Koppers Holdings Inc. Aktie

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' First Quarter 2026 Earnings Conference Call and Webcast. [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, Vice President of Investor Relations. Welcome to our first quarter 2026 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com.

As indicated in our announcement, we've 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 website for replay through June 8, 2026.

At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as 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.

Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer and Chair of Koppers; and Brad Pearce, Interim Chief Financial Officer and Chief Accounting Officer.

At this time, I'll turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'm pleased to join you today to provide more insight on Copper's performance in the first quarter of 2026 as well as provide an update on how we're progressing towards our 2028 transformation targets. So let me start with our major news this morning. At the present moment, in Chicago, where just a few hours ago, I delivered the unfortunate news to our workforce here of our conditional decision to begin immediately winding down production at our Stickney, Illinois facility, with a target to seize distillation by the end of this year. And note that I'm using the word conditional because the decision is subject to the satisfaction of any bargaining obligations that might exist with the union representing certain employees at the facility.

Now as outlined on Page 4, this conditional decision impacting approximately 85 employees was driven by the continued challenging market conditions that have persisted for well over a decade. When we made the decisions to close our other 2 U.S. facilities for CMC in 2016, approximately 565,000 metric tons of coal tar were being produced and readily available in North America. After the most recent plant closure we announced earlier this year of Algoma Steel, the number has now dropped to 350,000 metric tons, simultaneously putting pressure on raw material pricing and reducing our throughput.

This has resulted in higher unit costs, which have not been able to be fully recovered in the form of higher pricing. And adding to the mix is that despite having spent over $100 million in capital at Stickney over the past 5 years, which is a multiple of the spending in any other copper site, we still find ourselves dealing with reliability issues, which means we would still have significant future capital requirements to address aging equipment.

This is not a people issue as the team at Stickney has done heroic work over the past 10 years to try and get us to a better place. And I sincerely thank them for their efforts but the bottom line remains that we feel we've done everything we can to make this operation viable, and we just don't see a credible path to get there. At this time, we're tentatively targeting fourth quarter of 2026 for shifting production to our coal tar distillation facility in Newborn Denmark. In the meantime, we've further strengthened the supply chain from newborn to the U.S. through expanded shipping and terminal capabilities in order to ensure an effective transition for existing pitch and creosote customers. We anticipate investing between $10 million to $15 million to further strengthen that supply chain over the next few years, which can be done while staying within our annual $55 million maintenance CapEx as capital is freed up from Stickney.

Now the discontinuation of production activities at Stickney is anticipated to result in pretax charges to earnings of $227 million to $262 million through the end of 2029, which includes $170 million to $195 million of noncash charges projected to be recorded in the second and third quarters of this year. Cash closure charges of $57 million to $67 million will be spent over a 3-year period beginning in the second quarter of 2026. These charges will be funded by the operating capital cash benefits generated by this action, which are expected to total $15 million to $25 million on an annualized basis. and therefore, will have a little impact on our near-term free cash flow projections except for timing. At the same time, the longer-term result of this move will be significantly accretive to free cash flow.

We're estimating that the adjusted EBITDA savings related to this action will reach an annual run rate of $15 million to $20 million in 2027 and beyond, which would result in a 75 to 100 basis point bump in adjusted EBITDA margin. and translating the adjusted EBITDA benefit to adjusted EPS would result in an increase of $1 to $1.20 per share. We also anticipate $8 million to $15 million in reduced future annual capital expenditures.

I again want to thank our Stickney employees for their continued hard work and determination while operating under persistently tough circumstances. I understand that this situation is incredibly difficult and will have a real impact on our employees and their families, which we will make every effort to minimize. Our priority is to provide the support and assistance needed to help the employees navigate any transition as we map out the future of our CMC business.

So now let's move on to Page 5, which outlines our results for the first quarter, including adjusted EBITDA of $49.3 million, which is a 10.8% adjusted EBITDA margin. We had an operating profit of $22 million and $0.57 in adjusted earnings per share. We generated operating cash flow of $46.3 million and free cash flow of $34.9 million. Both cash flow metrics representing a first quarter record. On a trailing 12-month basis, operating cash flow of $192 million and free cash flow of $139 million also represent new highs. Capital expenditures net of insurance proceeds and sale of assets for the quarter were $11.4 million, and we also deployed $29 million in share repurchases and $1.9 million in dividends while keeping total debt consistent with December 2025.

So now let's move on to our Zero Harm accomplishments as seen on Page 6. Thanks to the commitment of our worldwide team, 30 of our 40 sites were accident-free in the first quarter. Our European CMC and PC businesses as well as our Australasian PC and CM&C businesses had 0 recordables in the first quarter leading activities. A key contributor to our serious safety incidents took a step back compared with prior year quarter. However, our recordable injury rate improved from prior year. The objective of Zero Harm is to constantly focus on what is most important, the health and safety of our team members, and we will never lose sight of our goal 0 by reinforcing the foundational elements of the safety culture deploying additional tools and training and driving environmental improvements in 2026 and beyond.

So turning to Page 8. We issued our 2025 annual report and 2026 proxy statement, which are available on the Koppers' website. Now for more information, please use the QR codes to access these materials. As shown on Page 9, Koppers has gained additional recognition by being named a Newsweek Magazine's 300-member listing of America's most terrible companies for 2026. This one reflects our employees' ongoing commitment to volunteerism and our corporate support of community initiatives and causes. It joins previous recognition of copper as one of Newsweek America's most responsible companies. USA TODAY's America's Climate Leaders list in Times America's best midsized companies.

Now on March 30, our leadership team joined me to ring the closing bell on the New York Stock Exchange, celebrating 20 years of copper as a publicly traded company as seen on Page 10. In addition, I participated in an interview on the financial news program taking stock to share the story of our continuing path to sustainable profitability for our customers. Now moving on to Page 11, Koppers will be hosting an Investor Day on Thursday, September 17 in Atlanta. On September 16, the prior day, we will be conducting a tour of our research and development lab on our Performance Chemicals business. On Wednesday evening, the copper's executive team will also host a meeting great reception. So look for more details in the months to come. In the meantime, please mark your calendars plan to join us for our Investor Day and related activities. Now I'll return in a bit to provide my view on how we're seeing the current year within each business while also reviewing our outlook for the remainder of 2026.

But for now, I'm going to turn it over to Brad to speak in more detail on our first quarter financial performance. Brad?

Thanks, Leroy. Earlier today, we issued a press release detailing our first quarter 2026 results. My remarks today are based on that information. As seen on Slide 13, we reported consolidated first quarter sales of $455 million, essentially flat compared with prior year sales. Relative to the prior year quarter, rep sales decreased by $15 million or 6%. PC sales were up $21 million or 18%, and CM&C sales decreased by $7 million or 7%. On Slide 14, adjusted EBITDA for the first quarter was $49 million, representing a 10.8% EBITDA margin on sales compared with $56 million and 12.2% in the prior year quarter. By segment, RUPS generated adjusted EBITDA of $23 million or 10.3% EBITDA margin. PC generated adjusted EBITDA of $26 million or 18% EBITDA margin, and CM&C reported adjusted EBITDA of $1 million or 1% EBITDA margin.

Turning to the RUPS business. Slide 15 shows first quarter sales of $220 million compared with $235 million in the prior year quarter. Of the $15 million change in sales, approximately $10 million of the decrease came from the Railroad Structures business that we sold in 2025. The remaining decrease in sales can be attributed to customer mix and price decreases in our Class 1 crosstie business. and lower activity in the maintenance of way businesses. These factors were partly offset by volume increases in our utility -- in our domestic utility pole business, higher commercial crosstie volumes and a $1.4 million in favorable foreign currency changes compared with the prior year period, mostly attributed to our Australian utility pole business. RUPS delivered adjusted EBITDA of $23 million compared with $26 million in the prior year due to lower sales and lower sales volumes.

Turning to Slide 16. Our Performance Chemicals business reported first quarter sales of $142 million, up from $121 million in the prior year quarter. This increase was primarily due to a 15% volume increase, higher sales activity, primarily in the Americas and $2.7 million in favorable foreign currency changes from international companies. Adjusted EBITDA for PC increased to $26 million versus $20 million in the prior year quarter. Profitability benefited from higher sales volumes and higher prices partly offset by $2.4 million of higher raw material and operating costs.

Slide 17 shows that sales in the first quarter for our CM&C business were $93 million compared to $101 million in the prior year quarter. This decrease was primarily driven by $14 million of lower volumes related to our phthalic anhydride business which was discontinued in the second quarter of 2025 and lower sales prices across most products, especially carbon pitch, which was down 9% globally. These were partly offset by volume increases in carbon pitch, naphthalene and carbon black feedstock as well as $7.6 million in favorable foreign currency changes from international companies. Adjusted EBITDA for CM&C in the first quarter was $1 million compared with $10 million in the prior year quarter due to lower sales prices and higher operating and raw material costs partly offset by operating cost savings associated with discontinuing the talc anhydride business.

Compared with the first quarter of 2025, the average pricing of major products was lower by 11%, while average coal tar costs were slightly higher. As shown on Slide 19, we continue to pursue a balanced approach to capital allocation. In terms of investments to position the company for the future, $11.4 million was spent in the first quarter for capital expenditures. We are anticipating a total of $55 million in gross capital spending for the full year of 2026. Our share buyback activity in the first quarter totaled approximately $29 million, including those associated with tax withholding from our incentive stock plans. We have approximately $45 million remaining on our $100 million repurchase authorization. We also continued to return capital to shareholders through a quarterly dividend of $0.09 per share. At March 31, we had $386 million in available liquidity and $877 million of net debt, representing a net leverage ratio of 3.5x.

We remain focused on our long-term goal of reducing the net leverage ratio to 2x to 3x. Slide 20 provides additional detail on our total capital expenditures for the first quarter of just over $11 million. We deployed approximately $7 million to maintenance capital spending with the remaining balance allocated to Zero Harm initiatives and growth and productivity projects. Capital expenditures were approximately $5 million for RUPS and $3 million for both PC and CM&C.

As highlighted on Slide 21, our Board of Directors declared a quarterly cash dividend on May 7 of $0.09 per share reflecting a 12.5% increase from the prior year. This dividend will be paid on June 15 to shareholders of record as of the close of trading on May 29. While future dividends are subject to ongoing Board approval, maintaining a quarterly dividend at this rate will result in an annual dividend of $0.36 per share for 2026.

With that, I will turn it back over to Leroy.

Thank you, Brad. So I'll now review the market outlook for each of our businesses, starting with Performance Chemicals on Page 23. Now despite a number of different headwinds on demand, such as the Middle East conflict, higher mortgage rates, lower health and turnover and general inflationary pressures. Our PC business still posted a healthy 15% top line gain from volume in Q1.

As we expected, the gains came from market share growth of about 9% and customer inventory build added about 6%, while organic volumes were mostly flat. Through Q1 that puts us reasonably on track to likely exceed our expected top line increase of 11% as the inventory build will continue through Q2 and then taper off. However, we will only begin hitting our run rate for market share growth in Q2 as we finish the remaining plant conversions. As I mentioned, most external markers that drive the health of this business, such as mortgage rates turnover in repair and remodeling spending are still lagging. But the recent move from our customers is more hopeful than it has been in some time, that a recovery may be around the corner.

Now we're discounting that optimism for now until we begin seeing it in the numbers. So as a result, we're still forecasting flat demand on the basin residential business. with a mid-single-digit volume increase expected for our Industrial Products segment has driven by growth in utility pole demand. Now on the cost side of the equation to say there's a lot of noise in the system would be a vast understatement between potential EPA tariff recovery. Net exposure to the across the board, 10% tariffs that were put in place in response to the IEPA rolling, higher fuel costs from the spike in oil and copper volatility, I'd say we have more working against us than for us right now. And with what amounts to a $5 million to $10 million current net exposure, our procurement team has been working hard to offset it by negotiating better pricing in certain materials while our commercial team has been preparing to implement fuel surcharges.

Koppers continued to hold its lofty pricing with modest periodic corrections but it looks like mid- to high $5 per pound copper is likely the new low watermark, and we're now above the $6 threshold. So that's going to require at least $50 million in price adjustments in 2027 to just recover that increase.

In summary, PC has gotten off to a strong start, giving us confidence to move our sales projection up slightly from our initial view of the year while holding our EBITDA projection where it was as those additional sales get offset by a net cost increase. And that's obviously contingent on base residential volumes holding study and our ability to mitigate some of our cost exposure via pricing pass-throughs and other cost reductions.

Now moving on to our Utility and Industrial Products business, shown on Page 24, market sentiment remains bullish for all the reasons we've continued to talk about, which include increasing electrical demand related to build out of AI infrastructure, crypto mining, EV development and new manufacturing. Now our first quarter sales increased by 12% due to volume, and that reflects the bullish that bullishness with 3% of that 12, resulting from the December 2025 acquisition of our Doug First supply chain. Now in our targeted underserved regions, we grew volumes by 9% coming off of growth in 2025 of 17%.

Market demand remains concentrated on a limited range of pole sizes, and this has put pressure on fiber sourcing and driven up raw material costs, which we're working to recoup to return margins to our long-term target. We expect some cost relief on the whitewood side when our pillar in Leesville, Louisiana, which was damaged by fire last September comes back online, which will enable us to bring more peeling capacity back in house and lower our third-party costs. As mentioned earlier, our DF acquisition is showing early dividends by increasing our access to this important fiber enabling us to better compete for previously unavailable business.

And on the flip side, the Southern Yellow Pine market is under pressure due to closures of pulp and paper mills and lumber mills as well as fires that destroy tracks of timber in the Southeast. Now sales volume is strong and pricing relatively flat, we have more work to do to bring costs into check. Getting the Leesville pillar back online will help along with the consolidation of Vance production into Kennedy, which began in Q1 and should contribute $2 million in savings by year-end. We're experiencing a higher cost for fuel and freight that we're working to pass on, the additional catalyst initiatives, our transformation program launched in 2025 are expected to generate further cost savings which will help to overcome the additional corporate cost allocations that have been shifted to UIP this year and enable our full business to contribute to the year-over-year EBITDA improvement projected for the ROP segment.

The market outlook for our Railroad Products and Services business is summarized on Page 25. And our Q1 top line was down compared to prior year despite crossties sold being consistent with prior year. After adjusting for the sale of our KRS business last August, the main driver of our revenue decline was an unfavorable mix with lower pricing having a smaller impact. We had a greater proportion of treatment service-only sales in Q1 compared to prior year, combined with lower green tie purchases and black tie shipments. The severe winter storms that hit much of the country in Q1 knocked our plants offline for a number of days.

This impacted production and shipping, which we began making up in March but uneven customer car flow in and out of our plants also had an impact, and our customers have pledged to work on improving that situation, which should enable us to catch up as the year goes on. And while we've had a few customers pull back on their demand for the year, most of it was known as we entered 2026. And a few others are increasing demand, which is expected to more than offset the other railroads reductions. Commercial backlog remains as strong as ever, delivering 3% higher sales in Q1 and the price reductions we exchanged for growing our piece of a smaller market this year will be made up through the year as we work to idle the Florence, South Carolina facility by October.

We also continue to relentlessly go after costs with Q1 representing the eighth consecutive quarter of reduced operating expense and direct SG&A compared to the prior year quarter. While we expect to be in good shape from a demand standpoint this year, the overall lower industry demand is waking havoc on sawmills, resulting in reduced production and widespread mill closures. I mentioned our strong cash quarter during my earlier comments, while our RPS business led the way in that area with stellar working capital management, holding inventory in check during a period where we usually see a build. And while we still expect strong sales in both RPS and UIP for the year, we're incorporating more of an unfavorable mix into our forecast for the year, also baking in some of the impact from higher oil. This is bringing our revenue projections down by $10 million on both the top and bottom end of our range as well as bringing our EBITDA projections down proportionately.

Now the outlook for our C&C business is summarized on Page 26. Overall, the market continues to be in turmoil with Q1 results reaching their lowest point since the beginning of our major restructuring efforts in 2016. The war in the Middle East, which began 2 days after our last earnings call, has only made the situation in this business more challenging as oil price shocks have resulted in rapidly escalating raw material costs. higher oil prices hold, we'll be playing catch-up over the next couple of quarters regarding passing on higher pricing. This is estimated to have a $5 million impact on CM&C over the remainder of the year in addition to the $1 million impact it had on Q1 for this segment.

