QUAKER CHEMICAL CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . As used in this Report, the terms “Quaker Houghton,” the “Company ,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. The term Legacy Quaker refers to the Company prior to the closing of its combination with Houghton International, Inc. in 2019 (“Houghton”) (herein referred to as the “Combination”). Executive Summary Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best- in-class technology, deep process knowledge, and customized services. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S. Overall, the Company’s first quarter of 2022 performance reflected continued progress navigating through a very challenging economic environment, including significant raw material cost escalation, supply chain and logistics disruptions and the direct, indirect and global impacts of the war in Ukraine and other global events that presented headwinds to the Company in the first quarter of 2022. Net sales in the first quarter of 2022 were $474.2 million, an increase of 10% compared to $429.8 million in the first quarter of 2021, primarily driven by an increase in selling price and product mix of approximately 17% and additional net sales from acquisitions of 2%, partially offset by a decline in organic sales volume of 6% and the unfavorable impact from foreign currency translation of 3%. The increase in selling price and product mix is primarily the result of continued and strategic price increases implemented to help offset the unprecedented increase in raw material costs as well as global supply chain and logistics and labor cost pressures that began during 2021 and continued through the first quarter of 2022. The decline in organic sales volumes was primarily attributable to the comparison to a very strong first quarter of 2021, where customers replenished their supply chains due to the continued economic recovery from COVID-19, the impact of lower volumes related to the tolling agreement for previously divested products associated with the Combination and lower sales volumes attributable to the war in Ukraine. The Company’s organic sales volumes increased approximately 3% sequentially compared to the fourth quarter of 2021, as continued new business wins were partially offset by the Company’s actions to strategically reduce volumes in accordance with its ongoing value -based pricing initiatives. The Company generated net income in the first quarter of 2022 of $19.8 million, or $1.11 per diluted share, compared to a first quarter of 2021 net income of $38.6 million, or $2.15 per diluted share. Excluding non-recurring and non-core items in each period, the Company’s first quarter of 2022 non-GAAP earnings per diluted share were $1.42 compared to $2.11 in the prior year first quarter and the Company’s current quarter adjusted EBITDA of $60.4 million decreased 22% compared to $77.1 million in the first quarter of 2021. These results were primarily driven by lower gross margins in the current quarter due to significantly higher raw material and other input costs as well as the direct and indirect impacts of global supply chain disruptions, and to a lesser extent, by higher selling, general and administrative expenses (“SG&A”). Sequentially, the Company’s adjusted EBITDA was relatively flat compared to the fourth quarter of 2021. See the Non-GAAP Measures section of this Item below, as well as other items discussed in the Company’s Consolidated Operations Review in the Operations section of this Item, below. The Company’s first quarter of 2022 operating performance in each of its four reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty Businesses, reflect similar drivers to that of its consolidated performance as each of the Company’s reportable segments net sales benefitted from double-digit increases in selling price and product mix and additional net sales from acquisitions, while most segments were partially offset by lower sales volumes and the unfavorable impact of foreign currency translation. Operating earnings from the Global Specialty Businesses increased compared to the prior year quarter whereas operating earnings from the Americas, Asia/Pacific, and EMEA segments declined. This was a result of lower segment gross margins which were unfavorably impacted by the lag in price capture compared to the continued cost pressures on our raw materials, global supply chain and logistics networks, and manufacturing, labor and other costs. Additional details of each segment’s operating performance are further discussed in the Company’s Reportable Segments Review, in the Operations section of this Item, below. The Company had a net operating cash outflow of $6.3 million in the first quarter of 2022 as compared to a net operating cash outflow of $12.6 million in the first quarter of 2021. Despite the net operating cash outflow in both periods, the increase in net operating cash flow quarter-over-quarter was primarily driven by a modest improvement in working capital compared to the prior year first quarter, notably by a lower outflow related to accounts receivable partially offset by an increase in inventory due to higher raw material costs and a build in certain inventory in response to global supply chain and logistics challenges. The key drivers of the Company’s operating cash flow and working capital are further discussed in the Company’s Liquidity and Capital Resources section of this Item, below. Quaker Chemical Corporation Management’s Discussion and Analysis 23 Overall, results in the first quarter of 2022 reflected the Company’s ability to continue to navigate through persistent raw material cost pressures, supply chain challenges including those impacting on semiconductors for the automotive end markets and the impacts of certain global economic events including the Russia conflict with Ukraine. Increases in net sales in all segments were primarily driven by an increase in selling price implemented to offset the ongoing and significant escalation of raw material costs and a favorable demand environment across most of the Company’s markets. However, raw material cost increases continued to outpace the Company’s broad-based pricing initiatives in the first quarter of 2022, and the Company’s margins and earnings reflect the significantly different cost environment in the first quarter of 2022 compared to the first quarter of 2021. The Company continues to implement further aggressive and strategic price increases and is actively managing its cost structure to mitigate the current and expected inflationary pressures. While significant uncertainty exists, notably due to pandemic-related restrictions in China and the ongoing war in Ukraine, the Company remains committed to advancing its customer intimate strategy, recovering its margins and investing in value enhancing initiatives to better position the Company to continue to deliver on its growth potential. Ongoing impact of COVID-19 The global outbreak of COVID-19 has negatively impacted all locations where the Company does business. Although the Company has now operated in this COVID-19 environment for two years, the full extent of the outbreak and related business impacts continue to remain uncertain and volatile, and therefore the full extent to which COVID-19 may impact the Company’s future results of operations or financial condition is uncertain. This outbreak has