Good morning, ladies and gentlemen, thank you for standing by. Welcome to Koppers Third Quarter 2020 Earnings Conference Call. Please note that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead.

Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our conference call, where we will provide a business update as well as highlight our third quarter 2020 preliminary results. We issued our press release earlier today. You may access this announcement via our website at www.koppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website, and a recording of this call will be available on our website for replay through January 26, 2021. Before we get started, I would like to direct your attention to our forward-looking disclosure statement. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The company's actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. 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. Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. I'll now turn over discussions to Leroy.

Thank you, Quynh. Good morning, and welcome, everyone. We hope you and your families are continuing to remain healthy and safe during the ongoing pandemic. Before I get into our third quarter results, let me just say how impressed and grateful I am concerning our people, who have remained focused on doing their jobs safely, at the same time, enabling us to achieve so many new performance records in the third quarter while we all continue to deal with the worldwide pandemic. As always, we begin with a focus on our Zero Harm culture. I'm proud to report that on a trailing 12-month basis, our total OSHA recordable injury rate, not including COVID-19, was at its lowest point thus far in our Zero Harm journey, down 21% compared to the same point last year. It's truly a testament to the hard work of our plant management and our employees. I can't thank them enough for their commitment to remain focused despite an extremely challenging year on proactive safety engagements, such as safety observations and hazard identification. And our safety performance continues to be augmented by ongoing training and an emphasis on building a more empathetic leadership team. In November, we will be convening members of our management team from around the world, including plant managers and support staff leaders for a virtual Zero Harm forum. This is to replace the in-person forum that was scheduled to occur back in April that was unfortunately canceled like almost everything else this year. While we do not want to wait until we can safely reconvene at our site leadership group, so we're figuring out a way to adapt to the times. This online event will be live and interactive, scheduled for 2-hour sessions over three days, and will build on the progress we've made in advancing our Zero Harm safety culture by sharing information and generating meaningful dialogue about incorporating more inclusive and sustainable business practices across all parts of our organization. And although it will be virtual, I'm certain that the forum will be as valuable as ever. Moving on to our presentation, as shown on Slide 4. The U.S. Cybersecurity and Infrastructure Security Agency, or CISA, within the Department of Homeland Security, maintained its classification of Koppers as an essential business, meaning that we can continue to operate during the pandemic to help with transporting critical goods, providing power and connectivity to homes and businesses, and keeping our infrastructure running reliably. Across our organization, the people of Koppers are proud to do our part to support the global economy. Looking at employee health and well-being, on Slide 6. To date, we have had 72 employees worldwide who have tested positive for COVID-19, which represents approximately 3% of our employee population. On a cumulative basis, four of our facilities have had cases that were transmitted on-site. And while we continue to be diligent in ensuring the proper safety measures and thoroughly cleaning and disinfecting any affected areas, currently 20 employees are self-quarantining, and cumulatively, approximately 37% have self-identified with symptoms at some point in time. Consistent with national and worldwide trends, we've had an increase in cases most recently, and we continually look for ways to reinforce our messaging around the importance of not letting our guard down and continuing to practice safe behaviors. Our strict protocol of governing personal protection and processes continues to be in place, including the introduction of self-administered saliva test kits for field and office personnel, reducing the time needed to get results by at least a full day. Additionally, we recently conducted a flu clinic for employees at our headquarters in Pittsburgh and are in the process of scheduling flu clinics at other locations in our site network in the upcoming weeks. In the areas of communications, we're having our upcoming quarterly all-employee meetings in three time zones for the first time. Each meeting will be held at a time that hopefully will better accommodate our employees in the U.S., Europe, and Australia and New Zealand combined. It will also allow for more dedicated discussion of additional topics that are more closely relevant to each geographic region. Now for ongoing interactions, I'm continuing to engage with our employees worldwide via videos at least once a week that can be viewed on Koppers' Facebook and LinkedIn accounts, virtual facility visits, and virtual employee chats to provide updates and encouragement on a continual basis. Moving now to a discussion of operations continuity on Slide 8. Here, we see that all worldwide Koppers manufacturing facilities remain operational, which is great news, and we do not have any furloughs or layoffs. Travel continues to remain restricted to essential business only, while a limited number of in-person facility visits have been made to reinforce health, safety, and performance goals or to monitor and review major in-process capital projects. For office personnel, we still strongly encourage employees to work remotely, with a potential return to the office postponed until January 2021. Although there is a strong likelihood the return-to-office date will actually move to later in 2021. Technology continues to serve us very well across multiple needs, from meetings to virtual facility visits to safe weight tests for our trucks out on the road to virtual training programs and more. Now despite 2020 being the year of cancellation, it hasn't stopped us or our people from being recognized for our accomplishments. On Slide 10, we congratulate our Chief Sustainability Officer, Leslie Hyde, on receiving the 2020 STEP Ahead Award from The Manufacturing Institute for excellence and leadership among women in manufacturing. She has made significant contributions at Koppers and continues to shape the industry. Leslie absolutely deserves this national honor, and we are proud of her accomplishments. 