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GCP Applied Technologies Reports First Quarter 2020 Results

  • Continued positive momentum with 1Q20 results exceeding previous guidance

  • Well-positioned to navigate COVID-19 pandemic with strong balance sheet and ample liquidity

  • 1Q20 Net sales in North America up 5.0%; Specialty Building Materials net sales up 5.8% in North America; Specialty Construction Chemicals net sales up 4.2% in North America

  • Fifth consecutive quarter of improved margins for Specialty Construction Chemicals

  • 1Q20 Income from continuing operations attributable to GCP shareholders of $1.4 million, or 0.6% of net sales, and Diluted EPS from continuing operations of $0.02

  • 1Q20 Adjusted EBITDA* up 17.6% to $26.0 million; Adjusted EBIT* increased 25.0% to $15.0 million; and Adjusted EPS* grew 42.9% to $0.10

CAMBRIDGE, Mass., May 06, 2020 (GLOBE NEWSWIRE) -- GCP Applied Technologies Inc. (GCP), a leading global provider of construction products technologies, today announced results for the first quarter of 2020.

For the three months ended March 31, 2020, GCP reported net sales of $216.7 million compared to $226.1 million in the prior year quarter. Net Sales Constant Currency Excluding Market Exits* were $219.4 million versus $224.3 million in the prior year quarter. Income from continuing operations attributable to GCP shareholders was $1.4 million compared to $14.6 million in the first quarter of 2019, while Adjusted EBITDA* increased 17.6% to $26.0 million from $22.1 million in the prior year quarter. Adjusted EBIT* grew 25.0% to $15.0 million compared to $12.0 million in the prior year quarter. Diluted EPS from continuing operations attributable to GCP shareholders was $0.02 versus $0.20 in the first quarter of 2019, while Adjusted EPS* increased 42.9% to $0.10 compared to $0.07 in the prior year quarter.

Randy Dearth, GCP’s President and Chief Executive Officer, said, "I am pleased with our accomplishments in the first quarter. Our positive business momentum continued as we produced our best first quarter earnings performance since 2016. We are successfully executing the strategy that our Board of Directors and management team partnered to develop, which is focused on further optimizing Specialty Construction Chemicals, returning Specialty Building Materials to sustainable organic growth and continuing to advance our restructuring programs. Our impressive earnings growth and margin expansion clearly demonstrate the beneficial impact of the decisive actions we have taken to improve our operations and position GCP for success.”

Dearth continued, “As we navigate the COVID-19 pandemic, the health and safety of our employees remains our top priority. We are focused on safely continuing to provide the excellent service our customers expect and advancing our operational improvement initiatives, while also maintaining financial flexibility through our strong balance sheet and liquidity position. As we look beyond the pandemic, GCP is well positioned for success, and we will continue to actively and rigorously identify additional ways to drive long-term shareholder value.”

"I continue to be deeply impressed by the dedication, focus and performance of our employees during this unprecedented time. Our strong performance in the quarter is a testament to the tremendous efforts they have devoted to supporting all of our stakeholders, including our customers and suppliers, in a challenging and uncertain operating environment."

Total GCP Applied Technologies
($ Millions)

1Q 2020

1Q 2019

% Change

Net sales

$216.7

$226.1

(4.2)%

Net Sales Constant Currency*

$219.4

$226.1

(3.0)%

Net Sales Constant Currency Excluding Market Exits*

$219.4

$224.3

(2.2)%

Gross margin

37.8%

36.4%

140 bps

Income from continuing operations attributable to GCP shareholders

$1.4

$14.6

(90.4)%

Income from continuing operations attributable to GCP shareholders as a percentage of net sales

0.6%

6.5%

(590) bps

Diluted EPS from continuing operations attributable to GCP shareholders

$0.02

$0.20

(90.0)%

Adjusted EPS*

$0.10

$0.07

42.9%

Adjusted EBIT*

$15.0

$12.0

25.0%

Adjusted EBIT Margin*

6.9%

5.3%

160 bps

Adjusted EBITDA*

$26.0

$22.1

17.6%

Adjusted EBITDA Margin*

12.0%

9.8%

220 bps

First Quarter 2020:

  • Net sales decreased 4.2% primarily due to lower sales volumes in SCC and SBM and the unfavorable impact of foreign currency translation, partially offset by price increases in both SCC and SBM. Increased sales volumes for both SCC and SBM in North America were offset by lower volumes in Latin America, Asia Pacific and EMEA partially due to the impact of government imposed restrictions on construction and manufacturing activity due to the COVID-19 pandemic and strategic exits from unprofitable geographic markets. Net Sales Constant Currency Excluding Market Exits* decreased 2.2%.

