Earnings Call: Q2 2019

Jul 26, 2019

IDEX Corporation Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Yates, Vice President and Chief Accounting Officer for IDEXX. Thank you. You may begin. Thank you, Melissa. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEXX Corporation. Let me start by saying thank you for joining us for our discussion of the IDEX Q2 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the 3 months ending June 30, 2019, and later today, we will file our 10 Q. The press release, along with the presentation slides to be used during today's webcast can be accessed on our company's website at www.idexcorp.com. Joining me today is Andy Silvernail, our Chairman and CEO and Bill Grogan, our Chief Financial Officer. The format for our call today is as follows. We'll begin with Andy providing an overview and an update on marketing conditions, geographies and capital deployment. Bill then will discuss our 2nd quarter financial results and walk you through our operating performance within each of our segments. And finally, Andy will wrap up with an outlook for the Q3 and full year 2019. Following these prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately 2 hours after the call concludes by dialing the toll free number 877-660-6853 and entering conference ID 136 84,163 or you may simply log on to our company's homepage for the webcast replay. Before we begin, a brief reminder, today's call may contain certain forward looking statements that are subject to the Safe Harbor language in last night's press release and in IDEXX's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to our Chairman and Chief Executive Officer, Andy Silverdale. Thank you, Mike, and good morning, everyone. I appreciate you joining us to discuss our 2019 Q2 operating results. Let me start with a few summary points on the results. Q2 was solid, and I'm very pleased with the team's performance in a choppy economic environment. Bill is going to walk you through some financial details in a bit, but overall, we delivered 3% organic growth in the quarter, our 10th consecutive quarter of organic growth. The 3% was slightly below expectations, but considering the lingering trade tensions and the uncertainty in the macro environment, I was happy with the result. Our price and productivity initiatives continue to drive outstanding margin and capital return regardless of commercial environment. We delivered another record EPS in the quarter. As we look at the balance of the year, we're confident in our ability to execute in times of volatility. As such, we're raising the low end of our full year guidance by $0.08 Our guide is now $5.78 to $5.85 per share. Finally, before I go into details, I want to take a moment to welcome Valkora Holdings and its 2 product lines, Roplin and Cerritos to the Addix family. We're very excited about the possibilities this acquisition brings to our sealing solutions platform and I'm confident the acquisition will prove to be a great addition to our portfolio. With that, let me start the call with a look at the regions we do business in. The overall global economic output remains uncertain. Companies are employing a wait and see approach and slowing down larger project activities as they wait for some resolution to the various geopolitical situations across the world. We believe that the underlying fundamentals in North America remain strong due to high levels of employment and expanding wages. Markets continued to grow, but at a slower rate versus the Q1. In Asia, there are some pockets of strong performance, but the overall Asian economic performance decelerated due to uncertainty driven by the ongoing trade conflicts in China and the election cycle in India. Finally, the Eurozone was flat year over year. We see pressure in Germany as auto, tooling and general industrial markets softened given the apprehension in the UK as the future of Brexit is still unknown. All right, let me turn to the markets we serve. Industrial markets are generally performing well, driven by OEM and project wins. However, we're seeing softness in daily distribution orders and project closure timing is becoming harder to predict despite a strong funnel. Demand continues to be robust across key life science markets. Strong performance continued in IVD Bio as our partnership with our customers continue to drive innovation and bring new products to market. The energy market is relatively flat with strong North American truck demand and good performance in commercial aviation offset by lower LPG project volume. U. S. Ag continues to be soft. Our overall farmer sentiment is low with continued tariff impacts and a challenging 2019 planting season. OEMs are reacting to the slowdown with extended mid year shutdowns. Municipal markets in North America remain stable, We see some slowness in Europe where political uncertainty is leading to project delays and the China markets are softening, but India remains strong. The semiconductor market continues to be driven down by high inventory levels in memory chips as well as lower consumer sales of smartphones. We do not expect this market to pick up in the back half of the year. Finally, the slowdown in global light vehicle sales drove softness in our automotive exposure, especially in China. Okay, let me switch to capital deployment. As I mentioned earlier, I'm very excited to welcome Vucora Holdings and their role plan and Stereos product lines to the Addict Stanley. These businesses will mesh nicely with our Sealing Solutions portfolio