Michael F. Barry - Chairman, President and CEO Shane W. Hostetter - Global Controller.

Dan Rizzo - Jefferies & Company, Inc. Liam Burke - Wunderlich Securities Mike Harrison - Global Hunter Research Curt Siegmeyer - KeyBanc Capital Markets Garo Norian - Palisade Capital.

Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2015 Results Conference. At this time, all participants are in a listen-only mode. 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 conference over to your host, Mr. Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Mr. Barry, you may now begin..

Thank you, Rob. Good morning, everyone. Joining me today are Shane Hostetter, our Global Controller; and Robert Traub, our General Counsel. After my comments, Shane will provide details around the financials, and then we’ll address any questions that you may have. We also have slides for the conference call.

You can find them in the Investor Relations section of our website at www.quakerchem.com. I’ll start off now with some remarks about the third quarter. I’m pleased that we have delivered another quarter of consistent earnings and strong cash flow, despite a variety of market challenges.

We have accomplished this notwithstanding some significant changes in our external environment over the past several months, including a much stronger dollar against many of the world currencies, lower oil prices and the impact that both of these had on regional steel production.

Let me now talk about each of these in greater detail to give you a better perspective in which to evaluate our third quarter results. Foreign exchange rates negatively impacted both sales and earnings by 8%. So you can see that our earnings and revenue would have been shown pretty good growth if not for the exchange rate impact.

Lower oil prices also impacted our results in a couple ways. On the plus side, we saw some expansion on our gross margins as there can be some lag effect between changes in our pricing and our raw material costs. On the other hand, our top-line was negatively impacted since we did see some declines in our product pricing.

We also saw some shifts in regional production especially in our global steel markets, which make up over half of our business. The stronger dollar enticed more steel imports into the U.S., negatively impacting North American steel production. In fact, steel production was off versus last year by 7% in North America.

Globally, the story was not much better. In fact, all major regions or countries showed declining steel production versus third quarter of 2014. Overall, global steel production declined approximately 3.7% in the current quarter versus last year.

However, on the positive side, most of the external data I have seen about the steel industry suggest that after 2015, we should see steel production growth in the 2% per year range for the next several years. I’d now like to make some comments on the quarter sales and I’ll do this region-by-region.

North America showed growth of 2% in the sales despite of 3% negative impact due to foreign exchange. So given the 7% decline in steel production that I mentioned earlier you could see we’re continuing to have good market share gains in North America. Our European or EMEA region showed a 7% decline in sales.

Our base volumes there without acquisitions were down 2% reflecting weakness in the steel markets and some timing issues for product shipments. South America continues to be our most challenging region as sales have dropped 40%, with currency and lower demand being the two largest causes for the decline.

Overall, though, I think it’s important to point out that we continue to make money in South America and we have consistently reacted to the economic situation there as conditions change, through actions similar to our previously discussed streamlining efforts.

In the Asia Pacific region sales were down 7%, with the primary driver being exchange rates. Overall product volumes were slightly down, but relatively flat from last year as our market share gains are essentially offsetting the weakness in the steel and auto markets in China. As you can see, the sluggish global economic environment, strong U.S.

dollar and low oil prices are significantly impacting our business dynamics for the quarter. Nevertheless we were able to maintain stable non-GAAP earnings and EBITDA. In addition, we had strong operating cash flow for the quarter and have now generated $13 million more so far in 2015 versus 2014.

We were able to achieve these results from the benefits from our recent acquisitions, as well as taking share in the marketplace. One way to see this share gain is to look at our overall product volumes and exclude the benefits from our acquisitions and also the unique impact Brazil, which is less than 4% of our sales, is having our business.

When you do this our product volumes are flat in an environment where our largest market indicator steel production is off nearly 4%. This type of differential between our actual product volumes and trends in the markets we supply is a high level way of getting some visibility into our market share gains.

We believe these share gains are due to our commitment to our customer intimacy model, which puts the customer’s need 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 a baseball analogy, I see each of these as initiatives as single, our goal is to hit many singles to produce multiple runs and thereby show continuous growth even in tough market conditions. Over the next quarter, we expect to see continued impact of low oil prices and a stronger dollar on our revenue.

