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Fortive Corporation (NYSE:FTV)
Q2 2020 Earnings Call
Jul 28, 2020, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

My name is Nicole, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to the Fortive Corporation Second Quarter 2020 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Mr. Griffin Whitney, Vice President of Investor Relations. Mr. Whitney, you may begin your conference.

Griffin Whitney -- Vice President of Investor Relations

Thank you, Nicole. Good afternoon, everyone, and thank you for joining us on the call. With us today are Jim Lico, our President and Chief Executive Officer; and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by SEC Regulation G relating to these non-GAAP financial measures are available on the Investors section of our website, www.fortive.com, under the heading Financial Information.

We completed the divestiture of the automation and specialty business on October 1, 2018, and accordingly, have included the results of the A&S business as discontinued operations for historical periods. The results presented on this call are based on continuing operations. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. All references to period-to-period increases or decreases and financial metrics are year-over-year on a continuing operations basis.

During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2019, and subsequent quarterly reports on Form 10-Q. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements.

With that, I'd like to turn the call over to Jim.

Jim Lico -- President & Chief Executive Officer

Thanks, Griffin, and good afternoon, everyone. Today, we reported adjusted diluted net earnings per share of $0.68 for the second quarter of 2020 as we delivered better-than-forecasted revenue performance despite the difficult conditions created by the ongoing COVID-19 pandemic. It was a quarter that clearly reflected the power of the Fortive Business System as we executed our playbook on expense savings and working capital management, enabling us to achieve decremental margins of 33% and generate very strong free cash flow. Throughout the quarter, we continue to operate all of our essential production facilities around the world and proactively manage our supply chains while adopting comprehensive new protocols to protect the health and safety of our employees. With a focus on maintaining continuity despite the shift to a virtual operating environment, the Fortive team leveraged new virtual sales and marketing tools to continue to engage with customers.

We also adjusted product development processes in order to continue to meet project time lines while continuing to invest across the portfolio to emerge from this period with an enhanced competitive position. When we looked ahead on our Q1 earnings call in April, we faced a highly uncertain operating environment due to the challenges posed by the COVID-19 pandemic. Our Q2 performance demonstrated the resilience we built into the portfolio over the past four years, with an increased share of recurring revenue from our expanding set of subscription-based software solutions, services and consumables offerings. Recurring revenue accounted for more than 35% of total revenue in Q2, a new high for Fortive. Importantly, this resilience came through despite the fact that a key source of our recurring revenue, Advanced Sterilizations Products, experienced a decline in the elective surgical procedures as healthcare systems around the world weathered the early months of the pandemic.

With respect to Vontier, we made additional progress in Q2 preparing for its separation from Fortive as we continue to evaluate our options for structuring the separation either via spin or split. The Fortive and Vontier teams remain in a position to move forward and effect the separation as soon as market conditions permit. Mark Morelli and Dave Naemura continue to guide the Vontier businesses through the challenging macro conditions while also leading the build-out of Vontier's organizational capacity as the team prepares for its future as an independent public company. We issued our most recent corporate social responsibility report at the end of Q2, highlighting the important progress we have made across our portfolio over the past year. Our CSR framework organizes our priorities into seven strategic pillars, which capture the full breadth of our initiatives around corporate social responsibility. Consistent with our belief in the strength that comes from building diverse teams, we have always aimed to cultivate an inclusive environment at Fortive. Over the past few months, we have acted on these values to help our teams advance an internal dialogue about addressing critical broader themes of social justice.

As we look to continue living our values and fulfilling our commitment to our employees and our communities, the Fortive and Vontier teams will remain strongly committed to increase diversity, equality and inclusion as a key tenet of our culture and our corporate social responsibility efforts. With that, let's turn to the details of the quarter. Adjusted net earnings were $241.9 million, down 25% from the prior year. And adjusted net adjusted diluted net earnings per share were $0.68. Total sales declined 15.7% to $1.6 billion, including a 16.8% core revenue decline, reflecting the significant negative impact of the COVID-19 pandemic. Acquisitions contributed 270 basis points of growth, while unfavorable foreign currency exchange rates reduced growth by 160 basis points. Gross margins held up well in Q2 at 52%, supported by the growing contribution of our high-margin software businesses. Gross margins also benefited from 70 basis points of price and disciplined supply chain execution.

Given the top line challenges, core operating margin decreased 220 basis points, resulting in an adjusted operating profit margin of 20.2%. This adjusted operating margin reflected total cost actions of greater than $100 million executed during the quarter in response to the widespread deterioration in macroeconomic conditions. During the second quarter, we generated $454 million of free cash flow, representing conversion of 188% of adjusted net earnings. This strong free cash flow performance reflected a proactive response taken by our operating companies using FBS to improve inventory turns and accounts receivable, driving $165 million of tailwind from working capital in Q2. It also showed the increased resilience of free cash flow generation across the portfolio driven by specific portfolio transformation actions taken over the past few years.

Turning to our segments. Professional Instrumentation posted a total sales decline of 11%, including a 14.4% decline in core revenue. Acquisitions contributed 450 basis points, while unfavorable foreign exchange rates reduced growth by 110 basis points. Core operating margin decreased 140 basis points, resulting in segment-level adjusted operating margin of 23.1%. Industrial Technologies posted a total sales decline of 23.7%, including a 20.8% decline in core revenue. Unfavorable foreign currency exchange rates reduced growth by 250 basis points. Core operating margin decreased 250 basis points, resulting in segment-level adjusted operating margin of 19.6%. Looking across the major geographies. Our performance in Q2 continued to be negatively impacted by COVID-19 headwinds but was broadly better than expected. The region-by-region breakdown, as shown on slide nine of the earnings presentation, ultimately reflected each region's relative progress in terms of economic reopening as well as local public health dynamics as the quarter progressed.

In Asia, core revenue declined low double digits in Q2, representing a significant improvement from the prior quarter, driven primarily by China. China was down mid-single digits in the quarter. We continue to see steady signs of progress across our China businesses as they climb back from the low point experienced back in February. All of our major businesses in China experienced significant sequential improvement in Q2 with a number of operating companies, including Fluke and ASP, returning to year-over-year growth. We were encouraged by the positive signs coming out of Q2, including improving point-of-sale trends at Fluke and Tektronix and elective surgery volumes for ASP back to approximately 90% of the levels that prevailed prior to the onset of the pandemic. Looking across the rest of Asia. Japan likewise saw sequential improvement in Q2, while India and Southwest Southeast Asia remain more challenging. India, in particular, saw severe economic lockdown measures put into place for much of Q2.

This significantly limited access to customers for sales and marketing activities as well as services implementation. Western Europe core revenue declined high teens in Q2. The quarter played out largely as expected, with significant challenges through April and then sequential improvement in May and June as economies began to reopen. The resulting top line for Western Europe was a bit better than expected in Q2, particularly in light of relatively weaker trends in the region prior to the onset of the pandemic. Notably, ASP posted low single-digit growth as strong terminal sterilization capital sales and incremental consumable revenue from N95 respirator reprocessing helped offset a significant decline in total surgical procedure volume. Demand trends for Fluke and Tektronix, while still down significantly, showed some improvement over the course of the quarter. North America core revenue also declined high teens in Q2.

