Koppers Holdings Inc. (KOP) Q3 2021 Earnings Report, Transcript and Summary

00:03 Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Q3 Twenty Twenty One Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] Following the presentation, instructions will be given for the question-and-answer session. Please also note today's event is being recorded. 00:32 I'd like to turn the conference call over to Quynh McGuire. Please go ahead.

0:35 Thanks and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our third quarter twenty twenty one earnings conference call. We issued our press release earlier today. You may access it via our website at www.koppers.com. As indicated in our announcement, 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 February third twenty twenty two. 01:11 At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of nineteen ninety five. 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. 01:40 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. 02:08 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 non-GAAP financial measures to the most directly comparable GAAP financial measures. 02:22 Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. 02:29 I'll now turn the call over to Leroy.

02:32 Thank you, Quynh, and good morning, everyone. Now for those of you join us in mid-September for our Koppers’ Investor Day, we hope you enjoyed the event our team was very encouraged by the interest shown and to have the opportunity to provide some additional context on our long-term business strategy. While I'm disappointed to post lower than expected results in our first quarter following that day, I'd also like to emphasize that we're playing the long game, which is we all know, it can be difficult to see as a public company, that's where our focus has been and that's where it remains and that's why we were excited to take the opportunity to unveil our unveil five-year plan. 03:06 Our interest is in attracting and investor base that's also in it for the long game and those investors that are interested in owning and the and appreciated business model which has a lot of upside should have a lot to like with the future we've laid out for Koppers. Replay of the full webcast from our investment day on September thirteenth is still available on our website. 03:27 So now let us get started with a review of our Zero Harm safety performance for the third quarter with special attention on COVID-19, as seen on slide four. Following guidelines set by the Center for Disease Control and the Occupational Safety and Health Administration, Koppers continues to require masks for those working indoors with some flexibility as case numbers dictate in each region. The vaccination rates for the company as a whole currently track at sixty four percent globally with sixty one percent North America, and eighty one percent across our international locations. 03:59 Overseas, Denmark lifted its COVID restrictions throughout the country now that more than seventy five percent of its population is fully vaccinated. And as a result, we relaxed protocols at our Board facility. In Australia lockdowns are being lifted as vaccination rates there have exceeded sixty percent. However, we have elected to keep our COVID protocols in place at our sites there for the time being. 04:20 I saw this morning as we were making final preparations for this call that the details regarding President Biden's executive order have been released. And over the coming days, we will be reviewing it to determine exactly how it must be deployed, and we will put the necessary plans and protocols in place. As described on slide five, we are going through our annual open enrollment process in the U.S. for employees to select their health insurance for twenty twenty two. And after careful consideration, we have decided to institute a monthly healthcare surcharge to employees that remain unvaccinated. That decision was made to help mitigate the additional cost of care for those that end up hospitalized as a result of contracting COVID. The data supports that for those who do contract COVID, the health results and cost of care for unvaccinated individuals far exceeds that for the vaccinated. And I cannot, in good conscious ask our vaccinated employees to bear the additional cost that is brought on by others that are consciously choosing to not vaccinate for their own personal reasons. And also, we have adjusted our Zero Harm life-saving rules to reflect current COVID safety requirements, and we are maintaining all safety and health protocols regarding masks and social distancing. All Koppers office locations have been made available to employees and those who have been vaccinated must wear masks in common areas, while unvaccinated employees are encouraged to work remotely. Unvaccinated individuals have come into the office much wear masks and maintain social distance at all times. 05:40 We're now planning a a return to the office beginning on January third, twenty twenty two, and a hybrid work arrangement between office and home will remain in effect and available to employees as appropriate. At this time, as shown on slide six and as announced back in August, Mike Zugay, our Chief Financial Officer and a critical member of the Koppers leadership team in the past seven years, has announced his retirement effective at the end of this year. And that means that this will be Mike's last earnings call. So I want to recognize him for that and take a moment to thank him for everything that he has brought to our organization in his time here. We will miss him. I will miss him, and all of us at Koppers wish him all the best in retirement. Next week, Mike will be recognized here in Pittsburgh with a career achievement award as the CFO of the year for his tremendous contribution he has made to the several organizations he has worked at during his career. Without any further ado, I'll hand over the podium to Mike for the final time. Mike? Thanks.

