Roper Technologies Inc (ROP) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to this Roper Industries first quarter 2005 financial results conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Chris Hicks.

Please go ahead, sir.

Thank you, and thank you all for joining us this morning for the Roper Industries first quarter 2005 conference call.

Also participating in today's call is Brian Jellison, Chairman, President, and Chief Executive Officer, and Mike Towe, the Chief Financial Officer of the Company.

Yesterday we issued a press release for our first quarter financial results, which included strong internal growth and significant contributions from our new RF segment, and once again, powerful cash flow performance..

If you have not already seen the press release, you can obtain it from our Website at roperind.com.

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

In a moment I will turn the meeting over to Brian for his prepared remarks, after which well will take questions from our telephone participants.

We have prepared slides to accompany today's call which are available through the web cast and are viewer-controlled.

You can obtained the slides in PDF format from the Investor Information section of our Website.

Please turn to slide two.

Today's meeting includes forward-looking statements.

I would like to remind everyone of our Safe Harbor statement, which is included in the press release and the slides for today's call.

Please also refer to our SEC filings, which indicate specific risks and uncertainties for Roper Industries..

And now, if you will please turn to slide three, Brian will begin his prepared remarks.

Brian?

Good morning, everyone.

The summary here in the first quarter, of course, is that we are off to a great start.

We had record financial results pretty much throughout the various areas.

Record EBITDA and sales, we'll talk about.

Our diluted earnings per-- EPS number exceeded our original guidance of 52 to 56, and we'll explain some of the reasons why that occurred..

And then TransCore's integration has been moving more quickly than we expected.

We got,, you know, very good cooperation around the circuit, and they had a very strong Q1 right at the close, which even as little as three weeks ahead, they didn't see would be as good as it was.

The administrative activity we've been doing in TransCore is moving at a faster clip than we expected by several months, and the sourcing opportunities are ahead of schedule, in terms of what we can do there.

Technology initiatives are yielding what we expect they would, and we think they'll pay some real dividends in the second half of the year.

And Inovonics, which we acquired on February 28th, effectively will be accretive immediately to the company.

It helps us out in our RF platform and it's just an area that we think has a substantial growth.

Next slide.

If we look at the first quarter, all of these components here were up more than 50%.

Our net sales increased from 221million to 334 million, up 51%.

Our income from operations went from 33 to 52 million, up 57%, and net earnings went from 18 to 28 million in the quarter, up 54%.

Next slide.

Here, if we look at the various cash flow metrics that we think are so important, you can see that Q1 of last year we reported net earnings of 18 million.

This year they are 28, up 54%.

Operating cash flow last year was 26 million in the first quarter and was 39 million this quarter, up 51%.

And last year our EBITDA performance was 43 million in the first quarter.

This year it is 70 million, up 63%.

And if we take our operating cash flow, divided by the net earnings number for our cash conversion metric, that was 138% of net earnings.

Next slide.

We look at the progression of our EBITDA growth for the last five quarters.

You can see a year ago, starting at 44 in the second quarter, went up to 50, third quarter 56, and the fourth 63, and again growing in the first quarter this year to 70 million.

Our EBITDA margins have improved 140 basis points to 20.8% in Q1 over Q1 '04.

Next slide.

Here if we look at just the income statement, you can see that orders were up 10% in terms of organic internal growth, which is frankly better than we had expected.

And one of the great things about the portfolio mix today is that energy and industrial instrumentation were all up double digits in sales.

And on the net line you can see our internal growth is a little greater than 7%, and about 1% of that is foreign exchange.

But if you look at energy, industrial and instrumentation they were all up 10% or higher, offset by imagining bringing the portfolio there at 7.

Gross profit, you can see that is is about the same, we dropped 130 basis points but that's almost all explained by the $3.3 million inventory step-up that we had to take in Q1 for both Inovonics and TransCore.

If we go to the next line you will see the income from operations actually increased from 14.9 to 15.5%.

If we exclude the RF segment, you can see that operating margins grew 190 basis points to 16.8%.

Our interest costs went up from 7 to 10 million.

And our tax rate was 32.5%, which is consistent with what we said at the end of the year we thought the tax rate would be.

I would remind us all that each quarter we'll look at the tax rate situation and the 32.5% guesstimate proved quite good.

The reason for the increase in the tax rate is solely around TransCore, which is primarily a domestic business, and has a tax rate that approaches 38% and hurts our mix.

Mike and his team are working on ways to look at lowering that tax rate, but that would happen later and certainly not in the short run.

Next earnings, again 18 to 28 million and then the DEPS number from $0.49 last year on a GAAP basis to $0.65 on a GAAP basis this year.

If you want to adjust that number, I think you can all do that.

It was probably something more like 52 last year and 70 this year.

Next slide.

If we look at the balance sheet, here you will see working capital and our progression from a year ago.

One of the things I thought would be a test of whether we are truly getting better in this area, we closed the year well, but we were curious to see how much of an increase, if any, we would have in the first quarter, and particularly what kind of maturation of capability guys were showing in the first quarter of this year versus last year.

And you can see inventories dropped from 12.4% of sales to 10.2, and receivables were up a bit with the strong quarter, and payables and accruals are flat.

So, we wind up here with our metric at 21.2% of net working capital a year ago down to 17.9% at the end of this quarter.

On the capital structure side, we closed the quarter with $98 million of cash,, $400 million end-around revolver, and net dept to net cap at 40.9%, even though we paid down some principal on our loans and bought Inovonics for about $45 million..

So we feel we still are well-positioned for any kind of acquisition opportunities that were to present themselves in the immediate future or throughout the year.

Next slide.

Here, as we get specifically into the segments, energy systems and controls had orders up 17% in the quarter, and net sales were up 26%, mostly driven by Zetec and R/D Tech.

Compressor controls had a very strong commitment date to orders that will be released in Q2, and we expect to have stronger sequential performance out of energy than we see even in this quarter, as a result of that.

Zetec has had very substantial success with a few form of measurement technology, called the X-Probe, which is something that we gained in the acquisition of R/D Tech last year, and have launched and its adoption rates have been nothing short of spectacular.

Leveraging Zetec's customer base has been a great help to us in the ultrasonic product line we picked up from R/D Tech because they didn't have the channel access that we do, so Zetec had a historic record quarter.

If we look at operating margins, you can see they've improved dramatically in energy, and a lot of that is the terrific performance we got out of R/D and Zetec, up 470 basis points to 19.7%.

Next slide.

Here if we look at imaging, imaging had a interesting quarter.

The orders were flat for imaging, and sales were down 5%, all driven by the industrial camera business.

And, even though sales were down, our operating margins increased a bit to 15.4% for imaging, which is a tribute to how hard the guys are working on execution.

Now, the microscopy business, the spectroscopy business, and our hand-held applications businesses all grew in the quarter, but unfortunately were offset by decline in the industrial camera business of more than $3 million.

