Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Following the presentation, instructions will be given for the question-and-answer session. Please note that this event is being recorded. I would now like to turn the conference over to Ms. Quynh McGuire. Ms. McGuire, the floor is yours, ma'am.

Thanks and good morning. I am Quynh McGuire, Director of Investor Relations and Corporate Communications. Welcome to our second quarter 2019 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 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 site for replay through September 9, 2019. Before we get started, I would like to direct your attention to our forward-looking disclosure statement. Certain comments made on this conference call may be characterized as forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements, included in the company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The company's actual results performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. References may also be made today to certain non-GAAP financial measures. The company has provided with its 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 and Treasurer. I'll now turn discussion over to Leroy.

Thank you, Quynh. Welcome everyone to our second quarter 2019 earnings call. Before getting into the details of our financial results, I'd like to start with the zero harm update as everything at Koppers begins with safety. I'm proud to report that in total 34 out of 47 operating locations had 0 recordable injuries in the second quarter. We remain steadfast in finding new ways to keep employees energized around the importance of proactive safety engagements, such as safety observations and hazard identification, which ultimately lead to a safer, stronger workplace for everyone. And as part of our ongoing integration process, we're continuing with zero harm training at our utility and industrial products and recovery resources businesses to ensure that all our locations are equipped with the same first rate standard of safety tools and education. Training has been well received so far and is expected to conclude at the end of 2019. And we've also gone live with our lifesaving rules at all of our legacy operating locations in order to provide clear expectations for our employees about the behaviors that we expect in order to ensure their safety. We'll continue to be relentless on safety and reinforce to our leaders that there is no responsibility that's more important than the safety of those within their care. Now, let's turn to our financial performance for the June quarter. After a healthy start earlier in the year, the second quarter results further proved that our overall business is on solid ground and we still have plenty of opportunity for upside. In the second quarter, we delivered record sales of any quarter in our company's history and a record second quarter adjusted EBITDA reflecting the positive impact of the investments that we've made to advance our strategy built around sustainable wood…

Thanks, Leroy. Let's begin by referring to the slide presentation that was provided on our website. On slide four, revenues were $470 million which was an increase of $34 million or 8% from the $436 million in the prior year. As Leroy mentioned, this was a record sales quarter for our company. Excluding a negative foreign exchange translation effect of $7 million, revenues were higher by approximately $40 million or actually 9%. The increase was driven by continued demand for our wood preservation products which reflected higher volumes and higher pricing in our RUPS segment. On slide five, adjusted EBITDA was $65 million and this was a second quarter record or approximately 14% compared with $55 million in the prior year. The strong performance reported by RUPS can be attributed to higher procurement levels of untreated ties volume increases in both the Class I and commercial crosstie markets and overall improved operational efficiencies. Our PC business also reported higher profitability which was driven by increased volumes, new product sales, a favorable pricing mix, improved cost efficiencies and insurance proceeds received which collectively more than offset higher raw material pricing. The favorable results for CM&C were primarily due to permanent savings from a much more streamlined and efficient cost structure and that helped to counter the effect of pricing pressures in certain regions of the world. Now I'd like to discuss several items that are not referenced in our slide presentation. Adjusted net income was $25 million compared with 24 -- I'm sorry compared with $21 million in the prior year. Adjusted earnings per share were $1.16 compared with $0.93 for the prior year. Both adjusted net income and adjusted earnings per share benefited from higher profitability generated by our wood preservation businesses, as well as lower overall selling general and…

Thank you, Mike. Regarding the outlook for each of our businesses, I'd like to start with our Railroad and Utility Products and Services segment. In our legacy RUPS business, the industry data remains lackluster, as rail traffic was slow again, in the second quarter. The Association of American Railroads or AAR, reported that total U.S. carload traffic for the first six months, of 2019 was down 2.9%, from the same period last year. With intermodal units defined, as containers and trailers down 3.2%. Total combined U.S. traffic for the first 26 weeks of 2019, was approximately 13.5 million carloads and intermodal units, which was a decrease of 3.1%, compared to last year. Now the decline in rail traffic was, likely due to a combination of lower manufacturing output, sluggish housing market and continuing tensions with overseas trading partners. The number of heavy-haul loads has declined, from historical levels, meaning lighter weight loads are being transported, yielding less wear on tracks and ties. At the same time, Class I railroads remain focused on precision railroading or finding ways to reduce spending and improve asset utilization, operating ratios and cash flows. As a result, crosstie replacement activities have remained relatively flat, having reverted to below or near historic levels, over recent years. According to the Railway tie Association or RTA, the current industry forecast maintains its projection for replacements of approximately 21.9 million to nearly 23 million crossties in 2019, contingent on having an adequate, supply of lumber. Based upon the first six months of this year, I'd estimate the industry is tracking closer to the low end of that range. As a whole, the industry continues to be challenged with less than ideal levels of inventory according to RTA surveys, of in the fuel buyers of untreated crossties. Now while we've…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have will come from Mike Harrison of Seaport Global Securities.

