GCP Applied Technologies Inc.
Q4 2019 Earnings Call Transcript

Published: 26 Feb 2020

[Operator:]

Good day and welcome to the GCP Applied Technologies Fourth Quarter 2019 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions].I would now like to turn the conference over to Joe DeCristofaro. Please go ahead, sir.

[Joe DeCristofaro:]

Hello everyone and thank you for joining us on today's call. With us on the call are Randy Dearth, President and Chief Executive Officer; Naren Srinivasan, Head of Global SBM; and Craig Merrill, Interim 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 be 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.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 to the Q&A. References to EBIT refer to adjusted EBIT and references to margin refer to adjusted gross margin or adjusted EBIT margin, as defined in our press release. All revenue and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjust for the impact of foreign currency.With that, I'll turn the call over to Randy.

[Randall Dearth:]

Good morning everyone. GCP continued to show positive business momentum in the fourth quarter. Our sales of $261 million in adjusted EBITDA of $30 million meet our expectations. I am pleased with our results and our ability to deliver on the financial commitments we set for 2019. There are a number of items from the quarter they would like to highlight. Each demonstrates the positive outcome we can produce when we focus on what we can control. These highlights include the following. We installed our new organizational structure. We completed our best year of price capture as a public company about 3% for the year, which more than offset inflation.We improved our gross margin by 110 basis points in the quarter and 140 basis points for the year despite reduced sales volumes, SCC is significant improvement profitability continued with segment operating margin up 430 basis points. This is the fourth quarter in a row the margins have improved by at least 200 basis points on a year-over-year basis. VERIFI's positive momentum continued with 56% year-over-year growth in our installed truck base and 53% sales growth in the quarter for the year sales grew 32% we made progress implementing our new SBM strategy.Later in the call. Naren will discuss key insights into SBM to the leading global consulting firm has helped us develop. We are excited to share that with you. We continue to execute on our restructuring programs as planned resolving in $27 million in savings in 2019 and we grew our adjusted free cash flow by 14% in 2019, due to our focus on working capital management and better forecasting.As a result, our adjusted free cash flow as a percentage of sales and as a percentage of adjusted EBIT continued to improve. We achieved these results despite the challenging conditions faced by SBMs project driven product lines in 2019 so we have shared with you before.Looking forward, I'm confident that we're on the right track, that we know we have more work to do. Our management team and employees are focused on our key priorities for 2020 which includes returning SBM to sustainable growth, further optimizing SCCs operating model, continuing to build out our VERIFI's franchise and delivering on our announced restructuring programs, as well as implementing the additional efficiency programs and a few of which I'll take talk about later in today's discussion.By executing on these focus areas, we will build a more stable and predictable business with the potential degreed substantial value for all of our shareholders. And we'll talk more about these priorities later on the call.And now I'd like to turn the call over to Naren for an update on SBM and following the Naren's comments, Craig will review the company's financial performance for the quarter and our guidance. Then I will discuss our other focus areas for 2020 including our SCC business in a little more detail. So Naren?

[Naren Srinivasan:]

