Greetings and welcome to the Quaker Houghton Fourth Quarter and Full Year 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. Good morning and welcome to our Fourth Quarter and Full Year 2023 Earnings Conference Call. On the call 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 U.S. markets yesterday, February 29, 2024. 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 additional information, please refer to our filings with the SEC. Now, it is my pleasure to hand the call over to Andy.

Thank you, Jeff and good morning everyone. Quaker Houghton finished 2023 strong. For the full year, we generated record net sales of $1.5 billion, adjusted EBITDA of $320 million, and non-GAAP earnings per share of $7.65. We also showcased the cash generation capabilities of the enterprise, generating a record $280 million of operating cash flow for the full year, strengthening our financial position. Our performance was empowered by the team's ongoing execution on our margin initiatives aimed at improving the profitability of our business and our focus on the future never wavered. In 2023, we made considerable progress advancing our enterprise strategy and enhancing our customer intimate model, delivering valuable services and solutions to our customers. Together, we successfully managed through significant macroeconomic headwinds that our company and our customers have faced, and I am proud of our collective accomplishments in 2023. Our results in the fourth quarter were in line with our expectations. Fourth quarter net sales were $467 million, 4% lower than the prior year, but with stable volumes. Net sales were down 5% compared to the third quarter, but largely in line with our expectations and the fourth quarter normally has seasonal impacts, primarily in the Americas and EMEA segments. The fourth quarter and the full year highlighted the resilience of our business. In fact, our volumes in 2023 have remained stable sequentially throughout the entire year despite the challenging end market conditions in all regions. In 2023, we focused on our top financial priority of recovering our margin profile while balancing customer relationships and the long-term aspirations of our business. Our team delivered. Gross margins in the fourth quarter were 36.6%, nearly 4.5 percentage points higher than the prior year and near our long-term target range in a seasonally lower quarter. This improvement reflects successful execution on our margin recovery initiatives as well as moderating raw material costs, which remain at historically elevated levels. In the fourth quarter, we also generated adjusted EBITDA of $77 million, a 13% increase year-over-year and $1.78 of non-GAAP diluted earnings per share, a 28% increase compared to the prior year. These results were a function of our clear focus on providing the best solutions for our customers as we worked together managing the complexities of the market environment. Cash flow was a highlight once again in the fourth quarter. We generated an additional $81 million of operating cash flow in the fourth quarter, and in total we generated $279 million of operating cash flow in 2023, driven by our improved operating performance and active working capital management. In addition, our strong cash generation enabled us to reduce our variable rate debt by approximately $200 million in 2023. Our net leverage ratio also improved and is now 1.8 times adjusted EBITDA, the lowest level since the combination in 2019. Our strong cash flow and strong financial position continue to provide significant optionality for the enterprise to generate long-term value. Turning to our segments, we once again delivered improved earnings and margin performance in all our segments on a year-over-year basis. As expected, in the fourth quarter, market conditions remained soft in both metals and metalworking, and our volumes largely reflected our underlying markets in each region. Volumes in the Asia Pacific and EMEA segments increased compared to the prior year's same quarter. Our increase in the EMEA segment was due to the timing of orders and new business wins, and while EMEA volumes improved slightly in the fourth quarter, volumes in this segment remained significantly below normalized levels, as industrial activity remains constrained in the region. The year-over-year increase in our volumes in the Asia Pacific segment in the quarter was due to improved demand in both metals and metalworking across Asia. China itself was consistent with the prior year period, which was a solid result considering the Lunar New Year was more of a benefit to the fourth quarter of 2022. Volumes in the Americas segment declined compared to the prior year, largely reflecting the softer overall demand environment, especially in industrial applications. Our metals business saw improved volumes in the Americas. On a sequential basis overall volumes in the quarter declined approximately 3%. This was comprised of increases in EMEA and Asia Pacific and a decline in the Americas, primarily relating to normal seasonal patterns. I am pleased that we continue to perform in line or better than our underlying markets while also taking actions to better position the company for long-term profitable growth. I expect we will continue to grow from these low levels as we move through 2024. Switching to the full year 2023 was a successful year for Quaker Houghton. We are encouraged that volumes have remained stable throughout 2023 despite soft underlying end market conditions and our prudent margin improvement initiatives. Importantly, we continue to gain additional business and these gains are trending within our expected long-term range. We remain focused on earning appropriate value for the product and service solutions we provide. In 2023, price and product mix increased approximately 7% year-over-year. Combined with a moderate improvement in raw material costs, we drove a 460 basis point improvement in gross margin and a 25% increase in adjusted EBITDA, while continuing to invest in our people and our growth pillars. And as I mentioned previously, we also generated record cash flow in 