Earnings Transcript for UNVR - Q1 Fiscal Year 2021

Operator: Good morning, ladies and gentlemen and welcome to Univar Solutions First Quarter 2021 Earnings Conference Call. My name is Michelle and I will be your host operator on this call. Currently all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. [Operator Instructions]. I will now turn the meeting over to your host for today's call, Heather Kos, Vice President of Investor Relations and Communications at Univar Solutions. Heather, please go ahead.

Heather Kos: Thank you and good morning. Welcome to Univar Solutions first quarter earnings call and webcast. Joining our call today are David Jukes, President and Chief Executive Officer; and Nick Alexos, Executive Vice President and Chief Financial Officer. Last Friday, we released our financial results for the first quarter ended March 31, 2021 and posted to our corporate website at univarsolutions.com a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release, which has also been posted on our website. During this call, as summarized on Slide 2, we will refer to certain non-GAAP financial measures for which you can find a reconciliation to the most directly comparable GAAP financial measure in our earnings release and the supplemental slide presentation. As referenced on Slide 2, we will make statements about our estimates, projections, outlook, forecasts and/or expectations for the future. All such statements are forward-looking and while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more detailed summary of the risks and uncertainties inherent in our business and our expectations for the future. On Slide 3, you will see the agenda for the call. David will start with the first quarter highlights and end market trends, Nick will walk through our financial update and then David will close with progress on our S22 Nexeo integration and business strategy. Following that, we will take your questions. With that, I'll now turn the call over to David for his opening remarks.

David C. Jukes: Thank you, Heather and good morning, good afternoon, and good evening to everyone and thanks for joining our call. We're off to a really good start to 2021 and I'm proud of how the team executed this quarter overcoming the dislocation in the global supply demand balance exacerbated by the severe weather conditions in the U.S. We're building momentum and the focus on strong operational excellence is paying off as we advance our strategic priorities and complete our Nexeo integration activities. Our Q1 adjusted EBITDA results reflects the successful execution of our strategy and the ability to grow market share through an improved operating agility. The strength of our supplier and customer relationships, extensive distribution network, and the extraordinary efforts of our dedicated team members all contributed to our performance as we continued growing together. Key highlights from the quarter are; we did have an exceptional Q1 adjusted EBITDA of just over $182 million with a strong liquidity of $833 million. As one would expect, given our divestiture program and the effects of our Canadian wholesale agriculture business our headline sales was down versus prior year, but we continue to deliver growth in our core business and executed well on cost management. Our Nexeo integration work is complete in the USA, with only Canada and Mexico outstanding and are on track for the $120 million of net savings we originally committed to. We advanced our S22 program, streamlining our business with the Distrupol divestiture. We improved our sales performance with another sequential improvements in our win-loss ratio and ending the quarter with our highest customer counts in a year. Our digital investments are bearing fruit, with approximately 40% of our U.S. customers now registered on our e-commerce channels and able to utilize 24/7 self-service capabilities. Additionally, already over 90% of U.S. customers are utilizing our recently launched digital tracking capabilities. And we strengthened our position in our global specialty and market verticals, with new supplier authorizations doubling in the past year and expected to deliver around $10 million in annualized delivered gross profit. We do see increase in business activity globally despite a resurgence in COVID-19 in parts of the world, particularly Brazil and continental Europe. Understandably, given the businesses we either divested or exited in 2020, January sales were down 8%, February sales were down 4%, while March sales were up 4%. The deep freeze in Texas during February along with the Suez Canal blockage in March, caused unprecedented supply disruption globally on certain chemistries and raw materials, as well as in the transportation market. Once again, we were able to provide existing customers with security supply in the most difficult of circumstances, as well as support the needs of new customers who have been let down elsewhere. The first quarter saw continued double-digit growth sales in our industrial solutions business with strong performance in case, lubricants, and industrial cleaning. The case business benefited from a combination of tight material supply and strong consumer demand in construction, automotive, and general coatings. Lubricants are seeing increasing demand within industrial manufacturing applications as well as the automotive maintenance market. Our consumer solutions business saw double-digit sales growth led by our beauty and personal care business in North America. We're seeing especially strong demand with skin and hair care applications where our bespoke formulations and strong supplier partnerships allow us to provide a differentiated value to customers. Our general industrial business continues to see sales growth and was especially strong in chemical manufacturing and industrial manufacturing applications. Our extensive organic chemistry portfolio has supported growth in these segments while the ability to leverage our scale enables us to provide our customers with security supply during Q1. Although we had our fourth quarter of year-over-year declines within energy and refining we are now seeing some sequential improvements and this may present an upside for the remainder of the year. Our services business was down double-digits in the quarter, largely due to microchip shortages and manufacturing disruptions within the automotive and airline sectors where we managed chemical waste streams and related recycling programs. That business still remains fundamentally strong. In 2021 we still expect to grow at a rate better than industrial production and with the second quarter starting strongly ahead of our previous expectation, we are providing guidance of $180 million to $190 million and raising our full year adjusted EBITDA guidance range to $680 million to $700 million with net free cash flow conversion above 40%, which Nick will expand upon shortly. Beyond 2021, we believe the imminent completion of the Nexeo integration through the final stages in Canada and Mexico and the actions we are taking to streamline our business have further positioned us for sustainable success. We have the right people, products, tools, and strategy that we expect will deliver the innovative solutions that customers and suppliers value and it will position us to deliver shareholder value. Now, let me turn the call over to Nick. He will walk you through our first quarter results and outlook. Then I will share some closing thoughts.

