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Roper Technologies Inc (NYSE:ROP)
Q2 2019 Earnings Call
Jul 25, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to the Roper Technologies Second Quarter 2019 Financial Results Call [Operator Instructions].

And now I'd like to turn the conference over to Zack Moxcey.

Zack Moxcey -- Vice President of Investor Relations

Good morning and thank you all for joining us as we discuss the second quarter financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Rob Crisci, Executive Vice President and Chief Financial Officer; Jason Conley, Vice President and Controller; and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, 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 throughout 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 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 acquired deferred revenue, transaction related expenses for the Foundry acquisition. And lastly, an adjustment to the income tax expense related to the gain on sale of our Scientific Imaging businesses. And now if you'll please turn to Slide 4. I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants, Neil?

Laurence Neil Hunn -- President, Chief Executive Officer

Thanks, Zack and good morning everyone. As usual, we'll start with our second quarter highlights. I'll then turn our call over to Rob to discuss our financial results. I'll then walk us through the segment details and outlook followed by our Q3 and 2019 guidance. Then we'll open it up for Q&A. Next slide. We had another very strong quarter here at Roper revenue grew as expected, margin execution was strong and operating cash flow increased 13%.It was nice to see gross margins expand 90 basis points in the quarter increasing in both of our product segments. And we always like to see leverage down the P&L, with EBITDA growing faster than revenue and cash flow outpacing that of EBITDA. Our software segments continued their strong momentum led by 6% organic growth in our Network Systems and Software segment, which saw broad-based growth highlighted by DAT, iTrade, MHA and SoftWriters. Application software grew 2% despite a difficult comp against Deltek significant perpetual wins a year ago.

Deltek continues to win in the marketplace with bookings up double digits and SaaS adoption accelerating in the quarter. Growth in our Measurement & Analytical Solutions segment was led by high single-digit growth in our medical product businesses as new products gain traction following recent investments and Neptune strategic continued with another solid quarter of growth

However, this was partially offset by expected declines that Gatan and a short cycle pause late in the quarter for our industrial businesses, which represents approximately 8% of our annual revenues. We will discuss this later in the call, but we're maintaining a cautious stance and not assuming industrial improvement in the second half of the year. Process Technologies continues to do an impressive job executing through expected declines in oil and gas markets. As many of you know, we closed the Foundry transaction in the quarter and on-boarded the company into our operating and governance model while very early, things are off to a good start.

And finally, our acquisition pipeline is quite active and our balance sheet positions us exceptionally well to deploy capital in the second half.

I'll now turn the call over to our CFO, to walk you through our consolidated quarterly results. Rob?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Thanks, Neil. Good morning, everybody. Turning to Page 6, I'd like to recap some of the numbers behind our strong second quarter financial performance. Starting with revenue, revenue was $1.332 billion in the quarter, an increase of 3% and organic increase of 2%, this was right online as Neil mentioned with our internal guidance model coming into the quarter. We had organic growth in three of the four segments, the one segment that was down with our Process Technologies segment, as expected, against the very difficult plus 20% comp last year.

Margin expansion was very strong. So gross margins increased 90 basis points to 64%, EBITDA increased 5% EBITDA margin, up 70 basis points. So really good margin expansion for the quarter probably a little bit better than we had anticipated coming in. So that all adds up to DEPS for the quarter of $3.07 , which was a 6% increase over last year and a little bit better than our guidance coming in, of $3 to $3.04.

Next slide. Turning to our asset-light business model slide. We'll look here, the net working capital as a percent of the Q2 annualized revenue, so slightly different view this quarter. Looking back over the past six years of the trend to give a little bit of a perspective and what's been going on with working capital here for Roper over a long period of time. So if you look back and compare June 2013 quarter to the June 2019 quarter, you'll see our inventory is down 200 basis points to 4.3% of revenue, receivables are down 240 basis points to 17.3% of revenue.

Payables down a little bit to 10.5% but deferred revenue up 680 basis points to 13.5% and if you add all that together, you see this consistent negative working capital, we talked about it Roper at minus 2.4% for the quarter. And that's over 1,000 basis point improvement versus the same period in 2013. So we really believe the negative net working capital accelerates our cash flow compounding.

Next slide. Speaking of cash flow compounding excellent cash results in the quarter. On page 8. Q2 operating cash flow of $301 million that was a 13% increase versus prior year. The free cash flow was $286 million, which represented a 14% increase versus prior year. So if we look now at the trailing 12 month, $1.51 billion certainly, a record plus 23% over prior year 12-month period and representing importantly 28% of revenue.

If we look at the first half of the year, we are up 15% on cash flow. So we're certainly on pace for continued double-digit compounding at Roper. Next slide. So importantly, due to the strong cash flow performance we really see the exceptional deleveraging over the past year. So in between acquisitions we generate a lot of cash. We paid on our debt very, very quickly. So we're always well-positioned to make the next acquisition and deploy capital. So if you look at the past year gross debt down $900 million from $5.6 billion down to $4.7 billion, net debt is down $800 million from $5.2 billion to $4.4 billion. The TTM EBITDA is up $191 million and you can see here our gross debt to EBITDA is now down to 2.5 times net debt to EBITDA is down to 2.3 times.

