Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Koppers’ Third Quarter 2022 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the call over to Quynh McGuire. Please go ahead.

Thanks, and good morning. I am Quynh McGuire, Vice President of Investor Relations. Welcome to our third quarter 2022 earnings conference call. We issued our press release earlier today. You may access it via our website at 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 4, 2023. 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 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 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. Today you will hear from the following: Leroy Ball, President and CEO of Koppers; and Jimmi Sue Smith, Chief Financial Officer. I’ll now turn it over to Leroy.

Thank you, Quynh. Good morning everyone. Welcome to a review of our third quarter results. I’m excited to report that we finished the third quarter with record sales and record CMC adjusted EBITDA performance, which keeps us on track for delivering another record year. We have much to share with you about the details of our financial performance and we’ll do so later on in the call. And as always, we’ll begin with Zero Harm. As seen on Slide 4, next week is the busy one for our Zero Harm team as they are hosting two key events in Pittsburgh. Our Zero Harm Truck Driving Championship on November 7 and 8 recognizes our ten safest and most skilled drivers who represent Koppers while out on road delivering essential products and serving as a critical connection to our customers. These finalists reported zero total accidents from September, 2021 to August, 2022. Our team of professional truck drivers play an important role in maintaining a high standard of overall safety performance in an inherently high-risk environment, logging nearly 12 million miles annually to deliver critical goods across the nation. Also, next week is our annual Zero Harm Coordinator Conference where we’ll have 38 coordinators come together in Pittsburgh for a three-day conference focused on leadership development and relevant safety, health and environmental training. It’s an opportunity to share ideas and experiences and strengthen the network at the front end of protecting what matters and preserving the future. Slide 5 shows that in the third quarter 22 of our 43 operating facilities worked accident-free. Year-to-date as of September 30, I’m proud to say that the total recordable rate of safety incidents was 23% lower than at the same time last year and we are approaching record lows and incidents. Also, we continue to…

Thanks, Leroy. And good morning everyone. My comments are based on the information contained in this morning’s press release, which provided our results for the third quarter of 2022. On Slide 9, we had record consolidated sales of $536 million for the quarter, an increase of $111 million or 26% over the prior year and our third consecutive quarter of record sales. By segment, sales for RUPS increased by $21 million or 11%; sales for PC increased by $38 million or 33%; and sales for CM&C increased by $52 million or 43% compared to this quarter last year. On Slide 10, third quarter, adjusted EBITDA on a consolidated basis totaled $69 million or 12.8% compare with $54 million or 12.7% in the prior year. Moving to our segment results. On Slide 11, sales for RUPS were $208 million compared to $187 million in the prior year with the increase being the result of higher pricing across all markets, especially crossties and utility poles, along with increased activity in our railroad bridge services business. These increases were partly offset by volume decreases in our utility pole business, mostly due to capacity and transportation constraints in the current labor market. Adjusted EBITDA for RUPS was $16 million compared with $11 million in the prior year as we saw improvements in our utility pole and maintenance-of-way businesses from price increases and favorable cost absorption, partly offset by higher raw materials and operating cost. As we expected, we are seeing improvement in the procurement of untreated crossties as market price has stabilized albeit at higher level. Crossties procurement in the third quarter was higher by 41% compared to the prior year while crossties treatment decreased by 6%. Year-to-date through the third quarter crosstie procurement is up 15% and treatment up 2%. As shown on…

Thanks, Jimmi Sue. Before we get into an examination of the business sentiments impacting Koppers, I’d like to introduce you to an exciting new feature that we just rolled out. A newly designed Koppers corporate website we believe will become a vital tool to further our brand presence among key audiences. Slide 18 features a look at our new Koppers home page that went live just a few days ago. The new Koppers site reflects the cleaner, visually attractive and intuitive navigation that makes it easier for visitors to locate information and for us to tell our story built around our purpose of protecting what matters and preserving the future to our various stakeholders. As seen on Slide 19, the new website offers a look into Koppers people, processes and products that represents our culture based on zero harm, sustainability, essential services, and generating benefits to all of our stakeholders. We invite you to visit www.koppers.com to learn more about our approach to doing well by doing goods. Now, earlier our referenced our truck drivers, they’re the face of the company in many respects as they enter customer sites following emergencies such as Hurricane Ian with critical infrastructure to help get communities back on their feet. As seen on Slide 20, Koppers teams delivered more than 13,000 poles and 4,000 cross arms to utilities across Florida and the Carolinas in the aftermath of Ian. Our effort involved four plants with our team at Vidalia, Georgia providing the bulk of the supply. Fortunately, Koppers professionals have extensive experience planning for such events coordinating in advance with those who are impacted, moving material efficiently, working safely within hazardous areas after our natural disaster, disposing of damaged poles and completing restoration in a timely manner. We truly appreciate the dedication of our teams…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Liam Burke with B. Riley FBR. Please go ahead.

