Good morning ladies and gentlemen, and thank you for standing by. Welcome to Koppers' Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, instructions will be given for the question and answer session. Please note, 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 fourth quarter and full year 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 also 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 May 28, 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 today to certain non-GAAP financial measures. The press release which is available on our website also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer of Koppers; and Jimmi Sue Smith, Chief Financial Officer. I'll now turn this discussion over to Leroy.

Thank you, Quynh. Good morning everyone. It's a pleasure to be with all of you today and to have the honor of reporting on another year of strong performance for Koppers. Thanks to the diligence, hard work, and energy of our team worldwide, once again we delivered record results, both in the fourth quarter and for the full year, across a number of different categories. Our strategy to expand and optimize our unique vertically integrated business model serving key infrastructure markets, positions, Koppers for continued growth and profitability, as well as cash flow generation. I'll begin with a summary of key metrics for the fourth quarter seen on slide four. Consolidated sales of $513.2 million, a fourth quarter record compared with $482.6 million in the prior year, and this represents the ninth consecutive record in current quarter sales. We generated adjusted EBITDA of $53.9 million, a record quarter compared with $52.1 million in the prior year quarter, and this was the sixth consecutive current quarter record. Our adjusted EBITDA margin was 10.5% versus 10.8% in the prior year quarter, but for an increase in our bad debt reserve in Q4 2023, we would have finished the quarter at an adjusted EBITDA margin of 11% on the nose. Fourth quarter diluted earnings per share was $0.59 compared with $0.65 per share in the prior year quarter, while adjusted earnings per share for the quarter were $0.67 compared with $1.09 in the prior year quarter, the combination of the after-tax effect of the previously mentioned bad debt reserve and a higher than anticipated tax rate had a $0.09 per share impact on our quarterly EPS. Slide five outlines our full year key metrics for 2023 starting with record consolidated sales of $2.15 billion, marking the first time in our company's history that…

Thank you, Leroy. Earlier today, we issued a press release detailing our fourth quarter and year end 2023 results. My comments this morning are based on that information. On slide 13, we had record consolidated fourth quarter sales of $513 million, up $30 million, or 6% over the prior year quarter. By segment, RUPS sales increased 23 million and 12%. PC sales increased $23 million and 17%, while CMC sales decreased $16 million and 11% from the prior year quarter. As seen on slide 14, full year 2023 consolidated sales were a record $2.15 billion, an increase of 174 million, or approximately 9% over the prior year. At the segment level, RUPS sales increased by $110 million, or 14%, PC sales increased by $92 million, or 16%, and CMC sales declined by $27 million, or 4.5%, compared to the prior year. On slide 15, adjusted EBITDA for the fourth quarter was $54 million, resulting in a 10.5% margin. By segment, RUPS's generated adjusted EBITDA of $21 million with an approximately 10% margin. PC delivered adjusted EBITDA of $29 million, an 18% margin, and CMC reported adjusted EBITDA of %4 million with a 3% margin. Slide 16 shows record adjusted EBITDA for the full year of 2023 of $256 million, resulting in an 11.9% margin. By segment, RUPS generated adjusted EBITDA of $84 million with a 9% margin. Our PC segment had adjusted EBITDA of $123 million with an 18% margin, while CMC provided adjusted EBITDA of $49 million with an 8% margin for the year. On slide 17, our RUPS business reported record fourth quarter sales of $216 million, compared to $193 million in the prior year quarter. The sales increase was largely due to $16 million of pricing increases across multiple markets in the United States, an increased volume…

Thanks, Jimmi Sue. Next, let's discuss the notable happenings around the company. As seen on slide 26, we were pleased to announce the addition of Nish Vartanian of MSA Safety to our board of directors earlier this month. Just last week, Nish announced his retirement from MSA in May of 2024 after serving as the CEO of the Global Leader in Advanced Safety Products Technologies and Solutions since 2018. MSA has made great progress under Nish's leadership, including national recognition as one of America's best managed companies by the Wall Street Journal and one of America's greenest companies by Newsweek. There are many companies that would be thankful to have Nish on their board. I'm ecstatic that he chose to accept our offer to join the Koppers' board and look forward to adding his insight and experience to the mix. On slide 27, we see that at the start of the New Year, we announced that Jim Sullivan was named President and Chief Operating Officer of Koppers. Jim has served as Executive Vice President and COO since January of 2020 and has been with Koppers since 2013. And in that decade, he's contributed significantly to the transformation of the Koppers you see today, leading the restructuring of our CM&C business, uniting operational leadership across all of our business units, and advancing our strategy to expand and optimize our core business segments across key infrastructure markets. As President, Jim will continue doing what he does best, which is fighting for every bit of value that Koppers has earned, getting the most out of our asset base, and putting us in the best competitive position in our markets. In addition, he'll play a continuing role in the development of our 2030 strategy, which is underway today. My role as CEO remains unchanged…

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

Good morning, Leroy. Good morning, Jimmi Sue.

