Hello. My name is Jason, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's 2nd Quarter 2019 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would now like to turn the call over to Mr. Griffin Whitney, Vice President of Investor Relations. Mr. Whitney, you may begin your conference.
Thank you, Jason. Good afternoon, everyone, and thank you for joining us on the call. With us today are Jim Leko, our President and Chief Executive Officer and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non GAAP financial measures on today's call. Information required by SEC Regulation G relating to these non GAAP financial measures are available on the Investors section of our website, www dotfortive.com, under the heading Financial Information.
A replay of the webcast will be archived on the Investors section of our website later today under the headings Events and Presentations and will remain archived until our next quarterly call. A replay of the conference call will be available shortly after the conclusion of this call until Friday, August 9, 2019. Instructions for accessing this replay are included in our Q2 2019 earnings press release. We completed the divestiture of the Automation and Specialty business on October 1, 2018, and accordingly have included the results of the A and S business as discontinued operations for current and historical periods. The results presented on this call are based on continuing operations.
During the presentation, we will describe certain of the more significant factors that impacted year over year performance. All references to period to increases or decreases and financial metrics are year over year on a continuing operations basis. During the call, we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward looking statements is available in our SEC filings, including our annual report on Form 10 ks for the year ended December 31, 2018.
These forward looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward looking statements. With that, I'd like to turn the call over to Jim.
Thanks, Griffin, and good afternoon, everyone. Today, we reported adjusted diluted earnings per share quarter of 2019, representing an increase of 18% year over year and hitting the high end of our guide despite evidence of slowing in our short cycle businesses as we progress through the quarter. In the face of these headwinds, which negatively impacted core growth in our Professional Instrumentation segment, the Fortive team delivered high teens total revenue growth, including continued outperformance at Gilbarco Vida Root and another quarter of strong free cash flow conversion driven by disciplined execution and the strength of the Fortive Business System. Our strong earnings and cash flow performance reflected the momentum of our capital deployment strategy as acquisitions continue to enhance the growth profile and reduce the cyclicality of our portfolio. Importantly, the integration of advanced sterilization products has gotten off to a good solid start as it delivered a greater than expected earnings contribution during our Q1 of ownership.
We look forward to providing additional updates as integration progresses, and we exit the majority of our transition services agreements with Johnson and Johnson through the first half of twenty twenty. At the same time, the earlier acquisitions of ISC and Landauer continued to deliver strong results, increasing the resilience of the portfolio as they generated high single digit core growth and 360 basis points of core OMX on a combined basis. Gordian and Accruent also continue to perform well and will be additive to core growth in the Professional Instrumentation segment when they turn core during the Q3. Consistent with the broader digital strategy that we highlighted during our May investor conference, we recently completed 3 additional acquisitions within Field Solutions. The acquisitions of Intellix and Saver Systems as well as ProofTechNick demonstrate our ability to continue to find high quality companies to accelerate our digital strategy and bring connected workflow solutions to our customers.
With that, I'd like to turn to the details of the quarter. Adjusted net earnings were $322,300,000 up 19.2% over the prior year and adjusted diluted net earnings per share were $0.90 Sales grew 16.4 percent to $1,900,000,000 reflecting a core revenue increase of 2%. Core revenue growth was highlighted by strong performance at Gilbarco Veeder Root, EMC and Industrial Scientific, which was partially offset by a flat quarter from Fluke and a decline at Tektronix. Acquisitions including Gordian, Accruent and ASP contributed 16 50 basis points of top line growth, while unfavorable foreign exchange rates reduced growth by 2 10 basis points. Geographically, high growth markets core revenue decreased low single digits due to weaker market conditions in Asia and Latin America.
In India, strong growth at Fluke was more than offset by timing on some large orders at GVR that pushed into the second half of the year. We continue to expect strong growth in India for the full year. China posted low single digit growth with strong performances at ISC and Sensing Technologies, but more modest growth across Fluke, Tektronix and GVR. Developed markets core revenue grew low single digits as strength in North America was partially offset by weakness in Western Europe. Core revenue growth in North America was mid single digits led by GVR, EMC and Industrial Scientific, while Western Europe decreased low single digits with continued growth at GVR.
Reported operating margin was 13.4%, reflecting 540 basis points of dilution from acquisitions and 180 basis points of dilution from deal related costs. Core operating margins increased 30 basis points as continued strong volume at GVR and the disciplined application of FBS helped offset headwinds within Professional Instrumentation. During the Q2, we generated $236,000,000 of free cash flow and a conversion ratio of 134%. While we anticipate a continuation of the uncertain macroeconomic environment, we expect sustained strong free cash flow generation and conversion of greater than 125% for the full year. Turning to our segments.
Professional Instrumentation posted sales growth of 27.5 percent on relatively flat core revenue. This growth performance reflected the continued transformation of Professional Instrumentation over the past few years with acquisitions driving growth contributing 2 930 basis points during the quarter. Unfavorable foreign exchange rates reduced growth by 190 basis points. Reported operating margin of 10.8 percent reflected 12.20 basis points of dilutive operating margin associated with acquisitions and deal related costs, including purchase accounting adjustments and transaction expenses from the initial closing of ASP. Core operating margins decreased 140 basis points, reflecting slower revenue performance, the impact of tariffs and unfavorable foreign exchange.
