Roper Technologies Inc (ROP) 2018 Q2 法說會逐字稿

The Roper Technologies Second Quarter 2018 Financial Results Conference Call will now begin.

I will now turn the call over to Mr. Zack Moxcey, the Vice President of Investor Relations.

Thank you, Britney, and thank you all for joining us this morning as we discuss the second quarter financial results for Roper Technologies.

Joining me on the call this morning are Brian Jellison, Chairman, President and Chief Executive Officer; Rob Crisci, Chief Financial Officer; Neil Hunn, Chief Operating Officer; Jason Conley, Vice President and Controller; and Shannon O'Callaghan, Vice President of Finance.

Earlier this morning, we discussed -- we issued a press release announcing our financial results.

The press release also includes replay information for today's call.

We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you'll please turn to Slide 2. We begin with our safe harbor statement.

During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties, as described on this page and in our press release and in our SEC filings.

You should listen to today's call in the context of that information.

And now please turn to Slide 3.

Today, we will discuss our results for the quarter primarily on an adjusted non-GAAP basis.

Reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website.

For the second quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets; purchase accounting adjustments to acquire deferred revenue; a deferred tax expense resulting from the held-for-sale classification of Gatan; and lastly, a measurement period adjustment to 2017 provisional income tax amount resulting from the Tax Cuts and Jobs Act.

And now if you'll please turn to Slide 4, I will hand the call over to Brian.

After his prepared remarks, we will take questions from our telephone participants.

Brian?

Good morning, everybody.

So Slide 4 gives you the overview of what we'll go through today: the second quarter 2018 enterprise results, a detailed look at the segment and the outlook for each segment, the quarter 3 and full year guidance and then we'll open it up for questions.

So next slide, Slide 5, the Q2 enterprise highlights.

We had, as you know by now, record second quarter results, all-time for revenue, net earnings, EBITDA, cash flow and a host of other things.

Revenue was up 13% to $1.3 billion and organic revenue was up 9%.

The additional good news, it was very broad based across all 4 segments really.

Gross margin was up 40 basis points to 63.1%, so that demonstrates, again, we're not seeing very much pressure on either price or cost issues that you're hearing about from many other multi-industry people.

EBITDA is up 14% to $449 million and EBITDA margin is 34.6%.

The DEPS number is up 29% to $2.89.

Operating cash flow was up 55% in the quarter to $266 million.

And importantly, we deployed $1.1 billion to acquire PowerPlan and entered into an agreement to divest Gatan for $925 million.

The timing at Gatan, we had hoped, would sort of demonstrate it really is a trade-out of PowerPlan for Gatan.

But the Gatan timing it's got regulatory things that happened, so it may not really close until the end of the year.

Really an outstanding quarter, very strong growth.

Margin expansion pretty much across-the-board and record cash flow.

Next slide.

If we look at the income statement, you can see that revenue reached nearly $1.3 billion.

Gross profit was up by 40 basis points from 62.7% to 63.1%.

EBITDA was up to 34.6%, so about 30 basis points of improvement there.

Earnings before tax, which is a number we want to have in here because a lot of the earnings reports we're really talking about this year versus last year without adjusting for the tax benefits, so earnings before tax is up 17% on revenue improvement of 13%, and that excludes the benefit of the new tax treatment.

When you get to the DEPS number, where you see the benefit of the tax treatment, then earnings were up 29%.

Tax rate was 23.1% versus 31% the year before.

So you can see that the Tax Act is certainly working for us.

Next slide.

On compounding cash flow, you can see that we delivered $266 million in the quarter, up from $172 million last year.

Our operating cash flow almost all turns into free cash flow because we have so little CapEx, so you can see free cash flow here of $0.25 billion.

And our trailing 12 months' operating cash flow was $1,230,000,000, which represented 25% of revenue.

So we're still on track for a very solid record cash performance in 2018.

Next slide.

