Koppers Hldgs sees 12% drop in sales but maintains adjusted EBITDA margins through cost management and strategic divestitures

OPERATOR - (00:03:15)

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Copper's third quarter 2025 earnings conference call and webcast. At this time, all participants are in listen only mode. If you need assistance, please alert a conference specialist by pressing star followed by zero. Following the presentation, instructions will be given for the question and answer session. Please note that this event is being recorded. I will now turn the call over to Quinn McGuire. Please go ahead.

Quinn McGuire - Vice President of Investor Relations - (00:03:48)

Thanks and good morning. I'm Quinn McGuire, Vice President of Investor Relations. Welcome to our third quarter 2025 earnings conference call. We issued our press release earlier today. You can access it via our website www.koppers.com. as indicated in our announcement, we have also posted materials to the investor relations page of our website that will be 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 February 7, 2026. At this time, I would like to direct your attention to our forward looking disclosure statement seen on slide 2. Certain comments made on this conference call may be characterized as forward looking statements as defined under the Private Securities Litigation Reform act of 1995. These forward looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the Company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward looking statements included in the Company's comments, you should not regard the inclusion of such information as representation that its objective 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. Also, references may be made today to certain non Generally Accepted Accounting Principles (GAAP) financial measures. The press release, which is available on our website, also contains reconciliations of non Generally Accepted Accounting Principles (GAAP) financial measures to those most directly comparable Generally Accepted Accounting Principles (GAAP) financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer of Koppers and Jimmy Sue Smith, Chief Financial Officer. At this time, I will turn the discussion over to Leroy.

Leroy Ball - Chief Executive Officer - (00:05:43)

Thank you, Quinn. Good morning, everyone. I'm pleased to join you this morning to provide more insight on Koppers' third quarter operating performance. Our results largely fell within our expectations despite market forces continuing to exert headwinds on top line performance. Sales for the quarter were down by 12% compared to Q3 2024. Continuing the trend we've seen throughout 2025, our team's diligent control spending once again continued to offset much of the impact of lower sales volumes and we were able to deliver adjusted ebitd quarter of $70.9 million compared to last year's Q3 adjusted EBITDA of $77.4 million. Adjusted EPS for Q3 2025 was $1.21 per share compared to $1.37 last year as the impacts of our lower top line more than offset our cost containment for the quarter. At the same time, benefits from reducing our interest costs through lower average borrowings and lower average interest rates were essentially offset by a higher effective tax rate in Q3 driven by a geographic earnings mix more heavily tilted to outside the United States. Moving to page four, I'd like to provide a little more high level color by summarizing just a few key takeaways from our third quarter. As mentioned, we focused intently on controlling costs to weather the cyclical softness we're experiencing currently. Through three quarters, our SG&A was down 14% on an adjusted basis compared to prior year, which equates to over $19 million in savings on top of the millions of dollars in operating savings that we are also generating through Catalyst. We're developing a blueprint to make those savings permanent by further simplifying our business, upgrading our technology and advancing the skill sets of our team members. Because of what we've been able to accomplish on the cost side of the equation, for the second straight quarter, we were able to post adjusted EBITDA margins not seen in a number of years. As we capture more profit from every dollar sales, we're also improving our rate of converting those profits to free cash flow and deploying that cash to reduce debt and return capital to shareholders through our dividend and a steady stream of share repurchases. During Q3, we continued to simplify our portfolio by completing the sale of our railroad structures business, which came as part of the Performance chemicals transaction in 2014. The structures business had been a steady contributor for a number of years, but struggled leading up to and through the pandemic. It had begun to regain its footing recently and through the date of the sale was having one of its better years in a long time, but still was margin dilutive for the past nine years. Other than selling to the same customers as our crosstie business, it did not have any strong synergistic aspects. Once again, we wish that team well and thank them for their contributions over the past 11 years. Further simplification of our business occurred in April 2025 through the closure of our Phalican hydride plant in our CMNC segment. And next up, we're also finalizing our assessment of shifting our North American CMNC business to a single column operation. In doing so, we will further lessen our exposure to the volatility of the CMNC business while also reducing the future capital requirements from running a two column operation. Later in the presentation, I'll speak further to Catalyst and what is going on in our various end markets. For now, I'd like to provide a quick snapshot of how we're progressing on the zero harm front. On page five you can see that we've made significant progress on safety thus far this year with leading activities up by 29%. This serves as a strong contributor to our lagging metrics of recordable injury rate and serious safety incidents, showing declines of 23% and 72% respectively. During the quarter we had 23 of our 41 sites work accident free with our European businesses and our Australasian performance chemicals standing out with zero recordables thus far in 2025. We can never let up on safety because exposure is all around us and one minute lapse or shortcut could lead to catastrophic consequences. I continue to be heartened by our global team being on pace for another record setting safety year. A great big thanks to all of our team members for your efforts thus far. Keep up the great work. Finally turning to page six, I'd like to welcome our newest board member, Laura Passadas, who was elected to our Board two days ago. Laura is the current CEO of Canillac Coatings, Inc. A leading formulator and manufacturer of high quality wood coating systems. Laura's experience in innovation and strategy, in addition to her track record of leading high performance teams, is a welcome addition to our Board's broad range of experience and skill sets. Laura represents the third board member added over the past three years as we continue an orderly succession process for directors reaching the Board's mandatory retirement age. Look forward to tapping into Laura's experience on a number of matters relevant to our business and am enthusiastic to have her as a member of our Board. I'll now turn things over to Jimmy Hsu to speak in more detail to our quarterly financial performance.

