Avient Corporation

Good morning, ladies and gentlemen, and welcome to the Poly1 Corporation's first quarter 2020 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'd like to turn the call over to Joe DiSalvo, 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'd 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 forecasts 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 used both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the Poly1 website where the company describes the non-GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Unless otherwise stated, operating results referenced during today's call will be comparing the first quarter of 2020 to the first quarter of 2019. Joining me today on the call is our Chairman, President, and Chief Executive Officer, Bob Patterson, 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, everyone. I'd like to start the call with a special thank you. It's to all the first responders, healthcare professionals, food service workers, infrastructure, and delivery employees who are tirelessly giving their time in the coronavirus response and recovery efforts. They and many others are keeping the world moving at a time we need them most. For those on the front lines, our world is especially grateful for you right now. The COVID-19 pandemic is having a significant impact on the world, and our first priority is the health and safety of our associates, customers, and all stakeholders. We are strictly adhering to government guidelines and protocols, as well as other preventative measures to help stop the spread of the virus. At the same time, we continue to serve our customers, many of whom need us now more than ever. We have just over 60 manufacturing facilities around the world, and all but two continue to operate as we are an essential source of supply related to the coronavirus support and recovery. These are certainly unprecedented times. As you know, on March 20th, we held an investor call during which we commented on our first quarter expectations in light of the coronavirus pandemic. Now, as we share our actual results, we are pleased to report we delivered adjusted EPS of 53 cents. That's a 23% increase over the prior year first quarter and 5 cents better than we expected a month ago. Recall that to align with our initial guidance provided in January, These results exclude the impact of the additional shares we issued in February. If we included those shares, our adjusted EPS for the first quarter is 48 cents. Much of the upside was driven by better than expected margin performance across all segments and regions, and an increase in orders in Asia late in the quarter as China recovered from the local impact of coronavirus. When we spoke a month ago, we weren't sure how fast China could get up and running, but they have certainly moved quickly, and I believe this bodes well for us and the global economy. Our margin and mix story is an important one, as I believe it differentiates our performance in these trying times. On a constant currency basis, sales declined 4%, and nearly all of that was due to a decline in automotive demand. Some of this is likely pre-existing weakness we saw in the second half of last year, particularly in Europe. But we also started to see the impact of coronavirus-related shutdowns. Packaging, consumer, and healthcare markets all fared much better, and they were either up or flat globally. Pockets of strength were seen in demand for colorants and additives, for food and beverage packaging, as well as for composites. And we also saw an increase in demand for some of our materials in outdoor solutions. I'm sure none of this comes as a surprise to anyone when you consider what has unfolded in the last six weeks, with stay-at-home orders across the world and significant slowdowns and even shutdowns of certain industries. I'll have some additional comments in a moment. But for now, I'll turn the call over to Brad for some additional details on our performance for the first quarter. Brad Pacheco- Well, thank you, Bob, and good morning, everyone.

