Quaker Chemical Corporation (KWR) Earnings Call Transcript & Summary

Good morning. Again, my name is Dave Begleiter, Deutsche Bank's U.S. chemicals team. Next up is a team from Quaker Houghton, CEO and President, Andy Tometich; and CFO, Shane Hostetter. Gentlemen, welcome, as always.

Thanks, David.

Thanks.

Maybe first on business trends, maybe can walk around the globe from a demand perspective by end market, by region and by key geography?

Yes, sure. First of all, thanks for having us. Demand wise, I keep saying the challenges are supply side at the moment. So we're still seeing really strong positive demand really everywhere in the world. China, obviously, during Q2, with the shutdowns, in particular, in Shanghai, created some challenges. The demand was still there. But between our ability to supply and the entire supply chain, that had a bit of an impact in the second quarter in particular. As they come out, we still expect a few bumps, but things are starting to improve already as we look forward there. In the case of Europe, I would say it's been relatively stable now for a couple of months. There's still a lot of questions. There's been a big impact, obviously, in automotive, which is true globally. A little more acute in Europe, given some of the additional supply chain challenges beyond the chips. But overall, our demand patterns and orders are still relatively strong. And the U.S. and the Americas have been really positive again with automotive still being a bit impacted by the chip shortages. But overall, we still continue to see pretty strong underlying demand from our customers. It's been really a supply chain issue for area.

I know in China, that's been very impactful for you guys. You talked about a 50% reduction in volumes, I believe, on the Q1 call for this quarter. Is that still on track for that type of decline?

Yes, it's pretty consistent. What we said is what we're seeing play out. So we view this as a Q2 problem. And as I said, things are starting to open up. We're starting to see some improvement there. So consistent with what we talked about. And our team has done a phenomenal job. I always want to make sure when I talk about China, I want to give some emphasis to really the heroic efforts. And I know I've heard this from many counterparts and peers, but we had people literally staying on-site for multiple weeks working long shifts and then sleeping there and being away from their families, which we try to support. But it's been a really impressive effort by the team.

Great. Maybe just briefly on Europe. How is the Russia-Ukraine conflict impacted your business?

Yes. So for overall, that region for us, the combination of Russia and Ukraine is less than 2% of our revenue. We do not have any direct raw materials coming out of that area. So it's been more about really our unwinding of business operations. We essentially have nothing happening now in Russia. So it's more of the indirect impacts. And for the most part, those seem to have stabilized. I think some of the longer-term impacts still are going to be for all of us to determine what's going to happen.

Right. We'll see how that progresses. Maybe near-term raw materials and energy costs, what do you think they'll peak for Quaker?

Yes. I don't know if I used the language peak. I think I would say that we're continuing to see inflationary pressures, that's been ongoing now for multiple quarters. We had anticipated coming into this year that there would be a tempering of some of that, not necessarily that it would stop, but the rate at which the acceleration was happening might go a little bit slower. The combination of what happened in Eastern Europe and then with the China lockdowns has really not allowed that to happen yet. So we're watching very closely. More importantly, I think we're really focused in on whatever that is, what we can control is the value that we provide to our customers and how we capture that and we're very much focused on our pricing activities and making sure that we're offsetting and starting to improve the margins. We've been covering them on a dollar basis. We want to make sure we're getting the margins back over time to pre-pandemic levels.

Example I believe in Q1, you did fully offset raws, Angie and freight with solid price increases. Shut the case in Q2 as well, given more recent inflation?

Yes. I think we're continuing to operate in that vein. So setting aside the China impact, we actually thought we were going to see an inflection point on the margins even so going beyond the dollar coverage. So we still anticipate being able to do that dollar coverage in the second quarter. We're now thinking that inflection point for the margins, though, is likely to start more in the third quarter.

Gross margins?

Gross margin.

Up sequentially?

Correct.

Got it. You need additional price increases at this point in time to get that gross margin expansion Q3 versus Q2?

