Quaker Chemical Corporation Aktie

Greetings, and welcome to the Quaker Houghton Third Quarter 2026 Earnings Conference Call. [Operator Instructions] A reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations. Mr. Dalhoff, you may begin.

Thank you. Good morning and welcome to Quaker Houghton's third quarter 2026 earnings conference call. Joining us on the call today are Joseph Berquist, our President and Chief Executive Officer, Thomas Coler, our Executive Vice President and Chief Financial Officer, and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, October 29th, 2026. The press release and accompanying slides can be found on our investor relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements.

The presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now, it's my pleasure to hand the call over to Joe.

Thank you, John. Good morning, everyone. Our positive earnings momentum continued in the third quarter as we delivered our fifth consecutive quarter of year-over-year profitability growth, resulting from continued volume growth, disciplined cost management, and pricing actions to offset persistent inflation. This resulted in the highest adjusted EBITDA in our company's history for the second consecutive quarter.

Sales volumes increased 3%, marking our third consecutive quarter of year-over-year volume growth. We continue to outperform the composite of our underlying end markets, which we estimate were flat to slightly down in aggregate, and achieved net share gains in the mid-single digits. This represents our 12th consecutive quarter of positive net share gains, with all three regions reaching or exceeding the upper end of our target range. Our results were led by strong growth in the Americas and another quarter of improved operating earnings in EMEA, despite challenging operating conditions in that region.

Asia Pacific continued its momentum, delivering year-over-year volume growth for the 13th consecutive quarter. Underlying market conditions remain mixed around the world. We continue to see relative strength in steel and aluminum end markets in North America, while global automotive light vehicle production remained weak, declining approximately 2% across all powertrains, including a more than 10% decline for internal combustion engine vehicles, according to global data. Most regions experienced steady demand, though China showed signs of softening economic activity throughout the quarter, balanced by shifts in industrial production to other parts of Asia. Total steel production in China declined approximately 2% in the quarter, according to the World Steel Association. Our performance demonstrates the strength of our customer-intimate business model and the resilience of our global operating network. Despite continued volatility across our markets, our teams are executing consistently to deliver products to our customers, gain share, and convert top-line growth into higher earnings.

Focusing on third quarter results. Net sales increased 10% year-over-year, driven by a 7% increase in price and mix, resulting from successful pricing actions necessary to offset persistent inflation. Churn remained at low single-digit levels despite multiple rounds of price increases, a testament to the thoughtful way we are working with our customers to implement tailored, data-driven pricing. Volume growth was led by the Americas, where we continued to advance our share wallet initiatives with net share gains driven by cross-selling. Industrial activity in steel production improved against the prior year quarter, where previously idled customer capacity continued to ramp up, while new capacity coming online in metals provided an additional tailwind to volume growth.

Asia Pacific delivered another solid quarter, with sales volumes increasing 5%. We continued to win business in higher growth geographic markets like India and Vietnam, and expanded our position with electric vehicle OEMs and component manufacturers. In China, we are increasingly winning with Chinese automotive producers, broadening our customer base that historically relied more heavily on foreign manufacturers operating within the country. This shift has been essential to our volume trajectory, as we have continued to grow throughout the year despite internal combustion engine vehicle production in China being down approximately 20% year-to-date, demonstrating our ability to grow with the new entrants in EV.

Volumes in EMEA declined sequentially with normal seasonality related to the summer holidays, and were also impacted by customer pre-buying activity from the second quarter in line with our expectations. Excluding this timing impact, we estimate the volumes would have been flat in the region versus the prior year. We believe the majority of the second quarter pre-buy activity worked its way through the system during Q3, with little to no impact expected in the fourth quarter. Gross margin percentage was consistent with the second quarter, as expected, with higher net selling prices and improved capacity utilization, offsetting raw material cost increases.

SG&A declined sequentially and as a percentage of sales, as actions taken throughout the year to reduce our structural cost base continued to positively impact our results. Through the first three quarters, operating cash flow totaled $48 million, below recent periods primarily due to higher working capital. The timing of higher sales volumes and pricing during the second and third quarters increased receivables significantly since the beginning of the year. To maintain supply continuity, we temporarily increased inventory during the transition to our new production facility in China and the closure of our plant in Germany. And recent raw material inflation further increased the working capital and cash impact of these builds.

We are taking focused actions to improve cash conversion by unwinding the inventory we built to support our network transitions as we close out the year and move into the first quarter of 2027. Beyond these near-term actions, we continue to strengthen the business through our transformation program, and our vision of operating as one Quaker Houghton. Actions taken during the year under this program will generate annualized run rate savings exceeding $10 million. Our master data initiatives are advancing, and we continue to complete foundational work supporting our business transformation strategy. These initiatives will simplify how we operate, improve the consistency of our global processes, and enhance the customer experience.

I want to give a brief spotlight on our EMEA segment, which continues to demonstrate resilience and growth amid a persistently difficult macroeconomic and geopolitical environment. Demand in the region has been weak for the past several years, but we continue to outperform underlying end markets through share gains while improving profitability in an inflationary environment. Over the past two quarters, segment operating margins reached levels not seen since the beginning of 2024. Operating earnings were the highest in over five years. This performance demonstrates that our strategy in the region is working with network optimization and customer intimate commercial execution translating into stronger financial results.

Turning to the Middle East, the pace and intensity of the conflict in the region remains volatile, but we continue to maintain strong service levels. While our business in the Middle East and Africa represents less than 3% of total company net sales, revenue in the third quarter grew 24% compared to the prior year. The reach and flexibility of our global network have enabled us to maintain supply continuity consistently through the conflict, translating into new business wins and stronger customer relationships.

Finally, we are making exciting advancements in fluid intelligence, which combines our technical expertise with new measurement, automation, and digital service capabilities. Earlier this month, we previewed some of our new hardware at the 2026 Aluminum Global Exhibition in Dusseldorf, Germany. This new generation of equipment continues to advance our offering by improving the accuracy and reliability of critical sensor technology. Additionally, we recently launched an enhanced software platform that will reduce barriers between our customers and their data, make fluid data easier to interpret and analyze, and provide a more consistent interface for viewing information. The new platform will create a more consistent digital experience for customers today, while establishing a foundation for future data integration, advanced analytics, and AI-enabled insights.

Turning to the outlook, we expect to see normal seasonal demand patterns during the fourth quarter, typically marked by lower volumes in EMEA and the Americas due to the holiday season. In the Americas, new and previously idled steel capacity continues to come online, which should help support healthy demand in what is typically a slower seasonal quarter. Asia Pacific has historically been our strongest region during this period. Activity could be somewhat softer this year in Asia as geopolitical and economic uncertainty have tempered industrial demand in China.

While global fourth quarter volumes have declined by an average of 4% over the past five years sequentially from Q3, the uncertainty of the current macroeconomic situation this year increases a possibility of a slightly more pronounced seasonal decline. Raw material costs remained elevated around the world. Based on our current outlook and barring any significant market disruptions, we anticipate incremental raw material inflation in the fourth quarter and do not expect a significant decline in input costs until sometime in 2027, which will largely depend on a resolution of the ongoing conflicts in the Middle East and Eastern Europe.

We expect stable product margins in the fourth quarter, with targeted pricing actions tempering inflation. However, seasonally lower volumes and reduced fixed cost absorption associated with the holiday period will bring some downward pressure to gross margins. Despite this, we expect fourth quarter revenue and profitability to exceed the prior year, and full-year adjusted EBITDA to improve an estimated high single-digit percentage against 2025. Before I turn the call over to Tom, I would like to remind everyone that we will host our Investor Day on December 10th at the New York Stock Exchange. We feel confident in our growth algorithm and we look forward to outlining the opportunities we have to sustain above-market growth in attractive industries and deploying our strong balance sheet to create long-term shareholder value, including through strategic M&A. In closing, I am proud of our team's performance and the consistency of execution we are demonstrating across the company. We remain focused on finishing the year strong and carrying our positive momentum into 2027. With that, I will turn the call over to Tom to walk through the financials in more detail.

Thank you, Joe, and good morning, everyone. Third quarter net sales were $545 million, a 10% increase from the prior year. Volumes increased 3% driven by global net share gains that exceeded the high end of our target range with Asia Pacific once again being the largest contributor. Selling price and product mix contributed an additional 7% to net sales due to pricing actions to offset higher raw material costs resulting from the Middle East conflict. Sequentially, selling price and product mix contributed a 4% increase to net sales compared to the second quarter. Gross margins remained flat sequentially compared to the second quarter and declined 130 basis points year-over-year to 35.5% due to product margin pressure from higher raw material costs. On a non-GAAP basis, SG&A increased approximately $7 million, or 5%, in the third quarter compared to the prior year, primarily as a result of higher incentive compensation and accelerated depreciation associated with moving our global headquarters. These increases were partially offset by impacts from the transformation actions that were taken over the past two quarters, as we begin to see their impact on our results.

We delivered $90 million of adjusted EBITDA in the third quarter, while adjusted EBITDA margin of 16.5% increased 50 basis points sequentially. This performance once again highlights the operating leverage in our business, as EBITDA margins were only slightly below prior year despite significant growth in the last year margin pressure caused by raw material inflation. Switching now to our segment results, Third quarter net sales in the Americas increased 14% year-over-year as 6% higher sales volumes were complemented by 8% higher selling price and product mix. Higher volumes were the result of new business wins and improving market conditions, particularly in metals, stemming from the results of the U.S. of previously idled customer production and new capacity coming online. Segment earnings in the Americas increased $7 million, or 11%, in the third quarter compared to the prior year due to better top-line performance amid relatively stable operating margins.

Asia Pacific sales in the third quarter increased 9% year-over-year, driven by another quarter of solid volume growth despite market softness in China. This is the result of new business wins that once again exceeded the high end of our total company target range of 2% to 4%. Favorable selling price also contributed 3% to net sales growth, reflecting pricing actions to offset inflation, while foreign currency had a 1% favorable impact. Segment earnings in Asia Pacific were roughly flat in the third quarter compared to the prior year as higher net sales were offset by lower operating margins resulting from raw material cost inflation. From a competitive standpoint, Asia Pacific is our most price sensitive market and we continue to be thoughtful about our pricing strategy in the region. However, we remain committed and confident in our ability to increase prices to offset recent inflation in key markets such as China, India, and Southeast Asia.

Third quarter net sales in EMEA increased 6% year-over-year, driven by a 10% increase in selling price and product mix, primarily related to actions taken to offset raw material inflation. Q3 net sales growth was partially offset by a 2% decline in sales volumes due to the reversal of second quarter pre-buy activity. Foreign currency also had a 2% unfavorable impact on net sales during the quarter. Segment earnings in EMEA increased $5 million, or 18% in the third quarter compared to the prior year, as a result of improved margins and better top-line performance. Margin improvement was driven by lower manufacturing costs related to the closure of our manufacturing facility in Dortmund, Germany, along with improved product margins and mix.

Turning to non-operating costs, our interest expense was $10 million in the third quarter of 2026, which was consistent with the previous quarter and $1 million lower than the prior year, while our cost of debt was 4.6%. Our effective tax rate, excluding non-core and non-recurring items, was approximately 27% in the third quarter and 28% year-to-date, which is in line with our full-year target range of 28% to 29%. Finally, our third quarter GAAP diluted earnings per share were $1.73, and our non-GAAP diluted earnings per share were $2.39, a 15% increase over the prior year due to improved operating performance and slightly lower interest expense.

Cash generated from operations was $14 million in the third quarter, decreasing from $51 million in the prior year. The lower cash generation in the current year was driven by higher working capital outflows resulting from increased sales volume, price inflation, and increased inventory associated with opening our new manufacturing facility in China and closing our facility in Dortmund, Germany. Capital expenditures in the third quarter were $11 million, primarily related to the construction of our new facility in China. For the full year, we now expect 2026 capital expenditures to be approximately 2% to 2.5% of sales.

During the third quarter, we repurchased approximately $3 million worth of shares and paid approximately $9 million in dividends, returning a total of $12 million of cash to shareholders in the quarter. Since 2024, we have returned approximately $212 million to shareholders through share repurchases and dividends. As of the end of Q3, we have $226 million available under our current repurchase authorization, and we continue to view share repurchases as opportunistic and part of our disciplined capital allocation approach.

Immediately following the third quarter, we closed on the company's first ever term loan B, which replaces the previous U.S. dollar denominated term loan under our existing credit facility. New Term Loan B provides greater financial flexibility in our capital structure by extending our debt maturity profile and reducing required debt payments. Our overall capital structure remains strong, with approximately $708 million undrawn on our revolving credit facility. We delivered strong third quarter results driven by continued share gains, double-digit sales growth, and disciplined execution across our business. Despite significant raw material inflation and working capital investments associated with our manufacturing network transformation, we delivered a second consecutive quarter of record-adjusted EBITDA, and expanded EBITDA margins sequentially. With a strong balance sheet, enhanced financial flexibility, and continued progress on our strategic initiatives, we remain well positioned to drive profitable growth and create long-term value for our shareholders. With that, I will turn it back over to Joe.

Thank you, Tom. Our third quarter performance highlights the continued momentum in our business driven by share gains, strong execution, and continued progress on our transformation initiatives. We are focused on finishing the year strong and carrying that momentum into 2027 as we continue to execute our strategy and create long-term value for our shareholders.

With that, we will be happy to take your questions. Thank you.

We will now be conducting a question and answer session. [Operator Instructions] Our first question is from Mr. Harrison with Seaport Research Partners. Please proceed with your question.

Oh, Mr. Harrison, I sound so formal, I guess. Good morning, Mr. Berquist and company. I was hoping that we could dig in a little bit on the strength that you guys are seeing in the margin performance in EMEA. Just kind of wondering with the changes that you guys have made here, despite the challenges going on in the marketplace, is this maybe a new floor for where we could expect margin to be? And if we see some volume improvement or some deflation, maybe things could move a little bit higher from this high teens, low 20s type of thing.

Of margin level. Yes, thanks, Mr. Harrison. As far as EMEA, I'd really point to kind of three different things that have happened there. One on the gross margin or operating margins, we've taken some actions in our network. We've talked about the recent closure of the plant in Germany. You know, beyond that, I think over the past couple of years as part of restructuring, we've really also looked at right sizing our organization proportionally with how that market has really, you know, declined since, you know, late 2020, the 2019-2020 period. So there's a little bit on the cost side for sure.

I think the other thing that happened is, you know, coming out of the global supply chain crisis, we had some contracts that were, uh, we're not good, right? And we made decisions to exit those contracts and be a little bit more disciplined around the profitability profile with our business. And then the final piece is, you know, we're winning, we're winning new business there and it's good business. We're selling our products and getting value for them. So the combination of those three things, I think, all helping. I certainly hope that we've seen the floor, Mike, and that there is potentially more upside there. I mean, we have additional things we're trying to do from the transformation side, additional actions on our network, right? Not necessarily just plant locations, but also how we move materials and how we, you know, are leveraging the network that we have more efficiently.

All right. Along with that, I noticed that you guys made good progress on SG&A costs. You're down below 24% of sales for the first time since 2023, according to my model. I'm just wondering if there were any one-time factors or accruals that maybe helped you in the quarter? Or should we expect that you can maintain something in that low to mid 20% range as you continue to streamline costs and hopefully leverage some further organic growth?

Yeah, the goal really is to maintain that at that level. There was nothing in the quarter that was unusual. In fact, we had to take our incentive compensation up a little bit just because of the way the year's progressing. Any actions that we've taken, I mean, you know, there's been ongoing restructuring over the past couple of years, and we've had different waves even this year with exits that those things haven't shown up in the P&L yet. So I think that as we enter into 2027, we would expect to be in a similar range, and continue to kind of manage it. That's the target level, right? We'd like to be in that low to mid-20s percentage for SG&A going forward.

All right. And then just a last question for me. It sounded like you were saying you thought that revenue might show a bigger than normal impact from seasonality from Q3 into Q4. Year you had a customer outage in North America that's now resolved. I'm just curious, are you hearing already that customers are expecting to take longer downtime during Q4? And if so, what regions is that most pronounced in? And then I would also think that there's maybe some more price realization that should help you sequentially, but maybe correct me if I'm wrong on what pricing could look like sequentially. Thank you.

Yeah, yeah, thanks. Good question. I'm glad you asked it because I think there's some nuance in the comments and just I want to be clear. You know, we've typically seen, I think the comment I made a few minutes ago was we've seen on average from Q3 to Q4 sequentially, due to holidays that, you know, over the last five years, that sort of holiday drop is around 4%, right? Our fourth quarter does drop off from third quarter. What I would expect this year is similar, right? Similar seasonal pattern. There's a couple of things I would point out. North America particularly seems a little bit stronger this year, as compared to maybe last year for sure, because you, you the capacity that's come back online and and you know the metals business at least is is showing some some good demand. I don't think you'll see anything really different in Europe. Where I think it could be slightly more pronounced is really Asia Pac.

And I would point to, specifically China, right? China, you know, for the first time in a long time, showed some weakness, right, in steel production and even auto production there in the quarter. And, you know, so we're not entering into the latter part of the year, whereas typically in China, the second half of the year is much stronger for them. So now, in saying that, Mike, I wouldn't overreact to that either. I think it's... As we saw in the third quarter, some of that China production has actually moved out to other parts of Asia where India has shown more strength and Vietnam, for example. But overall, I think, um, the number is probably going to be typically what we've seen somewhere in that 4% range. I wouldn't expect it to be materially worse than that or better than that.

And sorry, just to follow up on my pricing comment, is there some incremental pricing coming in Q4 or realization on some of the index contracts as we get from Q3 into Q4?

Yes. Sorry, I didn't answer that part of the question. We have some, we continue to go after pricing. It's really been a selective kind of targeted approach there where we're looking at the raw materials that are still inflationary and in the regions where they're most inflationary. So there will be some index adjustments in the fourth quarter. And we are also doing, we're taking other actions. And I think on balance, right? We're trying to temper or offset as much as we can any sort of inflationary aspects in Q4. All right. Thanks very much.

Yep, thank you, Mike. Our next question is from Jonathan Tanwanteng with CJS Securities. Please proceed with your question.

Good morning. Thank you for taking my questions, and congrats on the nice quarter.

Thanks, Jon.

I was wondering if you could provide a little more color on the customer restarts, how much of an impact they're having, and if that actually ends up cannibalizing some of the other business you have as they ramp production back up to what it used to be over the longer term.

Yeah, I mean, it's really, you know, so it's a North America, it's really a U.S. phenomenon, and I wouldn't, I wouldn't say it's going to cannibalize anything at all, but, like, what we saw in the third quarter was steel up around 4%. Aluminum production up as well, right? Overall industrial production up in North America. So that region particularly seems to have inflected, Jon, and is showing some relative strength right now. And, it's interesting because while metal production is up, the automotive sector is down 2%. And so the question is, where is that going? And our hypothesis is a lot of that is probably related to data centers and infrastructure and the electrical grid because it's not really happening in auto and it's not happening in construction. Construction, but I don't see that cannibalizing anything. Now, there is an overall sort of global production aspect of things, and we've typically said in the past that we're agnostic as to where the product gets made because we've got this reach in all the regions around metal production. You know, if China's a little soft and it might be related to tariffs, uh, and North America is up a little bit. Yes. Some of that could be offsetting, but, um, I think, you know, with that, that phenomenon probably occurred in the third quarter and we were still able to show some good growth organically in that environment. So.