Thank you, Randy, and good morning everyone. SBMs performance in the fourth quarter with consistent with previous quarters in 2019, while sales were down 5% year-over-year, the decrease was smaller than what we saw in the second and third quarters primarily due to an improvement in residential sales as a result of stabilizing demand and inventory levels.This residential improvement with offsets by continued to softness, enlarged project activities for Building Envelope. As expected, we did see a smaller year-over-year decline in North American Building Envelope sales compared to earlier in the year.However, this was offset by a more challenging environment in the Asia Pacific region for building envelope. As Randy mentioned, we have completed our analysis of SBMs market segmentation, channel strategy and innovation approach with the goal of optimizing and growing the business.This work confirmed that SPM remains positioned for success with strong product brands, technology advantages and feel technical service that remain industry benchmarks for quality and installed performance. These core building blocks will remain the foundation of our commercial success and longevity in the market.Historically, as we have discussed, we have done well focusing on the premium segment of the commercial and residential markets. Our revenue and profitability have been weighted to our differentiated technologies including Preprufe, Bituthene and Ice and Water Shield and to selected geographies in North America including the North East and West Coast.Our near term focus for SBM is centered around restoring sustainable organic growth, particularly in our North American Building Envelope and residential product lines like increasing our presence in additional segments and markets geographies that are profitable and growing. We expect SBM sales to increase 4% to 6% in 2020 with growth weighted toward the second half of the year.Based on year-over-year improvements in our pipeline in North America in particular as well as the implementation of the following growth plans. Third we are enhancing our commercial and residential go-to-market strategies or a commercial Building Envelope products we are increasing our investments and deploying targeted resources to compliment our historically specification led business for large projects to one that expands our focus from architects to include contractors and applicators.This will enable us to capture additional share in certain geographies and in the mid-tier and lower risk project segments. These investments include additional sales team members, contractor programs, and improve marketing of our product portfolio for these segments.These athletes target important and sizeable market segments and ones in which we can provide value added customer solutions while driving strong returns for us over time. For the residential segments, we are making targeted headcount additions in key geographies inside and outside of our traditional strength in the Northeast and redefining our residential product offering. We are improving our overall value proposition with supportive marketing campaigns, investing in distributor and lumberyard incentive programs, and importantly building closer relationships with contractors through loyalty program and through our product dealers.We believe that these programs supported by the optimization of our distribution footprint can extend our market position nationwide and drive growth and returns in this segment. Second, we identified that while we have strong customer NPS or a Net Promoter score and strong product performance course within our current market segments, we can extend our product portfolio awareness to larger and adjacent market segments.In addition to investing in our sales coverage, we are making targeted investments in loyalty and digital marketing programs, certified contractor and distributor training and improved product bundling and warranty programs to increase customer conversion and win more projects.Finally, particularly with the benefit of our new organization structure, we are accelerating the launch of new and accessory products for the premium and mid-tier segments. This year we expect to launch multiple new products to further strengthen our foundation, waterproofing and air barrier portfolio, commercial waterproofing, accessory products, and selected products for the infrastructure market.Importantly, we are directing additional investment in next generation technologies for our core segments that will yield you offerings over the next 12 to 24 months. We believe that this plan will restore SBM to sustainable organic growth and we look forward to providing updates on our progress on future earnings calls.I'd now like to turn the call over to Craig, who will discuss our financial performance and guidance.

[Craig Merrill:]