Advanced Instrumentation and Solutions core revenue was flat as strong performance at EMC and Industrial Scientific was offset by the slowing at Fluke and Tektronix. Field Solutions core revenue was flat with developed markets growing slightly paced by the continued strong performance of ISC. High growth markets decreased low single digits as slightly positive growth at Fluke and a strong performance from ISC in China were more than offset by the expected weakness While not yet core, we were very pleased with the continued performance of Accruent and Gordian. Accruent continues to see strong growth in North America across a variety of end markets, driven by demand for its lease management and space optimization offerings. Gordian's growth continues to be paced by its procurement platform, driven by increased construction volumes from new customers, including the Hawaii Department of Education and the City of Atlanta.
Fluke's core revenue was flat as low single digit growth at Fluke Industrial and Calibration and mid single digit growth at Fluke Networks was offset by declines in thermography, process instruments and health solutions. Fluke Digital Systems grew 30% as Emate generated high single digit net new customer growth and a greater than 20% increase in annual recurring revenue. Fluke generated low single digit growth in China and we remain watchful for more potential slowing in that market through the second half. As we highlighted at the Investor Conference in May, Fluke recently launched a new Sonic industrial imager, a revolutionary product which enables maintenance teams to quickly and accurately locate air, gas and vacuum leaks utilizing Fluke's state of the art SoundSight technology. Fluke also completed the bolt on acquisition of PruTeknik, a leader in vibration monitoring, alignment and testing equipment and services.
The acquisition of prooftechnic accelerates Fluke's asset reliability and condition monitoring strategy, which now accounts for greater than $200,000,000 in total revenue with a combination of industry leading measurement tools and best in class domain expertise. ISC delivered mid single digit core revenue growth. This was led by North America and Asia Pacific, including strong performance in China, which more than offset some slowing in Western Europe. Inet registered another strong quarter with high teens growth, while rental generated high single digit growth against a tough compare from the prior year. ISC delivered 2 90 basis points of OMX in the quarter as strong mix and PPV execution through the application of the Fortive Business System continues to drive consistent operational improvement.
Industrial Scientific recently completed the acquisition Intellix, a leading provider of and S software and Safer Systems, whose leading cloud based platform provides real time hazard analysis and risk assessment to the chemical, oil and gas and transportation sectors. These acquisitions significantly advance ISC's safety as a service strategy to provide a comprehensive real time connection between its customers' workforce and assets and the management of their environmental, health and safety related workflows. Qualitrol's core revenue declined low double digits in line with our expectations. Qualitrol continues to see early signs of a more stable conditions in certain markets as it generated positive bookings growth for the first time in 8 quarters. While North America remains challenged due to lower retrofit project spending, the Middle East increased low double digits, the first positive performance in the region in 7 quarters driven by the release of some previously delayed projects.
Product realization core revenue was flat as strong double digit growth at EMC was offset by weakness at Tektronix. EMC generated broad based growth across its core aerospace and defense product lines as well as its commercial satellite offering. A record backlog at the end of the quarter has EMC well positioned for continued growth supported by the scaling up of key customer programs and market share gains. Tektronix registered a mid single digit decrease in core revenue. Much of this weakness was driven by continued slowing at Keithley, weakness in Western Europe and the negative impact associated with Huawei's inclusion on the U.
S. Restricted entity list in May. The slowing macro conditions in Western Europe led to a high teens decrease and had a broad based impact across Tektronix' product lines. We expect headwinds at Keithley and in Western Europe to persist in the coming quarters as will challenges from Huawei status, pending any resolution of ongoing trade hostilities between the U. S.
And China. Tektronix' investments are driving growth in mid range scopes as its new offerings continue to perform well, growing high single digits and marking 10 consecutive quarters of strong growth. The successful launch of the new 3 and 4 series MSOs added to the continued success of the 5 and 6 series includes including several large deals with enterprise customers. Tektronix recently closed the previously announced transaction to contribute its video test and monitoring business to a new entity formed with Telestream and Genstar Capital. Core revenue for sensing technologies increased low single digits.
The platform saw solid growth across the medical and critical environment end markets, driven by new product introductions and continued share gains. However, headwinds from semiconductor equipment customers continued and sensing also saw broader slowing across its core industrial end markets toward the end of the quarter. China continued to perform well with greater than 20% growth, but was partially offset by weakness in North America and Western Europe. We are also seeing good early traction in Sensing's IoT offerings, including SBT's Acu Bin platform for supply chain applications and the oil condition monitoring system from GEMS. Turning to advanced sterilization products.
The company got off to a solid start in the Q2 and we're pleased with how the integration is progressing. ASP grew low single digits in line with our expectations, led by strong performance in China. ASP also saw improved growth in Japan, led by strong in Japan, led by strong performance in terminal sterilization as well as growth at high level disinfection, supported by the successful introduction of the EndoCleanse Neo D, our new endoscope reprocessor product for the Japanese market. North America was slightly positive and up sequentially from the Q1, driven by terminal sterilization consumables. During the quarter, ASP saw several large orders from a range of new and existing integrated delivery network customers.
Moving to Industrial Technologies. Revenue grew 2.6%, including core revenue growth of 4.4%. Acquisitions contributed 50 basis points, while unfavorable foreign exchange rates reduced growth by 230 basis points. Reported operating margin was 20.9 percent and core operating margin increased 2 10 basis points, driven by continued strong volume at Madco. Our Transportation Technologies platform core revenue grew mid single digits led by high single digit growth in North America.
