Earnings Call: Q2 2019

Jul 25, 2019

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation Second Quarter 2019 Conference Call. My name is Catherine and I'll be your operator for today. At this time, all participants are in a listen only mode. We will have a question and answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Joe DeSalvo, Vice President, Treasurer and Investor Relations. Please proceed. Thank you, Catherine. Good morning and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call may be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements will be of current expectations or forecast of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward looking statement. Some of these risks and uncertainties can be found in the company's filings with the Securities And Exchange Commission as well as in today's press release. During the discussion today, the company will use both GAAP and non GAAP financial measures. Please refer to the earnings release posted on the PolyOne website where the company describes the non GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the second quarter of 2019 to the second quarter 2018, unless otherwise stated. Joining me today on our call is our Chairman, President and Chief Executive Officer, Bob Petterson. And Executive Vice President and Chief Financial Officer, Brad Richardson. Now, I will turn the call over to Bob. Well, thanks, Joe, and good morning. At $0.74, we finished the quarter at the high end of the range we communicated when we raised our projections in early June. And this represents a 4% increase over last year. Sequentially, margins expanded in all segments when compared to the first quarter of this year. This helped us to offset much of the weakness we continue to experience in certain end markets and regions as well as unfavorable foreign exchange. And as a result, we are now increasing our outlook for the balance of 2019 such that we expect EPS to expand 4% to 6% for the full year. I'll have more to say on our outlook in a moment, but for now, we'll focus on current results and initiatives. Compared to the prior year second quarter, our Engineered Materials segment led our performance with a 22% increase in operating income. I am very pleased with the investments we have made in composites, wiring cable applications, which have helped us to drive this growth. As you know, this has been a significant area of focus for us as we build out a portfolio of more specialized materials and solutions in this segment. I'm also pleased with the expansion of our sustainable solutions portfolio, which was up 7% year to date versus last year. These products are focused on reducing carbon footprint and reducing water usage to name a few of their benefits. Our efforts to build and leverage this portfolio with our customers cannot be overstated. We're playing a crucial role in the growing desire for brand owners and consumers to bring more sustainable and political uncertainty are negatively impacting commerce and consumer confidence sustainable solutions are expanding. This, of course, is in stark contrast to what we are seeing in China and Europe auto, for example, which were down 23% and 7%, respectively, in the second quarter. And building construction in the U. S. Was again weak compared to last year. In fact, overall, macro conditions really haven't changed much since we spoke last in April. And looking back at our improved performance against what we expected at that time, the drivers largely fall into the self help category. We have reduced costs and done a better job of pricing, and improved mix diversification. 2 of our key markets, healthcare and packaging, which now represent a combined 25% of our total company sales, were both up in the 2nd quarter at 3% 4%, respectively. All of this helping to offset the demand weakness in other markets I just described. In addition, we also have the ability to pull out another self help driver that you have listened to us describing. Often in the past. And that is our lean 6 Sigma team and culture with over 4100 associates who are trained in lean principles We are continually seeking and seizing opportunities for quality and efficiency improvements. Process improvement projects in flight. And those results once completed generate true bottom line value. More recently, PolyOne customers are now directly benefiting as well. Our Lean Six Sigma customer first service offering has been extremely well received since launching it in 2015. And to date, we have trained more than 180 customers in LSS methodology and project management. And they are now implementing process improvements in their own companies. LSS is no doubt in investment. And while we have been taking prudent actions to control spending in discretionary areas this year, we have not cut back in the strategic investments that enable our long term strategy. We remain steadfast in our invest to grow approach and continue to pursue the organic improvements and technology advancements that allow us to best serve our customers. And one of the most important measures we use for gauging our performance in this area is our vitality index, and that measures how much of our revenue is from products introduced in the last 5 years. For the second quarter, we remain world class at 35% and we have invested