Q4 2021 Quaker Chemical Corp Earnings Call

February 25, 2022

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[music].

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Greetings My name is Daryl and I will be your call facilitator of this morning at this time I would like to welcome everyone to Quaker Houghton fourth quarter and full year 2021 earnings conference call.

A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded I would now like to turn the call over to Jeffrey Schnell Senior director of Investor Relations. Mr. Snow you may begin.

Thank you Daryl and good morning, everyone welcome to Quaker Houghton's fourth quarter and full year 2021 earnings call joined.

Joining us on the call today are Andy Thomas <unk>, Our Chief Executive Officer, and President and Shane Hostetter, Our senior Vice President and Chief Financial Officer, Robert trial, Our General Counsel.

Our comments relate to the financial information released after the close of the U S markets Yesterday February 24 2022.

Our press release and accompanying slides can be found on our investor website.

Both the prepared commentary and discussion during this call may contain forward looking statements, reflecting the company's current view of future events and their potential effect on Quaker houghton's operating and financial performance.

These statements involve uncertainties and risks, which may cause actual results to differ the company is under no obligation to provide subsequent updates to these forward looking statements.

Today's discussion and materials also contain certain non-GAAP financial measures and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our web site.

For additional information please refer to our filings with the SEC.

Now, it's my pleasure to hand, the call over to Andy.

Thank you, Jeff and good morning, everyone.

In 2021, we made significant progress on our priorities in a very challenging environment as our team demonstrated resilience navigating through a variety of headwinds for.

For the full year, we delivered 24% revenue growth and approximately 13% higher volumes. We also augmented our portfolio through acquisitions and implemented strong pricing actions to mitigate persistent cost pressures.

We generated record sales and record adjusted EBITDA in 2021, we delivered on our $80 million of communicated synergy targets invested in productivity initiatives reduced net leverage and we delivered positive free cash flow.

Turning specifically to the fourth quarter, we achieved $447 million of net sales.

Adjusted EBITDA of approximately $61 million and adjusted diluted earnings per share of $1 29.

Performance in the quarter can be characterized by strong revenue growth fueled by significant pricing actions and healthy demand.

However, we were challenged by higher than expected raw material cost escalation and supply chain pressures, which in turn impacted our margins.

Despite these unprecedented challenges the team executed well.

In the fourth quarter, our revenue increased 16% from the prior year with progress in all of our segments. Our revenue growth was primarily driven by strong pricing actions throughout the year as well as the positive contribution from acquisitions.

Organic volumes declined modestly compared to the prior year, despite new business wins. However, this was a function of lingering supply chain constraints, especially in automotive as well as some shipping and logistics delays and lower volumes from business, we divested in conjunction with the combination.

Excluding the impact of these items total organic volume growth was consistent with the prior year period.

By operating segment organic volumes increased in Asia Pacific and in our global specialties business.

Excluding the impact of the divested volumes the Americas organic volumes were consistent with the prior year period, while EMEA declined because that is where we saw the biggest impact from automotive and delayed shipments.

Importantly, pricing increased across all of our operating segments, both on a year over year and sequential basis.

It's also important to note that our ability to gain new business continues to contribute to our underlying performance as we estimate new business wins contributed approximately two 5% to sales in the fourth quarter of 2021.

This continued success gives us confidence that Quaker Houghton is well positioned to expand our share of wallet with our customers, especially as they grow.

Through our customer intimate model, we deploy our R&D capabilities and leverage the scale of the combined company with the expectation to continue to outpace market growth rates as we provide value added solutions to our customers around the world.

While sales remained positive for us in the quarter, the clear negatives, where again the continued increase in our raw material costs as well as supply chain and logistics constraints.

Our basket of raw materials increased another 10% compared to the third quarter.

The increase in costs in the fourth quarter were simply higher than we had anticipated.

Also similar to last quarter in certain instances raw material availability limited our sales growth.

Nonetheless, we continued to prioritize our customer needs, including continuity of supply.

