Greetings, and welcome to the Quaker Houghton Second Quarter 2022 Earnings Conference Call. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Senior Director of Investor Relations. Mr. Schnell, you may begin.

Thank you, David. Good morning, everyone. Welcome to Quaker Houghton's second quarter 2022 earnings conference call. Joining us on the call today are Andy Tometich, our Chief Executive Officer and President; and Shane Hostetter, our Senior Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of U.S. markets yesterday, August 4th, 2022. Our press release and accompanying slides can be found on our investor 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 of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the appendix of the presentation materials which are available on our website. For more information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Andy.

Thank you, Jeff, and good morning, everyone. The second quarter was another record sales quarter for Quaker Houghton as we delivered double-digit growth led by strong and broad price increases. We continue to execute on items within our control. This includes making progress offsetting the significant and persistent inflationary pressures on our business, investing in our future and delivering on our customer commitments. In the quarter, we achieved strong sales growth as we continue to address our top business priority of offsetting inflation while we also manage through various challenges that impacted our production and demand. These challenges not only include the significant inflationary pressures on our costs, but also raw material availability, COVID-19 disruptions in China, the ongoing war in Ukraine, supply chain and logistics challenges, unfavorable currency translation and the continuation of soft demand in certain end markets like automotive. Notwithstanding the complexities of the operating environment, the company continued to execute, delivering $58 million of adjusted EBITDA and adjusted diluted earnings of $1.32 per share. These second quarter results can be summarized by strong sales growth driven by increased selling prices and relatively stable volume sequentially, while continuing to outpace our underlying markets. Also, we achieved consistent gross margins in the face of approximately 10% sequential increase in our raw material cost. Compared to the second quarter of 2021, total sales growth was 13%. This was driven by a 22% increase from price and mix partially offset by 6% unfavorable impact from foreign currency translation, 4% lower organic sales volumes and 1% contribution from M&A. We delivered another quarter with volumes ahead of the underlying market growth rates, which we estimate declined by a low to mid single-digit percentage in the quarter. This was a strong result given we were able to continue to win new business despite our strategic pricing actions and the myriad of challenges we faced. On a sequential basis, total sales growth of 4% was driven by a 7% increase in price and mix and partially offset by 2% unfavorable impact of foreign currency. Again, we outperformed our market's growth rates on a sequential basis as lower volumes in China due to the COVID-19 disruptions were partially offset by the balance of Asia, the Americas and our Global Specialties Businesses. Shane will provide more specifics on the volume bridges in his remarks. Our net new business wins continue to be a testament to the ability of our teams to demonstrate to our customers the true value of our products and services as we continue our strategic pricing initiatives. This reinforces our confidence in our value proposition and our conviction that Quaker Houghton is well positioned to leverage our scale and capabilities. With our targeted investments, we will continue to drive long-term growth above market growth rates by providing value-added innovative solutions to our customers around the world. This combined with our customer intimate model, are key differentiators for us in the marketplace. Switching to our operating segments. Price capture was strong across all of our segments both on a year-over-year and sequential basis. However, we had further unfavorable financial impacts from foreign currency translation in Europe and to a lesser extent, Asia Pacific and the Global Specialties Businesses, which partially offset organic growth. Volumes increased in our Global Specialties Businesses with continued strong demand, especially for our greases and surface coatings, but declined in our regional segments on a year-over-year basis, due to the factors I previously mentioned. Sequentially, volumes were relatively flat consisting of a mix of increases in our Global Specialties Businesses and Americas segment and declines in our Asia Pacific and to a lesser extent, EMEA segment. As expected, Asia Pacific volumes were impacted by the disruptions in China, but were partially offset by an increase in volumes elsewhere in the region. EMEA volumes decreased due to strategic pricing initiatives and some pockets of softer demand in the region, as well as reduced toll manufacturing volumes from the previously divested products related to the combination, which also impacted the Americas. Inflationary pressures on our cost remained a challenge in the quarter. While the pace of raw material increases has declined sequentially, they broadly continue to move higher. Our basket of raw materials increased approximately 10% sequentially in the second quarter of 2022 and are up nearly 50% since the beginning of 2021. Also, similar to recent quarters, raw material availability limited our sales growth in certain instances, which impacted our ability to secure new business. However, these supply chain challenges, with some exceptions, appear to be easing. Gross margins were 30% in the second quarter, in line with our expectations. The inflationary pressures on our raw material costs, as well as labor and energy-related manufacturing costs are the primary drivers of the decline, compared to the prior year's quarter. Our realized pricing has more than offset the impact of raw material inflation in the second quarter, and we expect further traction in all segments in the third quarter. Speaking of traction, this is also the case regarding our EBITDA margins. Recovering our margin