Koppers Holdings Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to COPPR's second quarter 2023 earnings conference call and webcast. At this time, all participants are in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. Following the presentation, instructions will be given for the question and answer session. Please note that this event is being recorded. I will now turn the call over to Quinn McGuire. Please go ahead.

Thanks, and good morning. I'm Quinn McGuire, Vice President of Investor Relations. Welcome to our second quarter 2023 earnings conference call. We issued our press release earlier today. You may access it via our website at www.coppers.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 3, 2023. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on slide two. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, and uncertainties including risk described in the cautionary statement included in our press release and in the company's filings with the Security 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 objective, plans, and projected results will be achieved. The company's actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. References may also be made to certain non-GAAP financial measures the company has provided with its press release and the slides referenced during this call, which are available on our website, Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures. Joining me for our call today are Leroy Ball, President and CEO of Coppers, and Jimmy Sue Smith, Chief Financial Officer. I'll now turn this discussion over to Leroy.

Thank you, Quinn. Good morning, everyone. Thanks for joining us today. We have a lot of great stuff to cover. It was a great quarter and a lot I want to cover in terms of things to come. But why don't we just kick things off by starting on slide three, where I want to remind everybody that Coppers is going to be hosting an investor day scheduled for Thursday, September 14th, 2023 at the Intercontinental Hotel in Chicago. And also we have some activities planned for Wednesday, September 13th, which will include a baseball game that evening, to allow for some additional interaction between the attendees and our senior management team. I very much hope that you'll be able to join us for as many of these events as possible. The Investor Day presentation will also be available virtually with a live webcast. And for those attending virtually, you'll have the opportunity to participate in real time in the question and answer session following the presentation. And we'll provide a replay of the Investor Day event on our website as well. We look forward to providing further insights on our business, sharing updates on our strategic priorities and our longer term outlook while emphasizing our focus on driving shareholder value. So let's turn to reviewing the second quarter. There's a lot of good things happening at Coppers, both in Q2 and 2023 in general. Now, before I rattle off some of the highlights, I want to start by saying that even under challenging market conditions, we continue to validate our unique vertically integrated business model, which serves a diversified mix of infrastructure and related markets that need our products and services. It's more or less the same blueprint we've been using to drive transformational improvement over the past nine years. And by continuing to strategically expand and optimize our business model, we're capitalizing on new business opportunities as well as upgrading our operations network to increase capacity, improve efficiencies, and reduce costs. So let's move to some of the highlights for the second quarter on slide five. We achieved consolidated sales of $577 million, an all-time record quarter and the seventh consecutive record for current quarter sales. We generated adjusted EBITDA of $70 million, a record quarter in profitability. And from a GAAP accounting standpoint, the second quarter was the second straight quarter that we reached a new quarterly high for operating profit. Adjusted EBITDA margin was 12.2%, a nice improvement from the 10.9% margin in the prior year period. Diluted earnings per share were $1.15 compared with $0.55 from the prior year. And adjusted earnings per share were $1.26, exceeding the $0.97 in the prior year quarter. And although not on the slide, to date, through June 30th, we used $2.1 million of cash from operations, which is a little behind where we would typically be through the first six months of the year. Higher cash interest and higher working capital kept operating cash flow below historical norms, but I still believe that we'll finish the year over the $100 million mark and be somewhere close to our capital spend total for the year. Speaking of capital deployment, we deployed $71 million of cash in the first half, with $37 million going to required maintenance and zero harm capital expenditures. $34 million going to discretionary spend items such as $26 million on growth and productivity capital projects, $2.5 million on dividends, and just under $6 million on share repurchases. Sincere thanks go out to our Coffers team across the globe for continuously exceeding expectations no matter the challenges faced, and at the same time, maintaining their unrelenting focus on safety, service, quality, and reliability, which provides an ongoing formula for our success. Next, let's take a look at the progress being made with our Zero Harm 2.0 platform. Slide 7 shows that 27 out of our 45 operating facilities worked accident-free in the second quarter, along with a 25% reduction in recordable injuries. Zero Harm 2.0 represents a re-energizing of engagement among our frontline employees and accelerating our progress towards zero. Our UIP leadership team has now completed their training in Zero Harm foundations and observations, and year-to-date through June 30th, The recordable injury rate for UIP has dropped an impressive 75% year over year. Congratulations to the entire UIP organization for living our zero-harm culture. Our managers and frontline supervisors are starting to receive training on incident investigation and reporting, which are important in identifying and preventing unsafe situations and reducing risk of injury. And as of June 30th, every frontline employee has completed training and peer-to-peer safety observations. This training reinforces the idea that colleagues who care about each other's safety can be one of the most powerful influences in strengthening the zero harm culture. As a result, our leading activities year-to-date through June 30th increased by 38% compared with the prior year, which helps to decrease serious safety incidents. Zero harm topics are discussed globally during monthly toolbox talks, which deliver brief trainings to employees by their direct supervisors at our facilities. The ideal atmosphere for these discussions is small groups where people feel comfortable asking questions or bringing up topics that might be tougher for them to discuss in larger groups. During the past several months, we've featured various life-saving rules as well as a video of me discussing our safety-focused culture with Joe Dowd, our Vice President of Zero Harm. As always, the safety and well-being of our employees and our communities remain a core principle of our Zero Harm culture. I'll now turn the discussion over to our Chief Financial Officer, Jimmy Sue Smith. Jimmy Sue?