We've recently were upgraded at Moody's, which we're very happy to see. We also have a BBB plus rating at S&P so we really are exceptionally well-positioned as we said here today to continue our disciplined capital deployment and really take advantage of the very high quality pipeline of acquisition opportunities that we have in front of us. So with that I will turn it back over to Neil.

Laurence Neil Hunn -- President, Chief Executive Officer

Hey, thanks, Rob. Let's go in turn to our Application Software segment. In the quarter this segment represented 29% of our revenue and revenues came in at $391 million, which was plus 2% organic and EBITDA was $155 million, which represented a 39.7% margin. Starting with Deltek, we saw the continuation of a few trends that we've discussed over the past several quarters. First, we saw an acceleration in bookings and recurring revenues as a result of an increased mix of business towards Deltek SaaS offering. In fact, in the quarter Deltek sign their largest Vantagepoint SaaS contracts. As a reminder, Vantagepoint is Deltek's new enterprise, software offering, targeting professional service firms also the business continue to see a nice balance of activity across their two macro end market, professional services and government contracts. To remind you, Deltek had a very difficult comp given a very large volume of perpetual deal signed a year ago.

Adjusting for this Deltek grew their bookings double digits in the quarter. Deltek team continues to execute exceptionally well. Aderant experienced double-digit growth as a result of continued share gains and the adoption of the newer SaaS solutions targeting law firm. As you may note we've highlighted Aderant's competitive strength over the last several quarters. Over that period of time and since 2015 Aderant has added approximately 40,000 timekeepers through their core platform roughly 30,000 of which have been competitively won from their largest competitor. Deane and our team at Aderant have done and continue to do a great job. At PowerPlan we saw a nice increases in recurring revenues based on continued strong retention rates and an expanding customer base. Importantly, the PowerPlan team is working aggressively and systematically to increase the volume of new pipeline ads in their sales funnel.

This is particularly important following the regulatory driven increase in license and implementation revenues following the new lease accounting standards. Also, we saw a nice increases again at CBORD with excellent cash performance. As a reminder, CBORD is our software business that delivers integrated security and payment solutions to higher education and health care campuses. Finally, Strata log another great quarter based on very strong renewal activity . The adoption of their new products and continued market share gains for their cost accounting and the business Support SaaS products for the hospital market.

As we turn to the outlook for the second half, we continue to expect 4% to 6% organic increases for the segment. The cost for Deltek will normalize in the second half and we expect this segment's organic growth to be slightly better in Q4 versus that of Q3. Next slide and turning to our Network System -- Software & Systems segment. This segment in the quarter revenue represented 28% of Roper's revenue and revenue was $368 million, which was plus 6% on an organic basis, EBITDA was $159 million, which represented a margin of 43.2%. The quarter was highlighted by continued growth at both of our Freight Match businesses in the U.S. and Canadian market in particular, we saw strength in demand for our rates data offering.

MHA's performance in the quarter was highlighted by several strong trend. To remind everyone MHA is the largest group purchasing network for the non-hospital market with leadership positions and long-term care pharmacy, long-term care facilities and home infusion marketplaces. The team continues to win the market share game relative to on-boarding new and started pharmacies, so nothing new here and the good job by the go-to-market team. Importantly, in the quarter MHA started to see the benefits of increased customer purchasing volumes due to several new pharmaceutical products being on contract also pricing appears to have stabilized and the business is, food and nutrition portfolio grew nicely in the quarter in the mid-single digit range.

Additionally, our pharmacy automation and workflow software business SoftWriters had a very nice quarter, continuing a trend. This is an example of a wonderful software business with network effects and network financial benefit. This is a business that develops and deploys the core pharmacy automation workflow software that closed-door or non-retail pharmacies use in their day-to-day operations. The economics of this business and for our customers are unlocked as they cross-sell the recurring revenue transactional products specifically, electronic claim submission and e-prescription. So as this business adds more and more pharmacies to the customer count, their economic model expands at a more rapid pace as the recurring revenues accelerate. Nice job by the team in Pittsburgh. iTrade grew high single digits in the quarter based on strong renewal activity and an increase in trading partner growth. Over the last couple of years the team at iTrade has work to structure their business model and customer contracts or iTrade benefits from volume increases from their trading partners, and we saw the benefits of this in the most recent quarter. Again, we saw strength at RF IDeas in fact a record quarter for the business . The strength is based on continued adoption of RF IDeas core reader technology and the secure print and secure sign on marketplaces. The TransCore, the quarter was marked by an exciting new product release. TransCore is proprietary Integrated Toll technology in partnership with Gentex was released in rear-view mirrors in Audi's new electric SUV.