If you look at the asset-light business model that we've put in place, you continue to see a really important facet, which is that the negative net working capital number has now really become a sustainable thing.

So that sustainability is quite substantial.

If you look at the chart here, you'll see deferred revenue has grown in just 2 years from $281 million in 2016 to $627 million at the end of this quarter.

So that's a $346 million increase in deferred revenue in 2 years.

Inventory is down to 4.3% of sales.

And I always like to look at it not only just over this last 3-year period but what was it 5 years ago.

Well, 5 years ago, our inventory was 6.3% of revenue and now it's 4.3%.

Receivables were 19.7% of revenue and now they're 16.4% of revenue.

Payables and accruals were 11.3% of revenue and now they're 10.9%.

Deferred revenue was 6.7% of revenue at the end of the second quarter in 2013.

Now it's 11.7% of revenue.

So when you add inventory and receivables, subtract payables and accruals and deferred revenue, we're negative at 1.9% of sales.

5 years ago, it was 8%.

So we've had a shift of 10 percentage points of total revenue in net working capital, which is why we -- we're so committed to continuing the transformation of the company.

And it's going to improve further actually when we get -- complete the trade-out of Gatan for PowerPlan.

So next slide.

Here you've got the segment detail and outlook.

Next slide.

If we look here at the 4 segments, you could see the gross margin and EBITDA margin of each of the 4 segments, which all of them are really best-in-class numbers.

So I know people -- there's a lot been said about price, cost, tariffs.

None of those are going to have any effect on us.

We've got very nimble execution in the field.

We went through our quarterly report process with everybody.

And the nimbleness of the execution they demonstrated in there around any supply change issues was really spectacular.

We have such an incredible benefit because our cost of goods are so low compared to the typical multi-industry company.

I mean, you see all these gross margins, but when you add it all up, our cost of goods sold represents about 36.9% of revenue.

So you just don't have the same pressure that somebody who's got gross margins of 38% and cost of goods sold at 62% has.

Our energy business is down to 13% of total revenue.

Industrial tech, which a lot of that is Neptune, is 18% of revenue.

So the more cyclical items in here certainly have performed phenomenally in the second quarter, but we don't see a lot of risk around that turning around over the course of the year.

And RF & software is running 42% of revenue with medical at 29%.

So it's still well over 2/3 of the company's businesses.

Next slide, Slide 11.

So this is the first segment slide, starting with the largest at RF Technology.

In the quarter they did $539 million in revenue, which was up 13% from the prior year.

Operating profit was up 19% from the prior year.

Operating margin was 29.6%, but in here, you've got a lot of noncash amortization that goes into the operating profit margin.

So looking at the EBITDA margin, you could see how fantastic the RF segment is.

It's at 39.3% EBITDA margin.

If you look at the Q2 highlights for the businesses, organically we're up about 7%.

Deltek had really a very, very good quarter.

Solid growth.

Very good execution in both their enterprise and small business platforms across both key areas of GovCon and professional services.

And you want to remember that the professional services market we talk about isn't us doing services, it's professional services software for other people who are doing professional services.

We had large wins in the quarter, some of which we're not allowed to talk about but eventually they'll be known.

We really had both an increase in the number of seats for the software and net new customers.

So a very strong quarter for Deltek.

Our Freight Matching business also had phenomenal results.

We had significant adds in net subscribers.

And the market for -- the spot market is exceptional right now, and we're certainly benefiting from that and expecting to have that trend continue.

CBORD actually grew in its food and nutrition management software business on these health care campus-type environments where they got multiple facilities.

And that was a nice turnaround for us.

Toll and traffic grew low single digits but did a very good job in terms of project execution.

So they didn't -- they had favorable variances.

And then we had double-digit growth from the customer service centers that we have, and we're winning more and more business in that area.

There's a lot more visibility today on the part of these people that are going out and soliciting work on customer service centers because some of the competitors have had significant challenges recently, and the competitive advantage of using TransCore has never been more apparent.

