CONSHOHOCKEN, Pa., Aug. 5, 2020 /PRNewswire/ -- Quaker Chemical
Corporation ("the Company", also known as Quaker Houghton) (NYSE:
KWR) today announced second quarter results and provided an update
regarding the impact of the COVID-19 pandemic on the Company.
Second quarter of 2020 net sales were $286.0
million, an increase of 39% compared to the second quarter
of 2019. The increase was driven by additional net sales due
to the Company's August 1, 2019
combination with Houghton International, Inc. ("Houghton"), which
we refer to as "the Combination", as well as its October 1, 2019 acquisition of the operating
divisions of Norman Hay plc
("Norman Hay"). Current
quarter net sales declined approximately 27% compared to the prior
year second quarter pro forma net sales of $390 million, which are adjusted to include the
results of Houghton as well as certain other pro forma adjustments
including the elimination of results associated with divested
product lines. This quarter-over-quarter decline from pro
forma net sales was primarily attributed to lower volumes
reflecting the impact from COVID-19 on global industrial production
and the negative impact from foreign currency translation which was
partially offset by additional net sales from Norman Hay.
The Company had a net loss in the second quarter of 2020 of
$7.7 million or $0.43 per diluted share, compared to prior year
second quarter net income of $15.6
million or $1.17 per diluted
share. The Company's current quarter net loss was primarily
driven by the negative impact of COVID-19. Excluding costs
associated with the Combination and other non-core items in each
period, the Company's second quarter of 2020 non-GAAP earnings per
diluted share were $0.21 compared to
$1.56 in the prior year second
quarter. The Company's current quarter adjusted EBITDA of
$32.1 million increased slightly
compared to $31.4 million in the
second quarter of 2019 primarily due to the Combination and
inclusion of Norman Hay, largely
offset by the impacts of COVID-19. The current quarter
adjusted EBITDA of $32.1 million
decreased approximately 44% compared to pro forma prior year second
quarter adjusted EBITDA of approximately $57
million, primarily due to the negative impacts of COVID-19,
partially offset by the benefits of cost synergies realized from
the Combination as well as the benefit of Norman Hay in the current quarter.
Michael F. Barry, Chairman, Chief
Executive Officer and President, commented, "For Quaker Houghton,
our top priority is to protect the health and safety of our
employees and our customers, while ensuring business continuity to
meet our customers' needs. All of our 34 plants are operating
and we have been able to satisfy all of our customers'
requirements. Our current quarter adjusted EBITDA was
consistent with our guidance of being down nearly half of our first
quarter adjusted EBITDA. We saw a 27% decline in our global
revenue from pro forma second quarter 2019 net sales. All
four segments showed significant declines in pro forma net sales
due to COVID-19, with the Americas being the most impacted and
Asia/Pacific being the least
impacted. April and May were the worst months of the quarter
as many customers globally were shutdown or operating at reduced
rates, especially in the automotive sector. In June, we began
to see our net sales increase in all business segments.
Despite the poor quarter due to COVID-19, we did generate cash as
expected and reduced our net debt by $13
million compared to the first quarter. Other positives
include integration cost savings of $12
million, expanded product margins of 2%, and market share
gains of 2% in the current quarter."
Mr. Barry continued, "Looking forward, we expect gradual
sequential improvement as we progress through the second half of
the year and we are already seeing this to-date since the low point
in April and May. While we are not providing specific
guidance given the current economic uncertainty caused by COVID-19,
we do continue to expect our full year adjusted EBITDA to be more
than $200 million in 2020.
Further, we do not expect to have any liquidity or bank covenant
issues. Overall, our integration synergies, additional cost
savings actions, improvement in product margins, and good cashflows
are expected to continue to help us during this challenging
time. As we look forward to 2021 and 2022, we expect to
achieve significant increases in our adjusted EBITDA as we complete
our integration cost synergies, continue to take share in the
marketplace, and benefit from a projected gradual rebound in demand
in our end markets over this period."
Second Quarter 2020 Consolidated Results
Net sales were $286.0 million in
the second quarter of 2020 compared to $205.9 million in the second quarter of
2019. The net sales increase of 39% quarter-over-quarter
includes additional net sales from Houghton and Norman Hay of $142.5
million. Excluding Houghton and Norman Hay net sales, current quarter net sales
would have declined approximately 30%, primarily driven by a
decrease in sales volumes of approximately 27% and a negative
impact from foreign currency translation of 4% partially offset by
an increase from price and product mix of 1%. The primary
driver of the volume decline in the current quarter was the
negative impact of COVID-19 on global production levels.
Gross profit in the second quarter of 2020 increased
$22.2 million compared to the second
quarter of 2019 primarily due to Houghton and Norman Hay sales, noted above. The
Company's gross margin in the current quarter was 34.0% compared to
36.5% in the second quarter of 2019. This decrease in gross
margin quarter-over-quarter was primarily due to significantly
lower volumes in the current quarter and the related impact from
fixed manufacturing costs, as well as price and product mix largely
due to lower gross margins in the legacy Houghton business,
partially offset by certain cost of goods sold ("COGS") decreases
as a result of the Company's progress on Combination-related
logistics and procurement cost savings initiatives.