Currently other OEMs are evaluating the technology and considering timetable for potential adoption. While very early this is another example of great innovation by a Roper business. And before we turn to the outlook for the segment we wanted to briefly discuss our most recent acquisition Foundry. We closed the transaction during the second quarter.

Soon after, we had the opportunity to onboard the team and do our normal introduction to our governance model and CRI framework. Also we're excited to announce that Jody, Madden previously Foundry's Head of Product was named as our CEO. Jody is perfectly suited for this role given her long history in the visual effects industry as well as for specific history with Foundry. So far, it has been a very easy transition. Importantly, Jody was able to successfully close a couple of very large plan transactions with customer prospects in the early days of her new leadership role. Congrats to Jody and welcome to the entire Foundry team.

Now turning to our outlook. For the second half, we continue to see 4% to 6% organic growth for this segment. Well, the TransCore the new project pipeline remains robust, although it's difficult as usual to forecast the timing of new project wins and implementation timetable . Next slide. Our Measurement & Analytical Systems segment in the quarter represented 31% of Roper's revenue. Revenue for the segment was $408 million which was plus 2% on an organic basis. And EBITDA came in at $140 million, which represented a 34.3% margin. Neptune had another record quarter. Neptune strategy is rooted in customer intimacy and product innovation continues to help Neptune systematically gain market share in the North American market.

NDI had another great quarter. This quarter strength was rooted in NDI's electromagnetic and optical measurement systems used by several OEMs and surgical applications. Dave and his team in Waterloo continue to do a terrific job. Verathon's growth was led by increases in their GlideScope consumables recurring revenue and demand for the next generation BladderScan system. The Roper Board of Directors is looking forward to a site visit at Verathon during upcoming September board meeting and seeing all the progress the company has made over the past couple of years.

Our CIVCO MMI,or multi-modality Imaging business located in Iowa city had a very nice quarter. That was highlighted by strong execution and their ultrasound guidance and infection control market. CIVCO's ultrasound guidance products have extremely high levels of intellectual property and meaningfully aid doctors in ultrasound assisted procedure, of particular interest is CIVCO's most recent innovation regarding infection control .

For many years. CIVCO has been a market leader in providing covers for ultrasound assisted surgical procedures, namely image guided biopsies. One of the risk factors of these procedures if the risk of cross contamination of the gel there is used for ultrasound connectivity, well, the smart team at CIVCO appears to have solved this problem.

They create the first ever an IP protected solution that does not require gel in ultrasound guided procedures. The team is just launching the product in North American and Europe and congrats to the team on innovation and we look forward to working with the team to make this become the standard of care.

Our industrial businesses which are about 25% of this segment's revenues were impacted by a short cycle pause late in the quarter and down mid-single digits. Struers really all of our industrial businesses saw a slowdown in the second half of the quarter due to project push outs and consumable destocking, as such, bookings for this group were down high single digits in the quarter. Importantly, this group did a very nice job managing margins and cash flow in the quarter.

Gatan declined in the quarter as we expected. And as we have announced the agreement to sell the Thermo has been terminated over regulatory concerns. As we turn to the guidance for the second half we see organic revenues increasing 1% to 3% for the segment. Our medical products and Neptune businesses which are roughly 70% of the segment's revenues are expected to increase mid-single digit plus for the balance of the year.

For our shorter cycle industrial businesses, again 25% of the segment's revenues we expect these businesses to be down high single-digits for the second half of the year. This assumes the late second quarter industrial slowdown continues for the balance of the year.

And for Gatan and given the Gatan sale to Thermo was terminated in the quarter we have now included Gatan in our full-year and second half guidance. Specifically we've added approximately $0.20 of DEPS to the second half also we expect to see modest organic declines for Gatan given the record 2018 comps. Finally, we have re-engaged the sale process for Gatan. While early in the relaunch process we have received strong interest from many parties. Gatan is a very good business with an exceptional management team. We are committed to completing the sale process with Gatan. But if we do not receive compelling, economic and contractual offers we look forward to own an Gatan over the long-term engaging with Sander and his team and investing for its long-term success.

Next page. As we turn to our Process Technology segments in the quarter this segment represented 12% of Roper's revenue, revenue was $164 million, which was down 5% on an organic basis. EBITDA was $60 million which represented an amazing 36.6% margin. Our Upstream oil and gas business has declined as expected against a very challenging comp which was plus 20% from a year ago.

That said, the business is executed very nimbly in the quarter and drove outstanding margins across the segment. EBITDA margins were up 200 basis points in the quarter. Relative to CCC we continue to see strength in their LNG project pipeline.

Finally Metrix delivered a record quarter based on strong demand for their vibration monitoring systems and controls across multiple end markets. Turning to the outlook, we see minus 1% to 3% organic growth for the segment for the balance of the year and do see easing comps in Q4 versus Q3 .As we have discussed the potential for upside may exist based on expanded takeaway capacity and/or higher oil prices, but we have not assume this is going to happen in our outlook for the second half.

