Koppers (KOP) Q3 2025 Earnings Call Transcript

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DATE

Friday, November 7, 2025 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Leroy M. Ball
• Chief Financial Officer — Jimmi Sue Smith
• Vice President, Investor Relations — Quynh T. McGuire

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RISKS

• CEO Ball said, "Sales for the quarter were down by 12%" and "the impacts of our lower top line more than offset our cost containment for the quarter," highlighting persistent top-line pressure.
• CEO Ball said, "The railroad companies are feeling more pressure than ever to reduce costs everywhere they can, including tie installations," indicating continuing end-market softness and "the bigger message. is that we have adjusted our cost structure to fit a pullback in the market to the extent it turns out to not be temporary."
• Leroy M. Ball reported "adjusted EBITDA for the quarter of $70.9 million compared to last year's Q3 adjusted EBITDA of $77.4 million," reflecting a decline in profitability on an adjusted basis.
• CFO Smith stated that in the CMC segment, sequentially, the average pricing of major products decreased by 2% compared to the second quarter.

TAKEAWAYS

• Consolidated Sales -- $485 million in the third quarter, representing a 12% decrease from the prior year attributed to volume declines across all segments.
• Adjusted EBITDA -- $70.9 million in the third quarter, down from $77.4 million, yielding a 14.6% margin.
• Adjusted EPS -- $1.21 in the third quarter, compared to $1.37 in the prior year, with the decrease driven by lower top-line performance.
• Segment Sales Performance -- RUPS down by $15 million (6%), PC down by $32 million (18%), and CMC down by $21 million (16%).
• SG&A Reduction -- Adjusted SG&A was reduced by 14% year-over-year through three quarters, totaling over $19 million in savings.
• Capital Expenditures -- Year-to-date CapEx was $33.7 million; 2025 guidance revised to $52 million-$55 million, a reduction from $74 million last year.
• Share Repurchases -- $33.3 million year-to-date, with $71.5 million capacity remaining under the authorization.
• Dividend Increase -- Quarterly dividend declared at $0.08 per share; annualized rate of $0.32, a 14% increase over 2024.
• Net Debt and Leverage -- Net debt stood at $885 million; net leverage ratio was 3.4x, representing a $45 million debt reduction since June 30.
• Portfolio Simplification -- Completed sale of the railroad structures business and closed the phthalic anhydride plant in April, both actions aimed at narrowing business focus.
• Safety Improvements -- Company-wide recordable injury rate and serious safety incidents declined by 23% and 72%, respectively, with 23 of 41 sites accident-free during the quarter.
• 2025 Outlook Revision -- Full-year consolidated sales guidance lowered to $1.9 billion and adjusted EBITDA revised to $255 million-$260 million, citing continued demand softness.
• Catalyst Initiative Benefits -- Company expects $80 million of ongoing benefits by 2028, with over $40 million estimated for 2025 by maintaining EBITDA levels despite a 10% lower sales line.
• Utility and Industrial Products Growth -- Volumes up 6% over prior year, though facility fire caused over $1 million in damages, impacting segment results.
• Market Share Loss and Tariff Impacts -- CEO Ball reported a "couple of million dollars of direct impact" and "a few million dollars of impact from hedge copper rates disconnecting from the U.S. Futures market" in PC, with U.S. market share shifts driving volume declines.

SUMMARY

Management confirmed that severe demand pressure continued to weigh on top-line results, with the Performance Chemicals and Centimeters and C segments experiencing double-digit percentage sales declines. The CEO described further portfolio simplification actions, including the sale of the railroad structures business and closure of the phthalic anhydride plant, to sharpen strategic focus and reduce capital intensity. Despite these challenges, robust cost controls delivered significant SG&A and operating savings, supporting still-solid EBITDA margins and generating incremental free cash flow applied to both debt reduction and increased dividends. In its updated annual guidance, the company signaled expectations for consolidated sales and adjusted EBITDA to come in at the low end of previous ranges, citing persistent demand weakness outside its utility segment. The company’s ongoing transformation program, Catalyst, was highlighted as a key source of future margin improvement, with a stated goal to drive $80 million in ongoing benefits by 2028 through operational simplification and broader application of technology.