2023, strengthening our balance sheet. In summary, our 2023 performance positions us to invest in and capitalize on the opportunities ahead. Switching to the outlook, we expect another solid year for Quaker Houghton in 2024 building on the accomplishments we have already achieved. Beginning with the first quarter, we anticipate that the current difficult market conditions and uncertainty will persist. We expect a seasonal improvement in demand led by the Americas and to a lesser extent the EMEA segment, which will in turn drive an increase in net sales compared to the fourth quarter of 2023. And while trends in Asia Pacific segment appear to be improving, growth in that region will be tempered in the first quarter compared to the fourth quarter due to the Lunar New Year holiday. We remain encouraged by the demand outlook in aerospace and primary metals markets as well as our China and greater Asia Pacific businesses. Raw material costs have stabilized and we expect gross margins will be similar to fourth quarter levels. Therefore, we expect adjusted EBITDA growth on a sequential and year-over-year basis in the first quarter of 2024. For the full year we expect the current end market environment will likely persist throughout the first half of 2024. We are cautiously optimistic on end market and raw material cost outlooks, and we expect to continue benefiting from the diversification of our portfolio leading to volume growth in 2024. Our team is highly focused on executing on our priorities, controlling what we can control. We have demonstrated considerable progress on our margin recovery journey and we have more opportunity. We also anticipate making further progress on our enterprise strategy; investing in our foundation, advancing our growth pillars and contemporizing our organization. We will continue investing in our talented people as well as our internal systems and processes, building our capabilities and advancing our customer intimate model for the future. Taken together, we expect to deliver another year of earnings growth in 2024. And consistent with our history, we also forecast another strong year of cash generation. We remain committed to our capital allocation priorities, investing in our organic growth, paying dividends, advancing our bolt-on M&A strategy, and strengthening our balance sheet through debt repayment. Additionally, while we intend on prioritizing growth investments consistent with our commitment to enhancing shareholder value, our Board has also approved a new $150 million share repurchase authorization. Quaker Houghton is fully committed to our growth strategy. The end market environment has continued to test our resolve, but our team has not lost focus on our priorities centered on enhancing the value we provide to our customers. We have managed through the immediate challenges our business has faced while maintaining our focus on the future. We have also improved our foundation. We are driving efficiencies and we are optimizing our processes and offerings, augmenting the durability of our differentiated customer intimate business model. Our strategic pillars remain centered on leveraging our global scale, deploying digital capabilities and leading in sustainability. These pillars are positioning Quaker Houghton to continue to meet the current and long-term needs of our customers and deliver value for our company and our shareholders. Leveraging our scale remains a critical way to advance and optimize the intimacy of our model, including with our direct and indirect channel strategy. We initially embarked on this improvement area in the U.S. and we expect to make further progress on this work in 2024 expanding into Europe. Leveraging our global scale also helps to drive new business wins. We do so by deploying, reinforcing and expanding the full capabilities of our technology portfolio. Consistent with this, in the first quarter, we bolstered our portfolio of specialty greases with the acquisition of IKV Tribology in Europe. This acquisition complements our portfolio of advanced and operating solutions and will help accelerate our growth in these areas. As an example, the electrification of the automobile is providing several nascent, but real and meaningful opportunities for us to accelerate our growth. These new opportunities have tremendous challenges and complexities, which is exactly the space where we thrive. We are working diligently to develop and drive leadership with value-adding solutions in these areas for our customers. These are just some of the examples of the important initiatives that we are advancing at Quaker Houghton. They are natural extensions of our differentiated customer intimate approach and are additive to our potential as we position the company for the decades of growth ahead. Overall, we remain focused on and committed to capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential. Our industry has attractive long-term growth characteristics and we have earned a leading position gaining the trust of our customers by providing them with the best services and solutions. We are well positioned from a financial and operational perspective, having improved our profitability, strengthened our balance sheet and restored the cash generation capabilities of the organization. We will never lose sight of our mission, driving success for and with our customers. This partnership fuels our ability to earn new business as we support our customers, helping them to manage complexity and enabling them to pursue new opportunities. We will continue to prudently invest to advance our growth initiatives. It is through our strategic pillars, our leading portfolio of products and services, and our customer intimate solution-based business model that we will achieve profitable above-market growth. And we remain committed to our balanced capital allocation strategy as we focus on maximizing shareholder value. I am proud of the execution and performance throughout 2023 and I am confident in our ability to move forward together for our customers and our company. With that, I'd like to pass it over to Shane to discuss the financials.

