Michael Barry - Chairman, Chief Executive Officer and President Margo Loebl - Chief Financial Officer Robert Traub - General Counsel.

George D’Angelo - Jefferies Liam Burke - Wunderlich Securities Mike Sison - KeyBanc.

Greetings, and welcome to the Quaker Chemical Corporation Fourth Quarter 2014 Conference Call. At this time, all participants are in listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It’s now my pleasure to introduce your host, Michael Barry, Chairman, Chief Executive Officer and President of Quaker Chemical Corporation. Thank you, sir. You may begin..

Thank you, Kevin. Good morning, everyone. Joining me today are Margo Loebl, our CFO and Robert Traub, our General Counsel. After my comments, Margo will provide details around the financials and then we will address any questions that you may have. We also have slides for the conference call.

You can find them in the Investor Relations part of our website at www.quakerchem.com. I will start it off now with some remarks about the fourth quarter. I am pleased to report that we had a very good quarter as solid revenue growth led to a double-digit increase in our adjusted EBITDA.

Let me now try to give you a sense of what we experienced in the quarter and I will start with sales. Our overall sales were up 5% for the quarter versus 2013 with growth primarily driven by higher volumes. Foreign exchange rates negatively impacted us by 4%, but this was largely offset by the revenue increases from our 2014 acquisitions.

We saw very strong growth in sales in North America and Asia-Pacific which was partially offset by decline in our South America sales. Going region by region, South America was our most challenging region.

Our revenues were down 26% due primarily to lower volumes associated with the poor economy and the decline in the overall steel and auto markets as well as the weakening in the Brazilian real.

In our Europe or EMEA region, we saw 2% decline with modest growth from our base business and Binol acquisition being more than offset by the change in exchange rates. In our Asia-Pacific region, we had approximately 10% growth, with China being the main driver.

Finally, in our North America region, we had growth of 13%, with 5% organic growth and 8% growth from the ECLI acquisition. The majority of the North America organic growth is being driven by our Mexico and Summit businesses. Overall, we continue to do well in gaining share in the marketplace throughout the world.

We believe this is due to our commitment to our customer intimacy model, which puts the customers’ needs as our top priority and provides them with strong service and business solutions. I believe this approach continues to differentiate us in the marketplace.

We have a great deal of initiatives in our base business lines and in each of our regions as well as through growing our recently acquired technologies around the globe. As I mentioned in the past, using the baseball analogy, I see each of these initiatives as singles.

Our goal is to hit many singles to produce multiple runs and thereby show continuous growth even in tough market conditions. On our gross margins, they were slightly up, but relatively consistent with our fourth quarter of 2013 primarily due to lower raw material costs.

Our overall gross margins continue to be very stable and have remained at this level for the last eight quarters. So, I am pleased with our overall performance in the fourth quarter despite a very weak South American environment and exchange rate headwinds at the end of the year. We were able to achieve very good growth in most of our key metrics.

And for the full year, we set records in revenue, non-GAAP earnings and adjusted EBITDA. Sales were up 5% for the year and our non-GAAP earnings and adjusted EBITDA were up 11%. And our return to shareholders in 2014 was strong at 21%. And this was on top of the returns of 45% and 41% respectively for 2013 and 2012.

Looking forward to 2015, we do see some headwinds. Foreign exchange will definitely impact us this year as the dollar has strengthening as many of the other currencies. Given that about 60% of our sales are outside the U.S., this translation effects on our sales and profits will be felt.

We estimate that the impact on our top and bottom line will be at least 4%. In other words had exchange rates stayed at 2014 levels we would expect to show at least 4% more sales growth and earnings growth in 2015. The other headwind is that some of the economies around the world are expected to have lower growth.

For example, Russia, China and Brazil are not expected to show the type of growth we have seen in the past. Europe also continues to show only modest growth in our markets. Overall, we do expect our global end use markets of steel and automotive to grow, which is good.

But we now expect global growth to be more modest than what we had expected say 6 months ago. The impact of lower oil prices is harder to define. Some of our raw materials that are crude based like mineral oils are declining and this will also impact our product pricing with customers.

Other raw materials such as additives, animal fats or vegetable oils are not declining or not declining much. And in the case of vegetable oils we expect to see higher prices in the future.

