Good morning ladies and gentlemen. Thank you for standing by. Welcome to Koppers Third Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants are in 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 third quarter 2023 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 November 2nd, 2024. At this time, I would like to draw your attention to our forward-looking disclosure statements seen on slide two. 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 reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures in its press release and the presentation slide referenced during this call as well as on our website. Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Jimmi Sue Smith, Chief Financial Officer. I'll now turn this discussion over to Leroy.

Thank you, Quynh. Good morning everyone. Thanks for joining us today. I'd like to start off with a quick recap of our 2023 Investor Day held several weeks ago in Chicago as seen on slide three. We appreciated the support as many of you on the call today participated either in person or virtually and in total, we had 86 attendees. Koppers is now at the halfway point in our 2021-2025 strategic plan or as we like to refer to it, we're at the half. It is only fitting that our leadership team provided a halftime report where we highlighted key milestones of our strategy to expand and optimize our business around our core infrastructure, products and services and provided details of the progress made toward our goal of $300 million in adjusted EBITDA by 2025 while also laying out our game plan for the second half. In short, we're at an inflection point in both earnings and cash flow from this strategic plan. The first half has been all about the investment that would reap benefits once in place. Due to a lot of extenuating factors, completing the larger projects has been challenging and taken longer than first planned but they're now beginning to come online and we expect to see a step change in profitability and cash flow as a result. We've remained consistent in our goals over the final three years of the plan to achieve adjusted EBITDA of $250 million in 2023, $275 million in 2024 and $300 million in 2025 and we've laid the groundwork for that to happen. In the process, we will spend less capital to achieve those goals and expect to generate $450 million of operating cash flow over the second half of the plan. Generating over $80 million of cash flow…

Thanks, Leroy. Earlier today, we issued a press release detailing our third quarter 2023 results. My comments are based on that information. Slide 10 shows consolidated sales were $550 million, a third quarter record, up $14 million or 3% over the prior year. By segment, RUPS sales increased $26 million or 13% from the prior year quarter. PC sales also increased $26 million, a 17% change, and CM&C sales decreased $38 million or 22%. On slide 11, adjusted EBITDA was an all-time quarterly record of $71 million, resulting in a 13% margin. By segment, RUPS generated EBITDA of $25 million and 11% margin. PC had EBITDA of $35 million and 20%, and CM&C had EBITDA of $10 million with an 8% margin for the quarter. On slide 12, our RUPS business reported third quarter sales of $234 million compared to $208 million in the prior year. The sales increase was largely due to $20 million of pricing increases across multiple markets, particularly for crossties and utility poles in the United States, along with higher volumes for crossties and crosstie recovery. The increases were partly offset by lower activity in our other maintenance-of-way businesses and decreased utility pole volumes in Australia. Market prices for untreated crossties have stabilized, but like most items, at higher levels. Year-over-year, third quarter crosstie procurement was up 23% and crosstie treatment was up 12%. Adjusted EBITDA for RUPS also represented a quarterly record at $25 million, compared with $16 million in the prior year. Profitability increased due primarily to net sales price increases and $3.8 million from improved plant utilization, which combined a more than offset higher raw material, operating, and selling, general and administrative costs. Just as in the second quarter, the favorable performance for our RUPS segment was underpinned by the record third quarter…

Thanks Jimmi Sue. Let's review what's happening in each of the businesses relative to what we saw as the keys to success as we enter this year. Starting on slide 21 with performance chemicals, we continue to recover the massive cost increases we experienced in the latter part of 2021 right on through this year as we've notched $61 million of price increases through the first nine months of this year and have moved our PC margins back to the high teens level, which are more indicative of this business being in a healthy spot after eating a bunch of costs in 2022. Somewhat surprisingly, residential preservative demand is held pretty strong and steady throughout 2023. Coming into the year, we modeled a 5% to 0% decline in year-over-year base volumes and that excludes any net gains or losses in share, which to date have been flat to slightly negative. Through the first nine months, overall volumes are up around 6% over the same period last year. Factoring out a small net market share loss would actually have organic volumes up a little bit higher than 6%. Now that's pretty much where we found ourselves at the mid-year point and we were worried as to whether that would be sustained over the remainder of the year. Thankfully, we did not see a drop-off in Q3 and October has remained consistent as well. Recapturing our cost increases has obviously been a strong driver of our PC performance this year, but demand registering stronger than forecast has been the real key of PC exceeding its profit expectations for the year. The traditional leading indicators for this business continue to be a little scary as existing home sales continue to struggle down again in September and year-over-year down 15.4%. The leading indicator of…

We will now begin question-and-answer session. [Operator Instructions] Our first question is from Gary Prestopino with Barrington Research. Please go ahead.

Hi, good morning everyone. Good morning. Leroy, I want to just go back to the RUPS segment where you are talking about the pricing increases. And I can sense the frustration in your voice about how some of your customers will not give you a price increase that you feel is fair. I guess the question I would have is that who is out there that is supplying this product to the market that is undercutting or not putting a realistic price on what you are trying to deliver? Is this a very competitive market price slice?

