Press Releases
Quaker Houghton Announces First Quarter 2020 Results
The Company had a net loss in the first quarter of 2020 of
Integration and Synergy Update
The successful integration of Quaker Houghton is an important aspect of enhancing the Company's long-term competitive differentiation and creating value for our customers, employees and shareholders. The Company has accelerated actions where possible and fine-tuned its integration plan, which has resulted in an increase in its estimate of current year and total cost synergies to be achieved. The Company now expects to realize synergies of approximately
First Quarter of 2020 Consolidated Results
Net sales were
Gross profit in the first quarter of 2020 increased
Selling, general and administrative expenses ("SG&A") in the first quarter of 2020 increased
During the first quarter of 2020, the Company incurred
The Company initiated a restructuring program during the third quarter of 2019 as part of its global plan to realize cost synergies associated with the Combination. The Company expects reductions in headcount and site closures to continue to occur during 2020 and into 2021 under this program. During the first quarter of 2020, the Company recorded additional restructuring and related charges of
During the first quarter of 2020, the Company recorded a
Operating loss in the first quarter of 2020 was
Other expense, net, was
Interest expense, net, increased
The Company's effective tax rates for the first quarters of 2020 and 2019 were a benefit of 31.1% and an expense of 26.8%, respectively. The Company's current quarter effective tax rate was impacted by the tax effect of certain one-time pre-tax losses as well as certain tax charges and benefits in the current period including those related to changes in foreign tax credit valuation allowances, tax law changes in a foreign jurisdiction, and the tax impact of the Company's termination of its legacy Quaker
Equity in net income of associated companies increased
Foreign exchange had a positive impact on the Company's first quarter of 2020 earnings of less than 1%, as the current quarter foreign exchange transaction gains compared to prior year foreign exchange transaction losses were partially offset by the negative impact from foreign currency translation of approximately 2% due to the strengthening of the
Cash Flow and Liquidity Highlights
The Company has no material debt maturities until
In past downturns, such as the 2008/2009 recession, when sales volumes declined significantly, working capital was released and became a source of cash. The Company expects to see this dynamic again this year due to the expected volume declines related to COVID-19. Overall, the Company currently does not expect to see significant net cash outflows for 2020. The Company had net operating cash flow of
Non-GAAP and Pro
The information included in this public release includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, non-GAAP operating income, non-GAAP net income, non-GAAP earnings per diluted share, and pro forma net sales, net income, EBITDA and adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader's understanding of the financial performance of the Company, are indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company's operations. Non-GAAP results and pro forma information are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.
The Company presents EBITDA which is calculated as net (loss) income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. In addition, the Company presents non-GAAP operating income which is calculated as operating (loss) income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization - adjusted, interest expense, net - adjusted, and taxes on income before equity in net income of associated companies - adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the "two-class share method." The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
As it relates to the second quarter 2020 and full year 2020 expected adjusted EBITDA and other forward looking information described further above, the Company has not provided guidance for comparable GAAP measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable
The following tables reconcile the Company's non-GAAP financial measures (unaudited) to their most directly comparable GAAP (unaudited) financial measures (dollars in thousands unless otherwise noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations |
|||||||||||||||
Three Months Ended |
|||||||||||||||
2020 |
2019 |
||||||||||||||
Operating (loss) income |
$ (12,444) |
$ 19,829 |
|||||||||||||
Houghton combination and other acquisition-related expenses (a) |
8,276 |
4,483 |
|||||||||||||
Restructuring and related charges |
1,716 |
— |
|||||||||||||
Customer bankruptcy costs |
463 |
— |
|||||||||||||
Indefinite-lived intangible asset impairment |
38,000 |
— |
|||||||||||||
Non-GAAP operating income |
$ 36,011 |
$ 24,312 |
|||||||||||||
Non-GAAP operating margin (%) |
9.5% |
11.5% |
|||||||||||||
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations |
Three Months Ended |
||||||||||||||
2020 |
2019 |
||||||||||||||
Net (loss) income attributable to |
$ (28,381) |
$ 13,844 |
|||||||||||||
Depreciation and amortization (a)(b) |
21,584 |
4,859 |
|||||||||||||
Interest expense, net (c) |
8,461 |
776 |
|||||||||||||
Taxes on (loss) income before equity in net income of associated companies (d) |
(13,070) |
4,929 |
|||||||||||||
EBITDA |
$ (11,406) |
$ 24,408 |
|||||||||||||
Equity loss (income) in a captive insurance company |
327 |
(346) |
|||||||||||||
Houghton combination and other acquisition-related expenses (a) |
7,803 |
4,483 |
|||||||||||||
Restructuring and related charges |
1,716 |
— |
|||||||||||||
Customer bankruptcy costs |
463 |
— |
|||||||||||||
Indefinite-lived intangible asset impairment |
38,000 |
— |
|||||||||||||
Pension and postretirement benefit costs, non-service components |
23,525 |
896 |
|||||||||||||
Currency conversion impacts of hyper- inflationary economies |
51 |
194 |
|||||||||||||
Adjusted EBITDA |
$ 60,479 |
$ 29,635 |
|||||||||||||
Adjusted EBITDA margin (%) |
16.0% |
14.0% |
|||||||||||||
Adjusted EBITDA |
$ 60,479 |
$ 29,635 |
|||||||||||||
Less: Depreciation and amortization – adjusted (a)(b) |
21,111 |
4,859 |
|||||||||||||
Less: Interest expense, net - adjusted (c) |
8,461 |
(86) |
|||||||||||||
Less: Taxes on (loss) income before equity in net income of associated companies – adjusted (d) |
6,463 |
6,040 |
|||||||||||||
Non-GAAP net income |
$ 24,444 |
$ 18,822 |
|||||||||||||
Non-GAAP Earnings per Diluted Share Reconciliations |
Three Months Ended |
||||||||||||||
2020 |
2019 |
||||||||||||||
GAAP (loss) earnings per diluted share attributable to |
$ (1.60) |
$ 1.03 |
|||||||||||||
Equity loss (income) in a captive insurance company per diluted share |
0.02 |
(0.03) |
|||||||||||||
Houghton combination and other acquisition-related expenses per diluted share (a) |
0.36 |
0.35 |
|||||||||||||
Restructuring and related charges per diluted share |
0.07 |
— |
|||||||||||||
Customer bankruptcy costs per diluted share |
0.02 |
— |
|||||||||||||
Indefinite-lived intangible asset impairment per diluted share |
1.65 |
— |
|||||||||||||
Pension and postretirement benefit costs, non-service components per diluted share |
0.88 |
0.05 |
|||||||||||||
Currency conversion impacts of hyper-inflationary economies per diluted share |
0.00 |
0.01 |
|||||||||||||
Impact of certain discrete tax items per diluted share (d) |
(0.02) |
— |
|||||||||||||
Non-GAAP earnings per diluted share (e) |
$ 1.38 |
$ 1.41 |
(a) |
The Company recorded |
(b) |
Depreciation and amortization for the three months ended |
(c) |
Interest expense, net – adjusted for the three months ended |
(d) |
Taxes on (loss) income before equity in net income of associated companies – adjusted includes the Company's tax expense adjusted for the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of Net (loss) income attributable to |
(e) |
The Company's calculation of GAAP and non-GAAP earnings per diluted share attributable to |
Pro Forma Adjusted Measures and Reconciliations
The Company has provided certain unaudited pro forma financial information in this press release. The unaudited pro forma financial information is based on the historical consolidated financial statements and results of both Quaker and Houghton, and has been prepared to illustrate the effects of the Combination. The unaudited pro forma financial information has been presented for informational purposes only and is not necessarily indicative of Quaker Houghton's past results of operations, nor is it indicative of the future operating results of Quaker Houghton and should not be considered a substitute for the financial information presented in accordance with GAAP. The Company has not provided pro forma financial information as it relates to the acquired operating divisions of
