Good morning, ladies and gentlemen, thank you for standing by. Welcome to Koppers Q1 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I will now 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 first quarter 2022 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 broadcasted live on our website and a recording of this call will be available on our website for replay till August 6th, 2022. At this time, I would like to direct your attention to our forward-looking disclosure statement as seen on Slide 2. Certain comments 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 the non-GAAP financial measures to the most directly comparable GAAP financial measures. Today you will hear from the following: Leroy Ball, President and CEO of Koppers, and Jimmy Sue Smith, Chief Financial Officer. In addition, Jim Sullivan, our Chief Operating Officer, will be joining us for the question-and-answer portion of today's call. And I'll now turn it over to Leroy.

Thank you, Quynh. Good morning, everyone. It's a pleasure to be able to share the positive news with you about our first quarter performance. Despite a geopolitical landscape that continues to be unpredictable, soaring inflation, workforce struggles and supply chain disruption, we were still able to produce record sales and solid results that exceeded our expectations, while also continuing to make progress on our plans to optimize and expand our business, which you'll hear about soon. Now I'm actually on the road this morning traveling to be with my daughter for her college graduation. So, my remarks have been prerecorded. Jim Sullivan, our COO, will be alongside Jimmy Sue Smith, our CFO, to answer any follow-up questions that you may have after our prepared remarks. Now, as always, we'll begin with an update on zero harm as shown on Slide 4. In the first quarter of 2022, 29 of our 43 operating facilities worked accident free. Zero harm continues its drive deeper into the organization through frontline training workshops, which should be completed by the end of the second quarter. Additionally, we are glad to report the safety, health and environmental auditing and management visits to sites are back to pre-COVID levels. Tremendous progress continues on improving our transportation fleet safety program to reduce incidents on the road. Retooled commercial driver incentive programs focus on safe driving behaviors, resulting in a 50% reduction in speeding incidents across our commercial fleet. Our drivers carry our mission on their shoulders, traveling to and interacting with customers to make sure we meet their needs. And this commitment means traveling through adverse conditions while also being away from their homes and families for extended periods. Our incentive compensation plan for driver rewards safe behavior above all else. To thank our top drivers for their…

Thank you, Leroy. My comments are based on information contained in this morning's press release, which provided our results for the first quarter of 2022. On Slide 6, consolidated sales for the first quarter of 2022 were $459 million, an increase of nearly $52 million or 13%, compared with $408 million in the prior year. By segment, sales for RUPS decreased by $9 million or 4%. Sales for Performance Chemicals increased by $13 million or 10%, while sales for CM&C increased by $48 million or 52% compared to the prior-year quarter. On Slide 7, we see that first quarter adjusted EBITDA on a consolidated basis totaled $53 million or 11.5%, compared with $55 million or 13.5% in the prior year. Results for our RUPS segment are shown on Slide 8. Sales for RUPS were $183 million, compared to sales of $192 million in the prior-year quarter, primarily due to lower utility pole volume in the U.S. and Australia, along with lower sales volumes for crossties for both Class 1 and commercial railroads, partly offset by pricing increases and higher maintenance of way demand. Market prices for untreated crossties remain high due to strong construction market demand, which means railroad customers are deferring their purchases. In terms of our backlog, the procurement of crossties declined by 10% even if crosstie treatment increased 4%. Adjusted EBITDA for RUPS of $12 million, compared with $16 million in the prior-year quarter. This decline can be attributed to higher cost for raw materials, freight and fuel, as well as labor issues in the domestic utility pole industry. In addition, profitability was negatively affected by lower absorption of fixed costs, due to lower tie throughput on the decreased purchases of untreated crossties by our Class 1 customers. As shown on Slide 9, PC had record first…

Thanks, Jimmi Sue. I'd like to begin by sharing the notable happenings across our company during the first quarter. Now Koppers is happy to introduce our new Vice President of Culture and Engagement, Stephen Lucas, as seen on Slide 16. Stephen has nearly 30-years of experience developing innovative and bold employee programs at a number of leading manufacturing companies. For Koppers to continue to succeed, we must do all we can to attract world-class talent, develop our next generation of leaders and create an environment that inspires individuals to bring their best every day. Stephen is the right leader to strategically guide these critical culture and engagement efforts and we warmly welcome him to the Koppers team. Slide 17 features our first graduating class from Koppers college. This pilot program consisted of weekly sessions over a period of six months for qualifying hourly and non-exempt salaried employees who participate in these classes in addition to working their full-time jobs. These employees now have a Koppers business degree, which can open doors to new perspectives, new ideas and new opportunities within our company. Congratulations to all our Koppers college graduates. Slide 18 shows the progress that has been made to upgrade our facility in North Little Rock, Arkansas. The material handling system for the cylinders has been installed and will begin commissioning in May. Upgrades to the tie sorter, also to be completed in May, promise to significantly increase tie sorting capabilities at the plant. We have two of the three cylinders on site with the first cylinder scheduled to be in operation on October 1st and the next two are expected to come online later in 2022 in November and December. On April 22nd, Koppers team members worldwide celebrated Earth Day, as seen on Slide 19. A variety of activities…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Chris Shaw from Moness, Crespi. Please go ahead.

