Roper Technologies Inc (ROP) 2007 Q4 法說會逐字稿

Ladies and Gentlemen, please stand by.

The conference is about to begin.

Good day, everyone.

Welcome to this Roper Industries fourth quarter year-end financial results conference call.

This call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr.

John Humphrey, Chief Financial Officer.

Please go ahead.

Thank you, Cynthia.

And thank you all for joining us this morning, as we discuss the results of our 2007 financial performance.

Joining me this morning is Brian Jellison, Chairman and CEO, and Paul Soni, Vice President and Controller.

Yesterday afternoon we issued a press release announcing our fourth quarter and full year financial results, in addition we issued a press release announcing the acquisition of The CBORD Group.

The financial release also includes telephonic replay information for today's call.

We prepared slides to accompany today's call which are available through the webcast, and are also available on our website at www.Roperind.Com.

Now if you will please turn to Slide 2, once again see our Safe Harbor Statement, I want to remind you that today's call will include forward-looking statements, which are subject to risks and uncertainties as described on this page, additional information about specific risks are included in our SEC filings, I would encourage you to listen to today's call in the context of that information.

Now if you will please turn to Slide 3, I will turn the call over to Brian Jellison, Chairman, President, and Chief Executive Officer.

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

Brian?

Thank you John, and good morning everyone.

This is the first slide is a summary of what we will go through today.

Our fourth quarter highlights, and then our full year results, and during the quarter results we will look at individual segment performance.

We will introduce you to the CBORD acquisition, and why we think it is a particularly successful one for us, and then we will talk a little bit about our 2008 guidance, and cover some information around sort of historical perspective.

We have gotten a lot of questions over the last three or four months about what kind of performance would one expect out of Roper if there is an economic downturn, and how can we look at 2001 and 2002 and coming out of that timeframe, relative to looking at what could be entering in 2008, and I think that perspective may be helpful to everybody, and then we will sort of summarize what we said and get into Q&A.

So with that, we could take a look at the first slide, which is how the enterprise performed in the fourth quarter.

Here you see sales orders, EBITDA, operating cash flow, operating profit, net earnings, and diluted earnings per share, all reach the highest level of any quarter in the history of the Company.

We had internal growth of 14% on the sales side, with about 3 points of foreign exchange and total growth including prior year acquisitions was up 20%.

We ended the year with a record backlog of $532 million, which gives us kind of continuing strong performance, which we are going to detail in a second, around book-to-bill ratios.

You may notice in the first quarter on a nominal quarterly order rate, it was not a double-digit number, but that is really very misleading as you will see.

Operating cash flow was $117 million in the quarter which was really phenomenal 21% of sales.

Our operating margins in the quarter were up 120 basis points to an all-time high, up 22.1%.

We generated $146 million of EBITDA in the quarter, continuing margin expansion with EBITDA actually hitting 26.1% in the fourth quarter, and of course the DEPS we reported were $0.77, up 24%, actually it would be even a higher performance compared to last years $0.62, because it included a detriment of a penny on cash and a penny on higher tax rate, so it's not hard to look at a $0.79 versus $0.62 comparison there.

Next slide, if we look at the individual segments, in Industrial Technology, they had certainly record sales and operating performance in the quarter, internally we were up 13% driven again by Neptune's automated meter reading shipments, and continuing production, and very strong demand for an expanded line of flow meters we have introduced recently, and then strong growth in South America and Asia for cold storage products that go out into the Hansen brand.

Margins in this segment were up 190 basis points to 26.4%, which we think is pretty strong performance.

Our Energy Systems and Controls Segment which does get more and more like protective technologies as we have been saying had a very strong finish to the fourth quarter.

They were also up, with internal sales up 14%.

We introduced some new jet fuel measurement products, and a new line of gas chromatography products, which took off very well, some of that from our AC Controls acquisition not long ago, and then our Process Weighing business which was bolstered by Dynamic and Hardy acquisitions has performed very well, with new products we have brought to the market.

The Protective Technology Solutions we have introduced for marine turbines has been very well received, and it has driven strong demand in the segment.

Operating margin in the quarter was up 50 bips to 28.8% pre- tax with those favorable new products coming in at higher margins.

Next chart.

Here if you look at Imaging it did recover as we suggested it would, it made 20% pre-tax in the fourth quarter.

It's internal sales were up 9%, if you netted out the Redlake Motion business that we moved into a minority investment, and adjusted for that and the DAP shipment catch-up, we would have been up actually 15% internally.

We had very strong business both in Asia and Europe on our Physical Science side of the activity, but U.S.

funding for NIH Projects is still quite tepid.

The DAP situation that we had last year in '07 of course pulled down earnings somewhat, and we will talk about that when we get to the full year.

It will make a little easier comp for us in '08.

The RF segment capped off a record year.

We had internal sales growth in the fourth quarter of 17%.

Orders on a nominal basis were down 8%, but all of that was driven by the fact that in the fourth quarter last year, we booked our Middle Eastern order, which was an anomaly.

That project performed exceptionally well throughout 2007.

We got most of the installation work done, a lot of the operating activity, and the adoption of tags and readers has come at a faster pace than originally thought.

We have got a project under way here in Florida with open road tolling that was instrumental, and a number of projects in violation processing and administration, which drive long-term recurring revenue that occurred beginning in Q4.

Our Inovonics activity around wireless sensor technology continues to grow, as we look at more and more senior care applications for the wireless sensor products, and we see that continuing strongly in '08.

Operating margins in the quarter were up 320 basis points to 19%, and total EBITDA margins for the 12 month period came in at 25.7%.

Next slide.

If you will look at the Income Statement for the fourth quarter only, you can see total sales were up 20%, 14% internal as we said.

Income from operations was up 27%, and then the tax rate you can see was 34.9% in the fourth quarter, versus 33.7 a year ago, which cost us a penny a share, and then the DEPS $0.77 versus $0.62 was held back by a penny on the CATZ amortization requirement.

Next slide.

Here, if you will look at margin expansion, I think people keep asking me when this will stop, and as long as we continue to grow, we don't know why it is going to stop.

This is really what we do here.

We have a very disciplined governance process, we start with breakeven analysis on each one of our businesses and product lines, customer performance, and as we grow, we capture more of the contribution margin out of each one of those products.