significantly disrupted the operations of the Company and those of its suppliers and customers and at times during the pandemic, the Company has experienced volume declines and lower net sales as compared to pre-COVID-19 levels. Management continues to monitor the impact that the COVID-19 pandemic is having on the Company, the overall specialty chemical industry and the economies and markets in which the Company operates. The prolonged pandemic and resurgences of the outbreak including as new variants continue to emerge, and continued restrictions on day-to-day life and business operations as well as increased border controls or closures and transportation disruptions may result in volume declines and lower net sales in future periods. To the extent that the Company’s customers and suppliers continue to be significantly and adversely impacted by COVID-19, this could reduce the availability, or result in delays, of materials or supplies to or from the Company, which in turn could significantly interrupt the Company’s business operations. Given this ongoing uncertainty, the Company cautions that its future results of operations could be significantly adversely impacted by COVID-19. While the circumstances have presented and are expected to continue to present challenges, and have necessitated additional time and resources to be deployed to sufficiently address the challenges brought on by the pandemic, at this time, management does not believe that COVID-19 has had a material impact on financial reporting processes, internal controls over financial reporting, or disclosure controls and procedures. The Company’s top priority, especially during this pandemic, is to protect the health and safety of its employees and customers, while working to ensure business continuity to meet customers’ needs. The Company has taken steps to protect the health and wellbeing of its people in affected areas through various actions, including enabling work at home where needed and practicable, and employing social distancing standards, implementing travel restrictions where applicable, enhancing onsite hygiene practices, and instituting visitation restrictions at the Company’s facilities. The Company has not and does not expect that it will incur material expenses implementing these health and safety policies. With the exception of its Shanghai-based operations, which have been and continue to be significantly impacted since late March 2022 due to government restrictions currently in place in that province of China, all of the Company’s more than 30 other production facilities worldwide are open and operating and are deemed as essential businesses in the jurisdictions where they are operating and the Company believes that to date it has been able to meet the needs of all its customers across the globe despite the current challenges. The Company continues to expect that the impacts from COVID-19 will gradually decline subject to the effective containment of the virus and its variants and successful distribution and acceptance of the available vaccines and treatments; however, the incidence of reported cases of COVID-19 or a variant in several geographies where the Company has significant operations remains high. Differing government responses to these reported cases continues to evolve and it therefore remains highly uncertain as to how long the global pandemic and related economic challenges will last in each of the jurisdictions where the Company does business and when our customers’ businesses will recover to pre-COVID-19 levels. As a result of the government-imposed quarantine and lockdown measures implemented at the end of March 2022, which are currently in effect, the Company’s Shanghai -based locations have been and continue to be significantly impacted as of the date of this Form 10-Q. The negative impact of these measures to operations and liquidity has and will be experienced during the second quarter of 2022, and the ultimate impact will depend on the duration of the quarantine and lockdown measures in effect. While the actions taken to date to protect our workforce, to continue to serve our customers with excellence and to conserve cash and reduce costs as applicable, have been effective thus far, further actions to respond to the pandemic and its effects may be necessary as conditions continue to evolve. Impact of Political Conflicts A significant portion of the Company’s revenues and earnings are generated by non-U.S. operations which subjects the Company to political and economic risks that could adversely affect the Company’s business, liquidity, financial position and results of operations. The existence of military conflicts, for example the Russian invasion of Ukraine, bring inherent risks such as the potential for supply chain disruptions, decreased trade activity and other consequences related to economic or other sanctions. The U.S. Quaker Chemical Corporation Management’s Discussion and Analysis 24 government and other nations have imposed significant restrictions on most companies’ ability to do business in Russia as a result of the military conflict between Russia and Ukraine. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geo-political instability and uncertainty could have a negative impact on the Company’s ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from these new challenges. The Company may also be the subject of increased cyber-attacks. The Company’s operations in the conflict areas including Russia, Ukraine and Belarus represent less than 2% of the Company’s consolidated net sales and less than 1% of the Company’s consolidated total assets. The Company’s primary exposure in the conflict area relates to outstanding customer accounts receivable. The Company is actively monitoring the outstanding receivables for collections and has recorded incremental allowance for doubtful accounts where warranted. The Company continues to review the facts and circumstances of its customers and the impact of the ongoing sanctions as they relate to its continued business with impacted customers and the collectability of outstanding accounts receivable. The Company also has and continues to monitor the impact of the volatility and uncertainty in the economic outlook as a result of the conflict with respect to the recoverability of its long-term and indefinite-lived assets, including assessing potential triggering events for impairment considerations related to intangible assets and goodwill. As of March 31, 2022, the Company concluded that the conflict and its current and projected impact to the Company did not represent a triggering event and the Company continues to monitor and evaluate the evolving situation. Liquidity and Capital Resources At March 31, 2022, the Company had cash and cash equivalents of $161.6 million. Total cash and cash equivalents was $165.2 million at December 31, 2021. The $3.6 million decrease in cash and cash equivalents was the net result of $18.2 million of cash used in investing activities and $6.3 million of cash used in operating activities partiall y offset by $20.6 million of cash provided by financing activities and a $0.3 million positive impact due to the effect of foreign currency translation. Net cash flows used in operating activities were $6.3 million in the first three months of 2022 compared to net cash flows used in operating activities of $12.6 million