and will complement our current product offering. We deployed 137,000,000 in capital in the deal and paid about 13x 2019 EBITDA. We expect this deal to achieve double digit cash on cash returns in the near future. We are still working through the purchase accounting associated with the transaction, but we don't expect the deal to be material to our 2019 adjusted EPS. As usual, we work closely with our teams to integrate the business into the Addix family, and we look forward to the long term returns they'll provide. M and A continues to be a priority for us and the funnel remains strong. Our teams continue to evaluate several deals as we continue to look for high quality assets to add to the portfolio. In addition to in the quarter, we repurchased $3,000,000 of stock at an average purchase price of $155 and we returned $38,000,000 to shareholders via dividends. With that, let me pause here for a moment. I'll turn it over to Bill, who's going to talk about the financial results and the segment discussion. Thanks, Andy. I'll start with our Q2 financial results. I'm on Slide 4. Q2 orders of $628,000,000 were down 2% overall and flat organically. Each of the segments were flat year over year. I'll get into more detail when covering the segments, but I would say there are 3 main drivers for order performance. First, the softness we are seeing in ag, semi and auto impacted orders by about 150 basis points. Secondly, the unresolved trade conflict and continued geopolitical uncertainties are creating caution in the markets and we're seeing customers pause on large project investment across the segments. And finally, we are comping back to back years of over 8% organic growth for the 2nd quarter. Q2 revenue of $642,000,000 was up 1% overall and 3% organically, driven by 3% organic growth across all segments. We expanded 2nd quarter gross margins by 20 basis points to 45.5%, primarily due to price, volume leverage and production efficiencies, partially offset by continued investments in engineering related to new product development. Q2 adjusted operating margin was 24.5 percent, an all time quarterly high for IDEXX and up 90 basis points compared with the adjusted prior year period, mainly driven by our gross margin expansion and lower SG and A costs. Q2 adjusted net income was 115,000,000 dollars it was $115,000,000 resulting in record high adjusted EPS of $1.50 up $0.10 or 7% over prior year adjusted EPS. Our 2nd quarter effective tax rate was 21.7 percent same as prior year, but 80 basis points lower than our previously guided amount, primarily due to higher excess tax benefit from greater than expected stock option exercises in the quarter. Free cash flow was solid at $118,000,000 up 8% over last year and 103% of adjusted net income. This was our highest Q2 free cash flow of all time. Finally, in regards to the balance sheet, gross and net debt leverage remained very healthy. The combination of our strong balance sheet, capacity on our revolver and free cash flow provides us the ability to deploy $2,000,000,000 in the next 12 months for the right M and A opportunities, while still maintaining our investment grade rating. I'll now turn to the segment discussion. I'm on Slide 5, starting with Fluid and Metering. Q2 orders were down 2% overall and flat organically, mainly driven by the market cautious sentiment we mentioned earlier, market contraction in the ag market and lower projects in energy. Q2 sales were up 1% overall and up 3% organically. All businesses other than Banjo grew organically in the quarter. Despite some market choppiness in North American distribution, FMT continues to perform well overall, driven by successful targeted growth initiatives in the industrial space along with solid OEM demand as well as our ability to capitalize on the favorable chemical market conditions. Both our Viking and Richter businesses posted record sales for the Q2 in a row, driving strong growth in our pumps and valves businesses. The municipal water business remains steady and the oil and gas market conditions have stabilized a bit. As I mentioned before, the only business in the segment that contracted year over year was Banjo, which is impacted by the overall ag market dynamics. We're keeping a close eye on preseason order patterns that generally occur in Q3 as an indicator to see if there is a chance for a rebound in 2020. Finally, excluding restructuring expense, operating margin was 30.5%, up 100 basis points over the adjusted prior year quarter, mainly due to price, volume leverage and productivity initiatives, partially offset by higher engineering investments. Let's move on to Health Science, turning to Slide 6. Q2 orders were down 1% overall, but flat organically, mainly driven by the market pressure in semicon and automotive. From a sales perspective, Q2 sales were up 2% overall and 3% organically, driven by our strong performance across all segments of our life science business. As we continue to grow through targeted NPD efforts in collaboration with our key customers and leveraging strong secular growth trends. At GAST, we continue to see project wins with our NPD launch in the food and beverage space, driving double digit revenue expansion. In NPT, they have built a strong backlog driven by growth in the pharma market, and we look for them to have a strong back half of the year. Finally, the unfavorable market conditions in semi con and auto negatively affected our Seiling platform and created headwinds to the overall sales and orders for this segment. As Seiling