Roper Technologies Inc (ROP) 2007 Q1 法說會逐字稿

Welcome to the Roper Industries first quarter 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 Roper's Chief Financial Officer, Mr.

John Humphrey.

Please go ahead, sir.

Thank you, Matt, and good morning, everyone.

And welcome to our first quarter 2007 financial conference call.

I'm glad you were able to join us this morning.

With me today in the room is Brian Jellison, Chairman and CEO of Roper Industries; and Paul Soni, our Corporate Controller and Vice President.

With that, we'll go ahead and turn it to the slides, which are posted on our Website.

And just a reminder to everyone on the Safe Harbor statement on slide number two.

We will be talking about forward information in our estimates and expectations for the future and that is -- all of those are subject to certain risk factors, which are detailed both on this page, as well as in our filings at the SEC.

I would ask that you all take our forward comments in light of those risk factors.

With that, I would like to turn the call over to Brian Jellison, our Chairman and Chief Executive Officer to go through the slide deck.

Brian?

Thanks, John.

Good morning, everyone.

As we begin this, of course, the first slide should be the Safe Harbor statement and you can read through that.

And then we turn the next slide, slide three, would be Roper's first quarter 2007 review.

What we're going to cover this morning and then leading to the Q&A will be first, a little bit of discussion about the highlights in the quarter.

Secondly, we'll turn to what the enterprise results look like and some color on that.

And then thirdly, we'll do a little dive into each of the segments.

Fourth, we'll update our guidance for the quarter and the full-year, close with a summary and take your questions.

Next slide.

On slide four, first quarter highlights, we enjoyed a record Q1 in terms of incoming orders and outgoing sales and earnings and EBITDA and diluted earnings per share.

Our net earnings were up $51 million, which is 36%.

We had a little bit of a CATZ dilution in here we'll talk about that when we get to that portion of it, so the actual net earnings were a little higher than the Eps number, which was up 33%.

The orders up 26% in total.

Internal growth was plus 16% and that was benefited two points by FX.

The sales were up 25%, with internal growth up 14%, again, benefited 2 points from FX.

The EBITDA was up to $115 million, which is a heck of a start for the year for us, up 33%.

And the margins expanded from 22.6% in the first quarter of last year in EBITDA to 24.1%.

And we'll tell you there are a couple of items that would have made it better as we go through the discussion.

Diluted earnings per share were $0.56 versus $0.42 a year ago and that's even with the CATZ impact that happened in the quarter.

We went back year-over-year, that subtracted $0.01 from the $0.56.

We would have been another $0.01 higher.

Backlog reaches a record level.

We were up over $520 million at backlog.

Next page.

The RF operating margins rebounded, as we said they would.

You recall, they were lower in the fourth quarter of last year and I think we'll have that little rolling noise factor from time to time.

And they were really outstanding in this quarter, up 380 basis points from the fourth quarter and up 200 basis points from the first quarter a year ago.

And that was really due to mix and some commercial growth in the non-tolling side of the business.

The energy margins were impacted by noncash acquisition costs.

I am sure any one of you who looked at it would say, "Well, what happened to the energy margins?" We'll talk when it when we're there.

The answer is, not much happened that was related to cash, but there is a little bit of noise in the margins, 280 basis points of intangible amortization and inventory step-up impact in the quarter.

We had dramatic growth at Neptune, both orders and sales were up well in excess of 25% in the quarter.

The first quarter of this year was an all-time record for Neptune for any period in its history and we ended with a substantial backlog and are kind of working full blast.

The wonderful credit, again they get is that as copper price continued to escalate, they were able to work through that.

And with the growth and leverage from the growth and productivity, they were able to offset the copper costs.

But the copper costs did push down the gross margins in that segment a little bit.

Complementary acquisitions were completed.

We'll kind of detail those and certainly more are expected.

We would think there will be more coming here in the second quarter like the first and we're working on a lot of other exciting things as well.

Next slide.

These acquisitions, the ones we'll talk about the largest is Roda Deaco.

Roda Deaco is a company that's primarily grown out of the oil sands activity in Western Canada that has cutoff devices that basically shut down machinery that is protecting hight value assets in case something went wrong.

We're going to be able to distribute Roda's products on a good basos, which is a very good thing for us.

And it gives our AMOT valve and control business a much better access to the Canadian oil sands market which, as you know, is doing extremely well.

JLT Mobile Computers, we'll talk a little more about that segment.

These are really vehicle-mounted computers.

Today, our DAP business is about rugged handhelds and we've got some exciting software and ways in which you read the screen that are unique and different that are going to be very exciting for people.

DJ Instruments is our first bolt-on acquisition for Dynisco.

It's a life science sensor company in Massachusetts.

That will get fully integrated with our Dynisco operation.

It gives us the broader line of life science products that we talked about when we acquired Dynisco that will go with the existing products we have, so that we can rapidly grow that phase of the business.

In the first quarter, we invested $70 million in these three transactions.

We expect over the next 12 months that they'll generate in excess of $40 million in revenue and more than $9 million EBITDA.

Next slide.

We just shift here to the first quarter enterprise results and we can move one slide ahead.

Substantial EBITDA growth continues in the quarter.

We had $115 million, as I said, up from $86 million in the first quarter of last year.

Our trailing 12 months EBITDA, you can see is up $218 million in just the last two years.

The first quarter of '05 was $231 million.

The first quarter of '06 was $352 million and our trailing 12 months number is already $449.

And we think that is the power of the business model we've got in place.

Next slide.