2020 represents the third year in a row that we've had a team member recognized with a STEP Award, which is a reflection of the female talent base that we currently have and continue to build at Koppers. And on Slide 11, Koppers recently received recognition from our Class I railroad partners, commending our role in safe rail shipping practices, the Chemical Safety Excellence Award from CSX and the Pinnacle Award from Union Pacific. These awards are well-deserved acknowledgment of our employees' hard work to protect our people, environment, and communities while reliably serving our customers. Congratulations and thank you to everyone who played a part in making this possible. As I mentioned earlier, we made several in-person visits to our facilities this past month. On Slide 13, we see a photo that shows the groundbreaking ceremony held at our North Little Rock, Arkansas, wood treatment plant. I was honored to be joined by the Governor of Arkansas, the Mayor of North Little Rock, and various elected officials to celebrate the start of our plant expansion and modernization project at this facility. Slide 14 shows a visit to our Performance Chemicals facility in Hubbell, Michigan, by Chief Operating Officer, Jim Sullivan, and Doug Fenwick, our Senior Vice President of Performance Chemicals, where they were discussing the merits of adding additional Kopper carbonate capacity. On Slide 15, we see highlights of our coal tar distillation facility in Stickney, Illinois, as a result of a recent visit from Chief Operating Officer, Jim Sullivan, where he was checking on the construction progress of a new tank as part of our ongoing tank maintenance and inspection program. And we continue to make progress in raising awareness and visibility of inclusion and diversity efforts. As shown on Slide 17, Martin Luther King Jr. Day will be a paid holiday now across Koppers' U.S. operations beginning in January 2021. This is but just one step in many that we've taken over the past six years to create a path towards a more equitable and inclusive organization and community. As illustrated on Slide 18, we're utilizing a new outreach platform, KopTalk. These are structured video conversations to solicit input from our employees across the globe. A series of KopTalk was led by me and Vice President of Culture and Engagement, Dan Rose. Already, these sessions have generated some innovative ideas on improving communications and responsiveness between leadership and employees. Another option for employees to connect, we just introduced a virtual KAFFEBAR that has created an informal gathering space for colleagues worldwide to visit with one another. The name is a nod to our NIBOR colleagues using the Danish word for coffee and a not-so-subtle message that we encourage interaction from all global employees on this platform. Finally, we've also installed digital signage boards at our facilities globally, currently in 84% of our locations so far to reinforce safety messages, along with sharing news at the corporate and local level. Next, on Slide 19, we're focusing on not only the physical well-being of our employees but their emotional health as well. We know that working from home while juggling parental responsibilities has been a daunting challenge for many. For our employees that are parents who are juggling work while needing to help their children with online learning for all or part of the day, Koppers recently sponsored a Parenting Through The Pandemic video chat and question-and-answer session with expert panelists from the medical community who offered some advice and encouragement. Also, a working parents channel has been added to our OneKoppers app for employees to connect and share advice. We're establishing a Working Parents Employee Resource Group, where employees can support each other and help the company better understand the challenges they face. Of course, there are also challenges in the community, and our people continue to step up and respond in a variety of ways. Slide 21 shows the sacrifice of employee Josh Orr from our plant in Roanoke, Virginia. A longtime volunteer firefighter, Josh traveled to Texas in August to help contain a massive wildfire there. Working as a follower on the team, this father of two small children worked within feet of the blades, cutting brush that heavy equipment could not reach to contain the spread. His efforts saved lives and property. We could not be more proud to call him a Koppers employee. Across the world, in Newcastle, Australia, our team there is making a positive impact by raising more than $25,000 to help keep a local helicopter rescue service operating on behalf of area residents. Slide 22 shows how the people of Koppers showed up to support the Pittsburgh chapter of the Leukemia & Lymphoma Society's annual Light the Night Walk, which was held virtually this year and where I served as the walk Chair for the third straight year. This year, Koppers was named the top fundraiser in our category. We're proud to be a long-time supporter of this nonprofit group, which helps patients and families dealing with blood-borne diseases as well as investing in leading-edge research to help find a cure. Additionally, we again supported the American Diabetes Association Tour de Cure bicycle fundraiser. This year's event was held virtually, and participants could fashion their own 30-mile course. A long-time team captain in this event in past years is Jeff Senchak from our CMC business, and his wife, Susan, raised just over $7,000 for diabetes research, and Koppers was pleased to contribute to that total. And with that, I'll turn it over to Mike to discuss results for the quarter and an overview of our debt and liquidity. Then I'll be back with comments on our business segments and related market sentiments. Mike?