Now let's turn to our guidance update. We are updating our DEPS guidance to a range of $12.94 to $13.06 compared to our prior guidance of $12.70 to $13.00. This increase to our guidance range primarily relate to the inclusion of Gatan which we expect to add approximately $0.20 to second half DEPS. Given the dynamics around the divestiture process we do expect there could be greater than normal variability in Gatan's second half results. Our DEPS and organic growth guidance assume that the short cycle industrial pause that we saw late in the second quarter continues for the remainder of the year. While recent trends may just be a soft patch we do not have visibility into a second half recovery for our industrial businesses, and more importantly, we do not want our business leaders to assume a bounce back curves.

Accordingly, we are lowering our revenue assumptions for those businesses and expect our industrial business leaders to focus on continuing to deliver high margin and strong cash flow. Should industrial trend improve our guidance for those businesses could prove conservative. As it should be clear from the content of our remarks on this call the vast majority, approximately 80% of our enterprise continues to have strong momentum growing roughly 5% on organic basis. Relative to our tax rate, we assume the rates for the second half of the approximately 21%. And finally, we're establishing our Q3 adjusted DEPS guidance to be in the range of $3.16 to $3.20.

Now let's turn to the Q2 summary. We saw great execution and cash performance across the enterprise. EBITDA increased 5% margins expanded and free cash flow grew 14% in the quarter. Importantly, our CRI discipline and proven business models continue to provide a scalable platform for long-term the systematic growth. Now turning to capital deployment. First, and as the primary source for our capital deployment funding our excellent cash performance will continue with leverage approaching two times trailing EBITDA our balance sheet is very well positioned to be offensive. To the extent we're able to successfully complete the sale of Gatan we will be even better positioned to accelerate our cash flow compounding, also, it was nice to see the Moody's upgrade to Baa2 and the sustained S&P BBB plus ratings for our bonds. Relative to the outlook for acquisitions in our pipeline commentary we continue to see a very large number of very high quality assets. We will always remain patient but we are very active the maturing a number of opportunities in the pipeline. Importantly, it's always good to remind everyone that our CRI orientation and M&A processes, help us identify and execute on the very best acquisition ideas. Now as we turn to questions, I want to remind everyone that we do is very simple, we compound cash flow by running a portfolio of operating businesses that have market-leading position and niche industry. We provide the business leaders with socratic coaching about what great looks like relative to strategy, operations, innovation and talent development.

We incent our management teams based on growth. We have a culture of mutual trust and transparency. And finally, we take our excess free cash flow and deploy it to buy businesses that have better cash returns than our existing company. These simple ideas deliver powerful results.

Now, let's go and turn it over to the questions.

Questions and Answers:

 

Operator

Thank you. And now we'll begin the question-and-answer session of the call. [Operator Instructions] And moving first to Deane Dray at RBC Capital Markets.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning everyone.

Laurence Neil Hunn -- President, Chief Executive Officer

Good morning, Deane.

Robert Crisci -- Executive Vice President and Chief Financial Officer

Good morning.

Deane Dray -- RBC Capital Markets -- Analyst

Hey I don't normally have the opportunity or the responsibility of asking you about short cycle industrial softness in the quarter. It's not typically something that we're talking about, but it's presenting itself here. So can you provide some more color on the kind of the cadence in the quarter. The push outs, some of the destocking and what visibility do you have and if you can get it by business that might give us some context and start there please?

Laurence Neil Hunn -- President, Chief Executive Officer

Deane, I appreciate the question. I'll give you some thoughts and I ask, Rob if he has any additional. So as far as we got to note that we're, it's 8% of our business, it's 6 or 7 businesses of our 45 that we're talking about and we're maybe not the best read across to other things. But I'll tell you what we saw, so April was just fine. Really no issues there may saw a little bit of weakness in June, saw a lot of weakness. Interestingly, it was across really all of the industrial businesses that we have. It was across geographies, Europe might have been a little bit weaker than North America but nothing discernible and really across different various end market. It was an isolated to one end market. What we think what we saw also was projects push and then a bit of consumable or spare sort of destocking. All right. So it's really across both the capital piece and the recurring piece. Interestingly, the first three weeks or so in July, we saw a pretty meaningful recovery, but we don't yet know enough if that's just a bounce back from June or if it's or what the real root cause was for why we saw the declination across the quarter if it was window dressing for the quarter for or if it was something around trade tensions or something way some folks waiting for lower interest rates.

We don't yet know the root cause and so it's just a little too early for us to call a specific direction. So we chose to be what we think is relatively conservative here. So we saw it down mid singles in the second quarter, our assumption is down high singles for the balance of the year and we're managing the business is assuming that that occurs. Right. We don't want our leaders of these businesses to get sort of caught assuming a recovery and then it doesn't happen, then you have a margin problem. So that's a bit of the color and I'll let Rob, if you want to add any additional?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Yes, sure. So just to clearly size that as Neil mentioned is 8% of the company's revenue about 25% of that segment. So this does not include Neptune, Neptune continues to grow at exactly the same sort of mid-single digit plus, it's just the business that Neil mentioned, so the bookings were down sort of high-single digits. And therefore, we're assuming the second half of the year is high single-digit declines where we used to have flat and so it's about $25 million of revenue that comes out of the second half. That's really the only sort of change in the entire company and what we're seeing at this point versus three months ago.