Nicholas W. Alexos: Thank you, David. Hello and good morning to all. I am pleased to share Univar Solutions solid Q1 financial results, update you on our business activities, and provide an updated outlook for the rest of the year. Sales were down 2.5% on a reported basis and 4.3% on a constant currency basis. Excluding results of the Canadian Agriculture business from prior year financials, we estimate net sales were relatively flat and down 1.6% on a constant currency basis. This reflects the headwind in energy versus prior year and the February shutdown in the U.S., which were partially offset by strong recovery seen in March across all geographies. Gross profit exclusive of depreciation was higher by 1.8% to 542.4 million and flat on a constant currency basis. Our gross margin increased by 110 basis points to 25.2%, driven primarily by favorable product and end market mix, as well as the impact of chemical price inflation due to disruption in the supply chain. First quarter adjusted EBITDA of 182.2 million was higher by 12.7% and 10.6% on a constant currency basis. Adjusting for the Canadian Ag businesses, growth was 12.5% on a constant currency basis. The increase was primarily driven by chemical price inflation due to the February disruption in the supply chain, the realization of Nexeo net synergies and product mix partially offset by the year-over-year energy headwinds. As a result, adjusted EBITDA margins were higher by 120 basis points and as you may recall, last year we did have a higher environmental charge. Correspondingly, our conversion ratio also improved substantially in the quarter. Moving on to Slide 7, Q1 GAAP net income was 66.2 million or $0.39 per share, compared to 55.9 million in the prior year. The increase was primarily due to higher gross profit, lower warehouse selling and administrative expense, and a loss on the sale of the business in the prior year, partially offset by higher taxes and a higher pension related expense. Beginning in 2021, we changed the calculation methodology for adjusted EPS. The most notable change is the exclusion of amortization and certain retirement benefit expenses, while also planning to limit the amount of adjustments we would pro forma in the future, which will narrow the gap between net free cash flow and adjusted net income. These, along with other adjustments are highlighted in our earnings release with accompanying reconciliation tables for easy comparability. We believe that reporting adjusted EPS on this basis better reflects core operating results and enhances comparability with peer companies. Adjusted earnings per share of $0.43 in the quarter increased from $0.35 in the prior year first quarter, primarily due to factors I highlighted on the previous slide. Operating cash flow at a higher use of cash versus the prior year period. Primary uses are the timing of certain expense payments such as prior year bonuses and payroll and the strong pick up in sales at the back end of March, which drove a high use of cash in networking capital. However, we still maintain ample liquidity with 141 million in cash and total liquidity including availability under our asset based credit lines of 833 million. We do expect normalized levels of working capital and cash flow for the full year. Capital expenditures for the quarter were 16 million and Nexeo integration related expenses were on plan at 17 million. Our ROIC was 10.2% for the quarter and leverage stands at 3.6 times. We expect these figures to improve as we continue to capture the synergies from integration and grow the business. On Slide 8, we have aggregated the key metrics across our four reporting segments and we provide the detail in the appendix. Quarter results reflect year-over-year decline in Jan and February, a strong recovery in March, the impacts of the Gulf storm supply chain issues and the adjustments for divestments. U.S. sales declined due to a continued impact by bulk commodity prices here again early in the quarter and lower energy demands particularly in the upstream segment. Canada also saw a decline in sales due to the divestment and the exit of agricultural businesses. Adjusting for these impacts, sales were roughly flat year-on-year in both the U.S. and Canada. EMEA and LATAM saw an improvement in sales due to strong organic demand in all geographies benefiting from improved product mix and chemical price inflation beginning in March due to the disruptions in the supply chain. Gross