Q3 2024 Quaker Chemical Corp Earnings Call

Operator: Greetings and welcome to the Quaker Howlin' third quarter. A brief question and answer session will follow. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded.

Greetings and welcome to the Quaker Houghton's third quarter of 2024 earnings conference call a.

Speaker Change: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Jeffrey Schnell: I would now like to turn the call over to Jeffrey Schnell, Vice President of Investigation.

Speaker Change: I'd now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Smith, you may begin.

Jeffrey Schnell: Thank you, good morning, and welcome to our third quarter 2024 earnings conference. On the call today are Andy Tometich, our President and Chief Executive Officer, Tom Coler, our Executive Vice President and Chief Financial Officer, and Robert Traub, our General Account Our comments relate to the financial information released after the close of U.S. markets yesterday, October 31, 2024. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance.

Speaker Change: Thank you good morning, and welcome to our third quarter 2024 earnings Conference call.

On the call today are Andy Thomas our President and Chief Executive Officer, Tom Koehler, Our executive Vice President and Chief Financial Officer, and Robert trial, Our General Counsel.

Speaker Change: Our comments relate to the financial information released after the close of U S markets Yesterday October 31, 2024, our press release and accompanying slides can be found on our Investor Relations website.

Speaker Change: 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 from Quaker Houghton's operating and financial performance.

Jeffrey Schnell: These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website. For more information, please refer to our filings with the SEC.

Speaker Change: 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.

Speaker Change: This presentation also contains certain non-GAAP financial measures and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website.

Speaker Change: For more information please refer to our filings with the SEC now.

Jeffrey Schnell: Now it's my pleasure to hand the call over to Andrew.

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

Andrew Tometich: Thank you, Jeff, and good morning, everyone. The third quarter, once again, highlighted the resilience of Quaker House. Despite the persistent headwinds in the overall market environment, on a sequential basis we delivered stable sales, strong and consistent margins, and another quarter of solid earnings and cash flow generation. Together, we are executing well, and I'm pleased with the progress we are making, advancing our enterprise strategy as we continue balancing our long-term objectives with the near-term market environment. Third quarter net sales were $462 million, 6% below the prior year, but consistent with the second quarter. While many of our end markets and regions remain challenged, our total volumes were once again stable on both a year-over-year and sequential basis.

Andy: Thank you, Jeff and good morning, everyone.

Andy: The third quarter once again highlighted the resilience of Quaker Houghton despite.

Andy: Despite the persistent headwinds in the overall market environment on a sequential basis, we delivered stable sales strong and consistent margins and another quarter of solid earnings and cash flow generation.

Andy: Together, we are executing well and I'm pleased with the progress we are making advancing our enterprise strategy as we continue balancing our long term objectives with the near term market environment.

Andy: Third quarter net sales were $462 million, 6% below the prior year, but consistent with the second quarter.

Andy: While many of our end markets and regions remained challenged our total volumes will once again stable on both a year over year and sequential basis.

Andrew Tometich: This result is driven by our disciplined execution, which is helping to offset the current macro-backdrop. New business wins are trending within our expected range, demonstrating the value of our differentiated customer intimate model, our leading portfolio of solutions and services, and the quality of our team as they remain focused on helping our customers improve their operations and business. Gross margins in the third quarter were 37.3%, overall in line with the prior year and the prior quarter. We have remained committed to our customer-focused value and use model, balancing our cost-to-serve with the current and expected raw material environment, as well as our growth aspirations.

Andy: This result is driven by our disciplined execution, which is helping to offset the current macro backdrop.

Andy: New business wins are trending within our expected range demonstrating the value of our differentiated customer intimate model, our leading portfolio of solutions and services and the quality of our team as they remain focused on helping our customers improve their operations and businesses.

Andy: Gross margins in the third quarter were 37, 3% overall in line with the prior year and the prior quarter.

Andy: We have remained committed to our customer focused value in use model.

Andy: <unk>, our cost to serve with the current and expected raw material environment as well as our growth aspirations.

Andrew Tometich: Our current financial profile is enabling us to deliver the best products with appropriate levels of service based on the value to our customers. We are also actively working to enhance our operational capabilities and improve our manufacturing and supply chain productivity. We are making steady progress, supporting our commitment to consistently deliver gross margins in the 37 to 38% range. In the third quarter, we generated adjusted EBITDA of $79 million and $1.89 of non-GAAP diluted earnings per share. These results emphasize the resilience of our business and our focus on positioning the company to continue our long-term outperformance.

Andy: Our current financial profile is enabling us to deliver the best products with appropriate levels of service based on the value to our customers.

Andy: We are also actively working to enhance our operational capabilities and improve our manufacturing and supply chain productivity.

Andy: We are making steady progress supporting our commitment to consistently deliver gross margins in the 37% to 38% range.

Andy: In the third quarter, we generated adjusted EBITDA of $79 million and $1 89 of non-GAAP diluted earnings per share.

Andy: These results emphasize the resilience of our business and our focus on positioning the company to continue our long term outperformance.

Andrew Tometich: We ended the third quarter with over $200 million of cash and a net leverage ratio of 1.6 times our trailing 12 months adjusted EBITDA. Our strong financial position is supported by our cash generation capabilities. And year to date, we generated approximately $142 million of operating cash flow. Our balance sheet, business model, and cash flow characteristics provide significant opportunities to support and accelerate our model for value creation. Our focus on maximizing shareholder value is clear and supported by our balanced capital allocation strategy. To date, in 2024, we have acquired two technology-advantaged businesses that expand our markets and complement our portfolio of advanced and operating solutions.

Andy: We ended the third quarter with over $200 million of cash and a net leverage ratio of one six times, our trailing 12 months adjusted EBITDA.

Our strong financial position is supported by our cash generation capabilities and year to date, we generated approximately $142 million of operating cash flow.

Andy: Our balance sheet business model and cash flow characteristics provide significant opportunities to support and accelerate our model for value creation.

Andy: Our focus on maximizing shareholder value is clear and supported by our balanced capital allocation strategy.

Andy: To date in 2024, we've acquired two technology advantaged businesses that expand our markets and complement our portfolio of advanced and operating solutions.

Andrew Tometich: We've also paid down debt, and we have returned approximately $50 million to shareholders through dividends and opportunistic share repurchase. Turning to our segments, our Asia-Pacific segment has continued to deliver growth in the third quarter despite mixed end market conditions, driven by our focus on new business wins in metals and metalworking applications. Performance in our Asia Pacific segment has significantly outperformed its markets year to date, with volumes higher by approximately 9% in 2024. Volumes in the EMEA segment increased compared to the prior year, whereas volumes in the Americas segment declined. The soft industrial production activity we have experienced in 2024 has continued in the third quarter across most end market segments in our EMEA and Americas segments.

Andy: We've also paid down debt and we have returned approximately $50 million to shareholders through dividends and opportunistic share repurchases.

Andy: Turning to our segments, our Asia Pacific segment has continued to deliver growth in the third quarter. Despite mixed end market conditions, driven by our focus on new business wins and metals and metalworking applications.

Andy: Performance in our Asia Pacific segment has significantly outperformed its market year to date with volumes higher by approximately 9% in 2024.

Andy: Volumes in the EMEA segment increased compared to the prior year, whereas volumes in the Americas segment declined.

The soft industrial production activity. We've experienced in 2024 has continued in the third quarter across most end market segments in our EMEA and Americas segments.

