companies, but your stock is trading a little bit lower than acquisitions. And obviously, as you keep an eye on leverage and then kind of how high leverage companies are treating the market these. Any color there would be helpful. Thank you.

Yeah. Yeah. Thanks. Good question. So as we’ve said in the past, we’re going to continue to use all the tools in our toolkit when it comes to capital allocation. First and foremost, we’re focused on investing for growth, whether that’s M&A or organic growth. I’m really pleased with how the team executed in 2024. We acquired Sutai and IKB. We’re building a plant in China. We paid down debt. We have a longstanding tradition at Quaker Houghton of paying a dividends and then we repurchase shares. As you think about 2025, we’ve already acquired three strategic and very attractive acquisitions here in 2025 and we’re continuing the build out of our plant in China. So, I think options still remain for us. We’ve got a very healthy balance sheet. We generate healthy amount of cash flow. So we’ll be opportunistic as we think about the levers associated with how we deploy capital, but feel really good about how we’re positioned.

Great. Thank you.

Our next question is from the line of Arun Viswanathan with RBC. Please proceed with your questions.

Hi, guys. Hope you’re well. Thanks for taking my question. Yeah. I guess first off, the volumes, if you look at the volume slide, they actually kind of look a little bit consistent sequentially and even over the last few quarters. But I know that the end-market weakness has continued. So, I guess what are you hearing from your customers? Have they started to are they pulling back even more and so we expect kind of a further drop off sequentially in Q2 or is there some seasonal help that should offset that? Yeah, maybe we’ll start there. Thanks.

Yeah, thanks, Arun. Thanks for your question. Yes, I mean, there is seasonal help, right? The first quarter, we said this on the Q4 call, we expected the first quarter to be probably our toughest quarter. Asia-Pac - Asia-Pac generally has a stronger second half of the year. Their fourth quarter is really strong and then they have the Lunar holiday. So that falls off Q1 into Q2. I think, again, just kind of normal seasonal pattern, there should be some help there for the overall business. The other thing is just visibility to our pipeline and our business acquisitions. I mentioned, we target to acquire net share gains in this kind of 2% to 4% range and had pretty good first quarter overall, as we looked at new SKUs, new badges coming on online into our business and a full pipeline outlook for the remainder of the year. So, as far as uncertainty or any signals from the customer that we’re going to see a differential change or something materially different than today, we’re not getting that right now. We’re very close to the customers. We’re in the plants. But it’s a dynamic situation and we’ll just we’ll react to what happens.

Okay. Thanks for that. And then apologies if I missed this, but on the margin side, you’re down in the 15.6% range on EBITDA this quarter. Do you still have line of sight to 17%, 18% EBITDA margins or 18%? And I know appreciating that you guys upped your productivity targets, but what’s kind of a rough bridge on how we get there? Is it mostly demand recovery? Or are there some other things on the price or cost side that we can that you guys can do to push those margins back up? Thanks.

Yeah, thanks. Good question. I think there’s multiple things there. We do have some select price increases that we’ll have to take action on where we’re seeing very specific raw material increases and we’ve shown the ability to go and do that in the past and we’ll do that as needed. Most of the cost actions that were taken really aren’t going to roll in to the business until kind of second quarter. Of course, there’s an offset there with regular merit and incentive rebuilds and things like that. But there could be a little bit of favorability on the SG&A side going forward. We are looking at our manufacturing footprint and we’ve made some changes. We closed the plant in the first quarter in the US We’re looking at optimizing the assets that we have to be more efficient and making reductions to where we need to. And I’d say final thing, we feel really good now is kind of five years out from the Houghton combination. We’ve got - we buy a lot of stuff, a lot of raw materials on the market and we’ve made some changes in the last year to put in place a global procurement, kind of category management approach where it was more regional in the past and we’re looking at ways to source things at a better, more cost effective way than we had in the past. So, many different things there that we’re working on, but you’re right to focus on kind of this EBITDA margin. I think we get hung up sometimes on gross margins. For us, we are targeting high-teens 18%, 19%. Ultimately, we want to get to EBITDA margins at 20% or above.

Thank you. At this time there are no further questions and I would like to turn the floor back to Joe Berquist for closing comments.

Yeah, thank you. We appreciate your continued interest in Quaker Houghton and just want to thank all of our colleagues around the world for their dedication to our customers and our company. If you have any questions, please reach out to Jeff and we’ll be happy to talk with you. Thanks.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.