Good day, and welcome to Koppers Holdings, Inc. Third Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Quynh McGuire, Director of Investor Relations. Please go ahead.

Thanks and good morning, my name is Quynh McGuire and I just recently joined the Koppers team as the Company's Director of Investor Relations. Welcome to our third quarter earnings conference call. Each of you should have received a copy of our press release. If you haven't, one is available on our website or you can call Rose Hilinski at 412-227-2444 and we can either fax or email you a copy. I'd also like to remind you that as indicated on our earnings release this morning, we've posted materials to our Investor Relations website that will be referenced in today's call. Before we get started I would like to remind all of you that certain comments made during this conference call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties including risks described in the cautionary statement included in our press release and in the Company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the Company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The Company's actual results could differ materially from such forward-looking statements. The Company assumes no obligation to update any forward-looking statements made during this call. References may also be made today to certain non-GAAP financial measures. The Company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. I’m joined this morning's call by Leroy Ball, President and CEO of Koppers, and Mike Zugay, our Chief Financial Officer. At this time, I would like to turn the call over to Leroy Ball. Leroy?

Thank you and welcome everyone to our 2015 third quarter conference call. Before I get into the third quarter results, I’d like to welcome Quynh McGuire as our new Director of Investor Relations. Prior to joining Koppers, she has held various roles in corporate finance for approximately 25 years, including 15 years of experience in IR. We're happy to have Quynh with Koppers and look forward to her contribution to the Company. Our previous Director of Investor Relations Mike Snyder is retiring from Koppers after 26 years with the company. Mike has been our Investor Relations Director since our IPO in 2006 and also a good friend who I will miss. Michael continues to be involved however, with our investor relations function for the next several months as part of the transition. I would like to thank Mike for his years of service with Koppers and wish him the best in retirement. To say that a lot has happened since our last call in August, would be a massive understatement. Some of the news has been good and some has been bad. However, the overriding message that I would like people to take away from our comments today is that we continue to remain on track transform Koppers into a much stronger company that is creating shareholder value to a responsible management of our capital structure, while also driving significant improvement to the bottom line. Now I'm happy to report that we sit here in early November, we remain confident in achieving the 2015 adjusted earnings and debt reduction guidance that we first delivered back in February, which will be a significant given the relentless headwinds that we've been faced with throughout this year. Further to that, we have made significant advances towards my promise to reduce our reliance on…

Thanks Leroy, as you can see on slide 2 of our presentation, consolidated revenues for Q3 were $434 million, a decrease of $6 million or small 1% compared to the last year. This was due to a $64 million reduction in sales for CM&C, which was driven by lower product pricing as well as lower sales volumes in China. This reduction more than offset $44 million of incremental revenue from acquisitions net of divestitures and $13 million increase in our legacy RUPS business. Moving to slide 3, third quarter adjusted EBITDA of $48.5 million was higher than last year's $39.9 million due to a $7.9 million benefit from acquisitions, again net of divestitures, a $4.3 million increase for our legacy RUPS and $4.4 million reduction in corporate expenses related to acquisition costs that we incurred in 2014. These increases were partially offset by a reduction in profitability for CM&C of $7.6 million, again driven by lower oil prices and losses in China. Now I'm going to discuss several items that are not referenced in our slides. Adjusted income was $13.8 million compared to $12.3 million in the third quarter of 2014. Third quarter adjusted net income excludes $8.5 million of pre-tax charges related primarily to impairment and plant closure costs and non-cash LIFO expenses. Adjusted EPS for the third quarter was $0.67 per share compared to $0.60 per share last year. The adjusted income tax rate, excluding discrete tax items for the third quarter was slower when compared to last year and this decrease was due to the benefits from legal entity restructuring project that the Company completed last December. Adjusted EPS for Q3 was negatively affected by an increase in our projected annual adjusted income tax rate and the catch-up effect of year-to-date earnings. Our adjusted EPS for third…