Selling, general and administrative expenses ("SG&A") in the
second quarter of 2020 increased $36.6
million compared to the second quarter of 2019 due primarily
to additional SG&A from Houghton and Norman Hay. This increase was partially
offset by lower SG&A due to foreign currency translation, the
impact of the sales decline on direct selling costs, lower
incentive compensation on reduced Company performance, the impact
of COVID-19 cost savings actions, including lower travel expenses,
and the benefits of realized cost savings associated with the
Combination.
During the second quarter of 2020, the Company incurred
$8.0 million of Combination,
integration and other acquisition-related expenses, primarily for
professional fees related to Houghton integration activities.
Comparatively, the Company incurred $4.6
million of expenses in the prior year second quarter,
primarily due to various professional fees related to integration
planning and regulatory approval.
The Company initiated a restructuring program during the third
quarter of 2019 as part of its global plan to realize cost
synergies associated with the Combination. The Company
expects reductions in headcount and site closures under this
program to continue during 2020 and 2021. During the second
quarter of 2020, the Company recorded additional restructuring and
related charges of $0.5 million
related to this program. There were no comparable
restructuring charges in the prior year second quarter.
Operating income in the second quarter of 2020 was $2.2 million compared to $20.5 million in the second quarter of
2019. Excluding the Combination, integration and other
acquisition-related expenses, restructuring and related charges,
and other expenses that are not indicative of the Company's future
operating performance, the Company's current quarter non-GAAP
operating income decreased to $11.2
million compared to $25.5
million in the prior year quarter, primarily due to the
negative impact of COVID-19, which more than offset the added net
sales and operating income from Houghton and Norman Hay and the benefits from cost savings
related to the Combination. The Company estimates that it has
realized approximately $12 million of
cost savings related to the Combination during the second quarter
of 2020, increasing its synergies realized in 2020 to $22 million, and its cumulative synergies
realized since closing of the Combination to approximately
$29 million.
Other expense, net, was $1.0
million in the second quarter of 2020 compared to other
income, net, of less than $0.1
million in the prior year second quarter. The
quarter-over-quarter change to other expense, net, was driven by
higher foreign currency transaction losses in the second quarter of
2020 as compared to the prior year second quarter, partially offset
by lower expenses from the non-service components of pension and
postretirement benefit costs.
Interest expense, net, increased $6.1
million compared to the prior year second quarter primarily
due to additional borrowings under the Company's term loans and
revolving credit facility to finance the closing of the
Combination.
The Company's effective tax rates for the second quarters of
2020 and 2019 were an expense of 57.9% and 24.2%,
respectively. The Company's current quarter effective tax
rate was driven by the impact of certain tax charges in the
current period relating to changes in the valuation allowance
for foreign tax credits acquired with the Combination and
additional charges for uncertain tax positions taken resulting from
certain foreign tax audits combined with pre-tax losses as a
result of the negative impacts of COVID-19. Excluding
the impact of all non-core items in each quarter, described in the
Non-GAAP and Pro Forma measures section below, the Company
estimates that its effective tax rates for the second quarters of
2020 and 2019 would have been approximately 18% and 22%,
respectively.
Equity in net income of associated companies increased
$0.5 million in the second quarter of
2020 compared to the second quarter of 2019, primarily due to
additional earnings from Houghton's 50% interest in a joint venture
in Korea and higher earnings in the current quarter from the
Company's interest in a captive insurance company.
Foreign exchange negatively impacted the Company's second
quarter results by approximately $0.11 per diluted share, primarily due to
approximately $1.9 million of higher
foreign exchange transaction losses quarter-over-quarter as well as
the negative impact from foreign currency translation on earnings
due to the strengthening of the U.S. dollar against certain major
foreign currencies in the current quarter.
First Six Months 2020 Consolidated Results
Net sales were $664.6 million in
the first six months of 2020 compared to $417.1 million in the first six months of
2019. The net sales increase of 59% year-over-year includes
additional net sales from Houghton and Norman Hay of $332.8
million. Excluding Houghton and Norman Hay net sales, current year net sales
would have declined approximately 20%, primarily driven by a
decrease in sales volumes of approximately 16%, a negative impact
from foreign currency translation of 3% and a decrease from price
and product mix of 1%. Consistent with the second quarter of
2020 description above, the primary driver of the volume decline in
the current year was the negative impact of COVID-19 on global
production levels.
Gross profit in the first six months of 2020 increased
$80.3 million compared to the first
six months of 2019 primarily due to the inclusion of Houghton and
Norman Hay sales. The
Company's gross margin in the current year was 34.8% compared to
36.2% in 2019. This decrease in gross margin year-over-year
was primarily the result of the same drivers described in the
second quarter description noted above.
SG&A in the first six months of 2020 increased $83.9 million compared to the first six months of
2019 due primarily to additional SG&A from Houghton and
Norman Hay, partially offset by the
same drivers described in the second quarter description noted
above.
During the first six months of 2020, the Company incurred
$15.9 million of Combination,
integration and other acquisition-related expenses, primarily for
professional fees related to Houghton integration activities.
