We have with us this morning Jimmi Sue Smith, CFO, and Quynh McGuire, Vice President of Investor Relations. As a reminder, we are webcasting this event. Excuse me. Koppers reports in three segments: Performance Chemicals, or what they call PC, which Koppers sells, wood treatment production chemicals, e.g., wood preservatives, mainly for residential applications like decking, the Railroad and Utility Products and Services, or RUPS, where Koppers sells treated and untreated wood products to railroads such as cross ties, and also sells utility poles. 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. We used to make aluminum anodes, clear salts used in wood treatment, and as carbon black feedstocks and naphthalene, among other products. With that introduction, 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. With that, I'll start off. Again, thank you for coming this morning.
Thank you.
Coming to the conference.
Glad to be here.
I just wanted to start off with what every client of ours wants to know, which is the cash flow items. 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? Yeah. We're in the probably $65 million, I think, if you sort of analyze where we were at the third quarter. That's—we've benefited a lot from some rate changes as well as some repricing 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. We're looking at, based on the curve now, it being down even below that for 2026. 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. How do you think about cash taxes as either a figure, an amount, or a percent of, say, EBITDA or however you want to—what kind of guidance can you tell us?
I think about that as taking sort of where we expect to be this year, which is in that $15-$20 million range. And then as the business grows, about incremental EBITDA, 25%-30% on top of that is how we think about monthly.
Incremental EBITDA.
I think from—use the $15-$20 as a base.
Great. I'm sorry. Did you say $15-$20 or $25-$30?
$15-$20 is the base. Then the incremental piece is $25-$30.
Got it. Sorry. I misheard. What are your expectations for working capital inflow or outflow?
Working capital, we've had some big outflow movements recently. Some of that's growth in the business, but some of it's been a little bit of growth in inventories, quite frankly. I don't think we're going to see it flip to a substantial inflow just because I think as the business grows, there'll be natural growth in working capital. What we do have are some catalyst initiatives. 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. We do have some working capital initiatives as part of that. They're not included in there, but they are in that $40-$50 million range or that time period, mostly in inventories.
I think what that will do will be mitigate the cash flow draw from the growth of the business. Probably smallish usages, but not usage in the—we've seen $50 million here recently, not all the time.
Got it. And normalized CapEx, should we think of that in the $55 million range or some other number?
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 a Stickney plant helps with that a lot. I think in that $50-$60 million is probably like a normalized maintenance level. 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 thought the line shut would have—that's what they think.
It's 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 growth. I think it's going to be much closer.
That plant was set up two lines. It has two lines, or at least it has two lines now, and you're shutting down one line.
We have two distillation plants. A couple of things. One, we shut down the phthalic anhydride plant. We stopped producing there early in the second quarter. That is big capital usage because it had some recapitalization that we could not vary widely. That line has been shut down. We do have two tar distillation columns. There is some additional tar coming out of the market in North America this year because there has been a conversion from blast furnace to electric arc, which does not really mean you do not need coke. There will be more coal tar coming out of the market. We are looking at shutting down one of those columns as well and continuing to streamline those operations, right-size them for the market that we are in, and get the cost to where we need it to be.
I'm not sure. I thought you were definitely shutting down one of the two columns. You're saying mostly shutting down.
Mostly.
Okay. I guess the question I had is, since it was set up as a two-line, two distillation columns for coal distillation, does leaving one line as a two-line, because presumably you can't cut 50% of a fixed cost, because what I'm saying is it costs more to presumably run just one line on a fixed cost basis that you have to absorb.
The way that—this is all things that we're currently studying—but the way that the plant is set up, we saw significant improvement in our margins this year from shutting down the phthalic anhydride line and just eliminating some of those costs. We think based on how you—which column you operate, how you set up the operations, we're hopeful that we can structure it.
Okay. Excellent. Both Q4 2025 and 2026, again, finance, are there any other cash items or pension capital for any other things we should be thinking about?
