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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 190 added, 296 removed, 129 unchanged (79% of the section changed)

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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.

Executive Summary

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Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S.

Despite a continued challenging economic environment, the Company delivered strong results in the third quarter of 2023.

Net sales in the third quarter of 2023 were $490.6 million, a decrease of less than 1% compared to $492.2 million in the third quarter of 2022.

This was primarily driven by an increase in selling price and product mix of approximately 2% and a favorable impact of foreign currency translation of 2%, offset by a 4% decrease in sales volumes.

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

The decline in sales volumes was primarily attributable to soft end market conditions, primarily in the Americas and EMEA segments, partially offset by new business wins.

The Company generated net income in the third quarter of 2023 of $33.7 million, or $1.87 per diluted share, compared to net income of $25.9 million, or $1.44 per diluted share in the third quarter of 2022.

Excluding non-recurring and non-core items in each period, the Company’s third quarter of 2023 non-GAAP earnings per diluted share were $2.05 compared to $1.74 in the prior year quarter and the Company’s current quarter adjusted EBITDA was $84.4 million compared to $70.3 million in the third quarter of 2022.

These current quarter earnings were primarily driven by 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 year-over-year inflationary pressures and higher labor-related costs.

Quaker Houghton delivered strong results in the first quarter of 2024.

Net sales in the first quarter of 2024 were $469.8 million, a decrease of 6% compared to $500.1 million in the first quarter of 2023.

This was primarily driven by a decrease in selling price and product mix of approximately 5% and a 1% decrease in sales volumes.

The decrease in selling price and product mix was primarily attributable to our index-based customer contracts.

The decline in sales volumes was a result of soft end market conditions compared to the prior year, primarily in the Americas and EMEA segments, partially offset by a broad improvement in end market activity in the Asia/Pacific segment as well as new business wins across all segments.

The Company generated net income in the first quarter of 2024 of $35.2 million, or $1.95 per diluted share, compared to net income of $29.5 million, or $1.64 per diluted share in the first quarter of 2023.

Excluding non-recurring and non-core items in each period, the Company’s first quarter 2024 non-GAAP earnings per diluted share was $2.09 compared to $1.89 in the prior year quarter and the Company’s current quarter adjusted EBITDA was $83.3 million compared to $78.8 million in the first quarter of 2023.

The increase in current quarter earnings was primarily driven by an improvement in gross margins related to a reduction in raw material costs compared to the prior year quarter, partially offset by lower net sales and higher selling, general and administrative expenses (“SG&A”) as a result of 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:

The Company’s first quarter 2024 operating performance in each of its three reportable segments:

(i) Americas;

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

and (iii) Asia/Pacific.

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

and (iii) Asia/Pacific, reflects similar drivers to that of its consolidated performance.

Operating earnings for all segments increased compared to the prior year quarter, driven by 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 $199.5 million in the first nine months of 2023 compared to net cash flows used in operating activities of $26.3 million in the first nine months of 2022.

The net operating cash inflow year-over-year reflects higher operating performance in 2023 compared to 2022 as well as a favorable shift from a working capital investment in the prior year to positive cash flows from working capital in the first nine months of 2023.

Net cash flows provided by operating activities were $27.2 million in the first three months of 2024 compared to $37.8 million in the first three months of 2023.

The lower operating cash flow year-over-year reflects an increase in the net cash outflows from working capital in the first three months of 2024 partially offset by higher operating performance in the first three months of 2024 compared to 2023.

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 strong results in the third quarter of 2023 including relatively stable net sales and an improvement in gross margins.

These factors contributed to the Company’s current quarter earnings growth despite ongoing inflationary pressures, macroeconomic and geopolitical challenges, soft end market conditions and other factors that have 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, geopolitical and end market environment, as well as the potential impact of the automotive industry labor dispute in the Americas segment.

The Company is encouraged by its continued execution on its financial and operational priorities and the positive momentum built through the first nine months of 2023 and continues to expect to deliver higher earnings and cash flow in 2023 as compared to 2022.

Overall, the Company delivered strong results in the first quarter of 2024 highlighted by margin improvement and earnings growth, notwithstanding the macroeconomic and geopolitical challenges, continued soft end market conditions and other factors that have impacted the Company’s customers and end markets.

Looking at the remainder of 2024, the Company remains focused on executing on items within its control as it manages through a dynamic end market environment.

The Company is encouraged by its continued execution on its financial and operational priorities.

Critical Accounting Policies and Estimates

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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.

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

Quaker Chemical Corporation

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Liquidity and Capital Resources

As of September 30, 2023, we had cash and cash equivalents of $198.4 million.

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

The $17.4 million increase in cash and cash equivalents was the net result of $199.5 million of cash provided by operating activities partially offset by $150.5 million of cash used in financing activities, $25.8 million of cash used in investing activities and an unfavorable impact due to the effect of foreign currency translation of approximately $5.8 million.

The increase in net operating cash flow year-over-year reflects higher year-over-year operating performance as well as a cash inflow from working capital, notably reductions in accounts receivable and inventory, in the current year, demonstrating the Company’s ongoing focus on cash conversion.

Comparatively, during the first nine months of 2022, operating cash flow was negatively impacted by a significant working capital investment due to inflationary impacts on inventory and related pricing impacts on accounts receivable.

Net cash flows used in investing activities were $25.8 million in the first nine months of 2023 compared to $29.6 million in the first nine months of 2022.

The lower level of cash used in investing activities year-over-year is the result of lower payments in the current year related to acquisitions which the Company had in the prior year, partially offset by higher capital expenditures in the current year.

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

Net cash flows used in financing activities were $150.5 million in the first nine months of 2023 compared to net cash flows provided by financing activities of $46.6 million in the first nine months of 2022.

The increase in net cash outflows was primarily related to net repayments of borrowings in the first nine months of 2023, primarily under the Company’s Credit Facility, described further below, as compared to net borrowings in the first nine months of 2022, which included the impact of new borrowings, net of repayments of old borrowings and debt issuance costs, related to the June 2022 credit facility amendment, described further below.