Comparatively, the Company incurred $9.1
million of expenses in the prior year, primarily due to
various professional fees related to integration planning and
regulatory approval for the Combination.
As noted above, the Company initiated a restructuring program
during the third quarter of 2019 as part of its global plan to
realize cost synergies associated with the Combination.
During the first six months of 2020, the Company recorded
additional restructuring and related charges of $2.2 million related to this program. There
were no comparable restructuring charges in the prior year.
During the first quarter of 2020, the Company recorded a
$38.0 million non-cash impairment
charge to write down the value of certain indefinite-lived
intangible assets associated with the Combination. This
non-cash impairment charge is related to certain acquired Houghton
trademarks and tradenames and is primarily the result of the
current year negative impacts of COVID-19 on their estimated fair
values. There were no impairment charges in the second
quarter of 2020 or in the prior year.
Operating loss in the first six months of 2020 was $10.2 million compared to operating income of
$40.4 million in the first six months
of 2019. Excluding the Combination, integration and other
acquisition-related expenses, restructuring and related charges,
the non-cash indefinite-lived intangible asset impairment charge,
and other expenses that are not indicative of the Company's future
operating performance, the Company's non-GAAP operating income of
$47.2 million for the first six
months of 2020 decreased compared to $49.8
million in the prior year period, primarily due to lower
volumes from the negative impact of COVID-19, which more than
offset the added net sales and operating income from Houghton and
Norman Hay and the benefits from
cost savings related to the Combination.
Other expense, net, was $22.2
million in the first six months of 2020 compared to
$0.6 million in the prior year.
The year-over-year increase in other expense, net was primarily due
to a first quarter of 2020 non-cash pension plan settlement charge
of $22.7 million associated with the
termination of the legacy Quaker U.S. Pension Plan.
Interest expense, net, increased $13.8
million in the first six months of 2020 compared to the
prior year primarily due to additional borrowings under the
Company's term loans and revolving credit facility to finance the
closing of the Combination.
The Company's effective tax rates for the first six months of
2020 and 2019 were a benefit of 20.7% and expense of 25.4%,
respectively. The Company's current year effective tax rate
was impacted by the tax effect of certain one-time pre-tax costs as
well as certain one-time tax charges and benefits in the current
period, including those related to changes in the valuation
allowance for foreign tax credits acquired with the Combination,
tax law changes, additional charges for uncertain tax positions
taken resulting from certain foreign tax audits, and the tax impact
of the Company's termination of its legacy Quaker U.S. pension
plan. Comparatively, the prior year effective tax rate was
primarily impacted by certain non-deductible costs associated with
the Combination, partially offset by a favorable shift in earnings
to entities with lower tax rates. Excluding the impact of all
non-core items in each quarter, described in the Non-GAAP and Pro
Forma measures section below, the Company estimates that its
effective tax rates for the first six months of 2020 and 2019 would
have been approximately 21% and 23%, respectively.
Equity in net income of associated companies increased
$0.7 million in the first six months
of 2020 compared to the first six months of 2019, primarily due to
additional earnings from Houghton's 50% interest in a joint venture
in Korea partially offset by lower earnings as compared to the
prior year period from the Company's interest in a captive
insurance company.
Foreign exchange negatively impacted the Company's first six
months of 2020 results by approximately $0.11 per diluted share, primarily due to
approximately $0.8 million of higher
foreign exchange transaction losses year-over-year as well as the
negative impact from foreign currency translation due to the
strengthening of the U.S. dollar in the current year period.
Cash Flow and Liquidity Highlights
The Company had net operating cash flow of approximately
$24.5 million during the second
quarter of 2020, increasing its year-to-date net operating cash
flow to $44.7 million in the first
six months of 2020, compared to $22.4
million in the first six months of 2019. The
$22.3 million increase in net
operating cash flow year-over-year was primarily driven by
additional earnings from Houghton and Norman Hay as well as releases in working
capital due to the volume declines related to COVID-19.
The Company has no material debt maturities until August 1, 2024. As a precautionary measure
in response to the current economic uncertainty from COVID-19, the
Company drew down most of the available liquidity on its revolving
credit facility during the second half of March 2020. As of
June 30, 2020, the Company had total
gross outstanding borrowings, primarily under its syndicated and
secured credit facility, of $1,121.2
million as well as $322.5
million of cash on hand. The additional borrowings
under the revolver did not negatively impact the Company's leverage
ratio (net debt divided by adjusted EBITDA) as the incremental debt
is offset by a corresponding increase in available cash. As
of June 30, 2020, the Company's total
net debt was $798.7 million, and its
net debt divided by its trailing twelve months pro forma adjusted
EBITDA was approximately 3.7 to 1. The Company's leverage
ratio, as defined under its bank agreement, was approximately 3.1
to 1 as of June 30, 2020 compared to
a maximum permitted leverage of 4.25 to 1. Based on current
projections, including multiple forecasted scenarios of future
liquidity and leverage, the Company does not expect any compliance
issues with its bank covenants.
