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GCP Applied Technologies Inc. (NYSE:GCP)
Q1 2019 Earnings Call
May. 8, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the GCP Applied Technologies First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions (Operator Instructions)

I would now like to turn the conference over to Mr. Joe DeCristofaro. Please go ahead, sir.

Joseph DeCristofaro -- Vice President, Investor Relations

Thank you, Shannon. Hello, everyone, and thank you for joining us on today's call. With us on the call are Greg Poling, Chief Executive Officer; Randy Dearth, President and Chief Operating Officer; and Dean Freeman, Vice President and 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 US 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 this morning's 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.

Greg will start us out today with a business update. Randy will discuss our commercial initiatives, and Dean's commentary will include highlights of our financial results and outlook. All revenue and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjusts for the impact of foreign currency.

With that, I'll turn the call over to Greg.

Gregory E. Poling -- Chief Executive Officer

Good morning. In the first quarter, we made significant progress expanding our gross margin and reducing our operating expenses despite a slower start to the construction season. SCC's earnings in particular benefited from planned market exits, higher prices and increased VERIFI sales.

Our adjusted EPS and adjusted cash flow continued to improve year-over-year as a result of reducing our debt and lowering our interest expense. The actions we are taking are having a positive impact, and we expect to build on these improvements throughout the remainder of the year.

In the first quarter, SCC's revenues grew 3% year-over-year, if we exclude the impact of our planned exits from an unprofitable markets. VERIFI sales grew 35%, as we increased market penetration. Our SCC margins improved significantly compared to last year. We expect this performance to continue, and are on track for our segment operating margin improvement in the SCC business of 300 basis points to 400 basis points in 2019.

In SBM, building envelope and residential sales declined due to a slower start to the construction season and distributor destocking, primarily in North America. We are off to a better start in the second quarter, with April SBM sales growing versus last year.

GCPs gross margins improved due to our focus on core markets in SCC, good pricing across our product lines and supply chain efficiencies. Our teams did a good job managing SG&A expenses, which declined year-over-year.

Randy will give you additional details on our operation efforts, as we continue to focus on supply chain, logistics, SG&A expenses for the remainder of 2019. As we announced in February, the company continues to evaluate strategic, financial and operational alternatives to maximize shareholder value. We will provide an update on this process when appropriate.

I'd now like to turn the call over to Randy for more details on our key commercial initiatives and restructuring plans.

Randall S. Dearth -- President and Chief Operating Officer

Thanks, Greg, and good morning, everyone. As Greg just mentioned, SCC sales grew 3% in the first quarter, excluding the impact of planned market exits, with good growth in EMEA and Latin America, offsetting declines in North America and Asia Pacific.

VERIFI sales were up 35% in the quarter, with our installed truck base increasing over 30%. We have a healthy pipeline of new and existing VERIFI customer opportunities, and expect VERIFI sales growth to accelerate on a quarterly basis as the year progresses. This will result in annual growth of over 40% in 2019.

We are delivering the savings we expected from exiting non-profitable geographies, was under our 2018 restructuring and repositioning program. This program, along with higher prices and VERIFI sales resulted in strong growth in segment operating margin improvement for SCC, which we expect to continue.

Volumes in SBM were lower. Building envelope experienced a slower start to the construction season in North America. However, performance in Asia Pacific has been strong, with China in particular having healthy project activity in the commercial and transportation infrastructure segments.

Our residential underlayment business was impacted by distributor destocking in the first quarter. We expect inventory to recover to normal levels in the second half of this year. While customers are destocking, we maintain price discipline and did not offer a discounted sales promotion.

For this quarter, SBM's gross margins were flat and segment operating margins declined due to lower sales volumes. Our 2019 restructuring program is well under way. Let me provide some details on this initiative. First, we have implemented a redesigned North American sales structure, which integrates VERIFI into our concrete admixtures organization. This reorganization is timely, as we are pursuing a number of large opportunities with new and existing strategic admixture and VERIFI accounts.