Let me first start with our GAAP earnings. We reported GAAP earnings per share from continuing operations of 38 cents. Special items in the quarter resulted in a net after-tax charge of $8.6 million compared to $11 million in the prior year. Special items in the first quarter were primarily associated with acquisition-related cost. Adjusted EPS for the quarter was 53 cents, as Bob said. This was driven by a 5 percent improvement in operating income as margins improved in all segments on slightly lower sales. We also benefited from lower interest expense. From a regional standpoint, Sales in Europe were down 7%, primarily due to weak demand in automotive applications and unfavorable foreign currencies. Foreign currencies negatively impacted the region's overall sales by 3%. Asia's sales were down 6%, with weaker foreign currencies impacting sales 3%. Still, despite the slight top-line decline, and COVID-19 implications. Strong margin performance resulted in a 2 percent growth in operating income for the quarter. In North America, sales were down 4 percent, primarily related to weaker demand in automotive end markets and lower average selling prices in distribution as underlying raw material prices are declining. In reviewing our segments for the first quarter, SEM grew operating income 9 percent on slightly lower revenue as strong performance in healthcare and consumer applications improved our overall mix. The segment also benefited from lower input cost and expanded operating margins of 130 basis points over the prior year first quarter. Continued strong performance from composites and healthcare sales offset unfavorable effects and demand weakness in the automotive end market. Weaker foreign currencies impacted EM sales by 2 percent. EM's position in healthcare applications didn't happen overnight. It's been an important and deliberate journey for all of our segments at Poly1. We made a commitment to invest in higher performance technologies for specialty applications in less cyclical end markets. We also hired and trained our commercial team to service customers in this very demanding market. Recall last year, I spoke about examples of new business wins in healthcare applications, such as medical devices and next-generation glucose monitors, formulations for new catheter extrusions, performance tubing required for the effective delivery of liquids and medications, and components and seals on masks used for continuous positive airway pressure therapy made possible by our thermoplastic elastomers. Healthcare and other end market diversification helped us deliver for our stakeholders last year and is doing so during this global healthcare crisis. In fact, EM's healthcare sales grew over 10% in the first quarter. Healthcare also had a positive impact in our color added as an ink segment. This was partially offset by automotive demand and weaker foreign currencies as operating income grew 3% on 3% lower revenue. And just like in food and beverage preservation, Color and additives play a crucial role for healthcare products as well. For example, when certain pharma contents are UV sensitive and can degrade, it requires packaging with additives that protect the quality and integrity of the precious contents inside. Our additives portfolio offers that and more. Lastly, our Poly1 distribution segment delivered sales of $290 million on 9 percent decline versus the prior year. Over half of this was due to price deflation as volume declined 4 percent, primarily due to weakening demand for automotive applications. Margins, however, expanded to a first-quarter record of 6.7 percent as healthcare sales approached 30 percent of segment revenue. Now, before I hand it back to Bob, I wanted to comment on our strong balance sheet and liquidity position. First, we ended the quarter with $1.28 billion in cash, slightly higher than we had initially projected. And this is a balance that exceeds our total debt obligation of $1.2 billion. We also have approximately $300 million of additional liquidity from our committed revolving line of credit, which is currently undrawn. Lastly, thanks to conservative planning in the past years, our defined benefit plans here in the US are overfunded at 108%. In short, the actions we have taken since the last recession to strengthen our portfolio and balance sheet have us well positioned to navigate the challenges that lie ahead. That concludes our segment in financial review. I'll turn the call back to Bob.

Well, thanks, Brad. Again, I'm very proud of our team's accomplishments this quarter, initially navigating the coronavirus pandemic in Asia, and now seeing how we're managing through the effects on our customers in Europe and the Americas. Brad gave some great examples of how so many of our products are essential – And like many companies, we are working hard to serve our customers during this challenging time. Although our bottom line results for the first quarter exceeded our expectations as well as the prior year, we expect the coronavirus impact on demand to be greater in the second quarter. Market conditions have remained challenged as most of the world outside of China remains under stay-at-home orders. While our business is essential in the supply chain for many customers, we are adjusting to and expecting reduced demand in the coming months, most notably for transportation and consumer discretionary items. As Brad pointed out, the actions we have taken in the past to strengthen our portfolio and our balance sheet have us well positioned. But that being said, And as a matter of prudence, we are already taking actions to reduce discretionary spending and administrative costs, as you would expect. We have also created a plan to reduce CapEx from 65 million to 40 million if and when needed, and depending on when we start to see a recovery. Unfortunately, we cannot predict the length of time we will experience this week in demand, or when or how fast a recovery will occur. Accordingly, and as we said in our release this morning, we're not providing specific guidance related to sales or EPS for the coming quarter or year. As investors, we can appreciate the desire for transparency along with better and more frequent communication. To this end, we expect to provide a mid-quarter update to provide more clarity around what we are seeing in the markets and how that will translate to the bottom line, as we did in March. We will also provide an update on the Clarion acquisition. At this time, there isn't any new information to provide other than to convey to you that, like us, the Clarion MasterBatch team is working hard to serve their customers. With over 70% of their sales in the packaging, consumer, and healthcare end markets, their products are essential, and I expect their business to fare well through the coronavirus pandemic. And this should serve as a reminder of what attracted us to this acquisition in the first place. They have market-leading technology and specialty less cyclical end markets, and they have almost no automotive or construction-related sales. Just like us, Clarion has a high commitment to innovating materials that enable sustainability. This includes technologies to facilitate the use of recycled content, increase recyclability, and conserve energy and water, just to name a few. Their commercial presence is strong, and they have an awesome key account organization that provides an exemplary model for how to serve multinational OEMs. And from a regional standpoint, the Clarion Master Batch business increases our presence outside the United States, adding complementary presence in high-growth regions like Southeast Asia and India. You know, I used to say we were a U.S. company doing business around the world, but with this acquisition, I believe we will be a truly global specialty organization. And that is what we have been all about for over 10 years. From the day my predecessor first introduced our four-pillar strategy in 2006, we have taken actions to become more specialized. These included divesting commodity businesses and significantly reducing our exposure to to cyclical end markets like North America housing and auto. Last year's divestiture of PP&S stands out as our most recent step in this regard, and this is huge when you think about where we are today. Simultaneously, we have increased our presence in other less cyclical and highly specialized technologies like composites, barrier technologies, and healthcare-related materials. These are proving to have staying power and more volatile times like we are experiencing right now. Consider this. In the last few weeks, we've been rushing orders to support production for ventilators and masks that use our thermoplastic elastomers. We're supplying high-strength composite material orders for hospital bed components, and we're also involved in fulfilling high demand for COVID-19 test kits. Our materials are a key component in the supply chain that allows for food, beverage, and personal care products to continue to be produced, packaged, shipped, and used. In addition, our materials allow for infrastructure, telecommunication, and technology to function, and they must continue to do so, especially now. Ten years ago, I don't think we could have done this or said this. In fact, in 2009, We were at the bottom of the greatest recession most living generations have ever seen. I'm telling you this because this management team has led through a lot of adversity, and we will do so again. Last year, we launched our new branding campaign, and it's called Challenge Accepted. We built that around our ability to solve our customers' biggest challenges. That's who we are and what we do. Now, in the current pandemic and the related challenges we're facing as a global community, this new brand – and this promise we make has taken on an even greater meaning. I hope China serves as an example of how the early steps of recovery can take place and how the coming demand declines we expect in Europe and the Americas, too, shall pass soon. For now, we will continue to take care of our associates and serve our customers as we have always done. That concludes our prepared comments for today's call. We'll now open the line up for questions.