Our sales force improvements, we think, are working well, and that's why we had growth in segments that most other companies are reporting less enviable results, I can tell you.

So, we think we are doing well in the non-industrial camera business arena and hope to continue to improve our cost structures in that industrial camera business throughout the year.

We made a small acquisition that-- right at the end of the quarter, called Optical Insights.

And it actually provides some insight into where the scientific imagining business is headed with us.

It is a company that has a very unique form of providing spectral analysis.

They basically have a device that couples the microscope in a way that you get much better light reading capability.

And it is a proprietary technology that enables an interface between the camera and the microscope directly that provides a very unique solution to people, and one they will have widespread acceptance and gross sales throughout the year.

Next slide is instrumentation-- pardon me.

Here orders, you can see, are up 9%.

Sales were up 11%.

We had substantial growth in our energy markets, as it relates to the Petroleum Analyzer and Antek businesses.

And each one of the businesses that are niche-oriented did very well.

We launched something that's called the desulfurization system for pipelines.

This is a technology that we've had in-house at the refinery level, but wasn't really ready for pipeline installation.

And that's been completed and will be successful, we believe throughout the year.

Also, we opened a Czech engineering design center that's supporting stores in the rest of the instrumentation segment and soon will be providing design expertise for our energy systems arena as well, and some of the industrial activity.

It is something we've done in cooperation with the Czech government, and are hiring people out of their very fine engineering institutions.

Operating mar improved in the quarter, as you can see, to 19.8%.

Next slide.

This will be thee RF technology segment.

And in RF technology, here the sales were really ahead of plan.

That happened, frankly, in sort of the latter half of March.

One of the things we said is that the TransCore people are -- they think in terms of year-long performance, and it will take a while for us to get the quarterly orientation that we would like to have.

But we talked about it a lot, and they made a concerted effort to try to close the quarter in a strong way, and a lot of their customers responded.

And, as a result, we did a little better there than we expected we could do.

Most of the strength in the quarter came from increased tag sales to the tolling customers that we have, and substantial growth in both link track shipments and the amount of air time purchased.

Our electronic tolling leadership position, we think, was reinforced in the quarter because we were able to secure $120 million ten-year contract with the existing customer that positions us very well in terms of retention and backlog and long term relationships.

And that was a very hard-fought situation.

We have favorable demand emerging in freight matching as capacity increases.

One of the sort of odd characteristics of freight matching is that when you have almost no capacity and an over-demand for trucking, you don't need to do the freight matching work as aggressively.

But as more trailers emerge and more capacity emerges, even though the demand for absolute number of hauls is fine, people are looking for better quality hauls and so the air time purchases go up.

That's an interesting counter- cyclical measure and is working in our favor now.

Inovonics, which we acquired in February, had a terrific March.

It's a great company with a very strong leader and they've got a lot of very good plans.

And they contributed in the month, and will certainly help us in the second quarter.

Administrative cost savings, we talked a little bit about already in TransCore, and those are well underway and are giving us a little better operating results than TransCore expected.

The technology and production sourcing things take a longer time but are very much further ahead in plans.

We've got some injection molding that we do with plastics that is a interesting synergy between Inovonics and Neptune, with our Albuquerque operations in RF, it's exciting..

And then we are cooperating on channel access.

Recently, TransCore was able to have a lengthy meeting with some large systems contractors on border security and homeland security that we think could pay dividends as the year unfolds.

We were pretty happy with the operating profit level.

I think we implied to people we probably thought that the margins at TransCore would be more like 12% on the EBIT line and maybe 8% on the D&A line.

It looks like we're going to do a little better on the EBIT line than early indicators were.

Part of that, we're going to have a little less intangible amortization than our first draft looked like.

If we go to next slide.

It is the Inovonics acquisition.

Here this gives us a lot of expansion opportunity in radio frequency.

This morning, I don't know how many of you watched the CNBC talking about RF ID chips and wins -- new arena..

The opportunities to our RF ID technology just constantly unfold, and Inovonics is a great technical support vehicle for us, in terms of applications and wireless security.

They focus primarily on both security and sub-metering we'll talk about in a minute. and we've disclosed, I think, the nature of that transaction previously.

Next slide looks at the market-leading technology that Inovonics has.

We would call that the three R's, R one being range, R two reliability and R three repeaters.

If you think about hard-wired installations and how difficult and expensive they are to pull wire and connect things.

And then you have limited choices because your sensors are going to be only where the wires are.

What Inovonics gives an end-user is an opportunity to put the sensing device where he wants it, irrespective of where the wire is.

And that eases installation and reduces cost.

And the adoption rates of that are increasing.

From a reliability viewpoint, we get a lot of message redundancy with our products that are very important for people in terms of the quality of the security they have.

And repeater technology allows people to go into multi-story buildings in areas that have difficult angles to capture information.

And so we see nothing but growth for this very attractive business.

Next slide is an example of the wireless security applications that Inovonics can drive.

In office buildings and high-rises in the past, most of these people had to rely on hard-wired systems, and this technology allows them to have much more flexibility. and much less retrofit issues.

Banks, financial institutions, assisted living, just every kid of edifice that you can imagine has an opportunity for wireless security monitoring and applications.

Next slide.

Certainly on the personal security area, we think that we can do a lot with Inovonics.

Their technology is terrific, and . it is a matter of just developing more applications with better and better channels.

If you think about the ads that we've all seen where I've fallen and can't get up, that information can be transmitted in a more effective way with wireless technology, in our view, than many of the other ways it's done today through phones..

It very much complicates the facility security problem that most people face.

It gives a lot of information to people who respond to someone that they care about, whether it's an elderly person, someone is will, or what have you.

It's very good for inside applications for employees to know where they are at all times and for them to be able to have information feedback quickly.

Next, if we look at-- the next slide is sub-metering applications, That will take us directly into Neptune.

Inovonics e is the market leader is sub-metering for multi-tenant facilities.

You can see on the -- the brand we use here is Tapwatch [ph].

And you can see how it is applied in a situation where you would want to have a data collector, and then access to a wide variety of different tenants so that you can capture the usage and charge independently for usage instead of allocations.

And properties that have installed sub-metering demonstrate that you can reduce water consumption, as people have to pay directly for their usage and they understand the cost.

Next slide.

Here, we are looking at industrial technology.

In the industrial technology segment, we were up 19% on orders and 10% on sales.

So, that bodes well, obviously, for Q2.

Continued strength in industrial and water, refrigeration and energy markets here.

Neptune gained share last year, and we are confident they will continue to gain share this year in the automated meter-reading world.

And the management changes we made in Q3 last year around Cornell payed big dividends for us.

We have a new general manager and a new controller and plant manager there, who we think are doing the kind of things we would expect to be done.