Thanks, Leroy. In our press release this morning, we provided preliminary results for Q3, and our financial discussion is based on those preliminary results, excluding the sale of KJCC, which we will review shortly. On Slide 24, consolidated sales were $438 million, an increase from sales of $434 million. Sales for RUPS were $191 million, down from $199 million. PC sales rose to $148 million from $124 million. And CM&C sales came in at $99 million, down from $111 million. On Slide 25, preliminary adjusted EBITDA for Q3 was $67 million. It was a record quarter, up from $57 million in the prior year. Adjusted EBITDA for RUPS increased to $19 million, up from $17 million in the prior year. PC EBITDA rose to $32 million from $18 million, and CM&C EBITDA was $16 million compared with $22 million. On Slide 26, sales for RUPS were $191 million, slightly lower year-over-year. This was primarily due to lower crosstie volumes, particularly in the commercial market, along with pricing discounts for select customers. The utility pole business in the U.S. held steady with sales at a similar level as the prior year, and the demand was higher for utility poles in Australia and crosstie disposal services in the United States. On Slide 27, adjusted EBITDA for RUPS was $19 million compared with $17 million, and this was driven by higher profitability in Class I sales due to a favorable product and service mix. Also, we saw higher profitability in the crosstie disposal business as well as lower selling, general, and administrative costs. Sales for the PC segment on Slide 28 were $148 million compared to sales of $124 million. This marked another record sales quarter, reflecting continued strong demand for copper-based preservatives in the U.S., driven by sustained strength in the home repair and remodeling activities. Adjusted EBITDA for PC on Slide 29 was $32 million compared with $18 million. This also set a new quarterly record due to higher sales volumes, lower average raw material costs, a favorable product mix, and better absorption on higher production volumes. Slide 30 shows CM&C sales at $99 million compared to sales of $111 million. Sales were lower in every region except Australia, but they were in line with overall expectations. The pandemic's effect on lower average oil prices and a general market slowdown translated into lower pricing for carbon pitch and lower demand for carbon black feedstock. These factors were partially offset by higher volumes of carbon pitch in Australia and phthalic anhydride in North America. On Slide 31, adjusted EBITDA for CM&C was $16 million compared to $22 million. As expected, this reflects a year-over-year decline due to ongoing weak end-market demand. While the profitability was lower, the third quarter showed margin recovery. Compared with the prior year quarter, the average pricing of major products was down 14%, while average coal tar costs declined 21%. We are also seeing sequential improvement in CM&C when compared with the first half of 2020 as we previously anticipated. Slide 33 shows that Koppers has generated new quarterly records in the third quarter of 2020 in the following areas: diluted EPS from continuing operations of $1.83; adjusted EPS of $1.64; operating profit of $58.6 million; adjusted EBITDA of $66.7 million; PC sales of $147.9 million; and PC adjusted EBITDA of $31.5 million. Now let's review our debt and liquidity situation. As seen on Slide 35 at the end of September, we had $770 million of net debt, with $343 million in available liquidity. We are now forecasting $125 million in total debt reduction for 2020, which includes the proceeds already received from the KJCC divestiture. Also, we remain in compliance with all debt covenants. And looking at our maturities, we do not have any significant maturities until 2024 when our revolver matures and a final balloon payment on our term loan becomes due. On Slide 36, the history of our net leverage ratio is shown beginning in 2019 and is projected out through the end of 2020. At September 30, our net leverage ratio was 3.8x, which was a significant drop from 4.5x at the end of the previous quarter. We are now on target to be between 3.5x and 3.6x at year-end 2020. And finally, on Slide 37, we outlined the preliminary financial details of the KJCC sale. To summarize, the net gain on the sale was approximately $36 million. The discontinued ops EPS impact was $1.67 per share, and the net cash to Koppers was $65 million.

