PR Newswire | Nov 4, 2021 04:29PM EDT

11/04 15:28 CDT

QUAKER HOUGHTON ANNOUNCES THIRD QUARTER 2021 RESULTS- Record net sales of $449.1 million increased 22% compared to the third quarter of 2020- Reported net income of $31.1 million, earnings per diluted share of $1.73 and non-GAAP net income of $29.4 million- Non-GAAP earnings per diluted share of $1.63 increased 5% compared to the third quarter of 2020- Adjusted EBITDA of $66.2 million increased 3% compared to the third quarter of 2020 resulting in record trailing twelve month adjusted EBITDA of $279 million- $13 million invested in three acquisitions estimated to add $2 million of full year adjusted EBITDA in 2022 CONSHOHOCKEN, Pa., Nov. 4, 2021

CONSHOHOCKEN, Pa., Nov. 4, 2021 /PRNewswire/ -- Quaker Houghton ("the Company") (NYSE: KWR), the global leader in industrial process fluids, today announced its third quarter of 2021 results.

Three Months Ended Nine Months Ended

September 30, September 30,

($ inmillions, 2021 2020 2021 2020except pershare data)

Net sales $ 449.1 $ 367.2 $ 1,314.1 $ 1,031.8

Net income(loss)attributableto QuakerChemical

31.1 27.3 103.2 (8.8)Corporation

Earnings(loss) perdilutedshareattributableto

QuakerChemical 1.73 1.53 5.76 (0.50)Corporation

Non-GAAP net 29.4 27.7 99.8 55.9income *

Non-GAAPearnings per 1.63 1.56 5.56 3.15dilutedshare *

Adjusted 66.2 63.9 213.4 156.5EBITDA *

* Refer to the Non-GAAP Measures and Reconciliations section below for additional information

Third Quarter of 2021 Consolidated Results

Third quarter of 2021 net sales of $449.1 million increased 22% compared to $367.2 million in the prior year quarter primarily due to higher sales volumes of approximately 10%, which includes additional net sales from acquisitions of 4%, increases from selling price and product mix of 10% and the positive impact from foreign currency translation of 2%. The increase in organic sales volumes, which excludes the benefits of recent acquisitions, compared to the third quarter of 2020 was primarily driven by the Company's continued market share gains as well as the continued gradual improvement in end market conditions as it relates to the impacts of COVID-19. The increase in selling price and product mix is primarily the result of the Company's price increases implemented in 2021 to help offset the unprecedented increases in raw material costs the Company has experienced throughout 2021.

The Company had net income in the third quarter of 2021 of $31.1 million or $1.73 per diluted share, compared to third quarter of 2020 net income of $27.3 million or $1.53 per diluted share. Excluding costs associated with the combination with Houghton International, Inc. (the "Combination") and other non-core or non-recurring items in each period, the Company's third quarter of 2021 non-GAAP earnings per diluted share was $1.63 compared to $1.56 in the prior year third quarter. The Company's current quarter adjusted EBITDA of $66.2 million increased 3% compared to $63.9 million in the third quarter of 2020 primarily due to the increase in net sales, higher realized cost synergies from the Combination and benefits from foreign exchange gains compared to the prior year, partially offset by lower gross margins in the current quarter driven by higher raw material costs as well as higher selling, general and administrative expenses ("SG&A"). The Company's current quarter gross margin of 32.3% declined sequentially compared to 35.5% in the second quarter of 2021. While the sequential decline and continued gross margin headwinds were previously expected, the magnitude of the challenges from continued raw material cost increases and global supply chain and logistics pressures exceeded the Company's expectations. Partially helping to offset the lower gross margin, the Company estimates that it realized cost synergies associated with the Combination of approximately $19 million during the third quarter of 2021 compared to approximately $17 million during the third quarter of 2020.

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "We had record net sales for the third quarter despite being negatively impacted by the automotive semiconductor shortage and continued supply chain challenges. Good end-market demand continues to be the major contributor to our earnings performance as organic sales volumes increased 6% from the third quarter of 2020. We continued to see market share gains in the quarter as our net sales benefited 3% compared to the prior year from new business wins. The major negative trend in the quarter was the continued significant escalation of raw material costs. While we previously anticipated that our gross margins were going to be lower than the second quarter due to higher costs, since then our raw material costs have continued to escalate causing third quarter costs to be much greater than our expectations. This ultimately negatively impacted our sequential gross margins by 3.2% compared to the second quarter as our raw materials costs increased nearly 10% in the third quarter from the second quarter."

