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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 285 added, 1713 removed, 49 unchanged (98% of the section changed)

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.

“Combination” refers to the legacy Quaker combination with Houghton

International, Inc.

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 the “Combination” refers to the legacy Quaker combination with Houghton International, Inc.

(“Houghton”) on August 1, 2019.

1 unchanged sentence

Quaker Houghton is the global leader in industrial process fluids.

With a presence around the world, including operations

25 countries, our customers include thousands of the world’s

most advanced and specialized steel, aluminum, automotive, aerospace,

offshore, container, mining,

and metalworking companies.

Our high-performing, innovative and sustainable solutions are backed

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 delivered solid results in the third quarter of 2022

despite continued and persistent financial, economic and

geopolitical headwinds, including ongoing raw material cost escalation

and overall inflationary pressures, supply chain and logistics

challenges, the direct and indirect impacts of the ongoing war in Ukraine, Zero-COVID

policies in China, and foreign currency

Notwithstanding these challenges, net sales in the third quarter of 2022

were $492.2 million, an increase of 10% compared

to $449.1 million in the third quarter of 2021.

This was primarily driven by an increase in selling price and product mix of

approximately 25% and additional net sales from acquisitions of 1%, partially

offset by a decline in organic sales volumes of 9% and

an unfavorable impact from foreign currency translation of 7%.

The increase in selling price and product mix was primarily the result

of strategic price increases implemented to offset the

ongoing inflationary pressures that began at the onset of 2021 and have escalated

throughout 2021 and into the first nine months of 2022.

The decline in organic sales volumes was primarily attributable to

market conditions, particularly in Europe and Asia/Pacific, the wind-down

of the tolling agreement for products previously divested

related to the Combination and the direct and indirect impacts of the ongoing

war in Ukraine.

The Company generated net income in the third quarter of 2022 of $25.9 million,

or $1.44 per diluted share, compared to net

income of $31.1 million, or $1.73 per diluted share in the third quarter

Excluding non-recurring items in each period, the

Company’s third quarter of 2022

non-GAAP earnings per diluted share were $1.74 compared to $1.63 in the prior

year quarter and the

Company’s current quarter

adjusted EBITDA was $70.3 million compared to $66.2 million in the third quarter

These results

were primarily driven by higher net sales in the current quarter coupled with

an improvement in gross margins compared to the prior

year quarter, partially offset

by the unfavorable impact of foreign currency translation and higher selling,

general and administrative

expenses (“SG&A”) as a result of significant year-over-year

inflationary pressures.

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,

The Company’s third quarter

of 2022 operating performance in each of its four reportable segments:

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, container, 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.

Despite continued economic and geopolitical headwinds, the Company delivered a strong first quarter of 2023 performance.

Net sales in the first quarter of 2023 were a record $500.1 million, an increase of 5% compared to $474.2 million in the first quarter of 2022.

This was primarily driven by an increase in selling price and product mix of approximately 19%, partially offset by a decline in organic sales volumes of 11% and an unfavorable impact from foreign currency translation of 3%.

The increase in selling price and product mix was primarily the result of value-based pricing initiatives implemented throughout 2022 to offset ongoing inflationary pressures.

The decline in organic sales volumes was primarily attributable to softer end market conditions, notably in EMEA and Asia/Pacific, the impact of the ongoing war in Ukraine, the wind-down of the tolling agreement for products previously divested related to the Combination and the Company’s ongoing value-based pricing initiatives, partially offset by new business wins .

The Company generated net income in the first quarter of 2023 of $29.5 million, or $1.64 per diluted share, compared to net income of $19.8 million, or $1.11 per diluted share in the first quarter of 2022.

Excluding non-recurring and non-core items in each period, the Company’s first quarter of 2023 non-GAAP earnings per diluted share were $1.89 compared to $1.42 in the prior year quarter and the Company’s current quarter adjusted EBITDA was $78.8 million compared to $60.4 million in the first quarter of 2022.

These results were primarily driven by the higher net sales in the current quarter, as described above, coupled with a recovery in gross margins compared to the prior year quarter, partially offset by higher selling, general and administrative expenses (“SG&A”) as a result of significant year-over-year inflationary pressures and higher labor-related costs.

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.

During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure.

The Company’s new structure includes three reportable segments:

(i) Americas;

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 year-over-year

increases in selling price and product mix, while those increases in net sales were

partially offset by the significant and unfavorable

impact of foreign currency translation.

All geographic segments had lower organic sales volumes, however

organic sales volumes for

the Global Speciality Businesses increased in the third quarter of

2022 compared to the prior year quarter due to continued end market

Operating earnings for the Global Specialty Businesses and Americas increased compared

to the prior year quarter, driven

by higher net sales and an improvement in margins.

Operating earnings for Asia/Pacific were relatively flat year-over-year

net sales were offset by an improvement in the segment’s

EMEA operating earnings declined compared to the prior year due

to the persistent and significant inflationary pressures on raw materials and

other costs and the negative impact of foreign currency

translation, partially offset by continued price

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 $26.3 million in the first nine

months of 2022 compared to net operating cash

flow of $2.5 million in the first nine months of 2021.

The net operating cash outflow year-over-year reflects lower year-to-date

operating performance in 2022 compared to 2021 as well as the continued

significant current year working capital investment

primarily related to higher accounts receivable due to the increase in net

sales, higher inventory due to higher raw material costs and

lower levels of accounts payable.

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

Overall, the Company delivered another quarter of strong net sales growth,

driven by strong price realization, both sequentially

and year-over-year.

Coupled with an improvement in gross margin, these factors contributed

to the Company’s current quarter

earnings growth despite the ongoing inflationary pressures, unfavorable

foreign currency translation, macroeconomic and geopolitical

challenges and other disruptions that impacted the Company’s

customers and end markets.

Looking at the remainder of 2022,

Company remains focused on executing on items within its control

as it manages through a continued uneven end market environment

and softer market conditions, primarily in Europe and Asia/Pacific.

The Company is encouraged by the resilience of its diversified

portfolio despite significant uncertainty caused by several macroeconomic

to expect to deliver further sequential

gross margin improvement in the fourth quarter

of 2022, as well as higher earnings in the second half of 2022 as compared to

half of 2022 and second half of 2021.

On-going impact of COVID-19

The global outbreak of COVID-19 in March of 2020 has negatively impacted

all locations where the Company does business.

Although the Company has now operated in this COVID-19 environment

for more than 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 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

prolonged pandemic and resurgences of the outbreak including

as new variants continue to emerge, and continued restrictions on

to-day life and business operations such as continuing restrictions in China,

as well as border controls or closures and transportation

may result in volume declines and lower net sales in future periods.

To the extent that the Company’s

customers and

suppliers are 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

and adversely impacted by COVID-19.

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 its financial reporting processes, internal

controls over financial reporting, or disclosure

controls and procedures.

The Company’s top priority

is to protect the health and safety of its employees and customers, while working to ensure business

continuity to meet customers’ needs.

During the pandemic, the Company has taken incremental 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

The Company has not and does not expect that it will incur material

expenses implementing these health and safety policies.

All of the Company’s more than 30 production

facilities worldwide are open

and operating and are deemed as essential businesses in the jurisdictions where

they are operating.

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;

the incidence of reported cases of COVID-19 or a

variant in several geographies where the Company has significant operations

remains relatively 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 conducts

business and when our customers’ businesses

will recover to pre-COVID-19 levels.

While the actions the Company has 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.

This subjects the Company

to political and economic risks that could adversely affect the Company’s

business, liquidity, financial

position and results of

The existence of military conflicts, for example the Russian invasion of Ukraine, bring

inherent risks such as the potential

for supply chain disruptions, increased costs of resources including oil, decreased

trade activity and other consequences related to

economic or other sanctions.

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.

conflict between Russia and Ukraine has had 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

restrictions including closures of air space.

If this conflict continues or expands, it could increase the costs, risks and adverse

from these new challenges.

The Company and its customers and suppliers may also be the subject of increased cyber-attacks.

(ii) Europe, Middle East and Africa (“EMEA”);

and (iii) Asia/Pacific.

The Company’s first quarter of 2023 operating performance in each of its three reportable segments reflect similar drivers to that of its consolidated performance.

Operating earnings for all segments increased compared to the prior year quarter, driven by higher net sales in the Americas and EMEA and an improvement in margins in all three segments.

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.

Net cash flows provided by operating activities were $37.8 million in the first three months of 2023 compared to net cash flows used in operating activities of $6.3 million in the first three months of 2022.

Th e net operating cash inflow year-over-year reflects higher operating performance in 2023 compared to 2022 as well as lower working capital investments year-over-year.

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.

Overall, the Company delivered a strong quarter including a record level of net sales, driven by strong price realization and a recovery in gross margin in the current period.

These factors contributed to the Company’s current quarter earnings growth despite ongoing inflationary pressures, macroeconomic and geopolitical challenges and other disruptions that impacted the Company’s customers and end markets.

Looking at the remainder of 2023, the Company remains focused on executing on items within its control as it manages through a continued uneven and uncertain macroeconomic and end market environment.

The Company is encouraged by its continued execution and the positive momentum of the first quarter of 2023 and continues to expect to deliver higher earnings in 2023 as compared to 2022.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in “Management’s Discussion and Analysis” and “Note 1 – Significant Accounting Policies” to the Consolidated Financial Statements in our 2022 Form 10-K.

There have been no material changes to the critical accounting policies and estimates previously disclosed in its 2022 Form 10-K remain materially consistent.

Quaker Chemical Corporation

Management’s Discussion and Analysis

During the second quarter of 2022, the Company decided to cease its operations

The Company’s operations in the

conflict areas including Russia, Ukraine and Belarus historically represented

less than 2% of the Company’s consolidated net

and less than 1% of the Company’s

consolidated total assets.