Thank you Andy and good morning everyone. The fourth quarter was another solid quarter for Quaker Houghton. As expected, our net sales declined approximately 4% from the prior year to $467 million. The main drivers of the change were lower price and mix of approximately 4% as well as a 1% decline in sales volumes, which were partially offset by a favorable impact from foreign currency translation of 1%. While volumes were largely consistent with the prior year, they also reflect softer global industrial activity, as well as the direct and indirect impacts of the UAW strikes in the Americas, which primarily impacted our metalworking businesses. Customer order patterns also impacted. For example, in China related to the timing of the Lunar New Year in 2023. These headwinds were partially offset by new business wins, improvements in our metals businesses globally, as well as an improved performance in our greater Asia Pacific region. Though we continued to implement targeted actions, our price and product mix did decline compared to the prior year. This primarily reflects our indexed based contracts which represent approximately a quarter of our overall volumes as well as impacts due to product mix. Sequentially, net sales declined approximately 5%. This was primarily driven by a volume decline of approximately 3%, reflecting normal seasonal patterns in the Americas business, which was muted by improvements in the EMEA and Asia Pacific segments. Gross margins in the third quarter were 36.6%, which represents an increase of 440 basis points compared to 32.2% in the prior year. This improvement reflects the continued execution on our margin improvement initiatives as well as a moderate decline in our raw material costs. Sequentially, gross margins declined by approximately 80 basis points due to the impact of the seasonally lower production volumes. Excluding one-time items, SG&A increased $13 million or 11% compared to the prior year, but declined $1 million or 1% sequentially. The increase compared to the prior year reflects inflationary impacts on our labor and related costs as well as impacts due to foreign exchange. Overall, we delivered $77 million of adjusted EBITDA in the fourth quarter, which represents an increase of 13% compared to the prior year. Our adjusted EBITDA margins were 16.5% in the quarter or 250 basis points higher than the prior year. These improvements reflect the progress we've made advancing our strategy while balancing our near-term priorities with our long-term profitable growth initiatives. Switching to our segments, net sales in the Americas declined 7% year-over-year, driven by softer end market activity, primarily in our metalworking businesses and to a lesser extent selling price and product mix. On a sequential basis, America's net sales and volumes declined due to normal seasonal patterns, which we previously anticipated. America's had consistent price and product mix with the prior quarter. America's segment earnings increased approximately 4% compared to the prior year, primarily reflecting our margin improvement initiatives. For the full year, America's margins increased 360 basis points, which drove segment earnings higher by 19% year-over-year. Net sales in our EMEA segment were consistent with the prior year as higher sales volumes and a favorable impact from foreign currency translation were offset by lower selling price and product mix. Our EMEA volumes have stabilized, but they still remain at low levels as we continue to contend with very soft end market conditions in most product categories. Sequentially, EMEA's net sales declined 3% as sequential increases in sales volumes were offset by price and product mix and the unfavorable impact of foreign currency translation. EMEA's segment earnings increased approximately 35% in the fourth quarter compared to the prior year. This increase reflects our margin improvement initiatives as well as overall cost actions. Similarly, full year earnings in the EMEA segment increased approximately 37% compared to 