Great. Good morning. Our next presenting company is Coppers. Trades under the symbol KOP. Here today to speak on behalf of the company and we're glad to have them back at the Southwest Ideas Conference is Brad Pierce, Chief Accounting Officer. And with him here in the audience and available for questions afterwards as well is Quinn McGuire, VP of Investor Relations. Brad?
Great. Thank you, John. Thank you. Thanks, everyone. We're happy to be here and give you the opportunity to learn a little bit about coppers and who we are at a high level. We're a company. We've demonstrated strong profitability over the years. We've been able to generate meaningful cash flow that we've been able to use for a number of different purposes, including acquisitions, debt pay down, and all of that we believe has the ability to create shareholder value. Of course, we do, like everybody else, we have a website, coppers.com, that you can go to and visit to get any additional, you know, detailed information about the company. So here's our safe harbor statement. I'm not going to take the opportunity to read this to you, but of course, you know, this presentation doesn't include forward-looking disclosure statements, and, you know, we assume no obligation to update those forward-looking statements that we might make during this presentation. So flipping forward to slide four, this slide sort of outlies again some of the key factors that we think can make coppers a good investment. And with these five things, we believe that we operate from a position of strength across all these key factors starting with you know the our strategy so if you if you go back and look uh at the strategy that we employed we adopted a number of years ago you know we kind of looked at our company we saw you know we had a number of capital investments we could make uh just in our own operations sort of outside of acquisitions that we thought you know had the potential to return um you know significant profitability uh to to the company we've now sort of we've completed that phase uh and we're really now uh into the into the grow phase of our our strategy That means that, again, a lot of those heavy capital spending that we had in the 2021 through 2023 period, that is all behind us. We're a market leader in critical end markets. And you see as we go through the next couple of slides that we are market leaders in each one of our core businesses. And with that, you know, our focus really now is to go toward meaningful improvement, you know, in the margins in those businesses. We have an experienced management team. If you look at the top leadership at Coppers, all have been in the industry for many, many years. And many of them have been with Coppers for many years. and seen us through sort of all the different changes in markets over the years. And finally, strong cash flow generation. You know, we have a track record of every year generating over $100 million of cash flow from operating activities. As we look to 2025, we believe we're going to be able to generate $135 million of operating cash flow. And with that reduced capital spending, looking at free cash flow in excess of $80 million this year, A lot of that is going to go toward debt pay down, share repurchases to increase the profile of our capital structure. Slide five, I want to talk a little bit about the markets that we serve and how we are market leaders in each one of these. So here are four core businesses, starting with railroad products and services. Really, this business is a leading supplier of cross ties, primarily to the class one railroads in North America. We serve all class one railroads with their cross tie requirements. Kind of closely related to that business is our utility and industrial products business. This is a business that manufactures wooden utility poles. We both have manufacturing operations here in the U.S. and Australia. You know, this business is selling utility poles to, you know, investor-owned utilities and public utilities in the U.S. We sell to eight of the ten largest utilities in the U.S. Our performance chemicals business is a manufacturer and developer of wood preservation chemicals. So the easiest way to think of this business is, you know, you walk into Home Depot or Lowe's and you go to the treated lumber section, you know, in those stores. there's a high probability that the chemical that was used to treat that lumber was either manufactured by coppers or licensed to another company to manufacture under a licensing agreement with another manufacturer. So, you know, we have tremendous market presence in North America. the wood treatment chemical that we produce is called micro pro is a patented technology and is the leading chemical used for residential lumber you know we are selling to the to the actually lumber treating companies and we sell to all of all of the major lumber treating companies in the US and canada and finally our carbon materials in chemicals business this is a this is a business that takes coal tar which is a byproduct from the metallurgical cooking process used by the steel industry it takes that chemical it runs it through a chemical operation and gets a couple of key chemicals off of that one is carbon pitch that carbon pitch is sold to aluminum companies it's used in their smelting process for aluminum and from our perspective a key chemical we get out of that is creosote in creosote all that creosote is sold to our railroad business to treat the the cross ties with so there's a bit of vertical integration there. If you look at that business, all these businesses have particularly have some