Our ability to do so highlights the power of our global scale and our customer intimate model, which are critical to the success of our customers and Quaker Houghton.

These increased costs were the primary drivers of the downward pressure on our gross margins in the fourth quarter.

We have successfully implemented price increases the magnitude of the inflationary pressures ultimately exceeded our expectations.

As such we have been implementing further pricing actions across our businesses are.

Our current expectation is that gross margins will begin to improve in 2022.

So while I'm pleased with our execution, we have more work to do to recapture our margins as we demonstrate the value of our products and services as key components of our customer intimate model.

In total 2021 marked a significant step change in our profitability as we projected entering the year.

We delivered $274 million of adjusted EBITDA for the full year, an increase of approximately 23% compared to the prior year.

In 2021, we generated approximately $49 million of operating cash flow. Despite a significant increase in working capital.

Our balance sheet is strong and our net leverage is near our targeted level all the while we've remained active on M&A.

The four acquisitions, we completed in the fourth quarter and early in the first quarter of 2022 expanded our technology capabilities and geographic reach and are expected to add approximately $20 million in revenue and approximately $4 million and adjusted EBITDA for 2022.

We will continue to remain opportunistic executing on accretive deals at attractive multiples.

Okay.

Turning to the outlook demand remains healthy across our end markets with auto being the clear exception as semiconductor chip availability limits production.

In the first quarter, we expect to see new net sales business wins, but we will contend with a difficult volume comparison versus the strong first quarter of 2021.

We also faced some headwinds in China as well as the impact from divested volumes.

We do anticipate benefiting from prior pricing actions and from the incremental pricing actions, we've been taking throughout the quarter.

These strategic pricing actions are essential and May also result in reduction of lower margin volumes.

As I mentioned earlier, the headwinds that challenged our business in the second half of 2021 remained.

As we expect raw material costs will continue to rise in 2022, but at a decelerating rate with the largest impact in the first half of the year.

Considering all factors, we believe gross margins will begin to recover as we progress through the year.

We believe 2022 will be another strong year for Quaker Houghton with net revenue growth above our long term trend due to pricing.

Our playbook has familiar drivers one growing our end markets as they continue to recover and expand to continue to earn new business wins.

Three capture the benefit from pricing actions and four improve our product and total gross margins as we work to offset the raw material and other cost inflation.

All translating into another year of adjusted EBITDA growth.

Stepping back I'm confident in the growth engine underpinned by the customer intimate strategy at Quaker Houghton.

It is a clear differentiator in the marketplace and only possible due to our highly skilled and dedicated people.

I'm optimistic about the path forward and encouraged by the demand outlook and momentum in our business importantly.

Importantly, I am convinced that we will continue to grow by providing the best products services and solutions to our customers.

Our journey is just beginning.

Our focus has shifted from integration to maximizing the benefits of our scale footprint and competencies.

We can evolve and expand the success of our core business accelerate our innovation engine for customers around the world drive deeper customer relationships with tools and capabilities for the future and get further embedded sustainably in our customers' workflows.

We intend to invest to accelerate these gross initiatives growth initiatives over the course of the next few years, we will further develop our capabilities and improve our productivity and profitability as we invest to better enable our customers to keep pace with the demands of a changing world.

The future is bright and I'm excited about the opportunities that lie ahead.

With that I'd like to pass the call to Shane to review our financial results in more detail Shane.

Thanks, Andy and good morning, everyone.

The drivers of our fourth quarter performance were relatively consistent with the third quarter of this year as our solid topline growth was tempered by higher input costs net sales of $447 million increased 16% compared to the prior year driven by a 15% increase in price and 4% from acquisitions.

Slightly offset by a 2% decline in organic volumes and a 1% unfavorable impact from foreign exchange.

In the quarter, we continued to grow more than our underlying markets and were challenged by several items first the semiconductor shortages continued to weigh on the automotive on markets.