GVR delivered high single digit core revenue growth highlighted by a low double digit increase in developed markets. Strength in North America reflected the continuation of strong EMV related sales, while Western Europe reflected share gains and strong spending by BP's overall subsidiary. Gilbarco also completed outdoor EMV capable software releases of its Passport point of sale system on the Sitco and Shell networks. Passport is now available on more than 70% of Gilbarco's installed base, well ahead of other point of sale competitors. In high growth markets, GVR posted a mid single digit decline compared to greater than 30% growth in the prior year period as the timing of tenders in China and India shifted volume into the second half of the year.
GVR is up high single digits year to date in high growth markets, paced by momentum from Orpak's leading automation offering with strong orders and a healthy backlog that will support strong growth in the coming quarters. GVR also launched its new high growth markets dispenser platform, Latitude, which has been very well received by customers thus far and is expected to drive additional growth going forward. In line with expectations, Tel Trac Navman's core revenue decreased low double digits in the 2nd quarter, as strong growth across Asia Pacific was more than offset by a decline in North America and Western Europe. While North America remains a significant headwind, the Teletrac NANDMAN team's continued focus on stabilizing the business has resulted in a reduction in customer churn. Expect to see continued improvement in the coming quarters for bookings and ACV and on the backs of new product launches as well as better performance across large enterprise customers and the SMB sales channel.
Moving to franchise distribution. The platform's core revenue increased low single digits during the 2nd quarter as mid single digit growth at Madco was partially offset by a mid single digit decline at Hennessy. Madco outperformed in the quarter paced by strong growth in diagnostics and hardline tools. High teens growth in diagnostics was due in part to 2 new additions to Madco's MAXIMUS family of diagnostic products, the Maximus Flash Plus, which provides OEM level live diagnostics expertise and the Max Flex, a full We are updating our full year 2019 adjusted diluted net EPS guidance to 3.45 dollars to $3.60 representing year over year growth of 13% to 18% on a continuing operations basis. The revised annual guidance has been reduced to reflect the short cycle slowing trend that emerged during the second quarter, which we expect to impact demand through the second half of the year.
The revised guidance assumes 2.5% to 3.5% core revenue growth, an effective tax rate of 16.1% and free cash flow conversion of greater than 125% for the year. We are also initiating our 3rd quarter adjusted diluted net EPS guidance of $0.83 to $0.88 representing year over year growth of 19% at the high end. This includes assumption of 2% to 4% core revenue growth, 25 basis points of core OMX and an effective tax rate of 16.1%. To wrap up, we delivered another quarter of double digit earnings growth and strong free cash flow conversion despite some slowing basis points of core OMX in the face of both the anticipated challenges from tariffs and foreign exchange and the lower than expected volume from Fluke and Tektronix during the quarter. The strong performance of our acquisitions from the past few years continues to enhance the growth resilience of the overall portfolio, positioning us well to continue to deliver top quartile earnings growth.
With that, I'd like to turn it over to Griffin.
Thanks, Jim. That concludes our formal comments. Jason, we're now ready for questions.
Question just around some of the phasing of earnings in the second half. So just taking the midpoint of third quarter, midpoint of the full year guide, it looks like you have about a 25% EPS increase sequentially in Q4. So just wanted to check if that's roughly correct and what drives such a big uplift? I understand last Q4, you had a big sequential increase, but there was a lot of pre buy helping that.
Yes. I think there's a few things when you look at the way you're looking at it. One is there's normal seasonality between Q3 and Q4, so you get more volume there. There's also the core year on year core growth that we've got between 2% 4%. And then there's the year on year lift of Gordian and Crewant in ASP.
And I think those two things or those three things get you to the year on year WIF. The way I look at it is when I look at from year on year last year, I think we were at $0.91 At the I think the high end of our guide, we're talking about around 15% high teens to 18% increase in the 4th quarter.
Understood. And then maybe just following up on the free cash flow. That was under some pressure in the Q2. It looked like working capital for the half as a whole, particularly on receivables, was a bit of an outflow. So maybe talk through how quickly that free cash flow recovers?
Certainly. So the main thing that first of all, most of the business is performing very well and delivering a lot of cash flow. But the big outlier here is ASP that we just recently acquired. As part of the deal required acquired deal that we signed, we got no receivables and a piece. So there's going to be this one time hole as we refill that those receivables that kind of puts us behind on cash flow.
But except for that onetime thing that will be roughly done half way through Q3. I think that we see our ongoing free cash flow growing roughly in line with the growth we see in adjusted earnings.
And your next question comes from Scott Davis from Melius Research.
Hi, good afternoon guys.
Hi, Scott.
Hi, just as a big picture observation the newer asset, once they get fully onboarded, can't have SG and A levels more traditional, forward of, call it, 25% ballpark?
Well, Scott, this is Chuck. A couple of things there. One, the WIP you're seeing year on year is primarily about the amortization that was added as well as the deal cost that's going on. So that's pretty close to 2.90 basis points.
And then I think relative to the business we're acquiring, I would look at the software businesses that are having a little bit more SG and A that typically goes with the higher gross margins. Capability that you build to house the data and all those things. So probably a little bit more SG and A driven by a little bit more engineering, a little bit more sales costs just because of direct selling, but the higher gross margins certainly pay for that. And if you're just purely looking at G and A in some of the new businesses, Purdue is a software businesses, you tend to see a little bit more G and A because of a little bit more IT expense. But I think in general, when you look at an ASP or businesses that look a little bit more like the business we have today, you'd see no reason why over time they would have a similar cost structure to what we've been able to achieve in other businesses.