On the plus side, this could potentially create some market opportunity for Australian, European and North American aluminum producers to fill the void of Middle East aluminum producers and will likely create an opportunity of more sales for coppers. The continued uncertainty in the carbon products markets only highlights the necessity to take a major action, which we're doing by ceasing production at our Stickney site. There's no need to repeat all the financial details I previously mentioned, but they are once again outlined on Page 26 and speak for themselves.

Once we felt comfortable that we had the capacity to reliably absorb the U.S. volume in Denmark and could beef up our logistics assets to further improve reliability, it became a very unfortunate but obvious no-brainer to move forward with shifting production to Europe. And while there are no celebrations at Koppers to commemorate this action, it's an unquestionable win for our shareholders. This action is expected to pay for itself over the next few years while improving earnings and long-term cash flow significantly. In addition, by significantly strengthening our European operation, we increased the likelihood that weaker European competitors will eventually succumb to the challenging market conditions. For this year, though, we're going to have to reduce both our revenue and EBITDA estimates for CMC due to impacts from higher oil and generally worse market conditions.

As shown on Slide 27, we're a little over a year into our Catalyst transformation and executing successfully on many initiatives. In Q1, we realized $14 million of benefits spread across our business segments and corporate functions. In PC, the driver was market share growth and new products. In RUPS, it was the plant consolidation of Vance and market share growth. For CM&C and corporate, it was procurement savings. In addition, we're using catalyst to improve our working capital discipline, delivering $16 million in benefits in Q1, driven primarily by inventory control and RPS. Adding the benefits from our sticky announcement, we've now identified a minimum of $90 million of benefits to be realized from 2026 through 2028. And of that, we expect $30 million to $40 million of benefits in '26, which is up by $10 million on the low end. this puts us squarely on track to deliver on our 2028 goals of adjusted EBITDA greater than 15%, a 3-year EPS CAGR of more than 10%, net leverage of lower than 2.5x, a 3-year free cash flow average of $100 million minimum and our combined PC and RUPS segments making up 80% -- 85% or more of our sales. The result of reaching those metrics should result in significant shareholder value creation.

Now as we move on to Slide 29, our consolidated sales guidance remains at $1.9 billion to $2.0 billion in 2026 compared with $1.88 billion in 2025, with higher sales in PC and RUPS more than offsetting lower CM&C sales. The foundation of customer demand is proving to be solid 4 months into the year, especially for our PC and RUPS segments as we have now turned the corner on our PC market share loss from last year and are starting to see the needle move in the other direction.

On Slide 30, we're lowering our adjusted EBITDA forecast to $240 million to $260 million in 2026 compared with $257 million in 2025. The major reason for shifting our previous range of guidance down by $10 million is the impact of higher oil across our entire enterprise. The war in the Middle East was not a variable we had contemplated when we communicated our 2026 guidance in February. And while we believe it is contained to a less than 5% impact on our consolidated EBITDA, we believe it's prudent to incorporate it into current guidance at this point while the various other puts and takes are projected to offset each other.

Slide 31 shows our adjusted earnings per share bridge, which reflects a range of $3.80 to $4.60 per share in 2026 compared with $4.07 in 2025. Year-over-year, that represents a 3% increase at the midpoint and a 13% increase at the high end. Most of our projected improvement is expected to come from lower interest expense and benefits from a lower share count.

On Slide 32, we now expect an even higher jump in both operating cash flow and free cash flow this year. As a result, this will provide the most cash we've had for debt paydown since 2020 when we received the cash proceeds from selling our KJCC business. Not only with operating cash flow and free cash flow represent new highs at these projected levels, but more importantly, 2026 will represent an inflection point for our step change in cash generation as we expect these new higher levels to become the norm than our current market cap, this equates to a 10% to 15% free cash flow yield and places coppers at the top end of whatever industry you want to compare us to and provide several attractive options for how we deploy our excess cash.

On Slide 33. In terms of capital spending, we continue to forecast $55 million for the year, consistent with $55 million spent in 2025. Currently, we're spending at a run rate lower than $55 million. But we'll still like we spend at that rate for the year as we take dollars that we would have spent at Stickney this year and put it towards bulking up our logistics assets. The foundation we have built over the past decade has set us up to create significant shareholder value over the next several years, and I'm confident we will deliver. We still maintain leading shares in niche markets that utilize our essential products with low capital requirements going forward and couple that with the unlocking of significant cash flow, we find ourselves in a strong position to deliver shareholder value in multiple ways. While today represents a difficult next step. I believe it's the right one for our customers, our team members at Koppers and our shareholders who have patiently hung in while we have methodically built a model that is built to last. So now I would like to open it up to any questions.

[Operator Instructions] The first question will come from Gary Prestopino with Barrington Research.

Throughout your narrative on what you're looking for go forward in a couple of your segments. You mentioned you've got to get some price increases to offset some of these input increases. I mean in the past, how successful have you been at driving those kind of price increases? And what's generally the lag? How long does it usually take relative to where we are right now in the cycle?

Yes. It's a good question. So I think it varies, and it varies depending upon business unit as well. But I'd say, for the most part, we have been successful. But yes, there's a aspect to it. There's been some changes that we've made in some of our agreements over the past coming through COVID and that big inflationary environment that we were in, that we got kind of caught in for a period where we were hamstrung in terms of being able to pass on some of these increases. We were able to make some changes in certain contracts that give us more flexibility to pass stuff on a little more currently. .

I would say, generally, the way that we feel about it as it relates to passing on fuel surcharges, those sorts of things I think we have an ability to do that more or less currently, right? So there's little to no lag that needs to happen there. We've tried to -- in regards to, again, some of the larger relationships we have, understand exactly whether this stuff was going to be sustainable or short term. But we've obviously gotten to the point now where we're moving forward on trying to work with passing that on. As it relates to some of the bigger issues in terms of impacts on raw materials that we know are going to linger for a bit. Most of our contracts on the CMC side, we're at least 1/4 to 6 months from being able to pass that on, which is why we talk about the impact we see more or less in the back half of the year that we will get to catch up on until we probably turn the page into either the fourth quarter or into 2027.

And then on the PC side of things, we tend to go through a couple of year agreements in the latest cycle wraps up this year. So discussions will be happening in the back part of this year, actually discussions are currently happening about trying to give them some insight in terms of where the overall cost structure looks like at this point and what to expect. So we'll have more news on that as we get to the back half of the year. And as we talk about often, we're mostly hedged for the biggest piece of that as it relates to copper. But there will need to be a reset on that as we head into next year. But we also are continuing to work on new products that can help maybe minimize the amount of copper that needs to go in and/or retention rates. And so there's all kinds of things that we're working on to try and mitigate and minimize the impact on our customer hopefully put a few more dollars in their pockets as well as ours and just create more success for the industry.

So it's a mixed bag, Gary, but we -- bringing the guidance down by $10 million, both top and bottom end of the range with our best attempt from an unmitigated standpoint, that's what we would expect for the year related to the oil impact, which is the biggest -- well, other than Koppers is the biggest impact that well, the biggest impact we're currently facing on an ongoing basis, it will be Koppers in oil. But we feel pretty good that we have that captured there with a little opportunity for upside on pass-throughs.

Okay. That's a good explanation. And then as it relates to what you're doing with -- in the CMC business, I realize it's a difficult decision. It's always hard to tell people of that decision. Is it mostly just your looking at it as cutting excess capacity there just isn't the end demand there. And by folding everything in a Board, you would expect that you'd get more utilization of that facility and you can get your margins up that way. Is that kind of how we should think about it?

It is another consolidation play. Yes, it is. We have excess capacity at Nyborg. That's freed itself up over the last couple of years. At the same time, raw material availability in North America has come down. So with what we have remaining, here in North America. We found that we could comfortably fit that into our Nyborg operations and have very little incremental cost to do so. And so we could essentially again, source raw material from North America process it there and actually still serve the vast majority of our customer base here in North America. And cut out a significant level of fixed costs in the process. So yes, it's a consolidation play.

The next question will come from Liam Burke with B. Riley Securities.

Leroy, with the shifting of production from Stickney to Nyborg, do you anticipate any competitive disadvantage, having your in-house creosote for the coatings has been at a competitive advantage. Will the greater distance affect that competitive advantage?

No, we don't believe so. I mean that's really happening today. We already bring significant amount of Crest into North America. Like I said, with where the cost structure with that, in fact, what we believe is we'll be able to actually improve the reliability of the supply chain because -- while certainly, distilling in Chicago, you can look at and say, well, again, you're closer to your customers, there's no question. But again, the aging equipment that we have there has created a host of different reliability issues over the years. And so we would find ourselves scrambling at times despite the fact that, again, we had operations right here. Nyborg is -- it's a beautiful facility. It's been incredibly well maintained. And we do not deal at all with those sorts of issues as it relates to that.

So yes, you're extending the time to get product back and forth. But again, we're adding tank capacity here. We already have a terminal set up that -- and actually a fairly mature logistics operation that's been doing this for a while. And our competitor does make similar sorts of shipments back and forth across the pond as well. So this is not unique. It's not new, and we believe it actually improves the reliability and competitiveness for us, which is, again, a driver for us making the decision.

Great. That is good news. On copper pricing, you've been able to increase prices to your customer with margin? Or is that going to create a competitive pricing problem? .

Well, I think we'll be pricing to market. And because we're not the only one in this situation. Our margins fluctuate. They range anywhere in that 17% to 22% range over time. We've had 1 year, I think, where it fell down below that. That was actually, I think, in '22 or '23 when we ate a lot of cost, and it was not necessarily on the copper side, it was on all the other raw material pieces that we weren't able to pass through at that point in time. That was an anomaly. We've had an occasion here or there where we bumped up above that 22% range. I see no reason why going through this round, we'll end up somewhere in that range coming out of it. But we'll have to be competitive. I mean it's -- and we'll definitely be doing that while also, again, hoping to demonstrate to our customers our commitment to them, our commitment to the industry in terms of looking to develop new products for them to take to market and again, help them from a profitability standpoint. So I think we're in a good position to sort of maintain that 17% to 22% margin range overall.

The next question will come from Michael Mathison with Sidoti & Company.

Congratulations on the quarter, you guys. Very impressive. Just turning to my questions. You mentioned a $10 million impact this year from the increase in oil prices, which, of course, fluctuate, and they were down a lot in the past few days. Is there a rule of thumb that we can use that if oil prices move by x, the impact to Koppers is Y percent?

Yes. I wish it was that simple. I wish it was that simple because there's so many tentacles to it that it's tough to put your finger on it with that level of precision. But you can look at sort of the current situation that we're going through as a little bit of a guide. I mean, with oil prices rising suddenly at the end of February up into anywhere that $100 to over $100 a barrel range, right? We're sitting here telling you and talking about the fact that, that's going to have what we believe up to a $10 million unmitigated impact over the year. So that gives you some indication in terms of that level of sensitivity. But we do have abilities to pass some of that stuff on to negotiate higher pricing because, again, these sorts of things don't just impact us. They impact our competition as well. And so it's not a situation where any of this sort of stuff is copper specific. I believe we will get it back over a reasonable time frame, and that's what we'll work to do. But when you think about it overall, I mentioned this number here is going to be less than a 5% impact. It's -- again, it's meaningful to the numbers that we gave out. But in the grand scheme of things, not necessarily so, and it's something that we'll be able to pull back in over the next 3 to 12 months, I would say.

Okay. Fair enough. Turning to the future of the CMC business. If we look forward to 2027 after the planned shutdown at Stickney, is there an EBITDA margin target for CMC that you can share with us?

I would say that we certainly have run those numbers internally. And I would say that it would be in line with our overall consolidated margin target. So we have talked about one of our transformation target goals is to be at a 15% or greater EBITDA margin from an overall company standpoint. And I think our expectation is that this particular business will be right around that number.

Okay. Perfect. Very helpful. Just turning to PC. The sales growth there was especially striking. Flat overall market residential sales. What drove the market share increase, if you can share that with us? .

Well, it was a situation where it was a stark change last year, as you know, as we took a market share hit. We had talked about in the back part of last year that we thought we had opportunities to win back a little bit of that market share. And we were able to do that to some extent, while also picking up some additional market share from some of, again, our larger customers who still has a little bit of business out there in the other camp. We -- the other 2 camps. And again, through some different product development we had done, we were able to get comfortable to make some conversions on some straggling plants that were not in our network at this point in time and get them moved over. And on the industrial side, I think we've done a really good job. Tommy Kaiser and his team in PC have done a really good job of continuing to develop that business. And that is a business that's in a nice healthy spot right now, too.

So it's just our sales team has, I think, consistently done a really good job of building that customer network, relationship network. And sometimes we've been successful more often in winning that business than losing it. they're going to go through some phases. And again, we went through a good 8 years of nothing but wins, wins, wins. And all that just made us more vulnerable at some point that some business was going to get moved away, and that's what happened last year. And we kind of did a reset. And I think we've -- I think we've proven to our customer base that we understand they're incredibly important to us, and it's our job to help them be more profitable and open up doors for them to be successful because their success is ultimately ours. And -- but we had signaled that near the end of last year, and now it's just being put into action.

The final question will come from Jim Marrone with Singular Research.

My question is just with regards to all this volatility with regards to commodity markets, inflationary pressure. Are you -- what are you getting the sense of from -- with regards to your competitors? Is there a lot of tailwinds with regards to them or headwinds? Or in other words, are you finding any M&A activity opportunities as a result of all this volatility in the markets?

Yes. It's a good question. That's a good question. Look, 3 of our 4 businesses, we hold such significant share that any sort of M&A consolidation activities for us in those businesses are really unlikely from an antitrust standpoint. So it doesn't really matter at the end of the day as it relates to RPS and for the most part, PC, certainly in North America as well as CM&C. UIP is a different animal. And certainly, we would have much more flexibility in terms of M&A in that space.

We continue to keep up our relationships and have our conversations and see where they go. I know there's a lot of companies and certainly on the smaller end that are feeling the pinch. And -- but there's nothing to -- that we have to report at this moment as it relates to that. We continue to keep monitoring and keep our eyes on it. And if something pops up, obviously, we'll be looking to evaluate it. And if it makes sense, we'll do it. And if it doesn't, we'll pass and go on from there. But it's really only one business where we have that sort of opportunity as it relates to the core business, and that's on the UIP side.

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

Yes. So thank you. I really appreciate again everybody's patience and hanging in. It's been a tough hard fought last year, but the company again, and our team continues to do an amazing job keeping their fellow teammates safe, keeping everybody focused on the bigger goals at hand. And while again, today is unfortunate and painful chapter in our history from a people standpoint for shareholders, it's clearly a win, and we're seeing that reflected in the market today. We look forward to continuing to execute on our plans and updating you on them in the future. But thank you, everybody, for tuning in today.

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

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [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, Vice President of Investor Relations. Welcome to our fourth quarter and full year 2025 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com.

As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice 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 May 26, 2026.

At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that 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.

Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures.

Joining me for our call today are Leroy Ball, Chief Executive Officer of Koppers, and Brad Pearce, Interim Chief Financial Officer and Chief Accounting Officer.

At this time, I will turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'm pleased to join you this morning to provide more insight on Koppers' performance in 2025 and how we see 2026 developing based upon current information.

So let me start on Page 4, which lists highlights for last year overall, which include adjusted EBITDA of $256.7 million and a 13.7% adjusted EBITDA margin, the second highest year on record for both when you exclude KJCC and on an as-reported basis, 13.7% adjusted EBITDA margin actually represents a new high watermark for Koppers. We reached operating profit of $167.8 million, also the second highest year on record, $4.07 in adjusted earnings per share, marking the sixth consecutive year above $4 after never reaching that mark previously and operating cash flow of $122.5 million for the seventh straight year of more than $100 million in that category.

In addition, we've tapered back our capital expenditures to a normalized $55 million, enabling a heavier capital deployment allocation to shareholders as demonstrated by $38.2 million in share repurchases and $6.4 million in dividends. Also, $21 million went towards inorganic growth with a small acquisition of a utility pole procurement business in one of our targeted growth areas, UIP, and we still had $12 million remaining to pay down debt.

In early 2025, we launched our transformation process named Catalyst, which delivered $46 million in benefits during the year. Catalyst helped to deliver EBITDA within 2% of prior year, while our sales declined by 10%. The conscious decisions to exit our phthalic anhydride business and sell our railroad structures business accounted for 4% of the overall sales decline with the other 6% resulting from softer market conditions and some net loss of market share.