Got it. Thank you. And then I was wondering if you'd comment on the gross margin trajectory beyond Q4. I think previously you had expected to catch up a little bit on inflation exiting the year, and I'm wondering what the expectation is now, what prices are, and what the latest forecast is for input prices. Thank you.

Yeah, I'll start and maybe I'll pass it pass that to Tom. So, yeah, I mean, we've been targeting, you know, our range is 36 percent. We came in a little bit below that. So, you know, what we saw in the third quarter was additional raw material inflation. We weren't really expecting that in the middle of the year, but things have not gotten better. And I'll leave it at that on the raw material front. And then, you know, their fourth quarter, I'll kind of Tom address that there's a typical pattern there in the fourth quarter. But going forward, we would expect to be above that 36 percent sustainably. But it may, you know, may take us a quarter to get there. Yes.

Yes, great, great question Jon. You know, to Joe's point I think the overall goal here is continue to focus on gross margins above 36 percent. You know, we do typically lag from price increases and index contract resets a quarter or two and then similar on the volume front what we typically see is a see from Q3 to Q4 sequentially is um lower manufacturing absorption and um some impact associated with the holiday season, both in Europe and uh the North America market. So we typically do see, on average, a you know a point to a half a point of sequential decline in gross margin just naturally through through that volume and and manufacturing absorption phenomenon, but fully expect as we move into 2027, um to continue to um, to focus on price and get uh, get margins uh into our target range of 36% to 37%.

Okay, great. Thank you so much, guys.

Thank you.

Our next question is from Peter Osterland with Truist Securities. Please proceed with your question.

Good morning. Thanks for taking the questions. So I wanted to start just by following up on the pricing dynamics specifically in the Asia-Pacific region. I guess just given the relatively higher competitive intensity in the region, as well as some of the weakness that you've called out that you're seeing in China, do you expect that you can fully price through inflation without losing market share? And if so, so I guess, do you have a sense for what the lag will look like to fully recapture margins in the region relative to what you're seeing in the U.S. and Europe?

Yes, good morning, Pete. Good question. I think you point out a couple of things right there. Asia-Pacific in general, not just China, is more of a price competitive market. It's a developing market as well. You know, we do expect to get a lot of our margins uh at historical levels, right? And uh that's actually one of our more, you know, when you look at the operating margin percentage, it's a very good uh region for us, but you know, we have usually seen a lag of one to two quarters as inflation happens. And of the three regions that we talk about, our three segments, Asia was most challenged by inflation in the third quarter. The other two were a little bit, but Asia was more pronounced. And then you couple that with a weak environment.

Yes, we're being, I guess, we're being prudent in our approach, in our approach always involves, you know, we're not a commodity, right? We go in and we talk to our customers, we talk about what's happening, we show them the data and we take a, you know, a responsible approach because we want customers for life and we want to continue to grow our market share with those customers. So all that being said, I think, you know, our hiccup is transitory that it will return to typical levels that we have levers to get there and are taking actions to do that. It's about how much time that might take. It's usually a quarter or two that it takes us to chase an inflationary environment.

Great, very helpful. And then just the inflationary dynamics. Are there any raw materials within your basket where you have elevated concerns around security of supply as we look into 2027?

Sure. Look, that's been a, I think that's been an ongoing challenge for the past few years and even more pronounced with what's happened this year in the Strait of Hormuz. We are confident in our ability to continue to supply reliably to everywhere in the world. There are things that are tight, for sure. And we are taking a lot of actions. I think the advantage that we have is we can really flex our global supply chain. And the fact that we have... We've got this kind of global business, and we've even at times had to – We even at times had to move product from, say, Europe to Asia to cover a raw material shortage.

But right now, not looking at anything that would cause us to say we'll have inability to supply any of our product portfolio in 2027. It's very dynamic, right? And even if that were to occur, I think the other thing that we could do is we look at alternative technologies, right? Sometimes you can move away from a base oil to something that's from a plant material or ester base versus a mineral oil based type technology. So we're very proud of the fact that we've not run anybody out and we've not shut anybody down and we're committed to make sure that that continues to be the case.

Great. Thanks a lot.

Yes, thank you.

Our next question is from Lawrence Alexander with Jefferies. Please proceed with your question.

Hey, this is Dan Rizwan for Lazard. Just to follow up to what you just said, in terms of security of the supply, is it more pressing now than it was, say, during the kind of the post-COVID era where logistical issues were kind of pressing everybody across the globe. Is this more acute?

Great question, Dan. I actually think it was worse in that post-COVID era that that was a really, really tough, tough, uh, period. Um, and what, what happened during that period, I think a lot of companies figured out how to reroute things, you know, like, uh, land routes or going around the bottom of Africa versus through the Straits, just as an example, but it's not as bad as it was during that period.

Okay. I just wanted to make sure. And then this is not something that's going to be an issue in the next six months, but if input costs were to flatten out and then actually decline, outside of index pricing, in the past, has price concessions been part of it, or once you get priced, do you kind of hold it? I'm just wondering how the dynamic works in a different environment.

Yeah, I mean, there's kind of two parts to that, because I think as we see the lag in an inflationary environment where we see some temporary sort of gross margin compression, we have seen in the deflationary environment some expansion in in margin. And it does lag for the same reasons, right? It, it, there's, there's index pricing that protects you in a downward uh trend. There's also just the mechanics of price increases and price decreases. It takes time to get things in the system. We usually have a 30-day kind of notice period. The second part of your question is, you know, do we give it all back? I mean, these are not commodity products. I think there are other things that that are happening, right, as far as input costs. Everything gets more expensive, and we do typically tend to try to manage to a margin percentage level versus an absolute margin level. And, you know, so we're committed, I think, to continue to keep those gross margins above that floor. Yes.

Okay. All right. Thank you very much.

Yep. Thanks, Dan.

Our next question is from Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Good morning. Thanks for taking my question. I guess I just wanted to give you or reiterate the question around volumes and maybe get some initial framework for next year. So when you think about Asia, I guess you will be facing tougher comps in the first but do you expect to still grow through that? And then, um, for the Americas, where are you kind of in the in the share gain journey there, share recovery journey? Do you think you can continue to grow, say, a couple points above the market, due to to continue to share gains. I think you already addressed, EMEA, that unfortunately there's still a lot of uncertainty there, but if you could just reiterate your thoughts there, that would be great. Thanks.

Yeah, thanks, Arun. Yeah, I mean, look, even in this past quarter, which was somewhat challenging in an underlying market perspective, we were able to show positive growth in volume in Asia. And yes, there might be some, some tough comps. We'll see. I'm not exactly sure what's going to happen there. I think our assumption would be at minimum flat, right, in the underlying market. But the one thing we're very confident about, and I mentioned it in the remarks up front, we've done 13 quarters in a row in Asia of net share gains above market. So we're winning business, we're still winning business. And it's not just the China story, right? There's India, there's the whole Southeast Asia, We have an investment in Japan.

So we would expect in 2027 to have positive volume growth, positive revenue growth and positive EBITDA growth overall. And that's what we're sort of modeling right now. We're in that budget process. So I can't, and we don't really provide specific guidance, but I would say one thing I could say, you know, from a qualifying standpoint is we will we will grow our EBITDA in 2027.

And then just from a capital allocation standpoint, on the M&A front, uh are there maybe some better opportunities these days? Maybe you can just assess the landscape for us there. And if so, is that uh still kind of along the lines of what you've seen in the past as far as Asia and technologies? What are you kind of prioritizing on the capital allocation front? Thanks.

Yeah, I think the, you know, just the, the opportunity set right now is, there's a robust pipeline, right? There are things that are actionable that we're taking a look at. Now, I would point out that I would say that almost every quarter, right? So that's not anything different than I would normally say, but working hard, you know, M&A is part of our growth strategy and we're pretty disciplined around it and what we're looking for, Arun, is, you know, we're looking for things that that give us capabilities. And when I say capabilities, it could be a portfolio expansion. We help people manufacture things. And so if there's something that we don't have in our portfolio that we can add to our portfolio that that grows that basket of products that we could sell to our customers, that's where number one, we would look and those things also expand our, you know, our addressable market that we, that we could sell to beyond that, um, you mentioned Asia, Asia is growing, India is growing. And so, you wanna grow where the growth is. And so if something were to come actionable in that area, we certainly would be very interested to take a look. But there are other parts of the business that are growing as well globally in other parts of the world, right? You talk about, you know, die-cast, just giving you some examples like die-casting, how cars get made, how parts get made. Specialty grease, fire resistant hydraulics, things like that are things that are growing.

So it's not just an Asia play. I think we're looking across the landscape. And our model is when we buy something, even if it's in a strength in one region, we're We then want to integrate that into our portfolio, make sure we have the supply chain and subject matter expertise to sell that in every region and roll it out that way. And, you know, other capabilities are types of innovation. We have our food intelligence initiatives, so technology. Sustainable materials is an area that is pretty innovative. And, uh, it could even be a channel to market, right? Like we are looking at, you know, we have an online presence now. We're dabbling with some e-commerce in the Americas and Europe. And so there's there there's things like that from a capability standpoint that we think would be interesting.

Thanks a lot.

Yep, thank you.

Our next question is from David Silver with Freedom Capital Markets. Please proceed with your question.

Yes, hi, good morning. Thank you. I would just like to maybe get a clarification out of the way, but regarding variable comp or incentive compensation, an accounting perspective, is that handled, you know, kind of with more, do you smooth it across four quarters, maybe an accrual each quarter, or given that this is going to be a record earnings year and I'm guessing next year will probably be better, Just from an accounting perspective, how should we be modeling the timing and the recognition of incentive comp?

Yes, good morning, David. This is Tom. Good question. So we do set a budget every year every year for annual incentive comp for our short-term incentive comp program. It's based on targets that are largely aligned with our budget with some ranges around that. And then as we progress through the year based on performance and our judgment and expectation based on our, you know, kind of quarterly forecasting process of where we anticipate our trajectory is for the year, we'll adjust that accrual. We typically... We don't do, you know, much in the way of adjustment early in the year as it's really too early to determine full year performance associated with those targets. But that's how we look at it, and we tend to follow that process.

So the quarterly accruals are relatively smooth as opposed to lumpy is what you're saying?

Yeah, that's exactly right. Yeah, it runs through SG&A and hits the income statement. And it's based on our expectation of full year performance at a given point in the year. And we want to make sure that we're appropriately accrued based on the current performance and expectations.

That's exactly right. Okay. Performance as we go through the year. Okay, great. No, thank you for clarifying that. My next question would be about uh customer retention your philosophy there. So, you know, at a number of points in this call, Joe, I guess you've discussed kind of, you know, share gains or new customer wins, you know, above your long-term kind of 2% assumption. And I guess that... kind of makes me think about kind of how you want to kind of allocate your resources, I guess, a little bit going forward. In other words, I'm assuming that your company has a very good sense of the value of an individual customer and how they differ based on the products and service mix that you provide. So I guess I'm just wondering whether, if this continued kind of above trend shift share gain trend continues, whether you are kind of taking a sharper look at how to allocate your resources and just optimize things. given that uh, you know, steady drumbeat of uh, you know, incremental new business.

Yeah, no, good question. Look, this is one that I've got a lot of passion around. I could talk a long time, but I'll try to be concise. I think when we talk about share gains, we're really talking about net share gains, right? So we track churn pretty carefully. And our churn has typically been, except for maybe a couple of year period, it's been in this low single digit range, and it still remains there. So, you know, to long term, you know, we want customers for life and we and we've had many of our customers for decades. Right. I've been with the company almost 30 years and, and, and, uh, you know, I, I still see some familiar faces when I go and travel, but the, the, uh, the exercise that we've taken on over the last couple of years, part of, you know, just sort of, uh, how we've reorganized our businesses, we've done a real hard look at customer segmentation, right? And we recognize that, you know, there are large multinational customers, as an example, that require a certain level of service. And there are certain things that they look for, rely on us to provide.

But we also have a long tail of customers, right? Smaller customers and things that are important to, you know, embedding our people on site, you know, they don't scale on the lower end, so we're using increased increasingly things like fluid intelligence and inside sales and digital commerce to kind of tailor our service offer at each of these different customer segment levels. And we want all of our customers to have a good experience. We also know that that has to scale. And we do take an approach, I would call it an EVA approach or a fully allocated um top-down sort of cost approach where we look at profitability by customer and by customer segmentation. And we're really trying to make sure we are tailoring our offer in a way that's efficient for us, but also makes the customer feel like it's a good experience.

Okay, great. Thank you for that. If you wouldn't mind, I'm going to ask just one final question. And this might be a little bit of a follow-up on, I guess, Arun's question about EMEA trends. And I guess I would like to maybe just ask the question from maybe a longer-term perspective, maybe three to five years. Probably the last couple years and the next couple years. My guess is regional economic growth growth is going to be much stronger in uh the Americas and Asia-Pac than Europe. And, you know, your company is, you know, I guess you're just integrated into the region in any number of countries and industrial sectors. Joe, thinking about where your resources are going to be, let's say, you know, three, four years from now. I mean, is this the case where you envision, I don't know, resources being reallocated from one region to another? Or would you say like within Europe, you know, so maybe you'll be emphasizing different country by country, the emphasis and the resourcing will be shifting, you know, over time, just managing, I guess, in the uh, you know, if a current economic growth trends kind of persist. Thank you.

Yes. I mean, look, EMEA has been a tough market, right, for six or seven years. It used to be, I remember, it was the most profitable region a long, long time ago. But there's been capacity that's just come out of that market. And the actual production there has decreased. Now the many people have said it's at a trough and it's hit bottom and kind of feels like that is the case. For us, at high level, I think we still have some complexity and redundancy in Europe. Got a lot of plants. Uh, we have a heavy concentration of our global R&D there.

Uh, you know, in there, conversely, I guess, you know, what we talk about it inside the company, and we've got to have a strong presence in every region. We're not, we're not ever going to walk away from that. But we are pivoting toward Asia. And it's, it's, it's India is a market that I think has a lot of runway to grow. We've seen really very good growth in that part of the world. And we want to make sure that we are ramping up and have, have, the same sort of capabilities there that we have in Europe and the U.S. and China. And just as an example, I think.

I'm a big for this sort of portfolio management of the business where, and I mentioned it earlier, this activity-based costing, you know, your mid-year forecast, your end of the year, you look at, you get a snapshot of where things are growing and what your profitability levels are. And I think every year we've got to kind of look at that. make adjustments to our portfolio and be responsive to what's happening on the ground. So right now it feels like, you know, there still is a sort of shift pivot toward Asia. And I think in general, we will be spending less in some regions and spending more in that part of the world.

Okay, great. I appreciate all the color. Thank you.

Yes, thank you.

There are no further questions at this time. I would like to turn the floor back over to Joseph Berquist for closing comments.

Yes, thank you. I want to thank everybody for joining us today. Really appreciate the interest in the company. Great questions. We look forward to seeing many of you, hopefully, at our Investor Day on December 10th in New York City. And please reach out to John. if you have any additional follow-up questions. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

This live transcript is auto-generated without human intervention or review.

Greetings, and welcome to the Quaker Houghton Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations.

Mr. Dalhoff, you may begin.

Thank you. Good morning, and welcome to Quaker Houghton's Second Quarter 2026 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel.

Our comments relate to the financial information released after the close of the U.S. markets yesterday, July 30, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ.

The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC.

Now it's my pleasure to hand the call over to Joe.

Thank you, John, and good morning, everyone. We achieved our fourth consecutive quarter of year-over-year profitability growth in the second quarter, highlighted by a 7% increase in sales volumes. This resulted in the highest quarterly adjusted EBITDA in our company's 160-plus years history.

Our volume increase was driven by broad-based growth and net share gains across all regions, amid end markets that we estimate were flat to slightly above the prior year in the aggregate, tempered by offsetting pockets of strength and weakness. Demand remained steady through the end of the quarter after a strong start in April as some customers accelerated buying against the backdrop of the crisis in the Strait of Hormuz. Asia Pacific once again delivered the strongest performance, marking a second consecutive quarter of double-digit volume growth.

Our team successfully navigated sharp increases in raw material costs and supply disruption resulting from the conflict in the Strait of Hormuz. Through disciplined execution and by engaging in proactive customer communication, we were able to leverage the flexibility of our global manufacturing network and maintain supply continuity throughout the quarter.

Gross margins declined sequentially, but stronger volumes and improved utilization rates helped offset product margin pressure. We implemented price increases throughout the quarter, and we'll see further adjustments from our index pricing in the third quarter. Underlying market conditions were mixed. Demand was steady despite the geopolitical uncertainty with pockets of growth in select markets as normal buying patterns returned. Steel and aluminum end markets trended positively, while automotive light vehicle production remained challenged across most regions and geographies.

Some customer purchasing activity may have been pulled forward in response to the Middle East conflict early in the quarter, but we do not believe prebuy activity had a significant impact on the quarter's results. In aggregate, we estimate end markets were flat to slightly above the prior year, underscoring the significant contribution of share gains to our volume growth.

Turning to the second quarter results. Net sales increased 10% year-over-year, driven by mid- to high single-digit share gains and were achieved across all regions. Momentum remains strongest in Asia Pacific, where we are winning significant new business in metalworking by penetrating growing sectors like electrical vehicle OEMs and component manufacturers. We continue to execute effectively in attractive growth markets such as China, India and Thailand, where our investments in local capabilities and customer relationships are translating into meaningful wins.

The Americas and EMEA regions each delivered mid-single-digit volume growth during the quarter. In the Americas, we saw improvement in customer activity levels with the return of previously idled capacity and contributions from recent business wins. The Americas region delivered one of its strongest volume performances in several quarters as operational and customer-specific challenges that affected prior periods improved against the backdrop of firming demand. Our strong customer pipeline and commercial execution drove volume growth in EMEA as we benefited from recent wins in metals and metalworking in that region and continue to grow in the Middle East and Africa despite the challenging backdrop.

Adjusted EBITDA margins reached 16% during the quarter, reflecting the increased top line performance and stable SG&A, which declined as a percentage of sales versus the first quarter. In addition to delivering strong financial results, we are executing key strategic initiatives that support our long-term growth and profitability objectives. We remain committed to a disciplined and balanced capital allocation strategy. In May, we announced a new $250 million stock repurchase authorization and returned approximately $24 million of cash to shareholders through repurchases during the second quarter.

We also successfully completed the refinancing of our credit facility, further enhancing financial flexibility. In addition, our Board of Directors approved an approximately 4% increase to the quarterly dividend, marking our 17th consecutive annual dividend increase and our 50th dividend increase since becoming a public company. At the same time, we remain active evaluating potential acquisition opportunities that strengthen our business and support our long-term growth strategy.