And the improvements are going to give us some leverage here throughout the year.

Our operating margins improved 390 basis points, although some of that is the benefit of not having last year's inventory step-up in Neptune.

Next slide.

If we look at where we are as an enterprise now, we have 74% of the enterprise really in four markets, all of which have terrific growth characteristics and are not in the funk that you have in, say, a normal multi-industry company that's got exposure to automobile production or raw material cost/push inflation, or things that are related to residential commercial construction.

These businesses have very different demand drivers and are in markets that are much less cyclical.

And then it leaves us with the last portion of the portfolio, which is about a quarter.

Those are 15 different businesses in very unique niche markets that don't tend to have a lot of variance in their demand drivers.

You can see our notes over here -- stable growth in the research markets, limited short cycle industrial exposure, and of course, our FID has so many application opportunities in front of us, we don't see it being related too much to the economy.

Next slide.

If we look at our guidance update, you will see that Q1, even though we reported out $0. 65, if we excluded the inventory step-up it would have been $0.70 cents.

That's the inventory step-up of 3.3 million for bor TransCore and Inovonics.

We think that the residual portion of that inventory step-up will cost us another $0.02 in the second quarter.

We put guidance in in Q2 at $0.74 to $0.79.

And we think that the improvement will be driven by the areas you see here.

We have known energy project activity that will be beneficial from compressor controls in Q2.

Imagining should have very strong sequential improvement, as the new products continue to gain a foothold and some of their costs come down.

The industrial markets are continuing strong.

We haven't seen any fall-off in order patterns there.

Neptune will be seasonally stronger in the second quarter than the first, just due to whether conditions in the Northeast.

And TransCore is expecting to sequentially do better on revenue, although they are not promising any improvement on margin line because of mix.

And we'll have the benefit of a full quarter of Inovonics, which is a company with excellent margins.

For the full year then, we raced guidance from 310 to 330 to 315 to 335.

Next slide.

We look here at things beyond the nominal EPS line, which we believe are what drive shareholder value.

Net earnings continue to move up from 64 in '03 to 101 in '04 and . now 137 or more for this year.

The operating cash flow is going from 98 million in '03 to 165 last year and 225 or more this year and EBITDA from 124 to 214 to 314.

We do have a summary slide.

Summary here is successfully executing the operating strategy.

Certainly, customer focus is continuing to drive internal growth.

And, even though for the enterprise it was single digits this quarter at 7-plus percent, for energy, industrial and instrumentation, sales were all up double digits.

It was only the shortfall in imagining year--over- year performance that brought the portfolio down to 7.

The cash focus continues to drive our management behavior around margins and returns.

Our acquisition strategy and the execution of it continues to do well.

TransCore and Inovonics are both doing exceptionally well.

And we think we are positioned well for strong growth throughout the year.

We just see sequential improvement pretty much in each quarter.

We think the markets remain favorable to us.

We have got a terrific pipeline of activity that we are involved in currently that we are excited about.

We see, really, as many things as we ever have that are attractive to us that we are pursuing.

And the balance sheet leaves us with nearly $0.5 billion of capacity to do transactions with that end-around revolver, and frankly, net debt to net cap at 40 before cash in the second quarter is relatively attractive, compared to what we've had in many other periods. .

So with that, we'll open it up to Q&A.

Dustin we are ready to take questions from our callers.

Thank you, sir.

[ OPERATOR INSTRUCTIONS ] We'll take our first question from Ned Armstrong, FBR.

Thank you.

Good morning.

Good morning, Ned.

With regard to the imagining business and the industrial camera business that fell off, do you attribute that to end-market factors, and if so, which one, or was it more of a management issue?

Well, you know, it is a small part of the portfolio but it is a part that deals largely with the audio business.

And we had a new release last year that drove pretty substantial sales of products.

So, it was a difficult comparison for them.

They also had a letter of credit difficulty that postponed a shipment into Q2 and the usual gaggle of irritating things that we associated with the performance of our industrial camera business.

So, I think anybody that knows this business knows that we are very bullish on our scientific imagining business.

And we think that spaces we do business in with driving technology around microscopy and spectroscopy are good, but the guys are still challenged in the industrial camera business.

If you look at people that are involved in machine vision that have maybe benefited from a little surge in semiconductor activity over the last year, they are the only guys that do anything very well.

So, the industrial camera business is just -- it's a tough part of our current portfolio.

Okay.

And second, with regard to Inovonics and Neptune, you mentioned some benefits from injection molding.

Have you seen benefits from product marketing type synergies?

Have you realized any yet, or are any very close to being realized?

No I think it is too soon to really quantify that.

The sourcing things are much easier.

Neptune has some injection molding that we have done historically down there for their own operations that they are going to be able to support our Albuquerque cards and reader business and can support our Inovonics business and vice versa.

So, there is quite a bit of sort of production technology, if you will, and capacity that we are going to be able to do things with.

On the product side, we are, and have bid, some jobs with our cameras that are coming out of the non-industrial side of cameras with TransCore that we'll have to see how successful they are.

But we expect that we'll definitely get some benefit in channel access.

And then Inovonics is going to be able to sell and broaden the homeland security and office security applications of TransCore directly.

And we've had numerous meetings.

In fact Andy was just there last week.

So, we think that will -- it takes a while for people to understand what the breadth is of your offering and how to buy it.

So, it didn't benefit us in Q1, but it certainly benefit us in the second half of the year.

Great.

Thank you.

We'll take our next question from Mike Schneider with Robert W. Baird.

Good morning, guys.

Good morning.

First, great quarter, obviously.

And TransCore is the star.

I am wondering, just relative to your plan, what was so significantly better than expected?

We were all a little curious last quarter when it seemed you were setting the bar awfully low out of the gate for them, and now they come surging through.

Wat was the biggest difference in your eyes?

Their actual performance versus their forecast was the biggest difference.

It is the first quarter of full ownership and -- as much as we love the management team it is a great group of people, they would admit that they think on a full year basis and they gave us, you know, a very conservative view of the quarter.

We gave them back our traditional warmth and high regards to suggest they ought to try to do what they could.

And, so I think they did what they could, and they really had no way of initially reading whether they would get any customer response to sort of pick up the pace, because it is an industry that just doesn't think about quarterly execution.

They think about execution every day, but they don't think about sort of meeting a specific target.

So, I think they pushed their people, and we're surprised at what happened.

I don't think it is really atypical, when we move Roper from a fiscal company with an October 31st close to a calendar company with a 12/31 close, we all said from experience, we'll bet well have a really strong December.

And everybody else says, oh no, it is always a bad month.

And, of course, we had a phenomenal Q4 in the past year.

I think it is just human behavior to say, if you have a quarter and we're going to look at the quarter, people are-- really work hard to try to deliver what you can.