Thank you, Naren, and good morning everyone. Just a reminder, all revenue and associated growth rates in my comments are on a constant currency basis. In the fourth quarter, GCP's consolidated revenues declined 6% to $261 million. Half of the revenue decline was expected from planned SCC market exits with the balance primarily due to lower project activity in SBM. We have substantially completed the cost reductions associated with our SCC market exit program, which is produced strong SCC earnings growth and there are some trailing customer commitments that we expect to laugh in the first half of this year.We were successful capturing price in both SCC and SBM in 2019 to offset the inflation we saw in 2017 and 2018. Capturing 3% in price shows that we can receive appropriate value for the products and services that we provide. As communicated it usually takes around two quarters for us to recover installation on raw materials. Currently inflationary pressure is not as high as it has been in previous years.Adjusted gross margin increased 110 basis points year-over-year so 37.6% primarily due to improve pricing the favorable impact of exiting unprofitable markets within SCC and supply chain initiatives on savings which more than offset unfavorable product mix in SBM. Adjusted EBIT margin of 11.6% in the fourth quarter was unchanged as an increase in SCC's adjusted EBIT margin was offset by reduced operating leverage due to the lower sales volume that we expected in SBM.Looking at the performance of the segments, SCC sales were down 6% to $147 million. Two-thirds of that decline was the plant market exits with the other third primarily due to lower activity in Asia Pacific resulting from tighter credit conditions in the second half of 2019 of which we privileged previously discussed. The strategic actions we have undertaken in SCC continued to have a positive impact SCC's gross margins were up 430 basis points, primarily due to the favorable impact of restructuring activities and exiting unprofitable geographic markets, as well as improved pricing and raw material deflation. Segment operating income grew 63% compared to last year's fourth quarter as we delivered improved gross profit on lower sales and reduced our operating expenses as a result of the restructuring actions.SBMs revenues was down 5% year-over-year as improved pricing and an increase in residential volumes were more than offset by a decline in Building Envelope volumes due to lower project activity both in North America and Asia Pacific. SBMs gross margin declined 320 basis points compared to the fourth quarter of 2018 due to unfavorable product mix and expected lower volumes year-over-year with price increases offsetting higher raw material costs. SBM segment operating income was down 26% primarily due to lower sales volume impacting operating leverage, lower gross margin, and an acquisition related settlement related to Stirling Lloyd recognized in the prior year period.Turning back to GCP as a whole, as Randy discussed, we are executing on our restructuring programs plan in 2019 we realized restructuring savings of about 27 million, which helped us improved our gross margin by 140 basis points for the year and reduce our operating expenses by $10 million.These restructuring savings were offset primarily by lower sales volume compared to our original plan for 2019. Corporate costs of 6.5 million were similar to last year's fourth quarter. Adjusted free cash flow generation was solid in the quarter, resulting in $50 million for the year compared with $44 million in 2018. The increase in 2019 was due to improve demand and supply forecasting. Greater focus on working capital and lower cash pay for interest payments. We have a number of initiatives in place that are designed to improve the management of our receivables, inventory and payables process. Through increased transparency into our regional and individual country operations, we expect these initiatives to substantially improve our efficiency and cash flow over time.Turning to our outlook for 2020, from a regional perspective, we assume that total North America construction spending modestly declined this year in 2020 versus 2019 based on the overall third-party market data, with relative improvement in the residential and non-residential segments compared to last year offset by a weaker infrastructure market.We assume modest construction growth both in Europe and Latin America we also currently expect modest growth in construction spending in Asia Pacific for the full year in 2020 despite factors such as the new Covid-19 virus, trade tensions and the continued political unrest in Hong Kong. We also expect the tighter credit environment in China to continue.Like all companies, we are closely monitoring the impact of the Covid-19 virus. As you know, we operate on a global basis with North America representing more than a little more than 50% or 53% of our 2019 annual sales followed by Asia Pacific at 22% and EMEA at about 19% China has a storage bin about 5% of our total revenues globally. Given that the situation is changing daily, the ultimate impact of the Covid-19 virus on construction spending in the region in Asia and globally is unknown at this time. In 2020, we assume that price capture more than offsets the impact of inflation and based on these assumptions we expect 2020 sales growth for GCP of approximately 2% we expect approximately 3% growth excluding exit country.We expect further savings in 2020 of approximately $28 million from our restructuring programs. These savings will partially offset by investments in VERIFI and the SBM investments that Naren has discussed to drive growth in 2020 and beyond as well as annual merit increases and incentive compensation based on our 2020 financial targets.Our forecast for adjusted EBITDA is $148 million to $163 million or growth of approximately 7% at the mid range point, and our forecast for adjusted EBIT is a $100 million to $115 million or growth of approximately 6% at the midpoint of the range.Our adjusted tax rate expectation is between 27.5% to 28.5% with adjusted EPS between $0.79 to $0.95 for the full year. For adjusted free cash flow, we expect approximately $50 million to $65 million full year as we continue to refine our working capital management processes and capabilities.Looking at SCC and SBM in more detail. For SCC, we expect sales to be approximately flat in 2020 with growth and VERIFI and some additives offset by some remaining market exits. We expect sales excluding market exits to be up about 2%, to VERIFI we expect sales growth to be approximately 50% we expect segment operating margin improvement for SCC between 50 to 100 basis points as a result of higher gross margin and restructuring program savings.Turning to SBM. As Naren mentioned, we expect 2020 sales growth of 4% to 6% compared to prior year due to improve volumes primarily in North America. We forecast segment operating margin to be similar to 2019 with more favorable mix and higher volumes offset by the target and investments we are making in sales and marketing to restore SBM to sustainable growth.We expect SBM sales and segment operating income to be weighted to the second half of 2020 compared to the results in 2019 given the timing of investors investments in consequent impact on in revenues.As a reminder, the first quarter is our seasonally slowest quarter. January and February has met our expectations. A milder winter has contributed to solid performance in North America while the Asia Pacific region has had a slower start to the year due to the ongoing economic deceleration as well as the impact of the Covid-19 virus. As always, our performance in March will be key to the first quarter as the construction season in most markets typically ramps up in this month.Based on the information we have available at this time, we expect a historically typical 8% to 10% of expected, 2020 adjusted EBIT in the first quarter of the year. With earnings performance improving as the year progresses due to the higher sales volume in the second half, and the continued positive impact of our restructuring initiatives.With that, I'll turn it back over to Randy.

