Quaker Chemical (KWR) 12 May 202020 Q1 Earnings call transcript

Greetings. Welcome to the Quaker Houghton First Quarter 2020 Results Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Houghton. Mr. you, Thank begin. may Barry, you

Good morning, everyone.

our today Joining from General are and Hostetter, working we are me Counsel; Accounting Mary Shane our virtually home Traub, Hall, all Robert Finance as our Officer. of Head and Chief CFO;

our have call. We conference for slides

A them with www.quakerhoughton.com. the conference since last deal You COVID-XX website can section call. our in quarter's the pandemic in find has Relations changed Investor of at great world the our

of protect For meet and our us, safety top health our our our to employees to customers, continuity the ensuring is needs. while our and priority business customers'

of world beat. the our our well as are am we All the to Houghton plants integration, XX needs. proud customers, as which very our done around servicing Quaker are operating I in with customers' missed our the continuing team and not what has of has meeting continuing

by volume first of by that Overall, approximately drivers comparisons. These X% sector. our the which sales in knew conference began productions, our many world. But which impacted the us main temporary in quarter. March, of started last impacting or call, our end were in reduced had shut two And our the by the half our In X%. March, automotive production COVID-XX was second we COVID-XX, altogether, halt by down pro impacted in We around significantly of sales being Boeing the really impacts were everywhere the we especially of February. impacted in the towards impacted China estimate customers about decline also in forma XXX experiencing MAX we

due the of of as organic the the X% approximately estimate year in marketplace our product growth we market this net quarter last first were volume year. a quarter analysis to levels. through at customer-by-customer the that what gains we gains losses and in and gone to share versus share share was show total have This continues customer took analysis in first to We see

gross Quaker recall the gross were Quaker. is of of can lower from our point. to only margins starting first you percentage raw expected our And turning quarter comparison standalone the comments may X% margins, This in this you is Houghton to X.X indicative difference than to the integration In about from material combined through. past savings that come see be

any While crude from see this was also the we of material not material stable. yet as during period, costs were do decreasing this raw relatively as benefits

somewhat impact. than overall, the the results were considering when So first expected better quarter COVID-XX

to last ways due Our many on to savings, place first our through in XXXX. been we global and quarter versus year pro measures we integration Norman acquisition volumes. in of effect has to the combat Hay the cost XX% impact our of late the similar forma in grew the event put went quarter adjusted EBITDA additional control This COVID-XX last what

XX%. were Just pay like have eliminated. Essentially, numerous some ways. planned implemented, all cut costs physicians discretionary were executive then, hires, cuts over our been took we fast been have start in new action We furloughed expenditures safe by capital expenses and to

took And reviewed as we situation, very this of as well synergy light integrations other where and additional importantly, our possible. synergies in plans accelerated actions

synergy now on achievement. our We increased have guidance

estimate have estimate will new across been we achieved achieved that $XX to the million. estimate $XX synergies versus million. XXXX million previous our XXXX, $XX is raised For And synergies from million our $XX total be of by

do augmentations integration operating shutdowns, negatively site we're asked plant challenging impacted been I we pandemic transfers currently our being give our under. credit of European manufacturing people really our about have in and is haven't we especially has that And work amount question, One for in tremendous these to during a conditions product able the impacted way, any answer the timing. this integration. that is

successfully we due our conditions. recently to ERP instance, the current and all system such working or implemented remotely two at has [indiscernible] JDA done sites For

are anything done and customers execute of our to initiatives, offset not continue into and Our develop with that impact cost our that time we're additional above paying have grow this the have or off, to of will planning to help we're volume two experiencing. ability execution the service future business platform. strategic during integration further fortunate impacts to Even us our on years including market our strategic this well, synergies, and these execution period we ongoing the

production our to reduced forward quarter the the expect of to have shut Many rest second the year, customers the down. Looking quarter. we of be or significantly challenging most

do revenues to order year, begin see through in April our second a business the in example, in were anticipate the half down improvement rest sequential we of gradual year. will We For that the of the XX%. the of

the do However, expect our to return the by of end we year. expected not business the to levels pre-COVID-XX