2022. Net sales in Asia Pacific were consistent with the prior year as an increase in volumes were offset by both price and product mix as well as an unfavorable impact from foreign currency exchange. Increased sales volumes were driven predominantly by demand improvements and new business wins, primarily in greater Asia and also broadly across metals and metalwork. Sequentially, net sales in Asia Pacific were also consistent with the third quarter. Asia Pacific segment earnings increased approximately 7% compared to the prior year, which was largely driven by gross margin improvement. For the full year, Asia Pacific's segment margins increased approximately 490 basis points, which drove a 12% increase in earnings compared to 2022. Overall, we have made considerable progress in 2023, improving the financial profile of all of our segments, which positions us well heading into 2024. Below the line, our interest expense was slightly lower in the fourth quarter compared to both the prior year and prior quarter, which reflects our commitment to debt reduction. Our cost of debt in the fourth quarter was approximately 6.2%, which is in line with where we exited the prior quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 30% in the fourth quarter and 28% for the full year. We expect our effective tax rate in 2024 to be approximately 29%. Our GAAP diluted earnings per share were $1.12 and our non-GAAP diluted earnings per share were $1.78. This represents a 28% year-over-year increase in earnings per share, which was driven by an improvement in operating earnings. Switching to liquidity we generated an additional $81 million of cash from operations in the fourth quarter. For the full year, we generated a record $279 million of operating cash flow. Our cash flow improvements reflect higher earnings as well as our focus on improving our overall working capital efficiency. Capital expenditures for the full year 2023 were $39 million, which includes $13 million in the fourth quarter. Also, we paid an additional $8 million of dividends to shareholders in the quarter, increasing total dividends paid to $32 million for the full year. In addition, we reduced our variable rate debt by $204 million in 2023, including a repayment of $78 million in the fourth quarter, which will reduce our interest expense in 2024. Our balance sheet and liquidity are strong. Our net debt at the end of the fourth quarter was $561 million and our net leverage ratio improved to 1.8 times our adjusted EBITDA. This represents the lowest level of leverage for the company since the combination occurred in 2019 and is a testament to the legacy of the strong cash generation capabilities of our company. Looking to 2024, we expect another strong year of cash generation, supported by earnings growth as well as our ongoing working capital efficiency efforts. Our capital allocation priorities remain unchanged. We will continue to prioritize investments in our company. For the full year 2024, we anticipate the range of our CAPEX spend to remain unchanged at approximately 1.5% to 2.5% of net sales. We will continue to build on our long history of dividends. We will continue to advance our M&A pipeline with attractive and accretive transactions that support our enterprise strategy. And while we will prioritize growth, we will also be opportunistic, including potentially through share repurchases to enhance shareholder value. In summary, 2023 was a very successful year for Quaker Houghton. We executed on our margin improvement initiatives, which increased segment margins by 400 basis points across all of our segments, despite significant end market challenges. We delivered record results and cash flow generation and we remain disciplined with our capital allocation priorities. We are committed to our growth strategy and we remain confident in the earnings power and cash generation capabilities of this company and we believe we are well positioned to continue to deliver long-term shareholder value. With that, I'll turn it back over to Andy.