Deane Dray -- RBC Capital Markets -- Analyst

That's helpful. And if I'm looking to calibrate how the slowing on the organic side ripples through into your guidance, just to make sure I've got the the right pieces here Gatan adding back $0.20. It looks like the tax rate, a bit lower, is adding $0.08 versus our estimate. So then when I look at the midpoint raise, it does look like there is a second half lower operating guidance. It's something in the high teens sense if that's right and maybe provide some context there?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Yeah, so the tax rate is slightly lower that's offset by a higher share count a little bit higher interest. We are losing some proceeds from Gatan that impacts the interest. So those other things sort of cancel each other out is really around this $0.10 on industrial is the big change.

Deane Dray -- RBC Capital Markets -- Analyst

That's helpful. Just last one from me on Gatan this -- was there any loss of momentum in the sales process. You mentioned some slowing but it sounds like those were tough comps, but is there any momentum loss in the business as it's brought back into Roper?

Laurence Neil Hunn -- President, Chief Executive Officer

So the team at Gatan really should be applauded for how well they executed and performed over what has been a really long drawn out 18 months, 12 to 18-month process here. The business performed amazingly well last year with sort of a new product cycle and as expected with Gatan to sort of drive up in a new product cycle and then you moderate for a little bit and you drive up on another product cycle, so we're just in that moderation phase, but the team is just I mean A plus across the Board with the distraction of the sales process, which was immense and given the sort of the CMA sort of process here in the last 6 months. So great, great remarks to the team there and we're certainly had momentum to try to re-market with the process, the business now and have a better outcome.

Robert Crisci -- Executive Vice President and Chief Financial Officer

And I'll just add they did perform very well in the second quarter. So, good performance.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you.

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah . Thank you.

Operator

Thank you. I'm moving next to Robert McCarthy at Stephens. Sir?

Robert McCarthy -- Stephens -- Analyst

Hi guys, good morning. Sorry I'm about jumping from call to call, but I guess the first question is building on Deane's excellent questions in terms of the short cycle, you're not planning for any kind of contemplated balancing guidance here. You're telling your business has to kind of focus on cash and margin which is sensible, you said I think 6 or 7 of your segments are really your companies within the broader ambit are kind of affected. I mean have you highlighted in the past exactly which one of these companies, which one of these segments or sub-segments these are and could you just kind of highlight what you're seeing with that kind of level a little granularity?

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah. So it's the thing I should have mentioned relative to Deane's question is these -- this is Struers, Alpha, it's Dynisco, it's Hardy, I mean there's 4 or 5 other that are much smaller, but this, the trends that I just talked about, are consistent across all of those. They're not isolated to one, it was very consistent read across our 7 or 8 companies here on the trends that we said, yeah, but it's the industrial complex that 8% of revenue that we have.

Robert McCarthy -- Stephens -- Analyst

And then with respect to Gatan I was under the impression that we are not that many natural buyers or potentially I guess private equity, but could you talk about the fact that you think you've got a lot of interest because that doesn't square with what I've heard the marketplace, maybe I'm just an idiot but that I'll leave it there?

Laurence Neil Hunn -- President, Chief Executive Officer

Well, hey, we know what Gatan is right, it's a clear market leader and very great -- has great growth prospects over a long time, we've got a great team an amazing cash flow. And so as a result, there is a lot of people that are interested in a business like that strategics and sponsors alike.

Robert McCarthy -- Stephens -- Analyst

Okay. And then the final question is, you know, I was going to ask about, obviously the Foundry acquisition. It sounds like you answered the question it sounds with this elevation of is it have Jody Madden that you've kind of -- you've kind of taken the key man risk or the key creative sole risk out of the equation, because obviously you think about companies with this nexus of technology and entertainment. You think about Steve Jobs or Jim Hansen or whoever the case may be. You don't want that person walking out the door. I mean, would you say she rises to that level and there are there other people within the company or the company or the organization that you've made a real strong push to just retain because obviously at the end of the day, this is probably much more of a human capital business than some of the others?

Laurence Neil Hunn -- President, Chief Executive Officer

Well, I, first I would say, Foundry really like all of our software businesses is just a really boring software business. Right. The great software that enables creatives then do amazing work right, we're not the creative part of the ecosystem or supply chain and in visual effects we're the enabling tool kit that allows that to happen. It's sort of maybe the first statement that's highly consistent characteristics with really every Roper business, not just the product software businesses but the product businesses. The team, I think we mentioned last quarter that the totality of the Foundry team that we met and the diligence process and confirmed here in the first a little bit of ownership, the breadth of that team, the depth that team is quite strong. And when we sat down and did the on-boarding and started to engage with the team about our long-term orientation multi-year product strategy, multi-year go-to-market strategies it just became very clear to the incumbent CEO Jody ourselves that the most natural fit for the long-term success inside of our framework was Jody and she's a fantastic. She for the last 4 or 5 years has been the face of the company relative to the product and we're expecting her to do great things with the business.