The Company’s primary exposure

in the conflict areas related to

outstanding customer accounts receivable.

The Company is actively monitoring its outstanding Russian receivables for collections

and has recorded incremental allowances

for doubtful accounts where warranted.

Recently Issued Accounting Standards

See Note 3 of Notes to Condensed Consolidated Financial Statements, in Part I, Item 1, of this Report for a discussion regarding recently issued accounting standards.

Liquidity and Capital Resources

At September 30, 2022, the Company had cash and cash equivalents of

$138.9 million.

Total cash and cash equivalents was

$165.2 million at December 31, 2021.

The $26.3 million decrease in cash and cash equivalents was the net result of

$46.6 million of

cash provided by financing activities offset by $26.3 million of

cash used in operating activities, $29.6

million of cash used in

investing activities and a $17.0 million negative impact due to the effect

of foreign currency translation.

Net cash flows used in operating activities were $26.3 million in the first nine

months of 2022 compared to net cash flows

provided by operating activities of $2.5 million in the first nine months

The decrease in net operating cash flow year-over-

year reflects lower first nine months of the year operating performance

in 2022 compared to 2021 as well as the continued significant

current year working capital investment primarily related to higher

accounts receivable due to the increase in net sales, higher

inventory due to an increase in costs and, to a lesser extent, a build in certain inventory

in response to global supply chain and logistics

challenges, as well as lower levels of accounts payable due to timing.

Net cash flows used in investing activities were $29.6 million in the

first nine months of 2022 compared to $30.1 million in the

first nine months of 2021.

The relatively consistent level of cash used in investing activities year-over-year

is the net 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,

partially offset by lower cash payments related to acquisitions as a result

of the level of acquisition

activity in each year.

As of March 31, 2023, we had cash and cash equivalents of $189.9 million.

Total cash and cash equivalents was $181.0 million as of December 31, 2022.

The $8.9 million increase in cash and cash equivalents was the net result of $37.8 million of cash provided by operating activities and a positive impact due to the effect of foreign currency translation of $2.2 million partially offset by $24.9 million of cash used in financing activities and $6.2 million of cash used in investing activities.

The increase in net operating cash flow year-over-year reflects higher year-over-year operating performance as well as lower levels of working capital investment in the current year, reflecting a more stable period as compared to the prior year and demonstrating the Company’s ongoing focus on cash conversion, including managing inventory levels.

Net cash flows used in investing activities were $6.2 million in the first three months of 2023 compared to $18.2 million in the first three months of 2022.

The lower level of cash used in investing activities year-over-year is the result of slightly lower capital expenditures in the current year and the absence of payments related to acquisitions.

See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.

Net cash flows provided by financing activities were $46.6 million in the first

nine months of 2022 compared to net cash flows

used in financing activities of $10.5 million in the first nine months

The increase in net cash flows was primarily related to a

larger increase in borrowings in the current year under

the Company’s credit facility,

which was amended and extended, as further

described below, in

the second quarter of 2022.

In addition, the Company paid $22.3 million of cash dividends during the first nine

months of 2022, a $1.1 million or 5% increase in cash dividends compared

to the prior year.

The Company, its wholly

owned subsidiary,

Quaker Chemical B.V.,

as borrowers, Bank of America, N.A., as administrative

Dollar swing line lender and letter of credit issuer,

and the other lenders party thereto, entered into a credit agreement on

August 1, 2019, as amended (the “Original Credit Facility”).

During June 2022, the

Company, and its wholly owned

Quaker Houghton B.V.,

as borrowers, Bank of America, N.A., as administrative agent, U.S.

line lender and letter of

credit issuer, Bank of America Europe

Designated Active Company,

as Euro Swing Line Lender, certain guarantors

and other lenders

entered into an amendment to the Original Credit Facility (the “Amended

Credit Facility”).

The Company used the proceeds of the

Amended Credit Facility to repay all outstanding loans under the Original

Credit Facility, as well as accrued interest

and fees, and to

terminate the revolving credit commitments under the Original Credit

The Company’s Amended Credit

Facility is comprised of a $500.0 million multicurrency revolver,

a $600.0 million term loan and

a $150.0 million (as of June 17, 2022) Euro equivalent term loan (collectively,

the “Amended Term Loans”)

with the Company and

Quaker Houghton B.V.,

as borrowers, each with a five-year term maturing in June 2027.

Subject to the consent of the Administrative

Agent and certain other

conditions, the Company may designate additional borrowers.

has the right to increase the

amount of the Amended Credit Facility by an aggregate amount not

to exceed the greater of (i) $300 million and (ii) 100% of

Consolidated EBITDA, subject to certain conditions, including

the agreement to provide financing by any Lender providing any such

Dollar-denominated borrowings

under the Amended Credit Facility bear interest, at the Company’s

election, at the base

rate or term Secured Overnight Financing Rate (“SOFR”) plus an applicable

rate ranging from 1.00% to 1.75% for term SOFR loans

and from 0.00% to 0.75% for base rate loans, depending upon the

Company’s consolidated net leverage

Loans based on term

SOFR also include a spread adjustment equal to 0.10% per annum.

Borrowings under the Amended Credit Facility denominated in

currencies other than U.S.

Dollars bear interest at the alternative currency

term rate plus the applicable rate ranging from 1.00% to

In addition to paying interest on outstanding principal under

the Amended Credit Facility, the Company

is required to pay a

commitment fee ranging from 0.15% to 0.275% depending on the

Company’s consolidated net leverage

ratio to the Lenders under the

Amended Revolver in respect of the unutilized commitments thereunder.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Amended Credit Facility contains affirmative

and negative covenants, financial covenants and events of default that are

customary for agreements of this nature.

The Amended Credit Facility contains a number of customary business covenants,

without limitation restrictions on (a) the incurrence of additional

indebtedness by the Company or certain of its subsidiaries, (b)

investments in and acquisitions of other businesses, lines of business and

divisions by the Company or certain of its subsidiaries, (c)

the payment of dividends or capital stock purchases by the Company

or certain of its subsidiaries and (d) dispositions

of assets by the

Company or certain of its subsidiaries.

Dividends and share repurchases are permitted in annual amounts

not exceeding the greater of

$75 million annually and 25% of Consolidated EBITDA if there is no default.

If the Company’s consolidated

net leverage ratio is less

than 2.50 to 1.00 then the Company is no longer subject to restricted payments

Financial covenants contained in the Amended Credit Facility include

a consolidated interest coverage ratio test and a

consolidated net leverage ratio test.

The consolidated net leverage ratio at the end of a quarter may not be

greater than 4.00 to 1.00,

subject to a permitted increase during a four quarter period after certain

acquisitions.

The Company has the option of replacing the

consolidated net leverage ratio test with a consolidated senior net leverage ratio

test if the Company issues certain types of unsecured

debt, subject to certain customary limitations.

Customary events of

default in the Amended Credit Facility include without limitation

defaults for non-payment, breach of representations and warranties, non

-performance of covenants, cross-defaults, insolvency,

change of control of the Company in certain circumstances.

The occurrence of an event of default under the Amended Credit Facility

could result in all loans and other obligations becoming immediately

due and payable and the Amended Credit Facility being

The Original Credit Facility required the Company to fix its variable interest

rates on at least 20% of its total Original Term

In order to satisfy this requirement as well as to manage the Company’s

exposure to variable interest rate risk associated with

the Original 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 Original Credit Facility, based

on the Company’s

consolidated net leverage ratio.

At the time the Company entered into the swaps, and as of September 30,

2022, the aggregate interest

rate on the swaps, including the fixed base rate plus an applicable margin,

In October 2022, the Company’s interest rate

swap contracts expired.

Upon expiration, the Company is entitled to a cash payment from the counterparties, which

is materially

consistent with the fair value as of September 30, 2022.

The Amended Credit Facility does not require the Company to fix variable

interest rates on any portion of its borrowings.

The Company previously capitalized $23.7 million of certain third-party

debt issuance costs in connection with the Original

Credit Facility.

Approximately $15.5 million of the capitalized costs were attributed

to the Original Term Loans and recorded

direct reduction of Long-term debt on the Condensed Consolidated

Balance Sheet.

Approximately $8.3 million of the capitalized

costs were attributed to the Original Revolver and recorded within Other

assets on the Condensed Consolidated Balance Sheet.

capitalized costs were being amortized into Interest expense over

the five-year term of the Original Credit Facility.

As of December

31, 2021, the Company had $8.0 million of debt issuance costs recorded

as a reduction of Long-term debt attributable to the Original

Credit Facility.

As of December 31, 2021, the Company had $4.3 million of debt issuance

costs recorded within Other assets

attributable to the Original Credit Facility.

Prior to executing the Amended Credit Facility,

the Company had $6.6 million of debt

issuance costs recorded as a reduction of Long-term debt attributable

to the Original Credit Facility and $3.5 million of debt issuance

costs recorded within Other assets attributable to the Original Credit Facility.

In connection with executing the Amended Credit

Facility, the Company

recorded a loss on extinguishment of debt of approximately $6.8 million which

includes the write-off of certain

previously unamortized deferred financing costs as well as a portion of

the third party and creditor debt issuance costs incurred to

execute the Amended Credit Facility.

Also in connection with executing the Amended Credit Facility,

during the third quarter of

2022, the Company capitalized $2.2 million of certain third-party

debt issuance costs.

Approximately $0.7 million of the capitalized

costs were attributed to the Amended Euro Term

Loan and Amended U.S.

These costs were recorded as a direct reduction

of Long-term debt on the Condensed Consolidated Balance Sheet.

Approximately $1.5 million of the capitalized costs were attributed

to the Amended Revolver and recorded within Other assets on the

Condensed Consolidated Balance Sheet.