Supply chain constraints limited availability of certain key raw materials and caused a delay in our shipments and third China growth was impacted by certain policies around power restrictions.

Additionally, as you may recall, we divested certain businesses in the Americas and EMEA as part of the combination and agreed to supply product to them for a defined term post closing.

As expected. These volumes are now transferred to the acquirer and this drove an approximate two percentage point decline in volumes in the fourth quarter, which will continue into 2022.

As Andy mentioned absent the impact of these divested volumes total organic growth was flat compared to the prior year sequentially net sales were consistent with the third quarter as our continued efforts around pricing were offset by typical seasonality as well as lower shipments due to the supply chain restrictions I previously mentioned.

Gross margins in the fourth quarter were 31, 1%.

While we had previously anticipated margins to begin to recover this quarter the pace of raw material cost increases and other inflationary pressures were higher than we had in test anticipated.

Exiting the fourth quarter, we have largely recovered our product margins when a dollar per kilogram of volume sold basis in an effort to achieve our target of offsetting the gross dollar impact of the raw material cost increases this year.

Similarly, we have continued to implement further price increases in 2022 to mitigate the ongoing raw material cost impact as well as beginning our efforts towards a recovery in our overall gross margin percentages.

SG&A increased approximately $3 million compared to the prior year, largely due to higher labor related costs due to year over year inflation and additional costs associated with recent acquisitions.

We do forecast an increase in SG&A for 2022, largely related to inflationary increases past acquisitions as well as costs for certain strategic initiatives, including spend related to R&D.

R&D and sustainability processes.

The net of this performance resulted in adjusted EBITDA of $61 million for the quarter, which was down 7% compared to the prior year period.

From a segment perspective, we saw strong double digit growth in net sales in the Americas Global specialty businesses, and Asia Pacific segments, and high single digit growth in EMEA, which was negatively impacted by a 5% decline due to foreign exchange.

This year over year increase in sales was driven by higher prices across all segments and an increase in total volumes as expected each of the companies segment earnings were impacted by higher raw material and other supply and supply chain related costs.

Additionally, adverse product mix also impacted gross margins in the quarter.

The Americas segment fare best with segment operating earnings increased 7% compared to the prior year period EMEA.

EMEA results, however were impacted the most by volatile volumes higher costs and product mix.

Operating earnings in our Asia Pacific and global specialty segments were relatively flat year over year as global supply chain pressures offset additional pricing and volumes in each segment.

In response to the persistent supply chain pressures, we continue to face we have and we will implement further pricing actions to offset additional raw material cost increases or capture our dollar product margins and begin to recapture margin on a percentage basis across all segments into 2022.

For the full year of 2021 each of the Companys segments grew their top line by approximately 20% or more and most of their earnings by double digits, leading to consolidated segment revenue growth of approximately 24% and consolidate segment earnings growth of 19%.

This was led by the Americas, EMEA and global specialty business performances, where volumes and earnings bounce back from the negative impacts of COVID-19 in the prior year.

Asia Pacific sales increased in the year as well, but at a lesser rate than other segments as China was less impacted by COVID-19 in the prior year.

In total our segment performance drove a record adjusted EBITDA of $274 million. This is a strong result in light of all the headwinds we faced during 2021, especially during the second half of the year.

From a tax perspective, our effective tax rate, excluding certain nonrecurring items was 33% for the quarter compared to 30% in the prior year period or a full year effective tax rate. Excluding the nonrecurring items was 26% which is in line with the level. We previously anticipated going forward, we expect our effective tax rate to roughly remain at this level.

Pending any changes to domestic or foreign legislation.

Our non-GAAP earnings per share of $1 29 decreased 21% compared to the prior year period, primarily due to the lower earnings drivers I previously mentioned as well as a higher quarterly effective tax rate. However, on a full year basis, a record non-GAAP diluted earnings.

Of 685 increased 43% compared to the prior year due to improved performance in all of the companies in segments.