Good morning, Leroy. Good morning, Jimmi Sue.

Hey, Liam.

Good morning.

I guess, Jimmi Sue, we had a sequential step up in depreciation and amortization as well as a year-over-year step up. Is that a function of the amortization built in and the acquisitions during the quarter or is this something else in there?

No, it’s a – it was a retirement asset obligation in our European operations. So it’s a fully retired asset and went through our depreciation expense this quarter.

So would that be viewed as one time and getting back to somewhat of a historical rate?

Exactly. It was about $3 million to $3.5 million and it is a – we would not expect that to recur.

Great, thank you. And then on the cash flow, if I looked at you for the first three quarters you roughly cash flow break even if I took cash from operations lesser CapEx. Understanding you’ve got a $85 million to $90 million annual CapEx, do you look at fourth quarter as being a strong operating cash flow quarter for you?

We do. Liam, and one of the reasons is we traditionally see a working capital sort of recapture in the fourth quarter. And so while we are with the increased cross tie procurement that we’re seeing, we may not see as much of a working capital decrease as we have in prior years in the fourth quarter. I wouldn’t expect it to increase. So even if it just holds steady, I think that we’ll see a strong fourth quarter there.

Great. Thank you, Jimmi Sue.

Thanks.

The next question comes from Laurence Alexander with Jefferies. Please go ahead.

Hi. It’s Dan Rizzo on for Laurence, and thank you for taking my questions.

Hey, Dan.

How you doing?

Good.

If we think about pricing in railroad and utility products and in performance chemicals. I guess, how sticky is it? So once you institute price increases, does it generally stay? I mean, how much is pricing sessions in a different environment, frankly?

Well, it’s – so good question. I mean, each of the businesses are different, right? So RPS, on the raw material side, we don’t really take much risk on that as it relates to the class ones. We do on the black tie business that goes into commercial. But we have mechanisms within our contracts to be able to increase prices based upon increases in some of our input costs. I’d say it’s fairly sticky on the RPS side, but you see movements up and down as it relates to what the biggest raw material input being hardwood supply, right? So we’ve seen significant cost – price increases to recoup the cost increases there in the past 12 to 18 months on RPS. As wood prices go down, those prices will also go down for the railroads as well. We don’t keep that. So you’ll see fluctuation there. A lot of that’s just pass through when we see price increases coming through, but we don’t carry a lot of that risk. UIP different, and what we’re really doing is catching up on a lot of the cost increases that we’ve incurred over the past 12 months or so. It’s a very strong market. And I’d say with where the demand dynamics are right now, the prices are pretty sticky. I’d say, we’ll see how sticky they are, when we hit a soft spot at some point in the future, but we’re not expecting that for quite a while now. That business is running really, really strong. We continue to be somewhat supply constrained. And so we see the next several years as being incredibly strong from a demand standpoint and will certainly contribute to the stickiness in our pricing there. PC, it’s again, similar to the hardwood side of the…

Thank you. That was very, very helpful. So then if we look at your 2025 goals, and forgive me, if I miss this, but does that assume that the macro environment stays the same. Or I guess, can you reach it if we were to hit a significant recession in the next year or so?