You can can see we did hit our record Q4 performance of 22.1%, and we also like to see how we are doing on a trailing 12-month basis, and here you can see on a trailing 12-month basis it was 20.9%, going back to a year ago that number would have been 19.9.

Next slide.

This is a new slide, we haven't shown you anything quite like this.

You may have done some work thinking about it on your own.

This is book-to-bill understanding about how things work here.

What this graph shows is if you look at set the line at 1, and say if you were up or down by 3% in a quarter what the does it look like, and what that does is it almost always captures what will happen, so occasionally, you will have an outside order.

During this more than three year period, you will see there have only been two times in that three plus years that we have been out of the book-to-bill ratio contained within a 3% spread.

One of those was the third quarter 2005 when we booked a substantial project for TransCore in Memphis and in Virginia, and then again we had the fourth quarter of 2006 where we booked the Middle Eastern project.

Other than that, you can see it is a pretty common situation that we will book in the quarter relatively what we will ship.

Our businesses generally now run on a two to four month cycle time.

We have a lot of recurring revenue.

People don't pre-order.

We have no channel stuffing.

There are no dealers that are handling substantial quantities of inventory for any of our product lines, and so occasionally, you get the one-off project.

Well when that occurs in the fourth quarter, it may look like bookings were a little soft compared to the prior period, but in reality, our book-to-bill ratio for the fourth quarter was a solid one, and we don't see any reason to be concerned about that.

Next area, we will get into the 2007 full year results.

Next slide.

Here if we look at the income statement for the full year, you can see sales reached $2.1 billion.

Last year at the end of the year we said we thought we might have an outside shot to get to 2 billion, and we actually got all the way up to $2.1 billion.

That is up 24%, our income from operations was up 30% and the DEPS were up 26%, but CATZ throughout the year took away a nickel of that stated performance.

If you added that back we would have been at $2.73, and up even more strongly.

Next slide.

Here, if we look at margin expansion just for a minute, again, I think it is important for investors to understand how our discipline drives this margin activity.

You can see gross margins in 2005 were 50%, and in 2006 they were 50.6, and in 2007 they were 50.4, and that includes bringing on board some businesses with lower gross margins at the beginning, and yet, while gross margins only went up 40 bips during that two-year period, our EBITDA margins went up by 210 bips, and that demonstrates a couple of things.

It demonstrates our ability to hold the line on pricing, and it demonstrates our operational execution capability as we get better inside the high gross margins that we have.

Next slide.

We had very compelling cash flow last year, this is something that people feel quite good about.

It was a major focus, because frankly we were a little bit unhappy with the working capital management in the field in 2006, and it was a very strong focus for our operating guys this year, and they certainly delivered.

You can see that in addition to driving up EBITDA performance, that working capital really helped push us into a phenomenal result here on operating cash flow that 344 million, up 31% from the prior year.

Next slide.

If you look at how far we have come on cash generation, working capital, I think it speaks to our governance model, and how our folks really do pay attention to what is important.

When we started this process to get inventories down and receivables down, and payables up, you can see in October 31 of '02, which was our fiscal year end close for 2002, inventory was 13.2% of sales.

This past year, on December 31st, our inventory was down to 7.8 percent of sales.

Our receivables has dropped from 20.8% at the beginning of this journey to 16.1, and our payables and accruals when you net those against it, you can see that the networking capital number dropped from 18.9% to 10%.

That is 890 basis points improvement over this five year journey, and what that means is we need $200 million less investment to generate the level of sales today, that we would have if we had not made these improvements, back five years ago.

And then people see the improvements as you did in '06, and say wow, you got the networking capital down to 11.4, it will surely stop there, and of course it doesn't, because of the way we measure, the way we help, the way we guide, and how well our people perform, so we picked up another 140 basis points in 2007, and we still think there is an opportunity of a little bit more on the receivable, and a little bit faster turns on inventory.

Next slide.

In terms of individual sector performance, here you can see across the board, we had very solid contributions from everyone.

The RF segment came in, these are all rounded numbers at 26%, actually moving past Imaging, which dropped into last at 24, Industrial as 30, and Energy at 28, and then Roper where we consolidate all of the corporate expenses, came in at a little above 25, as you know on 50% gross margins.

First segment we will look at today is Industrial Technology.

In 2007, our revenue was up 17%, and Industrial Technology orders were up 8%.

The RF integration activity around automated meter reading at Neptune certainly was a major contributor to that.

It set all-time records here in '07, and we continue to gain share not only in the automated meter reading, but frankly in the core water meter business itself, in both commercial and residential applications.

We converted to a direct salesforce for Struers, and some of the other material handling businesses, and that drove added growth this past year and we think positioned us well for the future.

And then we had strong growth in Agricultural and Industrial and Gas Fluid Handling end markets, pretty well across-the-board in each one of those businesses.

We had particularly strong growth in our Ammonia Coal Storage safety technology from Latin America and Asia, where there was substantial expansion of Cold Storage activity, and then we had something that was particularly heart warming, occurring late in the fourth quarter, and has carried over well into the first quarter, where we got the first real sizeable international order for Neptune products that we have been working diligently at, and Chuck and the team there have done a terrific job, and those shipments will really help bolster our first quarter, and should offset whatever softness we might see in the residential market.

Operating margins in the year were up 220 basis points to 25.6%.

We are particularly proud of how well Neptune performed, in the face of very strong cost/push inflation out of copper, going into their meter products, and all of that and more was offset by reductions in our Electronics and in factory throughput capability, and then customer intimacy and cost discipline really improved margins in every one of the other businesses.

We look here at Scientific and Industrial Imaging, you will see for the years sales and orders were both up 11% and that was in the face of a difficult period at DAP, as you may remember, with the touch screen problems we had from a vendor, and then of course the moving out of our Redlake Motion business.

Key drivers were really physical science products that went into the Asian and European Markets.

The U.S.

remained weak with poor funding out of the government research venues.

Market demand did drive double-digit growth in our medical business for infection control and biopsy systems.

That would be Civco, Medtec, and [Syn Med], margins for the entire year came in at about 19.5%, I suppose we could round it to 20, but it was 19.5, and that was pulled down a little bit by Redlake Motion exit costs, and substantially by the DAP problem which is now behind us.

