Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations .
As used in this Report, the terms “Quaker Houghton,” the “Company,” “we” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.
Executive Summary
Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, 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.
Net sales in the first quarter of 2025 were $442.9 million, a decrease of 6% compared to $469.8 million in the first quarter of 2024. This was primarily driven by a decrease in sales volumes of 3%, an unfavorable impact from foreign currency translation of 3%, and a decline in selling price and product mix of approximately 1%, partially offset by a contribution from acquisitions of approximately 1%. The decline in sales volumes was primarily a result of a continuation of soft end market conditions further impacted by the uncertainty of tariffs, primarily in the Europe, Middle East and Africa (“EMEA”) and Americas segments, partially offset by an increase in sales volumes in the Asia/Pacific segment, continued new business wins across all segments and a contribution from acquisitions in the EMEA and Asia/Pacific segments. The decrease in selling price and product mix was primarily attributable to the impact of our index-based customer contracts and the mix of products and services, primarily in Asia/Pacific.
The Company generated net income in the first quarter of 2025 of $12.9 million, or $0.73 per diluted share, compared to net income of $35.2 million, or $1.95 per diluted share in the first quarter of 2024. Excluding non-recurring and non-core items in each period, the Company’s first quarter 2025 non-GAAP net income and earnings per diluted share were $28.0 million and $1.58 compared to $37.7 million and $2.09, respectively, in the prior year. The decrease in current quarter earnings was primarily driven by lower net sales, lower gross margins and higher restructuring and related charges, partially offset by lower selling, general, and administrative expenses (“SG&A”). The Company’s current quarter adjusted EBITDA was $69.0 million compared to $83.3 million in the first quarter of 2024. The decrease was primarily driven by lower net sales and lower gross margins, partially offset by lower SG&A. See the Non-GAAP Measures and Consolidated Operations Review sections of this Item below for additional details.
The Company’s first quarter 2025 operating performance in each of its three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific, reflects similar drivers to that of the Company’s consolidated performance. Operating earnings for all three segments decreased compared to the prior year quarter, primarily driven by a decrease in net sales and operating margins in each of the reportable segments. Additional details of segment operating performance are provided in the Reportable Segments Review in the Operations section of this Item below.
Net cash flows used in operating activities were $3.1 million in the first three months of 2025 compared to net cash flows provided by operating activities of $27.2 million in the first three months of 2024. The lower operating cash flow year-over-year reflects an increase in net cash outflows from working capital and lower operating performance in the first three months of 2025 compared to the first three months of 2024. 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’s results in the first quarter of 2025 reflect the Company’s continued execution on its financial, operational, and strategic priorities despite a continuation of soft end market conditions that have impacted the Company’s customers and end markets.
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 2024 Form 10-K. There have been no material changes to the critical accounting policies and estimates disclosed in the 2024 Form 10-K.
Recently Issued Accounting Standards
See Note 3, Recently Issued Accounting Standards , to the Condensed Consolidated Financial Statements for a discussion regarding recently adopted accounting standards and recently issued accounting standards not yet adopted.
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Management’s Discussion and Analysis
Liquidity and Capital Resources
As of March 31, 2025, we had cash and cash equivalents of $186.2 million. Total cash and cash equivalents were $188.9 million as of December 31, 2024. Cash held by subsidiaries in foreign countries was approximately $178.8 million and $180.6 million at March 31, 2025 and December 31, 2024, respectively. The $2.7 million decrease in cash and cash equivalents was the net result of $13.4 million of cash used in investing activities and $3.1 million of cash used in operating activities, partially offset by $11.0 million of cash provided by financing activities and a $2.8 million favorable impact of foreign currency translation.
Net cash flows used in operating activities were $3.1 million in the first three months of 2025 compared to $27.2 million net cash flows provided by operating activities in the first three months of 2024. The decrease in net operating cash flow year-over-year reflects lower operating performance in the first three months of 2025 compared to 2024 and higher cash outflows from restructuring activities and working capital in 2025. Working capital cash outflows in the first three months of 2025 were primarily driven by an outflow from accounts receivable due to timing of collections and an outflow related to inventory due to customer order patterns, partially offset by a lower cash outflow from accounts payable and accrued liabilities primarily due to lower incentive compensation.
