GCP Applied Technologies Inc.
Q2 2020 Earnings Call Transcript

Published: 7 Aug 2020

[Operator:]

Good morning, and welcome to the GCP Applied Technologies Second Quarter 2020 Earnings Conference Call. With us today from GCP Applied Technologies is Randy Dearth, President and Chief Executive Officer; Craig Merrill, Chief Financial Officer; and Betsy Cowell, Vice President, Investor Relations. During today's presentation, all participants will be in listen-only mode. [Operator Instructions] Please note the event is being recorded. I would now like to turn the conference over to Betsy Cowell. Please go ahead.

[Betsy Cowell:]

Thank you, Kate. Hello, everyone and thank you for joining us on today's call. With us on the call, as said, are Randy Dearth, President and Chief Executive Officer; and Craig Merrill, Chief Financial Officer. Our earnings release and corresponding presentation slides for this quarter's results are available on our website. To download copies, please go to gcpat.com and click on the Investors tab. Some of our comments today will include forward-looking statements under U.S. federal securities laws. Actual results may differ materially from those projected or implied due to a variety of factors, including, but not limited to, the impacts of COVID-19. Please see a full description of information used in forward-looking statements in our earnings release. We will discuss certain non-GAAP financial measures, which are described in more detail in our earnings release and on our website. Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and the Q&A. References to EBITDA refer to adjusted EBITDA, references to EBIT to adjusted EBIT and references to margin refer to adjusted gross margin, adjusted EBITDA margin or adjusted EBIT margin as defined in our press release. All revenues and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjusts for the impact to foreign currency. With that, Randy, I'll turn the call over to you.

[Randy Dearth:]

