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spk01: 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.
spk04: 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.
spk02: 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?
spk03: Thanks, Leroy. The press release issued earlier today detailed our second quarter 2023 results. My comments this morning are based on that information. So starting on slide nine, second quarter consolidated sales were a record 577 million, up 75 million or 15% over the second quarter of 2022. By segment, RUP sales increased 30 million or 15% from the prior year quarter. PC sales increased 31 million or 21%, and CM&C sales increased 13 million, or 9%. On slide 10, adjusted EBITDA was also a quarterly record of 70 million, with a 12% margin. By segment, REFs generated EBITDA of 22 million, a 9.5% margin. PC had EBITDA of 32 million, and 17.9%. And CM&C had EBITDA of 16 million, with a 9.7% margin. Moving on to slide 11. Our RUPS business generated record sales of 234 million compared with 204 million in the prior year quarter. Sales growth was primarily driven by 20.3 million of price increases across multiple marches, particularly for cross ties and utility poles in the United States. Higher volumes for cross ties and utility poles also contributed to the sales increase. From a procurement perspective, Market prices for untreated cross-ties remain relatively high, but they are stabilizing, and as a result, cross-tie procurement was higher by 46% compared to the second quarter of last year, while cross-tie treatment increased by 3% versus the prior year quarter. Adjusted EBITDA for RUF was $22 million, up from $13 million in the prior year, driven by price increases and $6.5 million in improved plant utilizations. partly offset by higher raw material and operating costs. It's worth noting that the domestic utility and industrial products division of this business achieved record quarter sales and record adjusted EBITDA and margins, contributing significantly to the overall performance for RUPS. On slide 12, our performance chemicals business delivered record quarter sales of 181 million, up from 150 million in the second quarter of 2022. The year-over-year sales growth was the result of global price increases of $21 million, particularly in the Americas for our copper-based preservatives. In addition, we saw an 8% increase in volumes globally, driven by the Americas partly offset by volume decreases in Europe and Australasia. Adjusted EBITDA for PC in the second quarter was $32 million, up from $20 million in the prior year quarter. Year-over-year, profitability increased as a result of our renegotiated customer contracts which allowed for increased pricing in order to recapture prior year cost increases. Our profitability also benefited from higher overall volumes, partly offset by higher raw material costs. Our team at PC has worked hard to successfully return that business to normalized levels of EBITDA margin at 18%, both for the quarter and the first half of 2023. Slide 13 shows CM&C's second quarter sales of $162 million compared with $149 million in the prior year. Sales were higher as a result of $7.2 million in price increases, as well as higher volumes of refined tar in North America. This was partly offset by price decreases for certain other products and volume decreases for thalic and hydride in North America. Adjusted EBITDA for CM&C in the second quarter was $16 million, compared with $21 million in the prior year quarter. The year-over-year decrease in profitability reflects higher raw material costs of $17.2 million, particularly in Europe and North America. This was partly offset by higher pricing as well as higher volumes in North America driving improved plant utilization. Compared with the first quarter of 2023, the average pricing of major products decreased 4% and average coal tar costs were higher by 7%. Compared with the prior year quarter, The average pricing of major products increased by 4%, while average coal tar costs were up by 24%. Slide 15 outlines our continued commitment to a balanced capital allocation approach that includes investment in the business, returning capital to shareholders through dividends and share repurchases, and reducing leverage as appropriate. At June 30, 2023, we had $858 million of net debt and $300 million in available borrowing capacity. Our net leverage ratio at June 30th was 3.4 times. Long-term, we continue to target a two to three times net leverage ratio. On slide 16, total capital expenditures through the second quarter of 2023 were approximately 63 million or 61 million net of cash proceeds. By category, we spent 27 million on maintenance, 10 million on zero harm, and 26 million on growth and productivity projects. By segment, We spent $29 million on RUPS, $4.5 million on PC, $28.5 million on CM&C, and $1 million on corporate initiatives. Finally, on slide 18, as previously announced, our Board of Directors declared a quarterly cash dividend of $0.06 per share of Copper's common stock to be paid on September 11, 2023 to shareholders of record as of the close of trading on August 25, 2023. At this quarterly dividend rate, subject to the review by the Board of Directors, the annual dividend will be $0.24 per share for 2023. And with that, I'll turn it back over to Leroy.
