Quaker Chemical Corporation (KWR) Q3 2024 Earnings Report, Transcript and Summary

Greetings, and welcome to the Quaker Houghton's Third Quarter 2024 Earnings Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 third quarter 2024 earnings conference call. On the call today are Andy Tometich, our President and Chief Executive Officer; Tom Coler, 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, October 31, 2024. Our press release and accompanying slides can be found on our Investor Relations 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 effects on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For more information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Andy.

Thank you, Jeff, and good morning, everyone. The third quarter once again highlighted the resilience of Quaker Houghton. Despite the persistent headwinds in the overall market environment, on a sequential basis, we delivered stable sales, strong and consistent margins and another quarter of solid earnings and cash flow generation. Together, we are executing well and I'm pleased with the progress we are making, advancing our enterprise strategy as we continue balancing our long-term objectives with the near-term market environment. Third quarter net sales, were $462 million, 6% below the prior year, but consistent with the second quarter, While many of our end-markets and regions remained challenged, our total volumes were once again stable, on both a year-over-year and sequential basis. This result is driven by our disciplined execution, which is helping to offset the current macro backdrop. New business wins are trending within our expected range demonstrating the value of our differentiated customer intimate model, our leading portfolio of solutions and services and the quality of our team, as they remain focused on helping our customers improve their operations and businesses. Gross margins in the third quarter were 37.3%, overall in line with the prior year and the prior quarter. We have remained committed to our customer-focused value and use model balancing our cost to serve with the current and expected raw material environment, as well as our growth aspirations. Our current financial profile is enabling us to deliver the best products with appropriate levels of service based on the value to our customers. We are also actively working to enhance our operational capabilities and improve our manufacturing and supply chain productivity. We are making steady progress, supporting our commitment to consistently deliver gross margins in the 37% to 38% range. In the third quarter, we generated adjusted EBITDA of $79 million and $1.89 of non-GAAP diluted earnings per share. These results emphasize the resilience of our business and our focus on positioning the company to continue our long-term outperformance. We ended the third quarter with over $200 million of cash and a net leverage ratio of 1.6 times our trailing 12 months adjusted EBITDA. Our strong financial position is supported by our cash generation capabilities and year-to-date, we generated approximately $142 million of operating cash flow. Our balance sheet, business model, and cash flow characteristics, provide significant opportunities to support and accelerate our model for value creation. Our focus on maximizing shareholder value is clear and supported by our balanced capital allocation strategy. To-date in 2024, we have acquired two technology-advantaged businesses that expand our markets and complement our portfolio of advanced and operating solutions. We've also paid down debt, and we have returned approximately $50 million to shareholders through dividends and opportunistic share repurchases. Turning to our segments. Our Asia-Pacific segment has continued to deliver growth in the third quarter, despite mixed end-market conditions, driven by our focus on new business wins in metals and metal working applications. Performance in our Asia-Pacific segment has significantly outperformed its markets year-to-date with volumes higher by approximately 9% in 2024. Volumes in the EMEA segment increased compared to the prior year, whereas volumes in the Americas segment declined. The soft industrial production activity we've experienced in 2024 has continued in the third quarter across most end-market segments in our EMEA, and Americas segments. These segments were additionally impacted in the third quarter by extended customer downtimes and reduced production rates. This is especially evident with automotive, metals, and industrial customers. Despite the softer environment, our total sales were consistent with the prior quarter driven by our teams focused on earning new business across our Diversified geographies and portfolio. It is through our team's efforts that we are performing consistently at or better than the aggregate performance of our underlying markets and regions in which we operate. Our segment financial profile has also improved as segment operating margins are higher year-to-date. Our performance of the result