These capitalized costs, as

well as the previously capitalized costs that were not written off

will collectively be amortized into Interest expense over the five-year

term of the Amended Credit Facility.

As of September 30, 2022, the Company had $2.1 million of debt issuance costs recorded

reduction of Long-term debt on the Condensed Consolidated Balance Sheet

and $4.6 million of debt issuance costs recorded within

Other assets on the Condensed Consolidated Balance Sheet.

As of September 30, 2022, the Company had Amended Credit Facility borrowings

outstanding of $941.2 million.

December 31, 2021, the Company had Original Credit Facility borrowings

outstanding of $889.6 million.

The Company has unused

capacity under the Amended Revolver of approximately $295

million, net of bank letters of credit of approximately $3 million, as

September 30, 2022.

The Company’s other debt obligations are

primarily industrial development bonds, bank lines of credit and

municipality-related loans, which totaled $12.9 million and $11.8

million as of September 30, 2022 and December 31, 2021,

respectively.

Total unused capacity under

these arrangements as of September 30, 2022 was approximately $12 million.

Company’s total net debt

as of September 30, 2022 was $815.2 million.

Net cash flows used in financing activities were $24.9 million in the first three months of 2023 compared to net cash flows provided by financing activities of $20.6 million in the first three months of 2022.

The increase in net cash outflows was primarily related to net repayments of borrowings in the first three months of 2023, primarily under the Company’s Credit Facility, described further below, as compared to net borrowings in the first three months of 2022.

In addition, the Company paid $7.8 million of cash dividends during the first three months of 2023, a $0.4 million, or 5% increase, in cash dividends compared to the prior year quarter.

During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S.

Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to its primary credit facility.

The amended credit facility (the “Credit Facility”) established (A) a $150.0 million Euro equivalent senior secured term loan (the “Euro Term Loan”), (B) a $600.0 million senior secured term loan (the “U.S.

Term Loan”), and (C) a $500.0 million senior secured revolving credit facility (the “Revolver”), each maturing in June 2027.

The Company has the right to increase the amount of the Credit Facility by an aggregate amount not to exceed the greater of $300.0 million or 100% of Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such increase.

As of March 31, 2023 , the Company had Credit Facility borrowings outstanding of $931.5 million.

As of December 31, 2022 , the Company had Credit Facility borrowings outstanding of $943.5 million.

The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.3 million as of both March 31, 2023 and December 31, 2022 .

Total unused capacity under these arrangements as of March 31, 2023 was approximately $35 million .

The Company’s total net debt as of March 31, 2023, which consists of total borrowings of $942.8 million less cash and cash equivalents of $189.9, was $752.9 million.

The Credit Facility contains affirmative and negative covenants, financial covenants and events of default.

Financial covenants contained in the Credit Facility include a consolidated interest coverage ratio test and a consolidated net leverage ratio test.

As of March 31, 2023, the Company was in compliance with all of the Credit Facility covenants.

Refer to the description of the Company’s primary Credit Facility in Note 20 of Notes to Consolidated Financial Statements in its 2022 Form 10-K and in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for more information about the covenants and events of default.

The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the three months ended March 31, 2023 was approximately 5.8%.

As of March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9%.

As part of the Credit Facility, in addition to paying interest on the outstanding principal, the Company is also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio.

The Company had unused capacity under the Revolver of approximately $311 million, which is net of bank letters of credit of approximately $3 million, as of March 31, 2023.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company incurred $10.4 million of total Combination, integration

and other acquisition-related expenses in the first nine

months of 2022, which includes $2.4 million of other expenses related to

indemnification assets, described in the Non-GAAP

Measures section of this Item below.

Comparatively, in the first nine months

of 2021, the Company incurred $13.6 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 included $0.7 million of accelerated depreciation.

The Company had aggregate net cash outflows of

approximately $11.5 million related to the

Combination, integration and other acquisition-related expenses during

the first nine

months of 2022 as compared to $20.0 million during the first nine months

During the first nine months of 2022, the

Company incurred $10.7 million of strategic planning and transformation

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 extend into 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 included 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 to complete all actions and final costs associated with the QH

Program will depend on a number of factors and are subject to change;

the Company has had reduction in headcount and site

closures under the QH Program in 2022 and expects final headcount reductions

to continue into 2023.

At this time, the Company does

not expect to incur material additional costs under the QH Program.

The Company made cash payments related to the settlement of

restructuring liabilities under the QH Program during the first nine months

of 2022 of approximately $1.8 million compared to $4.6

million in the first nine months of 2021.

As of September 30, 2022, the Company’s

gross liability for uncertain tax positions, including interest and penalties,

The Company cannot determine a reliable estimate of the timing of cash flows

by period related to its uncertain tax position

However, should the entire liability be

paid, the amount of the payment may be reduced by up to $6.4 million as a result of

offsetting benefits in other tax jurisdictions.

In 2021, two of the Company’s locations

suffered significant property damage as a result of flooding

and electrical fire.

Company maintains property and flood 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,

losses incurred during 2021 were covered under the Company’s

property and flood insurance coverage, net of an aggregate deductible

of $2.0 million.

Through September 30, 2022, the Company has received payments from its insurers of

$3.9 million associated with

these events.

The Company has recorded an insurance receivable of $0.2 million as of September

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 known or anticipated contingencies.

The Company believes it has sufficient

additional liquidity to support its operating requirements and to 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 Amended

Credit Facility, tax obligations

and other long-term liabilities.

The Company’s liquidity

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.

cannot predict economic conditions and industry downturns or the

timing, strength or duration of recoveries.

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 organic investments.

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.

Critical Accounting Policies and Estimates

The Company’s critical accounting

policies and estimates, as set forth in its 2021

Form 10-K remain materially consistent.

However, due to the ongoing financial,

economic and geopolitical conditions impacting the Company,

the Company re-evaluated

certain of its estimates, most notably its estimates and assumptions with regards

to the fair value of its EMEA reporting unit during the

third quarter of 2022.

In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three-year interest rate swaps to convert a portion of the Company’s variable rate borrowings into an average fixed rate obligation of 3.64% plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio.

As of March 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2%.

See Note 17 of Notes to Condensed Consolidated Financial Statements.

In connection with executing the original credit facility in 2019 and the amended Credit Facility during the second quarter of 2022, the Company capitalized certain third-party and creditor debt issuance costs.

Costs attributed to the Euro Term Loan and U.S.

Term Loan were recorded as a direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet.

Costs attributed to the Revolver were recorded within Other assets on the Condensed Consolidated Balance Sheet.

These capitalized costs will collectively be amortized into Interest expense over the five-year term of the Credit Facility.

As of March 31, 2022, the Company had $1.9 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.1 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

Comparatively, as of December 31, 2022, the Company had $2.0 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.3 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies.

During the three months ended March 31, 2023, the Company entered into and settled forward contracts with an aggregate notional amount totaling $16.0 million, resulting in cash proceeds of $0.3 million .

See Note 17 of Notes to Condensed Consolidated Financial Statements.

In the first three months of 2022 , the Company incurred $6.0 million of total Combination, integration and other acquisition-related expenses, which includes $2.0 million of other expenses related to indemnification assets, described in the Non-GAAP Measures section of this Item below.

The Company had net cash outflows related to the Combination, integration and other acquisition-related expenses during the first three months of 2022 of $4.2 million.

T he Company had no Combination, integration and other acquisition-related expenses in the first three months of 2023 .

During the first three months of 2023 , the Company incurred $2.1 million of strategic planning expenses for the planning phase as compared to $3.1 million during the first three months of 2022 .

The Company expects to incur 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 function s in 2023 and thereafter.

The Company’s management approved, and the Company initiated, a global restructuring plan (the “QH Program”) in 2019 as part of its planned cost synergies associated with the Combination.

As of December 31, 2022, the Company has substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which is expected to continue into 2023.

In the fourth quarter of 2022, the Company’s management initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization.

The exact timing to complete all actions and final costs associated will depend on a number of factors and are subject to change.

The Company is continuing to evaluate and expects to implement further actions under this program, and as a result, additional headcount reductions and restructuring costs may be incurred in the future.

The Company expects to generate full run-rate cost savings from the global cost and optimization program of approximately $20 million by the end of 2024.

The Company expects total cash costs of this program to be approximately 1 to 1.5 times savings.

The Company recognized Restructuring and related charges of $4.0 million and $0.8 million in the first three months of 2023 and 2022, respectively, as a result of these programs.

The Company made cash payments related to the settlement of restructuring liabilities under the restructuring programs during the first three months of 2023 of approximately $2.7 million compared to $0.4 million in the first three months of 2022.

The Company has remaining restructuring accruals as of March 31, 2023, for these programs of $6.8 million, which the Company expects to settle over the next twelve months.

See Note 7 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.

As of March 31, 2023, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $20.2 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 $6.3 million as a result of offsetting benefits in other tax jurisdictions.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company accounts for business combinations under

the acquisition method of accounting.

This method requires

the recording of acquired assets, including separately identifiable intangible

assets, at their acquisition date fair values.

Any excess of

the purchase price over the estimated fair value of the

identifiable net assets acquired is recorded as goodwill.

The determination of

the estimated fair value of assets acquired requires management’s

judgment and often involves the use of significant estimates and

When necessary, the Company

consults with external advisors to help determine fair value.

Goodwill and intangible assets that have indefinite lives are not amortized

and are required to be assessed at least annually for

The Company completes its annual goodwill and indefinite-lived intangible asset impairment

test during the fourth

quarter of each year, or more frequently

if triggering events indicate a possible impairment.

The Company continually

financial performance, economic conditions and other recent developments

in assessing if a triggering event indicates that the carrying

values of goodwill, indefinite-lived, or long-lived assets are impaired.