spk02: Thanks, Jimmy Sue. Moving on to the notable happenings at Coppers, slide 20 provides highlights from our recent trip to Newburgh, Denmark. I was last there in 2019, and boy, has a lot changed. I really enjoy being at the plant and getting valuable feedback from our employees who love to show me all they've been up to since I was there last. Their pride in their performance is completely justified as that location consistently ranks among the safest, most efficient and productive sites anywhere in coppers. Our newborn facility is an impressive operation and represents a model to which all our facilities should aspire to be. It was exciting to see the progress on our enhanced carbon products plant, which is expected to begin commissioning this quarter. At its most base level, our enhanced carbon products plant will enable us to reprocess product generated for low-value markets and create a higher-value product to be sold at a much higher price point. Longer term, we have the ability to make even higher-value products, including some that would have applications as a high-quality battery coating for the electric vehicle market. We've already received several patents for our enhanced carbon products portfolio and have others in the pipeline. It's a testament to the ingenuity of our CM&C technical team and a broad-based commercial team that continues to move the ball forward quietly and methodically in this area. It will be exciting when the new facility is officially in production at the beginning of next year. Thanks again to all the newborn crew for the planning and work that went into making my time there an amazing and meaningful visit. Slide 21 shows our 2022 Corporate Sustainability Report, which was issued in June. The report details our pursuit of goals, supporting our company's values of people, planet, and performance. Some of the 2022 highlights included in the report are reducing our total recordable rate of reportable injuries by 5%, expanding our investment in career growth and continuing education opportunities for employees at all levels of the organization, increasing the diversity of our leadership team, and reducing our scope one and two emissions by almost half from our 2007 baselines. Those are just a few of the many accomplishments that supported our financial performance, which also grew in 2022, once again showing that profitability and sustainability are a both-and proposition. In addition, last week we released the inaugural COPPERS Task Force on Climate-Related Financial Disclosures report, a globally recognized reporting structure developed by the Financial Stability Board. The report discloses climate-related risks and opportunities across four primary categories, governance, strategy, risk management, and metrics and targets, and provides a common framework that's intended to make climate-related disclosures more consistent and comparable across companies. Producing our first voluntary TCFD report represents an important step for coppers in learning more about the risks to our businesses and opportunities for improvement. With each successive year, our culture of sustainability becomes more fully rooted in all aspects of our business, as it should be. And as we continue ingraining sustainable operations into our DNA, we are gaining even greater recognition for our progress. Turn to page 22 and you can see what I'm talking about. In addition to making Newsweek's list of most responsible companies for the third straight year, which we announced earlier this year, we were recently named to USA Today's first ever list of America's climate leaders. We also learned in July that Copper's Australia moved up to silver status from bronze in the Sustainability Advantage Program run by the New South Wales EPA, due to measurable improvements in areas of sustainability, such as energy efficiency, greenhouse gas reduction, and resource efficiency. Copper has also recently moved up the charts of two third-party sustainability raters. MSCI moved us up to a AA rating from an A rating, which puts us in the top 8% of commodity chemical companies, and our score with Echovatus improved from the 56th percentile to the 75th percentile, also moving us up to silver status from bronze in their rating system. At Coffers, we know that running a sustainable organization in all aspects is critical and can also be a competitive advantage as more customers are seeking companies like ours to be their business partner. Keeping our values of people, planet, and performance at the forefront of all we do makes sure we never lose sight of what's important. Moving on, in February, I outlined what I felt the keys to success in reaching our 2023 adjusted EBITDA goal of $250 million were going to be. In May, I gave an update on our progress through March and will now provide a current update on where we stand through June. The bottom line is that while everything hasn't gone perfect in each of the key areas, the net result has been more positive than negative, which keeps us on a confident path to not only reaching our $250 million in adjusted EBITDA goal for this year, but also $275 million in 2024 and $300 million or better in 2025. Starting on slide 24 with performance chemicals, The first and most important key to success this year was realizing price without a major loss of share. In February, I mentioned that we had enacted major price increases effective as of the first of the year that