profile to pre-pandemic levels is a top priority for the company. Our commercial leaders continue to work with our customers to implement further pricing actions, while balancing these relationships and our future growth potential. It is clear that costs continue to trend higher, prompting the need for additional price actions. We've been active already in the third quarter, putting further pricing in place, and we will continue throughout the balance of the year to ensure we are pricing above our raw material increases. We are also actively focusing on managing our cost structure, getting leverage to the bottom line. Stepping back, in the second quarter, we continued to demonstrate our ability to make progress on our clear operational priorities. To reemphasize, first, we are focused on our strategic pricing initiatives aimed at recovering our margin profile to pre-pandemic levels. Second, we remain committed to growth through new profitable business wins and increasing our share of wallet with our customers. And third, we are investing in our business to drive a meaningful multiyear improvement in our technology, systems and processes. This will fuel our innovation and drive more productivity, which will, in turn, help us to generate more value for our customers, as well as execute on our sustainability goals. The momentum we have is clearly evident, and we will continue to focus on our priorities. We have more than doubled the selling price realization on a sequential basis, and we continue to implement further actions to offset the raw material and other inflationary pressures. Additionally, we remain vigilant with costs to not only accelerate the margin recovery but also prepare for the uncertainty ahead. We believe these actions are prudent and ultimately will better position the company to serve our customers for the long term. In the quarter, I'd also like to highlight that we've added two new leaders to our executive team: Melissa Leneis as Chief Human Resources Officer and Dru Rai as Chief Information and Digital Officer. Melissa has extensive experience building and leading global HR organizations and will play a pivotal role in attracting, developing and retaining the necessary talent to enable the company to achieve its strategic objectives now and in the future with a keen eye on inclusion, diversity and equity. Dru brings extensive knowledge on information systems and technology enhancements and will lead our global digital transformation, advancing our processes and analytic capabilities to advance valuable improvements to better serve our customers. I mentioned these two talent additions because they are evidence of our commitment to continue to invest in our people and our leadership. So in turn, we can better innovate on behalf of our customers, modernize our portfolio, improve our digital capabilities, invest in our sustainability initiatives and find novel ways to improve the productivity and profitability of our customers and of our company. I welcome Melissa and Dru to the company, and I'm excited to have them join our leadership team. We also continue to innovate for our customers by investing in sustainability initiatives, which leverage our R&D capabilities, commercial expertise and strategy organization. An example is our recently announced collaboration with SKF for the circular use of oils. Working together, we will help reduce our customers' greenhouse gases through a reduced carbon footprint of products, which will also improve performance and lower their total cost. This collaboration highlights our differentiated customer intimate model and how we enhance our customer relationships, especially during challenging times, by generating incremental value for customers, while also enabling us to collectively advance our financial success and sustainability goals. Turning to the outlook. I remain encouraged by the near-term demand profile across our business. However, this is balanced by some uneven demand in China and some signs of softer demand especially in Europe, due in part to the ongoing war in Ukraine and the impact of higher input costs on our customers’ operations. In the third quarter, our previously implemented pricing initiatives are expected to drive strong top line growth and more than offset the anticipated raw material cost increases. Coupled with targeted cost actions, we continue to expect a sequential improvement in our gross margins in the third quarter and again in the fourth quarter. Therefore, we also expect to deliver EBITDA growth in the second half of 2022, compared to both the first half of 2022, as well as the second half of 2021. To summarize, I'm pleased with our execution in the quarter, which saw significant momentum with our price initiatives while we continue to earn new business. But there is still a significant amount of work to be done. I'm confident in our differentiated customer intimate strategy underpinning the growth engine that is Quaker Houghton. We continue to drive net new business wins by increasing customer wallet share as we focus on productivity for our customers, which has never been more important than it is today. We will drive R&D vitality and expand our technological capabilities, including through the use of data. We will leverage our strategy work to expand our total addressable markets into new value-add growth areas. We expect continued price capture with margins improving as we progress through the back half of the year. And we have a healthy balance sheet with ample liquidity and strong cash generation to support our capital allocation strategy, including our M&A playbook. We are balancing our near-term priorities with our longer-term strategic opportunities. We are not standing idle, and we are determined to drive results and shareholder value. There is significant value in our model, and the actions we are taking will position us well especially when raw materials and other inflationary pressures eventually recede. Our customer intimate business model is strong. We have industry-leading expertise, a global footprint and best-in-class technology with plenty of runway for growth. Overall, I continue to be excited about the many opportunities our company has ahead. With that, I'd like to pass the call to Shane to review our financial results in more detail.

