Good morning. I'm Roger Spitz, and I cover the high-yield chemicals and paper and packaging sectors at Bank of America, and have the pleasure of hosting a fireside chat with Koppers. We have this morning, Jimmi Sue Smith, Chief Financial Officer. As a reminder, we are webcasting this event, so if you have questions, raise your hand, and we'll get a microphone to you so that everyone on the webcast can hear your question. So Koppers reports in three segments, as you probably all know: Performance Chemicals or PC, where Koppers sells wood treatment production chemicals. For example, wood preservatives, mainly for residential applications like decking. Second, Railroad and Utility Products and Services or RUPS, where Koppers sells treated wood products to railroads such as cross ties, and also sell utility poles. And then, the third is Carbon Materials and Chemicals or CMC, where Koppers is a leader in coal tar distillation, manufacture a number of products, including carbon pitch, used to make aluminum anodes, creosote used in wood treatment, as well as carbon black feedstock, naphthalene, which Koppers then turns into phthalic anhydride, which is used for plasticizers and polyester resins. So again, if you have any questions, just raise your hand, we'll get a microphone to you. But, with that, I'll start off. Thank you for being with us this morning. Thank you, Roger. Glad to be here. Good. So, can you give us any view of your expectation for fourth quarter working capital inflow or outflow? Sure. So, without saying what I actually expect for this quarter, I think traditionally... first two quarters of the year, and then see a lot of the cash come flowing back in, in the third and the fourth quarter. We certainly saw that in the third quarter this year, and anticipate to see that normal pattern here in 2023. Thank you. How should we think about 2024 CapEx, given I think your 2023 CapEx guidance, if I'm not mistaken, was $110-$120? That's right. So actually, 2022 and 2023 were relatively high watermark years for us in terms of capital spend, and we talked a lot about this at our Investor Day in September in Chicago. We were investing in those projects that we need to get completed to help us reach $300 million of EBITDA by 2025. A lot of those projects are nearing completion now, so we expect CapEx will probably be, you know, a little bit lower in the next several years as we sort of reap the rewards of the investments that we made thus far. That said, we continue to have a significant runway of very attractive return projects. So we will be investing appropriately, but additional projects will have EBITDA returns above the $300 million. Thank you. You haven't done a transformational acquisition since you acquired Osmose in 2014, and not done a bolt-on since I think it was Cox in 2018. What do you see as your future? Are you wholly focused on your 2025 EBITDA target of $300 million, and that's organic target of $300 million, as opposed to inorganic M&A, or would you do some inorganic M&A? We have line of sight to the $300 million in EBITDA with the projects that we have in place. Now, we did do a tiny acquisition last year, like $15 million, one five, not five zero. Yeah. A very small one, and we've thought about those types of acquisitions up to this point as displacing capital spend, right? There's things that we could have done on our own, but we found it more cost beneficial to do an acquisition. As we turn our focus to looking to 2026 and beyond, we are certainly considering whether acquisitions more in the bolt-on, you know, adjacent area are a cost-effective way to achieve goals moving forward. We wanna be careful about that, given where we're trading, right? We don't want. We want to be accretive and not dilutive, given where we are. But we do think there are some opportunities, especially around our businesses that are growing, like in the utility area, where there might be some attractive opportunities to acquire assets rather than adding capacity ourselves. When you say utility, do you mean the utility poles or? Utility poles. Yes. Yep. Okay. So, looking more in the segments, starting with, excuse me, Performance Chemicals. So looking back, on the tape, so 2020, 2021, very strong for Performance Chemicals, perhaps as everyone was adding that outdoor decks during the pandemic. Yep. 2022 was a reversal down. So was that due to lower volumes internationally, and spread compression on higher raw materials, mainly copper, as that's sort of the read in the, in the... That I came away from the MD&A. And sort of what has been driving the gains in 2023? Is that higher volumes and renegotiated contracts that have been spoken about? Is that how to think about that period? I think the main driver. So when we think about the PC business, and it is a global business, but the biggest driver of performance there is gonna be what's happening in the U.S., in the U.S. and North American markets. And what the biggest thing that happened there is in 2022, we saw cost inflation across every input into that business, not just copper and other raw materials, freight, labor, everything went up. And while we hedge our copper to a large extent, the other raw materials were not hedged, and we did not have the ability to push those prices through in our contracts. So at the end of 2022, the vast majority of those contracts rolled off, and we negotiated new contracts for 2023 that had been reset and are reflective of the current cost environment, and do also give us