in the first three months of 2021. The increase in net operating cash flows of $6.3 million was primarily driven by a lower working capital outflow quarter-over-quarter, as the Company had a smaller increase in accounts receivable in the first quarter of 2022 due to changes in current quarter net sales, which was partially offset by a higher outflow from inventory due to increases in raw material costs and continued build of stock in response to global supply chain and logistics challenges and other recent global economic events. Also, in the first quarter of 2022, the Company received a $2.8 million dividend from the Company’s Korean joint venture, with no similar dividend received in the prior year period. Net cash flows used in investing activities were $18.2 million in the first three months of 2022 compared to $15.8 million in the first three months of 2021. This increase in cash outflows was a result of lower cash proceeds from the disposition of assets which included the sale of certain held-for-sale real property assets related to the Combination in the prior year period, and higher capital expenditures in the current year largely related to certain infrastructure and sustainability-related spending. These increases in cash used in investing activities were partially offset by lower cash payments related to acquisitions as a result of the level of acquisition activity in each year. Net cash flows provided by financing activities were $20.6 million in the first three months of 2022 compared to $13.0 million in the first three months of 2021. The increase in net cash flows was primarily related to an increase in borrowings in the current year under the Company’s credit facility as compared to the prior year. In addition, the Company paid $7.4 million of cash dividends during the first three months of 2022, a $0.4 million or 5% increase in cash dividends compared to the prior year. See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report. The Company’s primary credit facility (the “Credit Facility”) is comprised of a $400.0 million multicurrency revolver (the “Revolver”), a $600.0 million term loan (the “U.S. Term Loan”), each with the Company as borrower, and a $150.0 million (as of August 1, 2019) Euro equivalent term loan (the “Euro Term Loan” and together with the U.S. Term Loan”, the “Term Loans”) with Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a five year term maturing in August 2024. Subject to the consent of the administrative agent and certain other conditions, the Company may designate additional borrowers. The maximum amount available under the Credit Facility can be increased by up to $300.0 million at the Company’s request if there are lenders who agree to accept additional commitments and the Company has satisfied certain other conditions. Borrowings under the Credit Facility bear interest at a base rate plus an applicable margin based on the Company’s consolidated net leverage ratio. The weighted average interest rate incurred on the outstanding borrowings under the Credit Facility during both the first quarter of 2022 and as of March 31, 2022 was approximately 1.6%. In addition to paying interest on outstanding principal under the Credit Facility, the Company is required to pay a commitment fee ranging from 0.2% to 0.3% depending on the Company’s consolidated net leverage ratio to the lenders under the Revolver in respect of the unutilized commitments thereunder. Quaker Chemical Corporation Management’s Discussion and Analysis 25 The Credit Facility is subject to certain financial and other covenants. The Company’s initial consolidated net debt to consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit Facility. As of March 31, 2022, the consolidated net debt to consolidated adjusted EBITDA ratio may not exceed 3.75 to 1. The Company’s consolidated adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the term of the agreement. The Credit Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividends paid annually exceeds the greater of $50.0 million and 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount. As of March 31, 2022 and December 31, 2021, the Company was in compliance with all of the Credit Facility covenants. The Term Loans have quarterly principal amortization during their five year terms, with 5.0% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10.0% in years 4 and 5, with the remaining principal amount due at maturity. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and is secured by first priority liens on substantially all of the assets of the Company and the domestic subsidiary guarantors, subject to certain customary exclusions. The obligations of the Dutch borrower are guaranteed only by certain foreign subsidiaries on an unsecured basis. The Credit Facility required the Company to fix its variable interest rates on at least 20% of its total Term Loans. In order to satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in November 2019, the Company entered into $170.0 million notional amounts of three year interest rate swaps at a base rate of 1.64% plus an applicable margin as provided in the Credit Facility, based on the Company’s consolidated net leverage ratio. At the time the Company entered into the swaps, and as of March 31, 2022, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1%. The Company capitalized $23.7 million of certain third-party debt issuance costs in connection with executing the Credit Facility. Approximately $15.5 million of the capitalized costs were attributed to the Term Loans and recorded as a direct reduction of long- term debt on the Company’s Condensed Consolidated Balance Sheet. Approximately $8.3 million of the capitalized costs were attributed to the Revolver and recorded within other assets on the Company’s Condensed Consolidated Balance Sheet. These capitalized costs are being amortized into interest expense over the five year term of the Credit Facility. As of March 31, 2022, the Company had Credit Facility borrowings outstanding of $915.2 million. As of December 31, 2021, the Company had Credit Facility borrowings outstanding of $889.6 million. The Company has unused capacity under the Revolver of approximately $142 million, net of bank letters of credit of approximately $4 million, as of March 31, 2022. The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.7 million and $11.8 million as of March 31, 2022 and December 31, 2021, respectively. Total unused capacity under these arrangements as of March 31, 2022 was approximately $30 million. The Company’s total net debt as of March 31, 2022 was $765.3 million. The Company incurred $6.0 million of total Combination, integration and other acquisition-related expenses in the first quarter of 2022, which includes $2.0 million of other expenses related to an indemnification asset, described in the Non-GAAP Measures section of this Item below. Comparatively, in the first quarter of 2021, the Company incurred $0.8 million of total Combination, integration and other acquisition-related expenses, which was net of a $5.4 million gain on the sale of certain held-for-sale real property assets and also $0.4 million of accelerated depreciation. The Company had aggregate net cash outflows of approximately $8.3 million related to the Combination, integration and other acquisition-related expenses during the first three months of 2022 as