kwr-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-12019

QUAKER CHEMICAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania			23-0993790
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


901 E. Hector Street, Conshohocken, Pennsylvania			19428 – 2380
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: 610-832-4000

Not Applicable

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

KWR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Number of Shares of Common Stock Outstanding on April 30, 2024			17,989,892

Table of Contents

Quaker Chemical Corporation

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and March 31, 2023	2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and March 31, 2023	3
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and March 31, 2023	5
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2024 and March 31, 2023	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	29
Item 4.	Controls and Procedures.	29
PART II	OTHER INFORMATION.
Item 1.	Legal Proceedings.	30
Item 1A.	Risk Factors.	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds .	30
Item 5.	Other Information.	30
Item 6.	Exhibits.	31
Signatures.		32

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Unaudited; Dollars in thousands, except per share data)


	Three Months Ended March 31,
	2024		2023
Net sales	$	469,759	$	500,148
Cost of goods sold (excluding amortization expense - See Note 13)	288,196		326,698
Gross profit	181,563		173,450
Selling, general and administrative expenses	124,180		119,549
Restructuring and related charges, net	1,857		3,972

Operating income	55,526		49,929
Other income (expense), net	1,080		(2,239)
Interest expense, net	(10,824)		(13,242)
Income before taxes and equity in net income of associated companies	45,782		34,448
Taxes on income before equity in net income of associated companies	12,508		9,533
Income before equity in net income of associated companies	33,274		24,915
Equity in net income of associated companies	1,984		4,626
Net income	35,258		29,541
Less: Net income attributable to noncontrolling interest	31		7
Net income attributable to Quaker Chemical Corporation	$	35,227	$	29,534
Per share data:
Net income attributable to Quaker Chemical Corporation common shareholders – basic	$	1.96	$	1.64
Net income attributable to Quaker Chemical Corporation common shareholders – diluted	$	1.95	$	1.64
Dividends declared	$	0.455	$	0.435

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited; Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Net income	$	35,258	$	29,541

Other comprehensive (loss) income, net of tax
Currency translation adjustments	(25,389)		14,468
Defined benefit retirement plans	354		(126)
Current period change in fair value of derivatives	2,345		390
Unrealized gain on available-for-sale securities	45		334
Other comprehensive (loss) income	(22,645)		15,066

Comprehensive income	12,613		44,607
Less: Comprehensive loss (income) attributable to noncontrolling interest	42		(10)
Comprehensive income attributable to Quaker Chemical Corporation	$	12,655	$	44,597

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Unaudited; Dollars in thousands, except par value)


	March 31, 2024		December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	195,750	$	194,527
Accounts receivable, net	440,018		444,950
Inventories
Raw materials and supplies	116,411		119,047
Work-in-process and finished goods	124,055		114,810
Prepaid expenses and other current assets	56,795		54,555
Total current assets	933,029		927,889
Property, plant and equipment, at cost	445,118		453,419
Less: Accumulated depreciation	(242,888)		(245,608)
Property, plant and equipment, net	202,230		207,811
Right of use lease assets	38,195		38,614
Goodwill	522,575		512,518
Other intangible assets, net	886,146		896,721
Investments in associated companies	99,850		101,151
Deferred tax assets	10,117		10,737
Other non-current assets	22,228		18,770
Total assets	$	2,714,370	$	2,714,211
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt	$	27,790	$	23,444
Accounts payable	191,161		184,813
Dividends payable	8,185		8,186
Accrued compensation	28,024		55,194
Accrued restructuring	1,516		3,350
Accrued pension and postretirement benefits	2,210		2,208
Other accrued liabilities	91,341		90,315
Total current liabilities	350,227		367,510
Long-term debt	740,408		730,623
Long-term lease liabilities	22,819		22,937
Deferred tax liabilities	150,618		146,957
Non-current accrued pension and postretirement benefits	28,931		29,457
Other non-current liabilities	29,575		31,805
Total liabilities	1,322,578		1,329,289
Commitments and contingencies (Note 18)
Equity
Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding March 31, 2024 – 17,989,801 shares; December 31, 2023 – 17,991,988 shares	17,990		17,992
Capital in excess of par value	942,546		940,101
Retained earnings	577,682		550,641
Accumulated other comprehensive loss	(146,987)		(124,415)
Total Quaker shareholders’ equity	1,391,231		1,384,319
Noncontrolling interest	561		603
Total equity	1,391,792		1,384,922
Total liabilities and equity	$	2,714,370	$	2,714,211