the ability, with some limitations, to pass along other raw material cost increases, if they should happen in the future. So we try to protect ourselves a little bit there. So what you're really seeing is the benefit of the new contracts in 2023. And we see the, you know, the margins in that business now have returned to around that 18% level, which is a normalized level for them, but is certainly not the high water mark. You know, we've seen low 20s in that business. Mm-hmm. But we did manage to pass along cost increases with margin, and we think that was very important. That was a big focus for that business. Got it. And how much did the North American penta registration phase out impact your business segment? You know, you guys weren't in penta, but offering a new utility pole preservative, DCOI, if I've got that right, to replace penta. And by the way, I was a little confused. Is this in PC or is that in RUPS? It's in both, actually. It's in both. The impact of penta is in both segments. In our Performance Chemicals segment, we produce wood treatment chemicals. We do not treat, right? We sell to treaters, okay? Okay. Our utility products business is a treater, so we do actually supply industrial chemicals to our own UIP group, but also to other industrial treaters in the marketplace. So when penta went away, a couple of things happened. For our UIP business, they—we didn't make penta, but they treated with it, right? Mm-hmm. So we had a couple of facilities that had to change over. We had to try to figure out... The market didn't know what's going to replace penta, right? Was it going to be copper naphthenate? Was it going to be CCA? Was it gonna be DCOI? There were all, you know, the, sort of, different options in the market. What happened was, as the utilities started to settle into what they were going to use in place of penta, CCA was the big winner. Mm. That was really beneficial for us as a whole. One, we had already, we already treated with CCA in the RUPS business, and we had converted one of our penta plants to CCA, so we had additional CCA capacity. But then in our Performance Chemicals business, we always talk about that business as being residential, 'cause 2/3, roughly 2/3 of that business is residential. It's the chemicals that are used to treat your pressure-treated lumber. So stuff you would use for decking and fences and those sorts of things. But the other 1/3 of that business, the industrial side, was always CCA. They've been making CCA for a long time. There's a higher industrial demand in that business as well, which did help, you know, sort of ride out when residential was down a little bit, the industrial offset it, and it was a nice complement in that business. So it's both, and it's been a very good story for both sides of the business. Okay. And when looking at PC, what is the split between new home construction and repair and remodel- Yeah to the best you can figure out? So we don't have a lot of visibility into that. Okay. We're selling to the treaters. The treaters are selling to the big box stores, and, you know, we are the end consumer. So it's very hard for us to say exactly what's, you know, who's- Right ... buying the product. But what we find is when we try to predict where our volumes are going, we back test that. The repair and remodel index seems to be the most closely correlated for us, so that's what we look at. I will say that, you know, off the record, we also kind of, we all call our own contractors and see how far out they're booked. Are volumes gonna hold up? Well- Okay. My contractors are still booked at least a year out, so. You just have a very good one. Well, in demand. Have you seen any customer destocking in PC? No, we get asked this all the time because I think it's such a theme in the chemicals business. Mm. Because what we sell is the treatment chemical, I would say for our direct customers, inventory capacity is small. They have small tanks, right? Like, they're not holding months' worth of inventory. Right. I actually, when I think about this, I think back in. Because the impact of sort of inflationary prices and pandemic supply chain issues in the PC business was on the lumber side. So we supply the chemical, the treaters are out buying, buying the wood to treat. And wood prices went crazy in 2021. They were, I mean, $1,000 a board foot, right? Like, it was crazy. And there was a point, and I believe it was like the, it was the end of 2021, like the third quarter, fourth quarter of 2021, where the lumber prices kind of started to come down a lot. Mm-hmm. The big-box retailers took some really big write-downs on inventory, because they had high-priced inventory on hand, and they sort of shrunk what they were holding to protect themselves from that. So I think, I think we were on the forefront of that. I think we experienced the destocking back in 2021. Okay. Switching to, excuse me, RUPS. So what was the main driver of 2023 performance? So I mean, saw a higher crosstie, rail crosstie and North American pole volumes. The big driver of performance in that business is the utility business. There is tremendous demand for utility poles right now. I would say across the board, there's just not enough... capacity is the wrong word. There's not enough ability to get enough big poles and get them dried, get them peeled and dried to treat. So in the utility business, you know, one of the reasons we got into that business back in 2017 was that, there were utility poles should last 40-60 years. There