So unlike the previous 2 years where we have seen stable margins, we may see some more volatility in our gross margins as there can be timing differences between what we experienced in raw material costs and how our product prices are adjusted with customers.

Overall, our stated goal is to keep our gross margins at our targeted levels which we expect to be in the 35% range over the longer term. So while there is a great deal happening around us, the bottom line is I continue to be confident in our future. We believe that we can continue to grow the top line and bottom line despite these headwinds.

We will do this by executing our business strategies which we project will lead to continued share gains in the marketplace. Also we are continuing to leverage our recent acquisitions by selling our newly acquired technologies on a global basis. And finally we will continue to work on new acquisition opportunities.

The combination of all these growth vehicles gives us confidence that 2015 will be another good year for Quaker as we strive to increase our revenue, operating income and adjusted EBITDA for the sixth consecutive year.

In closing I want to thank all of our associates whose dedication and expertise helps to create value for our customers and differentiate Quaker in the marketplace. People are everything in our business and by far our most valuable asset. And I am very happy with the Quaker team we have in place throughout the world.

And now I will turn it over to Margo Loebl, our CFO so that she can provide you with more details behind our financials. And after that we will address any questions you may have.

Margare?.

Thank you, Mike. Good morning everyone, I reiterate that we are very pleased with our quarterly results meeting the analyst consensus of $1 earnings per share despite the FX headwinds in the fourth quarter and challenges in Brazil.

Before launching a financial review of the quarter, please note that Quaker provides a non-GAAP earnings per diluted share table in an effort to provide shareholders with visibility into Quaker operations excluding certain items which we believe do not reflect our core operations including earnings related to Primex, our investment in a captive insurance company.

Such table is outlined in Chart 10 of the investor slides, yesterday’s earnings release and our Form 10-K also filed yesterday. Moving on to the financial review, as referenced in Chart 4, Quaker’s fourth quarter includes the following highlights.

With respect to highlight number one on Chart 4 volumes drives 5% increase in net sales for quarter and year. Looking at Charts 5 and 6, net sales for the fourth quarter of 2014 of $194 million increased approximately 5% from net sales of $184.3 million for the fourth quarter in 2013, primarily due to higher price volumes and price and product mix.

Included in the company’s net sales growth for the fourth quarter of 2014 was $8.4 million or 4.6% of additional sales from acquisitions made in 2014 which was largely offset by $6.6 million or 4% related to a decrease in foreign exchange rate translation.

Net sales for the full year 2014 of $765.9 million increased $36.5 million or 5% from $729.4 million for 2013 due to higher product volumes.

Included in the company’s net sales growth in 2014 was $12.8 million or 1.7% of additional sales from acquisitions, which was largely offset by $10.3 million or 1.4%, related to a decrease in foreign currency exchange rate translation.

Complementing the relatively uneven 2014 global market growth in steel and automotive, a key driver for Quaker sales growth has been and continues to be Quaker’s ability to take share of wallet with existing customers on pre-acquisition products and more recently acquired products and technologies.

With respect to highlight number two on Chart 4, stable margins continue to drive strong operating results in quarter and year.

Turning to Chart 7, gross profit increased approximately $4.4 million or 7% from the fourth quarter of 2013 on the increase from sales volumes on relatively consistent gross margins of 35.9% and 35.4% for the fourth quarter of 2014 and the fourth quarter of 2013 respectively.

Gross margins have been approximately 35% or better for the past eight quarters demonstrating Quaker’s ability to manage price, mix and raw materials effectively towards this targeted 35% gross margin level.

Gross profit increased approximately $12.1 million or 5% from 2013, which was driven by the increase in sales volumes on relatively consistent gross margins of 35.7% and 35.8% for 2014 and 2013 respectively.

Selling, general, and administrative expenses, SG&A, increased approximately $3.2 million from the fourth quarter of 2013, which was driven by the net impact of several factors noted in our press release.

Highlighting these increases were SG&A acquired with the company’s 2014 acquisitions and higher labor costs on increased sales and merit inflation partially offset by the effects of foreign currency exchange rate translation.

In addition, the company incurred approximately $0.6 million of diligence related cost in the current quarter to support its 2014 acquisition-related activity compared to $0.2 million in the prior year quarter.