Mr. Barry continued, "Looking forward, we expect raw material costs to continue to increase in the fourth quarter but we do expect the magnitude of the increases to be lower. We have and will be implementing more price increases to address these unprecedented increases in raw material costs. Our goal is to put enough price increases in place by the end of the year so we enter 2022 at our targeted product margin levels. From a revenue perspective, in the fourth quarter we expect to see continued good demand for most of our businesses but we do expect a negative impact in China due to power restrictions and its impact on our customers' production as well as a continued negative impact due to semiconductor shortages on automotive. While we expect some top line headwinds in the fourth quarter, we also expect to have sequential improvement in our product margins and we expect our adjusted EBITDA to be in a similar range to the third quarter. Looking ahead to 2022, we expect another strong year for Quaker Houghton with net sales and earnings growth to be above our normal long-term trends as we expect good growth in our end markets, continued market share gains and higher gross margins as our pricing initiatives catch up from the lag we are experiencing in 2021 due to significant raw material inflation."

Third Quarter of 2021 Segment Results

The Company's third quarter of 2021 operating performance in each of its four reportable operating segments: (i) Americas; (ii) Europe, Middle East and Africa ("EMEA"); (iii) Asia/Pacific; and (iv) Global Specialty Businesses, reflect similar drivers to that of its consolidated performance.

Three Months Ended Nine Months Ended

September 30, September 30,

Net Sales* 2021 2020 2021 2020

Americas $ 150.8 $ 119.5 $ 425.3 $ 330.0

EMEA 122.2 94.0 365.5 276.5

Asia/ 98.7 84.9 286.9 226.9Pacific

GlobalSpecialty 77.4 68.8 236.4 198.4Businesses

Segment operating earnings*

Americas $ 31.3 $ 31.1 $ 97.2 $ 70.6

EMEA 20.2 17.4 68.8 46.3

Asia/ 23.3 27.3 74.0 66.1Pacific

GlobalSpecialty 20.7 21.2 69.0 58.1 Businesses

* Refer to the Segment Measures and Reconciliations section below for additional information

All four segments had higher net sales compared to the third quarter of 2020. Each of the segments continued to benefit from higher sales volumes, including additional net sales from acquisitions, as well as the positive impact of foreign currency translation and increases in selling price and product mix. Higher organic sales volumes for generally all segments are primarily driven by the Company's continued market share gains as well as the continued gradual year-over-year improvement in end market conditions as it relates to the impacts of COVID-19. As reported, the Company's Americas and EMEA segment operating earnings were higher compared to the third quarter of 2020 reflecting the increase in net sales including the benefits of acquisitions; however, all of the Company's segment's operating earnings were negatively impacted primarily by the unprecedented raw material cost increases and the impact of disruptions in the global supply chain that continued throughout the third quarter of 2021 and to a lesser extent by higher SG&A, including an increase in direct selling expenses associated with year-over-year inflation increases and increases due to increased net sales as well as lower levels of prior year SG&A as a result of temporary cost saving measures implemented in response to COVID-19.

Cash Flow and Liquidity Highlights

The Company has no material debt maturities until August 1, 2024. As of September 30, 2021, the Company's total gross debt was $900.7 million and its cash on hand was $141.4 million. The Company's net debt was $759.3 million, and its net debt divided by its trailing twelve months adjusted EBITDA was approximately 2.7 to 1 as of September 30, 2021. The Company's consolidated net leverage ratio, as defined under its bank agreement, was approximately 2.5 to 1 as of September 30, 2021 compared to a maximum permitted leverage of 4.0 to 1. Based on current projections of future liquidity and leverage, the Company does not expect any compliance issues with its bank covenants.