Yes. I think we're just continuing what we were doing. So what I would characterize is we're implementing the plan that we said we were going to do during the year, but now adjusting it a little bit and a little bit more in anticipation of where some of that inflation may go that we thought at the beginning of the year wasn't going to continue. So we'll continue to make adjustments and push through pricing as necessary. The good news is our customers, no one likes a price increase, but they've been pretty receptive. They understand the value that we're providing to them, and it really is about total cost of ownership with our customer base. So thus far, we've been pretty able to have those positive discussions with our customers. We continue to push to make sure, though, that we're doing everything possible. We are doing some strategic pricing, which may put a little bit of volume at risk, but we're trying to manage that elasticity.

And if raws do eventually roll over, how much these price increases are durable or sustainable or can be retained?

Yes. I'll just start off. I'm going to ask Shane to make a couple of comments because I think we've got some history that is informative here. But we believe just as we sell on total cost of ownership and the value that we provide to our customers, that doesn't change just because raw materials go up and down, which is sometimes why we have a little bit of a lag when there's inflation to actually cover some of those raw material inflations. But then we're also able to hold on to those prices even if things do rollover stabilize. And maybe you could talk, Shane, about history.

Yes. I mean when you look at the past history, you look at the '08 time frame, the last crisis on that side and then '14 and '15 with when oil shot up on that side, you look at it coming out of that. We were able to actually grow our margins off the lower pressure, right? So in 2014, 2015, we did get about a 2% bump off of that, right? So I do think as we look at past cycles and past history, it's an example of what we might want to expect raw materials do go down again.

Very good. Supply chain logistics issues are getting any better for you guys?

It's hard to paint with a broad brush. But I would say, in general, we're seeing less disruption. There are still examples. We had some even in the first quarter, as we said during our earnings call. It didn't limit our ability to serve our customers, and that's our priority as the security of supply with our existing customers. It did hamper us a little bit from additional growth that we think we could have done in the first quarter. So still sporadic challenges from time to time. And of course, I'm not going to go back and talk about China again, there's still a lot of bumps in China with respect to that. But we're seeing signals that maybe things are at least starting to stabilize. The volatility may not be as acute as it has been.

Excellent. I guess on margins, I think you said in the past, you want to get back to that mid-30s level of gross margins down the road, pre-pandemic. Right now, we're low 30s. What needs to happen to bridge this additional 400 or 500 basis points gap between current and perhaps pre-pandemic gross margins?

Yes. Do you want to -- Shane, go ahead.

Yes. So as you indicated, we're in roughly that 30% gross margin range as we look Q1. We were pricing to catch up with raw materials on a dollar basis, maintaining our gross profit. Now we are pricing ahead of where we believe our raw materials are going, right? So as we look to the latter part of the year, the second half, we have signal growth on that side, and we still believe that and a lot of it is going to come from additional pricing on that side to get back our margins. And so we feel very comfortable with where our pricing is as we look now and where the raw materials go in the long run press this year to get back to that gross margin level.

Very good. Let me take a step back here. Andy, you've been here a little bit of time, what was the attraction of Quaker to you?

Yes. No, absolutely. Thanks for asking that question. You get so busy with what's going on. It's nice to talk about that. Yes. I mean I spent over 3 decades in the specialty chemical industry. And so very familiar with customer focus and really doing more than just selling a product, really providing solutions to customers. What really attracted me to Quaker Houghton is I think we're kind of on the leading edge as far as that goes. Oftentimes, I say we're almost a service company that just happens to have some specialty chemicals that we use to help our customers. And I think the way Quaker Houghton has not only done the traditional technical service and support, but even we go with our fluid care model where we literally embed our employees on the customers' floors, helping them in their operations, continuing to optimize how they're doing, making sure that we're minimizing downtime and so forth. We've taken that customer intimacy to another level. So that was attractive as far as the culture goes. Then on top of it, when we think -- what we're providing is usually pretty low in the overall cost of goods sold of our customers. And they're focused more on the opportunities that are unlocked by working with us as opposed to just the pure transactional cost, and we're relatively low market share in each 1 of our segments. So there's growth opportunities for us, and we're continuing to help customers get better and better in manipulating metals to make better and better tools for the world, I don't think that's going to go away. Those opportunities are going to change, but we still have a lot of growth opportunities. And I think we have the right model in the way that we deliver that value to our customers. So that's what really got me excited about coming here.