Second, we have moved forward with restructuring GCP's global supply chain strategy, business processes and execution. The program covers our manufacturing, our purchasing, logistics, warehousing and other sales support functions.

We have installed a strategic sourcing process, and are implementing a number of improvements to our logistics functions. Our goal is to examine our key business processes to simplify our current model and to create a more efficient, effective organization.

Our estimate for savings associated with the 2019 program remains approximately $25 million, with $8 million benefiting 2019. We expect our 2018 and 2019 programs combined to remove about $50 million in annualized costs through 2020. And I look forward to providing further updates on our progress as this initiative continues.

I'd now like to turn the call over to Dean for details on our financial performance and guidance. Dean?

Dean Freeman -- Vice President and Chief Financial Officer

Thanks, Randy, and good morning, everybody. Just a reminder, all our revenue and associated growth rates in my comments are on a constant currency basis.

In the first quarter, GCP's consolidated revenues declined 6% to $234 million. Sales were down 1%, when you exclude the exit countries. Adjusted gross margins increased 140 basis points year-over-year to 36.5%, and adjusted EBIT margins were unchanged at 5.3% in the first quarter, as lower sales were offset by increases in gross margin and a decline in the operating expenses.

SCC sales were down 6% to $138 million, including a revenue reduction of about $14 million due to the exit countries. Sales were up double digits in Latin America and in EMEA, when you exclude exit -- the market exits. Our strategy of focusing on core SCC markets is having a positive impact on our margins, as Greg and Randy pointed out. SCC's gross margins were up 230 basis points. Higher prices and the favorable impact of the exiting of the unprofitable geographic markets more than offset the raw material inflation and logistics cost that we saw.

Segment operating income grew 34% compared to last year's first quarter, as we overcame the decline in volumes with lower operating expenses as a result of the restructuring programs we put in place. SBM's revenue were down 6% year-over-year. Building envelope sales declined 4%, while residential and specialty products were down 10%, respectively.

SBM's gross margins remain consistent with the first quarter 2018, due to the unfavorable product mix as a result of a lower residential volumes, with price increases fully offsetting higher raw material costs. SBM segment operating income was down 12%, as lower operating expenses were offset by a decline in the sales volume.

Adjusted free cash flow improved by $6 million year-over-year to use of cash of $10 million versus a use of cash of $16 million last year. The improvement was principally due to the larger -- excuse me, the lower cash interest payments in the quarter, as we have noted, our first quarter is the largest cash used quarter for the year.

Looking forward to the rest of 2019. We now expect 2019 sales to be down approximately 2% versus our previous guidance of approximately flat. The change in the guidance is primarily due to lower first quarter volumes and the project timing.

We are maintaining our earnings guidance and continue to expect adjusted EBIT growth of 7% to 14%, or $127 million to $136 million, with adjusted EBIT margin improving 100 basis points to 150 basis points on the improved pricing, productivity and continued expense management.

Our adjusted EBIT forecast continues to assume $27 million in restructuring plan savings, impacting our P&L in 2019, and that price will offset the impact of inflation. Just to be clear, these savings are partially offset by increases in variable incentive compensation, normal annual salary increases, as well as certain growth investments in our VERIFI program.

The top end of our guidance, our EBIT guidance would reflect stronger second half project activity in a moderation of expected inflation trends. The low end of the range takes into account higher-than-expected inflation and a slowdown in construction activity that could result from a weaker economy.

For SCC, as forecasted, we expect sales to be down about 1% to 5% due to the market exits. About 2% to 6% on adjusted for market exits, that's 2% to 6% growth when adjusted for market exits. We continue to expect segment operating margin improvement of 300 basis points to 400 basis points as a result of higher gross margin and restructuring program savings.

For SBM, we now expect sales to be approximately flat compared to prior year due to lower volumes. We expect higher gross margins in 2019 due to price and productivity, resulting in segment operating margin improvement of 150 basis points to 250 basis points.

