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Good morning. My name is Rocco, and I will be your conference operator for today. At this time, I would like to welcome everyone to Vertiv's Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.
I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.
Great. Thank you, Rocco. Good morning, and welcome to Vertiv's Second Quarter 2020 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, David Cote; Chief Executive Officer, Rob Johnson; Chief Financial Officer, David Fallon; and Chief Strategy and Development Officer, Gary Niederpruem.
Before we begin, I'd point out that during the course of this call, we will make forward-looking statements regarding future events including the future financial and operation -- operating performance of Vertiv. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. [ We refer you to the ] cautionary language included in today's earnings release and you can learn more about these risks in our registration statement, our proxy statement and other filings with the SEC. Any forward-looking statements made today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.
During this call, we will also present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com.
With that, I'll turn the call over to Executive Chairman, David Cote.
Thanks, and good morning, everyone. When the last time we spoke in early May, everyone was still trying to determine what the implications of COVID were going to be and exactly what type of recession we were going to have. Well, today, 3 months later, while some things are more clear, there are also many things that are still not clear. What is clear, however, is how Vertiv is executing during this time.
As many of you know, one of my mantras in business is growing while holding fixed costs constant. And while that's easy in theory, it's not so easy in practice. What I can tell you is that both Rob and Dave Fallon have fully embraced the concept and are deploying it within Vertiv in an aggressive manner. One of my other beliefs is achieving 2 seemingly conflicting objectives at the same time. Where this seems difficult, it is, in fact, very doable. Inside of Vertiv, we're employing the same mindset by managing our costs very closely, but at the same time, we've been ramping up R&D spending so we continue innovating for our customers today and tomorrow. We're also working on strategy development. Just a few week ago, Rob's team went through a week-long strategy review that I participated in for its entirety. Don't worry, it was all remote. There is absolutely no shortage of ideas on how to grow our top and bottom line. Now there's a lot of work to do to bring this to life, but it sure was a great starting point for the company.
We can't know for sure the economic environment globally over the next several months, but I am very confident in our ability to navigate these waters and come out the other side a significantly better company.
So with that, I'll turn the call over to Rob.
Thank you, Dave, and good morning, everyone. Before I get into the slide, I want to tell you about how proud I am of the Vertiv team. Serving customers during the pandemic has not been without its challenges. Employees across the company and located in countries across the globe have addressed issues of all kinds brought on by COVID. And they've done it creatively, they've done it energetically and they've done it passionately. I couldn't ask for a better team, and I'm truly grateful to them and for how they have always put the customer first.
Let's get into the slides. On Slide 4, overall, the demand side of our business held up as orders were up 5% organically from Q2 2019. Last quarter, we talked about exiting with an all-time high backlog of $1.6 billion. And now I'm proud and happy to report that our backlog is even greater than that at about approximately $1.8 billion. We will talk over the next few slides about both the supply and the demand side of our business.
From a profitability standpoint, we delivered $145 million of adjusted EBITDA, which is relatively flat from last year's Q2. Although Q2 had $128 million lower sales than Q2 of 2019, we managed our contribution margins very well and held our cost in line, as Dave Cote mentioned in his opening comments. We had approximately $30 million year-over-year of favorable cost actions delivered in the quarter, which David Fallon will elaborate on later. From a liquidity standpoint, we had a very strong quarter, ending at $530 million, and we generated over $60 million of free cash flow.
Next, on this slide, we do want to provide some range for expected Q3 performance. We are anticipating implications of COVID to continue to fluctuate, but we expect our organic sales to be up between 4% and 6%, and our adjusted EBITDA will be up 10% at the midpoint from Q3 of last year. So while the dynamics can change, we did want to share with you what we are currently seeing playing out in Q3. More on this topic later. Finally, we want to add just a bit of color around 2021. As we see things right now, the demand side is holding up, and our backlog should be robust as we exit the end of this year.