If you look at the top line growth, sales were $478 million in the quarter, up from $383 a year ago.

That gave us 25% growth on -- for the revenue line.

Internal growth, 14% was benefited 2 points by currency, it would have been 12% otherwise.

The net orders were up 26%, $493 million and almost a $2 billion clip now, up %100 million from a year ago.

Internal growth of 16% was influenced favorably by 2 points of FX.

Again, mostly European transaction benefits for us.

Next slide.

Here we would look at the income statement.

And the income statement that we have just covered, the orders up 26%, sales up 25%.

Income from operations, lots of leverage appearing here.

You can see we went from $68 million or 17.6%, to $93 million or 19.4%.

That 180 basis points is good but it would have actually been 200 basis points.

We had about 20 basis points of pullback from the step-up charges around the Dynisco inventory that occurred.

If you look at the tax rate.

Again, a headwind for us, as we have more domestic business and the ETI has been phased out.

So, we had a tax rate of 35% in the quarter, up from 33.4% in the corresponding quarter and obviously, that cost us a few pennies.

Our net earnings then were up 36%.

The DEPS up 33% and that's with the CATZ that we'd looked at it 57 over 42, we would have been up to 36%.

Next slide.

The asset velocity, continuing to improve.

We just finished our quarterly review cycle with everyone last week and put still an increased focus on this.

I can see -- if you go back to 2004, we had 15.7% net working capital to revenue and that's dropped steadily over the last three years, down to 12.3%.

One thing I think that's good about the quarter, is you will see payables and accruals were up sharply from 13% of revenue to 13.9%.

And that reflects some good work that compressor controls and others have done in negotiating supply chain opportunities and assuring better payments from people.

And then we look at the inventory side creeped a little bit as a function of revenue because we had such a substantial incoming order rate, which frankly exceeded our expectations.

And that will work itself through here in the second quarter.

Then, you can see the total inventory plus receivables minus the payables number dropped another 30 Bps to 12.3%.

Next slide.

In terms of how the enterprise ended the quarter on financial capacity, I can see, and I thought we'd put this in the context of all of those 6 plus the first quarter, I think a couple of people have asked us about the pace of acquisition seems to be slower.

It's certainly not.

In the last 15 months, we've invested $422 million in acquisitions, that between the time they were purchased last year and the next 12 months for the newer ones are going to generation about $210 million plus in revenue and $50 million plus in EBITDA.

And the acquisition costs was $422.

And yet when you look at what's happened to the balance sheet, our cash is actually up from $53 million to $80.

Our net debt is only up $135 million against the $422 of investment.

Our shareholder equity is up nearly $300 million to $1.538 billion.

Our net debt to net cap has dropped from 40.2% to 30.88%.

Our net debt to EBITDA, an important rating agency issue has, dropped from 2.51 to 2.17.

And if you take our updated guidance on EBITDA against the net debt number, we'd down to 1.91.

On our interest coverage ratio, our EBITDA to interest coverage at the end of '05 before the $422 million of investment, was 7.73 and today, it's 9.45.

So, we think we're exceptionally well positioned is for cash and the uses of that in the next several months.

Next slide would be a deeper look at each one the segments.

Next slide.

Here's a look at how the first quarter was on a gross margin and EBITDA margin basis for each of the segments.

You can see here that the gross margin for radio frequency was 47% and the EBITDA margin reached 25% in the quarter.

That's up 190 basis points from the corresponding quarter a year ago.

If you look at the industrial piece, it was 48% gross margins with EBITDA margins at 29%, up 150 basis points from a year ago.

Then, energy, which had 51% gross margins had 23% EBITDA margins.

So they were actually down 50 basis points from a year ago.

And I would remind us that the first quarter in energy tends to be not as a strong margin quarter as many of the others.

So, down 50 Bps.

What caused that?

Well, there basically was 80 Bps of charges for the inventory step-up in the quarter.

If we had excluded that, then energy would have been up 30 Bps.

In addition, we had a very unique expenditure around a variety of consolidating things we're doing with AC controls and petroleum analyzer and opportunities with Dynisco and synergies that going on.

Net -- and those are nonrecurring and they cost us about $500,000 in the quarter, which is worth another 50 Bps.

So, if we just had said we had some restructuring for $0.5 million and the step-up, then, these margins would have improved 80 basis points over the prior year instead of being down 50.

But they are what they're are.

We were down 50, we need to be better.

And I can assure you from our quarterly reviews that our energy business will bounce back exceptionally strongly on an operating profit basis in the second quarter.

There's only good news here.

On imaging, you had 56% gross margins, you had 26% EBITDA margins, up 140 Bps.

The enterprise then wound up with 50% gross margins, could have rounded up a little higher but we've got slightly eroding gross margins in the quarter for copper costs but nothing significant.

And then, the EBITDA margin at 24%, was up 150 basis points.

If you exclude the inventory step-up, it would have been up 170 and it would have been up a little more the one time.

But all in all, things are moving along nicely.

We continue to improve our margins as we grow.

Next slide.

This would be the energy systems and control business.

Because of the Dynisco acquisition and AC Controls, you seeing outstanding order growth at 68% and sales at 51%.

Strip away the deal size and look at the organic orders internally, we're up 25% and sales were up 10%.

The big beneficiaries for the organic growth were our AMOT business where we've really gotten distribution channel coverage the last several months than we enjoyed for a long time.

This business has sort of come back to life.

We're making investments in it, new products, people are excited about it.