But we also had another benefit that has nothing to do with our capability, and that is we -- when we did the forecast,t we expected the intangible amortization would be higher than it was.

And so we had about $1 million of A that got converted to nominal EPS.

And that helped us by a couple pennies.

And is that 1 million in the quarter or for the year?

No, I think it could be as much as that every quarter.

We thought that the - I know, of course, what we said D&A for the full year for Neptune.

I know --

Earlier I think we thought it would be above 30.

For TransCore the original projections were approximately 32 million.

And, in the process of resolving all of the intangible amortization and so forth, we thought that it could have been higher, could have been lower.

It has finally been resolved and it looks like, at this point, it is probably below 30 million for the year.

Okay.

And I guess, along those lines, if you are looking for $0.02 a quarter boost from amortization, that's $0.08 for the year, you raise guidance by 10 and you beat the quarter by 10.

What signal are you trying to send?

Are you being conservative, or is it indeed something in the back half of the year that would temper your enthusiasm and prevent you from raising the guidance, probably mechanically, $0.15 to $0.20?

Yes, I think it is getting to know TransCore and understanding where they are.

They have very lumpy business.

You know, they were blessed with strong tag orders and a lot of air time above their expectation in Q1.

They are not going to stand up and commit that that happens every quarter.

So, if they wind up with more project revenue in a quarter and less product sales, then they don't get the kind of margin that we saw in Q1.

And so, rather than be aggressive in a commitment form, we've got a broad range in there.

I mean, it is easy for us to see how we could earn 355 but it's easy to see how we could earn 315.

And that's why we've got the guidance we do, Mike.

I just think It is going to take sort of the year.

I hope we have favorable performance out of them, but we just spent two days with them last week and we are still struggling through, look, here is how we see the leverage from the things you do.

And they are trying to learn from our concepts around that, and still only signing up for what they committed to.

And what they committed to is what is in our sort of guidance.

And whether we can get better operating leverage remains to be seen, but we did in the first quarter.

Do you believe, relative to your plan, that they pulled one specific project forward?

No, they had substantial tag sales into a couple of states they didn't expect in March.

And I don't think -- it is not affecting -- it won't affect the year.

You know, maybe they won't do quite as well in Q2 as they did in Q1 is related to that.

But they do have very favorable demand in air time at sat com, better than they expected, and we don't see why that wouldn't continue.

Okay.

And just a final question on TransCore.

You look back a year ago, they did call it 85 million in Q1 last year and they did, if you exclude the acquisition, probably 90 million this year.

Now your expectations were far lower so things were definitely better than expected.

But what should we -- how should we think about the fact that they were up, call it $5 million year-over-year for what should be probably an even higher growth business?

Yes, Chris, you want to just comment on what you said?

Well, I think the comment there is, as we've indicated, it is a lumpy business.

It is difficult to do year-over-year comparison for a business that was, not only not focused on quarterly performance, but actually had different fiscal periods last year versus what we are measuring this year.

And so it's -- drawing those comparisons, I think, is not necessarily instructive.

Okay.

Thank you.

And I think just we want to add that, you know, Inovonics is in this RF segment number, so don't discount it.

Very good.

Thanks, Mike.

We'll go next to Wendy Caplan, Wachovia Securities.

Good morning.

A couple more questions on the segment.

Do you have any sense, given the aim to please by the TransCore folks, that there was some business that was pulled forward into Q1 versus Q2?

Well, I think, Wendy, that all -- what happened is that they got better tag sales, particularly in Florida and another state, than they expected.

And one thing that we have learned in the quarter that's interesting is, they do a lot of the work for these various tolling authorities.

And they can look and talk to the people about what their inventory is and what the production schedules are, and have some influence on when people make purchasing decisions.

So I think that TransCore sees a lot of things that are happening and a lot of areas they got to fulfill growth.

I think they've now had conversations that maybe they wouldn't have had on a quarter-to-quarter basis with people, and that produced buying behavior probably sooner than it would have happened normally.

But it is better for everybody involved.

Because we are pushing them hard on working capital and inventory turns and things like that.

And it results, you know, frankly in better management.

And that happens.

So, it is hard to know whether it was a pull-in or not, because, you know, all the rest of our businesses, they have a pull-in in the last two weeks of March and then they have a pull-in in the last two weeks in June and they have another one in September.

It is the public company life.

Well, I guess it is good news TransCore can follow suit and dial for dollars.

The backlog of TransCore, I know we asked this question last quarter, and you had alluded to the mix, in terms of project versus product sales.

Can you talk about anything that you are currently aware of, as we look over the next six, nine months, that would signal a better project versus product sale quarter for TransCore?

Go ahead.

Wendy, I think what we've seen is the increasing tag sales.

We've seen an improvement in the sat com products, as both the Link Track, in-cab communication as well as the associated air time with that.

Both of those are technology-related sales that garner very favorable margins, and so we do see that improving dynamic throughout the year in technology sales.

So that certainly is a positive indicator for the business, going forward.

But our view is that every element of the business is a growth business, and we expect to see the business work on all fronts, whether it is projects, the technology, the freight matching side, sat com, et cetera, to make gains throughout the the year.

So, Chris, if I am -- not sure I understand the answer.

But are you saying that there is nothing that we know at this point that would create a significant shift in mix in a quarter -- the quarters of '05?

No, don't think there is anything that we see or would comment on about the business, relative to quarter-to-quarter performance in terms of product mix that we think is substantial or meaningful on a go-forward basis.

Okay.

And my last question is on Inovonics.

Can you just address some questions like the potential growth, what the growth rate's been, what you think it could be, how competitive the environment is, and anything on share or greatest growth opportunities, please?

Well, Inovonics sells a lot of things through OEMs.

They just launched a new product.

And one of the problems at Inovonics is that the people that we do the work for rarely allow us to use their name or explain what the product is.

But we've got one such thing that was launched, and the presumption was that the markets would buy two sensor for every sort of home-based measurement device.

In fact, the market bought many more sensors per home-based device than the OEM guy thought it would be.

The sensor side of their business is, of course, a high margin business compared to the home-based controller, if you will.

So that's good news.

They really have a variety of products that they launch throughout the year.

They have a very gifted engineering organization, particularly in the radio frequency range.

So, we would see that being a double-digit grower easily for the foreseeable future.

I think that they've had limited channel access outside the United States, and somewhat limited because of their OEM relationships in the U.S.

And we are finding ways to eliminate those problems quickly.

So I don't see any particular phase in business.

Probably the slowest growing piece of it is the sub-metering piece today.

But we think with better market awareness, there will be more adoption of sub-metering behavior in the utility system, and that will be very beneficial to Neptune and ourselves.

And it gives Neptune an opportunity to sell some sub-metering devices from Inovonics that they didn't have previously.

So we think it will benefit Neptune, it might show up in the industrial numbers instead of the RF numbers.

