Greetings, and welcome to the Quaker Houghton Second Quarter 2020 Results Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Michael Barry, Chairman, Chief Executive Officer and President for Quaker Houghton. Thank you Mr. Barry, you may begin.

Good morning, everyone. Joining me in virtually today as we are all currently working from home are Mary Hall, our CFO; Robert Traub, our General Counsel; and Shane Hostetter, our Head of Finance and Chief Accounting Officer. We have slides for our conference call. You can find them in the Investor Relations section of our website at www.quakerhoughton.com. A great deal has changed in the world in 2020 with the COVID-19 pandemic. For us, our top priority is to protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' requirements. All of our 34 plants around the world are operating and we are satisfying all of our customer needs. I am very proud of what the Quaker Houghton team has done to continue servicing our customers as well as continuing with our integration effort, which has not missed a beat. The second quarter was consistent with our expectations. Overall, our sales were down 27% from the second quarter last year on a pro forma basis and down 24% from the first quarter. I think it is helpful to understand where the 24% decline in sales from the first quarter came from and I'll first do this on a geographic basis. The Americas declined 35%, EMEA declined 23% and Asia-Pacific declined 4%. The declines in all three regions were primarily driven by the impact of COVID-19 on our customers' businesses. And as you could see geographically, there was a large difference between these regions. The Americas was the most impacted as many of our customers had shutdowns or significant slowdown that lasted well into May. EMEA was the next largest in impact as the customer shutdowns and production slowdowns were less expensive and a shorter duration than in the Americas. Asia-Pacific…

Thank you, Mike and good morning all. Before I begin, let me remind you that comments made during this call include forward-looking statements, which are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and in our 2019 Form 10-K filed with the SEC. These are available on our website. Please also note that we updated our risk factors in our Form 10-Q following our Q1 update to address the evolving COVID-19-related issues and these risk factors should be reviewed along with those in our 2019 Form 10-K. In our press release and in this presentation, we provided certain information, including non-GAAP earnings per diluted share, non-GAAP operating income, and adjusted EBITDA as well as certain pro forma items in an effort to provide shareholders with better visibility into the company's core operations, excluding certain items, which we believe do not reflect our core operating performance. Reconciliations are provided in the appendix of this investor deck. We followed a similar review format for this deck as the one we used during our last couple of calls post combination where our comparison periods show actual and non-GAAP results as well as pro forma sales and pro forma adjusted EBITDA as if we had been combined with Houghton throughout the periods presented. So please see slides 6 through 8 now while I review some highlights. As Mike noted, the precipitous decline in volumes we began to see in the latter half of March continued into April. We expected April to be the trough in volumes, and it was with slightly better performance in May, and in June, we saw…

Thank you, Mary. We will now open it up for questions.

Thank you. [Operator Instructions] Our first question comes from Jon Tanwanteng from CJS Securities. Please proceed with your question.

Good morning. Thank you for my taking my questions.

Good morning, Jon.

My first one is that Mary, maybe can you quantify some of the temporary cost cuts you've been making, what layers back in as volumes improve, number one and number 2, if any of those could be made permanent and maybe thus incremental to the synergy cost savings that you have announced.

So the cost actions that we took in response to specifically to the COVID situation include -- and I think Mike mentioned a few, but executive pay cuts, we did have some merit increased deferrals, certainly all T&E was pretty much shut off. So those were the major contributors. We would expect, Jon, as business resumes to more normal levels or continues to pick up that those type of costs will come back. But the more structural changes that we've made in the integration plan that are coming through obviously in our synergies that we've articulated. Those are separate from those cost actions and those are structural and we view this as permanent.

Got it. So, no real permanent reductions from the temporary cost cuts is which is I think.

Yes. I would say, Jon, that we -- most of that increase between, let's say the -- on the synergy increase for this year between $35 million and $53 million [ph], most of that was due to sure integration stuff as we got into it is more than we had expected. But there were also in light of this situation and also like in light of how things are going to look for the next year or two, we did take a harder look at number of things. So some of that increase is really because of COVID and volume [indiscernible] into our structure.

Got it. Okay, that makes sense. And just maybe from a longer-term perspective, any changes in the -- the ability to reach, call it a $200 million EBITDA bogey in the next year or two, and that's just simply using the results you had in 2019 plus expected synergies. Any changes to that timing and your ability to achieve that level just given your outlook in the current environment?

Yes. It's hard to exactly predict timing at this point, but we do -- we do expect to see a big increase in EBITDA next year as we get all of our synergies kind of fully baked in over the next few years. And then, we also expect to have above-market growth and as demand even though it doesn't come back at the end of this year and it probably won't for a couple of years, we think that will lead to at least a nice gradual improvement in demand on our lower cost base and that should -- that with our increased margin level should give us a nice popping EBITDA. The exact timing of that is not -- hard to predict at this point, but we still expect to be steady significant increases in '21 and in '22.