Similar to Western Europe, the U.S. bottomed in April and then saw sequential improvement across May and June, resulting in a better-than-expected high teens decline in total revenue. Improvement over the back half of the quarter was driven by the widespread lifting of lockdown measures, although customer access remains limited in certain markets. North America does benefit from the resilient performance of our software businesses, many of which drive the majority of their revenue in the region and provide important stability in Q2. We believe improving trends for elective surgical procedure volumes, continued EMV-related demand at GVR and early signs of POS improvement at Fluke create the possibility for further sequential top line progress in the coming quarters. That said, we continue to monitor the risks associated with rising COVID-19 infection rates and hotspots across the country and any reimposition of lockdowns, which may be required.

Finally, we saw a mid-teens decline in the Middle East and a greater than 20% decline in Latin America. Weakness in the Middle East reflected the combined impact of COVID-19 and budgetary pressures across the region tied to challenging conditions in the oil and gas market. While Latin America experienced the spread of COVID-19 a bit later than other regions, the impact became significant in Q2 with particular headwinds for our businesses in Mexico and Brazil. We anticipate that conditions will likely remain challenging throughout both these regions as we look through the end of the year. Last quarter, we laid out a framework for analyzing our portfolio found on slide 10 of today's presentation with businesses organized into groups, based on relative sensitivity to pandemic disruption and resulting deterioration in end market demand. As shown on slide 11, the performance in Q2 across the four indicated groups played out very much in line with our expectations for the quarter.

Group I, which represented approximately 14% of total revenue in Q2, showed significant resilience and posted mid-single-digit growth for the quarter despite the challenging economic conditions. The group's performance reflected a strong contribution from a number of our software businesses. Intelex grew mid-teens, eMaint grew high single digits, Gordian was up slightly, and the SaaS and maintenance portion of Accruent was relatively flat. Group I also benefited from very strong demand at Fluke's industrial imaging business, where customer response to COVID-19 drove very strong growth in the quarter. We're excited about the continued near-term demand trends for these product lines of Fluke and the potential to accelerate a broader industrial imaging strategy.

As expected, Group II, which represents approximately 48% of total revenue in Q2, was significantly impacted early in the quarter by lockdowns. Overall, the group's improvement over the back half of the quarter resulted in mid-teens revenue decline, roughly 10 points better than expected. For ASP, surgical procedure volumes in both the U.S. and Western Europe troughed at levels higher than those experienced in China in Q1 and subsequently bounced back faster than expected to drive higher consumables usage during the quarter.

At GVR, where bookings increased mid-single digits in the first half of the year, the pandemic impacted our ability to convert orders to deliveries in Q2. Despite the pushout of the liability decline, we continue to see strong demand for EMV upgrades in North America. Elsewhere in Group II, the recurring revenue business models of ISC's iNet and Fluke Health Solutions' Landauer dosimetry business provided added resilience in the second quarter. Fluke Health Solutions, which grew low single digits in Q2, also saw strong demand for ventilator calibrators related to the fight against COVID-19. Group III, which represented approximately 15% of total revenue in Q2, performed better than we had anticipated in the second quarter with mid-teens decline.

The group's performance is highlighted by Matco, which saw significant pressure early in the quarter but then a strong recovery in orders as lockdowns began to lift. Elsewhere, the Sensing portfolio saw pressure across a number of its core industrial end markets. This was partially offset by growth in semiconductors, driven by demand for data center upgrades and infrastructure as well as COVID-related tailwinds in medical end markets. Specifically, Setra and Gems saw strong demand for critical environment, products and ventilator components, respectively. Accruent's professional services business faced significant headwinds in the quarter but adjusted with new safety protocols and remote delivery capabilities to help address COVID-19-related restrictions and drive better performance later in the quarter. Group IV, which represented approximately 23% of total Q2 revenue, experienced the most top line pressure in the quarter as expected and posted an almost 30% decline.

That said, businesses in Group IV showed earlier signs of improvement than we had anticipated in April. Notably, Fluke's core industrial business saw improvement in point-of-sale across its major regions with Asia POS positive in Q2 and Europe and the U.S. improving off their early Q2 lows. The Tektronix instruments business performed largely as expected in the second quarter with sequential improvement in China. Conditions remain challenged, but we anticipate some sequential improvement at Tek in the second half. The combination of top line resilience, strong margin execution and substantial cash flow generation enabled us to continue to enhance our liquidity position and pay down debt as expected during the second quarter. We ended the quarter with over $1 billion of cash on our balance sheet in addition to our undrawn $2 billion revolving credit facility.

While there were plenty of immediate challenges to address in Q2, we continue to play offense across our portfolio, running our FBS playbook by using dynamic resource allocation to invest in key growth initiatives to enhance our long-term competitive position. We remain focused on driving innovation across the portfolio using the FORT, our centralized artificial intelligence and data analytics hub, to bring more advanced analytics and machine learning capabilities to bear in our workflow solutions while also expanding our use of the growth accelerator process to fund potential growth breakthrough opportunities.

In May, we established a partnership with Pioneer Square Labs to help incubate industrial technology companies capable of bringing new products to market in an accelerated fashion in addition to our internal development processes. Sustained investment has enabled our operating companies to quickly address emerging opportunities, including the growing demand for critical environmental solutions, etc. industrial imaging products at Fluke, driven by the response to COVID-19. Sustained investment has also enabled the completion of longer-term development of critical next-generation products such as Teletrac Navman's newly introduced TN360 telematics platform, which is expected to form a core part of its offering going forward. Importantly, we are also investing to expand our commercial operations, particularly among our software businesses. We continue to expand Intelex' European sales team to help capitalize on growth opportunities outside the U.S. and build the capability of Censis to address attractive opportunities emerging in the ambulatory surgery center market.

At ASP, despite challenges reaching customers in the quarter, our continued investment in sales and service enabled the team to quickly address the near-term N95 respirator reprocessing opportunities. Despite the better trends we saw coming out of Q2, macro conditions remain challenging with the potential for future volatility. This is particularly in light of persistent challenges associated with global efforts to keep COVID-19 infection rates under control. Consistent with Q2, we are not providing a guide, but we are providing additional color on expected performance for the coming quarter. We expect that total revenue will improve sequentially in Q3 but decrease by 5% to 8% on a year-on-year basis. We will continue to calibrate any remaining cost actions based on the top line progression from here as we manage the decremental margins of approximately 35% in Q3.

As we look ahead, we also expect to continue to generate strong free cash flow and deliver a free cash flow conversion ratio of greater than 110% of adjusted net earnings for the full year. The second quarter of 2020 was truly an unprecedented period as we had to quickly adjust to an unfolding global public health crisis and a resulting deterioration of the global macroeconomic environment. We weathered the storm, delivering financial performance that significantly exceeded our expectations three months ago. As such, our Q2 performance demonstrated the progress we have made with our portfolio transformation over the past four years, establishing a more resilient top line and sustained cash flow performance through the cycle.