We did get back in the fourth quarter to 20%, which we indicated we would on our third quarter call, and we took some pretty aggressive actions here in '07, I think you will see the results of that in our margins in '08.

Our Energy Systems and Controls business was up a modest 52% as you can see in orders, and 50% in sales.

They of course were benefited by a series of bolt-on acquisitions, and the outstanding performance from Dynisco in '07, which we acquire in '06.

We pretty well did everything we said we would do in Dynisco.

We brought in a world class business leader into that business, and our view has gotten off to a good start, and we have a lot of opportunity in Dynisco.

The other acquisitions in Protective Technology have actually outperformed our first year goals, and are helping us achieve kind of guidance that we have laid out for 2008.

The shutdown controls that we have launched for diesel engines have been very successful, and the sensor technology and process weighing we are doing for people to assure themselves that their asset optimization, and waste containment and spoilage, and the things that they need to see for Control technologies are working well.

And we introduced some new products into the hydrocarbon analysis business, and the gas chromatograph business, that have performed well.

Margins in the segment which includes the acquisitions, which would come in generally at lower margins.

Margins still hit 24.5% for the full year, and that includes $8.3 million of non-cash amortization, and if you add back the non-cash amortization, then you will see the margins were substantially higher.

And the improvements continuing in the acquired companies, as a family they came in at about 24% EBITDA, and about 16% pre-tax, so if you adjust for that you will see that the underlying core businesses all had record performance.

Next slide.

Just to remind us of the Protective Technology acquisitions that we have made which are part of the $474 million of investments in the last 12 months, that includes Roda Deaco, and Hardy Instruments, Dynamic Instruments, and DJ Instruments, those are all performing as we indicated they would, and we think they will perform a bit better here in '08, coupled with the CBORD number to deliver really excellent results against our purchases.

Next slide.

If you look at the RF technology, this was up 21%, orders were up 13 on an internal growth basis, sales were up 19, and orders up 12.

A big driver of that of course is the Middle Eastern project, which actually came online faster than some expected.

We got more reader shipments in country, due to faster installation and design execution, and the initial phase of operation has produced a series of follow-on orders, as tag shipments have exceeded people's expectation around the adoption of the usage of those in country.

We also had very strong replenishment and upgrade of our eGo tags in the North American market, and then the freight matching business expanded sort of throughout North America, both Canada and the U.S.

As the 360 program that was launched performed well, and people added services to their underlying suite of products, and lastly, the wireless sensor business performed well, as we found new applications and new outlets, and new OEM arrangements.

Operating margin as you can see for the year was up 340 basis points to 20.7%.

We got certainly leverage on an outstanding mix of product, and improved better in our non-product portion of activity around basically subscription services that we do for people, and those came in at higher margins due to productivity increases.

Next slide.

If we look here at the acquisition process, it continues to add value.

We were able to invest $474 million in the past 12 months.

Those businesses are going to produce well in excess of 150 million to $165 million or more of revenue, and perform at very solid EBITDA levels.

Frankly, generally higher than the overall Company.

They all have the same criteria, and if we look at CBORD directly for a moment, you will see you can check the box, was it an asset light business?

Absolutely.

It has a very unique business model, we will talk more about in a minute.

Very low CapEx, certainly no need to invest more than 1 or 1.5% into the business annually.

For us, immediately cash accretive.

Just terrific market structure, but one of the things that is phenomenal about Tim's business is that with existing customers we only serve maybe 15% of the suite of things that we can do for them, and that is going to drive long term growth, and the driving forces in those markets are all coming our way, and today, a lot of them related to healthcare and university campuses, but there are a whole plethora of opportunities in other educational venues.

Management continuity is important to us.

We have signed up the leadership team.

We are very happy with CBORDians, as they would be known.

It is a marvelous group of folks, with a lot of intellectual capital residing in other places around the country.

The incentives, as always, are linked to the commitments people have made to us.

This is a business that is going to do in excess of 8 to $10 million a month this year in revenue, and it is going to do substantially more than that in 2009, with EBITDA performance well above $35 million next year.

We are going to preserve core values in that business, because we think they are outstanding, but we are going to encourage them to invest faster, to grow more, and to reach out to international markets, which we have been successful doing.

I don't think anybody thought we would have the level of international growth we have had this year.

We will talk about that later, but yet we do have global reach.

Our governance processes are just barely under way.

We have been at this discussion and acquisition for months now, and so I know that all of the folks in Ithaca know how we think and feel, and we have committed to them as we would to you, that businesses like this are being bought to grow, and we will achieve that.

If you look at the next slide, just in sort of a one line quote for us, why do we love CBORD?

And the answer is for us, it is a perfect match of security, healthcare, and information for end-users, but it is all rolled together in one single integrated platform, with an exceptional leadership team.

This is a rare find for us.

We have worked exceptionally hard to find people that get us into the educational markets, healthcare markets, and people that have a core desire to serve customers, and those are very hard things to find, and to find one team with both the product and the service mentality and the software capability, and the reach in country, and the desire to be worldwide is a unique gift, and we were very glad to be able to pick up CBORD, and make it now a third cash register platform for our customers, just as Neptune and TransCore have done.

With that I would like to ask John Humphrey, to take you through some more details about the end markets of CBORD, and how we see it fitting into the enterprise.

Okay.

Thank you, Brian.

On the next slide, talking about the CBORD group, what it does, it is the leading supplier for integrated card systems, security solutions, and food and nutrition management software, serving the markets that Brian talked about.

Their extensive software capabilities across the enterprise, a very high degree of recurring revenue, which I will talk about on a future slide, and the experienced leadership team really demonstrates the type of committment and passion that we also share.

It does have a 30-year history, with long established customer relationships, and offers multiple growth opportunities, not only among itself, but also with the application of other activities and technologies that we have inside radio frequency, providing channel access into those markets for TransCore and Inovonics, and then we will be able to help CBORD grow even faster on a global basis.

Go to the next slide.

Talking a little bit about the university and college markets, there are some very good growth drivers here, in terms of increasing demand, to be able to utilize this one card in the wallet idea, for all of the students and faculty members, to be able to utilize that not only for transaction services, but also for other integrated campus-wide solutions, that electronic access for getting into buildings, or chemical labs, or other recreation buildings and facilities, so that single card will be able to migrate not only from foodservice, and bind whatever the student might need on campus, but also allowing them access into the areas that they are authorized for.