In addition, the Company paid $23.5 million of cash dividends during the first nine months of 2023, a $1.2 million, or 5% increase, in cash dividends compared to the prior year quarter.

As of March 31, 2024, we had cash and cash equivalents of $195.8 million.

Total cash and cash equivalents were $194.5 million as of December 31, 2023.

The approximately $1.2 million increase in cash and cash equivalents was the net result of $27.2 million of cash provided by operating activities and $6.6 million of cash provided financing activities, offset by $29.3 million of cash used in investing activities and an unfavorable impact due to the effect of foreign currency translation of approximately $3.3 million.

Net cash flows provided by operating activities were $27.2 million in the first three months of 2024 compared to $37.8 million in the first three months of 2023.

The decrease in net operating cash flow year-over-year reflects higher cash outflows from working capital in 2024, driven by higher Accounts payable and accrued liabilities outflows due primarily to higher incentive compensation payments in the current year due to our improved 2023 results and a lower inflow from accounts payable due to timing of spend and payments.

The decrease in net operating cash flows was partially offset by higher operating performance in 2024 compared to 2023.

Net cash flows used in investing activities were $29.3 million in the first three months of 2024 compared to $6.2 million in the first three months of 2023.

The increase in cash used in investing activities year-over-year is the result of increased payments in the current year related to the IKV acquisition.

See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for further information about business acquisitions.

Net cash flows provided by financing activities were $6.6 million in the first three months of 2024 compared to net cash flows used in financing activities of $24.9 million in the first three months of 2023.

The increase in cash inflows was primarily related to net borrowings on the Company’s revolving credit facility in the first three months of 2024, primarily under the Company’s Credit Facility as described further below, as compared to net repayments in the first three months of 2023.

In addition, the Company paid $8.2 million of cash dividends during the first three months of 2024, a $0.4 million, or 5% increase 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.

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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 September 30, 2023 , the Company had Credit Facility borrowings outstanding of $814.8 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 $11.1 million as of September 30, 2023 and $11.3 million as of December 31, 2022 .

Total unused capacity under these arrangements as of September 30, 2023 was approximately $34 million .

The Company’s total net debt as of September 30, 2023, which consists of total borrowings of $825.9 million less cash and cash equivalents of $198.4 million, was $627.5 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 September 30, 2023, the Company was in compliance with all of the Credit Facility covenants.

As of March 31, 2024, 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 19 of Notes to Consolidated Financial Statements in its 2023 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 and nine months ended September 30, 2023 was approximately 6.4% and 6.1%, respectively.

As of September 30, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 6.3%.

As of March 31, 2024 , the Company had Credit Facility borrowings outstanding of $757.3 million .

As of December 31, 2023 , the Company had Credit Facility borrowings outstanding of $744.5 million.

The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $12.3 million as of March 31, 2024 and $11.1 million as of December 31, 2023 .

Total unused capacity under these arrangements as of March 31, 2024 was approximately $34 million .

The Company’s total net debt as of March 31, 2024, which consists of total borrowings of $769.6 million less cash and cash equivalents of $195.8 million, was approximately $573.8 million.

The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the three months ended March 31, 2024 was approximately 6.4%.

As of March 31, 2024, the interest rate on the outstanding borrowings under the Credit Facility was approximately 6.1%.

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 $414 million, which is net of bank letters of credit of approximately $3 million, as of September 30, 2023.

The Company had unused capacity under the Revolver of approximately $445 million, which is net of bank letters of credit of approximately $3 million, as of March 31, 2024.

In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as SOFR, 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, 2024, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3%.

See Note 17 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for further information.

Quaker Chemical Corporation

Management’s Discussion and Analysis

As of September 30, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3%.

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.

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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 September 30, 2023, the Company had $1.7 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheet and $3.6 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 an offset 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.

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

As of March 31, 2024, the Company had $1.4 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheets and $3.1 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

Comparatively, as of December 31, 2023, the Company had $1.5 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheets and $3.3 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet in Item 1 of this Report.

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 first nine months ended 2023, the Company entered into and settled forward contracts resulting in cash proceeds of $2.1 million .

See Note 17 of Notes to Condensed Consolidated Financial Statements.

In the first nine months of 2022 , the Company incurred $8.0 million of total Combination, integration and other acquisition-related expenses, 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 nine months of 2022 of $4.3 million.

T he Company had no Combination, integration and other acquisition-related expenses in the first nine months of 2023, except for $0.5 million in other income related to changes for an indemnification asset related to the Combination .

During the first nine months of 2023 , the Company incurred $3.8 million of strategic planning expenses as compared to $4.5 million during the first nine 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 had substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which has been paid as of September 30, 2023.

During the first three months of 2024, the Company entered into and settled forward contracts resulting in other income of $0.9 million as compared to $0.3 million during first three months of 2023 .

See Note 17 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for further information .

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 exact timing to complete all actions and final associated costs 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 $6.0 million and $0.6 million for the nine months ended September 30, 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 nine months of 2023 of approximately $7.9 million compared to $0.4 million in the first nine months of 2022.

The Company has remaining restructuring accruals, as of September 30, 2023, for this program of $3.6 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 September 30, 2023, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $20.4 million.

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

The Company recognized Restructuring and related charges of $1.9 million and $4.0 million for the three months ended March 31, 2024, and 2023, respectively, under this program.

The Company made cash payments related to the settlement of restructuring liabilities under the restructuring program during the first three months of 2024 of approximately $3.7 million compared to $2.7 million in the first three months of 2023.

The Company has remaining restructuring accruals, as of March 31, 2024, for this program of $1.5 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 for further information.

As of March 31, 2024, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $18.4 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 $5.7 million as a result of offsetting benefits in other tax jurisdictions.

As previously disclosed in the Company’s 2023 Form 10-K, on February 28, 2024, the Board of Directors of the Company approved a new share repurchase program (“2024 Share Repurchase Program”), authorizing the Company to repurchase up to an aggregate of $150 million of the Company’s outstanding common stock and replacing the prior share repurchase program.