Andrew Tometich: These segments were additionally impacted in the third quarter by extended customer downtimes and reduced production. This is especially evident with automotive, metals, and industrial customers. Despite the softer environment, our total sales were consistent with the prior quarter, driven by our team's focus on earning new business across our diversified geographies and portfolios. It is through our team's efforts that we are performing consistently at, or better than, the aggregate performance of our underlying markets and regions in which we operate. Our segment financial profile has also improved, as segment operating margins are higher near today. Our performance is the result of the actions we are taking to focus our portfolio, optimize our operations, and our cost structure.

Andy: These segments were additionally impacted in the third quarter by extended customer downtime and reduced production rates. This.

Andy: This is especially evident with automotive metals and industrial customers.

Andy: Despite the softer environment, our total sales were consistent with the prior quarter driven by our team's focused on earning new business across our diversified geographies and portfolio.

Andy: It is through our team's efforts that we are performing consistently at or better than the aggregate performance of our underlying markets and regions in which we operate.

Andy: Our segment financial profile has also improved as segment operating margins are higher year to date.

Andy: Our performance is the result of the actions we are taking to focus our portfolio optimize our operations and our cost structure.

Andrew Tometich: Our actions will continue to benefit the organization. further unlocking the growth potential of the enterprise as overall economic conditions begin to improve. Switching to the Outlook, growth in our underlying markets remains restrained. We anticipate the soft underlying market conditions will persist through the fourth quarter. This will be further amplified by typical seasonal patterns as customers manage their own production and working capital through year-end. We will continue to execute on what we can control. We will maintain a disciplined approach with our customer intimate model, seeking to continue to earn new business by improving outcomes for our customers.

Andy: Our actions will continue to benefit the organization further unlocking the growth potential of the enterprise as overall economic conditions began to improve.

Andy: Switching to the outlook growth in our underlying markets remains restrained.

We anticipate the soft underlying market conditions will persist through the fourth quarter.

Andy: This will be further amplified by typical seasonal patterns as customers manage their own production and working capital through year end.

Andy: We will continue to execute on what we can control.

Andy: We will maintain a disciplined approach with our customer intimate model seeking to continue to earn new business by improving outcomes for our customers, while also driving manufacturing and supply chain efficiencies and prudently managing our investment costs and margins.

Andrew Tometich: while also driving manufacturing and supply chain efficiencies and prudently managing our investments, costs, and margins. I'm pleased to announce that we have achieved more than the original $20 million of run rate savings that we targeted on our cost and optimization program announced in 2022 on schedule. We are continuously working to identify further cost and optimization opportunities in EMEA and across our global business. In addition to our focus on cost management, we are also advancing our growth initiatives in several key areas. And we have taken clear and intentional actions to center the portfolio and our people, where we can drive the most success for our customers now and in the future.

Andy: I'm pleased to announce that we have achieved more than the original $20 million of run rate savings that we targeted on our cost and optimization program announced in 2022 on schedule.

Andy: We are continuously working to identify further cost and optimization opportunities in EMEA and across our global business.

Andy: In addition to our focus on cost management. We are also advancing our growth initiatives in several key areas and we have taken clear and intentional actions to center of the portfolio and our people where we can drive the most success for our customers now and in the future.

Andrew Tometich: We are building momentum on these efforts, which we believe will drive progress as we advance through 2025 and beyond. We are confident in our strategy and the long-term positive fundamentals of our industry. We have continued to outperform our end markets, which have been softer than expected in 2024. We believe our ongoing investments will strengthen our ability to continue to outperform, delivering above-market, profitable growth. Coupled with our cash generation capabilities, we have ample avenues to deliver strong earnings growth moving forward, especially as our markets begin to improve. As I've highlighted for several quarters, our enterprise strategy is centered around three key themes of globalizing, digitalizing, and leading in sustainability.

Andy: We are building momentum on these efforts, which we believe will drive progress as we advance through 2025 and beyond.

Andy: We are confident in our strategy and the long term positive fundamentals of our industry.

Andy: We have continued to outperform our end markets, which have been softer than expected in 2024.

Andy: We believe our ongoing investments will strengthen our ability to continue to outperform delivering above market profitable growth.

Andy: Coupled with our cash generation capabilities, we have ample avenues to deliver strong earnings growth moving forward, especially as our markets begin to improve.

Andy: As I have highlighted for several quarters. Our enterprise strategy is centered around three key themes of globalizing digitalize them and leading in sustainability.

Andrew Tometich: Our strategy at its core is a modernization of our proven model. It is designed to amplify our value proposition, enhance our competitive position, and offer the services and solutions that our customers value, which in turn accelerates opportunities for growth. In 2024, we have made progress. We are being more intentional to globalize as we capitalize on our scale around the world. This is evident by the growth in our Asia-Pacific segment as we build out our capabilities in China, India, and across Southeast Asia. Our acquisitions of IKV and Sutai directly enhance our portfolio of advanced and operating solutions and provide opportunities to innovate for and deploy our full portfolio to our global customer base.

Our strategy at its core is a modernization of our proven model.

Andy: It is designed to amplify our value proposition enhance our competitive position and offer the services and solutions that our customers value, which in turn accelerates opportunities for growth.

In 2024, we have made progress.

We are being more intentional to globalize as we capitalize on our scale around the world.

Andy: This is evidenced by the growth in our Asia Pacific segment, as we build out our capabilities in China, India and across Southeast Asia.

Andy: Our acquisitions of ITV and to tie directly enhance our portfolio of advanced and operating solutions and provide opportunities to innovate for and deploy our full portfolio to our global customer base.

Andrew Tometich: We have made progress on our global simplification efforts in the U.S. and Europe, including using digital tools to reduce complexity in our business and drive efficiencies and a sharper focus on achieving better outcomes for our customers. As we advance the theme of digitalization, initial trials of our fluid intelligence offering are encouraging, and we continue to iterate on this important and leading path. We have made progress building out our theme on sustainability and have several trials underway that provide performance and environmental benefits to our customers. And we're enhancing our global supply chain and manufacturing capabilities, improving our customer experience, for instance, in metal forging and across the e-mobility landscape.

Andy: We have made progress on our global simplification efforts in the U S and Europe, including using digital tools to reduce complexity in our business and drive efficiencies and a sharper focus on achieving better outcomes for our customers.

Andy: As we advanced the theme of digitalization initial trials of our fluid intelligence offering are encouraging and we continue to iterate on this important and leading platform.

Andy: We have made progress building out our theme on sustainability and have several trials underway that provide performance and environmental benefits to our customers.

Andy: And we're enhancing our global supply chain and manufacturing capabilities, improving our customer experience for instance in metal forging and across the E mobility landscape.

Andrew Tometich: Our team is fully committed to strengthening our foundation, growing our capabilities, and driving long-term value for our customers and shareholders. Stepping back, we have continued to successfully navigate the unfavorable macro environment in 2024 by focusing on what we can control. We continue to earn new profitable business in all regions based on the quality of our leading portfolio of products, services, and technical expertise. We have significantly improved the profitability of the enterprise and are proactively optimizing our operation. We are prudently investing in our enterprise strategy to enhance our customer intimate model and unlock new opportunities. We are fully committed to expanding our leading position in this highly fragmented industry with attractive, long-term, secular growth drivers.

Andy: Our team is fully committed to strengthening our foundation growing our capabilities and driving long term value for our customers and shareholders.

Andy: Stepping back we have continued to successfully navigate the unfavorable macro environment in 2024 by focusing on what we can control.