So Gary, I do not know that that is necessarily the issue, right. We have long-term contracts in place. A long-term contract have served us well over the years. The rail environment has changed quite a bit, I would say in the last 10 years. The move to precision schedule railroading has caused disruption in different ways in the market and its impact on suppliers. We have endured a lot of that and then the pandemic came. And costs in just about every way you can imagine have gone up significantly. We have limited ability within our agreements to recapture those significant cost increases. So we are forced to eat them or work with our customer base to help us get some of that back to maintain a healthy supply relationship. So, we’re in that process and a lot of the conversations have gone very well. And I think that for a big part of our customer base they recognize the fact that nobody saw what was coming and has been willing to help in that regard. And others have been more painful to be quite honest. And so, the good news in all of this, right, is the diversification that we have amongst our business model enables us to continue to post the results that we post. And we hear that too. There is a rub in that, well, you keep on putting out record earnings. You do not need this. Its like, well, we are putting out record earnings. Record earnings are coming from the health in some of the other markets. And it’s not an excuse for why any particular market of ours should be that far below. And so, we are fighting on behalf of our shareholders and our people. We do put a lot of investment into that market from a sustainability standpoint, from a quality standpoint. And we think we have been good partners for a long, long time. And so, we don’t believe that what we’re asking for is unusual or out of the ordinary. Many companies have found themselves in similar situations, I think they found their way to work through it. That is all we are looking to do. I am hopeful we can get there. But yes, you sense the frustration in my voice. We were here nine years or so ago in a different business. As I mentioned, it caused us to make certain strategic decisions. Quite frankly, it turned out pretty nicely for us. But we had to – we were forced into making those decisions. And would we have rather gone a different route? Maybe, but we ended up going the route we did. Happy we did and happy with the results. And its the same sort of review process that I think we’re undertaking here in certain circumstances to see if there are some more drastic changes we need to make.

We will be thoughtful about it as we always are.

Yes.

Okay. And then just, as you finish some of these projects, some of them got pushed out, no fault of your own. Your growth in productivity CapEx of $40 million to $50 million this year, does that step down materially in 2024 because you have got these facilities or some of these capital projects that you are doing in some of the businesses? Do you need to keep that high level of growth in productivity CapEx?

Yes. So, I’d say, in terms of the projects that that $40 million to $50 million are going into? Yes, much of that drops off the table in 2024, because we just brought – we’re commissioning our North Little Rock facility as we speak. We’re commissioning our enhanced carbon product facility in Newport as we speak to significant projects. We will be bringing online our Leesville facility in the early part of next year. So there’s some spending that rolls into next year for that. Our expansion at Rock Hill will also go into next year. But the bulk of the dollars that are spent this year on projects, those projects are either finishing up this year or early next year. So our need to continue to fund them goes away. Then it just becomes a question of, well, we have a funnel of other projects, right? Are we going to fill that funnel back up in 2024 or in if so, by how much? And that’s what we are going through right now. Today, I do not expect that we will spend $120 million in capital next year. It’s not our intent to do that. By the same token, keep in mind, those projects are projects that are enabling us to go from $228 million to $250 million to $275 million to $300 million. So you cannot grow without investment. And so, we have a lot of other good projects. We will be a little more measured about it, I think. So I am not saying we are not going to spend anything we will, but we’re likely not going to spend, well, I do not think we’re going to spend $40 million to $50 million next year on productivity.

Thank you very much.

You are welcome.

And the last question today comes from Liam Burke with B. Riley FBR. Please go ahead.

Thank you. Good morning, Leroy. Good morning, Jimmi Sue.

Hi, Liam.

Leroy, you talked about market share gains on the industrial side of PC. Is that just replacing penta or do you have other areas of market share gains or opportunities for share gains in industrial?

Yes, I would say it is primarily replacing Penta. We didn’t make that chemical. It’s gone away and it needs a replacement. In some cases, it needs to be an oil-borne preserve like a DCOI. In other cases, it doesn’t necessarily matter, and so the CCA becomes an option as well. But I would say primarily it has been really the replacement of Penta.

Got it. Okay. And on CMC, your guidance for the year would reflect a pretty decent sequential recovery on the margin side of CMC. Do you still envision the business being steady, eddy, low to mid-teens, EBITDA generative? Understanding that’s a quarter-to-quarter volatility?

Yes, right. Correct. There is some quarter-to-quarter volatility that occurs. I would say that at the very least, we expect it to be in that 10% to 15% range, and with the possibility of moving it up to more like a 12% to 18% range or something like that, more up in the upper teens, which we have seen some of that throughout last year or two. But as enhanced carbon products comes online, as we are able to take some of the product that we’re producing through that process, through testing for different markets and things like that, we believe its a higher value -- we know it is a higher quality product, and there is value in that, and we believe we will be able to capture that in some additional pricing and margin. And so, that is what we think we will be able to take that up to hopefully a consistent mid-teens margin business instead of sort of a 10% to 15% type of business.

Great. Thank you, Leroy.

You are very welcome.

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

Yes, I just want to, again, thank everybody for your interest in Koppers. Thank you for taking the time to join today, and we’re going to continue to execute on our 2025 strategic plan that we gave you the update on at our recent Investor Day in Chicago, and thanks to everybody for your interest.

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