In the case of raw material, we expect that we are probably reaching the bottom at this time and we will eventually see some modest firming in raw material costs going forward. But this is really hard to determine with the fluctuations in the price of crude oil.

As mentioned during the last call, we expect more volatility in our gross margins this year, as there can be timing differences between the raw material costs changes and our product price adjustments, as we have seen in 2013.

As raw materials continue to settle, we would expect our margins to be in the 35% to 36% range, but it is difficult to predict the exact timing of this we’re aware gross margins will eventually settle. 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 could continue to grow our annual earnings and generate strong cash flow despite the market challenges. We will do this by executing our business strategies, which we project, will lead to continued share gains in the marketplace.

Also, we continue 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 such as the acquisition of Verkol, which we announced in July.

The combination of all these growth vehicles gives us confidence that 2015 will be another good year for Quaker, and we expect full year non-GAAP earnings to exceed 2014, which will mean our 6th consecutive year of earnings improvement.

For the fourth quarter, we expect to experience the typical negative seasonality impacts we tend to see in this quarter and we expect our non-GAAP earnings to exceed the fourth quarter 2014 levels.

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’m very happy with the Quaker team we have in place throughout the world.

And now, I’ll turn it over to Shane Hostetter, our Global Controller, so that he can provide you with more details behind our financials. Before I do that I’m pleased to mention that our new CFO Mary Dean Hall will be joining Quaker at the end of November.

Currently the Treasurer at Eastman Chemical, a large international chemical company, Mary brings to Quaker a great deal of global experience in all relevant financial disciplines. Going forward Mary will be participating in the quarterly conference calls.

Once Shane has completed his comments on the financials for the quarter we will be happy to address any questions that you may have.

Shane?.

Thank you, Mike good morning, everyone. To begin please note that charts four and five of the call slides include an outline of the key themes and financial metrics for the quarter, which I will highlight during this call.

As Mike mentioned we are pleased to report strong quarterly operating results and non-GAAP earnings of $1.19, beating consensus analyst expectations of $1.13 for the quarter. Notably these non-GAAP earnings were consistent with the prior year quarter despite a negative foreign exchange impact of approximately $0.09 per diluted share.

Related to foreign exchange the translation of foreign currency against the strong U.S. dollar continue to have a significant impact on our reported results during the third quarter of 2015. Similar to other domestic based companies with global footprints.

Specific to sales approximately 60% of our revenue is outside the United States, which drove a foreign currency translation decrease of $14.9 million or 8% in the third quarter of 2015.

Given this foreign exchange impact our consolidated revenues declined 5% from approximately a $198.9 million in the prior year quarter to $189.2 million in the current quarter.

However, as displayed in chart six, this decline in sales due to negative currency translation overshadowing year-over-year product volume and the acquisition growth of approximately 4%, which came in the phase of difficult dynamics in the global markets and an overall decline in global steel production.

In addition to volume growth, our gross margin expanded from 35.4% in the prior year quarter to 37.7% in the current quarter due to product mix and timing differences between raw material cost decreases and corresponding product pricing.

As depicted in chart seven, the current quarter’s margins remained inflated overall our averages, but decreased somewhat compared to our most recent second quarter margin level. We still believe our normalized margin structure remains between 35% and 36%, but the timing of decrease in our current margins to this level continues to be unpredictable.

Our increased product volume and gross margin expansion led to a gross profit increase of 1.5% compared to prior year quarter. Notably, our current quarter operating income would have pattern in this gross profit increase, but the year-over-year comparison was skewed by certain non-GAAP SG&A expenses.

Specifically the company’s reported SG&A increased $2.9 million in the current quarter. However, this increase was primarily driven by one time transaction expenses of $2.8 million related to the current quarter acquisition of Verkol.