The 2024 Share Repurchase Program is effective immediately and has no expiration date.

There were no shares repurchased during the first three months of 2024.

The Company previously disclosed in its 2023 Form 10-K that one of its locations suffered property damage as a result of an electrical fire.

The Company and its insurance carrier continue to review the impact of the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim;

however, as of the date of this Report, the Company cannot reasonably estimate the probable amount of business interruption insurance claim recoverable, if any.

Therefore, the Company has not recorded a gain contingency for a possible business interruption insurance claim as of March 31, 2024.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations suffered property damage 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 and nine months ended September 30, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted.

Through September 30, 2023, the Company has received cumulative payments from its insurers of $5.9 million associated with these events.

During the nine months ended September 30, 2023, the Company recognized a gain on insurance recoveries of $1.0 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 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, capital expenditures, other growth opportunities (including potential acquisitions), pension plan contributions, implementing actions to achieve the Company’s sustainability goals and other potential known or anticipated contingencies.

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Non-GAAP Operating Income and Margin Reconciliations Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Operating income $ 55,526 $ 49,929

Combination, integration and other acquisition-related expenses (a) — 2,107 — 7,992

Restructuring and related charges (credits), net (b) 1,019 (1,423) 6,034 (609)

Strategic planning expenses (c) 1,093 4,545 3,759 10,745

Russia-Ukraine conflict related expenses (d) — 88 — 2,183

Other charges (e) 206 1,016 855 2,681

Restructuring and related charges, net (a) 1,857 3,972

Strategic planning (credits) expenses (b) (109) 2,087

Customer insolvency costs (g) 1,522 —

Other charges (d) 446 305

Non-GAAP operating income $ 59,242 $ 56,293

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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net income attributable to Quaker Chemical Corporation $ 35,227 $ 29,534

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EBITDA 79,615 72,819

Equity (income) loss in a captive insurance company (f) (756) 174 (748) 2,199

Combination, integration and other acquisition-related expenses (credits) (a) — 2,107 (475) 10,387

Restructuring and related charges (credits), net (b) 1,019 (1,423) 6,034 (609)

Strategic planning expenses (c) 1,093 4,545 3,759 10,745

Russia-Ukraine conflict related expenses (d) — 88 — 2,183

Currency conversion impacts of hyper-inflationary economies (g) 1,229 991 2,869 1,216

Loss on extinguishment of debt (i) — — — 6,763

Other charges (credits) (e) 886 (540) 1,515 172

Equity income in a captive insurance company (e) (506) (422)

Restructuring and related charges, net (a) 1,857 3,972

Strategic planning (credits) expenses (b) (109) 2,087

Customer insolvency costs (g) 1,522 —

Facility remediation recoveries (c) — (827)

Product liability claim costs (h) 896 —

Currency conversion impacts of hyper-inflationary economies (f) (904) 456

Other charges (d) 911 706

Adjusted EBITDA $ 83,282 $ 78,791

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Interest expense, net 10,824 13,242

Taxes on income before equity in net income of associated companies - adjusted (a)(k) 13,806 10,821 36,766 27,189

Taxes on income before equity in net income of associated companies - adjusted (k) 13,729 11,047

Non-GAAP net income $ 37,673 $ 33,992

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Non-GAAP Earnings per Diluted Share Reconciliations Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 1.95 $ 1.64

Equity (income) loss in a captive insurance company per diluted share (f) (0.04) 0.01 (0.04) 0.12

Combination, integration and other acquisition-related expenses (credits) per diluted share (a) — 0.09 (0.03) 0.47

Restructuring and related charges (credits), net per diluted share (b) 0.04 (0.05) 0.25 (0.02)

Strategic planning expenses per diluted share (c) 0.04 0.19 0.17 0.46

Russia-Ukraine conflict related expenses per diluted share (d) — 0.01 — 0.11

Currency conversion impacts of hyper-inflationary economies per diluted share (g) 0.07 0.06 0.16 0.07

Loss on extinguishment of debt per diluted share (i) — — — 0.29

Other charges (credits) per diluted share (e) 0.04 (0.03) 0.06 —

Impact of certain discrete tax items per diluted share (h) 0.03 0.02 0.16 (0.37)

Equity income in a captive insurance company per diluted share (e) (0.03) (0.02)

Restructuring and related charges, net per diluted share (a) 0.08 0.17

Strategic planning (credits) expenses per diluted share (b) — 0.10

Customer insolvency costs per diluted share (g) 0.06 —

Facility remediation recoveries per diluted share (c) — (0.04)

Product liability claim costs per diluted share (h) 0.04 —

Currency conversion impacts of hyper-inflationary economies per diluted share (f) (0.05) 0.03

Other charges per diluted share (d) 0.04 0.02

Impact of certain discrete tax items per diluted share (i) — (0.01)

Non-GAAP earnings per diluted share (m) $ 2.09 $ 1.89

(a) Combination, integration and other acquisition-related expenses (credits) in 2022 included certain legal, financial, and other advisory and consultant costs incurred in connection with the Combination integration activities and similar expenses associated with the Company's other recent acquisitions.

(a) Restructuring and related charges, net represent the costs incurred by the Company associated with the Company’s restructuring program.

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 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 nine months ended September 30, 2023, the Company recorded $0.5 million of other income due to changes in an indemnification asset related to the Combination.

Similarly, during the nine months ended September 30, 2022, the Company recorded $2.4 million, respectively, of other expense due to changes in a Combination-related indemnification asset.

The amounts recorded that are related to the changes in indemnification assets are included in the caption “Combination, integration and other acquisition-related (credits) 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.

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 (credits), net represent the costs (credits) incurred by the Company associated with the Company’s restructuring programs.

These costs (credits) 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 direct costs associated with the Company’s exit of operations in Russia during 2022, including costs 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 for certain customers who filed for bankruptcy protection and were directly impacted by the conflict between Russia and Ukraine.