Hey, good morning, everyone. How are you doing?

Good morning, Chris. How are you?

Good. You gave a lot of information on Performance Chemicals and market trends and a lot of puts and takes there. But do you have a sense -- and some of them very specific to your company. But do you have a sense of your bigger customers? Are their order patterns looking like there is an agreement with the sort of home renovation expectation? Are their order pattern more looking at maybe what new housing is doing instead? Do you have any sense of that? What kind of visibility you have, I guess, for the second half or even second quarter?

Yes. Hi, Chris. This is Jim Sullivan. So, let me answer it a couple of different ways. So, we see as reported a pretty strong outlook for the renovation business. So, that tracks pretty well to how we're going to do for the treated lumber. So, that's a good sign. And then also, we know that the treaters have been watching lumber prices over the last number of months and they've sort of started to trend down and stabilize. And what that has done is there is relatively low inventories at treating facilities. So, we're actually starting to see a little bit of a pickup there as we get into the spring in the Southern parts of the United States and that will continue to move up into the Northeast, into the Midwest as the weather improves. So, right now, the outlook looks pretty good for the treated lumber market in 2022 and that's why we're sticking with guidance.

Got it. And then, switching to CM&C, I think you said coal tar costs were up 53%. And obviously, there's been impact in Europe from the Ukraine conflict. How much more currently -- that you're seeing in the market, how much more will that 53% have to go up in subsequent quarters now? How far is that realizing the inflation that's actually out there in coal tar targets yet?

Yes. So, the situation with the coal tar pricing is there is a number of things going on. The big thing, the disruptive thing is the war in the Ukraine, right? So that's taken out a significant amount of coal tar. And the end products that are made with the coal tar raw material, those markets are still strong. So, there is a fair bit of demand. So, it's really demand driven on the price. But you all describe that's our normal, the way we do business only sort of at a heightened level. We're constantly watching the raw material costs of the critical raw material coal tar and we're sort of matching that up against what we're going to be able to get for our end products. And as you've seen in the first quarter, we've been able to stay ahead of that, but we're watching that, but we're watching that very closely. And the outlook there is still relatively strong for 2022. That's once again why we're sticking with the guidance.

I guess another way to ask that is current -- one month into the second quarter, is the coal tar costs, have they gone up even more so than that sort of 53% from 1Q reflects?

Well, sort of -- there are certainly some ask for higher prices, but they haven't got the higher prices yet for the raw material. We're watching it real closely. I think there is some smaller suppliers that are testing the -- see if there is a high-end market there. But overall, like the price of coal tar is very high right now. So we have to be able to pass it on with our end products, and we've been able to do that and we think we're going to be able to continue to do that.

Got it. Thank you.

The next question is from Liam Burke from B. Riley Securities. Please go ahead.

Yes. Thank you. Good morning, Jim. Good morning, Jimmi.

Good morning.

Jim, the persistent problem for RUPS has been the deferral of capital expenditures by the Class 1 customers of yours. Even though we're looking at overall traffic declining, heavy-haul, with the rebound in coal demand, must be putting more wear and tear on the track bed. Do you see any kind of relief from these deferrals on CapEx here?

We do. What we see right now, the problem is the competition for the critical raw material, which is the hardwood, and that's competition from pallets, from cabinets, from hardwood flooring and we're seeing that stabilize. And you're right, the amount of ties into the market has been lower than normal. We see that eventually correcting. And it's going to start by -- the way we're going to see it is we're going to be able to get more ties into our facilities, which we're predicting is going to happen in the second half of the year.

Great, thank you. And you did say you're comfortable on PC being able to continue to raise prices to offset your input costs. As we go further into the year and potential demand would soften, do you think there'll be a problem where you would raise prices to blunt your own demand or how do you see playing that trade-off?

Well, if the issue is really -- which we're well aware of and working on is the contracts that are coming up for our major customers in PC at the end of this year. So we've already started negotiating those prices with them -- with the major customers. But we have very, very long-term relationships with these people. They know exactly what's driving the costs. We can point them to exactly where they need to look. So, they know that's coming and that's something that we're working on. So -- and that's going to be addressed throughout the year and then certainly before the end of this year.

Great. Thank you, Jim.

And the next question will come from Chris Howe with Barrington Research. Please go ahead.

