GCP Applied Technologies Reports Third Quarter 2016 Results

• Net sales down 12.1%; Net Sales, Constant Currency excluding Venezuela* down 0.7% 
• Net income of $21.3 million; Adjusted EBIT Margin excluding Venezuela* up 40 bps 
• Diluted EPS of $0.30; Adjusted EPS* of $0.35
• Year-to-date net cash provided by operating activities of $73.0 million
• Updating 2016 financial guidance

CAMBRIDGE, Mass., Nov. 09, 2016 (GLOBE NEWSWIRE) --  GCP Applied Technologies Inc. (NYSE: GCP ) today announced third quarter 2016 results.

Total GCP Applied Technologies ( $ Millions )

“In the third quarter, we delivered strong margins and cash flow while generating stable earnings compared to the prior year quarter excluding the impact of Venezuela. Revenues were impacted by declines in Europe, which were magnified by geopolitical events in the U.K. and Turkey, and a slow start to the quarter in North America," said President and Chief Executive Officer Gregory E. Poling. "By focusing on factors in our control, we delivered an improvement in Adjusted EBIT Margin excluding Venezuela due to increased price, continued productivity and lower raw materials costs. Our year-to-date Adjusted EBIT, excluding Venezuela, increased 11.9% to $164.6 million."  

Third Quarter Segment Performance

Specialty Construction Chemicals ( $ Millions )

• Net sales decreased 19.4% primarily due to the impact of the currency devaluation in Venezuela in the third quarter of 2015; Net Sales, Constant Currency, excluding Venezuela were down approximately 3% on lower volume primarily as a result of declining revenue in Europe and soft demand in North America
• Segment operating income decreased 37.6% primarily due to the impact of the Venezuela currency devaluation; Adjusted EBIT excluding Venezuela grew 26.7% due to improved margins and lower selling and administrative expenses
• Adjusted Gross Margin excluding Venezuela improved due to favorable price, productivity and raw material deflation; Adjusted EBIT Margin excluding Venezuela expanded 350 basis points to 14.2%

Specialty Building Materials ( $ Millions )

• Net sales decreased 1.4% as pricing gains were offset by lower volume due to project timing and unfavorable currency translation; Net Sales, Constant Currency were flat as growth of approximately 8.5% in North America was offset by declines in Europe and Asia Pacific
• Segment operating income decreased 4.1% due to higher selling and administrative expenses
• Gross margin increased due to higher pricing, raw material deflation and productivity gains

Darex Packaging Technologies ( $ Millions )

• Net sales decreased 7.8% primarily due to the impact of the currency devaluation in Venezuela in the third quarter of 2015; Net Sales, Constant Currency, excluding Venezuela grew 2.8% marking the second consecutive quarter of growth
• Segment operating income decreased 23.9% largely due to the effects of the Venezuela currency devaluation and other unfavorable currency translation; Adjusted EBIT excluding Venezuela decreased 7.3% on lower price and higher expenses, offsetting benefits from raw material deflation and productivity
• Gross margin and segment operating margin decreased as a result of the devaluation of local currency in Venezuela, other unfavorable currency translation and lower pricing and product mix, partially offset by lower raw material cost and gains from productivity

*Non-GAAP financial measures. See the tables herein for important information regarding these measures and a full reconciliation to the most comparable GAAP measures.

Restructuring and Repositioning Expenses Restructuring expenses were $0.4 million for the third quarter of 2016. Repositioning expenses associated with the separation from W.R. Grace & Co. were $5.3 million for third quarter of 2016, consisting primarily of professional services and new employee transition costs.

Interest Expense Prior to the February 3, 2016 separation GCP raised $800 million of debt. This resulted in net interest expense of $17.6 million for the third quarter of 2016 compared with $0.6 million for the prior year quarter.  On August 25, 2016, GCP refinanced its term loan with a reduced interest rate margin and incurred $1.2 million of related third-party financing costs that are included in interest expense for the third quarter of 2016.

Income Taxes The effective tax rate for the nine months ended September 30, 2016 was 29.8% compared to the effective tax rate of 67.3% for the year ended December 31, 2015. The primary difference in the rate relates to a 2015 nondeductible Venezuela charge and a 2015 repatriation of foreign earnings, increasing the 2015 effective tax rate by 19.7 percentage points and 15.9 percentage points, respectively. The early adoption of new accounting guidance on stock-based compensation reduced the effective tax rate for the nine months ended September 30, 2016 by 1.9 percentage points, or $1.9 million.

Full Year 2016 Outlook ¹ Due to lower sales in the third quarter, the company is updating its financial guidance for full year 2016 as follows:

¹  2016 GCP guidance figures assume Q3 2015 FX rates carried forward into the guidance period. ² Assumes 70.7 million shares outstanding. Investor Call GCP has scheduled a conference call and webcast at 10:00 a.m. ET today to review its third quarter 2016 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 (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 through November 16, 2016. To listen to the playback, please dial (877) 344-7529 in the U.S. or +1 (412) 317-0088 internationally; the access code is 10094188. 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 excluding Venezuela, Net Sales, Constant Currency excluding Venezuela, Adjusted EBIT, Adjusted EBIT excluding Venezuela, Adjusted EBIT Margin, Adjusted EBIT Margin excluding Venezuela, Gross margin excluding Venezuela, 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 non-GAAP measures are provided to distinguish the operating results of GCP's current business.