Thank you. The call lines are now open. As a reminder, you will need to press star 1 to ask a question. Please limit your questions to one question and one follow-up. And our first question comes from Ben Callow with Baird. Your line is open.

Hey, thank you. Good morning. Maybe we could just start, Bob, just kind of, I know just not a lot of visibility, but if you could just walk us through you know, what you're seeing through April, you know, by geography and how steep of a decline in demand. And then maybe could you just remind us about ROS and, you know, the current oil environment and how we should factor that in as well?

Yeah, maybe I'll take the last one first if I can. You know, one thing I just remind everyone on the call sometimes is, we have a tendency to look at major indices of things like polypropylene or polyethylene, and certainly those are raw materials that we use, but they're really only about 10% of our spend when you look at color and engineered materials. In total, we had a raw material benefit of about five and a half, six million dollars in the first quarter, Ben, so hopefully that kind of puts things in perspective of what we have seen so far. That likely carries into the second quarter as well. April orders, just to put that in perspective, are down, and they're down about 15% from where we were last year, and that's almost entirely driven by a decline that we're seeing in automotive demand as well as what I'd describe as consumer discretionary items.

And then maybe I'll sneak one more in. Brad, could you just talk about, you know, the debt markets and, you know, plans around financing the acquisition there, if you can give us an update there.

Yeah, Ben, I mean, yeah, Ben, we're watching the markets, obviously, very closely. You know, the last couple weeks have been good for the debt markets since the Federal Reserve has stepped in. And so we haven't set timing, but I can tell you that the markets now – in the non-investment-grade markets that we would be issuing into are open. There are issuance being completed. But we're watching it closely at this point. And certainly, again, the Fed action has improved the market. So we'll just watch it here over the next several weeks.

Great. Thank you.

Thank you. Our next question comes from Mike Season with Wells Fargo. Your line is open.

Hey, guys. Nice start to the year. When you think about the last downturn, your portfolio was much different. I think I recall volumes being down 20%. Can you maybe talk about the differences now in this downturn? I know you just noted what you thought April orders would be, but if you think about the last downturn and this downturn, maybe the differences in your portfolio and how this business could perform heading into this recession?