Non-GAAP and Pro Forma Measures
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, non-GAAP earnings per
diluted share, and pro forma net sales, net (loss) income
attributable to Quaker Houghton, EBITDA, adjusted EBITDA, and
adjusted EBITDA margin. 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 and pro forma
information 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 (loss)
income attributable to the Company before depreciation and
amortization, interest expense, net, and taxes on (loss) income
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 (loss)
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 (loss) 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 (loss) 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 the full year 2020 expected adjusted EBITDA and
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 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
June
30,
|
|
Six Months
Ended
June
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating income
(loss)
|
$
2,238
|
|
$
20,531
|
|
$
(10,206)
|
|
$
40,360
|
Fair value step up of
inventory sold
|
226
|
|
—
|
|
226
|
|
—
|
Houghton combination,
integration and other
|
8,253
|
|
4,604
|
|
16,529
|
|
9,087
|
acquisition-related
expenses (a)
|
|
|
Restructuring and
related charges
|
486
|
|
—
|
|
2,202
|
|
—
|
Customer bankruptcy
costs
|
—
|
|
—
|
|
463
|
|
—
|
Charges related to the
settlement of a non-core
|
—
|
|
384
|
|
—
|
|
384
|
equipment
sale
|
|
|
Indefinite-lived
intangible asset impairment
|
—
|
|
—
|
|
38,000
|
|
—
|
Non-GAAP operating
income
|
$
11,203
|
|
$
25,519
|
|
$
47,214
|
|
$
49,831
|
Non-GAAP operating
margin (%)
|
3.9%
|
|
12.4%
|
|
7.1%
|
|
11.9%
|
|
|
EBITDA, Adjusted
EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income
Reconciliations
|
|
|
Three Months
Ended
June
30,
|
|
Six Months
Ended
June
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net (loss) income
attributable to Quaker Chemical Corporation
|
$
(7,735)
|
|
$
15,591
|
|
$
(36,116)
|
|
$
29,435
|
Depreciation and
amortization (b)
|
21,158
|
|
4,843
|
|
42,742
|
|
9,702
|
Interest expense, net
(c)
|
6,811
|
|
733
|
|
15,272
|
|
1,509
|
Taxes on (loss) income
before equity in net income
|
3,222
|
|
4,800
|
|
(9,848)
|
|
9,729
|
of associated
companies (d)
|
|
|
|
EBITDA
|
$
23,456
|
|
$
25,967
|
|
$
12,050
|
|
$
50,375
|
Equity income in a
captive insurance company
|
(482)
|
|
(390)
|
|
(155)
|
|
(736)
|
Fair value step up of
inventory sold
|
226
|
|
—
|
|
226
|
|
—
|
Houghton combination,
integration and other
|
7,963
|
|
4,604
|
|
15,766
|
|
9,087
|
acquisition-related
expenses (a)
|
|
|
|
Restructuring and
related charges
|
486
|
|
—
|
|
2,202
|
|
—
|
Customer bankruptcy
costs
|
—
|
|
—
|
|
463
|
|
—
|
Charges related to the
settlement of a non-core
|
—
|
|
384
|
|
—
|
|
384
|
equipment
sale
|
|
|
|
Indefinite-lived
intangible asset impairment
|
—
|
|
—
|
|
38,000
|
|
—
|
Pension and
postretirement benefit costs,
|
341
|
|
895
|
|
23,866
|
|
1,791
|
non-service
components
|
|
|
|
Currency conversion
impacts of hyper-
|
73
|
|
(31)
|
|
124
|
|
163
|
inflationary
economies
|
|
|
|
Adjusted
EBITDA
|
$
32,063
|
|
$
31,429
|
|
$
92,542
|
|
$
61,064
|
Adjusted EBITDA
margin (%)
|
11.2%
|
|
15.3%
|
|
13.9%
|
|
14.6%
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$
32,063
|
|
$
31,429
|
|
$
92,542
|
|
$
61,064
|
Less: Depreciation and
amortization (b)
|
20,869
|
|
4,843
|
|
41,980
|
|
9,702
|
Less: Interest
expense, net - adjusted (c)
|
6,811
|
|
(130)
|
|
15,272
|
|
(216)
|
Less: Taxes on (loss)
income before equity in net
|
673
|
|
5,787
|
|
7,136
|
|
11,827
|
income of associated
companies – adjusted (d)
|
|
|
|
Non-GAAP net
income
|
$
3,710
|
|
$
20,929
|
|
$
28,154
|
|
$
39,751
|
|
|
Non-GAAP Earnings
per Diluted Share Reconciliations
|
|
|
Three Months
Ended
June
30,
|
|
Six Months
Ended
June
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
GAAP (loss) earnings
per diluted share attributable to Quaker Chemical Corporation
common shareholders (e)
|
$
(0.43)
|
|
$
1.17
|
|
$
(2.03)
|
|
$
2.20
|
Equity income in a
captive insurance company per diluted share
|
(0.03)
|
|
(0.03)
|
|
(0.01)
|
|
(0.06)
|
Fair value step up of
inventory sold per diluted share
|
0.01
|
|
—
|
|
0.01
|
|
—
|
Houghton combination,