Other benefits derived from Catalyst in 2025 include reducing our adjusted SG&A costs by 15%, while also reducing our employee count by 11% from year-end 2024 and 17% from our employment high watermark in April of 2024. With 1 year of Catalyst under our belt, I believe we're on track to reach our goals of double-digit adjusted EPS growth over the next 3 years, $300 million of cumulative free cash flow over that same time period and a mid-teens margin run rate by 2028. Now to ensure that our leaders remain highly motivated to achieve those goals, earlier this year, our Board approved a long-term incentive program that has target goals that substantively align with the external targets I just summarized. I'll speak in more detail on Catalyst later in this presentation.

Now let's move on to our Zero Harm accomplishments as seen on Page 5, which are just as important as our financial performance. We had 21 of our 41 sites work accident-free with our European CM&C and PC businesses as well as our Australasian PC business having 0 recordables in 2025. Significant improvement was achieved company-wide with leading activities up by 26%, which is a key contributor to our serious safety incidents being down by 70% compared with the prior year. It also led to a 19.5% year-over-year improvement in our total recordable injury rate, driving it to a new all-time best for the second year in a row. It's a true testament to our team and their leaders who persevered through a stressful environment in 2025 and never lost focus on what's most important, the health and safety of their colleagues. Congrats to the Koppers team on a tremendous accomplishment and never losing sight of our goal of 0.

Turning now to Page 6. Koppers was named the Newsweek Magazine's listing of America's Most Responsible Companies 2026, representing our sixth consecutive year on that list. This honor is the result of some 600 companies being evaluated on upholding their social responsibility based on key performance metrics that include environmental, social and governance performance, financial results and more. During the past year, we also earned recognition as one of America's Best Midsized Companies of 2025 from Time Magazine based on employee satisfaction, revenue growth and sustainability transparency.

Like Zero Harm, sustainability has been woven into the fabric of how we operate at Koppers, which has enabled us to punch above our weight in this area. National recognition from organizations like Newsweek and Time help lend credibility to our results. And while this alone won't win us business, it will most definitely be part of the overall decision-making progress and maybe tip the scales in our favor when we're in a tight competitive situation. Kudos to the Koppers team for refusing to just check the box on Zero Harm sustainability and instead making it a way of life at Koppers. I'll return in a bit to provide my view on how we're seeing the current year within each business while also reviewing our 2026 projections and give more flavor for our potential in '27 and '28 as Catalyst hits peak acceleration.

But before I turn things over to Brad Pearce, our Interim CFO and Chief Accounting Officer, I would like to take a moment to recognize Jimmi Sue Smith, who announced her retirement from Koppers earlier this year. Jimmi Sue joined Koppers as our VP of Finance and Treasurer, mere weeks before the pandemic in 2020. She was part of a leadership team that navigated the company through those trying times and positioned us for success as the world gradually returned to a new sense of normal. She was promoted to be the company's CFO, excuse me, in January 2022 and continued making her mark by leading the shift of capital deployment towards shareholders by reinstating the company's quarterly dividend and taking a more aggressive approach to repurchasing our undervalued shares. I could go on and on with Jimmi Sue's accomplishments, but I'll save that for her retirement celebration and just finish by saying that I thank her for her contributions and wish her the best in retirement.

Now I'll turn it over to Brad, who's done a wonderful job stepping into the CFO role as we go through a more deliberate search process for Jimmi Sue's successor. He will speak in more detail to our fourth quarter and full year financial performance.

Thanks, Leroy. Earlier today, we issued a press release detailing our fourth quarter and full year 2025 results. My remarks today are based on that information. As seen on Slide 8, we reported consolidated fourth quarter sales of $433 million, down $44 million or 9% from the prior year. Relative to the prior year quarter, RUPS sales decreased by $7 million or 3%. PC sales were down $20 million or 14% and CM&C sales decreased by $17 million or 15%.

As shown on Slide 9, full year sales totaled $1.9 billion, a 10% drop from prior year sales of $2.1 billion. RUPS continued to be our largest segment with sales of $927 million, followed by PC with sales of $544 million and CM&C with sales of $409 million. Each segment was lower as compared to the prior year with a 2% decrease at RUPS, followed by 17% and 18% decreases for PC and CM&C, respectively.

On Slide 10, adjusted EBITDA for the fourth quarter was $53 million, which represents a 12.3% EBITDA margin on sales. By segment, PC delivered adjusted EBITDA of $28 million, followed by RUPS of $22 million and CM&C of $4 million. PC led with adjusted EBITDA margin of 22%. RUPS maintained adjusted EBITDA margin above 10%, while CM&C reported a 4% margin.

Full year adjusted EBITDA results, as seen on Slide 11 were $257 million, reflecting a 13.7% margin. RUPS adjusted EBITDA was $108 million, returning a 12% margin, while PC delivered adjusted EBITDA of $103 million, a 19% margin. CM&C adjusted EBITDA totaled $46 million, resulting in an 11% margin.

Focusing on the RUPS business, Slide 12 shows fourth quarter sales of $209 million compared with $216 million in the prior year quarter. Approximately $5 million of the decrease in sales was due to lower volumes of commercial crossties and lower activity in the maintenance-of-way businesses. The lower maintenance-of-way revenue is due in part to the sale of our railroad bridge services business earlier this year. These were partly offset by volume increases in our domestic utility pole business of around 10% and $4 million of price increases, mostly in crossties.

RUPS delivered improved adjusted EBITDA of $22 million compared with $18 million in the prior year. The improved profitability was primarily driven by approximately $7 million in lower operating expenses, coupled with decreased SG&A costs and net sale price increases. These improvements were partly offset by net lower sales volume.

Turning to Slide 13. Our Performance Chemicals business reported fourth quarter sales of $128 million, down from $148 million in the prior year quarter. The decline in sales was primarily due to volumes decreasing by 16%, mostly as a result of market share changes in the United States. This was partly offset by net sales price increases. In spite of the drop in sales, adjusted EBITDA for PC was $28 million, just below the $29 million of adjusted EBITDA in the prior year quarter. While profitability was impacted by lower sales volumes, it was largely offset by lower raw material costs, net of our copper hedging program, lower logistics costs and higher royalty income.

Slide 14 shows that sales in the fourth quarter for our CM&C business were $96 million compared to $114 million in the prior year quarter. This decrease was primarily driven by $17 million of lower volumes related to our discontinued phthalic anhydride product line, lower volumes and sales prices for carbon black feedstock and a 7% reduction in prices globally for carbon pitch. These were partly offset by volume increases in carbon pitch, primarily in Australia and around $4 million of favorable impacts when translating our foreign currency sales into U.S. dollars.

Adjusted EBITDA for CM&C in the fourth quarter was $4 million compared with $9 million in the prior year quarter. This was due to net sales price decreases and lower plant utilization, partly offset by operating cost savings associated with discontinuing our phthalic anhydride business. Compared with the fourth quarter of 2024, the average pricing of major products was lower by 4% while average coal tar costs were higher by 10%, which led to lower EBITDA margins.

As shown on Slide 16, we continue to pursue a balanced approach to capital allocation. In terms of investments to position ourselves for the future, $12 million was related to the termination of our U.S. pension plan. $21 million was earmarked for the acquisition of the utility pole procurement business and approximately $48 million was allocated for capital expenditures, net of cash received from insurance proceeds and asset sales.

Our share buyback activity in 2025 totaled approximately $38 million or a total of just under 1.3 million shares. We have approximately $67 million remaining on our $100 million repurchase authorization. In addition to the share repurchases, we also returned capital to shareholders during 2025 through our quarterly dividend of $0.08 per share. At December 31, we had $383 million in available liquidity and $881 million of net debt, representing a net leverage ratio of 3.4x. We remain focused on our long-term goal of reducing the net leverage ratio to 2 to 3x.

On Slide 17, total capital expenditures for the year were $55 million gross or $48 million net of asset sales and insurance recoveries. The majority of our investment was allocated to maintenance capital spending of $45 million, with spending on Zero Harm initiatives and growth and productivity projects, each totaling less than $6 million. Capital expenditures were evenly distributed among the 3 business units of between $15 million and $19 million apiece. We are projecting CapEx to be approximately $55 million in 2026, a level on par with 2025.

Finally, as highlighted on Slide 18, our Board of Directors declared a quarterly cash dividend in February of $0.09 per share of Koppers common stock, reflecting a 13% increase from 2025. This dividend will be paid on March 23 to shareholders of record as of the close of trading on March 6. While future dividends are subject to ongoing Board approval, maintaining a quarterly dividend at this rate will result in an annual dividend of $0.36 per share for 2026.

With that, I will turn it back over to Leroy.

Thanks, Brad. Now before I dive into each of the businesses, I'd like to provide our perspective on the recent Supreme Court ruling, which vacated tariffs under IEPA. Prior to the ruling, we were estimating a tariff impact on our business of around $5 million to $6 million in 2026. Removing the IEPA tariff and replacing it with a worldwide tariff of 10% essentially reshuffles the deck and leaves us in a slightly better position. Of course, these are only in place for 150 days, and the administration has promised to use this time to put more permanent tariffs in place. So it remains to be seen how it will impact our business.

Perhaps a greater concern are potential tariffs under Section 232, which has an ongoing investigation into refined copper imports. We do not import copper for our products as we use domestically sourced scrap copper. But for unhedged copper requirements, any tariff on refined copper will increase the market price of this key raw material for our PC business. The uncertainty of tariffs continues and the numbers seem to change from day to day. So while I'm providing our most current view, that can obviously change quickly.

Okay. For now, I'm going to review the market outlook for each of our businesses, starting with Performance Chemicals on Page 20. So let me leave with the good news. We're projecting a top line increase of approximately 11% in 2026, driven entirely by market share expansion in both our residential and industrial product lines. A large component of our Catalyst initiatives for PC centered around converting commercial opportunities that we knew were in play coming into 2026 as new business. We realized success on a number of accounts, refocusing our attention on serving the customer while also demonstrating the value of our R&D and tech service capabilities to convert a portion of business to new technology. In addition, our PC team continues to be focused on commercializing the next generation of reduced copper wood preservatives and in-demand fire retardants.

Moving to the external market data. We interpret market sentiment is neutral to slightly positive for 2026 with our internal models reflecting overall flat market demand. Existing home sales in 2025 were flat compared to 2024. And while the fourth quarter upswing gave some hope of stronger existing home sales activity in 2026, January's numbers were disappointing as they registered an 8% month-over-month decline, getting the year off to a tough start.

The average mortgage rate fluctuated between 6.2% to 6.3% in the fourth quarter, down from earlier in the year. And the rates are currently at about 6% and expected to moderate slightly in the near-term, although that's not expected to have a meaningful impact on the housing market. The leading indicator of remodeling activity or LIRA is forecasting year-over-year growth in home renovation and repair spending of 2.9% in early 2026 and eventually easing to 1.6% growth by the fourth quarter. Building product sentiment remains neutral with cautious optimism in select commercial and infrastructure segments.

Listening to our customer base, it seems the disappointment of 2025 is still fresh in their minds, and so they're reluctant to build in any significant rebound until they can get clear signals. This has our model for 2026 baking in flat organic volumes for residential products with a modest low to mid-single-digit volume increase expected for our Industrial Products segment, driven by growth in utility pole demand.

On the cost side of the equation, excluding copper, we're expecting a mix of increases and decreases in our raw materials to mostly balance out and have little impact. Copper prices have continued their steady rise over the past year and currently are 25% higher than average prices for 2025. Because of our hedging strategy, we're mostly insulated from the increase at current price levels, assuming scrap copper pricing continues to behave as it historically has. The price separation between the LME and COMEX indices that we discussed last year has not been an issue recently, but changes in the tariff environment could see this return.

In the meantime, we continue to work to manage this risk. If the copper markets do not abate as we enter into contract discussions later in 2026, current prices would represent a $50 million pricing pass-through necessary to account for the increased copper costs. The Catalyst benefits for Performance Chemicals targeted in 2026 are mostly commercially driven and are already secured, where PC results ultimately end up in 2026 will depend more on the direction of base demand compared to our flat outlook and the uncertain cost environment driven by tariffs.

Moving on to our Utility and Industrial Products business shown on Page 21. Market sentiment remains bullish mainly due to increasing electrical demand related to build-out of AI infrastructure. In addition, it's anticipated that crypto mining, EV development and new manufacturing will contribute to increased electrical demand over the next 5 years. Utilities are being pressured to limit price increases resulting from higher demand and data centers owned and operated by large tech companies are expected to be required to share the resulting cost burden with consumers.

Now we entered 2025 with a clear objective to grow our business outside of our traditional regional markets in the U.S., and we were able to do that, growing our nontraditional markets by 17% on the top line while keeping our core regional markets flat, which resulted in an overall 6% sales increase. And we're targeting an even greater top line performance in 2026, driven once again by growth in targeted regions, added sales from the pole procurement acquisition made in late 2025 and a modest organic market improvement after lower-than-expected growth last year.

In 2025, we made investments in our distribution assets, fiber supply, technology platform and sales team, including adding new sales leadership at the beginning of 2026 that we believe position us as a formidable competitor on new accounts. And after the acquisition I referenced in December, we acquired a small business specializing in the procurement of Douglas Fir fiber, which is traditionally used for transmission poles. This is important for solidifying opportunities to grow our sales base by adding to the opportunities we've historically been shut out from due to not having that wood species in our portfolio.

It represents our next step in building out our portfolio in a measured way. And to quell any worries that we would spend significant amounts of capital in the hopes of future business, this transaction represents a lower cost, lower-risk approach to securing a new critical supply chain. This will open doors in existing markets while also providing a platform to potentially build from as we think further about the Western markets.

While sales showed modest gains in 2025, we took a step back on our cost management in UIP last year, and that makes this business ripe for the planning and execution discipline that Catalyst fosters. Opportunity bounds on the cost front in UIP, and we will be going after it hard in 2026. Of the improvement targeted for UIP in 2026, over 3/4 of it is cost related. Part of the cost improvements relate to a consolidation of production resulting from the recent idling of our plants in Vance, Alabama mentioned earlier. That production has moved to our nearby facility in Kennedy, Alabama, which will realize the benefits of improved cost absorption. Vance will remain in our network but not operate as we continue to monitor our long-term manufacturing requirements in this important growth market.

The market outlook for our Railroad Products and Services business is summarized on Page 22. Railroad industry consolidation continues to impact market trends and the pressure to improve operating performance, resulting in reduced capital spending by our customers. As mentioned on prior calls, for the second straight year, our railroad customer base reduced their forecasted tie requirements communicated to us heading into the calendar year as they pulled back on their tie programs.

Thankfully, this past year, we were able to balance out the lower-than-anticipated volumes with some aggressive cost actions, improving our profitability in this business to a level not seen in a decade. And as we approach customer discussions for 2026, 2 Class 1 customers indicated an additional pullback in volume for this year, which would have a significant impact on our RPS profitability without some counteraction. We believe we've been able to primarily offset that impact in 2026 by agreeing to provide price relief while receiving a larger contractual commitment from one customer as well as an extension of our current agreement.

We're also mitigating the impact of lower volume from a second customer by idling production capacity and consolidating operations across our remaining treaty network, as mentioned earlier. There's a lot going on with the Class 1 customer base, but the main point for our shareholders is that we're in the most competitive position to capitalize on a Class 1 market dealing with a lot of uncertainty right now. And while the pie may be smaller, our piece of it is expected to grow to volumes that we haven't seen since 2017. The commercial crosstie market remains very competitive, but we continue to make inroads there and as of the end of January, have the highest backlog that we have had in the past 5 years.

As for operations, we've realized much of the low-hanging fruit over the past 18 months and are looking to maintain the gains we have made heading into 2026. Much of the benefit has been derived by doing more with less. In 2025, we had 1% more in crosstie sales in '24 with 38 or 7% fewer people than where we ended 2024. In the crosstie portion of our business, we are down by 105 people or 16% compared to our peak employment level at April 2024. The idling of the plant that I mentioned will result in another net 76 employee reduction, which will serve to offset anticipated price reductions.

Sawmills are experiencing the impact of the industry pullback, resulting in sharply reduced production and widespread mill closures. It remains to be seen what long-term impact this could have on hardwood availability and pricing, but in the near-term, it's a buyer's market. Catalyst benefits included in our 2026 projections primarily relate to plant consolidation, material waste reduction and commercial and operations improvements.