was down 18% in orders and 6% in sales organically for the quarter. From a margin perspective, excluding restructuring expenses, operating margin increased 100 basis points to 24.6%. This was primarily due to higher volume and lower amortization, partially offset by higher growth investments. I'm now moving to our final segment, diversified. I'm on Slide 7. Q2 orders were down 3% overall and flat organically, driven by a tough comp in dispensing due to a large project order in the prior year. They were down 22% in orders for the quarter. Q2 revenues were flat overall, but up 3% organically and I'll provide more color on that in a minute. Operating margin of 27.1% decreased 100 basis points in the quarter. This was driven by dispensing as they delevered on their lower project volume. Sequentially, the segment was up 130 basis points versus Q1. Our FSD segment's performance was mainly driven by solid results in our Fire and Safety businesses. On the Fire side, we continue to capture OEM demand and our CASK products are performing well. And the launch of our SAM product is getting a lot of attention in the market. Within Rescue, we are capitalizing on strong tool demand and seeing positive momentum around our MPD programs. Our hydraulic watertight tool that we launched at the beginning of the quarter is seeing high demand. At BAND IT, its performance remains strong despite general softness in the auto and lower industrial sales. However, we continue to win in the aerospace and several other niche verticals. Dispensing story remains challenging. As I mentioned earlier, the business was down double digits compared to prior year due to a tough comp against some large project wins last year. We expect the business to be marginally better in the second half, but still down. They will continue to be a drag in the segment for the balance of the year. I'll now pass it back to Andy to provide an update on our 2019 guidance. Thanks, Bill. So to wrap things up, let me summarize some additional details regarding our 2019 guidance for both the Q3 and the full year. I'm on the last slide, Slide 8. In Q3, we are projecting EPS to be in the range of $1.45 to $1.47 with organic revenue growth of approximately 3% and op margin at about 24%. We're estimating a 1% top line headwind from FX assuming the June 30 rate, which translates into 0 point 0 $1 impact of EPS. The Q3 effective tax rate should be about 22.5%, we expect to spend about $20,000,000 in corporate costs. If you look at the full year for 2019, again, we're raising the low end of our full year EPS guidance 0 point 0 $8 Our new guidance is $5.78 to $5.85 Full year organic revenue is projected to be 3% to 4% and op margin again about 24%. And the same with the next quarter, we expect the total FX impact at June 30 rates to be about 1%. The full year effective tax rate should be about 21.5%. We're expecting to spend about $60,000,000 in CapEx. Free cash flow should be about 105 percent of net income and corporate costs should be in the $78,000,000 to $80,000,000 range. As always, our earnings guidance excludes any associated costs of future acquisitions or restructuring. With that, operator, let's turn it over to questions. Thank you. We'll now be conducting a question and answer comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good morning, everyone. Hi, Dean. Hey, maybe we should start with the macro since that seems to be where most of the uncertainty is. And Andy, we were with you last at EPG and you were clearly signaling at that time you were seeing choppy daily orders and it seems to have come through in the results today. A couple of questions to start with, what was the cadence of the quarter? We've heard a lot of different commentary from the companies about the months in the quarter. So how did that progress with you? And then some color on the overall cadence was different, Dean, than we've been experiencing here for the last year. I think in several conversations that I've had with people, I've noted that in the past year, maybe year and a half, we've seen this cycle within quarter where you've had a weak month, maybe a slightly better month and then a relatively strong month. That's been the pattern here for quite some time. And the pattern is different. For the first time, we didn't see that ramp up in the last month of the quarter. I will say that the early part of July is stable, right? So you're not seeing a decline of any kind, which I think is positive. But you didn't see that uptick in the last month of the quarter like we have seen in the past. And so I think that really notes well to a decelerating environment, which is what we're experiencing from certainly from last year, Q1 to this year. So frankly, no surprise. It's kind of what we've been expecting here for some time. I think we've tried to do a good job of communicating that. And I think we're in the environment that we expected to be here coming into the year. And the view from the distributor sell and sell through? Unlike a lot of folks, we don't have a lot of off the shelf distribution. We do have some. It's been fine. We don't see any major areas of stocking or destocking. I think that the biggest thing relative to folks is, they're very cautious, whether it's in the distribution network or the OEMs, people are pretty cautious about anything that's a big ticket. And so I think we're going to see that until you get some certainty back into the marketplace. The interesting thing about it, it doesn't feel like it's driven by what I'll call