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

(e) Other charges (credits) 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 and non-service components of the Company’s pension and postretirement net periodic benefit income and expense.

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

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

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

(c) Facility remediation recoveries represent the net gain associated with the insurance receipts from remediation, cleaning and subsequent restoration of property damage to certain of the Company’s facilities.

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

There were no such gains recognized for the three months ended March 31, 2024.

See Note 10 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.

(d) Other charges include executive transition costs incurred during 2023, 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 expense, and certain legal, financial, and other advisory and consultant costs incurred in connection with the Company's recent acquisitions.

See Notes 2, 9, and 10 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(f) Equity (income) loss in a captive insurance company represents the after-tax income attributable to the Company’s interest in Primex, Ltd.

(e) 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 (income) loss attributable to Primex is not indicative of the future operating performance of the Company and is not considered core to the Company’s operations.

(g) Currency conversion impacts of hyper-inflationary economies represents the foreign currency remeasurement impacts associated with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S.

During both the three and nine months ended September 30, 2023 and 2022, the Company incurred non-deductible, pre-tax charges related to the Company’s Argentina and Türkiye affiliates.

The charges incurred related to the immediate recognition of foreign currency remeasurement in the Consolidated Statements of Income associated with these entities are not indicative of the future operating performance of the Company.

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

(h) The impacts of certain discrete tax items include changes in valuation allowances recorded on certain Brazilian branch foreign tax credits and the related deferred taxes.

These discrete items relate to tax law changes occurring in 2022 and 2023, both in the United States and Brazil which impacted the creditability of Brazilian foreign taxes in the U.S.

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.

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.

(f) Currency conversion impacts of hyper-inflationary economies represents the foreign currency remeasurement impacts associated with the Company’s affiliates in Argentina and Türkiye whose local economies are designated as hyper-inflationary under U.S.

These pre-tax foreign currency remeasurement impacts are not deductible for tax purposes for both the three months ended March 31, 2024 and 2023.

The (credits) charges incurred relate to the immediate recognition of foreign currency remeasurement in the Condensed Consolidated Statements of Operations and are not indicative of the future operating performance of the Company.

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

(i) In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million during the period ended September 30, 2022 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.

(g) Customer insolvency costs represent charges associated with a specific reserve for trade accounts receivable within the Company’s EMEA reportable segment related to a specific customer who filed for bankruptcy protection.

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

(h) Product liability claim costs includes recorded expense related to the payment of a product liability dispute with one of the Company’s customers during the three months ended March 31, 2024.

See Note 10 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.

(j) Depreciation and amortization for both the three and nine months ended September 30, 2023 and September 30, 2022 includes approximately $0.3 million and $0.8 million, respectively, 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.

(k) 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 (credits) described in (a) resulted in an incremental tax expense of $0.5 million and $1.9 million for the three and nine months ended September 30, 2022, respectively.

Restructuring and related charges (credits), net described in (b) above resulted in incremental taxes of $0.2 million and $1.5 million for the three and nine months ended September 30, 2023, respectively, compared to an incremental benefit of $0.3 million and $0.1 million for the three and nine months ended September 30, 2022, respectively.

Strategic planning expenses described in (c) above resulted in incremental taxes of $0.3 million and $0.9 million for the three and nine months ended September 30, 2023, respectively, compared to incremental taxes of $1.0 million and $2.5 million for the three and nine months ended September 30, 2022, 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 incremental taxes of $0.2 million and $0.4 million for the three and nine months ended September 30, 2023, compared to incremental taxes of $0.1 million and a tax benefit of $0.1 million for the three and nine months ended September 30, 2022, respectively.

The impact of certain discrete items described in (h) resulted in a tax benefit of $0.5 million and $2.9 million for the three and nine months ended September 30, 2023, respectively, compared to a tax benefit of $0.5 million and incremental taxes of $6.4 million for the three and nine months ended September 30, 2022, respectively.

Loss on extinguishment of debt described in (i) resulted in incremental taxes of $1.6 million during the nine months ended September 30, 2022.

(l) 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.

(m) The Company calculates non-GAAP earnings per diluted share as non-GAAP net income attributable to the Company per weighted average diluted shares outstanding using the “two-class share method” to calculate such in each given period.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(i) The impacts of certain discrete tax items include certain impacts of tax law changes, valuation allowance adjustments, uncertain tax positions and prior year true-ups, and the impact on certain intercompany asset transfers.

The Company does not believe these items are core or indicative of future performance of the Company.

See Note 11 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.

(j) Depreciation and amortization for both the three months ended March 31, 2024 and 2023 includes 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 adjustments.

(l) 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.

(m) The Company calculates non-GAAP earnings per diluted share as non-GAAP net income attributable to the Company divided by the weighted average number of diluted shares outstanding using the “two-class share method.”

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or obligations as of September 30, 2023.

The Company’s off-balance sheet items outstanding as of September 30, 2023 includes approximately $5 million of total bank letters of credit and guarantees.

The Company had no material off-balance sheet commitments or obligations as of March 31, 2024.

The Company’s off-balance sheet items outstanding as of March 31, 2024 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 Third Quarter of 2023 with the Third Quarter of 2022

Net sales were $490.6 million in the third quarter of 2023 compared to $492.2 million in the third quarter of 2022.

The net sales decrease of $1.6 million, or less than 1%, quarter-over-quarter reflects an increase in selling price and product mix of approximately 2% and a favorable impact of foreign currency translation of 2%, offset by a decline in sales volumes of approximately 4%.

The increase in selling price and product mix was primarily driven by year-over-year impact of our value-based pricing initiatives.

The decline in sales volumes was primarily attributable to softer end market conditions across the Company’s EMEA and Americas segments and the Company’s value-based pricing initiatives, partially offset by an increase in sales volumes in the Asia/Pacific segment and a positive contribution from new business wins in all segments .

COGS were $307.3 million in the third quarter of 2023 compared to $331.5 million in the third quarter of 2022, a decrease of $24.2 million.

