Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Holdings Inc.'s Fourth Quarter 2024 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. If you need assistance, please alert a conference specialist by pressing the star key followed by zero. Following their presentation, instructions will be given for the question and answer session. Please note this event is being recorded. Now I would like to turn the conference over to Ms. Quynh McGuire. Please go ahead, ma'am.

Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our fourth quarter and full year 2024 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 we referenced in today's call. Consistent with our practice and 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 27, 2025. 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 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 plans and projected results as being 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. Also, references may 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, Executive Officer of Koppers Holdings Inc., and Jimmi Sue Smith, Chief Financial Officer. At this time, I'll turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'll begin this morning by stating my disappointment in falling short of our financial expectations for the fourth quarter and full year 2024. We seemed to be on our way to meeting our fourth quarter goal after posting a record October, which followed a record second and third quarter for adjusted EBITDA. As the last two months of the year progressed, however, we experienced volume slowdowns in each of our businesses that could not be overcome by short-term cost measures. There are a number of factors for the drop, including the market share loss we called out in our PC business in November that began sooner than expected, some hurricane hangovers as customers needed to absorb the influx of material from late September and October storm response, issues with consistent car flow with rail customers that delayed shipments and backed up plants, and frankly, some of it was just companies pushing pause and proceeding with caution as they began assessing the outlook with the Republican White House and Congress. In anticipation of some of the challenges we knew we would face in 2025, we began in Q4 reducing our workforce through a series of actions that have to date resulted in a 5% reduction of our global employee base. This had very little impact on the fourth quarter but will result in over $10 million in savings this year. I'll get into more detail later in the call about my thoughts for this year, but to set the stage, I still believe we're poised to post a strong year overall in every important metric in 2025. It may not be a smooth and easy ride to get there. We anticipate earnings to benefit from a combination of top-line improvements that will ramp up as…

Thanks, Leroy. Earlier today, we issued a press release detailing our fourth quarter and year-end 2024 results. My comments this morning are based on that information. As seen on Slide 13, we had consolidated fourth quarter sales of $477 million, a decrease of $36 million or 7% compared with the prior year quarter, as Leroy said, all in the last two months of the year following a record October. By segment, RUC sales were flat with the prior year, while PC sales were lower by $16.5 million or 10%, and CMMC sales decreased by $19 million or 14%. As seen on Slide 14, full-year 2024 consolidated sales totaled $2.09 billion, a decrease of $62 million or 3% versus the prior year. By segment, RUPT achieved record sales for the year with sales increasing by $45 million or 5%, while PC sales were lower by $20 million or 3%, and CMNC sales decreased by $87 million or 15% compared to the prior year. On Slide 15, adjusted EBITDA for the fourth quarter was $55 million with an 11.6% margin. By segment, RUPT generated adjusted EBITDA of $18 million with an 8% margin, PC delivered adjusted EBITDA of $29 million with a 19% margin, and CMC reported adjusted EBITDA of $9 million with an 8% margin. On Slide 16, full-year 2024 adjusted EBITDA was a record $252 million with a 12.5% margin. By segment, RUPT generated adjusted EBITDA of $82 million with a margin of approximately 9%, PC had adjusted EBITDA of $143 million with a 22% margin, while CMMC provided EBITDA of $37 million with a margin of over 7%. On Slide 17, fourth-quarter sales for our RUPS business were $216 million, consistent with last year. Sales were impacted by decreased volumes of Class One Crosstie, partly offset by higher utility…

The average pricing in major products was down 13%.

Average coal tar costs were down 18%.

As shown on Slide 21,

we continue to pursue a balanced approach to capital allocation. We invested $74 million of capital back into our business in 2024, and we're targeting $65 million for 2025. We returned $43 million to shareholders through our stock buyback in 2024, and our Board just authorized a new $100 million repurchase program. In addition, our board recently increased our quarterly dividend to $0.08 per share.