[Randall Dearth:]

Thanks, Craig. So as I look back at 2019 it is clear that the second quarter was a trough of our performance, with the third and fourth quarter showing nice improvement as expected. Simply put, when we focus on what we can control, put the right organizational structure in place and focus on our costs. We can execute on our strategy and meet our financial commitments. And as we said before, we still have more to do. And as I look to 2020, we are focused on the following priorities, returning Specialty Building Materials to sustainable growth in the rent laid out our plans to do this.Continuing to build on the momentum and success we've had and we've achieved with VERIFI. Further optimizing SCC's operating model and challenging our go-to-market strategy, which I'll talk about in a minute, and advancing our restructuring plans and implementing additional efficiency projects to make GCP a stronger company.Let me talk first about SCC. We will continue to prioritize profitability in SCC, by emphasizing core markets and modernizing our operations, which includes our service model to become more efficient. Our strategy for SCC includes three elements. First, we plan to reinvigorate our core admixtures business by continuing to refresh our product portfolio and optimizing our service model. We have plans to introduce next generation admixture technologies, such as strength enhancers as well as new specialty fibers for our durability products.We are optimizing our service model by implementing a more integrated approach to supply chain management. One component is to introduce digital tools to improve our supply chain processes. GCP PLUS, our new online ordering tracking tool is an example of this approach.Secondly, we are driving the adoption of VERIFI by current and new customers, since VERIFI's closely related to our admixtures business. Our strategy is to grow the data portion of the business with additional truck installs and in the process gain additional admixture business that we otherwise would not have without VERIFI. We also plan to expand VERIFI's sales by increasing revenue per cubic yard with new IoT powered functionalities. Our goal is to evolve from an in-transit management to an end-to-end solution provider.The third element of our SCC strategy is to expand our specialty segments, which include our cement, precast and engineered flooring products. We plan to strengthen our go-to-market approach with new product introductions in the precast and engineered flooring system segment. With cement additives, which is a business we have historically done very well in. We were focusing on expanding our market opportunity by developing new products and address industry challenges, including carbon dioxide emission reduction, and the shortage of supplementary some tissues material.We also recently introduced a new product selection tool for cement additives, which we have named GCP DASH. The tool uses a proprietary algorithm to select cement additives to meet specific customer needs, which internally reduces the time and operating costs involved in the selection process through accelerated and more accurate qualification customer needs.So let's talk about GCP as a whole. Taking a look at our corporate restructuring efforts, our cost out and efficiency initiatives are working as expected. In 2019, our restructuring programs yielded about $27 million in savings. And as Craig said, we are targeting $28 million in savings in 2020, and approximately $80 million in annualized savings by 2022. Our efforts continue to be focused on our operations and running a best in class customer focused supply chain organization, ensuring we have effectively matched our internal services with the needs of our business and remaining diligent about our spending. Another source of expectancy is for GCP is a tax optimization project that we discussed on last quarter's call. The project is designed to optimize our tax rate to provide additional earnings over time. We selected an external partner, who has completed an initial assessment, and based on their analysis we believe, we have the opportunity to reduce our tax rate by 2 percentage point to 4 percentage points over the next two to three years. And for GCP, each tax rate percentage point represents about $1 million in earnings.We will continue to look for ways to become more efficient, how we operate to drive improved profitability. So before I conclude, I would like to comment on a few additional topics. First, as we have discussed previously, sustainability is an important part of what we do and it's a priority of mine. We not only aim to manage our physical footprint in a sustainable manner, but we also want to be proud of the fact that our GCP products and services help create safer, more durable and more efficient structures. And I'm happy to report that we expect to publish our first sustainability report this spring around Earth Day. The reporter will outline our philosophy and our contribution to more sustainable construction practices and structures.Next, our search for a permanent CFO is continuing. So we have no specific timeframe. We are working to appoint a permanent CFO as soon as possible. We'll provide an update at the appropriate time.Turning to capital allocation. As I've mentioned in previous calls, we recognize that our balance sheet is in great shape. Our Board and Management team regularly discuss capital allocation and we continue to believe that it is our best interest at the moment to preserve our financial flexibility. We will continue to discuss capital allocation with our Board, and we'll update our approach as appropriate.Lastly, you may have seen Starboard's announcement. It has nominated director candidates for election at our 2020 annual meeting. GCP is committed to maintaining an independent, diverse and experienced Board and we maintain an active dialogue with our shareholders. The purpose of today's call is to discuss the actions we are taking to deliver on our commitments and to execute on our strategy to revalue for all shareholders, so we will not be making any further comments on the nominations or our shareholder conversations at this time.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 effort they continue to devote to the implementation of our plans. Together we are moving the company the direction we need to go.2019 is behind us and I look forward to seeing the positive impact in 2020 of all of the changes that we've made to make GCP a stronger, more profitable company.So thank you for joining our call today and we look forward to taking your questions.

