Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Following the presentation, instructions will be given for the Q&A session. Please note, that this event is being record. I will now turn the call over to Quynh McGuire. Please go ahead.

Thank you and good morning. I am Quynh McGuire, Vice President of Investor Relations. Welcome to our Fourth Quarter and Full Year 2019 Earnings Conference Call. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.Koppers.com. As indicated in our earnings release this morning, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available on our site for replay through March 31, 2020. Before we get started, I would like to direct your attention to our forward-looking disclosure statement. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, 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, performance or achievements may differ materially from those expressed in or implied by 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 is 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. Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. I'll now turn the call over to Leroy.

Thank you, Quynh. Welcome everyone to our fourth quarter 2019 earnings call. I'd like to start today's call with an explanation on last week's announcement regarding the sale of our last remaining tar distillation facility in China. In that same announcement, we also reported our preliminary results for the fourth quarter. Since we do not give quarterly guidance, only annual, we do not buy policy pre-release results whether favorable or unfavorable to the consensus estimate. This policy extends to the fourth quarter. I realize it's created a unique situation given that with one quarter left and update of annual guidance by default provides quarterly guidance, last week presented a special situation. We had reached agreement to sell our KJCC facility in China, which we expected to be viewed as a positive market event, given the volatility of that business and the fact that it is non-core to our wood technology-based strategy. And while the audit of our annual results is not yet final, we nonetheless knew they would fall short of our last communicated range of annual guidance and be received negatively. While it remains our practice to not pre-release, we were not comfortable releasing a perceived positive event, the KJCC sell, a week in advance of a likely negative events, our fourth quarter earnings miss. The pre-release last week is not intended in any way to represent a precedent or change in policy for how we handle perceived positive or negative financial information at the end of quarters on a go-forward basis. Before I get into more detail, I want to summarize some of the key messages I plan to emphasize today. Number one, while fourth quarter earnings were certainly a disappointment, our strategy to continue building around our leading position in wood technologies remained sound and is creating…

Thanks, Leroy. Let's start by referring to the slide presentation provided on our website. On Slide 4, revenues were $393 million, which was a decrease of $32 million or 8% from $425 million in the prior year. Excluding a negative impact from foreign currency translation of $3 million, sales were lower by $29 million over 7%. The decrease was due to lower demand in the global CM&C segment, partially offset by increased volumes and favorable pricing in our wood preservation businesses. On Slide 5, consolidated sales for 2019 were $1.8 billion, an increase of $63 million over 4% as compared to $1.7 billion in the prior year. 2019 sales represented the third consecutive year of growth as well as the highest level of revenues in the history of the company. On Slide 6, adjusted EBITDA was $39 million or 10% compared with $47 million or 11% in the prior year quarter. The year-over-year decline was due to lower sales and profitability from CM&C. CM&C profitability declined from prior year due to weaker demand and pricing pressures. RUPs delivered improved profitability, driven by increased demand and higher capacity utilization related to wood treatment and sourcing. PC reported a year-over-year increase in profitability, primarily due to higher sales in North America Moving on to Slide 7, this shows our EBITDA bridge of $211 million in 2019, compared with $222 million in the prior year. This decrease was primarily driven by significant lower year-over-year profitability in our CM&C business and as you can see a lot of that primarily came from KJCC in China, are wood-based businesses were ups and PC delivered higher profitability. On slide 8, our adjusted EBITDA trend shows profitability excluding contributions from our KJCC operations and as shown our core businesses delivered increasing increasingly higher levels of adjusted EBITDA…

Thanks, Mike. As I get into the outlook for our various business segments, I will also take time to provide more information and context for the six main points I had mentioned in the front end of my comments. Number one, our wood preservation strategy is working; number two, reorganization is important to the long-term sustainability of Koppers; three, the importance of the KJCC sales; four, our continued hard look is the value of our non-core assets; five, how adding new product to our portfolio importantly fits our company's purpose of protecting what matters and preserving the future; and six, our plans to utilize the at-the-market stock issuance instrument. So if you refer to slide 11, it provides a great visual representation of the work that has been done since 2014 to transform Koppers from a primarily carbon product-based company focused on more volatile end markets to being a global leader in wood technologies. Over that time period, we've essentially flipped the script going from a company that had a little more than 1/3 of its portfolio in wood to a company that today has over 2/3 of its portfolio in wood, and after the recently announced sale of KJCC is completed, our wood-based portfolio will exceed 70% with the potential to go even higher. And as we've restructured our business around that philosophy, our profitability has gone up, our margins have gone up and remained at levels only temporarily reached more than 10 years ago, and our operating cash flow has exceeded $100 million four out of the last five years. If we achieve the numbers we're projecting on our wood-based businesses in 2020 than those businesses for 2019 and 2020 will have added approximately $50 million in EBITDA over that two-year period. That is real improvement and does…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Mike Harrison of Seaport Global Securities. Please go ahead.