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited; Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities
Net income	$	35,258	$	29,541
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt issuance costs	353		353
Depreciation and amortization	20,802		20,246
Equity in undistributed earnings of associated companies, net of dividends	(1,675)		(4,401)

Deferred compensation, deferred taxes and other, net	568		(2,231)
Share-based compensation	3,884		3,527



Restructuring and related charges, net	1,857		3,972
Pension and other postretirement benefits	(551)		(415)
Decrease in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable	1,431		(3,974)
Inventories	(6,576)		(5,792)
Prepaid expenses and other current assets	(1,054)		(6,765)
Change in restructuring liabilities	(3,666)		(2,747)
Accounts payable and accrued liabilities	(23,400)		6,468
Net cash provided by operating activities	27,231		37,782

Cash flows from investing activities
Investments in property, plant and equipment	(4,460)		(6,161)
Payments related to acquisitions, net of cash acquired	(24,899)		—

Proceeds from disposition of assets	58		—
Net cash used in investing activities	(29,301)		(6,161)

Cash flows from financing activities
Payments of long-term debt	(4,711)		(4,703)
Borrowings (payments) on revolving credit facilities, net	20,902		(9,776)

Payments on other debt, net	—		(469)

Dividends paid	(8,186)		(7,809)
Other stock related activity	(1,442)		(2,109)
Net cash provided by (used in) financing activities	6,563		(24,866)
Effect of foreign exchange rate changes on cash	(3,270)		2,154
Net increase in cash and cash equivalents	1,223		8,909
Cash and cash equivalents at the beginning of the period	194,527		180,963
Cash and cash equivalents at the end of the period	$	195,750	$	189,872

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Quaker Chemical Corporation

Condensed Consolidated Statements of Changes in Equity

(Unaudited; Dollars in thousands, except per share amounts)


	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
Balance as of December 31, 2022	$	17,950	$	928,288	$	469,920	$	(138,240)	$	667	$	1,278,585
Net income	—		—		29,534		—		7		29,541
Amounts reported in other comprehensive income	—		—		—		15,063		3		15,066
Dividends ($0.435 per share)	—		—		(7,822)		—		—		(7,822)
Share issuance and equity-based compensation plans	32		1,386		—		—		—		1,418
Balance as of March 31, 2023	$	17,982	$	929,674	$	491,632	$	(123,177)	$	677	$	1,316,788











Balance as of December 31, 2023	$	17,992	$	940,101	$	550,641	$	(124,415)	$	603	$	1,384,922
Net income	—		—		35,227		—		31		35,258
Amounts reported in other comprehensive loss	—		—		—		(22,572)		(73)		(22,645)
Dividends ($0.455 per share)	—		—		(8,186)		—		—		(8,186)
Share issuance and equity-based compensation plans	(2)		2,445		—		—		—		2,443
Balance as of March 31, 2024	$	17,990	$	942,546	$	577,682	$	(146,987)	$	561	$	1,391,792

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)

Note 1 – Basis of Presentation and Description of Business

As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period ended March 31, 2024 (the “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.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments consisting of normal recurring adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2023 (as amended, the “2023 Form 10-K”).

Description of Business

The Company was organized in 1918 and incorporated as a Pennsylvania business corporation in 1930. Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, the Company’s customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies. Quaker Houghton develops, produces, and markets a broad range of formulated chemical specialty products and offers chemical management services, which the Company refers to as FluidcareTM, for various heavy industrial and manufacturing applications sold in its three reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia/Pacific.