should net us over $60 million of top line improvement and recapture the cost that we had absorbed throughout much of 2022. Through six months, we continue to track the better than original expectations as we realized $46 million of price increases across our global sales network, correlating to a 16% increase of our first half 2022 sales. In addition, our volume losses have been manageable as we've also picked up some new business that helps to slightly de-risk our customer concentration risk across a broader customer base. This is an area where we're scoring ahead of expectations and should see the benefits continue to accrue throughout the year. The second key to success for PC in 2023 is residential demand not declining greater than 10% due to a downturn in the economy. Coming into the year, we modeled a 5% to 10% decline in year-over-year base volumes, and that excludes any net gains or losses in share. which to date have been flat to slightly negative. Now, through the first six months, overall volumes are up 6.5% over the same period last year. And factoring out a small net market share loss would actually have organic volumes up between 6.5% to 10%. And while we feel good about those numbers, we expect things to cool off a bit in the back half of the year and volumes overall for the year to come in closer to flat compared to 2022. The leading indicators for this business have not really improved since last quarter. Existing home sales are still struggling, down again in June, and year-over-year down 18.9%. The leading indicator of remodeling activity continues to project the deceleration in spending that began in the third quarter of 2022 to continue at least through the second quarter of 2024, which is as far out as they project. Even worse, Lira has spending for the first and second quarter of next year actually contracting compared to the similar 2023 periods, which marks the first time that's happened in 10 years. Yet against that backdrop, volumes continue to remain solid. Why? Well, there are a couple positive things to point to that might hold some of the answer. The first is that while higher interest rates in an uncertain economy have had a negative impact on existing home sales, the rapid change in rates has had many people forego the thoughts of upgrading to a new home and instead put money into their current home, accepting that they may be there for several more years. Another positive, making it easier to decide to improve current homes, comes in the cost of treated wood, which has subsided considerably since peaking at different periods in 2021 and 2022. Treated lumber, which our preservatives protect and extend the life of, has emerged as one of the most reasonably priced products today versus a year ago. Now, the final key to success for PC in 2023 is that coppers preservatives, such as CCA and DCOI, are replacing the non-coppers produced industrial chemical Penta, which is currently being phased out after losing its US EPA and Canadian registrations. In 2022, we experienced a 33% increase in our industrial sales volumes, and through the first six months of this year, we've seen a volume bump of 13% over prior year. Even with that kind of growth, we're tracking a little below our internal projections for the year, but the overall story remains positive. We expect this trend to continue as industrial demand looks to remain strong from increased infrastructure spending, also benefiting our utility and industrial products business. Speaking of UIP, which is a division of our RUPS segment, as seen on slide 25, we continue to enjoy strong demand across the board, as already mentioned. And that's why it's important for our facilities to run uninterrupted to serve customer demand, which has happened for the most part. I mentioned back in May how we lost one of our dry kilns to a fire, impacting our supply of dry wood while driving up costs somewhat by replacing internal supply with third-party materials. So far, we've managed to work through that challenge better than anticipated and even posted our most profitable quarter for UIP since it became part of COPRS. I give credit to our entire UIP team led by Jim Healy, who came together to produce one of the strongest performing quarters with efficiency at each of the facilities at or near their peak while operating more safely than ever. In the meantime, we continue to work to not just replace the damaged kiln, but also another end-of-life inefficient kiln in our operation that will add capacity. Both of these capital projects were approved by our board in May and are expected to be operational in October 2023 and January of 2024, helping our performances higher pricing that generated $20 million through the first six months, which made up cost increases experienced over the past 18 months. It's hard to believe, but through June, we've already exceeded the full year 2022 profitability of this business, which at the time represented an all-time best year for UIP. Back in February, I highlighted bringing the Leesville, Louisiana facility online as the second key to success in 2023 for UIP. But as I sit here today, this now represents a key to the improvement that we expect to generate in 2024. Losing a kiln like we did in April caused us to rethink things. We already had a kiln constructed for Leesville awaiting site prep work prior to installation. And knowing the unintended delays that can occur, we felt our best option was