What I do want to say is, I think on the backlog issue that the backlog is usually related to service agreements.

And the service agreements have very stable margins, because one knows what the gross margin is, you bid on that kind of stuff.

So I think that the lumpiness will be simply around some periods will have project revenue, which is not anything other than sort of design work that doesn't carry with it very high margins.

In other periods that will be diminished.

But the underlying nominal amount of EBITDA performance shouldn't be as lumpy as maybe we're giving the impression of.

It is more the EBIT margin variance.

And then lastly, maybe we are under-explaining in RF the importance of Inovonics.

I mean this is a business with very good margins.

So, it will help support TransCore's lower EBIT margins.

And I think other businesses that we'll look at and bring into the family of RF technology will have Roper-like margins that will support TransCore's lower EBIT margins over time.

Thanks.

And one last question, if I might, Brian.

Are there any large projects out there for either Neptune or TransCore that you'll be bidding on, negotiating with-- for over the next few months?

Yes.

Yes.

Absolutely.

It is very different than an historic company.

And it's -- you know Mike and I have been involved in a number of project bids for TransCore, you know, all well in excess of $10 million, and some that are much, much higher than that.

And will it be your custom to announce those?

I think so.

I think, just as we announced this renewal opportunity that was hard-fought as $120 million over a ten-year period, I think any time we have anything that's substantive like that, we would announce it, whether it was a renewal or new, because as a renewal it removes the uncertainty of whether you might have had it at risk.

Thanks, Brian.

You're welcome.

We'll go next to Alex Blanton with Ingalls & Snyder.

Good morning.

A couple of quick things.

Your tax rate for the year, I wasn't sure what you said that would be.

Well, we estimated at the beginning of the year 32.5%.

And we said, with all of the refined work that one does with Sarbanes-Oxley, each quarter you are going to take a hard look.

And so we could have quarter-to-quarter variances.

But we thought for the year, we hoped it would be 32.5.

In the first quarter, we would have done more work on all the issues associated with tax than we've done in a quarter, other than the tax quarter.

And it did happen to come in here effectively at 32.5.

It could vary in Q2 and go back to Q3, and part of it will be the TransCore mix because you got TransCore at 38% and the rest lower, with the foreign tax credits and things we benefit from from the non-U.S. business.

On Inovonics, what was their interest in selling to you?

If they have a good outlook, why did they want to be acquired?

Well, let's see.

The simple thing is that the two founders they had that developed the company originally really wanted to cash out and do other things with their lives.

And we negotiated primarily with them and agreed that they would stay on with some consultancy activity for a while.

We have a very gifted guy running the business, Andy Drenick, and Andy wanted to be able to pursue the growth opportunities that he can see for Inovonics.

And that meant reinvesting in the business, rather than taking the money out.

They built a very fine team of people, and their hope is to build a great company and I think they will.

So selling out to somebody that can drive that was viewed by the management team as a favorable situation.

I see.

And the management team appreciated getting Roper equity in the process because they think the upside on our stock is a double benefit for them.

They got equity as well as cash?

They got options and equity and stay-put bonuses and a wide variety of things.

You paid, I think it was $35 million or what was-- 45 million.

Was that all cash?

Pretty much.

Pretty much.

The options, you have to value at a different kind of things, and the retention things will just be costs incurred with the business.

So, the two founders are not running the company?

No, they are not running the company, no

They wanted to cash out?

Yes, they wanted to cash out.

They needed cash to run the business and grow so they came to you.

Okay, that makes sense.

We haven't heard about AMOT for a long time.

And they should be doing pretty well, shouldn't they?

I mean, with all of the new process type of investment going around the world, energy and process, shouldn't they be doing well?

They should and they are.

Yes.

They are in our industrial segment, and they had very substantial Q1 improvement.

OK, so they're still pretty much in the safety shut-down mechanism business for rotating equipment?

Yes.

Reciprocating and and rotating equipment., Alex, for safety shutdown, temperature monitoring, et cetera, et cetera.

Right, okay, so the same business really as CCC, I mean same markets, different products?

I agree with that more than Chris does.

But you are -- it 's certainly is a business that has a lot to do with energy, and it is a business that we think would benefit from even closer cooperation with CCC in the future.

Okay.

One more comment.

I was disappointed that you were not mentioned in that sizable article about water in the "Wall Street Journal."

We noticed that.

We noticed some people were mentioned for products they don't have, and people like us for products that are driving behavior were forgotten.

But no one called us so we didnt get--.

Well Badger Media was listed.

That was April 14th -- April 15th in case anyone will want to back and look it up.

Okay.

Thank you very much.

You are welcome.

We'll go next to Matt Summerville with McDonald Investments.

I have a couple of questions on some of the other businesses.

Brian, within industrial technology, can you talk about both sales and order trends, you know, kind of breaking it down between Neptune and the other businesses you saw there?

And then, with respect to the non-Neptune businesses, what you are seeing from an end-market and geographic perspective there?

Well, the orders for industrial were up really dramatically, you know, were high, a very big number.

I don't know what -- you can kind of look in the data and get sense of that.

But they were very strong.

A lot of the businesses participated, not just Neptune there.

I think in the sales, you can kind of do the math and see the sales were up 10% in the quarter, and only about a point of that was currency.

So, they did very well.

And on the order line they were up well in excess of -- I think we gave you the number there -- so 19% is not a bad quarter, very little of that is currency.

What I am trying to get a feel for is if Neptune is growing faster than the rest of the businesses there.

No, Neptune out to grow 4 to 8% and last year were 10 because of the AMR stuff.

And we sort of stick to that as a modeling thing.

The other businesses are doing -- did very well in the first quarter and should do well in the second quarter.

So it is not only Neptune really driving the performance in '5 versus '04.

My other question, can you talk on the non-Neptune businesses in terms of what you are seeing from both an end-market and geographic perspective within industrial tech?

You know, actually our Abel Pump European business had a phenomenal first quarter, and it will have a much better Q2 than it did a year ago.

So we are not seeing any depression in Europe.

And Struers, which is in Europe and serves in the instrumentation market, performed very well again in the quarter.

So it hasn't seen any -- it was up over prior year and should be up more in Q2 over last year.

So we're not seeing any real pull-back in Europe in the markets that we serve.

And we really don't see any softness in any of the businesses we have.

Fluid metering had a phenomenal Q1.

But that's more really the life science business.

And Cornell will have easier comparisons, because it struggled, frankly, last year in Q2 and 3.

So I don't think -- we are not much of a barometer, compared to other industrial companies, again because there is no auto and no residential/commercial construction and no steel cost worries and casting costs.

Neptune has been able to absorb most of the cost push on brass and copper, even though that's been really hard by cost reductions in other areas.

So we don't see any slowness in industrial at all.

And then, can you comment with respect to Neptune in terms of the pace of RFP activity?