Thanks Mike, as I mentioned at the beginning there is a lot of material to cover, so I'll get right to it. Now I'll start with the Railroad and Utility Products and Services business. As expected, that business had another record quarter for sales and EBITDA here in the third quarter. And if you turn to page six of the slide presentation, you'll see that we’re maintaining our 2015 guidance for this segment. On our prior call, we mentioned the risk of the Class I railroads pulling back on treatment in the fourth quarter and how that could present some risk to achieving our estimates for the year. We have some good news on that front. At this point, we do not expect to see much of an effect on our results for the remainder of this year due to a pullback in treating demand. Instead, we believe that currently the primary risk in this segment is with Australian pole volumes in the foreign exchange translation of our Australian business. Between volumes and foreign currency our EBITDA is tracking approximately 35% lower than last year. To-date, the strength of our railroad businesses offset those lower results by a wide margin, but some question exists as to whether it can continue at such an extreme pace over the prior year for another quarter. Adjusted EBITDA for the RUPS segment for the third quarter was $24 million compared to $21 million in 2014, which equates to a $3 million increase. That increase was from the legacy railroad business as the profitability from acquisitions was offset by the loss of EBITDA from the sale of the North American utility business. Sales volumes for treated and untreated cross ties increased by 30% and 16%, respectively compared to the third quarter of 2014, contributing to…

Thank you. [Operator Instructions] We will take our first question from Laurence Alexander from Jefferies. Please go ahead, sir.

Good morning. This is Dan Russo [ph] on for Laurence. How are you guys doing?

Dan, how are you?

Good. Just a clarification on the RUPS guidance you gave for 2016 you said it will look a lot like 2015. Do you mean the growth is just the overall performance?

I'd say the both, probably top and bottom lines. I think we see a stronger untreated tie demand still moving into next year. As strong as that performance has been this year, we've essentially been treating just about everything we can get in. So our inventory levels are still down quite a bit from what they were before the down urn in untreated ties. So there is still a lot of catching up to do. So again, as long as weather cooperates and the markets don't change, we expect untreated tie demand to be very strong, in fact maybe even a little stronger than this year. We're hedging our bets a little bit on the untreated or on the treated demand. I mentioned we haven't really seen any impact here in the fourth quarter, there is still always that chance that next year there could be some pull back. And so we are being a little bit careful about that in terms of setting expectations. So from our standpoint I think the safest bet is to expect that next year top and bottom line will look pretty similar to this year.

Okay, thank you. And how should we think about like free cash flow and uses of cash in 2016 now that you are – I mean you are well on your way to hitting the targets you set with aggressive management on working capital, but now that you are where you wanted to be what's the outlook going forward?

Well, I think that while we have made great progress in our debt reduction targets, as Mike indicated on the call, we haven't been able to move the leverage ratio much because we're still catching up to the kind of the downturn in CMNC earnings. I believe that we're now hitting that trough. So the expectation would be that moving forward we would start to see an uptick kind of in our trailing 12 month EBITDA for covenant purposes while we are continuing to move that debt down. Our leverage ratio does move down -- the leverage covenant does move down from 5.25 down to 5 at the end of this year. We still have a lot of things that we love to do and really need to do in terms of restructuring our footprint which is going to take some cash. And we need to create a little more headroom before we can fully commit to spending some of that money. So we're still going to be focused on debt reduction and we will look for opportunities to strategically target capital and if we get ahead of our debt reduction targets and we still like we are making enough headroom and the opportunities are there, we will look to deploy that capital in other spots. I would say at this point, and I don’t know if this is kind of where you are driving at, you should not expect that we will reinstitute a dividend in 2016. We will continue to be aggressive in paying down debt and if there are opportunities to deploy cash to acquire a business that fits within our strategy we will look to that, but we'll be very selective about that and the focus will be primarily on debt reduction and restructuring of our CMNC business.

No, I wasn’t really looking for dividend, I know that the debt reduction was the first step if we did some more aggressive restructuring and you went through that questions, but I was wondering – I mean is there – given everything that’s happened, is there an anticipated timeframe when you -- how you think you will have enough headroom to just –

So I actually and you may not, because I know it was a long prepared commentary, but in there I did mention that we think we are probably a year out from being able to move forward on the naphthalene project and so I would say sometime end of third quarter, beginning of fourth quarter is when I would – is when we are targeting to be able to more aggressively move forward on that restructuring.

All right, thank you very much.

Thank you. We will now take our next question from Liam Burke from Wunderlich. Please go ahead.

Thank you. Good morning, Leroy, good morning, Mike.

Good morning.

Leroy, you had sequential revenue and margin decline in KPC. Housing or existing home sales are pretty much -- pretty similar and you mentioned seasonality is one of the reasons why you had the sequential revenue decline. Was it volume only that affected the sequential EBITDA margin reduction?