Andy: We continue to earn new profitable business in all regions based on the quality of our leading portfolio of products services and technical expertise.

We have significantly improved the profitability of the enterprise and are proactively optimizing our operations.

We are prudently investing in our enterprise strategy to enhance our customer intimate model and unlock new opportunities.

Andy: We are fully committed to expanding our leading position in this highly fragmented industry with attractive long term secular growth drivers.

Andrew Tometich: And we have a strong financial position with a disciplined capital allocation strategy, which is hyper-focused on accelerating our growth and maximizing shareholder value. Our results are only made possible by the commitment of our talented team who is focused on the success of our customers and, in turn, our company. I'm inspired by them, motivated by the resilience of the organization, and excited by the opportunities ahead.

Andy: And we have a strong financial position with a disciplined capital allocation strategy, which is hyper focused on accelerating our growth and maximizing shareholder value.

Andy: Our results are only made possible by the commitment of our talented team who is focused on the success of our customers and in turn our company I'm.

Andy: I'm inspired by them.

Andy: <unk> by the resilience of the organization and excited by the opportunities ahead.

Tom Coler: With that, I'd like to pass it over to Tom to discuss the finance.

Speaker Change: With that I'd like to pass it over to Tom to discuss the financials.

Tom Coler: Thank you, Andy, and good morning, everyone. Our net sales declined approximately 6% from the prior year to $462 million. The drivers of the year-over-year change were lower selling price and product mix of approximately 4 percent, which primarily reflects the impact of our index-based contracts, lower sales volume of approximately 1 percent, and unfavorable impact of foreign exchange of 1 percent. We continue to be impacted by soft end market activity, primarily in the Americas and EMEA segment. In the third quarter, there were increased headwinds in the automotive market due to extended downtimes and lower production rates. Our sales volumes, however, have remained stable on both a year-over-year and sequential basis as new business wins, which are trending within our range, are helping to offset these persistent challenges.

Tom: Thank you Andy and good morning, everyone.

Tom: Our net sales declined approximately 6% from the prior year to $462 million.

Tom: The drivers of the year over year change were lower selling price and product mix of approximately 4%.

Tom: Which primarily reflects the impact of our index based contracts lower sales volume of approximately 1% and unfavorable impact of foreign exchange of 1%.

Tom: We continue to be impacted by soft end market activity, primarily in the Americas and EMEA segments and.

In the third quarter, there were increased headwinds in the automotive market due to extended downtime and lower production rates are.

Tom: Our sales volumes. However have remained stable on both a year over year and sequential basis as new business wins, which are trending within our range are helping to offset these persistent challenges.

Tom Coler: Gross margins in the third quarter were 37.3%. in line with the prior year and 60 basis points below the prior quarter, primarily due to lower gross margins in EMEA and Asia Pacific. While material costs have declined on a year-over-year basis, but we're stable compared to the second quarter. We expect our raw material costs to remain stable in the fourth quarter. Excluding one-time items, SG&A decreased $4 million, or 3%, compared to the prior year, and increased $2 million, or 2%, sequentially. The decrease compared to the prior year reflects our focused cost management efforts partially offset by recent acquisitions.

Gross margins in the third quarter was 37, 3%.

Tom: In line with the prior year and 60 basis points below the prior quarter.

Tom: Primarily due to lower gross margins in EMEA and Asia Pacific.

Tom: Raw material costs have declined on a year over year basis, but were stable compared to the second quarter.

Tom: We expect our raw material costs to remain stable in the fourth quarter.

Tom: Excluding one time items, SG&A decreased $4 million or 3% compared to the prior year and increased $2 million or 2% sequentially.

Tom: The decrease compared to the prior year reflects our focused cost management efforts, partially offset by recent acquisitions.

Tom Coler: On a year-to-date basis, SG&A is slightly lower as we have effectively managed our costs, exceeding the $20 million of run rate benefit we targeted with our cost optimization and program announced in 2022. We delivered $79 million of adjusted EBITDA in the third quarter. a decline of 7% year-over-year. Adjusted EBITDA margins, however, were in line with the prior year at 17%. We continue to make progress driving efficiencies while building out our profitable growth initiative. We will continue to be prudent with these investments, which are aimed at streamlining the organization and driving productivity improvements across the enterprise.

Tom: On a year to date basis SG&A is slightly lower as we have effectively managed our costs exceeding the $20 million of run rate benefit we targeted with our cost optimization program announced in 2022.

Tom: We delivered $79 million of adjusted EBITDA in the third quarter.

Tom: A decline of 7% year over year.

Tom: Adjusted EBITDA margins, however were in line with the prior year at 17%.

Tom: We continue to make progress driving efficiencies, while building out our profitable growth initiatives. We will continue to be prudent with these investments which are aimed at streamlining the organization and driving productivity improvements across the enterprise.

Tom Coler: Switching to our segment results, net sales in our Asia Pacific segment increased approximately 3% compared to the prior year, driven by an increase in sales volumes and partially offset by a decrease in selling price and product mix. The improvement in volumes, which have increased approximately 9% year-to-date, is primarily driven by new business wins across both metals and metalworking applications. Segment earnings in Asia-Pacific declined less than $1 million, or approximately 1% compared to the prior year. We continue to be pleased with the performance in the Asia-Pacific region as they have effectively managed through the tough market environment.

Tom: Switching to our segment results net sales in our Asia Pacific segment increased approximately 3% compared to the prior year driven by an increase in sales volumes and partially offset by a decrease in selling price and product mix.

Tom: The improvement in volumes, which have increased approximately 9% year to date is primarily driven by new business wins across both metals and metalworking applications.

Tom: Segment earnings in Asia Pacific declined less than $1 million or approximately 1% compared to the prior year.

Tom: We continue to be pleased with the performance in the Asia Pacific region as they have effectively manage through the tough market environment.

Tom Coler: Net sales in Mayo were 4% lower year over year. Selling price and product mix declined, primarily due to the impact of index-based contracts. sales volumes inclusive of the impacts of the IKV acquisition increased approximately 1% compared to the prior year. Overall, economic conditions remain needed in this segment and at very low levels, especially for metalworking applications.

Tom: Net sales in EMEA were 4% lower year over year.

Tom: Selling price and product mix declined primarily due to the impact of index based contracts.

Tom: Sales volumes inclusive of the impacts of the ITG acquisition increased approximately 1% compared to the prior year.

Tom: Overall economic conditions remain needed in this segment and at very low levels, especially for metalworking applications.

Tom Coler: Net sales and volumes in EMEA declined compared to the prior quarter, consistent with overall market trends in the region. Segment earnings in EMEA decreased by $3 million, or 12%, compared to the prior year, driven by higher manufacturing costs and mix. Year-to-date segment operating margins are approximately 110 basis points higher, reflecting the benefit of our ongoing cost savings initiatives. We expect to drive further productivity improvements and efficiencies in the EMEA segment in 2025.

Net sales and volumes in EMEA declined compared to the prior quarter consistent with overall market trends in the region.

Tom: Segment earnings in EMEA decreased by $3 million or 12% compared to the prior year.

Tom: Driven by higher manufacturing costs and next year.

Year to date segment operating margins are approximately 110 basis points higher reflecting the benefit of our ongoing cost savings initiatives.

Tom: We expect to drive further productivity improvements and efficiencies in the EMEA segment in 2025.

