Quynh McGuire - Director, Investor Relations Leroy Ball - President and Chief Executive Officer Michael Zugay - Chief Financial Officer.

Chris Shaw - Moness, Crespi Eugene Fedotoff - KeyBanc Capital Markets.

Good day everyone and welcome to the Koppers Holdings, Inc. First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference to your host Ms. Quynh McGuire. Please go ahead, ma’am..

Thanks and good morning. My name is Quynh McGuire and I am the Director of Investor Relations. Welcome to our first quarter earnings conference call. Each of you should have received a copy of our press release. If you haven’t, one is available on our website or you can call Rose Hilinski at 412-227-2444 and we can either fax or email you a copy.

I’d also like to remind you that as indicated in our earnings release this morning, we have posted materials to our Investor Relations website that will be referenced in today’s call.

Before we get started I’d like to remind all of you that certain comments made during this conference call may be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements may be affected by certain risks and uncertainties including risks described in the cautionary statements 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 could differ materially from such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. References may also be made today to certain non-GAAP financial measures.

The company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. I’m joined on this morning’s call by Leroy Ball, President and CEO of Koppers; and Mike Zugay, our Chief Financial Officer.

At this time, I’d like to turn the call over to Leroy Ball..

Thank you, Quynh. Welcome, everyone, to our first quarter earnings call. Now before going into the details, I’d like to provide you with an update on events in the past quarter. I believe the actions we are undertaking are moving us in the right direction and are critical to executing our strategic plan.

I’d like to being with our zero harm initiative that we began rolling out last year. Zero harm defines how we conduct business everyday by creating a culture that places the safety and health of our employees, environment and communities first in all thoughts, plans and actions.

Aspirational [ph] you had attainable goal, I invite you to view our 2015 corporate sustainability report and data now available on the Koppers website to get a sense of some of the progress we have made concerning zero harm in our first year of this important initiative.

Just in this first quarter we had 22 out of 33 operating locations work accident free. Those locations cover just over 50% of the hours work across all of our operating footprint. This represented a nice improvement over the 18 locations that worked accident free in the first quarter of 2015 that covers 42% of our operating hours work.

Zero is possible. There are some facilities improving it each and every day. Accomplishing major change like this requires belief, commitment and focused effort.

I am pleased that early on in this process our employees have demonstrated a commitment to operating facilities that are not only profitable but that also demonstrate a dedication to the safety and quality of life of our employees and neighbors. Much more to come on this in the future.

In case you are wondering why I am spending time on this call to talk about this efforts is because I believe that you will see a correlation to our success in the safety, health and environmental arena of our business as we move forward with what we are able to do, with what we are able to achieve both operationally and financially.

Now let’s move onto an overview of our March quarter results. I am pleased that we are starting 2016 on a right note, but remain cautious as to how they remain at yield payout. The first quarter outperformance was primarily due to our performance chemicals business which reported unseasonably robust profitability.

Year-over-year organic growth was extremely strong supported by strong underlying metrics, the mild winter weather throughout most of the U.S. also likely led to higher than typical construction activity during the quarter.

The results for the Railroad and Utility Products and Services business slightly declined due to a combination of lower demand in our railroad business, softness in the utility pole business in Australia, and non-recurring tolling revenues from the U.S. utility business that was divested in January 2015.

Volumes in our core crosstie treating market were actually pretty strong with untreated tie volumes for the first quarter at 114% of prior year and treating volumes flat compared to prior year.

The profitability for our carbon materials and chemical segment on an adjusted basis was close to flat compared to the prior year quarter due to decreased carbon pitch volumes driven primarily by the cut back in aluminum smelter in the U.S.

in the latter part of 2015 and lower selling prices of products such as carbon black feedstock and naphthalene that are affected by oil prices, almost entirely offset by lower average raw material prices and restructuring cost savings. Future perspective [ph] progress has been made in the first quarter towards completing our overall goals.

We are continuing to implement our CM&C consolidation strategy by reducing global capacity by approximately 50% for coal target relations. We will have either shut down coal target relations capacity or sold seven of 11 facilities over a three year period by the end of 2016. To date, we have ceased distillation of five of those sites.

Our Uithoorn, Netherlands facility stopped producing coal tar products in April of 2014. At Follansbee, West Virginia we ceased distillation in December 2015. At Clairton, Scunthorpe our two U.K.

CM&C facilities we ceased production in February of 2016 and finally at our KCCC facility in China we ceased coal tar distillation effective at the beginning of March 2016. For the remaining two locations we remain on track with our plans to exit those facilities later this year.