The petroleum analyzer piece, we have moved this around to create some market segmentation so that we can focus it not only on its historic markets dealing with refineries but asset protection in general.

Where we can look at protecting other people's assets and a variety of new applications and that is starting to take hold in terms of incoming orders and opportunities.

And then our Metrix business, which is a vibratory control technology has been kind of infused with a lot more talent in the last year, a much better operating systems.

You may remember, we instituted a new IFS control process there.

So we're getting more visibility earlier, shorter lead times, faster turnaround for customers and starting to gain share in that business.

Operating margins in the quarter were down 260 basis points to 19.1%.

You can see the operating margins would have been up 10 basis points if we had excluded the noncash acquisition cost aspects of Dynisco and AC.

The favorable mix of oil and gas revenue at CCC, very high leverage but they didn't have a lot of sales growth in the quarter.

But they will have in the second quarter.

We had these one-time integration costs for about $0.5 million that aren't going to recur again.

And then we had the acquisition of Roda Deaco and DJ Instruments.

We've kind of covered DJ already in terms of the life science centerpiece unrelated to energy but it's in this segment because of the protected technology synergies.

Turn to the next slide.

This is Roda Deaco, this is an engine shutoff involve valve.

It's pictured up here in the top right-hand side.

We can assure you that that valve will never look that way again that.

That's a one-shot vow of those valves.

They have a very tough life ahead of them.

These things are wonderful when you think about the BP disaster in Houston, Texas.

It was about these kind of shutoff valves.

This is a wonderful market for us.

We have had a very small niche of it.

Historically, Roda is a dominant player in Canada and we thing it's going to really allow us to grow this segment of our protective technologies business much faster.

It's all safety-driven, we're not talking about productivity here.

We're talking about things that, frankly, most people think should be controlled in a regulatory way.

They are in Canada and perhaps they will be globally.

It gives us both a brand and a distribution channel and customer access in the oil sands market that we've lacked previously and that is a very fast growing business.

And it also gives AMOT the ability to distribute these products globally.

And we do have a far-reaching global distribution network.

Next slide.

On radio frequency, here you can see in the quarter, sales were up 18%, orders were up 11%.

We had significant growth in our freight matching business.

This was really based on a broader number of subscriptions and a higher value per subscription for people that are subscribing to the freight matching world.

It turns out, as we thought it would be countercyclical, as you've had a little less number of new drivers hired.

We're still getting a lot of people subscribing to get access to see what loads are available for them.

The second piece of growth was finally starting to get traction in our satellite communication airtime.

As we have gotten a larger installed base of people using our satellite technology and once they on board, then they use more airtime, sort of like minutes on a cell phone.

And that was up sharply in the quarter.

Strong growth in submetering, these are submetering markets that are primarily in Neptune's space but we use the Inovonics submetering process, so it reports in through radio frequency.

And also, we were up sharply in wireless security orders in the quarter.

New technology was deployed, we finally shipped some of the multiple protocol readers for Florida.

They can read a multiplicity of tags but of course we have all the tags in Florida, anyway.

And then our eGo shipments into Harris County, Houston, Texas, basically, began in the quarter.

And those should -- all of these things should continue nicely into the second quarter.

The initial phase of the international project we talk about there was.

We had about $5 million worth of value in the quarter, in that, very modest operating margins there.

Operating margin, though, for the segment was up 260 basis points to 19.6%, due to the mix and less government activity.

Next slide.

In the scientific and industrial imaging space, we had orders up 20% and sales up by 14%.

That was really all about last year we had a very difficult comparison.

You may remember.

This was like a three year long episode with RedLake and General Motors around a large motion technology shipment.

It actually shipped in the first quarter last year.

Gave the camera businesses kind of a hopeless comp and so, they held down our growth.

If we adjusted for it, our growth would have been higher.

Gatan had record performance in the first quarter.

The is the company that provides analytical equipment and technology that goes into the microscopy world.

Exceptional performance out of them, driven by both physical science, applications and life science applications.

Medical growth had double digit growth in the quarter on consumables that helped the margins.

You can see operating margins in total were up 150 basis points to 21.1%.

And several new products released, this laparostat surgical arm actually started to ship in the quarter.

We've got orders that probably pass our first $1 million here soon.

I think this is something that in 2008 and beyond, you'll see will be a very interesting product line for us.

And then we launched an automated specimen preparation technology through Gatan, which we're branding as Centar and Frontier.

These are product technologies that we brought into the country from Israel.

They're really wonderful things that will make testing procedures have higher yields.

And then we had quite a few new products.

I think of us were all struck in our quarterly review process this year with the amount of new products and applications we're seeing across the board from people.

And then the acquisition of JLT, some of you may have seen a press release that came out from JLT that talked about 400% growth or whatever.

It's a company that's real on the springboard for great success.

That we want to refresh our recollection that that was off a very small base.

This is a business that we're going to combine with our DAP rugged handheld business.

It's hard to see from the picture we have but these screens are very much larger.

They have a wonderful capability coupled with other technologies that we're going to be involved with for reading the screens better in a daylight work environment.

It gives us something that provides applications software that runs on Windows XP.

Today, we're limited to Windows CE product offerings.

And on balance, it just gives us a better reach, so that we can have conversations with large users, whether that's Fed Ex or UPS or all the kind of things you see routinely.

By launching this as Roper Mobile Computer, we think it gives two small small companies, JLT and DAP, a real leg up in competing.

Next slide.

In industrial technology, here we've got a situation where sales are up 24%, orders are up 21%.

Clearly, led by record making activity activity in Europe but there was strength everywhere across up the board.