Jimmy Sue Smith - (00:10:44)

Thanks Leroy. Earlier today we issued a press release detailing our third quarter 2025 results. My remarks today are based on that information. As seen on Slide 8, we reported consolidated third quarter sales of $485 million, down $69 million or 12 prior year by segment. RUPS sales decreased by 15 million or 6%. PC sales were down 32 million 18% and CMC sales decreased by 21 million or 16% compared with the prior year. Quarter. On Slide 9, adjusted EBITDA for the third quarter was 71 million with a 14.6% margin. By segment, RUPS's generated adjusted EBITDA of 29 million with a 12.5% margin. PC delivered adjusted EBITDA of 26 billion with an 18.1% margin while CM&C reported adjusted EBITDA of 16 million with a 14.4% margin. On Slide 10, our RUPS business generated third quarter sales of 233 million compared with 248 million in the prior year. The decrease in sales was driven primarily by 15.8 million of lower volumes of Class 1 crossties and lower activity in the maintenance of way business including the sale of our railroad bridge services business. These were partly offset by higher commercial cross tie volumes, a 6.5% volume increase in domestic utility poles and 1.9 million of price increases related primarily to cross ties. Untreated crosstie market remained stable year to year. Cross tie procurement was down 18% while crosstie treatment was down 5%. RUPS delivered adjusted EBITDA of 29 million compared with 25 million in the prior year. Profitability improved despite lower sales due primarily to $7.7 million in lower SGA and operating expenses along with net sales price increases partly offset by the lower sales volumes. On Slide 11, our Performance Chemicals business reported third quarter sales of 144 million compared to 177 million in the prior year. The decline in sales was primarily the result of volumes decreasing by 19% mostly as a result of market share shifts in the United States but also combined with a slight net decrease in sales volume for other customers. Adjusted EBITDA per Performance Chemicals came in at 26 million compared to 40 million in the prior year. Profitability was impacted by the lower sales volume as well as $7.3 million in higher raw material and operating costs partly offset by $1.6 million of lower logistics costs and SGA expenses as well as higher royalty income. Slide 12 shows third quarter CMC sales of $108 million compared to $130 million in the prior year. This decrease was primarily driven by $19.6 million of lower volumes for phthalic anhydride as we discontinued that product in April of 2025. Adjusted EBITDA for CMMC in the third quarter was 16 million compared with 13 million in the prior year. This increase in profitability was due to lower operating costs, production of phthalic anhydride and 2.9 million of lower raw material costs, partly offset by lower sales prices. Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 3% compared to the second quarter. Compared to the prior year quarter, the average pricing in major products was lower by 8% while average coal tar cross increased by 7%. Now moving to capital allocation as shown on slide 14, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales, we invested $33.7 million into our business through September 30th. We are now expecting 2025 CapEx to be approximately 52 to 55 million, a significant reduction from 74 million last year, reflecting our focus on increasing free cash flow. Year to date we've repurchased $33.3 million of stock through share buybacks including tax withholding. We have approximately 71.5 million remaining on our 100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share. At September 30, we had $885 million of net debt comparable to where we ended 2024 and approximately $45 million lower than June 30, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year as well as progress toward our continued long term target. At 2 to 3 times net leverage. Ratio, we ended the quarter with a net leverage ratio of 3.4 times and 379 million in available liquidity. On Slide 15, total capital expenditures for the third quarter were 38.4 million growth or 33.7 million net. We spent 31 million on maintenance, 3.2 million on zero harm and 4.2 million on growth and productivity projects. By business segment, we spent $13.6 million in RUPS, $9.6 million in Performance Chemicals, $13.8 million in CM&C and $1.4 million in corporate projects. Finally, on slide 17, our board of directors declared a quarterly cash dividend of $0.08 per share of Koppers' common stock on November 6th. This dividend will be paid on December 16th to shareholders of record as of the close of trading on November 28th. At this quarterly dividend rate, the annual dividend is $0.32 per share for 2025, a 14% increase over the 2024 dividend. And with that I'll turn it back over to Leroy.