of the actions we are taking to focus our portfolio, optimize our operations and our cost structure. Our actions will continue to benefit the organization further unlocking the growth potential of the enterprise as overall economic conditions begin to improve Switching to the outlook. Growth in our underlying markets remains restrained. We anticipate these soft underlying market conditions will persist through the fourth quarter. This will be further amplified by typical seasonal patterns as customers manage their own production and working capital through year end. We will continue to execute on what we can control. We will maintain a disciplined approach with our customer intimate model seeking to continue to earn new business by improving outcomes for our customers, while also driving manufacturing and supply chain efficiencies and prudently managing our investments, costs, and margins. I'm pleased to announce that we have achieved more than the original $20 million of runrate savings that we targeted on our Cost and Optimization Program announced in 2022 on schedule. We are continuously working to identify further cost and optimization opportunities in EMEA and across our global business. In addition to our focus on cost management, we are also advancing our growth initiatives in several key areas and we have taken clear and intentional actions to center the portfolio and our people where we can drive the most success for our customers now, and in the future. We are building momentum on these efforts, which we believe will drive progress as we advance through 2025 and beyond. We are confident in our strategy and the long-term positive fundamentals of our industry. We have continued to outperform our end-markets, which have been softer than expected in 2024. We believe our ongoing investments will strengthen our ability to continue to outperform, delivering above-market profitable growth. Coupled with our cash generation capabilities, we have ample avenues to deliver strong earnings growth moving forward, especially as our markets begin to improve. As I've highlighted for several quarters, our enterprise strategy is centered around three key themes of globalizing, digitalizing and leading and sustainability. Our strategy at its core is a modernization of our proven model. It is designed to amplify our value proposition, enhance our competitive position, and offer the services and solutions that our customers value, which in turn accelerates opportunities for growth. In 2024, we have made progress. We are being more intentional to globalize as we capitalize on our scale around the world. This is evident by the growth in our Asia-Pacific segment. As we build out our capabilities in China, India, and across Southeast Asia. Our acquisitions of I.K.V. and Sutai directly enhance our portfolio of advanced and operating solutions, and provide opportunities to innovate for and deploy our full portfolio to our global customer base. We have made progress on our global simplification efforts in the US and Europe, including using digital tools to reduce complexity in our business and drive efficiencies, and a sharper focus on achieving better outcomes for our customers. As we advance the theme of digitalization, initial trials of our Fluid Intelligence offering are encouraging and we continue to iterate on this important and leading platform. We have made progress building out our theme on sustainability and have several trials underway that provide performance and environmental benefits to our customers. And we're enhancing our global supply chain, and manufacturing capabilities, improving our customer experience, for instance, in metal forging, and across the e-mobility landscape. Our team is fully committed to strengthening our foundation, growing our capabilities and driving long-term value for our customers and shareholders. Stepping back, we have continued to successfully navigate the unfavorable macro environment in 2024 by focusing on what we can control. We continue to earn new profitable business in all regions, based on the quality of our leading portfolio of products, services and technical expertise. We have significantly improved the profitability of the enterprise and are proactively optimizing our operations. We are prudently investing in our enterprise strategy to enhance our customer intimate model and unlock new opportunities. We are fully committed to expanding our leading position in this highly fragmented, industry with attractive, long-term, secular growth drivers. And we have a strong financial position with a disciplined capital allocation strategy, which is hyper-focused on accelerating our growth and maximizing shareholder value. Our results are only made possible by the commitment of our talented team, who is focused on the success of our customers and in turn our company, I'm inspired by them, motivated by the resilience of the organization and excited by the opportunities ahead. With that, I'd like to pass it over to Tom to discuss the financials.