Okay. I think that answers it. And then just trying to get a sense, in channel visibility, do you have particularly, I guess, when you think about ISE and Landau or I guess to a lesser extent ASP, do you have a good sense of any given time where inventory levels are versus a sell through?
We don't not as much. We have decent visibility on ASP. So as we get the business more in line, we get off of some of these transition service agreements, we'll have a better ability to see into those channels with some of the key channel partners in the neighborhood of how we see things in other parts of the portfolio. Some of the others, ISC, we're starting to achieve that, particularly as we continue to work with some of the similar channel partners that we have currently with the other parts of Fortive. So ultimately, we'll have a little bit more visibility than we do today, but it won't necessarily reside with the kind of visibility say that we get at a fluke where we get a pretty decent chunk of the U.
S. And European distribution channel partners.
Our next question comes from Steve Tusa of JPMorgan.
Hey, guys. How's it going?
Good.
Just on the different deals, can you give us like the actual revenue numbers for ASP, ISV and what's the other one? Sorry, Gordian and Accruent? Yes, sorry, sorry, ASP, Gordian and Accruent?
So for ASP, on an annualized basis, I'm going to give you the end market numbers. It's a little over $800,000,000 this year, maybe call it $820,000,000 And I think that you asked about ISC, it's north of 200.
Yes. So sorry, I was asking more about the quarter, the actual quarter. So how much did ASP contribute in the quarter and then Gordian and Accruent in the quarter?
Well, so nothing on core revenue, obviously. But I think the number I want to make sure you understand about the day 2 countries that our distributors says a little bit haircut from what we saw in our numbers. So I think that let me just get that number for you really quick, and then I'll come right back to you.
So you're saying you guys have the distributors have changed buying patterns or something in the near term?
No, no. So outside the U. S, ASP is still being managed by J and J, and they're acting as they distribute. So therefore, while you'd expect us to have a little over $200,000,000 in this because ASP takes a haircut off of their portion of it, roughly say, maybe onethree of the business, this quarter, we had $167,000,000 hit our reported numbers.
Okay. Got it. And then what about Gordian and Accruent?
Yes, they're just a little about those 2 are about a little over $100,000,000
Okay. And is there, I guess, when it comes to the kind of shorter cycle businesses, any trends through the quarter that were notable? I mean, did you exit at did you exit worse than you started? And are you seeing anything so far in July that changes your views on that at all?
Yes. I think, Steve, when we talked at EPG, we talked about North America being pretty good. And I think in total, that was true, although it was more at and Tek. So I would say what we really think about when we think about the second half guide for Fluke and Tek, we really sort of looked at the weeks of supply of inventory. We looked at point of sale and really reflected that in the revenue drop.
So we really think that that's probably what we'll see in the second half. I think the other thing that's probably the bigger change is Europe. We I think I said flattish for what we probably think in Europe. Are obviously down low single digit. And again, that was principally at Fluke and Tek, and they were down more than 2 0.5% or 2 low single digits.
So what we really ended up seeing is a slower Europe for Chile point of sale in June. So it's really what we try to account for in the second half forecast is that as well. And probably the more precipitous drop between, say, 2, 3 months ago for the second half is our view in Professional Instrumentation for Europe.
Okay. And then one last one. 3rd quarter operating margins, where should that kind of range be for the segment for the segments? Because it's feel like we have to hit them pretty hard to kind of get to where your guide is.
So I think one, I don't think we have to hit them particularly hard. Are you talking about core operating margins or just want to
Yes, segment margins for 3Q, however you want to talk about them.
Okay. In the 22%, 23% range.
Yes. Okay, great. Thanks a lot. Thanks.
And our next question comes from the line of Andrew Obin from Bank of America.
Yes, good afternoon.
Hi, Andrew.
Hi. Just to follow-up on Steve's question, you did highlight that Fluke and Tek is driving sort of European weakness. So what exactly is happening in Fluke and Tek? Any specific industry trends that are causing the slowdown? And how does it get better in 1?
Well, I'll answer the second one. How does it get better? I think is much a macro question probably as anything. We really decided to put it to be prudent and to not assume that it will get better in the second half, Andrew. More specifically to your first question, I think we saw a more precipitous drop at tech.
Definitely, it was channel destocking, but we also saw demand go down. We saw so I think from that standpoint, it was across all the product lines. There was certainly an automotive component to that. While that's so that's not an enormous exposure to us, but we do sell into the R and D labs of automotive and that was slower for sure, just as one example of what we saw. Relative to Fluke, I think it was a we saw a June drop in point of sale.
And to be honest with you, that's also reflected in how we think about the second half as well. So and it was and it was relatively broad based as well. So I think from that standpoint, it feels more macroeconomic end user demand, if you will, than it feels just destocking. And so I think that's how we're going to reflect that's what's reflected in how we see everything right now and we'll look for signs for improvement. And Steve asked how and how July looks and that kind of thing.
And we're seeing nothing in July at this point that would tell us any different than where we're at right now. It's very early days in July, as you know, particularly in the U. S. Because of the holiday week.
And just sort of also on margin, you had good pricing in PI this quarter, I think 1.3%. PI core was down 140 bps. So how does core margin and pricing trend in the second half on PI?