fundamental demand of under capacity or over capacity, which is typically what happens. This really feels man made. And so the encouraging part of that is if you get some resolution to some of these things, I think demand snaps back pretty quickly. I think the discouraging part of it is it doesn't really look like that's going to happen anytime in the near future. Yes, that's really helpful. And just to kind of extend the man made observation, it's man made and not execution. And that's pretty clear to us. And just last question for me, and this is if there's ever a time to be asking this, it's now your barometer businesses. You always say BAND IT, Warren Rupp and Gas. And BAND IT looks like it's holding up versus even with auto being weak and gas had a good quarter. So take us through the barometers. It's a mixed bag. What I would say is on the daily rate business, you definitely see softness. Bandit and gas in particular have actually won nice chunks of business, but there are larger chunks of business that have been part of our targeted growth list. Warrut is actually holding in. And so if I look across the board, it's a mixed bag, all in all, equaling deceleration. Terrific. Really good color. Thank you. Thanks, Dean. Thank you. Our next question comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question. Hi, guys. Good morning. Good morning. Can we go back to Health and Science orders? I think Bill, you said the semi and auto part was putting pressure about, I think it was down 18 percent in orders. Can you talk to maybe the life science and MPT and some of what the order trends you're seeing on that side? Yes. So life science is really solid. No concerns there. The MPT has a very good funnel of work that they've been working on. You know Allison as well as anyone that that's pretty lumpy, but generally it's a good funnel of work they have there. The concerns are all around semiconductor and auto. The ceiling business, you said 18 down, that was a ceiling business in particular. And that they have our largest chunk of semiconductor exposure. So they're facing some headwinds there, both semi and auto, And so they're facing some headwinds there, but really good execution in most of the ceiling platforms, which is nice to see. So I think those are just part of those cyclical markets generally. Otherwise, very happy with the profit expansion that we saw in HST. That's a record for us. And I know this time last year, we had some questions about whether or not we were going to expand margins at the same kind of clip that we had in other parts of the company. I think we've demonstrated that we can do that. And I think the life science stuff is in really good shape. Great. And then can we just touch on Velcro, a little bit more color on there? Just in terms of growth rate, margin, is it leveraged to any significant customers that we need to be mindful of? Yes. So first of all, this is a terrific business. We've known about this business for a long time. We cultivated the business ourselves. It's a wonderful fit to principally RowPlan, which is 85% of the business is a mechanical ceiling business. A lot of exposure into faster growing parts of the market, into life sciences, and just generally good positioning across the board. The business is profitable. It's an IDEXX like business. And we think with quite a bit of upside, frankly. It's a well run company, a really terrific team of people. But we think not unlike when we bought PPE back here quite some time ago, 9 years ago now, that business, the margins have, I think, more than doubled the PPE in that period of time. Probably won't do that, but there's a lot of upside in terms of profit and growth rates. And that's heavily concentrated across a small group of customers. Yes. So it's life science, food and beverage, and then general industrial. Great. Thank you. You bet, Allison. Thank you. Our next question comes from the line of Michael Halloran with Robert W. Baird. Please proceed with your question. Hey, morning everyone. Good morning, Mike. So just a quick tack on to that. What's the accretion embedded in the guidance associated with the acquisition? None as of now. We're still working through final purchase accounting. We'll give guidance once we complete that come out of the 3rd quarter, but nothing material, maybe a penny or 2 at most. Okay. So then on the acquisition M and A commentary, very strong robust pipeline. Maybe you could talk a little bit about actionability. I know that's been a hurdle in the past. It's a little bit more constructive, so. Yes. So it's look, we've talked about here for quite some time, we've been working on a ton of stuff and have walked away from a lot of things. So the pipeline looks good. We've got a bunch of things that we're working on. Actionability is very hard to estimate. It's in this environment, we found time and again that you've had people who have been willing to pay an exorbitant price at the end of a discussion. This is Valkora was terrific because we were the only ones in there, had a very constructive long term conversation going on, and it wasn't an option. The rest of the environment, frankly, is unchanged from when we talked about it 90 days ago, Mike. All right. Makes sense. And then just from a guidance perspective, understanding how you get to that 3% to 4% range, obviously, orders 3% -ish plus or minus starting the year here. When you look to the back half of the year, is this about comps easing by the time you hit the Q4 that helps get to that range? Is it about the cadence that you're expecting from an end market perspective? Maybe just give some puts and takes on how you get to that 3% based on the environment today? And then whether or not there's continued deceleration in the environment embedded in that assumption? We're not we don't have anything embedded in terms of further deceleration. We have not estimated that. It's basically at the levels that we're at today. You kind of take it and straight line it, that's what it is. It's the 4th quarter that we have a much easier comp, right? 