Thanks, Andy, and good morning, everyone. We delivered another record quarter of net sales of $492 million, which increased 13%, compared to the prior year. The increase in net sales was driven by a 22% increase in price and mix and a 1% growth from acquisitions partially offset by an unfavorable impact from foreign exchange of 6% and a 4% decline in organic sales volumes. Consistent with recent quarters, we experienced a strong increase in net sales directly related to our strategic price initiatives. These were implemented across all our businesses in response to the significant global raw material increases that began last year and have continued into this year. While our volumes declined 4% year-over-year, this decline can be explained by the reduction of volumes in Russia due to the ongoing conflict, as well as the tolling volumes for products we divested as part of the combination. Without these two impacts, our volumes would have been approximately flat year-over-year, compared to a market that we estimate declined in the low to mid single-digit range. This above-market result was driven by net new business wins of almost 3% year-over-year, which was a strong result considering we have lost some volume due to our strategic pricing initiatives, as well as the macroeconomic and geopolitical factors that have negatively impacted our markets in the quarter. Sequentially, net sales increased approximately 4%. This was driven by an additional 7% of price and product mix in the quarter, which was partially offset by unfavorable foreign currency impacts of 2% and a slight decline in volumes of 1%. We estimate our markets declined in the low single-digit percentages sequentially, and we were also impacted by the COVID-19 disruptions in China, which we estimate reduced our total volumes by approximately 2%. This continues to highlight our ability to win new business, despite our strategic pricing initiatives as we continue to make progress increasing our wallet share and driving increased value for customers when they need it most. Gross margins in the second quarter were 30.4%, which as we expected, were largely in line with the first quarter of 2022. While our prices increased, the inflationary pressures on our business also continued to mount. Exiting the second quarter on a global basis, our commercial teams have again successfully offset rising raw material costs with increased selling prices. Looking ahead, we expect more cost pressures going forward, but have already implemented further pricing actions in the third quarter and will continue to do so. We are committed to increasing price above expected cost inflation so as to drive a recovery in our gross margin percentage. SG&A increased approximately $3 million, compared to the prior year. This is largely due to higher labor-related costs on year-over-year inflation, additional costs associated with recent acquisitions and higher costs compared to the prior year COVID-19 impacted levels, including higher T&E and professional fees. The net of these items resulted in adjusted EBITDA of $58 million for the second quarter, which was down from $70 million in the prior year period. The decline of $12 million year-over-year includes approximately $5 million of FX headwinds, around $2 million of lower earnings due to the Ukraine conflict and a reduction of approximately $3 million due to the disruptions in China. So adjusted EBITDA will be closer to flat year-over-year without these one-time headwinds, this is despite lower end market demand compared to a year ago, and also this is in the face of the significant inflationary pressures we've experienced on our gross margins and SG&A. From a segment perspective, compared to the prior year period and exclusive of FX, all four segments delivered double-digit sales growth driven by significant increases in selling price and product mix. Our sales volumes declined in all segments except the Global Specialty Businesses, as Andy mentioned. Sequentially, our story was similar as all segments saw positive price momentum, compared to the first quarter. Volumes