  • Gross margin increased 140 basis points to 37.8% primarily due to improved pricing, the favorable impact of restructuring activities, as well as favorable region and product mix in SCC, partially offset by lower gross margin in SBM.

  • Income from continuing operations attributable to GCP shareholders was $1.4 million compared to $14.6 million for the prior-year quarter. The change was primarily due to lower income tax benefit during the first quarter compared to the prior-year quarter resulting from the 2017 Tax Act.

  • Adjusted EBIT* of $15.0 million increased 25.0% primarily due to higher SCC operating income and lower corporate costs, partially offset by lower SBM operating income. Adjusted EBIT Margin* of 6.9% increased 160 basis points primarily due to an increase in gross margin and lower corporate costs.

  • Adjusted EBITDA* increased 17.6% to $26.0 million and Adjusted EBITDA Margin* increased 220 basis points to 12.0%. The increases were due to higher Adjusted EBIT*.

First Quarter Segment Performance

Specialty Construction Chemicals
($ Millions)

1Q 2020

1Q 2019

% Change

Net sales

$125.4

$131.7

(4.8)%

Net Sales Constant Currency*

$127.5

$131.7

(3.2)%

Net Sales Constant Currency Excluding Market Exits*

$127.5

$129.9

(1.8)%

Gross margin

37.6%

33.6%

400 bps

Segment operating income

$8.0

$7.9

1.3%

Segment operating margin

6.4%

6.0%

40 bps


  • Net sales decreased 4.8% as higher sales volumes in North America and improved pricing in Latin America were offset by the unfavorable impact of foreign currency translation and lower sales volumes in Asia Pacific, Latin America and EMEA. Sales volumes declined in these regions primarily due to the impact of government imposed restrictions on construction activity due to the COVID-19 pandemic as well as strategic exits from unprofitable geographic markets. Net Sales Constant Currency Excluding Market Exits* decreased 1.8%.

  • Gross margin increased 400 basis points to 37.6% primarily due to improved pricing, lower raw material costs, the favorable impact of restructuring activities, as well as favorable region and product mix.

  • Segment operating margin increased 40 basis points primarily due to higher gross margin.

Specialty Building Materials
($ Millions)

1Q 2020

1Q 2019

% Change

Net sales

$91.3

$94.4

(3.3)%

Net Sales Constant Currency*

$91.9

$94.4

(2.6)%

Gross margin

39.0%

40.5%

(150) bps

Segment operating income

$14.1

$15.9

(11.3)%

Segment operating margin

15.4%

16.8%

(140) bps


  • Net sales decreased 3.3% as increased volumes in North America as well as improved pricing in North America and EMEA were more than offset by lower volumes in Asia Pacific and EMEA, partially resulting from the impact of government imposed restrictions on construction activity due to the COVID-19 pandemic and the unfavorable impact of foreign currency translation.

  • Gross margin of 39.0% declined 150 basis points primarily due to lower productivity and reduced production levels in Asia Pacific as a result of temporary facility closures resulting from the COVID-19 pandemic.

  • Segment operating margin of 15.4% decreased 140 basis points primarily due to lower gross margin.

Impact of COVID-19 Pandemic
As previously announced, GCP has withdrawn its financial guidance for 2020 due to the global disruption and uncertainty caused by the COVID-19 pandemic. The Company is closely monitoring the impact of the pandemic and managing its effects on its business globally as the situation continues to evolve rapidly.

As the COVID-19 pandemic intensified in the first quarter, GCP focused on protecting the health, safety and well-being of its employees in accordance with guidelines issued by national and other health and safety authorities, while seeking to meet the needs of its global customers and suppliers. As construction was allowed to continue in a significant number of GCP's most important geographic markets for a majority of the first quarter, the COVID-19 pandemic did not have a material adverse effect on the Company's overall results of operations during the quarter, although temporary mandated closures of manufacturing operations, primarily in China, began to negatively impact the Company's revenue and profitability in the latter half of the first quarter.

It is difficult for GCP to predict at this time the duration and extent of the impact of the COVID-19 pandemic. Due to this uncertainty, the Company believes the impact of the COVID-19 pandemic will negatively impact its performance during the second quarter in particular and likely beyond. During the second quarter, GCP expects to experience periodic closures of its facilities in all regions in which it operates due to mandatory halts of construction activity deemed non-essential by government authorities. GCP also expects that its customers will continue to experience similar disruptions as a result of the pandemic, which could result in reduced customer demand for GCP's products. The Company is closely scrutinizing discretionary spending, taking actions to manage operating expenses and reducing planned capital expenditures. GCP will continue to prioritize the health and safety of its employees and meeting the needs of its customers while minimizing disruption to the extent possible. The Company will respond accordingly to changes in the health of the construction industry in the geographic markets in which it operates.