Tom Coler: Net sales in the Americas declined 10% year-over-year due to lower sales volumes and selling price and product mix. volumes in the Americas continue to be impacted by lower industrial activity in the region and were additionally impacted by customer downtime and lower production rates in the third quarter. This was primarily an automotive and other metalworking application. on a sequential basis and excluding an unfavorable foreign currency impact, sales were flat in the Americas compared to the prior quarter as new business winds helped mitigate the softer market environment. Segment earnings in the Americas declined approximately 10% in the quarter compared to the prior year, primarily reflecting the lower sales with stable margins.

Net sales in the Americas declined 10% year over year, due to lower sales volumes and selling price and product mix.

Tom: Volumes in the Americas continue to be impacted by lower industrial activity in the region and were additionally impacted by customer downtime and lower production rates in the third quarter.

Tom: This was primarily in automotive and other metalworking applications.

Tom: On a sequential basis, and excluding an unfavorable foreign currency impact.

Tom: Sales were flat in the Americas compared to the prior quarter as new business wins helped mitigate the softer market environment.

Tom: Segment earnings in the Americas declined approximately 10% in the quarter compared to the prior year, primarily reflecting the lower sales with stable margins.

Tom Coler: Our business continues to perform well, especially considering the persistent end market challenge. We continue to outperform the aggregate underlying demand due to new business wins in all segments, and we are making considerable progress aligning our costs to the current challenging market environment. We are well positioned to capitalize as market conditions improve.

Tom: Our business continues to perform well, especially considering the persistent end market challenges, we continue to outperform the aggregate underlying demand due to new business wins in all segments, and we are making considerable progress aligning our costs to the current challenging market environment, we are well positioned to capitalize it.

Tom: Market conditions improve.

Tom Coler: Turning to non-operating costs, our interest expense was approximately $3 million lower in the third quarter compared to the prior year, which reflects the ongoing reduction in our variable cost debt. Our cost of debt of 6.1% improved slightly versus the prior quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 29% in the third quarter. We continue to expect our effective tax rate in 2024 will be approximately 29%.

Tom: Turning to nonoperating costs, our interest expense was approximately $3 million lower in the third quarter compared to the prior year, which reflects the ongoing reduction in our variable costs debt.

Tom: Our cost of debt of six 1% improved slightly versus the prior quarter.

Tom: Our effective tax rate, excluding nonrecurring and non core items was approximately 29% in the third quarter.

Tom: We continue to expect our effective tax rate in 2024 will be approximately 29%.

Tom Coler: Our GAAP diluted earnings per share were $1.81, and our non-GAAP diluted earnings per share were $1.89. Year-to-date non-GAAP diluted earnings per share are higher by approximately 4% despite the tough operating environment. Switching to liquidity, we generated $68 million of cash from operations in the third quarter and $142 million year-to-date. We remain focused on improving our working capital efficiency and are on track to deliver another strong year of operating cash flow in 2024. Capital expenditures in the third quarter were approximately $8 million and $19 million year-to-date. We expect total CapEx will be above the midpoint of our communicated range of 1.5% to 2.5% of sales in 2024 as we continue to fund some of our growth initiatives.

Tom: Our GAAP diluted earnings per share were $1 81.

Tom: And our non-GAAP diluted earnings per share were $1.89.

Tom: Year to date non-GAAP diluted earnings per share are higher by approximately 4% despite the tough operating environment.

Tom: Switching to liquidity, we generated $68 million of cash from operations in the third quarter and $142 million year to date.

Tom: We remain focused on improving our working capital efficiency and are on track to deliver another strong year of operating cash flow in 2024.

Tom: Capital expenditures in the third quarter were approximately $8 million and $19 million year to date.

Tom: We expect total capex will be above the midpoint of our communicated range of one 5% to two 5% of sales in 2024 as we continued to fund some of our growth initiatives.

Tom Coler: In the quarter, we paid approximately $8 million in dividends and opportunistically repurchased approximately $15 million of shares. And we have repurchased a total of approximately $23 million year-to-date through September. In total, we have returned approximately $50 million to shareholders thus far in 2024. Our balance sheet and liquidity are strong. Our net debt at the end of the third quarter was $529 million, and our net leverage ratio improved to 1.6 times our trailing 12-months adjusted EBITDA. The resilience of Quaker Houghton is evident. We continue to successfully navigate the challenging and market environment while controlling items within our control.

Tom: In the quarter, we paid approximately $8 million in dividends and opportunistically repurchased approximately $15 million of shares and.

Tom: And we have repurchased a total of approximately $23 million year to date through September <unk>.

Tom: Total we have returned approximately $50 million to shareholders, thus far in 2024.

Tom: Yeah.

Tom: Our balance sheet and liquidity are strong our net debt at the end of the third quarter was $529 million and our net leverage ratio improved to one six times, our trailing 12 months adjusted EBITDA.

The resilience of Quaker Houghton is evident we continue to successfully navigate the challenging end market environment, while controlling items within our control.

Tom Coler: Our focus remains on executing on our clear objectives to accelerate growth and deliver long-term shareholder value.

Tom: Our focus remains on executing on our clear objectives to accelerate growth and deliver long term shareholder value with that I'll turn it back over to Andy.

Andrew Tometich: With that, I'll turn it back over to Andy.

Andrew Tometich: Thank you, Tom. Quaker Hutton's business model is strong. The team continues to execute well for our customers and our company. We are well positioned in our end markets and committed to our enterprise strategy to drive long term value for shareholders.

Andy: Thank you Tom Quaker Houghton's business model is strong the team continues to execute well for our customers and our company. We are well positioned in our end markets and committed to our enterprise strategy to drive long term value for shareholders.

Andrew Tometich: With that, we'd be happy to take your questions.

With that we'd be happy to take your questions.

Operator: Thank you.

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

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1. A confirmation tone will indicate you're live. you may press star two to remove. participants using speaker equipment. It may be necessary to pick up your handset. One moment, please.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: The main price start to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Speaker Change: One moment, please pull for questions.

Operator: And pause.

Michael Harrison: And our first question comes from the line of Mike Harris. partners, please proceed with.

Speaker Change: And our first question comes from the line of Mike Harrison with Seaport Research partners. Please.

Speaker Change: Proceed with your question.

Michael Harrison: Hi, good morning. Sorry about that. Good morning.

Mike Harrison: Hi, good morning, sorry about that.

Mike Harrison: It looks like the operating room.

Andrew Tometich: Looking at the operating margin performance in Q3, you guys were 120 basis points lower sequentially, even though the revenue level was pretty similar to last quarter. Can you help us understand the different pieces of that sequential margin decline? Did we see some change in price cost? Was there a change in mix? Was it some growth investments kicking in? Just really trying to better understand those margin dynamics. Yeah, thanks, Mike. And good morning again. Really down to a couple factors. So, at the gross margin level, we were also pretty consistent. But we did have a bit of a lag effect on our pricing due to indexes as over the past, you know, number of quarters reaching raw materials come down.

Speaker Change: Good morning looking.

Mike Harrison: Looking at the operating margin performance in Q3, you guys were 120 basis points lower sequentially, even though the revenue level was pretty similar to last quarter can you help us understand the different pieces of that sequential margin decline that we see.

Mike Harrison: Change in price cost was there a change in mix was it some some growth investments kicking in.

Mike Harrison: Just really trying to better understand those market dynamics there.

Speaker Change: Yeah, Thanks, Mike and good morning, again, I'm really down to a couple of factors. So at the gross margin level. We were also pretty consistent.

But we did have a bit of a lag effect on our pricing due to indexes as over the past number of quarters, reaching raw materials come down and there's typically a lag than when that kicks in on the pricing level. So.

