Koppers Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 3, 2023

There are 6 speakers on the call.

Operator

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. Following the presentation, instructions will be given for the question and answer session.

Operator

Please note that this event is being recorded. I will now turn the call over to Quinn McGuire. Please go ahead.

Speaker 1

Thanks, and good morning. I'm Quinn McGuire, Vice President of Investor Relations. Welcome to our Q3 2023 earnings conference call. We issued our press release earlier today. You may access it via our website at www.koppers.com.

Speaker 1

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 2, 2024. 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.

Speaker 1

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 reconciliations of the non GAAP financial measures to the most directly comparable GAAP financial measures in its press release and the presentation slides referenced during this call as well as on our website.

Speaker 1

Joining me for our call today are Leroy Ball, President and CEO of Koppers and Jimmy Sue Smith, Chief Financial Officer. I will now turn over the discussion to Leroy.

Speaker 2

Thank you, Quinn. 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 3. We appreciated the support as many of you on the call They participated either in person or virtually, and in total, we had 86 attendees.

Speaker 2

Now, Koppers is now at the halfway point in our 2021 through 2025 Our strategic plan, or as we like to refer to it, worth the half. It was only fitting that our leadership team provided a half time report where we highlight the Key milestones of our strategy to expand and optimize our business around our core infrastructure products and services and provide details of the progress toward our goal of $300,000,000 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 Due to a lot of extenuating factors, completing the larger projects has been challenging and taken longer than first planned, They are now beginning to come online and we expect to see a step change in profitability and cash flow as a result. We remain consistent in our goals over the final three years as a plan to achieve EBITDA of $250,000,000 in 2023, dollars 275,000,000 in $2,324,000,000 in 2025, and we've laid the groundwork for that to happen.

Speaker 2

In the process, we will spend less capital to achieve those goals and expect to generate $450,000,000 of operating cash flow over second half of the plan. Generating over $80,000,000 of cash flow in the most recently completed third quarter is a good start to reaching that goal. There's still work to do, but our focus now is on how we continue to strengthen the business model in place, which in turn will grow earnings and cash flow further. Now for those who were not able to take part in our Investor Day, a video replay can be accessed on the Investor Relations section of our company website. I encourage you to take a look and get a better understanding of Koppers' investment story.

Speaker 2

Now let's move on to a review of our Q3. I'm pleased that once again we have many positives to share with you for the quarter and for the remainder of 2023. Slide 5 provides a summary of our key metrics for the Q3. We achieved consolidated sales of $550,000,000 a 3rd quarter record and the 8th consecutive record for current quarter sales. We generated adjusted EBITDA of $71,000,000 a record quarter in profitability and the 5th consecutive current quarter record for adjusted EBITDA.

Speaker 2

Adjusted EBITDA margin was 12.8 percent consistent with the prior year period. And as I mentioned a few minutes ago, operating cash flow made an impressive jump Coming in at $81,600,000 a record quarter and up from $46,200,000 in the prior year quarter. Diluted earnings per share were $1.22 up from $0.91 from the prior year quarter and adjusted earnings per share were on performing safely, efficiently and profitably regardless of challenges and headwinds. As always, our formula for success begins and ends with our people. Now let's take a look at our efforts in the area of 0 Harm as seen on Slide 7.

Speaker 2

0 Harm 2.0 Focuses on reenergizing frontline engagement and accelerating progress towards 0 incidents across all copper facilities after we seem to plateau in our activities coming out of the pandemic. 0 Harm workshops are continuing for the leadership team of our Utility and Industrial Products business, where we fell behind on our integration during the pandemic due to the extended shelter in place orders. Now I'm proud to highlight that UIP for the year to date period reported a 75% decline Congratulations to the entire UIP team for looking out for each other and embracing the culture of 0 Harm. In the Q3, 25 out of our 45 operating facilities worked accident 3, once again proving it's possible. 3 regional business units, in fact, have achieved 0 recordables through the 1st 9 months of this year: Australasia Carbon Materials and Chemicals and 2 Performance Chemicals regions, 1 in Australasia, the other in Europe.

