Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Q2 2022 Earnings Conference Call and Webcast. 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 will now turn the call over to Quynh McGuire. Please, go ahead.

Thanks and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our second quarter 2022 earnings conference call. We issued our press release earlier today. You may access it via our website at www.koppers.com. As indicated in our announcement, we've also posted material 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 November 4 2022. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on slide two. 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 on 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 achievement 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 non-GAAP financial measures to the most directly comparable GAAP financial measures. Today you will hear from the following. Leroy Ball, President and CEO of Koppers and Jimmi Sue Smith, Chief Financial Officer. I'll now turn it over to Leroy.

Thank you, Quynh. Good morning, everyone. We're pleased that you're joining us today to review our second quarter results. While we're still dealing with many of the headwinds that we talked about last quarter such as inflation, as well as pandemic and supply chain issues, Koppers delivered record sales in the second quarter. And we continue to make great progress in optimizing and expanding our business on our road to 300 million in adjusted EBITDA in 2025. We have much to share with you regarding each of these topics and more. But first as we always do, we like to update on our Zero Harm efforts, which begin on slide four. In July, a number of senior leaders joined me in traveling to our Muncy crosstie treatment facility in Central Pennsylvania to present plant manager Al Rutz and his team with the 2022 Zero Harm President's Award. Our team at the facility provides treated crossties to class one and commercial railroads, producing more than 900,000 crossties in 2021 alone. The workforce in Muncy achieved best in company performance in safety, environmental responsibility and innovation metrics. They ranked number one among all Koppers facilities worldwide in the effective use of leading indicators, those activities that demonstrate their commitment to identifying and eliminating hazards and are proven to help prevent safety incidents on a daily basis. In addition to the recognition they received, the plant received funds to direct to the charity of their choice in their community. They selected the Ronald McDonald House of Danville, Pennsylvania, who sent their Executive Director, Michael Turlis to happily accept. Congratulations to plant manager Al Rutz and his team at Muncy for truly embodying our Zero Harm culture. On slide five, we see that in the second quarter of 2022 a total of 23 of…

Thanks Leroy and good morning everyone. My comments are based on information contained in this morning's press release, which provided our results for the second quarter of 2022. On slide 8, consolidated sales for the second quarter of 2022 were $502.5 million an increase of $61.5 million or 14% compared with $441 million in the prior year. This was our second consecutive quarter of record sales. By segment, sales for reps increased by $8.7 million or 4.5%. Sales for PC, increased by $4 million or 2.7%. And sales for CM&C, increased by $48.8 million or 48.8% compared to the prior year quarter. On slide 9, second quarter adjusted EBITDA on a consolidated basis totaled $54.6 million or 10.9%, compared with $65.6 million or 14.9% in the prior year quarter. The decrease in year over year margin reflects the peak of pandemic fuel profitability experienced in our PC segment in the prior year quarter, juxtaposed with timing impacts from the current inflationary environment as well as the impact of an insurance recovery in our CM&C business last year. Results for our RUPS segment are shown on slide 10. Sales for RUPS were$ 204.2 million compared to sales of $195.5 million in the prior year quarter, primarily due to pricing increases across all markets especially crossties and utility poles. Additionally, we're seeing higher volumes in our railroad bridge services business, partly offset by volume decreases in our utility pole business. Mostly due to capacity and transportation issues driven by the current labor shortage as well as the transfer of some production from a third-party to our facility in Somerville Texas in the prior year quarter. On the procurement front, market prices for untreated crossties have been stabilizing, although at elevated levels. And we are seeing the start of the improvement we expected…

Thanks, Jimmi Sue. I will begin by sharing the notable happenings across our company during the second quarter. Now seen on slide 18, we're happy to welcome Kevin Washington to Koppers as Vice President of External Affairs. He's responsible for managing relationships with federal state and local government agencies, leading the company's legislative and regulatory public policy strategy, engaging with local community and industry stakeholders and overseeing our corporate communications function. Kevin comes to Koppers with more than 20 years of experience in these areas, most recently as head of government affairs at Illinois Toolworks a global manufacturer of industrial products and equipment. Slide 19 features Jeff Senchak director of transportation logistics accepting the 2021 CN Safe Handling Award on behalf of Koppers for outstanding work in safety-related tasks surrounding rail equipment. This recognition can be attributed to our dedication and continuing efforts surrounding Zero Harm and responsible care. CN, a world class transportation leader presents its safe handling award to customers, who load freight cars with dangerous goods and meet strict standards for the safe handling and shipment of regulated products. On slide 20 is another example of how our teams worldwide continue to take the Zero Harm culture to heart in very practical ways. On a recent visit to our Ashcroft facility in British Columbia, I met the onsite team there, including David Sam, a mill operator. Now based on his years of experience David brought forth an idea of issuing different colored hard hats to employees based on their experience and skill sets. This simple yet effective idea has been accepted and implemented at Ashcroft. Newer employees wear yellow. Those with life saving skill certification wear blue. This immediately visible designation helps team members know, which of their colleagues may need more guidance regarding safety procedures and…