[Operator:]

Thank you. At this time we will open the floor for questions. [Operator Instruction]Our first question comes from Rosemary Bole of GE Research.

[Rosemary Bole:]

Good morning. Thank you. I was wondering, if you could touch a little in more details on the unfavorable mix for SBM, the margin drop was sequential. So what happened in 2019 and one can we -- what can we expect in 2020?

[Naren Srinivasan:]

Rosemary, this is Naren. I'll start and I'll let Craig also add. The Building Envelope business as we've talked about, there is a focus towards large projects and we have seen a fewer number of those and that did continue through the course of 2019. The reduction of the Building Envelope business contributed significantly to the margin reduction as well as the overall mix. And so that was the primary factor, and while there was an uptick in residential, which does help the driving factor was indeed for Building Envelopes business.

[Rosemary Bole:]

So you would have, I'm sorry, go ahead. I apologize.

[Craig Merrill:]

No, I was just going to make the point that it was an unusually unfavorable mix. Historically, we've generally had a better mix than that two to raise point of both the larger projects where they're high tech and high margin products on those. And we expect the better mix moving into 2020, particularly starting in 2.

[Rosemary Bole:]

So it sounds as those emerging on the large projects obviously, substantially higher than that of the small-to-medium size projects. And yet you are pushing in order to target those smaller to medium sized projects in the future. So should we anticipate that the margin will continue to decline?

[Naren Srinivasan:]

So we are in that intermediary stage where we're making those investments in that middle Tier, and it does take some time to realize the benefits of that. So we have been making the appropriate headcount ads and shifts. We've been making the right marketing moves. But as we've talked about, I'm expecting the benefits of those investments to come in over time. And while the results of the work we've done, I believe will continue to deliver value. The results of the fourth quarter are still related to the fact that from a year-over-year basis, we have seen a fewer number of the larger projects as Craig mentioned, as we move into 2020, I do expect to see the benefits of the investments that we're making and that middle Tier.

[Rosemary Bole:]

All right, thank you. And then looking at VERIFI and I apologize if I missed it. How big is that business currently? How many trucks? I think you said that you anticipated a 50%, five zero did I here right growth in 2020?

[Craig Merrill:]

Yes, it's Craig. Yes, the 50% increase, we had over a 50% increase in '19. We expect another 50% increase in 2020. We've got contracted customers for over 5,000 units today, and we anticipate that to be up 50% by the end of 2020.

[Randall Dearth:]

Rosemary, this is Randy. We've committed to having sales generated through the VERIFI program with $50 million to $75 million by the end of 2021, which includes none of the data and the materials management, but also as we know in our remarks, we're looking at increase admixture sales, which we would not have gotten without the VERIFI technology. So we're holding to the numbers.

[Rosemary Bole:]

All right, thank you. And one last question if I may. A raw material is flat to declining. Do you think that you are going to need to give back some of the pricing you got in 2020 -- in 2019?