Other changes to our SG&A in the current quarter included higher labor cost and incremental cost associated with current and prior acquisitions, which were offset by lower foreign currency translation. Similar to SG&A the performance drivers below operating income generally netted and consistent in total compared to the prior year quarter.

We benefited from a lower effective tax rate of 24.4% in the current quarter compared to 26.7% in the prior year. Driving a decrease of $1.2 million in tax expense.

However this current quarter tax benefit was offset by lower other income primarily related to prior year government refunds in one of our foreign subsidiaries and lower interest income primarily related to prior year tax related credits. Related to our full year effective tax rate we continue to anticipate it will drop approximate 28% for 2015.

And regards to our current quarter Verkol acquisition please note that outside the aforementioned transaction expenses of $2.8 million we only realized a minimal impact to our quarterly earnings as Verkol’s operational results were offset by initial adjustments related to fair value accounting.

However for a full year without such adjustments we still expect an annual impact of approximately $0.10 to $.15 per diluted share from this acquisition.

So, in summary the story of our quarter’s financial performance was higher gross profit on solid product volumes and higher margin, which would have largely fell to our bottom-line results if it weren't for the uncommon acquisition expense.

Turning to liquidity, we generated quarterly net operating cash flows of $23.5 million, which increased our year-to-date net operating cash flows to $50.8 million compared to $38 million for the first nine months of 2014.

This $12.8 million increase in net operating cash flows was driven by our solid operating performance and lower working capital investment during the first nine months of 2015.

Highlighting the improved working capital were lower cash outflows from accounts receivable during 2015, primarily due to enhanced collection efforts compared to the prior year. Also contributing to our cash flow was an increase in our adjusted EBITDA from $26.5 million in the third quarter of 2014 to $26.8 million for the third quarter of 2015.

Despite the negative earnings impact from foreign exchange of 8% as mentioned earlier. Also noted on chart eight the quarter’s performance increased are trailing 12 months adjusted EBITDA to over $100 million versus $97 million in the prior year. Despite similar impacts from foreign exchange.

Overall our operating cash flow generation in the quarter offset additional borrowings to fund $24.5 million of net payments related to the acquisition of Verkol, $3.4 million of payments to continue our share repurchase program announced in May of 2015 and $4.3 million for our normal quarterly dividend payment.

Detailed in chart nine, this led to an increase in our net debt to $12.2 million and a leverage ratio of approximately one time to EBITDA. Overall this quarter is a good reflection of our strategy for providing future shareholder returns. As we continue to target a 2 to 2.5 times leverage ratio.

For instance, we are able to expand our balance sheet leverage through strategic acquisition, while maintaining our quarterly dividend payout and continuing our share repurchase plan of at least offsetting the diluted impact of shares issued during 2015. To conclude, we had solid product volume levels.

We delivered consistent non-GAAP earnings and we continue to improve our overall liquidity during this quarter, despite various significant headwinds. I’d like to thank you all for your time today and for joining us on this call this morning. I will now turn the call back over to Mike..

Thanks, Shane. At this stage, we’d like to address any questions from any of the participants on this call..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Laurence Alexander with Jefferies. Please proceed with your questions..

Hi, guys, it’s Dan Rizzo on for Laurence. You indicated that there is sluggish or slow growth in your steel end markets.

How the metal end markets holding up? Are you seeing growth there is that [indiscernible] down at all, just a little color?.

On our metal working business yeah, I mean, if you look at automotive markets in general the auto markets on a global basis grew in the quarter, auto production a little less than 1% quarter-over-quarter on a global basis. If you look at some specific markets like China, China actually was down in auto production in the third quarter 2%.

So in these are the markets, which is primarily driven by auto is I would say slightly growing..

I have heard from other companies potentially that China might have hit a bottle and they have you seen some uptick in production in September and into the first part of October, are you seeing anything similar?.

Well it’s hard to tell so early on in the quarter for that.

I’ve been reading some things steel production a little bit might be upticking a little bit in September, but the -- with China in particular the whole September-October timeframe is kind of a tough time period because they have this one week holiday in the beginning October, which can skew things between the month. .