Speaker 2

However, the overall rate of recordable injuries has shown a year over year increase of 7.5%, and we're delving into the numbers to see what particular areas we need to draw a particular focus 2, the practice of keeping our people out of harm's way is a relentless activity and something we will never take for granted. Slide 8 highlights 0 Harm events intended to further support our safety culture throughout Koppers. In late September, we conducted our annual Safety, Health and Environmental Coordinator Conference Chicago, where SH and E coordinators from across our organization receive training on energy isolation, air emissions control and permit to work improvements. Next week, we will host our 3rd annual Zero Harm Truck Driving Championship Competition in Pittsburgh at the David L. Lawrence Convention Center, where the top Our professional drivers according to a number of safety metrics will go head to head in a skills competition to see which individual best exemplifies 0 Harm behind the wheel.

Speaker 2

We take special note of our drivers since they represent Koppers in a very visible way and the safety issues they face every day are relentless and challenging. As another safety measure, GPS units have been installed in 100 percent of copper's commercial and non commercial vehicles, providing our drivers this valuable tool to help them safely navigate their routes with As always, we continue to build on our Zebra home culture and are committed to dedicating the necessary resources and people, time, Equipment, training and more to keep the safety and health of our employees and communities our number one priority. Now I'll turn the discussion over to our Chief Financial Officer, Jenny Sue Smith.

Speaker 3

Thanks, Leroy. Earlier Today, we issued a press release detailing our Q3 2023 results. My comments are based on that information. Slide 10 shows consolidated sales were $550,000,000 a 3rd quarter record, up $14,000,000 or 3% over the prior year. By segment, RUPS sales increased $26,000,000 or 13% from the prior year quarter.

Speaker 3

PC sales also increased $26,000,000 a 17% change and Centimeters and C sales decreased $38,000,000 or 22%. On Slide 11, Adjusted EBITDA was an all time quarterly record of $71,000,000 resulting in a 13% margin. By segment, REPS generated EBITDA of $25,000,000 an 11% margin PC had EBITDA of $35,000,000 20 percent And Centimeters and C had EBITDA of $10,000,000 with an 8% margin for the quarter. On Slide 12, Our RUPS business reported 3rd quarter sales of $234,000,000 compared to $208,000,000 in the prior year. The sales increase was largely due to $20,000,000 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.

Speaker 3

The increases were partly offset by lower activity in our other maintenance of wave 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, Q3 crosstie procurement was up 23% and crosstie treatment was up 12%. Adjusted EBITDA for RUPS also represented a quarterly record at $25,000,000 compared with $16,000,000 in the prior year. Profitability increased due primarily to net sales price increases and $3,800,000 from improved Plant utilization, which combined to more than offset higher raw material, operating and selling, general and administrative costs.

Speaker 3

Just as in the Q2, the favorable performance for our RUPS segment was underpinned by the record Q3 profit in our UIP business, where the margin far outpaces bad across ties. On Slide 13, our Performance Chemicals business delivered record Q3 sales of $179,000,000 compared to $153,000,000 in the prior year. This can be attributed to global price increases of $16,000,000 or 10%, primarily in the Americas for copper based preservatives. Volumes increased by 7% globally, which reflects a 10% increase in the Americas, partly offset by volume decreases in Australasia. Adjusted EBITDA for PC came in at a record $35,000,000 for the quarter compared with $17,000,000 in the prior year.

Speaker 3

Profitability grew primarily due to increased pricing for renegotiated customer contracts, which allowed us to recoup the higher costs we began experiencing last year. Higher volumes for our wood treatment preservatives in the Americas also contributed to higher profitability as these increases more than offset higher raw materials and selling, general and administrative costs. We are pleased that the profitability for PC has returned to normalized levels with an 18 plus percent EBITDA margin year to date. Slide 14 shows sales Our Centimeters and C business of $137,000,000 compared to $175,000,000 in the prior year quarter. This decline was driven by $24,000,000 of lower sales prices across most products, including Carbon Pitch, where prices were down approximately 10% globally, along with $26,000,000 of lower volumes of carbon pitch and phthalic anhydride, partly offset by volume increases for Refined Tar and Carbon Black Feedstocks.