The outlook for our CM&C business is summarized on Page 23. And overall, the CM&C market remains in turmoil as evidenced by sharply reduced financial performance realized in Q4. Structural improvements made in 2025 by closing our phthalic anhydride plant, along with successfully executing on several Catalyst initiatives are projected in the near-term to be offset by higher net global coal tar costs, reduced throughput as a result of a key raw material supplier exiting the market and pricing pressure brought on by trying to maintain business in a troubled market.

On the plus side, we do have a strong base of raw material supply locked down for several years in each of our geographic markets, which assures us a certain level of throughput. Also, as mentioned during my RPS commentary, I believe we're positioned to grow our share of the crosstie market, which will provide a strong baseload of creosote demand.

The strong connection of our U.S. and European logistics network also keeps us on par with our major competitor. And it also provides an advantage against other European competitors more reliant on less attractive export markets to supplement their domestic customer base. This is why we think we will see some capacity rationalization in Europe at some point as it gets tougher to withstand the current market headwinds.

The loss of tar supply in the U.S. from a supplier that's closing their coking operations presents a challenge to U.S. operations. Conversely, it presents an opportunity for our European operations to increase their share of the market as they have ample raw material availability. Catalyst benefits targeted for CM&C in 2026 cover all aspects of the business from production to logistics, procurement and sales. Our greatest opportunity for improvement remains in CMC, and I'm confident that we will see it realized over the next 3 years.

As shown on Slide 24, we're about a full year into our Catalyst transformation and executing successfully on many initiatives. The $46 million of benefits that we realized in 2025 more than offset the $40 million-something impact of lower sales on our PC business and almost got us back to our 2024 adjusted EBITDA level. As we've continued to evaluate Catalyst opportunities, we've been able to increase our pipeline from what we previously communicated and now believe we can generate up to $75 million of benefits in the '26 through '28 time frame compared to the $40 million that we had expected back in November.

The main driver for the increase is due to the optimization of our manufacturing network, and we were also able to add to each of the other targeted functional areas. Of the $75 million estimated over the next 3 years, we target between $20 million and $40 million as achievable in 2026. Like 2025, we're experiencing headwinds that are preventing the full impact of the benefits from being reflected in EBITDA, although adjusted EPS and operating and free cash flow should both increase significantly.

I'll reiterate what I said back in November when I look at our full potential, I see an organization that should be able to deliver 15% plus margins on a consistent basis, an organization that should be able to drive earnings improvement of greater than 10% on average over the next 3 years, an organization that should be able to reduce leverage to the low end of our stated range below 2.5x, driven by significantly greater free cash flow generation, what we have targeted to be $300 million or more over the next 3 years.

Our path to get there is the continued evolution of our portfolio that would make PC and RUPS a larger share of our top and bottom line as we focus on our more structurally sound businesses that have opportunity for growth and have proven to consistently generate higher margins with lower capital requirements. You're seeing that playing out in our 2026 projections, which I'll move on to now.

As shown on Slide 26, our consolidated sales guidance of $1.9 billion to $2 billion in 2026 compares with $1.88 billion in 2025, with PC and RUPS making up 80% of our top line, the highest percent of total sales in company history and closing in on our 85% of sales target.

On Slide 27, we're forecasting adjusted EBITDA of $250 million to $270 million in 2026 compared with $257 million in 2025. The biggest risk to achieving the midpoint include realizing the lower end of our Catalyst capture rate and seeing further end market softness. Additional risks are higher costs driven by tariffs or other factors and extended operational disruptions. Our biggest opportunities of exceeding the midpoint are if we meet the higher end of our Catalyst capture rate and see end markets strengthen.

Slide 28 shows our adjusted earnings per share bridge, reflecting a range of $4.20 to $5 per share in 2026 compared with $4.07 in 2025. At the midpoint, the contribution from operations, interest savings, lower depreciation and amortization and benefits from a lower share count are partly offset by higher taxes from higher net earnings. While we don't provide quarterly earnings guidance, it is worth noting that our first quarter this year will be the weakest of the 4. This is due to the greater-than-normal effect of the severe winter weather that's impacted our operations and shipping schedules. And in addition, there are several Catalyst initiatives that are in earlier stages and won't pick up momentum until the second and third quarters.

On Slide 29, as I've been signaling for the past several quarters, we are expecting to see a sizable jump in both operating cash flow and free cash flow this year. As a result, this will provide the most cash we've had for debt paydown since 2020 when we receive the cash proceeds for selling our KJCC business. Not only would operating cash flow and free cash flow represent new highs at these projected levels, but more importantly, 2026 will represent an inflection point for our step change in cash generation as we expect these new higher levels to become the norm.

At our current market cap, this equates to a better than 15% free cash flow yield, and this places Koppers at the top end of whatever industry you want to compare us to and provide several attractive options for how we deploy our excess cash. This also implies about a 50% opportunity in our share price just to bring it back to the current 10% yield level based on 2025 free cash flow. The foundation we've built over the previous 5 years has set us up to create significant shareholder value over the next several years, and I'm confident we'll deliver. We still maintain leading shares in niche markets that utilize our essential products with low capital requirements in the near-term and rising cash flow to deploy towards further reducing our share count and our debt.

Now I would like to open it up to questions.

[Operator Instructions] Our first question comes from Gary Prestopino with Barrington Research.

Leroy, I want to refer to Slide 20 here with the PC business. Last year, you said there was a competitor that came in and took share, lowered prices. And now what you're saying is that for 2026, you're looking at market share capture in both residential and industrial markets. So -- and you've raised prices. Could you maybe square what is actually going on and take a deeper dive into that market? How you're able to get share, prior share was lost because of price competition?

So yes. So Gary, we did take a market share hit in 2025. It was the most significant portion of our PC sales decline. And there was some business that was available to potentially recapture in -- heading into 2026, and we were able to convert on a portion of that. But there's -- I'd say the bulk of the business that we're adding in 2026 is unrelated to that market share loss. It's current customers where we had already had a pretty good footprint with them, but through some consolidation that they had done that had business with, again, one of our major competitors. They had elected to move some of that business over to our new technology in those areas. And so that's a good piece of it.

The industrial business, we've made inroads in over the past number of years. So there's kind of nothing new from that standpoint. I will say, and I do want to make sure I clarify, like we are not growing market share and improving price in 2026. That's not happening. It is a competitive market out there. It continues to be. And so I expect that we'll see some price compression in '26, but we will see market expansion in '26 on the PC side.

Okay. And then did you -- you may have done this. There's a lot of information here. We got to go over, obviously. But did you kind of segment what you anticipate the Catalyst benefit to be in 2026?

Yes. I mentioned in my prepared remarks, I think we're targeting somewhere between $20 million and $40 million of Catalyst benefits in 2026.

Okay. And I'm sorry, I missed that. I'm trying to keep...

Yes. No worries.

And then lastly, just kind of a philosophical question here. In the Slide 24, where you're talking about your objectives of getting PC and RUPS up to 85% of sales. And I would assume that you would expect at least the percentage of EBITDA contributed to be at that 85% or better from both of these divisions?

That would be correct.

Okay. Then can I -- just the rationale for even keeping the CMC business. Now I understand that you've got some intercompany sales there with the creosote and all that. But is that really the rationale for keeping that as it becomes so small? Could you possibly sell it and get contracts locked in that would be advantageous to you for your supplier, creosote?

Yes. So good question, right? Complicated answer, long complicated answer.

No, no.

No. I mean, because it is a significant component of our supply chain. So there's no question there's that component of it, right, which can -- I think you can probably work through that potential complication. You end up having to deal with it whatever contract you put in place ultimately ends up coming to an end, which it will at some point in time. But in terms of -- initially, yes, that can probably be overcome. I'd say you got issues around a descaling of the entire organization as a result of that and stranded costs that would come. The environmental footprint around that would probably be somewhat restrictive in terms of what you might be able to get in terms of an attraction for an individual wanting to come into the market.

Consolidation opportunities are really limited because there's only a few folks that are really doing it in our in our geographies that we serve. So there's just a whole host of constraints around that. And so -- but look, I mean, I continue to say, and it's not just bluster. I mean we continue to look at our business portfolio actively. And if you've looked over the 11 years that I've been doing this job, our portfolio has shifted dramatically in terms of businesses that we've gotten into, businesses we've gotten out to -- out of operations that have been rationalized, those sorts of things. And so we're constantly looking at that. Where we see opportunities to improve by peeling back in some of our lower-value areas, we'll look to do that. So nothing is off the table. And that's something that we'll continue to look at as we do regularly.

The next question is from David Marsh with Singular Research.

So I just wanted to start, if I could, with a couple of kind of housekeeping type items. First, I noticed that the D&A went up about $2 million sequentially versus Q3. I was hoping maybe you guys can give a little bit of clarification around that and kind of what the expectation would be going forward. I didn't know if maybe that was because of the sale of the business.

So I don't have those details handy. I'll say that we're -- again, as part of what we're doing relative to keeping costs in check. There's a lot of work and initiatives that continue to be in process around SG&A and operating costs in general. Any particular...

I'm sorry, Leroy. If I said SG&A, I meant D&A.

D&A, thank you.

D&A bumped up a couple of million sequentially. I was confused...

Okay. No problem. I'll turn that over to Brad maybe and ask him to comment on the D&A.

Yes. So I think the D&A obviously is going to change as we close projects and begin to depreciate them. So I think it's really just probably a combination of some timing, right? We came off a couple of years of some higher capital spending, and that is now moved into depreciation phase. And what can also be coming through depreciation might be some impacts for asset retirement obligations. And we've been -- as you know, we closed our phthalic operation in 2025, and some of those charges might be coming through for that.

One thing I'll say, David, is I referenced, we are expecting D&A to drop by a couple of million, I think, in 2026 and would expect some further moderation as we basically have certainly the next several year run rate at a more normalized CapEx number that's below that current D&A run rate. So I would expect that to improve as the years -- at least over the next several years.

Got it. And then you talked about Catalyst perhaps driving as much as $20 million to $40 million in savings in 2026. I mean how would that break out in terms of the split between like cost of goods sold and SG&A? Would it have kind of a little -- maybe a little heavier impact on the COGS side? Or is it kind of equally split? Or how does that play out? Because I noticed the gross margin in the quarter was really nice. It was up really nicely.

Yes. It will be heavier on the COGS side. I mean we've got a lot of the low-hanging fruit on SG&A. There's still more we think we can do there, but it will be heavier on the COGS side, COGS and commercial benefits as well. There's pieces to it. So we tend to default and sort of think of Catalyst as it relates to the cost side, but there's a heavy component about this that is about putting ourselves in a position to win more profitable business.

And so when I mentioned PC as an example, 2026, most of our Catalyst initiatives were centered around commercial, and it was about being able to win additional business, take some additional market share. And we've achieved that, right? So that's going to come through in the form of some of the market share penetration and increased revenues as well as the profits that will come from that.

Got it. Very helpful. And then your interest expense in the fourth quarter was down a good bit sequentially on a percentage basis. But the overall debt wasn't really down a lot. Like is there -- can you talk about what's at play there? I noticed it did look like you guys put some swaps back on in terms of the derivatives contracts coming back on the balance sheet. Maybe just give us a little bit of color around that.

I'm sorry, interest expense? Yes.

Yes. It was down sequentially.

Yes. Well, yes, I mean, we're obviously getting some benefit on lower rates coming through as well as, again, just lower overall borrowing. That did have an impact. Our swap profile where we've converted some of our variable into fixed, that has not changed over the past year.

The last question comes from Michael Mathison with Sidoti & Company.

Congratulations on all the margin improvement.

Thank you, Michael.

So in particular, the adjusted EBITDA margin in PC was up 370 basis points sequentially, so quite an achievement. Can you comment on what drove the upswing? And is that the new normal? Is that margin level sustainable?

So there's things that move around if you will, right? So it's not always clean quarters, I would say. We did have a benefit of an asset sale that I think helped their results for the quarter and probably added a little bit of that, that is something that is not repeatable. But overall, I'd say the margin profile, I was really pleased with what they were able to do through a challenging sales year. And I think with what we're doing moving forward, we certainly expect that we're going to be able to generate margins that are in that range on a go-forward basis. I won't necessarily commit to getting back up above the 20% profile at this point. There's just still too many moving parts.

And as Brad talked about relative to copper and things like that, those sorts of things, we try to insulate ourselves from, but there's always some level of exposure. We have -- sometimes we're more successful at getting greater discounts than others. And so there's a whole bunch of factors that come into play there. I guess the main point I would say is -- we were pleased with the overall margin performance, not just in Q4, but for the full year for PC and expect that we'll be able to continue to generate in that range and obviously targeting to do a little bit better than that. But we think we've done a pretty good job of putting that business in a position to still consistently generate on the high end of the margin profile spectrum.

And turning to the CMC business. You've spoken previously about potentially reducing the footprint at Stickney to a single column. Are you still planning to go ahead with that? And what would that mean for CMC margins? Is there any revenue impact from lost business?

Yes. So it's a good question. There's a high likelihood that we will be heading in that direction because we think that there's a whole host of benefits that come about as a result of that. And in terms of what impact that would have on the revenues and profitability, nothing as it relates to '26 because of raw material that we already have in inventory that we need to run through and things of that nature. So that wouldn't be something that would be realized until we kind of really move out into '27, the '27 time frame.

The fact that we're -- we have less raw material to work with obviously means that we'll be generating less sales as a result of that. But if we move down to a single column, we think we can certainly cut costs as part of that. And as long as pricing remains stable, improve our overall margin profile for that business. So that's part of the Catalyst initiatives that we're continuing to do some work around. And as I have more information on that, we'll talk about that and potentially in upcoming quarters.

Great. And looking at your utility pole business, I didn't see a press release about the Douglas Fir acquisition. So could you just give us a little bit more color about where they're located? Will that help with your effort to -- for geographic expansion?

Yes, yes. So yes, small business. It's out in Oregon. And it just -- it really secures up a Doug Fir supply chain for us that we were beginning to access out over the last 12 to 18 months, but there was a level of risk that could potentially put us in a spot where we would be dependent upon a source that could move away from us at any point in time. And so we saw it as an opportunity to lock that in, secure that source of supply and assets and capabilities and bring that into our portfolio, which actually we think helps improve our opportunities in some of our traditional markets where we might have been shut out of bids that would require some Doug Fir component that we couldn't offer, we would need to try and work with others to be able to provide that.

So right now, it's more geared towards helping us in markets that we're already in and trying to grow -- and -- but it could be an initial jumping off point at some point in the future if we want to think more aggressively about expanding out further west.

We have an additional question from Liam Burke with B. Riley Securities.

Leroy, on PC, we talked about the puts and takes on residential. But are you making significant enough headway on the commercial side of the business where it's actually moving the needle and contributing to this anticipated revenue growth?

I mean, we believe so. I mean, I think if you, again, go back to our '26 projections, I think that we're happy with the commercial wins that the team generated in the back half of '25 that will carry into this year, and it's all good business and it certainly helps us on the throughput side as well in our plants. So we're a manufacturer, right? I mean the more we can put through our plants, the better we're going to do.

And so you're always balancing those things out against any potential price trade-off that you have. But throughput is king in our world. And so it's important to be able to have that volume. And so the team -- again, the team came back strong in -- our team came back strong in '25 with a sort of a really a refocused effort on ensuring that we were making sure that our customer base understood that we value what they do for us, and we want to do everything we can to not just meet their needs but exceed their needs and expectations. And I think we were able to regain some confidence in some areas.

And we already had confidence in others that I think ultimately resulted in additional business coming our way, again, as certain customers consolidated their own production activities. So real happy and pleased with the efforts our PC team did in '25 coming back from a tough year.

Great. And in the past, you've talked about adding to the utility pole business by tucking in a pretty fragmented area. Is that -- do you see opportunities there? Or has pricing got out of hand with the bigger or increasing demand for infrastructure build?

I think that we're always open to those opportunities and always looking and -- but wanting to make sure that, again, we're disciplined in that process and how we go about it. So there are opportunities there, Liam. It's tough to say if and when any of them could shake loose. But in the meantime, we think we still have capacity to fill, and that opens up enough opportunities for us to continue to grow our business with the existing capacity that we have on hand.

And so that's -- '25, there is a tremendous amount of effort in terms of sort of upping our sales skills, if you will, and technology, right? So we've added technology. We've added new sales leadership. We've added more boots on the ground, and we've gone hard in areas that we feel were underrepresented and provided opportunities for us. And so again, also pleased with the efforts of our leadership and team on the UIP side. And I think we'll continue to see those benefits come through in '26 as well.