06:38 Thanks Leroy. On slide eight consolidated sales for the quarter were four twenty five million dollars which was a decrease from sales of four thirty eight million dollars in the prior year quarter. Sales for RUPS were one hundred and eighty seven million dollars down from one hundred and ninety one PC sales fell to one hundred and fifteen million dollars from one hundred and forty eight and CM&C sales rose to one hundred and twenty three million dollars up from ninety nine million dollars. 07:05 Moving on to slide nine, adjusted EBITDA for the quarter was fifty four million dollars or twelve point seven percent down from sixty seven million dollars or fifteen point two percent in the prior year. Also compared to the prior year adjusted EBITDA or RUPS was eleven million dollars down from nineteen PC EBITDA decreased to twenty million dollars down from thirty two and CM&C EBITDA improved to twenty three million dollars up from seventeen. 07:36 On slide ten, sales for RUPS were one hundred and eighty seven million dollars a slight decrease from the prior year's results. We attribute this mostly to declining Class I crosstie treating volumes and the impact of exiting our contract with Texas Electric Cooperatives. We are now serving the Texas market by treating poles at our own facility in Summerville, Texas, and this creates opportunities for longer-term sales growth for the company. These declines were partially offset by increased activity in commercial crossties and rail joints. Hardwoods for crossties remain a procurement challenge as there is continuing strong demand in the construction industry for other uses for that wood. In fact, crosstie procurement is down 38% in the quarter over last year, while crosstie treatment has increased slightly by three percent. 08:31 On slide eleven adjusted EBITDA for RUPS was eleven million dollars compared with nineteen million dollars in the prior year. This was driven by lower cross purchases, which led to reduce capacity utilization and absorption at the plant level. We saw reduced track time due to increased levels of rail traffic along with inefficiencies caused by employee turnover which led to an approximately two million dollars decrease in EBITDA for our maintenance of wave business. Additionally, the costs incurred by converting from Penta to our CCA preservatives had a negative two million dollars unfavorable impact. 09:13 Moving on to slide twelve, PC achieved sales of one hundred and fifteen million dollars compared to one hundred and forty eight in the prior year. Volumes of preservatives in North America were down, while wood treaters continue to closely manage inventory due to higher lumber prices as the economy has reopened in various areas, travel and other in person, goods and services have been taking a higher share of discretionary consumer spending. However, we've implemented price increases for our coppers base preservatives, which is somewhat offset these headwinds. 09:50 On slide thirteen adjusted EBITDA for PC was twenty million dollars compared with thirty two million dollars in the prior year. This change can be attributed to lower sales volumes compared with pandemic fuel demand in the prior year and higher raw material and logistics costs partially offset by price increases. EBITDA from Europe and Australia was about three million dollars lower, due to European regulatory impacts on our product portfolio and rolling lockdowns in Australia and New Zealand. 10:25 Slide fourteen shows CM&C cells at one hundred and twenty three million dollars compared to sales of ninety nine million dollars in the prior year. The increase can be attributed to higher pricing for carbon pitch, current black feedstock and phthalic anhydride partially offset by lower volumes of carbon pitch. 10:45 Moving on to slide fifteen adjusted EBITDA for CM&C was twenty three million dollars compared to seventeen in the prior year. This increased profitability was driven by favorable pricing and strong operational efficiencies, partially offset somewhat by higher raw material costs. Compared with the second quarter, prices of major products this quarter increased eleven percent while average coal tar cost increased eight percent. Compared with the prior year quarter, average pricing of major products rose twenty four percent while average coal tar costs went up by thirty nine percent in that particular quarter. Now let us review our debt and liquidity. As seen on slide seventeen, at the end of September, we had seven hundred and sixty two million dollars of net debt with three hundred and twenty six million dollars in available liquidity, and we also remain in compliance with all of our debt covenants. Our net leverage ratio was three point four times at the end of September, down from three point five times at the end of December twenty twenty and 3 point eight times in the prior year quarter. 11:59 Longer term, our net leverage goal continues to be between two times and three times. In connection with our ongoing efforts to evaluate potential financing options, we are reviewing various refinancing alternatives for both our five hundred million dollars senior notes which are due in twenty twenty five as well as our existing bank credit facility. With that said, we have not yet determined to move forward with any particular refinancing transaction at this time. With that, I'll turn the call back over to Leroy.

