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…

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…

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…

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.