Hyper-inflationary economies

Argentina’s and Türkiye’s economies were considered hyper-inflationary under U.S. GAAP effective July 1, 2018 and April 1, 2022, respectively. As of, and for the three months ended March 31, 2024, the Company's Argentine and Turkish subsidiaries together represented 1% and 2% of the Company’s consolidated total assets and net sales, respectively. During the three months ended March 31, 2024 and 2023, the Company recorded $0.9 million of remeasurement gains and $0.5 million of remeasurement losses associated with the applicable currency conversions, respectively. These gains and losses were recorded within Other income (expense), net, in the Company’s Condensed Consolidated Statements of Operations.

Note 2 – Business Acquisitions

During February 2024, the Company acquired I.K.V. Tribologie IKVT and its subsidiaries (“IKV”) for 32.2 million EUR, or $34.6 million, including an initial cash payment of 27.6 million EUR, or $29.7 million, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels as well as earn-out provisions related to the finalization of 2023 earnings currently estimated at 4.6 million EUR, or $4.9 million, that is payable during 2024. Assets acquired included approximately $4.8 million of cash and cash equivalents. IKV, which will be part of the Company’s EMEA segment, specializes in high-performance lubricants and greases, including original equipment manufacturer first-fill greases that are primarily used in the automotive, aerospace, electronics, and other industrial markets. The acquisition of IKV strengthens the Company’s position in first-fill greases. The Company preliminarily allocated $15.0 million of the purchase price to intangible assets, comprised of approximately $11.1 million of customer relationships to be amortized over 16 years; $3.2 million of product technologies to be amortized over 14 years; and $0.7 million of trademarks to be amortized over 5 years. In addition, the Company recognized $16.0 million of goodwill in the EMEA segment, none of which is deductible for tax purposes. The goodwill recognized on the transaction is primarily attributable to expected cost and growth synergies. As of March 31, 2024, the allocation of the purchase price has not been finalized.

The results of operations of IKV subsequent to the acquisition date are included in the unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards Not Yet Adopted

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures in November 2023. This ASU expands on reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure specifies that significant segment expenses are expenses that are regularly provided to the chief operating decision maker and are used to evaluate performance by segment to make decisions about resource allocations. ASU 2023-07 is effective for annual reports for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the disclosure requirements of this standard and the impact on its Consolidated Financial Statements and related disclosures.

The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures in December 2023. This ASU requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the “rate reconciliation”) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the disclosure requirements of this standard and the impact on its Consolidated Financial Statements.

Note 4 – Business Segments

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 three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific. The three segments are composed of the net sales and operations in each respective region.

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 and Restructuring and related charges, 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 income (expense), net.

The following table presents information about the performance of the Company’s reportable segments for the three months ended March 31, 2024 and 2023:



Net sales	2024		2023
Americas	$	229,754	$	251,413
EMEA	138,422		152,449
Asia/Pacific	101,583		96,286
Total net sales	$	469,759	$	500,148

Segment operating earnings
Americas	$	66,770	$	66,125
EMEA	29,571		27,571
Asia/Pacific	30,377		27,652
Total segment operating earnings	126,718		121,348

Restructuring and related charges, net	(1,857)		(3,972)
Non-operating and administrative expenses	(54,177)		(51,771)
Depreciation of corporate assets and amortization	(15,158)		(15,676)
Operating income	55,526		49,929
Other income (expense), net	1,080		(2,239)
Interest expense, net	(10,824)		(13,242)
Income before taxes and equity in net income of associated companies	$	45,782	$	34,448

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)

All inter-segment transactions have been eliminated from each reportable segment’s net sales and earnings for all periods presented in the above tables. The following table summarizes inter-segment revenues for the three months ended March 31, 2024 and 2023:




Inter-segment revenues	2024		2023
Americas	$	2,513	$	2,827
EMEA	7,060		6,093
Asia/Pacific	1,131		59

Note 5 – Net Sales and Revenue Recognition

Arrangements Resulting in Net Reporting

As part of the Company’s FluidcareTM business, certain third-party product sales to customers are managed by the Company. The Company transferred third-party products under arrangements recognized on a net reporting basis of $19.8 million and $20.7 million for the three months ended March 31, 2024 and 2023, respectively.