Yeah. The pension is substantially funded at this point. We do have—that's the North America pension. We did almost all of it this year. There were two small pieces for union plants that did not opt into that. We may have those to come off as the contracts roll up, but they are not significant. They are 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. Looks like that is going to get resolved, but that is just a couple of million dollars. It is not significant.
I'm starting to hear—correct me if I'm wrong—the pension sort of pay-as-you-go kind of situation.
You can buy it.
You can buy it.
You can buy it.
All right. Interesting. Starting in on the three segments, Performance Chemicals, your guidance for 2025 is down $41 million-$43 million versus 2024. Is most of this volume reduction to lose market share to any of the main competitors? How much did unfavorable fixed cost absorptions impact this EBITDA reduction guidance?
Yes. The most significant piece of that is the decrease in EBITDA from PC businesses related to the market share reductions that we had. We had a couple of major customers that were sole source to us who have elected to split their sourcing. That did drive—there is some fixed cost impact of that, but a lot of it is just the EBITDA loss on the volume.
You did not lose any customers. What you did is they decided to dual source their supply.
Yes.
There is only price, but what was their motivation to suddenly change the way they were doing it to dual sourcing and sole sourcing?
I'm not sure there was some reason to do it, but a lot of companies, us included, after we experienced some of the supply chain disruptions during COVID, have looked at their operations and said, "We can't afford to be sole sourced for any." I'm sure we have some things that we just have no choice, but it's kind of a policy that we don't sole source because there's too much risk.
Got it. Was it all to that—like there are two other main players. Was it all to the one?
Yes.
Right. Why didn't the other one—the other one has some apparent—one of the parents. The other one has some administration issues. I don't know if that impacted.
Oh, so the product that is used to treat residential lumber in the U.S., the gold standard is called MicroPro. That's a product that we have to comment on. The reason it's the gold standard is it is rated for ground contact. You can put it directly in—when you put that, you can put it directly in the ground. It will not, right? Our main competitor in this space licenses that technology from us. That's a structure that we inherited when we purchased the PC business. They are selling the same sort of formulation. They are able to sell ground contact. The third player in this space does not have ground contact.
Okay. That explains it. I knew I liked that. All right. Copper plans. How was that? I would have thought that'd be a big impact. You are mainly saying it's volume has been the impact, not—has copper impacted?
We had some impact from copper this year, but that was because there was some dislocation in the market. We generally hedge our copper costs at least a year out, if not more. We price our customer contracts in line with where the copper is. What happened to us in 2025 is we have historically hedged our copper at LME because it is a more liquid market than COMEX, which is actually sort of the U.S. copper market. We would hedge at LME. We purchased at COMEX. Those two have always moved in concert with each other, and that was fine. When the U.S. started talking about putting tariffs on copper, those two indices dislocated. COMEX went up. LME did not, which obviously impacted the effectiveness of the hedges.
We were able to mitigate most of that because of some supply-demand dynamics that happened here where people shipped a lot of copper into the gas side of the potential fares. So there were bigger discounts off of COMEX, which brought those more in line with each other. Did have an impact on the year in the $5 million-$10 million range for the year, but we were able to mitigate a little bit. Moving forward, we're looking at ways to—there's 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, but it's not quite as liquid as LME is.
Actually purchasing in the U.S. from our scrap dealers at LME, and we've seen some who are willing to do that, as well as just entering fixed-price physical contracts. Instead of doing it with a financial, doing it with a physical transaction for long-term purposes. We've 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. There's a little bit of risk that we could see us to get in 2026. We're trying to make sure that we are responding to it.
For next year, copper prices are moving around. Will you be able to basically go to your customer and say, "Look, here's the price, but here's the copper in this. And so we're just passing that through to you. We're not taking that risk"?
Huge contracts are generally two-year contracts. We have contracts that were 2025 and 2026. 2026 will be another big contract in the year for 2026. We generally lock in those prices in concert with the copper pricing. We are a little behind hedging copper for 2026 compared to where we would normally be at this time of the year. We are 75% ish, but we would probably be done in a normal year. Given the dislocation in the market this year, there were some people who moved more.
When you say 2026 is a contract year, do you mean that a lot of the contracts come in from 2026 to 2027?