Robert McCarthy -- Stephens -- Analyst

Thanks for entertaining my questions. Congratulations on the great quarter.

Laurence Neil Hunn -- President, Chief Executive Officer

Thank you.

Operator

And we'll go next to Christopher Glynn with Oppenheimer .

Christopher Glynn -- Oppenheimer -- Analyst

Thanks, good morning. Question about some of the pipeline dynamics that seem to come up a lot where you have kind of surfeit of actionable deals but opportunity cost dynamics are always at play. I'm wondering how that works as a partial gate to timing of deal flow and as a curiosity, when was the last time you had kind of an air pocket in actionable pipeline dynamics?

Laurence Neil Hunn -- President, Chief Executive Officer

It's been, that I've been at Roper for eight years and I cannot recall a real air pocket in terms of the pipeline. I mean it's always a steady drumbeat multiple deals presented at near final stages to our Board five times a year. I mean so air pockets are I can't recall. I'm looking at Rob he's agreeing with me relative to we're always to your first question about opportunity cost, I mean this is it's a debate we have on every transaction. Right. You're coming across, one that it looks really good. Right. It has all the characters we look for niche leadership, great team accretive CRI, accretive organic growth rate. You know the list and or like in the price might be X and the like that really looks good, but is there something better that's just right around the corner.

So we're always having the opportunity costs discussion and it's one of those things that we sort of honed over the years and we do the best we can relative to that decision. It's obviously an opportunity cost decisions one, we don't have perfect information about what's around the quarter and then we're always steeped and what gives us real confidence and ultimately everything we do is we're just steeped in the cash return methodology. There is always that buffer built-in, day one, when we buy a company relative to the value is created for shareholders. And so that's, at least how we think about it. Rob, you want to add any color there?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Yeah, there is always an opportunity and it's just a matter of finding the best deals at the right price and getting them done.

Christopher Glynn -- Oppenheimer -- Analyst

Okay, thanks. And then follow-up is on TransCore the product implementing with Audi that seems pretty groundbreaking for TransCore, maybe I'm wrong, but could you elaborate on that?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Well, hey, it's very early. We've got a great partner in Gentex right there to clear market, certainly leader and the smart mirror technology and so it's been a nice collaboration with them, but yes, I do believe it has the potential to be groundbreaking you know it's, think about cars, 10 years ago or 5 years ago, you didn't have auto sensing lane departure systems and whatnot and other almost standard. So I don't know, this technology become standard like that, but it's certainly our hope that it would, and it's great to have Audi is the first partner. There is a lot of work that had to be done, not just in the technology that goes in the car, but also the, how you deal with intra tolling agency and customer relationships and how you deal with the billing and that's all been figured out by the partnership between TransCore and Gentex, So it's super early, but we certainly thought it was exciting, one of the highlight for everybody today.

Christopher Glynn -- Oppenheimer -- Analyst

It sounds good. Thanks.

Laurence Neil Hunn -- President, Chief Executive Officer

Thank you.

Operator

And we'll go next to Barclays an Julian Mitchell.

Jason Makishi -- Barclays -- Analyst

Hi, this is Jason Makishi on for Julian. Good morning.

Laurence Neil Hunn -- President, Chief Executive Officer

Hi, Jason.

Jason Makishi -- Barclays -- Analyst

Maybe just a question on the Gatan add back guidance. It was sort of our impression that the annualized Gatan divestment impact would be closer to $0.60 of EPS adding back $0.20 just kind of wanted to reconcile the difference there just sort of the half-year base, it seems like it would be closer to $0.30. Is this sort of seasonality of earnings or is there other dynamics at play such as the lowered organic sales growth outlook, even just as we're modeling for 2020 etc.?

Robert Crisci -- Executive Vice President and Chief Financial Officer

Yeah, no, I think you have too high of a number for what Gatan full year of Gatan would be. So this is consistent with sort of what we saw for the year all along. There is certainly a lot of variability and the potential for their performance in the second half as Neil mentioned, but no I think there fourth quarters are generally their highest quarter of the year. There's some seasonality there. So there should have a better fourth quarter than the third quarter.

Jason Makishi -- Barclays -- Analyst

Understood. And then, and then maybe moving a little bit away from the short cycle businesses to Deltek. I know it's been mentioned for a couple of quarters that there is bolt-on M&A sort of going on there, is that still the plan for Deltek moving forward. It seems like the bookings growth is doing quite well. Just wondering if that was still a strategic focus of the business?