The Company had net operating cash flow of $12.1 million during the third quarter of 2021, bringing its year-to-date net operating cash flow to $2.5 million in the first nine months of 2021, as compared to a net operating cash flow of $112.0 million in the first nine months of 2020. The significant decrease in net operating cash flow year-over-year was primarily driven by a significant change in working capital, as the Company's strong current year net sales and volumes resulted in a large increase in accounts receivable coupled with an increase in inventory as a result of continued rising raw material costs as well as a build in inventory to ensure the Company has appropriate stock to meet its customer demands in anticipation of continuing stress on the Company's global supply chain.

Recent Acquisition Activity

During the third quarter of 2021 and early in the fourth quarter, the Company has completed several smaller acquisitions that expand its strategic product offerings and increase the Company's presence in its core metalworking industries. In total, the Company's initial purchase price for these acquisitions was approximately $13 million, which is subject to post-closing adjustments as well as certain earn-out provisions that could total approximately $4 million in additional consideration pending future performance or growth thresholds. The Company estimates that these acquisitions in aggregate will add full year net sales of approximately $15 million and approximately $2 million of full year adjusted EBITDA going forward. The Company's acquisitions that were completed consist of:

* Remaining interest in Grindaix, a private German business and former joint venture with Quaker Houghton, which provides solutions that precisely measure and optimize fluid applications for the metalworking industry; * Select assets from 3-S Mhendislik A.S. ("3-S"), a private Turkish company that provides hydraulic fluids, coolants, cleaners, and rust preventative oils within Turkey. 3-S has been a distributor for Quaker Houghton in Turkey since 2003; and * Baron Industries ("Baron"), a privately held company headquartered in Madison Heights, MI, USA, that provides vacuum impregnation services of castings, powder metal and electrical components. Baron expands the Company's geographic presence as well as broadens its product offerings and service capabilities within its existing impregnation business that was initially entered into as part of its past acquisition of Norman Hay.

Non-GAAP Measures and Reconciliations

The information included in this press release includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader's understanding of the financial performance of the Company, are indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company's operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income (loss) attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income (loss) before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the "two-class share method." The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

As it relates to 2021 and 2022 projected adjusted EBITDA growth for the Company, including as a result of our recent acquisitions, as well as other forward-looking information described further above, the Company has not provided guidance for comparable GAAP measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to determine with reasonable certainty the ultimate outcome of certain significant items necessary to calculate such measures without unreasonable effort. These items include, but are not limited to, certain non-recurring or non-core items the Company may record that could materially impact net income, as well as the impact of COVID-19. These items are uncertain, depend on various factors, and could have a material impact on the U.S. GAAP reported results for the guidance period.

The Company's reference to trailing twelve months adjusted EBITDA within this press release refers to the twelve month period ended September 30, 2021 adjusted EBITDA of $278.9 million, which includes (i) the nine months ended September 30, 2021 adjusted EBITDA of $213.4 million, as presented in the non-GAAP reconciliations below, and (ii) the twelve months ended December 31, 2020 adjusted EBITDA of $222.0 million, as presented in the non-GAAP reconciliations included in the Company's fourth quarter and full year 2020 results press release dated February 25, 2021, less (iii) the nine months ended September 30, 2020 adjusted EBITDA of approximately $156.5 million, as presented in the non-GAAP reconciliations below.

The following tables reconcile the Company's non-GAAP financial measures (unaudited) to their most directly comparable GAAP (unaudited) financial measures (dollars in thousands unless otherwise noted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Operating income $ 36,010 $ 34,859 $ 119,720 $ 24,653

Houghtoncombination,integration and 5,963 6,913 18,977 23,442otheracquisition-relatedexpenses (a)

Restructuring and (880) 1,383 593 3,585related charges

Fair value step upof acquired - - 801 226inventory sold

CEO transition 285 - 1,097 -costs

Inactivesubsidiary's 320 - 613 -non-operatinglitigation costs

Customer bankruptcy - - - 463costs

Facilityremediation costs, 1,490 - 1,490 -net

Indefinite-livedintangible asset - - - 38,000impairment

Non-GAAP operating $ 43,188 $ 43,155 $ 143,291 $ 90,369income

Non-GAAP operating 9.6% 11.8% 10.9% 8.8%margin (%)