Okay. I was actually talking about auto in China, but I guess it’s similar..

In auto, yeah I think that what I’ve read anyway would suggest that auto should start to be picking up a little bit after a three to four months of year-over-year decline. .

Okay.

And then with the -- with regards to the Verkol acquisition you said $0.10 to $0.15 in I guess annually in EPS, would that be starting next quarter or I mean is there still some dilution for a couple of quarters?.

Yeah Dan this is Shane. I would anticipate going into next quarter some similar adjustments to this quarter as well. However my discussions from a full year perspective would be 2016 it might. .

Okay.

And finally how much revenue does Verkol provide if you can just remind us?.

Generally it’s right in the mixture between $25 million..

Okay, thanks guys. .

Thank you. Our next question is from the line of Liam Burke with Wunderlich Securities. Please go ahead with your question. .

Thank you. Good morning, Mike. .

Hey, good morning Liam how are you?.

Good, thank you. Operating margins in North America were really strong year-over-year.

Was that a function of raw materials and volume or is there anything else in there?.

Yeah it’s both of that, they’ve had a very strong performance with -- so they have the same lag effect going on in with the margin expansion that we've seen and they also have the very good growth for the share gains they be able to achieve in the business. So I think that two major drivers. .

Okay.

And on the working capital front you made progress there to use your baseball analogy, where are you in terms of the innings and in term of getting those ratios more in line with where you would want them?.

We continue to progress in that regard. We’re always trying to streamline things from a working capital perspective.

There is definitely some trends we’ve been seeing for the past couple of years, we [indiscernible] a little bit with especially in China where some of our customers are pushing back and using bank notes, which is a way of extending terms. So we continue to and as our customers it’s basically it’s a very high level of focus area for us.

So we continue to try to do the best we can there, but I think we’ll hopefully continue to see some incremental improvement there..

Thank you, Mike. .

Thanks, Liam. .

Our next question is from the line of Mike Harrison with Seaport Global. Please go ahead with your questions. .

Hi, good morning. .

Good morning, Mike. .

Mike I was wondered if you could help me understand you mentioned the U.S. market was impacted by steel imports, but then you also mentioned that steel volumes out of Asia were flat little bit weaker.

So if these imports are coming from Asia where are they coming from?.

No, I’m sorry, have not spoken if I said that, but I think they are coming from predominantly Asia. But so I think -- and actually everywhere around the world anywhere I go or we see or talk to people we see China steel is showing up everywhere around the world. So that is the major source of the -- you look at the places like in the U.S.

the inherent demand for steel is actually good. It’s just the production of steel was down because of these imports and the same thing in Europe..

All right.

And can you talk about how many new steel mill wins you have had so far in 2015 and maybe talk about your expectations on the number of new steel mill start-ups you’re seeing in 2016 and what portion you might be positioned to win?.

I don’t have the exact timing of some of these mills I’ve looked at some recent data Mike around that and there’s a number of steel -- this is from a presentation data a couple of months ago, there is a number of steel projects that are ongoing right now that are coming up either later this year or in 2016 and again I think for the most part we would expect our success rate has generally been in the 80% timeframe -- kind of range of the success of getting that business to start up and we would expect that to happen.

I don’t have the exact breakdown or anything around that, but I would expect that to continue and generally what happens is new mill comes up, does come right off the full speed right away it takes a little time to ramp up and then after a couple years you actually get there.

And so right now we’re really probably seeing more of the benefits from the steel mills that have started up in 2014 as an example. .

All right.

And then looking at the pricing versus raw material trends, I know we saw a little bit of a decline in the gross margin here and you’ve given your outlook that you expect to come back to that 35%, 36% range, but is it fair to assume that we see another modest led down in Q4 or have -- I know that base oil cost for example, came down a little bit in Q3 and probably a little bit more tailwind, could we see the raw material benefits actually tick up in Q4?.

I’m sorry, your last part of that question was could we see raw material actually pick up?.

Yeah..