There is growing discretionary spending both on-campus and off-campus use, and CBORD has the unique ability to be able to take this closed loop network that is inside the university, and be able to expand it into off-campus retail applications as well, and really rising expectations for high quality foodservice solutions, type of software that the CBORD has will really enable that.

The CBORD solutions you can see at the bottom, the leading provider for this single card solution of transaction services, and the foodservice management allows them to manage, not only their own internal inventory levels, but also provide better nutrition information for their customers.

Next slide.

The specifics around the card systems, which is really the core of the offerings into the university market, it is the one card in the wallet that the student will be able to use to really do everything they need to do during the day, whether it is access, whether it is purchasing, whether it is understanding how and where to go, and then being able to take that as I said into off-campus commerce, through the student advantage and the off-campus advantage of brands.

And then in addition, there are follow-on software and other hardware sales, so not only does the card work, but also the integration with locks and integrated security, which includes video and integrated access solutions, all under the brand names that you see on the right, CS Gold, CS Access, and OdysseyPCS, it is used not only in university situations, but also in any type of large multi-facility, multi-access point campus solutions like the Aviator Sports and Recreation, which is up in the New York area.

If you go to the next slide, the same solution works very effectively in hospital and managed care markets, where have you some of the same types of growth drivers, where aging population is leading to more managed care facilities, and nutrition services are becoming a very important part of the treatment, in the foodservice Management and the ability for customers in that environment to know exactly what nutritional information they are receiving, and being able to do that in a very seamless way, is an important part of what the CBORD will be able to offer.

CBORD already has 1,700 major healthcare licensees, and they are serving half of the hospitals with over 300 beds in the U.S, however, that is just the number of the facilities that are utilizing CBORD today, and as Brian mentioned, very few of them are taking advantage of the full suite of services that the CBORD will be able to offer.

As you can see on Slide 27, this is really a Blue Chip customer base, major leading universities, some of the best hospitals across the nation, and other campus and foodservice locations, suffice it to say that the customer diligence here was quite easy to perform, and the types of customer satisfaction rates is not something we see very often.

Finally on the next slide, it is really a unique business model that has been proven over a number of years.

It is a very high degree of recurring revenue.

In fact about 80% of CBORD's revenue is generated from existing customers every year, with a substantial portion of that being annual pre-paid subscription fees, so they can continue to utilize the software and services CBORD has been able to provide for them, and to make their campus lifestyle much more enjoyable.

And then along with that of course, being able to expand the suite of services, and additional applications for those existing customers, and the customer retention rates here exceed 95%.

Once CBORD has a customer here, with the customer satisfaction and the integrated solutions, there is a very high degree of recurring revenue that is very notable.

It does employ an asset-light business, and with the pre-paid subscription model, that is very good for working capital.

Working capital is extremely low, in fact very minimal, rounding to a very small number (laughter), and Capital Expenditures in the 1 to 1.5% of revenue, once again picking off one of the key criteria that we look at, and EBITDA margins above the Roper average, and as Brian mentioned, there are multiple growth paths, and attractive markets, not only in expanding with health care and universities, but also looking at international opportunities.

So with that, Brian, back to 2008 guidance.

Okay, thank you, John.

So we go past the 2008 guidance slide.

First, a little historical perspective about trying to answer questions people have had about, so I read people talking about how Roper will perform in 2007 and '08, and based on what it might have done in 2000 and 2001, and I just want to clarify a few things about the Company we are today.

The vast majority of our business is coming from secular growth in Water and RFID and Security and Software applications, and recurring revenue business models that really offset much of the risk of economic downturns.

In 2001 and 2002, Roper had 10% of its total sales coming from Russia, and those were at extremely high levels of profit contribution.

Today that is a totally deminimus activity.

The second big contributor was Semiconductor capital spending around photo resist pumping technology, as people were building out the industry, and you have also the Automobile Motion photography business, which was primarily a domestic market.

Neither of those is material in any way to the enterprise.

Our asset velocity in 2002 was 18.9% of sales.

Today, our asset velocity is 10% of sales, and that the frees up a lot of cash, and also equally importantly, means you are not going to have inventory risk.

You aren't going to have any kind of adjustments, that the occur in situations where you have been operating in a different kind of a business system, and we really transform the Company during these periods, back in 2001 this was a holding company.

It morphed into a little more of an operating company as we created the segment strategies, and then it went into the market driven industrial, we were proud of the things that we bought.

Today it is really a diversified growth company, and it has pretty well eliminated the older cyclical risk that people associate with Roper, and to suggest that whatever it is today has some relevancy to what it was five years ago, is to not really understand what the Company is now.

Next slide.

If you look at historical perspective around Roper, you will see the key changes and driving forces for the enterprise today, almost all of which didn't exist in 2001.

Today you have Water Metering and Usage Information and Collection.

You have RFID Technology Applications & Solutions at the high end of the market.

You have Freight Matching & Logistics, that has to do with asset protection and utilization.

You have Protective Technologies, that are protecting and warning people about their asset utilization.

You have Long Term Contracts with Renewables.

CBORD alone, we expect to have over half of its business be simple Subscription Renewals.

Patient Positioning that has little or no risk, CMS reimbursement issues.

You have a very diverse international business.

I think people have not focused, and probably our fault, on how strong our international business is, because people ask me too often, well, it is all domestic now with Neptune and TransCore.

Well, pardon me, our international sales in 2007 were $859 million, 41% of total revenue.

We continue to have high gross margins with low CapEx, and we have a very strong balance sheet.

Next slide.

If you look at how we are positioned going into this year, we have got Industrial margin performance that we believe the gains we made this past year will hold and could actually improve.

Our international sales for Water Meters will actually have an impact for the first time in the history of Neptune's activity, and are going to help us offset any weakness that might occur in some of these residential markets, although we haven't seen that the affecting the business in any measurable way.

We have growth in our recently acquired Protective Technology businesses, that is going to add to EBITDA performance in 2008, and in the future.

Our Compressor Control business which suffered through a little period of service revenue slowness is back, it had a strong fourth quarter, and is projected to do well in '08.