Thank you, Andy, and good morning, everyone. Our net sales declined, approximately 6% from the prior year to $462 million, the drivers of the year-over-year change were lower selling price and product mix of approximately 4%, which primarily reflects the impact of our index-based contracts, lower sales volume of approximately 1% and unfavorable impact of foreign exchange of 1%. We continue to be impacted by soft end-market activity, primarily in the Americas and EMEA segments. In the third quarter, there were increased headwinds in the automotive market due to extended downtimes and lower production rates. Our sales volumes however have remained stable on both a year-over-year and sequential basis as new business wins which are trending within our range are helping to offset these persistent challenges. Gross margins in the third quarter were 37.3%, in line with the prior year and 60 basis points below the prior quarter, primarily due to lower gross margins in EMEA and Asia-Pacific. Raw material costs have declined on a year-over-year basis, but were stable compared to the second quarter. We expect our raw material costs to remain stable in the fourth quarter. Excluding one-time items, SG&A decreased $4 million or 3%, compared to the prior year and increased $2 million or 2% sequentially. The decrease compared to the prior year reflects our focused cost management efforts partially offset by recent acquisitions. On a year-to-date basis, SG&A is slightly lower as we have effectively managed our costs exceeding, the $20 million of runrate benefit, we targeted with our cost optimization and program announced in 2022. We delivered $79 million of adjusted EBITDA in the third quarter, a decline of 7% year-over-year. Adjusted EBITDA margins however were in line with the prior year at 17%. We continue to make progress driving efficiencies, while building out our profitable growth initiatives. We will continue to be prudent with these investments, which are aimed at streamlining the organization and driving productivity improvements across the enterprise. Searching through our segment results, net sales in our Asia-Pacific segment increased approximately 3%, compared to the prior year, driven by an increase in sales volumes and partially offset by a decrease in selling price and product mix. The improvement in volumes which have increased approximately 9% year-to-date is primarily driven by new business wins across both metals and metal working applications. Segment earnings in Asia-Pacific declined less than $1 million or approximately 1%, compared to the prior year. We continue to be pleased with the performance in the Asia-Pacific region as they have effectively managed through the tough market environment. Net sales in EMEA were 4% lower year-over-year. Selling price and product mix declined primarily due to the impact of index-based contracts, sales volumes inclusive of the impacts of the I.K.V. acquisition increased approximately 1%, compared to the prior year. Overall, economic conditions remain muted in this segment and at very low levels, especially for metal working applications Net sales and volumes in EMEA declined compared to the prior quarter, consistent with overall market trends in the region. Segment earnings in EMEA decreased by $3 million or 12%, compared to the prior year driven by higher manufacturing costs and mix. Year-to-date, segment operating margins are approximately 110 basis points higher reflecting the benefit of our ongoing cost savings initiatives. We expect to drive further productivity improvements and efficiencies in the EMEA segment in 2025. Net sales in the Americas declined 10% year-over-year, due to lower sales, volumes and selling price and product mix. Volumes in the Americas continue to be impacted by lower industrial activity in the region and were additionally impacted by customer downtime and lower production rates in the third quarter. This was primarily in automotive and other metalworking applications. On a sequential basis and excluding an unfavorable foreign currency impact, sales were flat in the Americas compared to the prior quarter as new business wins help mitigate the softer market environment. Segment earnings in the Americas declined approximately 10% in the quarter compared to the prior year primarily reflecting the lower sales with stable margins. Our business continues to perform well, especially considering the persistent end-market challenges. We continue to outperform the aggregate underlying demand due to new business wins at all segments, and we are making considerable progress aligning, our costs with the current challenging market environment. We are well positioned to capitalize as market conditions improve. Turning to non-operating costs, our interest expense was approximately $3 million lower in the third quarter, compared to the prior year, which reflects the ongoing reduction in our variable cost debt. Our cost of debt of 6.1% improved slightly versus the prior quarter. Our effective tax rate, excluding non-recurring and non-core items was approximately 29% in the third quarter. We continue to expect our effective tax rate in 2024 will be approximately 29%. Our GAAP diluted earnings per share were $1.81 and our non-GAAP diluted earnings per share were $1.89. Year-to-date Non-GAAP diluted earnings per share are higher by approximately 4% despite the tough operating environment. Switching to liquidity, we generated $68 million of cash from operations in the third quarter and $142 million year-to-date. We remained focused on improving our working capital efficiency and are on-track to deliver another strong year of operating cash flow in 2024. Capital expenditures in the third quarter were approximately $8 million and $19 million year-to-date. We expect total CapEx will be above the midpoint of our communicated range of 1.5% to 2.5% of sales in 2024, as we continue to fund some of our growth initiatives. In the quarter, we paid approximately $8 million in dividends and opportunistically repurchased approximately $15 million of shares. And we have repurchased a total of approximately $22 million year-to-date through September. In total, we have returned approximately $50 million to shareholders thus far in 2024. Our balance sheet and liquidity are strong. Our net debt at the end of the third quarter was $529 million, and our net leverage ratio improved to 1.6 times our trailing 12 months adjusted EBITDA. The resilience of Quaker Houghton is evident. We continue to successfully navigate the challenging end-market environment, while controlling items within our control. Our focus remains on executing on our clear objectives to accelerate growth and deliver long-term shareholder value. With that, I'll turn it back over to Andy.