• The CEO said, "I find it quite remarkable that we could be looking at profitability in line with the prior year in spite of the softer economic backdrop and tariff disruption we've endured throughout this year."
• Management stated that "Part of the path to get there is a continued evolution of our portfolio" to make Performance Chemicals and RUPS a larger share of results, further signaling an intent to downsize the CMC segment.
• "Now that we've dealt with two straight years of actual purchases coming in lower than customer forecasts, the bigger message I hope everyone takes away is that we have adjusted our cost structure to fit a pullback in the market to the extent it turns out to not be temporary," the CEO said, framing future cost discipline as central to resilience.
• CFO Smith indicated careful balancing of capital returns and funding for business maintenance by reporting $31 million spent on maintenance CapEx, $3.2 million on zero harm, and $4.2 million on growth and productivity projects.

INDUSTRY GLOSSARY

• RUPS: Railroad and Utility Products and Services; segment that provides railroad crossties, utility poles, and associated engineering and maintenance services.
• PC: Performance Chemicals; segment focused on wood preservation chemical products for residential, utility, and commercial markets.
• CMC: Carbon Materials and Chemicals; segment supplying creosote, carbon pitch, and other materials primarily for aluminum, steel, and related industrial use.
• Catalyst: Internal company-wide transformation initiative aimed at permanent cost reduction, business process simplification, and technology upgrades.

Full Conference Call Transcript

Quynh T. McGuire: Thanks and good morning. I'm Quynh T. McGuire, Vice President of Investor Relations. Welcome to our third quarter 2025 earnings conference call. We issued our press release earlier today. You can access it 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 February 7, 2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide two.

Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, and uncertainties, including 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 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. Also, references may be made today to certain non-financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to those most directly comparable GAAP financial measures. Joining me for our call today are Leroy M. Ball, Chief Executive Officer of Koppers Holdings Inc., and Jimmi Sue Smith, Chief Financial Officer. At this time, I will turn the discussion over to Leroy.

Leroy M. Ball: Thank you, Quynh. Good morning, everyone. I'm pleased to join you this morning to provide more insight on Koppers Holdings Inc.'s third quarter operating performance. Our results largely fell within our expectations, despite market forces continuing to exert headwinds on top-line performance. Sales for the quarter were down by 12% compared to Q3 2024, continuing the trend we've seen throughout 2025. Our team's diligent control of spending once again continued to offset much of the impact of lower sales volumes, and we were able to deliver adjusted EBITDA for the quarter of $70.9 million compared to last year's Q3 adjusted EBITDA of $77.4 million.

Adjusted EPS for Q3 2025 was $1.21 per share compared to $1.37 last year, as the impacts of our lower top line more than offset our cost containment for the quarter. At the same time, benefits from reducing our interest costs through lower average borrowings and lower average interest rates were essentially offset by a higher effective tax rate in Q3 driven by a geographic earnings mix more heavily tilted to outside the United States. Moving to Page four, I'd like to provide a little more high-level color by summarizing just a few key takeaways from our third quarter. As mentioned, we focused intently on controlling costs to weather the cyclical softness we're experiencing currently.

Through three quarters, our SG&A was down 14% on an adjusted basis compared to the prior year, which equates to over $19 million in savings on top of the millions of dollars in operating savings that we are also generating. Through Catalyst, we're developing a blueprint to make those savings permanent by further simplifying our business, upgrading our technology, and advancing the skill sets of our team members. Because of what we've been able to accomplish on the cost side of the equation, for the second straight quarter, we were able to post adjusted EBITDA margins not seen in a number of years.

As we capture more profit from every dollar of sales, we're also improving our rate of converting those profits to free cash flow and deploying that cash to reduce debt and return capital to shareholders through our dividend and a steady stream of share repurchases. During Q3, we continued to simplify our portfolio by completing the sale of our railroad structures business, which came as part of the Performance Chemicals transaction in 2014. The structures business had been a steady contributor for a number of years but struggled leading up to and through the pandemic.

It had begun to regain its footing recently and through the date of the sale was having one of its better years in a long time, but still was margin dilutive for the past nine years. Other than selling to the same customers as our crosstie business, it did not have any strong synergistic aspects. Once again, we wish that team well and thank them for their contributions over the past eleven years. Further simplification of our business occurred in April 2025 through the closure of our phthalic anhydride plant in our Centimeters and C segment. And next up, we're also finalizing our assessment of shifting our North American Centimeters and C business to a single column operation.