Notably, SG&A also increased due to $0.8 million of cost related to a streamlining initiative in Brazil, which was implemented during the fourth quarter of 2014. The impact to SG&A from the 2014 cost streamlining effort in Brazil will provide a virtually full year positive impact in 2015.

While the Brazilian economy is expected to continue to be challenging in 2015, this cost streamlining effort will help Quaker increase its profitability level in Brazil. For the full year, SG&A increased approximately $6 million from 2013, which was driven by the net impact of several factors noted in the press release.

Highlighting these increases were also SG&A acquired with the company’s 2014 acquisitions and higher labor related costs on increased sales and merit inflation, which were partially offset by lower incentive compensation cost and decreases in foreign currency exchange rate translation.

In addition, the company incurred approximately $1.1 million of diligence related cost to support its acquisition-related activity in 2014 compared to $0.2 million in 2013. With respect to highlight number three in Chart 4, adjusted EBITDA up 13% in quarter and approximated $100 million in the year.

Further, Quaker’s adjusted EBITDA increased 13% to $23.8 million in the fourth quarter of 2014 from $21 million in the fourth prior quarter of 2013. Adjusted EBITDA remains a key metric for Quaker and is summarized in Charts 6 and 8. Similar to earnings per share, we adjust EBITDA to reflect items which are not part of our core business activity.

For the year, adjusted EBITDA approximated $100 million at December 31, 2014. Looking at the range of 2008 to 2014, the compounded average growth rate for adjusted EBITDA is 16.4% with margin on adjusted EBITDA up 89% or 610 basis points over that respective period.

With respect to highlight number four on Chart 4, non-GAAP EPS up 11% for year, while up only slightly from prior year with comparisons impacted by foreign exchange and tax rate. Strong volume and stable margins drove another good year for Quaker with record revenue, operating income and adjusted EBITDA.

Referencing Chart 6, earnings per diluted share for the fourth quarter of 2014 were $0.95 compared to $1.07 for the fourth quarter of 2013 with non-GAAP earnings per diluted share of $1 for the fourth quarter of 2014 compared to $0.98 for the fourth quarter of 2013.

The fourth quarter comparison obscures year-over-year earnings growth as the fourth quarter of 2013 benefited from a $0.08 per share favorable tax adjustment, while the fourth quarter of 2014 was negatively impacted by foreign exchange of $0.04 per share in other non-operating expenses.

Earnings per diluted share were $4.26 in 2014 compared to $4.27 in 2013 with non-GAAP earnings per diluted share increasing 11% to $4.26 for 2014 from $3.84 for 2013. Changes in foreign exchange rates negatively impacted the 2014 net income by approximately $1.2 million or $0.09 per diluted share.

With respect to highlight number five on Chart 4, solid cash flow generation in quarter and year.

Solid quarterly earnings and improved working capital management drove net operating cash flows of approximately $16.7 million for the fourth quarter compared to $21.8 million in the fourth quarter of 2013, which increased the company’s year-to-date net operating cash flow to $54.7 million compared to $73.8 million for 2013.

The $19.1 million decrease in full year operating cash flow primarily relates to an outlook flow from accounts receivable.

Other than normal outflow due to high sales, a key driver in change in the company’s receivable was an increase in the level of bank exceptions draft that the company received on outstanding receivables in its Asia-Pacific region.

Overall, the current year marked an uncommon increase in the use of such methods of payment by the company’s customers, which the company expects to be at a more stable level in the next year. With respect to highlight number six on Chart 4, continued strength in balance sheet for future acquisitions.

Turning to Chart 9, the company had net debt of $11 million at December 31, 2014 with $64.7 million of cash on hand and $75.7 million of debt outstanding and also the company’s company consolidated leverage ratio of 0.76 to 1 continued to be less than 1 times EBITDA despite the added borrowings for the company’s record acquisition activity in 2014.

Specifically, the company’s acquisition activity was highlighted by the second quarter purchase of the 49% remaining interest in its Australian equity affiliates, the third quarter domestic purchase of ECLI products and the fourth quarter purchase of Binol AB in Switzerland – in Sweden.

We continue to believe that making acquisitions is the best way to create significant shareholder value and believe our strong balance sheet and ongoing cash flow generations will allow us to make significant future acquisitions, while continuing to pay consistent dividends. In conclusion, Mike noted that over 60% of our sales are outside the U.S.

and that the translation of Quaker’s revenue and ultimate earnings into dollars varies with the fluctuation of the applicable foreign exchange rates. To the extent, foreign exchange rates remain where they are today, we anticipate additional headwinds in 2015.