margins improved across all segments from the favorable product mix as well as chemical price inflation. In Canada, margins benefited by the exit of the agriculture wholesale business, adjusted EBITDA margins expanded across the board, primarily due to the higher gross margins. U.S. margins were further aided by lower WS&A from net synergies and absence of the higher environmental costs in the prior year period. Canada's WS&A was also lower year-over-year to the divestment and exit of the agricultural business. EMEA and LATAM margins benefited from operating leverage as we're able to maintain costs over rising gross profit. Moving on to Slide 9, coming out of the first quarter we remain confident in our ability to execute on our strategies in 2021. As discussed last quarter, our 2020 adjusted EBITDA of 636 million included approximately 20 million of earnings from the Canadian Agriculture Services business, which closed in Q4 and Distrupol which closed on April 1st this year. We also had received a benefit of 35 million from essential end market demand in 2020, which we did not expect in 2021. Moving on to a 2021 outlook and some of the key factors affecting 2021 guidance. We expect continued market share growth in 2021 as we anticipate our business to grow faster than the general economic consensus using a 6% plus U.S. industrial production growth rate as our benchmark. Through Q2, we expect continuing chemical price inflation due to the disruption in the supply chain, along with robust customer demand in our focus industries to drive overall performance. In the back half, although we expect the chemical pricing will normalize, we also expect continued good product mix along with stronger volumes, assuming a broad reopening of North American and European economies to drive our results. Accounting for all of these and the expected next year net synergies of 20 million to 25 million, we have revised our expected adjusted EBITDA guidance to 680 million to 700 million for fiscal year 2021, 50 million higher at the midpoint from our prior full year guidance. Guidance for our Q2 2021 adjusted EBITDA is in the range of 180 million to 190 million, which is an increase from our expectations embedded in our initial 2021 guidance. On Slide 10, let's review some of the cash flow highlights for our 2021 outlook. Net working capital liquidation from exiting of the Canadian Agriculture Wholesale Distribution businesses will result in net proceeds of 25 million by early June 2021, which is net of related payables and is in addition to the 52 million received in Q4 of 2020. Our plan is to continue to target net working capital in line with our guidance of 13% to 14% of annualized quarterly sales, despite being slightly above that level at the end of Q1. Net working capital efficiencies and planned sales in our current guidance are expected to yield positive cash flow through the rest of the year, offsetting the higher use of cash from net working capital in Q1. Cash use of other expenses and timing of your [ph] accruals is expected to be up to 35 million. Final Nexeo integration expenses, which are not included in our adjusted EBITDA forecast are expected to be up to 70 million for the year. And the midpoint of planned capital expenditures will be 125 million in line with our initiatives to invest in high ROI projects to increase competitiveness. Consequently, we're targeting net free cash flow of 280 million to 300 million for 2021, resulting in a net free cash flow conversion above 40%. Excluding the final Nexeo integration expenses of $70 million, our guidance would be in the range of the normalized free cash flow of 325 million -- 375 million that we provided last February and a net free cash flow conversion ratio in excess of 50%. These numbers of course exclude further proceeds from divestments or any cash uses for acquisitions. Net leverage take into account all cash and no further divestment proceeds is now expected to be 2.8 times by year end 2021, exceeding our S22 target of 3.0 times with ample cash and line of credit liquidity throughout. In conclusion, we had a good start to the year, our teams worked very well in a very challenging environment, and I'm very pleased with the progress we've made against our S22 objectives. We are continuing to implement our plans to achieve a run rate adjusted EBITDA margin of 9% by the end of 2022 and we intend to provide more details on the 2021 to 2022 margin bridge this fall. David?

