Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Koppers Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note, that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead.

Thanks and good morning. I'm Quynh McGuire, Director of Investor Relations and Corporate Communications. Welcome to our second quarter 2018 earnings conference call. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.koppers.com. As indicated in our earnings release this morning, we have also posted materials to the Investor Relations page of our website that will be referenced on today's call. Consistent with our practice in prior conference calls, this is being broadcast live on our website and a recording of this call will be available on our site for replay through September 10, 2018. Before we get started, I would like to direct your attention to our forward-looking disclosure statement. Certain comments made during 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 it's 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 and the Company has provided with it's press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are, Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. I'll now turn the call over to Leroy.

Thank you, Quynh. Welcome everyone to our second quarter 2018 earnings call. Let's start by reviewing the latest progress made on our journey to Zero Harm. In early 2018 we introduced our life saving rules workshops designed to help mitigate the most high risk activities while giving our people greater peace of mind about their safety on the job. Since then, employees at all Koppers legacy facilities across the globe have completed this critical component of our ongoing safety education efforts. In addition, we're working hard to introduce the newest members of the Koppers team from MA Energy Resources, and Utility and Industrial products to our Zero Harm culture. The training and the foundations of safety and life saving rules are currently being delivered to our employees at those locations with more to come. To date our Zero Harm training has been primarily focused on frontline employees who engage in our Company's most inherently hazardous processes, we're now deploying the training to include our corporate staff as well. As we continue to advance our culture, it's important that everyone in our organization has a strong understanding of the effects our day to day words and actions are going to have on safety. Additionally, coming up in September we'll again be gathering our top global leaders in Pittsburgh for our third annual Zero Harm Zero Ways leadership form. This event is always energizing as it provides an opportunity to reaffirm our commitment to leading safe and responsible operations, discuss ongoing challenges and opportunities, and take part in skill building activities and learning sessions related to safety, health and environmental topics. I'm pleased to share that Koppers total recordable rate including our newly acquired locations has continued to decline through the first six months of the year putting us on pace for…

Thanks, Leroy. Let's start with the slide presentation that we provided on our website. On Slide 4, sales were $436 million which was an increase of $58 million or 15% from the $378 million in the prior year quarter. CM&C reported higher sales prices across all regions for carbon pitch and carbon black feedstock with Australasia and Europe experiencing favorable pricing trends due to tight supply. PC recorded slightly higher sales; however, we have been seeing a recent trend of customers reducing or delaying their wood-treating activities due to their higher lumber cost. RUPS reported increased sales which were primarily due to our two acquisitions, as well as higher volumes of commercial cross-ties and rail joints which was partially offset by reduced volumes from the Class 1 railroad customers. As we move on to Slide 5, we will see that adjusted EBITDA was $55 million or 13% compared with $56 million or 15% in the prior year quarter. While the CM&C delivered significantly higher profitability it was more than offset by the lower margins from both PC and RUPS. For the quarter, on an adjusted EBITDA basis CM&C again delivered substantial margin improvement due to favorable market and pricing trends and a more streamlined cost structure, partially offset by higher raw material costs in Europe and Australasia. While the adjusted EBITDA for RUPS was relatively flat compared to the prior year quarter, the margin was slightly lower due to continued demand weakness in Class 1 sales as well as higher costs associated with limited availability of lumber for railroad cross-ties. PC also reported lower year-over-year profitability driven by an unfavorable sales mix, higher raw material prices, and higher selling, general and administrative costs. Now I'd like to discuss several items that are not referenced in our slide presentation. Adjusted net…

Thanks Mike. Regarding the outlook for each of our business segments, let's start with our Railroad Utility Product and Service business. Revenues from the legacy RUPS business are showing improvements in the commercial crossties rail joint markets. However demand for Class 1 railroads remain at relatively low levels, and with sales from the recent acquisitions we expect that RUPS year-over-year profitability will be up by $15 million or 38%. According to the Association of American Railroad or AAR, 14 of the 20 primary commodity categories achieved carload gains in June, and that marks the third straight month in which at least 14 categories were up in the longest streak since late 2014. The longer term outlook remains solid for railroads in the economy although we continue to watch for threats including potential trade disputes. Total U.S. carload traffic for the first six months of 2018 was up 1.3% from the same period last year while intermodal units saw a 6% increase. Total combined U.S. traffic for the first half of 2018 increased 3.7% compared with last year. Now let's move on to crossties were rising raw material costs related to increased demand for hardwood has led to limited availability and higher pricing of wood for untreated rail crossties. According to the hardwood market report, demand for 7/9 crossties was quite strong and much higher than the current supply. The most recent Railway Tie Association data shows the tie inventory for decline for 13 consecutive months and tie purchases are expected to weaken further in the current year. And lot of the data certainly suggests challenges, on a positive front there has been substantial interest from the rail industry in our commitment to providing a more sustainable solution for their used tie disposal through our MA Energy acquisition. But today we've…

[Operator Instructions] The first question will come from Roger [ph] of Bank of America Merrill Lynch.