Speaker 3

Adjusted EBITDA for Centimeters and C in the 3rd quarter was 10,000,000 compared with $37,000,000 in the prior year quarter on lower prices and decreased volumes, partly offset by $4,000,000 in lower raw material and operating costs, particularly in North America and $2,000,000 of insurance proceeds recognized in the current year period. Compared with the prior year quarter, Average pricing of major products is down 18% and average coal tar costs are flat. Sequentially, The average pricing of major products is down 10% and average coal tar costs are down 18%. Slide 16 shows our continued commitment to a balanced capital allocation approach. For the Q3, we generated operating cash flow of $81,600,000 a quarterly record.

Speaker 3

We continue to invest in the business and return capital to shareholders through dividends and share repurchases, while reducing leverage as appropriate. In the 3rd quarter, we reduced net debt by $48,000,000 and our net leverage ratio to 3.2x compared to 3.4x at June 30 and at year end. We finished the quarter with $810,000,000 in net debt and $350,000,000 in available borrowing capacity. Long term, we continue targeting Through the Q3 of 2023, we're approximately $91,000,000 growth $88,000,000 net of cash proceeds. By category, we spent $41,000,000 on maintenance, dollars 13,000,000 on 0 Harm and $37,000,000 on growth and productivity projects, many of which are nearing completion.

Speaker 3

By segment, we spent $39,000,000 in RUPS, dollars 9,000,000 in PC, dollars 41,000,000 in Centimeters and C $3,000,000 on corporate initiatives. On Slide 19, as previously announced, Our Board of Directors declared a quarterly cash dividend of $0.06 per share of Koppers common stock on November 2. This dividend will be paid December 11 to shareholders of record as of the close of trading on November 24. At this Quarterly dividend rate, which is subject to review by the Board of Directors, the annual dividend will be $0.24 per share for 2023. And with that, I'll turn it back over to Leroy.

Speaker 2

Thanks, Jimmi Sue. Let's review what's happening in each of the businesses relative to what we saw Starting on Slide 21 with Performance Chemicals, we continue to recover the massive cost increases we experienced in the latter part of 'twenty one right on through this year as we've notched $61,000,000 of price increases through the 1st 9 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 cost in 2022. Somewhat surprisingly, residential preservative demand has held pretty strong and steady throughout 2023. Coming into the year, we modeled a 5% to 10% Through the 1st 9 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%.

Speaker 2

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 But demand registering stronger than forecast has been the real key to 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 remodeling activity projects for the deceleration in spending that began in the 4th As I mentioned, despite those storm clouds, demand continues to be steady, likely due to treated lumber still being affordable, which is shifting some of the share of smaller repair and remodeling spend in its The last key to success for PC in 2023 is that copper's preservatives such as CCA and DCOI Replacing the non conference produced industrial chemical Penta currently being phased out after losing its U. S.

Speaker 2

EPA and Canadian registrations. In 2022, we experienced a 33% increase in our industrial sales volumes. And through the 1st 9 months of this year, we've seen a volume bump of 10% over prior year. Even with that kind of growth, we're tracking a little below our internal projections for the year, but the overall story remains positive. While we worry a little bit about the residential demand holding up, we expect industrial demand to continue to remain strong from increased infrastructure spending, which also benefits our Utility and Industrial Products business.

Speaker 2

Speaking of UIP, a division of RUPS, As seen on Slide 22, they continue to enjoy strong demand in their business, which knocked another strong quarter, their 2nd best results ever, Just behind last quarter's record results, contractor delays continue to push out the completion dates of the projects we have in progress to replace dry capacity lost from a fire earlier this year and to add additional drying capacity at one of our sites. The replacement of the kiln loss by fire was supposed to already be online, but will now occur later this month. The second new kiln that was supposed to come online in February has now been pushed back to April. At this stage, it can't happen soon enough as dry material continues to be a bottleneck to selling even more product. Helping our performance is Tire pricing that generated $27,000,000 through the 1st 9 months recovering costs from this year and last.