More importantly, as we leverage the foundation of FBS to sustain our performance and develop new virtual collaboration tools, we continue looking forward by making the investments in innovation and team development that will lay the groundwork for the continuation of our portfolio transformation. Finally, I am extremely proud of our team's efforts over the past three months. And while we undoubtedly face additional challenges in the coming quarters, I'm confident in our ability to navigate through them as we continue to generate substantial value for our employees, customers, shareholders and our communities.

With that, I'd like to turn it over to Griffin.

Griffin Whitney -- Vice President of Investor Relations

Thanks, Jim. That concludes our formal comments. Nicole, we're now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Nigel Coe with Wolfe Research.

Nigel Coe -- Wolfe Research -- Analyst

Thanks, Jim. Thanks, Charles. Thanks, Griffin. Good afternoon. Obviously, the 3Q sales range of down 5% to 8% is obviously quite a bit better than what you're pointing toward in April and what you've realized in the quarter. So I'm just curious how and I don't exactly want to go blow by blow here. But as we went through June, July, were you seeing, not necessarily by business, but just generally, what do you see in terms of organic sales progression as we went through the quarter and into July?

Jim Lico -- President & Chief Executive Officer

Thanks, Nigel. Yes, I think a couple of things relative to the trends. I think we certainly as we sort of said in the prepared remarks, progressively, things got better as we got through the quarter. So I think every month got a little bit better, certainly, from a trend perspective. July is just in and is probably good as well, but good in the sense of giving us confidence as to the guide. So I think the trends are certainly getting better. I think it's difficult to necessarily know how long they'll continue, hence, the like through the into the fourth quarter. But I think as we look at the near-term trend, they look pretty good. And certainly, as we said, we have a good sense of what EMV is going to look like in the back half. That's a driver, obviously. Matco getting better is another example. So that really covers Industrial Tech. And on the Professional Instrumentation side, elective surgery is still on the right trend. The software business is staying resilient. And certainly, some of the POS trends at Fluke is starting to be a little bit better as well.

Nigel Coe -- Wolfe Research -- Analyst

And the decremental margins obviously were very encouraging. You seem to have a really good firm grip on the cost management side of it. 35% decremental margin outlook for 3Q. I know you had confidence that you could kind of maintain or kind of like bring back those gross margin decrementals into that range you put out there. So should we think about 3Q, 4Q in that sort of 35% range? Or is there a scope for it to be a little bit better in 4Q if we continue to see the improvement trends into 4Q?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Nigel, this is Chuck. I think what we're trying to say is that we will deliberately manage the business to 35% as we move forward. The top line is on a better trajectory. At least that's how it seems at this point in time, and that's consistent with what we're guiding there. So we'll strike that balance of managing our expenses and investing into the future that as we go forward. So 35% is the right number.

Nigel Coe -- Wolfe Research -- Analyst

Very clear. Thank you very much.

Jim Lico -- President & Chief Executive Officer

Thanks, Nigel.

Operator

Our next question will come from the line of Scott Davis with Melius Research.

Scott Davis -- Melius Research -- Analyst

Good afternoon, guys.

Jim Lico -- President & Chief Executive Officer

Congratulations on the book.

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Scott, congratulations on your book.

Scott Davis -- Melius Research -- Analyst

Yes. No, thank you. I hope it helps many people sleep. A couple of pages in, you're out like a light, right? But no, thanks for that, Chuck. Everything looked pretty encouraging here overall, and I was trying to I think it's probably our fifth or sixth earnings call today. So a little beaten up. But Chuck, you commented on I'm sorry, Jim actually commented on the 70 basis points of price. And trying to get a sense, does that 70 basis points generally come in that bucket of 35% recurring revenue where you're able to get a little bit more pricing power? Or is there some other base-level price increase that you have across the board?

Jim Lico -- President & Chief Executive Officer

Yes. We were really encouraged. We've had good price. And quite frankly, as you know, the comps on price have been pretty good, too. So to get that, it was mostly in Professional Instrumentation in the quarter, Scott. So I would say and certainly, the software businesses were part of that. But we had good price in some of our key hardware businesses as well, like Fluke and Tek. So I think across the board, as we think about our playbook, certainly on the expense side, we talked about $100 million of cost reductions in the quarter, but also part of that playbook is trying to find opportunity for price. And I think the teams did an exceptional effort in the quarter to drive where those opportunities exist. They took advantage of them. And while I think and we will continue to do that through the rest of the year

Scott Davis -- Melius Research -- Analyst

Okay. Encouraging. And then the Vontier profit profile looked like the top line growth profile you gave at the as far as the decrementals and overall profit and cash and such. Was that fairly consistent with the rest of Fortive? Or was there some differences there?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

No. I think that the there's a little bit of difference in terms of when you look at actual operating profit margin by a couple of hundred basis points between the two segments. But when you get to the decrementals, I don't they don't behave all that different between the two.

Scott Davis -- Melius Research -- Analyst

Okay. Super helpful. Thanks guys. Good luck.

Jim Lico -- President & Chief Executive Officer

Thanks, Scott.

Operator

Our next question will come from the line of Julian Mitchell with Barclays.

Julian Mitchell -- Barclays -- Analyst

Hi. Good afternoon. Maybe just circling back to the revenue outlook. So you're dialing in around about a 10-point less bad year-on-year drop in the third quarter than what you saw in the second quarter. Is there any more detail you could provide around that narrowing either on a segment basis for PI versus IT and/or on that Group I to IV basis just to help us sort of understand what's driving that improvement?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Julian, think of it this way. As we look at the quarter that we just had and what's improving, IT is going to improve a little bit more than PI. Both are going to improve sequentially. We've got if you think about the IT, the Vontier group, you've got Matco really is continuing to show some strength there. And then we've got that EMV secular trend that's going to be helping GVR. Those were impacted in Q2 by the lockdown. And as that gets released, that's really going to move that to more of a low single-digit down low single-digit for Vontier. And when you look at Professional Instrumentation, I think that's sequentially going to improve. That's where you're seeing some of these acquisitions doing really well and then again, getting a little bit of a lift from the lockdown coming off. So I'd see that improving to down high single-digit in Q3.

Julian Mitchell -- Barclays -- Analyst

And then maybe a second question around the free cash flow. There was a big working cap tailwind in Q2. Generally, in the first half, receivables in particular freed up $200 million plus of cash, I think. So maybe help us understand what's happening with working capital in the second half as you're seeing this revenue outlook improve and the extent to which you're seeing an improvement in the ASP business around that free cash flow profile?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Yes. Let me I'll take a shot at that, and then Jim will probably add a few comments. I think we think the tailwind from working capital from Q1 to Q2 is about $165 million when you take a look at everything in there. And I think that, that was just a lot of great work by our teams getting on things early, managing inventory levels appropriately. It's an example of managing what you can manage, and that gave us good push. And as you saw, cash flow overall was very strong at $450 million. I think that what I would expect going forward, it really depends on how steep the sequential improvement continues to be going into the second half. But I'd expect a little bit of a tailwind, but not at the same level. It's probably maybe 1/2 to 1/3 of that coming back as a tailwind. Again, it really just depends on how steep the increase quarter-over-quarter is.