Is it better than it was last year?

Gee, I don't know about the pace.

I mean we had a very good Q1.

And our performance is better than it looks because we had some -- we used to make some supply components for people that we've discouraged.

We would like to stay in the product business.

So their sales were down a little bit as related to that, and they still grew substantially.

So no, I think Neptune is going to be at the high end of our guidance range on organic growth this year.

Okay, and then with respect-- going back to the imaging business, how should we think about comps and we progress throughout the year, given the slowness you are seeing in some of the industrial-related businesses?

I'm sorry, Mat, was that around imagining, did you say?

Yes, I'm sorry.

Yes, within imagining, how should we think about comps year-over-year as we move throughout '05, given the the slowness you are seeing in the industrial business?

Well, the industrial business, I don't think it could get worse than the first quarter.

It would be hard to imagine.

So we would see the industrial business improving in the second quarter and then improving again in the fourth quarter.

It ought to actually contribute something to the bottom line in the remainder of the year, but it's -- one of the things they've done is they've looked hard at their customer list and pricing strategy.

And we have a profitability profile by customer, and we'll be less concerned about the absolute level of sales and very concerned about the profitability of what they sell.

We are not going to do a lot of work for people and not make any money on it.

So we're more interested, to be candid, in the operating profit we get out of Red Lake, and customer selection is going to be a part of that.

Okay.

And then just one follow up on TransCore.

It sounded, obviously, that cost take-out or cost synergies are moving at a pace greater than what you originally envisioned.

Can you quantify how much cost take-out you see as a function of synergies with that business in '05 and what you expect on an incremental business next year?

No, I guess we're just not that courageous.

But, if you take out people and pretty much falls to the bottom line.

And we saw some opportunities, the management team acted immediately once they knew they would be part of the family and knew what they could get from us versus what they were buying or using from others.

So there is some direct savings associated with that.

But we've never given a specific synergy number.

Okay, and then lastly, can you comment on the acquisition pipeline?

In which business segments are you seeing the most activity now and how are multiples looking to you?

Well, the multiples are all over the lot.

If you are in an auction, the multiples are brutal because interest costs are so low and guys are able to get 5.5, 6.5 times debt coverage on a private equity transaction and so they don't have to put much equity in to get the price up to 7.5, 8.5 or more.

But we are not in very many auctions.

You know, our world is built around relationships and long-term discussions with people and things we can bring to the profile and try to make people better than they thought they could be.

And those discussion are moving ahead.

So we have a very active pipeline of things that we're involved in, and we're not really seeing any difficulty in finding the right kind of things.

But we are a little amazed from time to time at what some properties have sold for.

We wish we had a slush fund on the side to buy up all the things that people are paying too much for.

As interest costs rise, they are going to have a lot harder time covering their strategy than they think.

But we are not going to make those mistakes.

Which businesses are you seeing the most activity Brian?

Geez, honestly I don't think we could say.

We have these little bolt-on technology things that we are doing in imagining like Optical Insights and there's are quite a few of those we are involved in.

And most the rest of our focus is around things that have current RFID synergies. for us or products that, using RFID could have higher growth profiles for things that people weren't thinking about how the adoption of RFID wouldn't apply to their product range.

We are in a lot of discussion with people around that.

And w still continue to see things that we think are -- have demographic benefits , like whether it is medical instrumentation or medical components, we spend a lot of time in that area.

Great.

Thanks a lot, Brian.

Well take our next question from Daryl Pardee [ph] with Merrill Lynch.

Good morning.

Good morning, Daryl.

Who was the tolling contract renewed with?

We are not allowed to say, you know.

What geography was it in?

Well, it's north.

You got to give -- it's in the north.

East or west of the Mississippi.

Hicks is saying no.

Daryl, if you could see my face right now.

He's trying to hold me down.

I wanted to say I'd probably give you a sports authority discussion on it.

But we're just not allowed to say.

We are not trying to be cute, I mean we just --

I understand.

In energy systems, do you expect even better margin performance in Q2 with the shipments out of compressor controls?

I think typically the first quarter in the Company's performance is generally the lowest in terms of sales and margins.

And we typically have progressive performance throughout the year.

I think that's a common profile that people have come to expect out of the business.

So, absent any mix changes, we would like to see some operating leverages and grow the revenues, going forward, and improve the margins.

I think you could make the argument in most parts of the business.

So, the answer, Daryl, was yes.

Okay.

Brian, in your conversations with the Board, what are the risk factors that you discuss, as you lookout at Roper's strategic and financial goals over the next 24 months?

You know, I think from a risk factor viewpoint, we're conservative people, so we see everything is a risk.

And we talk to the Board about any potential off-balance-sheet issues, we talk to the Board about business performance.

We talk to the board about competitive pressures on a business segment basis, we look at the quality of our receivables.

Some of these business have percent accretion accounting in them.

And so we provide detailed information to the Audit Committee about the nature of those activities.

We look at currency fluctuation, we always look at hedging strategies, which generally don't sort of work for us because we don't have enough.

We have natural hedging, we explain the natural hedging that we have in the enterprise and how that works.

We constantly look at our portfolio, we look at our cash return on investments.

So we're on top of that.

Of course, we had the attestation certification under SOX. for last year.

This year we have to do that for TransCore, which is a big investment in a pretty decentralized family of businesses in RF.

So in our Board, we have a very experienced Board, as you know, Daryl.

And we're about to announce a new Board member that's a very senior person in a very large company that I think people will see as a terrific addition.

And that's about a wrap=up of what I would say.

Okay, the risk factors you just walked through were internally focused.

Are there external risk factors that you discuss?

Well, I guess you would have to give me an example of what you are thinking.

From a macro perspective.

We talk about macroeconomics.

But the reality is that the businesses are really clear.

You've got RFID is basically driven by application growth, which shouldn't have risks associated with it.

And the water business is driven by the need to conserve water and create cash for utilities.

It has very little risk in it.

And imagining business, the research businesses don't have a lot of risk but you do have constant renewal of product and very high R&D costs.

The industrial camera business is a different story.

And then you've got the things that think about, talk about, security, We do talk about opportunities in areas we are not involved, and what the risks are associated with those when they haven't been in the portfolio previously.

We do market research to support the areas we want to go after.

But there are no risk-free investments in the world, but we like our position today with 74% of our end-markets in water and energy and research and RF.

So maybe we just don't see the macroeconomic risks that more industrialized market companies would see.

Fair.

And just -- on CROI, could you remind me what companies you use as your benchmark?

We don't use a company as our benchmark, we use the universe as our benchmark.

We take each one of our independent companies within the portfolio, we look at the cash earnings they generate and we look at their gross investment, which creates a ratio.

And then we try to drive down the investment and drive up the cash earnings.

And want to get the portfolio and very high performance levels around the cash against the gross investment.

