Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Koppers business update in Q1 2020 preliminary results. [Operator Instructions] Please note that the event is being recorded. Now I'll turn the call over to Quynh McGuire. Please go ahead.

Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our conference call where we will provide a business update in light of the COVID-19 environment as well as highlight our Q1 2020 preliminary results. We issued our preliminary first quarter 2020 results earlier today. You may access this announcement via our website at www.koppers.com. As indicated in our preliminary earnings release, 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 website for replay through May 29, 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 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. Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. I will now turn the call over to Leroy.

Thank you, Quynh. Welcome, everyone, to a call that will be different than our usual format due to the course of events related to the COVID-19 situation. Let me start by saying that I hope all of you and your families are healthy and doing as well as can be expected under these extraordinary circumstances. Also, I'd like to take a moment to offer our thanks to frontline health care professionals, first responders, food service workers, delivery service employees and drivers and everyone who is so selflessly and tirelessly giving so much to keep our society moving under circumstances none of us could have imagined only a few short weeks ago. That includes our employees, most of which continue to clock in and report to a work site every day playing their role in helping our customers continue their important work. I'll begin this call with talking about Koppers' mission-critical role as an essential business, and then I'll discuss our key priorities that help to guide us in all the decisions as we manage through this unique situation. The term essential and everything it implies has become the basis for our current state and provides the foundation for our ongoing operational presence in a post-COVID world, as shown on Slide 4. According to guidelines set forth by U.S. Cybersecurity and Infrastructure Security Agency, or CISA, an agency of the Department of Homeland Security, Koppers is authorized to continue operations under the guidance of the essential critical infrastructure workforce issued on March 19, 2020. CISA's transportation and critical manufacturing categories are both applicable to Koppers as the work performed by our employees is essential to maintain the nation's railroad utility infrastructure, which supports public health, safety and security. In addition, the Association of American Railroads issued guidance on March 16 related…

Thanks, Leroy. Looking at Slide 30. At the end of March, we had net debt of $899 million, with $185 million in available liquidity. We were also in compliance with all our debt covenants. Looking at the maturities, we do not have any significant debt maturities until 2024 when our revolver matures and a final balloon payment on our term loan is also due. In 2025, our $500 million in bonds will mature as well. In 2020, we plan to reduce debt by a minimum of $120 million, contingent upon the successful closing of the KJCC divestiture, as well as additional sources of cash from working capital reductions, lower cash taxes, lower interest payments, lower than originally projected capital expenditures and deferred payroll taxes, as Leroy mentioned, courtesy of the CARES Act. As shown on Slide 31, we evaluated various scenarios to stress our bank covenants, and Koppers expects to be in compliance with our covenants even at a potential 30% reduction in 2020 EBITDA. As shown on Slide 32, we also evaluated our liquidity at various levels of EBITDA, and Koppers expects to have ample liquidity, even with a 25% potential EBITDA reduction in 2020. In our press release this morning, we provided preliminary results for the first quarter of 2020, and our financial discussion now is based on these preliminary results. Please also note that beginning in 2020, we are reporting results from the pending divestiture of KJCC as discontinued operations for the current year as well as the comparable prior year. Moving on to Slide 34. Revenues were $402 million for the quarter, which was an increase of $25 million or 7% from $377 million in the prior year. Excluding a negative impact from foreign currency translation of $6 million, sales were higher by $31 million or…

Thanks, Mike. Like every company dealing with a financial fallout, we've identified where we can pull back spending to help offset whatever declines in our end markets we might experience. We have weekly cost meetings led by our Chief Accounting Officer and Treasurer to inform the leadership council on our opportunities and progress regarding cost reduction initiatives, and you can see that reflected on Page 37 -- on Slide 37. In SG&A, we've identified $15 million to $20 million of possible savings using 2019 as a baseline. $3 million of those savings were captured and incorporated in our Q1 numbers. The major buckets relate to compensation and benefits, travel and entertainment, legal fees, consulting expenses and office-related expenses. At the same time, the team is evaluating the opportunities that might exist at the plant level for operating expense, but we're being cautious given that the focus needs to remain on employee safety, environmental responsibility and customer reliability. Finally, as we look forward to how we maintain as much of the foundation of our earnings as possible and come out the other side even stronger, we've continued to advance some very important initiatives even in the challenging work environment we find ourselves in. You can see that reflected on Slide 38. In just about every business we operate, we've been enacting programs that utilize our vertical integration advantages to increase market share. We began realizing the fruits of our labor last year with several of the large PC account wins, and that has led its way into this year where we have added an important customer to the KRR base and have multiple irons in the fire in our RPS and UIP businesses that could become reality in the back half of this year. On the new product front, we announced…

