GCP Applied Technologies Reports Third Quarter 2020 Results NYSE:GCP

GCP Applied Technologies Reports Third Quarter 2020 Results NYSE:GCP

GCP Applied Technologies Reports Third Quarter 2020 Results NYSE:GCP

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  • 3Q20 Net sales $248.4 million down 7%
  • Gross Margin 40.8%, an increase of 140 basis points
  • Selling, general and administrative expenses $65.2 million, decreased 2%
  • 3Q20 income from continuing operations attributable to GCP shareholders of $99.5 million including the gain on sale of GCP’s Cambridge headquarters; Adjusted EBIT* of $35.1 million
  • Net cash provided by operating activities from continuing operations of $59.3 million for nine months ended September 30, 2020

CAMBRIDGE, Mass., Nov. 06, 2020 (GLOBE NEWSWIRE) — GCP Applied Technologies Inc. (NYSE: GCP), a leading global provider of construction products technologies, today announced results for the third quarter of 2020.

For the three months ended September 30, 2020, GCP reported net sales of $248.4 million compared to $266.9 million in the prior year quarter. Net Sales Constant Currency Excluding Market Exits* were $250.0 million versus $263.7 million in the prior year quarter. Income from continuing operations attributable to GCP shareholders was $99.5 million compared to $17.0 million in the third quarter of 2019, while Adjusted EBITDA* totaled $47.0 million, an increase from $45.3 million in the prior year quarter. Adjusted EBIT* was $35.1 million compared to $34.8 million in the prior year quarter. Diluted earnings per share from continuing operations attributable to GCP shareholders was $1.36 compared to $0.23 in the third quarter of 2019, while Adjusted EPS* was $0.30 compared to $0.28 in the prior year quarter.

Simon Bates, GCP’s President and Chief Executive Officer, said, “I am excited to have joined GCP. Our team is committed to the safety of our employees and the service to our customers given the challenges created by the global pandemic. Our third quarter results were favorable year over year. As the CEO, my focus will be on sustainable performance over time. A clear benefit is our strong balance sheet, which features significant liquidity of approximately $860 million as of September 30, 2020 and provides substantial financial flexibility.” 

*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.

Total GCP Applied Technologies
($ Millions)

  3Q 2020   3Q 2019   % Change
Net sales $248.4   $266.9   (6.9)%
Net Sales Constant Currency* $250.0   $266.9   (6.3)%
Net Sales Constant Currency Excluding Market Exits* $250.0   $263.7   (5.2)%
Gross margin 40.8%   39.4%   140 bps
Income from continuing operations attributable to GCP shareholders $99.5   $17.0   NM
Income from continuing operations attributable to GCP shareholders as a percentage of net sales 40.1%   6.4%   3,370 bps
Diluted EPS from continuing operations attributable to GCP shareholders $1.36   $0.23   NM
Adjusted EPS* $0.30   $0.28   7.1%
Adjusted EBIT* $35.1   $34.8   0.9%
Adjusted EBIT Margin* 14.1%   13.0%   110 bps
Adjusted EBITDA* $47.0   $45.3   3.8%
Adjusted EBITDA Margin* 18.9%   17.0%   190 bps

Third Quarter 2020:

  • Net sales decreased 6.9% primarily attributable to lower sales volumes in SCC and SBM due to lower overall demand for products in certain countries and construction segments impacted by COVID-19 and its impact on the global economy.
  • Gross margin increased 140 basis points to 40.8% primarily due to lower logistic costs and improved operational productivity which more than offset the unfavorable impact of lower volumes.
  • Selling, general and administrative costs of $65.2 million decreased 1.7% for the second quarter primarily due to reduced discretionary spending, benefits from our productivity initiatives and lower employee-related costs resulting from restructuring programs. These favorable impacts were partially offset by increased shareholder activism and other related costs, as well as increased expenses related to our growth initiatives.
  • Income from continuing operations attributable to GCP shareholders was $99.5 million compared to $17.0 million for the prior year quarter. The increase was primarily attributable to a gain on sale of corporate headquarters, partially offset by higher income tax expense resulting primarily from the sale.
  • Adjusted EBIT* of $35.1 million increased 0.9% compared to the prior year quarter primarily due to lower corporate costs, partially offset by lower SCC and SBM operating income.
  • Adjusted EBITDA* increased 3.8% to $47.0 million with a corresponding Adjusted EBITDA Margin* of 18.9%. The increase was due to lower corporate costs and improved SCC operating income after adjusting for depreciation and amortization.

Third Quarter Segment Performance

Specialty Construction Chemicals
($ Millions)

  3Q 2020   3Q 2019   % Change
Net sales $138.3     $151.8     (8.9)%
Net Sales Constant Currency* $140.7     $151.8     (7.3)%
Net Sales Constant Currency Excluding Market Exits* $140.7     $148.6     (5.3)%
Gross margin 39.8%     37.4%     240 bps
Segment operating income $18.6     $19.8     (6.1)%
Segment operating margin 13.4%     13.0%     40 bps
  • Net sales decreased 8.9% compared with the prior-year quarter due to lower sales volumes in all regions and the unfavorable impact of foreign currency translation.
  • Gross margin increased 240 basis points to 39.8% primarily due to lower cost resulting from improved operational and logistics productivity which more than offset the unfavorable impact of lower volumes resulting in reduced operating leverage.
  • Segment operating margin increased 40 basis points primarily due to higher gross margin.

Specialty Building Materials
($ Millions)

  3Q 2020   3Q 2019   % Change
Net sales $110.1   $115.1   (4.3)%
Net Sales Constant Currency* $109.3   $115.1   (5.0)%
Gross margin 42.3%   42.2%   10 bps
Segment operating income $25.4   $25.9   (1.9)%
Segment operating margin 23.1%   22.5%   60 bps
  • Net sales decreased 4.3% due to lower sales volumes in EMEA and Asia Pacific and lower pricing in North America. The decreases were partially offset by higher sales volumes in North America and the favorable impact of foreign currency translation.
  • Gross margin of 42.3% increased 10 basis points primarily due to improved logistics productivity, partially offset by lower pricing.
  • Segment operating margin of 23.1% increased 60 basis points primarily due to lower operating expenses, partially offset by the unfavorable impact of lower sales volumes resulting in reduced operating leverage.

Impact of COVID-19 Pandemic
The Company has been closely monitoring the impact of novel strain of coronavirus (“COVID-19”) and managing its effects on its business globally as the situation continues to evolve.

COVID-19 began emerging in the latter half of the first quarter resulting in temporary mandated closures of the Company’s manufacturing operations, primarily in China. During the first half of the year, the pandemic spread and intensified throughout the world resulting in mandated and voluntary closures of some of the Company’s manufacturing operations and administrative offices which continued, to a lesser extent, during the third quarter. During this time, the Company 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. Responsive measures the Company adopted include working remotely when possible, establishing procedures for deep cleaning of facilities, restricting business travel, providing personal protective equipment, using appropriate social distancing practices, and restricting visitor access to facilities.

COVID-19 has negatively impacted the Company’s operating results during the first half of the year and, to a lesser extent during the third quarter, primarily due to periodic closures of its facilities in all regions in which GCP operates, and periodic mandatory halts of construction activity in specific cities and countries around the world by government authorities or voluntary closures due to safety concerns. Some of the GCP customers have experienced similar disruptions as a result of the pandemic. During the third quarter, while construction activity levels remained below those that existed prior to COVID-19, the Company saw business conditions and construction market activity improve as global economies began to slowly reopen. As a result, the revenue volumes in the third quarter increased compared to the second quarter. The impact of COVID-19 on the business varied across different geographies and product lines during the third quarter. GCP has taken actions to preserve our liquidity by reducing discretionary spending and certain planned capital expenditures. 

It is difficult for GCP to predict at this time the duration and extent of the impact of COVID-19 on the global construction industry, the Company’s business, its financial position, results of operations, or liquidity although the Company expects that managing the impacts of the pandemic will be a part of its ongoing operations for the foreseeable future. Factors the Company is monitoring to assess the potential duration and extent of the impact of COVID-19 on its operations include the health of the global economy and construction industry, specifically on demand drivers for its construction products, as well as operational disruptions including those resulting from government actions, such as mandatory halts of construction activity, travel restrictions, as well as facility and work site closures. The Company will continue to prioritize the health and safety of its employees and serving its customers while minimizing disruption to the extent possible. The Company will also continue to monitor the health of the construction industry in the geographic markets in which the Company operates and respond accordingly.

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 third quarter of 2020 was $473.4 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 $860 million as of September 30, 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, as well as 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.

Investor Call
GCP has scheduled a conference call and webcast at 10:00 a.m. ET today to review its third 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 (844) 887-9408 in the U.S. or +1 (412) 317-9261 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 November 13, 2020. To listen to the playback, please dial +1 (877) 344-7529 in the U.S. or +1 (412) 317-0088 internationally; the access code is 10148717.  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 Margin, Adjusted EBIT, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Free Cash Flow and Adjusted EPS. 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
Betsy Cowell
T +1 617.498.4568
[email protected]

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 September 30,   Nine Months Ended September 30,
(In millions, except per share amounts) 2020   2019   2020   2019
Net sales $ 248.4       $ 266.9       $ 660.5       $ 755.2    
Cost of goods sold 147.0       161.8       400.8       468.9    
Gross profit 101.4       105.1       259.7       286.3    
Selling, general and administrative expenses 65.2       66.3       199.0       206.7    
Research and development expenses 4.5       4.5       13.1       13.8    
Interest expense and related financing costs 5.6       5.7       16.3       17.3    
Repositioning expenses 0.1       4.4       3.8       15.6    
Restructuring expenses and asset impairments 7.7       3.8       11.2       8.8    
Gain on sale of corporate headquarters (110.2 )           (110.2 )        
Other income, net (1.8 )     (2.2 )     (6.7 )     (5.7 )  
Total costs and expenses (28.9 )     82.5       126.5       256.5    
Income from continuing operations before income taxes 130.3       22.6       133.2       29.8    
(Provision for) benefit from income taxes (30.6 )     (5.5 )     (33.2 )     5.2    
Income from continuing operations 99.7       17.1       100.0       35.0    
(Loss) income from discontinued operations, net of income taxes (0.1 )     (0.4 )     (0.4 )     5.9    
Net income 99.6       16.7       99.6       40.9    
Less: Net income attributable to noncontrolling interests (0.2 )     (0.1 )     (0.4 )     (0.3 )  
Net income attributable to GCP shareholders $ 99.4       $ 16.6       $ 99.2       $ 40.6    
Amounts Attributable to GCP Shareholders:              
Income from continuing operations attributable to GCP shareholders 99.5       17.0       99.6       34.7    
(Loss) income from discontinued operations, net of income taxes (0.1 )     (0.4 )     (0.4 )     5.9    
Net income attributable to GCP shareholders $ 99.4       $ 16.6       $ 99.2       $ 40.6    
Earnings (Loss) Per Share Attributable to GCP Shareholders              
Basic earnings (loss) per share:(2)              
Income from continuing operations attributable to GCP shareholders $ 1.36       $ 0.23       $ 1.37       $ 0.48    
(Loss) income from discontinued operations, net of income taxes $       $ (0.01 )     $ (0.01 )     $ 0.08    
Net income attributable to GCP shareholders(1) $ 1.36       $ 0.23       $ 1.36       $ 0.56    
Weighted average number of basic shares 73.0       72.7       72.9       72.5    
Diluted earnings (loss) per share:(2)              
Income from continuing operations attributable to GCP shareholders $ 1.36       $ 0.23       $ 1.36       $ 0.48    
(Loss) income from discontinued operations, net of income taxes $       $ (0.01 )     $ (0.01 )     $ 0.08    
Net income attributable to GCP shareholders(1) $ 1.36       $ 0.23       $ 1.36       $ 0.56    
Weighted average number of diluted shares 73.2       72.8       73.1       72.9    

______________________________

(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) September 30, 2020   December 31, 2019
ASSETS      
Current Assets      
Cash and cash equivalents $ 473.4       $ 325.0    
Trade accounts receivable, net of allowance for credit losses of $7.3 million and $7.5 million, respectively 172.8       183.7    
Inventories, net 91.3       95.9    
Other current assets 39.7       43.7    
Total Current Assets 777.2       648.3    
Properties and equipment, net 222.4       245.3    
Operating lease right-of-use assets 40.5       29.3    
Goodwill 206.0       208.9    
Technology and other intangible assets, net 71.9       80.7    
Deferred income taxes 9.1       26.1    
Overfunded defined benefit pension plans 26.1       25.0    
Other assets 37.4       38.0    
Non-current assets held for sale       0.5    
Total Assets $ 1,390.6       $ 1,302.1    
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Liabilities      
Debt payable within one year $ 4.1       $ 2.7    
Operating lease obligations payable within one year 7.9       8.1    
Accounts payable 83.3       88.4    
Other current liabilities 134.7       113.6    
Total Current Liabilities 230.0       212.8    
Debt payable after one year 348.8       346.5    
Income taxes payable 28.4       41.4    
Deferred income taxes 13.5       13.1    
Operating lease obligations 25.9       21.6    
Unrecognized tax benefits 43.2       42.2    
Underfunded and unfunded defined benefit pension plans 57.0       67.5    
Other liabilities 15.9       15.9    
Total Liabilities 762.7       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: 73,056,914 and 72,850,268, respectively 0.7       0.7    
Paid-in capital 60.4       53.4    
Accumulated earnings 709.4       610.2    
Accumulated other comprehensive loss (134.9 )     (117.0 )  
Treasury stock (10.0 )     (8.6 )  
Total GCP’s Shareholders’ Equity 625.6       538.7    
Noncontrolling interests 2.3       2.4    
Total Stockholders’ Equity 627.9       541.1    
Total Liabilities and Stockholders’ Equity $ 1,390.6       $ 1,302.1    

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

  Nine Months Ended September 30,
(In millions) 2020   2019
OPERATING ACTIVITIES      
Net income $ 99.6       $ 40.9    
Less: (Loss) income from discontinued operations (0.4 )     5.9    
Income from continuing operations 100.0       35.0    
Reconciliation to net cash provided by operating activities:      
Depreciation and amortization 34.5       31.6    
Amortization of debt discount and financing costs 1.1       1.1    
Stock-based compensation expense 3.8       7.3    
Unrealized loss on foreign currency 2.7       1.0    
Deferred income taxes 21.1       (12.4 )  
(Gain) loss on disposal of property and equipment (109.7 )     0.1    
Changes in assets and liabilities, excluding effect of currency translation:      
Trade accounts receivable 8.6       7.2    
Inventories 3.2       (0.3 )  
Accounts payable (3.9 )     (13.6 )  
Pension assets and liabilities, net (12.4 )     4.1    
Other assets and liabilities, net 10.3       (14.6 )  
Net cash provided by operating activities from continuing operations 59.3       46.5    
Net cash used in operating activities from discontinued operations (2.5 )     (13.0 )  
Net cash provided by operating activities 56.8       33.5    
INVESTING ACTIVITIES      
Capital expenditures (28.0 )     (46.0 )  
Proceeds from sale of corporate headquarters, net of transaction costs 122.5          
Other investing activities 0.4       0.4    
Net cash provided by (used in) investing activities from continuing operations 94.9       (45.6 )  
Net cash used in investing activities from discontinued operations       (0.4 )  
Net cash provided by (used in) investing activities 94.9       (46.0 )  
FINANCING ACTIVITIES      
Borrowings under credit arrangements 1.5          
Repayments under credit arrangements       (7.6 )  
Payments on finance lease obligations (0.6 )     (0.6 )  
Payments of tax withholding obligations related to employee equity awards (0.4 )     (3.3 )  
Proceeds from exercise of stock options 1.1       5.1    
Payments of dividends to noncontrolling interests (0.5 )        
Other financing activities (0.4 )     (0.4 )  
Net cash provided by (used in) financing activities from continuing operations 0.7       (6.8 )  
Effect of currency exchange rate changes on cash and cash equivalents (4.0 )     (3.0 )  
Increase (decrease) in cash and cash equivalents 148.4       (22.3 )  
Cash and cash equivalents, beginning of period 325.0       326.1    
Cash and cash equivalents, end of period $ 473.4       $ 303.8    
Supplemental disclosure of non-cash investing activities:      
Property and equipment purchases unpaid and included in accounts payable $ 4.9       $ 8.9    

Analysis of Operations

The Company has set forth in the tables below GCP’s key operating statistics with percentage changes for the three and nine months ended September 30, 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 GCP 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 Restructuring 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) gain on sale of corporate headquarters, net of related costs; and (xiv) 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; (xii) gain on sale of corporate headquarters, net of related costs; and (xiii) 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, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EPS, 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 September 30,   Nine Months Ended September 30,
  2020       2019     % Change     2020       2019     % Change
Net sales:                      
Specialty Construction Chemicals $ 138.3     $ 151.8     (8.9 )%   $ 379.6     $ 433.9     (12.5 )%
Specialty Building Materials   110.1       115.1     (4.3 )%     280.9       321.3     (12.6 )%
Total GCP net sales $ 248.4     $ 266.9     (6.9 )%   $ 660.5     $ 755.2     (12.5 )%
Net sales by region:                      
North America $ 141.2     $ 143.9     (1.9 )%   $ 372.7     $ 393.2     (5.2 )%
Europe Middle East Africa (EMEA)   47.4       50.7     (6.5 )%     126.3       149.4     (15.5 )%
Asia Pacific   47.4       56.8     (16.5 )%     127.4       166.4     (23.4 )%
Latin America   12.4       15.5     (20.0 )%     34.1       46.2     (26.2 )%
Total net sales by region $ 248.4     $ 266.9     (6.9 )%   $ 660.5     $ 755.2     (12.5 )%
Net Sales Constant Currency:                      
Specialty Construction Chemicals   140.7     $ 151.8     (7.3 )%   $ 387.7     $ 433.9     (10.6 )%
Specialty Building Materials   109.3       115.1     (5.0 )%     281.7       321.3     (12.3 )%
Total GCP Net Sales Constant Currency (non-GAAP) $ 250.0     $ 266.9     (6.3 )%   $ 669.4     $ 755.2     (11.4 )%
Impact of Market Exits:                      
Specialty Construction Chemicals $     $ 3.2     (100.0 )%   $     $ 8.8     (100.0 )%
Specialty Building Materials                              
Total Impact of Market Exits $     $ 3.2     (100.0 )%   $     $ 8.8     (100.0 )%
Net Sales Constant Currency Excluding Market Exits:                      
Specialty Construction Chemicals $ 140.7     $ 148.6     (5.3 )%   $ 387.7     $ 425.1     (8.8 )%
Specialty Building Materials   109.3       115.1     (5.0 )%     281.7       321.3     (12.3 )%
Total GCP Net Sales Constant Currency Excluding Market Exits (non-GAAP) $ 250.0     $ 263.7     (5.2 )%   $ 669.4     $ 746.4     (10.3 )%
                       
Profitability performance measures:                      
Adjusted EBIT (A):                      
Specialty Construction Chemicals segment operating income $ 18.6     $ 19.8     (6.1 )%   $ 36.4     $ 41.9     (13.1 )%
Specialty Building Materials segment operating income   25.4       25.9     (1.9 )%     50.1       64.1     (21.8 )%
Corporate costs (B)   (7.6 )     (8.9 )   (14.6 )%     (19.7 )     (28.2 )   (30.1 )%
Certain pension costs (C)   (1.3 )     (2.0 )   (35.0 )%     (3.9 )     (5.9 )   (33.9 )%
Adjusted EBIT (non-GAAP) $ 35.1     $ 34.8     0.9 %   $ 62.9       71.9     (12.5 )%
Legacy product, environmental and other claims             %           (0.1 )   100.0 %
Repositioning expenses   (0.1 )     (4.4 )   (97.7 )%     (3.8 )     (15.6 )   (75.6 )%
Restructuring expenses and asset impairments   (7.7 )     (3.8 )   NM     (11.2 )     (8.8 )   27.3 %
Gain on Brazil tax recoveries, net (E)         0.9     (100.0 )%           0.9     (100.0 )%
Shareholder activism and other related costs (D)   (2.1 )     (0.1 )   NM     (9.5 )     (3.7 )   NM
Gain on sale of corporate headquarters   110.2           100.0 %     110.2           100.0 %
Third-party and other acquisition-related costs             %     (0.7 )     (0.1 )   NM
Interest expense, net   (5.3 )     (4.9 )   8.2 %     (15.1 )     (15.0 )   0.7 %
Income tax (provision) benefit   (30.6 )     (5.5 )   NM     (33.2 )     5.2     NM
Income from continuing operations attributable to GCP shareholders $ 99.5     $ 17.0     NM   $ 99.6     $ 34.7     NM
Income from continuing operations attributable to GCP shareholders as a percentage of net sales   40.1 %     6.4 %   33.7 pts     15.1 %     4.6 %   10.5 pts
Diluted EPS from continuing operations (GAAP) $ 1.36     $ 0.23     NM   $ 1.36     $ 0.48     NM
Adjusted EPS (non-GAAP) $ 0.30     $ 0.28     7.1 %   $ 0.48     $ 0.54     (11.1 )%

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

Analysis of Operations
(In millions)
Three Months Ended September 30,   Nine Months Ended September 30,
2020   2019   % Change   2020   2019   % Change
Adjusted profitability performance measures:                      
Gross Profit:                      
Specialty Construction Chemicals $ 55.1       $ 56.8       (3.0 ) %   $ 147.5       $ 154.7       (4.7 ) %
Specialty Building Materials 46.6       48.6       (4.1 ) %   113.4       132.8       (14.6 ) %
Adjusted Gross Profit (non-GAAP) $ 101.7       $ 105.4       (3.5 ) %   $ 260.9       $ 287.5       (9.3 ) %
Corporate costs and pension costs in cost of goods sold (C) (0.3 )     (0.3 )       %   (1.2 )     (1.2 )       %
Total GCP Gross Profit (GAAP) $ 101.4       $ 105.1       (3.5 ) %   $ 259.7       $ 286.3       (9.3 ) %
Gross Margin:                      
Specialty Construction Chemicals 39.8   %   37.4   %   2.4 pts   38.9   %   35.7   %   3.2 pts
Specialty Building Materials 42.3   %   42.2   %   0.1 pts   40.4   %   41.3   %   (0.9) pts
Adjusted Gross Margin (non-GAAP) 40.9   %   39.5   %   1.4 pts   39.5   %   38.1   %   1.4 pts
Corporate costs and pension costs in cost of goods sold (0.1 ) %   (0.1 ) %   — pts   (0.2 ) %   (0.2 ) %   — pts
Total GCP Gross Margin (GAAP) 40.8   %   39.4   %   1.4 pts   39.3   %   37.9   %   1.4 pts
Adjusted EBIT (A)(B)(C):                      
Specialty Construction Chemicals segment operating income $ 18.6       $ 19.8       (6.1 ) %   $ 36.4       $ 41.9       (13.1 ) %
Specialty Building Materials segment operating income 25.4       25.9       (1.9 ) %   50.1       64.1       (21.8 ) %
Corporate and certain pension costs (8.9 )     (10.9 )     (18.3 ) %   (23.6 )     (34.1 )     (30.8 ) %
Total GCP Adjusted EBIT (non-GAAP) $ 35.1       $ 34.8       0.9   %   $ 62.9       $ 71.9       (12.5 ) %
Depreciation and amortization:                      
Specialty Construction Chemicals $ 7.0       $ 5.9       18.6   %   $ 20.2       $ 17.5       15.4   %
Specialty Building Materials 3.8       3.6       5.6   %   11.0       11.2       (1.8 ) %
Corporate 1.1       1.0       10.0   %   3.4       2.9       17.2   %
Total GCP depreciation and amortization $ 11.9       $ 10.5       13.3   %   $ 34.6       $ 31.6       9.5   %
Adjusted EBITDA:                      
Specialty Construction Chemicals $ 25.6       $ 25.7       (0.4 ) %   $ 56.6       $ 59.4       (4.7 ) %
Specialty Building Materials 29.2       29.5       (1.0 ) %   61.1       75.3       (18.9 ) %
Corporate and certain pension costs (7.8 )     (9.9 )     (21.2 ) %   (20.2 )     (31.2 )     (35.3 ) %
Total GCP Adjusted EBITDA (non-GAAP) $ 47.0       $ 45.3       3.8   %   $ 97.5       $ 103.5       (5.8 ) %
Adjusted EBIT Margin:                      
Specialty Construction Chemicals 13.4   %   13.0   %   0.4 pts   9.6   %   9.7   %   (0.1) pts
Specialty Building Materials 23.1   %   22.5   %   0.6 pts   17.8   %   20.0   %   (2.2) pts
Total GCP Adjusted EBIT Margin (non-GAAP) 14.1   %   13.0   %   1.1 pts   9.5   %   9.5   %   — pts
Adjusted EBITDA Margin:                      
Specialty Construction Chemicals 18.5   %   16.9   %   1.6 pts   14.9   %   13.7   %   1.2 pts
Specialty Building Materials 26.5   %   25.6   %   0.9 pts   21.8   %   23.4   %   (1.6) pts
Total GCP Adjusted EBITDA Margin (non-GAAP) 18.9   %   17.0   %   1.9 pts   14.8   %   13.7   %   1.1 pts
(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. “Corporate costs and pension costs in cost of goods sold” represent service costs related to GCP manufacturing employees. 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)   Gain on Brazil tax recoveries, net primarily consists of a $1.7 million pre-tax gain related to indirect tax recoveries, and $0.8 million of legal fees and other charges relating to indirect and income tax recoveries.
   
∗    Consists of current and non-current components.
   
NM•  Not meaningful.

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

(In millions) Nine Months Ended September 30,
2020   2019
Cash flow measure:      
Net cash provided by operating activities from continuing operations $ 59.3       $ 46.5    
Capital expenditures (28.0 )     (46.0 )  
Cash paid for repositioning 9.3       13.5    
Cash paid for restructuring 2.3       8.8    
Cash paid for third-party and other acquisition-related costs 0.7       0.5    
Capital expenditures related to repositioning 4.0       3.1    
Cash paid for shareholder activism and other related costs (1) 10.4       3.5    
Cash taxes related to repositioning, restructuring, third-party and other acquisition-related costs, shareholder activism and other related costs (5.6 )     (6.6 )  
Adjusted Free Cash Flow (non-GAAP) $ 52.4       $ 23.3    
(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 September 30,
  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)             $ 1.36                   $ 0.23    
Repositioning expenses $ 0.1       $       $ 0.1             $ 4.4       $ 1.1       $ 3.3       0.05    
Restructuring expenses and asset impairments 7.7       1.9       5.8       0.08       3.8       0.8       3.0       0.04    
Shareholder activism and other related costs 2.1       0.5       1.6       0.02       0.1             0.1          
Gain on sale of corporate headquarters (110.2 )     (27.7 )     (82.5 )     (1.13 )                          
Gain on Brazil tax recoveries, net                         (0.9 )     (0.4 )     (0.5 )     (0.01 )  
Discrete tax items, including adjustments to uncertain tax positions       1.9       (1.9 )     (0.03 )           2.2       (2.2 )     (0.03 )  
Adjusted EPS (non-GAAP)             $ 0.30                   $ 0.28    
  Nine Months Ended September 30,
  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)             $ 1.36                   $ 0.48    
Repositioning expenses $ 3.8       $ 1.0       $ 2.8       0.04       $ 15.6       $ 3.9       $ 11.7       0.16    
Restructuring expenses and asset impairments 11.2       2.8       8.4       0.11       8.8       1.0       7.8       0.11    
Third-party and other acquisition-related costs 0.7       0.2       0.5       0.01       0.1             0.1          
Legacy product, environmental and other claims                         0.1             0.1          
Gain on sale of corporate headquarters (110.2 )     (27.7 )     (82.5 )     (1.13 )                          
Shareholder activism and other related costs 9.5       2.4       7.1       0.10       3.7       0.9       2.8       0.04    
Gain on Brazil tax recoveries, net                         (0.9 )     (0.4 )     (0.5 )     (0.01 )  
Discrete tax items, including adjustments to uncertain tax positions       0.4       (0.4 )     (0.01 )           17.2       (17.2 )     (0.24 )  
Adjusted EPS (non-GAAP)             $ 0.48                   $ 0.54    

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