in innovation in our longer term technology portfolio. And you will see the parallels between our R and D focus on sustainable solutions and our vitality index will strengthen even further. We see this dynamic that enable our customer's sustainability goals will increase in concert as well. Brad will now provide a segment review and go a little deeper on our performance for the second quarter. Brett? Well, thank you, Bob, and good morning, everyone. Let me first start with our GAAP results. In the second quarter, we reported GAAP earnings per share of $0.54. Special items in the quarter resulted in a net after tax charge of $15,200,000 compared to $5,290,000 in the prior year. The increase is primarily related to the earn out adjustment associated with the Fiber Line acquisition as the business performance in the 1st 6 months has been exceptional and exceeded our original expectations. Adjusted EPS for the quarter was $0.74 a significant sequential improvement from the first quarter where we reported $0.64. This sequential growth in adjusted EPS was driven by a $9,000,000 improvement in operating income on flat sales of approximately $900,000,000. As Bob mentioned the second quarter performance was made possible by our ability to expand We're particularly pleased with our team's execution to navigate the macro external challenges that persist Across most end markets and regions. So let me provide some additional perspective. Regionally, Excluding acquisitions, sales in Europe were down 7.5% due to weaker foreign currencies, which negatively impacted sales 6% and softer end market demand in automotive and construction application. Asia sales were down 5% due to FX and on an organic basis were flat as weaker demand for automotive applications was offset by growth in the packaging end market from Transportation sales, which are primarily automotive related, make up about 16% of PolyOne sales. This quarter, we experienced an 8% decline in global transportation sales with North America and Europe down 7% in Asia down 23%. Weaker transportation sales impacted all four segments. The construction end market accounts for about 10% of total company sales and was down 7% compared to the prior year's second quarter. These sales are primarily in North America and most significantly impacted our PPNS and Color segments. In reviewing our segments, as Bob mentioned, SEM led our performance, growing revenue and operating income 18% and 22% respectively. Organically, operating income increased 4% The benefits of price mix and strong performance from composites and North America wire and cable sales were partially offset by negative FX and underlying weakness in Europe and Asia Healthcare was also a bright spot as SEM sales in this end market improved 24% in the 2nd quarter. New closes in healthcare applications take significant time, dedication and technical know how. That's why they're specialty, and that's why customers are choosing polyone to collaborate with. Last quarter, we closed a fantastic healthcare project with a long those of you who are at our Investor Day, where we talked about our Versa Flex TPE providing material substitution of rubber in syringe stoppers. The performance attributes of TPEs are significant, safer, cleaner, more efficient by taking several steps out of the manufacturing process and they also provide greater design freedom. And over the last 4 years, we have continued to see growth in applications providing an alternative to traditional materials in various medical applications such as syringe Stoppers. This past quarter, we did so with a new business close for our customer's product line, the first to 4 models, all of which will be launched by 2020 with an expected annual revenue of $10,000,000. Looking at our Color segment, revenue and operating income were down 2% and 7% respectively impacted by weaker foreign currencies. From an end market perspective, growth in packaging was more than offset by weaker automotive sales primarily in Europe and Asia. Packaging continues to be a great story as sales were up over 6% for the segment. Driven by the continued market improve recyclability, reduce material consumption, and allow for the design freedom made possible in PET bottles. And as you know, Barringer Technology has been an area of strategic investment for us for years. And it continues to deliver returns. With regard to PPNS, their margins expanded 200 basis points sequentially from Q1. This was driven by sales of our GEOON brand formulations in North America which modestly improved from the delayed and difficult start to the construction season That being said, it remains down year over year. Additionally, the weak demand in automotive end market which account for about 16% of PPNS's sales also negatively impacted year over year results. Overall, this led to a 9% 14% decline in sales and operating income compared to the prior year. Distribution performed very well given the backdrop of some of the end markets that we've just been discussing. Operating income was up 7% on operating margin improvement, driven by mix and pricing. The mix improvement was primarily related So to summarize, sequential margin improvement in each segment demonstrates that the actions and projects we put in place have been effective in navigating the clearly and