Pretty much, Liam. So the way their seasonality works, the second quarter is typically their strongest quarter. Third quarter is their second strongest quarter and then from there it’s kind of first quarter a little bit of a tossup, but their second quarter there is a lot of product moving as you are kind of early into the outside repair and modeling season and duct building season and stuff like that, that tends to peak around the middle of the year and then drop off a little bit in the third quarter and push a little bit more into the fourth quarter and first. So not unexpected, I think we actually bought and smacked out in the middle of last year’s third quarter and I think if you would just double their 2014 numbers that we had in our presentation for this year and last, you would see that our overall sales are up slightly in this year’s third quarter compared to last years and so we did see a volume tick up actually this year’s third quarter versus last, but sequentially it is down and I think you would expect to see that pattern in future years as well.

Okay, so there wasn’t any pricing. It was entirely volume that affected margins there?

Pretty much.

Okay. You talked a bit about the restructuring in North America, how are the facilities utilization levels in Europe? Could you touch on that a bit?

In our target selection?

Yes, I am sorry.

No, that’s fine. So our new borate facility continues to operate at pretty high rates of utilization anywhere from 90% to 100%. Our Port Clarence facility is operating at much lower utilization than that. And our new borate facility is our -- that is our kind of our crown jewel facility. It’s the best facility that we have from an operating standpoint and as we continue to look to further consolidate capacity and bring North America and Europe into one region, you can expect new borate will be certainly a prime focus for us in terms of concentrating capacity.

Okay, thank you Leroy.

You are welcome, Liam

Thank you. We will now take our next question from Eugene Fedotoff from KeyBanc Capital Markets. Please go ahead.

Good morning, guys. Thanks for taking my questions. I just wanted to follow up on performance chemicals discussion. The new reduced guidance of improvement $48 million year-over-year in EBITDA for the segment if my math is correct it sums about $15 million in EBITDA in the fourth quarter for that segment given the seasonality just mentioned that usually fourth quarter is a seasonally lower quarter. What are your expectations, what’s going to help EBITDA in the segment?

Well, we are actually -- it will be a seasonally lower quarter, but we are actually seeing some stronger demand in product certainly at the beginning of this quarter. We expect to see some pickup from some of the lower raw material costs have been flowing through. Those are probably two of the biggest, I’d say, components to the expectations in the stronger fourth quarter.

So probably, it will be seasonally down a little bit. They will be better than I think where we would have expected originally.

I see. Thanks. And on pricing in that segment, you mentioned lower raw material flowing through. Are you seeing any change in competitive pricing, compared to reducing pricing or any of that nature?

Well, I think that’s always an area again that you have to manage. I’d say, we have strong competitors out there who are trying to take advantage of everything that they can in the market. That's not unexpected. We continue to try and sell our strong service capabilities and try to demonstrate the value for our products, but I’d say that’s kind of just a normal activity that you would normally see. We're seeing that as probably as expected. Is it any more than what it’s kind of normally is? It's hard to say. That's really hard to say, but currently there are competition is out there, trying to defend position, trying to take positions. I think we’ve, for the most part, had done a pretty good job of defending our market share and have actually done a pretty decent job of actually taking a little bit, but we continue to be focused on trying to maintain our margins. Invariably, when copper does get down to where it’s at, sometimes you do find ourselves in a position where it becomes significantly tougher in terms of holding price and I'm not going to kind of get into specific discussions on accounts and things like that. I’d just say, overall, we've been able to maintain our pricing pretty much as we had planned come in to the year. So, it always remains a risk, as copper continues to be down at these levels, but I think we do a pretty good job of defending it.

Thanks for the color. And the last question on debt paydown, you seem to be on target for 100 million to 125 million this year and I believe at the end of last year or earlier this year, you said that the goal is similar reduction for the next year and just wondering if there is any update on that 100 million to 125 million number for next year?

Yeah. So I think I actually did a little bit of an update last quarter on that, because the 100 million to 125 million for each of the two years, that 50 million difference was predicated on essentially three events occurring. So it was 100 million kind of under normal operations and working capital management, and then the additional 50, if were to get from that 200 to 250 would come from three different areas. It would come from this -- the negotiation with Nippon Steel and C-Chem on the revised agreement that would result in the payment that they made to us that we're going to apply as we mentioned I think $12 million to $13 million, that's a debt, so that was a piece of it. That’s occurred, okay. Second piece of it was negotiating a sale of our 30% interest in our TKK joint-venture and getting the $9.5 million loan we have outstanding, pay back. So, the two of those more or less made up one year of the 25 million and we are in the process of continuing to negotiate that TKK sale. We're not just quite there yet. And then the second piece of that was our ability to realize an adequate value for a couple of the businesses that we were looking to divest and what we had announced I think on the last call was that in going through a process for the one business that we expected could bring the most value, the numbers that were coming in were lower than where we felt we needed to be and we did not want to destroy value. So we did not want to sell the business at just any price and we elected to hold onto the business. So with that business not being targeted for sale at this point, we backed off of the 200 to 250 and instead changed it to 200 to 225 based upon the other two items that I mentioned. I think we will be successful on, but this third one, at this point, it doesn't look like we will make a sale of that business and therefore the additional 25 million will likely not occur. So, the current target is 200 to 225 over this two-year period. We think we’ll be well on our way through this first-year and we're just trying to finalize our plans for next year to make sure that we will be on target to be able to meet the guidance that we had given at the beginning of this year and for the second year as well.