Andrew Tometich: And there's typically a lag then when that kicks in on the pricing level. So we did have a bit of an impact in the third quarter related to that raw materials overall, the basket was pretty balanced. So we were consistent, but there was a little bit of a degradation in the third quarter related to that. And as raw materials stabilize, we anticipate that that effect diminishes. And then on the SG&A side, we had fully expected that we were going to have a bit of an uptick just based upon some timing around phasing of a few of our cost structures.

Speaker Change: So we did have a bit of an impact in the third order related about raw materials overall the basket when it was pretty balanced. So we were consistent but there was a little bit of a degradation in the third quarter related to that as raw materials stabilize we anticipate that that effect diminishes and then on the SG&A side, we had fully expected that we were going to have.

Speaker Change: A bit of an uptick just based upon some timing.

Speaker Change: Around phasing of a few of our cost structures, but the nice thing is we we actually offset some of that with cost controls as well. So it was really down to those areas that are that that impacted a bit of the operating leverage.

Andrew Tometich: But the nice thing is we actually offset some of that with cost controls as well.

Andrew Tometich: So it was really down to those areas that impacted a bit of the operating leverage.

Michael Harrison: All right, and then you talked about Asia.

Speaker Change: Alright, and then you talked to about age and the strength you've seen there it's kind of been a bright spot for you with this high single digit volume growth rate this year.

Andrew Tometich: It's kind of been a bright spot for you with this high single-digit volume growth rate this year. Can you talk about what's driving that strength?

Speaker Change: Can you talk about what's driving that strength and I guess with some stimulus in China is it possible that we see that momentum.

Andrew Tometich: And I guess with some stimulus in China, is it possible that we see that momentum continue or even accelerate as we look over the next few quarters? Yeah, it's a great observation, Mike, you know, we've seen relative strength across the Asia Pacific region. So it's, it's not a particular country. It's China, it's India, it's Southeast Asia. We've seen some positives, not only in metals, but also in metal working. Now, we did add a bit of help with the suti acquisition, but the vast majority of the growth has been organic growth for us. And it's really focused on the new business lens.

Speaker Change: Continue or even accelerate as we look over the next few quarters.

Speaker Change: Yeah, it's a great observation my.

Speaker Change: We've seen relative strength across the Asia Pacific region. So, it's it's not a particular country, it's China, It's India and Southeast Asia.

Speaker Change: We've seen some positive not only in metals, but also in metalworking now we did add a bit of help with the <unk> acquisition, but the vast majority of the growth has been organic growth for us and it's really focused on the new business wins, the team's doing a great job of identifying additional customer opportunities.

Andrew Tometich: The team's doing a great job of identifying, you know, additional customer opportunities as they're unlocking their business and value associated with it. And the team's really well positioned on that. So we're hopeful that some of the backdrop to the market continues to be positive on that. But we're making our own progress and a lot of other things.

Speaker Change: They're unlocking their business and value associated with it and the team is really well positioned on that so we're hopeful.

Speaker Change: Some of the the backdrop to the market continues to be positive on that but where we're making our own progress and a lot of other things we're doing.

Michael Harrison: All right, and then in terms of the outlook for Q4. You mentioned there's some seasonality, and typically we would expect to see some seasonal decline from Q3 levels into Q4.

Speaker Change: Alright, and then.

Speaker Change: And in terms of the outlook for Q4.

Speaker Change: You mentioned there is some seasonality and typically we would expect to see some seasonal decline from Q3 levels into Q4 can you maybe just talk about some of the puts and takes as we're thinking about Q4 versus.

Andrew Tometich: Can you maybe just talk about some of the puts and takes as we're thinking about Q4 versus this current quarter, Q3, from a revenue as well as a margin standpoint? Sure, yeah. Yeah, I mean, overall, the market continues to be pretty soft as we look into the end of the fourth quarter. And you're right, you've highlighted that we typically have a couple percent impact on seasonality, in particular in the Americas and in EMEA. We're expecting the headwinds to continue in the fourth quarter, including some of the outages that we saw in the third quarter around automotive and steel and now some challenges in the aerospace industry as well.

Speaker Change: This current quarter Q3.

Speaker Change: From a revenue as well as a margin standpoint.

Sure Yeah, Yeah, I mean overall the market continues to be pretty soft as we look into the into the fourth quarter and you're right. You highlighted that we typically have a couple a couple of percent impact on seasonality in particular in the Americas and EMEA.

Speaker Change: We're expecting the headwinds to continue in the fourth quarter.

Speaker Change: <unk> some of the outages that we saw in the third quarter around automotive and steel and now some challenges in the aerospace industry.

Speaker Change: Industry as well on a positive note, though we are still earning new business to offset some of that and we continue to our kind of expectations for Asia Pacific to continue to be positive. So overall I think we're executing pretty well, we're managing our margins continuing to focus on our cost structure as as we're still advancing.

Tom Coler: On a positive note, though, we are still earning new business to offset some of that, and we continue to have expectations for Asia-Pacific to continue to be positive. So, you know, overall, I think we're executing pretty well. We're managing our margins, continuing to focus on our cost structure as we're, you know, still advancing our strategy.

Speaker Change: Our strategy.

Tom Coler: And while we don't, you know, give explicit guidance, I hope that at least contextualizes a little bit for you, because, you know, the net takeaway, I would say, is while the fourth quarter will be a little bit challenging, we think we're setting the business up really well when the markets do start to improve.

Speaker Change: And while we don't give explicit guidance I hope that at least contextual contextualize, a little bit a little bit for you because you know the the net takeaway I would say is while the fourth quarter will be a little bit challenging.

Speaker Change: We're setting the business up really well when the markets do start to improve.

Tom Coler: Okay, and just to clarify, if we do see a seasonal decline on the top line, would you expect to see some margin decline from Q3 into Q4 as well? Yeah.

Speaker Change: Okay, and just to clarify if if we do see a seasonal decline.

Speaker Change: Offline would you expect to see some margin.

Speaker Change: Decline from from Q3 into Q4 as well.

Speaker Change: Yeah, Hey, Mike. This is a this is Tom yes. Thanks for the question.

Tom Coler: Hey, Mike, this is Tom. Yeah, thanks for the question. You know, I think as Andy had mentioned, ROAs are stabilizing here at these levels. We would anticipate that our pricing declines will moderate as we continue to move through Q3, Q4. So, you know, in general, we're anticipating to be still within our range of, you know, 37 to 38 percent with generally stable margins as we look from Q3 to Q4.

Tom Quaker: I think as Andy had mentioned raw raws, our raws are stabilizing here at these levels, we would anticipate that our pricing declines will will moderate as we continue to move through Q3 Q4. So you know in general we're anticipating to be still within.

Tom Quaker: Our range of 30% to 737% to 38% with generally stable margins as we look from Q3 to Q4.

Michael Harrison: All right, I'm going to sneak one more in here, and then I'll be done.

Alright, I am going to sneak one more in here and then I'll be done.

Michael Harrison: Any chance I can get you to comment on some modeling assumptions as we're starting to turn our attention to 2025? I would assume that markets remain pretty soft, at least to start the year. Maybe we see some volume inflection in the second half, and then you guys would anticipate some share gains on top of whatever the market's giving you.

Any chance I can get you to comment on some modeling assumptions as we're starting to turn our attention to 2025 I would assume that markets remain pretty soft at least to start the year, maybe we see some volume inflection in the second half and then you guys would anticipate some share gain.