2nd, 3rd quarters are tougher comps. 4th quarter is a significantly easier comp. There's no significant change. There's no major inflection that has to happen for us to get to these numbers. That makes sense. And seasonally, like Q2 is a larger order and we decelerate a little bit just business seasonality in Q3. So to your point, flat orders on a larger number yielding into Q3 is not straight math. I appreciate that, Bill. Thank you, guys. Thank you. Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question. Good morning, everyone. Good morning. Just maybe following on to Mike's question there and your answer to that. I mean, it sounds like your the back half of the year guidance embeds normal seasonality, not getting better, not getting worse largely across the portfolio. Maybe you could talk about the things that could make it get worse, could make it get better relative to what your current expectation is? Yes. I wish I had a brilliant answer for you, Nathan. I think it's all the macro, frankly. We're going to work our body of product and customer opportunities and continue to push for our consistent 200 bps above market. I think it's all going to depend upon the global economy. I'm not sure that we're going to swing it one way or the other meaningfully off our current trajectory different than that. Fair enough. Maybe on margins, particularly FMT, in case anybody missed it, I think you crossed 30% margins there for the first time, so congrats on that. Is that the kind of level that you guys think you can maintain there? What businesses in that segment have the opportunity to improve margins a bit more? If we're starting to see slowing growth there, should we expect to see incrementals drop into that kind of 30% to 35% range? I think you expect when you're seeing lower growth here. And does that mean we should see margins flatten out here? Yes. So I think at the current volume levels that we're at, I'm not I think we're about at the right level of profitability. On an increase in volume, you've still got headroom here because of the very high incrementals. The good part here is we have a we don't have a huge mix of margin. We have some margin mix here, but we've got a lot of businesses that are now kind of pushing up against this higher 20s number. So assuming that the world doesn't fall apart on us, that margin level feels pretty good. At the same time, we've all got to be candid. This is a very high contribution margin business. And if the business turns down, it's going to have a steep drop down. That's just the way it is. We have contingency plans that we've talked about before on these calls. But it's why we have been cautious in some degree about our market outlook. And so my point of view is we're at a very healthy margin level now. We have further incrementals in FMT and in other parts of the business based on the high contribution margins and our ability to get price. And we are preparing as we always do if we have softening to make sure we're appropriately resetting the business and taking out some costs in line with volume. You guys have always made it pretty clear that you have those kind of contingency plans for economic downturns. Are there businesses now where you actually need to enact some of those plans? Are there places where you need to take costs out currently with where the economy is? Definitely. If you look across the 40 businesses, if you look at folks who are more focused on auto, semi, ag, you absolutely have got to do that. They've been doing that here since basically this time last year in one way or the other. Just from a process standpoint, we're looking at this number 1, we're looking at this all the time. We go into any year having a contingency plan that's very, very specific. And I know I've said this in many venues before, but just the high level math of this whole thing. Our broader contingency plan is one that says, okay, with what I'll call vanilla recession, we think the top line is down 5 points plus or minus, right? And that five points is equal to about $125,000,000 Unmitigated, that's going to be about $75,000,000 of pre tax profits. And we think that we can take out and not damage the business somewhere in that $20,000,000 range pretty quickly. A bunch of its volume related, a bunch of its services related, rightsizing certain places that have a larger overall impact. So you end up with a downside of call it somewhere between $50,000,000 $60,000,000 so $0.50 to $0.60 a share. And so what that's kind of 8% downside on a 5% top line downside. And that's the mentality that we've had. And obviously, as you move into the businesses, the contingency plans look different than that. They are and not everybody is the same, but that's our mindset. And so as we as things decelerate here, I mean, I don't I'm not going to call a recession, but we're prepared if that happens and we'll pull the trigger on things. And some things, Nathan, to your point, we are pulling the trigger on now. The small things that are being hit specifically with volume declines. Bill, anything you want to add there? Yes. No, I was going to highlight, we did take a couple of restructuring actions in the quarter on those businesses that are seeing fundamental softness. So we continue to evaluate and as businesses underperform, take actions. That's helpful color. Thanks a lot guys. You bet. Thank you. Our next question comes from the line of Matt Summerville with D. A. Davidson. Please proceed with your question. Thanks. Two questions. First, just on the quarter, where were you in terms of price realization year over year? And how that compare to the inflationary pressure you're seeing in your businesses? Yes, we continue to trend at that little over a point of price capture and at the high end of our historical price cost spread about 30 basis points to 40 basis points historically, a little on the higher end here in the Q2. Yes, the team has done a super job with pricing and managing the spread. And to Bill's point, we're on a little above our higher end at 30 to 40, which is good. And then with respect to the HST overall, maybe to an earlier comment, Andy, at this point, do you feel like that business is breaking into a new sort of higher level of margin potential? And can you maybe talk about what areas you still can see sort of material improvement from here with the platforms that are currently in the HST portfolio? Yes. So I'm actually really, really proud of that team. We're at a record op margin there with ceiling down 18% with pretty high incremental margins in that business. So when you set Seiling aside and you look at what the performance is of the rest of the business, it's pretty extraordinary. And actually, I'll give the ceiling team a lot of credit managing that downside. They actually manage the cost structure really well too. So that's a good note. So I think we're in a good position. I liken it a little bit. If you went back to 20 15, 2016, one of the things you guys couldn't see because the industrial businesses were getting kind of kicked around is we were in the process of restructuring a number of businesses within FMT. And that breakout in profitability that we've had here in the last 2, 2.5 years was about that, right? We have reset the margin structure of the business and when volume came back, have now seen what has happened to profitability at FMT. I don't think HFC has that much upside. I am not going to say that, but I think what you are seeing with us having a record with a key piece of the business being down and the fact that they are holding margin, when you see that pick back up, I think that bodes well for improvement in the overall HST margin structure in the future. And we did do 2 plant consolidations within HST, 2, 1 within MPT and 1 within the life science space. So there were some structural actions I think to help us get us. At this point to Andy's comment, probably not huge increases going forward more in relation to Yes, exactly. One thing to note though, Matt, and just and everyone should pay attention to this, Valkora is going to land into HST. You'll bring some amortization into there. It's a little bit the margins are a little bit lower than the HST average anyway. And so you will see some dilution in that as we go forward a little bit. Thank you, guys. Thank you. Our next question comes from the line of Brett Linzey with Vertical Research Partners. Please proceed with your question. Hey, good morning guys. Good morning, Brett. Hey, just want to come back to incremental margins and really thinking about the Q3 framework and the implicit in Q4. If you just look at work and the implicit in Q4. If you just look at incrementals at the midpoint, it does imply incrementals that are just naturally above what those businesses typically do. Are you throttling back some investment spending or is it just some of that price cost benefit you're going to see here in the second half? Any color there? We are not throttling back investment spending at all. You're going to see we're going to hit that $60,000,000 number for CapEx. As I mentioned to you before, there are kind of 25 major programs or projects that myself, Bill and Eric Asselman and the rest of the team really focusing on and we are funding those. There are some places that are in cyclical downturns that we're pulling back, but in our places that we're betting, we're continuing to bet. And one of the things that I'm really intent on and we're having one of the reasons I'm so straightforward with you guys about what we're going to do if there's a downturn, it's the exact same conversation we're having with our Board because if you get the scenario that I outlined before, what I don't want to do is go and take another $10,000,000 or $20,000,000 out because with that you will throttle down investment. And if you have a recession that's 6 or 12 months, the last thing we want to do is let go of a bunch of really critical people that you won't be able to hire back in this tight environment in the future. So I'm going to invest that $10,000,000 or $20,000,000 so we can continue to have better than market growth rates. So we're keeping going and we're going to trim back on places that are weaker, but we're going to keep investing. And I think our price capture helps enable that. Yes, absolutely. Okay, good. And then I guess just a follow-up to that, specific to just restructuring, you did a little less than $4,000,000 in the first half, I think $12,000,000 in 2018. Do you expect to step