In doing so, we will further lessen our exposure to the volatility of the Centimeters and C business while also reducing the future capital requirements from running a two-column operation. Later in the presentation, I'll speak further to Catalyst and what is going on in our various end markets. For now, I'd like to provide a quick snapshot of how we're progressing on the zero harm front. On Page five, you can see that we've made significant progress on safety thus far this year with leading activities up by 29%. This serves as a strong contributor to our lagging metrics of recordable injury rate and serious safety incidents showing declines of 23% and 72% respectively.

During the quarter, 23 of our 41 sites worked accident-free with our European businesses and our Australasian Performance Chemicals standing out with zero recordables thus far in 2025. We can never let up on safety because exposure is all around us and one mental lapse or shortcut could lead to catastrophic consequences. I continue to be heartened by our global team being on pace for another record-setting safety year. A great big thanks to all of our team members for your efforts thus far. Keep up the great work. Finally, turning to page six, I'd like to welcome our newest Board member, Laura Posadas, who was elected to our Board two days ago.

Laura is the current CEO of Candlac Coatings Inc, a leading formulator and manufacturer of high-quality wood coating systems. Laura's experience in innovation and strategy in addition to her track record of leading high-performance teams is a welcome addition to our Board's broad range of experience and skill sets. Laura represents the third Board member added over the past three years as we continue an orderly succession process for directors reaching the Board's mandatory retirement age. I look forward to tapping into Laura's experience on a number of matters relevant to our business and I'm enthusiastic to have her as a member of our Board.

I'll now turn things over to Jimmi Sue to speak in more detail to our quarterly financial performance.

Jimmi Sue Smith: Thanks, Leroy. Earlier today, we issued a press release detailing our third quarter 2025 results. My remarks today are based on that information. As seen on Slide eight, we reported consolidated third quarter sales of $485 million, down $69 million or 12% from the prior year. By segment, RUPS sales decreased by $15 million or 6%. TC sales were down $32 million or 18% and CMMC sales decreased by $21 million or 16% compared with the prior year quarter. On slide nine, adjusted EBITDA for the third quarter was $71 million with a 14.6% margin.

By segment, RUPS generated adjusted EBITDA of $29 million with a 12.5% margin, PC delivered adjusted EBITDA of $26 million with an 18.1% margin while Centimeters and C reported adjusted EBITDA of $16 million with a 14.4% margin. On slide 10, our RUPS business generated third quarter sales of $233 million compared with $248 million in the prior year. The decrease in sales was driven primarily by $15.8 million of lower volumes of Class I crossties, and lower activity in the maintenance of way business, including the sale of our railroad bridge services business.

These were partly offset by higher commercial crosstie volumes, a 6.5% volume increase in domestic utility poles, and $1.9 million of price increases related primarily to crossties. The untreated crosstie market remains stable. Year-to-year crosstie procurement was down 18% while crosstie treatment was down 5%. RUPS delivered adjusted EBITDA of $29 million compared with $25 million in the prior year. Profitability improved despite lower sales due primarily to $7.7 million in lower SG&A and operating expenses along with net sales price increases partly offset by the lower sales volume. On Slide 11, our Performance Chemicals business reported third quarter sales of $144 million compared to $177 million in the prior year.

The decline in sales was primarily the result of volumes decreasing by 19% mostly as a result of market share shifts in the United States, but also combined with a slight net decrease in sales volume for other customers. Adjusted EBITDA for PC came in at $26 million compared to $40 million in the prior year. Profitability was impacted by the lower sales volume as well as $7.3 million in higher raw material and operating costs partly offset by $1.6 million of lower logistics costs and SG&A expenses as well as higher royalty income. Slide 12 shows third quarter Centimeters and C sales of $108 million compared to $130 million in the prior year.

This decrease was primarily driven by $19.6 million of lower volumes for phthalic anhydride as we discontinued that product in April 2025. Adjusted EBITDA for CMMC in the third quarter was $16 million compared with $13 million in the prior year. This increase in profitability was due to lower operating costs, increasing production of phthalic anhydride, and $2.9 million of lower raw material costs. Partly offset by lower sales prices. Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 3% compared to the second quarter. Compared to the prior year quarter, the average pricing in major products was lower by 8% while average coal tar cost increased by 7%.