We remain in active discussions to sell our 30% interest in the TKK joint venture in China with the timing of the sale completion in the hands of the prudential [ph] government at this time. As for our Clairton, Pennsylvania facility we still plan to cease distillation activities at that location by mid July of this year.

But beginning in 2017, we will have four remaining CM&C facilities where we hold key competitive advantages. Those locations are Stickney, Illinois; Nyborg, Denmark; Mayfield, Australia; and in the Jiangsu Province of China. On another front in early April we amended our U.S. credit facility with the following key points.

First, we reduced our revolving credit facility by $200 million from $500 million down to $300 million. We increased the leverage covenant ratio for compliance purposes for each remaining measurement period of the agreement.

We carved our capital expenditures related to our North American and European CM&C restructuring from counting against our fixed charged ratio. This change could conceivably allow us to advance the construction of naphthalene production at Stickney at a slightly quicker pace than what is currently anticipated.

We reset the $75 million repairing [ph] charges related to the sale of discontinuation of businesses back to zero. And we also now have an additional pricing tier that increases our interest rate slightly compared to the old agreement until we get below 3.5 times leverage.

These changes give us the financial flexibility to pursue our restructuring actions as aggressively as we possibly can while still incentivizing us to keep the balance sheet under control.

Overall we remain focused on the work we are doing to transform our company from being significantly tied to the aluminum and steel industries to developing solutions for and applying our proprietary technologies to enhance wood products.

I strongly believe that Koppers has started on the path to significantly improving our profitability to a sustainable level which will in turn create value for our shareholders. Now, I’d like to turn it over to Mike to discuss some key highlights from the first quarter of 2016? Mike..

Thanks, Leroy. As you can see on Slide 2, revenues for Q1 were $347 million a decrease of $51 million or almost 13% compared to $398 million last year.

The decline was primarily related to our CM&C business, driven by lower sales volumes from carbon pitch and carbon black feedstock combined with lower sale prices for carbon black feedstock and naphthalene. The sales volumes reductions for CM&C were mainly in North America and were the result of recent aluminum smelter closures.

Moving to Slide 3, adjusted EBITDA was $33 million in the first quarter compared to $27 million in the prior year. This was due to increased profitability from the Performance Chemicals business, which more than offset reduced earnings in the RUPS segment. Now, I’d like to discuss several items that are not referenced in our slide presentation.

Adjusted net income was $5.9 million, compared to $0.6 million in the first quarter of 2015. Adjustments to pre-tax income for the first quarter amounted to $11.6 million, which were comprised primarily of restructuring expenses for our CM&C consolidation projects.

Adjusted EPS for the quarter was $0.28 per share compared to only -- in the $0.03 in the prior year quarter. The adjusted income tax rate excluding discrete tax items for the quarter was approximately 35%. Cash provided by operations was $2.5 million compared to a relatively high $19.7 million in the prior year quarter.

This decrease was due mainly to higher working capital usage as a result of increases in accounts receivable and inventories. Capital expenditures for the quarter were $8.6 million compared to $7 million last year. And we continue to expect to spend approximately $40 million to $45 million in CapEx for 2016.

At quarter-end, we had approximately a $138 million borrowed on our $500 million revolver; we reduced the revolver to $300 million with our recent bank amendment.

We also had $255 outstanding on our term loan, $298 million in existing bonds and $47 million of loans in China, which result in a total gross debt at the end of the quarter of $738 million. Our leverage ratio at year end was 4.53 times well below the amendment covenant of 5.25 times.

Our long-range goal continues to be a leverage ratio of approximately 3 times. Our fixed charge ratio was 1.54 times compared with the required 1.1 times, which is well above the covenant minimum. And based on our 2016 projections, we’re extremely confident that we will remain in compliance with our loan covenants throughout the upcoming year.

Now, let’s return to slide 4 in the presentation. Our debt increased very slightly in the quarter and this was right in line with our estimate as we generally have higher cash flows in our June, September and December quarter. We continue to anticipate paying down debt by $85 million bringing it from $735 million to $650 million by year end.

When combined with our 2015 actual debt pay down this would achieve the minimum of our two-year pay down target of $200 million.

One item to note is that, at the low end of our 2016 EBITDA target of $160 million, and at the high end of our projected capital expenditure amount of $45 million, we still expect to achieve an $85 million debt pay down in 2016.

However, in order to achieve any higher debt reduction we would have to sell non-core assets and generate some additional cash. In summary we are continuing to reposition copper for long term success by managing our capital structure sensibly with a very, very strong priority on lowering debt.

With that, I'd like to turn it back to Leroy for an update on our business..