12:33 Thank you, Mike. Now before getting into a review of business sentiments and our outlook for the remainder of this year, I'd like to share some notable accomplishments of Koppers and our people in the third quarter. 12:43 On slide nineteen, you see the remarkable accomplishments achieved by our entire Koppers Wood products team at Longford, Australia who have reached a one hundred percent vaccination rate, our first location of twenty or more employees to reached that milestone, which is an incredible feed. We're extremely appreciative with this achievement. 12:59 Our Nyborg, Denmark team is dealing with the pandemic and outstanding fashion as well. The ninety three employees there have achieved in ninety five percent vaccination rates surpassing even the national rate of seventy five percent is new to their willingness to take the COVID-19 virus so seriously we've had no infections at new board. 13:16 And finally, in our corporate headquarters in Pittsburgh, where we have one hundred and seventy seven employees, we've crossed the ninety percent vaccination threshold, I believe it's important for our headquarters personnel to set the right example of what we expect to see throughout the organization, some especially happy to see us get to that level. Kudos all around to our teams at Longford, Nyborg and Pittsburgh for truly making Koppers Zero Harm culture to heart. On slide twenty, we wanted to congratulate our truck drivers, the unsung heroes of Koppers who load transport and deliver our products all over the world safely and with special attention paid to limiting and eliminating negative environmental impacts. At our annual Zero Harm Truck Driving Championship ten drivers were identified as finals for their overall performance and were appropriately recognized. As seen on slide twenty one, the Pittsburgh Post-Gazette named Koppers headquarters location in Pittsburgh as one of the top workplaces for twenty twenty one with a special recognition of our attention to Health and Wellness. This honor determined by a third-party and using survey results of employees across the Greater Pittsburgh region noted our company for its alignment, coaching, engagement, leadership, work-life balance and more. Now as the competition for talent intensifies, it will be the flexible adaptive culture we have created that focuses on the whole person that we expect to bring as a competitive advantage for Koppers. 14:31 So now I want to move on to the review of the current and forward-looking business segment, which includes third-party data and feedback we have received from individuals working within the industries in which we operate. And we have seen some significant shifts impacting our businesses during the third quarter, many attributable to the aftereffects of the global pandemic, including various supply chain issues and rising costs. I want to stress the headwinds we are facing are short-term and surmountable. They are not indicative of any underlying negative systemic changes to the foundations of our business model, which is important. The first-up is a review of what we see in the fourth quarter for Performance Chemicals, as outlined on slide twenty three. Now while we had a respectable third quarter it fell a little bit short of our internal expectations. Residential preservative volumes took a little longer to recover from the deep trough that began the last couple of weeks of June as lumber prices were in a steep and rapid free fall. 15:23 Fourth quarter looks to generate a sales volume improvement of about eight percent over third quarter results building on North American residential demand that began in the back half of October. Year-over-year sales volumes are expected to finish about four percent lower than the record volumes in the prior year, which were driven by the strong demand during the pandemic in twenty twenty. 15:44 Now the trend of our largest customers leading the way and consolidating the residential treaty market continues to work to our advantage. And as a result of consolidation that's occurred this past year, Koppers will now be the largest wood preservative supplier to the top three U.S. big-box retailers, which is a tremendous achievement and shows what can be achieved with strong proprietary technology and strong partners. Industrial demand in the U.S. should remain strong at a five percent year-over-year increase through September as the pent-up preservative is phased out for utility pole treatment. And this is one of the areas that we have dealt with some supply chain disruption, and therefore, haven't been able to fully keep up with demand. However, that situation has recently improved, and we appear to be on the path of restocking the inventory channel. 16:26 The book of demand remains strong, and we have been challenged to keep up. So the full potential of industrial sales will still be a little bit limited somewhat by short-term supply chain challenges in Q4. We are seeing the cost of labor, energy shipping and materials are all trending higher. And as such, we will need to continue pushing further price increases that started at the beginning of the year. 16:45 Despite what some are saying, these inflationary cost pressures are not transitory. So, we will need to continue the acceleration of global price increases that began in early twenty twenty one and that a total fifteen million dollars does through September. In foreign markets, strong demand in a weaker dollar has South America on track for a record year while regulatory pressure on European products have led to a forecast of record low results there. 17:09 Rising Coppers prices and revalued inventory of helped our PC results despite the recent volume drop off. That does create some short term risk of earnings volatility for this segment at the price of Koppers were to fall rapidly before our price increases step into to fill the gap. Looking at the external data, some encouraging news came from a seven percent rise in the sale of existing homes with all four U. S. Reasons experiencing increases in sales and housing demand according to the National Association of Realtors. 17:38 The [Indiscernible] also noted that it expects homebuyers to continue fueling a strong market, securing mortgages before potential interest rate increases. In October, consumer confidence Index was one hundred and fourteen and increase from September and reversing a three month decline as concerns began to less and regarding the spread of the Delta Variant of the coronavirus. Spending intentions have risen for homes, cars, major appliances and travel, all of which are projected to drive economic growth for the rest of this year. 18:05 Slide twenty four provides a look at the longer term Pc picture from twenty twenty two through twenty five. Currently, our early take on MicroPro volumes in North America next year that we expect them to be between twenty twenty and twenty twenty one volumes. This is based upon an industry consensus view, that volumes returned to normal after the pandemic and we see market share growth through the friendly treated consolidation mentioned earlier. And we also expect North American and industrial volumes will rise as the Penta preserve it continues to get phased out of the utility pole market and customers move to other preservatives including our CCA and door client products. 18:41 I mentioned earlier that we're on track for our best year ever South America, which is a rapidly growing market for wood preservation and support that growth we will be looking to expand our footprint in that geography. Earlier this year, we purchased property for a greenfield manufacturing operation in Brazil and are currently going through the detailed design engineering phase of that project. 18:59 This is capital that's already in our strategic plan to supports our preservative growth strategy. The expansion of production capacity for Basic Copper Carbonate at our Hubbell, Michigan facility was completed this past quarter. That development along with regulatory approval of a new domestic Bcc supplier promises to significantly reduce our dependence on overseas suppliers for that critical material, thereby strengthening our MicroPro supply chain. As keep up with rising costs, we're continuing to implement price increases that should add more than twenty million dollars in twenty twenty two and more than sixty million dollars in twenty twenty three based on current Coppers prices. 