The Company continues to monitor various financial, economic

and geopolitical conditions impacting the Company,

including the ongoing Russia-Ukraine war and the Company’s

decision to cease

operations in Russia, continued raw material cost escalation, supply

chain constraints and disruptions, as well as rising interest rates

and the cost of capital among other factors.

The Company concluded that these and other factors, which have and continue

the Company, did not

represent a triggering event during the third quarter of 2022, except for the Company’s

EMEA reporting unit

and the associated goodwill,

as well as the related asset group.

The Company concluded that during the third quarter of 2022 the

escalation of these events adversely impacted EMEA’s

financial performance and represented a triggering event.

As a result of this conclusion, the Company completed an interim impairment

assessment for its EMEA reporting unit, as well as

the related asset group, during the third quarter of 2022.

The Company concluded that the undiscounted cash flows exceeded

carrying value of the long-lived assets and it is not more likely than not that

an impairment exists.

In completing a quantitative

goodwill impairment test, the Company compares the reporting

unit’s fair value, primarily based

on future discounted cash flows, to

its carrying value in order to determine if an impairment charge

is warranted.

The estimates of future discounted cash flows involve

considerable management judgment and are based upon certain significan

assumptions including the weighted average cost of capital

as well as projected EBITDA, which includes assumptions related to

revenue growth rates, gross margin levels and operating

As a result of this interim impairment assessment, the estimated fair value of

the EMEA reporting unit exceeded its

carrying value by approximately 22% and the Company concluded

no impairment was warranted.

In completing the interim

quantitative impairment assessment, the Company used a WACC

assumption of approximately 10.0% and holding all other

assumptions constant, the WACC

would have to increase by approximately 1.8 percentage points

before the Company’s EMEA

reporting unit would be considered impaired.

In addition, holding EBITDA margins and all other assumptions constant,

Company’s compound

annual revenue growth rate during the entire projection period would need to decline

by approximately 3.0

percentage points before the Company’s

EMEA reporting unit would be considered impaired.

Similarly, holding reve

nue growth rates

and all other assumptions constant, the Company’s

average EBITDA margins throughout the entire projection

period would need to

decline by approximately 1.7 percentage points before the

Company’s EMEA reporting unit would be

considered impaired.

Notwithstanding the results of the Company’s

interim impairment assessment, if the Company is unable to successfully

implement selling price increases aimed at more than offsetting

raw material costs and ongoing inflationary pressures and the financial

performance of the EMEA reporting unit declines further,

or interest rates continue to rise and this leads to an increase in the cost of

capital, then it is possible these financial, economic and geopolitical conditions

could result in another triggering event for the EMEA

reporting unit in the future and could lead to a potential impairment.

In addition, if any of these financial, economic or geopolitical

conditions has a more significant adverse effect on

the Company, these could lead to a potential impairment

of the Company’s

goodwill or other indefinite-lived or long-lived assets.

The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations suffered property damages as a result of flooding and electrical fire, respectively.

The Company maintains property and flood insurance for all of its locations globally.

During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than the ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted.

Through March 31, 2023, the Company has received cumulative payments from its insurers of $5.7 million associated with these events.

During the three months ended March 31, 2023, the Company recognized a gain on insurance recoveries of $0.8 million.

See Notes 10 and 18 of Notes to the 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, pension plan contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the Company’s sustainability goals and other potential known or anticipated contingencies.

The Company believes it has sufficient additional liquidity to support its operating requirements and to 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 and interest payments on the Company’s Credit Facility, 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 organic 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 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

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.

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 information in this Form 10-Q 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.

In addition, our definitions of 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, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly named measures reported by other companies.

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 considered 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 considered 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 investors, analysts, and peers 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 investors, analysts, and peers 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

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 (loss) income of associated companies.

also presents adjusted EBITDA which is calculated as EBITDA plus or

minus certain items that are not considered indicative of future

operating performance or not considered core to the Company’s

In addition, the Company presents non-GAAP operating

income which is calculated as operating income plus or minus certain items that

are not considered indicative of future operating

performance or not considered core to the Company’s

Adjusted EBITDA margin and non-GAAP operating margin

calculated as the percentage of adjusted EBITDA and non-GAAP operating

income to consolidated net sales, respectively.

Company believes these non-GAAP measures provide transparent

and useful information and are widely used by investors, analysts,

and peers 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

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 (loss) 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

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 investors, analysts, and peers in

our industry as well as by management in assessing the operating performance

of the Company on a consistent basis.

Certain of the prior period non-GAAP financial measures presented

in the following tables have been adjusted to conform with

current period presentation.

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

Nine Months Ended

September 30,

Certain of the prior period non-GAAP financial measures presented in the following tables have been adjusted to conform with current period presentation.

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

Operating income $ 49,929 $ 29,403

Combination, restructuring and other

acquisition-related expenses (a)

Strategic planning and transformation expenses (b)

Executive transition costs (c)

Combination, integration and other acquisition-related expenses (a) — 4,053

Restructuring and related charges, net (b) 3,972 820

Strategic planning expenses (c) 2,087 3,088

Russia-Ukraine conflict related expenses (d) — 1,166

Facility remediation costs, net (f)

Other charges (e) 305 631

Non-GAAP operating income $ 56,293 $ 39,161

Non-GAAP operating margin (%) (m)

Quaker Chemical Corporation

Management’s Discussion and Analysis

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin

and Non-GAAP Net Income Reconciliations

Three Months Ended

Nine Months Ended

September 30,

Non-GAAP operating margin (%) (j) 11.3 % 8.3 %

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations Three Months Ended

Net income attributable to Quaker Chemical Corporation $ 29,534 $ 19,816

Depreciation and amortization (a)(k)

Depreciation and amortization (h) 20,510 20,727

Interest expense, net 13,242 5,345

Taxes on income before

equity in net (loss) income

of associated companies (l)

Equity loss (income) in a captive insurance company (i)

Combination, restructuring and other

acquisition-related expenses (a)

Strategic planning and transformation expenses (b)

Executive transition costs (c)

Taxes on income before equity in net income of associated companies (i) 9,533 2,866

EBITDA 72,819 48,754

Equity (income) loss in a captive insurance company (f) (422) 244

Combination, integration and other acquisition-related expenses (a) — 6,032

Restructuring and related charges, net (b) 3,972 820

Strategic planning expenses (c) 2,087 3,088

Russia-Ukraine conflict related expenses (d) — 1,166

Facility remediation (recovery) costs, net (f)

Brazilian non-income tax credits (g)

Loss on extinguishment of debt (h)

Other charges (e) 335 340

Adjusted EBITDA $ 78,791 $ 60,444

Adjusted EBITDA margin (%) (m)

Adjusted EBITDA margin (%) (j) 15.8 % 12.7 %

Adjusted EBITDA $ 78,791 $ 60,444

Depreciation and amortization - adjusted (a)

Depreciation and amortization (h) 20,510 20,727

Interest expense, net 13,242 5,345

Taxes on income

before equity in net income

of associated companies - adjusted (a)(l)

Taxes on income before equity in net income of associated companies - adjusted (a)(i) 11,047 8,902

Non-GAAP net income $ 33,992 $ 25,470

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

Nine Months Ended

September 30,

GAAP earnings per diluted share attributable to

Quaker Chemical Corporation common shareholders

Equity loss (income) in a captive insurance company

per diluted share (i)

Combination, restructuring and other

acquisition-related expenses per diluted share (a)

Strategic planning and transformation expenses per

diluted share (b)

Executive transition costs per diluted share (c)

Russia-Ukraine conflict related expenses per diluted share (d)

Facility remediation (recovery) costs, net per diluted share (f)

Brazilian non-income tax credits per diluted share (g)

Loss on extinguishment of debt per diluted share (h)

Other charges per diluted share (e)

Impact of certain discrete tax items per diluted share (j)

Non-GAAP earnings per diluted share (n)

Quaker Chemical Corporation

Management’s Discussion and Analysis

Combination, restructuring and other acquisition-related expenses include

certain legal, financial, and other advisory and

consultant costs incurred in connection with the Combination integrat

ion activities including internal control readiness and

remediation as well as 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 amounts

also include expense associated with other of the Company’s

acquisitions, including certain legal, financial, and other advisory

and consultant costs incurred in connection with due diligence as well as costs associated

with selling inventory from acquired

businesses which was adjusted to fair value as part of purchase accounting.

These costs are not indicative of the future operating

performance of the Company.

Approximately $0.3 million and $0.5 million for the three and nine months

ended September 30,

2022, respectively,

and approximately $0.2 million and $0.7 million in the three and nine months ended September

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

During the nine months ended September 30, 2022, the Company recorded

$2.4 million of other expense related to an

indemnification asset, which is included in the caption “Combination,

restructuring and other acquisition-related expenses” in the

reconciliation of GAAP earnings per diluted share attributed 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.

During the three and nine months ended September 30, 2021, the Company

recorded $0.2 million $0.7 million, respectively,

of accelerated depreciation related to certain of the Company’s

facilities, which

is included in the caption “Combination, restructuring 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 nine months ended

September 30, 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,

restructuring and other acquisition-related expenses” in the

reconciliation of GAAP earnings per diluted share attributed 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.

During the three and nine months ended September 30, 2022, respectively,

Company recorded restructuring and related credits of $1.4 million

and $0.6 million, respectively,

and $0.9 million and net

charges of $0.6 million during the three and nine months ended September

30, 2021, respectively.

During the nine months ended

September 30, 2021, the Company recorded $0.8 million related to the sale of

inventory from acquired businesses which was

adjusted to fair value.

See Notes 2, 7, 10 and 11 of Notes to Condensed Consolidated

Financial Statements, which appear in Item

1 of this Report.