Capital Allocation and Liquidity
GCP remains committed to maintaining a disciplined approach to capital allocation and preserving the Company's strong balance sheet. GCP's cash balance at the end of the first quarter of 2020 was $320.2 million. The Company has reduced planned capital expenditures by approximately $25 million in 2020 to further support its cash position. GCP has access to additional liquidity in the form of a $350 million revolving credit facility maturing in 2023, which brings total liquidity sources to approximately $670 million as of March 31, 2020. The Company’s 5.5% Senior Notes with an aggregate principal amount of $350 million mature in 2026. GCP's strong balance sheet, which features significant liquidity and no near-term debt maturities, is a competitive differentiator that provides substantial financial flexibility and positions the Company well to successfully manage through the ongoing economic challenges and uncertainty caused by the COVID-19 pandemic.

Restructuring and Repositioning Plans
GCP's restructuring and repositioning plans are focused on the Company's SCC segment, its global supply chain, and its general administration and business support functions. The plans are designed to reduce the Company's complexity, create a more efficient and effective organization, and generate approximately $80 million in expected savings from 2018 through 2022. These expected savings exclude savings that the Company achieved from the execution of its 2017 restructuring and repositioning plan. GCP will continue to evaluate opportunities to improve its operations and cost structure beyond its currently active initiatives.

*Non-GAAP financial measures. See the tables herein for important information regarding these measures and a reconciliation to the most comparable GAAP measures.
NM - Not meaningful.

Investor Call
GCP has scheduled a conference call and webcast at 10:00 a.m. ET today to review its first quarter 2020 results. Those who wish to listen to the conference call webcast should visit the Investors section of the GCP website at www.gcpat.com. The live call can be accessed by dialing +1 (888) 254-3590 in the U.S. or +1 (720) 543-0214 internationally prior to the start of the call. Participants should ask to join the GCP Applied Technologies call. An accompanying slide presentation will also be available on the website.

For those unable to participate in the live conference call, a playback will be available until May 13, 2020. To listen to the playback, please dial +1 (888) 203-1112 in the U.S. or +1 (719) 457-0820 internationally; the access code is 8265227. An audio webcast replay will also be available in the “Events and Presentations” section of the Company's website for approximately three months.

Non-GAAP Financial Measures
In this press release the Company refers to non-GAAP financial measures including: Net Sales Constant Currency, Net Sales Constant Currency Excluding Market Exits, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBIT, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Free Cash Flow, Adjusted EPS, and Adjusted EBIT Return On Invested Capital. These non-GAAP measures do not purport to represent income or liquidity measures as defined under United States generally accepted accounting principles ("GAAP"), and should not be considered as alternatives to such measures as an indicator of GCP's performance. These measures are provided to investors and others to improve the period-to-period and peer-to-peer comparability of GCP's financial results and to ensure that investors understand the information GCP uses to evaluate the performance of its businesses.

The Analysis of Operations pages included in this press release provide reconciliations of these non-GAAP financial measures to their most comparable GAAP measures, as well as definitions for each of these non-GAAP financial measures and explanations as to why management finds them useful and believes they are useful to investors, potential investors and others.

Investor Relations
Joseph DeCristofaro
T +1 617.498.2616
investors@gcpat.com

About GCP Applied Technologies
GCP is a leading global provider of construction products technologies that include additives for cement and concrete, the VERIFI® in-transit concrete management system, high-performance waterproofing products, and specialty systems. GCP products have been used to build some of the world’s most renowned structures. More information is available at www.gcpat.com.

This announcement contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when GCP or its management is discussing its beliefs, estimates or expectations. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “estimates,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. These statements are not historical facts or guarantees of future performance but instead represent only the beliefs of GCP and its management at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside GCP’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. Forward-looking statements include, without limitation, statements about expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; strategic alternatives; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. Like other businesses, we are subject to risks and uncertainties that could cause our actual results to differ materially from our projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, risks related to: the cyclical and seasonal nature of the industries that GCP serves; foreign operations, especially in emerging regions; changes in currency exchange rates; business disruptions due to public health or safety emergencies, such as the novel strain of coronavirus ("COVID-19") pandemic; the cost and availability of raw materials and energy; the effectiveness of GCP’s research and development, new product introductions and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting GCP’s outstanding liquidity and indebtedness, including debt covenants and interest rate exposure; developments affecting GCP’s funded and unfunded pension obligations; warranty and product liability claims; legal proceedings; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel; the handling of hazardous materials and the costs of compliance with environmental regulations; extreme weather events and natural disasters. These and other factors are identified and described in more detail in GCP's Annual Report on Form 10-K, which has been filed with the U.S. Securities and Exchange Commission and is available online at www.sec.gov, and subsequent quarterly reports. Readers are cautioned not to place undue reliance on GCP’s projections and other forward-looking statements, which speak only as of the date thereof. GCP undertakes no obligation to publicly release any revision to its projections and other forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this announcement.