Now moving to capital allocation. As shown on slide 14, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales, we invested $33.7 million into our business through September 30. We are now expecting 2025 CapEx to be approximately $52 million to $55 million, a significant reduction from $74 million last year. Reflecting our focus on increasing free cash flow. Year to date, we repurchased $33.3 million of stock through share buybacks including tax withholding. We have approximately $71.5 million remaining on our $100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share.

At September 30, we had $885 million of net debt comparable to where we ended 2024 and approximately $45 million lower than June 30, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year as well as progress toward our continued long-term target at two to three times net leverage ratio. We ended the quarter with a net leverage ratio of 3.4 times $379 million in available liquidity. On slide 15, total capital expenditures for the third quarter were $38.4 million gross, $33.7 million net. We spent $31 million in maintenance, $3.2 million on zero harm, and $4.2 million on growth and productivity projects.

By business segment, we spent $13.6 million in RUPS, $9.6 million in PC, $13.8 million in Centimeters and C, and $1.4 million in corporate projects. Finally, on Slide 17, our Board of Directors declared a quarterly cash dividend of $0.08 per share of Koppers Holdings Inc. common stock on November 6. This dividend will be paid on December 16 to shareholders of record as of the close of trading on November 28. At this quarterly dividend rate, the annual dividend is $0.32 per share for 2025. A 14% increase over the 2024 dividend. And with that, I'll turn it back over to Leroy.

Leroy M. Ball: Thanks, Jimmi Sue. Now I'll do a quick review of each of the businesses, starting with our Performance Chemicals or PC business on Page 19. The third quarter saw a continuation of softer demand in North America, our largest market, as residential units pulled back even further while industrial demand turned positive. While both categories are down by about 3% year to date through September, excluding our known market share loss, residential was down by about 5% for the quarter, compared to last year, while industrial was 2.5 points higher consistent with the stronger demand we experienced in our own industrial business.

External markers such as the leading indicator of remodeling activity, existing home sales, and mortgage rates are all starting to move in a more positive direction. However, customer sentiment remains muted with most looking forward to putting 2025 behind them and starting fresh in 2026. Outside of tariff impacts, we managed to keep costs in check for the most part which enabled us to deliver a solid 18% adjusted EBITDA margin on a sales line that was 18% lower than 2024's third quarter. On the tariff front, we did absorb a couple of million dollars of direct impact as well as a few million dollars of impact from hedge copper rates disconnecting from the U.S. Futures market.

The flat pricing for the quarter and absorbing the direct and indirect impacts of tariffs, our ability to still generate margins of 18% demonstrate the success we've had in reducing our other controllable costs and the overall resiliency of the business. Moving on to our Utility and Industrial Products business shown on Page 20. We're seeing volumes continue to move in the right direction as successive quarters this year have seen a greater year-over-year improvement. Q3 saw volumes up over the prior year by 6% as the optimism we were hearing earlier in the year is beginning to manifest itself into sales.

Unfortunately, the impact of those higher volumes was offset by the damage from a fire at one of our facilities that impacted results by over $1 million. Now that we're more than a year out from the Brown acquisition, we're getting an even greater feel for the critical role played in our network by the Kennedy, Alabama facility that came with that acquisition. We've allocated volume to Kennedy where it logistically makes sense and are using it as a primary site for treating the Douglas fir species that we began adding to our product portfolio at the beginning of this year.

Getting into that market is opening doors for us that were previously closed in certain accounts where customers didn't want to split their Southern Yellow Pine and Doug fir business. Now we're early in the game, adding that species as well as adding sales talent and upgrading our CRM technology is positioning Koppers Holdings Inc. to be a stronger competitive force in our existing markets and I believe we are starting to bear the fruit from those investments. We continue to feel good about the longer-term demand outlook for the utility pole market and believe that we can participate meaningfully in meeting its pole infrastructure needs. Our railroad products and services business is summarized on Page 21.