We will now take our next question from Chris Shaw from Moness Crespi. Apologies, he seems to have stepped away. [Operator Instructions] Please go ahead, sir. Your line is open.

Can I ask -- you actually surprisingly upbeat around the aluminum smelter curtailments and pitch obviously, you’ve been working on trying to, I guess, lessen your exposure in that business, but I guess that maybe think about where has the pricing gone in pitch this year. I mean, is pitch still profitable or is that maybe why you're not so excited or not – [Technical Difficulty]

It's one of the reasons why, yes, when I said we wanted to try and structure our business around our more value or more value product lines, that one I would say with where things have evolved doesn't really fit into that category. Now again, we can’t -- we’re just still in coal tar, we can’t get out of making carbon pitch, and so we’ll continue to be in that business and -- but yes, pricing actually for us this year has, in the US market, has been pretty good, but by the same token, when obviously aluminum producers are taking all their costs into account, they’re trying to learn about situation, they’re trying to drive down cost as much as they can. So it's one piece of their overall decision-making process. I think what you would have seen, if they would have kept some of that capacity open is you probably would have seen more pressure on pricing, moving forward, but as it’s been so far for this year, actually, our pricing has held up pretty well in 2015 timeframe.

Well, it leads me to sort of the next question about your coal tar costs. I think you said that they’re -- some of them are on annual contracts and do you guys have any impression of where those prices or those costs will end up for 2016, or I assume you’re seeking some relief, but do you think you’re going to get it?

Yeah. So, they vary, they do vary. I want to be careful about really talking about any specific tactics, I'd just say that we do have options in this area, certainly acquiring the creosote distribution business of getting the terminal, getting the asset to move product pretty freely between Europe and North America has opened up a window to move end products into the US. It's opened up an opportunity to bring in coal tar in to the US. That was a key move for us and as it is turning out and as we thought it would at some point, it’s a move we may end up having to rely upon, but it'll be to our benefit. So I said one way or another, we will reduce our cost of goods in 2015. It will come as a result of either lower raw material pricing or us moving more products, either end products or coal tar in from Europe. So it's just a fact of life with us needing to have a viable business model here. So the good thing is we have options and so, we are going to look at those options and we’re going to approach it aggressively and make what we think is ultimately the best long-term decision for the company, but from a net standpoint, we think we will be in a better spot in 2016, one way or the other. I couldn’t figure any forecast to you, which way it will go.

Okay. And just a point of clarification on -- you were talking about potentially doing that asset sale, you have not identified what that asset is, right?

No.

Let me just -- separate question, the pole business in Australia. Why does that still make sense versus, I know you sold the other utility pole business, but why does the Australian pole business still -- why do you still have that in the portfolio?

It's a business that we talked about a few different times that kind of just prints money. And while volumes are down this year, which is affecting a little bit, it’s been actually more of the translation effect on the Aussie dollar and the stronger US dollar that’s probably had more of an impact on the results, but we hold a significant market share in that market over there. We now have a tax structure in place that allows us to bring back cash from Australia into the US at much lower effective rates. So when you're looking to generate cash to deploy into other areas, that’s a great cash cow. It's not a great growth business, but it's a great cash cow and so that's why it continues to remain as part of our portfolio.

Okay. That makes a lot of sense. Thanks.

[Operator Instructions] We have no further questions at this time sir.

Okay. Well, I hope that our shareholders are able to see the progress we've made in the first three quarters of 2015 and while 2015 results probably much improved from 2014, I believe we’ll actually see a business in 2016 has been significantly transformed to generate higher margins and lower volatility with significant opportunities for growth moving forward. We thank everyone for your participation in today's call and appreciate your continued interest in Koppers. Thank you.