QUAKER CHEMICAL CORP (KWR)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Report, the terms “Quaker Houghton,” the “Company,” “we” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.

Executive Summary

Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge, and customized services. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S.

Net sales in the second quarter of 2026 were $532.6 million, an increase of 10% compared to $483.4 million in the second quarter of 2025. This increase was primarily driven by an increase in sales volumes of approximately 7%, a favorable impact from foreign currency translation of approximately 2%, and an increase in selling price and product mix of approximately 1%. The increase in sales volumes in all segments compared to the prior year was primarily a result of new business wins across all segments. The increase in selling price and product mix reflects pricing actions taken to offset higher raw material costs, as well as changes in the mix of products and services, and the impact of our index-based customer contracts.

The Company reported net income in the second quarter of 2026 of $26.8 million, or $1.55 earnings per diluted share, compared to a net loss of $66.6 million, or $3.78 loss per diluted share in the second quarter of 2025. Excluding non-recurring and non-core items in each period, the Company’s second quarter 2026 non-GAAP net income and earnings per diluted share were $37.9 million and $2.19 compared to $30.0 million and $1.71, respectively, in the prior year. The increase in current quarter Non-GAAP earnings was primarily driven by an increase in net sales, partially offset by an increase in selling, general and administrative expenses (“SG&A”) and a slight decrease in Non-GAAP gross margin. The Company’s current quarter adjusted EBITDA was $85.2 million compared to $75.5 million in the second quarter of 2025, primarily driven by the increase in net sales, partially offset by higher SG&A. See the Non-GAAP Measures and Consolidated Operations Review sections of this Item below for additional details.

The Company’s second quarter 2026 operating performance in each of its three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific, reflects similar drivers to that of the Company’s consolidated performance. Operating earnings for the EMEA and Asia/Pacific segments increased compared to the prior year quarter, primarily due to an increase in net sales and an improvement in segment gross margins, partially offset by higher SG&A. Operating earnings for the Americas segment decreased compared to the prior year quarter primarily due to lower segment gross margins and higher SG&A, partially offset by an increase in net sales. Additional details of segment operating performance are provided in the Reportable Segments Review in the Operations section of this Item below.

Net cash flows provided by operating activities were $33.2 million in the first six months of 2026 compared to $38.5 million of net cash flows provided by operating activities the first six months of 2025. The lower operating cash inflow year-over-year reflects higher net cash outflows from working capital, partially offset by improved operating performance and lower outflows from restructuring activities in the first six months of 2026 compared to the first six months of 2025. The key drivers of the Company’s operating cash flow and working capital are further discussed in the Company’s Liquidity and Capital Resources section of this Item below.

Overall, the Company’s results in the second quarter of 2026 reflect an increase in net sales in all segments compared to the prior quarter and the prior year quarter, driven by new business wins, and the Company’s continued focus on delivering on its long-term financial and strategic initiatives.

Recent geopolitical developments, including the escalation of the military conflict involving Iran, have increased uncertainty in the Middle East and global markets. While we do not have direct operations in Iran, our business is exposed to the current disruptions to international shipping routes, supply chain delays, and increased raw material and transportation costs. Additionally, volatility in global energy prices resulting from the conflict may impact our operating expenses and margins. In addition, the potential imposition of new or expanded sanctions against Iran or entities doing business in the region could restrict our ability to transact with certain partners and may require us to undertake additional compliance measures, review our contractual arrangements, or incur higher costs to ensure adherence to applicable laws. We are actively monitoring the situation and have implemented contingency plans, including raising our selling prices to cover higher raw material costs and increasing inventory levels where feasible. At this time, the conflict has not had a material impact on our financial results; however, due to the unpredictable nature and scope of the conflict, we cannot guarantee that future developments will not materially affect our business, operations, or financial condition.

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Quaker Chemical Corporation

Management’s Discussion and Analysis

On July 4, 2025, H.R. 1, commonly known as the One Big Beautiful Bill Act (the “OBBB”), was signed into law. The OBBB includes significant changes to the federal corporate tax provisions and extends certain otherwise expiring provisions of the 2017 Tax Cuts and Jobs Act. Among other things, the legislation restores 100% bonus depreciation for eligible property, reinstates expensing for domestic research and experimental expenditures, imposes new limitations on interest expense deductibility, and expands disallowed deductions for certain employee remuneration. The legislation has multiple effective dates, with certain provisions effective in 2025 and other provisions implemented in 2026 and 2027 forward. The provisions effective in 2025 did not have a material impact to our consolidated financial statements, and the provisions effective in 2026 and 2027 are not expected to have a material impact to our consolidated financial statements.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in “Management’s Discussion and Analysis” and “Note 1 – Significant Accounting Policies” to the Consolidated Financial Statements in our 2025 Form 10-K. There have been no material changes to the critical accounting policies and estimates disclosed in the 2025 Form 10-K.

Recently Issued Accounting Standards

See Note 3, Recently Issued Accounting Standards, to the Condensed Consolidated Financial Statements for a discussion regarding recently adopted accounting standards and recently issued accounting standards not yet adopted.