were largely stable as increases in our Global Specialty Businesses and the Americas offset declines in EMEA and Asia Pacific. Our segment's operating earnings were strong in our Global Specialty Businesses and Americas, but EMEA was behind the prior year due to continued gross margin pressures, and Asia Pacific decreased due to the COVID-19 disruptions in China. However, importantly, segment operating margins improved in all segments except EMEA on a sequential basis, which gives us confidence that we are on the right path to recovering our margins. Below the line, both interest expense and other expense were slightly higher sequentially and against prior year. This was largely due to increased borrowing costs as well as foreign exchange. From a tax perspective, our effective tax rate excluding non-recurring and non-core items was consistent at approximately 24% in the current and prior year period. We continue to expect our current year effective tax rate to remain roughly in line with 2021 levels, pending any changes to domestic or foreign legislation. Our GAAP diluted earnings per share were $0.80, and excluding non-recurring and non-core items, our non-GAAP diluted earnings per share were $1.32, which declined compared to $1.82 in the prior year. Switching to liquidity. Our cash from operations was an outflow of approximately $3 million for the quarter or $8 million year-to-date. This was consistent with the first half of 2021 and reflects significant working capital investments in both periods as our accounts receivable increased due to the higher net sales and our inventory continued to increase due to higher raw material costs and some safety stock additions due to supply chain challenges. Also worth noting, in the second quarter, we successfully amended our credit facility at favorable terms. The result has provided us with ample liquidity at attractive rates and extended our maturity profile from August 2024 to June 2027. Looking forward, we are taking steps to improve our cash flow conversion and working capital efficiency. Working capital levels will likely remain elevated in 2022 and follow a similar cadence as 2021. And we will continue to monitor and optimize as we progress throughout the year. Outside of operating liquidity, we paid approximately $7 million in dividends and invested $6 million in capital expenditures in the quarter. To note, our capital expenditures thus far in 2022 are approximately $15 million and well within our guidance of CapEx being in the range of 1.5% to 2.5% of sales for the year. Overall, this additional capital spend, as well as the additional operating spend we previously discussed represent investments in our business, which are expected to improve our productivity and profitability, and better position the company to capitalize on the next phase of our growth. Our net debt at the end of the second quarter was $786 million. Our net leverage ratio was 3.2 times adjusted EBITDA, which was higher than our expectations, but our liquidity remains solid. On a bank basis, we are at 3 times adjusted EBITDA, which provides us ample room compared to our maximum of 4 times net leverage on our credit facility. That said, we remain committed to reducing our net leverage towards our target of 2.5 times adjusted EBITDA this year while we also balance the other priorities in our capital allocation strategy. To summarize, we remain optimistic about both the near-term and long-term future of Quaker Houghton. Our recent demand trends remain favorable. However, the macroeconomic outlook is difficult to predict. We are working to recover our margins through pricing and managing costs and believe we will continue to demonstrate progress on our price versus cost objectives as the year plays out. This is expected to translate into margin expansion and EBITDA growth as we progress throughout the year. So overall, we are confident in the growth potential and cash flow generation of our business as we continue to take steps to best position our business for the future. With that, I'll now turn it back over to Andy.