Good morning, Jimmi. And good morning, Jim. And good morning to Leroy virtually. Wanted to follow up on one of Liam's questions. As we think about the pricing dynamics, whether it's specific to PC or the other segments, when things normalize, how should we anticipate a lag on pricing? Do you think some of the pricing stays around for a little bit until it comes back to normal or what's your take on where pricing eventually settles?

Yes. So, it is a good question. It's hard to answer it with, like, some of the escalations that we've seen and some -- just inflations and some of the other supply chain restrictions that are related to our products, but not our products. Our path right now is we've got to keep pushing price, right, because we're continuing to see cost increases, whether it's labor, whether it's diesel fuel, whether it's trucking rates. So, we're in the mode of pushing price. And then, once we get it, we really like to hang on to it. So, there'll be some pressure. There'll always be some pressure down the road. But we're going to be looking at the same metrics that we pointed out that have caused an increase in the first place.

Certainly a great quarter and encouraged by the guidance. But as we shift to other topics of constraints -- labor, you just mentioned trucking, can you talk about how we should think of labor as a challenge across the segments? And perhaps, if you get the right labor or you retain enough labor, what that could mean for profitability upside?

Yes. It is different in different industries. So -- different sort of business segments. So, if you look at CMC, that's sort of the high-end with respect to fixed costs. So, we have a lot of fixed costs. What we have is a large plant. So, the relative number of employees we have as it, compared to the fixed cost is low in something like CMC and then the next step-down is -- would be KPC also. These are factories that are producing chemicals. Where the labor issues are, are in -- that we really see the most of are in UIP and RPS. And we're looking at a number of things there. We're competing against just about everybody for those people. So, we have to rethink automation, what can we automate in our plants. And then, once we have good employees, how do we retain them? So we're spending a lot of time on that and we're actually very glad to have Stephen Lucas on board to help us with that as well.

All right, perfect. Thank you for answering my questions. I'll hop back in the queue.

And our final question today will come from Laurence Alexander from Jefferies. Please go ahead.

Good morning. I guess a couple of questions. One is on CM&C, given the tightness in the coal tar supply, how much of a margin lift -- if you rolled out the yield gains across all of your assets that could be upgraded, how much of a margin lift would you expect to see from your position on the cost curve improving?

Well, okay. So, there's a lot of stuff in there too, right, because it depends a little bit on, obviously, the coal tar pricing, but also the petroleum. We talk in the call or in the recording, we talk about the sort of the transition to a blended pitch, which has petroleum product in it. Right now, petroleum product is actually relatively high price, because it tracks with fuel. So, we don't know if that's going to stay that way. Right now, we're getting the price for it. But what that does, it also extends our supply with using the same assets. The same assets are used to distill petroleum products as are used for the coal tar products. So, there's a lot of moving parts in there. But in general, it's a good thing that we have our customers wanting to buy that product in North America where the biggest issue is, is in North America. And they're adopting it. We already have one customer that's taking 100% of the blended product and we have other customers well on their way.

And then, with respect to the sort of the way that utilities are thinking about their safety stock or reserves with respect to the kind of the amount of maintenance they need, how does the run rate of demand from that market compare with, say, 10-years ago?

10-years ago, actually, I don't know the answer to that. I'll tell you right now that the demand is strong for those products and we really even -- we haven't seen anything we can point our finger at that is attributed to the infrastructure bill. We see just demand. Some of that's pent up, some of that has to do with other supply chain issues, but demand for our utility poles in North America is relatively strong right now.

And with respect to the shift between the pricing negotiation for the copper pass-through sort of earlier than expected, do you think this is a one-time event or is this a cultural shift in the industry that you're trying to get the customers used to more frequent negotiations?

So that's a good question, we have long-time relationships with our customers and we're going to give them -- we'll give them a number of different options. And they're going to -- that we can implement. Part of it is going to be their desire to have some surety over a longer period of time versus having some flexibility. But we're going to give them some options. The underlying issue is the basic raw materials for the products have gone up significantly.

And then just the last thing is just on the culture side. Koppers has gone through several rounds of upgrades of its productivity culture. What do you see as kind of the key issues to focus on for the next few years and how material a difference do you think they'll make in terms of the external -- what we see on the outside on the financial metrics?

Yes, I'm not sure I understand the question. Jimmi Sue, do you know?

I think that's really embedded in -- our culture has been to optimize our business and figure out how to drive down our cost structure and we've really shown the ability to do that in CM&C. And I think the plan that we -- strategic plan that we rolled out, which is a shift to continuing to optimize the structure across the other business units, especially RUPS, but also to expand the business for growth, that's really -- that's the cultural shift that we're bringing in and we are very much plugged in to the process and actively managing it and remain very confident in our strategic plan.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to CFO, Jimmi Sue Smith, for any closing remarks.

Thank you, everyone, for participating in today's call and for your continued interest in Koppers. Stay safe.

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