Net cash flows used in investing activities were $13.4 million in the first three months of 2025 compared to $29.3 million in the first three months of 2024. The decrease in cash used in investing activities year-over-year is primarily the result of a $24.9 million payment in the previous year related to the acquisition of I.K.V. Tribologie IKVT and its subsidiaries (“IKV”) and an increase in proceeds from asset dispositions of $2.8 million in the current year, partially offset by payments in the current year related to the acquisition of Chemical Solutions & Innovations (Pty) Ltd. (“CSI”) and a $7.9 million increase in payments related to capital expenditures. See Note 2, Business Acquisitions , to the Condensed Consolidated Financial Statements for further information about business acquisitions.
Net cash flows provided by financing activities were $11.0 million in the first three months of 2025 compared $6.6 million in the first three months of 2024. The increase in financing cash inflows is driven primarily by $30.0 million of net borrowings on the Company’s revolving credit facility in the first three months of 2025, a $9.1 million increase compared to the prior year. In addition, during the first three months of 2025, the Company made debt payments of approximately $9.3 million compared to payments of $4.7 million in the prior year period. The Company also paid $8.6 million of cash dividends during the first three months of 2025, a $0.4 million increase compared to the prior year period.
In 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. 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, 2025, 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, Debt , to the Consolidated Financial Statements in its 2024 Form 10-K.
As of March 31, 2025 and December 31, 2024 , the Company had Credit Facility borrowings outstanding of $725.7 million and $696.5 million, respectively. The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.4 million as of March 31, 2025 and $11.8 million as of December 31, 2024 . Total unused capacity under these arrangements, excluding the Credit Facility, as of March 31, 2025 was approximately $34 million . The Company’s total net debt as of March 31, 2025, which consists of total borrowings of $737.0 million less cash and cash equivalents of $186.2 million, was approximately $550.8 million .
The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the three months ended March 31, 2025 was approximately 5.2%. As of March 31, 2025, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.0%. As part of the Credit Facility, in addition to paying interest on 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 $417 million, which is net of bank letters of credit of approximately $2 million, as of March 31, 2025.
Subsequent to the date of the financials, in April 2025, the Company borrowed $210 million from the Revolver for the primary purpose of funding the purchase price of the Dipsol Chemicals Co., Ltd., (“Dipsol”) acquisition and other corporate purposes. See Note 2, Business Acquisitions , for more information.
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Management’s Discussion and Analysis
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, 2025, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 4.9%. See Note 17, Hedging Activities , to the Condensed Consolidated Financial Statements for further information.
The Company capitalized third-party and credit debt issuance costs attributed to the Euro Term Loan, U.S. Term Loan and Revolver during the second quarter of 2022. Capitalized costs attributed to the Euro Term Loan and U.S. Term Loan are recorded as a direct offset to Long-term debt on the Condensed Consolidated Balance Sheets. Capitalized costs attributed to the Revolver are recorded within Other assets on the Condensed Consolidated Balance Sheets. These capitalized costs will collectively be amortized into Interest expense over the five-year term of the Credit Facility. As of March 31, 2025 and December 31, 2024, the Company had $1.0 million and $1.1 million, respectively, of debt issuance costs recorded as a reduction of Long-term debt and $2.1 million and $2.4 million, respectively, of debt issuance costs recorded within Other assets.
The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain foreign currency-denominated assets and liabilities . Additionally, in connection with the Dipsol acquisition, in March 2025, the Company entered into foreign exchange forward contracts with various financial institutions with an aggregate notional amount of $155.3 million to hedge the variability in U.S. dollar-Japanese yen exchange rates associated with the purchase price. These contracts were settled on April 1, 2025 in connection with the Dipsol acquisition. During the three months of 2025, the Company recognized $1.9 million of other expense as compared to $0.9 million of other income during the three months of 2024 relating to changes in fair value of foreign exchange forward contracts. See Note 17, Hedging Activities , to the Condensed Consolidated Financial Statements for further information.
During 2022, the Company initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization. The Company has achieved its annualized cost savings goal from this program of at least $20 million. In the first quarter of 2025, the Company approved additional actions under the program, which are expected to generate an additional $20 million of annualized cost savings. The program is expected to be substantially complete in the first half of 2025. The Company recognized restructuring and related charges of $14.6 million and $1.9 million for the three months ended March 31, 2025, and 2024, respectively, under this program and for our facility closure actions. The Company made cash payments related to the settlement of restructuring liabilities under the program during the first three months of 2025 of approximately $9.0 million compared to $3.7 million in the first three months of 2024. The Company expects total one-time cash costs of this program to be approximately 1 to 1.5 times annualized savings. See Note 7, Restructuring and Related Activities , to the Condensed Consolidated Financial Statements for further information.