Laurence Neil Hunn -- President, Chief Executive Officer

Sure. I mean it has been. And for a long time it even predates our ownership Deltek sort of did one-ish bolt-on a year before we owned it for several years . We're probably at that pace, or maybe just a touch higher and our ownership and we would expect that be the case going forward.

Jason Makishi -- Barclays -- Analyst

Understood. And it seems like the and moving on to CCC just in the new construction business seems like you had the expected strength that you sort of called out in previous calls, just kind of wondering where that you view that strength in the LNG pipeline in terms of, it's still extremely early innings or 4 to 6 quarters. Seems like a reasonable baseline timeline for that?

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah. So it's characterized is some of these projects that are in development are actually smaller and quicker to come online than what we may have might have seen 5, 7, 8 years ago. So in the past, it would have been multiple years. So I think you're 4 to 6 quarters is probably more in line with the expectations you might drag out a little bit longer. As you know these projects do but these are not 5 to 10 year projects or 3 to 7 year projects they tend to be smaller, and quicker to turn on.

Jason Makishi -- Barclays -- Analyst

Understood. Thank you very much.

Laurence Neil Hunn -- President, Chief Executive Officer

Thanks.

Operator

And we'll go next to Steve Tusa at JPMorgan.

Steve Tusa -- JPMorgan -- Analyst

Hey guys, good morning.

Laurence Neil Hunn -- President, Chief Executive Officer

Good morning, Steve.

Robert Crisci -- Executive Vice President and Chief Financial Officer

Good morning.

Steve Tusa -- JPMorgan -- Analyst

I appreciate the use of the term of Socratic coaching, that was a political science major I'm not quite sure what that means, but I kind of get it. On the software businesses. I guess the application software business, I mean I read all these other companies transcripts and I don't quite know what I'm reading but they use the term bookings a lot, how has the booking like the organic bookings growth as you guys define it for I guess that segment?

Laurence Neil Hunn -- President, Chief Executive Officer

Steve. So let me Socratically walk you through this.

Steve Tusa -- JPMorgan -- Analyst

I clearly need some coaching as well. So I just appreciate a little color there.

Laurence Neil Hunn -- President, Chief Executive Officer

But so for the segment now we've got to go company by company around bookings. Right. So I mean that's a harder question to answer because it's we don't rule anything up at the segment level...

Robert Crisci -- Executive Vice President and Chief Financial Officer

Maybe has been bookings than GAAP sort of bookings.

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah, so sure so bookings in this case is or another term you might hear is uses order intake. So it's what business is actually contracted in a period of time and you have to do a fair amount of sort of equivalency between a perpetual deal and a SaaS deal. And so and then obviously when you booked something you're going to have double-digit bookings. And then if it's all SaaS, then it's going to take four quarters that to get into the run rate, so you're GAAP revenue will lag -- could lag that a little bit.

And then on perpetual you might book something in the second quarter and you might not be able to recognize the revenue because of some delivery in the software and it might be pushed out a quarter or 2 as things are being implemented. So bookings is just a little bit more order intake. It takes a little bit more of a of an early read of the business activity that's ongoing in the company. So on Deltek's case which we highlighted, we had the hard comp against the wonderful second quarter of last year, which by the way, a great problem to have, because we want so much business on a perpetual basis a year ago and with the sort of normalize for the outsized perpetual growth a year ago at Deltek bookings were up double digits this quarter. So the activity inside that business we view is healthy.

Steve Tusa -- JPMorgan -- Analyst

Got it, okay. And so that's up inside that business that was up like I don't know those bookings up like double-digit or like high singles, that's kind of what gives you confidence for the second half and I mean over the year, if you will?

Laurence Neil Hunn -- President, Chief Executive Officer

That's right. It's a combination of the bookings, and then you're also looking out several quarters of pipeline coverage and pipeline...

Steve Tusa -- JPMorgan -- Analyst

Right.

Laurence Neil Hunn -- President, Chief Executive Officer

...sort of conversion rates and things, but the combination between that in the near-term bookings is what gives us the confidence

Steve Tusa -- JPMorgan -- Analyst

Okay. was there any businesses in that application software side that were down?

Laurence Neil Hunn -- President, Chief Executive Officer

Well, in that...

Steve Tusa -- JPMorgan -- Analyst

On revenue?

Laurence Neil Hunn -- President, Chief Executive Officer

Well in that we know your favorite topic of Sunquest is in this segment and it was down mid singles as we expect it actually did modestly better here in the quarter. In the first half than we thought, but other than that, everything was us pretty much it.

Steve Tusa -- JPMorgan -- Analyst

Okay that's great. And then one last one acquisition pipeline standard question anything. Are you bullish about any more bullish about the second half relative to couple of months ago anything loosening up or does that kind of macro environment delayed some of the activity you may have thought you would have seen?