Thank you, Shane. Before we address your questions, I want to recognize and thank all of our associates for their performance towards our objectives and for their unwavering commitment to our Live Safe core value. We've made considerable steps on our safety journey, and I'm pleased with the performance, which shows continued improvement again in the quarter on a global basis. It is evident that we are ending the second quarter with positive momentum. We're managing our business to overcome the short-term challenges we've encountered, while also investing to position the company for long-term success regardless of the macro challenges that arise. With that, we'd be happy to address your questions.

Thank you. We will now be conducting a question-and-answer session. Our first question is from David Begleiter with Deutsche Bank.

Thank you. Good morning. Andy, can you just where you are seeing some demand weakness, particularly what end markets right now, and how your order books look heading into the last few months of the quarter?

Thank you for the question, David. There is well-known information about the automotive market continuing to struggle due to supply chain chip shortages. Steel prices have varied as we've progressed through the year, and it's somewhat too soon to predict any changes for the upcoming quarter. We remain focused on securing new business with our customers, which we have demonstrated across various segments. Regardless of the challenges in our underlying markets, our objective is to keep outperforming them. We've shown that we can achieve this, and we intend to continue doing so moving forward.

Very good. And just on raw materials, where are you still seeing increases? And where have you seen maybe some relief recently?

Yes, I think broadly, David, there are still increases. I think the way we'd characterize it is we're seeing maybe some signals that it could be a slowing of the increases, but still increases. It's more anecdotal at this stage, not broad-based, and we have a pretty diversified portfolio. So obviously, we're watching that very closely and anticipating as we move to the year that there will be some deceleration of the increases.

Thank you very much.

Thanks, David.

Our next question is from Jon Tanwanteng with CJS Securities.

Hi, good morning. It's Pete Lukas for Jon.

Hi, Pete.

Hi, good morning. You gave us a lot of detailed information regarding volumes and do appreciate that. Just wondering if you can talk on how much volume you've lost due to pricing and customer management. And do you think those come back at some point?

Yes, that's a great question. I mentioned in my remarks that we had approximately 3% of new net business wins in the quarter, which includes the volumes we lost due to our strategic pricing initiatives. We estimate that those losses were around 1% to 2% for the quarter. Regarding the latter part of your question, I often cite our total cost of ownership approach and how closely we work with our customers. We typically reconnect with them over time, so I believe this aligns with our historical trends.

Very helpful. Thanks. And how should we think about energy availability and restrictions in the EU and how might that impact EU and impact demand?

Yes. Well, first of all, with respect to our operations in the EU, we're not a heavy natural gas user in our operations, so no direct impact on us. Obviously, there could be impacts to some of our customers, and I think those are well published. And that's going to depend on geography as well and the consumption in the different countries. It looks like from everything that's out there that Germany might be one of those countries that is heavily impacted. We're not oversubscribed in the German market. It's a relatively low percentage of our overall revenues in Europe. And so we're watching very closely, but again, what's great about it is, as customers are dealing with us, they're very much focused on their productivity, their energy consumption, making sure they don't have downtime or waste, which fits perfectly into what we provide to those customers and the value that they see with us.

Great. And just last one for me. In terms of the comments you made regarding leverage at about 3.2 times now, did you say working towards the goal of 2.5 times by the end of this year or like getting to that goal by the end of the year or just working towards it by this year?

I characterize it as working towards that goal. As we think about our cash flow characteristics this year, we've had pretty significant working capital outflow in the first half, and we do consider that to on go. That said, I do believe we will have positive operating cash flow. So with that in mind, you can scale that side to get in the 2 times range.

Very helpful. Thank you.

Thank you.

Thanks, Pete.

Our next question is from Mike Harrison with Seaport Research.

Hi, good morning.

Good morning, Mike.

I was hoping we could talk a little bit about Asia. Very impressive performance there. I think on your call, you were expecting that China could be down as much as 50%, and it looks like you guys managed through the COVID restrictions very well. So wondering if you could give some detail on how you manage that situation. And then I think I'm specifically interested in the margin performance, which was up sequentially despite these COVID headwinds. So can you maybe give us a sense of where that operating margin could go at least directionally in the second half compared to that 22% segment margin level that you had in Q2?

Thanks, Mike. Great question. I'm going to start off here by highlighting I think the differentiator for us is really the commitment of our employees. Very heroic efforts by our team with individuals going to live on site for multiple weeks so that we were able to get back to production more quickly. And then that put us in a great position as customers were ready to fulfill their demand. Again, reinforcing our value proposition of being there and being ready to serve our customers as they need and keep them uninterrupted, so I think a great evidence of how we implement this customer intimate model. We did see a pickup as we went through the second quarter. There was some unevenness. I think as you can imagine, the supply chain refilling itself, there's some slack in there, and so we're not sure if that's completely smoothed out yet, but things are certainly in the right direction. And I'd also like to highlight that because of our scale and our presence in the balance of Asia, we actually had overperformance in some of those markets with some opportunities coming that way. So it was the total of those two things that really allowed us to perform better than we were anticipating in the Asia Pacific region and I think just reinforces the value of our model and our scale.

