PR Newswire
CONSHOHOCKEN, Pa., Aug. 1, 2023
- Net sales of $495.4 million in Q2'23, an increase of 1% compared to Q2'22 driven by value-based pricing initiatives
- Q2'23 net income of $29.3 million and earnings per diluted share of $1.63
- Q2'23 non-GAAP net income of $34.8 million and non-GAAP earnings per diluted share of $1.93
- Delivered adjusted EBITDA of $80.2 million in Q2'23, a 37% increase compared to $58.5 million in Q2'22
- Generated $116.1 million of operating cash flow year-to-date; net debt to adjusted EBITDA improved to 2.3x
CONSHOHOCKEN, Pa., Aug. 1, 2023 /PRNewswire/ -- Quaker Houghton ("the Company") (NYSE: KWR), the global leader in industrial process fluids, announced its second quarter 2023 results today.
Three Months Ended | Six Months Ended | ||||||
($ in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | |||
Net sales | $ 495,444 | $ 492,388 | $ 995,592 | $ 966,559 | |||
Net income attributable to Quaker Chemical Corporation | 29,346 | 14,343 | 58,880 | 34,159 | |||
Net income attributable to Quaker Chemical Corporation | 1.63 | 0.80 | 3.27 | 1.91 | |||
Non-GAAP net income * | 34,774 | 23,675 | 68,766 | 49,145 | |||
Non-GAAP Earnings per diluted share * | 1.93 | 1.32 | 3.82 | 2.74 | |||
Adjusted EBITDA * | 80,242 | 58,491 | 159,033 | 118,935 |
* | Refer to the Non-GAAP Measures and Reconciliations section below for additional information |
Second Quarter 2023 Consolidated Results
Second quarter of 2023 net sales were $495.4 million, an increase of 1% compared to $492.4 million in the second quarter of 2022 primarily due to an increase in selling price and product mix of approximately 11%, partially offset by a 10% decrease in sales volumes. The increase in selling price and product mix was primarily attributable to increases in selling prices in all segments to offset the significant inflationary pressures on the business. The decline in sales volumes was primarily attributable to a continuation of softer market conditions and the impact of the war in Ukraine in the EMEA segment.
The Company reported net income in the second quarter of 2023 of $29.3 million, or $1.63 per diluted share, compared to net income of $14.3 million or $0.80 per diluted share in the second quarter of 2022. Excluding non-recurring and non-core items in each period, the Company's non-GAAP net income and earnings per diluted share were $34.8 million and $1.93 respectively in the second quarter of 2023 compared to $23.7 million and $1.32 respectively in the prior year. The Company generated adjusted EBITDA of $80.2 million in the second quarter of 2023, an increase of 37% compared to $58.5 million in the second quarter of 2022, primarily due to an increase in net sales and an improvement in gross margins compared to the prior year.
Andy Tometich, Chief Executive Officer and President, commented, "In the second quarter, Quaker Houghton once again successfully managed through a very challenging operating environment and achieved strong results. Despite market conditions, we have made meaningful progress improving the profitability of our business through our margin initiatives and delivered double-digit year-over-year earnings growth and solid cash flow.
Looking ahead, we expect the current uneven end market environment will persist at least through the end of the year. We will continue to execute on what we can control, including investing to strengthen the business, delivering value to customers, advancing our strategic initiatives, and delivering strong year-over-year growth in earnings and cash flow. I am confident in our strategy and believe these actions best position Quaker Houghton to deliver on our profitable growth potential."
Second Quarter 2023 Segment Results
During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company's new structure includes three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific. Prior to the Company's reorganization, the Company's historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. Prior period information has been recast to align with the Company's business structure as of January 1, 2023.
The Company's three and six months of June 30, 2023 operating performance of each of its three reportable segments, (i) Americas; (ii) EMEA; and (iii) Asia/Pacific, are further described below.
Three Months Ended | Six Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net Sales * | |||||||
Americas | $ 253,219 | $ 235,809 | $ 504,632 | $ 447,900 | |||
EMEA | 143,533 | 145,535 | 295,982 | 292,354 | |||
Asia/Pacific | 98,692 | 111,044 | 194,978 | 226,305 | |||
Total net sales | $ 495,444 | $ 492,388 | $ 995,592 | $ 966,559 | |||
Segment operating earnings * | |||||||
Americas | $ 69,007 | $ 52,137 | $ 135,132 | $ 97,316 | |||
EMEA | 25,583 | 20,076 | 53,154 | 43,324 | |||
Asia/Pacific | 27,989 | 24,922 | 55,641 | 49,423 | |||
Total segment operating earnings | $ 122,579 | $ 97,135 | $ 243,927 | $ 190,063 |
* | Refer to the Segment Measures and Reconciliations section below for additional information |
Net sales in the Americas segment increased in the second quarter of 2023 compared to the same period in 2022 primarily due to an increase in selling price and product mix, partially offset by a decline in sales volumes. Net sales in the EMEA segment were similarly a result of an increase in selling price and product mix and a favorable impact from foreign currency translation, offset by a decline in sales volumes. Net sales in the Asia/Pacific segment declined compared to the prior year quarter as a decline in sales volumes and a headwind from foreign currency translation more than offset an increase in selling price and product mix. The increase in selling price and product mix was primarily related to our value-based pricing initiatives implemented across all segments. The decline in sales volumes was similar across all segments and primarily reflects softer market conditions and the impact of the ongoing war in Ukraine in the EMEA segment.