[Operator Instructions] First question comes from Mike Harrison, Seaport Global Securities.

Good to hear from you guys. Hope you're all well and appreciate the level of details here. I think it's really good. I wanted to ask about the decremental margins, the way you kind of went through the segments, you kind of ranked them in order of where you're going to see the most impact or least impact to most impact. I took that to mean more of kind of a demand impact or volume impact. But as we think about decremental margins, can you maybe talk about each of the businesses and where you would expect to see the most severe impact from lower demand? Generally, I would think of RUPS and CMC as maybe having higher fixed costs and therefore, higher decremental margins and maybe the fall-through is less severe in PC? But anything you can help to frame that up would be appreciated.

Okay. Mike, I'll take a stab at that and then Mike can chime in if I miss anything. Yes, I think certainly, I'll just start by saying UIP actually had one of the strongest quarters for us, both from a sales and profitability standpoint since we've owned the business. And while that's not -- it's not as much of a -- it doesn't have quite as much seasonality as what some of our other businesses do, it still is typically a weaker first and fourth quarters for that business. So for it to have literally one of its strongest quarters in this first quarter, I think, gives me confidence that -- and with what we have seen so far, actually in the early goings of the second quarter, gives me confidence that they will have a pretty solid year and should hold on to actually move their margins up a little bit this year, comparatively speaking. RPS, I'd say we might see a little bit of margin erosion there. But again, from an overall demand standpoint, the fact that we don't think we're going to get clipped so hard in that business. I feel like from an overall margin standpoint, we'll be able to maintain it. It really comes down to and depends upon how much the commercial market softens because if we see significant price deterioration there, then that could weigh on margins a little bit. But in terms of the remainder of that business, there's a number of dynamics that actually are improving for us as the year goes on. So I think they'll hold their own. And now of course, we have the other cost reduction initiatives that will help to backfill any erosion that they get in their base business. PC, we are locked in, in…

Yes, my -- from my perspective, I mean, the rule of thumb that we have on all these segments holds, I think, through an economic cycle. And of course, we're in an economic cycle now that's on the downward trend. But from a RUPS perspective, we have always stated that we should be in that 9% to 12% range through any economic cycle. Performance Chemicals, 12% to 18%. And as Leroy just reiterated again, Carbon Materials, 9% to 15%. So I don't see anything that over the long term is going to change our view of those businesses through an economic cycle. It's just a matter of in the current environment that we're working under with the pandemic, how can we impact that as positively as we can.

Okay. And maybe just to follow-up on those margin ranges that you provided. I guess, should I think of those as being annual margin numbers such that if Q2 is showing the most pronounced impact from this crisis, maybe we fall through the bottom of those ranges in Q2 and -- but for the full year, we're doing better?

I would say, yes.

Yes. The answer to that is yes because those ranges are annual ranges. Yes. And keep in mind, our business is seasonal, our best quarters are historically Q2 and Q3. And the slowest quarters for us are always Q4 and Q1.

Got it. Okay. And then last question for now is just on the Class I railroads, you mentioned that one had announced a 10% pullback in CapEx spending. None of the others have formally announced anything, but is it your view from your conversations with them that others will kind of follow that type of plan and maybe pull back by 10% or so?

That is not our view. Our view is that, that for the most part, we expect them to pretty much maintain the program that they had coming into the year, preparing to bolster their network for some recovery. And so that's where we're at based on the conversations we've had. Now that could change, but that's what we shared.