Jim Lico -- President & Chief Executive Officer

Julian, I would just add a couple of things. Number one is we're really happy with what we saw relative to free cash flow. A lot of times, we'll talk about those working capital tailwinds in a way that suggests that it doesn't actively have to be managed. The last time I checked, customers weren't in a hurry to pay us last quarter. So the work that we did, I think using FBS was really profound. It's also using it to capture and keep those advantages once we get into a little bit of growth mode or less down, if you will. I would say the second thing I'd add is when we look at the historically, we said we would preserve somewhere in the 80 percent-ish range of free cash flow when we're in a down cycle, and we've been talking about that for four years. And I think what you saw in the quarter and what you're going to see in the year is better than that. Obviously, we're much better than that in the second quarter. We think we can we'll do better into the 90s for the full year.

So I think what you're seeing is the strength of the portfolio, the higher gross margins in PI, particularly around software. I think our gross margins in PI for the quarter were around 56%. So the ability to derive more free cash out of the portfolio given the changes, I think, also gives us some confidence that free cash in the remaining part of the year will be good as well.

Julian Mitchell -- Barclays -- Analyst

Great. Thank you.

Jim Lico -- President & Chief Executive Officer

Thanks Julian.

Operator

Our next question will come from the line of Jeff Sprague with Vertical.

Jeff Sprague -- Vertical -- Analyst

Thank you. Good morning everyone or good afternoon I guess. Just two for me, if I could. Just on Vontier on the timing. This market obviously has been extraordinarily resilient. What is it that you're looking for or waiting for to make your decision on timing here?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Well, I think there's a couple of things we're looking for. One, we thought it was important, obviously, to get out here with our Q2 results. And then we're just looking for continued stabilization in the market and less volatility. And while we think that the trends are definitely going in the right direction, we probably need to see a little bit more time here going forward to ensure that we're not looking for a week to get out. We're looking for a little bit longer time period. But we're encouraged by the direction of the markets are going right now. And also, we're prepared to go. We're ready. And the Vontier is ready to separate. And we're still convinced that the strategy is correct, and we're committed to the execution. So we're just waiting for a little bit more time and stability.

Jeff Sprague -- Vertical -- Analyst

And just thinking about investment, Jim. So to Chuck's point, you're actually managing to a decremental, right? So sales are going to come in better, that's going to free up spending. You provided a couple of examples here on what you're working on. Should we expect most of that delta is going into growth? Or I would assume there's some restoration of just kind of temporary things that you had to kind of choke down here in the second quarter.

Jim Lico -- President & Chief Executive Officer

Yes. I mean, Jeff, we think of our playbook really as, first and foremost, as we see some of those revenue going down, if you will. We, first and foremost, think about the factory and supply chain alignment with capacity and we're focused on managing gross margins. You saw good really good work on the part of the teams to do that in the quarter. There's the temporary cost actions. There's the permanent set of cost actions. And then there's this fourth part about dynamic resource allocation, which is moving money around to the highest opportunities, which is I think where you're going at. So we're managing the decrementals relative to those things. We're making decisions about temporary and permanent cost reductions as we really understand the outlook more or less into 2021. And those decisions are probably more in the coming months. But I think the most important thing where you're going is we're really making sure we're funding the growth opportunities that are inevitably going to create competitive advantage over time.

A good example is the FORT where we bring data analytics projects for the businesses. Our projects are up three from where they were a year ago. So we're doing three times the number of data analytics projects than we were doing a year ago. I think that's a big focus. You're hearing a lot about digital transformation around companies, and I think that's really the what we do at the FORT is leading that for both our operating companies and some internal projects that we're doing for Fortive. So I think that's one example. Maybe one other example is we're continuing to accelerate all of our investments in the software businesses where a number of our software businesses are really able to take advantage of a lot of the going back to work challenges that occur, the changes in facilities, the new safety health and safety protocols that exist in facilities and buildings. And so a number of our we're really pivoting our solutions and our feature sets at both Accruent and Gordian as well as at Intelex to really take advantage of those opportunities. So a number of our increases in investment are going toward some of those things where we have, I think, real good secular drivers over time.

Jeff Sprague -- Vertical -- Analyst

Just one quick clarification, if I could. Chuck, that revenue color, I think, you gave to Julian's question. Was that reported revenues? Or was that organic revenue commentary you were giving?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Just one quick clarification, if I could. Chuck, that revenue color, I think, you gave to Julian's question. Was that reported revenues? Or was that organic revenue commentary you were giving?

Jeff Sprague -- Vertical -- Analyst

All right, great. Thanks.

Jim Lico -- President & Chief Executive Officer

Thanks, Jeff.

Operator

Our next question will come from the line of Andrew Obin with Bank of America.

Andrew Obin -- Bank of America -- Analyst

Yes, good afternoon.

Jim Lico -- President & Chief Executive Officer

Hi, Andrew.

Andrew Obin -- Bank of America -- Analyst

Just a question on Fluke. As we think about the business today, how much of it is sort of ex health? How much of it is core industrial at this point? And at the core industrial business, what was the performance in the quarter?

Jim Lico -- President & Chief Executive Officer

Yes. I think when you look at the core industrial piece that's in that Group IV, which will be our sort of our core industrial instrumentation, probably about 60-ish percent, I think maybe 2/3 probably in that range or a little bit better.

Andrew Obin -- Bank of America -- Analyst

Got you. Okay. Okay. Okay. That makes sense. And then just a question on software, just to clarify, Gordian and Accruent performance. So am I correct that Gordian is a marketplace revenue model. So it's just volume going through the platform is down, so that's what's impacting it? And Accruent, anything else going on besides sort of license to SaaS transition to depress the revenue?

Jim Lico -- President & Chief Executive Officer

Yes. So I think, yes, you're exactly right, in Gordian. So get that one first. The and really, it's interesting, Andrew, their revenue model also very often requires some work on site with the customer to get started. And obviously, with the stay-at home orders, we were prevented from working with customers in some cases. So there's some delays, but there's no we often get the question about new construction. It's really not new construction. It's really changes that are going on in the facility. So we think with everything going on with COVID and facility changes required around protocols that ultimately, that business will come back. And as you said, the purchasing construction dollars will start to flow back through Gordian, and ultimately, the revenue will be back in growth mode. They've been, as you know, a double a strong double-digit grower for quite some time now. We still think we've got great opportunity there.