We know the dynamics with COVID could ultimately change the top line, but what is in our control is our cost. In Q3, we will be announcing [ restructuring ] activities that will save us approximately $50 million to $70 million in 2021, with a cash cost to execute of approximately $50 million to $70 million. We are fine-tuning the details, but we feel confident about the programs that underpin these numbers.
Turning to Slide 5. We used this slide with our Board last week as a heat map of sorts to illustrate the pockets of strength within each region. The chart is simple, but it relays the real-time view we have on the demand side of things. It is qualitative in nature and to fix our view on the level of health and activity in each of the markets we serve. We continue to see a strong level of activity in every region in the cloud and colocation market, as indicated by the 6 green buttons in the first 2 top rows. Emerging vital applications such as online education, telemedicine, video and gaming are benefiting our cloud and colocation customers, and that surge in demand is benefiting us as well.
In contrast to the cloud and colo business, we see the enterprise and small to medium business continuing to be challenged by COVID, as indicated by the red and yellow buttons in row 3. This segment is spending some money. We have started to see a resurgence from the segment in China, but overall, this classic customer is not spending as they did prior to COVID.
Switching to telecom side of things, both Asia and Americas is strong right now. China has gotten on the 5G bandwagon in a major way, and our telecom customers in the U.S. continue to invest in their network, as you can see, indicated by the 2 green buttons in row 4.
Finally, our C&I business, more often than not, as we've always said, will track [ approximately to ] GDP over the longer run. But sometimes, the quarterly timing can be different. While this segment has held up better than expected, things are relatively flat in this space.
So certainly, some puts and takes, but overall, when you consider our mix of data center business, Vertiv is seeing positive growth. The applications people use every day continue to be more and more vital, following the onset of COVID, and those applications need to be processed, stored and transmitted. And all of this continues to be a great backdrop for our business.
Moving on to Slide 6. To reiterate, the overall demand is strong and as evidenced by our strong order rates and record backlog. While our channel business is soft due to the enterprise and small and medium business segment being down, our larger project-based orders rates are on track.
One thing I haven't touched on yet, though, is site access. Site access in some of the markets is very challenging. We see this continuing to be an area of uncertainty, as governments control access to countries and localities and ultimately, customers control our ability to deliver and install. Singapore, for example, continues to be almost entirely shut down from a data center standpoint. In India, things fluctuate day-to-day and sometimes even an hour-to-hour basis.
On the supply side, the majority of our operations are running normally, and we continue to ramp production. My prior comment on India is appropriate from both the standpoint of demand and supply, and Mexico continues to be a daily work item for us as we address the labor issue.
Our customers are experiencing constraints by trade industries, which we continue to work through. COVID has strengthened our proficiency in anticipating potential roadblocks and proactively mitigating issues before they become a concern.
With that, I'll turn it over to Dave Fallon to walk us through the financials. David?
Thanks, Rob. Turning to Slide 7. This page summarizes our second quarter financial results versus last year. Net sales were down $128 million or 11%, including $28 million due to unfavorable changes in foreign currency, as most global currencies are weaker versus the U.S. dollar compared to last year, including the euro and the RMB, which represent approximately 60% of our foreign currency exposure. The remaining $100 million reduction in net sales was primarily driven by Americas and EMEA, each organically down double digits as a result of COVID-19 and year-over-year timing of larger projects. Despite the $128 million reduction in net sales, second quarter adjusted EBITDA declined just $2 million and actually increased $5 million when adjusted for foreign currency.
Fixed costs were down $35 million from last year's second quarter, primarily as the result of COVID-19 cost actions implemented at the beginning of the quarter, and we still anticipate an approximate $60 million full year benefit from COVID-19 cost actions compared to our beginning of the year guidance, including $35 million in the second quarter, $15 million in the third quarter and $10 million in the fourth quarter.
Second quarter contribution margin improved year-over-year due to continued progress with both pricing and productivity initiatives. Adjusted EBITDA margin improved 150 basis points from last year, primarily driven by this improved contribution margin percentage. Second quarter free cash flow, as we move farthest to the right, improved $128 million from last year's second quarter, in part due to $59 million lower cash interest resulting from the significant debt paydown pursuant to the SPAC transaction and the subsequent debt refinancing. We will review other drivers of higher year-over-year free cash flow in a couple of slides.
