Quaker Chemical CorporationKWRNYSE
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Operator: Greetings. Welcome to the Quaker Houghton Third Quarter 2025 Earnings Conference Call. [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.
Jeffrey Schnell: Thank you. Good morning, and welcome to Quaker Houghton's Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, 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 30, 2025. 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 effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe.
Joseph Berquist: Thank you, Jeff, and good morning, everyone. We had a strong performance in the third quarter with adjusted EBITDA up 5% and adjusted earnings per share up 10% year-over-year. Our results were highlighted by another consecutive quarter of organic volume growth across all regions. This was amplified by ongoing strength in Asia Pacific and strong new business wins of 5% globally, enabling Quaker Houghton to outperform its underlying end markets. Our earnings growth reflects the increase in organic sales, contribution from acquisitions, especially Dipsol and a sequential expansion in operating margins as we better leverage our scale. The organization is balancing both operational discipline and strategic execution while advancing our key objectives. This is resulting in an acceleration of new business wins at appropriate levels of profitability across the portfolio. These actions are building on our solid foundation and give us confidence in our ability to drive sustainable long-term outperformance. Cash generation and capital discipline also remains strong. In the third quarter, we generated $51 million of operating cash flow and made progress on our capital allocation strategy, including reducing our net leverage to 2.4x and returning cash to shareholders through share repurchases and dividends. Our business continues to perform well, and we remain focused on what we can control while navigating the dynamic and uncertain environment. I am proud of the team's performance in 2025 as well as the organization's renewed focus in delivering meaningful productivity and results for our customers through innovation, technical expertise, and service. Third quarter results were in line with our expectations despite markets being softer than anticipated. Uncertainty around tariffs continue to weigh on customer operating plans. We estimate end market activity declined a low single-digit percentage compared to the prior year. And on a year-to-date basis, production levels across our major end markets, including steel, automotive, internal combustion engines and industrial products are down a low single-digit percentage globally compared to 2024. Relative to our markets, we are outperforming. In the third quarter, we delivered a 7% year-over-year increase in sales on a 3% increase in organic sales volumes. This was most notable in Asia Pacific, which delivered another 8% increase in organic sales volumes. Net share gains were also strong at 5% globally as the team is successfully executing our commercial strategy, capitalizing on the pipeline of cross-selling opportunities, reducing churn, and solving complex customer needs. These wins and the evolution of the pipeline should provide continued benefit to the organization as we wrap into 2026. Our organic growth was complemented by a contribution from acquisitions, namely Dipsol, which we closed in the second quarter. We are pleased with the ongoing integration of Dipsol. The business is performing in line with our expectations, and we are excited by the commercial opportunities it provides the combined organization. Gross profit dollars increased compared to both the prior year and prior quarter. Importantly, gross margins improved from the second quarter and are within our targeted range, which promotes growth at solid levels of profitability. We generated $83 million of adjusted EBITDA, an increase of approximately 5% year-over-year and 10% sequentially. This reflects the top line growth and operational improvements, including ongoing cost controls. Adjusted EBITDA margins of 16.8% continue to improve towards our targeted range. When I stepped into the role a year ago, I set out 3 key priorities, underpinned by several initiatives aimed at strengthening the core of our organization. Our strategy is working, and these actions are yielding results as demonstrated in the resilience of our earnings profile. From a commercial standpoint, we have doubled down on our commitment to serving the customer. We have taken a focused strategic approach to customer segmentation and are advancing key initiatives to improve service levels and optimize our portfolio, scaling