Our Zetec business which launched new nuclear testing platforms last year continues to grow nicely, and is well out in front of the curve for activity that is going to occur there.

In our Energy businesses in total, for the first time entering a year, we actually have a complete absence of negatives.

Usually there is one of the businesses that will have some kind of headwind or something, and at the moment, none of those businesses have any headwinds.

They have strong backlogs and have a very strong projection for their performance throughout the year.

And we continued to see bolt-on opportunities, both in the Energy and Protective Technology areas continue to surface, and you can see an improving climate for acquisitions in total.

Next slide.

If you look at our Imaging business, it has easier comps in '08, because of the Redlake losses being behind us.

And then the Q4 margins that got back to a more acceptable level, will easily be maintained in '08, and in our view should in fact improve.

We have growth in the Security Camera and Teleconferencing activities.

We have been doing the Teleconferencing with [1080 P] profiles, and we will have opportunities to do that in other venues.

The RF opportunities continue in our Middle Eastern project, as that continues to build out at a faster clip than originally thought.

Our CBORD acquisition gives us tremendous new capabilities, and channel access to markets, that we couldn't have gotten to without a leadership team like this, and an installed base like they have, and our rugged handheld application business with JLT, and the new technology we are launching in Black Diamond has growing applications, so I think we are going to be able to expand beyond kind of just FedEx and baggage handling, in to some other exciting areas.

And the acquisition opportunities we have mentioned continue to improve, and while the pricing we think is not as adjusted as it should be with the credit squeeze, you can see things moving our way pretty quickly.

On 2008 guidance, here we established DEPS guidance at $3.10 to $3.20 for the year, up from $2.68, which was the year-end number this past year.

And EBITDA we think will exceed $600 million for the year.

Net earnings will exceed $294 million, and I wanted to focus just for a moment about depreciation and CapEx, because our operating cash flow as you can see, we are guiding will be in excess of $130 million of net earnings.

The reality here is that occasionally people say, gee, they haven't spent much money on CapEx.

Well, it is not true.

We don't need to spend much money on CapEx.

Our CapEx as you can see in 2006 was $32 million.

Our depreciation was $30 million.

In 2007, depreciation was 32, and CapEx was 30.

We are going in to this year thinking we will probably have depreciation around $32 million, we will probably have CapEx a little less than that.

We simply don't have a business model, that is smokestack America with vertically integrated factories that the have a lot of D in their business.

What we have is a wonderful business, with a whole lot of EBIT-A, and that intangible amortization and non-cash expense adds a heck of a lot to our operating cash flow, and the free cash flow of the enterprise.

This is an outstanding business model going continually progressively up.

Now in summary, what you have are actions that the have been taken in 2007, and investments made to position us extremely well for 2008.

We have a record backlog as we enter the first quarter, so we think we will be off to a fast start.

In the past 12 months we have deployed $474 million in capital, in transformational deals for both the Protective Technologies and the RF segment, and that is really an amazing breakthrough, because it has all been funded out of free cash flow and our strong balance sheet.

We are in a situation if you go back to December 2003, when we made our investment in Neptune, we paid $500 million.

We had to issue equity.

We had to issue convertible securities.

We had to issue public debt, and we had to completely recapitalize the enterprise on the debt side.

In December of '04, we invested $600 million in TransCore, we had to issue equity again, we had to completely refinance the Company on the debt side.

Here we have completed in the last 12 months, up nearly similar kind of investment, $474 million, and have not had to do anything in the way of equity issuance, or anything in the way of convertible debt, and we are in a marvelous situation today with our ongoing balance sheet.

If you just think about this investment, which occurred on Wednesday for $367 million, it has a benefit of $23 million of tax benefits, if you net that you are at 344, and guess what?

Our operating cash flow for the year was 344 million.

So we like where we are.

We think we have achieved a lot for our investors.

We think we will continue to achieve a lot.

The significant reductions we got in networking capital and operating margin expansion, drove that cash flow, and our international sales grew 41% last year.

So we are in a global business here.

We went up from $610 million in '06, to $859 million, a 41% increase, and it so happens to also be about 41% of total sales.

The U.S.

sales grew 14%.

We expect record performance in '08, with over $600 million of EBITDA, and 130%-plus cash conversion.

And with that , we will open it

Cynthia, are you there?

Are you ready for questions, sir?

Yes, we are.

(OPERATOR INSTRUCTIONS) We will a take our first question from Christopher Glynn with Oppenheimer.

Please go ahead.

Thank you.

Just want to follow-up on the international theme a little bit.

I think three things that stood out to me over the past year, you had the Middle East project and the tolling, and recent press release on electronic vehicle registration in Bermuda, and today you mentioned the first international deal with AMR, I believe.

So I mean, what kind of signals are those on traction and street credentials, for really starting to build those pieces of the business out internationally?

Well, we didn't really say anything about AMR.

We talked about Neptune business, and water meters.

Okay.

And that is not automated meter reading.

We are actually talking about installing water meters in residential mode, and it may well include AMR technology associated with it, but it is not necessarily being lead to the AMR technology on its own.

It is an integrated kind of a business.

I think that when you are taking businesses more into a global venue, it takes time to build scale, and what the we do is we have the ability to get people in front of the right individuals.

We have the ability to add scale and credence to what anybody is going to do, and it is always easier for somebody with a 5 or $6 billion market capitalization, to come in and talk to a foreign country about what their smaller entity is going to be able to do and sustain itself.

We can usually do a better job on working on letters of credit, and sophisticated contracts, and local service.

So the growth in our international business was strong in the year prior.

If you excluded those growth, you still have very substantial growth across the board in our businesses, we have wonderful international based operation businesses that continue to grow nicely.

I think that our growth focus is a core competency throughout all of the businesses we have, and where it is going to pop up in any area you don't know.

We are focused on all of the markets that we can get access to with the right kind of product mix.

It so happens that you had very strong international performance last year, and because we don't tend to detail where everything is going everywhere, we probably have undereducated people on the strength of our capabilities internationally.

That is why I wanted to cover it in the summary today.

You will read it in the K when it is released, but I think it probably deserves the conversation we created.

Okay, and what are you seeing, in terms of the marketability of electronic vehicle registration in the U.S?

Well, we think it's time has come, but we are a provider.