Yeah, they could I think for the most part I think if we see any major modest increases even in raw material I think it would be more likely in next year, but I think what we have is a dynamic of like you said flat to falling raw material that are still coming through the system.

I think as we sit here today I think we’re kind of at the bottom is our projection and at some point here it will start to go up, but it’s really hard to predict piece it all together is when you also have our product pricing also making adjustments over time, as you know we have some customers on contracts that have indices and they continually adjust then you have other contracts that are just straight negotiations.

So the net effect of that is overtime we would expect to see our margins come back to the more typical levels, but it’s really hard to pinpoint exactly when that will be and exactly where that all will shake out. So it’s -- I think we would expect to see some trend in that direction, but it’s hard to say to what magnitude..

All right.

And then the last one from me is I saw the announcement on the new metal working fluid platform, can you just give us a sense for how major this new product platform is and maybe talk about what portion of your metal working customers you would expect to see switch to the new technology?.

I think we have a number of new platforms going on in metal working that are really revolving around, just try to help our customers in many different ways.

We’re right at the initial rollout on many of these, some of these will be replacement products or products that we’re continually selling and some will be -- give us the ability to penetrate new areas.

I think we would continue to expect as we do in all of our product lines continue to have hopefully above the market growth in these things -- in all these initiatives that were working along right now. So I don’t see it as something that’s going to necessarily a step change.

I think all these things are incremental changes, as you know things in our business have a sales cycle to them and you just keep added and you hit the singles and you get references and you continue to build the on your growth shingle by shingle..

Alright, thanks very much..

Thank you, Mike..

[Operator Instructions] The next question is from the line of Curt Siegmeyer with KeyBanc. Please proceed with your question..

Hey, good morning guys..

Good morning..

Did you say how much pricing was down in the quarter?.

No, we didn’t give the specific to that, but it’s in the order of magnitude of around 2%..

Okay, that's about what I was thinking. I know just I guess one of the questions I had it was on kind of gross margin, but maybe more broadly sort of the drivers for you did guide to earnings growth in the fourth quarter.

So just kind of thinking about the good guys and the bad guys in the fourth quarter, I would assume revenue is going to be down again given the currency headwinds and probably pricing will be slightly down again, is it fair to say then that gross margin would be probably one of the positive drivers and up year-over-year at least given raw materials are kind of stable here or what would be sort of the puts and takes for 4Q?.

Yeah, I think you actually described it very well.

So I think on fourth quarter, first of all when I compare fourth quarter versus the second and third quarters, there is always kind of seasonality in fact and you can see this historically in our earnings that the fourth quarter earnings generally a little lower than the second and third quarter just because the holidays and people take some extended downtime.

So it always have that effect and then when you are going to your point of are we comparing ourselves to last year’s fourth quarter, you are still going to see foreign exchange impact, that’s definitely going to be there.

Hopefully we will start getting to this point where once we get into the fourth quarter and pass that a little bit these will lesson quite a bit hopefully. So that’s when we first started to see it last year. And then you are right in that, we would hopefully see some expanded margins relative to the prior year.

So it’s -- but I would think some of these you are still going to see some of the macro things we talked about, like in steel production, I think that’s going to be down the fourth quarter of this year versus fourth quarter of last year based on the trends that are happening but at the same time we’re as we pointed out here we’re I think taking share in the marketplace and then so that impact on us will hopefully be lessen that's for sure..

Okay, great. And then maybe just as a follow-up. You mentioned share gains and I guess you talked about sort of the consensus for steel production next year is sort of for an uptick maybe 2% growth, but saying the event that doesn’t transpire and we’re down again next year maybe even decelerate from current levels.

Do you find given the share gains the importance of that in terms of sort of your story and the success you’ve had there, is it more challenging or does it present maybe more opportunities in a weaker market environment to sort of continue or accelerate share gains or maybe walk us through kind of what sort of market is ideal for you to be able to continue to win business?.

That's a really great question. I think the bad times -- tough times can be opportunities, an example could be in Brazil, one of the really the toughest market we have right now, there is a very tough marketplace.