And our measurement technology is a little more sophisticated than we can provide in a sort order.

But on balance, it is basically a cash earnings being sort of the net earnings, plus D&A, minus maintenance CapEx, with a few other adjustments, divided by the gross PP&E in the business, plus their networking capital.

We have got a model we've been using for several-- many years really now that, when applied to industrial companies, gives you a pretty good idea about what kind of growth rate you need to have to reinvest in the business and what kind of cash return you need to have to generate the kind of shareholder performance that we generate.

And so, we are always looking to find acquisitions just like TransCore and Neptune and Inovonics and R/D Tech and Zetec and Struers have been, where we have relatively light gross investment and very good cash earnings.

And that's a number one filter for what we buy, and it is also a very important filter for what we keep.

But you don't benchmark the consolidated results for Roper against peers?

Oh we do.

In the proxy, we actually just measure against the S& P Industrials and the Dow.

Internally, we look at about a dozen companies, but we've been fortunate as it relates to those companies, which I don't think it is appropriate to talk about who they are.

Half of them were sort of instrumentation-oriented companies and half of them multi-industry companies.

They are becoming less useful as a base measurement against us, because we are outperforming them substantially.

So, in our case we need to be better than we were last year all the time.

And so it is really about continuing to push the envelope and making great decisions about who ought to join our family, moving forward.

Great.

Thanks.

We'll take our next question from David Smith, Smith Barney.

High, guys.

Good morning.

Good morning.

Just quickly on TransCore.

I know this has been beaten to death.

But I just want to talk about more on the margin side.

It looks, like looking forward, the margins for the quarter obviously were very good.

But what is your comfort on the margins for the full year?

I am hearing you are talking about TransCore and Inovonics cost savings.

I think you're talking mainly on the material side and purchasing there.

But additional cost savings may be emanating, as well.

And the you mentioned several times that Inovonics gets great margins.

Just looking at the rest of this year, by what you are saying it sounds like you are indicating that this kind of might be the low end.

Well, this quarter was certainly better than planned and better than expectation.

But the reward for that is very careful scrutiny about why that's not going to repeat in the next quarter.

So we're spending a lot of time helping TransCore think really carefully about its cost accounting and how it collects and measures everything.

We have got a lot of work to do with the enterprise.

And we don't know everything about TransCore.

So we have our views and our models, and they have their fears and their beliefs.

And we are learning together.

We know what they did last year.

We've taken that business apart very carefully, and we know what the contributions are for each one of their end-market situations, we believe.

And Mike and I are involved personally in every bid they have above-- I don't know, Mike, what's the threshold.

On the TransCore business it's a couple million dollars.

So we are carefully monitoring the pricing strategy and everything else.

And we don't know for sure what the margins are going to be.

They made administrative changes immediately at the beginning of the year, and they all fell directly into the bottom line.

There's no reason those aren't going to sustain themselves.

But they were very surprised by their own performance, to be candid.

And they don't know if they are going to maintain that or not, because they just haven't thought in quarterly terms.

And so they can only think about year-over-year.

And they're proud of what they did.

If they do it again in the second quarter we'd probably be a little more bullish about what we would say about margins.

But we are only 3.5 weeks into it so far.

The opportunities on the cost savings side, are they coming as well from material purchases?

Not yet, no.

But we do have opportunities there, because the biggest material things they buy that relate to manufacturing are things that we also buy and have opportunities with.

So the people that are involved in those decisions have already gotten together and visited the corresponding plants.

And I think we'll see benefits in the second half.

In fact, I know well.

So going forward, for the rest of the year, are you comfortable with the level, if we were to model at that pace-- or sorry, at that margin level?

What would you model there, David?

If you look -- you know I think last year they did $358 million of revenue in the calendar year.

I don't know, Chris, if you have given any guidance around specific EBITDA performance there for them.

But you know, we saw them as a sort of 5 to 10% revenue grower.

So if they were at 5% on 360, you get one number.

It could be as high as 380 or 390.

We've kind of modeled them in our own mind at around 12% operating margin and around 8% EBITDA.

Or sorry, you know, Dand A, for a total of 20 But you know, we think there is an opportunity for them to do a little better on the EBIT portion of the business.

Right.

You haven't specifically talked about the individual portions, you know, services, projects and products on a year-over-year basis.

Can you maybe touch on that?

You know, David, we mentioned when we bought the business that we didn't really view it as a services, projects, products business as they have historically defined it.

We viewed it instead as a business that is great technology, that addresses tolling, freight matching, satellite communications, air time, intelligent traffic, security, asset tracking, et cetera, And what we've communicated in today's meeting is their tolling leadership obviously continues by securing yet another large contract win.

We talked about freight matching, the prospects improving in that business just given some of the capacity constraints being lowered in the trucking capacity.

We talked about satellite communication, both on the technology as well as the air time side approving.

And so I think that we have seen certainly some positive indicators from that business in the first quarter.

Okay.

Is there any progress in taking both of those businesses together, Inovonics and TransCore, beyond the U.S?

Absolutely.

And examples, like where are you looking with this, Europe or Asia?

We're looking everywhere.

And stay tuned.

I think we're making real progress outside the United States, and we have got a lot of activity opened on every front that you can think of and have made quotations that people would have never have dreamed about.

So, I think there's some very exciting opportunities outside the U.S.

We hope that well win a few this year that will really be impressive.

So it doesn't have to be necessarily acquisition-driven?

For TransCore, absolutely not.

Oh my, TransCore has a real roadmap for opportunity, as we continue to invest in them and beef up their channel access in the non-transportation area.

Okay, one thing on Neptune, would it be fair to say you guys did see double-digit year-over-year growth in Neptune?

Like I think you've indicated --

I am getting-- the RD-- you know, we're sticking to our message that Neptune is 4 to 8% to 10.

It ought to be at the high end of the range, I guess is about all I am supposed to say.

Neptune had a very fine first quarter, I can certainly say that.

But the whole segment had a terrific quarter.

Neptune will do sharply better in the second quarter.

Has the New York, New Jersey contract started shipping?

I don't know whether --. they certainly would have bought some things.

I don't think much of that is in there yet.

Okay.

Are there any other large projects like that that we should be aware of that are either on the table or won?

No, what I think is really interesting is that what is driving the growth in the last several quarters is the number of modest sized contracts and the continued growth in the radio applications, which were up substantially.

And there haven't been really big contracts left.

There's ongoing activity around some of the biggest cities in the country but they're not close to closure.

Okay.

Which is actually good news because it's down the road benefits.

Do you guys see expanding this business at all into the electric side?

I know I believe Itron talked quite a bit about how they saw strength in the quarter on the electric side.

Is there any opportunities there?

There are always opportunities if you proceed there.

We have never been a fan of being in the electric meter business because we think it is pretty commoditized.