As of March 31, 2025, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $18.6 million. The Company cannot determine a reliable estimate of the timing of cash flows 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 $6.4 million as a result of offsetting benefits in other tax jurisdictions.
The Company previously disclosed in its 2024 Form 10-K that the Board of Directors of the Company approved a 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 was effective immediately and has no expiration date. The Company did not make repurchases under the 2024 Repurchase Program during the three months ended March 31, 2025. See Item 2, Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities , within Part II of this Report for further information.
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, share repurchases, 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. The Company also 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, 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 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 that 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 additional capital requirements cannot be determined at this
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Management’s Discussion and Analysis
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.
Operations
Consolidated Operations Review – Comparison of the First Quarter of 2025 with the First Quarter of 2024
The following table summarizes the sales variances by reportable segment and consolidated operations from the prior year:
Sales volumes Selling price & product mix Foreign currency Acquisition & other Total
Americas (3) % — % (4) % — % (7) %
EMEA (6) % (1) % (3) % 3 % (7) %
Asia/Pacific 1 % (3) % (2) % 2 % (2) %
Consolidated (3) % (1) % (3) % 1 % (6) %
Net sales in the first quarter of 2025 were $442.9 million, a decrease of 6% compared to $469.8 million in the first quarter of 2024. This was primarily driven by a decrease in sales volumes of approximately 3%, an unfavorable impact from foreign currency translation of approximately 3% and a decline in selling price and product mix of approximately 1%, partially offset by a contribution from acquisitions of approximately 1%. The decline in sales volumes compared to the prior year was primarily a result of a continuation of soft end market conditions further impacted by the uncertainty of tariffs, primarily in the EMEA and Americas segments, partially offset by an increase in sales volumes in the Asia/Pacific segment, continued new business wins across all segments and a contribution from acquisitions in the EMEA and Asia/Pacific segments. The decrease in selling price and product mix was primarily attributable to the impact of our index-based customer contracts and the mix of products and services, primarily in Asia/Pacific.
Cost of goods sold (“COGS”) was $281.7 million in the first quarter of 2025 compared to $288.2 million in the first quarter of 2024, a decrease of approximately $6.5 million, or 2%. The decrease in COGS reflects lower spend on the decline in current year sales volumes, partially offset by an increase in raw material costs.
Gross profit was $161.3 million in the first quarter of 2025 compared to $181.6 million in the first quarter of 2024, a decrease of $20.3 million, or 11% primarily due to the decline in sales and the increase in raw materials costs mentioned above. The Company’s reported gross margin in the first quarter of 2025 was 36.4% compared to 38.7% in the first quarter of 2024.
SG&A expense was $119.0 million in the first quarter of 2025 compared to $124.2 million in the first quarter of 2024, a decrease of approximately $5.2 million, or 4%, driven by lower incentive compensation, offset by an increase in SG&A related to acquisitions.
The Company incurred Restructuring and related charges of $14.6 million and $1.9 million during the first quarter of 2025 and 2024, respectively, related to reductions in headcount and facility closure costs under the Company’s restructuring program. See the Non-GAAP Measures section above and Note 7, Restructuring and Related Activities , to the Condensed Consolidated Financial Statements for additional information.
Operating income in the first quarter of 2025 was $27.6 million compared to $55.5 million in the first quarter of 2024. 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 was $45.8 million in the first quarter of 2025 and $59.2 million in the first quarter of 2024. The decrease was primarily due to lower sales and an increase in global raw material costs, partially offset by a decrease in SG&A, as described above.
The Company had Other expense, net of $0.7 million in the first quarter of 2025 as compared to Other income, net of $1.1 million in the first quarter of 2024. Both the first quarter of 2025 and 2024 included foreign exchange transaction losses, which were $3.1 million higher in the current year. The first quarter of 2025 also included other income from net gain on disposals of property of $2.1 million, whereas the first quarter of 2024 had other income from non-income tax credits of $2.2 million.
Interest expense was $9.5 million in the first quarter of 2025 compared to $10.8 million in the first quarter of 2024, a decrease of approximately $1.3 million, primarily as a result of decreases in interest rates and lower outstanding borrowings.
