Greetings, and welcome to the Quaker Houghton First Quarter 2023 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, Vice President of Investor Relations. Mr. Schnell, you may begin.

Thank you, Melissa. Good morning, and welcome to our first quarter 2023 earnings conference call. Joining us today are Andy Tometich, our President and Chief Executive Officer; Shane Hostetter, 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 US markets yesterday, May 4, 2023. 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. The 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 additional information, please refer to our filings with the SEC. Now, it's my pleasure to turn the call over to Andy.

Thank you, Jeff, and good morning, everyone. In the first quarter, we delivered record net sales while continuing to manage through significant uncertainty and persistent macroeconomic challenges. We drove our recovery in margins and double-digit increases in adjusted EBITDA and adjusted earnings per share compared to the prior year quarter. We also generated strong operating cash flow in the quarter, driven by our improved performance and working capital efficiencies, further strengthening our balance sheet. I am very pleased with the financial and operational execution in the first quarter, and excited about the momentum we have built in the organization, delivering results by controlling what we can control. Compared to the prior year, net sales in the first quarter increased 5% to a record $500 million. The year-over-year improvement in net sales was primarily driven by execution on our value-based pricing initiatives, which were implemented across all regions to offset the continued inflationary pressures impacting our cost to serve. Though volumes declined compared to the prior year, they increased sequentially. Volumes continue to be impacted by a continuation of softer end market conditions, primarily in the steel and industrial markets, and were offset by some improvement in auto. We have also declined some incremental volumes in the quarter, consistent with our ongoing margin improvement initiatives. In total, and taking into account our customer mix, we are still trending directionally in line with the specific end markets and regions we serve. We're pleased to see the benefits of the diversification of our portfolio, which continues to drive targeted and valuable new business growth regardless of market trends. Our gross margin recovery also continues. Gross margins of 34.7% improved approximately four percentage points compared to the prior year quarter, and 2.5 percentage points compared to the fourth quarter of 2022. The sustained focus on balancing the solutions we provide and the total cost to serve are helping us to continue our journey to recover our margins, heightening our ability to deliver exceptional value to our customers. In the first quarter, we generated $79 million of adjusted EBITDA, and $1.89 of adjusted diluted earnings per share, a double-digit increase in both compared to the prior year and prior quarter. This was primarily driven by the ongoing recovery in our gross margins and despite the uneven market conditions. While we have not yet recovered back to our historical margin levels, we are making good progress on this top financial priority, balancing customer relationships and the long-term profitable growth aspirations of our business. In the first quarter, we also generated $38 million of operating cash flow, and strengthened our balance sheet, reducing our leverage towards our target. We continue to anticipate an improvement in cash conversion in 2023 versus recent years. These results are a solid start to the year. Turning to our segments, once again, price capture was strong across all our segments on a year-over-year basis. Volumes declined in all segments compared to the prior year, but increased sequentially in the Americas and EMEA, which benefited from an improvement in manufacturing activity, albeit at a low base. I will quickly highlight some of the volume drivers. We continue to see softer end market activity across all regions and at varying degrees. However, our volume growth in the Americas and EMEA segments is in line with their respective market growth rates, led by new business wins. Asia Pacific segment volumes, however, are trending slightly behind the broader markets due to customer mix and our focus on services and solutions that yield the greatest benefit and value for our customers. I am very proud of our global team’s resolve strengthening our portfolio and focusing on the high-value solutions for problems our customers face. We remain confident in our ability to continue to grow profitably above our underlying markets. Earnings increased in all segments compared to the prior year and prior quarter, largely due to a recovery in margins in all segments, especially in EMEA, where margins have improved in the first quarter compared to the lows in the second half of 2022. This was a result of price actions which have begun to offset some raw material cost inflation, as well as cost