David C. Jukes: Thanks, Nick. As I previously stated we're moving into the end game of integration activities and successfully delivered on several integration milestones during the quarter, including delivering $7 million of cost synergies. We expect to achieve our goal of $20 million to $25 million of synergies this year. Other highlights include the SAP system migration to the USA is completed in the quarter, and already we're beginning to realize early benefits from operating on a single modern ERP platform. Our SAP migration to Canada and Mexico remains on track for the second half of 2021. Our site consolidation plan continued closing two branches in the quarter, bringing total closures to 30, and we expect to close approximately nine branches in total this year. We finalized the sale of three further sites with cash proceeds for approximately $5 million. Since 2019, our real estate sales have generated pre-tax cash proceeds of $78 million. Moving on to S22, as we anticipated we sold Distrupol Plastics business in EMEA on April 1st. our realized investments to date have yielded approximately $182 million in gross proceeds. In Q2, we expect to deliver a further $7 million from asset sales in EMEA and are still targeting up to $240 million in total gross proceeds. We have now paused our remaining divestments until later this year or early next. Our expected strong cash flow and divestiture proceeds will fund our strategic initiatives and we expect to meet the first of our S22 commitments and reduce our net leverage to below three times by year-end, actually to 2.8 times. This and our approach to maximize cash flow has been recognized by the rating agencies, and let both S&P and Moody's to upgrade our corporate issuer and debt ratings in April. We're also making solid business strategy progress and the strength and capability of our sales force remains a key driver of business improvements as we leverage our advantaged network of technical and regional sellers in combination with our digital platforms. The expansion of a consistent, technically differentiated approach to customers through the globalization of our specialty end markets and the Consumer Industrial Solutions verticals is delivering growth. Our expertise and committed investments in these verticals is allowing us to build on our strong supplier partnerships and expand them globally. Over the last 12 months, a number of new supplier organization has doubled and are expected to deliver approximately $10 million in annual delivered gross profit. These partnerships along with the leading chemical and ingredient products they bring, are a recognition of how our partners value our global consistency, technical leadership, solutions sensors, and digital capabilities to support their growth. And our commitment to being a digital leader continues unabated as we continue to accelerate our omni-channel approach, expanding our customer technical webinars, which consistently now attracts over a thousand customers each quarter. Our digital commerce platform at Shop.UnivarSolutions.com is delivering results, enabling customers to search, select, source, and self-serve whatever the time of day or night they choose. The next release due in Q2 will give further enhanced search capabilities, as well as, for the first time transparent pricing without login. We've seen a 42% increase in document downloads and an 8% increase in orders through Shop quarter-over-quarter and fully expect this to be a source of continued and sustainable competitive advantage. Our ChemCentral.com no frills channel continues to give a growth in both number of new customers and amount of business transacted through the site. We are expanding the products available in the U.S., Canada, and the UK and are building on this success and taking CHEMCENTRAL to France and Brazil in the second quarter. As part of our S22 effort, our first ever digital distribution center has just gone live in the Netherlands. This provides near real time visibility to tank levels and all active processes on what is one of our more complex sites, leveraging block chain and ultimately integrating directly into SAP, eliminating paper inefficiencies. We're excited about the results of the pilot thus far and what it could do for us and for our connected business partners. Altogether, our digital investments and customer centric approach is designed to maximize the effectiveness and scale of our operations, sending data into a strategic asset and making it easier for customers and suppliers to do business with us. So before we come to your questions and to summarize, we delivered exceptional Q1 adjusted EBITDA and strong liquidity while realizing our purpose to help keep our communities healthy, fed, clean and safe, even during challenging times. We have raised our full year adjusted EBITDA guidance by $50 million to $680 million to $700 million. We're maintaining firm control of our working capital and other cash needs and ended the quarter with $833 million of liquidity. We maintain momentum on our next year integration program and are on track to achieve the $120 million in net synergies we committed to. We're investing in furthering our digital advantage, which we believe is becoming increasingly attractive to customers. The S22 program is tracking very well towards delivering divestment proceeds, lower leverage, and 9% EBITDA margins by year-end 2022 through global and functional excellence. We remain committed to deliver at least 40% net free cash flow conversion in 2021 and improve on that metric in years beyond. We made significant progress with our cash management and now leverage at 2.8 times by year-end 2021. There are plans to use our cash to fund our growth through a combination of high ROI capital investments and at the right time selective decrease in bolt on acquisitions and evaluation of options, return of capital to shareholders. The focus remains on our strategic priorities, putting the customer at the center of all we do and working to take full advantage of every opportunity to drive growth. That strategy is working. It's gaining momentum, and we see plenty of opportunities, both organic and inorganic growth. We believe the company's position to capture greater value from the anticipated market recovery, that these collective efforts will deliver enhanced shareholder value. Thank you for your attention, please stay healthy and safe and with that we will open it up for your questions.