Thank you, Mike. I'll now move into discussing the business sentiment based upon what we're currently seeing in the marketplace as well as feedback from our customers and suppliers. Slide 39 provides a rundown of our Utility and Industrial Products group. We continue to pursue a strong focus on customer service, encouraged by ongoing broadband infrastructure investments necessary because remote working requires electrical and network connectivity. Koppers is working with utilities on testing and using CCA and creosotes treatment alternatives to penta preservative. Our UIP group remains on track for its best year since joining the company with solid long-term fundamentals in place. And with hurricane season still ongoing, we continue to provide storm response service to customers. In the near term, we've experienced some slowing from postponed projects or lack of crews due to those hurricane response efforts. Now recently, we were successful in negotiating some multi-year contract extensions, and we continue to evaluate various opportunities for share gains. In pilings, our business is improving as restrictions have been eased on construction projects. But I do remain concerned about this segment of the business in the near term as coronavirus cases rise, which puts commercial construction projects at risk of future shutdowns. In the pole recovery area, we're targeting investor-owned utilities as well as evaluating opportunities for synergies with projects with our rail structures business. Regarding our supply chain, the wet weather has slowed wood flow at some facilities, and we're also dealing with some transportation cost increases. But on balance, our wood supply chain remains in good stead. In our RUPS segment, seen on Slide 40, the crosstie business remains solid with improved Class I margins, while there is some slowing and more price competition in the commercial market. We're hopeful that any ongoing demand weakness that might occur can largely be offset with the savings from consolidating our Denver treatment operations into the North Little Rock facility. Therefore, we expect the trend of year-over-year improvement in quarterly EBITDA to continue. From an industry perspective, compared with the prior year for the year-to-date period through October 17, U.S. railroads reported 15% lower cumulative volumes, 5% lower intermodal units and 9.8% lower total combined U.S. traffic, according to the American Association of Railroads. Now the American Association of Railroads also reported some Class I railroads and transit agencies are using the downtime for maintenance programs, which resulted in earlier-than-usual purchases. In the maintenance-of-way segment, we're seeing ongoing demand and improved profitability in rail structures and recovery resources but anticipate some fourth-quarter weakness in rail joints, which has been our most impacted business as a result of the pandemic. In our supply chain, we're leveling out our crosstie purchases as well as receiving dry ties from third-party sources for certain customers to maintain optimum working capital levels. Longer-term crosstie supply and pricing could be affected unfavorably as some sawmills are having to shut down due to challenges as a result of lower demand in other industries. Now looking at Performance Chemicals on Slide 41. The strong demand in North America for 2020 is expected to continue and international markets are expecting elevated demand in the fourth quarter. The treating industry is low on chemicals currently but should improve by the end of the year. Our PC business is on track to deliver record full-year EBITDA in 2020 with the previous record high of $88 million set in 2017. In North America, the market forecasts vary, but are increasingly more favorable. The Census Bureau reports that retail sales accelerated in September, and building materials continued to show strength. The leading indicator of remodeling activity anticipates growth of 4.1% in renovation and repair spending by the first quarter of 2021, then moderating to 1.7% by the third quarter of 2021, with do-it-yourself and small projects lifting the remodeling market. Consumer Confidence Index increased in September to 101.8 after declining in August to 86.3, still below pre-pandemic levels. The National Association of Realtors reported the fourth consecutive month of growth with existing-home sales higher by 9.4% in September compared to prior months and up 20.9% from the prior year. Each of the four major U.S. regions witnessed month-over-month and year-over-year growth, with the Northeast seeing the highest climbs in both categories. Performance Chemicals internationally, as seen on Slide 42, shows increased demand in Germany, a favorable mix in the Nordic region, and an uncertain future in the U.K. and Ireland due to Brexit questions and some nice gains in Australia as pandemic restrictions are reduced. High volumes in New Zealand and strong production volumes in Brazil and Chile as well. Now while our international PC business is a nice complement to what we do in North America, it is the North American region that continues to drive results and will continue to for the foreseeable future. The supply chain picture for PC shows the copper hedges for 2021 and 2022 are currently at lower average costs than 2020, but no additional benefit is expected this year related to lower copper prices as they are now fully hedged. The unprecedented pandemic demand has outstripped internal production capacity, so we must source a greater proportion of our needs through external suppliers, leading to higher input costs. We do expect some relief in this area in the fourth quarter as we've made certain modifications to our supplier network to improve both quality and reliability. Additionally, we are making progress to expand capacity for intermediates and will likely launch a modest expansion project near year-end. Lumber prices are declining, with certain treaters waiting for market stabilization before exposing themselves to too much commodity risk over the remainder of this year. Now we move to our CM&C business on Slide 43. Demand overall is lower, but beginning to recover. At this point, we think year-over-year demand and volumes will remain at similar levels for the remainder of the year. Thus far, we have been successful at placing a strong focus on cost containment to help mitigate the impact from these softer market conditions. We anticipate the second half of 2020 EBITDA will be nearly double that of the first half, with double-digit margins anticipated for the full year 2020. The third quarter is a reflection of that as adjusted EBITDA came in at more than twice, either the first or second quarter of CM&C in total. In North America, more imported supply is yielding higher tar costs, while softer demand is contributing to lower utilization rates. Europe appears to be in the best shape of the three regions due to the role in supplementing the U.S. tar and creosote supply. Europe is seeing slightly lower year-over-year demand and production levels, lower coal tar prices, and lower average pricing. While Australia is generating stronger sales volumes, while also benefiting from favorable raw materials and production costs. Regarding the supply chain, we're seeing continued overcapacity from cokeries and steel producers, so we expect tar production to remain depressed through 2021. With reduced coal tar availability in North America, any significant recovery in our North American business in 2021 will be heavily dependent on recovery in the domestic steel industry. Looking at Slide 44, and taking into account where each of our businesses stand and the continued favorability we've seen in our effective tax rate this year, we find ourselves once again in a position to raise guidance for 2020. As of now, we see adjusted EBITDA for this year finishing somewhere between $204 million and $210 million, up from the $196 million to $204 million we guided to last month. Even better-than-expected performance in our CM&C segment and greater confidence that PC will finish out the year on a strong note are the main reasons for the increased EBITDA guidance. On an adjusted EPS basis, we now expect to finish this year somewhere between $3.65 and $3.90 per share, up from our previous guidance of $3.25 to $3.50 per share. In addition to my previous comments on drivers for the increase, larger-than-expected favorable return to provision adjustments on our recent tax filing already realized in the third quarter results also contribute to our higher EPS expectations for the year. It is worth noting that at this point, we expect to finish the year at the top end of our February 2020 EBITDA guidance for the year and anywhere from 10% to 30% higher than our initial adjusted EPS guidance. All of this represents quite a dramatic shift from the disaster scenario planning that we were going through in the early months of the pandemic. Now we've not taken our foot off the pedals. We continue to clamp down on costs for the year, as shown on Slide 46, which details actions meant to mitigate the impact of COVID-19. We've identified between $12 million and $14 million in SG&A savings and have reached $9 million of those savings through September of 2020 by managing costs and compensation and benefits, travel, entertainment, and legal and consulting fees. Now, as discussed on prior calls, to emerge stronger post-pandemic, on Slide 47, you can see we remain relentlessly focused on these few critical initiatives, which have already contributed importantly to our success in managing through these challenging times. By continuing to focus on increasing market share across business segments, adding new products, processes, and markets to our portfolio, and optimizing our facilities, we believe we can continue to build upon the strong foundation we've built over the past six years. In addition, the sale of non-core businesses, such as KJCC, closed properties such as Follansbee, KCCC, Denver, and other related assets should generate additional cash as well. In summary, 2020 has proved to be a key inflection point for our company. Key milestones occurred with the completion of the sale of our KJCC joint venture, as we announced on September 30. By exiting this business and further streamlining our portfolio, we've taken one more giant step towards significantly improving the stability and quality of our earnings profile moving forward. Additionally, we continue to validate the strength, durability, and resilience of our business model that benefits from being a major player in serving diversified niche end markets and being designated an essential business supporting critical industries that must continue in almost any circumstance. Even in an unprecedented environment due to the ongoing pandemic, we're achieving record levels of performance, which is a testament to our Koppers team members around the globe, who I wish to thank for their extraordinary efforts to carry us through these challenging times. At this point, I would like to open it up for any questions.