Speaker 2

We continue to work on our new Leesville, Louisiana facility, but the completion date for that facility has also been pushed out a month and is now expected to come online in February of next year. One thing that still hasn't seemed to normalize since emerging from the pandemic is contractor reliability as they continue to work through their project backlog. The bottom line for UIP is despite things not going smoothly on our capacity projects, we've continued to outperform in this business due to the strength of the market, sustaining healthy demand, Our sales team ensuring we're recovering costs, our operations team squeezing every cubic foot possible out of our assets and our procurement group getting their hands on every stick of wood possible. Now in the Railroads Products and Services division of the RUFS business, which is shown on Slide 23, I'm going to focus my comments on the need for Pricing adjustments because frankly, we can do a whole host of other things like build dry inventory and add productivity projects like the new facility in North Little Rock, But without some fundamental acknowledgment that the world has changed drastically over the past 3 years, we're fighting a losing battle.

Speaker 2

When I announced on our August call that we had to realize significant price increases from the rail industry or we couldn't remain in this business, it wasn't just for dramatic effect. Our profitability in the Rail business has been in a downward slide since 2017 and has only gotten worse as the after effects of COVID on the labor environment and inflation, The war in Ukraine and the European energy crisis have all had major impacts on our cost structure, pushing a business that was not doing great before the pandemic to a point where if we can't turn it around soon, we will be forced to make some major changes. In September, we announced that we were successful in Our future viability in this industry. That unfortunately only represents a small part of what's needed to restore our business to health. And as a result of some customers' unwillingness to recognize our plight, we find ourselves forced to evaluate all options available to us as the highest and best use for these assets.

Speaker 2

You only have to go back to 2015 to see the precedent for the current situation we face in RPS and the resulting actions we took. Our strategy to reduce our footprint from 11 carbon distillation facilities to 3 in our Centimeters and C business was heavily driven By the decision to disrupt the unhealthy dynamics that we had on both the supply and demand side of that business that were frankly choking the life out of it. We don't talk a lot about it, but slimming down our footprint enabled us to not only consolidate capacity under a leaner cost structure, but it also allowed us to be much more strategic about who we wanted to The result is a much better, more profitable Centimeters and C business While tension still arises from time to time whenever it comes to price negotiations, we seem to be able to work things out in a more collaborative fashion. It's time we put similar creative thinking to work in RPS, just as we did in Centimeters and C back in 2015 to create more options and ultimately better outcomes for this business. Now while we'll continue to work to get fair value for our products and services under our existing RPS contracts, We will also be exploring new and different options for RPS.

Speaker 2

So what are some examples of that? Well, great examples are treating cylinders that can be used to treat product for a host of different We'll be doing more scenario planning around utilizing some of those assets for the utility pool market, which has shown to be a stronger market. We will also consider exiting parts or all of the crosstie treating business through a targeted divestiture of assets. I don't make that statement lightly because I know the impact Potentially has on our people, but I promise you, we will make whatever tough decisions are necessary to ensure we are treated fairly and can make a fair return for our shareholders. Now turning the page to Slide 24, it takes us to our Carb Materials and Chemicals business.

Speaker 2

And there's a lot of stuff going on here. And yes, They had a rough Q3, but this business is in a much better spot by comparison than our RPS business. I already described the key changes Optionality in this business, which I just talked about in my latest 412 video for employees. On the supply side, we know the coal tar market continues to shrink, which puts pressure on pricing, which is why we focused hard on adding petroleum feedstock to our raw material mix to provide an alternative product stream and relieve some of the inherent pressure that comes from a tight supply market. On the other side of the equation, we've to altering the mix of products that we produce through our distillation process to provide much greater flexibility.