Next, turning to Slide 8. This page summarizes our second quarter segment results. Organic net sales in the Americas were down [ $79 million ] or 14%, primarily driven by the continued negative impact from COVID-19 and from the normal variability of year-over-year timing of larger projects, estimated at about $8 million. It was a very similar story in EMEA, where organic net sales declined $32 million or 13%. EMEA was also negatively impacted by COVID-19 and by approximately $15 million from normal variability of larger projects. Organic net sales in APAC increased $11 million, with between $15 million and $20 million of this increase due to the timing of larger projects. Otherwise, relatively flat year-over-year organic net sales in APAC were driven by double-digit growth in China, which represents between 60% to 70% of APAC's top line, and this growth in China was offset by double-digit declines in the rest of Asia, including India, demonstrating that although China seems to be transitioning from the negative effects of COVID-19, certain other geographies within APAC continue to be challenged.
From a profitability perspective, adjusted EBITDA, as a percentage of sales, increased across the board in all regions, primarily driven by improved contribution margin in both the Americas and EMEA and from lower fixed costs as a percentage of sales in APAC, as fixed costs in that region declined while net sales were relatively flat.
Next, turning to Slide 9. The chart on this page bridges second quarter free cash flow from last year. But before reviewing free cash flow, we do want to reiterate our direction from the first quarter earnings call that we continue to hold no concerns related to liquidity, and we're actually incrementally more optimistic based upon the $84 million increase in liquidity during the quarter. We anticipate our liquidity position to grow sequentially at the end of each of the third and fourth quarters based on our expectation of strong free cash flow generation in the second half of the year consistent with timing in prior years.
Now returning to the chart. Second quarter free cash flow of $62 million increased $128 million from last year's second quarter, driven by $45 million higher net income despite a $22 million increase in noncash charges, including a $12 million ERP impairment. A significant driver of higher net income was lower interest expense, driven by the SPAC transaction and subsequent debt refinancing. And of course, we had a related $59 million reduction in cash interest, which certainly contributed to the higher year-over-year free cash flow.
Cash used for [ working capital ] declined $44 million, but a good portion of this benefit in the quarter was due to the timing of favorable cash receipts at the end of June, we estimate between $20 million and $30 million that we otherwise expected to receive in the third quarter. Second quarter free cash flow also benefited from lower capital expenditures, but a good portion of this reduction was also due to timing as we deferred CapEx investment to the second half of the year based on the COVID-19 uncertainty we were managing at the beginning of the quarter.
Next, turning to Slide 10. This page summarizes our financial guidance for the third quarter, as we illustrated in the earnings release. Although uncertainty surrounding COVID-19 has certainly mitigated since we spoke in early May, there is still lack of sufficient visibility to provide specific financial guidance beyond a few months. Accordingly, we provide our expectations for only third quarter, and this guidance assumes that what we experienced in July continues through August and September, which, of course, is subject to change based upon uncertainty with COVID-19. We are effectively approaching financial guidance for this year, 1 quarter at a time.
Based upon what we know today, we expect third quarter organic net sales to increase between 4% and 6% from last year's third quarter. And although projected organic growth from prior year differs by region, with Americas expected to be relatively flat and APAC and EMEA expected to grow mid- to upper single digits, all 3 regions should grow sequentially from the second quarter in upper single digits. This sequential growth is not driven by seasonality as our third quarter net sales declined sequentially from the second quarter in each of the last 2 years. Of course, we expect third quarter net sales in all 3 regions to continue to be negatively influenced by COVID-19 and our top line results will be dependent upon access to customer sites and our customers' ability and willingness to accept shipments.