GCP Applied Technologies Inc.
Consolidated Statements of Operations (unaudited)

Three Months Ended
March 31,

(In millions, except per share amounts)

2020

2019

Net sales

$

216.7

$

226.1

Cost of goods sold

134.8

143.9

Gross profit

81.9

82.2

Selling, general and administrative expenses

68.1

69.0

Research and development expenses

4.9

4.7

Interest expense and related financing costs

5.7

5.9

Repositioning expenses

2.7

5.4

Restructuring expenses and asset impairments

3.1

0.6

Other income, net

(2.2

)

(1.8

)

Total costs and expenses

82.3

83.8

Loss from continuing operations before income taxes

(0.4

)

(1.6

)

Benefit from income taxes

1.9

16.4

Income from continuing operations

1.5

14.8

(Loss) income from discontinued operations, net of income taxes

(0.3

)

6.8

Net income

1.2

21.6

Less: Net income attributable to noncontrolling interests

(0.1

)

(0.2

)

Net income attributable to GCP shareholders

$

1.1

$

21.4

Amounts Attributable to GCP Shareholders:

Income from continuing operations attributable to GCP shareholders

1.4

14.6

(Loss) income from discontinued operations, net of income taxes

(0.3

)

6.8

Net income attributable to GCP shareholders

$

1.1

$

21.4

Earnings (Loss) Per Share Attributable to GCP Shareholders

Basic earnings (loss) per share:

Income from continuing operations attributable to GCP shareholders

$

0.02

$

0.20

(Loss) income from discontinued operations, net of income taxes

$

$

0.09

Net income attributable to GCP shareholders(1)

$

0.02

$

0.30

Weighted average number of basic shares

72.9

72.3

Diluted earnings (loss) per share:(2)

Income from continuing operations attributable to GCP shareholders

$

0.02

$

0.20

(Loss) income from discontinued operations, net of income taxes

$

$

0.09

Net income attributable to GCP shareholders(1)

$

0.02

$

0.29

Weighted average number of diluted shares

73.0

72.8

______________________________

(1) Amounts may not sum due to rounding.

(2) Dilutive effect only applicable to the periods during which GCP generated net income from continuing operations.


GCP Applied Technologies Inc.
Consolidated Balance Sheets (unaudited)

(In millions, except par value and shares)

March 31, 2020

December 31, 2019

ASSETS

Current Assets

Cash and cash equivalents

$

320.2

$

325.0

Trade accounts receivable, net of allowance for credit losses of $7.4 million and $7.5 million, respectively

160.5

183.7

Inventories, net

103.7

95.9

Other current assets

40.9

43.7

Total Current Assets

625.3

648.3

Properties and equipment, net

241.2

245.3

Operating lease right-of-use assets

33.0

29.3

Goodwill

199.3

208.9

Technology and other intangible assets, net

75.0

80.7

Deferred income taxes

16.5

26.1

Overfunded defined benefit pension plans

23.6

25.0

Other assets

38.9

38.0

Non-current assets held for sale

0.5

Total Assets

$

1,252.8

$

1,302.1

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Debt payable within one year

$

2.9

$

2.7

Operating lease obligations payable within one year

8.1

8.1

Accounts payable

92.5

88.4

Other current liabilities

99.9

113.6

Total Current Liabilities

203.4

212.8

Debt payable after one year

348.6

346.5

Income taxes payable

29.0

41.4

Deferred income taxes

11.9

13.1

Operating lease obligations

24.8

21.6

Unrecognized tax benefits

42.2

42.2

Underfunded and unfunded defined benefit pension plans

67.9

67.5

Other liabilities

15.6

15.9

Total Liabilities

743.4

761.0

Commitments and Contingencies

Stockholders' Equity

Series A Junior Participating Preferred Stock, par value $0.01; 10,000,000 shares authorized, no shares issued or outstanding

Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 72,898,291 and 72,850,268, respectively

0.7

0.7

Paid-in capital

54.3

53.4

Accumulated earnings

611.3

610.2

Accumulated other comprehensive loss

(150.5

)

(117.0

)

Treasury stock

(8.9

)

(8.6

)

Total GCP's Shareholders' Equity

506.9

538.7

Noncontrolling interests

2.5

2.4

Total Stockholders' Equity

509.4

541.1

Total Liabilities and Stockholders' Equity

$

1,252.8

$

1,302.1


GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31,

(In millions)

2020

2019

OPERATING ACTIVITIES

Net income

$

1.2

$

21.6

Less: (Loss) income from discontinued operations

(0.3

)

6.8

Income from continuing operations

1.5

14.8

Reconciliation to net cash provided by (used in) operating activities:

Depreciation and amortization

11.0

10.1

Amortization of debt discount and financing costs

0.4

0.4

Stock-based compensation expense

0.8

1.9

Unrealized loss on foreign currency

0.5

0.5

Deferred income taxes

(5.2

)

(17.3

)

Gain on disposal of property and equipment

(0.1

)

(0.1

)

Changes in assets and liabilities, excluding effect of currency translation:

Trade accounts receivable

17.4

25.2

Inventories

(11.4

)

(14.9

)

Accounts payable

6.6

(5.0

)

Pension assets and liabilities, net

1.0

1.1

Other assets and liabilities, net

(8.5

)

(21.8

)

Net cash provided by (used in) operating activities from continuing operations

14.0

(5.1

)

Net cash used in operating activities from discontinued operations

(0.9

)

(9.6

)

Net cash provided by (used in) operating activities

13.1

(14.7

)

INVESTING ACTIVITIES

Capital expenditures

(8.9

)

(13.0

)

Other investing activities

0.4

0.4

Net cash used in investing activities from continuing operations

(8.5

)

(12.6

)

Net cash used in investing activities from discontinued operations

(0.4

)

Net cash used in investing activities

(8.5

)

(13.0

)

FINANCING ACTIVITIES

Repayments under credit arrangements

(0.1

)

Payments on finance lease obligations

(0.2

)

(0.2

)

Payments of tax withholding obligations related to employee equity awards

(0.3

)

(3.2

)

Proceeds from exercise of stock options

0.4

3.3

Net cash used in financing activities from continuing operations

(0.1

)

(0.2

)

Effect of currency exchange rate changes on cash and cash equivalents

(9.3

)

0.4

Decrease in cash and cash equivalents

(4.8

)

(27.5

)

Cash and cash equivalents, beginning of period

325.0

326.1

Cash and cash equivalents, end of period

$

320.2

$

298.6

Supplemental disclosure of non-cash investing activities:

Property and equipment purchases unpaid and included in accounts payable

$

5.5

$

9.1

Analysis of Operations

The Company has set forth in the tables below GCP's key operating statistics with percentage changes for the three months ended March 31, 2020 and 2019.

Segment operating margin is defined as segment operating income divided by segment net sales. It represents an operating performance measure related to ongoing earnings and trends in our operating segments that are engaged in revenue generation and other core business activities. The Company uses this metric to allocate resources between the segments and assess its strategic and operating decisions related to core operations of its business.

In the table, the Company presents financial information in accordance with U.S. GAAP, as well as certain non-GAAP financial measures, which it describes below in further detail. GCP believes that the non-GAAP financial information supplements its discussions about the performance of its businesses, improves period-to-period comparability and provides insight to the information that management uses to evaluate the performance of its businesses. Management uses non-GAAP measures in financial and operational decision-making processes, for internal reporting, and as part of its forecasting and budgeting processes since these measures provide additional transparency to GCP's core operations.

In the table, the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered substitutes for financial measures calculated in accordance with U.S. GAAP, and the financial results that the Company calculates and presents in the table in accordance with U.S. GAAP, as well as the corresponding reconciliations from those results, should be carefully evaluated.

The following are the non-GAAP financial measures presented in the table:

  • Net Sales Constant Currency (a non-GAAP financial measure)- is defined as current period revenue in local currency translated using prior period exchange rates. GCP uses constant currency in assessing trends in sales excluding the impact of fluctuations in foreign currency exchange rates.

  • Net Sales Constant Currency Excluding Market Exits (a non-GAAP financial measure)- is defined as Net Sales Constant Currency less the impact on net sales resulting from the exit of non-profitable geographic markets associated with the 2018 Plan.

  • Adjusted EBIT (a non-GAAP financial measure)- is defined as net income (loss) from continuing operations attributable to GCP shareholders adjusted for: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring and repositioning expenses, and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) interest income, interest expense and related financing costs; (xi) income taxes; (xii) shareholder activism and other related costs; and (xiii) certain other items that are not representative of underlying trends. Adjusted EBIT Margin is defined as Adjusted EBIT divided by net sales. GCP uses Adjusted EBIT to assess and measure its operating performance and determine performance-based employee compensation. The Company uses Adjusted EBIT as a performance measure because it provides improved quarter-to-quarter and year-over-year comparability for decision-making and compensation purposes and allows management to measure the ongoing earnings results of its strategic and operating decisions.

  • Adjusted EBITDA (a non-GAAP financial measure)- is defined as Adjusted EBIT adjusted for depreciation and amortization. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales. GCP uses Adjusted EBITDA as a performance measure in making significant business decisions.