We are forecasting an adjusted tax rate for 2019 of between 27% and 29%. Our adjusted EPS guidance range remains at $1.03 to $1.14. We now expect $50 million to $70 million of adjusted free cash flow compared to $44 million last year, with sales shifting in the second half of the year due to destocking and project timing. We have made a modest adjustment to our working capital forecast. Given the slower start to the construction season and project timing, we now expect the third quarter to be stronger than the second quarter.

And with that, I'll turn it over to Greg.

Gregory E. Poling -- Chief Executive Officer

Thanks, Dean. GCP is making progress with improved gross margins and operating expenses. We also see continued increase in market penetration with new technologies, including VERIFI. We expect our sales to improve as we enter into peak construction season, and our earnings and margins to continue to benefit from our restructuring programs. We thank you for joining the call. And we look forward to your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And we'll take our first question from Mike Harrison of Seaport Global Securities.

Mike Harrison -- Seaport Global Securities -- Analyst

Hi. Good morning.

Gregory E. Poling -- Chief Executive Officer

Good morning.

Randall S. Dearth -- President and Chief Operating Officer

Good morning, Mike.

Mike Harrison -- Seaport Global Securities -- Analyst

Was just wondering if you can maybe give us a little bit of a sense of the magnitude of the -- slower start to the construction season in North America. And specific to the SBM segment, I'm just wondering how much of that weakness you could may be attribute to weather? And if you also have a sense of the magnitude or can provide a sense of the magnitude of the destocking impact that you saw in Q1.

Gregory E. Poling -- Chief Executive Officer

Yeah, Mike, a good question. I mean, look, we did have some rainy weather in North America. I would say, on SBM, our best guess at that is about half and half on the decline. I mean, in the destocking, we have done market checks, especially in the residential business and we're starting to see that inventory move out of our customers' warehouses.

So the rain had a bit of an impact on that and they moved that inventory out. So, on res, that was destocking. On the BE business, some of the weather impacted the ability to get the projects up and running, so about half, half of that decline was due to the weather. We had the same impact in North America on the admixture business as well, a little bit of volume decline there, sort of due to that slow start. That's been picking up as well.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. And then, was also wondering, just in regards to the strategic alternatives process, if you can give us any update on that and also wondering just you've been fairly quiet on the M&A front. Just wondering if we should expect bolt-on activity to kind of be on hold until you complete the strategic alternatives process, or are there some deals in the pipeline and you're going to continue to be active there?

Gregory E. Poling -- Chief Executive Officer

We are spending a lot of time, both in terms of the management and the Board going through the alternatives to look at the company and create that shareholder value. We have not stopped looking at bolt-ons. But frankly, as those come up, we are going to stay disciplined and we'll take the bolt-ons as they come. So, I think it's fair to say, at this stage, the focus has been on going through the operational issues, the opportunities to look at strategic alternatives and we are quite focused on that. And to be fair, we spent a very significant amount of the energy with the operating side of the company for improving the margins and managing the expenses. But we think there are going to be bolt-on activities for us. There is a nice pipeline out there, but I do think it's fair to say we've been looking at the bigger picture here in the last quarter.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. That makes sense. And then last question for me is just on the earnings cadence. You mentioned there at the end that you would expect Q3 to be stronger than Q2. Just any additional color you can provide on how we should be thinking about Q2 and to Q3, and kind of the earnings cadence there would be appreciated?

Gregory E. Poling -- Chief Executive Officer

Sure, Mike. I'll let Dean take that on the earnings case. But I will tell you, some of the project, as they start to come on out of ground, push some of the larger projects into the third quarter. So, that's a little bit of it. And we also see that destocking starting to pick up the product, but we'll see some of that activity showing up in the third quarter, which historically, especially in the res business might have come earlier. I think Randy pointed out in his comments, we really were disciplined around any discounting. We are going to allow that inventory to move out. So, it shifted a little bit of revenue.