Is this very service-intensive customer intimate model more or less relevant post the pandemic?

I actually think it's more relevant. I mentioned it a few minutes ago, but one of the big value points for our customers right now has been continuity of supply. And I'll be honest, it's been tenuous at times and our ability with some of the supply chain interruptions. But to the best of my knowledge, we have not yet fully shut down any customer. We've come close. We've done a lot of just-in-time circumstances. We may not have shipped full orders, and we had to do partials to help them along. But that really changed the mindset. And I think that emphasized to customers during the last, let's say, 18 to 24 months, that, of course, the total cost is important, but it's also having the ability to operate. And so I think it's -- I think that intimate model allows us to be there and really understand what's needed in that moment, not just reacting to what the customers tell us.

Makes a lot of sense. You discussed in the past the untapped potential of the business model. So where is the potential? How do you untap it? And what does it mean for sales and earnings growth and even margins?

Yes. Well, first of all, we've got a great platform with 100 years of experience in one of the legacy organizations at 150 now brought together with new capabilities that really we can take advantage of. Each have their own strengths and then the combination now we can certainly leverage that. But the other thing is we're investing for what I call contemporization. So we have that customer intimate model. But the way we deliver that and how customers want to interact with us, we'll continue to evolve and we need to contemporize it. So we're investing in things like our fluid intelligence, where we're actually putting the other technology and sensors that will be deployed at customers to take out some of the manual effort we do today with people to go do test samples and so forth to have real-time live ability to see what's happening in the operations so that we can keep our teams focused in on how do we optimize it and how are we going to solve any problems that are anticipated. So this contemporarization I think, is part of where we're going to unlock that model because as we do that, I think we're going to be able to reach an even broader base of customers that maybe we haven't been able to with a more labor-intensive model.

Does this mean more investment in the business or more capabilities or what different types of people, skills or -- what do you need to do to get there?

Yes, I think it's both. So for sure, as you're thinking about the example that IGS gave was sensors and so forth, that some new capabilities. But what comes along with it is the ability to understand then the data that we're deriving from that. So it's going to probably mean we're going to have to invest a little bit more in capabilities around data science and the algorithms that are necessary to do that and the interpretation of it. So we'll be upgrading not only the equipment and investing there, but I think we're going to continue to upgrade in our people and their expertise, which I think is very attractive to all of them as well.

And what all does cross-selling play in the portfolio? Do you -- is it -- do you do enough of this? Do you need to do more of this? And is it a core competency of the new entity?

Yes. I think it's a competency that we're continuing to develop. I would say we're still a little bit early in the process. In the initial phases of the integration, we were focused on delivering the cost synergies and making sure the justification for the deal actually occurred. And I think we never quantified what those growth synergies were going to be from the cross-selling. And of course, COVID made life a little bit more difficult. But I think we're starting to gain some traction. And my predecessor, Mike Barry, might remember as he was kind of exiting the scene. He like to use the baseball analogy. If we're in the ninth inning and finishing up on the cost synergy side, we're maybe in the early innings on the cross-selling, we still have plenty of opportunity there. And I think that's still the case.

Great. Makes a lot of sense. Recession, if you do go into a downturn or recession, how resilient will this business be? And what levers can you pull to mitigate the impacts?

Yes. I'll maybe make a couple of comments. But first, I want Shane to talk a little bit about. We've been through this before. So I think it's helpful again to articulate how we've done with this deal to this before.