Thanks, Betsy and good morning, everyone. So, before I begin today's discussion on GCP's second quarter, I do want to update you on GCP's engagement with this new Board members that were elected at the May 28, 2020, Annual Meeting. Management has been working constructively with the Board as to help them provide insight on activities to improve our performance and build a greater understanding of our business. We appreciate the engagement as they continue to work actively alongside our business leaders to drive the business forward. The newly formed strategy, Operating and Risk Committee has been advising management on a variety of topics, including strategy, operations, go-to-market, product innovation and operating expenses. Progress on all fronts is being made and I look forward to sharing more in the coming quarters. I would like to take this opportunity to congratulate Craig Merrill on being appointed our permanent CFO. I have worked with Craig closely since I joined GCP, and find him to be a valuable partner for me, my executive leadership team and the Board. So, again, congratulations Craig. Turning to the second quarter. Please refer to slides four, five and six in our presentation. Our organization and operations performed well during the second quarter in the face of the ongoing global coronavirus pandemic. We continue to demonstrate our ability to manage costs, deliver on margin expansion and positive operating cash flow, despite the drop in global construction. I want to thank our employees across the globe for their dedication during these ever changing times due to the coronavirus. We implemented changes in our operating environment to ensure our employees remain safe and healthy. Our multifaceted response to the government imposed and voluntary factory shutdowns resulted in minimal disruptions to our business. I could not be more proud of our employees as they came together to support one another, our customers and our vendors. It goes without saying that ensuring the health and safety of our employees will always be our number one priority. As discussed during our first quarter earnings call, we were seeing significantly lower volumes in April and May, impeded by lockdowns across the globe due to the coronavirus. In June, as the regions began to reopen, revenue started to trend up for the first time since March in many of our markets. Our experience is in line with industry trends and our customers continued to depend on us during the quarter to support their needs. July revenues have continued in line with June, and our position in our markets is strong. Let's begin by talking about our SCC business. SCC revenues, which rebounded in June, were about flat with June 2019, after experiencing a 30% decline in the first two months of the quarter. In North America, our largest region, SCC had 6% growth in the month of June versus prior year June. Several large North American projects started during the quarter, which will continue into 2021. European volumes rebounded in June, exceeding June 2019 volumes by 2% as the region reopened after being locked down in April and May. SCC in Latin America was impacted by a reduction in demand due to lockdowns in most of the countries, which continued through to June. In the Asia region, China began to recover during the quarter, although, Southeast Asia and Australia remained in lockdown during June. Our VERIFI business continues to grow, although at a slower pace versus pre-COVID-19 due to the downturn in the global construction industry. Now turning to SBM. We saw a slowdown in project activity and distributor demand during April and May with volumes down 37% during this two-month period, particularly in markets experienced construction restrictions or shelter-in-place orders. Sales volumes improved in June with North America, which is our largest region, ending the month 1.5% behind June of 2019. We continue to win and progress on large project activity, including airports, bridges and office building projects, and we secured a number of infrastructure projects in North America, which will support us in the second half. Additionally, some projects that began pre-pandemic continued to progress during the second quarter. GCP's products applied in other outdoor applications, such as our fireproofing product line experienced less of a negative impact. The positive momentum during the month of June continued through July, and we see a stronger third quarter compared with the second quarter, while we are mindful of local hotspots that may impact our customers due to the COVID-19 virus. Our strategic goal for SBM is for sustainable organic growth, particularly in our North American building envelope and residential product lines and by increasing our presence in underserved segments and market geographies that are profitable and growing in the long-term. Our plan also includes expanding our product portfolio awareness to adjacent market segments and accelerating the launch of new and accessory products for the premium and mid tier segments. This program is starting to gain traction and is evident in our year-over-year June revenues in North America. I'm also pleased to report the launch of two new products for weather barriers and surface coatings that we believe will gain traction in the coming quarters. There were several other accomplishments from the second quarter that I would like to highlight. GCP's gross margin improved 130 basis points in the second quarter to 39.1%. SCC's gross margin improved for the sixth consecutive quarter. This is a result of our continued focus on our manufacturing and freight productivity initiatives that we started in 2019. We also saw the benefit of raw material deflation throughout the quarter. Second quarter's selling, general and administrative costs decreased by approximately 8%, mainly due to lower employee and related costs during the quarter, as a result of our restructuring programs and lower discretionary spending. Cost containment actions including reduced travel were put in place during the quarter in response to the crisis. GCP's cash position remains very strong, with $318.2 million of cash on the balance sheet at the end of June. Net cash provided by operating activities during the six months ended June 20 -- June of 2020 totaled $17.6 million, as we continued to execute on our working capital improvement projects. I am happy to report that we completed the sale of GCP's Cambridge headquarters on July 31, 2020. Planning is underway to locate a fitting location for our headquarters. The $125 million transaction unlocks value to GCP shareholders and is consistent with the company's commitment to invigorating its focus on profitable growth, value creation and appropriate capital allocation strategies. In addition, today, we announced the approval by GCP's Board of Directors of the $100 million stock buyback program. With the authorization in place, management will work with the Board to determine the best way to execute on this program. I would now like to turn the call over to Craig, who will review the company's financial performance in more detail, along with segment results and our comments on the third quarter. Craig?

[Craig Merrill:]