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

Thank you. I just want to thank everybody for participating on today's call and for your continued interest in Koppers. Look forward to connecting with you again next quarter. Take care.

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

And paper and packaging sectors at Bank of America and have the pleasure of hosting a fireside chat with Koppers. And we have with us this morning is Jimmy Sue Smith, CFO; and Quynh McGuire, Vice President of Investor Relations.

As a reminder, we are webcasting this event. Kopper reports in three segments: Performance Chemicals or what they call PC, which Kopper sells wood treatment protection chemicals, E.G. wood preservatives, mainly for residential applications like decking, the railroad and utility products services or RUPS, where Kopper sells treated and untreated wood products to railroads such as crossties and also sells utility poles. And the third segment is Carbon Materials and Chemicals or

CMC, where Koppers is a leader in coal tar distillation, manufacturing a number of products, including carbon pitch used to make aluminum anodes, clear salt used in wood treatment and as carbon black feedstocks and naphthalene among other products.

So with that introduction, again, if you have any questions, just raise your hand. In particular, since we're webcasting this, if you mind waiting for the microphone, so everyone on the line can hear as well.

But with that, I'll start off. Again, thank you for coming this morning. Thank you for coming to the conference.

Great to be here.

So I just want to start off with what every analyst wants to know is cash flow items. So how should we -- what's your latest guidance? Or what can you tell us starting with sort of 2025 cash interest?

Cash interest for 2025. Yes, we are in the probably $65 million range, I think, if you sort of annualize where we were at the third quarter. And so that's we benefited a lot from some rate changes as well as some repricings that we were able to do on the Term Loan B.

We'll get another full year of the one we did last year when we move into 2026. So we're looking at -- based on the curve now it being down even below that for '26. And overall, the cash flow goal -- free cash flow goal over the sort of our strategic plan period as we look out from 2026 to 2028 is going to be having $100 million of free cash flow annually over that period.

Got it. And I would sort of think about cash taxes as either a figure or an amount or a percent of, say, EBITDA or however you want to -- what kind of guidance can you tell us?

So I think about that as being -- as taking sort of where we expect to be this year, which is in that $15 million to $20 million range. And then as the business grows about incremental EBITDA, 25% to 30% on top of that as well is how we think about modeling it.

Incrementally [ good ].

Use the 15% to 20% as a base.

Great. I'm sorry, you say 15% to 20% or 25% to 30%?

15% to 20% is the base and the incremental piece.

And then working capital inflow or outflow, what are your expectations?

So working capital, we had some big recently. And some of that's growth in the business, but some of it's been a little bit of growth in inventories, quite frankly. So I don't think we're going to see it flip to a substantial inflow just because I think as the business grows, there will be natural growth in working capital, but we do have are some catalyst initiatives.

And I know Leroy talked about that on the last call in terms of $40 million this year and $40 million by the end of 2027 in terms of EBITDA. But we do have some working capital initiatives as part of that, they're not included in there, but they are in that $40 million, $50 million range over that time period, mostly in inventories. And I think what that will do will be mitigate the cash flow draw from the growth of the business. So probably smallish usages, but not usage in the -- we've seen $50 million a year or recently, not.

Got it. And normalized CapEx, should we think of that in the $55 million range or some other number?

So I think this year, we're guiding to around $55 million. We've said in the past it's up to $75 million. I think shutting down [ methalic ] plant helps with that a lot. I think I think in that $50 million to $60 million is probably like a normalized maintenance level. And I wouldn't expect to see it go over $75 million for any growth projects or anything like that, that might come up.

Got it. I would have -- I thought the sticky, the line shut would have...

Going to be closer. It's going to be more in the $50 million range. You could see some years where it gets to be $70 million if we have some significant think it's...

And that plant was set up two lines. It has two -- or at least has two lines now and you're shutting down one line.

So we had 2 distillation pumps. So a couple of things. One, we shut down the -- so we stopped producing there early in the second quarter. That's been usage it had some rate. So that line has been shut down. We do have two distillation columns.

And we -- there's some additional to coming out of the market in North America this year because there's been a conversion from a from blast furnace to electric arc and which doesn't move the needle coke. So there'll be more coal tar coming out of the market. So we are looking at shutting down one of those columns as well and continuing to streamline those operations, rightsize them for the market that we're in and get the cost to where we need it to be.

I'm not sure I thought you were definitely shutting down of cums. You're saying down Okay. And I guess the question I had is, since it was set up as a 2 line -- distillation columns for coal distillation 1 line instead of 2 line does -- presumably, you can't cut 50% of the fixed cost. What I'm saying is it costs more to presumably run just one line on a fixed cost basis that you have to absorb.

Things that we currently studying, but the way that the plant we saw significant improvement in our margins this year from shutting down the phthalic anhydride, eliminating some of those costs. We think based on how you -- which column you operate, how you set up the operations, we...

Excellent. And both Q4 '25 and 2026 again, guidance, are there any other cash items or pension capital or any other things we should be thinking about?

Yes. So the pension is substantially funded at this point. There's -- we do have -- that's the North American pension. We did almost all of it this year. There were two small pieces for union plants that were -- didn't opt into that. So we may have those to come off as the contracts roll up, but they're not significant. They're not significant. We also have been in the process of trying to close out the pension in Europe for several years. There was a court case in Europe that complicated that for everybody who had pension plans there. It looks like that's going to get resolved, but that's just a couple of million dollars. It's not significant.

Europe correct me if I'm wrong, the pension sort of pay-as-you-go kind of situation.

You can buy.

All right. Interesting. And then starting in on the three segments, Performance Chemicals, your guidance for '25 is down $41 million to $43 million versus 2024. Is most of this volume reduction to lose market share to one of your main competitors? And how much did unfavorable fixed cost absorptions impact this EBITDA reduction guidance?

Yes. The most significant piece of that decrease in EBITDA from PC business is related to the market share reductions that we had. We had a couple of major customers that were sole sourced to us who have elected to split their sourcing. And that did drive -- it was most -- there's some fixed cost impact to that, but a lot of it is just the EBITDA loss not the volume.

So you didn't lose any customers. What you did is they decided to dual source the supply. And only price, but what was their motivation to suddenly change the way they were doing it to dual sourcing and sole sourcing.

But a lot of companies, us included after what we experienced in the supply chain disruptions during COVID, have looked at their operations and said we can't afford to be sole-sourced for have some things that we just have no choice, but we -- it's kind of a policy, we don't sole source because you just -- there's too much risk.

Got it. And was it all to that -- like there's two other main players. Was it all to the one and Right. And why didn't the other one -- the other one has some -- the parent -- the parent of the other one has some administration issues. I don't know if that impacted.

The product that is used to treat residential lumber in the U.S. is the gold standard is called MicroPro. That's a product that we have on. And the reason it's the gold standard is it is rated for ground contact. So you can put it directly in your deck, you can put it directly in the ground. It will not, right? Our main competitor in this space licenses that technology from us. That was a -- that's a structure that we inherited when we purchased the PC business. So they are selling the same sort of formulation and they are able to sell ground contact. The third player in this space does not have ground contact.

Okay. That explains it. I realize that. All right. Kopper. How was that -- I would have thought that would be a big impact. But you're mainly saying it's fine has been the impact, not -- has Kopper impacted?

So we had some impact from Kopper this year, but that was because there was some dislocation in the market. So we generally hedge our copper costs at least a year out, if not more, and then reprice our customer contracts in line with where the Kopper is. What happened to us in 2025 is we have historically hedged our Kopper at LME because it's a more liquid market than which is actually like sort of the U.S. Kopper market.

So we would hedge we purchased the PEMEX. Those like always moved in concert with each other, and that was fine. When we started -- when the U.S. started talking about putting tariffs on Kopper , those 2 indices dislocated COMEX went up, LME did not, which obviously impacted the effectiveness of our hedges. We were able to mitigate most of that because of some supply-demand dynamics that happened here where people sort of shipped a lot of copper into like to get rid of the potential tariffs.

So there were bigger discounts off of COE, which brought those more in line with each other. It did have an impact on the year in the $5 million to $10 million range for the year, but we were able to mitigate a little bit.

Moving forward, we're looking at ways to -- with new risk unlocked there that they may not move in concert with each other. So we've looked at hedging COMEX, which you can do in sort of like the short to medium term, right? It's not quite as liquid as LME is. actually purchasing in the U.S. from our scrap dealers like LME, and we've seen some who are willing to do that as well as just entering fixed price physical contracts.

So instead of doing it with a financial doing it with a physical transaction. So we kind of executed on all of those. We're using kind of like a little menu approach there, but trying to mitigate that risk because there was a provision when they actually came out with the rule on the copper tariffs, which did exempt the product that we buy, but that it would be revisited next year. So there's a little bit of risk that we can see again in 2026. So we're sure that we are responding to that.

And for next year, copper prices have moved around. But will you be able to basically go to your customers and say, look, here's the price, but here's the Kopper. And so we're just passing that through to you. We're not taking risk.

Those contracts are generally 2-year contracts, and we have contracts from that were '25 and '26. '26 will be another big contracting year for. So we generally lock in those prices in concert with the copper. We are a little Kopper for 2026 compared to where we would normally be at this time of the year. We're 75-ish percent, but we would probably be done in a normal year. But given the dislocation in the market this year, there were some.

So when you say '26 contract year, do you mean that a lot of the contracts from '26 to 2027?

2027 and 2028.

Okay. And then when you go from '26 to '27, the plan is [indiscernible] Great. to RUPS EBITDA guidance for '25 is up 28% to 30% versus '24. So what was the -- when you step back, what is the key driver of this improvement? Was it price cost spread? Was it volume plus acquisition a little bit?

Yes. So it's primarily on the rail side of the business. And there's been a big -- we've been talking for a couple of years that, that business did not have a margin where we thought it should be. We thought it should be a low double-digit 12% margin business and it was not there.

And we from like the cost structure had gotten out with where the pricing structure was from our customers. So we did a lot of work in 2024 and 2025, a lot of it being part of the catalyst to get the cost structure right. So we've taken a tremendous amount of really operating that business, operating SG&A to get that where we want to see.

And now we're seeing that be a 12% margin business, which we're really excited about. We think think the rate change there is going to become challenging because we've done a lot already, and it's harder and harder to make those improvements, but I still think there are opportunities there. I think that's the biggest piece.

I think there's also been some improvement in our kind of the smaller maintenance away business on the rail side. Our rail tire recovery business has moved to just only doing a piece of that business, and that's become much more profitable. And we have some pricing increases this year...

Great. And then was the -- so was maintenance away. Main thing was you took cost out for your Class 1 route crossties, it sounds like -- and then did utility poles, any change there that helped out?

So utility poles have been interesting. a little closer in terms of demand over the last few years and saw some significant destocking that was we are finally seeing some green shoots in that business where we're seeing some -- that's sort of the one area.

I would say, in general, across all of our markets, it's just very much a cautionary tone, like everybody is a little -- like there's a lot of on the sidelines. And everybody is waiting for the signal that things are going to take off. I think utility poles is the one area where we started to see a little bit of that in terms of like volume of quoting activity and some cases getting approved and just positive signs there that, that market may be picking up a little bit.

And we're seeing it both in the rep segment where we sell utility poles, but also in the PC segment where 1/3 of that segment is industrial and to service that market as well. So that's been the good news story there. But I don't think we've seen a tremendous amount of pickup there yet, but if we do kind of like that's the one where we see.

And then obviously, we think the even bigger opportunity in that business is the opportunity to move because we've historically only competed in east of Mississippi. We started building the infrastructure to -- like in terms of sales force staffing to go west in terms of the -- also in terms of the supply chain, procuring [indiscernible] for poles, which you need to go out West.

The Brown acquisition that we did in April of 2024 and the plant that we got in Alabama really enable us to reach the margins. So that for us is a growth opportunity in that area in excess of whatever happens organically in that space, right? Like that's a GDP plus market growth area or a little bit better than that, we think it's better than that for us because we can market penetration in a new geographic area.

And do you keep for the inventory on the Chewy poles, do you keep -- which most of your inventory? Is it untreated poles treated poles? Is it some of both and you're just waiting for demand to come?

So some of those, although I think in normal times, it's more untreated than treated. But the bigger inventory that we hold is on the rail because rail is to drive for 6 months generally. So there's a bit of inventory there. And quite frankly, we have more inventory than we probably need in the PC business right now. Given the step down in volumes there, the inventory there. It's all part of catalyst, all part of what we're kind of doing everybody.

Got it. And then the CMC business, guidance up $8 million to $9 million versus 2 Again, what was the main sort of driver there? Was it price cost? Was it volumes, cost reductions?

So I think it's been a lot of cost reductions. We've seen a little bit of pricing improvement, but not much. Honestly, that market continues to just languish and be -- it's driven by industrial demand. And so it's just very -- everything is very cautious there right now.

But we -- again, a lot of focus on improving the cost structure there, taking out the phthalic anhydride unit and sticky and has really been done without those operating costs. So it's just -- overall, the company as a whole recognizes where we are in the business cycle. We recognize what happened in our PC business and the challenge of losing the market share, and we are very focused on controlling what we can control, which is the cost structure.

And where these businesses sit in terms of that cost structure, which we think enables us to kind of weather this cycle, but also sets us up for when demand turns. -- turn. And when it does, we're going to be sitting here with a really improved cost structure and the business that functions better and ready to take off with that -- with the demand. And so we're excited about that. Waiting for it.

How would you describe the aluminum anode demand right now? I mean, aluminum prices, you would think anode demand would be strong.

Yes. But that entire business is just -- it feels like everybody is sitting on the sidelines.

All right. I guess, just thinking about shutting down that state full distillation still, but what would be the likely timing? Is this a 2026 event?

Yes, we can look at that.

Okay. Were the 2 stills identically sized?

Yes, there's about 300,000 metric tons of capacity between 2, much 300,000.

300 total?

Yes. So that was like 150-inch.

Got it. Perfect. Are there any questions? So I've gone through. If not, maybe we'll just call it there.

Thank you.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Third Quarter 2025 Earnings Conference Call and Webcast. [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, Vice President of Investor Relations. Welcome to our third quarter 2025 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com.

As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice 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 February 7, 2026.

At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission.

In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as 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.

Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to those most directly comparable GAAP financial measures.

Joining me for our call today are Leroy Ball, Chief Executive Officer of Koppers; and Jimmi Sue Smith, Chief Financial Officer.

At this time, I will turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'm pleased to join you this morning to provide more insight on Kopper's third quarter operating performance. Our results largely fell within our expectations despite market forces continuing to exert headwinds on top line performance.

Sales for the quarter were down by 12% compared to Q3 2024, continuing the trend we've seen throughout 2025. Our team's diligent control spending once again continued to offset much of the impact of lower sales volumes, and we were able to deliver adjusted EBITDA for the quarter of $70.9 million compared to last year's Q3 adjusted EBITDA of $77.4 million.

Adjusted EPS for Q3 2025 was $1.21 per share compared to $1.37 last year as the impact of our lower top line more than offset our cost containment for the quarter. At the same time, benefits from reducing our interest costs through lower average borrowings and lower average interest rates were essentially offset by a higher effective tax rate in Q3, driven by a geographic earnings mix more heavily tilted to outside the United States.

Moving to Page 4. I'd like to provide a little more high-level color by summarizing just a few key takeaways from our third quarter. As mentioned, we focused intently on controlling costs to weather the cyclical softness we're experiencing currently. Through 3 quarters, our SG&A was down 14% on an adjusted basis compared to prior year, which equates to over $19 million in savings on top of the millions of dollars in operating savings that we are also generating. Through Catalyst, we're developing a blueprint to make those savings permanent by further simplifying our business, upgrading our technology and advancing the skill sets of our team members.

Because of what we've been able to accomplish on the cost side of the equation for the second straight quarter, we were able to post adjusted EBITDA margins not seen in a number of years. As we capture more profit from every dollar of sales, we're also improving our rate of converting those profits to free cash flow and deploying that cash to reduce debt and return capital to shareholders through our dividend and a steady stream of share repurchases.

During Q3, we continued to simplify our portfolio by completing the sale of our Railroad Structures business, which came as part of the Performance Chemicals transaction in 2014. The Structures business had been a steady contributor for a number of years, but struggled leading up to and through the pandemic. It had begun to regain its footing recently and through the day of the sale was having one of its better years in a long time, but still was margin dilutive for the past 9 years.

Other than selling to the same customers as our crosstie business, it did not have any strong synergistic aspects. Once again, we wish that team well and thank them for their contributions over the past 11 years. Further simplification of our business occurred in April 2025 through the closure of our phthalic anhydride plant in our CM&C segment.