Hi, good morning. I have a number of questions here. I'll ask a few and then jump back in queue. In terms of the Performance Chemicals business, can you help us understand what is going on in the international markets there? Is this more weather-related or inventory destocking? Or is there maybe some share loss or something else that might be more permanent in nature, more concerning as we look forward?

Okay. So as it relates to the international performance chemicals businesses, I can tell you we're not dealing with share loss. That is not an issue. The business is overall -- they are a smaller component of our overall performance chemicals business. It's unfortunate that -- again, in this particular quarter that two of those businesses had some difficult performance. In PC, there is a lot -- in Europe, there's a lot that's going on around product re-registrations and the cost of getting products re-registered into our new products in place. That has certainly had an impact on our cost structure and there is some of that that impacted us in the fourth quarter. I'd just say seasonally they tend to have lower results in both of those regions. In the fourth quarter, they tend to take off more time and have customers take facilities down for longer periods over the holidays. That happened obviously every year. I'd just say, this year demand was softer for us in those areas. And as it relates to our Australasian region, like I say, last year we -- every year as you get to the end, you have to true up reserves and accruals and it just so happened I'd say over this 2-year period. Last year we had more going in the right direction, whereas this year more going in the wrong. We had a couple of small -- we had a couple of customers that we had to deal with from a bad debt reserve standpoint. So it's just -- it was a -- that was basically a bunch of cats and dogs. The good part about those, again, the business overall is we had no share loss out of either of those businesses and would expect that we'd see improved performance in 2020.

And does that go for the international piece as well? Or is that improvement primarily going in North America?

Well, certainly the North American piece will make up the lion's share of the year-over-year improvement. The international piece of it, we do expect to see year-over-year improvement. But it will be a smaller component of the overall improvement in performance chemicals. North America, in the businesses in North America drive what goes on in PC. And again, you might have quarters here And there were where we have something like happened here in this particular quarter. The unfortunate part was, in our North American business, where we had seen extremely strong volumes all year, we also literally probably from mid-November on started this -- we saw a real pullback in volumes in North America. So, and again as things were moving, we were on target to probably offset a good bit of the impact that we saw on the two international pieces and then things dropped off in North America and we weren't able to essentially offset it through those stronger volumes. Again, on a positive note, volumes have started out very, very strongly in the early part of the year for PC. So it wasn't -- I don't want to give any indication that the weaker volumes over the last 1.5 month of last year where the start of a trend that's heading into 2020. Our volumes so far in the first quarter for Performance Chemicals in North America have been extremely strong.

All right. And then over on the RUPS business, I understand that the railroad structures piece is viewed as non-core, but on the tie disposal side that's a business that you acquired fairly recently. It appears to be an important part of your ongoing offering and kind of this vertical offering within railroad ties. So can you help us understand really what's been going on there and how do you fix it and maybe the timing around fixing it.

Well, I'd say -- so the way I look at the recovery business, it's not that there is anything to fix. We made a conscious effort to get into a piece of business that we feel is important for our customer base and therefore important for us, because it's important for our customer base that they are able to have a responsible means of disposing of their end-of-life products that we sell to them, and so we want to be part of that solution making sure that we can continue to and that they will continue to want to buy our products moving into the future. So, for us it was key to help solve an issue that they were running into problems with in terms of finding end-of-life disposal solutions for those products. So we made a strategic play to get into that business, knowing that it was a small business that didn't have a large foundation to at this point, but we could use it as a foundation in a mechanism for taking that capability to the rest of our customer base. And we have been working on that in the short time that we've owned that business. There is -- other customers have other agreements in place with other suppliers that they are continuing to honor, which we certainly understand. I will say that our customer base overall still remains highly interested in working with us in having a single integrated supplier, and what we have going on down in Somerville right now I think is a great representation of that where we just began processing ties here in the past day or two. And so that is new business for us. It did not come with the business that we bought, and we believe that we have other opportunities to continue to expand our business model across our customer base, and that's what we continue to work on. But it is -- it's not something where you walk in, you buy business in overnight, everybody changes over to us. We're working hard at convincing them of the benefits of working with one supplier and our network, right, where we're treating ties, and again Somerville's perfect example. We're treating ties there. It makes logical sense that we would take ties back and be able to process them through our facility. So, I -- that business is a business that is a work in progress in terms of building out and also building into our core RUPS business as a key part of our overall integrated product offering.

