QUAKER HOUGHTON ANNOUNCES SECOND QUARTER 2023 RESULTS

• 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.

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.

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):

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):