at Given how the providing this cloud guidance is we the is economic be will specific environment COVID-XX, time. not to

the by EBITDA. to for order of of the can the say in see half we're EBITDA remainder adjusted quarter's nearly I be direction give some could year, first to down try quarter's that However, that currently the second adjusted

help time and reductions covenant year, improvement continue down. the adjusted expected expected the cash than working synergies, via expected be issues. cost are actions, this our during EBITDA are Overall, saving when capital $XXX full expect margins to more in expect release do have period volumes liquidity our the us to to we million. our gross any For or in of additional our to not And we bank higher

significant cost synergies, us from a I look time. we and XXXX to do if in marketplace the optimistic complete future. benefit continue rebound and to our end gradual demand over of our achieve And forward this we EBITDA, I in continue be our XXXX, integration as to share to take adjusted markets period projected in in increases in expect our And

servicing proud be our and year. closing, our in our differentiate for the far for Quaker is for will so going us. performed a with and successfully am our well-being shareholders, meeting needs and their critical our on has very is which now Houghton, business a and will us all integration, to of will and and team most and continuing what I'm ensuring us to to our at and priority People marketplace. and customers safety of customers, priority happy able how execution us our in for for whose In want team and their by with accomplish have our so expertise of continue both this be forward. asset, we Quaker dedication to Houghton are helps continue to our valuable be in our everything I thank customers I colleagues value create and

remarks. to over of that the so my can And prepared now for I'll Mary? she the that financials it hand quarter. for concludes key you Mary, some review

and all. Mike, you, Yes. morning Thank good

risks begin, that projections cause I this to that are you made subject expectations, materially. and let statements, actual uncertainties, to which Before current which during include call remind on may assumptions comments results are estimates, me and forward-looking based differ

For review our please yesterday's on regarding Form should the also in our a COVID-XX included website. Please and we discussion issues. related cautionary statements, risks, in our available filed SEC. then our release XXXX risk updated the of be these to XX-K. with XX-Q factors those These address that risk XXXX these earnings first factors in forward-looking quarter with along XX-K are statements And reviewed the Form note

the certain operating per last share, excluding forma post as presentation, into for had provided deck operating and forma periods been adjusted where not and of throughout non-GAAP as as couple an a press company's well we of calls sales periods In core used adjusted presented. information, EBITDA, items, deck. diluted certain effort Houghton we combined in as believe provided non-GAAP in combination, if our review forma and performance. the as comparison including this similar non-GAAP the release core our investor this as operations, certain one with income actual items well with pro We to visibility our the we are provide our for appendix show this pro and we pro followed results, do format shareholders in earnings EBITDA better Reconciliations reflect which

and X X, I chart see and on the please Slide some review also So X, highlights. while Slide

early automotive the When a global noted we the was as headwinds weakness generally surfaced XXXX, that in strong continue earnings face that dollar. COVID-XX call considered to of China stronger industrial QX March, US as well general from had half we we point and latter issue. our that at

March global and unfolded became auto pandemic, exacerbating As a COVID-XX as noted, the seen. Mike industrial already significantly weakness

due our up actual while to the million QX, to were Norman Houghton is this of Hay. inclusion and $XXX.X So in significantly sales

additional in Norman a from this down lower forma negative exchange, as basis, partially Hay. Houghton consensus by QX which volumes good $X. offset foreign generated up and of company net On of basis, from was in on impacts reflects were which pro Despite sales non-GAAP sales X%, also the XX% the and pro a the of we challenges adjusted faced flow was $X.XX forma EBITDA, well above was QX, EPS cash XXXX,