continued sluggish end markets and regional demand slowdown. At the same time, our which is making important Before I hand the call back to Bob, I want to point out our recent share repurchase activity. We've said we will do so opportunistically as one of the ways we deploy cash to generate shareholder value. The 2nd quarter certainly defined opportunistic from our perspective. As we bought back 1,000,000 shares at an average price of $26.91 a share. So Bob, I'll turn the call back to you. Well, thanks, Brad, and certainly some of your last points on where we are investing are important. With respect to barrier technologies and composite, these are 2 sustainable solutions that have been a consistent theme in our communication and they have been consistently growing as a result. Of these prior investments. Last quarter on earnings call, we spent some time discussing Fiber Line Solutions in detail. We discussed both the near term demand and the tremendous long term opportunity that 5G and other fiber optic cable requirements expand. Now this morning, I'd like to highlight another important area where composites are currently growing and will continue to play in the product design for the foreseeable future, and that's in Reinforcement Applications. We often talk about composites replacing metal, glass or wood, but many times they are used to reinforce these materials as well. By applying a thin composite tape to reinforce an underlying base material, we can improve the strength of that material by up to 400%. Which takes the weight out. And it's taken us a few years to get here, but we are finally realizing multiple opportunities in transportation as well as in recreational equipment. Overall, composites reached a record level of profitability at 10% return on sales Those sustainability considerations are increasingly important. And just like our customers, PolyOne is taking a proactive role to both design and as well as our and hopefully we can begin to shift the narrative. Plastics are sustainable, but plastic waste is not. And that's why we joined as a founding member of the Alliance to End Plastic Waste earlier this year. Along with other leaders in Material Supply, as well as several of our large global customers and partners. Earlier this month, I attended the Alliance' board first CEO meeting I couldn't be more proud of the single voice and commitment underway to reduce plastic waste through 4 pillars of focus. Infrastructure development to collect and manage waste and increase recycling, especially in developing countries where the need is greatest. Second is innovation to advance and scale new technologies that minimize waste and make recycling and recovering plastics easier. 3rd, education and engagement of governments at all levels, businesses and communities to mobilize action, and 4th and finally, cleanup of concentrated areas of plastic waste already in the environment. Particularly major rivers that carry vast amounts of land based plastic waste to the ocean. Collectively as an alliance and individually in each of our companies, day to day endeavors, we are working to address the waste problem. At the same time, we are educating consumers and companies on the important role plastics play in these solutions for many years to come. And we expect that this will bode well very well for PolyOne as a specialty provider focused on sustainable solutions. As our industry collaborates to set up some record straight on the importance of plastics, And as end consumers understand the inherent and sustainability benefits, this will ultimately lead to growth for us. And this is one of the reasons why I have an increased confidence in our ability to deliver earnings growth this year. When we started the call today, we initially commented on the better than expected near term results with where our current quarter ended at $0.74. And we are now raising our outlook for the full year to 4% to 6% growth over last year from an adjusted EPS perspective. And I think this is saying a lot. Market conditions are not great right now. And of course, this assumption of ours assumes that they don't get any worse. As we already described, many end markets such as China and Europe auto are down substantially and U. S. Construction has had a slow start to the year. In addition, the world continues to trade cautiously as a result of global trade fears and no one seems to be able to predict what will happen next. At times like this, we have to focus on what we can control. With this in mind, I am pleased with what we have accomplished so far this year. The self help initiatives we discussed throughout our call today have made a difference and will do so for the balance of the year. But we also have to look past 2019 and continue to invest in innovation, commercial resources, and specialty acquisitions to drive long term growth. In short, we are managing for today, while leading for tomorrow. That concludes our prepared remarks And our first one comes from Mike Harrison with Seaport Global. Your line is open. Hi, good morning. Good morning. Good morning. I was wondering, regarding some of the cost actions that you've taken, were there specific segments that we're receiving greater focus are these actions complete at this point or are there more to come? And I think you commented