the organization to have the capabilities to deliver the right solutions and services to meet and exceed our customers' needs. We have also increased our discipline in pursuing new business opportunities, leveraging innovation. For instance, in aluminum, where we recently introduced new products, cross-selling our leading portfolio and being more intentional with pricing. Our teams are working diligently to reduce churn, which I am pleased has trended back to historic low single-digit levels and winning back previously lost business. These efforts are paying off with positive year-to-date organic volume growth and new business wins, which are at the high end of our targeted range. To give some context to these actions, we are leveraging our global scale, footprint, and R&D capabilities. We have localized or transferred production of select products, for instance, in forging and specialty greases. This flexible sourcing provides greater consistency, speed, and cost efficiency, enhancing our competitiveness. When aggregated, these smaller wins add up and are meaningful contributors to the strong organic volume growth that we have delivered for the past 9 consecutive quarters in Asia Pacific. We believe we are well positioned to continue to capitalize on the growth in China, India and Southeast Asia and will further benefit as our new China facility comes online in 2026. Our new R&D lab in Brazil expands our global innovation network, strengthens technical capabilities for local customers and supports the growth of Advanced Solutions in the region. These enhancements highlight some of the swift targeted actions we're taking to accelerate growth and provide the full portfolio in all regions. Our team is hyper-focused on growing our portfolio of Advanced Solutions. In the third quarter, we delivered our fourth consecutive quarter of high single-digit or low double-digit organic volume growth in the product segment with a strong contribution across all regions. We have significant opportunities ahead to continue to align the business towards these attractive areas of the portfolio, especially as we leverage our increased scale with Dipsol. We have also maintained a clear emphasis on controlling what we can control. From a cost perspective, on a year-to-date basis, organic SG&A is down approximately 3% as we make progress on our cost and efficiency actions announced earlier this year. We began to put in motion further network optimization actions aimed at unlocking the leverage in our model. We have closed one manufacturing facility year-to-date in the Americas, and we consider further actions in our manufacturing footprint will be needed to improve our asset utilization, reduce manufacturing costs while maintaining the quality and service levels customers expect from us. These actions support our ability to deliver adjusted EBITDA margins in the high teens as a percent of sales over time. We will continue to benefit from the ongoing cost actions in the fourth quarter and 2026. And lastly, we are fully committed to executing on our disciplined capital allocation strategy. In the quarter, our outstanding debt balance was reduced by $62 million, and our net leverage ratio is below our targeted range of 2.5x. Year-to-date, we have returned approximately $62 million to shareholders through dividends and share repurchases while maintaining our balance sheet flexibility to execute on strategic acquisitions. The team is energized. We are executing on our strategy to deliver growth, reduce complexity and efficiently deploy capital to unlock our potential. Turning to outlook. Macroeconomic trends have remained soft through 2025, and we expect them to remain so at least through Q4. We also expect a return to normal seasonal trends in the fourth quarter, and there is lingering uncertainty that continues to weigh on customer operating rates from tariffs and global trade. We anticipate continued momentum driven by share gains and our ongoing cost actions will help mitigate these impacts. Based on our current visibility in the fourth quarter, we expect to deliver another quarter of revenue and adjusted EBITDA growth on a year-over-year basis and should generate solid cash flow. We have conviction in our strategy and are balancing the near-term and long-term needs of the organization. We have delivered strong results year-to-date despite a softer macro backdrop and current data suggests markets could begin to stabilize in 2026. Irrespective, the share gains and cost actions we are delivering give me confidence that we are well positioned to return to growth in 2026 and beyond. With that, I'd like to pass it to Tom to discuss the financials in more detail.