Accruent, a little bit more complex in that regard. We saw some again, we're seeing a lot of good growth in the businesses that are really tied to facilities and facilities management and really returning-to-work assessment work, our high cloud opportunities, our EMS business, our connected healthcare businesses, and Lucernex, which is our lease management business, continues to be good. So those businesses are mostly the SaaS parts of the portfolio. And again, they're doing they're much more resilient. Where we saw the challenges at Accruent is really, one, on the license revenue side; and again, on the managed service side. It got a little bit better, as we said in the prepared remarks, like some of the managed services got better at the end of the quarter as we were able to get more on-site and be able to do some of our work remotely. But I think that will continue to be we continue to think the SaaS part of Accruent will be durable. And we're still getting back to getting working with customers on a regular basis. And that's still work to be done through the third quarter, I'm sure.

Andrew Obin -- Bank of America -- Analyst

Thank you.

Jim Lico -- President & Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Josh Pokrzywinski with Morgan Stanley.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hi. Good evening guys.

Jim Lico -- President & Chief Executive Officer

Hi, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hope everyone's well. Just a couple of questions here from my end. I guess first on the businesses that go through distribution, I guess, Fluke and Tek kind of come to mind first. How do you characterize kind of sell-in versus sell-out? I think we've seen some supply chain delays and distributor destocking. We've seen a bit of backlog carried in for some other short-cycle guys into the second half. How do you guys think you score against that?

Jim Lico -- President & Chief Executive Officer

Yes. I think we saw a little bit better point-of-sale trending at Fluke than we did at Tek. I would call Tek more stable, whereas got it improved, but Fluke may be a little bit more of an improvement but still negative. Our inventory positions have remained pretty much, I would say, flat to down. So no real inventory build. So I think as we get into the second half, we don't anticipate any big issues relative to inventory. On the other hand, we don't expect really distributors to necessarily take on inventory. So everything embedded in what we talked about for the guide for the third sort of assumes that sort of business as usual trends continue around point of sale, which means they get a little bit better. But at the end of the day, no big dramatic increases or decreases in inventory, nor any big swings on point of sale.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Yes. I think we saw a little bit better point-of-sale trending at Fluke than we did at Tek. I would call Tek more stable, whereas got it improved, but Fluke may be a little bit more of an improvement but still negative. Our inventory positions have remained pretty much, I would say, flat to down. So no real inventory build. So I think as we get into the second half, we don't anticipate any big issues relative to inventory. On the other hand, we don't expect really distributors to necessarily take on inventory. So everything embedded in what we talked about for the guide for the third sort of assumes that sort of business as usual trends continue around point of sale, which means they get a little bit better. But at the end of the day, no big dramatic increases or decreases in inventory, nor any big swings on point of sale.

Jim Lico -- President & Chief Executive Officer

Yes. I think it's a great question. I think obviously, if using the groupings as we have them, we clearly have, I think, demonstrated a propensity over the last several years to be grow the lion's share of our M&A deployed into mostly Group I and Group II. So I think that would I would say the trend is going to that trend will continue. That said, there are certain situations. I would cite PRUFTECHNIK as a deal we did last year for Fluke, which had both a service and an instrument aspect to it that was really important to our overall Fluke digital offering. So in that case and we got it at a very, very high ROIC.

So I think what you'll find is if we do make some of those decisions that are in Group III or Group IV, they're going to tend to be ones in which we'd see the returns very high. But I would say, if you said, let's talk about the lion's share of our capital allocation over the next several years, it's really going to be in building in those groups that are articulated in I and II. And they're focused on things like condition monitoring, facilities management, healthcare enablement and health, safety and environmental, the places where we deployed the lion's share of our capital over the last four years.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. Appreciate the color. Good luck, guys.

Jim Lico -- President & Chief Executive Officer

Thanks, Josh.

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Thanks, Josh.

Operator

Our next question will come from the line of Richard Eastman with Baird.

Richard Eastman -- Baird -- Analyst

Yes. Good morning, afternoon, evening.

Jim Lico -- President & Chief Executive Officer

Hey, Rick.

Richard Eastman -- Baird -- Analyst

Hey. Just a couple of questions. First, just around the recurring. Jim, I think you mentioned recurring revenue, and I think you're including software and consumables and services, with 35% of Fortive's revs in the quarter kind of new high. But how did that bucket, as you defined it there at 35% of revenue, how did that do year-over-year in the second quarter?

Jim Lico -- President & Chief Executive Officer

Well, I have to disaggregate it into the groups. But I would say if you thought about the sort of PI-related software businesses, they were up about mid-single digit. And then obviously, telematics, the big software business that we would have on the Vontier side, is down in the quarter. But as I mentioned, I think the new platform that we're launching, we're excited about the opportunity for telematics here going forward. So that kind of gives you the software view of what the quarter looked like. Services, which are mostly in Group II buckets, probably sort of down to down. I think our dosimetry business at Landauer was up in the quarter. But I think Tek services, as an example, was down low single digits, something like that. So I probably would say the service parts of the business at Landauer, we call that Fluke Health, and at Tek, probably down a little bit but still obviously much more resilient than the other parts of the portfolio.

Richard Eastman -- Baird -- Analyst

I got you. Okay. And then just a question. As we manage to this 35% decremental here for the balance of the year, a question just is around as we manage into next year around what's discretionary on the cost side, what our investments are on the cost side, how do you start to think about incrementals for PI and Vontier? What do we manage to there? I mean we have more software content. We want more recurring revenues. What would be the appropriate view on an incremental margin for PI and IT or Vontier?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Yes. Rick, this is Chuck. I would think that a good starting place is that we'd come back up the same amount that we went down because we want to reset back to starting to growing on our 2019. So recovering that revenue, if it went down to 35%, think of it coming back to 35%. Beyond that, it really depends on where we're growing. As you mentioned, some of our some of the software business, obviously, have higher decrementals as you move forward in time. So it kind of depends after that, but first thing is to get it back.

Richard Eastman -- Baird -- Analyst

Okay. Very good. Thank you.

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Thanks, Rick.

Jim Lico -- President & Chief Executive Officer

Thanks.

Operator

Our next question will come from the line of Joe Giordano with Cowen.

Joe Giordano -- Cowen -- Analyst

Yes.

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Hey, Joe

Joe Giordano -- Cowen -- Analyst

Hey. Can you kind of go through the cost out? You mentioned $100 million in this quarter. As you look to like for the quarter and for like the balance of the year, how would you break that out between kind of temporary things that actions that you took that come back to the business when things are more normal versus more permanent savings?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Are you talking about for the quarter or what you think we've done for the year?

Joe Giordano -- Cowen -- Analyst

I guess kind of like what do you do in the how would you break out that $100 million you mentioned in the prepared remarks and how you're thinking about the split and magnitude of temporary versus permanent for the rest of the year?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

I think the so in the quarter, I think that let me back up. It's a little easier to talk about for the year. I think that the permanent that we're likely to take, we have taken action on, will be $50 million permanent through the year. Obviously, that was in Q1 or in Q2, that $100 million is it's a little less than that. But as you go through the year, think of it being $50 million in permanent actions. That's on top of the actions we took in Q4 of last year, where we did at least about probably $60 million. And then as it really depends on let's see how the rest of the year plays out, particularly in Q4. But I would expect the next quarter, we'll know obviously, we'll know how the third quarter played out and have a strong view into next year and see if we need to do anything of a more permanent nature or whether we think the top line is going to recover.