We are that market leader down there and steel and metalworking and we’re committed to that area and one of our competitors Castrol has decided to exit that market. And so our goal is to help pick-up some of the share that they have had there is kind of other opportunities as people get in a tough market like these.

It’s hard to say in general, but although I would say the general statements will stand as I feel good about the ability to take share in our marketplace, I think the dynamics have led to the continued share gains over the past several years, we will continue to be there. And so I don’t see anything that would help us or go against us in that way.

So I still feel good about this kind of share gains and increasing of our share of wallet of our customers. I think another way is that we continued in the future expect to see more benefit from on the growth side is growth from the new technologies that we have acquired.

We have made 11 acquisitions over the past five years, six of those acquisitions brought technologies to us that we did not have in our portfolio and we are -- it takes a while to get people situated around the world that to help us grow these new technologies using our global infrastructure.

And so far again when I use my baseball analogies, as I say we are in the second inning of this game and I think there is a lot of way to go on this and as we go into the future I think that part of our growth will accelerate and be a bigger part of what we do.

So between these saying this is a normal share gains and these gains for the new technologies we would expect that if we have tough situations in our base businesses because of steel production or whatever we still be able to overcome that..

Excellent, thanks. .

Thank you. .

[Operator Instructions] The next question is from the line of Garo Norian with Palisade Capital. Please go ahead with your questions. .

Hi, guys.

I was wondering if you could give an update on kind of some of this test that you guys have been working with the aluminum industry, how that’s going?.

Sure. We have overtime for the benefit of people we made an acquisition a number of years ago on aluminum and we have been picking up over time over the past several years some mills in Europe and the Middle East. And so our aluminum position continues to grow.

The one place that we are still in the early stages of penetrating is China and we have one major trial scheduled for the fourth quarter that will hopefully assuming we are successful like we generally are on our trial with our product lines that if we are successful that could lead a reference and therefore once you get a reference in there from major player then you could use that reference to get other business, so that’s our goal..

Great.

And then you kind of touched on this a second ago with Castrol comment in Brazil, but is there anything else going on from that competitive standpoint either players existing markets or reacting differently to raw material price declines to try to use price for share or anything else I don’t know people leaving competitors or anything like that?.

Other than the -- my comment on Castrol I don’t really see any really other changes from a competitive environment perspective..

Okay.

And then just lastly, I notice that your share repurchase through the quarter was pretty ratable by month and was just curious why wouldn’t be a little bit more sensitive to price?.

Right now we are one of -- as we mentioned kind of back in May when we put this in place. One thing is -- there is kind of two aspects to the program, one is to offset the dilution from our computation programs on a number of shares and that the way we have done it so far is that’s been pretty ratable in the marketplace.

I think one thing we feel we can do is necessarily predict timing of things. And so that’s been a ratable thing. And then the other part is that we do have more flexibility to do stuff more than that. And the way we will analyze that as we look what's on our plate, what acquisition opportunities are out there.

And there we would consider both the acquisition opportunities and our stock price and then if we want to do something bigger at that point then we could do that. But generally what we said is the most the way we think we can add the most value for our shareholders is to make acquisitions.

But we find it that there is limited acquisition opportunities in front of us or opportunities that we can still do plus do some share repurchase, we will do that. .

Okay.

So I have the follow-up, so how is the M&A pipeline look?.

Well we’re always looking at a number of things at any point in time. So as you know we don’t really comment on anything as anything closer anything like that, but we’re always looking at host of projects right now, no different. .

Great, thanks so much. .

Thanks, Garo. .

Thank you. [Operator Instructions] Mr. Barry there are no further questions at this time. Let’s make any closing remarks..

Okay, thank you Rob. So given that there are some other questions, on the conference call now. I want to thank everyone for your interest today. We are pleased with the results in the third quarter and continue to be confident in the future of Quaker Chemical.

Our next conference call for the fourth quarter results will be in late February or early March. And if have any questions in the meantime, please feel free to contact me. Thanks again for your interest in Quaker Chemical. .

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