Yeah. Well, let's first just talk about end market differences. Obviously, if you went back in time to 2008, 2009, well over half of our sales came from building and construction or automotive-related end markets, principally in North America. And maybe just to provide some more context around the size of those end markets today, building and construction is actually quite small now at about 6% of sales. But maybe from an automotive standpoint, because I think that's probably the industry that's going to see the most significant reduction in demand here in the near term, Mike, maybe If you were to add up everything that's directly automotive-related or wire and cable that goes into automotive, last year we had about $125 million in revenue dedicated to those end markets. So that was about, let's say, 15%, 16% of our sales last year in the second quarter. Again, maybe the second market would be around consumer discretionary items, and that approximated about $60 million in revenue last year. I mean, these are the two areas that we expect to see the most significant declines in demand in the coming months. But as you can tell, we're talking about 18% of our sales. So that's obviously far different and much smaller than where it was in 2008 or 2009.

Got it. And then as a follow-up, when you think about declaring a transaction, given a difficult time to predict anything, but if you think about the deal closing, how do you think about synergy now? How do you think about accretion now? What's sort of your base case if the transaction does go through?

Yeah, so... Well, first of all, I really expect on a relative basis that the Clarion Master Batch business will perform relatively well during this time because over 70% of their sales are into packaging, consumer, and healthcare. Again, an underlying thesis for why we have always liked this acquisition. I don't believe the current market conditions... change our perspective on the long-term strategy of this deal. So that's important for us to remember. There's no change relative to what we think we can accomplish from a synergy standpoint relative to sourcing or back office consolidation and those types of things, albeit that they could take place a little bit further out into the future depending on when the deal actually happens. So Our base case really hasn't changed with respect to our underlying assumptions about putting these two organizations together. We are still waiting for regulatory approval in a couple of jurisdictions. That, again, may still take some time and may potentially even be delayed as a result of coronavirus. So hopefully that answers your questions, Mike. Great.

Thank you.

Stay safe.

Thank you. We have a question from Frank Mitch with Ferrium Research. Your line is open.

Hey, good morning, folks. And Bob, I appreciate the commitment to do a mid-quarter update. If I could just follow on to your comments about regulatory approvals, where specifically are you still awaiting approvals? And you suggested that that might be delayed due to the coronavirus. So with that as a backdrop, how far delayed do you think? What's your current thinking on when and if that deal may close?

Right. So two locations are Morocco and Russia. Those approvals could come, obviously, in the next few weeks or later in May. The earliest we could close is really unchanged from what we said before, which was – June 2nd. But there are a number of other conditions to closing that need to take place that we're still working toward as well. So there's still some, I'd say, timing things that still need to work out. And so the earliest we could do anything would be June 2nd.

And, you know, you offered that 70% of their businesses are in more attractive markets. I assume that you've been tracking their results, you know, since you signed the document, et cetera, how would you describe Clarion's results and outlook, you know, relative to expectations?

Well, I don't have their final numbers for the, I don't have first quarter numbers. Then as we prepare to actually go out and do a debt issuance at some point, we do need to kind of refresh the financial projections. So At this point, I really can't comment on their first quarter results. I know they're going to have a call, I'm sure, in a couple of weeks' time, and they'll probably provide some better details on that. So I'll leave that to them to cover.

Gotcha. And with respect to the debt offering, given how positive your timing was, how good your timing was on the equity offering, everybody is going to be watching as to when you perfectly cherry-pick the debt offering. Thanks so much.

Thank you, Frank.

Thank you. Our next question comes from Lawrence Alexander with Jeffries. Your line is open.

Good morning. Two questions. One, can you discuss how the adaptation to this environment is affecting your technical sales, the runway costs, how you think about the sales cycle, the amount of customer interaction, and Secondly, just to clarify, so the 15% decline, that is year-over-year, correct, rather than sequentially. And can you give any sense for how unusual the surge that you're seeing on the healthcare and packaging orders may be? I mean, you know, because some companies are tossing out fairly eye-popping one-month order books, but if you think about a more realistic run rate, the visibility you can get there.