Jim Lico -- President & Chief Executive Officer

Joe, also part of that is, obviously, we're getting a substantial reduction in travel. And we're very much working through now a number of our virtual and digital work that we're doing with customers to understand how much of our real travel expenses, quite frankly, can become permanent cost reduction because we just don't need to necessarily make the trips that we've historically made. So I think as we think about once we have a better sense of what we think the revenue outlook will look like in 2021, then we can certainly, as Chuck said, make that decision. But those decisions aren't just the typical incentives and things like that, but it's also very much things like travel and costs that are that would historically be considered temporary, but quite frankly, I think a significant amount of them are going to be permanent as we move into next year.

Joe Giordano -- Cowen -- Analyst

That's fair. My follow-up, just wanted to talk on the elective procedure volumes you guys mentioned. It was interesting. You said in North America, you're seeing 80% to 85%, 90% of pre-COVID. Some of the checks we've did, it sounds like that rate is reflective of some of the kind of specialty hospitals, but like the big hospitals were more like in the 75% range. And I'm just curious at how you kind of view is that is that geared toward more a specific type of facility? And how is that looking now with what's going on in Florida and some of the places that are having flare-ups again?

Jim Lico -- President & Chief Executive Officer

That's fair. My follow-up, just wanted to talk on the elective procedure volumes you guys mentioned. It was interesting. You said in North America, you're seeing 80% to 85%, 90% of pre-COVID. Some of the checks we've did, it sounds like that rate is reflective of some of the kind of specialty hospitals, but like the big hospitals were more like in the 75% range. And I'm just curious at how you kind of view is that is that geared toward more a specific type of facility? And how is that looking now with what's going on in Florida and some of the places that are having flare-ups again?

Joe Giordano -- Cowen -- Analyst

Thanks.

Jim Lico -- President & Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Andy Kaplowitz with Citigroup.

Andy Kaplowitz -- Citigroup -- Analyst

Good afternoon guys.

Jim Lico -- President & Chief Executive Officer

Hey Andy.

Andy Kaplowitz -- Citigroup -- Analyst

Jim, maybe you could give us a little more color into your regional sales breakdown. You mentioned your China-related sales were down, still down mid-single digits in Q2. Does that turn positive in Q3? And as you think about the revenue outlook improvement in Q3 versus Q2, are all regions generally improving at the same rate? Or do you see, for instance, LatAm or even the U.S. lagging the other regions?

Jim Lico -- President & Chief Executive Officer

Yes. I think, as you said, China was measurably better in Q2 than Q1. I wouldn't and that was on the backs of ASP and Fluke. I think China is going to get better through the second half, but I don't necessarily think that China gets to any dramatic growth rate in the second half. I think it gets better, but I don't think we've seen enough to think that things are going to get significantly better. So I think our China theory here at this point is probably better. The rest of Asia, I think, is a little mixed. As we mentioned, India continues to have a lot of lockdowns. And but we think by the end of the year, our India business, in many respects, is driven by the GVR business. And we think that there's a number of things that the order pattern there has been very good. So we think India might get better by the end of the year. I think as we think about the Middle East, we think about Latin America, we don't anticipate anything getting better there.

So that kind of gives you the high-growth market view. The U.S. will definitely get better through the remaining part of the year. I think the and I would anticipate whereas I don't necessarily see Western Europe getting that much better the rest of the year. And the difference there is we have the EMV tailwind in the U.S. We have Matco getting better in the U.S. We have ASP getting better, which is a bigger U.S. business than it does a European business. And Fluke's point-of-sale is getting better. So I would say North America tends to get better through the remaining part of the year. And as I mentioned in the prepared remarks, Western Europe, in particular, wasn't ripened to begin with when we sort of started with COVID. And I anticipate that to be a little bit more longer drawn out recovery. Hope to be proven wrong there, but that would sort of be our sort of thought process as we get into the second half here.

Andy Kaplowitz -- Citigroup -- Analyst

Jim, let me ask my follow-up on GVR specifically. You mentioned India. It does tend to be lumpy for you guys, and you tend to see delays sometimes in orders. And obviously, we know what's going on there in terms of the infections. So maybe confidence level in the international GVR business doing better in the second half of the year. And then you talked about mid- single-digit order growth in North America. Does that just convert in the second half of the year as stay-at-home orders have basically I mean they haven't gone away, they're a little better in the second half of the year. Does that just convert into revenue growth in North America?

Jim Lico -- President & Chief Executive Officer

Yes. I think North America orders will continue to be good in the second half. It's a little mixed around the world. As you know, in the rest of the world, a number of our customers are integrated oil companies. And so oil and gas prices has a little bit more impact in some parts of the world than it does in the U.S., where that's a disaggregated market. So I do think the second half will still follow some of those patterns that I was describing relative to the economy. But I think India, in particular, will continue. I think our position in India is very good. We've done a number of acquisitions there, our Orpak acquisition, our Midco acquisition.

We have a very good position. We've got great relationships with customers. So I'm confident. As you said, it can be lumpy quarter-to-quarter. But if we look year on year-on-year, we've built a really good business there, and I'm confident that the team will continue to execute there. So I think some of the other markets might be we did a Middle East review with the team the other day for all of Fortive. And I think they're executing well there. And some markets are going to continue to be OK. So I think GVR, in general, will it will depend on the market and country, but I think we'll see a little bit better order pattern likely in the second half on the back of a continued strong EMV market in North America.

Andy Kaplowitz -- Citigroup -- Analyst

Thanks, Jim.

Jim Lico -- President & Chief Executive Officer

Thank you.

Operator

The next question will come from the line of Deane Dray with RBC Capital Markets.

Deane Dray -- RBC Capital Markets. -- Analyst

Thank you. Good afternoon, everyone.

Jim Lico -- President & Chief Executive Officer

Hi, Deane.

Deane Dray -- RBC Capital Markets. -- Analyst

I'm interested in hearing a bit more about this joint venture with Pioneer Square Labs. It sounds like you've got your first company getting launched. Could you remind us what kind of investments that you're making in this, what kind of returns you're expecting? And this really does sound something more than just a proxy for R&D.

Jim Lico -- President & Chief Executive Officer

Yes. It's we're really excited about it. We've built a very good relationship with them and the team there. What it really is, is we agree on an idea generation process. We devote we have a number of Fortive people that work at the lab alongside the PSL team. We generate ideas. If we find an idea that we want to invest in, we invest in it. We have a couple of different milestones where we can decide if we want to bring that in or continue to invest in it. And at a certain point in time, we draw a conclusion as to whether or not we want to own it or necessarily do something that obviously do something and take it out.