integration and other acquisition-related expenses per diluted
share (a)
|
0.37
|
|
0.34
|
|
0.73
|
|
0.69
|
Restructuring and
related charges per diluted share
|
0.02
|
|
—
|
|
0.09
|
|
—
|
Customer bankruptcy
costs per diluted share
|
—
|
|
—
|
|
0.02
|
|
—
|
Charges related to the
settlement of a non-core equipment sale per diluted
share
|
—
|
|
0.02
|
|
—
|
|
0.02
|
Indefinite-lived
intangible asset impairment per diluted share
|
—
|
|
—
|
|
1.65
|
|
—
|
Pension and
postretirement benefit costs, non-service components per diluted
share
|
0.01
|
|
0.06
|
|
0.89
|
|
0.11
|
Currency conversion
impacts of hyper-inflationary economies per diluted
share
|
0.01
|
|
(0.00)
|
|
0.01
|
|
0.01
|
Impact of certain
discrete tax items per diluted share
|
0.25
|
|
—
|
|
0.23
|
|
—
|
Non-GAAP earnings per
diluted share (e)
|
$
0.21
|
|
$
1.56
|
|
$
1.59
|
|
$
2.97
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company recorded
$0.3 million and $0.8 million of accelerated depreciation expense
during the three and six months ended June 30, 2020, respectively,
related to the Combination, of which $0.3 million and $0.7 million
was recorded in COGS and less than $0.1 million and $0.1 million
was recorded in Combination, integration and other
acquisition-related expenses during the three and six months ended
June 30, 2020, respectively. The amount recorded within COGS
is included in the caption Houghton combination, integration and
other acquisition-related expenses in the reconciliation of
Operating income (loss) to Non-GAAP operating income and GAAP
(loss) earnings per diluted share attributable to Quaker Chemical
Corporation common shareholders to Non-GAAP earnings per diluted
share. In addition, the total $0.3 million and $0.8 million
for the three and six months ended June 30, 2020, respectively, is
included within the caption Depreciation and amortization in the
reconciliation of Net (loss) income attributable to Quaker Chemical
Corporation to Adjusted EBITDA; however, it is excluded in the
reconciliation of Adjusted EBITDA to Non-GAAP net
income.
|
|
|
(b)
|
Depreciation and
amortization for the three and six months ended June 30, 2020
includes $0.3 million and $0.7 million, respectively, of
amortization expense recorded within equity in net income of
associated companies in the Statements of Operations, attributable
to the amortization of the fair value step up for Houghton's 50%
interest in a joint venture in Korea as a result of required
purchase accounting.
|
|
|
(c)
|
Interest expense, net
– adjusted excludes $0.9 million and $1.7 million for the three and
six months ended June 30, 2019, respectively, of interest costs the
Company incurred to maintain the bank commitment to finance the
Combination, prior to executing the Company's credit facility and
closing the Combination on August 1, 2019.
|
|
|
(d)
|
Taxes on (loss)
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 (loss) income 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 six months ended June 30, 2020 which the
Company does not consider core or indicative of future
performance.
|
|
|
(e)
|
The Company's
calculation of GAAP and non-GAAP earnings per diluted share
attributable to Quaker Chemical Corporation common shareholders for
the three and six months ended June 30, 2020 was impacted by the
4.3 million share issuance in connection with closing the
Combination.
|
Pro Forma Adjusted Measures and Reconciliations
The Company has provided certain unaudited pro forma financial
information in this press release. The unaudited pro forma
financial information is based on the historical consolidated
financial statements and results of both Quaker and Houghton, and
has been prepared to illustrate the effects of the
Combination. The unaudited pro forma financial information
has been presented for informational purposes only and is not
necessarily indicative of Quaker Houghton's past results of
operations, nor is it indicative of the future operating results of
Quaker Houghton and should not be considered a substitute for the
financial information presented in accordance with GAAP. The
Company has not provided pro forma financial information as it
relates to the acquired operating divisions of Norman Hay plc based on materiality.