Speaker 2

One of the first things I learned when I came to Koppers over 13 years ago was that for every ton of coal tar processed, approximately 20% would come off as a chemical oil, 30% would come off as a distillate stream that would go into either creosote or carbon black feedstock production and 50% would come off as carbon pitch primarily for the aluminum market. 50, 30, 20 was the ratio of output and that couldn't be altered, I was told. Well, our team has figured out how to take that 30% distillate stream that Turn into creosote and carbon black feedstock and take it through another process to turn it into carbon pitch. Even better, It isn't just any carbon pitch, but a high quality carbon pitch that's grabbing the attention of electro manufacturers and opening the door for us to move Creosote from a rail market The enhanced carbon products plant that was just recently completed and is being commissioned at our Neuborg, Denmark plant. We talk a lot about the electric vehicle battery coating product that We don't spend near as much time talking about the concept that underwrote the project in the first place And it's much more realizable in the near term, which is the creation of the option to convert distillate to pitch instead of creosote.

Speaker 2

That option has become even more viable given the situation we currently find ourselves in, in RPS. It won't happen overnight, but it's coming. Moving to our 2023 guidance on Slide 26. Our sales forecast for 2023 is approximately $2,100,000,000 compared with $1,980,000,000 in 2022, With RUPS and PC expected to see top line increases. For RUPS, it will be a combination of price and volume.

Speaker 2

For PC, it will be price and volume growth. For Centimeters and C, it's expected to be down slightly due to reduced market demand and weakened pricing over the back half of the year. On Slide 27, we anticipate 2023 adjusted EBITDA to be in the range of $253,000,000 to $257,000,000 On a comparable basis, this will be our 9th consecutive year of EBITDA growth and will be the largest year over year increase since 2015. Expected growth in adjusted EBITDA is primarily due to strong performance from our utility pole business driving RUPS results as well as PC delivering higher pricing and volumes, which will more than offset a struggling rail business and temporary weakness in our Centimeters and C segment. On Slide 28, our adjusted EPS guidance for 20 $23 is in the range of $4.35 to $4.55 which compares favorably with the $4.14 in 2022.

Speaker 2

Higher average interest costs will take a significant bite out of earnings growth generated through operations, but despite that, 2023 is expected to finish at our highest adjusted EPS in company history, surpassing the $4.21 achieved in 2021. On Slide 29, we anticipate that our capital spending will be approximately $110,000,000 to $120,000,000 in 2023, dollars 5,000,000 to $15,000,000 higher than 2022 levels. Required spending on maintenance and 0 Harm is estimated to be $70,000,000 with approximately $40,000,000 to $50,000,000 dedicated to finishing our significant growth and productivity projects that will enable us to achieve the ambitious growth projections that we have for the next couple of years. By the end of this year, we'll All that would be required to achieve our 2025 adjusted EBITDA goal of $300,000,000 as communicated at our Investor Day event in September. In addition, we're tracking to achieve net leverage of 3 times or slightly higher at year end, which would be the lowest we've reduced net leverage since year end 2017.

Speaker 2

Moving to Slide 30, you can see our expected path to $300,000,000 in EBITDA from our 2020 base. During our recent Investor Day, we highlighted that we believe we're at both an inflection point for earnings and cash flow as the investments we've made Stay tuned. There's more where this came from next year and beyond. Now, I'd like to open it up to questions.

Operator

We will now begin the question and answer session. Our first question is from Gary Prestopino with Barrington Research. Please go

Speaker 4

ahead. Leroy, I want to just go back to The RUPS segment where you're talking about the price 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're trying to deliver. Is there is this a very competitive market price wise?

Speaker 2

So Gary, I don't know that that's necessarily the issue, right? I mean, we have long term contracts in place. Our long term contracts have served us well over the years. The rail Environment has changed quite a bit, I'd 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.