Thank you, Tom. Quaker Houghton’s business model is strong. The team continues to execute well for our customers and our company. We are well positioned in our end-markets and committed to our enterprise strategy to drive long-term value for shareholders. With that, we'd be happy to take your questions.

[Operator Instructions] And our first question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi, good morning. I'm sorry about that. Looking at the operating - good morning - looking at the operating margin performance in Q3, you guys were 120 basis points lower sequentially, even though the revenue level was pretty similar to last quarter. Can you help us understand the different pieces of that sequential margin decline? Did we see some change in in price cost? Was there a change in mix? Was it some growth investments kicking in? Just really trying to better understand those margin dynamics there.

Yeah, thanks, Mike, and good morning again. Really down to a couple factors. So, at the gross margin level, we were also pretty consistent. But we did have a bit of a lag effect on our pricing due to indexes as over the past number of quarters reaching raw materials come down. There's typically a lag then when that kicks in on the pricing level. So we did have a bit of an impact in the third quarter related to that. Raw materials overall the basket was pretty balanced. So we were consistent, but there was a little bit of degradation in the third quarter related to that. As raw materials stabilize, we anticipate that that affect diminishes. And then on the SG&A side, we had fully expected that we were going to have a bit of an uptick just based upon some timing around phasing of a few of our cost structures. But the nice thing is we actually offset some of that with cost controls, as well. So, it was really down to those areas that that impacted a bit of the operating leverage.

All right. And then, you talked about Asia and the strength you've seen there. It's kind of been a bright spot for you with this high-single-digit volume growth rate this year. Can you talk about what's driving that strength? And I guess with some stimulus in China, is it possible that we see that momentum continue or even accelerate as we look over the next few quarters?

Yeah, it's a great observation, Mike. We've seen relative strength across the Asia-Pacific region. So it's not a particular country. It's China, it's India, it’s Southeast Asia. We've seen some positive not only in metals, but also in metal working. Now we did add a bit of help with the Sutai acquisition, but the vast majority of the growth has been organic growth for us and it's really focused on the new business wins. The team's doing a great job of identifying additional customer opportunities as they're unlocking their business and value associated with it and the team is really well positioned on that. So we're hopeful that some of the backdrop to the market continues to be positive on that. But we're making our own progress in a lot of other things we're doing.

All right, and then, in terms of the outlook for Q4, you mentioned there's some seasonality and typically, we would expect to see some seasonal decline from Q3 levels into Q4. Can you maybe just talk about some of the puts and takes as we're thinking about Q4 versus this current quarter Q3 from a revenue, as well as a margin standpoint?

Sure, yeah. Yeah, I mean, overall the market continues to be pretty soft as we look into the fourth quarter and you're right you’ve highlighted that we typically have a couple percent impact on seasonality in particular in the Americas, in EMEA. We're expecting the headwinds to continue in the fourth quarter including some of the outages that we saw in the third quarter around automotive and steel and now, some challenges in the aerospace industry as well. On a positive note though, we are still earning new business to offset some of that. And we continue to have expectations for Asia-Pacific to continue to be positive. So, overall, I think we're executing pretty well. We're managing our margins. Continuing to focus on our cost structure as we're still advancing our strategy and while we don't give explicit guidance, I hope that at least contextualizes a little bit for you because the next takeaway I would say is, while the fourth quarter will be a little bit challenging, we think we're setting the business up really well when the markets do start to improve.

Okay, and just to clarify, if we do see a seasonal decline on the top line, would you expect to see some margin decline from Q3 into Q4, as well?

Yeah, hey Mike, this is Tom. Yeah, thanks for the question. I think as had Andy had mentioned raws are stabilizing here at these levels. We would anticipate that our pricing declines will moderate as we continue to move through Q3, Q4. So, in general, we're anticipating to be still within our range of 37% to 38% would generally stable margins, as we look from Q3 to Q4.

All right, I'm going to sneak one more in here and then I'll be done. Any chance I can get you to comment on some modeling assumptions as we are starting to turn our attention to 2025? I would assume that markets remain pretty soft, at least to start the year, maybe we see some volume inflection in the second half and then you guys would anticipate some share gains on top of whatever the market's giving you. But as we're thinking about EBITDA margin next year, do we need to think about incentive comp resets. You talked a little bit about restructuring and more productivity, particularly in EMEA. Just trying to think about how to model EBITDA margin as we're looking out to next year? Any help would be appreciated. Thank you.

Sure, thanks, Mike. Well, of course, it's a bit early for us to have much specific for 2025. But I'll try to give you a little bit of context. First of all, we're planning to build on the progress we've made over the over the last couple of years. So holding on and continuing to operate at our target margin range. We continue to optimize the organization, find efficiencies, so that we're successful regardless of the macro environment. We’ve talked about it before control all the things that we can control. We're getting some good traction in some of our growth initiatives, some of the things we've talked about on the strategy side. I think it's really hard to predict what's going to happen in the macro. There are some reasons to believe that things could improve just based on some external signals. But it's starting from a pretty low spot after the last couple of years of contraction. And just a couple points on that. There's been some suggestion that auto and steel production can improve. There's some new mills that have been announced for operation next year. So - and then we have a pretty diverse market too. So, hopefully some of that will start to improve. But we're going to continue to drive the things we need to drive, in order to execute and do well, and that includes earning new business and I'm pretty confident we'll continue to do that. We're in a good position here with that outperformance on the new business we're winning that. When the markets do recover, it's going to be even more pronounced for us. And we've got a really healthy financial position with respect to our balance sheet and cash flow and we're going to deploy that to accelerate our growth based on what the market gives us and the success that we'll drive ourselves.