Hey, Liam.

Good morning.

Leroy, generally existing home sales are a good benchmark for demand and PC, and those numbers have been typically down, especially in the fourth quarter. You had strong volumes or increased volumes in the U.S. Is that a function of the addition of the new customer, or are your end markets holding up fine?

Yes, Liam, yes, we often talk about the fact that we do pay attention to existing home sales, certainly. And we do see those as typically a pretty good barometer of the business. But we're seeing things a little bit differently over the past year or so as existing home sales have struggled. And I think we've talked about on some prior calls where our belief is that when you look at the cost of product, right, where our product goes into treated lumber, that's a cost category or a category in the home improvement sector that is actually a good bit lower today than it was just a couple years ago. And a lot of the inflationary increases that we've seen happen over the past couple of years have stuck in some of these other categories that you have seen slowdowns in that whole home improvement sector. But treated wood, again, that has come down quite a bit because of the cost of lumber coming down. And therefore, it's a much more attractive category for people who might have deferred or delayed projects to now look at going ahead and putting it in place. And the other thing that I think we continue to see is there's just an incredible backlog of projects that are still in the queue and contractors are working through that. So we continue to see strong demand across our business. And as I mentioned in my comments, that wasn't the expectation coming into the year, our customer base, all were giving us signals that they thought that this year is going to be down a little bit, and it turned out to be basically the opposite. And so, what we're hearing this year is everybody's sort of modeling flat volumes, and that's more or less what we have factored in other than, again, the annualization of some customer business that we did take on and end the first quarter, early second quarter of last year.

Great. Thanks, Leroy. And then the Brown Wood preserving acquisition looks like it worked very nicely into the rough business. Are there going to be significant integration costs, or do you think you can fold it into the operation?

Yes. We will incur some. I mean, it's in the heart of what we do, right? It's basically adding a couple of plants into our network. They do have headquarters in Louisville with some individuals in place there. We're going through that and not really prepared at this point to talk about that. I'd say just wrapping it all together in terms of timing happening somewhere in the second quarter, some of their capacity that they're finishing up coming online right around that time, as well as what I'd say would probably modest integration costs. I can't imagine them being too high, but all that wrapped together. We're not -- we're not, we don't want to give expectations of a significant impact in 2024, but certainly as we exit '24 heading into '25, we would expect that we'd see the type of contribution that was disclosed in the release, which takes our 2025 target of 300 to somewhere between 315 to 325. And we don't think that's the end. We think that there's actually some more opportunity beyond that. But we're not ready to give integration cost estimates at this point, Liam, but we don't expect it to be too much.

Great. Thanks, Leroy.

The next question is from Gary Prestopino with Barrington Research. Please go ahead.

Good morning, all. Several questions here, first of all, Jimmi Sue, with the level of leverage you have now absent what you got to take on for the acquisition, it looks like Q4 annualized interest expense is running about $71 million. Is that probably a good number to use for 2024?

Yes, it is, Gary. I think on our EPS guidance, we showed it flat year-over-year. So that's what we've got.

Okay. Yes, I'm traveling, so I don't have the slides with me access to them. And then Leroy, it looks like this acquisition of Brown Wood, with the numbers you gave in terms of sales and adjusted EBITDA, you're looking at anywhere from an 18% to 29% adjusted EBITDA margin and that the segment for RUPS at about a 9.4% adjusted EBITDA margin in 2023. I realize you're putting utility poles in there with railroad, but is there something inherently different with their business in terms of their adjusted EBITDA margin or is that kind of standard to the industry?

Well, no, I say -- so their margins are actually pretty much in line with our pole margins. We see them pretty much in line. Some of the benefits we think we'll be able to drive having that as part of our organization gaining some economies of scale. We think -- and actually some growth, right? We do see, while I said, we see that kind of exiting '24, maybe on a run rate, closer to $100 million, we think there's opportunity to actually take that up to maybe 125 and that will get you more to the top end of the range, that 25 plus number that I've been talking about.

Okay. And then could you maybe comment? I mean, I know you had expressed somewhat of a level of frustration of not getting some of the price increases that you wanted. I believe it was in the railroad products business?

Yes.

Where do you stand on that now in terms of what percentage of it have you rectified and what percentage of it is still outstanding out there?

Well, I'd say we've rectified over half of our customer base, and we still have a few folks left that we're working with to try and get to a better situation. So that's where we currently stand.

Okay. And then just lastly, just the bad debt expense that you incurred, bad debt reserve was at $3.8 million?

$2.8 million.