that you're continuing to invest in commercial resources just maybe comment on how you balance trying to take out costs with how you want to continue focusing on organic growth? Yeah. The actions are completed, Mike, and they really were across all segments as well as at corporate. And with respect to your last question to put things in perspective, Sales headcount this quarter was actually 3% higher than it was in the year ago, 2nd quarter. So that balance really comes in, where we're controlling discretionary costs, back office resources. Across the company as a whole. And that is of course always a challenge with respect to doing those actions and trying to invest for the future. But I think we have I think we found the right balance. All right. And then in terms of the strength that you're seeing in Engineered Materials, just wondering how sustainable you feel like that could be given the momentum that you're seeing in certain areas, of course, under the backdrop of some macro uncertainty and underlying macro weakness? Yes. I mean, I think we're right in the middle of macroeconomic weakness. So to see the growth that we have gives me a lot of confidence in the underlying portfolio and performance of the segment. My expectation is that we will see some traditional seasonality in this business in the 3rd fourth quarter with the second being our strongest. But if I put that in the context of how well doing versus year over year performance, I feel, very good about the sustainability of their results. All right. Thanks very much. Yes, thanks, Mike. Thank you. And our next question comes from Mike Sison with KeyBanc. Your line is open. Hey, guys. Good morning. Nice quarter there. And then, so if you think about the second half, Bob, you're looking for earnings growth to accelerate versus the first half. And as you noted, doesn't seem like demand's getting much better. So can you maybe walk us through some of the drivers of the improved year over year earnings growth in the second half? Yes. I mean, I think first of all, Mike, some of it is, obviously, just relative to where comparable results were in the prior year. If you recall from, our 3rd quarter discussion last year, September was one of the worst months we've ever had, and that really led to a really difficult fourth quarter. So That plays, I think, a role, Mike, in terms of how the year shapes up and how that earnings growth takes place over the back half of the year. We obviously knew that when we talked a quarter ago. And what's different now though is really I think our ability to deliver on the cost reductions, the pricing improvement and margin expansions. And lastly, really just the underlying performance in Engineered Materials. So That's what really gives me, confidence again that assumes that things don't get any worse and that may be a big assumption. But with that in mind, that's where we come up with that full year estimated EPS growth. Got it. And then composite seems to be getting a lot of momentum here. Can you maybe talk about where you're at in terms of profitability and size of the business and maybe give us some feel of how fast that business is growing year over year? So in total, when I combine fiber line with what polyone already had in the composite space, which we have put together over the last 4 or so years through, a series of acquisitions Composites is getting close to being about a $200,000,000 business. We had a that's on an annual basis. As you know, we invested quite heavily in thermoplastic composites over the last few years and that is just now starting to turn a profit. So when you put the whole thing together, we are now well into the black. So really appreciate where we are from a composites perspective, admit that Fiber Line is a big part of that, which was a recent at the beginning of this year. And, their results are really doing better than we expected. At the time we did the deal, Fiber Line was doing about $12,000,000 of EBITDA and is exceeding that this year. Great. Thanks, Bob. Thank you. And our next question comes from Frank Mitsch with Fernium Research. Your line is open. Hi guys. This is Diza on for Frank. First off on the buyback. I just wanted to get your thoughts on the balance of the year. And if any level of buyback is embedded in that 4% to 6% EPS growth forecast? So we typically don't ever give any projections on what our plans are with respect to the share buybacks. And so don't intend to change that right now. It may be something that helps us get to a higher level of performance if we find that it's opportunistic to keep doing so. But at this point, I think with the margin improvement, cost reductions and performance in SEM, we feel comfortable getting inside that range, with the shares that we bought back already this year. So hopefully that helps put that in perspective for the second half. Okay. And on the M and A environment, any thoughts on possible acquisitions are composites still the favorite sector? We're always looking and certainly looking at it seems like lots of stuff I would absolutely love to build out the composites portfolio in a faster way. As you know, Chris Peterson joined us in November of last year, who has a long history and background in composites, I think, with him here as part of our team that's only going to help