Customer Concentration

A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, aluminum, automobiles, aerospace, industrial and agricultural equipment, and durable goods. As previously disclosed in the Company’s 2023 Form 10-K, the Company’s five largest customers combined (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 12% of consolidated net sales for 2023, with its largest customer accounting for approximately 3% of consolidated net sales.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of March 31, 2024 or December 31, 2023.

The Company had approximately $4.0 million and $4.5 million of deferred revenue as of March 31, 2024 and December 31, 2023, respectively. For the three months ended March 31, 2024, the Company satisfied materially all of the associated performance obligations and recognized into revenue materially all advance payments received and recorded as of December 31, 2023.

Disaggregated Revenue

The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product portfolio. The Company generally manages and evaluates its performance by reportable segment first, and then by customer industries. Net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s geographic regions, and in most cases, are approximately proportionate to the level of total sales in each region.

The following tables disaggregate the Company’s net sales by segment and customer industry.


	Three Months Ended March 31, 2024
Customer Industries	Americas		EMEA		Asia/Pacific		Consolidated Total
Metals	$	66,026	$	32,820	$	50,911	$	149,757
Metalworking and other	163,728		105,602		50,672		320,002


	$	229,754	$	138,422	$	101,583	$	469,759


	Three Months Ended March 31, 2023
Customer Industries	Americas		EMEA		Asia/Pacific		Consolidated Total
Metals	$	68,134	$	39,103	$	46,660	$	153,897
Metalworking and other	183,279		113,346		49,626		346,251



	$	251,413	$	152,449	$	96,286	$	500,148

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)

Note 6 - Leases

The Company has operating leases for certain facilities, vehicles, and machinery and equipment with remaining lease terms up to 11 years. Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company has certain land use leases with remaining lease terms up to 91 years.

The Company had no material variable lease costs, sublease income, or finance leases for the three months ended March 31, 2024 and 2023. The components of the Company’s lease expense are as follows:



	2024		2023
Operating lease expense	$	3,743	$	3,936
Short-term lease expense	199		211

Supplemental cash flow information related to the Company’s leases for the three months ended March 31, 2024 and 2023 is as follows:



	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,661	$	3,857

Non-cash lease liabilities activity:
Leased assets obtained in exchange for new operating lease liabilities	3,234		2,833

Supplemental balance sheet information related to the Company’s leases is as follows:


	March 31, 2024			December 31, 2023
Right of use lease assets	$	38,195		$	38,614

Other current liabilities	11,818			11,965
Long-term lease liabilities	22,819			22,937
Total operating lease liabilities	$	34,637		$	34,902

Weighted average remaining lease term (years)	5.0			5.1
Weighted average discount rate	5.21		%	4.91		%

Maturities of operating lease liabilities as of March 31, 2024 were as follows:



For the remainder of 2024	$	10,341
For the year ended December 31, 2025	9,864
For the year ended December 31, 2026	7,552
For the year ended December 31, 2027	4,165
For the year ended December 31, 2028	2,402
For the year ended December 31, 2029 and beyond	5,262
Total lease payments	39,586
Less: imputed interest	(4,949)
Present value of lease liabilities	$	34,637

Note 7 – Restructuring and Related Activities

In 2022, the Company initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization. As of March 31, 2024, the program included restructuring and associated severance costs to reduce headcount by approximately 120 positions globally. These headcount reductions began in the fourth quarter of 2022 and are expected to be completed in 2024.

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)

Employee separation benefits vary depending on local regulations within certain foreign countries and include severance and other benefits. The exact timing to complete, and final costs associated with, all actions will depend on a number of factors and are subject to change. Restructuring costs incurred during the three months ended March 31, 2024 and 2023 include employee severance and facility closure costs th

SEC Form 10-Q filed by Quaker Houghton