Just recently, the governor of New York was talking about the incredible success of the cashless tolling project that we managed last year and into this year, which came in both below budget and on time.

And if you look at a lot of the other projects people talk about in the transportation arena, you can never find those words, below budget, on time, inside anybody's messaging.

We completed an acquisition and onboarded PowerPlan, probably the easiest onboarding process we've ever had because of the nature of the work that PowerPlan does.

They're very much on top of all the data, and it just made their conformance to our modeling very easy.

It's certainly an industry-leading niche application software business that we'll talk a little bit more about here on the next slide.

ConstructConnect continued to build muscle and expand into what we want to do with it.

It's a great network business.

We want to have it broaden out to more software so it can serve larger clients with larger projects.

And that's on track for where we expect it to be.

In the second half of the year, you can see we're saying sort of 4% to 6% organic growth for the segment.

About 25% of the segment remains in the tolling and back-office administration activity, but the other 75% are RF businesses and software.

We had strong growth and cash performance out of the software businesses in the second half.

Toll and traffic will be low single digits in the third quarter only because it's got a tough comp with Saudi and the New York projects in Q3 that give us about a $9 million headwind, but we expect it to improve organically in the fourth quarter with the timing of the technology piece of the business, the tags and collection technology shipping.

All right, next slide.

Here this Slide 12 is the PowerPlan acquisition.

PowerPlan is a leading provider of software and solutions for asset-centric businesses.

We like to talk about the business and the diligence process.

So you've got a -- what somebody thinks is a telephone pole, but there's all kinds of things hanging on it.

And from a tax and asset reporting requirement, you've got to know how much of that pole belongs to whom, and, as you might imagine, it's a tedious, tedious process.

And our software and solutions make that become much more operationally efficient.

It's required to meet tax strategies that people have, it mitigates the compliance risk they would otherwise have and it improves their cash flow.

So it's an easy sale.

It has strong competitive advantages with very high barriers to entry.

I mean, the knowledge that you need to have to be able to help a client is quite substantial.

They've got a great, diverse customer base with a 98% retention rate on customers.

The financial model is good, and, as I indicated, it's going to be quite valuable for us because we're going to get a large deferred revenue balance once this thing is up and running inside our system.

If you look at our acquisition criteria, which we occasionally publish, we said we want it to have strong cash flow characteristics.

This business certainly does.

We want it to be asset light, meaning that the net working capital will be modest, if any at all.

We want it to have an excellent management team, which this does.

We want it to be in a niche that's highly defensible.

And we want to have deep domain experience, which this business requires and fortunately has.

We want to have a lot of recurring revenue, and we certainly have that with this business with the subscriptions and continuing long-term contracts.

And then we'd like it to have multiple growth opportunities, which this business has, both in the asset-heavy industries as well as some other opportunities.

Interestingly, if you sort of compare that to Gatan, which is a great business, and you go through the same criteria, so strong cash flow, Gatan, check the box; asset light, not so much, quite a few assets there for a Roper-type company; excellent management team, probably best-in-class really; niche market leader, absolutely, it couldn't get more nichey than Gatan; deep domain experience, most -- many of the world's experts really are Ph.

Ds.

that are inside our Gatan business; high recurring revenue, no, almost no recurring revenue; multiple growth opportunities, well, they're all focused around this emerging cryo-EM technology, which is wonderful, but it doesn't have multiple platforms; and it's certainly more cyclical.

So the trading out of PowerPlan and Gatan is very strategic for us.

Next slide.

On Medical & Scientific Imaging here, you can see revenue was up 7%, EBITDA margins came in at 41.5%.

Very strong growth and execution in the niche medical software businesses, the smaller ones which is Strata Decision Technology, Data Innovations, SHP and SoftWriters.

And all of those really performed very well.