Tom Coler: Thank you, Joe, and good morning, everyone. Third quarter net sales were $494 million, a 7% increase from the prior year. Organic volumes increased 3% and were strong across all segments, driven by share gains of approximately 5%. Acquisitions contributed an additional 5% to sales, primarily related to Dipsol, which closed in the second quarter of 2025. Selling price and product mix were 2% lower than the prior year. This consists of impacts from both product, service, and geographic mix as well as pricing largely associated with indexes. Gross profit dollars increased year-over-year and sequentially on a non-GAAP basis. Gross margins were 36.8% compared to 37.3% in the third quarter of 2024 and are comfortably within our targeted range. Gross margins increased compared to the second quarter of 2025 due to some modest raw material cost favorability and productivity actions, partially offset by higher manufacturing costs and the impact of mix. On a non-GAAP basis, SG&A increased approximately $5 million or 4% compared to the prior year. Excluding acquisitions, SG&A is approximately 3% lower on a year-to-date basis as we effectively manage costs. We are making good progress on our previously announced cost actions without sacrificing our ability to serve customers and invest in our strategic initiatives as we expect more -- and we expect more benefit in Q4 and 2026. We delivered $83 million of adjusted EBITDA in the third quarter, an increase of 5% compared to the prior year and 10% sequentially. Adjusted EBITDA margins of 16.8% are trending toward our targeted range driven by the top line growth and disciplined cost management. Switching to our segment results. The momentum in our Asia Pacific segment is evident, and the business is consistently outperforming its markets. The Asia Pacific segment has delivered positive organic sales growth in 8 of the last 9 quarters, including approximately 3% in the third quarter of 2025. This is driven by a strong contribution from new business wins, winning trials with new and existing customers in higher-growth geographies like India, through cross-selling and in new areas of our portfolio like Advanced Solutions. Asia Pacific segment sales increased 18% year-over-year as organic growth was amplified by a contribution from our acquisition of Dipsol, which is performing in line with expectations despite the challenging end market environment, particularly in automotive. Sales and organic volumes increased approximately 4% in Asia Pacific sequentially. We are improving operating leverage in Asia Pacific as segment earnings increased 16% year-over-year on the improvement in sales and modest raw material deflation. Segment earnings also increased more than 20% sequentially as we had some onetime acquisition-related items impacting margins in the prior quarter, which did not repeat. We continue to have opportunities for growth across the region. While end market conditions remain the most challenged in EMEA, net sales grew compared to the prior year and prior quarter for the second consecutive quarter. Organic sales grew 2% compared to the prior year across most product categories and once again delivered double-digit growth in Advanced Solutions. Segment earnings in EMEA also improved due to the increase in net sales and consistent segment operating margins. Net sales in the Americas increased 1% year-over-year. Organic volumes were flat as new business wins, especially in Advanced and Operating Solutions, offset softer-than-expected end market activity, which we estimate declined a low single-digit percentage in the quarter, primarily in metalworking applications. Americas segment earnings declined $3 million or 5% compared to the prior year, primarily driven by lower margins due to higher raw material and manufacturing costs as well as the impact of mix. Segment margins were consistent with the second quarter of 2025. Overall, we delivered sales growth and an increase in organic sales volumes in all segments in the third quarter. Our initiatives to return to growth and reduce complexity are gaining traction. Share gains are strong, and we are maintaining discipline around costs to better leverage our scale and footprint to drive adjusted EBITDA margins towards our targeted range. Turning to nonoperating costs. Our interest expense was $11 million in the third quarter. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 28%, and we expect our full year effective tax rate will be approximately 28%. In the third quarter, our GAAP diluted earnings per share were $1.75. Our non-GAAP diluted earnings per share were $2.08, a 10% year-over-year increase. Cash generated from operations was $51 million in the third quarter. Working capital was a modest use of cash as expected as we built some inventory related to ongoing manufacturing and network optimization actions. We also had approximately $6 million of incremental restructuring-related cash outflows. Despite these items, cash conversion was within our targeted range, and we continue to expect to deliver another solid year of cash flow in 2025. Capital expenditures in the third quarter were approximately $13 million, reflecting the timing of the construction of our new facility in China, which is expected to be online in the second half of 2026. CapEx is expected to be between 2.5% and 3% of sales in 2025 as we make progress on the construction of our new China facility and consolidate our headquarters and labs in Pennsylvania. In the quarter, we prioritized debt repayment, reducing our outstanding debt by $62 million. Our net debt at quarter end declined to $703 million, and our net leverage ratio improved to 2.4x our trailing 12 months adjusted EBITDA. Our consistent cash generation capabilities provide ample balance sheet flexibility to support our growth aspirations. We have also returned to shareholders approximately $62 million year-to-date through dividends and share repurchases. The third quarter was a positive reflection of our execution, improving our cost competitiveness, responsiveness and delivering value for customers. While we expect macroeconomic conditions to remain soft in the fourth quarter, we are confident in our strategy and our ability to outperform underlying end market conditions by capitalizing on our pipeline, managing costs, improving margins, and generating strong cash flow. With that, I'll turn it back over to Joe.