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net IncomeReconciliations

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Net income (loss)attributable to $ 31,058 $ 27,304 $ $ (8,812)Quaker Chemical 103,243Corporation

Depreciation and 21,542 21,022 66,334 63,764amortization (a)(b)

Interest expense, 5,637 6,837 16,725 22,109net

Taxes on income(loss) beforeequity in netincome 795 2,245 26,702 (7,603)

of associatedcompanies (c)

EBITDA $ 59,032 $ 57,408 $ 213,004 $ 69,458

Equity income in acaptive insurance (108) (542) (4,071) (697)company

Houghtoncombination,integration andother 5,786 6,913 12,871 22,679

acquisition-relatedexpenses (a)

Restructuring and (880) 1,383 593 3,585related charges

Fair value step upof acquired - - 801 226inventory sold

CEO transition 285 - 1,097 -costs

Inactivesubsidiary's 320 - 613 -non-operatinglitigation costs

Customer bankruptcy - - - 463costs

Facilityremediation costs, 2,019 - 2,019 -net

Indefinite-livedintangible asset - - - 38,000impairment

Pension andpostretirementbenefit costs, (343) (1,375) (596) 22,491

non-servicecomponents

Braziliannon-income tax - - (13,293) -credits

Currency conversionimpacts of hyper- 58 154 336 278inflationaryeconomies

Adjusted EBITDA $ 66,169 $ 63,941 $ 213,374 $ 156,483

Adjusted EBITDA 14.7% 17.4% 16.2% 15.2%margin (%)

Adjusted EBITDA $ 66,169 $ 63,941 $ 213,374 $ 156,843

Less: Depreciationand amortization - 21,365 21,022 65,616 63,002adjusted (a)(b)

Less: Interest 5,637 6,837 16,725 22,109expense, net

Less: Taxes onincome beforeequity in net 9,765 8,337 31,277 15,473income ofassociatedcompanies -adjusted (c)

Non-GAAP net income $ 29,402 $ 27,745 $ $ 55,899 99,756

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

GAAP earnings(loss) per dilutedshare attributable $ $ $ $ to Quaker Chemical 1.73 1.53 5.76 (0.50)Corporation commonshareholders

Equity income in acaptive insurance (0.01) (0.03) (0.23) (0.04)company per dilutedshare

Houghtoncombination,integration andother 0.26 0.30 0.58 1.03acquisition-relatedexpenses per diluted share (a)

Restructuring andrelated charges per (0.04) 0.06 0.03 0.15diluted share

Fair value step upof acquired - - 0.03 0.01inventory soldper diluted share

CEO transitioncosts per diluted 0.01 - 0.05 -share

Inactivesubsidiary'snon-operating 0.02 - 0.03 -litigation costsper diluted share

Customer bankruptcycosts per diluted - - - 0.02share

Facilityremediation costs, 0.09 - 0.09 -net, per dilutedshare

Indefinite-livedintangible asset - - - 1.65impairment perdiluted share

Pension andpostretirementbenefit costs, (0.02) (0.06) (0.03) 0.83non-servicecomponents per diluted share

Braziliannon-income tax (0.04) - (0.48) -credits per dilutedshare

Currency conversionimpacts ofhyper-inflationary 0.00 0.01 0.02 0.02economies perdiluted share

Impact of certaindiscrete tax items (0.37) (0.25) (0.29) (0.02)per diluted share

Non-GAAP earnings $ $ $ $ per diluted share 1.63 1.56 5.56 3.15

The Company recorded $0.2 million and $0.7 million of accelerated depreciation expense related to the Combination during the three and nine months ended September 30, 2021, respectively, compared to $0.8 million during the nine months ended September 30, 2020. In the three and nine months ended September 30, 2021 all $0.2 million and $0.7 million, respectively, was recorded in cost of goods sold ("COGS"), while in the nine months ended September 30, 2020, $0.7 million was recorded in COGS and $0.1 million was recorded in Combination, integration and other acquisition-related expenses. The amounts recorded within COGS are included in the caption Houghton combination, integration and other acquisition-related expenses in the reconciliation of Operating income to Non-GAAP operating income and GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP(a) earnings per diluted share. In addition, the total amounts are included within the caption Depreciation and amortization in the reconciliation of Net income (loss) attributable to Quaker Chemical Corporation to Adjusted EBITDA; however, they are excluded in the reconciliation of Adjusted EBITDA to Non-GAAP net income. In addition, during the nine months ended September 30, 2021, the Company recognized a gain of $5.4 million associated with the sale of certain held-for-sale real property assets which was the result of the Company's manufacturing footprint integration plans. This gain was recorded within Other income (expense), net and therefore is included in the caption Houghton combination, integration and other acquisition-related expenses in the reconciliation of Net income (loss) attributable to Quaker Chemical Corporation to Adjusted EBITDA and GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share, however it is excluded in the reconciliation of Operating income (loss) to Non-GAAP operating income.