The decrease in COGS reflects lower spend on the decline in current year sales volumes and to a lesser extent softening in the Company’s global raw material costs.

Gross profit was $183.3 million in the third quarter of 2023 compared to $160.7 million in the third quarter of 2022, an increase of approximately $22.6 million or 14%.

The Company’s reported gross margin in the third quarter of 2023 was 37.4% compared to 32.7% in the third quarter of 2022 primarily driven by the year-over-year impact of our value-based pricing initiatives, primarily implemented in 2022, which offset significant increases in raw material and other input costs.

SG&A was $122.8 million in the third quarter of 2023 compared to $115.5 million in the third quarter of 2022, an increase of approximately $7.3 million or 6%, driven by higher labor-related costs, including year-over-year inflationary increases, and higher levels of incentive compensation due to improved Company performance.

The Company incurred $2.1 million of Combination, integration and other acquisition-related operating expenses in the third quarter of 2022, primarily due to various professional fees related to legal, financial and other advisory and consultant expenses for Combination integration activities.

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

The Company incurred Restructuring and related charges of $1.0 million and a credit of $1.4 million during the third quarters of 2023 and 2022, respectively, related to reductions in headcount and site closures under the Company’s restructuring programs.

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

Operating income in the third quarter of 2023 was $59.5 million compared to $44.6 million in the third 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 $61.8 million in the third quarter of 2023 as compared to $50.9 million in the third quarter of 2022 primarily due to higher gross profit partially offset by higher SG&A, as described above.

The Company had Other expense, net of $2.7 million in the third quarter of 2023 as compared to other income, net of $0.1 million in the third quarter of 2022.

Both the third quarter of 2023 and 2022 included foreign exchange transaction losses, which were higher in the current year.

The third quarter of 2022 also included facility remediation recoveries, net of $1.1 million.

The Company had no such facility remediation recoveries during the third quarter of 2023.

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

Interest expense, net, was $12.8 million in the third quarter of 2023 compared to $8.4 million in the third quarter of 2022, an increase of $4.4 million as a result of an increase in interest rates partially offset by a reduction in borrowings outstanding.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company’s effective tax rates for the third quarters of 2023 and 2022 were 30.9% and 28.1%, respectively.

The Company’s effective tax rate for the third quarter of 2023 was primarily impacted by foreign tax inclusions, withholding taxes, return to provision adjustments, the impact of U.S Department of Treasury guidance on the usage of foreign tax credits, and the impact of forecasted pre-tax earnings and the mix of such earnings.

Comparatively, the effective tax rate for the third quarter of 2022 was largely driven by foreign tax inclusions, a reduction in reserves for uncertain tax positions, withholding taxes, and the impact of forecasted pre-tax earnings and the mix of such earnings.

In addition, the effective tax rate for the third quarter of 2022 was impacted by the Company recording earnings of one of its subsidiaries 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 the third quarters of 2023 and 2022 would have been approximately 28% and 26%, 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, 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 $3.3 million in the third quarter of 2023 compared to a net loss of $0.2 million in the third quarter of 2022, an increase of $3.5 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 third quarter of 2023 and 2022.

Foreign exchange negatively impacted the Company’s third quarter of 2023 results by approximately 1% compared to the third quarter of 2022 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 2023 with the First Nine Months of 2022

Net sales were $1,486.2 million in the first nine months of 2023 compared to $1,458.8 million in the first nine months of 2022.

The net sales increase of $27.4 million or 2% year-over-year reflects increases in selling price and product mix of approximately 11%, partially offset by a decline in sales volumes of approximately 9%.

The increase in selling price and product mix was primarily driven by year-over-year impact of our value-based pricing initiatives.

The decline in sales volumes was primarily attributable to softer end market conditions across all regions, the Company’s value-based pricing initiatives and customer order patterns, as well as the impacts of the ongoing war in Ukraine in the EMEA segment, and the wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by new business wins, as mentioned above .

COGS were $951.7 million in the first nine months of 2023 compared to $1,002.4 million in the first nine months of 2022.

The decrease in COGS of $50.7 million or 5% reflects lower spend on the decline in current year sales 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 in the first nine months of 2023 increased $78.1 million or 17% from the first nine months of 2022.

The Company’s reported gross margin in the first nine months of 2023 was 36.0% compared to 31.3% in the first nine months of 2022.

The Company’s current year improvement in gross margin was primarily driven by the year-over-year impact of our value-based pricing initiatives and, to a lesser extent, decreases in raw material and other input costs.

SG&A in the first nine months of 2023 increased $19.1 million or 6% compared to the first nine months of 2022 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 $8.0 million of Combination, integration and other acquisition related operating expenses in the first nine months of 2022, primarily due to various professional fees related to legal, financial and other advisory and consultant expenses for integration activities including internal control remediation.

There were no similar costs in the first nine months of 2023.

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

The Company incurred Restructuring and related charges of $6.0 million and credits of $0.6 million during the first nine months of 2023 and 2022, respectively, related to reductions in headcount and site closures under the Company’s previous and current restructuring programs.

Consolidated Operations Review – Comparison of the First Quarter of 2024 with the First Quarter of 2023

Net sales were $469.8 million in the first quarter of 2024 compared to $500.1 million in the first quarter of 2023.

The net sales decrease of $30.3 million, or 6%, year-over-year reflects a decrease in selling price and product mix of approximately 5%, and a decline in sales volumes of approximately 1%.

The decrease in selling price and product mix was primarily attributable to our index-based customer contracts.

The decline in sales volumes was primarily attributable to a continuation of soft end market conditions across the Company’s EMEA and Americas segments, partially offset by an increase in sales volumes in the Asia/Pacific segment and a positive contribution from new business wins in all segments .

COGS was $288.2 million in the first quarter of 2024 compared to $326.7 million in the first quarter of 2023, a decrease of $38.5 million or 12%.