Laurence Neil Hunn -- President, Chief Executive Officer

I would say we feel the same today as we felt last quarter and in the quarter before. I mean that the market and the activity is there, it's robust, there's lots of work we're looking at lots of things as we always do and you just never know until the very last minute in a deal. So it's going to sort of one that we actually want to execute and one that we can actually win for a value on contractual terms perspective, but it's steady as she goes on the M&A front.

Robert Crisci -- Executive Vice President and Chief Financial Officer

Yeah, there is nothing in the macro environment that there's nothing in the macro environment that impact of these deal processes at all. their [Phonetic] humming [Phonetic] and we're working.

Steve Tusa -- JPMorgan -- Analyst

Super. All right, guys. Thanks a lot. Appreciate the detail.

Laurence Neil Hunn -- President, Chief Executive Officer

Our pleasure.

Operator

And we'll go next to Joe Giordano at Cowen and Company.

Joe Giordano -- Cowen and Company -- Analyst

Hey, guys. Good morning.

Laurence Neil Hunn -- President, Chief Executive Officer

Good morning.

Robert Crisci -- Executive Vice President and Chief Financial Officer

Good morning.

Joe Giordano -- Cowen and Company -- Analyst

So now that we're getting into a little bit of an industrial cycle. I guess the question that you guys typically get asked we'll get asked a a lot more like, how does this make you think about some of your industrial businesses from a long-term basis, is it become somewhat of the new since when 8% of their company becomes something that gets talked about more than 8% of the time. As we enter these types of things and how do you think about the physicians are those businesses within the context of Roper long-term?

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah. So it's. first, these businesses are amazing. I would just draw it to the profitability of both about the industrial businesses and the process segment right? They are amazing businesses, they're clear leaders and they're niche, they're just they're fantastic. Yeah. They have a little bit of cyclicality associated with them, but we've worked over the last decade to meaningfully reduce the cyclicality roughly 50% tied to these businesses is more cyclical businesses a decade ago and now we're about 20%. And so that trend will continue as we deploy the capital going forward, we're generally deploying things that don't have a large cyclical component. So we continue to de-emphasize sort of the cyclical aspects but they're great businesses and and it's, and we like them in the portfolio.

Robert Crisci -- Executive Vice President and Chief Financial Officer

And they're designed to be incredibly profitable at all points of the cycle right there. As you know, we're always looking at the breakeven analysis what's the fixed cost, what's the variable costs. Our business leaders are very, very proactive. So they're always going to generate a lot of cash in all environments and they're positioned to succeed over the long-term. So we believe we're a great owner for those businesses.

Joe Giordano -- Cowen and Company -- Analyst

Okay. Yeah. You guys have been very consistent with that answer over time, so I appreciate that. Are there any specific cost actions that you're looking at. As we enter this period though for them, like, is there any unique cost on opportunities that you're, that you're -- now you can execute as things going to slow for them?

Laurence Neil Hunn -- President, Chief Executive Officer

I wouldn't say unique, but what maybe is unique about the Roper model and this is a building on Rob said as these businesses structurally are highly variable in their nature, by structural. Right. So any sort of cost actions can happen pretty quickly and without lots of sort of risk or cost to get the cost out, if you will. And so the companies also naturally start feeling and pulsing their way when they feel softness and take the actions that any sort of direction from us. Right. And so we're certainly talking with them and understanding what they're doing and making sure their assumptions are aligned with our assumptions about what the future looks like and then they go about doing what they do and managing our businesses.

Joe Giordano -- Cowen and Company -- Analyst

okay. And maybe last from me, just curious about your outlook, maybe from your customers standpoint about some of the commercial building sector that you're exposed to and I know there's some nuance with some of your businesses where it is. If some construction volumes go down a little bit. It actually is good for like of business like ConstructConnect thing that you to help in learning the work, but just generally like what are your, your customers kind of getting raised antennas about the health of the or directionality of their businesses over the near-term of very robust levels?

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah. Hard to get a read across that, like you said at our ConstructConnect business, which is in the pre-construction part of commercial real estate development. We actually route for a modest, a neutral to slightly positive slightly bearish market because that increases the value of what we deliver to our customers, but it's. --- I don't have as we sit here today a great read across or read through from ConstructConnect on broader construction themes, so sorry I'm able to help you there.

Joe Giordano -- Cowen and Company -- Analyst

Yeah, fair enough. Thanks guys.

Laurence Neil Hunn -- President, Chief Executive Officer

Yeah. Thank you.

Operator

And that does conclude our question and answer session for today's call. And at this time, it's my pleasure to turn the conference back over to Zack Moxcey. Please go ahead.

Zack Moxcey -- Vice President of Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Zack Moxcey -- Vice President of Investor Relations

Laurence Neil Hunn -- President, Chief Executive Officer

Robert Crisci -- Executive Vice President and Chief Financial Officer

Deane Dray -- RBC Capital Markets -- Analyst

Robert McCarthy -- Stephens -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Jason Makishi -- Barclays -- Analyst

Steve Tusa -- JPMorgan -- Analyst

Joe Giordano -- Cowen and Company -- Analyst

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