Depreciation and amortization for the three and nine months ended September 30, 2021 includes $0.3 million and $0.9 million, respectively, and for the three and nine months ended September 30, 2020 included approximately $0.2(b) million and $0.9 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Statement of Operations, which is attributable to the amortization of the fair value step up for the Company's 50% interest in a Houghton joint venture in Korea as a result of required purchase accounting.

Taxes on income before equity in net income of associated companies - adjusted includes the Company's tax expense adjusted for the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of Net income (loss)(c) attributable to Quaker Chemical Corporation to adjusted EBITDA, above, determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility. This caption also includes the impact of certain specific tax charges and benefits in the three and nine months ended September 30, 2021 and 2020, which the Company does not consider core or indicative of future performance.

Segment Measures and Reconciliations

The Company's operating segments, which are consistent with its 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 assesses the Company's performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company's container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for each of the Company's reportable segments are comprised of the segment's net sales less directly related COGS and SG&A. 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, are not included in segment operating earnings. Other items not specifically identified with the Company's reportable segments include interest expense, net and other income (expense), net.

The following tables reconcile the Company's reportable operating segments performance to that of the Company's (dollars in thousands):

Three Months Ended Nine Months Ended September 30, September 30,

Net Sales 2021 2020 2021 2020

Americas $ 150,799 $ 119,540 $ 425,343 $ 330,012

EMEA 122,241 94,005 365,491 276,546

Asia/Pacific 98,659 84,877 286,924 226,850

Global Specialty 77,373 68,802 236,359 198,417Businesses

Total net sales $ 449,072 $ 367,224 $ 1,314,117 $ 1,031,825

Segment operating earnings

Americas $ 31,273 $ 31,099 $ 97,155 $ 70,590

EMEA 20,153 17,439 68,802 46,269

Asia/Pacific 23,285 27,304 73,990 66,106

Global Specialty 20,663 21,161 69,041 58,114Businesses

Total segment 95,374 97,003 308,988 241,079operating earnings

Combination,integration andother (5,786) (6,913) (18,259) (22,786)acquisition-relatedexpenses

Restructuring and 880 (1,383) (593) (3,585)related charges

Fair value step upof acquired - - (801) (226)inventory sold

Indefinite-livedintangible asset - - - (38,000)impairment

Non-operating andadministrative (38,691) (39,786) (122,760) (110,282)expenses

Depreciation ofcorporate assets (15,767) (14,062) (46,855) (41,547)and amortization

Operating income 36,010 34,859 119,720 24,653

Other income 647 (239) 19,344 (22,407)(expense), net

Interest expense, (5,637) (6,837) (16,725) (22,109)net

Income (loss)before taxes andequity in net $ 31,020 $ 27,783 $ 122,339 $ (19,863)income ofassociatedcompanies