[Craig Merrill:]

It's Craig. No, we don't anticipate and we have not built in giving back pricing. But our price increases in 2020, we expect to be very moderate and that is built into the plan, very moderate price increasing due to the lack of inflation during 2020 that we anticipate.

[Operator:]

Our next question comes from Laurence Alexander of Jefferies.

[Dan Rizwan:]

Hi guys, it's Dan Rizwan for Lawrence. How are you? So for VERIFI, do you charge more per truck or per poured of concrete is, I mean how this is kind of set up?

[Craig Merrill:]

As the model is set up that it's on a usage basis that on a poured concrete, but generally -- it's generally on a daily basis. It's a very great model. We're very proud of the way we set it up and we actually charged the customer on a daily basis on how much concrete they poured and use the system. And generally the usage is around 90% to 95% on a daily basis of their concrete pours if they have a unit on a truck.

[Dan Rizwan:]

Okay. That's helpful. And then the, I guess the gap in pricing for VERIFI versus not. Is that, expanding or just stable? I mean, are you continuing to charge more versus narrowing?

[Craig Merrill:]

And we're looking at it on a customer-by-customer basis and we're trying to optimize our pricing model. We integrated VERIFI last year into the SEC business and so we're utilizing the same resources in the same individuals, but we also added some value sellers to be able to help our customers better utilize the system. So where we can utilize VERIFI in contract negotiations, where we can utilize VERIFI, as I said before to get admixture -- new admixture sales absolutely we're doing okay.

[Dan Rizwan:]

And then finally just I think you said you're going to do a $28 million in savings in 2020. What's the cost of that in terms of cash or cash costs?

[Craig Merrill:]

Generally we've been running about a $101 basis, but in 2020, we anticipated slightly lower than that, and we were a little higher in 2019.

[Operator:]

Our next question comes from Chris Shaw of Monness Crespi.

[Chris Shaw:]

The first thing I think you characterize the 2019 construction market globally is down modestly or something like that. I think your sales on an organic basis were probably down more than that. Maybe it's just for Randy, but is that just illustrate a loss of market share. And if so, what would -- I know you're weren't there the full year, but what do you think the reasons for that loss of market share was?

[Randall Dearth:]

It's the biggest drivers we've outlined is SBM within SBM, our large project driven portion of the business. And when we looked at the number of large projects in 2019 and compared them to years past, we saw a decline in those numbers. Not only the numbers, but also the size of those projects. So that was the biggest contributor in 2019 to where we saw challenges. And as Naren pointed out, looking into 2020 some of the projects, we see opportunities for those larger opportunities to come back. But when you combine that with the SBM initiatives that we outlined them, we're pretty confident that we'll see a turnaround in SBM in 2020.

[Chris Shaw:]

Share in the large projects or was that the large projects grew slower than small projects. And so the overall market, you were just represented on the slower growth side of it.

[Naren Srinivasan:]

It's Naren, and I was actually going to make a comment on that. So within the large project segment, we believe that our share base has been pretty stable. It is just, as Randy was saying, a fewer number of projects, and as I look at our wins in 2018, we had a higher number of large projects which is contributed to the overall revenue base that we just did not see in 2019. And we also witnessed, delays in certain projects in 2019 that would benefit us moving into 2020 and 2021. And it is a challenge of being in a private business where you do see the lumpyness. But overall within that particular segment, we feel confident that our share base is remains stable.

[Chris Shaw:]

And then looking forward on a SBM, I know you at on a 4% to 6% top line growth for the year and it's back half weighted. My question is though, do you have that business booked yet? Or is it -- is that business you're hoping to win at this point? And how does that play out?

[Naren Srinivasan:]

That's a great question. It's a bit of both. So we do track our project pipeline very rigorously and within our secured business, within the pipeline we do see a number of projects, particularly in North America which will add. But within the open pipeline that piece on a year-over-year basis, within North America again is stronger than what we saw last year. So we are expecting a bit of an improvement in 2020, which combined with a lot of the growth initiatives that we went through lead to the overall 4% to 6% growth that we've talked about.

[Chris Shaw:]

Got it. Thanks a lot.

