GCP - Earnings call transcript Q3 2019 | GCP Applied Technologies Inc

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Operator

Good day and welcome to the GCP Applied Technologies Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Joe DeCristofaro. Please go ahead.

Joe DeCristofaro

Hello, everyone, and thank you for joining us on today's call. call Srinivasan, Dearth, and Head Interim Financial the Executive and Craig on Chief Naren Officer; of Officer. us are President Randy Chief Merrill, With Global SBM;

results presentation copies, download go to on for corresponding website. click please and and Investors release on our earnings this Our quarter's the are gcpat.com available To slides tab.

factors. our federal those results of Actual materially from securities projected a comments implied may will to forward-looking be today of laws. Some statements U.S. due or under differ variety

will financial morning's in release We non-GAAP more detail and website. described certain which are discuss measures, our in earnings this on

press for on to margin, revenue and to of are stated or both the as comments gross adjusted references to All growth in financial currency and to to our References measures constant and the EBIT refer adjust margin Our comparable apply in defined forward-looking basis, statements this release. Q&A. adjusted rates EBIT which remarks impact on refer discussion the associated margin prepared and EBIT non-GAAP currency. adjusted foreign a to

turn I'll Randy. over to that, the call With

Randy Dearth

morning, and everyone. good Joe, Thanks,

I'd issued like with pleased million morning. met our adjusted by to our said the with this in and EBIT accomplishments performance I'm $XX sales press release of what million that in quarter, I the begin $XXX of we and reiterating expectations.

We also Our that but fourth guidance. actions quarter a work our have targets hitting with October have we is good and reaffirming are we for a significant to off XXXX still to lot results taken are our working. start do, of

our restructuring our installing new progress model organizational have made have advanced and We programs.

improvement more for have earnings in and a about SBM. few initiated growth And in our VERIFI in have hear SCC's and sustained just minutes. this you'll we plan performance We

to a number continued SCC's margin recovered highlight. very like that the are would improvement. strong quarter of year-over-year with There I third from items

VERIFI's quarter basis in with positive that on sales a the is margins our growth basis. growth. XXX in truck least a XX% year-over-year points improved XX% installed by year-over-year and In at fact row momentum this third base, have continued

continued strong, and secure commercial SBM wins areas We as airports building we projects. in are marquee large in to where such

are that certain We're a of we and firm strategy to global engaged to quarter has elements nice have leading which We with offset job doing to consulting our moderated. new our discussed help capturing a implementing SBM last inflation, plan. price

are to price on-track In capture our company. we year public fact as best have a

are and on improving due of percentage We a forecasting. adjusted and management percentage of EBIT our also working a adjusted capital as focus greater a cash as free flow sales to

our And we to planned executing I'm about year. say are million on happy this savings with restructuring $XX programs of as

challenging construction more plan monitoring worldwide. our Looking we become global for global XXXX close construction economic due out tensions the are and uncertainty spending market to are forward, the geopolitical has and XXXX. as we closely in Growth we develop data seeing

performance. about States. programs, on reminder, of restructuring a margin the SBM's of implementation and increase generated we meantime, sales our what are of can including XX% our SCC's remain focused In the sustaining As control, the improving we outside United

now turn to on like update an over for call SBM. I'd the Naren to

shareholders. conclude performance will Craig company's more performance our for progress and and financial on will additional SCC business creating our I comments review comments, improving Naren's Following value and guidance. in our the for Then the detail quarter discuss will toward with prepared our company's little remarks our

So, Naren?

Naren Srinivasan

Randy, morning and everyone. you, good Thank

quarter third our both was the in expectations and performance SBM's for earnings. with sales consistent

East position and the and U.S., win wins provide year Europe, and worldwide. high-profile include Importantly, we demonstrate during XXXX Asia. airports, bridge have us mixed-use infrastructure customers. commercial we These the decks second to half and to the large help continued arenas of value developments, Middle projects These the sports for in

SBM for segment and profit sales quarter contributing a to as due a in improved the strength. of percentage gross result Both seasonal residential operating higher of margins sequentially

be challenge mix however, key in compared North expectations year-over-year on for the to activity believe We been has original project project America will basis and pipeline our basis. in in year. our a to reduced XXXX negatively that on large we SBM do, activity volumes have improve global impacted continues actively large building sales Our and particular, which a

improve we four-point outlined quarter our Last to plan SBM's performance.

a in includes further the of and accelerating evaluating model, addressing markets needs opportunities our segments, to pricing resource we those Our products. introduction penetrating next-generation build market adjacent stronger have where plan presence

making on have plan progress good We very been these elements.

segmentation, As pricing Randy and market consulting optimize to global mentioned, we grow firm evaluate initiated leading and offering. product a to economics with channel work have our

and added we are share to we as targeted additional well can will both key have underrepresented. headcount where where secure add in continue as We geographies

geographies. We architects, our project and segment develop project are within efforts specification reinforcing team to the relationships engineers strengthen within specifiers better our pipeline diversified projects large other our with the waterproofing access mid-range and to space,

as and are highlight that our as our competencies plan, to GCP. below-grade to products critical for like leading development portfolio. well waterproofing priorities would Technology product new I innovation our new and strengthen two core

strengthen launched America. North have a position XXXPA, non-rubberized We Preprufe our asphalt-based solution to in

the we membrane Preprufe protection board. provide early need will foam easier time for savings XXXX, be self-protecting will XXXXP, and launching a contractor. composite with the Preprufe In adhesive, which This a to non-bituminous pending patent application eliminates separate

to in result forward future and look to improved into on efforts performance these for more insights providing expectation SBM calls. expect We our

to performance now discuss who and call over guidance. I'd to our turn will like financial Craig the

Craig Merrill

you, and good morning. Thank Naren,

offset points to more margin and points by revenues were sales year-over-year in down than markets growth SCC, product increased XX.X%, basis as favorable to gross all in GCP's reminder, impact basis XX XXX to restructuring comments declined basis. mix. in exit in pricing, reduced increase margin Adjusted at SCC's operating currency gross improved Just due X% was a third primarily to SBM. quarter, margin third and excluding countries. than due revenue Adjusted Sales X% rates quarter XX% activities of the million. EBIT constant unfavorable a my offset lower exiting geographic within which declined associated to more the unprofitable an $XXX leverage a are consolidated In

SCC, the to our $XXX down performance segments; sales X% Turning million. to of were

and market in operating and in by sales as Excluding restructuring improved Latin expenses Growth about and excluding were SCC's $XX was mainly of delivered on to offset profit as impact. Asia-Pacific. up the XX% America decline improved SCC due points impact EMEA have a million from compared The strategic restructuring America, North we markets. were to undertaken exits, of sales exits actions. we continue a up third to basis result operating exiting of income of positive margins gross quarter, the market activities Segment in X%. year's XXX actions gross a favorable geographic unprofitable last a pricing, reduced lower sales grew have

SBM's XX% year-over-year. down revenue was

SBM down to points declined to the the price materials. income product third Our lower Asia-Pacific. was lower compared North business specialty Residential in margin raw Building the and XX% unfavorable although declines XX% respectively. America quarter, as were project-based offset versus and due XX% XXX growth down second product to gross XXXX in of Envelope increases primarily quarter by operating higher basis and improved due was X%, volumes Though and offset down was EMEA than sales segment volume. SBM's mix more margins year-over-year,

primarily $XX year's in did compensation unwinding the third cash in Corporate third million our due exceeded repeat quarter. long-term expectations to for the XXXX. not last to last free quarter costs were that quarter year, in incentive million flow compared Adjusted $X

more that Looking to our price currency. constant at forecast, XXXX continue which $X.XX assume moderating. In billion we guidance, to we impact of inflation, the $X.XX than sales expect of billion now in is offsets

employee-related to year $XX the planned than for and million by expenses $XX savings be investments operating offset total by of down primarily expect driven full-year We more million, VERIFI expenses.

the million exit the program, programs, that's coming in largest by contribution million $XX from supply followed market $XX chain the respectively. and is Of savings, our G&A the

$XXX $XXX million adjusted EBIT forecast full-year. a Our remains for to million

capturing a lower-than-expected XXXX margin in reminder, we are activity by the our and project in P&L sales the for particular negative As in due than offset to SBM our decline more mix in higher are business. savings

X% in SCC, the XXXX market X% primarily for continue expect exits approximately adjusting to and sales expect due be sales exits to For to be market to we flat to SCC. down we for

between margin restructuring result programs. of of and gross expect XXX points segment margins XXX as to higher points a operating basis basis We improvement

triple producing growth XXXX, expect For to to XXXX our installs XX% of about in we VERIFI, than over installed more in more in base. X,XXX truck installs than compared XXX to truck

to approximately expect XX%. sales be We growth

quarters in the We have therefore of signed revenue the is second some the contracts more the occurring half year. last in flow-through large two and

We growth move into and as expect in revenue we our conclude XXXX. XXXX acceleration quarterly

VERIFI. all related would expectation revenues in $XX revenue, XXXX to we million Our is that admixture management generate which for million normally without not and $XX usage, VERIFI includes data, materials, for

XXX to to operating XX% continue sales to X% points volume. compared and project lower we largely segment basis to unfavorable volumes, SBM, year prior to Turning XXXX XXX to mix lower down to basis be due and to decline due to expect points, margin

and adjusted EPS unchanged. Our guidance tax, for adjusted free is cash adjusted flow

it With that, I'll Randy. to turn over

Randy Dearth

Thanks, Craig.

three the we is on significant months, organizational made have September as we past launched is looking The at ownership planned. evident. that working So progress. Xst restructuring P&L

through accuracy better and We on tools. focus continuing to accountability greater are forecast

guidance. for reallocation that areas in or revenue we strategic targets. take hires more of identifying our will the resources be are additional we existing addition, included to Any a in support In on our SG&A resources targeted field are

experience also as a Our team. emphasis our organizational our includes new focus leadership solidifying commercial priority relationships core customer from with is on GCP is the and structure receiving renewed customers greater

at senior are We ensure are regularly reviewing key customer to and roles leadership establishing satisfaction. level the higher customer more relationships

internal processes and provide automation We capabilities in customers. with data are new for building our optimizing increased also that value analytics

portal, GCP launching month In our are call addition, we PLUS. which we e-commerce first this

customer with We our strengthen portal service. expect to through customers enhanced connection this

Our cost expected. as efficiency are efforts and also out working

we about our in XX% as well to restructuring programs Craig X% $XX in expect savings, reduction mentioned, an million announced to yield as As headcount.

to million in we are and efficient looking ways savings annualized We more over more and additional for become drive savings. continue XXXX by to target $XX

team just large And is example, as our line to multinational time tax than number and In of designed savings provide to is project opportunities tax The expected. advisory firm. initiated our comprehensive savings. have a an additional rate the global with give you have we bottom over evaluation greater fact, identified tax a structure of a optimize we

globe. efficiency operations We the in and investing our are systems in drive manufacturing production around also to inventory improved management

adjusted EBIT. in percentage mentioned my we remarks, as a a flow percentage are of opening of sales our improving and cash I free As as adjusted

tools organization on new cash, inventory helping our to and focus along is new Our with for accounts receivable sustain tracking.

and We will growth business initiatives legacy with capital working needs. between a strategic manage balance our

VERIFI on quality sales our is optimizing a the At efforts programs. business. to SCC, places. executing right SCC Turning it have admixtures have strategy of in relates we of core make emphasizing we part the closely to clearly earnings markets as we are core our to key time by the restructuring our prioritized and people same right sure our

We contract are resources truck committing and strategically drive signings to installations.

become our way end-to-end customers. and executives with that of leverage productivity, we track. customers. confirms allows and changes delivering an It interact technology we're the VERIFI GCP interest the right validate discussions on is materials with solution capable in our efficiency commercial our and to operational My provider to their that customers

an finally, more well and more to part structures, services our we manage responsibility And we as create footprint. and Sustainability physical durable view which refers do. what GCP's as corporate of both we sustainability how a products as and efficient important

construction publish practices report sustainable our outline to will philosophy next and how we contribute to and expect first our year sustainability structures. more which We

would I additional comment like Before conclude, on I to topics. three

are now our we XXXX. operating annual First, plan for developing

forecast improvements, thought well a trends, seeing in as deeper side as construction global the to market insights after insights are out demand We plan. build leveraging well

for next on will year expectations earnings call. We quarter fourth on provide our details our

in Second, I our on we sheet that recognize last balance call, great is shape. as mentioned our

to Board Our our we this that continue capital our at flexibility team believe allocation in interest financial discuss is preserve regularly time. Management and to and best

as We our and will capital allocation appropriate. Board update discuss to we'll with continue our approach

Finally, we initiated have a CFO. search permanent for

time. we as to possible an Our update soon we'll the a permanent are working appoint CFO as no and search but specific at has timeframe, appropriate provide

of thanking wrap for of team to my and our our effort of they plans. like comments would up to devoted leadership on behalf have that my I hard work So employees implementation by personally the and the all

very your you joining for call taking and thank now look to our So much questions. forward we

Operator

you. Thank

ahead. session. and And Securities. from question today, begin now Seaport [Operator we go take the question-and-answer our Mike will Instructions] with will that is Global Harrison first Please We

Mike Harrison

morning. good Hi,

Randy Dearth

Good morning, Mike.

Mike Harrison

signs if I you wanted very well maybe you on it control focused acceleration were and region trends I going that wondering can. terms are – like each in QX, to guys any maybe that comment the or working of on what just what going was you're can the seeing comment into sounds construction now internally right are in seeing QX region you in of regions? start and much activity, you're restructuring maybe deceleration and going by to those of you efforts pretty

Randy Dearth

fact – that construction the No, Mike, global say the declining would last saw would and a that was to stick and say market basis last somewhat. perhaps the moderating global about we we that we on talked the even I quarter

also Kong add Asia-Pacific our region, Here that helping it globe in we When go due construction situation. still of the seeing moderating talked some the in trade elements it little bit situation softness in and not about the And that's geopolitical challenging, the Hong to U.S., there. you growth situation. some Brexit the Europe is to the of are market definitely when we is across to that, and remaining we a the some like

I So globally is moderating declining the looking think market. way slightly the again, at to we're

Mike Harrison

And ask segment. about then, the I SBM wanted specifically to

You product significantly impacted unfavorable strike any noted that were worse me those others. but or segment, about didn't better mix like than the when talked it it that you that sub-segments, really margin the sounded in of had

going So start. That's little on there? maybe can good more the mix what's product give you a on color a with

Craig Merrill

in of geographic there in little Craig total and North just product its softer it was America mix, the product percentage categories little higher of the volume is a of volumes a speaking. as little in on some the margin SBM North Mike, some bit Yes. in America. then versus the bit decline was A mid-margin products. a It

have them. projects we large tend sell that to The the products high-margin in

hard on not but actually mix mix also So volume, are that they there. be plays margin, that's results, it kind bit, just little may the in the the us kind find of It out. way impacted a of the to but and

it a what than we So higher would the drop-through to is little on the the like bit volume SBM, on be.

Naren Srinivasan

just for Naren. in quarter mean, year. said, last we add reset the that mean discussed And its our terms being did continued. Mike, what of number our Craig large I to the the rest we mean topic on expectations has fewer of to I a projects, I in of

And from so have But would that move margins. in the larger expectations. are say projects does the I we line impact seeing and with that is away nevertheless, on what those mix

Mike Harrison

question point? inventory on contributed business. in there levels maybe distributor decline about more or residential is reduction you How at say do Got for within to inventory another destocking it. that is terms much And – your in think then can of volume this you, XX% did Naren, what the distributor come of you that and kind to the

Naren Srinivasan

is The an stabilize quarter situation the have the year-over-year and seeing we still For as good. we as in now. are comp look we But that is mentioned, ahead, destocking the benefits and but see which did are third additional some seeing important negative third we we out and quarter variable right still seeing we pull marketplace, was a are impact. an the through as closed here whole, we

in The talked distributors, that market quarter entire overall channel. in that last there consolidation within levels we the does that is impact the and inventory about

behavior So given that mentioned, still quite the bit out now that right moderating the marketplace. of pull there cautious overall in even is though a outlook we're declining, to through is seeing which Randy there

of goodness customers being stabilizing applicators, And with so is all are a of there little bit its they whether our cautious. but improvements,

it's of right little bit Mike. a both So now,

Mike Harrison

much. very All right, thanks

Operator

our take is you. ahead. Please Laurence that go from [Operator Thank Jefferies. We'll question next with and Instructions] Alexander

Laurence Alexander

Good morning.

about is evolved. and bit, developing about year think backlog the this little that of flush to how think signings as out the you new way Just you a

year weaker Going is into or backlog was the the issue next year, the this against slippage backlog?

Naren Srinivasan

overall Naren as on a I we our today it of basis a would ahead It's here. say is look Sure. XXXX, ago. year projects stronger into pipeline year-over-year than was

now, the just indeed where And we question, the looking is XXXX the with just good at see. in did So I stronger, XXXX same would pipeline to remark caveat again, Brexit Asia. which I versus it's U.S. last as looked into macro right in is cetera we of behavior, overall that in see to of kind of with and a economy, bit Europe continue tightening Asia with or credit the just lot the whether with et trade, uncertainty, given a the cautious also

how that's So I'd to answer that.

Laurence Alexander

value the And you've the then as the anything model the your way have economics for propositions need initial for VERIFI, frame been tweak up, in scaling in compared the how to customers? to targets, you'd or

Craig Merrill

Its Craig speaking, Laurence.

to been had bit process of fact on track XXXX, and In second but QX little we're type of our a on pleased We've for expectations. half the things, results. very I year those have our QX tweak in the with we install think and

fact, ones. our previous contracts In our new value a higher price than and at are

through And renewals very so are our nicely. also coming

second year. In we've fact the we got nice fact signed to cover some expect rate next into that we the of kind in moving QX half enough orders install pipeline our in in year. And

we're track looks as very it we pleased its So and like on expected.

Randy Dearth

And going of what in target perspective getting statistic, $XX million We're all. cubic manufacturing, million equates concrete. installs, all better and something and excites live, that definitely direction VERIFI Craig's them above we're the load, to we're it's terms the of X.X with pleased is again is usage, admixture an is and with better and we and million without yards loads very point, XX Laurence in getting would it as us doing, into pointed we this the put as the not VERIFI. management, have we've this before, Yes. million To interesting we as $XX have to as had out materials delivered that management XXXX so well far data said

Laurence Alexander

Thank you. great. Okay,

Operator

The for today’s our question-and-answer concludes you call. has now Thank participating on call This concluded. you. Thank session.

disconnect. now may You

GCP Applied (GCP) 6 Nov 192019 Q3 Earnings call transcript