  • Adjusted Earnings Per Share (a non-GAAP financial measure)- is defined as earnings per share ("EPS") from continuing operations on a diluted basis adjusted for: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring and repositioning expenses and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) shareholder activism and other related costs; (xi) certain discrete tax items; and (xii) certain other items that are not representative of underlying trends. GCP uses Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis and in determining certain performance-based employee compensation.

  • Adjusted Gross Profit (a non-GAAP financial measure)- is defined as gross profit adjusted for: (i) corporate and pension-related costs included in cost of goods sold; (ii) loss in Venezuela included in cost of goods sold; (iii) amortization of acquired inventory fair value adjustment; and (iv) certain other items that are not representative of underlying trends. Adjusted Gross Margin means Adjusted Gross Profit divided by net sales. GCP uses this performance measure to understand trends and changes and to make business decisions regarding core operations.

  • Adjusted Free Cash Flow (a non-GAAP financial measure)- is defined as net cash provided by or used in operating activities minus capital expenditures plus: (i) cash paid for restructuring and repositioning, third party and other acquisition-related costs, costs related to legacy product, environmental and other claims, as well as certain other items that are not representative of underlying trends, net of related cash taxes; (ii) capital expenditures related to repositioning; and (iii) accelerated payments under defined benefit pension arrangements. GCP uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, to provide a return of capital to shareholders and to determine payments of performance-based compensation.

  • Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure)- is defined as Adjusted EBIT (on a trailing four quarters basis) divided by stockholders' equity adjusted for: (i) cash and cash equivalents, (ii) debt, (iii) income tax assets and liabilities, (iv) defined benefit pension plan assets and liabilities, and (iv) certain other assets and liabilities. GCP manages its operations with the objective of maximizing sales, earnings and cash flow over time which requires that the Company successfully balances its growth, profitability and working capital and other investments to support sustainable, long-term financial performance. GCP uses Adjusted EBIT Return On Invested Capital as a performance measure in evaluating operating results, making operating, investment and capital allocation decisions, and balancing the growth and profitability of its operations.

Adjusted EBIT, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EPS, Adjusted EBIT Return On Invested Capital, Adjusted Gross Profit and Adjusted Gross Margin do not purport to represent income measures as defined in accordance with U.S. GAAP. These measures are provided to investors and others to improve the quarter-to-quarter, year-to-year, and peer-to-peer comparability of the Company's financial results and to ensure that investors understand the information it uses to evaluate the performance of its businesses.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to income and expenses from restructuring and repositioning activities which historically have been a material component of the Company's net income (loss) from continuing operations attributable to GCP shareholders. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. The Company's business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of the Company costs. GCP compensates for the limitations of these measurements by using these indicators together with net income (loss) measured in accordance with GAAP to present a complete analysis of its results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income (loss) from continuing operations attributable to GCP shareholders measured in accordance with GAAP for a complete understanding of its results of operations.

The Company does not provide GAAP financial information on a forward-looking basis because the Company is unable to estimate with reasonable certainty unusual or unanticipated charges, expenses or gains without unreasonable effort. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with GAAP.

GCP Applied Technologies Inc.
Analysis of Operations (unaudited)

Analysis of Operations
(In millions, except per share amounts)

Three Months Ended
March 31,

2020

2019

% Change

Net sales:

Specialty Construction Chemicals

$

125.4

$

131.7

(4.8

)

%

Specialty Building Materials

91.3

94.4

(3.3

)

%

Total GCP net sales

$

216.7

$

226.1

(4.2

)

%

Net sales by region:

North America

$

119.2

$

113.5

5.0

%

Europe Middle East Africa (EMEA)

44.3

46.4

(4.5

)

%

Asia Pacific

40.3

50.7

(20.5

)

%

Latin America

12.9

15.5

(16.8

)

%

Total net sales by region

$

216.7

$

226.1

(4.2

)

%

Net Sales Constant Currency:

Specialty Construction Chemicals

127.5

$

131.7

(3.2

)

%

Specialty Building Materials

91.9

94.4

(2.6

)

%

Total GCP Net Sales Constant Currency (non-GAAP)

$

219.4

$

226.1

(3.0

)

%

Impact of Market Exits:

Specialty Construction Chemicals

$

$

1.8

(100.0

)

%

Total Impact of Market Exits

$

$

1.8

(100.0

)

%

Net Sales Constant Currency Excluding Market Exits:

Specialty Construction Chemicals

$

127.5

$

129.9

(1.8

)

%

Specialty Building Materials

91.9

94.4

(2.6

)

%

Total GCP Net Sales Constant Currency Excluding Market Exits (non-GAAP)

$

219.4

$

224.3

(2.2

)

%

Adjusted EBIT (A):

Specialty Construction Chemicals segment operating income

$

8.0

$

7.9

1.3

%

Specialty Building Materials segment operating income

14.1

15.9

(11.3

)

%

Corporate costs (B)

(5.8

)

(9.9

)

(41.4

)

%

Certain pension costs (C)

(1.3

)

(1.9

)

(31.6

)

%

Adjusted EBIT (non-GAAP)

$

15.0

$

12.0

25.0

%

Repositioning expenses

(2.7

)

(5.4

)

(50.0

)

%

Restructuring expenses and asset impairments

(3.1

)

(0.6

)

NM

Shareholder activism and other related costs (D)

(3.6

)

(2.5

)

44.0

%

COVID-19-related costs (E)

(0.5

)

(100.0

)

%

Third-party and other acquisition-related costs

(0.5

)

(0.1

)

NM

Interest expense, net

(5.1

)

(5.2

)

(1.9

)

%

Income tax benefit

1.9

16.4

(88.4

)

%

Income from continuing operations attributable to GCP shareholders (GAAP)

$

1.4

$

14.6

(90.4

)

%

Income from continuing operations attributable to GCP shareholders as a percentage of net sales

0.6

%

6.5

%

(5.9

)

pts

Diluted EPS from continuing operations (GAAP)

$

0.02

$

0.20

(90.0

)

%

Adjusted EPS (non-GAAP)

$

0.10

$

0.07

42.9

%

GCP Applied Technologies Inc.
Analysis of Operations (unaudited) (continued)

Analysis of Operations
(In millions)

Three Months Ended
March 31,

2020

2019

% Change

Gross Profit:

Specialty Construction Chemicals

$

47.2

$

44.3

6.5

%

Specialty Building Materials

35.6

38.2

(6.8

)

%

Adjusted Gross Profit (non-GAAP)

$

82.8

$

82.5

0.4

%

COVID-19-related costs (E)

(0.5

)

(100.0

)

%

Corporate costs and pension costs in cost of goods sold

(0.4

)

(0.3

)

33.3

%

Total GCP Gross Profit (GAAP)

$

81.9

$

82.2

(0.4

)

%

Gross Margin:

Specialty Construction Chemicals

37.6

%

33.6

%

4.0 pts

Specialty Building Materials

39.0

%

40.5

%

(1.5) pts

Adjusted Gross Margin (non-GAAP)

38.2

%

36.5

%

1.7 pts

COVID-19-related costs (E)

(0.2

)

%

%

(0.2) pts

Corporate costs and pension costs in cost of goods sold

(0.2

)

%

(0.1

)

%

(0.1) pts

Total GCP Gross Margin (GAAP)

37.8

%

36.4

%

1.4 pts

Adjusted EBIT (A)(B)(C):

Specialty Construction Chemicals segment operating income

$

8.0

$

7.9

1.3

%

Specialty Building Materials segment operating income

14.1

15.9

(11.3

)

%

Corporate and certain pension costs

(7.1

)

(11.8

)

(39.8

)

%

Total GCP Adjusted EBIT (non-GAAP)

$

15.0

$

12.0

25.0

%

Depreciation and amortization:

Specialty Construction Chemicals

$

6.4

$

5.5

16.4

%

Specialty Building Materials

3.6

3.8

(5.3

)

%

Corporate

1.0

0.8

25.0

%

Total GCP depreciation and amortization

$

11.0

$

10.1

8.9

%

Adjusted EBITDA:

Specialty Construction Chemicals

$

14.4

$

13.4

7.5

%

Specialty Building Materials

17.7

19.7

(10.2

)

%

Corporate and certain pension costs

(6.1

)

(11.0

)

(44.5

)

%

Total GCP Adjusted EBITDA (non-GAAP)

$

26.0

$

22.1

17.6

%

Adjusted EBIT Margin:

Specialty Construction Chemicals

6.4

%

6.0

%

0.4 pts

Specialty Building Materials

15.4

%

16.8

%

(1.4) pts

Total GCP Adjusted EBIT Margin (non-GAAP)

6.9

%

5.3

%

1.6 pts

Adjusted EBITDA Margin:

Specialty Construction Chemicals

11.5

%

10.2

%

1.3 pts

Specialty Building Materials

19.4

%

20.9

%

(1.5) pts

Total GCP Adjusted EBITDA Margin (non-GAAP)

12.0

%

9.8

%

2.2 pts



Analysis of Operations
(In millions)

Four Quarters Ended

March 31, 2020

March 31, 2019

Calculation of Return on Stockholders' Equity and Adjusted EBIT Return On Invested Capital (trailing four quarters):

Income from continuing operations attributable to GCP shareholders (trailing four quarters):

$

27.4

$

12.3

Stockholders' Equity (end of period)

509.4

508.0

Assets:

Cash and cash equivalents

(320.2

)

(298.6

)

Pension plans

(23.6

)

(22.9

)