All right. And then, last question for now is on the CMC business. You have a North American competitor the recently declared forced mature on phthalic anhydride for approximately 30 days. Are you guys picking up any additional volume or pricing as a result of that announcement or that outage?

Yes, that's -- I can't get into really any specifics other than to say it's a limited universe in terms suppliers. We have -- both of us have been cooperative with each other as it relates to helping during periods of operational difficulties. So you would expect and should expect that we would see some benefit as a result of what's going on in the phthalic markets, so while they work to get their plant back up and running.

All right, thanks very much.

You're very well.

As a reminder to all participants, we ask that you please mute your line to minimize any background noise. The next question today comes from Chris Howe of Barrington Research. Please go ahead.

Good morning, everyone. As we look at the $25 million to $40 million of annualized savings through 2024 and sort of the different pockets around this, whether it'd be network optimization portfolio [indiscernible] how should we think about a potential upside around these opportunities? You have mentioned the KJCC having then in the rear view mirror four to six months from now will provide some opportunities for productivity enhancements. I assume as you move towards 2024, there is going to be other saving opportunities for the business. And my follow-up question is on the leverage ratio. Assuming there is no divestiture of non-core assets and your goal eventually to get to below three times, how should we look at debt reduction excluding and including divestitures of non-core assets?

Okay, all right. So let me start with your first question around the $25 million to $40 million. When we first announced that back at the end of 2018, I think the way we characterized it is more or less than -- the low end of that range was with more cost-related driven type of benefits, so it will come more through network and the network optimization improvement in logistics and things of that nature. General cost savings activities whereas the balance of it was more market share-related type of growth. And we have had certainly puts and takes, just in the early part of this -- In general, I'd say, I still actually feel pretty good related to the benefits probably being closer towards the top end of that range than the bottom end and I think part of that speaks again to what we have seen in 2019 and what we expect in 2020. So I only made the comment once in my prepared comments, but if you, go back through the slide deck and just do the math, right, our PC and our RUBS businesses in '19 and with what we think we're going to do in '20, will have generated $50 million of EBITDA improvement over that two-year period. Okay, $50 million. I can tell you there is very little, if any of that, that is coming as a result of any change in copper pricing over that period. Right? So, a lot of those benefits are coming from market share growth already. They're coming from cost reduction activities, and we haven't really even tapped into probably some of the better opportunities that we have from a network optimization standpoint. So I think. I think we're -- I think that we're going to capture probably upper -- near that higher end if not more than that over this timeframe, and the what happens is, as it does in many businesses, is not everything goes in the upwards direction always at the same time. And we have had some pullbacks on the CM&C side that have offset a good bit of these opportunities. That's also another reason why we have been actively working on these things as well. Two years ago when we saw -- or one year ago when we saw the KJCC operation have the significant results in the first quarter and we were tracking towards $220-plus million in EBITDA, everybody was worried that was unsustainable, and yes, we have had a pullback and we've lost a good bit of those earnings. They were more one-time in nature. But we've come up with these other savings and our market share gains that have served to significantly offset a good portion of that loss.

And I think there is a slide in the deck that shows when you -- just when you pull out the KJCC China piece of it and you look at our results over the last 5 years, we have seen steady improvement year-over-year and a lot of that has come as a result of these sorts of improvement opportunities and market share gains that we've been focused on. So, Chris, I know long-winded answer, but we are absolutely making significant progress on that $25 million to $40 million. In fact, like you said, I believe we're probably tracking higher than that, but it's being offset in camouflage by some of the other parts of the business that are coming back the other way. So, secondly -- your second question resulted around how we plan to deal with leverage and if we are able to or not able to do invest the non-core assets. I'm going to toss that over to Mike to handle.