I think it is going to have an exceptionally slow growth execution process.

There are a lot of forces aligned against it.

We work hard to try to demonstrate how valuable it can become, but there is no application in the U.S.

today for electronic vehicular registration, in the context of what we are doing in some other parts of the world.

Okay, thanks very much.

You are welcome.

We will take our next question from Michael Schneider with Robert W.

Baird.

Please go ahead.

Good morning, guys and congratulations on a great quarter and year again.

Thank you, Mike.

Maybe we could focus on Neptune for a minute, and stick with this international theme.

Brian, it was my understanding the reason they had not gone overseas, was principally because of differences in code specifications, and measuring or measurement units, et cetera.

Can you describe I guess what is going on in the product design or adaptation, and really what is the market size, or can you address the global market, or is it only English-speaking and English measurement countries?

Well, the market, globally hasn't changed.

I mean you are right if you look at Europe the water pressures are different, a lot more submetering, less individual residential, things like that.

This is an application that we have been looking at the for a while, so there are pockets of opportunity, where you have situations that are existing technology, is exportable, and we have been able to be successful recently in three of those.

But we haven't really redesigned the product.

This is our existing product and our existing data capture capability, getting applied to markets that I think people, fortunately for us, weren't focused on, didn't realize were there, and after they have matured a little bit, we will probably talk a little bit more about them and why they work.

Today, you couldn't say that we think Neptune is constrained internationally, by markets that have different water pressures, and different sizes and configurations, but fortunately there are pockets of opportunity, and we tend to be pretty good figuring out where they are, and seeing what the we can do in them, and this is one in an emerging country that happens to have a very solid desire for world-class infrastructure, and so we kind of participated in that strategy for them.

Okay, and then as far as the domestic market goes, have you done any sensitivity analysis, as to Neptune's exposure, as states begin to run budget deficits now, there are more than 39 running deficits right now, what the impact is on just core meter spending, and I guess what are the most recent trends?

Well the only place that we have really seen in the country that has had a measurable pullback is the State of Florida.

There are some unique things going on down here, but we have looked at more than a 25-year trend of different economic downturns.

Neptune has never had a flat or negative number.

Their worst case has occurred three times in the last 25 years, and it had 3% revenue growth.

So they feel confident that they are going to have another record year in 2008.

They will get benefited from some of this international stuff.

It probably is not a year they can grow at 10% if things continued down, but I wouldn't bet against them, if anybody could do it, they can.

We will take our next question from Jeff Sprague with Citigroup Investment Research.

Please go ahead.

Thank you, good morning, everyone.

Good morning, Jeff.

Can we drill a little bit more on CBORD, it certainly looks very unique from a return standpoint.

Brian, it does I guess part and parcel, that it is kind of outside kind of that window of EBITDA multiples you usually talk about, just doing some rough math based on what you said.

Well it is a pretty high margin business, Jeff.

We're just not the going to, I guess get too specific about that, and it's something we have been working on for months, and it has some unusual synergies for us with existing businesses, so it is certainly at the high end of any multiple we have ever paid, but it's well worth it, because of the cash it generates, and the growth it has.

Just to be clear, do you own it as of Wednesday or --?

Oh, yes, we closed Wednesday.

We closed Wednesday, and we issued two press releases, it was just so, I mean, so close literally, we paid the cash on Wednesday.

So it is a Roper business effective today, and it will generate, we tend to look at first year EBITDA performance, because trailing multiples and adjusted EBITDA are fraught with a lot of difficulties, particularly when you are working with our friends and private equity.

This is a business that is going to generate over $35 million of EBITDA in 2009, and it is going to grow nicely, and that when you look at the fact that we are picking up a $23 million tax benefit against a $367 million purchase price, well that the occurs over time, it is still going to come at a fairly nice pace, so it fits within our not paying over 10 times next year's number.

We will take our next question from Wendy Caplan with Wachovia.

Please go ahead.

Thank you, good morning.

Good morning.

I guess CBORD is the most important to be asking this morning, and we seem to be a little light on details.

Is there a reason for that?

Well, it closed Wednesday, and we were writing Welcome to Roper letters, and the press release.

What details would you like?

Well, I guess in terms of it sounds from your comments that it's about 100 to $120 million in revenue, is that right?

I think it will do that kind of stuff over the next 12 months.

It's current run rate is around 8 to $10 million.

And the competitive environment, in terms of market position or share?

Oh, it is strong.

When most people think about CBORD, they look at another publicly traded company called Blackboard, ticker symbol BBBB, and Blackboard, you can get some sense about how people feel about the multiples of that enterprise, and what it's worth.

They are in a whole lot of other educational aspects that CBORD is not in.

CBORD is much more focused, so they really would see each other occasionally on campus, but I think we don't know Blackboard well.

I think they have their own unique business model, what the we see with CBORD is an opportunity to invest in the business from a growth perspective, and to look at global markets, and moving out on a variety of the suite of of products they have to offer, and getting access to our engineering capability that exists in radio frequency, and some unique things we are going to do with Inovonics wireless sensor technology, and CBORD's existing marketing plans and capabilities.

We will take our next question from from Alex Blanton, Ingalls & Snyder.

Please go ahead.

Thank you.

By the way, before I start, Brian, I noticed that the operator is cutting people off.

Not allowing them to have a dialogue with you.

Yes, I think, Alex, it is two questions at a time.

Okay.

And then back for the follow-up.

I will say thanks when I am finished.

I looked at the CBORD website last night, and it is very, very interesting that and I recommend that people look at it but on that site, there is a press release, January 10, 2008, about a new computerized campus lock system with CBORD, and the lock itself is [a Schlage] lock, so that gave me the idea that you have known about this Company for quite a long time.

[Schlage is part of Ingersoll's Security Technology unit and you ran that unit] for Ingersoll-Rand for quite a few years, is it the case that you have been talking or thinking about this company, and could you just give us a little background on that and this is very, very well --?

Certainly you wouldn't be wrong about that.

I do believe that the CBORD has some relationships there.

They have relationships with other people.

I do know the company well because of that.

People that I know, and everybody has always spoken highly of CBORD.

I think that this is sort of what we do.

We look at private equity.

We look at things that private equity owns.

We have kind of a wishlist around assets that the we think eventually would become available.