The following schedules present the Company's unaudited pro
forma financial information for net sales, as well as net income
(loss) attributable to Quaker Houghton and the applicable
reconciliation to EBITDA and adjusted EBITDA on a pro forma
non-GAAP basis (dollars in millions unless otherwise noted):
|
Three months
ended June 30, 2019 (a)
|
|
Quaker
|
|
Houghton
|
|
Divestitures
(b)
|
|
Other
(c)
|
|
Pro Forma
*
|
Net sales
|
$
206
|
|
$
204
|
|
$
(14)
|
|
$
(5)
|
|
$
390
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Quaker Houghton
|
$
16
|
|
$
1
|
|
$
(3)
|
|
$
4
|
|
$
18
|
Depreciation and
amortization
|
5
|
|
13
|
|
—
|
|
1
|
|
19
|
Interest expense,
net
|
1
|
|
14
|
|
—
|
|
(6)
|
|
9
|
Taxes on income
(d)
|
5
|
|
(1)
|
|
(1)
|
|
1
|
|
4
|
EBITDA *
|
26
|
|
28
|
|
(3)
|
|
0
|
|
50
|
Combination,
integration and other acquisition-related expenses
|
5
|
|
2
|
|
—
|
|
—
|
|
6
|
Other addbacks
(e)
|
1
|
|
(1)
|
|
—
|
|
—
|
|
0
|
Adjusted EBITDA
*
|
$
31
|
|
$
29
|
|
$
(3)
|
|
$
0
|
|
$
57
|
Adjusted EBITDA margin
* (%)
|
15%
|
|
14%
|
|
24%
|
|
0%
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended June 30, 2019 (a)
|
|
Quaker
|
|
Houghton
|
|
Divestitures
(b)
|
|
Other
(c)
|
|
Pro Forma
*
|
Net sales
|
$
417
|
|
$
403
|
|
$
(29)
|
|
$
(11)
|
|
$
781
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Quaker Houghton
|
$
29
|
|
$
4
|
|
$
(5)
|
|
$
7
|
|
$
35
|
Depreciation and
amortization
|
10
|
|
26
|
|
—
|
|
3
|
|
39
|
Interest expense,
net
|
2
|
|
28
|
|
—
|
|
(12)
|
|
18
|
Taxes on income
(d)
|
10
|
|
(5)
|
|
(1)
|
|
2
|
|
6
|
EBITDA *
|
50
|
|
54
|
|
(7)
|
|
0
|
|
97
|
Combination,
integration and other acquisition-related expenses
|
9
|
|
4
|
|
—
|
|
—
|
|
13
|
Other addbacks
(e)
|
2
|
|
(0)
|
|
—
|
|
—
|
|
1
|
Adjusted EBITDA
*
|
$
61
|
|
$
57
|
|
$
(7)
|
|
$
0
|
|
$
111
|
Adjusted EBITDA margin
* (%)
|
15%
|
|
14%
|
|
24%
|
|
0%
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailing twelve
months ended June 30, 2020 (a)
|
|
Quaker
|
|
Houghton
|
|
Divestitures
(b)
|
|
Other
(c)
|
|
Pro Forma
*
|
Net sales
|
$
1,381
|
|
$
72
|
|
$
(5)
|
|
$
(2)
|
|
$
1,446
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Quaker Houghton
|
$
(34)
|
|
$
(7)
|
|
$
(1)
|
|
$
0
|
|
$
(42)
|
Depreciation and
amortization
|
78
|
|
4
|
|
—
|
|
0
|
|
83
|
Interest expense,
net
|
31
|
|
5
|
|
—
|
|
(1)
|
|
35
|
Taxes on income
(d)
|
(17)
|
|
4
|
|
(0)
|
|
0
|
|
(14)
|
EBITDA *
|
58
|
|
6
|
|
(1)
|
|
0
|
|
62
|
Combination,
integration and other acquisition-related expenses
|
42
|
|
40
|
|
—
|
|
—
|
|
82
|
Gain on the sale of
divested assets
|
—
|
|
(35)
|
|
—
|
|
—
|
|
(35)
|
Fair value step up of
inventory sold
|
12
|
|
—
|
|
—
|
|
—
|
|
12
|
Pension and
postretirement benefit costs, non-service components
|
25
|
|
(0)
|
|
—
|
|
—
|
|
25
|
Indefinite-lived
intangible asset impairment
|
38
|
|
—
|
|
—
|
|
—
|
|
38
|
Restructuring and
related charges
|
29
|
|
—
|
|
—
|
|
—
|
|
29
|
Other addbacks
(e)
|
1
|
|
0
|
|
—
|
|
—
|
|
1
|
Adjusted EBITDA
*
|
$
205
|
|
$
11
|
|
$
(1)
|
|
$
0
|
|
$
214
|
Adjusted EBITDA margin
* (%)
|
15%
|
|
15%
|
|
24%
|
|
0%
|
|
15%
|
|
|
* Certain amounts
may not calculate due to rounding, including EBITDA, Adjusted
EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma
financial results as presented for combined Quaker
Houghton
|
|
|
(a)
|
Results for both
the three and six months ended June 30, 2019, include Quaker's
historical results, while Houghton reflects its stand-alone
results. Results for the trailing twelve months ended June
30, 2020 include eleven months of Houghton's operations
post-closing of the Combination, while Houghton reflects one month
of results for the period from July 1, 2019 through July 31,
2019. Pro forma results for the three and six months ended
June 30, 2020 have not been presented above because the actual
results for Quaker Houghton as presented in this press release are
the applicable comparative
results.
|
|
|
(b)
|
Divestitures includes the elimination of results
associated with divested product lines.
|
|
|
(c)
|
Other includes: (i)
additional depreciation and amortization expense based on the
initial estimates of fair value step up and estimated useful lives
of depreciable fixed assets, definite-lived intangible assets and
investment in associated companies acquired; (ii) adoption of
required accounting guidance and alignment of related accounting
policies; (iii) elimination of transactions between Quaker and
Houghton; and (iv) an adjustment to interest expense, net, to
reflect the impact of the new financing and capital structure of
the combined Company.
|
|
|
(d)
|
Taxes on income
related to the Divestiture and Other reflect each tax effected at
the U.S. tax rate of 21%.
|
|
|
(e)
|
Other addbacks
includes: (i) Equity income in a captive insurance company; (ii)
Currency conversion impacts of hyper-inflationary economies;
(iii) affiliate management fees; (iv) insurance insolvency
recoveries; (v) customer bankruptcy costs; (vi) charges related to
the settlement of a non-core equipment sale; (vii) other
non-recurring miscellaneous charges; and (viii) for both the three
and six months ended June 30, 2019, pension and postretirement
benefit costs, non-service components.