Compared to the first quarter of 2023, net sales increased in the Americas and Asia/Pacific segments but declined in the EMEA segment. Sales volumes in the Asia/Pacific segment increased, remained stable in the Americas and declined in EMEA. Selling price and product mix was consistent with the prior quarter in all segments.
Operating earnings increased in all three segments in the second quarter of 2023 compared to the prior year, primarily driven by an improvement in operating margins in all segments. Operating margins increased in the Americas segment and were similar in the Asia/Pacific and EMEA segments in the second quarter compared to the first quarter of 2023.
Cash Flow and Liquidity Highlights
Net cash provided by operating activities was $116.1 million for the first six months of 2023 compared to net cash used in operating activities of $8.4 million in the first six months of 2022. The improvement in net operating cash flow primarily reflects a stronger operating performance and working capital management in the first six months of 2023 compared to the same period in 2022.
As of June 30, 2023, the Company's total gross debt was $885.1 million, and its cash and cash equivalents was $189.4 million, which resulted in net debt of approximately $695.7 million. The Company's net debt divided by its trailing twelve months adjusted EBITDA was approximately 2.3x.
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 considered indicative of future operating performance or not considered core to the Company's operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP. In addition, our definitions of EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly named measures reported by other companies
The Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not considered indicative of future operating performance or not considered core to the Company's operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not considered indicative of future operating performance or not considered core to the Company's operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by investors, analysts, and peers in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the "two-class share method." The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by investors, analysts, and peers in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
As it relates to future projections for the Company 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 June 30, 2023 adjusted EBITDA of $297.2 million, which includes (i) the six months ended June 30, 2023 adjusted EBITDA of $159.0 million, as presented in the non-GAAP reconciliations below, and (ii) the twelve months ended December 31, 2022 adjusted EBITDA of $257.2 million, as presented in the non-GAAP reconciliations included in the Company's fourth quarter and full year 2022 results press release dated February 23, 2023, less (iii) the six months ended June 30, 2022 adjusted EBITDA of $118.9 million, as presented in the non-GAAP reconciliations below.
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):
Three Months Ended | Six Months Ended | ||||||
Non-GAAP Operating Income and Margin Reconciliations: | 2023 | 2022 | 2023 | 2022 | |||
Operating income | $ 56,795 | $ 31,903 | $ 106,724 | $ 61,306 | |||
Combination, integration and other acquisition-related expenses (a) | — | 1,831 | — | 5,885 | |||
Restructuring and related charges (credits), net | 1,043 | (1) | 5,015 | 819 | |||
Strategic planning expenses | 579 | 3,112 | 2,666 | 6,200 | |||
Russia-Ukraine conflict related expenses | — | 929 | — | 2,095 | |||
Other charges | 344 | 1,031 | 649 | 1,660 | |||
Non-GAAP operating income | $ 58,761 | $ 38,805 | $ 115,054 | $ 77,965 | |||
Non-GAAP operating margin (%) | 11.9 % | 7.9 % | 11.6 % | 8.1 % |
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and | Three Months Ended | Six Months Ended | |||||
2023 | 2022 | 2023 | 2022 | ||||
Net income attributable to Quaker Chemical Corporation | $ 29,346 | $ 14,343 | $ 58,880 | $ 34,159 | |||
Depreciation and amortization (b) | 20,834 | 20,856 | 41,344 | 41,583 | |||
Interest expense, net | 12,721 | 6,494 | 25,963 | 11,839 | |||
Taxes on income before equity in net income of associated | 13,830 | 1,374 | 23,363 | 4,240 | |||
EBITDA | 76,731 | 43,067 | 149,550 | 91,821 | |||
Equity loss in a captive insurance company | 430 | 1,781 | 8 | 2,025 | |||
Combination, integration and other acquisition-related (credits) | (475) | 2,248 | (475) | 8,281 | |||
Restructuring and related charges (credits), net | 1,043 | (1) | 5,015 | 819 | |||
Strategic planning expenses | 579 | 3,112 | 2,666 | 6,200 | |||
