Good morning, ladies and gentlemen and welcome to the PolyOne Corporation Second Quarter 2016 Conference Call. My name is Kaily, 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 Eric Swanson, Director of Investor Relations. Please proceed.

Thank you, Kaily. 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 maybe considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give 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 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 of them to the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the second quarter of 2016 to the second quarter of 2015, unless otherwise stated. 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. Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, thanks, Eric, and good morning. I'm excited to kick off today's call by announcing the acquisitions of Gordon Composites and Polystrand. These businesses will join our existing portfolio of complementary solutions to create a new Advanced Composites platform within our Specialty Engineered Materials segment. This strategic move broadens our current thermoset composite portfolio and importantly provides PolyOne entrance into thermoplastic composites. This…

Thank you. The call lines are now open. Our first question comes from the line of Mike Sison with KeyBanc. Your line is open.

Hey, guys. Nice quarter, again. Robert M. Patterson - Chairman, President & Chief Executive Officer: Thanks, Mike.

Bob, I wanted to kind of, sink in a little bit on Performance Products and Solutions. You've had two quarters in a row of really good profitability there. How much of that portfolio is now, let's say, at that 12% and higher and how much is lower? And trying to better understand – is this more of a new product growth phenomenon where margins are going up, or are you kind of, walking away from lower stuff to get the margin improvement? Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, I guess there's probably two dynamics that I would describe. The first being that I believe that our legacy Geon business, which is principally vinyl-based is, I think really, sort of, following a specialty transition with respect to focusing on higher margin niche applications and improving their overall mix and that's certainly part of the margin improvement. But I also want to call to attention – sometimes I just have to remind everyone that a big chunk of Spartech's business went into PP&S, and that business was really hurt last year by lower polypropylene prices and just some of the, I'd say, pressure on margins that took place as a result. So this year, I'd say we're seeing really good improvement in Geon, overall. So finally starting to see some improvement in the business we acquired from Spartech. Now on that Spartech business that improvement is small, but it's taking place and it's having a noticeable impact on margins. So those are the two factors that I would say really describe, you know, that margin expansion. And to your really last question about where are we sort of in the innings game here, there's a long way to go to improve the Spartech margin. So I'd say we're far from finished.

Okay, great. And then the acquisition that you just did looks like a great fit. Is this a business where profitability is already pretty high? Is it at the – some (27:37) average? And when you think about the growth potential of the next three years, I remember when you bought Glasforms, you tripled EBITDA in a couple of years. Is that kind of the growth potential for this business? Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, it's really a combination of things going on, Mike, and you know, we – really, this was one transaction, but there are two businesses that we referenced because they resonate with our customers and those names. But the legacy Gordon Composites business, I think that's a fair statement with respect to profitability in comparison to EM. But on the Polystrand side, we're really buying technology. There is a revenue base there, but it's still really up and coming and growing. And so on a consolidated basis, the margin isn't quite where EM is at this point. But it's obviously got great growth potential and we see potential just like we did with Glasforms.

Okay. Great. And one quick follow-up on Global Color. It's probably the first quarter we've seen earnings decline in a while. Do you expect that to turn around in the second half? Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, you're correct, it's been a very long time since we've seen that. And what I would point to is, number one, that we have seen some continued sort of fallout legacy business from Spartech, and some of the customers that we lost a year or so ago in the DSS segment impacted what we had in Color. So that's a part of it. But a bigger part of it really is the demand decline that we've seen for traditional packaging, and also in oil and gas. And I know that may sound strange but on the oil and gas side, we just do some very high-performance fluoropolymers colorants for wire and cable applications. That was down in the first quarter and I wasn't sure if that was – how long that was going to continue, but we saw that again in the second quarter. Those, sort of, end market dynamics, Mike, coupled with the additional resources on the commercial side is really what's driving that year-over-year decline. And my expectation is we're going to see that probably for the second half of 2016 as well.

Great. Thanks. Robert M. Patterson - Chairman, President & Chief Executive Officer: All right. Thanks, Mike.

Our next question comes from the line of Frank Mitsch with Wells Fargo. Your line is open.

Hey, good morning, gentlemen. Robert M. Patterson - Chairman, President & Chief Executive Officer: Hi, Frank. Bradley C. Richardson - Chief Financial Officer & Executive Vice President: Good morning.