We expect third quarter adjusted EBITDA of approximately $150 million at the midpoint, 10% higher than last year's third quarter, and adjusted EBITDA margin to expand approximately 90 basis points at the midpoint, primarily driven by relatively flat fixed cost, fixed cost constant, while top line is growing mid-single digits.
Comparing our third quarter guidance to our second quarter results, although top line is expected to grow approximately 10% sequentially at the midpoint, adjusted EBITDA is expected to expand less than 5%. Relatively lower profit growth is driven by higher projected fixed costs in the third quarter versus the second quarter, primarily due to a $20 million reduction in the benefit from COVID-19 cost actions. In addition, we plan that despite the uncertainty related to COVID-19 to continue the ramp-up of R&D and growth initiative spending in the third quarter. Third quarter contribution margin as a percentage of sales is expected to remain relatively consistent with the second quarter.
With that said, I turn it back over to Rob.
Thanks, David. Turning to Slide 11. Here's a bit more detail regarding our perspective on 2021. From our radar screen right now, we see the cloud, colocation and telecom markets continuing to be pretty healthy entering into 2021. It's clearly too early to call what the enterprise market will look like, but the total data center landscape we are still expecting to see a growth.
Our record backlog of $1.8 billion gives us good visibility and confidence on the revenue side. And towards the back half of 2021, we will start seeing the R&D investments pay off with even more products and solutions hitting the market. On the margin side, as we've discussed several times, we are firm believers and practicers of holding fixed cost constant, and those efforts will be in full swing during 2021. To this end, we plan to announce restructuring actions in Q3, which we will expect to reduce fixed costs by approximately $50 million to $70 million, plus additional variable cost benefit. These projects are varied and are entering into the final scoping stages.
To support these fixed cost reduction projects, we anticipate incurring cash costs between $50 million and $70 million, including capital, and we will evaluate these cash costs for a likely restructuring reserve to be recorded in third quarter. So while it's too early, we did want to provide you with a glimpse of what we potentially are seeing play out in 2021, at least based on what we know today.
Now turning to Slide 12 and in closing. I want to thank you for your support over the past quarter and in the quarters to come. We participate in a great industry where we have a leadership position and never has critical digital infrastructure to support vital application been so important as it is now. Our backlog, the fixed cost constant approach we have implemented and our liquidity positions are in great shape as we continue to operate during this dynamic time. We continue to invest in the future while simultaneously managing for today. This strategic approach will prepare us to even be more successful when we emerge from this pandemic, and the world adapts to a new normal.
Thank you for your support. Stay healthy. I'll now turn the call over to the operator, who will open it up for questions.
[Operator Instructions] Today's first question comes from Scott Davis with Melius Research.
It looks encouraging, the results look encouraging. Outlook looks encouraging. So happy about that. Anyway, I want to get color on a couple of things, if you don't mind, and I hope you can hear me okay. We still have a power outage here in -- where I live in the Northeast, but...
We can hear fine.
Good. The $60 million cost out for the year, that -- is there any of that $60 million that you think you could hold on to into 2021? I assume these are mostly like lower T&E and things like that, lower comp accruals. But are there parts of that you think that could become permanent, not temporary?
Yes, Scott, this is David. Absolutely. So you hit it on the head, about $20 million of that is discretionary related to T&E, and that is certainly the bucket of costs that we are targeting to effectively keep out of the business heading into next year. And we certainly have learned a new way of doing our business while doing things virtually. So that $20 million, we certainly would target to keep out of the business. But just a quick point. With the macro goal of keeping fixed costs constant, we will target to even offset the other $40 million. So that $40 million, if it does come back into the business, our planning heading into 2021 would be to identify other reductions to offset it. So effectively realizing the benefit of the full $60 million heading into 2021.
Okay. Helpful. And then just kind of technical question here. The 5G projects, I would imagine they would be somewhat lumpy, maybe not as visible as traditional data center, but I really don't know. It's a newer market, obviously. But can you help us understand what those projects typically look like? And how they might differ from a traditional data center project?