We continue to assess targets that expand our portfolio, accelerate innovation and deliver geographic and channel diversification in new markets. With our strong balance sheet and improved financial flexibility, we remain well positioned to pursue strategic opportunities that create value for shareholders. We will continue to take a prudent approach to capital deployment, weighing returns to shareholders, balance sheet discipline and careful investments in growth.

Turning to the conflict in the Middle East. We continue to navigate the ongoing challenges and are maintaining reliable supply, and strong service levels to our customers in a tough environment. Our direct sales into the Middle East and Africa have remained steady, and our consistency of supply has enabled us to win new business in the region. We continue to monitor the situation closely, but have not experienced any significant supply disruptions to date.

In many instances, global supply chains have begun adapting to the changing environment, and our global network flexibility continues to ensure reliable service to our customers. But the situation is volatile and the trajectory is uncertain. We are continuing to invest in the capabilities and infrastructure that further strengthen our network and position us for future growth.

In June, we achieved an important milestone in our Asia Pacific plan with the successful start-up of our new manufacturing facility in Zhangjiagang, China. This new site enhances our local-for-local operating model and will enable us to manufacture the full breadth of our portfolio inside China, reducing the need to import certain products and thereby creating additional flexibility, efficiency and service responsiveness for customers throughout the Asia Pacific region.

More broadly, we continue to take actions across the business to improve efficiency, simplify operations and optimize our cost structure. We are pleased with the progress we are making with the business transformation and cost optimization program announced last quarter. The actions we implemented during the second quarter are expected to deliver approximately $10 million of run rate savings with benefits already reflected in our Q2 results. We will continue to focus on process simplification, productivity improvement and manufacturing footprint optimization, which will further strengthen our profitability over time. The opportunity for profitability improvement over the next few years supports our long-term goal to achieve EBITDA margins above 18%.

Finally, we released our annual sustainability report during the second quarter, highlighting our progress in advancing sustainable solutions for our customers and improving the environmental performance of our operations. The accomplishments highlighted in this year's report underscore how sustainability is embedded within our culture and is central to how we innovate, operate and partner with customers around the world.

Turning to the outlook. Our view on underlying market conditions remains unchanged. The first half of the year progressed in line with our expectations, and we still expect end markets will be flat to modestly positive during the second half of 2026. Raw material costs have currently stabilized, but at elevated levels. Base oil prices remain volatile due to supply constraints across the refinery network and ongoing uncertainty. Based on our current visibility to supply dynamics, we expect our overall input costs to remain stable at these higher rates in the short term and begin to moderate as we progress through the back half of the year.

As a result, we anticipate that our gross margin percentage in the third quarter will be in the range of Q2 gross margins as we work through the timing of raw material cost inflation, inventory movements and price recovery actions. At the same time, incremental pricing actions and certain index-based adjustments will take effect, which will provide increasing benefits as the quarter progresses and should return us to our target range above 36% by the end of the year.

Operationally, we were pleased by the strong volume performance in Q2. Demand remains healthy and is showing no signs of slowing in the early part of the third quarter. We expect normal seasonal patterns in the second half, which has historically been better than the first half of the year. In the third quarter specifically, there may be longer seasonal shutdown activity in parts of Europe with the summer holiday period and unseasonably higher temperatures across the continent as well as customers managing their inventories.

However, demand in the Americas is improving and tracking broadly in line with normal seasonal patterns, which should help offset the expected slowness in Europe. We anticipate our third quarter performance will be in the range of the second quarter, barring disruptions in the market. As a result, we expect to deliver meaningful revenue and mid- to high single-digit adjusted EBITDA growth for the full year 2026. Our consistent ability to generate share gains, our commitment to execute pricing actions and improve our cost structure and the advantages derived from our global operating network position us well to steadily navigate uncertainty while creating long-term value.

In closing, I am extremely proud of how our team performed during a particularly challenging quarter. Our industry-leading teams of operators and experts enabled us to achieve outsized share gains despite the volatility in the macro environment, resulting in record quarterly EBITDA. We continue to demonstrate the resilience in our differentiated service model that are enabling us to win regardless of external market conditions. And we expect to carry our strong momentum through the remainder of the year.

With that, I will turn the call over to Tom to walk through the financials in more detail.

Thank you, Joe, and good morning, everyone. Second quarter net sales were $533 million, a 10% increase from the prior year. Sales volumes increased 7%, driven by global net share gains that exceeded the high end of our target range, with Asia Pacific once again being the largest contributor.

Selling price and product mix contributed an additional 1% to net sales as pricing actions to offset higher raw material costs resulting from the Middle East conflict were partially offset by changes in the mix of products and services. Sequentially, selling price and product mix contributed a 4% increase to net sales compared to the first quarter. We also had a benefit of 2% to net sales year-over-year from favorable foreign currency across all regions.

The second quarter marked the first period in which prior year acquisitions, including Dipsol, are included entirely within our organic results. Gross margins declined on both a year-over-year and sequential basis to 35.5% due to product margin pressure from higher raw material costs. The sequential decline of 130 basis points was less pronounced than originally anticipated due to better top line performance stemming from higher volumes from our global net share gains as well as solid execution on our 2 rounds of price increases to offset raw material inflation during the quarter.

On a non-GAAP basis, SG&A increased approximately $10 million or 8% in the second quarter compared to the prior year. While we began to see benefits from the transformation actions taken during the second quarter, these benefits were offset by higher incentive compensation and unfavorable foreign currency impacts. We delivered $85 million of adjusted EBITDA in the second quarter, while adjusted EBITDA margin of 16% increased 40 basis points year-over-year and 90 basis points sequentially. This performance highlights the operating leverage in our business as strong volume growth drove earnings expansion even in an inflationary environment where margins were under pressure.

Switching now to our segment results. Asia Pacific sales in the second quarter increased 12% year-over-year, driven by the second consecutive quarter of 10% organic volume growth. This was the result of new business wins that once again exceeded the high end of our total company target range of 2% to 4%. Favorable selling price and foreign currency also each contributed 1% growth to net sales. Segment earnings in Asia Pacific increased approximately $8 million or 27% in the second quarter compared to the prior year, driven by higher sales volumes.

Second quarter net sales in EMEA increased 13% year-over-year, driven by 7% volume growth, higher selling prices related to price actions taken during the quarter to offset raw material inflation and favorable foreign currency impacts. Segment earnings in EMEA increased $8 million or 31% in the second quarter compared to the prior year, primarily due to better top line performance. Lower manufacturing costs related to the closure of our manufacturing facility in Dortmund, Germany also contributed to the improved segment earnings result.

Second quarter net sales in the Americas increased 7% year-over-year as 4% higher sales volumes were complemented by favorable impacts from foreign currency and higher selling prices. Higher volumes were primarily the result of new business wins, but also benefited from the resumption of previously idled customer production, along with some new capacity coming online in our metals business. Segment earnings in the Americas decreased $2 million or 3% in the second quarter compared to the prior year as better top line performance was offset by higher manufacturing and operational costs.

Turning to nonoperating costs. Our interest expense was $10 million in the second quarter of 2026, which was consistent with the previous quarter, while our cost of debt decreased to approximately 4.4%, reflecting the benefits of our refinancing actions and a more optimized debt portfolio. Our effective tax rate, excluding noncore and nonrecurring items, was approximately 28% in the second quarter, which was in line with the previous quarter and our full year target range of 28% to 29%.

Finally, our second quarter GAAP diluted earnings per share were $1.55, and our non-GAAP diluted earnings per share were $2.19, a 28% increase over the prior year due to improved operating performance and lower interest expense as a result of reduced borrowings. Cash generated from operations was $29 million in the second quarter, decreasing from $42 million in the prior year. The lower cash generation in the current year is driven by higher working capital outflows resulting from increased sales volume and increased inventory associated with closing our facility in Dortmund and opening our new facility in China. These items were partially offset by improved operating performance.

Capital expenditures in the second quarter were $10 million, primarily related to the construction of our new facility in China. For the full year, we expect 2026 capital expenditures to be approximately 2.5% to 3% of sales. During the second quarter, we announced the approval of a new $250 million stock repurchase authorization that replaces our previous repurchase program and recently announced an increase in our quarterly dividend of 4.3%. We also repurchased approximately $24 million worth of shares and paid approximately $9 million in dividends, returning a total of $33 million of cash to shareholders in the second quarter.

Together, our share repurchase activity and increased quarterly dividend reflect our confidence in the strength and durability of our cash flow generation and underscores our commitment to return capital to shareholders through a balanced and disciplined capital allocation strategy. We delivered strong second quarter results, driven by continued share gains, disciplined execution of our pricing actions and broad-based growth across all regions. Our team executed effectively in an uncertain environment, leveraging our global footprint, pricing actions and our operating discipline to deliver record profitability. With a strong balance sheet, enhanced financial flexibility and continued progress on our transformation initiatives, we remain well positioned to execute our strategy and create long-term value for our shareholders.

With that, I will turn it back over to Joe.

Thank you, Tom. To close, our record second quarter results reinforce the strength of our business model and our ability to consistently outperform our end markets despite macro disruptions and uncertainty. While the external environment remains dynamic, we are confident in our approach and our ability to continue creating value for customers and shareholders and the opportunities ahead in the second half of the year.

With that, we will be happy to answer your questions.

[Operator Instructions] Our first question comes from Mike Harrison with Seaport Research Partners.

Congrats on a nice quarter. I was hoping that maybe we could start, just getting a little bit more color on what you guys are seeing on the raw material front. I'm curious what specific raw material baskets are moving higher or continuing to show a lot of volatility. And really interested in understanding the timing of the P&L impact to the extent you can help us quantify how much raws were up in Q2 and what the expectation is for inflationary impact in Q3 and Q4, that would be very helpful.

Yes. Good question, Mike. So overall, if you think about our raw material buckets, there's kind of three buckets, right? The things that are related to base oils or derivatives of crude the additives, which tend to be closely linked to that and then the oleo chemicals. And I would say the base oil related, crude related, is about 2/3 of our bucket remains pretty volatile. It's, as I mentioned in the comments, at that elevated range right now. And that's -- it's kind of like the new normal, right, is this volatility in the elevated range.

There is a little bit of softening on the oleo chemicals and things that are delinked from that, and it tends to be more regional impacts overall. Raw material container costs, pretty significant for us in the quarter. We think that those those impacts really peaked in June and even early this month in July. As we go forward, I think there's different elements at play, right? We have certainly pricing that came on during the quarter. We have index adjustments that happened at the end of the quarter and even in the middle of this quarter.

And there's also the inventory movements. I mentioned that in the comments as well. What that means is as the cost of the inventory changes, we revalue that inventory and there tends to be a capitalization effect for a couple of months as that moves through. So what I would say, as we've modeled this out, we think gross margins are going to be pretty flat, quite frankly, in Q3 from Q2 and then improving hopefully toward the end of the quarter and into Q4.

All right. And then just on the volume front, Asia has been strong, and so I don't think that was a huge surprise, but EMEA was surprisingly strong. I was hoping maybe for both regions, you can talk about the sustainability of the strength that you're seeing.

Yes. I mean the underlying markets in EMEA were -- steel was up and industrial production was up slightly. But conversely, the auto ICE production, we think, was down double digits, mid-teens. So in composite, we'll say market was flat to slightly up. Most of the growth that we're seeing is really what I would call self-help. It's the share gains that we've been delivering from our pipeline. They were on the higher end of our range. So I would say slightly above that kind of 4% high end of the target range for us.

How sustainable is that for us? I mean I think remaining within that 2% to 4% range is something we're pretty confident that we'll continue to do. And then anything that happens in the market outside of that would bolster that growth rate. But a lot of new business wins in that region. And we've been talking about share gains over the past several quarters, and we're starting to see the impact of that.

In EMEA, in the second quarter, early in the quarter, April was a busy month. We do think that region, in particular of the three different segments for us, had some prebuy. So I would say half to 2/3 of the growth in the quarter was from share gain with that remaining half to 1/3 to 1/2 from prebuy. But we're through kind of the early part of Q3, and demand has remained pretty steady in Europe. So we think most of that impact -- it wasn't a huge impact on the quarter. Let's just say that. And we think that the demand environment in EMEA has remained pretty steady. We're entering into traditionally, the holiday period in August is a very slow time, but then usually that recovers in September.

For Asia Pac, I mean, Asia Pac, some softness really in that market. So it really accentuates, kind of, the double-digit volume growth that we're getting there. It's coming from share gain. It's coming from winning new lines, whether that's in the metal space or the metalworking space. We've talked about how important it's been for us to gain share with the electric vehicle manufacturers in that part of the world.

Do I expect us to continue to take share in double digit? I would love to say that was true, Mike. I think it will probably normalize at some point in that mid-single-digit range. But we've got a very good team there that's executing on the ground. We just opened a new plant in China. We're doing very well in India and other parts of Asia. So that will be, I think, a growth engine for us for several foreseeable quarters as far as I can tell right now.

All right. And then my last question is on Americas operating margin. You were down 250 basis points year-on-year and referenced some higher manufacturing and operational costs. I'm just wondering if you can help us understand a little bit more between those operational issues and raw materials and pricing and maybe any volume leverage or cost actions you're taking. Help us understand the puts and takes around Americas margin and how we might think about that trending into the second half?

Yes. I do think -- so second quarter, specifically, we had some inventory disposal costs related to quality related to kind of things we're working through at one of our plants. On the flip side, good problems to have. I think we had some higher inventory as we work off backlog and we're trying to catch up some of our grease orders. And then one of our primary plants there in Middletown, we've gone to a 24/7 operation right now. And so we will see some ongoing higher costs in the Americas.

However, I think there was a little bit of onetime nature on the operational side in the Americas in the quarter. So I would expect that to improve. And overall, operating margins should return to where they've been traditionally for that region.

Our next question comes from Pete Osterland with Truist Securities.

So I just wanted to start by following up on the margin performance, particularly with the drop-off for gross margins less severe than what you anticipated a quarter ago. I guess to what extent did this reflect faster or higher-than-expected pricing implementation? And thinking about the second half, do you now see upside to the 36% to 37% range that you've talked about exiting the year at as you continue to implement pricing in the back half?

Don't necessarily -- we're not modeling upside, Pete, and thanks for the question. I think what we kind of mentioned it before, there's this inventory valuation aspect that's a little bit of an accounting exercise, but the timing of how the prices roll into our costs and how those costs work their way through the system. We did a good job with pricing. We certainly didn't get all the pricing that we wanted to get, and there's still some pricing that will come on.

One of the key things is the volume. We modeled a 200 to 300 basis point kind of impact to gross margins in Q2. The volume was a nice surprise for us, right? And that capacity utilization in our plants was helpful. We're also starting to see the benefits of plant closures, right? We made a decision to close a plant in Europe, and you saw the Europe operating margins improve in the quarter. So it's a mix of different things. I do -- I firmly believe that we will be above that 36% gross margin by the end of the year. We say our target range is 36% to 37%. There have been times in the past in deflationary environments where we can see expansion of our gross margins higher than that. And would it surprise me if that happened? No, but it's not something we're anticipating right now.

Very helpful. And then also just wanted to ask a follow-up on capital allocation. Following your recent buyback authorization and some of that repurchase activity kicking in here in the second quarter, how should we think about your plans for the cadence of buybacks this year? How are you currently weighing share repurchases against the potential you see to execute on additional bolt-on M&A?

Yes. This is Tom. Thanks for that question, Pete. I would say we continue to have really good flexibility from a capital allocation standpoint with the new share repurchase authorization. We just refinanced our credit facility and have added some capacity there as well. First and foremost, we want to deploy capital to help the business grow, whether that's through organic investments like our new plant in China or inorganic opportunities through continuing to work our M&A pipeline.

So I think we'll continue to be opportunistic as we think about share repurchases, balance that with dividend payments. We just announced that we increased our dividend 4.3% coming earlier this week. And so again, we're going to use all the tools in the toolkit and continue to have a balanced approach. But first and foremost, primarily, we want to deploy capital to grow.

Our next question comes from Laurence Alexander with Jefferies.

It's actually Dan Rizzo on for Laurence. Just getting back to kind of the Asia share gains that you guys are kind of doing. I was wondering if that's like a lot of singles or some -- meaning that there's a lot of smaller new wins? Or is it a couple of customers where you're getting really great penetration and how that should look moving forward?

Yes. Thanks for the question, Dan. It's really broad-based in Asia. China is the biggest aspect, biggest country of the Asia, but landscape, but really, our growth in India has been very good as well as Southeast Asia. So -- and it's across all product lines. So I think it's a lot of singles and doubles. When you get a new mill that comes online, for instance, a new cold rolling line in China this past year, we were able to get our fluid intelligence equipment on that line. And it's pretty big.

So every now and then you have a triple, right? But to the nature of your question there, I think it's broad-based. It's not coming from just a handful of things. It's really across the industrial sectors and across the geographic landscape in that region.

So -- and with that, say that the new fluid intelligence at a new plant, is that kind of the toehold and then over the next few years, you should penetrate more? I mean is that kind of how it works like this is the way in and then we take it from there. I mean, am I thinking about that right that it could -- I guess, what I'm trying to ask is it could accelerate with each plant as you just get a foothold in it?

I mean that's the design, right? We're -- it's really an enhancement of our service model. And when you're -- when it works as well as it does in the rolling applications, if you're building a new line, right, if a new mill is coming on, we're in touch with not only the OEMs, but also the equipment manufacturers. And it's a way to really control how our fluids are used on those lines so they work very efficiently and give the customers a lot of control over their system, as well as insights how to optimize fluid application with their production processes.

So we continue to work on innovation in that area. It's not just a steel rolling or aluminum rolling offer for us. We certainly have a metalworking offer as well, and we're seeing some penetration on that side. And we expect that to be a real core part of our offer across the business as we go forward. So I do anticipate you will see that, Dan.

And then you mentioned India versus China. I would assume then that India actually offers more opportunity with more new plants and more new metalworking or steel rolling plants coming online there versus China, which I guess would be a little bit more mature at this point. Is that accurate as well?

Yes and no. I mean I think you're seeing in China, you're still seeing a lot of growth on the -- with the electric vehicle segment. So whether that's die casting, electrical steel, all the way through, and there's a lot of line refreshes that are happening there. The overall growth might be decelerating because of -- on a comparative basis, just because of the size of that market, how big it is, but it's not stagnant.

And you're right in pointing out that India is growing differentially. There is I guess, the ballpark figure that people have thrown around is that industrial production there is supposed to double between sort of 2020 and 2030 or 2035, and it seems to be on that pace. There is a lot of new production in that part of the world. And so we're happy to grow as that new production comes online. That's certainly a tailwind for our business.

Our next question comes from Jon Tanwanteng with CJS Securities.

I was wondering if you could just talk about the expectation for share gain and new business wins going forward. I think you've been at or above the high end of your 2% to 4% target range for over a year now, and you're lapping some of that acceleration. What's the competitor dynamic or response given that your business trends are pretty sticky there? And should we recalibrate our expectation of your ability to continue gaining share as you continue to do that? Just help us out with the thoughts on the target range.