Strategic planning and transformation expenses include certain consultant

and advisory expenses for the Company’s

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.

Non-GAAP Earnings per Diluted Share Reconciliations Three Months Ended

GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 1.64 $ 1.11

Equity (income) loss in a captive insurance company per diluted share (f) (0.02) 0.01

Combination, integration and other acquisition-related expenses per diluted share (a) — 0.25

Restructuring and related charges, net per diluted share (b) 0.17 0.03

Strategic planning expenses per diluted share (c) 0.10 0.14

Russia-Ukraine conflict related expenses per diluted share (d) — 0.06

Other charges per diluted share (e) 0.01 0.01

Impact of certain discrete tax items per diluted share (g) (0.01) (0.19)

Non-GAAP earnings per diluted share (k) $ 1.89 $ 1.42

(a) Combination, integration and other acquisition-related expenses include certain legal, financial, and other advisory and consultant costs incurred in connection with the Combination integration activities.

These amounts also include expense associated with the Company's other recent acquisitions, including certain legal, financial, and other advisory and consultant costs incurred in connection with due diligence.

These costs are not indicative of the future operating performance of the Company.

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 search,

hiring and transition for other officers during the first

nine months of 2022.

These expenses are one-time in nature and not indicative of the future operating

performance of the

Russia-Ukraine conflict related expenses represent the direct costs associated

with the Company’s

exit of operations in Russia

during 2022, primarily for employee separation benefits, as well as costs associated

with establishing specific reserves or changes

to existing reserves for trade accounts receivable within the Company’s

EMEA reportable segment due to the economic instability

associated with certain customer

accounts receivables which have been directly impacted by the current

economic conflict

between Russia and Ukraine or the Company’s

decision to end operations in Russia.

These expenses are not indicative of the

future operating performance of the Company.

Other charges include charges incurred

by an inactive subsidiary of the Company as a result of the termination of restrictions on

insurance settlement reserves, non-service components of the Company’s

pension and postretirement net periodic benefit income

and the foreign currency remeasurement impacts associated with the

Company’s affiliates whose

local economies are designated

as hyper-inflationary under U.S.

These expenses are not indicative of the future operating performance

of the Company.

See Notes 1 and 9 of Notes to Condensed Consolidated Financial Statements,

which appear in Item 1 of this Report.

Facility remediation (recovery) costs, net presents the costs associated

with remediation, cleaning and subsequent restoration costs

associated with property damages to certain of the Company’s

facilities, net of insurance recoveries received.

These charges are

non-recurring and are not indicative of the future operating performance

of the Company.

See Note 18 of Notes to Condensed

Consolidated Financial Statements, which appears in Item 1 of this Report.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Brazilian non-income tax credits represent indirect tax credits related to certain

of the Company’s Brazilian subsidiaries

prevailing in a legal claim as well as the Brazilian Supreme Court ruling

on these non-income tax matters.

The 2021 impact to

Non-GAAP earnings per diluted share reflects the tax only adjustment

related to the Brazilian Supreme Court ruling on the

taxability of interest income.

The non-income tax credit is non-recurring and not indicative of the future operating

of the Company.

See Note 18 of Notes to Condensed Consolidated Financial Statements, which

appears in Item 1 of this Report.

In connection with executing the Amended Credit Facility,

the Company recorded a loss on extinguishment of debt of

approximately $6.8 million which includes the write-off

of certain previously unamortized deferred financing costs as well as a

portion of the third-party and creditor debt issuance costs incurred

to execute the Amended Credit Facility.

These expenses are

not indicative of the future operating performance of the Company.

See Note 14 of Notes to Condensed Consolidated Financial

Statements, which appears in Item 1 of this Report.

Equity loss (income) in a captive insurance company represents the after-tax

loss (income) attributable to the Company’s

in Primex, Ltd.

Less than $0.1 million for the three months ended March 31, 2022 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, which is included in the caption “Combination, integration and other acquisition-related expenses” in the reconciliation of GAAP earnings per diluted share attributed 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.

There were no Combination, integration and other acquisition-related expenses incurred in the first quarter of 2023.

See Notes 2, 10, and 11 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.

(b) Restructuring and related charges represent the costs incurred by the Company associated with the Company’s restructuring programs.

These costs are not indicative of the future operating performance of the Company.

See Note 7 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.

(c) Strategic planning expenses include certain consultant and advisory expenses for the Company’s strategic planning phase of its long-term process optimization and integration projects to further optimize its footprint, processes and other functions.

These planning phase costs are one-time in nature and not indicative of the future operating performance of the Company.

(d) Russia-Ukraine conflict related expenses 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 in each case were directly impacted by the ongoing conflict between Russia and Ukraine.

These expenses are not indicative of the future operating performance of the Company .

(e) Other charges include executive transition costs, facility remediation insurance recoveries, net, charges incurred by an inactive subsidiary of the Company as a result of the termination of restrictions on insurance settlement reserves, non-service components of the Company’s pension and postretirement net periodic benefit income, and the foreign currency remeasurement impacts associated with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S.

These expenses are not indicative of the future operating performance of the Company.

See Notes 1, 9 and 18 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.

(f) Equity income in a captive insurance company represents the after-tax 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

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 tax law changes in

due to the issuance of final foreign tax credit regulations during the

Additionally, the Company

items related to the remeasurement of deferred taxes on the transfer

of intellectual property and the release of the reserves for

uncertain tax positions settled during the period and certain taxes, penalties,

and interest due as a result of the settlements.

Note 11 of Notes to Condensed Consolidated

Financial Statements, which appears in Item 1 of this Report.

Depreciation and amortization for the three and nine months ended

September 30, 2022 includes approximately $0.3 million and

$0.8 million, respectively,

and for the three and nine months ended September 30, 2021 includes $0.3 million

and $0.9 million,

respectively, of

amortization expense recorded within equity in net loss (income) of associated companies

in the Company’s

Condensed Consolidated Statements of income, which is attributable to

the amortization of the fair value step up for the

Company’s 50% interest in a joint venture

in Korea as a result of required purchase accounting.

Taxes on income

before equity in net loss (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, restructuring and other acquisition-

related expenses described in (a) resulted in incremental taxes of approximately

million and $1.8 million for the three and

nine months ended September 30, 2022, respectively,

compared to $1.2 million and $3.4 million for the three and nine months

ended September 30, 2021, respectively.

Strategic planning and transformation expenses describes in (b) above resulted in

incremental taxes of $1.0 million and $2.4 million for the three and

nine months ended September 30, 2022, respectively.

Executive transition costs described in (c) resulted in incremental taxes of

$0.2 million and $0.5 million for the three and nine

months ended September 30, 2022, respectively,

compared to $0.1 million and $0.3 million for the three and nine months ended

September 30, 2021, respectively.

Russia-Ukraine conflict related expenses described in (d) resulted in

incremental taxes of less

than $0.1 million and $0.5

million for the three and nine months ended September 30, 2022,

respectively.

Other charges

described in (e) resulted in a tax benefit of less than $0.1 million and $0.1 million

for the three and nine months ended September

30, 2022, respectively,

and incremental taxes of less than $0.1 million and $0.1 million in the three and nine months ended

September 30, 2021.

Facility remediation (recovery) costs, net described in (f) resulted in a tax benefit

of $0.3 million in the

three and nine months ended September 30, 2022, respectively and

incremental taxes of $0.5 million in the three and nine months

ended September 30, 2021.

Brazilian non-income tax credits described in (g) resulted in incremental

taxes of approximately $0.6

million and a tax benefit of $4.7 million during the three and nine months ended

September 30, 2021, respectively.

extinguishment of debt described in (h) resulted in incremental taxes of

$1.6 million during the nine months ended September 30,

The impact of certain discrete items described in (j) resulted in a tax benefit of $0.5 million

and an incremental expense of

$6.4 million for the three and nine months ended September 30,

2022, respectively, compared

to a benefit of $6.5 million and

$5.1 million for the three and nine months ended September 30,

2021, respectively.

The Company calculates adjusted EBITDA margin

and non-GAAP operating margin as the percentage of adjusted EBITDA

non-GAAP operating income to consolidated net sales.

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.

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 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.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(g) 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 tax law changes in the U.S.

due to the issuance of final foreign tax credit regulations during the period ended March 31, 2023.

Additionally, the Company has discrete items related to the remeasurement of deferred taxes on the transfer of intellectual property and the release of the reserves for uncertain tax positions settled during the period 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.

(h) Depreciation and amortization for both the three months ended March 31, 2023 and 2022 include approximately $0.3 million of amortization expense recorded within equity in net income of associated companies in the Company’s Condensed Consolidated Statements of Operations, which is attributable to the amortization of the fair value step up for the Company’s 50% interest in a joint venture in Korea as a result of required purchase accounting.

(i) 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 approximately $1.4 million for the three months ended March 31, 2022.

Restructuring and related charges, net described in (b) above resulted in incremental taxes of $1.0 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

Strategic planning expenses described in (c) above resulted in incremental taxes of $0.5 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively.

Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes of $0.3 million for the three months ended March 31, 2022.

Other charges described in (e) resulted in a net tax benefit of less than $0.1 million and incremental taxes of less than $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

The impact of certain discrete items described in (g) resulted in incremental tax expense of less than $0.1 million and $3.4 million for the three months ended March 31, 2023 and 2022, respectively.

(j) 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.

(k) 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.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or

obligations as of September 30, 2022.

The Company’s off-

balance sheet items outstanding as of September 30, 2022 includes approximately

$5 million of total bank letters of credit and

The bank letters of credit and guarantees are not significant to the Company’s

liquidity or capital resources.

of Notes to Condensed Consolidated Financial Statements in Item

1 of this Report.