Speaker 2

We've endured A lot of that and then the pandemic came. And costs In just about every way you can imagine have gone up significantly. And we have limited ability Within our agreements to recapture those significant cost increases, right? So we're forced to eat them Or work with our customer base to help us get some of that back to again maintain a healthy So we're in that process and look a lot of the conversations have gone actually very well And I think that for a big part of our customer base, they recognize the fact that Nobody saw what was coming, coming and has been willing to help in that regard. And others have been more painful, I mean, to be quite honest.

Speaker 2

And so, the good news in all of this, right, is the diversification that we Amongst our business model enables us to continue to post the results that we post. And we hear that too, right? There's a rub in Well, you keep on putting out record earnings. You don't need this. And it's like, well, yes, we're 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.

Speaker 2

And so, we're fighting on behalf of our shareholders and our people who We do put a lot of investment into that market from a sustainability standpoint, from a quality standpoint. And we think we've been good partners for a long, long And so we don't believe that what we're asking for is unusual or Or out of the ordinary, many companies have found themselves in similar situations, I think have found their way to work through it. And that's all we're looking to do. I'm hopeful we can get there. But yes, you sense the frustration in my voice.

Speaker 2

We were here 9 years or so ago in a different business. And as I mentioned, it caused 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 it's same sort of review process that I think we're undertaking here in certain circumstances to see if there's some more drastic changes we need to make.

Speaker 2

But we'll be thoughtful about it as we always are.

Speaker 4

Okay. And then just as you finish some of these projects with some of them got pushed Yes, by no fault of your own. Your growth in productivity CapEx Of $40,000,000 to $50,000,000 this year. Does that step down materially In 2024 because you've got these facilities that you're or some of these capital projects that you're doing in some of the businesses? I mean, do You need to keep that higher level of growth and productivity CapEx?

Speaker 2

Yes. So, I'd say in terms of the projects that that $40,000,000 to $50,000,000 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 products facility in Newborg as we speak, 2 significant projects. We will be bringing on Our lease of Louisiana facility in the early part of next year. So there's some spending that rolls into that into next year for that.

Speaker 2

And 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, right, goes away. So 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 And if so, by how much. And that's what we're going through right now.

Speaker 2

I don't today, I don't expect that we will spend $120,000,000 in capital next year. It's not our intent to do that. But by the same token, keep in mind, right, those projects are projects that are enabling us to go from $228,000,000 to $250,000,000 to $275,000,000 to $300,000,000 You can't grow without investment. And so we have a lot of other good projects. We'll be A little more measured about it, I think.

Speaker 2

So I'm not saying we're not going to spend anything, we will, but we're likely not going to spend well, I don't think we're going to spend $40,000,000 to

Operator

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

Speaker 5

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

Speaker 2

Hey, Liam.

Speaker 5

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?

Speaker 2

Yes, I'd say It is primarily replacing Penta, right? We didn't make that chemical. It's Gone away and it needs a replacement. In some cases, it needs to be an oilborne preserver like In other cases, it doesn't necessarily matter. And so CCA becomes an option as well.

Speaker 2

But I'd say, primarily, It has been really the replacement of Penta.

Speaker 5

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 a steady Eddie, lowtomidteens EBITDA generator? Understanding you've got some quarter to quarter volatility in

Speaker 2

there. Yes, right, right. Correct. There is some quarter to quarter volatility that occurs. I'd say that at the very least, we expect it to be in that 10% to 15% 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've seen some of that throughout the last year or 2.

Speaker 2

But as enhanced carbon products comes online, As we're 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 it's a higher value. We know it's a higher quality Product and there's value in that and we believe we'll be able to capture that in some additional pricing and margin. And so that's what we think we'll be able to take Up to hopefully a consistent mid teens margin business instead of sort of a 10% to 15% type of business.

Speaker 5

Great. Thank you, Leroy.

Speaker 2

No, you're very welcome.

Operator

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

Speaker 2

Yes, I just want to Thank you everybody for your interest in Koppers. Thank you for taking the time to join today and we're going to continue to execute

Operator

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

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Earnings Conference Call
Koppers Q3 2023
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