19:35 We also anticipate higher working capital values moving forward due to the higher cost of raw materials and increased inventory levels that will likely carry for some period until we're comfortable that our concerns around supply chain have been alleviated. 19:48 From an R&D standpoint, we're pleased to report that we've been issued patent for our next generation MicroPro product, which will remain in force through early two thirty eight and we will begin commercializing it in twenty twenty three. This is a big deal as it improves upon our current product line while extending the protection of our technology. 20:06 As support for next year's volume projection is the leading indicator remodeling activity estimates that spending on home renovation and repairs will reach nine percent annual growth and surpassed four hundred billion dollars by the third quarter of twenty twenty two. Also, the expansion in homeowners equity open is the door to increase numbers and scope of home improvement projects in the coming year even as labor and material costs are projected to rise, all in all, the future continues to look very bright for our performance chemicals business. 20:35 Slide twenty five offers some insight into our UIP Business for the fourth quarter. Near term sales have been affected by the downstream effect of PC related supply chain issues, but that situation is already improving and should be much improved by the time we get to the end of the year. 20:49 Now similar to our PC business inflationary cost pressures will remain continued U. S. Price increases that began in the second quarter and have continued through the third quarter on an accelerated pace. Year-to-date through September, those increases have totaled eight million dollars and will need to continue to cover the rising cost of labor, chemical, fuel and transportation. 21:08 As mentioned previously market reduction of Penta will cease at the end of this year, and most of our customers are choosing to transition to our PC produced CCA and DuraClimb treatment solutions for Southern Yellow Pine utility poles. 21:20 Our Fidelity Georgia Plant completed its conversion from Penta and CCA in the third quarter which did have a negative impact on Q3 results as Mike earlier indicated. And our Advanced Alabama facility a similar conversion will occur in the fourth quarter, which was similarly impact Q4 results. A new dry klin also located at our advanced plant came online at the third quarter while a similar count Newsoms, Virginia will be completed in the fourth quarter. And although these projects are disruptive in the short-term, they are part of our network optimization strategy to reduce costs by becoming more efficient and taking closer control of our supply chain. 21:56 Wood supply seem relatively stable, although we're seeing pricing pressure stemming from increased demand for small logs and pulp and export. Trucking and logistics costs are remaining high due to increased diesel costs, availability of third party trucking assets and labor costs. All this goes back to our need to pass through our increased costs. Sales of poles in Australia have been affected by pandemic related shutdowns, although a vaccine rollout in new South Wales is expected to ease restrictions over the next few months. 22:25 Turning to slide twenty six. We offer a peak ahead to next year and beyond for our UIP Business. Now as mentioned earlier, sales of CCA treated poles will increase as sixty five percent of our UIP customers has selected CCA as a preservative of choice with ten percent still undecided. In twenty twenty two, we'll continue to build on our Texas creosote pole business as we leverage our pole recovery business to add new customers and improve our cost structure. Sticking with the network optimization team, we expect a much improved cost footprint to add meaningfully to EBITDA in twenty twenty two through the capital spent this year, for plant conversions and drying capacity. 23:02 Furthermore, we continue to evaluate our treating footprint and could pull the trigger on a consolidation of another shooting plant in twenty twenty two pulling that volume into the remaining plants in our network and saving even further on fixed costs. 23:14 Basic demand for pole should remain high at least over the first half of twenty twenty two due to project work and upgrades that were deferred during the pandemic. The longer term demand profile should also remain positive as utilities need to continue to maintain infrastructure to avoid service and interruptions as remote work continues and extreme weather events continue to increase. 23:34 Now Ample supply of softwood should keep white wood prices is stable for the foreseeable future on the preservative side, we've been granted a registration to produce Copper Naphthenate, which would add another oil volume preservative to our portfolio, at this point we are in the process of assessing the most effective path forward and whether it is to externally procure or independently produce. 23:55 In twenty twenty two, we expect to implement fifteen million dollars to twenty million dollars in annualized price increases to cover the increased costs we're experiencing and that I had outlined earlier. Now for next year in Australia, we see strong underlying pole demand to replace poles damage from recent natural disasters, while a new dry Klin has been installed at our Takura location to meet the growing demand for softwood due to hardwood supply constraints. 24:18 Moving on to our a railroad products and services business on Slide twenty seven. The year-over-year trend of green time purchases looks to a bottomed out and should comparatively improve beginning in the fourth quarter. Our current pace of four point four million tie purchase, this would represent a new low driven by customer reluctance to pay higher prices to meet their demand levels. Treated in sold ties are flat year-over-year suggesting that cross tie insertions are not an issue. Railroad customers are using high green tie prices to defer purchases with demand being pushed out to mid twenty twenty two and hopes the cost will abate. 24:53 Trucking problems persist from a lack of drivers and pent up demand limiting access of which are driving transportation rates higher. And commercial cost that profit should improve as comps get easier, but the market overall is still very competitive. As announced in early October, we closed on the sale of property where our former Denver facility was located, providing net proceeds of twenty four million dollars in the fourth quarter. 25:16 American Association Railroad Reports total year over year U. S. Carlo traffic increased eight percent. Intermodal units increased ten percent and combined carloads and intermodal units increased by nine percent as of September 30th. The AAR added the limited availability of downstream trucking and warehouse capacity because of supply chain [Indiscernible] impacting intermodal volumes for the time being. 25:37 Now the association added that significant network investments have made the rail industry more adaptable and able to adjust ongoing changes in operational market conditions, which bodes well for rail traffic long-term. The fourth quarter view of our maintenance way business calls for it to sequentially improve and come in slightly better than last year's fourth quarter. For your EBITDA howover on pace for an all-time low due to a collection of direct and indirect COVID related factors such as labor shortages, lockdowns, and reduced track-time due to increase rail traffic mentioned previously. 