And we like selling to 56,000 water utilities in the U.S. as opposed to 10 or 12 investor-owned utilities driving the balance of power in the relationship with electric meters.

Itron, as it relates to their activity there, is certainly up.

I am not sure they could say the same about the rest of their activity.

So we are still focused on water.

Okay.

Thanks, guys.

Talk to you later.

We'll take our next question from Curt Woodworth with J.P. Morgan.

Yes, hi, good morning. have a question on the contract renewal at TransCore.

Can you talk a little bit about what encompasses that contract?

Is it mostly field maintenance, operations, network service?

Does it include any new equipment?

And can you also talk about if you see a revenue opportunity for displacing other guys that do service contracts for ETC?

I guess the answer to the first part of the question is yes, the contract incorporates a wide scope of activities.

TransCore is the only company that does sort of end-to-end work with its tolling customers and can support them from the technology and design standpoint all the way through the processing and servicing standpoint.

So it is not surprising that the scope of activity for this contract is very broad to incorporate a lot of those activities you mentioned.

I think in terms of the question about-- the follow-on question about displacing other people on the service side and electronic tolling.

I think that the core of TransCore's strategies around its technology and around being the full scope supplier, and targeting the value-add, the highest value-add components in that value chain.

And so picking up a particular service element may or may not be attractive.

I think what is attractive is capturing the customer and being able to get the recurring revenue from the technology sales, which are high margin, and then trying to win the full scope of services.

I think one of the things, Curt, you have to keep in mind with TransCore and the reason that its--we have to be very sensitive to exactly what we say because most of the customers that are buying things in the tolling area are political or state-sponsored organizations.

So there is a lot of public concern on their part about what's happening in a particular area at a particular time.

Everyone in the industry knows that the Easy Pass system is up for sort of a rebid in 2007, and everyone in the industry knows that TransCore's eGo technology and the new tags we've developed and the multiple protocol readers give us an enormous advantage and an opportunity to bid one of the biggest systems in the country that's not very much in our wheelhouse today.

So everybody looks at that.

But they don't look at all the other kind of things like this renewal.

And the people that do the renewal manage the information flow about it.

So if you were reading industry sources, there's publicly available information about activity levels and discussions.

But if we were to reveal what it was, it would place us at a very big disadvantage with the agencies that make the decision.

So we have to honor how that family of business is generated.

So we are not trying to be evasive.

We just simply can't tell you without jeopardizing our relationships with the agencies.

Okay.

And then can you talk a little bit about the competitive dynamics.

I know you talk pretty positively about your technology position, but you also mentioned twice that this was a very hard-fought contract.

So I'm just curious, are you seeing increased competition from Mark IV [ph]?

Talk a little bit about the dynamics around that.

I wouldn't say it is Mark IV.

Any time you get things that are involved in addition to the product side of it and involve long-term maintenance agreements and support activity, that level of activity is very aggressively bid.

There is a lot of people that can serve this that will bid that work.

And certainly they are very aggressive competitors, but we have standards about what we'll do and what sort of margins we are willing to take, and whether we think there will be a long-term pull-through of product or not.

And so I think It is not hard to know where we are coming from on that.

We don't -- it is not an easy world to compete in.

You don't have a lot of pricing power because the entry barriers on service are relatively low, whereas entry barriers on technology and design and long-term contracts are very, very high.

Can you just remind us kind of what percent of your revenue breaks down between field and operations maintenance, as opposed to meters, software sales?

I am going to defer to Chris in terms of what he said.

Curt is asking what percentage of TransCore's revenue is related to service, field maintenance.

I think there is a point at which we just got to stop breaking it down into this multiplicity of stuff.

Historically, we did communicate that about half the business was service related. , about 20% was project related and 30% was product related or technology product related.

But that's not a level of reporting that we support, going forward, because it is not really how we manage the business.

We manage it in terms of the tolling, the freight matching, the sat com, et cetera, that we've described a couple times earlier in our conference call.

Sure.

And just lastly, have you seen any more traction on open road tolling?

I know that's one of the kind of future growth drivers for the business

Absolutely, we see more and more opportunity and we have more and more discussions with more and more public figures about it on an ongoing basis.

So yes, we think that will-- that remains an important opportunity for us and the industry.

Thank you.

We'll go with a follow-up from Mike Schneider, Robert W. Baird.

Just focusing on TransCore margins for a second, from your comments, Brian, it looks like you had forecast about 20% EBITDA margins, 12% operating margin for the year those guys.

And, given they are already at 12% EBIT margins, what does that imply then for the back end of the year?

Should we be thinking about this business as mid-20's out of the gate from now on?

No, I think that would be too high.

We -- remember that they paid that inventory step-up inside the numbers here in the quarter.

So their piece in that was pretty dramatic.

Our view of their performance, and their view of their performance about how predictable it is going forward, is different.

We have a lot of respect for the management team.

The management team is is very, very conservative about what they think is happening for the year.

And I think are favorably stunned at how well they did in the first quarter, and not prepared to commit to repeating that in two, three, and four.

I think our control systems and the work Mike has done with the control function mitigates against going backwards.

We like to get a baseline in place.

And we like to hold and improve that baseline.

And so well have continuous discussions and monitoring about this, including just as we had a two-day quarterly review, we're going to have an April review and May review to see where we are and make sure we are taking advantage of all the opportunities that they've identified.

So we're -- that's about as as I can go on that, Mike.

Okay.

Somebody's got to teach these guys how to sandbag better until the fourth quarter accelerators kick in, right?

Well, I wouldn't say that.

I think these are very great guys and they had a terrific quarter and had some tag sales they didn't see coming.

And that might not reoccur in the second quarter.

Sure.

In imaging, the Optical Insights acquisition -- I apologize if I missed it.

Any size parameters you can give us around this thing?

It is very small.

It is a small number of employees in Tucson that we are going to put into our Photometrics business.

With their technology they have been buying our camera and applying the logic to that camera, and could have done it with other people's camera.

This gives us an opportunity to lock the solution, which is very proprietary, into our products as well as theirs and bring them into the family, which is done.

They are going to move into our Photometrics operation immediately.

And a final question on energy margins, you are up 470 basis points just in the first quarter over last year.

If you continue that run rate, and I realize they sequentially build, so I am starting to extrapolate out and coming to a number that this business should be doing 26%- plus operating margin for the year.

Is that indeed reasonable?

Well, you look at last year's energy systems number, I don't think it was 26% for operating margin.

It may have been in that wheelhouse with EBITDA performance.

I think it has been a low 20's sort of EBIT number.

That does conclude today's question and answer session.

At this time I would like to turn the call back to Mr. Hicks for any additional or closing comments.

We just want to thank everyone for participating in today's call and your continued interest in Roper Industries.

Thank you.

All right.

Thank you.

That does conclude today's conference.

Thank you for your participation.

You may disconnect at this time.