Tom Quaker: So on top of whatever the market's giving you, but as we're thinking about EBIT margin next year do we need to think about incentive comp reset you've talked a little bit about restructuring and more productivity, particularly in EMEA.

Michael Harrison: But as we're thinking about EBITDA margin next year, do we need to think about incentive comp reset? You talked a little bit about restructuring and more productivity, particularly in EMEA. Just trying to think about how to model EBITDA margin as we're looking out to next year. Any help would be appreciated.

Tom Quaker: Just just trying to think about how to model our EBITA margin as we're looking out to next year any.

Tom Quaker: Any help would be appreciated thank you.

Michael Harrison: Thank you.

Michael Harrison: Sure. Thanks, Mike.

Speaker Change: Sure. Thanks, Mike well of course, it's a bit early.

Andrew Tometich: Well, of course, it's a bit early for us to have much specific for 2025, but I'll try to give you a little bit of context. First of all, we're planning to build on the progress we've made over the last couple of years. So holding on and continuing to operate at our target margin range, we continue to optimize the organization, find efficiencies so that we're successful regardless of the macro environment. We've talked about it before, control the things that we can control. We're getting some good traction in some of our growth initiatives, some of the things we've talked about on the strategy side.

Speaker Change: For us to have a much specific for 2025, but I'll try to give you a little bit of context.

Speaker Change: First of all we're planning to build on the progress we've made over the over the last couple of years, so holding on and and continuing to operate and our target margin range, we continue to optimize the organization and find efficiencies.

Speaker Change: So that we're successful regardless of the macro environment, you know we've talked about it before control the things that we can control we're.

Speaker Change: We're getting some good traction in some of our growth initiatives. Some of the things we've talked about on the strategy side I think it's really hard to predict what's going to happen in the macro there are some reasons to believe that things could improve just based on some external signals.

Andrew Tometich: I think it's really hard to predict what's going to happen in the macro. There are some reasons to believe that things could improve just based on some external signals. But it's starting from a pretty low spot after the last couple of years of contraction. And just a couple, you know, points on that. You know, there's been some suggestion that auto and steel production can improve. There's some new mills that have been announced for operation next year. So, and then we have a pretty diverse market too. So, hopefully some of that will start to improve. But we're going to continue to drive the things we need to drive in order to execute and do well, and that includes earning new business.

Speaker Change: But it's starting from a from a pretty low spot. After the last couple of years of contraction.

Speaker Change: And just a couple of points on that you know there's been some suggestion that auto and steel production can improve there's some new mills that have been announced for operation next year. So and then we have a pretty diverse market too. So hopefully some of that will start to improve but we're going to continue to drive the things we need to drive in order to.

Speaker Change: Execute and do well and that includes earning new business.

Andrew Tometich: And I'm pretty confident we'll continue to do that. You know, we're in a good position here with that outperformance on the new business we're winning that when the markets do recover, it's going to be even more pronounced for us.

Speaker Change: Pretty confident we'll continue to do that.

Speaker Change: You know we're in a good position here with that outperformance on the new business, we're winning that when the markets do recover it's going to be even more pronounced for us and we've got a really healthy financial position with respect to our balance sheet and cash flow and where we're going to deploy that to accelerate our growth based on what the market gives us and the.

Andrew Tometich: And we've got a really healthy financial position with respect to our balance sheet and cash flow, and we're going to deploy that to accelerate our growth based on what the market gives us and the success that we'll drive ourselves.

Speaker Change: The success that will drive ourselves.

Michael Harrison: Thanks very much.

Speaker Change: Thanks very much.

Operator: Thanks, Mike. Thank you.

Speaker Change: Thanks, Mike.

Thank you.

Lawrence Alexander: Our next question comes from the line of Lawrence Alexander with Jeffreys. Good morning, it's Dan Rizzo on for Jeffrey's. Thank you for taking my questions.

Speaker Change: Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Speaker Change: Hey, good morning, it's Dan Rizzo on for Jefferies. Thank you for taking my questions. If if we were to lap current pricing what would be the net price tailwind be next year.

Daniel Rizzo: If we were to lap current pricing, what would the net price tailwind be next? Yeah, well, first, Dan, thanks. Thanks for the question.

Speaker Change: Yeah, well first Dan. Thanks. Thanks for the question I mean first just give some context to it while pricing was down year over year and we commented it was related to the index pricing. If you look at it on a sequential basis, it's already starting to to mitigate so it's down to it was 1% negative.

Tom Coler: I mean, first, let's get some context to it. While pricing was down year over year, and we commented it was related to index pricing, if you look at it on a sequential basis, it's already starting to mitigate. So it's down to, it was, you know, 1% negative. And because of that index pricing, and now seeing some stabilization in raw materials, we would expect that to diminish going forward. And you can see that in how we're managing the gross margin on a year over year, it's rather flat. So we're anticipating things will stabilize as we move into the next year.

Speaker Change: And because of that that index pricing and now seeing some stabilization in raw materials, we would expect that to diminish.

Speaker Change: Going forward now that you can see that in how we're managing the gross margin on a year over year, it's rather flat so.

Speaker Change: We're anticipating things will stabilize as we move into the next year, we're confident that we will do the things necessary to operate within our targeted 37% 38% range.

Tom Coler: We're confident that we will do the things necessary to operate within our targeted 37 to 38%.

Daniel Rizzo: Okay, and then how much share do you think you've captured over the past two, three years?

Okay, and then how much share do you think you've captured over the past two three years is the piece of share gains accelerating would.

Tom Coler: Is the pace of share gains accelerating, would you say? Yeah, we have done a pretty good job in pretty tough markets, and I think it really shows the resilience of the team. As we've indicated in a couple of our previous calls, you know, in our growth algorithm of typically outperforming the market by 2 to 4 percent, we actually think our new business wins are on the higher end of that range. Now, that's been subdued a little bit because of just the soft markets and some of the churn that was associated with that as we were recovering our margins.

Speaker Change: Would you say.

Speaker Change: Yeah, we have done a pretty good job in pretty tough markets and I think it really shows the resilience of the team.

Speaker Change: As we have as we've indicated in a couple of our previous calls.

Our growth algorithm typically outperforming the market by 2% to 4%, we actually think our new business wins are on the higher end of that range now thats been subdued a little bit because of just the soft markets and some of the churn that was associated with that as we were recovering our margins, but we've seen that churn go down over time.

Tom Coler: But we've seen that churn go down over time. So, our net new business wins are still within that targeted range, but we're doing a better and better job on accelerating the new wins.

Speaker Change: So our net new business wins are still within that targeted range, but we're doing a better and better job on accelerating the new wins and as we mitigate the churn. We think we have an opportunity to actually improve within that range.

Tom Coler: And as we mitigate the churn, we think we have an opportunity to actually improve within that range.

Tom Coler: Could you characterize any of that as cross-selling or revenue synergies from Houghton? I thought you guys kind of have a long sales kind of cycle, but I was wondering if that's starting to flow through or it already has from a while past. Yeah, I think, you know, the the growth synergies that that were anticipated with respect to the combination, I think, are still moving through our system.

Speaker Change: Could you characterize any of that that's like as cross selling or revenue synergies from Houghton I thought you guys kind of have a long long sales cycle, but I was wondering if that's starting to flow through it already has well past that.

Speaker Change: Yeah, I think you know the the growth synergies.

Speaker Change: That where anticipated with respect to the combination I think are still moving through our system, where we had the unfortunate situation of the pandemic and then global supply chain challenges kick in not long after the combination, which really stunted some of that so we have made progress I think part of the reason that we're operating.