Dean, you have any more to say on that?

Dean Freeman -- Vice President and Chief Financial Officer

Yeah. I mean, I think as a result of the project activity shifting. So, you get the benefit of the mix impact on earnings. And then there's some further restructuring actions that will accelerate, that will have an impact on the third and fourth quarter as well.

Gregory E. Poling -- Chief Executive Officer

Mike, the one other thing that we'll see some margin on SCC continue to improve as we go through the year and we'll probably see a little bit of improvement on the inflation. We had probably in SCC a couple 100 basis points of inflation against 300 basis points of price. We'll see that start to move through the system. So, about a third quarter of that with the VERIFI sales, you get a little bit of a pop in the third quarter that's working its way through the system. Yeah.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. Thanks very much.

Operator

And our next question will come from Laurence Alexander of Jefferies.

Dan Rizzo -- Jefferies -- Analyst

Hi, guys. This is Dan Rizzo on for Laurence.

Gregory E. Poling -- Chief Executive Officer

Laurence, we can't hear you.

Dan Rizzo -- Jefferies -- Analyst

Can you hear me now?

Gregory E. Poling -- Chief Executive Officer

That's better.

Dan Rizzo -- Jefferies -- Analyst

Can you hear me now?

Gregory E. Poling -- Chief Executive Officer

Yeah.

Randall S. Dearth -- President and Chief Operating Officer

Yeah.

Dan Rizzo -- Jefferies -- Analyst

Sorry about that. Having phone issues. This is Dan Rizzo on for Laurence. Could you just provide color on the effect of raw material costs in the quarter and what your expectations are going forward.

Gregory E. Poling -- Chief Executive Officer

Yeah. Sure. And I'll let Randy speak to it as well. But at a general level, inflation was about what we expected in the first quarter. We had total inflation of -- a negative number, about 160 basis points. But overset that with quite a bit of price. We did say that the price starts to catch up with inflation. We certainly saw that in the first quarter. Oil prices relative to our estimates are about where we expected. It's about plus or minus.

Randy, on the supply chain piece, you've got something to add?

Randall S. Dearth -- President and Chief Operating Officer

No, I can just add to that. Through our supply chain initiative, we are putting a lot of discipline around our purchasing and bringing in best practices and in that, we are seeing the benefits of already and that will continue through the rest of the year. But to Greg's point, really good pricing strategies helps as well.

Dan Rizzo -- Jefferies -- Analyst

Has there ever been a point in the past week where -- or is it part of the process, where if there is a large deflation in costs and in oil prices that you have price givebacks? Or is it once you recapture price, it's kind of sticks forever? How does it work?

Gregory E. Poling -- Chief Executive Officer

Historically, what happens is, it takes us a couple of quarters to get the pricing through on the inflation. Last year was certainly exacerbated on that, and we're seeing that price come through. And then we'll hold that price, if you get some significant deflation, customers will ask for some of it back. But frankly, it takes a while on the other end as well. Right now, the inflation, as I said about what we expected, probably a little better in the second half and the price initiatives that we have, we are really typically confident. In fact, they are continuing to improve. So from that standpoint for the year, I think the pricing is in really good shape.

Dan Rizzo -- Jefferies -- Analyst

Thank you very much.

Operator

And our next question will come from Rosemarie Morbelli with the G. Research.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

Thank you. Good morning, everyone. I was wondering, just following up on this question -- the last question. When you say, you expect the second half to be better in terms of inflation, do you actually expect deflation on your raw material cost basket in the second half?

Gregory E. Poling -- Chief Executive Officer

No, we just expect more of a moderation as we saw the inflection of inflation coming through the first and the second quarter of last year. And as we capture more price in the third and fourth quarter as well, we feel that will more than offset the inflation that's out there.