compared to $8.7 million during the first three months of 2021. During the first quarter of 2022, the Company incurred $3.1 million of strategic planning and transformation expenses. The Company expects that these additional operating costs and associated cash flows, as well as higher capital expenditures related to strategic planning, process optimization and the next phase of the Company’s long-term integration to further optimize its footprint, processes and other functions will continue in 2022 and over the next several years. Quaker Houghton’s management approved, and the Company initiated, a global restructuring plan (the “QH Program”) in the third quarter of 2019 as part of its planned cost synergies associated with the Combination. The QH Program includes restructuring and associated severance costs to reduce total headcount by approximately 400 people globally and plans for the closure of certain manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program continues to depend on a number of factors and is subject to change; however, reductions in headcount and site closures have occurred, and the Company currently expects additional headcount reductions and site closures to occur throughout the year and estimates that the anticipated cost synergies realized under the QH Program will approximate one-times restructuring costs incurred. The Company made cash payments related to the settlement of restructuring liabilities under the QH Program during the first three months of 2022 of approximately $0.4 million compared to $3.0 million in the first three months of 2021. As of March 31, 2022, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $24.5 million. The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability. However, should the entire liability be paid, the amount of the payment may be reduced by up to $7.2 million as a result of offsetting benefits in other tax jurisdictions. Quaker Chemical Corporation Management’s Discussion and Analysis 26 In 2021, two of the Company’s locations suffered significant property damage as a result of flooding and fire. The Company maintains property insurance for all of its facilities globally. The Company, its insurance adjuster and insurance carrier are actively managing the remediation and restoration activities associated with both of these events and at this time the Company has concluded, based on all available information and discussions with its insurance adjuster and insurance carrier, that the losses incurred during 2021 were covered under the Company’s property insurance coverage, net of an aggregate deductible of $2.0 million. The Company has received payments from its insurers of $2.1 million and has recorded an insurance receivable associated with these events of $0.5 million as of March 31, 2022. See Note 18 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report. The Company believes that its existing cash, anticipated cash flows from operations and available additional liquidity will be sufficient to support its operating requirements and fund its business objectives for at least the next twelve months, including but not limited to, payments of dividends to shareholders, costs related to ongoing acquisition integration and optimization, pension plan contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the Company’s sustainability goals and other potential contingencies. The Company believes it has sufficient additional liquidity to support its operating requirements and fund its business obligations for the period beyond the next twelve months as well, including the aforementioned items which are expected to recur annually, as well as future principal payments on the Company’s Credit Facility, transition tax obligations and other long-term liabilities. The Company’s liquidity is affected by many factors, some based on normal operations of our business and others related to the impact of the pandemic and other global events on our business and on global economic conditions as well as industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the actual and projected demand for our products, specialty chemical industry conditions, competitive factors, and the condition of financial markets, among others. Non-GAAP Measures The information in this Form 10-Q filing includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non- GAAP earnings per diluted share. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding of the financial performance of the Company, are indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not considered indicative of future operating performance or not considered core to the Company’s operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP. The Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis. Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the “two-class share method.” The Company believes that non-GAAP net income and non- GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis. Quaker Chemical Corporation Management’s Discussion and Analysis 27 The following tables reconcile the Company’s non-GAAP financial measures (unaudited) to their most directly comparable GAAP (unaudited) financial measures (dollars in thousands, unless otherwise noted, except per share amounts): Non-GAAP Operating Income and Margin Reconciliations Three Months Ended March 31, 2022 2021 Operating income $ 29,403 $ 44,894 Combination, integration and other acquisition-related expenses (a) 4,053 6,230 Strategic planning and transformation expenses (b) 3,088 - Restructuring and related charges (c) 820 1,175 Fair value step up of acquired inventory sold (d) — 801 Executive transition costs (e) 539 504 Inactive subsidiary's non-operating litigation costs (f) 92 51 Customer insolvency costs (g) 1,166 — Non-GAAP operating income $ 39,161 $ 53,655 Non-GAAP operating margin (%) (n) 8.3% 12.5% EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations Three Months Ended March 31, 2022 2021 Net income attributable to Quaker Chemical Corporation $ 19,816 $ 38,615 Depreciation and amortization (a) (l) 20,727 22,448 Interest expense, net (a) 5,345 5,470 Taxes on income before equity in net income of associated companies (m) 2,866 10,689 EBITDA $ 48,754 $ 77,222 Equity loss (income) in a captive insurance company (h) 244 (3,080) Combination, integration and other acquisition-related expenses (a) 6,032 427 Strategic planning and transformation expenses (b) 3,088 — Restructuring and related charges (c) 820 1,175 Fair value step up of acquired inventory sold (d) — 801 Executive transition costs (e) 539 504 Inactive subsidiary's non-operating litigation costs (f) 92 51 Customer insolvency costs (g) 1,166 — Pension and postretirement benefit income, non-service components (i) (479) (124) Currency conversion impacts of hyper-inflationary economies (j) 188 172 Adjusted EBITDA $ 60,444 $ 77,148 Adjusted EBITDA margin (%) (n) 12.7% 18.0% Adjusted EBITDA $ 60,444 $ 77,148 Less: Depreciation and amortization - adjusted (a) 20,727 22,033 Less: Interest expense, net 5,345 5,470 Less: Taxes on income before equity in net income of associated companies - adjusted (k)(m) 8,902 11,739 Non-GAAP net income $ 25,470 $ 37,906 Quaker Chemical Corporation Management’s Discussion and Analysis 28 Non-GAAP Earnings per Diluted Share Reconciliations Three Months Ended March 31, 2022 2021 GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 1.11 $ 2.15 Equity loss (income) in a captive insurance company per diluted share (h) 0.01 (0.17) Combination, integration and other acquisition-related expenses per diluted share (a) 0.25 0.04 Strategic planning and transformation expenses per diluted share (b) 0.14 — Restructuring and related charges per diluted share (c) 0.03 0.05 Fair value step up of acquired inventory sold per diluted share (d) — 0.03 Executive transition costs per diluted share (e) 0.02 0.02 Inactive subsidiary's non-operating litigation costs per diluted share (f) 0.00 0.00 Customer insolvency costs per diluted share (g) 0.06 — Pension and postretirement benefit costs, non-service components per diluted share (i) (0.02) (0.00) Currency conversion impacts of hyper-inflationary economies per diluted share (j) 0.01 0.01 Impact of certain discrete tax items per diluted share (k) (0.19) (0.02) Non-GAAP earnings per diluted share (o) $ 1.42 $ 2.11 (a) Combination, integration and other acquisition-related expenses include certain legal, financial, and other advisory and consultant costs incurred in connection with integration activities including internal control readiness and remediation. These costs are not indicative of the future operating performance of the Company. Less than $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively, of these pre-tax costs were considered non-deductible for the purpose of determining the Company’s effective tax rate, and, therefore, taxes on income before equity in net income of associated companies - adjusted reflects the impact of these items. During the three months ended March 31, 2022, the Company recorded $2.0 million of other expense related to an indemnification asset. During the three months ended March 31, 2021, the Company recorded $0.4 million of accelerated depreciation related to certain of the Company’s facilities, which is included in the caption “Combination, integration and other acquisition-related expenses” in the reconciliation of operating income to non-GAAP operating income and included in the caption “Depreciation and amortization” in the reconciliation of net income attributable to the Company to EBITDA, but excluded from the caption “Depreciation and amortization – adjusted” in the reconciliation of adjusted EBITDA to non-GAAP net income attributable to the Company . During the three months ended March 31, 2021, the Company recorded a $5.4 million gain on the sale of certain held-for-sale real property assets related to the Combination which is included in the caption “Combination, integration and other acquisition-related expenses” in the reconciliation of GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation of net income attributable to Quaker Chemical Corporation to Adjusted EBITDA and Non-GAAP net income. (b) Strategic planning and transformation expenses include certain consultant and advisory expenses for the Company’s long-term strategic planning, as well as process optimization and the next phase of the Company’s long-term integration to further optimize its footprint, processes and other functions. These costs are not indicative of the future operating performance of the Company. (c) Restructuring and related charges represent the costs incurred by the Company associated with the QH restructuring program which was initiated in the third quarter of 2019 as part of the Company’s plan to realize cost synergies associated with the Combination. These costs are not indicative of the future operating performance of the Company. See Note 7 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report. (d) Fair value step up of acquired inventory sold relates to expense associated with selling inventory from acquired businesses which was adjusted to fair value as part of purchase accounting. These increases in costs of goods sold (“COGS”) are not indicative of the future operating performance of the Company. (e) Executive transition costs represent the costs related to the Company’s search, hiring and transition to a new CEO in connection with the executive transition that took place in 2021 as well as the on-going search for a new Chief Human Resources Officer during the first quarter of 2022. These expenses are not indicative of the future operating performance of the Company. (f) Inactive subsidiary’s non -operating litigation costs represent the charges incurred by an inactive subsidiary of the Company and are a result of the termination of restrictions on insurance settlement reserves . These charges are not indicative of the future operating performance of the Company. Quaker Chemical Corporation Management’s Discussion and Analysis 29 (g) Customer insolvency costs represent the costs associated with a specific reserve or changes to existing reserves for trade accounts receivable within the Company’s EMEA reportable segment related to certain customers who filed for bankruptcy protection as well as costs related to specific reserves recorded for certain customer accounts receivables which have been directly impacted by the current economic conflict between Russia and Ukraine. These expenses are not indicative of the future operating performance of the Company. (h) Equity loss (income) in a captive insurance company represents the after-tax (loss) income attributable to the Company’s interest in Primex, Ltd. (“Primex”), a captive insurance company. The Company holds a 32% investment in and has significant influence over Primex, and therefore accounts for this interest under the equity method of accounting. The loss (income) attributable to Primex is not indicative of the future operating performance of the Company and is not considered core to the Company’s operations. (i) Pension and postretirement benefit income, non-service components represent the pre-tax, non-service component of the Company’s pension and postretirement net periodic benefit income in each period. These costs are not indicative of the future operating performance of the Company. See Note 9 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report. (j) Currency conversion impacts of hyper-inflationary economies represents the foreign currency remeasurement impacts associated with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S. GAAP. During both the three months ended March 31, 2022 and 2021, the Company incurred non-deductible, pre-tax charges related to the Company’s Argentine affiliates. The charges incurred related to the immediate recognition of foreign currency remeasurement in the Consolidated Statements of Income associated with these entities are not indicative of the future operating performance of the Company. See Note 1 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report. (k) The impacts of certain discrete tax items include changes in valuation allowances recorded on certain Brazilian branch foreign tax credits and the recording of deferred taxes on Brazilian branch income. Both of these discrete items related to a result of tax law changes in the U.S. due to the issuance of final foreign tax credit regulations during the period. Additionally, the Company has discrete items related to the release of the reserves for uncertain tax positions settled during the quarter and certain taxes, penalties, and interest due as a result of the settlements. See Note 11 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report. (l) Depreciation and amortization for