And next up, we're also finalizing our assessment of shifting our North American CM&C business to a single column operation. In doing so, we will further lessen our exposure to the volatility of the CM&C business, while also reducing the future capital requirements from running a 2-column operation. Later in the presentation, I'll speak further to Catalyst and what is going on in our various end markets.

For now, I'd like to provide a quick snapshot of how we're progressing on the Zero Harm front. On Page 5, you can see that we've made significant progress on safety thus far this year with leading activities up by 29%. This serves as a strong contributor to our lagging metrics of recordable injury rate and serious safety incidents showing declines of 23% and 72%, respectively.

During the quarter, we had 23 of our 41 sites work accident-free with our European businesses and our Australasian Performance Chemicals standing out with 0 recordables thus far in 2025. We can never let up on safety because exposure is all around us and one mental lapse or shortcut could lead to catastrophic consequences. I continue to be heartened by our global team being on pace for another record-setting safety year. A great big thanks to all of our team members for your efforts thus far. Keep up the great work.

Finally, turning to Page 6. I'd like to welcome our newest Board member, Laura Posadas, who was elected to our Board 2 days ago. Laura is the current CEO of Canlak Coatings, Inc., a leading formulator and manufacturer of high-quality wood coating systems. Laura's experience in innovation and strategy, in addition to our track record of leading high-performance teams is a welcome addition to our Board's broad range of experience and skill sets. Laura represents the third Board member added over the past 3 years as we continue an orderly succession process for directors reaching the Board's mandatory retirement age. We look forward to tapping into Laura's experience on a number of matters relevant to our business, and I'm enthusiastic to have her as a member of our Board.

I'll now turn things over to Jimmi Sue to speak in more detail to our quarterly financial performance.

Thanks, Leroy. Earlier today, we issued a press release detailing our third quarter 2025 results. My remarks today are based on that information. As seen on Slide 8, we reported consolidated third quarter sales of $485 million, down $69 million or 12% from the prior year. By segment, RUPS sales decreased by $15 million or 6%. PC sales were down $32 million 18%, and CM&C sales decreased by $21 million or 16% compared with the prior year quarter.

On Slide 9, adjusted EBITDA for the third quarter was $71 million with a 14.6% margin. By segment, RUPS generated adjusted EBITDA of $29 million with a 12.5% margin. PC delivered adjusted EBITDA of $26 million with an 18.1% margin, while CM&C reported adjusted EBITDA of $16 million with a 14.4% margin.

On Slide 10, our RUPS business generated third quarter sales of $233 million compared with $248 million in the prior year. The decrease in sales was driven primarily by $15.8 million of lower volumes of Class I crossties and lower activity in the maintenance-of-way business, including the sale of our railroad bridge services business. These were partly offset by higher commercial crosstie volumes, a 6.5% volume increase in domestic utility poles and $1.9 million of price increases related primarily to crossties. Untreated crosstie market remained stable. Year-to-year, crosstie procurement was down 18%, while crosstie treatment was down 5%.

RUPS delivered adjusted EBITDA of $29 million compared with $25 million in the prior year. Profitability improved despite lower sales due primarily to $7.7 million in lower SG&A and operating expenses, along with net sales price increases, partly offset by the lower sales volumes.

On Slide 11, our Performance Chemicals business reported third quarter sales of $144 million compared to $177 million in the prior year. The decline in sales was primarily the result of volumes decreasing by 19%, mostly as a result of market share shifts in the United States, but also combined with a slight net decrease in sales volume for other customers.

Adjusted EBITDA for PC came in at $26 million compared to $40 million in the prior year. Profitability was impacted by the lower sales volumes as well as $7.3 million in higher raw material and operating costs, partly offset by $1.6 million of lower logistics costs and SG&A expenses as well as higher royalty income.

Slide 12 shows third quarter CM&C sales of $108 million compared to $130 million in the prior year. This decrease was primarily driven by $19.6 million of lower volumes for phthalic anhydride as we discontinued that product in April 2025. Adjusted EBITDA for CM&C in the third quarter was $16 million compared with $13 million in the prior year. This increase in profitability was due to lower operating costs, increasing production of phthalic anhydride and $2.9 million of lower raw material costs, partly offset by lower sales prices.

Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 3% compared to the second quarter. Compared to the prior year quarter, the average pricing of major products was lower by 8%, while average coal tar costs increased by 7%.

Now moving to capital allocation. As shown on Slide 14, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales, we invested $33.7 million into our business through September 30th. We are now expecting 2025 CapEx to be approximately $52 million to $55 million, a significant reduction from $74 million last year, reflecting our focus on increasing free cash flow.

Year-to-date, we've repurchased $33.3 million of stock through share buybacks, including tax withholdings. We have approximately $71.5 million remaining on our $100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share.

At September 30th, we had $885 million of net debt comparable to where we ended 2024 and approximately $45 million lower than June 30th, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year as well as progress toward our continued long-term target of 2 to 3x net leverage ratio. We ended the quarter with a net leverage ratio of 3.4x and $379 million in available liquidity.

On Slide 15, total capital expenditures for the third quarter were $38.4 million gross or $33.7 million net. We spent $31 million on maintenance, $3.2 million on Zero Harm and $4.2 million on growth and productivity projects. By business segment, we spent $13.6 million in RUP, $9.6 million in PC, $13.8 million in CM&C and $1.4 million in corporate projects.

And finally, on Slide 17, our Board of Directors declared a quarterly cash dividend of $0.08 per share of Koppers common stock on November 6th. This dividend will be paid on December 16th to shareholders of record as of the close of trading on November 28th. At this quarterly dividend rate, the annual dividend is $0.32 per share for 2025, a 14% increase over the 2024 dividend.

And with that, I'll turn it back over to Leroy.

Thanks, Jimmi Sue. Now I'll do a quick review of each of the businesses, starting with our Performance Chemicals or PC business on Page 19. The third quarter saw a continuation of softer demand in North America, our largest market, as residential units pulled back even further, while industrial demand turned positive. And while both categories are down by about 3% year-to-date through September, excluding our known market share loss, residential was down by about 5% for the quarter compared to last year, while industrial was 2.5 points higher, consistent with the stronger demand we experienced in our own industrial business.

External markers such as the leading indicator of remodeling activity, existing home sales and mortgage rates are all starting to move in a positive -- more positive direction. However, customer sentiment remains muted with most looking forward to putting 2025 behind them and starting fresh in 2026.

Outside of tariff impacts, we managed to keep costs in check for the most part, which enabled us to deliver a solid 18% adjusted EBITDA margin on a sales line that was 18% lower than 2024's third quarter.

On the tariff front, we did absorb a couple of million dollars of direct impact as well as a few million dollars of impact from hedged copper rates disconnecting from the U.S. futures market. With flat pricing for the quarter and absorbing the direct and indirect impacts of tariffs, our ability to still generate margins of 18% demonstrate the success we've had in reducing our other controllable costs and the overall resiliency of the business.

Moving on to our Utility and Industrial Products business shown on Page 20. We're seeing volumes continue to move in the right direction as each successive quarter this year has seen a greater year-over-year improvement. Q3 saw volumes up over prior year by 6% as the optimism we were hearing earlier in the year is beginning to manifest itself into sales. Unfortunately, the impact of those higher volumes were offset by the damage from a fire at one of our facilities that impacted results by over $1 million. Now that we're more than 1 year out from the Brown acquisition, we're getting an even greater feel for the critical role played in our network by the Kennedy, Alabama facility that came with that acquisition.

We've allocated volume to Kennedy where it logistically makes sense and are using it as a primary site for treating the Douglas fir species that we began adding to our product portfolio at the beginning of this year. Getting into that market is opening doors for us that were previously closed in certain accounts where customers didn't want to split their Southern Yellow Pine and Doug fir business.

Now we're early in the game, but adding that species as well as adding sales talent and upgrading our CRM technology is positioning Koppers to be a stronger competitive force in our existing markets, and I believe we are starting to bear the fruit from those investments. We continue to feel good about the longer term demand outlook for the utility pole market and believe that we can participate meaningfully in meeting its pole infrastructure needs.

Our Railroad Products and Services business is summarized on Page 21. The third quarter saw another solid quarter of performance from our RPS business despite treated tie sales units being down by 7% compared to prior year. Class I units were down almost across the board, while commercial units saw a 9% increase. Aggressive cost actions and a slight improvement from pricing helped to offset the volume decline and drove a year-over-year 18% improvement in profitability for the RUPS segment. If we adjust for the sale of the KRS business, profitability was actually up over 20% compared to Q3 prior year, with an even higher increase when looking at just RPS.

Again, excluding the sale of KRS, RPS has reduced its employee base by 147 people or 19%. Within the crossties business, that number is 14%, and that's on a volume base only 2% lower than last year through September. While we expect some comparative volume improvement in Q4, our updated projection of flat year-over-year sales volumes is another drop from previously communicated customer expectations. I spoke a few times over the past 2 years of customers providing forecasts that have subsequently been pulled back, and that trend has not abated. The railroad companies are feeling more pressure than ever to reduce costs everywhere they can, including [ tie ] installations.

It's difficult to forecast how long the current trend can sustainably continue, but we expect to adjust our forecast down from whatever we are told as we head into 2026 now that we've dealt with 2 straight years of actual purchases coming in lower than customer forecasts.

The bigger message I hope everyone takes away is that we have adjusted our cost structure to fit a pullback in the market to the extent it turns out to not be temporary. That also puts plant consolidation back on the table, if necessary. But as always, we would view that as a last resort depending upon our long-term outlook with each customer.

Next on to the CMC business summarized on Page 22. Despite minimal positive movement on carbon product end markets, we still delivered a solid quarter of performance, finishing $2.9 million better than Q3 2024. Excluding the exit of our phthalic anhydride business, volumes were slightly positive compared to prior year, while average pricing was down by about 4%, consistent with what it is down year-to-date. There continues to be a lot influx in our CMC markets.

On the plus side, in early August, Century Aluminum announced that the company will be restarting idle capacity, which should result in a positive impact on our pitch sales in North America beginning in 2026. On the downside, more coal tar will be coming out of the market as one of our North American suppliers notified us that they've successfully converted to electric arc production sooner than anticipated and that we would be receiving our last shipments of raw material from this supplier by the end of the year.

Now that action further justifies our intent to simplify our U.S. distillation capacity to a single column from the 2-column operation that we run today. Doing so, we will further shrink our CMC footprint, reducing our cost structure and our required future capital outlay. Unfortunately, it is yet another step back that will put the only major U.S. producer of critical projects for the U.S. aluminum and railroad markets in further jeopardy. We're exploring various scenarios as to how to improve the supply situation, which could be simply resolved by more domestic coal tar production staying in the U.S. to support the long-term health of the industry.

As shown on Slide 23, I'd like to move on to something more positive, which is the work we're doing in Catalyst and its expected impact. Now let's start with the why. Is it why we feel we need to transform? The short answer is that in spite of our many accomplishments and the progress we've made, we still have solid potential to perform at an even higher level.

As an organization, we have no shortage of good ideas. Capturing, quantifying, prioritizing, planning, resourcing, implementing and then tracking these ideas through to completion is a different story. Frankly, it's where all but the very best organizations fall down. You need a well-developed process, the right technology and a workforce that's more financially astute to improve your chances of reaching success in a reasonable time frame. And that's what we're building with Catalyst.

So when I look at our full potential, I see an organization that should be able to deliver 15-plus percent margins on a consistent basis, an organization that should be able to drive earnings improvement of greater than 10% on average over the next 3 years, an organization that should be able to reduce leverage to the low end of our stated range below 2.5x, driven by significantly greater free cash flow generation, what we believe to be over $300 million over the next 3 years.

Part of the path to get there is a continued evolution of our portfolio that would make PC and RUPS a larger share of our top and bottom line as we focus on our more structurally sound businesses that have opportunity for growth and have proven to consistently generate higher margins with lower capital requirements.

What does that mean in tangible terms in terms of expected benefits from Catalyst? It means that we expect that Catalyst will deliver approximately $80 million of ongoing benefits by the time we exit 2028. In 2025, we're estimating our capture rate at over $40 million based on our expectation to finish this year at a similar EBITDA level as prior year, in spite of a 10% lower sales line. That means we believe we can deliver another $40 million of benefits in the next 3 years coming from all areas of the organization. Less certain are the headwinds we may experience or any potential bolstering tailwinds, which we certainly haven't had for the past 18 months.

There are still a lot of parts moving around as we try to nail down our expectations for next year. And as such, I'm going to hold off on speaking to how much of that additional $40 million benefit we expect to see in 2026 and how much of that could be potentially delivered to the bottom line until we have a more complete picture regarding all other aspects of our business. I'll speak to more detail about all this in February 2026 when we announce our year-end earnings.

Moving on to our outlook for 2025. As shown on Slide 25, we're now revising our consolidated sales guidance to $1.9 billion in 2025 compared with $2.1 billion in 2024. This reflects our sales expectation at the low end of our previously communicated range due to the soft demand environment across all markets, other than utility.

On Slide 26, we're revising our adjusted EBITDA forecast to $255 million to $260 million compared with $262 million in 2024. Both CM&C and PC are expected to be solidly within our previous range, while RUPS is being adjusted to slightly below the low point of its previous range. This is to account for lower than previously forecast crosstie demand and higher operating costs in our UIP business.

Slide 27 shows our 2025 adjusted earnings per share bridge, reflecting a range of $4 to $4.15 per share, with interest savings and benefits from a lower share count being offset by higher depreciation and amortization, a higher tax rate and lower operating contribution. That said, our range still puts us on par with 2024 EPS even with a 10% lower top line, which is not a bad outcome, all things being considered.

On Slide 28, we're now projecting capital spending for the year to fall between $52 million and $55 million compared with $74 million in 2024. While 2025 has been more challenging than we first thought, I'm encouraged by our team's resilience to step up to the challenge and fight their way through it. I find it quite remarkable that we could be looking at profitability in line with prior year in spite of the softer economic backdrop and tariff disruption we've endured throughout this year.

We set the organization up for significant improvement once economic conditions improve. We don't consider our work done, however, as we're ingraining the Catalyst mindset into the way we work every day and continuing to mine for opportunities beyond what is already in the current implementation phase. Similar to what we're hearing from many of our customers, I'm also looking forward to putting 2025 behind us and focusing on what we expect to be a brighter 2026 and beyond.

Now I'd like to open it up to questions.

[Operator Instructions] Our first question today is from Gary Prestopino with Barrington Research.

Question here, Leroy, is -- I'm looking at Slide 23, okay? You've taken some good expenses out of CMC, some out of RUPS, yet PC is the lowest expense capture there. But I mean, that's the only business that showed a down quarter really in adjusted EBITDA and down EBITDA margins. I mean, is there something inherent there that you can't take costs out or you just feel you shouldn't be taking costs out because the markets are going to eventually rebound?

Yes. Gary, it's a good question. I mean, there are costs being taken out of there. And when we look across the board, you can't view all those numbers as necessarily being only cost takeout, right? Because there's actually things that we've been able to do to improve within our operations, particularly in CM&C, which is why that's a larger overall number.

But for PC, we have taken out costs, and we've certainly taken out corporate allocations, corporate overhead costs as well, which is helping them. But look, that is the business that we are continuing to see as our future here, and we want to make sure that we're not cutting too far back in that area when we're trying to go out and win back some business, expand into some different product categories and look at continuing to build around that business.

So we don't -- that's one we want to be a little more careful about in terms of how hard we cut back. It's not in the same, if you will, commodity category as some of our other businesses where I think inherently, we just have to be really, really tight on our cost, both operating as well as overhead. So that's why you don't see it quite as much there. The opportunities that are going to come on PC as it relates to Catalyst, they're really going to be on the commercial and less so probably on the cost end.

Okay. And then just looking at your objectives with PC and RUPS being greater than 85% of sales, and I realize you're going to be focusing on that for growth. But does that entail further shrinking of CMC?

Yes, I think it's a combination of things. I think certainly, we're focused on growing UIP. We're focused on growing PC and growing around PC. And I've been pretty open about the fact that we're not going to be investing into CM&C. And I think it's on a -- it has been for a number of years on a secular downturn, right?

So I think it's certainly to be expected that, that business will continue to shrink and be a smaller part of the overall organization. So we're evaluating all kinds of different scenarios around CM&C and how it fits into the future of the company. But I would expect it will be a smaller part going forward that could play into both sides of it with maybe changes being made there as well as certainly additions being made in some of our other businesses.