us get that done faster. So certainly an area of focus you're spot on in that regard. Okay. Thank you. Our next question comes from Colin Rusch with Oppenheimer. Your line is open. Thanks so much. Could you talk a little bit about the opportunities for margin expansion particularly gross margin expansion on the specialty engineered materials and how you're balancing that with your growth plans? Yeah. I mean, I would say, look, 1st of all, with respect to the expectations that we have, if you just look at where we are in the 2nd quarter column relative to what we did in the 1st quarter. And in many respects, for the company as a whole, sales were effectively flat. We did see margin expansion. Across the board, it really was the categories that I've already mentioned. So we'll continue to see the benefit of the cost reductions in the second half of the year. I do think that can only just on our own better pricing and how we have been managing things like freight costs, implementing surcharges, etcetera, and being more tactical in that regard. Also remain an opportunity. And so that I think really kind of summarizes some of the tactical stuff. But when it just comes back to what we do and how we do that with our specialty materials. I think we have the opportunity for better margins and pricing improvement. And that's not any one particular move. It's just how we actually manage the portfolio of a whole. So it's kind of hard to describe really in an elevator speech, how that could work for color and engineer materials, but that's where the focus is. Okay. That's helpful. And then just shifting gears on the distribution business, is there some growth there like meaningful growth there? I mean, obviously, you're kind of running some of our run rates the second half of last year here in the first half. Is there something more that you guys can do there? Is that an opportunity or should we be thinking about that as kind of a flattish situation? Well, I mean, if you look at the 2nd quarter, I mean, sales were actually down versus last year, but operating income was up. So I give the team a lot of credit for managing pricing, doing the things that I just talked about around discipline and transactional basis. But also managing inventory levels, and that can play a huge role in the profitability of a distribution business in any one quarter. So our operating income growth really comes as a composite, if you will, of all those things. Underlying demand right now is not great. Right, even in North America and where we're seeing things, and that's impacting distribution. So in the short term, just based on what seeing from a macro standpoint, I don't have expectations for a high level of growth and distribution Longer term, of course, there remains a lot of opportunity to expand this business with more commercial resources and investment. This is a business that can be influenced by having more sales and marketing resources. We've seen it year after year. And that's one of the reasons why I said our sales for us is still up 3% on a headcount basis this year. And our next question comes from Ben Kallo with Baird. Your line is open. Hey, thanks. Hey, man. Hey, guys. So just back on the question around acquisitions. Maybe, Brad, could you just kind of talk us through, the levers you have for for liquidity and kind of the deal size that you're looking at and where your leverage ratio targets get out of hand? Yes. I'm happy to do that. I mean, we had, as you know, as you'll see in our Q, our liquidity as a corporation, was right at about $400,000,000 as we finished out the 2nd quarter. So a very strong position our net debt to EBITDA was a little over 3. And that's been coming down. It went up a little bit because of the Fiber Line acquisition. And that'll continue to trend down throughout the year as we generate cash. So I don't think our view on acquisition have changed. We've said, look, for the right opportunity, we'll go up over 3 maybe even the upper band of 3, but we have to have a clear line of sight in order to be able to get back below 3 in an 18 to 24 month period. So our financial framework in terms of how we look at this hasn't changed. Great. And then you talked about, Bob, you talked about the integration of some of the stuff you've done in Engineered Materials. Could you talk about the color acquisition Mesa and just how that's been performing? Yes. And actually, I've done a number of deals in the last few years in the color areas. So Mesa, we also picked up the Rutland Inc. Business. And then more recently, eCap based in Spain. All three of those businesses are performing better than they had in the year prior to us acquiring them. They've done a great job of really becoming part of PolyOne and fitting well with our culture. That's so important in the 1st year. Everyone has had an improved safety record. We've retained all of our customers, retained all of our key employees and seeing very good integration to date. So I'm very pleased with those 3 acquisitions, which really kind of accounts for the last couple of years of activity in color. Mesa itself has brought us some interesting technology in 1 or 2 markets where we didn't have much of a presence before. So, we're excited about that too. And then finally, one of your competitors reported I think