The third quarter saw another solid quarter performance from our RPS business, despite treated ties sales units being down by 7% compared to the prior year. Class I units were down almost across the board while commercial units saw a 9% increase. Aggressive cost actions and a slight improvement from pricing helped offset the volume decline and drove a year-over-year 18% improvement in profitability for the RUPS segment. If we adjust for the sale of the KRS business, profitability was actually up over 20% compared to Q3 prior year with an even higher increase when looking at just RPS. Again, excluding the sale of KRS, RPS has reduced its employee base by 147 people or 19%.

Within the crossties business, that number is 14% and that's on a volume base only 2% lower than last year through September. While we expect some comparative volume improvement in Q4, our updated projection of flat year-over-year sales volumes is another drop from previously communicated customer expectations. I spoke a few times over the past two years of customers providing forecasts that have subsequently been pulled back and that trend has not abated. The railroad companies are feeling more pressure than ever to reduce costs everywhere they can, including tie installations.

It's difficult to forecast how long the current trend can sustainably continue, but we expect to adjust our forecast down from whatever we are told as we head into 2026. Now that we've dealt with two straight years of actual purchases coming in lower than customer forecasts, the bigger message I hope everyone takes away is that we have adjusted our cost structure to fit a pullback in the market to the extent it turns out to not be temporary. That also puts plant consolidation back on the table if necessary. But as always, we would view that as a last resort depending upon our long-term outlook with each customer. Next on to the CMC business summarized on Page 22.

Despite minimal positive movement on carbon product end markets, we still delivered a solid quarter performance finishing $2.9 million better than Q3 2024. Excluding the exit of our phthalic anhydride business, volumes were slightly positive compared to the prior year, while average pricing was down by about 4%. Consistent with what it is down year to date. There continues to be a lot in flux in our CMC markets. On the plus side, in early August Century Aluminum announced that the company will be restarting idle capacity, which should result in a positive impact on our pitch sales in North America beginning in 2026.

On the downside, more coal tar will be coming out of the market as one of our North American suppliers notified us that they've successfully converted electric arc production sooner than anticipated and that we would be receiving our last shipments of raw material from this supplier by the end of the year. Now that action further justifies our intent to simplify our U.S. Distillation capacity to a single column from the two-column operation that we run today. Doing so will further shrink our CMC footprint, reducing our cost structure and our required future capital outlay. Unfortunately, it is yet another setback that will put the only major U.S. producer of critical projects for the U.S.

Aluminum and railroad markets in further jeopardy. We're exploring various scenarios as to how to improve the supply situation which could be simply resolved by more domestic coal tar production staying in the U.S. to support the long-term health of the industry. As shown on Slide 23, I'd like to move to something more positive, which is the work we're doing in Catalyst and its expected impact. Now let's start with the why, why we feel we need to transform. The short answer is that in spite of our many accomplishments and the progress we've made, we still have solid potential to perform at an even higher level.

As an organization, we have no shortage of good ideas, capturing, quantifying, prioritizing, planning, resourcing, implementing, and then tracking these ideas through to completion is a different story. Frankly, it's where all but the very best organizations fall down. You need a well-developed process, the right technology, and a workforce that's more financially astute to improve your chances of reaching success in a reasonable timeframe. And that's what we're building with Catalyst. So when I look at our full potential, I see an organization that should be able to deliver 15 plus percent margins on a consistent basis, an organization that should be able to drive earnings improvement of greater than 10% on average over the next three years.

An organization that should be able to reduce leverage to the low end of our stated range below 2.5 driven by significantly greater free cash flow generation, we believe to be over $300 million over the next three years. Part of the path to get there is a continued evolution of our portfolio that would make PC and ROPS a larger share of our top and bottom line as we focus on our more structurally sound businesses that have opportunity for growth, have proven to consistently generate higher margins with lower capital requirements. What does that mean in tangible terms in terms of expected benefits from Catalyst?

It means that we expect that Catalyst will deliver approximately $80 million of ongoing benefits by the time we exit 2028. In 2025, we're estimating our capture rate at over $40 million based on our expectation to finish this year at a similar EBITDA level as the prior year in spite of a 10% lower sales line. That means we believe we can deliver another $40 million of benefits in the next three years coming from all areas of the organization. Less certain are the headwinds we may experience or any potential bolstering tailwinds, which we certainly haven't had for the past eighteen months.

