EX-99.2 3 v471693_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

1 Second Quarter 2017 Results Investor Conference Call July 28, 2017 Quaker Chemical Corporation

 

 

Regulation G The attached charts include C ompany information that does not conform to generally accepted accounting principles ( “GAAP”). Management believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing operating results of the Company and allows investors to better evaluate the financial results of the Company. These measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consis tent with similar measures provided by other companies. This data should be read in conjunction with the Company’s most recent annual report filed on Form 10-K as well as the second quarter earnings news release dated July 27 , 2017, which has been furnishe d to the SEC on Form 8 -K and the Company’s Form 10-Q for the quarterly period ended June 30, 2017, which has been filed with the SEC. Forward-Looking Statements This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statement s. 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 pro duction shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political condi tions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Other factors, including those related to the previously announced Houghton combination (“the Combination”), could also adversely affect us including, but not limited to: • the risk that Quaker shareholders may not approve the Combination; • the risk that a required regulatory approval will not be obtained or is subject to conditions that are not anticipated or acceptable to us; • the potential for regulatory authorities to require divestitures in connection with the Combination, which would result in a smaller than anticipated combined business; • the risk that a closing condition to the Combination may not be satisfied in a timely manner; • risks associated with the financing of the Combination; • the occurrence of any event, change or other circumstance that could give rise to the termination of the share purchase agreement; • potential adverse effects on Quaker Chemical’s business, properties or operations caused by th e implementation of the Combination; • Quaker Chemical’s ability to promptly, efficiently and effectively integrate the operations of Houghton International and Quaker Chemical; • risks related to each company’s distraction from ongoing business operations due to the Combination; and, • the outcome of any legal proceedings that may be instituted against the companies following announcement of the share purchase agreement and transactions contemplated therein. 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, you should refer to the Risk Factors detailed in Item 1A of our Form 10-K for the year ended December 31, 2016, and in our quarterly and other reports filed from time to time with the 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. Risks and Uncertainties Statement

 

 

Speakers Michael F. Barry Chairman of the Board, Chief Executive Officer & President Mary Dean Hall Vice President, Chief Financial Officer & Treasurer Robert T. Traub Vice President, General Counsel & Corporate Secretary Chart #1

 

 

Second Quarter 2017 Headlines ▪ 8% growth in net sales driven by a strong volume increase of 7% ▪ Net income of $11.9 million and earnings per diluted share of $0.89 include the impact of Houghton combination - related expenses ▪ 12% increase in non - GAAP earnings per diluted share to $1.24 Chart #2

 

 

Chairman Comments Second Quarter 2017 ▪ Second Quarter 2017 x Net sales of $201.2 million driven by increases in organic volume on continued market share gains and increased production in some end markets x Strong volumes drove higher gross profit despite a decline in gross margin primarily due to raw material cost increases x Operating income benefited from relatively consistent levels of SG&A on the strong net sales growth, excluding $4.3 million of Houghton - related expenses x Strong operating performance coupled with a lower tax rate drove non - GAAP EPS of $1.24 and adjusted EBITDA of $28.0 million, despite a negative foreign exchange impact on earnings of 1% ▪ 2017 Outlook x Market share gains and leveraging of past acquisitions will continue to help offset market challenges x Expect gross margins to trend upwards gradually over the next two quarters, heading back to the 37% target Chart #3 Overall, we remain confident in our future and expect 2017 to be another good year for Quaker, as we expect to increase non - GAAP earnings and adjusted EBITDA for the eighth consecutive year

 

 