Mike of included margin been improvement XX.X% was QX the FLUIDCARE, If expectations Houghton in treatment with that margins mentioned. accounting communications. related quarter's and largely We the chemical year to XX.X% margin somewhat is margin, down year, lower last of X% noted QX indicates the have gross the from previously combination the our for Gross our the savings which business we gross the lower. prior in for business. in in management that This was in year, part prior line which to current Houghton gross legacy estimate approximately due the reflects procurement would in

close operating X, to fair $XX and middle QX charges $XX.X combination combination million the In at million main can lives and non-GAAP fourth during reported restructuring intangible are quarter the adjustments non-GAAP XXXX. the operating fair our and loss These non-cash XXXX, reflect their table about in assets in in of tested August charge value. million for million of trademark $XX totaling write-down indefinite the on [indiscernible], Slide see income value to the of a estimated impairment the the of at X, GAAP $XX impairment section, of were on But section. in Houghton recorded you

conditions tested estimated million. their these the of and by again However, determined confirm to as given approximately recent $XX we that value result needed and current be value exceeded assets their changes business a carrying COVID-XX, fair

XX-Q, to long-lived continue evolve, all we as assets noted in we will business conditions our reevaluate As as necessary. our

settlement the the final million reported in we process US accumulated of final this previously a account defined million in company The Concurrent and In comprehensive charge benefit $XX.X plan, $X.X approximately is termination the the a paid to sheet. income/loss termination, non-operating we for a offset section with pension Quaker's items, disclosed. subject other equity legacy adjustment. of of reflected non-cash balance

benefit year. in QX charges XX.X% all XX.X% an of tax benefits, this QX excluding benefits of last effective we estimate last year. was XX% Our been our all between in one-time charges expect reported of have one-time expense currently for rate and a XX% versus XXXX full-year QX Adjusting our ETR, XX%. be in XX% would and and ETR QX We and to

of is Norman in due up Houghton Hay of EPS the additional down earnings primarily additional from and by offset Our of QX from shares. is and Hay, non-GAAP non-GAAP the $X.XX inclusion year XXXX, QX $X.XX per combination, Norman in partially sequentially which share included to shares and the issued in the $X.XX last Houghton

inclusion $XXX On $XX million the of XX% the reached of QX reflects trend forma pro benefits the last adjusted $XXX up in quarter strong the end Norman months from of due increase million, Hay savings which This Slide from of XXXX. million $XX from show and million we X, realized cost as up in adjusted in of forma performance the XX the the trailing combination. pro EBITDA year QX, EBITDA, to of at QX

update volatility and markets. and global all our was in our the global balance created an our an COVID-XX down debt. direct note the Please sheet caution liquidity. is and liquidity drop as This On of went provide revolving of Slide credit in leveraged on XX as abundance in significant March drew neutrals our most additional on that facility leverage cash available to we we the and uncertainty offset

X.XX level good to cash from of the net result earlier. fact, of to cost declined flow X.XX times reported times, a our our adjusted and In as savings mentioned debt year-end EBITDA

the end Our covenant at ratio quarter $X.XX this also from bank about in per the at definitions improved $X.XX borrowing of agreement. our year-end to

uncertain with we these covenants be We strong continue to in have to bank support compliance our to liquidity and times. expect

Our priorities, including reduction previously capital approximately planned XX% an these allocation reflect CapEx. decisions in

a have model. the release capital flow, we we very And you expect to As generate light crisis sales business a as working know, global of good XXXX-XXXX. asset decline similar also in cash to

at estimated to at X.X% versus approximately from continues and about rates year-end. of interest benefit cost debt declining Our at was March X% XX

crisis encouraged be expected synergies realized expected As additional overall. cost and Mike to this $XX synergies increase $XX actions have reduction to all realized ability from history today cost weather to in million good address achieved taken year million, give to the our The we and flow addition generating mentioned, we're by to in the in this us confidence cash the our of downturn, global in storm.

Thank now over to interest back you Mike. Quaker your Houghton. for And in you,

Mary. Thanks,

it We questions. open now for up will

Instructions] you. Our Thank question proceed. Laurence Jefferies. [Operator Alexander from first is Please with

Good morning. on doing? guys It's How you Riso Dan Laurence. for [ph] are

Good morning, Dan. you. Thank

Dan. morning, Good

everything Good the might looking I volatility, been going is staff morning. and in more given have competitors - who just you've was wondering on just disarray? be you able

to control at this just keeping given point situation. the - with expenses We've current No. trying - really

of this and overall people our plan integration new for lot there we're reduction to cost out due programs looking a actively not as our we're at continuing So point, well.