management. And while we are exhibiting momentum recovering our margins, we still need to do more to offset the total inflationary pressures on our business. Therefore, we've identified approximately $20 million of savings as part of the global cost and optimization program that was announced in the fourth quarter of 2022. These initiatives are aimed at improving our cost structure and driving a more profitable and productive organization. We expect the benefits of this program to be more heavily weighted to 2024 and will include a range of actions to improve our footprint, optimize our go-to-market strategy, simplify the portfolio and organization, and enable the company to successfully deliver its strategic plan. Turning to the outlook, the current uneven and uncertain macroeconomic environment and operating challenges that we've experienced for the last several quarters are likely to remain as we progress through 2023. Despite these headwinds, we remain committed to balancing the near-term needs of our customers and our business with our collective long-term objectives, focusing and executing on what we can control. In the second quarter, we expect adjusted EBITDA to be similar to the first quarter, translating into strong year-over-year growth. We are cautiously optimistic that demand will improve from first quarter levels, primarily driven by the reopening in China and resilience in Europe and the Americas. We anticipate some continued momentum on our margin recovery journey, balancing the value of the services and solutions we provide with the total cost to serve, including raw material costs, which remain very elevated. As expected, we will also onboard some additional SG&A expense, primarily due to labor inflation. For the full year, visibility remains limited, and despite the uncertain and uneven macro backdrop, we continue to expect to deliver earnings growth and improve free cash flow in 2023 compared to 2022. We'll also maintain our focus on strengthening the organization to be ready to capitalize on an improvement in underlying market growth rates, as well as our targeted profitable growth areas. Stepping back, Quaker Houghton's growth culture is healthy, with a foundation built on earning value through differentiated customer intimacy. We continue to build on our key profitable growth themes, using our global scale effectively, investing in digitization, and leading in sustainability for our customers, our company, and stakeholders. Beginning in the first quarter, we updated our reportable segments to three regional segments, supported by global functions. This better reflects the alignment of our executive team and business structure. We believe our updated structure provides for deeper accountability closer to our customers, and will help us leverage our scale and capabilities to accelerate the growth of our business, consistent with our globalization theme. There is considerable value we can gain as we deepen our relationships with new and existing customers, accelerate the realization of cross-selling opportunities, and target new profitable growth areas. We are also making progress on our other growth themes. Our fluid trend platform provides opportunities to use technology to advance customer intimacy. We have now completed a phased launch of the latest iteration of the platform within our internal global fluid analysis labs, a significant milestone in a multi-year journey to transform how we deliver customer intimacy with digitization for the future of our business. Also, of note, last week we published our 2022 sustainability report, which details some of the achievements and milestones since the inception of our comprehensive program in late 2021, including adopting green chemistry guidelines, investing in data management capabilities, and renewable energy. These are exciting and important achievements as we also further build out our portfolio of sustainable solutions, being a leader in the industry, and enabling our customers to achieve their sustainability goals. To summarize, in the quarter, we delivered strong results, building on the progress made in 2022, and executing on our communicated priorities. As a leadership team, we continue to challenge ourselves and our colleagues to work together to deliver results serving our customers regardless of the operating environment. We remain committed to unlocking the earnings power and cash flow generation potential of the organization. We are investing to advance our growth initiatives and develop supply chain and digital capabilities to redefine how we most effectively deliver customer intimacy. Through innovation, we are developing our portfolio of sustainable solutions to support our customers in achieving their sustainability goals. And we're being prudent with our investments, managing our costs, and improving our profitability to better position the company for future success. I am confident in our strategy, and I have continued conviction that we will continue to execute to achieve our goals. With that, I'd like to pass it over to Shane to discuss the financials.