that up in the second half of the year here? Yes. I think you'll see a few more things happen here that we've been teeing up. But unless things materially weaken, I think it'll be maybe a little bit higher, but it's not going to be a breakout number. Okay, good. And then just the last question, regarding the channel, maybe you could just compare and contrast what you're seeing in distribution versus direct in OE specific to orders. How did that look in the quarter and then really into July here? Thanks. I'll have Bill comment on this some too. He's done a lot of work in this area. But there were 2 things that were different in the Q2 on the orders front than in the Q1. The first thing is that larger projects and we've seen this pattern for the last 8 years as I've been CEO, you see this pattern happen. When the softening kicks in, the larger scale stuff gets pushed out and you start to see that happen. And so that was one thing we have seen kind of larger projects get delayed. And then secondarily, what we saw happen throughout the quarter was the day rate business, some of these very short cycle businesses came down. And so that's what kind of played out. The good news is, again, July has held up that you're not seeing a sequential decline anymore, which is a good thing. But you are seeing a little bit lower level than if you compare to the Q1 or the Q4 of last year in terms of the order book. Okay, good. I appreciate the color. You bet. Thank you. Our next question comes from the line of Andrew Buscaglia with Berenberg. Please proceed with your question. Hey, guys. Can you talk a little bit about so you made the comment that some of this is the sluggishness is man made. But headline suggests with semiconductors and auto and even ag, you know, Barris would say that that could be a prolonged decline. So I guess I'm trying to triangulate what you're seeing maybe you're too niche to be impacted by that, but I want to hear your comment on that. Well, maybe one comment. The corollary we saw is in May when there was a tweet around potential tariffs with Mexico, our industrial businesses saw a medium response and a reduction in day rates. So that corollary around this being not fundamental economics versus caution in the broader economy is somewhat of what we're basing that theory on. Yes. And also Andrew recognize that auto, semi, ag in total is 12% of the business, 10% of the business? Yes, we have less. Yes. So it's you just got to recognize that I'm referring to basically 90% of the business, that's not that stuff. And so as you look, if you break down life sciences, you break down municipal, you break down general industrial, that's more of what I'm referencing. And look, if we couldn't see that as Bill described, if you couldn't see that corollary between those things and how fast that happens, it's really remarkable. And back to the question I got earlier about our Canary businesses, we saw those in particular, I mean, snap your finger and as you get good news, bad news out of some of these trade and economic issues, we see it show up in our order book really quickly. Okay. Okay. And then maybe just a more specific one within Health and Science Technologies. I know one of your larger customers, Illumina, had a weak quarter. Did you guys look into that as anything concerning there given that they're kind of a barometer for what you do in biotech? Yes. So we're super careful about commenting on any customers. I think what I would say and this is a broader statement is our sometimes people forget what we sell into these marketplaces and we're selling components that are going into instruments. And a lot of these businesses, you see some of their outsized impact positive or negative is really their reagents. So the key to look at for us is our growth versus instrument sales. And what can say very broadly throughout the marketplace is we track well and I would say take incremental share. And that's a broader statement than any one customer. Okay. All right. Thanks very much. Thank you. Thank you. Our next question comes from the line of Joe Giordano with Cowen and Company. Please proceed with your question. Hi, good morning. This is Robert in for Joe. I just wanted to go back to orders and the trajectory that we saw in Q2 as that slowing down. Would now be the time to start to think about a possible the possibility of orders starting to turn negative going forward? Could you provide any color on that? I don't think so, Robert. The information that we have thus far wouldn't suggest that. But with that being said, let's just I mean, I think all of us are looking at this environment the same way. It has materially slowed sequentially. I think that the risk of recession has absolutely gone up. There's no doubt about that. But we have not seen any evidence of that as yet. Okay. Thank you. Excellent. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Silvano for any final comments. Thanks, Melissa. I appreciate that. Thank you to all of you for joining us on the call today. Once again, I'm very proud of the work that the team has done in this pretty choppy environment. The levels of execution, the levels of focus on the areas that matter most to us and really building the culture of this company to continue to perform regardless of environment is what we have worked very hard to do. And so I appreciate your time and I look forward to talking to you again here throughout the quarter and then in the next 90 days. Take care. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.