Thank you Randy, and good morning, everybody. Just a reminder, all revenue and associated growth rates in my comments are on a constant currency basis. Before we summarize our second quarter, let me first just say that we are very pleased with our results for the quarter and year-to-date considering the challenging operating environment during the second quarter. Our teams remain focused on their objectives and continue to provide a high level of service and commitment to our customers, albeit more challenging with the current environment. First, I will focus on the revenues for the quarter. GCP sales of $200 million were 23.7% lower than prior year, due to the impact of government imposed restrictions on construction activities and manufacturing as a result of COVID-19. Impacts due to COVID-19 varied by product line and geography during the quarter, but generally remain within the 25% to 35% unfavorable impact expected as we entered the second quarter. Although, the demand in April and May was down significantly, our June revenues did rebound for GCP overall and specifically in North America, as the economy opened up. Although -- North America revenues finished 2%, up for June versus prior year, and we see continued strength in North America in July. Europe, Asia and Latin America also finished June much stronger than the first two months of the quarter. However, the rebound was not as generous and it was in North America due to a slower overall return to normal construction activities. U.K. volume has been steadily improving, but at a little slower rate than Continental Europe. China volumes have come back since the country reopened. And the rest of Asia, including Australia, continue to improve, but are still impacted by COVID-19 government restrictions. Latin America volumes steadily improved during the quarter. However, some countries remain under lockdown. Where lockdowns are not present, we are seeing good construction activity and volumes globally. With respect to price, GCP was close to flat year-over-year at a 0.1% price decline. SCC captured price, most notably in Latin America, where in-country inflation due to currency devaluations occurred and we increased price appropriately. SBM's North America and Asia regions experienced some price pressure and -- which was expected in the current deflationary period when oil prices are at historical lows. The teams acted quickly though to continue to secure appropriate volumes and margins during the quarter on current and future project bids. GCP's gross margin increased 130 basis points to 39.1%, primarily due to lower raw material, labor and freight costs driven by operational productivity, which were partially offset by the unfavorable impact of reduced operating leverage during the period to lower sales and production volumes. Selling, general and administration costs of $65.7 million improved by $5.7 million or approximately 8% during the quarter benefiting from lower employee and related costs due to restructuring, management of other discretionary costs, including advertising and favorable impact of the COVID-19 restrictions on travel, entertainment and other operational activities. Some second quarter restructuring activities did move to the second half of the year due to the limited access to offices and travel restrictions, which have made it difficult to execute in some countries due to COVID-19. We will continue to execute on our restructuring plans and are currently assessing our SG&A position relative to overall sales volumes in the environment. Managing these costs is a high priority as we monitor our performance metrics and expected volumes over the next three to six months. GCP's loss from continuing operations, attributed to GCP shareholders, was $1.3 million compared to income from continuing operations attributable to GCP shareholders of $3.1 million for second quarter 2019. The change was primarily due to lower gross profit due to lower sales volumes, partially offset by reduced restructuring and repositioning costs, lower selling and general administration costs and slightly lower tax expense. GCP's adjusted EBIT margin ended the quarter at 6.8% versus 9.6% in the prior year quarter, primarily due to lower gross profit as a result of volume declines, partially offset by lower selling, general and administration costs. Adjusted EBITDA margin was 12.8% for the second quarter or 100 basis points lower than the same period 2019. Looking at the specific performance of our two segments, you can refer to pages 10 and 11. SCC sales were down 20.5% to $119.5 million. North America's revenues declined 10.7% in the quarter, as construction in most states was deemed essential. And our customer network in North America continued to service their customers, although at a slower pace versus prior year during the quarter. However, reorder rates in June were well ahead of prior year. Other regional sales declined in other regions 27% to 30% versus prior year during the quarter, with the sales declines all mostly attributable to COVID-19. Impacts in Asia, Europe and Latin America due to COVID-19 have been slightly more prolonged and deeper versus North America. Revenue in June versus the same period for 2019 in North America and Europe, both increased 5.7% and 1.6%, respectively compared with June 2019. Price gains also occurred in Latin America and Europe on a nominal basis, with slightly offset volume declines during the quarter. SCC's gross margin improved by 350 basis points during the second quarter, sixth consecutive quarter of gross margin improvement, as Randy mentioned. Raw material deflation, operation and logistics productivity and favorable regional mix, all contributed to margin expansion. SCC segment income was $9.9 million, with an operating margin of 8.5%, which decreased 90 basis points compared with the prior year quarter, primarily due to lower sales volume, unfavorably impacted by operating leverage partially offset by higher gross margin. SBM sales totaled $80.5 