Thank you, Shane. 2023 was a very successful year for Quaker Houghton, and we're excited about the opportunities ahead. I'd like to thank the entire organization for their commitment to our company and our customers and for living our core values every day. With that, we'd be happy to address your questions.

Thank you. One moment, please, while we poll for questions. Our first question is from Mike Harrison with Seaport Research Partners. Please proceed.

Hi. Good morning. Congrats on a nice finish to the year.

Good morning, Mike. Thanks.

Just looking at this price mix number down 4% year-over-year, you mentioned that about a quarter of that was related to the indexed contracts, but I get a sense that mix was negative. So I was just curious if you can provide any color on the mix component there? Is that regional? Is that dynamics within some particular end market or particular product line? And do you expect that to normalize as we get into 2024? Just trying to get a sense of kind of what the underlying pricing and the mix component could look like into next year.

Yes. Thanks Mike. A really good question. So, yes, we did highlight that price and mix declined in the fourth quarter on a year-over-year basis. And actually, the split is about half and half between price and product mix. On the mix side, it relates to order patterns and is a typically temporary situation, not any main pattern that I would highlight. When we think about the price piece of it, we're lapping prior year price increases when we look on a year-over-year basis, kind of as expected. And then we did have raw material decline modestly in the second half of the year, and we have about 25% of our entire business that's on indexed contracts. So those were impacts, but largely, we've seen stable pricing throughout the year and I would still highlight, too, we improved 7% in 2023 and so we're going to continue to work with customers on earning the value for the things that we do to help them solve problems and earn profitable new business.

All right. And just switching over to capital allocation, it seems like you're well positioned to have some nice flexibility here, given the balance sheet and the cash flow. But maybe just help us understand if anything has really changed in terms of your priorities. Given this share repurchase authorization, how should we think about prioritizing repurchases against bolt-on acquisitions? And I guess if there's any color you can share on kind of your approach and potential timing on repurchases. It's been several years since you guys have done any meaningful share repurchases, so just curious to get your thoughts on the philosophy and the approach.

Sure. Thanks Mike. First and foremost, we're focused on growing the business, and the way we do that is by supporting customers, and in turn then we generate shareholder value, and we've got ample opportunities to do that, some of which I've highlighted, and we'll continue to focus on that. But then the capital allocation strategy that supports that is not changed. It is unchanged and remains what we've talked about before. So we have been focused on some debt repayment here recently, which really has put us in a strong financial position to enable us to continue to focus on value creation. We've been committed to dividends. Last year we increased approximately 5%, and now we're 47 out of 50 years have increased our dividend. And then M&A is a key part of our growth levers to unlock value and our pipeline there is really healthy. We're continuing to move opportunities along and evaluate new opportunities. Timing is not always predictable, but we are advancing that portfolio and we were really happy completing the IKB acquisition here recently that we highlighted. So we're going to continue to prioritize organic and inorganic investments for the business. But we did put in place this active repurchase authorization that allows us to be opportunistic. But the key thing here is we have a balanced approach to our capital allocation. Nothing has changed, and we believe we have the right levers that will allow us to add shareholder value.

All right, thanks for that. And then last question for me is just in terms of the outlook, you guys are fairly encouraged on volume starting to recover and continuing down this path of margin recovery. But just curious, any additional modeling assumptions you can provide around volume, price, cost, and maybe kind of incremental margin leverage as we start to see these volumes turn around? Any other puts and takes that maybe we should keep in mind as we're trying to model EBITDA growth in 2024?