Shifting to the company's liquidity profile, our net debt of 736 million improved $23 million sequentially. This was driven by our solid free cash flow generation, which allowed us to reduce our net debt, while making 10 million of acquisitions paying $7 million of dividends and investing and normal capital expenditures in the quarter.

For the full year, we generated $49 million of operating cash flow as our strong earnings were offset by significant working capital investments, including sales increases, which drove higher accounts receivable as well as higher inventory levels due to higher overall costs as well as additional stock attributable to the global supply chain pressures we incur.

Looking ahead to 2022, we expect our working capital investments will go down in 2022, but the level of these investments will continue to reflect the conditions of our global supply chain and overall operating environment.

During 2021, the company remained opportunistic with its acquisition strategy completing five acquisitions for approximately $42 million of initial capital outlay. This continued in January as we completed two additional acquisitions for approximately $10 million. All seven of these acquisitions were acquired for multiples of roughly seven to eight times EBITDA.

They are all immediately accretive and they all bring a wealth of opportunity in technology product reach and broaden our capabilities to serve our global customers.

In addition, we paid approximately 29 million of dividends during 2021 as well as invested 21 million in capital expenditures and finally, the company's liquidity and leverage remains very healthy with a leverage ratio of two seven times adjusted EBITDA at year end compared to three two times entering the year.

Before I hand, the call back to Andy I want to reemphasize, our commitment to a prudent capital allocation strategy.

This is based on four main pillars, optimizing our capital structure pursuing accretive M&A investing in our organic growth and profitability initiatives and returning excess cash to our shareholders, including through sustainably growing our dividend overall.

Overall, we remain committed to reducing leverage to our target of two five times adjusted EBITDA, while balancing other priorities in our capital allocation strategy.

As we have demonstrated we will remain opportunistic with accretive acquisitions. Additionally over the next several years, we will augment our capital expenditures as we further optimize our footprint systems and other functions and processes.

Notably, we expect total capital expenditures will be between one five to two 5% of sales compared to one 2% of sales in 2021.

In addition, we expect to incur additional expenses, which will be treated similar to those related to the integration. This additional capital and operating spend represent investments in our business, which will improve our productivity and profitability and better position the company to capitalize on the next phase of its growth.

So to summarize Quaker Houghton executed very well in 2021, despite persistent headwinds that challenged our business and our customers' 2022 will be another solid year for the company as we deliver earnings growth, while investing to best position Quaker Houghton for the future.

We have a strong balance sheet, our liquidity remains healthy and we believe our capital allocation strategy is prudent and appropriate overall, we remain very focused and committed to generating long term value for our stakeholders.

With that I'll turn it back over to Andy.

Thank you Shane before we turn the call over for your questions I want to thank all of our colleagues at Quaker Houghton for their tireless dedication to our company and to our customers. Our results are truly a team effort and your ongoing commitment is critical to our success with that we would be happy to address your questions.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Our first questions come from the line of Mike Harrison with Seaport Global. Please proceed with your questions.

Hi, good morning.

Good morning, Mike Mike.

Andy I was wondering if you could give us a little bit more precision around the outlook and specifically what you think you can do in terms of earnings growth next year I think when I look at it.

Potential improvement in the price cost situation some recovery in auto production full year's worth of benefits from synergies some acquisition impact. It seems like you might be able to do something like 10%.

EBITDA growth for 2020 to maybe give us a sense of how youre seeing those earnings drivers and also if you could give some color on the cadence of earnings clearly you've suggested that the first half is still going to see some pressure maybe.

It may be improving more in the second half, but just some additional color around the outlook would be appreciated.

Yes. Thanks for the question, Mike Shane why don't you start sure. Thanks, Andy Mike as I think about kind of the growth story I look about our long term trends.

Ill talk to that in light of 2022.

Our markets tend to grow 1% to 3% on Adam and we tend to grow 2% to 4% above that.