Thanks, Andy, and good morning, everyone. In the first quarter, we delivered net sales of $500 million, which was a 5% increase compared to the prior year. This was driven by a 19% increase in price and mix, partially offset by an 11% decline in total sales volumes, and a 3% unfavorable impact from foreign exchange. Similar to recent quarter themes, our value-based pricing initiatives were the primary driver to increased net sales. Compared to the prior year, the decline in volumes was primarily driven by softer market conditions and our value-based pricing actions, as well as the ongoing conflict between Russia and Ukraine, the winddown of previous tolling volumes we divested as part of the combination, and the direct and indirect effects of the pandemic in China. On a sequential basis, sales increased approximately 3%, including an increase in volumes of 1% and a benefit from foreign exchange of 2%. Volumes increased in our Americas and EMEA segments, but were offset by continued soft conditions in Asia Pacific. Further, we have continued to implement targeted price actions, consistent with our value-based pricing initiatives. Gross margins in the first quarter increased to 34.7%. This was compared to 30.8% in the prior year, and 32.2% in the fourth quarter of 2022. The 400-basis point improvement year-over-year and 250-basis point improvement sequentially reflects continued execution on our pricing actions and relatively stable raw materials. Overall, our raw material costs still remain at historically elevated levels, and while supply chain and logistic challenges have improved, they remain delicate. Therefore, we will remain agile, implementing additional actions and efficiencies as necessary. Looking at our SG&A, excluding one-time items, we had an increase of approximately $10 million or 10% compared to the prior year period. This primarily reflects year-over-year inflation on our labor costs, as well as the timing and levels of our annual incentive compensation. We've continued to expect mid-single-digit inflation on our labor costs in 2023. As mentioned last quarter, we've implemented a range of targeted cost actions and operational efficiencies to further improve our profitability and productivity. We have identified approximately $20 million of annualized improvement actions, which will be implemented by the end of 2024. We expect to incur restructuring cash costs of approximately 1x to 1.5x the annual savings over the course of the program. We delivered $79 million of adjusted EBITDA in the first quarter, which was an increase of 30% compared to the prior year, and 16% compared to the fourth quarter of 2022. Adjusted EBITDA margins also expanded to 15.8% or 300 basis points over the prior year, and approximately 180 basis points compared to the fourth quarter. This positive result primarily reflects the ongoing recovery in our gross margins. Switching to our segments. As a reminder, beginning this quarter, we changed our reportable segments to better reflect the alignment of our new executive management and business structure. Our updated structure consists of three regional segments, which include the results of the previous global specialty businesses within those respective geographies. The Americas segment delivered double-digit year-over-year sales growth, driven by a double-digit increase in price and mix but partially offset by a modest decline in volumes. The EMEA segment also delivered positive year-over-year sales growth, driven by a double-digit increase in price and mix but partially offset by a decline in volumes and a mid-single-digit foreign currency headwind. In the Asia-Pacific segment, sales did decline due to lower volumes, which reflect softer end market conditions, a slower than expected recovery following the Lunar New Year, as well as impacts due to our ongoing value-based pricing initiatives. We also had a mid-single-digit headwind from foreign currency translations. All of these impacts more than offset our continuing pricing momentum, as well as positive new business wins. Sequentially, net sales increased 3%. Our volumes increased compared to the fourth quarter, which was driven by an increase in the Americas and EMEA segments, partially offset by a decline in Asia Pacific. Price and mix were consistent with the prior quarter, while foreign currency was a low single-digit tailwind to our net sales compared to the fourth quarter. We delivered a strong double-digit year-over-year increase in operating earnings in all sectors, primarily as a result of our ongoing margin recovery efforts. The recovery thus far demonstrates that we are on the right path to recovering our margins globally, but we have more work to do, especially in EMEA. Compared to the fourth quarter, segment earnings increased in the Americas and EMEA segments, but declined in the Asia-Pacific segment. While momentum from our ongoing margin recovery efforts continued in off segments, Asia-Pacific earnings was impacted by overall softer volume. Below the line, both our interest expense and other expenses were higher in the first quarter compared to the prior year, but were largely in line sequentially. To manage the company's interest rate sensitivity during the first quarter, we entered into $300 million notional amount of three-year interest rate swaps, converting about a third of the company's variable-rate borrowings into an average fixed-rate obligation. All told, our cost of debt was approximately 5.8% for the first quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 27% in the first quarter, consistent with our expectations and in line with our full year 2022 tax rate. We continue to expect our 2023 adjusted effective tax rate to be roughly in line with our full-year 2022 adjusted rate, pending any changes to domestic or foreign legislation. Our first quarter GAAP diluted earnings per share was $1.64, and our non-GAAP diluted earnings per share was $1.89, which is an increase of 33% year-over-year, reflecting the improvement in our operating earnings. Switching to liquidity, we generated $38 million of cash from operations in the quarter. This was a strong result, especially when considering that the first quarter is typically impacted by seasonal working capital cash outflows. We're off to a good start with our cash flow generation and conversion due to our strong earnings and improved working capital efficiencies. We invested $6 million in capital expenditures in the quarter, and we also paid $8 million in dividends. Our anticipated CapEx spend remains unchanged in the range of 1.5% to 2% of net sales for the full year 2023. We will be prudent with these investments, balancing the macroeconomic environment with our overall strategic outlook. Our balance sheet and liquidity remain strong. Net debt at the end of the fourth quarter was $753 million, and our net leverage ratio improved to 2.7x adjusted EBITDA. While significant uncertainty exists, we are well positioned with ample opportunities within our various end markets to drive sustainable long-term profitable growth. We are confident in the earnings power of this organization, and we will continue to emphasize margin recovery through price and cost actions to deliver improved earnings and cash flows in 2023 and beyond. With that, I'll turn it back over to Andy.