In terms of leverage,

we ended the year with $887 million of net debt and had $381 million in available liquidity at December 31. We finished the year with a net leverage of 3.4 times and remain committed to our long-term target of a 2 to 3 times net leverage ratio. While we certainly see our normal increases in leverage in the first and second quarters, we expect to end 2025 at or below 3 times leverage for the first time. As shown on Slide 22, in December 2024, we successfully completed the repricing of our senior secured term loan B due April 2030. The credit spread over SOFR on the TLB was reduced by 50 basis points from 3% to 2.5%. This transaction contributes to our ongoing efforts to optimize our capital structure, reduce interest expense, and it did not alter our leverage covenant maturity date. On Slide 23, total capital expenditures in 2024 were $77.4 million gross or $74 million net of cash proceeds. We spent $54 million on maintenance, $5.5 million on zero harm, and $18 million on growth and productivity projects. By business segment, we spent $32 million on RUPT, $15 million on PC, $27.5 million on CMMC, and nearly $3 million on corporate projects. And finally, on Slide 25, as announced on February 12, our Board of Directors declared a quarterly cash dividend of $0.08 per share of Koppers Holdings Inc.'s common stock. The dividend will be paid on March 24 to shareholders of record as of the close of trading on March 7. At this point, the quarterly dividend rate, which is subject to review by the board of directors, the annual dividend is expected to be $0.32 per share for 2025, a 14% increase over the 2024 dividend. And with that, I'll turn it back over to Leroy.

Thanks, Jimmi Sue. Now onto a review of each of the businesses. I'll start with Performance Chemicals on page 27. We expect a solid year overall for Performance Chemicals in 2025, but that business is coming off an all-time best performance it will not be able to repeat. As mentioned on our November call, as well as earlier on this call, we will experience some market share loss in our residential chemical business this year. We face some more aggressive industry competitors that have invested in bringing capacity online. Some of that conversion began earlier than expected in the fourth quarter and contributed to the volume reduction that Jimmi Sue mentioned. On the positive side, it's given us an opportunity to further diversify our customer base by adding several smaller accounts to backfill part of the lost demand. Importantly, we still maintained just over 50% overall market share in the residential market. Focusing on the North American market, which drives the bulk of results in this segment, I would describe customer sentiment for this year as cautiously optimistic. Persistently elevated mortgage rates, existing home turnover seemingly stuck in neutral, and declining consumer confidence due to policy concerns have treaters uneasy about whether we will see any growth in treated products this year. But on the flip side, remodeling spending seems to have flattened out after eight straight quarters of year-over-year declines. The Home Depot, on their call earlier this week, specifically called out decking and fencing as two of the categories that they saw strength in the fourth quarter. Our market forecast for 2025 is one of slight organic growth, while some hope also remains that spending to rebuild from the historic storms last year will begin in earnest. Anecdotally, excluding the market share loss I spoke to earlier, we…

Also, we're a few weeks from completing a comprehensive assessment of each of our businesses

and functions, which will provide more insight into how much opportunity we believe exists beyond our current performance and what portfolio realignment is needed, if any, in order to reach our full potential. As part of the final touches to our 2030 strategy, that we plan to showcase in detail at our September 2025 Investor Day. As we think ahead to Investor Day and the metrics we plan to use to measure success, we expect us to place a greater emphasis on earnings per share moving forward, which justifiably includes the depreciation and interest burden of investments made to drive the EBITDA improvement we've been building towards through the current strategy. Now that the major investments have been made, I believe we can improve EPS by greater than 10% per year through 2030 due to multiple levers, which would be remarkable. I'll use that as a segue to direct you to Slide 34, which shows our 2025 adjusted earnings per share bridge and the strong improvement we expect in 2025 driven by higher operating earnings and lower interest expense. Accordingly, we're forecasting $4.75 per share in 2025, representing a new high for Koppers Holdings Inc. and a 16% improvement over 2024. On Slide 35, we're projecting capital spending of $65 million in 2025 compared with $74 million in 2024. Our 2025 CapEx spending reflects an ongoing normal run rate and will enable us to generate significant free cash flow over the next several years. Much of that cash flow is planned for debt reduction, as well as share repurchases if our shares remain undervalued. We've completed the heavy investment period of our growth strategy and are now poised to maximize the value of those investments as market conditions eventually improve. As I wrap up my prepared comments, I'll leave you with a few points I want you to take away from the call today. First, despite the uncertain economic environment we find ourselves in, we expect earnings to improve meaningfully in 2025 as we place even greater emphasis on driving improvement through actions that we control. Our business remains resilient, and our products remain critical elements of the markets they serve and will continue to be needed long into the future. Second, we're moving into a more normalized capital investment period beginning this year that will unlock significant free cash flow that we'll prioritize to reduce debt and leverage and buy back undervalued shares. Third, we believe that we have multiple ways to improve shareholder value through consistent double-digit EPS growth over our 2030 strategy timeframe, which we look forward to discussing in greater detail over the coming months, culminating in our virtual investor day in September. With that, I would like to now open it up for any questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Liam Burke with B. Riley FBR. Please go ahead.