Andrew, this is Chuck. So you're right. The pricing was good, but it was a little bit more it was offset by the slowing volume, although down OMX in Q2 is sequentially improved from Q1. I would expect that if we first of all, if we hadn't had the slowdown, we probably would have been 100 basis points better in Q2 on OMX at PI. I would expect because we're going to start lapping some of the tariffs and continued discipline in FDS and improving margins that we'll continue to see sequential improvements from Q2 to Q3 and then again from Q3 to Q4.
But I don't think it will get positive in Q3. But in Q4, I believe that PI has a good chance to.
And pricing is sustainable?
I think we put in a lot of price last year. So I think we'll the price metric might be a little bit less first half to second half because of all the price we put in last year for the tariffs, but that will be offset by the tariffs being in the Thanks a lot. I appreciate it. Thanks, Andrew.
And Thanks
a lot. I appreciate it.
Thanks, Andrew.
And our next question comes from Deane Dray of RBC Capital Markets.
Thank you. Good afternoon, everyone.
Good evening, Deane.
Hey. I would assume that you all follow the same practice that was established at Danaher that after the 100 days of an acquisition, you reevaluate or assess how the integration is going? And maybe for ASP, you could share what you've learned positives, negatives, what's gone well, any kind of surprises along the way? And then I've got a couple of follow ups there.
Well, a couple of things. We our 100 day is about 100 and some days. So we haven't quite finished it. But I've been pretty close to what we've seen and what we've been doing. So I think I've either been with the ASP team either with customers or with them pretty much every week over the last several weeks.
We'll see their 100 day here shortly. But I think at the end of the day, what we've seen is some of it we really felt we saw in the quarter. We really like the market position. It's very clear that the terminal sterilization aspects of the market are really important to the hospital and our ability to sort of expand on that. I think we see some real opportunities for FBS, particularly in sales force management, funnel management.
We put in a number of those tools here recently. I think we see a lot of supply chain opportunities, which is consistent with how we saw some of the value creation. So I think strategically, the growth in China was something that we saw in the quarter and we also think we have a good opportunity in China that's an important part of how we'll see the future. So I think when you think about it, our U. S.
Position is good, our terminal sterilization position globally is good and the high growth markets represent some opportunities, are 3 important strategic priorities. But also the opportunity for FBS to add value is, I think, very consistent, probably even more than we thought, although it's really early days. We have a lot of work, as we said in the prepared remarks, Dean, around getting through some of these transition service agreements. So that's going to take us a little while. But we're really excited about the team there and our opportunity to work together with them to really create a really great business over time.
Just can you comment on those transition services? That in answering Steve's question, Chuck talked about the J and J services outside the U. S, when will that end? And then maybe I missed this in the deal closing, but the receivables were not part of the acquisition. Was that reflected in the purchase price?
Was that a post closing adjustment?
So we could tag team this one. I think the transition services agreement, we've got a lot of work between now and the end of the year. So I would say a big number while a lot of little things will occur between now and the end of the year, what we'll start to see is the takeover of a lot of those countries really starting to occur more accelerating into 2020. And as we said in the prepared remarks, towards the end of the first half of twenty twenty is kind of when we get this get most of those things completed. So a lot of work between now and then.
We took on Canada as a country that was just recently, but I think a lot of the work from here to the end of the year is really about doing the spade work, the foundational work to be set up, systems and things like that. It's really going to be in 2020 where you start to see a number of those things occurring.
Good. And then receivables? Yes. That was contemplated in the deal from the get go. So we knew about that.
Think everybody did. We're very happy with the deal we struck with them. That was very fair, but that wasn't a post deal adjustment.
Got it. Why don't you do it with the payables instead? Well, it was
to be fair to be clear, it was receivables and payables. So it is both of those.
Okay. Yes. It was all working capital.
And our next question comes from Andy Kaplowitz of Citibank.
Good afternoon, guys.
Hi, Andy.
Jim, if you think about the walk
to go from $3.06 in $0.18 to your new guide of $3.45 to $3.60 is a big piece of the change from last quarter's guide just the lowering of the $0.20 to $0.30 of core revenue growth contribution and maybe some FX? Or is there any lowering of Gordian and Accruent under ASP? And then how much did Intellect and Tuftecnix add, if anything, into the core EPS growth into the EPS growth?
Yes. So Andy, I think the only lowering that we've done is really about the slowing in our short cycle, primarily in PI. The acquisitions are all performing at or above what we expected, and there's been no change we're not changing anything in our guide about that nor do we expect to. So I think that's the main point of your question.
Yes, it is. And Insulex and Prosthectin, did they add anything into the EPS?
Yes, not this year. No. They're
we
5 months ago, there's some deal costs associated with that, but no meaningful earnings up or down for those deals. In 2019.
That's helpful. And then Jim, you mentioned GVR in high growth markets slowed down a bit. It looks like it's just push outs as you talked about. Did you guys expect these push outs? And we know there's going to be some difficult comps at some point there had to be in the high growth markets.
Did you see any slowing in the business other than these sort of push outs which you think will happen and where you'll get to growth in the second half of the year?
Yes. Well, I think it's really 2 countries and I think, GVR, the India story, I think, is very much one of we won a significant number of tenders and it's just getting things through the contract process and really getting things installed and all that. So we have a very good color on the backlog and feel very good. I wouldn't read anything into the India thing. And high growth markets growth year to date for Gilbarco is still growing.