Yes, great. I’m happy to do that, Mike. So when I think about our outlook in total, I anticipate we're going to have another good year for Quaker Houghton in 2024. So starting with the first quarter, the underlying markets we don't think are going to change tremendously from the fourth quarter. There could be some benefit of seasonality in the Americas as we come off the fourth quarter, and our gross margins are going to be similar or maybe even slightly improved to the prior quarter. So in the first quarter, we anticipate EBITDA growth on a year-over-year and sequential basis, then transitioning to the full year, the visibility with some of the macro uncertainties makes it a challenge, but we anticipate underlying markets and kind of the current business to remain similar through the first half of 2024. But all along, we're going to be continuing to focus on what we do extremely well, which is earning new business by solving customer problems and driving value profitable volumes as we continue to do that. For gross margin, we're not yet at our targeted levels. We made a lot of progress last year, but we still have some opportunities and we'll continue to move towards our targeted range through the cycle. For SG&A, we'll continue to make investments in this business to be able to grow and there will be some inflationary impacts, although the pace of that, we believe, is going to be lower than what we've seen more recently. So taken together, another solid year for Quaker Houghton. It's going to be driven by volume growth and margin improvement that translates into earnings growth for the enterprise. And then last, I don't want to miss out on cash generation. We're going to continue being a solid cash generator with our model using that as part of our disabled capital allocation strategy. Again, where I just highlighted, we'll prioritize growth and uncovering ways to add the most value for our shareholders.

All right, sounds good. Thanks very much.

Thanks Mike.

Our next question is from Jon Tanwanteng with CJS Securities. Please proceed.

Hi. Good morning. Thank you for taking my questions and congrats on the nice quarter and margin cash flow. I was wondering if you could first talk a little bit about IKVT. I know it's fairly small, but maybe a little more details on what you paid for it, if there's any tangible accretion and what capabilities or opportunities does it bring to Quaker?

Hey, Jon, thanks for the question. Good morning, by the way. We're excited. This is another opportunity to advance our position and our advanced and operating solutions, specifically with specialty greases. Now, the size of the business is less than 1% of our total sales, but it adds some excellent growth opportunities and consistent with our bolt-on strategy that we've been very successful as we take advantage of our customer intimate model. When we can add technology or customer access channel to market or shore up some geographic positions, it works out extremely well for us. IKV does all those things for us.

Got it. That's helpful. Thank you. And then it looks like you had some modest deflation in Q4. I was wondering if you could talk about what you're seeing in input so far in Q1 and does that give you some tailwinds in driving incremental margin as you hold on to the price or should we be expecting something different there?

Yes. So we're anticipating. Was your question about raw materials or I just want to clarify, Jon.

Yes. And how that relates to margin. Yes.

Yes. Thanks. Thanks for that. Yes. So for sure, there were some modest declines in the second half of last year, but I would highlight raw materials are still very high on a historic basis. We've seen them stabilize at this point in time. We're not anticipating any real changes as we go forward into 2024. Remember, we've got a very complicated basket of goods, but overall, at that high historic rate, I think we believe it will be relatively stable going forward.

Okay, great. And then finally, could you talk a little bit more about your fluid monitoring products and kind of how much contribution you're expecting from that family of technologies and solutions in the coming years?

Yes. Thanks, Jon. I mean, we don't provide the granularity on how much it's contributing, but we're continuing to make progress on our fluid intelligence. This is a multiyear approach with phases where we really want to continue to add customer value in the way we're helping them to monitor their operations and control and ultimately optimize those things. So we're making great progress with the activities we're doing with customers now, which is helping to refine where we go next, and we'll continue to characterize that as we go forward.

Okay, great. Thank you.

Thanks.

Our next question is from Laurence Alexander with Jefferies. Please proceed.

Good morning. Can you, it's been a while since we've had, like a fairly normal year. Can you characterize what you think seasonality should be going forward?

Yes, Laurence, you're right. I can't recall what normal looks like anymore, so it's a fair point. But I think we've seen kind of some stability over the last year or two that is at very low levels. But we tend to see improvements as we move through the middle part of the year. And I would anticipate that's going to be a continuation, low to mid-single digits, lower in the first quarter, but things improve as we move to the middle of the year.