The following schedules present the Company's unaudited pro forma financial information for net sales, as well as net income attributable to Quaker Houghton and the applicable reconciliation to EBITDA and adjusted EBITDA on a pro forma non-GAAP basis (dollars in millions unless otherwise noted):
Three months ended |
||||||||||
Quaker |
Houghton |
Divestitures(b) |
Other (c) |
Pro Forma * |
||||||
Net sales |
$ 211 |
$ 200 |
$ (14) |
$ (5) |
$ 391 |
|||||
Net income (loss) attributable to |
$ 14 |
$ 3 |
$ (3) |
$ 4 |
$ 17 |
|||||
Depreciation and amortization |
5 |
13 |
— |
1 |
19 |
|||||
Interest expense, net |
1 |
14 |
— |
(6) |
9 |
|||||
Taxes on income (d) |
5 |
(4) |
(1) |
1 |
2 |
|||||
EBITDA * |
24 |
26 |
(3) |
0 |
47 |
|||||
Combination and other |
5 |
2 |
— |
— |
6 |
|||||
Other addbacks (e) |
1 |
0 |
— |
— |
1 |
|||||
Adjusted EBITDA * |
$ 30 |
$ 29 |
$ (3) |
$ 0 |
$ 55 |
|||||
Adjusted EBITDA margin * (%) |
14% |
14% |
24% |
0% |
14% |
|||||
Trailing Twelve months ended |
||||||||||
Quaker |
Houghton |
Divestitures(b) |
Other (c) |
Pro Forma * |
||||||
Net sales |
$ 1,301 |
$ 275 |
$ (19) |
$ (7) |
$ 1,550 |
|||||
Net (loss) income attributable to |
$ (11) |
$ (6) |
$ (4) |
$ 6 |
$ (15) |
|||||
Depreciation and amortization |
62 |
18 |
— |
2 |
81 |
|||||
Interest expense, net |
25 |
19 |
— |
(9) |
35 |
|||||
Taxes on income (d) |
(16) |
3 |
(1) |
2 |
(13) |
|||||
EBITDA * |
60 |
34 |
(5) |
0 |
89 |
|||||
Combination and other |
39 |
42 |
— |
— |
81 |
|||||
Gain on the sale of divested assets |
— |
(35) |
— |
— |
(35) |
|||||
Fair value step up of Houghton |
12 |
— |
— |
— |
12 |
|||||
Pension and postretirement benefit |
25 |
(0) |
— |
— |
25 |
|||||
Impairment charge for indefinite-lived |
38 |
— |
— |
— |
38 |
|||||
Restructuring and related charges |
28 |
— |
— |
— |
28 |
|||||
Other addbacks (e) |
2 |
(1) |
— |
— |
1 |
|||||
Adjusted EBITDA * |
$ 204 |
$ 40 |
$ (5) |
$ 0 |
$ 239 |
|||||
Adjusted EBITDA margin * (%) |
16% |
14% |
24% |
0% |
15% |
|||||
* Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results as presented for combined Quaker Houghton |
||||||||||
(a) |
Results for the three months ended |
|||||||||
(b) |
Divestitures includes the elimination of results associated with the divested product lines. |
|||||||||
(c) |
Other includes: (i) additional depreciation and amortization expense based on the initial estimates of fair value step up and estimated useful lives of depreciable fixed assets, definite-lived intangible assets and investment in associated companies acquired; (ii) adoption of required accounting guidance and alignment of related accounting policies; (iii) elimination of transactions between Quaker and Houghton; and (iv) an adjustment to interest expense, net, to reflect the impact of the new financing and capital structure of the combined Company. |
|||||||||
(d) |
Taxes on income related to the Divestiture and Other reflect each tax effected at the |
|||||||||
(e) |
Other addbacks includes: (i) Equity loss (income) in a captive insurance company; (ii) Currency conversion impacts of hyper-inflationary economies; (iii) affiliate management fees; (iv) insurance insolvency recoveries; (v) customer bankruptcy costs; (vi) charges related to the settlement of a non-core equipment sale; (vii) other non-recurring miscellaneous charges; and (viii) for the three months ended |
Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements, including statements regarding the potential effects of the COVID-19 pandemic on the Company's business, results of operations, or financial condition and expectations regarding our liquidity position and our continued compliance with the terms of the Company's credit facility on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including but not limited to the potential benefits of the Combination, the impacts on our business as a result of the COVID-19 pandemic, our current and future results and plans and statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company's products and services is largely derived from the demand for its customers' products, which subjects the Company to uncertainties related to downturns in a customer's business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID-19 pandemic, including actions taken in response to the pandemic by various governments, which could exacerbate some or all of the other risks and uncertainties faced by the Company, including the potential for significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by steel, automobile, aircraft, industrial equipment, and durable goods manufacturers. The ultimate significance of COVID-19 on our business will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus, the effects on the economy by the pandemic, including the resulting market volatility, and by the measures taken by governmental authorities and other third parties restricting day-to-day life and the length of time that such measures remain in place, and governmental programs implemented to assist businesses impacted by the COVID-19 pandemic. Other factors could also adversely affect us, including those related to the Combination and other acquisitions and the integration of the combined company as well as other acquired businesses. Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to the Company's business could cause its actual results to differ materially from expected and historical results. All forward-looking statements included in this press release, including expectations about the improvements in business conditions in the second half of 2020 are based upon information available to the Company as of the date of this press release, which may change. Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, and in Item 1A of our Quarterly Report on Form 10-Q for the period ended
Conference Call
As previously announced, the Company's investor conference call to discuss its first quarter performance is scheduled for
About Quaker Houghton
Quaker Houghton is a global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world's most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge and customized services. With approximately 4,500 employees, including chemists, engineers and industry experts, we partner with our customers to improve their operations so they can run even more efficiently, even more effectively, whatever comes next. Quaker Houghton is headquartered in
|
|||
Condensed Consolidated Statements of Operations |
|||
(Dollars in thousands, except share and per share amounts) |
|||
(Unaudited) |
|||
Three Months Ended |
|||
2020 |
2019 |
||
Net sales |
$ 378,561 |
$ 211,210 |
|
Cost of goods sold |
244,710 |
135,443 |
|
Gross profit |
133,851 |
75,767 |
|
% |
35.4% |
35.9% |
|
Selling, general and administrative expenses |
98,701 |
51,455 |
|
Indefinite-lived intangible asset impairment |
38,000 |
- |
|
Restructuring and related charges |
1,716 |
- |
|
Combination and other acquisition-related expenses |
7,878 |
4,483 |
|
Operating (loss) income |
(12,444) |
19,829 |
|
% |
-3.3% |
9.4% |
|
Other expense, net |
(21,175) |
(635) |
|
Interest expense, net |
(8,461) |
(776) |
|
(Loss) income before taxes and equity in net income of associated companies |
(42,080) |
18,418 |
|
Taxes on (loss) income before equity in net income of associated companies |
(13,070) |
4,929 |
|
(Loss) income before equity in net income of associated companies |
(29,010) |
13,489 |
|
Equity in net income of associated companies |
666 |
411 |
|
Net (loss) income |
(28,344) |
13,900 |
|
Less: Net income attributable to noncontrolling interest |
37 |
56 |
|
Net (loss) income attributable to |
$ (28,381) |
$ 13,844 |
|
% |
-7.5% |
6.6% |
|
Share and per share data: |
|||
Basic weighted average common shares outstanding |
17,672,525 |
13,291,589 |
|
Diluted weighted average common shares outstanding |
17,672,525 |
13,338,490 |
|
Net (loss) income attributable to |
$ (1.60) |
$ 1.04 |
|
Net (loss) income attributable to |
$ (1.60) |
$ 1.03 |
|
|||
Condensed Consolidated Balance Sheets |
|||
(Dollars in thousands, except par value and share amounts) |
|||
(Unaudited) |
|||
|
|
||
2020 |
2019 |
||
ASSETS |
|||
Current assets |
|||
Cash and cash equivalents |
$ 316,437 |
$ 123,524 |
|
Accounts receivable, net |