million during the second quarter, a 28% decline versus the second quarter 2019 due to challenging construction markets, as a result of COVID-19. Sales volumes in April and May were below 2019 volumes due to reduced construction and manufacturing. Distributors in April and May did not restock at a normal pace due to the uncertainty of the impacts of COVID-19 on future product demand. North America volumes did, however, rebound in June as construction resumed in many North America locations with distributors reordering and larger projects restarting once customer COVID-19 safety procedures were instituted, in line with government and state recommendations. In June, North America SBM sales were down 1.5% versus prior year June. However, positive year-over-year reorder patterns were evident in July. Business in France, Germany, Italy and the U.K. for SBM also improved during June once overall restrictions were lifted. SBM's gross margin declined 140 basis points to 39.7% compared to the second quarter of 2019, due to the unfavorable impact of lower sales resulting and reduced operating leverage and increased inventory write-offs year-over-year, partially offset by raw material deflation and productivity. SBM segment operating income was $11 million, with operating margins at 13.8%, a 610 basis point decline versus prior year. This was due mainly to lower sales volume unfavorably impacting operating leverage and lower gross profit, partially offset by the benefits of reduced discretionary costs and employee related costs during the quarter. Now, turning back specifically to GCP. GCP's effective tax rate was 136.4% for the quarter. That included the reversal of the first quarter CARES Act tax benefit, resulting from changes in our forecasted income for the year. The company no longer expects to have a net operating loss carryback for 2020, of which it did expect in Q1 forecast. GCP's net cash provided by operating activities was $17.6 million for the six months ended June 30, 2020 versus a usage of cash of $13.1 million for the six months ended June 31, 2019. Adjusted free cash flow totaled $18 million for the first six months compared with a usage in total of $12.3 million during the same period in 2019. Accounts receivable management improved $20.8 million. Vendor payables delivered a $4.1 million improvement, and inventories generated a $1.7 million improvement compared to the prior six months. We continue to improve the transparency of our working capital initiatives throughout the regions and within our respective country operations and we are seeing the results of these efforts, which will continue. Please refer to slides 12 and 13 for a discussion on GCP's first half performance. GCP's net sales for the first six months totaled $419.4 million, decreasing 14% compared with the prior year, mainly due to the second quarter impact of COVID-19 on volumes. Gross margin for the six months increased 130 basis points to 38.4%. The net loss attributable to GCP shareholders in the first six months totaled $0.2 million compared with net income attributable to shareholders of $24 million for the first half of June 2019. The change resulted mainly from the reduced sales volume to COVID-19 in the second quarter, partially offset by reduced operating expenses. Adjusted EBIT was $27.8 million for the first six months or 25.1% unfavorable for the same period in 2019, again mainly due to the impact of COVID-19. Turning to our outlook for 2020. Although, it continues to be difficult to predict the duration and extent of the impact of the pandemic on our business over the next six months and beyond as events unfold, the near term view is as follows. As discussed, June's positive volume trends have continued into July, and we expect the third quarter to be a significant improvement over the second quarter. Planned and funded construction projects have resumed or are coming online with construction sites having implemented additional health and safety protocols along with social distancing. These efforts are important for construction to remain active, while hotspots may arise. While we expect the demand to improve and slowly return to close to normal levels as the year progresses, some projects have moved into 2021, which may dampen some demand in the latter half of the year and we are monitoring this closely. As for the third quarter, of which we have the best view, we expect the impact of COVID-19 pandemic to reduce overall demand for our products by approximately 5% versus prior year in constant currency. We also expect raw material deflation to provide a modest offset to the forecasted volume declines. However, we will continue to deliver productivity to support our margins. We remain focused on our operating expenses, which we have continued to improve sequentially during the year. And in addition to our restructuring programs, which will continue, we have identified additional cost savings opportunities and have learned a lot during the COVID-19 period on how to perform at a lower cost base, while we service our customers very well. We are implementing these learnings as we move through the year. We remain on track to the planned capital expenditure reduction of $25 million in 2020, or a reduction of 35% to 45% from our original planned capital spending. And we expect our cash position will grow throughout the year, based on the working capital programs we have initiated, the reduced CapEx target versus original plan, and, of course, the sale of our Cambridge site. The share repurchase program announced will be funded with our existing cash balance. Looking beyond the pandemic, we are confident in long-term fundamentals of GCP and the construction industry. We are confident that our current plans will allow us to navigate the pandemic and we'll be well-positioned as the overall construction demand stabilizes somewhat during the second half of the year, while we focus on our overall cost position as a company. I'll turn it now back over to Randy. Thank you.