The decrease in COGS reflects lower spend on the decline in current year sales volumes and a decline in the Company’s global raw material costs.

Gross profit was $181.6 million in the first quarter of 2024 compared to $173.5 million in the first quarter of 2023, an increase of approximately $8.1 million or 5%.

The Company’s reported gross margin in the first quarter of 2024 was 38.7% compared to 34.7% in the first quarter of 2023 primarily driven by a reduction in raw material costs.

SG&A was $124.2 million in the first quarter of 2024 compared to $119.5 million in the first quarter of 2023, an increase of approximately $4.7 million or 4%, driven by higher labor-related costs and higher incentive compensation due to improved Company performance and a charge related to a customer insolvency.

The Company incurred Restructuring and related charges of $1.9 million and $4.0 million during the first quarters of 2024 and 2023, respectively, related to reductions in headcount and site closures under the Company’s restructuring program.

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

Operating income in the first quarter of 2024 was $55.5 million compared to $49.9 million in the first quarter of 2023.

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 $59.2 million in the first quarter of 2024 as compared to $56.3 million in the first quarter of 2023 primarily due to higher gross profit partially offset by higher SG&A, as described above.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Operating income in the first nine months of 2023 was $166.2 million compared to $105.9 million in the first nine months 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 current year non-GAAP operating income increased to $176.9 million for the first nine months of 2023 compared to $128.9 million in the prior year’s first nine months primarily due to higher gross profit partially offset by higher SG&A, described above.

The Company had Other expense of $8.6 million in the first nine months of 2023 compared to $10.5 million in the first nine months of 2022.

The first nine months of 2023 and 2022 results include $1.0 million and $1.1 million, respectively, of facility remediation recoveries, while the prior year’s first nine months of 2022 Other expense also includes a $6.8 million of loss on extinguishment of debt related to the Company’s refinancing the Original Credit Facility.

The Company had Other income, net of $1.1 million in the first quarter of 2024 as compared to Other expense of $2.2 million in the first quarter of 2023.

Both the first quarter of 2024 and 2023 included foreign exchange transaction losses, which were higher in the prior year.

The first quarter of 2023 also included facility remediation recoveries, net of $0.8 million.

The Company had no such facility remediation recoveries during the first quarter of 2024.

Additionally, the Company had Other income from non-income tax credits, partially offset by a non-recurring product liability claim expense in the first quarter of 2024.

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

Also, there was higher foreign currency transaction losses in 2023 compared to 2022.

Interest expense, net, increased $18.5 million in the first nine months of 2023 compared to the first nine months of 2022, due to an increase in interest rates in the current year partially offset by lower borrowings outstanding as compared to the prior year.

The Company’s effective tax rates for the first nine months of 2023 and 2022 were 31.1% and 19.2%, respectively.

The Company’s effective tax rate for the nine months ended September 30, 2023 was primarily impacted by changes to the valuation allowance for and the usage of foreign tax credits due to an enacted law change in Brazil and additional guidance from the U.S Department of Treasury, foreign tax inclusions, withholding taxes, share-based compensation, state income taxes, and the impact of forecasted pre-tax earnings and the mix of such earnings.

Comparatively, the effective tax rate for the nine months ended September 30, 2022 was impacted by foreign tax inclusions, changes in the valuation allowance for foreign tax credits, the impact of audit settlements, a reduction in reserves for uncertain tax positions, withholding taxes, and the impact of forecasted pre-tax earnings and the mix of such earnings.

In addition, the effective tax rate during the nine months ended September 30, 2022 was impacted by the Company recording earnings of one of its subsidiaries 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 period, described in the Non-GAAP Measures section of this Item, above, the Company estimates that its effective tax rates for the first nine months of 2023 and 2022 would have been approximately 28% and 26%, respectively.

Equity in net income (loss) of associated companies increased $11.3 million in the first nine months of 2023 compared to the first nine months of 2022, primarily due to higher current year income from the Company’s interest in a captive insurance company (see the Non-GAAP Measures section of this Item, above), as well as higher 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 2023 and 2022.

Foreign exchange unfavorably impacted the Company’s first nine months of 2023 results by approximately 3% 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 2023 with the Third 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:

Interest expense, net, was $10.8 million in the first quarter of 2024 compared to $13.2 million in the first quarter of 2023, a decrease of $2.4 million as a result of lower borrowings outstanding in 2024 as compared to 2023.

The Company’s effective tax rates for the first quarters of 2024 and 2023 were 27.3% and 27.7%, respectively.

The Company’s effective tax rate for the first quarter of 2024 was largely driven by a mix of earnings and withholding taxes, offset by changes in uncertain tax positions.

Comparatively, the effective tax rate for the first quarter of 2023 was largely driven by foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset by changes in uncertain tax positions and favorable return to provision adjustments.

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 rate for both the first quarters of 2024 and 2023 was approximately 27%.

The Company may experience continued volatility in its effective tax rates due to several factors, including the timing of tax audits, the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of timing and amount of certain incentives in various tax jurisdictions, and the timing and amount of certain share-based compensation-related tax benefits, among other factors.

In addition, the foreign tax credit valuation allowance, or absence thereof, is based on a number of variables, including forecasted mix of earnings, which may vary.

Equity in net income of associated companies was $2.0 million in the first quarter of 2024 compared to $4.6 million in the first quarter of 2023, a decrease of $2.6 million, primarily due to 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 quarter of 2024 and 2023.

Foreign exchange negatively impacted the Company’s first quarter of 2024 results by approximately 1% compared to the first quarter of 2023 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 2024 with the First Quarter of 2023

The Company has three reportable segments:

(i) Americas;

and (iii) Asia/Pacific.

The three 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 (credits), net .

Other items not specifically identified with the Company’s reportable segments include Interest expense, net , and Other (expense) income, net .

Quaker Chemical Corporation

Management’s Discussion and Analysis

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

The segment’s net sales were $245.9 million, a decrease of $8.8 million or 3%, compared to the third quarter of 2022.