Yes. Yes, Chris. Our net leverage ratio at the end of the year closed at 4.1x and our net debt was $868 million. So we're looking to knock that $868 million down by $100 million to get it to $768 million. And that's comprised of two pieces. We have the $65 million from the divestiture of KJCC in China, and through apples and apples normal operations in 2020, we expect to generate another $35 million of excess cash and use that to pay down our debt as well. So when you take the $200 million to $210 million range and you use $768 million as the numerator in that particular instance, you get that 3.6 to 3.8x that we're talking about. And as Leroy mentioned, that does not include maybe some other non-core businesses that could generate cash for us going forward in '20. And in addition to that we're embarking on an inventory reduction program that we're going to put in place in 2020 as well to drive down our inventories and generate more working capital. So in a nutshell, that's kind of where we stand and where we're headed from the net leverage ratio perspective.

That's great, and thank you for the color. And one last quick question if I may squeeze it in just because I'll be asked this question. In regard to the coronavirus, I know you said there hasn't been any material impact, but how should we think about the puts and takes behind that virus, if there were to be some kind of an impact down the road.

Yes. So it's a fair question. It's a good question, I think. I think that's what we're seeing obviously hit the markets right? It's hard for anybody really can't to answer that question because if there is a thousand different scenarios we can dream up and the numbers would be all over the map. I'd say directly. We have obviously the business that's over there that's under agreement for sale, that is really the only thing that we have seen an impact on to-date. But obviously we're an international company and we have -- and despite the fact that the majority of what we do is sourced locally and sold locally or within the regions, we do have some stuff that we import out of out of other regions. And you know if -- depending upon what impact this has again on overall shipping and in the logistics networks. There could eventually be some sort of spillover impact at some point in time, but I mean I had to give you a tremendously wide range as to what that could possibly be. And I'm certain, it would not just be us to be dealing with that and that's why, again, I think what we're seeing. What we're seeing in the markets, nobody can put their finger on exactly how bad things could possibly get if it just really spread into this global pandemic that just world supply chains. Right now we're fortunate that all -- and we keep up with this daily in terms of impacts. There is nothing that is nothing that has had any direct-related impact on us outside of our that in China today. Outside of that, everything else seems to be running pretty much according to plan.

Thank you, Leroy. And thank you, Mike. I'll hop back in the queue.

[Operator Instructions] The next question today comes from Liam Burke of B. Riley FBR.

Yes, thank you. Good morning, Leroy. Good morning, Mike. Leroy, you mentioned in your prepared comments that there was an outage at Stickney, was that a function of just turning up a new plant and working it through, or was it just some exogenous event that set you back?

We deal sometimes with some power issues that are unrelated to us, unrelated to things that are in our control, and we had an outage that brought us down and then we had to deal with going down like that and having to get do the work necessary to get brought back up. So any time that happens it, it has any wide-ranging impact on us. In this particular instance, we ended up having to be down a little longer than we would have wanted to be but that we're back up in operating and things are things are going well there now. But it does, we have had different issues there from time to time around power

Okay. And you touched on an earlier question on the margins on PC in North America, they were typically pretty healthy. I understand, with the European businesses, it tends to cloud the EBITDA margin. But is that still plugging along or do you anticipate being able to provide historical level support on the margin front?

Yes. I mean, I know everybody would love to see us get back to 20%-plus margins and Performance Chemicals. I think those sorts of margins are only driven with copper prices that are down in the 220 to 230 range, which were not there. We have absorbed quite a big carbon or copper hit over the past couple of years through a number of different actions. Some of it's in market share gain related. Some of it's been additional production efficiencies. Some of it has been passing some of that on is price increase. So we've worked hard to offset a lot of that impact, but if that's tough. I mean, back when we were at 20% greater, I tried to caution folks that looked at is not that is not a long range long standing sort of regular margin that we would expect in that business, we're probably on a little bit on the lower end of where I'd like to be at this point in time. Do you think that that 17% to 18% range is probably the more normalized range for us and we're moving back in that direction? So I don't think we're going to get there this year, but there is an opportunity to I think and get back in that ballpark, all things being equal, in the 2021 timeframe.

Great. And Mike, real quick. On the capital expenditures that was lower than normal this year and then you had laid that out already, but what kind of step up are you looking at 2020?

Yes, on a go-forward basis past 2020, I think a more normalized annual CapEx rate for us is somewhere in the $60 million to $70 million per year range.

Great. Thank you, Mike. And thank you, Leroy.

The next question comes from Chris Shaw of Monness Crespi. Please go ahead.