I don't think any business was less than high, single digits.

You had this enormous backlog, we had Neptune just completely reinforced and reloaded entirely in the quarter.

Last year we shipped over 1 million units of AMR products throughout North America and we gained quite a bit of share.

I think there were several services that try to follow that.

Usually people in this industry would think 1 share point gain was not possible but we actually gained about 3 share points.

So, that's part of what is driving our success here.

The segment orders exceeded sales by 5%.

You can see the copper prices, if you look at operating margins, they were up 260 basis points to 24.7%.

And those are operating margins, not EBITDA margins.

Pretty strong for an industrial player.

The copper costs certainly hurt us in the quarter.

We were hedged for much of last year in terms of our contractual negotiation.

So, in the quarter, we estimate the copper variance probably cost us $2 million.

But without that, we still made a whole lot more money and had better margins because of the wonderful product mix and operational leverage that drove the improvement.

Next slide.

Here we would look at kind of the guidance we have for 2007.

Next slide.

In the full year, our guidance had been $2.50 to $2.62.

And that would have assumed no DEPS erosion from CATZ.

And CATZ year-over-year, is going to cost us $0.01, so we probably think of it as $2.55, frankly.

You can see we're suggesting in the quarter that we would do $0.63 to $0.65, up from last year's $0.52.

And that will be with more underlying shares, as you will see on the CATZ parade than what you had a year ago.

When we look at the big cash numbers up here, EBITDA we're forecasting now to exceed $510 million, up from $420 last year, a $90 million improvement.

Operating cash flow, we're saying it will still exceed $310 million, up from $263.

That was our original estimate.

I don't think they're going to upgrade operating cash flow until we're closer into the third quarter, have a better chance to look at things.

But everything is doing well in that respect.

We certainly expect operating cash flow to exceed 15% of revenue.

Net earnings, $193 million last year, up to $237 million on the low end of our guidance for this year.

Turn the slide.

Here we can look at the summary then for the quarter.

We had order strength really across the board in all the businesses, 16% internal growth.

Our sales of 14% give us a continuation of the momentum we had in the fourth quarter.

Frankly, we didn't think we could do that well.

And it certainly gives us a lot of momentum going into the second quarter and the rest of the year.

Neptune's order growth surprised everybody along the way.

We've certainly gained quite a bit of market share and we've gotten several new mid-sized town projects and of course, one at Kansas City turn.

Favorable mix really in the RF segment helped the revenue and the margins associated.

Dynisco got off to a first start in the first quarter.

Q1 is always its softest quarter but notwithstanding that, they're quite consistent with what we expected in the quarter and we were able to make their first bolt-in acquisition already with DJ Instruments.

We invested $70 million in the quarters, the three things that we bought.

JLT really gives us software for rugged portable applications with larger screens.

The life science sensor helps Dynisco have a broader range immediately to offer in those segments will help them with.

And then the oil sands access with Roda is a really terrific opportunity for us.

The pipelines for activities remains very active.

You can expect more transactions, perhaps some here in the second quarter and throughout the year.

Our backlog at $520 positions us really well for continuing records throughout the year.

And with that, we can open it to questions.

Thank you.

(Operator Instructions) We'll take our first question from Alex Blanton with Ingalls & Snyder.

Can you hear me?

Yes.

Good.

I wanted to ask some questions about the -- get a little bit more color on these acquisitions and clarify a couple of things.

Brian, the slide on page six is what I'm referring to.

Roda Deaco, that goes in the energy because it's a bolt-on, really, to AMOT?

Yes, it's an air intake cutoff valve, Alex, that would shut down activity related to engines.

And it's got applications in energy.

It's also got applications with diesel engines and a variety of things that it can be used for.

Now, what did you mean by saying that when you looked at slide 15 that, "you'll never see that looking that way again?" And also, what does it have to do with the Texas accident, if anything?

It was about, the picture.

You can actually read the Roda, you can see it's a valve and once they're out in place, they're in a harsh environment more times than not.

I see.

That was perhaps, misplaced humor around what this thing looks like in real life and how rugged it has to be and how critical a role it plays.

Okay.

And what about -- you say if it had been in place in Texas that wouldn't have happened?

Well, we can't say that.

But there is widespread comments in the industry that problems associated with the Texas refinery were largely related to cutoff valves and maintenance that might have been able to be done.

What happens there, Alex, is you end up with fuel vapors that are in the air that actually make their way into the machines.

I understand.

And this is something that they will sense that and go ahead and shut it off from an oversee condition.

What is the relative size of the sales to the $40 million in total?

It's the biggest of the three.

Okay.

And the margins, AMOT has always had very high margins because these devices have to work.

Right.

Even if they're there for five years and like a smoke alarm, nothing takes place and then something goes wrong, it has to work.

Right?

Right.

So really, the quality really important, so that it's a premium priced product.

Is that the case with this one?

Yes, it is.

It's the highest margin of the three.

The other two businesses are really getting started.

And the lowest margin would, of course, be the computer stuff and then in between is the life science sensors and then the shutoff valve is the highest margin.

Okay, it looks good.

Now, JLT is in scientific -- no, which segment is that going into?

It's scientific imaging.

Yes.

That's where it's going?

Yes, it has to be married up with DAP to create a little component called Roper Mobile Computing.

Okay.

And DJ is in what segment, energy?

Well, it's in energy because it's real -- that's sort of a -- one of these days we may create a protective technology segment to clean this energy thing up.