|
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
on the Company's business, results of operations, or financial
condition and expectations regarding our liquidity position and our
continued compliance with the terms of the Company's credit
facility 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, the impacts on our business
as a result of the COVID-19 pandemic and any projected global
economic rebound or anticipated positive results due to Company
actions taken in response to the pandemic, 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
shutdowns. 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 stability,
worldwide economic and political conditions, 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 steel, automobile, aircraft,
industrial equipment, and durable goods manufacturers. 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,
the effects on the economy by 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, and governmental programs implemented to assist
businesses impacted by the COVID-19 pandemic. Other factors
could also adversely affect us, including those related to the
Combination and other acquisitions and the integration of the
combined company as well as other 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 the improvements in
business conditions in the second half of 2020 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 Quarterly Report on Form
10-Q for the period ended June 30,
2020, as well as in Item 1A in our Annual Report on Form
10-K for the year ended December 31, 2019, and in our other
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 second quarter performance is scheduled for
August 6, 2020 at 7:30 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 a 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 4,500 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 share and per share amounts)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Net
sales
|
$
286,040
|
|
$
205,869
|
|
$
664,601
|
|
$
417,079
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
188,654
|
|
130,708
|
|
433,364
|
|
266,151
|
|
|
|
|
|
|
|
|
Gross
profit
|
97,386
|
|
75,161
|
|
231,237
|
|
150,928
|
%
|
34.0%
|
|
36.5%
|
|
34.8%
|
|
36.2%
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
86,667
|
|
50,026
|
|
185,368
|
|
101,481
|
Indefinite-lived
intangible asset impairment
|
-
|
|
-
|
|
38,000
|
|
-
|
Restructuring and
related charges
|
486
|
|
-
|
|
2,202
|
|
-
|
Combination,
integration and other acquisition-related expenses
|
7,995
|
|
4,604
|
|
15,873
|
|
9,087
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
2,238
|
|
20,531
|
|
(10,206)
|
|
40,360
|
%
|
0.8%
|
|
10.0%
|
|
-1.5%
|
|
9.7%
|
|
|
|
|
|
|
|
|
Other (expense)
income, net
|
(993)
|
|
43
|
|
(22,168)
|
|
(592)
|
Interest expense,
net
|
(6,811)
|
|
(733)
|
|
(15,272)
|
|
(1,509)
|
(Loss) income before
taxes and equity in net income of associated companies
|
(5,566)
|
|
19,841
|
|
(47,646)
|
|
38,259
|
|
|
|
|
|
|
|
|
Taxes on (loss)
income before equity in net income of associated
companies
|
3,222
|
|
4,800
|
|
(9,848)
|
|
9,729
|
(Loss) income before
equity in net income of associated companies
|
(8,788)
|
|
15,041
|
|
(37,798)
|
|
28,530
|
|
|
|
|
|
|
|
|
Equity in net income
of associated companies
|
1,066
|
|
608
|
|
1,732
|
|
1,019
|
|
|
|
|
|
|
|
|
Net (loss)
income
|
(7,722)
|
|
15,649
|
|
(36,066)
|
|
29,549
|
|
|
|
|
|
|
|
|
Less: Net income
attributable to noncontrolling interest
|
13
|
|
58
|
|
50
|
|
114
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Quaker Chemical Corporation
|
$
(7,735)
|
|
$
15,591
|
|
$
(36,116)
|
|
$
29,435
|
%
|
-2.7%
|
|
7.6%
|
|
-5.4%
|
|
7.1%
|
|
|
|
|
|
|
|
|
Share and per
share data:
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
17,697,496
|
|
13,304,248
|
|
17,685,010
|
|
13,297,953
|
Diluted weighted
average common shares outstanding
|
17,697,496
|
|
13,352,255
|
|
17,685,010
|
|
13,345,315
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Quaker Chemical Corporation common shareholders -
basic
|
$
(0.43)
|
|
$
1.17
|
|
$
(2.03)
|
|
$
2.21
|
Net (loss) income
attributable to Quaker Chemical Corporation common shareholders -
diluted
|
$
(0.43)
|
|
$
1.17
|
|
$
(2.03)
|
|
$
2.20
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Balance Sheets
|
(Dollars in
thousands, except par value and share amounts)
|
|
|
|
|
|
(Unaudited)
|
|
June
30,
|
|
December
31,
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
322,497
|
|
$
123,524
|
Accounts receivable,
net
|
300,027
|
|
375,982
|
Inventories,
net
|
173,867
|
|
174,950
|
Prepaid expenses and
other current assets