Leroy Ball - Chief Executive Officer - (00:16:52)

Thanks Jimmy Sue Smith Now I'll provide a. Quick review of each of the businesses, starting with our performance chemicals or PC business on page 19. The third quarter saw a continuation of softer demand in North America, our largest market, as residential units pulled back even further while industrial demand turned. Now, while both categories are down by about 3% year to date through September, excluding our known market share loss, residential was down by about 5% for the. quarter compared to last year, while industrial. Was two and a half points higher, consistent with the stronger demand we experienced in our own industrial business. External markers such as the leading indicator of remodeling activity, existing home sales and mortgage rates are all starting to move in a positive, more positive direction. However, customer sentiment remains muted, with most looking forward to putting 2025 behind them and starting fresh in 2026. Outside of tariff impacts, we managed to keep costs in check for the most part, which enabled us to deliver a solid 18% adjusted EBITDA margin on a sales line that was 18% lower than 2024's third quarter. On the tariff front, we did absorb a couple million dollars of direct impact as well as a few million dollars of impact from hedged copper rates. Disconnecting from the US Futures market with flat pricing for the quarter and absorbing the direct and indirect impacts of tariffs, our ability to still generate margins of 18% demonstrate the success we've had in reducing our other controllable costs and the overall resiliency of the business. Moving on to our utility and industrial products business, shown on page 20 we're seeing volumes continue to move in the right direction as each successive quarter this year has seen a greater year over year improvement. Q3 saw volumes up over prior year by 6% as the optimism we were hearing earlier in the year is beginning to manifest itself into sales. Unfortunately, the impact of those higher volumes were offset by the damage from a fire at one of our facilities that impacted results by over a million dollars. Now that we're more than a year out from the Brown acquisition, we're getting an even greater feel for the critical role played in our network by the Kennedy, Alabama facility that came with that acquisition. We've allocated volume to Kennedy where it logistically makes sense and are using it as a primary site for treating the Douglas fir species that we began adding to our product portfolio at the beginning of this year. Getting into that market is opening doors for us that were previously closed in certain accounts where customers didn't want to split their Southern yellow pine and Doug Fir business. Now we're early in the game, but adding that species, as well as adding sales talent and upgrading our CRM technology, is positioning coppers to be a stronger competitive force in our existing markets and I believe we are starting to bear the fruit from those investments. We continue to feel good about the longer term demand outlook for the utility pole market and believe that we can participate meaningfully in meeting its pole infrastructure needs. Our railroad products and services business is summarized on page 21. The third quarter saw another solid quarter performance from our RPS business despite treated TIE sales units being down by 7% compared to prior year. Class 1 units were down almost across the board while commercial units saw a 9% increase from aggressive cost actions and a slight improvement from pricing helped offset the volume decline and drove a year over year 18% improvement in profitability for the RUPS segment.