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
|
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SOURCE Quaker Houghton