26:08 On Slide twenty eight discusses our view for our rough business in twenty twenty two and beyond and our current projection have supply issues around Green Ties beginning to subside with a rebound beginning in the second half of twenty twenty two. In the meantime, we've been working on the development of a long-term strategy you to smooth out the peaks and valleys of the procurement side of the business and we're planning to use the experience we've had addressing the factors that created volatility and both our CMC and PC businesses and applying those same factors to address this challenge. 26:37 We expect the a minimum a minimum of twenty million dollars in price increases to flow through our top line next year to account for higher material costs that we've been experiencing thus far this year. We're close to finalizing the last of our contract extensions on the Class 1 track were set to expire this year and when complete, most of our Class 1 volume will be secured beyond twenty twenty five. 26:58 While overall volumes are set to increase three percent to four percent in twenty twenty two, with share remain flat, volumes are expected to grow by more than ten percent in twenty twenty three. The plan completion of expansion at our North raw facility will support a large portion of that projected volume growth. As a result, working capital will increase due to higher green tie purchases and volume growth. And while I mentioned the disappointing results for our maintenance way business this year on a bright note, we're carrying the highest backlog we've had in that business in years into twenty twenty two. 27:28 Our results should improve meaningfully as we gain cooperation from the railroad for track time and see better crew continuity. We are addressing our turnover issue through a new redesigned compensation model for portions of our maintenance-of-way group that focuses on what that workforce values. Finally, we are actively working to expand our crosstie recovery business and add more Class one customers to our portfolio. While there's no getting around the fact that 2021 has been a disappointment for our RUPS business, the investments we are making now will set us up to make a major jump in profitability over the next two years. Looking at the fourth quarter for our CM and C business on slide twenty nine, we see strong demand continuing to key markets like steel and Aluminium with production increasing in auto and other manufacturing industries. 28:11 The energy crisis in China, along with global supply chain issues have caused raw material shortages and longer lead times for finished goods, which has supported our business model outside of China. And one example is the high pitch export pricing out of China that's partially caused by the previous factors that supports stronger pricing of our Australian produced products that are tied to that benchmark. Our European business continues to experience end market pressure as a result of aluminum production cutbacks cutting into our customers -- cutting into our competitors' demand, which has caused them to compete for business to replace what was lost. In North America, tar production is even with or maybe even surpassed what it was pre-COVID, meaning we can reduce our higher cost tar imports from Europe and shorten our supply chain. Price increases on Coal tar expected to continue globally, which will begin to compress margins somewhat in fourth quarter. 29:01 Pricing of products tied to oil, like carbon black feedstock, phthalic anhydride should remain high and boost profitability. On the downside, we are expecting volumes in our phthalic business to be lower due to customer supply chain issues impacting their demand. We are considering dissolving the previously closed KCCC facility in China during the fourth quarter or early next year to substantially complete our China exit plan. Slide 30 offers a look forward for CM&C. Strong demand in aluminum and steel markets should continue into 2022 or longer with passage of an infrastructure bill in the U.S. and as reliance on Chinese exports goes down and global logistics challenges continue, our CM&C business is poised to benefit. A global review by IHS Markit says that after making adjustments for production trends during the pandemic, production of light vehicles worldwide is expected to see double-digit growth in twenty twenty two. 29:53 And also it reports that the semiconductor supply chain is stabilizing, which represents another positive step in the recovery of the automobile and other manufacturing segments. More decarbonization projects to eliminate coke from the steelmaking process are occurring and will further impact future coal tar availability. But despite external pressures, our focused footprint puts us in a solid competitive position to maintain our low to mid-teens EBITDA margins in this business. Ongoing improvements we are making at our Stickney facility will improve safety, boost reliability and generate additional profitability. Higher future crosstie volumes and creosote treated utility poles will also have a positive effect on the CM&C business in the form of more distillate being upgraded from carbon black feedstock to creosote. Our yield optimization project would further improve pitch yields that we get from fifty percent of production to up to seventy percent meaning higher sales and profitability. And a similar vein work on enhance carbon products for using battery anode materials continues in North America, Europe and Australia. Those projects are not yet included in our twenty twenty five projections but could provide significant potential upside. 31:01 So on slide thirty two our sales forecast for twenty twenty one has been revised to be approximately one point seven billion dollars compared with one point six seven billion dollars in the prior year to reflect the lower than previously expected PC volumes on our third and fourth quarter. 31:15 On slide thirty three, we're adjusting our twenty twenty one EBITDA projections to now be approximately two twenty million dollars which is at the low end of our previously communicated range. Compares favorably with the two eleven million dollars generated in the prior year and will be our seventh consecutive year of EBITDA growth looking at the company in its current formation. 31:34 On slide thirty four our adjusted EBIT EPS guidance is now expected to be approximately four point one two dollars which is comparable to our all-time high twenty twenty adjusted EPS despite a negative impact of zero point four zero dollars per share from our higher estimated effective tax rate. Our four twelve for twenty twenty one is lower than our prior estimate range, primarily due to our effective tax rate increasing from prior projections. 31:58 Finally, on slide thirty five our capital expenditures were eighty seven point six million dollars year-to-date through September thirtieth or seventy eight point seven million dollars net of the eight point nine million dollars in cash proceeds. We are on track to spend a net amount of eighty million dollars to eighty five million dollars on capital expenditures with approximately forty five million dollars dedicated to growth in productivity projects. So, in summary, while we always strive to do better, I actually think it's pretty remarkable that we are on track to be in our most recently communicated range of guidance and actually right in the middle of the original guidance we gave for the year back in February. 32:38 Of course, how we are getting there is quite a bit different than what we thought. But once again, I believe that just highlights the strength and the diversity of our business segments, which tend to operate opposite of each other. In the dynamic environment, we find ourselves in, it's tremendously helpful to not be reliant upon a single business or market to carry the day, year in and year out. It's been a difficult and draining couple of years, but I am proud of how our team has weathered the storm and put us in a position to capitalize on the many opportunities in front of us. And through a combination of significant price actions and continued execution on our high-return internal projects, I am confident that we will take the next important step forward in twenty twenty two towards meeting our twenty twenty five goal of reaching three hundred million dollars and EBITDA. 33:19 With that, I would like to open it up to any questions.

