QUAKER HOUGHTON ANNOUNCES FOURTH QUARTER AND FULL YEAR 2021 RESULTS (2024)

CONSHOHOCKEN, Pa., Feb. 24, 2022 /PRNewswire/ -- Quaker Houghton ("the Company") (NYSE: KWR), the global leader in industrial process fluids, today announced its fourth quarter and full year 2021 results.

Fourth Quarter 2021 Consolidated Results

Fourth quarter 2021 net sales of $447.0 million increased 16% compared to $385.9 million in the prior year quarter primarily due to an increase in selling price and product mix of approximately 15% and additional net sales from acquisitions of 4%, slightly offset by a 2% decrease in sales volumes and a 1% unfavorable impact from foreign currency translation. The increase in selling price and product mix was primarily attributable to broad price increases implemented to help offset continued and unprecedented raw material cost increases as well as global supply chain and logistics cost pressures. The 2% decline in the Company's volumes were attributable to constrained demand from the automotive sector as well as delayed shipments due to supply chain restrictions which offset new business wins in the quarter.

The Company had net income in the fourth quarter of 2021 of $18.1 million or $1.01 per diluted share, compared to fourth quarter of 2020 net income of $48.5 million or $2.72 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 fourth quarter 2021 non-GAAP earnings per diluted share was $1.29 compared to $1.63 in the prior year fourth quarter. The Company's fourth quarter 2021 adjusted EBITDA of $60.7 million decreased 7% compared to $65.5 million in the fourth quarter of 2020, as the increase in net sales was more than offset by lower gross margins primarily attributable to increased raw material and other costs, supply chain and logistics cost pressures as well as product mix.

Andy Tometich, Chief Executive Officer and President, commented, "Thanks to the remarkable efforts of our global colleagues, the Company has made meaningful progress navigating through a very challenging environment. In the fourth quarter, we contended with escalating raw material pressures and supply chain disruptions, especially in automotive end markets. That said, in 2021, we delivered record net sales and adjusted EBITDA while deepening customer relationships through our breadth of product and service offerings. Our journey is just beginning and we are excited about the opportunities ahead to further optimize and enhance our portfolio and continue to deliver profitable growth.

Looking forward, the Company is well positioned to continue to outpace market growth rates and deliver value-added solutions and services to our customers. Demand remains healthy across most of our end markets, however, we expect raw material cost pressures and supply chain disruptions to persist throughout 2022. To mitigate the impact of these ongoing inflationary pressures, we are implementing further price actions and are actively managing our cost structure. We believe these actions will begin to drive a recovery in margins as we progress throughout the year. The economic environment is uncertain, but we remain committed to advancing our customer intimate strategy and sustainability program and delivering earnings growth in 2022 and beyond."

Fourth Quarter 2021 Segment Results

The Company's fourth quarter and full year 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. Fourth quarter performance of the Company's operating segments are further described below.

All four segments had higher net sales in the fourth quarter of 2021 compared to the fourth quarter of 2020, as each of the segments continued to benefit from increases in selling price and product mix and additional net sales from acquisitions. Organic sales volumes increased in the Asia/Pacific and Global Specialty Businesses segments due to continued new business wins and healthy end market demand; however organic sales volumes decreased in the Americas and EMEA segments primarily due to lower sales into automotive-related end markets. Net sales were also negatively impacted in the fourth quarter due to limited availability of certain key raw materials and related supply chain constraints. Operating earnings from the Americas segment increased compared to the prior year quarter, while the Asia/Pacific and Global Specialty Businesses segments were relatively flat and EMEA declined. Gross margins in all of the Company's operating segments were negatively impacted by persistent raw material inflation, higher logistics, labor and manufacturing costs, and disruptions to the global supply chain.

Cash Flow and Liquidity Highlights

As of December 31, 2021, the Company's total gross debt was $901.3 million and its cash and cash equivalents was $165.2 million. The Company's net debt was $736.2 million, and its net debt divided by its trailing twelve months adjusted EBITDA was approximately 2.7x as of December 31, 2021 compared to approximately 3.2x at year-end 2020.

The Company had net operating cash flow of $46.4 million during the fourth quarter of 2021, resulting in full year net operating cash flow of $48.9 million compared to a net operating cash flow of $178.4 million for the full year 2020. The significant decrease in net operating cash flow year-over-year was primarily driven by a change in working capital, as the Company's strong current year net sales and sales volumes resulted in an increase in accounts receivable coupled with an increase in inventory primarily attributable to continued rising raw material costs as well as a build in inventory to ensure the Company has appropriate stock to meet its customer demand in anticipation of continuing stress on the global supply chain.

The Company estimates that it realized cost synergies associated with the Combination of approximately $20 million during the fourth quarter of 2021. The Company has fully achieved its targeted cost synergies related to the Combination. Going forward, the Company will continue to further optimize its footprint, processes and other functions and, as a result, expects to incur additional costs, similar to those related to the integration, as well as higher capital expenditures over the next several years.

Recent Acquisition Activity

During the fourth quarter of 2021, the Company acquired a business that provides hydraulic fluids, coolants, cleaners, and rust preventative oils anda company that providesvacuum impregnation services of castings, powder metal and electrical components. These acquisitions increase our technological capabilities and extend our geographic presence. In total, the Company'sinitial purchase price forthese acquisitionswas approximately $11 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 $13 million and approximately $2 million of full year adjusted EBITDA in 2022.

During the first quarter of 2022, the Company completed two small acquisitions. The first acquisition was a business that provides pickling inhibitor technologies for the steel industry, drawing lubricants and stamping oil for metalworking, and various other lubrication, rust preventative, and cleaner applications. The second acquisition was a business that provides sealing and impregnation of metal castings for the automotive sector, as well as impregnation resin and impregnation systems for metal parts. These acquisitions increase our technological capabilities and extend our geographic presence. In total, the Company's initial aggregate purchase price for these acquisitions was approximately $10 million, which is subject to post-closing adjustments. The Company estimates these acquisitions in aggregate will add approximately $2 million of full year adjusted EBITDA in 2022.

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 attributable to the Company before depreciation and amortization, interest expense, net, and taxes on 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 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 2022 projected adjusted EBITDA growth for the Company, including the contributions from our recent acquisitions discussed under "Recent Acquisition Activity," 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 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):

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 (expense) income, net.

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

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, inflation 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, 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 such as the current conflict between Russia and Ukraine, 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 new variants, 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 2022 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, including, once filed, our Annual Report on Form 10-K for the year ended December 31, 2021. 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 fourth quarter and full year 2021 performance is scheduled for February 25, 2022 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 4,700 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.

SOURCE Quaker Houghton