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements, including statements regarding the potential effects of the COVID-19 pandemic and global supply chain constraints on the Company's business, results of operations, and financial condition, our expectations that we will maintain sufficient liquidity and remain in compliance with the terms of the Company's credit facility, statements regarding remediation of our material weaknesses in internal control over financial reporting, expectations about future demand and raw material costs, and statements regarding the impact of increased raw material costs and pricing initiatives, on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including but not limited to the potential benefits of the Combination and other acquisitions, the impacts on our business as a result of the COVID-19 pandemic and global supply chain constraints as well as any projected global economic rebound or anticipated positive results due to Company actions taken in response, and our current and future results and plans and statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company's products and services is largely derived from the demand for its customers' products, which subjects the Company to uncertainties related to downturns in a customer's business and unanticipated customer production slowdowns and shutdowns, including as is currently being experienced by many automotive industry companies as a result of supply chain disruptions. Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID-19 pandemic, including actions taken in response to the pandemic by various governments, which could exacerbate some or all of the other risks and uncertainties faced by the Company, including the potential for significant increases in raw material costs, supply chain disruptions, customer financial instability, worldwide economic and political disruptions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automobile, aircraft, industrial equipment, and durable goods industries. The ultimate impact of COVID-19 on our business will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus including as new variants emerge, the continued uncertainty regarding global availability, administration, acceptance and long-term efficacy of vaccines, or other treatments, for COVID-19 or its variants, the longer-term effects on the economy of the pandemic, including the resulting market volatility, and by the measures taken by governmental authorities and other third parties restricting day-to-day life and business operations and the length of time that such measures remain in place, as well as laws and other governmental programs implemented to address the pandemic or assist impacted businesses, such as fiscal stimulus and other legislation designed to deliver monetary aid and other relief. Other factors could also adversely affect us, including those related to the Combination and other acquisitions and the integration of acquired businesses. Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results. All forward-looking statements included in this press release, including expectations about business conditions during 2021 and future periods, are based upon information available to the Company as of the date of this press release, which may change. Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to the Risk Factors section, which appears in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, and in subsequent reports filed from time to time with the Securities and Exchange Commission. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Conference Call

As previously announced, the Company's investor conference call to discuss its third quarter performance is scheduled for November 5, 2021 at 8:30 a.m. (ET). A live webcast of the conference call, together with supplemental information, can be accessed through the Company's Investor Relations website at investors.quakerhoughton.com. You can also access the conference call by dialing 877-269-7756.

About Quaker Houghton

Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world's most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge and customized services. With approximately 4,200 employees, including chemists, engineers and industry experts, we partner with our customers to improve their operations so they can run even more efficiently, even more effectively, whatever comes next. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the United States. Visit quakerhoughton.com to learn more.

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Net sales $ 449,072 $ 367,224 $ 1,314,117 $ 1,031,825

Cost of goods sold 303,941 227,032 858,341 660,396

Gross profit 145,131 140,192 455,776 371,429

% 32.3% 38.2% 34.7% 36.0%

Selling, generaland administrative 104,215 97,037 317,204 282,405expenses

Indefinite-livedintangible asset - - - 38,000impairment

Restructuring and (880) 1,383 593 3,585related charges

Combination,integration andother 5,786 6,913 18,259 22,786acquisition-relatedexpenses

Operating income 36,010 34,859 119,720 24,653

% 8.0% 9.5% 9.1% 2.4%

Other income 647 (239) 19,344 (22,407)(expense), net

Interest expense, (5,637) (6,837) (16,725) (22,109)net

Income (loss)before taxes andequity in net 31,020 27,783 122,339 (19,863)income ofassociatedcompanies

Taxes on income(loss) beforeequity in net 795 2,245 26,702 (7,603)income ofassociatedcompanies

Income (loss)before equity innet income of 30,225 25,538 95,637 (12,260)associatedcompanies

Equity in netincome of 848 1,804 7,668 3,536associatedcompanies

Net income (loss) 31,073 27,342 103,305 (8,724)

Less: Net incomeattributable to 15 38 62 88noncontrollinginterest

Net income (loss)attributable to $ 31,058 $ 27,304 $ 103,243 $ (8,812)Quaker ChemicalCorporation

% 6.9% 7.4% 7.9% -0.9%

Share and per sharedata:

Basic weightedaverage common 17,812,216 17,743,538 17,800,082 17,704,662shares outstanding

Diluted weightedaverage common 17,870,392 17,800,865 17,860,068 17,704,662shares outstanding

Net income (loss)attributable toQuaker Chemical $ 1.74 $ 1.53 $ 5.78 $ (0.50)Corporation common shareholders -basic

Net income (loss)attributable toQuaker Chemical $ 1.73 $ 1.53 $ 5.76 $ (0.50)Corporation common shareholders -diluted

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

(Unaudited)