Operator: Thank you. [Operator Instructions]. Your first question comes from Kevin McCarthy from Vertical Research. Your line is open.

Cory M.: Hi, good morning. This is Cory M. for Kevin. In the first quarter, your EBITDA margin was impressive at 8.5%. I'm curious, can you talk through maybe some of the what drove that on a regional basis and maybe some of the puts and takes as it relates to your forward EBITDA forecast both in 2Q and for the rest of the year?

David C. Jukes: Hi, good morning, Cory. We are happy to do that. I mean, I think, first and foremost, I think it's really exciting to see that our strategy is working and getting the SAP program behind it in the US in the middle of February was a really big, big deal and supporting our operating agility, which allows us to grow and hit those S22 commitments that we spoke of last year. Now, what we've seen is some market share gains and clearly our advantaged distribution network has allowed us to do that through a very difficult time. We have seen mix improvement, we've seen the products that we sell and continue to be a higher margin portfolio. The most specialty [ph] portfolio which has driven some of the growth. And then, yes, there's been some chemical price inflation. We've seen that through the dislocation. And, I think we addressed that in the prepared remarks that we think that will abate as we go into the second half of the year. But I think that's helped us a little bit in the first quarter.

Cory M.: Understood. And if I may, as chemical price inflation unwinds, it sounds like in the second half, should we expect it to impact margins at sort of the same rate on the way back down or how should we think about that?

David C. Jukes: I would expect it to impact margins, but nothing like on the way out. I mean, I think we manage pricing incredibly carefully to make sure that we are always competitive in the marketplace. And so I wouldn't expect a bad news story in the second half.

Nicholas W. Alexos: Yeah, Cory it is Nick. The only thing I would add is that we are expecting our overall EBITDA margins to be better this year than last year. And I think you're seeing the benefit of some operating leverage versus prior year as that margin drops through, given some of our cost reductions in WS&A. So there are a lot of factors, as you surmised, but we do net-net see year-over-year improvement in our margins this year.

Cory M.: Excellent, thank you very much.

Operator: And your next question will come from Laurence Alexander from Jefferies. Your line is open.

Laurence Alexander: Good morning. Two questions. One on the share gains, can you characterize by region or specialty versus commodity product lines where the share gains are most pronounced? And secondly, can you characterize the pipeline of bolt-on acquisitions currently?

David C. Jukes: Sure, good morning Laurence. I think we're getting share gains right across the piece. I mean, we're very successfully winning business from competitors large and small and in the specialty area as well as in as differentiated products. And I think certainly we were able to support customers who were let down elsewhere in the first quarter and that was on some of the commoditized, more commoditized products. But I think, doubling of new supplier authorizations, it's very significant because it does drive that specialty portfolio and helps that improvement mix. So I think we're seeing it pretty much right across the board. Pipeline, your second question, sorry, forgive me. I mean, we're in the very early stages of that. Our focus is to get our leverage down. I'm very excited that we're going to meet and beat the first of our S22 objectives, which is to get the leverage down below 3 to 2.8 times. And now we start to think about capital allocation strategy. So we are looking at building that pipeline through a very careful process. We think we want to add people that can enhance our technical capabilities or expand us into a new geography, but we're starting to build our pipeline up and it'll be bolt on acquisitions that we will address. But I don't want anyone to think we're going to suddenly rush off and start buying lots of companies because that isn't the case.

Laurence Alexander: Thank you.

Operator: Your next question will come from Bob Koort from Goldman Sachs. Your line is open.

Robert Koort: Thank you very much, good morning. One, perhaps, I guess it was thought relative to the reopening of U.S. versus the EMEA, you would have maybe had a better relative performance in the U.S. Is that just a function of the storm or how should we think about the cadence between across the pond and here in North America?

David C. Jukes: Yes, good morning, Bob. And I think that, a couple of things to remember in the U.S. We firstly, we were affected by the storm as well. So we did have a number of sites down for some of them up to 10 days, which did impact our sales in February and some of those sales you could get back in March, some that have gone, gone. And, many of our customers were also closed. Second thing is, we were still very focused on SAP in the first quarter and moving the U.S. on to that final stage of the SAP platform. So to do that very successfully, midmonth will have helped in March, but it will clearly be an impact in January, February. I mean, don't forget we have a headwind still in energy in the first quarter. That's around $7 million. And both pricing was still against us in the first quarter year-on-year. But I think you can see a good acceleration of growth in North America as we exited the quarter and certainly that's built into our forecast going forward. Is that really the strategy starts to work?