Liquidity and Capital Resources

We had cash and cash equivalents of $155.1 million and $179.8 million as of June 30, 2026 and December 31, 2025, respectively. Cash held by subsidiaries in foreign countries was approximately $146.8 million and $171.4 million at June 30, 2026 and December 31, 2025, respectively. The $24.7 million decrease in cash and cash equivalents was the net result of $38.4 million of cash used in financing activities, $18.8 million of cash used in investing activities, and a $0.7 million unfavorable impact of foreign currency translation, partially offset by $33.2 million of cash provided by operating activities.

Net cash flows provided by operating activities were $33.2 million in the first six months of 2026 compared to net cash flows provided by operating activities of $38.5 million in the first six months of 2025. The decrease in net operating cash flow year-over-year reflects higher net cash outflows from working capital, partially offset by improved operating performance and lower outflows from restructuring activities. The higher net cash outflows from working capital are due to higher net cash outflows from accounts receivable due to an increase in net sales and timing of collections and higher net cash outflows for purchases of inventory due to higher raw material costs and strategic inventory builds at production sites in advance of planned manufacturing transitions and in response to global supply chain risks in connection with the conflict in the Middle East. This is partially offset by higher inflows from the timing of payments of accounts payable.

Net cash flows used in investing activities were $18.8 million in the first six months of 2026 compared to $180.7 million in the first six months of 2025. The decrease in cash used in investing activities year-over-year is primarily the result of $164.1 million of payments, net of cash acquired, in the prior year related to the acquisitions of Chemical Solutions & Innovations (Pty) Ltd. (“CSI”), Dipsol Chemicals Co., Ltd., (“Dipsol”) and Natech, Ltd., (“Natech”). This is partially offset by $3.0 million proceeds from asset dispositions in the prior year and $0.7 million increase in payments related to capital expenditures. See Note 2, Business Acquisitions, to the Condensed Consolidated Financial Statements for further information about business acquisitions.

Net cash flows used in financing activities were $38.4 million in the first six months of 2026 compared to $147.5 million cash provided by financing activities in the first six months of 2025. The decrease in net cash inflows from financing activities is primarily driven by a $901.8 million increase in payments on the Company’s U.S. and Euro Term Loan and Revolver loans, which is primarily related to repaying in full all outstanding loan commitments under the existing Credit Facility in connection with amending the Credit Facility in April 2026. Proceeds from the Revolver decreased by $85.7 million, which is primarily related to a revolver borrowing during the first six months of 2025 to fund the purchase price of the Dipsol acquisition, partially offset by a revolver borrowing upon executing the Amended Credit Facility in April 2026. The first six months of 2026 also includes a $6.2 million net cash outflow relating to financing-related debt issuance costs associated with the Amended Credit Facility. This is partially offset by $800.0 million increase in proceeds from the U.S. and Euro Term Loan debt upon executing the Amended Credit Facility in April 2026 and a $8.5 million decrease in share repurchases compared to the prior year.

The Company, along with its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, maintain a credit facility with Bank of America, N.A., as administrative agent, U.S. dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders. The credit facility, as amended in June 2022 (the “Credit Facility”), established (A) a $150.0 million Euro equivalent senior secured term loan, (B) a $600.0 million senior secured term loan, and (C) a $500.0 million senior secured revolving credit facility, each maturing in June 2027.

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Quaker Chemical Corporation

Management’s Discussion and Analysis

In April 2026, the Company and Quaker Houghton B.V., as borrowers, entered into a fourth amendment to the Credit Facility with the lenders. As amended, the Credit Facility (the “Amended Credit Facility”) established (A) a $250.0 million

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.

Executive Summary

Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge, and customized services. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S.

Net sales of $1,888.6 million in 2025 increased 3% compared to $1,839.7 million in 2024. The net sales increase of $48.9 million, or 3%, is primarily due to contributions from acquisitions of approximately 4% and favorable foreign currency translation of approximately 1%, partially offset by decreases in selling price and product mix of approximately 2%. Organic sales volumes remained consistent in 2025 compared to 2024, primarily as a result of continued new business wins across all segments, particularly Asia/Pacific, which was offset by a continuation of soft end market conditions including the uncertainty caused by tariffs, particularly in the Americas and EMEA segments. The decrease in selling price and product mix was primarily attributable to the impact of the mix of products, services and geographies and the impact of our index-based customer contracts.

The Company reported a net loss of $2.5 million or $0.14 net loss per diluted share in 2025, compared to a net income of $116.6 million or $6.51 earnings per diluted share in 2024. The net loss primarily reflects an $88.8 million non-cash impairment charge to write down the remaining value of goodwill associated with the Company’s EMEA reportable segment. Excluding non-recurring and non-core items, the Company’s current year non-GAAP net income and non-GAAP earnings per diluted share were $123.2 million and $7.02, respectively, compared to $133.5 million and $7.44, respectively, in 2024. The decrease in current year Non-GAAP earnings was primarily driven by lower gross margins and an increase in selling, general and administrative expenses (“SG&A”), partially offset by an increase in net sales. The Company generated adjusted EBITDA of $299.2 million compared to $310.9 million in 2024, as the increase in net sales was offset by lower operating margins and an increase in SG&A. Non-GAAP net income, non-GAAP earnings per diluted share and adjusted EBITDA are non-GAAP measures. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Consolidated—Use of Non-GAAP Financial Measures” for the definition and reconciliation of these measures to their most comparable GAAP measures.