Consolidated Operations Review – Comparison of the Third

Quarter of 2022 with the Third Quarter of 2021

Net sales were $492.2 million in the third quarter of 2022 compared

to $449.1 million in the third quarter of 2021.

The net sales

increase of $43.1 million or 10% quarter-over-quarter reflects an increase

in selling price and product mix of 25% and additional net

sales from acquisitions of 1%, partially offset by a decline

in organic sales volumes of approximately 9% and the unfavorable impact

from foreign currency translation of 7%.

The increase in selling price and product mix was primarily driven by price

implemented to offset the significant increases in raw

material and other input costs that began during 2021 and has continued in 2022.

The decline in organic sales volumes was primarily

attributable to softer end market conditions, particularly in Europe and

Asia/Pacific, the wind-down of the tolling agreement for products previously

divested related to the Combination and the impact of

the ongoing war in Ukraine, partially offset by net new

business wins, including the impact of the Company’s

ongoing value-based

pricing initiatives.

COGS were $331.5 million in the third quarter of 2022 compared to

$303.9 million in the third quarter of 2021.

The increase in

COGS of $27.5 million or 9% was driven by the continued increases in the Company’s

global raw material, manufacturing and supply

chain and logistics costs compared to the prior year.

Gross profit in the third quarter of 2022 increased $15.6 million or 11%

from the third quarter of 2021.

The Company’s reported

gross margin in the third quarter of 2022 was 32.7%, an improvement

compared to 32.3% in the third quarter of 2021 as increases in

selling prices, due to the Company’s

value based pricing initiatives, helped offset the significant increase

in raw material and other

input costs experienced throughout the third quarter of 2022.

SG&A in the third quarter of 2022 increased $11.2

million or 11%

compared to the third quarter of 2021 due primarily to the

impact of sales increases on direct selling costs, inflation-driven 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 compared to the prior year.

During the third quarter of 2022, the Company incurred $2.1 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 third 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 (credits) charges

for reductions in headcount and

site closures under this program, net of adjustments to initial estimates for severance

of a credit of $1.4 million and $0.9 million

during the third quarters of 2022 and 2021, respectively.

See the Non-GAAP Measures section of this Item, above.

Operating income in the third quarter of 2022 was $44.6 million compared

to $36.0 million in the third 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 increased to

$50.9 million compared to $43.2 million in the prior year third quarter primarily

due to the lower gross profit and higher SG&A

described above.

The Company had other income, net, of $0.1 million in the third quarter

of 2022 compared to $0.6 million in the third quarter of

The third quarter of 2022 included a gain on insurance recoveries, see the Non-GAAP Measures

section of this Item, above.

addition, the Company incurred foreign exchange transaction losses in the third

quarter of 2022 compared to the foreign exchange

transaction gains in the prior year quarter.

Interest expense, net, increased $2.8 million compared to the third quarter

of 2021 as a result of increases in the average

borrowings outstanding in the third quarter of 2022 compared to

the third quarter of 2021 coupled with an increase in interest rates

quarter-over-quarter.

The Company had no material off-balance sheet commitments or obligations as of March 31, 2023.

The Company’s off-balance sheet items outstanding as of March 31, 2023 includes approximately $5 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.

Consolidated Operations Review – Comparison of the First Quarter of 2023 with the First Quarter of 2022

Net sales were $500.1 million in the first quarter of 2023 compared to $474.2 million in the first quarter of 2022.

The net sales increase of $25.9 million or 5% quarter-over-quarter reflects an increase in selling price and product mix of 19%, partially offset by a decline in organic sales volumes of approximately 11% and the unfavorable impact from foreign currency translation of approximately 3%.

The increase in selling price and product mix was primarily driven by year-over-year impact of our value-based pricing initiatives implemented to offset the significant increases in raw material and other input costs.

The decline in organic sales volumes was primarily attributable to softer end market conditions, notably in EMEA and Asia/Pacific, the impacts of the ongoing war in Ukraine, the wind-down of the tolling agreement for products previously divested related to the Combination, and the Company’s ongoing value-based pricing initiatives .

COGS were $326.7 million in the first quarter of 2023 compared to $328.1 million in the first quarter of 2022, a decrease of $1.4 million.

The relatively consistent level of COGS in both periods reflects lower spend on the decline in current year volumes, which more than offset higher costs due to inflationary pressures in the Company’s global raw material, manufacturing and supply chain and logistics costs compared to the prior year.

Gross profit was $173.5 million in the first quarter of 2023 compared to $146.1 million in the first quarter of 2022, an increase of $27.4 million or 19%.

The Company’s reported gross margin in the first quarter of 2023 was 34.7% compared to 30.8% in the first quarter of 2022 primarily driven by the year-over-year impact of our value-based pricing initiatives implemented to offset the significant increases in raw material and other input costs.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company’s effective

tax rates for the third quarters of 2022 and 2021 were 28.1% and 2.6%, respectively.

The Company’s

effective tax rate for the third quarter of 2022

was largely driven by a decline in forecasted profits and earnings mix,

inclusions, changes in the valuation allowance for foreign tax credits,

a reduction in reserves for uncertain tax positions and

withholding taxes.

In addition, the Company incurred higher tax expense

during the third quarter of 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.

Comparatively, the prior

year quarter effective tax rate was

primarily driven by a one-time deferred tax benefit related to an intercompany

intangible asset transfer.

the impact of 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 its third quarters of 2022 and 2021 would have been approximately

26% and 25%, respectively.

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, including the high technology incentive

at one of our subsidiaries based in China which is

currently up for triennial renewal, 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 $1.1 million

in the third quarter of 2022 compared to the third quarter of

2021, primarily due to lower current year income from the Company’s

interest in a captive insurance company due to lower market

performance on equity investments and from the Company’s

50% interest in a joint venture in Korea due to overall market challenges.

SG&A was $119.5 million in the first quarter of 2023 compared to $111.8 million in the first quarter of 2022, an increase $7.8 million or 7%, driven by higher labor-related costs including year-over-year inflationary increases and higher levels of incentive compensation on improved Company performance, partially offset by lower SG&A due to foreign currency translation compared to the prior year.

The Company incurred $4.1 million of Combination, integration and other acquisition-related operating expenses in the first quarter of 2022, primarily due to various professional fees related to legal, financial and other advisory and consultant expenses for integration activities.

There were no similar expenses incurred in the first quarter of 2023.

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 third quarters of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’s

third quarter of 2022 results by approximately 7% 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 third quarter.

Consolidated Operations Review – Comparison of the First Nine Months of 2022

with the First Nine Months of 2021

Net sales were $1,458.8 million in the first nine months of 2022 compared to $1,314.1

million in the first nine months of 2021.

The net sales increase of $144.7 million or 11%

year-over-year reflects increases in selling price

and product mix of approximately

21% and additional net sales from acquisitions of 1% partially offset

by a decline in organic sales volumes of approximately 6% and

the unfavorable impact from foreign currency translation of 5%.

The increase in selling price and product mix was 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 in 2022.

The decline in sales volumes was primarily attributable to the comparison

to a strong first half of 2021, and

primarily in the first quarter of 2021, where customers replenished their

supply chains.

Lower volumes were also due to softer end

market conditions, particularly in Europe and Asia/Pacific, the wind-down

of the tolling agreement for products previously divested

related to the Combination and the impact of the ongoing war in Ukraine,

partially offset by net new business wins, including the

impact of the Company’s ongoing

value-based pricing initiatives.

COGS were $1,002.4 million in the first nine months of 2022 compared

to $858.3 million in the first nine months of 2021.

increase in COGS of $144.1 million or 17% was driven by the significant

increase in the Company’s global raw

manufacturing and supply chain and logistics costs compared to the prior

Gross profit in the first nine months of 2022 increased $0.6 million or

less than 1% from the first nine months of 2021.

Company’s reported gross

margin in the first nine months of 2022 was 31.3% compared to 34.7% in

the first nine months of 2021.

The Company’s current year

gross margin reflects a significant increase in raw material

and other input costs 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 nine months of 2022 increased $25.9 million or 8% compared

to the first nine months of 2021 due primarily to

the impact of sales increases on direct selling costs, inflation driven 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 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 nine months of 2022, the Company incurred $8.0

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 $18.3 million of expenses in the prior year’s

first nine months, 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.

The Company incurred Restructuring and related charges of $4.0 million and $0.8 million during the first quarters of 2023 and 2022, respectively, related to reductions in headcount and site closures under the Company’s previous and current restructuring programs.

See the Non-GAAP Measures section of this Item, above.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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 credits for reductions in headcount and

closures under this program, net of adjustments to initial estimates for severance

of $0.6 million during the first nine months of 2022

compared to Restructuring and related charges for reductions in headcount

and site closures under this program, net of adjustments to

initial estimates for severance of $0.6 million during the first nine

months of 2021.

See the Non-GAAP Measures section of this Item,

Operating income in the first nine months of 2022 was $105.9 million

compared to $119.7 million in the first nine months of

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 year non-GAAP operating income

decreased to $128.9 million for the first nine months of 2022 compared

to $143.3 million in the prior year’s first nine months

primarily due to the lower gross profit and higher SG&A described above.

The Company had other expense, net, of $10.5 million in the first nine months

of 2022 compared to other income, net of $19.3

million in the first nine months of 2021.

The first nine months of 2022’s results include

$6.8 million of loss on extinguishment of debt

related to the Company’s

refinancing the Original Credit Facility and also higher foreign currency transaction

losses year-over-year,

while the prior year’s first nine months of 2022 other income includes

$14.4 million of non-income tax credits recorded by the

Company’s Brazilian subsidiaries

as well as a $4.8 million gain on the sale of certain held-for-sale real property assets.

Interest expense, net, increased $3.5 million compared to the first nine

months of 2021, due to an increase in the average

borrowings outstanding in the first nine months of 2022 coupled

with an increase in interest rates in the current year as compared to

the prior year.