2025, 2027, and 2028.
Okay. And then when you go from 2026 to 2027, the plan is to approximate these copper prices.
We'll be tracking the tax on them and make sure that we're tracking them.
Got it. All right. All right. When you're picking to RUPS, EBITDA guidance for 2025 is $28-$30 versus 2024. When you step back, what is the key driver of this improvement? Was it price-plus spread? Was it volume plus acquisition a little bit?
Yeah. It is primarily on the rail side of the business. There has been a big—there have been times 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. We felt like that cost structure had gotten cut with where the pricing structure was from our customers. 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. We have taken a tremendous amount of really operating costs out of that business, operating SG&A to get that where we want to see it. Now we are seeing that be a 12% margin business, which we are really excited about.
I 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. 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-of-way business on the rail side. Our rail tie recovery business has moved to just only doing a piece of that business, and that's become much more profitable. We had some pricing increases in rail costs this year as well.
Great. Was it maintenance away? The main thing was you took costs out for your Class I rail cross ties, it sounds like.
Yes.
Did utility poles—did any change there that helped out?
Utility poles have been interesting. They've had a roller coaster in terms of demand over the last few years and saw some significant destocking that was positive. 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. Everybody's a little—there's a lot of longer playing on the sidelines, and everybody's 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 volume of quoting activity and supply cases getting approved and just positive signs there that that market may be picking up a little bit.
We are seeing it both in the RUPS segment where we sell utility poles, but also in the PC segment where a third of that segment is industrial and sort of serves that market as well. That has been the good news story there. I do not think we have seen a tremendous amount of pickup there yet. If we do, that is the one where we see it coming. Obviously, we think the even bigger opportunity in our business is the opportunity to move west. We have historically only competed east of the Mississippi. We have started building the infrastructure in terms of sales force and staffing to go west, also in terms of the supply chain, procuring Douglas Fir poles, which we needed to go out west.
The Brown acquisition that we did in April of 2024 and the plant that we got in Houseland was really able to reach the market. That for us is a growth opportunity in that area in excess of whatever happens organically in that space, right? If that's a GDP plus market growth area, a little bit better than that, we think it's better than the forest because we can get more penetration in a new geographic area.
For the inventory on the utility poles, do you keep—what's most of your inventory? Is it untreated poles? Is it treated poles? Is it some of both, and you're just waiting for the man to come?
Some of them, although I think in normal times it's more untreated than treated. The bigger inventory that we hold is the rail tie because rail tie is going to dry for six months generally before that. There's a good bit of inventory there. 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 was a huge piece. We're still working there. It's all part of that list, all part of what we're kind of doing every day now.
Got it. CMC business, the guidance, CMC up $8 million-$9 million versus 2024. Again, what was the main sort of driver there? Was it price cost? Was it volumes, cost reductions?
I think it's been a lot of cost reductions. We've seen a little bit of price improvement, but not much. Honestly, that market continues to just languish and be driven by industrial demand. Everything's very cautious there right now. We, again, a lot of focus on improving the cost structure there, taking out the phthalic anhydride unit and Stickney. It's really been addition customs. We've done well in there without those operating costs. 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.
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 drives prices. Everything comes to time. When it does, we are going to be sitting here with a really improved cost structure and a business that functions better and ready to take off with the demand. We are excited about that. We are fighting for it.
How would you describe the aluminum demand right now? I mean, aluminum prices, you would think, "I know demand would be stronger.
Yeah. That entire business just feels like everybody's sitting on the sidelines.
All right. I guess you're still just thinking about shutting down that Stickney filter distillation still, but what would be the likely timing? Is this a 2026 event or?
Yeah, we can look at that.
Okay. But were these two stills identically sized?
Yeah. There's about 300,000 metric tons of capacity between two, much 300,000 metric tons.
300,000 metric tons total.
Yeah, like 150,000 metric tons each.
Yeah. Got it. Perfect. Are there any questions? I've gone through. If not, maybe we'll just call it there.
Thank you.
Thank you.
Thank you. Thank you. Yeah.