Next question comes from Laurence Alexander of Jefferies.

It's actually Dan Rizzo on for Laurence. If we look -- think back to, like, say, the rate after we resumed in the recession of 2008, 2009 right after, is it true, if I recall, 2 things happened. One, the Class I railroads, you actually used that time to replace track because there was -- I mean, there was some opportune times with less traffic. And that could happen again? And number two, when it ended, when recession ended and things started to pick up again, there was a lumber shortage as housing picked up. Am I remembering that correctly? And could that kind of a similar scenario unfold again?

You are remembering correctly. That's correct. That was right around the time that I actually joined the company about 10 years ago as things were starting to pull out of that. So could that happen again? Yes, it could happen again. It's tough to -- I mean, there's so many scenarios you can map out of this. And there were lessons learned coming out of the great recession that I'm sure people have adjusted their business continuity plans too as well. So what changes will be made that are different than what -- how people acted coming out of that crisis remains to be seen. But yes, you're remembering correctly, Dan. And I guess, yes, that is possible that, that could occur.

Okay. And then a shorter question. Can you just remind us what percentage of what sales of the Class I versus the shorter line railroads?

For us, it's about 80% Class I typically is what we do.

Okay. And finally, you mentioned the savings you've identified in SG&A, I think was -- I have to look back a few months because I think it was $15 million or something like that.

$15 million. $15 million to $20 million. Yes.

That encompasses that, I think, the $5 million to $10 million you mentioned last call, right? So this is just -- it's all together now, $15 million to $20 million. Correct?

I'm trying to recall. I'm trying to recall. I mean, $15 million -- let's put it this way. I'm not recalling exactly what you're mentioning, but $15 million to $20 million is our projection of the opportunity for the entire year compared to '19.

Next question is from Chris Howe, Barrington Research.

My question just if you could perhaps give us some idea of assuming this environment continues on for longer than we expect, just perhaps clarify or add some color more than you already have as far as the different cash preservation levers that are available to the company. And how we should think about this preservation in regards to working capital improvements, controlled spending and more or less kind of what you're seeing as far as maintenance CapEx for the ongoing business this year and into next?

Okay. That's a bunch to unpack. So maybe I'll start with CapEx. So our -- I think our original expectation coming in the year was about $60 million to $70 million of CapEx, and we're saying we think we can reduce that by about $10 million in the current environment. We're very wary. So obviously, we're doing everything to be fiscally responsible through this. But at the same time, wanting to make sure that we also don't put ourselves in a tough position by under-investing in areas where we need to continue to upgrade. And so last year, we really pulled back hard on the capital lever really hard. And we spent $37 million overall gross, and that was offset by a $3 million insurance recovery related to a rebuild of our arsenic acid facility in New Zealand. And I'll just say, over 33 operating facilities, that's nothing, especially when you're running chemical businesses. So the number this year was put up to a number that we felt like while it had a few productivity projects in it, we felt that number overall was something that was more in line with what a normal run rate would be for our facilities on a go-forward basis. So we don't have a lot of discretion to pull back more than the $10 million right now that we're thinking we can do just to make sure that we're maintaining a reliable infrastructure. So I'd say that's where we stand on the capital front overall. In terms of opportunities on the controllable spending side, I'd say we have a -- again, an infrastructure here that we're trying to maintain from a people and services standpoint. And we're trying to maintain that as we go through this so that we can be in a position to come out the other side stronger. This is a prolonged downturn and is deeper and longer than what we're projecting. At some point in time, I -- there is a -- certainly, a people aspect of this that we -- is a lever we could look to pull. There's not a tremendous amount of opportunity there, to be honest with you. We're not exactly a fat organization when it comes to people. So the opportunities there are not large, but there are some opportunities if we were pushed to that point. I'm trying to...