And additionally, demonstrated pretty good operating leverage which translate into earnings growth and there is no loan. There is no change in that long term expectation, but as I think about 2022, we do expect flattish volumes.

The underlying market growth will be at the low end of that long term range that I just mentioned.

And some of our end markets, particularly auto and aerospace are just not returned yet from pre COVID-19 levels.

This market growth and also will have additional business wins next year will be offset by some of the couple of one off items that you've learned on the script.

Related to the divested volumes, we talked about.

There's going to be further impacts related to China and.

And lower volumes due to just some strategic pricing initiatives that we have from a profitability perspective.

Topline side that will be coupled with our pricing actions, which we will benefit from as those that we already put in last year as well as the items that will put into 2022 as.

As we continue to try to offset the raw material cost increases and really price for the value of our products.

Our margins in 2022, we do continue to contend with call. It <unk> unprecedented raw material cost increases and supply chain disruptions and we expect these to be really more impactful in the first half than the second half, especially.

Especially given the lag that everyone knows between our pricing initiatives and cost changes. So taken together, we expect our gross margins will improve throughout the year, but.

<unk>, probably thereafter after the first quarter.

Additionally, I did highlight in my scripts and the incremental SG&A.

Cost of investments in the year, that's going to cause SG&A to be higher.

The normal.

And then all in all we do expect growth both on the topline and earnings.

From that perspective.

But I also want to highlight I think giving guidance into Q1, a little bit can you give some color as well.

We expect new business wins similar to prior quarters, but we will contend with a difficult comparison year over year, primarily if you recall in the first quarter of last year, we had pretty good quarter strength in China, as well and they didn't have a lunar new year last year and we're continuing this year with the Chinese new year as well as other.

Chinese impacts related to the power disruptions in the Olympics.

But as well as we will have a continued impact to automotive dragging down the market a bit and the impact of the divested volumes.

So while we expect to benefit from pricing initiatives.

Well, including strategic pricing raw material cost will continue to increase and continued to pressure our margins in the first quarter. So net net we expect gross margins will be in the ballpark of fourth quarter actually.

Then obviously as Andy mentioned in his script gross margins, we hope to go up from there.

So overall, we expect that the first quarter.

Margin and earnings will likely be the lowest for the year.

So I'll stop there I talked a lot Andy I know if you want to add.

I would like to reinforce I think there is nothing different here about the long term. It is not changing I think we are dealing with a number of unique factors as Shane has characterized for us and I believe the team and our strategies on top of that to continue to focus on our customer intimate strategy and what's required in this particular period with the law.

Long term, we continue to drive towards towards the growth that we've seen previously.

Alright very helpful. Thanks, and then in terms of the auto production situation. It seems like you were managing through that pretty well and didn't see a whole lot of impact from the chip shortage over the last couple of quarters and now its showing up with a more pronounced.

In Q4.

Was there some sort of inventory correction or anything that helps to explain why that seems to have become a bigger issue in Q4.

Yes, maybe I'll start Mike.

I think the automotive chip shortage issue started earlier in 2021, but it's well publicized that it continued to get worse and lingered, even even recent publications suggest that it could continue into 2023.

It's a matter of working its way through the supply chain and we started to see the impact.

Jane indicated in Q4 and that impact kind of continues.

Alright, then.

Last question for now is on the Ukraine situation I'm not going to ask you to forecast, what's going to happen there, but can you talk about how much exposure you have in eastern Europe generally in Russia, and Ukraine, specifically and I guess at this point are you expecting that.

<unk> and.

Some of the sanctions that have been put in place to.

To have a <unk>.

Fairly broad impact on your EMEA business any any color there would be helpful. Thanks.

Yeah, I'll start and then Shane can give some specifics first and foremost we do have customers and employees in the affected regions and we're staying on top of their conditions and circumstances. We're in regular contact with them and of course, we're all hoping.

For a peaceful resolution here.

As soon as possible, we do have a crisis management team in place to kind of manage through what's happening there as well as the broader impacts so with that as context, and then I'll, let Shane give some color to the details thanks, Andy So.