the three months ended March 31, 2022 and 2021 each included $0.3 million of amortization expense recorded within equity in net income of associated companies in the Company’s Condensed Consolidated Statement of Income, which is attributable to the amortization of the fair value step up for the Company’s 50% interest in a Houghton joint venture in Korea as a result of required purchase accounting. (m) Taxes on income before equity in net income of associated companies – adjusted presents the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of net income attributable to Quaker Chemical Corporation to adjusted EBITDA, and was determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility. Combination, integration and other acquisition-related expenses described in (a) resulted in incremental taxes of $1.4 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively. Strategic planning and transformation expenses describes in (b) above resulted in incremental taxes of $0.7 million during the three months ended March 31, 2022. Restructuring and related charges described in (c) resulted in incremental taxes of $0.2 million during each of the three months ended March 31, 2022 and 2021. Fair value step up of acquired inventory sold described in (d) resulted in incremental taxes of $0.2 million during the three months ending March 31, 2021. Executive transition expenses described in (e) resulted in incremental taxes of $0.1 million during each of the three months ended March 31, 2022 and 2021. Inactive subsidiary non-operating litigation costs described in (f) resulted in incremental taxes of less than $0.1 million for each of the three months ended March 31, 2022 and 2021. Customer insolvency costs described in (g) resulted in incremental taxes of $0.3 million during the three months ended March 31, 2022. Pension and postretirement benefit income, non-service components described in (i) resulted in a tax benefit of $0.1 million and less than $0.1 million for the three months ended March 31, 2022 and 2021, respectively. The impact of certain discrete items described in (k) resulted in a tax benefit of $3.4 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively. (n) The Company calculates adjusted EBITDA margin and non-GAAP operating margin as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales. (o) The Company calculates non-GAAP earnings per diluted share as non -GAAP net income attributable to the Company per weighted average diluted shares outstanding using the “two-class share method” to calculate such in each given period. Quaker Chemical Corporation Management’s Discussion and Analysis 30 Off-Balance Sheet Arrangements The Company had no material off-balance sheet commitments or obligations as of March 31, 2022. The Company’s only off- balance sheet items outstanding as of March 31, 2022 represented approximately $6 million of total bank letters of credit and guarantees. The bank letters of credit and guarantees are not significant to the Company’s liquidity or capital resources. See Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report. Operations Consolidated Operations Review – Comparison of the First Quarter of 2022 with the First Quarter of 2021 Net sales were $474.2 million in the first quarter of 2022 compared to $429.8 million in the first quarter of 2021. The net sales increase of $44.4 million or 10% quarter-over-quarter reflects increases in selling price and product mix of approximately 17% and additional net sales from acquisitions of 2% partially offset by a decline in sales volume of approximately 6% and the unfavorable impact from foreign currency translation of 3%. The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021. The decline in sales volumes was primarily attributable to the comparison to a very strong first quarter of 2021, where customers replenished their supply chains, the impact of lower volumes related to the tolling agreement for previously divested products associated with the Combination and lower sales volumes attributable to the war in Ukraine. COGS were $328.1 million in the first quarter of 2022 compared to $273.6 million in the first quarter of 2021. The increase in COGS of $54.5 million or 20% was driven by the associated COGS on the increase in net sales described above as well as continued increases in the Company’s global raw material and supply chain and logistics costs compared to the prior year. Gross profit in the first quarter of 2022 decreased $10.1 million or 6% from the first quarter of 2021. The Company’s reported gross margin in the first quarter of 2022 was 30.8% compared to 36.3% in the first quarter of 2021. The Company’s current quarter gross margin reflects a significant increase in raw material and other input costs experienced throughout the first quarter of 2022 and the impacts of constraints on the global supply chain, partially offset by the Company’s ongoing value -based pricing initiatives. SG&A in the first quarter of 2022 increased $7.5 million or 7% compared to the first quarter of 2021 due primarily to the impact of sales increases on direct selling costs, inflationary impacts on higher operating costs, costs associated with strategic planning and transformation initiatives (see the Non-GAAP Measures section of this Item, above), and additional SG&A from recent acquisitions partially offset by lower SG&A due to foreign currency translation and lower incentive compensation compared to the prior year. In addition, SG&A was lower in the prior year period as a result of continued temporary cost saving measures the Company implemented in response to the onset of COVID-19. During the first quarter of 2022, the Company incurred $4.1 million of Combination, integration and other acquisition-related operating expenses primarily for professional fees related to the Houghton integration and other acquisition-related activities. Comparatively, the Company incurred $5.8 million of expenses in the prior year first quarter, primarily due to various professional fees related to legal, financial and other advisory and consultant expenses for integration activities including internal control readiness and remediation. See the Non-GAAP Measures section of this Item, above. The Company initiated a restructuring program during the third quarter of 2019 as part of its global plan to realize cost synergies associated with the Combination. The Company incurred Restructuring and related charges for reductions in headcount and site closures under this program, net of adjustments to initial estimates for severance of $0.8 million and $1.2 million during the first quarters of 2022 and 2021, respectively. See the Non-GAAP Measures section of this Item, above. Operating income in the first quarter of 2022 was $29.4 million compared to $44.9 million in the first quarter of 2021. Excluding non-recurring and non-core expenses that are not indicative of the future operating performance of the Company described in the Non- GAAP Measures section of this Item, above, the Company’s current quarter non-GAAP operating income decreased to $39.2 million compared to $53.7 million in the prior year first quarter primarily due to the lower gross profit described above. The Company had other expense, net, of $2.2 million in the first quarter of 2022 compared to other income, net of $4.7 million in the first quarter of 2021. The first quarter of 2022 