Can you remind us how -- with Class 1 crosstie volumes going lower as customers moves from a fully treated crosstie from the treatment-only service model? It sounds like that would increase volume but maybe I'm not understanding that clearly.

The two are actually separate, right. So the industry has been moving now for some time to a treated tie model, and as you transition, you're basically taking untreated crosstie working capital that is on the railroad books and essentially overtime converting it into our working capital. And so rather than bifurcating the sales process into an untreated tie and then the treatment preservative and treatment process, you're now waiting until the end carrying all the working capital and selling a fully treated ties. So you have to work through their inventory to get to the point where you're now selling a fully completed product as opposed to just the treatment process and the treatment preservative. So when we talk about the industry itself demonstrating lower demand, it doesn't have anything to do with that change in the business model, it's more just a relative demand dynamic as they have pulled back on their tie insertions over the past year or so, so we've seen a step back in demand from that but that's unrelated to the program.

And [indiscernible] volumes, maybe you've mentioned in the prepared remarks but why were those volumes down?

It's a good question, we have a good portion of that market. Sometimes we -- again, we just see some shifts and changes in a given quarter. I'd say our volumes really overall have been down across basically all of our product categories as we've scaled back and essentially shrunk our operating footprint; so some of that could be due to just us contracting in the volume that we're actually producing and some of it is likely market related but I don't have a specific answer to point to. I'd say overall the business is pretty healthy, so even the fact that volumes might be down, obviously when you take everything into account the markets in general have never really been better.

Obviously, I answer same on the covering pitch volumes, and I don't think this has to do with your past shutdowns because I think that's been fully anniversaried. So -- or maybe is that incorrect, that has not been part of the reason volumes are down across the segment is partly due to the higher shutdowns?

Well, you know we operate around the globe and again, different regions are going to be in different spots at different time. I did mention the fact that our China business essentially did very little activity in the second quarter as our large customer was working through their maintenance turnaround; so we -- big part of the volume decline on the pitch side would have come certainly out of China in the second quarter. Overall, we own -- there is only so much raw material to go around and we are more or less confined to only being able to supply what we have the ability to produce and that's a limiting factor as well. So again, a combination of different things, the markets are strong, pricing is obviously pretty high which creates some sensitivity -- I think also in volumes; so it's a play back and forth between trying to get as much price as you can without affecting volume but the market -- again, the market temperature and market dynamics overall are at a pretty strong position, we like where we're at. The limiting factor for us is going to be -- and really, the industry is going to be how we supply it because there is only so much coal-tar to go around.

In PC, was the intermediate chemical that you're referring to is at basic copper carbonate?

It's a copper -- without getting into specifics it's a copper based intermediate raw material, yes.

The next question will come from Chris Howe of Barrington Research.

I had a few questions here. The first is just in regard to some of the recent acquisitions that you've done; how the pricing environment is looking and are you looking to be more opportunistic rather than looking into acquire companies? And with the leverage ratio going to 3.5 times by the end of the year, is that kind of where we should expect it to be moving forward or is there room to expand that given the right opportunity?

When you talk about the pricing environment, I just want to make sure I understand your question correctly. You're talking about the pricing environment in the M&A market? You're talking about the pricing environment in the markets of the businesses we've bought?

M&A market.

In the M&A market. So we continue to obviously look at opportunities, I think it -- obviously, it always comes down to the buyer's expectations. I think the overall M&A market is expecting in seeing higher valuations. The companies for the most part that we're looking at are smaller businesses, they tend to be more closely held, in many cases family-owned businesses, so you're dealing with emotional aspect of it as well. We want to be smart about any acquisition that we make, so I don't expect us to really deviate much from our methodology. If we see an opportunity to bring a business in and it has great synergistic benefits, we could be willing to pay a higher price. But it really comes down to -- each acquisition is a little bit different, some we're seeing again in the -- I'd say, some we're seeing in the six to eight multiple range and others we're seeing there higher than that, and double digits and higher; so it's the mix.