And even Sunquest U.S. lab business was on target, (inaudible) was down, but it was where we expected it to be.

So that was actually encouraging.

We had good market adoption of Verathon's new BladderScan technology, which is kind of a breakthrough technology.

And then the GlideScope consumables we introduced a while back have been growing quite substantially.

Double-digit growth for the automated surgical scrub and linen technology business we have, which they would say was a scrub excellent quarter.

So these guys are -- you probably couldn't find a more passionate leadership team than the people at IPA in Atlanta.

And that business is doing exceptionally well.

Very strong revenue contribution from the backlog in scientific imaging as it's starting to ship.

So that certainly helped.

Notwithstanding that, we're still going ahead with the sale of Gatan, which we expect to close before the end of the year.

It's already cleared the U.S. requirements, but it's still got things going on where people are looking at it in Europe.

High single-digit organic growth in the third quarter and then probably tapers down to mid-single digit growth in the fourth.

The medical businesses will grow mid single-digit, but we'll get some additional spike out of the Gatan cryo-EM growth here in the second half of the year.

We expect a strong Q3 imaging -- or results in imaging because of that backlog.

Next slide, which would be Slide 14.

So Industrial Technology really is just spectacular.

It's the only thing you could say.

Revenue was up 20%.

Operating profit was up 27%.

Operating profit margins -- these are manufacturing companies, folks.

Operating profit margin is 32%.

EBITDA, 33.8%, up 140 basis points.

Organic growth, up 18%.

Another record quarter for Neptune, which had double-digit growth again, really driven by customer-focused innovation.

We're just winning an awful lot where people see, hey, you know, if I continue with Neptune and move into more collective technology, I can still keep my installed base.

I don't have to rip everything out and replace it.

So Neptune is -- continues to perform exceptionally well.

We've had meaningful share gains with our Cornell Pump business.

It's had a great year, but it had certainly a very, very spectacular quarter.

One of the things Cornell has benefited is dramatically increased market share with the rental companies, and that demand was really strong from an order perspective early in the year.

We think that'll kind of taper out some in the fourth quarter in terms of shipments, but the orders we expect to be very strong as the rental fleets get replenished.

Roper Pump had very nimble execution in the quarter, so they had outsized growth.

But when the whole place grows by 20%, there's really nobody you'd sort of single out to say they disappointed anybody because they certainly -- nobody disappointed as everybody did spectacularly well.

We think we're continuing to have double-digit growth in the third quarter and then mid-single-digit growth in the fourth quarter only because the comps get more challenging.

Very strong leverage that we get out of these businesses, which you can see in the numbers.

The energy segment is a similar kind of story.

Organic was up double digit at 12%.

The upstream application businesses, AMOT, Metrix, [DES] and Viatran, were very strong.

And then importantly, our compressor controls business, after being down and then sort of getting to the point of being flat, actually returned to growth in the quarter.

And that's a much more long-cycle business.

So that's encouraging that that'll be coming up while maybe some other businesses would moderate.

The industrial end markets are pretty strong in every category that we're in.

So we still see Q3 with double-digit organic growth.

And then Q4, similar to Industrial Technology with kind of mid-single-digit growth, strong leverage.

Energy segment was up 16% on revenue and 28% on operating profits, so that -- it's just a proof of leverage or the strong leverage.

You can see EBITDA margins were at 30.5% for the segment, so pretty spectacular.

Next slide.

As we look at updating the guidance and we go to Slide 16, the guidance update, we're raising the full year guidance from $11.40 to $11.56 as a range or -- we're creating it there at $11.40 to $11.56.

That's up from $11.08 to $11.32.

So at the midpoint, it's up $0.28.

Organic revenue growth, we're now raising to 7% for the second half of the year.

Previously, we had said 4% to 6%.

And third quarter guidance, we established at $2.89 to $2.95.

Next slide.