sort of international presence. You'll see that a little bit later on. The carbon materials business, we really operate three plants. One in North America, one in Europe, and one in Australia. So looking a little bit Further into the financial contribution of each of these businesses, if you look back at 2024, we generated around $260 million of adjusted EBITDA, adjusted EPS of just over $4 billion, off of sales of $2.1 billion. From an adjusted EBITDA margin perspective, last year we were at 12.5%. This year, although we've seen a little bit of a decline in our top line, the good news is we've actually been able to increase our adjusted EBITDA margin this year up to above 14%. And that's really one of the main goals of the company is to get that return on our sales up into the higher double digits. The little bit of a profile on our RUPS business just combines the railroad cross-tie and the utility pole businesses. We have eight cross-tie plants in the U.S. and Canada. And we have six utility pole plants in the U.S., along with four in Australia. So we have a pretty wide footprint of plants. And the reason why we have, you know, again, multiple, you know, cross-tie plants is what's very important to the class one railroads, to which there are six that we sell to, is that those plants are online with their rail network, right? So that gives us a key competitive advantage in the railroad cross-tie business. The performance chemicals business, you know, from a return perspective and a profitability perspective, is our most profitable segment. You know, last year it generated over half of our adjusted EBITDA and clearly is the leader in adjusted EBITDA margin and margins in excess of 20%. If you look at where we are this year, we have had some reduction in our top line in our adjusted EBITDA margin on that business. We've talked about in our different calls about some of the competitive factors that we've encountered in that business. We did lose a little bit of market share last year to one of our main competitors, which has dropped our adjusted EBITDA margin contribution in that business to closer to 18% this year. And then finally, our carbon materials and chemicals business, which is our smallest business. In terms of revenue, it had revenue of around $500 million last year. And again, if you look at these different businesses, our main growth opportunities lie with the railroad business, the utility business, and the performance chemicals business. The Siemen C business, we're really focused on, again, just maintaining that business and having it there, again, as a supplier of creosote to our railroad business. Just a quick look at sort of, you know, sales by end market and geography. If you look at the pie chart, roughly 75% of our business is connected in some way to the wood preservation business, whether it's treating wood or producing the chemical. From a geographic perspective, you can see we do have international presence. We are around 75% focused, though, in North America. And if you look at our sales by segment across our three different segments, we are well diversified, you know, in terms of sales and where we are generating our profit from. Kind of a couple of key statistics that you always have to keep in mind with our businesses. So from a utility pole perspective, you know, there's 140 million utility poles that are installed out in the network in North America. And obviously, you know, that's a huge replacement business, right? Two to three million poles just naturally need to be replaced every year, along with, again, some opportunity for sort of, you know, network expansion. On the railroad cross-tie side, you know, 18 to 20 million cross-ties get replaced every year just through the railroad's regular maintenance activities. So both of those businesses kind of replace, provide a great annuity business for the company. There's always going to be some level of just natural replacement that is going to occur. If you look at our performance chemicals business, what we really track closely there is the repair and remodeling industry. So again, a lot of our chemical goes into things like residential decking. So, again, as people invest in their homes, you know, that tends to drive the business for the performance chemicals. So moving to slide nine, I just wanted to spend a few minutes to talk a little bit about Catalyst, which is a strategic transformation process that we began early this year. And really, this is a transformation project that, you know, is looking across, you know, all of our businesses. And it's looking at us from both from a cost perspective, as well as, you know, the markets that we're in. Looking at our manufacturing process. It's literally, you know, involving hundreds of people across the organization. and it's really you know broken down into sort of three different phases an operational assessment phase a detailed implementation plan phase we're through both of those processes now and we're really now into the uh the process of executing on all of the initiatives that were identified through this through this process so where we are you know now um you know we we believe that through this process uh we're on on pace to realize around 40 million dollars of benefits you know this year um and again you know the savings are coming from a multitude of different places both from procurement to headcount reduction uh looking at our plant processes closing down uh certain production lines you know that again we don't believe justify you know the return on capital that we would have to be making in those businesses. Where do we