33:24 We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Mike Harrison with Seaport Research Partners. Please go ahead.

33:57 Hi. Good morning. I wanted to say congrats and some best wishes to Mike. It's been a pleasure working with you.

34:05 Thank you.

34:09 There's a lot to unpack here. I'll start with the RUPS business. Just in terms of the untreated tie availability, are there signs that that is improving near term, it kind of sounds like you expect the weaker utilization to start to improve by mid next year. Is that kind of the way we should think about things trending for now?

34:39 Yes. Mike, I think what we are seeing now is things appear to be bottoming out. And so we are expecting -- I think we are expecting -- certainly, the comps improve beginning in the fourth quarter. And so I think we are going to see year-over-year things bottoming out. And with really the recovery happening, I think, beginning midyear of next year. That's the current intelligence we are receiving from our folks out in the field with what they are seeing.

35:12 And you mentioned the higher activity in commercial crossties. Presumably, they are actually paying some relatively high prices there. Can you talk about what is driving that higher commercial activity and do you expect that to continue into next year?

35:29 Yes. I think, again, there's a lot of disruption, obviously, through the pandemic, and it affected industries in different ways. Certainly, the Class 1s took the opportunity to do a lot of repair and maintenance. They have bigger balance sheets and ability to do that. I think some of the smaller railroads were probably a little more cautious in terms of where they were deploying capital. So I'd say from that standpoint, with the recovery beginning to occur and things opening up a little bit, people getting a better sense of maybe what the future will hold, has provided some optimism to be pushing more projects forward. They have had a lot of delays in terms of just how you could operate. And certainly, we have seen that in the construction side of our businesses as well. It's really -- it's where we have seen the biggest impact on productivity and efficiency, just being able to get people out working and working safely around the COVID guidelines and protocols as well. You had different restrictions in different parts of the country, and it is just a mess. And so I think as things have started to open up more. It gives the confidence for the short lines probably going to move forward with more projects, and we are seeing that on the utility side as well.

36:54 All right. And then within the Performance Chemicals business, can you walk through the European regulatory issue that you are seeing currently? And I believe your one slide there said that you were planning on executing a restructuring of your European business within Performance Chemicals. Can you talk about what that is going to entail?

37:19 Yes. So we fall under the buy side product registration act over in Europe for the products that we sell into those markets. And there's been a lot of review for reregistration of a number of different products and raw materials over there that we have been going through as well as many others, and there are certain things that have been getting regulated out, which are impacting our product portfolio and so we are having to adjust with a different product line and figuring out how we move forward. Again, and rebuild our profitability there. 38:09 We have a pretty strong foothold up in the Nordic regions. And so we are looking at how we play to our strengths and actually utilize the technology that we have developed here, and that's become the staple for residential treatment in the U.S., our MicroPro technology and introducing that product line over there. So I'd say there's a lot of potential for improvement in that business. And especially if we end up getting MicroPro qualified and -- out into the market over there. We already have extreme interest from a couple of large customers over there in supporting it. So we are off to a good start.

38:56 All right. And then within the CM&C business, it looks like volumes were kind of flattish or maybe even a little bit lower this quarter, yet you are kind of talking about strong underlying demand dynamics. So maybe a little bit of color on what was going on with volumes in the third quarter?