If you look at a summary then of this very, very good quarter, you can see that the niche market strategy and our ability to execute in a nimble way continues to deliver outstanding results.

We had record results, as we've covered throughout the talk.

9% organic revenue.

Everybody grew.

Gross margins, up at 63.1%, demonstrates that we really aren't seeing these price/cost issues that were supply chain things from foreign tariffs.

Earnings before tax were up 17%, and the diluted earnings per share or the adjusted diluted earnings per share were up 29% to $2.89.

Operating cash flow was up 55%.

The asset-light diversified technology transformation that we've been doing for several years now continues.

The PowerPlan acquisition sort of shows exactly the kind of assets we'll be acquiring.

The agreement to divest Gatan strengthens our balance sheet and gives us several hundred million dollars of additional capital to deploy, along with the repatriated money that's coming in.

So the balance sheet is still in great shape.

We continue to see a lot of attractive acquisition opportunities, and the pipeline is pretty significant.

So we're looking at both large deals and some bolt-on things that we're fully -- we've got our teams fully deployed on the acquisition side of opportunity.

Our cash return on investment discipline continues to prove that that's the best way to create shareholder value over a long period of time and compounding cash is what people should be looking at.

So we had an outstanding quarter.

We've got great momentum.

And let's open it up for questions.

Hello?

We're ready for questions.

(Operator Instructions) Our first question comes from Deane Dray with RBC Capital Markets.

I appreciate the fact you preempted all the price costs and tariff discussions because that's been tying up a lot of these conference calls.

Maybe the first question would be some clarification on the 2018 guidance, whether that includes PowerPlan accretion.

And could you size that for us, please?

Yes, sure.

It's Rob.

It does.

So PowerPlan probably adds $0.12 to $0.13 to the second half.

So that's included in the guide.

We also, if you look at the second half, have a little bit of additional FX headwinds we've included in there, probably $0.05 or $0.06, and a little bit higher interest cost on the fact that our revolver costs have gone up as the short-term LIBOR rates have gone up.

So that's all included in that second half guide.

And [what about] PowerPlan's accretion to free cash flow?

Sometimes you give that data point as well.

Sure.

So I think when we made the announcement, we said that it was about a $60 million addition to cash flow on a first 12 months' basis.

That's without the financing costs.

And so again here, it's where you -- do you apply the cash from PowerPlan to that?

Do you apply interest rates?

So we -- as you know, sort of the corporate balance sheet is separate from the individual acquisition.

So the company will deliver $60 million less the financing costs, however you want to apply that.

Got it.

And then just as a follow-up, just some context on the Gatan divestiture.

And Brian, you and I have had discussions over the years about your willingness to part with this asset.

And your refrain always was if someone wants to pay us the multiple that we need or we would expect, and it looks like you got it at 18x.

And I know Rob has insisted there's not a big portfolio review going on.

I get that.

And it doesn't look like there's any soft spots in the earnings today, but are there other cyclical businesses as you do this transformation that you might be able to exit similarly?

Well, I think what you have to do is when we went through that list of what we look for in an acquisition, that's the same list we would look at for anything we own, right.

So the Gatan, while it's certainly the best technology available in its area and has incredibly great people in it, misses on a number of our things.

Many of the other longer-term businesses don't miss on those.

So let's take a pump company.

If it's got substantial spare parts, that sort of offsets some recurring revenue stuff.

Gatan has 0 spare parts.

Gatan is a business that was acquired in the '90s by Roper at a time it wanted to go into areas that were scientific really.

We're not pursuing scientific areas.

We're pursuing areas we feel we really know how to manage exceptionally well.

And if there's any cyclical content, we're totally on top of it.

But Gatan's cyclicity can come out of the National Institutes of Health or the Japanese investment.

You can't do anything about that.

And it's going to an owner where they have incredible synergies that we just don't have.

So it's a very good acquisition for the people that are buying it, and it's an appropriate sale for us.