And the first question will be from Mike Harrison with Seaport Global Securities.

As we entered the pandemic and you began to see things shut down, I’m sure you didn’t expect to achieve a record quarter in Q3, so congratulations on that. I wanted to inquire about the RUPS business. It seems that commercial volumes were largely responsible for the decline there. We understand that your business is mainly Class I. Does that imply that the commercial business was down approximately 20% or 30% compared to last year? Additionally, could you share what your commercial customers are saying about their maintenance plans for 2021?

Okay. So you're right. I mean, the commercial business is a smaller proportion of our business, making up anywhere from 20% to 25% of our crosstie business overall. It's also the most volatile. And we will see big swings in pricing as you go through different parts of the cycle, which also will depend upon the demand in that market as well. We have been riding away, I'd say, over the last probably six to eight quarters of improving pricing and stronger demand. And so given what's going on with the pandemic and everybody looking for opportunities to reduce spending and cut costs, it's not surprising that we'd see some impact on demand in the commercial market, which would then also translate into lower pricing as well. So I can't say I'm terribly surprised given, again, the fundamentals of what we're dealing with in the current environment. However, I would say that, that's what makes our business model good during these times is having that heavy Class I customer base where, through good times and bad, you know you have a strong foundation of demand to serve. As we've seen during this period of time this year, we've only had one Class I customer that has sought to reduce spending this year in this area. Others have continued to either execute their programs as they were coming into the year or actually even doing a little bit more. So on balance, we're in pretty good shape. But long story short, Mike, I'm not shocked by what we're seeing in the commercial market right now. I think we'll continue to see this softness until we get some clarity coming through the pandemic and where different stimulus spending might come from. If there's anything that's directed, again, into infrastructure, and anything that the short lines can take advantage of, then I think you'll see a pickup back in demand here, which will ultimately generate a stronger pricing environment as well.