Thank you, Shane. The positive momentum in our business is evident, and the entire Quaker Houghton team is very focused on executing, for our customers and our company. With that, we'd be happy to address your questions.

Thank you. Our first question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi, good morning. Congratulations on the strong start to the year. In terms of gross margin trajectory, you got to a level here in Q1 that I think a lot of us didn't think you would attain maybe for several quarters. Can you give us a little bit more color on how you achieve that? Is there anything unusual or unsustainable in the Q1 performance, and where do the margins go from here as you look at Q2 and the rest of the year?

Thanks, Mike. Of course, our gross margin recovery has been a journey we've been talking about for quite some time, and as we've said, it'll be a continuous progression, but it may not always be at the same pace or necessarily linear. Really in the first quarter was a combination of us continuing our value-based pricing with some targeted actions and some minor raw material easing. Unpacking those two points just a little bit, on the pricing, we continue to focus on where we're adding value for customers. We sell against the value and use proposition, and we did in fact actually see some benefits from that in some increased price. On the raw material side, just as a reminder, we have about 4,000 different raw materials that we provide. And so, we're not seeing a broad change or a broad deflation. However, some of them have started to ease a little bit. So, we are at least seeing some stability, but still at extremely high levels. We anticipate we're going to continue to use those same levers going forward in the second quarter and beyond. Again, I'd highlight that it's not necessarily going to be a smooth path, but we're still working on margin recovery, and we'll continue to interact with our customers, making sure that we're striking the right balance on the value we're providing against the cost to serve.

All right, thank you for that. And then in terms of the EMEA performance, that kind of stood out to us on both the revenue and margin front. Can you talk about what you saw in Q1 in terms of kind of underlying metalworking and primary metals demand? And are you guys in a good place now on price versus cost now that energy costs have come off peak levels in Europe?

Yes, thanks, Mike. So, it is true, we did see some volume improvements in EMEA, in fact, in line with what we believe the underlying markets are doing. Part of that was building off of some of the shutdowns that had occurred at the end of last year and early into this year. But EMEA is still at a relatively low base. We anticipate there'll be some resilience as we continue to go forward, but there could be some unevenness in how that resilience develops. As far as margin goes, we obviously made a lot of progress on our value-based pricing initiatives across the entire portfolio, but made significant progress in EMEA coming out of 2022 and into 2023. We still have some work to do on that, but again, improvements in the value that we're seeing, some optimism about volumes as we go forward. We anticipate Europe could continue to improve.

All right. And then my last question for now is on the full-year outlook. The consensus EBITDA number before you printed this strong quarter was around $280 million, $285 million for EBITDA. This quarter's performance, you said that Q2 should look similar, but it definitely suggests that you could be well north of $300 million in EBITDA for the full year. So, as we're thinking about modeling the rest of the year, should EBITDA be higher in the second half than the first half? Maybe just some additional color on the full-year outlook and where you have confidence, where you're still seeing some uncertainties.

Yes. Thanks, Mike. So, first, I'd like to start with, we're really encouraged by the performance that we've seen over the last couple of quarters and here in the first quarter, continuing to really deliver on the things and the priorities that we said we were going to. The macro uncertainties still remain there and we're focused on controlling what we can control. But for the second quarter, we anticipate still continued margin recovery, as I've highlighted before. It doesn't necessarily all mean it'll be at the same pace, but we continue to balance that value and use pricing with our customers against the cost of the serve, and believe that we'll continue to recover towards our historical margins over time. The adjusted EBITDA in the second quarter we anticipate to be similar. And kind of unpacking that just a little bit for you, as price and raws continue to move, we manage the yield of that and anticipate that again, a little bit of expansion continues in gross margins. Volumes could show some slight improvement, and that's really based upon expectations in China as we go forward. And we're continuing with our focus on new business wins. As we look beyond Q2, we know we have a lot of earnings power embedded in our portfolio and the activities that we've done, but a lot of the uncertainties are still out there, and we're focused on controlling what we can control. So, as we continue to implement the things we've been doing and anticipate continuing to do, we'll see continued margin recovery as we move through 2023, and then that yields to earnings growth in 2023 over 2022.

Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Hi, everyone. It's Dan Rizzo on for Laurence. So, in Asia, some of the companies you were talking to are saying in verticals whether they saw a surge coming out of COVID, it ended quickly, so it was kind of like a start-stop. I was wondering if you guys saw something similar or just any color on how demand trends are within the region.

Yes, thanks, Dan. So, for sure, as we moved through Q1, our volumes did increase sequentially, and we believe we're below the underlying end markets. Really, the reason for that was related on a sequential basis with some of the Lunar New Year impact, and then an expectation that things might pick up a little bit quicker than they did. We also had some uneven customer order patterns that occurred. Finally, we had some volume. China's probably the most sensitive place with respect to pricing, and as we continue to use our value in pricing, we're choosing where we continue to serve business that's valuable for customers. What we're seeing is a little bit of a wrap effect from the decisions we made in 2022. We do have cautious optimism though going forward. Coming out of the lockdown scenarios that were in place, we are anticipating that volumes could improve, and we're ready to serve them in Asia.

The optimism that you're alluding to, is that from just what you, I mean, think is going to happen to the region, or are there order trends or customer commentary that suggests that it is going to start to ramp up?

Yes, I think it's based upon the expectation of what the new policy will allow and remove some of the stops and starts that had happened before. That should build some momentum. And of course, we're seeing some stabilization as well. So, it's a combination of what we're seeing directly and hearing from customers and the general macro.

Okay. And then final question. In terms of pricing, if we hit a deflationary environment where your costs are rolling over, is there an amount you can hold onto? Is there a value-added component that makes some of the pricing you've taken permanent?

Yes. So, first of all, as we've talked previously, our model on pricing is always around value and use, and what we're actually adding from a value proposition to our customers. And of course, we have to balance that against the cost to provide that value to them. So, that's part of the reason why we've been very programmatic as we've moved up in our pricing, and that serves us well because we don't have the discussions based upon what's happening immediately in raw materials. It's really about the benefits that we're providing the customers. In every pass cycle for Quaker Houghton, we tend to hold on to that value and use pricing. Of course, depending upon what a rollover could look like or not with raw materials, that could have some impact, but we believe we'll be able to maintain some of the gains we've made as a result of our value and use pricing.

Thank you. Our next question comes from line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you, and good morning, and very nice first quarter. Andy, and Shane, just on the Q2 guidance, given you should have some price-cost tailwinds, higher volumes, savings from the new cost program, and lower SG&A costs, I'm unclear why EBITDA would be flat quarter-over-quarter and not up perhaps even meaningfully. What else is there that's offsetting these potential tailwinds?

Yes. So, David, as I indicated, we're anticipating some potential increases in volumes as we go forward, and still gaining on some gross margins. So, that's the result that we think that could contribute at the gross margin line with some improvements. We will have some of the sequential flow-through on our SG&A inflationary spending, which will partially offset that.

Okay. And just on a new cost program, is the $20 million the entirety of the savings? And maybe just touch again on where exactly these savings are coming from. Thank you.

Yes. I'll start that one off, David, and then I'll ask Shane to make a few comments. So, there's a number of actions that we're doing in this restructuring program, this cost savings program, but they're all in service of our growth strategy and the organization that we need to be able to implement that. We're going to be driving both efficiency and effectiveness in the moves that we're making. This is a global program, and the immediate focus is on Europe, and we've already started to make some progress there. We'll be looking at organization optimization, as well as footprint and some supply chain efficiencies, as well as redefining how we exactly deliver customer intimacy in the most valuable way for our customers as we grow profitably.

Yes, just going into the specific numbers, David, and a little bit more color on that, as you mentioned, the program is $20 million of annual run rate savings by the end of 2024. We did begin this in Q4 of last year, and we'll continue to have some charges coming in the next quarters. Our total costs, we expect to be roughly 1x to 1.5x of the savings. And this really depends upon the nature and negotiation there too. As I think about the run rate benefit, about three quarters of the run rate benefit probably will be in 2024 versus a quarter this year. And as I think about, I think you asked kind of where we see them going through, Andy talked about it's a mixture of org optimization footprint and supply chain. So, we will see both reductions in SG&A as well as manufacturing costs. And just to note, savings thus far have been somewhat immaterial to our financials.