But just to put you on the spot, Brian, are there other Gatans within the portfolio that you'd consider divesting?

We really don't have anything that's as scientific as Gatan which has no recurring revenue.

If there was some business we thought was going to require additional capital investment that was unattractive, we'd certainly look at it.

But we don't really have anything immediately for sale.

I will say this.

Because of the Gatan sale, there's been a whole lot of new inbound calls about various businesses because I don't think anybody believed we would ever sell anything.

Our next question comes from Steve Tusa with JPMorgan.

The cash flow has been a little bit lumpy, maybe a touch light in the first quarter but very strong here in the second quarter.

A nice catch-up.

What are we -- what do you think -- what do you expect for the year, maybe for the second half, and some of the moving parts there?

You've talked about the deal that's adding $60 million before -- on an annualized basis, but what's -- just high level, what to expect for the year?

Anything unusual?

Yes.

Steve, I think you're right.

So we did outline last quarter, right, the lumpiness in Q1 around some onetimers and when we got paid with some of the big TransCore projects and some tax onetimers.

So you're right, we made that up in the second quarter.

Really nice growth.

And we'd expect strong growth in Q3 and Q4.

So when we get on a full year basis, we should be approaching double-digit growth for cash flow on a full year basis.

So it should be pretty strong in the second half.

Okay.

And then just on kind of the industrial trends and orders, anything to call out there?

It looks all pretty solid.

Anything out of the ordinary from a macro perspective on the industrial side?

Yes.

So the book-to-bill and order performance in those segments where it matters, industrial, we're actually 1.03 book-to-bill.

So good orders at places like Neptune and Roper Pump.

So that just gives us more encouragement, as we mentioned, for continued -- another double-digit quarter in the third.

Yes, I think from a -- no question that the comps in Q4 are more difficult than -- because we had quite substantial growth in the fourth quarter last year.

That's why we're talking about kind of mid-single-digit growth.

Also, there was an interesting facet where we've had market share gains with rental fleets this year, particularly at Cornell.

And they ordered earlier than normally this year.

So we don't know if that'll repeat itself in the fourth quarter.

If it does, we might have some upside benefit there.

But that's unusual.

Usually, they don't start placing significant orders till the year is under way and they have a firm view of what they think their demand will be.

So there's some variability there, but it's only to the upside, I think.

Our next question comes from Christopher Glynn with Oppenheimer.

Some good elaboration on PowerPlan.

I wanted to maybe go a little further.

Any specific levers with that name under Roper's ownership particularly that stand apart from how you view the majority of your acquisitions?

And in particular, you had the comment about multiple growth opportunities.

Maybe we could build on that and if there's any thought around opportunity for pricing for value.

Well, a couple of things.

I think maybe just start by saying one of the benefits that happens when we acquire any one of these companies that came out of private equity is this massive relief of their customer base saying, Ahh, I've always wondered what was going to be the exit.

Who is it going to go to?

Is it somebody that's going to invest in the business for growth?

Is it going to pay attention to customer service and enhancements?

So we know Roper's going to do all of those things.

So that's a home run.

And it creates a much easier end market sale discussion.

That's proven out a lot in a place like Aderant with our legal software.

It's proven out at ConstructConnect, and it's certainly going to prove out at PowerPlan.

Now as far as the sort of specifics around the multiple growth paths, I'll let Neil talk a little bit about that.

So I'd first start by saying the core of what they do, which is the asset and tax accounting for these very asset-intensive end markets around utilities, power generation, energy, that, just by itself, is still very robust and vibrant.

There's a number of new products the company is developing to continue to sell and cross-sell into that end market.

Over the course of the last couple years, they've also gone into some very close adjacent markets with some success.

Think oil and gas, a little bit less asset intensive but nonetheless have similar issues.

Also, over the course of the last couple years, they've worked very hard at migrating their technology stack into the cloud, which then enables them to do -- open an uplift opportunity where they migrate the existing on-premise customers to the cloud, which is a net growth driver for PowerPlan like it is with Deltek.