Joseph Berquist: Thank you, Tom. I am proud of the global Quaker Houghton team who continue to execute for our customers, our company, and our shareholders. We are making progress on our strategic initiatives and positioning the company for long-term above-market profitable growth. With that, we'd be happy to address your questions.
Operator: [Operator Instructions] And our first question is from the line of Mike Harrison with Seaport Research Partners.
Michael Harrison: Congrats on a nice volume quarter in a challenging environment. I was hoping that you could maybe give us some details on the Asia Pacific business and specifically on the margin performance. I think last quarter, there were some mix issues. You mentioned the acquisition, maybe some initial integration costs there as well as oleochemical raw materials that were dragging last quarter. Really nice sequential improvement this quarter, even though you still seem to be showing some negative price/mix. So I'm wondering, are there still some margin pressures that are happening even with the improvement that you saw? I think we're just trying to get a sense of whether we could still see some further improvement in Asia Pacific margin over the next few quarters.
Joseph Berquist: Yes. Thanks, Mike. Thanks for the question. Overall, Asia Pacific, I think, has been a really bright spot for the company. We continue to win new business. We're selling the whole portfolio, right? And in that portfolio, I think there's a mix of things across the margin range. Not all of them are on the high end, not all of them are on the low end, somewhere in the medium. So there's some lumpiness at times. We have thought, I think, for a big part of the year, oleochemicals, especially in that part of the world. And we tend to lag getting some pricing in. We do expect some of that is still coming in here toward the back part of the year. But overall, it's been a really good story for us. There's some geographic things that come into play as well. I think our growth in India is also part of the story in Asia Pacific. It's not just a China thing. So again, some lumpiness. I think overall, like targeted range of where we want to be in that business. We think we're in a good place to grow profitably, continue to win share in that part of the world.
Tom Coler: Yes. And Mike, this is Tom. I would just add to Joe's comments. I think he hit on -- we're really pleased with the growth in Asia Pacific and our opportunity to continue to win new business there, opportunities in India, specifically on segment margins in the quarter, I would say there's 2 components. Joe sort of talked about the raw material impact. We saw some slight deflationary impact associated with that in Q3. The other part of that is we had some nonrecurring onetime items in Q2 related to the acquisition of Dipsol. So that's sort of the other half of what you're seeing in the margin improvement from Q2 to Q3.
Michael Harrison: All right. Very helpful. And then you mentioned a couple of times, Joe, the Advanced Solutions strength, and you recently expanded that offering with Dipsol. There's also just within the industry, one of the major players in surface treatment is going to be transitioning into private equity ownership, which can sometimes lead to disruption. So I was just wondering, can you talk about how you're seeing the opportunity going forward to pick up further market share in Advanced Solutions and particularly in surface treatment and some of the metal treatment that you acquired with Dipsol?
Joseph Berquist: Yes, Mike. I mean that part of our business is something, again, we're excited about because part of the play that we've been running over the past few years is our customers want to buy not just lubricants from us, they're actually looking to buy things across the portfolio to help them manufacture things better. And -- so our entry into this Advanced Solutions space and our investment in that space is really a good opportunity for us to grow in different parts with our customers and in parts of their business that actually maybe are growing a little bit better than some of the traditional chemistries. And I think from a Quaker Houghton perspective, I'd like to use the old baseball analogy, right? We're still in the really early innings with some of these acquisitions, even Norman Hay that we made back in 2019 in globalizing that. It does take some time to transfer the technology into the sales force. It takes some time to build the supply chain to be competitive in all regions. And Dipsol, it's been performing, I think, as expected and maybe even a little bit better when you consider they're heavier weighted in Japan and -- with automotive, which has been a tougher place. But we're excited about the opportunity to continue to roll that out across our other regions and provide that full offering to the market for -- and gives us an opportunity to grow, I think, as we look forward.