Yes. So if we think about the '08 time line or for that matter, the most recent of COVID, we did have a reduction in volumes, right? We were tied to the production of our end markets with that in a recession scenario, we are going to have reduced volumes. But the interesting part of our business is with anything recession a lot of our expenditures are tied up in the working capital. And so with the recession came actually positive cash flow, and we were able to pay down debt recently during COVID and we did the same thing in the '08 crisis on that side. So yes, it will be impacted on a volume perspective, but the free cash flow characteristics of the company are actually beneficial during some of that time. And with that, there's other avenues for potential areas where we -- if a decline in sales goes, a lot of our SG&A is variable, 75-25, from the 75% variable and 25% fixed. So some of the costs will go down accordingly on that side as well. And then depending upon structural changes or to that extent we can scale too. So Andy, do you want to go?

Yes. No, I would just say, and it builds back on the contemporization I was talking about too. Part of what we'll be able to do as we're making some of those investments is we can make the adjustments based upon what our customers need and scale with it. So just emphasizing beyond the specifics that Shane went through and how you think about it, I think some of the investments we're making longer term are going to enable us as well should we have to deal with that.

Understood. R&D, what's your impression on the R&D organization and acumen of Quaker when you've been here?

Yes. Well, first of all, I think we got stronger with the combination of the 2 companies. We're getting more and more emphasis on how do we leverage the capabilities of the organization across. One of the things that was put in place before I arrived that we're now continuing to energize, we put together centers of excellence and centers of innovation that instead of creating the expertise in regions and then hoping that we share those things across, we're actually forming the global centers of innovation that actually do that and work together. So that drives against a lot of the bigger longer-term raw needs of customers. And I think we're really starting to get some traction in that area. A couple of examples of where I think it's really starting to make a difference and gets me pretty excited, one is around this fluid intelligence that I just mentioned a few minutes ago, where they're really making some advancements on some of the sensor technology that is unique to the types of products that we make that I think are going to be able to accelerate some of the ideas and some of the plans we had around that. The other area is in sustainability. The R&D team, in particular, is looking at alternate sources of materials. Some of them bioderived. Now bioderived products have always been part of our portfolio. We really building out platforms now that are a little more robust and can go across different regions or different areas of customer need. We're really building that up as a capability. So when our customers are ready, because not all of them are quite ready to do that, that we've got the solution in hand and can roll that out to them. So I think the R&D teams are really picking up the pace and putting us in a good position to support the organic growth as well as some of the inorganic stuff we've done.

Great. And what about big data. You have access to data for your customers. What's the potential of utilizing that data to help your customers and to make more money?

Yes. I think the opportunity is to use that to get to solutions more quickly, which then in turn allows customers to be more successful. And as the customers are more successful, we tend to be more successful as well. So I think big data is clearly going to be a part of what we do going forward. I think the entire path of how we get there is not fully clear, and I don't think that's unique to us. But we're clearly making investments when we're talking about some of the strategic investments to contemporize the company is to build some capability in that space so that we do take full advantage of it.

I think about the journey of Quaker Houghton and where we are in this process and COVID interrupted to a degree the journey. So I'm not a big baseball fan, but where were we? First inning, third inning, fifth inning of this journey to create a global leader in fluid management and metalworking fluids?

Why don't you talk a little bit about the cost side first because I'd like to make sure that we highlight that we have delivered quite a lot on this.

No question about. It makes a ton of sense. And in baseball terms, I think from a cost side, we're in the end of the innings, right? So in the 9th on that side. So we started out in 2019 with thinking about $45 million of cost synergies, right? And we exited at $80 million. So the success on that side is true and true. I think we talked about the top line synergies, which we didn't quantify, right? But I think we're kind of in the initial stages, call it, the third inning on that as we develop and as on that side. But from an integration perspective, right, I do think COVID had an impact on that side, whether it be footprint, infrastructure, IT. But it's pretty impressive what we've come to from an integration perspective, and I believe where we're at despite all those implications. We are 1 company from a culture perspective. We're able to operate as 1 company. But we have some runway for different avenues, 1 integrating systems, infrastructure and a couple of other things as it relates to digitization vision as well.