Yes. Good morning, Jon. I mean we -- that target range is something that we consider very carefully. Our sales cycle is not a quick sales cycle, usually to get a piece of business. It could be on the short side, 3 months. It could be on the long side a year or longer. And I do think we've had a good run here, right, for the past several quarters.

Why is that happening? I think it's a combination of things. Cross-selling, we've been acquisitive, and we brought on some new technology that adds to our portfolio and increased the size of our addressable market. So we're going into existing customers who are happy with us and saying, "Hey, we have some additional things you can buy from us now," and that does help accelerate that sales cycle.

I also think it's things like just really having a very strong team, a local-for-local model in parts of the world like China, like India that are growing faster and taking advantage of that. It's also leveraging things like our fluid intelligence play. I mean we won some business here in Europe and the Americas this year with some customers that were pretty hard to crack by going in with an enhanced service model around our fluid intelligence equipment, and that got us in the door, and we're able to then convert that new business.

So we will certainly drive. We incentivize our people, everyone in the company, including myself, is compensated based upon targets around net share gains. So reducing churn and increasing share gains. So we're all very, very focused on it. The other piece, Jon, I think that's maybe helped us just from a math perspective over the past few quarters is, we did go through a couple of year period there where we had higher churn, right? And we've got that churn number down the low single-digit area where it's been historically. So when we stop the bleeding on that end, we're able to show a little bit more on the growth side.

Got it. And if you could just drill a little bit more down into the Fluid intelligence piece. How big is that business today? And are you seeing momentum accelerating there? What's the growth rate?

I mean it's hard to say how big the business is. I think when you look at -- how we measure it, we're not really measuring equipment sales. We're measuring the amount of fluid sales that are tied to a fluid intelligence offer, right? And so I would say right now, it's somewhere between 10% and 20% of our revenues have some sort of fluid intelligence component that's part of the service aspect.

How big can it be? How big will it be going forward? We want it to penetrate across the entire business, and we want to use it as a growth engine to penetrate into customers that we don't have today. So I'll just say our ambitions are high there.

Got it. And one follow-on to that. Just -- are the margins associated with Fluid Intelligence higher than your fleet average, just given the way the equipment works and the personnel you dedicate to it?

Not necessarily, not necessarily. Again, I think it's a way -- it's a digitized service model. So it doesn't replace our people, but we're really focused on the product sale, and it really enables that product sale for us. And I think that our margin profile is pretty consistent around the world.

Our next question comes from David Silver with Freedom Capital Markets.

So apologies, this might be kind of a little -- take a little time to get out. But I was kind of -- along with your very strong results this quarter, I would call out maybe the incremental margin performance. I mean, growth in operating income or EBITDA relative to the growth in sales. And I'm thinking that 7% volume growth largely from new business wins, I mean that does strain your skilled labor force to a certain extent.

And I'm just wondering if from your perspective, Joe, you're able to handle continued quarters at this, let's say, high -- mid- to- high single-digit new business win pace with kind of what I would call your installed base. In other words, I guess, under your predecessor, there was some volume erosion, and it's not apples-to-apples, but you are regaining that volume now.

And should I look at some of the very attractive incremental margins that you're reporting now is kind of a sense that maybe your skilled labor force was a little bit underutilized and you were able to take on a fair amount of new business without meaningfully staffing up or adding incremental resources. And if that's the case, I mean, how much more -- I don't want to call it slack, but how much more kind of capability do you think you have here before you would have to meaningfully invest in either new talent or other new resources to service your growing customer base?

Yes. Thank you. It's a really great question, honestly. I think we went through a period, and we're still kind of going through a period where because of the complexity of our systems, master data, just a complex network in our manufacturing space, our skilled labor, right, our subject matter experts that are touching the customer probably spent too much time on internal things, right? And in the last 18 months, that's been kind of my battle cry to make sure that we spend more time doing business with our customers than we do amongst ourselves.

So Tom and I and the rest of the team are really focused on making sure that we're reducing that complexity. We're freeing up people to spend more time with customers. And in the meantime, making very meaningful improvements to our business processes, our master data, our ERP system, just kind of cleaning things up on the back end so our people on the front end can work more effectively. And I think that's working well for us. And we have capacity in our team to do those things.

Long term, I mean, I want to continue to invest in those subject matter experts because ultimately, it's our people that are the biggest difference. It's our service model. And I think we probably got a little bit heavier in the functional areas, and we got a little bit lighter in the commercial areas. And just as a general philosophy, I'm focused on flipping that equation, right? I want us to make sure we're investing and nurturing those -- that commercial talent and becoming more efficient in our back-office area. So it frees up our people to sell to our -- and serve our customers.

Yes. And I would just add to that, David. We've got ample production capacity in terms of our manufacturing network at this point to meet the needs of our customers. Joe talked about cost and complexity reduction and focusing our commercial organization. This is all sort of focused on what Joe and I have talked about, which is driving EBITDA margins to 18% over time. A portion of that is top line growth in scale and a portion of that is cost and complexity reduction, which we've talked about on the Q1 call relative to our transformation initiatives. So I think we've got the opportunity to continue to drive leverage in the P&L, and that's our goal.

Yes, we're saying sustainably above 18%, right? So if you look at where we've been kind of running, that's a 200 basis point plus near-term goal for us to get at, and we feel like we have a line of sight to do that.

I'll have to relisten to that another couple times on replay. But no, I appreciate all the depth there. I did want to go back to the, I guess, capital allocation or share repurchase question. And I guess there's just a lot of moving parts. You're repurchasing shares at a level well above displacing, I guess, any options-related issuance. Your debt did rise a little bit sequentially. You raised your dividend, et cetera.

But just thinking about the share repurchase activity level in light of the new authorization, et cetera. Should I look at the $24 million that was spent here in this quarter as something more opportunistic in nature? Or is this something that we should think about as programmatic? In other words, with the new authorization and your healthy cash flow, I mean, does opportunistic -- do you consider opportunistic share repurchase at, let's say, the current price, a core part of your capital deployment strategy? Or is it more of, I don't know, like a flywheel dependent on M&A opportunities and some other things?

Yes. Good question, David. Yes, I would go back to sort of our overall capital allocation philosophy, which is, first and foremost, invest for growth, whether it's organic or inorganic. You used the word opportunistic. I think that's the way that we think about share repurchases as well as we sort of evaluate where our capital structure is, where our leverage ratio is, what we see relative to our M&A pipeline or internal investments and then how we think about balancing all those pieces. I wouldn't characterize it as programmatic. I would say it is opportunistic and the new repurchase authorization that we have really just gives us the flexibility to be opportunistic as it makes sense in the market.

Our next question comes from Arun Viswanathan with RBC Capital Markets.

This is Adam on for Arun. My understanding is that gross margin outperformance was mostly on volumes for the quarter, but maybe if we could double-click on price a bit. It seems like you're doing quite a good job at pushing that through to offset inflation. So I guess I have two quick questions on that. How much of the price you've already implemented has yet to flow through in third quarter? And how much of your year-over-year growth do you think is mostly from the outperformance in the first half? Meaning how much do you think you're going to have some of this flow through in the second half versus purely in the second quarter?

Yes. So let's talk about the gross margin piece first and the pricing piece first. The majority of the pricing has flown through, right? Because the prices have stabilized at these high levels. And the delay, I guess, has been we have a few index adjustments that are just time-based and they come at the beginning of a new quarter or middle of a quarter sometimes. So I would say we don't expect much more in the short term from a net selling price per kilo expansion unless the external environment dictates that we have to do that. And hopefully, it doesn't. But if it does, we'll go and get it.

I think you're asking second quarter was a really good volume quarter. It was a good quarter for us overall. Is that sustainable? I mean we see -- as I said in the comments upfront, I think the third quarter will probably look very closely like second quarter. Traditionally, third quarter tends to be a good quarter for us. The second half of the year tends to be a little bit better for us than the first half of the year. That growth -- the Asian markets, for sure, in the second half of the year have traditionally been better than the first half.

Europe will be tough, right, in the month of August, and they may walk back a little bit in Q3, but we're seeing some relative strength in the Americas right now, and we're pretty confident that demand will hold up that we would see a third quarter pretty similar to what we saw in the second quarter. And then the question becomes what happens in the fourth quarter. With all the volatility in the world right now, I don't really want to go that far down the road, but I think we're tracking on this sort of mid-single-digit to high single-digit EBITDA growth for the full year.

Okay. Great. And maybe if we could go back to the bolt-on piece. It kind of sounds like you're saying that India and China are consistently providing the most opportunity for maybe acquisition potential. How are you thinking about that in terms of end markets? And I know there are several kind of reasonably depressed end markets like building construction, et cetera.

So how are you thinking about acquiring things at discounted multiples to bring in accretive bolt-ons versus bringing things in that are not necessarily at their growth part of the cycle? Or is that not how you're thinking about it at all and you're more concerned with the sort of the cross-selling and synergistic piece?

No. I mean it's -- so I think you captured pretty well the variables, right, that we consider. So when we're talking about bolt-ons, we're looking for -- we're either going to look for something that's a portfolio addition, right, or some IP or a capability that we don't have today. A capability could be technical capability or access to markets or certain channel play. So those are things that we consider. I think we're not necessarily looking to go out and get into things. We help people manufacture things out of metal, right? So if there are parts of the portfolio and value chain today that we don't have or we don't have everywhere, then we would be looking at strengthening our portfolio, adding those capabilities.

There's also, as you said, periodically, there are some things that come along that you would look at purely from a synergy standpoint. It's a pretty fragmented space. There are a lot of regional players, small players in those regions. And if you can go and get something and get some arbitrage on the multiple, then we've done that successfully in the past and would certainly consider doing that in the future. And then we always -- we leave dry powder. We position ourselves to be able to do something more transformational, a larger type of deal. Of course, those are rare, and they take a lot of time to get done. But that's sort of the overall landscape there, Adam.

Yes. And I would just add that we have a track record of buying good businesses, EBITDA positive, cash flow positive businesses that are accretive to our business. And we look at those opportunities, as Joe said, through the lens of a commercial channel or a new product technology or an asset and bringing that into our large global footprint with all of our capacity and capability to accelerate growth in those acquisitions that we've made. So I think that's how we think about our philosophy from a -- sort of a financial standpoint.

We have now reached the end of our question-and-answer session. I would like to turn the floor back over to Joe Berquist for closing comments.

Sure. Thank you. Thank you for joining us today. We appreciate everyone's continued interest in Quaker Houghton. And I also just want to thank our colleagues around the world for their hard work and dedication to our customers. Our people are our greatest asset. Please reach out to John if you have any additional follow-up questions. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Quaker Houghton First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations. Mr. Dalhoff, you may begin.

Thank you. Good morning, and welcome to Quaker Houghton's First Quarter 2026 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, April 30, 2026. Our press release and accompanying slides can be found on our Investor Relations website.

Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe.

Thank you, John, and good morning, everyone.

We delivered a strong first quarter with organic volumes up 3% year-over-year, resulting in our third consecutive quarter of adjusted EBITDA growth. Our performance was driven by new business wins in all regions, highlighted by double-digit organic volume growth in Asia Pacific, where we continue to gain traction across the region.

Adjusted EBITDA increased 5% compared to the prior year, building on net share gains that enabled us to outperform our end markets, which we estimate were down approximately 1% in the quarter. Gross margins improved from the fourth quarter, increasing 150 basis points sequentially and 40 basis points year-over-year. The sequential improvement in margins was bolstered by higher utilization of fixed assets and improved operational performance.

Market conditions remain soft overall, with pockets of incremental industrial gains tempered by weak automotive production. The hostilities in the straight of our moves are creating inflationary pressure on raw materials and input costs. But so far, it has not had a significant direct or indirect impact on demand. Strong commercial execution from our team and contributions from our recent acquisitions helped offset the underlying sluggish markets, enabling us to deliver organic volume, revenue and EBITDA growth in the quarter despite headwinds and volatility.

Turning to the first quarter results. Net sales increased 8% year-over-year, fueled by net share gains of 4% at the top of our target range, along with the contribution from recent acquisitions. This marks the 10th consecutive quarter of net share gains, while our end markets have been consistently sluggish. Organic sales volumes in Asia Pacific grew for the 11th consecutive quarter. While our business in China continues to grow above end market rates, we are also achieving outsized growth in emerging markets such as India, Thailand and Vietnam. Operating margins have expanded in the region as we are benefiting from recent organic investments in localized manufacturing.

In EMEA, organic volumes grew 2% in the first quarter as new business wins outpaced persistently tough end markets. Volumes in the Americas declined slightly year-over-year, driven by a lingering customer outage, tariff uncertainty and weather-related disruptions. Despite these challenges, March had the highest volume in the Americas in the last 16 months, signaling improved momentum as we exited the quarter. EBITDA margins declined 50 basis points year-over-year, primarily because of higher SG&A expenditures related to acquisitions, foreign currency and incentive compensation. I would like to provide more color on the ongoing conflict in the Middle East and how we are managing its impact on our business. Immediately after the conflict began, we established an executive level task force to monitor developments, assess potential impacts and coordinate our response.

Our top priority was to ensure the safety of our more than 4,700 employees, particularly those living and working in the region. We also took swift action to confirm supply continuity to customers in the affected region. Since then, the task force has remained actively engaged, tracking conditions closely and addressing emerging pressures. From a business perspective, we have proportionately low direct sales exposure to Middle East countries near the conflict area.

Our sales to North Africa and the Middle East in 2025 were less than 2% of total company net sales. While first quarter results were largely insulated, we expect higher raw material and shipping costs in the second quarter. To address this, we implemented pricing actions across all regions with some taking effect in April. There will be a typical lag between rising costs and price realization, which we expect will create temporary gross margin pressures in the second quarter. Based on the actions we have taken and additional increases planned for this quarter, we expect to recover margins within 1 to 2 quarters. Meanwhile, we are committed to ensuring products reach our customers without disruption. We have not yet seen a meaningful impact on customer demand, but a prolonged conflict could begin to influence broader economic activity, including forward demand and further cost inflation. With this backdrop, we are focused on what we can control.

Today, we are announcing the launch of a new transformation program that will reduce cost and complexity across the organization, optimize our manufacturing network, strengthen sales and technical capabilities and simplify global processes. We will pace investments over the coming months to unlock productivity in a disciplined manner. The first phase is underway through a comprehensive business process review focused on finding cost opportunities and improving master data management. The program will fundamentally change the way we work, and we are looking to modernize the employee and customer experience. In the first quarter, we took steps to streamline our executive leadership structure to sharpen customer focus and accelerate decision-making. This program is central to achieving adjusted EBITDA margins at or above our target of 18%.

We expect to exit this year with approximately $10 million in new run rate savings. Over the next 3 years, we see a clear path to delivering at least $20 million to $30 million of sustainable structural cost improvement with much of that target already identified. We have a clear line of sight to a robust set of initiatives, giving us confidence in our long-term transformation path. This new program complements actions that are already underway. The closure of our manufacturing facility in Dortmund, Germany remains on track, and we are beginning to realize the associated financial benefits.

We continue to expect approximately $2 million in cost savings from the closure in 2026 and $5 million in annual run rate savings beginning in 2027. We also recently announced the planned closure of our manufacturing facility in Songjiang, China, which will coincide with the start-up of our new facility in Zhongjuang later this summer. Production from Songjiang will transition to the new site as it comes online, enabling more efficient operations and enhanced capabilities. This modern facility will strengthen our ability to serve customers across Asia Pacific and manufacture recent portfolio additions more competitively at the local level. Turning to the outlook. Our view on macro trends is consistent with prior expectations. End markets declined modestly in the first quarter as expected. And while we still continue to predict flat end market conditions for the full year with normal seasonal improvement and a slightly better demand environment in the second half, we expect sequential volume and revenue growth in Q2, driven by seasonal improvement and wrap effect of new and recent business wins.

Visibility through the first part of the quarter indicates steady demand. At the same time, we anticipate temporary gross margin pressure related to higher input costs stemming from the Middle East conflict, which is expected to push gross margins below our target range in the second quarter. The situation remains dynamic due to the prevailing market uncertainty. We expect these gross margin headwinds to be temporary, lasting no more than 1 to 2 quarters.

Our current estimate is that second quarter gross margins will be 200 to 300 basis points below quarter 1 on a sequential basis. Through pricing actions we are taking, we expect to fully recover gross margins within our target range of 36% to 37% as we exit the year. With the rapid raw material cost escalation in recent weeks above what we experienced at the end of the first quarter and the ongoing uncertainty of the situation, we are in the process of implementing further price increases, which we expect will be in place before the end of the second quarter.

We are recovering the cost impact from inflation in a responsible way and collaborating with our customers to successfully navigate the complexity of the current situation. As mentioned previously, the company is also taking action to improve our cost structure. Our long-term earnings profile continues to be resilient. Our local-for-local operating model and deep customer relationships differentiate us and enable new business wins. As a result, even amid heightened uncertainty, we continue to expect revenue and adjusted EBITDA growth in 2026, assuming no significant further deterioration in our end markets because of the Middle East conflict. In closing, I am incredibly proud of our team and their consistent execution in a challenging environment. We are making substantial progress across key priorities, including pursuit of new business, cost structure optimization, while also diligently executing our strategy to create long-term value for our customers and shareholders. With that, I will turn the call over to Tom to walk through the financials in more detail.