There are still a lot of parts moving around as we try to nail down our expectations for next year. And as such, I'm going to hold off on speaking to how much of that additional $40 million benefit we expect to see in 2026 and how much of that could be potentially delivered to the bottom line. Until we have a more complete picture regarding all other aspects of our business, I'll speak to more detail about all this in February 2026 when we announce our year-end earnings. Moving on to our outlook for 2025. As shown on Slide 25, we're now revising our consolidated sales guidance to $1.9 billion in 2025 compared to $2.1 billion in 2024.

This reflects our sales expectation at the low end of our previously communicated range due to the soft demand environment across all markets other than utility. Slide 26, we're revising our adjusted EBITDA to $255 million to $260 million compared to $262 million in 2024. Both CMC and PC are expected to be solidly within our previous range, while RUPS is being adjusted to slightly below the low point of its previous range. This is to account for lower than previously forecast cross tie demand. And higher operating costs in our UIP business.

Slide 27 shows our 2025 adjusted earnings per share bridge reflecting a range of $4 to $4.15 per share with interest savings and benefits from a lower share count being offset by higher depreciation and amortization, a higher tax rate, and lower operating contribution. That said, our range still puts us on par with 2024 EPS even with a 10% lower top line, which is not a bad outcome all things being considered. On Slide 28, we're now projecting capital spending for the year to fall between $52 million and $55 million compared with $74 million in 2024.

While 2025 has been more challenging than we first thought, I'm encouraged by our team's resilience to step up to the challenge and fight their way through it. I find it quite remarkable that we could be looking at profitability in line with the prior year in spite of the softer economic backdrop and tariff disruption we've endured throughout this year. Set the organization up for significant improvement once economic conditions improve. We don't consider our work done. However, as we're ingraining the catalyst mindset into the way we work every day and continuing to mine for opportunities beyond what is already in the current implementation phase.

Similar to what we're hearing from many of our customers, I'm also looking forward to putting 2025 behind us and focusing on what we expect to be a brighter 2026 and beyond. Now, I'd like to open it up to questions.

Operator: We will now begin the question and answer session. To ask a question, if you are using a speakerphone, please pick up your handset before pressing the keys. Our first question today is from Gary Frank Prestopino with Barrington Research. Please go ahead.

Gary Frank Prestopino: Good morning, Leroy, Jimmi Sue, and Quynh. Question here, Leroy, as I'm looking at Slide 23, okay, you've taken some good expenses out of CMC. Some at RUPS. Yet PC is the lowest expense capture there, but I mean that's the only business that showed a down quarter really in adjusted EBITDA and down EBITDA margins. I mean, is there something inherent there that you can't take costs out? Or you just feel you shouldn't be taking costs out because markets are going to eventually rebound?

Leroy M. Ball: Yes. Gary, it's a good question. I mean, there are costs being taken out of there. And when we look across the board, you can't view all those numbers as necessarily being only, you know, cost takeout. Right? Because there's actually things that we've been able to do to improve within our operations, particularly in Centimeters and C, which is why that's a larger overall number. But for PC, we have taken out costs and we've certainly taken out corporate allocations, corporate overhead costs as well, which is helping them. Look, that is the business that we are continuing to see as our future here.

And we want to make sure that we're not cutting too far back in that area when we're trying to go out and win back some business, expand into some different product categories, and look at continuing to build around that business. So we don't, that's one we want to be a little more careful about in terms of how hard we cut back. It's not in the same, if you will, commodity category as some of our other businesses where I think inherently we just have to be really, really tight on our costs, both operating as well as overhead. So that's why you don't see quite as much there.

The opportunities that are going to come on PC as it relates to Catalyst are really going to be on the commercial side and less so probably on the cost end.

Gary Frank Prestopino: Okay. And then just looking at your objectives with PC and ROPS being greater than 85% of sales, and I realize you're going to be focusing on that for growth. But does that entail further shrinking of CMC?

Leroy M. Ball: Yes, I think it's a combination of things. I think certainly we're focused on growing UIP. We're focused on growing PC and growing around PC. And I've been pretty open about the fact that we're not going to be investing into CMMC. And I think it's on a, it has been for a number of years, on a secular downturn, right? So I think it's certainly to be expected that business will continue to shrink and be a smaller part of the overall. So we're evaluating all kinds of different scenarios around Centimeters and C and how it fits into the future of the company.