357,902 |
375,982 |
|
Inventories, net |
177,868 |
174,950 |
|
Prepaid expenses and other current assets |
43,021 |
41,516 |
|
Total current assets |
895,228 |
715,972 |
|
Property, plant and equipment, net |
202,092 |
213,469 |
|
Right of use lease assets |
40,496 |
42,905 |
|
Goodwill |
592,385 |
607,205 |
|
Other intangible assets, net |
1,050,203 |
1,121,765 |
|
Investments in associated companies |
84,089 |
93,822 |
|
Deferred tax assets |
14,706 |
14,745 |
|
Other non-current assets |
41,352 |
40,433 |
|
Total assets |
$ 2,920,551 |
$ 2,850,316 |
|
LIABILITIES AND EQUITY |
|||
Current liabilities |
|||
Short-term borrowings and current portion of long-term debt |
$ 38,112 |
$ 38,332 |
|
Accounts and other payables |
177,976 |
170,929 |
|
Accrued compensation |
24,819 |
45,620 |
|
Accrued restructuring |
14,548 |
18,043 |
|
Other current liabilities |
85,132 |
87,010 |
|
Total current liabilities |
340,587 |
359,934 |
|
Long-term debt |
1,076,292 |
882,437 |
|
Long-term lease liabilities |
29,402 |
31,273 |
|
Deferred tax liabilities |
190,880 |
211,094 |
|
Other non-current liabilities |
120,849 |
123,212 |
|
Total liabilities |
1,758,010 |
1,607,950 |
|
Equity |
|||
Common stock, |
17,752 |
17,735 |
|
Capital in excess of par value |
888,533 |
888,218 |
|
Retained earnings |
377,362 |
412,979 |
|
Accumulated other comprehensive loss |
(121,524) |
(78,170) |
|
Total Quaker shareholders' equity |
1,162,123 |
1,240,762 |
|
Noncontrolling interest |
418 |
1,604 |
|
Total equity |
1,162,541 |
1,242,366 |
|
Total liabilities and equity |
$ 2,920,551 |
$ 2,850,316 |
|
|
|||
Condensed Consolidated Statements of Cash Flows |
|||
(Dollars in thousands) |
|||
(Unaudited) |
|||
Three Months Ended |
|||
2020 |
2019 |
||
Cash flows from operating activities |
|||
Net (loss) income |
$ (28,344) |
$ 13,900 |
|
Adjustments to reconcile net income to net cash provided by operating |
|||
Amortization of deferred issuance costs |
1,187 |
42 |
|
Depreciation and amortization |
21,197 |
4,859 |
|
Equity in undistributed earnings of associated companies, net of dividends |
4,285 |
(186) |
|
Deferred compensation, deferred taxes and other, net |
(22,988) |
(6,842) |
|
Share-based compensation |
4,682 |
1,012 |
|
Gain on disposal of property, plant, equipment and other assets |
(2) |
(9) |
|
Insurance settlement realized |
(229) |
(190) |
|
Indefinite-lived intangible asset impairment |
38,000 |
- |
|
Combination and other acquisition-related expenses, net of payments |
(519) |
(1,012) |
|
Restructuring and related charges |
1,716 |
- |
|
Pension and other postretirement benefits |
22,453 |
(1,346) |
|
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: |
|||
Accounts receivable |
2,322 |
(5,470) |
|
Inventories |
(10,162) |
946 |
|
Prepaid expenses and other current assets |
(3,263) |
324 |
|
Change in restructuring liabilities |
(4,841) |
- |
|
Accounts payable and accrued liabilities |
(5,275) |
(6,008) |
|
Net cash provided by operating activities |
20,219 |
20 |
|
Cash flows from investing activities |
|||
Investments in property, plant and equipment |
(4,892) |
(2,537) |
|
Payments related to acquisitions, net of cash acquired |
(3,160) |
(500) |
|
Proceeds from disposition of assets |
- |
8 |
|
Insurance settlement interest earned |
31 |
65 |
|
Net cash used in investing activities |
(8,021) |
(2,964) |
|
Cash flows from financing activities |
|||
Payments of term loan debt |
(9,371) |
- |
|
Borrowings (repayments) on revolving credit facilities, net |
205,500 |
(24,034) |
|
(Repayments) borrowings on other debt, net |
(185) |
86 |
|
Dividends paid |
(6,828) |
(4,935) |
|
Stock options exercised, other |
(696) |
(1,489) |
|
Purchase of noncontrolling interest in affiliates |
(1,047) |
- |
|
Distributions to noncontrolling affiliate shareholders |
(751) |
- |
|
Net cash provided by (used in) financing activities |
186,622 |
(30,372) |
|
Effect of foreign exchange rate changes on cash |
(6,424) |
1,004 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
192,396 |
(32,312) |
|
Cash, cash equivalents and restricted cash at the beginning of the period |
143,555 |
124,425 |
|
Cash, cash equivalents and restricted cash at the end of the period |
$ 335,951 |
$ 92,113 |
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SOURCE Quaker Houghton