Okay, thanks. And then just finally on, as we go into July. I know you expected sequential increases or you saw sequential increases going into July and for Q3 and into Q4. Can you just talk about the businesses located in regions that are still being impacted by the pandemic concerns -- the Americas, Brazil, and the US specifically, India, for example. How are your operations there on coping or being affected but whatever regional restrictions or lock down may be in place?

Yes. All of our plants are operating right now. So there is not a -- there hasn't been a really too many issues. Once in a while there can be a disruption, for example in India. But pretty much everywhere else around the world there hasn't been. But right now, everything is operating. And we are seeing businesses take off of a very lower level and there is that you mentioned there are some areas that you mentioned in the Americas, whether the US or Mexico or Brazil or India have been in many ways the most challenging countries for us. But they certainly are improving. But in general, we're seeing improvement everywhere around the world.

Okay, got it. Thank you.

Thanks.

[Operator Instructions] Our next question comes from Mike Harrison with Seaport Global Securities. Please proceed with your question.

Hi, good morning.

Good morning.

I was wondering if you can, Mike, maybe provide a little bit of guidance on the expected sequential improvement in revenues, we've heard from a lot of companies so far this earnings season and it seems like many of the industrial exposed companies out there are suggesting the Q3 revenue could be down in the 10% to 15% range year-on-year. Is that kind of in the right ballpark just where with your expectations for sequential improvement?

Yes, we have chosen I guess not to give a specific improvement or guidance relative to the -- certainly levels. So I think the only guidance that we feel comfortable giving at this point is that third quarter will be better than the second quarter, we will see sequential improvement and we will see EBITDA over $200 million. So, if you kind of see where we were through the first six months, essentially, we were $93 million in round numbers of EBITDA. Obviously, in the second half of the year, we expect to be over $107 million of EBITDA. So we are -- so if you just look at sequential improvement could be in the quarters and estimate that from an EBITDA perspective, that's the only kind of guidance we want to indicate at this point.

Okay. And just to clarify the sequential improvement that would be both on a revenue basis and EBITDA basis.

Yes.

Okay. Can you talk a little bit about your customer inventory levels of your products? I generally think of those customers as managing that pretty tightly. In some cases you guys manage the inventory for them, but did June see any restocking benefit or is there some restocking yet to come or are those levels generally pretty lean and we shouldn't expect to restock?

Yes. I mean in our business, a lot of -- our customers do not store a lot of our products. So where we see this inventory effect tends to be more on if from the customers' inventory level, and for example, I was reading yesterday car inventories might be lower now like in the United States then they were a year ago pretty significantly. And so, if the customers have to up production because they get their inventory back with different -- better levels, then that will impact us with their increased production. But the amount of product that we store at a customer site is really not that big.

Alright. And then I wanted to ask about the aerospace business. Obviously, that's an area that was under some pressure coming into this year and that the expectations are that that is going to take even longer to pick back up. Are there other markets that you're looking at where you believe you could be facing a slower recovery trajectory besides aerospace?

No. I think aerospace would be the -- an example of a market that would have been the most of the time to come back to normal. You're right. Aerospace makes up around 4% of our sales, actually in this quarter, it's 3% of our sales. So that gives you the magnitude of it. So we have been impacted by -- if you look at the drop in our revenue due to aerospace quarter from -- the second quarter of last year it was 2% of that impact that we saw of the 27%. So, I do agree everything you said, I think that's the most impacted, but we don't have any other markets that are going to be as impacted as that.

Then on the flip side of that, can you talk about, we've heard that there are shortages of aluminum cans. I know that you guys have some exposure to canning or to metal packaging. Has that been a bright spot for you? Can you maybe go through some other areas where you've seen these markets be a little bit more resilient or recover more quickly?

Yes, I think can is a great example of one area that really does has pretty good growth characteristics or a good -- not as impacted as much. So, I definitely agree with you on that. A lot of our other sectors are generally more tied toward general industrial type of things -- of course, we have the automotive. But I would say that overall, we definitely have other initiatives in other areas like I think of things like die casting and so forth that have definitely more above market type of growth characteristics that we're excited about.

Alright. And then the last question I have is on the pricing versus raw material front. It looks like price mix was positive in those regional segments within the metals and metalworking businesses. Is that sustainable as you are presumably seeing raw material costs continuing to be lower year-on-year?

Yes, we, I would say from a raw material perspective and like you said its price and mix, right. So it's hard -- I wouldn't -- I would say maybe a lot of that in that case, might have been mix. So I don't view any major issues from a pricing perspective. And when you look at our raw material environment that we're in right now, it is relatively flat, it was relatively flat overall from the second quarter -- from the first quarter to the second quarter and as we look forward, we expect it to be relatively flat in the second half of the year as well. So I don't really see much change in that regard.

Alright, sounds good. Thanks very much.

Thanks, Mike.

[Operator Instructions]. There are no further questions in queue at this time, I would like to turn the call back over to Mr. Barry for closing comments.

Okay. Given that no other questions we'll end our conference call now. And I want to thank all of you for your interest today. Our next conference call for the third quarter will be in early November. And if you have any questions in the meantime, please feel free to contact Mary or myself. Thank you, again, for your interest in Quaker Houghton.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.