[Randy Dearth:]

Thanks, Greg. Just a few closing remarks. Let me just say again that we have welcomed our new board members and their enthusiasm and interest in working with the GCP leadership team has been constructive. The working relationships have been very engaging, and we look forward to jointly continuing to create value for our GCP shareholders. Despite the challenges the COVID-19 virus presented in the second quarter, our teams around the globe continued to focus on our customers and we are happy to see June rebound as it did. We will continue this focus going forward. And our strong balance sheet, which features significant liquidity and no near term debt maturities, is a competitive differentiator that provides substantial financial flexibility and positions us well to successfully manage through the ongoing economic challenges and uncertainty caused by the COVID-19 pandemic. With the sale of the Cambridge facility and the stock buyback program, we are committed to maintaining a flexible liquidity base. And along with the board, we will continue to evaluate all alternatives for the effective and efficient use of cash. I would like to wrap up my comments by thanking our employees personally and on behalf of my leadership team for all the hard work and efforts they continue to devote to GCP under extremely challenging conditions. I really appreciate that. Thank you today for joining our call and we now look forward to taking your questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Mike Harrison of Seaport Global Securities. Please go ahead.

[Mike Harrison:]

Hi. Good morning. And congratulations to Craig on the permanent role as CFO.

[Randy Dearth:]

Good morning, Mike.

[Craig Merrill:]

Good morning, Mike.

[Mike Harrison:]

And congratulations to Craig on the permanent role as CFO.

[Craig Merrill:]

Thank you, Mike.

[Mike Harrison:]

I wanted to ask, if you can talk -- it sounds like you're pretty confident in the direction of things and the trends that you're seeing in North America. I was wondering, if you can maybe give a little bit more color on what you're seeing in other regions, maybe in specific areas where you feel like they're making better progress toward normal construction activity? Or some areas where you have more concern, or more uncertainty on the pace of that progress toward normal?

[Randy Dearth:]

No. It's a good question, Mike. And just like we see here in North America and we hear about every day on the news, some states are reopening faster than others and are getting back to some type of normalcy. The same can be said around certain countries in Europe, as well as certain countries in the Asia-Pacific region. Some have just been much slower due to restrictions and also due to some hotspots that have resurfaced in getting back to normal activity. So, we're going to follow that through the next quarter to see what happens. We do believe that the construction activity in that -- those two regions, Europe and in the APAC region will indeed start coming back in the third quarter. We just don't know the pace by which that's going to happen, again, due mostly to these restrictions.

[Mike Harrison:]

All right. And then in terms of the restructuring, you mentioned some additional cost areas that you have learned to operate on a lower cost base. I guess, I am just trying to apply your guidance of a 5% impact of COVID on the top line, trying to think about how that looks on the bottom line, as you maybe hang onto some of these additional cost actions that you've delivered and continue to see improvement in the raw material environment.

[Randy Dearth:]

It's another good question, Mike. We've obviously gone through an experiment here over the past four months or so on a global basis to see how can we run our company differently, given the fact that we have to work differently in this pandemic. And there is a lot of lessons that have come out of that in terms of work-at-home strategies, how we service our customers differently, how we do virtual go lives and virtual test trials with our customers. So, a lot of those learnings we're going to take going forward as most companies are. And we do believe that's going to lead to lower cost of how we run our operations. We've also learned a lot at our plants in terms of inventory management, again, driven by this crisis in terms of different techniques and different processes that we built in to be able to better manage our inventory and better manage how we service the customers globally. So, a lot of lessons that we've learned. And the goal would be going forward that these lessons are going to find their way to the bottom line. Anything you want to add, Craig?

[Craig Merrill:]

Yeah. Mike, it's a good question. We've done a lot of -- just -- priority is our employee safety, of course, during this whole process. And we're doing a lot of virtual training with our customers. We're doing mix design, training with our customers virtually. We're starting to learn that sometimes -- and our customers' behavior is starting to come around a little bit, but that's acceptable. We also implemented the GCPLUS program of ordering online that Randy and the Customer Service Group and the IT Group implemented about six months ago. We're seeing traction on that now, just orders coming through online versus a sales rep or someone having to take these orders, which obviously is costly when it has to be handed off to eight different people to take orders, more back in the 1960s industrial kind of process. So, we're seeing a lot of progress on kind of the new wave of how you do business. And we're taking -- we are getting advantage of that in the cost base. And we're not going to go back and invest the money back in there now that we see the advantage. So, we expect the savings to continue in Q3 and Q4 relative to those. And we're having good discussions with the whole team about how we continue that into 2021, even if things come back to normal and COVID-19 kind of relaxes a little bit. So, that's really quite a bit of money there, if we can keep the momentum going. I can't say exactly how much it will be in 2021, but we'll probably have a better idea as we go through Q3.

[Randy Dearth:]

And an additional point to make, Mike. I would like to add, we're in the enviable position that we're going to be looking for new headquarters going forward, as we've mentioned. And having this learning of this new environment that we've been working in should play into our decision. So, it's definitely -- the world has changed and we need to take that into consideration looking forward.