Yes. All I would say to build on that. There was a slogan put in place when the 2 companies came together that we said forward together. And I think that was more -- that was a little bit aspirational, right, of what we needed to do. I think now it's more descriptive of what the organization is doing. I mean it's clearly 1 Quaker out. So while there's still a lot of innings in front of us, I think we've gained a lot of traction the team is moving in the right direction together.

Yes. It looks to be to me a potential 3, 5 years extraordinary as the world recovers. So just a question on integration. Are we -- are there still silos of Quaker and Houghton people or thoughts? Or is it fully integrated into Quaker Houghton entity?

I don't know if you can never say 100% about anything. So I'm sure there's still some people that identify with their legacy, just like I identified with some of my legacy before I was a Quaker Houghton. But as far as the operations, the behaviors and how we're going forward, I think it's pretty well United. Where we still run into a few issues, because of COVID, we were a little bit delayed going on our single instance of an ERP system. We're going to be at about 90% by the end of this year with our revenue. But in some of the processes that we haven't been able to fully get aligned 100% to Quaker Houghton, yes, but we're very close on those. So I think it's more some of those tactical and mechanistic things as opposed to the spirit and the mindset of the organization.

Very good. Maybe looking at some of the key end markets. First, auto. What's your leverage to recovery in auto build rates going forward?

Yes. So I mean just as a reminder, automotive, we say it's about 20% of our overall business. And I would highlight, too, because it has a lot of attention. About half of that, so 10% of our overall ties to the internal combustion engine. Now if we were totally leveraged on -- that's all we do when we provided maintenance oils, maybe like some others in the space, that could be very worrying. To us, we actually see it as an opportunity because we're also pivoted to developing opportunities in the battery electric vehicle space and in the transition phase, which may not be a short-term transition phase. Hybrids are actually quite positive for us. There's even higher amounts of processing fluids used given the componentry that goes in. So our ticket to going forward, I think, is continuing to pivot to where the applications are going and not being constrained to we just participate in 1 application. And automotive, obviously, is a big driver for us, and we're excited about the new opportunities and there's some new technology and new problems that are hard and that's perfect for us. We want to work on those hard problems with customers. We actually feel very confident about it. So I think the leverage for us going forward in automotive is not just when the build rate comes back, but it's also we're in the right applications for those build rates going forward. I don't know if you want to add some...

Just to look at the volumes in 2019 from what you were talking about with the leverage coming back, what capabilities and opportunities might be, you're probably looking at high single digits that we're still down compared to legacy volume. Andy did a great job going into the differential between transportation being EV or combustion engine. So obviously, I think there's still room to run there given past history versus, obviously, the opportunity to get into other avenues within the electric vehicles from a volume perspective.

And that's really my next question. EV versus IC, I think about as a risk to you guys, but it's become more of an opportunity, I think, overall. Just on the EV side, again, where is the -- where are the applications for you on the EV side? And how much can they expand?

Yes. So first of all, I always like to highlight the fact that there about half of our activity in automotive today is not related to the internal combustion engineering. Those are still growing. And in fact, if you think about the size of vehicles around the world continuing to increase, everybody has followed America with the SUV trend. A lot of those applications are actually yielding more volume opportunity for us, and we continue to pursue those. And as trends around lightweighting and using more aluminum as opposed to steel and some of the componentry, again, harder problems and fits right in with us. In the EV space, in particular, though, to answer your question, it's yielding different approaches to, for example, how chassis are built because you're now accommodating a large battery pack as opposed to an internal combustion engine and that's changing the way those are being assembled. And some of that's being done in more integrated ways through traditional metal formation approaches, stamping and things like that, which gives us opportunities. And we're in several of those already that allow us to participate, I would say, kind of ancillary to the actual battery itself. The other thing is the metals that are going to be used in batteries and casings and so forth have to have different electrical properties than standard steels, which creates new challenges. When they're going into non-grain-oriented steels and any application around the battery, much more difficult to form, much more difficult on the lubrication requirements, again, falls right in. So those are 2 example areas where we're already making a lot of progress with customers and seeing some nice growth as we go forward.