Thank you, Joe, and good morning, everyone. First quarter net sales were $480 million, an 8% increase from the prior year. Organic volumes increased 3%, driven by global net share gains of 4% across all regions, with Asia Pacific being the largest contributor. Acquisitions contributed an additional 4% to net sales, primarily related to Dipsol, which will become part of our organic base beginning in Q2. We also had a 4% benefit to net sales from favorable foreign currency translation, primarily due to the euro strengthening against the U.S. dollar. Partially offsetting these items was unfavorable selling price and product mix, which was 3% lower than the prior year associated with lower index pricing, regional and geographic mix. As expected, gross margins improved on both a year-over-year basis as well as sequentially to 36.8%, near the high end of our target range. This was driven by product margin improvement and more favorable manufacturing absorption. On a non-GAAP basis, SG&A increased approximately $16 million or 14% in the first quarter compared to the prior year. This increase was primarily due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 6% higher in the first quarter, mainly due to higher incentive compensation and accelerated depreciation related to our corporate headquarters and lab consolidation in the Philadelphia area. We delivered $73 million of adjusted EBITDA in the first quarter, while adjusted EBITDA margin of 15.1% declined year-over-year due to higher SG&A costs. Switching now to our segment results. Our Asia Pacific segment continues to be a growth engine with organic net sales increasing in 10 of our 11 last quarters and new business wins far exceeding the high end of our total company target range. Asia Pacific sales in the first quarter increased 25% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 10% and a favorable foreign currency impact of 3%. These drivers were partially offset by unfavorable price and mix, which declined 2% in the quarter. Segment earnings in Asia Pacific increased approximately $8 million or 32% in the first quarter compared to the prior year. This was driven by higher top line growth as well as improved product margins and more favorable manufacturing absorption. First quarter net sales in EMEA increased 10% year-over-year, partially due to favorable foreign currency impacts. Higher net sales from organic volume growth and the impact of acquisitions were offset by lower selling price and product mix. Segment earnings in EMEA increased approximately $2 million or 9% in the first quarter compared to the prior year. First quarter net sales in the Americas were in line with the prior year as favorable impacts from our acquisitions and foreign currency were offset by lower organic sales volumes and selling price and product mix. Lower volumes were attributable to a continued customer outage, regional tariff uncertainty and weather impacts early in the quarter, while lower selling prices were primarily the result of our index contracts as raw material costs declined in the quarter compared to the prior year. Segment earnings in the Americas decreased approximately $5 million or 8% in the first quarter compared to the prior year. This was driven by higher SG&A related to selling expense and incentive compensation as well as unfavorable product mix that negatively impacted margins. Turning to nonoperating costs. Our interest expense was $10 million in the first quarter, which was consistent with the prior year and the past few quarters. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding noncore and nonrecurring items, was approximately 28% in the first quarter, which is slightly lower than the prior year and in line with our expectations for the full year effective tax rate in the range of 28% to 29%. And in the first quarter, our GAAP diluted earnings per share were $1.13 and our non-GAAP diluted earnings per share were $1.63, a 3% increase over the prior year due to improved operating performance. Cash generated from operations was $4 million in the first quarter, increasing from a use of cash of $3 million in the prior year. The first quarter is typically our lowest from a cash generation perspective due to incentive compensation payments, working capital investments and the seasonality of our business. The improvement over the prior year was primarily the result of better operating performance and lower cash restructuring costs, which totaled $4 million in the first quarter. Capital expenditures in the first quarter were approximately $11 million, primarily related to the construction of our new facility in China. We anticipate capital expenditures to increase in the remaining quarters as we complete construction in China and finalize the build-out of our new corporate headquarters in Pennsylvania. We still expect full year 2026 capital expenditures to be approximately 2.5% to 3.5% of sales. During the first quarter, we paid approximately $9 million in dividends. We remain focused on our capital allocation priorities and balancing investments for growth with returning cash to shareholders, and we'll continue to weigh opportunistic share repurchases in a prudent manner that optimizes shareholder value. In April, we announced that we entered into an amended credit agreement in which we extended our nearest debt maturity by almost 4 years from June 2027 to April 2031, while also increasing our revolving credit facility availability by approximately $300 million and improving our overall credit terms. The amended agreement also provides us with the right to increase the revolving credit facility by approximately $331 million for additional liquidity. The improvement in our credit terms and increased availability under this new agreement reflects the strength of our balance sheet and are clear indicators of the underlying health of our business and the durability of our cash flows. The new agreement provides increased financial flexibility that will allow us to execute our strategy, achieve our capital allocation priorities and continue investing in growth. We delivered strong first quarter results, continuing to gain share and driving organic volume growth despite ongoing macroeconomic and geopolitical challenges. With a strengthened balance sheet and increased financial flexibility, we are well positioned to continue executing our strategy and creating value for shareholders. With that, I will turn it back over to Joe.

Thank you, Tom. We are executing a clear set of priorities to strengthen the business, simplifying how we operate, enhancing our capabilities and putting the right cost structure in place to support sustainable growth. With that, we would be happy to answer your questions.

Our first question comes from the line of Mike Harrison with Seaport Research Partners.

I wanted to start with just kind of the raw material picture. I think you did a good job kind of articulating the expectation of 200 or 300 basis points of margin pressure next quarter. But maybe just give us some details on what you guys are seeing in terms of raw material costs. I assume that the biggest pressure you're seeing is in crude-based materials, but maybe comment also on what you're seeing. I know we're just getting past an oleo chemical spike, and I think some of those materials also continue to be kind of volatile. And also, if you can cover whether you're having any issues with raw material availability in any parts of the world.

Yes. Thanks, Mike. Good question. So talking about the general situation. If you think about our raw materials, there's really 3 buckets, right? It's base oils, it's additives and then it's oleochemicals. And right now, as is typical in an inflationary environment like this, everything sort of keys off of what's happening with crude oil, right? And so all 3 of those buckets are higher. In the sort of when hostilities broke out, as I mentioned just a few minutes ago, we put a task force together that day, right, that Saturday, we started looking at what impacts this is going to have on supply, first of all. and then also cost. And I think from a supply standpoint, to your last part of your question, we've been very fortunate to not have any issues. I think the flexibility of our supply chain, the fact that we have this local-for-local approach and really as one of the leaders in the space, I think our relationships and our ability to get product around the world is very good. Overall trend in those 3 buckets or raw materials in general, what we had thought sort of the increase was going to be toward the end of Q1, I would say in the recent weeks, that has gone up more. So we put an increase out at the end of Q1. Some of that became effective in April, more will become effective here in May. And we've already started on another round of price increases just because the cycle is pretty inflationary right now. Will that go further? I personally have my own thoughts on that. I don't believe so. But it all depends. If it does, I think as we did in the past, we have pretty good ability to go out and get pricing, but there is this lag. And so our view of is, as I said, we think it's going to be somewhere between 200 basis points, maybe a little bit more than that. We have index agreements as well. And those index agreements tend to adjust on a quarterly basis. So that's why there's that lag. It's just not something that we can go out and press a button and do immediately.

All right. Very helpful. And then I wanted to ask about the new transformation program that you guys announced in the press release and in your prepared remarks. Kind of what was the genesis of this program? And maybe just give a little bit more detail on what kind of actions you're taking that are beyond what you got -- the actions that you've announced with previous cost programs that are, I believe, still in mid-flight.

Yes. We've sunset or I mean I guess there's a few lingering things with prior cost programs. But this is a new program. And the genesis of the program really is, I believe our EBITDA margins need to be above 18% and pushing 20% eventually. And we're in the sort of mid-teens space right now.

And I've been in the role now for about 18 months. And I think visibility overall to how the company is operating, some things that kind of jump out to me are spans and layers. We had maybe added some layers of management that weren't there before. One of my philosophies was to bring the decision-making closer to the customer.

I really would like to have our culture be one of working managers or hands-on working managers. So -- so just some general like bringing clarity to the org structure and looking at areas where there's redundancy, maybe there's a little bit of load. We've addressed that and are addressing that. I mean this is also about Mike, there's tremendous complexity still lingering from when Quaker and Houghton came together in 2019. That was a huge transformational deal. And while we've integrated very well, we've had great customer retention, and we're able to aspire our customers, I think -- there's also the reality that our master data is a little messy that creates a lot of inefficiency, that creates a lot of manual work.

We looked at our business processes and just certain things like how we process intercompany charges amongst ourselves and how many times our customer service people have to touch an order before it gets to the customer; it's really inefficient. And so the key thrust of this is around business process optimization and making sure that we have a Quaker Houghton way of doing things, tied very closely to that is our master data.

And we have a very good line of sight to where that's going. And actually think that there's efficiency that's at the end of that process that will -- we can start to leverage things like AI and shared services type program. to make the business more competitive. This is not a reaction to what's happening in the Middle East. This is something that I feel we need to do. It's the right thing to do for the business. We've got to be more efficient. We got to have a more modern employee and customer experience.

And it's time to kind of bring the company forward and so we can really start to take advantage of a more modern set of tools.

That makes sense. And then I guess last question for now is just -- as always, I'm trying to get a little bit of a sharper view on how you guys are thinking about EBITDA for the next quarter? You mentioned the gross margin pressure. Typically, you guys would see some seasonal improvement in EBITDA, but it sounds like maybe that could be completely offset by gross margin pressure.

So is it fair to say we're probably looking at an EBITDA number in the second quarter that's pretty similar to what you guys just reported in Q1?

Mike, I think that's fair. I do think the volume aspect of this surprisingly, in the market that we're in, you would think as volatile as it is, our volume is very strong. So I feel -- I do feel confident that second quarter volumes will sequentially improve, that even where I sit today, I would expect year-over-year improvement. There's visibility to our order book. There's visibility to business that we've won and sort of the wrap effect of that, what's in the pipeline.

I mean we have a couple of parts of our business where we're actually adding labor to boost up some of our off shifts to keep up with demand. So the demand aspect of it is very good. And we're putting price in. That price will not all be in, in the second quarter, and there's another phase coming. But I do think from a volume perspective, we expect it to be better and seeing some of that normal seasonality that you see but there will be the slide of gross margin. And I think the math would say we're going to be within range, right, of where we landed in Q1.

Our next question comes from the line of Jonathan Tanwanteng with CJS Securities.

I was wondering if you could talk about the expanded credit agreement you did recently and your thoughts maybe on capital allocation from here. Did you update that? I know that it was becoming current, but the expanded size, did you do that to accommodate your expected operational organic growth? Or did you see more of an opportunity maybe to do share repurchases or M&A here? Maybe just give us a little more color on the opportunities that you see going forward and how you're addressing that? .

Yes. John, this is Tom. I'll share some thoughts on that. I would say, first and foremost, the update to the credit agreement was really about an opportunity to extend maturities, right? So we were going current here in June of this year with maturity of our existing facility in June of 2027.

So this gave us an opportunity to extend that out to April of 2031 and add some additional years with respect to the facility. It does add additional capacity for us to really continue to be flexible and use all the available tools from a capital allocation standpoint. We continue to be focused on investing in growth, both from an inorganic standpoint as well as organic growth, things like our new plant in China. And then I think, as I said in my prepared remarks, we continue to weigh how we deploy capital for growth as well as return capital to shareholders through opportunistic share buybacks and continue to pay dividends and those sorts of things. And so I think it's a combination of extending our maturities, some additional capacity, which gives us more flexibility from a capital allocation standpoint. We also improved terms as part of this refinancing of the facility and we have a great and supportive bank group that enabled us to accomplish those things in terms of the maturity and the additional capacity in the improved terms.

Got it. And maybe just to be a little more focused here, do you see opportunity just given the market volatility, whether it's in your own shares or in potentially acquiring tuck-ins or larger players? .

Yes. I'd say, John, yes to both, right? I think we have done -- it's been a couple of quarters since we've done anything meaningful on share repurchase. But we're not going try to do that. Balance sheet is in a good position. So if the opportunity presents itself, we expect we will do that. I would also say that the M&A pipeline as always, remains active. There are a number of sort of bolt-on tuck-in type of opportunities out there that we think will give us more things in the portfolio that we could sell to our existing customers and those types of deals have been very accretive for the company in the past.

And part of our strategy -- it will be part of our strategy going forward. So I would say yes to both questions. And we're really happy we got the financing on it. When we got it done and that the terms and additional flexibility that came with it.

Our next question comes from the line of Laurence Alexander with Jefferies.

It's Dan Rizzo on for Lawrence. A couple of things. As you aim for your 18% to 20% EBITDA margins, once I guess, some of this volatility may be kind of subsides and your restructuring is in place, how should we think about incremental margins kind of in the mid-cycle? I mean it's obviously increasing. I was wondering how we should kind of -- how we could quantify it.

Yes. Dan, it's Tom. Thanks for the question. I think as we're thinking about driving towards that 18% plus EBITDA margin. I think our assumptions relative to our targeted gross margin range remain consistent in that 36% to 37%. I think what you heard us talk about in our prepared remarks and some of Joe's comments is really around this opportunity from a transformational and restructuring program to focus on cost and complexity reduction with respect to our G&A functions, our manufacturing and sledging network. And so as we look out over the next couple of years, where we see some leverage is really as we think about SG&A as a percent of sales, those G&A functions and driving some of that cost and complexity out of the business.

And that's really the pathway towards that 18% as well as volume growth and continuing to work around net share gains and some of the things that we've been able to successfully execute.

I'm sorry, did you mention that I not hear what the cash cost of the plan is, the new plan?

No, we didn't mention anything specific about the cash cost of the plan. I think the -- what I said was we will pace this out over time. So for instance, we're not planning to put a big new ERP system in, right? So it's not going to be a huge outlay. I think what's typical here is 1 to 1.5x to achieve the types of synergies that we're looking at. So we're not planning any sort of extraordinary type of investment to get there, Dan. Hopefully, that answers that question.

No, that does. That's helpful. And then my final question. So you guys have done a good job, obviously always of increasing market share. But you have a lot of new products from Houghton and Dipsol. I was wondering how much of your share growth is increased sales to existing customers versus going into like kind of different customers? And how that kind of breaks out?

It's a really great question, Dan. -- it's much easier to go in and what we say is grab a share of the wallet versus opening up a new door with someone that you don't have a relationship with. So proportionately, most of the gains that we're getting are coming from share gain within existing customers, growing that share of wallet, right? It's the customer who may be buying a lubricant from us that we could sell them, grease, specialty grease, fire resistant hydraulic, finishing -- metal finishing type of chemical.

So it's really the majority -- high majority is coming from that growing with existing customers, new parts of the portfolio.

That's very helpful.

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Yes, sorry about that. I hope you guys are well. Congrats on the quarter. I guess, I understand the couple of hundred basis points of gross margin compression, maybe that you're expecting for Q2 because of the lag in pricing for us. I would have 2 questions. So first off, do you expect to fully recover that in the second half, which -- and does that imply that you have to actually price above inflation? And then secondly, I know you guys were successful in recouping inflation in the last inflationary cycle in '22, '23, and you were able to price seemingly above inflationary levels. .

But is the demand picture now maybe slightly choppier or less robust and would make that a little bit more difficult or take longer to recoup those margins? Or how should we think about that?

Yes. No, good question, Arun. Thanks for those. I would say, the goal overall is we have these target gross margin ranges. I've talked about the 18% EBITDA, and we're pretty committed to that, right? So that would imply in this type of environment that you've got to stay ahead of inflation a little bit. That being said, we volume to make sure we retain and we don't have a lot of churn and we can continue to stack the wins and the growth that we're seeing going forward is also part of it. About 1/4 of our pricing is on index. So it takes away a lot of the emotional aspects of this. Our customers, I think, understand the situation that we're in right now. And we've also said, look, if things recess.

In the cost side, we will act accordingly. And we're not trying to gorse them in any way, we're trying to be very responsible about it, as I said previously. The demand environment right now, surprisingly, is very strong. And will that change? It's possible it will in any type of inflationary environment like that, it could happen but through, say, the first 4 months of the year and visibility to where we are with our demand currently, we're not seeing that. We think will be okay. And then the margin question specifically, we do think by the end of the year that we would get back into the 36% to 37% range. And that's our goal.

Okay. Great. And then I guess a follow-up, maybe I can just ask about the volumes. You said that the volume environment is -- the demand environment is quite strong. Maybe you can just kind of describe that a little bit more in detail because is it steel utilization rates are really holding up and aluminum maybe as well, automotive? Maybe you can just touch on some of the end markets. And also regionally, it seems like, obviously, Asia Pacific has remained relatively strong, and you're benefiting from some wins.

But North America and Europe, are you also seeing some improvement? Or how should we think about that?

Yes. No. Look, I think the main takeaway here is we're really punching above our weight. And let's focus on Asia because -- the results are very, very strong, double-digit volume growth. I mean, that's against a backdrop of industrial production actually declined in China in the first quarter and we've seen light vehicle builds really in all regions down between 2% and 4%.

So we are outperforming the markets that we're in. We've seen some improvement on the metal side, steel and aluminum production, that can, at times, be a precursor that automotive is going to swing back, right? -- end of Q1, I think, as I mentioned, North America seemed to pick up and little bit in North America will drive our Americas segment? And then typically, as you head out of Q1 in areas like Asia, you put the Lunar holiday behind you and you get into normal seasonality patterns. And I think they had a tough first part of the year, China especially, but areas outside of China; India, Vietnam, Thailand, actually, they had pretty good performance.

And so that offsets a little bit what's happening in China. So all in all, like as we head into the second quarter, as I said, I think this sort of normal seasonality returns. That's what it feels like right now. And then us taking share, consistently taking share above market, we would expect that would continue into the year.

Our next question comes from the line of David Silver with Freedom Capital Markets.

Yes. Good morning. Thank you. a couple of questions. I have a couple of questions. First one, tactical, second one, maybe a little bit longer term. But on the tactical one, and I apologize in advance that this sounds very naive. But I'm leaning on your long experience on the commercial side, Joe. And I'm sure that your company has a very detailed playbook for operating in conditions such as the one we're facing now with volatile feedstock cost pressures.

And I'm just kind of scratching my head and I'm saying, why not a surcharge, I guess? In other words, something that can be pegged to something clearly visible to both sides. It might halt some of that 200 to 300 basis point erosion on the way up and the customer gets the assurance that when the relevant cost pressure abates that the pricing that persisted before this will quickly return. But I'm sure your company has a long playbook. Maybe if you could just share some of your thinking about how quicker typically goes about recouping cost pressures in fast-moving markets, such as the one here.

Yes. No, good question. So we do use surcharges. That is something that we do -- and really, you're able to put some of that in immediately, especially when it comes to things like freight. Other parts of the business, I mean, we have to go in and really show the data to the customer. just as our suppliers come to us, we push back and say, well, why is this going up? And I'm going to shop it around and that happens when we talk to our customers as well. So I think the nature of how we in our relationship. We're not a commodity, right? We are really kind of embedded in these plants. We're sitting in the morning meeting. We are part of the really -- become part of their operations in some cases.

So we have to bring the data. We have to give them justification. And a lot of times, we have to give them options about what we're going to do about it, right? Can we do something to offset it in other ways through service or bundling a product. So it's a laborious process, but it's also very, very necessary. I think if you're going to have long-term trusting relationships with your customers, that's really the only way we can kind of approach it. We would love to be able to be more efficient and quicker with these things, but it's extremely volatile. And then you run into these situations where every Friday, something changes, right, and have to kind of adjust to that as well. But I think over the long term, David, our goal is to get back to this target range gross margin. That's something that we've always done and have also been pretty open about the fact that it does take us a quarter or two lag to catch up.

Okay. Great. I have a longer-term question or a question about a longer-term topic. But one of the trends that's going to become increasingly apparent, I guess, over the next couple of years, we'll be reassuring and onshoring of heavy industry here. So with your global footprint, I'm guessing that Quaker has about as good a view on automakers and primary metals activities that might be showing up in the U.S. from some offshore companies. And I was just wondering, does Quaker have a playbook currently to maybe capture a little more than your share of this new investment coming to, let's say, the United States. Is there a process?

Do you have to qualify 12 or 18 months in advance? Just -- what is the playbook that Quaker is developing to maybe take full advantage of the coming wave of large investments in automotive and other kind of heavy industry assets here?

Yes, great question. We do have a playbook. And I think that playbook is pretty consistent regardless of what region new capacity is coming online. Look, we are seen as the industry leader. We participate in industry technical groups and forums. And when -- and we maintain relationship with the mill builders in the equipment suppliers. And so when a new installation comes on and you rightly point out that there's a lot of investment in North America right now.