Part of that is because you're onboarding more responsibility for the tech stack but also, to your point, that gives you an opportunity to price a little bit more for value.

And then finally, with this lighter weight implementation in the cloud, they're able to go into entirely new markets.

Think retail, manufacturing that have similar-type issues and they're able to sell the SaaS solution to a business owner of a problem versus the technology owner inside the organization.

So it's a multiple set of growth drivers, and it's been that way with this business for the last few quarters and certainly continued into the second quarter of this year.

That sounds pretty good...

(inaudible) we've got an accounting change around operating leases.

So it has a big effect on people's balance sheets.

So you get a lot of people who've got newfound interest in understanding every element of their operating lease programs, and PowerPlan's software helps them immeasurably there.

Sounds great.

Quick one on toll and traffic.

How would you describe the opportunity relative to the more [stark] competitive differentiation you talked about for service orders?

And you don't usually describe toll and traffic as just low single-digits growth as you did for the third quarter.

Well, it's a lumpy business.

A lot of times, it depends what the corresponding quarter a year ago was.

And so it was outsized because of the startup of the New York City transformation to cashless tolling.

And then we had a pretty big Q3 with Saudi last year.

The -- I mean, the contract stuff is -- we're very selective on what we'll take in terms of a new customer.

So we're interested in customers where we're going to really improve their ability to execute, but not every customer is driven by that.

So we're going to be very selective on what we take.

But we're getting double-digit growth.

We think that's going to continue because all you've got to do is pick up the newspaper or read about some of the horror stories of what our competitors have done to not be able to bring on anything new and wind up with millions of unpaid toll requests.

So that's kind of changes the competitive advantage we have because we deliver what we say we'll do.

Not everybody else does.

Our next question comes from Joe Ritchie with Goldman Sachs.

Just maybe parsing out the guide one more time.

It looks like the guidance raise was primarily the beat this quarter as well as putting in PowerPlan, offset by FX.

So there really isn't much of a change to the second half.

Brian, I thought your commentary around industrial growth and where you could potentially outperform in the fourth quarter was interesting.

I was wondering if you can maybe walk through the other segments and how you guys are thinking about growth in the second half of the year for each of the other segments.

Well, I think we told you on balance it's about 7% organic growth.

I think each one of those segments, well, I'd have to go back and look at it, yes, I think [emulates] mid-single digits, high single digits.

So I don't know what more you want, Joe.

Yes.

So a little bit more difficult comp in the third quarter on the RF, on the tolling, as Brian mentioned.

And then a little bit more difficult comps in Q4 across some of the industrial and energy markets.

And then we do have timing as those imaging shipments are very heavy in Q3.

So that drives that segment.

So yes, I think we did tweak up the organic in the second half probably 1 point versus previous guide.

So there's a lot of gives and takes there to get you to the midpoint of our range.

Got it, yes.

No, I just noticed that you guys were forecasting growth that was slightly lower in the second half versus the fourth -- first half.

And obviously, know the tougher comps in industrial, but just want to see if there are other puts and takes.

I guess my second question is, as you think about Gatan and the dilution from that business divesting into next year, can you just quantify that for us so we have that number?

Well, so let me just correct what you just said because actually, the second half growth we have almost exactly the same as the first half growth.

It's right around 7% organic, which was the same as the first half.

So it is -- now one other point.

We did have a very, very strong second quarter with Deltek, as we mentioned, some of the large shipments of new revenue or new recognition of revenue on wins.

And so some of that's probably a little bit bigger in Q2 than we originally would have had expected that later in the year.

But that was the only other kind of onetimer.

In terms of the dilution, so we'll touch on that certainly next year.

But right -- we would hope to deploy that capital in due course.

And you've got to always think about if we're going to get aftertax proceeds, we're going to redeploy that.