So it's really a second quarter dynamic of some things in India that are pushing. There's probably a little bit of slowing in China, but that really has to do with just a really substantial growth last year through the double walled tank upgrades. And we're still seeing some wins that will be in the second half. So we still see growth in China for Gilbarco for the year. But again, a tender or into the quarter.
That's not unusual in this business, quite frankly. For it to happen in India and China at the same time, maybe that's a little bit unusual. But we feel really confident about high growth market growth for GVR in the year.
Thanks guys. Appreciate it.
Thanks, Andy.
And our next question is from John Inch of Gordon Haskett.
Thanks very much. Yes, hey guys. By the way, I was thinking considering recent events, you should be congratulated again on the A and S deal. So I'm just going to throw that out there. Just in terms of the quarterly growth, organic growth forecasts, kind of the 2% to 4% for the second half, and I think you're assuming 2% to 4% for the 3rd quarter and implicitly 2% to 4% for 4th quarter.
3rd quarter has a lot easier comparisons if I recollect, right? Because Q4, you had the pre buy, you had the deferral of Gilbarco v. DeRue from Q3 to Q4. Is there any sort of assumption you're making that Q4 is somehow going to get better or what's really sort of baked into the assumptions here?
I think when we get to the Q4, some of our acquisition particularly Gordian and Croon, are going to turn core. And so that does help us against a more difficult comp for sure. And I think that in the Q3, I think that there is easier comp to last year, but we've got a little bit wider range than we normally talk about. So I think you can figure out how that might go out from we expected at this point from Q3 to Q4. But we're watching what's going on here pretty intently.
So there's no presumption of any kind of natural pickup or order trends that come in or something like that?
It's just basically the way
the chips fall, right?
Yes, there's a little bit. As I was just answering Andy's question, where the India tenders fall and it could help a little bit here, there, here and there. And so there's a little bit of where those fall. But I think as Chuck mentioned, we get as you said, a little bit tougher comp in the Q4, but we get we really get a full quarter of Gordian and Accruent in the Q4. So that sort of makes up for a little bit of that slightly tougher comp.
But there's really no expectation Accruent. So that's kind of makes sense. They are.
Yes. As we said in the prepared Accruent. So that's kind of makes sense. They are. Yes.
As we said in the prepared remarks, we're really happy with the take rate and things that are going on there. And we're so far, so good.
Jim, last quarter, I think you said point of sale trends kind of began to improve as the quarter progressed and into March. Did that all of a sudden just kind of hit a wall and sort of drop and hold? Or what actually of happened from Q1 to Q2 that might give us kind of a little thought process as to how we kind of move through the rest of the year?
Yes, you have a good memory. So March, it's really particularly the fluke point of sale trends. The fluke point of sale trends turned up in March and that made us feel pretty good about things. And even in 1st part of April, they were pretty good. And they held in there a little bit through May.
But they did slow a little bit, or particularly in Europe, they slowed in June for sure a big time. And what we also saw was just a more days of supply of inventory starting to change and channel partners starting to make some decisions around slowing sell in. Even in cases where we might have had consistent sales out, we still saw people we typically see an inventory build 1st quarter to 2nd quarter. So days of supply, this is a fluke. Days of supply typically goes up a little bit in the Q2.
And then and what we saw this year was not that at all. So clearly, people were managing inventory tighter, and I suspect it had a lot to do with the uncertainty. So in the case of Europe, we definitely saw sales out go pretty down pretty quickly in June. And in the case of U. S, we saw it go down a little bit, but we saw sell in go slowdown in weeks of supply pop up.
So we've put all of those assumptions into the second half.
Just last, decremental margins in Fluke and Tek, I think you're down in some regions globally, right, that you guys have called up. What sort of decrementals are you seeing in those businesses, again, where there is a little bit of softness today?
Well, in the short run, when it goes down as it decrementals, they're pretty consistent across around the world. There's not one margin that's really that much different than the others. But they will, in the short run, go down over 50%. Yes.
Yes. Particularly when most of it was in June, John. Just a little bit more on that. We really particularly at Fluke, we're really consistent around the world relative to margin structure. So when that stuff happens in the short run, we're obviously working very hard in June and right now to make sure that we improve those as we go through the year.
Awesome. Thanks guys. Appreciate it.
Thank you.
And our next question comes from Richard Eastman of Baird.
Yes. Thank you. Hey, Jim, could you just follow-up on that question once around tech? I'm curious, I presume Keith Lee's softness is due to the semi market, but you did reference Huawei's impact there. Can you just kind of parse that out a little bit?
I would think their R and D tools at Teck are probably what's a problem for the Huawei entity list. But could you just kind of parse out the growth rate? I think you said tech was down mid single digit. And what piece was maybe Keith Lee and is it half and half? Or is Huawei out weighted there over weighted?
Yes. So what I would say 1st and foremost is you're right around the Keithley really, as you well know, Keithley is very much has more semiconductor exposure than all than the whole tech as a whole. And it has more Keithley was more broad based than just China and more than just semiconductors, but very much, I would say, an Asia story and an Asia sort of electronics manufacturing story where we saw the slowing. And exactly right, with Huawei, it's mostly R and D tools and mostly scopes. So I'll let Jack go through the math.
I think the one thing we were very pleased with, as I said in the prepared remarks, was the strength of scopes, particularly in the mid range. We continue to grow our oscilloscope platform, if you will, particularly the new platform very well.