And I think the economics are good for both parties, and we feel very good about the relationship. So it's still very early days. They bring a lot of great entrepreneurship, fast cycle product development, lots of software experience. I think we've been I think they've been very enthusiastic in the level and quality of talent that we brought to the table. But still very early days. As we said, we've launched one team. And hopefully, we'll continue to have a number of wins and that we can put on put up over the next few years.

Deane Dray -- RBC Capital Markets. -- Analyst

Will these businesses be spun out, sold with are there synergies within core Fortive? Just maybe kind of explain how the company benefits from this overall.

Jim Lico -- President & Chief Executive Officer

Yes. I think it could be all of the above. It could be a great idea that really benefits Fortive. And we see a way to spin that in, and we've got economics associated with that so that we can spin it in and bring it and make it part of Fortive. But we also have the economics, if it's a great idea, but not isn't necessarily that would be something consistent with what Fortive wants to become. And ultimately, we would decide to do something to spin that out as well. So there are a number of options. I think we've got good flexibility as to the kinds of ideas and what is sort of in our strike zone. But also, obviously, if there's ideas that have maybe utilized Fortive technology but don't necessarily mix with what we want to do and become, then ultimately, we'll try to find other ways to create value and spinning it out and building something in a different structure.

Deane Dray -- RBC Capital Markets. -- Analyst

Got it. And just as a second question, I want to go back to this structure of these four groups that you've set up. And just, Jim, a few minutes ago, you said that you're really not looking to commit capital necessarily into Groups III and IV, except on those situations where you're getting higher returns. But once you start saying you're not investing further in M&A for those businesses, it kind of opens up the question that there might be some noncore businesses opportunities to exit. I know you've got some Vontier businesses there already, and those decisions have been announced. But are there businesses in Groups III and IV that might be considered noncore?

Jim Lico -- President & Chief Executive Officer

Well, no, I think what I meant with that answer is one of the things that we love about that grouping is I think it gave everybody a good perspective of how it was really meant to show the sequencing of how our parts of our businesses would perform and mirror sort of the resiliency and dynamics of COVID and the economic consequences of COVID. So it's really a framework for that. As you know, a number of our businesses are really built with portions of Group I, II, III and IV all together. So just taking an example like Fluke, as we said before, a good chunk of Fluke is in Group I and II, is in I and II, so and increasingly becoming a growing part of that. So I don't think it necessarily says that our individual businesses are necessarily going to be not invested in. But what we're going to find in a number of our businesses within our businesses or within our operating companies, probably is the best words, is we're finding those opportunities to build more resilient, more durable, more higher growth aspects of the business.

And that's where we'll probably end up having more of our investment. So as Fluke is a good example, we bought EMA, we bought PRUFTECHNIK, but we also bought Landauer. So a good chunk of the capital that we deployed into Fluke in the last few years has been to add those 1s and 2s to the core Fluke business. I think we have those same opportunities for some of the parts of Group III and IV that we can also do. Even within Sensing Tech, some of the things we talked about that are driving the growth there and environmental monitoring as another example. Those are places where we're investing in those businesses because those parts of the businesses really have Group II and Group I aspects to them.

Deane Dray -- RBC Capital Markets. -- Analyst

Thanks, Jim.

Jim Lico -- President & Chief Executive Officer

Thank you.

Operator

The next question will come from the line of Deane Dray with RBC Capital Markets.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good afternoon, everyone.

Jim Lico -- President & Chief Executive Officer

Hi, Deane.

John Fred Walsh -- Credit Suisse -- Analyst

So a lot of ground covered. I guess just thinking about the SaaS businesses, was there any discernible change, positive or negative, across them as it relates to customer retention rates? I think that might be the best way to ask the question versus kind of thinking about net adds. But however you kind of want to answer, it's helpful.

Jim Lico -- President & Chief Executive Officer

Yes. We really the key metric we look at, John, is net retention. And that combines sort of not churning customers, keeping current customers. And that metric is really and all of our SaaS businesses improved in that metric in the quarter. So it's a key metric we keep an eye on. We actually review those metrics with the Board in every Board meeting. They're so important. So I think we feel very good about the work the team is doing on all those metrics, and there's still lots of there's certainly improvement to get and some of our businesses are kind of at benchmark. Some of them still have some ways to go. So we're it's a continued focus for a lot of our FBS tools as well within those businesses.

John Fred Walsh -- Credit Suisse -- Analyst

Great. And then just maybe a point of clarification around telematics and the new platform. Has that actually launched? Or is that something you expect to launch here in the back half?

Jim Lico -- President & Chief Executive Officer

I think it's launched now and now it's starting to get some traction. So call it in the early stages of launch.

John Fred Walsh -- Credit Suisse -- Analyst

Great. Thank you. I'll pass it along. Appreciate the color.

Jim Lico -- President & Chief Executive Officer

All right. Thanks, John.

Operator

Our next question will come from the line of Andrew Buscaglia with Berenberg.

Andrew Buscaglia -- Berenberg -- Analyst

Hey, guys. Everything is kind of picked over, but I have one last one that I wanted to squeeze in, is on your you commented that you saw some strong demand for industrial imaging products within the Fluke business. Some of your competitors kind of in that niche vertical are seeing really strong demand, exponential growth as it relates to skin temperature, cameras. Is this is that what you guys are referencing? And if you could just comment more on that, if that's an area that could see outsized growth within PI.

Jim Lico -- President & Chief Executive Officer

Yes. Andrew, our principal business there is thermal imaging and temperature measurement. So it ranges from all the imaging line as well thermal imagers as well as literally IR guns and thermometers. So yes, that business is doing well, and it also has a number of new entrepreneurial opportunities that we're working on that do sort of fold into some of the challenges that happened at facilities relative to COVID-19. So we think we mentioned a little bit in the prepared remarks that we're excited about a broader strategy here. We've got some people counting business that is part of an acquisition we had a few years ago that we're building a solution out that we've launched. So a number of things that we've got going, and we'll see how it goes. And whether it's sort of whether the we really think the resiliency and durability that we might be able to build here is beyond just COVID-19, and we're excited to try to build on that here in the coming quarters.

Andrew Buscaglia -- Berenberg -- Analyst

Okay. Got it. Thanks, guys.

Jim Lico -- President & Chief Executive Officer

Thanks, Andrew.

Operator

The next question will come from the line of John Inch with Gordon.

Jim Lico -- President & Chief Executive Officer

Hey, John

Operator

John, your line is open.

John Inch -- Gordon -- Analyst

So can you hear me?

Jim Lico -- President & Chief Executive Officer

Can hear now.

John Inch -- Gordon -- Analyst

You can hear me now. Okay. Great. Sorry about that. Technology, right? I was wondering given, Chuck, to inform kind of your comments about North America getting better and so forth, is the implication that this is an impact from COVID flaring up and surging in the southern states in California or that you are seeing impact but other aspects of the business are superseding that? Like how to think about this? Because what you're describing isn't that dissimilar from other industrial companies. So I'm just curious kind of what you're seeing on ground kind of regionally and how that plays out.