Hey, obviously, very good results out of POD and volumes up 9% there. I know you don't like to talk about volumes for the balance of the company, but I was wondering if you could try and give us some comfort with respect to the top-line and what your expectations are and when we can start to see some top-line growth, because it's been over a couple of years since you guys had some top-line growth? When – what is your expectations there? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah, and you know, on a consolidated basis, we did have volume increase in the second quarter. Obviously, POD was a significant driver behind that. See that continuing in the second half of this year. But look from a headline revenues standpoint, I don't think that we're going to overcome the raw material price related declines that we see in PP&S and POD this year. I think you're going to see top line revenue expansion in 2017. What I'm mostly encouraged by is I know that we do have underlying growth in these businesses, and when we see some price stability or recovery that will improve. We did – I just spent a little bit of time, Frank, answering Mike's question on Color and I see that improving in 2017 as well.

All right. Okay, great. And I was happy to hear that DSS has 'absolutely stabilized'. I think there was an expectation that the second half would see a material pickup in profitability, is that still the case? How are you thinking about the back half of the year on DSS? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah, I think that for the full year we were really targeting around $5 million or so of operating income. Maybe it could get to $6 million. And I still think, we could get there but it's obviously going to continue to creep up from where it was in Q2. So I think Q3 will be a little better, with Q4 to follow after that. So I think our story remains the same on DSS with respect to full year performance.

Thank you so much. Robert M. Patterson - Chairman, President & Chief Executive Officer: Thanks, Frank.

Our next question comes from the line of Bob Koort with Goldman Sachs. Your line is open. Robert Andrew Koort - Goldman Sachs & Co.: Thanks very much. A couple of questions, one, I was wondering, you mentioned adding the sales and R&D resources. Yet your SG&A and Color seem to be well in check. Can you talk about what offsets are there to keep that aggregate number relatively stable? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. First of all, we – and this is really true across all of our businesses, Bob, that in the second half of last year and going into this year, we did reduce administrative costs knowing full well that we wanted to redirect that money into the commercial side. So there is a pretty almost direct offset on the administrative side to those additional investments. But I'd also point out too that we still had a little bit of, I think, some currency effect that helped to offset that too. So when you look at year-over-year performance, currency is offsetting some of that. Robert Andrew Koort - Goldman Sachs & Co.: And, Bob, I noticed – you spoke well about the Composites business and the scale of the deals is not so big that it's going to move a lot of the needle, I guess, but maybe, the technology enhancement gives you a chance to accelerate growth. But what is Gordon itself – you mentioned $40 million in sales. What has the growth rate of that business been over the last five years? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. And it's – so the growth rate is – in the last couple of years it's been flat. And that really, I think, is to my…

Our next question comes from the line of Tyler Frank with Robert W. Baird. Your line is open. Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management): Hi, guys. What are your expectations for oil and base resin prices, and what are the puts and takes there, given the volatility, and how they could either increase or decrease? Do you see that being a headwind or a tailwind throughout the year? Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, I hesitate to prognosticate on that subject, because if you had asked me what was going to happen going into this year, I would never have guessed certain prices would have declined by as much as they have. Oil is up, but polypropylene was down. Different dynamics going on there, and polypropylene is the one in distribution that pinched our margins the most. So I'd really hesitate, Tyler, to tell you what I think is going to happen. Our responsibility here is to grow and expand margins regardless of what's going on there. And you know with our distribution business, it's the most challenging place to do that, because we don't really set prices. So that may not be answering the question as well as you'd like, but it's probably about as good as I can do. Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management): Okay. Thank you.

Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Your line is open.

Good morning, everybody. A couple of questions, if I may. First of all, I just want to make sure the Gordon and the Polystrand acquisitions, they have closed already? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yes, yesterday.

Okay. Secondly, your 9% volume growth in distribution, obviously, very, very good. Can you talk a little bit about sort of the drivers and sustainability of that? Was there any one-time or specific large orders or something like that, that flowed through? I mean, typically as you know this business doesn't grow that fast but you guys have been managed to grow it significantly faster than the market. 9% is really out there, so I'm just wanting to make sure that we don't need to model high-single digit growth for this business going forward, or maybe we do? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah, and – it's a great question. When we started the year, I always caution everyone that it's hard to draw a conclusion from what takes place in January or December for that matter because strange things happen at the end and the beginning of the year with respect to what goes on with customer's buying patterns. But we actually had better volume growth in the first quarter, and that may have been a little bit of a push going into maybe some of the industrial or construction cycles. So I looked at 9% as being solid and sustainable. There is no doubt that we are winning some share, Dmitry. This isn't just a specific end market that's driving that. I think our teams are doing a great job of spending more time, making more calls and cannily putting our commercial excellence principles to use. We also created an inside sales team, and I think we're doing a much better job of winning business there. And that's really just focused on, again, thousands and thousands of small accounts. But to directly answer your question, there was nothing anomalous about this quarter, and I just think the team's doing a great job of winning new business.