your your if I so was typical all. more change - hands that could process wondering social sales was kind And affected how at of distancing you sales on?

it's - It's really a to keep obviously ways That's with a customers different in in good times. forced at contact us question.

a facility. customer's So cannot go we sometimes into

in we're a times, still our facility. For customer's

us And kind And even people started, of the there. have shift. point want so were we're - day at closed will kind of different But some real still example, see COVID-XX during or state every customers - listening maybe definitely we are Wuhan, have number the this of a there we And our in and facilities. kind they're not time. For places is people, a customers' to period, customers at of there a actually that we're our different time - customers down. There permitted.

in with and - And having you've the ways. can way. between with and people our them for customers SaaS But various we the got focused meetings do different things in touch a of begun stay the to other teams discussions

margins then, finally, Okay. QX? in higher costs the And will how affect inventories detrimental

to hard It's number - that. to on it's hard exact really give an

If of upon dependent our you XX%-XX% our say to and range that, margins how that volumes then XX% our you course operating see gross range. of let's have XX% margins kind more in are going to are be, in

say. kind halfway of between So somewhere in generally it's would in that, I

of be how or pretty that's or One final it's The in I'm all Have going what XXXX Okay, QX. sorry. question. an little was a rate to lower tax helpful. given for outlook even you [indiscernible]?

looking saying is one-time type Yes, charges and a of Dan. excluding between at this What were tax tax - we're any XX%. adjustments year that rate XX% and

Okay.

Sorry.

Portfolio.

have may missed All that. right, very I you much. thank

Yes.

is proceed. question from with Tanwanteng Securities. next CJS Our Jon Please

Brendan Hi, good is morning. Jon. This for a [ph] on

competitors opportunity? wanted this but pressures, in quickly you actually guys just prepared smart seeing an what see - the Or competitors larger base, competitively? comments some - give traps gaining you on very is about or you touched are quickly in obviously, you to smaller going and how competitors do with to about share. difference cash everything you I be ask going already and to between real are pressures the your on your in So Do there

really don't we'll this because of not larger these - - in very because too size and I this we're and businesses especially, portfolio, flow because competitively differently businesses. the So, of it of this the from COVID-XX event, event, think in share cash be are event. small generating continue kind of synergies and good at with much stage, company generally but successful of the breadth that our so combined and I cross-selling pretty take product versus our that to we just have, think do kind

way. a and combination our the at we're natural get increase a scale that we But with competitive us share of we'll do give lot don't and this doing just point. necessarily that competitors everything think we see differentiation, and our will hurting So competitive of

there That of makes forward? how as how looking at a you Boeing how aerospace commentary keep - seem again? talked has and hit. back this just that ramping Boeing long And percent some - about out. travel for your much ramp damping sense. in seems can't morning and it And X% down you but about think given, that even with again then margin everything how of pushed kind I And Can might take up in think about aerospace that expectations the reiterate just is getting of the from going revenue - air

Yes, quarter I kind the had mean in you see impact could year. of that first this of the

increase with year, that been impact impacts of that's to we've we this way haven't I now, internal in estimates. let's they expect it XXX lower any half shared the expect would that taken we into do MAXs. in not levels we're see continue. second say But year production of expected did will projecting half those the given the They second the down in haven't really think And we specific And some the the we But because December. something. kind to of producing year, than be We X%. that guidance. right coming back our

forecast to already have building of we that very a much So XXX any adjusted projected MAX. of that for builds in the kind coming is we've muted in amount numbers kind of

reduction? XXXX additional cost reduction to lastly, top versus would of of temporary savings your that any synergies like and - And be and generate a Okay. much how expected are fixed on cost

Sure.

anything a - question. we've So good it's really

and perspective are I think those quoted anything structural our nature. synergies, integration of have in savings we increasing from cost a

reduce others lot our In that forth to so basis, and of kind of cuts expenses from on other I for it's - T&E furloughs. furloughs, cost addition, side taking a pay structure we actions mentioned temporary are a

on guidance you estimates. see integration what nature. - So And our - don't the but we built amount in structural in we're that's haven't that anything is into giving we is, but not - have

million example, that from projection additional is $XX going projecting, million we're $XX - structural this for $XX So those million that nature. year to in million original $XX increases

along additional Some of due found to we way. it the is things

raw in. finding taking synergies projected in summer of situation we're type we're to additional due that of had current the more example, material we're because originally actions For than we COVID-XX

you. thank Great,

Thank you.

from is Mike Harrison Global question next Please Seaport Our Securities. with proceed.