And how do margins compare on these EV applications versus traditional ICE applications?

Yes. I think it's the same as any innovation. We tend to -- when we're working on new innovations that are creating differential value those, by definition, are at a higher margin. And that applies not just to these applications, but I think any of them has any applications in our portfolio as we're developing and employing new innovations.

You mentioned hybrid being a bigger up, is that just the best of both why hybrid is an opportunity for you guys ICE and EV?

Yes. I mean essentially, you have 2 powertrains. So you have some of the EV opportunities as well as you still have some of the ICE opportunities that fall within those.

How would you rate your competitive positioning on the EV side right now versus your competitors?

Yes. I think we're pretty good because we've pivoted to it. Many of our -- at least, our larger competitors also tend to be in the retail and consumer space on lubricants. And so they're dealing with the literal problem of my material as the internal combustion and transmissions go away, there's not going to be an application for those. So I think the -- we're able to focus a little bit more on where the opportunities are in this pivot to the EVs and really focus our energy on that as opposed to just trying to manage maybe the challenges of the unwind from this pivot. I think we're a lot more focused and, therefore, moving faster with our customers.

Okay. And as ICE applications trend down, can you just more for your services or is that not possible?

I think at all -- with everything, it depends upon overall dynamics, right, of what's going on supply and demand with our customers at a macro level. So I think as it becomes much more difficult maybe because of smaller size and the cost to serve in some of those applications occur, then yes, we're going to -- we're doing it based upon the value we're providing to our customers. So as they maybe become fewer suppliers or they're more challenging applications as they're running that technology to its end, I think that actually provides us an opportunity in our total value that we provide to customers that can be represented through the price.

Okay. No exciting opportunities on EV. Maybe just on aerospace, you size that portion of the business for you guys and the opportunity is as those build rates ramp back up?

Do you want to take that?

Yes, sure. The -- our aerospace division, it's less than 5% of our top line. But as you think about kind of the availability of where it was and where it could be, right, we're still down roughly 10% from the volumes that it was. So still a nice chunk there as build rates continue to grow and people continue to travel, as said.

Right.

Maybe switching to cap allocation M&A. First, where do we stand on that your capital allocation priorities? What do you want to accomplish in the near or medium term?

Yes. I'm going to let Shane go through the specifics, but the basic message is it hasn't changed, right? So I think we've had a very solid capital allocation framework that we've deployed in Quaker Houghton. The framework still applies. I think we'll adjust within ranges on certain of the components as it makes sense for us to make investments and so forth. But Shane, why don't you kind of run through our thoughts on that?

Absolutely. Thanks, Andy. Number one priority for capital allocation waterfall is the dividend side, right. We've been a dividend payer for over 50 years, growing it almost every year as well, comparable to our peers on that side of things. The next was when we did the deal, we did lever up close to 4x, delevering was a very big priority of ours. And our target is right around the 2.5% to less than that, and we still believe we'll be in that neighborhood at the end of the year on this side. And then from there, we leave the best use of our cash is really growing both inorganically and organically. So organically investing in technology, investing in new sides from an R&D perspective and making sure we're enhancing with the vision of digitization and modernization. And then the inorganic side, we've been able to execute recently with smaller acquisitions. We've done 4 recent smaller acquisitions, all less than 7x EBITDA. And as we look ahead, we want to do more sizable deals to bring back further returns on that side.

How much more consolidation can occur in the industry? And can Quaker be a leader in that consolidation?

Yes. Clearly, the industry is still quite fragmented. So that naturally lends itself to potential consolidation. I think our main focus is to have a balanced portfolio on the way we think about integration. So while there may be structural deals that come along and obviously, the combination that occurred between Quaker and Houghton was a good example of that. Those aren't always actionable. They aren't always available right at their predictable moments. And so our goal, I think, in that space is to be available to be ready for that, have the right liquidity so we can execute if that makes sense, and it provides total shareholder return. But at the same time, we're going to keep going with bolt-ons that add technology, that add channel for us, that add geographic span because we still think there's a fair amount of share of wallet that we can gain with the customer set that we have by doing that. So it -- I think both of those are a key part of our capital allocation strategy and then specifically how we manage the inorganic piece of our portfolio.