Yes, hi. Good morning. Impact of the CMC guidance a little bit more. I mean, I think you talked about some higher cost but also lower product pricing, I think, tied to oil. How much of that I guess it's the range is maybe down $17 million to $22 million in EBITDA. How much of that sort of related to the sort of oil-based pricing on products like carbon black feedstock and things like that and how much is that some of his other stuff? And is there any the volumes though?

So I'd say our volumes are down in certain pockets. It is more of a balance on the pricing and cost side of the equation certainly, Europe and Australia, they're dealing with cost some cost catch-up, if you will. If you went back I think in 20 -- I believe 2017 was probably one of the best years that our Australian CM&C business has ever had. 2018 was probably the next best year that that business has. Pricing, we were able to get pricing sort of out-front of some cost increases. The costs are come through here in '19 and heading into ' 20 and so it's head back to a little bit more normalized margin and in Europe, they do -- it's always a balancing act over there, but they do a fantastic job of work on both sides of the equation and trying to make sure that they are matching as best they can. Cost increases with price increases, but that you're out there dealing in a competitive environment and you're you got customers that are trying to balance that same equation. So it looks CM&C is a more volatile business. We've known that.

In the beginning. It's one of the reasons why we have I think done a pretty great job of really boiling it down to the central facilities that we need to be in that can serve a critical customer base that we have and we have to deal with the ups and downs of oil and its impact on carbon black feedstock and phthalic anhydride, some of those things, while also dealing with the demand side of the equation that can move from year to year as we've seen it over the past several years. The good news is, that business again overall finished at around 14% margin. I think in 2019 and with the exit out of KJCC, the remaining business despite the downturn in sales and margin is expected to be at 12%. That business I can tell you, Chris, for a number of years coming out of 2008 struggled to be in double digits, let alone, if at that level. So, yes, it's a smaller business that we intentionally made it a smaller business to take out some of that impact on volatility. It's still actually a pretty good business. And so we feel good about where it that in 2020, given all the headwinds that we're facing, and it's nowhere near what we had 5 years ago. Nowhere near what we had 5 years ago and we're happy for that. So that's the best I can tell you. That is a complicated. It is a complicated market that we deal within different regions, different, different end markets, different products and different drivers for each of those. So it gets to be a pretty complex balancing act, but I think our guys who run who run those businesses do a pretty good job of managing it all.

As a follow-up on the PC segment from some of the comments you had made earlier. Just the slowdown at the end of the year, did you just interpret that as sort of maybe inventory re balancing at the customer level now that volumes in this big right back up to start the year?

Could have been. I think there may have also been -- if I'm recalling correctly, there might have been a slight uptick in lumber pricing at that point in time, which again tends to drive behavior -- buying behavior on the chemical side. Like I said it was different than what we have seen throughout the year up until that point in time, a little concerning at the time that it was going on, but like I said we step into January and things got out of the gate, not pretty quickly, pretty nicely. So we feel good about how the year started off in that business.

Just a quick one on the interest for the quarter $14 million. Is that sort of where we are now with what we've done so far with the debt paydown, I mean, at least a run rate for the next quarter or two, you do more significant pay down?

Yes, that's correct. We're pretty close to take that normalize it for 2020 and that's a pretty good estimate of where we're going to be in 2020

Great, thanks so much for the help.

The last question today comes from Laurence Alexander of Jefferies. Please go ahead.

Hi. This is Adam [ph] on for Laurence today, Hey, how is it going. My understanding is that Coronavirus isn't going to have any immediate impact on product availability. But I want to understand if your outlook also assume it's going to have no impact on the demand side as well?

Yes, yes. To be clear, right, 2 to 2.10 [ph] and does not really include any impact from Corona. So if it's something were to occur to have an impact on our business, It would -- unless we do better in certain other areas to be able to offset it, it would have an impact on those results.

Okay, got it. And then my last question is, I was just wondering if you could give us some color on the ramp of the $25 million to $40 million in annualized cost savings? How should we think about this? Is it going to be a steady ramp until 2024? Or what would that cadence kind of look like.

Yes, I think I think it has been. Actually, I'd say we -- in '19 we're probably in that in that $10-ish million mark range and I think our range for this year is in that $5 million to $10 million mark. Again. So I think the way things are mapped out and balanced out you, you should expect that it to be a relatively steady stream that would occur over that period of time.

Okay, thank you very much.

This concludes the question-and-answer session. I would like to turn the conference back over to President and CEO, Leroy Ball, for any closing remarks.

Thank everyone for taking time to participate on today's call. I appreciate your interest in Koppers and your continued support.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.