Sure. Scott, this is Rob Johnson. Yes, what we're seeing -- China announced a while back during the COVID, part of their stimulus was to really go after 5G and expand. So they put tens of billions of dollars into doing that. Those projects tend to be smaller, but tend to be tens of thousands of sites. And basically, with 5G, what you have to do is go into that cell tower, upgrade the power system because 5G does require more power and maybe upgrade the thermal. So the opportunity for us is lots of little sites, but tens of thousands of those. And that's what we're seeing certainly happen in China, and we participate really well in China when it comes to the 5G rollout.
Same thing in the U.S., what you're finding is the networks get very constrained because of all the work-from-home, school-from-home. People are upgrading those networks, upgrading, maintaining and upgrading the equipment there. And 5G is, as you know, kind of a race between China and the U.S. of who can get there faster. So we're enjoying that, and I think that trend will continue, not necessarily lumpy, but pretty steady over the next couple of years.
Okay. Good luck, guys. And congrats Dave Cote on the book. It's a great read. I loved it.
You're very kind, Scott, and I appreciate the plug for the book and please, I have to admit I enjoyed yours also, especially that Honeywell chapter. And we hope that in the next book you write, Vertiv will show up.
I hope so. Good luck. I hope it works out.
And our next question today comes from Nicole DeBlase with Deutsche Bank.
Yes. I thought that the framework around 3Q was helpful, some of the regional color by the top line. But following up on that, is it possible for you guys to kind of parse out -- do you expect to see EBITDA margins up year-on-year across all 3 regions like you were able to do this quarter? Or is there any lumpiness things that we should be aware of?
Yes. Nicole, this is David Fallon. I would say, although we don't want to necessarily give guidance in particular by region, our expectation would be that, that would be spread across all 3 regions. Implicit in the guide is effectively that fixed cost will be flat this year versus last year. And based on the leverage across the 3 regions, we would anticipate EBITDA margins to increase globally. And that's even with contribution margin likely staying relatively flat. So we would anticipate higher adjusted EBITDA margins to be spread across all 3 regions.
Got it. Okay. And then totally understand the lack of visibility here in the current environment. But just as we're framing our own models into the fourth quarter, what kind of seasonality do you guys typically see that we should be aware of? And I guess on top of that, the large project lumpiness, is there anything to think about with respect to year-on-year versus 4Q '19?
Yes. Nicole, I'll start, and then David can chime in. Typically, the second half of the year is bigger than the first half. So that's kind of -- and fourth quarter, it's typically our largest quarter in the year. The big projects ebb and flow, and sometimes we talk about that and say, we had a big project in EMEA this year, and we didn't -- that didn't repeat itself. But what I would say is what we're seeing is strength, as we talked about, Nicole, and hyperscale, which tend to be larger projects, and we're seeing that not just in any particular region, but all the regions. And what's going to be important for us going forward for the second half is how site access and how delivery and how the availability of the trades are there to be able to deliver. There's certainly, as you can see by our backlog, a pent-up demand and trade constraints can be a problem, inside access can be a problem. But in general, we'll see for certain a larger Q3 and then a larger Q4.
And our next question today comes from Lance Vitanza with Cowen.
I guess I want to just sort of better understand the 3Q guide for adjusted EBITDA. In the context, just given how strong the performance was in the second quarter and the favorable revenue guide for Q3, I thought that the adjusted EBITDA guide seemed -- actually seemed a little light as you have margin on a quarter-on-quarter basis actually going down about 75 basis points or so despite sequential sales growth.
So I'm just wondering, I know, obviously, you talked a little bit about the COVID cost actions, the $30 million that benefited the second quarter. And I guess I would have thought -- I know you talked about this a couple of seconds ago, but a little bit more would have kind of carried into the third quarter. So I'm just wondering, to what extent are you -- are you giving yourselves just some room to maneuver here? Or is there something in particular that we should be thinking about that would lead to that kind of a margin performance in the third quarter?