Thank you, Mike. Let me now speak to the outlook for each of our business segment starting with Performance Chemicals. Underlying trends are still positive as it relates to existing home sales and home repair and remodelling, but the outlook is getting a little murky beyond the next four quarters.

Existing home sales bounced back in March to a seasonally adjusted annual rate of 5.3 million homes after dropping significantly in February. There is some worry that the housing market is beginning to lose a little momentum after several years of steady increases.

The relative choppiness in the numbers over the last five months only helps to support that concern. On the other hand the Leading Indicator of Remodelling activity or LIRA is showing a market that is moving full steam ahead, as their numbers have been revised upward from what I had reported on our last call.

On the February call, I referenced the LIRA projection showing over 6% growth year-over-year for the first three quarters of 2016. The updated projections are now showing full year growth of 8.6% with the annualize growth accelerating even further in the first quarter of 2017 to 9.7%.

There is no question we experienced strong growth in the first quarter compared to prior year as reflected by our performance and we do expect that to carry forward for the most part for the rest of the year.

I do had some concerns that I mentioned earlier that some business may have been pulled forward due to unseasonably warm winter through most of the U.S. so we need to keep an eye on that as the year progresses.

Another positive development for the Performance Chemicals business is the recent standard change enacted by the American Wood Protection Association or AWPA to apply a heavier preservative retention requirement to certain treated wood products. The standard is expected to go into effect by the middle of this year.

Now this move the higher retention ground contact treating requirements will help consumers to make better decisions about the right product to use for the right application.

Because we anticipate an increase in demand as treaters begin adopting this standard, we will spending approximately $4 million for additional production capacity which is incorporated into the total $40 million to $45 million of capital spending expectations for 2016 that Mike communicated earlier.

Copper prices have continued to move in a relatively stable band. Since we have most of our copper hedge for 2016 any benefit we received from lower average copper prices in this year will be relatively modest.

Due to all of the factors that I just reviewed and taking into account those strong first quarter we now expect to generate EBITDA of approximately $65 million to $67 million in the Performance Chemicals business in 2016 as reflected on page six of our slide presentation.

This is the net change on both ends of the range of $2 million from our previously forecasted adjusted EBITDA of $63 to $65 million. And moving to our Railroad and Utility Products and Services business, U.S. rail carloads and intermodal unit declined 6.5% in the first quarter of 2016 compared to 2015.

This is coming off of 2015 volumes that were down 2.5% year-over-year and as resulted in significant capital spending in operating cash by the railroad industry.

Now thankfully we haven't seen that impact on our crosstie volumes yet, but we are forecasting a modest drop in demand in the reminder of the year as Class I railroads have tightened their 2016 spending program.

Lower spending is definitely had an impact on our rail joint business already which I expect to also continues throughout the remainder of this year.

As a result we are narrowing our range of projected adjusted EBITDA generation for this segment as reflected on slide seven to $79 million to $82 million in 2016 compared to our prior estimate range of $79 million to $84 million.

Now we still expect to realize a net savings from cost reduction initiatives, primarily the closure of the Green Spring plant that should net $3 million this year and serve to offset some of the lost profitability from volume reductions.

Sales volume in our Australian pole business continue to be down compared with the year ago as predicted since utilities there continue to pull back on capital spending. The approximate $2 million negative impact build into our plan to accommodate foreign currency remains, although the dollars appear to moderate as of late.

Next up, I would like to provide an updated outlook regarding our CM&C business. As you can see from the adjusted EBITDA Bridge on slide eight, we are maintaining our anticipated EBITDA guidance in 2016 in the range of $18 million to $21 million, which would represent a $9 million to $12 million improvement over 2015.

I'm confident that we would still get to our range because CM&C was able to remain relatively flat the first quarter year-over-year adjusted EBITDA comparison.

This occurred despite global pricing of carbon black feedstock, naphthalene being down by 33% and 39% respectively compared to last year, while carbon pitch volumes also lag prior year by 24% on a global basis, 43% in North America alone. Carbon pitch pricing was also down globally by 11% due to the overall softness in demand.

On a positive front phthalic anhydride pricing only average to 2% decline in pricing despite an 11% decline in benchmark orthoxylene pricing compared to last year's first quarter. This reflects higher pricing spread that we were able to realize compared to last year. Now raw material pricing was also down 21% globally as expected.

That percentage decline only increase as the year moves forward as we restructure or walk away from various agreements that aren't reflective of the new market environment.

The bottom line is that we're not adjusting any of our projections for the CM&C adjusted bridge at this point as we feel pretty confident with what we have seen through one quarter.

Now in our press release this morning we announce the signing of a definitive agreement to sell all of our tar distillation properties and assets in the United Kingdom to U.K. based industrial chemicals group limited.

The terms of the agreement provides for the transform essentially all the assets at our Port Clarence and Scunthorpe sites to ICGL and exchange for ICGL assuming our historical environmental liabilities at both sites.

In additional, we are making large cash contribution towards the environmental remediation that will ratably released from escrow over the next three years. Closing of the sale is still subject to certain closing conditions which include the transfer of environmental permit to ICGL and is expect to occur during the second quarter of 2016.

As I mentioned in the release this is a transaction that makes perfect sense for coppers. We are in the midst of a massive restructuring and this allows us to remove a potential overhang of somewhat uncertain liabilities for a limited cost.

The fewer properties we retain and have to clean up, the more we can focus our attention on the remaining business moving forward. Therefore when adding all our segments together we are reaffirming our outlook. We expect to generate sales of approximately $1.5 billion for 2016 as reflected on slide nine.

Sales for Performance Chemicals has been revised upward by $10 million to account for somewhat stronger expected sales volumes and the low end of our EPS has been just down from prior expectations of relatively flat year-over-year sales, to current projections of $50 million decline from 2015 to reflect general overall weakness in the rail industry.

Turning to slide 10, adjusted EBITDA is anticipated to be in the range of $160 million to $168 million compared with the prior forecast at $158 million to $168 million, as a result adjusted EPS is projected to now be between a $1.85 and $2.10 compared with our previous range of $1.80 to $2.10. Now, I'd like to open it up for questions..

Thank you. [Operator Instructions] We'll go first to Chris Shaw of Moness, Crespi..

Good morning.

How you're doing?.

Good morning, Chris..

I guess first I wanted to ask – I think I asked something similarly last quarter on the rail business. You're a little cautious on the demand from the Class I. It was better, I guess, than you maybe thought in 1Q. And I think your competitor is a little more optimistic.

Can you exactly – are you seeing that in the order volume now or, again, are you just sort of looking at their sort of projected budgets and assuming that the volumes would have to fall?.

Yes. I think it just more looking at the trends and they only continue to get worst. I mentioned 6.5% decline year-over-year for the first quarter. Literally, I was walking into this call, I received notification I think that April numbers are down over 11% compared to last year.

So it's ugly out there and we've been fortunate we have not seen an impact on our crosstie volumes actually through the current period. So, hasn’t hit us yet and it may not.

But when you look at the numbers, I just have a hard time sitting here and having an optimistic views that that there won’t -- at some point be an impact, reaching down into the crosstie volumes. But like I say, we haven't seen it yet.

But I want to be realistic about it and we're doing everything we can to certainly make sure that we can manage through that situation and not have it have as much of an impact on it. But I just think that the numbers would indicate that at some point in time it’s going to have an impact on crossties. .

And so the 11% down in April, what number are you exactly quoting? Is that traffic or it’s just the real time?.

No, that is traffic..

Okay.

If I can ask also in carbon materials, will the -- the fact that our [Indiscernible], they keep open the Intalco smelter in Washington for another three years or two years or so, is that going to have any meaningful impact on the carbon pitch market? I mean, it's a fairly big smoker or is it at this point?.

It is helpful. It is helpful. I would tend to kind of bring everybody back to the bigger picture, which is, certainly, aluminum is going to continue to be an important market for us moving forward just by the nature of the process for how we produce products.

But our focus will be on which wood preservative is moving forward and more specifically in that market, if it's on the creosote. So, yes, Intalco remaining open is a positive and ultimately, we are going to need some sort of stabilized aluminum demand for us to be able to produce enough products here domestically to fulfill our other requirements.

But the bigger picture, again, our focus is really on the creosote and our wood treating preservative side in terms of where our business is heading..

Right. But just finally on the acquirer of the [Indiscernible].

You understand that they are going to continue to operate those plants and distilled coal tar, or they going to produce anything else?.

No, they will not be distilling coal tar there. They have other chemical operations. That property could still be used as a terminal but they will not be using it to distill coal tar..

Great. Thanks..

Our next question comes from Eugene Fedotoff with KeyBanc Capital Markets..

Good morning, guys. Great quarter..

Hey good morning..

Good morning..

Sorry if I missed that, but just wanted to ask couple questions about your guidance.

Given that you are assuming $35 oil now versus $30 before, I was kind of surprised that the MCA guidance was maintained first and just wanted to see maybe something is upsetting that? And then second, compared to the guidance, again provided on the fourth quarter conference call, the working capital requirements were this year, I think you actually reduced them slightly despite the higher oil prices.

So, I just wanted to see if you can provide some color on that as well..

Yes. Obviously, there is a bunch of moving parts in the CMC restructuring, a bunch of moving parts. And so changing our forecast or our assumptions of oil from $30 to $35 to me is not a big enough move to want us increasing our guidance, with so many other parts that move in this massive restructuring that we are going through.

Could we see some net benefit? Yes, it’s dependent upon everything else going according to plan and we are only through one quarter of the year. So, for me, I need to see a little bit more results as we move out through this year to get more comfortable, as to bumping up any guidance on this CMC side of things.

In terms of the change in the working capital of a couple million dollars, we are not ready to move off of our $85 million minimum target. With the lower end of the adjusted EBITDA range moving up, for us to get to that $85 million reduction that allows us to not have to get as much of a benefit from working capital.

So, what we were trying to really reflect in that bridge was again, hey, if you were worried that the $22 million of working capital reduction was aggressive, it is now less to get to our target because of the higher adjusted EBITDA.

So that’s really whatever is more about reflecting, not trying to give you an estimate of an exact reduction for the year but what it would take for us to get to the minimum end of the target range..

Got it. Thanks for that color.

Also, actually just to pull up on that, so at current prices at $45, close to $45 a barrel, do you think there is upside potential for the guidance maybe closer to the higher end?.

Certainly, if it’s stays at $45 through the rest of the year, there is no question it will have a nice positive impact on us. But it tends to be easy to get load into thinking of oil at whatever it happens to be trading at today. And so, we built our assumptions around $35 oil knowing that the number has moved all around so far this year.

It was obviously in the mid-20s in January and everybody thought the world was falling apart. So, I’m hardened by the fact that it’s up in the mid-40s and it is holding there for now. But by the same time we’ve been sitting here a quarter from now and have see it drop back into the 30s.

So, I can't sit here and give you any great prediction as to where oil is going to go. For right now, we want to be on the conservative end of that projection and again, let’s see how the year plays out, get through the second quarter and then we can adjust if it makes sense..

Got it. Thanks. And then a couple questions on Performance Chemicals. Great results in the first quarter.

I guess, do you have an estimate for potential increasing volumes given the EPA changes, the requirements changes there?.

Well, it’s one particular product segment within that group. So, we could expect to see volume increases certainly at a level greater than a 10% increase and could be even more than that. But it depends upon on the rate of adoption and things like that. So it really remains to be seen how this moves forward.

We are still really early in this whole process. So, again, once we get out a couple quarters and see who's adopting it and how rapidly they are adopting it, we will get a much better sense as to what the impact would be on go-forward basis..

Got it.

And as far as the impact from mild weather in the quarter and some move forward demand, do you have an estimate approximately what the impact might be as far as the stability increase in the quarter and sort of what would be normalized margins for this business going forward?.

Truthfully, I mean, I don't have any idea. We made the statement because obviously, we know the weather conditions that were experienced through much of the U.S. We did see much higher volumes than what we typically do see in the first quarter.

So, we only have -- we can only presume that that played some role in it but there is no way of telling how much. Last year's first quarter was actually a decent first quarter, probably more typical of what that business has seen year-over-year.

So, obviously, there was some organic growth that was projected originally in our business that we would have expected to see, and again the underlying metrics of existing homes sales and repair, remodelling I think support that, but we would not have expected the type of quarter that we saw in this year's first quarter under normal circumstances.

So we can only assume that some of that had to do with the unseasonably warm weather, but I can't place that number on it. I really can't..

I understand.

And the last question then, can you provide a little bit – some more details on the tolling agreement, how much of a headwind that agreement will be for the rest of the year?.

The vast majority of the profitability associated with that was in the first quarter of last year.

That was an arrangement where – truthfully we did as an accommodation for the acquirer, it wasn't something that we were really interested in continuing on a long term basis, so we had encourage the acquirer to move as fast as they could to move the treating to their own operations, and they've complied with that.

And so, we probably experience the biggest piece of the benefit in the first quarter of last. So it would have much less of an impact as the year moves forward..

Great. Thank you..

You're welcome..

We have no other questions. At this time, I'd like to turn it back to our presenters for any additional or closing remarks..

Thank you. I'm pleased with where we stand after one quarter of the year. Many of our initiatives are on track and the transformation of our company is in full swing. There remains much more work to be done, but the future of Koppers looks brighter every day. Thank you for your interest and support..

That does conclude today’s conference. Thank you all for your participation..