Yes. Just to add on to what Andy was talking about and kind of address your latter part of your question there, Mike, one thing as well is, obviously, we have pricing initiatives that went into place across the board from Asia Pacific as well. That said, we did see some impact to some fixed cost absorption on the gross margin side. So if you think about that 22% you were referencing, we also got a benefit from an SG&A perspective given people were not traveling as much and, obviously, on the lesser side from getting out due to the quarantines. But that said, looking ahead, we continue to put price in across the board in Asia as well, as I talked about, and now we have put price in Q3. And I believe the gross margins there will expand as well as people continue to start traveling, as they get out of quarantine. So I like that 22% and think we could expand.

Thank you for that. As we analyze margin improvement for the second half, we expect continued price and cost recovery to contribute to this. However, I would like to focus on your EBITDA commentary. Your suggestion that it will be better in the second half compared to last year implies that we would achieve at least $127 million in EBITDA during this period. The current consensus is in the high $140 million range. I'm interested to know if you can provide any specific guidance on this figure. I believe a realistic estimate might fall between $127 million and the consensus of around $147 million.

Yes. Thanks Mike. So I'll start off by just reminding everybody, we're still on the strategic pricing journey that we've been talking about for multiple quarters. As inflation started to be significant last year, the primary focus was on covering the dollars and making sure that we were recovering that and our value with customers. As we indicated, as we were going to move through 2023, we expected to start to recover the margins as we were pricing even over above the anticipated inflation levels. What happened, was not in that foresight, was the disturbance in Ukraine with the war and the China lockdowns, which gave us a little bit of a delay in that. But we're still moving forward with our strategic pricing. And as Shane indicated in his comments, we believe the momentum of what we've already put in place and what we're still doing is going to benefit us for expansion in the second half. Shane, if you want to add?

Yes, just to give kind of some step thoughts around where our earnings are going as the drivers from that perspective, we talked about our raw material costs still going up but at a decelerated level. From that perspective, we are consistently talking about price above those raw material costs. So you can expect increases in gross margin sequentially from Q3 as well as Q4. With that, that should drop down to the EBITDA percentages growing in Q3 and Q4 as well. And so we're committed to that price. As I look at other things, we will be negatively impacted by foreign exchange, specifically the euro, as it gets to parity as well as we have kind of an uncertain demand outlook, but we will continue to go above the market with net new business wins. So all in all, I think it's going to be a strong second half and committed to our guidance that it's going to be above sequential as well as prior year.

Yes. Just one thing to add there, Shane too, I think all of those things are true. And our assumption is that the macro environment we'll have some stability, but we all know there's some uncertainty in that. So that is the balance to the comments there.

All fair points. Thank you very much for the color.

Thanks, Mike.

Thanks, Mike.

Our next question is from Laurence Alexander with Jefferies.

Hi, it's Dan Rizzo filling in for Laurence. Thank you for taking my question. You mentioned sustainability and the use of renewable oils. I was curious about the size of the market for renewable oils and what the expected growth rate will be in the coming years.

Yes, Dan, thanks for the question. I think it's hard to pin down. Sustainability has been one of those challenging topics where everybody agrees that the trend is coming and that there will be a need to focus not only on operations, but also on the materials being used. First, I'd like to highlight that kind of at the core of our business model is helping customers be sustainable, and it always has been even if we didn't label it that way. As we help them to maintain their uptime, reduce their waste, make sure their energy consumption is going down, redeploying their valuable labor on other activities, those are things we do and fall right within that sustainability. So it's at the heart of who we are and how we operate. If we're thinking more specifically though about materials and sustainable materials going forward, I think we're starting to see an inflection point with customers, because of some of the sustainability goals that they have. So it's hard to predict exactly where that ramp will go, which is why we are focused on developing and investing in the capabilities to be ready as those customers move forward. So definitely a growth area for us, and this SKF story is a reinforcement that, that trend is going positively and we're in a great position to go along with it.

Just along the same line, should we think about like just with sustainability and renewable use, products moving more from petroleum-based oils to vegetable oils. Is that even possible like technologically, and is that how we, I mean, kind of how to frame it?