September 30, December 31, 2021 2020

ASSETS

Current assets

Cash and cash equivalents $ 141,393 $ 181,833

Accounts receivable, net 433,631 372,974

Inventories, net 254,894 187,764

Prepaid expenses and other current 63,278 50,156assets

Total current assets 893,196 792,727

Property, plant and equipment, net 190,833 203,883

Right of use lease assets 34,314 38,507

Goodwill 630,669 631,212

Other intangible assets, net 1,048,688 1,081,358

Investments in associated 94,110 95,785companies

Deferred tax assets 18,409 16,566

Other non-current assets 31,608 31,796

Total assets $ 2,941,827 $ 2,891,834

LIABILITIES AND EQUITY

Current liabilities

Short-term borrowings and current $ 52,611 $ 38,967portion of long-term debt

Accounts and other payables 219,601 198,872

Accrued compensation 40,655 43,300

Accrued restructuring 4,050 8,248

Other current liabilities 93,042 93,573

Total current liabilities 409,959 382,960

Long-term debt 839,275 849,068

Long-term lease liabilities 24,599 27,070

Deferred tax liabilities 174,405 192,763

Other non-current liabilities 109,893 119,059

Total liabilities 1,558,131 1,570,920

Equity

Common stock, $1 par value;authorized 30,000,000 shares;issued 17,889 17,851 and outstanding 2021 -17,888,577 shares; 2020 -17,850,616 shares

Capital in excess of par value 914,277 905,171

Retained earnings 505,635 423,940

Accumulated other comprehensive (54,723) (26,598)loss

Total Quaker shareholders' equity 1,383,078 1,320,364

Noncontrolling interest 618 550

Total equity 1,383,696 1,320,914

Total liabilities and equity $ 2,941,827 $ 2,891,834

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30,

2021 2020

Cash flows from operatingactivities

Net income (loss) $ 103,305 $ (8,724)

Adjustments to reconcile netincome (loss) to net cash providedby operatingactivities:

Amortization of debt issuance 3,562 3,562costs

Depreciation and amortization 65,440 62,818

Equity in undistributed earningsof associated companies, net of (7,563) 1,415dividends

Acquisition-related fair value 801 229adjustments related to inventory

Deferred compensation, deferred (21,865) (30,657)taxes and other, net

Share-based compensation 8,441 17,820

(Gain) loss on disposal ofproperty, plant, equipment and (4,819) 105other assets

Insurance settlement realized - (818)

Indefinite-lived intangible asset - 38,000impairment

Combination and otheracquisition-related expenses, net (1,705) 2,498of payments

Restructuring and related charges 593 3,585

Pension and other postretirement (5,638) 16,219benefits

(Decrease) increase in cash fromchanges in current assets andcurrentliabilities, net of acquisitions:

Accounts receivable (68,664) 30,225

Inventories (72,962) 2,137

Prepaid expenses and other current (24,512) (113)assets

Change in restructuring (4,557) (12,772)liabilities

Accounts payable and accrued 32,652 (13,481)liabilities

Net cash provided by operating 2,509 112,048activities

Cash flows from investingactivities

Investments in property, plant and (12,823) (12,184)equipment

Payments related to acquisitions, (31,975) (3,132)net of cash acquired

Proceeds from disposition of 14,744 11assets

Insurance settlement interest - 41earned

Net cash used in investing (30,054) (15,264)activities

Cash flows from financingactivities

Payments of term loan debt (28,558) (28,132)

Borrowings (repayments) on 39,143 (16,485)revolving credit facilities, net

Repayments on other debt, net (585) (527)

Dividends paid (21,175) (20,520)

Stock options exercised, other 704 2,385

Purchase of noncontrolling - (1,047)interest in affiliates

Distributions to noncontrolling - (751)affiliate shareholders

Net cash used in financing (10,471) (65,077)activities

Effect of foreign exchange rate (2,486) (529)changes on cash

Net (decrease) increase in cash,cash equivalents and restricted (40,502) 31,178cash

Cash, cash equivalents andrestricted cash at the beginning 181,895 143,555of the period

Cash, cash equivalents andrestricted cash at the end of the $ 141,393 $ 174,733period

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SOURCE Quaker Houghton