yesterday I did before in their EM business I think was a little weaker than expected. Can you just kind of walk us through maybe the differences in what you're seeing in that business? Than the interest rate in your business? Thanks. I'm not sure I can comment on anyone else's performance, but From our perspective, the Engineered Materials business did see weakness in some of the areas that really are getting a lot of headline attention right now like China and Europe and specifically in transportation applications. So that's true. I mean, there's an underlying macro effect there. What has really made a difference for us in our results this year has been that we have, obviously, added Fiber Line The growth in fiberoptic cable and specifically that longer term pull for 5G is just marching forward. Right? And it hasn't been influenced yet, really by any of this macroeconomic noise. So that's a good guy. And the composite wins. I mean, I think that there's a lot to be said for just winning new business out there, regardless of what going on in the economy. And I think those are really 2 of the big reasons for the growth. So it's really around 5G fiberoptic cable and wire and cable applications as well as composites in general, Ben, that probably is the biggest differentiator. Great. Thanks guys. Okay, man. Thank you. And next we have Dimitry Silversteyn with Buckingham Your line is open. Good morning guys. Thanks for taking my call. Congratulations on a solid quarter. Couple of questions. First of all, in terms of your raw material environment, it should be getting better for you, I guess, given the particularly the recent declines in some of the upstream chemicals. Can you talk about what you see happening in the half of the year. And not just in the sort of the commodity plastics area, but the other stuff that you buy as well, the pigments, the TiO2, whatever it may be, how are you looking at your basket of raw material costs in the second half of the year? Yes. So I mean, right now, what I would say, Dimitri, is the baskets, probably moderated from a year over year standpoint. But there really are probably a couple of things moving in opposite directions. So a number of underlying base resins have come down slightly versus the prior year. But where that's been offset in terms of our total spend and impact has been around some of the special sauce ingredients, if you will, like dye stuffs for our Color segment, there was a fire and explosion in plant in China earlier this year that has had a ripple effect through anyone who is buying those materials. And so that has actually skyrocketed. So as I stand here right now, I'd say, well, some things have gone perhaps favorably. But we've had some of the other special sauce items that have gone, against us. I give the team credit for managing through both of those scenarios and doing well because we are getting margin expansion. But that's kind of how I see things right now. There's nothing that I would say that's different Dimitry about how the second half plays out versus what we just saw in the second quarter, if that helps. Okay. That does help. Thanks, Bob. Then as a follow-up on the PP and S business, you spent several years sort of moving it away from the commodity more commodity construction type businesses and more into medical and other stuff. And that was sort of driving your margin expansion. And then we get into this construction market slowdown in North America. And it seems like DB and S is sort of behaving like it behaved prior to your making this move. So Can you kind of size for us the relative sizes of the business in PP and S that's still going into construction in more traditional applications versus the repositioning that you've done into medical and some of the higher growth and more stable markets? Yes, I can. And look, I'd say that this business still does have a concentration of sales in those 2 end markets, really building construction as well as transportation here, in the on transportation is around 17, 18 high teens to put things in perspective. But while we're on that fact that if you go back in time and repull, there was a time when this business was almost entirely housing and auto, right? So We've really come a long way from where we were. And yet, we're feeling the impact of slower conditions in those 2 end markets we just described. But I can tell you if it hadn't been for the work that we've done over the last decade, it'd be a lot worse. So, we have to take that into account that Look, we're still connected to those 2 industries and when they're down, we'll feel it, but nowhere near to the extent that, we would have say 7 or 8 years ago. Okay, Bob. That's helpful. I appreciate that perspective. So it does look like over 50% of your sales are outside of the kind of the old traditional markets for this business. Correct. Okay. Thank you. Sure. Thank you. And our next question comes from Jim Sheehan with SunTrust. Your line is open. Thanks. Good morning. Could you provide a little more detail on how you're reviewing the 5G opportunity just how large is that addressable market? And how quickly do you expect it to ramp? I think it's going to well, 1st of all, for 5G is going to take place. There's going to be global pull for it. I would that I probably talked about this on our last