This was driven by a decrease in sales volumes of approximately 8%, partially offset by higher selling price and product mix of approximately 3% and a favorable impact of foreign currency translation of 2%.

The current quarter decline in sales volumes compared to the prior year was primarily driven by softer market conditions, customer order patterns and the Company’s value-based pricing initiatives, partially offset by new business win s.

The increase in selling price and product mix was primarily driven by the year-over-year impact of price increases.

Operating expenses not directly attributable to the segments, such as certain corporate and administrative costs and Restructuring and related charges, net, are excluded from segment results.

Other items not specifically identified with the Company’s reportable segments include Interest expense, net , and Other income (expense), net .

Americas represented approximately 49% of the Company’s consolidated net sales in the first quarter of 2024.

The segment’s net sales were $229.8 million, a decrease of $21.7 million or 9%, compared to the first quarter of 2023.

This was driven by a decrease in sales volumes of approximately 5% and lower selling price and product mix of approximately 5%, partially offset by a favorable impact from foreign currency translation of 1%.

The current quarter decline in sales volumes compared to the prior year was primarily driven by softer market conditions and customer order patterns, partially offset by new business win s.

The decrease in selling price and product mix was primarily attributable to our index-based customer contracts.

The favorable foreign exchange impact was primarily due to the weakening of the U.S.

dollar against the Mexican peso as this exchange rate averag ed 17.06 Mexi can peso per U.S.

dollar in the third quarter of 2023 compar ed to 20.23 Mexican peso per U.S.

dollar in the third quarter of 2022.

This segment’s operating earnings were $69.1 million, an increase of $2.4 million or 4% , compared to the third quarter of 2022 primarily driven by an improvement in the segment’s operating margins.

EMEA represented approximately 29% of the Company’s consolidated net sales in the third quarter of 2023 .

The segment’s net sales were $139.6 million, an increase of $5.2 million or 4%, compared to the third quarter of 2022 .

This was driven by higher selling price and product mix of approximately 6% and a favorable impact from foreign currency translation of 7%, partially offset by a decrease in sales volumes of 9%.

The increase in selling price and product mix was primarily driven by the year-over-year impact of price increases.

The favorable foreign curren cy translation impact was primarily due to the weakening of the U.S.

dollar against the euro as this exchange rate averaged 1.09 U.S.

dollars per euro in the third quarter of 2023 compared to 1.01 U.S.

dollars per euro in the third quarter of 2022.

The decline in sales volumes was primarily driven by softer market conditions, the Company’s value-based pricing initiatives, customer order patterns and the impacts of the wind-down of the tolling agreement for products previously divested related to the Combination as well as the ongoing war in Ukraine, partially offset by new business wins.

This segment’s operating earnings were $27.9 million, an increase of $12.4 million or 80%, compared to the third quarter of 2022 primarily driven by an increase in net sales and an improvement in operating margins.

Asia/Pacific represented approximately 21% of the Company’s consolidated net sales in the third quarter of 2023.

The segment’s net sales were $105.1 million, an increase of $1.9 million or 2%, compared to the third quarter of 2022.

This was driven by higher sales volumes of 6% partially offset by an unfavorable impact from foreign currency translation of 4%.

The increase in sales volumes was primarily driven by an increase in end market activity, albeit at lower levels and new business wins, partially offset by the impacts of the Company’s value-based pricing initiatives.

The increase in selling price and product mix was primarily driven by year-over-year impact of price increases.

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

dollar against the Chinese renminbi as this exchange rate ave raged 7.24 Chinese renminbi per U.S.

dollar in the third quarter of 2023 compared to 6.84 Chinese renminbi per U.S.

dollar in the third quarter of 2022.

This segment’s operating earnings were $31.0 million, an increase of $4.2 million or 16% compared to the third quarter of 2022 primarily driven by an increase in net sales and an improvement in operating margins as well as slightly lower levels of SG&A.

Reportable Segments Review - Comparison of the First Nine Months of 2023 with the First Nine Months of 2022

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

The segment’s net sales were $750.5 million , an increase of $48.0 million or 7% compared to the first nine months of 2022 .

This was driven by higher selling price and product mix of 12% and a favorable impact of foreign currency translation of 1% , partially offset by a decrease in sales volumes of 6% .

The increase in selling price and product mix was primarily driven by the year-over-year impact of price increases.

The favorable foreign currency impact was primarily due to the weakening of the U.S.

dollar against the Mexican peso as this exchange rate averag ed 17.78 Mexi can peso per U.S.

dollar in the first nine months of 2023 compar ed to 20.25 Mexican peso per U.S.

dollar in the first nine months of 2022.

The decline in sales volumes compared to the prior year was primarily driven by softer market conditions, the Company’s value-based pricing initiatives, customer order patterns, and the wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by new business win s, as mentioned above.

This segment’s operating earnings were $204.3 million , an increase of $40.2 million or 25% compared to the first nine months of 2022 primarily driven by higher net sales coupled with an improvement in operating margins, as mentioned above.

dollar against the Mexican peso in the first quarter of 2024 compar ed to the first quarter of 2023.

This segment’s operating earnings were $66.8 million, an increase of $0.6 million or 1% compared to the first quarter of 2023, primarily driven by improvement in the segment’s operating margins for the reasons described in our consolidated results.

Quaker Chemical Corporation

Management’s Discussion and Analysis

EMEA represented approximately 30% of the Company’s consolidated net sales in the first nine months of 2023 .

The segment’s net sales were $435.6 million, an increase of $8.9 million or 2% compared to the first nine months of 2022.

This was a result of higher selling price and product mix of 13% and a favorable impact of foreign currency translation of approximately 1%, partially offset by a decrease in sales volumes of 12%.

The increase in selling price and product mix was primarily driven by the year-over-year impact of price increases.

The favorable foreign curren cy impact was primarily due to the weakening of the U.S.

dollar against the euro as this exchange rate averaged 1.08 U.S.

dollars per euro in the first nine months of 2023 compared to 1.07 U.S.

dollars per euro in the first nine months of 2022.