And so that's the right time to measure the impact of a divestiture.

Your next question comes from Joe Gordon (sic) [Joe Giordano] with Cowen.

So I wanted to ask on Sunquest.

You say it came in in line.

Well, that's good that you guys kind of -- I think you've ring-fenced what that business is going to do near term.

Maybe, Neil, I was just curious as to the confidence in that -- like in the future growth of that business.

Or how do you kind of weigh that versus kind of this is the trend for the next couple of years?

Well, I would -- when we first talked about the North American challenge at Sunquest versus everything else, the rest of world of the diagnostic group, we introduced that a couple quarters ago, we characterized it as being a -- it's kind of a couple year issue, 2018 and 2019 issue.

As we sit here today a couple quarters into it, I would say that continues to be the case and our belief.

The international piece continues to do well.

The interconnectivity or middleware piece that connects lab instrumentation to lab software continues to do well.

And the team has done a good job of framing the North American strategy and starting to put hands on keyboards around some new software we're going to develop, but that takes time to actually get done and released.

And we'd expect the general trend line to continue here into next year.

Okay.

And then on CCC, was that growth coming from new projects?

Or is that more from maintenance work?

And then I just had one last question on DAT.

And just curious if there's any like blockchain implications for that business or anything they're working on there.

Well, there's certainly some new construction orders that are coming online for first time in a long time.

A lot of the work is upgrade work, where people have been postponing various things until they see a better market.

And so we've got a huge installed base.

So we're getting both upgrades and just general improvements in plants, and then some new construction orders, which we think will pick up more throughout the next 2 to 3 years.

And relative to your blockchain question with DAT, it's just the nature of the DAT business where we're matching basically the supply-demand side of the spot trucking market in North America.

It doesn't really connotate to a blockchain orientation.

That's more of a supply chain issue.

So we do see more blockchain activity happening, for instance, in our iTrade business around the food supply chain but not so applicable at DAT.

Our next question comes from Julian Mitchell with Barclays.

Maybe just my first question on Medical & Scientific Imaging.

How are you thinking about margins in the second half?

Were you sort of thinking they should be flattish?

And then what kind of operating leverage, I guess, do you think we should see looking out beyond that?

And then related to that on Medical & Scientific Imaging, pro forma for the Gatan divestment, could you just remind us what the recurring sales mix will be in this segment?

Just so you understand something, Gatan doesn't really have any recurring sales, right.

So there -- it's just pretty much all new business all the time.

And we happen to be in an up-cycle for Gatan because of new technology that we've developed and put in place, which the marketplace is accepting.

Then if you look at the segment numbers, you got to be careful here because we've got the declining situation in the U.S. lab business, which is exceptionally high margin.

So actually, if we pulled that out and segregated it, the margins would be going up, not down, because the growth is in businesses with higher margins.

It's just that when you've got a business with extraordinary margins, if it's down 2% or 5%, it's hard for the rest of it to make it up.

So don't confuse yourself with the idea that there's any degradation in margin enhancement in medical because that's wrong.

It's just the fall-off of the U.S. lab business at extraordinary margins.

Yes, that's right.

So the total of the segment would -- we'd have a better -- I think it's still down in the second half but better than it was in the first half, where it was down a little over 100 basis points (inaudible).

Yes.

I mean, it's all the way down to 41.5% EBITDA margins here in the quarter, right?

So it'll be better in the second half.

So sort of down only slightly?

I understand.

And then Gatan, yes, I mean, I understand it's not recurring as you had explained 20 minutes ago.

I guess the question was just pro forma for it, therefore, how much is the recurring share of the segment going up?

So what we -- yes.

So that segment's well over what we call over 50% reoccurring revenue.

And then it'll go up from there, high 50s, if I'm -- back of the envelope, probably high 50s.

That will end our question-and-answer session for this call.

We now return back to Zack Moxcey for closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking with you during our next earnings call.