We will now begin the question and answer session. [Operator Instructions] And the first question is from Chris Howe from Barrington Research. Please go ahead.

Good morning, everyone. Thank you for taking my questions.

Hi, Chris.

I wanted to start on the slide where you mentioned the third-party truck assets as we consider this versus having your own drivers do it internally. Can you start here and just talk about the labor challenges and moving beyond this the labor challenges that you're experiencing in the other segments? And once the labor environment does show some level of improvement how you expect that to benefit the overall profitability of the company?

Sure. I mean, we'll just start by saying labor as you point out and as we pointed out in our prepared remarks has been a significant challenge. It's been a challenge I think that all companies have been faced with. Trucking has been a challenge certainly for the past couple of years and I think will continue to moving out is again that industry faces a shortage of drivers. So we're trying to do some things to where we can even incentivize some of our folks within our businesses working out at the sites to potentially move into that profession. And we're seeing a little bit of early success in that but obviously that creates issues within the plants as well. So it's going to take a little while. I think until things settle out and certainly a strong economy is not helping in that regard in terms of individuals having a lot of choices and in making different decisions coming out of the pandemic. So we're doing everything we can to increase our recruiting efforts and we've made some headway in that regards as well. So we're starting to see a little bit of improvement out at the sites. But it's a challenge that's going to continue to persist throughout this year and certainly into next. It's one of those things where there's certainly a cost to us in terms of having high turnover. There's a cost from a safety standpoint. There's a cost from a training standpoint. There's a cost from a productivity and efficiency standpoint. It's hard to put your fingers on exactly what that is, but I can guarantee you once we have greater stability within our operations there will be meaningful improvement as a result.

Okay. And then I'll ask one more even though I have quite a few other questions here. As we think about existing home sales decreased in June five consecutive months of declines we're in this environment of rising interest rates although some of them have pulled back. But it would seem to me that the PC segment as a whole is more resilient through an environment. And that on the other side of this as inventory returns interest rates taper and some of the buyers who perhaps left the home market come back in to a much more favorable housing market price that your repair and remodeling business could get going and we could see more decks being built and so forth similar to what we saw in the pandemic , maybe slightly lower than that but it would seem like levels could return once we look beyond the valley.

Yeah. That's certainly all I think true Chris. We're actually very pleased with where our volumes are at as we sit here today. Our volumes right now are not the issue and we don't expect that they're really going to be moving forward. There's been nice growth in these markets over the past couple of years. Certainly, we've taken some share which has helped as well. But just as I -- again, I pointed out in the prepared remarks, last year was a record second quarter and we were still feeling pandemic-fueled demand up through really the middle of June. So, comparatively speaking, our micro pro volumes were down by about 1% from a volume standpoint in the second quarter. So, they held up pretty nicely and our CCA volumes were significantly stronger just because of its displacement of Penta that's moving out of the market. So, I think that volume has held up well and will continue to hold up well moving forward. Yes, obviously, interest rates rising, existing home sales slowing, typically are markers that indicate potential slowdown in this business but you're right the repair and remodeling market is a pretty resilient market. And I just say at this point in time, we haven't seen any pullback to-date. And if there is we don't expect it to be meaningful in the grand scheme of things. Our bigger near-term issue that we're working to resolve is in getting those ever increasing cost increases pushed through. And that's what we're working on here that we expect will be in place in terms of our bigger customers by the end of this year heading into next, next year. And good news is in most of our major cost components we're starting to see things crest. And so there's still some work to do on our non-contracted customers and we'll see some of that come through and benefit us in the second half. But I like where the PC business is overall. The markets are still pretty strong and inventories are low. So it's still in a decent spot here as we enter the second half of the year and 2023 we certainly expect will be much stronger.