[Mike Harrison:]

All right. And then in terms of -- you mentioned some larger projects that looked like they were getting pushed into 2021. Are you pretty confident at this point that these are delays and not cancellations? Maybe just talk about kind of what you're seeing in terms of the backlog on some of those larger projects.

[Craig Merrill:]

Yeah. So, another good question. I mean, I wish, I could answer you 100% that they are delays, not cancellations. But for right now, they are delayed. There are certainly some projects that would have got started already in Q2. They are not started. There is some probably concern on funding and social distancing. As you know, these big projects, when they start them, the timeline is very important to them. So, I just think for now, as long as the economy stays about where it's at and there's not incremental hotspots that people need to be concerned about, I think they are pushed out. I don't think they are canceled. There's funding for the projects. There's still a lot of money around. That's not the issue. People just are a little bit more apprehensive to start a project, especially a big one right now with the social distancing, specific hotspots, even on the supply chain side. We've actually given our customers a little more confidence in our supply chain. Our inventories are slightly higher than where they want to be -- we want them to be, but we've actually had some backup inventory just in case one of our plants goes down. And I think once other companies start to do this, folks will have more comfort to spend the money on these big projects, so they can get full supply chain support from their customers.

[Mike Harrison:]

All right. And then last question for me is, just maybe on the decision to authorize the $100 million of share repurchase. Can you talk about your capital allocation priorities going forward? And maybe any guidance on the timing of this repurchase activity? Thanks.

[Randy Dearth:]

Yeah. No. Mike, we obviously have always had a pretty comprehensive view of capital allocation and returning our monies to shareholders. Now with the new board in place, and we're excited again to have their input and their guidance and specifically the strategy, operating risk committee, we'll be working with management and going through the various options we have, what makes the best sense for the shareholders and it's going to create the most value for shareholders. Obviously, this was the first decision that was made regarding capital allocation, the $100 million authorization for the buyback. But the overall board, once -- and the strategy and operating committee, once they get up and functioning fully, this will be a discussion point going forward.

[Craig Merrill:]

Mike?

[Mike Harrison:]

Yeah. Thanks very much.

[Randy Dearth:]

Yeah. It's fine. Yeah.

[Craig Merrill:]

I'll just add, Mike, maybe to one of your other questions. I mean, these big projects are in the infrastructure category. They are not in commercial or retail projects, that type of thing. So, we're more confident they are pushed out than canceled. Just the category they are in is more comforting for us.

[Operator:]

The next question is from Rosemarie Morbelli of G. Research. Please go ahead.

[Rosemarie Morbelli:]

Thank you. Good morning, everyone.

[Randy Dearth:]

Good morning, Rosemarie.

[Craig Merrill:]

Good morning, Rosemarie.

[Rosemarie Morbelli:]

You talked about the board -- the board's input on your strategy going forward. So, between the new board and what you have learned during the COVID -- well, we are still in it -- but during COVID, could you touch on what changes you are thinking about in -- for your strategy going forward? Is there anything very different from what you were planning in doing ahead of those two events?

[Randy Dearth:]

No. What I would say, Rosemarie, we've been working very closely with the new board. We've had several meetings over the last couple of months. And we're still in the phase of sharing our current strategies and getting their input on areas that we could focus on differently, in areas that -- ideas that they have that we can investigate. So, it's still in that phase of getting to know each other and putting forth the best strategy for GCP going forward. I'm really excited with what I've heard. Again, mentioning this -- the strategy operating risk committee, a lot of experience and a lot of ideas. And we're going to continue to work with them closely in the coming months and we come on that. But we're excited to have this different perspective on how the company could be doing things differently.

[Rosemarie Morbelli:]

And in terms of what you learned during COVID there, so you have learned that you can operate at a lower cost. There is a certain amount of discretionary costs. Can you quantify how much of those you think you will generate in 2020? And while you may not have a hard number for 2021, how much is coming back with volume?