includes other expenses related to the impact of certain adjustment to the Company’s indemnification receivables, while the prior year first quarter other income includes a gain on the sale of certain held-for- sale real property assets. See the Non-GAAP Measures section of this Item, above. Interest expense, net, decreased $0.1 million compared to the first quarter of 2021, due to a slight decrease in the average borrowings outstanding in the first quarter of 2022 compared to the first quarter of 2021 on relatively consistent interest rates during both the first quarter of 2022 and 2021. The Company’s effective tax rates for the first quarters of 2022 and 2021 were 13.1% and 24.2%, respectively. The Company’s effective tax rate for the three months ended March 31, 2022 was largely driven by changes in the valuation allowance for foreign tax credits due to recently issued legislative guidance and impacts due to settlements reached on certain tax audits. Comparatively, the prior year first quarter effective tax rate was impacted by the sale of a subsidiary which included certain held-for-sale real property Quaker Chemical Corporation Management’s Discussion and Analysis 31 assets related to the Combination. Excluding the impact of these items as well as all other non-core items in each quarter, described in the Non-GAAP Measures section of this Item, above, the Company estimates that its effective tax rates for the first quarter of 2022 and 2021 would have been approximately 27% and 25%, respectively. The Company incurred higher tax expense during the three months ended March 31, 2022 primarily related to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% while it awaits recertification of a concessionary 15% tax rate, which was available to the Company during all of 2021. The Company expects continued volatility in its effective tax rates due to several factors, including the timing and scope of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of the timing and amount of certain incentives in various tax jurisdictions, the treatment of certain acquisition-related costs and the timing and amount of certain share-based compensation-related tax benefits, among other factors. Equity in net income of associated companies decreased $4.4 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to lower current year income from the Company’s interest in a captive insurance company and from the Company’s 50% interest in a joint venture in Korea. See the Non-GAAP Measures section of this Item, above. Net income attributable to noncontrolling interest was less than $0.1 million in both the first quarters of 2022 and 2021. Foreign exchange unfavorably impacted the Company’s first quarter of 2022 results by approximately 4% driven by the impact from foreign currency translation on earnings as well as higher foreign exchange transaction losses in the current quarter as compared to the prior year first quarter. Reportable Segments Review - Comparison of the First Quarter of 2022 with the First Quarter of 2021 The Company’s reportable segments reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker of the Company assesses its performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for the Company’s reportable segments are comprised of net sales less COGS and SG&A directly related to the respective segment’s product sales. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, Restructuring and related charges, and COGS related to acquired inventory sold, which is adjusted to fair value as part of purchase accounting, are not included in segment operating earnings. Other items not specifically identified with the Company’s reportable segments include interest expense, net, and other (expense) income, net. Americas Americas represented approximately 33% of the Company’s consolidated net sales in the first quarter of 2022. The segment’s net sales were $154.1 million, an increase of $19.3 million or 14% compared to the first quarter of 2021. The increase in net sales was due to higher selling price and product mix of 22% and additional net sales from acquisitions of 2% partially offset by decreases in organic sales volumes of 10%. The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and have continued in 2022. The current quarter decline in organic sales volume was largely driven by the impact of lower volumes related to the tolling agreement for previously divested products associated with the Combination and the prior year period comparison, which included a strong rebound from COVID-19 impacts. This segment’s operating earnings were $29.2 million, a decrease of $3.0 million or 9% compared to the first quarter of 2021. The decrease in segment operating earnings was primarily a result of lower gross margins driven by the lag in price increases as compared to continued raw material cost increases and global supply chain and logistics pressures, as well as higher SG&A including an increase in direct selling costs, SG&A from acquisitions and year-over-year inflationary increases . EMEA EMEA represented approximately 26% of the Company’s consolidated net sales in the first quarter of 2022. The segment’s net sales were $125.7 million, an increase of $5.9 million or 5% compared to the first quarter of 2021. The increase in net sales was due to higher selling price and product mix of 18% and additional net sales from acquisitions of 2%, partially offset by the unfavorable impact of foreign currency translation of 9% and a decrease in organic sales volumes of 6%. The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and have continued in 2022. The current quarter organic volume decline was primarily driven by the current economic pressures including the direct and indirect impacts of the Russia-Ukraine conflict and the impact of economic and other sanctions by other nations on Russia as well as the prior year period comparison including a strong rebound from COVID-19 impacts. The foreign exchange impact was primarily due to the weakening of the euro against the U.S. dollar as this exchange rate averaged 1.12 in the first quarter of 2022 compared to 1.21 in the first quarter of 2021. This segment’s operating earnings were $16.8 million, a decrease of $8.5 million or 34% compared to the first quarter of 2021. The decrease in segment operating earnings was primarily a Quaker Chemical Corporation Management’s Discussion and Analysis 32 result of lower gross margins driven by the lag in price increases as compared to continued raw material cost increases and global supply chain and logistics pressures, coupled with higher SG&A including an increase in direct selling costs, SG&A from acquisitions and year-over-year inflationary increases . Asia/Pacific Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in the first quarter of 2022. The segment’s net sales were $104.2 million, an increase of $7.5 million or 8% compared to the first quarter of 2021. The increase in net sales was driven by higher selling price and product mix of 12% partially offset by lower organic sales volumes of 4%. The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and continued throughout the first quarter of 2022. The current quarter decline in organic sales volume was primarily driven by lower activity primarily in China related to government mandates regarding the current year Olympics as well as country restrictions over power and export