Quaker(US:KWR)2020-11-07 15:59Financial Data and Key Metrics Changes - The company reported a sequential sales increase of 28% from Q2 2020, totaling $367 million, but a 5% decrease compared to pro forma Q3 2019 sales of $386 million [6][25] - Gross margin improved to 38.2%, up from 34% in Q2 and 32.3% in Q3 of the previous year [13][26] - Non-GAAP operating income rose to $43.2 million from $11.2 million in Q2 and increased by 25% from $34.5 million in Q3 2019 [28] - Adjusted EBITDA nearly doubled to approximately $64 million in Q3 from $32 million in Q2, reflecting a 5% increase compared to pro forma adjusted EBITDA of $61 million in Q3 2019 [30][31] - Net debt decreased by 7% or $58 million, improving the leverage ratio to 3.4 times from 3.7 times at the end of Q2 [17][34] Business Line Data and Key Metrics Changes - The Americas region saw the largest sales improvement, with a 48% sequential increase driven by stronger volumes [6] - Asia Pacific, EMEA, and Global Specialty Businesses experienced sales growth of 24%, 21%, and 16% respectively compared to Q2 [7] - The metalworking industry group grew 39% sequentially, primarily due to automotive OEMs recovering from shutdowns [8] - Overall sequential volumes were up 27%, but pro forma volumes were down approximately 10% year-over-year [10] Market Data and Key Metrics Changes - The company gained approximately 2% in organic sales growth due to net share gains compared to Q3 2019 [11] - Aerospace, which constitutes about 3% of sales, is expected to take longer to recover compared to other markets [12][82] Company Strategy and Development Direction - The company aims to continue market share gains and explore potential smaller bolt-on acquisitions [12] - Increased synergy estimates for 2020 from $53 million to $58 million, with projections for 2021 raised from $65 million to $75 million [16][35] - The company is focused on disciplined cost management and generating positive cash flow during downturns [36] Management's Comments on Operating Environment and Future Outlook - Management anticipates gradual sequential improvement in markets over the next year or two, but acknowledges uncertainty due to COVID-19 [18] - For Q4, adjusted EBITDA is expected to be similar to Q3, with full-year adjusted EBITDA projected to exceed $215 million [18][19] - The company expects a greater than 20% increase in adjusted EBITDA for 2021, driven by integration savings and market share gains [37] Other Important Information - The company has implemented cost-saving measures, including cutting capital expenditures by over 30% [14] - Strong cash flow management has allowed the company to reduce net debt and improve liquidity [34] Q&A Session Summary Question: What drives confidence in the 2021 EBITDA outlook? - Management indicated that the outlook is based on gradual market recovery and continued market share gains, but acknowledged uncertainty due to potential COVID-19 impacts [46][48] Question: What does steel business consolidation mean for the company? - Management does not anticipate any impact on business due to strong relationships with significant customers involved in the consolidation [49] Question: What drove margin strength in the Americas? - The Americas experienced disproportionate raw material savings and effective manufacturing consolidations contributing to margin strength [51][52] Question: Clarification on EBITDA guidance for Q4? - Management indicated that guidance reflects uncertainty in the market, particularly with ongoing lockdowns in Europe [55] Question: Have any Houghton revenue synergies been identified? - Management confirmed that net market share gains of 2% this quarter are partly due to sales synergies from the Combination [61] Question: How will temporary cost reductions impact future synergies? - Management expects some temporary cost reductions to return as business normalizes, but this is factored into the EBITDA guidance [64][65] Question: Real-time demand in October and November? - Management did not provide specific comments on October demand but indicated that guidance accounts for potential December weakness [72] Question: Cash flow dynamics as business recovers? - Management expects to manage working capital prudently, anticipating positive cash flow as earnings and sales pick up [76] Question: Where are the increasing synergies coming from? - Management noted that initial synergies were underestimated, and recent acceleration in synergy realization is contributing to the increase [78]