We probe for whether they might be available, in this particular case, I should tell you we had Sagent Advisors work with us, with Hal Ritch, and Bill Brenizer, and Nils Nilsen, and they were close to the private equity people, and were well aware that they were considering doing something.

They had probably a different idea.

It is always these things are so attractive, it would have been an easy IPO, or a wide variety of things they could do, and the private equity people that owned them are very sophisticated folks, and we got a wonderful door-opening opportunity as a result of that, and one thing lead to another, and today we are proud owners of what the we think is a great company.

But I wondered if you had kept in contact with these people before that?

Oh, no, no.

I didn't.

I do know people who did, but no.

I didn't have any prior relationship with CBORD.

And the second question is on fourth quarter orders.

You said a lot about the full year orders, but not the too much about the fourth quarter.

I take it because the comparisons are rather difficult as you mentioned in some cases?

Well, orders aren't bad.

They were up I believe 6% or something.

Their pulled down a little bit, because we can't really adjust for the Redlake thing, but the book-to-bill is really strong, and as long as the book-to-bill is good, with the throughput of the way things go, we are satisfied and so we wanted to talk about the book-to-bill ratio at the enterprise level, so people would get a sense of what was there, because we had an anomaly there in the fourth quarter of '06, and we thought it needed to be exposed.

I think some people saw that and commented on it in the notes this morning, but we are not seeing kind of major fall-off in order flow in the Company.

So frankly, we just went through the planning process.

We just had our strategic plan offsite with the Board in January, and had the different segment leaders making their presentations, and I think people felt strongly about '08, and I think that is reflected in the guidance we established for '08.

Thank you.

You are welcome.

We will take our next question from Matt Summerville with KeyBanc.

Good morning.

Just a couple questions on CBORD.

Brian, how much of CBORD's business would you say is hardware versus subscriptions versus software?

Well, the subscriptions we view and the service related to them are over half the business.

The hardware would be the least portion of the activity.

CBORD acquired Diebold's Access Control business for these kind of applications, and haven't owned it very long, and they are really improving that business at a very fast pace, so maybe a third.

Okay, and then do you have any sort of market breakdown for CBORD, in terms of how much is colleges/universities versus healthcare, versus some of the other markets you highlighted in the press release, and then the same thought domestic versus international sales there?

Very little international sales.

They do have some in those countries that the we mentioned in the separate dedicated CBORD press release, which as you can see I am sure on our website.

But the opportunities internationally when we were discussing this with the Board, several international folks on the Board, we have already started a process, to look at the some dialogue outside the country for these applications, because myself and others are well aware of opportunities that are there.

I think that the college/university piece just is a slag, probably 60% to 67%, with healthcare being kind of 33%.

Okay, great and then just back to Neptune, how much of their business in '08 based on the order flow you are seeing international, would you anticipate being non-U.S?

Was that Neptune you asked?

Yes, based on the order flow you are seeing outside the U.S?

Well what we have, we have strong sales in Canada, we have strong sales into Mexico, and now we have a unique relatively meaningful sale into another continent, that is in it's early phases with significant shipments in Q1, and we will have to see how that buildout goes, and how quickly these people can assimilate the meters, we have got to go in-country and do training, and help the installation get going, so I don't know.

It is not going to be enormous, but it is certainly enough to offset what we might have thought was a little bit more risk in '08, than now we think we have for the business.

And then just one quick question on TransCore, and then I will wrap up.

Outside of the opportunity in Middle East, and I apologize if you already hit on this, but can you talk about what the you are seeing internationally in that business, and what other opportunities you see on the horizon there?

It is a unique business, in terms of it having public interest, and people not allowing us to comment on what we are doing where, but I can tell you because of the extreme visibility of the application that is in place now, and the rate at which it is growing, we have a record level of inquiries in other countries in the region, and in the area, and so we are certainly active with a lot of dialogue.

I do think that it takes months, if not a year or two, to get anything to happen as those things unfold, but I know people are surprised about the speed with which we have executed this, and the effectiveness of what we have done in a very harsh terrain, so it can only help where we are going with things.

Great, thanks a lot, Brian.

We will take our next question from Deane Dray with Goldman Sachs.

Please go ahead.

Thank you, good morning.

Brian I would like to hear some of the additional assumptions baked into your '08 guidance if you could, so if you could take us through internal growth assumptions for 2008, and maybe how you expect the U.S.

versus international split would be, and how about contribution from pricing?

How has pricing looked in '07 and what do you think about 08?

Well, I think if you look at pricing, we showed the chart with the gross margin for the last three years, which has been hovering between 50.0 and 50.4, so we are not seeing difficulty in pricing.

We do certainly some bid work all the time, but pricing pressure hasn't been unduly harsh.

I think that we have kind of said consistently that we think we should grow at 1.5 to 2 times GDP, but if you have a no growth economy, I think we ought to grow in mid-single digits, kind of 6% or more internally, even if there isn't any growth in the economy, we haven't gone through a period like that, to be able to say what that growth will really look like.

I think that you do have certainly all of our businesses that the are focused on Latin America and Asia, are going to continue to do well.

We don't have a lot of exposure in Russia, because of the historical activity there, and we don't have a lot of exposure in India, because the kind of products we have generally are not, the adoption rates there are relatively modest, so if you think about an area, for us it is going to be more South America, Asia, China, as those markets continue to be robust.

And what specifically is the internal growth assumption for '08?

We don't have one.

We are not providing any revenue guidance.

We are worried about our cash flow and our EBITDA, and we'll report on DEPS, because everybody is interested.

We just think it is about cash an cash returns, keep getting that asset thing down, and let's continue to do transactions that are shareholder friendly, and that is what we are going to do.

Sure and second question, related to the pipeline on M&A.

I recall back in November you talked about three potential deals coming down to the wire, sounds like CBORD was one of them.

How about the other two, and what is the pipeline look?

Well, the pipeline is still very good.

We have been dancing around because of CBORD being in our view the most attractive thing that you could do, and needing to get it done, and making sure that we maintain our flexibility, only we have one that because we have done CBORD we are not really interested pursuing any longer, and we have another one that we are continuing to have conversations about, that is interesting.