Randall S. Dearth -- President and Chief Operating Officer

But we did have some significant ramp up third quarter last year, which we lap. So from an OpEx standpoint, just on that quarter, it's going to show an improvement to everything sort of ran up and were sort of (ph) in a hurry there. So from that perspective, just in that quarter, we'll see some improvement.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

Okay. Thanks. And looking at your exit of certain geographies, where do you stand? Are you just about done? Or how much more do you think you are going to walk away from, in terms of (Multiple Speakers)

Gregory E. Poling -- Chief Executive Officer

I'll let Randy answer that.

Randall S. Dearth -- President and Chief Operating Officer

No. We're done with the program that we outlined in our remarks. So, that was our Phase 1, the exit country strategy. I would say we're about 99%, 97% complete with that. There is a few more smaller things we need to do. So, that program is pretty much done. I mean, we're constantly now -- is part of our company culture, we'd be looking at where we do business and how we do business and we'd making these decisions going forward, if there are certain businesses in certain countries that we need to look at and take actions accordingly.

Gregory E. Poling -- Chief Executive Officer

But from a run rate standpoint, we said, what, $60 million to $80 million on the exits on the first quarter, which is a lower revenue quarter, was about $40 million. So in terms of what we projected on the exits for SCC, we pretty much are done with that.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

Okay. Thanks. And then looking at Asia Pacific, which was strong for you, you said in the quarter. Any impact from tariffs, the trade wars? So, we should expect that particular business to kind of slow down going forward for the balance of the year if nothing is settled?

Gregory E. Poling -- Chief Executive Officer

Yeah. Good question. I would say two things. On the local market, in China, we had pretty good growth. Our Asia Pacific business, especially in China on BE where we have products in the infrastructure, we have very nice growth, high double-digit growth in China. So, we haven't seen that impact in our pipeline in China is pretty good.

In SBM, as they build out the infrastructure piece, I would tell you, from a raw material standpoint, the tariffs in the US, it's less than 10% on what we import. And most of that, there is a choice on having at lower cost versus chemicals in the US. So, it's one of the few volatility issues that we don't see impacting us in the US manufacturing supply chain because we just buy a lot of those materials locally. We do import some raw materials in the rest of the world out of China but those obviously aren't impacted.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

And then lastly, if I may, you talked about the destocking at your distributor side. Can you touch on your own destocking? Are you balanced versus the expectations?

Randall S. Dearth -- President and Chief Operating Officer

Yeah. I'd go back to my comments I just made a few minutes ago is that we're totally revamping our purchasing processes and how we're procuring materials. And part of that is actually looking at our raw material inventory. So indeed over the coming months, through the processes we're implementing, we hope to see an improvement over there.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

Thank you.

Gregory E. Poling -- Chief Executive Officer

We usually stock up a little bit in the fourth quarter. As the construction season goes, so our inventory is where we want it to be, frankly. We don't have an issue in terms of carrying. And as you know in the SCC business, those products move through relatively quickly. So, we think we're in good shape on our inventory.

Rosemarie Morbelli -- G. Research, LLC -- Analyst

Thank you.

Operator

And our next question will come from George Godfrey of C.L. King.

George Godfrey -- C.L. King & Associates -- Analyst

All right. Thank you and good morning. Thank you for taking my questions. First question is, from the slide deck on page nine, you outlined the path to delivering long-term value and I'm speaking specifically of the strategic initiative you announced on February 27th. How long are you under that mandate of a strategic initiative, evaluating all options. What is the timeline, where you just say, OK, we're going back to normal everyday operating business?

Gregory E. Poling -- Chief Executive Officer

George, we haven't given a timeline on that activity. We are going through a relatively robust process across our strategies and the opportunities for us. And we just have not put a timeframe on that activities. But in terms of operating the business, some of those actions are, in fact, what we're taking through. And we are looking at costs, we're looking at supply chain raw materials, total G&A expenses. But that's all part of that. So frankly, we haven't given a date for that.