All right. And maybe you mentioned pricing a couple of times. I believe you mentioned some discounting activity in the RUPS business. Was that primarily to commercial or were there some discounts given to Class I customers as well?

I think any discounting we implement usually depends on the volumes, so it typically occurs when customers reach certain volume thresholds and those factors come into play. We have this across nearly all of our business segments, so that's where you would notice it.

All right. And then over on the PC side of the business, it sounds like you guys expect to catch up on getting some of these chemicals to the treaters during Q4. But maybe the outlook into 2021 is a little bit uncertain. Is it best guess right now that we're going to see strength through the first half of 2021 and then maybe some question marks on what the second half looks like?

Yes. The current insight we have from certain retailers is that they anticipate ongoing strength at these levels through the first half of next year. This is the feedback we continue to receive. We are still behind in our ability to serve the industry, which aligns with the challenges faced by the overall chemical sector in this market currently. This isn't just a Koppers issue, but rather an industry-wide concern. We are still working to recover from supply challenges, which should help us maintain strength in benefits during the first half of the year. However, beyond that, there is some uncertainty because the demand this year was not originally projected to be at this level. A significant part of this year's demand was driven by the pandemic, as people spent more time at home and invested in enhancing their workspaces, leading to higher levels of demand than anticipated. The future of this trend and when it might decline is still unclear. Currently, all indications suggest that these volumes will persist until at least the first half of next year.

All right. And then the last question for now is on the CMC segment. Obviously, very strong margin improvement relative to the first half. Can you maybe help us put the sequential margin improvement into some buckets? My guess is that raw materials versus pricing is one area where you saw some improvement. But what were some of the other buckets of improvement? And how should we think about the sustainability of the margin in this mid-teens type of range?

Yes. I think the way to think of it, Mike, is we said several years ago that as we were going about restructuring this business that we were structuring it for less volatility through a cycle that we were targeting somewhere between 9% to 15% EBITDA margins in this business. And basically, that's what we have seen since we have executed on some of the more significant projects in this area. In fact we've, over the last several years, have been at or at the high end of that range if not, even a little bit higher. So as we talked about often, right, you always have this phenomenon of our raw material cost chasing price. So in a market where you got price declining, our margins are going to be down at the lower end of that range because it's going to take a while for the raw material pricing to drop and catch up with that. And then when pricing stabilizes and starts to move back in the other direction a little bit, you'll start to see the benefit and margins move up into the upper end of the range as well. So we knew the second quarter was going to be weaker margins. The first quarter typically is weaker for us in general. But everything that we were seeing and that we sort of know with our business, we felt pretty confident that we would see some of that recovery as raw material costs began to catch up with the pricing curve. We saw it in the third quarter and we expect that, that will continue into the fourth. And again, overall, for the year, that will put us solidly above the double-digit margin line. So on an ongoing basis, we continue to believe that, that business will be a 9% to 15% margin business. The absolute dollars that we generate there will be more dependent upon the strength of the markets and how much volume we can push through. But the good news is that even in a softer demand environment, because the whole business at this point right now, with the way that we've designed it is basically an arbitrage on the raw material and selling price of our end-products. We have that in place now and it's working pretty well, as I think, demonstrated through the challenging times we're going through right now.

The next question is from Chris Howe with Barrington Research.

Congrats on these preliminary results. Following up just on some of the thoughts that Mike Harrison just shared, if we look, hypothetically speaking or on a qualitative basis that some of the benefits that we've seen in the PC segment, the potential for a longer tail into Q1 and Q2, benefiting from work-from-home employees and higher discretionary spending available for home remodeling projects as opposed to vacations. On the flip side or outside of the box, could we also see some sort of benefit in a recovery as workers return to work and they're able to put that budget to use for home remodeling in the latter part of next fiscal year?

Yes, theoretically, the repair and remodeling market has been strong and has generally been on an upward trend since recovering from the housing crisis between 2008 and 2010. We have noted increasing spending in that sector. Interestingly, at the beginning of this year and in the middle of last year, experts anticipated a potential slowdown in the latter half of 2020 regarding repair and remodeling. However, the current situation has changed those expectations. It's challenging to predict the factors that will drive major market trends. The idea that returning workers and a healthier economy could help sustain the market's growth is plausible, but it's difficult to say for certain.