|
52,847
|
|
41,516
|
Total current
assets
|
849,238
|
|
715,972
|
|
|
|
|
Property, plant and
equipment, net
|
188,413
|
|
213,469
|
Right of use lease
assets
|
40,517
|
|
42,905
|
Goodwill
|
604,649
|
|
607,205
|
Other intangible
assets, net
|
1,044,516
|
|
1,121,765
|
Investments in
associated companies
|
87,865
|
|
93,822
|
Deferred tax
assets
|
12,362
|
|
14,745
|
Other non-current
assets
|
43,966
|
|
40,433
|
Total
assets
|
$
2,871,526
|
|
$
2,850,316
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Short-term borrowings
and current portion of long-term debt
|
$
38,217
|
|
$
38,332
|
Accounts and other
payables
|
130,334
|
|
170,929
|
Accrued
compensation
|
22,689
|
|
45,620
|
Accrued
restructuring
|
10,432
|
|
18,043
|
Other current
liabilities
|
81,019
|
|
87,010
|
Total current
liabilities
|
282,691
|
|
359,934
|
|
|
|
|
Long-term
debt
|
1,070,306
|
|
882,437
|
Long-term lease
liabilities
|
28,908
|
|
31,273
|
Deferred tax
liabilities
|
196,669
|
|
211,094
|
Other non-current
liabilities
|
125,611
|
|
123,212
|
Total
liabilities
|
1,704,185
|
|
1,607,950
|
|
|
|
|
Equity
|
|
|
|
Common stock, $1 par
value; authorized 30,000,000 shares; issued and outstanding 2020 -
17,799,606 shares; 2019 - 17,735,162 shares
|
17,800
|
|
17,735
|
Capital in excess of
par value
|
896,108
|
|
888,218
|
Retained
earnings
|
362,265
|
|
412,979
|
Accumulated other
comprehensive loss
|
(109,264)
|
|
(78,170)
|
Total Quaker
shareholders' equity
|
1,166,909
|
|
1,240,762
|
Noncontrolling
interest
|
432
|
|
1,604
|
Total
equity
|
1,167,341
|
|
1,242,366
|
Total liabilities and
equity
|
$
2,871,526
|
|
$
2,850,316
|
|
|
|
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Statements of Cash Flows
|
(Dollars in
thousands)
|
|
|
|
|
|
(Unaudited)
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
Cash flows from
operating activities
|
|
|
|
Net (loss)
income
|
$
(36,066)
|
|
$
29,549
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Amortization of
deferred issuance costs
|
2,375
|
|
70
|
Depreciation and
amortization
|
42,079
|
|
9,702
|
Equity in
undistributed earnings of associated companies, net of
dividends
|
3,219
|
|
1,658
|
Acquisition-related
fair value adjustments related to inventory
|
229
|
|
-
|
Deferred
compensation, deferred taxes and other, net
|
(22,033)
|
|
(7,141)
|
Share-based
compensation
|
7,673
|
|
1,672
|
Loss (gain) on
disposal of property, plant, equipment and other assets
|
81
|
|
(39)
|
Insurance settlement
realized
|
(542)
|
|
(306)
|
Indefinite-lived
intangible asset impairment
|
38,000
|
|
-
|
Combination and other
acquisition-related expenses, net of payments
|
1,860
|
|
399
|
Restructuring and
related charges
|
2,202
|
|
-
|
Pension and other
postretirement benefits
|
18,784
|
|
(21)
|
Increase (decrease)
in cash from changes in current assets and current liabilities, net
of acquisitions:
|
|
|
|
Accounts
receivable
|
61,659
|
|
(7,893)
|
Inventories
|
(3,689)
|
|
(257)
|
Prepaid expenses and
other current assets
|
(2,849)
|
|
(2,039)
|
Change in
restructuring liabilities
|
(9,592)
|
|
-
|
Accounts payable and
accrued liabilities
|
(58,728)
|
|
(2,945)
|
Net cash provided by
operating activities
|
44,662
|
|
22,409
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
Investments in
property, plant and equipment
|
(7,534)
|
|
(5,544)
|
Payments related to
acquisitions, net of cash acquired
|
(3,132)
|
|
(500)
|
Proceeds from
disposition of assets
|
11
|
|
70
|
Insurance settlement
interest earned
|
37
|
|
131
|
Net cash used in
investing activities
|
(10,618)
|
|
(5,843)
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
Payments of term loan
debt
|
(18,702)
|
|
-
|
Borrowings
(repayments) on revolving credit facilities, net
|
205,500
|
|
(24,034)
|
Repayments on other
debt, net
|
(684)
|
|
(6)
|
Dividends
paid
|
(13,662)
|
|
(9,868)
|
Stock options
exercised, other
|
(1,923)
|
|
(1,374)
|
Purchase of
noncontrolling interest in affiliates
|
(1,047)
|
|
-
|
Distributions to
noncontrolling affiliate shareholders
|
(751)
|
|
-
|
Net cash provided by
(used in) financing activities
|
168,731
|
|
(35,282)
|
|
|
|
|
Effect of foreign
exchange rate changes on cash
|
(4,575)
|
|
749
|
|
|
|
|
Net increase
(decrease) in cash, cash equivalents and restricted cash
|
198,200
|
|
(17,967)
|
Cash, cash
equivalents and restricted cash at the beginning of the
period
|
143,555
|
|
124,425
|
Cash, cash
equivalents and restricted cash at the end of the
period
|
$
341,755
|
|
$
106,458
|
|
|
|
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/quaker-houghton-announces-second-quarter-results-301107062.html
SOURCE Quaker Houghton