For perspective, using the revenue data in Quaker’s business segment footnote in the 2014 10-K investors can begin broadly estimate the impact of foreign exchange rates on Quaker’s 2015 revenue.

For example, the reader could take the current euro rate of approximately 1.13 and calculate the differential versus the 2014 average euro rate of approximately 1.33.

Applying this differential to Quaker’s 2014 EMEA revenue can serve as an estimate of the impact of foreign exchange of the region’s 2015 revenue at current rates – or 2014 revenue at current rates given the majority of Quaker’s revenue in that region is denominated in euro.

To the extent there is a meaningful move in the Brazilian real or Chinese renminbi, this type of calculation with the relevant exchange rates could be indicative of the impact of foreign exchange on the revenue of South America and Asia-Pacific respectively given that these currencies dominate these regions.

Again, we were pleased with our very strong operating results in 2014 and we believe despite foreign exchange-related headwinds, 2015 will be another good year for Quaker with increased revenue, operating income and adjusted EBITDA. Finally, I would like to personally thank all of you for joining us on the call today.

And importantly, I would like to sincerely thank the Quaker associates around the world for their commitment to our customers and contributions to the success of Quaker. This concludes my prepared remarks today. Again, thank you and I will now turn the call back over to Mike..

Thanks, Margo and at this stage, we like to address any questions from the participants on this conference call..

Thank you. [Operator Instructions] Our first question today is coming from Laurence Alexander from Jefferies. Please proceed with your question..

Hey, good morning. This is actually George D’Angelo on for Laurence today.

Given raw material volatility, are you guys seeing any of your customers pushing through tight concession?.

Yes..

Give me more detail on that?.

Well, we have certainly from a customer perspective we have contracts with some customers that are automatically indexed and automatically change over periods of time and they could change in every three months, maybe some even six months.

And that’s more of an automatic saying and you have some customers that by products that have a high content of mineral oils and therefore they will be looking for price increases on those. You have other customers that buy products that don’t have a lot of content of those raw materials that have declined and we will not get any price decreases.

So, it’s kind of a mixture how we do business, but in general, people look at the gas pump and you don’t see prices going down, now they are going back up. People tend to equate that to our products..

Is there any sense of the magnitude across your businesses that it might be?.

No, I mean, it’s not – it’s again it’s really hard to kind of say on this as I have kind of made in my opening remarks, it’s really kind of hard to get at this one, because we have a lot of moving parts between our raw material prices and as well as the product adjustments – the timing of product adjustments.

So, the only thing I can really say George I guess is that we will see – we could see certainly a little bit more volatility in our gross margin. We are not even sure we will see that, but I would expect this, because the past couple of years have just been unbelievable steady in raw materials.

And how these index adjustments kick in, how we make adjustments with customers on our pricing, how raw materials flow, it’s just – it’s a very complex thing.

You have foreign exchange rates in there, because some are dollar-denominated, but yet you have weakening euro and so their raw materials don’t adjust that much, it’s just a very complex situation. So, it’s really kind of hard to give clear guidance on this..

Okay, thanks. That’s helpful.

And just one more given the valuations in the energy sector, is that an area where future M&A might be interesting for you guys?.

I think we are – we kind of stick to the areas that we have identified in our core markets that supply process fluids and other type of industrial lubricants and chemicals that get used in the processing of metal. And as you know we have made more acquisitions in grease.

That’s another area we have identified and we would like to do more in the future. So, I think we are pretty much sticking to the core areas and we think there is a lot of growth still to be had, not only from our past acquisitions that we have made, but from future acquisitions in our core areas..

Thanks..

Thank you..

Thank you. Our next question today is coming from Liam Burke from Wunderlich Securities. Please proceed with your question..

Thank you. Good morning, Mike. Good morning, Margo..

Hi, Liam..

Good morning, Liam..

Mike, you have mentioned before that grease is an integral part of generating complementary revenue, how has the Summit transition from a pretty much regional operation to fitting into your global platform, how has that been progressing?.

Good. It’s – we have – when we made that acquisition roughly 4 years ago, I would say in the early years, we were concentrating on the acquisition itself and making sure everything was good there and we are very happy with how that the acquisition in that business is performing itself.