And I think when you put numbers to that, I think Huawei was a little over 10,000,000 dollars let's call it 1.25%. And then I think that and roughly Keithley was down about twice that. So 2 thirds and 3 quarters
of the miss is those 2. Yes. And then the other rest of it is really Western Europe kind of broadly defined.
I see. Okay. Okay. And then just a really quick question. Around the IT margins, op margins, when I look at that, the incremental was literally 100% there.
And is that largely just is that GVR volume absorption? Is that pretty much what's delivering that or?
Well, I think there's certainly volume always helps and can surge in. But also what's in there is there's always one timers, both good and bad. Last year, it's probably a little easier compared to ebbs and flows. Try not to get too focused on any one quarter and back it up and just say that business, when it's growing well, 50 basis points is a good OMX number, but that can do just what they did this quarter. You see something stronger.
I just remember, when it goes to 0, 1 quarter doesn't mean anything
either. So
if you look at the segment, Imaco had a good quarter as well. And obviously, that's a good business for us. So I think the other part of the story probably is we saw some nice saw some good things at Matco this quarter as well. Yes.
Okay. And then just a real quick one. Jim, did you say Gordian and Acruent, their core growth, I know it's not included in yours, but their core growth was high single digits. Did it hold that, both?
Yes. Yes, the combined number is probably high single digits, that's right. And that's tracking
that this year as well. We're very excited. We're encouraged that's playing out like we expected.
And our next question comes from John Walsh of Credit Suisse.
Hey, John.
Hi, good afternoon and evening. Actually following up on that question, one of the things when you got in, you talked about macro uncertainty, the short cycle businesses. We always think of CapEx projects. But as you think about some of these more software businesses Gordian Accruent, for example, what are the factors you're tracking, whether it's leads or quoting activity to have confidence that they can sustain this kind of high single digit growth rate when there's kind of this industrial uncertainty out there, but that's not to say it can't spill into other parts of the economy?
Yes. So I would say we look at a couple of things and Gordian and Accruent are a little bit different. And maybe we'll talk about Emate as well. And Emate would have a little bit more industrial exposure. But as you know, with these high recurring revenue businesses, they're not going to necessarily move tomorrow of stuff.
And so what we're really looking is the new order bookings, the new customer bookings to see as we said on the case of eMate, we had very significant new customer bookings. So we're really looking at new customer bookings because that's going to move the needle down the road. We're looking at churn to see if customers are canceling. Sometimes in an economic slowdown, you might start to see people say, well, I don't need all this, I'll maybe use less seats or whatever for lack of a better term. So we're looking at those metrics very closely.
Quite frankly, the people in those businesses are looking at them every day. So when you look at those metrics, and that's why we mentioned some of the things like the INET new bookings are really good. So we're really looking for these high recurring revenue businesses. We're really looking at those annual bookings numbers and we're looking at the average contract value of what we call ACV and we're looking at churn. And we look at those three metrics to really understand what is it really gives us a good view of how the business is going to be in a couple of quarters.
Okay. And then I think the capacity number as it stands right now north of 1,400,000,000 dollars Maybe just kind of talk us through the pipeline and if there's kind of anything to expect in the near term?
Yes. Well, I hate to comment anything in the near term. And quite frankly, we commented on the near term because some of the deals we were talking about, we've obviously closed in the last 30 days. We're really and maybe I'll use the last few as an example. We're incredibly pleased at the deals we got done this quarter.
I mean, when you look at obviously ASP is a transformational business for us in many respects and we're really excited about that. You look at the 2 businesses, 2 years ago, we bought ISC because we're really excited about the workflows around safety and now we closed 2 deals that one is a bolt on SAFR systems, which really helps them, really gives us a new set of modules to sell on top of the Inet platform. And then Intellects really gives us a great new adjacent market for and F software. So we're really well positioned in the workflows, 1 with a bolt on, the other with an adjacency. And then obviously, proof technic, a classic bolt on for Fluke, significantly raises our game and condition monitoring and gives us a team that's incredibly experienced at understanding condition monitoring, particularly around vibration.
So that's those are the kinds of deals that are still in the funnel. And I think what we've done in the second quarter and early the third is really when I talk about is a great example of when I talk about breadth of the funnel, John. We're really and that funnel continues to have good breadth. Obviously, very much in field solutions this quarter, in particular, the last three I just mentioned, but we feel good about the funnel and the breadth of the funnel.
All right. Thank you.
Thank you.
And our next question comes from Nigel Coe of Wolfe Research.
Hey, Nigel. Hey, good afternoon, gents.
Hey, guys. Just want to revisit ASP. We vetted that one a fair bit so far, but I do want to talk about the EBITDA contribution. I think, Chuck, this might be for you. I'm calculating EBITDA margin on acquisitions of about 24%.
That's similar to last quarter, but I'm guessing Gordian Accruent stepped up on higher revenues to maybe the upper 20s with ASP in the teens. Is that sort of the right math? And my real question is, if that's the case, given that the TSA is normally rolled off until 2020, should we expect higher EBITDA from ASPs through the back half of the year? Or is that now more of a 2020 story?
Well, there'll be so a couple, Dan. I'm not sure I caught the last part about the teens of ASP on EBITDA. But I think when we get to the other side, which is the nature of your question, accretion from TSAs in the back half of the year. I think we closed Canada, but that's not a they're going to start slow and then they're going pick up speed. Q4, there'll be a little bit of lift.