And then as you talk to your customers about your digitalization efforts and kind of the types of processes and programs you're working on, is there any change as you look farther out a cycle, two cycles, is there expectations in the industry of a change in the value capture? I mean, should we expect gross margins to sort of step up to a new level over seven, ten years, or how does the industry think about this all in terms of how it changes the financial structure of you versus your customers longer term?

Yes. So, Laurence, I think the way our customers and the way we think about it is there's opportunities here to both add efficiency to the things that we're doing today, to help them to monitor, control, and optimize their processes, and it allows us to do it more effectively as well. So I wouldn't say it's been quantified at this stage, but we fully anticipate that it's going to add to the benefit of both the efficiency and the effectiveness in the way that we deliver that intimate service model to help them be the most successful.

And what has been the feedback in terms of how different what you're doing is compared to your smaller regional competitors?

Yes, I mean, I think we have a more comprehensive ability to cover more parts of customer operations. Many of our customers have multiple operations, and so our ability to be able to help with tools and capabilities that go across those different units of operation is really a key thing that helps to differentiate us. And I think our know-how in the way that our products interact and the breadth of our products also creates a differentiation for us.

Thank you.

Thanks.

Our next question is from Vincent Anderson with Stifel. Please proceed.

Thanks. Good morning, everyone. So I just wanted to ask, hey, I want to ask real quickly, just how are supply chains looking for, let's call it some of your more esoteric inputs in terms of your ability to really lean into capturing new business this year?

Yes, I think yes, things have stabilized again back to our portfolio of materials. We work with over 3,000 different raw materials. And so compared to where we had been maybe a year or two ago, where there were a significant number of supply chain issues, those have, for the most part, mitigated. There's always anecdotal situations, but that is not a constraint for us going forward.

All right, that's good to hear. And then I just wanted to revisit a couple of things that were brought up already. But if I remember correctly, you had launched a fairly robust pilot program for your fluid intelligence system at a select customer or two. I was curious if you would be willing to go into any specific milestones related to that program that you're looking for in 2024. So if it's just going to be another learning year or if you have goals to expand the platform or the number of customer trials in 2024?

Yes, that would be the level of detail that we would go to. We're continuing to build on. I think as I highlighted last year, we had implemented our tools and capabilities within all of our own internal laboratories and operations, and we'd extended that to a group of targeted customers. Within those targeted customers, we're developing new applications again to cover more of these unit ops that I referenced a few minutes ago, and we're also extending into additional customers. So we're going to continue on the journey that we started on this process.

Excellent, thanks. And then just one last quick one again just following up on some of the questions around seasonality. Just looking at the chart in your deck, you called out seasonality again this quarter, but obviously in 2023 it hadn't been as drastic. Was there anything in the fourth quarter that was maybe offsetting some of that seasonality, whether it was much better than expected share gains or maybe there were some underlying demand improvements that helped kind of smooth things out this year?

Yes. So the Americas kind of had the seasonality that we would have anticipated as well as there was the impact of the UAW situation. APAC was relatively stable. We didn't see a big adjustment there and typically the fourth quarter is not a big mover with respect to that. EMEA was actually a little bit stronger than we would have expected from a seasonality perspective. Thanks.

Our next question is from David Begleiter with Deutsche Bank. Please proceed.

Thank you. Good morning. Andy, talk about demand trends you've seen in the first two months of the year and what you're seeing in your order books for March?

Yes, well, what I kind of indicated was we assume things are going to be relatively stable, not a lot of movements relative to the fourth quarter. EMEA and of course, all of these numbers are well down versus pre-pandemic levels, but EMEA continues to kind of bounce around the bottom, although, as I indicated, fourth quarter was a little bit better from a seasonality perspective than normal. Americas continues to be resilient, and we would expect some seasonality benefit as we're moving into the new year off of the fourth quarter. And APAC is relatively consistent. We've seen improvements in the back half of the year across APAC, both in metals and metalworking. So we're hopeful that that trend continues.

Very good. And back on pricing, excluding the contractual pass-throughs, do you expect underlying pricing to be up in 2024 and if so, how much of that is new pricing versus carryover pricing?