[Operator:]

[Operator Instruction] Our next question comes from Mike Harrison of Seaport Global Securities.

[Mike Harrison:]

Looking at the SBM growth plan. I hear you talking about that your focus has been historically in the Northeast and on the Westcoast, and you're going to be moving into some new geographies. Can you just help me understand, are those geographies areas where you have some relationships with maybe some national or regional customers and you feel pretty good that you're going to get that customer poll in those regions, as you increase your presence? Or is it more of a situation where you're going to increase your presence and you have to be aggressive and going after competitors business or a really tapping into those markets? Just help me understand, maybe the competitive environment and the strategy as you look to extend the geographic exposure?

[Randall Dearth:]

Sure. So within the geographies where we have had strengths, the strategy has been to focus on large projects. Within those geographies, we do see an opportunity to get into that middle Tier as we call it. And we are extending our presence both through headcounts as well as extending the relationships with our customers to be better positioned. And we feel very confident of our ability to do that within well established geographies. And in other parts of the country, I think it's a little bit of both of what you said, where we have the customer relationships but we have focused a bit more on larger projects and sometimes in those geographies, those larger project just aren't there. And we're focusing more on that middle Tier. So we have the relationships were aiming to put our overall portfolio together to better attack that segment we realized that it is a different opportunity and we need to work to secure that business. But the plans are in place with our sales team, our marketing as well as technical service to be able to penetrate that middle Tier.

[Mike Harrison:]

Alright. And then, wanted to also ask for thoughts on what gets you to the high-end or the low-end of your 2020 outlook. Maybe what do you see as some of the wild cards that are either in your control or out of your control?

[Craig Merrill:]

Yes, so it's Craig, Mike. So if you get to the high-end, we obviously need to execute on the SBM project and program strategies as Naren outlined. SCC needs to -- it's fairly stable and we're really confident in SCC and how it's performing. So that's not too much of a risk and obviously it has your stuff to continue doing that. And then the third one, we do still have the restructuring programs that we have to execute. There's still a work to do on those. So I would say the high-end is that we get all those done and the market at least as modest based on our expectations, and there's no decline or no substantial impact as we move through the year on the market.But generally, we think, we can get all three of those done. So we're not suggesting at the high-end isn't impossible cause it is for sure. And we've got all the plans in place to get it done, pretty detailed plans.On the low end, I would say, either the restructuring doesn't get executed just quite as quickly. We do have quite a bit of G&A restructuring, which sometimes is a little more difficult to get at, but we've got some detailed plans. And then of course the programs were a little bit weighted in the second half on SBM. And I think to some of the questions, I think, we've tempered that to the back half because we do think maybe there's some upside in Q2 as we move early in the program take. But that's at risk also. I mean, you could slide on that a little bit. So that's a little bit of an unknown cause it's three to six months out. But we were pretty confident that we've moderated that. So that's kind of the book ends other than the market, which we really don't have any control over.

[Randall Dearth:]

And let me just add too, we talked a little bit in the remarks about China and the situation in China and obviously we're monitoring this on a daily basis as most companies are. The number one priority obviously is the fact our employees are safe. And as of today, none of our employees have been impacted. But with that focus on China, we do have manufacturing there. But the manufacturing predominantly serves China, so we're watching that and we don't really see, as Craig pointed out a material impact. So we'll continue to monitor. We continued to look at the situation and inform you accordingly.

[Mike Harrison:]

Understood. That's a good color. And then the last question, I think there was an earlier question about VERIFI. I don't believe you disclosed what the current revenue run rate of that business is.

[Craig Merrill:]

No. Mike, we do communicate how many contracts and trucks we have out in the market, but not generally the revenue. And we haven't as of yet, and we'll let you know when we do.

[Mike Harrison:]

Alright. Thanks very much.

[Operator:]

Thank you, ladies and gentlemen. At this time this concludes our question-and-answer session. And I would now like to turn it over back to today's speakers.

[Joe DeCristofaro:]

Thank you everyone for participating in our call and we look forward to speaking with you on our first quarter call in the spring.

[Operator:]

Thank you, ladies and gentlemen, this concludes today's teleconference. You may now disconnect.