But the -- it's in there because Dynisco is in there where it belongs.

But we're going to drive growth in life science, so our medical people will be helping out looking at channel access for these life science centers that can go into usages that are somewhat different than industrial usages Dynisco has historically focused on.

So, it's going to cut across the two.

And the mobile computers, is there any medical application?

I'm reading that in hospitals they're talking about putting a wristband on people that has a little chip in it and all the information is in that chip and so the medical people walking around with mobile devices to access that, so if the person is in the hall passed out, they'll have their chart right with them.

Is there an application like that that's in any of the products?

That would be in Inovonics.

Where the, "I've fallen and I can't get up", and I've got the Life Alert and those kind of things.

We're developing a range of products in that category but they would carry -- they would report to radio frequency and be a part of our Inovonics wireless technology sensor business.

Okay.

Thank you very much.

We'll let someone else talk.

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

The record backlog at $520 million, was the margin in that backlog relative to the margin in the recent quarter?

I don't know.

We never really keep -- all of that with our backlog it's all shippable within the next 12 months, that's one item.

I don't see anything rhythm-wise that is different about incoming orders that are going to backlog versus what we ship routinely.

So, I don't think there is any bad news.

I don't think there is any good news.

It's just plugging along here at 25% EBITDA margins for the year.

Okay, so, it's about what -- it's equal to what we have been shipping?

Is that right?

Yes, I think that's right.

The only thing that's going to distort margins, if at all this year, would be the international order for RF, which had about $5 million of revenue in the quarter, which has very modest margins compared to our normal activity, maybe half or less.

So, there's a little noise there but that's it.

Everything else has the high margins associated with it.

Okay, thanks.

And could you comment on the impact of the weaker residential construction market on Neptune?

Where are the opportunities there?

Well, we haven't really seen any effect.

One of the things that we have said and answered a question publicly, that I want everybody to know, there is an oddity in how this works with us.

Where we have this enormous installed base, the largest North America, we think.

And if you have the water municipalities who aren't having to install a new meter in new construction, which is kind of the low productivity exercise for them, when they get into slower housing starts, they go back to the retrofit market.

And the irony is, when they're retrofitting, you can get a faster rate of installation than you would in the new construction piece.

And we actually think it's been a help to our business.

Okay, thank you.

Thank you for clarifying that.

And finally, and then I'll let someone else jump on, John, the asset velocity in the quarter, pretty impressive.

Does -- this includes Dynisco, though, right?

Right.

And so, it would be even more impressive?

This does include Dynisco.

Dynisco has very good working capital both when we bought them and their performance in the quarter.

The only thing that's -- .

So, it's not a hurt to the working capital numbers?

No, it's not a hurt to the working capital.

The only thing that is excluded is of course, the balance sheet that we acquired in the quarter for the three small acquisitions that we competed.

Okay.

So, we'll take out their -- .

Okay.

And that is noise for this number?

That is absolute noise for this number.

Okay, and what are the opportunities this year in terms of the asset velocity, what are the pieces?

Well, it was the main focus of a four day session that we just came off of last week.

And all of our guys who are listening know it's a main focus.

So, we're not at all satisfied with our ending number at 12.3% in the first quarter.

We're dogged by the receivable stuff but as you know, our philosophy here is that payables need to exceed the inventory and then we'll decide how much we're willing to invest in the receivables as it relates to pricing.

So we still think we can do better.

We probably have half of our businesses that still aren't where want them to be but I wouldn't really know how to forecast what we'd get out of this.

But it shouldn't go up, it should continue to come down.

Okay, thank you very much.

You're welcome.

We'll go next to Michael Schneider with Robert Baird.

A couple of just various topics.

First on Neptune, you mentioned it was a about $2 million hit in the quarter on copper.

Yes.

What level of price increase have you gone out with this year?

I think the last time you did it was back in June.

Correct me if I'm wrong on that.

And then, what is to come and where do you think you get that inflection point where you begin to fully recover?

Well, in a way we -- the margins in Neptune expanded.

Our operating margins in Neptune actually were outstanding in the first quarter, notwithstanding the pressure on the copper price.

We, last year, had a lower average cost of acquisition of copper than we currently have.

And so, our cost at standard at the moment is higher than it was the year before.

The price increases that you get come from standards list prices for normalized replacement activity through the channel and those have been modest but helpful.

Then, all of the bit work, which is a lion's share of what happens, you can't really roll a price increase through.

It's just got to be the total aspect of what the person pays.

Now, we're benefited by having the integrated R900-meter technology, which has had a lot of acceptance.

And so, you're getting better margins on the electronics and the radios that we're providing.

And they, frankly, offset the cost push from the copper.

So, that's about as much as I can tell you.

I don't think we're going to see -- it's there but it's just not that material as we work on a variety of ways to deal with it.

We're at the point now where AMR is basically twice the size of the meter business.

I commented on it because a couple of people at EMT nailed about, "Well, will gross margins slip any?" No, they don't slip anywhere.

It's just this one little issue in the quarter that is going to go away pretty quickly.

Okay.

And in terms of kind of the split now between AMR and local read, is the -- you mentioned the countercyclical nature that kind of emerged in Neptune.

I presume the water meter sales are actually up double digits as well?

I don't have that in front of me.

But I know we're running -- just thinking about our past utilization, we're running -- I'm sure we have never made -- I know we have never made less water meters.

It was an all-time record in production for water meters.

So that they're up.

And I know our share points in a published report were up 3% in the meters, so it's got to be higher.

Yes, the total -- .