Yeah, so I think you got three questions there, Lawrence. Let me take them here. First of all, the comment relative to April orders being down 15%, you are correct. That is compared to April of last year. Sequentially, that would be about 10% below what we saw in the first quarter of this year. Your question related to healthcare, You know, if you look in total for us, healthcare sales were actually flat for the first quarter or maybe up about a percent. What we saw was there were certain subsegments of healthcare that were actually up by 50%. So if I look at certain areas of medical equipment and those that we think really are very much connected to the coronavirus response were up significantly. but it's been offset to a certain extent by things like elective surgeries being postponed and then a reduced demand for drug delivery devices, surgical devices, and lab wear, things that are general to that. So health care is up a little bit in the first quarter, but there are two things going on there that result in that. And then I believe your first question was around just how maybe the pandemic is impacting technical sales. As you can imagine, face-to-face sales calls just aren't taking place right now, but I have really been amazed by the amount and volume of interaction that's taking place between us and our customers still on technology-related items. I just had a conversation with a day or so ago with our head of technology who just said it's amazing how much inbound is still taking place. And, in fact, you're even seeing perhaps some people looking beyond the pandemic at things that are longer term from that. Maybe that's because they're at home and, you know, got time to do that or whatever it might be. I can only conjecture. But, yeah. Clearly, there's a huge focus on the here and now and handling the supply chain and getting materials out to support the response and recovery. That's the priority, but it really doesn't seem to have dampened the enthusiasm that customers still have for next-generation products.

Okay, great. Thank you.

Thank you. And our next question comes from Colin Rush with Oppenheimer. Your line is open.

Thanks so much. Can you guys speak to inventory levels that are in the channel right now and how you see that moving at this point?

How do we see inventory movies, inventory movement where? I'm sorry?

So where are inventory levels in the channel, you know, downstream from you guys? And how quickly are those things moving? If orders are pretty strong and... You know, inventory levels aren't overly excessive. It seems like there's maybe a decent environment for your guys as we're trying to get after.

Well, what I think really remains to be seen is just what happens to demand here in April and May. And then, you know, that will probably put inventory levels into perspective. I think we're already, you know, feeling the pullback in auto, certainly at the end of March and in April. there wasn't anything that I would have pointed to or even standing here right now that I would say was out of the ordinary or unusual about inventory to comment on of any real substance, Colin. So, I mean, if something changes, maybe in our mid-quarter update, we can get some more color on that. But right now, I don't really think there was anything alarming or different.

Okay. And then in terms of the factories that are up and running, can you give us a sense of where utilization is at this point?

Beautiful thing. Yeah. I mean, it really does vary. We have India, for example, that's been as low as about 10%, maybe closer to 20% now, just based on certain jurisdictional requirements on what can be made in our facilities. Many of our plants are actually between 75% and 85% utilization, and so continuing to really run. But it really is a spectrum depending on location. There's only two that are closed. One is in Italy, and the other is in Peru.

Perfect. Thanks so much.

Thank you. Our next question comes from Bob Cort with Goldman Sachs. Your line is open.

Good morning, this is Dylan Campbell. I have a quick question here on the first quarter. It was pretty impressive margin growth on a year-over-year basis, particularly in color, where I think you had previously commented that you don't expect year-over-year margin improvement until the second quarter of 2020. I'm curious kind of what drove that earlier than expected margin growth on a year-over-year basis than your previous expectations.

I really think it is a combination of some raw material benefit. I do think mix has helped us. When I look at the sales decline in color, it is almost entirely automotive related. While auto is small, it is where we saw the decline in the first quarter and where that had some still upside yet and from an end market standpoint, really was around packaging and health care. So mix is certainly a part of that. But there was some raw material benefit as well. And then if you look year over year, about a million dollars of sales, general administrative costs, which are down, and some of that's just a result of administrative actions we took last year, but we've also just not replaced personnel as we've had normal attrition. over the course of the last six months.

That's helpful. In terms of the raw material benefit, how long do you expect to be able to hold on to price to kind of capture that raw material benefit, or how much historically have you been able to hold on to pricing relative to the deflationary raw material environment?

Well, I think both the color and engineering materials businesses have done a really good job of managing in both deflationary and inflationary environments and been able to hold onto that. As I said, I think in response to one of the very first questions about raw materials is that if you just look at headline things like polyethylene and polypropylene, it's just such a small part of our spend. that it's really a much broader, larger basket of raw materials. And I think, you know, as a result of that, that helps us to preserve, you know, those benefits when we see them. And it also helps us, I think, to, you know, communicate on pricing changes in the future when we see inflation. So it's not index-based business, so there's no formula to this. It says we're going to give it all back in three months. That's not how it works. All right.