Russia-Ukraine conflict related expenses | — | 929 | — | 2,095 | |||
Currency conversion impacts of hyper-inflationary economies | 1,184 | 36 | 1,640 | 224 | |||
Loss on extinguishment of debt | — | 6,763 | — | 6,763 | |||
Other charges | 750 | 556 | 629 | 707 | |||
Adjusted EBITDA | $ 80,242 | $ 58,491 | $ 159,033 | $ 118,935 | |||
Adjusted EBITDA margin (%) | 16.2 % | 11.9 % | 16.0 % | 12.3 % | |||
Adjusted EBITDA | $ 80,242 | $ 58,491 | $ 159,033 | $ 118,935 | |||
Less: Depreciation and amortization - adjusted (b) | 20,834 | 20,856 | 41,344 | 41,583 | |||
Less: Interest expense, net | 12,721 | 6,494 | 25,963 | 11,839 | |||
Less: Taxes on income before equity in net income of associated | 11,913 | 7,466 | 22,960 | 16,368 | |||
Non-GAAP net income | $ 34,774 | $ 23,675 | $ 68,766 | $ 49,145 |
Three Months Ended | Six Months Ended | ||||||
Non-GAAP Earnings per Diluted Share Reconciliations: | 2023 | 2022 | 2023 | 2022 | |||
GAAP earnings per diluted share attributable to Quaker Chemical | $ 1.63 | $ 0.80 | $ 3.27 | $ 1.91 | |||
Equity loss in a captive insurance company per diluted share | 0.02 | 0.10 | 0.00 | 0.11 | |||
Combination, integration and other acquisition-related (credits) | (0.03) | 0.13 | (0.03) | 0.38 | |||
Restructuring and related charges (credits), net per diluted share | 0.04 | (0.00) | 0.21 | 0.03 | |||
Strategic planning expenses per diluted share | 0.03 | 0.13 | 0.13 | 0.27 | |||
Russia-Ukraine conflict related expenses per diluted share | — | 0.04 | — | 0.10 | |||
Currency conversion impacts of hyper-inflationary economies | 0.06 | 0.00 | 0.09 | 0.01 | |||
Loss on extinguishment of debt per diluted share | — | 0.29 | — | 0.29 | |||
Other charges per diluted share | 0.04 | 0.03 | 0.02 | 0.03 | |||
Impact of certain discrete tax items per diluted share | 0.14 | (0.20) | 0.13 | (0.39) | |||
Non-GAAP earnings per diluted share | $ 1.93 | $ 1.32 | $ 3.82 | $ 2.74 |
(a) | Combination, integration and other acquisition-related (credits) expenses in 2022 included certain legal, financial, and other advisory and consultant costs incurred in connection with the Combination integration activities. These amounts also include expense associated with the Company's other recent acquisitions, including certain legal, financial, and other advisory and consultant costs incurred in connection with due diligence. During both the three and six months ended June 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 three and six months ended June 30, 2022, the Company recorded expenses of $0.4 million and $2.4 million, respectively, of other expenses due to changes in a Combination-related indemnification asset. These amounts were recorded within Other expense, net and therefore are included in the caption "Combination, integration and other acquisition-related (credits) expenses" in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA and GAAP earnings 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 to Non-GAAP operating income. |
(b) | Depreciation and amortization for the three and six months ended June 30, 2023 and the same period of 2022 includes approximately $0.2 million and $0.5 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Condensed Consolidated Statement of Income, which is attributable to the amortization of the fair value step up for the Company's 50% interest in a joint venture in Korea as a result of required purchase accounting. |
(c) | 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 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 specific tax charges and benefits in the three and six months ended June 30, 2023 and 2022, which the Company does not consider core to the Company's operations or indicative of future performance. |
Segment Measures and Reconciliations
Segment operating earnings for each of the Company's reportable segments are comprised of the segment's net sales less directly related Cost of goods sold ("COGS") and Selling, general and administrative expenses ("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 (credits), net, are not included in segment operating earnings. Other items not specifically identified with the Company's reportable segments include Interest expense, net and Other expense, net.
The following table presents information about the performance of the Company's reportable segments (dollars in thousands):
Three Months Ended | Six Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net Sales | |||||||
Americas | $ 253,219 | $ 235,809 | $ 504,632 | $ 447,900 | |||
EMEA | 143,533 | 145,535 | 295,982 | $ 292,354 | |||
Asia/Pacific | 98,692 | 111,044 | 194,978 | $ 226,305 | |||
Total net sales | $ 495,444 | $ 492,388 |