But the opportunities and the number of phone calls we have had, frankly from the beginning of the year, is pretty solid and we have open dialogues on a lot of different things, but we will be opportunistic, in terms of what we do.

We don't have a budget around what we are going to achieve, I think we spent $474 million in the last 12 months, and we have got a run rate always to be able to do 400 or 500 million more in any 12-month period, and our strategy would be to keep the balance sheet levered in a way that is friendly to shareholders, but keeps us investment grade.

Great, thank you.

We will take our next question from Scott Graham with Bear Stearns.

Please go ahead.

Good morning.

Very nice quarter.

Thank you, Scott.

I just wanted to maybe look at the book-to-bill a little differently if you don't mind, understanding of course that you had a tough comparison, and book-to-bill is not the perfect way to look at you guys.

But when we X out the RF business, because it has obviously got it's own unique dynamics, the rise in orders versus the rise in sales this quarter, there was a pretty big discrepancy there.

Really the rise in almost if you want to call it a sort of a percentage book-to-bill, the rise in orders was only about 60% of the rise in sales, and again, recognizing that you had a tough orders comp in some of the other businesses, I am just wondering if you are not giving organic growth assumption for 2008, maybe shed some light on the book-to-bill, maybe from that perspective, and why you feel comfortable with the guidance that you have given, because it does look like, Brian, that the businesses particularly Scientific and Industrial, that those businesses underlying order trends have pretty noticeably slowed in the last couple of quarters?

Well, I think, Scott, this is John.

I think we have talked a little bit about what is going on inside Scientific and Industrial Imaging, in particular the impact from the touch screen, and the fact that NIH funding is at historically low levels inside the U.S., which does effect kind of on a secondary basis, some of the end market demand for some of the higher end camera applications that we have there.

It is one of those areas inside imaging, where we are not as in control of the end-user demand, as we are across other parts of the enterprise.

And then as you kind of peel the onion back, obviously if you peel it back far enough, you will see some anomaly inside there.

Industrial technology is the other area where because of the occasional projects that will happen inside Neptune, you will also get some anomalies, and we didn't want to try to list out every single one of them on the book-to-bill chart that we provided, but as we look at it, and as we continue to work with the businesses that drive down their cycle times, increase their recurring revenue, we would love to see a situation where their book-to-bill is always at 1, because they're getting the order on Monday and they are shipping the order on Tuesday.

And so we are continuing to move toward that direction, but we do have some projects that will occasionally make that a little lumpy across the different parts of the business.

And I think you are missing the full year versus one quarter, and you are also missing the fact that the we have our Redlake Motion business that we contributed to others, which is not adjusted for in the base, so you are getting on a flat basis that you look, you don't have apples and apples.

I agree.

I agree with that absolutely.

I think that the discrepancy is more than that, however.

Nevertheless, if in fact there is something that the occurs in the first half of this year that maybe reduces the volume, the intake, the pace of orders, Brian, what do you have ready right now, in terms of cost reductions that can make sure that guidance stays put?

You know, Scott, I know you are interested in cost reduction.

We are interested motivation.

We are interested end market growth.

We are interested in Customer Service.

We are not a traditional manufacturing Company.

We are not a machinery Company.

We are not a Company that has heavy assets.

We are a Company that you can see has $30 million of depreciation, and about $30 million of CapEx.

It doesn't match the profile of any of the businesses that you cover, and I suggest if you want to really come down and have a meeting with John and myself we would be glad to do it, but this is a business that is going to be driven by continuous improvement in growth.

We don't have a business that we are going to cut to the bone, because we had a shortfall in inventory management from a distribution arm.

Fair enough.

As I said, Brian, at the top, congratulations on a good quarter.

Thank you.

Thanks.

We will take our next question from Mike Schneider with Robert W.

Baird.

Please go ahead.

Hi, guys.

Maybe we could just visit one quick topic, the freight managing business.

As 2007 closed and 2008 unfolds here, what is the benefit, or I guess the hit now of the freight managing business growing within the mix, versus the tag business?

Because clearly the trucking industry is slow.

As I understand it, that is actually good for the business, so could you give us an update on kind of how the year-end trends finished, and what the benefit or hit will be to margins in growth in 2008 of that growth?

Well, what happens there is kind of two-fold, and a way of framing it correctly, if you think about it subscribers, if people are staying in the job it used to be they would shift out cyclically, and get into homebuilding, and with what's happened in homebuilding, drivers are staying more on line, so you don't have maybe as much attrition as you would normally have, in terms of subscription fees.

We also improved the offering we have, which we charge more for certain types of things that people can get from the 360 program, and so the average subscription fee is not lower than it was before, so that is helpful.

We haven't really seen a major fall-off.

We have been able to sustain I think because of the coverage that we have, the ubiquitous coverage on the Internet for posting loads and reading the data, a point where at the moment we don't have a fall-off.

We are not really seeing a big fall-off.

We did have some growth in the fourth quarter in Canada, so we are not envisioning that being much of a drag on '08 performance.

And then sticking with margins in that segment, as you look back on '07, can you give us a sense with the international project having fully shipped at least on the initial installation, does that mean that the tag mix grows in 2008, again to the benefit of margins?

Well, frankly, it did better in '07 than we expected, because customers adopted the tags at a higher rate I believe than perhaps people thought they would in country, and so we got more follow-on tag orders in '07 than were expected.

I think the margins in '08 will be at the least as good as the margins were in '07, because we will be behind the initial install, which has the lowest margin of anything.

So we are feeling pretty good.

We had a good deal of multiple protocol reader adoption, and that is going to roll into 2008, we believe, so that will help us as well, so I don't see margin deterioration in the segment.

If anything, we would see some expansion of margins, we would hope.

That will end our question and answer session for this call.

We now return back to John Humphrey for any closing remarks.

Okay.

Thank you, Cynthia.

And thank you all for joining us today.

And I know a few of you maybe had some follow-up questions, that we weren't able to get to, and we will work on the process to make sure that we allow a few more of those, sorry about anyone who got cut off.

And I will be available this afternoon, to handle any of the follow-up questions you might have.

Thanks everyone.

And we look forward to talking to you in about another nine weeks.

Ladies and Gentlemen, this will conclude Roper Industries fourth quarter year-end financial results conference call.

We thank you for your participation, and you may disconnect at this time.