were a lot of poles that were past age out there, so you could see sort of a wall of demand coming. That has been exacerbated by additional demands on the grid from both EVs, people working from home, so you have to keep the connectivity up, so there's, like, a broadband pole, as well as more frequent and more severe storms. And regulators demand that the utilities be more resilient, they come back faster, that they don't lose power during major storm events. So the utilities are, one, trying to replace as much of the old stuff as they can, 'cause it, then it's less likely to fail. And two, they're all trying to go to a bigger pole, like a taller, fatter pole, for lack of a better word, because it's more resilient. Well, those poles are harder to find, right? They're harder to find. They take longer to get in. Everybody is struggling to keep up with utility demand right now, and that has driven prices way up. We have benefited from that. That's a cycle that, the customers that we talk to in that space see continuing for, you know, a three to five -year timeframe. So we're excited about what's happening in that business, and it's really, that's the driver of improved results for the RUPS segment. On the, the rail tie side, we see fairly steady demand in terms of the number of cross ties that are gonna be replaced every year. We see some improvements this year because we have greater, we have a greater volume of cross ties coming into the plants, and that just gives us better absorption, and a little better performance on the business. But the margins in the rail segment are not where we want them to be. There have been tremendous increases in the cost of coal tar, which is what we use to make creosote, which is our preservative. While we can pass cost increases along to the railroads under our long-term contracts, there are limitations on that, and in some cases, we're not able to pass along the full cost increase. We are focused on talking to our customers. They have an interest in maintaining a healthy supply base as well. We're interested in improving that business. There are things we can do, too, in terms of operational efficiencies and being, you know, being better in terms of, you know, logistics and network optimization, and we're doing all those things as well. But, we've really been impacted by raw material increases in that business. Got it. And I'm assuming you'd rather sell the treated tie than the untreated tie? Oh, absolutely. We probably, I mean, maybe 10% of our tie sales are untreated. Oh, is that- Yeah. Yes. Just follow that. Yes. Just depending on the contract structure, in some cases, we sell them the untreated tie, and then we sell them the treating service separately, so. Oh, a la carte? Why would they want to do a la carte? Why would that make sense? There are fads. Like, it ebbs and flows- Okay ... in terms of how they structure their contracts. All right. Okay. Have you experienced any unit price spread expansion in RUPS? Now, it sounds like from what you just said, in utility, you actually have seen that. Absolutely. How about in the rail side? No, on the rail side, we've seen compression, so. Okay. It's because it's in one segment, it really masks... They mask each other, but that's a tale of two businesses. The utility business is doing terrific, you know, just terrific, and the tie side has some challenges. What is the split, if you've disclosed this, on the RUPS sales on the rail side between the Class I railways and your, and your commercial sales from a sales standpoint? Majority Class I, I think, is, like, around 75% of our rail tie business is with the Class I s. Okay. I think you said in the Investor Day that Texas is the only state that wants creosote-treated utility poles. That's right. So that's basically what you're giving them, right? I take it. Yes. Texas, for whatever – maybe a little bit into Oklahoma, but for whatever reason, Texas is its own, is its own place, and they like a creosote-treated pole. What's great for us about that is we have a tie treating plant in Texas that has excess capacity. So we are in process now of putting some peeling and drying assets, actually, in Louisiana, which is where the wood comes from for Texas. So to be able to peel and dry poles and then get them down to Texas and really service that market, 'cause we believe it's underserved. And so, for the rest of North America and Australia, you're using chromated copper arsenate, CCA? Is that the material? CC, they use CCA, yes. Yes. In Australia, they use CCA. In North America, there's a couple that you can use CCA. That's been the real winner from penta going away. Right. You can also use copper naphthenate. That hasn't taken off hugely with penta going away, but that was sort of one of the ones that we didn't know which way that would go. And there, people are using DCOI, depending on the species of wood that you're treating, right? DCOI is the sort of the oil-borne preservative of choice there. And, our, as you mentioned, our Performance Chemicals business is getting into that business, and we are going to be treating some ties with DCOI as well. ... What is, what is driving different regions to use different preservatives? So some of it is the species of wood that you're using for the poles. Okay. But, it's utility preference, you know? Okay. It's like different utilities have different preferences. And have you seen any destocking in RUPS or in cross ties or anything like that, or? No. In the rail tie side of that business, we saw some disruption. Actually, it was pretty significant in 2021 and 2022. That was really driven by sort of a lot of the repair and remodel that was happening. Uh-huh. 