Thanks very much.

Thanks Mike.

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

Good morning. It's Dan Rizzo on for Jefferies. Thank you for taking my questions. If we had to lap current pricing what would the net price tailwind be next year?

Yeah, well, first, Dan, thanks for the, the question. I mean, first just to give some context to it. Well, pricing was down year-over-year and we commented it was related to the index pricing. If you look at it on a sequential basis, it's already starting to mitigate. So it's down to - it was, 1% negative. And because of that that index pricing and now seeing some stabilization in raw materials, we would expect that to diminish. going forward. And you can see that in how we're managing the gross margin on a year-over-year. It's rather flat. So we're anticipating things will stabilize as we move into the next year. We're confident that we will do the things necessary to operate within our targeted 37% to 38% range.

Okay. And then, how should you think you've captured over the past 2, 3 years? Is the pace of share gains accelerating would you say?

Yeah, we have done a pretty good job in pretty tough markets. And I think it really shows the resilience of the team as we have, indicated in a couple of our previous calls, in our growth algorithm typically outperforming the market by 2% to 4%. We actually think our new business wins are on the higher end of that range. Now that's been subdued a little bit because of just the soft markets and some of the churn that was associated with that as we were recovering our margins. But we've seen that churn go down over time. So our net new business wins are still within that targeted range. But we're doing a better and better job on accelerating the new wins and as we mitigate the churn, we think we have an opportunity to actually improve within that range.

Could you characterize any of that as like, as you are you are showing your revenue synergies from Houghton. I thought you guys I have had a long, long sales kind of cycle. But I was wondering if that's starting to flow through or already has more will pass that.

Yeah, I think the growth synergies that were anticipated with respect to the combination, I think are still moving through our system. We had the unfortunate situation of the pandemic and then global supply chain challenges kick in not long after the combination, which really stunted some of that. So we have made progress, I think part of the reason that we're operating really well within our targeted range of new business wins is we're doing a better and better job all the time. But there's still plenty of opportunity for us going forward.

All right. Thank you very much.

Thanks.

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

Hi, good morning. Thank you for taking my question. I was wondering if you could talk…

Good morning.

Good morning. A little bit more specific about the impact of customer factory and facility shutdowns or extended downtimes and then even straight on Q4 and how much that will be incremental over the normal seasonality?

Yeah, so, first just highlighting again, where we're seeing the continued outages are primarily in auto and just general industrial and now aerospace. That has a bigger impact in the Americas, in Europe, but it does have some carryover, as well in the other regions. Tom, I don't know if you - you'd like to add any additional context on that?

Yeah. I would just say, I think Andy characterized it well in terms of auto and steel. I think the new item for us that impacted a very small amount in Q3 is in the aerospace, aero is approximately 5% of our, a little less than 5% out of our global revenue. And we work across many parts of the aerospace supply chain. But, again, we're seeing challenges in that market starting to emerge here in Q3, particularly in the Americas. So as we look forward into Q4, if the current market environment, particularly in Aerospace continues to exist depending on the length of that, we could see a few million dollars of EBITDA impact in Q4 associated with that market segment.

Okay, great. Thank you. And then, you guys spend a bit of time talking about pricing and index that impacted Q3. I was wondering how much of the impact was mix related either by end-market or geography or product type?

Yeah, for sure, there was some mix impact and you hit it. It's related to the market segment, as well as geography with a little more of an impact in the - in Europe. Europe continues to be a challenge for us. It's the area that we have the biggest opportunity to improve and we'll continue to focus on that. So that we get back to growing there and making sure we're growing profitably.

And last one for me. Any thoughts or update on capital allocation, just given you still viewing healthy cash flow leverages in the next place. I know you bought back shares in the quarter, just what are your preferences going forward for your priorities as we enter this, maybe weaker period on the operations, but still have a lot of firepower in the bank.