call. My recent visit to, China where you can just see towers going up on every other corner and blocks. So they're going to be a leader in terms of getting out there and actually getting an installed base. I think that what you'll see is actually something that probably looks similar to how other generations have expanded. So even if you look at 4G right now or predecessor technologies, they don't encompass the entire United States, if I pick the U. S, for example, right? There's still plenty of places that don't have access to the latest technology. So One of the things that I like most about 5G is that this is a multi year growth opportunity for this business and for our segment. It's not something that's going to happen in 1 year. And I really believe it will take place over the course of 12 or 15 years. But be a very solid and steady double digit grower for us. So, that's how to put that in perspective. Notwithstanding just kind of all the noise around Huawei and all that stuff that's going on right now. Technology is going to move forward, right? And people are going to put this in if they perceive it's better. And so I don't see that changing as time moves on. Thanks. And regarding Performance Products And Solutions, how are you evaluating your strategic options for that business at this point in time? I don't think there's anything different to say about that with respect to how we think about our portfolio. So no new news. And on that segment, would you say that 2nd quarter represented to catch up from maybe business that was lost due to weather in the first quarter? Or how sustainable are your second quarter results in PP and S? Oh, I mean, I think there's certainly, 1st of all, yeah, you're right in pointing out that the first quarter was, very difficult just in terms of how things started out with, from a weather impact in the construction space. So I think there's some pickup. Year over year, I'd still say construction is down. And as a result of that, you see the PP and S segment impacted by it, but much better than what we saw in the first quarter. And I believe that's sustainable. So my sense is if you just want to put things into perspective here for the balance of the year, You'll see some traditional seasonality with respect to, Q3 and Q4, but I'm not expecting else beyond that. So I view where we're at is quite sustainable. Thank you. And our next question comes from Kevin Hocevar with Northcoast Research. Your line is open. Hey, good morning, everybody. Nice quarter. Hi, John. Brad, the cash flow is pretty strong in the quarter and in particular like working capital, did you control that quite well. So wondering what drove that and what type of cash generation do you think you can realize this year? Kevin, as you know, I mean, we continue to have laser line of sight focus on our working capital. I think we're best in class in terms of our working capital as a percent of of revenue and the organization clearly is focused on that. And look, we're on track. I had said last quarter, and if you'll very good about our ability to generate $200,000,000 of free cash flow this year. And that's after funding in our capital program. So again, it's a combination of obviously the earnings performance, but then the working capital to drive that $200,000,000 of free cash flow. Okay, great. And then, Bob, did I hear you right? Did you say that composite had a 10% margin now. And if so, if my memory serves me right, that wasn't that seems like a nice improvement from where it was a year or 2 years ago. So maybe correct me if I'm wrong anywhere in there, but if if I'm right, what's driving that nice improvement? Or as it's growing, you're just getting nice leverage to the bottom line, fiber line, is that adding to the margin profile. Maybe you just help me understand how that's improved and how should we think of the margins there over that 2, 3 years? Yes. Well, as you know, we don't really get into, specific product line detail for obvious reasons. I can tell you that, certainly fiber line help with that margin improvement as we added it to our portfolio this year. But if you look at the legacy, businesses that we have in composites, Kevin, for probably 2 years, it was running on a negative EBIT basis at just based on the level of investment we had in it. And those have turned positive in the first half of this year. While those legacy businesses may be in the low single digit type territory, we're seeing really good growth And particularly around, today on the call, I talked about these reinforcement applications. Many of these are wins that have taken us 3 years or so to start to actually bring into the portfolio. So I feel very good about our longer term projections with respect to getting that business. Up into the double digits here. It's not there yet, but not its way. Okay, great. Thank you very much. Thank you. Our next question comes from Lawrence Alexander with Jefferies. Your line is open. Hi, Adam Bubes, on for Lawrence today. I was wondering, firstly, have proprietary products seen volumes swing more or less than the total business? Yeah, I think that, It really does depend by end market. It's difficult to answer that question quickly because I'd say, well, I can look into transportation and say, a large chunk of that is specified material