George Godfrey -- C.L. King & Associates -- Analyst

Okay. Let me put it this way. A year from now, would you expect that the full process to be completed? Or a year, I should say at the anniversary of one year?

Gregory E. Poling -- Chief Executive Officer

I don't want to be obsolescent (ph), but we're just -- we're not going to put a timeframe to on it. I get the question. But the Board of Directors, we're running a robust process and as we get to the proper time, we will give you an answer.

George Godfrey -- C.L. King & Associates -- Analyst

Okay. Fair enough. And then the free cash flow -- the adjusted free cash flow guidance, the range of, I think it was at $55 million to $70 million on a GAAP basis. And in this quarter, it was adjusted $10 million. Also on a GAAP basis, it was about $28 million, so a delta of around $18 million. If I annualize that for the full year and apply it against your adjusted free cash flow, I would say that free cash flow on a GAAP basis is going to be flat about this year. Does that sound reasonable?

Gregory E. Poling -- Chief Executive Officer

It should be. Yeah, it's flat when you adjusted at the -- sort of extrapolating the first quarter to the balance of the year. But we expect the adjustments for adjusted free cash flow to moderate, to come down slightly in the back half of the year as we complete the execution of our restructuring programs and our repositioning programs. So, I would expect to have positive GAAP operating cash flow.

George Godfrey -- C.L. King & Associates -- Analyst

Got it. Thank you very much. Thank you for taking my questions.

Gregory E. Poling -- Chief Executive Officer

Sure.

Operator

And our next question will come from Mike Sison of KeyBanc.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Hey, guys. A lot of companies have talked about a -- needing (ph) a better second half of the year and that tends to be the case for you just because of seasonality with the firm (ph). But do you have any thoughts on your project, kind of backlogs and how it shapes up in terms of the first half versus the second half of the year.

Gregory E. Poling -- Chief Executive Officer

Yeah, Mike. Let me take a shot at that. On SCC, it's about the run rate volumes. And so that tends to actually -- looks like those volumes are picking up and we did have a little slower SCC in the North America business. We have a good project pipeline on SBM. But the fact of the matter is, it is a bit back-half loaded. We've got good visibility to the specifications there.

One of the projects that hurt us a little bit in the first quarter, frankly, was, we had great specs and we're starting -- did some good work on that Mexico airport. They've got canceled. It was a big project. So, that took a little bit of wind out of our sales in the first quarter. But we've got pretty good visibility around the word. Our China business, our Asia business is growing.

We're doing some good project work in the Middle East. There, of course, we've got to be very cognizant of collections and making sure we get paid and we work that hard on the delay there. In the North America, tends to be a lot of mid-sized projects this year, where we had some bigger projects at the end of last year. So the number of projects looks pretty good. So, look, I think the quarter had the destocking, that will end and that's a good guide in the second half.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Okay. And then a question on VERIFI. The business sounds like it's ramping up. If you can hit your plan and I think it was 2020, 2021 in terms of growth and size of the business. Can that be a stand-alone business or does it have to be within the construct of a admixtures type of platform?

Gregory E. Poling -- Chief Executive Officer

Look, the real play there is the interaction between the chemistry and the data, and our ability to access the customers with the mix designs. It's the integration with the admixture business that allows that growth. That's where our relationships are. That's where the cost savings are, the value equation. And as we look at that model in terms of putting in transit admixtures on the truck, there is quite a bit of opportunity for us there.

So, it's clearly an integrated business on the concrete admixture side and we're getting some very nice penetration. And as I've said historically, the numbers have stayed relatively consistent about half of the people that are buying the customers, who are buying admixtures from us are buying VERIFI from us to our admixtures. So, we're also signing up accounts that are not in our admixture business, which gives us an opportunity going forward. The sales force and Randy talked about this, has been totally integrated. Maybe you want to say a word on that, Randy?