Leroy, you mentioned in your prepared comments about PC. There was market share loss, and you mentioned it last quarter, but it's moved into this quarter as well. What is your competitor strategy? Is it a pricing strategy, or is there an alternative formula that's competitive?

No, Liam. It's and just to be clear, this isn't new market share loss. Right? What we announced in November was planned for in 2025. Some of that started happening in terms of plant conversions in the fourth quarter, which was before we had expected, but it's the same share loss that we had mentioned back in November. Yeah, it's look, we have grown market share significantly, you know, in the time that we've owned that business. You know, to the point where, you know, most of the top treaters were sole-sourced with us. And I think, you know, over time, you know, they look to diversify their supply chain and mitigate some risk. They're, you know, they were looking to, you know, split a little bit of that business, and, you know, you had a competitor that had changed hands in terms of ownership. Some investments were made to be more aggressive in going after business, and, you know, it's purely what it is. I think it's a diverse risk on some of our customers' ends and an aggressive competitor who put some money into capacity to try and improve their overall business. Yeah. It's one of those things that as you continue to grow and get bigger and increase market share, you get to a point where, obviously, there's a greater risk and likelihood that you're going to go backwards rather than forwards. And so that's kind of where we found ourselves, and we're a little bit of a victim of our own success over the past ten years.

Great. Thank you, Leroy. And you discussed on the UIP that there are no immediate plans of investment on expansion either. Is it because the acquisitions aren't out there, or do you just have other projects that have better opportunities to invest in?

Yeah. I'd say it's a couple of things. I'd say that, you know, we made some investments that are already going to provide us opportunities to grow share, you know, in markets that we don't have a lot of presence in right now. So we're working to start to deliver on those investments. And, you know, there's discussions going on and things that we're looking at relative to other geographic markets here in North America that, you know, we'll see how it develops over time. Some of it could happen this year. If so, we're not talking about big numbers at all. And so at this point in time, I'd say from a capital standpoint, we just don't see a lot of immediate near-term needs. Now, as we move into 2026, again, we'll be reassessing as we go throughout the year. But overall, I think for us to be able to continue to grow, a lot of the investments have been made. There's still some more to make. They're not huge in the overall scheme of things relative to the money that we spent in the last, you know, three-plus years.

Great. Thank you, Leroy.

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

Good morning, Leroy, Jimmi Sue, and Quynh. Leroy, I just wanted to ask a couple of questions here and then I'll jump around. You talked about your goal of share growth in underpenetrated regions. Yeah. Utility. Yeah. I assume you're hiring more salespeople, but have you actually started to pursue these underpenetrated markets, or is it something that's going to start coming through in 2025 with a bigger impact in 2026?