We generally know about it in the early phases. We try to be involved on the front end in the design of those systems and more often than not when new capacity comes online, we're the incumbent supplier. So that is something that is part of our playbook. How do we make sure that, that's a valuable approach for our customers. We have our own CNC machines. We have a pilot rolling mill in the company, and we can really do some things on the front end to test and ensure that we're going to have success when they start these mills up and that's something that's really important.

I think the other aspect of this is there's been a shift, right? I mean if you look at metal production in China, I think more steel is made there than the rest of the world combined. And when you look at the trends just in the past few years, automotive production in China is starting to really take off. And you're seeing the Chinese brands be more prominent in Africa and Southeast Asia and even in Europe and not so much here yet, but -- but we've always said we're kind of agnostic of where it gets me. And I think just my point is, as that part of the business grows, I think we're very pleased with our ability to kind of grow in a differential way right now in that part of the world. That's something that's been very intentional.

Okay. Great. I appreciate all the color.

Our next question comes from the line of Jon Tanwanteng with CJS Securities.

I apologize if you already addressed this, but I was wondering if you could talk about the potential for demand destruction or disruption at your customers and what you planned for in your scenario analysis as you consider what would happen if you run or the mid compute was extended. Have you talked to your customers about them? And what contingencies might be and what your earnings profile and the revenue profile might look like if that would happen? .

Yes, John. I mean, look, we talk to our customers every day about that. We're watching that as closely as we can. I think it's a tough thing to predict. I would say right now, there's an equal chance that this thing is prolonged or not prolonged. There's -- I would also say there's an equal chance that there is going to have some impact on demand that could be very, very disruptive or it's going to have no impact, right? And so when we talk about our sort of our model and how we're looking at the year, I'm basing it upon what the most -- the information I have today, which is, as we head into -- we're now well into the second quarter, visibility on what we have, I'm not seeing that sort of catastrophic demand disruption on the horizon. We're not hearing that from our customers, so we're not expecting it at this point.

Is it possible it happens? Absolutely. The longer this thing goes on, and the higher inflation goes, it's not necessarily good for anyone's business, right, if that continues. But I think we can't necessarily bake that scenario in although, as I said earlier, there's probably an equally likely chance that happens or it doesn't happen right now. So based upon that, our outlook is kind of like with all the information we have today, the best thing we know and looking at all the empirical evidence we have, we're not seeing that yet. So we didn't bake that into our guide.

And we have -- there are no further questions at this time. I would like to turn the floor back over to Joe Berquist for closing comments.

Thank you. Yes, we, again, really appreciate the interest in Quaker Houghton. I want to thank all of our employees for what they continue to do in these really volatile times and especially our employees that were impacted in this -- the region close to the conflict and the amazing work that they've done to keep our customers supplied.

So -- appreciate the questions. If there's any follow-up, don't hesitate to reach out to John Dalhoff, and we'll be happy to answer any additional questions you have. Thanks.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Quaker Houghton's Fourth Quarter 2025 Results Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Investor Relations. Thank you, Mr. Dalhoff, you may begin.

Thank you. Good morning, and welcome to Quaker Houghton's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 23, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and the discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. .

These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe.

Thank you, John, and good morning, everyone. I am pleased with our fourth quarter results, which resulted in our second consecutive quarter of year-over-year EBITDA improvement. Adjusted EBITDA was up 11% and adjusted earnings per share increased 24% compared to the prior year. Our results were driven by new business wins in all regions highlighted by strong organic volume growth in the Asia Pacific region, where our planned strategic efforts continue to deliver consistently strong results. For the full year, net sales in Asia Pacific grew 13% and while organic volume grew 5% despite persistent soft market conditions, demonstrating how our go-to-market approach and expansion of capabilities in the region are driving growth. Market conditions in the Americas and EMEA remain soft as uncertainty from tariffs and extended customer outage in North America and seasonal impacts affected us in the fourth quarter.

Despite the challenging environment, our total organic volume was down less than 1% versus the prior year, but would have been flat if not for some operational challenges that occurred in our U.S. plants in December. -- net share gains of approximately 4% mitigated the soft market and collective headwinds we experienced in the quarter, and we achieved slight organic volume growth for the full year. Gross profit increased by 6% compared to the prior year quarter. Gross margin percentage was flat with some variation in regional mix. Our EMEA region gross margins improved by 280 basis points due to favorable price/mix and lower raw material costs. And Asia Pacific had margin growth on an organic basis. This favorability was offset by negative impacts from absorption along with higher maintenance, repairs and raw material disposal costs in North America.

Sequentially, gross margins were down 150 basis points compared to the third quarter but our product margins remained steady globally. Raw material costs stabilized in the latter part of the year, and we are able to successfully implement targeted price increases in parts of Asia Pacific in the fourth quarter. The company generated $47 million in operating cash flow in the fourth quarter, down from $63 million in the prior year period due to higher restructuring costs and negative impacts to working capital. For the full year, we generated $136 million in operating cash flow compared to $205 million in 2024.

In addition to higher year-over-year restructuring charges of $29 million, the company made temporary increases to inventory in the EMEA segment in the fourth quarter. As we begin to execute network optimization actions in Europe. We recently announced the closure of our German manufacturing facility in Dorman as part of a broader set of network initiatives. The volume from the Dorman plant will be absorbed into existing excess capacity in our European network. We anticipate cost savings of approximately $2 million from this action in 2026 with annual ongoing cost savings of approximately $5 million beginning in 2027. The company also booked approximately $7 million of costs related to the assessment of multiple acquisition opportunities in the latter part of the year. We do not anticipate that the acquisition-related work will result in specific transactions at this time.

Focusing on the quarter, our performance was in line with expectations despite a persistently challenging economic environment. Year-over-year organic volumes fell less than 1% but outpaced our major end markets, which declined by a low to mid-single-digit percentage. Persistent tariff uncertainty continues to disrupt global trade flows and negatively influence our customers' operations. Net share gains, disciplined cost measures and a positive contribution from recent acquisitions helped offset market weakness. Our acquisition of Dipsol completed in the second quarter, continues to perform as expected, contributing $21 million to net sales in the fourth quarter. Organic sales volumes in Asia Pacific grew 4% in the quarter. This was the tenth consecutive quarter of year-over-year volume growth in that region.

Asia Pacific growth offset organic volume decline in EMEA and the Americas, which was driven by overall market softness and an extended customer outage in North America. Lingering demand from tariffs were compounded by weather -- lingering demand impacts from tariffs were compounded by weather-related operational challenges in December. We believe total company organic sales volumes would have been flat to the prior year in Q4 when adjusting for these factors. The company continues to execute cost savings initiatives which led to a 4% year-over-year decline in organic SG&A at constant currency. Total SG&A costs increased 4%, primarily due to the impact of acquisitions and foreign exchange.

Our previously announced complexity and cost reduction plan generated approximately $25 million of run rate savings for the full year. We will continue to evaluate additional cost savings opportunities and execute in a prudent and disciplined manner towards continuously improving our EBITDA margins over the long term. We made progress reducing complexity and transforming our cost structure in 2025. But there is more work to be done. We have identified specific new initiatives that will streamline and harmonize our global business processes, enhance and further rationalize our global manufacturing network and finish immigration of past acquisitions. These foundational steps are already enabling better efficiency and more effective cross-selling across the portfolio.

As we continue to sharpen and refresh our core portfolio of products and services, we have also begun to consolidate and strengthen our product brands across the organization. Our balance sheet is strong, gives us flexibility to continue to evaluate acquisitions that could expand our offering, increase our total addressable market, enhance innovation, add new capabilities and provide access to new customers and geographies. We completed 3 acquisitions in 2025, adding approximately $95 million of annualized revenue. We will continue to evaluate strategic acquisitions in a disciplined manner as M&A remains a core tenet of our capital allocation strategy that prioritizes investments for growth.

Quaker Houghton continues to demonstrate operating resilience. Since 2020, we have weathered the COVID-19 pandemic, a global supply chain crisis, uncertainty due to tariffs and ongoing geopolitical instability. Our markets have not returned to pre-COVID operating levels, yet we have delivered profitable growth and are well positioned to sustain that momentum. As our underlying markets stabilize and improve, we will accelerate future growth by unlocking the leverage and strength that is inherent in our company. The cost actions we have taken over the past few years have positioned the company to strategically invest in our global team of technical experts, driving innovation and new capabilities. Quaker Houghton is poised to build upon our well-known reputation of differentiated customer service as we continue to evolve into an even more responsive, nimble and efficient company.

We are excited about the strong momentum we have created in Asia Pacific where our intentional focus on high-growth markets and key market segments is paying off. Notably, we are winning with new metalworking customers and growing our share in the electric vehicle OEM and component sector. We have taken steps to proportionately scale our organization to achieve sustainable growth in Asia Pacific. It will open a new manufacturing facility in China later this year. Our investments in emerging markets like China, India, Asia and Africa demonstrates our commitment to serving customers locally while delivering the full capabilities we have built as a leading process fluid and service provider to industrial manufacturing companies in the world.

I am optimistic as we head into 2026 and excited about our momentum. In the past year, we have made substantial progress strengthening and stabilizing our customer intimate sales and service capabilities. Our service-intensive approach is clearly working. Our sales growth was bolstered by innovative progress achieved in the development of our fluid intelligence capabilities. Food intelligence is an evolution and enhancement of Quaker Houghton's service offering, empowered by new and innovative measurement, automation and digital tools. Our Fluid Intelligence offering is amplifying the impact of our technical teams and enabling customers to gain insights to optimize how our fluids perform.

Looking forward, our external markets are not expected to improve in the near future. We anticipate underlying markets to remain flat in 2026 and with the potential for some incremental growth in the second half of the year. We remain confident in our ability to deliver net share gains within our target range of 2% to 4% as we execute our sales pipeline, benefit from the ramp of new business wins gained in 2025 and gained the full year impact of acquisitions, primarily dips in our results. Our visibility into the sales pipeline in our recent history give us confidence that we will continue to win new business at rates that exceed underlying market growth. Our business foundation remains strong as we move into 2026. We do not expect operational issues that occurred in the fourth quarter in North America to carry into the first quarter.

Raw material costs are expected to remain steady in the first part of the year, and we anticipate gross margin percentage will be within our targeted range of 36% to 37% for the full year. We will deliver positive share gains and organic growth in all our segments in 2026. On the cost side, variable compensation and inflation will result in higher SG&A year-over-year. We plan to partially offset this by continuing to execute transformational initiatives and making improvements to our cost structure to support our long-term goal of sustaining EBITDA margins above 18%. This journey has begun already, and we expect modest investment and careful planning will be required to fully reach our profitability margin target in the next few years.

We anticipate our third consecutive quarter of year-over-year EBITDA improvement in the first quarter of 2026, which will come from share gains, gross margin improvement and run rate impact of acquisitions. For the full year, we expect to improve top line performance, leading to year-over-year adjusted EBITDA growth. I am proud of what we have accomplished and grateful for the contributions are approximately 4,700 global employees delivered to our customers and quicker outs many stakeholders. Our people remain our greatest asset, and their unwavering commitment to serving our customers continues to drive our success.

Even in challenging economic times, we stay grounded in our core values, and demonstrate our dedication to the communities in which we operate. Reflected in recognition we received being named one of America's most responsible companies in 2025. We will continue to move forward together and are committed to driving growth and long-term value for our customers and shareholders. With that, I would like to pass it to Tom to discuss the financials in more detail.

Thank you, Joe, and good morning, everyone. Fourth quarter net sales were $468 million, a 6% increase from the prior year. Organic volumes declined less than 1%, but were boosted by share gains across all regions. In the fourth quarter, total company share gains were approximately 4%. Acquisitions contributed an additional 6% to sales primarily related to Dipsol. Selling price and product mix were 1% lower than the prior year, consisting of impacts from both product, service and geographic mix as well as pricing, largely associated with indexes. Gross profit dollars increased year-over-year on a non-GAAP basis, while gross margin was 35.3% compared to 35.2% in the first quarter -- in the fourth quarter of 2024.

Product margins in the fourth quarter remained healthy in all geographies and increased year-over-year in both EMEA and Asia Pacific. Q4 2025 gross margin was impacted by seasonality and unfavorable manufacturing absorption as well as higher maintenance, repairs and raw material disposal costs in North America. On a non-GAAP basis, SG&A increased approximately $4 million or 4% in the fourth quarter compared to the prior year, mainly due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 4% lower in the fourth quarter and 2% lower for the full year in 2025 as we effectively executed on our cost savings and optimization plan. We delivered $72 million of adjusted EBITDA in the fourth quarter, an increase of 11% compared to the prior year.

Adjusted EBITDA margin of 15.3%, improved 75 basis points year-over-year but was lower than the prior quarters due to adverse impacts on gross margin in North America in Q4 of 2025. Switching now to our segment results. We continue to see strong positive momentum in our Asia Pacific segment, which delivered its 10th consecutive quarter of organic volume growth and has now experienced organic net sales growth in 9 of the last 10 quarters. New business wins continue to be the primary catalyst for this growth. Asia Pacific sales in the fourth quarter increased 15% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 4%, partially offset by unfavorable price and mix.

For the full year, sales increased 13% as the impact of our acquisition and a 5% increase in organic sales volume offset unfavorable price and mix. Segment earnings in Asia Pacific increased approximately $3 million or 11% in the fourth quarter compared to the prior year. This was driven by higher net sales, partially offset by lower operating margin due to unfavorable impacts from product mix and service revenue. Fourth quarter net sales in the EMEA segment increased 7% year-over-year despite continued market softness due to an increase in sales from our acquisitions, favorable selling price and product mix and favorable foreign currency impacts. These items were partially offset by a 2% decline in organic sales volumes, which outpaced underlying market declines due to net share gains.

Segment earnings in EMEA increased approximately $3 million or 17% in the fourth quarter compared to the prior year. This was the result of higher net sales and improved operating margin due to favorable pricing and product mix and lower raw material costs. Fourth quarter net sales in the Americas segment were flat to the prior year as an increase in sales from acquisitions and favorable impact from foreign currency were offset by lower organic sales volumes. Net share gains in the region during the quarter were offset by overall market softness and specific factors, including the outage at a major North American metal producer impacts from tariffs on demand and several operational disruptions that delayed shipments in Q4.

Segment earnings in the Americas were flat in the fourth quarter compared to the prior year as slightly lower sales volumes were offset by higher operating margin. Turning to nonoperating costs. Our interest expense was $11 million in the fourth quarter, which was consistent with the prior quarter. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 25% in the fourth quarter of 2025 while our full year effective tax rate was in line with expectations at approximately 28%. The Q4 effective tax rate was lower than the full year rate due to the timing of certain tax incentives related to our operations in China.

In the fourth quarter, our GAAP diluted earnings per share were $1.18, and our non-GAAP diluted earnings per share were $1.65, a 24% increase year-over-year. For the full year, we had a GAAP diluted loss per share of $0.14, which included an $89 million noncash goodwill impairment charge and $35 million of restructuring charges related to our cost savings program. Adjusting for these and other non-GAAP items, our full year non-GAAP diluted earnings per share were $7.02. Cash generated from operations was $47 million in the fourth quarter and $136 million for the full year compared to $205 million for the full year in 2024.

The primary drivers of lower cash generation compared to the prior year are higher net outflows from restructuring activities and an increase in working capital. The working capital increase was due to higher inventories related to operational issues in North America and the closure of our manufacturing facility in Dortman, Germany, along with the timing of supplier payments and accrued liabilities in Q4. Capital expenditures were approximately $22 million in the fourth quarter, consistent with the prior year and were $56 million for the full year. This represents an increase of approximately $14 million over the prior year, mainly due to the construction of our new facility in China, which is on track to begin operations in the second half of 2026.

Capital expenditures are once again expected to be between 2.5% and 3.5% of sales in 2026. This includes continued investment in organic growth initiatives, along with the completion of our China production facility and moving our corporate headquarters and combining our R&D labs in a new location in the Philadelphia area. During the fourth quarter, we paid approximately $9 million in dividends and repurchased approximately $5 million of shares. For the full year, we returned $76 million to shareholders through $42 million of share repurchases and $34 million of dividend payments, which reflects our 16th consecutive year of increasing our annual dividend payout. Our balance sheet and liquidity remains strong, our net debt at year-end was $691 million, and we continued to lower our net leverage ratio following the Dipsol acquisition, steadily reducing it to 2.3x our trailing 12 months adjusted EBITDA at the end of the year.

We had another strong year in 2025. Despite continuing macroeconomic and geopolitical challenges, we continue to gain share and slightly increase organic sales volumes while executing on our cost savings actions. The 3 acquisitions that we closed during the year complemented our business results and continue to perform in line with expectations. We remain disciplined with our capital allocation strategy, and we'll continue to return cash to shareholders and work towards reducing net leverage following last year's acquisitions. With that, I'll turn it back over to Joe.

Thank you, Tom. We made significant progress toward achieving our strategic objectives in 2025, and we look forward to growing revenues and adjusted EBITDA in 2026. With that, we'd be happy to take your questions.

[Operator Instructions] Our first question is from Mike Harrison with Seaport Research Partners.

Joe, you mentioned the weather-related operational issues that impacted Q4, and it sounds like they're now resolved. I'm curious, is there -- can you help quantify that for us? And I guess, looking out to Q1, I'm sure you guys have a bunch of snow right now in the Philadelphia area. And I'm just curious, is it possible that we have some additional weather-related impacts to keep in mind as we start thinking about what Q1 looks like. .

Yes. Thanks, Mike. Yes. In the fourth quarter, I think, particularly in December, we had some usual things that you see in plants, frozen pipes, issues with trucks and the like, a boiler, not to get too specific, but that if you think about the impact of that, did set us back a couple of days, I guess, in the month. And as we said in the comments earlier, you think overall, the impact of that was somewhere around 1% on our volume, and we would have been essentially flat. That's really been resolved as we head into the first quarter. Now we had this big snow event yesterday. Most of that was on the East Coast. And thankfully, our manufacturing is really in the center of the country in Ohio and Michigan, Illinois for the most part. So there is a ripple effect with these things as trucks and raw materials move around the country and it impacts our customers as well as us. But I don't expect that to be anything real impactful at this point, Mike.

All right. And then you mentioned that you, it sounds like during Q4, you were getting some pricing in Asia which is good because I know that price/mix number has been under some pressure. But I was curious if you could give us a sense of your expectations for pricing there and maybe also wrap in some commentary on what you're seeing in raw materials, I believe, some of these Oleochemicals that have been pressuring your margins back kind of in the middle of the year. seem to have started to come lower, but maybe just some thoughts on kind of price versus raw material cost dynamics into the next couple of quarters.

Sure, Mike. Yes, from a raw material standpoint, I mean, we're seeing things stabilize. Our outlook into Q1, Q2 at this point is relative stability. I think what you saw in the fourth quarter is timing of some of our contracts there. We had issues throughout the year last year in Asia Pacific particularly some of those issues just took a while to resolve because we had contracts and we had to negotiate new contracts in the fourth quarter and get some pricing. I am not really looking at pushing pricing right now. I think it's -- things have stabilized and overall should be a pretty flat market as far as that goes.