The direct impacts Mike.

Just from an overall materiality perspective business in Russia, Ukraine, Eastern Europe , it's rough it's less than 2% of the business.

From a direct perspective on a sales perspective, and we don't source anything directly in that side of things as well, which is an important point.

The indirect FX, obviously are tough to quantify right now and obviously depend upon sanctions and other items, but surely the impact of oil given we do have some products that are made with a mineral oil derivatives could be impacted but we've been able to execute on pricing to get back any of those increases in the past and we will continue to do.

As such and then there is obviously other indirect impacts.

<unk>.

Facing as well, depending upon how things go with automotive or any other indirect benefit our indirect items related to it.

Alright, thanks very much.

Thanks, Mike.

Thank you. Our next question is coming from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Hi, good morning.

Maria Molina for Laurence.

I have a couple of quick questions.

Can you comment on your appetite for acquisitions and Glen just wanted to do and then there is one what the areas you're most interested.

And isn't about the size of the acquisition Division.

Sure.

I will go into the sizing. So you might have seen in our press release. So we were we able to execute in the fourth quarter or two acquisitions as well as early in 2022 additional acquisitions.

Exciting on the technology and other product breadth they bring.

Even though the sizing of such is not too large they bring roughly $4 million of adjusted EBITDA to the year.

Andy would you want to talk about anything on the product I would just say that the additional technology is reinforcing our customer intimate model and having more solutions available for our customers. So this is a continuation of the strategy.

And we believe these accretive deals are going to be very beneficial for us and for our customers.

Thank you and the second one do you have any comments on that.

Working capital expectations and Linda too.

Yeah sure Maria So in my script I mentioned, the given year was quite a investment in working capital due to high increases in sales as well as inventory cost increases as well as restocking due to some of the global supply chain pressures. We don't anticipate this to recur we do anticipate.

<unk>, probably a usage as we have sales going up next year as well as slight cost increases, but nowhere near the level that we had this past year.

In general we anticipate another strong year of free cash flow in line with prior years to this.

Thank you.

Thanks Mary.

Thank you. Our next question is coming from the line of Marisa Hernandez with Fidelity. Please proceed with your questions.

So this is Nathan Hernandez from Sidoti <unk> company.

Right.

With the IRS.

Hey, good morning.

So a couple of questions here first.

Okay.

You mentioned, 2%.

Volume.

Can you give us a little bit of color by end market I suspect.

With auto.

These volumes also go down the other end.

Paul.

Hi, Mircea sure why don't I, just give a little bit more color on that volume side right. So overall, our volumes actually increased about 2%.

But that did include acquisition volume at 4%. So I think the 2% decline you are mentioning is that number right and so with that if I think about kind of the drivers of that.

We did have decent healthy demand in most of our AG end markets with the exception as you mentioned automotive in certain pockets of other.

Market segments Aerospace and a couple of other items.

But also it had some onetime items that we were incurring related to supply chain supply chain constraints.

Namely raw material availability and logistics that delayed some shipments.

We estimate roughly at 2%.

Also we talked about the volumes that we divested in the given quarter.

Which also had another 2% impact and then China just the overall demand there had an impact as well so all in all I would say automotive was probably the main driver on the market side of things, but also the one time items that well.

The other uncommon items that I talked about.

So by end market and with all the new one that decline.

Yeah.

I would say that was the primary driver yes mers.

Okay, Thank kieran shipments to medical customers.

<unk>.

Co op and to what extent.

Sure.

So as I think about the metal side of things.

They did I'll correct myself.

Down downward pressure in the fourth quarter as well, but that was mainly on the sequential side.

From a steel perspective, the capacity in the Americas maintained pretty well, but that was offset in certain other regions, having downward pressure in the fourth quarter the aluminum side of things I think.

A little bit strong globally. So those are just two anecdotes on the other segments.

Alrighty.

Sure.

So the ethane.