Excellent, thank you, Bob. And then as my follow-up question; you've talked a little bit about consumer electronics and packaging and some of these end markets and what's going on there. Can you provide us sort of a little kind of a broader outlook for the second half of 2016, whether by geographies and what's going on in Asia-Pacific and Latin America and Europe, or by – and/or by significant end markets like automotive construction, packaging, consumer, sort of what do you see and how do you expect your business to perform in this environment? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. So maybe just from the highest level and looking at the second half of the year, I used the word 'sluggish' in our release. I'll say that again today, and it's a word that other companies have used. There just isn't a whole lot of macroeconomic tailwind out there, right now, and you got certain markets like oil and gas – and for us, consumer electronics is a big deal. Thus far, it's been down this year. Maybe with some of the product launches taking place in the latter half of the year that will reverse itself, but that remains to be seen. And I think, look, for – we still see the full year EPS being double-digit this year for all of 2016, but I think that slows a bit in the second half because of the headwinds that Brad mentioned from the weaker pound, which is $0.01 to $0.02, and the demand dynamics that we're seeing in Color, right now. And compressed margins in POD. Now, Dmitry, there was a previous question about what's going to happen with raw material prices. And so you could see a good guy coming in (41:48) POD as well, if we saw prices stabilize or improve. So I guess that's a part as well as I could call it right now, I don't necessarily have any other observations on geographies that I think would be new or insightful for you. The one thing that I mentioned also in Color is just that demand is down for this traditional packaging that we served for so long in that market. So that, kind of, shapes how I view the second half of the year. I'll hope that's helpful.

Thank you. Robert M. Patterson - Chairman, President & Chief Executive Officer: All right. Thanks, Dmitry.

Our next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Hi. This is Dan Rizzo on for Laurence. With the new segment you were, kind of, referring to, will there be new additional M&A going through the segment or there will be like internal assets that you're transferring over? Robert M. Patterson - Chairman, President & Chief Executive Officer: Are you talking about Advanced Composites?

Yeah. Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. So it won't be a reportable segment in the same way that Color or Engineered Materials is. It's really a business unit inside of Specialty Engineered Materials. But to answer the second part of your question, absolutely, we're going to continue to invest in that business. And that's really our underlying thesis for the acquisition, is that we can bring additional technology, commercial resources to help accelerate growth. And to the extent that we find more acquisitions in that space, that's a place where we'd like to do more of those deals.

And for the segment or for this business and for others, is there any appetite or opportunity for like a Spartech-like fixer upper, or is it just going to be more like these type of deals? Robert M. Patterson - Chairman, President & Chief Executive Officer: Well, I think I've commented on this in the past, and you know when you look at our track record with respect to M&A, there's no doubt that the acquisitions where they really already had a starting or specialty profile where we could invest to grow those businesses with additional resources, it's really been our sweet spot. And that's where we've done the best and I have referenced deals like GLS, Glasforms, ColorMatrix, NEU, for example. And recently we did the Kraton TPE business and now Composites. So my sense is you're going to see more deals like the ones we've just done recently, and I think that's really what falls into our sweet spot from a specialty standpoint.

All right. Thank you. Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. Absolutely.

Our next question comes from the line of Jason Freuchtel with SunTrust. Your line is open.

Hey, good morning. Robert M. Patterson - Chairman, President & Chief Executive Officer: Hi, Jason. Bradley C. Richardson - Chief Financial Officer & Executive Vice President: Good morning, Jason.

Following up on your discussion of innovation, last year at your Investor Day you indicated the number of projects and addressable markets in the latter phases of your innovation pipeline were significantly higher compared to 2014. Can you give us an update of where you stand today in your innovation pipeline? Have many of those opportunities come to fruition and do the latter phases still look fairly robust? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah, we had – a lot of the work, as you know, that goes into our Vitality Index relates directly to customer and custom formulations, so I don't want to overlook that as a driving force behind innovation. But with respect to the pipeline itself and new products that are in that, it's really about the same size as we reviewed with you last year. Our Vitality Index is still at 42%, and in the first and second quarter this year we didn't have any significant launches but the latter years of what we presented in our pipeline are still robust to use your word or question.