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.

About GCP Applied Technologies

GCP Applied Technologies is a leading global provider of products and technology solutions for customers in the specialty construction chemicals, specialty building materials, and packaging sealants and coatings industries. Our products help improve the performance of our customers’ products, increase productivity in their application or manufacturing processes, and meet the increasing regulatory requirements impacting their industry. GCP has approximately 3,000 employees on six continents, and serves customers in more than 110 countries. More information is available at www.gcpat.com .

This announcement contains “forward-looking statements,” that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; 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, GCP is subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual events to materially differ from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in emerging regions; the cost and availability of raw materials and energy; the effectiveness of GCP’s research and development and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting GCP’s outstanding indebtedness; developments affecting GCP’s funded and unfunded pension obligations; legal and environmental proceedings; uncertainties related to GCP’s ability to realize the anticipated benefits of the separation from W.R. Grace & Co.; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel; costs of compliance with environmental regulation; 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 on the Internet at www.sec.gov . Readers are cautioned not to place undue reliance on GCP’s projections and forward-looking statements, which speak only as of the date thereof. GCP undertakes no obligation to publicly release any revisions to the projections and forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this announcement.

Analysis of Operations

The Company has set forth in the table below GCP's key operating statistics with percentage changes for the third quarter and nine months compared with the corresponding prior-year periods. 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, as 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.

Constant currency means 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 excluding Venezuela; Net Sales, Constant Currency excluding Venezuela; Adjusted EBIT excluding Venezuela; Adjusted EBIT Margin excluding Venezuela; and Adjusted Gross Margin excluding Venezuela mean GCP’s combined results or respective segment results excluding the financial results of its Venezuela operations. These are non-GAAP measures and should be reviewed in conjunction with the related GAAP measures. GCP uses these non-GAAP measures to assess its operating results independent of the impacts of extreme hyperinflation and geopolitical factors. Management believes that providing these metrics may allow investors to better analyze and compare GCP’s results of operations with peer companies whose operations may not be impacted by the economic challenges facing Venezuela.

Adjusted EBIT (a non-GAAP financial measure) means net income attributable to GCP shareholders adjusted for interest income; interest expense and related financing costs; income taxes; currency and other financial losses in Venezuela; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to certain product lines and investments; gains and losses on sales of businesses, product lines and certain other investments; third-party acquisition-related costs; and certain other items that are not representative of underlying trends. Adjusted EBIT Margin means Adjusted EBIT divided by net sales. GCP uses Adjusted EBIT to assess and measure its operating performance and in determining performance-based compensation. GCP uses Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for management's decision-making and compensation purposes and because it allows management to measure the ongoing earnings results of the Company's strategic and operating decisions.

Adjusted EBITDA (a non-GAAP financial measure) means Adjusted EBIT adjusted for depreciation and amortization. GCP uses Adjusted EBITDA as a performance measure in making significant business decisions.

Adjusted Earnings Per Share (a non-GAAP financial measure) means earnings per share ("EPS") on a diluted basis adjusted for costs related to restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected return on plan assets, and amortization of prior service costs/credits; gains and losses on sales of businesses, product lines and certain other investments; third-party acquisition-related costs; other financing costs associated with the modification or extinguishment of debt; certain other items that are not representative of underlying trends; and certain discrete tax items. GCP uses Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis.

Adjusted Gross Profit (a non-GAAP financial measure) means gross profit adjusted for pension-related costs and loss in Venezuela included in cost of goods sold. Adjusted Gross Margin means 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. We note that the devaluation loss in Venezuela results primarily from geopolitical factors.

Adjusted Free Cash Flow (a non-GAAP financial measure) means net cash provided by or used for operating activities minus capital expenditures plus cash paid for restructuring and repositioning; taxes paid for repositioning; capital expenditures related to repositioning;  accelerated payments under defined benefit pension arrangements; and expenditures for legacy items. 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) means Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. Management uses Adjusted EBIT Return On Invested Capital as a performance measure to review investments and to make capital allocation decisions.

Adjusted EBIT, Adjusted EBIT excluding Venezuela, Adjusted EBITDA, Adjusted EPS, Adjusted EBIT Return on Invested Capital, Adjusted Gross Margin, Adjusted Gross Margin excluding Venezuela, Adjusted EBIT Margin, Adjusted EBIT Margin excluding Venezuela and Adjusted Free Cash Flow do not purport to represent income measures as defined under U.S. GAAP. These measures are provided 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 our net income. 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 as measured under GAAP to present a complete analysis of its results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income measured under GAAP for a complete understanding of GCP's results of operations.

The Company does not provide GAAP earnings 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.

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

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

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

NM - Not meaningful

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⁽¹⁾  In the tables above for the three and nine months ended September 30, 2015, Venezuela's Adjusted Gross Profit excludes the $13.7 million loss in Venezuela included in cost of goods sold and Adjusted EBIT excludes the $73.2 million currency and other financial losses in Venezuela incurred as a result of the currency devaluation in the third quarter of 2015.

Media Relations Paul Keeffe T +1 617.498.4461 mediainfo@gcpat.com Investor Relations Joseph DeCristofaro T +1 617.498.2616 investors@gcpat.com