Yeah. So we've already been down that path. Right? Some of it is through the investments we've made to go into Texas, and so we've already been actively adding some business in that particular market. The Brownwood acquisition really opened up more opportunity for us to go up into the Midwest, in terms of where those assets are situated. You know, we're, you know, we're in the we will be in 2025, I believe, starting to see some of the benefits of that. In terms of being able to go up into and having more of a presence up in that area. And then as it relates to really going further west, you know, though that's still, you know, a little bit out in the future. We're just not really set up at the moment from an overall operations and distribution standpoint to go after those markets. It's, you know, it's kind of what Liam was alluding to, I guess, with his question around the investments in UIP and sort of where we sit at the moment. As it relates to, you know, expansion plans. So like, we're set up right now where I think we can act we have more than enough capacity to go after, you know, continue to make penetration into Texas and the Midwest. We're not yet really set up to go out West just yet, that's the, you know, the for the next phase of things, and that will be, you know, that will be out sometime probably 2026, 2027 time frame.

Okay. And then that's great. And then just a question on the closure of the Stickney plant. Again, I'm not really a chemical analyst, but first of all, what level of sales can you quantify that? We're coming out of that Stickney plant.

Yeah. So the so what that particular unit of operation is is one that actually consumes a byproduct of our basically what we'll be what we'll be losing is a little bit of, if you will, incremental added value pricing and, you know, the coverage of costs associated with taking that byproduct that we make and making phthalic anhydride into it. So the naphthalene that we used to basically consume in that process will be selling out into the merchant market. So, you know, I forget what the overall impact on sales we had estimated that to be, but it's, you know, it's maybe, I don't know, $30 million, $35 million or something like that.

Okay. And this plant was not producing any creosote that you use in your other things.

Stickney does. It's just through a it's just a different unit operation. So like I say, we have tar distillation which basically takes our raw material and produces carbon pitch and creosote and carbon black feedstock, and then this naphthalene that essentially goes into the phthalic anhydride production and then, you know, that gets sold out into the market. We're closing down the phthalic operation.

Okay. Thank you.

Yep.

Your next question will come from Michael Mathison with Sidoti and Company. Please go ahead.

Good morning, you guys, and thanks for taking my question.

Sure.

My question relates to forecasting what you'll be doing with your free cash flow next year. Just some back-of-the-envelope figures with your reduction in CapEx and factoring out the Brownwood acquisition, that's an incremental gain in free cash flow of around $110 million even before any improvements in operating income. I know you'll be buying back shares opportunistically, but can you give us any kind of a guesstimate about how you'll be allocating free cash flow to share repurchases versus debt paydown?

Sure. So I think we even we tried to provide some clarity in the release that went out this morning. Look, our shares have been trading at a significant discount to, you know, our long-term average of enterprise value multiple. We see continued growth in our business, which will only continue to push that side of the equation up. So to the extent that the share price doesn't move, it's going to get even more undervalued, and we're going to buy back shares within our window and within our credit constraints under our current facility, you know, as that situation is in place. And then beyond that, we're allocating, you know, the additional free cash flow to pay down debt. And we believe that the combination of the two will get us, you know, by the end of this year to, you know, right around that three times leverage mark, and put us in a position to get meaningfully below it as we go into 2026.

Terrific. If you'll permit one more question, it looked like the key difficulty in Q4 for the RUPS segment was crosstie volumes for rails. I'm wondering if you've seen any improvements there in either volume or pricing.

Yes. So yes, and look, I think that was, you know, certainly short-term. You know, again, the discussions we've had with customers as it relates to volumes in 2025 would have us expecting an 8% increase in crosstie volume this year. And so, you know, we're planning for 2025 to be a pretty good year overall from a volume standpoint. As it relates to pricing, there's some contractual pricing that will definitely come through, and we continue to have discussions again with a couple of the customers that we've not been able to push the more meaningful price increases through, and there's some potential for some movement there, we believe. So, you know, right now, I'd say pricing, we do expect to be higher in 2025 overall, and volumes right now, our projections are for an 8% increase on crosstie.

Thank you. And good luck in the coming quarter and coming year.

Thank you, Michael.

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

Okay. Thank you, everyone. I appreciate everyone's taking the time to participate on the call today and your continued interest in Koppers Holdings Inc. We'll talk to you again next quarter. Thank you.

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