Okay. Thank you. And have you seen any dislocation in the composites market over the past year due to company-specific issues at one of your competitors? Robert M. Patterson - Chairman, President & Chief Executive Officer: I haven't seen any – what you said customer dislocation, I'm not totally sure what that means. But...

No, just dislocation in the market. I'm sorry. Robert M. Patterson - Chairman, President & Chief Executive Officer: In the composite space, I haven't seen any dislocations. I'm not sure I know exactly what that word is. But, again – so no, nothing on the composite side.

Okay. Great. Thanks. Robert M. Patterson - Chairman, President & Chief Executive Officer: Yes.

Thank you. Our next question comes from the line of Mike Harrison with Seaport Global. Your line is open.

Hi. Good morning. Bradley C. Richardson - Chief Financial Officer & Executive Vice President: Good morning, Mike. Robert M. Patterson - Chairman, President & Chief Executive Officer: Hi, Mike.

I was wondering, Bob or Brad, if you can give just a little more color on the SG&A costs, and I guess I was just surprised to see a sequential decline in SG&A costs. Are you still maintaining the same number of sales and marketing people that you brought on, or are you shedding some of those, either because they're underperforming or because of the economic conditions you're seeing, are we seeing any change in incentive accruals? Just what accounts for that sequential decline in the SG&A number? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. So the – I'd say there's really two – one point I want to make, first, is that no, you're not seeing a shedding of any of those commercial resources. And I tried to point that out in our previous remarks, Mike, about being actually up about 4% on those resources. Administrative costs continue to come down. So that's a factor. But we also had some swing, I'd say, with respect to the incentive accrual timing as well as some insurance costs. So I'd say in the first quarter, insurance was a little bit higher. And in the second quarter a little bit lower than probably what a normal run rate is. And so it makes the swing look a little bit bigger. But then incentives as well. One place where you see that, Mike, is in distribution where you'll see that sequential decline in SG&A. And some of that is a result of the margin compression that we saw in the second quarter. So while we had this very strong start to the year, from all respects in POD in the first quarter, some of that came back in the second quarter. Those are the three biggest things that are going on. I hope that explains it. And as you look to the balance of the year, I think it's uptick a little bit from the second quarter from a run rate standpoint.

No, that's helpful. And then the other question I had is on the PP&S business, you mentioned a couple of sources of the margin improvement, but I was wondering if you could talk about the Producer Services business. How much of the improvement is related to declines in that Producer Services business, and is that a permanent reduction in Producer Services, or is it just weak right now? Robert M. Patterson - Chairman, President & Chief Executive Officer: On Producer Services, I mean, year-over-year the operating income is improving in this – in 2016. And as a result of margin expansion, we're seeing a little bit of recovery in some of the end markets that we talked about, or at least dynamics on pricing. Mike asked a question about something declining. And maybe you're talking about mix. I'm not sure. But there hasn't been a whole lot of mix change with respect to Producer Services from last year to this year. Outside of sometimes, we'll have some customers that are in the contract manufacturing side that ship from a traditional sale basis to a tolling basis but nothing of significance to point out for Q2.

All right. Understood. Thanks very much. Robert M. Patterson - Chairman, President & Chief Executive Officer: All right, thanks. I think we've got time for one more question.

Our last question comes from the line of David Stratton with Great Lakes. Your line is open.

Hi. Thanks for taking the question. Robert M. Patterson - Chairman, President & Chief Executive Officer: Sure

I was wondering, if you could just give a little color around the polypropylene prices. It looks like, given the future charts that they have been trending up. And how is that reconciled with your description of them hurting the margins recently, especially on the DDS (sic) [DSS] (50:12) segment? Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah. It's possible that what you're seeing is, you know, a current improvement there relative to where things are in July going forward. What I was really referencing was that in January, we saw prices around $0.75 declining steadily down to $0.66 or so in end of June, beginning of July. So if what you see is a trend upward, that's great. I hope that's true.

All right. Thank you. Robert M. Patterson - Chairman, President & Chief Executive Officer: Yeah, absolutely.

Thank you. And now, I would now like to turn the call back to Mr. Patterson for closing remarks. Robert M. Patterson - Chairman, President & Chief Executive Officer: Great. Thanks very much. I appreciate everyone taking the time to listen in today. We'll certainly have more and exciting news as we get to the end of our third quarter and can give some updates on our exciting new platform, Advanced Composites, which includes the acquisitions we announced last night. Thanks, again, for joining us today. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect.