GCP Applied Technologies Reports Fourth Quarter and Full Year 2019 Results

• Delivered full-year 2019 results in-line with outlook
  
• Drove fourth consecutive quarter of significantly increased profitability for Specialty Construction Chemicals
• Advanced restructuring programs resulting in $16 million decrease in selling, general and administrative expenses in 2019
• Continued to grow net cash provided by continuing operations and Adjusted Free Cash Flow* in 2019
• 2019 Net sales of $1.014 billion; Net Sales, Constant Currency* of $1.038 billion
• 2019 Income from continuing operations attributable to GCP shareholders of $41 million; Adjusted EBIT* of $102 million

CAMBRIDGE, Mass., Feb. 26, 2020 (GLOBE NEWSWIRE) -- GCP Applied Technologies Inc. GCP, a leading global provider of construction products technologies, today announced results for the fourth quarter and full year 2019.

For the three months ended December 31, 2019, GCP reported net sales of $258.3 million compared to $276.1 million in the prior year quarter. Net Sales Constant Currency Excluding Market Exits* were $260.9 million versus $269.9 million in the prior year quarter. Income from continuing operations attributable to GCP shareholders was $5.9 million compared to $19.7 million in the fourth quarter of 2018, while Adjusted EBIT* was $29.9 million compared to $32.1 million in the prior year quarter. Diluted EPS from continuing operations attributable to GCP shareholders was $0.08 versus $0.27 in the fourth quarter of 2018, while Adjusted EPS* was $0.27 compared to $0.29 in the prior year quarter.

Commenting on GCP's fourth quarter and full year results, Randy Dearth, President and Chief Executive Officer, said, "Our performance in the fourth quarter and ability to meet our financial commitments for 2019 demonstrate that our actions to position GCP for growth are taking hold. We have made real progress, including the implementation of a new organizational structure, a significant increase in  profitability for Specialty Construction Chemicals, solid revenue and truck install growth for VERIFI^®, a reduction in our expenses, and meaningful growth in Adjusted Free Cash Flow*."

Dearth continued, "As I look to the future, I am confident that we are on the right track. While we recognize that we have more work to do to raise our performance and efficiency, we are taking significant actions. We are focused on returning Specialty Building Materials to sustainable growth, continuing to build out our VERIFI^® franchise, implementing additional efficiency projects, and further optimizing SCC's operating model. We expect these initiatives to produce a more stable business with the potential to create substantial value for shareholders."

Total GCP Applied Technologies
($ Millions)

Fourth Quarter 2019 Details:

• Net sales decreased 6.4% primarily due to lower project activity within SBM, planned exits from unprofitable geographic markets within SCC and the unfavorable impact of foreign currency translation, partially offset by price increases in both SCC and SBM. Net Sales Constant Currency Excluding Market Exits* decreased 3.3%.
• Gross margin increased 110 basis points to 37.5% primarily due to improved pricing, the favorable impact of exiting unprofitable geographic markets within SCC and restructuring savings, which more than offset unfavorable product mix in SBM.
• Income from continuing operations attributable to GCP shareholders was $5.9 million compared to $19.7 million for the prior year quarter. The decrease was primarily due to a loss from pension mark-to-market adjustment compared to a gain in the prior year quarter, partially offset by an income tax benefit in the current quarter compared to an income tax provision in the prior year quarter.
• Adjusted EBIT* of $29.9 million decreased 6.9% as lower SBM operating income was partially offset by higher SCC operating income. Adjusted EBIT Margin* of 11.6% was consistent with the prior year quarter.
• Adjusted EBITDA* decreased 3.0% to $41.5 million and Adjusted EBITDA Margin* increased 60 basis points to 16.1%.

Fourth Quarter Segment Performance

Specialty Construction Chemicals
($ Millions)

• Net sales decreased 7.0% primarily due to strategic exits from unprofitable geographic markets and lower activity in Asia Pacific, with price increases more than offsetting the unfavorable impact of foreign currency translation. Net Sales Constant Currency Excluding Market Exits* decreased 1.9%.
• Gross margin increased 430 bps primarily due to improved pricing, raw material deflation, the favorable impact of restructuring activities, and exiting unprofitable geographic markets.
• Segment operating margin increased 430 bps primarily due to higher gross margin.

Specialty Building Materials
($ Millions)

• Net sales decreased 5.8% as an increase in Residential volumes and improved pricing was more than offset by a decline in Building Envelope volumes in North America and Asia Pacific, as well as the unfavorable impact of foreign currency translation.
• Gross margin of 39.1% decreased 320 basis points primarily due to unfavorable product mix.
• Segment operating income of $21.7 million decreased 26.2% due to lower sales volumes impacting operating leverage, lower gross margin and an acquisition-related settlement related to Stirling Lloyd recognized in the prior year quarter.

*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.

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.

Full Year 2020 Outlook

¹Assumes prior-year monthly FX rates carried forward into the guidance period.
²Assumes December 31, 2019 FX rates carried forward into the guidance period.
³Includes tax rate of 27.5% to 28.5%.
⁴Assumes 73 million shares outstanding.
*Non-GAAP financial measures. See the tables herein for important information regarding these measures and a reconciliation to the most comparable GAAP measures.

Investor Call
GCP has scheduled a conference call and webcast at 10:00 a.m. ET today to review its 2019 results and full-year outlook. 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 +1 800-353-6461 in the U.S. or +1 (334) 323-0501 internationally prior to the start of the call. Participants should ask to join the GCP Applied Technologies earnings 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 March 4, 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 5795742.  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, 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 admixtures and additives for concrete and cement, the VERIFI^® in-transit concrete management system, high-performance waterproofing products, and specialty construction products. 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; 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.

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Analysis of Operations

The Company has set forth in the tables below GCP's key operating statistics with percentage changes for the three months and years ended December 31, 2019 and 2018. In the tables, 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. The Company believes that the non-GAAP financial information supplements its discussions about the performance of its businesses, improves period-to-period comparability, as well as 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 the Company's core operations.

In the tables, 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 tables 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 and Repositioning 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 compensation. GCP uses Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision-making and compensation purposes and allows management to measure the ongoing earnings results of the Company's 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; and (iii) amortization of acquired inventory fair value adjustment. Adjusted Gross Margin is defined as Adjusted Gross Profit divided by net sales. Management 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, shareholder activism and other related costs, 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 it successfully balance our growth, profitability and working capital and other investments to support sustainable, long-term financial performance. Management 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, Adjusted Gross Margin and Adjusted Free Cash Flow 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 period-to-period comparability 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.

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 has been a material component of 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. GCP's business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of its costs. GCP compensates for the limitations of these measurements by using these indicators together with net income (loss) measured in accordance with U.S. 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 U.S. GAAP for a complete understanding of GCP's 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 U.S. GAAP.

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