One of the other things, Chris, that we could -- or are in the process of actually doing is an inventory reduction program. We ended the year -- our balance sheet at the end of December had inventories. Our worldwide inventory's at roughly $300 million. And we put a plan in place prior to this coronavirus pandemic that's hitting everybody at the moment to reduce that through the year 2020 by $50 million. That's about a 16%, 17% reduction in inventories. And again, we started that in early January. And we had some success in Q1. When you see our balance sheet, it will show about a $20 million reduction in inventories quarter-over-quarter. So that's another area where we think we can generate working capital and use that cash to go ahead and pay down debt as well.

Next question from Liam Burke, B. Riley FBR.

Leroy, I apologize, you did mention optimization initiatives that you're going through right now and I just wanted to get a little clarification. The extraordinary events that are going on right now that you're facing, has that changed the trajectory of the optimization plans? Or how has that worked through?

Actually, it hasn't really changed anything regarding that, Liam. We've been able to advance the work, the upfront work that needs to be done on the opportunities that we have there. So the fact that we haven't been able to be in the office or on sites on any of the particular sites has not slowed us down in terms of being able to develop the plans and also get the buy-in from the other third parties that we need buy-in from. So I'd say that we continue to make good progress. Like many initiatives, it takes more time than we typically like from the birth of the idea to the beginning of the execution. And if you look at the whole KJCC sale, there's a perfect example of it. I mean, we've been literally working on that for several years now before we got to a point where we came to an agreement that we could move forward with. So these things, they take time because you want to get them right. You got to make sure that whatever you're doing is not going to affect the way that we can serve our markets. And so we're continuing to progress those plans. And I'd say, I've been pleased with the fact that they have not slowed down the meetings, the conversations and the work that behind the scenes has not slowed down since this has begun.

Great. And this is independent of the external environment?

It is.

But you mentioned market share gains in PC. Is there any potential addition there? Or have the markets sort of pretty much locked into the various technologies?

Yes. I'd say there's still some opportunity. There's still some opportunity there within the MicroPro product category. There's certainly opportunity there within our industrial treating preservative CCA, right? I mean, with the utility, with pentachlorophenol sunsetting in terms of its usage as a viable preservative in the utility market, there's absolutely opportunity to gain some market share to move some of that business in the Southeast or, I'd say, in the Eastern parts of the U.S. to CCA. And there's even some markets that could possibly move to creosote. So there's still some nice opportunities out there.

Our next question is from Chris Shaw, Monness, Crespi.

Great. You mentioned on the rail side, there was market share opportunities and even in this environment that you're sort of closing it on. Was there any color there? Is that on Class I?

Yes. I can't provide any color on that right now. Be happy to provide it when we get to the point where we can talk about it. But I'd just say there's opportunity there.

Great. And then, again, more on rail, just following up on the -- I think it was the -- one of the questions that I guess the -- looking at the Class I guidance going forward, and you said everything looks -- for most guys, the budget seems the same for this year. But with the last time when they sort of cut back, is that related to less shipments of oil? I mean, I remember they're doing very well at one point with shipping a lot of oil, and that was obviously a heavy load, and then that sort of cut back. Is that something that could happen again, and you could see like a significant less investment in the rail lines next year because of the collapse in oil?

So a lot of it had to do with their move towards the precision railroading model. As they're running longer trains, heavier loads, really trying to skinny down their network infrastructure and also cut down their costs. That's when we really, I think, saw the more significant pullback in tie replacements. So they're well into that program at this point. Again, if they're running less traffic, if there's less wear on the lines, yes, I'd say that would be more of a short-term potential cut back than anything longer-term or systemic.

Got it. And then just a quick one on CM&C. Just looking into the second quarter, is this the sort of -- with the lag in your raw material costs, is it something so quick? And have the prices fallen so quickly that -- could that segment see a loss for the quarter in 2Q?

We don't expect that to be the case.

Next question is from Austin Nelson, AIG. Austin Nelson;AIG;Analyst: I guess I just wanted to get some more color on why you're seeing what you're seeing so far in the RUPS business. I guess I'm just thinking, is it -- should we think about it that because it's just a really long lead time from an order until the ties can actually be placed, but you have orders that were placed last year that are now dried out and ready to be treated in place, and there's just not much the rails can do to delay those? And then I guess just a follow-up, the rails have historically in the Class I's like to kind of speculate on the wood price itself. So are you seeing some customers who might be cutting back now that they're looking at things are reopening, we don't want to miss the bottom in wood, and you're at least getting some inquiries there about getting some orders placed for next year?