Thank you.

Thank you. And our next question comes from Jim Sheehan with SunTrust. Your line is open.

Thank you. Good morning. Good morning. You talk about your wire and cable business, fiber line, and your sales into 5G. Is that some of the stuff that did well in the first quarter? And if so, did that continue into April or did that slow down? How does your order book look in the fiber line business?

Yeah, so if you take the entire wire and cable portfolio that we have, we did start to see a pullback for our business that relates to transportation. There's also a slight decline as a result of wire and cable that goes into oil and gas applications, which you could imagine right now. The quarter was relatively flat from an infrastructure build-out, if you will, around technology, but we actually expect that that will pick back up again in the later part of this year. So for the most part, what we had in FiberLine is actually doing just fine. Really what we saw a decline in there, just to be specific about FiberLine, really was around oil and gas market in Europe.

And regarding your near-term liquidity, it looks like your cash is a bit higher than expected at the end of the quarter. What kind of flexibility do you have with respect to the balance sheet during this recession? And could you provide some detail on any debt covenants you have? And you mentioned the revolver. Do you have plans to tap that revolver?

Well, we don't have any plans to tap the revolver yet. One thing I'd say about – Brad mentioned this, I think, already, so I might be redundant here. But in a downturn, you know, we are going to see some benefit from working capital. We actually expect our cash flow this year to be equal to last year, even with sort of a projection of sales being lower. So I think that's all positive, and maybe Brad can talk on covenants. We don't really – So it's a short conversation.

Yeah, Jim. And just last year, we generated $160 million of free cash flow. And again, as Bob said, I think we will be at or even slightly better because of the release of working capital, as Bob just mentioned. In terms of the covenants, it really is a very short conversation. We have no financial covenants. So there are no EBITDA to interest or debt to EBITDA or any kind of things associated like that that we have to comply with so we have a very covenant light debt structure and again nothing matures until 2023. thank you thank you and we have a question from rosemary mulberry with g research your line is open thank you good morning everyone uh

Bob, I was wondering if you could give us a better feel for the raw materials that you are using outside of polyethylene and polypropylene, and what are the trends in those particular categories?

Yeah, so you can think about Kevlar, carbon, and glass as important inputs for composites business. They're actually up year over year. Nylon and now on 6.6 is another important raw material for, again, the EM business. And they're down a little bit year over year. It's kind of a push if I look at the total spend there. And then maybe shifting gears to look at color, the two largest areas of spend are TIO2 and pigments, and they were down just slightly in the first quarter.

Okay, thank you. Outside of... SG&A, what other, I mean, you know, cost control, what other actions can you do to, can you take in order to offset what is going to be, well, looks like a pretty dismal second quarter in terms of global demand overall? I am not talking just Poly1. And we don't know how long that is going to last. So what else can you do?

I think it's important to look from a manufacturing or operational standpoint. We can flex our workforce to manage and meet demand. I will say that it's challenging in this environment as some things get rushed and move forward or faster. We actually need to have an even more flexible workforce and I'm really proud of our team for being in that regard. It really is around administrative costs. Obviously, things like travel, we're just not traveling, and so those costs are going to be way down this year. But we will flex the plant spending as we need to to match demand.

Okay. And if I may sneak one in, one more. You said that healthcare represented about 30% of distribution. Did I hear that properly? Yes.

Yes, correct.

And so is your distribution business a higher margin due to the fact that they are selling more of your in-house products, if I can call them that, as opposed to repackaging, you know, basic resins that you buy elsewhere in bulk?

The margin expansion we saw in distribution was, really wasn't a result of selling more, you know, poly-1 materials, but it is a result of mix. So that was to your first point, I think, around health care, which was the bigger impact. But a lot of that, of course, is material that we provide from our other suppliers. So it's a mix, if you will, but health care was driving that. Again, I wouldn't point to the stuff that we're selling on behalf of us as being a major mover of their margins in Q1.

Okay, thank you.

All right, thanks. We appreciate your questions, everyone. That concludes our call today. We'll obviously have more to say here as we get through the quarter. As I said in my prepared remarks, we certainly appreciate the investor desire for transparency and more infrequent communication, and we'll look to provide an update sometime during the second quarter. Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.