Michael Harrison: All right. And then I was just looking for a little bit of clarification on the Q4 outlook. Last Q4, I believe there were some strike-related issues and downtime, some unusual margin weakness associated with that. And then in the meantime, you've taken out costs. You've also done an acquisition. So I guess just in terms of the view that Q4 should be up revenue and earnings year-on-year. Can you give us maybe a little more precision on how you're thinking about organic growth year-on-year in the fourth quarter and maybe on margin improvement year-on-year?
Joseph Berquist: Yes. Thanks, Mike. Yes, I mean, look, we have really good momentum heading into Q4. I think we have confidence in the net business wins that we've collected throughout the year, and that should carry into Q4 and the wrap of the things that we've won in addition to things in our pipeline that we continue to convert. There's just -- there's a normal seasonality that seems to be returning to the business. And when I talk about seasonality, it's really around holidays, primarily in Europe and in the Americas, you have less working days, you have some holiday outages. So we'll expect to experience that again this year. As you mentioned, our costs are under control. We continue to work on that previously announced program with some more work to be done there, right? So we would expect that to continue into Q4. Margin stability, again, you have a little bit of tug in a lower volume environment around capacity utilization. But we've taken some good steps, I think, as you see sequential margin improvement, and I wouldn't expect anything other than stability from what I'm seeing today. So overall, consider the fact that we have Dipsol, we didn't have Dipsol last fourth quarter, we feel pretty good about Q4. But I think there's just a reality that we will see the sort of normal seasonality this year, which we saw last year, it was also compounded last year by some other factors that you mentioned.
Operator: Our next questions come from the line of Laurence Alexander with Jefferies.
Laurence Alexander: I guess, first, just a short-term one. The -- where -- you mentioned sort of some optimism on 2026. Are there areas where you're hearing that from customers or -- either directly or indirectly, like they're seeing their customers do investments that they then now have to gear up production to satisfy or support? Or is that more just a general macro comment?
Joseph Berquist: I think it's more of a general comment, Laurence. Look, as far as the market goes next year, I mean, we mentioned a couple of times, we think the markets that we've been in this year are down low single digit, right? And even stability next year would be -- we view that as a good thing, right? I don't think anyone is saying, hey, next year is going to be underlying market growth, but we're also not seeing anything get any worse. So we're kind of entering the year looking at our ability to continue to deliver above-market share gains and with visibility on the wrap that we've acquired this year, with visibility on the full annualization of the acquisitions that we've made and also knowing what we can control and are controlling and targeting around costs. So that's where our kind of optimism is for 2026. It's not necessarily about a market improvement or any sort of inflection yet. There should be continued -- Asia should continue to be strong. Europe, I think, may have hit bottom, right? So again, stability there would be a positive for us. And then Americas is a question mark, but we're not really factoring any big inflections, positive or negative at this point.
Laurence Alexander: And then when you think about how -- what's driving the share gain dynamic, when end markets do accelerate, do you expect the rate of share gains to accelerate as well so that you get a double -- you get an amplified effect? Or do you see kind of your focus moving to supporting the end markets and the rate of share gains decelerate because the end markets are healthier, and you're focused more on supporting kind of new business that's coming in the door? Can you just give us a sense for how to think about modeling out what a recovery scenario might look like?