Great. Thanks for taking my question. Maybe I'll just ask a similar kind of question on the price mix. Very, very strong performance in Q1, 19%. And conversely, you had the 11% volume decline. So, was this kind of by design that you were maybe calling some lower margin, lower mix volumes and that drove an overall better mix and better margin for you? How should we think about how volumes kind of trend through the year? Maybe do they turn positive in Q4? And similarly, maybe your price mix wanes as we get into Q2 and Q3, just not only mainly mathematically, but maybe you can just comment on your outlook for both price mix and volume as you go through the year.

Sure. Thanks, Arun. As we've talked about in previous sessions, our value-based pricing is focusing on the value that we're providing for our customers. And we realized that there could be some small amounts of business that may not be as high value to the customers. And so, as we've been strategically targeting our price initiatives, we knew that there was likely going to be some amount of volume churn, but we were very careful not to be reckless. And we felt a little bit of churn is actually healthy. That's essentially what we've done, and we've seen a little bit of that wrap effect as we've come into some of the volumes in this year. As we go forward, we'll continue to focus on that value-based pricing, taking into account, of course, the cost to serve it, kind of being agile and managing against those two things so that we continue to maintain and grow our gross margins as we go forward. And then on the underlying volume side, as I mentioned, we have some optimism that there could be some growth on those underlying volumes, and we know we're continuing to win new business at much more profitable levels, and we're going to continue that focus on new business wins.

Okay. And just to clarify, though, what would it take to really see volumes kind of back in the say low to mid-single-digit range? Is that really dependent on a better environment in metalworking and steel, or is it an aluminum, or is it China and regionally-based recovery, and a better Europe macro environment? What are some of the drivers that maybe that are not under your control that need to improve for the volumes to get to a sustainably better place?

Yes, Arun, I'd start right with the part we can control, and that is the new business wins. And as I've highlighted in previous quarterly earnings calls, we continue to gain new business based on the value we're offering to our customers, and that will continue. The challenge that has been here has been in some of the underlying markets we've served for the last couple of years. Several of those are still not at their historic levels. We're optimistic that those will come with time. Automotive, aerospace, some of the primary metals and general industrials still have ample opportunity to be at higher levels. So, as that continues to develop, we're in a really good position to be able to service it.

Thanks. And just one more for me. So, you've talked in the past, I think around the upper teens or mid to high teens as the EBITDA margin target. Is that still how you're thinking? And when you look into maybe is that kind of achievable in ‘24? Already well on your way to that metric in Q1 here, but maybe you get into the 16% to 18% range in ‘24. Is that a fair assumption?

Yes. So, I would say first of all, we're really pleased with the progress that we're making and what we saw in previous quarters and in particular in the first quarter. Our end goal remains the same, to be back into those high teen levels for EBITDA. And the pace of that will be determined by a number of different factors, but that is our objective.

Thank you. Our next question comes from line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Hi, thanks for taking my questions and congrats on a really nice quarter and improvement in the gross margins. If I could ask, Andy, for you to put your macro hat on. Where do you see the biggest risks in the coming quarters? I mean, assuming that we might potentially be heading into a broad recession, even with that, it seems like there's automotive, aerospace, onshoring, infrastructure tailwinds that may not really abate so much, even in that case. China looks like it's going to improve. Europe was already a trough. What do you see as actually coming off in case we hit some more headwinds here just at a broader level on that kind of standpoint?

Yes, Jon, thanks for that. I mean, just building off of what I've already highlighted, what we are seeing is actually improvements. As I've highlighted, I think we're optimistic about the improvements that could come in China. We believe that Europe is a bit more resilient now and could be a little bit uneven going forward, but some of the previous headwinds are starting to mitigate, and we're still seeing resilience within the Americas. So, based upon our interactions with customers and what we see, that's why we still have some cautious optimism that things will continue to be beneficial.

Could you give us a real-time update as to what's going on in the ground in China today? Are you actually seeing a pickup now or is that still on the come, number one, and then number two, in Europe? Are there more mill restarts ahead of us that could help you improve sequentially?

Yes. I mean, the real-time update I would say, Jon, is we see just order patterns improving, as I think about that side. And we think it might ramp up as I think about the back half. So, we're cautiously optimistic, as Andy mentioned beforehand.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Tometich for any final comments.

Thank you. We're excited about the future and unlocking our growth potential at Quaker Houghton. We appreciate your continued interest in Quaker Houghton, and please reach out to Jeff with any follow-up questions. Thank you.

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