[Craig Merrill:]

Yeah. So, Rosemarie, in Q2 -- maybe this will give you some guidance and I know some others might want it. In Q2 about six or -- I guess, about $6 million of operating savings we had, mostly SG&A. It's about a third, a third, a third. It's about a third restructuring, about a third actual implemented cost savings and about a third due to kind of lower activity due to COVID-19. So, our challenge to ourselves is, can we keep that third savings due to the COVID-19 lower activity. So, that's a couple of million dollars a quarter. So, we're challenging ourselves to determine how we continue to get our volumes at prior year volumes and still execute on that. So, that will get -- that's about all the guidance I can give right now. But we're still working through that and to determine whether we can keep that through the year or not.

[Randy Dearth:]

And in terms of restructuring, Rosemarie, we are focused on continuing the initiatives that we set forth, supply chain initiatives and obviously looking at asset management better. But with the input with the new board, we're excited that there'll be some new ideas to come into that. So, restructuring is not going to stop. Restructuring will continue and that will be an input into our savings going forward.

[Rosemarie Morbelli:]

All right. Thanks. And I was wondering if you could give us a feel as to how VERIFI operated during this downturn. I assume that if the cement truck does not go out, then there is no use of VERIFI, but you are also doing some virtual trials. Can you give us a feel for the momentum in that particular area?

[Craig Merrill:]

Yeah. We were actually pleasantly surprised on the revenues with VERIFI during the quarter. They were up 50% year-over-year in Q2. That's mainly due to the fact we had more equipment out there in Q2 this year than we did last year, because of the installs in the latter half of 2019. The interesting part about that business is that they tend to use the trucks on any job that have VERIFI. So, our trucks go out first with the VERIFI units on them, because they need to keep their operations kind of solidified, because that's the new operating model they are on. So, we didn't really see a lot of decline of usage of the VERIFI units during the quarter and certainly not as much as maybe we saw the market. And in North America, the market was pretty strong and that's where we've got most of our units. So, that's why we had the 50% pop in revenue. We have seen slightly slowdown on installs of new customers only because it's difficult for them in social distancing and managing the behavior of their organization at this time during COVID-19. They do have to change the behavior of the organization to get the value. So, we've seen a little bit of slowdown. But we did see in Australia, New Zealand and Asia some new contracts signed during Q2 and even into Q3 here. So, we're pretty pleased with the progress. But certainly, it will be slightly slower on the installs in the second half here. Randy, do you have any other comments?

[Randy Dearth:]

No. I just wanted to say that as well. I mean, it's unfortunate with our customers that we had hoped to have installs that they're just distracted with the virus. And it's difficult to install units when you need their help and you have the social distancing restriction. So, that's kind of slowdown, to Craig's point.

[Rosemarie Morbelli:]

Sure. That makes sense. I was wondering, lastly, if you could give us the level of importance for your business between residential construction, commercial construction and infrastructure spending. So we can -- and if you can talk about the trends in each of those categories. What are you seeing?

[Craig Merrill:]

Yeah. So, North America is where we got the best visibility on market data. But obviously globally, there's IHS and others that come out with the data. We tend to be -- if you want to think about it -- about a third, a third, a third. I mean, about a third of our revenue is tied to infrastructure, a third to commercial and about a third to residential. And people could be surprised on the residential piece. But the North America concrete and cement basically goes into residential also and that's a big part of our business. We are pretty confident that infrastructure, governments may up the spend on infrastructure going forward, just to pump the economy. So, we're pretty confident that, that's going to happen globally. And they are going to -- there might be some delays here just on getting things going, but we think we are good there. On the residential, the market seems strong. I think you've seen the statistics too both in North America and around the world. China, Asia, residential still keeps going strong. So, I think we're in good shape there. Commercial could be slightly slower. Just -- you've seen the retail news. There's obviously some reconsideration on office space on what you really need for office space moving forward. So, I would say commercial is probably the place where we might see a little bit more slower uptake. But I think the infrastructure and the residential will offset that. And in fact, we get very good margin on the infrastructure. So, we'll probably get a margin mix that will offset any decline on the commercial side, if there is one, moving forward.

[Rosemarie Morbelli:]

All right. Thank you very much.

[Operator:]

[Operator Instructions] There are no additional questions at this time. This concludes our question-and-answer session. I'll now turn it back to Betsy Cowell for closing remarks.

[Betsy Cowell:]

Thank you, Kate. We appreciate your help today and thank you all for attending.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.