Yes. Thanks, Lance. This is David. And first, I'll lead off. We always like the midpoint of our guidance. We likely will provide ranges, but we're generally comfortable at the midpoint. And I can help you with the $150 million adjusted EBITDA at the midpoint and how that walks from the $145 million from the second quarter. So being a finance guy, we try to get things as quantitative as possible. So we have about $100 million increase in sales from Q2 to Q3. And if you throw a 40% to 45% contribution margin against that, you get about $40 million, $45 million of benefit. And the headwind is certainly going to be on the fixed cost side as we talked about on -- in the prepared remarks. And that could be in that $35 million plus range. And $20 million of that is going to be related to lower benefits from the COVID actions. And these are things that we benefited from in Q2 that we won't benefit in -- from -- in Q3, including furloughs and in certain geographies, we were able to receive some government subsidies. So that's a good portion of the higher fixed costs.
The other component is our commitment to continue to invest in strategic initiatives. And this is something that we talked about on the last couple of calls. Heading into this year, our plan was to continue to invest in R&D. As we continue to increase that spend as a percentage of sales, we continue to invest in markets that we believe have higher potential and profitable growth, including the channel. In addition, we have some digital projects that we continue to invest in. So the spending for those strategic initiatives ramp-up in the third quarter. And that explains the remainder of the fixed costs increase sequentially from Q2 to Q3.
Super helpful. If I could just squeeze in one more on liquidity. You mentioned that you're less worried about -- even less worried about liquidity, given the outperformance on cash flow in the second quarter. So the implication of that is that, that $60 million of cash was not pulled forward from what you otherwise would have expected to generate in the second half. And I know you talked about you're still expecting a good second half. But it sounds like this is really like just incremental to what you would have expected when you were making your budget, say, at the beginning of the year. Is that fair?
I think that's partially fair. Mr. Cote always reminds us how conservative finance guys can be. And when we look at cash flow, we certainly error on the side of being a little bit more conservative. But our second quarter free cash flow performance certainly was encouraging. I think at this time in May, we hint it towards maybe a slightly negative free cash flow for Q2. So we certainly outperformed that. I did mention some of the favorable performance was based on timing of cash receipts. So we received between $20 million and $30 million literally in the last day of the month that we had anticipated to receive sometime mid-July. So that's helped and certainly would borrow from Q3.
But even with that taken into account, our Q2 free cash flow was better than what we anticipated. And certainly, lends to the optimism that we have both for liquidity and related free cash flow generation for Q3 and Q4.
And Lance, just one little -- just further color on that, I would say that you, I think, used the words maybe less worried. We're not worried about our liquidity. We actually feel really good about our liquidity position, where we're going through this COVID-19 time. So there's no worries, and we only see that getting stronger as we get to finish throughout the rest of this second half of the year.
[Operator Instructions] Our next question today comes from Mark Delaney at GS.
I was hoping first to better understand the comments the company was making about backlog. And if I understood properly, the company is expecting backlog to be at a good level exiting the year. Can you elaborate on what's giving the company the confidence that the backlog is going to stay high as you move through the rest of this year?
And perhaps you could also speak more specifically to your expectations for the hyperscale portion of your business. And how you're thinking about the sustainability of that end market which certainly has a lot of good secular growth over the long term, as how Dave has described it in the past. But there's some debate in the investment community about whether some of the spending going on in hyperscale this year is pull ahead of demand.
Mark, this is Rob Johnson. I'll start off here. First of all, what gives us confidence in the continued strong backlog going into 2021 is our visibility in both our pipeline, which is very strong globally. And what we're seeing from an orders and expectation for orders growth. So we do expect to see orders grow in the second half. And -- so that gives us the confidence going through, those 2 things that I look at, which pipeline is a huge indicator of where things are going. I can't anticipate what's going to happen on the enterprise and small to medium business, but that's even a plus if they come -- the recovery comes faster, I would say, in the second half.