I think there will be some movement between petroleum based and more natural and/or renewable sources. The beauty of our technical capability and expertise is we know how to work with both categories. And so we're in a great position to be able to do that with customers. Obviously, it will be driven by what makes sense for each one of those customers. But again, there will likely be some reformulation towards more natural or renewable materials, and we're in a great position to do that. Thank you very much.

Thanks, Dan.

Our next question is from an analyst with CL King.

Yes, hi. Good morning. Thanks for taking my question.

Good morning, David.

Yes, good morning, thanks. I had a couple of maybe a bigger picture question then a smaller bore one. But first one, maybe this is for Shane, but there's a lot of impact in your results here about FX. And I think of your company with its global network but with a lot of in-country serving local markets. And I'm just wondering, from your perspective, from Conshohocken's view, is there any desire or is there any thought about maybe a more formal kind of global currency hedging program, in other words, maybe to mitigate the significant direct FX translation of your foreign operations on the dollar-based results? You talked at a couple of points about, gee, if it wasn't for currency, the comparisons would have been much better. My opinion is the dollar is going to remain strong, so I'm just wondering if that makes any sense in this environment.

Yes, thanks for the question, David. I'm going to start and then let Shane pick up specifically. But I want to highlight where you started, which is the uniqueness of our customer intimate model where we plan, make, source and deliver locally. That's primarily what we do. That allows us to really be in the best position to serve our customers, add value by uninterrupted supplies, and that's really critical. So I wanted to highlight that, yes, you are absolutely right, that is at the heart of our model.

Yes, David, this isn't the first time we have faced significant fluctuations in foreign exchange related to the translation of our P&L and balance sheet. As Andy mentioned, we do not engage in cross-border transactions, as we source and operate locally. In response to your question, we consider any options that might help mitigate the uncertainty in the markets, as well as the volatility affecting our income statement and balance sheet. I have explored these options previously, and I will continue to do so. If it makes sense at the right cost, we might take action accordingly. However, for now, I believe that translation issues will persist.

Okay. Thank you for that. Next question, I guess this is more related to kind of trade-offs that I'm wondering about. But Andy, you've discussed at length the customer-centric model that you're implementing and the strategic elements there. On the current call, I've also heard a lot of discussion about the need to get full price recovery to restore margins. And I'm just wondering if you are seeing any or if you do have to kind of combat or deal with certain conflicts there, where maybe customers that are more strategic or more resistant to the price increases force you or force the company to make some choices there, which customers to keep, which ones to push a little bit harder on pricing. So I'm just wondering how you assess that maybe potential trade-off in the current market. And in particular, who makes the decision? Is that a local market decision or is that something that is decided at a more headquarters level?

Yes, David, thanks for the question. I mean I think you're getting at the heart of the elasticity of our model and how it works. And the way I would characterize it is, because we are so highly service-focused with the customer intimacy, our relationships with customers are pretty sticky. And therefore, there's a lot of inertia to overcome because we are in there helping our customers because we are adding value. And so our pricing discussions are driven around that value that we're adding to them. Obviously, our costs and inflation are a component of that, but we very much focus in on the value we're providing to the customer and the legitimacy of continuing to work with us to keep that continuity. I think as we strategically price, where we see limited amounts of pressure is where we may not have as broad of an offering to a customer, or a particular application may not be as valuable to them. But as Shane indicated, we even find in those circumstances that often when a customer tries an alternative, they run into problems, and we find that they come back to us and much more convinced of our value. So I think our model works relatively well. I'm not going to tell you that pricing conversations are fun and that people want to have those conversations, but I believe our customers do really believe in what we provide to them. As far as trade-offs go, we have, of course, guidelines that are set based upon product lines and market segments and application understanding with our experts across our network who understand that. We then provide that to the individuals in the areas to be able to react quickly and to implement against that. So it is a combination of pricing strategy. Yes, thank you very much. I mean I think it's clear that we executed well within those items that are in our control. We continue to do that despite some of the macro challenges going forward and some of the uncertainties. The future of Quaker Houghton is bright. We are executing on our priorities, and we're committing to delivering and generating value for our stakeholders. And I really want to thank you for your continued interest in Quaker Houghton. And please reach out to Jeff with any follow-up questions.

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