Hi, good morning.

Hi Mike.

Good morning, Mike.

I would like to start in the RUPS segment, you mentioned the stronger pricing related to commercial demand, is that something that you're seeing in terms of your own commercial sales, or is this more related to maybe some pricing actions that competitors are taking in response to higher commercial volumes?

Well, I don't know. That's a kind of a difficult question to answer. I just -- I can speak to our business, right. I mean We've seen a trend beginning really in the let's say the middle part of last year where we saw commercial demand sort of pick up for us which allowed for I think some opportunities to get price and we've -- because of the lead time in that business, we were able to basically win some business that we're still supplying out into this year that is a favorable pricing. I think, the overall the market's in a pretty healthy position. And I think probably everybody is benefiting from that, but certainly it's been a key component of some of the success we've seen in the last year in the overall RUPS business segment.

All right. And just wondering on the overall Class I demand that you're seeing, sounds like you're expecting that may that could end up toward the lower end of the range. Just wondering if you can talk about maybe that outlook into the second half and into 2020.

Yes, so you have the sort of the two pieces to the business right in terms of having to get untreated product into the facilities and dried and prepare it for treatment before you can ultimately treat it and ship it. I'd say the demand levels have been healthy. We continue to be affected by having enough dry ties to put through our cylinders to ship to customers that's so -- so volumes on the treating side have been relatively muted or flat, but I'd say if we had the -- and we are doing some optimization of ties to help alleviate some of that pressure, but all in all, we might be able to sell a little more volume, if we had greater dry tie availability, but it's -- I don't know that there is a tremendous amount of sort of pent-up demand waiting to be released. I'd say that, right now, it's a sort of a restocking, realignment of inventory and in steady demand.

All right. And then over on the PC side, I was wondering if you can talk a little bit more about what you're seeing in the copper intermediates facilities? Are those running where you want them to be or is there still some improvement to come in terms of costs in the second half?

Yes so, they are not -- let's put it this way. They are within sort of an acceptable range of where we were expecting them to be at this point. There is still some potential further improvement, we could get out of them and we're continuing to work on that. But I'd say, any further improvement in the second half from that is probably going to be minimal at best. We've extracted a good bit of the benefit at this point in time. So it's just a small incremental piece that might be left on the table.

Okay. And then last question for now is just regarding the $80 million of planned debt pay down, you also said that you expected to end the year debt free in China. I believe you said that was $56 million worth of debt pay down. So the question is, is that Chinese JV debt consolidated on your balance sheet and is that pay down part of the broader plan to reduce debt by $80 million or should we think of that as being incremental or additive to the $80 million.

Okay. It's a good question. I don't - want to make sure that people aren't confused because the $56 million that we referenced in the release, was $56 million of debt that we had on the books back when we finished that facility at the end of 2014. Okay. So in the course of the last five years, we've gotten to the point now, where we will eliminate that debt by the end of this year. Okay. So we came into this year not with $56 million of debt on the books for that business, something much less than that. Mike do you remember off hand what that was?

I think it was $20 million.

It was $20 million at the beginning of this year.

And we paid a substantial amount of that debt.

And yes it is consolidated. Yes it is part of the $80 million. So but it's -- but $56 million isn't in the $80 million right? It's $20 million that's in the $80 million.

All right, thanks for that clarification.

You're very welcome.

Next is Chris Howe with Barrington Research.

Good morning, everyone.

Hi, Chris.

Hi. Just following up on the PC segments, it's encouraging to see that you're still on target to the 5% to 8% overall volume growth for the year, assuming normal demand conditions and the increase in the lower end of your adjusted EBITDA guidance. As we look at the demand environment, how would you characterize or add additional color to where it is now and what it would take to reach a positive or normalized demand environment and perhaps drive your unit volume closer to that 8% or beyond it as we look to the remainder of this year and even beyond this year?