39:17 Yes. So for that business, there can be a tendency. Again, there's large volumes of products that get shipped and things can move from period-to-period as well, which can have an impact. But overall, I'd say the demand level is strong due to the underlying markets and the strength of the underlying markets in steel and aluminum. Europe is probably where we face the biggest challenge because, again, some of our competitors' customers have not fared as well. And so they have lost some business there as a result of curtailment of capacity. And it has just made for a more competitive environment overall. So we are fighting for volume, we are fighting for price and margin. And it has just made for an overall extremely competitive dynamic there. But we will work through it. I think we are positioned geographically better to compete. And we also have the balance of having our European business strongly linked to our North American business as well. So that provides us some ability to, again, flex back and forth between the two regions, depending upon who might be in a stronger position to supply at a particular point in time. So it's always a balancing act in that business. And again, our folks in that business do an incredibly great -- an incredible job of, again, managing that arbitrage between the raw material and the end market pricing, which can fluctuate significantly in any given quarter.

41:03 All right. My last one is for Mike. I'm not going to let him escape without a balance sheet related question. You mentioned in your prepared remarks, some potential opportunities for refinancing Can you just remind us what the rate on the senior notes and your current facilities look like? And maybe what kind of potential interest rate savings you could be looking for?

41:30 Yeah. Yeah, Mike, on our bonds, we have five hundred million dollars outstanding, which you're doing twenty twenty five at a flat interest rate of six percent and given what we're hearing from our banks, that we use both in our syndication of banks on the bank credit side as well as some investment banking firms that we use. It looks like we could possibly refinance somewhere in the four point seven five percent to five percent range which would knock a point or one point two five points of our interest rate on those bonds. In addition to that, our bank agreement, we believe there's been a lot of changes in the marketplace and the high end of our pricing, which currently is a formula, but it's about two point six percent on the outstanding balance of our credit agreement. We believe, which is at the high range of our current pricing grid, we believe that that would become the low range of our current grid would become the high range in a new particular agreement. So, there's interest rate savings as well as covenant relief, and getting rid of some other things that have been nuisance to us for the last five years. We believe that the market is poised for that. We've been getting feedback along those lines and we're going to seriously take a look at that.

43:11 All right. Thanks for the details there.

43:15 You're welcome.

43:15 The next question is from Alex Paris with Barrington Research. Please go ahead.

43:21 Thank you. This is Chris Howe from Barrington Research. Not sure how they got that.

43:26 Hi, Chris.

43:28 Yeah, I had, hi, I had a few questions here. The first surrounding the price increases not surprising to hear given the current challenges of the environments, if we think about the PC segment for this question, the price increases that are planned, you mentioned greater than twenty million dollars and the greater than sixty million dollars. How should we think about these price increases in the context of catching up to what's been happening in the environment, while also taking into consideration what's still happening in this environment and when do you think you'll be at a comfortable price to cost coverage ratio in the PC segment?

44:19 Chris, I think in that segment, it's more keeping up. I mean, I indicated we've been increasing price throughout this year. And I think we've been pretty much in alignment with what we've had in our cost increases. So, I think we've matched up pretty well and that's really intent as we move out. So, I'd say it's more keeping up and catching up on that side of the business. 44:51 There's other parts of the business where it will be, it is more of more of a catch up. I'll use UIP as an example there. In that business line, it's more catching up and PC, It's more keeping.

45:09 Okay. Okay. And then another question on the PC segment. You mentioned the different remodeling trends still predicted to come in at relatively healthy comparable levels. Once we get past the winter season, I would think it would be fair to assume there should be some level of pick up in remodeling activity as we head into the summer of next calendar year.

45:44 Yes. I mean, typically, that's what we see. So we are working off of -- a little bit of a strange -- obviously the pandemic spike followed by the steep decline when lumber prices fell through the floor. And truthfully, people -- we had that pent-up demand for people to do other things than -- rather than stay home. So you had everybody head now on vacation, renewing their season tickets, doing all that stuff they haven't been able to do for a long time. And so their focus was not on building outdoor structures like it was in twenty twenty. And we felt that throughout the summer, we thought that as people came back from vacation, as they got the kids back in school sort of post Labor Day, we would see things sort of pick up to normalized demand because there's still a lot of backlog, I think, in the project queue as well, we did not see the jump after Labor Day that we thought and were expecting. I will say the back half of October, we have seen more of a pickup. So, I'd say where we sit today, we're starting to move in line with where we thought we would be. We just thought it was going to happen a little bit earlier. 47:02 So you get through the winter months. And obviously, there's a preparation in the early parts of the year to start to make sure that all these big-box retailers are fully stocked for the construction season. So we definitely would expect to see that. There's no question about it. But right now, there's still actually a recovery in volumes from the third quarter because there was such a lull, following that huge surge in demand. So fourth quarter volumes actually are going to be better than third quarter, which is unusual and not typical.