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Quaker Chemical Corporation
Management’s Discussion and Analysis
The Company’s effective tax rates for the first quarters of 2025 and 2024 were 43.4% and 27.3%, respectively. The Company’s effective tax rate for the first quarter of 2025 was largely driven by our mix of pre-tax earnings, withholding taxes and return to provision adjustments offset by net favorable reductions in uncertain tax positions. Comparatively, the effective tax rate for the first quarter of 2024 was largely driven by a mix of earnings and withholding taxes, offset by reductions in uncertain tax positions. 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 first quarters of 2025 and 2024 would have been approximately 29% and 27%, respectively. 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 factors, including forecasted mix of earnings, which may vary.
Equity in net income of associated companies was $3.1 million in the first quarter of 2025 compared to $2.0 million in the first quarter of 2024, an increase of $1.1 million, primarily due to higher current year income from the Company’s 50% equity interest in a joint venture in Korea.
Net income attributable to noncontrolling interest was less than $0.1 million in the first quarter of 2025 and 2024.
Reportable Segments Review - Comparison of the First Quarter of 2025 with the First Quarter of 2024
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 performance. The Company has three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific.
Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly related product costs and other operating expenses. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs and restructuring charges, are not included in segment operating earnings. Other items not specifically identified with the Company’s reportable segments include Interest expense and Other income (expense), net.
Americas
Americas represented approximately 48% of the Company’s consolidated net sales in the first quarter of 2025. This segment’s net sales were $213.7 million, a decrease of $16.0 million, or 7%, compared to the first quarter of 2024. This was driven by a decrease in sales volumes of approximately 3% and an unfavorable impact from foreign currency translation of 4%. The current quarter decline in sales volumes compared to the prior year was primarily driven by a continuation of soft end market conditions further impacted by the uncertainty of tariffs, especially for metalworking applications, partially offset by new business win s broadly across the portfolio . The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S. dollar against the Mexican peso and Brazilian real. Segment o perating earnings were $58.5 million, a decrease of $8.3 million, or 12%, compared to the first quarter of 2024, driven by a decline in net sales and lower segment operating margins, primarily driven by lower gross margins for the segment, partially offset by lower SG&A.
EMEA
EMEA represented approximately 29% of the Company’s consolidated net sales in the first quarter of 2025 . This segment’s net sales were $129.3 million , a decrease of $9.1 million, or 7%, compared to the first quarter of 2024 . This was driven by a decline in sales volumes of 6%, an unfavorable impact from foreign currency translation of 3% and lower selling price and product mix of approximately 1%, partially offset by an increase in sales from acquisitions of approximately 3%, relating to the acquisitions of IKV and CSI . The decrease in sales volumes was primarily driven by a continuation of softer end market conditions further impacted by the uncertainty of tariffs, partially offset by new business wins. The unfavorable foreign curren cy translation impact was primarily due to the strengthening of the U.S. dollar against the Euro. The decrease in selling price and product mix was primarily attributable to the impact of our index-based customer contracts and mix of products and services. Segment operating earnings were $23.4 million , a decrease of $6.2 million, or 21%, compared to the first quarter of 2024, due to the decline in net sales and lower segment operating margins, primarily due to lower gross margins for the segment, partially offset by lower SG&A.
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Management’s Discussion and Analysis
Asia/Pacific
Asia/Pacific represented approximately 23% of the Company’s consoli dated net sales in the first quarter of 2025. This segment’s net sales were $99.9 million , a decrease of $1.7 million, or 2%, compared to the first quarter of 2024. This was driven by an increase in sales volumes of 1% and a contribution from the acquisition of Sutai of 2% , partially offset by a decrease in selling price and product mix of 3% and an unfavorable impact from foreign currency translation of 2%. The increase in sales volumes was primarily driven by new business wins despite uncertainty related to tariffs. The decrease in selling price and product mix was primarily attributable to the impact of our index-based customer contracts and mix of products and services . The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S. dollar against the Chinese renminbi. Segment operating earnings were $25.9 million , a decrease of $4.4 million, or 15%, compared to the first quarter of 2024 due to a decline in net sales and lower segment gross margins, partially offset by lower SG&A.