The decline in sales volumes was primarily driven by softer market conditions, the Company’s value-based pricing initiatives, customer order patterns, the impacts of the ongoing war in Ukraine and the wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by new business wins.

This segment’s operating earnings were $81.1 million, an increase of $22.3 million or 38% compared to the first nine months of 2022 primarily driven by higher net sales coupled with an improvement in operating margins , as mentioned above .

Asia/Pacific represented approximately 20% of the Company’s consolidated net sales in the first nine months of 2023.

The segment’s net sales were $300.1 million, a decrease of $29.4 million or 9% compared to the first nine months of 2022 .

This was driven by lower sales volumes of 10% and an unfavorable impact of foreign currency translation of 5%, partially offset by higher selling price and product mix of 6%.

The decline in sales volumes was primarily driven by softer market conditions, customer order patterns, including the impact of COVID-19 lockdown measures, primarily in China, and the Company’s value-based pricing initiatives, partially offset by new business wins.

EMEA represented approximately 29% of the Company’s consolidated net sales in the first quarter of 2024 .

The segment’s net sales were $138.4 million, a decrease of $14.0 million or 9%, compared to the first quarter of 2023 .

This was driven by lower selling price and product mix of approximately 6% and a decrease in sales volumes of 4%, partially offset by a favorable impact from foreign currency translation of 1%.

The decrease in selling price and product mix was primarily attributable to our index-based customer contracts.

Th e decline in sales volumes was primarily driven by softer market conditions and customer order patterns, partially offset by new business wins.

The favorable foreign curren cy translation impact was primarily due to the weakening of the U.S.

dollar against the euro in the first quarter of 2024 compared to the first quarter of 2023.

This segment’s operating earnings were $29.6 million, an increase of $2.0 million or 7%, compared to the first quarter of 2023 primarily driven by an improvement in operating margins for the reasons described in our consolidated results.

Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in the first quarter of 2024.

The segment’s net sales were $101.6 million, an increase of $5.3 million or 6%, compared to the first quarter of 2023.

This was driven by higher sales volumes of 15%, partially offset by a decrease in selling price and product mix of 5% and an unfavorable impact from foreign currency translation of 4%.

The increase in sales volumes was primarily driven by an increase in end market activity compared to the prior year period and new business wins.

The decrease in selling price and product mix was primarily attributable to our index-based customer contracts .

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

dollar against the Chinese renminbi as this exchange rate ave raged 7.02 Chinese renminbi per U.S.

dollar in the first nine months of 2023 compared to 6.59 Chinese renminbi per U.S.

dollar in the first nine months of 2022.

The increase in selling price and product mix was primarily driven by year-over-year impact of price increases, as mentioned above .

This segment’s operating earnings were $86.6 million , an increase of $10.5 million or 14% compared to the first nine months of 2022 .

This was primarily driven by a recovery in operating margins as well as slightly lower levels of SG&A, which more than offset the decline in net sales, as mentioned above.

dollar against the Chinese renminbi in the first quarter of 2024 compared to the first quarter of 2023.

This segment’s operating earnings were $30.4 million, an increase of $2.7 million or 10% compared to the first quarter of 2023 primarily driven by an increase in net sales and an improvement in operating margins for the reasons described in our consolidated results.

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

Certain information included in this Report and other materials filed or to be filed by 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 conflict between Russia and Ukraine, 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.

• 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 in response;

• the potential impacts of the automotive industry labor dispute

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 that fall under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Securities Act of 1933, as amended.

These statements can be identified by the fact that they do not relate strictly to historical or current facts and can generally be identified by words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “outlook,” “target,” “possible,” “potential,” “plan” or similar expressions, but these terms are not the exclusive means of identifying such statements.

We have based these forward-looking statements on assumptions, projections and expectations about future events that we believe are reasonable based on currently available information, including statements regarding the potential effects of the conflicts in Ukraine and the Middle East, inflation, 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 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, which may differ materially from expectations, estimates and projections of many factors, including, but not limited to:

• the timing and extent of the projected impacts on our business of acts of war or terrorism, including the conflicts in Ukraine and the Middle East, 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.

Quaker Chemical Corporation

Management’s Discussion and Analysis

• the potential timing, impacts, benefits and other uncertainties of acquisitions and divestitures, including our ability to realize synergies, integrate acquisitions or separate divested assets and businesses;

• the potential for changes in global and regional economic conditions and for a variety of macroeconomic events, including the possibility of global or regional slowdowns or recessions, a global pandemic, interest rate changes, inflation, deflation or stagflation and its impact on our business, raw materials purchases and/or profitability of our business impact the value of our assets;

• our future results and plans including our sustainability goals and enterprise strategy

Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources.

From time to time, forward-looking statements are also included in the Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases, and other materials released to, or statements made to, the public.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Any or all of the forward-looking statements in this Report, in the Company’s 2023 Form 10-K and in any other public statements we make may turn out to be wrong.

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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 and labor disputes.

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 conflicts between Russia and Ukraine and between Israel and Hamas, 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, the impact of consolidation in our industry, including loss or consolidation of a major customer and the potential occurrence of cyber-security breaches, cyber-security attacks and other security incidents.

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 major risks and uncertainties include, but are not limited to, 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;

economic and political disruptions including the impacts of the military conflicts between Russia and Ukraine and between Israel and Hamas;

tariffs, trade restrictions and the economic and other sanctions imposed by other nations on Russia and/or other government organizations;

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;

the impacts of consolidation in our industry, including loss or consolidation of a major customer;

and the potential occurrence of cyber-security breaches, cyber-security attacks and other security incidents.

Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automobile, aircraft, industrial equipment, aluminum, and durable goods industries.

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

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Information contained on, or that may be accessed through, the Company’s website is not incorporated by reference in this Report and, accordingly, you should not consider that information part of this Report.

Quantitative and Qualitative Disclosures About Market Risk.

We have evaluated the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2023, and we believe there has been no material change to that information.

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