Yes. So, just to remind everyone, right, the 5% to 8% there that wasn't all organic. That was some market share wins that we expected to be able to deliver, it's sort of a mix of half and half if you will. And we have been actually successful on the market share win. So that piece of it we've got. On the organic side, the year sort of started off slower than what we expected in terms or what we were certainly hoping for in terms of the range -- the normal range that we would expect for organic growth in that business. But we have seen a nice uptick in the second quarter and actually heading into the third quarter. So I think there are different things at different points in time that will affect these volumes for at least a short period of time. We're at a little bit of volatility. And certainly, we've talked about lumber prices both on this call and in the past as being one of those things that kind of impact it. Our customer base is heavily at risk to changes -- sudden changes in the lumbar markets and as they move, they’ll make decisions on where they’ll keep inventory levels or push inventory levels to based upon that. Volatility is difficult for them to take on a whole bunch of risk in terms of building a bunch of inventory, not knowing which way the market may turn on them. So we like a stabilized market because then it tends to lead to more stabilized procurement and inventory levels. And so, we saw some of that volatility in the first half which we believe help to contribute to maybe some of the volume being a little shorter than what we thought. Of course,…

That's great. And what's your take on you mentioned the environment with home sales in the South and West experiencing declines. What's your take on there being a pent-up demand or a pent-up backlog of home buyers in the existing market who are being priced out of these homes and whether in 2020 or beyond those buyers can start to funnel through and start to remodel homes and purchase new construction homes. And then a little outside of the box with the South and West experiencing pressure, is this the right or wrong way to think of it. Is there a way to realign the sales distribution strategy to capitalize on the markets that are showing slight growth?

So first question, Chris I just I'll profess to not being smart enough to answer that question. That's why we rely upon the experts out there to provide the information and we certainly use it to help inform us and help inform you as to the things that will lead us to either some optimism or pessimism within our businesses for us. I'd say overall, because of the choppy activity there, it's provided -- it's had us be a little more cautious, right. So I'll rely upon the people who are immersed in that stuff every day to provide their thoughts and we'll rely upon that. Also I'll say, I'll remain a little more pessimistic than optimistic in terms of the overall environment over the next couple of years and more in a sort of show me attitude towards the existing home sales and what could potentially happen as things develop, because there are so many factors that go into it. In terms of sort of realigning our sales and distribution strategy to focus more on sort of pockets of the geography that are showing more signs of growth, I'll say we -- overall, we are certainly heavily invested both from an infrastructure standpoint as well as from a human resource standpoint East of the Rockies and there is opportunity for us to do more West. We know that we understand that, we have been looking at that and have or it's for us it's all around developing plans that we think would enable us to get into those markets where we have less exposure to then we do currently and whether we think we can get an adequate economic return to do that. In the meantime, we're pretty strong obviously in the Southeast, in the Northeast, in the Midwest. And we'll just look for continued opportunities to build on our capabilities there streamline our cost structure, provide for optimize channels to market, we'll continue to focus on all those things to strengthen our business in the areas where we are strong as well looking for opportunities to grow in some markets that we have less exposure to that could be nice entry points. The best way I can answer the question. So…

No that was interesting. Thank you for the color. And the $15 million to $30 million in savings that we're looking at.

Yes.

Is there anything in the buckets or the funnel that could potentially accelerate those savings, or is it best to consider it ratably?

Yes. No. So there is. All right. We're looking at it from a -- we're looking at those savings ratably across that time period, but the reality is it will probably be lumpy, because there are things that are more project oriented. That will develop based upon the ultimate execution of particular projects, right. Some of those are well within our control to be able to deliver on a certain timeframe; others, there's other parties involved. Right? And so, whenever you have other parties involved. You can't operate necessarily to your own timeline. So if some of those things happen to occur earlier then you might see some lumpiness where some of that's pulled forward and you have less in the -- maybe, in the outer years, or it could work the opposite direction as well. We have a funnel that has a bunch of different things in it that we're pretty confident in our ability to deliver on those numbers, but how they ultimately get reflected out over those years will most likely be in a lumpier fashion, but we have no better way to project it other than to sort of ratably project it right now until we have better information.

Okay. Thank you so much for taking my question.

Very welcome.

Next we have Liam Burke of B. Riley FBR.

Good morning, Leroy. Good morning, Mike.

Hi, Liam.

Leroy, you talked about -- well, you have successfully taking share on the KPC front with your proprietary technology. Is that route of revenue growth gone or do you see other opportunities to take further share?

Yes. On the PC side.

Yes.

I consider it a huge accomplishment, what we've been able to do this year, to be quite honest with you. So, yes, I just -- I think, that it's unrealistic to believe that we can continue to penetrate further into the markets that we're already serving, therefore, our flagship product for sure. I'll not say that there is -- it can't -- it won't happen. There's still some opportunity out there, but the bigger you are that's great, but that also creates more risk that you've got -- you have more to lose too. And what we don't want to be in is a business of just trading customers. So, I'd say, I don't count on there to be further major share wins for us in that business and I would probably guide you and others to also think that way. If it happens, fantastic. But I certainly wouldn't count on that, as being a driver of ours.