All right. And then I guess just in terms of your outlook and expecting EBITDA growth in 2026, it looks like the sell-side consensus right now is looking for something close to 10% growth over 2025. And -- and I'm just curious, is that what you're targeting internally? Or would you say that the market outlook at this point probably supports a lower growth rate of that type of percent that's baked into consensus?

Yes. I mean, we don't give specific guidance on that, but what I could tell you, Mike, is just kind of the algorithm that I think about the markets that we're in, are -- we're not expected to really grow. Like so underlying markets, I think, potentially could even be slightly down in the first half of the year, maybe slightly up in the second half of the year, but overall kind of flat. We have been very happy with how the share gain, the new business acquisition has gone over the past several quarters and feel pretty confident as we head into this year that we'll be able to continue that pace we mentioned in the comments earlier, our target there is sort of 2% to 4% outgrowth of the market, and we've been on the higher end of that. and I would expect that to continue with the visibility that I have to the pipeline and how things are looking on that end.

We made some acquisitions last year. Those really didn't come into play until the second quarter, so we will have an extra quarter of those in our numbers. And so call that a 1% to 2% kind of tailwind. We think there's perhaps a percent favorability overall with FX for the year, some puts and takes there, so some higher costs, but also some translation that helps us. I do expect our gross margins to be -- to recover to -- from the fourth quarter to be in that range of 36% to 37%. And then overall, I think we mentioned also there is a little bit of variable comp rebuild a little bit of inflation. We have some -- Tom mentioned in his comments, the new Radnor facility or the new facility here in Philadelphia. So some depreciation and things like that coming online. But overall, really the algorithm that we're shooting for is a sort of mid-single-digit volume and revenue growth if we could do a little bit better than that, great. and then get that leverage, as you said, to the high-single digits on EBITDA as we kind of scale everything into the business.

Our next question is from Laurence Alexander with Jefferies. .

Could you characterize the M&A pipeline and I guess also, can you give us some sense of the regional mix in the pipeline?

Yes, Lauren. I think we mentioned earlier that we had -- we did have some activity in the fourth quarter. Really, it was related to kind of second half of the year, multiple opportunities that we looked at -- those were not really regional opportunities, I would call them multiregional or global opportunities. They were larger and as I also mentioned, we don't anticipate any of those to lead to a transaction, nothing is imminent. The overall pipeline itself remains healthy. I would say, Laurence, there's always a balance for us. We look at things in kind of 2 different angles, right? Where we've had a good track record of doing these bolt-on type of transactions, things that add, help us grow our total addressable market, give us capabilities that we don't have, really expanding that wallet that we could sell to our customers transformational things. I think they come along few and far between. When they do come along, we like to participate.

Our balance sheet is strong. We have the ability to do those types of things, but we're also going to be very disciplined and not do something that doesn't make sense for our shareholders.

And just I guess on a regional basis, can you give a sense for -- are your share gains fairly evenly distributed? Or -- is it kind of more in one region? Is it tied to a particular customer end market mixes and customers with end markets or competitors of certain end market exposure? Just trying to get a sense for whether there's any kind of generational or limiting factor on the share gains that we should be aware of? .

I mean I'd say the share gains themselves have been pretty broad based. It's been all 3 regions, so Americas, EMEA and Asia Pac. The basis of it, Asia Pac is definitely higher than EMEA and Americas, I mean, call it on almost a 2x basis higher in Asia Pac versus those other regions. Some of that is just what's happening there, right? You have a lot of growth in markets like India, China is not growing the way it used to in the past, but it's still growing, right? And relative to the Americas and EMEA. That means new lines coming on, even new customers that didn't exist, and we make it an intentional part of our strategy to be the incumbent when these new plants come online. So that really speaks to some of the reasons why we're seeing higher conversion rates in Asia Pac than the other parts of the world. But overall, it's all 3 regions. And I think the sales engine is working pretty well for us right now.

Our next question is from David Begleiter with Deutsche Bank.

I mentioned you expect some markets to be maybe down slightly in the first half of the year. Which markets are those? Which markets could be up in the first half of the year?

Yes. I mean I think I would say the Americas and EMEA both were sluggish toward the end of the fourth quarter, and we've seen that carry into Q1. there may be some weather disruptions here in Q1 for Americas. I don't think that's going to be anything that's material. But we're just not seeing any kind of broad-based recovery in the manufacturing segment in Americas or EMEA right now, PMIs dipped below 50 and are hovering right around that number. So it's just there's not a lot happening, David, in those markets right now. And there's a normal seasonality that you have in Asia Pacific due to the Lunar holiday that happens in February. But on balance, I think when you put all that together, we think things are going to be relatively flat or if they are down to be very, very small incrementally down. The one area I would say is we have some specific customer issues in Americas that related to events that took place at their facilities last year. Those will probably carry into the second quarter as far as what we know right now.

So that's an additional sort of headwind, I think, on Americas. But again, if I had to put a magnitude around it, I think it's very low-single-digit type of headwind.

Got it. And I was going to ask on that Americas volume being down 4%. Can you parse out underlying growth -- underlying volumes in that business? And what that could be in Q1 and Q2 as well ex the customer outage?

Yes. Underlying growth for Americas, so the markets that we're in, the composite, I think we had it down about 1%. Metals market being up a couple of percent, but auto down. When we talk about the metals market, even though that metals market was up a couple of percent, there was the specific customer issue that then impacted us in North America. It's also a mix of the flat-rolled content versus construction, I beams, rebar, we tend to participate a lot more on the flat rolled side. So overall, down about 1% in the fourth quarter and a mix of different things there. The one other angle I would tell you, David, is just uncertainty around tariffs, I think, has impacted this USMCA region, Mexico, particularly with maybe a little bit lower demand down there just from the tariff impact.

And just to be clear, your Q1 -- our Q4 volumes in Americas would have been down roughly 1% ex the customer outage. Is that fair?

We think we have been flat, excluding the customer outage in North America. So there was organic share gain. Markets were down. We had organic share gains and then we had these operational issues as well as the specific customer out of. So all of that on balance, we think would have been flat.

Our next question is from John Tanwanteng with CJS Securities.

I just wanted to clarify, you mentioned that the M&A expenses for diligence and several opportunities that aren't expected to close any or result in anything anytime soon. Does that mean you're still too early in the process? Or did they trip up in diligence for one reason or another? And what is the outlook for your M&A this year following that?

Yes, I wouldn't -- so I'm not going to say anything more specific on that, John, other than we don't anticipate any of those costs carrying into Q1. And there is no imminent transaction, nothing imminent unfortunately.

Okay. Fair enough. And then I might have missed it if you called it out specifically. I think you just talked about the customer plant fire. But I was wondering if you could quantify the gross profit or the EBITDA impact associated with that, the disposal and the weather in the quarter if you kind of have a normalized kind of earnings or profitability number? .

I don't have that number. I think the impact on gross margin, I guess, or operating margin in the Americas was call it, a little over 1% on the gross margin percentage. The revenues, it's hard to quantify that, but it's less -- I'd say less than $10 million. somewhere between $5 million and $10 million in that range.

Okay. And that's for all 3 issues together.

Yes. Yes.

Our next question is from Arun Viswanathan with RBC Capital Markets.

I hope you guys are well. So I guess I just wanted to I understand the outlook for both Q1 and the full year. So I guess, for Q1, you mentioned for the first half, maybe you'd be flat to slightly down or you don't really see much change in the underlying markets? I guess you'll continue to see share gains and business wins in Asia Pacific, but would that be offset by weakness in the other regions or softness in the other regions? And then maybe could you see some improvement in growth in the second half. And so you would be up for the year? Or is the year-on-year growth mostly from the absence of maybe 5 to 10 onetimers. How should we think about the opportunity for growth in '26?

No, I'd say overall, like all 3 of our segments, so all 3 regions, we expect to have positive share gains year-over-year, right? So it's not just Asia Pacific. Asia Pacific share gains are coming in at a higher rate maybe than those other 2 regions. But we do expect to perform in that 2% to 4% range. And we've been on a pretty good clip on the higher end of those ranges in the past several quarters.

As you mentioned, not expecting much help from the markets, but if there was going to be underlying market growth that would happen in the second half as far as we could tell it at this point in time. We do have the benefit now of full year run rate of these acquisitions that we made last year. So that's a 1% to 2% kind of tailwind there. And there's been business that we won last year, right, that sort of snowball effect as that rolls into the new year. So we're targeting to grow our business this year, have organic volume growth year-over-year, have revenue growth year-over-year and have EBITDA growth year-over-year in all 3 of our segments. And just other than that, just it's not coming from the market. It's really coming from our sales development in the pipeline and continuing to execute in that area.

Yes. And Arun, this is Tom. I would just add that remember, we acquired Dipsol, that deal closed in April last year. So we do have the benefit of 1 additional quarter of acquisition from Dipsol here in Q1 of 2026.

Okay. And to clarify, what was the amount of nonrepeating items, I guess, in '25 that shouldn't be a drag for '26?

I don't think we specifically provided a number on that, Arun. I think what Joe had mentioned in his remarks is that we believe our volume in Q4 would have been roughly flat. Had it not been for the weather-related items in the customer outage.

Okay. And then could I just ask on margins as well? It looks like there were some -- again, maybe that was related to some of these extra costs. But I'm sure you're facing maybe some labor and benefits inflation, tariff uncertainty and so on. So from a margin perspective, I guess, would you still be on track at some point to get back to 18% EBITDA margins. I think you were down year-on-year in '25 versus '24, but do you expect margin growth in '26? And what would drive that? And do you need volume to, I guess, organic market-based volumes to improve in order to see that margin growth or other things that you can due to drive that?

Yes. Yes. Thanks, Arun. So what I would say specifically with respect to gross margin in Q4, I think which you mentioned is correct. There were some specific items that we had mentioned in our prepared remarks with respect to weather and some operational challenges that we had specifically in North America relative to production. I would say underlying that, our product margin remains healthy in all 3 regions. And so I would characterize some of the margin impact in Q4 of this year as operational in nature as we have transitioned even now through January here in 2026 we see that margin profile has recovered as some of those operational issues have been resolved. And then with respect to our longer-term goals around 18% EBITDA margin growth, I'll let Joe answer that. .

Yes. I mean that's -- it's definitely still the target, Arun. We referenced the plant closure of Dortman earlier. So that's something -- as an example, we're looking at our network around the world. This is particularly in Europe, we have excess capacity, and we have too many nodes in -- that's an example of where on the manufacturing cost side, there's an opportunity for improvement. It's not just in North America. We think that will come in play in other regions as well. there's a line of sight to specific cost initiatives, mostly in these functional support areas. We're working on things like fixing our master data, streamlining our business processes, and integrating these businesses that we've acquired over the past few years. So there's still opportunities there, I think, to look at combining R&D operations, combining sales offices, looking at combining even the sales organization and getting some benefits there.

So really, yes. I mean volume will help us get to 18%, but there's still some self-help, I think, in there that we think tangible actions that we could take that will make a meaningful movement in the next year or two.

There are no further questions at this time. I would like to turn the call back over to Joe for closing remarks.

Okay. Thank you. Thanks, everyone, for joining our call today. We appreciate your continued interest in Quaker Houghton. I want to sincerely thank all of our colleagues around the world for their hard work in 2025 and their commitment to success in 2026. Please reach out to John, if you have any additional follow-up questions. Thank you.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Greetings. Welcome to the Quaker Houghton Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Schnell, you may begin.

Thank you. Good morning, and welcome to Quaker Houghton's Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President, and Chief Financial Officer; and Robert Traub, our General Counsel.

Our comments relate to the financial information released after the close of the U.S. markets yesterday, October 30, 2025. Our press release and accompanying slides can be found on our Investor Relations website.

Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance.

These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements.

This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website.

For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe.

Thank you, Jeff, and good morning, everyone. We had a strong performance in the third quarter with adjusted EBITDA up 5% and adjusted earnings per share up 10% year-over-year.

Our results were highlighted by another consecutive quarter of organic volume growth across all regions. This was amplified by ongoing strength in Asia Pacific and strong new business wins of 5% globally, enabling Quaker Houghton to outperform its underlying end markets.

Our earnings growth reflects the increase in organic sales, contribution from acquisitions, especially Dipsol and a sequential expansion in operating margins as we better leverage our scale.

The organization is balancing both operational discipline and strategic execution while advancing our key objectives. This is resulting in an acceleration of new business wins at appropriate levels of profitability across the portfolio.

These actions are building on our solid foundation and give us confidence in our ability to drive sustainable long-term outperformance.

Cash generation and capital discipline also remains strong. In the third quarter, we generated $51 million of operating cash flow and made progress on our capital allocation strategy, including reducing our net leverage to 2.4x and returning cash to shareholders through share repurchases and dividends.

Our business continues to perform well, and we remain focused on what we can control while navigating the dynamic and uncertain environment.

I am proud of the team's performance in 2025 as well as the organization's renewed focus in delivering meaningful productivity and results for our customers through innovation, technical expertise, and service.

Third quarter results were in line with our expectations despite markets being softer than anticipated. Uncertainty around tariffs continue to weigh on customer operating plans.

We estimate end market activity declined a low single-digit percentage compared to the prior year. And on a year-to-date basis, production levels across our major end markets, including steel, automotive, internal combustion engines and industrial products are down a low single-digit percentage globally compared to 2024.

Relative to our markets, we are outperforming. In the third quarter, we delivered a 7% year-over-year increase in sales on a 3% increase in organic sales volumes. This was most notable in Asia Pacific, which delivered another 8% increase in organic sales volumes.

Net share gains were also strong at 5% globally as the team is successfully executing our commercial strategy, capitalizing on the pipeline of cross-selling opportunities, reducing churn, and solving complex customer needs.

These wins and the evolution of the pipeline should provide continued benefit to the organization as we wrap into 2026.

Our organic growth was complemented by a contribution from acquisitions, namely Dipsol, which we closed in the second quarter. We are pleased with the ongoing integration of Dipsol. The business is performing in line with our expectations, and we are excited by the commercial opportunities it provides the combined organization.

Gross profit dollars increased compared to both the prior year and prior quarter. Importantly, gross margins improved from the second quarter and are within our targeted range, which promotes growth at solid levels of profitability.

We generated $83 million of adjusted EBITDA, an increase of approximately 5% year-over-year and 10% sequentially. This reflects the top line growth and operational improvements, including ongoing cost controls.

Adjusted EBITDA margins of 16.8% continue to improve towards our targeted range. When I stepped into the role a year ago, I set out 3 key priorities, underpinned by several initiatives aimed at strengthening the core of our organization.

Our strategy is working, and these actions are yielding results as demonstrated in the resilience of our earnings profile. From a commercial standpoint, we have doubled down on our commitment to serving the customer.

We have taken a focused strategic approach to customer segmentation and are advancing key initiatives to improve service levels and optimize our portfolio, scaling the organization to have the capabilities to deliver the right solutions and services to meet and exceed our customers' needs.

We have also increased our discipline in pursuing new business opportunities, leveraging innovation. For instance, in aluminum, where we recently introduced new products, cross-selling our leading portfolio and being more intentional with pricing.

Our teams are working diligently to reduce churn, which I am pleased has trended back to historic low single-digit levels and winning back previously lost business. These efforts are paying off with positive year-to-date organic volume growth and new business wins, which are at the high end of our targeted range.

To give some context to these actions, we are leveraging our global scale, footprint, and R&D capabilities. We have localized or transferred production of select products, for instance, in forging and specialty greases.

This flexible sourcing provides greater consistency, speed, and cost efficiency, enhancing our competitiveness.

When aggregated, these smaller wins add up and are meaningful contributors to the strong organic volume growth that we have delivered for the past 9 consecutive quarters in Asia Pacific.

We believe we are well positioned to continue to capitalize on the growth in China, India and Southeast Asia and will further benefit as our new China facility comes online in 2026.

Our new R&D lab in Brazil expands our global innovation network, strengthens technical capabilities for local customers and supports the growth of Advanced Solutions in the region.

These enhancements highlight some of the swift targeted actions we're taking to accelerate growth and provide the full portfolio in all regions. Our team is hyper-focused on growing our portfolio of Advanced Solutions.

In the third quarter, we delivered our fourth consecutive quarter of high single-digit or low double-digit organic volume growth in the product segment with a strong contribution across all regions.

We have significant opportunities ahead to continue to align the business towards these attractive areas of the portfolio, especially as we leverage our increased scale with Dipsol.

We have also maintained a clear emphasis on controlling what we can control. From a cost perspective, on a year-to-date basis, organic SG&A is down approximately 3% as we make progress on our cost and efficiency actions announced earlier this year.

We began to put in motion further network optimization actions aimed at unlocking the leverage in our model.

We have closed one manufacturing facility year-to-date in the Americas, and we consider further actions in our manufacturing footprint will be needed to improve our asset utilization, reduce manufacturing costs while maintaining the quality and service levels customers expect from us.

These actions support our ability to deliver adjusted EBITDA margins in the high teens as a percent of sales over time. We will continue to benefit from the ongoing cost actions in the fourth quarter and 2026.

And lastly, we are fully committed to executing on our disciplined capital allocation strategy. In the quarter, our outstanding debt balance was reduced by $62 million, and our net leverage ratio is below our targeted range of 2.5x.

Year-to-date, we have returned approximately $62 million to shareholders through dividends and share repurchases while maintaining our balance sheet flexibility to execute on strategic acquisitions.

The team is energized. We are executing on our strategy to deliver growth, reduce complexity and efficiently deploy capital to unlock our potential.

Turning to outlook. Macroeconomic trends have remained soft through 2025, and we expect them to remain so at least through Q4. We also expect a return to normal seasonal trends in the fourth quarter, and there is lingering uncertainty that continues to weigh on customer operating rates from tariffs and global trade.

We anticipate continued momentum driven by share gains and our ongoing cost actions will help mitigate these impacts.

Based on our current visibility in the fourth quarter, we expect to deliver another quarter of revenue and adjusted EBITDA growth on a year-over-year basis and should generate solid cash flow.

We have conviction in our strategy and are balancing the near-term and long-term needs of the organization. We have delivered strong results year-to-date despite a softer macro backdrop and current data suggests markets could begin to stabilize in 2026.

Irrespective, the share gains and cost actions we are delivering give me confidence that we are well positioned to return to growth in 2026 and beyond. With that, I'd like to pass it to Tom to discuss the financials in more detail.

Thank you, Joe, and good morning, everyone. Third quarter net sales were $494 million, a 7% increase from the prior year. Organic volumes increased 3% and were strong across all segments, driven by share gains of approximately 5%.

Acquisitions contributed an additional 5% to sales, primarily related to Dipsol, which closed in the second quarter of 2025. Selling price and product mix were 2% lower than the prior year.

This consists of impacts from both product, service, and geographic mix as well as pricing largely associated with indexes.

Gross profit dollars increased year-over-year and sequentially on a non-GAAP basis. Gross margins were 36.8% compared to 37.3% in the third quarter of 2024 and are comfortably within our targeted range.