Non-GAAP Measures
The information in this Form 10-Q includes non-GAAP financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, taxes on income before equity in net income of associated companies – adjusted, 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, facilitate a comparison among fiscal periods, and exclude items that management believes are not indicative of future operating performance or 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, taxes on income before equity in net income of associated companies – adjusted, non-GAAP net income, and non-GAAP earnings per diluted share, as discussed and reconciled below to the most comparable 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, 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 management believes are not indicative of future operating performance or 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 considered core to the Company’s operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the “two-class share method.” The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the performance of the Company on a consistent basis.
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Quaker Chemical Corporation
Management’s Discussion and Analysis
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
March 31,
2025 2024
Operating income $ 27,624 $ 55,526
Restructuring and related charges, net (a) 14,590 1,857
Acquisition-related expenses (b) 3,329 283
Customer insolvency costs (f) — 1,522
Other charges (c) 226 54
Non-GAAP operating income $ 45,769 $ 59,242
Non-GAAP operating margin (%) (m) 10.3 % 12.6 %
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations Three Months Ended
March 31,
2025 2024
Net income attributable to Quaker Chemical Corporation $ 12,922 $ 35,227
Depreciation and amortization (k) 20,830 21,056
Interest expense 9,545 10,824
Taxes on income before equity in net income of associated companies (l) 7,542 12,508
EBITDA 50,839 79,615
Equity income in a captive insurance company (d) (671) (506)
Restructuring and related charges, net (a) 14,590 1,857
Acquisition-related expenses (b) 3,329 283
Customer insolvency costs (f) — 1,522
Product liability claim costs, net (g) — 896
Currency conversion impacts of hyper-inflationary economies (e) 535 (904)
Loss on acquisition-related hedges (h) 1,943 —
Gain on sale of property (i) (2,177) —
Other charges (c) 659 519
Adjusted EBITDA $ 69,047 $ 83,282
Adjusted EBITDA margin (%) (m) 15.6 % 17.7 %
Adjusted EBITDA $ 69,047 $ 83,282
Less: Depreciation and amortization (k) 20,830 21,056
Less: Interest expense 9,545 10,824
Less: Taxes on income before equity in net income of associated companies - adjusted (l) 10,644 13,729
Non-GAAP net income $ 28,028 $ 37,673
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Management’s Discussion and Analysis
Non-GAAP Earnings per Diluted Share Reconciliations Three Months Ended
March 31,
2025 2024
GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 0.73 $ 1.95
Equity income in a captive insurance company (d) (0.04) (0.03)
Restructuring and related charges, net (a) 0.62 0.08
Acquisition-related expenses, net (b) 0.14 0.01
Customer insolvency costs (f) — 0.06
Product liability claim costs, net (g) — 0.04
Currency conversion impacts of hyper-inflationary economies (e) 0.03 (0.05)
Loss on acquisition-related hedges (h) 0.08 —
Gain on sale of property (i) (0.09) —
Other charges (c) 0.03 0.03
Discrete tax items (j) 0.08 —
Non-GAAP earnings per diluted share (n) $ 1.58 $ 2.09
(a) Restructuring and related charges, net represent the costs incurred by the Company associated with the Company’s restructuring program and facility closures. See Note 7, Restructuring and Related Activities , to the Condensed Consolidated Financial Statements for additional information.
(b) Acquisition-related expenses include expenses associated with the Company's recent and potential acquisitions, including legal, financial, consulting and other costs.
(c) Other charges include professional fees incurred in connection with tax audits, the non-service components of pension expense and other items. See Note 9, Pension and Other Postretirement Benefits , and Note 10, Other income (expense), net, to the Condensed Consolidated Financial Statements for additional information.
(d) 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.
(e) 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. GAAP. These pre-tax foreign currency remeasurement impacts are not deductible for tax purposes for both the three months ended March 31, 2025 and 2024. The charges incurred relate to the immediate recognition of foreign currency remeasurement in the Condensed Consolidated Statements of Operations.
(f) 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 that filed for bankruptcy protection.
(g) Product liability claim costs, net represents expense related to the payments by the Company in connection with a product liability dispute with a customer, net of insurance recoveries during the three months ended March 31, 2024. See Note 10, Other income (expense), net, to the Condensed Consolidated Financial Statements for additional information.
(h) Loss on acquisition-related hedges represents the mark-to-market impact of the foreign exchange forward contracts entered into March 2025 for an aggregate notional amount totaling $155.3 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Japanese yen in connection with the acquisition of Dipsol. See Note 2, Business Acquisitions , and Note 17, Hedging Activities , to the Condensed Consolidated Financial Statements for additional information.