The Company’s effective

tax rates for the first nine months of 2022 and 2021 were 19.2% and 21.8%, respective

Company’s effective

tax rate for the nine months ended September 30, 2022 was largely driven

by a decline in forecasted profits and

earnings mix, foreign tax inclusions, changes in the valuation allowance

for foreign tax credits, the impact of audit settlements reached

with Italian tax authorities, a reduction in reserves for uncertain tax positions

and withholding taxes.

In addition, the Company

incurred higher tax expense during the nine months ended September

30, 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.

Comparatively,

the prior year nine-month effective tax rate was impacted

by certain U.S.

tax law changes, the tax impact of certain non-income tax credits recorded by

the Company’s Brazilian subsidiaries, and a deferred

benefit related to an intercompany intangible asset transfer.

Excluding the impact of non-core items in each period, described in

Non-GAAP Measures section of this Item, above, the Company estimates that

its effective tax rates for the first nine months of 2022

and 2021 would have been approximately 26% and 25%, respectively.

Equity in net income of associated companies decreased $8.3 million

in the first nine months of 2022 compared to the first nine

months of 2021, primarily due to lower current year income from

the Company’s interest in a captive insurance

company due to lower

market performance on equity investments (see the Non-GAAP Measures

section of this Item, above), as well as lower current year

income from the Company’s 50% interest

in a joint venture in Korea.

Net income attributable to noncontrolling interest was less than $0.1 million

in both the first nine months of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’s

first nine months of 2022 results by approximately 7% driven by the

impact from foreign currency translation on earnings as well as higher

foreign exchange transaction losses in the current year as

compared to the prior year’s first nine months.

Reportable Segments Review - Comparison of the Third

Quarter of 2022

with the Third 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

The Company has four reportable segments:

Operating income in the first quarter of 2023 was $49.9 million compared to $29.4 million in the first quarter of 2022.

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 non-GAAP operating income increased to $56.3 million in the first quarter of 2023 as compared to $39.2 million in the first quarter of 2022 primarily due to higher gross profit partially offset by higher SG&A, described above.

The Company had Other expense, net of $2.2 million in both the first quarter of 2023 and 2022.

Both the first quarter of 2023 and 2022 included foreign exchange transaction losses.

The first quarter of 2023 also included a gain on insurance recoveries, while the first quarter of 2022 included an expense related to a Combination-related indemnification asset.

See the Non-GAAP Measures section of this Item, above.

Interest expense, net, was $13.2 million in the first quarter of 2023 compared to $5.3 million in the first quarter of 2022, an increase of $7.9 million as a result of an increase in interest rates quarter-over-quarter, as well as higher average borrowings outstanding during the current year quarter.

The Company’s effective tax rates for the first quarters of 2023 and 2022 were 27.7% and 13.1%, respectively.

The Company’s effective tax rate for the three months ended March 31, 2023 was impacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments.

Comparatively, the prior year effective tax rate was largely impacted by changes in the valuation allowance for foreign tax credits due to legislative guidance issued and audit settlements reached with Italian tax authorities.

In addition, the Company incurred higher tax expense during the three months ended March 31, 2022 related to one of the Company’s subsidiaries recording earnings at a statutory tax rate of 25% while the recertification of its concessionary 15% tax rate was pending receipt.

Excluding the impact of 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 both the first quarters of 2023 and 2022 would have been approximately 27%.

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 was $4.6 million in the first quarter of 2023 compared to $0.8 million in the first quarter of 2022, an increase of $3.8 million, primarily due to higher current year income from the Company’s interest in a captive insurance company as well as 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 quarter of 2023 and 2022.

Foreign exchange unfavorably impacted the Company’s first quarter of 2023 results by approximately 7% 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 2023 with the First Quarter of 2022

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.

During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure.

The Company’s new structure includes three reportable segments:

(i) Americas;

Asia/Pacific;

and (iv) Global Specialty

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

Operating expenses not directly attributable to the net sales of each respective

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

are not included in segment operating earnings.

Other items not specifically identified with the Company’s

segments include interest expense, net, and other (expense) income, net.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Americas represented approximately 38% of the Company’s

consolidated net sales in the third quarter of 2022.

The segment’s

net sales were $186.5 million, an increase of $35.7 million or 24% compared

to the third quarter of 2021.

The increase in net sales

was due to higher selling price and product mix of 30% and additional

net sales from acquisition of 1%, partially offset by a decrease

in organic sales volumes of 7%.

The increase in selling price and

product mix was primarily driven by price increases implemented to

offset the significant increases in raw material and other input costs that

began during 2021 and continued through the third quarter of

The current quarter decline in organic sales volumes was primarily

driven by the wind-down of the tolling agreement for

products previously divested related to the Combination, the Company’s

ongoing value-based pricing initiatives and lower volumes

sold into the automotive industry due to the semiconductor supply constraints,

partially offset by net new business wins.

segment’s operating earnings were

$45.0 million, an increase of $13.7 million compared to the third quarter

of 2021 primarily driven

by higher net sales, which were partially offset by ongoing

inflationary pressures on the business.

EMEA represented approximately 23% of the Company’s

consolidated net sales in the third quarter of 2022.

The segment’s net

sales were $113.4 million, a decrease of

$8.9 million, or 7%, compared to the third quarter of 2021.

This was driven by higher selling

price and product mix of 21% which was more than offset

by the unfavorable impact of foreign currency translation of 18% and a

decrease in sales volumes of 10%.

The increase in selling price and product mix was primarily driven by price

increases implemented

to offset the significant increases in raw material and other input

costs that began during 2021 and continued through the third quarter

The decline in sales volumes was primarily driven by the current geopolitical and macroeconomic

pressures including the

direct and indirect impacts of the ongoing war in Ukraine and the impact

of the economic and other sanctions by other nations on

Russia in response to the war, as well as lower volumes

associated with the Company’s ongoing

value-based pricing initiatives, the

wind-down of the tolling agreement for products previously divested related

to the Combination and softer economic conditions in the

The significant and unfavorable foreign currency translation impact was primarily

due to the strengthening of the U.S.

against the euro as this exchange rate averaged 1.01 in the third quarter

of 2022 compared to 1.18 in the third quarter of 2021.

segment’s operating earnings were

$9.9 million, a decrease of $10.3 million or 51% compared to the third quarter

decrease in segment operating earnings was primarily a result of lower

net sales and lower gross margins due to the significant

inflationary pressures on the Company’s

costs exceeding the impact of its value-based pricing actions.

Operating earnings in EMEA

were also negatively impacted by foreign currency translation.

Asia/Pacific represented approximately 19% of the Company’s

consolidated net sales in the third quarter of 2022.

The segment’s

net sales were $91.2 million, a decrease of $7.4 million or 8% compared

to the third quarter of 2021.

The decrease in net sales was

driven by lower organic sales volumes of 20% and an unfavorable

impact from foreign currency translation of 6%, partially offset

higher selling price and product mix of 18%.

The increase in selling price and product mix was primarily driven by price increases

implemented to offset the significant increases in raw

material and other input costs that began during 2021 and continued through the

third quarter of 2022.

The decline in organic sales volumes was primarily

driven by softer market conditions, primarily in China, as a

result of government imposed COVID-19 quarantines

and related production disruptions implemented at the end of March 2022

continued throughout the third quarter of 2022, partially offset by

net new business.

The unfavorable foreign exchange impact was

primarily due to the strengthening of the U.S.

dollar against the Chinese renminbi

as this exchange rate averaged 6.85 in the third

quarter of 2022 compared to 6.47 in the third quarter of 2021.

This segment’s operating earnings were

$23.3 million, an increase of

$0.1 million compared to the third quarter of 2021 as lower net sales were offset

by improved margins.

Global Specialty Businesses

Global Specialty Businesses represented approximately 21% of the

Company’s consolidated net sales in the

third quarter of 2022.

The segment’s net sales were $101.1

million, an increase of $23.7 million or 31% compared to the third quarter

in net sales was driven by higher selling price and product mix of 20%,

an increase in organic sales volumes of 12% and additional net

sales from acquisitions of 2%, partially offset by an unfavorable

impact from foreign currency translation of 6%.

The increase in

selling price and product mix was 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 through

the third quarter of 2022.

The increase in organic sales

volumes was primarily attributable to a continued favorable demand

environment for this segment’s products.

The unfavorable

foreign exchange impact was primarily due to the strengthening

dollar against the euro as described in the EMEA section

This segment’s operating earnings

were $30.7 million, an increase of $10.1 million or 49% compared to the third quarter

The increase in segment operating earnings reflects the higher net sales and

gross margins in the current year despite slightly

higher raw materials costs due to continued inflationary pressures.

and (iii) Asia/Pacific.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Reportable Segments Review - Comparison of the First Nine months of 2022

with the First Nine months of 2021

Americas represented approximately 35% of the Company’s

consolidated net sales in the first nine months of 2022.

segment’s net sales were $513.4

million, an increase of $88.1 million or 21% compared to the first nine months of 2021.

in net sales was due to higher selling price and product mix of 27%

and additional net sales from acquisitions of 1%, partially offset

by a decrease in organic sales volumes of 7%.

The increase in selling price and product mix was 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

The decline in organic sales volumes was primarily driven by lower sales volumes into

the automotive end market, the

wind-down of the tolling agreement for products previously divested related

to the Combination, the prior year period comparison

which included a strong rebound from COVID-19 impacts and the Company’s

ongoing value-based pricing initiatives, partially offset

by net new business wins.

This segment’s operating earnings were

$108.0 million, an increase of $10.8 million or 11%

the first nine months of 2021.