Well, so when we unveiled those goals last year, we talked about the fact that they – those goals reflected what we felt we could do with the projects that we had available to us that would either lower cost or maybe open up doors into different markets or different geographies. It was not predicated on outsized market growth. It was not predicated on M&A and things of that nature. By the same token, it wasn’t predicated on a recession either, right? So it was sort of – it was business as usual. So we have a lot of good projects in the queue that we think can absorb some pull back in demand. But look, it really depends upon how deep and how long a recession might be. We are not recession proof, but we believe we are very resilient through a recession, because we have these businesses that do sort of work counter-cyclically towards each other. So we think we’ll make it through a pullback if one occurs and be in pretty strong position. And we’ll still be able to execute and get value for the projects we’re doing. But look, any pullback in demand is going to have an impact on our ability to get to 300, and that’s no different than any other business that be facing those sorts of headwinds. But we feel good with where we’re at right now. The projects are starting to pay off. You’re starting to see that here – beginning here in this third quarter, just as we sort of expected, and we feel really good about next year in terms of what we have in front of us too. So we’re pretty bullish about where our business is at.

Thank you. That’s very helpful. Thank you.

The next question comes from Chris Shaw with Moness, Crespi. Please go ahead.

Good morning, everyone. How you doing?

Good, Chris. How are you?

Just to clarify, I thought near the end there. Did you endorse record EPS for next year?

Well, we’re still finalizing our plan for next year and have not formalized it and taken it to our board for approval next year. We do expect EBITDA to be higher next year. We do expect our geographic earnings mix to move towards our favor from a tax standpoint. The one thing that’ll work against us a little bit is the interest limitation that has an impact on our tax rate. But all things being considered, I fully expect that when you sort of roll all that together that we would expect to be at a record EPS next year. Yes.

Yes. Great. And speaking of the tax rate, could you – I don’t understand what the interest – the lack of the interest deductions. What happened there? And then also just how much of a ship next year could the tax rates see positively?

Yes. So, hi, this is Jimmi Sue. The – there was a change in the tax law this year. There’s a deduction, limit on how much of your interest expense you can deduct, and it’s limited to a percentage of what before 2022 was a percentage of your EBITDA and U.S. earnings, and in 2022 shifted to EBIT, so you lost the ad-back for depreciation. And so that’s caused us to be limited in our ability to deduct our full interest expense because our interest expense is primarily in the U.S. and combined with the fact that much of our income this year has shifted to foreign earnings outside of the U.S. that’s been sort of a double whammy on us. We expect the migration of income disorder at reverse and for us to have higher U.S. income in 2023 compared to this year that that will be offset a little bit probably by higher interest expense just given what’s happening in the overall sort of market dynamics. I’m not going to speculate at this point on where the tax rate may come in for 2023 as we have not completed our planning process or presented sort of those things to the board yet.

Got it. And then switching to CM&C, what – are you – where’s the coal tar cost right now? Have they sort of – what would you consider get caught up the pricing at this point? Or is there still more coal tar inflation you expect the – sequentially going forward?

That’s a good question. They’re at – we’re seeing costs at record highs. We’re seeing continued pressure there and I expect we’ll continue to see continued pressure there. I think we’re going to see higher costs still moving into the fourth quarter. So I don’t think that we have caught up just yet and I think you’re – I think our earnings are reflective of that. We’re capturing still a pretty significant price spread, and so there is still some more catching up to do. Fourth quarter for sure we’ll see higher costs in that business, and where we stand as we go into next year is a little bit still up in the air. We’re trying to settle on some of that stuff here as we’ll close out this quarter, but we’re not there yet in terms of reaching the peak of coal tar costs.

Got it. Just a quick question on CapEx. I believe it’s elevated this year. Is there – is it going to come down, you project maybe in 2023 and what do you guys consider, I forget what maintenance CapEx might be?

Yes. So it’s good to be able to kind of walk through this year because at Investor Day last year we talked about sort of this path at 300 was a series of a number of different projects, many of them which require capital. And I think we laid out up to $275 million of capital that would go into return type of projects. That’s on – that would be on top of the $65 million or so of repair, maintenance and safety capital that we deploy in a given year. So we – I think we finished last year to around 125, this year we’re going to finish in that 95 net or 85 to 90 net range. Next year we still have projects that are in process that that are – will contribute earnings next year and the years after that are still in process, right? So you got your normal 65, and we have at least I’d say $35 million-ish that is still in process as it relates to finishing off our project in North Little Rock, finishing off our project in Louisiana, finishing off our project in Newburgh for enhanced carbon products. So now I’d say the next – the next few years are still going to be in that $100 million range, but a third of that is the capital that’s getting spent to actually get us and move us from where we were at $211 million at the end of 2020 to this $300 million mark by the end of 2025. But at the same time as that number’s moving up, right, our cash flow should also be moving up as well. So we’ll be having more cash to deploy to not only absorb that but to also deploy in other ways.