Tom Coler: We had the unfortunate situation of the pandemic. And then, you know, global supply chain challenges kick in not long after the combination, which really stunted some of that. So we have made progress. I think part of the reason that we're operating really well within our targeted range of new business wins is we're doing a better and better job all the time. But there's still plenty of opportunity for us going forward.

Speaker Change: <unk> really well within our targeted range of new business wins, as we're doing a better and better job all the time, but there's still plenty of opportunity for us going forward.

Daniel Rizzo: Thank you very much. Thanks. Thank you.

Speaker Change: Alright, Thank you very much.

Speaker Change: Thanks.

Speaker Change: Thank you. Our next question comes from the line of John Andrew Chang with CJS Securities. Please proceed with your question.

Operator: Our next question comes from the line. Thank you.

Operator: Hi, good morning. Thank you.

Speaker Change: Hi, Good morning. Thank you for taking my questions I was wondering if you could tornado.

Operator: I was wondering if you could talk about... Good morning. A little bit more specific about the impact of, you know, customer factory and facility shutdowns or extended downtimes. on Q4 and how much. Yeah, so first just highlighting again, you know, where we're seeing the continued outages are primarily in auto and just general industrial and now aerospace. You know, that has a bigger impact in the Americas and Europe, but it does have some carry over as well in the other regions.

Speaker Change: Good morning, a little bit more specific about the impact of customer factory and facility shutdowns of extended downtime and then even strikes.

Speaker Change: On Q4, and how much that that will be incremental over your normal seasonality.

Speaker Change: Yeah. So first just highlighting again, where we're seeing the continued outages are primarily in auto and just general industrial end out now aerospace.

Speaker Change: You know that has a bigger impact in the Americas and Europe, but it does have some carryover as well in the other regions. Tom I don't know if you you'd like to add any additional context on that.

Andrew Tometich: Tom, I don't know if you'd like to have any additional context on that. Yeah, I would just say I think Andy characterized it well in terms of, you know, auto and steel. I think the new item for us that impacted a very small amount in Q3 is in the aerospace. Aero is approximately 5% of our, a little less than 5% of our global revenue, and we work across many parts of the aerospace supply chain. But again, we're seeing challenges in that market starting to emerge here in Q3, particularly in the Americas. So, as we look forward into Q4, if the current market environment, particularly in aerospace, continues to exist, depending on the length of that, we could see a few million dollars of impact in Q4 associated with that market segment.

Tom Quaker: Yeah, I would just say I think Andy characterized it well in terms of auto and steel I think the the new the new item for us that that impacted a very small amount in Q3 is in the aerospace Arrow is approximately 5% of our a little less than 5% of our global.

Tom Quaker: Global revenue and we work across many parts of the aerospace supply chain.

Tom Quaker: But again, we're seeing challenges in that market starting to a merger in Q3, particularly in the Americas. So as we look forward into Q4, if the current market environment, particularly in aerospace continues to exist depending on the length of that we could see a few million dollars of either the impact in Q4 associated with that market segment.

Speaker Change: Okay, great. Thank you and then you guys spend a bit of time talking about pricing in an index.

Tom Coler: Great, thank you. And then you guys spend a bit of time talking about pricing and that impacted Q3. I was wondering how much of the impact was mixed related either by end market or geography or product. Yeah, for sure there was some some mixed impact and you hit it. It's related to the market segment as well as as well as geography. It was a little more of an impact in the in Europe. You know, Europe continues to be a challenge for us.

Speaker Change: That impacted Q3 I was wondering how much of the impact was mix related either by end market or geography or product type.

Speaker Change: Yes for sure there was some some mix impact and you hit it it's related to the market segment as well as as well as geography.

Speaker Change: It was a little more of an impact in the in Europe Europe continues to be a challenge for us. It's the area that we have the biggest opportunity to improve and we'll continue to continue to focus on that.

Tom Coler: It's it's the area that we have the biggest opportunity to improve. And we'll continue continue to focus on that, so that we get back to growing there and making sure we're growing profitably.

Speaker Change: We'll get back to growing there and making sure we're growing profitably.

John: And last one from me, any thoughts or update on capital allocation? still do have healthy cash flow. I know you bought back shares in the quarter, just what are your... a weaker period on the aberration.

Speaker Change: Got it and last one from me any thoughts or update on capital allocation. Just given you still do have healthy casually leverages in the nice place I know you bought back shares in the quarter. Just what are your preferences going forward of your priorities.

Speaker Change: As we enter this maybe weaker period on the operations, but still have a lot of firepower in the bank.

Tom Coler: Yeah, John, thanks. Thanks for pointing that out. We do feel very positive about our overall financial position and the cash we're continuing to generate. And we have the responsibility to make sure we deploy that in the best interest of the shareholders, which we do. We have a very disciplined capital allocation approach.

Yes, John Thanks, Thanks for pointing that out we do we do feel very very positive about our overall financial position and the cash we're continuing to generate and we have the responsibility to make sure we deploy that in the best interest of the shareholders, which we do we have a very disciplined capital allocation.

Tom Coler: We have a preference for growth, so supporting our own organic growth through CapEx and investment in the business, as well as inorganic, as evidenced by the two acquisitions we did this year with Sutai and IKB. But we're also, as we're a cash generator, we're not going to just let cash build. We've returned $50 million to shareholders this year through dividends, which we once again increased. And then we've done some opportunistic buybacks. So we want to make sure we have all the right tools to take advantage of. On buybacks, it was opportunistic, so $23 million year to date.

Speaker Change: Approach, we have a preference for growth so supporting our own organic growth through capex and investment in the business as well as inorganic as evidenced by the two acquisitions. We did this year was to tie in I T V.

Speaker Change: But we're also as we're a cash generator, we're not going to just let cash build we've returned $50 million to shareholders. This year through dividends, which we once again increased.

Speaker Change: And then we've done some opportunistic buybacks. So we want to make sure we have all the right tools.

Speaker Change: To take advantage of on buybacks.

Speaker Change: Opportunistic so $23 million year to date.

Tom Coler: And we'll look at that opportunistically whenever we think we're not appropriately valued. But really, we're going to continue to target on where do we generate shareholder value through growth. And we'll be deploying the cash flow capabilities primarily in that.

Speaker Change: And we'll look at that Opportunistically whenever we think there is you know we're not appropriately valued but really we're going to continue to target on where do we generate shareholder value through growth and we will be deploying the cash flow capabilities, primarily in that space.

Speaker Change: Great. Thank you.

Tom Coler: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.

Arun Viswanathan: Our next question comes from the line of Arun Viswanathan. Great. Thanks for taking my question. So, I guess, yeah, I mean, I guess I wanted to just dig in a little bit on the performance that you've seen here. So, you know, it looks like, according to the volume slide, that you are down a little bit year on year in volumes, maybe low single digits, maybe, you know, at the lower part of that. So, I guess, would you attribute most of the decline in revenue this year to price? And if so, has that kind of cycle run its course, or do you expect further price deterioration, especially if you are now considering, you know, some volume headwinds to accelerate?

Speaker Change: Great. Thanks for taking my question. So I guess, yeah, I mean, I guess I wanted to just dig in a little bit on the performance that you've seen here. So you know it looks like according to the volume slide that you are down a little bit a year on year and volumes, maybe low single digits maybe.

Speaker Change: You know, it's at the lower part of that.

Speaker Change: So I guess would you attribute most of the decline in revenue this year to price.