to take the kiln constructed for Leesville and divert it to our other site. As a result, we pushed the completion date for the Leesville project to January 2024, meaning the site won't have an impact on the results for this year. And despite the delay, it will not affect our ability to exceed expectations for this year due to the overall strength of the market, the execution of our ops team, and the skills of our sales team to recoup cost increases from our customer base. The good news? The market for poles in Texas remains strong, which is what the Leesville site will feed. This project still represents a crucial piece to our ability to grow adjusted EBITDA to $275 million in 2024. In the Railroad Products and Services Division of RUPS on slide 26, our first key to success for 2023 remains rebuilding our dry inventory as soon as possible. And we're still on pace to procure over 7 million ties, representing our highest procurement year since 2015. And while we've made up ground on building our dry inventory this year, Most of the increase occurred during Q1 with little progress made in Q2 as we fight to keep up with demand. For the year, dry inventory is up 20%, but we need at least another 20% to 25% of improvement to get to greater efficiency in the plants. We'll continue to chip away at this, but it may be a little longer than we had anticipated to get to the inventory levels we want. The second key for RPS is recouping the value of our creosote preservative in the market. We continue to work with our customer base on potential price adjustments to provide relief to what has become an untenable situation and one of the largest reasons for our rough business underperformance over the last few years. I continue to say that for the rail industry to maintain a healthy supply chain across ties, it needs to pay fair price for its preservative. After all, it is the preservative that brings the value to the tie, extending its life in service by 15 to 25 years beyond what would be left untreated. Through six months, we've realized $24 million in price increases across all of RPS, not just for Creosote. We need at least another $30 million or more of price to get this business back to a healthy level, and we're actively working on that. The success of our utility pole business is currently overshadowing the financial underperformance in our railroad business. While second quarter adjusted EBITDA margins for the total RUP segment represents the second best Q2 margin we've posted in the past six years, If you carve out just the rail portion, Q2 2023 adjusted EBITDA margins represent the worst Q2 margin that our standalone rail businesses had going back to 2009. That has us on track for what would be a new low annual margin realized for that business as we're tracking below the prior year low realized just last year. That said, I remain confident we can work something out on the pricing front that gets us to market because as I've mentioned before, The alternative is that we will not remain in this business, which I don't think is good for the industry. We've been leaders on the sustainability front, which I've spoken to earlier in this presentation, and we've been responsive to helping to solve the industry's desire to find a more sustainable life cycle for end-of-life cross-ties, investing $65 million in our recovery business, which has demonstrated its value. It's time we begin getting compensated fairly, or we'll have to recoup our investments in a different way. The final key outline for RPS success in 2023 is getting the North Little Rock expansion finished by mid-year. It's now August, and although we didn't meet the goal, we're not far off. One of our three new cylinders has been commissioned with the other two cylinders in the process in the third quarter. We're currently working through some of the bugs one would expect when bringing up a facility of this scale. And once fully operational, it will be the most efficient crosstie facility in North America when running at full capacity. Now, we're also close to formalizing a commitment for the remaining capacity at the plant and have already begun buying untreated ties to be ready to treat for this customer next year. While this project will end up having little impact on 2023 results at this point, it remains a key component of reaching our target of $300 million in adjusted EBITDA in 2025. Slide 27 features our carbon materials and chemicals business. The first key to success in 23 for CMC, as it is almost every year, is managing through a challenging raw material market. These markets seem to be in a state of perpetual flux, but as I mention often, I don't think there's anyone better than our people at staying ahead of where markets are moving and capturing maximum value on the margin spread between our supply and the end markets. The drop in aluminum production in Europe due to curtailments has outpaced the pullback in steel. and this has caused a significant drop in both raw material cost and in-market pricing in Europe. How long that dynamic remains in place remains to be seen, but it will cause pressure on results in our European business in the short term as we write down inventory to current market levels. In the U.S. and Australasia, current market dynamics are better to varying degrees, and we expect to be able to offset most of Europe's challenge over the remainder of the year. The second key for CMSE comes in continuing to push