related activity compared to a very favorable demand environment in the prior year period. This segment’s operating earnings were $21.9 million, a decrease of $5.6 million or 20% compared to the first quarter of 2021. The decrease in segment operating earnings was primarily a result of lower gross margins driven by the lag in price increases as compared to continued raw material cost increases and global supply chain and logistics pressures, coupled with higher SG&A including an increase in direct selling costs and year-over-year inflationary increases. Global Specialty Businesses Global Specialty Businesses represented approximately 19% of the Company’s consolidated net sales in the first quarter of 2022. The segment’s net sales were $90.1 million, an increase of $11.7 million or 15% compared to the first quarter of 2021. The increase in net sales was driven by higher selling price and product mix of 10%, including Norman Hay, additional net sales from acquisitions of 4% and an increase in organic sales volumes of 2%, partially offset by the unfavorable impact from foreign currency transaction of approximately 1%. The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and continued throughout the first quarter of 2022. The increase in organic sales volumes was primarily attributable to a favorable demand environment for our products. The foreign exchange impact was primarily due to the weakening of the euro against the U.S. dollar described in the EMEA section above. This segment’s operating earnings were $25.0 million, an increase of $0.9 million or 4% compared to the first quarter of 2021. The increase in segment operating earnings reflects the aforementioned higher net sales partially offset by slightly lower gross margins in the current year coupled with higher SG&A, including an increase in direct selling costs, SG&A from acquisitions and year-over-year inflationary increases. Factors That May Affect Our Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995) Certain information included in this Report and other materials filed or to be filed by Quaker Chemical Corporation with the SEC, as well as information included in oral statements or other written statements made or to be made by us, contain or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements, including statements regarding the potential effects of the COVID-19 pandemic and global supply chain constraints on the Company’s business, results of operations, and financial condition, our expectation that we will maintain sufficient liquidity and remediate any of our material weaknesses in internal control over financial reporting, and statements regarding the impact of increased raw material costs and pricing initiatives on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including: • the potential benefits of the Combination and other acquisitions; • the impacts on our business as a result of the COVID-19 pandemic; • the timing and extent of the projected impacts on our business as a result of the Ukrainian and Russian conflict; • cost increases in prices of raw materials and the impacts of constraints and disruptions in the global supply chain; • our current and future results and plans including our sustainability goals; and • statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions. Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources. From time to time, forward-looking statements are also included in the Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases, and other materials released to, or statements made to, the public. Quaker Chemical Corporation Management’s Discussion and Analysis 33 Any or all of the forward-looking statements in this Report, in the Company’s Annual Report to Shareholders for 2021 and in any other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Report will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in the Company’s subsequent reports on Forms 10-K, 10-Q, 8-K and other related filings should be consulted. A major risk is that demand for the Company’s products and services is largely derived from the demand for our customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production slowdowns and shutdowns, including as is currently being experienced by many automotive industry companies as a result of supply chain disruption. Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID-19 pandemic, including actions taken in response to the pandemic by various governments, which could exacerbate some or all of the other risks and uncertainties faced by the Company, as well as the potential for significant increases in raw material costs, supply chain disruptions, customer financial instability, worldwide economic and political disruptions including the impacts of the military conflict between Russia and Ukraine, the economic and other sanctions imposed by other nations on Russia, suspensions of activities in Russia by many multinational companies and the potential expansion of military activity, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automobile, aircraft, industrial equipment, and durable goods industries. The ultimate impact of COVID-19 on our business will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus including new variants, the continued uncertainty regarding global availability, administration, acceptance and long-term efficacy of vaccines, or other treatments for COVID-19 or its variants, the longer-term effects on the economy of the pandemic, including the resulting market volatility, and by the measures taken by governmental authorities and other third parties restricting day-to-day life and business operations and the length of time that such measures remain in place, as well as laws and other governmental programs implemented to address the pandemic or assist impacted businesses, such as fiscal stimulus and other legislation designed to deliver monetary aid and other relief. Other factors could also adversely affect us, including those related to acquisitions and the integration of acquired businesses. Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results. Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to the Risk Factors section, which appears in Item 1A in our 2021 Form 10-K and in our quarterly and other reports filed from time to time with the SEC. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. Quaker Houghton on the Internet Financial results, news and other information about Quaker Houghton can be accessed from the Company’s website at https://www.quakerhoughton.com . This site includes important information on the Company’s locations, products and services, financial reports, news releases and career opportunities. The Company’s periodic and current reports on Forms 10-K, 10-Q, 8-K, and other filings, including exhibits and supplemental schedules filed therewith, and amendments to those reports, filed with the SEC are available on the Company’s website, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information contained on, or that may be accessed through, the Company’s website is not incorporated by reference in this Report and, accordingly, you should not consider that information part of this Report. 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk. We have evaluated the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2021, and we believe there has been no material change to that information. 35