Randall S. Dearth -- President and Chief Operating Officer

No, I would just want to add to that. We started a couple months ago of integrating the sales organization to be able to sell both the VERIFI and the admixtures. And I have to say it's working quite well. We're very pleased with that and we are seeing the benefits of going out as a consolidated sales team to our customers.

Gregory E. Poling -- Chief Executive Officer

If you take, just to add to it a little bit, in the first quarter, SCC gross margin improved about 240 basis points. VERIFI probably added 60 basis points, 70 basis points to that number. So, it's the integrations driving improvement there.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Got it. And then if you think about the markets that you stayed in for SCC, can you maybe little bit -- maybe can you talk about where you're positioned in those markets? I think the reason you elected it over other markets is that you were dominant or big enough to make a difference. So, maybe just describe how you're positioned in the market that you stayed and how much technology and size helps you compete in those longer term?

Gregory E. Poling -- Chief Executive Officer

Yeah, it's a great question. As we think about the strategy on the integration with the admixtures, the VERIFI, the chemistry and the data, we have very nice market positions in North America, countries Brazil, the UK, Australia, Hong Kong, Singapore, Malaysia. There is a number of Asia Pacific countries. We do well in a number of these markets. And frankly, we are now selling VERIFI in Australia. We're selling it in Singapore. We're selling VERIFI in the UK, and we're working on a number of contract deliverables in these other countries.

The intersection of the strength of our organization, our ability to sell through in these products is going to allow us to bring that new technology into these markets. And they happen to be markets with customers that really appreciate the value equation that we're out selling. So, that is the strategy. It's the focus where we have market position, strong relationships, soak (ph) technology over the long term, good infrastructure and then add to that with some of our new admixtures, VERIFI, and now admixtures on an integrated basis with VERIFI. So, that's the strategy.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Gregory E. Poling -- Chief Executive Officer

You're welcome.

Operator

(Operator Instructions) Our next question will come from Laurence Alexander of Jefferies.

Dan Rizzo -- Jefferies -- Analyst

Hey, guys. It's Dan again. Just one follow-up. You mentioned things doing fairly well in China in terms of demand. I was just wondering how important China is. I recall, I thought in the past that China was kind of a very small part of your portfolio. I want to know if it's grown in the past few years or if I'm just simply misremembering? Thanks.

Gregory E. Poling -- Chief Executive Officer

No, no, you've got it right. If you sort of breakdown the businesses, I mean in total, I think it's 4% to 5% of our total revenue. So, it's not insignificant, but it's -- that's about the magnitude. Where we do very nicely is in our higher-end SBM products that were fit-for-use on subways, airports, infrastructure and we bought a company there a number years ago.

We made investments on the manufacturing. That's where we're getting the growth. That growth in China on -- was a high-single digits in the quarter. We've got some nice projects. Actually it is little better now. We've got some nice projects there. But in the base, we do cement in the high-end in some of the specialty products. But you're right, relative to the broad admixture business, we're in the markets that have the value. I mean, if Hong Kong is part of China, we've got a nice position. But the rest is not that great.

Dan Rizzo -- Jefferies -- Analyst

Okay. Thank you very much for clarification.

Gregory E. Poling -- Chief Executive Officer

You are welcome.

Operator

And it does appear we have no further questions at this time. That does conclude today's teleconference. Thank you all for your participation.

Duration: 35 minutes

Call participants:

Joseph DeCristofaro -- Vice President, Investor Relations

Gregory E. Poling -- Chief Executive Officer

Randall S. Dearth -- President and Chief Operating Officer

Dean Freeman -- Vice President and Chief Financial Officer

Mike Harrison -- Seaport Global Securities -- Analyst

Dan Rizzo -- Jefferies -- Analyst

Rosemarie Morbelli -- G. Research, LLC -- Analyst

George Godfrey -- C.L. King & Associates -- Analyst

Michael Sison -- KeyBanc Capital Markets -- Analyst

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