Income taxes

(16.5

)

(28.5

)

Other current assets (F)

(8.0

)

(11.4

)

Other assets (G)

(2.9

)

(3.8

)

Assets held for sale

(0.5

)

Subtotal

(371.2

)

(365.7

)

Liabilities:

Debt*

351.5

356.6

Income taxes

83.1

96.5

Pension plans

67.9

49.0

Other current liabilities (H)

22.0

35.1

Other liabilities (I)

2.0

1.7

Subtotal

526.5

538.9

Total invested capital (end of period)

$

664.7

$

681.2

Return on Stockholders' Equity

5.4

%

2.4

%

Adjusted EBIT (trailing four quarters)

$

104.8

$

117.7

Adjusted EBIT Return On Invested Capital (non-GAAP)

15.8

%

17.3

%

___________________________________________________________________________________________________________________

(A) GCP segment operating income includes only its share of income of consolidated joint ventures.

(B) Management allocates certain corporate costs to each operating segment to the extent such costs are directly attributable to the segments.

(C) Certain pension costs include only ongoing costs, recognized quarterly, which include service and interest costs, expected returns on plan assets and amortization of prior service costs/credits. SCC and SBM segment operating income and corporate costs do not include any amounts for pension expense. Other pension-related costs, including annual mark-to-market adjustments, gains or losses from curtailments and terminations, as well as other related costs, are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of GCP businesses and significantly affect the peer-to-peer and period-to-period comparability of its financial results. Mark-to-market adjustments and other related costs are primarily attributable to changes in financial market values and actuarial assumptions and are not directly related to the operation of GCP businesses.

(D) Shareholder activism and other related costs consist primarily of professional fees incurred in connection with the actions by certain of GCP shareholders seeking changes in the composition of our Board of Directors and nomination of candidates to stand for election at the 2019 and 2020 Annual Shareholders' Meetings, as well as other related matters.

(E) COVID-19- related costs consist of fixed manufacturing costs and discretionary direct labor costs incurred during temporary closure of GCP manufacturing facilities as a direct result of the outbreak.

(F) Other current assets consist of income taxes receivable.

(G) Other assets consist of capitalized financing fees.

(H) Other current liabilities consist of income taxes, restructuring, repositioning, accrued interest and liabilities incurred in association with the Darex divestiture.

(I) Other liabilities consist of other postretirement benefits liabilities.

∗ Consists of current and non-current components.

NM• Not meaningful.


GCP Applied Technologies Inc.
Analysis of Operations (unaudited) (continued)

(In millions)

Three Months Ended
March 31,

2020

2019

Cash flow measure:

Net cash provided by (used in) operating activities from continuing operations

$

14.0

$

(5.1

)

Capital expenditures

(8.9

)

(13.0

)

Free Cash Flow (non-GAAP)

5.1

(18.1

)

Cash paid for repositioning

5.2

6.5

Cash paid for restructuring

1.3

3.2

Cash paid for third-party and other acquisition-related costs

0.3

Capital expenditures related to repositioning

1.0

0.1

Cash taxes related to repositioning, restructuring, third-party and other acquisition-related costs, shareholder activism and other related costs

(2.1

)

(2.3

)

Cash paid for shareholder activism and other related costs (1)

1.8

Adjusted Free Cash Flow (non-GAAP)

$

12.3

$

(10.3

)

(1) Shareholder activism and other related costs consist primarily of professional fees incurred in connection with the actions by certain of GCP shareholders seeking changes in the composition of its Board of Directors and nomination of candidates to stand for election at the 2019 and 2020 Annual Shareholders' Meetings, as well as other related matters.


GCP Applied Technologies Inc.
Adjusted Earnings Per Share (unaudited)

Three Months Ended
March 31,

2020

2019

(In millions, except per share amounts)

Pre-
Tax

Tax Effect

After-
Tax

Per
Share

Pre-
Tax

Tax Effect

After-
Tax

Per
Share

Diluted EPS from continuing operations (GAAP)

$

0.02

$

0.20

Repositioning expenses

$

2.7

$

0.7

$

2.0

0.03

$

5.4

$

1.3

$

4.1

0.06

Restructuring expenses and asset impairments

3.1

0.8

2.3

0.03

0.6

0.1

0.5

0.01

COVID-19-related costs

0.5

0.1

0.4

0.01

Third-party and other acquisition-related costs

0.5

0.1

0.4

0.01

0.1

0.1

Shareholder activism and other related costs

3.6

0.9

2.7

0.04

2.5

0.6

1.9

0.03

Discrete tax items, including adjustments to uncertain tax positions

2.6

(2.6

)

(0.04

)

16.4

(16.4

)

(0.23

)

Adjusted EPS (non-GAAP)

$

0.10

$

0.07