Yes. So again, we've only really experienced one customer that's indicated desire to pull back and there was no discussion around that being centered on speculation on wood. It had, I think, more to do with just trying to use that as one of their cost levers to be cautious about spending in the current environment. In terms of the demand from the railroads at this point in time, I'd say it has more to do with, again, just trying to maintain the safety and reliability of their lines. We all know we're coming out of this, right, at some point in time. No one knows what the recovery will look like, and there's been plenty of speculation around what shape that will take. But I'd say the railroads overall know that they have a base level of maintenance that they need to do to make sure that they can operate safely and reliably. And especially if they figure that it is coming back, and they don't know or are not quite sure how it's going to come back and how robust and when it's going to be, it would make sense that they would continue to maintain their maintenance programs during this period of time to give themselves the best opportunity to, if and when things really start to come back in any meaningful way, that they're prepared for that. And they're not having to work around. Now all of a sudden, all this additional traffic that's come back online. So that's my best speculation as to why the majority of them have made -- have decided to maintain the programs today.

Yes. Austin, we've been in this business quite a while. And when you go back and look at it historically, in the ups and downs, the railroads historically tend to do more maintenance when the volume on the -- in the freight on their lines is not as busy. Now obviously, the reason for that is when they're busy and they're moving everything across their rail lines, the last thing in the world they want to do is stop that and do some maintenance on some crossties. So historically, again, we have seen that when their freight volumes slow down a little bit, that their maintenance spend under normal circumstances sometimes goes up because they want that all repaired, like Leroy just said, prior to their volumes picking up because when that happens, then they're disrupting their lines. Austin Nelson;AIG;Analyst: That's helpful. And then just one more on the PC business. So you mentioned you hedged copper out partially out to '21 and '22 on the drop we've seen here. If you can give us any more color on what percentage of expected business we should think about and the potential margin lift, if we assume a more normal environment like I don't know if your customers know about it or listening to this call and would kind of expect to share in the savings or how we should think about or could '21, '22 actually be much better than we would normally expect?

Yes. I can't get into a bunch of detail on that. I'd just say, in general, as our hedges we've in over time, right, as the -- as our average hedge price moves down, you'll see that -- you'll see gains from that reflected in our margins. And we have seen that. We saw it in, I think, the '16, '17 time frame. As copper prices move up and we're hedging at higher levels, then we see that in deterioration in our margins as well, and we've seen that in '18 and '19. And so as the average hedged price starts to move back down, and this year is an example of our average hedge price being lower than '19 for the first time in a couple of years, and right now, our average for '21 is lower than '20, we would expect to see some margin lift as a result of that.

Our final question comes from Mike Harrison, Seaport Global Securities.

I know we're past the top of the hour. So maybe just one more related to the CMC segment. I believe you mentioned that you had an inventory write-down during the first quarter. I don't believe that you're excluding that as a special item. So can you help us quantify how much that impacted EBITDA in the quarter? And then on a go-forward basis, does that mean that we get, I guess, the benefit of that written down lower cost inventory?

Yes. So I think it was a little over $1 million in terms of the write-down. Yes, you're right. You would get some benefit. You would get that benefit captured in the outer quarters. But at the same time, we've had a continued reduction in oil prices, right? So in the near term, we face the risk of further write-downs before -- it has to bottom out, I guess, before we really see the recapturing of those gains coming out.

This concludes our question-and-answer session. I'd like to turn the conference back over to President and CEO, Leroy Ball, for any closing remarks. Please go ahead.

Thank you. I would just like to thank everybody for taking the time to tune in today. I know it was last minute and late notice, but I really appreciate your interest in the company and your support for all we're doing to work our way through this crisis. And we'd hope that everybody on the line and those that are close to you stay safe and well as we continue to deal with this unprecedented crisis. So we'll look forward to reengaging with you about a month from now. So thank you, everyone.

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