Robert Koort: Got you and then I guess the guidance given on second quarter and then implied for the back half, maybe suggest some deceleration. Is that just a little conservatism or is there something about the seasonality and pattern of volumes or maybe pricing coming in, what should we think about the implied tone of business in the second half?

David C. Jukes: Sure. So, again there will always be a touch of conservatism about us, but there are some factors to consider. Firstly, we've got the impacts of the Distrupol sale that’s in the second, excuse me, it is in the second half versus in the first half. We have -- Q4 is always our weakest quarter. So, that's probably 20 million down on what we normally expect in the earlier quarters. And, we'll see how we'd expect some softening in price, but some increase in volume as economies open up again. So it's how much of that balance there is in there.

Robert Koort: Got you, thank you very much.

Operator: And your next question will come from David Begleiter from Deutsche Bank. Your line is open.

Katherine Griffin: Hi, good morning. This is Katherine Griffin on for David. So first question, I just wanted to kind of follow-up on an earlier question. So the inflation that you called out due to Yori [ph] there were some benefit from unusually high raw material costs. I'm just curious, can you size what that was in Q1 and maybe speak to how you would expect that to trend in Q2 and going forward?

David C. Jukes: Sure, I mean, look, I mean I think it's difficult for us to quantify in the way that we did last year, because the spread is right across the product portfolio. And, we're looking at transport to increase and we're looking at steel increases. So it's difficult to quantify in quite the way that we did this time last year with the very narrow focus on products and to some of the essential end markets. I think the good thing you should see is our strategy is working. We're starting to take some market share and our mix is improving. And that's what drives our performance through the rest of the year. We're very confident about where we're now, where we are now headed and our ability to improve our operating agility and grow that share right across the portfolio now that we have the integration pretty much behind us.

Katherine Griffin: Great, thanks. And then secondly, just curious on the downward pressure on both commodity chemical prices in the quarter. Can you talk about that headwind and how it squares with the comments on probably higher chemical prices, like what is the difference between the commodity aspect versus sort of chemical price inflation?

David C. Jukes: Well, yeah, I mean, I think it was, excuse me, Kathy, I got a frog in my throat this morning. I think in the first couple of months it was a year-on-year thing. And I think, we're now starting to see those bulk commodities come back in price and start to get some benefit from those. So that's what you're looking at a year-on-year thing, a point in time year-on-year thing in the first couple of months of the year.

Katherine Griffin: Okay, thank you.

Operator: [Operator Instructions]. Your next question comes from Michael McGinn from Wells Fargo. Your line is open.

Michael McGinn: Hey, good morning everybody. Good quarter. If I can go back to the EBITDA versus the free cash flow pull through. So, just some quick back of the envelope math, the midpoint of the EBITDA would suggest up 50 versus the midpoint of the free cash flow would be up 30. So the pull through there is 20 points better than what you were potentially previously expecting, is there something different in like the working capital structure, given how tight the supply chain was the first half versus the second half, or is it simply ERP benefits, any color there would be great?

Nicholas W. Alexos: Yeah. Kevin, thanks for the call. Michael, I'm sorry, Michael. Michael, I was looking at the wrong name. Good morning. Yes, Q1 did see a big use of cash in working capital. Some of that was also the Canadian business, which, as we said is getting liquidated through the summer. And then we do expect an improvement in our overall ratio as we get back to the back end of the year. And the Q4 has a lower volume level. So we are expecting an improvement in working capital percentages in the back half of the year. Otherwise, small numbers puts and takes that might have a swing $5 million or $10 million one way. But overall, we're expecting pretty good cash flow conversion through the end of the year.

Michael McGinn: Okay, great. And then the divestiture proceeds, the incremental to get you to the 240 target. Is this something that one or two kind of businesses left or is it just one business and then you kind of switch to that capital allocation mode you were talking -- you were alluding to earlier in the call?

Nicholas W. Alexos: Yeah, and we're not being very specific in terms of what the assets are, but they are small businesses or assets that frankly given some external and internal issues we decided to defer to later in the year or perhaps early next year. We've not factored those into the 2.8 times leverage. And as we get to those, we hope to get those completed on that revised timetable.