'Cause rail ties are made out of hardwood, and so there was a lot of demand for flooring and cabinets, also hardwood. So, and it wasn't that you couldn't get them, they were just expensive. And the cost of the wood in the rail businesses with the Class I s is a pass-through. And so the Class I s kind of sat back and said: "You know what? We're gonna hold off. We don't wanna pay that. We believe it's gonna come down." And so we had a lot fewer ties coming into our plants in 2021 and early 2022. We have seen that reverse now. The cost of wood has moderated, and we have a much more normal flow. We've actually rebuilt some of the inventory that we were way down as a result of that. That's helped the profitability a little bit in that business, just in terms of capacity utilization. Got it. And then shifting over to CMC. Mm-hmm. So what are the key drivers that have been compressing EBITDA this year? You know, the spread compression as prices fall more than raw materials, as well as lower volumes. Yeah. So, you know, in that business, and it's not perfectly aligned this way, but in for many of our contracts, what we do is we align the cost of our raw material, coal tar, with the price of our finished goods, so primarily pitch, right? So, but it is on a lag, sometimes a quarter, sometimes six months, in just a few cases, annually, right? So as you see the price of pitch going up, you know, we'll have margin expansion, and that's when you see what you saw last year, where we have margins in that- Mm-hmm ... the high teens in that business. That's because sales prices are going up, raw material prices are lagging. They're coming, right? And as you get to the peak, then you get a little bit of normalize, and you get that sort of mid-teen margin. But as sales prices fall, you get margin compression because your raw material prices are still catching up on that quarter or six-month lag. And that's where we are now. What, you know, what we think is important to understand about that business is the actions that we took back in 2015, you know, the late teens, when we went from 11 facilities down to three, was what we did is get the cost structure of that business right. We don't chase coal tar for the sake of chasing coal tar. We buy enough coal tar to satisfy our creosote needs, and we sell the pitch that we get from that because it comes from the same manufacturing process. It's a different cut in the distillation. And so we have the right cost structure to get through those times of margin compression with what will come out to be annually low double-digit margins, and by that I mean, like, 10%, but low double-digit margins as opposed to single-digit or even negative, which is where we were. We were bigger, right, when we had 11 facilities, but we were more volatile, and we would have very, some very, very ugly periods. We have. We're right-sized, and we can now ride, we can ride these out. And we said all of year last year, this was gonna turn. It did turn. This is what we expected to happen, and we'll, you know, we'll move through this, and we'll move with the market. Got it. And you know, maybe you can expand more on coal tar pitch pricing and the weaknesses here. On pitch pricing or? Carbon pitch. Carbon pitch. Carbon. Carbon pitch, yeah. So carbon pitch is used in, you know, the production of anodes for aluminum. Mm-hmm. So I think of it loosely as sort of following industrial- Okay ... industrial demand. But certainly and it can vary regionally as well. You know, you've seen some downward pressure on aluminum output in Europe because of energy pricing. You know, there's been a lot of impacts in Europe from the invasion of Ukraine. How about the phthalic? North American producer that can make phthalic from naphthalene. Most people make phthalic from ortho- xylene. Mm-hmm. OX is sort of oil, is an oil indexed, and so is phthalic pricing. So it really moves with oil, you know. When I was with Koppers back in the early 2000s and, you know, mid-2000s, I guess, and oil prices were $125 a barrel, we made tons of money in that business- Right ... because we could feed naphthalene and not have the higher price raw material cost that everybody else did. That's really the driver there. Okay. Yep, makes sense. Mm-hmm. What is driving up carbon black feedstock prices? Carbon black feedstock is market-based. It's fuel oil-based. Okay. That's for sure. Okay, good. And refined tar prices? Yeah, refined tar, it's used in pavement sealer, and again, it's a market. It's just a market-driven pricing. Got it. I'm sorry. Where's refined tar used, did you say? It's in pavement sealer. In pavement. Mm-hmm. Pavement, right. Right. So you'll see that more in the summer months, too. Okay. Have you seen any customer destocking in any of the CMC businesses? We have not- Right ... as of this point. So you really haven't seen much destocking at all, that- I- the rest of the chemical industry is suffering from? Right, I feel like we got really punished in 2021, that we were on the front end. We didn't even have the word destocking then. Which I'd like—wish I had thought of it back then. Got it. Good. Any other questions? Good. Look, Jimmi Sue, thank you very much for speaking with us this morning. Thank you. Thank you. Appreciate it very much. Appreciate you. Thank you. Thank you, Roger. Thanks for coming. Thanks.