And as you put through that January price increase do you anticipate keeping some of this price as some of the cost pressures alleviate in the PC segment?

Well, it's a good question. Unfortunately, we haven't seen anything alleviate thus far other than copper pulling back a little bit. And we've had a certain approach with our customers as it relates to copper anyways it's gone up and down over the years and we'll continue to work with them on a model that helps them be successful which helps us be successful. So, for us, it's about balancing being able to get price and retain our volumes as well. Obviously, we don't exist out in the market without any competition and so we realize that our customers have choices and we do everything we can to make sure that we're in the best position to win the business and to get fair value for our products. We'll continue that approach. And again I'm confident in our team and I'm confident in our business model that'll result in successes as we head into 2023 and I think a good bit of the price increase will stick longer term because I don't think some of these costs are necessarily going away. From that standpoint, I think we should be able to hold onto most of it.

Great. Thanks for taking my questions.

Thank you.

And the next question will come from Chris Shaw from Monness, Crespi, Hardt. Please go ahead.

Good morning everybody. Could you help me just figure out with -- so with copper prices falling and you have high cost inventory and if price increases I believe for CCA. All the moving parts there, how's this going to impact the I guess second half profitability in that segment or even going more forward? And I know you have hedges for copper too. How does that all just sort of shake out over the next I don't know six to 12 months?

Yes. Hi Chris. It's Jimmi Sue. We do think that the -- we hedge copper, but we do have some timing differences here as the higher-cost inventory moves through the system while copper's moving down. I would expect that that's a couple month phenomenon not a six-month phenomenon. So, we expect that business to be back realizing the kind of margins that we're used to. In the third quarter, will we see it as in third quarter results? I think we'll see it more in fourth quarter. A third quarter might be a little bit of a bridge quarter between the two.

Are you guys hedged out on copper for 2023?

We are fully hedged for 2022 and we have started layering in some hedges for 2023.

And how does your, I guess, hedge strategy change based on just the volatility recently in copper? Anything or you try to stick to the same sort of policy?

Yes, well, so Chris we work with our customers to try and basically be able to lock in our business and lock in a significant piece of our cost structure. So a big part of what we end up hedging is with committed business. Now there's hedging we do outside of that as well, but it's a smaller piece of the overall hedging strategy. So our hedging strategy to date has not changed.

Got it. And then RUPs on the rail business, are your forecasts or the industry's forecast for prototype demand, are they based on actually talking to the customers, or is that based on certain level you expect of replacement every year and then different to the what they've been doing in the more recent past? It seems like they've been under replacing ties, so I would think maybe demand would get better at some point, but is that too far off in the future? And this is just based on real data from the customers themselves?

Yes. So we quote I think data from the Rail Tie Association for that particular index, and we certainly have a view on it based upon our discussions with customers. And like I said we see it a little more aggressive, although, again they're still small rates overall. And for us in terms of the discussions we've had with our customers, we do see some of our customers that are planning to increase their insertions at a higher rate at least next year than again what that data would suggest. So we are slightly more bullish on where that's going. But in terms of the overall cross tie replacement market, we have to take into account the fact that go back 10 years or so ago and the introduction of borate, creosote-treated ties which extend the life of ties the improvement of technology to detect tie wear and failure and things like that have all improved. And at the same time, the railroads have essentially slimmed down their lines as well, which has all sort of contributed to a lower base. I don't think we're getting back to $23 to $25 million in cross-tie replacements in a year. I don't think that's realistic given the state of where things are at right now. But I think overall, we're still going to see pretty decent demand and it'll increase and sometimes move up and down depending upon when railroads decide that they want to go heavier in terms of their repair replacement cycle over a given two or three-year period. So we've seen a lull in that over the last few years. At least with one of our customers we're going to see a pickup in that over the next couple of years. And as for the others again something could happen in the next year or two that might have them do the same, but the data is the data. It's coming from an industry association and we have our view on it, which is slightly better than what I think they're coming out with.

Great. That's helpful. Thank you.

Yes. Sure.

At this time, there are no further questions. I would like to turn the conference back over to CEO, Leroy Ball for any closing remarks.

Okay. Thank you. And I just want to thank again everyone for participating on today's call and again for your continued interest in Koppers. Everyone stay safe please. Thank you. Bye-bye.

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