Hi, good morning.

morning, Good Mike.

purchases was talk QX. going raw relief wondering like happened that sounds some more pace QX there It the was be if it think of your see second we you that demand Or the Where benefit I we've margin a benefits. of there more that of becomes are maybe to and in half expected Is - decline Mike, with driver. material crude? lower could should because now seen depressed about through? in right coming that about in comes some we

Sure. going on lot Yes, there is raw in a materials.

of integration mentioned, ongoing expecting originally as than the projected. kind an we had raw basis have just due savings more So, to I on are material to we

go a So way. raw throughout starting through we're an the you material we and that effects effects expect the of the that far. at do that costs. of been be But our a materials And in there pricing it's eventually because and is anything seen - not as material, that benefit to see crude, temporarily, just decline going so because that's lag And it benefit come to aspect. in between to year. prices our it's That haven't of one other lot this will year. But mentioned raw anyway but the generally of that material general be you these we've added in have really we raw costs adjust, then point. Like and we that's could - all seen now, a lower

period a for potential could that So a be time. of benefit

effect together, the that down we mentioned kind are than there that a we've then but the also some still sure. had on overall of you a savings effect more That's put year. be and - savings third that that is other When all expect then we And that, for cost seen. that's we to than this negative volumes our expected of

the managing downturn impact of customer the some actions performance where you region? some though in that operating playbook rates sure about it, business took COVID in And Asia Pacific And from the terms how preserve that fourth the you a you're and bit Got whole really of lot extent to is you the for I'm in talk showed quarter, the of in quite related were Asia-Pacific that were you that in it. margin Can didn't other got to a deviate regions? providing lower. in that margin a then, even

parts thing - really would products China, - of happened think our But experiencing facility I allowed now one world period while. a down were in we're is that's we that, were one time. thing we a say I question. in that that now in to of for different. for different we insightful produce took a China, was China The that the in

of rest savings the So We're shutdown world first we're the we plant of quarter. - in having in that running. up time, of helpful else and of - kind course overall was in have the everywhere since our margins China that the and

and volumes would and due - we did our So material see in COVID. impacts I in to certainly say, China

we're we seeing statement, I volumes. think a are, general rebound nicely to in their But starting as China just

So, hopefully far of rest that consistent in so be we're the But what looks positive. seeing world. with China the will

are that are then, you probably business. still just All right. is customers now metal about have hard. primary where metals there your the an that steel running We're in question some And I had environment fairly last

at them as of bit by operating such of some rate a shut being is little resilient base revenues that there Some may a the underlying rate running or we component a wherever than sales is? it your down. I'm your customer? to up production think more end of your customers' driven Or rate is rates them production to being Should sense your some are about how your reduced be just trying get of XXX% and move? sales

Yes, the I rule say it exact production. bit kind kind to example the production just and of proportional like, it's automotive. to of a guess thumb, for because because matter I this the what where correlated of There think has a we've mean little But of can bit little impacted, a you've I not part, it, of things it simple But I their more been of And same of I most it to that. more be production. think cutback for no kind business as - is, be the might directly general been with our that primary metals was. reasons definitely versus that been stated definitely extent of in other maybe this it's would impacted it's is

All very right. much. Thanks

Mike. Thanks,

have We the of session. I our would end management reached over to to the back turn conference like question-and-answer for closing comments.

Okay.

Given our other today. will want questions, there now. of And all no your are for we thank end to conference I call you interest

to Our the Mary Houghton. the next August. quarter any you myself. in meantime, interest if in for next call free be Quaker questions your Thanks for again conference or will in please feel early have And contact

conference. conclude does today's This you. Thank

for your time. this You may disconnect thank your participation. at you lines And