Just within the different buckets, as far as the trends that you've provided a lot of color on -- is there anything else there or is there an internal expectation that some of these trends may begin to shift as we look little bit further out than this year?

I think that -- so we give annual guidance, right, we don't give quarterly guidance and we give annual guidance because we know that there is a lot of things that move around within our businesses, and so -- and we always know that there is -- we know we're going to be wrong with everything we choose, some we're going to be wrong to the upside, some we're going to be wrong to the downside, we try to provide ourselves enough buffer for things to move against us. So as I look to coming out of the first quarter, certainly there was an expectation on our part that we would see some pent-up demand coming through the performance chemicals business. In fact, when we were doing our call in early May, we had seen some of that develop in the early part of the quarter but it quickly flattened out; and so it didn't really materialize in the way that we thought. That was quite frankly, a reason for sort of the gap in what we saw in the second quarter because we had no China operations really operating at a level that we would expect over the back half of the year to sort of back fill that. So, we had buffer built into our numbers to account for certain things that might go against us somehow; so it's reduced our margin for error but overall, the trends on the carbon material and chemical side, we don't see it changing really any time soon. When aluminum smelters start talking about restarting idle pot lines and things like that, those are long-term decisions. The market is tight from the raw material supply, and so we're working creatively to figure out how we can participate in a very very bullish market for our products, and we have several good ideas that we're working on. So I don't see those trends really shifting or changing anytime soon. But going to the third product business segment on the rail side, again ties -- the tie market is a fairly soft market on the Class 1 side. While there -- we're expecting some improvement, we don't expect that to -- really don't expect that to go back to the historically high levels that we thought three years ago; so that's a trend that we again also continue to expect is going to continue for some time with maybe some modest uptick. So that's more or less the color around the different business segments. Is that what you're looking for?

Yes, that is. And then just one last question if I may sneak it in. This in regard to margins; on a go forward basis you mentioned the efficiencies that you're extracting within the cost structure. How should we assess margin levels moving forward this year and beyond that?

I think that our target has been as we've been working through -- our planning processes has been to deliver low to mid teen average EBITDA margin, that's where we want to be, we want to be somewhere certainly as high as we can drive it but we certainly want to be at 12% to 15% which is our really -- I think target and realistic sweet spot. We were there certainly, well within there for the first six months of this year, we'll likely drop back a little bit in the back half but still be comfortably within that range. And I think on a go-forward basis depending upon where different markets stand at different times, we'll want to wait some more within that range but that's where I would see it at somewhere in that 12% to 15% range.

The next question will come from Liam Burke of B. Riley FBR.

Leroy, you mentioned the Stickney is testing on-schedule and you'd expect it to be up and running fourth quarter this year. In terms of Follansbee, when would you anticipate Follansbee service essentially being taken offline and the benefits of the transportation cost savings -- what would be the timing, when would you realize -- what's the timing of that realization?

So we'd expect to realize some of that in the fourth quarter but we also need to make sure that that unit stabilized out in Stickney as well. So I'd say we expect some of it to come in the fourth quarter of this year but we won't have all of it in the fourth quarter this year. Is that accurate?

Yes, the majority will come in 2019 Liam.

And on the copper side or the input costs on KPC, is there any pricing flexibility you have with your customers?

Most of our larger customers I'd say, no, because we more or less lock in in many cases multi-year agreements with them except pricing, that's when we hedge the underlying copper price, right. So it's for the stuff that -- so there might be some pricing flexibility in some of the smaller customers but that tends to run into quite a bit of competition as you might guess out in the market to more market share that we've been able to earn. And we have an industry that is pretty competitive, and the more market share that we've been able to gain, it causes different reactions that can have an effect on pricing in the market. So you always have to be sensitive to that, and certainly our customers reminded us of it, there is no question about that. So, I think our pricing ability for certainly the near-term is somewhat limited.

And then on the operational front, you didn't work on expanding capacity because of increased demands, to avoid purchasing outside -- that ramp has not been assessed as anticipated; when do you expect a steady state? I mean it's going to be -- is the steady state going to be a '19 event or any kind of benefit this year?

I think there is going to be some benefit in the second half as we stabilize the operations but in terms of sort of putting the remaining capacity in place in and essentially supplying all of our own intermediates, that's a '19 event. But I think the need to buy -- the need to -- or let's just say, we will I think need to buy less on the open market in the second half as we stabilize the new capacity that has come online that we've had some issues with here in the first half of the year.