Okay. And you laid out growth opportunities that you're always exploring. Cost side, you've been pretty clear across all three business segments. Are acquisition still in the mix? I know debt reduction is a priority, but you do have capital to allocate and how does that fit in?

Yes. We -- so it's one of those things, Liam, where I feel like we -- if it is an opportunity that fits within our stated strategy, that will help to drive our strategy forward and the economics look right for us and we think we can take that on without adding further risk to the company. We will absolutely look at that. I'll tell you, we are regularly in conversation around a handful of different potential transactions. So we continue to explore opportunities, but we're balancing the risk side of the equation with that as well. So I certainly won't sit here and tell you that acquisitions are absolutely 100% off the table, but you can be sure that if we end up doing something in that space, it will be well thought out and we will have taken fully into account what that means from an overall leverage and risk standpoint.

Great. Thank you, Leroy.

You're welcome.

Next we have Chris Shaw of Monness Crespi.

Good morning, everyone. How are you doing?

Hi, Chris.

Just a point of clarity on the KJCC, have you received the determination from the arbitrator yet, or are we still waiting on that?

Well, so, we can't really comment on that. Other than to say, obviously -- I think, it's -- one should believe that if that was to occur that we would have to make a public announcement about that. So…

Okay. Thank you. And then, in CM&C it was a good quarter, a bit better than we had anticipated. You mentioned, the demand for carbon pitch. Now is that a significant part of year-over-year growth? And I wonder, do you believe if the trade war end somehow or the tariffs are lifted that, that business would then sort of recede a bit?

I don't think so. I mean, certainly I don't think the business will recede and for us, because of how we've resized our operations, right. It's a little different for us. We don't chase that business the way we used to chase that business. So it's important to us. Don't get me wrong. And certainly, we do everything we can to be the most value supplier to that customer base. And I think we've done a lot actually through the actions we've taken in the last four-and-a-half years to further demonstrate our value to that industry. I'm not worried about an impact from any de-escalation of tariffs in that market, having a material impact on our business. It's the best way, I guess, I can say it.

And was that meaningful for the quarter? I mean, like, the growth in the quarter mostly due from the pitch growth, because I know I think some of the other stuff should be, I think, falling year-over-year?

Well, that's certainly the biggest component in that space. So it would have the majority probably of the -- it would have the majority of the impact within our operations in any given quarter. Now, last year actually we had -- believe it or not we actually had in the second quarter better earnings out of our China segment on that side. This year we had a planned outage in the second quarter and so that was really the driver for why our numbers were down second quarter this year versus last year of that segment, but across the other geography - across the other geographies, we were able to -- if you will balance that out and still able to ultimately deliver improved results year-over-year which again, I think has a lot to do with the whole streamlining that we've done in that overall organization. I'm just going through the numbers here. Certainly, I mean, there's no question that our carbon pitch products tend to drive that business in and made the biggest impact, but we did see some higher demand from our phthalic products as well. And while I did say, we've seen softness in that market, which we have so it might sound contradictory to us seeing a little better volumes. I'd just say, we had expectations for that market to be stronger than what it's ultimately turned out to be for us this year.

Okay. And then just to go back to the debt pay down goals, as you get down -- as your goals get to down another turn by the end of 2020?

Yeah.

That's how do you get there? I mean is that would be bigger than sort of an $80 million that you're going to pay down this year.

Yeah.

And even if you sort of include some sort of EBITDA growth. How do you imagine is it going to be more debt pay down next year or more EBITDA growth that we're thinking right now or so it's going to toggle depending on what happens and certain things going to toggle between the two?

Yeah. That I think you're going to see some combination of both of those. You're going to see. We expect EBITDA growth, we expect further debt reduction. And we still have some levers to generate some cash outside of that that are, let's say, transaction based and so that is in the mix as well.

Great. Thanks a lot.

You're very welcome.

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

Okay. Thank you. Yeah, I'd just like to thank everybody for your continued interest in Koppers. We'll continue to do everything we can to deliver on the commitments that we've made and happy with the first half of the year we've had so far, but we have a lot of work to do in the second half. Look forward to continuing to execute on the important projects that we have in front of us and look forward to having that discussion with you again next quarter. Thank you.

All right. Thank you, sir. The conference is now concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines. Thank you again.