That's very helpful for the discussion. And you had mentioned briefly about some expansion of capacity, following up on your comments related to the sourcing of external copper intermediate. Can you talk about this expansion of capacity, how much is being put into that? And, I guess, how different scenarios of strong demand within the PC segment may affect your decisions on capital spending for capacity?

At this stage, I would say this is a relatively high-return project, considering current demand and expectations for the next nine to twelve months. Additionally, we have seen a general increase in demand for this business since we acquired it. Even without the pandemic, we anticipate a modest level of growth in this market moving forward. Over the past couple of years, we have gained significant market share, which has led us to a situation where we do not have enough internal capacity to meet our own requirements. This has also put considerable pressure on our operations, limiting our ability to perform preventative maintenance. Therefore, we need to minimize any slack in our operations to maintain continuity while also preparing for further market share gains we believe we can achieve, even if demand drops off significantly from pandemic levels. We are not concerned about the projected spending, which will be around ten million dollars, as we believe the returns on this investment will be rapid and substantial. This will position us much stronger for the future, and we are not worried about creating overcapacity in this market.

Great. And one last question. Given the additional month of data leading up to this call, is it fair to expect that as EBITDA returns to the levels seen before this fiscal year, considering the extended demand in the PC sector, there is enough potential to either maintain or slightly improve our expectations for adjusted EBITDA in absolute terms for this fiscal year?

Are you asking if we anticipate that 2021 will be an improvement over 2020? Yes. To clarify, due to the significant restructuring of our business over the years, we have removed KJCC from our operations. Looking at the business over the last six years without KJCC, we are on track to achieve our sixth consecutive year of EBITDA growth. Last year, excluding KJCC, we recorded an adjusted EBITDA of $201 million. Currently, we expect this year's total to be between $204 million and $210 million. As we assess the situation, I cannot definitively state today whether 2021 will be better or by how much. However, I am optimistic that 2021 will be another strong year overall. We have several advantages that could contribute to this, particularly in CM&C, where we expect a more favorable year as the markets we serve begin to stabilize. Additionally, our RUPS business should show continued improvement from cost reductions associated with consolidating operations in Denver into North Little Rock, along with other network optimization efforts we are implementing. Although demand in the second half of next year for the PC remains uncertain, I believe we will see a strong performance in that sector, leading to solid results in 2021. The uncertainty surrounding whether 2021 will surpass this year and by how much largely hinges on the strength of the second half of next year's PC business. I expect that the first half of next year should perform better for us overall. The challenge will be whether we can sustain that performance in the second half and match the record results we are achieving this year. We are currently working through this information to find the answers. I appreciate it.

The next question comes from Laurence Alexander of Jefferies.

I guess, 3 main things. First, with Performance Chemicals, can you give a sense for how much margin lift you should be able to book from lower copper prices in 2021? And how much of that segment is international?

In terms of the international aspect of that business, about 30% or one-third is international, while roughly two-thirds is North American. Regarding margin improvement from lower copper prices, considering our margins are already in the low 20s, I don't anticipate much additional benefit, even with potential reductions in raw material prices next year. This outlook is partly influenced by concerns we have about demand in the latter half of the year. Overall, I would say there isn't much expected from a margin perspective, given our current performance and the volumes we are maintaining.

Yes. For the full year of 2020, I think we're looking at probably around 22%. And that's lower because we have higher domestic income, and it's reducing the negative impact on our effective tax rate due to the GILTI provisions of the CARES Act. It's also enabling us to use a larger portion of our interest expense deduction as less is being excluded from our tax calculations. So 2020, I would use the low 20s, 22%. Laurence, '22 and '23, we're probably going to tick back up to pretty close to that 25% level.

And as you look at the divestiture, the restructuring, as all the outlays vessel out, if you don't do any additional M&A, what do you see as a reasonable normalized free cash flow for these assets? I guess, I'm ending up at around $90 million to $110 million a year kind of bogey. Is that sort of roughly the way you think about it?

Yes, that is very, very close. I think historically, over the last five years, we've averaged about $110 million a year. And I don't see anything different for 2021. So you're in the ballpark with that.

The next question will be from Liam Burke with B. Riley FBR.

Leroy, you mentioned in one of the slides that the domestic utility pole business has had its best year since the acquisition. Could you sort of give us an update on how well that's performed since you bought it into the Koppers fold?