and proprietary in nature. But if they're making less autos, it's just down. So that doesn't really say anything about the underlying technology of us and whether or not proprietary or standard is moving that. So it's difficult to bifurcate that impact where I think though that we have seen the greatest impact from proprietary solutions has been in these sustainable applications, particularly in barrier properties, packaging. And those are certainly some of the best performing products that we have this year. So That's the best way that I can answer that and don't really have a pie chart that would sort of break things down by proprietary versus not so. Okay, great. That's helpful. And then the last question, in a situation or hypothetical world where demand were to accelerate into next year, then how do you start to think about incremental margins? Well, I'd really like that to the high the physical view you present. So hopefully it comes to fruition. I think that one of the things that I think it's always helpful, for people to think about how margins evolve in our business is just to look at the seasonality across quarters. Now it varies by segment, but if you look at the 4th quarter, which is traditionally our weakest of the year, And then compare it to the first or second, it can give you a better sense of how margins can be influenced by simply top line growth. So that's a good starting point. But certainly, I think there is more going on in that right now. With respect to better pricing and cost reductions and mix improvement that I think can help us do even better than that. So If you go back to our last Investor Day, what we said about margin expansion is that it's going to be heavily driven by sales growth in the long term. Obviously, what we're experiencing right now is some benefit from these other actions. But I think that's a good way to do some of that home market may have put that in a perspective on what happens when the market comes roaring back. Okay, great. Thanks guys. Thank you. And our next question comes from Rosemarie Morbelli with Research. Your line is open. I was wondering if you could give a little a better feel for what contributed to fiber lines better expectation than you previously thought when you bought it? Really, I can't get into the intricacies, if you will, of the earn out adjustment that Brad talked about and we disclosed. At the time of a deal, you just have to make your best estimate really about the near term performance and how an earn out will to get paid out when it does. And so, look, they're having a great year. It is entirely driven by the fiberoptic wire cable applications. And if I were to cite one particular factor that was better than we perspective. It's probably that underlying demand in that area really hasn't been impacted by some of all this other macroeconomic noise that's going on. That doesn't mean that it can't, but it hasn't been to date. And so that's probably the single greatest factor. Okay. Thanks. And then, you, keep mentioning seasonality, but construction given the slow start for the year, should still show continuing improvement in the 3rd quarter versus the 2nd quarter. And I say I'm totally wrong, of course. But wouldn't that be the case this year? I mean, the third quarter is still a construction seasonality, strong seasonality type of environment. So which other areas are you being impacted in the third quarter? Well, look, I would tell you that over the last 11 years of my time, Eric, that probably won. If I just look at construction related business, the 2nd quarter is the strongest 3rd quarter is the 2nd strongest first pork. So it's 2314. I don't expect that to change. Given how slow things started out in the 1st part of this year, you might conclude that more activity takes place in Q3 that's possible. But, at the same time, it could just be that there's a delay in projects and that gets pushed down to Q4 next year. I think we really need to see how that happens. And so potentially there could be a little less seasonality than what we're seeing because of that catch up effect, but I haven't seen that yet. Okay. So in your projections, you are activating the same seasonality as in the past? Well, yeah, I am, but I would say that If you went back to where we were at the end of the first quarter and some of the comments we made at that time, my expectations the performance of PP and S segment is better now than it was then. So that's a good thing, but I think that's captured already in sort of our perspective on EPS growth for the company for the full year. Thanks. And just quickly for Brad, I didn't catch the number of shares you bought back either year to date or in the second quarter, Brad, if you could give me that number? Absolutely. In the second quarter, we bought back a 1,000,000 shares at an average price of 26.91. And do you mind giving me the year to date? That's the same. We didn't buy shares in the first quarter. All right. Great. Thank you. Well, thanks Rosemarie and thanks to everyone who joined us on the call today. We appreciate your time and attention this morning and your continued investment interest in PolyOne. We look forward to updating you on our results at the conclusion of our third quarter. Take care. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.