The Company’s 2025 operating performance in each of its three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific, reflects similar drivers to that of the Company’s consolidated performance. The increase in operating earnings for the Asia/Pacific segment compared to the prior year was primarily driven by an increase in net sales and further contribution from acquisitions, partially offset by lower segment operating margins. The decrease in operating earnings for the EMEA segment compared to the prior year was primarily driven by lower segment operating margins, partially offset by an increase in net sales. The decrease in operating earnings for the America segment compared to the prior year was primarily driven by a decrease in net sales and a decrease in segment operating margins. Additional details of segment operating performance are provided in the Reportable Segments Review in the Operations section of this Item below.

Net cash flows provided by operating activities were $136.5 million in 2025 compared to $204.6 million in 2024. The decrease in net operating cash flows was primarily driven by lower operating performance, higher cash outflows from restructuring activities and higher outflows from working capital in 2025 compared to 2024. The key drivers of the Company’s operating cash flow and working capital are further discussed in the Company’s Liquidity and Capital Resources section of this Item 7, below.

The Company performed well in 2025, making progress on its long-term financial and strategic initiatives. In addition, the Company results in 2025 reflect an increase in sales volumes in the Asia/Pacific segment and new business wins across all segments, despite a continuation of challenging end market conditions, particularly in the Americas and EMEA segments.

On July 4, 2025, H.R. 1, commonly known as the One Big Beautiful Bill Act (the “OBBB”), was signed into law. The OBBB includes significant changes to the federal corporate tax provisions and extends certain otherwise expiring provisions of the 2017 Tax Cuts and Jobs Act. Among other things, the legislation restores 100% bonus depreciation for eligible property, reinstates expensing for domestic research and experimental expenditures, imposes new limitations on interest expense deductibility, and expands disallowed deductions for certain employee remuneration. The legislation has multiple effective dates, with certain provisions effective in 2025 and other provisions implemented through 2027. The provisions effective in 2025 do not have a material impact to our consolidated financial statements. The Company is continuing to evaluate the potential impacts of the provisions effective in 2026 and 2027.

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Critical Accounting Policies and Estimates

Quaker Houghton’s discussion and analysis of its financial condition and results of operations are based on its consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer sales incentives, product returns, credit losses, inventories, property, plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes, business combinations, and restructuring. These estimates reflect historical experience as well as our best judgment about current and/or future economic and market conditions and their effects and various other assumptions that are believed to be reasonable based on currently available information, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, actual results may differ materially from these estimates under different assumptions or conditions.

Quaker Houghton believes the following critical accounting policies describe the more significant judgments and estimates used in the preparation of its consolidated financial statements:

Accounts receivable and inventory exposures: The Company establishes allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As part of our terms of trade, we may custom manufacture products for certain large customers and/or may ship products on a consignment basis. Further, a significant portion of our revenue is derived from sales to customers in industries where companies have previously experienced financial difficulties. If a significant customer bankruptcy occurs, then we must judge the amount of proceeds, if any, that may ultimately be received through the bankruptcy or liquidation process. These matters may increase the Company’s exposure should a bankruptcy occur and may require a write down or a disposal of certain inventory as well as the failure to collect receivables. Reserves for customers filing for bankruptcy protection are established based on a percentage of the amount of receivables outstanding at the bankruptcy filing date. However, initially establishing this reserve and the amount thereof is dependent on the Company’s evaluation of likely proceeds to be received from the bankruptcy process, which could result in the Company recognizing minimal or no reserve at the date of bankruptcy. We generally reserve for large and/or financially distressed customers on a specific review basis, while a general reserve is maintained for other customers based on historical experience. The Company’s consolidated allowance for credit losses was $14.9 million and $13.6 million as of December 31, 2025 and 2024, respectively. The Company recorded expense to increase its provision for credit losses by $0.7 million, $2.1 million and $1.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Tax exposures, uncertain tax positions and valuation allowances: The Company records expenses and liabilities for taxes based on estimates of amounts that will be determined as deductible or taxable in tax returns filed in various jurisdictions. The filed tax returns are subject to audit, which often occur several years subsequent to the date of the financial statements. Disputes or disagreements may arise during audits over the timing or validity of certain items, such as taxable income or deductions, which may not be resolved for extended periods of time. The Company also evaluates uncertain tax positions on all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return in accordance with FIN 48, which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return and, also, whether the benefits of tax positions are probable or if they are more likely than not to be sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not to be sustained upon audit, the Company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements. In addition, the Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Also, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforward on the basis that the uncertain tax position is settled for the presumed amount at the balance sheet date.

The Company also records valuation allowances on a quarterly basis to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and assesses the need for a valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that

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