Yes, well, the team has done a great job on really managing our margin improvement initiatives as we move through the last several quarters and balancing customer relationships with that. And primarily, we're focused on that total cost of ownership and earning the value for what we provide. We, of course, always have to balance against the cost to serve as we're working with customers on that basis. But we do still have the 25% of our business that's index-based. And given some of the raw material trends in the last half of the year, although now things have stabilized, there could be some minor pressure in 2024 as that rolls through predominantly in the first half. But I think the important message is we expect to maintain or grow our margins as we move through 2024, and we're committed to earnings growth.

Great and last thing just on raws. Andy, how much should raws or do you expect raws be down in 2024 versus 2023?

Yes, as I indicated, raws, we're anticipating going to be relatively stable in 2024. There was a low to mid-single digit rap effect that comes from the decline in the last half of last year, and that impact will be mostly in the first half of this year.

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

Thanks for taking my question. Congrats on a pretty strong 2023 there.

Hi, Arun. Thanks.

Hey, Andy. I wanted to, I guess, get a little bit more of your thoughts on how EBITDA should evolve from here, so the last couple of years you've had the benefits of those price increases which appear to be waning and then, but now you do have maybe volume kind of coming back. So when you think about moving into Q1, I think you called for EBITDA growth. Last year if you look at your results, it looks like you did about 45% or 48% of your earnings in Q1 and Q4 and the remainder in Q2, Q3. So are you looking for like a similar split in 2024? And that would kind of imply maybe low 80s on the EBITDA line in Q1 and maybe some growth from there in Q2, Q3, and then Q4 looks closer to Q1? Just want to get a little bit more detail on that.

Sure. Thanks, Arun. So I think I commented a little bit already on the seasonality. There's a little bit of a Q1, Q4 impact. And your statement of historical rates, we don't anticipate anything major shifting on that. I would highlight, the key thing is our volume growth is going to be driven as well by new business wins. And those new business wins are very much focused on adding higher value to customers and then to earn that value in the way that we work with them. And we're going to continue to work on our efficiencies as well as we move forward here. So net of that, that's how we believe the volume growth and the margin expansion will help us to drive earnings growth in 2024.

Great, thanks. And then as a follow up, what are you seeing I guess on the M&A front? It looks like that maybe is an area of opportunity for you guys relative to some of your other peers who are potentially not as financially healthy. Is there any opportunities of the large variety that would make sense for you guys? And would you consider taking on a little bit more leverage at this point to complete those deals or is the interest rate environment still not necessarily constructive for that kind of move?

Yes, well, the capital allocation strategy still remains, it has not changed. And as I highlighted, a big way for us to increase shareholder value is to grow and one of those levers is through mergers and acquisitions and that really reinforces our ability. We've been very successful on bolt-ons and we have a very active pipeline. We just completed the IKV deal. We are going to continue to cultivate all sizes of deals as we move forward. That can take advantage of our customer intimate model and allow us to generate value through our expertise. And again, we'll look at places where there's technology, channel or geography that will be able to help us. So we're encouraged by the opportunities that remain. We feel like we're in a good financial position of strength and our capital allocation strategy supports us continuing to move forward there.

Great. And just as a follow up there. So we shouldn't necessarily think that there's been any change or reprioritization to share buybacks being ahead of M&A. It's still very balanced as far as your approach and you'd just consider all opportunities to increase shareholder value. Is that the message basically?

Yes. We're very disciplined and focused on creating shareholder value. We believe growth will help us to drive that. But opportunistically, we have the tools available if there are other opportunities to add shareholder value.

Thanks.

Thank you.

With no further questions at this time, I would like to turn the floor back over to Andy for closing comments.

Yes, I just want to thank everybody for joining our call today and for your continued interest in Quaker Houghton. Please reach out to Jeff if you have any follow-up questions and thank you. Have a great day.

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