The final question today is from Liam Burke with B. Riley.

Leroy, could you give us some color on -- or if there is any, on your strategy of growing the utility pole business either organically or through acquisition?

Yes. So look, we've talked about the fact that we have a pretty strong business in the traditional markets that, that business served when we acquired the Cox utility business back in 2018. So very strong in the Southwest, pretty strong in the Northeast. Not a lot of coverage in the Midwest, basically nothing done in the Southwest and nothing out West. And so, there's a lot of market opportunity for us to go after, again, in markets that we certainly serve in different geographies and know well.

So, we obviously bring to bear the wood preservative technology, the treating technology, we've been treating in industrial products for most of the company's history. And so, all of that, we think, translates pretty well to being able to expand that business model. Part of it is you need to be in species beyond just Southern Yellow Pine, which is why we're -- we've been building out a supply chain there.

The Brown acquisition and the facility that was added there with its capabilities, really also opens up the door for us in a way that we couldn't do with our existing asset base. And so, yes, we're -- we think we have great opportunity to go after share in underserved markets that, quite frankly, only one or maybe even 2 major suppliers have been able to serve. And now we can provide another option.

As I've mentioned time and time again, it is not our intent to go out and try and start a race to the bottom. We think that there's enough share to be won by just being able to provide a second source of stable supply. And so, in conversations we've had, we certainly have been encouraged to go down that route. So we'll continue to build out our sales capabilities. We'll continue to add to our technology and supply chain. And we view UIP as an important part of our growth story.

Great. Thank you. The next question is, if I'm looking at existing homes as a rough benchmark for demand -- for derived demand for PC. They've obviously come off from a very high level, but are starting to stabilize at a certain unit volume, we'll call it, $4 million. If I think about anniversarying your market share loss, do you have a sort of a baseline revenue for PC now where you could see growing off that reset base?

Yes. I mean I think that, the way we think about the business overall is this setback that we're experiencing this year, and to your point, it's beyond losing a little bit of business. It includes an overall market that has dropped by, again, 3% or so year-over-year, which is something we've not seen actually, I think, since -- well, I don't know -- actually we've seen it since we've owned the business.

So we don't think it's anything that is systemic or indicative of the start of any longer term trend. So we think it provides a base moving forward that we can expect to see more regular growth coming from, most of -- the growth that's more in line with kind of what we have seen over time, which is, again, more in that 3% to 4% year-over-year range.

All that being said, again, whether our customer base is scarred by what they're going through right now or whether they truly have visibility longer term, they're basically giving signals that they don't expect to -- they're not building in growth for next year, organic growth. I think they're setting expectations of kind of holding flat.

And maybe, again, part of that is to prepare for another year of tepid demand. And if it gets better than that, then great, but not setting expectations too high and then being disappointed as the year goes on. So I think they're expecting a better year because, again, this year is right now down about 3% overall, but they're not right now factoring in or at least telling us that they're factoring in any real growth in the market.

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

Thank you. I just want to thank everybody for taking the time to listen in today. Again, I think we have a great story to tell. And despite the challenges that we faced so far in 2025, I really do think we've set ourselves up for greater success going forward. The Catalyst is actually bearing fruit. We see it in the numbers, and we expect to see more benefits coming from that, that will basically move us in the direction of being a higher margin, higher cash flow yielding, higher earnings business out over the next number of years. So, appreciate your support and patience, and thank you for joining today.

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

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Second Quarter 2025 Earnings Conference Call and Webcast. [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, Vice President of Investor Relations. Welcome to our second quarter 2025 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com. As indicated in our announcement, we've 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 website for replay through November 8, 2025.

At this time, I would like to direct your attention to our forward-looking disclosure statement, seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission.

In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as 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.

Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures.

Joining me for our call today are Leroy Ball, Chief Executive Officer and Chairman of the Board of Koppers; and Jimmi Sue Smith, Chief Financial Officer.

At this time, I'll turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'm here this morning to report on Koppers second quarter performance and our progress in transforming into a high-performance organization, delivering mid- to high teens margins and stronger cash flow while staying rooted in our purpose of protecting what matters and preserving the future. This morning, you'll hear how we continue to make good progress in all controllable areas, while we fight through what has mostly been a sluggish demand environment across our entire portfolio.

On Slide 4, you'll see that on the plus side of the ledger, we lowered year-to-date SG&A by 13% compared with the prior year period. We reduced our team member numbers for 14 straight months, equating to an 11% drop in FTEs since April 24. We generated cash flow of over $50 million in the quarter, posted adjusted EBITDA margins north of 15% for the first time in 8 years, brought our capital spend annual run rate down below $60 million, signed a definitive agreement to sell our railroad structures business, which has been a drag to margin, ceased production at our phthalic anhydride plant a month earlier than planned, deployed $24 million of capital to dividends, share repurchases and debt reduction and launched our Catalyst transformation process to unleash the ingenuity in the organization to deliver benefits that will bring coppers to consistent mid- to high teens EBITDA margins by the end of 2027.

The biggest negative is on the demand side. And unfortunately, it's across the board. PC volumes beyond our previously disclosed market share loss are running a few percent down for the first 6 months, whereas we have projected them to be up for the year. Class 1 demand looks to be tailing off in the second half as it did last year, which is not what had been communicated to us at the beginning of the year. CM&C markets continue to be at their trough with no immediate signs of improvement. And while UIP volumes are beginning to show signs of improvement, that improvement is occurring at a slower pace than had been signaled. I find it quite remarkable that we could post our highest second quarter adjusted EPS and a 9% improvement over prior year, with sales down over that same period by 10%. We have a lot to cover today, so let's jump in.

Moving to a quick summary of our Zero Harm activities on Slide 6. We show that we had 26 out of 41 facilities worldwide, operating accident-free for the second quarter. Year-to-date, our European CM&C, European PC and Australasian PC businesses have operated with 0 recordable incidents. Leading activities designed to proactively identify and eliminate hazards increased year-over-year in the second quarter, which were instrumental to lessening recordable injuries and serious safety incidents.

Moreover, we just finished a line with 0 recordables, which is the first time in my memory that we've reached that milestone. My thanks go out to our global team members for continuing to make the health and welfare of your teammates, your #1 priority.

On Slide 7, our Susquehanna facility set the standard for operating safely this past year earning the 2025 Zero Harm CEO award. This award recognizes outstanding performance and achieving no critical incidents, maintaining a higher leading activity rate and lower incident rates than the overall coppers rates, respectively. The Susquehanna plant manufacturers pressure treated crossties, switch ties and bridge timbers selling its products throughout the Northeast U.S. and Canada. Our sincere congratulations to plant manager Alrutz and his team for demonstrating 0 harm principles on such a consistent basis and setting an example for the rest of the organization to follow.

As shown on Slide 9, we issued our 2024 Corporate Sustainability Report in June, once again highlighting the gains made in applying our core principles of people, planet and performance across all aspects of our business. We believe that maintaining responsible stewardship of the resources entrusted to us remains the key to promoting and achieving meaningful business growth.

We're also wondered that Koppers has been named for the first time the Time Magazine America's Best Midsized Companies of 2025. This distinction recognizes exceptional performance in employee satisfaction, revenue growth and sustainability transparency is evaluated by Time and data analysis provider Statista. For more information, please access the QR codes seen here.

Moving on to Slide 10. In July, we signed a definitive agreement to sell our Railroad Structures business, which we refer to as KRS to a valued customer of ours and a cash transaction that will close by the end of this month. We acquired KRS at the same time we acquired our Performance Chemicals business back in 2014 and while it has had some strong years, mostly early on, the last several years have been a bit more challenging.

KRS struggled to move up the priority list of where we wanted to deploy capital. And in the end, we concluded that we were probably not its best owner. I'm happy to say to Mike Tweet, who has proven to be a fabulous leader and someone I will miss that he and his team are going to be in good hands as they're joining an organization that will engage and encourage them in ways that we weren't able to at Koppers. I wish the entire KRS team the best of luck, and I thank them for their tireless efforts and commitment to the copper's culture over the past 11 years.

On Slide 11, as mentioned on our previous call, engaged a firm to put our entire organization under a microscope and assess how we measure up the top-performing companies in each respective area of our company from commercial to procurement to manufacturing of course, our corporate support functions.

And while there are a number of things we do well, not surprisingly, there is room for improvement in just about every area. This exercise resulted in the launch of Catalyst, a strategic transformation in how we look at our business, how we value opportunities, how we unlock the brainpower across the organization.

This will lead to an upgraded technology and upskilling of our team members and an improvement in our processes that ultimately leads to better execution and greater shareholder value creation.

In May, I announced that Jim Sullivan will be moving from his role as Chief Operating Officer to Chief Transformation Officer to lead the Catalyst effort. In June, we kicked off the second phase of catalyst adding to the opportunities uncovered in the first phase, centering on the realistic value of opportunity to be captured in building out a detailed implementation plan that gets evaluated across the entire spectrum of opportunities and resourced according to where each initiative sits in the order of prioritization.

Phase 2 will wrap up in mid-September with Phase 3 to follow soon thereafter. And while too early to announce precise numerical targets, I'm comfortable saying that we have uncovered sufficient opportunity to put us on a run rate for mid- to high-teen EBITDA margins on a sustainable basis as we exit 2027.

I'm pleased with how the organization has embraced the concept of everything being on the table and the team has not shied away from making unpopular choices for the sake of the betterment of the long-term health of our company. I look forward to sharing more details on Catalyst on our next quarterly call.

On Slide 12, we decided to postpone our Investor Day event originally scheduled for September 2025. This decision was made based on 2 primary factors: first, it goes without saying that there continues to be a tremendous amount of uncertainty in the global economy, which is having impacts on the markets we serve. We felt it would benefit us and our audience to give a little more time for things to hopefully settle down before going into depth on our long-range plans and targets.

Second, we launched Catalyst at the beginning of this year. And as we've gotten deeper into understanding the opportunity and the time and resources that would be needed to stand it up, we thought it would be wise to take the time to be thoughtful on how it gets worked into our overall plan.

In the final analysis, it didn't make sense for us to rush to a September 2025 date and felt like we would have a better quality plan and story if we demonstrated a little bit of patience. We've not settled upon a date yet, but we'll share the specifics once that decision has been made.

I'll now turn the discussion over to our Chief Financial Officer, Jimmi Sue Smith.

Thanks, Leroy. Earlier today, we issued a press release detailing our second quarter 2025 results. My comments today are based on that information.

As seen on Slide 14, we had consolidated second quarter sales of $505 million, down 10.4% from the prior year. By segment, RUPS sales decreased by $4 million or 1%. PC sales were down by $26 million, 15% and CM&C sales decreased by $28 million or 22% compared with the prior year quarter.

On Slide 15, adjusted EBITDA for the second quarter was $77 million with a 15.3% margin. By segment, RUPS generated adjusted EBITDA of $32 million with a 12.6% margin. PC delivered adjusted EBITDA of $29 million and a 19% margin, while CM&C reported adjusted EBITDA of $17 million with a 16.2% margin.

On Slide 16, our RUPS business generated second quarter sales of $250 million compared with $254 million in the prior year. Lower volumes of Class 1 crossties and lower crosstie recovery activity contributed to this decrease, partly offset by higher commercial crosstie volumes, price increases for crossties and increased activity in our railroad bridge services business.

Untreated cost time market prices remained stable compared to last year. Crosstie procurement was down 13%, while crosstie treatment was down 1%. RUPS also delivered adjusted EBITDA of $32 million compared with $22 million in the prior year. Profitability improved due primarily to $7.7 million of lower costs from raw materials, SG&A and freight along with net sales price increases.

On Slide 17, our Performance Chemicals business reported second quarter sales of $151 million compared to $177 million in the prior year. We experienced a 15% volume decrease, mostly in the Americas from previously discussed market share shifts in the U.S.

Adjusted EBITDA for PC came in at $29 million compared to $44 million in the prior year. Profitability was unfavorably impacted by higher raw material costs and lower sales volumes, partly offset by $2.2 million in lower SG&A expenses, lower operating costs and higher royalty income.

Slide 18 shows second quarter CM&C sales of $104 million compared to $132 million in the prior year. This decrease was driven by approximately $20 million of lower volumes of phthalic anhydride as that product has been discontinued as well as lower volumes of carbon black feedstock and lower sales prices for carbon pitch, which were down 6% globally as a result of market dynamics, primarily in Australasia.

These factors were partly offset by volume increases for refined tar, nasolene and creosote and $1.8 million in favorable foreign currency impact. Adjusted EBITDA for CM&C in the second quarter was $17 million compared with $11 million in the prior year. This improvement in profitability was due to $11.5 million of lower raw materials, SG&A and operating expenses particularly in North America and a favorable sales mix, partly offset by price decreases and lower utilization from ceasing phthalic anhydride production.

Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 4%. Compared to the prior year quarter, the average pricing of major products was lower by 7% and while average coal tar costs decreased by 1%.

As shown on Slide 20, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales, we invested $21.7 million into our business through June 30. We are reducing our CapEx guidance for full year 2025 to be in the range of $52 million to $58 million. A significant reduction from $77 million -- $74 million last year, reflecting our commitment to increasing free cash flow.

Year-to-date, we have invested $29 million in share buybacks, including shares withheld for taxes. We have approximately $75 million remaining on our $100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share. And we ended the quarter with $929 million of net debt, approximately $20 million lower than March 31, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year and progress toward our continued long-term target of 2 to 3x net leverage ratio. We ended the quarter with a net leverage of 3.5x and $336 million in available liquidity.

On Slide 21, during this quarter, we successfully extended the maturity date of our $800 million revolving credit facility to at least January 9 of 2030. We are very pleased with the extension, which also removes certain step-downs in our permitted leverage ratio and lowered the pricing tiers for certain borrowings. We continue to appreciate the ongoing support of our wonderful banking partners as we advance our strategic priorities. You can use the QR code on this slide for more information.

On Slide 22, total capital expenditures for the second quarter were $26.4 million growth or $21.7 million net. We spent $22.5 million on maintenance, nearly $2 million on Zero Harm and $2 million on growth and productivity projects.

By business segment, we spent $9.3 million in RUP, $5.9 million in PC, $10.2 million in CM&C and $1 million on corporate projects. And finally, on Slide 24, our Board of Directors declared a quarterly dividend of $0.08 per share of Koppers common stock on August 7. The dividend will be paid on September 15 to shareholders of record as of the close of trading on August 29. At this [indiscernible] quarterly dividend rate, which is subject to review by the Board of Directors, the annual cash dividend is expected to be $0.32 per share for 2025, a 14% increase over the 2024 dividend.

And with that, I'll turn it back over to Leroy.

Thank you, Jimmi Sue. So now on to a quick review of each of the businesses, starting with our Performance Chemicals, or PC business on Page 26.

As Jimmi Sue noted, we finished the second quarter with adjusted EBITDA and PC of just under $29 million, which equates to a respectable 19% margin. While that doesn't come close to measuring up against last year's monster second quarter, it's actually a respectable result in the context of the current state of the housing, repair and remodeling and industrial markets we serve, which all continue to be stagnant.

We see some signs of life on the industrial side, however, which I'll speak to shortly in my UIP commentary. If you strip away the market share loss experienced this year, our volumes are lower from prior year by about 2%. That's down from of tepid sales activity.

As things currently stand, we are not seeing or hearing anything that would indicate that second half volumes will look any different than what we've seen for most of this year. The external data continues to paint an uninspiring picture in the near term as drivers for treated products like existing home sales, new home starts and repair remodeling indices all seem stuck in neutral and our customer base is now looking towards 2026 for signs of improvement.

As we forecasted last quarter, we managed to fend off most of the impact of higher tariffs so far. The only quantifiable impact to date is the threatened and now actual Kopper tariff. This has caused the separation between the Comex and LME exchanges, resulting in approximately $2 million of hedge ineffectiveness hitting our results in Q2.

Between some additional hedge ineffectiveness and some direct tariff impact currently sitting in inventory, we expect about $5 million of impact from tariffs in the back half of the year, now reflected in our revised guidance. In addition, expected continued softness in our residential preservative business and a higher-than-expected impact from our lower operating leverage resulting from overall volume loss will have an additional impact on results in the back half of the year.