Yeah, Jon, thanks. Thanks for pointing that out. We do feel very, very positive about our overall financial position and the cash we're continuing to generate. And we have the responsibility to make sure we deploy that in the best interest of the shareholders, which we do. We have a very disciplined capital allocation approach. We have a preference for growth. So, supporting our own organic growth through CapEx and investment in the business, as well as inorganic, as evidenced by the two acquisitions we did this year with Sutai, and I.K.V. But we're also as our cash generator, we're not going to just let cash build. We've returned $50 million to shareholders this year through dividends, which we once again increased. And then we've done some opportunistic buybacks. So we want to make sure we have all the right tools to take advantage of. On buybacks, it was opportunistic. So $23 million year-to-date and we'll look at that opportunistically whenever we think there's, we're not appropriately valued. But really we're going to continue to target on where do we generate shareholder value to growth? And we'll be deploying the cash flow capabilities primarily in that space.

Great. Thank you.

Thank you. Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.

Great. Thanks for taking my question. So, I guess, yeah, I mean, I guess, I wanted to just dig in a little bit on the, the performance that you've seen here. So, it looks like according to the volume slide that you are down a little bit year-on-year in volumes maybe low-single-digits and maybe at the lower part of that. So, I guess, would you attribute most of the decline in revenue this year to price and if so, has that kind of cycle run its course? Or do you expect further price deterioration, especially if you are now considering, some volume headwinds to accelerate?

Yeah. This is Tom. Good morning, Arun. How are you? Thanks for the question. So, yeah, what I would say is, I think you're right. We saw year-on-year very low-single-digit year-on-year volume declines. If you look at our pricing impacts over the last several quarters, those continue to come down over time as the effects of the raw material deflation sort of work through our system and we see the impact come through on index-based contracts. So, as Andy had said, relative to our Q4 outlook, our anticipation is that margins will stabilize in this range and will continue to see less impact of price as we go forward.

Great. Thanks for that. And just as a follow-up then, so we were kind of modeling a resumption of growth in ‘25. Do you feel like that's still kind of in the cards? I know that you often target above market growth a couple hundred basis points above the market, but the market kind of seeing some of these headwinds strike in aero and maybe lower automotive production maybe that could ultimately results in lower steel and aluminium utilization rates, as well. So, in the phase of flat to down volumes, would you still be able to turn in margin expansion and earnings growth next year? Or should we kind of moderate that view?

Yeah, thanks for the question. It's always our expectation to drive growth. But we also understand after the last couple years, we can't control everything\ in the macro environment. What we do know is, we're advancing our strategy with some of the key things that I mentioned in our - in the prepared remarks. We're continuing to generate new business wins as we're finding new opportunities to help customers to unlock value with respect to that. And we continue to manage our costs through whatever is happening in the macro environment. Should the macro environments improve, we're going to be in an even better position, but we will continue to focus on what we can control and do our best to build on the success we've had the last couple of years.

Thanks, Andy. And then, just a quick follow-up here. So, on the balance sheet and capital allocation, it's been a few years now since you guys have done a more material size deal. Your leverage is very manageable at that 1.6. So, just curious, if you've considered if there are some larger consolidation opportunities, especially now with interest rates potentially coming down. Are you seeing any businesses that you've had your eye on be a little bit more open to a sale process? Is that and is there material consolidation opportunities that you'd like for us to keep in mind? Is that those - are those any opportunities that really could drive some good synergies and growth as you look out? Thanks.

Yeah. Great question. Of course, it's an important part of our capital allocation strategy, right? Inorganic growth will drive growth and we've seen a lot of success and shareholder value added as a result of that. We did the two bolt-on deals so far this year with I.K.V and Sutai. We've got a number of other bolt-on deals in our pipeline, as well as larger opportunities within the pipeline. You can't always predict when those things are going to happen. What I can say though is things are heating up. And we see the possibility to be able to move with a little bit of an acceleration as we go forward here. So, we'll continue to focus in on those places where we had channel, we had geography, we had technology or we had scale that's going to be useful and value adding for our customers. And we've done a really nice job, I think on the balance sheet and our cash generation to be in a position to be able to do that when the moment is right.

Thanks.

Thank you.

Thank you.

And we have reached the end of the question-and-answer session. And I'll turn the call back over to the CEO, Andy Tometich for closing remarks.

Yeah, thanks so much. We appreciate everybody's continued interest and in Quaker Houghton. Please reach out to Jeff if you have any additional follow-up questions. Thank you very much. Have a good day.

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