Gross margins increased compared to the second quarter of 2025 due to some modest raw material cost favorability and productivity actions, partially offset by higher manufacturing costs and the impact of mix.

On a non-GAAP basis, SG&A increased approximately $5 million or 4% compared to the prior year. Excluding acquisitions, SG&A is approximately 3% lower on a year-to-date basis as we effectively manage costs.

We are making good progress on our previously announced cost actions without sacrificing our ability to serve customers and invest in our strategic initiatives as we expect more -- and we expect more benefit in Q4 and 2026.

We delivered $83 million of adjusted EBITDA in the third quarter, an increase of 5% compared to the prior year and 10% sequentially. Adjusted EBITDA margins of 16.8% are trending toward our targeted range driven by the top line growth and disciplined cost management.

Switching to our segment results. The momentum in our Asia Pacific segment is evident, and the business is consistently outperforming its markets.

The Asia Pacific segment has delivered positive organic sales growth in 8 of the last 9 quarters, including approximately 3% in the third quarter of 2025.

This is driven by a strong contribution from new business wins, winning trials with new and existing customers in higher-growth geographies like India, through cross-selling and in new areas of our portfolio like Advanced Solutions.

Asia Pacific segment sales increased 18% year-over-year as organic growth was amplified by a contribution from our acquisition of Dipsol, which is performing in line with expectations despite the challenging end market environment, particularly in automotive.

Sales and organic volumes increased approximately 4% in Asia Pacific sequentially. We are improving operating leverage in Asia Pacific as segment earnings increased 16% year-over-year on the improvement in sales and modest raw material deflation.

Segment earnings also increased more than 20% sequentially as we had some onetime acquisition-related items impacting margins in the prior quarter, which did not repeat.

We continue to have opportunities for growth across the region. While end market conditions remain the most challenged in EMEA, net sales grew compared to the prior year and prior quarter for the second consecutive quarter.

Organic sales grew 2% compared to the prior year across most product categories and once again delivered double-digit growth in Advanced Solutions. Segment earnings in EMEA also improved due to the increase in net sales and consistent segment operating margins.

Net sales in the Americas increased 1% year-over-year. Organic volumes were flat as new business wins, especially in Advanced and Operating Solutions, offset softer-than-expected end market activity, which we estimate declined a low single-digit percentage in the quarter, primarily in metalworking applications.

Americas segment earnings declined $3 million or 5% compared to the prior year, primarily driven by lower margins due to higher raw material and manufacturing costs as well as the impact of mix.

Segment margins were consistent with the second quarter of 2025. Overall, we delivered sales growth and an increase in organic sales volumes in all segments in the third quarter.

Our initiatives to return to growth and reduce complexity are gaining traction. Share gains are strong, and we are maintaining discipline around costs to better leverage our scale and footprint to drive adjusted EBITDA margins towards our targeted range.

Turning to nonoperating costs. Our interest expense was $11 million in the third quarter. Our cost of debt remained approximately 5% in the quarter.

Our effective tax rate, excluding nonrecurring and noncore items, was approximately 28%, and we expect our full year effective tax rate will be approximately 28%.

In the third quarter, our GAAP diluted earnings per share were $1.75. Our non-GAAP diluted earnings per share were $2.08, a 10% year-over-year increase.

Cash generated from operations was $51 million in the third quarter. Working capital was a modest use of cash as expected as we built some inventory related to ongoing manufacturing and network optimization actions.

We also had approximately $6 million of incremental restructuring-related cash outflows. Despite these items, cash conversion was within our targeted range, and we continue to expect to deliver another solid year of cash flow in 2025.

Capital expenditures in the third quarter were approximately $13 million, reflecting the timing of the construction of our new facility in China, which is expected to be online in the second half of 2026.

CapEx is expected to be between 2.5% and 3% of sales in 2025 as we make progress on the construction of our new China facility and consolidate our headquarters and labs in Pennsylvania.

In the quarter, we prioritized debt repayment, reducing our outstanding debt by $62 million. Our net debt at quarter end declined to $703 million, and our net leverage ratio improved to 2.4x our trailing 12 months adjusted EBITDA.

Our consistent cash generation capabilities provide ample balance sheet flexibility to support our growth aspirations. We have also returned to shareholders approximately $62 million year-to-date through dividends and share repurchases.

The third quarter was a positive reflection of our execution, improving our cost competitiveness, responsiveness and delivering value for customers.

While we expect macroeconomic conditions to remain soft in the fourth quarter, we are confident in our strategy and our ability to outperform underlying end market conditions by capitalizing on our pipeline, managing costs, improving margins, and generating strong cash flow. With that, I'll turn it back over to Joe.

Thank you, Tom. I am proud of the global Quaker Houghton team who continue to execute for our customers, our company, and our shareholders. We are making progress on our strategic initiatives and positioning the company for long-term above-market profitable growth. With that, we'd be happy to address your questions.

[Operator Instructions] And our first question is from the line of Mike Harrison with Seaport Research Partners.

Congrats on a nice volume quarter in a challenging environment. I was hoping that you could maybe give us some details on the Asia Pacific business and specifically on the margin performance.

I think last quarter, there were some mix issues. You mentioned the acquisition, maybe some initial integration costs there as well as oleochemical raw materials that were dragging last quarter.

Really nice sequential improvement this quarter, even though you still seem to be showing some negative price/mix. So I'm wondering, are there still some margin pressures that are happening even with the improvement that you saw?

I think we're just trying to get a sense of whether we could still see some further improvement in Asia Pacific margin over the next few quarters.

Yes. Thanks, Mike. Thanks for the question. Overall, Asia Pacific, I think, has been a really bright spot for the company. We continue to win new business. We're selling the whole portfolio, right? And in that portfolio, I think there's a mix of things across the margin range.

Not all of them are on the high end, not all of them are on the low end, somewhere in the medium. So there's some lumpiness at times. We have thought, I think, for a big part of the year, oleochemicals, especially in that part of the world.

And we tend to lag getting some pricing in. We do expect some of that is still coming in here toward the back part of the year. But overall, it's been a really good story for us.

There's some geographic things that come into play as well. I think our growth in India is also part of the story in Asia Pacific. It's not just a China thing.

So again, some lumpiness. I think overall, like targeted range of where we want to be in that business. We think we're in a good place to grow profitably, continue to win share in that part of the world.

Yes. And Mike, this is Tom. I would just add to Joe's comments. I think he hit on -- we're really pleased with the growth in Asia Pacific and our opportunity to continue to win new business there, opportunities in India, specifically on segment margins in the quarter, I would say there's 2 components.

Joe sort of talked about the raw material impact. We saw some slight deflationary impact associated with that in Q3. The other part of that is we had some nonrecurring onetime items in Q2 related to the acquisition of Dipsol. So that's sort of the other half of what you're seeing in the margin improvement from Q2 to Q3.

All right. Very helpful. And then you mentioned a couple of times, Joe, the Advanced Solutions strength, and you recently expanded that offering with Dipsol.

There's also just within the industry, one of the major players in surface treatment is going to be transitioning into private equity ownership, which can sometimes lead to disruption.

So I was just wondering, can you talk about how you're seeing the opportunity going forward to pick up further market share in Advanced Solutions and particularly in surface treatment and some of the metal treatment that you acquired with Dipsol?

Yes, Mike. I mean that part of our business is something, again, we're excited about because part of the play that we've been running over the past few years is our customers want to buy not just lubricants from us, they're actually looking to buy things across the portfolio to help them manufacture things better.

And -- so our entry into this Advanced Solutions space and our investment in that space is really a good opportunity for us to grow in different parts with our customers and in parts of their business that actually maybe are growing a little bit better than some of the traditional chemistries.

And I think from a Quaker Houghton perspective, I'd like to use the old baseball analogy, right? We're still in the really early innings with some of these acquisitions, even Norman Hay that we made back in 2019 in globalizing that.

It does take some time to transfer the technology into the sales force. It takes some time to build the supply chain to be competitive in all regions. And Dipsol, it's been performing, I think, as expected and maybe even a little bit better when you consider they're heavier weighted in Japan and -- with automotive, which has been a tougher place.

But we're excited about the opportunity to continue to roll that out across our other regions and provide that full offering to the market for -- and gives us an opportunity to grow, I think, as we look forward.

All right. And then I was just looking for a little bit of clarification on the Q4 outlook. Last Q4, I believe there were some strike-related issues and downtime, some unusual margin weakness associated with that. And then in the meantime, you've taken out costs. You've also done an acquisition.

So I guess just in terms of the view that Q4 should be up revenue and earnings year-on-year. Can you give us maybe a little more precision on how you're thinking about organic growth year-on-year in the fourth quarter and maybe on margin improvement year-on-year?

Yes. Thanks, Mike. Yes, I mean, look, we have really good momentum heading into Q4. I think we have confidence in the net business wins that we've collected throughout the year, and that should carry into Q4 and the wrap of the things that we've won in addition to things in our pipeline that we continue to convert.

There's just -- there's a normal seasonality that seems to be returning to the business. And when I talk about seasonality, it's really around holidays, primarily in Europe and in the Americas, you have less working days, you have some holiday outages.

So we'll expect to experience that again this year. As you mentioned, our costs are under control. We continue to work on that previously announced program with some more work to be done there, right?

So we would expect that to continue into Q4. Margin stability, again, you have a little bit of tug in a lower volume environment around capacity utilization.

But we've taken some good steps, I think, as you see sequential margin improvement, and I wouldn't expect anything other than stability from what I'm seeing today.

So overall, consider the fact that we have Dipsol, we didn't have Dipsol last fourth quarter, we feel pretty good about Q4.

But I think there's just a reality that we will see the sort of normal seasonality this year, which we saw last year, it was also compounded last year by some other factors that you mentioned.

Our next questions come from the line of Laurence Alexander with Jefferies.

I guess, first, just a short-term one. The -- where -- you mentioned sort of some optimism on 2026. Are there areas where you're hearing that from customers or -- either directly or indirectly, like they're seeing their customers do investments that they then now have to gear up production to satisfy or support? Or is that more just a general macro comment?

I think it's more of a general comment, Laurence. Look, as far as the market goes next year, I mean, we mentioned a couple of times, we think the markets that we've been in this year are down low single digit, right? And even stability next year would be -- we view that as a good thing, right?

I don't think anyone is saying, hey, next year is going to be underlying market growth, but we're also not seeing anything get any worse.

So we're kind of entering the year looking at our ability to continue to deliver above-market share gains and with visibility on the wrap that we've acquired this year, with visibility on the full annualization of the acquisitions that we've made and also knowing what we can control and are controlling and targeting around costs.

So that's where our kind of optimism is for 2026. It's not necessarily about a market improvement or any sort of inflection yet. There should be continued -- Asia should continue to be strong. Europe, I think, may have hit bottom, right?

So again, stability there would be a positive for us. And then Americas is a question mark, but we're not really factoring any big inflections, positive or negative at this point.

And then when you think about how -- what's driving the share gain dynamic, when end markets do accelerate, do you expect the rate of share gains to accelerate as well so that you get a double -- you get an amplified effect?

Or do you see kind of your focus moving to supporting the end markets and the rate of share gains decelerate because the end markets are healthier, and you're focused more on supporting kind of new business that's coming in the door?

Can you just give us a sense for how to think about modeling out what a recovery scenario might look like?

Yes. No, great question, Laurence. Look, I think over the long haul, I feel really good about our sales model, how we're going to market.

I think one of the things that we've really focused on is reducing our churn and getting our churn back to this low single-digit number and sort of stop shooting ourselves in the foot, and we've done that and feel really good about how we're serving our customers, number one.

Number two, returning to the customer, just really doubling down on this customer intimate model, making sure the whole organization is focused and pointed in that direction, that we're acting with a sense of urgency. I think we're doing that as well.

And I've been really pleased that the new business wins are coming in at that high end of our range. We talked about 2% to 4%. We've actually been a little bit above that.

I think it's possible, Laurence, with the mix and the new business that we've acquired that we could continue to grow on the top end of that range. These are still competitive markets. There's still a long sales cycle.

So there can have -- there can be lumpiness as well over time. We're going to try to get as much as we can with responsible levels of profitability. But I think we feel really good right now about sustaining at least kind of the levels that we're at into the next few quarters.

And then just -- I appreciate this might be a bit of a fuzzy question or might need a fuzzy answer. But if you think about the trends in the industrial markets in terms of robotics and additive manufacturing, do you have the right -- first of all, how -- do you have a sense for how significant those are for you currently?

But more importantly, do you have the right sales mix to be relevant to those markets? Or do you need to add on additional packages or technologies?

No, I think the good news there, I -- the -- your question about how have we quantified what that impact will be. We really haven't. That's something that, from a strategy standpoint, we're looking at and trying to understand that better.

But I think the great news there, Laurence, is we have -- we've been compiling some of these technologies through acquisitions. You talked about additive manufacturing, our Ultraseal business, which is related not only to die-casted product, but sealing products that are 3D printed or die cast, that's something that's really good.

Our growing presence with specialty greases around the world and some of these greases are going to play a really big part in robotics. They do already today. But as that robotic market grows, we think there's an opportunity there for some of the specialty greases that we produce.

Anything made out of metal has our products in the processing side of it. But now with the addition of Dipsol, when you get into plating of these things and the fasteners and even the anodizing of the parts, those are all things that we think will be a benefit for us as we go forward.

Haven't quantified exactly what that benefit will be over the long term, but we feel it's a positive thing.

Our next question is from the line of John Tanwanteng with CJS Securities.

Congrats on a nice quarter here. First off, if you could -- I was wondering if you could discuss just the sustainability of the share gains in new business you talked about. Can you clarify if you're expecting that to remain above that 2% to 4% range you historically had, number one?

And number two, how much is pricing and the margin you're willing to have on that new business has been a factor in gaining that share? Have you taken a little bit less margin there? Or is it still in that higher range versus your kind of target range?

Yes. Great question, John. Look, overall, I still think our range over the long term is this 2% to 4%. I'm really pleased that we've been doing better than that. And it's possible we sustain that. It's hard to say.

As I said earlier, it's still a competitive market and our sales cycle is a little bit longer. But we feel really good about that 2% to 4% range because we've done that consistently, and I would expect we would continue to do that as we go forward.

When it comes to pricing, complex question. I think what we have done is we've been very strategic about getting back to this sort of good, better, best offering with our portfolio, giving our customers some choices, especially as they're struggling in tough environments.

And we want to make sure that we're giving them the full range of -- there's a little bit of background noise there, sorry. But I think we haven't necessarily been aggressive, John, in like lowering price to gain market share. That has not been and will not be our approach really ever.

But also, I think being strategic with the portfolio and making sure we could sell things that are not only in the best technology range, but also in the good and better range. It helps us as we talk to our customers.

Got it. That's helpful, Joe. And then just a question on the outlook. I know you've guided to growth for Q4, but I noticed you declined to update, I think, the prior language around guidance, which was in the range of 2024 for earnings. Can you just help us understand where you stand relative to the prior outlook and if that's still valid?

Yes. I think -- look, we still feel, as I mentioned earlier, our fourth quarter is going to be better than it was last year, right?

In the third quarter, I think we got there on the overall sort of our expectations, how we got there was a little bit different in that the volume is up, but there's still some price/mix headwind.

I absolutely feel like within range, within range, how do I quantify that, John? It's hard to give you an exact quantification of that. But I feel like our fourth quarter, we are very confident is going to be better than last year.

Our second half of this year is, as we said, will be better than the first half of this year. And you layer in some things like our Dipsol acquisition, which we didn't have last year in the fourth quarter and the cost of -- the cost actions that we've taken, we think we can still come within range, let's say that, within range of last year.

Our next question is from the line of Arun Viswanathan with RBC.

I guess I'm just curious on the APAC beat now for a couple of quarters. Does that potentially signal what could happen in other regions? Why are you guys outperforming there?

Is that a combination of share gains and market growth? Or is it just one or the other? And does that -- again, would you expect similar kind of trajectory in other regions as you progress forward?

Yes, it's a good insight. It is a combination, right? Those markets are stronger, are growing, more investment in those areas. So in addition to really executing on the margin gain, but -- or not margin gain, sorry, the new business wins. So it's a combination of a strong market and executing the sales pipeline.

And then the pricing, you may have addressed this earlier, apologies, but are you kind of -- do you think that you've kind of finished giving back all that pricing that maybe flows through with lower raws?

And as you look ahead, what do you expect on the raws side? And would that also kind of -- if you do expect maybe some continued deflation, does that mean that pricing continue has to adjust lower?

And does that actually ultimately result in maybe some volume gain? Or could you keep this 3% going? Maybe just talk about the dynamic between -- or the trade-off between price and volume.

Yes. Thanks, Arun. This is Tom. I'll talk a little bit about that. So I think when we think about the price/mix dynamic, again, we saw that impact in Q3 is about 2%. It continues to moderate as we go through the year.

On a sequential basis, it was essentially no impact on our top line. I think as Joe had mentioned earlier, some of that pricing dynamic was -- wasn't as intentional as we focus on our -- the breadth of our portfolio and our ability to give customers options from a good, better, best perspective.

We also do have some targeted pricing actions where we've got sort of a fit-for-purpose pricing strategy in pockets of our portfolio in various geographies. So if we think about Q3, I would say price/mix was essentially half price and half mix.

The other component there on the mix side is really a combination of both just the dynamic of our portfolio and how we're selling that through to end customers and the mix associated with that.

Not all of our products have the exact same margin profile. And then also there's regional differences. So again, I think as we think about it going into 2026, we do expect the impact of this to lessen as we wrap some of these impacts.

But it is a dynamic market environment, and we are trying to be responsive to our customers in terms of our product offering and how we think about good, better, best.

Great. And then lastly, just curious on -- you mentioned ICE vehicles. How are you viewing your exposure there in relation to EVs? Are you expanding your offering with EVs?

If I recall correctly, maybe your performance would be better with an ICE. Could you just reiterate what would be -- what's more advantageous for you guys?

And I'm just curious because we've obviously seen stronger growth on the EV side. And are you increasing your exposure there or not necessarily?

Yes. I think that's one of the things that's really exciting about the Asia story is we're growing with some of these new winners in EV. And that's intentional. That's something that we recognize was coming.

It's certainly accelerated in that part of the world. It's maybe stalling a bit in other parts of the world. But we find it important that we grow with the new winners in that space, and we're doing that.

We've added some things to our portfolio that really position us very well for EV. The overall sort of -- as we look at that, a traditional ICE engine, if you call that par, an EV would use a little bit less of our traditional metalworking fluids.

A hybrid engine would use a lot more -- or not a lot, but a little bit more. So on balance, I think it's the algorithm that we look at is automotive production in general. And our opportunities for ICE and EV are both compelling and similar.

At this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to Joe Berquist for closing comments.

Thank you. Thank you for joining our call today. We are excited about our future and excited for Quaker Houghton and all of our employees. Appreciate your continued interest in our company. And please reach out to Jeff if you have any additional follow-up questions. Thank you.

This will conclude today's conference. You may disconnect your lines at this time and have a wonderful day.