We're reluctant to say how many meters we produce but it's well in excess of 600,000-meters in the quarter.

Okay.

And then just sticking with that.

Now, the orders in the quarter were huge.

Can you give us some insight?

Obviously, Neptune is doing well.

The other businesses and industrial like Struers, some of the other major ones, I forget the smaller ones but is there strength across the board or is it indeed just Neptune in industrial tech?

There is strength across the board.

There is really -- Cornell pump is going to do well, irrigation pumps.

Roper pump is going to do well.

They had a record year last year and they're focused and doing a great job in asset velocity.

The only softness that we have seen has been in Hansen, which makes ammonia valves that are used for cold storage facilities.

And that was soft but it's actually had a pretty good ramp.

I would say off the top of my head, we're probably running 8% to 9% internal growth in the full, if you excluded Neptune.

Okay.

And then in terms of Neptune, just larger orders.

The shipments today, I presume some of the larger projects that are shipping right now are Kansas City and Atlanta.

Is there anything else large in there shipping today?

Well, we had some big wins.

I think there's another city in Georgia that we got that is substantial.

There's one in Oregon we got that is going to be quite a few points of control with an integrated meter.

Kansas City is a three year contract with about 110,000-meters.

That's pretty substantial revenue.

So, it just continues to do pretty well.

And are you shipping Chandler as well?

Yes.

Chandler, Arizona?

Yes.

I don't look at a monthly project report for that business but yes, that is several quarters old.

And were there another any larger orders booked this quarter or are you still booking orders from some of these cities that are now just rolling out beyond the original one year timeframe?

Well, we had another city in Georgia and another one in Oregon that helped bookings.

But it's really just the incredible receptivity to the R900 integrated meter, plus the people buying residential and commercial.

Our commercial business is very strong.

Okay.

Thank you guys and congratulations on a great start to the year.

We'll go next to Shannon O'Callaghan with Lehman Brothers.

Yes, another great quarter.

Just a couple of acquisition questions in terms of the future.

Brian, you mentioned that you actually have been spending a fair amount on acquisitions.

I think it's an accumulation of some smaller things is how we got there.

Is that what you continue to see, some of these smaller deals where you announce three of them that add up to something in a quarter or are you seeing bigger things in the pipeline?

Well, it's very hard to predict in any quarter what happens.

On this last sort of 15-month period, you've $422 and Dynisco was $233, so, either -- you[re not going to make a meal on these small deals.

What is happening, the reason that we have done some more small deals goes back to a structural change we made at the beginning of last year in '06 where we kind of moved the chairs around on the segments.

So that the segments are really focused on markets rather than common competency, which is what we had the first couple of years.

And that was good but we kind of got the 80/20 out of that.

Now, we're in the market segment.

They're seeing opportunities for distributing things and supplying stuff into solutions as we get more solutions centric.

And so, that is where some of these small acquisitions are coming from.

And then, almost always, we're going to close those and get it done.

But in the first quarter this year, John and I have learned that what our capacity is.

We analyzed over $6 billion in transactions, including the two largest ones in our history now.

One of those, we've walked away from because of pricing just getting beyond our comfort level and we're still involved in one that, if we buy it, would be it big.

And we're not out for big or small, we're just out great.

And we're going to stay focused on the process that got us where we are and create a lot of cash for doing stuff in the future.

And there is no way to predict whether something would happen in the second quarter of size or layer.

Generally speaking, if you were profiling something, we would rather have something with $100 million of revenue and a really strong management team.

And that's what we liked about Dynisco and then we saw organic growth opportunities perhaps that we wouldn't have seen.

And that is what we try to do and then it's just how stuff comes through the funnel.

And just one follow-up.

Is there sort of a geographic goal to this, too?

Are you trying to look more internationally or is it just where you find the fits and if they're in the U.S., fine.

and if they're not, that's fine, too.

It's really more of a fit.

The problem with -- European acquisitions, you've got a very weak dollar going against an exceptionally strong Euro.

In China things are very difficult.

We're going to have real control.

We've -- Dynisco is -- over half of its business was outside of the U.S.

and it had a Malaysian business that we're trying to do things with now.

That's more likely a model.

If you got the dollar turning around relative to the Euro, there are a lot of things that we are looking at in Europe this year.

It's the first time we have looked at a lot of stuff, including one really large transaction.

But there is not a focused strategy to say we want to have x percent in Europe and y percent in the Middle East and x percent in Asia.

Okay.

One of the things we're working on a little bit is the tax situation.

As we've gotten more domestic with more sales tax, it gives us some head winds on tax but we're trying to work through that.

Okay, great.

Thanks a lot, guys.

We'll go next to Matt Summerville with Keybanc.

A couple of key questions.

You mentioned sort of your thoughts on price in the industrial tech business.

Just for the enterprise overall, Brian, how much pricing are you seeing?

If you look at your 12 points of organic revenue growth, do you have a rough split between volume and pricing.

Matt, I don't think -- we sort of look at pricing.

There is so much application engineering in the Company that to say, here's these SKU's and this was the book list price and all, it's really difficult.

Except for maybe Neptune and Inovonics is an exception to that.

We kind of trust pricing around how the gross margin is going.

And we've been running this sort of 50%, 51% gross margins with consistency.

So, the pricing is giving us some protection.

It's no way it could be giving us 2% of the growth of the percent.

It's not generally coming from pricing, it's coming from increased volume or higher yield to the applications that we do.

Got you.

And then when you look at the RF tech business, obviously, you had a pretty favorable mix in the first quarter.

As we go throughout the year, based on what you're seeing in the funnel and backlog, how should we think about mix?

We toyed around with a couple of slides to show you a trailing 12 months and we can do that sort of at the end of the year.

You want to remember how much amortization there is in RF so there are quite a few points in amortization.

Basically, this first quarter is the high watermark.

If we could hold to that in the second quarter, as we continue with a pretty good mix, would be pretty good.

And then the second half of the year might be softer as you get more of these projects shipped kind of stuff.

We would love to see the trailing 12 months number as close to 20% as it could be and then add in the amortization and you're up to the sort of 23% to 25% rhythm in that segment that we would expect to have.

Okay, great.

That's all I had.

Thank you.

We'll go next to Christopher Kotowicz with A.G.

Edwards.

Great quarter, guys.

Thank you.

I'll start with a question on freight matching, which sounds like it was pretty big this quarter.

Has that been creeping up over the last few quarters or you've seen a little bit positive momentum there?

Or is that really a swing factor specifically one?

I think we've tried to say to investors, one thing you need -- you want -- people are so interested the cards and readers.

And talking about tolling that what you've got are -- a lot of that comes with government contracts.

So, there is really almost two different businesses.

And our tolling and traffic and government contracts business and could easily be 60% to 65% of the total space and only contribute 1/3 of the EBITDA performance.

And all the commercial stuff could be 1/3 of the space and contribute 2/3 of the performance.

So, when you're looking at it from a cash generative viewpoint, modest growth in commercial gives us a lot more leverage than bigger growth in government services stuff.

And so we want to make sure that we're more clear about that and we have tried to been emphasizing that the last six months.

So, yes, most of the profit and the margin mix that came out of Q1 is related to subscription services fees and airtime sales and all those things that go along but we certainly were benefited from tags and readers nicely in the quarter.

But if our government business doesn't have cards and readers going along with it, then it's a less Roper-like business.

And the freight matching and the commercial side in general, has that been -- you've seen quarter after quarter pretty steady growth?

Yes, we have.

It's a little non-intuitive like the residential meter business.

If you're, if you've got too many truckers -- like right now, there is a real dynamic going on where, at this time of the year, a lot of the truckers would have gone into residential construction.

It cuts down on the travel, high dollar and all of those kinds of things.

Well, they're not going there because that demand isn't there.

So, the amount of drivers for the first time anybody can remember is actually in surplus.

And then what happens, if you're a driver, you're going to subscribe to the service because you want to try to maximize your opportunity to get a load.

And it's another sort of countercyclical play.

When there aren't enough drivers that drivers are a little less motivated but they still tend to subscribe because they want to get the best quality load available out of all that are out there.

So it has not really been a lumpy business at all.

It's just been an increasing base load of subscribers that gives you the continuing growth.

Well, is there like a cycle for this?

Obviously, it sounds like it wouldn't be a high amplitude cycle.

When things are -- when construction is really good, do you see less growth or even a modest decline versus when construction is bad, do you see a surge?

Not really because we're selling our stuff on an ongoing basis to large trucking firms, anyway, so they're providing those services all the time.

We haven't seen any cyclical nature to this business at all.

And we've owned it for several years.

And before that, we didn't see any as we did our diligence.

This was a real star in this acquisition that people didn't -- many people missed.

Got it.

On Roper Mobile Computing, is there any opportunity for that cross pollinate with TransCore?

You mentioned FedEx and UPS and opportunities to get in the game there.

Are there some technology and ideas that you're thinking about to somehow leverage all that together?

Yes.

Okay.

Stay tuned.

Nothing you can explain on the call, I guess.

We're working on -- we didn't buy that to get little orders.

That is -- we're out in the elephant hunting world now.

Okay, that sounds pretty exciting.

It's exciting but sometimes it takes awhile to get one.

Okay.

And then, I'll ask this one geographic question and pass the baton.

The common theme for certainly larger industrials with different exposure in terms of end-markets has been; "thank God we had international exposure." And I realize that is not an issue for Roper.

But can you comment at all about the rates of demand or growth in international markets just in general versus what you saw in the U.S.

more, less, the same?

We were just up there and everybody seems to be pretty upbeat.

There's almost a little, hard off a week's trip about overconfidence, but we're -- people that we talk to, not necessarily our own businesses, just seem pretty upbeat.

But everybody in Europe is complaining about the strength of the Euro relative to the Asian currencies and the Yen.

So, it's -- our European businesses were fine.

Every one of them.

Our AMOT businesses has been in Europe and our Struers business and even the auto business, as well.

But it's not a strategic driver.

What is really happening is the few dollars -- you could see we had 2 points of internal growth that was really currency driven when you repatriated, as opposed to unit driven.

Got it.

That is fine.

I'll take more offline.

Thanks, guys, great quarter.

Thank you.

We go next to Scott Graham with Bear Stearns.

Good morning, nice quarter.

A couple of things.

Could you tell us FX by segment?

No, we don't really.

The highest would be energy and that would have been between 2 and 3 points.

All right.

That's helpful.

And that is just where they sell, it's not -- .

That's fine.

I understand you wanting also to group these acquisitions together.

But could you at least tell us what the JLT acquisition revenues were?

It's really modest.

It's a very small amount.

Really, there is a company in Sweden called JLT and we have worked with them and this is their U.S.

distributor.

And so, we're going to distribute some of the products from Sweden that JLT has.

And I don't remember their revenue size, it's a publicly traded company over there.

And our revenue for the year on JLT will be less than $10 million.