want this to lead to? Again, a key metric that we have really been pushing on is improving the margin return in the business. So by the time we get to 2028, we are looking for adjusted EBITDA margin returns in excess of 15%, reducing our leverage to well below three times, and again, focused on the cash flow generation and getting free cash flow above $100 million a year. Through that process, it really focuses on where do we want to grow, where are our growth opportunities and really we view those growth opportunities being in the performance chemicals you know and the in the rps um in the rups business by the time we get to 2028 we really want 85 of our sales concentrated uh in those two those two segments sorry uh moving to slide 11, I just wanted to give a quick mention about sustainability and a couple of key things that we think helps us play in that market. Kind of boil down to just a couple of things. One is, a lot of our products are related to renewable resources, which is lumber and wood right making wood last and it's very also very important if you look at look at the importance of our products on infrastructure you know utility poles being focused on you know bringing electricity to homes and businesses and from the railroad cross tie business you know keeping our our logistics and our transportation uh systems moving so um you know we we think that that is an important consideration when again when you think about sustainability so moving to uh slide 15 i just wanted to talk a little bit about you know where the business is coming out of the third quarter, and, you know, some of the things that we have done to, again, we think will help drive shareholder value. So the first thing is, you know, a lot of focus on costs in the business, particularly SG&A expenses, through a combination of, you know, So headcount reduction and other focused cost-saving measures, a lot of it being driven by this catalyst initiative we've talked about. SG&A is down 14% compared to the prior year. With that lower SG&A spending, it is helping to drive improved cash flow in the company. and combined with our reduction in our capital spending that we're required to make, we've been able to redeploy a lot of that excess cash toward debt reduction, share buybacks, and dividends. From a business perspective, we've done a few things. Again, looking at our businesses, We do have some smaller businesses in our portfolio that, frankly, we think probably could be better served by a different owner, right? So one thing we did is we had a small business, which was basically a bridge repair business, Copper's Railroad Structures. We ended up selling that business in the third quarter. And secondly, again, looking at our existing operations, You know, we did have a phthalic and hydride plant, which is sort of an ancillary operation to our seam and seed business. We were looking at some pretty heavy capital spending there in the next couple of years and basically decided to exit that business because the returns just weren't there to justify, you know, justify that capital expenditure. um you know a lot of focus on our seam and c business uh you know that that is a pretty cyclical uh business for us and we're really trying to sort of maximize the return of that business uh so again a lot of a lot of focus on that business and getting it getting it right sized um you know with our uh with our existing um other businesses turning to so talk on page slide 22 just talk a little bit about the uses of cash in our in our business and how we how we allocate capital so you know again one of the I think the the favorable stories coming out of our business this year is in that that focus on reducing of capital spending down to $55 million of projected capital spending. In 2025, that's down from over 75 million in 2024. If you go back to 2023, it was 120 million. That excess cash, You know, we've been deploying it a number of ways. One is share buybacks. We repurchased over $40 million of stock in 2024. This year, through three quarters, we're at over 30 million and have plenty of excess capacity in our share repurchase program to continue to look at share buybacks. And then finally, we balance the debt reduction with, again, a small dividend that we do pay. We've been increasing it a penny per quarter for a number of years now. We're now up to 8 cents a quarter on dividend. From a debt perspective, our long-term goal goal is to get to below three times leverage. We are currently at three and a half. We did take an increase in our leverage last year when we did make an acquisition in the utility pole space just a quick comment here on capital spending you can see most of our capital spending is really focused on the maintenance area again with that large constellation of different plants that I've talked about you know you are required a certain level of maintenance spending to keep those plants operating safely and efficiently growth and productivity spending you can see is is only around four million projected well only four million incurred through the third quarter and against an interesting point again if you if you look at our different businesses you can see that one of our least capital intensive businesses is that performance chemicals business which has the highest the highest return. So that is a very very efficient business in terms of cash generation. So I think that was pretty much I guess that the comments I want to make. There's about eight minutes left here. So I just want to open up to see if there are any questions you might have about coppers. Okay thank you very much for your time.