And for bolt-ons is a model you pay 8 to 10x EBITDA pre-synergies, it's 6 to 8, postsynergies? What's the financial model for these bolt-on transaction?

Yes, absolutely. So I mean we generally look at it from an IRR perspective and on the hurdle rates. But I mean, if you look at our past history, right, we've always been in that sweet spot of low single -- or high single digits, somewhere around the 7, 8x. If you look at the Houghton deal, right, pre-synergies is roughly net 12x net of synergies are up at 8x. So in that area, it tends to be our sweet spot, but we tend to look at it on the cash flow the IRR hurdles and as long as it makes sense in light of our return from that perspective to do it. We do not look for items that were probably overly heavy on the actual multiple sides to the high teens or anything to that extent though.

Right. And how's the pipeline today?

Yes, very solid. Even with all the other challenges we're managing in the short term, we executed on a couple of deals in the first quarter of this year. We still have an active pipeline going forward, and it's just -- it's part of the natural muscle, I think, in how we operate and how we will going forward.

You have some pretty unique skill sets. I'm thinking about adjacencies, maybe a touch further field in the current core, does that come into consideration, maybe that near term, but maybe medium to longer term?

Yes. I think absolutely, we would consider that, but I don't think that's our first priority. I think we feel pretty good again about the space that's available in our traditional area, we're the only ones of our competitive set that really truly focus on this space. We love this space. And I think we've proven to our customers that we're the leader and that we're the right one to be partnering with. So while we'll always think about those things, I think we want to make sure that we don't move away too quickly from the things that still have opportunities for us that we're really good at and that's serving these customer needs with this intimacy to manipulate metals into better and better tools for our customers and society.

And from an ESG perspective, I think you're well positioned to help your customers and help yourselves to deal with these increasingly stringent standards, regulations. How do you frame this opportunity for you guys?

Yes. Well, I mean, first, I start off with kind of the inherent nature of the company. I know we've never really positioned it this way. But I would say, we've been a sustainability company for a long time because we're helping our customers use less energy. We're helping them reduce waste. We're helping them keep their uptime, put their labor on the most value-added activities that they possibly can have them, and that's the essence of our service model. And it feels pretty sustainable to me even if we've never labeled it that way. So it's kind of inherent in us. I think then with the new focus on setting some of the targets, and we've communicated this in our sustainability report about making continued improvements in our contributions to better climate, continue to move forward on our diversity and inclusion, up in our game. We've upped our game significantly on the safety side and helping our customers to do that as well. So I think it's an inherent part of our DNA, and we're just adapting and contemporizing maybe in the way we communicate that a little bit more than we had in the past.

Okay. Just lastly, what do investors stocks had a challenging period of time? What are investors not seeing today about the new Quaker Houghton in your view?

Yes. I think it's easy to get focused on the short-term challenges, but I think the essence of the company continues despite all of that. And what I would say is it's probably -- people are aware of it, but maybe not -- the resilience of this model is pretty impressive. In the first quarter, we always talk about we grow with our underlying markets, which don't sound super sexy at 1% to 3%. But we've proven with a track record, we grow at 2% to 4% over that because of our customer intimate model and continuing. You get a larger portion of our customers' wallet because we're helping them not just solve problems, but find new opportunities. We're continuing to do that even in some very challenging times. In the first quarter, our net new business wins were still at the low end of that range of 2%. So I think the resiliency of this model, the ability to adapt to whatever the new applications are going to be in our traditional markets and doing that in a way that's going to scale and take advantage of new contemporary tools to serve those customers, I think that's pretty exciting. And we focus a lot on some of the current challenges, but that part hasn't changed. And I really like to emphasize that part.

Makes a lot of sense. So great. With that, we'll stop there. Andy, Shane, thank you very much and best of luck in the future.

Great. Thanks very much.

Thank you.

Appreciate it.