47:38 Okay. And my last question, the -- you mentioned you are reviewing the government Bill. As we think about these potential benefits, as you outlined in your Investor Day, what's your communication strategy to investors and to the Street once you get a better handle on how these bills and benefits come to fruition and what may mean for the business, both near-term and long term?

48:12 Well, I think we have always strived to be transparent with investors. And we obviously give a bunch of information in regards to what's going on in our businesses, in the industries we operate and the drivers that impact it. So to -- certainly, to the extent that there are things that we can pick and pull out of the ultimate bill that gets passed, we will absolutely share that. We tried to stress and really convey in a strong way back in September that the road map to take us from where we are at to where we are going is largely in our control. There are projects and things that we know through just simple, successful execution should generate the returns that are attached to them. 49:10 The things that will impact us outside of that are just general changes in economic demands for particular businesses where of each one of them might be able to sit in a cycle of time. Certainly, the ability or inability to pass on cost increases through price. But the whole thing around sort of that additional demand above and beyond what we would typically see in our businesses and that might happen through, again, an infrastructure bill. That is absolutely on top of anything that we have put into our projections and numbers that we put out before. So yes, we are hoping that there's going to be things in there that we can see that will have positive impacts that we will be able to add on to what we have talked about. And if we do see that, we will absolutely communicate it, but it's a little early to tell at this point.

50:06 Okay. And if I may squeeze one more, this is the last one.

50:09 Yes, go ahead

50:12 I wanted to tie it back to the Investor Day. You mentioned one of the key points is wood treatment expansion and some new geographic regions or territories like the Midwest, Texas and the West Coast, I know it’s only been two additional months, but perhaps you can talk about those regions and how you're thinking about those over the next twelve months?

50:35 Yeah. There's a lot of conversations that are going on. A lot of work – planning work is to exactly how we would go about and what the best and way in terms of generating the best return. So, a lot of conversations both internally and externally that haven't developed to a point really where I have much news to share. I mean, the commercial development in the Texas region is ongoing and continues. And I think as time goes on, we'll see more and more success there. Again, which has upstream effects throughout our business as a result of the integration of our production of of Creosote into that Creosote pole market. And beyond that for Midwest and West and West Coast, it's still a little early to get into many details there, but there is a lot of work that's going on behind this going.

51:46 Okay. Thank you. And thanks, Mike, it's certainly been a pleasure of working with you and best wishes on your retirement.

51:54 Thank you, Chris. You as well.

51:57 The next question is from Liam Burke with B. Riley FBR. Please go ahead.

52:01 Thank you. Good morning, Leroy. Good morning, Mike.

52:04 Hi, Liam.

52:06 Leroy, in terms of the RUP business, procurement you said tie procurement was bottoming. What gets that recovering? Is it just the fact that the maintenance is so far deferred that the class 1 are going to have to step in and buy or are they still waiting for prices to ease up?

52:28 Yes, it's, I think it's a leveling out of pricing, which is sort of the beginning of it, right? And so, nobody in this market as we've seen sort of historically really like jumping in a rising market, They don't want to add fuel to that fire and propel it even further upwards. So, they tend to be pretty conservative as prices moving up and pretty measured in terms of what they're willing to offer as increases to try and get their demand. And what it takes is for pricing to ultimately level out where they get comfortable that it's reached a peak. 53:14 And then and you start to see some more jump in and typically what we obviously see afterwards is some reversion back towards prior levels. So, with us right now, seeing some leveling out here over the past three – four weeks gives us hope that we have reached that peak and we're going to start moving in the other direction.

53:45 So any kind of easing in prices, you get the benefit of also the catch up on any kind of deferred maintenance?

53:54 Yes, that's right. Liam. I think that we feel really excited about the RUPS business over the next couple of years because when you see the drop that we've seen due to the dynamics we've talked about, you do tend to see the snapback occur to catch up as you point out and then what we have going on now that's different than sort of where we've been in the past during these times is the expansion in the work that we've been doing again in behind the scenes that will ultimately result in greater efficiency and lower cost structure while moving into a period of likely higher volumes, all of that should conspire to really propel the RUPS business forward in a big way over the next couple of years. So, If we would show the last five years each year, the ups and downs of each of the businesses, right, you're going to see all of them having up years and down years, RUPS has had I think more down years and up years over that period of time. The next couple of years for sure, we expect we expect RUPS to be in the green and be one of the ones that are really moving the ball forward for the overall organization.

55:17 Great. And Mike, presuming the CapEx is one hundred and fifteen million, one hundred and twenty million dollars for the full year. Would you anticipate free cash flow positive for twenty twenty one?

55:31 Yes, we still do. Liam, not by much, but we still do, yes.

55:36 Great. Thank you, Leroy. Thank you, Mike.

55:40 Thank you, Liam.

55:40 Thanks, Liam.

55:43 This concludes our question-and-answer session. I would like to turn the conference back over to President and CEO, Leroy Ball for any closing remarks.

55:52 Hi. I just want to thank everyone for participating on today's call and also for your continued interest in Koppers. Thanks for sticking with us throughout today. And Look forward to talking again next quarter. Stay safe, everyone.

56:05 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.