And then over time we started hiring product experts around the world, because even though we have an infrastructure to sell to our customer base around the world, we needed product experts in say in this example in grease to go with our sales people and to make the business case for a customer to want to change to our products.

We also had to install a global pipeline of greases as well. So I would say over that effort in 2014 we pretty much now have all the people that we needed to help develop business around the would and we got our global product line in place and we feel we have a supply chain now that can supply that.

So now we are more in the mode of getting trials with various customers to promote that grease and we expect to continue to see good sales growth into our existing channel through that acquisition..

Great. Thanks Mike.

And on market share gains, you have had some – you have had a good degree of success taking share from competitors in your core product, are you getting any competitive pushback here on pricing or more aggressive marketing?.

We always have – there is always competitors out there and you always have competitive actions but we continue to believe that we will stick to our strategy and how we do business and how we provide service to our customers. And we feel that will continue to allow us to continue to take market share in the future..

Great. Thank you, Mike..

Thanks..

Thank you. [Operator Instructions] Our next question today is coming from Mike Sison with KeyBanc. Please proceed with your question..

Hey, good morning, nice end of the year.

Mike given the headwinds that you have in foreign currency just wanted to understand your outlook for ’15 given all the moving parts, are you implying that you still can grow earnings and EBITDA in ‘15 versus ’14?.

Yes..

Great.

And then what about the – how much of the cost savings from Brazil will kick in this year Margo in terms of the benefit there?.

That’s a good rolling question. I would submit $800,000 approximately is what cost was of the program for us. We will clearly achieve at least cost savings of $800,000 and as you know with all due respect we would expect to gain something more than that. So that’s the direction we have for you at this point in time..

Okay.

And then when you think about ’15, again you sort of highlighted some areas of economic uncertainty, Mike can you maybe walk us through geographically where you think you can generate some volume growth and maybe a couple of reasons of where that momentum is coming from?.

Sure, North America continues to be a good – strong region for us and in particular Mexico we have had very strong performance in Mexico over the past several years and we feel that place where there is continued investment and continued good growth.

Again North America with our business initiatives that we have that will be a good place, we – you go around the globe we – in Europe I think the underlying markets will have modest growth. And of course with our initiatives and things we will hope to do better than that, certainly try that’s our goal to do better than that.

Brazil and South America, I always think we are maybe at the bottom of those things with the economy and so forth. So hopefully there will be some uptick there but we are counting on it. But we would expect with our restructuring program and so forth that we will see improvement there.

And then you go to Asia-Pacific, they are – even last year if you look at our growth in Asia, it was very strong much stronger than the underlying markets. And again through our share gain and initiatives and so even though things might be lower in places like China we still – we have a good business in India. We think we will get good growth there.

And even in China we will continue to drive – take share there and continue to grow more than the market..

Great. And then balance sheet is still in very good shape.

These have been really nice bolt-on acquisitions, what are your thoughts or maybe even if there is any more aggressive transformational acquisitions out there that could be interesting for Quaker?.

We are continuing to work on acquisitions in our pipeline and kind of – lot of the acquisitions that we have done as like you pointed out, bolt-on, little – relatively small. We would like to do larger acquisitions.

We do believe we have the balance sheet to do that in the management team and with the larger ones we probably could get good synergies, cost synergies as well.

And so we continue to look for those, but they are more again, it’s hard to know when exactly that right opportunity will come along, but we do have things in our pipeline that are even if the big ones don’t come along, we have smaller ones that we hope to continue to make and do this.

And as we said in the past, we believe making acquisitions is the best way to add shareholder value. We feel we have shown that in the past several years and we would like to continue with that.

And for some reason, our balance sheet continues to get stronger and we have cash and we don’t see the acquisitions up there, we will find another way of getting that cash back to shareholders..

Okay, thank you..

Thanks, Michael..

Thanks Mike..

Thank you. We have reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments..

Okay, thank you. This will end our conference call now. And I want to thank all of you for your interest today. We are pleased with our results for the fourth quarter and for the full year and we continue to be confident in the future of Quaker Chemical. Our next conference call for the first quarter results will be in late April or early May.

And if you have any questions in the meantime, please feel free to contact Margo or myself. Thank you again for your interest in Quaker Chemical..

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..