Great. That was very helpful. Thanks.

Yes.

The next question comes from Brian DiRubbio with Baird. Please go ahead.

Good morning. Just a few questions for you. One of the questions I get about coppers is the exposure to single-family homes in the Performance Chemicals business. Is there any way you could tell or know how much of that business went into single family homes versus the repair remodel market?

Well, I can’t quote you numbers or percentages. All I can tell you is the way that sort of the markets work for us in those businesses is in the U.S. we pay very close attention to the repair remodeling market. That is the market that we believe drives the volume in our product mix there. It’s not new home builds, its repair and remodel, which again we tend to look at existing home turnover and things like that. But there’s some other things that are at play that are keeping those markets continued to be strong even with a slowdown in existing home sales. It’s when you move outside the U.S. that they’re – that our business tends to rely a little more on new home construction. But those markets are much, much smaller in terms of the revenue and profitability contribution. So in the U.S., which is what drives our results we pay attention to repair remodeling and existing home sales.

Great. That helps, and that makes a heck of a lot of sense. Just on price costs given some of volatility we’re seeing right now in commodities just over the last six, seven months. As some of your commodity costs are coming down, how quickly before you have to reset prices with some of your customers?

Well on the RPS side there’s constant discussions going on in terms of what we’re able to procure the untreated hardwood for them and sort of agreement on what will go out for in the market from a pricing standpoint. So that’s pretty fluid and is happening pretty much regularly in real time. The coal tar markets, those are getting set depending upon the region either quarterly or semi-annually. And again from a demand standpoint, right, we’re out there in the market trying to ensure that as we see prices moving in any particular direction we can hold onto as much of a spread as possible. So if there’s pressure on pricing going down on the raw material markets, then there might be some expectation that that might result in lower end market pricing, but that’s not always the case. Obviously, it depends upon just how much supply is out there in those end markets. That’s why CM&C while those markers are important, and they do tell us a – give us a little bit of visibility into what we can expect in our results there, but there’s so many factors at play. It can be hard to pin it down on any particular one. I say it probably every call, our team is – I put our team up against anybody in terms of their ability to work the spread on the value of that end market pricing versus what they’re able to pay on the raw material side. And we’ve seen it time and time again, the year they’re having this year is amazing and so much of it is due to their understanding of the markets and where the demand is at on both sides of the equation supply and end products. And so I know that’s not – it doesn’t give you a lot of visibility, and I realize that business is a little bit of a black box, but I can tell you as being one of only a few in that business, it – and with the people that we have with a long, long line of experience in being in those markets, we’re able to use that market intelligence and capture pretty much maximum value for our product portfolio on a pretty consistent basis.

Got it. That is helpful just directionally. And final question Jimmi Sue, just obviously capital markets are in a little bit of – in a bit of state of flux right now, but as you think about capital allocation and, you still have a couple years on the senior notes. How do you think about sort of buy back shares or making M&A versus buying back some of the bonds in the open market, and how do you – are you thinking – even thinking about sort of looking to refinance those senior notes anytime? Or are you waiting closer before they become current?

We – you correctly pointed out that the capital markets are not extremely welcoming right now for us. But we are continually monitoring those markets and the maturity on those bonds and we’ll step in when we think the markets are conducive to it. And with respect to capital allocation, we’ve been very clear about having a very balanced approach and between investing in our business to maintain and grow our cash flows and returning capital to shareholders through dividends and/or repurchases. And with M&A we continually say that anything can happen at any time, but for us right now the focus is really on executing on the projects. The stable projects that we have available to us and M&A just as you see with Gross & Janes, we tend to think about that in terms of being tuck-in adjacent type things that we really offset and replace other projects that we haven’t in the queue. So it has to be better return than what we have today.

That is helpful. Thank you for all the color. Appreciate it.

Thank you.

Thank you.

At this time, there are no further questions in the queue, and this concludes our question-and-answer session. I would like to turn the conference back over to CEO, Leroy Ball for any closing remarks.

No, I just want to just close by thanking everyone for your continued support and your continued interest in Koppers. So please continue to stay safe. Thank you.

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