I wanted to explore on the quantity is Tom on the drivers for the gross margin.

Of course, you mentioned the raw material cost inflation.

And logistics issues, so to what extent was.

Each of those.

That's right Dan.

If you can elaborate.

Yes, so maybe I'll start by highlighting.

The single biggest factor impacting obviously is the raw material escalation and then our ability to then capture that in our value pricing model.

With our customers as part of our customer intimate approach. So the biggest driver comes in that balance between raw materials, and how we implement our pricing strategy.

To a lesser degree the mix and some of the supply chain challenges impact, but it has impacted regionally so bigger impact in some areas than other it's a little bit difficult to generalize.

Thank you Andy.

Looking into 2022.

You're thinking that.

No.

We will see some recovery in volumes.

<unk>.

Betsy.

<unk> was down.

More than one.

Yes, I think I wish I had a clearer crystal ball on that one.

<unk>.

There seems to be a lot of discussion about this in public information.

There are some theories that things will start to recover later in the year. However, there are new factors coming into the mix now with Ukraine situation. So I think it's unlikely to be able to say right now how it is going to play out, but we know that some of the headwinds that have been there continue earlier in the year.

Okay.

On the transportation.

<unk> the question.

Question that you may have had.

Me too.

Okay.

In the fourth quarter of them.

I haven't seen any.

Yeah.

Yes.

Say, just just a reminder, right we tend to source and use products in each of the individual segments. So Europe in Europe , and Asia Pacific <unk> visit Asia Pacific, So, we're talking rail and car.

But then over ocean or claim side of things. So I would say overall, we're not seeing.

We're seeing a little bit of ease, but not overall.

Alleviation.

Okay.

Yeah.

On the.

Hi, <unk>.

Obviously, there's lots of small.

Room to cut chip.

The same for everybody.

Are you getting from.

Sure.

It is getting increasingly difficult to pass on prices.

Yes, I would say marisa.

The more times you go to talk to a customer about a price increase the less receptive they are to.

Enjoy that conversation with you, but I think our team is working very hard again, we reinforced the value we bring to the customer not just the raw material cost.

So we're trying to bring that package of information to the customers as well as we're moving forward with them on pricing I would say that in certain cases, where we may be a little less intimate.

It becomes a little more of a challenge and obviously competitors will continue to look for opportunities, but for the most part we've been able to because of our customer intimate model and the value we bring to customers with the time and the conversation with customers, we've been able to pass those price increases that we targeted.

Thank you.

Thank you Marissa.

Thank you and my apologies on that firm name and as a reminder, if you would like to ask a question. Please press star telephone keypad.

Our next questions come from the line of Jon <unk> with CJS Securities. Please proceed with your question.

Hi, good morning, everyone.

Just wanted to clarify I think if im hearing you correctly.

Volumes will be down in Q1 I was wondering could you talk about how much do you expect pricing to be increased year over year on Q1, just given all the cumulative increases you've done over the last three or four quarters.

Hey, John .

We didn't comment on the first quarter on that side from volume perspective, but.

From a pricing side as I think about kind of going into this year, we had 8% price and mix.

In the year to date year over year.

I'm not going to give the first quarter versus the year to date, but I would say.

You'd probably see something in the same kind of area going into 2022.

And depending upon where raw materials go really will depend upon the additional pricing on that side of things. So as I mentioned in my script. We are currently engaging in additional pricing for 2022 to offset that raw materials would continue to escalate.

Okay got it and I was wondering do you have any specific expectations for exchange rate impacts youre going to see this year.

Yes, so just in general as I think about year over year right.

The euro trailing at the end of the year compared to the U S. Dollar from a strong perspective, so we will definitely see an impact year over year, primarily related to the euro and potentially RMB, depending upon where China goes but Europe is definitely the most impactful one from that perspective.

Okay, and then last of all just the investments Youre, making.

And SG&A can you talk about those what are you expecting to get out of it what are the what are some of the projects you are thinking about.