Moving on to our Utility and Industrial Products business shown on Page 27. We're starting to see what we hope is the beginning of the market pick up that the industry has been forecasting for the back half of this year. When you look at the details of what appears to be an ordinary performance for UIP in the second quarter, our comparative volumes actually increased by a little bit for just the second time in the last 7 quarters and seem to be picking up even more momentum as we enter the third quarter.

The sales improvement was led by our Brown Wood acquisition from last year, which saw a 24% increase, while our legacy sites were off by about 5%. During the second quarter, we started to see the backlog of rate increase requests to state public utility commissions begin to break free with more than double the amount of rate increases approved from quarter 2 of 2024. These much-needed increases provide a positive indicator for pull demand expectations. And we remain bullish on the utility for market through 2030 as mega trends such as electrification and grid hardening, complement the general need to replace aging infrastructure.

On a final note, we continue to invest in resources to grow our business outside our traditional stronghold in the Eastern U.S. and are beginning to experience some small wins on which we intend to build. Our Railroad Products and Services business is summarized on Page 28. Treated sales volumes and improvements in pricing, combined with lower operating costs pushed our Q2 crosstie profitability to its highest point since the second quarter of 2016.

This was the primary driver to our RUPS segment reaching a new quarterly high. Despite treated sales volumes being up for the first half of the year, the improvement is still tracking well behind the 8% year-over-year increase we had forecast based upon customer communication heading into this year. As a result, we're modifying our forecast for treated sales improvement to 4% for the year, close to what we've been tracking for, for the first 6 months.

Our business mix will shift unfavorably in the second half and the year-over-year improvement we've seen in our cost will face tougher comps in the second half, making the first half tough to replicate. Our shift away from the disposal part of our crosstie recovery model continues to be justified by more consistently positive results.

Our overall maintenance of [indiscernible] business added $2 million of improvement for the second quarter compared to prior year, but we will not have our Railroad Structures business beginning in September. We recently signed a definitive agreement to sell the KRS business, as I've previously mentioned, to one of our contracted customers where it makes for a better fit.

Despite the great year, our RUPS business has had through the first 6 months, we are revising our guidance down for this segment for the year. This is because we don't expect crosstie volumes to improve from their current pace. And while our UIP business will see an improved second half, we are tempering our expectations a bit regarding the pace of improvement.

Next, on to the CM&C business, summarized on Page 29. CM&C continued its recent trend of improved performance, posting its fourth straight quarter of year-over-year improvement despite most of our customer base still dealing with their own challenges around demand and trade.

Our sales comparison is challenged even more, of course, with the shutdown of our phthalic anhydride business with little replacement thus far for naphthalene cells. We seize production of phthalic in April, a month earlier than planned, and the initial cost benefits look even better than modeled.

We still see opportunity to improve our cost structure further at our site in Stickney, Illinois and have a number of catalyst initiatives in progress to get operating costs where we need them to be. In parallel, we've been working hard behind the scenes to secure our major coal tar contracts in each region and stabilize pricing.

Coal tar is the raw material that ultimately underpins the long-term health of each of our sites and without stable supply at a reasonable price point, our business can't survive. I reported last quarter that we had locked in a significant chunk of our Australian supply into the future, and I'm happy to say that we recently did the same in Europe. The future of Stickney will depend upon the same, and I hope to be reporting similar news to that effect in the coming quarters. On the spot purchase side, tar markets have been moving in our favor in Europe and Australia, which also helps our recent run of improvement.

Finally, as I said on our prior call in May, the coal tar distillation industry could really use some rationalization of capacity. We believe others who participate in our markets are struggling even more than us over the past couple of years. And in the long run, that's unsustainable. In the meantime, we're positioning ourselves as a healthy long-term alternative partner for suppliers and customers to ensure a much needed outlet for their tar and for supply of their critical raw material.

Moving on to our outlook for 2025, as shown on Slide 31. We're now reducing our consolidated sales guidance to be $1.9 billion to $2 billion in 2025 compared with $2.1 billion in 2024. This reduction reflects an assumption that the demand environment does not change materially from what we've experienced through these first 6 months.

On Slide 32, we're revising our adjusted EBITDA forecast down to be in the range of $250 million to $270 million compared with $262 million in 2024. Now if we just match our first half, we'll be at about $265 million for the year, which sounds reasonable. But we did mention that we expect an additional $3 million of tariff impact over the first half and we will not have $2 million of contribution from KRS that we had in the first half, as it had an ordinary strong first half of the year.

That would put us at the midpoint of $260 million. Additional Catalyst benefits over and above the run rate and an accelerated pickup in demand in our UIP business or higher demand in any of our businesses for that matter, would push us closer to $270 million and maybe even beyond. A combination of limited additional catalyst benefits, additional tariff impact and further pullback in demand, however, would push us closer to $250 million.

Additionally, Catalyst has uncovered some opportunity to reduce inventory levels for cash given the softer demand thus far this year, but it would result in less fixed cost absorption at the plants, which, of course, would also impact EBITDA. Pulling our guidance down to a more conservative range provides flexibility for us to make that choice and still meet the revised guidance.

Slide 33 shows our 2025 adjusted earnings per share bridge and the improvement we expect in 2025 driven by higher operating earnings and lower interest expense. We're expecting $4 to $4.60 per share in 2025, which represents a 5% increase at the midpoint compared with $4.11 in 2024.

As it relates to EPS, unfortunately, all the benefit of our lower interest costs and lower share count is getting washed away and a higher expected effective tax rate due to an unfavorable geographic mix of earnings.

On Slide 34, we're now projecting capital spending for the year to fall between $52 million and $58 million compared with $74 million in 2024. And while we've not changed our operating cash flow target of $150 million for the year, I'm fairly confident at this point that we will beat that number. At the modest amount of cash we will receive upon the sale of KRS, and we will have enough free cash flow to pay down a healthy amount of debt for the year.

While I'm disappointed to reduce our expectations for the year, don't want to lose sight that despite softer-than-expected end markets, we are still projecting adjusted EPS improvement, one of our better margin years ever, our best cash flow year ever, reduced debt and leverage and a detailed road map to take the performance and results of the company to another level.

We have set ourselves up for a breakout performance, and it feels like we are close to a tipping point to set it in motion. I've never been more positive in the path we're on, and I appreciate our shareholders' patience and support.

I would now like to open it up for questions.

[Operator Instructions] Our first question today comes from Liam Burke with B. Riley.

Leroy, on RUPS, how have the contracts with the Class 1 customer has been going? Are you satisfied that you've got agreements that are in place that are satisfactory for you guys?

Well, I mean, so they are long-term contracts, and they have varying expiration dates on them. Some, again, still have several years. I'd say you can again look at our improved results and there's 2 ways to go, obviously, pricing. And then the cost side of the equation, as I had mentioned in prior calls, we had a heavy push to try and recover a lot of the cost increase we had seen from -- I'd say, the '22 in through mid-'24 time frames. And I think we've maximized all we are going to be able to do at this point on that until we have some contracts expiring.

The last year, we've been heavily focused on trying to push the cost side of the equation down. And I think the results show that we've been somewhat successful from that standpoint. The third piece of it is volume. And they are -- the sites -- they're heavily fixed cost oriented. So when you don't get the throughput into the plants, that has an impact. And so, as we look at this year and our expectations -- and again, this is going to be a great year for RUPS. I think we're going to finish the year in double-digit margin territory, which we haven't for quite some time.

And again, we're showing that over the past several quarters in terms of the significant improvement. But it could be even better if we have -- we're experiencing the volume increases that were forecast to us at the end of last year heading into this year as we were planning out our production schedule. So that's a disappointment.

I mean overall, the numbers will -- the volume numbers will still be up for the year. They just won't be up by as much as they were signaling. Now that gives me hope that all that does is push that into '26, and maybe we'll see even higher volumes in '26. But we won't know that until we get out to next year. And I think, again, one of the lessons from the last couple of years is to, I think, put some level of conservatism into what we're being told because it's now become 2 years running that we have been signaled that the volumes will be higher, and then for varying reasons, our customer base have pulled back once they got out sort of to the midyear point.

Great. On PC, the residential side of the business, you kind of -- we know about market share losses. We also know about the existing home sales. So that's sort of working its way through, and you're still holding high-teens margins. On the industrial side, you're showing some life there. Could you tell -- give us me a sense as to how much follow-through you'd expect from that part of the business?

Yes. We are seeing some life there, and that's a positive. The life there will show up in a greater way in the UIP piece of the business. The industrial preservative side of PC is not what really drives the business and the results there. It is more on the residential side. Obviously, it will be additive of we can see that volume pick up because, again, it will increase the throughput at our plants and obviously result in higher volumes and higher sales.

But for us to see a meaningful movement on the PC side in terms of results moving back, we've got to see some pickup on the residential side. And 2% down, all things being told is -- it's not awful. But again, coming into the year, I think there was a little more enthusiasm around seeing at least a couple percent uptick.

And then when you're talking about a 4% overall difference going from a couple of percent up to a couple of percent down, that, again, over the course of the year, can have a meaningful impact. So the good news is -- I think we all believe this is something that's temporary and we'll start to see an uptick at some point. Right now, I think folks are looking out into in terms of that optimism. So I think we've all resigned ourselves to the fact that the back half of the year is probably not going to look much different from an overall demand standpoint than the front half.

The next question is from Gary Prestopino with Barrington Research.

Leroy, getting to this catalyst was -- well, I don't know what I want to call it a restructuring or whatever. Was any of this -- this is something new that's coming to the fold, right, beyond what you were doing with your strategic transformation on the 5-year plan. Is that kind of correct?

Yes, it's coming in, I'd say, to help underpin and really support the plan on a -- structurally on an ongoing basis. So it really applies a different lens to how we approach the generation of opportunities in the organization, how we evaluate them, how we measure them, how we plan for them, track them. It really is a change management process that will unlock opportunities. And we've already seen it unlock opportunities that that are going to be meaningful in terms of, I think, leading us to a sustainable improvement in performance.

And where I would contrast it to other, if you will, cost saving initiatives that we would have done in the past or others would have done in the past. In many cases, those initiatives, you're kind of taking a little bit of a brute force approach and you're slashing somewhat indiscriminately and you take the pain for a period of time. Those costs sort of work their way back because they need to because you haven't been thoughtful about the approach that's been taken in terms of how you've trimmed it.

And -- this is really about changing the process and making those changes sustainable. So improving technology, improving the skill sets of individuals across the organization to enable us to be able to effectively do more with less. And again, have it be something that we can carry on as opposed to -- you do it for a temporary time frame. And then 3 years later, you look back and everything that you cut right back there again.

And so -- so it is an important part of the strategy that we've been working on because it gives us a sound foundation for all the other things we want to do that can be additive to the business.

Okay. And then you cited in your comments, the adjusted EBITDA margin target.

Yes.

I didn't -- I wasn't able to write that down. Can you just tell me that.

So it's really, it's mid- to high teens. I mean, I think I think that we absolutely can get there. I think you've seen a little actually a preview of it with this quarter. I mean we -- so we have not had a quarterly EBITDA margin above 15% since 2017. And we got there in this quarter, despite the fact that sales were down year-over-year by 10%. And obviously, we did it through a number of cost levers.

But it gives you some indication that, again, if we're successful in Catalyst, right, these are costs that should not just be coming back in as the demand picks up and goes the other way, but should be sustainable. And so imagine how that drops to the bottom line when you got more volume coming through the queue and adding to the top line. I mean it's going to -- it will be significantly impactful. And so yes, mid- to high teens margins is what we are targeting and what we believe is achievable.

Okay. And then just kind of looking at going through your narrative and roll out, it seems that the PC business definitely relative to where you were when you gave guidance at the end of Q1, the PC business has continued to slip...

Yes.

And it looks like the railroad business, the rebound you were looking for is not coming back. It's not going to be there for the back half of the year. Is that kind of a good summation?

Well, look, the railroad business is still going to have a great year. It's had a great first half. It's going to have a great year. I'd say, yes, we don't think that the back half of the year, there's risk in the back half of the year in terms of it being as strong. We don't think the volumes are going to drop off a bit, but we are going to get impacted a little bit in terms of product and customer mix.

We -- again, we may decide that we want to turn some inventory into cash because, again, the volumes aren't now projected as that strong of levels as what we had thought coming in. And if we do that, right, we're going to take some absorption hit, which would have an impact. Again, that's a discretionary call as to whether we want to do that or not, but we wanted to give ourselves a little bit of room there.

So -- the -- I want to just caution RUPS is going to have a very good year. If it doesn't quite reach where we had originally forecast at the beginning of the year, I would not deem that a failure. PC is a little bit of a different story. Yes. Certainly, the numbers have slipped quite a bit. We've talked on the past call about -- about modest tariff impacts in our ability to manage that. I think for the most part, that is true.

The numbers I've talked about in the grand scheme of things are not necessarily large, and I think that if we were seeing, again, a small bump in volume this year instead of a small decline, We -- again, we probably wouldn't be talking about it. We would be able to more than absorb it and -- but when you're talking about a small volume decline, and no ability to then, at that point, more or less overcome those numbers and all of a sudden, they get a little bit more magnified.

So not big overall but a couple of million here, a couple of million there. You're not getting volume to sort of recover some of that, and it starts to add up. And then at some point for us, at least, it was like, okay, we don't think we're going to be able to make this up in the back half. So we want to make sure that we provide a range -- a target range that we have a high degree of confidence that we can meet. And so that's kind of the summation of it. But PC, yes, would be the -- I'd say, the biggest impact and certainly RUPS in terms of the change from last quarter to this, but it's going to still have a pretty good year overall.

Yes. Okay. I just wanted to clarify that. I didn't mean to infer that the PC -- the railroad was not going to have a good year you sort of forecast the drop in demand from 8% to 4%. So okay.

The next question is from Michael Mathison with Sidoti & Company.

Congratulations on all the margin improvement this quarter, you guys. A couple of questions from my end. There was some news about a proposed consolidation among the big 6 rail companies, 2 of them are proposing to merge. Will that change life for you guys from either a pricing or a demand standpoint?

Hard to say. Hard to say. I think that's yet to be determined. There -- we have business with all of the Class 1s, and we consider them all very important customers. And so my hope would be that we would -- if that merger ultimately goes through, we would continue to serve the merged company in a way that is at least as much as we do today. But it's tough to say right now, it's so early on.

Fair enough. Just coming back to margins going forward. Everybody has a lot of curiosity. It obviously took a lot of work to reach 15%. You're now targeting high teens. That's another 200 basis points in lift. Is there anything specific that you could point to that would drive such a big transformation in the margin?

At this point, it's just volume recovery, right? I mean if you look across our businesses, it's rare, and I talk about it often, right? I believe the value in our business is its diversity. And so we typically have at least 2 to 3 businesses sort of on the upside of the cycle and maybe 1 or 2 down or vice versa. 1 or 2 up and 2 or 3 down. It's a unique circumstance for either all of them to be down or all of them to be up.

We are in this period, and I think we're getting closer to the end of this period where they're all sort of in a lull. And that's unusual. And so that's why I point to a 15% margin in an environment where we're down 10% on the top line and say, think about what that would look like if PC -- when PC goes from minus 2 in terms of volumes to plus 2. And think about it when UIP starts to see its rebound from what -- up until this point, up until this quarter has been, again, year-over-year declines in volume.

Think about RPS, which is going to be up this year, but last year ended down in volume and for the most part, has been somewhat flat. And then CM&C, a similar sort of story. I mean it's been down in the past couple of years. You start to see a little bit of a recovery there. All that savings that we're generating is going to drop to the bottom line.

And so, that's how I perceive basically getting that margin lift that we're talking about. We're not done on the cost side. There is more to come. And so we'll be adding additional benefits there. And then you start to see some of the markets kind of -- they don't have to be in all the businesses. You see some of these markets start to rebound a little bit and all of a sudden, you're going to see a compounding effect on the profitability and the margins.

That's why I say I really feel like we're at a tipping point here, we're so close. It may not be in '25 because the business is -- has its seasonal cycles. And we're going to be moving into the down part of the seasonal cycle as we get to the back part of the year or the fourth quarter of the year. But as we come into '26, I am really hopeful that we start to see some improvement in the end markets because if we do, I think we're going to see a significant amount of improvement.

Great. And good luck in the back half of the year.

Thank you, Michael.

Thank you.

Appreciate that. Thank you.

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

Thank you. I really appreciate everybody's time and attention today. As I mentioned, a lot of really good things going on in the organization and I look forward to being back here in November, with hopefully some better news and some signs of improvement as we look out into 2026. So thank you, everyone, and have a great day.

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