Speaker Change: And if so has that kind of cycle.

Speaker Change: Run its course or do you expect further price deterioration, especially if you are now considering you know some some volume headwinds due to accelerate.

Tom Coler: Yeah, this is Tom. Good morning, Arun. How are you? Thanks for the question. So, yeah, what I would say is I think you're right. You know, we saw year-on-year, you know, very low single digit, year-on-year volume declines. If you look at our pricing impacts over the last several quarters, those continue to come down over time as the effects of the raw material deflation sort of work through our system, and we see the impact come through on index-based contracts. So, as Andy had said, relative to our Q4 outlook, our anticipation is that margins will stabilize in this range, and we'll continue to see less impact of price as we go forward.

Speaker Change: Yeah. This is Tom good morning, Arun how are you. Thanks for the question.

Tom Quaker: So yeah, what I would say is I think I think you're I think you're right we saw year on year.

Tom Quaker: Very low single digit year on year volume declines if.

Tom Quaker: If you look at our pricing impacts over the last several quarters those continue to come down over time.

Tom Quaker: As the effects of the raw raw material deflation sort of work through our system and we see the impact come through on index based contracts. So as Andy had said relative to our Q4 outlook I. Our anticipation is that margins will stabilize in this range and we'll continue to see less impact of prices. We go forward.

Arun Viswanathan: Great, thanks for that.

Speaker Change: Great. Thanks for that and just as a follow up then so you know we we were kind of modeling a you know a resumption of growth in 'twenty five mm do you feel like that's still kind of in the cards I know that you know you you often target above market growth.

Andrew Tometich: And just as a follow-up then, so, you know, we were kind of modeling, you know, a resumption of growth in 2025. Do you feel like that's still kind of in the cards? I know that, you know, you often target above market growth, a couple hundred basis points above the market. But, you know, with the market kind of seeing some of these headwinds around strike and arrow and maybe lower automotive production, maybe that, you know, could ultimately result in lower steel and aluminum utilization rates as well. So, you know, in the face of flat to down volumes, would you still be able to turn in margin expansion and earnings growth next year?

A couple of hundred basis points above the market, but you know with the market tenants and seeing some of these headwinds around strike in Aero and maybe lower automotive production.

Speaker Change: Maybe that could ultimately result in lower steel and aluminum utilization rates as well.

Speaker Change: So.

Speaker Change: In the face of flat to down volumes would you still be able to turn in margin expansion and earnings growth next year or should we you know.

Andrew Tometich: Or should we, you know, kind of moderate that view?

Speaker Change: Kind of moderate that view.

Andrew Tometich: Yeah, thanks for the question.

Speaker Change: Yeah. Thanks for the question.

Andrew Tometich: You know, it's always our it's always our expectation to derive growth. But we also understand after the last couple years, we can't control everything in the macro environment. What we do know is we're advancing our strategy with key some of the key things that I mentioned in our in the prepared remarks, we're continuing to generate new business wins as we're finding new opportunities to help customers to unlock value with respect to that. And we continue to manage our costs to whatever is happening in the macro environment.

Speaker Change: It's always our it's always our expectation to derive growth, but we also understand that the last couple of years, we can't control everything.

Speaker Change: In the macro environment what.

Speaker Change: What we do know is we're advancing our strategy with keep some of the key things that I mentioned in our in the prepared remarks, we're continuing to generate new business wins as we're finding new opportunities to help customers.

Speaker Change: Unlock value with respect to that and we continue to manage our costs to whatever is happening in the macro environment.

Andrew Tometich: You know, should the macro environment improve, we're going to be in an even better position, but we will continue to focus on what we can control and do our best to build on the success we've had the last couple of Thanks, Andy.

Speaker Change: The macro environment improve we're gonna be in an even better position, but we will continue to focus on what we can control and do our best to build on the success. We've had in the last couple of years.

Speaker Change: Thanks, Andy and then just a quick follow up here, so on the balance sheet and capital allocation.

Arun Viswanathan: And then just a quick follow up here.

Andrew Tometich: So on the balance sheet and capital allocation, you know, it's been a few years now since you guys have done a more material size deal. You know, your your leverage is very manageable at that one six. So just curious if you've considered, if there are some larger consolidation opportunities, especially now with interest rates potentially coming down, are you seeing any businesses that you've had your eye on, you know, be a little bit more open to a sale process? Is that, and is there, you know, material, you know, consolidation opportunities that you'd like for us to keep in mind?

Speaker Change: It's been a few years now since you guys have done that are more material size deal.

Speaker Change: You know your your leverage is very manageable at that one six.

Speaker Change: So just curious if you've considered if there are some larger consolidation opportunities, especially now with interest rates potentially coming down are.

Speaker Change: Are you seeing any businesses that you've had your eye on.

Speaker Change: Be a little bit more open to a sale process.

Speaker Change: Is that and is there you know material consolidation opportunities that you you'd like for us to keep in mind is that those are are those any opportunities that.

Andrew Tometich: Is that those, are those any opportunities that really could drive some good synergies and growth as you look out? Thanks. Yeah, great question. Of course, it's an important part of our capital allocation strategy, right? Inorganic growth will drive growth, and we've seen a lot of success and shareholder value added as a result of that. We did the two bolt-on deals so far this year with IKV and SuTai. We've got a number of other bolt-on deals in our pipeline, as well as larger opportunities within the pipeline. You can't always predict when those things are going to happen.

Speaker Change: Really could drive some good synergies.

Speaker Change: Synergies and growth as you look out thanks.

Speaker Change: Yeah, Great question and of course, it's an important part of our capital allocation strategy right inorganic growth will drive growth and we've seen a lot of success and shareholder value added as a result of that we did the two bolt on deals. So far this year with I gave you in suits I, we've got a number of other bolt on deals in our pipeline.

Speaker Change: As well as larger opportunities within the pipeline.

Speaker Change: You can't always predict when those things are going to happen what I can say, though is things are heating up.

Andrew Tometich: What I can say, though, is things are heating up, and we see the possibility to be able to move with a little bit of an acceleration as we go forward here. So, we'll continue to focus in on those places where we add channel, we add geography, we add technology, or we add scale that's going to be useful and value-adding for our customers. And we've done a really nice job, I think, on the balance sheet and our cash generation to be in a position to be able to do that when the moment is right. Thanks.

Speaker Change: And we see the possibility to be able to move with a little bit of an acceleration as we go forward here. So we'll continue to focus in on those places where we had channel we add geography, we add technology or we add scale, that's going to be useful and value, adding for our customers and.

Speaker Change: We've done a really nice job I think on the balance sheet and our cash generation to be in a position to be able to do that when the moment is right.

Speaker Change: Thanks.

Speaker Change: Okay.

Andrew Tometich: Thank you. and the Tometich Fork. Yeah, thanks so much.

Speaker Change: Thank you. Thank you.

Speaker Change: <unk> reached the end of the question and answer session and I'll turn the call back over to CEO, Andy Thomas for closing remarks.

Andy Thomas: Yeah. Thanks, so much we appreciate everybody's continued interest in Quaker Houghton. Please reach out to Jeff. If you have any additional follow up questions. Thank you very much have a good day.

Andrew Tometich: We appreciate everybody's continued interest in Quaker Houghton. Please reach out to Jeff if you have any additional follow up questions. Thank you very much.

Operator: Have a good day.

Operator: And this concludes today's conference. You may disconnect your lines at this time. Thank you for your...

Speaker Change: And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change: [music].