Joseph Berquist: Yes. No, great question, Laurence. Look, I think over the long haul, I feel really good about our sales model, how we're going to market. I think one of the things that we've really focused on is reducing our churn and getting our churn back to this low single-digit number and sort of stop shooting ourselves in the foot, and we've done that and feel really good about how we're serving our customers, number one. Number two, returning to the customer, just really doubling down on this customer intimate model, making sure the whole organization is focused and pointed in that direction, that we're acting with a sense of urgency. I think we're doing that as well. And I've been really pleased that the new business wins are coming in at that high end of our range. We talked about 2% to 4%. We've actually been a little bit above that. I think it's possible, Laurence, with the mix and the new business that we've acquired that we could continue to grow on the top end of that range. These are still competitive markets. There's still a long sales cycle. So there can have -- there can be lumpiness as well over time. We're going to try to get as much as we can with responsible levels of profitability. But I think we feel really good right now about sustaining at least kind of the levels that we're at into the next few quarters.
Laurence Alexander: And then just -- I appreciate this might be a bit of a fuzzy question or might need a fuzzy answer. But if you think about the trends in the industrial markets in terms of robotics and additive manufacturing, do you have the right -- first of all, how -- do you have a sense for how significant those are for you currently? But more importantly, do you have the right sales mix to be relevant to those markets? Or do you need to add on additional packages or technologies?
Joseph Berquist: No, I think the good news there, I -- the -- your question about how have we quantified what that impact will be. We really haven't. That's something that, from a strategy standpoint, we're looking at and trying to understand that better. But I think the great news there, Laurence, is we have -- we've been compiling some of these technologies through acquisitions. You talked about additive manufacturing, our Ultraseal business, which is related not only to die-casted product, but sealing products that are 3D printed or die cast, that's something that's really good. Our growing presence with specialty greases around the world and some of these greases are going to play a really big part in robotics. They do already today. But as that robotic market grows, we think there's an opportunity there for some of the specialty greases that we produce. Anything made out of metal has our products in the processing side of it. But now with the addition of Dipsol, when you get into plating of these things and the fasteners and even the anodizing of the parts, those are all things that we think will be a benefit for us as we go forward. Haven't quantified exactly what that benefit will be over the long term, but we feel it's a positive thing.
Operator: Our next question is from the line of John Tanwanteng with CJS Securities.
Jonathan Tanwanteng: Congrats on a nice quarter here. First off, if you could -- I was wondering if you could discuss just the sustainability of the share gains in new business you talked about. Can you clarify if you're expecting that to remain above that 2% to 4% range you historically had, number one? And number two, how much is pricing and the margin you're willing to have on that new business has been a factor in gaining that share? Have you taken a little bit less margin there? Or is it still in that higher range versus your kind of target range?
Joseph Berquist: Yes. Great question, John. Look, overall, I still think our range over the long term is this 2% to 4%. I'm really pleased that we've been doing better than that. And it's possible we sustain that. It's hard to say. As I said earlier, it's still a competitive market and our sales cycle is a little bit longer. But we feel really good about that 2% to 4% range because we've done that consistently, and I would expect we would continue to do that as we go forward. When it comes to pricing, complex question. I think what we have done is we've been very strategic about getting back to this sort of good, better, best offering with our portfolio, giving our customers some choices, especially as they're struggling in tough environments. And we want to make sure that we're giving them the full range of -- there's a little bit of background noise there, sorry. But I think we haven't necessarily been aggressive, John, in like lowering price to gain market share. That has not been and will not be our approach really ever. But also, I think being strategic with the portfolio and making sure we could sell things that are not only in the best technology range, but also in the good and better range. It helps us as we talk to our customers.
Jonathan Tanwanteng: Got it. That's helpful, Joe. And then just a question on the outlook. I know you've guided to growth for Q4, but I noticed you declined to update, I think, the prior language around guidance, which was in the range of 2024 for earnings. Can you just help us understand where you stand relative to the prior outlook and if that's still valid?
Joseph Berquist: Yes. I think -- look, we still feel, as I mentioned earlier, our fourth quarter is going to be better than it was last year, right? In the third quarter, I think we got there on the overall sort of our expectations, how we got there was a little bit different in that the volume is up, but there's still some price/mix headwind. I absolutely feel like within range, within range, how do I quantify that, John? It's hard to give you an exact quantification of that. But I feel like our fourth quarter, we are very confident is going to be better than last year. Our second half of this year is, as we said, will be better than the first half of this year. And you layer in some things like our Dipsol acquisition, which we didn't have last year in the fourth quarter and the cost of -- the cost actions that we've taken, we think we can still come within range, let's say that, within range of last year.