The increase in segment operating earnings was primarily a result of higher net

sales which more than

offset lower gross margins driven by inflationary

EMEA represented approximately 25% of the Company’s

consolidated net sales in the first nine months of 2022.

The segment’s

net sales were $362.1 million, a decrease of $3.4 million or 1% compared

to the first nine months of 2021.

The decrease in net sales

was a result of higher selling price and product mix of 20% and additional

net sales from acquisitions of 1%, more than offset by the

unfavorable impact of foreign currency translation of 15% and

a decrease in organic sales volumes of 7%.

The increase in selling

price and product mix was 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 into 2022.

The decline in organic sales volumes was primarily driven by

the current geopolitical and macroeconomic pressures including

the direct and indirect impacts of the ongoing war in Ukraine and the

impact of the economic and other sanctions by other nations on Russia in response

to the war, lower volumes

associated with the

Company’s ongoing value

-based pricing initiatives, the wind-down of the tolling agreement for products previously

divested related to

the Combination, the prior year period comparison which included

a strong rebound from COVID-19 impacts, and softer economic

conditions in the region in the current period, partially offset by

net new business wins.

The unfavorable foreign exchange impact was

primarily due to the strengthening of the U.S.

dollar against the euro

as this exchange rate averaged 1.07 in the first nine months of

2022 compared to 1.20 in first nine months of 2021.

This segment’s operating earnings were $39.9

million, a decrease of $28.9

million or 42% compared to the first nine months of 2021.

The decrease in segment operating earnings was primarily a result of lower

gross margins driven by significant inflationary pressures

and the negative impact of foreign currency translation year-over-year.

Asia/Pacific represented approximately 20% of the Company’s

consolidated net sales in the first nine months of 2022.

segment’s net sales were $295.3

million, an increase of $8.3 million or 3% compared to the first nine months of 2021.

The increase in

net sales was driven by higher selling price and product mix of 15%,

partially offset by lower organic sales volumes

of 9% and the

unfavorable impact of foreign currency translation of 3%.

The increase in selling price and product mix was 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 into 2022.

The decline in organic sales volumes was primarily driven by softer end

market conditions in China as a result

of the government imposed COVID-19 quarantine and related production

disruptions and the prior year comparison which included a

strong rebound from COVID-19 impacts as customers replenished

their supply chains, partially offset by net new business wins.

segment’s operating earnings were

$67.5 million, a decrease of $6.5 million or 9% compared to the first nine months of

decrease in segment operating earnings was primarily a result of higher

net sales, which was more than offset by lower gross margins

due to significant inflationary pressures and the unfavorable impact

of foreign currency translation.

Global Specialty Businesses

Global Specialty Businesses represented approximately 20% of the

Company’s consolidated net sales in the

first nine months of

The segment’s net sales were $288.0

million, an increase of $51.6 million or 22% compared to the first nine months of 2021.

The increase in net sales was driven by higher selling price and product

mix of 15%, an increase in organic sales volumes of 8% and

additional net sales from acquisitions of 3%, partially offset

by the unfavorable impact from foreign currency translation of

approximately 4%.

The increase in selling price and product mix was 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 into 2022.

The increase in

organic sales volumes was primarily attributable

to a continued favorable demand environment for this segment’s

unfavorable foreign exchange impact was primarily due to the strengthening

dollar against the euro described in the EMEA

section above.

This segment’s operating earnings

were $83.6 million, an increase of $14.6 million or 21% compared to the first

months of 2021.

The increase in segment operating earnings reflects higher net sales and comparable gross

margins, partially offset

by the negative impact of foreign currency translation.

The three geographic segments are comprised of the assets and operations in each respective region, including assets and operations formerly included in the Global Specialty Businesses segment.

Prior to the Company’s reorganization, the Company’s historical reportable segments were:

(i) Americas;

(iii) Asia/Pacific;

and (iv) Global Specialty Businesses.

All prior period information has been recast to reflect the Company’s new reportable segments.

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 and Restructuring and related charges.

Other items not specifically identified with the Company’s reportable segments include interest expense, net, and other expense, net.

Americas represented approximately 50% of the Company’s consolidated net sales in the first quarter of 2023.

The segment’s net sales were $251.4 million, an increase of $39.3 million or 19%, compared to the first quarter of 2022.

The increase in net sales was due to higher selling price and product mix of 22% and the favorable impact of foreign currency translation of 1%, partially offset by a decrease in organic sales volumes of 4%.

The increase in selling price and product mix was primarily driven by the year-over-year impact of price increases implemented throughout 2022 to offset the significant increases in raw material and other input costs.

The current quarter decline in organic sales volumes was primarily driven by softer market conditions, the wind-down of the tolling agreement for products previously divested related to the Combination and the Company’s ongoing value-based pricing initiatives partially offset by new business win s.

This segment’s operating earnings were $66.1 million, an increase of $21.1 million or 47%, compared to the first quarter of 2022 primarily driven by higher net sales coupled with a recovery in margins reflecting the Company’s ongoing initiatives aimed at offsetting the significant inflationary pressures impacting the business.

EMEA represented approximately 31% of the Company’s consolidated net sales in the first quarter of 2023 .

The segment’s net sales were $152.4 million, an increase of $5.6 million or 4%, compared to the first quarter of 2022 .

This was driven by higher selling price and product mix of 19%, partially offset by the unfavorable impact of foreign currency translation of 4% and a decrease in sales volumes of 11%.

The decline in sales volumes was primarily driven by softer market conditions, including the direct and indirect impacts of the ongoing war in Ukraine, as well as lower volumes associated with the Company’s ongoing value-based pricing initiatives and the wind-down of the tolling agreement for products previously divested related to the Combination.

The unfavorable foreign curren cy translation impact was primarily due to the strengthening of the U.S.

dollar against the euro as this exchange rate averaged 1.07 U.S.

dollar per euro in the first quarter of 2023 compared to 1.12 U.S.

dollar per euro in the first quarter of 2022.

This segment’s operating earnings were $27.6 million, an increase of $4.3 million or 19%, compared to the first quarter of 2022 .

The increase in segment operating earnings was primarily driven by higher net sales coupled with a recovery in margins reflecting the Company’s ongoing initiatives aimed at offsetting the significant inflationary pressures on impacting the business .

Asia/Pacific represented approximately 19% of the Company’s consolidated net sales in the first quarter of 2023.

The segment’s net sales were $96.3 million, a decrease of $19.0 million or 16%, compared to the first quarter of 2022.

The decrease in net sales was driven by lower organic sales volumes of 22% and an unfavorable impact from foreign currency translation of 6%, partially offset by higher selling price and product mix of 12%.

The decline in organic sales volumes was primarily driven by softer market conditions, including the impact of COVID-19 lockdown measures, primarily in China, as well as lower volumes associated with the Company’s ongoing value-based pricing initiatives.

The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S.

dollar against the Chinese renminbi as this exchange rate averaged 6.84 Chinese renminbi per U.S.

dollar in the first quarter of 2023 compared to 6.35 Chinese renminbi per U.S.

dollar in the first quarter of 2022.

The increase in selling price and product mix was primarily driven by year-over-year impact of price increases implemented throughout 2022 to offset the significant increases in raw material and other input costs.

This segment’s operating earnings were $27.7 million, an increase of $3.2 million or 13% compared to the first quarter of 2022.

The increase in segment operating earnings was primarily driven by a recovery in margins reflecting the Company’s ongoing initiatives aimed at offsetting the significant inflationary pressures as well as slightly lower levels of SG&A, which more than offset the decline in net sales.

Quaker Chemical Corporation

1 unchanged sentence

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation Reform

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 statements regarding the impact of increased raw material costs and

pricing initiatives on our current expectations about future

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;

(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 us 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 on our current expectations about future events, including statements regarding the potential effects of the COVID-19 pandemic, the Russia and Ukraine conflict, inflation, bank failures, higher interest rate environment, global supply chain constraints on the Company’s business, results of operations, and financial condition, our expectation that we will maintain sufficient liquidity, remain in compliance with the terms of the Company’s credit facility, expectations about future demand and raw material costs and statements regarding the impact of increased raw material costs and pricing initiatives.

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 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 and

actions taken by various governments and governmental organizations

cost increases and the impacts of constraints and disruptions in the global supply

the potential for a variety of macroeconomic events, including the possibility of global

or regional recessions, inflation

generally, cost increases in

prices of raw materials such as oil and increasing interest rates, to impact the value of our

assets or result in asset impairments;

• the timing and extent of the projected impacts on our business as a result of the Ukrainian and Russian conflict and actions taken by various governments and governmental organizations in response;

• inflationary pressures, cost increases and the impacts of constraints and disruptions in the global supply chain;

• the potential benefits of acquisitions

• the potential for a variety of macroeconomic events, including the possibility of global or regional recessions, inflation generally, continued or accelerated cost increases in prices of raw materials such as oil and increasing interest rates, to impact the value of our assets or result in asset impairments or otherwise adversely affect our business;

• our current and future results and plans including our sustainability goals;

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.

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

Consequently, actual results may

differ materially from those that might be anticipated from our forward-looking

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,

inflationary pressures, including the potential for continued significant

increases in raw material costs, supply chain disruptions,

customer financial instability,

rising interest rates and the possibility of economic recession, 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

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

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 parti

es 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

• 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.

Any or all of the forward-looking statements in this Report, in the Company’s Annual Report to Shareholders for 2022 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 disruptions.

Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID-19 pandemic, as well as inflationary pressures, including the potential for continued significant increases in raw material costs, supply chain disruptions, customer financial instability, rising interest rates and the possibility of economic recession, 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.

Other factors could also adversely affect us, including those related to acquisitions and the integration of acquired businesses.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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

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.

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 2022 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

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

reference in this Report and, accordingly,

you should not consider that information part of this Report.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis