Roper Technologies Inc (ROP) 2006 Q1 法說會逐字稿

Good day, everyone.

Welcome to this Roper Industries first quarter 2006 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 Vice President of Roper Industries, Mr. Chris Hix.

Please go ahead, sir.

Thank you all for joining us this morning.

Joining me on the call this morning is Brian Jellison, our CEO and Chairman, as well as our new Chief Financial Officer, John Humphrey.

Welcome aboard, John.

Yesterday afternoon we issued a press release announcing record first quarter results as well as our market focused operating structure.

You can find a copy of this press release in the news section of our web site, roperind.com.

The press release also includes telephonic replay information for this morning's call.

On our web site we have also published revised quarterly segment financial information for 2004 through the first quarter of 2006, reflecting the Company's new segment reporting structure.

You can find this information in the investors section of our web site.

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

A link to the webcast and Pdf formatted slides are available also in the investors section of our web site.

If you will turn to slide two, you will see our Safe Harbor statement.

Today's call includes forward-looking statements so you will want to review this page and also refer to our SEC filings, which indicate specific risks and uncertainties for Roper Industries.

Now if you will please turn to slide three, I will turn the call over to Brian Jellison, Chairman and CEO.

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

Brian?

Thank you, Chris.

You may have noticed that he was introduced as the Vice President of Roper.

Both he and Paul Sony were elected Vice Presidents recently and congratulations to Chris, in addition to his investor relations responsibilities is assuming a good deal of business strategies and internal business development responsibility for the enterprise and that's a well deserved promotion.

Thank you, Chris.

And the same with Paul.

Paul remains our principle Accounting Officer an is Vice President and Controller.

If we look here at our first slide, first quarter review, you'll see that we had a record Q1 orders in sales, profits and cash flow.

Our diluted EPS number was $0.42.

If you exclude the CATs conversion that we've discussed before, it would have been $0.43 against our guidance of $0.37 to $0.40 in the first quarter.

We had basically taken that additional $0.03 and rolled it into the guidance, as we'll discuss later.

It also included eating the cost of about $0.02 on the year on year impact of options and related equity compensation expenses.

We will explain today a new segment structure that takes us from five reporting segments to four and more closely aligns with how our end markets work and what our reach is into those markets.

We do have a new CFO and Vice President, John Humphrey, who started on Monday.

John, as you know, is from Honeywell, is a graduate of Michigan and actually a undergraduate at Purdue University.

Since I was an undergraduate at Indiana, that's been an interesting beginning for the two of us as we trade stories.

Notwithstanding that, he'll do well.

We really have had strength across the board.

And if you look at the next slide here, slide four, you can see Q1 performance on net sales.

We were up 15%, our net orders were up 19%.

Our EBITDA was up 24%.

Net earnings were up 35% and the operating cash flow in the quarter was up 48% year-over-year.

Next slide.

What was particularly encouraging about the first quarter is the internal sales growth was really strong all across the board with the exception of one business, which had a very large divot that's going to move into the third quarter and part of it into the first quarter next year, which is Zetec, we'll talk about when we get to the energy segment, which pulled down almost two points of organic growth in everything we did.

Our radio frequency technology section, you can see, grew in excess in that quadrant of 10 to 19%.

The industrial business excluding FX had internal growth close to that 9% target.

Imagings growth, as we said, was above 20% and energy, if we exclude Zetec, was close to the high-end 5 to 9% quadrant.

The overall enterprise grew at a double digit rate internally in the first quarter.

Orders were stronger than sales.

Orders were really spectacular.

Our radio frequency segment grew well in excess of 20%.

The industrial business in excess of 10%, imaging in excess of 20, energy, excluding Zetec, at the high-end of the 5 to 9 channel and the total Company well up into the 10 to 19% range, in fact, 14% of internal growth.

And then acquisition growth on top of that was another 7 points.

If we look at the next slide here.

We'll look at those top-line parameters.

Net sales, as you see, went up from 334 million in the first quarter of '05 to 383 million in the first quart of this year, internal growth of 10% and an FX pullback of about 2.

Our net orders, you can see, went from 331 up to 393 million, internal growth of about 14% and then FX impact of negative two.

Next slide.

We look here at our cash flow.

You can see our EBITDA went from about 70 to up a little over $86 million in the quarter.

That's up 24%.

The EBITDA margins were up 180 basis points over the prior year to 22.6 in the first quarter.

Our operating cash flow, you can see, went from 39 million last year to 57 million this year, up 48%.

And if you take the operating cash flow and divide it by net earnings, you see our cash conversion number was 152%.

Next slide looks at sort of our EBITDA trends.

Here you see in the first quarter, the trailing 12 months in the first quarter of '04 we were at 112 million, last year at 231 and this year, with continuing acceleration, at 352 million.

So we've more than tripled EBITDA on a trailing 12-month basis in the last two years.

We consider the EBITDA performance and guidance of 390 and above for this year to be very solid.

Next slide looks at our asset velocity.

Here you can see that once again in a quarter-over-quarter comparison, we continue to bring down the net working capital as a percentage of annualized sales.

In the first quarter of '04 it was 21.2% of revenue and in the first quarter of this year it's down to 14.9.

So we picked up another 300 basis points reduction in the first quarter of this year over the first quarter of last year.

Inventories below 10%.

Receivables at 16 and you can see the net working capital benefit from the payables.

If we look at the next slide.

Here we look at the financial position of the Company as we sit today.

We have an undrawn revolver of about 383 million.

Our total debt is 865 million.

Cash on the balance sheet at the end of March was 67 million.

So our net debt number was down below 800 million to 798.

That brought the net debt to net cap number down to 38%.

If you look at the financial ratios, a net debt to EBITDA was a little below 2.3 and EBITDA to interest coverage above 8.

These are both very strong positions for us.

The next slide.

We wanted to talk a little bit about CapEx because what some of the noise that may be out there this morning could be related to people looking at an outsized CapEx in Q1.

It's a very unusual development and had to do with our Houston facility.

If you look here, we went back to show you CapEx as a function of revenue by quarter for 2003 and 4 and 5 and the first quarter of this year.

We've always said we expect CapEx as a function of sales to be in the 1.5 to 2% range and closer to the 1.5.

We have had this little aberration in the first quarter this year when CapEx came in just a little bit under $10 million.

But 4 million of that's a nonrecurring one-time situation around the Houston facility build-out and an opportunity to negotiate a situation with an extremely low lease rate if we did the build-out instead of the builder.

And we decided to take advantage of that.

It means a substantial cost reduction for us and it is a one-time investment there.

And we think we'll bounce right back to a more normalized 5 to $6 million quarterly run rate.

We expect the full-year CapEx for this year still to be not higher than about $28 million, even though there was this larger first quarter number.

Next slide.

If we look here at the income statement, you'll see the sales are up about 15%.

The acquisition's in Civco and Medtec are very much on plan.

We told you we expected them to do about $85 million or more in 2006.

They're growing at a fast enough clip.

It starts out a bit slow and then continues to move.

They are right in line with our expectations.

We think we have some things that are going to round them out in the [bull pen] area as the year unfolds.

Gross profits you can see reached 50.3% in the first quarter, up from the 48.7 of last year.

Income from operations was up 30%.

Our margins went up from 15.5 to 17.6, so we picked up 210 basis points in operating margins.

You may remember in the first quarter last year we had some inventory step-up.

Of course we had a little bit this year.

But the variance there was about 80 bps.

So we still had 130 basis points pickup in operating margins, even excluding the inventory step-up.

Here you can see tax rates a little bit higher as we continue to get more U.S. content from TransCore.

Net earnings were up 35% from 28 million to 38 million.

So we generally like that profile of sales up 15 and net earnings up 35.

The DEPS number, as you can see, with a little bit of that CATs dilution is up from $0.32 to $0.42.

If you exclude the converts, the DEPS were up 34%.

If you look at '06, you can see just that notation.

There was $0.02 of that equity number, if you added the 2 to the 43 you'd have been at 45.

Next slide.

If we look here at 13, we want to remind you about how the dilution on the CATs products works.

When they were issued, they were at $24 a share.

They had a up of 32.5%.

That got them to the 3180.

And then they had another 20% up for the coco provision, at 3816, I think it was.

Once you reach that, you have to start counting them.

That happened in the fourth quarter of last year.

You can see we've got a sort of a graphical equation where you can see what the dilution is.

At the end of the third quarter, March 31st, the share price was 48.63, bringing in that level of equilibrium that you see here.

There is one benefit, of course, of the CATs situation today.

It's a fixed 3.75% interest rate, so we are avoiding any pressure on the rising interest rates for the $230 million of underlying debt like activity you have.

Next slide.

The move to the market focus segments is an important thing for us.

When we moved away from sort of independent businesses reporting in an unstructured way in 2003 to segments that were driven by common competency, the reason for that is we felt in our 2002 planning sessions that there were a lot of things people could learn from one another and a good deal of competencies that ought to be low hanging fruit that would get us better operating results.

We did that.

Of course it's worked spectacularly well for us.

As we went through this prior year planning and have continued to look at segments and acquisitions, we felt strongly that it was time really to take businesses out of a place like instrumentation, which was really product centric, into a more market centric portfolio.

We'll explain that here in just a minute.

This move, we think, gives us better global reach to customers where we can talk about more of their applications and more of the solutions that we can package.

And more product development we can have with them in areas that will benefit our share of their business.

We also think the improved structure gives us, in addition to the channel reach, some cost opportunities from scale issues, particularly in energy, that you'll see in just a minute.

We look at the next slide, our market focused realignment here.

We have four reporting segments now, RF Technology, scientific and industrial imaging, industrial technology and energy systems and controls.

In this grid, you can see that for RF Technology, of course, we didn't have to move anything into that.

But in energy, we took the PAC and Antek brand and moved the PAC business in under our energy systems reporting category.

And we also took from industrial technology, in the right hand corner, the AMOT business, which had been reporting in industrial and we're moving it into energy, because PAC and AMOT, along with the existing energy businesses, really do create a synergistic opportunity for us.

If you look up at the imaging, we took Acton out of instrumentation.

This is a spectroscopy business that we have already married with Princeton Instruments and moved it into the imaging business for reporting purposes.

And then we took Fluid Metering, which is a wonderful company out in Long Island that's primary customers are people like Abbott Labs, and are moving that into the medical segment portion of imaging.

Then we have Uson and Struers, both of which are really testing based operations, but very much apply to industrial markets.

So both Uson and Struers are moving into the industrial technology reporting parameter.

If we look at the next slide.

This is a detailed look at imaging and its performance in the first quarter.

We have FMI and Acton, which have joined the segment.

This very much complements the medical and research focus of this segment.

Medtec and Civco, the integrations complete, Charles [Klaason] is running the entire operation.

We've got our own control people in place and the manufacturing people starting to do the things that we expected to do.

And that's going well and we think in this quarter we're likely to announce another acquisition that bolts in with those.

Orders are up 52% in this segment.

Sales are up 56% and the internal growth is a little over 20%.

As you know, from time to time the imaging business has been a tough thing for Roper.

And we think we've done a lot of things, all of which are bearing fruit, as you can see from these numbers.

We've continued the success of new products in imaging.

I think the focus selling activities that we put in place last year with the consolidated operations has made a lot of difference.

And we're looking at some target markets that historically we didn't participate in.

From an operating profit margin, you can see we're up 280 basis points to 19.6%. 19.6% in the first quarter for imaging is a far cry from what it used to be.

So we think we're very much on track here.

Acquisitions certainly helped, because both Civco and Medtec have good pretax margins.

All of the businesses that used to struggle had incremental margins in the quarter from internal growth in excess of 30%.

Next slide is industrial technology.

Here you see we've brought Struers and Uson into the segment.

This segment, if you exclude the 3% FX impact, orders were up 11% and sales were up 8, largely driven by Neptune's automated meter reading and RF growth.

We had very strong orders and results in the small ARB and PIT businesses.

And they, once again, have done a great job in cost reduction.

Just fantastic work with batteries and vendors and, frankly, starting to get some rewards from the CapEx investments we've made, which were pretty modest, in Neptune.

Struers global consumable sales were very strong again in the quarter and they carry good margins.

And really the industrial energy pump markets were strong.

Roper pump had a spectacular quarter.

Operating margins improved 240 basis points to 22.1%.

That was partly due to the mix of things that happened in the quarter.

But the operating leverage we got from incremental revenue in this business was over 60% in the quarter and, obviously, with the gross margins they have you're not going to get that without a lot of work.

And a good deal of cost reduction activity has been put in place.

As you can see, we're not getting the cost push and play inflation problem from materials and energy costs that a lot of people experience, as we're able to either offset those with cost reductions or pass through those costs in pricing.

The RF margin improvement contributed quite a bit, because we do have a lot of radio frequency technology inside Neptune and we think, well we know we've made some big cost breakthroughs in that area with help from others.

Next slide.

If we look at 18 on energy systems and controls, you'll see that that segment now includes both AMOT and PAC.

Both those businesses are doing very well.

And the segment really would have been up closer to 10% growth if it hadn't been for Zetec, which had just a disastrous move out from people in terms of the number of outages that they're probably going to be able to do in the first half of the year, which is beyond their control.

It's not lost business.

It's just deferred.

They were down sharply in excess of $5 million in the first quarter.

If we'd had any normalcy there this would have looked much stronger.

But most of those things have already been scheduled for the third quarter, so we feel confident that they'll still come through and have an excellent year for the Company.

The metrics business, which has moved into the integrated operation in Houston, we're sort of trying out a new business system that we think is scalable.

That one in place in metrics and the result we've scheduled a lot of orders into the second quarter to make sure we don't have a lot of difficulty as the system is coming live.

Operating margins in the segment were up 90 bps in the quarter to 21.7%.

Some of that was driven by product rationalization in PAC and favorable mix in our AMOT business.

And the Houston consolidation really positions us, not only for more growth in the future with customers, but we think better service in general.

We had a similar strategy in place in 2003 when we invested a little money into Struers and created a new facility that was focused around after market activity in addition to just factory throughput.

And that's what we have done in Houston and the results in '04 and '05 in Struers prove it's a wise concept.

If we look at the next slide you'll see, and those of you who have been around to our businesses, what a difference this is compared to the nature of these small independent entities that we had around in the oil patch.

So now you have really metrics and PAC and compressor controls, and its focus in oil and gas, at least, and AMOT all in the same energy operation.

In Houston we did, as we say, have a nonrecurring CapEx charge of about 4 million in the first quarter that is over and done.

It has a very nice payback associated with it because we're paying about $3 a square foot for the facility.

Synergies rapidly developing within the business.

You can imagine, as you get everybody together, there are a lot of sourcing synergies.

There is a lot of customer service synergies.

There us administrative synergies.

And all those things will unveil themselves throughout this year and next.

We particularly like the new business system that is being put in place.

We won't give it any advertising credibility here.

But it's something that's not only scalable throughout energy, but probably can be walked to some of our other locations.

It wraps up our CRM models and our cost models, financial models and MRP models into something that we think's going to make customer service a little better for our energy business.

With that improved service and with engineering consolidated in one location, we think we're going to have even better growth in the future.

Next slide.

If we look at RF Technology sales were up 18%.

Orders were up 36%.

I know we had incredibly strong orders in the third quarter last year and some falloff in the fourth quarter and we're back with an incredibly strong order.

You can continue to expect we'll have some lumpiness in how these orders come in, but the secular nature of what we're doing in RF Technology's going to continue to drive demand.

Very strong order and sales, as you can see.

Our [Egotag] technology is being rapidly adopted by more and more people.

And that carries with it a lot of benefits for us.

The next generation rail tags are out being delivered today and the ramp rat on that is running at a faster clip than some people expected.

We've had a lot of traffic projects which have kind of moved forward.

There's a lot of information in the marketplace about people wanting to experiment and do different things.

That's benefiting us.

Then we've had some complimentary product introductions, more things for our freight matching businesses to sell.

They've done a good job in capitalizing on that.

We've also been pruning some of the lower margin projects that are ITS operations, looked at so that we get them focused on things that will drive value in the future.

Operating margins grew 490 basis points in the quarter to 17%.

A lot of that is from improved business processes.

We've got fewer people doing more things today than in the past and in a better way with better service.

The prior year we did benefit from the inventory step-up in this business, so that of course helped the margins here.

And then we had a favorable hardware mix in the quarter and think that trend will continue.

Next slide.

We look at the acquisition program.

We still have a tremendous amount of things that are available that we're looking at.

And far down the road on a couple of smaller transactions that we're very excited about that we think will close soon.

They remain pretty much in the RF and medical space, and sometimes in the security imaging arena.

Significant financial capacity, we've probably never been better positioned than we are today in terms of our ability to easily finance transactions.

We got growing cash flow, cash earnings were stronger in the first quarter this year.

And if you annualize them, they are stronger than the last year's actual full year, which I think some people have missed in looking at these numbers.

The debt to EBITDA ratios and the interest ratios are outstanding.

And we do expect to close a couple transactions very soon.

Pipeline's very full.

All of us here can attest to that.

Next slide.

Our T2 guidance, as you can see, is $0.49 to $0.51 a share.

And that, of course, excludes the effect of any acquisitions we might make and the dilution from the CATs.

We do expect higher sales in the second quarter sequentially, particularly from energy and industrial segments that had strong deliveries that we know will occur in Q2.

And those higher sales will expand our margins even farther in the second quarter.

Next slide?

If we look at our fall year guidance, we were at $1.95 to 2.07 on the nominal.

The DEPS EPS number we beat by $0.03 in this quarter, so we just added that to the 195 at the bottom of the range and moved the top up $0.01, so 1.98 to 2.08, since we are only in the first quarter of the year.

If you look at EBITDA.

EBITDA we said would continue to be above the $390 million area for the full year and the cash flow from operations in excess of 280.

Next slide.

If you look here at the summary, you'll see the strength across the board in Q1 with operating cash flow at 48%, cash conversion at 152% of earnings, orders up 19%.

A full pipeline of acquisitions and opportunities that we're excited about.

And the new market focused operating structure is really very good for us.

And we've spent a lot of time in this week and, frankly, in the weeks before, with John Humphrey and I mulling over the organization situation and how we look at transactions, the deals we're involved in.

With that, I want to give John an opportunity to comment on his joining the team.

So if you would?

Thanks, Brian.

I appreciate it.

I am absolutely delighted to be a part of the Roper team.

I mean, the track record of success that Roper's been able to demonstrate in terms of growing the Company and really creating an awful lot of shareholder value is something I'm very, very excited to be a part of and I look forward to the coming years together.

Well, I can tell you from our normal week here, it's earnings week for us just like it is for so many of you.

That's been a wonderful experience for John to get intimately involved in understanding how this all goes together.

And he has already made a lot of powerful contributions.

So this market focus structure, we think, really does expand our global reach with customers and we think it will drive both profitability and growth.

And with that I will open it up for questions.

Dustin, we're ready to take questions from our callers at this time.

Thank you, sir. [OPERATOR INSTRUCTIONS] We'll take our first question today from Wendy Caplan with Wachovia Securities.

Good morning.

First congratulations.

John, welcome.

I'm thinking about this Houston facility, Brian, and I'm wondering whether the next segment at Roper will be real estate?

Sounds like you showed new expertise yet again.

Although we have crushed everybody about the capital, but it is a lease so we'll take it.

$3 a square foot is pretty good.

Yes, it is.

Even in Houston.

It is.

The question that I have about that is what does that new facility speak to in terms of the opportunity for margin expansion in energy?

Well, we think it'll continue to improve in a couple ways.

When you walk through it, and we'll invite people there soon, it's an open architecture situation so that you have just seamless transference between PAC and AMOT and metrics.

Everybody is in the same general area.

It's an open office environment with some small conference rooms.

There is a much better customer training facilities and much better product demo capability, so that we can bring people in and do a lot of training that we've done successfully in other places that, frankly, in our former facilities they just weren't really set up to achieve that.

Administratively, of course, you had four locations, so you had four receptionists and the whole story that goes along with those things.

And we've gotten supply chain people.

We've added some real strength into the businesses.

So I think you have to give that some time to work.

But we would expect a pretty substantial margin benefits out of this.

We've consistently outperformed in Struers the last couple of years, to most people's models.

It's largely due to the fact that we've been able to drive more after-market revenue with better customer in that they see faster turn around and less cost per transaction.

We think we'll do exactly the same thing in energy.

It's a little hard to predict how much of that is in the second and third and fourth quarter, but our margin should expand in that business throughout the year.

Thanks.

And if I could just continue on a theme.

Margin and R.F., you spoke about the mix, the pruning the low margin projects.

Can you talk about specifically a little more about those and also the order book?

What does it look like on a margin basis relative to sales in the quarter?

Yes, Wendy, it's Chris.

The technology sales were very widespread.

As we mentioned, we had both the tag technology for the tolling applications.

We had tag technology for the rail industry.

As you know, we introduced the next generation of rail tag, which offers incredible benefits for the customer.

So we are just now starting to roll that out to North America and will be rolling that into China as well.

And we've got the same technology that we use for some of the mass transit rail applications that we're doing very well in.

So the technology's rolling out.

That does have favorable margins associated with it and on a year-over-year basis gave us a nice margin comparison.

I think as we look forward again, the business is a bit lumpy and I think that we're encouraged by the fact that we're getting rapid adoption of this new technology.

But we recognize that we also have a very broad book of business in traffic and other areas, which may not carry the same level of margin.

I think we're encouraged about the backlog and the growth in the business.

And we see, as we've said all along, we see additional opportunities to continue to move the margins up over time in this business.

Thank you.

I just want to say there's a lot of amortization inside R.F.

So the operating margin's pretax aren't the only thing to be looking at.

When you look at the noncash charges that go into the amortization, the margins are really in excess of 20%.

And there's not much about the A portion of radio frequency that will change for a little while as we are doing the amortization process.

So there's some upside in the margins, but from quarter to quarter we'll expect to see some variance.

I wouldn't be surprised by a 75-basis point variance in one quarter over another because of mix.

That's very difficult for us to predict because of the hardware cards and reader shipment patterns are generally not controlled by us but by our customers.

So next question.

Sorry.

We'll go next to Curt Woodworth of J.P. Morgan.

Question on the order rate for R.F. Technology.

Brian, can you give us a sense of how this splits out between the electronic tolling or on the asset tracking side?

And a separate question, with some of your next generation technologies like the Ego and the rail pass, can you give us a sense on maybe the competitive dynamics in this industry?

Do you feel like you're taking market share as well as experiencing good just end market growth here?

Curt, let me tackle the growth issue and, Brian, maybe you can tackle the strategic longer term issue.

On a growth basis, the growth that we've had has been actually fairly broad based, so we're seeing growth in the tolling and traffic areas, which we talked about, obviously, for three consecutive quarters.

We've also talked about the success we had on the freight matching side and in addition to that on the technology side.

So it really is a very broad based growth dynamic in this business.

When we bought this business, we recognized that it had multiple paths to growth.

We've been excited to work with the management team to ensure that we capture those opportunities.

And more importantly, continue to expand additional paths or growth paths or opportunities for the business.

Brian, did you want to comment on sort of the evolving competitive landscape?

Well, I think it's -- the secular growth trends around tolling are favorable.

And it's a case where you're just going to have macroeconomic growth taking share from one side or another.

It's always good for us when we do it.

But you're going to get growth out of just the general market trends, Curt.

So if you look at the secular trends in the electronic tolling and the amount of new projects that, I guess, are coming out for bid.

I'm just trying to get a sense of other guys in the market,, like Mark IV, who are coming out with new technologies, too.

Are you running more than your fair share of these new projects, basically.

Since we consider our fair share to be all of it, we're not winning our fair share.

We continue to try to make improvements.

Okay.

And one last question, you mentioned on the acquisition near term, R.F. and medical.

In R.F. do you fell like the acquisitions you're looking at are within the same end markets that you currently participate in or are there new tangentle areas that you feel like you can get into that you are not in today?

Both situations, because we have a lot of technology driven by our people in San Diego and Canada and other places.

So there are a lot of things that we're looking at.

I think our next announcement will be very much in the sweet spot of what we do that's going to expand the category that will be of interest.

Thank you very much.

We'll go next to Mike Schneider with Robert W. Baird.

Good morning, guys.

Good morning, Mike.

Just on the guidance, you mentioned you raised the lower end by $0.03 which was to beat this quarter.

You've also, presumably, absorbed another $0.03 of dilution at today's current stock price for the balance of the year related to the cocos, is that right?

It just depends how it all goes in terms of the share price.

It's every day you calculate the effect to get that mathematical number.

It might be better.

We can go into that if anybody wants to, separately I think offline.

So it's just the amount of money above the trigger point and the share price and then you divide it on that day by the number of shares that are created by that stuff.

And the guidance excludes the CATs really, we've said throughout, so that people would make their own judgment.

If we say the 198 to 208, it's excluding whatever occurs with the CATs.

It excludes going forward what happens with the CATs.

But given -- .

They are in there.

They are clearly in our number.

Our $0.42 included eating $0.01 of CATs in the first quarter.

Right.

By not adjusting -- again the share count reflects that, so by not adjusting the guidance at today's stock price, you've assumed or you've absorbed $0.03 more of dilution going forward for the year.

I think our position is that the guidance excludes the effect of the converts.

We'll continue to report GAAP earnings per share and we'll continue to alert people as to what the effect of those converts are.

Folks can triangulate on where they think the ultimate dilution effect will be.

I think most folks have been talking about this kind of 2 to 3% range for the year.

But again, going forward the share count in the model is as of quarter end and presumably reflects a high 40s stock price.

That reflects the average for the quarter and it's not a simple average of beginning and ending.

It's the daily average of the share price.

And I think in the quarter it actually was in the low to mid 40s.

Okay.

Fair enough.

And then industrial tech as a segment.

The organic growth number 5 to 9.

Could you nail that down for us?

Orders were up 11 including the currency.

What was organic growth specifically in industrial?

And that leads into my next set of questions.

We said in the slide that it was 8% on revenues, on sells.

It was 11% on orders.

That's the comment in the slide.

So Struers is doing well.

Industrial and energy, those businesses are presumably screaming right now with the economy and their end markets.

It begs the question, what's going on at Neptune.

It sounds like that was probably low to mid single-digits.

Could you give us a sense of where they are in their project deployment, kind of their elephant hunting and all of the dynamics there because I think I think people are assuming that business is growing below market right now.

No, I think we are hesitant to talk about each one of the segments.

Neptune had a record first quarter.

The growth is certainly -- we always said 4 to 8%.

It's towards the high-end of that in the quarter.

So I don't think there's any real pullback at all.

They had a good mix in the quarter.

We enjoyed quite a bit of margin improvement in the segment due to cost reduction out of the Neptune business.

It is true that Roper Pumps is doing really well.

Neptune, we think, is close to being able to announce some things that are rumored that are very attractive.

But they are not at a point where they can make a formal announcement.

They've got an awful lot of bid work.

We have a record number of municipal bids that we're involved with and I think we'll have more than our fair share of that in the water side of activity.

There's a lot of other stuff going on in electrical that doesn't affect us that's had good growth recently.

But in our water situation we're confident we're gaining share and doing well.

Okay.

So you don't sense, Brian, that your win rate on proposals or RFPs has actually declined?

No not at all.

Okay.

We've disclosed that you guys won the Atlanta contract for about 30 million.

Can you talk about that yet publically or any of the other stuff that's -- ?

No, I can't say anything about Atlanta.

Okay.

Then just switching gears to Zetec.

I guess there's two things going on and maybe you could put some bounds around it.

Zetec is -- suffered some customer push outs but is also pruning their contracts, presumably to improve the mix there.

Last quarter it sounded more like it was contract pruning or work pruning.

This quarter you've introduced the element of push outs.

Could you give us some sense of what the impact of each was this quarter, just in qualitative terms?

Pruning, Mike, would be -- the pruning is more around work we continue to do at TransCore and CCC.

Okay.

And CCC's in energy.

What's going on at Zetec is that there were above 25 outages that were scheduled for the year and it looks like it may come down to 17 or so for steam generation facilities.

And that -- we 'd have to say on this particular business, we have got to kind of hold our hand up.

We used to say look, the first quarter wasn't going to be good and because people -- really the second quarter would be good -- no one knows anymore.

You just kind of know what the outages are going to be and the power companies are going to let you know when they are going to occur.

And things have changed for them.

We actually were in Houston last week meeting with all the Zetec people because this has put so much business into the third quarter, we have to really ramp up to prepare to achieve that.

And the first quarter was -- I think people just couldn't believe that there would be this much pushed out.

But it's absolutely pushed out.

There was one situation in Canada where there was -- people thought they were going to take something out and restart it and the government's decided not to do that.

So that hurt them a little bit because they've been doing the preparatory work on balance a plant to get it up and running.

Then they had one job pushed out to '07.

But it's not any loss of business.

But, boy, quarter-over-quarter comparison, last year we had a whole lot of stuff that was brought into the first half of the year.

And we had a very strong first half for Zetec and a very weak second half.

This year we are going to have a very weak first half and a extremely strong second half.

Brian, are these push outs, are they the case where if there were two planned for a year at a facility and now there's just one, so you don't make up for lost -- ?

Yes, it's exactly that, Mike.

They might have four and they decide they're going to do one now and then they're going to wait and do two and three at a different point in time for whatever capacity reason or sensitivity reason they have.

So it's not like you make this up?

You never lose it.

It's just when do we get it reported?

Okay.

I guess that's all.

Thanks, guys.

You're welcome.

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

Good morning.

Good morning, Alex.

Everything has moved from Des Moines to Houston now?

No, no, no, the sales involvement and direct customer contact is in Houston.

But Des Moines is still the complete entity for compressor controls resides in Des Moines.

Okay.

So, only the sales people are in Houston?

That's right.

Customer contact, field service, things like that.

But Des Moines is still the headquarters for compressor controls.

We've got all of the business entity portions are there.

So manufacturing, what there is, is still there?

That's correct.

I wanted to ask more about that segment, and CCC in particular, because the sales were down a little bit year-over-year.

You didn't really say much about why that was.

Is there going to be an improvement later in the year, is it lumpiness in the deliveries of these projects?

Energy projects are going crazy around the world, so I would think that their opportunities for business would just be skyrocketing there.

CCC will do extremely well in the second quarter.

They will be up sharply on revenue and much more on margin.

They have a very strong quarter.

Everything in energy's okay.

It's only Zetec that really tanked for us in energy.

I wouldn't want to imply that CCC didn't have a good first quarter, it just wasn't spectacular compared to the first quarter of the prior year.

If you add back that 5 million you mentioned for Zetec, it's still only up about 4%.

It would have been, so it seemed like there was some lumpiness in the deliveries.

Yes, but it's also currency because you have got PAC inside here now.

So the currency in energy was equal to the 4% you just talked about as growth.

Oh, really?

Yes.

Yes.

Currency was 4 points there.

If you exclude Zetec, we were up over 8% in sales and if you excluded sort of similar kind of thing on sales and orders, and this quarter's a very strong order quarter.

And this quarter is a very strong order quarter, so we are -- .

Energy will rebound nicely from its modest 21.7% pretax number this quarter.

Okay.

So if you add currency then it was what?

If you exclude the currency effect it would have been up what?

8%.

Excluding Zetec and currency?

Yes.

Okay.

You mentioned at the early part of the call some of the noise today might be CapEx?

I assume you are referring to the fact the stock is down?

I don't know where it is now but down before we started.

Yes.

Well it's down about $2.70.

And that couldn't really be a factor here, CapEx picked up a little bit.

What else do you think it is?

I mean, of course all of the capital goods stocks have done really well for the past six months to a year.

Seemed like they sold off yesterday when China raised their interest rates tiny little bit.

Maybe it's an excuse for profit taking but could you determine from calls that you might have gotten or whatnot what else might be worrying people here, because I have a hard time finding anything.

We really haven't.

We've actually gotten generally favorable comments.

We didn't spend the night having to explain anything.

There were 2300 shares that traded after market at 4:36.

We have a lot of questions about what those 2300 shares were.

That's a whole other story.

Well, the stock was off that much at the opening.

Anyway, in our world, we do think that when -- we think it's a lot about cash.

If you look at our operating cash flow and you subtract the CapEx and you have a quarter where it is almost 10 million and normally you doing 6 million, we think if somebody annualizes that and leverages it, they think are operating cash flows are coming down.

When in reality our operating cash flow was very strong.

That was a non recurring situation and our free cash flow will still be virtually anybody else.

I think it just takes a little time for people to calibrate that.

Operating cash flow is a function of the growth rate of the business, so it's hard to see anyone getting bent out of shape by a little fluctuation like that.

On the acquisition front, based on the numbers you presented on the slides, acquisitions added 23 million in the quarter, correct?

Yes.

Alex, we didn't put out a specific number on that.

No, but if you take the percentages, 10% growth, 2% currency negative -- .

Yes, it would imply about 7%, so we'll let folks do the arithmetic from there.

Yes.

Okay.

So that was Medtec and Civco.

Where they the only -- ?

And a little bit of Inovonics.

We had just a little bit.

We bought that Company in the first quarter last year and it's performing well and add a little bit -- actually, we didn't factor in any internal growth, which it had, because it's just not that material.

So that's a really small amount compared with the last couple years when you made some very large acquisitions.

But you did mention that the deal pipeline is extremely full and you are going to be closing some things soon.

Do you think that rate of growth from acquisition in terms of the revenue will be increasing significantly?

Because of these deals that you -- ?

I had chance to look over a long period of time.

Over the last three years we've looked at about $15 billion in deals that we've analyzed and we've invested about 1.5 billion.

So it's been a run rate of 450 to 500 million.

We're certainly positioned to be able to do that.

A lot of the stuff we're looking at today is really a bolt on stuff that fits nicely into the medical and the R.F. arena where we can drive internal growth by reaching out to some other technologies or channels.

We're not opposed to doing transactions.

We're looking at a lot of things.

We're open on some large things and a lot of smaller things and pretty excited about a couple of smaller things that we think are going to fix extremely well here in the quarter.

Yes.

My only point was that this was, for Roper, seemed like a low amount to be added from acquisitions compared with your current sales rate.

So --

Yes it is because that's correct.

Not that that's necessarily negative if you are getting good internal growth.

Right.

Listen, I'll get off.

Thank you.

Thanks, Alex.

We'll take our next question from Scott Graham at Bear Stearns.

Scott, are you there?

Mr. Graham, your line's open, go ahead.

Hello?

Can you hear me now?

Okay, sorry, thank you.

I do have a couple of questions.

I was very pleased on the R.F. number.

That was a really good number and congratulations on that.

I have a couple of questions on the energy businesses.

I know that you were talking, Brian, about this business having a good second and, hopefully I assumed third quarter, that you mean by that as well maybe rest of year.

It's really now three consecutive quarters where the energy side has been, I would say, below what I would have expected given the end market there.

Again, I know that you're saying that the rest of the year looks better.

Could you talk about -- I know that CCC has walked away from some business or chosen not to participate in some business.

Could you talk about how we should be looking at CCC's growth, because it does -- even with walking from some business, it just looks like that growth should be a little bit better these days.

Yes, I think we'll let Chris fill you in, but part of what will help is when you look at -- you'll see energy in a different light here when you look at segment statements, so that you can see what '05 was and hopefully what '04 was against this.

So if you look at the old energy segment, which was only CCC, Zetec and [Medtrics], Zetek had a very soft second half of the year last year in the third and fourth quarter.

That's off to a slow start here in the first quarter.

So they're going to have very easy comps in the second half of this year.

And that was what was pulling down what was reported as energy.

If you put, as we have now, PAC and AMOT in there, you'll see that really CCC, PAC, and AMOT and [Medtrics] are doing well.

But, Chris, why don't you go ahead and answer Scott.

I just highlight two points complement what Brian said.

Number one is that, Scott, as you know, we've talked about the Zetec business for a couple quarter in a row.

It has dragged down the segment a bit.

We've been forthcoming about the performance ex-Zetec being very favorable.

I think as it relates not only to growth, but in addition to that, the margins.

The activities that we've undergone in the compressor controls business, for example, to prune the customers and pare back some of the projects has increased the profitability or led to the increase in profitability in the segment, which have been fairly dramatic.

So we've had significant margin expansion in the energy segment and now that we're reporting it with PAC and AMOT, you'll get the complete energy exposure reporting from Roper in one transparent bucket.

To Brian's point, you'll see growth that is more in line with, I think, people's expectation.

We can continue to talk about, obviously, Zetec from a historical basis.

Then we can talk about and see the margin expansion that the business has enjoyed over the past year and a half or so.

Okay, fair enough.

The corporate expenses number.

Is that a number that we should be using as a run rate?

That was a little bit higher than what I was thinking.

That's where you got a lot of the stock expenses rolled in there.

So that's where you see all of the options and stock costs.

Okay.

So it's all in there then?

Yes.

We don't put it out in the field.

It's all rolled into the --

Okay.

Corporate number.

And this is just maybe a 40,000 foot question for you, Brian.

You have an awful lot of businesses under your roof right now and have clearly moved this Company in a different direction over your tenure, better end markets, higher technologies and what have you.

I'm wondering now if it's time to revisit some of the legacy Roper business and determine whether some of these businesses are really strategic for the Company.

I know that you and I in the past have talked about the imaging businesses and certainly I think a lot of people have talked about those businesses.

I know that they had a good quarter this quarter, but that's one set of businesses that I have consistently wondered about whether that fits with your other businesses overall.

But maybe you have different thoughts on that overall.

What is your thinking, Brian, on where this portfolio is in terms of the potential need to make some divestitures?

Well, we're blessed with not having any need to make any divestitures.

We always look at our businesses in the sense of whether we can add value to them and whether they are best owned by somebody else.

And there certainly are a small number of our businesses that strategically probably would have better synergies with other strategics that are solely in that space.

And from time to time people approach us about that.

And we always have to listen to reasonable kind of a discussion.

I think in the case of imaging, we've done a lot of attractive things in imaging that relates to advanced microscopy.

The side of imaging that is always a struggle is for us the industrial imaging, because it is a series of a couple of smaller businesses that always have to work hard through channels.

If there was a strategic channel partner that had an interest in those businesses, you'd have to listen to what they had to say.

But they're just run by guys who really drive them to the level that they can.

We wouldn't really be having the conversation if imaging continues at the sort of 19.6% pretax numbers pretty outstanding.

Again, you have got quite a bit of A, if you look at an EBITDA or EBITA number in those businesses, they are pretty attractive and they don't take a lot of assets.

They are probably a better financial businesses than some people understand.

But it is true that we very much like this medical positioning space that we're building out.

And we like the microscopy life science piece of imagery.

And that those things we see make a lot of sense for us.

The industrial side is a fair question.

There are a few things in the industrial technology arena that are scalable for others that aren't for us.

But there's no -- we don't have any immediate plan to divest anything.

We don't have anything that's for sale as such.

Okay.

Let me ask this question in a different way.

Sounds like you are open to something if someone approached you with an attractive and strategic offer.

Nevertheless, there are still 30 odd different business units under the umbrella.

And are there any -- do you have a realignment here that takes five segments to four?

Is this the first step in a process where maybe these smaller business units maybe get consolidated where more revenue is being reported up through fewer people?

I don't know that I 'd say that.

A lot of them -- you have some, the businesses that have become more product management businesses as a result of things that have happened lately as opposed to having an individual President and all of the itinerant overhead that goes along with that.

Certainly that's an opportunity for some consolidation like that in the energy arena in Houston.

Some of that's occurred naturally in Ben's businesses in imaging.

But we are always going to be driven by customer productivity issues.

And we've got some businesses that are as small as $15 million that have their own P&L leader.

And we got other businesses that excess 100 billion that have one P&L leader.

The way we govern and control, we're seeing everything in all of these businesses on bridges that they are sequential and year-over-year and planning cycles that are easily controlled by the operating leaders we have.

And we've got segment executives, just like anybody else would that's doing the consolidation.

So for us it's not a control issue or a breadth of anything else.

We're a diversified industrial growth Company.

We're going to stay that way and we are likely to have more, not less businesses.

We'll take our next question from David Smith with Citigroup.

Good morning, guys.

Hey, David.

Just I guess on the Neptune business, circling back.

Right now are you seeing larger bids out there?

Are you seeing an abundance of bids maybe characterized on a year-over-year basis?

Then just kind of touching back was discussed earlier, maybe you can just address your market share in water AMR right now?

David, as Brian characterized it in the call earlier, the water proposal environment is extraordinarily robust and it's a very good time for Neptune.

They continue to make records in their performance.

And as we alluded to in our, I believe, our fourth quarter call, we had some preliminary data that suggested that Neptune once again gained share in the automatic meter reading space.

That's since been confirmed with this third party source for the industry that Neptune has in fact gained more share in automatic meter reading through 2005.

This is a business that's gone from a standing start five or six years ago to having nearly a quarter of the business.

Our view is that it can continue to take share to match up with its natural share in the meter side, which is typically in the mid 30s.

So we're very bullish on the business.

It has very good prospects in front of it.

What about -- you mentioned briefly the electric market.

Do you see any need to get involved in that?

No.

We really don't.

You have investor-owned utilities with entirely different supply chain situation and add the water municipalities still with 56,000 plus water municipalities, very different markets, different durabilities associated with it.

So electrical meter reading isn't part of our strategic concept, at least now.

Okay.

So in terms of acquisitions as far as R.F.-related acquisitions, what would you say that you're missing here?

I know you've talked about security in the past.

But would that sum up what you think you are missing on the R.F. side?

There's so many applications on the R.F. side.

My goodness, right at the moment, logistics are pretty fascinating.

There's a lot going on in the rail industry, there's a lot going on in intermodal traffic and we think we're very well positioned with things.

We think software and information and monitoring and controlling are important things to be looking at.

And they are natural applications from what we do in R.F. that roll over into security.

We still think there are operations for having application-specific things in imaging and security and so we're looking at so many things in R.F. that are around logistics and security and information exchange, you really can't pin us down in any one area.

Okay.

Last thing on the imaging business, it hasn't been talked about much so far, but just really I good drilling down on what the strength is there and maybe what you see going forward that's beefing up the motor books so much?

Well, I think it's the things we articulated in the slide.

We really broke down small sales forces not calling on everything they needed to do.

And did some consolidation around selling effort.

We've had a lot of new product launched, the most in our history, in the last year and a half.

We continue to launch a lot of new stuff.

We've got lots of positive momentum in the marketplace around that.

And so people see new life there that's quite good and that is an area where we're definitely taking share from people.

And I think have renewed vigor.

We've got a lot of cost reduction in some of the product areas.

So imaging feels good to us.

I don't see why those trends that we've just reported aren't going to continue to and expand.

Maybe not the 20% plus revenue every quarter, but the margin trends and what have you.

We'll take our next question from Matt Summerville at KeyBanc.

Can you just talk about some of the new market opportunities you're looking at in imaging, providing a little more detail around that?

Then maybe some color on the average deal sizes that you're looking at in terms of your acquisition pipeline?

Boy, I'll tell you, Matt, we've got so many different transactions.

I think that the next couple that we announce won't be big but they're very important.

And they're very useful.

And in addition to being immediately accretive, they just help us a lot with pull through of products or global reach.

And that's why we're excited about them more than the size of the transaction itself.

Imaging, gosh, I'm just looking here.

Just sort of everything was up.

It's just going through business by business is just not an exercise that's great.

Everything is up.

We did have internally Redlake had a very, very strong first quarter.

And I don't know how to help with you that.

I guess more on the imaging side, I was looking for, Brian, you mentioned you are exploring a number of new market opportunities.

I was looking for color on that.

Oh, I see.

Yes, we are.

We're looking at several things in the medical arena.

We're also looking in the microscopy arena at how we can do things with cameras on microscopes at very different price points.

We're looking at a wide range of cameras with different price value relationships for people so that you don't have to sell them a $60,000 camera for something that they really would prefer to pay 20,000 for.

So we've done a lot of work in sensor technology and a lot of work with supply chains so that we've got a broader mix of products that will go into usage applications in markets that aren't willing to spend as much money as some other markets are willing to spend.

That's really come from mixing the people who have channel access around industrial and spectroscopy and microscopy in ways that they can sell each other's products.

And by selling each others products they just get much, much better coverage.

Okay, then just on the medical businesses you've recently purchased, can you give us some idea kind of what pro forma top-line growth you are seeing there, or what your expectations are?

And then where are you with some of the new products you've highlighted in the past in some of those businesses?

Matt, we've talked about those businesses being businesses that can grow in the mid to high single digits and up into the low double digits on an organic basis.

Obviously we're not reporting year-over-year data because they are too new to the portfolio.

But they have very strong growth characteristics associated with them.

We also mentioned that these are businesses that can do in excess of $80 million for us in 2006 on the top-line.

Okay.

And then the second part of my question about where you are with some of the new products you've highlighted in prior calls in medical?

Yes.

We've highlighted for people the Civco Assist.

And think we are pleased that we've got that product out in trial now with some folks.

As you know it's a revolutionary product, which means it's going to take some time to work with the luminaries in the space and to gain traction with those folks and then broaden that throughout the industry.

But we're very pleased with the initial reactions.

The reactions have been extremely favorable.

That's with some of the leading doctors that we've got in the northeast.

So we're very pleased with it and we recognize that all pioneering products do take a little bit of time to get traction in the marketplace.

Okay.

Thank you.

You're welcome.

And that does conclude today's question and answer session.

I 'd like to go ahead and turn things back to Mr. Hix for any additional or closing comments.

We thank you all for continued interest in Roper Industries and we look forward to our next conference call with you in three months.

Thank you all very much.

Again that concludes today's conference call.

Thank you for your participation.

You may disconnect at this time.