As it relates to hyperscale, what we're seeing globally is a combination of things. It's not just the hyperscale building out to build out. There's a lot of data sovereignty. You've seen a lot of stuff around people wanting data to stay in their country. So what we're seeing is a proliferation of data centers, and we'll continue to see that really data centers in-country, for-country type of thing. And there's a lot of build out going on in Europe. Europe is red hot when it comes to that. Certainly seeing it in the Middle East, Africa. And then just really around the world, South America. So we continue to see data is not slowing down, the rate of growth of data that has to be processed and stored. So we're not looking at this as a bubble that hyperscale is building out or colocation is building out too much capacity.
From our lens, the next 18, 24 months, we see just a strong demand and a need for data centers. There was a pause as we talked about last year, a little bit of digestion, as I'd say. I'd say we're probably a little bit behind now in order to fulfill the capacity that's needed. So we do expect to see hyperscale grow. But we lump hyperscale and colocation together because a lot of the colocation companies, certainly outside of the U.S., are providing that capacity for those hyperscalers.
That's very helpful. For my second question, I was hoping to better understand some of the dynamics in the channel business. And the company talked about it being soft. I think that was just from a cyclical and end market perspective, but taking share within channel has been one of the opportunities the company has focused on. Has that share gain opportunity been disruptive because of the COVID challenges and some of that end market weakness? Or do you still feel confident about the company's ability to take share within the channel business over time?
Yes. No, great question. And you know channel is a huge part of our strategy and a huge investment for us. Pre-COVID, we felt really good about our execution in the channel on a global basis that we were taking share, and we're doing that through providing innovative products and new solutions.
We've had a plethora of launches and we'll continue to launch throughout this year and broaden our scope of offering of innovative products and solutions, as well as being that easy-to-do, easy-button-to-go-to company. And being less distributed or, I would call, under distributed, not over distributed, like some of our competition and picking who we want to do business with has really helped us concentrate, focus and gain share and get closer and tighter with them.
So what I would say is while the overall channel has been impacted by the small and medium business, we expect that to come back at some point in time, and we'll continue to execute and be in a much stronger position because we continue to launch new products and programs in the channel.
So I'm very bullish on a global basis that we'll see, as the recovery comes back, us doing what we said we're going to do, and that's take share and grow in some new categories in the channel space.
Just lastly for me. I do want to better understand the impact of COVID on your business this year. I think in the first quarter call, the company had talked about $80 million of revenue and $30 million of EBITDA that was negatively impacted because of COVID. And I apologize if I just missed it, I didn't catch an update on what COVID may have done to fundamentals in the second quarter. Is there any more quantitative or qualitative color you can provide about how COVID may be impacting your ability to complete projects in 2Q or in the 3Q guidance from a revenue and a cost perspective?
Yes. I think as Rob mentioned in his prepared remarks that certain geographies certainly continue to be negatively impacted. And certainly, if you look at lower year-over-year sales, those are a lot easier to attribute directly to COVID. I would say, universally, if you look at our production and operations that we had a minimal impact, being able to procure supply and produce product and we had very little operational issues, if you will. So we didn't specifically call out a dollar impact on the top line related to COVID. And that's primarily because we look at everything that we're dealing with today as kind of fungible with COVID-19.
So overall, I think, organically, our sales were off $100 million versus last year. One of the things that we called out specifically in the first quarter year-over-year was the impact of large projects. And that certainly impacted us in Q2, but it was more regional based. If you look at it overall, we probably only had about a $5 million headwind from the timing of large projects from last year's second quarter. So if you want to attribute the remainder reduction of the $95 million to COVID, I wouldn't stop you, but it's really hard for us to specifically say what subcomponents of that $90 million is COVID or that we otherwise would have been able to deliver to customers.
There are no further questions at this time. So that ends the Q&A session. I would like to turn the conference back over to Rob Johnson for any closing remarks.
Thank you, operator. I'm going to close the call by thanking our 19,000 plus employees around the world for their hard work that they're doing every day to take care of our customers. We appreciate everyone's time today. As I said earlier, please stay safe, and we look forward to speaking with you again. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a wonderful day.