And then it'll continue to accelerate closing more of those in Q1 and Q2 of next year. So that's the day 2 country TSAs. And then there's an IT system that stand up, and that's not a gradual, that's more of a cutover that will happen sometime in the first half of next year. And this is all to
do with making sure that you're crossing the checking the boxes on the regulatory side more than anything else. Is that correct?
No. We're really carving a business right out of ASP. So with that, we're recreating more than just the RAQA systems, but also several the other key systems in the business, like the financial system, ERP. A lot of those things we already have, but in other places, we're adding we're creating those things. We're recreating what they have.
So that's the good part of it, but it's spade work we've got to get done.
Yes. And then just a quick follow on. Jim, you mentioned that trends got kind of progressively worse through the quarter. I'm not sure if you addressed whether you've seen some elements of stabilization in early 3Q. Or maybe just characterize what you're seeing in China right now.
I mean, how is the behavior from your customers in China?
Yes. I don't
I think when we look at as I said, the changes that we saw in and really we're talking about PI here. We saw a little bit of slowing in the U. S. It's probably too early to tell whether or not the 1st couple of weeks of July have really seen a difference. I would say we've seen consistently in Europe.
In what we saw in June, we're still seeing. So that's probably color. And in China, probably similar story. We haven't seen anything that would tell us that things are moving around to the good or that are getting more negative at this point. But I'd caveat that with July is generally the first part, 1st 2 weeks, 1st 3 weeks of the quarter, aren't always the best view of things.
Certainly, as we have a few more weeks here, we'll have a better sense.
Thanks, guys. Appreciate it.
All right. Thanks, Nigel.
Our next question comes from Joe Giordano of Cowen.
Hey, guys. Thanks for taking my question.
Sure.
One thing I'm trying to figure out is kind of reconcile commentary for like the Tektronix scope type business across some of your competitors. And I'm not sure if it's end market variance or geographic, but there seems to be consistent like kind of different commentaries at different times for the 3 major players within that oscilloscope business. So I'm curious as to your take on that. And is there anything you'd highlight as to what might be causing different trends at different times for you guys?
Well, I would say, 1, end market exposure generally is. Some folks have more 5 gs exposure, as an example, and be more tied to the 5 gs market. But I think we've been pretty consistent with our oscilloscope business over the last 2 or 3 years, at least in our case, we've been growing. So that it's been on the backs of the investments we've made on the new platform. And we just launched the 3 and 4 series.
And so that's now, I think, 2 years of launches that we've had. This is our 3rd launch. We did the 5 series 2 years ago around this time. We did the 6 series about a year ago and now the 34. And that's those product lines are all growing and are continuing to deliver growth.
So end market exposure will maybe push those numbers up a little bit more, certain customers, that kind of thing. So I don't dive into the details of what others say in this case. I can only tell you with great confidence what's happening in our business.
Fair enough. There's also some news recently, your main competitor on the GVR side making a deal with ABB on EV charging. And I know you guys have made some ventures into EV as well. Just curious as to an update on how those two markets will meld over time and what the outlook is there for further investment into that avenue?
Yes, I think we're really happy with the Tritium investment that we made. We've I was actually out in Europe a couple of months ago with our sales team calling on customers in Europe. We announced in May a very large order in the U. K. To be the largest supplier of chargers in the U.
K. To box energy. Over the next several years, we've announced 2,500 charging locations over the next several years. So we're really happy with the relationship and the exposure. We're certainly learning the market from them.
They're a great team. We're also exposing them to a new customer base. And at the same time, investment is helping fund some of the operational improvements that are going to be helpful to building the business long term. So we feel very good about the position. I think we all know EVs probably aren't going to happen as fast as maybe we thought a few years ago.
But I think the position we're in and the place we're in right now, we're certainly seeing accelerated growth and accelerated position through the partnership with Tridium.
And then Chuck, just real quick on the lower tax rate guide. Is that anything structural there? Or anything specific caused that? And how should we think about that going forward into 2020?
No, I think we've lowered it slightly, I think, for the year at 16% for 2019. So in 2020, 16% is probably pretty good is a good number to use. What's happened in the first half is some discrete items that are unique to Q1 and Q2 that drove it a little bit lower, but ongoing for a year 2020, 16%.
And there are no further questions at this time. I'd like to turn the call back over to Mr. Jim Lico.
Thanks, Jason, and thanks everyone for taking the time today. We appreciate all your support and the time you take to understand our story. As we highlighted in May, we were incredibly proud of the work we're doing to change the portfolio. And I think we saw a lot of great transformation really play out in the quarter for us. And we're certainly excited about some of the new things we've done around the capital allocation front with several of the new companies that will join the Fortive family.
We realize that the 2nd quarter was a lower macroeconomic environment for us. I would call it a little bit of higher uncertainty and some slowdown that we talked about. And so we've been prudent, we believe, in the second half to really make sure we're managing the business both for the long term and also continuing to deliver outstanding EPS growth and free cash flow. So we think we're in a very good position right And while we're not trying to predict the outcome of what the next couple of quarters will be from an economic standpoint, we think we're well prepared for what's out there. We'll obviously continue to have conversations around that.
And obviously, Griffin Chuck and our team are available for questions after the call. Thank you, and have a great rest of the summer. Thanks, Jason.
Thank you. Ladies and gentlemen, this does conclude.