$2.8 million, I'm sorry, in CMC. That's not backed into your adjusted EBITDA number of $53.9 million, right?

It's included.

Okay.

It is in that number.

It is in that number. So the reality of it is, without that, your EBITDA, adjusted EBITDA did a lot better.

Correct. That is correct, yes.

Thank you.

You're welcome. Thank you.

The next question is from Michael Matheson with Singular Research. Please go ahead.

Congratulations on the quarter, you guys, great performance across all my measures, especially revenue.

Thank you, Mike.

Yes. So following up the question about pricing in RUPS, you know, in your slides this morning, it looks like a forecast of kind of minimal impact from price adjustments. Is that kind of admitting that those other companies where you didn't quite get the pricing increase that you were looking for that's effectively just going to remain stable for now? Or you think there's still some room out there?

I think there's still some room out there, but we're not banking on anything, right? Because again, we are under contract, and what we're trying to do is justify to our customer base that we have seen some extraordinary things occur over the past couple of years, which has had a significant impact on our cost structure. And so, we're going as partners to our customers and trying to see if they can provide some relief to us through cost recovery. And so, we don't really have that baked in. If we're able to get to a positive resolution, then that'll obviously help us and be over and beyond what we think we can do.

Terrific. If you'll allow me one more question, I'd like to ask you about the CMC margins.

Sure.

Everything else in this report is fantastic. That's one of the few things where you'd say, gosh, it was down and looks sort of -- are there macro factors that are driving that that would allow for some recovery in '24 or '25, or is that just kind of the new normal?

Well, certainly there are macro factors, and we see that impact that business. It goes through its cycles. It's been a tough. Certainly '23 was a tough year for steel and aluminum, and we're in the middle of both of those markets. It's had certainly impacts, if you will, on the competitive landscape. There's a number of aluminum manufacturers in Europe that have curtail capacity, which has just created a more competitive situation for the remaining customer base. In the U.S., it's had its issues as evidenced by, again, the bad debt reserve. We took it at year end and some lower volumes that we've seen as a result of that. As I'd say, the overall economy improves, and those markets move into better times. We will likely see an improvement in our ability to move up price and margin. We typically see in a declining market, we're typically seeing results like what we saw really in the fourth quarter of this past year, of the back half of this past year. In a strong and rising market, you tend to see what we saw in 2022, which was a pretty strong trajectory upward throughout the year. So that's why we feel like we have hit at the bottom here now. And if nothing changes, then we'll stick in and around this area. But once things start to show some improvement, we should start to see some of that flow through our results.

Well, thank you, and congrats again.

Thank you.

And the final question today comes from Jamie Weiland with Weiland Management. Please go ahead.

Yes, obviously at the Brown Wood acquisition, you know that business very well. Could you talk about what they do better than you and what you do better than them? And how you'll bring that to better the overall company?

Yes, so that's a tough question. I'd say at large, one of the reasons why they were actually high on our list is because we see a lot of similarities between the businesses. And so we felt like combining the two would make us stronger. I think they have some relationships that we don't have in the industry. There's relationships that we have that are stronger. There's relationships they have that are stronger that I think, again, combining the two will certainly help, will help us out. And from an operations standpoint, I just say, while they're very good, I'd say we have a very, very strong operations team. And I think they've shown that over the past couple of years as we've made some improvements. Just by providing our team the capital, they've been able to deliver far above what the expectations were. And I think what you tend to find in these sorts of situations with smaller family-owned businesses, they tend to -- they're kind of stuck being able to run hand to mouth, and they don't have a lot of capital at their disposal. So it's tougher for them to do some of the things that someone like a Koppers who has a better balance sheet and can deploy capital in a different way can extract in terms of benefits. And so that's what I think we're looking forward to is being able to apply our balance sheet to Brown to be able to bring out even greater profitability than what they've been able to do on their own. And that's what we were able to do with the Cox [ph] acquisition, quite frankly. It really came down to being able to utilize our balance sheet, their network and their talent. And we've seen the success in that. So we would expect something pretty similar with Brown.

Excellent. Could you give us some idea of what their EBITDA was in 2023?

We're not disclosing that. We've talked about the numbers in terms of what we see moving forward in '25, and even what we think we can do beyond that. And '24 in terms of its contribution, we'll talk about that when we get to signing day. But that's all we're ready to disclose.

Okay. And lastly, they have a rather small consumer products business. Any ideas for, you know, whether you will develop that, divest that, or is that an irrelevant part of the deal?

Irrelevant.

Okay. Very good. Nice quarter. Thanks.

Thank you very much.

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

Thank you. I just want to thank everybody again for your continued interest and faith in Koppers. And we're excited about 2024 and beyond and continuing to deliver on the commitments we've made. And again, appreciate your interest in our company. And have a good day, everybody. Thank you.

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