▪ Net sales increase of 8% to $201.2 million driven by strong organic volume growth of 5%, increases from the Q4’16 acquisition of Lubricor of 2% and an increase from price and product mix of 2%, partially offset by FX of 1% ▪ Lower gross margin of 35.7% in Q2’17 compared to 38.2% in Q2’16 primarily due to higher raw material costs ▪ Houghton combination - related expenses of $4.3 million or $0.27 per diluted share ▪ SG&A, excluding the Houghton - related expenses, was relatively consistent year - over - year due to continued cost discipline and prior cost savings initiatives ▪ Other expense included a charge of $1.9 million or $0.09 per diluted share to settle certain U.S. pension plan obligations ▪ Lower effective tax rate of 26.2% due to a current year accounting standard adoption and the prior year temporarily inflated tax rate at one of the Company’s subsidiaries ▪ Non - GAAP EPS of $1.24 up 12% and adjusted EBITDA of $28.0 million up 1% ▪ Year - to - date net operating cash flow of $20.8 million compared to $36.0 million in the prior year period, primarily due to outflows of $10.1 million for certain Houghton - related expenses and higher levels of cash invested in working capital Chart #4 Financial Highlights Second Quarter 2017

 

 

Chart #5 Financial Snapshot ($ Millions unless otherwise noted) Q2 2017 Q2 2016 YTD 2017 YTD 2016 Net Sales 201.2 186.9 396.1 365.0 Gross Profit 71.8 71.4 142.7 139.4 Gross Margin 35.7% 38.2% 36.0% 38.2% SG&A 49.6 48.7 97.6 96.8 Combination-related expenses 4.3 --- 13.4 --- Operating Income 17.9 22.7 31.7 42.5 Operating Margin 8.9% 12.1% 8.0% 11.7% Net Income Attributable to Quaker Chemical Corporation 11.9 15.0 18.9 28.0 Earnings Per Diluted Share 0.89 1.13 1.42 2.11 Non-GAAP Earnings Per Diluted Share 1.24 1.11 2.42 2.09 Adjusted EBITDA 28.0 27.7 56.2 52.6 Adjusted EBITDA Margin 13.9% 14.8% 14.2% 14.4% Net Cash 24.2 12.0 --- --- Net Operating Cash Flow 12.5 25.2 20.8 36.0 Effective Tax Rate 26.2% 32.6% 37.4% 32.5%

 

 

Chart #6 Strong organic volumes continue to drive top line growth Product Volume by Quarter and Year in Thousands of Kilograms 115,000 135,000 155,000 175,000 195,000 215,000 235,000 255,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 Full Year Volume Quarter Volume Quarter Volume Full Year Volume

 

 

28.1% 35.0% 35.6% 32.7% 33.8% 35.9% 35.8% 37.7% 37.5% 20.0% 25.0% 30.0% 35.0% 40.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Gross Margin Percentage 38.2% 37.2% 36.5% 36.4% 35.7% 20.0% 25.0% 30.0% 35.0% 40.0% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Gross Margin Percentage Chart #7 Gross Margins challenged due to rising raw material costs, but expect Gross Margins to gradually return to 37% target during the second half of 2017 Gross Margin Percentage Trends

 

 

$40.1 $44.2 $66.8 $73.0 $80.9 $89.6 $99.8 $101.6 $106.6 $104.8 $110.2 6.9% 9.8% 12.3% 10.7% 11.4% 12.3% 13.0% 13.8% 14.3% 14.2% 14.2% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Trailing Twelve Months Q2 2016 Trailing Twelve Months Q2 2017 Adjusted EBITDA ($ Mils.) Adjusted EBITDA Margin (%) FY 2008 – Q2 2017 CAGR: 12.6% +730 Margin bps Chart #8 Adjusted EBITDA Baseline Historical Performance

 

 

-$120 -$80 -$40 $0 $40 $80 $120 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2 2017 $ Millions Cash ST/LT Debt Net Cash (Debt) Chart #9 Continued strong cash flow generation and balance sheet Balance Sheet Cash and Debt

 

 

APPENDIX

 

 

Chart #10 Non - GAAP EPS Reconciliation Q2 2017 Q2 2016 YTD 2017 YTD 2016 GAAP earnings per diluted share 0.89$ 1.13$ 1.42$ 2.11$ Equity income in a captive insurance company per diluted share (0.04) (0.02) (0.08) (0.03) Houghton combination-related expenses per diluted share 0.27 - 0.95 - U.S. pension plan settlement charge per diluted share 0.09 - 0.09 - Cost streamlining initiative per diluted share - - 0.01 - Currency conversion impacts of the Venezuelan bolivar fuerte per diluted share 0.03 - 0.03 0.01 Non-GAAP earnings per diluted share 1.24$ 1.11$ 2.42$ 2.09$