Operator: Our next question is from the line of Arun Viswanathan with RBC.
Arun Viswanathan: I guess I'm just curious on the APAC beat now for a couple of quarters. Does that potentially signal what could happen in other regions? Why are you guys outperforming there? Is that a combination of share gains and market growth? Or is it just one or the other? And does that -- again, would you expect similar kind of trajectory in other regions as you progress forward?
Joseph Berquist: Yes, it's a good insight. It is a combination, right? Those markets are stronger, are growing, more investment in those areas. So in addition to really executing on the margin gain, but -- or not margin gain, sorry, the new business wins. So it's a combination of a strong market and executing the sales pipeline.
Arun Viswanathan: And then the pricing, you may have addressed this earlier, apologies, but are you kind of -- do you think that you've kind of finished giving back all that pricing that maybe flows through with lower raws? And as you look ahead, what do you expect on the raws side? And would that also kind of -- if you do expect maybe some continued deflation, does that mean that pricing continue has to adjust lower? And does that actually ultimately result in maybe some volume gain? Or could you keep this 3% going? Maybe just talk about the dynamic between -- or the trade-off between price and volume.
Tom Coler: Yes. Thanks, Arun. This is Tom. I'll talk a little bit about that. So I think when we think about the price/mix dynamic, again, we saw that impact in Q3 is about 2%. It continues to moderate as we go through the year. On a sequential basis, it was essentially no impact on our top line. I think as Joe had mentioned earlier, some of that pricing dynamic was -- wasn't as intentional as we focus on our -- the breadth of our portfolio and our ability to give customers options from a good, better, best perspective. We also do have some targeted pricing actions where we've got sort of a fit-for-purpose pricing strategy in pockets of our portfolio in various geographies. So if we think about Q3, I would say price/mix was essentially half price and half mix. The other component there on the mix side is really a combination of both just the dynamic of our portfolio and how we're selling that through to end customers and the mix associated with that. Not all of our products have the exact same margin profile. And then also there's regional differences. So again, I think as we think about it going into 2026, we do expect the impact of this to lessen as we wrap some of these impacts. But it is a dynamic market environment, and we are trying to be responsive to our customers in terms of our product offering and how we think about good, better, best.
Arun Viswanathan: Great. And then lastly, just curious on -- you mentioned ICE vehicles. How are you viewing your exposure there in relation to EVs? Are you expanding your offering with EVs? If I recall correctly, maybe your performance would be better with an ICE. Could you just reiterate what would be -- what's more advantageous for you guys? And I'm just curious because we've obviously seen stronger growth on the EV side. And are you increasing your exposure there or not necessarily?
Joseph Berquist: Yes. I think that's one of the things that's really exciting about the Asia story is we're growing with some of these new winners in EV. And that's intentional. That's something that we recognize was coming. It's certainly accelerated in that part of the world. It's maybe stalling a bit in other parts of the world. But we find it important that we grow with the new winners in that space, and we're doing that. We've added some things to our portfolio that really position us very well for EV. The overall sort of -- as we look at that, a traditional ICE engine, if you call that par, an EV would use a little bit less of our traditional metalworking fluids. A hybrid engine would use a lot more -- or not a lot, but a little bit more. So on balance, I think it's the algorithm that we look at is automotive production in general. And our opportunities for ICE and EV are both compelling and similar.
Operator: At this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to Joe Berquist for closing comments.
Joseph Berquist: Thank you. Thank you for joining our call today. We are excited about our future and excited for Quaker Houghton and all of our employees. Appreciate your continued interest in our company. And please reach out to Jeff if you have any additional follow-up questions. Thank you.
Operator: This will conclude today's conference. You may disconnect your lines at this time and have a wonderful day.