Okay.

It wasn't -- the point is that is not a thing we've talked -- that is a product line distribution channel and lots of product development that we're going to accelerate at a very fast pace.

That's the reason we acquired the company, not to acquire its existing sales base.

Okay.

As far as -- you went through a number of RF wins, the AMR wins, could you maybe talk about other business wins around the company where you can sustain this internal growth, which has been good for some time?

Well, we've said to people over time, we still think it's certainly a market driven industrial, as we said last year and this year.

In a diversified curve business, there's a lot of things going on.

But we model still model the company at 1.5 to 2 times GDP and guys said, "Well if say, if you just grew 14%." That is true.

But to think that the Company has got more than 10% internal growth in perpetuity would seem to be strange.

I think that we have had so much more recurring revenue that it keeps getting the basis high.

And as we have always said, fundamentally, this is a Company that hits a lot of singles and hard line drives and ultimately winds up with the four-run grand-slam event.

We're not a Company like the more capital intensive, traditional industrial companies, that sit there needing to get the big win for $200 million.

That is not who we are, it's not important phase of stuff and from time to time something big happens.

That is not why you want to invest in us.

Okay.

I have a broader based question now that talks about balance sheet assets fixed versus soft.

And I am looking at your intangible assets number and it went up essentially about the same amount as what your acquisitions were during the quarter.

I don't know if there was an adjustment in there.

But what my question really is about is you have a substantial portion of your assets, by design, in goodwill and in intangibles.

You had this quarter probably, a five or six-quarter low CapEx number.

Brian, is there some point where you become less comfortable with that?

Where maybe there has to be some type of hard assets investment or reinvestments across the Company?

Never.

Our CapEx isn't going to be more than 1.5% to 2% of revenue ever.

A lot of our capital spending is actually software development that has to be capitalized under GAAP.

Occasionally, you've got some spending for IT That has to come in there.

We don't have large machine tools.

Pretty much any kind of machinery that we have that sort of fell out of phase would wind up getting outsourced.

So, there is very little.

If you look at our depreciation, the depreciation and the Cap Ex are pretty close together.

And no surprise investment is going to come up two years from now to maintain some business with some auto companies.

It's just not our style.

Well, let me ask then, sort of the contrapositive question.

Would be that your CapEx spending, essentially, is in no small part within your SG&A line.

Just to make it maybe a little bit more apples-to-apples.

When we see SG&A down as much as we did this quarter which, which was a great number, where are these investments to sustain this growth coming from?

They come from the people that we have, the markets we serve and the strategies we employ and the governance that we provide and that's the ongoing nature of having high value human assets that are really focused on building strategic relationships with end users around the world.

Not capital intensive customers that are totally dependent on distribution for their lifelines for product sales.

Okay.

That's fair.

The last question is this.

I know that is convert really gnaws it you.

It doesn't gnaw at us.

It was the best thing we ever did.

If we would have been in a situation when that was issued at $24 and we would have take another $200 million of debt on our balance sheet, I would not have been able to work with that much debt as a function of training EBITDA.

When we acquired Neptune, we paid $500 million for a company and that was 4.2 times our trailing EBITDA to sign the purchase.

That was a very big acquisition.

And we didn't have a rated debt prior that to that.

We needed a balanced approach.

A little bit of equity, a little bit convertibles and some debt to get us into the kind of background capital structure we needed.

We accomplished it and the results speak for themselves.

Okay, actually there is a last question.

Dynisco operating margin, that appears to have been a negative mix drag on energy.

And I was wondering if you could elaborate to the extent that that was a negative in that business?

Yes, well what happens, is you get the intangible amortization of a non-cash item, which was in the quarter for Dynisco was $2 million or slightly above it.

And then you've got the inventory step-up.

So you had $3 million of noncash exposure in the energy segment because of Dynisco and AC in the quarter.

But the $2 million stays?

Yes.

The amort.

will stay, the noncash amort., yes.

Very good.

Thank you.

We'll take our next question from Christopher Glynn with CIBC.

I have a question on investments as well.

I know the CapEx is low.

But in terms of --you talk a lot about different cross pollination opportunities in the portfolio, leveraging acquisitions and a lot of new product introductions.

So, is there an opportunity to step-up the investment in the sales force to really push all of these opportunities?

I think if you look at our SG&A expense, you see we spend a lot of money developing direct sales forces to reach our end users throughout the world.

So, additional cost in the SG&A area is not required.

And on the Roda acquisition, how would you rate revenue synergies opportunity in terms of, what do you like better?

Do you -- that gives you better access into the oil sands or taking their stuff more global?

Both should be really good.

They have a dominant position in their home base, in oil sand, so I -- as for the business growth, they will continue to growth.

But their growth will be predicated on our ability take their products globally.

We'll get some internal synergies from having the people who contact Roda directly.

We give Roda a broader application of balance and controls for applications, so they will sell more of our product.

Their product is so pre-eminent that they don't have virtually a sales force -- you call and you ask for this by brand because it's a regulatory requirement to have a certain kind of technology.

And they have that, so, they don't have much competition.

Got you.

Thanks very much.

You're welcome.

That concludes today's question-and-answer session.

I'll return the call back to John Humphrey for any additional or closing remarks.

Thank you, Matt.

And thank you everyone for joining us this morning.

I will be available for later on.

And of course, all of the information that we just went through is available on replay that you can dial into.

Thanks to everyone and we'll talk on to you again in three months.

Thank you, that does conclude today's conference call, you may disconnect at any time.