acceptance of petroleum blended products, which mitigates reductions in coal tar volumes. While we've had pretty good success in the acceptance of our hybrid pitch products, the adoption rate has been slower in the pavement sealer markets. In the U.S., there's been no shortage of coal tar-based pavement sealer product, so customers have not felt the pressure to bring in a new product. We're taking a longer-term view on petroleum blended products, since the various markets we serve will eventually have to include other alternatives, and the work we're doing now to introduce them to the market will pay dividends in the future. The final key for CM&C this year is seeing a demand environment not negatively impacted by recession, and that's somewhat interdependent of the challenging raw material environment I spoke about earlier. As we enter 2023, we modeled similar year-over-year demand. Through six months, our volumes are down slightly, but industry volumes, particularly in Europe, are down much more than copper's demand. This is due to the fact that much of the aluminum capacity curtailed in the last year is based in Central and Southern Europe, which is an area primarily served by competitors. And that impact has created the mismatch in supply mentioned earlier, resulting in dropping raw material costs and end market pricing for Europe, which will have an impact on that region's profitability. Our other regions find themselves currently in a better balance. Overall, we feel we can mitigate most of the impact we might see in Europe's results. Moving to our 2023 guidance on slide 29, our sales forecast for 23 is approximately $2.1 billion, compared with $1.98 billion in 2022. with RUPS and PC expected to see top-line increases. For RUPS, it will be a combination of price and volume. For PC, it will be price and industrial volume growth. For CMC, it's expected to hold to the prior year sales level with slightly higher pricing offsetting slightly lower sales volumes. On slide 30, our 2023 EBITDA projection remains at $250 million, which is where we currently stand on a trailing 12-month basis as of the midpoint of this year. On a comparable basis, this will be our ninth consecutive year of EBITDA growth, will be the largest year-over-year increase since 2015. While our forecasts are consolidated adjusted EBITDA remains the same since May, we believe we'll get there due to stronger performance from our utility business, driving rough results higher than what we thought a few months ago, and that will serve to offset some additional weakness that we potentially see in our CM&C segment. On slide 31, our adjusted EPS guidance for 2023 is approximately $4.40. the same as our forecast at the beginning of the year, which compares favorably with the $4.14 that we earned in 2022. Higher average interest costs will take a significant bite out of earnings growth generated through operations, but despite that, 2023 is expected to finish at our highest adjusted EPS in company history, surpassing the $4.21 achieved in 2021. On slide 32, we anticipate that our capital spending will be approximately $110 to $120 million in 2023, 5 million to 15 million higher than 2022 levels. Required spending on maintenance and zero harm will approximate 68 million with approximately 42 million to 52 million dedicated to finishing our significant growth and productivity projects that will enable us to achieve the ambitious growth projections that we have for the next couple of years. And as I stated previously, by the end of this year, we'll have spent all that would be required to achieve our 2025 adjusted EBITDA goal of $300 million and at an overall cost much lower than what was communicated at our 2021 investor day. Moving to slide 33, you can see our expected path at $300 million of EBITDA from our 2020 base. The majority of that improvement will be realized over the last three years of the plan as the investments we made in the first part of the planning period begin paying off in the later years. We're seeing exactly that play out this year, and we're primed to keep it going for several years to come. With our continued focus on expanding and optimizing our core business, I remain confident in our ability to not just meet but possibly exceed our $250 million adjusted EBITDA forecast for this year. I'm also confident in our targets of $275 million in 2024 and $300 million in 2025 with significant cash generation occurring over those periods that will enable us to increase cash back to shareholders while still reducing leverage back between the two to three times range that we've been talking about. and also investing to continue to grow the business. I'm excited about the future, and I can't wait to tell you more about it at our upcoming Investor Day in Chicago in September. But for now, I would like to open it up for questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, Please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from Liam Burke with B Reilly FBR. Please go ahead.
spk00: Thank you. Good morning, Leroy. Good morning, Jimmy, Sue.
spk02: Hi, Liam. Good morning.
spk00: Can we go in a little more about the RUP EBITDA margins? They were, I mean, they were terrific, but then we spent some time looking at the railroad products and services and raw materials costs and how it's affecting margins in that business segment. What are you doing outside of rail that is, you know, delivered such a nice number?