Yes, maybe I'll, maybe I'll start off with that one I mean in general it's all around continuing to advance the strategy on customer intimacy, but doing it at an upgraded and.

Scaled scaled way so I think we're looking at opportunities in our R&D space to.

To be able to take advantage of the capabilities. We have more broadly that came together as part of the combination to benefit more customers around the world. We're looking at our it infrastructure and our ability to really connect and an instantaneous and comprehensive fashion.

Not only internally, but with our customers.

And we're going to continue to invest in our sustainability efforts in ways that we can help our customers in their own operations be more sustainable, but even in the ways that we're producing things and the types of raw materials, we're sourcing and so forth. So those are the key areas.

Got it thank you very much.

Thanks, John .

Sure.

Thank you there are no further questions at this time I would now like to turn the call back over to management for any closing comments.

Okay, well the future of Quaker Houghton really has never been brighter and I truly believe we are just getting started.

We're committed to executing on delivering sustainable value for our shareholders and I'm really looking forward to meeting with many of you. During the course of the year. Thank you for your interest in Quaker Houghton and of course, please reach out with any follow up questions.

This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.

The rest of your day.

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Greetings My name is Daryl and I will be your call facilitator of this morning at this time I would like to welcome everyone to Quaker Houghton's fourth quarter and full year 2021 earnings conference call.

Thank you Darryl good morning, everyone welcome to Quaker Houghton's fourth quarter and full year 2021 earnings call.

Our comments relate to the financial information released after the close of the U S markets Yesterday February 24 2022.

Our press release and accompanying slides can be found on our investor website.

These statements involve uncertainties and risks, which may cause actual results to differ the company is under no obligation to provide subsequent updates to these forward looking statements.

For additional information please refer to our filings with the SEC.

Now, it's my pleasure to hand, the call over to Andy.

Thank you, Jeff and good morning, everyone.

In 2021, we made significant progress on our priorities in a very challenging environment as our team demonstrated resilience navigating through a variety of headwinds for.

For the full year, we delivered 24% revenue growth and approximately 13% higher volumes.

We also augmented our portfolio through acquisitions and implemented strong pricing actions to mitigate persistent cost pressures.

We generated record sales and record adjusted EBITDA in 2021.

We delivered on our $80 million of communicated synergy targets invested in productivity initiatives reduced net leverage and we delivered positive free cash flow.

Turning specifically to the fourth quarter, we achieved $447 million of net sales adjusted EBITDA of approximately $61 million and adjusted diluted earnings per share of $1 29.

Performance in the quarter can be characterized by strong revenue growth fueled by significant pricing actions and healthy demand.

However, we were challenged by higher than expected raw material cost escalation and supply chain pressures, which in turn impacted our margins.

Despite these unprecedented challenges the team executed well.

Organic volumes declined modestly compared to the prior year, despite new business wins.

However, this was a function of lingering supply chain constraints, especially in automotive as well as some shipping and logistics delays and lower volumes from business, we divested in conjunction with the combination.

Excluding the impact of these items total organic volume growth was consistent with the prior year period.

By operating segment organic volumes increased in Asia Pacific and in our global specialties business.

<unk> pricing increased across all of our operating segments, both on a year over year and sequential basis.

This continued success gives us confidence that Quaker Houghton is well positioned to expand our share of wallet with our customers, especially as they grow.

Through our customer intimate model, we deploy our R&D capabilities and leverage the scale of the combined company.

With the expectation to continue to outpace market growth rates as we provide value added solutions to our customers around the world.

While sales remained positive for us in the quarter, the clear negatives, where again the continued increase in our raw material costs as well as supply chain and logistics constraints.

Our basket of raw materials increased another 10% compared to the third quarter.

The increase in costs in the fourth quarter were simply higher than we had anticipated.

Also similar to last quarter in certain instances raw material availability limited our sales growth.

Nonetheless, we continue to prioritize our customer needs, including continuity of supply.