(i) Gain on sale of property represents the gain recognized on the sale of certain property previously classified as held for sale as of December 31, 2024. See Note 7, Restructuring and Related Activities , to the Condensed Consolidated Financial Statements for additional information.
(j) Discrete tax items include certain impacts of uncertain tax positions. See Note 11, Income Taxes , to the Condensed Consolidated Financial Statements for more information.
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Quaker Chemical Corporation
Management’s Discussion and Analysis
(k) Depreciation and amortization for the three months ended March 31, 2025 and 2024 includes approximately $0.2 million and $0.3 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 purchase accounting step-up in connection with the acquisition of the Company’s 50% equity interest in Korea Houghton Corporation.
(l) 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 the adjustments occurred, subject to deductibility.
(m) 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.
(n) In each given period, 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”.
Off-Balance Sheet Arrangements
The Company’s off-balance sheet items outstanding as of March 31, 2025 include approximately $7 million of bank letters of credit and guarantees. The bank letters of credit and guarantees are not significant to the Company’s liquidity or capital resources.
Factors That May Affect Our Future Results
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. Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources. 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 economic downturns, tariffs, including retaliatory tariffs, “trade wars” and uncertainty surrounding changes in tariffs, 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 impacts on our business from acts of war, terrorism and military conflicts, including those in Ukraine and the Middle East, as well as related economic, political and governmental actions taken by various governments and governmental organizations in response;
• inflationary pressures, increases in raw material costs, supply chain constraints and other impacts of economic downturns, as well as high interest rates and their impact on our and our customers’ business operations;
• the potential timing, impacts, benefits and other uncertainties of acquisitions and divestitures, including our ability to realize synergies, integrate acquisitions and acquired businesses or separate divested assets and businesses;
• broader macroeconomic factors, including potential for changes in global and regional economic conditions, the possibility of global or regional slowdowns or recessions, other macroeconomic stresses and uncertainties, including potential impacts related to the recent actions of the federal government and responses thereto, as well as other political and geopolitical events, civil disturbances and endemics/pandemics or extreme weather events and other natural disasters that may adversely affect regional economic conditions and housing market;
• U.S. political conditions and legislative and regulatory activity (or inactivity), including adoption of (or failure to adopt) new laws, regulations and executive orders, changes in existing laws, regulations and executive orders or the way they are interpreted or applied, and adoption of laws, regulations or executive orders that conflict among jurisdictions in which we operate; and
• our future results and plans including our sustainability goals and enterprise strategy.
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Quaker Chemical Corporation
Management’s Discussion and Analysis
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.
Other major risks and uncertainties include, but are not limited to, legislative and regulatory developments including changes to existing laws and regulations, or the way they are interpreted, applied or enforced; tariffs, trade restrictions and the economic and other sanctions imposed by other nations on Russia and Belarus and/or other governments or government organizations; suspensions of activities in Russia by many multinational companies; 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; the effects of climate change, fires or other natural disasters; and the potential occurrence of cyber-security breaches, cyber-security attacks, and other technology outages and security incidents.
Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automotive, aerospace, industrial equipment, aluminum, and durable goods industries.
Any or all of the forward-looking statements in this Report, in the Company’s 2024 Form 10-K and in any other public statements we make may prove to be incorrect due to inaccurate assumptions or unforeseen risks and uncertainties. In addition to the factors above, our forward-looking statements are qualified with respect to the risks disclosed elsewhere in this Report, including Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could materially impact our future performance and cause our actual results to differ materially from expected and historical results. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. However, additional disclosures on related subjects can be found in the Company’s subsequent reports on Forms 10-K, 10-Q, 8-K and other related filings. We caution you not to place undue reliance on our forward-looking statements.
Quaker Houghton on the Internet
Financial results, news and other information about Quaker Houghton can be accessed from the Company’s website at https://www.quakerhoughton.com. This site includes important information on the Company’s locations, products and services, financial reports, news releases and career opportunities. The Company’s periodic and current reports on Forms 10-K, 10-Q, 8-K, and other filings, including exhibits and supplemental schedules filed therewith, and amendments to those reports, filed with the SEC are available on the Company’s website, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information contained on, or that may be accessed through, the Company’s website is not incorporated by reference in this Report and, accordingly, you should not consider that information part of this Report.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have evaluated the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2024, and we believe there has been no material change to that information.