spk02: So, you know, I'd say the pole business certainly has been helping to keep the margins up or pull the margins up in that business. Demand is strong in the U.S., and it's created a good pricing environment. You know, we had a lot of cost increase come through in the back half of 21 heading into early 22 that we were playing catch-up on. And we've been able to get caught up on that. And, you know, being in a good pricing position with strong demand and some of the projects, quite frankly, that we put into place to help improve efficiency, reduce some bottlenecking within our facilities, improving efficiency, reducing costs. It's been a number of different factors, Liam, that's come in, but it always helps to have a healthy market for sure. And so... that business has performed well, and our Australian business is in a pretty strong position as well. They always have been. They're just a smaller piece of the overall pie, but the utility business has absolutely been the leader on the RUP side, and we have work to do when it comes to the rail piece of things. Costs have gone up significantly over the past couple of years, and We're trying to recoup that in the form of price increases, and we're continuing to work down that path. And I do have confidence we'll be successful because we need to have a healthy supply chain.
spk00: All things aside, I mean, is this 9.5% presuming you do get some price increases on RUP? Is that a sustainable number?
spk02: Well, the expectation is that we get this business back into the double digits. I mean, this business should absolutely be in the 12% to 16% margin range is where it should be overall, and that's what we've been aiming to get back into. A lot of the projects we've been undertaking are geared towards doing that. We've We've been asked the question before, you know, why spend money on a business that is generating 6% margins, which it was before, and are there returns there? We believe there are, and we believe we're starting to see some of the impact of that. A lot of the benefits there have been overshadowed by costs just escalating that up to this point in time we've had a little more trouble actually getting back. But we'll figure that one out.
spk00: Okay, great. And really quick, Jimmy Hsu, operating cash flow was slightly negative for the first six months of the year. Usually in the second quarter, cash flow is strong enough to flip into the positive territory. Understanding that working capital timing issues, you know, can affect that number, but was there anything in the second quarter cash flows that, you know, created or did not get you over the positive operating cash number?
spk03: So I think you hit on the biggest thing there, Liam, which was the operating, the working capital kind of not flipping as early as it normally does. But I will say we saw a strong acceleration in cash flows in the month of June and are continuing to see that. So we think we're seeing sort of our normal pattern just maybe on a month or six-week delay from when it has normally started.
spk00: Great. Thank you, Leroy. Thank you, Jimmy. Thanks, Liam.
spk01: The next question is from Gary Prestapino with Barrington Research. Please go ahead.
spk02: Hey, good morning, all. General question, in terms of with the infrastructure bill, federal spending and all, are you starting to see more money being released there for for, you know, specifically what you do? Yeah, money having a downstream impact on the purchase of our goods and services, yes. Certainly we're seeing that in the poll side. You know, the demand there has always been relatively healthy, but it has amped up with infrastructure dollars being let out. And we're seeing it on the rail side as well. So, yes, dollars are out there being spent, and it is having an impact. Okay. And then in terms of what you're talking about getting, I guess, further price increases for the Creosote, is that with entities that have not – given you any price increases, or you have to go back to some of the ones you already negotiated and try and pass on higher price increases? So it's a little bit complicated, right? And I mentioned CREASO, but to be totally blunt, right, it's across the board. We've had significant increases. Obviously, we know what's going on in the labor front. you know, goods and services, you name it, and the costs have gone up, right? And so we have, you know, contractually with the long-term contracts we have in place, we do have an ability to recoup some of that, and we have up to a certain limit. It's just not been enough, and so we're trying to work, you know, we're trying to work within the bounds of the contract to ensure that we can get back fair value for the items that have exceeded our ability contractually to get the price increases for. And as I continue to beat the drum, right, I mean, it does not serve the rail industry to have unhealthy supply chain. And so, You know, we'll continue to work. I think I can tell you, you know, we believe we have bottomed out from that standpoint, and there's nowhere to go but up. But, you know, we're going to be fighting as much as we can to try and get ourselves back to where we need to be. Thank you.
spk01: This concludes our question and answer session. I would like to turn the conference back over to CEO Leroy Ball for any closing remarks.
spk02: Thank you. I just want to again thank everybody for your interest in coppers, for your participation on today's conference call. I hope you can make it out to Chicago for our Investor Day in September. Until then, please be safe. Thanks. Bye-bye.
spk01: The conference is now concluded. Thank you for attending today's presentation.
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