David C. Jukes: I think, Michael as you have said it's fair to say that anything is significant we sold already. There's nothing else large for us to sell and we can sell our first of our S22 commitments and get below three times levered without that. So that's why we're pausing.

Michael McGinn: Noted. So if I were to kind of square this up with your interest rate, interest expense guidance, base level without doing any other divestitures you could probably pay down $75 million per quarter but if you do that additional -- a couple of divestitures, smaller, it can maybe push you down to 100 million debt pay down per quarter, is that the way to think about this?

Nicholas W. Alexos: Yeah, I mean the additional divestitures are roughly that 40 million range. Put that aside we're looking at the cash flow, per page 10 to be our goal and target. And that will come through the next few quarters. 100% will be over the next few quarters given the cash use in Q1. Any divestitures would just add to that deleveraging and would not have any meaningful impact on the reported EBITDA numbers.

Michael McGinn: Got it. Appreciate the color.

Nicholas W. Alexos: Sure.

Operator: I have no further questions in queue. I turn the call back over to the presenters for closing remarks. Oh, we do have a pop in. Steve Byrne from Bank of America. Your line is open.

Luke Washer: Hi, good morning. Apologies. This is Luke Washer on for Steve. I wanted to ask about your regional margins again. In the first quarter they were quite strong and I know you touched upon that a little bit, but is there anything that you're doing or seeing ex-U.S. driving the margins higher that perhaps you would implement in the United States or is this more kind of product mix shift or anything like that?

David C. Jukes: Yeah, I mean, hi Luke. Look, I think that the first thing is North America has a larger portion of products, so those bulk commodity chemical products than the rest of the world. And so that will drive the margin down comparatively. Our EMEA business and our LATAM business has more of those differentiated chemistries as a percentage of its portfolio. And so that helps it. Now, we do have global programs to drive sales force effectiveness, to drive price, to drive margin management. We have globalized some of the specialty global end markets, the consumer solutions and industrial solutions as we look to take the best learnings from all parts of the business and deliver those consistently around every business that we operate in. But fundamentally, you've got a bigger proportion of commodities, the bulk commodities in the U.S. or in the North American business than you do in the EMEA or LATAM business.

Luke Washer: Great. Thanks for that. And maybe just one more, new supplier authorizations seem to have really picked up recently and you talk about your digital capabilities and the value that you are adding to customers. I guess is there anything in the kind of recent past that has really allowed you to either take market share through the digital or is it more of a function of some of the supply chain disruption that we're seeing is adding value to your platform, seeing more detail around that would be helpful?

David C. Jukes: Sure. I mean, there's a few things. I mean, I think firstly if you look at the more specialty portfolio, we've started to focus those business globally last year and having a specific focus on that, those consumer solutions and industrial solutions business is led by Nick Powell, is driving those new authorizations. Suppliers are finding that a very attractive model, coupled our global reach with our digital capabilities and their ability to connect to us that's very attractive and that drives market share growth. And I think, secondly, in the U.S. or in North America in particular, as we get the integration behind us it does mean that we can focus on the customer more and put the customer at the center of all we do. And that also is starting to drive some share. Now, clearly what we have is a great network and a great portfolio and really strong supplier relationships. And at a time when there is dislocation in the marketplace, customers do turn to us and they have done because we can support them through thick and thin when others can't. And so that helps drive some market share gains. Our focus now is keeping hold of those customers and making sure they stay with us. Our digital investments are now attracting some new customers in and our concern for model certainly does that and it's bringing in literally hundreds of brand new customers, customers we wouldn't otherwise have found. But our shop capabilities, about 40 something, 42% increase in downloads is just making us easier to buy from. And if we are easier to buy from, customers will continue to do it. So that all feeds into the share gain. So there's a range of things I can point to. But really, having a better operating agility now on modern ERP platform supported by digital tools to help us be easy to buy from. And then having very focused sellers and very focused around the specialty products that we have and leveraging the solution sensors that we have with the digital, with that focus is all making it much more compelling for suppliers to choose this and for customers to either turn to us or stick with us.

Luke Washer: Great, thank you.

Operator: I have no further questions in queue. I will turn the call back over to the presenters for closing remarks.

Heather Kos: Thank you for your time today, ladies and gentlemen and for your interest in Univar Solutions. If you have any follow-up questions, please reach out to the Investor Relations team. This does conclude today's call.

Operator: Thank you everyone for joining us today. This concludes today's conference call. You may now disconnect.