Sure, Liam. We consider this the best year for us, and while we've only owned the business for about two years, it did start off a bit slowly. Since we took over in early April 2018, momentum has been building. When we acquired the business, we identified several opportunities to enhance profitability. One area was the use of our chemical products, such as creosote and CCA, in various markets. We also recognized potential in optimizing our network by utilizing treating facilities for multiple activities and consolidating certain functions to improve efficiency. We are still in the early stages of this optimization. We've successfully managed to reduce costs each year since acquisition. With each passing year, performance has improved, and we anticipate that 2021 will continue this positive trend. This acquisition has proven to be a valuable addition, gaining momentum as we leverage the many opportunities provided by our integrated business model. A significant opportunity ahead is to expand our market share into regions where we don't currently operate.

Great. Now you mentioned creosote, obviously. Directionally, is that maintaining a consistent contribution to coating, or the utilities using less or more or the same creosote in lieu of other types of coatings?

Yes, I would say it's stable, with a potential slight increase. The Texas region continues to be the largest user of creosote in full production, and that hasn't changed significantly over time. That aspect remains stable. With the phase-out of the oil-borne preservative pentachlorophenol, we need to consider other options, and creosote is one of them. If a waterborne preservative can be used, CCA becomes a strong candidate. If an oil-borne preservative is still required, creosote is being evaluated in certain cases, along with other preservatives we are considering adding to our portfolio, including copper naphthenate. Overall, I would characterize it as stable to slightly increasing, but it likely won't go beyond that in the future.

Next question will be from Chris Shaw with Monness, Crespi.

Aside from what you mentioned regarding the latter half of 2021, I have concerns about the demand for PCs. I'm curious about the future of rail and the visibility you have on that front. This could be a concern for me as we move into 2021, especially since I recall the last time traffic declined, which was when oil prices fell and rail demand dropped. So, what kind of visibility do you have on your Class I as we look ahead to 2021?

Yes, we are currently in the period when the railroads are working on their budgeting for 2021. Meetings will take place over the next month where they will share their expected programs for the year. We are in regular communication with them, and they provide directional insights into their outlook not only for next year but also for the next three years. Overall, we anticipate that our volumes in 2021 will be slightly better than in 2020. This has not yet been confirmed through their budgeting and communication, but all the discussions and signals from the past three to six months suggest they expect a strong replacement cycle to continue into next year. We will have more detailed information by the time we next report, but that's the current perspective we have.

And the last question for today will be from Ken Heffner with Loomis, Sayles.

Could you provide an update on the process regarding the Denver facility? You mentioned it in the last call, and I’m curious about the status of potentially closing that transaction. Also, I'm interested in the year-over-year earnings improvement in the PC business. Has the decrease in copper input costs contributed to this improvement? I've noticed that prices for copper have returned to more normal levels after hitting lows for a few months. Can you clarify if the $20 million improvement is mainly due to volume, price, and mix, or if there are cost benefits included that would help us understand the strength of the earnings compared to last year? That's all.

Okay. So let me think, maybe start with the last question first. My take on PC is, we did have a short period of time whereas most markets reacted significantly unfavorably early on in the pandemic, and we were able to lock in some hedging for 2021 and '22 to take advantage of that negative reaction early on. Obviously, we were buying copper during that period at those prices, but we were also settling hedges that were in place at much higher levels, right? So we talked about coming into the year that we were more or less hedged on our production for the year, which didn't give us much opportunity for any benefits from a lower overall average cost. It didn't take long for copper to move back up to levels that are higher than our current average hedge cost for this year, which, again, given the demand levels, I'd say overall has probably put us in a more unfavorable cost position for this year than favorable. So on balance, I'd say for this year, we're probably getting a little bit more hurt by where things are at on a copper cost curve, just given the fact that I think for the majority of the year, at this point, copper costs have been higher than our average price. And our demand levels have been much higher than what we thought coming into the year, therefore, our hedged amounts were at lower levels. So I don't think we're getting the benefit that you are speculating that we're getting on the cost side. If anything, we're probably getting a little bit hurt. That could help us out next year as well to help insulate against some downturn on demand in the second half of the year. I apologize, but could you please remind me of the first question?

Denver.

Denver. Where things stand on Denver, right? I can't comment on any ongoing activity as it relates to Denver other than to say, we're in the process of closing the site. So we are done in terms of treating there. We have transferred essentially all treating activities to our North Little Rock facility and are in the process of closing it and looking to sell it. We're hopeful that some time by the time we have our next conference call, which will be sometime early next year, that we'll be able to announce something. But right now, the focus is on closing the facility. At the very least, we think we should be on track to finish and finalize that sometime, hopefully, in the first half of next year.

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

Okay. I just want to wrap things up by thanking, again, everybody, for participating in today's call. I really appreciate your continued interest in Koppers, and urge everyone to continue to stay safe and stay strong. Thank you.

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