 

 

Chart #11 Adjusted EBITDA Reconciliation 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net income 9,833 16,058 32,120 45,892 47,405 56,339 56,492 51,180 61,403 Depreciation 10,879 9,525 9,867 11,455 12,252 12,339 12,306 12,395 12,557 Amortization 1,177 1,078 988 2,338 3,106 3,445 4,325 6,811 7,009 Interest expense 5,509 5,533 5,225 4,666 4,283 2,922 2,371 2,585 2,889 Taxes on income before equity in net income of associated companies 4,977 7,065 12,616 14,256 15,575 20,489 23,539 17,785 23,226 Equity loss (income) from a captive insurance company 1,299 162 (313) (2,323) (1,812) (5,451) (2,412) (2,078) (1,688) Non-cash gain from the purchase of an equity affiliate - - - (2,718) - - - - - Equity affiliate out of period charge - - 564 - - - - - - Restructuring expense (credit) 2,916 2,289 - - - - - 6,790 (439) Transition costs related to key employees 3,505 2,443 1,317 - 609 - - - - Houghton combination-related expenses - - - - - - - - 1,531 Verkol transaction-related expenses - - - - - - - 2,813 - U.K. pension plan amendment - - - - - - 902 - - Customer bankruptcy costs - - - - 1,254 - 825 328 - Cost streamlining initiatives - - - - - 1,419 1,166 173 - Non-income tax contingency charge - - 4,132 - - 796 - - - Change in acquisition-related earnout liability - - - (595) (1,737) (497) - - - Mineral oil excise tax refund - - - - - (2,540) - - - Currency conversion impacts of the Venezuelan Bolivar - - 322 - - 357 321 2,806 88 Adjusted EBITDA 40,095 44,153 66,838 72,971 80,935 89,618 99,835 101,588 106,576 Adjusted EBITDA Margin 6.9% 9.8% 12.3% 10.7% 11.4% 12.3% 13.0% 13.8% 14.3%

 

 

TTM Adjusted EBITDA Reconciliation Chart #12 I = G + H H G = F - D F E = C + D D C = B - A B A Trailing Twelve Months Q2 2017 YTD Q2 2017 Last Six Months 2016 FY 2016 Trailing Twelve Months Q2 2016 YTD Q2 2016 Last Six Months 2015 FY 2015 YTD Q2 2015 Net income 52,340 18,898 33,442 61,403 53,725 27,961 25,764 51,180 25,416 Depreciation 12,559 6,333 6,226 12,557 12,609 6,331 6,278 12,395 6,117 Amortization 7,024 3,604 3,420 7,009 7,153 3,589 3,564 6,811 3,247 Interest expense 2,857 1,436 1,421 2,889 2,859 1,468 1,391 2,585 1,194 Taxes on income before equity in net income of associated companies 20,772 11,089 9,683 23,226 20,245 13,543 6,702 17,785 11,083 Equity income from a captive insurance company (2,360) (1,027) (1,333) (1,688) (1,738) (355) (1,383) (2,078) (695) Restructuring (credit) expense (439) - (439) (439) 6,790 - 6,790 6,790 - Houghton combination-related expenses 14,944 13,413 1,531 1,531 - - - - - Verkol transaction-related expenses - - - - 2,813 - 2,813 2,813 - Customer bankruptcy costs - - - - 217 - 217 328 111 U.S. pension plan settlement charge 1,860 1,860 - - - - - - - Cost streamlining initiatives 286 286 - - - - - 173 173 Currency conversion impacts of the Venezuelan bolivar fuerte 340 340 - 88 88 88 - 2,806 2,806 Adjusted EBITDA 110,183 56,232 53,951 106,576 104,761 52,625 52,136 101,588 49,452 Adjusted EBITDA Margin 14.2% 14.2% 14.1% 14.3% 14.2% 14.4% 14.0% 13.8% 26.5%