Jim Lico -- President & Chief Executive Officer

I would see the two biggest places, John, where we see COVID impact relative to, call it, daily stuff or maybe the three places is really in the hospitals and sterilization procedures that we described a little while ago. It's getting Matco equipment in the ground or sorry, getting GVR equipment in the ground and really the Matco ability to call on customers every day. So I think as we look through and those are big U.S. businesses as well. So those are kind of COVID-related. The point-of-sale stuff at Fluke is really economic-related. You want to see better PMIs, better IP numbers. So and that's probably a global point for Fluke. But so what we're really watching for is the surgery numbers, the ability to not go back into lockdown.

As we mentioned a little bit in the prepared remarks, the lockdown really impacted Matco. April was a really tough month. But it as soon as things started to open up, it accelerated back to what we would normally call a pretty resilient business, quite frankly, historically, relative to economic cycles. And I think I saw today that average car ownership years is at the highest point it's ever been, which is a good thing for Matco. So I think that's what we're watching for. We don't want to see hospitals close back down. We don't want to see cities get back into lockdown mode, where they won't be where auto repair shops aren't open or that construction can't occur and sites can't be upgraded for Gilbarco.

John Inch -- Gordon -- Analyst

Yes. No, that makes sense. And then just maybe as a follow-up, Jim, how are you thinking about kind of strategically further M&A? And I ask it in the context of, is this going to be somewhat contingent on the Vontier separation and getting that dividend from Vontier to do the reload and lower the debt-to-cap or debt-to-EBITDA thresholds back again? Or are the two somewhat disassociated in terms of the tracks, i.e., one of them is not necessarily contingent on the other?

Jim Lico -- President & Chief Executive Officer

Well, I think first and foremost, we always said this year would be a bolt more likely a bolt-on year because of digesting a number of things that we did last year as well. And I think that's been our thesis, although you never can be we've looked at some fairly sizable things. So I think at the end of the day, we've continued to be busy. I think there continues to be a couple of things that are impacting the M&A market. I know some of our peers have talked about this. One is the bid-ask spreads are still not in alignment necessarily.

It's hard to distinguish the COVID impact from things, and that takes sometimes an additional quarter or two of results to work through with a seller. The second piece of it, it's just harder to do due diligence, right? We can't get on-site in many cases. We can't meet people. And so I think things are slower by nature of those two aspects. And then but I think we've been busy. We continue to think that there's opportunity. I wouldn't necessarily say that it's tied to the Vontier separation but because of the fact that really, we never were really tying those things together to begin with. But certainly, Vontier, certainly, when we complete the Vontier transaction, it certainly gives us more firepower and more opportunity.

John Inch -- Gordon -- Analyst

By the way, just when you say bigger, do you mean bigger bolt-on? Or you mean bigger as in something that's fee related?

Jim Lico -- President & Chief Executive Officer

Yes. No, it means the things that were bigger. I mean we haven't necessarily said we're not going to do anything because there are certain things that we've been cultivating for several years. And we can't say, "Hey, do you mind selling at a different time?" So things are going to sell when they're going to sell, and we have to be responsive to that. But we're obviously taking into account the economic conditions and all the things that might impact returns. So it's a complicated answer, hence, maybe too many words here. But I think at the end of the day, we're focused on making sure we can create value in a focused, prioritized way that probably ends up being more bolt-ons than not. But we are we do have our ear to the railroad if there's other opportunities.

John Inch -- Gordon -- Analyst

Appreciate it. It's complicated time. So thanks very much.

Jim Lico -- President & Chief Executive Officer

Yeah. Thanks, John.

Operator

Our final question will come from the line of Scott Graham with Rosenblatt Securities.

Scott Graham -- Rosenblatt Securities -- Analyst

Hey, good evening. Thanks for taking my question on the overtime here. Just wanted to ask two questions. You told us that price was up 70 basis points. Was were materials lower than that? Were you positive on the price cost side?

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Scott, yes is the short answer. There's a good we have our teams, procurement professionals. And they do a good job every year, and this is no different.

Scott Graham -- Rosenblatt Securities -- Analyst

Got you. And then the second one is the Group III and Group IV. So the sales on those businesses, a little bit heavier. And the second quarter was kind of all about lockdowns, and people were doing break and fix as needed, which tends to be higher-margin type of sales. So I'm just wondering, was that the case for you guys in the quarter in the second quarter, sort of the as-needed stuff, which maybe helped enrich the mix, particularly in PI? Or was that not the case? Because I'm just wondering if that's maybe a headwind two quarters from now.

Jim Lico -- President & Chief Executive Officer

No, not at all. I think when we look at what really, we have a very tight margin spread in our product lines. This is the power of FBS, quite frankly. So we don't necessarily distinguish that. The price metric really has to do with the fact that as we said from time to time that our high-valued brands are critical at these times for everyone. And so I don't think I'm looking across the groups right now and trying to think of where I could point to where I could think of a margin situation that might be different from what I just commented, and I can't find one. So I think we'll more consumables is obviously higher margin. More Matco is higher margin. So a number obviously, the software businesses are high margins, but they're some of our newer businesses. So they don't necessarily represent the highest operating profit margin. So I think as our core businesses come back that, in some respects, you might suggest, is certainly a help as we look at margin expansion in the over the next year or so.

John Inch -- Gordon -- Analyst

Understood. Nice quarter.

Jim Lico -- President & Chief Executive Officer

Thank you. Scott.

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Thanks, John.

Jim Lico -- President & Chief Executive Officer

Well, I think that concludes it, everybody. Thanks so much for going over time with us. We appreciate it. I know it's a challenging time for everyone. I hope that your families are safe and your and work is going well for all of you as we all try to manage the challenges of working virtually. We certainly are incredibly proud of the work we've done. I couldn't say enough about our 25,000 employees around the world who've just done an incredible job at making Fortive just have a very strong quarter, but more importantly, building the business for what we envision in the years to come. So thanks for taking the time with us, and we look forward to the calls. Obviously, everybody is available for calls afterwards. Thanks. Have a great evening.

Operator

[Operator Closing Remarks].

Duration: 71 minutes

Call participants:

Griffin Whitney -- Vice President of Investor Relations

Jim Lico -- President & Chief Executive Officer

Chuck McLaughlin -- Senior Vice President & Chief Financial Officer

Nigel Coe -- Wolfe Research -- Analyst

Scott Davis -- Melius Research -- Analyst

Julian Mitchell -- Barclays -- Analyst

Jeff Sprague -- Vertical -- Analyst

Andrew Obin -- Bank of America -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Richard Eastman -- Baird -- Analyst

Joe Giordano -- Cowen -- Analyst

Andy Kaplowitz -- Citigroup -- Analyst

Deane Dray -- RBC Capital Markets. -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

John Fred Walsh -- Credit Suisse -- Analyst

Andrew Buscaglia -- Berenberg -- Analyst

John Inch -- Gordon -- Analyst

Scott Graham -- Rosenblatt Securities -- Analyst

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