The next question will come from Scott [ph] of Emerald Advisors.

Leroy, just following up on Liam's question; can you remind us how much additional capacity that you're going to be -- that's going to be available once you're done with your PC expansion?

From a standpoint of where we are today I believe we're about 38 million pounds of copper that was scrapped up or that we buy based on our current production levels, and that is supplemented by what we buy outside and I believe -- I'm not sure of this number but I believe when we're all said and done, that 38 million pound level goes up to about 45 million pounds on an annual basis that we're going to be able to produce internally which at that point in time is 100% of what we need.

And you did mention that you have a portion or the majority -- I guess the overwhelming portion of your sales and customers are contracted. Have you ever given anybody or have you ever given us an idea as to how much of that is not?

No.

But is there a small portion that could benefit from -- I mean, we've seen certainly in the last quarter a 20% or so decline in the price of copper. So is there any benefit at all that you should get from that or is it just to -- the amount is just so diminimus [ph] that it wouldn't be impactful?

It would be a benefit but it would be not very material, but it would be a benefit, no question about it.

Can you go through the China coal-tar pitch pricing situation; you did mention that you expect for the rest of the year pricing to be somewhere between where we were in Q1 and Q2, obviously there is some negotiations going on there. I guess since you don't really have a set price or you've mentioned that you expect pricing to be higher obviously and your customer would like to be lower…

Scott, I have to be careful -- I really have to be careful, I mean I've been advised to really keep my comments around that old situation to a minimum as we go through the process because really the process we're going through is to try to gain agreement on how that pricing gets set. And so I just think it would be the best for me to really not -- the less said for me, the better. We described it in the call, we expect pricing in the second half of the year to be net average somewhere between first quarter, second quarter; and therefore result would be somewhere between first and second quarter.

And just -- I guess with regard to that situation, is there -- I understand that you have contractual volume with that customer but if you don't reach an agreement is there any possibility that you could move that volume somewhere else?

Yes.

The next question will come from Chris Shaw of Moness, Crespi.

I thought Leroy you mentioned that the commercial market was heating up, I think from in terms of your point of view -- what's -- given a little more color there, why isn't that translating more to the Class 1's and will we ever -- I mean, we're never going to get better that level from three years ago; why is that? Why was that such a high watermark?

Well, I think again -- as -- I know coal shipments have been up a little bit here within the last 12 months or so but still if you look at the longer term trends, coal has become a much lower piece of their overall business. And so a lot of the heavy haul that basically takes the wear on the track is -- it has been replaced by intermodal shipments or at least replaced in some regard by intermodal shipments and as they've worked hard to try and get their operating ratios driven down, they've taken a tougher or more critical view of their network. I think some of the time inspection technology is improved which has allowed them to maybe with a little more confidence decide what they are going to replace and what they are not going to replace. And I think it's all had an impact on bringing some of the numbers down. Certainly the technology is not going to get worse, it's only going to continue to get better and with this intense focus on trying to keep their cost levels down I think they're going to continue to put pressure on the infrastructure. And on the commercial side, a lot of what you end up seeing as we talk about is, they get more or less in many cases the leftovers and even though demand in the Class 1 market says -- has come down, it's tougher and tougher to get your hands on hardwoods at decent pricing. And so it's moving pricing up there in that market and there is some pent-up demand because basically it's just tough to get your hands on -- enough on three to crossties to be able to supply the market as it is.

And then just -- what is the expected cost benefit on an annual basis for the new naphthalene plant at Stickney? And what's shutdown the other one?

Well, we've realized a lot of that at this point because that plant is basically already gone through a process of taking their car operations down significantly; so they're more or less only run the naphthalene units a day. So we have some people costs, some logistics costs -- Mike, do you want to comment on what you have on that?

Yes. From a logistics cost standpoint because we will have one fully integrated CM&C plant in the U.S. and we can start moving product around -- from a couple of different facilities. Our initial estimates were just the logistics savings only, somewhere in the $12 million to $15 million annual range. And again, as Leroy mentioned, we're not going to see a lot of that if any of that in the latter part of 2018 but on an annualized basis and for the most part 2019 going forward we should be in that $12 million to $15 million cost savings range, again specifically with logistics moving product around versus having one fully integrated plant where that -- where those products stay within that facility alone.

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

Thanks everybody for taking the time to participate on today's call. I want everybody to understand we remain committed to delivering strong performance, and we thank you for your interest in Koppers and your continued support. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.