But I would expect it will be a smaller part going forward that could play into both sides of it with maybe changes being made there. As well as certainly additions being made in some of our other businesses.

Gary Frank Prestopino: Thank you.

Operator: The final question today is from Liam Dalton Burke with B. Riley. Please go ahead.

Liam Dalton Burke: Thank you. Good morning, Leroy. Good morning, Jimmi Sue. Good morning, Quynh.

Leroy M. Ball: Good morning, Liam.

Liam Dalton Burke: Leroy, could you give us some color on or if there is any on your strategy of growing the utility pole business either organically or through acquisition?

Leroy M. Ball: Yes. So look, we've talked about the fact that we have a pretty strong business in the traditional markets that business served when we acquired the Cox utility business back in 2018. So very strong in the Southwest, pretty strong in the Northeast. Not a lot of coverage in the Midwest. Basically nothing done in the Southwest and nothing out West. So there is a lot of market opportunity for us to go after. Again in markets that we certainly serve in different geographies and know well. So you know, we obviously bring to bear the wood preservative technology, the treating we've been treating in industrial products for most of the company's history.

And so all of that we think translates pretty well to being able to expand that business model. Part of it is you need to be in species beyond just Southern Yellow Pine which is why we've been building out a supply chain there. The Brown acquisition and the facility that was added there, with its capabilities really also opens up the door for us in a way that we couldn't do with our existing asset base. And so yes, we think we have great opportunity to go after share in underserved markets that quite frankly only one or maybe even two major suppliers have been able to serve. And now we can provide another option.

As I've mentioned time and time again, it is not our intent to go out and then try and start a race to the bottom. We think that there's enough share to be won by just being able to provide a second source of stable supply. And so in conversations we've had, we certainly have been encouraged to go down that route. So we'll continue to build out our sales capabilities. We'll continue to add to our technology and supply chain and we view UIP as an important part of our growth story.

Liam Dalton Burke: Great. Thank you, Leroy. My next question is if I'm looking at existing homes as a rough benchmark for demand for derived demand for PC. They've obviously come off from a very high level, but are starting to stabilize at a certain unit volume, we'll call it 4 million. If I think about anniversarying your market share loss, do you have a sort of a baseline revenue for PC now where you could see growing off that reset base?

Leroy M. Ball: Yes. I mean, I think that the way we think about the business overall is this setback that we're experiencing this year and to your point, it's beyond losing a little bit of business, includes an overall market that is has dropped by again 3% or so year over year, which is something we've not seen actually I think since well, know that actually we've seen it since we've owned the business. So we don't think it's anything that is systemic or indicative of the start of any longer-term trend.

So we think it provides a base moving forward that we can expect to see more regular growth coming from, growth that's more in line with kind of what we have seen over time, which is again more in that 3% to 4% year over year range. All that being said, again, whether our customer base is scarred by what they're going through right now or whether they truly have visibility longer term, they're basically getting signals that they don't expect to they're not building in growth for next year, organic growth. I think they're setting expectations of kind of holding flat and maybe again part of that is to prepare for another year of tepid demand.

And if it gets better than that then great, but not setting expectations too high and then being disappointed as the year goes on. So I think they're expecting a better year because again this year is right now down about 3% overall. But they're not right now factoring in or at least telling us that they're factoring in any real growth in the market.

Liam Dalton Burke: Great. Thank you, Leroy.

Leroy M. Ball: You're welcome, Liam.

Operator: This concludes our question and answer session. I would like to turn the conference back over to CEO, Leroy M. Ball for any closing remarks.

Leroy M. Ball: Thank you. I just want to thank everybody for taking the time to listen in today. Again, I think we have a great story to tell and despite the challenges that we face so far in 2025, I really do think we've set ourselves up for greater success going forward. The catalyst is actually bearing fruit. We see it in the numbers. And we expect to see more benefits coming from that will basically move us in the direction of being a higher margin, higher cash flow yielding, higher earnings business out over the next number of years. So appreciate your support and patience and thank you for joining today.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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